USC-Col 2006-Honors Finance/Econ Grad MD

A Financial History of the World

I would have to disagree. I believe the reason why we're having difficulties with inflation somewhat or the purchasing power of our income is due to the substantial debt that our country's has overtaken. We have all these liabilites and not enough cash or methods of paying them off, especially when considering tax cuts. During this current stimulus the tax cuts are taken into account already. I think the gross total reported to the media takes into the account the value subtracted by the tax cuts. However the government is printign money basically to cover the debt of the government. I believe debt reduction makes US dollars more valuable. With regards to individuals, substantial debt has crippled the economic landscape. Everyone is overextended, and everyone's financial record is reduced somewhat becuase of the enormous debt they hold. It's detracting from the ability to purhcase a home whether America likes it or not. As well as banks can't readily guarantee interst income as its done in past time, because so many people are heavily indebted. I think it was a good idea to put every American in homes in accordance with the free credit given to American throughout the 90's. The greed or the propensity to give to much unsecured debt is what I'm believeing is hurting the economy, because now no one knows how to budget as well and relying on HELOC's and credit cards as financial income, which is hazardous to your credit record, your mortgage, and your lifestyle. That is dangerous. Debt reduction would eventually get everyone in shape, so banks can trust consumer once more, and those SIV and MBS have more weight or value when needed to be sold.


On Feb 14 02:54 AM Tradememe wrote:

> His ideas about debt reduction and too much stimulus are all valid
> in theory but not in practice. When everyday you hear news about
> job losses, it is difficult for the government not to do anything.
> Instead of arguing against stimulus plans, perhaps, it would be better
> to discuss about their relative effectiveness.

"This could be the year when the Alt-A mortgage problem really hits home." (WSJ)

I did a critical book review of Muolo and Padilla's "Chain of Blame: How Wall Street caused the Mortgage and Credit Crisis. The argument for the majority of those loans is that the fault should lie on the consumer for mis stating their income in order to obtain a home. If less documentation is required than their is a higher probability that mistating information such as income on loan documentation will occur. The loan was originally created to entice sales volume not necessarily revenue for the mortgage industry. In other words, their should be no surprise that those loans were to have difficulty. The expectation should have been that those loans will lead to difficulties immediately. I understand the liabilty truly remains on the consumer, but at what expense for the organization. Definitely the loss of interest income and steady revenue from loans that require full documentation and examination of credit risk. It may seem counterintuitive but the majority of those who are tempted to misstate the loans are those who are wanting to purchase the jumbo loans. A 40,000 mortgage stating that you make 30,000 grand a year isn't going to hurt you AKA make you or break you. However for a 500,000 loan, your income per year must be substantially higher. Thus the risk of these particular loan should have been taken into account immediately and known then. If a company were to use those loans for additional volume that gives them a slight edge, that is one thing, but relying on those loans as the main source of volume, as was the case in the subprime boom, is absurd and explains the collapse of a lot of companies. If they used it in the short term to boost sales volume in the short term and went back to traditional loans, they're wouldn't even be mentioned in the cause of the global catastrophe.

Where We Go from Here: Best and Worst Cases

I believe that's what scary about the situation with Lehman's and with the majority of companies that purchase the swaps. On fae value, those default swaps provide insurance in case of the swap. It should be used as insurances purposes only and not security or treated like bonds, and I believe they have. Lehman is not in existence at this time...how they hell are they supposed to pay. This caused massive headaches for all lawyers handling this situation because the company is not around anymore. Their may be not enough money to pay off those swaps adn didn't somebody caution that is what can occur with the default swaps. With life insurance, everyone is not going to die at the same time. With default swas, the company defaults and everyone is owed the money at the same time. Their is more than risk when purchasing these swaps.

The Beginning of the Endgame for Monetary Policy, Redux

I have to disagree Jolly-rancher, the governemnt can't increase debt. Debt is money earned. In other words, the government must pay off those obligations in some form. When they don't, we are just artifically creating money to people. Instead of the natural exchange of goods, services, and currency to pay for those services, we have the exchange of goods and services on borrowed funds. Thus our dollar can not be worth as much as it would be if our obligations are paid off. If we can't guarantee what tax revenues and other methods used to pay off debts and U.S. obligations, when the time is needed we will have to print money to pay for our obligations and in addition our backing of the "full faith" of U.S. money on our treasuries will be downgraded because we may not in the short term raise enough money to pay off the obligations. I'll break it down in mortgage fashion. Say you take out a mortgage for $100,000, you're liabilities at the time is actually $100,000, and your assets are 100,000. Thus your net worth or equity in the home is zero. If you pay off 20,000 dollars in the home, you're liabilites are 80,000 and if the housing value is still the same, the equity is now 20,000. If you take out a uncollateralized loan steadily for the next 20 years for home improvements, 10,000 per year then you owe 200,000 and maybe your home is worth substantially less, but you have liabilities that are worth more than home, so you're actually in a worse position then you were to start out with. And no one can trust you to pay off all your debts, and your net worth is in the negatives because of the substantial liablities, you have. If an accident happened, and you needed a quick loan for 10,000 at year 21, you mostly likely won't get it, because no one's going to trust you at the point to loan you money and you don't have the net worth to collateralize the loan. The same can be applied to the government. It is a necessity to pay off some the debt limits so are backed by full faith of the U.S. government holds true, and the dollars which needs to be worth something in the U.S. economical system, can eventually increase in value. If the person above printed out money to pay off the obligations than that would be counterfeitiing, and that would place them in prison for crimes that affect the U.S. The same can be said for the treasury if it didn't issue loans, and it just paid off its debt using newly minted money. It just wouldn't be a crime, just a misfortunate incident for the dollar.

@VIC: A Radically Different Context for Value Was Going On Outside

I agree that an investor should approach anything of substantial value in this market with caution because the market is going through an entire sell-off. I believe that an increase in the money supply would be a grave mistake, considering that inflation is rampantly high. In other words, a massive increase in the money supply is going to make dollars worth substantially less. Printing money is not the answer because if we print more it'll essentially be monopoly money. I think the Fed's decision to dole out loans to company's such as AIG, to lower the discount rate to banks, and to intervene when they believe banks are going to fail are actions that are preventing the depression spoken of. They are inadvertently putting money into the money supply, such as AIG's bond collateralized loan made today. Without the global banks infusion of U.S banks and businesses with cash, without the established FDIC, and without the technology that eases communication and accessibility, we would already be in a recession. My question has always been...Is it necessarily a recession? Or is the economy just naturally correcting itself. For example, a lot of homes and mortgages were overvalued for the past few years by mortgage brokers who had their best interest at heart, and not necessarily the consumer. I just believe similiar to some economist, that the housing market is correcting itself. In other words, the housing market is just returning to what it would have been naturally had their not been an artificial price increase. Should we necessarily panic with the current recession symptoms? It just seems that the stock market is correcting itself. Similiar to the tech bubble, were we currently in an energy and financial bubble? All that is occuring now is the stock market is returning to levels it would have been at originally had the mortgages industry not done so well for a while, and had the energy stocks tripled on the backs of oil demand increase and global unrest. For the economist out there better than I, is this necessarily a recession, with leading indicators of a global stock market sell-off, or is the stock market at levels it would have been if their were no influences that inflated and overvalued a lot of stocks over the past 7 years?

Many Companies Are Still Raising Dividends

This is promising news actually. I think it was well-researched as well. I belive the negatives of the economics are focused in the financial sectors, who are responding beautifully. They're cutting dividends to retain more earning to be used for the business. I believe American is cutting dividend and selling more common stock. The dividend cut retained earning increases negates the dilution of the common stock for Bof America. Beautiful move. If I had access cash, I would love to get in there. Because if they're weathering financial storm now, amidst the credit crunch, eventually they may hit the mark that goldman sachs' is and where lehmans bros once was in the 90-150 range per share. I'll definitely check those companies mentioned above out.

Robbing Peter to Pay Paul: More on Wachovia / Citi

I don't know who the chick from CNBC is...but I bet he is. He better at least be dating her outside of work with that must face time. Okay just one date, after being on with her on television.

Robbing Peter to Pay Paul: More on Wachovia / Citi

Informed are people who are know about the subject, and every one here is not informed or else they would have known the definitions, basically provided when I didn't sleep through finance 101 and was interested in asking questions and creating discourse with professors.

Robbing Peter to Pay Paul: More on Wachovia / Citi

Isla girls, the entirement point of academic theory is applicable to the real world. That's why they don't teach social laws because you can't apply to them everybody. They teach you thingeys such as financial definitions, such as financial theory, finanical morals and perspective, while obtaining your degree. Experst are doctors and masters, but you have to be knowledgeable upon leaving college to apply the theory in a business situation. And with experience and reading you should be able to do what's necessary to perform business related actions. Responsible, non corrupt, financial decisions while working with people's money is universal with every aspect of society. I was right about the excluvisity agreement, the entire deal isn't done. Wells Fargo took advantage, and citigroups will probably win something legally dependent on the situation.

Relax Basel II's Bank Capital Adequacy Requirements

I have to disagree. The removal of any capital adequacy requirement is a terrible idea in a credit crunch especially when a lot of banks are failing. The banks are failing because the profit excess can't be reinvested in the form of money to the loan loss reserves or write off of bad debt expenses. Lowered capital adequacy requirements mean we wouldn't lose as many banks to failure of maintaining ratios. We would just flat out have more lazy, corruptible, and workers in banks who don't understand you're their work, and that maintaing capital adequacy requirement are a main part of the bank's operations. This gives to much leeway to banks especially now. Just keep those requirements and make it up to CEO's and executive of firms that people within that industry DO THEIR JOBS! Because it's obviously that is what the case. If construction workers didn't do their jobs, they're be no reconstruction of roads, no new homes built, no offices being built, etc. If any restaurant did not fulfill the requirement of their work for personal reasons. Or if they didn't serve food, beverages, and whatever entertainment for profti reasons, then they would fail to be a restaraunt. Or if they're were trust issues with food quality, and timing, no one would go. They same should be in the industry, its just worse because you're talking about handling money. I believe capital requirement are motivations for the heads of the companies to make sure the company operations are well-performed, and to protect consumers earned money invested whether through purchase or stock purchases in your company.

How Much Will a Wells-Wachovia Deal Cost Taxpayers?

I think the Wells Fargo deal was a brilliant move. It was a stupid move by Wachovia because they an opportunity their own company. Now they're are definitely either Wachovia or citgroup. If I was Citiggroup I would just just sue for the amount of what a quarter of their deposit, and If I was Wells Fargo I would oblige. I just don't think its a bad of a deal. When Wachovia is sold off, the shareholders now will get some return on the deal. Specifically the senior shareholders. The FDIC can save face just in case another bank falters. Wachovia prove incompetency, only in the instance that they signed an agreement with Citigroup. However on the flip side, if their were no agreement, their would be no Wachovia. Because Wachovia would have been bankrupt, and nobody would have gotten a huge chunk of assets, and the FDIC would have had to insure the Wachovia depoisitors. wells Fargo is a really good company as well. Citigroup is. Its just removing its problems at one time while the crisis is occuring. If they wrote off 46 billion and only incur a 9 billion dollar loss or a 3 billion dollar costs in this quarter. As well, as the credit criss is easing up. Then that's just smart from the executives and others within the company. Wachovia just didn't do completely what needed to be done to maintain themself as a seperate entity, but did do what needed to be done to save face with shareholders. As far as job cuts, concern as well, they don't have to look for entirely new employees. They can just get rid of employees who don't do their jobs, and eliminate the human resource issues that were published in previous articles. The branches will defintely retain branch managers and tellers. From there its the executive decison. Their would just be necessary cuts from an ordinary buyouts of a company with a new regime who is intersted in operations of their own company. I think the creditor will defintely get everything in the detail. As far as Wells Fargo is concerned they market traditional mortgages, so the new branches will definitely sell very good mortgages. The option ARMs weren't a terrible idea. They were just misused for personal, selfish gains by consumers, mortgage brokers, and loan officers. They were what caused risk for the bank as well as the mortgage backed securities by the bank(s). I just can't believe that option ARM's and Pick a Pay mortgages can be the primary mortgage marketed by your bank for sale and then be surprised when you ended in the circumstances. The only difficulty is that they won't need the staff from a failed bank who was able to be takenover. The staff of Wells Fargo is good enough and can definitely have more office space.

Gaming Stocks Still a Poor Bet - Barron's

I have to agree with the analysis in the article somewhat. Casinos make money primarily off of hoping that 55% or higher lose within the casinos. Skilled patrons and others similiar aren't a factor. They would just win either way. However in a economic downfall, how could you bring 10,000 dollars to a casino and spend hoping you win. You would hope they invest their money in a financial insittuion, but those aren't bet for fun. Those bets you hope everyone knows what they are doing, you profit by having a good retirement, or make bucks by the stock doing well, retain money by tax-advantaged strategies, and so on. So placing a bet in a stock including casino, at a time like this wouldn't make sense. Their will always be casinos. I just don't think a complete casino sell-off will be a good idea. For instance, If i'm stuck in the moutains, a casino their would be a great idea to go to. If I'm stuck in a hometown, and I need any access money possible, then a casino would be a bad idea. It has nothing to do with sin stocks I think. Because those are relative to what somene's religious and not moral or ethical beliefs. Spending money hoping to earn access money is never unethical or immorral. It's just plain not smart if given the wrong person and the wrong circumstances.

Robbing Peter to Pay Paul: More on Wachovia / Citi

No if every company bearuacy had the same problems as this companies internal board or whatever...then they would drop from 53. to 9.oo per share in less than a year, and would basically miss the boat completely in regards to what is going in the company. That deal is done for if you pull up the actual transcripts. Or else they wouldn't have made it public, including hte citigroup acquisition transcripts

Robbing Peter to Pay Paul: More on Wachovia / Citi

It doesn't come off as insulting, if they don't actually know the definitions. And if its insulting, well i don't care. My intent wasn't to insult but to point out facts. Thirdly, I didn't absolve the executive branch of all responsibliity. I am saying each individual person has a say so in it.

Robbing Peter to Pay Paul: More on Wachovia / Citi

This is the actual transcript that details the transacaton seekingalpha.com/artic... you don't have a vote if your a shareholder...the board met...the ceo's met done deal...they just don't account for it...until 2009 1st quarter on the accounting books...prankit and steele colloaborated on how well the deal is. ..