The Big Bailout of the Eurozone (Another crisis coming? - Seriously)

Started by muppet, September 28, 2008, 11:36:36 PM

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Down Gael

Quote from: pintsofguinness on September 29, 2008, 08:33:45 PM
Why are people queuing at atm machines?  ???

Where is this happenning? Surely this isnt happening in Ireland?

pintsofguinness

It was mentioned on the credit crunch thread - I assumed it was the US?
How a couple of hundred dollars is going to help I'm not sure?  ???
Which one of you bitches wants to dance?

muppet

#32
The risk is to the value of money rather than anybody's bank deposits which are guaranteed. Running to ATMs gains you nothing but could trigger a run on a bank. The Pleb Factor is always a major threat.

To be honest all predictions of the near future go out the window if Joe Public stampedes into panic territory.
MWWSI 2017

magickingdom

Quote from: pintsofguinness on September 29, 2008, 08:33:45 PM
So if the banks wont/cant lend to each other, they won't/can't lend to people and businesses and everything is fucked?
All very interesting lads - and depresssing

Are the UK/Irish banks in as bad a situation as the US banks or is this something that's going to spread to us?

What exactly was the start of all of this - was it simply down to too much money being loaned out?


Why are people queuing at atm machines?  ???

my understanding of what has happened is basically that banks gave out buckets of mortgages which they had as assets on their balance sheets earning nice profits in their p&ls, they then often sold on these mortgages or in some cases sold on the risks associated with these mortgages (credit swaps/derivatives or basically insurance in plain english) leaving themselves with strong balance sheets and lent even more and thus more profits.... and on and on till the insurance co and other holders of these sub mortgages had problems collecting and they started defaulting and suddenly the risk was back with the banks who no longer had strong balance sheets - hence the mad rush for capital
as muppet said its the money markets thats the problem, banks wont lend to each other because of a lack of confidence (they shouldnt have lent to each other last year either but they had confidence then!). the argument can be made that the bail out is bull and the markets should be let fall and flush the junk out of the system however this would be very painfull but in the very very long term maybe right (nor should they have stopped short selling as it stops market inefficiency's (short sellers outed enron)). so by buying the junk the us gov hopes that confidence will return to the money markets and inter bank lending will resume. also by taking equity stakes in banks the us gov will shore up banks capital but every bank in the world will still have to write off huge losses in the next couple of years in order to get their balance sheets right

Bogball XV

So if the banks wont/cant lend to each other, they won't/can't lend to people and businesses and everything is fucked?
All very interesting lads - and depresssing

Exactly, the thing is there's absolutely no guarantee that this was going to solve that problem in the short term anyway, but granted, it might have.  Whilst Muppet is right that if banks are unwilling to loan to businesses etc there will be serious repercussions, this bailout may well have led to serious problems in the sider economy anyway, as the us taxpayer would have to fund it, it could have created inflation, higher taxes would have seemed inevitable, govt spending would have to have been reduced etc, all of which go towards creating economic trouble.

Are the UK/Irish banks in as bad a situation as the US banks or is this something that's going to spread to us?
UK banks, I don't really know about (well, i don't really know about any of this, but), however given that several have already gone by the wayside it certainly seems like they're in bother.  The UK banks that have went under so far had basically lent too much money out to customers as opposed to the assets they have, they were relying on both steady repayments from customers and being able to access the money markets readily and at cheap interest rates.  Many of these loans were buy to let loans which are coming under pressure now, possibly they also didn't take the precautions regarding proper vetting of the people they were loaning to, as a result they are having higher levels of default.  More importantly, other banks see their loan books and decide that they're not going to lend them any more money at cheap rate, meaning whilst they have large amounts of assets, they can't access cash and can't repay their loans which are coming due, hence they're fcuked.
Several Irish banks appear pretty much fcuked imo, they are supposed to have loaned out over 100Bn to developers backed by assets which are worth maybe half that at this stage.  They are also exposed to buy-to-let and residential mortgages, which again are backed by assets which may not cover the loans.  In addition, any sort of economic downturn leaves many of these mortgages advanced in serious jeopardy, this is because the amounts involved were large multiples of incomes, incomes that frequently were less than honest.  The buy-to-let in particular could be in serious bother as our immigrants migrate to follow work.  Certainly the markets seem to think that irish banks are in serious bother, and the irish economy by default.
What exactly was the start of all of this - was it simply down to too much money being loaned out?
Basically it's very different between ireland, uk and us.
US - Property boom fuelled by low interest rates after sept 11.  NINJA (Ni Income No Job Assets) and LIAR (may be an acronym, basically lies on applications, left unquestioned on a nudge, nudge, wink wink basis) mortgages, applicants were never going to be able to pay these in the long run, but it didn't matter because the companies who loaned the money originally sold these loans on to other banks.  These other banks were happy to buy them because they believed them to be real mortgages and indeed the packages they were sold included all sorts of mortgages (which is part of the problem now) and they gave good rates of returns.  As a result we had the ludicrous situation where banks in France, Germany etc were buying these US loans whilst in their own countries they wouldn't give people a mortgage without a 30% deposit.  It get more and more complicated as banks traded these loans with each other in all sorts of different exotic products which all paid great rates of return, no lose really, too good to be true actually.  So the problem now is that there are thousands of billions of these loans in the system somewhere, but nobody knows who has them, thus you can't loan money to another bank because they may be the one who has a worthless loan book.  
Ireland - property boom fuelled by low interest rates after sept 11, govt policy to keep on boosting an already booming construction industry, banks loaning far too much based on the assumption that property prices don't can't fall and many false assumptions such as 'ireland's different' 'young population' 'economic prosperity will last forever cos we're so productive' 'irish love property'.......  otherwise known as a pyramid scheme
UK - see ireland and us together, low interest rates, rise of buy-to-let as the new pension (God knows it couldn't be worse than actual pensions now ;)) etc etc


Why are people queuing at atm machines?  ???


Cos they're so depressed by what's going on they've decided to hit the pub?

Anyway I don't know if that clarified anything or not, but it's as much as I could do.

PS, didn't see anything more on that Bush special powers to railroad it through - might just have been normal internet bullshit, but...

DrinknHarp

Banks are now not lending to each other or to their customers.  Dow records its biggest closing point drop in history.

Small bussinesses are f#@ked all together now.

Many of the bigger companies will not be able to make payroll or pay suppliers due to lag from service/product to customer paying the company which is a normal  time frame 0f 15-90 days depending on terms. Most large companies borrow money for this lag time from the banks and now will not be able to do what has been normal .

A cash society will be the norm for the future. No lending to the average JOE so the economy which relies on credit for EVERYTHING is doomed.

Time to open a bar (most drink in hard times) or an auto supply/mechanic shop because people will not be able to buy new cars for a long time.


DrinknHarp

Republicans voted against the bailout. McCain was blasting Obama and the Dems that they should vote for the bailout.....OOOPS :o

pintsofguinness

Cheers for those great responses, a lot of interesting stuff in there.

The end line is that we're pretty much fucked isn't it  :(  What have we to look forward to? Mass unemployment, higher interest rates? increasing prices? Sounds like a long hard winter!
In my limited knowledge on the subject (obviously) I tend to think we're better to take what's thrown at us and flush out the system rather than prop it up artificially?  Maybe that's the wrong view though.   Looks like they're going to still try and pass the plan though.
Which one of you bitches wants to dance?

Tony Baloney

Looks like we're fucked. I'd say there is some craic in the White House this evening! Looks like they're gonna have to try again. Looks like the only way the Republicans will be appeased if heads roll in the banks and ideally some people get locked up!

Down Gael

Would this $700 billion (and whatever New Labia are spending on B&B) not be better spent on Joe Public who are going to be hit hardest in this credit crunch? Surely this bail out is only going to help the people who created this crisis and who have been on huge salaries and bonuses for selling mortgagaes and loans to people who couldnt afford them.

ExiledGael

Quote from: Tony Baloney on September 29, 2008, 10:11:59 PM
Looks like we're fucked. I'd say there is some craic in the White House this evening! Looks like they're gonna have to try again. Looks like the only way the Republicans will be appeased if heads roll in the banks and ideally some people get locked up!

Sounds reasonable.

Tony Baloney

Quote from: Down Gael on September 29, 2008, 10:17:19 PM
Would this $700 billion (and whatever New Labia are spending on B&B) not be better spent on Joe Public who are going to be hit hardest in this credit crunch? Surely this bail out is only going to help the people who created this crisis and who have been on huge salaries and bonuses for selling mortgagaes and loans to people who couldnt afford them.
You'd think. As Minder says if you screw up you pay, if the banks screw up you pay! Some of those bankers will have to live on their 50 million dollar bonuses so let's not be too harsh on them!

give her dixie

Thankfully we have Sam and Tom to take our minds of things for the next year....
next stop, September 10, for number 4......

ardal

Quote from: Tony Baloney on September 29, 2008, 10:11:59 PM
Looks like we're fucked. I'd say there is some craic in the White House this evening! Looks like they're gonna have to try again. Looks like the only way the Republicans will be appeased if heads roll in the banks and ideally some people get locked up!

Maybe one of yea could clarify this. If inflation is increasing (ie the price of everything) then why do banks / states increase the interest rates on mortgages etc when they know it's more difficult for people to pay? Personnaly I'd rather be receiving some money from mortage repayments than have to take their home and try to sell it in a market which isn't buying. Is it not simply a case that those, like major share holders etc, still want their big fat 15 or 20% profit no matter what damage it does to the country (there are no countries only economies) or the joe bloggs on the street?

DrinknHarp

Quote from: ardal on September 29, 2008, 10:32:56 PM
Quote from: Tony Baloney on September 29, 2008, 10:11:59 PM
Looks like we're fucked. I'd say there is some craic in the White House this evening! Looks like they're gonna have to try again. Looks like the only way the Republicans will be appeased if heads roll in the banks and ideally some people get locked up!

Maybe one of yea could clarify this. If inflation is increasing (ie the price of everything) then why do banks / states increase the interest rates on mortgages etc when they know it's more difficult for people to pay? Personnaly I'd rather be receiving some money from mortage repayments than have to take their home and try to sell it in a market which isn't buying. Is it not simply a case that those, like major share holders etc, still want their big fat 15 or 20% profit no matter what damage it does to the country (there are no countries only economies) or the joe bloggs on the street?

Mortgage rates are at a historic all time low 6%. The problem lies with who the banks lent the money to- people who didn't really qualify for the loans. Intrest only loans seem to be the big culprit in the bank scandal.

You are correct were the greed for profit has plagued the overall bottom line. You would think the banks would work with their customers, getting at least 600 on a 1300 a month mortgage would be better then the alternative, foreclosing on a house that now has lost 20-40% of its value and now you can't even find a buyer because you are no longer lending credit.

Now the bank is sitting on property that they have to pay property taxes on and in the meantime the value of the property keeps decreasing to were if they sell it the end up taking 40 to 50 cents on the dollar instead of working with their original customer(homeowner) and taking 60 to 80 cents on the dollar to the econmy improves. ??? ::)