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  1. #1
    Council Member Cavguy's Avatar
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    Default Good Layman's guide to the financial crisis

    Found this in my Google Reader this morning. An excellent summary of the credit crisis for laymen.

    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.
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    Agree completely with your sentiments, Cavguy. Thanks for the link!

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    Council Member tequila's Avatar
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    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 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.

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    i pwnd ur ooda loop selil's Avatar
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    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.
    Sam Liles
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    Quote Originally Posted by tequila View Post
    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 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-mo...nancial_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.

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    Council Member Surferbeetle's Avatar
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    Default “Be Nice to the Countries That Lend You Money”

    From the December 2008 Atlantic, 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.
    Sapere Aude

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    Council Member davidbfpo's Avatar
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    Default UK banks asking for more cash

    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

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    Council Member bismark17's Avatar
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    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....

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    i pwnd ur ooda loop selil's Avatar
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    Quote Originally Posted by bismark17 View Post
    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....
    Sam Liles
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    Council Member Cavguy's Avatar
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    I'm not always a Gingrich fan, but this struck me as spot on.



    Quote Originally Posted by Gingrich
    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?
    Last edited by Cavguy; 09-22-2008 at 06:27 PM. Reason: Added 2d quote
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    Council Member Cavguy's Avatar
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    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:

    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.
    "A Sherman can give you a very nice... edge."- Oddball, Kelly's Heroes
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    Quote Originally Posted by Cavguy View Post
    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...

    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, 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.

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    i pwnd ur ooda loop selil's Avatar
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    Default An explanation,

    Sam Liles
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    Default Is the Medicine Worse Than the Illness?

    From this mornings WSJ

    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.
    Sapere Aude

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    Council Member Ken White's Avatar
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    Default Which medicine for what illness?

    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...

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    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.
    Last edited by SNK; 01-04-2009 at 01:42 PM.

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    Quote Originally Posted by Ken White View Post
    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.

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    Council Member Ken White's Avatar
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    Default True. I think that a decent education

    Quote Originally Posted by Schmedlap View Post
    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...

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