View Full Version : Crisis in the Financial Markets
Roguish Lawyer
09-22-2008, 19:01
The gravity of what's going on right now is best reflected, I think, by the front pages of the Wall Street Journal during the last week -- full-blown, large-font headlines you'd expect to see in the NY Post, not in the Journal.
Would anyone like to discuss the nature and causes of the current state of affairs? Or the proposed bailout? I know we have some investment bankers here . . . :munchin
There is some good discussion HERE (http://www.professionalsoldiers.com/forums/showthread.php?t=19712)
I'm concerned about the expansion of the bailout to cover consumer debts such as car loans and credit cards. In addition, the total cost is, as I recall, expected to come to $1.8 trillion. It is important to note that the proposed bill limits the bailout to $700 billion at a time, not total.
So far, the dollar is down and gold is up. Furthermore, 90 day T-bills are yielding less than 1% as investors seek safety. This seems to suggest that the crises is real, but that the cost of the bailout may include significant further declines in the purchasing power of the dollar. This could lead to loss of the dollar's global reserve currency status with profound adverse consequences for the U.S.
Even at the $700 billion level, each person in the U.S. faces a bill in excess of $2,000. I would like considerably more detail and transparency for my $2,000.
John Mauldin turns out an interesting newsletter on the subject - it can be viewed HERE (http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2008/09/22/observations-on-a-crisis.aspx)
GratefulCitizen
09-22-2008, 22:20
John Mauldin turns out an interesting newsletter on the subject - it can be viewed HERE (http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2008/09/22/observations-on-a-crisis.aspx)
"The tragedy of the worst financial crisis since the 1930s was enhanced by almost every investment bank, all rating agencies and all bank regulators using the same measurement and the same mathematical risk model for market evaluation of securities. This example shows how dangerous the use of the standard deviation based approach is. If most of the market participants make decisions based on the same risk control of a false distribution assumption, and oversimplified risk model, it could cause a complete failure of the system."
Sounds like they didn't want to actually pay for actuaries.
There is a reason the testing process for actuaries is so difficult.
This may or may not be applicable,, but I read these two articles and would like to get some feed-back. I am sure everyone is looking to put someone on the hot seat for blame, so this type of article is to be expected,, but I have not seen anyone from Barry's camp yell & scream the race card or what ever..
The Democrats are being very quiet about this???
Part # 1
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSKSoiNbnQY0
How the Democrats Created the Financial Crisis: Kevin Hassett
Commentary by Kevin Hassett
http://us.ft.com/ftgateway/superpage.ft?news_id=fto091820081351361211
Greenspan's sins return to haunt us, By David Blake, Published: September 18 2008 18:39 | Last updated: September 18 2008 18:39
In light of these articles,, It appears that the Democrats are trying to do the same thing as they did in 2005???
from part # 1:
But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter. That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.'
This article was published THE DAY BEFORE POTUS ask for the 700 billion bail-out..
And now, four(4) days later, the democrats are loading the bail-out bill up with trash???
AGAIN???
Jack Moroney (RIP)
09-23-2008, 07:06
There is enough "blame" to go around for all party affiliations. I truly believe that the financial crisis, like everyother crisis that arises in this country, is just systemic of the major crisis and that is political. You know we have pre-command courses for those in the Army to ensure that, even though they have supposedly grown up in the system and are supposed to understand the business of their branch and doctrine, they are ready to assume the responsibilities of command. The length of the program is normally dictated by the branch or the difficulty of the command-one of mine took a year. When you stop and think about it, just what qualifications, other than a friggin' popularity contest win over someone less popular, do most of these congress critters bring to the table. The complexities of today's world demands folks that have a basic understanding of economics, military, political/diplomatic (both national and international), and informational tools that our country needs to be able to exercise in furtherance or in protection of our vital national interests. They allegedly understand their constituents positons and at least know something about the State from which they come-but that is it. If it were up to me I would make these clowns demonstrate that they have a solid grasp of the business into which they are about to enter and failing that there should be some kind of program that they are required to enter and pass before they wind up on a ballot for national office. How many of these clowns and clownettes are actually going to read the "salvation plan" before they vote on it. Last count I heard was that only 6 read the supporting documentation for the invasion of Iraq. If I hear the term bipartisan one more time I am going to puke. The only thing that means that in the arena of consensus building one jerk got another jerk to agree to vote for something the other party wanted as long as the other jerk would vote for something he needed to support his power base. This whole thing has been politicized and with that you are now witnessing the demise of capitalism and the rise of socialism in this country. You can point to any number of problems-from the sub prime market to short selling, but if you follow the bread crumbs to the source it all leads to the plates in the Congressional dinning room and if you cannot hold congress accountable to clean up its mess where do we find the folks that need to hold everyone else accountable for their actions? I have absolutely every confidence that the majority of these self-serving psychophants have no idea what they are doing, and that should have you all concerned!
This couldn't be at a worse time...
Right now if a party sponsored a bill that would produce more sunshine the other party would jump on it because of the rise in skin cancer and the burden such a rise in sunshine production would put on the undecided voter class.
The ghosts of political voting records for war in Iraq have come back to haunt them. The body politic is only worried that the vote they cast today will be tomorrows hard question.
"he voted for a bill that crashed the economy"
"he voted against a bill that saved the economy"
as I have said before... how dare politicians claim concern about my well being.
They only care about how much of my tax money they can use to pad their off shore accounts.
anythingrandom
09-23-2008, 09:29
Ron Paul said, in regards to the economic bailout, that BO "has a pretty good grasp on how to attack this politically and go after McCain, but he doesn't have any answer. He's not talking about the Federal Reserve system. He's not talking about balanced budgets. He's not talking about bringing troops home from Afghanistan."
His entire article can be found here - for those of you that can choke down a CNN stint.
http://www.cnn.com/2008/POLITICS/09/23/paul.bailout/index.html
I tend to agree with Dr. Paul - IF I'm understanding this properly - he's saying that bailouts are not the answer and that they only stall the problem and allow it to snowball until a larger problem must be solved further down the line.
Like the "falling house of cards" analogy that was mentioned in the other thread on this topic. He's saying that we're just going to pause the fall where it is, while the base continues to weaken and a total collapse is pending.
Did I get this right? Thoughts on his POV?
ZonieDiver
09-23-2008, 11:06
There is some good discussion HERE (http://www.professionalsoldiers.com/forums/showthread.php?t=19712)
I'm concerned about the expansion of the bailout to cover consumer debts such as car loans and credit cards. In addition, the total cost is, as I recall, expected to come to $1.8 trillion. It is important to note that the proposed bill limits the bailout to $700 billion at a time, not total.
So far, the dollar is down and gold is up. Furthermore, 90 day T-bills are yielding less than 1% as investors seek safety. This seems to suggest that the crises is real, but that the cost of the bailout may include significant further declines in the purchasing power of the dollar. This could lead to loss of the dollar's global reserve currency status with profound adverse consequences for the U.S.
Even at the $700 billion level, each person in the U.S. faces a bill in excess of $2,000. I would like considerably more detail and transparency for my $2,000.
Imagine my surprise this morning to find myself in agreement with Rep B. Frank (D-MA) about this issue. He differs with Sen Dodd (D-Irresponsible) and the administration about including auto and credit card debt.
US Treasury must also be given an opportunity to recoup some of this money, when things turn around. Execs of failed companies must have their "golden parachutes" revoked. Boards of Directors who did not perform "due diligence" should be rebuked. Fraud, and it is rampant (especially at places like Countrywide and many homebuilders who knowingly gave "owner-occupant" loans to investors ), must result in indictments, trials, and serious imprisonment - not a repeat of the "S&L" debacle in the 80's.
Ron Paul said...
When he proposed moving back to a gold standard during his "campaign", I stopped listening to anything he had to say about economics. :rolleyes:
I received the following an email today. Pretty interesting stuff.
OBAMA'S CROOKED CRONIES IN THE WALL STREET MELTDOWN
Written by Jack Kelly
Thursday, 18 September 2008
Lending money to people who probably won't pay it back isn't good business. If you wrap crummy loans in a clever package, they're still crummy loans.
Your typical Wal Mart shopper understands this. But the Masters of the Universe on Wall Street and in Washington evidently didn't.
There are a lot of people to blame for the subprime mortgage crisis. The Federal Reserve Board under Chairman Alan Greenspan (1987-2006) pursued what seems in hindsight clearly to have been way too loose a monetary policy. Banks were awash with money to lend, and got careless in how they lent it.
Ostensibly to aid the poor, the Clinton administration and Congress encouraged lenders to give mortgages to poor credit risks. The combination of easy money and the expansion of the number of borrowers by extending loans to poor credit risks sent housing prices through the roof, creating the bubble whose bursting has led to this crisis.
Congress in 1999 repealed the law (the Glass-Steagall Act) that established a bright line between commercial and investment banks. This meant bad investments by banks could jeopardize depositors. Wall Street created "derivatives" which multiplied profits in good times, but which also multiplied risk if there were defaults.
Most important was corruption and mismanagement at the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), which together controlled 90 percent of the secondary mortgage market.
Once your bank has lent you money to buy a house, it can't lend the money again until you pay it back. But if your bank sells your mortgage, it can make another loan right away. Without the secondary market, most of the funds for home mortgages would dry up.
Fannie and Freddie went broke because they had bought billions of dollars worth of subprime mortgages, on which borrowers defaulted when the housing bubble popped. Fannie bought most of its bad mortgages from Countrywide Financial, whose CEO, Angelo Mozilo, gave sweetheart loans to senior executives of Fannie Mae.
Fannie and Freddie cooked their books so senior executives would be paid millions of dollars in bonuses to which they were not entitled. Inadequate regulation kept the book-cooking from being discovered until the crisis had become a catastrophe.
President Bush proposed regulatory reforms in 2003, but Congress took no action. In 2005, John McCain and three other GOP senators proposed a strong reform bill. It died when Democrats threatened a filibuster. When the bill was reintroduced in this Congress, Sen. Chris Dodd, the new Democratic chairman of Banking Committee, refused even to hold a hearing on it.
Democrats opposed reform in part because they feared it would mean fewer loans to poor people.
"Fannie Mae and Freddie Mac are not facing any kind of financial crisis," Rep. Barney Frank, D-Mass, told the New York Times when the Bush bill was introduced. "The more pressure there is on these companies, the less we will see in terms of affordable housing."
Democrats and some Republicans opposed reform because Fannie and Freddie were very good at greasing palms. Fannie spent $170 million on lobbying since 1998, and $19.3 million on political contributions since 1990.
The principal recipient of Fannie Mae's largesse was Sen. Dodd. Number two was Barack Hussein Obama.
Sen. Dodd was also the second largest recipient in the Senate of contributions from Countrywide's PAC and its employees. The number one senator on Countrywide's list?
Barack Hussein Obama.
Fannie Mae CEO Franklin Raines was forced to resign in December, 2004, because of "accounting irregularities." The Washington Post reported July 16 the Obama campaign has called Mr. Raines "seeking his advice on mortgage and housing policy matters."
Sen. Obama appointed Mr. Raines' predecessor, James Johnson, as head of his vice presidential search committee, until he was also implicated in "accounting irregularities," and it was revealed he'd received cut rate loans from Countrywide.
Chicago billionaire Penny Pritzker, chairman of Sen. Obama's finance committee, cooked the books to conceal losses from subprime mortgages at her now defunct Superior bank. The holding company her family owned collected $200 million in dividends on phony profits.
The trouble with crony capitalism isn't capitalism. It's the cronies.
There is some good discussion HERE (http://www.professionalsoldiers.com/forums/showthread.php?t=19712)
Even at the $700 billion level, each person in the U.S. faces a bill in excess of $2,000. I would like considerably more detail and transparency for my $2,000.
Who and when will this bill be paid? Shall it be passed onto the next generation and added to the debt? Just curious.
Who and when will this bill be paid? Shall it be passed onto the next generation and added to the debt? Just curious.
The debt ceiling will be increased to $ 11.3 trillion dollars, so I suppose one could say that the next generation will get it.
However, I suspect that we will see a decline in the dollar leading to higher prices for everything. Thus we will all get to participate in paying the piper.
We've only seen a slow decline in the dollar so far. A $10,000 salary in 1975 is $37,555 in 2007. I expect the decline to accelerate.
If you'd like to experiment with the numbers, you can do so HERE (http://www.measuringworth.com/uscompare/)
Defender968
09-23-2008, 22:02
There is enough "blame" to go around for all party affiliations. I truly believe that the financial crisis, like everyother crisis that arises in this country, is just systemic of the major crisis and that is political. You know we have pre-command courses for those in the Army to ensure that, even though they have supposedly grown up in the system and are supposed to understand the business of their branch and doctrine, they are ready to assume the responsibilities of command. The length of the program is normally dictated by the branch or the difficulty of the command-one of mine took a year. When you stop and think about it, just what qualifications, other than a friggin' popularity contest win over someone less popular, do most of these congress critters bring to the table. The complexities of today's world demands folks that have a basic understanding of economics, military, political/diplomatic (both national and international), and informational tools that our country needs to be able to exercise in furtherance or in protection of our vital national interests. They allegedly understand their constituents positons and at least know something about the State from which they come-but that is it. If it were up to me I would make these clowns demonstrate that they have a solid grasp of the business into which they are about to enter and failing that there should be some kind of program that they are required to enter and pass before they wind up on a ballot for national office. How many of these clowns and clownettes are actually going to read the "salvation plan" before they vote on it. Last count I heard was that only 6 read the supporting documentation for the invasion of Iraq. If I hear the term bipartisan one more time I am going to puke. The only thing that means that in the arena of consensus building one jerk got another jerk to agree to vote for something the other party wanted as long as the other jerk would vote for something he needed to support his power base. This whole thing has been politicized and with that you are now witnessing the demise of capitalism and the rise of socialism in this country. You can point to any number of problems-from the sub prime market to short selling, but if you follow the bread crumbs to the source it all leads to the plates in the Congressional dinning room and if you cannot hold congress accountable to clean up its mess where do we find the folks that need to hold everyone else accountable for their actions? I have absolutely every confidence that the majority of these self-serving psychophants have no idea what they are doing, and that should have you all concerned!
Col Moroney I agree with you completely, the more I look at this "crisis" the more I'm inclined to think that there are allot of moving parts that need to be addressed and aren't being. The only thing that is being addressed is the liquidity issue (which of course is the simplest to understand) with the bailout, though I'm not even sure the bailout will actually give the market the liquidity it needs to operate. I'm also beginning to believe that the bailout is a Band-Aid the politicians are putting on this gaping wound to look like they did something in an election year, but the problem is they have no idea what they're doing, again just as Col Moroney pointed out, not to mention congress is just too busy taking breaks, voting on national watermelon month or arguing a resolution condemning acts that happened nearly a century ago to actually get any heavy lifting done and to maybe do their actual jobs. When I hear on the news that politicians are considering throwing in credit card debt and auto loans as a part of the bailout that really clinches it for me, this is not the solution, it's a ploy to buy votes and an attempt to drive us into socialism just as Col Moroney stated.
I don't claim to have all the answers, what I do have is a critical mind, a finance degree, and the strong desire to be informed and to learn about what’s going on in the world around me. The more angles I look at with this situation the more I would argue that a free market can and should be allowed to recover from this type of thing with the proper type and amount of help and quite a large portion of pain for those who caused it. The short term issue that needs to be addressed primarily is liquidity in the credit market. Right or wrong our country runs on debt, short term and otherwise so we have to be able to provide credit. My personal belief is there are allot of people who did stupid and illegal things to cause all of this, the mortgage writers and the naked short sellers would be a great place to start, all of them or a great many of them should be held accountable, prison time, forfeiture of assets tied to illegal acts, especially with regard to the naked short selling as that phenomenon lends itself to manipulating the market and I am convinced that happened on a large scale. Police officers can be sued personally if they wrongly search a suspect, why can't bad loan writers and naked short sellers meet the same fate, hell name me the plaintiff when our taxes go up to pay for this bailout I’ll be effected I’m sure. Now that won't put a dent in the amount of capital it will take to solve things, but a large dose of personal responsibility is just what this county is in desperate need of, and it will keep those who remain in financial business from thinking they can do whatever they want and get away with it.
Next the government needs to find out what the true value of the mortgage based securities currently outstanding are. The reality is these instruments still have value, and yet they are being sold for cents on the dollar due in large part to the fact that no one really knows how much they are worth and everyone is afraid of them with the housing market in such turmoil, this fear has lead to a dramatic decrease in the liquidity, which leads to a firesale when a company gets in trouble, i.e. selling them at next to nothing to generate cash flow. They are inherently worth more than the firesale prices they're being valued at under the marked to market rule, but with the marked to market rules once a firesale starts on a security every company is going to fall to it and since mortgage based securities are used by every financial institution they're all having problems i.e. the meltdown we've all lived through, that’s a failure of regulation IMO, which should be corrected as well. The real value of these securities if I had to guess will be somewhere between 65-80% of the acquisition prices. According to every statistic I've found only 1% of US homes are in foreclosures, let’s call it 5 % just for kicks, couple that with the downturn in the housing market, let’s say homes have lost 30% from the boom prices, however the 95% of homes not in foreclosure will continue to pay on their boom price mortgages, all that together means whoever buys up all the mortgages for 10 cents on the dollar or less will make a killing in the long run. Unless of course the government does it, in which case they will find a way to screw it up and make nothing or worse they’ll lose billions if not a trillion and at the same time driving us to become a socialist nation, just like the Dims want. :mad:
charlietwo
09-23-2008, 23:10
There is enough "blame" to go around for all party affiliations. I truly believe that the financial crisis, like everyother crisis that arises in this country, is just systemic of the major crisis and that is political. You know we have pre-command courses for those in the Army to ensure that, even though they have supposedly grown up in the system and are supposed to understand the business of their branch and doctrine, they are ready to assume the responsibilities of command. The length of the program is normally dictated by the branch or the difficulty of the command-one of mine took a year. When you stop and think about it, just what qualifications, other than a friggin' popularity contest win over someone less popular, do most of these congress critters bring to the table. The complexities of today's world demands folks that have a basic understanding of economics, military, political/diplomatic (both national and international), and informational tools that our country needs to be able to exercise in furtherance or in protection of our vital national interests. They allegedly understand their constituents positons and at least know something about the State from which they come-but that is it. If it were up to me I would make these clowns demonstrate that they have a solid grasp of the business into which they are about to enter and failing that there should be some kind of program that they are required to enter and pass before they wind up on a ballot for national office. How many of these clowns and clownettes are actually going to read the "salvation plan" before they vote on it. Last count I heard was that only 6 read the supporting documentation for the invasion of Iraq. If I hear the term bipartisan one more time I am going to puke. The only thing that means that in the arena of consensus building one jerk got another jerk to agree to vote for something the other party wanted as long as the other jerk would vote for something he needed to support his power base. This whole thing has been politicized and with that you are now witnessing the demise of capitalism and the rise of socialism in this country. You can point to any number of problems-from the sub prime market to short selling, but if you follow the bread crumbs to the source it all leads to the plates in the Congressional dinning room and if you cannot hold congress accountable to clean up its mess where do we find the folks that need to hold everyone else accountable for their actions? I have absolutely every confidence that the majority of these self-serving psychophants have no idea what they are doing, and that should have you all concerned!
Very well put, sir. It's frustrating to hear partisanship brought into this situation when it's obviously endemic of the bigger problems of over-bureaucracy and corruption at the highest levels.
Would phone calls and activism even make a difference at this point?
It seems as if there is no dodging the shit storm that is about to come our way. Whether it be McCain or Obama we are going to be in a world of hurt, I just hope that they don't make the problem worse.
Red Flag 1
09-24-2008, 08:17
Agree with nmap! I'd like to see a lot more transparency!
Several years ago, I was behind a Walmart customer at the checkout. She concluded her transaction of about $60.00 by handing the cashier her checkbook to write the check for her. She could not read or write, she did trust the cashier to do the right thing. I was stunned to see this happen.
Are we as taxpayers doing anything less? Are we financal illiterates handing over our checkbooks and trusting too much?
What ever happens with bridge loans and more bailouts, CEO's and CFO's and boards of directors should pay the price first. Failed policies and flawed decisions should not be rewarded with "golden parachutes"! Perhaps someone should tap the salary and bonus packages for a source of income for failing institutions. Then put the bastards in jail for fraud, after heavy fines paid to the US Government!
I think we are in the financial spot we are in is, in part, due to fraud. I wolud be in favor of clipping some shroud lines. Perhaps it would send a message to other CEO's, etc., etc.
My $.02......................along with bailout funds I guess....and some heavy stock losses.:mad:
RF 1
The initial research for this topic is here (http://www.militaryphotos.net/forums/showthread.php?t=142154) and especially here (http://www.militaryphotos.net/forums/showpost.php?p=3558030&postcount=12).
http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B 63&sec=&spon=&pagewanted=print
September 11, 2003
New Agency Proposed to Oversee Freddie Mac and Fannie Mae
By STEPHEN LABATON
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.
''There is a general recognition that the supervisory system for housing-related government-sponsored enterprises neither has the tools, nor the stature, to deal effectively with the current size, complexity and importance of these enterprises,'' Treasury Secretary John W. Snow told the House Financial Services Committee in an appearance with Housing Secretary Mel Martinez, who also backed the plan.
Mr. Snow said that Congress should eliminate the power of the president to appoint directors to the companies, a sign that the administration is less concerned about the perks of patronage than it is about the potential political problems associated with any new difficulties arising at the companies.
The administration's proposal, which was endorsed in large part today by Fannie Mae and Freddie Mac, would not repeal the significant government subsidies granted to the two companies. And it does not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enables them to issue debt at significantly lower rates than their competitors. Nor would it remove the companies' exemptions from taxes and antifraud provisions of federal securities laws.
The proposal is the opening act in one of the biggest and most significant lobbying battles of the Congressional session.
After the hearing, Representative Michael G. Oxley, chairman of the Financial Services Committee, and Senator Richard Shelby, chairman of the Senate Banking Committee, announced their intention to draft legislation based on the administration's proposal. Industry executives said Congress could complete action on legislation before leaving for recess in the fall.
''The current regulator does not have the tools, or the mandate, to adequately regulate these enterprises,'' Mr. Oxley said at the hearing. ''We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal Housing Enterprise Oversight,'' the independent agency that now regulates the companies.
''These irregularities, which have been going on for several years, should have been detected earlier by the regulator,'' he added.
The Office of Federal Housing Enterprise Oversight, which is part of the Department of Housing and Urban Development, was created by Congress in 1992 after the bailout of the savings and loan industry and concerns about regulation of Fannie Mae and Freddie Mac, which buy mortgages from lenders and repackage them as securities or hold them in their own portfolios.
At the time, the companies and their allies beat back efforts for tougher oversight by the Treasury Department, the Federal Deposit Insurance Corporation or the Federal Reserve. Supporters of the companies said efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families. This year, however, the chances of passing legislation to tighten the oversight are better than in the past.
Reflecting the changing political climate, both Fannie Mae and its leading rivals applauded the administration's package. The support from Fannie Mae came after a round of discussions between it and the administration and assurances from the Treasury that it would not seek to change the company's mission.
After those assurances, Franklin D. Raines, Fannie Mae's chief executive, endorsed the shift of regulatory oversight to the Treasury Department, as well as other elements of the plan.
''We welcome the administration's approach outlined today,'' Mr. Raines said. The company opposes some smaller elements of the package, like one that eliminates the authority of the president to appoint 5 of the company's 18 board members.
Company executives said that the company preferred having the president select some directors. The company is also likely to lobby against the efforts that give regulators too much authority to approve its products.
Freddie Mac, whose accounting is under investigation by the Securities and Exchange Commission and a United States attorney in Virginia, issued a statement calling the administration plan a ''responsible proposal.''
The stocks of Freddie Mac and Fannie Mae fell while the prices of their bonds generally rose. Shares of Freddie Mac fell $2.04, or 3.7 percent, to $53.40, while Fannie Mae was down $1.62, or 2.4 percent, to $66.74. The price of a Fannie Mae bond due in March 2013 rose to 97.337 from 96.525.Its yield fell to 4.726 percent from 4.835 percent on Tuesday.
Fannie Mae, which was previously known as the Federal National Mortgage Association, and Freddie Mac, which was the Federal Home Loan Mortgage Corporation, have been criticized by rivals for exerting too much influence over their regulators.
''The regulator has not only been outmanned, it has been outlobbied,'' said Representative Richard H. Baker, the Louisiana Republican who has proposed legislation similar to the administration proposal and who leads a subcommittee that oversees the companies. ''Being underfunded does not explain how a glowing report of Freddie's operations was released only hours before the managerial upheaval that followed. This is not world-class regulatory work.''
Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.
''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.''
Representative Melvin L. Watt, Democrat of North Carolina, agreed.
''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.
The full transcript is at http://financialservices.house.gov/media/pdf/108-51.pdf
Rep. Ron Paul (R-TX) seemed to be the lone voice for a more urgent approach. The following is from pages 43-44 of the transcript.
I think we are failing to look at the real problem and the cause
of our crisis we face. I am concerned that we are going to have a
world-class adjustment to the distortions that we, the Congress, the
Fed, and the Treasury have created over these last several decades;
and it seems like there is essentially no concern about that.
These programs were originally set up to help poor people get affordable
housing; today we have a program that helps people buy
a house for over $300,000 and get subsidy for their mortgage payment.
At the same time, the administrators of these programs
make millions of dollars. So I think we have lost our way on this.
But the biggest concern I have is that Congress is not looking at
the real problem, and to me it has been this implied credit and implied
guarantee of this credit, are we going to get rid of this line
of credit? Not likely, because that would cause a bit of chaos. But
that is what has really blown these markets up, and they are distorted.
Also, we have the Fed very much involved in this. They probably
wouldn’t admit it, but the Fed on occasion will buy GSE securities.
Foreign central banks buy these securities because it is implied
that the Fed is going to come to the rescue....
Some people think there could be a bubble here. Who knows,
though? It might be a great bit of distortion, but there will be a
correction.
I am concerned, and I would like Secretary Snow to comment on
this. Do you have a concern yourself about what could happen
here? This is a huge amount of debt, a lot of investors, a lot at
stake. What happens if mortgage rates go up three points in the
next year and the dollar keeps weakening? We have a huge current
account deficit, and the currency always goes down when you run
an account deficit like this.
Team Sergeant
09-24-2008, 09:15
Personally I'd rather let the corrupt mortgage lending industry fall on their sword, along with all of those that took advantage of the predatory lending practices they used to make trillions, IMO they do not deserve a bailout.
I want to see them all go under and their board members thrown in jail.
It's not a "government bailout", it's a bailout by the people that have a good job and have made good house puurchasing decisions. The millions that have gone bankrupt sure ain't going to "help" in the current situation.
So let's screw over the responsible Americans and make them pay for this goatf**k, brillant.
Those board members and ceo's of those failed companies should pray they don't run into me on the streets...... disgusting human waste the whole lot of them.
Team Sergeant
I was glad to hear on the news that the FBI is being set loose on them. I am curious to see how that will turn out.
Team Sergeant
09-24-2008, 09:23
I was glad to hear on the news that the FBI is being set loose on them. I am curious to see how that will turn out.
Probably the same way any case the FBI assumes, it will take approximately 3 decades to actually bring the case to court and half the defendants will be either dead or in an old folks home.
greenberetTFS
09-24-2008, 09:41
Probably the same way any case the FBI assumes, it will take approximately 3 decades to actually bring the case to court and half the defendants will be either dead or in an old folks home.
I'm afraid that TS is right....By the time the FBI gets though with their investigations we'll all be in the old folks home and possibly dead. :rolleyes: Look how long they took going after the Mafia before they put any of them in jail. :(
GB TFS :munchin
There has been some great discussion on this board, and some great points/articles being posted. Nmap is doing a splendid job of articulating the bigger picture, however, one portion that I believe people are failing to take into account with this bailout is the one that effects the vast majority of Americans: fear.
That is what makes this bailout absolutely necessary. The Dems are currently completely screwing the entire thing up by attaching earmarks and garbage to the bill, but the bill in it's simplest form, is again necessary. Without it, the entire system could be wrecked, despite it's failsafes and various protection systems.
Many Americans cannot see beyond the short-term when it comes to their investments. This is why most Americans fail at investing their own money. The minute they see a negative sign on their account statements, they absolutely freak out. There are times when this is warranted, times like these. However, this fear, running rampant, could wreak havoc on the system, causing everything from 401(k) collapses, millions of Americans having even more retirement issues, to a worldwide recession. You've already seen a small taste here, as well as globally of what can happen when fear is paramount. Global markets have been dropping, seeing extreme volatility, or even being shut down for periods of time, all because of this fear.
I don't have the time to go into the knitty gritty, Nmap has been doing a superb job of that though, I need to get back to answering phone calls of my panicking clients. Essentially, though, this bailout needs to be done asap to allay some of the fear out there, and on the reverse side, needs to be regulated in the proper fashion, without a knee-jerk reaction that screws things up further. :(
Good points, Storm.
If I remember correctly, FDR leadership during the Depression continues to receive praise from scholars not so much for his efforts to revitalize the economy but because his vigorous leadership helped to allay the fears of many Americans who believed that the country was coming apart at the seams.
There has been some great discussion on this board, and some great points/articles being posted. Nmap is doing a splendid job of articulating the bigger picture, however, one portion that I believe people are failing to take into account with this bailout is the one that effects the vast majority of Americans: fear.
charlietwo
09-24-2008, 10:35
There has been some great discussion on this board, and some great points/articles being posted. Nmap is doing a splendid job of articulating the bigger picture, however, one portion that I believe people are failing to take into account with this bailout is the one that effects the vast majority of Americans: fear.:(
There also seems to be a correlation with Obama's poll numbers and a bad economy. I typically see polls as masturbation by the numbers, but I suppose it's good to see trends like this: http://www.washingtonpost.com/wp-dyn/content/article/2008/09/23/AR2008092303667_pf.html
It's also from the Washington Post, so... consume at your own risk :rolleyes:
c2
I vote with team Sergeant. The 2008 bonuses at the top five-Goldman, Merrill, Lehman, Morgan Stanley and Bear Sterns topped $39 BILLION. In the same time frame the shareholders collectively lost $79 billion in stock value.Compare that to 1995 when bonuses were $6.2 billion. Now you will not convince me these executives did not not know the sub prime market was going to collapse. The taxpayers have already paid JP Morgan $29 billion to take over Bear Sterns. Paulson came out of Goldman and he wants absolute authority to do whatever he feels necessary with taxpayer money. Yet, he is one of those who profited from the cause of the problems. Goldman made billions on both the upside and downside of the subprime collapse. His bonus in 2005 was $38 million. I'm sorry, but this seems like a case of the fox guarding the chicken house. Wall Street has been ruled by what Buchanon calls Gordon Gecko capitalism--"Greed is good". Wall Street will self regulate only when honorable men are in command, and they are not there now. What really shocked me was the level of debt these firms operate on. About $1 dollar of equity for $35 of debt. Maybe that is why Paulson doesn't seem to mind the huge deficits the government runs.
http://www.breitbart.com/article.php?id=D93D8TDO0&show_article=1&state=-1|0|0|0|0|0|0|1|0|0#6
McCain seeks to delay debate to focus on economy
Sep 24 02:58 PM US/Eastern
By BETH FOUHY
Associated Press Writer
NEW YORK (AP) - Republican John McCain says he's directing his staff to work with Barack Obama's campaign and the debate commission to delay Friday's debate because of the economic crisis.
In a statement, McCain says he will stop campaigning after addressing former President Bill Clinton's Global Initiative session on Thursday and return to Washington to focus on the nation's financial problems.
McCain also said he wants President Bush to convene a leadership meeting in Washington. Both he and Obama would attend the session.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
NEW YORK (AP)—Republican presidential candidate John McCain met Wednesday with a panel of business executives to seek their opinions on the Bush administration's proposed $700 million bailout of U.S. financial markets.
McCain said he wanted to discuss "how we can make sure that the American people regain confidence on Main Street so that they can regain their confidence in Wall Street and in Washington."
McCain renewed his insistence that the bailout deal have greater transparency, oversight and CEO accountability to make it acceptable to voters.
"Most Americans feel very strongly this isn't their fault. It's Wall Street and Washington and the cozy insider relationships that have caused a great part of the problems," he said.
Flanking McCain were former Massachusetts Gov. Mitt Romney, his one-time rival for the GOP presidential nomination, and former eBay CEO Meg Whitman. Others in the meeting were John Chambers, CEO of Cisco Systems, and John Thain, the CEO of Merrill Lynch before it was acquired by Bank of America earlier this month for a much-reduced value.
A survey by The Associated Press found that Thain was the best-paid corporate executive in the U.S. in 2007, receiving approximately $83.1 million in salary and bonuses that year.
McCain has stated repeatedly that the bailout package should not allow large payouts, called "golden parachutes," for executives at failing firms like Merrill Lynch. Asked whether he believed the panel of business titans agreed with him on that principle, McCain said, "I think this group of people are as knowledgeable on the financial status of America as any group of Americans that I can find."
McCain planned to meet later Wednesday with foreign leaders in town for the opening of the United Nations General Assembly. His running mate, Alaska Gov. Sarah Palin, was set to join him in a meeting with Georgian President Mikheil Saakashvili and Ukrainian President Viktor Yuschenko.
McCain was also scheduled to meet with Indian Prime Minister Manmohan Singh and with Bono, the lead singer of U2 and an activist on global poverty and AIDS. He was scheduled to tape an appearance on "Late Night with David Letterman."
McCain scheduled a session with Lady Lynn de Rothschild, a former supporter and fundraiser for Sen. Hillary Rodham Clinton's presidential run who announced last week that she was supporting McCain.
My concern is that Senator McCain is opening himself up to additional scurrilous attacks from Senator Obama.
http://www.breitbart.com/article.php?id=D93D8TDO0&show_article=1&state=-1|0|0|0|0|0|0|1|0|0#6
My concern is that Senator McCain is opening himself up to additional scurrilous attacks from Senator Obama.
Hopefully most Americans would be able to see through that. The last I heard he was no only seeking to postpone the debate, but postpone his entire campaign until this thing is fixed.
Many in the MSM are saying it is because he is falling behind in the poll numbers. The Washington Post/ABC poll had him down by 9 points this morning, although Rasmussen only had him down by 2. I am more likely to believe Rasmussen. Anyway they are saying by postponing his campaign he is not seeking to fix the current crisis, but plug holes in a sinking ship.
I say I could give a sh!t less if he is indeed playing a political game (I don't personally think he is) but if it fixes the current debacle we are in, I don't think anyone is going to fault him for it come election day.
But then again the Dems are hoping our entire economy collapses just so they can say "I told you so" They are not interested in fixing the problem, they are interested in being "right". Just the kind of leadership we need right now.:rolleyes:
http://www.breitbart.com/article.php?id=D93D8TDO0&show_article=1&state=-1|0|0|0|0|0|0|1|0|0#6
My concern is that Senator McCain is opening himself up to additional scurrilous attacks from Senator Obama.
I think this was a no win for Obama. Either he follows his campaign line that sites the economy as vital issue to our country that needs attending to immediately, and there by follows McCain's lead back to Washington. OR he does what it appears (at least per his policy makers/spokes people) he plans to do by stating that the economy is not that big a deal, and we should press on with politics as usual. Either way I think Obama will hit a sour note with the borderline voter.
ETA
As per the bailout...
Personally I'd rather let the corrupt mortgage lending industry fall on their sword, along with all of those that took advantage of the predatory lending practices they used to make trillions, IMO they do not deserve a bailout.
What he said.
Red Flag 1
09-24-2008, 14:47
Personally I'd rather let the corrupt mortgage lending industry fall on their sword, along with all of those that took advantage of the predatory lending practices they used to make trillions, IMO they do not deserve a bailout.
I want to see them all go under and their board members thrown in jail.
It's not a "government bailout", it's a bailout by the people that have a good job and have made good house puurchasing decisions. The millions that have gone bankrupt sure ain't going to "help" in the current situation.
So let's screw over the responsible Americans and make them pay for this goatf**k, brillant.
Those board members and ceo's of those failed companies should pray they don't run into me on the streets...... disgusting human waste the whole lot of them.
Team Sergeant
Yep!
RF 1
ZonieDiver
09-24-2008, 14:52
Probably the same way any case the FBI assumes, it will take approximately 3 decades to actually bring the case to court and half the defendants will be either dead or in an old folks home.
... and the other half will turn out to be FBI informants!
Red Flag 1
09-24-2008, 17:22
Sir, have you read Captain Capitalism's post on this?:cool:
http://captaincapitalism.blogspot.com/2008/09/kill-bankers.html#comments
I'd like to hear what nmap has to say!
McCain suspending campagin to work on the problem.
Harry Reid saying publicy to John McCain, "stay away, we are working on it".
BHO's reply, pretty much I can walk and chew gum at the same time.
There are a lot of moving parts here! This is not a political issue. One of my fears is that a political "solution" will carry the day. Damn the debt, damn the people, we have an election to win!:mad:
RF 1
I'd like to hear what nmap has to say!
Thank you for the kind words...
I just finished watching the President’s speech.
With all due respect to the fine people of the virtual community we share, I suspect that the answer that is best for the country, even though distasteful, is to proceed with the bailout. This is not for the sake of the investment bankers, the CEOs, or the investors, but rather for the nation as a whole – the Joe and Jane six-packs and everyone else who played by the rules and paid their bills.
Predictions of depression seem overblown; and we may go through a period of recession regardless of what we do. However, if the bailout does not proceed, the length and depth of the recession are both likely to be worse. In addition to individual losses on investment portfolios and retirement accounts, the great mass of people is likely to face restricted access to credit. Business activity, and hence employment, could decline, again due to reduced access to credit. This might trigger further declines in house prices, exacerbating the problems there. The net worth of many people consists primarily of their primary residence, so a decline in housing prices has substantial adverse implications. Consider that as of 2002, primary residence equity represented 41.7% of household net worth.
The current decline in housing prices, coupled with the assumption that prices would continue up forever, are a part of the problem. In addition, the underlying nature and complexity of the finance packages is a problem. The sellers packaged the loans into structured investment vehicles (SIVs) of one sort or another, and depended on statistical models to predict the likelihood and degree of default on each element (tranch). The rating agencies depended on the representations of the sellers, and did not perform any independent analysis. Purchasers depended on the ratings, and did not seek to understand the underlying realities of what they were buying.
Much of the present problem lies in the complexity of the securities. One example of a SIV is the collateralized debt obligation, or CDO. Someone, somewhere lends money to people, and then arranges to package the debt into a CDO. One tranch is at the front of the line and receives payments first. The next tranch receives payment as soon as the first tranch holders are satisfied. This continues through the tranches to the last step; for such investors, the risks are high, but so are the yields. This is challenging enough, but CDOs were made out of parts of other CDOs, and are called CDO2s (CDO squared). Investment bankers combined the various parts (tranches) of other CDOs into a new CDO, with statistical models applied to predict the likelihood for each tranch of the CDO2s receiving payments. At the end, there were CDO4 securities. It seems highly unlikely that the purchasers accomplished a deep understanding of the underlying attributes of such securities.
After the housing market turned downward and mortgage defaults began, some of the purchasers recognized that their holdings were at risk. Such realizations generally do not occur in isolation; rather, the various participants in the market tend to awaken at about the same time. The securities that investors once regarded as safe and secure, and hence had a high market value, were perceived as having a level of risk that could not be understood or quantified. Buyers feared the worst, and refused to purchase such purchases. The market for such securities has declined to disastrous levels. Those who held the securities, such as banks and insurance companies, saw the value of their investments decline as the market value evaporated.
The SIVs, including CDOs and CMOs, are not valueless. Many people will continue to service their debt. Some will default on their mortgages, and the houses may be worth some amount less than the loan; however, they are not worthless. There is some residual value. How much value the distressed securities retain depends on the future prospects of the American and global economy. If the U.S. economy recovers and begins growing rapidly, the debt that SIVs are based on will perform at a high rate, house prices will stabilize or perhaps increase and the cost of the bailout will be low. However, if the economy declines substantially, debt performance will decline, house prices are likely to decline further, and hence the various SIVs will have less worth.
The goal of the bailout, according to my understanding, is that the government will purchase some substantial number of SIVs. This will tend to stabilize the market and increase the value of the securities. Banks will see the value of their holdings increase, which will improve their capitalization and thus they will again lend money to individuals and businesses. As the economy improves, the Treasury can liquidate holdings of SIVs in an orderly fashion. Under such a scenario, the total cost would be a great deal less than $700 billion. Perhaps, under the most optimistic assumptions, the loss to the taxpayers would be negligible. In contrast, an extended deep recession would extract a cost in terms of increased unemployment and reduced business activity.
There has been criminal fraud, and those guilty should be prosecuted fully. There has also been negligence, and that, too, deserves punishment. These do not address the central issue of what is best, as matters now stand, for the country as a whole. The bailout could mitigate an incipient recession, and thus reduce the cost of the bailout and the cost of the economic chicanery and blunders. Alternatively, if the bailout fails, inflation is likely to increase and the value of the dollar may decline. On balance, then, the bailout appears to be the better option in my opinion.
Roguish Lawyer
09-24-2008, 21:11
I agree with nmap on the bailout. This is not about saving companies from bad business decisions -- that's just a secondary impact. If this isn't done, there won't be any lending and the economy will get much worse than it already is. I represent a bunch of major financial institutions, and many of them have almost completely turned off the spigot because they don't have sufficient capital.
In theory, it would nice to just let everyone go under and let the market correct itself, but the pain associated with that process would impact all of us in a very unpleasant way. And it's not just about lending -- if AIG went under, do you know how many policyholders could be affected? That's just one example.
Roguish Lawyer
09-24-2008, 21:16
I think Mitt Romney would be an excellent candidate to run whatever government operation is going to hold all of this bad paper.
A lot of people are going to make a ton of money buying it at a discount, I think. The underlying fundamentals aren't as bad as they're being portrayed, I don't think. Certainly there were a lot of bad loans made, but a lot of this has to do with market perception rather than actual defaults. Of course, every time I go buy a financial stock thinking it can't possibly go any lower, it does -- a lot lower. :(
ZonieDiver
09-24-2008, 21:35
I think Mitt Romney would be an excellent candidate to run whatever government operation is going to hold all of this bad paper.
A lot of people are going to make a ton of money buying it at a discount, I think. The underlying fundamentals aren't as bad as they're being portrayed, I don't think. Certainly there were a lot of bad loans made, but a lot of this has to do with market perception rather than actual defaults. Of course, every time I go buy a financial stock thinking it can't possibly go any lower, it does -- a lot lower. :(
A person could make a fortune being a "contrarian" to any financial position I take!
nmap--
I agree with Broadsword and others that your posts on this topic are exceptionally well-written.
I've been fumbling around for months trying to get my head around this crisis, unsure if I had any sense of what is going on. Now, thanks to your posts, I believe I am on my way to understanding the specific issues and the big picture as well.
bravo22b
09-25-2008, 05:46
There are definitely people who will make a lot of money from this situation.
One thing that leaps to mind is that someone is going to have to have an organization capable of untangling these securities, and administering the information associated with that. Someone who had the ability to sort through and aggregate the information would have an enormous opportunity to leverage that information. I can imagine that there must be areas where there are contiguous foreclosed properties, but that the mortgages would be held within different securities. Being able to aggregate that information and either sell it or use it to purchase properties at pennies on the dollar could be quite a profitable business.
It may be that whatever agency is formed to buy these securities will incorporate that ability, but then again, the government would probably prefer to subcontract that work out to someone else. A veteran-owned business, perhaps? Surely that would be more palatable than paying one of the firms to do it that originated this excrement in the first place.
ZonieDiver
09-25-2008, 07:19
There are definitely people who will make a lot of money from this situation.
One thing that leaps to mind is that someone is going to have to have an organization capable of untangling these securities, and administering the information associated with that. Someone who had the ability to sort through and aggregate the information would have an enormous opportunity to leverage that information. I can imagine that there must be areas where there are contiguous foreclosed properties, but that the mortgages would be held within different securities. Being able to aggregate that information and either sell it or use it to purchase properties at pennies on the dollar could be quite a profitable business.
It may be that whatever agency is formed to buy these securities will incorporate that ability, but then again, the government would probably prefer to subcontract that work out to someone else. A veteran-owned business, perhaps? Surely that would be more palatable than paying one of the firms to do it that originated this excrement in the first place.
I'm not sure why the government cannot "keep" this mess. IF much of it is valid and actual, instead of "phantom" loans that really exist only on paper that is now MIA, when the economy turns around - and it always does - there is lots of money to be had here. While the last thing we need is another agency, I'd surely like to recoup some of this expenditure.
I think Mitt Romney would be an excellent candidate to run whatever government operation is going to hold all of this bad paper.
Gov. Romney probably would be a good pick for the, what should I call the office... "Bad Paper Czar"??... but that will only happen if McCain gets elected. IF BHO gets elected, trust that the people who end up gaining from this will be the same ones who got us into the mess - just look at Senators Dorgan and Dodd's sweetheart loans from one of the kings of this mess - Angelo Mozillo of Countrywide.
Many people will continue to service their debt. Some will default on their mortgages, and the houses may be worth some amount less than the loan; however, they are not worthless. There is some residual value.
A friend of mine just purchased a house which was a short sale. The house had debt of $650,000, and the bank okayed a sale at $380,000. I was surprised that the bank would take a $270,000 loss on the house. However, there is residual value, but getting there on a macro level will be costly. There's the rub. Doing something on an individual level may be a good idea, but if the economy as a whole takes a major dive, the good idea just turned into a bonehead play.
Two other aquaintances are buying houses in lots of three or more and paying cash. They are making minor improvements and reselling them at a profit. It's hard to imagine that you can do that in this environment. I guess it proves the old adage, Cash is King. So there is residual value, but the banks are taking a real haircut in the process which all to obvious now.
In hindsight, it's hard to fathom how some folks were caught unaware that the real estate market flucuates and one direction of flucuation is down. Most real estate experts say it runs in ten year cycles, but I think may be shorter. It's anyone's guess how long this current downturn will last and how everything will shake out if this bailout doesn't go through.
As a sidenote, I've heard one of the problems of passing the legislation is that the dems are trying to load up the bill with lots of porkbarrel items. You have to admire the balls they have. They definitely have no shame.
ZonieDiver
09-25-2008, 08:07
Sir, please start sending me a PM every time you make a financial position
Only for a fee! I am thinking of doing a newsletter! :o
greenberetTFS
09-25-2008, 11:22
I'd like to hear what nmap has to say!
McCain suspending campagin to work on the problem.
Harry Reid saying publicy to John McCain, "stay away, we are working on it".
BHO's reply, pretty much I can walk and chew gum at the same time.
There are a lot of moving parts here! This is not a political issue. One of my fears is that a political "solution" will carry the day. Damn the debt, damn the people, we have an election to win!:mad:
RF 1
RF1,
I too liked to hear what nmap had to say....Helped me to understand this "whole mess" a bit more. I also agree with you on we have an election to win and we better keep our eyes focused on it! :(
GB TFS :munchin
82ndtrooper
09-25-2008, 11:41
I feel compelled to provide this article for everyones reading. Make your own conclusions, but I have alway's said the equal opp lending and housing acts where geared towards to failure of the system, eventually. Gee, who pushed for more loans to those that could not afford them ? Clinton maybe ? Carter ?
"Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits"
http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F9582 60&sec=&spon=&pagewanted=1
By Steven A. Holmes
September 30, 1999
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.
Red Flag 1
09-25-2008, 12:05
nmap,
Thank you!!! Your insight is impressive, as is your ability to get us to the nuts and bolts! I knew you were the go to guy.
In the days, weeks, months ahead, is there a possibility credit companies might limit credit on existing credit cards. That is to say, could folks end up seeing credit card use refused, without notice, at times of purchase?
I ask this because we have become a plastic society ( on many levels ), living on credit. My lack of financial insight takes me to a place where credit is credit; be it property, auto, education, food, health care, etc., etc. We are no longer cash and carry people.
Can this mess take us to a place where day to day purchases on credit come to an abrupt end?
Thanks again.
RF 1
First, thank you all the kind words. I’m glad to help where I can.
A question, we keep hearing about these "golden parachutes," like so-and-so CEO walks with $33 million for their company crashing, and supposedly how unjustified that is, but my question is, at these levels, is that really a large amount of money? I would think that these institutions being so large, that the pay for the folks who run them goes up exponentially, so much so that even a bad job, at that level, warrants huge pay.
For example, I read Johnny Depp gets $90 million per film. So even if he starts performing a lot more poorly, he may make "only" $20 million per film, but I mean that's still a lot!
CEO pay is an interesting issue. The board of directors, who are elected by the shareholders, sets CEO pay. However, the board has a single set of directors, with no real alternatives for the shareholders. Suppose that a political race existed, and the only option a voter had was to vote (or not vote) for a candidate. This would not fit the usual definition of democracy. It is possible for dissident shareholder to create an alternative slate of directors, but only at a cost of millions of dollars. So-called shareholder democracy has been on the back burner for years; perhaps it would serve to rein in such compensation. While there may be no alternative to Johnny Depp, I cannot help but wonder if we could not find someone who could bankrupt a company for a mere $16,000,000.
More about shareholder democracy (http://www.law.harvard.edu/faculty/bebchuk/the-economist-4-29.htm)
Or the hedge fund managers, where an average-performing hedge fund with say $1 billion under management can still pay the fund manager about $20 million per year, which is small potatoes compared to the better-performing managers and the top-performing hedge fund managers, who can make hundreds of millions each year, or even billions like Jim Simons.
Hedge funds are just businesses that invest, and their manager’s compensation is governed by an agreement they sign with investors. All investors must (by SEC rule) qualify as accredited investors – which means they must, at the least, be millionaires. Supposedly, this means the investors are sophisticated and know what they are doing; however, reality can fall short of the ideal. The key point is that hedge fund operators own and run a business – with some of the businesses being quite large. Just like any kind of business, they can make mistakes or engage in unethical or illegal behavior. The good ones are worth their pay. The bad ones are another matter.
Some hedge funds pursue investment strategies that generate a small amount of profit in a way they believe controls risk. An example is the market neutral investment. Suppose there are two stocks – one strong, and the other weak. The hedge fund could buy the strong stock and sell short the weak one. If the market goes up, the strong stock is profitable. The weak stock will go up, but not much. The net result is a profit. On the other hand, the market could decline. In that case, the strong stock will decline a little, and the weak stock will decline a lot. The hedge fund still profits. And yet, approaches that generate small profits will not draw investors – so they use leverage to increase profitability. That works well, unless their strategy fails; when a failure happens, the losses are horrific.
In hindsight, it's hard to fathom how some folks were caught unaware that the real estate market fluctuates and one direction of fluctuations is down.
That’s the psychology of markets. When they go up, people continue to expect them to go higher forever. And when they go down, people expect them to decline in the same way. It is very, very hard to stand by while others seem to be making fortunes.
In the days, weeks, months ahead, is there a possibility credit companies might limit credit on existing credit cards. That is to say, could folks end up seeing credit card use refused, without notice, at times of purchase?
Probably not without notice. It’s more likely that the company would send a notification by mail that the credit line was whatever was owed, thus prohibiting new purchases.
I ask this because we have become a plastic society ( on many levels ), living on credit. My lack of financial insight takes me to a place where credit is credit; be it property, auto, education, food, health care, etc., etc. We are no longer cash and carry people.
Can this mess take us to a place where day to day purchases on credit come to an abrupt end?
Even with notification, restriction of access to credit would be both abrupt and disruptive. It is possible. I don’t think it’s likely, but it is certainly possible. Keep in mind that credit card rates are high, and that means the banks make nice profits on credit card balances; therefore, they want people to maintain (and increase) their balance as long as the debt is serviced. Not paid off – serviced. So the person who makes regular payments is unlikely to be restricted.
However, some recent developments may be of interest.
Analyst: BoA halts credit to McDonald's franchises (http://www.businessweek.com/ap/financialnews/D93CLMHO0.htm)
China banks told to halt lending to US banks-SCMP (http://www.reuters.com/article/marketsNews/idUSPEK16693720080925)China banks told to halt lending to US banks-SCMP
And finally, a chart I follow that may give some hints to the future. It’s the Baltic Dry Index, which keeps track of the cost dry bulk shipping rates, and thus it gives some idea of the level of global economic activity. Not a pretty sight….
Baltic Dry Index (http://investmenttools.com/futures/bdi_baltic_dry_index.htm)
New Development: Bailout deal breaks down; Bernanke back to Capitol
Link (http://www.theheraldbulletin.com/local/local_story_269195759.html)
Example of potential consequences: Derivatives Pose New Wrinkle in Lehman Case
LINK (http://www.nysun.com/business/derivatives-pose-new-wrinkle-in-lehman-case/86595/)
It turns out the new bankruptcy bill lets derivative holders go to the front of the line in the case of bankruptcy. Lehman bondholders who expected to get paid half their money back (fifty cents on the dollar) are now likely to get about forty-five cents on the dollar.
The total credit default swap market is $62 trillion (with a T). The total derivative market is supposed to be four times larger, although no one knows for sure.
Should the bailout fail, the possibility of breakdown in the derivatives markets increases. The consequences of unraveling a market valued at $250 Trillion or more are likely to be unpleasant.
To misquote Clausewitz, finance is merely war by other means.
The present situation is about more than bailing out Wall
Street, home foreclosures, or declining markets.
----------------------------------------------------------------------------------
Asia Needs Deal to Prevent Panic Selling of U.S. Debt, Yu Says
By Kevin Hamlin
Sept. 25 (Bloomberg) -- Japan, China and other holders of U.S. government debt must quickly reach an agreement to prevent panic sales leading to a global financial collapse, said Yu Yongding, a former adviser to the Chinese central bank.
``We are in the same boat, we must cooperate,'' Yu said in an interview in Beijing on Sept. 23. ``If there's no selling in a panicked way, then China willingly can continue to provide our financial support by continuing to hold U.S. assets.''
An agreement is needed so that no nation rushes to sell, ``causing a collapse,'' Yu said. Japan is the biggest owner of U.S. Treasury bills, holding $593 billion, and China is second with $519 billion. Asian countries together hold half of the $2.67 trillion total held by foreign nations.
China, Japan, South Korea and others should meet soon to seal a deal, said Yu, a former academic member of the central bank's monetary policy committee. The talks should involve finance ministers, central bank governors and even national leaders, he said.
``Whether some kind of agreement between them to continue to hold Treasury bills is viable, I'm not sure,'' said James McCormack, head of sovereign ratings at Fitch Ratings Ltd in Hong Kong. ``It would be unusual. If it became apparent that sovereigns in Asia were selling Treasuries the market would take that quite badly, it's something to be avoided.''
The global credit crisis, triggered by a housing slump in the U.S., has saddled financial companies with more than $520 billion in writedowns and losses, collapsing Bear Stearns Cos. and Lehman Brothers Holdings Inc. in the process. Insurer American International Group Inc. and mortgage giants Fannie Mae and Freddie Mac also were rescued by the government.
`Grave Threats'
U.S. Treasury Secretary Henry Paulson is urging Congress to pass a $700 billion plan to remove devalued assets from the banking system. Federal Reserve Chairman Ben S. Bernanke said Sept. 24 that the U.S. is facing ``grave threats'' to its financial stability.
China's huge holdings of U.S. debt means it must bear a large proportion of the ``burden of sorting things out'' in the U.S., Yu said. China is not in a hurry to dump its U.S. holdings and communication between the two nations every ``couple of days'' is keeping Chinese leaders informed and helping to avoid a potential panic, he added.
``China is very worried about the safety of its assets,'' he said. ``If you want China to keep calm, you must ensure China that its assets are safe.''
Currency Manipulator
Yu said China is helping the U.S. ``in a very big way'' and added that it should get something in return. The U.S. should avoid labeling it an unfair trader and a currency manipulator and not politicize other issues, he said.
``It is not fair that we are doing this in good faith and are prepared to bear serious consequences and you are still labeling China this and that, accusing China of this and that,'' he said. ``China knows what to do. We don't need your intervention.''
The U.S. financial crisis had taught China a lesson and that was: ``Why are we piling up these IOUs if they may default?'' China's economic expansion strategy, which emphasizes export growth that has led to trade surpluses and the accumulation of $1.81 trillion in foreign-exchange reserves, is the main problem, said Yu.
``Our export-growth strategy has run its natural course,'' he said. ``We should change course.''
China should stop intervening in the foreign currency markets and thus allow rapid appreciation of the yuan, he said. While this would cause pain for exporters, China could ease the transition by using its strong fiscal position to aid those who lose their jobs. It also should stimulate domestic demand to offset lower income from overseas sales.
Without yuan appreciation, China will continue to accumulate foreign reserves, which means further accumulating ``IOUs from the U.S.,'' said Yu. ``This is paper and it may default and it will not increase China's national welfare.''
If China doesn't allow the yuan to appreciate and continues to promote export-led growth it will lead to confrontation with the U.S. and Europe, Yu said.
To contact the reporters on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net
Last Updated: September 25, 2008 01:45 EDT
LINK (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=anZHfo6tQi60)
Roguish Lawyer
09-25-2008, 19:46
Washington Mutual apparently was seized by federal regulators today, then sold to JP Morgan Chase.
http://www.latimes.com/business/la-fi-wamu26-2008sep26,0,614943.story
Fortunately, we represent both companies. LOL :D
Roguish Lawyer
09-25-2008, 19:47
OTS 08-046 - Washington Mutual Acquired by JPMorgan Chase
FOR RELEASE: CONTACT: William Ruberry
Thursday, Sept. 25, 2008 (202) 906-6677
Cell – (202) 368-7727
--------------------------------------------------------------------------------
Washington, DC — Washington Mutual Bank, the $307 billion thrift institution headquartered in Seattle, was acquired today by JPMorgan Chase, the Office of Thrift Supervision (OTS) announced.
The change will have no impact on the bank’s depositors or other customers. Business will proceed uninterrupted and bank branches will open on Friday morning as usual.
Washington Mutual, or WaMu, specialized in providing home mortgages, credit cards and other retail lending products and services. WaMu became an OTS-regulated institution on December 27, 1988 and grew through acquisitions between 1996 and 2002 to become the largest savings association supervised by the agency. As of June 30, 2008, WaMu had more than 43,000 employees, more than 2,200 branch offices in 15 states and $188.3 billion in deposits.
“The housing market downturn had a significant impact on the performance of WaMu’s mortgage portfolio and led to three straight quarters of losses totaling $6.1 billion,” noted OTS Director John Reich.
Pressure on WaMu intensified in the last three months as market conditions worsened. An outflow of deposits began on September 15, 2008, totaling $16.7 billion. With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business. The OTS closed the institution and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. The FDIC held the bidding process that resulted in the acquisition by JPMorgan Chase.
Customer questions regarding the institution, including questions about federal deposit insurance coverage, should be directed to the FDIC at 1-877-ASK-FDIC. WaMu customers with questions can also call the bank's service center at 1-800-788-7000.
Red Flag 1
09-25-2008, 20:27
The more I read about this crisis, the more impressed I am as to the global impact. The complexity is baffeling! It seems that I am looking at a house of cards.
Despite the angst of reporters on the news networks, I feel that the debate now taking place in DC is a good thing. I felt real uneasy with what was begining to feel like a knee jerk reaction a few days ago. Given the global breath holding, and US asset holding abroad, I do hope a workable agreement surfaces soon. This really is troubling! It will be interesting to look at Tokyo trading over the next few hours.
What irks me a bit is the " debate over the debate " on Friday. Jeeezzzz guys, take a knee! Are there not enough moving parts here for you ? :-(
Thanks again nmap!
RF 1
ZonieDiver
09-26-2008, 08:50
I am in the process of refinancing the house I bought three years ago at a great price, thanks to a government program for teachers, firefighters, EMTs, and police officers. It was a HUD repo in a designated "revitalization" area. I got it at half the HUD price, and at that time similar models were selling on the market for 25% above the HUD price. Can't lose, right?
Now, it is time to refinance after my three year owner-occupancy period. My neighborhood has been hit hard by the housing collapse, combined with the effects of Arizona's "Employer Sanctions Law" - which caused an exodus of illegal immigrant renters and a dumping of their once profitable rental property by absentee landlords. The houses have been vacant for almost a year. Recently, banks and mortgage companies have been "dumping" them at firesale prices. The most recent was for just a bit over the half price I paid, which is making my refi a bit more difficult due to the comps coming in.
I will still "get 'er done" but it gives me a few more gray hairs (only three black ones left). I am in an enviable position compared to most of my neighbors due to my low purchase price. I commiserated with my poor mortgage broker - same guy as three years ago - about how this is turning out. Banks, etc. are trying to minimize their losses, and in doing so are creating a situation where more homeowners will have few options but to "send in the keys" if they face a "must sell" situation. So, it appears that the bleeding WILL continue...:boohoo
(Since we have many teachers, firefighters, EMT's, and police officers here - if you don't know about this program, PM me. There will probably be a lot of homes in the HUD inventory in the not-to-distant future.)
NMAP could you give a low down on the difference between what the dems are proposing vs the republicans. From what I am understanding the Republicans want the companies that defaulted to take out insurance against their loses, is that correct? Is there a benefit of one plan over the other?
CEO pay is an interesting issue. The board of directors, who are elected by the shareholders, sets CEO pay. However, the board has a single set of directors, with no real alternatives for the shareholders.
The only real power a shareholder possesses is his or her investment. While it may be economically painful to do if a company's stock has high returns, an investor can always sell their shares if they disagree with the company's policies, to include CEO compensation. Individually, this has little actual effect, but if enough investors follow suit, the loss of equity capital may be enough to force a BOD to rethink its policies.
When he proposed moving back to a gold standard during his "campaign", I stopped listening to anything he had to say about economics. :rolleyes:
Razor, I don't post here often but I drop by a couple times a week because there's good information and commentary here(and humor;)). Please don't take this as disrespectful but your understanding of the gold standard is unfortunately lacking in Constitutional and monetary history. According to our Constitution, only gold and silver should be used as legal tender. That doesn’t mean we have to use metal for exchange, but the certificates/ notes/ paper money has to be backed by gold and silver, not fiat creations backed by nothing. We did have a “gold” standard until 1971, since then it’s been fiat currency. Take a wild guess when our federal debt started to skyrocket? http://www.cedarcomm.com/~stevelm1/usdebt.htm
Ron Paul has written extensively over the last 25 years about economic and monetary policy. No other politician can match his knowledge and intelligence of the subject. He schools Alan Greenspan and Ben Bernanke, and makes them out to be a bunch bumbling idiots squirming in their seats.
http://www.ronpaullibrary.org/topic.php?id=9
Here's 2 quotes to think about:
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. ... This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
Alan Greenspan, before he sold out to the FED.
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs." Thomas Jefferson
http://www.foxnews.com/story/0,2933,428641,00.html
Nice work — if you can get fired from it.
That's just what one Alan H. Fishman might have thought when he woke up Friday morning.
Fishman was the new chief executive officer for Washingon Mutual — WaMu — the nation's largest savings and loan, which was taken over Thursday night by federal bank regulators and quickly dumped in a fire sale to JPMorgan Chase for the Wal-Mart-like price of $1.9 billion.
But don't cry for Fishman, who reportedly was sky-high — literally — last night, on a flight from New York to Seattle, when WaMu collapsed. Even though he's only been on the job for less than three weeks, he's bailing out with parachute worth close to $20 million, according to an executive compensation analysis conducted for the New York Times by James F. Reda Associates.
That's right, $20 million for 17 days on the job ... and his company failed.
Fishman, who formerly was chairman of Meridian Capital Group, apparently was much coveted by WaMu, which was counting on him to lead the failing thrift out of mortgage troubles that pushed the bank to a $3.3 billion second-quarter loss.
According to filings with the Securities and Exchange Commission, WaMu threw a $7.5 million bonus at Fishman when it hired him on Sept. 8, and guaranteed him an immediate cash severence of $11.6 million — both of which he gets to keep.
He also was eligible for annual bonuses of up to 365 percent of his annual base pay — set at $1 million — to go with millions of shares of company stock.
Fishman does lose out on a big bonus that would have kicked in had he remained on the job through 2009.
Documents show WaMu was going to pay their new boss $8 million to simply not screw up and get fired — all negotiated as the Seattle-based banking giant's loses climbed to an estimated $20 billion.
NMAP could you give a low down on the difference between what the dems are proposing vs the republicans. From what I am understanding the Republicans want the companies that defaulted to take out insurance against their loses, is that correct? Is there a benefit of one plan over the other?
Everything seems to be in flux – in fact, the U.S. Senate page only provides a notation that indicates the bill is a “draft”, with no link to the primary source document. Secondary sources carry the risk of misinterpretation by the author. The items below are cobbled together from a variety of sources, so my apologies in advance for any errors or omissions.
The Senate version seems to offer a $700 B. bailout with several provisions.
Money would be provided in three steps. $250 B would be used immediately. $100 B would be available for use at the discretion of the Secretary of the Treasury. The final $350 B would be subject to disapproval by the Senate.
There may be a “cram down” provision in the bill, which would permit bankruptcy court judges to adjust the provisions of mortgages on the primary residence. Thus, if a debtor owed $500,000, and the house was worth $400,000, the balance of the mortgage could be adjusted downward to the lower number.
There would be provisions against excessive executive pay, although that is not defined.
In addition, the bill would require equity sharing, with the Federal government acquiring an equity stake in companies it helps.
The House Republican Study Committee is behind the alternative. It has several provisions.
First and foremost is a two-year suspension of the capital gains tax.
It also seeks to suspend the mark-to-market rules on long-term holdings (this is, perhaps, the most important element).
It would seek to guarantee the troubled debt, but not acquire it. A fee might be charged, just as the FDIC charges banks a fee to guarantee deposits.
In addition, it would strive to privatize FNM and FRE.
Comparison:
The Senate version has significant costs that may increase over time.
The cram down provisions create additional risk for mortgage providers, which may mean that mortgages will cost more in the future, However, it might reduce the number of people who lose their homes in the short term.
The executive pay provision will increase the tendency to defer requests for help. Assuming normal levels of human greed, the CEO and other senior executives may choose to operate the company until it fails instead of seeking government assistance. This could result in larger, more expensive losses.
Equity sharing does offer taxpayers the possibility of profit, but also insinuates the Federal government into corporate governance. If the Federal government owns 51% or more of a corporation, it can fully control the corporation. The provision could be viewed as “seizing the means of production”, an approach spoken of by socialists. Rhetorical questions: Will employees of such corporations qualify for Federal benefits? Will corporations be run to advance policy objectives instead of to produce profit? How will officers and directors by chosen or elected?
The Republican Study Committee version suggests that suspension of the capital gains provision would permit capital to flow into troubled firms. I question the validity of the assertion.
The suspension of mark-to-market rules lets banks, brokerages, and insurance companies continue to operate even though their capital requirements may be less than the regulatory minimums. Taking the information at face value, it might be possible for companies with negative net worth to continue to function. This represents a gamble.
If:
the economy improves,
and affected business begin turning a profit,
and the troubled debt stabilizes or appreciates,
Then the provision permits the affected companies to return to viability with no cost to the taxpayers.
However, if matters deteriorate, the ultimate failure will be larger and more disruptive to the general economy.
Privatization of FRE and FNM may or may not be good ideas; they had some degree of independence, but policy concerns caused the Federal government to take them over. Should mortgages again prove problematic, it seems reasonable to wonder whether the Federal government could stand aside and permit the firms to fail. I doubt they would be permitted to fail.
Finally, there is the option of guaranteeing the troubled debt. It does increase the amount of debt that the Federal government guarantees. The amount of troubled debt is not yet defined, so the increase could have an impact on other U.S. debt. Those who purchased U.S. debt might demand higher interest rates. The world tends to view debt that is guaranteed by the U.S. government as absolutely secure; there may be some point at which added debt burdens will change the perception. However, the key issue is that the plan avoids making current expenditures, saving the taxpayer money, at the cost of making a gamble on the future. At best, the markets would stabilize and the guarantee would cost the taxpayers nothing. Losses that activated the guarantee might be covered by fees charged by the Federal government.
The gamble is that the situation does not improve. In that case, the cost of the guarantees could be some arbitrarily large number that would exceed our national ability to pay. It could be in the trillions of dollars. Factor in the crossover of Social Security in 2017(when employment tax revenues received do not cover payments out), and one gets the possibility of a difficult problem.
In the end, the House Republican Studies Committee (HRSC) appears to prefer a highly optimistic approach. If they are correct, the costs to the taxpayer would be minimized.
The Senate bill, with optimistic assumptions, would probably cost more and be more intrusive into the day-to-day operation of business. It would represent some costs to the taxpayers.
In each case, the underlying implicit assumption is that the economy will resume growth, the markets will stabilize, and the troubled debt will regain a substantial percentage of its value.
Should that assumption prove wrong, the HRSC approach would be the most expensive, and the Senate version less expensive.
Thanks for the explainatin NMAP. It certainly makes a little more sense when you break it down. My head is still spinning from the numbers being tossed around.
Thanks for the explainatin NMAP. It certainly makes a little more sense when you break it down. My head is still spinning from the numbers being tossed around.
My pleasure.
You're right about the numbers - they cease to have meaning and become mere abstractions. It is, perhaps, possible to visualize a million, but beyond that we lose any meaningful reference points. For example, a million grains of rice would weigh about 44 pounds. That's something I can understand. But a trillion grains is a million times that - and the derivatives market is 250 times again as large (250 trillion).
At some point, it becomes difficult to put the numbers into the same terms as most of us encounter. Therein lies the problem, perhaps - if the numbers lack meaning, what's a few trillion between friends? :eek:
...what's a few trillion between friends? :eek:
"One trillion seconds ago – 31,688 years – Neanderthals stalked the plains of Europe."
http://www.tysknews.com/Depts/Taxes/million.htm
Pat
Defender968
09-26-2008, 18:04
:munchin I don't know which is right, however one thing: what gives gold any actual value either? Gold's value can go up or down I think, can't it?
Regarding Thomas Jefferson, he was an absolutely brilliant man, one of my heroes, but remember, he wanted America to remain an agrarian nation, he hated banks and paper money, etc...it was Alexander Hamilton who saw that a nation had to industrialize for the modern times and had to be in the business of controlling its monetary policy and so forth.
I've heard the quote that we admire the world of Thomas Jefferson, but we live in the world of Alexander Hamilton.
Broadsword You are correct, the value of gold does fluctuate, it is usually a contrary indicator i.e. it moves opposite the market, so as the market goes down gold typically goes up, last week when the market went down 500 pts gold jumped up significantly, it set a record for the highest one day jump in history IIRC.
GratefulCitizen
09-26-2008, 21:15
According to our Constitution, only gold and silver should be used as legal tender. That doesn’t mean we have to use metal for exchange, but the certificates/ notes/ paper money has to be backed by gold and silver, not fiat creations backed by nothing.
From Article I, Section 10. of the Constitution:
No State shall...make any Thing but gold and silver Coin a Tender in Payment of Debts;
The restriction is on the States, not on the Congress.
Please don't take this as disrespectful but your understanding of the gold standard is unfortunately lacking in Constitutional and monetary history. According to our Constitution, only gold and silver should be used as legal tender. That doesn’t mean we have to use metal for exchange, but the certificates/ notes/ paper money has to be backed by gold and silver, not fiat creations backed by nothing. We did have a “gold” standard until 1971, since then it’s been fiat currency.
I don't take your post as disrespectful at all, but rather as remarkably (and incorrectly) presumptive. You may be surprised to learn that I actually do understand the difference between specie and fiat monetary systems, and that I did not take Mr. Paul to be advocating a specie-based currency rather than a gold-backed exchange system.
For all intents and purposes, the international gold standard system ended shortly after WWI when Britain's war debt forced the government to liquidate a large percentage of its gold assets, prompting other international powers (France, Russia) to end their paper-for-gold exchange policies in order to prevent a run on their respective national gold supplies. It ended in the US in 1933 when FDR outlawed the private ownership of gold and unilaterally raised the price of an ounce of gold from $20 to $35, where it remained until 1971 when Nixon ended the portion of the Bretton Woods/IMF agreement that allowed holders of US dollars to redeem them for gold.
Take a wild guess when our federal debt started to skyrocket?
I suppose the answer depends on how you interpret 'skyrocket'. According to my International Business text from last term, from 1958 to 1971, the US trade deficit increased by $56 billion, its gold reserve shrank from $24 billion to $12 billion, and its liabilities to foreign central banks rose from $13 to $62 billion. By 1971--the year you set as the beginning of our skyrocketing national debt--the US only held 22 cents of actual gold per US dollar. I'm no economist, but it appears to me that the US faced significant balance of payments deficits decades prior to 1971.
Ron Paul has written extensively over the last 25 years about economic and monetary policy. No other politician can match his knowledge and intelligence of the subject. He schools Alan Greenspan and Ben Bernanke, and makes them out to be a bunch bumbling idiots squirming in their seats.
You don't earn points on this board through extravagant use of hyperbole, in case you weren't aware.
While the simplicity of the gold standard theory may seem appealing on its surface, its many flaws (e.g., a government's inability to adjust its money supply, the system's reliance on the rate of mining to determine the price of gold, its deflationary bias, and its very low actual supply vs. global economy ratio) outweigh its single advantage over free-float currencies. Then again, that's based on my opinion, which lacks a basis in monetary history, right?
In the event anyone wishes to read the draft - 106 pages of it - it is available at: LINK (http://money.cnn.com/2008/09/28/news/pdf/index.htm)
GratefulCitizen
09-28-2008, 18:27
In the event anyone wishes to read the draft - 106 pages of it - it is available at: LINK (http://money.cnn.com/2008/09/28/news/pdf/index.htm)
Section 128 changes an effective date for something in the Financial Services Regulatory Relief Act of 2006.
(from 10/1/2011 to 10/1/2008--Wednesday)
Section 202 of the (2006 Relief) Act reads:
SEC. 202. INCREASED FLEXIBILITY FOR THE FEDERAL RESERVE BOARD TO ESTABLISH RESERVE REQUIREMENTS.
Section 19(b)(2)(A) of the Federal Reserve Act (12 U.S.C. 461(b)(2)(A)) is amended--
(1) in clause (i), by striking `the ratio of 3 per centum' and inserting `a ratio of not greater than 3 percent (and which may be zero)'; and
(2) in clause (ii), by striking `and not less than 8 per centum,' and inserting `(and which may be zero),'.
(emphasis mine)
Does this mean what it looks like?
Does this mean what it looks like?
It means exactly what you think it does.
Relax the reserve requirements so the banks can generate profits and quietly recover. If the economy improves, it will work - it will be a clever move. Ahh, but if the economy worsens, this will constitute a dangerous increase in the risk exposure of the banking system.
I believe that gamblers use the term "double or nothing".
Surf n Turf
09-28-2008, 20:59
The suspension of mark-to-market rules lets banks, brokerages, and insurance companies continue to operate even though their capital requirements may be less than the regulatory minimums. Taking the information at face value, it might be possible for companies with negative net worth to continue to function. This represents a gamble.
If:
the economy improves,
and affected business begin turning a profit,
and the troubled debt stabilizes or appreciates,
Then the provision permits the affected companies to return to viability with no cost to the taxpayers.
The gamble is that the situation does not improve. In that case, the cost of the guarantees could be some arbitrarily large number that would exceed our national ability to pay. It could be in the trillions of dollars. Factor in the crossover of Social Security in 2017(when employment tax revenues received do not cover payments out), and one gets the possibility of a difficult problem.
.
Nmap,
Doesn’t the Federal Government have suspend the mark to market rules and lower capital requirements, and to assume that the economy will improve, business will return to profitability and that stabilization in the markets will occur – else “one gets the possibility of a difficult problem” as we cannot monetarise 4x Trillions of dollars, when we have 1 ½ x trillion in circulation.
That is not monetarising the debt, that is insolvency --- even if we own the printing presses
SnT
It means exactly what you think it does.
I believe that gamblers use the term "double or nothing".
Sorry,
Looks like you just answered my questions to Grateful Citizen ---
SnT
Nmap,
Doesn’t the Federal Government have suspend the mark to market rules and lower capital requirements, and to assume that the economy will improve, business will return to profitability and that stabilization in the markets will occur – else “one gets the possibility of a difficult problem” as we cannot monetarise 4x Trillions of dollars, when we have 1 ½ x trillion in circulation.
That is not monetarising the debt, that is insolvency --- even if we own the printing presses
SnT
The problem is even larger than you've mentioned. There are $ 62 Trillion dollars worth of Credit default swaps (CDS) out - all unregulated. There are about (no one knows for sure) $250 Trillion dollars worth of derivatives. What happens if the underlying securities the CDS and other derivatives are based on fail? That's a rhetorical question, since, again, no one knows.
We had best hope for a good economy. The alternative may be uncomfortable.
GratefulCitizen
09-28-2008, 22:05
From the Federal Reserve Act (12 U.S.C. 461(b)(2)(A)):
(present version-- these limits potentially change to 0 on Wednesday)
(2)
(A) Each depository institution shall maintain reserves against its transaction accounts as the Board may prescribe by regulation solely for the purpose of implementing monetary policy—
(i) in the ratio of 3 per centum for that portion of its total transaction accounts of $25,000,000 or less, subject to subparagraph (C); and
(ii) in the ratio of 12 per centum, or in such other ratio as the Board may prescribe not greater than 14 per centum and not less than 8 per centum, for that portion of its total transaction accounts in excess of $25,000,000, subject to subparagraph (C).
12 U.S.C. 461(b)(2)(B):
(B) Each depository institution shall maintain reserves against its nonpersonal time deposits in the ratio of 3 per centum, or in such other ratio not greater than 9 per centum and not less than zero per centum as the Board may prescribe by regulation solely for the purpose of implementing monetary policy.
(emphasis mine)
IIRC, m = 1/R, where m is the money multiplier and R is the reserve requirement.
The legal floor for reserve requirement may become 0.
So basically, if they want to, the Fed can expand the money supply infinitely.
Sounds like a recipe for some serious inflation.
A measure of wheat for a penny, and three measures of barley for a penny; and see thou hurt not the oil and the wine.
Surf n Turf
09-28-2008, 22:49
The problem is even larger than you've mentioned. There are $ 62 Trillion dollars worth of Credit default swaps (CDS) out - all unregulated. There are about (no one knows for sure) $250 Trillion dollars worth of derivatives. What happens if the underlying securities the CDS and other derivatives are based on fail? That's a rhetorical question, since, again, no one knows.
We had best hope for a good economy. The alternative may be uncomfortable.
The legal floor for reserve requirement may become 0.
So basically, if they want to, the Fed can expand the money supply infinitely.
Sounds like a recipe for some serious inflation.
GratefulCitizen / nmap,
Inflation is indeed the “devil in the details” I am worried about.
nmap, your statement that "The alternative may be uncomfortable" is the most understated of the evening -- you do have a way with words.
But, I do not see the heavy monetary flow to precious metals (I am a gold / silver bug), which within range looks like a yo-yo. Silver futures last week at below $11, Gold at $777 then to $980.
Either someone is doing some heavy dumping or serious forward selling (unsecured hole in the ground) and presenting us with yet another problem where the underlying metal might not exist.
I was watching the Press session with the Dems on CSPAN, and they looked like the kid that raided the candy store. I have read the bill (earlier version), but can’t find anything they should be happy about – is ACORN back as a beneficiary ?Additionally, This bill is not over till the fat lady sings --- no one has voted on it yet.
Back to inflation –
Grateful Citizen to answer your question let’s look at Zimbabwe
Zimbabwe's inflation rate has soared in the past three months and is now at 11.2 million percent, the highest in the world, according to the country's Central Statistical Office. In February, the price of a loaf of bread in the country was less than 200,000 Zimbabwe dollars. On Monday, that same loaf of bread cost 1.6 trillion Zimbabwe dollars. Analysts have said the Zimbabwean government's official inflation rate figures are conservative. Last week, one of Zimbabwe's leading banks, Kingdom Bank, said the country's inflation rate was now more than 20 million percent. The locally-owned bank predicted tougher times ahead for Zimbabwe in the absence of donor support and foreign investment in an economy that has been in freefall for almost a decade
http://www.cnn.com/2008/BUSINESS/08/19/zimbabwe.inflation/index.html?eref=onion
frostfire
09-29-2008, 08:44
nmap, I'm learning a lot from your posts and appreciate your taking the time/effort. Since the bail-out is almost a go, idea such as this one that I got this morning is nothing but daydream?
I don't necessarily agree with its execution, but is it feasible/plausible?
(I don't know who wrote it originally. All credits go to him/her)
This idea sounds just crazy enough to possibly work, so naturally it won't be given serious consideration. How great is our bureaucracy! !
I'm against the $85,000,000, 000.00 bailout of AIG.
Instead, I'm in favor of giving $85,000,000, 000 to America in a "We Deserve It Dividend".
To make the math simple, let's assume there are 200,000,000 bonafide U.S.
Citizens 18+.
Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up.
So divide 200 million adults 18+ into $85 billion that equals $425,000.00.
My plan is to give $425,000 to every person 18+ as a "We Deserve It Dividend".
Of course, it would NOT be tax free.
So let's assume a tax rate of 30%.
Every individual 18+ has to pay $127,500.00 in taxes.
That sends $25,500,000, 000 right back to Uncle Sam.
But it means that every adult 18+ has $297,500.00 in their pocket.
A husband and wife has $595,000.00.
What would you do with $297,500.00 to $595,000.00 in your family?
Pay off your mortgage - housing crisis solved.
Repay college loans - what a great boost to new grads
Put away money for college - it'll be there
Save in a bank - create money to loan to entrepreneurs.
Buy a new car - create jobs
Invest in the market - capital drives growth
Pay for your parent's medical insurance - health care improves
Enable Deadbeat Dads to come clean - or else
Remember, this is for every adult US Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.
If we're going to re-distribute wealth let's really do it, instead of trickling out a puny $1000.00 ( "vote buy" ) economic incentive that is being proposed by one of our candidates for President...
If we're going to do an $85 billion bailout, let's bail out every adult US Citizen 18+!
As for AIG: - Liquidate it.
- Sell off its parts.
- Let American General go back to being American General.
- Sell off the real estate.
- Let the private sector bargain hunters cut it up and clean it up.
Here's my rationale. We deserve it and AIG doesn't!
Sure, it's a crazy idea that can "never work."
But can you imagine the Coast-To-Coast Block Party?
How do you spell Economic Boom?
I trust my fellow adult Americans to know how to use the $85 Billion.
"We Deserve It Dividend" more than I do the geniuses at AIG or in Washington DC
And remember, the plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.
Ahhh... I feel so much better getting that off my chest.
Oh, and one more thing let's do this before China buys up AIG and others and we have to learn a new language!
Frostfire, let's consider the calculations:
85,000,000,000/200,000,000
can be simplified to:
85,000/200
Which becomes:
850/2, or $425 per person.
To get the larger sum, the bailout would need to be $ 85 Trillion (with a T).
Thank you for the kind words...
Sounds like a recipe for some serious inflation.
A measure of wheat for a penny, and three measures of barley for a penny; and see thou hurt not the oil and the wine.
Of course. There are two ways that I can discern out of the current situation. We can buckle down, have an austere national budget, and cut back on both personal and public spending for a decade or so. Or, we can inflate. Since both politicians and the public seem to prefer short term paliatives, I suspect that you're right about inflation.
On your second point - I strongly suspect food products will increase in price. To that end, I've taken modest positions in DBC and DBA, which are commodity ETFs. DBC is a broad index, whereas DBA focuses on wheat, soybeans, corn, and sugar. The prospectus for each is HERE (http://dbfunds.db.com/). Note: Before even considering these, one should read the prospectus. And they will complicate one's taxes, since they generate form K-1 on March 15th.
GratefulCitizen / nmap,
Inflation is indeed the “devil in the details” I am worried about.
nmap, your statement that "The alternative may be uncomfortable" is the most understated of the evening -- you do have a way with words.
But, I do not see the heavy monetary flow to precious metals (I am a gold / silver bug), which within range looks like a yo-yo. Silver futures last week at below $11, Gold at $777 then to $980.
Either someone is doing some heavy dumping or serious forward selling (unsecured hole in the ground) and presenting us with yet another problem where the underlying metal might not exist.
The problem with describing an outcome is that the economy isn't monolithic. For an elderly widow with no savings and a meager Social Security income the outcome might be horrific. Likewise for a single parent with children, working multiple part-time jobs requiring long commutes. On the other hand, the top 1% of the households in the U.S. have a net worth of $6 Million or more - I suspect that inflation will be profitable for that segment of the population. So, is inflation "good" or "bad"? I guess I see it as a function of perspective.
I, too, like precious metals. One problem is that a mine which is marginal for $500 gold becomes highly profitable at $1,000 - so the supply is dynamic. In addition, one can go for a lifetime without owning an ounce of gold - thus, demand is elastic. I think it's best to use a long-term approach. Acquire precious metals or mining stocks (or, a mutual fund or ETF for the sector), and hold on for years and decades. In addition, consider the new commodity ETFs that I mentioned in the posting to Grateful. You might find DBC of particular interest, if only as a hedge against living expenses.
I was watching the Press session with the Dems on CSPAN, and they looked like the kid that raided the candy store. I have read the bill (earlier version), but can’t find anything they should be happy about – is ACORN back as a beneficiary ?Additionally, This bill is not over till the fat lady sings --- no one has voted on it yet.
Back to inflation –
Grateful Citizen to answer your question let’s look at Zimbabwe
Zimbabwe's inflation rate has soared in the past three months and is now at 11.2 million percent, the highest in the world, according to the country's Central Statistical Office. In February, the price of a loaf of bread in the country was less than 200,000 Zimbabwe dollars. On Monday, that same loaf of bread cost 1.6 trillion Zimbabwe dollars. Analysts have said the Zimbabwean government's official inflation rate figures are conservative. Last week, one of Zimbabwe's leading banks, Kingdom Bank, said the country's inflation rate was now more than 20 million percent. The locally-owned bank predicted tougher times ahead for Zimbabwe in the absence of donor support and foreign investment in an economy that has been in freefall for almost a decade
http://www.cnn.com/2008/BUSINESS/08/19/zimbabwe.inflation/index.html?eref=onion
I don't believe ACORN is in - but we have to remember that a very large honey pot has been created. Flies of every stripe are sure to pay it a visit.
I like your example of Zimbabwe. Interesting, is it not, that the society still functions after a fashion, despite the poorly managed economy. Inflation is a highly effective way to take purchasing power out of the hands of savers, while transferring it to the hands of debtors. Since governments are often debtors, there is a clear incentive.
Where this all becomes interesting is if some other event further distresses the economy. My personal bias is that it will be energy prices, although Grateful advances some good arguments that such events will be farther in the future (on another thread).
Interesting times. :munchin
The problem with describing an outcome is that the economy isn't monolithic. For an elderly widow with no savings and a meager Social Security income the outcome might be horrific. Likewise for a single parent with children, working multiple part-time jobs requiring long commutes. On the other hand, the top 1% of the households in the U.S. have a net worth of $6 Million or more - I suspect that inflation will be profitable for that segment of the population. So, is inflation "good" or "bad"? I guess I see it as a function of perspective.
Seeing as how the top 1% pay the largest portion of taxes to support the govt, I don't have much issue with them receiving a proportionately larger benefit.
Seeing as how the top 1% pay the largest portion of taxes to support the govt, I don't have much issue with them receiving a proportionately larger benefit.
Nor do I, Sir. The situation does, however, add weight to the dictum "get capital".
What happens now that the bailout plan has failed? Who would like to bet Pelosi sends everyone home in recess because all of this is just to hard to figure out and is going to leave it to the next Congress to deal with???
What happens now that the bailout plan has failed? Who would like to bet Pelosi sends everyone home in recess because all of this is just to hard to figure out and is going to leave it to the next Congress to deal with???
I expect a continued bear market. If we get a hard, prolonged crash we might see some good values in late October or November - but I suspect that will be too early. We may have to wait until some time in 2009.
Credit will probably become more difficult to obtain and more expensive, with economic activity declining and some increase in unemployment. Whoever wins the election may face some serious economic challenges.
On the bright side, the way to make money is to accumulate cash and buy when the market presents great values - then hold on for years, or even decades. The current action brings us closer to one of those outstanding buying opportunities.
Roguish Lawyer
09-29-2008, 15:07
These guys in the House are idiots. Without this bailout, we are all screwed.
From the bits and pieces I heard, They are going to modify the Bail out plan until the yays outweigh the nays. They are going to try to complete this today( In reality I can't fathom this happening). The next possible time to work on the Bail-out plan would be Thursday due to a Jewish Holiday. So I guess it's another matter of the wait and see game.
Surf n Turf
09-29-2008, 17:33
The problem with describing an outcome is that the economy isn't monolithic.
the top 1% of the households in the U.S. have a net worth of $6 Million or more - I suspect that inflation will be profitable for that segment of the population. So, is inflation "good" or "bad"? I guess I see it as a function of perspective.
Where this all becomes interesting is if some other event further distresses the economy. My personal bias is that it will be energy prices, although Grateful advances some good arguments that such events will be farther in the future (on another thread).
Interesting times. :munchin
Of course. There are two ways that I can discern out of the current situation. We can buckle down, have an austere national budget, and cut back on both personal and public spending for a decade or so. Or, we can inflate. Since both politicians and the public seem to prefer short term paliatives, I suspect that you're right about inflation.
nmap,
To Quote Baron Nathan Meyer Rothschild,
“Buy when there's blood in the streets, even if the blood is your own."
But what happens if we have sudden hyper-inflation, and those with the means (your 1%) can no longer profit, as their wealth (in what ever form) is deflated substantially.
On your second point, I think that the intervening event(s) that may affect the economy will involve military action – with us as either participants or targets.
SnT
ZonieDiver
09-29-2008, 21:26
These guys in the House are idiots. Without this bailout, we are all screwed.
With or without a bailout, most of them are idiots! As things have been going, with or without the bailout "we" are probably screwed, too!
I think we will get some kind of bailout, maybe just not this one. I always hate a "rush to judgement". We'll see...
Monsoon65
09-29-2008, 22:07
On the bright side, the way to make money is to accumulate cash and buy when the market presents great values - then hold on for years, or even decades. The current action brings us closer to one of those outstanding buying opportunities.
When I called my financial dude today about whether to hide my money in the mattress or the back yard, he said the same thing. About six months from now, start buying.
Here is what Captain Capitalism wrote, nmap what do you think?:munchin http://captaincapitalism.blogspot.com/2008/09/us-needs-serious-ass-spanking.html#comments
I think it illustrates the problem nicely. From the article:
"Because punishment will be served. Justice will be done. Revenge will be savored."
From inception, the policy has been called a bailout. But it may be worthwhile to pause a moment and ask who is being "bailed out"? Who gains from the "bail out"? Who loses if it goes into effect, and who loses if it does not? These are not rhetorical questions; rather, they may serve to illuminate the problem.
When a bank is bailed out, the shareholders will lose much, and perhaps all of their investment. Were the shareholders the ones who created the crises? Hardly; they may be guilty of a poor investment choice, but little other than that. The senior executives and the board bear responsibility, but their punishment consists of losing their jobs. The rest of us - the society as a whole - suffers the consequences of reduced availability of credit coupled with reduced business activity. So in pursuit of justice, we have punished ordinary people who seek to find a job or run a business. This does not seem productive or appropriate. Thus, we are not bailing out the purported rich wall street bankers so much as we are attempting to bail out the national and global economy.
The article suggests that the sharp pain of recession will be brief, but salutary, and will impose the discipline of the markets. Perhaps. As we scourge the improvident and the foolish, what price will we pay in terms of future economic activity? We can look to history for an answer. England used to have a debtor's prison, where those who did not pay their bills could be incarcerated until the debt was paid. The U.S. chose not to adopt that model. Why? Could it be that there is more to be gained by writing off the debt and letting the debtor return to economic life? As a thought experiment, should we consider re-instituting the classic approach, and jail those who do not pay their mortgages? How much pain (punishment) should we hand out? What is the optimum level, from the perspective of the country as a whole?
I get the sense that many agree with the quoted sentiment - someone, somewhere, needs to be punished. Someone, somewhere, needs to be flogged. And if that someone happens to be a rich guy that got tripped by his own sly plots, so much the better. This is, however, overly simplistic. The purpose of the bill is not, and never was, to save the rich. Rather, the real cost, whether there is a bailout or not, will be paid by the middle class taxpayer. It becomes a question of how we want to pay. We should choose wisely.
I wonder if a sense of angry moral outrage, such as the article seems to voice, brings us closer to a rational decision. I think it does not.
Surf n Turf
09-30-2008, 10:50
nmap, appreciate the information, thanks; BTW, this is sort of a random question, but I figure it relates to the current crises, but does anyone know HOW exactly the Federal Reserve system (like the FDIC) keeps the banking and financial system solvent without going insolvent itself? For example, I know that they have a certain amount of money to work with supposedly, but I've also read the reserves can be whatever they need them to be because they can create money; thing is, if that is the case, how would they print more money without driving up inflation...? How does this work?
Broadsword,
Here are the answers you wanted
http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm
SnT
Roguish Lawyer
09-30-2008, 10:59
I think it illustrates the problem nicely. From the article:
"Because punishment will be served. Justice will be done. Revenge will be savored."
From inception, the policy has been called a bailout. But it may be worthwhile to pause a moment and ask who is being "bailed out"? Who gains from the "bail out"? Who loses if it goes into effect, and who loses if it does not? These are not rhetorical questions; rather, they may serve to illuminate the problem.
When a bank is bailed out, the shareholders will lose much, and perhaps all of their investment. Were the shareholders the ones who created the crises? Hardly; they may be guilty of a poor investment choice, but little other than that. The senior executives and the board bear responsibility, but their punishment consists of losing their jobs. The rest of us - the society as a whole - suffers the consequences of reduced availability of credit coupled with reduced business activity. So in pursuit of justice, we have punished ordinary people who seek to find a job or run a business. This does not seem productive or appropriate. Thus, we are not bailing out the purported rich wall street bankers so much as we are attempting to bail out the national and global economy.
The article suggests that the sharp pain of recession will be brief, but salutary, and will impose the discipline of the markets. Perhaps. As we scourge the improvident and the foolish, what price will we pay in terms of future economic activity? We can look to history for an answer. England used to have a debtor's prison, where those who did not pay their bills could be incarcerated until the debt was paid. The U.S. chose not to adopt that model. Why? Could it be that there is more to be gained by writing off the debt and letting the debtor return to economic life? As a thought experiment, should we consider re-instituting the classic approach, and jail those who do not pay their mortgages? How much pain (punishment) should we hand out? What is the optimum level, from the perspective of the country as a whole?
I get the sense that many agree with the quoted sentiment - someone, somewhere, needs to be punished. Someone, somewhere, needs to be flogged. And if that someone happens to be a rich guy that got tripped by his own sly plots, so much the better. This is, however, overly simplistic. The purpose of the bill is not, and never was, to save the rich. Rather, the real cost, whether there is a bailout or not, will be paid by the middle class taxpayer. It becomes a question of how we want to pay. We should choose wisely.
I wonder if a sense of angry moral outrage, such as the article seems to voice, brings us closer to a rational decision. I think it does not.
I totally agree. Well put.
Surf n Turf
09-30-2008, 11:31
nmap,
An article I thought you might interest you.
I am becoming less inclined to back the “bailout package”
SnT
If he were to rise from the dead today, Marx might be delighted to discover that most economists and financial commentators, including many who claim to favour the free market, agree with him.
At first glance, anyone who understands economics can see that there is something wrong with this picture. The taxes that will need to be levied to finance this package may keep some firms alive, but they will siphon off capital, kill jobs and make businesses less productive elsewhere. Increasing the money supply is no different. It is an invisible tax that redistributes resources to debtors and those who made unwise investments.
http://network.nationalpost.com/np/blogs/fpcomment/archive/2008/09/29/bailout-marks-karl-marx-s-comeback.aspx
Roguish Lawyer
09-30-2008, 12:01
This "bailout" is not about saving bankers, it's about saving our economy and the stock market. The loss of market cap yesterday was a hell of a lot more than $700 billion. You think the average joe isn't hurt when his pension/retirement savings are devastated by the market?
If this “bailout” is really a good investment and might even return a profit, then I like Mark Cuban’s idea to bundle the assist in an ETF and let us invest directly and shoulder the risk or reap the benefits. I really doubt that the government will send us dividend checks.
My BailOut Solution - I’m In For At Least $50mm
Sep 26th 2008 11:52AM
As you can tell by the number of the posts on this subject, I think we are in a very serious financial situation in this country. It’s bad for everyone and like many others while I think the Bailout is necessary, I would prefer any solution that doesn’t involve the government. Unfortunately, I don’t think a pure market based solution is possible.
That said, I considered what it would take for me to part with my money to provide liquidity into the banking system.
I will not just write a check to the Treasury. Thats like handing it to Ted Stevens. I’m not going to voluntarily give a year’s supply of crack to the junkies.
Here is what I will invest in:
If Treasury Secretary Paulson were to create an ETF to buy all the assets the bailout was planning to buy, along with all the warrants and shares of stocks in the bailout companies it can get, and then have any receipts generated by those assets, whether by sale, or regular income such as rent or mortgage payments or servicing them, go into the fund, I would buy at least $50,000,000.00 of shares in The Fund.
It would not be difficult to do. Whatever funding that the Treasury Secretary says is necessary for the Bailout would first try to be raised privately from other Funds and individuals by selling them shares in The Fund.
If the amount of shares sold falls short of what the Treasury has defined as being need, the underfunded amount would be funded by the purchase of shares in The Fund by the treasury.
The ETF would initially be valued at the total amount raised and then trade based on its financial results and the trust the American people and international markets have in the job the Fund is doing to monetize the assets. If the fund is making money, the ETF will trade up. If not, not. Either way, the share price and the transparency required of the ETF will make it obvious to taxpayers just how well their taxpayer dollars are performing.
If The Fund is as successful as some think it could be, it could pay dividends. Those dividends will be paid to investors, and to the US Treasury.
In addition, once the assets purchased by the ETF are aggregated and documented, and hopefully the economy has improved, it would be possible to trade out baskets of assets with institutional shareholders. This is a process that will help keep the fund honest in how it manages the assets. If the Fund is not doing a good job of monetizing the assets, Institutional shareholders will look to exchange their shares for baskets of assets in hopes of better monetizing them.
This fund, like every other, would have investment guidelines. The same guidelines that the Treasury would use to work out the assets it would have purchased directly. The fund, like every other, will have analysts and accountants and the same type of people that the Treasury would have hired to work out the assets, except hopefully it would be run more efficiently as a publicly traded fund.
I can’t think of any reason why this wouldn’t work, and why it wouldn’t be a better idea than the current Bailout options that I have heard discussed.
If they need someone to help put it together and/or run it, I’m happy to help.
Tell me what you think.
Link: http://blogmaverick.com/2008/09/26/my-bailout-solution-im-in-for-at-least-50mm/
Pat
Go Devil
09-30-2008, 12:56
This "bailout" is not about saving bankers, it's about saving our economy and the stock market. The loss of market cap yesterday was a hell of a lot more than $700 billion. You think the average joe isn't hurt when his pension/retirement savings are devastated by the market?
I always thought of myself as an average joe, but have never been able to afford to put money away for a rainy day, let alone, retirement. What money I have earned has been invested in tangibles like gas, food, and lodging.
Maybe I have been fooling myself.
I guess I am below average.:boohoo :D
Surf n Turf
09-30-2008, 13:55
This "bailout" is not about saving bankers, it's about saving our economy and the stock market. The loss of market cap yesterday was a hell of a lot more than $700 billion. You think the average joe isn't hurt when his pension/retirement savings are devastated by the market?
Roguish Lawyer,
I have read you posts for the past years, and generally agree with you – But
I disagree with your logic on the “Bailout” plan. --- Not with the outcome, because that is unknown, with or without a bailout, and you may be correct that we need a “bailout” to “shock” the markets, even if the figure of $700 was contrived.
Quote - “In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.
"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."
http://www.forbes.com/businessinthebeltway/2008/09/23/bailout-paulson-congress-biz-beltway-cx_jz_bw_0923bailout.html
I believe in the following “truths” about investing:
The markets exist within a Yin & Yang universe
You can’t have a Bull market without a Bear Market
You can’t have record Highs without record lows
You can’t have winners without losers
Risk is proportional to reward
There is no free lunch
There is a difference between Investing and Gambling
The current situation was visible some time ago, when the banks started (were forced?) to issue NINJA loans (No Income, No Job or Assets). If investors were nervous, why did they not move to a CD or Money Market account (or multiples thereof) that were insured.
If as nmap has written “There are $ 62 Trillion dollars worth of Credit default swaps (CDS) out - all unregulated. There are about (no one knows for sure) $250 Trillion dollars worth of derivatives.” Do you suggest that we do a bailout of all $312 Trillion, or is the $700 Billion going to work.
If, after all is said and done, we are headed for recession, then I would like to have it without an additional $700 Billion of government debt.
BTW, as I write this, the DOW is up 471 points
SnT
Two points, if I may.
First, you mention: "You can’t have winners without losers". This is true in the case of a zero-sum game. Gambling, as in Las Vegas, is an example. Commodity futures trading is another. But the stock market is different - a growing economy can make all stocks (technically speaking) go up. It is the essential issue of a growing economy that marks a significant difference between gambling and investing.
Second, with regard to the bailout. I sense a desire among people for a definitive, certain answer with regard to costs and probability of success. These do not exist. Rather, it is a question of risk versus reward - not unlike any other sort of investing.
People with some expertise have made a recommendation. The public has, apparently, rejected that recommendation - although some alternative may come to pass. Each side notes risks; those favoring the bailout seek to stop a developing, spreading problem. Those opposed to the bailout question the cost and the efficacy of the measure.
Should the present trouble spread, the treasury cannot access trillions of dollars without resorting to tactics likely to result in hyperinflation. Thus the $ 700 Billion is an attempt to contain the costs and avoid some of the more destructive aspects of the coming recession.
Suppose a person has cancer. Treatment will cost them their entire savings. A cure is uncertain. Should they refuse treatment? Of course not. The risk justifies the possible (but uncertain) chance of reward.
Overdrawn? Perhaps. But the situation is serious. And the chance it will cure itself without visiting substantial pain on you, and I, and others we know is small.
Excellent point on risk, nmap. On occasions such as this, I like to bring up a favorite quote of mine:
Insisting on perfect safety is for people who don't have the balls to live in the real world.
- Mary Shafer, NASA Engineer
Casino Capitalism: the term to describe how financial executives and politicians operated in this financial crisis' pre-meltdown time period. :mad:
Richard's $.02 :munchin
I came across an item in the WSJ today; I tested the link, and it should work for everyone without the need to subscribe. It describes some of the consequences of the current bank-stock decline.
LINK (http://online.wsj.com/article/SB122281847955092407.html)
pheepster
10-01-2008, 10:53
This all reminds me of where I was a year ago. I was working/living in Japan for a company that operated a “bicycle method” of business, which--as I now understand it--is a bit ponzie-schemish. There were some signals that the company wasn’t financially solid; when I started asking I was reassured everything was fine, not to mention I was considered negative for having questioned the company’s solvency. Within a month no one received their salary and, shortly after that, the company closed it’s doors. It was a bit scary how fast it all happened. Roughly 7,000 people instantly out of work, all being owed nearly two month’s salary, some also losing their company housing. It opened my eyes to how hardworking people can find themselves in need of some assistance. There’s a large part of me that is against the “socialization” of this debt, but at the same time I wouldn’t want a large-scale version of the above happening here in the USA.
All that aside, I’ve been trying to follow this as much as possible; however, I’m beginning from a severe deficiency of financial/economic knowledge. One basic question that I have yet to figure out (please excuse me if it’s already here and I didn’t see it) is a matter of where this proposed $700, 000, 000 will be coming from… literally. Meaning, will this come from increased taxes over a certain length of time, would we be “borrowing” it from somewhere to immediately have it, or is it more of a “promised” amount that wouldn’t actually exist in hard currency?
That, and where is Bush in all this? I’m hearing too much on the news about McCain’s and/or Obama’s positions (our prospective leaders) and not too much about what’s coming from the current administration. I realize Bush has spoken, but where is his influence? Was Pelosi’s speech really that inflammatory? I’ll admit, I’m not aware of whose role is exactly what. Is the weight of attention placed on McCain and Obama because they are Senators and their roles as senators require their involvement, or is it more because of their presidential candidacy?
My apologies for throwing this all in here at once.
The $700 Billion will come from additional debt. In fact, the proposal included an increase in the debt limit as I recall.
Conceptually, the Treasury view is that the acquired assets will perform to a greater extent than the present market value suggests. Thus, at some point the securities can be sold for a price close to the acquisition cost, and perhaps greater. If this is so, the debt would be liquidated - at least partially - by sale of the securities themselves. Of course, the optimistic view may not prove correct. In the pessimistic scenario, the taxpayers will face additional burdens.
The Treasury and Federal Reserve would, in essence, create sufficient dollars to effect the plan.
In my opinion, President Bush's influence is small for two reasons. First, his term will end soon. Second, his approval numbers are remarkably low.
Your experience with the insolvent company is very much the risk we face - not only as a nation, but in terms of the global economy. Japan faced 10 years of distress when their real estate market declined with resulting disruption of their banking system. Should the U.S., or the world, experience a similar situation, the possibilities of social and geopolitical consequences may increase.
82ndtrooper
10-01-2008, 11:50
The problem with describing an outcome is that the economy isn't monolithic. For an elderly widow with no savings and a meager Social Security income the outcome might be horrific. Likewise for a single parent with children, working multiple part-time jobs requiring long commutes. On the other hand, the top 1% of the households in the U.S. have a net worth of $6 Million or more - I suspect that inflation will be profitable for that segment of the population. So, is inflation "good" or "bad"? I guess I see it as a function of perspective.
I, too, like precious metals. One problem is that a mine which is marginal for $500 gold becomes highly profitable at $1,000 - so the supply is dynamic. In addition, one can go for a lifetime without owning an ounce of gold - thus, demand is elastic. I think it's best to use a long-term approach. Acquire precious metals or mining stocks (or, a mutual fund or ETF for the sector), and hold on for years and decades. In addition, consider the new commodity ETFs that I mentioned in the posting to Grateful. You might find DBC of particular interest, if only as a hedge against living expenses.
I don't believe ACORN is in - but we have to remember that a very large honey pot has been created. Flies of every stripe are sure to pay it a visit.
I like your example of Zimbabwe. Interesting, is it not, that the society still functions after a fashion, despite the poorly managed economy. Inflation is a highly effective way to take purchasing power out of the hands of savers, while transferring it to the hands of debtors. Since governments are often debtors, there is a clear incentive.
Where this all becomes interesting is if some other event further distresses the economy. My personal bias is that it will be energy prices, although Grateful advances some good arguments that such events will be farther in the future (on another thread).
Interesting times. :munchin
I've only used commod ETFs as a hedge agains't inflation, but with limited exposure. Personally I'm not a fan of precious metals, but more diversified across the broad range of traded commod's. Some open ended commod funds have performed well, but with little exposure to gold. Recently it's been a "gold mine" but over 30 years gold is only about a 5% return on average.
Don't buy commod contracts outright. Unless you know what your doing, your going to wind up taking delivery on a barrel full of pork belly's or a chest full of gold. There's not much liquidity there now is there ? :D
Don't buy commod contracts outright. Unless you know what your doing, your going to wind up taking delivery on a barrel full of pork belly's or a chest full of gold. There's not much liquidity there now is there ? :D
You want liquidity? There's always soybean oil... :D
Seriously, commodity futures have their place. A person who was willing to allocate an investment of $30,000 to a position in T-Bills, which were then used to secure a contract in corn, might be able to enjoy some nice returns. (Note: The corn is used as an example, not as a suggestion).
The problem isn't delivery; instead, it's the leverage. Usually, people put up the margin (presently, at least $1,688 per contract of corn for a speculator). A minor fluctuation...say, 33.7 cents per bushel...wipes out the original investment. A speculator can be right on the overall move, but be forced out before the trend develops.
I've developed a strong allergic reaction to leverage. It has served me well. :cool:
ETFs permit involvement in commodities without the leverage, which strikes me as a very good thing.
Surf n Turf
10-01-2008, 19:36
Two points, if I may.
First, you mention: "You can’t have winners without losers". This is true in the case of a zero-sum game. Gambling, as in Las Vegas, is an example. Commodity futures trading is another. But the stock market is different - a growing economy can make all stocks (technically speaking) go up. It is the essential issue of a growing economy that marks a significant difference between gambling and investing.
Second, with regard to the bailout. I sense a desire among people for a definitive, certain answer with regard to costs and probability of success. These do not exist. Rather, it is a question of risk versus reward - not unlike any other sort of investing.
People with some expertise have made a recommendation. The public has, apparently, rejected that recommendation - although some alternative may come to pass. Each side notes risks; those favoring the bailout seek to stop a developing, spreading problem. Those opposed to the bailout question the cost and the efficacy of the measure.
Should the present trouble spread, the treasury cannot access trillions of dollars without resorting to tactics likely to result in hyperinflation. Thus the $ 700 Billion is an attempt to contain the costs and avoid some of the more destructive aspects of the coming recession.
But the situation is serious. And the chance it will cure itself without visiting substantial pain on you, and I, and others we know is small.
Nmap,
A couple of points:
You may be correct that the “Bailout” is required to contain some of the financial situation, but then again, the die is cast, and we are headed for an adjustment. After the psychological warfare on the airwaves, the Bill will pass the Senate, and probably the house. I believe that dropping the Capital Gains to Zero, suspend mark-to-market rules, scrapping Sarbanes-Oxley, and The Community Reinvestment Act, and privatizing FNM and FRE would cause an investment bonanza, the likes of which we will never see – Politics vs Practical Solutions. All this will happen without a national debate, and some understanding by the public of what they are getting for their money.
The acquisition and nationalization of Companies (AIG, etc.) by the Central Government is not socialism, and I am worried about the path we are about to tread. We have good reason why we don’t believe our National Leaders, and I have yet to hear one remark on this departure from the Constitution. Collectivism is not a form of government I desire.
Regarding the “growing economy rising all ships”. I seem to recall that all was rosy on NASDAQ until 10 Mar 2000. Then the bubble burst, and it was if fact a “net-sum game”, and I paid off all the kids college loans with some short sales on those that did not follow a standard business model, and Gamblers who were flushed with "Irrational exuberance".
I think that I will stand on the pier and wave this ship goodbye, and along with it our free market capitalism, and concept of a limiting of the Central Government.
SnT
Surf n Turf
10-01-2008, 20:02
I came across an item in the WSJ today; It describes some of the consequences of the current bank-stock decline.
Conceptually, the Treasury view is that the acquired assets will perform to a greater extent than the present market value suggests. Thus, at some point the securities can be sold for a price close to the acquisition cost, and perhaps greater. If this is so, the debt would be liquidated - at least partially - by sale of the securities themselves. Of course, the optimistic view may not prove correct. In the pessimistic scenario, the taxpayers will face additional burdens.
The Treasury and Federal Reserve would, in essence, create sufficient dollars to effect the plan.
Seriously, commodity futures have their place. A person who was willing to allocate an investment of $30,000 to a position in T-Bills, which were then used to secure a contract in corn, might be able to enjoy some nice returns. (Note: The corn is used as an example, not as a suggestion).
The problem isn't delivery; instead, it's the leverage. Usually, people put up the margin (presently, at least $1,688 per contract of corn for a speculator). A minor fluctuation...say, 33.7 cents per bushel...wipes out the original investment.
I've developed a strong allergic reaction to leverage. It has served me well.
Nmap,
The article you sited is reinforcement of why non-investors should be in CD’s. Honest Free Market Capitalism is “Darwinism at its finest moment”. I do feel sympathy for the folks in the article, and I believe that was the writer’s desire.
The Central Government may not have the “printing press power” to purchase these assets. In any case, why would our Government become owner / landlord to it’s citizens, and might this not cause some weakening of the currency.
Commodities trading / Short Selling are typically reserved for the 'sophisticated investor', with sufficient funds to play the “Mean streets”. I have mixed results with leverage.
SnT
I've included a couple links to rather long but (in my opinion) informative items.
The first is a strong call for an economic stabilization plan ( ;) ), with reasons. The LINK (http://www.investorsinsight.com/blogs/thoughts_from_the_frontline/archive/2008/09/27/who-s-afraid-of-a-big-bad-bailout.aspx) will take you to a fairly long article.
The second discusses the outcomes experienced by other nations when faced with similar problems. The link is HERE (http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2008/10/01/banking-crises-around-the-world.aspx).
Whether you agree or disagree, each presents some facts and cogent arguments which may be worthy of consideration.
The Central Government may not have the “printing press power” to purchase these assets. In any case, why would our Government become owner / landlord to it’s citizens, and might this not cause some weakening of the currency.
SnT
SnT, you bring up some good points, both in this item and your previous post. One item that seems of particular importance is the constitutional issue, along with concern that the Federal Government will become not only the ruler but also the landlord over its citizens. Perhaps we can add in lender, employer, and investor as well.
It does, as you suggest, place a great deal of additional power in the hands of our Federal Government. As with any concentration of power, there is the risk of abuse. These are all reasonable concerns.
That said, we have gone far on the path toward government control and away from free markets. The very existence of Fannie Mae, Freddie Mac, and Sallie Mae (for student loans) speaks to this. And, just as you seem to suggest, each of these entities provides another mechanism of control to the central government.
I suppose the image that comes to mind is a person who eats the large entrée with double potatoes and pecan pie ala mode, who then insists on using artificial sweetener in his coffee. Perhaps the path to virtue lies in some small, symbolic step. Perhaps - a very speculative perhaps - we could, as a people, choose to make this our first step, in full knowledge of the likely extended economic pain such a choice could entail.
I think that you, like I, are a student of the human condition. I do not believe we are up to the task of reforming ourselves toward true free market discipline. Given such raw material, we must work with what is available. Hence, some economic restructuring represents a better path than the social and political outcome should we do nothing at this time. But perhaps you see things otherwise?
Surf n Turf
10-01-2008, 21:39
I think that you, like I, are a student of the human condition. I do not believe we are up to the task of reforming ourselves toward true free market discipline. Given such raw material, we must work with what is available. Hence, some economic restructuring represents a better path than the social and political outcome should we do nothing at this time. But perhaps you see things otherwise?
nmap – I fear that I am beyond self-reform (as my wife reminds me daily).
I do see some value in economic restructure, with or without the bailout.
I am somewhat concerned with the social and political outcome in any case. There can be little difference in the long term, regardless of how the plan plays out.
The near term has me somewhat upbeat, as opportunities will abound
SnT
The near term has me somewhat upbeat, as opportunities will abound
SnT
On that point, we're in complete agreement.
By the way...
Once the Senate was finished adding sweeteners Wednesday to entice reluctant House Republicans to change their minds and vote for the bailout, the bill heading for passage had grown to 451 pages.
I wonder if there might, perhaps, be some mischief within those 451 pages?
LINK (http://news.yahoo.com/s/ap/20081001/ap_on_bi_ge/meltdown_bill_grows)
Anybody wanna play 'September Madness?' Oh, you aleady are? :rolleyes:
Richard's $.02 :munchin
Nice video - Jim Rogers predicts inflation. Also, some nice comments about the solution to the current crises.
LINK (http://www.cnbc.com/id/27097823)
Roguish Lawyer
10-10-2008, 19:09
Anybody wanna play 'September Madness?' Oh, you aleady are? :rolleyes:
Richard's $.02 :munchin
LOL
Nice video - Jim Rogers predicts inflation. Also, some nice comments about the solution to the current crises.
LINK (http://www.cnbc.com/id/27097823)
:eek: We must be in trouble. Mr. Rogers is not wearing his bow tie!
I've never heard him say anything positive about the markets or the economy. Yet, he keeps getting richer and richer. Go figure.
Just my humble observation.
Pat
Edit to add: I agree with "Let the markets work", though.
Dozer523
10-10-2008, 22:19
Wow! Try reading this all in one sitting. My head. . . ohhhhh my head.
Back on page 4 (I can hardly believe I can remember) there was a post refering to the volitility of gold. To the effect that gold fluctuates. Gold never changes. It is the value of the money that changes in relationship to gold. When the dollar is strong, gold seems cheap. When the dollar is weak, gold seems expensive. Gold may not be the standard ,but it is still the barometer.
(The canary in the coal mine?)
Surf n Turf
10-11-2008, 10:46
Back on page 4 (I can hardly believe I can remember) there was a post refering to the volitility of gold. To the effect that gold fluctuates. Gold never changes. It is the value of the money that changes in relationship to gold. When the dollar is strong, gold seems cheap. When the dollar is weak, gold seems expensive. Gold may not be the standard ,but it is still the barometer.
(The canary in the coal mine?)
Dozer,
Although an ounce of Gold is an ounce of gold, the fluctuation in price of that ounce changes constantly, most often without regard to the “strength” of any particular currency. This is due to many factors such as lowering of interest rates, lack of confidence in Financial institutions, volatility based on other markets (Stock / Bonds), supply / demand (try purchasing some gold eagles on Monday – there is NO supply – lots of demand), mark-up (see Supply / DEMAND), popularity (Eagles vs Krugerands vs Pandas), Hedging (both short / long), Forward selling (selling gold not yet mined), Central Bank intervention (lots of conspiracy theories / some fact), and Political turmoil (think Rhodesia).
Below is a link to an excellent article about a Mining (?) company and it’s attempt to “play” with the Gold market thru speculation. Additionally, there is a link to GATA (Gold Anti-trust Action Committee), which has become the “watchdog” for improper market activity in the Gold markets.
http://www.gold-eagle.com/gold_digest_08/fekete090808.html
http://www.gata.org/
Hope this is helpful
SnT