I'm all at sea

[numbercruncher]

It seems they are between a rock and a hard place ...

They keep lowering rates and there dollar keeps dropping, oil goes up, cost of living goes up and seen there economy is consumer driven that then translates into a slowing economy.

Everything they are doing and can do, seems to ultimately just delay the inevitable.

Thats the current US administration all over i feel, reactive rather than proactive.

 

[Julia]

As Wayne has said, there is a big difference between the official rate and the discount rate. The Fed cut the discount rate.

Settle down, Numbercruncher. A recession could be the alternative and that will affect you as much as anyone else.

Reading this article will offer some understanding of the interbank situation.

http://www.smh.com.au/news/business...1186857771241.html?page=fullpage#contentSwap2

 

[theasxgorilla]

But everything I read on this crisis points to everything being rosy."The Feds have their hands on the problem and are ready to act with a cut in the rate to ensure the economy stays on track."

Sassa, where did that quote come from?

 

[Wysiwyg]

As Wayne has said, there is a big difference between the official rate and the discount rate. The Fed cut the discount rate.

Settle down, Numbercruncher. A recession could be the alternative and that will affect you as much as anyone else.

Reading this article will offer some understanding of the interbank situation.

http://www.smh.com.au/news/business...1186857771241.html?page=fullpage#contentSwap2

Nice contribution there Julia.The article explains the system very well.

 

[Broadside]

But everything I read on this crisis points to everything being rosy."The Feds have their hands on the problem and are ready to act with a cut in the rate to ensure the economy stays on track."
How much liquidity can you pump into the market and still have rate cut/cuts with a massive current account deficit?

They can pump unlimited money into the system but it will create more asset bubbles and will be very inflationary which has eventual dire consequences for interest rates and currency...they are running out of options, hopefully they won't need to cut the rate to consumers and this is a short lived problem that can be rectified without too much pain. A little pain now is far preferable to a lot later. Feels to me like they're walking a tightrope and I really hope they don't fall, sudden shocks hurt many people well beyond just financial players taking the wrong bets.

 

[dhukka]

But everything I read on this crisis points to everything being rosy."The Feds have their hands on the problem and are ready to act with a cut in the rate to ensure the economy stays on track."
How much liquidity can you pump into the market and still have rate cut/cuts with a massive current account deficit?

Sassa,

As numerous others have pointed out here, the fed cut the discount rate not the fed funds rate - which is what McCrann is referring to.

Basically the Fed has made it easier for banks and thrifts to obtain short term liquidity. They can even offer up CDO's as long as they are AAA rated.

The move by the Fed doesn't make anything rosier. The damage has been done, the loans that should never have been made are out there. The banks have bundling them together and infected all corners of the globe with the rubber stamp of the ratings agencies. Many hedge funds are leveraged up to the eyeballs with the same garbage. None of this has changed.

There will be write-downs, there will be losses and bankruptcies and I'm sure a few big names will go down with the sinking debt bubble ship.

 

[Julia]

How much responsibility for this mess can be laid at the feet of S & P and Moody's for seemingly inappropriately rating many of these security packages?
Apparently many of them were AAA rated. Could there be some law suits against these agencies?

 

[numbercruncher]

Its almost certain this will lead to huge lawsuits, so much is pointing to outright fraud, you can bet the big instituions will try to pass the buck of blame thou.

PHILADELPHIA (AP) - Radian Group Inc., one of the nation's largest mortgage insurers, has drawn down half its credit line and faces shareholder lawsuits accusing the company of securities violations.

http://www.hemscott.com/news/latest-news/item.do?newsId=48500918552263

 

[macca]

I thought this was a reasonable read, seems to support their action

 

[Mofra]

Who are you to say they should be in budiness ?

Anyone in a Western Nation that owns a property for one. loan rate profit margins in Australia are almost never above 0.4%; most major banks have about half their loan book running at a loss (by volume and number).

 

[numbercruncher]

Anyone in a Western Nation that owns a property for one. loan rate profit margins in Australia are almost never above 0.4%; most major banks have about half their loan book running at a loss (by volume and number).

Hi Mofra,


Thanks for your input but i find that hard to beleive , how do you know that 50pc of loans are running at a loss ? Why would a bank take on debt that runs at a loss ?

 

[dhukka]

I thought this was a reasonable read, seems to support their action

Hi Macca,

Not a bad summary of the risks but a little oversimplified.

Remember Dr Shane Oliver's forecast for the ASX 200 index is 6700 by year end and to break 7000 in the 1Q08. It may well get there yet with 3 and half months still to go however if it doesn't it wouldn't be the first time the eminent doctor got it wrong.

 

[Buster]

Great links Julia and Macca.. It all makes a lot more sense to me now, may even be able to explain it to some of the mates..

Regards,

Buster.

 

[sassa]

Sassa, where did that quote come from?

Not 100% certain but I think it was on the Bloomberg site.

 

[sassa]

As Wayne has said, there is a big difference between the official rate and the discount rate. The Fed cut the discount rate.

Thanks for link-an educating article.One thing perplexes me.Gittins(quote)-"It( Reserve Bank or Fed) lowers rates when it wants to encourage demand."
The Fed lowers the discount rate at which Banks can borrow.Banks are there to lend to individuals,companies,investors(hedge funds,dare I say it)etc.Do they pass on the borrowing rate cut to their customers thus fueling inflation?

 

[theasxgorilla]

Remember Dr Shane Oliver's forecast for the ASX 200 index is 6700 by year end and to break 7000 in the 1Q08. It may well get there yet with 3 and half months still to go however if it doesn't it wouldn't be the first time the eminent doctor got it wrong.

If he keeps it up he'll surely find himself in the Muppet Hall of Fame. Head of investors indeed.

http://www.linkedin.com/ppl/webprofile?action=vmi&id=8322504&authToken=qHIL&authType=name&trk=ppro_viewmore

 

[theasxgorilla]

Thanks for your input but i find that hard to beleive , how do you know that 50pc of loans are running at a loss ? Why would a bank take on debt that runs at a loss ?

Its perhaps not a quantifiable fact, but its a pretty good presumption. Ask another question...why do we have 30 year mortgages, and in the part of the world where I'm living 35, 40, 45 and 50! year mortgages? Have you seen how much interest you pay when you drag a mortgage out for 25+ years? Lifetime customers is the answer to your question, why run at a loss?

This is the reason why there are absurd penalty clauses in many low-doc loans which say that you will forfeit x% of the value of the property if you terminate the loan in the first 3 years...the banks are protecting their breakeven with your equity.

 

[wayneL]

If he keeps it up he'll surely find himself in the Muppet Hall of Fame. Head of investors indeed.

http://www.linkedin.com/ppl/webprofile?action=vmi&id=8322504&authToken=qHIL&authType=name&trk=ppro_viewmore

Dr Ollie flip flops like a salmon stranded on rock. He'll be calling for XJO 3000 next.

 

[dhukka]

If he keeps it up he'll surely find himself in the Muppet Hall of Fame. Head of investors indeed.

http://www.linkedin.com/ppl/webprofile?action=vmi&id=8322504&authToken=qHIL&authType=name&trk=ppro_viewmore

ASXG

Do I have to join up to read that link? Could you give us a rundown?

Oliver has been around for a while. His longevity in the industry is proof that being wrong doesn't hamper your career.

 

[ADoyle]

I thought this was a reasonable read, seems to support their action

Could some of the posters here please critique the article by Dr. Oliver instead of just calling him a muppet.
It seems a well balanced read with a conclusion drawn from arguments on both sides.
BTW this is my first post and I would like to thank all contributers here for their input, it it much appreciated.