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Brown cuts UK growth rate again
http://woodturner7705.tripod.com/

Correction:

As a percentage of GDP, US military spending was higher in the 1980s than it is now. The pattern of defense spending to GDP has been working its way down since the 1940s. Down in the 1950s, up again in the 1960s (but not as high as the 1940s), down in the 1970s, up in the 1980s (but not as high as the 1960s), down in the 1990s, etc.

US defense spending is now only 3-4% of GDP, a much lower percenage than its nearest "competitors". A double benefit of a huge economy and a productive military (levering off decades of investment in capital goods relative to personnel).

James Buchanan said: "There will be a new bubble to ride in a couple years."

That to me shows that our theories of global finance must be based on some seriously flawed premises or are being deliberately manipulated so that the rich can buy up the poor's assets during the bust period. It's time to reform this business from the ground up and question such sacred cows as the FED and fractional reserve banking. Infinite expansion of the money supply has two possible consequences, inflation or unsustainable infinitely expanding production. The first causes these business cycles that cause so much pain, the second could end life on this planet, stop the madness now.

You called it, the FED reduced rates and is contemplating to cut its main headline rate. Well done.

Interesting and true!
Given that this article was written last week, all predictions came true, including the reduction of interest rates by the FED.

There are reportedly 2 million sub-prime loans that will lead to foreclosures. Say, $30000 to 50000 of loss per home, that is $60 to $100 billion in actual loss in one single step!

Second point is that it has dried up the market and available mortgages for good credits and prices of other properties have fallen. So, the author's estimation of a drop on valuations to the tune of a few percentage points from American GDP is not all that far from reality.

I came across an article at http://www.brokerforyou.com/brokerforyou/ written by a San Diego real estate broker that claims that subprime loans are NOT the main cause of the housing value decline. Interestingly, he claims that greed is the #1 cause of the decline! It’s really a great little article, you should check it out!

He’s also got some interesting charts on median home value drops at http://www.brokerforyou.com/brokerforyou/index.php?paged=2

James Buchanan above is right. And the author has dismissed the doom's day theory and the fact that markets will clear out and get back. But the worry is that markets don't learn from previous mistakes and one of these days one mistake will be too large and too difficult to recover from.

Also, America's overall share of world economy is shrinking. Even relatively poor European countries such as Spain and Italy are a lot more robust, let alone China, India, Russia, Poland, etc. etc.

Markets go up and down. It is the steady pace that is important.

For those of you who think this is something the US won't bounce back from, I remind you of the fact that we bounced back from 1987, 1992, 2001, and God only knows how many other collapses of economic cash cows.

This is a hiccup, nothing more. There will be a new bubble to ride in a couple years.

Somehow, computer models took over the process and every one assumed that the computers were programmed correctly....ha ha ha....

Burning thru confidence and credibility will have a longer impact. I also like the author's reference that China will be a bargain hunter with its loads of cash.

Threefold issue here.

1) Subprime mortgages were issued irresponsibly. Subprime mortgages were supposed to be a second chance for people with poor credit history to get into homes they COULD afford on their budget. Not for every Tom, Dick, and Harry Homeowner wannabe to get the absolute maximum amount of house for the minimum amount of cash outlay praying for the equity built up through value inflation that they could refinance with cash in hand to help pay the insane mortgages they were inflicting on themselves. This was the era of the palace pauper, people extending themselves paying out 75% or more of their income on their house payments, watching the value praying it stayed on the upswing.

Subprime mortgages have a reason to exist. There is a responsible application for them, and I sincerely hope they continue to work for those who use them properly. That said, a lot of people here are going to very deservedly lose a lot of money, and I have no sympathy for them.

2. The construction industry was out of control. Developers building houses cheaper than ever, fueled by contractors using largely underground labor with illegals and day workers, threw houses up at an unparallelled rate.

Purchase prices for new houses skyrocketed, while the cost to build them bottomed out. Local governments that handle building permits and zoning were largely overwhelmed by the sheer volume these people slammed up. A glut in the supply side of the market was inevitable at the pace they were maintaining.

3. Investment buyers. People buying homes shaken out of the stock market looking for a chance to churn more money to line their pockets. Buy and flip and buy and flip and buy, constantly driving up housing prices by overheating the perceived demand for housing by churning transactions. Some credit goes to developers who tried to get people to stop flipping sales for investment purposes, but once the money sharks smell green, they're unstoppable.

Hedge fund managers who looked at this saw a market generating insane amounts of profit through valuation overload and had they not tapped it for their investors, they would have been crucified by them. When a market is hot, all that matters is making money until the last possible minute. As has been stated, many of them use computer modelling, and naturally, the computers would pick out these subprime markets as the mover of the day. The problem with computer modelling, and with many investors as a subset of humanity, is that they have no foresight. Once a ball is rolling, there's no forethought into what happens when it hits bottom and loses momentum. They never once stopped to consider what a house of cards the subprime market was being built upon. A device intended to aide the rebuilding of a person's life after a fiscal calamity instead was abused by people without need for it to generate a calamity.

It happens every time a new opportunity arises, just like dotcoms and junk bonds.

Threefold issue here.

1) Subprime mortgages were issued irresponsibly. Subprime mortgages were supposed to be a second chance for people with poor credit history to get into homes they COULD afford on their budget. Not for every Tom, Dick, and Harry Homeowner wannabe to get the absolute maximum amount of house for the minimum amount of cash outlay praying for the equity built up through value inflation that they could refinance with cash in hand to help pay the insane mortgages they were inflicting on themselves. This was the era of the palace pauper, people extending themselves paying out 75% or more of their income on their house payments, watching the value praying it stayed on the upswing.

Subprime mortgages have a reason to exist. There is a responsible application for them, and I sincerely hope they continue to work for those who use them properly. That said, a lot of people here are going to very deservedly lose a lot of money, and I have no sympathy for them.

2. The construction industry was out of control. Developers building houses cheaper than ever, fueled by contractors using largely underground labor with illegals and day workers, threw houses up at an unparallelled rate.

Purchase prices for new houses skyrocketed, while the cost to build them bottomed out. Local governments that handle building permits and zoning were largely overwhelmed by the sheer volume these people slammed up. A glut in the supply side of the market was inevitable at the pace they were maintaining.

3. Investment buyers. People buying homes shaken out of the stock market looking for a chance to churn more money to line their pockets. Buy and flip and buy and flip and buy, constantly driving up housing prices by overheating the perceived demand for housing by churning transactions. Some credit goes to developers who tried to get people to stop flipping sales for investment purposes, but once the money sharks smell green, they're unstoppable.

Hedge fund managers who looked at this saw a market generating insane amounts of profit through valuation overload and had they not tapped it for their investors, they would have been crucified by them. When a market is hot, all that matters is making money until the last possible minute. As has been stated, many of them use computer modelling, and naturally, the computers would pick out these subprime markets as the mover of the day. The problem with computer modelling, and with many investors as a subset of humanity, is that they have no foresight. Once a ball is rolling, there's no forethought into what happens when it hits bottom and loses momentum. They never once stopped to consider what a house of cards the subprime market was being built upon. A device intended to aide the rebuilding of a person's life after a fiscal calamity instead was abused by people without need for it to generate a calamity.

It happens every time a new opportunity arises, just like dotcoms and junk bonds.

Yes Sir! The worst is yet to come. This week has already started with various foreign investors evaluating their portolios and get a grip on their losses.

This is damaging to America's reputation.

Dear NY Finance

Where the same machines and programs used to tell us that Saddam had WMDs and was the biggest problem of this planet?

It is true that the sale of CDOs is global. This is due as much to the greed of investing institutions to achieve higher yields as to the ingenuity of the issuing banks for creating complex securities based upon spohisticated algorithms using limited utility, but widely-accepted, "standard deviation" historical data. These analytical tools, while useful in normal times, are of limited accuracy in periods of dislocation or statistical anomalies. Hopefully (and presumably), the current situation will return to historic norms where rationale decisions can be based upon some level of "normalcy".

It should be stated however, that this reliance on computer-driven analysis is a function of the world's acceptance of analytical technology as a superior replacement for old fashioned human judgement. Perhaps this is the lesson we should be learning...

Reading the comments of Keith Smith above is an eye opener that, and although America is the largest contributor of funds to IMF, Americans don't know how IMF works and that it lends money to countrys. It does not give aid.

The writer has done a superb job of comparing size of these debt blow-outs. Readers must keep what they read in perspective. Although America could afford big bankruptcies such as Enron, but it is inexcusable for the financial industry to set aside risk assessments.

The financial sector used to complain that losses suffered are from other sectors (tech, steel, oil, etc....). But this bust is their very own making! No one else to blame!

Who gave loans to bad credits to begin with?

Yep, the tip of the iceberg indeed.... this one is going to be a big bang for the big banks! Time to pay the piper.......

Poster above, Keith: A stay of execution is in fact the best hope of rescue for one due to be executed. Ask Saddam!

Over the last few days, we have seen wild swings of short-term borrowing rates. Last Thursday and Friday, overnight lending rates were quoted from 9% p.a. dow to 1% p.a. after injectin of cash by central banks, all within the same day. That is very volatile for a very developed economy and the largest market in the world, where usual moves are 0.01% or so.

Those above that don't believe that central banks did not inject money in markets should read The Financial Times of London, for example, to get out of the news bubble in USA, especially now that Murdoch and Fox news own the Wall Street Journal!!!

To KEITH SMITH
Actually, another $50 bil. of "liquidity" was added to the market by central banks of other countries (EU, Japan, Canada) on Monday, 13th Aug. These may be RePo deals, but it is still a loan-- be it overnight loans or 1 month or 1 year loans, it does not matter. In essence, central banks (and the Federal Reserve is the central bank in USA) loaned massive amounts of cash to banks so they can in turn lend money to desparate clients in need of urgent cash.

IMF recsues are also loans by IMF country members to governments of, say, Turkey or Argentina, Brazil, etc. In turn, those governments use that money to refinance (repay) their loans and obligations on their bonds. The Turkish rescue in 2001, for example, was an emergency $16 bil. 3 year loan from the IMF to the Turkish treasury (about 3% of Turkish GDP), partly because the Turkish treasury had seized 18 private sector banks due to their massive $21 bil. losses on bad loans and fraud.

So, tell me how looses by unregulated hedge funds, MBS and CDOs and junk bonds are all that different from loan losses of private Turkish banks? In essence the lending by central banks, in form of RePo deals (i.e. loans renamed as "repurchase") is the same way. Who knows, it is only the beginning and George Bush may have to call the IMF.....The Brits did it back in 1979!

"Bad banking decisions"? Really? How about a corporate controlled government and society so corrupt and greed driven and short sighted that it boggles the mind.

I am not surprised in the least that ventures into more risky waters should bring concern.

First I wouldn't call the current financial problems the tip of the iceberg. The tip of the iceberg came a while ago. The problems in the housing/financial sector have been well known for a long time. All you have to do is look at the performance of the home builders for the last 6-12 months. Alternatively, you could look at the financial personalities (such as Suze Orman) who have been railing against negative amortization home loans for a long time.

Second, thank God for the people who think this is "Armageddon" and sell at the bottom. It presents wonderful buying opportunities.

Dr. Ettefagh,

Should I even ask why you might be seeking a bale out by the government?

The majority of people who will lose their home to foreclosure due to sub prime loans are primarily immigrants.

If your profits are down in your investment firm due to these questionable loans, I guess you should have seen it coming earlier and baled yourself out.

Don't try to get the government to pay for your investment errors.

You win some, and you lose some in this market. Strange, you weren't crying the blues before when you were making the money off of the backs of immigrants.

Not to worry. The GOP "what me worry" crowd will blame the whole market meltdown and subsequent recession on Clinton.
The knuckle-dragging Republican talk show monolith will parrot talking points about "leftist liberals" undermining confidence in the free market system. The libertarians will say, "let the markets sort things out" and they'll have scant sympathy for the ruined lives and livelihoods. And as Bush proceeds to bail out the speculators and high rollers and the system-gamers, the Democrats will fret but go along, we will again realize there is no such thing these days as a free market. It's all a Ponzi Scheme rigged in favor of those who have the most to pay to do the rigging and those who rig.

The first paragraph has a major factual error. The statement below is incorrect regarding aforementioned CB action.

"As such, this concerted effort ranks among jumbo IMF rescues of emerging markets."

It isn't a bailout or a rescue since these transactions involved repos, which means that banks still have the mortgage backed securities after all is said and done. There is no rescue, just a stay of execution really.

I stopped reading after that.

It's crazy that hedge funds ( didn't you see that coming) but how conservative mutual funds like Weitz Value fund got involved in this mess is inexcusable. It doesn't matter since hedge fund managers make out like bandits while investors are left holding the bag naturally however a mutual fund like Weitz that does not portray itself as a risky investment chasing higher returns on the backs of investors, retirement k funds and the like?

Of course hedge funds need to be regulated now that it is becoming apparent that it is the latest Wall Street Ponzi scheme.I do not think that the SEC or the FED no the full extent of what when on in that regulated environment and may be throwing darts trying to find a solution. Greenspan knew that keeping interest rates low would reverberate back somehow but he didn't know how. The usual con artists got rich doing nothing illegal, just selling the smoke and mirrors like the life insurance agents did in the past and guess what? They regulate them now, all the smart ones moved on to the deregulated zone funds.

Naturally what is good for Wall Street is seen as good for the economy but not when they move out of prudent investments privately held to make a quick buck for the chosen few. they should go to jail but they won't since any regulation I am sure will be on a go forward basis. This internationally based crew would need its own state to house them all.

If you invested in a hedge fund to get rich quick that was your risk. Let's not expect the FEDS to bail out those who fell for the Ponzi scheme who did not heed " There is a sucker born every minute." OR how about "It is different this time, the real estate bubble won't burst?" It's never different. You take your risks and if you happen to make 11 billion by getting out early taking advantage of the situation, I am sure that's very republican of you and they will make a nice little Horatio Alger story about it. Let's see what happens to companies on buying sprees with tenuous financials or those that invested and risked their employee's pension funds or in the case of Harvard, endowments in these investments? These are the leaders? I would rather be a follower. Better off in investing in designer jewelry that at least can be enjoyed while appreciating like a commodity particularly when purchased on Ebay!

It's crazy that hedge funds ( didn't you see that coming) but how conservative mutual funds like Weitz Value fund got involved in this mess is inexcusable. It doesn't matter since hedge fund managers make out like bandits while investors are left holding the bag naturally however a mutual fund like Weitz that does not portray itself as a risky investment chasing higher returns on the backs of investors, retirement k funds and the like?

Of course hedge funds need to be regulated now that it is becoming apparent that it is the latest Wall Street Ponzi scheme.I do not think that the SEC or the FED no the full extent of what when on in that regulated environment and may be throwing darts trying to find a solution. Greenspan knew that keeping interest rates low would reverberate back somehow but he didn't know how. The usual con artists got rich doing nothing illegal, just selling the smoke and mirrors like the life insurance agents did in the past and guess what? They regulate them now, all the smart ones moved on to the deregulated zone funds.

Naturally what is good for Wall Street is seen as good for the economy but not when they move out of prudent investments privately held to make a quick buck for the chosen few. they should go to jail but they won't since any regulation I am sure will be on a go forward basis. This internationally based crew would need its own state to house them all.

If you invested in a hedge fund to get rich quick that was your risk. Let's not expect the FEDS to bail out those who fell for the Ponzi scheme who did not heed " There is a sucker born every minute." OR how about "It is different this time, the real estate bubble won't burst?" It's never different. You take your risks and if you happen to make 11 billion by getting out early taking advantage of the situation, I am sure that's very republican of you and they will make a nice little Horatio Alger story about it. Let's see what happens to companies on buying sprees with tenuous financials or those that invested and risked their employee's pension funds or in the case of Harvard, endowments in these investments? These are the leaders? I would rather be a follower. Better off in investing in designer jewelry that at least can be enjoyed while appreciating like a commodity particularly when purchased on Ebay!

It's crazy that hedge funds ( didn't you see that coming) but how conservative mutual funds like Weitz Value fund got involved in this mess is inexcusable. It doesn't matter since hedge fund managers make out like bandits while investors are left holding the bag naturally however a mutual fund like Weitz that does not portray itself as a risky investment chasing higher returns on the backs of investors, retirement k funds and the like?

Of course hedge funds need to be regulated now that it is becoming apparent that it is the latest Wall Street Ponzi scheme.I do not think that the SEC or the FED no the full extent of what when on in that regulated environment and may be throwing darts trying to find a solution. Greenspan knew that keeping interest rates low would reverberate back somehow but he didn't know how. The usual con artists got rich doing nothing illegal, just selling the smoke and mirrors like the life insurance agents did in the past and guess what? They regulate them now, all the smart ones moved on to the deregulated zone funds.

Naturally what is good for Wall Street is seen as good for the economy but not when they move out of prudent investments privately held to make a quick buck for the chosen few. they should go to jail but they won't since any regulation I am sure will be on a go forward basis. This internationally based crew would need its own state to house them all.

If you invested in a hedge fund to get rich quick that was your risk. Let's not expect the FEDS to bail out those who fell for the Ponzi scheme who did not heed " There is a sucker born every minute." OR how about "It is different this time, the real estate bubble won't burst?" It's never different. You take your risks and if you happen to make 11 billion by getting out early taking advantage of the situation, I am sure that's very republican of you and they will make a nice little Horatio Alger story about it. Let's see what happens to companies on buying sprees with tenuous financials or those that invested and risked their employee's pension funds or in the case of Harvard, endowments in these investments? These are the leaders? I would rather be a follower. Better off in investing in designer jewelry that at least can be enjoyed while appreciating like a commodity particularly when purchased on Ebay!

It's crazy that hedge funds ( didn't you see that coming) but how conservative mutual funds like Weitz Value fund got involved in this mess is inexcusable. It doesn't matter since hedge fund managers make out like bandits while investors are left holding the bag naturally however a mutual fund like Weitz that does not portray itself as a risky investment chasing higher returns on the backs of investors, retirement k funds and the like?

Of course hedge funds need to be regulated now that it is becoming apparent that it is the latest Wall Street Ponzi scheme.I do not think that the SEC or the FED no the full extent of what when on in that regulated environment and may be throwing darts trying to find a solution. Greenspan knew that keeping interest rates low would reverberate back somehow but he didn't know how. The usual con artists got rich doing nothing illegal, just selling the smoke and mirrors like the life insurance agents did in the past and guess what? They regulate them now, all the smart ones moved on to the deregulated zone funds.

Naturally what is good for Wall Street is seen as good for the economy but not when they move out of prudent investments privately held to make a quick buck for the chosen few. they should go to jail but they won't since any regulation I am sure will be on a go forward basis. This internationally based crew would need its own state to house them all.

If you invested in a hedge fund to get rich quick that was your risk. Let's not expect the FEDS to bail out those who fell for the Ponzi scheme who did not heed " There is a sucker born every minute." OR how about "It is different this time, the real estate bubble won't burst?" It's never different. You take your risks and if you happen to make 11 billion by getting out early taking advantage of the situation, I am sure that's very republican of you and they will make a nice little Horatio Alger story about it. Let's see what happens to companies on buying sprees with tenuous financials or those that invested and risked their employee's pension funds or in the case of Harvard, endowments in these investments? These are the leaders? I would rather be a follower. Better off in investing in designer jewelry that at least can be enjoyed while appreciating like a commodity particularly when purchased on Ebay!