August 2006 Weddings
caden
member
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Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
If you have questions about this, please email help@theknot.com.
Thank you.
Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
Bush's speech was a great summary of our problems
If anyone is still looking for a concise recap of the crisis I thought he did a great job of explaining it. Here's the text. I'll c&p the stuff about why this happened. And the two points he made about the solution.?
http://www.foxnews.com/story/0,2933,427602,00.html?
This large influx of money to U.S. banks and financial institutions, along with low interest rates, made it easier for Americans to get credit. These developments allowed more families to borrow money for cars, and homes, and college tuition, some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs.Unfortunately, there were also some serious negative consequences, particularly in the?housing market. Easy credit, combined with the faulty assumption that home values would continue to rise, led to excesses and bad decisions.Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.Optimism about housing values also led to a boom in home construction. Eventually, the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell, and this created a problem.Borrowers with adjustable-rate mortgages, who had been planning to sell or refinance their homes at a higher price, were stuck with homes worth less than expected, along with mortgage payments they could not afford.As a result, many mortgage-holders began to default. These widespread defaults had effects far beyond the housing market.See, in today's mortgage industry, home loans are often packaged together and converted into financial products called mortgage-backed securities. These securities were sold to investors around the world.Many investors assumed these securities were trustworthy and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac.Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.The decline in the housing market set off a domino effect across our economy. When home values declined, borrowers defaulted on their mortgages, and investors holding mortgage-backed securities began to incur serious losses.Before long, these securities became so unreliable that they were not being bought or sold. Investment banks, such as Bear Stearns and Lehman Brothers, found themselves saddled with large amounts of assets they could not sell. They ran out of money needed to meet their immediate obligations, and they faced imminent collapse.Other banks found themselves in severe financial trouble. These banks began holding on to their money, and lending dried up, and the gears of the American financial system began grinding to a halt.?
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Here's an explanation of the Paulson plan:
Under our proposal, the federal government would put up to $700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system.In the short term, this will free up banks to resume the flow of credit to American families and businesses, and this will help our economy grow.Second, as markets have lost confidence in mortgage-backed securities, their prices have dropped sharply, yet the value of many of these assets will likely be higher than their current price, because the vast majority of Americans will ultimately pay off their mortgages.The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal.And when that happens, money will flow back to the Treasury as these assets are sold, and we expect that much, if not all, of the tax dollars we invest will be paid back.?
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Re: Bush's speech was a great summary of our problems
I thought these were great points and that his speech was right on point. I am not always impressed with his speeches, but this one was very good.
Hey Caden! I haven't forgotten about you or your questions. I am hoping I can answer a lot for you tomorrow. I am still fearful that Paulson's plan does not have a clear idea of who will determine the price of these assets. Holding these assets "until markets return to normal" is a large unknown is a HUGE gamble when you pay above fire sale prices for said assets. I really believe that this plan will fail if Paulson and his team wants to purchase them above at above market levels. The only reason why he wants to purchase them at a current premium is b/c it will help banks avoid more massive writedowns. However, this just transfers most of the risk to the government instead.
I think I might be rambling so I will be back in the morning when I am awake.
Yeah, ditto that. He makes it sound like investors made a little oopsie here and there by assuming this and that about the products they created and traded.
This article was good at describing how some of these products came about, how some became worthless and why it's difficult to assess their value:
http://www.nytimes.com/2008/09/25/business/25value.html?hp?
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