Comments on: Doomsaging: The St. Patrick’s Day Massacre

By: gh1f

gh1f — Tue, 18 Mar 2008 00:04:12 +0000

I’m with K2. Stay calm.

JP Morgan got a good deal-I think their market value rose by a whole lot today.

Dismally yours,

gh1f

By: k2

k2 — Mon, 17 Mar 2008 21:36:52 +0000

>>Wasnâ€™t Standard and Poors saying just last week that the worst of the >>mortgage write-downs are behind us??

While the terms of the Bear/JP Morgan deal certainly seem to indicate that there is more ugly yet to be found in Bear’s portfolio, they seem to have been taken down not by subprime mess per se, but by a good, old-fashioned run on the bank. And that’s the kind of thing that makes the Fed’s Board of Governors’ blood run cold.

Mark Carlson, a staff economist at the Fed, published a research paper on the Depression-Era bank runs back in February. According to his research many of the banks that failed were at least as financially sound as those that survived and that their failure was primarily the result of the banking panic. He believes that the failure of these banks worsened the economic conditions of the day.

The Wall Street Journal has a good summary of the paper here: http://blogs.wsj.com/economics/2008/02/15/lessons-for-today-bank-panics-and-the-great-depression/, as well a link to the full paper on the Fed’s website.

>the Fed made a move on Friday that hasnâ€™t been seen since the 1930s

That might be a wee bit of an exaggeration. Keep in mind that in 1998 the Federal Reserve Bank of New York bailed out a big hedge fund, Long-Term Capital Management, to the tune of $3.6 billion. And the Resolution Trust Corp. bailout and liquidation of insolvent savings and loans in 1980s (also primarily caused by failed mortgages, BTW) cost approximately $450 billion dollars.

Hang in there Omegamom. There’s a reason why economics is called The Dismal Profession.

By: lisa

lisa — Mon, 17 Mar 2008 16:00:30 +0000

I’ve been saying it was a house of cards for 6 years-not because I’m especially smart, but because I saw some of the first ripple impacts. As a small landlord, I was hit hard when my city went from 0-7% vacancy rate in less than 6 months. Many of us were exposed, when steady renters jumped into home ownership because of all the cheap loans. I went from excellent tenants, to weak, to outright cons taking advantage of landlords who needed to fill their units and strong tenants’ rights laws. I ended up with judgments against tenants upwards of 30k, never likely to be paid. As all of the long term renters who added to the stability of our neighborhood started moving out, and small time landlords who lived in the neighborhood and owned maybe 1-3 properties that they treated like their own homes, started selling cheap to out of state investors, crime went up-with the associated costs both in damages and property values. When I put my properties on the market in 2005 (mostly for personal reasons, but also to cut my losses) there were 42 roughly identical duplexes in my neighborhood on the market, in addition to all the single family homes. I and some of my neighbors, sold one of my properties for less than what I owed on it-and 100k less than appraised value.
I’m slowly bouncing back-but I feel very sad for what was a fabulous neighborhood full of people with more creative enrgy than money-people who created all sorts of community programs and beauty through home improvement-all of which made it a great place to live.
It amazes me that people still talk about subprime being THE problem. It goes so much deeper than that in terms of the socioeconomics of neighborhoods and the artificial incentives for people to jump into homeownership and the new housing boom. There’s an alderman in Cincinnati who wrote a great piece on the impact on neighborhoods several months ago-wish I could find it again. Yeah, someday I mean to blog on this…
Those interviews were indeed amazing feats of prevarication. ~lmc