JJ_BPK
09-11-2008, 07:08
I'm starting a new thread on the banking problems as I didn't want to interrupt the others..
This is my theory,, not school based,, but after reading for weeks,, I think it has the gist of the problem and the scope of the extent..
If there are some MBA Finance types,, please concur or di-construct as appropreate..
Ok,, so let me tell you my story about the banking industry and why you need to be careful about easy fixes
My Mom(substitute any one you know)
Mom's 86, has a modest savings, She goes to the bank and wants to get a SAFE investment.
Bank says buy CD's,, only get 2.5% but it's gov backed,,
OK so Ma buys CD's...
Bank say we sold a bazillion CD's at 2.5%,, What are we going to do with the money we have on deposit???
We'll loan people money for homes at 6.5%,, and put the 4 in our pockets??
BUT we don't know enough people to load the money to???
So,,,The banks says
1)Let's buy stocks & CD's in other banks that sell mortgages, like Fanny & Freddy??
2)We'll pay a finder fee to people that originates a loan,, let them do the qualification paper work???
Mr & Mrs entrepreneur jumps up and says to the banks,, I'll do the job your to lazy to do,, I'll find those that need loans and "prepare" the package for the loans. And they make a TV ad,,
"Let me help you get a loan,, We'll go the extra mile to make sure you get what everyone deserves.. this is AMERICA,, everyone deserves their own home"
Getting close??
My brother in-law (SAM), nice guy, fishes for a living, good to my sister, loves his kids, votes republican, BUT no W2's or W4's or even 1099's,, He goes out and pulls his traps, goes to the dock and sells what he catches,, not what you call a well documented financial history,, on a good year he can pull 250K,, net 50K,, boats, gas, traps, one(1) employee,, not a cheep business but honest work.. (insert farmer, collage student,, newly weds, etc).
He says to sis "we should have a house",, applies for a load at the local bank and they say NOOOOOO,, you have no history,, your not a good risk,, then he see the TV add and gives them a call..
They say "sure,, but because of your risk factors you need to pay more interest,, and we need to enhance your load package so the bank accepts
it..." << WARNING
OK I can do that,, this year?? << WARNING
The next year we had 4 hurricanes,, fishing was bad,, lost all the traps,, boat was damaged,, Sam takes out a equity loan to get by,, starts missing payments,, just like all the other fisherman... << WARNING
Bank get worried,, they need to pay Mom & their depositors,, if they foreclose they can't sell Sam's house and the depositors don't want property instead of interest.. << WARNING
Can you hear the WARNING bells going off?? Probably not as this process took years to develop and the banks are not into telling everyone they have problems..
Back to Mom and her CD's that she lives off... Can you see the loop,, if Sam goes under and loses the house, the bank can't pay Mom interest,, I don't want Mom to move in with us,, I also buy CD's...
Now the bigger picture,, instead of Mom,, think of a big union like the AFL-CIO and their retirement fund?? They are a little bigger than Mom's account,, but they have the same problem,,
Even bigger?? How about Germany,, They have bazillions invested in USA backed bank stocks and USA Bonds..
Everyone is getting worried,,,
So,, Uncle Sam say:
we'll lower Fed rates so the banks can get cheaper money to pay Mom her
interest
we'll take over banks that are to far down the tubes
we'll take over Fanny & Fred
Is this the RIGHT thing to do?? I don't know, my name is not Bernanke..
Who's at fault?? (remember everyone has a small brown exit hole,, they call it an "opinion")
The loan sharks that lied to helped Sam create the paper trail to apply for the loans?? << 1st choice
Banks for giving out the loans without proper documentation verification?? << 2nd choice
Sam for asking for a loan he should not have had?? << 3rd choice
Or Mom for depositing money in the bank in the 1st place??
Or Blame it on Bush..
For me, I don't want someone to blame this on,, I want someone to fix the problem, quickly please...
If anyone has read about Chaos and the butterfly effect,,
The current world economy is that theory in motion...
Sam is a very small tail feather,, right behind the little brown exit hole..
Mom is the beak,, and I'm getting very sore from the pecking...
What part of the butterfly are you??
REF: http://en.wikipedia.org/wiki/Butterfly_effect
This is my theory,, not school based,, but after reading for weeks,, I think it has the gist of the problem and the scope of the extent..
If there are some MBA Finance types,, please concur or di-construct as appropreate..
Ok,, so let me tell you my story about the banking industry and why you need to be careful about easy fixes
My Mom(substitute any one you know)
Mom's 86, has a modest savings, She goes to the bank and wants to get a SAFE investment.
Bank says buy CD's,, only get 2.5% but it's gov backed,,
OK so Ma buys CD's...
Bank say we sold a bazillion CD's at 2.5%,, What are we going to do with the money we have on deposit???
We'll loan people money for homes at 6.5%,, and put the 4 in our pockets??
BUT we don't know enough people to load the money to???
So,,,The banks says
1)Let's buy stocks & CD's in other banks that sell mortgages, like Fanny & Freddy??
2)We'll pay a finder fee to people that originates a loan,, let them do the qualification paper work???
Mr & Mrs entrepreneur jumps up and says to the banks,, I'll do the job your to lazy to do,, I'll find those that need loans and "prepare" the package for the loans. And they make a TV ad,,
"Let me help you get a loan,, We'll go the extra mile to make sure you get what everyone deserves.. this is AMERICA,, everyone deserves their own home"
Getting close??
My brother in-law (SAM), nice guy, fishes for a living, good to my sister, loves his kids, votes republican, BUT no W2's or W4's or even 1099's,, He goes out and pulls his traps, goes to the dock and sells what he catches,, not what you call a well documented financial history,, on a good year he can pull 250K,, net 50K,, boats, gas, traps, one(1) employee,, not a cheep business but honest work.. (insert farmer, collage student,, newly weds, etc).
He says to sis "we should have a house",, applies for a load at the local bank and they say NOOOOOO,, you have no history,, your not a good risk,, then he see the TV add and gives them a call..
They say "sure,, but because of your risk factors you need to pay more interest,, and we need to enhance your load package so the bank accepts
it..." << WARNING
OK I can do that,, this year?? << WARNING
The next year we had 4 hurricanes,, fishing was bad,, lost all the traps,, boat was damaged,, Sam takes out a equity loan to get by,, starts missing payments,, just like all the other fisherman... << WARNING
Bank get worried,, they need to pay Mom & their depositors,, if they foreclose they can't sell Sam's house and the depositors don't want property instead of interest.. << WARNING
Can you hear the WARNING bells going off?? Probably not as this process took years to develop and the banks are not into telling everyone they have problems..
Back to Mom and her CD's that she lives off... Can you see the loop,, if Sam goes under and loses the house, the bank can't pay Mom interest,, I don't want Mom to move in with us,, I also buy CD's...
Now the bigger picture,, instead of Mom,, think of a big union like the AFL-CIO and their retirement fund?? They are a little bigger than Mom's account,, but they have the same problem,,
Even bigger?? How about Germany,, They have bazillions invested in USA backed bank stocks and USA Bonds..
Everyone is getting worried,,,
So,, Uncle Sam say:
we'll lower Fed rates so the banks can get cheaper money to pay Mom her
interest
we'll take over banks that are to far down the tubes
we'll take over Fanny & Fred
Is this the RIGHT thing to do?? I don't know, my name is not Bernanke..
Who's at fault?? (remember everyone has a small brown exit hole,, they call it an "opinion")
The loan sharks that lied to helped Sam create the paper trail to apply for the loans?? << 1st choice
Banks for giving out the loans without proper documentation verification?? << 2nd choice
Sam for asking for a loan he should not have had?? << 3rd choice
Or Mom for depositing money in the bank in the 1st place??
Or Blame it on Bush..
For me, I don't want someone to blame this on,, I want someone to fix the problem, quickly please...
If anyone has read about Chaos and the butterfly effect,,
The current world economy is that theory in motion...
Sam is a very small tail feather,, right behind the little brown exit hole..
Mom is the beak,, and I'm getting very sore from the pecking...
What part of the butterfly are you??
REF: http://en.wikipedia.org/wiki/Butterfly_effect