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alstry (35.90)

The KEY little Secret

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September 30, 2008 – Comments (12)

Shhhhh.  We don't have a credit crisis.......but please keep it to yourself.

We have a borrower crisis.  There are simply not that many borrowers out there qualified to borrow money and those that are qualified don't want to borrow.

Over the last eight years.....much of lending was simply to businesses, governments and individuals that really didn't qualify to borrow money.  But loans were made on the premise that more money would be lent to pay back the original lenders.  As long as money kept being lent...everybody kept being paid....and the economy boomed.

Retailers sold lots of goods.  Shopping centers were built.  New homes sprouted up faster than tulips.  Schools became monuments to local officials.  Hospitals borrowed and built hugh new wings.  All on borrowed money with tenuous  financials.

Now you have to qualify to get a loan.  Imagine that.  Guess what....there are only a fraction of the people that would have been able to get a loan a couple years ago that qualify today.  With less loans being made....spending is evaporating and thousands of businesses are shutting down.

Millions of employees are getting released causing even more people to enter financial hardship...even if they were responsible during the easy lending cycle.  As revenues evaporate...expect more and more debt to default....likely trillions and trillions of dollars worth.

So what will buying a bunch of toxic assets off of banks books do to qualifying people to get loans....absolutely nothing.  As a matter of fact, it only paves the way for more outstanding debt to become toxic down the road.

Now we know the truth....watch how this plays out.  Until we figure out a way to restructure debt....the downward spiral continues.

12 Comments – Post Your Own

#1) On September 30, 2008 at 4:18 PM, pjani06 (30.58) wrote:

yah that's why we've been seeing market rates & spreads for corporate & consumer exposure doing alot of wild things since the falls of AIG / Lehman.

The next 2 years will be very interesting for America. And it'll be more interesting to compare to living standards at emerging market countries during that same time period.

Our future economic capacity must be preserved. The bailout that was courageously voted down would have been the wrong answer & most certainly send us into depression.

However solutions will still be hacked out at congress today & the near future til something passes....so...

Check this out, the solution to the mess, posted today by Karl Denninger from fedupusa.org / market ticker;

Denninger's "How To Fix Our Banking System" sent to all in Congress today

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#2) On September 30, 2008 at 4:48 PM, alstry (35.90) wrote:

Denninger is right, we must recapitalize and create transparency in our banking system.  That is a baseline.

The problem is that few really understand how dependant easy credit was with our economic growth in the past eight years.  Even those who didn't lever up were direct beneficiaries.

Think about the higher taxes paid from ficticious or transitory profits.  The higher property taxes from BS real estate appreciation.  Now budgets are levered to revenue streams that will evaporate creating many municipal and state defaults.

We could go on and on like the number of shopping centers built to satisify customers that will never show up.  Same with offices buildings and condo towers.  These defaults are just starting to hit the books.

Save defense....almost our entire economy was dependant on easy credit.  It created an illusory perception of growth and profits.  As the vail is finally being revealed to us by Wall Street and Washington.....you will start to see how quickly things NOW start spiraling downward.

As far as I can tell....few are prepared for what we are about to face.

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#3) On September 30, 2008 at 5:02 PM, alstry (35.90) wrote:

Sept. 30 (Bloomberg) -- UBS AG, the European bank with the biggest losses from the credit crisis, plans to eliminate about 1,900 jobs in its investment banking, equities, and fixed income units, two people with knowledge of the matter said.

SAN FRANCISCO (MarketWatch) -- Rockwell Automation Inc. said late Tuesday it will cut about 3% of its global workforce in a restructuring move. The company employs about 20,000 worldwide.

Bill Heard Chevy is cutting over 3000 jobs.

Sun Country Airlines is slashing workers pay in half.

The beat goes on and on.  I am sure many of these people did not over leverage themselves duing the lending bubble....but many of their company's customers did or depended on easy money to survive.....now these people are going to have revenue issues.

Just start diagraming this problem out and you will see how serious it is.....the credit crisis is simpy a symtom of a debt infection.

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#4) On September 30, 2008 at 6:31 PM, mliu01 (< 20) wrote:

It is very sad to watch the people who have power talking without common sense. How can those people with a monkey brain hold the power of our government?  Unbelieveable.

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#5) On September 30, 2008 at 6:50 PM, Fool (33.51) wrote:

I agree 100%. This bailout plan is just a bailout for the very rich who were caught off-guard. It gives them time to cash in and do whatever they want with OUR tax money. I promise if this plan goes through in 2-3 months stock market would still go down a lot. Politicians and thr rich will still say this plan was a winner and would say: "imagine what would have happened if we hadn't pass this plan" such a Bull CraP!!! Does anyone still remember the $600.00 tax refund...what was the effects of that? First of all many never saw a penny because people are so desperete that they didn't even file their taxes...many ow IRS huge amounts of taxes, even when you write-off an amount or declare bankruptcy that amount counts as income and youhave to pay taxes on it. I am not talking about the poor, i am talking about people like you and me in ex middle class.

So what can we expect in the next few years: if the bailout goes through, that would be the biggest trick the rich pulled over the middle class, the stock will go up for few weeks.

After few weeks the stock will come down 500-1000 every week until we hot the 3000-5000 mark on dow. why 3000-5000?? Because half of the companies in bussiness right now are like Enron, they have no real assets, their lies are their assets and people are not being fooled that easily anymore. Read my past posts where I predicted this 3 years ago...the number of companies like Enron is mind blowing, and financial companies, banks, investement bankers have helped them to be a player on wall street, but all of them are artificially high, their stocks isn't worth even pennies.

House prices will be dirt cheap. 70% of U.S. population is working for min. wage. 10% don't work and are on wellfare. 19% make 30K-80K. 1% are super rich...millionares and billionares.  We are breaking the back of the 19% with taxes, they pay the most taxes and those were the people who could buy some of the houses in the market, since they can't and don't want to house prices will be dirt cheap. I am not talking about house prices in good areas like beverly hills, malibu, NY, etc...I am talkinag baout house prices where rich people don't live.

Everybody says in the next 2 years we will be better off. I disagree:

House prices are going down, that's good but

Oil is going up, Tax is going up, commodities like metals, coal, food will go up. Transportation cost will go up. Communication costs will go up. Unemployment will go up. Number of Baby boomers who retire and depend on Social Security will go up.

Solution:

1)U.S. companies have to stop putting capital in China. Instead we should put more capital in the U.S., Canada, and South America.

2)We have to start making it easier to start a business, lower taxes on small businesses and rais the taxes on big corporations. 

3)CEOs should get min. wage plus commision. If you can make a company grow you will make money AND they should tell the market 3 months in advance when they want to sell their stocks. CEOs have to stop the stock market game and be productive and be good leaders not just money hungry whores.

4)Raise the min. wage to $17/hour. This is USA and not China so stop comparing American work force with Chinese or Mexicans or whatever. Chinese have billions of people we don't.

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#6) On September 30, 2008 at 6:51 PM, Fool (33.51) wrote:

I agree 100%. This bailout plan is just a bailout for the very rich who were caught off-guard. It gives them time to cash in and do whatever they want with OUR tax money. I promise if this plan goes through in 2-3 months stock market would still go down a lot. Politicians and thr rich will still say this plan was a winner and would say: "imagine what would have happened if we hadn't pass this plan" such a Bull CraP!!! Does anyone still remember the $600.00 tax refund...what was the effects of that? First of all many never saw a penny because people are so desperete that they didn't even file their taxes...many ow IRS huge amounts of taxes, even when you write-off an amount or declare bankruptcy that amount counts as income and youhave to pay taxes on it. I am not talking about the poor, i am talking about people like you and me in ex middle class.

So what can we expect in the next few years: if the bailout goes through, that would be the biggest trick the rich pulled over the middle class, the stock will go up for few weeks.

After few weeks the stock will come down 500-1000 every week until we hot the 3000-5000 mark on dow. why 3000-5000?? Because half of the companies in bussiness right now are like Enron, they have no real assets, their lies are their assets and people are not being fooled that easily anymore. Read my past posts where I predicted this 3 years ago...the number of companies like Enron is mind blowing, and financial companies, banks, investement bankers have helped them to be a player on wall street, but all of them are artificially high, their stocks isn't worth even pennies.

House prices will be dirt cheap. 70% of U.S. population is working for min. wage. 10% don't work and are on wellfare. 19% make 30K-80K. 1% are super rich...millionares and billionares.  We are breaking the back of the 19% with taxes, they pay the most taxes and those were the people who could buy some of the houses in the market, since they can't and don't want to house prices will be dirt cheap. I am not talking about house prices in good areas like beverly hills, malibu, NY, etc...I am talkinag baout house prices where rich people don't live.

Everybody says in the next 2 years we will be better off. I disagree:

House prices are going down, that's good but

Oil is going up, Tax is going up, commodities like metals, coal, food will go up. Transportation cost will go up. Communication costs will go up. Unemployment will go up. Number of Baby boomers who retire and depend on Social Security will go up.

Solution:

1)U.S. companies have to stop putting capital in China. Instead we should put more capital in the U.S., Canada, and South America.

2)We have to start making it easier to start a business, lower taxes on small businesses and rais the taxes on big corporations. 

3)CEOs should get min. wage plus commision. If you can make a company grow you will make money AND they should tell the market 3 months in advance when they want to sell their stocks. CEOs have to stop the stock market game and be productive and be good leaders not just money hungry whores.

4)Raise the min. wage to $17/hour. This is USA and not China so stop comparing American work force with Chinese or Mexicans or whatever. Chinese have billions of people we don't.

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#7) On September 30, 2008 at 7:56 PM, AnomaLee (29.26) wrote:

"3)CEOs should get min. wage plus commision. If you can make a company grow you will make money AND they should tell the market 3 months in advance when they want to sell their stocks. CEOs have to stop the stock market game and be productive and be good leaders not just money hungry whores.

4)Raise the min. wage to $17/hour. This is USA and not China so stop comparing American work force with Chinese or Mexicans or whatever. Chinese have billions of people we don't."

Why not take that one step further and mirror your imaginary economy to Italy in the 1930's? 

Price fixing is hazardous and is very seldomly needed to boost or reduce supplies or demand.

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#8) On September 30, 2008 at 8:11 PM, EScroogeJr (< 20) wrote:

Here's the solution:shut down the financial industry. Let the prices of assets reset and eliminate the middlemen such as mortgage lenders, mortgage insurers, mortgage lawyers, appraisers, mortgage brokers, etc. who are now responsible for the lion's share of frictional costs. Force landowners to accept $10K per lot, colleges to accept a tuition of $10K a year, and car manufacturers to produce $10K cars--in a nutshell, force everyone to settle for what you can get away with in an all-cash world. Enjoy your savings as a consumer, reward yourself for your paper losses as an investor with cheaper prices of other investments, employ the freed labor resources elsewhere, and channel the funds that are now needlessly spent to pay for the overpriced houses toward other forms of consumption, and redirect your investments into these new sectors. Wouldn't that solve the problem?

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#9) On September 30, 2008 at 10:18 PM, alstry (35.90) wrote:

From Ben Jone's Blog:

The Sacramento Bee. “Rick Hagstrom, chief operating officer at Tri Counties Bank in Chico, called the bill ‘a gross disruption of free markets’ and said its proponents were exaggerating the severity of the problem. There’s money available, he said, but borrowers are becoming gun-shy.”

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#10) On September 30, 2008 at 11:33 PM, dexion10 (28.27) wrote:

Alstry - Thanks for the thought provoking post.

I was wondering if you'd agree with the following

At the corporate level:

there is not a borrower crisis... many businesses who want to borrow via the commercial paper market can not.  Sovlent non-consumer facing businesses like merchant energy providers are having trouble finding loans to fund their day to day operations.

In fact, many more businesses will find themselves needing short-term and medium term financing than did a year ago as there funds from operations decline.

At the consumer level:

There is a borrower crisis - not enough qualified borrowers.

On the retail level you are correct 

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#11) On October 01, 2008 at 12:05 AM, alstry (35.90) wrote:

Dex,

There are some corporations that face hurdles that probably should get credit.   But in the grand scheme of things...it is the significant minority.

Most homebuilders today are losing money on homes they sell.  Same with airlines.  Same with auto companies.  There are a lot of other businesses that are running up the the limits on the lines of credit and about to be cut off.

There are many many businesses in America today that are simply overleveraged and must restructure.  I have a number of friends that are CPAs and they concur with this assessment.

Even FloridaBuilder agrees that many Private HBs will fail during the current contraction.  I take it one step further to include most publics as well.

Those businesses only needing short term financing will get it....that I am confident simply due to the fact that many loan officers are dying to find good loan candidates.

Much of what you are hearing in the press about businesses not being able to get loans is in part because the business is on the edge......if you are a sound business with a strong balance sheet....I can find you ten bankers willing to loan you money tomorrow...short or long term.

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#12) On October 01, 2008 at 3:28 AM, pjani06 (30.58) wrote:

thanks. 

we should preserve the base & future capacity of those even with the strong balance sheet today by not undermining their future at the expense of foreign risk takers. 

i offer this very imporant video. 

link to original post (minutes ago) HIDDEN within the text of the Bailout - FOREIGN bank bailout - an OUTRAGE for America

please watch. 

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