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Another Bank Failure

iGary said:
Wachovia isn't far behind if they don't get it together...
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I'm betting on Wachovia going next as far as huge banks go. Me, I have a map of the US at work that has 5 states colored in representing each state suing countrywide. Personally, it's my testament to "yeah we sucked, but someone sucked worse" in the industry. :) FWIW, my immediate supervisor found it funny, his boss didn't. :/ That could explain things come to think of it.
<runs to work to remove map from wall>
 
Don't you just love the way in which the banks seek to privatise profits and nationalise losses? Or, put another way, the manner in which all profits are pocketed, yet it is felt that the Government (aka, the public) should shoulder the costs of loss.

The other thing I've never managed to get a handle on is the concept of massive bonuses. If the rhetoric is that one needs salaries/bonuses vaguely resembling telephone numbers in order "to attract the best talent", how on earth does one justify such bonuses when the banking enterprise goes pear-shaped? What financial penalty is there for monumental incompetence, catastrophic judgement, and egregious greed?

It's 1929 again, in some quarters; time to fish out our battered copies of the wonderful J. K. Galbraith to seek solutions.

Reminds me a bit of the old joke; you know, the one that says if you owe $5 you're a failure, $50 you're a bum, $5 million you're a business, $ 5 billion you're a Government, and $ 5 trillion, you're a bank.

Cheers
 
Ok, call me dumb, but i'm not real savvy on how all this stuff works...

If the banks are insured by the government...
and the government is X-trillion dollars in debt, itself...
Where is the government going to get the money to cover the banks -- when the banks go under?

And who/where is the US government getting all this extra money from - to get x-trillion dollars in debt - in the first place?

Are they just printing more, like mad?
or does China or some oil country own us now, or what?

What happens when a government goes belly-up?
 
Scepticalscribe said:
Don't you just love the way in which the banks seek to privatise profits and nationalise losses? Or, put another way, the manner in which all profits are pocketed, yet it is felt that the Government (aka, the public) should shoulder the costs of loss.

The other thing I've never managed to get a handle on is the concept of massive bonuses. If the rhetoric is that one needs salaries/bonuses vaguely resembling telephone numbers in order "to attract the best talent", how on earth does one justify such bonuses when the banking enterprise goes pear-shaped? What financial penalty is there for monumental incompetence, catastrophic judgement, and egregious greed?
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You don't understand because it doesn't make sense. If it did make sense, the CEO and heads at the major banks don't earn as much money. Over the last 40-50 years, the salary of the average big-wig at a bank has gone from around 10 times greater than the average salary, to over 100 times greater than average. Talk about disparities becoming larger....
 
november rains said:
Ok, call me dumb, but i'm not real savvy on how all this stuff works...

If the banks are insured by the government...
and the government is X-trillion dollars in debt, itself...
Where is the government going to get the money to cover the banks -- when the banks go under?

And who/where is the US government getting all this extra money from - to get x-trillion dollars in debt - in the first place?

Are they just printing more, like mad?
or does China or some oil country own us now, or what?

What happens when a government goes belly-up?
Click to expand...

Basically, yes, the government just prints the money out of thin air, then charges us, the public for it (hence the nice, tidy term "bailout" (it's actually us bailing out these big corporations with our tax dollars)). That is why we are seeing inflation as high as it is. Prices of products aren't necessarily getting higher; it's the dollar's value that is getting weaker. Ever since the fed got rid of the gold/silver standard, the dollar's value has eroded.

And don't kid yourself that just because an account is FDIC insured, that the government will automatically give you you're money, if your bank fails. As long as banks fail one-by-one as they have been, the FDIC has been keeping their head above water, but if a lot of banks go under at the same time, we, the public, are screwed!
 
Scepticalscribe said:
The other thing I've never managed to get a handle on is the concept of massive bonuses. If the rhetoric is that one needs salaries/bonuses vaguely resembling telephone numbers in order "to attract the best talent", how on earth does one justify such bonuses when the banking enterprise goes pear-shaped? What financial penalty is there for monumental incompetence, catastrophic judgement, and egregious greed?
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The sack. Working in the city has very little job security, if you don't pull in the cash you can say goodbye to your job. On the other hand, if you do pull in the cash say hello to big bonuses.

Plus don't forget the long hours and high stress as well as the academic accomplishments required to get a job with the top banks. I don't begrudge city workers their bonuses at all, I just want them as well :).
 
Cromulent said:
The sack. Working in the city has very little job security, if you don't pull in the cash you can say goodbye to your job. On the other hand, if you do pull in the cash say hello to big bonuses.

Plus don't forget the long hours and high stress as well as the academic accomplishments required to get a job with the top banks. I don't begrudge city workers their bonuses at all, I just want them as well :).
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My question stands, in the wake of current banking fiascos. My problem is that they rarely get sacked for incompetence or greed or spectacular misjudgment; They get fired when their bank is gobbled up by a bigger bank, rarely for any other reason. If great performance is said to justify such astounding salaries/bonuses, what penalty does incompetence merit?

The strictly utilitarian argument (they are good at what they do - in fact, they are not, they are absolutely awful, as recent events demonstrate), does not wash anymore, and the accompanying implied contract, that financial institutions should be free from the burden of societal responsibilities, and above all, free from regulatory control, in order to make money without hindrance, don't really wash any longer, because the banks cannot even hold up their miserable end of this faustian pact.
That just leaves us with the moral argument - that such disparities in wealth are rotten for society, which they are.

Anyway, it is not only goldfish which have a memory span of seconds; the memories of markets are strangely porous, too. If they weren't, they'd have learned from history, in that speculative bubbles always crash, usually quite painfully.

Cheers
 
Cursor said:
Basically, yes, the government just prints the money out of thin air, then charges us, the public for it (hence the nice, tidy term "bailout" (it's actually us bailing out these big corporations with our tax dollars)). That is why we are seeing inflation as high as it is. Prices of products aren't necessarily getting higher; it's the dollar's value that is getting weaker. Ever since the fed got rid of the gold/silver standard, the dollar's value has eroded.

And don't kid yourself that just because an account is FDIC insured, that the government will automatically give you you're money, if your bank fails. As long as banks fail one-by-one as they have been, the FDIC has been keeping their head above water, but if a lot of banks go under at the same time, we, the public, are screwed!
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Pretty inaccurate mate.

The government doesn't print money out of thin air. If it did the monetary base would expand out of control and you'd have hyperinflation. Even tiny changes to high powered money (notes and currency) have huge ramifications in financial markets - M1 expands slowly on a year to year basis.

Your observations on inf. are also quite flawed.. Inflation is a monetary phenomenon that arises from the money supply growing faster than output it is. Prices for goods and services are getting higher namely due to constraints in factor inputs used to create/deliver them such as oil. The dollar's value has NOT simply "fallen" - it may fall relative to other things such as currencies or goods. However, the dollar is simply a unit of account and does not have any inherent value that can be measured - it's value is in terms of what you can buy with it - which in turn is influenced by supply/demand, productivity gains, etc. Furthermore, dropping the gold/silver standard does not influence inflation. Value standards are completely redundant since a currency's value is automatically determined by what people will exchanged for it.
 
I'd like to know why the government officials who were pressuring banks to give these bad sub-prime loans to people because home ownership was "racist" or something are keeping quiet now. People give bad loans and go out of business, and people who take bad loans lose their homes. Pretty simple stuff. I don't feel sorry for them at all. At least not until it affects me. ;)

What I'm really waiting for is for a bank to go under and there be nobody to buy the mortgage of the person with the bad loan. Then the IRS will step in and consider their home income. That'll be fun to watch.
 
right now we are watching the domino effect happen. Banks that lending pratics where good are starting to feel the pain of the one that did dumber stuff.

People are upside down on there loans left and right. When housing prices drop 30+% in less than a year in some areas that will leave a lot of people upside down on there loans. putting 20% down on a house is not going to cover a 30% drop in housing prices.

It starting to hit the ones that played it safe. My credit union has taken some losses because of the housing crunch and it only really offers the "safe" loans for a bank. Just people are starting to take some hard hits.

Do not forget in some parts of the country housing prices dropped a lot more than 30% leaving people very upside down. Financially it makes sence to let the house be forclosed on and take the hit to the credit. A lot cheaper and easier than figuring out where they are going to get the 40grand to cover the loss in the house when they move.
 
darkwing said:
I'd like to know why the government officials who were pressuring banks to give these bad sub-prime loans to people because home ownership was "racist" or something are keeping quiet now. People give bad loans and go out of business, and people who take bad loans lose their homes. Pretty simple stuff. I don't feel sorry for them at all. At least not until it affects me. ;)
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No government officials were involved. It was merely Wall Street getting greedy, trying to rake in the most people in the short term and then selling off the loans. No oversight of these loans occurred either (those in charge of oversight had a vested interest in getting the loans pushed through).

I rent, but my fiancee and I were considering buying 4 years ago. We opted against it, as we would be "house poor", and the only loan we would qualify for was a 2 yr ARM. The real estate agent was BSing us all the way ,saying how interest rates on a fixed-mortgage would be stupid for the long term, and an ARM is the way to go.

A large part of me is glad we didn't, but at the same time, I realize my tax dollars are paying off the houses of people who were too stupid or too greedy (or both!) and bought more than they could afford.

Btw, the next shoe to drop is banks that specialize in credit card debts. There is talk that the heads of such banks are looking closely at how the mortgage brokers were able to get a bailout, and are on pace to repeat the same actions.
 
SMDrew said:
No government officials were involved. It was merely Wall Street getting greedy, trying to rake in the most people in the short term and then selling off the loans. No oversight of these loans occurred either (those in charge of oversight had a vested interest in getting the loans pushed through).

I rent, but my fiancee and I were considering buying 4 years ago. We opted against it, as we would be "house poor", and the only loan we would qualify for was a 2 yr ARM. The real estate agent was BSing us all the way ,saying how interest rates on a fixed-mortgage would be stupid for the long term, and an ARM is the way to go.

A large part of me is glad we didn't, but at the same time, I realize my tax dollars are paying off the houses of people who were too stupid or too greedy (or both!) and bought more than they could afford.

Btw, the next shoe to drop is banks that specialize in credit card debts. There is talk that the heads of such banks are looking closely at how the mortgage brokers were able to get a bailout, and are on pace to repeat the same actions.
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You Agent was clearly trying to get you to buy and did not care about your well being. ARM are better when the interested rate is high because it will go down. Fix rate are better when it is low like it has been for a while.

Now of course is the time to buy if you can afford to buy a house. It is a buyers market with everything pretty cheap and able to knock the price down even more plus make the seller give you extra things just to sell.
 
HOW DOES AN arm MAKE ANY SENSE TO ANYONE SENSIBLE?

its a VERY rare house-buying case that an ARM is the better idea.

And yet, hundreds, thousands, millions(?) got them and are now like:

"Aw shizzle! You mean its been 5years and my mortgage has increased past what I can afford because I bought this house assuming my mortgage at the beginning was ok and that MAYBE id make more money in 5yrs to cover the increase..."

People with these loans are JUST AS liable for their predicament as the lenders who gave them the opportunity to shoot themselves in the foot.

How can it make sense to take a loan that CAN change interest? A mortgage aint a student loan (though some student loan debts reach the costs of a home). Why do people treat them as such?

You really think ADJUSTABLE meant it could go down?
 
Sdashiki said:
HOW DOES AN arm MAKE ANY SENSE TO ANYONE SENSIBLE?

its a VERY rare house-buying case that an ARM is the better idea.

And yet, hundreds, thousands, millions(?) got them and are now like:

"Aw shizzle! You mean its been 5years and my mortgage has increased past what I can afford because I bought this house assuming my mortgage at the beginning was ok and that MAYBE id make more money in 5yrs to cover the increase..."

People with these loans are JUST AS liable for their predicament as the lenders who gave them the opportunity to shoot themselves in the foot.

How can it make sense to take a loan that CAN change interest? A mortgage aint a student loan (though some student loan debts reach the costs of a home). Why do people treat them as such?

You really think ADJUSTABLE meant it could go down?
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Quoted for truth.

I closed hundred of those loans as a notary.

"Sing your full name here and date." *Thinks to self, you're gonna totally forget this thing will adjust and it has a balloon.*
 
Sdashiki said:
HOW DOES AN arm MAKE ANY SENSE TO ANYONE SENSIBLE?

its a VERY rare house-buying case that an ARM is the better idea.

And yet, hundreds, thousands, millions(?) got them and are now like:

"Aw shizzle! You mean its been 5years and my mortgage has increased past what I can afford because I bought this house assuming my mortgage at the beginning was ok and that MAYBE id make more money in 5yrs to cover the increase..."

People with these loans are JUST AS liable for their predicament as the lenders who gave them the opportunity to shoot themselves in the foot.

How can it make sense to take a loan that CAN change interest? A mortgage aint a student loan (though some student loan debts reach the costs of a home). Why do people treat them as such?

You really think ADJUSTABLE meant it could go down?
Click to expand...

If you know for an absolute fact that you're only going to be in the house for a short while, then an ARM might make sense. Other than that, you're spot on. If you get a fixed rate and rates drop enough to justify the expense, you can always refinance downward.
 
CorvusCamenarum said:
If you know for an absolute fact that you're only going to be in the house for a short while, then an ARM might make sense.
Click to expand...

And yet these ARMs were being handed out like it was "HUGE SALE GOING ON NOW" in the mortgage market instead of the very limited situations this works in.

No one, even at the best of times, can anticipate anything such as your location on Earth from one year to the next.
 
Sdashiki said:
And yet these ARMs were being handed out like it was "HUGE SALE GOING ON NOW" in the mortgage market instead of the very limited situations this works in.

No one, even at the best of times, can anticipate anything such as your location on Earth from one year to the next.
Click to expand...

That's why the missus and I didn't get one. Heaven forbid someone actually think things through. ;) I blame the buyers who thought they could get a free lunch just as much, if not more, as I blame the lenders who were putting dog-poo on a bun and marketing it as said free lunch.
 
Scepticalscribe said:
Don't you just love the way in which the banks seek to privatise profits and nationalise losses? Or, put another way, the manner in which all profits are pocketed, yet it is felt that the Government (aka, the public) should shoulder the costs of loss.
Click to expand...
What you say is true for investment banks, which are not regulated very heavily, but government still rescues them if they fail to prevent it from affecting the rest of the financial sector.

However, these retail banks pay premiums for deposit insurance and if their investments are riskier, they pay more. Thus, there is not much of a "private profit and public loss" problem in this case. Of course, every insurance scheme assumes a worst case scenario in determining premiums, but of things get even worse that their imagined scenario, the system fails. If that happens in the case of FDIC, taxpayers would end up footing the bill.
 
iGary said:
Wachovia isn't far behind if they don't get it together...
Click to expand...
Wachovia would be a huge hit to FDIC if it really goes under. I just read that they are knee deep in negative amortization mortgages, so that does not sound good at all.
 
theBB said:
Wachovia would be a huge hit to FDIC if it really goes under. I just read that they are knee deep in negative amortization mortgages, so that does not sound good at all.
Click to expand...

Most lenders are.
 
When I bought my house 3 years ago, lenders were pushing ARMs like you wouldn't believe. I seriously had to walk away from a couple lenders because the ARM products were all they'd talk about.
Not that it matters much today.
I was responsible, got a fixed loan, and am now stuck with a house that I'm virtually incapable of giving away.
The idiots (ie: adjustable-rate mortgage foreclosures) have screwed all of us over since there are no houses in my neighborhood that aren't 40K below fair market value. The banks are scrambling to move these properties, and they're totally pooching those of us who're trying to honestly sell our homes outright.
I'm left questioning why I ever did the smart thing since I'm getting spanked regardless.

((yes, I know "DON'T SELL YOUR HOUSE RIGHT NOW" is the logical argument, but sometimes life throws you curve balls and you have to adjust. I just didn't expect to get hosed on something as solid as a home, considering how much homework I did when I bought it))
 
Sdashiki said:
HOW DOES AN arm MAKE ANY SENSE TO ANYONE SENSIBLE?

its a VERY rare house-buying case that an ARM is the better idea.

And yet, hundreds, thousands, millions(?) got them and are now like:

"Aw shizzle! You mean its been 5years and my mortgage has increased past what I can afford because I bought this house assuming my mortgage at the beginning was ok and that MAYBE id make more money in 5yrs to cover the increase..."

People with these loans are JUST AS liable for their predicament as the lenders who gave them the opportunity to shoot themselves in the foot.

How can it make sense to take a loan that CAN change interest? A mortgage aint a student loan (though some student loan debts reach the costs of a home). Why do people treat them as such?

You really think ADJUSTABLE meant it could go down?
Click to expand...

There are quite a few times an ARM is better.
For example. You know you will only stay there for less than 5 years.
If interste rates are already high then chances are it will drop.

For example when my parents bought their first house the interests rates at that time put it at 12% so they took an ARM. when they sold their house 9 years later the rate was at 7% so they came out on top. Now of course the next house they got it was a fix rate and they have since refinanced it down to 4% fixed

ARM are stupid if the rates are near record lows, and/or are planning to stay longer than 5 years.
 
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