We are in uncharted territory. Merrill, WaMu, Wachovia, and Morgan Stanley are also thought to be in various stages of the wobbles.

Dow circuitbreakers kick in when the Dow is down 1200 points or about 10%.

When government willfully refuses to regulate, then you can expect stuff like this will eventually happen.

whatever happens, I just hope it means that I don't have to pay back my student loans

*crosses fingers*

This is what happens when the government slowly removes all the safeguards put in place after the depression to insure that it would never happen again. Surprise, we're headed towards it happening again.

*crosses fingers with Zikman*

I was astonished recently to read that US mortgage holders who can't meet their payments can walk away from the debt. It's twenty years since I dropped out of my college Economics degree course :) but this seems like a fairly fundamental weakness. The manufacture and trading of toxic CDOs (trade-able aggregates of debt, mostly mortgage debt) which have now turned out to be impossible to value when push comes to shove, and hence worthless, seems to be the common factor in Bear Stearns, Lehman, Sally/Freddy and Merrill Lynch. How much of that sudden collapse in value is due to the ability of the actual debtor (the mortgagee) to walk away from their obligation? (Discuss!)

I honestly don't know what to do about the investments in my 401k. If I try to move now, it'll occur after close Monday. Are we looking at a week long drain or a huge drop followed by a plateau?

Days like this make me wish it was all in a box under my mattress.

Well, he reason they can walk away is that the property itself is collateral. The collateral is the guaranty for the loan after all.

Sheesh, I'm going back to hiding money under the mattress.

The international markets are not going to be happy either. Am listening to CNBC Europe and reports suggest that UBS is getting ready to write off an additional $5B in bad debts.

How is this going to affect regular people? Economic slowdown on a macroeconomic level, obviously, but what will people like you and me have to contend with - the ones with no bank investments, no major debt, jobs outside the financial sector? That's what I'm worried about most.

How much of that sudden collapse in value is due to the ability of the actual debtor (the mortgagee) to walk away from their obligation? (Discuss!)

100% of it all.

It's sickening. It's all part of not only deregulation (thank you Reagan!), but also this pervasive mentality nowadays achieving one's "dreams" is a sustainable goal in and of itself. It's the mass lie that has lead to people barely out of college holding massive credit card debt and it extends here because nothing personifies the American dream more than owning a home.

Wake up call folks: America allows you to achieve any dream you want. It's great! But the second you dip into a world of unbacked credit you damage other people's lives. I don't see an easy way out to any of this in any way because ultimately it's money based on credit based on fantasy.

For anyone wanting a primer on how the mortgage crises started, I highly recommend listening to the whole hour of This American Life:

#355: The Giant Pool of Money

It's the best reporting I have ever heard on anything, let alone the housing crises. While it doesn't go beyond events after April 08, it will bring you mostly up to speed.

But, but, weren't we all supposed to be able to privatize our social security and buy into the stock market? You mean it's all just a house of cards?

Ahhh, it's the Bush economic plan at work. Phew. Glad I'm safe with my 401k.

That rather depends on what your 401k is investing in....

So can anyone explain what this means for those of us that have money in our savings bank accounts? Should we leave it in our bank or take it all out and stash it somewhere?

If I recall, in the Great Depression banks went under and regular people lost all their savings since the banks went bankrupt.

What's the over/under on the DJIA tmrw? 350 points down?

If your money is in a savings account, is under $100k, and is in an FDI insured bank, your money is perfectly safe.

@#13 POSTED BY BONNIE:
Depends on what bank you have money in. Unlike the Great Depression we have Google and online news outlets to get info from. Do a search for whatever bank you have savings in and then decide what you should do from there.

Honestly, I'm starting to look for banks that are a bit more stable now.

@BONNIE: if you have more than $100,000 in savings, I recommend you take all of it out of the bank immediately, stuff it in your bindle, and hop the next boxcar to HoboCon(TM) in Hoboken. Meet me there at the stew booth, where I will provide further instructions.

That Large Hadron Collider works fast.

#15 Ceronomus:
Is money in a checking account under $100K also safe in a bank considering the lastest news? So are banks like Wells Fargo that aren't FDI insured safe?

@#7 Ceronomous:
Just because you only have collateral for part of the loan doesn't necessarily mean that you can't pursue the borrower for the remaining amount -- that's the way it works in most of the rest of the world. There's a considerable degree of moral hazard in non-recourse mortgages -- buy a house with a 100% mortgage and if its price goes up you've made money, but if it goes down you can just walk away.

@#18CanCult: {hands you shiny prize}

@Xeni: Ha! I WISH I had more than $100,000 in savings!!! I don't have that much (not even close) but I would like to keep the meager amount I have safe. So any of you who can shed some light on those of us scared of reliving moments from "It's A Wonderful Life," that would be grand.

But for the record, I'd meet ya at a stew booth with just $20 on me, Xeni! ;-)

I feel like I've been here before. I worked in Merrill 85 to 92. The era of "greed is good" and the subsequent junk bond driven correction. I well remember all the young traders who hated their jobs but planned to do it for 5 years to buy the big house and the Porsche. That industry seems to be populated by people with little sense of history little imagination of the future and a willingness to take big bets that pay off in days, weeks and months, not decades. I lived through the long boom and web 1.0 madness as well. So this correction doesn't surprise me at all.

Companies going bust and being bought is a mechanism for writing off the loss and the unprofitable parts of the business so they can all start again. In a few years, the profitable parts will build up the war chest again so that what's left can start indulging in some new high risk, high reward market. And the losers in the whole business are the people who need rational long term investment. Which means the pension funds, you and me.

If you want the real headf*ck, go and read some Robert A Wilson on economics. Money is the Schrodinger's cat of economics. It's created by magick. And some times the Invisible Hand can wave it's magick wand and make it disappear.

Bonnie: in all seriousness, crisis or no crisis, I would not place my money in any bank that is not FDIC-backed.

And one website folks are talking about right now is http://bankrate.com, which basically rates the "health" of commercial banks (i.e., the sort of institutions with which you or I might have a personal checking or savings account.)

See you at the stew booth.

Hey, what's the doom and gloom? There's enough time moaning afterwards, right now all the news channels are running pure stock-market pr0n. Where has that good old American enthusiasm for disasters gone?

Looks like Wells Fargo is FDIC certified.
Any of you who want to check out your bank may want to do a search here:
http://www4.fdic.gov/idasp/main_bankfind.asp

Hey! Where's Zuzu!? He could see this coming and he's safe in a bunker somewhere. I knew we should've listened to him!

This is why people put all their money in gold bars, isn't it?

@#19 Bonnie:
Wells Fargo is definitely FDIC insured. It says so right at the bottom of their homepage:

Deposit and loan products offered by Wells Fargo Bank, N.A., Member FDIC

I don't know of any American bank that is not FDIC insured.

Checking accounts and savings accounts together for any individual are insured for up to $100K at any single bank. I am not exactly sure how joint accounts work.

Yeah, if your money isn't in an FDIC insured bank, move it.

And Zed, there are lots of local banks in the US taht are not FDIC insured. HEck, remember the S&L scandal? Those places were NOT FDIC insured....

#20 Mike

You don't seem to understand. The property isn't collateral for PART of the loan, it is collateral for ALL of the loan.

@20 Ceronomous:

The collateral may be intended to cover all of the loan, but if its value falls below the amount of the loan, then it's clearly no longer collateral for all of the loan. In the rest of the world, and indeed in most business-to-business loans in the US, the lender can (in the event of a default) pursue the borrower's other assets and funds for any shortfall in the same way as they would for any other unsecured loan. Most US mortgages work differently to secured loans anywhere else, for reasons which no doubt made sense at the time.

Now if this isn't a reason to pull the lever for the Republican ticket, what is? 4 more years sounds just like what we need.

From AP - A global consortium of banks, working with government officials in New York, announced late Sunday a $70 billion pool of funds to lend to troubled financial companies. The aim, according to participants who spoke to The Associated Press, was to prevent a worldwide panic on stock and other financial exchanges.

Ten banks -- Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS -- each agreed to provide $7 billion "to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets."

Some good news. Smart move by the banks. If the market fails, they stand to lose as much as we do.

Just to say that Credit Unions are insured up to 100,000. by the NCUA which is like the FDIC for CUs. (But will probably not show up on the above websites).

The NCUA says "Your savings federally insured to at least $100,000 and backed by the full faith and credit of the United States Government : National Credit Union Administration a U.S. Government Agency."

Honestly, I don't know why anyone would put their money in a bank.

I can't believe the misinformation and doom and gloom here.

Like Julian Bond, I was working in the stockbroking (and forex and bonds and M&A) industry from 1985 until the early 90's ('94 in my case). I've seen it all before. Several times.

I remember the October 1987 crash especially well. Frankly anyone who lost their shirt then was being an idiot. Just like the current mortgage problem it was obvious from years in advance that it was all going to melt down, the only uncertainty was when. Personally I called it reasonably well and sold all my stocks in September 1987. Even better, the company I was working for as a matter of principle did not have a trading position but acted purely as an agent for their clients which not only prevented any conflict of interest with the clients but also meant that they had no exposure to the crash and in fact did very well due to the increased trading volumes.

I don't feel at all sorry for Merrill Lynch or Lehmans. Those guys are big boys, playing in what should be the freest market there is. They know exactly how to adjust their risk to the level they are comfortable with and they simply got greedy and blew it.

I totally disagree with those who call for government regulation or bailing out. The government doesn't know how to do any better. Just look at the government-owned and run Fannie Mae and Freddy Mac for an even bigger mess. And government guarantees simply provide an incentive for managers to take even bigger risks to try to get bigger returns in the knowledge that if it all turns to custard they'll be bailed out. It's *precisely* the wrong thing to do.

As I said .. the people running these companies know precisely how to tune their risk/reward profile. Or at least I did when I was working for some of them in the 80's, and I doubt that knowledge has gone away.

You decrease risk by:

- putting some of your money into low or zero risk investments (government stock is the traditional "risk-free" benchmark investment).

- diversifying between investments with uncorrelated risk.

- arbitrage

- using options or other derivatives such as futures contracts to offset part of your position in a risky investment

You increase risk by:

- borrowing the money to buy risky assets

- putting all your eggs in one basket

- engaging in practices such as dynamic hedging that in a perfect market can in theory reduce risk, but that explode in your face when faced with a market with insufficient volume, too large spreads or -- worst of all -- a forced halt to trading.

I feel sick. We might need a chaser.

Not an image chaser, but just good optimism style news. Wasn't a kitten rescued from a tree somewhere today? Baby saved by boy scout? Anything?

I'm a bit surprised it's taken this long for turmoil to strike Wall Street. Yet, the same could have been said in regards to sky-rocketing gas prices. I can imagine Bush-Wack with his arrogant shrug stating "uhh, I'm outer here and skedaddling back to my oil ranch... this ain't my problem." (As he glares at his imaginary watch, mumbling his finger counts -- of days left in office). Blowhard.

@31 Ceronomus

You mean the S&L Scandal that McCain was involved in?

http://en.wikipedia.org/wiki/Keating_Five

@BruceHoult

Well said.

Anticipating Japanese news coverage, chickenhead style, in 5....4....

@18 CanCult: LHC FTW!

Quick, everyone panic and pull out your money so it turns into a real depression!

TEOTWAWKI!

Didn't somebody predict some major US bank closures a few months ago? I can't remember where I heard it. BBC maybe?

I'm assuming that none of this is surprising to the people in the financial sector.

The fact that it's insured does not mean it will be worth anything by the end of the year. Sorry to be gloomy, but one solution is for the FED to print more money, and that devalues your savings rather significantly. It's been happening all year, which is a large part of why Canadian dollars are actually worth something now.

Not that this administration is known for moving the goalposts or anything.

This is like the movie Demolition Man, except instead of all restaurants becoming Taco Bell, all banks are becoming Bank of America.

I'm not sure which I would prefer.

@Seg #10 Beside the excellent This American Life episode, I found these two BBC broadcasts enlightening.

Failure at the Central Bank: An inside look at the global credit crisis from the viewpoint of some of the big players.
http://downloads.bbc.co.uk/podcasts/worldservice/docarchive/docarchive_20080523-1704.mp3

On world commodity prices: How the same investment firms that brought us the sub-prime mortgage crisis are now making a killing on the commodity markets, and what effect this is having on the little guys.
http://downloads.bbc.co.uk/podcasts/worldservice/docarchive/docarchive_20080529-0900.mp3

I'm with the others hoping our student loans disappear.

all banks are becoming Bank of America.

Any chance that with the merger they'll become "Lynch America"?

@Godzilla#45 I hoping they stick around long enough for me to get one. I still need me some schoolin'.

I see that completly unregulated markets thing is really working out for you guys.

And by extension F*CKING everybody else too.

I would ask you to consider who you elect a little more carefully next time, but hey you didn't get to elect the incumbent idiot that last 2 goes so why will it be any different next time out?

I wish you all luck in the US but really, these things NEED regulation.

@#45 POSTED BY GODZILLA

I'm with the others hoping our student loans disappear.

I think you young ones really need to start to realize something: What this all has to do with is personal responsibility. If you can't pay for something, don't "buy" it on credit.

And in laymans terms for people who still don't get it: These banks are failing because they either bought into—or made loans to—people and entities that never had funds or means to pay back these loans. Their never was any money there to begin with; just lies and loans and more lies on top of that and now... Lives destroyed and no clear path out.

Great! Then what happens to the people and institutions that loaned that money to students and who won't get it back?

They'll get fries with that, served by someone with a B.A. is comparative literature or romantic art criticism or something equally obscure. The real secret is getting a degree that has a prayer of paying for itself.

If everyone didn't go to college over the last 20 years or so there would have been a lot more people unhappy about the decimation of American manufacturing. And besides, If we're gonna have a draft, we're gonna need us some seriously desperate people.

You see incompetence, I see a huge lever.

*crosses fingers with Zikman* too. From Australia.

I remember many of the people who lived during the great depression later buried their money in jars in their yards. Perhaps that is the safest bet now? Of course with the dollar collapsing maybe its best to bury some silver and Yuan instead...

"The United States' financial chieftains had arrived at the tower in Lower Manhattan with a mandate to agree to a rescue operation for Lehman Brothers Holdings Inc. and to moves to protect Merrill from failure after investor confidence in both banks collapsed last week.

The sheer volume of chauffeur-driven limousines required to ferry more than 100 bankers, officials and their advisors to the crisis talks had jammed up traffic around the block.

But inside the building, rivalries and recriminations quickly killed off a proposal from regulators to create a vehicle financed by Wall Street that would buy up the toxic mortgage-backed assets of Lehman and create a potential safety valve for Merrill."

http://www.nationalpost.com/news/story.html?id=790942

http://www.youtube.com/watch?v=Pvm-n6gwPCY

This is nothing. Next year will be much worse. Everything from the stock market to oil is being propped up until after the election. Plus another round of ARM resets next year.
The recovery will take at least a decade.
And this is not just limited to the US.

Nothing like a bunch of armchair financial analysts to tell what's going to happen to the markets even when the experts do not really know.

As bad as it may look, it may actually be better in the long term. The market needs a carthetic moment (though this may not be it). This will drive oil prices downward and the dollar will gain strength as these problems domino into Europe.

I'm hoping that their will be a bank failure the weekend before the election so people may think twice if they want to vote for a beauty queen or somebody who pursues a sensible economic policy.

Here is where I get to be upset.

I have been working in some capacity or another since age 16. Building my 401k for the past 4 years. Like many of my peers, I went to college as an attempt to be a good upstanding citizen, taking out 50k in student loans and working my butt off. Fast forward to present day, I have 30k loans left, a 401k that's soon to experience problems, a quickly degrading car, and I live in a craptastic apartment. How are things going to get better? They aren't, apparently.

@55 Unless you're planning to retire right now, why worry about what the stock market's doing right now? You give a damn what it's going to be like in several decades, not what it's going to be doing this year.

Cackling like a madman and buying stock like it's going out of style would actually probably work out to your advantage right now. You'll probably enjoy the result in 2040.

A friend of mine told me yesterday that she hasn't made a payment on her mortgage for 7 months and that the bank is allowing them to do a "quick sell."

Basically they can sell their home for as little as 80% of market value and walk away clean. They bought their home for $300k and it is currently valued at $240k. That means they can walk away selling that house for more than $100k LESS than what they paid for it, an no worse for wear (their credit is already ruined).

I wonder why banks are collapsing...

5:58 AM EDT Monday, Sep 15
http://hosted.ap.org/dynamic/stories/F/FINANCIAL_MELTDOWN?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2008-09-15-05-58-01
NEW YORK (AP) -- When Wall Street woke up Monday morning, two more of its storied firms had fallen.

Lehman Brothers, burdened by $60 billion in soured real-estate holdings, said it is filing for Chapter 11 bankruptcy after attempts to rescue the 158-year-old firm failed.
...
People snapped pictures with cameras and their phones. Observers pressed up against a police barricade drew the ire of one man who emerged from the building and shouted: "Are you enjoying watching this? You think this is funny?"

--

"Tragedy is when I cut my finger. Comedy is when you walk into an open sewer and die."
with a secret handshake to Mel Brooks

So, who's responsible for the economy mess?

Three groups of people.

1> Oil Speculators - They drove the price of oil up, artificially, by buying and selling futures rapid fire on margin. This is why your gas is $4 a gallon at the pump. There is no actual shortage.

2> Morgage Defaulters - They, being MORONS, took out low starting rate adjustable morgages. I, who got a morgage at the start of the morgage fiasco, got a FIXED rate morgage at 6%... Oh look, it's still at 6%, I can still make my payments, and I still have a HOUSE. Adjustable rate morgages are for suckers, always have been, always will be.

3> Sub-Prime Lenders - They sucked hundreds of thousands of morons into getting adjustable morgages by offering 1-2% APRs and lying about the likelyhood of rate increases. Ooops, suddenly, 2 weeks later, your morgage is running 18.9%. And now they're getting their just deserts, because they tried to churn and burn the housing market. Doesn't work that way.

So, yes, right now the economy is in a poorly way.
DON'T SELL YOUR STOCK. You don't have a real lose until you do.
Let the winds of change clear this 100 year old plus chaff from the system. Let the Dinosaurs fall away, and let the system come back into balance, and the economy will right itself.

And stop short selling Oil futures.

Seems to me like this is a pretty good time to invest. I'm still young and in the middle of my career. I'm going to be working for another ten to twenty (ugh) years at least.

It would seem that, with the market lower and lower, putting our extra money into the market can pay back big benefits when it rebounds. If it doesn't rebound, well, we're all in the same boat anyway - America becomes a third world nation and it doesn't matter what money we have because its all worthless whether its in our mattress (which doesn't survive the huge inflation to come) or in the stocks of companies (which also doesn't survive if there is a full on crash).

In the mean time, I plan on investing my extra money into very wide spread index funds across the whole market. Take a look at http://www.npr.org/templates/story/story.php?storyId=6203264 for the spread of Vanguard index funds.

The way I figure it, with investments in large index funds, the WHOLE MARKET needs to just fall apart for me to actually lose money. If that happens, Earth as a whole just sucks and my little slice of money doesn't matter whether I have it or not.

On the other hand, consider the bargain. We get a lot more shares for a lot less money now than we do normally. Why not invest in it with any surplus we have?

Of course, this doesn't mean doing what the jackasses did during the bubble burst. Don't take out a loan to pay back money. Don't put your house up. Obviously the main concerns are keeping a paying job, paying our cost of living, and riding through.

The best thing to do with that 401k? Keep it there and keep investing. It's called Dollar Cost Averaging. Just make sure its invested properly (see the NPR article I linked).

Anyway, thats my thought and my strategy.

@55:

After 1929 it took more than 30 years for stocks to regain the pre-depression values. In stock-markets, as in real estate, there are more directions than just up.

t tm lk ths, mrc nds th xprnc f wmn lk Srh Pln.

Hey folks, some now unemployed Lehman Brothers folks are now selling swag on eBay. Like this programmer ("just a programmer... I didnt make the mess!") who is selling a:
Lehman Brothers Employee swag-Operating Principles Cube

http://tinyurl.com/5mcfay

In the description:
"I wish management listened to the same things on this cube! Then my good friends...talented people wouldn't be out of a job. Anyway how you like it and enjoy it..."

@61 Then they doubled in value in the decade after that. (roughly 1955-1965)
I can see being irked if you were near retirement, but if you're just now entering the workforce what's your worry?

@62 Jflex.... That's Irony right?

You need a Big Oil and Gas Stooge with a major in communications & journalism.

#20 Ceronomous / #33 Mike Scott: That's something I've never realised about the US system. You can just walk away?, even if the property is worth nothing. As is widely the case?

I'd like to know when, why and to who that made sense. It seems to discourage personal responsibility. And I have to agree with Jack (#48) - people my age, and alot of older folk too, just stack credit debt on credit debt. From day-to-day purchasing to mortgages and second mortgages and on and on. It's fine while the market is up, unemployment is down - in fact we're all encouraged to buy into it in one way or another.

But when you get a deregulated system moving like a freight train, a bunch of irresponsible fools at the wheel... well, haven't we seen this all before? Again and again? Perhaps not on this scale? It's not cool to see history being totally neglected - I'm obviously not an economist, so I'm curious to understand how easily could some or all of this have been lessened? Besides the blatantly obvious reasons (taking on bad debt).

#60 Mshea: Buddy - you've got the right idea.

Best case szenario:

If you retired in 1965 you were born in 1900 and may have had some money to invest in stocks as a 29 year old. Whatever money you invested was basically gone. A doubling after 35 years is like investing with a 2% interest rate - which is actually near zero, since you have to account for inflation.

Oh, and don't tell me that another 10 years later or so you would have had another doubling and thus almost 4% - because back in 1965 a US citizen born in 1900 could reasonable expect to live another 5 years on average, not more.

Anyone who was in their 40ies or 50ies in 1930 (and hardly about to retire) got out even worse.

Surprise: you can lose money in stock markets.

We all made that bed, we all enjoyed the ride now the time has come to pay the cab. We are hundreds of millions of fools that believed that perpetual growth based on nothing real, just numbers shifted left and right, was sustainable.

REALITY calls : are you there?

J.

We moved everything last year into guaranteed funds. That and some other moves leaves us up about 10%, while everything else is down around 15%. What I tell people is this; if your 401K has different investment opportunities then move your money into a lower risk fund and wait. At the very least everyone should have been putting new monies into the lower risk funds starting last Nov. or early this year. Whether your fund offers different investment options or not don't stop contributing, especially if your employer matches contributions. New contributions will purchase shares at the reduced price, creating opportunity for growth.

The normal advice is to wait it out, but these are not normal times. Moving monies into more secure funds now will create opportunities later. Yes, many of you are younger and share prices will rebound, but why not take advantage of this downturn? This is an opportunity for small investors to quickly increase the number of shares they own.

my 401k is entirely in overseas funds, mainly European. It may be taking a beating today but I make up for it on the exchange rates alone.

I like what Mshea said, leave it all where it is. If it disintegrates it won't matter who lost what. We'll all be sunk at that point.

I just wonder how many of these financial wizards decided to fly to their Montana compounds lasnight?

@Anonymous, #6: You should probably leave your 401k money where it is. When you're feeling less scared about it, you should pick some baskets for the long term, and then leave the money there for years.

I spent a number of years in the 90s working for financial traders, and one of the big lessons I learned was that there is no possible way I as an amateur can trade frequently and beat the pros. They spend all day on it, they have years of experience, and they spend big money each year on technology and information.

If you're moving your money around in response to the daily news, you're just giving a good chunk of it to the pros. Which will make you anxious, and even more likely to trade. Don't fall into the trap. I check my allocations (and balances) once a year, but haven't changed them in five.

William's advice is spot on under normal circumstances, but this is anything but normal. No one believes small investors should chase the news. But when markets make huge, obvious corrections, protect your assets (especially new contributions), continue contributions, and wait to move back into more aggressive funds.

When the bubble burst we increased our contributions to gain shares at the lower price. However, we did not change allocations in 02, but this time is different. Unfortunately, the time to make changes in your allocations was last year, most are stuck now and will have to ride this out.

Hoping to bring some levity to this thread...we're still a long way from a real banking crisis.

http://mjperry.blogspot.com/2008/09/were-still-long-way-from-real-banking.html

I would also recommend that you invest in a savings account in another country. I am living in Iceland and my checking account is getting 14 interest (Kaupthing). is between my savings back in Canada and my account here I think I am going to weather what ever happen to the US and it's impact on the rest of the world.

@#69 POSTED BY IAMINNOCENT

We all made that bed, we all enjoyed the ride now the time has come to pay the cab.

No, we didn't. I know tons of people who have never had their hand in this field and pointing to 401K and other investments as being part of the mess is a canard point at best. The small amount of funds an average schlub like me invests in a 401K is not the cause of this mess.

The mess is a housing frenzy that implied (1) you don't own, then you are a sucker and (2) anyone can own even if they have no money.

Literally, American's were conned of their dreams and whatever meager earnings they made. And in the end brokers sales commissions won't come back to these failed companies. The damage has been done and the best thing to do is to REREGULATE THISS STUFF. Enough is enough.

And in the short term if you meet an investment banker at a bar or something, find out if he had anything to do with unsecured mortgages. If he says yes, buy him a nice cold beer and a big glass mug and smash it in his face.

Thank God we're not in a recession. Imagine how bad the news would have been if we were!

/sarcasm

But this is exactly why I've got 100% of my 401k in global equities. They'll take a hit from all this, but not as bad as domestic investments. I hope.

What's a 401k?

As long as the FDIC holds out, I'm safe.

@75, I'm with you. Personal responsibility is important, but what about the responsibility of the banks NOT TO LEND MONEY TO PEOPLE WHO COULDN'T PAY IT BACK?

I mean, who's more at fault - the defaulter who can't make the 18.9 percent mortgage payments because he only makes $15/hr, or the scumbag mortgage broker who sold him the ARM, lied about his income on the forms, and failed to explain that those $600/month payments would go up to $3000 in two years?

Look at it this way: Say I invent a drug that makes your penis two times longer. Lots of people would want that, right? But unfortunately, this drug has a serious side effect, that about 20 percent of people taking it will become paraplegics. Say I set up a storefront "doctor's office" and hawk it to every single male passing by, glossing over the side effects, even that I know I'll be crippling one out of five. What am I? I'm a despicable snake oil-selling quack with no regard for other humans. But wait a minute, I hand every customer a closely-printed document outlining the side effects and warning him to take at his own risk. Doesn't that make it OK?

No. It's not just the customer's responsibility to ensure the safety of the things he buys, it's also my responsibility as a human being not to sell things that maim people.

The banks knew that a lot of the subprime customers would default. They didn't care because they thought, "Hey, we'll get the houses, and housing prices NEVER EVER EVER go down! Win win!" The only problem is that the housing market tanked and they started getting stuck with unsellable houses at the same time as the unpaid loans.

@#79 Kay, did you miss when I clearly said:
"Literally, American's were conned of their dreams and whatever meager earnings they made."

I actually have never looked at personal responsibility as the main cause. The issue is a system that was designed to con the average home buyer into selling their lives for a debt.

May the people who caused this mess truly rot in hell.

BruceHoult, if you're going to "correct" the rest of us, you ought to get your own facts right.

You said, "look at the government-owned and run Fannie Mae and Freddy Mac for an even bigger mess." Wrong. It was private management that wrecked Fannie and Freddie --- Fannie had been private since 1968, and Freddie was created a few years later as a private entity from the get-go.

They were described as "Government Sponsored Entities", but the "sponsorship" consisted only of an implicit guarantee that if the private management got the firms into trouble, the government would step in to sort it out, as it eventually did (and as it did with Bear, Strearns). The main effect of that guarantee being, as you did correctly note, to let the private management take all sorts of ill-advised risks. But it's not as if go-go Wall Street financiers need much encouragement in that regard --- witness Bear, witness Lehman, witness Merrill Lynch (which wouldn't have sold if they weren't in trouble).

No one's shedding a whole lot of tears for Lehman. But the disruption on Wall Street is already having real-world effects even before the latest round, and not just in the housing market. A lot of would-be college students in Massachusetts aren't right now because the state agency that was going to issue their student loans can't get funding.

The financiers had, in effect, a lucrative public trust. Society let them make all that money in return for setting up structures to serve the rest of the economy. No one's shedding a tear for them. We're worried about us.

I don't understand how these banks are run either. I put a full-price, cash offer on a house approved for a short sale (it was still a great bargain) and never even got the courtesy of having my offer TURNED DOWN by Bank of America. The seller's agent couldn't believe it, you think they'd be happy for any sales they could get at this point! I can't imagine what greater use they'll find for the property now.

Oh well, I'm closing on a different one in a few days-- suck that, BOA.

Kay is right. Not only did some see this coming as early as 2006, but some institutions were reducing their own exposure to these packaged mortgages, while still selling them to other large investers.

@80, I was agreeing with you. It was 69 I was addressing - didn't make it very clear.

When government willfully refuses to regulate, then you can expect stuff like this will eventually happen.

Amen #1.

WHY IS THIS A SURPRISE TO ANYONE?

And half of Americans want more of the same for four more years.

As an American who is proud of the principles laid down by the founding fathers, I am mad as hell at the ideologues and predators ruining our economy and our culture. But all they have to do is mention partial birth abortions and they get voted right back in.

I propose two American states: America, which will uphold the foundation laid by its founders; and Merica, where all the predatory capitalists can pick away at the willfully ignorant, superstitious underclass as long and as hard as they please.

How long until people start referring to the Great Depression as the "First World Depression"?

Reagan deregulation strikes again! See you at the soup lines, kiddies!

@75

Hello Jack,

take a few steps back and look beyond your 401k and the immediate mortgage crisis. All this happened because the assets of America are concentrated in less and less hands. That concentration is accelerating and if people ever feared a black hole that should be when only very few will own everything. That is the result of perpetual economic growth, invented to perpetuate economic domination of the few. The citizen of the rich countries, us, were incl