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MissMonteCarlo
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Posted on Wed, Sep 17, 2008 11:18

Sooo millionaire's and fellow normals are you feeling that pinch yet? sarah :-O


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BQ
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Posted on Fri, Nov 28, 2008 17:55

Quoting MissMonteCarlo: Sooo millionaire's and fellow normals are you feeling that pinch yet? sarah :-O

Shazbot, I am well aware being on a chat site can be time consuming, I wish you the best with life goals and family challenges, it was nice sharing with you some thoughts. All the best BQ


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Posted on Fri, Nov 28, 2008 17:47

Quoting MissMonteCarlo: Sooo millionaire's and fellow normals are you feeling that pinch yet? sarah :-O

Interesting article by a Russian Professor. November 26, 2008, 19:49 Professor Igor Panarin: When America fell to pieces the shouting was outrageous As early as autumn 2009 the economic crisis may lead to a civil war in the USA and then to its division into parts. Igor Panarin, doctor of political science, dean of the foreign affairs department at the Diplomacy Academy of the Russian Foreign Ministry, presented this forecast ten years ago. At that time his forecasts seemed unrealistic, but now many of them are coming true. To watch the interview with Professor Panarin click here. We present a new version of the event?s development through the eyes of the scientist, even though it may seem disputable and even scandalous. In his interview with Izvestia, professor Panarin shares his opinion on the following issues: why the United States decided on monetary reform; who Obama is working for; and why it is better for Russia to be friends with China. Question: Mr. Panarin, where did this idea of the breakup of the US come from back in 1998, when this country was prospering and when it was an unconditional world leader? Answer: In September 1998 an international conference called the Informational War was held in Austria. I presented my analytical research there. 150 out of 400 participants were from the USA. There was outrageous shouting in the audience when I was talking about the division of America in my presentation. However my reasons were well-grounded. Back then it was obvious that finance and economy would be the main destructive power for the USA. The dollar was not secured by anything. The external debt of the country was growing like an avalanche in spite of the fact that it was non-existent at the beginning of the 1980s. In 1998, when I was making my forecast, it had reached 2 trillion dollars. Today it?s more than 11 trillion. This is a pyramid which is bound to collapse. Q: Will the entire American economy collapse? A: It is collapsing now. Three out of the five largest and oldest banks on Wall Street ceased to exist because of the financial crisis; and the other two are on the verge of surviving. Their losses are the largest in history. Now we are talking about replacing the regulation system in the world: America will no longer be the world regulator. Q: Which country will replace it? A: Two countries are making a claim for this role: China with its large reserves, and Russia as a country which could play the role of a regulator on the Eurasian territory. A rather remarkable event took place at the G20 summit which has just taken place in Washington. Participants put forward the new architectonics of the international affairs where a key role would belong to the International Monetary Fund. But the International Monetary Fund needs funds. Thus the participants addressed China and Japan with a request to provide money. The gold reserves of China come to more than 2 trillion dollars. It is the largest creditor to the USA. Now it will definitely affect the policy of the fund. By the way, it is not accidental that Mr. Hu Jintao met two leaders at the summit: the Russian President and the leader of the UK. There are plans to hold the spring G20 meeting in England. And the meeting with Russia as a country which is putting forward the basic principles of reconstructing the world financial system also clearly fits the vision of the Chinese reformation process. ?Skeleton which keeps the USA together is fragile? Q: We are clear about the world leaders. But let?s go back to the USA. What makes you believe in the possible division of the country? A: There are a number of reasons. First, the financial problems of the USA will increase. Millions of citizens have already lost their savings. Prices and unemployment keep growing. General Motors and Ford are on the verge of collapse which means that entire towns will end up unemployed. The governors are now harshly demanding money from the federal center. Complaints are growing. They?ve been restrained so far by the presidential election and by hope that Obama could perform a miracle. However, by spring it will become clear that a miracle will not happen. The second factor is the vulnerability of the political mechanism in the USA. There is no uniform legislation on the territory of the country. There aren?t even general uniform traffic rules. The skeleton which keeps the USA together is fragile. Even the armed forces in Iraq are represented by the non-citizens of the United States to a large extent. They fight for the promise of American citizenship. Thus the army, as a melting pot has stopped fulfilling a consolidating function for the American state. And finally, the split of the elite has made itself especially clear under the conditions of the crisis. ?Hundred dollar notes may get frozen? Q: How will the country be divided? Mexico is obviously in the south. What else? A: There are six parts altogether. The first one is the Pacific Ocean coast of the USA. I can give you an example: 53% of San Francisco?s population is Chinese. The Governor of Washington state was an ethnic Chinese; its capital, Seattle, is called the gate of the Chinese emigration to the USA. It is obvious that the Pacific Ocean coast has been gradually influenced by China. The second part in the south is definitely the Mexicans. In some areas, Spanish has become the official language already. Then comes Texas which has been openly fighting for independence. The Atlantic coast has a totally different ethnos and mentality. It could be split into two parts as well. And we are left with two central depressive areas. May I remind you that five central states where the Indians live had announced their independence. It was perceived as a joke or a kind of a political show. But the fact remains the same. Canada is making a strong influence in the North. By the way, Russia may require returning Alaska, as it had been rented out? Q: What will happen to the dollar then? A: In 2006 a secret agreement was made between Canada, Mexico and the USA on preparing to implement the Amero as a new currency unit. This may mean replacement of the dollar. At the same time 100-dollar notes which have flooded the world may just get ?frozen?. An excuse may be used, for example, that terrorists have made false notes which need to be checked. "Confrontation between the clans has become open? Q: Could you tell us about the division of the elite. Are these the democrats and the republicans? A: No, that is not right. There are two groups in the US authorities. The first one may be called the globalists, or the Trotskyites. Leon Trotsky had already formulated their idea in the past: it?s not Russia that we need, but a world revolution. Soviet Russia was viewed by them as a base for control over the world. The second group is the statists which want prosperity for their country. Representatives of these two clans are present in both Democratic and Republican Parties. Take voting for the anti-crisis plan of Paulson, which was suggested by the Republican administration, for example. It was voted down in the Congress by the Republicans first of all. Q: Who is in charge of the clans? A: The key persons of the globalists are Secretary of State Condoleezza Rice and Vice President Dick Cheney. The key persons of the statists are Robert Gates, Defense Secretary; Michael Hayden, CIA Director; and Admiral Mike McConnell, director of national intelligence. Globalists are mainly the financial elite, and statists are the armed forces, special services and military and industrial complex. Recently the confrontation between these two clans has become open. In December last year the statists presented a report which completely denied the existence of the nuclear program in Iran. It directly contradicted conclusions made by Condoleezza Rice and Dick Cheney. The second important event took place at the hearings of the US Congress concerning the 5-day war in the Caucasus. The globalists represented by Condoleezza Rice insisted that Russia had started the war and that it would be punished for it. Georgia was the project of Condoleezza. And representatives of the intelligence community presented a diametrically opposite statement: that Georgia had started the war. We see an open confrontation between very outstanding political figures. Q: And who?s Obama?s company? A: The statists with Gates in charge were the key players who had enabled Obama to win. They are demanding that he change the general line in return. In this light, a very interesting factor is that Gates the Republican is viewed as the most important candidate as to whether he remains the US Defense Secretary or becomes the Secretary of State. This is the influence of the statists on the President. By the way, the first session which Obama held was with the American intelligence community. ?We have to cut the ropes tying us to Titanic.? Q: What does the victory of the statists mean for Russia? A: It?s a rather good chance for us, as they acted on our side in the conflict in the Caucasus. According to President Medvedev?s visit to the USA we see that he was not subject to any obstruction in relation to the events in the Caucasus. The atmosphere in Washington was rather calm and friendly. Q: What should Russia do in order to avoid shocks in relation to a possible economic collapse of the United States? A: It should develop the rouble as the regional currency. It should form an efficient petroleum exchange which would sell oil for roubles. Several days ago an agreement was signed between Russia and Belarus on transferring payments for oil and gas to roubles. This is the beginning of establishing the ruble as the regional currency as well. We?ve been receiving our currency from Kazakhstan and Belarus for electricity already. Now our task is to try to make as many rouble c


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shazbot82
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Posted on Wed, Nov 26, 2008 23:29

Hey BQ..im leaving this site.See my blog " exit stage left" Thanks for the encouragement. I'm hoping I am among those with steady work..its always a bit of a gamble. The custody part is over NOw its all about getting the retroactive child support for the last 27 months. We are talking well over 25K . I dont yet have a court date for hat portion. But ive filed all the papers. Im going to crucifi my ex in court if he so much as opens his mouth to object. He hasnt supplied anything and hes f****g rich. ANyway,,thanks. Be good...a smart guy like you should have a few side occupations making passive income.


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Posted on Wed, Nov 26, 2008 20:13

Quoting shazbot82: I just went through more than two solid years of legal battles for the custody of my now 17 year old daughter.( I won) There is no such thing as cash right now. The media in this country always focuses on the worst,,and that makes people afraid and desperate. I am a very skilled renovator and you are right. Leads are getting hard to dig up but people are doing renovation. BTW..I studied ornamental horticulture, landscape arch,arborculture,and was a pesticide application specialist.Plus about 20 classes in various aspects of design..so I Can identify with the landscape gig. I did not , however, study economics.Still , i read " Freakomonics " and I tend to agree with the author and his theories.

You will do good in this recession as all renovators make a steady income and I see no problem on your end, competition will get more intense but if you do good work you will be more in demand. I see you have done some landscaping, it is a real good eye opener and I find it romantic to blend trees,flowers,background improvement and a host of other things. Forget about the media they are always behind in everything, most people who report on business are duds, they absolutely have no real business experience and only report stories, they rarely understand economic and accounting. Fighting legal battles for children custody is expensive and can get ugly, Good you have your daughter with and hope all goes well with you both..I bet you had a bug sigh !!! when it was all over. BQ Government bailout hits $8.5 trillion Kathleen Pender Wednesday, November 26, 2008 The federal government committed an additional $800 billion to two new loan programs on Tuesday, bringing its cumulative commitment to financial rescue initiatives to a staggering $8.5 trillion, according to Bloomberg News. Government bailout hits $8.5 trillion 11.26.08 Citigroup gets a monetary lifeline from feds 11.25.08 Market left waiting for positive news last week 11.23.08 Congress OKs 2nd extension of jobless benefits 11.21.08 More Net Worth ? -------------------------------------------------------------------------------- End result of federal rescue programs? Inflation Recovery Crippling debt View ResultsDisclaimer About This Poll SF Gate polls are strictly surveys of those who choose to participate and are therefore not valid statistical samples. Our poll software uses a variety of methods to ensure that only votes determined to be valid are tabulated. When this determination cannot be made, we may not process your vote. No actions are taken by SF Gate as a result of the polls. Close More Polls ? -------------------------------------------------------------------------------- That sum represents almost 60 percent of the nation's estimated gross domestic product. Given the unprecedented size and complexity of these programs and the fact that many have never been tried before, it's impossible to predict how much they will cost taxpayers. The final cost won't be known for many years. The money has been committed to a wide array of programs, including loans and loan guarantees, asset purchases, equity investments in financial companies, tax breaks for banks, help for struggling homeowners and a currency stabilization fund. Most of the money, about $5.5 trillion, comes from the Federal Reserve, which as an independent entity does not need congressional approval to lend money to banks or, in "unusual and exigent circumstances," to other financial institutions. To stimulate lending, the Fed said on Tuesday it will purchase up to $600 billion in mortgage debt issued or backed by Fannie Mae, Freddie Mac and government housing agencies. It also will lend up to $200 billion to holders of securities backed by consumer and small-business loans. All but $20 billion of that $800 billion represents new commitments, a Fed spokeswoman said. About $1.1 trillion of the $8.5 trillion is coming from the Treasury Department, including $700 billion approved by Congress in dramatic fashion under the Troubled Asset Relief Program. The rest of the commitments are coming from the Federal Deposit Insurance Corp. and the Federal Housing Administration. Only about $3.2 trillion of the $8.5 trillion has been tapped so far, according to Bloomberg. Some of it might never be. Relatively little of the money represents direct outlays of cash with no strings attached, such as the $168 billion in stimulus checks mailed last spring. Where it's going Most of the money is going into loans or loan guarantees, asset purchases or stock investments on which the government could see some return. "If the economy were to miraculously recover, the taxpayer could make money. That's not my best guess or even a likely scenario," but it's not inconceivable, says Anil Kashyap, a professor at the University of Chicago's Booth School of Business. The risk/reward ratio for taxpayers varies greatly from program to program. For example, the first deal the government made when it bailed out insurance giant AIG had little risk and a lot of potential upside for taxpayers, Kashyap said. "Then it turned out the situation (at AIG) was worse than realized, and the terms were so brutal (to AIG) that we had to renegotiate. Now we have given them a lot more credit on more generous terms." Kashyap says the worst deal for taxpayers could be the Citigroup deal announced late Sunday. The government agreed to buy an additional $20 billion in preferred stock and absorb up to $249 billion in losses on troubled assets owned by Citi. Given that Citigroup's entire market value on Friday was $20.5 billion, "instead of taking that $20 billion in preferred shares we could have bought the company," he says. It's hard to say how much the overall rescue attempt will add to the annual deficit or the national debt because the government accounts for each program differently. If the Treasury borrows money to finance a program, that money adds to the federal debt and must eventually be paid off, with interest, says Diane Lim Rogers, chief economist with the Concord Coalition, a nonpartisan group that aims to eliminate federal deficits. The federal debt held by the public has risen to $6.4 trillion from $5.5 trillion at the end of August. (Total debt, including that owed to Social Security and other government agencies, stands at more than $10 trillion.) However, a $1 billion increase in the federal debt does not necessarily increase the annual budget deficit by $1 billion because it is expected to be repaid over time, Rogers said. Annual deficit A deficit arises when the government's expenditures exceed its revenues in a particular year. Some estimate that the federal deficit will exceed $1 trillion this fiscal year as a result of the economic slowdown and efforts to revive it. The Fed's activities to shore up the financial system do not show up directly on the federal budget, although they can have an impact. The Fed lends money from its own balance sheet or by essentially creating new money. It has been doing both this year. The problem is, "if you print money all the time, the money becomes worth less," Rogers says. This usually leads to higher inflation and higher interest rates. The value of the dollar also falls because foreign investors become less willing to invest in the United States. Today, interest rates are relatively low and the dollar has been mostly strengthening this year because U.S. Treasury securities "are still for the moment a very safe thing to be investing in because the financial market is so unstable," Rogers said. "Once we stabilize the stock market, people will not be so enamored of clutching onto Treasurys." At that point, interest rates and inflation will rise. Increased borrowing by the Treasury will also put upward pressure on interest rates. Deflation a big concern Today, however, the Fed is more worried about deflation than inflation and is willing to flood the market with money if necessary to prevent an economic collapse. Federal Reserve Chairman Ben Bernanke "has ordered the helicopters to get ready," said Axel Merk, president of Merk Investments. "The helicopters are hovering and the first cash is making it through the seams. Soon, a door may be opened." Rogers says her biggest fear is not hyperinflation and the social unrest it could unleash. "I'm more worried about a lot of federal dollars being committed and not having much to show for it. My worst fear is we are leaving our children with a huge debt burden and not much left to pay it back." Economic rescue Key dates in the federal government's campaign to alleviate the economic crisis. March 11: The Federal Reserve announces a rescue package to provide up to $200 billion in loans to banks and investment houses and let them put up risky mortgage-backed securities as collateral. March 16: The Fed provides a $29 billion loan to JPMorgan Chase & Co. as part of its purchase of investment bank Bear Stearns. July 30: President Bush signs a housing bill including $300 billion in new loan authority for the government to back cheaper mortgages for troubled homeowners. Sept. 7: The Treasury takes over mortgage giants Fannie Mae and Freddie Mac, putting them into a conservatorship and pledging up to $200 billion to back their assets. Sept. 16: The Fed injects $85 billion into the failing American International Group, one of the world's largest insurance companies. Sept. 16: The Fed pumps $70 billion more into the nation's financial system to help ease credit stresses. Sept. 19: The Treasury temporarily guarantees money market funds against losses up to $50 billion. Oct. 3: President Bush signs the $700 billion economic bailout package. Treasury Secretary Henry Paulson says the money will be used to buy distressed mortgage-related securities from banks. Oct. 6: The Fed increases a short-term loan program, saying it is boosting short-term lending to banks to $150 billion. Oct. 7: The Fed says it will start buying unsecured short-t


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shazbot82
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Posted on Tue, Nov 25, 2008 01:49

I just went through more than two solid years of legal battles for the custody of my now 17 year old daughter.( I won) There is no such thing as cash right now. The media in this country always focuses on the worst,,and that makes people afraid and desperate. I am a very skilled renovator and you are right. Leads are getting hard to dig up but people are doing renovation. BTW..I studied ornamental horticulture, landscape arch,arborculture,and was a pesticide application specialist.Plus about 20 classes in various aspects of design..so I Can identify with the landscape gig. I did not , however, study economics.Still , i read " Freakomonics " and I tend to agree with the author and his theories.


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BQ
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Posted on Mon, Nov 24, 2008 06:44

O.K. Shazbot, I will level with you; in any recession or depression, people still have money; the wise one took pre-caution and foresaw the folly of the banking system and took time to set a rainy day fund as it was called by depression era parents. In 1930's people were still enjoying life, it never came to the end of the world. 70 % of the eligible population worked, what happened was the system had to clear out the bad money so the good money could come in and take over the pieces of the bad money "mal-investment" take root and bear fruit down the road. Bail out has proven ineffective in major credit contraction, history proves this. The renovation business is mostly always good in recession time because people will focus on there home rather than buying a second home or vanity, they save money too. In expanding economies people tend to spend on many item which will collect dust and when the economy goes bust then they will sell it back in garage sales. I am in the landscaping business and renovate,redesign residential landscaping. Right now business is good and have met no cut backs but I live in Canada so it makes also a difference. If you have spare cash you will be able to buy some very interesting properties in the near future, say 16 months + or -, as I expect unemployment to climb and then the economy to shrink, by 2011 all should be done and then it would be on the road for recovery. Some area will do better than others because that is in the historic data. I got read this in Boomberg..very interesting as I predicted a few months ago the bail out would come to $7-8 Trllion but I might be to low. BQ November 24, 2008 $7.4 Trillion Bailout - Oh My, Oh My by Richard Shaw This news leaves us simply speechless. Nov. 24 (Bloomberg) -- Fed Pledges Exceed $7.4 Trillion to Ease Frozen Company Credit -- The U.S. government is prepared to lend more than $7.4 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year, to rescue the financial system since the credit markets seized up 15 months ago. The unprecedented pledge of funds includes $2.8 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the only plan approved by lawmakers, the Treasury Department's $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.


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shazbot82
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Posted on Wed, Nov 19, 2008 14:27

BQ...I happen to remodel residential real estate. I also perform work on apt buildings. My previous jobs all made money,and I am looking for new projects. Here in California, RE trends go pretty much on a somewhat predictable ten year cycle.Of course, nothing is so " Site Specific" as Real Estate. Even if the economy tanks,,its still a good bet to own a house or twenty. Let me know if you want to do something in my area ( General San Francisco Bay)


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Posted on Tue, Nov 18, 2008 07:18

Quoting MissMonteCarlo: Sooo millionaire's and fellow normals are you feeling that pinch yet? sarah :-O

Cost of bail out so far according to CNBC $4.28 Trillion and counting. BQ


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Posted on Mon, Nov 17, 2008 07:18

Good for you Shazbot, you had the foresight to see ahead which very few do. I sold the house before the 2001 downturn and have been renting since as I knew this was going to happen, just waiting when the Real Estate bottoms out as my buddy and I are waiting for the right moment to buy apartment complex; we have an objective to buy 5 of them with time and then live off rental income. I know the major blow off is 2009, 2008 was the busting year and now the 2009 will see deeper deflation, we might hit bottom but will have to see further data about the real economy, what they call Main Street. 2008 was the worse percentage drop in 100 years, beating the 1929 crash. If you expect a rosy economy then you are all in dream land, brace for the worse impact coming next year..I have been warning about this for the last couple of years on the stock market trend, also had some that belittled me when I said not to invest in Real Estate these peoplewere saying the market would continue going up. I guess they see the folly of there opinion today. I have been investing for a long time and I knew this was going to come unglued at the seam but thought it would be the 2001 downturn, I was wrong it managed to make an upturn but this downturn will be on record as the worse in 100 years. Once exhausted then there will be a very good buying opportunity which I am ready jump in at the right moment. Good luck Shazbot in your investing, don't buy stocks now as hedge funds have started dumping this week..Nov. will not be a good month. BQ


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Posted on Sun, Nov 16, 2008 12:56

Quoting MissMonteCarlo: Sooo millionaire's and fellow normals are you feeling that pinch yet? sarah :-O

MM has been deleting all my post warning about a depression engulfing the economy; Euro 20 has just published a chart that this is the worse correction in stock market since 1900 and this correction is even worse than 1929 in percentage so brace yourself as there is a slew of hedge fund selling coming up, this is not over and don't believe the G 20 are going to save your money, they can not. There was a $2.3 Billion gold purchase from the MIddle East so they are hedging there bet that this will be worse next year. God Bless BQ


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shazbot82
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Posted on Tue, Nov 11, 2008 20:54

as I predicted,,,,there are some stocks that are doing well. Company earning have been posting on the New York Exchange... many are down and sinking. Who is up ? Oil....... AND McDonalds. Look for breweries and liquior to do well also. Dont forget Owens Corning and all those beer bottles it makes. One doesnt need a FulBright Education to pick winning stocks. All you need is a well developed ability to SEE what is going on in front of you. And then act upon it.


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Posted on Mon, Nov 10, 2008 07:18

Quoting MissMonteCarlo: Sooo millionaire's and fellow normals are you feeling that pinch yet? sarah :-O

HELL, MEET HANDBASKET - The Casey Files - by Doug Hornig Editor, BIG GOLD from Casey Research November 7, 2008 Currently, we find ourselves in a mess that many are calling the most serious economic crisis since the Great Depression. If not worse. A mile-high mountain of paper profits has been set ablaze and reduced to ashes, choking investors who put their faith in houses, stocks, or commodities, or? or? just about anything else you can name. The bad news is that no one completely understands what?s going on; the good news is that, yes, a measure of sense can be made of the madness. Being armed with that bit of understanding should enable us to survive the tsunami? even prosper. The Road to Perdition Until recently, average Americans were only dimly aware that there were two types of banks ? the commercial banks nearby and the major investment banks located in faraway New York. Understanding the bank where they conducted business, with people they knew, was enough. The big, impersonal Wall Street banks ? which dealt in higher-risk investments with potentially higher rewards ? were for companies and the very rich. While ordinary citizens thought little about the distinctions among banks, the government did. Seventy-five years ago, as the Depression deepened, lawmakers were desperately trying to determine the causes of the crisis (read, looking for scapegoats). Some of the things they found were conflicts of interest and opportunities for fraud linked to the mixing of commercial and investment banking. Congress decided to erect a ?wall? between commercial and investment banking, and so passed the Banking Act of 1933, usually referred to as the Glass-Steagall Act. Glass-Steagall created the Federal Deposit Insurance Corporation (FDIC) to protect depositors in commercial banks, and it forbade commercial banks to underwrite securities or act as stockbrokers or dealers. Glass-Steagall remained in force for six and a half decades, although various deregulatory measures and changes in exchange rules chipped away at it. Notably, in 1970 a rule excluding public companies from membership in the New York Stock Exchange was dropped. The last major private institution, Goldman Sachs, went public in 1999. This allowed investment banks to sell stock to any potential investor and greatly expand their capital base. Over the last two decades of the 20th century, the financial industry lobbied vigorously for the repeal of Glass-Steagall and, in 1999, they got their way with the enactment of the Financial Services Modernization Act. The door was opened to consolidation in the banking industry. With one stroke of a pen, commercial bankers could begin turning their loans into investment products. (Glass-Steagall had prevented them from selling debt-backed securities for which they were the underwriters.) And Wall Street investment banks were suddenly in the mortgage business. It would prove to be a marriage made somewhere significantly south of heaven. Bubble, Bubble... We?re not fans of government regulation, but a deregulated marketplace carries with it certain imperatives. It functions as it should only in the absence of both criminal and boneheaded behavior. We can erect oversights meant to prevent the former and laws to punish it after the fact. But all the regulation in the world won?t do much about the latter, since both market traders and the regulation itself may be boneheaded. The biggest factor here was the removal of Glass-Steagall prohibitions, but there were two other important tweakings. The Commodities Futures Modernization Act of 2000 transformed the new mortgage-backed securities into a commodity, enabling them to be traded on futures exchanges with little oversight by any federal or state regulatory body. Completing the trifecta, the Securities and Exchange Commission in 2004 waived its leverage rules. Previously, broker/dealer net-capital rules limited firms to a maximum debt-to-net-capital ratio of 12 to 1. But under the new regulations, five companies ? Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns, and Morgan Stanley ? were granted an exemption, which they promptly used to lever up 20, 30, even 40 to 1. Just as Congress was repealing Glass-Steagall, the tech stock bubble was inflating beyond sustainability. It would soon be pricked, ushering in a brief recession during which investors began the hunt for the next big thing. Well, how about housing? Back in 1977, Congress passed the Community Reinvestment Act, which had the goal of extending homeownership to the largest possible pool of Americans. Over the next 25 years, legislative supplements, a robust housing market, and aggressive government enforcement of ?fairness in lending? combined to weaken bank standards of who did or didn?t qualify for a loan. But that was just the beginning. In an effort to end a recession in the new century?s first years, the Greenspan Fed reduced interest rates to near nothing and poured liquidity into the financial markets. At the same time, capital that had fled the stock market was looking for action. The commercial banks ? and independent mortgagors like Countrywide Credit ? were awash in cash. They started lending it, and every borrower?s credentials were deemed excellent, even those with low income, bad credit, and no money for a down payment. The perfect storm was building. But at first, boy, did things ever look rosy. The country?s homeownership rate ? 62.1% in 1960, rising to only 64.1% in 1994 ? shot up to 68.9% by 2006. As homeowner mania seized hold of the public imagination, people began treating their homes as ATMs. If they needed cash, they borrowed against their growing equity. Real estate speculators flipped houses like crazy. Why not, when there?s no risk? Housing prices only head in one direction, up, up, up, right? It sure looked that way. The yearly average median price of an existing home went from $23,000 in 1970, to $62,200 in 1980, to $97,300 in 1990, to $147,300 in 2000 and crested at $221,900 in 2006. Astonishingly, despite recessions in the early ?80s and early ?00s, there wasn?t a single down year for housing in all that time. However, in 2007 housing became the latest bubble to burst, pricked by unrealistic prices, overbuilding, and the retreat from ultra-low interest rates. Concurrently, as house prices finally began to drop, a whole bunch of those no- or low-interest loans began to reset. Why Do Rational People Do Irrational Things? Despite the well-earned reputation of some Wall Street high rollers, bankers tend not to be a reckless lot, nor financial dunces. In general, they would rather deploy a large amount of capital into a safe, low-yield investment than put a small amount of capital into something with very high risk. With the new environment, however, the game changed. Commercial bankers found themselves making loans to shakier and shakier recipients, while at the same time, the investment banks and their clients were clamoring for new investment products. So bankers did what any conservative person would do. They hedged their bets. They bundled up their loans and sold the packages to the investment banks. The outcome was essentially the mortgage business being uprooted from the commercial banks and transplanted into the investment houses, which have far less restrictive requirements about reserve capital, far fewer limits on the buying and selling of securities, and far less regulatory oversight. The investment banks did not set out, of course, to become landlords. They just wanted some product to sell for which there was a ready market. As capitalist ingenuity collided with profit motive, they found there was no shortage of products that could be created; the mortgage bundles were sliced, diced, and repackaged into a bewildering array of securities, like structured investment vehicles (SIVs), collateralized debt obligations (CDOs), mortgage-backed securities (MBSs), and on and on. The extent of the slicing and dicing into what financial chefs refer to as tranches was such that the original mortgage might be tossed from buyer to buyer, or even itself split into parts. Each time a package was put together and sold, the seller stretched to get top dollar for each tranche, requiring the underlying assets to be risk-rated and then assigned real-world value. In the end, rating services had little idea what they were rating (we're being charitable here), and buyers had no idea what their purchase was really worth. And always lurking in the background was the possibility that defaults on the mortgages supporting the entire process could have a profound ripple effect, given that these products became increasingly leveraged. Knowing this, traders invented credit default swaps (CDSs), those gnarly little creatures that morphed into Godzilla after 2004. CDSs are an insurance policy, a way of dealing with fear, and a device for attenuating the risk inherent in trading products one may not fully understand. Those buying the protection pay an upfront amount and yearly premiums to the protection sellers, who agree in return to cover any loss to the face value of the security. The result is a private, two-party contract, devoid of regulatory oversight. There are a bunch of nasty horseflies in this particular ointment. For one, the holder of that security (who is now ?protected? by a CDS) might turn around and sell it to a third party, who might himself insure and resell it, and so on, creating an impossibly complex chain of ownership and obligation. Additionally, the CDS itself can be traded over the counter. Furthermore, any of the underlying assets might also get partitioned into different tranches, adding to the confusion. And finally, short sellers can work on just about any joint in the structure. And here?s the really big rub. Suppose the party providing the initi


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Posted on Mon, Nov 10, 2008 07:17

Quoting MissMonteCarlo: Sooo millionaire's and fellow normals are you feeling that pinch yet? sarah :-O

Bloomberg Sues Fed to Force Disclosure of Collateral (Update1) By Mark Pittman Nov. 7 (Bloomberg) -- Bloomberg News asked a U.S. court today to force the Federal Reserve to disclose securities the central bank is accepting on behalf of American taxpayers as collateral for $1.5 trillion of loans to banks. The lawsuit is based on the U.S. Freedom of Information Act, which requires federal agencies to make government documents available to the press and the public, according to the complaint. The suit, filed in New York, doesn't seek money damages. ``The American taxpayer is entitled to know the risks, costs and methodology associated with the unprecedented government bailout of the U.S. financial industry,'' said Matthew Winkler, the editor-in-chief of Bloomberg News, a unit of New York-based Bloomberg LP, in an e-mail. The Fed has lent $1.5 trillion to banks, including Citigroup Inc. and Goldman Sachs Group Inc., through programs such as its discount window, the Primary Dealer Credit Facility and the Term Securities Lending Facility. Collateral is an asset pledged to a lender in the event that a loan payment isn't made. The Fed made the loans under 11 programs in response to the biggest financial crisis since the Great Depression. The total doesn't include an additional $700 billion approved by Congress in a bailout package. Fed's Position Bloomberg News on May 21 asked the Fed to provide data on the collateral posted between April 4 and May 20. The central bank said on June 19 that it needed until July 3 to search out the documents and determine whether it would make them public. Bloomberg never received a formal response that would enable it to file an appeal. On Oct. 25, Bloomberg filed another request and has yet to receive a reply. The Fed staff planned to recommend that Bloomberg's request be denied under an exemption protecting ``confidential commercial information,'' according to Alison Thro, the Fed's FOIA Service Center senior counsel. The Fed in Washington has about 30 pages pertaining to the request, Thro said today before the filing of the suit. The bulk of the documents Bloomberg sought are at the Federal Reserve Bank of New York, which she said isn't subject to the freedom of information law. ``This type of information is considered highly sensitive, and it would remain so for some time in the future,'' Thro said. The Fed didn't give Bloomberg a formal response because ``it got caught in the vortex of the things going on here,'' said Michael O'Rourke, another member of the Fed's FOIA staff. Thro declined to comment on the lawsuit. The case is Bloomberg LP v. Federal Reserve, U.S. District Court, Southern District of New York (Manhattan). To contact the reporter on this story: Mark Pittman in New York


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Posted on Sat, Nov 08, 2008 08:01

Quoting MissMonteCarlo: Sooo millionaire's and fellow normals are you feeling that pinch yet? sarah :-O

Some retirement plan, they are planning to take it from you. BQ Carolina Journal Exclusives Dems Target Private Retirement Accounts Democratic leaders in the U.S. House discuss confiscating 401(k)s, IRAs By Karen McMahan November 04, 2008 RALEIGH ? Democrats in the U.S. House have been conducting hearings on proposals to confiscate workers? personal retirement accounts ? including 401(k)s and IRAs ? and convert them to accounts managed by the Social Security Administration. Triggered by the financial crisis the past two months, the hearings reportedly were meant to stem losses incurred by many workers and retirees whose 401(k) and IRA balances have been shrinking rapidly. The testimony of Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, in hearings Oct. 7 drew the most attention and criticism. Testifying for the House Committee on Education and Labor, Ghilarducci proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers? retirement plan accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration. Rep. George Miller, D-Calif., chairman of the House Committee on Education and Labor, in prepared remarks for the hearing on ?The Impact of the Financial Crisis on Workers? Retirement Security,? blamed Wall Street for the financial crisis and said his committee will ?strengthen and protect Americans? 401(k)s, pensions, and other retirement plans? and the ?Democratic Congress will continue to conduct this much-needed oversight on behalf of the American people.? Currently, 401(k) plans allow Americans to invest pretax money and their employers match up to a defined percentage, which not only increases workers? retirement savings but also reduces their annual income tax. The balances are fully inheritable, subject to income tax, meaning workers pass on their wealth to their heirs, unlike Social Security. Even when they leave an employer and go to one that doesn?t offer a 401(k) or pension, workers can transfer their balances to a qualified IRA. Mandating Equality Ghilarducci?s plan first appeared in a paper for the Economic Policy Institute: Agenda for Shared Prosperity on Nov. 20, 2007, in which she said GRAs will rescue the flawed American retirement income system The current retirement system, Ghilarducci said, ?exacerbates income and wealth inequalities? because tax breaks for voluntary retirement accounts are ?skewed to the wealthy because it is easier for them to save, and because they receive bigger tax breaks when they do.? Lauding GRAs as a way to effectively increase retirement savings, Ghilarducci wrote that savings incentives are unequal for rich and poor families because tax deferrals ?provide a much larger ?carrot? to wealthy families than to middle-class families ? and none whatsoever for families too poor to owe taxes.? GRAs would guarantee a fixed 3 percent annual rate of return, although later in her article Ghilarducci explained that participants would not ?earn a 3% real return in perpetuity.? In place of tax breaks workers now receive for contributions and thus a lower tax rate, workers would receive $600 annually from the government, inflation-adjusted. For low-income workers whose annual contributions are less than $600, the government would deposit whatever amount it would take to equal the minimum $600 for all participants. In a radio interview with Kirby Wilbur in Seattle on Oct. 27, 2008, Ghilarducci explained that her proposal doesn?t eliminate the tax breaks, rather, ?I?m just rearranging the tax breaks that are available now for 401(k)s and spreading ? spreading the wealth.? All workers would have 5 percent of their annual pay deducted from their paychecks and deposited to the GRA. They would still be paying Social Security and Medicare taxes, as would the employers. The GRA contribution would be shared equally by the worker and the employee. Employers no longer would be able to write off their contributions. Any capital gains would be taxable year-on-year. Analysts point to another disturbing part of the plan. With a GRA, workers could bequeath only half of their account balances to their heirs, unlike full balances from existing 401(k) and IRA accounts. For workers who die after retiring, they could bequeath just their own contributions plus the interest but minus any benefits received and minus the employer contributions. Another justification for Ghilarducci?s plan is to eliminate investment risk. In her testimony, Ghilarducci said, ?humans often lack the foresight, discipline, and investing skills required to sustain a savings plan.? She cited the 2004 HSBC global survey on the Future of Retirement, in which she claimed that ?a third of Americans wanted the government to force them to save more for retirement.? What the survey actually reported was that 33 percent of Americans wanted the government to ?enforce additional private savings,? a vastly different meaning than mandatory government-run savings. Of the four potential sources of retirement support, which were government, employer, family, and self, the majority of Americans said ?self? was the most important contributor, followed by ?government.? When broken out by family income, low-income U.S. households said the ?government? was the most important retirement support, whereas high-income families ranked ?government? last and ?self? first (www.hsbc.com/retirement). On Oct. 22, The Wall Street Journal reported that the Argentinean government had seized all private pension and retirement accounts to fund government programs and to address a ballooning deficit. Fearing an economic collapse, foreign investors quickly pulled out, forcing the Argentinean stock market to shut down several times. More than 10 years ago, nationalization of private savings sent Argentina?s economy into a long-term downward spiral. Income and Wealth Redistribution The majority of witness testimony during recent hearings before the House Committee on Education and Labor showed that congressional Democrats intend to address income and wealth inequality through redistribution. On July 31, 2008, Robert Greenstein, executive director of the Center on Budget and Policy Priorities, testified before the subcommittee on workforce protections that ?from the standpoint of equal treatment of people with different incomes, there is a fundamental flaw? in tax code incentives because they are ?provided in the form of deductions, exemptions, and exclusions rather than in the form of refundable tax credits.? Even people who don?t pay taxes should get money from the government, paid for by higher-income Americans, he said. ?There is no obvious reason why lower-income taxpayers or people who do not file income taxes should get smaller incentives (or no tax incentives at all),? Greenstein said. ?Moving to refundable tax credits for promoting socially worthwhile activities would be an important step toward enhancing progressivity in the tax code in a way that would improve economic efficiency and performance at the same time,? Greenstein said, and ?reducing barriers to labor organizing, preserving the real value of the minimum wage, and the other workforce security concerns . . . would contribute to an economy with less glaring and sharply widening inequality.? When asked whether committee members seriously were considering Ghilarducci?s proposal for GSAs, Aaron Albright, press secretary for the Committee on Education and Labor, said Miller and other members were listening to all ideas. Miller?s biggest priority has been on legislation aimed at greater transparency in 401(k)s and other retirement plan administration, specifically regarding fees, Albright said, and he sent a link to a Fox News interview of Miller on Oct. 24, 2008, to show that the congressman had not made a decision. After repeated questions asked by Neil Cavuto of Fox News, Miller said he would not be in favor of ?killing the 401(k)? or of ?killing the tax advantages for 401(k)s.? Arguing against liberal prescriptions, William Beach, director of the Center for Data Analysis at the Heritage Foundation, testified on Oct. 24 that the ?roots of the current crisis are firmly planted in public policy mistakes? by the Federal Reserve and Congress. He cautioned Congress against raising taxes, increasing burdensome regulations, or withdrawing from international product or capital markets. ?Congress can ill afford to repeat the awesome errors of its predecessor in the early days of the Great Depression,? Beach said. Instead, Beach said, Congress could best address the financial crisis by making the tax reductions of 2001 and 2003 permanent, stopping dependence on demand-side stimulus, lowering the corporate profits tax, and reducing or eliminating taxes on capital gains and dividends. Testifying before the same committee in early October, Jerry Bramlett, president and CEO of BenefitStreet, Inc., an independent 401(k) plan administrator, said one of the best ways to ensure retirement security would be to have the U.S. Department of Labor develop educational materials for workers so they could make better investment decisions, not exchange equity investments in retirement accounts for Treasury bills, as proposed in the GSAs. Should Sen. Barack Obama win the presidency, congressional Democrats might have stronger support for their ?spreading the wealth? agenda. On Oct. 27, the American Thinker posted a video of an interview with Obama on public radio station WBEZ-FM from 2001. In the interview, Obama said, ?The Supreme Court never ventured into the issues of redistribution of wealth, and of more basic issues such as political and economic justice in society.? The Constitution says only what ?the states can?t


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Posted on Wed, Nov 05, 2008 06:30

Quoting MissMonteCarlo: Sooo millionaire's and fellow normals are you feeling that pinch yet? sarah :-O

Now That Election Is Over, Its Back To The Crisis The election is all but over, but the debate over who is responsible for the financial crisis is just beginning to become more intense. We know that the FBI has opened a criminal investigation of 26 companies, indicted 400 mortgage scammers and started 1400 criminal white collar cases There are 40 task forces allegedly looking into the fraud at the heart of the subrprime pyramid scheme. But now we also know that the Bush Administration has made a the prosecution of white collar crime a lesser priority with more agents tasked to chase terror suspects than the men and women who brought our economy down. Reported Newser: "A short-staffed FBI is laboring to keep up with white collar crime linked to the nation's financial crisis, the New York Times reports. FBI officials predicted millions of dollars' in mortgage fraud years ago, but the Justice Department wanted agents focused on counter-terror. When the FBI warned of a fraud "epidemic" in 2004, only 15 of its 13,000 agents were on the case." On top of that, many in the media prefer to fudge on who is responsible. blaming irresponsible borrowers equally with irresponsible lenders. In this way, the problem becomes binary with two co-guilty parties, each canceling the other out. Under this logic, the ghetto family that was talked into taking out a subprime loan shares the blame with multi-million dollar marketing operations and investment banks with a well conceived schemes for transferring wealth from the poorest among us to the richest institutions. This cynical pox on all their houses was expressed by Rick Newman in a blog on US News. Yes, there were villains, and, yes, there were dupes. But everybody got greedy. That includes homeowners who wanted more house than they could afford, along with bankers who wanted higher returns than they could get from conventional securities. If Wall Street committed a crime, then Main Street was an accomplice. And now they're both feeling the pain.This squares the circle and sounds reasonable. It's also wrong. Just ask financier Eric Hovde who writes in the Washington Post: Looking for someone to blame for the shambles in U.S. financial markets? As someone who owns both an investment bank and commercial banks, and also runs a hedge fund, I have sat front and center and watched as this mess unfolded. And in my view, there's no need to look beyond Wall Street -- and the halls of power in Washington. The former has created the nightmare by chasing obscene profits, and the latter have allowed it to spread by not practicing the oversight that is the federal government's responsibility." Anderson Cooper at CNN for one -- and he may be one of the few -- says now IS the time to assess blame and CNN is doing reports on the top ten culprits of the crisis. Usually the CEOS of the companies in trouble (AIG, Lehman etc.) When tens of billions of dollars in phony securities were written down, when as many as five million families lose their homes, when the economy collapses you have to look deeper at the actual crimes that were committed, starting off with violations of anti-discrimination laws and rules designed to insure that folks knew what they were buying and had their deal clearly explained. Most didn't. You also have to look at business practices and lack of regulation. That is why the FBI broadened its investigation. Soon 177 agents were on the case and forty task forces were at work. They were being pressured from below by Attorney Generals from many states who were responding to complaints. One of them was New York's ex-Governor Eliot Spitzer who penned an Op-Ed in the Wall Street Journal just before his sexual picadillo blew up into a scandal that forced him to resign. He wrote: "Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets. Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers. Spitzer and his counterparts began investigating large mortgage companies like Countrywide. It became clear that if there was a crime going on, and it was massive and institutional, not just individual. The Wall Street Journal reported that many of the biggest firms knew they were vulnerable to law suits and prosecution and began to hire specialized counsel. "Perhaps an even better signal that governmental investigations are on the way -- kind of like the swallows returning to San Juan Capistrano -- is the formation of practice specialty groups at major law firms to "help" clients deal with the turmoil. A post on the Wall Street Journal Law Blog notes that firms like Paul Hastings, Patterson Belknap, and Pillsbury Winthrop have assembled teams of lawyers to provide assistance, including members of the white collar crime departments. If the firms smell an opportunity, don't be surprised to see this area develop over the next few months with a range of internal investigations that may well bring criminal behavior to the surface." Journalists in other countries saw this problem before Americans Diane Francis wrote in Canada's Financial Post: The subprime mortgage and asset-backed paper scandals constitute one of the biggest frauds ever perpetrated. They have resulted in mass foreclosures, writedowns, bankruptcies, firings and billions lost. The US$10-trillion U.S. home-lending sector was, and perhaps still is, rotten. At the top were mortgage lenders, then Wall Street and others who exported junk debts to lenders around the world after prettying them up. At the bottom was a corrupt system that handed out mortgage broker licenses like driver's licenses, and then handed out mortgages like candy at Halloween. In between were crooked appraisers and organized crime. The stories are now seeping out. So far, there have been few indictments, and the fear is that the small fish will face the media firing squads not the big names like former Treasury Secretary Robert Rubin or his successor Hank Paulson, or regulators including former Fed Chairman Alan Greenspan who enabled and encouraged the housing bubble. Notes the New Statesman: "It is far too early to tell who might come to symbolize the meltdown of 2008, although there has been no shortage of ire directed at executives of AIG over lavish corporate retreats, along with former Lehman CEO Richard Fuld, whose company is under investigation by prosecutors in three locations. The first Wall Street figures to be charged in the subprime mortgage fallout worked as hedge fund managers for Bear Stearns. They were arrested in June, accused of misleading investors about the subprime mortgage crisis." But why stop there? Prosecutors hear the outcry. They realize that investigations and prosecutions are essential as deterrent. What needs indicting, as I argue in my book Plunder, is the system as well as its mechanics. We need to look closely at the cabal of firms that profited, the regulators who enabled them and the media that was bought out and sold out. Let's jail the guilty but also totally reform the system, because even now, the shady wheeler dealers are hard at work. Everyone is decrying greed; no one is stopping it. News Dissector Danny Schechter edits and wrote Plunder: Investigating Our Economic Calamity (Cosimio) now at online book stores.


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Posted on Tue, Nov 04, 2008 07:10

Quoting MissMonteCarlo: Sooo millionaire's and fellow normals are you feeling that pinch yet? sarah :-O

Sign of time. BQ All major automakers see sales plunge in October Updated 1h 9m ago | Comments 311 | Recommend 87 E-mail | Save | Print | Reprints & Permissions | Enlarge By Paul Sakuma, AP Ford customers Kim Cloud, right, kicks a tire as his sister, Kendra Roberts, right, looks at a special edition Harley-Davidson truck made by Ford at a Ford dealership in San Leandro, Calif., last month. OCTOBER AUTO SALES Sales declines for the six biggest automakers vs. October 2007: Oct. sales % chg. General Motors 168,719 45.1% Ford 132,248 30.2% Chrysler 94,530 34.9% Toyota 152,101 23.0% Honda 85,864 25.2% Nissan 56,945 33.0% Source: Autodata AUTO LOAN RATES National overnight averages Today +/- 36 month new car loan 6.84% 48 month new car loan 6.60% 60 month new car loan 6.62% 72 month new car loan 6.44% 36 month used car loan 7.20% About these rates To compare rates in your area: Enter zip code Fearful consumers avoided auto dealerships in October, sending U.S. sales to their lowest levels in more than 25 years. Industry sales plummeted 31.9% from a year ago, according to industry tracking firm Autodata. Automakers sold just 838,156 new vehicles in October, the second consecutive month below 1 million. Until then, monthly sales had been more than 1 million since February 1993. General Motors (GM) says that, adjusted for population growth, U.S. sales were as low last month as they were just after World War II. Without government intervention, GM doesn't see a rebound. "Bottom line, there really needs to be action (to loosen credit) to allow our country to pull out of this very, very bleak period," said Mike DiGiovanni, GM's chief forecaster. Toyota (TM) officials say they would favor tax rebates for car buyers as long as they cover any brand. FIND MORE STORIES IN: Seattle | World War II | General Motors | Autodata | High | Dana Johnson | Comerica | Mike DiGiovanni Every major automaker saw significant declines last month. If new cars and trucks were sold all year at October's pace, sales would be just 10.6 million in a full year, according to a seasonally adjusted index the industry uses. Last year, 16.1 million were sold. Even in the deep auto recession of the early 1990s, automakers sold more than 12 million annually. For the year to date, Autodata shows sales down 14.6%. October sales fell even as automakers boosted incentives. The deals continue this month, but unless confidence in the economy improves, rebates and loan deals won't have much impact, automakers and analysts agree. "We had such a collapse of confidence in the month that anyone who could postpone the purchase of a car certainly tried to," says Dana Johnson, chief economist for Comerica. Tighter credit held back some of those who did want to buy. Historically, 96% of new-vehicle purchases are credit transactions, and credit is harder to get. Also, deflated home values mean people can't tap their home equity to borrow for a new vehicle. One bright spot: High fuel prices earlier this year dampened sales, but gasoline has collapsed to less than $2 a gallon in some spots, and that could help in the months ahead. The continued sales declines spell deepening trouble for auto dealers. Mark Johnson, a Seattle dealer consultant, said after September sales reports that 2,000 dealers could go out of business by the end of 2009. October results show the situation worsening. "If auto sales continue at October's pace, which was the worst in recent memory for many dealers, there's no doubt that significantly more dealers will not make it through this downturn," he said. In the long run, that could mean reduced competition and higher prices for car and truck buyers.


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Posted on Mon, Nov 03, 2008 15:14

Here's a great article for those of you who are interested in really understanding this issue. It is from the management consulting firm The Boston Consulting Group. Sorry if you find it too long but it is very informative! Collateral Damage What the Crisis in the Credit Markets Means for Everyone Else - October 2008 - David Rhodes, Daniel Stelter, Shubh Saumya, Andr? Kronimus Given the dramatic events in the capital markets, everyone is wondering what will happen next ? and what the implications are for the wider economy. This paper is structured into five chapters. The first three chapters explain some of the background to the crisis both in the capital markets and now in the broader economy; the fourth chapter then explores likely future economic scenarios and the challenges facing companies outside the financial sector; and the final chapter highlights some of the actions companies should be taking in order to respond these challenges. 1. The current Financial and Economic Situation The week of September 15, 2008 marked the end of America?s Depression-era financial system. Where some had hoped that the earlier collapse of Bear Sterns presaged the end of the crisis, it turned out that it was only an early warning. With Lehman Brothers in bankruptcy, Merrill Lynch arranging a forced sale, Goldman Sachs and Morgan Stanley reorganizing as banks and seeking emergency investors, and AIG accepting a government bailout, the U.S. Financial Services landscape changed irrevocably ? and virtually overnight. The subsequent fall of Washington Mutual, the takeover of Wachovia by Wells Fargo (or Citigroup?), and European government intervention in Fortis, Dexia, Hypo Real Estate and others have only accentuated the gravity of the moment. And beyond the uncertainties facing the real banks, there is mounting concern around the rest of the shadow banking system: hedge funds, PE funds and other alternative investors. What began as a leverage crisis and a credit crunch has turned into a full blown insolvency problem as well. The modern financial system rests on three pillars: capital, liquidity, and confidence. Unprecedented losses (about $250 billion in the United States, $200 billion in Europe and $100 billion in Asia as of August 2008) have depleted financial institutions? capital faster than their ability to raise new capital (about $400 billion in the same period). Illiquid capital markets have made it hard for them to finance their own debt. Falling confidence has damaged inter-bank lending and made depositors jittery. Not since the crash of 1929 has the global financial system been subject to such a severe shock. Although the financial system is at the centre of this turmoil, the ramifications will travel throughout the broader economy. The rapid industrialization of emerging markets, the globalization of supply chains, and the march of entrepreneurship have all been fuelled by the easy availability of plentiful capital and cheap debt. Any disruption to this dynamic will inevitably slow economic growth around the world ? even if debt-burdened consumers, particularly in the U.S. and UK, had any capacity to spend more to restore growth in the first place. While no one can predict with certainty the severity and duration of the global economic slowdown, a recession now seems inevitable, and is likely to be relatively long. The Boston Consulting Group - 2 - 2. The Roots of the current Crisis The credit crisis is the consequence of aggressive risk taking by highly leveraged financial institutions which funded unsustainable economic growth, particularly in the U.S. Underlying this dynamic were three widely held misconceptions: that the creditworthiness of borrowers was strong, that investors were sophisticated and that credit risk was widely distributed. The first belief was perhaps the most reasonable?at least on the surface. For years, credit losses had been relatively limited, so borrower creditworthiness did indeed appear to be strong. There was, however, a dangerous circularity to this logic. Lender and investor perception of healthy homeowner credit drove spreads lower, causing marginal borrowers to appear to be more financially attractive than, in fact, they were, and making it easier to justify providing them financing. This was further fuelled by a belief that any financially constrained borrowers would be covered by ever-rising house prices via the home equity release products. The unintended result was highly imprudent lending to people who could not afford the homes they were buying. With the bursting of the housing bubble, the problem was there for all to see. So far, U.S. housing prices have fallen about 20 percent, not yet bringing the market to long term historic price levels. In late 2006, default rates on sub-prime loans were only 1 percent; a year later, they were at 10 percent. Today, Moody?s estimates that banks made in the neighbourhood of 15 million high-risk mortgage loans in the U.S. between 2004 and 2007 and that a full two thirds will ultimately end up in default. The second belief provided even more false comfort. With unprecedented access to data and analytics, lenders and investors were assumed to be exceptionally sophisticated. Advanced financial technology meant that risk could be finely tailored to their specific needs. Strengthened by credit insurance and blessed by rating agencies, this risk was assumed to be near bullet-proof. Consequently, the capital applied against it was minimized. Finally, market participants believed that risk was widely distributed among global investors. Even if credit worsened and analytics failed, absence of concentrated risk would prevent systemic problems. This belief, more than any other factor, explains why people?instead of being wary of a market bubble?were under that impression that ?this time, it?s different.? The Boston Consulting Group - 3 - Unfortunately, not only was homeowner credit suspect, but the market had misread this risk. In the ensuing panic and consequent liquidity crisis, the safety net of risk analytics and ratings was seen to be an illusion. When investors realized the risk was largely concentrated on bank balance sheets, their confidence in the financial system eroded rapidly. One might ask oneself why did global capital markets grow as fast as they did and why were they able to absorb all this ? in retrospect ? risky borrowing? The answer lies as much in investor demand for fixed income securities that offered good returns as it did in the insatiable appetite of consumers for debt to fuel their spending (see below). By 2000, the total pool of global fixed income securities had reached $35 trillion. It had taken hundreds of years to get there. Yet it doubled over the next six years. In the early 2000s Alan Greenspan ? the former chairman of the Fed ? had publicly asserted that the Fed Funds rate would be kept low for the good of the economy. This meant that U.S. Treasury Bonds would offer a low return for the foreseeable future. So Wall Street filled the void, packaging higher yielding mortgage debt into (apparently) AAA-rated securities. The problem was that the incentives driving the mortgage originators and the securities distributors created a moral hazard: their rewards were not aligned with sound credit underwriting principles or the distribution of assets backed by sound collateral. Credit was granted to uncreditworthy individuals, packaged into securities, and pushed out into the Market. And seemingly unlimited investor demanded drove this bubble further. At the same time, the derivatives market for so-called credit default swaps (CDS) ? instruments originally intended to trade and insure credit risk ? exploded from a notional amount of less than $500 billion in 2000 to $62 trillion in 2008 ? for comparison, global GDP for 2008 is also forecasted to be $62 trillion. Now, as part of the credit risk on which these swaps are written materializes, many of these CDS need to be settled. This can have severe consequences if the counterparties who wrote these CDS cannot perform on their liabilities. Initially, this means that these counterparties will default. But it also implies that the respective CDS buyers ? who bought these instruments to insure against credit events ? will be left without insurance and so are likely to suffer further losses. Such losses could then also drive these buyers into bankruptcy. In order to prevent exactly this from happening, the U.S. government bailed out AIG which had written $78 billion of CDS on securitized mortgages or so-called collateralized debt obligations The Boston Consulting Group - 4 - (CDOs). The worrying takeaway is that the CDS market might conceivably hold an even bigger problem to come. As of now, the resulting chaos from their misjudgements has forced bankers to revisit all their flawed assumptions. Driven by spiking defaults (starting in high-risk mortgages but now spreading to standard mortgages and likely on to consumer debt, highly leveraged private equity deals, and corporate debt), banks are tightening lending standards on all loans. Banks and rating agencies are clamping down on financial engineering and innovation thereby reducing flexibility of terms and instruments available to borrowers. Finally, a reduced ability to place debt with investors implies banks now have to hold more of it on their own balance sheets. At the same time, the capacity of their balance sheets is shrinking as they reduce their leverage. Thus, the debt available for their customers is constrained and the price for it is materially higher. Credit spreads have expanded by more than 100 basis points (bps) for loans rated BBB?and more than 300 bps for those rated BB. Issuance of asset-backed securities fell by more than 75 percent in the second half of 2007, compared to the first half of the year, and has virtually ground to a halt in 2008. And even issuance of plain debt has fallen more than 75 percent from


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Posted on Mon, Nov 03, 2008 14:05

Quoting MissMonteCarlo: Sooo millionaire's and fellow normals are you feeling that pinch yet? sarah :-O

This is absolutely terrible, especially when Europe is already strugling hard. BQ Manufacturing crash adds to global gloom Mon Nov 3, 2008 4:10pm EST NEW YORK (Reuters) - Factory activity contracted sharply in October, falling to its lowest in 26 years as the financial crisis ravaged the world's largest economy and its trading partners around the globe. The one bright spot in the report was that its main gauge of inflation, the prices paid measure, recorded its biggest one-month drop ever. This should let the Federal Reserve keep interest rates low to fight off what many fear will be a deep recession. "Pretty grim. It means we're in a recession, it's as simple as that ... a pretty solid manufacturing recession," said Robert Macintosh, chief economist at Eaton Vance Corp in Boston. "The question is, 'How long or deep is it going to be?'" The Institute for Supply Management said its index of national factory activity fell to 38.9 in October from 43.5 in September. That was well below the 50 level separating contraction from expansion, and a reading below 40 is exceptionally weak. Economists had expected a reading of 41.5, according to the median of forecasts in a Reuters poll. On Wall Street, stocks overcame initial selling after the ISM's data release at mid-morning to fluctuate between positive and negative territory throughout the session. Just after the 4 p.m. closing bell, the Dow Jones industrial average and the Standard & Poor's 500 Index were slightly lower and the Nasdaq Composite Index was modestly higher. The dollar managed to gain against the euro and yen. Monday's data came a day before the U.S. presidential election and added to the load of evidence indicating that whoever wins will face a monumental task in getting the economy back on track. Other data showed U.S. construction spending fell in September, while data from around the globe showed few if any regions were immune to the pronounced economic deterioration. The euro zone is already in a technical recession and growth will come to a virtual standstill next year, according to the European Commission, which called for coordinated European Union action to support growth. Euro-zone manufacturing sank in October below record low levels initially estimated and may have further to fall. British factory output contracted for a sixth consecutive month. A measure of Chinese manufacturing showed factory output shrank sharply in October in the face of waning orders. UNIFORMLY WEAK The slowdown elsewhere in the world is bad news for the United States, where manufacturing had been kept afloat until August with the help of buoyant exports. October's report showed index of new export orders fell to its lowest on record since the ISM began polling on this issue in January 1988. It was also deep in contractionary territory, ending 70 consecutive months of growth, the ISM said. The data foreshadowed a grim outlook, with the index of new orders hitting its lowest since 1980. "Usually when we see new orders drop significantly it's not a one-month event," Norbert Ore, chairman of the Institute for Supply Management's manufacturing business survey committee , said on a conference call with reporters. "It will take a while for the correction to take place." (Additional reporting by John Parry; Editing by Dan Grebler)


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Posted on Mon, Nov 03, 2008 14:02

Quoting MissMonteCarlo: Sooo millionaire's and fellow normals are you feeling that pinch yet? sarah :-O

This is absolutely terrible. BQ Manufacturing crash adds to global gloom Mon Nov 3, 2008 4:10pm EST NEW YORK (Reuters) - Factory activity contracted sharply in October, falling to its lowest in 26 years as the financial crisis ravaged the world's largest economy and its trading partners around the globe. The one bright spot in the report was that its main gauge of inflation, the prices paid measure, recorded its biggest one-month drop ever. This should let the Federal Reserve keep interest rates low to fight off what many fear will be a deep recession. "Pretty grim. It means we're in a recession, it's as simple as that ... a pretty solid manufacturing recession," said Robert Macintosh, chief economist at Eaton Vance Corp in Boston. "The question is, 'How long or deep is it going to be?'" The Institute for Supply Management said its index of national factory activity fell to 38.9 in October from 43.5 in September. That was well below the 50 level separating contraction from expansion, and a reading below 40 is exceptionally weak. Economists had expected a reading of 41.5, according to the median of forecasts in a Reuters poll. On Wall Street, stocks overcame initial selling after the ISM's data release at mid-morning to fluctuate between positive and negative territory throughout the session. Just after the 4 p.m. closing bell, the Dow Jones industrial average and the Standard & Poor's 500 Index were slightly lower and the Nasdaq Composite Index was modestly higher. The dollar managed to gain against the euro and yen. Monday's data came a day before the U.S. presidential election and added to the load of evidence indicating that whoever wins will face a monumental task in getting the economy back on track. Other data showed U.S. construction spending fell in September, while data from around the globe showed few if any regions were immune to the pronounced economic deterioration. The euro zone is already in a technical recession and growth will come to a virtual standstill next year, according to the European Commission, which called for coordinated European Union action to support growth. Euro-zone manufacturing sank in October below record low levels initially estimated and may have further to fall. British factory output contracted for a sixth consecutive month. A measure of Chinese manufacturing showed factory output shrank sharply in October in the face of waning orders. UNIFORMLY WEAK The slowdown elsewhere in the world is bad news for the United States, where manufacturing had been kept afloat until August with the help of buoyant exports. October's report showed index of new export orders fell to its lowest on record since the ISM began polling on this issue in January 1988. It was also deep in contractionary territory, ending 70 consecutive months of growth, the ISM said. In fact, the report was uniformly weak, and employment in the sector was dismal. The ISM's gauge of employment suffered its biggest one-month drop in 20 years and fell to its lowest since March 1991. The data foreshadowed a grim outlook, with the index of new orders hitting its lowest level since 1980. "Usually when we see new orders drop significantly, it's not a one-month event," said Norbert Ore, chairman of the Institute for Supply Management's manufacturing business survey committee , in a conference call with reporters. "It will take awhile for the correction to take place." The factory sector, like the rest of the economy, has been squeezed by a severe tightening of credit during the worsening of the financial crisis. Most U.S. and foreign banks tightened lending standards to businesses and households over the last three months amid economic uncertainty and weakened capital positions, the Federal Reserve said on Monday. Automakers have been hit hard. U.S. auto sales plunged near 25-year lows in October, led by a 45 percent drop at General Motors Corp, with no sign the industry's year-long slump had hit bottom and doubts persisting that all the major automakers can survive.


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