How will the subprime crisis ultimately affect our country?

[ThaSaltCracka]

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Virtually all credit is now more expensive

[/ QUOTE ] If this is true, how is this going to affect larger companies that take out loans to keep them afloat? I am thinking major car manufacturers, etc.

[GoodCallYouWin]

I think at this point there's just been so much wealth created and so much capital accumulated it would tough for there to be a real crises in terms of mass unemployment / bankruptcy, failing eternal war, invasion or communism.

[The once and future king]

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further, the biggest impact so far has been localized, in relative terms, to financial markets, that, while still impacting the economy, don't have the same impact a bank run/panic or manufacturing crisis would ahve.

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I dont see how you can say this. The biggest impact has been on credit/risk etc markets. The falls in the equity markets were mostly a knock on from this. The intervention by central banks was all about this and they pumped in billions of dollars to to free up the liquidity jam brought about by the banking system refusing to lend each other any money take on any risk etc.

I dont see how you can say anything that forces up the cost of money is localised? I cant think of anything more system wide than that.


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the recent growing global markets and high employment rates caused by low credit costs here at home will provide some cushion from reduced spending resulting from high credit costs and th subprime mortgage meltdown.


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FYP DUCY?

[ThaSaltCracka]

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I think at this point there's just been so much wealth created and so much capital accumulated

[/ QUOTE ]yeah but how much of this is real wealth and capital? Thats what all this seems like to me, fake money and wealth. Interest rates were low, so people borrowed more money. The fed kept on releasing more money into our economy, but where the [censored] did all this money come from? Out of thin air if you ask me. I mean I can see that they wanted to counteract inflation, but this just seems preposterous if you ask me.

I would like some insight from those more knowledgable about this than me.

[maxtower]

Phoenix is heavily exposed to the housing/subprime problem. A lot of jobs in Phoenix are based on the housing market. Residential real estate makes us a larger part of the local Phoenix economy than any other major metro.

Nationally, this could be less of a problem, but some local markets are going to get crushed. Some places will have price declines greater than 20%.

[Grasshopp3r]

The mortgage and foreclosure issues are not static. Someone will benefit from the turmoil in the market. Perhaps apartment REITs will benefit, as well.

Remember that there are loss reserves that are built into any securitization. They are rated AAA for seniority on the pool's cash flow. The lower rated tranches are rated that way due to their lower priority.

The same credit crunch occurred in 2001 and in 1998 in the MBS market. There are cycles in any market and the MBS market is no different.

The key factor is how much mortgage rates increase? They have increased from about 5.8% to 6.19%, which is meaningless. Check out www.bankrate.com for the rates.

[DcifrThs]

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further, the biggest impact so far has been localized, in relative terms, to financial markets, that, while still impacting the economy, don't have the same impact a bank run/panic or manufacturing crisis would ahve.

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I dont see how you can say this. The biggest impact has been on credit/risk etc markets. The falls in the equity markets were mostly a knock on from this. The intervention by central banks was all about this and they pumped in billions of dollars to to free up the liquidity jam brought about by the banking system refusing to lend each other any money take on any risk etc.

I dont see how you can say anything that forces up the cost of money is localised? I cant think of anything more system wide than that.

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hmmm, you're right. credit markets a big part of the entire system.

oh wait though, maybe i was referring to massive deteriorations cause by historic banking panics/manufacturing issues and only called the most recent siezure of credit markets localized in "relative" terms... i.e., who are the most affected right now? (financial institutions, hedge funds, private equity, corporations that roll commercial paper, mortgage houses etc.)

who were the most impacted in those other massive instances? idnividuals immediately and harshly. that isn't the case right now due to the cushion from employment and still healthy corporate profits.

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the recent growing global markets and high employment rates caused by low credit costs here at home will provide some cushion from reduced spending resulting from high credit costs and th subprime mortgage meltdown.


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FYP DUCY?

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yes i do. remember i'm FOR the fed not bailing out the economy except for a moderate to deep recession.

"malinvestments" should be weeded out and a mild recession wouldn't kill us. i think a short recession here would help long term by 1) reducing CA deficit, 2) bringing savings back into line a bit, 3) prevent badly invested/run/managed companies from surviving longer than they should (by allowing them to profit unnecessarily from borrwoign short/lending long).

actually, i don't even think we need a recession to do this, just substantially lower growth. if it tips below 0, that isn't the end of the world.

but for now, high employment and consumer sentiment founded on that employment and income growth will provide a cushion like i mentioned.

lowering interest rates like greenspan did i think would be a mistake in this case and push off the time we have to have at least a mild recession to bring things back into line.

that being said, i dont' think bernanke would purposefully gear the economy towards recession so he may be slightly accomodative, but not obviously so (i.e. 1 25bp cut should do it for this year i hope).

Barron

[ThaSaltCracka]

After reading some of the posts here, you guys seem to indicate this isn't a big issue. Does that sound right?

It also seems you guys are focusing on one facet of this.

[The once and future king]

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After reading some of the posts here, you guys seem to indicate this isn't a big issue. Does that sound right?

It also seems you guys are focusing on one facet of this.

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I think it is a very big deal. However sub prime is only the first domino falling over, it then hit the increased credit cost domino and when that falls over it will hit many dominoes and it is then that the man in the street will be more obviously impacted.

I was trying to point out to Dcf that the very thing that caused sub prime in the first place is the very thing that created the "strong" economy that is supposed to help with its soft landing e.g. easy cheap money. How long is the economy going to remain "strong" without the life support of soft money.

In Britain we have record personal debt which is about 164% of income and is greater than GDP at over 1 trillion sterling+. Therefore increasing the cost of money is obviously going to hurt alot of people, its just not going to happen over night. I dont think it will be to long before we see the fall out however.

[adios]

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[ QUOTE ]
After reading some of the posts here, you guys seem to indicate this isn't a big issue. Does that sound right?

It also seems you guys are focusing on one facet of this.

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I think it is a very big deal. However sub prime is only the first domino falling over, it then hit the increased credit cost domino and when that falls over it will hit many dominoes and it is then that the man in the street will be more obviously impacted.

I was trying to point out to Dcf that the very thing that caused sub prime in the first place is the very thing that created the "strong" economy that is supposed to help with its soft landing e.g. easy cheap money. How long is the economy going to remain "strong" without the life support of soft money.

In Britain we have record personal debt which is about 164% of income and is greater than GDP at over 1 trillion sterling+. Therefore increasing the cost of money is obviously going to hurt alot of people, its just not going to happen over night. I dont think it will be to long before we see the fall out however.

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That's basically it. The other thing about residential real estate is that people's net worth has been enhanced by increasing equity in their homes. This has been used to counter the arguments regarding the lack of savings. I think Copernicus had it right though, the overprice real estate is confined to not too many places. However, a lot of people live in these few places and thus the amount of money lent their is a lot. I actually think CDOs will start happening again but we'll see a lot more over collateralization, a lot fewer tranches, with more high quality bonds being issued.