July 21 (Bloomberg) — For CIT Group Inc., the emergence of a $3 billion loan agreement with bondholders preventing bankruptcy shows there is life after death in the credit markets.
To the creator of PennyJobs, Curtis, the answer — clearly — is an emphatic YES!!!
What About Greedy Bankers?
Some like to point out that Wall Street creating the easy home securities like ARM and sub-prime loans, but realize that Wall Street would not have been able to create these things if Alan wouldn’t have allowed interest rates to drop well below market rates.
Not sure I agree with the statement (it seems like a circular argument), but I, too, place a lot of blame on Greenspan and the Federal Reserve. And my opinion isn’t influenced, in this case, by the fact that I think the Fed does too much. It’s based on the idea that one of the, if not THE, central functions of the Federal Reserve is to regulate banks and other financial institutions.
The Fed failed in its oversight of the banks; in fact, they encouraged risky behavior. I think they were of the mind that all of these “derivatives” were reducing — if not eliminating — the risk naturally inherent in risk-based securities. After all, mortgages, for example, have inherent risks and their priced almost solely according to this risk (in the form of the interest rate).
A simple economic lesson: Higher interest rate = Higher perceived risk
As interest rates dropped to historically low numbers, the market clearly perceived lower risk. But people still lose jobs, hurricanes still happen, blight still occurs.
As the bubble inflated, more and more people pumped more and more air into it. As a bubble expands, it becomes more likely to burst.
And BURST it did.
It would be interesting to know what the money multiplier was during the early 2000s versus other 5- or 10-year periods. I would guess that it was rather high.
This is the “Dog Ate My Homework” edition 🙂
I’ve been burning the candle at both ends lately, what with my job winding down (amazingly, it winds up before it winds down, having to train my replacements), a big vacation planned for August (while I still have money, a car, and a house — hehe), and 2 kids that are growing up way too fast…
So, like any good student (of life), when the chips are down, you missed your assignment, you’re in danger of failing an exam —
Actually, this week, I’m taking a pass. We’ve been talking about how to build wealth, how to brainstorm business ideas, and how to get started.
We’ll pick up on that next time around.
This week, I want to direct you to a post that one of my fellow Personal Finance bloggers, Lazy Man, wrote, entitled, “Wealth Creation: Is it a Myth?“
He postulates that wealth creation is a zero-sum game: Any time I make a dollar, somebody loses a dollar; thus, it’s a zero-sum game.
It’s an interesting concept. His post got a lot of people talking. Make sure you read the Comments for my take on the question, where I give the “functional” reason that wealth-creation is NOT a zero-sum game (Lazy Man mentioned it briefly in his post) — but absent banks, there may in fact be no wealth creation.
Check it out. Tell me what you think in the comments here.
David Callaway: Wall Street’s giving tips again; time to worry
One sure sign that the markets may be getting ahead of themselves this summer: Wall Street banks are recommending each other’s shares again.
Bill’s take on this: Yes, we should all be very, very afraid. It always bugged me that banks recommended banks, the “watchdog” SEC and Moody’s, S&P, and other rating agencies not only didn’t “get” the economic downturn we’re all living in, but they showed a complete negligence about the disaster. Further, they all have conflicts of interest.
For example, the rating agencies. Take S&P. (Please!) They “rate” securities, presumably on risk. The riskier the underlying securities, for example, on a bond, the riskier the bond, the lower the rating. (First off, does anybody understand the rating system? Why can’t it simply be A-F? Why quadruple double-A, which means, not so good? I made that up, but you know what I mean.)
However, the S&P benefits by giving good ratings. If a company gets poorly-rated, they don’t do ANY business with S&P, which has a whole host of business services it sells Wall Street firms.
In the interest of “transparency,” then, a rating agency really should have no other duty. I don’t know how they’d make money, but that’s for them to figure out.
You cannot tell me that the “risk” side doesn’t take the potential lost business into consideration. I bet the “risk” side even takes some heat from the revenue-generating side.
Used to be, investing in an index was a sound investment idea. Now that all the parties are having affairs and inbreeding, I’m not so sure.
I admit I know nearly nothing about Dave Ramsey (I know he’s some sort of “financial guru” that a lot of people follow), but I’ll tell you, in the interest of disseminating information, that he’s holding a town hall meeting tonight about “The economy, your money, and real answers.”
It’s tonight, April 23, at 8 PM ET and 7 PM PT (West Coast delay, what’s new?) – sign up here – Town Hall For Hope with Dave Ramsey (Click the “Attend the Event” yellow button).