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106 Comments
- endgame, on 10/10/2007, -1/+40Thats total CRAP! These banks were loaning money to people that had no business getting a loan in the first place. There are people here in California living in 1 Million dollar homes paying as low as 2k a month.....People if you cant afford it DONT BUY IT!!!
I hope all these people that signed up for these ARM loans that couldn't afford them DONT get bailed out by US the Tax payer!! - lead2thehead, on 10/10/2007, -0/+29So I guess giving $500k mortgages to people who make $25k a year wasn't such a good idea after all. Shocking.
- dreicher, on 10/10/2007, -15/+35End the Fed...now.
- recipher, on 10/10/2007, -3/+22Basically, what the sub-prime lenders did to clueless homeowners, the federal reserve just did to the banks / our economy.
http://home.hiwaay.net/~becraft/mcfadden.html - Wargalas, on 10/10/2007, -1/+15Exactly. What about us responsible people who only bought the home we could afford? Do we get the government's help to make our mortgage payment? Of course not. So if we bail people out, they move out. Get an apartment or whatever, but you don't keep your home if you're helped out by the government. Sell the home to someone who can afford it.
- dreicher, on 10/10/2007, -5/+17That's like saying the drunken firefighter who caused the 24-car pileup is a blessing, because now he's on the scene to do CPR.
- bryano, on 10/10/2007, -0/+12This is because these firms are 'too big too fail' i.e. if they became insolvent, the entire financial system would come crashing around our ears. This also means that the biggest firms are subject to far more regulation compared to the smaller firms which are generally able to be more 'nimble', but cannot expect to be helped out by anyone when they go under. Its not the Fed's job to protect the smaller firms or give special treatment to anyone, its their job to protect the financial system of the country.
- mookiemookie, on 10/10/2007, -1/+13That's because if two of the largest banks in the world collapsed, the repercussions would take the entire economy down.
- diggerphelps, on 10/10/2007, -0/+9I would like a "subprime" interest-only auto loan to buy a bitchin' Ferrrari, please.
kthnxbai - crushtheenemy, on 10/10/2007, -4/+12"do as i say, not as i do" has become the general thought of anything dealing with our government.
- dreicher, on 10/10/2007, -0/+7Gross oversimplification, but...
Basically, in exchange for insuring bank deposits - the Fed says you can only loan 10% of your money to a subsidiary to minimize risk. They've upped it to 30% now. So, basically, your parents are saying they'll ensure that you don't get left holding the bag as long as you don't lend more than 30% of your money to your coke-whore sister. - PaulOwen, on 10/10/2007, -2/+9The Fed is a lender of last resort.
A terribly short-sighted concept where instead of letting the worst abusers of the system go under, they are bailed out.
Socialism for the rich, capitalism for the poor.
http://en.wikipedia.org/wiki/Lender_of_last_resort - Timetheos, on 10/10/2007, -4/+11Background: Saudi Arabia owns a big chunk of citiback (http://www.saudi-us-relations.org/articles/2006/ioi/060122-mepc-kestenbaum.html). SA is also a major US debt owner (http://www.ustreas.gov/tic/mfh.txt)
Thus, the US does what Citibank wants. - Swoyer, on 10/10/2007, -4/+11 I love how only the largest of companies get such special treatment
- ElectricC0wb0y, on 10/10/2007, -7/+13These rules were implemented to thwart another great depression.
The FED and banking industry is a bunch of no good, rotten scum. Get ready for some hard times to come in the 6-12 months... - dracostimpy, on 10/10/2007, -1/+7Never of the scale of the Great Depression or what we have in store for us today as a result of the "Greenspan Put". Do you recall any Great Depressions from the 1800's or earlier when we were on the gold/silver standard?
- DrDragun, on 10/10/2007, -14/+19It's actually times like these that make a case FOR the Fed. The Fed can be a dragging/damping force on the economy during booms, but can also dampen bear markets and help stabilize drops.
- punkorambo, on 10/10/2007, -0/+5Make it a "Bitchin' Camaro" and you'll get approved.
- alpinecow, on 10/10/2007, -4/+9I'm the Chief Economist for a major regional broker. I'd say dreicher's reply is a bit on the aggressive side of reality. More realistically, Citi and Bank America just requested permission to loan brokerage companies they already own more money. The request is more technical in nature than anything else, so it's no surprise the Fed ok'd it. This story is unimportant in the scheme of things and the major financial press (CNBC, Bloomberg) barely even picked it up.
- Timetheos, on 10/10/2007, -3/+8No, it must not do "anything". If banks can't be trusted to act in a prudent manner, they need to be better regulated.
- COinOR, on 10/10/2007, -0/+5the fed isn't part of the guvment, but i see your point.
- pintomp3, on 10/10/2007, -0/+4it was a great idea for the guys getting commission. that's the problem with banks and corporations in general. they make decisions that bring lots of profit which gets divided among a few individuals, but when the repercussions come, they just shutdown the company while those individuals go home with their pockets full.
- dementia, on 10/10/2007, -1/+5Do you have any concept of how bad things would be for the economy if Bank of America or Citi went out of business? Yes, they made bad decisions, and yes it looks like the Fed is rewarding them for making bad decisions, but the Fed is also insulating you and the rest of the economy from their bad decisions, and keeping them from spreading to the rest of the world.
- wholly2b, on 10/10/2007, -1/+5As an economist, maybe you can clear this up for me. I hope this is a superficial misunderstanding, but what I've been hearing is that the Fed, a privately controlled bank, prints our money and loans it to the government with interest. To cover the interest, more money must be printed, which also has interest. And so the Fed nurses an infinite loop of debt.
And then our income tax goes to paying this debt off, this debt to private banks and bankers. The argument being, thus, that our Federal Income tax mostly pads the pockets of international bankers. Am I majorly misunderstanding something or is that how it works? - jeffiek, on 10/10/2007, -4/+8Where do you think this mess came from?????
Take artificially low interest rates from the Fed, toss in lousy government analysis of housing costs, add gullibility (both consumer and lenders) and VOILA! A mess.
The "housing costs" are based on RENTALS. Guess what happens when housing is hot? Rentals stay flat. Lots of people buying, no one left to rent. This gave a false impression and the Fed keep on pumping money.
Consumers and lenders both were gullible enough to believe in something for nothing, the classic dupes in any bubble.
But the FED STARTED IT. - footfwd, on 10/10/2007, -6/+10Well at least Ron Paul could educate people and tell them why these practices should have never been allowed under the constitution. Private fed reserve what a joke...
- dreicher, on 10/10/2007, -4/+7Ron Paul doesn't need to do a thing. Eventually, the music stops and someone is left standing. Ron Paul is well-positioned to enact the will of the people when the people finally wake up and realize The Federal Reserve is a GIGANTIC problem and needs to be stopped. When people start losing their houses, paying $6 for a gallon of milk or see their 401K/pension in the toilet - they're gonna be PISSED - and quite literally "the buck stops with the Fed."
- vinwal, on 10/10/2007, -6/+9Times like these are because of the Fed and the elites that run the Fed.
- spinchange, on 10/10/2007, -0/+3This was tried twice before in American History and was a miserable failure for the American economy both times. Once when Madison let the Charter of the First Bank of the US Expire and again when Andrew Jackson tried to literally "discredit" the Second Bank of the US. It was a much smaller isolated economy then. It is an advanced, capitalized, globally connected and leveraged marketplace now. Why repeat history?
- SemDD, on 10/10/2007, -0/+3This is not the first time Citibank has tasted the bitter sweet truth and is scarily going that way once again...
Back in the 80s they poisoned big time the Latin American borrowers to the point of national bankruptcy and those countries refused to serve their debts.
As a result, Citibank had to go up with the belly or declare an unimaginative losses.
They didn't, some clever guy convinced the Latinos to mortgage and later, effectively sell their own land, in exchange for special bonds on those loans.The name was Brady ;-)
this is indeed getting scary. - inactive, on 10/10/2007, -3/+6Oh reeeeeeeeeeally?
http://en.wikipedia.org/wiki/Causes_of_the_Great_Depression#Austrian_School_explanations
http://en.wikipedia.org/wiki/America%27s_Great_Depression - dementia, on 10/10/2007, -0/+3Six months down the road it will hopefully restore liquidity to the markets and people will start seeing returns on buying debt. That's a good thing.
- spinchange, on 10/10/2007, -0/+3Given the current conditions in the credit markets *and* the technical nature of the request, it isn't a surprise that it was approved. You are also correct that this is an anecdotal piece of financial news (in this case commentary from Forbes/CNN) about conditions in the US/Global Credit Markets. I dugg the story because I agree with the author that it underscores the breadth of the situation -- but also the "creativity" of Bernanke and the financial system to adapt to this liquidity problem. The Fed is prudently forestalling a rate cut for as long as possible and instead encouraging borrowing at their discount window, accepting more forms of collateral, (since the commercial paper market will not) and approving requests like this. He may be forestalling the inevitable, but it seems like he's being extremely measured and responsible right now
The irony is that the momentum behind my post here seems to be from an Anti-Fed sentiment backed by the notion that it's all some kind of conspiracy perpetrated by the players involved. I'm not saying that lending standards haven't been lax and *some* loan products wacky, because they have...but the real rate of foreclosure (while rising) is still far disproportionate to the amount of fear and panic in the credit markets.
For further proof, look at what’s happening to once Triple A rated companies like Thornburg Mortgage. They make loans to the wealthy and affluent with good credit, lots of money, and lots of assets, etc. They are almost being forced into insolvency because no one will buy their short-term debt & the market is depressing the value of their mortgage securities so much. I’ve read that only 58 of there 38,000+ mortgages are 60 days or more past due!! So at present this is much bigger than just subprime and "unqualified borrowers"
To dreicher- I enjoy your analogy. To take it a step further: You and your parents bail out you sister because she has kids that you worry about (American Borrowers, The Economy at large) Beside that, the neighbors (the rest of the world’s Central Banks) are involved. - FyreGoddess, on 10/10/2007, -0/+3Ok, I don't understand this. Is there someone with a background in finance who can dumb this down for me, please?
- roeboedog, on 10/10/2007, -2/+4That's it stretch the big guys thin that way when they have to call in the loans, they will be easier to fully collapse.
- mabhatter, on 10/10/2007, -0/+2exactly, the FED should be letting the squeeze happen. Greenspan raising interest rates didn't seem to get the banks to "get a clue" and cut back loans. It's time to stick to the rules and make the bankers hurt. Of course they'll just pass the buck and hurt us back but real business people will remember which banks "punished" them and move their money accordingly.
- hal9003, on 10/10/2007, -1/+3All diggers know that the Federal Reserve is not part of the US government, right?? There is no congressional oversight, no elected official can tell the Fed what to do.
The Federal Reserve is a private group of central banks, that have been given permission to control the money supply and run the US economy (instead of an open market approach).
A lot of people think the Federal Reserve is part of the US government, or is controlled by elected officials. - bahlakuh, on 10/10/2007, -4/+6you do realize that if any one of the top 3 US banks go under, the economy will crash. Bank of America, being the largest may have its faults but instead of letting it die, the government must do anything to help these bank. I'm not saying i approve of it, but honestly do you have any better ideas?
- SemDD, on 10/10/2007, -0/+2http://en.wikipedia.org/wiki/Brady_Bonds
U.S. Treasury Secretary Nicholas Brady was the guy I'm talking about :) - jsams81, on 06/26/2009, -0/+2holy *****, the dollar is about to be worth jack ***** now.
- rajid, on 10/10/2007, -0/+2Very scary times ahead! Very scary...
- Napoleone, on 10/10/2007, -3/+5I don't want to panic anyone but, in essence, this means we're *****. And as much as I find the Fed a repugnant institution, I'm rooting for this to work, because if it doesn't we're in for a catastrophic depression.
I suggest to anyone who recognizes this for what it is, that they turn what money they can into gold or silver, store non-perishable food, fuel, extra clothing, keep some first-aid kits handy and arm yourselves (civility deteriorates at twice the speed in which comfort is lost).
It's a shame this is happening, but instability is a constant in human history. We'll have to adapt, and hopefully we can remain dignified on the way back up. - heystoopid, on 10/10/2007, -0/+2Oh how soon we forget the massive Savings and Loan scandal of George Bush Seniors first and only term , which totally emptied F.D.I.C coffers. So I guess Bush Junior is truly following in his fathers footsteps by presiding over more disasters then his dad , and with a 9 trillion dollar national debt , all he can do is speed up the money printing presses Robert Mugabe style , now that is gonna hurt the man in the street !
Life truly moves in closed circles , and the repeat of Wall Street 1929 is coming on faster then an express train from hell ! - diggerphelps, on 10/10/2007, -0/+1Well, if they didn't want to go under, they should not have loaned half-a-million to my friggin' dog.
Remember when all us 'Chicken Littles' were saying the sky is falling when they started giving lettuce pickers mortgages for $750K? Well now's the time to DUCK. - bahlakuh, on 10/10/2007, -2/+3Bank of America, is the largest , slightly. I work for the FDIC Southern branch and this is fact. Banks are measured in gross deposits, making it worth more than any banking company in America, or should I say Worldwide. If BOA is held back by the government and it falters only slightly. A large percentage of the economy will vanish most likely leaving us in another era of "depression". I do not care what any of you may think, but the government will NEVER let this happen.. for good reason. Think what you think, but it is better off this way. You probably think the government is evil but they do thinks for a reason to make sure this country survives, they are not going to listen to people who don't know the entire situation, especially when all you are fed is biased media information. I'm in no way a Bush-supporter, but I DO support the financial decisions in order to ensure order. Don't bash the decisions until you know the unbiased situation.
- generalloy, on 10/10/2007, -0/+1Hah, just remove the trailing parentheses and periods.
Corrected links:
http://www.saudi-us-relations.org/articles/2006/ioi/060122-mepc-kestenbaum.html
http://www.ustreas.gov/tic/mfh.txt - SuckMyDigg, on 10/10/2007, -0/+1I'm starting to fall in line with that philosophy myself. I'm ready to go out raping and pillaging, and when they haul my ass in court I'll just claim "citizen's priviledge" and get the whole thing dropped.
- mithrasinvictus, on 10/10/2007, -1/+2That would be the result, but if they are on the brink of collapse they should be put under supervision instead of being given more rope.
- cwcentral, on 10/10/2007, -0/+1So the fed is letting the banks take more of my hard earned savings (money market savings) and loan it to the debt driven sub-primes and quick-rich scheme businesses?
And my money market interest rates are going down?!@$#! Something's fishy. - diggerphelps, on 10/10/2007, -0/+1Citigroup is the largest corporation in the world.
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