Financial crisis

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erk
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Financial crisis

Post by erk » Mon Sep 29, 2008 3:23 pm

Actually I'm a little bit surprised that this subject haven't been discussed yet. I even started to wonder if it's just a media hype, because I haven't spot yet a post on this forum about what's happening in the today's global economy. I must admit that I did a degree in business administration, and even though I work more in IT these days I have been always interested in economy (I always start reading press from the sport and economic sections :) ), so maybe my point of view is a little bit different than yours but:
1) Are you preoccupied in what's happening right now? (Banks, stocks, raw materials, house market, food prices, crude oil - all of them going down at the same time, even though governments all over the world inject more than trillion $)
2) Do you feel the heat, or you are not affected at all - it's just a problems of banks for you?
3) Do you prepare yourself somehow for the uncertain future or am I the only one who cut it's spending already in June 2007, not because I had to, but because I've expected (and I still expect) for worst to come?
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Re: Financial crisis

Post by Techie-Micheal » Mon Sep 29, 2008 3:31 pm

I hadn't really thought about posting about this on here. Been busy with other things, like school.

It is definitely a problem that affects everybody. I'm not really feeling the heat yet as I live a sheltered college student life, but it will definitely affect my student loans ...

The problem as I see it is idiots giving money to idiots that can't afford to pay back the money, meaning they go in to debt, borrow more money from the idiots that gave them the money, and a constant cycle. This why I am so against going in to debt. If you can't afford it, don't buy it.

Now, I'm not talking about homes (with one exception, which I'll explain) or education, because there's really no way around that, but buying things like boats, cars, atv's, and so on.

Now, the problem with homes. Getting a home is one thing, buying one you have no way to pay back (if you get a lavish multi-million dollar home and your job only pays you 40,000 a year ... you do the math) is what gets you the label of idiot. Debt is bad. Idiots running banks and other financial institutions would loan money to people who were not qualified, and then those people defaulted, and there you go.
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Re: Financial crisis

Post by 3Di » Mon Sep 29, 2008 3:32 pm

erk wrote:1) Are you preoccupied in what's happening right now?
Quite I am, being myself a father and also a stepfather.. I have to. 8-)
erk wrote:2) Do you feel the heat, or you are not affected at all - it's just a problems of banks for you?
Thanks God I earn a good amount of moneys every month being into the food business, you know, everyone of us eat something sometime, so I don't really feel the heat, actually. The Banks? hmm.. here we could go toward a political way of discussion that I (because I hate politics) will avoid to be involved into it.
erk wrote:3) Do you prepare yourself somehow for the uncertain future or am I the only one who cut it's spending already in June 2007, not because I had to, but because I've expected (and I still expect) for worst to come?
Cutting expenses it is a wise stuff, not only during the hard times, IMHO. ;)

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Re: Financial crisis

Post by kazmughal » Mon Sep 29, 2008 3:41 pm

Well thats capitalism for you then :roll:

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Re: Financial crisis

Post by 3Di » Mon Sep 29, 2008 3:47 pm

kazmughal wrote:Well thats capitalism for you then :roll:
3Di wrote:..... a political way of discussion that I (because I hate politics) will avoid to be involved into it.

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Re: Financial crisis

Post by Techie-Micheal » Mon Sep 29, 2008 5:32 pm

kazmughal wrote:Well thats capitalism for you then :roll:
That's not the problem. The problem is people who choose to go in to debt and then expect to get people to help them get out of debt, causing the vicious cycle to continue.
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Re: Financial crisis

Post by Kim_Possible » Mon Sep 29, 2008 5:47 pm

erk wrote:1) Are you preoccupied in what's happening right now?
I wouldn't say preoccupied, but I do try to keep up.
erk wrote:2) Do you feel the heat, or you are not affected at all - it's just a problems of banks for you?
I am feeling it, though not quite "heat." I am in the catering business, and business has slowed. It hasn't dried up yet, and I should finish out the year well, but things could get worse. Just recently, however, I was offered the opportunity to buy a chunk of the business I work for. It was a sound investment, one that we could pay off in 5 or 6 years, and we have sufficient income to support such a purchase, but we could not find one single bank who would even discuss an uncollateralized, small business loan for that amount. We even had one loan officer tell us, "If you'd come in a year ago, you'd be walking out with a check, but now I'm not allowed to write any small business loans. Period." We just have to wait this out and/or try to save as much money as we can instead of borrowing. Hopefully the offer will still be on the table when things turn around or we have saved enough cash.

Also, we were hoping to buy a house this summer. I'm not sure where the financing market will be then. If we could get a loan, I'm sure we could get a great deal on a house. There are lots for sale. :(
erk wrote:3) Do you prepare yourself somehow for the uncertain future or am I the only one who cut it's spending already in June 2007, not because I had to, but because I've expected (and I still expect) for worst to come?
No, nothing special. We are already living pretty austere lives trying to save for the business purchase and a home purchase sometime in the near future. We both have pretty hefty student loans that we are paying on, and we are paying on my car (had to have a vehicle big enough to carry all my work-related stuff around), but that is our only debt. We can essentially live on one of our incomes, so I think we'll be okay riding out whatever happens in the near future.

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Re: Financial crisis

Post by Pezzoni » Mon Sep 29, 2008 9:45 pm

Definitely causing problems for me. I've done about six shifts at work this summer (I'm a student so only part time work luckily) - I work at a private hospital, and everyone (companies and individuals) has been cancelling their health insurance to save cash. On the upside, I'm applying for a NHS job, so there should be more people there as they still need treating!

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Re: Financial crisis

Post by erk » Tue Sep 30, 2008 2:18 am

Techie-Micheal wrote:
kazmughal wrote:Well thats capitalism for you then :roll:
That's not the problem. The problem is people who choose to go in to debt and then expect to get people to help them get out of debt, causing the vicious cycle to continue.
As much as I would like all these Wall Street guys to pay for being such a fools, I'm afraid the normal people will be the one to pay either way. It's one of these "doomed if do, doomed if don't" situations. Either we allow them to fall, and suffer these falls, or we save them and pay the price for helping.
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Re: Financial crisis

Post by erk » Tue Sep 30, 2008 2:41 am

Kim_Possible wrote: It was a sound investment, one that we could pay off in 5 or 6 years, and we have sufficient income to support such a purchase, but we could not find one single bank who would even discuss an uncollateralized, small business loan for that amount. We even had one loan officer tell us, "If you'd come in a year ago, you'd be walking out with a check, but now I'm not allowed to write any small business loans. Period." We just have to wait this out and/or try to save as much money as we can instead of borrowing. Hopefully the offer will still be on the table when things turn around or we have saved enough cash.
This is something I'm wondering right now. You see, the last year I payed in advance part of my mortgage with my savings, to limit my exposure to higher interest rates, but now I'm thinking that maybe I did wrong. My monthly mortgage payments are quite low, and I think that assuming that I always have a work I will always be able to pay it. On the other hand with all market going down, in few month this world can be full of cheap opportunities nobody will be able to take advantage of because of cash shortages and problems in getting a loan. So maybe instead of decreasing my mortgage further, I should keep this loan as long as possible and save any free cash on my account waiting for the opportunities. The risk is that:
1) I don't know if my savings will be save anymore on any account. The banks fall, and fall of one bank can be a reason of the fall of another with otherwise sane situation.
2) All this expansive monetary policy can lead to very high inflation, which would lead to a big blow in my savings.
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Re: Financial crisis

Post by Kim_Possible » Tue Sep 30, 2008 3:04 am

1) I don't know if my savings will be save anymore on any account. The banks fall, and fall of one bank can be a reason of the fall of another with otherwise sane situation.
2) All this expansive monetary policy can lead to very high inflation, which would lead to a big blow in my savings.
I don't think those are the kinds of things you can plan for ever. If the FDIC goes bankrupt and no longer insures bank accounts when banks fail, then no reasonable amount of savings will be enough. Same with inflation. If you are sitting on some cash and inflation starts to rise, it should be a wash as long as you are gainfully employed. As prices rise, so will interest rates on your savings accounts. But if inflation runs out of control, no level of successful investing will keep up with that. And there is nothing you can really do about that either.

You have to be wise and careful with your money —get out of debt and keep your life simple, but I wouldn't do anything terribly drastic with your money, trying to prepare for something that you just can't prepare for (i.e. the Federal government going bankrupt and dumping the FDIC).

But as to your initial statement, I wouldn't pay down on a mortgage unless you have a really lousy rate. In any economy you can always do something better with that money. :D In a declining market, the people who are liquid (who have cash on hand) are going to score the best deals and make the most profit.

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Re: Financial crisis

Post by Rm Sppej Es » Tue Sep 30, 2008 7:33 am

It is a fact that if gambling were profitable, all casinos would be bankrupt, and so in my opinion, any nation that encourages such a ridiculous and selfish industry, has only got itself to blame.

That said though, I do of course feel for all those affected, who actually do have brains.

:lol:

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Re: Financial crisis

Post by erk » Tue Sep 30, 2008 12:05 pm

Kim_Possible wrote: You have to be wise and careful with your money —get out of debt and keep your life simple, but I wouldn't do anything terribly drastic with your money, trying to prepare for something that you just can't prepare for (i.e. the Federal government going bankrupt and dumping the FDIC).
I don't think USA will go bankrupt. at least not in the traditional meaning of this word. You have all your debts in your own currency, so the only thing you need to do is what you were doing for the 30-40 years - just print more and more money :) It will devaluate everything on your market (the bad thing for you is that it will affect also your purchase power), but the biggest blow would be as usual for China and other countries which have countless reserves in your currency. The only thing is that it would be your last shot, because nobody from outside the USA would ever buy your debt again.
Rm Sppej Es wrote:It is a fact that if gambling were profitable, all casinos would be bankrupt, and so in my opinion, any nation that encourages such a ridiculous and selfish industry, has only got itself to blame.
The only problem is that it does not affect only the stupid bank managers nor is limited to one nation - it's already global. Take any country from G8 or BRIC - all of them are or will be affected very soon.
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Re: Financial crisis

Post by SamG » Tue Sep 30, 2008 12:35 pm

erk wrote:I don't think USA will go bankrupt. at least not in the traditional meaning of this word. You have all your debts in your own currency, so the only thing you need to do is what you were doing for the 30-40 years - just print more and more money :) It will devaluate everything on your market (the bad thing for you is that it will affect also your purchase power), but the biggest blow would be as usual for China and other countries which have countless reserves in your currency. The only thing is that it would be your last shot, because nobody from outside the USA would ever buy your debt again.
I don't think it's this straightforward. When a nation abandons a standard such as the "gold standard," all you have left is its currency and its collateral. Printing more money because we can isn't good, but printing less money won't increase the credit pool. We probably have more collateral than currency, but it's tough to sell a nation these days.

And outside investment in US debt isn't a simple loan, I don't think. In a global economy, US consumerism matters. Debt funding, I think, is also a bid to gain market share through various mechanisms.

The problem here is that the only solution anybody has put forth so far amounts to nationalizing bad debt and no assets. If the US economy is in the $13 trillion GDP range, we're talking an ugly income-to-bad-debt ratio in the bailout plan alone. So we have to put good faith and credit on the line to fund nationalizing bad debt. Either way, outside investment in US debt gets less attractive from a simple lending point of view, since the US may not be able to pay off its bad debt burden any time soon. The assumptions surrounding the best case scenario of being able to sell off the bad debt are many.
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Re: Financial crisis

Post by erk » Tue Sep 30, 2008 2:30 pm

SamG wrote: I don't think it's this straightforward. When a nation abandons a standard such as the "gold standard," all you have left is its currency and its collateral. Printing more money because we can isn't good, but printing less money won't increase the credit pool. We probably have more collateral than currency, but it's tough to sell a nation these days.
Oh, believe me it's quite simple and straight forward. And actually you already did it multiple times but not on such a big scale. Imagine you have you owe 1,000$ in debts to the foreign investors. You have just 800$ in your pocket. FED prints additional 200$ (you don't even need to print it, you just decrease mandatory reserve ratio at banks and call it e.g. "bank rules adjustment" or "bank management facilitation" ;) ). The economy get the injection of these 200$, you increase taxes to get it in your treasure and then you pay the loan. And that is the end of the story. You have paid your debts, the foreign investors got the blow (even though they have nominal 1000$ back, it's now worth less in real goods) and you just devaluated USD against all other currencies. So as far foreign investors accept being made fools all over again, you don't have any problems. So the real question if the world accept it as if nothing happened or not, and here you are right, that printing more money is a little bit risky for you.
Because if foreign investors don't accept it, then it's the end of the post Breton Woods order. You still will be able to pass this bill on foreign investors, but it will be the last time. Later on they will accept payments only in EUR, JPN, CNY, GBP etc. They can (actually it's the only viable option they have to minimize the blow they would get from you) also try to buy back from US companies real things outside of US for load of USD they still have in their pocket, so it the end it would increase American inflation too.
SamG wrote: And outside investment in US debt isn't a simple loan, I don't think. In a global economy, US consumerism matters. Debt funding, I think, is also a bid to gain market share through various mechanisms.
Well kind of...maybe. It works only because foreign countries, keep crediting this consumerism all the time. But recently many countries have realized that the warm fuzzy feeling, which they have while looking at the USD account with so many zeros, is not what it is all about, and they would like to participate in consumption. That's why they buy stakes in real companies, buy more natural resources etc.
The system can work perfectly well without crediting the USA. You get just what you really (in real goods and services) pay for. Of course the world production would decrease at the beginning, but it would decrease only in this fictitious part in which world is crediting you, so it would be problem mainly for US purchase power, and not for the world (speaking in actual goods: the outside world wouldn't be poorer - it would just have less zeros on the account, you are not paying anyway /paying with devaluated USD). So I must say that on this one you depend more on world than world on you.
SamG wrote: The problem here is that the only solution anybody has put forth so far amounts to nationalizing bad debt and no assets.
It's not that they haven't found the right solution yet. The problem is that in real goods economy the solution does not exist. All so called solutions are just proposals on how distribute the bill for years of living on illusions between banks, current and future taxpayers or foreign investors.
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