| Author | Message | ||
     Rasputin Junior Artist Username: Rasputin Post Number: 812 Registered: 02-2008 Posted From: 192.146.101.71 Rating: N/A |
A long post in layman's terms http://greatbong.net/2008/10/01/the-great-wall-street-meltdo wn-part-1/ Nbkfan: "merit anedi oka peda busa" Onlytruth: "naaku good speech for her backdrop anipinchindhi....i am neither her supporter nor opposer" Netra: "meeru vote veyyali anipistte veyyandi..ledhante no vote.." | ||
| Rajusk Side Hero Username: Rajusk Post Number: 3267 Registered: 02-2008 Posted From: 66.93.90.250 Rating: N/A |
This is what even the RBI used and intervened at the right time to hike up the Home Loan rates..so that this exuberance is nipped at the bud... It is always good to know the value of hard earned money..rather than living on borrowed glories and then repenting.. | ||
| Rebel Side Hero Username: Rebel Post Number: 2668 Registered: 02-2008 Posted From: 151.151.21.101 Rating: N/A |
tamud inni GRE words vadithe kastam...moodu mukkallo telugulo seppu... | ||
| Naked_basket Junior Artist Username: Naked_basket Post Number: 93 Registered: 09-2008 Posted From: 199.171.86.140 Rating: N/A |
No! the bottom line is that irrational expectations that lead to irrational exuberance leads to a catastrophic demise of sound systems of wealth generation. The bottom line is that whoever thought that the west is more refined in its understanding of consumption have to taste the bitterness of the same pill. Oriental conservatism had for ages showed the right philosophy towards balancing wants and wishes and its about time that the hijacked youth around the world understand that after all...The west sells as long as you buy | ||
| Rebel Side Hero Username: Rebel Post Number: 2667 Registered: 02-2008 Posted From: 151.151.73.163 Rating: N/A |
bottomline...economy sucks | ||
| Chantodu Side Hero Username: Chantodu Post Number: 3394 Registered: 07-2007 Posted From: 12.34.246.39 Rating: N/A |
nake tamud...konchem ardam ayye basha lo septhava.. | ||
| Balapam Junior Artist Username: Balapam Post Number: 119 Registered: 03-2008 Posted From: 199.67.131.219 Rating: N/A |
Thanks NB. This thread was informative. | ||
| Naked_basket Junior Artist Username: Naked_basket Post Number: 92 Registered: 09-2008 Posted From: 199.171.86.140 Rating: N/A |
AIG exposure to CDS is phenomenal.........and its asset liquidation could have brought a slew of others onto their knees...1 trillion of assets is no mean thing. But intervention and bail outs are the essential death knell to western capitalism as a whole. This will create a 2 tiered economy with redoubtable players occupying the top tier and the rest vying for secondary scrumps of the remains. The point is if the govt can bail AIG then why not GM | ||
| Naked_basket Junior Artist Username: Naked_basket Post Number: 91 Registered: 09-2008 Posted From: 199.171.86.140 Rating: N/A |
Lehman failed on related albeit different reasons altogether IMO. But certainly, accounting had to do a lot in this regard and that is where corporate heads and decision making bodies faltered and created artificial incentives for inflated demand and supply of bad asset backed structured finance products | ||
| Balapam Junior Artist Username: Balapam Post Number: 118 Registered: 03-2008 Posted From: 199.67.138.42 Rating: N/A |
Why only AIG? How about other firms that failed? This whole point of external/internal audit and compliance didn't serve the purpose. | ||
| Naked_basket Junior Artist Username: Naked_basket Post Number: 89 Registered: 09-2008 Posted From: 199.171.86.140 Rating: N/A |
With regards to AIG a yes | ||
| Naked_basket Junior Artist Username: Naked_basket Post Number: 88 Registered: 09-2008 Posted From: 199.171.86.140 Rating: N/A |
For years now, a lot of risk consulting firms have voiced this opinion about AIG to which they turned a deaf ear on the back of the belief that price appreciation of MBS has weft itself intrinsically with the economic activity around the globe showing up in bank portfolios all around | ||
| Balapam Junior Artist Username: Balapam Post Number: 117 Registered: 03-2008 Posted From: 199.67.138.42 Rating: N/A |
Is the audit process a mere joke then? | ||
| Naked_basket Junior Artist Username: Naked_basket Post Number: 87 Registered: 09-2008 Posted From: 199.171.86.140 Rating: N/A |
and most auditors just didn't take this darn thing into account at AIG...that is actual story behind AIG's downfall...their fraudulent accounting practises | ||
| Naked_basket Junior Artist Username: Naked_basket Post Number: 86 Registered: 09-2008 Posted From: 199.171.86.140 Rating: N/A |
I think this is a good question. There lies the whole problem, the current GAAP practises currently. The MBS and to that CDS exposures are accounted in a very trivial way on the books assuming zero liability of the opposite party default and secondary exposure to capital crunch | ||
| Tinku Junior Artist Username: Tinku Post Number: 430 Registered: 08-2008 Posted From: 98.192.74.63 Rating: N/A |
Doesn't the risk capital cover the defaults by mortgages? Yes,it covers.But the more the value of mortgage goes down,the more capital required. | ||
| Balapam Junior Artist Username: Balapam Post Number: 116 Registered: 03-2008 Posted From: 199.67.138.42 Rating: N/A |
Banks ki Risk capital untady kada imposed by regulators. Doesn't the risk capital cover the defaults by mortgages? | ||
| Naked_basket Junior Artist Username: Naked_basket Post Number: 85 Registered: 09-2008 Posted From: 199.171.86.140 Rating: N/A |
Copyright@ Gary Becker | ||
| Naked_basket Junior Artist Username: Naked_basket Post Number: 84 Registered: 09-2008 Posted From: 199.171.86.140 Rating: N/A |
A more palatable approach would be for the government to drive a Warren Buffett style hard bargain, in which, rather than buying anything from banks, the government would invest in them in a form, such as purchase of newly issued preferred stock, or bonds with a long maturity, that would augment the banks' capital and thus enable banks to make more loans. That would avoid conferring a windfall on the banks by overpaying them for their bad securities; no one thinks Buffett is conferring a windfall on Goldman Sachs. After the industry was back on its feet, the government could sell the bank stocks or bonds that it had acquired. | ||
| Naked_basket Junior Artist Username: Naked_basket Post Number: 83 Registered: 09-2008 Posted From: 199.171.86.140 Rating: N/A |
But Goldman is pretty healthy. Many lenders have so much of their capital tied up in mortgage-backed securities or other novel forms of capital that are difficult to value that they cannot attract new capital at a price that would enable the lender to continue in business. The sale of the securities would just expose their lack of value. The federal government, however, has essentially unlimited capital because of its taxing power. It is prepared at this writing to contribute perhaps as much as a trillion dollars to rebuild the capital of the banking industry. The Treasury wants to make this contribution in the form of buying the dubious securities, but that seems to be a mistake, unless pressure of time allows for no alternative. If the Treasury pays the actual value (if anyone can determine what that is) of the securities, it will not be injecting new capital into the banking industry, but merely swapping one form of capital for another. If the Treasury pays more than the securities are worth, then it is contributing capital to the industry all right, but it is also enriching the owners and managers of the banks, which creates the familiar moral hazard problem as well as upsetting people by rewarding careless management practices. The more it overpays, the most costly the bailout plan to the taxpayer. | ||
| Naked_basket Junior Artist Username: Naked_basket Post Number: 82 Registered: 09-2008 Posted From: 199.171.86.140 Rating: N/A |
Ordinarily one would expect a credit crunch to be self-correcting. As lending dropped because of the fall in bank capital, interest rates would rise and this would attract more capital to the financial markets. We have seen this process at work in Warren Buffett's $5 billion investment in Goldman Sachs. Buffett has capital, Goldman needs it, so Buffett gives it to Goldman in exchange for preferred stock (which is really a type of bond but one that does not have a term--it is never repaid) paying a handsome interest rate. | ||
| Naked_basket Junior Artist Username: Naked_basket Post Number: 81 Registered: 09-2008 Posted From: 199.171.86.140 Rating: N/A |
Because the banking industry (and remember that I am defining "banking" very broadly, basically as all lending) was highly leveraged, and because much of its capital consisted of securities very difficult to value, the bursting of the housing bubble reduced the capital of the banks, but by an unknown amount. The reduction and uncertainty have curtailed lending by reducing the capital cushion that a bank needs to reduce to an acceptable level the risk that some of its loans will not be repaid. That is the "credit crunch,â and it is painful because so many individuals and businesses borrow to finance their activities. | ||
| Naked_basket Junior Artist Username: Naked_basket Post Number: 80 Registered: 09-2008 Posted From: 199.171.86.140 Rating: N/A |
The mortgage-backed securities achieved geographical diversification of mortgage risk. But the housing bubble, though not geographically uniform, was sufficiently widespread that geographical diversification did not reduce the risk of mortgage defaults sufficiently to avert the fall in the value of mortgage-backed securities. A complicating factor was that the value of those securities was and is very difficult to determine, because each security represents a share in pieces of many different mortgages. The bank that owns the security cannot readily determine the value of all those different mortgages, since it has no direct relationship with the mortgagor, having sold the mortgage to the entity that issued the mortgage-backed securities. | ||
| Naked_basket Junior Artist Username: Naked_basket Post Number: 79 Registered: 09-2008 Posted From: 199.171.86.140 Rating: N/A |
Banks in recent years have increased the ratio of their loans to their capital because borrowing costs were low and financial experts thought they had discovered ways of reducing the risk of leverage (that is, of borrowing). Many of the loans were mortgage loans, and the value of those loans fell when the housing bubble burst. (Risky, and in some cases deceptive, mortgage practices had contributed to the bubble.) What made the situation worse was that rather than retaining the mortgages that they originated, banks (especially the major ones) sold the mortgages in exchange for securities backed by the mortgages. Those securities became a part of a bank's capital. The value of the securities depended on the value of the mortgages that the entity issuing the securities had bought; those mortgages were the entity's assets. As that value fell, the bank's capital fell. | ||
| Naked_basket Junior Artist Username: Naked_basket Post Number: 78 Registered: 09-2008 Posted From: 199.171.86.140 Rating: N/A |
Banks (broadly defined to include investment banks and the many other lenders) borrow--bank deposits, for example, are loans to banks--and then lend out what they have borrowed. As a result, their loans are much larger than their capital assets (cash, a building, etc.). If their capital shrinks in value, they have less protection against the possibility that the loans they make will not be repaid in full. If a bank's capital is 10, and it borrows 100 and lends 100, and the persons or firms it lends to return only 90, its net worth will fall to zero (10 [its capital] + 90 [the value of its loans] - 100 [the amount it owes its depositors] = 0. |
