What Inning is the Great Credit Crunch In?

First, welcome back Liz. I am beginning to feel like a bitter small town American after reading another depressing financial article. I used to be in the accounting profession. How could 30 to 1 debt ratio's be good? The problem is that it is more than 30 to 1. It's like the level 3 assests. The ratio should not even be 1 to 1. Always side with caution and assume the worst. At most the level 3 assets should be set at .1 to 1. We would never had a run at Bears with taht type of ratio. Here is a different idea on exeuctive pay. The compensation group shoul consist of employee's not big shareholders and other CEO's. The pay should be tied to profit not shareprice which can be abused like at Countrywide. I think if I looked at the financials like you did I would have a brain freeze!! Bring back common sense accounting and loan practices. For my mortage I had to show my latest pay check plus my tax returns from the last two years. That was before the subprime mess. Any way another great read.

Hi You're not even close as to the coming damage!! You havn't figured in the effects of the changes in the bankruptcy laws that were made a couple of years ago. Those changes, where lenders were supposed to recover more because the borrower does not get a clean start but instead has to repay part of his debt had two significant side effects. The first is the one you're seeing now. Knowing that the borrower would have to pay if he had the means allowed banks and other lenders to be a bit more careless than they should have been, not just with the sub-prime housing market but with all credit. The second shoe comes when these bankrupt borrowers are paying back loans that put them into a new kind of debter's prison. The result is that, where under the old law they would have had a clean slate and could start spending again now they will have only survival rations to spend and this is not likely to spur any ecenomy! They will certainly not lift ours to any new hights. This also explains why people will use their economic stimulant money to pay off debt rather than buying. Another story for you: The Fed's recent actions have driven down the interest that banks are paying on their savings and other accounts. How disasterous has this been for fixed income retirees who were depending on that income to survive??? Did the Fed bail out its frends in banking at the expense of the poor???

There are a few companies run by people a lot smarter than I that are well positioned to take advantage of these severe dislocations. They include BRK,LUK and Y among others. Just the other day Warren Buffett mentioned to a group of students that he had bought a $4 billion slug of muni's at a yield of more than 11%. RBT-CPA above is absolutely on target regarding retiree savers being punished by the Fed. Talk to my father in law who, at age 90, thought he had the rest of his life figured out. Save and invest conservatively. (At age 90, bank CD's) His anxiety level is through the roof. I listened in on the conference call of the company that manages his continuing care facility. They bragged about their ability to raise prices at a 10 percent per year. I haven't mentioned that to my dad in law. He has enough anxiety with his income down to 2.3% from his CD's.

I think we're toast.

As a former corporate finance guy turned real estate business owner, I find myself constantly fending off real estate practitioners who have heavily consumed the National Association of Realtor kool-aid which says "Now is a great time to buy real estate" campaign. My personal belief is that we will not see the bottom of the real estate market in Ohio until at best the latter part of 2009, if not somewhere into 2010. Everyone is aware of the looming tsunami of foreclosures that are in the pipe-line. Pile on top of this the looming tsunami of adjustable rate mortgages which will be resetting this year, which will ultimately lead to more foreclosures in one to two years. Now throw in a healthy dollop of high energy prices along with reduced discretionary spending due to inflation and job losses and anyone can begin to understand just how dire this situation is. As someone who is closer to the "man-on-the-street" as opposed to a Wall Street banker in the canyons of The Street, I just have to laugh when I see these Wall Street types trying to convince Mr. and Mrs. America that everything is working out fine and the crisis is over, just jump back in and start investing in stocks again. Seriously, how can these guys look anyone in the eye and keep a straight face when they start spouting this self-serving drivel. I mean they are all lined up at the Fed trough drinking as much of the low-cost borrowings as they can get, and for what? To keep their bonuses in the right place. So taxpayers are bailing out rich Wall Street bankers, who previously exercised extremely poor business judgement, and still continue to do so. Instead of being rewarded in a true capitalist fashion by getting their asses kicked, and their asses kicked out the door, they just jump on the Federal Reserve Welfare Program for Rich Wall Street Bankers. So instead of representing everything that is good and noble about a capitalistic system, they actually portray just the opposite, steal from the blind, turn to the government for bailouts, lie to the public about the true nature of the situation, just so the cycle can start all over again. Sure I think the financial institutions are misleading shareholders and the public about how they portray their assets and liabilities. But one has to ask - Where is the SEC? Where are the banking regulators? Where are the public auditors? What happened to Sarbanes-Oxley requirements? Where are the Attorneys General? Not only is the Fed duplicitous, but so are all the other authorities. We hold ourselves out to be capitalists - If we truy believe this, then these financial institutions need to be held fully accountable for their poor judement and poor management teams and the market should step in and react in the same manner as they did with Bear Stearns - with one importnant difference, no backstopping from the Fed. Let the company go under, let the vultures pick up the pieces for pennies on the dollars, let the shareholders sue and hold management accountable. Gee, that kind of sounds like a homeowner that borrowed 100% on an option-ARM, no doc. loan going into foreclosure.....

Interesting - "come a cropper" - I will be 50 in August, I have never heard that expression. Unfortunately, you could use that term in reference to the 2008 Clinton campaign! EMAC - the best in the blogosphere! Thanks, Carla Baynes

Let's just ask Oprah...she knows everything!

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