July 26, 2007

JustQuotes: Three Paragraphs, Two Quotes, One Bad Day

“Wall Street suffered one of its worst losses of 2007 Thursday, leading a global stock market plunge as investors succumbed to months of worry about the mortgage and corporate lending markets. The Dow Jones industrials closed down more than 310 points after earlier skidding nearly 450.

Investors who had been able for months to largely shrug off discomfort about subprime mortgage problems and a more difficult environment for corporate borrowing finally decided it was time to sell after the Commerce Department issued another disappointing home sales report.” (Stocks Skid on Lending Worries)

“The Commerce Department reported Thursday that sales of new single-family homes dropped by 6.6 percent last month to a seasonally adjusted annual rate of 834,000 units. The decline was more than triple what had been expected and was the largest percentage drop since sales fell by 12.7 percent in January.” (New Home Sales Down Substantially)

JustQuotes: Is The Subprime Sickness Spreading? [SocketSite]

First Published: July 26, 2007 5:07 PM

Comments from "Plugged In" Readers

Flight to quality day ... Treasuries rallied big time, kicking yields back down close to March 2007 lows. Corporations are definitely going to have to belly up to borrow more money going forward .... not an issue for the healthy companies already with plenty of cash on the balance sheet, but a problem for others.

Posted by: Jamie at July 26, 2007 5:16 PM

What a wonderful time this was. Any company or person with even half a pulse could get as much money as they wanted. Companies that would have died slow deaths, got to stay alive and keep people employed, so almost everyone had a job.

And anyone could get just about any amount of money they could imagine to buy a home, whether they could afford the payments or not.

Say what you will about the older generation screwing the younger generation, but the fact is since 1998, the younger generation has been absolutely looting the pension money of the oldest. First we did it to people investing in dot com stocks, and now we did it again by giving them practically nothing for the risk they were taking on their investments in housing and leveraged buyouts, which is going to cause a lot of grandparents to lose their pensions and have to sell the family home to survive.

You'd think they would have learned after the dot com blowout, but instead it just made them more voracious for risk to try to make up all that lost money, and now they've lost even more of it.

And all so my generation could live large: first at parties and fun companies in the dot com era and now in houses that none of us could really afford. It all ended so harshly for them, but for us, merely a year or two of traveling through exotic locales until we come back and latch onto the next great idea to fleece grandma's pension fund.

Those Haas business school grads in downtown SF may be out of a job by year's end (if they weren't fortunate enough to land a REAL finance job in London by now), but in a couple of years they'll be back, and grandpa will get screwed all over again. How else can we keep up this standard of living while producing essentially nothing?

God bless America!

Posted by: tipster at July 26, 2007 10:11 PM

Huh? What does this have to do with "the younger generation absolutely looting the pension money of the oldest"? That is absolute nonsense. Old people didn't invest in dot-com bubble stocks any more than anyone else, and for those that did, they accepted that risk so there was no "looting" or "fleecing." And older people are far more likely to have owned their home before the tripling in values over the last decade and are thus the direct recipients (not victims) of the latest madness. There is a lot of worthy finger-pointing one could do, but there has been no young-fleecing-the-old.

Posted by: anon at July 27, 2007 7:20 AM

Anon at 7:20am -

Look at what Calpers has invested it's pension funds in. Many of the pension funds have placed large bets on real estate with extremely low cap rates and subprime bonds which were mislabeled as investment grade. Sorry Grandma!

Posted by: M at July 27, 2007 9:25 AM

tipster, what a bizarre comment. I'm sure all of the "old" people will be happy to note that they are idiots who got fleeced by the "young" and brilliant financial con artists. All that is really happening is institutional investors on wall street taking advantage of pension funds and foreign investors who failed to demand an appropriate premium for their risk, or even investigate those risks at all. (See Bear Sterns blowing $3Billion in clients money while I'm sure collecting a nice amount of fees). What does age have to do with any of this?

If anything, if all of the "old" people would stop sucking the federal budget dry with their social security and medicare checks, we could lower taxes, have people invest their own money, and enjoy a higher standard of living. It's the old fleecing the young by demanding outsized social insurance benefits but refusing to pay an appropriate amount of taxes (or accept reduced spending) to pay for it.

Posted by: anono at July 27, 2007 9:32 AM

M, you're mistaken. Calpers has expressly confirmed that it has "miniscule" exposure to the subprime woes. Good pension funds (like Calpers) wisely stayed away from rolling the dice on this train wreck. Grandma might have problems, but they're not caused by her pension fund (which would have nothing to do with the "young" fleecing the "old" at any rate). Anono has it right. The old generation has been "fleecing" the younger ones for decades, not the other way around.

Posted by: anon at July 27, 2007 9:46 AM

if the stock market goes down, i guarantee the national and local housing market will quickly follow.

Posted by: george at July 27, 2007 10:08 AM

If you want to know who is fleecing whom based on age, check out health insurance premiums and college tuition over the past decade or so.

Posted by: Jamie at July 27, 2007 10:55 AM

Seems like many are waxing philosophic, so I'll follow suit. One of the fundamental problems IMO is that we, as Americans, have abandoned the concept of delayed gratification. People used to work hard, live within their means, save their money, repay their debts, and accumulate wealth throughout their lives.

Today everyone wants to get rich quick. I want the big house, the nice car, big plasma, and a European vacation, and I want them NOW! I don't care how much it costs, how much is it per month? So you get amateur investors flipping tech stocks, middle class folks flipping real estate, and private equity firms flipping companies. Greenspan's easy money policy fuels the fire, and you end up with bubbles in several asset classes and leverage at record levels, for consumers, companies, and even the government. And our currency at historical lows.

And now our business cycle has become more volatile and with larger swings. Look at the chart below:

http://finance.yahoo.com/q/bc?s=%5EDJI&t=my&l=off&z=l&q=l&c=

This is the DOW throughout its history. Volume increases substantially in the '80s and so does volatility. The last 2 days have been nothing - equity values and real estate values could just as easily fall over the next few years as they've risen the past few. When it's not supported by core fundamentals...easy come, easy go.

Posted by: Dude at July 27, 2007 12:42 PM

Panic selling ....

Posted by: Jamie at July 27, 2007 3:46 PM

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