Re: Anyone Else At The Panic Point On The Dollar?
 

Bingo. Credit in every facet exploded.

Wait till all those junk bonds go belly up.

$480 TRILLION in credit derivatives are out there. So muhc of it issued in the last two years.

Re: Anyone Else At The Panic Point On The Dollar?
 

Subprime is not the only problem, merely the catalyst for declining home prices (along with oversupply) which is the problem.

Take your average Joe with good credit who either recently bought a home, or took out a loan against his equity to buy a car or something. In 2006 his place was worth $300k, so he took out loans for $295k. Now in the current market he can only sell his place for $270k, a 10% decline which is common in a lot of western markets like CA, AZ, and NV. He has a choice since his house is $25,000 under water. He can eat the loss himself and pay off the full amount of the loan or dump his credit rating and his $25k loss on the bank.

Now most people I think are forced to dump their properties on the bank through a job loss or other unforeseen expense. Some however will realize that their credit rating isn't worth $25,000 and just walk away.

Many don't rationalize it all. They just see that they can buy the house they want for less than it was. So they move in. Now they are faced with the reality of having two mortgages since they can't sell the old place for what they thought it should go for, forcing themselves into foreclosure.

In scenarios like this, the housing market is impacted by a much larger group than just subprime.

Re: Anyone Else At The Panic Point On The Dollar?
 

Maybe one can prove that the problem is going to get worse. You're gonna have to read a lot of the same research and data and do a lot of thinking though.

Re: Anyone Else At The Panic Point On The Dollar?
 

[ QUOTE ]
Take your average Joe with good credit who either recently bought a home, or took out a loan against his equity to buy a car or something. In 2006 his place was worth $300k, so he took out loans for $295k. Now in the current market he can only sell his place for $270k, a 10% decline which is common in a lot of western markets like CA, AZ, and NV. He has a choice since his house is $25,000 under water. He can eat the loss himself and pay off the full amount of the loan or dump his credit rating and his $25k loss on the bank.


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Cal me crazy but why "must" he sell his home? It is only a paper loss at this point, everyday people don't sit down every evening after dinner and say "WOW, I just read the newspaper and it said we lost $30,000 dollars today honey, no more steak and eggs".

Jimbo

Re: Anyone Else At The Panic Point On The Dollar?
 

That's the great thing about real estate. It's huuuuuge leverage but with essentially no margin calls and much more stable beta if that's the right term. Imagine buying a stock with 90% margin - lol. yes it hurts when prices drop, but you don't have to sell.
Peter Lynch said that real estate has never, ever, ever dropped in a year in this country as a whole since it's been tracked. Of course, this was said a few years ago. I think this year may be a first for the country as a whole.

Anyone know if there is an overall US housing price index? and if it's down for the year. (I'm not talking pockets like Boston or Orlando.)

Re: Anyone Else At The Panic Point On The Dollar?
 

Well I think one big difference between housing and equities is the time frame. When housing first starts to decline it will take ages before it goes back up.

Re: Anyone Else At The Panic Point On The Dollar?
 

[ QUOTE ]
Subprime is not the only problem, merely the catalyst for declining home prices (along with oversupply) which is the problem.

Take your average Joe with good credit who either recently bought a home, or took out a loan against his equity to buy a car or something. In 2006 his place was worth $300k, so he took out loans for $295k. Now in the current market he can only sell his place for $270k, a 10% decline which is common in a lot of western markets like CA, AZ, and NV. He has a choice since his house is $25,000 under water. He can eat the loss himself and pay off the full amount of the loan or dump his credit rating and his $25k loss on the bank.

Now most people I think are forced to dump their properties on the bank through a job loss or other unforeseen expense. Some however will realize that their credit rating isn't worth $25,000 and just walk away.

Many don't rationalize it all. They just see that they can buy the house they want for less than it was. So they move in. Now they are faced with the reality of having two mortgages since they can't sell the old place for what they thought it should go for, forcing themselves into foreclosure.

In scenarios like this, the housing market is impacted by a much larger group than just subprime.

[/ QUOTE ]

This is retarded. As long as they pay off the loan, the price of the house is irrelevant for the sake of a foreclosure.

Re: Anyone Else At The Panic Point On The Dollar?
 

[ QUOTE ]
[ QUOTE ]
Take your average Joe with good credit who either recently bought a home, or took out a loan against his equity to buy a car or something. In 2006 his place was worth $300k, so he took out loans for $295k. Now in the current market he can only sell his place for $270k, a 10% decline which is common in a lot of western markets like CA, AZ, and NV. He has a choice since his house is $25,000 under water. He can eat the loss himself and pay off the full amount of the loan or dump his credit rating and his $25k loss on the bank.


[/ QUOTE ]

Cal me crazy but why "must" he sell his home? It is only a paper loss at this point, everyday people don't sit down every evening after dinner and say "WOW, I just read the newspaper and it said we lost $30,000 dollars today honey, no more steak and eggs".

Jimbo

[/ QUOTE ]

And I think people don't think about the fact that he can then turn around a buy the same type of house for $270k. Sure he's out the 25k from before but he can basically move from one town to another without increasing the size of his loan (once you account for buying/selling fees, etc. I think the only people that are in trouble are those that can't afford the loans they have and they were in trouble no matter what.

Re: Anyone Else At The Panic Point On The Dollar?
 

Yea its just house prices falling by 5% and some poor sub prime people defaulting and a few greedy banks having to make some write downs.

OH WAIT:

[ QUOTE ]


Temperature falls to freezing for junk bonds
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 7:18pm GMT 28/11/2007

Companies in Britain and Europe have failed to place a single high-yield bond since the credit crunch kicked off in August, and may now have to wait until next year before the credit market reopens for business.

Société Générale said the monthly volume of junk bond issues peaked at €6.5bn (£4.69bn) in June, falling to zero in August, September, October, and November as investor flight from the market forced up yield spreads to stringent levels.

Far from returning to normal, the credit markets appear to tightening even further into the Christmas season.

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I guess the ramifications of financial institutions packaging and selling on sub prime debt in byzantine and value ambiguous vehicles that were all over valued massively by rating agencies are a bit more far reaching than a slight downturn in the US housing market.

Credit is crunching.

Re: Anyone Else At The Panic Point On The Dollar?
 

I guess my last post was slightly OT, but I think it helped us to see the interrelation of crises that are effecting the global financial system at the moment.

Anyway, a bit of browsing from that link above lead me to this excellent article which talks about the dollar specifically.

bet your bottom dollar.

Teaser paragraphs:

[ QUOTE ]
The dollar isn't any old currency. And it isn't just the currency of the biggest economy on earth. The dollar is the world's "reserve currency" - which means central banks everywhere use it to stockpile wealth. No less than two-thirds of all sovereign foreign exchange holdings are denominated in dollars.

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Last week, the dollar dropped to yet another record low - reaching the verge of $1.50 to the euro. On a trade-weighted basis, the currency has, in four years, lost a third of its value. But the dollar's long dive means countries worldwide, having used the currency to store their reserves, are sitting on massive losses.

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US officialdom feigned concern but, in reality, America laughed up its sleeve. A falling dollar shoved the burden of US adjustment on to the rest of the world.

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In recent months, though, the dollar has headed south with a vengeance - after Wall Street recklessly securitised $900bn of sub-prime loans. And, of course, as US property prices fall and default rates keep rising, this sub-prime crisis gets worse.


Last week, Federal Reserve Chairman Ben Bernanke said $150bn of loans will end up being written off. The Bank of England, in private, says $200bn. The reality, as this column has long maintained, will be at least $300bn.

Whatever the eventual figure, given that "only" $40bn has so far been written off, there is a whole world of pain to come. And, remember, these ghastly securities are largely dollar-denominated - so when foreign investors try to dump them that pushes the currency down even more.

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Over the past seven years, the single currency has risen by a shocking 82 per cent against the greenback. That's hammered eurozone exports - provoking serious trade disputes between the EU and US, the world's two biggest trading blocks. No wonder French President Nicolas Sarkozy describes America's drooping dollar as "a precursor to economic war".

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But America's currency-related tensions with Europe are as nothing compared to the brewing crisis with China, Russia and the oil-rich Gulf states. As is well known, these countries - and emerging markets in general - used to run big trade deficits. Strong exports and expensive oil means they now boast big surpluses. As a result, their foreign exchange reserves have ballooned, with China controlling $1,400bn, Russia $450bn and the Arab world much more than it admits - the vast majority in dollars.

[/ QUOTE ]

Re: Anyone Else At The Panic Point On The Dollar?
 

[ QUOTE ]
If my parents are old enough to take money out of thier retirement annuity, I'm really thinking of asking them to put it all into commodities and foriegn CDs.

I'm flat out scared at this point. Our CPI statistic might as well have been scribbled in cryon by a child and the person in charge of our central bank is f-ucking insane.

[/ QUOTE ]

The doom and gloom in the posts in this thread are amazing.

Re: Anyone Else At The Panic Point On The Dollar?
 

[ QUOTE ]
[ QUOTE ]
That insulting 0.8% CPI in Q3 really woke me up and got me digging on the subject. Eventually people are going to realize it is being systematically understated (some do, hence the last five years).


[/ QUOTE ]

Can you elaborate on this. I agree that the CPI has been understated. What I haven't seen evidence for is the conspiracy-theory aspect. Who has both the motive and the power? Who is putting pressure on whom to understate it? Why has there not been a scandal or even a hint of a whistle-blower?

I know all about the core inflation thing, but that was a long time ago.

[/ QUOTE ]

CPI being understated means the U.S. government pays less in COLA adjustments. Might have been mentioned in another post so apologies if so.

Re: Anyone Else At The Panic Point On The Dollar?
 

[ QUOTE ]
Yes but you can argue that this system is the reason why the American standard of living must decline. All things being equal, there is no reason why an hours work by a person in America should allow him more purchasing power than a similar person doing a similar job in Romania. But of course historically all things haven't been equal.

But that's not the natural state. The more you allow free trade, the more you allow the water to find its own level, the more that everybody will have equal purchasing power. This means Americans losing some, and other countries gaining. In a state of equlibrium, that farmer exporting cheaply will make the same amount as a Chinese farmer.

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One point. That is, capitalism makes things cheaper. The more that gets produced, the lower the price. The dollar may loose value on the world stage, but developing nations will still produce goods attractive for export. Increased competition makes prices lower.

Also, the market may drive the price of some equal quality goods toward equalibrium, but all goods are not equal. American rice, for example, is actually a higher grade than most of the rest of the world. It is more nutritious and better tasting, for example than rice in Japan. My Japanese friends have all commented about this to me at one time or another. An edge in quality is a major reason to buy goods from one producer as opposed to another, even if the better quality costs more. The China-free Christmas movement is witness to this.