The news gets worst. The fever that Uncle Sam has contracted about 13 months ago has now turned into pneumonia, and now the world has got tuberculosis. The subprime mortgage crises has now evolved into a full scale financial crises with major financial institutions falling, the Leighman brothers, Meryll Lynch and AIG being its latest victims. (Fortunately the Feds intervened in AIG’s case and Merill Lynch had the benefit of having a dashing knight to its rescue. The Feds decided to save insurance giant AIG because it is “too big to fail.” Of course it is, imagine what would happen to their carinsurancelist.com) Experts are now saying that the United States has full entered into a recession while Wall Street is asking who is next.
Amidst the turmoil one cannot anymore avoid trying to understand the complexities of the subprime mortgage crises which undoubtedly is the main source of all of these. As I wrote before in my post entitled “Idiot’s guide to the subprime mortgage crises”, most people in third world countries such as ours, the Philippines, do not care to understand what the subprime mortgage crises is all about considering that they do not see how they will be affected by it.
Now that the problem is affecting economies worldwide with stock market going down and banks and institutional investors affected by the fall of U.S financial giants, people even in third world countries are now asking what the heck is going on. In order to understand the root of the problem, people need to understand the mess that the subprime mortgage crises has created.
My previous post on the subprime mortgage crises as mentioned above will somehow help the layman on what the problem is all about. There is another youtube video I am posting below that I would like to point out that will help the ordinary layman somehow understand the subprime mortgage problem.
Somehow, the stand up comedians in this youtube video has managed to make a joke out of all of these. Their comical and satirical view points with regards to the financial markets somewhat strikes a chord and reveals what is truly going on in our financial system and why the entire world is dragged into this subprime mortgage mess. In this time of economic crises that is being dubbed as the worst since the Great Depression of the 1930’s, there is no other best thing to do but to get a good laugh from all of this. Enjoy the video!
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This really irks me! Mismanagement due to greed is the reason behind the failures of these companies. As private companies operating in a free market, these should be lessons learned instead the government comes to the rescue on the expense of tax payers money. With the $700 billion bailout, this is an additional $6,000 burden for each tax payers. Many private firms donate millions to politicians pocket so I’m not surprised that these corporations are rescued – they are all friends. Corruption is also rampant here, but many American citizens are in denial believing that politicians work for the benefit of the people. Ugh!
Iris: Well as Pres. Bush said “The risk of doing nothing far outweighs the risk of the package, and over time we’re going to get a lot of the money back.” I think he is right, I project 3 to 5 years from now the U.S economy will experience a bull market because of what he did.The U.S government will be so rich of cash considering that it is right now the World’s largest insurer (Because of AIG) It also own some pretty big comapnies as of now. Markets always go up and down. This time it is down. Actually this is an advantage to value investors like Warren Buffett. Now is actually a good time to buy stocks.
Currently, the U.S. is in debt of $9.8 trillion (at 39%). Add in the $1.3 trillion bailout, which equals to $11.1 trillion. Divide this by the estimated U.S. population of 304,787,839 so each citizen has an obligation share of $36,090. Rescuing these companies only rewards risky and bad behaviors. Another thing to consider: many of the CEOs of these firms were “cooking the books” in order to receive big bonuses (multi-millions) since bonuses are tied to performance in terms of revenue. This has to stop!
There is not such thing as free lunch. Someone will have to pay.
Iris: I agree. Sadly the hardworking middle class citizen of the U.S.A will have to shoulder this burden for the good of the next generation. Warren Buffett always lashes out against the CEO of companies who are just there to enrich themselves at the expense of their stakeholders.
It’s Friday and Congress is still debating whether to approve the $700 Billion bailout plan recommended by Bush. The National Public Radio (NPR) recently interviewed an economist from Harvard University and he disapproved of the plan for these reasons:
1. The affect to the economy is not as catastrophic as Bush has suggested. Recession will follow, but eventually, we will recover.
2. If the rescue plan is not implemented, these companies will file for bankruptcy; however, bankruptcy does not mean ceasing to exist, but rather, the ownership will transfer from shareholders to creditors.
3. The bailout plan will only reward risky behaviors.
4. We failed to operate in a “free market” since the government pushed Fannie Mae and Freddie Mac to lower the loan standards to encourage home ownerships for Americans even though many cannot afford the loans (foreclosures dramatically increased and will continue to do so for the next several years). Hence, government intervention was the culprit behind our current economic problems.
Remember Bush’s $800 billion stimulus plan to jump start the economy? Well, every American received their checks; however, the plan has not significantly and positively impacted the economy as the Bush Administration had predicted. Hence, the plan failed to stimulate the economy.
By the way, Washington Mutual (the biggest bank failure in history) was recently bought by J.P. Morgan Chase for $2 billion.
Iris: America used to think that the best form of government is less government(Ronald Reagan era) this bail out program has truly taken a lot economists by surprise.
Experts are divided on whether the bail out is necessary or not but I believe it is all in the hands of Pres. Bush. He holds the ball and decides how to shoot it. Let history be the judge on the out come of what he did.
With regards to the comment that the “bailout plan will only reward risky behaviour” as George Parr said “No, this is called rewarding the inegenuity of the market” hehehehe 🙂
Seriously, It may seem to reward risky behaviour but I believe risky behaviour will continue to be exhibited by those involved in the market whether they are rewarded or not. The Great depression of the 1930s made those involved in the market risk averse for a while but after more than 20 years, the market is at it again and the Dow has never went below 100 points since that time.
Zigfred, it’s great to discuss subjects with other intelligent people like you (and me, hehehehehe). Mostly, it’s difficult to find others who share the same interest in terms of politics, law, economics, etc.
Iris: I agree heheheheheh 🙂 not to mention Star Trek hehehehe:-) By the way have you read any Warrent Buffett books ? I just bought 6 different books on Buffett. Copies are so scarce in Cebu, that’s why I have to buy one when I see one hehehehe. In fact in Manila when I bought my copies there was only one each in the book stand. I am now consuming my third Buffett book entitled: Buffett the making of an American capitalist. (This one’s a biography though) I’ve finished reading How to pick stocks like Warrenn Buffett (Timothy Vicks) and The Tao of Warren Buffett (Marry Buffett)
I find his life somewhat interesting and inspiring. I will be trying to emulate his approach on stocks and will be avoiding short swing transactions as much as possible. In the end I may not equal the greatness and riches of the great Buffett but at least I tried hehehehee 🙂
Its an intersting time for our markets this year and in the year to come. Investors are fearful now and are switching to save havens like gold. Now is really a good time to buy in the market. Buffett once said that “we must be greedy when others are fearful and fearful when others are greedy.” Indeed ! This is a great time to be greedy 🙂
Unfortunately, I haven’t had a chance to read Warren Buffet’s books. Any recommended first read? By the way, I’m currently taking a course in international business. A future class as part of the MBA program is “Investments & Portfolio Management”, which should be very interesting and would help me gain knowledge in this field.
Iris: I suggest you start with something light. “The TAO of WARREN BUFFET” By Mary Buffet and David Clark would be a good start. It’s only 150+ pages and contains the wise sayings of the Oracle of Ohama with explanation.
After that you could progress to “How to pick stocks like Warren Buffet” by Timothy Vicks. Afterwards you could follow Buffett’s personal life more closely through a biography entitled “Buffet the making of an American Capitalist” by Roger Lowenstein.
You might want to get a copy of Buffetology by Mary Buffet. I heard that it is good but I haven’t read it yet because there are no copies available yet in Cebu. Buffett books are scarce here.
I have three other Buffett books which I will be “consuming” after I read his biography.
Fortunately for you, you are there in the U.S so you have a chance to enroll where Buffett graduated that is at Columbia University in New York. I think they call it the Heilbrunn Center for Graham & Dodd. I don’t know if they have distance education.
As you read more Buffett books you will be more convinced about the value and the difference of “value investing.”
The last 3 months revealed a lot of Subprime Second Mortgage bloopers…