So Cedar Fair will still be able to lean on Bear Stearns in the future.
Although it makes a great party trick if you can do it.
My author website: mgrantroberts.com
;) for the sarcasm-impaired.
Investors took the returns on their investments...which is to say, money they didn't really have, and agreed to invest it in lenders, who, in turn, took the money the investors didn't really give them, and made bad loans to people who couldn't really afford to pay it back. Which is kind of normal lending practice these days.
The problem is that the people borrowing the money borrowed too much money so that they could pay too much for the houses they were buying (far more than the houses were worth) and when the inevitable correction in property values started to hit, the borrowers discovered that they couldn't refinance the loans they had taken out because they were upside-down. So the interest adjustments that they thought they could avoid by refinancing actually went into play.
So now the real fun begins. With no real money coming in from the end borrowers, banks start calling in the bad mortgages and getting stuck with properties that aren't worth the outstanding loans. Seeing banks lose money in this way, the investors decide that this is no way to get a return on their investment. So what do they do? They pull their money out of the investment banks and dump it into...where can they dump it where they can make some money? Of course! They put it where everybody else is putting it: into gold and oil! Unfortunately what results from all of this is a massive positive feedback loop. As investors pull out of outfits like Bear Stearns (whether for logical reasons or not) the share price drops, prompting more investors to pull out before the price drops further, and the next thing you know, you've got the Federal Reserve underwriting a buy-out at $2 per share. For a bonus, throw in $112-per-barrel oil and $1,000-per-ounce gold. Prices that got that way not because there is any logical supply-and-demand reason, but because The Herd had to throw money somewhere to keep from losing it.
But when you get right down to it, the REAL situation isn't a whole lot different today than it was a month ago, or even a year ago. What has changed is the *appearance* of the situation, and something that seemed perfectly reasonable a year ago now appears to be a sure fire way to lose money. Once the Herd starts thinking that way, the positive feedback begins, and the whole thing falls apart. It happened to junk bonds, it happened to the .com's, it happened to real estate, it happened to Western electricity, it happened to natural gas, now it's happening to junk mortgages, and we can all hope that it finally happens to crude oil next.
The problem isn't even a lack of money. It's a lack of confidence in the money. The crisis literally formed out of thin air!
--Dave Althoff, Jr.
(watching all this from the sidelines, apart from the $3.50 gasoline...oh, and the reduction in interest rates on his mortgage and line of credit...)
Jeff said:Dubya says there's no recession coming.
"If it's a fact I'll believe it." ;)
^Dave, what passes for "normal lending practices" these days....LOL! Well, if I were guaranteed a bailout, I'd probably loan money to everyone and anyone at absurd rates myself.
P.S. Can't IMAGINE why other countries would lose confidence in the U.S. < - That deserves a big ;)
You still have Zoidberg.... You ALL have Zoidberg! (V) (;,,;) (V)
The 'prime' customer is supposedly the most desirable...but that's the customer that will shop around, beat the banks up on interest rates and tell them where to go with their 'deals'. The subprime customer wasn't statistically much more likely to default than the prime customer, but they were far far FAR more likely not only to accept a horrid deal (for them), but leap over the desk, kiss the loan officer's feet and say oh thank you thank you thank you I'm so not worthy I'm so not worthy.
Unless of course, you hand them a deal they absolutely, positively, mathematically simply cannot afford. Then the story changes. As it has.
NOTE: Severe fecal impaction may render the above words highly debatable.
I'd say the combination of non-educated customers and greedy bankers. Prior to this debacle, banks looooooooved subprime.-CO
Leave it to Rideman to help set us all straight! :)
Many years ago it took WEEKS before a mortgage loan would be approved. Any more it seems the banks/house builders almost offer "buy here pay here" options.
I have to agree with Jeff that it is the "non-edjamacated" people who get suckered into a mortgage they can not afford, but also have to agree that why is it our responsibility to bail those people out? Because you're just plain stupid why is that my problem?
How hard it is to sit down and figure out "hey, we can't afford that mortgage payment now, how can we afford it when it goes up?"
I feel there should be more punishment for the slimy lenders who fudged figures and tempted people with a new home for "only" x amount p/month. What about the suckers who went with an interest only loan? They are going to wonder why they have 0 equity in their house years later.
Give me the days when you moved out of your parents and got your 1st apartment. Remember when buying your 1st home was an accomplishment, something to be proud of?
No one needs to learn to crawl before they can walk anymore, if they fall down the goverment (us) will pick 'em right back up again.
It's all about getting around the barrels or over the fences, right leads, no faults, fastest time and still looking pretty when done. What's so hard about that? :)
Jo, the problem is---what's less expensive? Letting the free market just play out? Maybe, but then you've got a host of increased costs in unemployment, medicaid, food assistance programs, the list goes on and on. Would it be less expensive to stem the tide early? Yes, if you are actually effective at stemming the tide.
My objection to the various bail-outs and stimulus efforts: they're not much more than spitting in the wind. It's not that they wouldn't be good ideas if they made a difference, it's that they won't be enough to make a difference.
Fair warning: I have no objective evidence for this belief. I'm basing my position on folks whose economic analyses I trust, including Brooks and Krugman at the NYTimes. In fact, Brooks has an interesting article in today's Op Ed pages.
I can't say I feel much pity for folks who signed on the dotted line myself. But if the government bails out stupid billionaire CEOs (savings and loans, Chrysler, financial institutions who burned themselves with their silly loan practices as we speak) time and again because it's somehow 'good for the economy', I don't see why it's suddenly so horrid to do the same for a stupid individual voter here and there. I wouldn't celebrate it, but it certainly isn't any less idiotic.
NOTE: Severe fecal impaction may render the above words highly debatable.
Who in their right mind gets an ARM knowing full well that it's going to adjust up in the long run? People have $2,000 mortgage payments for $150,000 houses. What did they think would happen?
Unfortunately a lot of people did just that, and now they're obviously paying for it, or about to. Everyone is to blame.
When my wife and I bought a place, our real estate agent tried his very best to convince us that an ARM would enable us to get a place that was hundreds of thousands more than what we could have afforded with a traditional mortgage. Sure, having five bedrooms sounded nice, but we ultimately decided to go with a townhouse that we knew we could afford. It's too bad for many people that they took the bait.
^ Agreed. It should be all or nothing- help out the people that signed on the dotted line without thinking as well as the big corporations, or don't help anyone at all. It makes no sense to save the big companies if the people working for them are in serious trouble. I don't like the idea of bailing out people that didn't think too hard about what they were doing, but I see the need to do it.
*** Edited 3/18/2008 2:45:08 PM UTC by Rob Ascough***
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