We are a commune of inquiring, skeptical, politically centrist, capitalist, anglophile, traditionalist New England Yankee humans, humanoids, and animals with many interests beyond and above politics. Each of us has had a high-school education (or GED), but all had ADD so didn't pay attention very well, especially the dogs. Each one of us does "try my best to be just like I am," and none of us enjoys working for others, including for Maggie, from whom we receive neither a nickel nor a dime. Freedom from nags, cranks, government, do-gooders, control-freaks and idiots is all that we ask for.
My mama told me and my mama's mama told me and you can ask em that too much debt is a bad thing. And not understanding that debt is even worse. My mama also told me that if she ever caught me in an Italian wife-beating shirt with lots of gold chains she'd whip my little guinea ass. We're going to reap what we sow.
PS My mama also told me never trust a lady that doesn't look after her tits :)
Somehow in all of this Goldman Sachs is coming out top dog. Wonder if that would have anything to do with Sec Treasury Paulson coming from Goldman. Pretty good, work for the government and wipe out all of your competitors and help your political party as I think Paulson is a Democrat and all this will be blamed on MBA Bush.
1) The financial world just got re-ordered. Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) are the two remaining large cap independent investment banks. Expect this to change. Liquidity and access to capital are the lifeblood of financials. Independent investment banks will find it impossible to fund themselves at competitive rates and will be forced to combine with commercial banks. Look for GS and MS to make moves.
2) The contraction of credit will continue to out downward pressure on asset prices. It is circular and dangerous. Until asset prices stabilize, this will continue.
(Remember the lost decade in Japan where it happened behind the scenes because transparency was essentially nil and there was no mark to market).
3) This will be politicized. BHO will call for more government interference. McCain will call for reform.
This is a story with many players, including the Clinton Administration, the Greenspan Fed, Wall Street, Fannie and Freddie, and hedge funds. Clinton said every American should own a home whether they could afford it or not. Greenspan kept interest rates to low for too long. Banks and brokerages created new mortgage products (e.g. interest only, negative amortization ARMs, etc.) that lowered payments but bet the farm on ever-rising home prices. Securitization and CDO issuance exploded as invetsors were looking for return in a high value, low yield world, believing that over-collateralization and rising home prices would protect the downside. S&P and Moody's assigned investment grade ratings to securities. Hedge funds, banks, pension funds and retail bought the stuff. Hedge funds used leverage, creating more demand and perpetuating the cycle.
Then people discovered once again that real estate prices and incomes are directly correlated and that is matters if the borrower is creditworthy and can or will pay. Add mark-to-market rules and the downward spiral will be harder to stop than ever before.
All the government can do is provide liquidity and keep interest rates low. The rest is on the fringe unless you want banks nationalized.
3) Stay liquid. Follow FDIC insurance guidelines. If you buy, be sure you can hold for an extended period. Volatility and required rates of return are going to increase, which will keep prices under pressure.