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Right so the worlds markets have lossed confidence over fears about the US sub-prime markets and potential bad debts? Why would this effect businesses that can repossess houses and give even more profits to shareholders?

 

Even weirder, how come in the last couple of weeks while this has been going on the dollar has strengthened significantly against the pound?

 

Yours confusedly (and also somewhat apathetically)

 

AdamS

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Right so the worlds markets have lossed confidence over fears about the US sub-prime markets and potential bad debts? Why would this effect businesses that can repossess houses and give even more profits to shareholders?

 

Even weirder, how come in the last couple of weeks while this has been going on the dollar has strengthened significantly against the pound?

 

Yours confusedly (and also somewhat apathetically)

 

AdamS

 

 

I did hear about this but my curiosity too was stifled by rampant apathy.

 

You post, however, has given my curiosity on this matter a much needed tonic, but like you, not enough to look it up myself.

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Right so the worlds markets have lossed confidence over fears about the US sub-prime markets and potential bad debts? Why would this effect businesses that can repossess houses and give even more profits to shareholders?

 

Even weirder, how come in the last couple of weeks while this has been going on the dollar has strengthened significantly against the pound?

 

Yours confusedly (and also somewhat apathetically)

 

AdamS

 

I have A-levels in Economics and Economic History, but I'm not prepared to waste my time explaining it to you if you can't spare the time to look it up.

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I have A-levels in Economics and Economic History, but I'm not prepared to waste my time explaining it to you if you can't spare the time to look it up.

 

I have A'Level's in politics and business studies & if someone asked me a question, I would tell them what I could remember. You know why? Because I'm not a cunt!

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trying to keep it simple.

 

1. The issues centres around valuation of assets. The uncertainty of banks and investors in being able to determine their land and property values has wider issues (including other value of other loans/mortgages, taxation and income). Furthermore the repossession of houses has massive impact upon wider consumer confidence and spending. The recriminations are therefore wider than just businesses connected with property sales and refinancing.

 

2. The dollar was under valued against the pound in any case and investors are shifting cash to the US dollar, US bonds and gilts (government assured bonds); as it is seen as a safe currency.

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I have A'Level's in politics and business studies & if someone asked me a question, I would tell them what I could remember.

 

As long as they could stick around for 10 seconds?

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trying to keep it simple.

 

1. The issues centres around valuation of assets. The uncertainty of banks and investors in being able to determine their land and property values has wider issues (including other value of other loans/mortgages, taxation and income). Furthermore the repossession of houses has massive impact upon wider consumer confidence and spending. The recriminations are therefore wider than just businesses connected with property sales and refinancing.

 

2. The dollar was under valued against the pound in any case and investors are shifting cash to the US dollar, US bonds and gilts (government assured bonds); as it is seen as a safe currency.

 

Huh?

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The sub-prime market, basically, gave mortgages to people who were deemed as bad debtors with poor credit history, the interest payments were high. A lot of these people have defaulted on their mortgages.

 

There's two markets, the primary market and the secondary market. Subprime debt occurred on the secondary market. A company would acquire a loan from a bank on the primary market and then sell this loan on the secondary market with higher interest than they have to pay the bank. Thus making a profit.

 

The fact that so many people are defaulting means that the banks are less likely to see their debts repaid. It means that banks are more dubious of giving credit, even to companies or private equity companies that acquire companies with bank loans.

 

For a while investors that pay up front, without bank loans, have been getting trumped by equity companies. The equity companies would get big loans, buy out a company with inflated odds. There are two things to remember, value and price, value is what a company is worth and price is what you pay for the company. A lot of investment companies, such as the one headed by Warren Buffet, Berkshire Hathaway stand to capitalise on this subprime crash. They were getting trumped on buyouts (they could afford the buyouts but felt it wasn't value to pay such high prices) but now that banks may be more reluctant to give credit, they can take their pick of companies without fear of being trumped by private equity groups.

 

I was wondering last week if we might struggle to get loans for our stadium now. I hope not. Perhaps we already have the loans in place or that our two Americans are held in such high regard that they would still be given credit.

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The sub-prime market, basically, gave mortgages to people who were deemed as bad debtors with poor credit history, the interest payments were high. A lot of these people have defaulted on their mortgages.

 

There's two markets, the primary market and the secondary market. Subprime debt occurred on the secondary market. A company would acquire a loan from a bank on the primary market and then sell this loan on the secondary market with higher interest than they have to pay the bank. Thus making a profit.

 

The fact that so many people are defaulting means that the banks are less likely to see their debts repaid. It means that banks are more dubious of giving credit, even to companies or private equity companies that acquire companies with bank loans.

 

For a while investors that pay up front, without bank loans, have been getting trumped by equity companies. The equity companies would get big loans, buy out a company with inflated odds. There are two things to remember, value and price, value is what a company is worth and price is what you pay for the company. A lot of investment companies, such as the one headed by Warren Buffet, Berkshire Hathaway stand to capitalise on this subprime crash. They were getting trumped on buyouts (they could afford the buyouts but felt it wasn't value to pay such high prices) but now that banks may be more reluctant to give credit, they can take their pick of companies without fear of being trumped by private equity groups.

 

I was wondering last week if we might struggle to get loans for our stadium now. I hope not. Perhaps we already have the loans in place or that our two Americans are held in such high regard that they would still be given credit.

 

At the risk of repeating myself - huh?

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There's two markets, the primary market and the secondary market. Subprime debt occurred on the secondary market. A company would acquire a loan from a bank on the primary market and then sell this loan on the secondary market with higher interest than they have to pay the bank. Thus making a profit.

 

Is this the way all those loan companies advertising on channel five and all the cable channels are operating?

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At the risk of repeating myself - huh?

 

I think I get it, Paul. Allow me to paraphrase as it would appear on a GCSE Economics paper.

 

Adam has two apples. He gives one apple to Fred and keeps one for himself.

 

Who did Adam give an apple to?

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At the risk of repeating myself - huh?

 

Okay. Say you wanted a mortgage and had a bad credit rating and couldn't get one from a bank or reputable company you would get one from a subprime lender. A subprime lender would take a loan from the bank and then sell that loan to you. The primary market is the deal directly between the bank and the company. They then sell this loan on the secondary market to you but with extra interest on top, massive interest, in fact, which is where they make their money.

 

 

Subprime companies are now struggling to make the original repayments on the terms they agreed with the bank. If you defaulted and didn't pay the company, where would the company find the money to pay the bank? It wouldn't and the bank would take a hit, even though you, as the consumer never dealt with the bank.

 

 

Now banks are becoming reluctant to do massive credit deals. Some firms are buyout firms, like Gillett and Hicks, they bought with bank loans. Now banks are less likely to fund such deals. A lot of buyouts occurred at inflated prices because the companies buying with loans would pay over the top. Whereas investment companies that had the readies to pay up front weren't willing to pay over the odds, even though they could.

 

The investment companies that had the money to pay up front now face less competition because the other companies are now finding it difficult to get loans off the investment banks. Thus they stand to capitalise on the subprime crash because they can take their pick of ailing companies, at cheap prices with little or no competition, like a vulture feeding on carrion. The wise investor waits until the time is right, he doesn't flash his cash like a mad man. It looks like Warren Buffett is about to get even richer.

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Okay. Say you wanted a mortgage and had a bad credit rating and couldn't get one from a bank or reputable company you would get one from a subprime lender. A subprime lender would take a loan from the bank and then sell that loan to you. The primary market is the deal directly between the bank and the company. They then sell this loan on the secondary market to you but with extra interest on top, massive interest, in fact, which is where they make their money.

 

 

Subprime companies are now struggling to make the original repayments on the terms they agreed with the bank. If you defaulted and didn't pay the company, where would the company find the money to pay the bank? It wouldn't and the bank would take a hit, even though you, as the consumer never dealt with the bank.

 

 

Now banks are becoming reluctant to do massive credit deals. Some firms are buyout firms, like Gillett and Hicks, they bought with bank loans. Now banks are less likely to fund such deals. A lot of buyouts occurred at inflated prices because the companies buying with loans would pay over the top. Whereas investment companies that had the readies to pay up front weren't willing to pay over the odds, even though they could.

 

The investment companies that had the money to pay up front now face less competition because the other companies are now finding it difficult to get loans off the investment banks. Thus they stand to capitalise on the subprime crash because they can take their pick of ailing companies, at cheap prices with little or no competition, like a vulture feeding on carrion. The wise investor waits until the time is right, he doesn't flash his cash like a mad man. It looks like Warren Buffett is about to get even richer.

 

*An illuminated lightbulb appears above Paul's head.*

 

Economics is always simple once the jargon is removed. Cheers.

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I think I get it, Paul. Allow me to paraphrase as it would appear on a GCSE Economics paper.

 

Adam has two apples. He gives one apple to Fred and keeps one for himself.

 

Who did Adam give an apple to?

 

Noos, much as it pains me to say it, I feel I must admit that you make me laugh on an all too frequent basis.

 

*Whispers*

 

You were confused, too - right?

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If you would like to get into this type of thing, I'm presently reading The Financial Times Guide to Investing by Paul Gilbert. You don't need any prior understanding of investment to compute what he says, it's well written and he makes his points well. It's well recommended too.

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Okay. Say you wanted a mortgage and had a bad credit rating and couldn't get one from a bank or reputable company you would get one from a subprime lender. A subprime lender would take a loan from the bank and then sell that loan to you. The primary market is the deal directly between the bank and the company. They then sell this loan on the secondary market to you but with extra interest on top, massive interest, in fact, which is where they make their money.

 

 

Subprime companies are now struggling to make the original repayments on the terms they agreed with the bank. If you defaulted and didn't pay the company, where would the company find the money to pay the bank? It wouldn't and the bank would take a hit, even though you, as the consumer never dealt with the bank.

 

 

Now banks are becoming reluctant to do massive credit deals. Some firms are buyout firms, like Gillett and Hicks, they bought with bank loans. Now banks are less likely to fund such deals. A lot of buyouts occurred at inflated prices because the companies buying with loans would pay over the top. Whereas investment companies that had the readies to pay up front weren't willing to pay over the odds, even though they could.

 

The investment companies that had the money to pay up front now face less competition because the other companies are now finding it difficult to get loans off the investment banks. Thus they stand to capitalise on the subprime crash because they can take their pick of ailing companies, at cheap prices with little or no competition, like a vulture feeding on carrion. The wise investor waits until the time is right, he doesn't flash his cash like a mad man. It looks like Warren Buffett is about to get even richer.

 

The above is only a small reason of it though. Banks own some of these subprime lenders, thereby making some banks even worse off, but even that wasn't the main problem. No the main problem is/was that most of these banks didn't know how big their problems is/was. Say you lend money to companies a/b/c. You don't know how badly hit companies a/b/c are, i.e. you don't know how much money you stand to loose. Since the banks didn't/don't know how uch they stand/stood to loose, they pull more than adequate money back from their other businesses, investment in other countries etc. This is the reason it has hit the rest of the world so badly.

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This is almost cool.

 

People have targetted the poor to screw them and make money for rich shareholders and it's all gone tits up. Things is, if it does go properly tits up, it'll be the poor people that suffer anyway.

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How did the dollar get undervalued in the first place?

 

I think it's to do with US interest rates, I'm not entirely sure how it works but I'd assume that the US dollar will have strengthened in response to the US Federal Reserve's recent adjustment on interest rates. There's a chapter on currency in another Financial Times guide I have but it's above my head at this stage. It's sometimes better to have an undervalued currency because it allows you to trade your exports at a decent rate.

 

The strong pound has hammered manufacturing. Say you get 1 euro to 1 pound, a Frenchman can buy 10lb of British apples for 1 Euro. Say the pound strengthens and it then costs 2 euros to 1 pound, the Frenchman has to pay twice as much for his apples. He, however, can get 10lb of apples from America for 1.5 Euros because the dollar isn't as strong as the pound. The strong pound has resulted in overseas trade going elsewhere. RJ may be better at explaining this than me. I've only recently started reading up on investment.

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The above is only a small reason of it though. Banks own some of these subprime lenders, thereby making some banks even worse off, but even that wasn't the main problem. No the main problem is/was that most of these banks didn't know how big their problems is/was. Say you lend money to companies a/b/c. You don't know how badly hit companies a/b/c are, i.e. you don't know how much money you stand to loose. Since the banks didn't/don't know how uch they stand/stood to loose, they pull more than adequate money back from their other businesses, investment in other countries etc. This is the reason it has hit the rest of the world so badly.

 

Yes it is. I know Barclays is one such bank that had subprime interests and has been taking a hit because of it.

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But I gave Fred the apples for free?

 

I love the fact that Federal Reserve is privately owned and they choose when to print and not to print more money.

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I think it's to do with US interest rates, I'm not entirely sure how it works but I'd assume that the US dollar will have strengthened in response to the US Federal Reserve's recent adjustment on interest rates. There's a chapter on currency in another Financial Times guide I have but it's above my head at this stage. It's sometimes better to have an undervalued currency because it allows you to trade your exports at a decent rate.

 

The strong pound has hammered manufacturing. Say you get 1 euro to 1 pound, a Frenchman can buy 10lb of British apples for 1 Euro. Say the pound strengthens and it then costs 2 euros to 1 pound, the Frenchman has to pay twice as much for his apples. He, however, can get 10lb of apples from America for 1.5 Euros because the dollar isn't as strong as the pound. The strong pound has resulted in overseas trade going elsewhere. RJ may be better at explaining this than me. I've only recently started reading up on investment.

 

 

I'm purely an amateur investor and that would be a good stab from my knowledge basis, so I wont go any further.

 

Interest rates do appear largely the reason for the recent lower value of the US Dollar. Although I would accept that its an over simplification of the arket mechanisms.

 

Edit: Meant to add the low value of Dollar will make exports more attarctive and discourage imports for the reasons Dirk gave.

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I was wondering last week if we might struggle to get loans for our stadium now. I hope not. Perhaps we already have the loans in place or that our two Americans are held in such high regard that they would still be given credit.

 

Ali posted this on the *F, looks like my fears might have some basis.

 

Goldman Sachs off Liverpool debt deal -sources

Wed Aug 29, 2007 7:02 PM BST140 - Reuters

 

By Elena Moya

 

LONDON, Aug 29 (Reuters) - U.S. investment bank Goldman Sachs is no longer working for Liverpool F.C. to refinance the debt used to buy the soccer club earlier this year, people familiar with the situation said on Wednesday.

 

Following the March acquisition by U.S. tycoons Tom Hicks and George Gillett, bankers at Goldman Sachs's New York office drew up a highly geared refinancing plan that would have put about 550 million pounds ($1.1 billion) of debt onto the club's books, more than 20 times its profit, one of the sources said.

 

Liverpool is now focusing on either extending or refinancing a 300 million pound bridge facility, which expires in February. A new adviser may be appointed, the source added.

 

"Goldman is no longer involved in refinancing Liverpool," a second source said.

 

Both sources spoke on condition of anonymity.

 

Goldman Sachs declined to comment, while Liverpool F.C. were not immediately reachable for comment.

 

Investors are shying away from highly leveraged deals following the recent turmoil in credit markets, making it more difficult for companies to access financing.

 

Liverpool arch-rival Manchester United [MNU.UL] also failed this summer to refinance its high-priced debt, following the acquisition of the club by U.S. billionaire Malcolm Glazer.

 

Unlike Glazer, the refinancing plan for the Liverpool takeover did not include a direct equity investment by the new owners, but was instead slated to be funded only with new debt, the first source said.

 

The plan was to raise about 300 million pounds to re-pay the bridge facility provided by Royal Bank of Scotland, as well as another 250 million pounds to finance the building of a new stadium, the source added.

 

The stadium, originally expected to cost about 280 million pounds, may now end up costing as much as 400 million pounds, the source said.

 

The Goldman Sachs plan included raising as much as 8 million pounds for naming rights on a new stadium, the source said, while London rival Arsenal generates about 3 million for its Emirates Stadium.

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