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what's the fuss about subprime crisis?

Securities are supposed to be somewhat secure. When a significant slice of the securities market turns out to be shaky, the vibrations wobble the entire system.

It appears that the US economy "printed" a trillion USD with rapidly inflating home prices and creative mortgages. It turned out to be this century's version of a Ponzi scheme of escalating value that was supposed to be underwritten by future escalating value until everyone realizes that it cannot work.

Here is a simple way to look at it....

Houses doubled in value in CA, AZ, NV, WA, and OR between 1995 and

2005. Did the wage earners wages double? No. How do you expect them to pay for the houses? Answer: they really cannot after the first few years of their exotic mortgages fade away and they have to pay for the inflated cost of the house and for the money they borrowed. The entire industry, homebuilders, bankers, etc essentially printed a trillion dollars based on the belief that people will always find a way to pay their mortgage. They convinced everyone that since the housing stock in Detroit and Buffalo was actually losing value the market must be doing its job. But upon a little inspection you will see that the "loss" in Buffalo was perhaps one-fiftieth of the "gain" in Phoenix or Las Vegas or Seattle.

When a trillion dollars of US securities simply goes away it does shake the worldwide faith in the financial system.

The idea that houses will always go up and up and up in value is sheer nonsense. The people who live in those houses have to be paid enough to make the mortgage payment. Right?

Two people gain their CEO positions. One supresses wages and the other inflates the cost of a house. Does this seemable workable in the long term? The other CEO of the mortgage provider sharpens his or her pencil and creates creative mortgages. Eventually they all three butt heads and the unfortunate result is the realization that a person or persons earning 80K can afford a 200K house because that is 2.5 times their annual earnings. They cannot afford a 400K house in a hot area because of smoke and mirrors.

Reply to
RickyBobby
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I am absolutely agreeing with her. It happens fairly often.

-- Doug

Reply to
Douglas Johnson

If Hillary Clinton becomes president, taxpayers may be making some of the mortgage payments of delinquent sub-prime borrowers. Her blog

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says she would "Establish a $1 billion fund to assist state programs that help at- risk borrowers avoid foreclosure. Hillary will establish a $1 billion fund to support state programs that help at-risk borrowers avoid foreclosure. Some state programs help borrowers make the single payment necessary to become current on their loans others help borrowers renegotiate their loan terms, or simply provide financial counseling. These foreclosure mitigation efforts are more important than ever right now. Federal assistance for state programs that assist at-risk borrowers supplements Hillary's call earlier in the year for "foreclosure timeout."

A foreclosure timeout breaks the mortgage contract and encourages people to be deadbeats. This is a sure-fire way to scare away real estate lenders and raise mortgage interest rates for everyone.

Reply to
Beliavsky

blog

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she would>

Hmm. 1 billion = 1000 million. Sounds like alot. However, 1 billion ain't squat. That's 3.33 per person living in the US. But it's still too much. Here's why:

If I opted for an ARM, I saved money, no? If I didn't, I paid too much, no? If I paid too much already, certainly I don't need to pay any more, correct? If I took out an ARM and I get a bial-out, I will pay back the difference, no? Certainly, I can expect payback when Fred sells his home?

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Reply to
Foobar

And the "experts" say market timing is folly.

I, too, will be anxiously waiting ... itchy-trigger-finger and all that -- hovering over the "BUY!" button. The real question, and I wish I had the proverbial CrystalBall(tm) is: "How low will it go -- and when to buy back in!"

I've been 88% cash and treasuries since last November. I was expecting things to go all squirrelly quickly after the elections. I was 'bout 8 months early.

Now I'm waiting on the sidelines trying to guess when it will all bottom out.

.
Reply to
Sgt.Sausage

Innumeracy: a lot of folks are literate enough to read about it, but not numerate enough to understand the numbers -- and yeah. It's a big problem.

.
Reply to
Sgt.Sausage

"Sgt.Sausage" wrote

A lot of folks would indeed call changes in fundamentals that argue for a stock being a good buy "timing," but I think this is an abuse of the more usual meaning of the word. You're calling Ben Graham's approach "timing" after all. He pillories the concept in his books.

Which is another reason why I hesitate to call my approach timing: I am not trying to guess at a bottom. I am looking for certain company fundamentals hitting certain threshholds (sp.? for the Post-O cops). If it goes lower oh well. I am waiting, the way people waited when they bought in late fall

1987. Not that there's still much with promise out there at this point.
Reply to
Elle

This is why the "experts" say that market timing is folly. Despite recent pressure, the market is still at least 400 points above where it was back in November (on the Dow - depending on where you got out). Of course, it could still go lower...

-Will

Reply to
Will Trice

Well, November was low/1361 high /1408 on the S&P so I if assume the average, you were out at 1384. Today we are at 1446, or 4.5% higher. No major damage, you got nearly 3.5% in cash during that time. The real question is this: how will you know when to get back in? A couple more wild upside days and you may have sat out 5% or 6%. I guess the term expert is relative, because while I don't claim to be one, I do believe timing is folly, if only because you need to be right twice, both on the sell and subsequent buy. Now, the Elaine Garzarellis may call a crash, once, and then go on to underperform the market for the rest of their careers. If she's an expect, count me out. I'll stick with the index funds, no in and out, and outperform 80-90% of my fellow investors if only because they never seem to learn their lesson.

JOE

Reply to
joetaxpayer

The above was just a month ago, 8/17. Today we closed at 1519.77, up

9.8% from the November average cited above. Those who sold at the top 1555.9 on July 16th, were spared the two month drop of 2.3%, but so what? When will they get back in? JOE
Reply to
joetaxpayer

To be fair -- you're correct. I'm still on the sidelines and haven't bought back in yet.

The great "everything's on sale, buy now" opportunity has yet to show itself.

That is, indeed the question of the day, is it not?

.
Reply to
Sgt.Sausage

I suspect it's come and gone.

Elizabeth Richardson

Reply to
Elizabeth Richardson

But it will come yet again!

Anoop

Reply to
anoop

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