Category Archives: Wallstreet

Money Never Sleeps Pal

The point is, ladies and gentleman, that greed — for lack of a better word — is good.

Greed is right.

Greed works.

Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.

Greed, in all of its forms — greed for life, for money, for love, knowledge — has marked the upward surge of mankind.

And greed — you mark my words — will not only save Teldar Paper, but that other malfunctioning corporation called the USA

That has become a mantra of sorts on Wall Street, thanks to Oliver Stone and Stanley Weiser. Twenty-one years ago, the two paired up to make the film Wall Street, starring Michael Douglas and Charlie Sheen.

Now , 20th Century Fox is moving forward with a sequel (called Money Never Sleeps) to 1987’s Wall Street. The modern-day story will again center on Gordon Gekko, who has recently been sprung from prison and re-emerges into a much more tumultuous financial world than the one he once lorded over. The Bud Fox character, played by Charlie Sheen in the original, will not appear in the latest incarnation. 

Seems like it is the perfect time for sequel to movie Wall Street when the economy is in crisis and the markets are in freefall.

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Plumber makes $250,000 a year . Is that a joke?

Joe the plumber makes $250,000 a year whereas according to the Bureau of Labor Statistics, the mean annual wage for plumbers in the United States in 2007 was $47,350.

Why are these politicians calling him a plumber when in reality he is a businessman. I bet next they will next call Bill Gates an electrician.

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AIG execs went on $500K retreat within days of bailout

After the bailout of AIG last month, the United States government effectively bought an 80% share in the company. That should have caused a fundamental change, you would think, in how the company was spending funds on compensation, bonuses and benefits.

But it doesn’t look like that’s what happened. The committee learned that shortly after the bailout went through, executives from AIG’s major U.S. life insurance subsidiary, AIG American General, held a week-long conference at an exclusive resort in California.

The resort is called the St. Regis Monarch Beach. … It’s very impressive. This is an exclusive resort. The rooms start, gentlemen, at $425 a night. Some are more than $1,200 a night. AIG spent nearly $500,000 in a single week at the at this hotel. Now, this was right after the bailout.Some of the charges  shareholders who are now U.S. taxpayers had to pay. Check this out.

AIG spent $200,000 for hotel rooms, and almost $150,000 for catered banquets. AIG spent  $23,000 at the hotel spa and another $1,400 at the salon. They were getting their manicures, their facials, their pedicures and their massages while the American people were were footing the bill. And they spent another $10,000 for leisure dining.

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Russian stocks plunge by nearly 20 percent

Traders stunned as Russian stocks go into tailspin, lose nearly 20 percent

MOSCOW (AP) — Russia’s leading stock markets suffered their biggest-ever one-day losses as shares went into free fall on the back of falling oil prices and deepening fears about the global economy despite the passage of a $700 billion U.S. bank bailout.

Trading on MICEX — the country’s largest index– was shut down three times, closing down 18.6 percent to 752 points. The benchmark RTS — where trading was halted twice — crashed to its lowest point since August 2005, falling by 19.1 percent to 866.4 points.

“The mood is kind of disbelief. You’d think we would have gotten used to it by now,” said Ron Smith, strategist at Moscow-based Alfa Bank. “Traders are just sitting there staring at the screens and going, ‘Wow.'”

“In this environment, nobody wants to step up to the table and buy a stock,” he added.

In September, growing financial turmoil in the United States and a wave of margin calls sent the Russian stock markets into their biggest downward spiral since 1998. The MICEX lost 25 percent in just three days, and prompted regulators to shut down the markets to stem the decline. They have since used that tool on several occasions when falls have become severe — to lesser effect.

Russia’s stock market has boomed in recent years amid high prices for oil and natural gas. But the market began falling sharply in midsummer amid concerns about government interference with businesses, and the drop accelerated as the global economic crisis intensified. Oil prices, the backbone of Russia’s economy, have been sharply down in recent days — dropping to under $90 a barrel — and investors have also been spooked by August’s five-day war between Russia and Georgia. The RTS is now down by 64 percent from its May peak.

Banking stocks were among the worst hit on Monday in Russia. State-controlled Sberbank, the country’s largest lender, shed 16.6 percent on MICEX, while the state-backed VTB banking concern shed 24.5 percent. Mining firm Norilsk Nickel plunged by 30.1 percent on the RTS on weak financials and plummeting nickel prices. State-controlled oil major Rosneft was 24 percent lower.

Russia’s shares tanked against a worsening global backdrop.

After trading closed for the weekend in Russia, the U.S. House of Representatives passed a $700 billion bailout plan at the second attempt. But it provided little relief to investors, who are focused on deepening financial woes in Europe that threaten to derail global growth.

Concerns have mounted in Europe amid a wave of state-backed bank bailouts, and a growing sense of dislocation of European-wide efforts to tackle the financial crisis — despite pledges from EU leaders to secure the stability of the financial system in a coordinated manner.

All major indexes in Europe suffered heavy falls in afternoon trading: The FTSE 100 closed the day down 7.9 percent, Germany’s DAX was down 7.1 percent and France’s CAC-40 closed 9 percent lower.

“When it’s cracking up that badly there, you are going to see extremely high data come in for a market like Russia,” said Smith. “The valuations (in Russia) haven’t mattered for two months now, and they certainly don’t at this point.”

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Credit Crisis demystified

When:

Seeds were sown way back in 1977. Known as Community Reinvestment Act  , is a United States federal law that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services. The bill encouraged the Federal National Mortgage Association, commonly known as Fannie Mae, to enable mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies to lend to home buyers.

Why

National grassroots pressure for affordable housing. Though there was considerable opposition from the mainstream banking community. Only one banker from ShoreBank in Chicago, testified in favor of the act.

Subprime Explained

Mr A seeks a housing loan to give shape to his dream home. But he doesn’t have good credit rating. This means that he is unable to clear all the stringent conditions that a bank imposes on an individual before it sanctions a loan. Since his credit is not good enough, no bank will give him a home loan as there is a fear that the chances of a default by him are high. Here enters , Mr B (a robust financial institution)who has good credit rating and is willing to take on some amount of risk and make profit.

 Given his good credit rating, the bank is willing to give Mr B a loan. The bank gives the loan at a certain rate of interest.Mr B then divides this loan into a lot of small portions and gives them out as home loans to lots of others like Mr A who do not have a great credit rating and to whom the bank would not have given a home loan in the first place.

Mr B gives out these loans at a rate of interest that is much higher rate than the rate at which he borrowed money from the bank. This higher rate is referred to as the sub-prime rate and this home loan market is referred to as the sub-prime home loan market.

By giving loan to many Mr A’s , Mr B is expecting to make lot of profit.  Mr B does not wait for the principal and the interest on the sub-prime home loans to be repaid, so that it can repay its loan to the bank (the prime lender), which has given it the loan.

So what does Mr B do? He goes ahead and securitises’ these loans. Securitisation means converting these home loans into financial securities, which promise to pay a certain rate of interest. These financial securities are then sold to Mr C (Institutional Investors)

 

And how is Mr C repaid? The interest and the principal that is repaid by Mr A through equated monthly installments (EMIs) is passed onto Mr C.

This looks so simple so what went wrong

 

The sub-prime home loans were given out as floating rate home loans. A floating rate home loan as the name suggests is not fixed. As interest rates go up, the interest rate on floating rate home loans also go up. As interest rates to be paid on floating rate home loans go up, the EMIs that need to be paid to service these loans go up as well.

What happened next is that people started defaulting on their obligations. Once more and more sub-prime borrowers started defaulting, payments to the institutional investors who had bought the financial securities stopped, leading to huge losses.  The housing bubble collapsed and mortgage-backed securities (bought by Mr C) were almost worthless . As defaults kept rising, Mr B could not service their loans that they had taken from banks. So they turned to other financial firms to help them out, but after a while these firms too stopped extending credit realizing that the collateral backing this credit would soon lose value in the falling real estate market.

 

Now burdened with tons of debt and no money to pay it back, the back of these financial entities broke, leading to the current meltdown.

Ok this is an American problem , so why are markets around the world crashing

Mr C who had invested in securitised paper from the sub-prime home loan market in the US, saw his investments turning into losses. Most big investors have a certain fixed proportion of their total investments invested in various parts of the world.  Once investments in the US turned bad, more money had to be invested in the US, to maintain that fixed proportion. In order to invest more money in the US, money had to come in from somewhere. To make up their losses in the sub-prime market in the United States, they went out to sell their investments in emerging markets like India where their investments have been doing well. So these big institutional investors, to make good of their losses in the sub-prime market, began to sell their investments in India and other markets around the world.


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US National Debt and the presidents responsible for it

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Taxpayers lash out over bailout

We asked you what you had to say about the bailout, and we heard you loud and clear: ‘No way!’

By David Goldman, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) — “NO NO NO. Not just no, but HELL NO,” writes Richard, a reader from Anchorage, Alaska.

“This is robbery pure and simple,” Anna from Denver posted on CNNMoney.com’s TalkBack blog this weekend.

“It’s our money! Let these companies die,” added Claudio from Plainville, Conn.

After President Bush petitioned Congress Saturday for the authority to spend up to $700 billion to to bail out a financial industry on the verge of collapse, he said the high price tag was not only justified, but essential.

“It is a big package because it’s a big problem,” Bush told reporters at a news conference. “The risk of doing nothing far outweighs the risk of the package.”

But when asked what they thought of the government’s proposal, most readers gave an overwhelming thumbs down.

“I’m tired of rewarding institutions and people for the bad decisions they have made,” said Dean from Madison, Wis. “Sure, it will hurt tax payers if/when some of these institutions fail, but perhaps we need to let that happen. We do not need more big government involved in our lives. Enough is enough.”

Don’t hand me the tab

Readers focused most of their indignation on having to foot the bill for irresponsible lenders and borrowers.

“Companies, like individuals, should be held responsible for their decisions,” wrote Jorge from El Paso, Texas. “This buyout does not address the other problems in the pipeline such as personal credit default and market slowdowns in most industries. No new jobs will be created.”

Paul from Portsmouth, N.H., said banks are getting the soft treatment when taxpayers are suffering.

“It is time for the financial institutions of this country to be called to the mat. We should be expecting and demanding responsible and ethical business practice, not rewarding it at the expense of taxpayers.”

And John from Springfield, Va., said the government action actually hurts the people it is intended to help.

“The government does not have $700 billion dollars. WE have $700 billion, and it is being taken from us. If this is passed then the next administration and the next will be extracting this one from the people who are supposedly being protected by this bailout.”

Where’s my bailout?

Other readers wanted to know why the government didn’t spend the $700 billion investment on the majority of responsible Americans who are suffering because of the bad bets of the few.

“Why not take the billions and … make funds available to home owners stuck in the loans these idiots created, marketed and sold,” asked Don from Coarsegold, Calif. “It will put the money where it should be with the little guy who made a mistake, instead of the big guy who created the problem.”

Jordan from Charlestown, Ind., asked why different rules applied to big banks and ordinary investors.

“Once I invested in something and lost money. Maybe I could just change the rules of investing so that my loss turns into a gain? Oh, I forgot only banks can do that!”

Vote these jerks out

Some readers said it was time for the politicians who support the bailout to get the heave-ho come November.

“I will be watching to see which of our representatives vote for this bailout,” said R. Kidd in Troy, N.C. “Let the American people see how many we can fire come election time.”

And many readers, including Danny from Texas said we should stop typing and start dialing the lawmakers who are prepared to give the OK to the bailout.

“Call your Congressman. Stop blogging, posting comments, and call your congressman. This is the patriotic thing to do. Let them hear your opinion, show them this is still America and that you will not stand for this!!”

A necessary sacrifice

But not all readers agreed. Some thought the bailout was an unfortunate but necessary move to rescue our financial system from collapse.

For instance, Bill from St. Louis said he changed his mind about the bailout when he realized the consequences of doing nothing.

“I was opposed to the bailout at first, but realized that the scope of this thing is global and so massive that the entire global economy could collapse if nothing was done. …The priority has to be resolving the present crisis of confidence in our economy. Remember, if Wall Street collapses, Main Street will go with it.”

Andy from Chicago said the cost to the taxpayer will not be what the headline number makes it seem.

“This money is not a handout to companies. It’s simply giving banks and mortgage companies loans, since the banking system itself is too unstable to raise this kind of capital. And no, the government cannot just use the $700 billion to pay back all the citizens that will be hurt by this. If the companies like AIG fail, the cost will be far far greater than $700 billion. Wake up!!”

And Surfta from Brooklyn, N.Y., says the government action is really not a bailout at all.

“It’s NOT a bailout. The government is not handing out cash, they actually stand to make a great deal of money out of this, which will trickle down to YOU. First priority should be to try to control and fix the problem, then regulate sufficiently to make sure this NEVER happens again.” To top of page

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