# More subprime lending trouble



## Murt10

From the WSJ. Looks like we're not out of the woods yet, not by a long shot.   


Murt



"Another Bear Stearns Hedge Fund Is in Trouble 
By Kate Kelly 

Bear Stearns Cos., already forced to shut two hedge funds that bet heavily on the risky subprime-mortgage market, is now facing big losses in a third fund that has roughly $900 million in mortgage investments, according to people familiar with the matter.

The fund, known as the Bear Stearns Asset-Backed Securities Fund, ran into trouble in July and has refused to return investors' money for the moment, according ..."

http://online.wsj.com/article/SB118591963252683893.html?mod=home_whats_news_us?mod=djemalert


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## Markjbloggs

And American Home Mortgage cannot meet margin calls as of yesterday, and may soon face bankruptcy!

More to come.


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## Sunny

Murt10 said:


> From the WSJ. Looks like we're not out of the woods yet, not by a long shot.
> 
> 
> Murt
> 
> 
> 
> "Another Bear Stearns Hedge Fund Is in Trouble
> By Kate Kelly
> 
> Bear Stearns Cos., already forced to shut two hedge funds that bet heavily on the risky subprime-mortgage market, is now facing big losses in a third fund that has roughly $900 million in mortgage investments, according to people familiar with the matter.
> 
> The fund, known as the Bear Stearns Asset-Backed Securities Fund, ran into trouble in July and has refused to return investors' money for the moment, according ..."
> 
> http://online.wsj.com/article/SB118591963252683893.html?mod=home_whats_news_us?mod=djemalert


 
The difference with this one though is that Bear Stearns was not leveraging up using borrowed money so they are not in a situation of being forced to sell the underlying assets to meet margin calls. Apparently very little of their assets were in sub-prime anyway so they probably took the right step to protect investors from forced sales caused by withdrawals which could have led to very significant losses for all investors and instead wait out the storm.

Does show the jitters out there in the market though. The liquidity problem is beginning to resemble the LTCM fiasco and Russian debt Default in 1998. Everyone is selling and no-one is buying.


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## dunkamania

*US Subprime*

Given all the talk in the media about subprime,I thought I would post a few insights on industry.I work in the sector,so I am hoping to dispel some of the myths about subprime.I have no sinister motive here,just trying to spread some knowledge.

Subprime refers to mortgages issued to borrowers who would not qualify under normal guidelines,due too poor credit history,bankruptcies,unstable earnings etc.The loans are usualy issued with long maturities,but generally the borrowers refinance after a couple of years as their credit scores improve,because subprime rates are significantly higher than mainstream mortgages.

Banks bundle these mortgages together and issue Asset Backed Securities (ABS) off of them.The ABS's are organised into tranches,with the senior tranches having priority of claim on the assets.These tranches are bought by various institutional investors.The majority of the assets would be in tranches rated AAA,this is the highest credit rating,reflecting a very small probability of default.Too put this in perspective,Italian Goverment bonds get a lower AA rating.
The 2005 and 2006 vintages of subprime Bonds were based on weaker collateral pools,due to aggressive lenders and a weaker housing market.As a result the rate of defaults have been higher than expected.ABS are generally overcollaterised by having a greater value of mortgages than bonds issued and there is an extra cushion due to the mortgages paying a higher rate than the bonds.

Losses at this stage are predicted between 8-10% which means that the AAA tranches should not experience losses,this is why none of the AAA rated tranches have been downgraded as of yet.
The issues that are causing havoc in the market is that all the buyers are waiting to see what happens next,this is causing prices to drop as supply outstrips demand.Some hedge funds are highly leveraged investors,although their holdings are still sound (so far) their lenders are looking for additional margin due to the decline in market price,which the hedge funds cant afford.

In the last few years the global economy has been fuelled by cheap credit,in light of current volatility many credit institutions have increased their required risk premiums,this has had the effect of drying up all the cheap credit in the market.The knock on affect of this is that many of the large private equity/merger deals that have been keeping the equity markets buoyant could fall through.


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## Sunny

*Re: US Subprime*



dunkamania said:


> Given all the talk in the media about subprime,I thought I would post a few insights on industry.I work in the sector,so I am hoping to dispel some of the myths about subprime.I have no sinister motive here,just trying to spread some knowledge.


 
What myths??


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## dunkamania

more the general portrayal that everyone anyway exposed to subprime is going broke


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## karltimber

Did you see AHM's stock on thursday's trading. - what a ride.

Previous day it went from 10$ to 1& odd.
And on thursday it went from 1$ to 4.40$ and back down to 1$ in 1 day.

some traders made a lot of money on those swings.
Interesting to watch.

K


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## Marie

Today's New York Times describes what's happening as a 'credit freeze' and commentators are astounded at the speed at which everything is happening.  Yesterday Dow Jones fell further by 2.1% in just one day.  If the 'myth' you refer to is the impression that these phenomena will have effects beyond individuals with long-term 100% mortgages I don't think it's a myth.  In addition unemployment in the USA has been rising fast since the beginning of this year.  I am not involved in finance in any way and have an 'educated lay person's' knowledge and perspective but won't the last couple of weeks of falling international stockmarkets affect Ireland which is so heavily dependent on multinationals?


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## Maine

dunkamania said:


> more the general portrayal that everyone anyway exposed to subprime is going broke


 
Mortgages to lower 15% of the US markets ?

Is a portion of this risk management teams forcing their traders to hedge all at the same time hence dumping a supply on the market when sentiment is weak. this cause rapid fall in prices and ups damage levels ?

US employment is still very solid and non housing economy good  - strong results by US multinationals?

Could this be digested by US economy by Q2 of 2008 ?


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## Marie

Does the US have this felicitous economy you describe?  They're involved in expensive wars on at least two fronts and freak summer draught in the mid-west means they must import staples this autumn........ironically probably from China.  In addition there is rising unemployment.

Most financial enterprises in Europe are connected with and dependant upon what is being called 'the subprime market'.  As a result the European stock-market movements over the past fortnight have shown every evidence  of an impending serious crash.


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## Marie

*ECB rates - where next?*

Not so much 'crunch' as 'freeze' according to today's New York Times lead story http://www.nytimes.com/2007/08/10/b...=th&adxnnlx=1186744051-8/71bzkFmLcVNcAkPZh60w

It is rather optimistic to think there will be any 'doddles' or 'waddles'.....more like a stampede!  The problem is during the past decade cheap money and unsupported borrowings have seduced the public into a false sense of security.  Initial low introductory rates or fixed-rate terms on many mortgage loans which a few years ago were affordable to borrowers are ending and thousands of borrowers will be shifted onto higher variable rates.  In the impending conditions of 'credit freeze' if they don't have considerable savings to tide them through they are in trouble.


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## Remix

*Re: ECB rates - where next?*



Marie said:


> Not so much 'crunch' as 'freeze' according to today's New York Times lead story http://www.nytimes.com/2007/08/10/b...=th&adxnnlx=1186744051-8/71bzkFmLcVNcAkPZh60w
> 
> It is rather optimistic to think there will be any 'doddles' or 'waddles'.....more like a stampede! The problem is during the past decade cheap money and unsupported borrowings have seduced the public into a false sense of security. Initial low introductory rates or fixed-rate terms on many mortgage loans which a few years ago were affordable to borrowers are ending and thousands of borrowers will be shifted onto higher variable rates. In the impending conditions of 'credit freeze' if they don't have considerable savings to tide them through they are in trouble.


 
Yep 'liquidity' and 'freeze' are words that attach better. Not so sure about 'credit freeze' though. 'credit crunch' has a better ring to it  

Anyways, no matter what it's called it sounds like it's almost time to panic, PANIC !


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## Markjbloggs

Much of the sell-off in stock markets around the world is related to the uncertainty surrounding the true extent of the impact of sub-prime lending in the US.

Does anyone have any info around what the best-guess estimate for this at this time?

tia
M


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## Sunny

Markjbloggs said:


> Much of the sell-off in stock markets around the world is related to the uncertainty surrounding the true extent of the impact of sub-prime lending in the US.
> 
> Does anyone have any info around what the best-guess estimate for this at this time?
> 
> tia
> M


 
Nobody knows hence the sell off and reluctance of banks to lend to each other. If Countrywide goes in the States, we could be having another 1998 on our hands


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## CCOVICH

Yes-isn't one of the main issues here the fact that nobody really knows who is affected and how badly they are affected, so everybody is suffering.

This quote from a market commentator sums it up

"_When the police raid the bordello, not only are the dancers getting carted off, but the make-up girls and piano player are as well!_"

So 'good' and 'bad' financial stocks are getting hit, and when people see certain bellweather stocks taking a dive, contagion hits and markets tumble.

Coincidentally-I've been reading "When Genius Failed-The Rise and Fall of Long-Term Capital Management" for the past few weeks-there are some parallels with what is happening at the moment, it's a good read.


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## Markjbloggs

Not even a back-of-the-envelop calculation?  The sooner someone does this, the better - the US markets are in freefall this afternnon!!


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## Elphaba

Think its going to get worse, before it gets better, I see commodity prices
are down, so much for Mark Shipmans predicting these as the next big investment boom, I see he has closed his position on crude oil, but still
is open on gold, which has taken a hit as well...but then if we were all mark shipmans, we all could afford to take a hit. I notice a lot of technology stocks are largely unaffected? I wonder why this is?


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## Howitzer

From what I can see whatever has been rising consistently for the last 6 months (anything, gold/euro/comodities/specific shares) and so is what people have lots of high risk / highly leveraged open positions on, and are now being forced to close them, sometimes to non-intuitive conclusions: Dollar is now rising against the Euro even though it's banking system is bankjaxed and the market is pricing in cuts in the $ interest rate, which ordinarily would cause the dollar to fall.

Conversely you would imagine that anything which has been falling consistently for the past 6 months would also have lots of open short-sell positions against them and I wouldn't be surprised to start seeing a number of stocks which have been in the doldrums start rising dramatically for no aparent reason.

A good time for the contrarian investor.


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## room305

Howitzer said:


> From what I can see whatever has been rising consistently for the last 6 months (anything, gold/euro/comodities/specific shares) and so is what people have lots of high risk / highly leveraged open positions on, and are now being forced to close them, sometimes to non-intuitive conclusions: Dollar is now rising against the Euro even though it's banking system is bankjaxed and the market is pricing in cuts in the $ interest rate, which ordinarily would cause the dollar to fall.
> 
> Conversely you would imagine that anything which has been falling consistently for the past 6 months would also have lots of open short-sell positions against them and I wouldn't be surprised to start seeing a number of stocks which have been in the doldrums start rising dramatically for no aparent reason.
> 
> A good time for the contrarian investor.



I think your analysis is spot on here and some great opportunities are emerging as hedge funds are having to sell successful positions to meet margin calls on recently marked down securities.


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## Sunny

room305 said:


> I think your analysis is spot on here and some great opportunities are emerging as hedge funds are having to sell successful positions to meet margin calls on recently marked down securities.


 
I agree. The only problem is deciding on the timing. I think there are going to be a few more bad days yet so I am reluctant to enter just yet. Certainly financials are beginning to look very very cheap but I am still wary of headline risk. Interesting to see if the Fed gives into pressure and cuts rates which is looking more and more likely. Whether that is a good thing is another matter!


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## Markjbloggs

Timing is everything - yesterday at 6 o'clock in the US markets things looked really bad, then boom!!  However, the Nikkei was down 5+ % overnight and the US futures are not looking great either today.  My guess is that there will be a re-test of yesterdays US market low before we see any sustained bounce.  Financials and tech may be areas of interest, with industrial metals stocks looking to re-coup some of the 25% drop they have seen in the past month.


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## Markjbloggs

The Fed discount rate cut this morning will benefit financial stocks immensely!!

Timing is everything.




Markjbloggs said:


> Timing is everything - yesterday at 6 o'clock in the US markets things looked really bad, then boom!!  However, the Nikkei was down 5+ % overnight and the US futures are not looking great either today.  My guess is that there will be a re-test of yesterdays US market low before we see any sustained bounce.  Financials and tech may be areas of interest, with industrial metals stocks looking to re-coup some of the 25% drop they have seen in the past month.


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## Howitzer

I hope so, I've been buying like a drunken sailor since yesterday.


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## Afuera

Markjbloggs said:


> The Fed discount rate cut this morning will benefit financial stocks immensely!!


Is the fact that the Fed had to unexpectantly cut rates not a really bad sign though? It's a very rash move that could be interpreted as panic coming from the Fed itself. While we could see a short term bounce, I'm not too sure this will cause the markets to settle.


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## Sunny

Afuera said:


> Is the fact that the Fed had to unexpectantly cut rates not a really bad sign though? It's a very rash move that could be interpreted as panic coming from the Fed itself. While we could see a short term bounce, I'm not too sure this will cause the markets to settle.


 
I agree that I don't think this cut will lead to a sustained recovery on its own. They only cut the discount rate which is not as important as the Fed rate but the important part was that they said they would do 30 day financing and accept a wide range of collateral including mortgage loans and commercial paper. This should mean that fears about someone like Countrywide entering bankruptcy due to a liquidity crisis become less likely. It should give some life to the credit markets and imprive liquidity. Still think there are going to be few more bad days as it doesn't solve the underlying credit concerns!!!


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## Markjbloggs

Afuera said:


> Is the fact that the Fed had to unexpectantly cut rates not a really bad sign though? It's a very rash move that could be interpreted as panic coming from the Fed itself. While we could see a short term bounce, I'm not too sure this will cause the markets to settle.



I think a cut in the Fed Funds rate would have been interpreted as panic, but this discount rate cut is being percieved as more appropriate given the market conditions.  Before the cut, the US markets were looking over a cliff at yesterdays' lows but the futures are now way up.


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## joe sod

Elphaba said:


> Think its going to get worse, before it gets better, I see commodity prices
> are down, so much for Mark Shipmans predicting these as the next big investment boom, I see he has closed his position on crude oil, but still
> is open on gold, which has taken a hit as well...but then if we were all mark shipmans, we all could afford to take a hit. I notice a lot of technology stocks are largely unaffected? I wonder why this is?


 
commodities have been attracting the hot money whereas technology stocks have not, any investors in technology today are probably pretty solid and are not going to get panicked (there are probably alot of commodity investors who are pretty solid too), it is the hot money flowing in and out of commodities that is causing the big ups and downs.


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## yob

you guys are crazy believe me this aint over by a long shot,sell,bank your money and wait,watch september!!!!!!!!!!


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## Markjbloggs

Be interested to hear your rationale for this, yob.



yob said:


> you guys are crazy believe me this aint over by a long shot,sell,bank your money and wait,watch september!!!!!!!!!!


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## Howitzer

As a fairly loose rule of thumb I think when the dogs in the street are telling you to sell then it's time to buy. 

Current prices reflect a huge amount of future negative news already priced in. I've no doubts that a lot more skeletons are going to appear but at some point you just got to back your own judgement.


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## Sunny

Markjbloggs said:


> Be interested to hear your rationale for this, yob.


 
I think he is right. Anyone who thinks that the recent bouce is anything but temporary should be ready for alot of bad days. Cutting the discount rate gave some oxygen to the market but it didn't do anything to cure the underlying problem. We are no better off than we were early last week.


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## yob

thankyou sunny,and the underlying problem......nobody knows how deep it is,look at the banks they wont even trade with each other there drip feeding us the information on the amount of debt their carrying sorry Howitzer but i'll wait till the fog clears,tell me one thing Howitzer do you think theres another 20% drop in the markets with things being so volitile do you think you couldn't see bank of ireland at say 9 or 10 euro because i can,i'm not saying it will but it could,so my opinion is get out and when the market turns buy back in,it will be interesting to Q3 results!!!!!!!!


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## ubiquitous

yob said:


> do you think you couldn't see bank of ireland at say 9 or 10 euro because i can,



Please note that discussion of the valuation of individual shares is not permitted on AAM.


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## Markjbloggs

I was just asking what was your rationale for your pessimism - do you have specific info to quantify the underlying problem or are you suggesting that the current uncertainty is likely to continue?



yob said:


> thankyou sunny,and the underlying problem......nobody knows how deep it is,look at the banks they wont even trade with each other there drip feeding us the information on the amount of debt their carrying sorry Howitzer but i'll wait till the fog clears,tell me one thing Howitzer do you think theres another 20% drop in the markets with things being so volitile do you think you couldn't see bank of ireland at say 9 or 10 euro because i can,i'm not saying it will but it could,so my opinion is get out and when the market turns buy back in,it will be interesting to Q3 results!!!!!!!!


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## yob

my appoligies for mentioning numbers but i was just trying to make a point,sorry,
as i mentioned in my last post,i dont think anybody has specific info',everybody keeping there cards very close,and you have to question central banks proping up commercial banks because theyv'e over stretched there debt ratios and they cant selll them on,then you have CFDs,which only required 10% to cover the purchase,all of a sudden they now want 20%,and if it wasn't covered by noon last friday they where going to sell their holdings and they did!!!!is this going to continue you bet everyone covering their own "This post will be deleted if not edited to remove bad language"and i do believe a lot more to come.
just on a last note i've asked around from different people in the industryfor there feel on whats going on,the only ones who said to buy,guess come on guess.......................yes you got it
the stock broker mmmmmmmmmmm


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## Howitzer

You make some good points, if it was still June/July. There's rarely any benefit in being smart after the fact. I feel certain companies share prices have undershot their fair value. You pays your money, you takes your chance.


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## Elphaba

mmmmmmm....maybe, stockbrokers, sharewatch /sunday times, recommend buying shares in anglo irish bank, whose leading shareholders are banks incidentally...one being Bear Stearns, maybe I'm missing something, I'm not an expert, but I can think of better places to invest in...


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## room305

Howitzer said:


> You make some good points, if it was still June/July. There's rarely any benefit in being smart after the fact. I feel certain companies share prices have undershot their fair value. You pays your money, you takes your chance.



Exactly. Historically the odds favour buying when the market drops 10% or more. Okay, occassionally it will drop even more and it would have been better not to buy but this is far less likely.

The more I hear people tell me I'm mad to buy, the more I wish I'd bought even more. These were the same people who felt just a few weeks ago that stocks were vastly undervalued. Well now they're even more undervalued - why aren't they buying?

Don't let the price action dictate your emotion.


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## Sunny

room305 said:


> Exactly. Historically the odds favour buying when the market drops 10% or more. Okay, occassionally it will drop even more and it would have been better not to buy but this is far less likely.
> 
> The more I hear people tell me I'm mad to buy, the more I wish I'd bought even more. These were the same people who felt just a few weeks ago that stocks were vastly undervalued. Well now they're even more undervalued - why aren't they buying?
> 
> Don't let the price action dictate your emotion.


 
I think the problem we have at the moment is that we are not dealing with a rational market so stock valuations and fundamentals are taking second place to fear and market sentiment. I agree that there are some real bargains out there at the moment if you are looking at fundamentals but my own personal opinion is that there is still real downside risk. Rumours are flying around the market and until there is a clearer picture of what is happening, I would be wary of jumping back in. (I have tipped my toe in though to be honest!) Even yesterday when it was revealed that the BOE had lent £300m emergency funding to a bank, everyone started sepeculating that is was Northern Rock or HBOS in trouble and both had to deny it. Turns out it was Barclays covering a scheduled missed payment it was due to recieve.


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## Howitzer

If the market isn't rational now what was it a few months back when all you could hear were the choruses of "The only way is up, badubah." Sounds to me like a lot of people have got caught with their hands in the cookie jar and have got burnt. The market is MORE rational now that it has priced in an element of risk to share prices for the first time in years.


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## yob

i would say a few months ago ignorant,not that we're much wiser now,but alot of bad news has come out,and we just dont know how much more.
but iagree with you Howitzer hands have got burned,and the elemrent of risk is factored in,but theres still risk of downside on current prices and that risk is too great for me in the current climate.
i see this morning the fed seems willing to drop interest rates "if the need required".......where will this leave us long term?


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## Sunny

Howitzer said:


> If the market isn't rational now what was it a few months back when all you could hear were the choruses of "The only way is up, badubah." Sounds to me like a lot of people have got caught with their hands in the cookie jar and have got burnt. The market is MORE rational now that it has priced in an element of risk to share prices for the first time in years.


 
If you are right and it is simply a case of a correction and a repricing of risk, then the recent credit crunch and liquidty crisis is a completely irrational reaction so we can't be operating in a rational market.  As I said though I have invested in the past couple of weeks so I do agree with you to a certain extent.


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## Remix

The other night on RTE main evening news they did a story on how the Mayor of New York is suing various gun-shop owners in rural areas of the state.

Excuse me? Was that the Irish news I tuned into ?

From an Irish standpoint there is a much more interesting and relevant legal battle brewing in the US that they could have covered.

The US housing market in its three phase business cycle of "Boom, Bust and Recriminations" is now entering the recriminations stage.

The targets will be mortgage brokers who got people into loans they never should have been in. (Appraisers who puffed up house values may also come under scrutiny).



> Overly exuberant brokers and loan officers told clients not to worry about concerns like their ARMs resetting; they could always refinance and, anyway, interest rates were bound to fall.
> 
> With credit much tighter today, the refinance option is off the table for many. And, as prices have fallen in many places, it's more difficult to sell a home for the amount owed.
> 
> "They can't refinance it, they can't sell it, and they can't afford it," said Paul Hancock, a Florida attorney specializing in mortgage brokering and real estate law.


 

http://biz.yahoo.com/cnnm/070821/081607_here_come_the_judgements.html?.v=5&.pf=loans



> How the cases will play out is in doubt but there's one thing for sure: There'll be a lot of work for attorneys over the next few months.


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## room305

Remix said:


> The US housing market in its three phase business cycle of "Boom, Bust and Recriminations" is now entering the recriminations stage.



Yup, amazing how all this fraud only emerges _after_ the bubble bursts. This allows people to fail to acknowledge their own greed and/or stupidity by blaming "predatory lending" for them buying more overpriced home than they could reasonably afford.

I do wonder if we are close to the opportunities phase, although I'd like to see some homebuilders go bust before I could say so with any certainty.


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## Markjbloggs

room305 said:


> I do wonder if we are close to the opportunities phase, although I'd like to see some homebuilders go bust before I could say so with any certainty.




I was wondering the same thing!!


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## Remix

On the lender front, they will be claiming buyer responsibility (/stupidity).

On the borrower front, they will be claiming a variety of dodgy practices and misleading information.

Let the litigation begin ;-)

Another interesting development in this phase is big investments banks going after loan originators to force them to buy back some of the worst loans from that came out of their securitisation departments. 

Be interesting to see how that goes as many banks (Irish included) thought they were ridding themselves of the risk by selling them on.


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## Sunny

Remix said:


> Another interesting development in this phase is big investments banks going after loan originators to force them to buy back some of the worst loans from that came out of their securitisation departments.
> 
> Be interesting to see how that goes as many banks (Irish included) thought they were ridding themselves of the risk by selling them on.


 
This isn't new. Originators always had to buy back loans that they sold to investment banks that defaulted early or where there was underwriting errors. The problem is the volume is increasing and originators don't have the money!

Shouldn't be a problem for Irish Banks. Different structures and different market.


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## Remix

Sunny said:


> Shouldn't be a problem for Irish Banks.


 

Use of the more moderate word "shouldn't" noted


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## Sunny

Remix said:


> Use of the more moderate word "shouldn't" noted


 

Yeah I know. This fence is quiet comfortable!


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## Markjbloggs

Rumours of a discount rate cut in the US - expectations from BSC and GS for cut at Sept 18th meeting.  This follows todays' poor jobs report


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## ein

Sunny said:


> Yeah I know. This fence is quiet comfortable!


 
Is it likely that Ireland could find itself in subprime trouble? If so are any cracks starting to show? or what signs should we all look for?


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## Marie

Though there's a myth that repossessions/evictions cannot - no not ever! - happen in Ireland that's probably based on pre-globalisation notions of ownership.  Here in the UK though any suggestion of problems in the property world are played down there appears to be a growing issue.  I live in a large, prosperous market town 60 miles north of London.  There were 22 repossessions last month alone.


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## Sunny

Marie said:


> Though there's a myth that repossessions/evictions cannot - no not ever! - happen in Ireland that's probably based on pre-globalisation notions of ownership. Here in the UK though any suggestion of problems in the property world are played down there appears to be a growing issue. I live in a large, prosperous market town 60 miles north of London. There were 22 repossessions last month alone.


 

The main lenders in Ireland have always shown a reluctance to reposeess houses unlike their UK counterparts but the sub prime lenders that are now operating here have shown that they are more willing to take action. I don't have the figures but I read a while ago that applications to the courts for repossessions are climbing every month. And still theses guys aren't regulated!!


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## ein

ein said:


> Is it likely that Ireland could find itself in subprime trouble? If so are any cracks starting to show? or what signs should we all look for?


 
or prime trouble


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## yob

I found it very interesting to read all the threads in this post,and the predictions of where we're going and how we'll stand in a few months time,and now to see where the markets actually are,and it still aint over,interesting to see what all you posters think of the situation now,and what you think the future holds.


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## bothar

The more I read I get the feeling that something from left of field is going to hit like a hammer, we're all watching in one direction.  The rental market here is about to suffer.   As soon as work starts on the Olympic village and stadiums in London and on the soccer stadiums in Poland and Ukraine for the Euro 2012 finals, 1000's of workers are going to ship up out of here.  With those tenants leaving and with still new apartments coming on the market rents will start to fall.   Forget about how low the dollar can go, how about the rent on an apartment in Dublin?


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## yob

i was at a party in late august,there was a taxi driver there and he was telling us that alot of eastern europeans where flying to holland as there was a lot of building going out there,as they had been let go when the builders holiday came up here,he said he was never so buisy


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## money man

Im not sure whether yob is having a bit of a joke about talking to the taxi driver who told them ....etc etc becuase i usually switch off when a story starts like that but i have to say that i have just read this thread today and i have to take my cap off to yob especially in relation to his prediction on one stock.(Bank Of Ireland). Without further discussing a particular share whats your feelings on the medium-long term of irish banking shares considering that they have dropped by almost 50%? I dont really see any concrete reason for this given that they are still raking it in and have little or no involvment with US sub prime sector. A relative wants to buy 25k of shares in one of these banks as he is confident that they have reached the bottom of the cycle. I have lost complete confidence in irish shares for the moment so find it difficult to lead them in any direction or advise them.


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## yob

well first of all,like you money man i take these stories in a light hearted way,but also excepting that people are moving on,and we already have thousands of empty properties,as was mentioned in the census. i wouldn't like the responsability of telling people what to do with there money.
all i will say is wheres the growth,yes you can say there raking it in,but aren't they just coming out with the numbers they did last year,one must remember that the banking sector is run on a very small profit margin,so to make the numbers they have,prior to melt down,you need volume,i dont see it.
ask yourself this,when do you expect prices to reach february 's high again,not for a long time i would perdict.but i'm afraid i dont have a crystal ball,so i dont really know.have a look at the thread "70k to invest,equity property or neither"


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## Markjbloggs

Subprime rate freeze expected to be announced in the US on Thursday, proposal seems to be that the teaser rates on subprime mortgages will remain in place for 5 years!!!


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## Sunny

Markjbloggs said:


> Subprime rate freeze expected to be announced in the US on Thursday, proposal seems to be that the teaser rates on subprime mortgages will remain in place for 5 years!!!



Will be interesting to see what they propose because it will difficult to do a freeze on ARM's while keeping bond investors who bought all these mortgages happy.


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## threeticks

*Subprime and Conduits.*

Conduits are a twist on the age-old banking practice of taking a client's assets such as receivables or securities and turning them into cash.

Banks create conduits that are then filled with an array of assets that could include credit-card receivables, auto loans or mortgages. Using these assets as collateral, the conduit sells commercial paper to big investors, who are seeking generally safe, short-term investments while getting a slightly higher yield than that offered by ultra-safe instruments such as certificates of deposit or Treasury bills.

The cash from the sale of the commercial paper goes back to the companies that put their assets into the conduit.

In the past, the assets in a conduit generally came from one bank or company. But in recent years asset-backed commercial-paper conduits that combine debts from different companies, banks and financial firms have become more popular, accounting for about half the commercial-paper market. These notes can include some subprime mortgage securities, which are terrifying investors around the world.
Notes issued by these conduits account for just less than half of the nearly $3 trillion global commercial-paper market.

Banks earn fees to set up and run the conduits. They also often agree to provide funding if a conduit can't resell its commercial paper when it matures, which is generally every 90 days. That is where today's problems lie. Conduits are essentially using the sale of short-term debt, commercial paper, to fund the purchase of long-term assets. That creates a mismatch if demand for the short-term paper disappears.


The problem is these conduits are created as independent entities, so they don't sit on the banks' balance sheet, at least not until things go bad or the bank is left holding them at the end of their financial year.

And they are left holding them because nobody will touch them in the current financial climate.
The circle has stopped.

Its like playing snap and nobody knows who is holding what cards.


It would appear that these conduits are now showing their heads as the Subprime/Financial crisis drags out.

I can see more heads rolling in the financial sector as these conduits start to bite.


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## threeticks

Do you rember something called the gold standard ?
When money was issued based on gold reserves.

If you go to a bank for a mortgage today the "gold reserve" is the property.

In other words the bank creates new money based on the asset.
In this case its your house.

Take a look at this video on money as dept.
Its around 50 mins long but its worth watching.
It will explain how it works.
[broken link removed]


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## MichaelDes

Another indicator of inflation as people flee the dollar into anything tangible. By Scott Lanman

Dec. 12 (Bloomberg) -- _The Federal Reserve plans to ease ``elevated'' short-term funding pressures by injecting cash to banks through auctions and providing $24 billion in currency swap lines to the European and Swiss central banks. The Fed is coordinating the measures with the European Central Bank, Bank of England, Bank of Canada and Swiss National Bank, the Fed said in a statement in Washington. The Fed will auction term funds to banks against a ``wide variety of collateral.'' _All generally sound institutions can participate, the statement said.

As the American printing presses push out more dollar, they only thing happening in IMO is more money dropping into the abyss and giving more fuel for the gold rocket. 

Dec. 12 (Bloomberg) -- http://www.bloomberg.com/apps/news?pid=new...id=a8dhKVSfrNfQ
Gold Gains on Speculation Fed's Credit Plan to Spur Inflation

Dec. 12 (Bloomberg) -- _Treasuries fell the most in 11 years after central banks led by the Federal Reserve agreed to a coordinated effort to break a logjam in credit markets. *Yields on two-year notes rose more than a quarter of a percentage point *on speculation that central banks will do what is necessary to ensure that banks have adequate access to capital through the end of the year, when demand is typically the greatest_. 

I’m afraid we are in the mist of an financial contagion within  the markets as primarily Euro and US credit derivitatives continue to crash and burn. If you are sitting on gold, get your popcorn and enjoy the show. It was always going to end in tears, even the most stupid could deduce this from the chart evidence. [broken link removed]


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## threeticks

MichaelDes said:


> Another indicator of inflation as people flee the dollar into anything tangible. By Scott Lanman
> 
> Dec. 12 (Bloomberg) -- _The Federal Reserve plans to ease ``elevated'' short-term funding pressures by injecting cash to banks through auctions and providing $24 billion in currency swap lines to the European and Swiss central banks. The Fed is coordinating the measures with the European Central Bank, Bank of England, Bank of Canada and Swiss National Bank, the Fed said in a statement in Washington. The Fed will auction term funds to banks against a ``wide variety of collateral.'' _All generally sound institutions can participate, the statement said.
> 
> As the American printing presses push out more dollar, they only thing happening in IMO is more money dropping into the abyss and giving more fuel for the gold rocket.
> 
> Dec. 12 (Bloomberg) -- http://www.bloomberg.com/apps/news?pid=new...id=a8dhKVSfrNfQ
> Gold Gains on Speculation Fed's Credit Plan to Spur Inflation
> 
> Dec. 12 (Bloomberg) -- _Treasuries fell the most in 11 years after central banks led by the Federal Reserve agreed to a coordinated effort to break a logjam in credit markets. *Yields on two-year notes rose more than a quarter of a percentage point *on speculation that central banks will do what is necessary to ensure that banks have adequate access to capital through the end of the year, when demand is typically the greatest_.
> 
> I’m afraid we are in the mist of an financial contagion within the markets as primarily Euro and US credit derivitatives continue to crash and burn. If you are sitting on gold, get your popcorn and enjoy the show. It was always going to end in tears, even the most stupid could deduce this from the chart evidence. [broken link removed]


Current financial conditions are unprecedented in modern times.
It simply looks like the fed is clutching at straws.

The Fed said that the new auction process *should* 'help promote the efficient dissemination of liquidity' when other lines of credit were 'under stress.'
The *experience* gained from the four scheduled auctions would be 'helpful in assessing the potential usefulness' of this new process to provide funds to U.S. banks, the central bank said. Fed officials indicated more auctions would be scheduled *if* the first four were successful.

Its a shot in the dark.
Long term is it going to work ?


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## threeticks

MichaelDes said:


> It was always going to end in tears, even the most stupid could deduce this from the chart evidence. http://www.jsmineset.com/cwsimages/inventory/56608_derivativesgraph.jpghttp://www.jsmineset.com/cwsimages/inventory/56608_derivativesgraph.jpghttp://www.jsmineset.com/cwsimages/inventory/56608_derivativesgraph.jpg


 
Irish property chart might show the same evidence.


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## z109

threeticks said:


> Irish property chart might show the same evidence.


Indeed, you could put up a similar chart for equities (whether old or emerging markets), commodities (oil in a recession anyone?), or even gold. Does that mean it's all going to end in tears? I don't know, but if it does, I suspect it won't all be at the same time (different asset classes will be out of favour at different times). On the other hand, 1929-31 and all that, was in part about the fact that there was nowhere safe to put your money.


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## MichaelDes

*Game over IMO, 1929 again- gold could go towards $2000 an ounce*. The markets will decide what happens next, not the governments. BoE and the Fed are no longer in control, it is in the hands of reckless money market dealers. Freed and Greed control the market. Fear is in absolute control. With cost push inflation causing problems and Federal cuts doing nothing so far to stimulate against this contagion , economies will begin to experience stagflation and eventually hyperinflation, especially if governments keep pumping money into the system. The Fed and BoE should have just raised interest rates and crashed and burned straight to recession. What is happening is fighting against the inevitable. The delay will only make any recession more brutal and difficult. Their futile actions remind me of Lamonts attempts to protect the ERM, billions of dollars are being wasted whilst Abx markets get tighter and crash.

Look at my earlier post to see what's coming down the tracks. CDO's, SIV's, MBO's are all in parlysis and will be completely screwed if this decision sticks, which I think it will in the America Supreme court. It's decision day very soon - stay away from bonds and financial stocks. But you don't need to be a genius to work that out. Enjoy the show it's only starting...


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## dontaskme

speaking of sub-prime, LBBW's takeover of SachsenLB has run into some stickiness.

[broken link removed]

LBBW wanted the State of Saxony to take responsibility for "risks" but Saxony, probably the richest of the former East German states, was declining. 

The regulator said he wanted a deal this week and was threatening to shut SachsenLB down if it was not done and dusted by Sunday.

Now Saxony are saying they will underwrite the deal but its all a bit up in the air. 

It will be interesting what Brussels will say about this as the Landesbanks are not supposed to have state guarantees any longer.

And it's ironic that before subprime went kablooey, the German Chancellor and Bundesministers were calling for more transparency of hedge funds, when it seems the state owned banks were digging big pits off-balance sheet into which to throw money.  

And if they are bailed out by the state, then it's ultimately taxpayers' money.


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## threeticks

The fact that the central banks, who usually have different objectives, are combining forces means that the problem is worse than we thought

Pumping money into the markets now is only masking the symptoms.
The fundamentals are not going to go away.
It will have to run its course.

Taking paracetamol for the flu may deal with the runny nose, aches and pains but it’s not a cure.
Only one thing for the flu and that is bed and rest.
Financial markets will definitely be taking to the bed for a while and will have to run its natural course sooner or later.
Until then its better to sit back and stay clear unless you want to catch it.

Great time for trading currency markets though.
Interesting times ahead.
Plenty of volatility.

Here is a question?
Will this mean weaker usd and eur against the yen?

'The Bank of Japan welcomes these measures and hopes that they will contribute to maintaining the functioning of international financial markets,' 
I can see the BOJ sitting back and playing a waiting game.


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## threeticks

Actually its more like a cancer than a flu that has spread through the financial sectors.


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## GDE

MichaelDes said:


> . The Fed and BoE should have just raised interest rates and crashed and burned straight to recession. What is happening is fighting against the inevitable. .


 

Would it be reasonable to say that if interest rates had been raised bringing on the recession quickly a lot of big players would stand to loose a lot in a short period of time....but instead by prolonging the inevitable so those players would have the time so put their capital and assets elsewhere before the recession hits...?


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## threeticks

FBI looking into Subprime mess!!!!!!
This is not a good sign. But we should have expected it. Big booms tend to end with loud bangs that draw the attention, rightly or not, of criminal prosecutors. The merger boom of the 1980s. The dot.com boom of the 1990s. And now, the subprime boom-bust? The FBI has announced it is probing 14 firms in a wide-ranging look at the subprime daisy chain, joining the SEC and many state regulators. Mortgage fraud has been on the radar of the FBI for a while now. But if they decide to go after the top firms, the Merrill Lynchs and Morgan Stanleys, that would big news indeed.

For more:
- here's a _New York Times_ article
- regulators seek mortgage info from Goldman Sachs, Morgan Stanley. Article


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## yob

me thinks hindsight is a great thing,this is probably the most interesting blog to read on the sight,reading different peoples views on where they think things are going,and where they actually end up,me also thinks we all lost money on this one!!!!!!!!


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## threeticks

Check out this powerpoint cartoon on subprime
http://docs.google.com/TeamPresent?revision=_latest&fs=true&docID=ddv7hj34_03774hsc7&skipauth=true
Give it a min to load


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## threeticks

Breaking News Alert
The New York Times
Sunday, March 16, 2008 -- 7:18 PM ET
-----

JPMorgan Chase Says It Will Acquire Bear Stearns for $2 a Share

Bear Stearns, facing collapse because of the mortgage crisis,
agreed Sunday evening to be bought by JPMorgan Chase for a
bargain-basement price of less than $250 million, the two
companies announced.

The all-stock deal values Bear Stearns at about $2 a share,
based on JPMorgan's closing stock price on Friday, the
companies said. In contrast, shares of Bear Stearns, which
fell $27 on Friday, closed at $30.

Read More:
http://www.nytimes.com/?emc=na
*Subprime and Conduits.*
As I posted back in dec 07 and its only now these conduits are being made public.
The key here for financial institutions left holding these loans was to try to off load them but nobody wanted to buy them so there comes a point when they had to come clean and declare.......this is the result now and more to come...


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## Duke of Marmalade

Anglo down 14%, AIB & BOI down 7%.

_Daily Telegr_aph predicting that Ireland will be required to nationalise one or more big banks and that the property market will implode.

Let's face it, with hindsight it was a total nonsense that every Joe/Jane Soap was sitting on undreamed of equity in their house which was financed at very very cheap interest rates. 

The Anglo Saxon model is all wrong. Ordinary people should be renting their accommodation from either the State or institutions. The idea that we could all borrow at 5% p.a. and see the assets grow at 20% p.a. couldn't possibly make sense. 

The continentals have it right. You never here of property bubbles in Germany or France. Home ownership fuelled by profligate cheap lending from banks just isn't part of their prudent psyche. No wonder the dollar and sterling are plummeting - it was just too cheaply lent to everybody and not just to sub primers.


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## camlin90

Make that 16.9% and 7%.

Worrying times for savers, pension holders - in fact, anyone without a good stash under the mattress.


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## Duke of Marmalade

22% and 11%  Freefall


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## yob

just had a read over this thread,mmmmmmm so how is everybody doing,what about you HOWITZER,every dog in the street and all that.....and room305,what say you,
love your opinions on where we go from here.


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## room305

Harchibald said:


> The Anglo Saxon model is all wrong. Ordinary people should be renting their accommodation from either the State or institutions.


 
And what about non-ordinary people? Will they be allowed buy their own houses or will they also have to avail of socialised housing? How will you decide who falls into what group? Wealth? Political connections? An IQ test? Random lottery?



Harchibald said:


> The continentals have it right. You never here of property bubbles in Germany or France.


 
Ask a Parisian what they think of property prices there. If Germany has "missed out" on the housing bubble of this decade it's because they are still feeling the hangover from the previous decade.



yob said:


> just had a read over this thread,mmmmmmm so how is everybody doing,what about you HOWITZER,every dog in the street and all that.....and room305,what say you,
> love your opinions on where we go from here.


 
To quote Churchill :

"It is not even the beginning of the end. But it is, perhaps, the end of the beginning".


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## yob

I THINKS YOU'VE HIT THE NAIL ON THE HEAD,i wish you good hunting,but not all agree.


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## Murt10

Murt10 said:


> ....... Looks like we're not out of the woods yet, not by a long shot.
> 
> 
> Murt
> 
> 
> mod=home_whats_news_us?mod=djemalert[/url]






And the carnage continues..... 

(Edit) From the NY Times


"Mortgage Fears Depress Global Shares 

By CHARLES DUHIGG and DAVID JOLLY
Published: July 9, 2008
NEW YORK — As U.S. home prices decline and Washington struggles to end the economic malaise, Wall Street is starting to send a sobering message: The worst is yet to come....."


http://www.nytimes.com/2008/07/09/b...6180800&en=3617bfe95412c70f&ei=5070&emc=eta-1


Murt


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## Murt10

Nouriel Roubini, of NYU's Stern School and RGE Monitor, whose alarming predictions about the housing market and finanical system have been coming to pass with alarming frequqency predicts another 20 Percent Stock Drop

[broken link removed] (Speakers needed)

A long way to go yet lads


Murt


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## threeticks

I remember posting this video late 2007 when we were all wondering what was  happening with the World Banks and what it was going to mean to us and  where it would all end...Watch it now ?!!!
It takes about 15 secs to  load and is about 47mins long but it is worth the time...
I am reposting it again because it is no longer on the original link I posted..
WATCH IT ????
[broken link removed]


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