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Cavguy
09-22-2008, 03:58 PM
Found this in my Google Reader this morning. An excellent summary of the credit crisis for laymen. (http://theamericanscene.com/2008/09/19/welcome-to-history)

I'm nervous about this bailout. I understand the impacts of a loss of credit to the market - but I too want some payback for the $5k-6k in taxes I'm going to pay to bail out US AND INTERNATIONAL firms who are handing out golden parachutes left and right.

Part of me swings liberatarian on this, but the stakes are too high to not act I suppose. I also know that large, sweeping legislation passed hasitly (Patriot Act, anyone?) often has huge unintended consequences.

Entropy
09-22-2008, 04:07 PM
Agree completely with your sentiments, Cavguy. Thanks for the link!

tequila
09-22-2008, 05:01 PM
I used to work for Lehman Brothers in the FX trading field before going on deployment.

Not in favor of the Paulsen plan --- no oversight and it is essentially a giveaway. We will overpay for the bad assets, and this is part of the plan.Socialism for the wealthy, capitalism for the little guy. No thanks. This post (http://www.nakedcapitalism.com/2008/09/why-you-should-hate-treasury-bailout.html)runs down the major reasons why this $700 bn blank check is a HORRIBLE idea.

Haven't we learned that giving this Administration a blank check to do anything is something to avoid? If Congress gets buffaloed again, I might just vote for Ron Paul after all.

selil
09-22-2008, 05:05 PM
I will refrain from commentary on the bail out plans or even the concept of a bail out as I may be led to curse and use language I would rather not have associated with me.

Failure is always an option.

bismark17
09-22-2008, 05:16 PM
Thanks for the link. I can't believe there isn't more uproar against Bernanke who was recently on the record as saying there wasn't any problems with the system. It seems like these days the only place in America that has accountability is in the military....

selil
09-22-2008, 05:21 PM
Thanks for the link. I can't believe there isn't more uproar against Bernanke who was recently on the record as saying there wasn't any problems with the system. It seems like these days the only place in America that has accountability is in the military....

There was a parameters piece written about 2012....

Cavguy
09-22-2008, 06:25 PM
I'm not always a Gingrich fan, but this (http://corner.nationalreview.com/post/?q=ZGE5MmE0YmRiODA3YTRiNzFlN2FmNDU5N2I0ZDc3YTE=)st ruck me as spot on.




But because this gigantic power shift to Washington and this avalanche of taxpayer money is being proposed by a Republican administration, the normal conservative voices have been silent or confused.

It’s time to end the silence and clear up the confusion.

Congress has an obligation to protect the taxpayer.

Congress has an obligation to limit the executive branch to the rule of law.

Congress has an obligation to perform oversight.

Congress was designed by the Founding Fathers to move slowly, precisely to avoid the sudden panic of a one-week solution that becomes a 20-year mess.


and this:


Question Three: Will the Paulson plan be implemented with transparency and oversight?

Answer: Implementation of the Paulson plan is going to be a mess. It is going to be a great opportunity for lobbyists and lawyers to make a lot of money. Who are the financial magicians Paulson is going to hire? Are they from Wall Street? If they’re from Wall Street, aren't they the very people we are saving? And doesn’t that mean that we’re using the taxpayers’ money to hire people to save their friends with even more taxpayer money? Won't this inevitably lead to crony capitalism? Who is going to do oversight? How much transparency is there going to be? We still haven't seen the report which led to bailing out Fannie Mae and Freddie Mac. It is "secret". Is our $700 billion going to be spent in "secret" too? In practical terms, will a bill be written in public so people can analyze it? Or will it be written in a closed room by the very people who have been collecting money from the institutions they are now going to use our money to bail out?

Cavguy
09-22-2008, 07:20 PM
Sorry for the run of posts - but I think this has huge security ramifications.

I'm on leave this week - and trying to get smart on this financial crisis.

Another good article is here (http://www.usnews.com/blogs/capital-commerce/2008/9/22/bailout-prevents-great-depression-20.html):


Bailout Prevents Great Depression 2.0
September 22, 2008 11:35 AM ET | James Pethokoukis | Permanent Link

What would be the dollar cost of not bailing out Wall Street? Try a number north of $30 trillion. (The awful math is detailed below.) That's why Hank Paulson and Ben Bernanke were so scared last week. And, yes, I think "scared" isn't too strong a word. You don't think they convened an emergency nighttime meeting of congressional leaders and then walked out with something close to a blank check for a trillion bucks because they thought we were headed for an outright recession, even a fairly nasty one?



2) Scenario 2: Great Depression 2.0. The economy shrinks by 25 percent over four years, or $3.2 trillion, plus $1.1 trillion in lost opportunity growth. Economic cost: $4.3 trillion. The market falls two thirds from its peak, losing $7 trillion in value from its current level, plus $3 trillion from not getting a rebound. Stock market cost: $10 trillion. Housing falls an additional $10 trillion from current levels, plus the lost opportunity of $2.5 trillion from a rebound. Housing cost: $12.5 trillion. Total four-year financial and economic cost of doing nothing: $26.8 trillion.

Now this is all a very rough guesstimate and doesn't include the costs of all sorts of other ramifications. Here is a fun one: the dissolution of China. Its economy is built for hypergrowth. A dramatically rising standard of living is both keeping the Communist Party in power and keeping the country together. Neither might survive a global economic meltdown. What is the economic impact of that? I don't know. My guesstimator just blew up.

selil
09-22-2008, 07:59 PM
Great Depression 2.0? Talk about fear mongering. Over a 25 percent decline? Dang it... The Great Depression represented an 75% to 85% reduction in the economy not some measly 25%.

davidbfpo
09-22-2008, 09:25 PM
These two links were sent across the Atlantic, I've only read this one today and the second is awaiting time:

http://www.ricedelman.com/cs/education/article?articleId=762&titleParam=Update%20Regarding%20the%20Financial%20 Markets

Try the blog Calculated Risk: http://calculatedrisk.blogspot.com/

I have been reading since late 2007. Two bloggers post, calculated risk and Tanta. If need an IQ above 125 tofollow most Tanta posts, but they are worth the effort.

davidbfpo

Ron Humphrey
09-22-2008, 10:46 PM
From reading them I kinda get the same feeling I've had since last week.

The country has grown too fast financially in a sense and that was largely artificially pushed, kinda like a machine with cogs where since one cog starts going faster all the others do to whether they should or not. Now that a major cog started going backwards some of the others are breaking teeth because they where still trying to move forward.

The markets being almost as dependent on perception as reality for success have also suffered some artificial pains as well as the real ones which just made some things worse. Finally since we are looking at an overall complexity in the markets which would far outstrip any given private entities capability to deal with (such as what Rockefeller did in history past) the govt seems like the only ones with enough size to effectively stem the tide and get everything moving forward again even if much more slowly than before.

So is the overall goal here to stop the fall, stem the hemmoraging and amputate those parts which cannot be saved?

Schmedlap
09-22-2008, 11:20 PM
I understand the impacts of a loss of credit to the market - but I too want some payback for the $5k-6k in taxes I'm going to pay to bail out US AND INTERNATIONAL firms who are handing out golden parachutes left and right.

When you do your taxes and suddenly find that you're getting tagged with that $5-6k in additional taxes, please let us know. I won't hold my breath. Like the other $10 trillion in debt, that money will be paid for by someone else at some distant point in the future.

A few random thoughts...

- Our loan to AIG was at 8% above LIBOR and their assets are collateral. If anybody here would like to borrow money from me at 8% above LIBOR and to put up their house as collateral, then please let me know. I would be happy to provide such a bailout to anyone who is likely to repay. My savings account is only paying 3% and my portfolio is down for the year. 8%+ would be pretty sweet.

- Anyone making more money than someone else is a popular target for blame on this issue, but that is oversimplified. Here is a short list of culprits for this global financial abortion: those who borrowed more than they could afford, those who lent money without regard to the ability of the borrower to repay, regulators who failed to enforce regulations, legislators and officials who did away with sensible regulation, and investment bankers who assumed too much risk. Did I leave anyone out?

- And if this $700 billion to $1 trillion bailout bothers you, don't forget the dual fiascos known as Fannie Mae and Freddie Mac. Check this out from Politico (http://www.politico.com/news/stories/0708/11781.html)...


The two government-chartered companies run a highly sophisticated lobbying operation, with deep-pocketed lobbyists in Washington and scores of local Fannie- and Freddie-sponsored homeowner groups ready to pressure lawmakers back home.

They’ve stacked their payrolls with top Washington power brokers of all political stripes, including Republican John McCain’s presidential campaign manager, Rick Davis; Democrat Barack Obama’s original vice presidential vetter, Jim Johnson; and scores of others now working for the two rivals for the White House.

Fannie and Freddie’s aggressive political maneuvering has helped stave off increased regulation and preserve special benefits such as exemption from state and local income taxes and the ability to borrow at low rates.

And according to the AP (http://ap.google.com/article/ALeqM5imQzxsHXOIyTZuzysbR2bCxwwwdgD939MUCG0), the highest lifetime contributions from those PACs? Why none other than the Speaker of the House, House Minority Leader, House Minority Whip, Senate Majority Leader, Chairman of Senate Banking, Housing and Urban Affairs Committee, and the Chairman of the House Financial Services Committee. This is the best government that money can buy.

slapout9
09-22-2008, 11:40 PM
[QUOTE=Cavguy;57140]Sorry for the run of posts - but I think this has huge security ramifications.
QUOTE]

I think you are right about this. Care to be pontificate(learnt me a nu word:)) on that a bit?

J Wolfsberger
09-23-2008, 01:27 AM
The idea of bailing out a company really p----- me off.

Except:

1. We're in this mess because of the changes, in the 1990s, to force lenders to finance housing to low income borrowers. As anyone with a grain of sense could, and did, predict at the time:


a. housing prices in general would escalate
b. people would wind up in houses they could not, in reality, afford

2. The above required (again, thanks to Congress), a dramatic change in lending. "No-doc" loans, "low doc" loans, games with FICO scores, radical ARM mortgage loans, etc. I probably don't know all the games played. The bottom line is, to comply with the new federal requirements, lenders had to get very creative.

3. The killer, I think, was when the ARMs adjusted. Upward. In a sinking market. At that point, people started to default.

4. As they got close to default, they tried to sell their homes. And prices plummeted.

5. When prices began dropping, eventually financial institutions had to begin taking the losses.

6. To make a long story short, the losses piled up until the Federal Government had to step in to prevent a complete melt down.

No one has yet stepped up to suggest any of the actions that could allow the private sector (read "Market") to fix the problem. For example, reduce the reserve requirement on commercial banks. Or eliminate capital gains taxes on mortgage securities containing x percent sub-prime loans.

But then, that might involve, or lead to, the public actually figuring out who created this mess.

Not gonna happen.

J Wolfsberger
09-23-2008, 01:30 AM
I think you and I are on the same page as to who created this mess.

tequila
09-23-2008, 05:45 AM
J Wolfsberger,

Someone is selling you a line. Do you honestly believe that the housing bubble was created because of gov attempts to extend mortgages to poor people? Really? Because, you know, I don't recall Flip That House visiting East St Louis or Brownsville. The housing bubble did not take place in the inner cities or even amongst low-income first time homebuyers in general, and the gov regulations you attest to only applied to thrifts and commercial banks.

The vast majority of subprime defaults were mortgages lent out by independent mortgage brokers, who were not covered by any Federal regulations at all, and certainly not any aimed at increasing home ownership amongst the poor (independent brokers put out at least 50% of such loans, twice the number as banks and thrifts).

Schmedlap, your targets are rather broad and miss out on two key ones: the massive expansion of capital available for investment in the past 20 years, and the extraordinary degree of overleveraging made possible by the growth of the "shadow financial system" that grew up to service that capital outside of the regulatory infrastructure that governs banks and thrifts. SIVs, hedge funds, private equity groups, etc. that became so profitable that the inevitably became enmeshed in and took over large parts of Wall St itself. That massive overleveraging is what has turned a standard housing bubble into financial apocalypse.

And who needs lobbyists or campaign donations when you essentially staff the Treasury Department?

Ski
09-23-2008, 11:22 AM
I have a little bit of insight into this whole situation as my dad is a CEO of bank (not investment, trade/finance) and one brother is a broker for Smith Barney.

This all comes back down to Wall St's traditional nemisis, greed. The political parties are part and parcel to this as they are always pro-business, and since the economy is always the number one concern in any political campaign, they support Wall St. almost 95% of the time. Follow the campaign contriution trail, there has been a menage a trois between Wall St, the Dems and Pubs for 30 years. Guess the condom broke yet again...

This type of crap isn't new. There are significant bailouts about every 20-30 years. After 9/11 there were a number of bailouts. The S+L crises is another recent example.

This extends well past the lending houses now. Look at the new list of companies on the "do not short" list.

It's also far more than $1 Trillion - look here for a more comprehensive rundown:
http://www.econbrowser.com/archives/2008/09/paulson_bailout.html

This is going to have huge national security effects for the US. I wrote about this very subject in my SAMS entrance exam. The dollar is going to be worth next to nothing - I honestly think we may lose 30-40% of its worth. Budgets are likely to be slashed. I would not be surprised to see some of the major procurement items cancelled to pay for some other things (and at $200B for FCS, that's probably not all bad).

This is going to be a major league mess with the loss of millions of jobs, the continued weakening of the currency, and effects that we can't begin to comprehend yet because the financial system has become too complex and unwieldy (take note US military...)

Tom Odom
09-23-2008, 12:35 PM
The only package I want to hear about is the package of penalties, fines, and jail terms for those who ran the choo choo of the tracks.

In the interest of national financial stability, some bail out is needed but someone deserves more than just a loss of their golden parachute.

Tom

carl
09-23-2008, 01:57 PM
The only package I want to hear about is the package of penalties, fines, and jail terms for those who ran the choo choo of the tracks.

In the interest of national financial stability, some bail out is needed but someone deserves more than just a loss of their golden parachute.

Tom

There are thousands and thousands and thousands to blame, starting with the lenders who made foolish loans to those who took them and moving on up the line. All these people forgot about tomorrow and bet that things would always get better, always. It is as if "an institutional bias against rational thought" has become a national character trait. If it has, that is the big security risk.

J Wolfsberger
09-23-2008, 03:11 PM
There are thousands and thousands and thousands to blame, starting with the lenders who made foolish loans to those who took them and moving on up the line. All these people forgot about tomorrow and bet that things would always get better, always. It is as if "an institutional bias against rational thought" has become a national character trait. If it has, that is the big security risk.

Heh! Everybody remember the TV ads for second mortgages at 110% of equity? :eek:

Tom Odom
09-23-2008, 03:14 PM
There are thousands and thousands and thousands to blame, starting with the lenders who made foolish loans to those who took them and moving on up the line. All these people forgot about tomorrow and bet that things would always get better, always. It is as if "an institutional bias against rational thought" has become a national character trait. If it has, that is the big security risk.

True, Carl, and many at the lower end will pay by losing their homes. It does not however obviate reaponsibilty at the CEO level for pursuing those policies whether we are talking Fannie May, Mac, Lehman Bros, or AIG (and whoever comes next). Oversight has to mean penalty.

Tom

120mm
09-23-2008, 03:16 PM
J Wolfsberger,

Someone is selling you a line. Do you honestly believe that the housing bubble was created because of gov attempts to extend mortgages to poor people? Really? Because, you know, I don't recall Flip That House visiting East St Louis or Brownsville. The housing bubble did not take place in the inner cities or even amongst low-income first time homebuyers in general, and the gov regulations you attest to only applied to thrifts and commercial banks.

The vast majority of subprime defaults were mortgages lent out by independent mortgage brokers, who were not covered by any Federal regulations at all, and certainly not any aimed at increasing home ownership amongst the poor (independent brokers put out at least 50% of such loans, twice the number as banks and thrifts).

Schmedlap, your targets are rather broad and miss out on two key ones: the massive expansion of capital available for investment in the past 20 years, and the extraordinary degree of overleveraging made possible by the growth of the "shadow financial system" that grew up to service that capital outside of the regulatory infrastructure that governs banks and thrifts. SIVs, hedge funds, private equity groups, etc. that became so profitable that the inevitably became enmeshed in and took over large parts of Wall St itself. That massive overleveraging is what has turned a standard housing bubble into financial apocalypse.

And who needs lobbyists or campaign donations when you essentially staff the Treasury Department?

In reality, BOTH happened. The government forced lenders to "find a way" to lend money to poor people who cannot really afford one, AND greedy lenders exploited the relaxation of rules to make all sorts of stupid loans.

And idiot consumers bought too much house because housing always goes up in value, and they'd always get a promotion at work, and they'd always be able to find a way to afford to pay the house payment.

carl
09-23-2008, 04:01 PM
True, Carl, and many at the lower end will pay by losing their homes. It does not however obviate reaponsibilty at the CEO level for pursuing those policies whether we are talking Fannie May, Mac, Lehman Bros, or AIG (and whoever comes next). Oversight has to mean penalty.

Tom

The trouble is, most of what the CEO's did was probably legal. Bad judgement isn't against the law. The Congress always had the power to change the law, but they didn't. My opinion is they didn't because they also believed tomorrow would never come, or at least not until after the next election. No percentage in saying "No, you can't."

Schmedlap
09-23-2008, 04:23 PM
Schmedlap, your targets are rather broad...
That was the intent. There are more guilty than innocent of bad judgment, bad faith, and negligence.


... and miss out on two key ones...
I think that my rather broad target set emcompasses those whom you more specifically cited.


And who needs lobbyists or campaign donations when you essentially staff the Treasury Department?
Good question. I can't discern the rationale used by Freddie and Fannie. I can only look at their actions and surmise that they had reason to judge that doling out campaign contributions and setting up a network of lobbyists was essential to further their goals. Then again, I guess their judgment is also pretty suspect, in retrospect.

Rank amateur
09-23-2008, 04:39 PM
That was the intent. There are more guilty than innocent of bad judgment, bad faith, and negligence.


I can't agree. Mjustassive economic bubbles always pop and cause ruinous depressions. It is the government's job to "take away the punch before the party gets out of control." Blind faith in free markets caused the problem. We need common sense regulations.

Nothing personal, but I continued to be amazed by how many people think that as long as they vote for a "tax cut" they'll never need to pay for anything the government buys.

Re the security ramifications: I was just thinking that Bin Laden set out to destroy the US economy and we have caused far more damage to it than he ever could.

jmm99
09-23-2008, 04:44 PM
Here is my "bible" on the current financial events.


The End of an Era
by Gary North
.....
This investment era began on Monday, August 16, 1982. On Friday the 13th, Mexico had threatened to nationalize all foreign banks and default on its debt. That weekend, the world's central bankers were meeting. They agreed to start pumping in new money. They negotiated new terms with Mexico. On Friday, the 13th, the Dow Jones Industrial Average bottomed at 777.

The week of September 14, 2008, will go into the textbooks as the end of an era. It marked the end of the investing public's confidence in the Powers That Be.
.....
CONCLUSION

Investors last week began to figure it out. A lot more investors are going to figure it out. They are going to have two years to figure it out. This is if things go well. They may have three years to figure it out.

Whoever is elected President in November is going to preside over the worst financial disaster in American history in the postwar era. Some lucky soul is going to lose this election.

You had better batten down the hatches.

http://www.lewrockwell.com/north/north654.html

While Gary North and I differ on religion, we do not differ much on economics. For the last few years, he has been predicting correctly in the economic arena. He also takes a practical, applied approach to things economic, and is no Ivory Tower theorist.

He also is not trying to sell you anything, only his views.

Clicking on the Gary North Archives (bottom of page), takes you here.

http://www.lewrockwell.com/north/north-arch.html

These (going back to 26 May 2000) may be helpful to your own planning.

----------------------------------------------

from cavguy
.... but I think this has huge security ramifications

Yup, in terms of what I call policy (national strategy), we will be seeing this for the next few years: dimE.

CloseDanger
09-23-2008, 06:39 PM
The idea of bailing out a company really p----- me off.

Except:

1. We're in this mess because of the changes, in the 1990s, to force lenders to finance housing to low income borrowers. As anyone with a grain of sense could, and did, predict at the time:


a. housing prices in general would escalate
b. people would wind up in houses they could not, in reality, afford

2. The above required (again, thanks to Congress), a dramatic change in lending. "No-doc" loans, "low doc" loans, games with FICO scores, radical ARM mortgage loans, etc. I probably don't know all the games played. The bottom line is, to comply with the new federal requirements, lenders had to get very creative.

3. The killer, I think, was when the ARMs adjusted. Upward. In a sinking market. At that point, people started to default.

4. As they got close to default, they tried to sell their homes. And prices plummeted.

5. When prices began dropping, eventually financial institutions had to begin taking the losses.

6. To make a long story short, the losses piled up until the Federal Government had to step in to prevent a complete melt down.

No one has yet stepped up to suggest any of the actions that could allow the private sector (read "Market") to fix the problem. For example, reduce the reserve requirement on commercial banks. Or eliminate capital gains taxes on mortgage securities containing x percent sub-prime loans.

But then, that might involve, or lead to, the public actually figuring out who created this mess.

Not gonna happen.

And you had mortgage companies that found it cheaper to foreclose on a house and would not put it back on the market.

There are alot of good assets out there, they just need revaluation. The Government could even make money in this.
(which we don't want as a general rule) but short term with profit and they get out as soon a possible.

You could repeal Sarbanes Oxley. That may force liquidity in. You could also pass the fair tax, that would flood wall street.

Just saying.

J Wolfsberger
09-23-2008, 07:58 PM
And you had mortgage companies that found it cheaper to foreclose on a house and would not put it back on the market.

There are alot of good assets out there, they just need revaluation. The Government could even make money in this.
(which we don't want as a general rule) but short term with profit and they get out as soon a possible.

You could repeal Sarbanes Oxley. That may force liquidity in. You could also pass the fair tax, that would flood wall street.

Just saying.

I had suggested "No one has yet stepped up to suggest any of the actions that could allow the private sector (read "Market") to fix the problem. For example, reduce the reserve requirement on commercial banks. Or eliminate capital gains taxes on mortgage securities containing x percent sub-prime loans."

Your points, which would involve having the banks voluntarily forego adjusting the interest upward on ARMs, or converting the mortgages to fixed rate at an affordable payment schedule, are also good.

And all of these would have required a bit more intelligence than the banking/finance community seems to possess.

Ken White
09-23-2008, 08:03 PM
And all of these would have required a bit more intelligence than the banking/finance community seems to possess.sums it up...:wry:

Tom Odom
09-23-2008, 10:43 PM
The trouble is, most of what the CEO's did was probably legal. Bad judgement isn't against the law. The Congress always had the power to change the law, but they didn't. My opinion is they didn't because they also believed tomorrow would never come, or at least not until after the next election. No percentage in saying "No, you can't."

Agree 100% but there is a responsibility that comes with position and associated entitlements. If the Fanny Mac CEO can have an if fired clause with a golden parachute tied to it, we have gone the wrong way and as we all know this is hardly the first time. But in this case we are looking at the bill for the current wars all over again.

Tom

carl
09-23-2008, 11:17 PM
Agree 100% but there is a responsibility that comes with position and associated entitlements. If the Fanny Mac CEO can have an if fired clause with a golden parachute tied to it, we have gone the wrong way and as we all know this is hardly the first time. But in this case we are looking at the bill for the current wars all over again.

Tom

You and I and all the people on this council believe responsibility comes with position I'll wager; but the elites don't. The anointed ones (sorry for the bitter tone) believer the rules that apply to us flyover people don't apply to them. They are better and they are different and what they get they well deserve.

There is something very wrong with so much of the leadership class in this country, business, political, academic, media etc. They have gone so wrong it is affecting the "we", the Americans. I wish I knew what we can do about it but I don't.

tequila
09-23-2008, 11:30 PM
In reality, BOTH happened. The government forced lenders to "find a way" to lend money to poor people who cannot really afford one, AND greedy lenders exploited the relaxation of rules to make all sorts of stupid loans.

I cannot emphasize enough how much this did NOT occur. Again, the majority of bad mortgages in the current crisis were not sold because the government "forced" them to do it. Absolutely not.


Good question. I can't discern the rationale used by Freddie and Fannie. I can only look at their actions and surmise that they had reason to judge that doling out campaign contributions and setting up a network of lobbyists was essential to further their goals. Then again, I guess their judgment is also pretty suspect, in retrospect.

I was referring here specifically to the big investment banks, hedge funds, private equity, etc. that make up the shadow banking system that is in the process of collapsing. Goldman Sachs especially has a stranglehold on the Treasury Dept.


I had suggested "No one has yet stepped up to suggest any of the actions that could allow the private sector (read "Market") to fix the problem. For example, reduce the reserve requirement on commercial banks. Or eliminate capital gains taxes on mortgage securities containing x percent sub-prime loans."

Your points, which would involve having the banks voluntarily forego adjusting the interest upward on ARMs, or converting the mortgages to fixed rate at an affordable payment schedule, are also good.

And all of these would have required a bit more intelligence than the banking/finance community seems to possess.


Not sure if you guys have been paying attention, but it's not exactly like the "market" is begging for these solutions you proffer. The market is in the process of collapsing or folding up shop at the moment. Things like cutting capital gains taxes on MBS are rather beside the point when no one can accurately value them right now. Changing home loan payment terms would be nice if anyone could figure out who owns what terms on which set of loans --- the whole key to this process is the degree to which these loans were securitized and leveraged to a whole slew of different counterparties up the stream from the initial lender.

Schmedlap
09-24-2008, 12:13 AM
I can't agree. Mjustassive economic bubbles always pop and cause ruinous depressions. It is the government's job to "take away the punch before the party gets out of control." Blind faith in free markets caused the problem.

What economic bubbles in the past 50 years caused ruinous depressions in the US?

I have no idea what you mean by the phrase "blind faith in free markets." That is so vague and invokes such an often tossed about term as to be almost meaningless.

I'm just guessing here, but I suspect that...

"It is the government's job to..." = if they don't do it, then the gov't is negligent.

"Blind faith in free markets" = bad judgment

If I got that much right, then I'm not sure what you were not agreeing with.

Ski
09-24-2008, 11:29 AM
Spot on analysis here.

Mortgages have been bought and sold numerous times. Most lenders don't even know who actually owns the mortgage. That's a problem. You can't refi a loan because no one can identify what lending facility owns it.

There was an example I remember from a year or so ago. Dude in Miami owns a $3M house. Isn't making payments on the house. Lender calls him and says he owes. He says, "tell me who owns the mortgage and I'll pay them directly." Lender comes back two weeks later and says we don't know.

Dude is still living in his house.





I cannot emphasize enough how much this did NOT occur. Again, the majority of bad mortgages in the current crisis were not sold because the government "forced" them to do it. Absolutely not.



I was referring here specifically to the big investment banks, hedge funds, private equity, etc. that make up the shadow banking system that is in the process of collapsing. Goldman Sachs especially has a stranglehold on the Treasury Dept.



Not sure if you guys have been paying attention, but it's not exactly like the "market" is begging for these solutions you proffer. The market is in the process of collapsing or folding up shop at the moment. Things like cutting capital gains taxes on MBS are rather beside the point when no one can accurately value them right now. Changing home loan payment terms would be nice if anyone could figure out who owns what terms on which set of loans --- the whole key to this process is the degree to which these loans were securitized and leveraged to a whole slew of different counterparties up the stream from the initial lender.

Rank amateur
09-24-2008, 12:28 PM
What economic bubbles in the past 50 years caused ruinous depressions in the US?


"Depression" = depression of asset prices. Dot com stocks is the most recent example. When the value of everyone's stocks slide, it's bad for the economy, so even people who don't own stocks get hurt. Same thing happened to stocks in the 20s and tulip bulb prices in Holland. I believe the same thing happened to gold in the 70s.

The only reason these things haven't caused another "great depression" is because economists have learned a lot since the 30s. The government needs to cool things off when they're hot - higher interest rates, lower money supply - and warm them up when they're cold through government intervention in the economy: social security, unemployment insurance, lower rates.

Basically, anytime people are buying things just because the price is going up - in this case mortgages they can't afford, because the house "will be worth more before the rates adjusts" - inevitably creates a situation where everyone sells as soon as the price drops and prices plummet.

Real estate developers were placing strict limits to keep speculators out of their development. When real estate developers show more awareness of basic economics than the administration, there's only one place to put the blame.

Rank amateur
09-24-2008, 12:40 PM
I had suggested "No one has yet stepped up to suggest any of the actions that could allow the private sector (read "Market") to fix the problem. For example, reduce the reserve requirement on commercial banks. Or eliminate capital gains taxes on mortgage securities containing x percent sub-prime loans."

Your points, which would involve having the banks voluntarily forgo adjusting the interest upward on ARMs, or converting the mortgages to fixed rate at an affordable payment schedule, are also good.

And all of these would have required a bit more intelligence than the banking/finance community seems to possess.

Again, faith in market solutions has caused the problem. There are no capital gains, only capital losses. Therefore, tax rates are irrelevant; there's nothing to tax.

Anyone who wants to can ask to have their rate adjusted. (Or as pointed out, stop payments all together and stay in the house.) The problem is the value of their house has dropped so much that the rate is irrelevant. When you owe $300,000 on a house worth $200,000 the market solution is to walk away from the mortgage. When the bubble bursts, millions of people make the same rationale economic discussion and billions of dollars of wealth disappear.

None of that is up for debate. It's happened. The problem is how to keep the problem from spreading. Because when no one is buying furniture anymore it's rationale for furntiure manufacturers to lay off people. And it's rationale for people who think they're going to lose their job to stop spending money, which means sales drop even more, which means companies lay off even more people...... and you have a vicious circle ala the 1930s.

Vicious upward cycles always in vicious downward cycles unless the government breaks the cycle.

Cavguy
09-24-2008, 02:31 PM
[QUOTE=Cavguy;57140]Sorry for the run of posts - but I think this has huge security ramifications.
QUOTE]

I think you are right about this. Care to be pontificate(learnt me a nu word:)) on that a bit?

Slap,

Sorry for the delay. Had a paper to finish. A thrilling essay on how "Japanese Piracy" along the coasts of 16th century China was really not Japanese in origin. :rolleyes:

Bottom line in short form-

1) Global economic hits almost always cause political instability. The meltdown in China (who owns a lot of our bad paper) has been worse.
2) Budget deficit. The rising costs of this bailout directly affect our ability to continue to spend $12bil/month in Iraq/Afghanistan, and potentially the willingness of the US public to support a half trillion dollar defense budget. Thus, this crisis may force a less aggressive US foreign policy out of necessity
3) Weakening of US economic leverage. Our economic power the "E" in "DIME" is weakened significantly. Issuing an additional $700 billion in debt will continue to lower the dollar's value as a currency. Many more nations are looking at moving to another currency (Euro?) for stability. This has long term effects in reducing global ties to our economy, which may make us less secure. (this is a long term, not tomorrow, problem)

Ken White
09-24-2008, 02:48 PM
Real estate developers were placing strict limits to keep speculators out of their development. When real estate developers show more awareness of basic economics than the administration, there's only one place to put the blame.Which administration? This one? The one before? two or three before?

I think you're confusing 'the administation' (whichever one) with Congress whose pursuit of 'affordable housing for all' (and the concomitant campaign contributions from the lender including Fannie and Freddie) is far more responsible for this debacle than any one administration has been.

I suggest that government intervention thus far has done far more harm than good -- and the prognosis for the future is not good...

Ken White
09-24-2008, 02:56 PM
I cannot emphasize enough how much this did NOT occur. Again, the majority of bad mortgages in the current crisis were not sold because the government "forced" them to do it. Absolutely not.It is true as stated; however, replace the word 'forced' with 'allowed and / or encouraged' and your statement becomes quite erroneous.

Greedy lenders and equally greedy but risky purchasers both contributed but there was tacit government (read: Congressional) encouragement to do so. The Administration tried to rein in Fannie and Freddie in 2003 -- and Congress refused to allow it.

Same phenomenon that had lead to excessive credit card debt...

Vote 'em all out!!!

Rank amateur
09-24-2008, 07:55 PM
Which administration? This one? The one before? two or three before?

I'm refering to the one that thought it there was a supply of millions of mortgages that people couldn't afford and demand for millions of mortgages people couldn't afford that could possibly go wrong?




I suggest that government intervention thus far has done far more harm than good

If a bridge has too many supporting beams, there's nothing wrong with removing a few, but it's stupid to remove all the support.

Ken White
09-24-2008, 08:31 PM
I'm refering to the one that thought it there was a supply of millions of mortgages that people couldn't afford and demand for millions of mortgages people couldn't afford that could possibly go wrong?Thus my question -- all since WW II have had that inclination to one degree or another; as for market deregulation, see Carter J. and Clinton, W. For intervention See Johnson L. and Nixon, R.

Again, I suggest you're letting the prime culprits, our venal and corrupt Congress, slide. :mad:
If a bridge has too many supporting beams, there's nothing wrong with removing a few, but it's stupid to remove all the support.Bad simile and feeds into your earlier error because those beams have been removed by several administrations and Congresses over the period of your short lifetime... ;)

slapout9
09-24-2008, 10:21 PM
[QUOTE=slapout9;57154]

Slap,

Sorry for the delay. Had a paper to finish. A thrilling essay on how "Japanese Piracy" along the coasts of 16th century China was really not Japanese in origin. :rolleyes:

Bottom line in short form-

1) Global economic hits almost always cause political instability. The meltdown in China (who owns a lot of our bad paper) has been worse.
2) Budget deficit. The rising costs of this bailout directly affect our ability to continue to spend $12bil/month in Iraq/Afghanistan, and potentially the willingness of the US public to support a half trillion dollar defense budget. Thus, this crisis may force a less aggressive US foreign policy out of necessity
3) Weakening of US economic leverage. Our economic power the "E" in "DIME" is weakened significantly. Issuing an additional $700 billion in debt will continue to lower the dollar's value as a currency. Many more nations are looking at moving to another currency (Euro?) for stability. This has long term effects in reducing global ties to our economy, which may make us less secure. (this is a long term, not tomorrow, problem)


Cavguy, no problem I am slow today myself. I think your number 2 is the big one. Going to put a lot of pressure as to the level of funding. Japanese Piracy?? are you going to post it here? Sounds really good.

Rank amateur
09-25-2008, 01:38 AM
Thus my question -- all since WW II have had that inclination to one degree or another; as for market deregulation, see Carter J. and Clinton, W. For intervention See Johnson L. and Nixon, R.


For sake of clarity, I'm referring to the administration that took over right around the dotted blue line furthest to the right on the bottom charge.


http://one-simple-idea.com/Foreclosures.gif

Another analogy. You could argue that armies have caused more harm than good. If you keep weakening yours you'll eventually learn why you had an army in the first place, but reading the history books is a much less painful way to learn the lesson.

Ken White
09-25-2008, 02:14 AM
For sake of clarity, I'm referring to the administration that took over right around the dotted blue line furthest to the right on the bottom charge.Sigh. WHAT dotted blue line. Anyhow, why not just say what you mean? It ain't that hard...

You do realize that the Clinton / Rubin / Summers effort to extend US economic hegemony worldwide changed all the financial rules? That's what started this. And as I said, Congress bears considerable responsibility...
Another analogy. You could argue that armies have caused more harm than good. If you keep weakening yours you'll eventually learn why you had an army in the first place, but reading the history books is a much less painful way to learn the lesson.That's an even dicier analogy... :rolleyes:

I don't have an Army. Do you? :D Anyhow, you need to talk to Madeline Albright -- she's the one that insisted on using Armies for things for which they weren't designed...

reed11b
09-25-2008, 04:41 AM
It is true as stated; however, replace the word 'forced' with 'allowed and / or encouraged' and your statement becomes quite erroneous.

Greedy lenders and equally greedy but risky purchasers both contributed but there was tacit government (read: Congressional) encouragement to do so. The Administration tried to rein in Fannie and Freddie in 2003 -- and Congress refused to allow it.

Same phenomenon that had lead to excessive credit card debt...

Vote 'em all out!!!
True, also in order to afford ANY reasonable home in many communities meant that lower middle-income famlies had to take whatever risks were offered. If housing had been truly affordable to the middle-class, then we could berate them for taking needless risks. I have a household income of a little under six-figures and I can not get approved for any housing except for a condo, unless I chose to take a risky mortgage. I chose not to, but I see easily why many did. In fact my wife and I often second-guessed our decision to not buy a home.
Reed

bourbon
09-25-2008, 05:18 AM
Cue Howard Beale (http://www.youtube.com/watch?v=dib2-HBsF08):

I don't have to tell you things are bad. Everybody knows things are bad. It's a depression. Everybody's out of work or scared of losing their job. The dollar buys a nickel's work, banks are going bust, shopkeepers keep a gun under the counter. Punks are running wild in the street and there's nobody anywhere who seems to know what to do, and there's no end to it.

We know the air is unfit to breathe and our food is unfit to eat, and we sit watching our TV's while some local newscaster tells us that today we had fifteen homicides and sixty-three violent crimes, as if that's the way it's supposed to be. We know things are bad - worse than bad. They're crazy.

It's like everything everywhere is going crazy, so we don't go out anymore. We sit in the house, and slowly the world we are living in is getting smaller, and all we say is, 'Please, at least leave us alone in our living rooms. Let me have my toaster and my TV and my steel-belted radials and I won't say anything. Just leave us alone.'

Well, I'm not gonna leave you alone. I want you to get mad!

I don't want you to protest. I don't want you to riot - I don't want you to write to your congressman because I wouldn't know what to tell you to write. I don't know what to do about the depression and the inflation and the Russians and the crime in the street. All I know is that first you've got to get mad.

You've got to say, 'I'm a HUMAN BEING, Goddamnit! My life has VALUE!' So I want you to get up now. I want all of you to get up out of your chairs. I want you to get up right now and go to the window. Open it, and stick your head out, and yell, I'M AS MAD AS HELL, AND I'M NOT GOING TO TAKE THIS ANYMORE!'
- Network (1976)

The "shadow financial system" being a big key, as tequila notes, seems curiously missing from the current national discourse. This area also being home to massive cases of fraud and naked short selling (http://www.deepcapture.com/category/4-the-crime-naked-shorts-other-insincere-ious/).


Schmedlap, your targets are rather broad and miss out on two key ones: the massive expansion of capital available for investment in the past 20 years, and the extraordinary degree of overleveraging made possible by the growth of the "shadow financial system" that grew up to service that capital outside of the regulatory infrastructure that governs banks and thrifts. SIVs, hedge funds, private equity groups, etc. that became so profitable that the inevitably became enmeshed in and took over large parts of Wall St itself. That massive overleveraging is what has turned a standard housing bubble into financial apocalypse.

My sister works for Lehman, she's been kept on for the next couple weeks, I guess to sift ashes.

Uboat509
09-25-2008, 08:39 AM
If housing had been truly affordable to the middle-class, then we could berate them for taking needless risks.

Home ownership is not a right, nor is it necessary to own the place where you live as you yourself have proven. We can absolutely berate people for taking needless risks with regard to this. Lots of people are quick to blame the government and the lenders, and certainly they bear a good part of the blame, but that should not absolve anyone of the personal responsibility in the choices they make.

SFC W

Schmedlap
09-25-2008, 09:57 AM
We're really getting somewhere on this thread. I think that by tomorrow we will have narrowed down the culprit to one single person, because the problem really is that simple and clear cut. It was not a bunch of people exercising bad judgment, acting in bad faith, or behaving negligently. It was ONE bogeyman with evil intent and tremendous power and 20/20 foresight. I am not sure who that man is, but I suspect that he is part of a shadow network and that he is a neocon.

J Wolfsberger
09-25-2008, 11:49 AM
I never thought I'd write this, but Hillary Clinton has a pretty solid approach: "Let's Keep People in Their Homes." (http://online.wsj.com/article/SB122230767702474045.html)


We're really getting somewhere on this thread. I think that by tomorrow we will have narrowed down the culprit to one single person, because the problem really is that simple and clear cut. It was not a bunch of people exercising bad judgment, acting in bad faith, or behaving negligently. It was ONE bogeyman with evil intent and tremendous power and 20/20 foresight. I am not sure who that man is, but I suspect that he is part of a shadow network and that he is a neocon.

I'm reasonably certain it was Karl Rove. :eek:

Steve Blair
09-25-2008, 01:54 PM
I never thought I'd write this, but Hillary Clinton has a pretty solid approach: "Let's Keep People in Their Homes." (http://online.wsj.com/article/SB122230767702474045.html)



I'm reasonably certain it was Karl Rove. :eek:

No...Dr. Doom (http://en.wikipedia.org/wiki/Dr_Doom).

bourbon
09-25-2008, 03:52 PM
We're really getting somewhere on this thread. I think that by tomorrow we will have narrowed down the culprit to one single person, because the problem really is that simple and clear cut. It was not a bunch of people exercising bad judgment, acting in bad faith, or behaving negligently. It was ONE bogeyman with evil intent and tremendous power and 20/20 foresight. I am not sure who that man is, but I suspect that he is part of a shadow network and that he is a neocon.
Are you denying there is a shadow financial system that, as tequila notes:

...grew up to service that capital outside of the regulatory infrastructure that governs banks and thrifts. SIVs, hedge funds, private equity groups, etc. that became so profitable that the inevitably became enmeshed in and took over large parts of Wall St itself.
Who's, "massive overleveraging is what has turned a standard housing bubble into financial apocalypse"? You reject this premise?


Naked In Wonderland (http://www.forbes.com/2008/09/23/naked-shorting-trades-oped-cx_pb_0923byrne.html?partner=email), by Patrick Byrne. Forbes.com, September 23, 2008.

The financial and mainstream media for past couple years have been lampooning Patrick Byrne, thing is they aren't laughing now.

Yes, of course, bad judgment, bad faith, and negligent behavior by millions is a factor. I don't think anyone denies this. However, there are more important key factors.

Ken White
09-25-2008, 04:44 PM
This absolute truth:
Home ownership is not a right, nor is it necessary to own the place where you live as you yourself have proven. We can absolutely berate people for taking needless risks with regard to this. Lots of people are quick to blame the government and the lenders, and certainly they bear a good part of the blame, but that should not absolve anyone of the personal responsibility in the choices they make.

SFC WTrumps this equal truth:
Are you denying there is a shadow financial system that, as tequila notes:

Who's, "massive overleveraging is what has turned a standard housing bubble into financial apocalypse"? You reject this premise? . . .

Yes, of course, bad judgment, bad faith, and negligent behavior by millions is a factor. I don't think anyone denies this. However, there are more important key factors.Among those factors being the complicity of Congress and the Financial industry, both of whom are also broadly guilty of "bad judgment, bad faith, and negligent behavior..."

120mm
09-25-2008, 09:42 PM
I cannot emphasize enough how much this did NOT occur. Again, the majority of bad mortgages in the current crisis were not sold because the government "forced" them to do it. Absolutely not.


So... you weren't there when congress held hearings when they "castigated" the loan industry for the awful, incredibly outlandish and elitist (and sometimes racist/sexist) practice of "red-lining" people who couldn't afford to buy a house? I mean, the NERVE of lenders to suggest that broke people with insufficient (or even no) income shouldn't be able to buy a $1.5 million house if they should want to.

I seem to recall congress issuing threats to regulate the industry at that time. Perhaps I misheard, completely....:rolleyes:

And, no, I am no big fan of the "Big Debt" industry. I think consumer debt is stupid, and America would be MUCH better off without it. I'm just pointing out that tequila is wrong about government not forcing lenders to "find a way" to get everyone into house debt.

I also seem to recall Bush crowing about how well it was working prior to the 2004 election.

Watcher In The Middle
09-25-2008, 10:03 PM
Originally posted by Ski:

Mortgages have been bought and sold numerous times. Most lenders don't even know who actually owns the mortgage. That's a problem. You can't refi a loan because no one can identify what lending facility owns it.

There was an example I remember from a year or so ago. Dude in Miami owns a $3M house. Isn't making payments on the house. Lender calls him and says he owes. He says, "tell me who owns the mortgage and I'll pay them directly." Lender comes back two weeks later and says we don't know.

Dude is still living in his house.

It's worse than you think. I very, very recently wanted to take a look at a small RE mortgage backed CDO, to see how it was structured. In other words, what would it take in terms of effort, expertise/knowledge, time, and cost to unwind just one of these things - and what was supposed to be a simple one at that?

So I found a very very small CDO (lets say 8-10k mortgages, approx. total value of around $25 bil, or supposedly around $250k per financing. So I tried to see the paper (should be a pretty large amount of backup paper for 8-10k mortgages,).

Note: Never did see the paper. Should have been boxes & boxes & boxes. People I talked to weren't sure the paper wasn't still with the originating financial institutions. :eek

Well, the CDO is first broken down into "classes" (tranches; usually defined as as senior, mezzanine, and subordinated/equity).
Then, the paper (mortgages) are broken down into strips. The different strips, each with it's own risk element, go into the different classes (tranches). That's at it's most simple version.

So, the first goal is to figure out what's the "known world" of pieces of paper one has to deal with within this specific CDO. So, it's number of mortgage instruments times # of "strips" = extremely large pile of confetti.

Now, if you are going to have a bankruptcy court with the ability to adjust mortgages, you first have got to put all the appropriate strips back together to make a "complete single mortgage" which the court can then address.

If what I ran up against is any indication, this is going to be a task worthy of the Gods. Easy it is not. And btw, the folks who screwed this all up aren't even remotely capable of putting it all back together. They are all macro "big picture" types, while fixing this mess on a property-by-property basis is going to be a job for the folks who are out there digging ditches (not literally, but certainly not the wall street types). Most of them don't even know how to read a freakin legal description, much less what a Metes and Bounds legal description is. Or what a permanent parcel index number is, or a tax code is. They're pretty clueless about that type of stuff - not what they were being paid for.

And in my little research, I'm making a really giant assumption, which I have no idea if it's valid or not. And that is: I am assuming that (a) All the mortgages in (b) a single CDO have (c) all their "strips" contained in that same CDO. In other words, no strips or rights to strips from a specific CDO are contained in a totally different CDO. And right now, that's a question that has stumped everybody I've asked it of.

Folks, let me tell you, this all has terribly serious implications for the US housing market. Get ready for most all of us out here in the real world to feel a whole lot poorer - thanks, Wall Street!:mad:

I'll get you an updated post with a terminology link for all these different terms used by the so-called "Masters of the Universe". /sarcasm

Watcher In The Middle
09-25-2008, 11:17 PM
on all this financial mumbo-jumbo are:

Risk Glossary.com link (http://www.riskglossary.com/link/collateralized_debt_obligation.htm)

and

Investopedia from Forbes (http://www.investopedia.com/terms/c/cdo.asp)

Both are extremely valuable resources.

Another thought:

The folks who designed all this stuff (CDO's, SIV's, etc.) are geniuses. No doubt about that. But it's like having geniuses who create a computer software application where you can add records to the end of time, but they just "happen" to forget to create sufficiently functional "Edit" routines to be able to correct these magnificent financial edifices when things don't go so well. It's like "Oh well, you're on your own. Good luck".

My .02

Ski
09-25-2008, 11:48 PM
WITM

Yep - it's about as complicated as it gets and I fear there is no putting hupty dumpty back together again after this mother of all shell games.

I lay all of this down to the complexity of the global economic system. All of it. It's too complex too manage, too easy to mess up with ramifications for all, and it's too difficult to fix.

I'm at CGSC right now, and after the classes we've had on Joint, Combined and Interagency Operations, I think we are headed down the same path to an extent.

Other than Jim Bunning, no one has asked the question: "What happens if this all fails?"

Watcher In The Middle
09-26-2008, 02:09 AM
Here's why:

The US real estate market in major areas will be seriously damaged for years. Imagine having at least 3 to 5 million homes (single family, condo, townhomes, etc.), plus god only knows how much commercial sitting out there vacant. And that's if we're lucky.

It could drive current RE values in many areas like CA, FL, NV, AZ, N IL, down 30%++ from where they are today. You are talking virtually no new construction in many areas, because why build, when you can buy rock bottom? If you can even get financing.

I mean, if you are getting a $5k federal tax refund next year, you might get a choice: $5k from the US Treasury, or a deed to a foreclosed FL condo (Your choice).:p

Anyway, I'm not going to continue on this particular train of thought - it's way too depressing.

You see people talking about this just being another RTC (Resolution Trust Corp.), only bigger. Not true - with the RTC, the banks & S&L's they took over still had all the mortgages held internally within the institutions. With this one, everything's spread out all over creation, and god only knows who's holding all the paper. World's biggest snipe hunt:eek:

As terrible as this sounds, I (personally) could see this being an opportunity, as I'd be one of the types who can figure out how to unwind these nightmares and put the strips back together, one property at a time. Could be doing one enormous amount of contract work piecing these "strips" back together for quite a long time. Course, IANAL or a Wall Street investment type, so probably not.

jmm99
09-26-2008, 04:37 AM
no problems in who "owns" the mortgage - and who has standing to foreclose. In theory.

The idea was that the original documents would be physically transferred to a trustee (e.g., a national bank with trust powers). The servicing of those mortgages would be transferred to a mortgage servicing company - payments, discharges of mortgages when paid, etc.

Now, any right (or obligation) in a mortgage can be assigned. That, BTW, is the concept behind "stripping". To validly assign a right, you need a written assignment.

One right is the right to foreclose. That right could be assigned to the bank trustee with the original documents, or to the mortgage servicing company, or to a third party for that matter. The point is that there has to be documented paperwork at each step.

I've handled several matters, well before the present debacle, which involved "mortgage packages". For obvious reasons, I cannot go into the specific facts.

My conclusion reached, about 5-10 years ago, was that the entire system was completely FUBAR - original paperwork lost; step by step documentation missing; regulations that were decades behind modern banking practices; and regulators not regulating because they didn't know what to do - or were making up (I mean that literally) "regulations" to fit their desired outcome. Everybody was making a bundle - and, so, nobody gave a damn.

The following is not a recommendation of the product (foreclosure advice) being sold on the following webpage, but it does have a good article on:

Contesting a Foreclosure Lawsuit - Who Owns the Mortgage ?

http://www.foreclosurefish.com/blog/index.php?id=474

Obviously, the situation I saw 5-10 years ago has only gotten worse.

Schmedlap
09-26-2008, 07:25 AM
This mess is one of the primary reasons that I am now in law school and finishing up my MBA on the side. My money is not earning anything in the market and probably will not for the foreseeable future, so I might as well spend it on something useful rather than watch it evaporate in my portfolio and depreciate faster than it earns interest in the bank.

wm
09-26-2008, 12:19 PM
As I understand it, all of the CDO nonsense is based on making money on someone else’s debt—buying and selling it and taking a fee for arranging the meeting.

How about if we declare a “Jubilee?” Everyone gets all of their collateralized loans, their mortgages, auto loans, etc., written off. Folks get clear title to houses, cars, boats, trailers, etc. out right.

Seems to me that this then frees up a ton of bucks that everyday consumers today are using to pay off those loans. They can take all of this newly available cash to start investing in more traditional ways or in some new wonderful scheme that the investment whiz kids dream up. Government gets a big income boost because the ability to reduce one’s taxes based on mortgage interest deductions in Schedule A goes away. A lot of short term work at deed registries and the like across the country is created as liens are cleared and titles to property get released.
If a few investment banking “pimps” get stiffed, so be it—seems like they ought to reap some “rewards” for the risks that they transferred to others.

Rank amateur
09-26-2008, 01:09 PM
We're really getting somewhere on this thread. I think that by tomorrow we will have narrowed down the culprit to one single person,

It's really not that complicated. Lenders used to make money when people paid their loans back. Then the rules changed. They started making money off commissions whether the loan was paid back or not. I suppose you could blame the people who'd played by the new rules, but no matter how much of a free marketeer you may or may not be, I can't imagine why you'd rather pay $700 million than admit that one of governments responsibilities is to ensure that lenders make their profits by getting paid back.

Ken White
09-26-2008, 03:58 PM
It's really not that complicated. Lenders used to make money when people paid their loans back. Then the rules changed. They started making money off commissions whether the loan was paid back or not. I suppose you could blame the people who'd played by the new rules, but no matter how much of a free marketeer you may or may not be, I can't imagine why you'd rather pay $700 million than admit that one of governments responsibilities is to ensure that lenders make their profits by getting paid back.Pity the shakers and movers do not...

Note the date. Quote:"''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''" Unquote. LINK (http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B 63&scp=1&sq=%22barney+frank%22&st=nyt).

bourbon
09-26-2008, 08:33 PM
Washington Mutual: Price versus Failures-to-Deliver (http://www.deepcapture.com/washington-mutual-price-versus-failures-to-deliver/), September 26th, 2008 by Patrick Byrne. DeepCapture.com

http://www.deepcapture.com/wp-content/uploads/2008/09/wamu.png

Naked short selling on the largest bank failure in U.S. history. Latest FOIA data came in from the SEC, data is through June.

reed11b
09-26-2008, 10:33 PM
everything we have been saying on this thread in an easy to read format found here. (http://www.salon.com/comics/tomo/2008/09/23/tomo/) Funnier too!
Reed

Schmedlap
09-27-2008, 12:42 AM
... I can't imagine why you'd rather pay $700 million than admit that one of governments responsibilities is to ensure that lenders make their profits by getting paid back.

I'm not sure where you are getting that impression of my opinion. I think you're confusing someone else's view for mine. I'm the one who pointed the finger at (among others), "regulators who failed to enforce regulations" and "legislators and officials who did away with sensible regulation".

Adam L
09-27-2008, 01:49 AM
This mess is one of the primary reasons that I am now in law school and finishing up my MBA on the side. My money is not earning anything in the market and probably will not for the foreseeable future, so I might as well spend it on something useful rather than watch it evaporate in my portfolio and depreciate faster than it earns interest in the bank.

Don't you just miss the days when Americans invested in bonds. What ever happened to war bonds. Ken? LOL!

Adam L

Ken White
09-27-2008, 02:34 AM
Don't you just miss the days when Americans invested in bonds. What ever happened to war bonds. Ken? LOL!

Adam LWhat's a War Bond??? Sounds like something before my time (though I still have two books partly full of Savings Stamps ;) ).

jmm99
09-27-2008, 04:07 AM
Yup, I too have some War Bond stamps - and a couple of ration stamp booklets - and, I can't even approach Pink Bunny's longevity.

But, that retrospection got me a-thinking (a dangerous thing) about another facet of this problem.

When did I last buy a bond ? Not exactly certain, but 5 years ago probably - one left in the "portfolio". Used to like muni bonds for two reasons: (1) tax free interest, and (2) they finance things I could agree with - schools, etc.

What happened during Clinton-Bush was a steady, on-going policy of low level interest rates that makes bond buying not a great investment. Long-term low interest rates have also hit investments in savings accounts and CDs.

That has been most notable in my senior clients who used to rely on interest to supplement SS, persions, etc. E.g., a couple with 200K at 5-6% could count on $10-12K in added income.

So, while low interest rates are great for "go-go" types, they have gutted the resources of middle-class savers. What I am seeing are folks who had, say, 200K in savings 5-10 years ago, who now are lucky to have 50-100K.

Adam L
09-27-2008, 04:21 AM
You hit it right on the head. It has been sureal watching Samuelson's laws of economics, and reasonable bond rates with them, all but dissapear over the last 20 years.

Adam L

Sergeant T
09-29-2008, 04:38 AM
Just a thought or two. It would seem that a large contributor to the current problem is the repackaging and selling of debt (credit default swaps). Didn't a guy named Ponzi perfect this idea about 80 years ago?

I would love to see is the creation of a big gun, high caliber federal agency to go after people that skirted/broke the law at all levels of this thing. The Bureau is too busy looking for Al Qaeda under the bed and isn't real interested in the mission. FinCen (http://www.fincen.gov/) has the best people in the world at following the money. Charter them to be an independent agency and let it fund itself though fines and asset seizure, like the DEA and OSHA do now. When people that handle money have something to fear they might be a little more responsible. It wouldn't remedy the stupidity aspects responsible for this but it would close some cracks.

I can't see the system getting corrected in a meaningful way until we sever the connections between lobbyists and elected/appointed officials. I think we've reached the point where the only way to see that effectively implemented is through a constitutional convention (http://www.amoreperfectconstitution.com/). No one at the congressional level shows any serious sign of self-correcting behavior.

One last thought. This explains the current mess better than anything I've seen (http://docs.google.com/TeamPresent?docid=ddp4zq7n_0cdjsr4fn&skipauth=true&pli=1).

J Wolfsberger
09-29-2008, 01:36 PM
... It would seem that a large contributor to the current problem is the repackaging and selling of debt (credit default swaps). Didn't a guy named Ponzi perfect this idea about 80 years ago?

A Ponzi (http://en.wikipedia.org/wiki/Ponzi)scheme (in 25 words or less) involves using current paid in capital to pay dividends to previous investors, while concealing the lack of operational revenue. What we're dealing with is quite different.

The market raises capital and provides liquidity to the mortgage industry by purchasing mortgages, packaging them into "mortgage backed securities," (something of a misnomer since the tangible asset, property, is available in the event of default), and reselling to investors. The packages consist of various combinations of prime, alt-a, and sub prime mortgages. A security high in prime and low in sub prime gives minimum risk and lower return. A security high in sub prime and low in prime gives maximum risk and higher return. Meantime, the original lender can write new mortgages based on the money received from selling the earlier mortgages.

Absent this "liquidity" (i.e. the ability to turn the mortgages into cash) your local bank would be limited to writing mortgages based on the Fed's reserve requirements. Your local bank, because of banking regulations and its fiduciary responsibility, was also only making loans to people who qualified as "prime" borrowers. On to part two


I would love to see is the creation of a big gun, high caliber federal agency to go after people that skirted/broke the law at all levels of this thing. ... When people that handle money have something to fear they might be a little more responsible. It wouldn't remedy the stupidity aspects responsible for this but it would close some cracks.

Enter the Community Reinvestment Act (http://en.wikipedia.org/wiki/Community_Reinvestment_Act). (The link provides a generally useful summary. However, do a lot of fact checking, since there is a huge effort/debate to edit the entry and protect the guilty.) In the late 90s, the CRA required certain lenders to make a portion of their loans to sub prime borrowers. Now enter Fannie Mae (http://en.wikipedia.org/wiki/Fannie_mae)and Freddie Mac (http://en.wikipedia.org/wiki/Federal_Home_Loan_Mortgage_Corporation), and recall the above about liquidity in the market. These two entities stepped in to provide the liquidity necessary for the sub prime market. In effect, they became middle men between the sub prime lenders and the larger capital community.

Keep in mind that 100,000 loans a year to sub prime borrowers, at say $150K per loan, works out to $150B. The capital need was actually a lot larger. And multiply that figure by 10 for the number of years this has been going on.

I'll spare every one the spider web of deregulation, re-regulation and regulation changes that allowed all that to happen. The bottom line is that, for noble intentions, a part of the mortgage industry was required to enter a high risk area. To make it work, a lot had to change, especially including lending requirements. Talk to any real estate agent you know about low-doc, no-doc, NINJA, 80-20, no down, etc. loans. And remember that interest rates are determined by risk.

The only way to get all those low income people into homes was Adjustable Rate Mortgages (ARM). Which works fine, as long as home prices continue to rise, the economy keeps growing, and the owner can find a buyer if he has to bail out. When those things don't happen, and the ARMs adjust up to a payment the borrower can't meet, foreclosures start increasing. Unfortunately, the borrowers couldn't bail because implementing CRA goals created a bubble.

The problem was that the supply of affordable low cost housing is fixed. If you're a general contractor, you don't build $100,000 homes at a small profit when you can build MacMansions at a big profit. The segment grew, but not near quickly enough to satisfy demand. Add to which, the original owner of the $150K house discovers he's got $50K+ of equity, and goes in search of a larger house in a better neighborhood with better schools. The whole structure created a housing bubble.

And I can state with 100% accurate foresight the outcome of any economic bubble: It will eventually burst.

This one has. And the way it's burst involves the liquidity of the market. A foreclosed loan still represents a tangible asset: the property the mortgage was taken out to purchase. Thus, the mortgage backed securities still have value. But a) the value is considerably less than face value, b) no one knows where the market will bottom out so no one knows how to value them, and c) as result, the market for mortgage based securities dies. They can no longer be converted into cash. No one knows when the liquidity will return, if left to the market.

Thus the "bail out," except it really isn't. The government will be obtaining securities backed by fixed assets. In return, by "making a market" for those securities, the government will restore liquidity. The final cost (loss to the taxpayer) is likely to be in the area of $200B to $300B. We, the taxpayers, won't see any profit out of this. That money was lost, permanantly, when the bubble burst.


I can't see the system getting corrected in a meaningful way until we sever the connections between lobbyists and elected/appointed officials. ... No one at the congressional level shows any serious sign of self-correcting behavior.

No. And we won't. When you hear our elected officials chant "failed economic policies," keep in mind that the current adminstration identified the problem and tried to correct it in 2003. Also notice that no one in congress, from either party is calling for hearings. (At least not that I've heard.)

selil
09-29-2008, 01:54 PM
One last thought. This explains the current mess better than anything I've seen (http://docs.google.com/TeamPresent?docid=ddp4zq7n_0cdjsr4fn&skipauth=true&pli=1).

That was pretty good. I just wish they wouldn't talk so fast. :eek:

J Wolfsberger
09-29-2008, 02:32 PM
... can be found here (http://www.foxnews.com/projects/pdf/rescuebill_First_Draft.pdf).

jmm99
09-29-2008, 04:55 PM
thanks Wolfberger. ;)

Well, I didn't read it - so, no comments on the bill itself.

But, here is one about those who will vote on it. Before leaving for work, I saw a brief clip of an Obama interview. Said he was satisfied that the bill included his "principles" - then said he hadn't read the words, yet.

Not picking on Obama - I expect McCain would have to give the same answer - and I support neither of them.

That reminded me of a comment many years ago by my faculty advisor Eric Stein (bio here - oldest active law professor in the country as of the bio)

http://www.lawcrossing.com/article/index.php?id=1197

who told me, in effect:


You're young and idealistic; and think if you can get to Washington, you can change things. What you will find, even if you are President, is that you are dependent on thousands of people. In effect, they make the decisions - you merely make the choices between them. Change must be institutional, not individual.

Tom Odom
09-29-2008, 05:03 PM
Joe G on the "Save a Wolf"


Commentary | Trust us? In a pig's eye, I say (http://www.mcclatchydc.com/galloway/story/53054.html)

..."Trust us," he asked most earnestly.

I howled with laughter. "Trust you? Trust YOU? After all that's gone down in the last seven-plus years?"

He at least had the decency to begin laughing along with me at so ludicrous a suggestion falling out of his own mouth.

Now they're at it again. The Bush administration is telling Congress and the president himself is on television telling the American people: Trust us.

Trust us with a check on the national treasury for $700 billion, and that's just for starters. We don't need no stinking oversight. Trust Treasury Secretary Henry Paulson — a Wall Street critter whose last civilian paycheck was for $38 million for a year's work — to make sure the money is wisely and conservatively spent.

Maybe we should just borrow some Zimbabwe Dollars and make our 3rd world status official. After all more Zim dollars are available:


Zimbabweans fill streets to withdraw cash from banks (http://edition.cnn.com/2008/WORLD/africa/09/29/Zimbabwe.banks.ap/index.html)

HARARE, Zimbabwe (AP) -- Tens of thousands of Zimbabweans lined up at banks Monday, desperate to take out their money after the government raised the limit on daily withdrawals.

Every day in Harare, Zimbabweans line up at banks. After withdrawal limits were raised, the lines blocked traffic.

New rules went into affect Monday allowing withdrawals of up to 20,000 Zimbabwe dollars. about $35 or 25 euros. The old 1,000 Zimbabwean-dollar limit was barely enough to buy a newspaper.

The limit and the fact that Zimbabwe has the highest inflation rate in the world -- officially at about 11.2 million percent, unofficially much higher -- has meant long lines at banks most days.

But Monday was extraordinary, with lines resembling crowds at a soccer match.

Tom

slapout9
09-29-2008, 05:25 PM
We need some 4th Generation money:D

AmericanPride
09-29-2008, 06:52 PM
Bailout fails (http://www.latimes.com/news/la-fi-bailoutmobile30-2008sep30,0,7476859.story?page=1) to pass through the House. When should I start converting my dollars into monopoly money?

Tom Odom
09-29-2008, 07:09 PM
Maybe we should just borrow some Zimbabwe Dollars and make our 3rd world status official.


Ok I was wrong--not Zim dollars

We are gonna try a reverse Nigerian transfer scam :D


Dearest one, (http://washingtonbureau.typepad.com/nairobi/2008/09/it-was-only-a-m.html)

This email may come as a surprise to you, but I need the assistane of someone with trust and discretion and I know that I can rely on you. I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.

I am the head of the Treasury Department of the Republic of America. Due to a crisis in my country, I have the opportunity to transfer 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you. This transactin is 100% safe....

Yours Faithfully,
Henry Paulson
U.S. Secretary of the Treasury

Schmedlap
09-29-2008, 07:38 PM
That was a good summary. You've got more patience than I do.


Thus the "bail out," except it really isn't. The government will be obtaining securities backed by fixed assets. In return, by "making a market" for those securities, the government will restore liquidity. The final cost (loss to the taxpayer) is likely to be in the area of $200B to $300B. We, the taxpayers, won't see any profit out of this. That money was lost, permanantly, when the bubble burst.

Kind of like a wealth transfer from the middle class to the lower class - except it comes well after the fact, when the lower class has already spent it and is well into the post-binge hangover.


Also notice that no one in congress, from either party is calling for hearings. (At least not that I've heard.)

It's kind of early for that. Even as ineffective and do-nothing as our current Congress is, not even they would be so blatantly negligent as to hold hearings before doing something - however flawed - to attempt to address the current problem. If one party has a solid majority and control of the White House after the Nov elections, then I would expect that party to hold hearings to ensure that their side writes/re-writes/edits/fabricates the history of this abortion to suit their desired narrative.

Ron Humphrey
09-29-2008, 08:44 PM
Am I incorrect in my reading of this that the office which the Secretary will implement this through (Office of Domestic Finance of th Dep of the Treasury) shall be headed by an Assistant Secretary( read forward to clerical amendment to 5315 title 5 = Secretary of Housing and Urban development)?

Norfolk
09-29-2008, 08:52 PM
Bailout fails to pass through the House. When should I start converting my dollars into monopoly money?

Forget Monopoly money; the run on that scrip will be so big that Parker Bros. will run out on the first day. Go for something that's venerable, you can print yourself, and in some corners south of the Mason-Dixon Line, might actually be honoured again someday...soon.;)

Courtesy of Wikipedia: Commence scan!...:D

http://upload.wikimedia.org/wikipedia/commons/thumb/8/8b/Confederate_currency_notes_6.jpg/751px-Confederate_currency_notes_6.jpg (http://upload.wikimedia.org/wikipedia/commons/8/8b/Confederate_currency_notes_6.jpg)

Ski
09-30-2008, 01:17 AM
Don't laugh at the coming currency crisis.

The actual amount being asked for is 1.6T, not 700B. Look at the debt at the end of 07 and what it will be at the end of 08, and it's closer to 1.6T

The US is a debtor nation - it cannot pay 700B or 1.6T - it has to borrow more money from someplace else to finance this debacle.

What that means is simple - the problem remains the same. Unless the processes are reformed, which simply isn't going to happen in the next 6 weeks because of the elections.

So if the US can actually get this massive amount of money to be lent to them, there are two major problems. One is this influx of money into the system, which will weaken the dollar. The second is inflation.

Since the European, Japanese and Korean markets are getting/have been hammered today, I seriously doubt there will be many people gobbling up additional US loans...look at the T-Bill rates, that will give you a clue. I think those rates are skyrocketing because the predators are waiting for the mook...we'll give you the money...unless our markets crash first.

I am seriously pessimistic about any course of action. I don't think we're getting out of this one without major surgery and major pain.

J Wolfsberger
09-30-2008, 02:12 AM
My estimate of the situation is that Speaker Pelosi deliberately killed the bill, by giving a "speech" she knew was a) a lie, and b) would infuriate Republicans. See my comments above. This situation rests squarely on the back of the Democrats. (And the Republicans deserve to be hammered for letting them do it.) Keeping politics off this forum is one thing; allowing misinformation to disseminate is another.

My guess is that Paulson, et. al., will pull the banking community together to resolve the liquidity crisis over the next few days.

Ron Humphrey
09-30-2008, 02:18 AM
It helps if you actually look at the correct title(5315) when trying to follow this thing:o


Did however find a good link for searching and getting through the code though.
Learn something new everyday.

Link (http://www.law.cornell.edu/uscode/html/uscode05/usc_sup_01_5.html)

Cavguy
09-30-2008, 04:02 AM
My estimate of the situation is that Speaker Pelosi deliberately killed the bill, by giving a "speech" she knew was a) a lie, and b) would infuriate Republicans. See my comments above. This situation rests squarely on the back of the Democrats. (And the Republicans deserve to be hammered for letting them do it.) Keeping politics off this forum is one thing; allowing misinformation to disseminate is another.

My guess is that Paulson, et. al., will pull the banking community together to resolve the liquidity crisis over the next few days.

To say the Republicans killed this bill b/c of a speech Pelosi gave opens one of two options:

1) They are spineless morons, allowing momentary politics to waive them over the good of their country and the request of their president.

2) They weren't going to vote for it to begin with, and Pelosi's speech gave them an out that would be useful in an election.

I can't say that Pelosi's speech was well timed or thought out, but is anyone surprised she would attempt to lay blame on the other party - and anyone would change their vote b/c of it?!?!

AmericanPride
09-30-2008, 05:21 AM
... allowing momentary politics to waive them over the good of their country and the request of their president.

You gotta remember, however, that the House representatives are up for election every two years and that Bush is on his way out; in addition, the Reps represent very small constituencies which give them less maneuvering space. I imagine the House Republicans (and Democrats also) were not eager to jump on board a huge and seemingly rushed policy that, in the event of a possible failure, could be blamed on them.

Watcher In The Middle
09-30-2008, 05:31 AM
To say the Republicans killed this bill b/c of a speech Pelosi gave opens one of two options:

1) They are spineless morons, allowing momentary politics to waive them over the good of their country and the request of their president.

2) They weren't going to vote for it to begin with, and Pelosi's speech gave them an out that would be useful in an election.

I can't say that Pelosi's speech was well timed or thought out, but is anyone surprised she would attempt to lay blame on the other party - and anyone would change their vote b/c of it?!?!

Part of #1; more of #2, but #3 is that there's just not a whole lot of "likability" out there any more. By that, I mean the ability to give each other hell in public, and then sit down right afterwards and have a drink and shoot the bull with the same folks you were fighting tooth and nail 10 minutes or so earlier. That's gone.

Let me give you a practical example I specifically know about. Remember some years ago the House Republican congresscritter who got his cell phone conversations spied upon, and then made into a big deal politically by a Democratic congresscritter? Well, if that had happened back in Sam Rayburn's/LBJ's day, can guarantee you that would have gone nowhere, and it would have been squashed by Democratic leadership. They wouldn't have done it, because personal relationships to them were more vital than partisan politics. And they were right.

These days, it's anything goes, and reaching across the aisle (particularly in the House) is extremely difficult. Senate is a lot more friendly environment, so you can cut deals on these really big issues.

Another problem in the House is the predominance of female leadership. I know that sounds sexist, but you'd actually have to see the whole situation evolve from an up close standpoint to really understand. Gender truly does play a role, in that the guys can be ripping each other a new one, and 10-15 minutes later be talking smack about sports and other things. Most of the guys just do not take it personally. I can guarantee you it's not the same with female leadership - and I'm not talking about Nancy Pelosi, but some of the others are damned difficult to deal with, and on a big one like this, the difference tends to come down to working with people you like.

There's one last point that needs to be made. Unlike in the Senate, the Speaker of the House has enormous power and control. If you are the Speaker, you're the big dog - it's your responsibility, it's on your watch.. If you call it for a vote, you damned well better be sure that you've got the votes, and you don't play a quickie cheat on your fellow partners, regardless of party or ideology - particularly right before a vote. And you always better have a "Plan B" in your pocket that your partners all know about, and they have to know you will play it if need be.

I can tell you that those unwritten rules have existed for a long time going back probably 50 years, and they apparently all got ignored on this one. Not good, that's just flat out poor politics.

Schmedlap
09-30-2008, 09:34 AM
I don't see where else anyone is going to put their money other than the US. Some might want to point to China, Europe, etc. Great. Those people can invest there. I'm not sending my money outside the US because I don't think the rest of the world is all that much better off. Note that our T-Bill rates are near zero because people are just looking for a place to stash - not invest - their money. The market consensus, in this current panic, seems to be leaning against investing abroad and leaning towards just handing the cash over to Uncle Sam for safe keeping. The current outflows, as I understand it, are foreign investors bringing their money home. That is understandable. When you send your money abroad and lose it hand over fist, there is pressure from your constituents to bring it home - more politics than reason. But our home grown investors aren't in a hurry to ship their dough abroad.

Ski
09-30-2008, 11:15 AM
The problem with investing anywhere is that overseas is now getting hit just as hard as us in the financial sectors, but the bulk of the larger national economies (china, Indian ,etc) have been slowly down over the last year. That's why oil is getting cheaper. Also look at steel and cement prices.

People aren't investing overseas because they won't be investing at all until this levels out. It is a minor miracle a run on the banks hasn't occured yet with all the doom and gloom being spewed by politicians of both parties and the financial tv station (CNBC was a hoot yesterday - there was awesome amounts of real fear, capped off with Maria Bartriromo literally in a frenzy saying "We all know there's going to be a bailout, we all know there's going to be bailout")

The problem still remains - we have no money to float this proposal, so we're going to borrow it from somewhere else, and no one has any clue whether this is actually going to help.

tequila
10-01-2008, 02:16 AM
Keeping politics off this forum is one thing; allowing misinformation to disseminate is another.

Right. Viewpoints that disagree with your own interpretation are apparently misinformation now.

WiTM - The Speaker of the House doesn't have that kind of power. This isn't a parliamentary system. There are fewer procedural barriers in the House than there are in the Senate to getting votes to the floor, that's pretty much it.

Also, I find it amazing that you think that the onset of female leadership is somehow preventing a deal getting done. The Republican House leadership is entirely male as is much of of the Republican House membership. Collegiality has been largely dead in the House since the "Republican Revolution" under Gingrich, killed by an entirely male cast, so not sure where this theory is coming from.

Ken White
10-01-2008, 02:25 AM
To say the Republicans killed this bill b/c of a speech Pelosi gave opens one of two options:

1) They are spineless morons, allowing momentary politics to waive them over the good of their country and the request of their president.

2) They weren't going to vote for it to begin with, and Pelosi's speech gave them an out that would be useful in an election.

I can't say that Pelosi's speech was well timed or thought out, but is anyone surprised she would attempt to lay blame on the other party - and anyone would change their vote b/c of it?!?!I'd also add that she probably knew that it wasn't going to pass. All politics, all foolishness.

Not that I agreed with the bill in any event...

Ken White
10-01-2008, 02:34 AM
Right. Viewpoints that disagree with your own interpretation are apparently misinformation now.I think his point was that the situation is being played by both sides for political points and that since the Democrats are in charge, they bear the bulk of the responsibility.

Since over 30 years of Democratic policies to encourage if not force lending institutions to make questionable loans in the interest of 'equal opportunity' led in large measure to the current debacle, that means that both parties are guilty -- and attempts by either to tar the other are nothing but politics.
The Speaker of the House doesn't have that kind of power. This isn't a parliamentary system. There are fewer procedural barriers in the House than there are in the Senate to getting votes to the floor, that's pretty much it.You did note that according to most reporting, neither Party really tried to whip the vote?

Politics as usual, no more.

Watcher In The Middle
10-01-2008, 02:55 AM
The Speaker of the House doesn't have that kind of power.

Respectfully disagree. The Speaker controls the agenda, and substantial influence on amendments, if even allowed. The Speaker of the House, with a majority like the current Speaker has, can basically shut the opposing party down. Doesn't mean it's going to happen, but there's far more power concentrated in the House leadership than in the Senate leadership.

As to the issue of:

onset of female leadership is somehow preventing a deal getting done

that's not what I said. It wasn't one thing that killed this particular deal - it was any number of factors, but in total, they sure torched the deal but good - and i think they should have passed it (so Ken & I disagree).

What I am saying is that the leadership on both sides has to be able to cut a deal, and most of the time that requires working with people ('votes') of different viewpoints from your own, and finding common ground without going out of your way to unnecessarily antagonize those 'votes'. And gender can turn into an obstacle when communication issues are difficult.

And that was one element in this particular issue. Look at the forty or so minutes where the vote was held open where leadership on both sides was working the floor..

120mm
10-01-2008, 01:23 PM
To say the Republicans killed this bill b/c of a speech Pelosi gave opens one of two options:

1) They are spineless morons, allowing momentary politics to waive them over the good of their country and the request of their president.

2) They weren't going to vote for it to begin with, and Pelosi's speech gave them an out that would be useful in an election.

I can't say that Pelosi's speech was well timed or thought out, but is anyone surprised she would attempt to lay blame on the other party - and anyone would change their vote b/c of it?!?!

Last time I checked, the Democratic Party could've passed this bill, even if every Republican voted against it.

Henry Paulson should be fired for political incompetence. His "take it or leave it" presentation of the bail out reeks of the Hillarycare initiative.

The problem isn't that we're in trouble, financially, as much as in the way that it was presented. Fix the healthcare system, great. Fix the financial system, also great. But don't present a fait accompli and then expect the rest of the US to just go along like sheep to be sheared.

The G.W. Bush/Paulson initiative was really, really bad I/O. Give the American people choices, not an ultimatum, and I think that one would be pleasantly surprised by how they respond.

Anyone else wondering why they didn't present three COAs and a prediction of the consequences of each COA?

Frankly, I wonder if the financial wanks have become so afraid of an economic downturn that they'll pimp their wives and sell their kids (actually, our kids and grand-kids) to keep it from happening. And their fear of negative consequences scares me more than my fear of a full-blown depression.

selil
10-01-2008, 01:53 PM
There are a lot of problems with the plan as presented;
1) International investors and banks transferring their bad debt to the US Treasury
2) Congressional oversight completely lacking
3) Judicial relief legislated out of the law which is an issue of Constitutional nature
4) Golden parachutes for CEOs not completely removed
5) Speed of the presentation and legislation has not served the country well ever in the past
6) There is a divergence of opinion between "experts" on if it is even needed
7) There appears to be high parasitic loss to the methods of using the money (lots of bureaucrat dollars)
8) The stock market is not the economy, the credit market is not the economy, and bailing out either does not help the economy. The stock market and credit market are indicators.

That is not to say things don't have to be done. Panic and a rush to judgement though rarely makes good decisions. The financial crisis has been brewing since the early 1970s. The tendrils of the issues are like a cancer touching nearly all aspects of the economy.

Ron Humphrey
10-01-2008, 02:50 PM
There are a lot of problems with the plan as presented;
1) International investors and banks transferring their bad debt to the US Treasury
2) Congressional oversight completely lacking
3) Judicial relief legislated out of the law which is an issue of Constitutional nature
4) Golden parachutes for CEOs not completely removed
5) Speed of the presentation and legislation has not served the country well ever in the past
6) There is a divergence of opinion between "experts" on if it is even needed
7) There appears to be high parasitic loss to the methods of using the money (lots of bureaucrat dollars)
8) The stock market is not the economy, the credit market is not the economy, and bailing out either does not help the economy. The stock market and credit market are indicators.

That is not to say things don't have to be done. Panic and a rush to judgement though rarely makes good decisions. The financial crisis has been brewing since the early 1970s. The tendrils of the issues are like a cancer touching nearly all aspects of the economy.

After continuing to read through the bill was I wrong in getting the impression that some of the guidelines for what considerations much be addressed in relation to housing related institutions would end up resulting in many more basically being brought to do business the Fanny/Freddie way?

reed11b
10-01-2008, 05:28 PM
There are a lot of problems with the plan as presented;
1) International investors and banks transferring their bad debt to the US Treasury
2) Congressional oversight completely lacking
3) Judicial relief legislated out of the law which is an issue of Constitutional nature
4) Golden parachutes for CEOs not completely removed
5) Speed of the presentation and legislation has not served the country well ever in the past
6) There is a divergence of opinion between "experts" on if it is even needed
7) There appears to be high parasitic loss to the methods of using the money (lots of bureaucrat dollars)
8) The stock market is not the economy, the credit market is not the economy, and bailing out either does not help the economy. The stock market and credit market are indicators.

That is not to say things don't have to be done. Panic and a rush to judgement though rarely makes good decisions. The financial crisis has been brewing since the early 1970s. The tendrils of the issues are like a cancer touching nearly all aspects of the economy.

Thank You Selil,
Best written analysis of the bailout I have read yet.
Reed

120mm
10-01-2008, 08:00 PM
That is not to say things don't have to be done. Panic and a rush to judgement though rarely makes good decisions. The financial crisis has been brewing since the early 1970s. The tendrils of the issues are like a cancer touching nearly all aspects of the economy.

And that is the real problem, here. This stinks, and I mean reeks, of Hillarycare, or the invasion of Iraq in 2003.

How about we fix some fundamentals, and then let the market sort itself out?

Of course, "congressional oversight" with anything regarding money is a lot like giving my cat oversight over my fish, or pet mouse....

tequila
10-01-2008, 10:13 PM
The stock market is not the economy, the credit market is not the economy, and bailing out either does not help the economy. The stock market and credit market are indicators.

With all due respect, the credit market is enormously influential in the "real" economy, and it is seizing up at the moment.

In the "real" economy, things are tanking:

Ford, Honda U.S. sales plummet as credit tightens (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aA5.92WRqrHQ)



Oct. 1 (Bloomberg) -- Ford Motor Co. and Honda Motor Co.'s U.S. sales of cars and trucks tumbled in September as tighter credit scared off consumers.



Sales at Ford, the second-largest U.S. automaker, fell 35 percent from a year earlier, the Dearborn, Michigan-based company said in a statement today.

Honda reported a 24 percent drop.



Industrywide sales probably will fall for the 11th month in a row, the longest slide in 17 years, as the financial crisis caused lenders to toughen loan standards and consumers curbed spending. Sales already had dropped 11 percent through August, in part because of high gasoline (http://www.bloomberg.com/apps/quote?ticker=3AGSREG%3AIND) prices.



Ford's decline ``is an indicator of the state of the industry, with the credit problem hitting all segments, all types of vehicles,'' said Dennis Virag (http://search.bloomberg.com/search?q=Dennis+Virag&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), president of Automotive Consulting Group in Ann Arbor, Michigan.

``People of all economic backgrounds are going to be impacted.''

The manufacturing sector capitulates (http://blogs.wsj.com/economics/2008/10/01/the-manufacturing-sector-capitulates/)(or rather, ISM's survey on manufacturing falls to the lowest point since Oct 2001)



For months and months, the widest-followed index of manufacturing activity, produced by the Institute for Supply Management, has wavered within a narrow range, showing essentially slight growth in the sector as other industries tanked.



Then, along came September.


[quote]

http://s.wsj.net/public/resources/images/OB-CL062_ISM10p_NS_20081001110329.gifThe ISM manufacturing report released this morning (http://www.ism.ws/ISMReport/MfgROB.cfm) showed a stunning decline in several key components as the overall index last month dropped by more than six points to 43.5, its lowest reading since October 2001.


“This ugly report may be the clincher… to finally make the official recession call,” said Harm Bandholz, a New York-based economist with UniCredit.



New orders plunged by nearly ten points, the employment index sank by about eight points, and production overall dropped by a whopping 11 points last month, as all measures receded deeper into contraction.

Ken White
10-01-2008, 10:34 PM
Roosevelt's extension of the 1929 Depression into 1941 and have weathered six recessions since then. This one isn't likely to be as bad as either the 1953 or 1973 models. This too will pass...

Would be nice if they could jail a few and get rid of those Congroids who helped bring this about but I guess that's too much to ask...:mad:

reed11b
10-02-2008, 12:06 AM
With all due respect, the credit market is enormously influential in the "real" economy, and it is seizing up at the moment.



Only becouse it has been artificially grafted onto it. Mostly by Congress.
Reed

tequila
10-02-2008, 01:19 AM
Only becouse it has been artificially grafted onto it. Mostly by Congress.
Reed

Can you explain this statement? I'm having a hard time understanding it.

Schmedlap
10-02-2008, 11:31 AM
This one isn't likely to be as bad as either the 1953 or 1973 models. This too will pass...

Absolutely right. Rather than tear my hair out and watch the antics of Congress with baited breath, I've been writing and buying options on E-Trade. When the market hands you lemons, make lemonade and sell it while the capital gains tax is still relatively low.

sapperfitz82
10-02-2008, 03:15 PM
Wouldn't want to be taken for one who has a clue about financial markets.

Just got this link. The music makes it easier for guys like me to wade through.

All this sounds like smart people trying to defend their description of energy.

When that starts happening I usually find the simple explanation that makes the most sense is closest to the truth.

Social engineering that made influential people rich and had unintended consequences because the socialists who wrote the laws don't have the first clue about economics 101. Passes the smell test for me.

Not sure we need to go much beyond that, it has the lesson we need to take away. When professionals prostitue their profession for government gain the profession becomes corrupted. See the German officer Corps in WWII.

Yup, gonna have to bail everyone out who writes loans for paychecks on Friday or their will be a lot of people not getting paid. That's what the urgency is about. Truth is, if the rich guys can't pay the poor guys, this whole thing gets real sticky.

Wonder if they'll ever start teaching economics again?

sapperfitz82
10-02-2008, 03:16 PM
Here's that link to the video.

Turns into a campaign add at the end. Still pretty illuminating for what its worth.

http://www.youtube.com/watch?v=kYdsU8996zo

tequila
10-02-2008, 05:06 PM
Social engineering that made influential people rich and had unintended consequences because the socialists who wrote the laws don't have the first clue about economics 101. Passes the smell test for me.

Just wrong, wrong, wrong. Sad to see how quickly propaganda becomes accepted dogma because it fits certain social prejudices.

The housing bubble was not created because of some government program that sought to increase home ownership. Sorry, the type of monetary flows required to balloon something as large as the U.S. housing market are not going to respond simply to a government requirement that works against the market.

Quite simply:

1) Massive pool of capital looking for a profitable investment. China, Japan, the Gulf, big U.S. fortunes made in the past 25 years, the fruits of globalization, etc.

2) Largely unregulated shadow financial system that grew up to service this pool of capital.

1+2 has been creating financial bubbles for the past 15 years as it has grown larger and larger. Remember the dot-com bubble? The vast funds poured into the Federal Reserve, financing the ginormous U.S. government debt? What was the largest, safest place to lend money in the U.S. economy back in the 1990s? The U.S. housing market, because housing always goes up, right?

An avalanche of money came cascading through that shadow financial system, largely unregulated and unseen. It is hardly a secret that credit became available in the U.S. in unprecedented levels --- that's 1+2 at work, pouring hundreds of billions of dollars into the U.S. economy that has fueled our massive spending binge at both the personal, corporate, and governmental level over the past 15 years.

Lending standards were loosened across the board, not just in real estate. Why?

Not because of some governmental regulation.

A) More money was out there to lend. MUCH more money. See point 1 above.

B) Securitization allowed banks but especially unregulated mortgage brokers and other institutions to package loans and sell them upstream. Who cares about lending standards if you're not going to get the payments? Thus the birth of "liar loans", NINAs, NINJAs, etc. Also the systemic and widespread use of fraud. Typical is the inflation of a loan applicant's income or bank statement by the broker in order to get a loan through.

C) Upstream, the buyers of these securities often repackaged, sliced and diced, and sold these on in the form of exotic derivative contracts. The pricing models for MBS, especially subprime MBS, were outdated and foolhardy. The ratings agencies and institutions buying them couldn't accurately price the risk involved, and everything in the end involved housing prices rising forever.

D) The shadow financial system existed largely outside the boundaries of regulations, both in the U.S. and abroad. They were not banks and thus could be much more highly leveraged than banks. The sheer profitability involved, however, encouraged more and more institutions to seek to join the shadow financial system by either investing in MBS as a sideways entry into the great housing casino (see Freddie, Fannie, AIG and many foreign broker/dealers and investment houses).

What makes this housing bubble different from all the others are the enormously large and complex securitization that went on combined with massive overleveraging. Those are the two things that have brought the financial system to the brink of collapse, and neither is attributable to homeowners, socialism, or even politicians.

Ron Humphrey
10-02-2008, 06:42 PM
Just wrong, wrong, wrong. Sad to see how quickly propaganda becomes accepted dogma because it fits certain social prejudices.

The housing bubble was not created because of some government program that sought to increase home ownership. Sorry, the type of monetary flows required to balloon something as large as the U.S. housing market are not going to respond simply to a government requirement that works against the market.

Quite simply:



Now would you be so kind as to explain the current bill and what it will or at least is supposed to do, (just as clean and with the clarity you have made your other points.)?

PReeetttyy PLeeeaase:)

Ken White
10-02-2008, 06:54 PM
Therefor, it's also disingenuous. The US Government began during the Carter Presidency to pass laws, change Regulations and jawbone the finance industry to be more 'inclusive' (i.e. less restrictive) in their lending practices. The first appearance of this relaxed credit was in consumer finance because the Banks and Credit Card issuers jumped in with both feet.

A host of Federal and Federal Reserve initiatives during the 80s (some) and 90s (many) continued the trend and the several laws in the 80s and 90s including but not limited to the Depository Institutions Deregulation and Monetary Control Act, 1980; the Garn-St. Germain Depository Institutions Act, 1982 (The S&L debacle...) and of course, the Gramm-Leach-Bliley Act in 1999 which eliminated Glass-Stegall and which had been pushed by Robert Rubin and Larry Summers and was signed by Clinton.

That omits any mention of Fannie and Freddy whose fingerprints are all over this mess -- and who some folks tried to rein them in earlier LINK (http://online.wsj.com/article/SB122091796187012529.html?mod=googlenews_wsj). That let mortgage bundling really take off. Social engineering did indeed play a part -- a big part; Your comments are mostly correct but you should not gloss over reality because it's ideologically uncomfortable for you.

You said:
Those are the two things that have brought the financial system to the brink of collapse, and neither is attributable to homeowners, socialism, or even politicians.I suggest that those two things are the principal issues behind the problem but that, alone, could not create the problem; to do that required the willing assistance of some homeowners, some politicians -- and a bit of socialism. :wry:

There's enough egg in this one for everyone's face... ;)

wm
10-02-2008, 07:36 PM
A host of Federal and Federal Reserve initiatives during the 80s (some) and 90s (many) continued the trend and the several laws in the 80s and 90s including but not limited to the Depository Institutions Deregulation and Monetary Control Act, 1980; the Garn-St. Germain Depository Institutions Act, 1982 (The S&L debacle...) and of course, the Gramm-Leach-Bliley Act in 1999 which eliminated Glass-Stegall and which had been pushed by Robert Rubin and Larry Summers and was signed by Clinton.


There's enough egg in this one for everyone's face... ;)
I agree that there's plenty of egg to be worn by a host of folks, not least of whom is "we the people."

I think the really instructive point, which Ken captures in this paragraph, is that the efforts by the Rubin/Summers/Clinton gang represent an effort to pass off fiscal and monetary policy for an economic policy (which the US did not have during the Clinton White House). They ain't the same thing, and shame on those of us who got hoodwinked into believing they are/were.

Norfolk
10-02-2008, 11:19 PM
If the revised bill that passed the Senate last night passes the House, even with Congressional oversight added, might not the U.S. Treasury simply devolve into the world's largest "Dark Pool", anyway? The original version of the bill, with its proposition that the Secretary of the Treasury possess carte blanche to decide what to sell, when, to whom, and for how much, was unsettling enough. Adding Congressional "oversight" to said process does not necessarily put an end to the jitters.

bourbon
10-03-2008, 03:30 AM
The Naked Short Selling That Toppled Wall Street (http://www.deepcapture.com/the-naked-short-selling-that-toppled-wall-street/), by Mark Mitchell. DeepCapture.com, October 2nd, 2008.



In other words, hedge funds and brokers sold as many as 9 million shares that they did not possess (which is why they “failed to deliver” them), and they kept the market saturated with at least 1 million phantom shares for more than two weeks. WaMu’s stock price dropped by more than 30% during this period. Similar attacks, with similar effects, occurred one after another in the months leading up to June.


This attack lasted long enough to put Bear Stearns on the threshold list, but by then, it was too late. The bank’s mangled remains had been swallowed by JP Morgan. Ultimately, at least 11 million shares of Bear Stearns were sold and never delivered.


Two days after Lehman was vaporized, AIG watched its stock fall to as low as one dollar. The data through June shows that AIG was repeatedly blasted with phantom stock, often in stretches of eight days (three + five), with peak failures to deliver reaching 2 million shares. It’s a safe bet that the data will show that these attacks continued, and grew in magnitude, until a price of one buck per share resulted in paralysis, and AIG had to be nationalized. But the company never appeared on the SEC’s threshold list.

After AIG, the rumor was that Citigroup would go down next. The data through June shows that Citigroup was bombarded – blast, pause, blast – with massive amounts of phantom stock. Failures to deliver peaked at 8 million shares. No doubt, the blasts continued and grew in magnitude in the days leading up to September 16, when Citigroup’s stock went into a death spiral.

Wow. Just wow.

"Notorious B.I.G. said it best: Either you're slinging crack rock, or you got a wicked jump shot.' Nobody wants to work for it anymore. There's no honor in taking the after school job at Mickey D's. Honor's in the dollar, kid. So I went the white boy way of slinging crack rock. I became a stock broker."
- Seth Davis, Boiler Room (2000)

These guys went the white boy way of robbing banks. They became hedge fund portfolio managers.

slapout9
10-03-2008, 12:39 PM
The Naked Short Selling That Toppled Wall Street (http://www.deepcapture.com/the-naked-short-selling-that-toppled-wall-street/), by Mark Mitchell. DeepCapture.com, October 2nd, 2008.







Wow. Just wow.

"Notorious B.I.G. said it best: Either you're slinging crack rock, or you got a wicked jump shot.' Nobody wants to work for it anymore. There's no honor in taking the after school job at Mickey D's. Honor's in the dollar, kid. So I went the white boy way of slinging crack rock. I became a stock broker."
- Seth Davis, Boiler Room (2000)

These guys went the white boy way of robbing banks. They became hedge fund portfolio managers.


The best analysis I have seen so far. It was an attack!!! Who did it? See who ends up with the greatest concentration of wealth when the dust settles.

tequila
10-03-2008, 04:32 PM
Speaking as a former Lehman employee, Lehman did not go *poof* as a result only of naked short selling. As much fun as it would to blame pirate hedge funds and evil financiers, Lehman's stock collapsed because it lost billions of dollars. Why? Because Lehman got caught holding tons of subprime MBS it could not move before the market went south. Now I was in the middle of Mojave Viper when most of this went down, but I got filled in by coworkers after the case.

Repeated quarterly losses in the billions were surprises to a marketplace that thought Lehman had sufficient cash on hand to weather a beating that Richard Fuld assured all was well over with after Bear Stearns went down. Market-manipulation is hardly to blame for a falling stock price when a company has losses on the level of Lehman, with no clarity on how much further it was on the hook and no trust left in Richard Fuld.

bourbon
10-03-2008, 05:33 PM
Tequila,
Thanks for weighing in on the article. Is naked short selling really just that marginal of an issue compared to massive losses and Fuld's management?

Here's what gets me: Lehman's stock increased close to 50% during the three week July 15 SEC order that required hedge funds to borrow real stock before they sold it. The SEC let the order expire, and as Mitchell notes:

The day after the emergency order expired, Lehman’s stock nosedived. So did a lot of other stocks that had enjoyed a temporary reprieve.

Mark my words, the data for August and September will show that soon after the order was lifted, rampant naked short selling began anew.

It will show a sustained attack on Fannie Mae and Freddie Mac, with failures to deliver exceeding one million shares, until the day the two companies were nationalized. It will show Lehman getting hammered (blast-pause-blast) until its stock was so low that there was no way it could raise capital. And it will show that in Lehman’s final days, hedge funds sold unprecedented amounts of phantom stock, knowing that the stock would never, ever have to be delivered.
If the data comes back and affirms what Mitchell is saying, naked short selling would still not be to blame Lehman's collapse?

Mitchell says the 2.8 billion loss in the second quarter was largely a result of reducing exposure to mortgages by "marking them down to levels dictated by Einhorn’s bogus index – the CMBX". This not the case?

slapout9
10-03-2008, 11:19 PM
Now here is a plan to get out of this mess by James Galbraith (son of John Kenneth Galbraith) I especially like the part about bringing in the FBI as part of the plan:D issue them special golden handcuffs and special privileges for water boarding:eek:



http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092403033.html

Schmedlap
10-04-2008, 04:43 PM
If the data comes back and affirms what Mitchell is saying, naked short selling would still not be to blame Lehman's collapse?

Naked short selling can hasten the collapse of a corporation that has weak or terminal fundamentals. Note that nobody was doing naked short selling of, say, Wal-Mart in such a fashion as to "drive the price down." Companies like Lehman were lying motionless on thin ice, hoping for a passerby to throw them a line and drag them to shore. Short sellers just turned up the heat so the ice would melt quicker before a good samaritan (or politician with a bag of taxpayer dollars) could come along with assistance.

Especially in a market where people with giant gobs of money are searching high and low for anything that will get them a better return than the market, taking out short positions, short sales, and even naked short sales on fundamentally weak stocks (like financials, particularly the ones made most vulnerable by subprime/MBS) were all perfectly logical (omitting the question of whether it was ethical). On the other hand, I doubt many of them wasted any time betting millions or billions on the collapse of Wal-Mart or Johnson & Johnson because if they did take out speculative short positions by way of options or short selling, then even if they had a significant impact on those stock prices, it would have been very short lived and would most likely have popped right back to the original price as soon as the market saw a buying opportunity.

Naked short sellers hastened the collapse of fundamentally weak companies. The question that I think we should be asking is whether, in the long run, that is a bad thing. I don't think the answer is an obvious one and I don't think I know the answer. Would Lehman have come out of this situation intact if it could have bought a few more months of time? Or did the short sellers just rip off the band-aid and get it over with?

tequila
10-04-2008, 08:23 PM
Haven't agreed w/Schmedlap much lately, but I agree on this one. Short sellers did not cost me my job - Richard Fuld and his subordinates did that.

Evidently the market did not buy that the CMBX index was worthless. At the least, it does not appear to be any less worthless than other measures of MBS value.

A good counterfactual from Buttonwood at the Economist: Why is naked shorting so bad, when going naked long never draws any approbation? Who's worse, a hedge fund manager shorting Lehman in the wake of massive losses, or the house flipper and mortgage broker doing all they can to inflate asset prices beyond all expectations? Who is more to blame for the current crisis?

A cautionary tale from the future (http://www.economist.com/finance/displaystory.cfm?story_id=12305786)



FINANCIAL authorities in America and Europe took sweeping powers yesterday to avert a financial crisis by imposing restrictions on markets. In their sights are a peculiar brand of speculators known as “long-buyers” who buy assets not to live off the income they generate but to profit from rising prices.


“Some of these people buy homes that they have no intention of living in,” said Lord Poohbah, chairman of Britain’s Financial Services Authority, “and others buy shares they plan to own for just days or weeks, rather than the prudent time period of several years.” Their actions force prices up above fundamental valuation levels, critics say, causing some British tabloid newspapers to call leading fund managers “greedy pigs”.


Particular criticism has been reserved for people dubbed “naked long-buyers”, those who try to buy homes without putting up a deposit. “Such people are in effect renters with a free call option on rising house prices,” said one financial analyst, “but they expect to be bailed out by taxpayers when house prices fall.”


Not only is this a clear case of moral hazard (the encouragement of irresponsible risk-taking) but their activities drive up house prices, putting them beyond the reach of hard-working families who have diligently saved up to put down a deposit. Also in the speculative category are “buy-to-letters” who buy a string of houses with borrowed money in the hope of making outsize gains.


....


Industry analysts said that some of the damage done by long-buyers might have been prevented had a now defunct practice called “short-selling” been permitted. By speculating on falling prices, short-sellers could in theory prevent bubbles from being formed. However, their scope to trade was always limited by regulations and the tactic was killed off during the crisis year of 2008. “It drove us out of business,” recalled George Soros, a former hedge-fund manager, speaking in Central Park yesterday, before adding, “Do you want some ketchup with that?”


Before that crisis, the standard rubric on financial products said “Warning: share prices may go down as well as up.” Afterwards, the clause “but not if the authorities have anything to do with it” was added at the end. The result was the decade-long boom in house and share prices that prompted the authorities to step in yesterday.


Asked if he was blaming speculators for the inadequacy of American monetary policy, the treasury secretary abruptly ended the news conference.

Ken White
10-05-2008, 09:25 PM
LINK (http://4.bp.blogspot.com/_3QqO8EXd-II/SOhmM6CaekI/AAAAAAAAgOA/qu56k4YnqTA/s1600-h/Map.jpg)

Can't vouch for the accuracy but it seems reasonable

AdamG
10-06-2008, 07:30 AM
CAIRO, Egypt - An American member of al-Qaida pointed to economic troubles in the United States as proof that "the enemies of Islam" face defeat, in an English-language video released Saturday.

In a half hour video message, California-native Adam Gadahn urged Pakistanis to unite against their government and U.S. forces, and taunted Americans over their economic crisis, relating it to their military interventions.

"The enemies of Islam are facing a crushing defeat, which is beginning to manifest itself in the expanding crisis their economy is experiencing," said Gadahn, in a clip of the message distributed by the SITE Intelligence Group, a Washington-based monitor of militant Web sites.

"A crisis whose primary cause, in addition to the abortive and unsustainable crusades they are waging in Afghanistan, Pakistan, and Iraq, is their turning their backs on Allah's revealed laws, which forbid interest-bearing transactions, exploitation, greed and injustice in all its forms."

http://news.yahoo.com/s/ap/20081005/ap_on_re_mi_ea/ml_al_qaida_american_video

J Wolfsberger
10-06-2008, 12:26 PM
Haven't agreed w/Schmedlap much lately, but I agree on this one. Short sellers did not cost me my job - Richard Fuld and his subordinates did that.

...

Who's worse, a hedge fund manager shorting Lehman in the wake of massive losses, or the house flipper and mortgage broker doing all they can to inflate asset prices beyond all expectations? Who is more to blame for the current crisis?

And I rarely agree with Tequila, but on this one I agree. To the first, yep, Richard Fuld did do that through greed and stupidity. (Which is redundant, I know. :D)

To the second, both. And the market should punish both.

tequila
10-06-2008, 03:34 PM
Naked shorters are not being punished by the market - their practices are being banned by the government.

bourbon
10-06-2008, 06:36 PM
Naked short sellers hastened the collapse of fundamentally weak companies. The question that I think we should be asking is whether, in the long run, that is a bad thing. I don't think the answer is an obvious one and I don't think I know the answer. Would Lehman have come out of this situation intact if it could have bought a few more months of time? Or did the short sellers just rip off the band-aid and get it over with?

Its not up to the naked short sellers to decide. They fail to deliver, they are not investors, and they should have no impact. Maintaining this mechanism creates rampant opportunities for stock manipulation. This manipulation was rampant in the 90's in the microcap world, and it appears now to have been picked up by the hedge funds.

The Amr Elgindy case should show you the scope of this manipulation. His syndicate had 200+ members and counted a number of hedge funds amongst it. That was in 2002. Scratch beneath the surface in this case and you will also likely find more nefarious connections percolating on issues much more related to this forum.




Bloomberg TV Special Report on Naked Short Selling (2007) (http://video.google.com/videoplay?docid=4490541725797746038)


Naked shorters are not being punished by the market - their practices are being banned by the government.
The ban expires on the 8th. We'll see what happens then.

Schmedlap
10-06-2008, 08:01 PM
Its not up to the naked short sellers to decide.

Which "it" are you referring to?


Scratch beneath the surface in this case and you will also likely find more nefarious connections percolating on issues much more related to this forum.

Russian Sovereign Wealth Funds?

slapout9
10-07-2008, 02:00 AM
OK Folks now here is a theory you may not have heard. The reason the financial markets are all messed up is because Iran is going Nuclear and there are no longer any safe places to invest so everyone is just piling up as much cash as possible. Here is link below to the blog where I saw this. scroll down to the post called "Reiterate", this is the second time he has posted this theory. If you read the guys bio he is not what I would call a flake since he helped start Mastercard some years back. Anyway what do ya'll think?

http://phillips.blogs.com/

Ski
10-07-2008, 02:22 AM
Ridiculous blog.

The markets are tanking because there are $50-65 TRILLION in derivitives floating around, and no one knows what to do with that shadow market. The banks don't have any credit because this was all built off the accumulated debt of the American people, who thought they could all own their own houses despite not having anywhere near the assets to do so. The mortgages were shredded into nothingness, rebundled, and now they can't be tracked. The credit markets are dried up because most banks overleveraged themselves. There is over $2 Trillion in credit card debt in the US alone.

Now the solvent banks are getting top dollar for any credit they give out - as I said earlier in this thread, my old man is a CEO of a one billion dollar plus bank and he is now quoting ridiculous terms to his customers because they have no other place to turn to. He does business on four continents, so this is much more widespread than the US.

Iran going nuclear has nothing to do with this at all. Bizarre statement to say the least.

bourbon
10-08-2008, 03:29 AM
Which "it" are you referring to?
If a company fails or not.

Again, naked short selling has about as much to do with short selling, as sexual harassment has to do with sex. Delivery failure is the crux.


Russian Sovereign Wealth Funds?
No, in the case of Elgindy it's terrorism. That avenue was not allowed to be pursued at his trial.


Fwiw, from Dick Fuld's testimony before the House Committee on Oversight and Government Reform (http://i.abcnews.com/print?id=5963581) today:

The second issue I want to discuss is naked short selling, which I believe contributed to both the collapse of Bear Stearns and Lehman Brothers. Short selling by itself can be employed as a legitimate hedge against risk. Naked short selling, on the other hand, is an invitation to market manipulation. Naked short selling is the practice of selling shares short without first borrowing or arranging to borrow those shares in time to make delivery to the buyer within the settlement period  in essence, selling something you do not own and might not ultimately deliver to the buyer.

Naked short selling, followed by false rumors, dealt a critical, if not fatal blow to Bear Stearns. Many knowledgeable participants in our financial markets are convinced that naked short sellers spread rumors and false information regarding the liquidity of Bear Stearns, and simultaneously pulled business or encouraged others to pull business from Bear Stearns, creating an atmosphere of fear which then led to a selffulfilling prophecy of a run on the bank. The naked shorts and rumor mongers succeeded in bringing down Bear Stearns. And I believe that unsubstantiated rumors in the marketplace caused significant harm to Lehman Brothers. In our case, false rumors were so rampant for so long that major institutions issued public statements denying the rumors.

Following the Bear Stearns run on the bank, we and many others called on regulators to immediately clamp down on naked short selling. The SEC issued a temporary order that went into effect on July 21 prohibiting "naked" short selling of certain financial firms, including Lehman, Merrill Lynch, Fannie Mae and Freddie Mac. This measure stabilized the share prices of Lehman Brothers and the other firms. However, this restriction was temporary, and on August 13 it expired after 17 trading days. History has already shown how wrong and ill-advised it is to allow naked short selling.

Many of the firms that have recently collapsed or have been forced into emergency mergers, takeovers, or government bailouts  Bear Stearns, Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, AIG  did so during the gaps of time in which there was no meaningful regulation of naked short selling. On September 15, when the market opened after the collapse of Lehman, naked shorts appeared to turn their attention to Morgan Stanley and Goldman Sachs. In the three days between the announcement of Lehman Brothers' bankruptcy and the SEC instituting an emergency ban on short selling, Goldman Sachs' and Morgan Stanley's share prices fell 30% and 39% respectively. None of this was a coincidence.

After seeing this stock price reaction in the week following Lehman Brothers' bankruptcy, the SEC, like the Federal Reserve, took immediate action to stabilize the system. On September 18, following the decision of the Financial Services Authority in the United Kingdom a day earlier, the SEC instituted an emergency ban and other restrictions on short selling financial institutions. In taking these steps, Chairman Cox explained: "Given the importance of confidence in our financial markets as a whole, we have become concerned about the sudden and unexplained declines in the prices of securities. Such price declines can give rise to questions about the underlying financial condition of an issuer, which in turn can create a crisis of confidence without a fundamental underlying basis. The crisis of confidence can impair the liquidity and ultimate viability of an issuer, with potentially broad market consequences." These new restrictions are set to expire no later than October 17. Permanent regulation of naked short selling is needed to prevent a similar demise for the firms that survived with the government's help.

Watcher In The Middle
10-08-2008, 04:49 AM
Fix the Bailout to Help Homeowners - An Open Letter from Thomas Peterffy, Chief Executive Officer, Interactive Brokers Group

Dated: Friday October 3, 3:51 pm ET

GREENWICH, Conn.--(BUSINESS WIRE)--The following Open Letter appeared in Friday’s editions of the New York Times, Wall Street Journal and the Washington Post.

Even those political leaders that support the current bailout proposal don’t like it very much. The American people like it less. It creates a complicated bureaucracy, does not directly help homeowners and does not address the foreclosure crisis.

Amend the bill to allow the Treasury to provide direct mortgage assistance to all American homeowners.

If the Treasury were to pay the first $250 of every American’s primary residential mortgage each month for five years, the value of all mortgage-backed securities would rise immediately. The housing market would stabilize and the banking system with it.

The $250 monthly payment would be made to all homeowners who pay the rest of their monthly mortgage bill. It would help families and create a strong incentive for them to pay their mortgages.

Those homeowners behind in their payments could be given a window of time to bring their payments up to date and receive the subsidy retroactively for a specific number of months.

The program could be extended to current and future buyers with a declining subsidy as we go forward and further stabilize real estate markets.

Link To His Proposal (http://biz.yahoo.com/bw/081003/20081003005699.html?.v=1)

Opinions? The logic seems simple, and politically, it's going to come across as really appealing. But I've learned to look for the holes in these types of things, and the first one I see, which is a biggie, is that There has to be a hard and fast cap on the five year expiration - otherwise, it just becomes one big new added "entitlement".

reed11b
10-08-2008, 04:28 PM
Link To His Proposal (http://biz.yahoo.com/bw/081003/20081003005699.html?.v=1)

Opinions? The logic seems simple, and politically, it's going to come across as really appealing. But I've learned to look for the holes in these types of things, and the first one I see, which is a biggie, is that There has to be a hard and fast cap on the five year expiration - otherwise, it just becomes one big new added "entitlement".

Looks like a temporary extension of the "bubble" to me. Allowing mortgages to be refinanced based on lower housing values if the market falls would help homeowners more, not great for banks, but reduced income would have to be better then "no" income (foreclosures). Cost the taxpayer less as well. Of course I'm as far from a financial SME as one can get, so...:confused:
Reed

jmm99
10-08-2008, 08:24 PM
Forecasters see U.S. leading global downturn
IMF predicts credit crisis will cut world economic output sharply
AP
updated 2 hours, 12 minutes ago

WASHINGTON - The world economy will slow sharply this year and next, with the United States likely sliding into recession reflecting mounting damage from the most dangerous financial jolt in more than a half-century.

The International Monetary Fund, in a World Economic Outlook released Wednesday, slashed growth projections for the global economy and predicted the United States — the epicenter of the financial meltdown — will continue to lose traction.

"The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s," the IMF said in its report. ....

http://www.msnbc.msn.com/id/27083134/

The 10-year S&P chart (DJI would be similar) is of little comfort. It is hard to see a support level above 800 - it went through 1100 like a hot knife through butter. See attached.

jmm99
10-13-2008, 05:45 PM
The S&P hit 843 and has rebounded over 950 (see attached). However, if you bring up today's 10-year chart, that chart looks no different from that in the previous post.

The 10-year chart shows a classic double top - in the jargon of technical analysis. The double top theory holds that a drastic drop from the last top will reach, or go below, the valley between the two tops.

That valley (approx. 800-850 from the 10-year chart) is a support level. Whether that will hold up cannot be predicted (IMO) by technical analysis. There is not enough data over a long-enough time.

So, despite the rebound, the stock market is still a dangerous place.

bourbon
10-18-2008, 06:59 PM
Wall Street banks in $70bn staff payout: Pay and bonus deals equivalent to 10% of US government bail-out package (http://www.guardian.co.uk/business/2008/oct/17/executivesalaries-banking), by Simon Bowers. The Guardian, October 18 2008.

Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.

Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government's cash has been poured in on the condition that excessive executive pay would be curbed.
Hat Tip to Bob O'Brien of The Sanity Check (http://www.thesanitycheck.com/BobsSanityCheckBlog/tabid/56/EntryID/722/Default.aspx), who writes:

Let's face it, the same lying cheats who created the financial swindle of the century, via now worthless CDO and CMO products, who took out hundreds of billions of dollars in profits directly attributable to the creation of these instruments (a large number of which are likely worthless, as they are backed by non-existent mortgages or the same mortgages re-used countless times), created a crisis of their own devising (by shorting those same CDOs into the ground, thereby reducing the value of the collateral value, thus creating single handedly the "credit crisis"), after lobbying hard in 2004 to eliminate rules that barred the industry from eliminating reality-based loan loss reserves and levering up to dangerous levels, have put the pork to the nation's taxpayers yet again.

Never mind that the bailout plan isn't working. Credit markets are still locked up, because the recipients of the bailout aren't doing what they are supposed to with the money - lending it out. No, instead, they are holding on to it, which is sort of the same as saying the plan never would have worked given the character of those involved. But what are they doing with all the taxpayer money they are holding onto?

slapout9
10-18-2008, 09:23 PM
The Beatles wrote a song about how we will pay for it...The Taxman.


http://www.youtube.com/watch?v=8y2XLIitX8o

Schmedlap
10-18-2008, 10:06 PM
I found George Harrison's later work to be spot on for the current financial abortion.

http://www.youtube.com/watch?v=MOCBRkXlg-c

- time
- whole lot of precious time
- money
- whole lot of spending money

Those are not guarantees of a good outcome, but just what it's going to take to do it right. Until then, many people are going to have their minds set on this situation.

slapout9
10-18-2008, 11:47 PM
So did John Lennon....Power To The People.


http://www.youtube.com/watch?v=GpsF_0-ta_A

Ski
10-19-2008, 02:17 PM
Taxation isn't going to help much either when the country is close to $11T in debt.

We are digging a deeper hole by bailing out the system. We are borrowing money from the Middle East and Asia to fund the bailout packages.

American workers are literally going to have to work for free for some time in order to pay off the debt. If you start paying off the debt, and then start saving money (what novel concepts), then you can go forward.

The entire last month has been designed to limit political damage within the US establishment until the elections are complete. The same people who created this mess are supposed to be given a blank check, and they are supposed to get us out of this mess? I might have fallen off the turnip truck, but it wasn't yesterday.

Schmedlap
10-19-2008, 03:28 PM
I think that this is a sneak preview of the collapse of the ponzi scheme known as Social Security. The financial collapse that we are experiencing now was not forecasted until relatively soon before it happened - even the most far-sighted critics didn't make much noise until 2006. Social Security has been an emerging disaster for decades, and still, nobody is going to do anything about that train wreck until it has already crashed and burned. And then they'll just point fingers and borrow a bunch of money to throw at it. But we'll have some good times, borrowing, spending, and giving money away right up until that moment, so as to look out for "the little guy," whoever that is, and provide for our childrens' future, which is presumably to say that we're trying to give them a brighter one. Rock on.

Ken White
10-19-2008, 05:17 PM
'Cept Medicare will be first.

Congress. :mad: That simple.

slapout9
10-19-2008, 06:28 PM
Or we could do what the Constitution says and let congress authorize the printing of coins and money through the US Treasury and not the federal reserve which charges us interest to use our own money:eek:

http://www.prolognet.qc.ca/clyde/pres.htm

A more eloquent reply by James K. Galbraith
http://dir.salon.com/story/opinion/feature/2005/03/21/greenspan_deficits/

jmm99
10-19-2008, 08:01 PM
you are turning into a Galbraithian. :D

OK, here are some words of truth from JKG (same initials as dad).


(from JKG article)
"But don't we need the surplus to save Social Security? No. The policy of 'saving the surplus' contributes nothing to the future of Social Security. It is impossible for 'savings' today to 'pay' for pensions 20 years from now. Proposals to 'fund' Social Security misunderstand the basic fact that putting 'funds' into the 'trust fund' is redundant. Congress, not the trust fund, controls benefit levels paid under Social Security. The promises to pay are already written into law. The special government bonds that the trust fund holds and that Mr. Clinton would have the projected surpluses add to are mere symbols of that legal commitment. So long as Congress leaves the law intact, benefits will be paid whether or not a bond is held in the trust fund to be redeemed when future benefit payments are met."

I like to simplify this for folks in our respective Redneck Heavens - looking at present (## 1-3) to future (# 4 on) in steps:


1. SS taxes > SS "Trust Fund" (= XS of current SS taxes over current SS payments)

2. US bonds from Treasury > SS "Trust Fund" (bonds have to be paid for)

3. SS taxes (= to bond $) > US "General Fund" (Congress now has XS tax $ to spend)

4. SS taxes = current SS payments (no surplus $ in SS "Trust Fund"; no bonds issued; Congressional cash cow is now dead)

5. SS taxes << current SS payments (SS "Trust Fund" needs $; so, redeem US bonds)

6. US bonds from SS "Trust Fund" > Treasury (bonds have to be paid for)

7. Congress raises taxes (could be any or all taxes) to provide $ for redemption.

Note: You could put in a mesne step 6½, where the redemption $ are borrowed (all 75T looking at future SS and Medicare payments); but, at some point, you reach step 7.

As Schmedlap says, it's something of a Ponzi scheme - a fact pointed out in the New Deal era by a few conservative Democrats (northern species, IIRC) who were in and then out of that administration.

So, a question for Schmedlap: you are of a later generation than JMM (now 66) and Slap (who is younger still - ca. 10 yrs or so) and Ken (who wrote the original SS statute). Are you younger guys willing to pay the freight when we hit step 7 ?

JKG seems to think so; but, I'm not so sure. Recall the conversation between the teacher and the janitor in the Breakfast Club movie.

PS: - Slap. I'll have to look at the legal and economic reasoning behind Fed Res Notes - as opposed to Treasury Notes. If someone else has an objective explanation, please post it.

Ken White
10-19-2008, 08:02 PM
Are you out of your mind?

If the idiots in DC had to do that, they wouldn't know what to do, they'd sit on their hands...:eek::eek:

(and look how much better off we'd all be. Sigh... :wry: )

jmm99
10-19-2008, 08:33 PM
Done what research I plan to do. Looks like something similar to SS "Trust Fund":


Federal Reserve Notes are printed by the Bureau of Engraving and Printing (BEP), a bureau of the Department of the Treasury.[3] The Federal Reserve Banks pay the BEP only the cost of printing the notes (about 4¢ a note), but to circulate the note as new currency rather than merely replacing worn notes, they must pledge collateral for the face value, primarily in Federal securities.

http://en.wikipedia.org/wiki/Federal_Reserve_Note

So, in one way or the other, you end up at a "step 7".

Story on US Treasury-issued Notes is here.


After the end of the gold standard in 1933, all types of issued currency (silver certificates, Federal Reserve Notes, and United States Notes) were redeemable only for silver. This ceased to be the case in 1963-4, during a time in which all U.S. currency (both coins and paper currency) was changed to fiat currency. At this point, the United States Note became obsolete and began to be removed from circulation. No more were issued after January 21, 1971.

http://en.wikipedia.org/wiki/United_States_Note

See also, Treasury's explanations ("...no backing by anything..."):

http://www.ustreas.gov/education/faq/currency/legal-tender.shtml

Ken White
10-19-2008, 09:10 PM
...and Ken (who wrote the original SS statute).with that consumate Krupp / Bismarkian rip off of the American taxpayer. None.

I can however remember how much more independent and self reliant people were before the tentacles of SS took hold in the late 50s after the first generation departed. Been downhill ever since...
... Are you younger guys willing to pay the freight when we hit step 7 ?I hope not. That's the only thing that's likely to introduce some fiscal sanity to DC.

Because I have a Federal pension, my SS is reduced to about half the average payment -- I shouldn't be getting anything if it were properly means tested so I'm effectively ripping off Schmedlap and my kids to plunk money in said kids inheritance (unless I drink it up first... :D ). SS was a very bad idea to begin with, aimed at putting too-independent Americans in thrall to their government and it has morphed into a middle class vote buying scam. Criminal malfeasance on the part of a slew of Congroids over a good many years...
...If someone else has an objective explanation, please post it.All part of the Fed's plot to rule the world economy IAW there own view of who should have money and who should not...:eek:

Thank Congress... :mad:

And believe it or not, none of this is really off-thread. Regrettably. It isn't because it concerns how Congress acquires and spends tax dollars, a direct contributor to the current fiscal foolishness.

Schmedlap
10-19-2008, 10:28 PM
So, a question for Schmedlap: you are of a later generation than JMM (now 66) and Slap (who is younger still - ca. 10 yrs or so) and Ken (who wrote the original SS statute). Are you younger guys willing to pay the freight when we hit step 7?

I can only speak for myself, but I would be overjoyed if the new policy were as follows...
- If you are 30 or younger as of today, you will never see one dime of SS benefits.
- If you are 31 to 55 as of today, your benefits will be cut by your age of eligibility minus your current age, expressed as a percentage.
- Those over 55 get the full benefit.
- Everyone 25 or older as of today continues paying into the system until the last geezer eligible for it croaks.

Yes, I'm willing to pay, so long as there is a light at the end of the tunnel. That light, ideally, is a giant sign reading, "the end." I guess I am so numbed to having the government take too much of my money and fritter it away on layabouts and lobbyists that I would be happy if the status quo changed from screwing me and then screwing the country to simply screwing me but helping the country.

jmm99
10-20-2008, 12:53 AM
but I suspect it may have to be tweaked by some give-up by the "geezers" as well. Nothing special in my mind, but I think the crunch will hit first in Medicare (as Ken has already said in a non-Bravo Sierra comment).

So, I expect that some of the "geezers" who can afford it (not those who are at the edge now) will have to cough up more in Medicare premiums - I among them. That would have to be re-calculated each year.

It would be better if everyone realized (and all the pols would say) that SS and Medicare are "pay as you go" programs - and end the BS about it. We would have been better off if, in the past, SS taxes had been reduced to what was needed for SS payments only.

PS: still in law school ? If so, and if you care to respond, send a PM so as not to disrupt the thread.

slapout9
10-20-2008, 01:04 AM
you are turning into a Galbraithian. :D



jmm99, I am a Galbraithian.....who was a physical economist vs. a monetarist. A physical economist understands the difference between wealthy and rich. Wealth is physical ability to produce goods and services that provide life support:wry:

Money has NO value unless it can be used to purchase such goods and services. If you were on a desert island and had a pile of cash or gold for that matter it would not save your life. But if you had a water and electric plant,etc. you would be wealthy without any money. That is a critical difference in the two theories.

That is why JKM makes the remark in his article that if the physical resources are not there to support the aging population money want matter!! If there are no nursing homes or hospitals all the money in the world will not help you. Make since? if you have the physical economy something will and can be used as money, if the situation is reversed you are in deep trouble.

Remember the Arab Oil embargo's? No oil was being released by the ME so no amount of money would help you at all. But if we had a well planned physical economy that uses the physical resources we have in our country it wouldn't matter. We did this during WWII, why not now?

How the money system would and has worked. The treasury should print the money interest FREE and fund productive projects that have a built in REPAYMENT mechanism and it does not need to be a tax, it can be a bill of some type like an electric bill. A good example was/is the TVA the Tennessee Valley Authority started by FDR with low federal financing and it was all paid back because everyone gets an electric bill each month. That is what JKM called the public purpose or public infrastructure spending the government should do during the time of recession or all the time for that matter. All the time would be better because as new technologies become available older ones could be phased out. Make sense?


The best Reference on the difference between Fed notes vs Treasury notes happened during the Andrew Jackson administration when the Fed was going to be and was abolished!!! It was giving a 20 year charter when it was first created and Jackson fought and won against the bankers, of course the Bankers waited until his term was over and they started what was referred to as the 2nd national bank.:eek:

Just think about it ALL bills are paid by TAXES so we created a private baking system that loans us our money plus interest they we have pay back to ourselves (the Taxpayers) and the private banks keep the interest??? That is crazy:eek: It needs to be changed back to the original constitutional law.

Ref. History of 2nd National Bank.
http://en.wikipedia.org/wiki/Second_Bank_of_the_United_States

jmm99
10-20-2008, 01:10 AM
wouldn't know where to begin with post # 142. I think I agree with some of it (JC, maybe most of it ?) - and it is definitely on-topic.

I do agree with the proposition that we should drink our kids' inheritances. My only problem is that I can't handle half a fifth of bourbon (figured you for the other half) anymore - if I woke up the next day, I would be a-wishin that I hadn't.

I think maybe we should start listening to Schmedlap.

PS: My limit for Sundays is a glass of wine at dinner and 2 shots (full shots) after. I am now at step 3.

slapout9
10-20-2008, 01:33 AM
This is cool FDR speech on how he dealt with home foreclosures...Telegraph Washington immediately of your situation...what a leader....Can we clone him?


http://www.youtube.com/watch?v=PXY7TkrPPzI&feature=related

jmm99
10-20-2008, 02:17 AM
and not that much committed to fancy economic theory because too much of it is (1) not mathematically sound at its base premises (although it uses very provable formulas from those premises); and (2) is often divorced from the real world which I perceive and in which I live.

Agreed: money, gold, crude oil (and you could name 1000s of other things) have no value, unless they can be applied to get something else needed to survive (1st goal) and live better (2nd goal - varies with the person as to what that means).

Agreed: have to have a working physical economic system for anything to work at all. Could use barter (lots of people in the underground economy are doing just that today), but that is not very efficient for multi-party transactions. Don't really need money - could do it by accounting entries (which is what we are doing in large part today).

Agreed: that a "well-planned" physical economy (and accounting system) is necessary - and is sufficient. The issue is who does the planning - if the government, I am off the ship and onto the desert island with necessary survival gear.

Agreed: that Fed Res is an unnecesary step in the process. If all the banks want to get together and have a central bank which is unlinked in every way to the government, so be it. My understanding of how the Fed works is basically buying open-market government paper by writing a check on itself (neat, heh). It gets the bonds and the seller has a choice of a Fed Res account (an accounting entry) or taking payment in Fed Res notes. Treasury could do (and used to do) the same thing, without the mesne costs.

Agreed: that some government programs (but certainly not all - and I suspect a minority) have a real benefit. TVA may well be one of them - I don't know that much about it, but it is in your backyard, so I'll accept your judgment unless proven wrong by facts. In any event, if you are going to spend $150B, don't give it in "tax rebate checks"; but spend it on infrastructure - agree with the Mike from Arkansas on that one.

Agreed: we love Andrew Jackson (actually have studied him a bit - and the Taney SCOTUS which he in large part created); but I am totally biased because he was the first real Irish-American president (both parents born in the North of Ireland).

Not sure about the exact economics of your last paragraph. The Fed Res balance sheets are discussed in Econ 101 (from my son's text of 20 years ago); but they aren't accompanied by the profit and loss statements. I don't know how the Fed Res accounts for its income, or what it is in $. It may use some form of fund accounting that ends up showing no profit or loss - but has to show "unused funds" ("profits") somewhere - that from my wife who did fund accounting for an NGO before she had to go on SS disability.

------------------------------------------
My personal approach has been to not get involved with the "macro-economic program"; and focus on personal survival against whatever the idiots come up with. So, basic program was (1) get out of debt early, and not incur any except for current accounts; (2) have bought and paid for what we need to survive and live a comfortable, modest life; (3) continue to work to the extent physically and mentally able; and (4) have some liquid assets to meet emergencies - cuz, Slap, whatever you say, money at certain points does talk - and the rest walks.

PS: - on FDR (actually in my time for 3 years), we agree and disagree - lots of pluses and lots of minuses. You and I would have to write a book to even start to discuss that complex man and his administrations.

tequila
10-21-2008, 12:44 AM
A superb post in The Financial Times' Alphaville blog about where the true blame rests for the financial apocalypse:

In defense of hedge funds (http://ftalphaville.ft.com/blog/2008/10/15/17076/in-defence-of-hedge-funds/)



The US Treasury - just like Lehman - has spent months holding onto the mantra that the banks are not to blame. Fear and fear alone was causing trouble for the banks, was the parroted line. The whole wrong-headed architecture of the Tarp was prefaced on the same worldview: more liquidity and more confidence was needed, not more capital ...

It has taken Paulson two long weeks to come around to the idea that the banks need recapitalising. That’s two painful weeks to face up to the fact that actually, the banks’ problems were not mere fictions conjured by the scurrilous iconoclasts of Greenwich, CT, but were real, palpable, and destabilising.

...

Firstly - on “providing a market for toxic instruments”. Let’s take mortgage-backed CDOs as an example, since they are the archetypal ‘toxic’ instrument at the heart of the current crisis. This explanation is a little simplified, but hopefully it catches the gist of the matter. It’s right to say, as Peston does, that hedge funds were often the happy buyers of the lowest tranches: the mezz and equity pieces that support above them a far greater number of AAA-rated senior tranches and are nominally considered the “toxic” pieces.
Alas, the “toxicity” of CDOs is nothing to do with the equity or mezz pieces. The problem with CDOs is that the senior, AAA-rated pieces were mispriced. Consider: relatively speaking, who has lost more in the current market: buyers of BBB-rated equity pieces, who always knew what they were buying was risky, and got paid accordingly, or buyers of AAA-rated super-senior pieces, who thought the paper they were holding had a near-zero chance of defaulting? Answer: AAA ...

Many in the market - particularly hedge funds - knew that the AAA CDO tranches were artificially secure and accordingly mispriced. There was, in technical parlance, a “correlation” problem waiting to happen in CDOs. Which is why the smart money stopped buying the senior pieces a long time ago. Banks still wanted to issue CDOs though - something they couldn’t do without any AAA tranche buyers. To keep the money-machine turning, they found otherways to shift the AAA. They kept it on their balance sheets and hid it with derivative contracts issued by monolines (negative basis trades). Or else they loaded the tranches into huge, opaque funds backed by commercial paper markets (ABCP conduits). These actions allowed the CDO market to truly develop into a bubble over 2006/07. Had the banks not have artificially created AAA buyers, many of the riskiest CDOs would never have been created.

When defaults did eventually tick up and damage CDO structures in a far more violent way than predicted, these actions by the banks in artificially propping the AAA market had two profound effects. Firstly, those banks that had kept AAA-rated CDO pieces on their own balance sheets had to take huge writedowns and suffered from crippling capital impairment charges. No-one knew exactly how much bad AAA debt banks had hidden and thanks to shoddy reporting, it has taken 18 months to come clean. This has had a profound and lasting effect on market confidence. Secondly, those that had stuffed the AAA-rated tranches into funds backed by commercial paper, caused the fear to instantly spread to the highly conservative commercial paper (CP) market. Being one of the biggest and supposedly liquid markets in the world, this instantly turned the crisis into a systemic problem. And not a hedge fund in sight.


Fraud and chicanery at the highest levels, not just amongst the swarms of mortgage brokers filling out false applications for subprime borrowers but in the offices of Morgan Stanley, Goldman Sachs, my own employer Lehman Brothers, and Bear Stearns brought this on. Though, of course, whether any of this is actually illegal is dubious - much of the market for monoline insurance is nothing more than a regulatory dodge in order to speculate, for example. The regulatory holes have been opened by decades of investment banking money flowing to the White House and Congress, and even more so by the gentle hands of the person chosen to regulate, often doing stints in between i-banking gigs.

Schmedlap
10-21-2008, 01:47 AM
I particularly enjoyed this letter, excerpted on the front page of this weekend's Financial Times. Andrew Lahde ran a successful hedge fund that profited handsomely from anticipating the subprime collapse...

Letter: Andrew Lahde, Ladhe Capital Management (http://www.ft.com/cms/s/0/128d399a-9c75-11dd-a42e-000077b07658,s01=1.html?nclick_check=1)

He writes:

"On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen."

Prior to that, he writes, in more entertaining fashion...


"I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America."
...
"I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life – where I had to compete for spaces in universities and graduate schools, jobs and assets under management – with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established."

slapout9
10-22-2008, 08:07 PM
This is interesting.... what did Paulson know and when did he know it.... concerning mortgage fraud???Looks like about 2006.

http://www.fincen.gov/news_room/rp/reports/pdf/MortgageLoanFraud.pdf

tequila
10-22-2008, 08:40 PM
The ratings agencies got their (http://www.bloomberg.com/apps/news?pid=20601087&sid=ac8Bkp_7F4Rc&refer=home) day (http://www.cnbc.com/id/27321998/) up on Capitol Hill in front of Henry Waxman and associated torturers. They were the ones who enabled the mispricing of AAA-rated derivatives.

Kill quotes:


Employees at Moody's Investors Service told executives that issuing dubious creditworthy ratings to mortgage-backed securities made it appear they were incompetent or ``sold our soul to the devil for revenue,'' according to e-mails obtained by U.S. House investigators.

...

An e-mail that a S&P employee wrote to a co-worker in 2006, obtained by committee investigators, said, ``Let's hope we are all wealthy and retired by the time this house of cards falters.''

...

Official #1: Btw (by the way) that deal is ridiculous.

Official #2: I know right...model def (definitely) does not capture half the risk.

Official #1: We should not be rating it.

Official #2: We rate every deal. It could be structured by cows and we would rate it.

...

Former Managing Director Jerome Fons, who worked at Moody's until August of 2007, says Moody's was focused on "maxmizing revenues," leading it to make the firm more "issuer friendly."

slapout9
10-22-2008, 11:18 PM
The ratings agencies got their (http://www.bloomberg.com/apps/news?pid=20601087&sid=ac8Bkp_7F4Rc&refer=home) day (http://www.cnbc.com/id/27321998/) up on Capitol Hill in front of Henry Waxman and associated torturers. They were the ones who enabled the mispricing of AAA-rated derivatives.

Kill quotes:



Absolutely scary:eek:

slapout9
10-23-2008, 12:01 AM
Link to The Predator (Criminal State)

http://www.motherjones.com/commentary/columns/2006/05/predator_state.html

MikeF
10-23-2008, 04:16 PM
Bernanke Is Fighting the Last War (http://online.wsj.com/article/SB122428279231046053.html)

'Everything works much better when wrong decisions are punished and good decisions make you rich.'

by Brian Carney, WSJ


Instead, we've been hearing for most of the past year about "systemic risk" -- the notion that allowing one firm to fail will cause a cascade that will take down otherwise healthy companies in its wake.

Ms. Schwartz doesn't buy it. "It's very easy when you're a market participant," she notes with a smile, "to claim that you shouldn't shut down a firm that's in really bad straits because everybody else who has lent to it will be injured. Well, if they lent to a firm that they knew was pretty rocky, that's their responsibility. And if they have to be denied repayment of their loans, well, they wished it on themselves. The [government] doesn't have to save them, just as it didn't save the stockholders and the employees of Bear Stearns. Why should they be worried about the creditors? Creditors are no more worthy of being rescued than ordinary people, who are really innocent of what's been going on."

It takes real guts to let a large, powerful institution go down. But the alternative -- the current credit freeze -- is worse, Ms. Schwartz argues.


v/r

Mike

slapout9
10-27-2008, 04:56 PM
Did anybody watch 60 minutes last night? They had a good story about CDS(credit default swaps). In 1907 they considered GAMBLING and were declared illeagal. So the investment banker went to Congress and had the law changed saying they were not gambling...the rest is history. if you get the chance watch it.

bourbon
11-15-2008, 06:48 PM
The End, by Michael Lewis. Portfolio, Nov 11 2008. (http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom)

The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong.
An exceptional article by Michael Lewis who can explain esoteric subjects, while making it readable and funny, better then any author out there.


The SEC Scandal You Don’t Read About in the Papers (http://www.deepcapture.com/the-sec-scandal-that-the-papers-dont-print/), by Mark Mitchell. DeepCapture, November 12th, 2008.

There was an article in The New York Times yesterday about the SEC’s disgraceful ruling that it will take no disciplinary action against the SEC cronies at the center of the Gary Aguirre scandal. Read through the Times’ false veneer of objectivity, and it seems that reporter Walt Bogdanich is trying to say that it’s pretty damn strange that a corrupt SEC has been allowed to adjudicate its own corruption.

Stranger still, no other journalist has expressed outrage over this. Meanwhile, the nation’s mainstream media (The New York Times included) has yet to deliver a story describing the Aguirre scandal’s most important component – the bit that makes it the greatest scandal in the history of the SEC and which helps explain why the commission failed to stop a crime that later contributed to the near total collapse of the American financial system.

bourbon
11-22-2008, 06:00 PM
Former SEC chairman Harvey Pitt on CNBC last night (http://www.cnbc.com/id/15840232?video=935343729&play=1):

“there’s a very simple solution…if you want to sell a stock short, you have to have a legally enforceable rule to produce that stock on settlement day. That’s all it takes.”

“naked short selling is what’s causing a lot of the problems in the market.”

"That's been the real problem...people in effect are just gambling, they're assuming the stock price will go down. They then spread false rumors to help the stock price go down. But they have no skin in the game because they haven't committed to produce the shares they purportedly are selling."
h/t: DeepCapture (http://www.deepcapture.com/live-on-cnbc-naked-shorts-causing-market-mayhem/)

Schmedlap
11-23-2008, 04:47 AM
Very disturbing article in Business Week: Sex, Lies, and Subprime Mortgages (http://www.businessweek.com/print/magazine/content/08_47/b4109070638235.htm).

It tells tales of people who know nothing about the mortgage industry (including a high-school dropout working as a manicurist who went to work for a mortgage wholesaler and earned 7 figures), engaging in deliberate fraud on a massive scale. These are not high echelon financial bogeymen in smoke filled backrooms. These are the rank and file of the industry - the folks who live and work among us - working feverishly to falsify as many documents as possible on a daily basis. Why did they do it? Possible explanations: everyone else was doing it, you could get away with it, the money was great. Possible excuses: none. The saddest part - sadder than what it has done to our economy - is that the blame will be placed squarely on people at the top, even though the people at the bottom were adults knowingly engaging in unethical, illegal behavior.

tequila
11-23-2008, 05:42 AM
Wrong. The blame belongs squarely at the top.

The assorted unqualified losers who jumped onto the gravy train at Ameriquest and other assorted mortgage brokers that drove the subprime fiasco and committed fraud on a vast scale did not think this crap up themselves. They were the fringes of a cowboy industry set up to feed a vast demand for securitized loan products built on American mortgages.

This demand was stoked and in part created by the people at the top - the investment banking industry, the hedge funds, the ratings agencies, the Federal Reserve under Greenspan - who all had an interest in pumping or ignoring the enormous derivatives bubble built on American real estate.

The little fish are small fry. Most of them are nowadays as bankrupt as their victims. Sure, just like small-time corner boys selling crack and heroin, they knowingly commit terrible acts. But to vilify them in exclusion to the kingpins who created them, who supplied them, who enabled and protected them --- no way.

Schmedlap
11-23-2008, 04:17 PM
Wrong. The blame belongs squarely at the top.

The assorted unqualified losers who jumped onto the gravy train at Ameriquest and other assorted mortgage brokers that drove the subprime fiasco and committed fraud on a vast scale did not think this crap up themselves...
... But to vilify them in exclusion to the kingpins who created them, who supplied them, who enabled and protected them --- no way.

That sounds like "I was just following orders."

Blame the guys at the top because they are guilty, but exclude the guys at the bottom because they are guilty? Why not blame both? I don't see why it needs to be one or the other. Focusing the blame on just the fat cats helps to fuel the class warfare angle of the issue, rather than forcing people in this country to come to terms with the fact that most (of all classes) have been living beyond their means. The rich can be catalysts for unethical behavior, but they cannot pull it off themselves. If people placed value upon personal responsibility and ethics, then the rich folks would have had a much tougher time - and maybe more people would have blown the whistle earlier and more would have listened.

The fat cats couldn't have done it without the assorted losers. And the losers couldn't have done it without the fat cats. Focusing all vitriol upon only the fat cats just tells the losers to wait for the next gravy train out of the station and to apply their lessons learned on that next joyride.

Ken White
11-23-2008, 05:07 PM
enablers -- big time enablers -- in this fiasco...

We used to be able to punish the guilty in this country; all of them, high and low -- now we punish the innocent. :mad:

bourbon
11-25-2008, 01:35 AM
Anatomy of the Morgan Stanley Panic: Trading Records Tell Tale of How Rivals' Bearish Bets Pounded Stock in September (http://online.wsj.com/article/SB122748970896452051.html?mod=googlenews_wsj), by SUSAN PULLIAM, LIZ RAPPAPORT, et. al. The Wall Street Journal, NOVEMBER 24, 2008.

Trading records reviewed by The Wall Street Journal now provide a partial answer. It turns out that some of the biggest names on Wall Street -- Merrill Lynch & Co., Citigroup Inc., Deutsche Bank and UBS AG -- were placing large bets against Morgan Stanley, the records indicate. They did so using complicated financial instruments called credit-default swaps, a form of insurance against losses on loans and bonds.
Emphasis mine.

As Morgan Stanley's stock tumbled, the number of shares sold short by bearish investors soared to 39 million on Sept. 17, nine times the daily average this year, adding to the 31 million shares shorted in the prior two days, according to trading records.

Mr. Mack sent a memo to employees on Sept. 17. "I know all of you are watching our stock price today, and so am I.… We're in the midst of a market controlled by fear and rumors, and short sellers are driving our stock down."

The stock and swaps trading were feeding on each other. That afternoon, Mr. Schorr, the UBS analyst, wrote: "Stop the insanity -- we need a time out." In an interview that day, he said "the negative feedback loop of stocks and CDS making each other crazy shouldn't be able to destroy the value of companies."
Guess how many failures to deliver for Morgan Stanley there were on September 17?
30,706,728

Naked Shorts Frolic While Financial System Fries (http://www.deepcapture.com/naked-shorts-frolic-while-financial-system-fries/), by Mark Mitchell. DeepCapture, October 10th, 2008.

Here we go again. A giant bank has some weaknesses, but it is, in all respects, a going concern — except that short sellers are peddling rumors and phantom stock, so the share price is plummeting. With the share price in peril, the rating agencies (perhaps over vigilant after taking so much criticism from short sellers and the media) put the bank’s debt ratings on review for a downgrade.

Meanwhile, short sellers corner the market for the bank’s credit default swaps, and point to the value of the CDS as evidence that the bank is doomed. They feed the media with analyses and bogus indexes that mark the bank’s assets to nothing. They spread the news that the bank’s counterparties and trading partners could bail.

The clients and partners stay with the bank. Up until now they have no reason not to.

But then, there’s more naked short selling, the hedge funds flooding the market with stock they do not possess – phantom stock. Maybe the hedge funds send a fax to CNBC with one last rumor. Over the course of a day or two, the stock price is slashed in half.

Then, suddenly, the stock is in the single digits.

As a result of the low stock price – not as result of the balance sheet – the bank’s partners and clients freak out. This time, they really do pull their money.

End of bank.

bourbon
11-26-2008, 04:32 PM
Gentleman, my jaw is on the floor.

The US Treasury Market Reaches Breaking Point (http://www.euromoney.com/Article/2054070/Category/1/ChannelPage/0/The-US-treasury-market-reaches-breaking-point.html), by Helen Avery. Euromoney Magazine, November 25, 2008.

As attention focuses on the treasury market's ability to cope with the US's growing funding needs, Euromoney reveals the structural issue that could cause the world's market of last resort to grind to a halt in its hour of greatest need.

The problem: the settlement system for the US government has broken down.


Following the collapse of Lehman Brothers in September, fails to deliver among the 17 primary dealers in the US treasury market have rocketed to more than $2 trillion over a period of weeks and still lie above $1.3 trillion.

Economists also claim that fails have spread across to other bond markets such as municipals, agencies, mortgage-backed and corporate-bonds.

Failures in US treasuries were 8.6% of all treasuries outstanding in the first five months of this year, compared with 1.2% in the first five months of 2007. That has ballooned further over the past three months, hitting more than $2 trillion for almost the entire month of October - more than 20% of the daily treasuries trading volume.

Trimbath believes that given that a blind eye was turned to fails in the treasuries markets, that in turn encouraged fails to deliver in the mortgage bond markets and to a lesser extent the corporate bond market. "In 2004 the failure to deliver rate for a government agency MBS was 40%," she says.

This failure to deliver also has the effect of creating phantom securities - a higher number in the system than actually exist.

"By selling bonds that they cannot or will not deliver to the buyer, the dealers have been allowed to artificially inflate supply, thereby forcing prices down."
(h/t: The Sanity Check (http://www.thesanitycheck.com/BobsSanityCheckBlog/tabid/56/EntryID/730/Default.aspx))

slapout9
11-26-2008, 04:59 PM
If we don't start putting some people in jail where they belong this will never stop.

tequila
11-27-2008, 07:11 AM
That sounds like "I was just following orders."

Blame the guys at the top because they are guilty, but exclude the guys at the bottom because they are guilty? Why not blame both? I don't see why it needs to be one or the other. Focusing the blame on just the fat cats helps to fuel the class warfare angle of the issue, rather than forcing people in this country to come to terms with the fact that most (of all classes) have been living beyond their means. The rich can be catalysts for unethical behavior, but they cannot pull it off themselves. If people placed value upon personal responsibility and ethics, then the rich folks would have had a much tougher time - and maybe more people would have blown the whistle earlier and more would have listened.

The fat cats couldn't have done it without the assorted losers. And the losers couldn't have done it without the fat cats. Focusing all vitriol upon only the fat cats just tells the losers to wait for the next gravy train out of the station and to apply their lessons learned on that next joyride.

The losers will ALWAYS be around for the next bubble, if only because there will always be people who will agree to take large amounts of money for little work, especially if that work is something they neither understand and especially when they often have little money to start with. And those losers can and often are punished - witness the bankruptcies and job losses at the mortgage brokers like Ameriquest.

The fat cats, on the other hand, get bailed out like Citigroup just did, in the latest outrage that Paulson & Co. have foisted upon us.

More importantly, it is the fat cats, as I've gone on and on about, who have turned what would be a normal real estate housing bubble, affecting homebuyers and construction companies and some small banks in certain regions, into global financial apocalypse that is putting the creditworthiness of the United States itself at risk.

An informative article (though the last bit about Wall St. investment banks going public is not that convincing) from Michael Lewis, who was there for the birth of mortgage-backed securities:

The End of Wall St's Boom (http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?print=true)


Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism. For instance, he knew that the big Wall Street investment banks took huge piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 percent of the new total being rated AAA.

But he couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says.

...

Later, when I sit down with Eisman, the very first thing he wants to explain is the importance of the mezzanine C.D.O. ... “You have to understand this,” he says. “This was the engine of doom.” Then he draws a picture of several towers of debt. The first tower is made of the original subprime loans that had been piled together. At the top of this tower is the AAA tranche, just below it the AA tranche, and so on down to the riskiest, the BBB tranche—the bonds Eisman had shorted. But Wall Street had used these BBB tranches—the worst of the worst—to build yet another tower of bonds: a “particularly egregious” C.D.O. The reason they did this was that the rating agencies, presented with the pile of bonds backed by dubious loans, would pronounce most of them AAA. These bonds could then be sold to investors—pension funds, insurance companies—who were allowed to invest only in highly rated securities. “I cannot ####ing believe this is allowed—I must have said that a thousand times in the past two years,” Eisman says.

...

FrontPoint had spent a lot of time digging around in the dog #### and knew that the default rates were already sufficient to wipe out this guy’s entire portfolio. “God, you must be having a hard time,” Eisman told his dinner companion.

“No,” the guy said, “I’ve sold everything out.”

After taking a fee, he passed them on to other investors. His job was to be the C.D.O. “expert,” but he actually didn’t spend any time at all thinking about what was in the C.D.O.’s. “He managed the C.D.O.’s,” says Eisman, “but managed what? I was just appalled. People would pay up to have someone manage their C.D.O.’s—as if this moron was helping you. I thought, You prick, you don’t give a #### about the investors in this thing.”

Whatever rising anger Eisman felt was offset by the man’s genial disposition. Not only did he not mind that Eisman took a dim view of his C.D.O.’s; he saw it as a basis for friendship. “Then he said something that blew my mind,” Eisman tells me. “He says, ‘I love guys like you who short my market. Without you, I don’t have anything to buy.’ ”

That’s when Eisman finally got it. Here he’d been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. There weren’t enough Americans with ####ty credit taking out loans to satisfy investors’ appetite for the end product. The firms used Eisman’s bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. “They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford,” Eisman says. “They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?”

slapout9
11-27-2008, 01:15 PM
The losers will ALWAYS be around for the next bubble, if only because there will always be people who will agree to take large amounts of money for little work, especially if that work is something they neither understand and especially when they often have little money to start with. And those losers can and often are punished - witness the bankruptcies and job losses at the mortgage brokers like Ameriquest.

The fat cats, on the other hand, get bailed out like Citigroup just did, in the latest outrage that Paulson & Co. have foisted upon us.

More importantly, it is the fat cats, as I've gone on and on about, who have turned what would be a normal real estate housing bubble, affecting homebuyers and construction companies and some small banks in certain regions, into global financial apocalypse that is putting the creditworthiness of the United States itself at risk.


The End of Wall St's Boom (http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?print=true)


tequila you got my vote. Management has the responsibility of due diligence before it gets to the point of sale.

selil
11-28-2008, 03:38 PM
I put the financial crisis issues into two buckets.

1) Corporate personage - Thomas Jefferson wanted to have it declared that Constitutional rights should be for people and tried to make that an amendment. The pro-slavery group and anti-slavery groups for various reasons fought that amendment. Corporations have no soul and can't go to jail. In fact in many laws they are considered super-persons with extensive extensions to financial laws and rights.

2) The stock market - which is not the economy. The stock market is a false economy that allows companies to leverage from below wort to 30 or 40 times their possible valuation based on future worth. Volatility of the stock market is "emotion" rather than "logic" and as such can be manipulated by any of the many information operations tools.

reed11b
11-28-2008, 05:47 PM
2) The stock market - which is not the economy. The stock market is a false economy that allows companies to leverage from below wort to 30 or 40 times their possible valuation based on future worth. Volatility of the stock market is "emotion" rather than "logic" and as such can be manipulated by any of the many information operations tools.

Thank you sir, I have been looking for a way to explain my opposition to a system based on "growth" over one being based on sustainable profit. Your discourse on the subject is spot on and says it far better then I could. I also agree strongly with point one, but that standpoint has been easier to articulate.
Reed

Schmedlap
11-29-2008, 08:52 AM
The losers will ALWAYS be around for the next bubble, if only because there will always be people who will agree to take large amounts of money for little work, especially if that work is something they neither understand and especially when they often have little money to start with. And those losers can and often are punished - witness the bankruptcies and job losses at the mortgage brokers like Ameriquest.

I'm with you regarding the fat cats being dirt bags. I'm amazed at how casually you dismiss the complicity of the rank and file.

120mm
11-29-2008, 02:22 PM
I put the financial crisis issues into two buckets.

1) Corporate personage - Thomas Jefferson wanted to have it declared that Constitutional rights should be for people and tried to make that an amendment. The pro-slavery group and anti-slavery groups for various reasons fought that amendment. Corporations have no soul and can't go to jail. In fact in many laws they are considered super-persons with extensive extensions to financial laws and rights.

2) The stock market - which is not the economy. The stock market is a false economy that allows companies to leverage from below wort to 30 or 40 times their possible valuation based on future worth. Volatility of the stock market is "emotion" rather than "logic" and as such can be manipulated by any of the many information operations tools.

The stock market is not the economy, but it is the heart beat of the economy. Everyone on earth with two grey cells in their head knows that stock values "should" be around 15 times current values and "cannot" be over 25. Arguing what stock values "should" be is just like disbelieving the ability of an airfoil to fly. Unfortunately for foolish investors, (But fortunately for the rest of us) large crowds of idiots are willing to risk their money to buy tulip bulbs just because everyone else is, no matter what the price.


Thank you sir, I have been looking for a way to explain my opposition to a system based on "growth" over one being based on sustainable profit. Your discourse on the subject is spot on and says it far better then I could. I also agree strongly with point one, but that standpoint has been easier to articulate.
Reed

You can oppose the law of gravity (or aerodynamics) all you want, but you really can't change it. Of course, you could revert to a command economy, such as many are now advocating, but I think we all know how that one is going to turn out.... "Sustainable economy" is buzz-speak for Marxist Command Economy controlled by an "elite"....

selil
11-29-2008, 03:17 PM
Everyone on earth with two grey cells in their head knows that stock values "should" be around 15 times current values and "cannot" be over 25. Arguing what stock values "should" be is just like disbelieving the ability of an airfoil to fly.

We'll have to agree to disagree. Numerous corporations exist that are not in the stock market. LARGE ones. Picking leverage numbers out of the air does not make them right. They also reflect the same kind of thinking that has the balloon going pop for the second time in less than a decade. Allen Greenspan in 1998-9 made the comment that there was no "right" number or span of "correct" leverage for companies and he was going to get a handle on the rising tech economy. 2000 wasn't much fun for a lot of people. The entire story of "Barbarians at the Gate" is based on sub-valuation. When Sun Microsystems former CEO Scott Mcnealey threatened in 2002 to buy back all Sun stock because they had more cash on hand than the stock was worth the SEC stopped him. He quit not long after that.

As to the comment the stock market is the heart beat of the economy. I rather consider it a cancerous tumor strangling the livelihood of the middle class and ruining the competitive nature of the country while simultaneously engorging the pocket books of those who do no work and stripping the savings of those who do. I haven't seen any politician suggesting we put all of social security in the stock market lately have you? Maybe the visualization should be that of a hydra snarling at each criticism as it eats our children. I don't care about leveraging value out of stock quarter to quarter. That is short sighted and evil in that somebody will lose. I want to see well managed companies with flat stock prices paying dividends out of profits. In other words real growth not sucker-winner bets.

Motley Fool disclosure: Unlike my father and those in government service with pensions my ENTIRE retirement rides on the whims of the stock market. A legal policy framework of government that I have no choice about. If I want to have a savings retirement plan all of the available tools for a civilian are 401K, IRA, and annuity of which they are tied to the stock market entirely.

slapout9
11-29-2008, 03:36 PM
I want to see well managed companies with flat stock prices paying dividends out of profits. In other words real growth not sucker-winner bets.


Ah Ha, the original purpose of buying a stock in the first place, to help companies have stable capital access to finance expansions and improvements in the products that the company makes. Whenever we violate the original purose of a system we do so at our own peril.

120mm
11-29-2008, 07:33 PM
We'll have to agree to disagree. Numerous corporations exist that are not in the stock market. LARGE ones. Picking leverage numbers out of the air does not make them right. They also reflect the same kind of thinking that has the balloon going pop for the second time in less than a decade. Allen Greenspan in 1998-9 made the comment that there was no "right" number or span of "correct" leverage for companies and he was going to get a handle on the rising tech economy. 2000 wasn't much fun for a lot of people.

A lot of stupid, greedy people that is. Who didn't have the sense to pour pee out of a boot with the instructions on the heel and got precisely what they deserved... Infinite valuations? Ya gotta be kidding me.... BTW, if anyone still thinks Greenspan is a genius, I have a bridge in Brooklyn to sell you...


The entire story of "Barbarians at the Gate" is based on sub-valuation. When Sun Microsystems former CEO Scott Mcnealey threatened in 2002 to buy back all Sun stock because they had more cash on hand than the stock was worth the SEC stopped him. He quit not long after that.

As to the comment the stock market is the heart beat of the economy. I rather consider it a cancerous tumor strangling the livelihood of the middle class and ruining the competitive nature of the country while simultaneously engorging the pocket books of those who do no work and stripping the savings of those who do.

Ah, yes. The Marxist myth of the eeeeevil idle rich. Very nice.... Nevermind that average investors (like me) can consistently do quite well over the entire history of the market by dollar-cost averaging and buy and hold investing.


I haven't seen any politician suggesting we put all of social security in the stock market lately have you?

Probably because voters are as a class too stupid to breed. They'd much rather continue running the current Ponzie scheme than to actually do something smart like forced retirement savings. It's easier to steal from my kids and grand-kids than to do the responsible thing for their retirement, after all.


Maybe the visualization should be that of a hydra snarling at each criticism as it eats our children.

Are you speaking about the stupidity of fully funded pensions here? Or Social Security/Medicare?


I don't care about leveraging value out of stock quarter to quarter. That is short sighted and evil in that somebody will lose. I want to see well managed companies with flat stock prices paying dividends out of profits. In other words real growth not sucker-winner bets Motley Fool disclosure: Unlike my father and those in government service with pensions my ENTIRE retirement rides on the whims of the stock market. A legal policy framework of government that I have no choice about. If I want to have a savings retirement plan all of the available tools for a civilian are 401K, IRA, and annuity of which they are tied to the stock market entirely.

I would support dividends instead of growth, except the government would seize a large portion of those dividends to over-pay for failed social engineering programs, government workers and "pensions". Make dividend income tax-free and I'd be on your side. The saving grace of the 401k "system" is that it keeps the money out of the hands of the criminal class which runs our government.

Surferbeetle
11-29-2008, 08:34 PM
Ah, yes. The Marxist myth of the eeeeevil idle rich. Very nice.... The saving grace of the 401k "system" is that it keeps the money out of the hands of the criminal class which runs our government.

Consider the joys of a cold weissen mein freund.

Since I believe that in chaos there is often opportunity to be found, and also because I am a dedicated fellow capitalist, I have been reading and rereading the Special Report: Saving the System (http://www.economist.com/opinion/displayStory.cfm?source=hptextfeature&story_id=12381429) in my Oct 11th-17th 2008 copy of The Economist. They often reference IMF reports (http://www.imf.org/external/np/exr/key/survcris.htm) which also make for interesting reading. A total figure of 600 Trillion USD dollars has been estimated for all outstanding contracts in the global derivatives market vs. an annual global GDP of 54.5 Trillion :eek:

In the meantime, purchasing index fund shares via dollar cost averaging, which reduce my diversification risk, are my primary hope. I try and snipe a few individual stocks from time to time based on an examination of some easy statistics work: 1) Results of OLS regression (excel has several built in functions that make it easy) for daily stock prices downloadable from Google (http://finance.google.com/finance?hl=en&tab=we). 2) Comparison of book price: (assets - debts)/# of shares issued vs. today's price. 3) A little very rough MC/Bayesian/Black Scholes modeling in Excel. 4) Cheating by seeing what various Stock Analysts are saying/estimating.

Most importantly I am really trying to focus upon the joys of family this holiday season.

Inshallah this too shall pass. ;)

Schmedlap
11-29-2008, 09:00 PM
Since I believe that in chaos there is often opportunity to be found...

A friend of mine who is an active trader has been bearish on the market for the past two years. The vast majority of his purchases in that time were put options against the S&P. He still buys them everytime the market goes up about 500 points (about once per week) and then turns around and sells at a hefty profit when it tanks again (about once per week). He'll be retiring early.

Surferbeetle
11-29-2008, 09:21 PM
Schmedlap,

I wish I had the capability to do it profitably. I am currently wrestling with financial modeling and have found Advanced Modelling in Finance using Excel and VBA by Jackson and Staunton (ISBN 97804719920) to be of use. There are some 2-3 year Financial Mathematics/Engineering programs out there, but the work-life balance issues are always tough....

Any literature suggestions that you might be willing to share?

Best,

Steve

Schmedlap
11-29-2008, 10:59 PM
I've bought quite a few put options in the last year, but most of them were only to hedge against losses in stocks that I own. Literature? I'd say read anything by Jack Bogle. Other than that, read Barron's and, time permitting, the Wall Street Journal. I think that the timeless advice of a balanced portfolio, matching your investments to your risk tolerance, and not overreacting are the only sane advice. The rest of it - models, timers, etc - are just gambling, in my opinion. I don't know of any literature on it, so I can't recommend any. But, I would say that if you're determined to try a model, your best bet is to search for options that are over or undervalued. Even experienced option traders have never seen this type of volatility and they're in uncharted territory right now. The playing field isn't level, but it's a little flatter, so long as you're not looking to cash in purely on arbitrage trades.

bourbon
12-03-2008, 05:43 AM
US equity market – Fails to deliver: The naked truth (http://www.euromoney.com/Article/2060049/US-equity-marketFails-to-deliver-The-naked-truth.html#unheard), by Helen Avery. Euromoney Magazine, December 01, 2008.

Up to that point in 2008, cumulative fails to deliver of Bear Stearns’ stock were only between 10,000 and 200,000 on any given day. On March 14, more than 2 million Bear Stearns shares went undelivered, and from then until the end of March, failures increased, peaking one day at more than 13.78 million shares. At the same time, from March 12 to the announcement on Friday March 14, Bear Stearns’ share price crashed from $61.68 to $30, dropping to $4.81 the following Monday.

One former employee of regulator NASD says he knows of a hedge fund that was shorting Freddie Mac and Fannie Mae on a "massive scale", with no intention of ever locating stock. "His prime broker let the trade go through regardless as he was a large client of theirs," he says.

Illegal naked shorting, at its worst, can be implemented to bring a company down. In the present crisis of confidence among financial institutions, it can also simply be a means of jumping on a losing target. If a financial institution’s stock looked as if it was falling, why not short-sell without promising a buy-in within three days and hope that the fall is sufficiently large beyond three days to make an even bigger profit?

A glance at the fails to deliver in the financials market indicates that some investors applied this strategy. A comparison of the average daily reported shares failing to deliver between the first quarter of 2007 and the first quarter of 2008 for the US’s top financial firms showed a clear increase over the period. The data, compiled by Washington publication IA Watch, showed a 335% increase for Freddie Mac, a 226% increase for Citigroup, a 133% increase for Goldman Sachs, a 632% increase for Morgan Stanley and a 1,123% increase for Bear Stearns. One source even suggests that some market participants never intended to buy-in and simply marked their tickets "long" selling shares that they did not even own as they knew they would never have to make delivery.

I'll point out an ambiguous connection here. This Euromoney article refers to a series of previous articles on naked short selling. One of these articles mentions a man by the name of Anthony Elgindy. (http://www.euromoney.com/Article/1001091/Title.html?single=true) This is an interview with Bob Baer (http://www.youtube.com/watch?v=2z5BnihtWfs), who at 9:47 mark states: "I know the guy that went into his broker [on 9/10/2001] in San Diego and said 'Cash me out, it's goin' down tomorrow'…"

Guess who that man was?

bourbon
12-08-2008, 12:37 AM
Hedge Funds to US Soldier: “I need a Maybach, so… You can die too.” (http://www.deepcapture.com/hedge-funds-to-us-soldier-i-need-a-maybach-so-you-can-die-too/)December 6th, 2008 by Patrick Byrne

A blood-boiling post by Dr. Patrick Byrne at DeepCapture. In this example of naked short selling is the case of Force Protection Inc. FPRT manufactures MRAP's, and after receiving a large order from the Pentagon the company issued a secondary stock offering to raise capital in order to expand. Once they announced their intent, their stock began to be naked short sold to oblivion, and they had to roll back the expansion. This means less MRAP's produced and deployed.
http://www.deepcapture.com/wp-content/uploads/2008/12/force-protection-frpt-naked-short-selling.gif
Disgusting.

Ken White
12-08-2008, 04:23 AM
end-all in any event.

Either way, that's an inflammatory and twisted article you linked to, it does not address the fact the Force Protection's vehicles are not the most commonly used MRAP -- or that they're still selling MRAPs

Flaky.

bourbon
12-16-2008, 04:36 AM
Hi Ken,

It was a flaky article, it was inflammatory, and in a sense that was the point. MRAP’s are not the issue, the undermining of the capitalization process via stock manipulation is. Dr. Byrne previously had posted a near identical article along the lines of: “Hedge Funds to Cancer Patients: Die.” In that case it was a biotech company developing treatments for cancer.

The same stock manipulation scourge of delivery failure and phantom stock has recently been a factor in bringing down the largest banks in the land. Jim Cramer almost noted almost as much today:
Cramer on Shorts: The short-selling assault on the financials was and is rule, and this is something the next SEC chairman must examine, says Cramer. (Video) (http://www.cnbc.com/id/15840232?video=966337239&play=1)

Cramer focuses on short selling, but does not mention delivery failure, which is the key part as it allows for ‘naked short selling’. And it is understandable why Cramer doesn't after reading The Story of Deep Capture (http://www.deepcapture.com/the-story-of-deep-capture-by-mark-mitchell/). Cramer also barely spits out:
"....the government was completely captive to the hedge funds and the brokers because that's the way the government was; this is the best government money can buy."

That sounds like regulatory capture in public choice theory. Regulatory capture happens when politicians and bureaucrats act in favor private-vested interests over the public interest. The theory has been further expanded to “Deep Capture”, whereby not just regulatory institutions are held captive, but all institutions are susceptible to capture. Including; academia: mainstream, financial, and social media (http://www.theregister.co.uk/2008/10/01/wikipedia_and_naked_shorting/print.html).



(Ken: btw, a man by the name of C. Austin ‘Bud’ Burrell has been a major player in exposing these failures in the delivery system, has done groundbreaking work. Apparently he served as an SF officer during Vietnam, and later spent 30+ years on Wall Street. Do you know him? He has done great work.)

Ken White
12-16-2008, 05:03 AM
journalistic failure and cited my gripe. I did get the real point, honest. I apologize for wandering off on a tangent.

No, I don't know Burrell but I know of him -- not through his Army time but through a friend who's a fellow UK Business School grad (and booster). All favorable...

I appreciate your posts on these failures -- most of 'em set me to growling so I don't comment much. I'm also not terribly sympathetic to those who knew they were overextending themselves. Nor am I inclined to feel sorry for detroit who have refused for almost 40 years to get real. Generally I find it hard to accept the stupidity and cupidity -- and the fact that Congress and the Government are bailing these clowns out instead of jailing them. :mad:

Schmedlap
12-16-2008, 09:53 AM
Regulatory capture happens when politicians and bureaucrats act in favor private-vested interests over the public interest.

I think that train arrived a long time ago.

bourbon
12-16-2008, 05:02 PM
Bud Burrell has a blog of sorts (http://www.thesanitycheck.com/Blogs/BudBurrellsBlog/tabid/84/Default.aspx) at The Sanity Check. His posts, in addition to a series of interviews with him (http://www.cfrn.net/investigates/) from several years ago, have helped me get a feel for the delivery failure problems. So, if one has a spare nine hours I recommend them.

Also at the The Sanity Check, the pseudonymous Bob O'Brien has recently posted his take on the subprime meltdown (http://www.thesanitycheck.com/BobsSanityCheckBlog/tabid/56/EntryID/732/Default.aspx). His theory involves the same issue of delivery failure; the equivalent of naked short selling but the bond market. He further performs an exercise with MS Paint, whereby he puts into graphics "the complex series of issues and moral conundrums" discussed in the blog post. I will reproduce it here:

http://www.thesanitycheck.com/Portals/0/Treasury.GIF
Good for a laugh after an otherwise maddening post.

bourbon
12-17-2008, 03:36 PM
Sorry, I got focussed on one of my pet peeves, journalistic failure and cited my gripe.

Here is a case of what smells like not journalistic failure, but journalistic corruption.

This blog entry is from emails recently unsealed (http://www.deepcapture.com/bethany-mclean/)in a lawsuit between Fairfax Financial and SAC Capital, et al. Fairfax claims a conspiracy (the legal kind, not the tinfoil hat kind) involving short-selling hedge funds, and compromised business analysts and journalists, engaged in a plot to destroy the company’s stock for profit.

The journalist in the emails is Bethany Mclean, who was then at Fortune, she is also known for being the first reporter to break the story on Enron’s corruption.

Wildcat
12-17-2008, 08:57 PM
McLean's a cutie. She looked really good on the Colbert Report a couple months ago. Unfortunately, it looks like she jumped the gun on that investigation, and received some backlash. (Can anyone remind me what journalistic integrity looks like? I seem to have forgotten.)

I have an interesting perspective on the financial crisis, seeing as I just spent the past year of my life working at a law firm in Charlotte that represented Wachovia, in the group that handled the bank's commercial mortgage transactions. Ended up getting laid off back in October because we had no work to do and weren't making any money. Then the firm started getting rid of attorneys, too. Fortunately for me I had already signed my contract with the Marine Corps, so my next job was on the horizon and it didn't hurt me too much.

Still, it was interesting to talk to the attorneys I worked for. They filled me in on the subprime lending stuff, explained why it was affecting the banks and thus affecting our business. But the funny thing is, they kept telling me, "Oh, it'll get better in a couple of months." I heard that about five or six times over the course of the year. I don't know if they were BS-ing me, you know, just to soothe the underlings, or if they earnestly believed that it was just a momentary dip. But by the time June rolled around, it had reached crisis proportions.

I'll say this: when I'm done with the military, I am never going back to finance or corporate law. What a complete Charlie Foxtrot. :wry:

selil
12-20-2008, 04:15 PM
http://www.userfriendly.org/cartoons/archives/08dec/uf012220.gif

Surferbeetle
12-21-2008, 04:41 PM
From this mornings WSJ (http://online.wsj.com/article/SB122973431525523215.html)


It is a sorry place at which we Americans find ourselves this none-too-festive holiday season. The biggest names on Wall Street have gone to their rewards or into partnership with the U.S. Treasury. Foreigners stare wide-eyed from across the waters. A $50 billion Ponzi scheme (baited with, of all things in this age of excess, the promise of low, spuriously predictable returns)? Interest rates over which tiny Japanese rates fairly tower? Regulatory policy seemingly set by a weather vane? A Federal Reserve that can't make up its mind: Is it in the business of central banking or of central planning? And to think -- our disappointed foreign friends mutter -- all of these enormities taking place under a Republican administration.

Ken White
12-21-2008, 06:28 PM
I'm uncertain what your question asks.

I am certain that the linked article is written by a Financial Pundit -- and that all pundits are highly suspect -- who correctly cites some history but misses the broader history in the process.

We are where we are because we have over the last three generations cultivated excessive dependency on government and have dumbed down education to the point of danger. Most of that and many of the ills he does cite are the fault of a succession of US Congresses and Presidents from both parties who have placed the good of their party and their ideology above the welfare of the citizens of the US and of the country itself.

The only medicine that will cure that is a complete revamp of Congress and the political process, a return to truly challenging education instead of feel good - talk nice vapidity and a lessening of dependence upon government.

Good luck with that...

SNK
01-04-2009, 01:39 PM
I agree with Mr White, the solution is education, not disfranchisement as bourbon apparently professes. Naked short selling is only one method out of many to corner a market: The money will always flow to the financial tool that is less regulated. During the last 200 plus years there have been financial crises every 10 years and it will continue.

In addition to previous lists of entities to blame, the press can also be included. There is a general overemphasize of the equity capital markets vis-à-vis the other capital markets. The former used to be regarded as vulgar for a reason.

Schmedlap
01-04-2009, 02:13 PM
The only medicine that will cure that is a complete revamp of Congress and the political process, a return to truly challenging education instead of feel good - talk nice vapidity and a lessening of dependence upon government.

I would also add: the resurrection of personal responsibility and a renewed emphasis upon actual business ethics, rather than the recent foolishness regarded as "corporate social responsibility." Politicians, businessmen, and schools can create climates that encourage unethical behavior, but it is still a personal choice to partake in it.

Ken White
01-04-2009, 04:49 PM
I would also add: the resurrection of personal responsibility and a renewed emphasis upon actual business ethics, rather than the recent foolishness regarded as "corporate social responsibility." Politicians, businessmen, and schools can create climates that encourage unethical behavior, but it is still a personal choice to partake in it.which includes both the educational system and parental guidance having an impact will provide that sense of personal responsibility which has been eroded by the educators and psychological counselors emphasis on self esteem at great cost to self respect.

Educate people to be better parents instead of telling them that whatever they want to do is acceptable. It frequently is not.

Dependence on government only adds to that, people are ultimately responsible for and to themselves. Doesn't seem to me to be that hard to understand but apparently it is...

Ski
01-04-2009, 05:42 PM
I'd also add in another factor that has been overlooked:

Major criminal penalties and sentences for those financial "gurus" who've conducted fraudulent business transactions or have committed other serious breaches of financial trust.

White collar financial crimes do not have stiff enough penalties to act as real deterrents in my limited opinion.

Gringo Malandro
01-04-2009, 05:42 PM
6) There is a divergence of opinion between "experts" on if it is even needed

8) The stock market is not the economy, the credit market is not the economy, and bailing out either does not help the economy. The stock market and credit market are indicators.

That is not to say things don't have to be done. Panic and a rush to judgement though rarely makes good decisions. The financial crisis has been brewing since the early 1970s. The tendrils of the issues are like a cancer touching nearly all aspects of the economy.

George Will correctly said that financial companies are (were?) the "commanding heights" of the US economy. The stock market funds a great deal of US industry. Credit markets are much larger. Even a large conservative corporation maintains, on average, a 40/60 debt to equity ratio. Imagine what would happen if much of that debt came due in a short period of time, it would be disastrous. That's what would happen if the financial industry imploded. It would have dire consequences for the US and western civilization. That is not an overstatement.

There is no guarantee the bailout will work, and many of its consequences are unfair. But given the choice between being "fair" and maintaining the viability of the world financial system I will go with the latter.

Gringo Malandro
01-04-2009, 06:08 PM
I used to work for Lehman Brothers in the FX trading field before going on deployment.

Not in favor of the Paulsen plan --- no oversight and it is essentially a giveaway. We will overpay for the bad assets, and this is part of the plan.Socialism for the wealthy, capitalism for the little guy. No thanks. This post (http://www.nakedcapitalism.com/2008/09/why-you-should-hate-treasury-bailout.html)runs down the major reasons why this $700 bn blank check is a HORRIBLE idea.

Haven't we learned that giving this Administration a blank check to do anything is something to avoid? If Congress gets buffaloed again, I might just vote for Ron Paul after all.

From the post:

Nouriel Roubini does not think it passes the smell test:

`He's asking for a huge amount of power,'' said Nouriel Roubini, an economist at New York University. ``He's saying, `Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy.''

Roubini also said that the government wasn't doing enough fast enough. His major complaint with the bailout was that he thought the government should be doing capital injections into banks the way the Europeans were instead of buying up troubled assets, which is what they eventually did anyway.


from RGE monitor http://www.rgemonitor.com/roubini-monitor/253739/home_home_owners_mortgage_enterprise_a_10_step_pla n_to_resolve_the_financial_crisis

I have also argued that, in order to resolve this financial crisis it is not enough to take the bad/toxic assets off the balance sheet of the financial institutions (a new RTC); it is also necessary ... [to] recapitalize undercapitalized banks with public capital in the form of preferred shares (as the RFC did with 4000 banks during the Great Depression).

There is no question that the bailout lacked oversight, and there was an excess of extra money to grease the wheels, but inaction was not an option.

Surferbeetle
01-04-2009, 06:38 PM
From the December 2008 Atlantic (http://www.theatlantic.com/doc/200812/fallows-chinese-banker), by James Fallows


Americans know that China has financed much of their nation’s public and private debt. During the presidential campaign, Barack Obama and John McCain generally agreed on the peril of borrowing so heavily from this one foreign source. For instance, in their final debate, McCain warned about the “$10 trillion debt we’re giving to our kids, a half a trillion dollars we owe China,” and Obama said, “Nothing is more important than us no longer borrowing $700billion or more from China and sending it to Saudi Arabia.” Their numbers on the debt differed, and both were way low. One year ago, when I wrote about China’s U.S. dollar holdings, the article was called “The $1.4 trillion Question.” When Barack Obama takes office, the figure will be well over $2 trillion.

davidbfpo
01-04-2009, 08:07 PM
In the last two days the UK government has hinted at a further cash injection to the banks here; first in a "spin" story: http://news.bbc.co.uk/1/hi/business/7810651.stm and then an interview of PM Gordon Brown: http://news.bbc.co.uk/1/hi/uk_politics/7810178.stm .

So far the UK has lent the "high street" banks 37 billion UK pounds and taken large shares in several of them - a part-nationalisation without any parliamentary debate and almost no public debate.

One financial observer I know is puzzled at this apparent need for more public money to the banks and is convinced the inability to lend is more than the banks reluctance to lend, or people / businesses wanting to borrow. They suspect individuals primarily, perhaps businesses, simply do not want to put their cash in the banks. The UK interest rate has slumped and will soon, or already is 1% per annum.

Just a viewpoint from across the water here and not a field I normally comment upon - even when my savings slump.

davidbfpo

reed11b
01-05-2009, 05:26 PM
which includes both the educational system and parental guidance having an impact will provide that sense of personal responsibility which has been eroded by the educators and psychological counselors emphasis on self esteem at great cost to self respect.

Educate people to be better parents instead of telling them that whatever they want to do is acceptable. It frequently is not.

Dependence on government only adds to that, people are ultimately responsible for and to themselves. Doesn't seem to me to be that hard to understand but apparently it is...

Man, this site is just brutal on both lawyers and counselors! :eek: For all of that, education is the key and if by self-respect over self-esteem you mean a healthy opportunity to compete (instead of the current "everyone’s a winner" B.S.) and a full range of educational opportunities that allow for regional differences and strengths over the current "standardized" education that I find myself in violent agreement.
Reed
P.S. Most documentation by "psychological counselors" and educators that I am aware of disagree with the current system and I think you may be looking at the wrong scapegoats.

Ken White
01-05-2009, 05:44 PM
Man, this site is just brutal on both lawyers and counselors! :eek: Hey, goats to scape, what can I say... :D
P.S. Most documentation by "psychological counselors" and educators that I am aware of disagree with the current system and I think you may be looking at the wrong scapegoats.True. I should have been more clear. Showing my age; the feel good crowd ascended during the 70s and 80s, got caught out as being dangerously wrong by you Gen X-ers in the 90s and is now in fortuitous decline. Thanks to you Guys for correcting some of the ills of the Baby Boomers. ;)

Cavguy
01-05-2009, 06:58 PM
NY Times has an excellent article on how risk management models failed:

http://www.nytimes.com/2009/01/04/magazine/04risk-t.html?_r=1&em

jkm_101_fso
01-07-2009, 06:33 PM
Army Major pens Op-Ed on military family struggles during housing crisis.



Housing and our military
Collapse especially burdens those who serve

By David S. Johnston

The collapsing housing market has prompted many political and financial leaders to make urgent pleas to aid those owners who are facing the loss of their homes. But there is one group that gets little attention in that regard: the military family.

When change-in-duty-station orders arrive, these families do not have the option of waiting out the market for a return to pre-slump prices. Many military homeowners have lost equity in their houses and now owe more for their home than they are worth.

I know this firsthand. Like many other servicemembers, I purchased a home near a military installation before the 2006 real estate decline. My family was too large to be given on-post housing in the Washington, D.C., market in 2004. But at the time, we thought, "No problem," since we had just received a small inheritance that we could use for a down payment. If we got orders to move, we planned to rent or sell the house because we had equity and the market was climbing.

http://blogs.usatoday.com/oped/2009/01/housing-and-our.html?csp=34

Ski
01-08-2009, 12:32 PM
I was lucky with selling my house in the DC area last April. Had to take a $25K cut but still made out very well.

I have a friend who just deployed to Afghanistan who is 200K upside down on a house in Northern Virginia. He's basically told his assignements officer that he can't ever have an assignment outside MDW because he can't sell his house without going into bankruptcy, and no one is buying in his development even at the vastly reduced price points we've seen.

I am certain he is not alone.

Surferbeetle
01-10-2009, 04:15 PM
From today's WSJ, written by Damian Paletta (http://www.zoominfo.com/Search/PersonDetail.aspx?PersonID=976195343) and Michael R. Crittenden
(http://www.leadershipprofiles.com/preview.asp?docid=577975&t=0)

The report faulted Treasury on a variety of fronts, saying it has: no ability to ensure banks lend the money they've received from the government; no standards for measuring the success of the program; and that it ignored or offered incomplete answers to panel questions.

These shortcomings, the report suggests, could undermine the goal of various programs. "For Treasury to advance funds to these institutions without requiring more transparency further erodes the very confidence Treasury seeks to restore," the report said.

bourbon
01-28-2009, 06:20 AM
Strange Occurrences, and a Story about Naked Short Selling (http://www.deepcapture.com/strange-occurrences-and-a-story-about-naked-short-selling/), by Mark Mitchell. Deep Capture, January 27th, 2009.

Evidence suggests that Bernard Madoff, the “prominent” Wall Street operator and former chairman of the NASDAQ stock market, had ties to the Russian Mafia, Moscow-based oligarchs, and the Genovese organized crime family.

And, as reported by Deep Capture (http://www.deepcapture.com/bernard-madoff-the-mafia-and-naked-short-selling/) and Reuters (http://www.reuters.com/article/ousiv/idUSTRE4BG6US20081217), Madoff did not just orchestrate a $50 billion Ponzi scheme. He was also the principal architect of SEC rules that made it easier for “naked” short sellers to manufacture phantom stock and destroy public companies – a factor in the near total collapse of the American financial system.

* * * * * * * *

I don’t know why, but this seems like a good time to tell you a little about my personal history. Along the way, I’ll mention a murder, two suicides (or “suicides”), a punch in the face, a generous bribe, three Armani suits in bar, and a “prominent” billionaire who might know something about a death threat and a Russian matryoshka doll.

Bullmoose Bailey
01-28-2009, 05:52 PM
Friends, I cannot speak authoritatively to this subject but have made some distrbing observations; i.e. massing Asian & Europaean ownership of US Debt, negative savings, high inflation.

I cannot find a solid answer as to where the "bailout(s)" cash is coming from.

Is the BEP merely printing it ?

Or is the FRB merely typing it into existence ?

If so what projections will you make as to the effect on inflation ?

Watcher In The Middle
01-29-2009, 04:58 AM
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time

Link to Term (http://en.wikipedia.org/wiki/Inflation)

If demand isn't there (and for most items defined as "goods and services"), right now it's not, it's hard to see any immediate inflation in terms of price inflation.

Course, you pump $800 to $900 bil into the economy, who knows what's going to happen. Looks like we're going to find out.

Ski
01-29-2009, 10:30 AM
The cash is coming from the traditional sources - the Gulf States and China. This is probably the last time they will lend to us, so what ever the plan is, it better be damned good.

Right now there is no inflation. There is a good deal of deflation going on right now however, and as WITM stated, when the trillion dollars is floated into the economy, the potential for inflation is going to increase greatly.

Bullmoose Bailey
01-29-2009, 04:40 PM
The cash is coming from the traditional sources - the Gulf States and China. This is probably the last time they will lend to us, so what ever the plan is, it better be damned good.

Right now there is no inflation. There is a good deal of deflation going on right now however, and as WITM stated, when the trillion dollars is floated into the economy, the potential for inflation is going to increase greatly.


Roger that sir, but I thought we were inflating the currency supply (what used to be known as M3) in order to artificially prevent deflation & support both the borrowers and lenders who suffer under inflation & deflation respectively by severity.

Will not a new influx of currency per capita induce further inflation by increasing the monetary velocity ?

Still trying to understand and thought you might like to enlighten.

Ski
01-29-2009, 11:20 PM
Look at the costs of products for an indicator of deflation. One of the best to use as a guide is food, mainly because supermarkets work on razor thin margins based on the amount of food is moved through the market. It's usually 2-4%. It's already happening in Europe. http://economics.about.com/cs/inflation/a/deflation.htm - this is a simple explanation of how deflation occurs and what effects it has on the marketplace.

The new influx of currency will cause inflation in time. Most of the money being used for the TARP is not seeing the light of day - it's being used to buy off the toxic debts and assets that the banks have accumulated over the last twenty years. Mainly in the form of derivitives and mortgages that have been sliced, diced, minced and then repackaged.

The new initiatives by the Obama crew is going to be more tailored towards people and other industries. The problem is that we, as a country, don't produce much of anything. 2009 marks the first time in US history where there are more government jobs than manufacturing jobs. So there aren't many goods being produced - all the money that is spent on goods is going to multi-nationals at best, to foreign companies at worst.

Will carry on later, have to eat dinner with the family unit.

bourbon
02-05-2009, 04:48 AM
TESTIMONY OF HARRY MARKOPOLOS, CFA, CFE (http://financialservices.house.gov/markopolos020409.pdf). CHARTERED FINANCIAL ANALYST, CERTIFIED FRAUD EXAMINER BEFORE THE U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON FINANCIAL SERVICES. WEDNESDAY, FEBRUARY 4, 2009.
Markopolos has an Army SOF background, and has been investigating Madoff and feeding info to the SEC on him since 2000. He handed Madoff to the SEC on a platter, and they did nothing with it. Accordingly, he shares his opinion of the SEC in part II of his testimony. Markopolos did an excellent job this morning. See the video here. (http://www.youtube.com/watch?v=uw_Tgu0txS0)

The SEC seems to be a captive agency that purposely ignores the large frauds....
Hmm, sounds familiar.

bourbon
02-05-2009, 06:23 AM
Bernard Madoff, the Mafia, and the Friends of Michael Milken (http://www.deepcapture.com/bernard-madoff-a-threat-and-the-friends-of-michael-milken/), by Mark Mitchell. Deep Capture, February 3rd, 2009.

Investors Overseas Services was the biggest Ponzi scheme in history until last month, when Bernard Madoff’s Mafia-affiliated operation was revealed to be the new all-time biggest Ponzi scheme.

Investors Overseas Services was a straight-forward swindle. Bernard Madoff’s $50 billion Ponzi was more complicated, involving not just his fund management business, but also his brokerages.

Madoff’s brokerages engaged in naked short selling (offloading stock that had not been borrowed or purchased—phantom stock), likely on behalf of miscreant hedge funds looking to drive down prices. In fact, Madoff successfully lobbied the SEC to enact a rule that allowed market makers such as himself to engage in naked short selling. At the SEC, this rule was called “The Madoff Exception.”

Moreover, a source who has seen some of Madoff’s trading records says that Madoff filled buy orders for stock by naked short selling the stock to his customers’ accounts. So, perversely, significant buying volume through Madoff’s brokerages in a firm’s stock would generate yet more phantom shares, putting downward pressure on the price of that stock.

All of this naked short selling created massive liabilities (probably accounted for as “stock sold, and not yet delivered”). Those liabilities, plus the money that Madoff simply pocketed instead of buying or borrowing real stock, surely accounted for a large chunk of that $50 billion figure.

Last summer, naked short selling (phantom stock) burst into public view as an integral factor in the implosion of the U.S. financial system. In November 2008, former SEC Chairman Harvey Pitt, echoing the words of many other experts and officials, said, “Naked short selling is what’s causing a lot of the problems in the market.”

In other words, Madoff’s operation was not just the largest known swindle in history. It was also a phantom stock machine. And that makes it but one participant in a much bigger scandal — a crime that might have brought us to the brink of a second Great Depression.

slapout9
02-11-2009, 12:29 AM
December 2008 interview by Bill Moyer of James K. Gailbrath(son of John Kenneth Gailbrath) and "The Predator State". Starts off with a discussion of Ayn Rand and Alan Greenspan and how his philosophy failed him....pretty interesting stuff. Yes I am biased;) I am a big fan of his father John Kenneth Gailbrath. Gailbrath was one of the first truly modern economist, much more than Keynes was...IMO.

http://www.pbs.org/moyers/journal/10242008/watch2.html

Surferbeetle
02-11-2009, 08:15 PM
From today's Market Watch by Ronald D. Orol: Lawmakers grill bankers about bailout funds (http://www.marketwatch.com/news/story/lawmakers-grill-bankers-about-bailout/story.aspx?guid={E87293EB-F45C-41B3-BAF1-8931D7009804}&dist=msr_16)


Rep. Randy Neugebauer, R-Texas, came up with a new name for banks receiving capital from the government. "I'm going to call you TSEs -- taxpayer-sponsored entities," Neugebauer said. "I'm looking forward to seeing you explain how you use the funds."

Schmedlap
02-11-2009, 11:00 PM
Lots of talk, lately, about how TARP funds are used. I heard a great recommendation today:

Forbid companies that receive TARP funds from donating money to political campaigns or 527 organizations.

slapout9
02-18-2009, 08:52 PM
Alan Greenspan has just given a speech calling for Nationalization of some large banks. I was told by a friend is that it was Greenspan's understanding that every hundred years or so this is a requirement!!!! I have not seen the report but seems to be accurate.

My comment is that the folks in the Bible figured this out a long time ago and decided that every 50 years they would have a year of Jubilation where the moneychangers (Bankers) would release the debtors from their debt and start over.

Other than outlawing interest which the church eventually did it is the only way to survive a crooked fractional banking system where the only way to get money into the system is to borrow it through the Federal Reserve, even though we have to pay it back to ourselves through taxes:( Maybe there is hope after all......Lincoln was the last President to do this.....Obama is a big Lincoln fan:wry:

Ron Humphrey
02-18-2009, 11:31 PM
Alan Greenspan has just given a speech calling for Nationalization of some large banks. I was told by a friend is that it was Greenspan's understanding that every hundred years or so this is a requirement!!!! I have not seen the report but seems to be accurate.

My comment is that the folks in the Bible figured this out a long time ago and decided that every 50 years they would have a year of Jubilation where the moneychangers (Bankers) would release the debtors from their debt and start over.

Other than outlawing interest which the church eventually did it is the only way to survive a crooked fractional banking system where the only way to get money into the system is to borrow it through the Federal Reserve, even though we have to pay it back to ourselves through taxes:( Maybe there is hope after all......Lincoln was the last President to do this.....Obama is a big Lincoln fan:wry:

They rather had a tendency to every so often go through the redistribution, allocation, debt cancellation biz. Course that usually came with a major change at the top levels:eek:

Schmedlap
02-19-2009, 12:04 AM
My comment is that the folks in the Bible figured this out a long time ago and decided that every 50 years they would have a year of Jubilation where the moneychangers (Bankers) would release the debtors from their debt and start over.
I suspect that if more people looked to the Bible for guidance (or the Koran or just about any other religious text or any leadership manual or even the most mundane book on personal finance or ethics) then much of this mess would not have happened in the first place. This "crisis" is the product of depravity from the top to the bottom of the financial industry and government, from the fattest cats at the top to the lowliest minions at the bottom - not every individual, but a wide cross section of each layer. None of this particularly troubles me. I think it is a nice reality check and, hopefully, somewhat of a corrective period. Capitalism - even the regulated, sometimes crony version in this country - has a tendency to eventually give the people what they deserve.

Entropy
02-25-2009, 11:11 PM
Wow, ran across this and it's the best explanation of the credit crisis I've seen (http://vimeo.com/3261363). It's about 12 minutes long - well worth the time.

Surferbeetle
02-26-2009, 06:43 AM
From today's WSJ (http://online.wsj.com/article/SB123560612118376885.html)


Among changes under way at the CIA, the agency is now assembling a daily Economic Intelligence Brief to monitor the global economic slowdown's impact on stability. Argentina, Ecuador and Venezuela are facing "serious problems" that threaten their economic stability, Mr. Panetta said.

From the blog Credit Writedowns (http://www.creditwritedowns.com/credit-crisis-timeline) the Credit Crisis Timeline


There have been tremendous economic dislocations during the present banking crisis. Initially written off as a sub-prime crisis, leading policy makers said the crisis was contained. It has since spilled over into Jumbo mortgage rates, Collateralized Debt Obligations (CDOs), all asset backed securities, High Yield bonds, SIVs, the inter-bank market, commercial paper, money market funds, the auction rate market, hedge fund losses, and a massive housing bust and the real economy. Banks and financial institutions from around the world are writing down billions of dollars of losses. Housing markets are falling in the US, the UK, Spain and Ireland. This crisis is truly global.

The blog a Fistful of Euro's (http://fistfulofeuros.net/) is always interesting.

...and in an attempt to lighten things up a bit, the Onion reports on the UN's ongoing attempt at world domination: UN Acquires Nuclear Weapon (http://www.theonion.com/content/news/u_n_acquires_nuclear_weapon?utm_source=c-section)


News of the nuclear weapon first surfaced late last week when the United Nation's own watchdog group, the International Atomic Energy Agency, released startling new satellite photos of the uranium-based device. Shortly thereafter, U.N. Secretary-General Ban Ki-moon issued a short and brazen list of demands, calling on all nations to "bow down at once to social progress."

"Tremble before the awesome might of this cooperative assembly of appointed representatives," said Ban, boldly holding a stack of diplomatic resolutions in his hand. "At last, when the United Nations calls for the development of more sustainable agricultural practices, the world at large will listen."

Added Ban, "We will no longer be ignored." :wry:

Entropy
02-26-2009, 12:56 PM
Surferbeetle,

I wonder if the UN got their nukes from Lichtenstein? (http://www.theonion.com/content/video/liechtenstein_successfully_tests)

slapout9
02-26-2009, 03:13 PM
Good Post Entropy, here is one on how the Monetary System was designed to work per our Constitution.

http://www.youtube.com/watch?v=3qicabStQkc&feature=rec-HM-fresh+div

Entropy
02-26-2009, 10:06 PM
Thanks slap, that looks really good. I'll see if I can watch the whole series this weekend.

Surferbeetle
03-01-2009, 10:00 PM
Dr. Mankiw, of the Harvard Economics Department, has an interesting blog (http://gregmankiw.blogspot.com/2009/02/nationalization-or-pre-privatization.html) (and his textbook Macroeconomics is a good read as well...)


I don't pretend to be enough of an expert, or to be close enough to the facts, or to have a large enough staff, to know what should be done with the banking system, which is at the center of our current economic turmoil. But I am confident that fixing it should be the main focus of policy efforts.

In this regard, I found this tidbit thought-provoking:

"The word 'nationalization' scares the hell out of people," Rep. Maxine Waters, D-Calif., said on "This Week." To combat that, some clever advocates of nationalization have come up with alternative names, including "government receivership" and "pre-privatization." (Source.)

The search for alternative names can be amusing at first, but I think there is more here than mere semantics.

From a Wired article by Felix Salmon: Recipe for Disaster: The Formula That Killed Wall Street (http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=1)


For five years, Li's formula, known as a Gaussian copula function (http://en.wikipedia.org/wiki/Copula_(statistics)), looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.

His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.

Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li's formula hadn't expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system's foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril.

A viewpoint (http://watchingamerica.com/News/21837/citigroup-nationalized-us-economy-loses-spirit/) from Asia


The U.S. struggle for bailouts is actually a struggle between two factions. Those who support the bailout believe that the government should be able to iron out the economic cycle and that measures to counteract the cycle can help the overall market get through this crisis. Trust the government, they say. However, people from a different school of thought hate this. They believe that without economic cycles, there would not be a free economy. From the founding of the country until today, the U.S. has been tested countless times by economic cycles. As long as people have faith in the market’s strength, they can tough it out. Although a price must be paid, it is necessary. It is not easy for any single economic structure to achieve a transformation.

The U.S. government is standing at a crossroads. Should it temporarily squash the spirit of the free market in order to let the economy get through the crisis, or should it protect the free market and let the economy suffer the pain? The scariest thought is that even after squashing the free market spirit, it will still suffer pain. Relatively speaking, nationalization is really the riskiest choice.

Schmedlap
03-01-2009, 11:54 PM
In an instant gratification society, why should we expect people to stop and think about whether they can afford the home that they are buying? Shouldn't it suffice that they want it, and they want it right now?

Why should we expect mortgage brokers to engage in fair play if it's not legally required to do so? Especially if there were investment banks creating incentives for them to dole out loans without regard to risk. Their behavior was (sometimes) legal and there were incentives. Shouldn't that suffice? Most of us expect no higher standard of behavior from any house-broken dog, and it still earns the title of Man's Best Friend.

Has anyone had the nerve to suggest that perhaps our nation is closer to moral bankruptcy than our banks are to financial bankruptcy?

I've got three nieces under the age of 12 who know that it's wrong to take something that you can't pay for, know it's foolish to buy something even if you aren't sure if you can pay for it (or to take the other side of that transaction), know it's wrong to lie to, or deceive, people who are vulnerable and relying upon your advice, and know it's wrong to encourage others to do any of those things. And, now that I think about it, could the three of them have done a better job of running Citigroup, Bear Stearns, Lehman Brothers, or Merrill Lynch than the people who ran them into the ground over the past 10 years? Losing damn near everything seems like an easy benchmark to surpass.

"Once something has been approved by the government, it's no longer immoral." - Reverend Lovejoy, from The Simpsons

Surferbeetle
03-02-2009, 05:08 PM
From Bloomberg, by Erik Holm and Andrew Frye: Buffett Says Economy ‘In Shambles,’ Promises Recovery (http://www.bloomberg.com/apps/news?pid=20601213&sid=amUpfE0eBfFk&refer=home)


March 2 (Bloomberg) -- Billionaire Warren Buffett said the economy will be “in shambles” this year, and perhaps longer, before recovering from the reckless lending that caused the worst “freefall” he ever saw in the financial system.

The economy and stocks will rebound, and the best days for the U.S. are ahead, said Buffett, chairman of Berkshire Hathaway Inc., in his annual letter to shareholders Feb. 28. Buffett said he’ll spend the recession shopping for new investments for Omaha, Nebraska-based Berkshire.

“The economy will be in shambles throughout 2009 -- and, for that matter, probably well beyond,” said Buffett. “Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so.”

Buffett, an informal adviser to President Barack Obama, said the consequences of the U.S. housing bubble are now “reverberating through every corner of our economy.” Gross domestic product shrank at a 6.2 percent annual pace from October through December, the most since 1982, the Commerce Department said last week.


“Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown,” Buffett said. “Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.”

Schmedlap
03-02-2009, 05:38 PM
Maybe some have done it, but I haven't seen any media sources publish the entire sentence that the "economy will be in shambles" quote was pulled from.


"We're certain, for example, that the economy will be in shambles throughout 2009 - and, for that matter, probably well beyond - but that conclusion does not tell us whether the stock market will rise or fall."
- from the top of page 4 (3rd page of the pdf file) of the letter to shareholders, available here (http://www.berkshirehathaway.com/letters/2008ltr.pdf)As someone who trades (and owns Berkshire B shares) I wish the full context were given more often (the Bloomberg quote above does a decent job). Many have come to associate the market with the economy and vice versa, and invest accordingly.

bourbon
03-02-2009, 06:40 PM
Maybe some have done it, but I haven't seen any media sources publish the entire sentence that the "economy will be in shambles" quote was pulled from.
Excellent point Schmed, you are not the only one to notice that. It seems

And the Beat Goes On…. (Jim Cramer, Joe Nocera, & Doug Kass) (http://www.deepcapture.com/and-the-beat-goes-on-jim-cramer-joe-nocera-doug-kass/), by Patrick Byrne. Deep Capture, March 1st, 2009.

Then February 28, the New York Times published a lie. In his annual shareholders’ letter released that morning Buffett had written:
.....
...but that conclusion does not tell us whether the stock market will rise or fall” (page 3).

That evening, New York Times journalist David Segal published an article which states in the third paragraph:

“But he [Buffett] also needled regulators and an assortment of unnamed chief executives as he predicted that fallout from the credit crisis would leave the stock market a shambles through 2009.”

Regarding a figure whose every utterance is scrutinized for meaning that can rock markets, such sloppiness is at best careless editing......But the consistent direction of such little liberties with the truth must give one pause.

bourbon
03-02-2009, 06:53 PM
Harry Markopolos, who I mentioned earlier in the thread, gave his only interview to 60 Minutes last night.

The Man Who Knew, 60 Minutes, March 1, 2009. (Video) (http://www.cbsnews.com/video/watch/?id=4836927n)
Harry Markopolos blew the whistle to the Securities and Exchange Commission about Bernard Madoff as early as 2000. Why were his warnings ignored? Steve Kroft has the interview.Transcript (http://www.cbsnews.com/stories/2009/02/27/60minutes/main4833667.shtml)


"It took me five minutes to know that it was a fraud. It took me another almost four hours of mathematical modeling to prove that it was a fraud. "
This guy is great.

Ski
03-03-2009, 01:13 AM
It's going to get far worse. I think the DOW has a real chance of hitting 5000 and perhaps even lower than that.

All the indicators are out there. I'm still amazed that the DOW took so long to break the 7000 mark. And gold prices make zero sense right now.

Sergeant T
03-03-2009, 03:06 AM
Watched a Frontline a few weeks ago entitled Inside the Meltdown (http://www.pbs.org/wgbh/pages/frontline/meltdown/). The thing that amazed me were all of the giants of Wall Street essentially coming to the same conclusion (we've screwed the pooch) at about the same time. Like some convoy of drivers that's been staring at the speedometer, only to look up and realize the road is about to run out. How is it that nobody looked up?

Has anybody out there seen anything reasonable or rational that outlines how this plays out? Not We're All Gonna Die or Everything Sucks but the course this will run. It's no longer astute to observe that things are broken, which the media will probably figure out in a year or two. Everything has a bottom. I can't find anyone, aside from Strauss & Howe (http://www.fourthturning.com/), that's defined what it might look like. I've taken to calling it the Barney Clark (http://celebrities.healthdiaries.com/the-25th-anniversary-of-barney-clarks-artificial-heart.html) Economy: Old heart's dead, don't have a new donor so we're just getting by on this bypass machine.

slapout9
03-03-2009, 03:36 AM
Watched a Frontline a few weeks ago entitled Inside the Meltdown (http://www.pbs.org/wgbh/pages/frontline/meltdown/). The thing that amazed me were all of the giants of Wall Street essentially coming to the same conclusion (we've screwed the pooch) at about the same time. Like some convoy of drivers that's been staring at the speedometer, only to look up and realize the road is about to run out. How is it that nobody looked up?

Has anybody out there seen anything reasonable or rational that outlines how this plays out? Not We're All Gonna Die or Everything Sucks but the course this will run. It's no longer astute to observe that things are broken, which the media will probably figure out in a year or two. Everything has a bottom. I can't find anyone, aside from Strauss & Howe (http://www.fourthturning.com/), that's defined what it might look like. I've taken to calling it the Barney Clark (http://celebrities.healthdiaries.com/the-25th-anniversary-of-barney-clarks-artificial-heart.html) Economy: Old heart's dead, don't have a new donor so we're just getting by on this bypass machine.


Some guy on Larry King just said the DOW could drop to 6,000 before it stops.

Some other place I read an article (and can not remember where it was), but he said some countries were trying to figure out how to really use this situation to their advantage against the US in way that hurts us permantley without going to War.:eek:

Schmedlap
03-03-2009, 04:13 AM
Some other place I read an article (and can not remember where it was), but he said some countries were trying to figure out how to really use this situation to their advantage against the US in way that hurts us permantley without going to War.:eek:
Unless they invest in our economy at this opportune time, I suspect that other countries are going to emerge from this more battered than we will. We're the folks who buy their stuff, borrow their money, deter people from invading them, and provide a useful bogeyman to distract their people. Suddenly OPEC countries have had their petrol-dollar spigot turned off. China is trying to get their own people to buy their stuff because we're not able to anymore and they're snatching up our low-interest treasuries (thanks for the cheap loans, Hu). Europe is enduring the same pain that we are and their less dynamic economy will not likely recover as quickly.

If I were a country with a large sovereign wealth fund, I'd being going long on the US economy now, taking advantage of this moment to be the hero who rides into town with a sack full of money and buys everything up at historical lows and then, ten years from now, cashes out at a hefty profit. I don't think people are going to be concerned about SWF's if they are injecting a lot of badly needed capital into our system and it has a stabilizing effect. If they want to play some other game (what are they going to do - destabilize the economy even more?), there will be a large opportunity cost that will probably pale in comparison to any benefit that they enjoy or pain that we suffer as a result of it. But I'm all ears if someone can think of something.

ODB
03-03-2009, 04:20 AM
If you could buy now with everything bottoming out, what do you buy?

bourbon
03-03-2009, 04:23 AM
Has anybody out there seen anything reasonable or rational that outlines how this plays out?
David Rosenberg is Merrill Lynch's North American economist. This analysis of his is very well thought out (http://www.mainstreetmonroe.com/voice/topic.asp?topic_id=12743), and his work is held in high opinion by people who I consider very sharp. Apparently Merrill Lynch thought this article was too gloomy and tried to pull it.

Schmedlap
03-03-2009, 04:37 AM
If you could buy now with everything bottoming out, what do you buy?
Depends on what kind of investor you are. For an individual, like me, I've been accumulating Berkshire B shares. Warren Buffet has some deep pockets and I don't share the concern that many have about his derivative plays. If he needs to pay more than what he's already written down on those derivatives, then the economy will be the least of our worries. We'll be more concerned with accumulating ammo and spam. But, it remains to be seen how smart my investment is.

For a bigtime investor, like an SWF, their investment, if large enough, can be the financial equivalent of a self-licking ice cream cone. If they announce that they're both confident in, and investing buckets of money into, a company like GE, which is now trading below book value, but still has a AAA credit rating, still pays a dividend, and is not in nearly as much trouble as the likes of Citigroup and BoA - I think that such a move would be welcomed by GE and pay off handsomely for the white knight.

But I'm neither a savvy finance guy, nor do I play one on TV.

lamont
03-03-2009, 08:27 AM
If you could buy now with everything bottoming out, what do you buy?

Wind turbines, solar photovoltaic and generic drug manufacturing are my thoughts. Now is also probably a good time to start the automatic contributions to retirement accounts again although that is just for *new* savings and should be a dollar-cost averaging strategy. I wouldn't throw all the kids college money back into the market just yet.

Not all the data is bad news either:

http://www.forbes.com/2009/03/02/income-spending-pce-markets-economy_saving_manufacturing_18.html

The rate of PCE decline slowing, low inventories and the manufacturing decline slowing would be signs that the worst of it are over and are leading indicators. 6-12 months later newscasters should start to use the phrase 'jobless recovery' in a worried fashion while wall street is solidly rallying.

I wouldn't call a bottom right now, though. Although I would bet heavily against the DOW violating 4,000 to the downside -- there's extremely long term support there from the lows in the 1930s to the lows in the 1970s.

We've also clearly violated the Nov 2008 lows, so if we're near a bottom the market will still probably rally off this point then move sideways for months before re-testing these levels again and then convincingly finding a bottom -- so best case calling a bottom is still 3+ months out. There's no hurry to buy.

Look for stocks right now which are still above their Nov 2008 lows -- they're outperforming the broader market and probably trying to put in a Nov 2008 low on an individual basis. Good time to cautiously put some money into those (again, not all the kids college funds all at once).

YMMV a *lot*.

George L. Singleton
03-03-2009, 10:42 AM
...you guys are doing a very good job of covering the waterfront of articles and opinions in our current turbulent economic and financial collapse and upsets, at home and worldwide.

Instead of quoting others here are a few grassroots observations from the "old coot", me, who did his time in NYC as Special Assistant to the Vice Chairman of the Board of the old Manufacturers Hanover Trust Co., 1968-1971, then the fourth largest bank in the world, which is dated in time but not in practical experience. [*I was doing my MBA at bank expense, which I appreciate to this day, in the night division of New York University Sterne Graduate Business School, with such professors as Dr. Peter Drucker (author of the business book THE PETER PRINCIPLE) with a classmate who was 12 or more years older than me, Alan Greenspan, who with one honors degree in economics from Princeton was for 8 years as a young man chairman of President Eisenhower's White House Council of Economic Advisors, and later you knew him as Chairman of the Federal Reserve System...and he turned out to have made bad financial and economic decisions to favor the mortgage, housing and commercial real estate industry, which materially contributed to today's economic "chaos" as well.]

1. MHTCo. (Manufacturers Hanover Trust Co.) became over exposed in the International Department making wholesale loans to governments who were poorly performing financially, then and now, such as the Philippines (which lives even today on revolving loans and lines of credits from commercial banks, the Export Import Bank, the International Monetary Fund) and Japan, which we all know today has been upside down financially speaking in recent years, on and off. MHTCo. was making a huge volume of loans to Japan who we thought we were on top of economically, which in short order Japan turned around and used to "eat our lunch" especially in their auto manufacturing and export business. We likewise were pushing into the newly opening mainland China market, where they likewise have developed at our greedy short term profit expense a favorable balance of payments internationally in China today such that they, China, are one of our major buyers of US Treasury debt to keep our economy afloat! Astounding if you think this all has happened since 1970!

2. As a result of poor decisions making International loans, MHTCo. merged with Chemical Bank (Chemical in effect took over, MHTCo. which on paper was broke, even sold off their HQ building at 350 Park Ave.); then Chemical, too, [technically] failed and merged/was taken over by Chase Manhatten, which in turn merged/was taken over/failed by JP Morgan. *This whole concept today of mergers to create economies of scale scares me as if you are not doing sound business and growing your credit base honestly and soundly, size does not matter...to wit, AIG, CITI, et al.

3. That gets you to today's JP Morgan Chase Bank [JP Morgan buys out/merges with Chase to save Chase]...and so today JP Morgan Chase Bank is a heavy user of gifted billions of taxpayer and Federal Reserve Bank dollars under the new "save the banks" TARP program which stared end of 2008 under President Bush and continues today under President Obama, no change except in the name of the President.

Today while I am retired from banking [a mini career designed around getting an MBA at night at bank expense], from US Civil Service (old system, not FERS), from the Air Force (6 active and 25 reserve years), I am since USCS retirement at age 55 [today I am going on age 70] a real estate Broker, selling, not owning nor managing, I avoided those roles as had enough of running things responsibility in my earlier careers. Technically I newly, only, do buyer or seller referrals within my realty firm, the pace of which currently is pretty flat!

Here is what I observed that directly contributed to the mortgage and real estate collapse we are now in, which you can now see is preceded by years and years of bad wholesale international loan making to both governmetns and commercial/financial institutions both overseas and at home which do business overseas (MHTCo. was "a" banker to the top 100 US corporations in my day, including Chrysler Corporation)...which we all know is near it's financial death for the umpteenth time:

a) Mega relocation firms like USAA got too greedy (I am a 47 year member) and opened it's financially and economically sound conservative membership to all ranks. This action brought in your worst credit scores and credit risks in the history of credit scoring and credit management. *Do you remember, you older troopers, when an enlisted man below the pay grade of E-5 had to have his commander's permission to get married? When today's AAFES had no credit cards, you had to pay cash? Etc.

b) USAA's mortgage side has guided borrowers to 80/20 mortgage loans instead of doing VA morgages (which formerly were almost no money down, fixed 30 year interest rates and assumable to a qualifed buyer when you have to resell due to miliary moves, etc.) but never used FHA mortgages even though FHA criteria parallels VA guaranteed mortgages and both are the safest style of mortgage for a USAA member-buyer and the safest style of mortage, as VA and FHA are federally insured mortages, to USAA mortgage company as the lender.

c) Credit scores were more and more ignored by folks like USAA, as well as big mortgage makers in general like Wells Fargo, CITI, they all went bezerk over making an ever increasing "buck" when sanity and proper credit evaluations on the mortgage lender side should have either avoided making many of the mortgages now in foreclosure or these should have been only made unless when/if buyers improved over a period of years their credit history, not some hokus pokus smoke and mirrors as was done to "clean up instantly" bad credit buyers.

d) The allegation that the mortgage companies created today's housing and economic collapse, which has spread worldwide, is true, no point in blaming other things for our plight.

Now, today, as a USAA Member, those of us who are currently USAA Members are faced with USAA overnight deciding to keep the higher profit from Federal Reserve discount window loans at .5% per annum interest... and USAA has artificially self created a floor of 6% interest as their benchmark to which they have applied a 2% add on...guys and gals...this takes your USAA credit card interest, overnight, in disregard to all prior written covenants with you and me, from a January 2009 credit card interest rate of 5.75% up to a February 7.75%, at a cost to USAA of money of half of one percent, making a gouging profit of 7.25%, which profit formerly was strong already for USAA at net 5.25% credit card profit.

If you have followed me to this point, I am stopping now.

Our real estate firm here locally was failing last fall. Our ownership merged with a larger firm, but both firms did and still do relocations from USAA via a large umbrella holding company of our company's brand name (national brand name.)

USAA is a prime example of what is compounding and killing clean, honest credit restarts in our economy by overreacting to the financial collapse and gouging good, high credit score members like you and me in collateral areas such as their credit card division to try to offset losses in their mortgage division (company). Thanks to dumb, greedy decision making by these mortgage making giants a first time buyer today faces even with a VA guaranteed mortgage a compound cost of about 10% to buy and close a home...and conventional mortgages are still being pushed which means 20% down today, plus closing costs. These standards are applied to good credit history and scores innocent buyers when less greedy mortgage making sprees through 2007 and the first half of 2008 would have averted the collapse we now are deeply in. Too many years, 15-20 years of heavy greed by all major mortgage makers got us in the mess we are in today. Greed, just one word, and sloppy or even dishonest among some mortgage makers documentation to qualify weak borrowers who had no business being loaned to.

Do you think our men and women in uniform deserve to have their credit cards, USAA, jacked up to robber profits when their credit scores are good and they have not defaulted on card payments, mortgage, car, or any other financial obligation paymens? How about the robber baron increased interest rates on almost all bank credit cards, to include CITI and JP Morgan Chase Bank?

I sure think we all in the military community deserve honest banking without gouging profit all over again, this time with the effect of killing off honest credit growth that would be sustainable to help revive our economy...as a corporate fright reaction to years of bad credit decisions in their own mortgage company where they knew many then new mortgages should not have been made as the people in many instances they "pushed" and enabled to borrow were proven lousy credit score risks. Greed, greed, greed.

Ski
03-03-2009, 12:33 PM
The economy is not bottoming out right now. Please do not get deluded into thinking this is the bottom.

There is still a lot of room to fall. The Europeans are in real trouble minus the French and a lesser extent the Germans. Housing is dead in the US. Credit is very hard to get for anything. The consumer confidence index dropped by 30%. Unemployment numbers are still rising.

The first indicator is to identify where and when unemployment bottoms out at. That means three quarters of static performance. Then add 2 additional quarters after that to start seeing any kind of growth at all.

Unemployment is going over 10% this year - using the offical government numbers which are badly calculated and often revised two or three times every month. Also does not count underemployed or those off the dole.


I wouldn't buy anything right now - other than whatever you are dollar cost averaging at the moment - and wait another 3-6 months. The global economy is going to get far worse as well, with ripple effects hitting us sooner than later.

I can't believe a company like General Electric is trading at $8 a share.

George L. Singleton
03-03-2009, 01:24 PM
Ski, and I think the 10% unemployment figure nationally will be occur before mid-summer, if not sooner.

Yes, this is a long term depression, not a silly recession, as some keep trying to fool us into believing.

In short, when the US catches a cold, then the rest of the world's economies get pneumonia.

So, since the US economy now has pneumonia, what can you then expect in overseas economies?

Ireland is one I am watching closely right now, it is in awful shape.

Hate to reinforce such negative info but that is the way it is.

bourbon
03-03-2009, 02:57 PM
If you think the U.S. is in an economic mess try Iceland. Michael Lewis is one of the funniest and sharpest writers out there, and he doesn't disappoint with this one.

Wall Street on the Tundra, by Michael Lewis. (http://www.vanityfair.com/politics/features/2009/04/iceland200904?printable=true&currentPage=all) Vanity Fair, April 2009.
Iceland’s de facto bankruptcy—its currency (the krona) is kaput, its debt is 850 percent of G.D.P., its people are hoarding food and cash and blowing up their new Range Rovers for the insurance—resulted from a stunning collective madness. What led a tiny fishing nation, population 300,000, to decide, around 2003, to re-invent itself as a global financial power? In Reykjavík, where men are men, and the women seem to have completely given up on them, the author follows the peculiarly Icelandic logic behind the meltdown.


Walking into the P.M.’s minute headquarters, I expect to be stopped and searched, or at least asked for photo identification. Instead I find a single policeman sitting behind a reception desk, feet up on the table, reading a newspaper. He glances up, bored. “I’m here to see the prime minister,” I say for the first time in my life. He’s unimpressed. Anyone here can see the prime minister. Half a dozen people will tell me that one of the reasons Icelanders thought they would be taken seriously as global financiers is that all Icelanders feel important. One reason they all feel important is that they all can go see the prime minister anytime they like.

What he might say to them about their collapse is an open question. There’s a charming lack of financial experience in Icelandic financial-policymaking circles. The minister for business affairs is a philosopher. The finance minister is a veterinarian. The Central Bank governor is a poet. Haarde, though, is a trained economist—just not a very good one. The economics department at the University of Iceland has him pegged as a B-minus student. As a group, the Independence Party’s leaders have a reputation for not knowing much about finance and for refusing to avail themselves of experts who do. An Icelandic professor at the London School of Economics named Jon Danielsson, who specializes in financial panics, has had his offer to help spurned; so have several well-known financial economists at the University of Iceland. Even the advice of really smart central bankers from seriously big countries went ignored. It’s not hard to see why the Independence Party and its prime minister fail to appeal to Icelandic women: they are the guy driving his family around in search of some familiar landmark and refusing, over his wife’s complaints, to stop and ask directions.


Back away from the Icelandic economy and you can’t help but notice something really strange about it: the people have cultivated themselves to the point where they are unsuited for the work available to them. All these exquisitely schooled, sophisticated people, each and every one of whom feels special, are presented with two mainly horrible ways to earn a living: trawler fishing and aluminum smelting. There are, of course, a few jobs in Iceland that any refined, educated person might like to do. Certifying the nonexistence of elves, for instance. (“This will take at least six months—it can be very tricky.”) But not nearly so many as the place needs, given its talent for turning cod into Ph.D.’s. At the dawn of the 21st century, Icelanders were still waiting for some task more suited to their filigreed minds to turn up inside their economy so they might do it.

Enter investment banking.

The people of Iceland are not soft to begin with, they will make do. In this sense they may be better off than much of the West in coping with financial calamity.

slapout9
03-03-2009, 03:57 PM
This is a short video that seems to support the Merril Lynch paper.


http://therealnews.com/t/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=3345

Surferbeetle
03-03-2009, 04:10 PM
If you could buy now with everything bottoming out, what do you buy?

ODB,

I don't think that the bottom is anywhere close to being in.

Cash in the bank(keep in mind FDIC insurance levels (http://www.fdic.gov/)), and index funds (http://screen.yahoo.com/funds.html) like tsp g or their equivalent (low maintenance costs, low turnover, and run by a reputable firm) are a good place to wait out the storm. USAA has some low cost Vanguard managed offerings, and of course Vanguard has some low cost offerings (3000 or higher to start depending upon the fund) for your IRA.

If you have a work-based retirement vehicle, an IRA, an emergency fund, and are willing to throw out some additional money that you may/probably will not ever see again there are some interesting individual stocks out there to consider. Diversification risk goes way up when you purchase individual stocks :eek:. GE (http://www.ge.com/investors/financial_reporting/index.html) is a very good company that is taking it on the chin due to their GE Capital division (http://www.bloomberg.com/apps/news?pid=20601109&sid=ajYCLEW617S4&refer=home). There is some speculation that things will continue to get worse (http://www.forbes.com/2009/03/02/adobe-general-electric-personal-finance-investing-ideas_options_strategies.html) for GE in the short term.

Investing-wise Warren Buffett is whom we all aspire to be and we all fall short. Schmedlap's method of purchasing Berkshire Hathaway (http://en.wikipedia.org/wiki/Berkshire_Hathaway) is seriously worth considering. This strategy reduces your diversification risk and allows one to capitalize on Mr. Buffett's brainpower and skills :D.

I will repeat however that you must be willing to throw out some money that you may/probably will not ever see again. One of my accounts reminds me of this fact daily :rolleyes:

Best,

Steve

slapout9
03-03-2009, 05:44 PM
Question for anyone. Where can I find information on WHO!!!! got all the money that has been giving out so far? Thanks in advance.

bourbon
03-03-2009, 06:56 PM
Question for anyone. Where can I find information on WHO!!!! got all the money that has been giving out so far? Thanks in advance.
The Treasury Department isn't releasing that information. Bloomberg and Fox News have FOIA suits pending. Judge ruled with Fox on one case already, I don't Treasury has responded to it yet.

The quest is not only WHO, but also WHAT assets they were bailed out on.

selil
03-03-2009, 07:02 PM
The quest is not only WHO, but also WHAT assets they were bailed out on.

Bernanke got pounced on today. When looking at credit lines for banks he proudly declared that all distributions were done only to "Triple A" credit institutions/assets. Senator asked him if that rating was done by the same credit rating agencies that evaluated all the previous toxic debt as "Triple A" and got them into this mess. Bernanke said yes. And looked kind of sheepish.

jmm99
03-03-2009, 07:19 PM
still a falling knife.

Compare the slope on the S&P 10-year going down pre-9/11 to 2003 - and the present slope. :(

Looking at the S&P from 1950, the support level looks to be in the 200 (worst case) to 500 (better case) range. :eek:

It is possible to find companies that are counter the trend - as an example, Family Dollar Stores (FDO), which targets lower income buyers and frugal folks. Still risky business.

See attached.

Surferbeetle
03-03-2009, 07:24 PM
Jmm99,

What are you using to make those?

I download stock price data from google (http://www.google.com/finance/historical?q=NYSE:GE) and plug it into Microsoft Excel...

Best,

Steve

Ski
03-04-2009, 02:48 AM
A lot of the money in Iceland came from Austria, who are now up the same creek as the Icelandics.

The British economy is going to get so bad the government has warned of social unrest this summer.

All the indicators point to a much sharper drop - another 25-35%. I honestly think- and never would have thought this would occur again, much less in my lifetime - we are headed for another Great Depression. I see no way out of this. We are trying to spend our way out of the hole by borrowing more money, which was the problem in the first place - bad debt. What happens when the Arabs and Chinese stop buying T-bills and debt?

Greedheads on Wall St. Twice in a century - they will NEVER regain the trust of the average American.

Ken White
03-04-2009, 03:15 AM
Greedheads on Wall St. Twice in a century - they will NEVER regain the trust of the average American.Have a great deal of US government help?

From Gale Cincotta and Jimmy Carter and the Community Reinvestment Act to Rubin and and Summers changing the rules to aid their investment banking friends to Barney Frank and Chris Dodd stopping any restructure of Fanny Mae and Freddy Mac -- which are the two Government organs that really brought the whole structure down -- and the Fed. There's a lot of blame to go around. It wasn't all Wall Street; more DC and plain old human greed on the part of a lot of folks who created the housing bubble buying houses they couldn't afford.

As for trusting 'em, if a few bad apples in the chain had been my determining criteria I would not have stayed in the Service for 30 years. This is the fourth time in my life my stock is worth about three quarters to a half what it was a year earlier. I rarely sell, just keep buying; third stock, third cash, third other. The market goes down, the market goes up. No one really knows why...