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The Economy And The Sub-prime Crisis


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I was shocked that there wasn't already a topic on this, for a topic that IMO is the biggest issue in the world at the moment, even bigger than the genocides out East.

So I think a thread would be appropirate for people to discuss how this whole mess is affecting them, your opinoins and suggestions, and other things about this rather barren economy.

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Well thing is no one really knows what o say about this crisis. Even the 'experts' guesses are just that, guesses. Definately scary overall, but the past couple of weeks we've started to see some signs that things like retail spending, number of jobs cut per month (not unemployment rate), stock markets, real estate, etc. may be bottoming and the banking industry is improving.

I'm hopeful we'll see the economy come out of recession late this year, although unemployment rate probably won't improve until 2010.

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WHAT..... theres a financial crisis going on?

All this time i thought that i've just lost 60,000$ and couldn't find it anymore..... oh well my bad :rolleyes:

No seriously theres no subject on this because, people these days need POSITIVE things to talk about, everyone is sick and tired to hear every single day news like a kid went to a school with a gun and shot 12 other kid for no reason (or because he split up with his girlfriend (my personal favorite)) or that they were 150,000 job lost in january alone this year and so on.

Pop quiz, in your life time...... how many positive news have you ever heard on a news broadcast?

I'm willing to bet that, that number isn't higher than your age. (no matter how old you are)

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How is this for something unusual.....the Comapny I work for was in bankruptcy for four years, and guess what?? We took a pay cut to help our company come out of bankruptcy, and our company didn't take a government bailout!!

Don't get me wrong taking a $150 a week hit hurts but we still have our jobs and our benefits and our benefits are pretty good...so tighten the belt.....

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How is this for something unusual.....the Comapny I work for was in bankruptcy for four years, and guess what?? We took a pay cut to help our company come out of bankruptcy, and our company didn't take a government bailout!!

Don't get me wrong taking a $150 a week hit hurts but we still have our jobs and our benefits and our benefits are pretty good...so tighten the belt.....

ouch.

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How is this for something unusual.....the Comapny I work for was in bankruptcy for four years, and guess what?? We took a pay cut to help our company come out of bankruptcy, and our company didn't take a government bailout!!

Don't get me wrong taking a $150 a week hit hurts but we still have our jobs and our benefits and our benefits are pretty good...so tighten the belt.....

You're company didn't take a government bailout, as in was offered one and declined?

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Well thing is no one really knows what o say about this crisis. Even the 'experts' guesses are just that, guesses. Definately scary overall, but the past couple of weeks we've started to see some signs that things like retail spending, number of jobs cut per month (not unemployment rate), stock markets, real estate, etc. may be bottoming and the banking industry is improving.

I'm hopeful we'll see the economy come out of recession late this year, although unemployment rate probably won't improve until 2010.

I think those things are just abberations of people trying to buy while the value of the economy is low and attempting to pick up a bargain.

However IMO it won't be enough, theres simply too many people in debt, too many greedy people getting their butts handed to them that a small handful of smart spenders won't do jack. Eventually the bandaids will peel off the banks/big industries and the recession will worsen.

All this time, the value of a dollar isn't improving significantly at all, and Obama is thinking too long-term with his solutions and his bills.

I'm hoping for the best but preparing for the worst, it could be another Great Depression.

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I think those things are just abberations of people trying to buy while the value of the economy is low and attempting to pick up a bargain.

The stock markets could be that, but the other stuff I mentioned isn't. Banks posting a profit, consumer spending increasing, unemployment monthly figures decreasing, today it was just announced that inflation increased, yesterday they said the amount of new houses being built was increasing. There are all very good signs that the fundamentals may be starting to improve

However IMO it won't be enough, theres simply too many people in debt, too many greedy people getting their butts handed to them that a small handful of smart spenders won't do jack. Eventually the bandaids will peel off the banks/big industries and the recession will worsen.

Long term the US debt is a major concern, but so far it's still manageable.

All this time, the value of a dollar isn't improving significantly at all, and Obama is thinking too long-term with his solutions and his bills.

The value of the American dollar actually improved quite a bit during the recession, but that isn't really a good measure of the strength of an economy. During a recession everyone piles into the US Dollar because it's considered safe.

I'm hoping for the best but preparing for the worst, it could be another Great Depression.

Key word is could, I'd say it's highly unlikely. We haven't seen deflation, unemployment looks like it will be similar to the 70s/80s recessions, and overall I think the government is being a lot smarter. I doubt we would have seen the string of recent good news if the economy was truly falling into depression.

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I hope you're right Graeme, as I am not a economics expert (which is stupid b/c I'm a business major lol), but I just don't see a end coming anytime soon. I think the bandaids are gonna peel off the bank and others soon and show that nothing changed other than money has been injected into the system.

While there may be signs of a recovery, IMO they're too slight to do anything in the short-term which is what needs to happen, not Obama's long term plan.

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You're company didn't take a government bailout, as in was offered one and declined?

Was never offered one, but hey the way things are going here they should have asked, they probably would have gotten one, but then I guess that would make me a government employee and Barney Frank would want my name and how much I make so he could make it public like the AIG folks....

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I hope you're right Graeme, as I am not a economics expert (which is stupid b/c I'm a business major lol), but I just don't see a end coming anytime soon.

I wouldn't say 'soon'. Even best case the recession would end late this year, and we'll probably limp out of it, it will be years until unemployment is at a reasonable level. But that's far from another Great Depression.

I think the bandaids are gonna peel off the bank and others soon and show that nothing changed other than money has been injected into the system.

But money being injected into the system was exactly what was needed. In theory, you can have as many toxic assets as you want as long as the government buys them up

While there may be signs of a recovery, IMO they're too slight to do anything in the short-term which is what needs to happen, not Obama's long term plan.

Short term, things are going to be tough. Unemployment will continue to increase and the GDP will remain negative. But the stimulus package should help to keep some money flowing, it won't fix everything, but should help kickstart the economy or at least tide it over until it naturally recovers.

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  • 2 weeks later...

For anyone who is truly interested in the week to week developments in the American Economy as well as some interesting statistics you won't hear on CNBC I highly recommend checking out NPR's Planet Money Podcast/Blog. They try to not take any political stance on the issue (unlike most network television) and simply reports the stats and the stories of the current recession and where they think it may be headed. One of the most interesting statistics I've heard during this crisis is actually the unemployment rate in America. As we've all heard myriad times, the unemployment rate during The (First) Great Depression was 25% which in the end was an estimated number as the government had not yet begun taking such intricate statistics. Meanwhile the current rate of unemployment is just below 9% so naturally eveyone who sees this number thinks that we are no where near as bad off as they were in the 1930's. However, the 9% unemployment rate is the U3 rating, which is deemed the official unemployment rating, is only one of 6 unemployment ratings used by the US Government (U1, U2, U3, U4, U5, U6). Many economists are now saying that the U6 rating is a more accurate determination of the health of the workforce and in fact the U6 rating is the closest of the 6 ratings to that which was used to calculate the 25% unemployment rate during the 30's. And this past month the U6 rating just crested 16%. I am in no way optimistic about the current crisis as I have not seen any of the positive numbers which graeme has stated. Perhaps we truly are on our way out of this crisis but from what I see we are still getting worse but hopefully close to bottoming out.

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I'm pretty lucky in that I'm in a city that is relatively unaffected by the current recession in comparison to other parts of the country. With so many military, government, and health care jobs in the area, the unemployment situation is better in Victoria than in many places. Even the tech sector is still going strong, still growing and hiring, but at a slower pace than before.

But there are, of course, some signs of the recession. The biggest being that there aren't as many houses changing hands. Housing prices are coming down a little bit, but that's not a bad thing in a city where you're starting at $350k for a single family detached home out in the boonies. Tourism will likely be down this year too, with fewer out-of-town visitors. That could hurt the second largest part of the region's economy (tech sector took over from tourism a couple years ago).

I'm lucky in that I've got a secure job in a health-care related field. What might hurt, though, is when the union goes to negotiate a new contract next year, just 2 months after the Olympics. I don't think that's going to go terribly well if the economy is still down. There are rumors of forced wage rollbacks and the like.

And I'm still mad at my brother for being so against a variable mortgage rate (we bought a house together). Every time I hear about the interest rates dropping again, I want to hit him. Lucky for him, he's on the other side of the globe right now. :P

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I'm hoping for the best but preparing for the worst, it could be another Great Depression.

It could be but the reality is life will go on. In such a scenario the rich will (and are) get richer while the vast majority of people will continue to be busy (95% of the time) working, paying their bills and making/eeking out a living.

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For anyone who is truly interested in the week to week developments in the American Economy as well as some interesting statistics you won't hear on CNBC I highly recommend checking out NPR's Planet Money Podcast/Blog. They try to not take any political stance on the issue (unlike most network television) and simply reports the stats and the stories of the current recession and where they think it may be headed. One of the most interesting statistics I've heard during this crisis is actually the unemployment rate in America. As we've all heard myriad times, the unemployment rate during The (First) Great Depression was 25% which in the end was an estimated number as the government had not yet begun taking such intricate statistics. Meanwhile the current rate of unemployment is just below 9% so naturally eveyone who sees this number thinks that we are no where near as bad off as they were in the 1930's. However, the 9% unemployment rate is the U3 rating, which is deemed the official unemployment rating, is only one of 6 unemployment ratings used by the US Government (U1, U2, U3, U4, U5, U6). Many economists are now saying that the U6 rating is a more accurate determination of the health of the workforce and in fact the U6 rating is the closest of the 6 ratings to that which was used to calculate the 25% unemployment rate during the 30's. And this past month the U6 rating just crested 16%. I am in no way optimistic about the current crisis as I have not seen any of the positive numbers which graeme has stated. Perhaps we truly are on our way out of this crisis but from what I see we are still getting worse but hopefully close to bottoming out.

I never said it won't get worse, but the fall does appear to be slowing and I think the bottom is coming.

The unemployment rate is bad and will get worse, even after the recession ends, unemployment will get worse for a little while. Still, it's a far way from the Great Depression.

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I'm generally (aka realistically) in Nouriel Roubini's view:

http://www.globeinvestor.com/servlet/story...bini03/GIStory/

Background to him:

http://en.wikipedia.org/wiki/Nouriel_Roubini

http://www.nytimes.com/2008/08/17/magazine...essimist-t.html

(excuse the media's "Dr. Doom" naming of him; suits the media and much of the general public, but a bit of a disservice (IMHO) to him and to the issue at hand.)

Why 'believe' him over elected government officials and government appointed economists?:

  • Well, he's been right before (kind of bang on, actually). Government? Not so much.
  • He's a realist. Government?" "Don't worry. Be happy!" Whhheee!! <_<
  • Hard to find any bias to him. Can't see what the motivation for him would be to 'bet', or 'to not worry about being wrong'. Government?: Well, there's another election coming up sometime; and in the meantime there's all the media and the constituents to deal with. Hard to get people motivated and upbeat if you keep downbeating them with the real story. Hence, only the upbeat, from the government.
So:
  • increasing unemployment 'till it tops out above 10%, and to remain there for years (not months or quarters).
  • Recession-like conditions and feel at least through 2010.
  • Equity markets not to start to recover until sometime in 2010 (ups will come back down 'till then). TSE will take a few years to get back to 15,000.

Who to thank for all this? Sorry to say, but mostly the Americans:

  • Standard & Poors, Moody's, Fitch's (rubber stamping departments in each gleefully approving everything as 'AAA' (derivatives, subprime, Alt-A) that the markets could conjure up)
  • Voracious appetite for debt (and spending). Contrast with the Far East which doesn't generally even use credit cards (there's a happy medium in there somewhere).
  • No principal payment mortgages :blink: ; 40 year amort's :blink: ; deductible home mortgage interest :blink: , etc., etc.
  • Lying, cheating, swindling, falsifying, over-bonusing, etc. (all the regular culprits)
  • Hapless (nigh on useless?) SEC performing little of substance (unless you count crucifying Martha Stewart for acting on an insider trade tip as being of substance (and not to make over-light of that))
  • Remuneration for the decision makers (executives, brokers) and gatekeepers (finance/accounting) measured on (very) short-term achievements -- not at all aligned with the stakeholders (shareholders, lenders) goals which are longer term ("hey", Wall Street financier was heard to say, "I'm out on the street now that my firm has collapsed, but I made $12 million in the 4 years I was there, and I have most of that money still, so I'm not worried.")
Now, granted, a lot of this happened outside the U.S. as well (Britain, in particular), but it was bred out of the U.S. and had it's substantive volume there. In the end, the U.S. penchant for fervently believing in "free markets" left the markets prone to the blind-side of greed and poor morals/ethics. A lot of very smart, very capable, and very powerful ('tied-in') people simply did not (do not) care about others, nor the possible ramifications for their actions. It became a free for all of greed.

The Savings and Loan debacle happened 20 years ago in the U.S. with some very similar circumstances and results. You may as well mark your calendars now, for 2028. My guess is we see all this again then, even if not as bad as this time.

Thankfully, Canadian banks are more rigidly regulated than any of the G7 nations, and certainly much more than those of the U.S. At least our tax dollars are not having to prop up our financial institutions.

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Thankfully, Canadian banks are more rigidly regulated than any of the G7 nations, and certainly much more than those of the U.S. At least our tax dollars are not having to prop up our financial institutions.

Actually if you listened to the news reports a week or two ago the Canadian Government announced that they were indeed helping the banks in Canada and that the banks not needing any further financial support was a positive sign that the economy was improving. I am not not sure what type of financial support they were providing because it was not detailed in the news report.

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Actually if you listened to the news reports a week or two ago the Canadian Government announced that they were indeed helping the banks in Canada and that the banks not needing any further financial support was a positive sign that the economy was improving. I am not not sure what type of financial support they were providing because it was not detailed in the news report.
Not the same. In Canada it has been:

  • expanded lines of credit to the banks (that they say they likely won't even use (don't need it & costs money)): http://www.bloomberg.com/apps/news?pid=206...mp;refer=canada
  • CMHC buy-back program, which is part of what CMHC is there for, and pools of funds have been set aside over the years for occasions such as this. Importantly, these assets aren't necessarily toxic in the same way the U.S. loans are

The U.S. (in particular) and European governments are having to buy (i.e., permanently) up the toxic assets of their banks (e.g. use taxpayer money to buy assets for, say, $5 on the dollar -- not a great deal, by any math). That money is gone. It comes out of the U.S. taxpayers' pockets eventually -- U.S. tax rates are going to have to go up.

The Canadian government has had to do none of that. They have expanded some loan lines to the banks, but this money all comes back (if banks actually even make use of it) to the government over time, with interest. The big 5 Canadian banks have all (I think) issued preference shares to bolster their balance sheets, which tends to dilute investors in the shorter term, but this is entirely an open market activity. If Canadian banks are finding toxic assets on their balance sheets, they are generally as a result of activities of their American subsidiary banks. And the Canadian government has no plans to buy any of that stuff up; and the banks aren't requesting or expecting it. There will be Canadians and Canadian businesses defaulting on their loans over the next couple of years. We can expect the Canadian banks to fully absorb those losses without being bailed out by the Canadian government (our tax dollars).

http://www.reuters.com/article/topNews/idUSTRE52N31S20090324

________________________________

On the retail side, TD is apparently blowing the competition away in the US Northeast: http://nbbusinessjournal.canadaeast.com/jo.../article/622902

Canada has the best hockey players (overall) in the world. Apparently, it also has the best banking system.

A recent good summary thereof, and of the history of Canadian banking system: http://www.canada.com/Business/Canadian+Ba...1341/story.html

Mark Carney, governor of the Bank of Canada, neatly summed up this week what a growing number of financial leaders are saying about Canada’s banks: "Our system is better."

From the World Economic Forum, which ranked it the soundest in the world, to U.S. President Barack Obama’s reverent musings and Prime Minister Stephen Harper’s gloating on the eve of the G20 meetings in London this week, the Canadian banking system is being feted for its resilience amid the economic mayhem.

Now, a study by a highly respected U.S. economist provides further grist for the adoring throng.

The research paper, Global Banking Rubble: Analyzing the Decade of Western Bank Value Destruction, for a Washington non-profit organization, reveals that conservatively managed, risk-averse and government-coddled Canadian financial institutions have made significant gains for the past 10 years, while their swashbuckling U.S. and British counterparts have steadily declined in value.

Consider that in 1999, U.S. banks accounted for 42.93% of the total market value of the 50 most valuable financial institutions in the world.

Today, the study says, that figure has been slashed in half, to 21%. Ditto for the once-mighty British banks, which accounted for 14.87% of the world’s most valuable banks a decade ago, and now represent 8.04% of that value.

"The destruction of value among the U.S. and British banks is mind-boggling," declared Prof. Vanous, whose research is part of a non-profit project to develop a warning system about asset-price bubbles and market distortions for the University of Michigan. "There is little doubt the rest of the world could learn a good deal from how banking is done in Canada," Prof. Vanous told the Financial Post, "especially U.S. bankers who normally tend to look down on their Canadian counterparts as pedestrian."

Although Ottawa has committed to buying $125-billion worth of insured mortgages, increasing banks’ capacity to lend, but has only spent $40-billion of that so far.
The move is not expected to cost taxpayers a penny. In fact, most analysts predict Ottawa will eventually make money on those assets.

Another sign of their growing strength: All five major Canadian chartered banks currently rank among the top 50 in the world; all five are listed in North America’s top 12 and two Canadian banks -- Toronto-Dominion Bank and Royal Bank of Canada -- are among the seven major global financial institutions that currently enjoy a coveted triple-A credit rating from Moody’s.

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