BUBBEL (Mania)
Wild, franik spekulashun, then the bubbel burst & yu luze evreethang.
Pries av sumthang go up, others notis & want in. More & more heer
bout it & jump in. Pries rise faster. Spekulaters heer bout it.
Em join & plan tu resell tu a "grater fool" in a short time.
Then kommon man heer: evreewon want in onit. Greed set in. Pries
go up like mad (frenzee or bier panik). Nowon no wot kauz bubbels.
Proferrer tipes define bubbel as "pries abuv entrinsik value" (fundamentals).
Also kalled the pries diskonnekt...pries dont reflekt kost, suppli,
ability tu bi, or NE resunabel gage.
Problem is...nowon no wot the "entrinsik" value is. & nowon no wi
a sertin thang attrakt biers hu start the bubbel.
Then insiders & the erlee biers see it is neer the top & sell
(take theer profits). Pries stop go up or even (gasp) go down.
Sum get kold feet & sell. Pries drop faster. Everewon get skared
& rush tu sell at NE pries=panik. Pries drop like a rok. In many
bubbels, the thang bekum werthless & most hu bi it luze evreethang.
Yuzeyually, the drop is much faster than the rise.
The name kum from the South Sees Bubbel in England. "investers"
pored munee intu spekulate in stok av kumpanee with guvt monopoly
on trade in the "south pasifik" (Spaen kontrolled Amerika).
***** bubbel...Dutch tulip mania in 1500's is the klassik for modern times.
Tulips kame from the Ottoman Empire around 1550. 1593:first tipe bred
that kan take the kold in Holland (Netherlands).
at bubbel peek in 1636-37, 1 bulb av a rare tipe tulip kost same as averaej
hous. Bubbel broke, panik follo, many go bust (bankrupt).
***** bubbel...South see bubbel...first stok market bubbel in the modern sens
England in 1710-1720
South See Kumpanee formed bi insiders with guvt partners & get
monopoly on Brit trade with "south Pasifik"
Kumpanee was formed in 1711 with konnivans av Brit guvt. Purpus was
tu sell guvt debt. Kumpanee konvert guvt debt tu kumpanee shares.
In effekt shares are guvt bonds. Kumpanee also get guvt monopoly
in trade tu "south Pasifik". In praktis, this tern out tu be
South & mid Amerika...Spaen's kolonees in Amerika.
Brit guvt pae "annuity"...fixed number Brit pounds. Same as a bond
that pae 6%. But kumpanee kan du biz...trade with Amerika. Thus
hav potential tu make a profit.
Guvt & kumpanee werk hand-in-gluv. Kumpanee take over more
guvt debt 1711-1719 in seerees av komplex transakshuns that
oenlee akkountant kan like (or figger out). For many yeers
kumpanee dont du no biz at all. Then after a war tween England
& Spaen, pees. Spaen agree tu let the kumpanee send 1 ship/yeer tu
bring slaves tu Amerika. It kan now bekum a reel kumpanee.
1717: kumpany send 1 ship tu South Amerika with lode av slaves.
1719: komplex plan for kumpanee tu take over half the Brit debt
(31 milyun pounds)at 5%.
At this point the kumpany start kampane tu sell the publik on its stok:
first zampel av stok brokers talk-up kumpany & make its stok fli up intu
the ski. Lotta shares "sold" tu guvt men (inklude members av Parliament).
Em get speshal deels such as "no munee down" but with restrikshuns on sell em.
Stok go up 5 fold bi Mae 1719 wen guvt agree tu a deel.
1720: Stok dubel.
In 1720, guvt formally pass the South Pasifik trade Kumpany akt tu
make the kumpany legit.
Bubbel burst as all bubbels du wen sum insiders sell theer stok.
That start the pries down. Then em hu borroed tu the hilt tu bi in
got kot & had tu sell, at big loss. That drive down pries. Then all panik.
Many went bust. That inkluded many in Parliament & Aristostoksee.
This bubbel was yuneek in that a bunch av krooked kumpany & guvt men
werk tugether tu flees the publik.
***** bubbel...USA stok market...run up on spekulate, then krash (bubbel pop or burst)
Biggest krash was in 1929. It kauz the grate depresshun av the 1930's.
resent...Stoks boomed 1995-2000, then the krash av 2000-2006.
USA hous bubbel 2000-2006
see also...hous
from 1950 thru 1997, median US hous pries was almost konstant:
pries after flate rate go up 0.5%/yeer.
Hous gradually get bigger...this more than explaen wi pries go up
a littel.
Hous bubbel start round 1999
hous bubbel peek in 2006, hous pries up 90% from 1996
Stoks av hous-kin kumpanees (such as hous bilders) up 300-400%.
In 2007, hous prieses fall 9%, housing stoks krash. Home bilder
Lennar stok go down 64% in 2007. Many lone kumpanees & brokers
go bust (bankrupt)=go outta biz. Then Wall-Street titans go bust.
Kuntreewide Financial=biggest retael morgage maker: stok hi=119.70$ in Apr 2007
=5.07 on 7 Mar 08...down 95.8%. Kuntreewide's president (Mozilo)
get 110 milyun $ bonus for destroy the kumpanee. Later, Bank av Amerika
bi it for 2 sents on the dollar.
It started as a boom bekauz morgage rates (% interest yu pae
on a morgage) dropped tu loest in 40 yeers. Then it go mad.
Bankers invented nu tipes av lones such as ARM, interest-only,
"option" lones. Then invented nu waes tu sell "packages"
av lones tu "investers". Banks sell the lones, so oenlee thang bank
kare bout is tu kloes the hous sale. Next, Wall Street invent nu
"instruments" tu sell risky lones ("subprime"). & em hav the gall
tu rate thees lones AAA (no risk).
Investers get greedy & jump on the bandwagon. Bi hous & sell it
3 months later & make 20% profit...hous flippers.
Sum markets such as Las Vegas, Florida, & Kalifornya: pries inkreez
up tu 50%/yeer. Spekulaters jump in tu make a fast buk.
Hous prieses go up so much, oeners feel rich & refinans morgage &
take out munee & spend it. In 2005, em took out 732 bilyun $ tu spend.
The refi's wipe out yer "equity" in the hous. In effekt, yu rent
the hous from wall street "investers". Now hous pries has no konnekt
tu the value as a home or wot averaej Joe kan afford. Kommon man is
priesed out. Market kontrolled bi spekulaters.
**** hous bubbel
Problem 1: boom depend on ever inkreezing hous prieses. If prieses stall
or even (gasp) dekreez, the "investers" luze munee. Most leveraged
theer "investment" tu the hilt tu maximize the profit. Wen it tern
upside down, loss is inflated same wae. Investers R first tu get out.
Wen hous pries dont go up, em see the madness is over & sell. This
put pressure on hous prieses. In 2007, prieses start down.
"investers" sell at loss & many walk awae from plaeses em agreed
tu bi (mostly kondos). Kumpanees that bild nu houses tried for
18 months tu resist loer pries, then krumbel. In hot markets,
pries for nu houses drop 20%-30%. Now investers sell at NE pries.
Reel "home owners" refuze tu loer ask pries av theer hous.
Houses sit unsold month aft month. Sales drop 50% in former hot spots.
Hot suberbs av Fenix: half the houses R forkloesed & empty. Reel folks
that wanna liv theer dont like all the "vakant" houses nowon bi.
Wetbaks muve in rent-free. Krooks strip abandoned houses.
zampel: Palm Beech, Okt 2007: 52 months suppli av houses for sale.
kondos: 54 months suppli & more brand nu wons evree month.
**** hous bubbel
problem 2: Nu lone tipes such as no down paement, interest-only, "option" lones.
ARM (adjustabel rate morgage) & Teeser rates.
With old stile morgage, yu hav "equity"...yu oen part av the hous.
If yu hav munee problems, yu kan sell the hous & get yer equity bak
(minus kosts av bout 7%). Yu get kash tu liv on. Not so with the
nu-fangeled modern morgage.
No munee down=yu dont oen NE-thang (no equity in the hous).
If yu gotta sell, yu gotta pae all the kosts=yu luze munee=big problem.
Interest-only...this meen just wot it sae: yu oenlee pae interest...
same as rent the hous from the bank. Yu dont redues debt. Yu dont
oen even 0.01% av the hous.
Option lones...if yu thot interest-only was bad, option is badder.
Yu dont even pae the interest. Yer morgage get bigger evree month.
Yu oe more dollars tu banker evree month.
ARM's was invented bout 1970, but last 5 yeers em exploded. Seem like
evreewon got ARM insted av old-fashuned fixed lone. Problem is:
the variabel interest rate is artificial lo in first 6 months tu 2 yeers.
then it reset tu reel rates, or yu gotta konvert tu regular morgate.
This meen monthly paement jump lot bigger, sumtimes go up 200%.
Teeser rates. Morgage bankers was so desperat, em yuze plublished rates
invented outta nuthang. Yu want 3%, yu get it. 2%? yu betchum. 1%? no problem.
But this "honymoon" period oenlee last 1 or 2 yeers. Then yu gotta
pae reelsrates. (6.5-9%)
**** hous bubbel
problem 3: 2.2 milyun subprime morgages from 2005 & 06
Will reset tu reel interest rates...big inkreez in monthly paement.
Financial sperts predikt 20%-40% tu go bankrupt & bank take the hous.
1 trilyun $ av ARM's reset tu hier % interest in 2007.
Yu-all no longer hav NE "equity" in yer hous & thus kant borro munee from
self & spend it. Banks let biers spend 60% av theer inkum on the
morgage wen em bi opshun ARM's. Now interest rate go up 200% so
em will hafta pae 180% av theer inkum on the morgage.
We R stil in the erlee stages av the krash av this bubbel. Stae
tuned as we watch it go down the tubes.
Now guvt bigwigs start noises how guvt gotta step in and "resku"
poor kommon Jo hu mite luze his hous kauz banker mae take bak
the hous kauz jo didnt make the morgage paements. No menshun
that Jo tried tu bi 700,000$ hous wen him kood oenlee afford 100,000.
**** hous bubbel...housing drop is different
Hous bubbel differ from normal bubbel bekauz the krash & panik is sloer.
Many folks liv in theer hous. Most refuze tu sell at a loss.
Evreewon hu bi in 2004 tu July 2006 sit on a loss. "housing" sales
dri up. Number av yuzed homes sold drop 20-30% in USA.
Drop 50% in hot markets.
Wen pries stop going up, spekulaters & "investers" want out & sell.
Hous prieses go down, but much sloer than for other bubbels.
Hot markets such as Las Vegas, Florida, & Kalifornya go down most...
10-12% down in Miami & Vegas as av Nov 2007. Most bubbels drop 50+%.
Oenlee folks hu gotta muve tri tu sell. Hi-ups at big kumpanees
hu get transferred wanna bi nu hous & thus gotta sell the old 1.
Hous dont sell for 6+ months. But the big kumpanee bi ou theer Brass
so em wont "suffer". So old hous still sit empty.
Kommon man is trapped...kant sell the old hous & thus kant bi a nu won.
Forkloes: nu fakter is many go bust & bank take bak the hous (repo).
Bank dont want the hous & tri tu sell it. Forkloered houses bekum
kommon...up tu half the houses sold. This put pressure on hous prieses.
But still prieses dont drop much.
We R still in the drop after the bubbel. The sell-off hav 1-2 more
yeers tu go.
**** hous bubbel kost
subprime lones...banker lone munee tu yu with poor kredit histree
2004: 540 bilyun$ av subprime lones in USA
2005: 628 bilyun
July 07: subprime morgages:14.8% R past-due
& 14% av morgages R subprime
subprime ARM's=6.8% av lones & 43% av problem lones
2007 & 08...2.3 milyun subprime lones tu reset from teeser rates tu reel rates
**** bubbel kosts (direkt kost tu banks & investers)
1986-1995: Saving & Lone Krisis...189 bilyun $
2000-2003: Tek Bonds krash 93 bilyun $
2007: estimated kost av subprime morgage loss...400 bilyun $
31 des 2007: US banks so far rited off 50 bilyun $ for bad morgages
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