Financial collapse, federal bailouts

[Fifthfiend]

Basically over the last few days/weeks we have seen the collapse of a whole lot of pretty major banking institutions with more looking to follow, in large part owing to the recent overinflation of the housing market.

The Federal Government has had to give insurer AIG 80 billion dollars to keep it from going under, after having recently taken over the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation.

Investment firm Merryl Lynch has sold itself to Bank of America after incurring over $40 billion in losses. Morgan Stanley is supposed to be looking for buyers after similar losses.

The short version of the story is that a lot of people decided it would be very clever to start treating debt as though it were actually an asset, and then selling this asset to other companies, which took this new asset and sold it to other companies, etc. etc. And then it turned out that this asset was still in fact actually debt, and a bunch of people had bought hundreds of millions of dollars worth of debt, and nobody could actually pay back any of the debt. So now it's a matter of the federal government bailing out the people who did all this*, or of the US economy collapsing, or some combination of the two.

I'm not sure what I personally have to say about all this, except various snarky comments and fretting about my 401k. But I thought I would mention it.


*With more debt, which we're borrowing from China.

[Nique]

The world is far too complicated.

I mean, I know that's a very general statment but just listen to this. They sell debt? What does that even mean?! Ugh. I have also been learning about taxes on mobile phones recently, and I find myself disgusted at how needlessly complicated the laws are.

Excuse my ignorance, but how much, exactly, does national debt effect normal non-millionaire citizens?

[shiney]

While the United States remains a superpower and the other countries don't start to demand repayment, the end effect felt by average citizens will be minimal. In the event that they start demanding repayment then we may start seeing more effects as the government has to start actually being fiscally responsible and cutting money from programs.

As far as buying debt, if you have ever seen a company that is a "servicer" for another company, that is what they do. Essentially, contracts are purchased and the new company in control of the contract ends up paid directly by the consumer. My company is one such servicer. It's very fiscally irresponsible and all boils down to "specialization".

[Odjn]

Is Smith Barney affected by this?

[Fifthfiend]

Originally Posted by Nique

I find myself disgusted at how needlessly complicated the laws are.

As this argues in the case of the banking collapse the problem is mainly that the laws aren't complicated enough, which is to say our lawmakers have deregulated a lot of things and not regulated a lot of other things that they should really have regulated to prevent this from happening.

[Nique]

which is to say our lawmakers have deregulated a lot of things and not regulated a lot of other things that they should really have regulated to prevent this from happening.

Well, I guess when I say complicated, what I really should mean to say is confusing and 'doesn't actually make sense'. Becuase, well, yeah when you're dealing with high figures and different organizations and hell, people's money, yes let's be detailed. But maybe, as you say, the right laws/ regulations should be in place cause I'm all for 'confusing but it works'.

I know that with taxes, I really find that double-dipping takes place a lot, which isn't really fair and in no way benefits or makes any sense to the consumer.


EDIT: Ok, see this makes a small amount of sense to me -

In the 1930s, the Roosevelt administration acted to prevent a repetition of the ruinous 1920s. Commercial banks were separated from investment banks, so that bankers could not prosper by underwriting bogus securities and foisting them on retail customers. Leverage was limited in order to rein in speculation with borrowed money. Investment banks, stock exchanges, and companies that publicly traded stocks were required to disclose more information to investors. Pyramid schemes and conflicts of interest were limited. The system worked very nicely until the 1970s -- when financial innovators devised end-runs around the regulated system, and regulators stopped keeping up with them.

Kind of goes along with what I was thinking. It's complicated becuase every institution can make up their own rules, whereas if there were more consistent rules for all of them to follow, the current situation would not have occured.

[Terex4]

I'm not sure what I personally have to say about all this, except various snarky comments and fretting about my 401k. But I thought I would mention it.

To my understanding B of A isn't changing anything with regards to investment plans through Merril Lynch.

The notice of reassurance I got said 401k plans will remain unchanged. I just hope Wal Mart Home Office is accurate with that statement.

They sell debt? What does that even mean?!

I'm actually dealing with one of those servicers right now. They purchase an account from a company that can't collect and sue the person in debt. They gain their profits from the lawyer's fees and court costs to my understanding.

[shiney]

I'm actually dealing with one of those servicers right now. They purchase an account from a company that can't collect and sue the person in debt. They gain their profits from the lawyer's fees and court costs to my understanding.

This is also true of services but is more related towards collections agencies, as opposed to another creditor investment enterprise purchasing contracts. In the example of the auto industry, a customer purchases a contract and obtains financing from a dealership, and the company I work for (Nuvell) purchases the contract from the dealership. We don't directly provide financing for vehicles, but we are considered the assigned or interested party in the case.

[Whomper]

I am now glad that it took so long to get my promotion for my own work, as access to a 401k plan was not made available to me until August. I was planning on holding off until the beginning of October to get set into a 401k, so I'm lucky in that respect... I don't have to worry about my company's stock tanking along with the rest of the stock market. (We deal with selling manufactured homes... not to mention financing.)

[Nique]

Are there any laws governing what a collection agency can do? Or do they get to determine their own rates?

Also, do you also have the right to turn over you responsibility of the contract to another party?