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Topic: GaeTold Us To Hoard Dollars
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The Big Sexy
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posted September 25, 2008 10:16 PM
From back in April:--------------------------------------------------------------------------------
Originally posted by LanDroid:
"Gradually start to hoard dollars and short the euro. "
Not that I have enough money to speculate on currencies, but that doesn't sound too smart. We'll see... http://finance.yahoo.com/currency/convert?amt=1&from=EUR&to=USD&submit=Convert
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I'll preface this by saying I don't think anyone truly knows how this mess will pan out. The Fed has been pressured to lower the rates, and every time the interest rates fall, investing in the US becomes less attractive and the demand for dollars falls. As demand falls, so does the dollar's value.
With the government expanding its balance sheet with bad collateral from nonbank financial institutions, there is now talk of it losing its AAA rating. This will of course raise interest rates, but reduce one of the reasons foreign governments park their money here: security. Then factor in foreign governments like China who own massive amounts of US debt. Should they decide they no longer like us or want to put their money elsewhere, that would cause the dollar to tank big time. So I guess we kiss China's butt or risk financial ruin. And if the dollar ceases to be the world's reserve currency of choice as some have speculated, that would cause the dollar to tank even more. The home crisis isn't over. By some accounts, despite all we've seen, the worst is yet to come. Foreclosure rates you read about in the paper are too low because banks are letting homeowners fall further behind because the case load is so high. And by some estimates, home prices may decline upwards of another 25%, which would give great incentive for many to simply walk away from their homes. And to add to the fun, now that homeowners can't tap their home equity, they're ramping up their credit cards. As we all know this can only last so long. Eventually that party will have to stop, so watch for consumer spending to come to a fabulously screeching half should the economy not turn around soon. Anyway, for the first time in our lifetimes, there's talk of the US government losing its AAA rating, the dollar losing its status as the dominant currency, and massive declines in net worth due to declining home values. Let's see how deep the recession goes. Keynesian economics dictates that the government saves during times of prosperity and spends during times of crisis. Unless you're a Republican, and you spend to the hilt regardless. Afterall, we've had Republican presidents 20 of the last 28 years and 70% of our deficit occurred with a Republican president in office. So it seems Al Qaeda got it right. They don't need to beat us on the battlefield; they'll just bleed our pocketbooks, knowing that a jackass president is willing to attack the wrong country in a wrong way by taking thousands of American lives and hundreds of billions of dollars as he takes us down the tubes by forcing us to spend regardless of where the economy is going. Horde those dollars, gae. [ April 15, 2008 01:54 PM: Message edited by: The Big Sexy ]
[ October 02, 2008 10:28 AM: Message edited by: The Big Sexy ]
-------------------- Obama? Yo Mama! Bush and Cheney Violate Our Constitution.
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Posts: 4270 | From: Cincinnati, Ohio, USA | Registered: Apr 2001 | IP: Logged | Problem w/ Post?
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LanDroid
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posted October 03, 2008 06:56 AM
Hold on now, I've been looking at the link I provided up top. If I'm reading it right (i.e. perhaps I have it backwards, currency charts are confusing to newbs), in April at the time GAE urged us to hoard dollars, the Euro cost about $1.55 to $1.60 US. Currently the Euro costs about $1.40 US, which means the dollar got stronger, reversing the trend of the six months prior to April. I think those two been holding out on us - GAE is really a Forex guru and they have retired to an Irish mansion with 500 acres... Ummmmm, uhhhh, got any more hot tips? ![[shhh]](graemlins/shhh.gif)
[ October 03, 2008 06:59 AM: Message edited by: LanDroid ]
Posts: 3279 | From: landroid@excite.com | Registered: Apr 2001 | IP: Logged | Problem w/ Post?
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The Big Sexy
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posted October 03, 2008 08:50 AM
quote:
Originally posted by LanDroid:
Hold on now, I've been looking at the link I provided up top. If I'm reading it right (i.e. perhaps I have it backwards, currency charts are confusing to newbs), in April at the time GAE urged us to hoard dollars, the Euro cost about $1.55 to $1.60 US. Currently the Euro costs about $1.40 US, which means the dollar got stronger, reversing the trend of the six months prior to April. I think those two been holding out on us - GAE is really a Forex guru and they have retired to an Irish mansion with 500 acres... Ummmmm, uhhhh, got any more hot tips? [ October 03, 2008 06:59 AM: Message edited by: LanDroid ]
I get confused with exchange rates, too, but I read it exactly the way you do. The dollar is stronger than it was back in April.(For the record, I brought that up for more of a long term view. I don't know how to play the exchange rate game, but I'm guessing someone made some money on that gamble, I don't know.) One of the explanations is that Europe is now being sucked into the subprime crisis; their banks are more highly levered than the US banks and property values are just as inflated if not more so than they were in the US. Several banks have been nationalized. The declining price of oil helps. Lower inflation helps the dollar. The credit crunch will probably mean lower interest rates, which will cause downward pressure on the dollar.
[ October 03, 2008 08:52 AM: Message edited by: The Big Sexy ]
Posts: 4270 | From: Cincinnati, Ohio, USA | Registered: Apr 2001 | IP: Logged | Problem w/ Post?
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The Big Sexy
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posted October 06, 2008 08:04 PM
quote:
Originally posted by LanDroid:
All of my assets and investments, even foreign stock funds, are denominated in US dollars, so I've have already made a choice, not that I was given much of a choice in the matter... I presume you've done the same... ![[smarty]](graemlins/smarty.gif) Hey, things are going so great, let's speculate in Iraqi Dinars! [ October 03, 2008 08:52 PM: Message edited by: LanDroid ]
Most of my money is in short term cds. Whether that's right or not, I do not know.The Euro tanked today. It's officially a mess over there, now.
Posts: 4270 | From: Cincinnati, Ohio, USA | Registered: Apr 2001 | IP: Logged | Problem w/ Post?
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LanDroid
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posted October 06, 2008 09:13 PM
quote:
Why haven't you mentioned that the mortgage fiasco can be blamed, in part, on legislation Democrats in Congress forced on financial institutions to loan money to minorities who did not qualify and would not under their present circumstances ever be able to pay back their loans?
I take it you believe German mortgage lenders have also been lending to poor minorities in the U.S.?
quote:
Late on Sunday night, top officials from Germany's Bundesbank central bank, financial watchdog BaFin and executives from the country's main commercial banks agreed to a new rescue package for troubled Munich-based mortgage lender Hypo Real Estate. The financial sector agreed to provide an extra €15 billion ($20.4 billion) in liquidity for HRE on top of the €35 billion they had already committed together with the Bundesbank in a package hammered out a week ago, the Finance Ministry said."With this commonly forged solution, (Hypo Real Estate) will be stabilized and thereby the German financial marketplace strengthened in difficult times," the ministry said. http://www.spiegel.de/international/business/0,1518,582359,00.html
Posts: 3279 | From: landroid@excite.com | Registered: Apr 2001 | IP: Logged | Problem w/ Post?
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The Big Sexy
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posted October 07, 2008 07:59 AM
quote:
Originally posted by LanDroid:
Short term CD's? That's another thing I hate about investing. The experts say you can't time markets therefore you should never withdraw money when they turn bad. So I never do. Then when experts are asked where their money is, they say things like "I'm in two positions: cash and fetal." Great, thanks for advice you won't take yourself...
I started moving my investments, August 2007, and have steadily transferred more since. While some of my meager holdings fell before I made the move, they have fallen a lot more since.There are always means by which to make money, even in a falling market. I'm not an expert on those things, nor do I have time to figure them out. Also, I'm figuring they did this intentionally, but my company's 401k does not have a money market fund. At the beginning of the year, I picked the most conservative bond fund in the plan, and it's down 7.6% year to date. That sucks. But I guess that's not as sucky as the S&P being down 26% year to date (as of a couple weeks ago when I last checked).
[ October 07, 2008 08:04 AM: Message edited by: The Big Sexy ]
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The Big Sexy
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posted October 07, 2008 08:15 AM
quote:
Originally posted by Beachcomber:
So if I am to understand things properly Reason, the whole current financial mess has its origins in the sub-prime mortgage fiasco? Why haven't you mentioned that the mortgage fiasco can be blamed, in part, on legislation Democrats in Congress forced on financial institutions to loan money to minorities who did not qualify and would not under their present circumstances ever be able to pay back their loans? I would like to have a $300,000 house myself, but I can't afford it. I bought what I could afford and I'm not whining to the federal government to bail me out of something that was over my head to begin with.
Fannie and Freddie have specific standards in the charter about what loans they can guarantee. I've been unable to find them specifically, but it's something like an 80% loan to value with a limited loan size and a fixed rate. The point? They aren't allowed to buy subprime loans.If they aren't allowed to buy subprime loans, then how do they own so many of them? They bought the AAA rated traunches of the collateralized mortgage obligations made up of subprime loans. We find out now that those AAA securities really weren't AAA. I guess when rating agencies sit down with Wall Street to figure out how to turn stinky pools of loans into pristine AAA securities - and gets paid by Wall Street to do this - it's no surprise we have stinky AAA securities. I blame Fannie and Freddie for fudging the rules, but I don't blame them for buying AAA securities. (If anyone can refute the claim that the GSEs only bought AAA securities, I welcome that info...I've personally been looking for it myself.) About a week before the GSEs were nationalized, I listed to a call by Citigroup, which reflected the opinion of other analysts that Fannie and Freddie - while problematic - didn't need to be nationalized. The loans they backed were actually of higher quality than that of the banks. As I see it, there's was a problem of liquidity, not of failed loans. Investors (like China) insisted on explicit gov't backing or else they would cease buying the GSEs debt. That would put the GSEs out of bidness and tank the home market even more. Because The Big Sexy is a maverick, his opinion deviates from the increasingly dismal spew the Wall Street Journal puts out.
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Posts: 4270 | From: Cincinnati, Ohio, USA | Registered: Apr 2001 | IP: Logged | Problem w/ Post?
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Beachcomber
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posted October 07, 2008 10:32 AM
NY Times article, September 1999:September 30, 1999 Fannie Mae Eases Credit To Aid Mortgage Lending By STEVEN A. HOLMES In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.
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Posts: 1299 | From: FLORIDA | Registered: Mar 2006 | IP: Logged | Problem w/ Post?
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The Big Sexy
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posted October 07, 2008 12:44 PM
As I pointed out on another thread, while the GSE's market share blossomed to 41% in 2000, it declined to 34% by 2007, primarily because the accounting scandal limited their ability to back new loans. Meanwhile, the independent lenders grew their market share from 19% to 30%. The goal of Fannie and Freddie was to tap the best of the subprime borrowers. Securitization of subprime allowed the lenders to abandon underwriting and package these loans as top quality investments. If you look up the definition of "subprime," there's no one specific meaning. It could mean a higher loan to value, or it could mean a lower FICO score, or it could mean no down payment...it could have a number of meanings. But it doesn't necessarily mean the person can't own a house. We need to get back to the source of the problem: Securitization allowed the banks to abandon standards and sell off the loans as something better than they actually were. My latest research project is to determine the lobbying efforts of the Countrywides and Wamus of the world. I understand they were highly instrumental in pressuring the GSEs to take on subprime.
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Posts: 4270 | From: Cincinnati, Ohio, USA | Registered: Apr 2001 | IP: Logged | Problem w/ Post?
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The Big Sexy
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posted October 07, 2008 12:49 PM
Bond Insurers - The Hidden Conspirators of the Mortgage Meltdown
August 10th, 2008 by Rob K. Blake | 2 Comments | Filed in Mortgages, subprime
Bond insurers are virtually never discussed as a pivotal and responsible party in the subprime mortgage meltdown. Companies like Ambac and MBIA this week used a new accounting rule to post deceptive earnings gains after multiple quarters of multi-million dollar loses. The duplicity of the bond insurers in earnings reports and the over-all “asleep at the wheel” subprime insurance they issued deserves an airing out…so here goes.Wall Street knew they’d need a form of insurance to entice pension funds, foreign banks, and other investors to buy the subprime mortgage backed securities they created called CDOs or collateralized debt obligations. A CDO is a form of bond and therefore the bond insurance companies would need to be recruited to complete Wall Street’s high risk scheme to help make CDO investment look less risky. Was Wall Street trying to pull a fast one on the bond insurers? Sure, but that’s to be expected. Bond insurers job is to ferret out the bad bets and only lend their stamp of approval to investments that pass muster. But before we continue let’s look at bond insurers in general. This is a bond insurers business model…insure investors against loss - both principal and interest. Bond insurers typically make their money from truly low risk state and municipal bond insurance. Rarely do those types of bonds default, so the insurance a company issues to cover any losses to investors rarely needs a claim paid. However, when Wall Street came calling on subprime CDOs, the bond insurers got blinded by their greed seeing a whole new, much more profitable market. They used their AAA rating to issue insurance on obviously risky financial instruments knowing full well if defaults mounted they’d be on the hook for both principal and interest payments to the investors. Wall Street could now sell billions in subprime CDOs with the bond insurers on board. If the bond insurers had simply said, “No, we won’t rubber stamp your crappy subprime mrotgage CDOs ruining our name, our balance sheet, and our AAA rating just so you can fleece investors around the globe.”…there would have been no subprime secondary market. No subprime secondary market…no subprime mortgage meltdown…no subprime mortgage meltdown…no real estate bust…or so the story goes. If the bond insurers had done even the least amount of “common sense underwriting” of the risk these subprime CDOs held the country could have avoided the creation of the subprime secondary market and the subsequent destruction of said market taking the economy with it. The bond insurers were our last line of defense…and they went AWOL when we needed them most. With Ambac and MBIA back in the headlines, I thought you should know these type of companies are back playing games with numbers. This time instead of turning a blind-eye to risks, they are using newly passed accounting rules which magically allow them to show earnings gains (at least on paper) where none existed before. Whether bond insurers are deceiving subprime mortgage CDO investors or their own stockholders, they seem to have no problem acting immorally. With morally indifferent companies having such a powerful position in our financial markets, a better case for a complete overhaul in regulation can’t be found. Maybe Congress could spend a little more time focusing on regulating the bond insurers and a little less time passing so many forms of new regulation on mortgage brokers most of them will go out of business trying to comply. Right…who am I kidding?
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Although she is the expert!
posted October 06, 2008 08:47 PM
