help understanding the market $$$$

[swazworth]

ok i'm not dumb when it comes to the market, but i'm not Warren Buffet either. i just have some questions about today. and since we have 2000+ people in here then maybe someone could explain things to me.

ok the fed is going to lend $200B to banks, and take mortgage securities as collateral for 28 days. (then later they came out, and said that, they might be willing to do this again) so what happens if the banks can't pay the fed bank it the 28 day period. does the fed take control of the mortgage securities or are the bank going to be smart this time about who they lend money to; meaning low risk people, so they are sure to pay the fed back? which in return means that people like myself who pay back the money they owe have to pay a higher interest rate, to cover the banks pervious losses?
which would cause me not to borrow the money in the first place.

thanks for the help.

[GTAHVIT]

I'm no expert and don't have a lot to add but I think what needs to be considered is this money is to help the sub-prime market. Which really doesn't play into those of us who pay our bills... In short, The Government just bailed out the banks who made bad loans to people who can't keep their commitments, and the rest of us get nothing for doing it right. So, I guess we said the same thing... Sort of.

[swazworth]

Originally Posted by gtahvit

I'm no expert and don't have a lot to add but I think what needs to be considered is this money is to help the sub-prime market. Which really doesn't play into those of us who pay our bills... In short, The Government just bailed out the banks who made bad loans to people who can't keep their commitments, and the rest of us get nothing for doing it right. So, I guess we said the same thing... Sort of.

did they? or is the fed just trying to take it all if the banks can't pay it back? i guess that is the real question, what happens if the banks can't pay it back? i can't see the fed being happy with loosing $200B. i can just foresee a massive drop in the dollar if that happens. (not that the dollar can get much worse) but if that happens.... wow

[09'Z28]

Originally Posted by swazworth

did they? or is the fed just trying to take it all if the banks can't pay it back? i guess that is the real question, what happens if the banks can't pay it back? i can't see the fed being happy with loosing $200B. i can just foresee a massive drop in the dollar if that happens. (not that the dollar can get much worse) but if that happens.... wow

hey the dollar isn't as low as a peso

[DGthe3]

Originally Posted by swazworth

ok i'm not dumb when it comes to the market, but i'm not Warren Buffet either. i just have some questions about today. and since we have 2000+ people in here then maybe someone could explain things to me.

ok the fed is going to lend $200B to banks, and take mortgage securities as collateral for 28 days. (then later they came out, and said that, they might be willing to do this again) so what happens if the banks can't pay the fed bank it the 28 day period. does the fed take control of the mortgage securities or are the bank going to be smart this time about who they lend money to; meaning low risk people, so they are sure to pay the fed back? which in return means that people like myself who pay back the money they owe have to pay a higher interest rate, to cover the banks pervious losses?
which would cause me not to borrow the money in the first place.

thanks for the help.

As I understand it the money is to act as seed money and to increase the attractiveness of taking out a loan. The banks, knowing that it is high risk to loan out to some people now will be more selective in who they give money to. But the idea is that if nothing was given to the banks, nothing would be taken from the banks, which is bad for the economy. By giving $200B, it is expected that the shift it will cause in the demand will cause the banks to loan out more than $200B. So then, the banks will be able to pay back the fed, and make a little money too, and consumers can go out and spread money around. Thats the idea (I think), and it should work.

the whole problem was caused by having a strong housing economy where the banks could still make money even if people couldn't pay their mortgage. Basically they were beating the curve, the mess happened when the curve caught up and everyone started to go into damage control -less loaning from the banks and less spending from consumers. Massive infusions of money from the government are the only way to break the cycle, always has been and always will be.

[GTAHVIT]

Originally Posted by DGthe3

As I understand it the money is to act as seed money and to increase the attractiveness of taking out a loan. The banks, knowing that it is high risk to loan out to some people now will be more selective in who they give money to. But the idea is that if nothing was given to the banks, nothing would be taken from the banks, which is bad for the economy. By giving $200B, it is expected that the shift it will cause in the demand will cause the banks to loan out more than $200B. So then, the banks will be able to pay back the fed, and make a little money too, and consumers can go out and spread money around. Thats the idea (I think), and it should work.

the whole problem was caused by having a strong housing economy where the banks could still make money even if people couldn't pay their mortgage. Basically they were beating the curve, the mess happened when the curve caught up and everyone started to go into damage control -less loaning from the banks and less spending from consumers. Massive infusions of money from the government are the only way to break the cycle, always has been and always will be.

The 200B is to offset the losses in the subprime market (high risk loans) So I think the only dissagreement I have with you is that it was the defaults on the sub prime mortgages that caused the lending market to head south and not necessarily the fall of house prices. The value of a home has no impact on a sub prime borrower to pay back his loan. Now the bank did get hammered on both ends when subprime borrowers defaulted and the banks were left with greatly depreciated houses. It seems to me that now that house prices have dropped the banks are scrambling to get back in the game to start the process all over again. More loans because houses are cheaper, house prices go up, banks get more funds from overseas investors, too much money not enough people to borrow it, sub prime risk becomes more and more acceptable..... and so on. I'm not sure how I feel about all this...

[Roflmao]

I agree with what DG said, if what he is saying is the government is trying to do a little bit of damage control (I think thats what he is saying?). The housing market slump is sort of similar to the Great Depression in the idea that the carelessness of buyers and sellers caught up to the market itself, although it's not nearly a perfect storm scenario that the Great Depression was. From the few classes of economics I have taken, this is a natural flow of the market process. By the government giving money to the banks it aids them in damage control, which aids the entire market in damage control because the flow of money goes through the banks, and the more money they recieve backing from the government, the more they feel safe with lending and stimulating the economy with. Thats why the FDIC and all that wonderful stuff is in place.

[GTAHVIT]

Originally Posted by Roflmao

I agree with what DG said, if what he is saying is the government is trying to do a little bit of damage control (I think thats what he is saying?). The housing market slump is sort of similar to the Great Depression in the idea that the carelessness of buyers and sellers caught up to the market itself, although it's not nearly a perfect storm scenario that the Great Depression was. From the few classes of economics I have taken, this is a natural flow of the market process. By the government giving money to the banks it aids them in damage control, which aids the entire market in damage control because the flow of money goes through the banks, and the more money they recieve backing from the government, the more they feel safe with lending and stimulating the economy with. Thats why the FDIC and all that wonderful stuff is in place.

I agree with you and DGthe3,

I just feel it's important to note that when banks feel safe they make riskier loans (sub prime) and we do this all over again. My contention is the lending market would be much more stable, and reliable, if the Gov didn't bail out the banks every time they have to pay for taking on risky borrowers. If the banks were held accountable, the same way the rest of us are when we default on a loan, then the lending market would stabilize.

Somewhat related: Notice how they aren't bailing out the borrowers, they're bailing out the banks. But the media spin is they are taking care of us by injecting the 200B... I don't think they should bail out either but what do I know.

[swazworth]

Originally Posted by gtahvit

I agree with you and DGthe3,

I just feel it's important to note that when banks feel safe they make riskier loans (sub prime) and we do this all over again. My contention is the lending market would be much more stable, and reliable, if the Gov didn't bail out the banks every time they have to pay for taking on risky borrowers. If the banks were held accountable, the same way the rest of us are when we default on a loan, then the lending market would stabilize.

Somewhat related: Notice how they aren't bailing out the borrowers, they're bailing out the banks. But the media spin is they are taking care of us by injecting the 200B... I don't think they should bail out either but what do I know.

but if the gov didn't bail out the banks they would all shut down and we would be putting our cash underneath our beds.

i just think the whole mess could have been avoided if they (the banks) would have
1. be more cautious about who they lent money to
2. made all homeowners get a normal loan(30 year, or 15 year). unless they were investors.

i have heard rumors of a 30 day or 60 day time frame where the banks are thinking about stopping foreclosers. that is great just make it possible for all those people to refinance there loans. i called a month ago or so i wanted to refinance my house to a 15 year from a 30 year fixed. they told me i couldn't because i was to far upside down on my house. eventho my credit is like gold. i was shocked, upside down?? 2 years ago i had 50k in equaity, now i'm 25k upside down, because of all of the foreclosers. i have had 4 or 5 in my neighborhood in the last 2 months. the banks that gave all these bad loans are killing the people who pay thier bills. the house nextdoor to me didn't foreclose, but it is now section 8. there is another hit on my house.
something has got to give.

[GTAHVIT]

Originally Posted by swazworth

but if the gov didn't bail out the banks they would all shut down and we would be putting our cash underneath our beds.

That's a little extreme. In my opinion the market competition will determine who survives and who doesn't there will always be a bank to put your money. And the bank that has your saving and checking accounts isn't normally the bank that holds the loan to your house.

i just think the whole mess could have been avoided if they (the banks) would have
1. be more cautious about who they lent money to

You and I agree here. I would only add that the way to do this is let the banks pay for their own mistakes and not use taxpayers dollars to do it.

2. made all homeowners get a normal loan(30 year, or 15 year). unless they were investors.

I don't agree, If you have good credit and you can accept the risk of an ARM then that should be your prerogative. However, your credit score should determine what loan you qualify for. Today the banks probably feel that a high 600 qualifies for a aggressive ARM. When the 200B hits the market the banks may change the qualification to high 500's. So in the end your ability to borrow money has less to do with your actual credit score and more to do with how much revenue that bank has to work with. In short. More money to lend than people to borrow it.

i have heard rumors of a 30 day or 60 day time frame where the banks are thinking about stopping foreclosers. that is great just make it possible for all those people to refinance there loans. i called a month ago or so i wanted to refinance my house to a 15 year from a 30 year fixed. they told me i couldn't because i was to far upside down on my house. eventho my credit is like gold. i was shocked, upside down?? 2 years ago i had 50k in equaity, now i'm 25k upside down, because of all of the foreclosers. i have had 4 or 5 in my neighborhood in the last 2 months. the banks that gave all these bad loans are killing the people who pay thier bills. the house nextdoor to me didn't foreclose, but it is now section 8. there is another hit on my house.
something has got to give.

This sounds like you've got compounding problems making this a bigger problem for you than most. Even in today's housing/lending market that many foreclosures within a mile or so of your home is a lot. And I don't think foreclosures count as comparables in the housing market. I'm not sure on that. But I don't think appraisers can use short sells and foreclosures and comps. But I'm not qualified to answer that.


I'm not saying this is a simple problem. And there's no easy way out. I'd just like to see everything stabilize then fix the cause of the extreme fluctuations. If we can do that, 90% of the property owners in this country will see steady continuous growth overtime. I don't like it when the housing market act's like the stock market... There is way too much at stake.

Good conversation.