Financial Crisis

[afransen]

From Wall Street Journal:

Not Everyone Should Own a Home

Maybe only a friendly foreigner could say this. But America needs to realize that not everyone can own a home. The American Dream of home ownership for all is a fraud. Politicians who pimped this dream created an unsustainable mortgage industry whose collapse is only surprising because it didn't happen earlier. America's mortgage industry will not recover, nor deserve to recover, unless it is prepared to challenge this politically unpalatable reality.

Why listen to an Australian like me? For starters, as our central banker, Glenn Stevens, said a few weeks back, Australian banks are "light years away from what's happening in other banking systems around the world." Australia's four major banks sit amongst the 20 AA rated banks around the globe. And as the Sept. 23 International Monetary Fund Country Report on Australia concluded, Australia's banking sector "is sound with stable profit, high capitalization and few non-performing loans."

The reasons go directly to regulatory differences that should interest Americans. Take nonrecourse mortgage loans. When Australians borrow money to buy a house, they know that if they default and the mortgaged property doesn't cover the debt, they will be responsible for the shortfall. And the lender will chase them for it. It's a neat way of reminding Australians to borrow responsibly.

(for more, check out the link above)

 

[lordmandeep]

Imo, you can't blame this on capitalism really.

One of the biggest check's against the excesses of capitalism is fiscal conservatism...

The principle and the idea of that you live and work and spend within your means. You make money and then you invest in the long run and not just think in the short term. The idea that govts should not spend billions when they don't have billions to spend.

That concept and theory has vanished in recent years and only really exists somewhat in our financial industry in Canada. That is why we will not be in to much trouble.


About that article about owning a home ties directly to the idea of fiscal conservatism. Live within your means.

My cousins in the States are a good example.
One makes 60-75k a year and bought a decent 250k home with a 200k mortgage. The other was rather poor and made 40k and bought a 400k home...


Who is at fault in this situation??
Its not all Wall Street's fault...

 

[kEiThZ]

How about you start by telling us how right wing Laissez-Faire captalism is not at fault for this serious economic crisis.

The TSX is dropping in reaction to US events. Hardly a crisis, given that it's in line with every other stock market in the world. Tell me what crisis has happened in Canada. Can you name for me one Canadian bank that has required even a bailout so far?

Now let's talk about the US. I have already said that many of their economic policies were sheer lunacy. I think Bush 'ownership society' plan is just insane. As the article that afransen posted stated "not everyone deserve to own a home"....a concept Americans don't get. That being said, I firmly believed what caused this crisis was the sloshing of credit around the market with negative real interest rate during the Greenspan years. I don't even know if that has precedence in history. If you know economics, you'll know the consequence of that. I am sure that does not need explaining to you. That's far more damaging than any rule allowing banks to merge....the only 'right wing' evidence that Brandon could bring up. Everybody rails against de-regulation. What de-regulation? At best, we can argue about a lack of regulation. And that's something I have been saying from the beginning. I was never a believer in MBS. Those should have been legislated against. But that was hardly a right wing conspiracy. There were lefties pushing for lower mortgage standards as well, as a 'cure' to urban blight and poverty. After all, agencies like Fannie Mae, Freddie Mac, and CMHC in Canada are largely a creation of the left that contribute to making home ownership affordable. Are we to say that it was a failure of the left because Fannie Mae and Freddie Mac insured many Americans who bought too much house? The way I see it, everyone has blame in this situation.

 

[kEiThZ]

Its not all Wall Street's fault...

The moral fault is not with Wall Street per se. Their fault was optimistic accounting. Did they really think the party was going to keep going with stagnant real incomes, rising debt levels, etc.? If you lower credit standard that low, eventually you'll start scraping the bottom of the barrel for clients....and today those banks are reaping what they've sown. Once the smoke has cleared, new regulations will come in, we'll see how the banks react.

Sadly, all I've seen in the US are banks over-reacting (slashing credit, overnight lending) and a population that has not learned any lessons at all. It's incredible that most Americans seem so ready to blame Wall Street without looking at themselves. They have a negative savings rate....probably the first generation in their history to do so. This generation of American has turned JFK's challenge to serve one's country on its head. It'd suck to be under 30 and know what you are going to inherit over there.

 

[lordmandeep]

the thing is Keith, Harper is saying in response to people in Ontario who are losing jobs...


"We are creating jobs"

"The Fundamentals are strong"



He can be right however he really flopped big time with that in the election especially the end.

Fannie Mae and Freddie Mac

True...
That was not the fault of right wingers and Wall Street.

That was 100% the fault of democrats and the democratic black congress who had these idealistic approaches of giving houses to poor people who could not afford them. They were not scamming money but they made a poor choice.


HOWEVER!!!

Wall street deceived people in giving houses people could not afford to make money in the short term and get fat x-mas bonuses.


It was a mix of this idealistic view of that everyone in America should own a home mixed in with greed from Wall Street that wanted all this money from all these mortgages.

 

[cacruden]

Why would you put your money in a brokerage account at this time, in this environment, unless you're planning to short or do some trading.

It's way too early to go long .... catching a falling knife.
The markets will do bounces in the short term, ie. bear market rallies, but economic fundamentals are not there for recovery and growth.

This is long term money (5+ years) - I am moving it to a brokerage account so it is ready if I see value. It has been sitting on the sidelines for a few years waiting for the market to drop. Not really looking to try and catch individual stocks so to speak - but if I see one that I think has value - and the company has cash on hand - I will have to think about it. Will the market go lower.... probably.... are we in the bottom half of the drop - most likely (DOW was close to 15,000, if we are halfway - then that would mean the DOW is going to 5,000 - which I don't believe will happen). I could see it going to 9,000, or even 8,000.... but I could not see it dropping much lower than that.

 

[cacruden]

Besides - worst case - I should always be able to afford a classic like:

Chicago style.... dill pickle wedge, slice of beefsteak tomato, mustard, florissant green relish, onions, sport peppers, celery salt.... I have been having a craving for one for a couple weeks - still tracking down the sport peppers

I have the dill pickles covered (60 quarts or so of them)....

 

[Roy G Biv]

I figure this is a good time for me to get into the market. Anyone have any experience with TD eFunds? Do I need to have another account open at TD?

I'm going to wait a couple of months, and then buy up some indices.

 

[cdr108]

I figure this is a good time for me to get into the market. Anyone have any experience with TD eFunds? Do I need to have another account open at TD?

I'm going to wait a couple of months, and then buy up some indices.

Why would you go with TD eFunds if you're going to buy some indices?

If you want index exposure, consider the ETFs - lower MER and greater flexibility regarding buy/sell/stops, options, etc.
If you go the discount brokerage route, your commissions will be minimal.

 

[cacruden]

^ Agree with above. Most regular funds have a relatively high management fee. In a lot of cases the fund managers (after fee) don't do better than just buying an index.

Edit: Oops, just looked at it - not as bad as I thought - but you still should be able to get a lower MER on an ETF (I believe eFunds are still technically a mutual fund).

http://en.wikipedia.org/wiki/Exchange-traded_fund

 

[Solaris]

Toronto Star - TSX drops below 10,000

Oct 07, 2008 02:22 PM
Kristine Owram
THE CANADIAN PRESS

The Toronto stock market slipped below 10,000 points for the second time in as many days even as U.S. Federal Reserve chairman Ben Bernanke hinted that an interest rate cut is coming.

Toronto's S&P/TSX composite index fell 275.35 points at 9,955.08 after earlier posting a gain of more than 250 points.

That followed Monday's 573-point loss and 800-plus declines on two separate days last week. The TSX has lost about one-third of its value from its high in June.

The Canadian dollar was down 0.61 cent to at 90.37 cents US. The currency has lost more than three cents against the American dollar since the start of October.

The TSX Venture Exchange lost 17.81 points today to 1,116.29.

New York markets were also lower as Bernanke said in a speech that the Fed will need to consider "whether the current stance of policy remains appropriate."

The Dow Jones industrial average fell 318.51 points to 9,636.99 after losing 370 points Monday to below 10,000 for the first time in four years.

The Nasdaq composite index dropped 69.26 points to 1,793.7 while the S&P 500 index slipped 38.31 points to 1,018.58.

BMO Capital Markets economist Sal Guatieri said the only thing that will send markets higher at this point is a rate cut, and he fully expects that both the Fed and the Bank of Canada will do so this month.

"I think global equity markets are screaming for a co-ordinated rate cut from the world's central banks," BMO Capital Markets economist Sal Guatieri said in an interview.

"I think that's the only thing that will help offset the collateral damage to the economy from the market tightening and financial conditions that has occurred just in the last couple of weeks."

Earlier today, the U.S. Federal Reserve announced it will buy commercial paper, a short-term financing mechanism that many companies use to finance day-to-day operations.

The market for commercial paper has virtually dried up, making it increasingly difficult and expensive for companies to raise money.

Today's action makes the Fed a source of credit for non-financial businesses, in addition to its established role in providing liquidity to commercial banks.

But Guatieri said the announcement isn't enough to restore investor confidence.

"It will allow businesses to get some of the short-term funding they need to continue normal day-to-day operations, but at the same time it's just another in a long line of facilities and measures to unfreeze the credit markets, and money markets in particular," Guatieri said.

"The main problem is there's still a lack of trust amongst investors and lenders and people are very reluctant to part with their cash at this moment."

In Toronto, the energy sector was down 4.3 per cent as crude oil gave up earlier gains to post a small increase of 56 cents to US$88.37 a barrel after plunging to an eight-month low Monday on recession worries.

EnCana (TSX: ECA) was down $2.12 to $54.08, and Suncor Energy (TSX: SU) lost $2.21 to $29.29.

The gold sector added 2.9 per cent as the December gold contract on the New York Mercantile Exchange gained $20.90 to $887.10. Goldcorp (TSX: G) was up $1.92 to $28.90, while Barrick Gold (TSX: ABX) added $1.18 to $39.98.

The TSX metals sector lost 4.6 per cent on lower commodity prices. Sector heavyweight Teck Cominco (TSX: TCK.B) was down $1.84 to $20.54.

The financial sector declined 1.8 per cent. Bank of Montreal (TSX: BMO) lost 32 cents to $39.89 and Bank of Nova Scotia declined 38 cents to $44.62. Manulife Financial (TSX: MFC) declined 74 cents to $33.97.

In corporate news, Bank of America Corp. shares lost six per cent after its third-quarter profit fell 68 per cent to a much weaker than expected US$1.18 billion. The bank also said it will raise $10 billion by issuing common stock, and slashed its dividend by half.

CEO Kenneth Lewis had said earlier that he would not reduce the dividend unless the economy significantly worsened. Now, he faces the "most difficult times for financial institutions that I have experienced in my 39 years in banking."

Bank of America stock was down $6.20 to US$26.02 on the New York Stock Exchange.

The bank's early quarterly numbers came ahead of the start of Wall Street's earnings season. Alcoa Corp. will report after the closing bell.

 

[Mot]

The TSX is dropping in reaction to US events. Hardly a crisis, given that it's in line with every other stock market in the world. Tell me what crisis has happened in Canada. Can you name for me one Canadian bank that has required even a bailout so far?

Now let's talk about the US. I have already said that many of their economic policies were sheer lunacy. I think Bush 'ownership society' plan is just insane. As the article that afransen posted stated "not everyone deserve to own a home"....a concept Americans don't get. That being said, I firmly believed what caused this crisis was the sloshing of credit around the market with negative real interest rate during the Greenspan years. I don't even know if that has precedence in history. If you know economics, you'll know the consequence of that. I am sure that does not need explaining to you. That's far more damaging than any rule allowing banks to merge....the only 'right wing' evidence that Brandon could bring up. Everybody rails against de-regulation. What de-regulation? At best, we can argue about a lack of regulation. And that's something I have been saying from the beginning. I was never a believer in MBS. Those should have been legislated against. But that was hardly a right wing conspiracy. There were lefties pushing for lower mortgage standards as well, as a 'cure' to urban blight and poverty. After all, agencies like Fannie Mae, Freddie Mac, and CMHC in Canada are largely a creation of the left that contribute to making home ownership affordable. Are we to say that it was a failure of the left because Fannie Mae and Freddie Mac insured many Americans who bought too much house? The way I see it, everyone has blame in this situation.

A right wing US campaign talking point direct from Fox News and that Republican idiot on "The View" made it into Keith's post referencing blaming liberals for Sub Prime mortgage. What a coincidence!

So I'd like for you to back that up for us. Making home ownership affordable is great, not regulating it is not. Regulation is generally something the left strongly believes in and the right despises.

 

[Roy G Biv]

^ Agree with above. Most regular funds have a relatively high management fee. In a lot of cases the fund managers (after fee) don't do better than just buying an index.

Edit: Oops, just looked at it - not as bad as I thought - but you still should be able to get a lower MER on an ETF (I believe eFunds are still technically a mutual fund).

http://en.wikipedia.org/wiki/Exchange-traded_fund

I was attracted to eFunds because I was under the impression that they had low MER and good flexibility....

So how would I go about buying index ETFs (from who/how etc)?

Thanks

 

[kEiThZ]

A right wing US campaign talking point direct from Fox News and that Republican idiot on "The View" made it into Keith's post referencing blaming liberals for Sub Prime mortgage. What a coincidence!

I don't watch Fox or 'The View' so I don't know what you are referring to. The point I have made repeatedly is that the crisis is not a left/right policy issue. It is a good/bad policy issue. There have been folks on the left who have supported policy that has worked to counter stability (giving Fannie Mae and Freddie Mac free reign to do anything). And folks on the right who have supported reduced regulation....lower capital requirements, lower credit standards, etc. Thus, everyone is to blame. You are being rather dense in reducing my statements to mere blanket support of Republican policy or a criticsm of affordable home ownership.

So I'd like for you to back that up for us. Making home ownership affordable is great, not regulating it is not.

In this situation it's not just that Fannie Mae and Freddie Mac made homeownership affordable (nobody is criticizing that goal) it's that they went overboard and let uncreditworthy individuals buy homes they could not afford. I have said repeatedly that Fannie Mae and Freddie Mac should be nationalized and become state owned enterprises, just like CMHC. That's the only way to ensure that they achieve their goal of assisting poor families without lowering their standards. So arguing that these companies should not be privately operated makes me an ideologue who watches 'The View' watching and gets his talking points from Fox? And here I was thinking that I was supporting a rather left wing idea of nationalizing a key sector of the finance industry....

Regulation is generally something the left strongly believes in and the right despises.

I strongly support good regulation. I just don't support stupid ones. The best regulations ensure a smoothly operating market and avoid distortions. I'll give you an example of bad regulation: Forcing companies to reveal to the public every detail of CEO salary packages. Sounds good in theory. It was highly backed by many labour advocates upset at the high wage differential between the CEO and the common worker. So what did companies do? Their boards moved to awarding stock options and other perks which could be concealed. So a policy that sought fairer wages ended up incentivizing the taking of risk. It also quite likely contributed to the current economic crisis. Is that the type of policy we want more of? Making policies hastily, based on crises and not thinking about the consequences leads to those kinds of situations.

 

[cacruden]

I was attracted to eFunds because I was under the impression that they had low MER and good flexibility....

So how would I go about buying index ETFs (from who/how etc)?

Thanks

I actually thought eFunds had a higher MER than I thought - so my unenthusiam is tempored a little. I am still building my list, but I would expect the MER to be from 0.20% to 0.50% at the high end of ETFs (probably higher in Canada. I am still building my list right now, but I know there is iShares, it redirects you to Canada - but then I go to Europe and finally back to the US site or if I rembered ahead of time I would just type us.ishares.com