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Originally posted by jerZ07002 that post was too similar to a trancer post. take it back. If someone has a history of not paying the debt why would the bank (debt service company in many cases) trust that they are going to pay in the future. In many cases it's safer to foreclose and sell for a certain lose. At least they can guarantee they will receive something in return. Remember, the longer they wait the less valuable the return becomes. Plus, these companies sometimes have to worry about what it says on their books. Holding a whole bunch of mortgages with that aren't certain to be collected means they could have a whole lot of assets with little value. On the other hand, they could immediately (relatively speaking) free up capital by selling by foreclosure. If it was more beneficial for the banks to do a workout, the bank would. They are in the business of making money, not incurring expenses.

I honestly think a world central bank is on the way. It's inevitable; globalization. Eventually the world's central banks will unite. I mean, look at what just happened this week. The Federal Reserve, along with 5 other central banks in Europe, all lowered their interest rates at the same time, in a coordinated move to stem a global depression.

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Originally posted by Krypton I honestly think a world central bank is on the way. It's inevitable; globalization. Eventually the world's central banks will unite. I mean, look at what just happened this week. The Federal Reserve, along with 5 other central banks in Europe, all lowered their interest rates at the same time, in a coordinated move to stem a global depression.

collusion and combination are entirely different. i simply don't see it happening because a worldwide central bank couldn't have as a misson to coordinate the stable supply of every currency on earth. To add to that, a central bank plays a much more important role of clearing domestic transactions. That's something a worldwide bank couldn't do because of the sheer scale of worldwide transactions. However, I see absolutely nothing wrong with nations meeting to discuss a worldwide policy on financial stability. It just won't morph into any centralized worldwide institution.

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Originally posted by jerZ07002 collusion and combination are entirely different. i simply don't see it happening because a worldwide central bank couldn't have as a misson to coordinate the stable supply of every currency on earth. To add to that, a central bank plays a much more important role of clearing domestic transactions. That's something a worldwide bank couldn't do because of the sheer scale of worldwide transactions. However, I see absolutely nothing wrong with nations meeting to discuss a worldwide policy on financial stability. It just won't morph into any centralized worldwide institution.

Well, this bank could create its own currency, and demand it for commerce.

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Originally posted by Krypton Well, this bank could create its own currency, and demand it for commerce.

that's a bit of a stretch, don't you think? That would require every country to cede it's power to control its financial future and also its economy. Neither china nor the US would ever join such an institution. China wouldn't be able to purposefully deflate the value of its currency to promote exports. the US wouldn't do it because monetary policy has been a driver for our own economy and will continue to be such long after this situation has been resolved.

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Originally posted by jerZ07002 that's a bit of a stretch, don't you think? That would require every country to cede it's power to control its financial future and also its economy. Neither china nor the US would ever join such an institution. China wouldn't be able to purposefully deflate the value of its currency to promote exports. the US wouldn't do it because monetary policy has been a driver for our own economy and will continue to be such long after this situation has been resolved.

You'de be surprised at what people are willing to give up in exchange for security...in this case...economic security.

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Originally posted by Krypton You'de be surprised at what people are willing to give up in exchange for security...in this case...economic security.

i don't see how it would result in economic security. i would like to hear your thoughts on that.

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Originally posted by jerZ07002 i don't see how it would result in economic security. i would like to hear your thoughts on that.

I don't know...

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Originally posted by pkcRAISTLIN but why australia in particular? we keep getting told that our banks are in awesome shape.

Australia is somewhat of a weird case where it has a very sophisticated first world banking sector, which makes it subject to the very same complex securities which are killing everyone else, and it's a key commodities exporter ... in this market those factors don't favor too well.

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so much for not being so doom and gloom. You can't expect lower central bank targets to have an immediate effect when the sentiment is so low. It will take some time. The fed probably hasn't taken any actions to meet that target anyway. In normal times a statement would have an immediate effect regardless that the fed didn't buy/sell treasuries in the market to hit the target. With so much negativity around, people are hesitant to make the first move. hey, tough times are only tough if you're unemployed. For everyone else it can actually be a pretty good time to make money. If you don't own a house, you can get a house for a good price. If you're not currently invested in the stock market, pretty soon will be a good time because equities are trading at the lowest P/E in a long time. I was actually thinking about tossing a my savings account in the market, but i'd like to see some uptick first.

I am not so doom and gloom whereby I think that countries are going to impose capital controls which would distort global finance and operations. I am so doom and gloom whereby I accept the fact the we will probably see negative/marginal growth with unemployment around 10-20%.

Have you been following what's going on in the markets? The regulators and the Fed have been panicking in response to what's going on.

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U.S. weighs backing bank debt, deposits: reports Fri Oct 10, 2008 2:37am EDT SYDNEY (Reuters) - The U.S. government is weighing guaranteeing billions of dollars in bank debt and temporarily insuring al U.S. bank deposits, in a bid to unfreeze bank lending and staunch massive losses in equity markets, The Wall Street Journal reported on Friday. The New York Times reported that U.S. and British officials were converging on a similar blueprint to stem financial chaos involving injections of government money into banks in return for ownership stakes and guarantees of repayment for various types of loans. On Wednesday, Britain said it would inject 50 billion pounds ($87 billion) of emergency capital into banks left reeling by the global financial crisis and extend 250 billion pounds in guarantees to help them refinance senior debt. The British concept to expand its proposal to other countries has a lot of support from Wall Street and is being pored over by U.S. officials, the papers said. The WSJ quoted White House spokesman Tony Fratto as saying that the U.S. "is reviewing the idea and discussing it with our British counterparts." The NYT quoted David H. McCormick, the under secretary of the Treasury for international affairs, saying: "As this thing has spread, the opportunities for cooperation have risen. We need to promote and highlight these common areas." This was an about face for Treasury Secretary Hank Paulson who had argued against taking direct stakes in banks. Treasury officials, however, said the emphasis changed in the last week, largely because stock markets kept spiraling lower, the NYT reported. The S&P 500 shed 7.6 percent on Thursday, while Japan's Nikkei lost over 11 percent at one stage on Friday as markets across Asia sank. The White House could not be immediately reached for comment by Reuters. (Reporting by Wayne Cole; Editing by Neil Fullick)

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Asian Money Rates Rise as Central Banks Fail to Unlock Credit By Nate Hosoda and Candice Zachariahs Enlarge Image/Details Oct. 10 (Bloomberg) -- Asian money-market rates climbed as injections of more than $32 billion by Japan and Australia and a round of global interest-rate cuts failed to unlock credit. The three-month interbank offered rate in Tokyo, known as Tibor, was fixed at 0.878 percent, the highest since March 1998. The difference between the rate Australian banks charge each other for three-month loans and the overnight indexed swap rate gained to 108 basis points in Sydney, from 89 yesterday. ``You just don't know whether the person you're lending to is going to be the guy that has the weak balance sheet and is going to fall over,'' said Sally Auld, interest-rate strategist at JP Morgan Securities Australia Ltd. in Sydney. ``What markets are telling you is that it doesn't matter what central banks and governments do.'' The Bank of Japan added 3 trillion yen ($30.3 billion) to the banking system and the Reserve Bank of Australia pumped in A$2.63 billion ($1.8 billion) after the cost of borrowing in dollars for three months in London soared to the highest level this year. Hong Kong's three-month interbank offered rate climbed 1 basis point to 4.41 percent, the highest since Oct. 31 last year. Singapore's three-month dollar loan rate increased for a fourth day, rising 23 basis points to 4.74 percent, according to the 11 a.m. fixing by the Association of Banks in Singapore. The cost is at the highest this year. Loan Growth The BOJ has pumped more than 25 trillion yen into the system over the past three weeks, the most in at least six years, after lending growth at Japanese banks slowed in September for the first time in nine months as companies cut earnings forecasts. Loans, excluding those by credit associations, rose 1.8 percent in September from a year earlier, after increasing 2 percent in August, the Bank of Japan said today. Japan's overnight call rate climbed as much as 18 basis points, or 0.18 percentage point, to 0.72 percent, before falling back to 0.5 percent following a second injection of cash, according to brokerage Tokyo Tanshi Co. The Reserve Bank of Australia added cash through so-called repurchase agreements after estimating money markets would have a deficit of A$1.84 billion in funds today. Australian banks reduced deposits held at the central bank by A$1.37 billion to A$8.36 billion yesterday, after those holdings reached a record A$11.04 billion on Sept. 30, the RBA said today on its Web site. To contact the reporter on this story: Nate Hosoda in Tokyo at [email protected]

You're really going to start diverting from your savings account into the market? By all means, let me know how that works out for you ... especially with the money markets being as they are. Personally ... I don't think we will see an equity market recovery until we see a money market recovery.

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Originally posted by occrider Australia is somewhat of a weird case where it has a very sophisticated first world banking sector, which makes it subject to the very same complex securities which are killing everyone else, and it's a key commodities exporter ... in this market those factors don't favor too well.

The Australian banks didnt dive into the securitisation markets as much as the foreign banks operating - as a result they lost massive market share over the last 5 or so years because they werent able to compete with the cheap money flooding the market.

They were rather prudish in their lending (more so in housing - rather than other forms of lending) and have thus seen only marginal increases in foreclosures. Since the crisis begun, the big 4 local banks have cleaned up the market share in home lending (pushing 90% i believe - up from 60% odd) - and still have money left over for acquisitions of foreign bank subsidiaries (The Commonwealth Bank of Australia buying out HBOS's non-junk local subsidiary called BankWest for 80% of its book value). So far they've done exceptionally well.

Australia's problem comes from personal/non-housing debt and will eventually become a problem once unemployment starts increasing (which it will - it's just gone from 4.1% to 4.3% this week... plenty of room there for more).

As such, the local employment market hangs on the assumption that China will continue to chew our resources. This has shielded the economy thus far, but commodity prices have plummeted (along with our dollar) recently - with talk coming out of China that they're expecting those prices to drop another 20% by next year. If this talk catches on, and China closes their ports in anticipation of price drops,then Australia is in for a bumpy ride - real bumpy.

My tip: the large spreads seen in the money markets are temporary. The market is over-pricing risk (funny that, considering that we got into this mess because risk was under-priced) and it will eventually claw its way back to equilibrium. What happens before then is another question, but spreads like those being experienced dont usually last too long. This will happen before China stops buying $billions of our dirt.
My wishful (and i emphasis that it's wishful) tip is that the bottom of the market is in early November - I'll be throwing some quid into the stock market then and will be laughing when the markets settle. Fingers crossed

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A witty saying proves nothing.
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Originally posted by Dupz My tip: the large spreads seen in the money markets are temporary. The market is over-pricing risk (funny that, considering that we got into this mess because risk was under-priced) and it will eventually claw its way back to equilibrium. What happens before then is another question, but spreads like those being experienced dont usually last too long. This will happen before China stops buying $billions of our dirt. My wishful (and i emphasis that it's wishful) tip is that the bottom of the market is in early November - I'll be throwing some quid into the stock market then and will be laughing when the markets settle. Fingers crossed

I think we're heading for a severe protracted recession if not a global depression. I think we're going to see the breakdown of capitalism as we know it as more and more governments will take steps to nationalize banks. Fundamental economic theory simply does not apply in the markets anymore. I think this theory summarizes my stance as to how fucked we are and what needs to be done best (bold part is why I'm as scared as I am):

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The world is at severe risk of a global systemic financial meltdown and a severe global depression Nouriel Roubini | Oct 9, 2008 The US and advanced economies’ financial system is now headed towards a near-term systemic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof. There is now the beginning of a generalized run on the banking system of these economies; a collapse of the shadow banking system, i.e. those non-banks (broker dealers, non-bank mortgage lenders, SIV and conduits, hedge funds, money market funds, private equity firms) that, like banks, borrow short and liquid, are highly leveraged and lend and invest long and illiquid and are thus at risk of a run on their short-term liabilities; and now a roll-off of the short term liabilities of the corporate sectors that may lead to widespread bankruptcies of solvent but illiquid financial and non-financial firms. On the real economic side all the advanced economies representing 55% of global GDP (US, Eurozone, UK, other smaller European countries, Canada, Japan, Australia, New Zealand, Japan) entered a recession even before the massive financial shocks that started in the late summer made the liquidity and credit crunch even more virulent and will thus cause an even more severe recession than the one that started in the spring. So we have a severe recession, a severe financial crisis and a severe banking crisis in advanced economies. There was no decoupling among advanced economies and there is no decoupling but rather recoupling of the emerging market economies with the severe crisis of the advanced economies. By the third quarter of this year global economic growth will be in negative territory signaling a global recession. The recoupling of emerging markets was initially limited to stock markets that fell even more than those of advanced economies as foreign investors pulled out of these markets; but then it spread to credit markets and money markets and currency markets bringing to the surface the vulnerabilities of many financial systems and corporate sectors that had experienced credit booms and that had borrowed short and in foreign currencies. Countries with large current account deficit and/or large fiscal deficits and with large short term foreign currency liabilities and borrowings have been the most fragile. But even the better performing ones – like the BRICs club of Brazil, Russia, India and China – are now at risk of a hard landing. Trade and financial and currency and confidence channels are now leading to a massive slowdown of growth in emerging markets with many of them now at risk not only of a recession but also of a severe financial crisis. The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity were excessive leveraging and bubbles were not limited to housing in the US but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression. At this point the recession train has left the station; the financial and banking crisis train has left the station. The delusion that the US and advanced economies contraction would be short and shallow – a V-shaped six month recession – has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the US and close to two years in most of the rest of the world. And given the rising risk of a global systemic financial meltdown the probability that the outcome could become a decade long L-shaped recession – like the one experienced by Japan after the bursting of its real estate and equity bubble – cannot be ruled out. And in a world where there is a glut and excess capacity of goods while aggregate demand is falling soon enough we will start to worry about deflation, debt deflation, liquidity traps and what monetary policy makers should do to fight deflation when policy rates get dangerously close to zero. At this point the risk of an imminent stock market crash – like the one-day collapse of 20% plus in US stock prices in 1987 – cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown. This disconnect between more and more aggressive policy actions and easings and greater and greater strains in financial market is scary. When Bear Stearns’ creditors were bailed out to the tune of $30 bn in March the rally in equity, money and credit markets lasted eight weeks; when in July the US Treasury announced legislation to bail out the mortgage giants Fannie and Freddie the rally lasted four weeks; when the actual $200 billion rescue of these firms was undertaken and their $6 trillion liabilities taken over by the US government the rally lasted one day and by the next day the panic has moved to Lehman’s collapse; when AIG was bailed out to the tune of $85 billion the market did not even rally for a day and instead fell 5%. Next when the $700 billion US rescue package was passed by the US Senate and House markets fell another 7% in two days as there was no confidence in this flawed plan and the authorities. Next as authorities in the US and abroad took even more radical policy actions between October 6th and October 9th (payment of interest on reserves, doubling of the liquidity support of banks, extension of credit to the seized corporate sector, guarantees of bank deposits, plans to recapitalize banks, coordinated monetary policy easing, etc.) the stock markets and the credit markets and the money markets fell further and further and at an accelerated rates day after day all week including another 7% fall in U.S. equities today. When in markets that are clearly way oversold even the most radical policy actions don’t provide rallies or relief to market participants you know that you are one step away from a market crack and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls, cascading falls in asset prices well below falling fundamentals and panic is now underway. At this point severe damage is done and one cannot rule out a systemic collapse and a global depression. It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging market economies to avoid this economic and financial disaster. Urgent and immediate necessary actions that need to be done globally (with some variants across countries depending on the severity of the problem and the overall resources available to the sovereigns) include: - another rapid round of policy rate cuts of the order of at least 150 basis points on average globally; - a temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made; - a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures; - massive and unlimited provision of liquidity to solvent financial institutions; - public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses; - a massive direct government fiscal stimulus packages that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government; - a rapid resolution of the banking problems via triage, public recapitalization of financial institutions and reduction of the debt burden of distressed households and borrowers; - an agreement between lender and creditor countries running current account surpluses and borrowing and debtor countries running current account deficits to maintain an orderly financing of deficits and a recycling of the surpluses of creditors to avoid a disorderly adjustment of such imbalances. At this point anything short of these radical and coordinated actions may lead to a market crash, a global systemic financial meltdown and to a global depression. At this stage central banks that are usually supposed to be the "lenders of last resort" need to become the "lenders of first and only resort" as, under conditions of panic and total loss of confidence, no one in the private sector is lending to anyone else since counterparty risk is extreme. And fiscal authorities that usually are spenders and insurers of last resort need to temporarily become the spenders and insurers of first resort. The fiscal costs of these actions will be large but the economic and fiscal costs of inaction would be of a much larger and severe magnitude. Thus, the time to act is now as all the policy officials of the world are meeting this weekend in Washington at the IMF and World Bank annual meetings. Thursday midnite update: A few hours after I had written this note the market crash that I warned about is underway in Asia: the Nikkei index in Japan is down 11% and all other Asian markets are sharply down. This reinforces the urgency of credible and rapid policy actions by the G7 financial officials who are meeting in a few hours in Washington and the need to also involve in such global policy coordination the systemically important emergent market economies.

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Originally posted by occrider Have you been following what's going on in the markets? The regulators and the Fed have been panicking in response to what's going on.

bloomberg is the top of my favorite list on internet explorer. when i'm not writing a memo or creating a spreadsheet i'm reading bloomy. i don't get too caught up in panic. Humans are emotional creatures and tend to overreact. That doesn't mean i think this crisis is an overreaction, however, i take alot that is said with a grain of salt.

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Originally posted by occrider You're really going to start diverting from your savings account into the market? By all means, let me know how that works out for you ... especially with the money markets being as they are. Personally ... I don't think we will see an equity market recovery until we see a money market recovery.

I think people are overreacting (sure the situation is bad, although i'm not sure it warrants this huge sell off). The only thing i'm really worried about prior to throwing money into the market is whether equities were artificially high in the first place because of leveraged purchases from hedge funds. That's why i'm waiting for an uptick. Honestly, i wouldn't be surprised if next week equities had a nice little run. After people have time to cool off during the weekend and evaluate what really happened, i think traders will be bargain shopping. who knows though, my trade is law not finance (although i majored in finance as an undergrad).

Last edited by jerZ07002 on Oct-10-2008 at 15:13