Yo Jeff4i and other Finance gurus

[zaphod]

Yo, Jeff

If I remember correctly you are a Finance Major at U of NM. What is your take on the Wall Street buyout proposal and the House rejecting it. Long and short term effects.

Am hearing drying up of credit opportunities, businesses unable to get operating loans leading to lay-offs and production decreases. Short term cash flow issues for otherwise solvent businesses. Small businesses especially at risk.

Are you seeing these positions as the sky is falling or a given?
Should the market correction be allowed to proceed a is or should it be guided through Federal intervention?

Deregulation or increased Regulation. ie I there a better why to distribute the money?

My take is the wealth gap will expand. Opportunities for individuals and businesses with good liquidity ratios will stand to make unheard of profits in this environment at the expense of those burdened with debt that becomes evermore unserviceable. An example would be the JP Morgan buyout of Washington Mutual. Or the buyer of a foreclosed home at bargain levels.

The terms of the package Congress sends to be signed will determine the nature of the redistribution of monies and opportunities to a chosen few or to a wider group. Redistribution will occur. But to whom and at the expense of whom? Or do we remain unregulated?

 

[loftgolf]

My take on this whole mess is the following: I think the bail-out is a terrible idea. We are basically rewarding the greedy bank and investment bank CEOs for their sloppy business practices! Well, I don't know how sloppy it was for them as we, the taxpayers, are funding their multi-million dollar severance packages.

As a businessman I am appalled that the government would purchase $700 billion in questionable loans for $700 billion. Any prudent businessperson would give 10 cents on the dollar for these notes. A responsible government should pay maybe 50 cents on the dollar, tops! We bailing out these banks as full dollar will teach them nothing. if you made a business move that cost your company millions, then the government paid off your debt in full, why would you change your business practices?

OK, I'm gonna stop now as I could go on forever. One final note, though. I am opposed to the government bail-out but also realize we have no other option at this point and if we don't bail them out we'll all be selling pencils on the street!

 

[FATC1TY]

My take is the wealth gap will expand. Opportunities for individuals and businesses with good liquidity ratios will stand to make unheard of profits in this environment at the expense of those burdened with debt that becomes evermore unserviceable. An example would be the JP Morgan buyout of Washington Mutual. Or the buyer of a foreclosed home at bargain levels.

I agree with this. This is where those who risk, and those who play smart, win. This is capitalism at the best.. I wouldn't see anyone complaining about getting a $350,000 home for $250,000.. If they intend to live in it and years pass, they could easily have $100,000 in equity from the start.

Of course, I'm one who thinks everyone needs to be fiscally conservative.. If a buisness is drowned by large overhead, poor planning, bad services, buy-outs, labor unions, ect.. and can't keep up with the others across the street, then I don't think anyone needs to help those who can't help themselves.

Losing jobs sucks, I'll admit I wish there was a way for this to not occur.

I feel for those who will feel the burden tighten.. However, I don't feel for those who got into the housing market on craptastic loans, for homes they can't afford.. Banks and those buying homes should know better. I can't afford a $850,000 home, so I don't even attempt to squeeze that lemon... the bank shouldn't allow those without enough sense to do so...

For instance, say I couldn't afford to buy a home. Say I make only $40,000 a year. A simple $150,000 home for example.. I need money down, keep my credit clean, get a good rate, ect.. So I wait, and rent, and save.. Meanwhile the couple across the street who has terrible credit, 3 new cars, and no money saved. They make $50,000 between the two of them... They eye ball the $350,000 home on the corner. Bank gives them a shoddy loan, they sign it, agree, and can barely afford to pay the interest of the damn thing.

Throw them out. I'm sorry, but for the guy who is responsible for his money and his credit, I don't think his tax money should be used to pay for those who can't understand things correctly.

Harsh, I know, but in times like these people need to have money in their pockets, not in the gov'ts pockets to redistribute.. There honestly shouldn't be a sliding scale of "wealth"... We don't need assistance in blurring the middle of the road so everyone is equal. Economics and life don't work when all things are equal.

 

[SCGolfer]

It is fairly obvious that after all of this we will have to regulate the lending industry because people get all wide-eyed and think they can own the world. This all boils down to just being responsible, blame the lenders for being greedy or whoever for coming up with some stupid loan. The bottom line is Jim Bob making $25,000 at the corner store signed the papers on a $250,000 house he could not afford. He has two new cars sitting in the yard, a boat and whatever else he thought he could have.

I have no problems with ARM's or anything else that can help someone own a home just be a responsible person and be wise with your money. I bought my first home with an 80/20 ARM. I had three years to refinance and I did. I now have an affordable 30 year mortgage. I also bought a house that was foreclosed, in very good shape and is worth twice what I paid for it. The economy is going in the can because everyone is greedy and want things they can't have.


Jason

 

[Rockford35]

Finance guru? Isn't that an oxymoron these days?

I'm beginning to doubt anyone that has a Phd in Economics, I really am. You can have all the knowledge you want of markets, but in the bigger picture, you're at the mercy like all the rest of us.

It's like getting a degree from the back of a matchbook.

R35

 

[ClairefromClare]

I believe it was Peter Lynch (original manager of the Magellan Fund) who said that if you spent 15 minutes listening to economists, you've wasted 10 of them.

We'll muddle through. We always do. Every decade or so, we get the big financial meltdown of all time. And we get through it. The velocity of this stuff has accelerated tremendously, but not much else has changed since the Dutch economy collapsed over tuliip bulbs almost three centuries ago.

 

[FATC1TY]

Claire- I agree. Everytime they talk about it, it's always worst than before.

The elections will come and go, and we'll get over this and the dust will settle.

It really comes down to people being responsible for thier own spending habits, and whats right and wrong to try and do.

I don't want to pay some sorry asses mortagage, because he overspent and was dumb enough to try and get a lender to play his game.

Same thing for the short-sellers and speculators in the markets. Throw them on the streets with the retards who got houses 1000x's what they make in a century.

 

[RickinMA]

I'll try to be brief - not claiming to be a finance guru, but I'm a CPA and I've seen good companies struggle in the credit markets (even some of the companies backed by large private equity firms which is insane to me) - there's no question debt financing is a less realistic option right now.
From my view of the world, companies are (understandably) concerned about liquidity so they're very selective about what they invest in (machinery, plant improvements, computers, etc) and acquisitions have really slowed down. - this is not how the economy grows

I believe the root cause of this problem is the education system. We teach our high school kids chemistry, physics, calculus, english, spanish, french, german, art, crafts, music, and phys ed but they never learn how to: Balance a checkbook, simply READ a contract, or understand time value of money.

How many of these kids are really going to use calculus after high school? All of them should understand basic household finance.

People go out and make their 2 largest purchases (house and car) and don't even bother to read the contracts they're signing because they don't understand it. Like idiots, they just assume the salesman/mortgage pimp/realtor has their best interest in mind.

Not sure about you, but when I bought a house, I probably had to sign 5 different forms that all said "We are agents of the seller, this may not be the best deal for you" or "we are agents of the lender, this may not be the best deal for you" or "I'm the attorney representing the bank at closing, you are on your own" or "I ___________ understand this loan has a rate that will adjust to market rates in ___ years. At that time, my payment could increase....."

It's difficult to have sympathy for people that didn't like the houses in their price range, so they let the Realtor upsell them into looking at something bigger/nicer but more expensive. The Realtor or mortgage pimp tells buyer they can probably get approved for $XXXX per month. Buyer says "OK, not more than $XXXX/month" and the mortgage pimp puts them into an ARM getting the monthly payment just under that for the first year. Buyer signs all the documents, including the 5 disclosure statements I mentioned above WITHOUT EVEN READING the 35 words printed on each page. 15 months later, they can't afford the house anymore and suddenly it's Wall Street's fault?

Fannie and Freddie were set up by the government to create liquidity in the mortgage market and to help lower income families own a home. - I really don't want to get into politics, but being from MA, my own rep (Barney Frank D-MA) faught for decreased regulation of Fannie and Freddie to help increase "affordable housing."

So, lots of crappy loans were made - loans that wouldn't have passed the sniff test if you were lending out your own money, but, since this secondary market was in place to take it off your hands, the mortgage pimps did whatever they could to get you to close deals.

No one wants to tell the American people "you can't afford that - you'll have to wait and save your pennies" - everyone thinks they're entitled. There's a lot of people out there who aren't fit to own homes, but saying that won't get you elected.

I think the market would have worked just fine if the gov't hadn't messed with it. We might not have had the bubble of the past however many years, but we wouldn't be in this mess.

The problem before us now, is that no one knows what the hell they're talking about. Joe Sixpack hears "Bailout" and doesn't want the "Wall St fatcats" taking his money (even though he knows a half dozen people who are in over their heads and defaulting on the loans backing these investment securities) so he calls his idiot Rep or Senator and tells them he doesn't support the bill- if they had just called it a "homeowner rescue" package it would be over and done with by now and we could have spared yesterday's 778pt stock market decline.

Lastly, we would never expect the house in Vegas to say "you can't bet on black, you have to bet on red, or don't bet" - to me, this is the same as telling investors they can't short-sell. If they put their money up, I think we should all sit back and watch what happens.

sorry for the long post - this has been irritating to watch on the news the past few days because at the end of the day, those responsible (homeowners, mortgage pimps, and the gov't) will not be held accountable because either their pockets aren't deep enough to make it worthwhile or in the case of the gov't, it's not their money, they don't care enough.

 

[David Hillman]

It is fairly obvious that after all of this we will have to regulate the lending industry...

Only if we bail them out.

Let the companies who were asleep while the rest of the country fretted about the housing bubble suffer the consequences. This is really the only way out, from a long-term perspective. Yes, it will be painful, but the alternative is worse. Not only will we have to spend billions on regulation, but we will encourage the total and complete disregard for risk that got us here.

I still can't get over the fact that these allegedly smart people were so incredibly stupid for such a long period of time. There was an interview recently in a Chicago paper with a floor trader at the exchange here, and he said what I've been thinking for months now. 'There is not a single trader on this floor who would've put himself in the position these suits put their entire companies in.'

Leveraging capital at 30:1 ratios? Somewhere else I read, 'It did not require a perfect storm to ruin these companies... any storm would do.'

If we have to bail anyone out, though, here's the plan I want to see;

* Congress sets aside, say, $300B in a fund. That should be enough given the conditions, if not, we can add to it. This is only 1/3rd of what Obama wants to give away in his Global Poverty Act, so we can easily afford this.

* Any company that needs to be bailed must bring it's executive committee to an open hearing, with the following; letters of resignation from each member, their passports, proof in whatever form they like that they have been doing their due diligence for the past five years and that their RMOs weren't out golfing the whole time, a $50M filing fee, a list of all their political donations for the past 10 years, signed agreements to participate fully in the subsequent share-holder lawsuits and any criminal proceeding, and a sincere-sounding letter of apology to the country.

* As several other people have pointed out, we bail it out, we own it, until we sell it. Don't like it, find another government to bail you out.

Feel free to forward this to your Congresscritter.

 

[Eracer]

What is the role of government? To protect it's citizenry from threats both internal and external. Rampant, unregulated speculation, be it in the oil market or the housing market, is a threat to the stability of our economy. We've seen this coming for a decade, and turned a blind eye to it. Why? Because those who make the laws profited by it.

To provide for the common good. Yeah, right...

To make laws and policies that protect the integrity of the state. A vital and stable economy is the bedrock of any solid society. Our elected officials are failing us. We have an economy that is at record deficit levels, has the most inequitable distribution of wealth in its history, and whose populace carries more debt than at any time in history.

The ass will always chase the carrot. Those driving the cart better realize that the ass needs some rest.

 

[sandwedge]

I believe the root cause of this problem is the education system. We teach our high school kids chemistry, physics, calculus, english, spanish, french, german, art, crafts, music, and phys ed but they never learn how to: Balance a checkbook, simply READ a contract, or understand time value of money.

How many of these kids are really going to use calculus after high school? All of them should understand basic household finance.

I agree with this 100%. I have been saying for years that one of the basic math classes in school should be doing things like balancing a checkbook, making a budget, understanding mortgages and interest, and investing in a retirement fund.

 

[cwo2lt]

I believe the root cause of this problem is the education system. We teach our high school kids chemistry, physics, calculus, english, spanish, french, german, art, crafts, music, and phys ed but they never learn how to: Balance a checkbook, simply READ a contract, or understand time value of money.

Agreed. I would also add this is from your perspective as a CPA however your root cause applies to other industries as well. If you talk to someone in the arts/chemical and other industries they will say something similar i.e. kids do not get the education they need to be a _______.

I'm in ship repair, for example. We do not have enough HS grads with a vocational background/education to maintain our traditional blue colar industries. A good machinist is worth his weight in gold, same with a good welder or electrician.

 

[loftgolf]

I'm in ship repair, for example. We do not have enough HS grads with a vocational background/education to maintain our traditional blue collar industries. A good machinist is worth his weight in gold, same with a good welder or electrician.

I can't agree more. I formally owned a retail boat dealership in CT and paid some of my top techs almost as much as my Controller with an MBA! In the not-too-distant-future the blue collar employees will be worth more than the highly educated ones, due to supply and demand. Every parent wants to his their kid go to college so the blue collar people will be few and far between.

 

[cwo2lt]

Another question regarding this mess. This was brought about by bad sub prime loans. What happened to PMI? I don't believe I've heard anyone speak of PMI and their liability.

Shouldn't PMI be covering a lot of these loans?

 

[cwo2lt]

I can't agree more. I formally owned a retail boat dealership in CT and paid some of my top techs almost as much as my Controller with an MBA! In the not-too-distant-future the blue collar employees will be worth more than the highly educated ones, due to supply and demand. Every parent wants to his their kid go to college so the blue collar people will be few and far between.

What I'm seeing now is an influx of workers, legal and otherwise, from foreign countries. I'm not talking about Mexico either, although they are a significant portion, I'm talking about former Soviet block nations.