Hungary Jack wrote:
Banks get a lot of their capital from deposits from individuals and businesses through checking accounts, savings accounts, cd's, and other deposits. They take these deposits and make loans up to $20 in loans for every $1 in deposits. The ratio of capital they keep to loans outstanding is known as "reserves" and is governed by the FDIC.
Investment banks, on the other hand, get their capital from high net worth individuals, borrowing (cheap money has fueled a lot of their activity until lately), and stock markets (public ownership). They have more lenient rules than commercial banks. Goldman and Merril are now commercial banks because of their need for capital.
As long as commercial banks don't make too many bad loans, things are fine. The bigger commercial banks went head on into the subprime mortgage frenzy, and are now bearing the consequences. Several also bought mortgage backed securities (mortgage bundles) originated by other banks to include in their capital reserve portfolio. When these securities tanked in value and became illiquid (no buyers for them), the banks capital reserves suddenly became a concern with the FDIC.
My impression is that the smaller banks largely stayed away from the subprime lending and mortgage security market. They kept to their same boring business model, and are now much better off for it. I have talked to a few small bankers who have basically stated this. But they are also having problems finding worthy borrowers and worthwhile loans.
Thanks for that info. I knew some of that, but not all of it. It now makes sense why the investment banks were willing to take on the tougher regulations to get the capital.
Anyway, the worthy borrowers is the part I don't understand. Granted, a ton of people over the past 10 years have been able to take out horrible loans. But, there are still people now that need loans and are good investments. Probably about the same amount of people or more as there were 15 years ago or so..... and now it seems there are way less banks to loan out the money, only the smaller banks that you are talking about. I don't understand why people in need of loans (the good people/investments) wouldn't be lining up at their (smaller banks that avoided a lot of this) doors....
Hungary Jack wrote:
Banks get a lot of their capital from deposits from individuals and businesses through checking accounts, savings accounts, cd's, and other deposits. They take these deposits and make loans up to $20 in loans for every $1 in deposits. The ratio of capital they keep to loans outstanding is known as "reserves" and is governed by the FDIC.
Investment banks, on the other hand, get their capital from high net worth individuals, borrowing (cheap money has fueled a lot of their activity until lately), and stock markets (public ownership). They have more lenient rules than commercial banks. Goldman and Merril are now commercial banks because of their need for capital.
As long as commercial banks don't make too many bad loans, things are fine. The bigger commercial banks went head on into the subprime mortgage frenzy, and are now bearing the consequences. Several also bought mortgage backed securities (mortgage bundles) originated by other banks to include in their capital reserve portfolio. When these securities tanked in value and became illiquid (no buyers for them), the banks capital reserves suddenly became a concern with the FDIC.
My impression is that the smaller banks largely stayed away from the subprime lending and mortgage security market. They kept to their same boring business model, and are now much better off for it. I have talked to a few small bankers who have basically stated this. But they are also having problems finding worthy borrowers and worthwhile loans.
Thanks for that info. I knew some of that, but not all of it. It now makes sense why the investment banks were willing to take on the tougher regulations to get the capital.
Anyway, the worthy borrowers is the part I don't understand. Granted, a ton of people over the past 10 years have been able to take out horrible loans. But, there are still people now that need loans and are good investments. Probably about the same amount of people or more as there were 15 years ago or so..... and now it seems there are way less banks to loan out the money, only the smaller banks that you are talking about. I don't understand why people in need of loans (the good people/investments) wouldn't be lining up at their (smaller banks that avoided a lot of this) doors....
A lot of consumers are leveraged to the hilt right now, and with job prospects weak, aren't looking for credit. The bigger issue is commercial borrowers being squeezed in a shrinking economy. Sure, they need capital, but with their businesses waning, banks will be very hesitant to lend to them. The commercial paper market, which is where very big corporations go to get short-term unsecured (no assets pledged as collateral) loans, shows how hard it is to get short-term credit. These markets were "frozen" for awhile after Lehman died (Lehman was a huge player in commerical paper the Treasury Dept found ou--after the firm went away).
A friend who works in auto lending to dealers for Chase says that plenty of dealers approach him, but with auto sales stalled and cars losing resale value due to a glutted market, most loans don't work because the borrower cannot repay the money and the collateral (unsold cars) is losing value. This exemplifies the issue.
The people that can get money and buy assets right now are going to prosper greatly in the long run. This is going to be a case where the rich get incredibly richer and the poor struggle more than ever.
There are good, solid stocks that have taken hits of over half their value for absolutely no reason whatsoever. In 3-5 years, they might not be back to their original value, but they are going to be well above what they are right now. In addition, they're offering lucrative dividends right now b/c their stocks are so low. So, you can invest almost without worry in some of these stocks that are selling for $5/share and paying a 20% dividend.
Also, housing is just ridiculous in some places. Foreclosures continue to drive the prices down. And, banks are so desperate to get these houses off the books that they're willing to take huge hits. It's amazing. The feds are thinking about lowering the 30 year rate to 4.5%!!! Not everyone will be able to get it however those that can are going to be sitting pretty. And, it's likely the wealthy will be in line with their hands out if that happens. With rates that low......the possibilities are endless.
You could seriously have the perfect storm. Low confidence means many are unwilling to buy which will drive the prices down. Poor job market will mean many are unable to buy or even get money to buy if they wanted to meaning there will be a constricted consumer class which will drive the prices down. Almost historically low rates will reduce costs to the buyers. On top of all this, prices may or may not fall. 5 years ago a seller could convince the buyer they were going to make money on the house regardless of what they paid simply because housing prices were rising. Now, the buyer has all the power. Prices are likely to be above what they are now in 10 years, but tomorrow they may be lower. So, all the buyer has to do is say the market is still falling and will fall another 25% so he's not going to offer any more than 70-75% and have a solid leg to stand on in the negotiations. (There are def. experts saying the market will fall that much further.) There seriously may never be a better time to buy a home in our lifetimes.....
Or the market could continue to fall and no one can ever buy anything ever again and the end of the world will happen.
AWvsCBsteeeerike3 wrote:There seriously may never be a better time to buy a home in our lifetimes.....
That's great for first-time buyers. But for existing homeowners, it doesn't really help when you have to sell your existing home at a loss to purchase another home at a great deal.
For instance, there's a couple homes in my neighborhood available right now that I wish were available at those prices when I was looking 3 years ago. But right now, there's no way I could sell my home quickly and get a fair price for it. Even being in one of the more desirable locations in the city, there's two houses for sale on my block right now that have seen hardly any traffic in the last several months.
I'm sure I'm not the only one in a position like this.
AWvsCBsteeeerike3 wrote:There seriously may never be a better time to buy a home in our lifetimes.....
That's great for first-time buyers. But for existing homeowners, it doesn't really help when you have to sell your existing home at a loss to purchase another home at a great deal.
For instance, there's a couple homes in my neighborhood available right now that I wish were available at those prices when I was looking 3 years ago. But right now, there's no way I could sell my home quickly and get a fair price for it. Even being in one of the more desirable locations in the city, there's two houses for sale on my block right now that have seen hardly any traffic in the last several months.
I'm sure I'm not the only one in a position like this.
We are looking to see what deals are out there and what kind of ROI we can get with a short term loss on our house. Just part of the game I guess.
AWvsCBsteeeerike3 wrote:There seriously may never be a better time to buy a home in our lifetimes.....
That's great for first-time buyers. But for existing homeowners, it doesn't really help when you have to sell your existing home at a loss to purchase another home at a great deal.
For instance, there's a couple homes in my neighborhood available right now that I wish were available at those prices when I was looking 3 years ago. But right now, there's no way I could sell my home quickly and get a fair price for it. Even being in one of the more desirable locations in the city, there's two houses for sale on my block right now that have seen hardly any traffic in the last several months.
I'm sure I'm not the only one in a position like this.
We are looking to see what deals are out there and what kind of ROI we can get with a short term loss on our house. Just part of the game I guess.
I think it would have to be a really good deal, and I'm not sure the market has gone down enough in StL yet for that to be the case*.
Part of it for me is that I'm getting my house pretty close to "completion" with fixing it up, and I see other attractive opportunities in that same vein (with a bit more upside over my current house). But it would suck to be in the position of treading water or even taking a loss on my place after putting that work in. Plus I like my house overall, so I'll probably be in it for a while longer as long as I'm in StL.
* EDIT: The St. Louis market appears to be a bit strange right now. Prices haven't really gone down all that much (at least in the city), but the market is really slow. You've done very well if you can sell your place in less than 6 months.
AWvsCBsteeeerike3 wrote:There seriously may never be a better time to buy a home in our lifetimes.....
That's great for first-time buyers. But for existing homeowners, it doesn't really help when you have to sell your existing home at a loss to purchase another home at a great deal.
For instance, there's a couple homes in my neighborhood available right now that I wish were available at those prices when I was looking 3 years ago. But right now, there's no way I could sell my home quickly and get a fair price for it. Even being in one of the more desirable locations in the city, there's two houses for sale on my block right now that have seen hardly any traffic in the last several months.
I'm sure I'm not the only one in a position like this.
We are looking to see what deals are out there and what kind of ROI we can get with a short term loss on our house. Just part of the game I guess.
I think it would have to be a really good deal, and I'm not sure the market has gone down enough in StL yet for that to be the case*.
Part of it for me is that I'm getting my house pretty close to "completion" with fixing it up, and I see other attractive opportunities in that same vein (with a bit more upside over my current house). But it would suck to be in the position of treading water or even taking a loss on my place after putting that work in. Plus I like my house overall, so I'll probably be in it for a while longer as long as I'm in StL.
* EDIT: The St. Louis market appears to be a bit strange right now. Prices haven't really gone down all that much (at least in the city), but the market is really slow. You've done very well if you can sell your place in less than 6 months.
I know in my area of the city, houses aren't sitting very long if it is priced right. I haven't heard of people taking a loss yet, so that is a good sign.
AWvsCBsteeeerike3 wrote:There seriously may never be a better time to buy a home in our lifetimes.....
That's great for first-time buyers. But for existing homeowners, it doesn't really help when you have to sell your existing home at a loss to purchase another home at a great deal.
For instance, there's a couple homes in my neighborhood available right now that I wish were available at those prices when I was looking 3 years ago. But right now, there's no way I could sell my home quickly and get a fair price for it. Even being in one of the more desirable locations in the city, there's two houses for sale on my block right now that have seen hardly any traffic in the last several months.
I'm sure I'm not the only one in a position like this.
We are looking to see what deals are out there and what kind of ROI we can get with a short term loss on our house. Just part of the game I guess.
I think it would have to be a really good deal, and I'm not sure the market has gone down enough in StL yet for that to be the case*.
Part of it for me is that I'm getting my house pretty close to "completion" with fixing it up, and I see other attractive opportunities in that same vein (with a bit more upside over my current house). But it would suck to be in the position of treading water or even taking a loss on my place after putting that work in. Plus I like my house overall, so I'll probably be in it for a while longer as long as I'm in StL.
* EDIT: The St. Louis market appears to be a bit strange right now. Prices haven't really gone down all that much (at least in the city), but the market is really slow. You've done very well if you can sell your place in less than 6 months.
Keep your house and buy another one and rent it out. I don't know how much houses are in StL, but I do know my friend just bought one in Ferguson (I think) for 13K. It appraised at 60K and upwards of 90K if he fixes it up (new windows, carpet, floors, etc.). It has a musty smell and a few broken windows and the kitchen and bathroom will need to be touched up. But, he bought it with a credit card. And, in less than a year will be able to takle out a 90-100K home equity loan to buy more properties in the area. (There's a few houses in foreclosure in the neighborhood.) All the houses are brick with good foundations. He started up a corp. with a friend and their plan is to buy all the houses. A couple of people in the neighborhood are volunteering to help fix up the houses just b/c they want the foreclosure properties to resell at a higher value to bring the value of their properties back up. Pretty interesting scenario from what I've heard.
Edit: Actually, it might not have been in Ferguson but maybe a little bit closer to the river. I can't remember......
