Topic: Civil War 2 / World War 3 / Nuclear Fallout / Zombie Apocalypse soon to follow?

[Quemaqua]

I'm voting for zombies.  Hope none of you had any investments to watch slowly (quickly?) die.

[Pugnate]

Let's just say that my savings took a massive hit.

Also, could we burn the US bankers at the stake please?

[Quemaqua]

Absolutely.  Those people should be hung.

[Pugnate]

The line of credits in North America were like a business to them, which the banks were very irresponsible with.

In much of Asia, you can not get a big loan unless you present some collateral. These same Asian countries have been the least affected, because banks have asset guarantees on their loans.

The US banks became extremely greedy, and the whole credit/interest system was out of control.

http://money.cnn.com/2008/10/10/news/economy/g7_statement/index.htm

[Cobra951]

It wasn't just greed.  It's the politically correct nightmare that permeates everything in this fucking country, now including who gets loans too.  (Guess who defaulted on their loans the most.)

As if I didn't already have enough financial woes, now my mom has taken a big hit too.  I suppose it's the perfect time to be sitting on rock bottom.  From here, nowhere to go but up.

[Ghandi]

It wouldn't be so bad if someone at least knew what to do about it, but everyone is clueless.

I watched the house inquiry into the former AIG CEO's and it was painful to watch. These guys got paid hundreds of millions to do a shitty job.

[gpw11]

It wasn't just greed.  It's the politically correct nightmare that permeates everything in this fucking country, now including who gets loans too.  (Guess who defaulted on their loans the most.)

As if I didn't already have enough financial woes, now my mom has taken a big hit too.  I suppose it's the perfect time to be sitting on rock bottom.  From here, nowhere to go but up.

That's what sucks - those that don't necessarily have an income pretty much get hit the hardest. I don't know how I feel about this in general.  On one hand, it obviously fucking sucks, on the other I've always been taught it was an inevitability and only a matter of time (or at least that's how I interpreted what I had been taught).  I was personally hoping on, and kind of counting on having a few more years before I had to start worrying about some of the things that this brings up.

It leaves me in kind of a fucked up position.  I've somewhat protected myself in that I stopped dealing with stocks at all a few years ago.  I never really looked at it as an investment, but a gamble, and in my view was too young to have to resort to higher-risk investments (stocks in general are higher risk in my opinion) in order to plan for the future.  GICs and GIC-based RRSPs are my tools - protected initial investment.  I'll play with money when I have more of it and if I'm going to gamble, I'll do it in a more fun way.

That said, it's not like it doesn't affect me.  I'm currently on a grind to save money, with the initial plan to be go through ten months of saving in order to either not work during my last year of school or pay for a masters.  This somewhat relied upon steady salary growth -  I switched companies a year or so ago and took I cut with the reasoning that it would pay off.  It pretty much has, but opportunity cost....I lost about a year of higher salary and without surpassing the previous by a fair margin, it doesn't add up....especially since I only plan on working in this position for a year or two more tops.

As you may or may not know, I work in high level custom  residential home construction.  I work directly for a contractor, partially handling certain aspects of business and partially as a person who directly addresses the issues of the buyer, as opposed to the carpenters, etc. who basically have a more defined scope of work and responsibility.  In short, I either build stuff or try to solve shitshows (partially in secret...which is the fun part.  People in the industry have weird work egos and it would be a bit of an issue that I passed by a lot of people without actually going through the traditional process).  The business is purely building sick houses for millionaires and billionaires in the very, very wealthy area of the city in which I grew up. A lot of these houses end up in home magazines and shit.  I think a lot of people I work with are a little overly confident about how secure their job is right now.  Construction in general is hit hard by recession (possibly only after the hospitality industry in how hard), and just because you're in residential construction targeting the extremely wealthy doesn't mean you're not affected. Rich or not, you generally finance large projects. Some of the worlds richest people only fund projects, personal or otherwise, on credit because it adds an extra level of protection and they can easily afford the interest among other things.  Can't get the credit, or can't get it with the terms you need and you hold off for five years because it's not worth tying your own money up in.  That has a major effect.  Beyond that, contractors and developers rely on high amounts of short-term credit...which is exactly what is being scaled down right now.  There's also the obvious fact that more unemployed means more people gunning for your job...probably for less.

That said, I think I'm secure. I offer more than most do, and I'm more flexible in both position and pay than people who would be competing with me for the most part.   What I AM however worried about is a bit of a wage freeze. All they need to do is justify why they can't pay me more a year down the road, and you can't really argue with that. Generally, I'm fine with that, I make decent money - especially since I'm going to school full time, but it kind of fucks with my plans.  Especially since if this gets bad, a lot of the companies I've interviewed with recently to start at next year might not even exist, let alone still have scope to retain the position I was interviewing for.  So basically, I have to go in next week and pretty much think up a bullshit excuse (tuition probably) as to why I need a fairly decent sized pay increase as a personal insurance policy, and then I need to start saving as much as I can (I try to do roughly 60% right now), just in case the shit really does hit the fan.  The shitty thing is I have to do this next week, and although I don't believe anyone else I work with is on the same train of thought (probably the opposite actually), it's kind of risky considering these guys MAY have just lost a shitload of money.   I need a non-condescending way to remind them that they're not going to get the same thing for the same money should I walk out the door (my boss is a sassy bitch.  Everything has to be non-condescending as he does NOT like being challenged), which I have to decide over the next couple of days if it'd be worth doing.

As for the actual problem, it's too easy to point the fingers at the gov't and the banks.  A lot of it is what Cobra said, but both were just giving people what they wanted.  Either you admit that you need the government to hold your hand and regulate industry so that they can't offer things which ultimately may be bad for you, even under full disclosure, or you admit some aspect of personal accountability...and I haven't seen people doing much of the latter lately.  Wanted too much, willing to do anything to get it without thinking of the consequences. Just because you get offered 35% over the purchase price on your house doesn't mean you need to take it, and just because you have it doesn't mean you need to blow it.  Beyond that, don't fucking RELY on variables like they're absolutes.  I guess it's just millions of people doing what they think is the best for themselves, and people will do that if you let them so stricter regulation is necessary, but people need to at least have the dignity and self-respect to admit that they know they also fucked up rather than just pretend like they don't have any accountability.  That just starts to make me think Big Brother might be a necessity in the future.  A lot of this collapsing house of cards was pretty much an inevitable (bad commercial credit insurance..blah blah blah) caused by the stars lining up right, but in a cyclical economy something or another is going to have to give out eventually.  There's no two ways around that.

[Pugnate]

http://en.wikipedia.org/wiki/Islamic_banking

Principles

Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Shariah, known as Fiqh al-Muamalat (Islamic rules on transactions). The basic principle of Islamic banking is the sharing of profit and loss and the prohibition of riba (usury). Amongst the common Islamic concepts used in Islamic banking are profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijarah).

In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. However, the fact that it is profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabaha. Another approach is EIjara wa EIqtina, which is similar to real-estate leasing. Islamic banks handle loans for vehicles in a similar way (selling the vehicle at a higher-than-market price to the debtor and then retaining ownership of the vehicle until the loan is paid).

An innovative approach applied by some banks for home loans are called Musyaraka al-Mutanaqisa that allows for a floating rate in the form of rental. The bank and borrower forms a partnership entity, both providing capital at an agreed percentage to purchase the property. The partnership entity then rent out the property to the borrower and charges rent. The bank and the borrower will then share the proceed from this rent based on the current equity share of the partnership. At the same time, the borrower in the partnership entity also buys the bank's share on the property at agreed installments until the full equity is transferred to the borrower and the partnership is ended. If default occurs, both the bank and the borrower receives the proceeds from an auction based on the current equity. This method allows for floating rates according to current market rate such as the BLR (base lending rate), especially in a dual-banking system like in Malaysia.

There are several other approaches used in business deals. Islamic banks lend their money to companies by issuing floating rate interest loans. The floating rate of interest is pegged to the company's individual rate of return. Thus the bank's profit on the loan is equal to a certain percentage of the company's profits. Once the principal amount of the loan is repaid, the profit-sharing arrangement is concluded. This practice is called Musharaka. Further, Mudaraba is venture capital funding of an entrepreneur who provides labor while financing is provided by the bank so that both profit and risk are shared. Such participatory arrangements between capital and labor reflect the Islamic view that the borrower must not bear all the risk/cost of a failure, resulting in a balanced distribution of income and not allowing lender to monopolize the economy.

And finally, Islamic banking is restricted to Islamically acceptable deals, which exclude those involving alcohol, pork, gambling, etc. Thus ethical investing is the only acceptable form of investment, and moral purchasing is encouraged. In theory, Islamic banking is an example of full-reserve banking, with banks achieving a 100% reserve ratio.[2] However, in practice, this is not the case, and no examples of 100 per cent reserve banking are observed [3]

Islamic banks have grown recently in the Muslim world but are a very small share of the global banking system. Micro-lending institutions founded by Muslims, notably Grameen Bank, use conventional lending practices and are popular in some Muslim nations, especially Bangladesh, but some do not consider them true Islamic banking. However, Muhammad Yunus, the founder of Grameen Bank and microfinance banking, and other supporters of microfinance, argue that the lack of collateral and lack of excessive interest in micro-lending is consistent with the Islamic prohibition of usury (riba).[11][12]

I am not saying I agree with this concept, but just pointing it out for your interest -- pun not intended.

[Cobra951]

But it's not like we need a new model for banking.  Our works fine, when corruption and political aims (and ineptitude) are out of the picture.  Everything needs strict oversight, though.  What we're seeing now is the result of years of no real oversight or accountability, helped along by the only significant government intervention--politically correct, financially incorrect loan policies.

I have to add a pet peeve to this, which is the outsourcing and exporting of American jobs above fast food and below stockholders and CEOs.  Who the fuck is left to pay for all those mortgages?  Creative accounting worked in the short run.  In the long run, it made it all the worse.  When you endlessly erode the base you stand on, sooner or later it has to collapse, swallowing you whole.

[Quemaqua]

It's incredibly idiotic, not to mention short-sighted.  And, like everything else, exacerbated by a thousand other elements, many of those suffering from the same politically correct but contextually worthless ideals that permeate this whole stinking continent.

[gpw11]

But it's not like we need a new model for banking.  Our works fine, when corruption and political aims (and ineptitude) are out of the picture.  Everything needs strict oversight, though.  What we're seeing now is the result of years of no real oversight or accountability, helped along by the only significant government intervention--politically correct, financially incorrect loan policies.

I have to add a pet peeve to this, which is the outsourcing and exporting of American jobs above fast food and below stockholders and CEOs.  Who the fuck is left to pay for all those mortgages?  Creative accounting worked in the short run.  In the long run, it made it all the worse.  When you endlessly erode the base you stand on, sooner or later it has to collapse, swallowing you whole.

NO NO NO.

Just joking.  I know we've argued about this before, so I should probably say from the start that I don't disagree with you at all.  I think the thing is that America as a whole has to make a decision on this, and realize the risks of both options.  The population is big enough to be fully self-sufficient in an isolationist-protectionist economic policy without any MAJOR repercussions.  The downside is that traditional American industry is going to lose whatever shred of international competitiveness they are still trying to hang onto.  The sad thing is that these are the people who are already most effected by jobs shipping overseas.  They're pretty much going to lose either way you go.  America doesn't have anything close to the competitive advantage that it did 50, 30, or even 20 years ago and nations aren't going to make the exceptions they used to simply because they no longer have to and it's not in their best interest to do so.

That doesn't say anything about economic stability though.  Cycles are basically the only known constant in economic theory over the last few hundreds of years in the market systems, and while they theoretically can be contained, most Americans undoubtedly feel uncomfortable with the methods.  The ideal option is probably some form of middle ground.

The banking system is fucked in that the loopholes which exist basically are there because people want them to be there.  I'll agree that there needs to be stricter regulations simply because people don't know what's good for them, and it's not the banks job to keep the customer's best interest in mind (although usually they do line up).  A lot of people would probably be pissed, but I think this sadly does show that someone needs to hold their hand.  You don't take out a mortgage worth more than a 100% of the value of the house upon purchase.  That should be common sense, but apparently it's not so hopefully now you won't be allowed to.  You don't take out a mortgage with anything less than a 10% down payment.  Same. At no point should any portion of your down payment be paid in credit.  Same.

One of the very major problems that occurred here really doesn't have anything to do with incompetence anywhere, it's just one of those things.  The algorithms used across the  board to asses risk on mortgage loans always assumes that the value of the collateral (house) should increase.  This isn't really wrong, as theoretically, over a long-run average, the value of property should always increase.  The shitty thing is that it operates on wave-theory in that even though the long run value is increasing, the short run may decrease for periods.  This has generally been accounted for in the past, and probably was here as well, but people took it to a whole new level,  banks were stretched too thin, debt insurance was too consolidated, and the whole house came crashing down.

Everyone wants to own a car and a house, but if you can't afford it you can't afford it.

[Ghandi]

I invested 10 grand in the stock market about a year ago. I invested long term (10+ years) so up until a month and half ago or so I was down a grand and a half or so, but I wasn't worried. Now I am.

Granted, I'm young, and I can afford to lose it. But I earned that money. I can't imagine what older people are going through with retirement.

[Pugnate]

There definitely needs to be some sort of regulation. Yes, the people who took all the loans need to take responsibility, but it was the bankers who made a lot of bad calls, and bad choices purely out of greed. Obviously that was part of their job description, to make money, but the system was too lax.

Far too many Americans were living above their means. Being addicted to a credit card, is a bit like having the same problem as a gambler.

I don't understand how so many of the warning bells were ignored. I can only put it down to some sort of corruption.

The American automotive industry was collapsing for years. In terms of fuel economy, the American vehicles were generations behind their Asian counterparts. Yet this problem wasn't really felt until the oil prices went insanely high, and by that time it was too late.

The health care system has been terrible for the past ten years, and absolutely corrupt. Health insurance companies spend insane amounts of money in trying to find loopholes that would help them deny those paying customers that deserve to be treated. These customers are nothing but numbers to the health insurance companies, who would rather risk pay out on a lawsuit, if it would mean paying less for the health care.

And while the health care system in America was at a crisis level, these company CEOs were getting richer by the year. What was worse was that these companies were financing the popular presidential election candidates. How the hell do you allow that to happen?

Absolute power always results in corruption. Competition and free markets are a fine thing, but I believe there should be limitations when it comes to public services. When private companies are handling health care, electricity etc., they don't have the consumer interest at heart. Imagine if the police force and fire department were privatized; how would they be competing for your dollar?

I have a lot of uncles in the US, and one of them was telling me that he pays as much for health care in a month, as he would have in Canada in a year.

And on top of the health care, education, and automotive issues, you had the housing market.  The borrowing and lending practices were extremely risky and I just find it baffling that the warning signs there were ignored.

It's the politically correct nightmare that permeates everything in this fucking country, now including who gets loans too.  (Guess who defaulted on their loans the most.

I don't know much about this. Please elaborate.

[Cobra951]

Pug, I've known about all that for many years.  If I knew it, so did many others.  Knowing something and having the power to fix it are 2 different things.  Talking about it and getting angry about it did no good at all.  That may be the clearest indication that we are doomed as a country.  Knowing about corruption and exposing it result in no action anymore.  When the government itself is in bed with the crooks, now who do you turn to?

Edit: 

It's the politically correct nightmare that permeates everything in this fucking country, now including who gets loans too.  (Guess who defaulted on their loans the most.

That means that common sense, financial sense and fairness are set aside, and decisions are made based on people's color and ethnicity.  So the inevitable consequences appear to support the negative stereotypes that such policies attempt to combat.

[WindAndConfusion]

It's the politically correct nightmare that permeates everything in this fucking country, now including who gets loans too.  (Guess who defaulted on their loans the most.

Edit:  That means that common sense, financial sense and fairness are set aside, and decisions are made based on people's color and ethnicity.  So the inevitable consequences appear to support the negative stereotypes that such policies attempt to combat.

Just to make sure I'm getting this right, you're blaming the mortgage crisis on political correctness?

What about the CDO fallout? What about lenders issuing BB (very high risk) credit and then re-selling them as AAA (very low risk) bonds? What about the housing bubble that resulted in people owing more money on their mortgages than their houses are now worth?

[WindAndConfusion]

Incidentally, I have three links that are highly relevant to the current situation:

tulip bulbs
champagne bottles
the real Great Depression

[Cobra951]

The politically correct, financially incorrect loans forced on banks by liberal policy are only one factor of several which got us in this mess.  Here is an editorial on the subject.  Feel free to chase the particulars down from this starting point.  By itself, it clearly isn't authority (since it's opinion).  But it summarizes the points nicely, making it a decent launchpad for further research, if you're interested.

[WindAndConfusion]

Okay. I read that article all the way through, and the author argues that the federal government caused the mortgage crisis by changing regulations so that lenders were compelled to write questionable loans.* The problem with this argument is that the lenders wanted to write these crappy loans, because they knew they could re-sell them as CDOs and pass the risk on to someone else. The lenders made money not by collecting interest on their loans (as is usual), but by selling those loans as low-risk securities.

What about stated income loans (AKA "liar loans")? Balloon loans? NINJA loans? Did the Fed force lenders to come up with these things? Did the Fed force lenders to run those stupid commercials?

*The author also implies that the government is solely responsible for the crisis, suggests that the solution is less government oversight, and quotes Ronald Reagan as Gospel truth.

[Pugnate]

I just read this:

States warned about impending mortgage crisis
Bush administration, financial industry thwarted efforts to curb greed

http://www.msnbc.msn.com/id/27121535/