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Cheesehead, I make a point to listen to your opinions because they are usually thoughtful and reasonable. In this case, my gut instinct is that you are totally wrong. No criticism of you as a person intended. The long and short of it is a simple question: What tried and proven strategy can turn a zombie bank into a viable institution? The only answer that has historically worked is to take over the bank, wipe out shareholder equity, sell off or otherwise restructure assets, and then sell the viable institution to investors. Instead of telling me about vouchers, try telling me why the govt should NOT wipe out this farce and resolve the banking problems in the proven effective way? Please note, I [U]can[/U] do the math, you are looking at a $5 trillion problem so where would the money come from?
As I write this, the following systemic problems are rearing ugly heads: 1. Auto industry is on life support and barely making it 2. Insurance industry i.e. AIG is back with its hand out for another $100 billion. 3. 12 major banks are in up to their eyebrows with assets vs equity upside down, at least 3 of them on the verge of failure. 4. Worldwide stockmarkets are tottering on the edge of collapse. 5. Government idiots worldwide are scared sh*tless of calling a spade a spade and dealing with the consequences. Until you acknowledge that there is a problem and that throwing money at it will NOT make it go away, you can't possibly fix it. Here is a question for all of you: Why can't the major banks with toxic assets form their own 'bad bank' and move those assets into the bad bank for resolution [U]without government intervention[/U]? No flippant answers allowed, make it a well reasoned and valid approach. DarJones |
Excellent post fusion. All these voucher/bailout plans are only going to make the denouement worse when it finally comes - and it will. This is S&L to the power of 10.
[quote]The only answer that has historically worked is to take over the bank, wipe out shareholder equity, sell off or otherwise restructure assets, and then sell the viable institution to investors.[/quote]I agree but the thing most people are not acknowledging is that wiping out shareholders is not going to be enough. You need to wipe out ordinary shareholders and preferred shareholders as well as lower tier unsecured debt and then restructure senior unsecured debt into equity and/or warrants/preferred shares. That is the what is required but no one in power has acknowledged that. Note that when WaMu went belly up they did something of this sort. All shareholders - ordinary and preferred - were completely wiped out. Of course the receiver bank was JP Morgan and they know how to drive a hard bargain. How I wish there was someone in government doing the same for the taxpayer. |
Bad News Bears Rally Time! | CA Mulls "Bong Tax"
[url=http://money.cnn.com/2009/02/24/real_estate/Case_Shiller_December/index.htm]Home prices in record drop[/url]: [i]S&P Case-Shiller national index down 18.2% in final three months of 2008; No slowdown apparent[/i]
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aTYWzd5CWck8&refer=news]Bernanke Says U.S. Will Acquire Bank Ownership Stakes Only as Losses Occur[/url]: [i]Federal Reserve Chairman Ben S. Bernanke said the U.S. government’s bank-capitalization plan is designed to shore up lenders’ common equity only if the economy worsens and creates more losses for financial institutions.[/i] [i]My Comment:[/i] Which will certainly happen ... but trying telling delusional "party is back on!!!" Wall Street bulltards that: [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=av419NV.FDIA&refer=news]Stocks in U.S. Advance as Bernanke Signals Banks Need Not Be Nationalized[/url]: [i]U.S. stocks advanced the most in a month, halting a six-day decline, after Federal Reserve Chairman Ben S. Bernanke’s statement that banks need not be nationalized helped lift equities from their lowest valuations in two decades.[/i] ...all of which will hopefully inspire a several-days-long bear market rally which one can short the snot out of. The idea being that any resulting proceeds can be used to help pay my new, improved, higher California taxes and thus reward our wonderful huge state government bureaucracy for their profligacy. Ain`t free-market capitalism and representative democracy cool? [b] Signs of the Times: Shrinkwrapped Housing, California mulls "Up in Smoke" tax [/b] [url=http://money.cnn.com/2009/02/23/smallbusiness/wrap_party.fsb/index.htm]Booming biz: Shrinkwrapping stalled construction[/url]: [i]Mike Enos didn't foresee the recession when he launched Fast Wrap, a Reno company that seals buildings and other very large objects in protective plastic. But after the markets crashed last fall, he was pleasantly surprised to find that the downturn was working wonders for his sales.[/i] [url=http://www.sacbee.com/topstories/story/1646399.html]California: Bill would legalize, tax marijuana[/url] [b]Attention Seniors![/b] The "Experts" who helped you lose most of your retirement nest egg last year, have more great advice for you: [url=http://money.cnn.com/2009/02/24/markets/thebuzz/index.htm]What's next for responsible investors?[/url]: [i]People living on fixed-incomes and other 'safe' investments have been punished. Pros give tips on how to move forward in a rocky market.[/i] [i]My Comment:[/i] Presumably these are the same "pros" who didn`t seen the housing bust coming, denied that it was happening for at least a full year after it had clearly begun, then, once further-denials-of-the-obvious became untenable, claimed it would not have a major impact on the wider economy, all the while telling all the near-retirement folks they`d help steer into far-too-risky-investments-for-that-age-group that "now is not the time to sell", "bottom is near", "you don`t want to lock in your losses", "over the long haul, the stock markets beat every other kind of investment", et cetera, while those poor suckers were losing upwards of half of their retirement nest egg. Oh yeah, I`m *really* inclined to listen to the "experts" now. But let`s see what kinds of sage advice the author of the article and the "experts" he cites have to offer to our dear seniors: [quote]So what can be done? I'll admit that I've tried to preach that people remain level-headed. If you're investing for the long-term, this is obviously a scary time. But it's not reason to panic and dump all your 401(k) into gold stocks.[/quote] [i]My Comment:[/i] Right, that time would have been last year, once the extent of the housing bust and the banks` exposure to it began to become shockingly clear, but while the permaBulls were still deeply in denial. [quote]However, there is no hard and fast rule for investing for the long haul since it all depends on how close you are to retirement. [u] It's easier for me to stress a level-headed approach because I'm probably three decades away from retiring. I fully expect to see many more booms and busts (hopefully not as bad as this one) during my lifetime, and I can afford to ride them out.[/u][/quote] [i]My Comment:[/i] And that means you should probably STFU when it comes to advising folks close to retirement (and oh how we wish that blanket STFU could be enacted retroactively), since you haven`t a fucking clue what being in that situation in the current economic climate means from a real my-money perspective - you`re the equivalent of a paper "fantasy" trader in that regard. And where were you and your "expert" buddies when it came to dispensing the "fully expect to see many more booms and busts" advice during the past several decades? None of y`all "expected" to see the dot-com bust, either. And when that was followed by the most insane housing-price runup in U.S. history, none of you bright lights "expected" the resulting bust. Sound familiar? It should. [quote]For those whose time horizon may be shorter, experts say sticking to a diversified investing approach makes sense, even though there will probably be more turmoil ahead.[/quote] [i]My Comment:[/i] That`s right - you want to spread your horrific losses across as many investment sectors as possible, and thus maximize your broker`s commissions at the same time. [quote]Schwab has a list of recommended tax-free bond funds on its Web site, including the American Century Tax-Free Bond fund, Federated Short-Intermediate Duration Municipal Bond fund and Wells Fargo Short-Term Municipal Bond fund.[/quote] [i]My Comment:[/i] Schwab also has the [url=http://finance.yahoo.com/q/bc?s=SWYSX]Schwab YieldPlus Select fund[/url], which it touts thusly: [i]"The investment seeks high current income with minimal changes in share price. The fund primarily invests in investment-grade bonds. It may invest in bonds from diverse market sectors based on changing economic, market, industry and issuer conditions. The fund may invest to 25% of assets in below investment-grade bonds that are rated, at the time of investment, at least B by at least one nationally recognized statistical rating organization (NRSRO) or are the unrated equivalent as determined by the investment adviser. It maintains an average portfolio duration of one year or less."[/i] OK, so 25% is in riskier assets... so even if the unthinkable happens and these all decline to zero simultaneously, worst-case I lose 25% of my investment, right? Strangely, things didn`t quite seem to work out that way for folks who invested in it, since the fund has lost fully half its value in the past year. Predictably, those folks are [url=http://finance.yahoo.com/q/h?s=SWYSX]none too pleased[/url]. But I digress from my original rant... [quote]And for those willing to tolerate more risk, some money managers say that investing in select stocks still makes sense. They suggest seeking quality companies, not necessarily high dividends. Jason Tyler, senior vice president and director of research operations with Ariel Capital Management in Chicago said JPMorgan Chase's decision to cut its dividend is a perfect example of why investors can't rely on quarterly payments in this environment -- even from companies holding up better than their peers. "Dividends can go away in a heartbeat. They are so fragile," Tyler said. "Frankly in this market, dividends are discretionary on the part of management."[/quote] [i]My Comment:[/i] "Frankly, in this market, even seemingly-quality companies can go away in a heartbeat". Hey, if my 1000 shares of [pick a recently-seen-as-quality company] purchased for $100,000 decline at a rate of 10% per month and the dividend is fixed at 8%, how long until I can retire? Can your experts help me with the math here? [quote]Instead, Tyler said he's looking to invest in companies with strong enough balance sheets to survive the recession and whose stocks may have been unfairly punished in this year's market rout. One example Tyler gave is luxury retailer Nordstrom (JWN). Even though the company reported a big decline in sales during the holiday season on Monday, expectations were so low that Nordstrom wound up doing better than what analysts feared. As a result, the stock surged nearly 15% Tuesday. [/quote] [i]My Comment:[/i] So Nordstrom plays the "let`s just barely beat our own drastically-lowered earnings estimates to give our share price a quick pop and dump those suckers on the herd of retail fools who think beating near-zero earnings estimates is a sign that the company is 'weathering the downturn'" game with a nice 1-day success, and suddenly luxury retail is the next bull market? I think not. [quote]Now before the Dow 4000 believers out there flame me, please keep in mind that I'm not suggesting you put all your money in these stocks...or the stock market in general.[/quote] [i]My Comment:[/i] Right, "suggesting you put all your money in these stocks...or the stock market in general" was what you experts were doing the last 20 years - that`s just so yesterday, that`s the kind of thing you used to do when your clients still had "money". [b]The Economy According to M.C. Escher:[/b] We close this post on a visual-arts note - the really scary thing is how many economists and politicians appear to believe that the depicted economic models are truly sustainable: [url=http://www.ritholtz.com/blog/2009/02/the-economy-according-to-mc-escher/]The Economy According to M.C. Escher[/url] |
[QUOTE=ewmayer;163876][
We close this post on a visual-arts note - the really scary thing is how many economists and politicians appear to believe that the depicted economic models are truly sustainable: [/QUOTE] Let's paraphrase Shakespeare: First, you shoot all the bankers....... Is there any hope that seniors who had their IRAs shredded can sue the bastards for malfeasance??? Fat chance. Even if such were to succeed, there is nothing to recover....... |
[QUOTE=ewmayer;163876][i]My Comment:[/i] Presumably these are the same "pros" who didn`t seen the housing bust coming, denied that it was happening for at least a full year after it had clearly begun, then, once further-denials-of-the-obvious became untenable, claimed it would not have a major impact on the wider economy, all the while telling all the near-retirement folks they`d help steer into far-too-risky-investments-for-that-age-group that "now is not the time to sell", "bottom is near", "you don`t want to lock in your losses", "over the long haul, the stock markets beat every other kind of investment", et cetera, while those poor suckers were losing upwards of half of their retirement nest egg. Oh yeah, I`m *really* inclined to listen to the "experts" now. But let`s see what kinds of sage advice the author of the article and the "experts" he cites have to offer to our dear seniors:[/QUOTE]
The problem with experts is that if they were *always* wrong we'd be laughing. As for 401(k) and all the other regulated investments: you have a Ponzi-bias built in because you can only go long. The Cheeseheads of the world probably believe that we need to regulate more with proper wording, so that people only choose the *really safe* investments, like [STRIKE]real-estate[/STRIKE], [STRIKE]stocks[/STRIKE], and [STRIKE]bonds[/STRIKE]. |
[quote=Prime95;163790]Put some meat on [B]your voucher proposal[/B] before asking for us to shoot it down[/quote]
[quote=Fusion_power;163799]Cheesehead, I make a point to listen to [B]your opinions[/B] because they are usually thoughtful and reasonable. In this case, my gut instinct is that you are totally wrong. < snip > Instead of telling me about vouchers, try telling me why the govt should NOT wipe out this farce and resolve the banking problems in the proven effective way?[/quote]Some of you folks, including some not quoted above, have gotten lazy recently; instead of responding to what I actually wrote, you respond to something else. The voucher proposal was [B]not MY proposal[/B]; it was one of [quote=cheesehead;163750]two interesting ideas[/quote]that I had heard and passed on here. I haven't [I]advocated[/I] the voucher proposal. I did presume that[quote]there would be legal terms that would restrict voucher use to legitimate loans of the sort intended, such as mortgages[/quote], but I'd say that about any proposed legislation -- that I would assume, by default, until informed otherwise, that whatever-plan-it-is would be legislated to have appropriate restrictions and limitations, whether or not I liked the main idea. (And don't give me the lazy automatic cynical bit about how that's an unreasonable assumption about Congress. I'm trying to discuss things reasonably here, without irrelevant political digs.) I'm trying to form opinions about various alternative economic plan proposals; so far [U]I have [B]NO[/B] strong opinion one way or the other on most proposed plans[/U], and I'd appreciate thoughtful explanations of your various views on them. I'm appalled by the size and deficit implications of many of the plans, but opposing that is that I recognize, which some folks apparently don't as of yet, that we have a B-I-G problem here that is going to require B-I-G solutions of some sort. Simply condemning all proposals that don't conform to some political ideal (e.g., balanced budgets) is not going to work. - - - Instead of "your proposal" or "your 'vouchers'", please use phrases such as "the proposal you heard" or "the 'vouchers' plan you mentioned". This isn't just being picky, because: (1) when you've used a phrase directly crediting me with the voucher plan, your criticisms of the plan have tended to morph into personal attacks on me, (2) when you restrain yourselves to factually-correct attributions, you are less likely to erroneously veer into inappropriate off-the-track comments about me personally, and (3) when you practice using correct attributions in comments addressed to me, then you're more likely to remember to do so when addressing other participants in this thread, leading to a rise in the civility level (and a decrease in stupidity exhibition) in this discussion. |
[quote=__HRB__;163787]Your belief that 'we only got to put it in proper words'[/quote]1) that is an erroneous summary of my views. Please try to confine yourself to attribution of ideas that I actually do express.
2) Trivially, ALL laws are just proper sequences of proper words. [quote]Repent your sins.[/quote]How about repenting of your own sins before chastising me about sins I don't commit? |
[quote=Prime95;163790]You are an idealist :)[/quote]You need to conduct your vacation reading-and-responding elsewhere.
You're obviously having trouble concentrating on what I actually wrote. Either go back to some novel, or stick to threads discussing current PrimeNet problems. |
[quote=Fusion_power;163799]Cheesehead, I make a point to listen to your opinions because they are usually thoughtful and reasonable. In this case, my gut instinct is that you are totally wrong.[/quote]Are you referring to my opinion that the voucher idea is "interesting"? You're saying that it's not at all interesting? Or which other opinion do you mean?
[quote]Instead of telling me about vouchers,[/quote]Instead of telling me about only answers that have historically worked ... try reading what I actually wrote instead of what others erroneously attribute to me. [quote]try telling me why the govt should NOT wipe out this farce and resolve the banking problems in the proven effective way?[/quote]I'd be delighted to! But I don't know how -- I'm soliciting opinions about one plan i heard. [quote]Please note, I [U]can[/U] do the math, you are looking at a $5 trillion problem so where would the money come from?[/quote][B][U]I[/U][/B] am looking at a $5 trillion problem? To which problem do you refer? I know of one $5 trillion problem, but it's in the past (Bush the Younger's administration's cumulative budget deficit) and probably not the one you mean. I don't know which other problem has a magnitude of $5 trillion; please enlighten me. [quote]As I write this, the following systemic problems are rearing ugly heads: < snip > Until you acknowledge that there is a problem[/quote]Until [B]I[/B] acknowledge that there is a problem? I've acknowledged the existence of several problems. What makes you think I haven't acknowledged some particular problem? [quote]and that throwing money at it will NOT make it go away, you can't possibly fix it.[/quote]Please show me where I advocated "throwing money" at whichever-problem-you-mean. Or, else, apologize, then readjust your thinking about what I have or have not acknowledged or advocated, please. |
[quote=garo;163829]Excellent post fusion.[/quote]garo!
Did you, too, overlook that fusion was criticizing me for ideas I never advocated? Do you [U]really[/U] think that such an off-target (the part that was addressed to me) post was [U]"excellent"[/U]? |
[quote=__HRB__;163885]The problem with experts is that
< snip > The Cheeseheads of the world probably believe that we need to regulate more with proper wording, so that people only choose the *really safe* investments[/quote]The problem with [B][U]YOU[/U][/B] is that you invent things that I supposedly wrote, then respond as though they were reality instead of only your own inventions. Please try to pay more attention to reality. I don't like being slandered; if you don't stop it, I may try doing it to you to see how _you_ like it. Your imaginary accusations against me seem to be influencing others here to stray. Congratulations on being so influential ... not. - - - - - To Everyone Else, Please remember that HRB habitually makes false attributions to me, and don't confuse his imaginings with reality. |
Oh, boys ... everyone try to calm down ... this is the Soapbox, robust discussion, quite often tendentious and colored by personal views, is supposed to be welcome.
Cheesehead, I read HRB's "repent" comment as being directed at humanity-in-general ... so perhaps you should ask him to clarify before taking extreme umbrage. Mike Shedlock has an interesting piece on the [url=http://globaleconomicanalysis.blogspot.com/2009/02/14-year-commercial-real-estate-supply.html]aftermath of China's Olympic-sized construction spree[/url] today, and Barry Ritholz takes apart former FDIC chair William Isaac`s [url=http://www.ritholtz.com/blog/2009/02/citi-bofa-aint-continental-illinois-bank/]argument against mega-bank nationalization[/url]: [quote]In this morning’s WSJ, William Isaac, the 1980s FDIC chair, argues against nationalization of the insolvent mega banks. Isaacs oversaw the nationalization of Continental Illinois National Bank and Trust Company, and uses that as the basis of his opinion. Unfortunately, it makes for an awful comparison. In his OpEd, Isaacs overlooks so many dissimilarities between the present situation and that of 1984 so as to render his argument meaningless. ... Continental was the first major bank rescue of the modern era. Since then, we have learned how to accomplish these workouts through the entire savings and loan crisis, along with the Resolution Trust Corporation (the government-owned firm which disposed of failed S&L assets); the subsequent government takeover of the Bear Stearns (immediately flipped to JPM), the 80% nationalization of AIG, the full blown takeover of Fannie Mae and Freddie Mac; the seamless transition of Wachovia, and Washington Mutual by the FDIC; What is effectively a 75% takeover of CitiGroup and Bank of America. And that’s before we even get to the current issue of systemic risk, or the drag on the overall economy of having two massive Japan-like zombie banks hanging around. Given that we have already spent 300% of their market caps in terms of capital injections, and are on the hook for another 1500% of their valuations in terms of insured paper, these two banks are becoming vast money pits, ginormous black holes into which vast sums of taxpayers wealth disappear, never to be seen again in this universe. Former FDIC chairman William Seidman notes that we have not only encourage moral hazard, we have incentivized the banks to keep coming back to Uncle Sam for more cost-free taxpaper money: [i] “It’s the question of, ‘What’s the best way to get this system cleaned up and going again?’” William Seidman, a former FDIC chairman said in an interview. “In my view, you have to nationalize some of the banks to do that. The alternative is they’re losing money, they come back to say, ‘We’re too big to fail, we need money.’ They’ll do that every month.” [/i] It would be fair to state that Mr. Isaacs was dealing with a problem of first impression. We have since learned a great deal through trial and error — especially Seidman’s role as first chairman of the Resolution Trust Corporation.Seidman oversaw far greater liquidations and nationalizations than did Isaacs. And at present, the FDIC is liquidating 2 banks per week without any fuss or muss.[/quote] |
[quote=ewmayer;163907]Cheesehead, I read HRB's "repent" comment as being directed at humanity-in-general[/quote]Sorry, Ernst, but all his uses of "you" and "your" in that post before the last line are clearly directed to me, and there's no justification in any intervening words for supposing that the final one is different.
[quote]extreme umbrage[/quote]Total eclipse? The central line of totality? I once watched an annular eclipse, with a couple of dozen other Milwaukee amateur astronomers, from the maximum-duration spot on the central line. Bonus: spotting Air Force One practicing mid-air refueling above central Illinois!!! Looked sorta like an angler fish, with the KC-37(?) perched on a stick angled up from the 747. (Clinton was in Chicago that day. The pilots probably angled to get a view of the eclipse.) |
[QUOTE=cheesehead;163899]How about repenting of your own sins before chastising me about sins I don't commit?[/QUOTE]
[U]Your[/U] place in heaven is already reserved: [I]"beati pauperes spiritu"[/I]. But as soon as your proposals are made law, the rest of us know the Apocalypse is nigh, so repenting our sins will be the only thing left for us to do. |
[quote=__HRB__;163909]But as soon as your proposals are made law,[/quote]Which proposals are that, exactly? In reality, that is, not your imagination.
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[QUOTE=cheesehead;163911]Which proposals are that, exactly? In reality, that is, not your imagination.[/QUOTE]
Oh dear. It look like someone hasn't been taking his meds... [QUOTE=cheesehead;163750]Just heard two interesting ideas:... 1) Proposal for government bailouts: Instead of handing out cash, issue vouchers to banks that can be redeemed only after they are used to grant new loans. The idea is to give the banks ability to make new loans without allowing the funds to be diverted to any other purpose (e.g., bonuses, mergers). (You know -- like the school vouchers beloved by conservatives, so it should be welcomed by them.) Also, put an expiration date on the vouchers -- so the banks have to use 'em or lose 'em. ...[/QUOTE] Or have I missed something and "interesting" is the new word for: "really stupid, and not worth considering"? I bet his next post is going to be about the difference between HIS proposals, and proposals he only posted, but aren't really HIS proposals. |
[quote=__HRB__;163913]Or have I missed something and "interesting" is the new word for, "really stupid, and not worth considering"?[/quote]Do you think that "interesting" means "it was my idea"? It doesn't.
I simply thought the proposal I heard (not [I]made[/I]) might be of interest to those discussing the economic problems, and might have some merit. NEWS FLASH !!!! I THINK LOTS OF IDEAS ARE INTERESTING! THAT DOESN'T MEAN I"M THE ONE WHO FIRST THOUGHT OF THEM, THAT I NECESSARILY ENDORSE THEM, NOR EVEN THAT I CONTINUE TO FIND THEM INTERESTING AFTER FURTHER CONSIDERATION!! We return you now to our regularly-scheduled reality. Now, again, HRB, to which of MY proposals (as distinguished from someone else's proposals that I merely quote or comment on) did you refer in "But as soon as your proposals are made law ..."? If there were actually none, and you are capable of giving a straight answer to a straight question, please say so and that will answer my question. |
[quote=cheesehead;163750]2) There's a bank
< snip > collateral for its loan to a major cheese producer.[/quote]Another instance of out-of-the-ordinary collateral that's doing well lately: [URL]http://www.iht.com/articles/2009/02/24/arts/24artloans.php[/URL] "That Old Master? It's down at the pawnshop" [quote]. . . At a time when stock portfolios are plunging and many homes, even grand ones, have no equity left to borrow against, an increasing number of art owners are realizing that an Old Master or a prime photograph, when used as collateral, can bring in much-needed cash. "It's very discreet," said Ian Peck, a co-owner of Art Capital. This little-known corner of the art business is lightly regulated and highly litigious. But this has not dissuaded clients who have included rich collectors like Veronica Hearst, art galleries and prominent artists themselves, including [Annie] Leibovitz and Julian Schnabel. Art Capital's headquarters in the former Sotheby's building on Madison Avenue looks at first glance like an art gallery. Two Warhols, a pair of Rubens portraits of Roman emperors and a pink nude by the contemporary Mexican painter Victor Rodriguez hang on the cool white walls. A sculpture of a faun by Rembrandt Bugatti sits on a windowsill in a conference room where transactions are discussed. But it would be more accurate to describe the airy space as something far less genteel: a pawnshop. Art Capital issues loans of $500,000 or more at interest rates from 6 percent to 16 percent. Fail to pay and you lose your Rubens; several of the works on display in Art Capital's office on Madison became subject to sale after their owners defaulted. . . . [/quote]When I was in school in Tulsa, every couple of years we'd be bused to either Philbrook ([URL]http://www.philbrook.org/[/URL]) or Gilcrease Museum ([URL]http://www.gilcrease.org/[/URL]) for a tour. It was explained that during the Great Depression, some oil multimillionaires had plenty of cash flow to purchase works of art that were for sale at bargain prices by owners who'd been wiped out in the stock market. Gilcrease also collected historical documents, including an "original copy" (they were all handwritten, you see) of the United States' Articles of Confederation, predecessor of the U.S. constitution. There are times when Cash is King. |
Cheesehead, I made a point of not attacking you for your views. I posted clear and logical statements re my position on this banking mess. You defended both the 'vouchers' concept and your position re them numerous times in the last 20 posts and then decided that you were just posting ideas that you didn't own anyway. Let it rest. We aren't here to take you apart, we are discussing a problem that affects us all. If you don't like heat, stay out of the kitchen. Now, the rest of this post is NOT directed at you.
AIG is now asking Uncle Sam to take operating divisions of the company instead of cash repayment. This is IMNSHO a total ripoff to the taxpayer who put up the funds to buy them breathing room to unwind operations and sell things off in an orderly manner. Taxpayer money has been plowed into the major banks to the point that we infused 3 times more money than the banks market cap for some of them. This is a total farce. When a business is that far gone, it is time to close the doors, take down the name, put up a new shingle, and open a shiny new business tomorrow morning. This is what FDIC has been doing for years. CITI is not viable, it won't become viable any time soon, and it is dragging huge segments of the economy down the drain. It is time to stop the bleeding. I'm hardheaded in my position on this because I learned a valuable lesson years ago. It is far better to take your medicine and get it over with. We need solid measures taken to restore confidence in this economy. Halfbaked and halfhearted attempts such as have been used to date are not resolving the problem, they are just letting things deteriorate further. I asked earlier if anyone could give a good reason why the banks could not set up their own 'bad' bank without government intervention. There are several reasons they WON'T do this. 1. The bad assets are a combination of mortgage backed securities and business loans secured by real estate plus credit default swaps. 2. They used these securities in complex leveraging actions to allow them to borrow more money to buy more securities. 3. They can't 'dispose' of the securities because they are tied up in financial agreements that would be abrogated by transferring them to another entity. 4. The underlying property securing these dogs is realistically worth only 25% of the loan value in present day conditions. 5. Transferring the assets to another entity would involve writing down hundreds of millions of "assets" that the banks are using to prop up their balance sheets. This is defacto bankruptcy for the banks! 6. The $5 trillion I mentioned earlier was a reference to the sum total of bank liability as a result of both MBS, property secured business loans, and credit default swaps. 7. For the entire positions to be unwound, that $5 trillion has to be dealt with in an appropriate manner. Just closing the positions down will totally destabilize the entire world economy. 8. FDIC is NOT capable of liquidating even one of the major banks like CITI much less the probable need to kill 6 or 8 of them. FDIC does not have enough money or enough access to borrowed money to do the job. What the banks can do is a complicated split procedure where they split off the profitable divisions into one bank and the doggy doo into another 'bad' bank. The problem with this and you can see it coming is that we the taxpayers get shafted if they do this. This would mean each of say the top 12 banks would make its own 'bad' bank. Then there would be 12 piles of dog mess to unwind which would be an accounting nightmare given the interconnectedness via credit default swaps. It makes more sense for the government to step in, close the banks, consolidate the trash into one pile, and then sell whatever can be salvaged. DarJones |
[QUOTE=Fusion_power;163930]Transferring the assets to another entity would involve writing down hundreds of millions of "assets" that the banks are using to prop up their balance sheets. This is defacto bankruptcy for the banks![/QUOTE]
I think this is the most important argument for shutting down bad banks immediately. If a bank knows it's going to go bankrupt anyway, it is rational to take any liquidity it can get a hold of, leverage the position by 800% through the Fed, and hope to be lucky. Banks will be in collusion by making risky deals among each other, in essence transforming two bad banks with zero assets, into one with assets and one with debt, that is socialized through the FDIC. |
[QUOTE=__HRB__;163967]I think this is the most important argument for shutting down bad banks immediately. If a bank knows it's going to go bankrupt anyway, it is rational to take any liquidity it can get a hold of, leverage the position by 800% through the Fed, and hope to be lucky.
Banks will be in collusion by making risky deals among each other, in essence transforming two bad banks with zero assets, into one with assets and one with debt, that is socialized through the FDIC.[/QUOTE] People might want to read: [url]http://www.dailyfinance.com/2009/02/24/bank-of-america-heiress-what-kind-of-idiots-are-running-that-b/[/url] |
[QUOTE=R.D. Silverman;163972]People might want to read:
[url]http://www.dailyfinance.com/2009/02/24/bank-of-america-heiress-what-kind-of-idiots-are-running-that-b/[/url][/QUOTE] If we could rely on bank-execs to just 'take the money and run' we'd be laughing. At least then they wouldn't be allocting resources to projects which have a high-variance and negative-expectancy in payoff. |
[quote=Fusion_power;163930]Cheesehead, I made a point of not attacking you for your views.[/quote]
DarJones, You are, of course, correct. I owe you an apology for having written post #200 without taking care to make clear whom I was referring to with each of my uses of "you" and "your". In particular, when I wrote[quote](1) when you've used a phrase directly crediting me with the voucher plan, your criticisms of the plan have tended to morph into personal attacks on me, (2) when you restrain yourselves to factually-correct attributions, you are less likely to erroneously veer into inappropriate off-the-track comments about me personally,[/quote]my intent that in that section "you" and "your" were to apply to only those who [U]had[/U] strayed into personal attacks [I]was not communicated[/I], and so it was quite justifiable for a reader to interpret it as applying to all those whom I had quoted earlier in the post. I will try to remember not to make this error in the future. I regret having seemingly accused you, DarJones/Fusion_power, of having made a personal attack. (I'm already aware that I tend not to notice, or tend to make, mistakes similar to that one when I experience sudden strong emotions, in more contexts than just online forums. I'm working on a way to avoid such mistakes, but failed to apply it in this case.) [quote=Fusion_power;163930]I posted clear and logical statements re my position on this banking mess.[/quote]Yes. [quote]You defended both the 'vouchers' concept and your position re them numerous times in the last 20 posts[/quote]Yes, I defended the [I]general concept[/I] of vouchers. I tried to explain their proposed specific use to provide funds to banks for making loans, but that is properly characterized as clarification, not defense, of that specific proposal. [quote]and then decided that you were just posting ideas that you didn't own anyway.[/quote]No, I didn't decide something I had not previously decided. I was not disavowing something I had previously favored. I had made efforts to explain the proposed plan that I heard, including the explanation I had heard for their superiority to direct cash payments, in order to clarify what had been proposed. I responded critically to posted objections that were not (in my mind) properly directed to the actual proposed plan I had described. I never claimed to have owned the voucher proposal idea, nor did I ever think of it as mine. I have not communicated the preceding as clearly as it should have been or as clearly as I possibly could have, in my earlier posts, but a careful reading of those posts will not find contradiction of what I state here. Had there not been any off-track (to my mind) responses to the proposal, I would not have complained about uses of the phrase "your voucher proposal", or similar, because I would have been willing to consider those to be abbreviated versions of "the voucher proposal that you described to us". Indeed, I did not object to that usage when replying to the first use of "your 'vouchers'". It was only because some criticisms included comments that were apparently based on the proposal having been attributed to me personally that I later objected as I did. [quote]Let it rest.[/quote] |
[QUOTE=cheesehead;163908]Sorry, Ernst, but all his uses of "you" and "your" in that post before the last line are clearly directed to me, and there's no justification in any intervening words for supposing that the final one is different.[/QUOTE]Without taking a position one way or the other in this particular case, I observe that the impersonal pronoun is "one" in some dialects of English; "you" in others and "they" in yet others. For example: 'To perform some action you first do this' or 'To perform some action one first does this' or 'To perform some action, they first do this'.
It is apparently so much less ambiguous in French or German. Note the sly incorporation of a fourth impersonal pronoun in the previous sentence. Paul |
North American Megazombiebancorp Wants You!
[QUOTE=Fusion_power;163930]8. FDIC is NOT capable of liquidating even one of the major banks like CITI much less the probable need to kill 6 or 8 of them. FDIC does not have enough money or enough access to borrowed money to do the job.[/QUOTE]
Given how many trillions the Fed and Treasury have already thrown at the insolvent Zombie Megabanks (either by way of capital injections or backstopping of their toxic assets), it would not be a radical step for the government to vastly expand FDIC's capital base in preparation for unwind of a megabank. Similar amount of taxpayer money involved, but this time with a clear endpoint in sight, rather than this neverending "We thought X billion dollars was enough, but just realized we need more ... remember, we're Too Big To Fail" black money hole. Sure, there might be significant wider "financial repercussions" from making official what is already a poorly-veiled fact, namely that most of the U.S. financial system is insolvent. I say get it over with, stop wasting huge sums of money delaying the inevitable. Folks like Bernanke and Geithner should look at the positive aspect of this: they could finally stop lying every time they open their mouths. As a wise man said, "Too big to fail, means too big to exist". Barry Ritholz has an article on this topic today, titled [url=http://www.ritholtz.com/blog/2009/02/nationalization-the-new-n-word/]The New N Word: Nationalization[/url]. Recommended reading. ------------------------------- [url=http://money.cnn.com/2009/02/25/smallbusiness/smallbiz_loan_defaults_soar.smb/index.htm]Small Biz Loan Defaults Surge[/url]: [i]Bank lending to small businesses has dried up in recent months. One reason credit has grown scarce: They're risky loans. A new analysis of Small Business Administration-backed loans found that the failure rate has hit the double digits, with 11.9% of the SBA's loans last year going into default.[/i] [quote]Last year's failure rate is a sharp increase over past years. In 2004, the SBA loan failure rate was 2.4%, but it has increased each year since, rising to 8.4% in 2007, according to Coleman's calculations. The 2008 failure rate of nearly 12% covers the fiscal year that ended on Sept. 30. In that year, the SBA's 7(a) and 504 programs approved 78,324 loans, totaling $18.2 billion.[/quote] [i]My Comment:[/i] Interesting that the trend already started in 2004...perhaps an early harbinger of the fallout of Greenspan`s post-dotcom-bust EZ-Credit policies? [url=http://money.cnn.com/2009/02/24/news/economy/state_job_furloughs/index.htm]Georgia furloughs 25,000 workers[/url]: [i]Since September, state agencies have required employees to take days off without pay in a bid to close budget gap.[/i] [i]My Comment:[/i] They should just do like California (except for the two-thirds-majority-required-to-pass-a-budget part, that is) and "borrow against future state lottery proceeds" [On top of jacking up already-sky-high state taxes]. I`m contemplating paying my tax bill this year by giving the IRS a voucher "borrowing against future killer stock market trades" - think they`ll accept that in lieu of cash? [quote]The furloughs, which require workers to take days off without pay, apply to 27% of Georgia's total workforce of nearly 90,000. News of the furloughs was first reported by the Atlanta Journal-Constitution. Chris Schrimph, a spokesman for Georgia governor Sonny Perdue, said the furloughs have been in place since September and will result in "significant" savings for the cash-strapped state. The duration of the furloughs varied from agency to agency, but most were limited to one day off per month, Schrimph said.[/quote] [i]My Comment:[/i] Here in CA, state workers average a whopping 10 days more holidays-off than private-sector workers, but of course they are screaming about the furloughs - giving up an undeserved perquisite is always painful, innit? [Aside: Can`t resist a sophomoric pun on the Georgia spokesman`s name ... "Georgia finds itself Schrimphing and Schaving in order to make ends meet".] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aNCX9LbaJdTw&refer=news]Bernanke Tells Congress U.S. Doesn't Plan `Anything Like' Nationalization[/url]: [i]Federal Reserve Chairman Ben S. Bernanke said the U.S. government doesn’t plan “anything like” a nationalization of banks that would wipe out stockholders.[/i] [i]My Comment:[/i] I`m sure they didn`t "plan anything like that" with Fannie, Freddie or AIG, either. [url=http://www.bloomberg.com/apps/news?pid=20601089&sid=ak8IzizBdVPY&refer=china]China Stimulus Spending May Double, Spurring Investment Boom, Nomura Says[/url]: [i]China’s fiscal stimulus plan may be doubled over the next three years, creating an investment boom similar to the one triggered by Deng Xiaoping in the early 1990s, said Sun Mingchun, an economist with Nomura International.[/i] [i]My Comment:[/i] Alas, we`re not in the early 1990s anymore, ya dipshit market pimp. Your prospective [strike]scam victims[/strike] clients might want to look at the actual *news* from other large (and not completely government-controlled) Asian economies like, oh, say Japan, which just announced that its exports [url=http://www.nytimes.com/2009/02/25/business/worldbusiness/25yen.html?_r=1&partner=rss&emc=rss]plunged by nearly half in January[/url] compared to one year ago. Things are little better [url=http://globaleconomicanalysis.blogspot.com/2009/02/german-japanese-exports-plunge.html]in Europe[/url]. Stimulate that. |
[QUOTE=xilman;163983]Without taking a position one way or the other in this particular case, I observe that the impersonal pronoun is "one" in some dialects of English; "you" in others and "they" in yet others. For example: 'To perform some action you first do this' or 'To perform some action one first does this' or 'To perform some action, they first do this'.
It is apparently so much less ambiguous in French or German. Note the sly incorporation of a fourth impersonal pronoun in the previous sentence.[/QUOTE] To avoid ambiguity, leaving out pronouns altogether is also possible. Not being allowed to swear when standing on a soap box is bad enough, but does this necessitate the rephrasing of a known expression as [QUOTE]"The End is near. Only repenting sins is left to do and therefore the suggested course of action." [/QUOTE] to avoid every cheesehead from taking things personally? Note the sly omission of personal pronouns in this post. Also note the sly use of "cheesehead" as a generalization. |
[QUOTE=__HRB__;163990]to avoid every cheesehead from taking things personally?
Note the sly omission of personal pronouns in this post. Also note the sly use of "cheesehead" as a generalization.[/QUOTE] Do you mean "cheesehead" as a generalization WRT people from Wisconsin or people in general? I'm from Wisconsin and I take your statement personally by lumping me to the other cheeseheads who take things personally. :rolleyes: I was talking to my financial advisor yesterday (BTW, his employer did not need or take bailout money) and his perspective is that if there is a run on a big bank that it might trigger a similar run on many other banks which could be disastrous. None of these banks have enough collateral to handle a run on them. Maybe the FDIC should lower its government backing to $10,000 and then let Citi and BoA fail... Now if only I were smart enough to store my life savings in my mattress. It would be safer there than in the banks and its guaranteed rate of return would probably be better too. |
[QUOTE=rogue;163998]None of these banks have enough collateral to handle a run on them. Maybe the FDIC should lower its government backing to $10,000 and then let Citi and BoA fail...[/QUOTE]
Then we might as well go the whole hog, lower the backing to 1.00$, announce that Citi and BoA have failed and then put it up again and hope that nobody notices. Having a FDIC is like doubling the stakes playing roulette when you lose. Many small wins, followed by a huge bankrupting loss. So, maybe this is the big one, that gets rid of the FDIC (ok, that was wishful thinking). Instead of having a FDIC at all, it should be left to the banks to show us how safe our money will be with them. The next time you see a booming local business, ask them which local bank is financing them. The same thing for a project that doesn't seem to go anywhere and is 'under construction' all the time. Or find someone that does that sort of thing and ask him where he has his money. It's even in his interest to tell you the truth. Regulation can never be as smart as five people paying attention to the real world. [QUOTE=rogue;163998]Now if only I were smart enough to store my life savings in my mattress. It would be safer there than in the banks and its guaranteed rate of return would probably be better too.[/QUOTE] An even better thing to do, would be to start a company that makes matresses with built-in safes, or a company that maked safes with matresses around them. Any cash in your matress might only be cotton with ink on it. |
As California continues to look for solutions to its financial troubles, an old proposal with new relevance:
[url]http://www.latimes.com/news/local/la-me-pottax24-2009feb24,0,7534269.story[/url] "Taxing pot could become a political toking point" [quote]Reporting from Sacramento -- Could [I]Cannabis sativa [/I]be a salvation for California's fiscal misfortunes? Can the state get a better budget grip by taxing what some folks toke?[/quote] |
Vikram Pandit sings! | iTulip.com: End of the Road
Markets trying desperately to rally today on delusional [url=http://globaleconomicanalysis.blogspot.com/2009/02/bernankes-boiled-frog-plan-to.html]Uncle Ben will save all the bad banks[/url] hope, in the face of [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aln3GQz8vKTk&refer=news]horrific losses by GM[/url] and ever-worsening data on [url=http://money.cnn.com/2009/02/26/real_estate/new_home_sales/index.htm?postversion=2009022611]new-home sales[/url], [url=http://money.cnn.com/2009/02/26/news/economy/jobless_claims/index.htm?postversion=2009022609]jobless claims[/url] and [url=http://www.ritholtz.com/blog/2009/02/durable-goods-data/]durable goods sales[/url]. Still not quite enough of a bear market rally to "short the snot of" as I expressed hope for a couple days ago, but if one was nimble in the past 24 hours there were several good opportunities to at least "short the sniffles" out of, if your inclinations are of the ursine variety.
[b]Bad-Bank Singalong:[/b] [url=http://thereformedbroker.com/2009/02/26/vikram-pandit-i-will-survive/]Citigroup cover of Gloria Gaynor's "I Will Survive"[/url]: [quote]At first I was afraid I was petrified Kept thinking they would never let Our credit ratings slide but then they cancelled all the flights On the Citi corporate jets And I regret And I learned how to write off debt...[/quote] [i]My Comment:[/i] I am working on an original market-related singalong of my own - watch for it at your local iTunes music store. [url=http://www.theonion.com/content/node/93430]The Onion | Business: Nation Instinctively Forms Breadline[/url] [quote]"What's happening to us?" California resident Rebecca Baker said after glimpsing a group of investment bankers leaning against a broken-down jalopy, their suit pants rolled up to the calf and their feet muddied and bare. "Why…why is that man carrying a bindle?"[/quote] [i]My Comment:[/i] Ah, the good old Onion, ever a bastion of sanity in a world gone berserk. If only their article were truly far from the grim reality: [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=as3PyDwmDEQY&refer=news]California's Newly Poor Overwhelm Agencies With Need for Food, Housing Aid[/url]: [i]In California’s Contra Costa County, 40,000 families are applying for just 350 affordable-housing vouchers. Church-operated pantries are running out of food. Crisis calls have more than doubled in the city of Antioch, where the Family Stress Center occupies the site of a former bank. [/i] [b]Is There Really A Silver Lining to the Crisis?[/b]: iTulip.com asks whether the sharp upward spike in household savings artes as consumers slash spending is really a good thing for the long term. By way oif background, iTulip (named after the famous Dutch [url=http://en.wikipedia.org/wiki/Tulip_mania]tulip-bulb mania[/url] of the 1630s) is a site devoted to the so-called [url=http://www.fireeconomy.com/]FIRE economy[/url] (Finance, Insurance, Real Estate), which in the U.S. now as prior to the Great Depression has mushroomed out of all proportion to the "real" economy, that is the Productive economy that actually makes stuff. I happened across the following recent article while searching for some references related to historic data on household savings rates, and the article makes the interesting point that the recent increase in U.S. household savings rate may in fact *not* be a "silver lining" of the current financial crisis, but rather a harbinger of some really nasty crap coming down the pike. Not for the faint of fiscal heart: [url=http://itulip.com/forums/showthread.php?p=78579#post78579]iTulip.com | Road to Ruin: Final stretch[/url] [quote]Incomes fall during economic contractions generally as debt repayment rises, creating a statistical increase in saving because debt repayment is reported as saving. But in a post-bubble world it is not the kind of saving that winds up in bank accounts to be spent later in consumption. What we are seeing today that looks like saving for future consumption is in fact the debt left over from the FIRE Economy sucking the life out of the US economy. Similar policies, combined with the demographics of an aging population, led to a continuous decline in personal savings in Japan since 1992, two years after the end of the assets bubbles ended that started in 1985. Not coincidentally, the savings rate in Japan peaked at the same time. Why? During a period of asset price inflation, households stop saving and take on debt. After the asset price inflation ends the savings rate then increases for a year or so as debt is repaid. Asset price inflations and deflations exert a perverse effect and saving. First the pool of savings to be spent on future consumption shrinks during the period of asset inflation because households are fooled into believing that asset price inflation is wealth creation, that inflating stock and home prices are doing the saving for them. Income is spent on current consumption. [u]After the bubble pops and the fake wealth is wiped out, briefly the savings rate rises as post bubble recession has not yet expressed itself as rising unemployment and incomes have not yet begun to decline. About a year later then the pool of savings starts to shrink again as unemployment rises, incomes decline, and a greater proportion of income is goes to paying off debts taken on during the boom.[/u] Savings declines. [b] Collision Course [/b] The duplication by the current administration of Japan's misguided policy to use public and private funds to pay down debt taken on during a credit bubble era is self limiting in the US case in a way it was not for Japan; as long as the debt repayment versus restructuring is pursed, and the banking system is left in its current state of disrepair, the US economy will continue to rapidly decline. (See: [url=http://rs6.net/tn.jsp?t=aqlbiycab.0.0.m9jgptbab.0&ts=S0370&p=http%3A%2F%2Fwww.norges-bank.no%2Ftemplates%2Farticle____13822.aspx]How a government that is politically independent from its financial sector swiftly ends a banking crisis[/url].) By our estimates, due to the combined impact of the crushing weight of debt burdens created by the FIRE Economy and maintained by the current Debt Deflation Continuation Plan and absent an immediate and effective, politically independent response to the banking crisis, leading to an intensification of the credit crisis as S&P predicts, real GDP will fall 4% in 2009 and 4% again in 2010. This despite the fiscal stimulus, estimated by Adam Posen of the Peterson Institute for International Economics at $1.5 trillion when TARP and other programs are taken into account. If federal government spending continues to increase outlays at the current rate of more than 10% of 2007 GDP per year, and federal government receipts continue decline at a 7.5% annual rate in 2009 and 2010 as in 2008, the fiscal deficit as a percent of real GDP will certainly exceed 10% in 2010, and the current account deficit on a balance of payments basis rise above 10% percent, even as imports fall as previously prodigious capital exporters in the Middle East and Asia suffer current account deficits of their own. If and when its fiscal deficit reaches third world levels, will the US -- with its massive current account deficit financed by the public sector and daily dependence on capital inflows to maintain a balance of payments - finally suffer a balance of payments crisis, rapid currency depreciation, rapidly rising cost-push inflation, and rising interest rates? What we at iTulip.com refer to as a "Poom" portion of a Ka-Poom Theory? It could happen this year. In fact, it may be happening now. When the Russian government found itself unable to pay the interest on its foreign debt in August 1998, nor able to borrow more money in the international financial markets, nor increase taxes on its imploding economy, nor locate private capital inside Russia willing to lend it money, it suffered a balance of payments crisis. The result was capital flight, a ruble crash, and a spike of cost-push inflation. In theory, this can't happen to the US, or so we are told. If the US experiences a balance of payments crisis capital has no place to flee to from the US. The US enjoys the world's least badly managed government. The US issues the world's reserve currency. The US is the model of political stability. The dollar has persisted for over a century without having ever been recalled, unlike any other currency in existence today. But these arguments ignore two facts. First, historically it is the very absence of previous experience with either a severe inflation or deflation that lulls policy makers into over-stepping the bounds of market tolerances. Japan, its currency and its people's savings once wiped out by hyperinflation pursues inflation phobic policies that leave the nation vulnerable to deflation while the US, once gripped by a deflation spiral in the 1930s, pursues reckless anti-deflation policies that expose the country to a horrific hyperinflationary outcome (See [url=http://rs6.net/tn.jsp?t=aqlbiycab.0.0.m9jgptbab.0&ts=S0370&p=http%3A%2F%2Fwww.itulip.com%2Fforums%2Fshowthread.php%3Fp%3D77759%23post77759]Hyperinflation case revisited - Part One: On the road to hyperinflation. Will we complete the trip?[/url]). Second, the dollar is not the only option for capital flight from economies doing even more poorly than the US as the collapsing FIRE Economy spreads economic hardship around the world. Money has been fleeing into hard assets the in the manner of capital flight by insiders from a third world country before a balance of payments induced currency crash (See [url=http://rs6.net/tn.jsp?t=aqlbiycab.0.0.m9jgptbab.0&ts=S0370&p=http%3A%2F%2Fwww.itulip.com%2Fforums%2Fshowthread.php%3Fp%3D49722%23post49722]US exchange rate and capital controls or bust?[/url]). Most observers do not see the recent rise in the price of gold (and silver as well) in this context because gold has been a cult for so long that even the gold cultists don't understand what has changed. They see the current price rise as a part of a bull market that started in 2001, but we side with Soros on this, and Volcker: we are witnessing a global systemic breakup, the end of the road we got onto in 1971. We passed the last exit in 2001, the last chance to adopt a strategy to shift to a production and savings based economy through a series of steps negotiated with trade partners. Instead we increased the debt further through a property bubble financed with fraudulent structure credit products. The road ends when the US cannot finance its debts. The end of the road is near.[/quote] |
FDIC Problem Bank List Membership Skyrockets
[url=http://money.cnn.com/2009/02/26/news/companies/fdic_banks/index.htm]Problem bank list tops 250[/url]: [i]FDIC reports that number of troubled institutions soared during the fourth quarter to the highest level since 1994.[/i]
[quote]NEW YORK (CNNMoney.com) -- The government's closely watched listed of troubled banks grew during the fourth quarter to its highest level since 1994, regulators said Thursday. The Federal Deposit Insurance Corp. reported that the number of firms on its so-called "problem bank" list grew to 252 during the last three months of 2008, compared with 171 banks making the list in the prior quarter. "There is no question that this is one of the most difficult periods we have encountered during the FDIC`s 75 years of operation," agency Chairman Sheila Bair said Thursday. [/quote] [i]My Comment:[/i] Let`s flash back to [url=http://www.mersenneforum.org/showthread.php?p=138253&highlight=sheila+bair#post138253]last summer[/url]: [QUOTE=ewmayer;138253][url=http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2008/07/23/BUHA11TFGJ.DTL]FDIC: Don`t worry about bank failures[/url] [quote]The housing bust will put more banks out of business, but all but a handful of institutions will weather the crisis, one of the nation`s top financial regulators said Tuesday. "There will be more bank failures, but nothing compared with previous cycles, such as the savings-and-loans days," Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., said in an interview. So far this year, five banks have failed and been taken over by the FDIC, a number that Bair said "should not be alarming." "Banks went into this with very strong capital and are overwhelmingly safe and sound," said Bair, who was in San Francisco for an event marking the FDIC`s 75th anniversary.[/quote] Sorry Sheila, but that is a flat-out lie. If that were true, you and Hank Paulson wouldn`t be flooding the financial airwaves with soothing "Banks are sound! Really!! Especially the ones that haven`t gone belly-up yet!!!" propaganda on a near-daily basis.[/quote] |
[quote=ewmayer, in footnote;164012][I]Last fiddled with by ewmayer on 26 Feb 09 at 12:46 AM Reason: CF. post #197, as well - a.k.a. the "Michael Phelps Memorial Revenue Enhancement Act"[/I][/quote]Oh ... when I [strike]read[/strike] hastily skimmed #197 I mistook "[B]Attention Seniors![/B]" for a comment on the preceding link "[URL="http://www.sacbee.com/topstories/story/1646399.html"]California: Bill would legalize, tax marijuana[/URL]" and somehow decided that you were signaling that it was about medical use only.
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[quote=ewmayer;164098][URL="http://itulip.com/forums/showthread.php?p=78579#post78579"]iTulip.com | Road to Ruin: Final stretch[/URL][quote](See: [URL="http://rs6.net/tn.jsp?t=aqlbiycab.0.0.m9jgptbab.0&ts=S0370&p=http%3A%2F%2Fwww.norges-bank.no%2Ftemplates%2Farticle____13822.aspx"]How a government that is politically independent from its financial sector swiftly ends a banking crisis[/URL].)[/quote][/quote]Stuff like that tempts me to blithely blurt my standard criticism about not having learned the lessons of history ... but this differs from Iraq vs. Vietnam in that these past financial lessons were, I think, not as prominently available to the non-financially-involved general public as the prolonged discussions of that SE Asia war. (Or maybe it's just that I haven't been reading enough WSJ or Barron's.) So I can't claim any obviousness to me.
How fair would it be to expect professional financial regulators to have been familiar with the Norwegian case, as at [URL="http://www.norges-bank.no/templates/article____13822.aspx?"]http://www.norges-bank.no/templates/article____13822.aspx[/URL] ?[URL="http://www.norges-bank.no/templates/article____13822.aspx?"] [/URL] |
Is it possible that bankers bastardized the CRA and took advantage of taxpayers and unworthy borrowers alike for unrealized profit?
IMO, The IRS tax codes are a good example of complicating regulation to infinity. The bankers simply beat the system along with Freddie and Fannie. Where did the Mortgage-backed security originate? |
/begin rant/ AES, There is no excuse for ignorance in this thread. Read the previous discussions and answer your own question. /end rant/.
Today Citi gets a $25 billion conversion of taxpayer dollars into a 36% stake in the company. Lets do some math on that. We already own an 8% stake so whatever they are paying, it is for 36-8 = 28%. This is NOT existing stock either, it is newly issued shares which is therefore highly dilutive to existing shareholders. The float is 5.4 billion shares so a raw estimate is that citi has to issue 16 billion new shares to convert the govt stake plus the required conversion of other preferred shares. Now lets see. 8 billion shares at a nominal $25 Billion means we are paying $3.25 per share. I know this is funny math, but do you get the impression we are being shafted? Look at this statement in the press release. [QUOTE]"Treasury will receive the most favorable terms and price offered to any other preferred shareholder through this exchange," the department said in a statement.[/QUOTE] So given the price per share we are paying, how do they come off saying it is the 'most favorable terms'? How about if I add this to the mix also from the release. [QUOTE]Citi will offer to exchange up to $27.5 billion of its existing preferred stock held by private investors at a conversion price of $3.25 per share. That's a 32 percent premium over Thursday's closing price of $2.46.[/QUOTE] Does anyone else spot that $3.25 conversion price? How about the extreme effect this will have on existing shares? Closing was $2.46 yesterday so I predict a closing price of $1.75 or less today. That is almost cheap enough to tempt me to buy a boatload - NOT! I'm not even going to talk about the dilutive effect $27.5 billion converted to common stock at $3.25 will have. You calculate the actual number of shares required. DarJones |
[quote=AES;164142]Is it possible that bankers bastardized the CRA and took advantage of taxpayers and unworthy borrowers alike for unrealized profit?[/quote]Not sure exactly what you mean by "bastardized" and "took advantage of", but the answer is NO for any interpretations that occur to me.
Go back to the previous thread and start reading at post #716. [URL]http://www.mersenneforum.org/showthread.php?t=9526&page=8[/URL] (I'm a softie.) Here's a shortened version: Consumers Union says, "CRA is not the cause for the foreclosure crisis" [URL="http://www.consumersunion.org/pub/homepagerighttop/006247.html"]http://www.consumersunion.org/pub/ho...op/006247.html[/URL] [quote][B]Statement from National Civil Rights, Consumer, Community Development and Housing Groups Regarding Attacks on the Community Reinvestment Act (CRA)[/B] Washington, DC – The following group of civil rights, consumer, community development, and housing groups today made the following statement: Recent conversations pointing to the Community Reinvestment Act as the cause of the foreclosure crisis and credit market crisis are an attempt to deflect attention away from the real problem affecting our financial system. That problem is failed regulatory policy and oversight. For more than a decade, community leaders, civil rights proponents and housing groups have raised concerns about unfair, deceptive and abusive lending practices that have undermined homeownership aspirations for millions of working families. Those pleas for better regulatory policy and oversight not only went ignored, in some cases they were contradicted by regulatory policy that made predatory lending more virulent and prevalent in low-income neighborhoods and communities of color. . . .[/quote]and it ends (with my underlined italics for the first sentence -- cheesehead):[quote]... [I][U]If the Community Reinvestment Act – and other appropriate regulation -- had been applied to independent mortgage companies and other non-bank financial institutions, it is likely that our nation would not be confronted with a foreclosure crisis.[/U][/I] Critics of the law conveniently ignore that about 75 percent of sub-prime loans were not covered by CRA. They also ignore the fact that most reckless and damaging subprime lending occurred between 2003 and 2007, long after CRA’s passage in 1977. CRA exams provide clear and strong incentives for banks to make safe and sound loans and penalize them for making loans that are unfair and abusive. CRA is an antidote, not a cause of the current crisis. Signed by: Accion USA / Chicago / New Jersey / New York Center for American Progress Center for Responsible Lending CDFI Coalition Consumer Action Consumer Union Consumer Federation of America Dēmos: A Network for Ideas & Action Enterprise Community Partners Housing Assistance Council Lawyers' Committee for Civil Rights Under Law Leadership Conference on Civil Rights Local Initiatives Support Corporation NAACP National Association of Consumer Advocates National Alliance of Community Economic Development Associations National Community Reinvestment Coalition (NCRC) National Consumer Law Center (on behalf of its low income clients) National Council of La Raza National Council of Negro Women National Housing Conference National Housing Institute National League of Cities National Low Income Housing Coalition National NeighborWorks Association National Policy and Advocacy Council on Homelessness (NPACH) National Rural Housing Coalition National Urban League Opportunity Finance Network Rainbow PUSH Coalition US Conference of Mayors [B]Contact[/B]: Pamela Banks 202-462-6262[/quote]In response to a common misconception that CRA makes banks lend to uncreditworthy people, I pointed out: [quote=cheesehead]No, the CRA encourages banks not to "redline" by ruling out loans to entire neighborhoods. It provides for periodic examinations of banks to determine whether they comply. It does _not_ require that any bank make a loan to a noncreditworthy person. What it _does_ is encourage banks to stop using a creditworthy person's location or neighborhood as reason to deny a loan. From [URL]http://www.federalreserve.gov/DCCA/CRA/default.htm[/URL]: [quote]Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution's CRA activities should be undertaken in a safe and sound manner.[/quote][/quote] |
[QUOTE=Fusion_power;164177]Today Citi gets a $25 billion conversion of taxpayer dollars into a 36% stake in the company. Lets do some math on that. We already own an 8% stake so whatever they are paying, it is for 36-8 = 28%. This is NOT existing stock either, it is newly issued shares which is therefore highly dilutive to existing shareholders. The float is 5.4 billion shares so a raw estimate is that citi has to issue 16 billion new shares to convert the govt stake plus the required conversion of other preferred shares. Now lets see. 8 billion shares at a nominal $25 Billion means we are paying $3.25 per share. I know this is funny math, but do you get the impression we are being shafted?[/QUOTE]
See my link to Barry Ritholz` article about the government`s increased stake in Citi below, just underneath the GDP report link. --------------------------- [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=arvmEfnEL1OI&refer=news]U.S. Economy Shrank 6.2% in Fourth Quarter, Worst Performance Since 1982[/url]: [i]The U.S. economy shrank in the fourth quarter at a faster pace than previously estimated as consumer spending plunged, companies cut inventories and exports sank.[/i] [quote]Gross domestic product contracted at a 6.2 percent annual pace from October through December, [u]more than economists anticipated[/u] and the most since 1982, according to revised figures from the Commerce Department today in Washington. Consumer spending, which comprises about 70 percent of the economy, declined at the fastest pace in almost three decades. [/quote] [i]My Comment:[/i] ...None of which should come as any big surprise - except to the "experts", apparently. [url=http://www.ritholtz.com/blog/2009/02/worlds-worst-investment-to-get-worse/]Citigroup: World’s Worst Investment to Get Even Worse[/url] [quote][i]Losers double down. [/i] That’s the classic trading rule which the USA is about to violate in an enormous way. According to trading maven Dennis Gartman, one should [b]“never, ever, ever, under any circumstance, add to a losing position.”[/b] And yet that is what we are about to do. To review: Former Treasury Secretary Hank Paulson made a terrible investment on behalf of the taxpayers by purchasing a 7.8% stake in Citigroup (C) for an initial $25 billion dollars. He further put the US on the hook by guaranteeing against 90% of future losses on $301 billion in assets. Subsequently, we (the taxpayers) injected another $20 billion dollars. At the time, Citigroup had a market cap of about ~$50 billion dollars. Today, its worth ~$13 billion. So for about 100% of the market value of Citi, plus insurance guarantees worth of as much as 500% of its value (~$275 billion), we got less than 1/10 of a company that in total was worth 1/5 of our investment. Pretty good deal, eh? That $45 billion dollar stake now has a market value of just over a billion. And, its about to get even worse. Rather than do what is the FDIC-mandated-by-law thing, we will instead convert the nearly worthless common into preferred shares. The taxpayers stake will rise to near 40% of Citigroup. NYT: [i] “Under the terms of the deal, the Treasury Department has agreed to convert up to $25 billion of its preferred stock investment in Citigroup into common stock. It will convert its stake to the extent that Citigroup can persuade private investors, including several big foreign government investment funds, to do so alongside the government, two people close to the deal said.” [/i] What does this do for us? Well, the higher investment stake creates an enormous incentive for John Q. Public to continue to pour money into Citi, regardless of valuation. The inept banking giant then has access to infinite amount of capital, courtesy of you, the 1040 filers. Its just another example of why these insolvent banks should be nationalized, or for you squeemish free marketers, [b]FDIC mandated, pre-packaged Chapter 11, government funded reorganization.[/b] If Obama continues to listen to the god-awful advice of Larry Summers and Tim Geithner, he will doom his presidency, and finsh marginally ahead of George W. Bush on the list of worst presidents. This is not change we an believe in ...[/quote] [i]My Comment:[/i] I would amend the advice about never adding to a losing position with "...unless you have really, really, really good reason to believe the long-term prospects of the company or sector are far better than current valuations reflect, and you can average down safely, i.e. without going `all in'." In the case of the U.S. government`s stake in Shittygroup, neither is true. Citi is so far beyond insolvent it`s not even funny ... absolutely no good reason (except the Geithner-protecting-his-bankster-buddies-backs argument of "mustn`t spook the financial markets") to throw more money at this financial black hole. Fellow top-rated independent econo-blogger Mike Shedlock was a big supported of Obama during the recent presidential campaign (mainly once the field got whittled down to Obama v McCain - MS` original choice was Ron Paul), but like Barry Ritholz, is [url=http://globaleconomicanalysis.blogspot.com/2009/02/dear-mr-president-with-all-due-respect.html]none too pleased[/url] with the fiscal "initiatives" coming from the Obama administration so far. One of the none-too-pleased shareholders on the Yahoo finance message board for Citi, observing that Citi shares (which had already dipped below $2 intraday in the past week) are approaching $1 in the wake of the government`s increased stake, observed wryly that " Obama was Correct - CHANGE is coming, 99 cents." (To which I would reply that without the government propping up [strike]ZombiemegabancorpUSA[/strike] Citi, he`d be lucky to get even one cent, because Citi would have filed for bankruptcy and been pink-sheeted long ago). |
Don`t Shoot Me, I'm Just the Golden Parachutist
Random end-of-week thoughts...
Nice graphical explanation of "how Wall Street works" - appearing soon next to the definition of "kleptocracy" in an encyclopedia near you: [url=http://www.ritholtz.com/blog/2009/02/golden-parachute/]Golden Parachute[/url] Ugly (but sadly predictable) day for holders of [strike]Shiti[/strike] Citi shares today ... but anybody holding longer than a few months is already out enough money that few % more probably don`t count for much, and anyone who piled in during the same period is day-trading gambling fool undeserving of any pity. One of Barry Ritholz` readers had this amusing comment to offer - talk about your proverbial fall from grace: [i]"at $8.5 billion, Citi’s market cap is now smaller than 5 of Canada’s top banks."[/i] At the end of January, Wells Fargo had a big rally which pushed its share price above $20. At the time I commented - to abuse multiple 3-letter-acronyms, or TLAs - something to the effect of "WTF is this POS that is WFC doing above $20", in light of of the massive wad of toxic mortgage-based "assets" on WFC`s books, much of it from last year`s acquisition of distressed bank/mortgage-lender Wachovia. So I promised to revisit WFC`s share price at end of February ... closed today at $12.10. I fully expect it to be in single digits within the next few months, and to be a prime candidate for Citigroup-style "don`t call it 'nationalization'" quasi-nationalization by year`s end. |
On a side note, it helps to understand some of the signs and signals over the last 10 years. Bad odors were prevalent at some institutions like IndyMac.
[url]http://www.latimes.com/business/la-fi-indymacweb27-2009feb27,0,4269053.story[/url] [QUOTE] Federal regulators ignored repeated warning signs about Pasadena's IndyMac Bancorp., and their failure to prevent the mortgage lender's collapse last year cost the Federal Deposit Insurance Corp. $10.7 billion -- nearly $2 billion more than previous estimates, according to a new report. The Treasury Department's inspector general blasts banking regulators for missing key signals that IndyMac was growing too quickly on the basis of loans that were poorly underwritten. The inspector general says that the Office of Thrift Supervision should have taken enforcement action against IndyMac more than two years before the bank was finally seized by the FDIC on July 11, 2008. At $32 billion in assets, it was the third largest bank failure in U.S. history and the largest failure ever to be investigated by the inspector general. "OTS waited until June 2008 to issue its first informal enforcement action against IndyMac," said Marla Freedman, the assistant inspector general for audit. "That was much too late. They had a very risky business model, and the OTS should have been making recommendations much earlier about how IndyMac could manage its risk." John M. Reich, director of OTS, said in a letter to the inspector general that he agreed with the agency's filings. [/QUOTE] The long and short of it is that every single one of the banks that is now in trouble got there either by making alt-a mortgages themselves, or by buying the garbage others wrote, or else by acquiring a business that did. IndyMac made their own, Wachovia bought theirs for examples. I'm just thinking through the possible long term effects of this depression. We have not yet seen the crest of personal credit defaults. The credit card crisis is upon us but it is just now starting to have serious effects. Before you pull out your credit card these days, you might ask yourself if you are willing to pay ~25% interest. That is what a lot of cards are being upped to by major providers. Another shoe that has yet to fall is the return to the trough of the porkers who need more money. We are getting hints about what they want but there is no solid information available yet. The long and short of it is that it will take about $2 Trillion more than has been allocated so far. I'm just wondering when the next big bailout package will go to congress for approval? Please keep in mind that actual bailout dollars is only a fraction of the dollars at risk. Citi represents $300 billion in 'guarantees' that taxpayers are on the hook for. We didn't actually spend that money, but if Citi defaults, then we have to pay. I've tried to estimate this effect as a combination of Treasury and Fed liabilities considering the bailout dollars allocated so far and it looks like they have a combined liability of about $4 trilion at this point. In other words, Congress allocated $1.5 trillion and through the magic of extended guarantees and other means, the total package is about 3 or 4 times that much. One thing that hasn't hit yet is the Search for the Guilty. This is where we have a hue and cry to tar and feather the dirty dastards that did this to us. Do we start with the bankers who went out on a limb? or the politicians who put us out on that limb? The bad part is that we still have the dirty dozen zombie banks. DarJones |
[QUOTE=ewmayer;164190]
[QUOTE] That’s the classic trading rule which the USA is about to violate in an enormous way. According to trading maven Dennis Gartman, one should “never, ever, ever, under any circumstance, add to a losing position.” [/QUOTE] [i]My Comment:[/i] I would amend the advice about never adding to a losing position with "...unless you have really, really, really good reason to believe the long-term prospects of the company or sector are far better than current valuations reflect, and you can average down safely, i.e. without going `all in'." [/QUOTE] You can also add to a losing position if it's a valuable commodity that's undervalued. Oil and gold can't go to zero, right? |
[QUOTE=Fusion_power;164177]/begin rant/ AES, There is no excuse for ignorance in this thread. Read the previous discussions and answer your own question. /end rant/.[/QUOTE]
Please pardon my ignorance and questions. I was not blaming the current financial situation on the CRA or anything else for that matter. I admit that I have poor linguistics. The intended subject was "bankers" in the subject-verb-object sentence. To clarify, when I “bastardize” a process or procedure, it usually means that I apply a process or procedure to something that the said process or procedure was not designed for. It’s usually given another name once it’s sufficiently “bastardized”. |
[QUOTE=MooooMoo;164219]You can also add to a losing position if it's a valuable commodity that's undervalued. Oil and gold can't go to zero, right?[/QUOTE]
Problem #1: You can stll lose 50%. And another 50%. And another 50%. And another...all the while missing massive potential by not going short. Problem #2: Are you storing the gold in your safe at home. No? Oops, the bank only gives you an IOU for your gold and there is NO deposit insurance for gold. [QUOTE=ewmayer;164190][i]My Comment:[/i] I would amend the advice about never adding to a losing position with "...unless you have really, really, really good reason to believe the long-term prospects of the company or sector are far better than current valuations reflect, and you can average down safely, i.e. without going `all in'."[/QUOTE] No, not even then. Reason #1: If you're expecting the price to go down, why not buy later? Reason #2: If you're expecting the price not to go down, but it goes down, your analysis was wrong. Maybe you went wrong somewhere else. Reason #3: It can take a very long time for you to break even. You miss out on better possibilities, if you're not willing to take the first loss. There is one - and ONLY one - possible exception to the rule: You're so big that you're moving markets and you are practically forced to scale in, because prices will otherwise run away from you. If the public knows someone is going to make a takeover bid, but prices are STILL falling, it means that something is very wrong with the company and the prosective buyer has sh*t for brains. |
[quote=ewmayer;164190]See my link to Barry Ritholz` article about the government`s increased stake in Citi below, just underneath the GDP report link.
< snip > [URL="http://www.ritholtz.com/blog/2009/02/worlds-worst-investment-to-get-worse/"]Citigroup: World’s Worst Investment to Get Even Worse[/URL] [/quote]There seems to be a typo in Ritholz's article. Its sentence[quote]Rather than do what is the FDIC-mandated-by-law thing, we will instead convert the nearly worthless common into preferred shares.[/quote]... should have interchanged "nearly worthless common" and "preferred". As shown by the NYT quote, the direction of government conversion is from preferred shares to common shares. - - - I know basic stock-and-bond fundamentals, but am no expert on preferred stock. Following are some points I heard in a radio commentary. I post them here to solicit comment on them, not to express my opinion about Treasury's recent actions: 1. Preferred stock is more akin to bonds than to common stock. It is more accurate to consider preferred stock as a loan that needs to be repaid (in regard to the guaranteed dividend to preferred stock owners, for example) rather than an ownership share in a corporation. 2. Potential investors don't count the proceeds from sale of preferred stock as part of a bank's assets for certain purposes (calculating the maximum amount that bank has available for lending is one of those purposes, if I understood correctly). 3. Treasury's move was intended to raise the asset value of Citibank, as calculated for the certain purposes in #2, for the sake of encouraging private investors to invest in Citibank. In return for that, it gains a potential for greater appreciation of the common stock (if the bank survives, natch) than of the preferred stock. Does that sound reasonable to those of you who are more familiar with the characteristics of preferred stock? I'm not asking whether this Treasury action is, or is not, equivalent to throwing more cash into a losing investment. I'm just asking whether the statements in #1-3 above are factually correct as far as they go. |
Essentially correct Cheesehead. You can boil it down to Risk and Volatility. Preferred shares are usually less volatile because there is less risk and guaranteed dividend. For Citi, the govt is converting a more secure position into a much less secure position. They are also giving up a guaranteed dividend. The advantage for Citi is a major increase in accounting equity which makes their balance sheet look better in the auditing farce they are currently undergoing. There is no advantage for the govt and taxpayers except that it preserves Citi a little longer.
DarJones |
[QUOTE=__HRB__;164222]
[QUOTE]You can also add to a losing position if it's a valuable commodity that's undervalued. Oil and gold can't go to zero, right?[/QUOTE] Problem #1: You can stll lose 50%. And another 50%. And another 50%. And another...all the while missing massive potential by not going short. [/QUOTE] It all comes down to how much risk you're willing to take. If you go long on an undervalued commodity (oil at $40/barrel, for example), prices will eventually rebound to above $40/barrel even though oil prices might drop to $20/barrel in the near term. But if you short the commodity and the price goes up, you'll be forced to cover, and there's no guarantee that prices will go that low again. Worse yet, there might be a lot of other people who've also shorted that commodity, and you'll have to deal with a massive short squeeze. |
[QUOTE=MooooMoo;164270]It all comes down to how much risk you're willing to take. If you go long on an undervalued commodity (oil at $40/barrel, for example), prices will eventually rebound to above $40/barrel even though oil prices might drop to $20/barrel in the near term.[/QUOTE]
Assuming you are not using financial leverage, but if you know that oil will NEVER go below $20/barrel, it's rational to leverage your account to make $20 the point where they give you a magin call... I remember the [URL="http://en.wikipedia.org/wiki/Metallgesellschaft"]Metallgesellschaft[/URL] getting wiped out when they were long and oil was at unprecedented record lows 'and couldn't go lower' in the early 1990s. [QUOTE=Jesse Livermore]"Remember that stocks are never too high for you to begin buying or too low to begin selling."[/QUOTE] Probably the same applies to commodities. [QUOTE=MooooMoo;164270]But if you short the commodity and the price goes up, you'll be forced to cover, and there's no guarantee that prices will go that low again. Worse yet, there might be a lot of other people who've also shorted that commodity, and you'll have to deal with a massive short squeeze.[/QUOTE] But just as oil cannot go to zero, oil cannot go to infinity either. So again, your risk depends on the amount of leverage you are using. Oil is probably not going to hit $100 any time soon, so if you keep $100 in your account/barrel short, you'll never be forced to cover. So, if oil eventually goes from $40 to $20, you've made 33% on your $60 risk (asuming that you sold short at $40). Presumably, you'll put the $60 (or $100) into a money market fund, so you're inflation neutral. |
AIG is back at the trough today.
[url]http://news.yahoo.com/s/ap/20090301/ap_on_bi_ge/aig_rescue[/url] [QUOTE]Under the new deal, the U.S. Treasury and the Federal Reserve would provide about $30 billion in fresh capital to the insurer, lower the interest rate on a $60 billion loan and ease the terms of a $40 billion preferred share investment. The $30 billion would not be injected immediately but would be provided as a standby line of equity that AIG could tap as its losses mount, the Wall Street Journal reported, citing people familiar with the matter. AIG will repay much of the $40 billion it owes the Federal Reserve with equity stakes in two AIG overseas units — Asia-based American International Assurance Co. and American Life Insurance Co., which operates in 50 countries. Repayment was originally supposed to be made in cash with interest, the Journal reported.[/QUOTE] Long and short of it is that the taxpayer is now majority owner of two subsidiaries of AIG. Do you get the impression that we are nationalizing a major insurer? Someone is finally getting a clue that this is a serious economic problem that will last a very long time. I wonder if they will ever get to the point of acknowledging that this is much much more than just a 'recession'? [url]http://news.yahoo.com/s/bloomberg/20090301/pl_bloomberg/agsg69muihwy[/url] DarJones |
[quote=Fusion_power;164353]I wonder if they will ever get to the point of acknowledging that this is much much more than just a 'recession'?[/quote]I checked back with the National Bureau of Economic Research ([URL]http://www.nber.org/[/URL]) to see whether they declare depressions as well as recessions.
Nope. From the FAQs section at [URL]http://www.nber.org/cycles/dec2008.html:[/URL] [quote][B]Q: Does the NBER identify depressions as well as recessions in its chronology?[/B] [B]A[/B]: The NBER does not separately identify depressions. The NBER business cycle chronology identifies the dates of peaks and troughs in economic activity. We refer to the period between a peak and a trough as a contraction or a recession, and the period between the trough and the peak as an expansion. The term depression is often used to refer to a particularly severe period of economic weakness. Some economists use it to refer only to the portion of these periods when economic activity is declining. The more common use, however, also encompasses the time until economic activity has returned to close to normal levels. The most recent episode in the United States that is generally regarded as a depression occurred in the 1930s. The NBER determined that the peak in economic activity occurred in August 1929, and the trough in March 1933. The NBER identified a second peak in May 1937 and a trough in June 1938. Both the contraction starting in 1929 and that starting in 1937 were very severe; the one starting in 1929 is widely acknowledged to have been the worst in U.S. history. According to the Bureau of Economic Analysis, real GDP declined 27 percent between 1929 and 1933, roughly ten times as much as in the worst postwar recession. If the term Great Depression is used to mean the period of exceptional decline in economic activity, it refers to the period from August 1929 to March 1933. If it is used to also include the period until economic activity had returned to approximately normal levels, most economists would judge that it ended sometime in 1940 or 1941. However, just as the NBER does not define the term depression or identify depressions, there is no formal NBER definition or dating of the Great Depression.[/quote] |
BTW, the NBER ([URL]http://www.nber.org/[/URL]) does a lot of studies that bear on discussions here.
Examples: 1) [URL]http://www.nber.org/digest/mar09/w14753.html[/URL] "Did the 2008 Tax Rebates Stimulate Spending?" They conclude that three studies of 2008 and 2001 tax rebates resulted in "a marginal propensity to consume of about one-third" and "there was no evidence that the spending rate was higher for low-income households". That is, of course, relevant to current Republican/conservative contentions that tax cuts are the best way to stimulate the economy. 2) [URL]http://www.nber.org/digest/mar09/w14492.html[/URL] "Understanding Crude Oil Prices" [quote][I]The $140/barrel price in the summer of 2008 and the $60/barrel in November of 2008 could not both be consistent with the same calculation of a scarcity rent warranted by long-term fundamentals. [/I]What caused the high price of oil in the summer of 2008? In [B]Understanding Crude Oil Prices [/B](NBER Working Paper No. [URL="http://papers.nber.org/papers/w14492"]14492[/URL]), [B][URL="http://www.nber.org/people/James_Hamilton"]James Hamilton[/URL][/B] reviews a number of theories, including commodity price speculation, strong world demand, time delays or geological limitations on increasing production, OPEC monopoly pricing, and an increasingly important contribution of the "scarcity rent" associated with oil. He suggests that there is an element of truth to all of these explanations. The key features of any account, he writes, are the low price elasticity of demand for oil; the strong growth in demand from China, other newly industrialized economies, and the developing Middle East itself; and the failure of global production to increase. These factors explain the initial strong pressure on prices that may have triggered commodity speculation. Speculation could have edged producers like Saudi Arabia into the discovery that small production declines could increase current revenues and might be in their long-run interest as well. The strong demand may also have moved us into a regime in which scarcity rents, which were negligible in 1997, were perceived to be an important permanent factor in the price of oil. . . . Overall, Hamilton concludes, the low price-elasticity of short-run demand and supply, the vulnerability of supplies to disruptions, and the occurrence of a peak in U.S. oil production explain the general behavior of oil prices over the period of 1970-97. Although the traditional economic theory of exhaustible resources does not fit in an obvious way into this historical view, the profound change in demand coming from the newly industrialized countries and recognition of the finiteness of oil offer a plausible explanation for more recent developments in oil prices. Still, Hamilton writes, "the $140/barrel price in the summer of 2008 and the $60/barrel in November of 2008 could not both be consistent with the same calculation of a scarcity rent warranted by long-term fundamentals." He nevertheless concludes that "if demand growth resumes in China and other countries at its previous rate, the date at which the scarcity rent will start to make an important contribution to the price, if not here already, cannot be far away."[/quote] |
AIG=black hole | Buffett buffeted | EU unraveling?
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=ahykOmEesvWk&refer=news]AIG's Liddy Says New U.S. Bailout Terms Allow Insurer to Repay Taxpayers[/url]: [i]American International Group Inc. Chief Executive Officer Edward Liddy said the revised federal bailout package will still enable the insurer to pay back “every penny” provided by the U.S.[/i]
[quote] March 2 (Bloomberg) -- American International Group Inc. Chief Executive Officer Edward Liddy said the revised federal bailout package will still enable the insurer to pay back “every penny” provided by the U.S. The new terms will protect policyholders while “helping the taxpayers,” Liddy said today during a Bloomberg Television interview, adding AIG’s liquidity crunch “is behind us.” All of the outstanding loan from the Federal Reserve will be repaid, Liddy said. AIG is counting on asset sales to help cover its debt to the U.S., which saved the New York-based company -- once the world’s largest insurer -- from bankruptcy last September. The relaxed terms of the bailout announced today give the company more time to complete those sales, with the pace depending on the stability of capital markets, Liddy said. Liddy is trying to steer AIG toward recovery after the insurer posted the worst quarterly loss by any U.S. corporation. The loss during the last three months of 2008 widened to $61.7 billion from $5.29 billion in the year-earlier period. The insurer had to delay its plan to sell subsidiaries and ask for more U.S. help after potential buyers balked because plunging values for financial assets left some of them short on capital. [/quote] [i]My Comment:[/i] Mr. Liddy is either flat-out lying or deluding himself ... AIG is multi-hundred-billion-dollar financial tar pit for U.S. taxpayers, who will lucky to ever see more than a few pennies on the dollar in returns for their "investment". [url=http://www.bloomberg.com/apps/news?pid=20601095&sid=aqeQiktoTvt8&refer=east_europe]EU Leaders Reject Pleas for Eastern European, Auto Aid on Budget Concerns[/url]: [i]European Union leaders spurned pleas for special aid for eastern Europe and a rescue package for automakers, bowing to German concerns over budget deficits as the economic crisis escalates.[/i] [quote]EU leaders vetoed an appeal by Hungary for loans of 180 billion euros ($228 billion) for ex-communist economies in eastern Europe, and told carmakers such as General Motors Corp.’s European arm to look to national capitals for help. “I would advise against taking huge numbers into the debate,” German Chancellor Angela Merkel told reporters at an EU summit in Brussels yesterday. “I see a very different situation -- you can compare neither Slovenia nor Slovakia with Hungary.” The worst economic slump since World War II is devastating eastern Europe, putting at risk EU goals of stitching together a continent-wide free market. Stocks in Europe, Asia and U.S. futures slumped. The MSCI World Index of 23 developed countries sank 1.9 percent to 736.68 at 11:30 a.m. in London, extending its 2009 decline to 20 percent, the worst start to a year since the gauge was created in 1970. The MSCI Emerging Markets Index slid 3.5 percent, while Hungary’s forint fell 2.5 percent. The EU’s $17 trillion economy will shrink 1.8 percent in 2009, the European Commission predicts. Latvia, a former Soviet republic that was the bloc’s star performer only three years ago, will contract 6.9 percent. Growth in Poland, the biggest eastern economy, will tumble to 2 percent, the slackest pace since 2002. Investors Flee Investors fleeing eastern Europe to cover losses at home have pushed down Poland’s zloty by 28 percent against the euro in the past six months, Hungary’s forint by 21 percent, Romania’s leu by 18 percent and the Czech koruna by 12 percent. Nine eastern leaders met before the summit to warn the West against putting up new walls in Europe, five years after the EU overcame historic divisions by admitting its first eastern members. [/quote] [i]My Comment:[/i] It is no longer considered ludicrously pessimistic to ask whether the EU - not just the west/east axis of it but the union as a whole - will survive the global financial crisis. [url=http://money.cnn.com/2009/02/28/news/companies/buffett_worstyear.fortune/index.htm]Buffett's worst year[/url]: [i]Berkshire Hathaway reports a rough, down 2008, cheered up by preferred-stock investments Buffett likes.[/i] [quote]NEW YORK (Fortune) -- Berkshire Hathaway reported today that its net worth fell in 2008 by $11.5 billion, a decline reducing its per-share book value by 9.6%. That was Berkshire`s worst result in the 44 years that Chairman Warren Buffett has run the company and, in fact, only the second decline in that period. The other drop was 6.2% in 2001, a year hurt by 9/11 and other problems in Berkshire`s insurance operations.[/quote] [i]My Comment:[/i] Even a legendary investor like WB has never experienced a true secular (multiyear) bear market, resulting from a global financial system leveraged to the gills and catastrophically riddled with systemic risk. Nothing in even his vast experience has prepared him for the kind of scenario playing out here. Having too much experience of bull markets punctuated by mercifully-brief downturns may be working against folks like Warren. But it appears to be more than just Buffett being done in by supposedly-unforeseeable "black swan" events - during last year`s jaw-dropping oil-price runup he somehow [url=http://finance.yahoo.com/news/Buffett-Letter-Puts-to-Rest-indie-14510770.html]failed to consider[/url] what might happen if the financial crisis "went global", which it was already showing signs of doing last summer: [quote]Speaking of his "purchases totaling $14.5 billion in fixed-income securities issued by Wrigley, Goldman Sachs (NYSE: GS - News) and General Electric (NYSE: GE - News)," Buffett said, "To fund these large purchases, I had to sell portions of some holdings that I would have preferred to keep (primarily Johnson & Johnson, Procter & Gamble and ConocoPhillips)." This explanation is far less distressing than what many had speculated about Buffett's moves. While Buffett's motive for selling these blue chips appears much more benign than many feared, he clearly wasn't happy with the trajectory of his ConocoPhillips bet: [u]"Without urging from [Buffett's Berkshire partner] Charlie [Munger] or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year.[/u] I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars."[/quote] [i]My Comment:[/i] That sounds very much like the kind of falling-prey-to-speculative-mania and ending up "buying high, selling low" mistake inexperienced would-be-investors make. Shocking to see someone of Buffett`s stature doing it. I close this post on this tidbit left over from last Friday`s wild selling in Citgroup: [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=agy3zxtPo2lM&refer=news]Citigroup Sets U.S. Record for Single-Day Trading Volume, Beating WorldCom[/url]: [i]Citigroup Inc. set a U.S. record for the most shares traded in a single day, beating the mark set by WorldCom Inc. in 2002, according to the New York Stock Exchange. [/i] [quote]The New York Stock Exchange’s tally of the five busiest sessions for a U.S. stock: Company Date Shares Traded Citigroup Feb. 27, 2009 1.87 billion (preliminary) WorldCom July 1, 2002 1.51 billion AIG Sept. 16, 2008 1.23 billion Citigroup Nov. 21, 2008 1.029 billion WorldCom July 3, 2002 1.026 billion [/quote] [i]My Comment:[/i] Looking at the previous "leaders", not exactly the kind of competition one wants to win...1.87 billion represents more tha one-third of the entire float of Citi, 5.4 billion shares. |
[quote=ewmayer;164422][I]My Comment:[/I] That sounds very much like the kind of falling-prey-to-speculative-mania and ending up "buying high, selling low" mistake inexperienced would-be-investors make. Shocking to see someone of Buffett`s stature doing it.[/quote]Yeah, but let's see an inexperienced would-be investor make an [I]$11.5 billion[/I] "buying high, selling low" mistake that's only a -9.6% result.
[quote][URL="http://www.bloomberg.com/apps/news?pid=20601103&sid=agy3zxtPo2lM&refer=news"]Citigroup Sets U.S. Record for Single-Day Trading Volume, Beating WorldCom[/URL]: [I]Citigroup Inc. set a U.S. record for the most shares traded in a single day, beating the mark set by WorldCom Inc. in 2002, according to the New York Stock Exchange. [/I][/quote]It's a lot easier to set that kind of record when your share price is in the sub-two-dollar range! I love the way financial sites are always citing that sort of record, number of shares traded in a day, instead of a more-meaningful (to me, anyway) dollar-value of shares traded-in-a-day record. Now, [I]your[/I] translation into "more than one-third of the entire float" -- there's something meaningful to me, Ernst. Similarly, newsfolks making a big deal of a $200 DJIA drop without mentioning what [I]percentage[/I] change that was and how that percentage compares to recent day-to-day volatility. |
The *real* reason to "stay invested"...
[QUOTE=cheesehead;164451]Yeah, but let's see an inexperienced would-be investor make an [I]$11.5 billion[/I] "buying high, selling low" mistake that's only a -9.6% result.[/QUOTE]
It wasn`t just his ill-timed and ill-advised bet on Big Oil - he also inked [URL="http://globaleconomicanalysis.blogspot.com/2009/03/warren-buffett-loses-his-way.html"]billions of $ worth of market-index-based derivatives contracts[/URL] last year, in a bet that the major indices would keep going up, just as the U.S. and the rest of the world began entering an undeniable-to-even-the-most-diehard-CNBC-pumptard recession: [quote]According to the Wall Street Journal Buffett's exposure on those derivatives now stands at $10 billion up from $6.7 billion at the end of the third quarter. See [URL="http://online.wsj.com/article/SB123575572935295811.html?mod=rss_whats_news_us_business"]Berkshire Hathaway Reports Worst Year Ever[/URL] for more details. I do not buy Buffett's "accounting loss" defense that looks only at cash paid out. That defense smacks of the same logic that says Bear Stearns and Lehman were well capitalized and that Citigroup, Ambac, and MBI still are. Of course Berkshire Hathaway has enough capital at this point to weather the storm. However, the fact remains Buffett made a major mistake in the timing of those derivative bets. Conceptually, this is a far bigger mistake than his ill-timed buy of more ConocoPhillips at the peak. ConocoPhillips is not going to zero, many of the financial companies in the S&P will. I still wonder what he possibly could have been thinking to make such a bet right as the entire world was entering a recession. There has not been a recession in history where equity prices did not decline substantially, yet he made his bets before the recession was even acknowledged. Buffett claims the bet frees up cash. It actually does no such thing. It ties up cash even though he claims by agreement it doesn't. Cash will only be "freed up" when he is ahead on the bet. That may or may not happen. Had he been "freeing up cash" now instead of when he did, he would have $10 billion more "free cash" instead of being billions of dollars in the hole. Warren Buffett is clearly an incredibly bright man. And while everyone makes mistakes, what strikes me most is his attempt to defend an indefensible derivatives play made at the worst possible time, while simultaneously stating “Derivatives Are Dangerous.”[/quote]On to today`s news roundup... --------------------------------- [URL="http://www.bloomberg.com/apps/news?pid=20601103&sid=aDqho4d6N_4g&refer=news"]GM's 53% U.S. Sales Drop Leads Industry's February Plunge as Demand Slumps[/URL]: [I]General Motors Corp., surviving with federal loans, said its February U.S. sales plummeted 53 percent as the recession pushed industrywide purchases toward the lowest in almost three decades.[/I] [quote]Sales tumbled 48 percent for Ford Motor Co., 40 percent for Toyota Motor Corp., 38 percent for Honda Motor Co. and 37 percent for Nissan Motor Co. GM said it plans to build 34 percent fewer vehicles in North America next quarter, and Ford announced a 38 percent reduction from a year earlier. Industry sales at last month’s levels make it more challenging for Detroit-based GM and Chrysler LLC to become profitable and pay back $17.4 billion in U.S. loans. President Barack Obama’s auto task force may approve as much as $21.6 billion more aid for the two automakers and support for the thousands of companies that supply car manufacturers with parts.[/quote][I]My Comment:[/I] "More challenging" - that has got to be the understatement of the (admittedly still quite young) year. [URL="http://www.ritholtz.com/blog/2009/03/big-firm-conflict-of-interest-the-penalty-box/#comments"]Big Firm Conflict of Interest: The Penalty Box[/URL] [quote]Early in 2008, [our pair of brokers-who-work -for-a-firm-whose-name-rhymes-with-Shmerrill-and-who-shall-remain-anonymous] moved aggressively into cash. (Obviously they are TBP readers). For most of the year, they run about 20% bonds, plus 5% percent stocks (some client would not sell). All told, about 75% of their asset base is in money market funds, which pays out essentially nothing to the broker — but preserves the clients investments. Late in the year, they put a toe back in the water. Overall, the clients do very well. In a year where the markets are practically cut in half, their clients lose about 10%. The investors are ecstatic, and while the two brokers annual compensation was [I]schmeissed[/I] — they went from over $3 million gross to under $1 million — they have happy, referral making clients to rebuild their business upon. Its a short term income hit that should generate gains over the long term. And, they got there by doing the right thing. ... Here’s where things get completely misaligned. When 2009 rolls around, their manager calls them into his office, and says: “Bad news, boys. Your revenues dropped so much last year you are in the Penalty Box. As per your contract, your payout for this year is 30%.” Let me make sure I understand this: We did the right thing by our clients, and although we took a big short term revenue hit, we hope it pays off over the long run. And the firm response is to drop our payout even further? So the entire system is set up to discourage doing the right thing by the client?[/quote][I]My Comment:[/I] But you know, if you move into cash now, you`re sure to miss the HUGE MASSIVE ONE-DAY-ONLY SNAPBACK BOTTOM-IS-IN RECOVERY RALLY!!! Now we don`t know where the bottom is - but we know it`s out there somewhere, and in our vast wisdom [this is the make-you-brokers talking here], we know that we`re closer to it than we were a year ago. For all we know, the housing market might instantly reinflate due to the mega-huge game-changing Obama administration SUPER DUPER FISCAL STIMULUS PACKAGE, hard-hit consumers SUDDENLY HAVING ACCESS TO HUGE LINES OF CREDIT IRRESPECTIVE OF INCOME, or Warren Buffett (a.k.a. THE ORACLE OF OMAHA - make sure to bow and scrape in proper obeisance to THE ORACLE when you say it, or even when you think it) might announce that - well shucks, let`s just let him say it - I, WARREN E. BUFFETT (henceforth to be referred to simple as THE ORACLE) decree that STOCKS ARE SUPER CHEAP AND THIS IS A GENERATIONAL BUYING OPPORTUNITY WE GOT HERE, thus igniting the aforementioned HUGE MASSIVE ONE-DAY-ONLY SNAPBACK BOTTOM-IS-IN RECOVERY RALLY - except that my MIGHTY ORACULARITY I further decree that the HUGE MASSIVE ONE-DAY-ONLY SNAPBACK BOTTOM-IS-IN RECOVERY RALLY will in fact go on for YEARS, possibly for DECADES. In fact THE ORACLE (bow, scrape, lick the floorboards) DID DECREE JUST SUCH A THING last Fall, but you failed to HEED MY DECREE, and see where it landed you. so next time, LISTEN UP and mortgage the house (quite likely for a 2nd or 3rd time, running concurrently) so you can START BUYING - a good mix for starters would be found under the ticker symbols BRKA and BRKB, for instance. But the reason you don`t want to miss even ONE DAY of the HUGE MASSIVE ONE-DAY-ONLY SNAPBACK BOTTOM-IS-IN RECOVERY RALLY is that at least half of the HUGE MASSIVE ONE-DAY-ONLY SNAPBACK BOTTOM-IS-IN RECOVERY RALLY PROFITS will occur on that first day, just like in the biblical Genesis where GOD does a bunch of stuff for a whole week (well, six days, actually) but all of the THE REALLY COOL STUFF happens right on day 1, the loaves and fishes being created from the void-without-form and the wine being parted from the base metal, that stuff. So you can see that the HUGE MASSIVE ONE-DAY-ONLY SNAPBACK BOTTOM-IS-IN RECOVERY RALLY is in fact THE WILL OF GOD THE MERCIFUL AND MOST HIGH (HALLOWED BE HIS NAME, EVEN THOUGH WE DARE NOT SPEAK IT), and you wouldn`t want to go AGAINST THE WILL OF GOD now, wouldja? [URL="http://www.bloomberg.com/apps/news?pid=20601103&sid=asRwvi9aXAUI&refer=news"]AIG's Bailout Made Bernanke `More Angry' Than Any Other Episode in Crisis[/URL]: [I]Federal Reserve Chairman Ben S. Bernanke said American International Group Inc. operated like a hedge fund and having to rescue the insurer made him “more angry” than any other episode during the financial crisis.[/I] [quote]“If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG,” Bernanke told lawmakers today. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial- products division, this was a hedge fund basically that was attached to a large and stable insurance company.” Bernanke’s comments foreshadow tougher oversight of systemically important financial firms, and come as President Barack Obama seeks legislative proposals within weeks for a regulatory overhaul. The U.S. government has had to deepen its commitment to prevent AIG’s collapse three times since September as the company accumulated the worst losses of any U.S. company. AIG is getting as much as $30 billion in new government capital and relaxed terms on its bailout announced yesterday. The company “made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system,” Bernanke said. At the same time, officials “had no choice but to try and stabilize the system” by aiding the firm.[/quote][I]My Comment:[/I] A.k.a. "please don`t blame us at the Fed - we only enabled, aided and abetted all the speculative excesses of the past several decades ... consumers and companies have free will - our job at the Fed is merely to guide that free will into speculative asset bubbles by way of encouraging speculative leverage via risk-decoupled near-zero-interest-rate policies ... ". But what I really want to know is: Given the mild-mannered-academic face Uncle Ben presents to the public, what constitutes "angry" in his book? Are we talking about [URL="http://www.google.com/url?sa=U&start=1&q=http://en.wikipedia.org/wiki/Marvin_the_Martian&ei=54StSa6QDJGksQO_goHHBA&usg=AFQjCNGVC4o5brUDTzR3hz2k87jMNWz7DQ"]Marvin the Martian[/URL]-you-are-making-me-very-angry-style angry? [URL="http://www.bloomberg.com/apps/news?pid=20601109&sid=alwTE0Z5.1EA&refer=news"]Hidden Pension Fiasco May Foment Another $1 Trillion Bailout by Taxpayers[/URL]: [I]The Chicago Transit Authority retirement plan had a $1.5 billion hole in its stash of assets in 2007. At the height of a four-year bull market, it didn’t have enough cash on hand to pay its retirees through 2013, meaning it was underfunded to the tune of 62 percent.[/I] [quote]Public pension funds across the U.S. are hiding the size of a crisis that’s been looming for years. Retirement plans play accounting games with numbers, giving the illusion that the funds are healthy. The paper alchemy gives governors and legislators the easy choice to contribute too little or nothing to the funds, year after year. The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion. With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion. That lack of funds explains why dozens of retirement plans in the U.S. have issued more than $50 billion in pension obligation bonds during the past 25 years -- more than half of them since 1997 -- public records show. The quick fix for pension funds becomes a future albatross for taxpayers.[/quote][I]My Comment:[/I] Ah, what`s another trillion here or there? We can just sell Rhode Island to the Chinese government...oh wait, if we use [URL="http://www.localcensus.com/state/Rhode_Island"]Rhode Island`s GDP[/URL] (figuring optimistically that GDP rose from $43 B in 2005 to $50 B last year) like Wall street uses corporate earnings to guide fair valuations, figure a P/E of 15, thus 15 times $50 billion state GDP gives only $750 billion. so somewhere we need to cough up another $250 billion worth of national assets ... anybody wanna suggest some other states we could sell? Or maybe some national parks? |
[quote=ewmayer;164522]But you know, if you move into cash now, you`re sure to miss the HUGE MASSIVE ONE-DAY-ONLY SNAPBACK BOTTOM-IS-IN RECOVERY RALLY!!! Now we don`t know where the bottom is - but we know it`s out there somewhere, and in our vast wisdom [this is the make-you-brokers talking here], we know that we`re closer to it than we were a year ago.[/quote]Personally, I like "500 at 600". ([URL="http://www.google.com/search?hl=en&q=%27500+at+600%27+S%26P&btnG=Google+Search&aq=f&oq="]http://www.google.com/search?hl=en&q=%27500+at+600%27+S%26P&btnG=Google+Search&aq=f&oq=[/URL])
Perhaps a Forrest Gump-ish "500 is as 500 does" will turn out true also, but OTOH waiting for that could be foolish, what with all those folks waiting to plunge in at 599. OTOOH, that would be a classic bear rally, right? - - - Regarding Warren Buffet: Perhaps he has so often profited from his past contrarian moves that he figured that everyone-can-see-the-coming-recession just meant that "everyone" was being fooled. |
Revenge of the Glut -- a global paradox of thrift
Remember when the phrase "global surplus of savings" made it into the predecessor thread on 18 Dec 07? Probably not. How about the catchier "global savings glut" several months later?
It seems that Ben Bernanke was using the latter phrase four years ago. "Revenge of the Glut" by Paul Krugman [URL]http://www.nytimes.com/2009/03/02/opinion/02krugman.html?em[/URL] [quote]Remember the good old days, when we used to talk about the “subprime crisis” — and some even thought that this crisis could be “contained”? Oh, the nostalgia! Today we know that subprime lending was only a small fraction of the problem. Even bad home loans in general were only part of what went wrong. We’re living in a world of troubled borrowers, ranging from shopping mall developers to European “miracle” economies. And new kinds of debt trouble just keep emerging. How did this global debt crisis happen? Why is it so widespread? The answer, I’d suggest, can be found in a speech Ben Bernanke, the Federal Reserve chairman, gave four years ago. At the time, Mr. Bernanke was trying to be reassuring. But what he said then nonetheless foreshadowed the bust to come. The speech, titled “The Global Saving Glut and the U.S. Current Account Deficit,” offered a novel explanation for the rapid rise of the U.S. trade deficit in the early 21st century. The causes, argued Mr. Bernanke, lay not in America but in Asia. . . . Still, much of the global saving glut did end up in America. Why? Mr. Bernanke cited “the depth and sophistication of the country’s financial markets (which, among other things, have allowed households easy access to housing wealth).” Depth, yes. But sophistication? Well, you could say that American bankers, empowered by a quarter-century of deregulatory zeal, led the world in finding sophisticated ways to enrich themselves by hiding risk and fooling investors. And wide-open, loosely regulated financial systems characterized many of the other recipients of large capital inflows. This may explain the almost eerie correlation between conservative praise two or three years ago and economic disaster today. “Reforms have made Iceland a Nordic tiger,” declared a paper from the Cato Institute. “How Ireland Became the Celtic Tiger” was the title of one Heritage Foundation article;[/quote][SIZE=2]Sure and begorrah: a just-starting PBS show on Ireland mentions "the Celtic Tiger". But its idyllic tourism-boosting mood hints of a pre-global-crisis filming.[/SIZE][quote]“The Estonian Economic Miracle” was the title of another. All three nations are in deep crisis now.[/quote]Will conservatives remember how wrong they were? [quote]If you want to know where the global crisis came from, then, think of it this way: we’re looking at the revenge of the glut. And the saving glut is still out there. In fact, it’s bigger than ever, now that suddenly impoverished consumers have rediscovered the virtues of thrift and the worldwide property boom, which provided an outlet for all those excess savings, has turned into a worldwide bust. One way to look at the international situation right now is that we’re suffering from a global paradox of thrift: around the world, desired saving exceeds the amount businesses are willing to invest. And the result is a global slump that leaves everyone worse off.[/quote]"a global paradox of thrift" [SIZE=2] [/SIZE] |
There be gold in them thar SIMs | Year of the Bull
[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aE.R8qzVAFTs&refer=news]German `Pot of Gold' Lies in 24 Million Mobile Phones Tossed in the Trash[/url]: [i]One man’s waste is another’s gold. Or so Germany’s Norddeutsche Affinerie AG has discovered.[/i]
[quote]Germans throw away about 24 million mobile phones each year, almost one for every three residents, violating a federal law against electronic waste. Added up, it’s almost a half-ton of gold that can be melted out of the circuitry of discarded mobile phones and computers. That means the precious-metals refinery that Norddeutsche Affinerie operates in Germany, where Europe’s largest economy is suffering from its worst recession since World War II, is running at full speed forging gold bars out of the carcasses of German mobile phones and PCs. “Electronic waste is a tremendous resource but it’s not being managed nearly as effectively as it could be,” Kevin Brigden, a scientist at Greenpeace, said from Exeter in the U.K. Phones and computers need to be designed so recyclers can easily extract the “pot of gold” in the waste, he said in an interview. The Hamburg-based refiner, one of a handful of precious- metal recycling firms in the world, recovers about 3.5 tons of gold worth some $110 million each year from mobile phones and other electronic scrap. Similarly, Umicore SA near Antwerp, Belgium, recovers about 6 tons of gold a year from waste. [/quote] [i]My Comment:[/i] I expect a typical PC motherboard plus the CPU with its fine gold (modern ones are gold-plated tin, so the old 386/486 are best) wires contains something on the order of a gram of gold - and of course the copper (especially in the power supply) can also be profitable when recoved on an industrial scale. at the very least, the recovery potential could serve as an inducement for manufacturers to sponsor e-waste recycling programs - key is to make sure that such e-waste reprocessing facilities also make every efoort to recycle less-profitable parts of the waste stream, instead of just "strip mining" the high-value stuff and dumping the remainder. [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aQWwTSdLSybk&refer=news]Short-Sale Rule Revival Undermined by SEC Data After Bernanke Urges Review[/url]: [i]The revival of Securities and Exchange Commission rules aimed at curbing speculators who seek to drive down stocks may be hindered by a report from the agency’s own economists.[/i] [quote]Daniel Aromi and Cecilia Caglio, economists at the SEC in Washington, said in a December report to former Chairman Christopher Cox that the so-called uptick rule was less effective when needed most, during panics that drive prices down and volatility up. Even with delays imposed by the curb, short sellers in a simulation executed trades 25 percent faster on average when stocks plunged than when prices were steady, according to the study. “The uptick rule is not going to slow down the market that much,” said Michael Pagano, a finance professor at Villanova University in Villanova, Pennsylvania, who read the report. “The time when you’d want to see the uptick rule become more binding is exactly when you have high volatility, and particularly when you have large negative returns.” Regulators are considering restrictions on speculators after the Standard & Poor’s 500 Index fell 54 percent in the 20 months since the uptick rule was eliminated. Mary Schapiro, who succeeded Cox, said in January during her confirmation hearings that examining the rule is “one of the things that I would be committed to doing very quickly.” Federal Reserve Chairman Ben S. Bernanke told Congress last week that the measure, removed after 69 years on the books, should be revisited. ... The December SEC report examined the benefits of barring short sales unless they were done at prices at least 1 cent higher than the last trade. While more than 58 percent of short sales would be delayed or barred by such a requirement, the impact lessens in times of panics, according to the 28-page study. Short sellers would be able to execute as much as 57 percent more trades in certain stocks when the market slides, compared with times when prices are steady, the report shows. Effective Ban The SEC also considered raising the threshold to as much as 5 cents. For increments of 4 cents or more, the uptick rule would effectively ban short sales, a policy counter to the agency’s position. In October, the SEC said short selling plays an “important role” by increasing liquidity, helping traders hedge other assets and curbing speculation. A separate SEC analysis concluded that in September, when the S&P 500 lost 9.1 percent, short sales were more common during rallies than declines.[/quote] [i]My Comment:[/i] Varied thoughts: I wonder whether there still might be a synergistic effect from reinstating the uptick rule - even by slowing shorting modestly, one might be able to mitigate the huge plunges, thus removing a feedback mechanism present in the non-uptick system we have currently. Also, basing any such threshold on absolute price changes is just stupid - should be a percentage of the share price. a 5-cent change in BRKA represents a roughly 70000-fold-less percentage change as it does for Citigroup. [B]Year of the Ox? More like Year of the Bull...[/B] [url=http://www.bloomberg.com/apps/news?pid=20601089&sid=aLfhi_tfA.1Y&refer=china]Chinese Manufacturing Index Rises, Signaling Economy Closer to a Recovery[/url]: [i]A Chinese manufacturing index climbed for a third month, adding to evidence that a 4 trillion yuan ($585 billion) stimulus package is pushing the world’s third-biggest economy closer to a recovery.[/i] [quote]The Purchasing Manager’s Index rose to a seasonally adjusted 49 in February from 45.3 in January, the China Federation of Logistics and Purchasing said today in an e-mailed statement. A reading below 50 indicates a contraction. Stocks rose after output and new orders expanded for the first time in five months. Chinese Premier Wen Jiabao may announce extra measures to reverse the nation’s economic slide at the annual meeting of the National People’s Congress starting in Beijing tomorrow. “There are more noticeable signs that China’s economy is bottoming out,” said Zhang Liqun, an economist at the State Council Development and Research Center. The Shanghai Composite Index rose 2.4 percent as of 10:47 a.m. local time. While manufacturing contracted for a fifth straight month as the worst financial crisis since the Great Depression cut exports, the PMI is up from a record low of 38.8 in November. Surging loans, growth in retail sales in January, and an increase in electricity output and consumption from the middle of last month are signs that government measures have shown “preliminary results,” according to Premier Wen. Recovery ‘Very Likely’ A recovery in the first half is “very likely,” central bank Vice Governor Su Ning said yesterday. Industrial-output growth in January and February may be higher than in November and December, Zhang forecast. Still, he cautioned that “seasonal factors” may have boosted the output and new-order indexes, which could fall again. “The government’s stimulus investment has finally started to take effect,” said Xing Ziqiang, an economist at China International Capital Corp. in Beijing. “However, a recovery may be short-lived as export demand may get worse in the second half and the outlook for consumption is uncertain.” [/quote] [i]My Comment:[/i] Listen to the government-paid shills confusing (either deliberately or just stupid-hopefully) "temporary effect of government make-work money" with "economic recovery". It`s even more egregious than the similar blather on the part of the stimulus pumptards here in the U.S., because in the case of China the (real, not fake stimulus-based) economy is so lopsidedly dependent on exports. |
Citi < $1 | The wrong kind of "Austrian Economics"
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aKLJO8S5nFaU&refer=news]Citigroup, Once World's Biggest Bank by Value, Sees Stock Decline Below $1[/url]: [i]Citigroup Inc. dropped below $1 in New York trading for the first time, the latest sign that stock investors are losing confidence in a company that was once the world’s biggest bank by market value.[/i]
[quote]The stock fell to 99 cents at 11:22 a.m. on the New York Stock Exchange, marking an 85 percent decline this year and giving the company a market value of $5.5 billion. At its peak in late 2006, Citigroup stock was worth $55.70, giving the company a market value of $277.2 billion. Citigroup has reported more than $37.5 billion in net losses during the last five quarters and the U.S. government has provided the company with $45 billion. Last week, the government agreed to convert the preferred stock it owned in Citigroup to common shares, gaining a 36 percent stake in the company and boosting its buffer against future losses. NYSE Euronext, which owns the New York Stock Exchange, has suspended until June 30 a rule that delisted companies trading below $1 after six months. The change was made to help prevent a wave of delistings after the Standard & Poor’s 500 Index fell to a 12-year low. Citigroup was created by the 1998 combination of Citicorp and Travelers Group Inc., which with a value of $85 billion was the largest merger in history at the time. The transaction helped persuade the U.S. government to repeal a Great Depression-era law, the Glass-Steagall Act, that prohibited banks that took consumer deposits from engaging in investment-banking activities. [/quote] [i]My Comment:[/i] U.S. government could have bought the whole frickin` company for under $10 billion, saving over $30 billion, and gotten a several-months head start on the inevitable unwind of Citi`s business units and disposal of toxic assets which is necessary. Sure, markets would have coughed up a giant hairball in the near term (as opposed to a never-ending series of smaller hairballs as presently), but propping up an insolvent banking sector's share prices is not the government`s job. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=atvBO55LeJ9M&refer=news]U.S. Stocks Retreat After China Signals No Additional Stimulus; GM Slumps[/url]: [i]U.S. and European stocks fell, driving the Standard & Poor’s 500 Index to the lowest level since 1996, after Moody’s Investors Service said it may cut JPMorgan Chase & Co.’s credit rating and China quelled speculation the government will add to its stimulus plan.[/i] [quote]JPMorgan dropped 8.4 percent. Wells Fargo & Co. and Bank of America Corp. slumped more than 9.2 percent after Moody’s said it’s reviewing their ratings, while Citigroup slumped to a record low of 97 cents. General Motors Corp. plunged 15 percent after its auditor said the automaker may not survive. European stocks fell after Aviva Plc, the biggest U.K. insurer, reported a loss. “You have to have stability in the banks for a sustainable rally,” said Dan Veru, who helps oversee $2.8 billion at Palisade Capital Management in Fort Lee, New Jersey. “We’re not there yet.”[/quote] [i]My Comment:[/i] It helps to have "solvency in the banks" as well, and we`re "not there yet" by a long shot. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aanaFt_TxFEM&refer=news]U.S. Jobless Claims Exceed 600,000 for a Fifth Week; Productivity Declines[/url]: [i]More than 600,000 Americans filed initial claims for jobless benefits last week as companies strived to cut the costs of workforces that are producing less as the recession deepens.[/i] [quote]Economists forecast the Labor Department tomorrow will say U.S. payrolls fell by 650,000 in February, the most since 1949, according to a Bloomberg News survey. The unemployment rate probably surged to 7.9 percent. ... A report from ADP Employer Services yesterday showed U.S. companies cut an estimated 667,000 jobs in February, up from 614,000 the month before. The ADP figures include only private employment and do not take into account hiring by government agencies. Already the 3.6 million jobs lost since the U.S. recession began in December 2007 mark the biggest employment slump of any economic contraction in the postwar period. The faltering labor market has caused consumer sentiment to plummet and crippled spending. Purchases dropped at a 4.3 percent rate in the fourth quarter, the most since 1980, according to Commerce Department figures. [/quote] [i]My Comment:[/i] At beginning of this year "most economists" were predicting around 2 million job losses for the year. No idea what those clowns have been smoking, but we`re going to hit that in just the first 3 *months* of 2009. [url=http://www.bloomberg.com/apps/news?pid=20601080&sid=aIb2RKA.AWu8&refer=asia]Empty Vessels Flock to Subic Bay as Shipping Lines Battle Plunging Rates[/url]: [i]Subic Bay in the Philippines is the busiest it’s been since the U.S. Navy moved out 16 years ago. The traffic surge is coming from ships all carrying the same cargo --nothing.[/i] [quote]Hundreds of vessels have been laid up worldwide as container lines try to boost rates depressed by U.S. and European consumers paring spending on Asian-made furniture, toys and other goods. Still, with shipyards set to deliver the largest amount of container ships by capacity in at least 15 years in 2009, lines may still struggle to post profits.[/quote] [i]My Comment:[/i] No amount of China stimulus spending can counter that implosion in exports. [url=http://www.bloomberg.com/apps/news?pid=20601095&sid=av0_TxrNeFvg&refer=east_europe]Austria Default Risk Passes Italy as Bet on Eastern Europe Growth Misfires[/url]: [i]Eastern Europe’s imploding economies may take Austria’s reputation for stability down with them.[.i] [quote]After leading the way in providing credit to the eight former communist nations that joined the European Union in 2004, Austria’s banks are now on the hook for 201 billion euros ($254 billion) in loans, equal to about 71 percent of the nation’s gross domestic product. International investors rank Austria’s bonds as less safe than those of Italy, Spain or even Slovakia. The risk to Austria’s economy has pushed it to the forefront of countries clamoring for a bailout of eastern Europe. Chancellor Werner Faymann on Jan. 27 called for “a European Union initiative” to bolster international financing for economies to the east. But EU leaders rejected such pleas at their March 1 meeting. “For Austria, the actual crisis is yet to come,” said Peter Eigner, a professor of economic history at the University of Vienna. “The decline of the eastern European economy will hit Austria in 2009.” The Austrian Traded Index has fallen 70 percent from its July 2007 peak, and the cost of bond insurance against sovereign default has risen 15-fold in the past year. Shares of Austria’s Erste Group Bank AG, which made more than two-thirds of its profit from emerging European economies in 2008, and Raiffeisen International Bank-Holding AG, which operates only in the region, each have lost more than 85 percent from their peaks. ... To be sure, Raiffeisen, Erste and UniCredit’s Bank Austria AG are profitable. Austria’s banks could withstand losses of as much as 31 billion euros on their 201 billion euros in east European investments, Austria’s central bank said in February. ... Standard & Poor’s, Moody’s and Fitch Ratings all have given Austria their highest sovereign debt rating and say they don’t expect to change the classifications any time soon. [/quote] [i]My Comment:[/i] That is, alas, precisely the wrong kind of "Austrian economics" to practice. A 31-billion-Euro loss on a 201-billion-Euro total investment might have seemed out of the realm of possibility a year ago, but that represents just a 14% loss, which is nothing in the current worldwide economic climate. Given their recent track record in rating debt securities, the "AAA" sovereign debt ratings bestowed by the ratings cartels do not reassure me one bit. |
On a lighter note...
[i]Fortune[/i] is running selected excerpts from a forthcoming book on the demise of Bear Stearns:
[url=http://money.cnn.com/2009/03/02/magazines/fortune/cohan_houseofcards.fortune/index.htm]Inside the Bear Stearns boiler room[/url]: [i]Exclusive book excerpt: Bestselling author William Cohan uncovers the inner workings of the misadventure that brought down Bear Stearns and foreshadowed the financial crisis to come.[/i] [quote]Years from now, when academics search for causes of the stock market crash of 2008, they will focus on the pivotal role of mortgage-backed securities. These exotic financial instruments allowed a downturn in U.S. home prices to morph into a contagion that brought down Bear Stearns a year ago this month - and more recently have brought the global banking system to its knees. What scholars should not miss is the role that the human element - call it greed or ignorance - played in this tragedy. In an exclusive excerpt from William Cohan's new book, "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street," to be published March 10 by Doubleday, the bestselling author sheds light on the bankers who thought they had mastered what Warren Buffett has called "financial weapons of mass destruction."[/quote] [i]My Comment:[/i] I found the tie-in between the 9/11, the resulting huge easing of monetary policy by the Fed and the demise of Bear to be especially interesting - recommended reading. [url=http://money.cnn.com/2009/03/04/news/international/powell_china.fortune/index.htm]China's hard landing[/url]: [i]With exports shrinking and unemployment rising, China must find a way to recover. That will take longer than most think.[/i] [quote]In the early evening light, on a block that once bustled but is now deathly quiet, Li Zhong-he walks to the front gate of the factory where he used to work. There he looks for his name on a sheaf of papers. They are notices from a local administrative court, granting small unemployment payments to workers like Li and the hundreds of others who were left without jobs when their company, Hejun Toy Manufacturing, ceased operation. Nearly a decade ago Li had come from the countryside to Dongguan, a sprawling manufacturing town in southeast China that for much of the past decade had boomed. He had made decent money, the equivalent of about $250 a month, worked his way up to shift supervisor on the factory floor, and unlike many of China's migrant workers - an army of an estimated 115 million people nationwide - he had asked his wife and young son to join him so that they could have what he calls a "normal life." Now, he says quietly as he turns away, disappointed that his name was not on the list, "I don't know what I'm going to do."[/quote] [b]On a lighter note...[/b] [i]The Daily Show[/i] sticks it to the CNBC shills: [url]http://www.thedailyshow.com/video/index.jhtml?videoId=220252&title=cnbc-gives-financial-advice[/url] Interesting how the alleged-hard-news-shows have turned into ever-more-silly-infotainment parodies of themselves, while one can frequently get the most honest take on the real news from the designed-to-be-parodies-of-the-real-news-shows shows like TDS. Art imitating life imitating art - when "the real news" becomes little more than a parody, the parody of the parody becomes a better source of "the real news" than TRN itself. Or something like that. :P |
[QUOTE=ewmayer;164600][url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aE.R8qzVAFTs&refer=news]German `Pot of Gold' Lies in 24 Million Mobile Phones Tossed in the Trash[/url]: [i]One man’s waste is another’s gold. Or so Germany’s Norddeutsche Affinerie AG has discovered.[/i]
[i]My Comment:[/i] I expect a typical PC motherboard plus the CPU with its fine gold (modern ones are gold-plated tin, so the old 386/486 are best) wires contains something on the order of a gram of gold - and of course the copper (especially in the power supply) can also be profitable when recoved on an industrial scale. at the very least, the recovery potential could serve as an inducement for manufacturers to sponsor e-waste recycling programs - key is to make sure that such e-waste reprocessing facilities also make every efoort to recycle less-profitable parts of the waste stream, instead of just "strip mining" the high-value stuff and dumping the remainder.[/QUOTE]For many years now I've been saying to anyone prepared to listen that landfill is not waste. It is a store of material to be processed when the price is right. One industry's landfill has been another's raw material for a very long time. As just one example, Roman lead miners discarded rock they couldn't process economically. Roman mine tailings have been used as lead ore for well over 200 years. Paul |
It is getting deeper and deeper all the time, yet some people don't get it.
General Motors is essentially bankrupt. An internal audit indicates the company is not likely to survive. An estimated 12% of all U.S. mortgages are currently in arrears. Citibank is selling for $1.02 per share closing price as of today or about $5.5 billion market value. Unemployment is at 7.9%. The FDIC is essentially bankrupt. This is an odd state of affairs given that their own figures show they still have $35 Billion give or take a few. The problem is that the number of insolvent banks is huge and getting worse daily. Even with the special 'fee' FDIC is levying from participating banks, they will likely run out of money by September or October of this year. Add the above up and you have to ask yourself where the eternal optimists are coming from. Here is the one that hurts for me, not because it affects me, but because I empathize with the people who are in this mess. When my daughter was born 24 years ago, I came very close to starting a college fund for her in PACT. I chose not to do that and am happy to report that she will complete her studies in 3 months. [url]http://www.waff.com/Global/story.asp?S=9941068[/url] [QUOTE]Alabama's Prepaid Affordable College Tuition, or PACT, is in financial trouble. This affects a number of parents and grandparents. 48,000 families with money in the fund were warned by mail last week the program they've paid into is on the brink of collapse. Sending your child to college is an expensive investment. So when the Alabama Prepaid Affordable College Tuition Fund or PACT was created, many families started saving for the future. Wanda Curtis uses money from PACT, set up by her son's grandparents to pay his tuition. "It's been really helpful so far because for the first 2 semesters its paid over $5,000 towards his total bill," said Curtis. "That's been wonderful." Curtis along with many other parents may have to find other ways to fund college. PACT has lost more than 45 percent of its value in a year and a half, including a 20 percent loss to the recent stock market. The money paid into the fund by parents and grandparents of thousands of current and future students is in deep financial trouble. Dr. Greg Fitch is on the program's board of directors. "The 2008 economy everyone is faced with challenges is the one that's impacted us the most dramatically," said Dr. Greg Fitch, a member of the PACT Board of Directors. With PACT funding cuts, many parents don't know what they will do or where the money will come from. They depended on the extra funds to pay tuition for Alabama's 4-year college system. If PACT managers can't find additional dollars, many will have to shell out of their own pocket. "Getting a second job to pay the premium for him to get through college. That's the option. There is no option of him dropping out of college," said Curtis. A special called meeting of the PACT board will be held March 24th to discuss the trust fund trouble. [/QUOTE] The serious question to be raised is "Is America bankrupt?" DarJones |
[quote=ewmayer;164681][quote]Standard & Poor’s, Moody’s and Fitch Ratings all have given Austria their highest sovereign debt rating and say they don’t expect to change the classifications any time soon.[/quote][/quote]Moody's, Standard & Poor's, and Fitch ... yeah ... where have I heard that combination before?
[URL]http://www.stockbrokerfraudblog.com/2008/11/moodys_standard_poors_and_fitc.html[/URL] [URL]http://marketpipeline.blogspot.com/2008/10/rating-agencies-broke-bond-of-trust.html[/URL] Is "sovereign debt" a new type of CDS? |
[QUOTE=Fusion_power;164710]
The serious question to be raised is "Is America bankrupt?" DarJones[/QUOTE] The U.S. is not yet insolvent but many of her senior citizens nearing retirement are. |
"5 CEOs on their recession plans"
[URL]http://money.cnn.com/galleries/2009/fortune/0902/gallery.ceos_recession.fortune/index.html[/URL] The fifth's finale: [quote=Fred Smith, FedEx]. . . [B]On taking bailout funds:[/B] If you take government money and you get yourself in the public arena, then the Congress, quite frankly, has a right to put whatever restrictions on you that they desire. That's really the cost of the deal.[/quote] |
Everyday something draws my ire. As part of relocation assistance, some businesses and government agencies buy employee's current homes (and intend to resell it) so that the employee can move on to a new area. Here is a postmaster's home that squeeked through prior to a new cap of $1 million on the amount that the USPS will spend:
[URL="http://www.cnn.com/2009/US/03/05/postal.service.relocation/index.html?eref=rss_topstories"]Postal Service draws criticism for $1.2 million home buy[/URL] They bought and sold over a thousand homes in 2007-2008: [QUOTE]In 2007, after the U.S. housing boom peaked, the USPS lost an average of $50,542 on each deal, he said. In 2008, with the market in full retreat, the average loss climbed to $58,397.[/QUOTE] |
Unemployment hits 25-year high | Condom Sales Rise
[url=http://money.cnn.com/2009/03/06/news/economy/jobs_february/index.htm]Unemployment hits 25-year high[/url]: [i]Jobless rate hits 8.1% in February as a record-high 12.5 million people are unemployed.[/i]
[quote]Most workers who have jobs today are not old enough to have worked in a labor market this bad, while 13% of workers weren't even alive the last time unemployment was at this level. The survey of households found 12.5 million people are now unemployed, the most since records started being kept in 1940.[/quote] [i]My Comment:[/i] It must really suck to be a recent or soon-to-be college grad...and unfortunately, no reason to believe things will improve any time soon: [url=http://money.cnn.com/2009/03/05/news/economy/jobs_outlook/index.htm]Worst is yet to come for job market[/url]: [i]This is the most brutal downturn in decades, but the unemployment numbers only show part of the pain.[/i] [quote]The government reported Friday that the unemployment rate rose to a 25-year high of 8.1% in February, as employers cut 651,000 jobs from payrolls. Still, as bad as those numbers are, some have argued that this jobs downturn is not as bad as the early 1980s. The unemployment rate peaked at 10.8% in late 1982. But several experts say it would be a mistake to come to that conclusion. They argue that unemployment rate only hints at why this jobs downturn is worse than any since the Great Depression. Over the last six months, 3.3 million jobs have been lost. That's the largest six-month job loss since the end of World War II. Even adjusting for the large growth in the nation's job base in recent decades, this is still the biggest six-month job loss since March 1975. Economists say the steepness of this decline will make it tougher for the job market to improve any time soon. The increasing job losses create a downward spiral in which businesses, faced with lower demand because people can't afford to buy their products, lay off even more people. ... Another reason why this downturn is more painful is because the layoffs have come from companies in virtually all parts of the economy. "There's no place to hide in terms of job losses," said Lakshman Achuthan, managing director of Economic Cycle Research Institute. "And when measuring the impact of job losses, it's very important how pervasive the losses are. That's what makes this the worst since the Great Depression."[/quote] [b]Roubini on the "Surreal" Bank Nationalization Debate[/b] Nouriel Roubini`s latest newsletter comments of the "surreal debate" [url=http://clicks.skem1.com/v/?u=bc589bd8ad7676f46e5385551c68eb2c&g=3161&c=444&p=89fcd9c92ecd19db890a23233ef28fe3&t=1]regarding bank nationalization[/url] in the U.S.: [quote]The massacre in financial markets and among financial firms is continuing. The debate on “bank nationalization” is borderline surreal: with the U.S. government having already committed – between guarantees, investment, recapitalization, liquidity provision – about $9 trillion of government financial resources to the financial system (and having already spent $2 trillion of this staggering $9 trillion figure). Thus, the U.S. financial system is de-facto nationalized as the Fed has become the lender of first and only resort rather than the lender of last resort and the Treasury is the spender and guarantor of first and only resort. The only issue is whether banks and financial institutions should also be nationalized de jure rather than only de facto.[/quote] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=adfq4I9V1W6k&refer=news]Banks That Shunned Subprime Ask Why They're Paying for Wall Street `Greed'[/url]: [i]TCF Financial Corp., the Wayzata, Minnesota-based bank that never made a subprime loan and hasn’t lost money since 1995, is asking why it should help clean up the mess made by Wall Street.[/i] [quote]“I’m kind of bitter,” said William Cooper, chief executive officer of the 448-branch bank, adding that over the years TCF has invested about $1 billion in the Federal Deposit Insurance Corp.’s fund that guarantees bank deposits. “We pay for the excesses of our competitor over and over again.” TCF is among more than 8,300 banks and lenders insured by the FDIC facing increased fees and a one-time “emergency” charge designed to raise $27 billion this year for the agency’s depleted coffers. Community banks may take a 10 percent to 20 percent hit to 2009 earnings even if the FDIC halves that charge, said Camden Fine, president of the Independent Community Bankers of America. [/quote] [i]My Comment:[/i] It`s the same story at all levels ... the prudent being asked to bail out the reckless and profligate. [b]GE's Capital Woes[/b] If you`ve been wondering why the "gold standard" of blue-chip companies, GE, has been tumbling despite the fact that their core businesses seem to be doing OK, read this - GE`s problem is that they turned much of their operations away from "making stuff" to financial wizardry: [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=ary2g22GtuFA&refer=news]General Electric's Immelt Pays Price for Investments in Real Estate, Debt[/url]: [i]General Electric Co. Chief Executive Officer Jeffrey Immelt is paying the price for his investments in commercial real estate and U.K. property debt.[/i] [quote]Profit at GE Real Estate dropped by $1.1 billion last year, according to the annual report from the parent company’s GE Capital finance arm. Fairfield, Connecticut-based General Electric’s real estate earnings are likely to fall further as occupancies and rents drop in a U.S. recession that’s now in its second year, said James S. Corl, who oversees distressed real estate investments at Siguler Guff & Co. in New York. “They spent a huge amount of money in real estate,” Corl said. “They paid a full price for what ends up being a lot of mediocre real estate.” General Electric shares this week dropped below $6 for the first time since December 1991 on concern that GE Capital may require additional cash. GE Vice Chairman and Chief Financial Officer Keith Sherin said in a statement yesterday that he sees no need to raise additional capital, and that the company’s financial services businesses expect to be profitable in the first quarter of 2009 and all year.[/quote] [i]My Comment:[/i] Pull the other one, Keith ... you sound like you`re channeling former Bear Stearns CEO Alan Schwartz, or any number of Wall Street firm heads who lied repeatedly in the past year about their company`s financial state and alleged lack-of-need-to-raise-money. The article goes on to quote a less-credulous independent analyst who estimates GE`s losses form it RE investments could top $10 billion. [b]One Business That Really is Recession-Proof[/b] A rare bright spot in the dire Eastern European economic picture: [url=http://www.bloomberg.com/apps/news?pid=20601085&sid=a99TyNWxZKMw&refer=europe]Eastern European Condom Sales Will Bolster Durex Maker During Recession[/url]: [i]SSL International Plc Chief Executive Officer Garry Watts is taking the manufacturer of Durex condoms to eastern Europe just as the region’s economic meltdown turns investors away.[/i] [quote]The U.K. maker of Durex and Contex brands plans to raise its stake in a unit that distributes contraceptives in Russia and nine other eastern European countries to 50 percent by April and expects to take full ownership by 2010, Watts said. The 200 million-pound ($283 million) takeover will raise SSL’s sales in the region by 100 million pounds a year starting from April. “Russian people aren’t going to stop having sex any more than British people are,” Watts, 52, said in an interview in London. “We’re not immune from the downturn, but [u]it’s a bit like Pizza Hut: If you’re not going out, then you might be willing to drop a five-pound vibrator ring into your trolley.”[/u][/quote] [i]My Comment:[/i] Perhaps it`s just me, but that last quote about Pizza Hut, trolley and vibrating devices has me utterly baffled - "reading it is like giving a rolling pin to a magician". Getting back to condom sales, I wonder if those might in fact be a growth area (wink, wink, nudge, nudge, say no more) during recessionary times ... people eating in more instead of going out, thus enjoying other forms of "low-cost home-based entertainment", but at the same time less inclined to engage in procreative sex. |
More bank-failure crapola about to hit the fan
[url=http://money.cnn.com/2009/03/06/news/dodd.fdic.fortune/index.htm]Washington prepares for big bank failure[/url]: [i]A bill introduced in the Senate would give FDIC chief, Sheila Bair, a huge loan to handle 'emergency situations' in the banking sector.[/i]
[quote]A bill introduced in Congress would give the FDIC, the agency that stands behind Americans' bank deposits, temporary authority to borrow as much as $500 billion from the government to shore up the deposit insurance fund. The bill -- the Depositor Protection Act of 2009, backed by Senate Banking Committee Chairman Chris Dodd, D-Conn. and Sen. Mike Crapo, R-Idaho -- wouldn't change the status of individual bank accounts, which through the end of this year are insured up to $250,000. But the Dodd-Crapo bill acknowledges what the financial markets have been signaling for the past month -- that the government must take the lead in a costly cleanup of the mess in the financial sector. [/quote] [i]My Comment:[/i] So, anybody wanna start a betting pool as to which of the giants will end up in FDIC receivership first? Citigroup seems a good candidate. Can`t help but smirk at the name of the proposed legislation: the "Dodd-Crapo" bill. If it passes, I suppose it`ll be called the "Dodd-Crapo law". [Any similarity to "Dodd crapola" completely unintentional]. |
four bears
It’s an interesting chart regarding scope, even if irrelevant to current market conditions. It's usually updated every trading day.
[URL="http://dshort.com/charts/bears/four-bears-large.gif"]http://dshort.com/charts/bears/four-bears-large.gif[/URL] |
Ethanol on my radar
I look at ethanol blended automotive fuel with some genuine optimism about green issues and new government directions but also a lot of skepticism and lingering resentments generated by the gaming of energy supply as with Enron and the California energy crisis.
Although I wouldn't call it a perfect storm, but many issues to be coalescing around ethanol right now (let's not forget the commodity pricing and animal feedstock issues either): [Washington Post] [URL="http://www.washingtonpost.com/wp-dyn/content/article/2009/03/05/AR2009030503815.html"]Ethanol Producers Press for Higher Limits[/URL][QUOTE]But many critics say the push for higher ethanol limits is really about propping up the heavily subsidized ethanol industry and giving a boost to venture capital firms that are still struggling to come up with an economically competitive way to produce other forms of ethanol made from plants that do not compete with food products.[/QUOTE][QUOTE]Many ethanol producers are pressing for a decision quickly. The industry has the capacity to produce 12.5 billion gallons a year of corn-based ethanol, about 9 percent of the nation's motor fuel supply and three times as much as was produced in 2005. But it is falling about 2 billion gallons short of that capacity as prices have tumbled in the economic downturn. VeraSun, once the nation's second-biggest producer, filed for bankruptcy protection last fall after losing hundreds of millions of dollars on a bad bet on corn prices. It accounts for about half of the nation's idle capacity. Other firms have been hit too. Last week Pacific Ethanol, struggling to negotiate new loan terms with Wachovia and other lenders, announced that it would suspend operations at two 60 million-gallon-a-year facilities, one in Stockton, Calif., and one in Burley, Idaho. Pacific Ethanol had already suspended operations at a 40 million-gallon-a-year plant.[/QUOTE][New York Times] [URL="http://www.nytimes.com/2009/03/07/business/energy-environment/07ethanol.html?_r=1"]Bigger Share of Ethanol Is Sought in Gasoline[/URL][QUOTE]Should current gasoline consumption levels persist and the blend level remain at 10 percent, demand at the nation’s gas pumps would be inadequate to absorb the 15 billion gallons of ethanol that refiners are required to blend. Ethanol producers also argue that without higher blend levels, there will be no room for the development of advanced biofuels, like ethanol made from wood chips or biological waste. Congress has set a target of using 21 billion gallons of that type of ethanol and other biofuels by the year 2022. The industry has a capacity of 12.5 billion gallons a year, but so many plants have been idled that production is expected to reach only about 10 billion gallons this year.[/QUOTE]VeraSun seems to be a big piece of the existing picture. They have been in bankruptcy proceedings and look like they might have led to lemony expressions from farmers. Recall that not long ago (yet effectively prehistoric in the current climate) many farmers switched to corn production because of high market prices and labor issues involving crops that could not have automated harvesting. [The Center for Agricultural Law and Taxation at Iowa State University] [URL="http://www.calt.iastate.edu/verasun.html"]VeraSun Energy Bankruptcy Poses Perils for Farmers and Elevators[/URL] [URL="http://www.calt.iastate.edu/verasun2.html"]Peril Continues for VeraSun Corn Suppliers[/URL] The following language is clearly more lucid to commodities trading personalities:[QUOTE]VeraSun Corn suppliers have been asking numerous questions regarding whether they should sell their corn without having received notice of rejection of their contracts. That could be a huge mistake. Until the contracts are rejected, the corn supplier is under contract to sell to VeraSun even though VeraSun may later reject the contract. What happens if a VeraSun Corn Supplier sells his corn prior to contract rejection? Assume that a VeraSun Corn Supplier has a contract for February delivery to a VeraSun plant at $6.00 per bushel and chooses to sell the corn at the current price offered by the elevator of $3.00 per bushel. If the prices stay low, VeraSun will most probably reject the contract and the corn supplier will not suffer any ill consequences. However, if the price of corn flips and the price for February corn increases to $7.00 per bushel, where it was last February, VeraSun would have the option to assume the contract and if the corn supplier did not have corn to fill the contract, the corn supplier would have to pay VeraSun the difference of $1.00 per bushel -- the difference between the market price and the contract price. The VeraSun Corn Supplier would effectively receive only $2.00 per bushel, instead of the $3.00 per bushel he thought he would receive.[/QUOTE][Ethanol Producer Magazine] [URL="http://ethanolproducer.com/article.jsp?article_id=5458"]RIN Credits, Ethanol Blending and the 800-pound Gorilla[/URL] [URL="http://ethanolproducer.com/article.jsp?article_id=5450"]Ethanol producers look to rebound from bankruptcy[/URL] I chose not to directly quote these articles because I am always somewhat concerned about permissions and copyrights. Worth reading. The first link recognizes an instance of the modern day dumping of bad news on a Friday so that it will be stale before greatly noticed. Valero is trying to buy five of VeriSun's ethanol plants. A [B]giant[/B] railroad capacity investment on expectations of ethanol shipping has gone bad. |
It’s a shame to mix ethanol with such an unpalatable thing as gasoline.
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[QUOTE=AES;164823]It’s a shame to mix ethanol with such an unpalatable thing as gasoline.[/QUOTE]
Pfui! Shame on you for trying to trick us...you guys from Tennessee just want it all for yourselves. |
Here's an idea ([I]my[/I] idea):
Since six Republican governors (Alaska, Idaho, Louisiana, Mississippi, South Carolina, Texas) have said they may reject portions of the federal stimulus money ([URL]http://www.nytimes.com/2009/02/21/us/21govs.html[/URL]), let's take the opportunity to run a little experiment. Many Republicans have shown that they value ideology over science, but this experiment doesn't require their cooperation because it can be done with existing reports that states are required to make to the feds. (Some may scoff that this experiment can't possibly be scientific, but a scientific approach doesn't require that an experiment be as formal as a lab study with controls and such if that's not possible, as in this case. It only requires that observations and reports be as objective and accurate as possible in the circumstances, with guards against self-, and other-, deception.) Let's carefully study the state-by-state differences in economic and other effects of applications of federal stimulus money -- with particular attention to the differences between those states that reject all or part of the money and those that accept all. (Note: the federal stimulus bill provides state legislatures the choice of overriding their governor's refusals, so it may be that ultimately no state rejects any portion.) Let's see if we can (perhaps we won't be able to) determine how the observed [i]differential[/i] effects correlate with liberal, conservative, or libertarian views and predictions. I expect that several institutions and many economists will be doing exactly that, and their reports in, say, summer of 2012 ought to be illuminating -- whenever they're sufficiently objective, that is. I wouldn't expect a Heritage Foundation ([URL]http://en.wikipedia.org/wiki/Heritage_Foundation[/URL]) study, for example, to say much that contradicts conservative principles, or a study by the Tellus Institute ([URL]http://en.wikipedia.org/wiki/Tellus_Institute[/URL]) to make a big deal about any results that don't fit liberal expectations. |
[QUOTE=cheesehead;164884]Here's an idea ([I]my[/I] idea):...[/QUOTE]
Maybe you'll be lucky this time and finally get data that shows a net positive payoff, because the consensus based on *existing* data is that stimulus has a net negative payoff. But if you don't play the lottery, you can't win, right? We can work out why government stimulus cannot work almost from first principles: there is no mechanism in place to remove inefficient bureaucratic activity, in the way bankruptcy removes inefficient economic activity. Without requiring a reboot of society, that is. What kind of crisis would it take to make 'less governement' a solution for people like you? |
Yes, never let a crisis go to waste.
Everyone considers it a "win" when a new bureaucracy is formed. GWB created his fair share. Bend over and take the stimulus from the government's package. |
[quote=__HRB__;164900]What kind of crisis would it take to make 'less governement' a solution for people like you?[/quote]Depends on your definition of "people like you". Please state less vaguely what you mean.
|
Trichet: "Blah, blah" | Sacramento's Hooverville
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=agySrPaiRni0&refer=news]U.S. Stocks Fluctuate as Bank of America's Gain Offset by Buffett Warning[/url]: [i]U.S. stocks swung between gains and losses as Bank of America Corp.’s advance and oil’s rally to a two-month high were offset by Warren Buffett warning that the economy “has fallen off a cliff.”[/i]
[i]My Comment:[/i] Warren`s bullish "I`m buying here" optimism of last Fall appears to have evaporated. [url=http://www.bloomberg.com/apps/news?pid=20601080&sid=a5iXfHd6atlQ&refer=asia]Japan Posts First Current-Account Deficit Since 1996 as Exports Collapse[/url]: [i]Japan posted its first current- account deficit in 13 years in January after exports collapsed amid the global recession.[/i] [quote]Companies from Toyota Motor Corp. to Sharp Corp. are cutting output and firing workers as overseas shipments slump at an unprecedented pace, pushing Japan toward its worst postwar recession. The global economy is likely to shrink for the first time since 1945 this year, the World Bank said today, forecasting that trade will drop by the most in 80 years. “Other countries are in recession while Japan is in a depression,” said Chua Soon Hock, managing director of Asia Genesis Asset Management Pte, a Singapore-based hedge fund. “Japan is like an old man who developed pneumonia while other younger countries caught the flu.” [/quote] [i]My Comment:[/i] The "old man" metaphor is apt, due to Japan`s rapidly graying population - the sheer lack of younger workers will make it extraordinarily difficult to revive their economy, which never really recovered from the collapse of their own real estate bubble 20 years ago. [url=http://www.bloomberg.com/apps/news?pid=20601085&sid=axI1BvVndWZM&refer=europe]Trichet Says Investors Are Underestimating Economic Stimulus, Sees Pickup[/url]: [i]European Central Bank President Jean-Claude Trichet, who chaired a meeting of global central bankers today, said investors are underestimating the potential for a return to economic growth and that the world may be approaching a turning point.[/i] [quote]“[u]We have a number of elements suggesting that we’re approaching the moment where we’re having a pickup[/u],” Trichet said today at a press conference in Basel, Switzerland, where he chaired the Global Economy Meeting at the Bank for International Settlements. “[u]But we’re still at a level where the positives are not fully priced in[/u].” [/quote] [i]My Comment:[/i] Eh, which "positives" might those be now, J.C.? Like central bankers everywhere are wont to do, Mr. Trichet greatly overestimates the potential of central banks to be forces for good, as he does the (alleged) effects of "monetary easing", i.e. forced easing of credit, to help fix a problem caused by decades-long too-easy credit. Trichet`s press conference was a masterpiece of pusillanimous bureaucratic mumbo-jumbo, though, with content-free gems like these: [i] "We have a number of elements suggesting that we’re approaching the moment where we’re having a pickup..." "We are identifying a number of elements in the global economy which are expansionary, first the decision of authorities taken and the price of oil..." "We also trust as central banks with regards to monetary easing that this easing is also underestimated by the observers and market participants..." "Most of the observers are projecting negative growth for the industrialized world, growth which would be very close to zero at a global level, and a pickup next year ... I wouldn’t say that central bankers would part from this analysis..." [/i] That last one is just so deliciously bureaucratic-bullshit-ese ... he can`t even bring himself to say something as weakly affirmative as "I agree with this analysis" or even "most of my central-banker drinking buddies agree with this" - no, he "wouldn’t say that central bankers would part from this analysis", which is about as [i]nichtssagend[/i] as one can possibly make a nothing-saying-statement-disguised-as-a-something-saying-statement. [url=http://www.bloomberg.com/apps/news?pid=20601085&sid=aR4Gd88yv9A8&refer=europe]Lloyds Declines as British Government Takes Majority Stake, Insures Assets[/url]: [i]Lloyds Banking Group Plc fell as much as 14 percent after the U.K.’s biggest mortgage lender ceded control to the government in return for state guarantees covering 260 billion pounds ($367 billion) of risky assets.[/i] [quote]Prime Minister Gordon Brown’s government in October engineered Lloyds’ acquisition of HBOS Plc as it sought to prevent HBOS’s collapse. That saddled Lloyds with risky loans and investments that slashed profit and forced it to seek state guarantees. About 83 percent of the assets Lloyds insured came from HBOS, the company said in a statement.[/quote] [i]My Comment:[/i] Sounds like the Brown-led UK government has been playing hot-potato with the insolvent banks, but in this game of hot potato, the longer you keep trying to toss it away, the hotter and more forcefully it returns to you. [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=a1ItlrP4MeQQ&refer=news]Depression Dynamic Takes Hold as World Trade, Banking System Revisit 1930s[/url]: [i]The U.S. economy’s vital signs may not confirm a diagnosis of depression. The symptoms increasingly point to one.[/i] [quote]As in the Great Depression, world trade is collapsing, wealth is evaporating and the banking system is broken. Deflation is a growing threat as companies slash production, pay and prices. And leaders worldwide are having difficulty making headway in halting the self-perpetuating decline. “We are tracking 1929-1930,” says Barry Eichengreen, a professor of economics and political science at the University of California, Berkeley. The result: This contraction may leave a lasting imprint on the economy and society, just as the Depression did. In the wake of the devastation of the 1930s, Americans swore off stocks, husbanded their own resources and looked to the government for help. Now, another generation might draw some of the same lessons from the deepest economic collapse of their lifetime. “This is going to scar the collective psyche,” says Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania. “People will become much more conservative in borrowing, lending and investing.” There’s no official definition of what qualifies as a depression. In the 1930s, the unemployment rate rose to 25 percent and the economy shrank by more than a quarter. No economist forecasts a return to the breadlines and shantytowns of that era, even as the economy gets closer to some of the metrics academics cite as constituting a depression, if not a “great” one. Nobel Prize-winning economist Robert Barro defines a depression as a 10 percent fall in per-capita gross domestic product and consumption. The Harvard University professor sees roughly a 30 percent chance of that occurring now. Billionaire Warren Buffett said today the economy “has fallen off a cliff” and is unlikely to turn around soon. The Berkshire Hathaway Inc. Chief Executive Officer also said, in an interview with the CNBC television network, that efforts to stimulate recovery may lead to inflation higher than the 1970s. The economy contracted at a 6.2 percent annual rate in the last quarter of 2008 and will shrink at a 7 percent rate in the first three months of 2009, projects Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York. Bradford DeLong, a former Treasury official who is now a professor at Berkeley, says a depression is a two-year period with unemployment at 10 percent or above. He says that’s possible, though not likely. The jobless rate rose to 8.1 percent in February, a 25-year high. [/quote] [i]My Comment:[/i] "No economist forecasts a return to the breadlines and shantytowns of that era..." - Very few economists forecast the implosion of the largest credit bubble in history, either. While I think large-scale Hooverville-style homeless encampments [url=http://www.dailymail.co.uk/news/worldnews/article-1159677/Pictured-The-credit-crunch-tent-city-returned-haunt-America.html]like this one which has sprung up near the California state capitol[/url] may not be probable (at least in the nations with reasonably-well-developed social safety nets), the local newscasts have been showing lines at local soup kitchens that are getting quite long of late, and most of the local food banks are feeling the strain. Admittedly, most of the folks you see in the aforementioned queues do look substantially better-fed than they did in the 1930s. Love this line from the above-linked Daily Mail article: [quote]Authorities in Sacramento, where Governor Arnold Schwarzenegger has his office, admit the sight of families living in such poverty is not pretty. But faced with their own budget crisis and a £30billion deficit, they have had little choice but to consider making the tent city a permanent fixture. [u]The city's mayor Kevin Johnson said: 'I can't say tent cities are the answer to the homeless population in Sacramento, but I think it's one of the many things that should be considered and looked at.'[/u][/quote] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=awsGRFrGWClM&refer=news]Making $34 Million at Merrill Means Never Again as Bonuses Meet Subpoenas[/url]: [i]Andrea Orcel’s reported $33.8 million compensation for 2008, a year when his employer, Merrill Lynch & Co., had net losses of $27 billion, doesn’t come without a price.[/i] [quote]Orcel, 45, Merrill’s top investment banker, has been subpoenaed to testify by New York State Attorney General Andrew Cuomo, who’s looking into the firm’s decision to pay $3.6 billion in bonuses to 700 employees just before it was swallowed by Charlotte, North Carolina-based Bank of America Corp. on Jan. 1. Orcel’s compensation at Bank of America, where he now heads international corporate and investment banking, probably will be capped as a result of new legislation. And it’s unlikely a rival firm would match his pay. “Nobody can get paid $34 million in this environment,” said Charles Geisst, author of “Wall Street: A History” and a finance professor at Manhattan College in New York. “We are at a crucial juncture, where that sort of thing goes out the window.” [/quote] [i]My Comment:[/i] Hey, I`d have no problem with someone making beaucoup bucks if he actually made a proportionally large amount of money for his firm and their clients... [quote]Last year, Orcel advised Royal Bank of Scotland Group Plc on its $19 billion acquisition of Dutch Bank ABN Amro Holding NV, which was completed in April. Royal Bank of Scotland, once the second-biggest U.K. bank by market value, is now controlled by the government after reporting the biggest loss in the country’s history.[/quote] [i]My Comment:[/i] Whoops - how about you give us back that bonus check? And on a it-would-be-even-funnier-if-the-stakes-weren`t-so-incredibly-high note, courtesy of the jokemeisters at CNBC (a wholly-owned subsidiary of General Electric), we have [url=http://globaleconomicanalysis.blogspot.com/2009/03/famous-last-words-revisited.html]Famous Last Words Revisited[/url]. |
Madoff Looks to Sorkin, the Ponzi Saver
On the heels of the news that Bernie Madoff is apparently close to "making a deal" with the SEC, nice article from Counterpunch.org on the law firm he has engaged, which apparently specializes in keeping Madoff-style Ponzi schemes from ever going to trial, and in the cited case, in fact [b]keeping the Ponzi going[/b] with the blessing of the SEC:
[url=http://hf-implode.com/viewnews/2009-03-09_SorkinThePonziSaver.html]Madoff Looks to Sorkin, the Ponzi Saver[/url] [quote][i]Growing questions are being asked by legal scholars and Wall Street veterans over the background role that Bernard Madoff’s attorney, Ira Lee Sorkin, played in 1992 that may have resulted in Madoff looting investors for an additional 16 years. That question now takes on heightened urgency as Sorkin negotiates a plea deal for Madoff that would avoid the antiseptic sunshine of an open courtroom trial. The 1992 episode was troubling enough but a search of court records shows Sorkin and his former law firm of 20 years, Squadron Ellenoff, were targets of more serious charges in one of the largest Ponzi schemes of the 1990s, Towers Financial Corporation, run by Ponzi mastermind Steven Hoffenberg. ... in 1988, six years before Hoffenberg was finally arrested and hundreds of millions of dollars more would be stolen, the SEC appears to have been close to uncovering the Ponzi scheme. But into the fray stepped Ira Sorkin and his law firm, Squadron Ellenoff, to work out a deal with the SEC. [/i] It is clear to us that this Sorkin fellow has a specialty: keeping semi-official-looting Ponzi schemes from ever being truly "busted" open by regulators. And now he's about to do it (again) for Madoff. You really gotta give them some credit for the sheer gall: [i] In 1992, the SEC filed a suit against Avellino & Bienes charging them with selling $440 million of unregistered securities to 3200 investors. Although the SEC knew the money had gone to Madoff, their complaint referred only to an unnamed broker. The SEC said at the time they felt they were looking at a Ponzi scheme. Then in steps Ira Sorkin, still at Squadron Ellenoff, and in the precise move made in the Towers Financial matter, offers to return all the money. Except the money wasn’t all returned. Behind the scenes, clients were simply allowed to sign agreements directly with Madoff and continue receiving those steady, stellar returns of 13 to 20 per cent according to lawyers representing defrauded clients. The SEC was somehow persuaded to drop the case in exchange for an agreement that Avellino & Bienes would shut down their firm and pay a fine. [/i] That's right -- when the SEC figured it was a Ponzi scheme (to the benefit of Madoff), they allowed a settlement to be implemented that resulted in Madoff keeping the capital... and paying returns out from the Ponzi scheme. In other words, the SEC (at Sorkin's direction) abetted the continuance of the Ponzi scheme, by buying off the clients with *guaranteed* returns from the same Ponzi scheme. That's "regulation" for ya, made in America![/quote] |
Do the Big boffo bear market bounce boogie!
[url=http://money.cnn.com/2009/03/10/news/economy/moodys_bottom_rung/index.htm]Moody's unveils most-likely-to-default list[/url]: [i]Credit rater publishes list of 283 companies that are in danger of defaulting on their debt payments.[/i]
[i]My Comment:[/i] Given the sterling nature of their ratings of, say, mortgage-backed securities, I find this an extremely reassuring development. :irony[sup]n[/sup]: Despite the BIG MEGAHUGE POWERFUL FINANCIALS-FUELED-BUT-REALLY-BROAD-BASED-SUPER-DUPER-RALLY!!! on Wall Street today (triggered by Citigroup [url=http://globaleconomicanalysis.blogspot.com/2009/03/another-bear-market-rally-or-something.html]announcing fake "net earnings" for the first months of 2009[/url]), there`s plenty more crap comin` down the ol` pike for the beleaguered banks: [url=http://money.cnn.com/2009/03/09/news/companies/banks_credit_cards/index.htm]Banks' future woes in one word: plastic[/url]: [i]Major banks have been hit hard by bad mortgages. Now, fears are growing that troubled financial institutions are going to have another consumer headache to deal with: credit card defaults.[/i] [url=http://money.cnn.com/2009/03/10/pf/fitch_default/index.htm]Credit card delinquencies hit index record[/url]: [i]For the second month in a row, a record number of U.S. consumers were late on their payments, according to Fitch.[/i] |
[QUOTE=ewmayer;165035]On the heels of the news that Bernie Madoff is apparently close to "making a deal" with the SEC, nice article from Counterpunch.org on the law firm he has engaged, which apparently specializes in keeping Madoff-style Ponzi schemes from ever going to trial, and in the cited case, in fact [b]keeping the Ponzi going[/b] with the blessing of the SEC:
[url=http://hf-implode.com/viewnews/2009-03-09_SorkinThePonziSaver.html]Madoff Looks to Sorkin, the Ponzi Saver[/url][/QUOTE] I believe Madoff's deal will entail his family avoiding becoming long pork. He's going away. [URL="http://dealbook.blogs.nytimes.com/2009/03/10/madoff-to-plead-guilty-to-fraud/"]http://dealbook.blogs.nytimes.com/2009/03/10/madoff-to-plead-guilty-to-fraud/[/URL] [QUOTE] Mr. Madoff faces 11 felony charges, including securities fraud, investment adviser fraud, mail fraud, wire fraud, three counts of money laundering, false statements, perjury, false filings with the Securities and Exchange Commission and theft from an employee benefit plan. Under federal sentencing guidelines, the counts carry a maximum sentence of 150 years in prison. He must also forfeit the proceeds of the crimes. Mr. Madoff will plead guilty without receiving a plea deal from prosecutors. “There is no plea agreement with the defendant,” a federal prosecutor, Marc O. Litt, told the judge. [/QUOTE] |
[QUOTE=ewmayer;165093]
[url=http://money.cnn.com/2009/03/10/pf/fitch_default/index.htm]Credit card delinquencies hit index record[/url]: [i]For the second month in a row, a record number of U.S. consumers were late on their payments, according to Fitch.[/i][/QUOTE] There's also the credit line contraction that's happening concurrently. I received a letter from Citi explaining that since x of my line of credit has never been used, the new maximum line of credit is y. I have never missed a payment on this account and the principle payoff occurs quarterly. It's not a credit card account, but my guess is that lines of credit are shrinking everywhere. Any thoughts on the repercussions this will carry? |
[quote=ewmayer;165093]Despite the BIG MEGAHUGE POWERFUL FINANCIALS-FUELED-BUT-REALLY-BROAD-BASED-SUPER-DUPER-RALLY!!! on Wall Street today (triggered by Citigroup [URL="http://globaleconomicanalysis.blogspot.com/2009/03/another-bear-market-rally-or-something.html"]announcing fake "net earnings" for the first months of 2009[/URL]), there`s plenty more crap comin` down the ol` pike for the beleaguered banks:
[URL="http://money.cnn.com/2009/03/09/news/companies/banks_credit_cards/index.htm"]Banks' future woes in one word: plastic[/URL]: [I]Major banks have been hit hard by bad mortgages. Now, fears are growing that troubled financial institutions are going to have another consumer headache to deal with: credit card defaults.[/I] [URL="http://money.cnn.com/2009/03/10/pf/fitch_default/index.htm"]Credit card delinquencies hit index record[/URL]: [I]For the second month in a row, a record number of U.S. consumers were late on their payments, according to Fitch.[/I][/quote]Are you hinting to us that the "BIG MEGAHUGE POWERFUL FINANCIALS-FUELED-BUT-REALLY-BROAD-BASED-SUPER-DUPER-RALLY!!! on Wall Street today" was a bear-market rally, not an after-establishing-the-bottom genuine bull rally? That the Forrest-Gumpers ("500 is as 500 does") are not yet disproven? |
[quote=AES;165105]It's not a credit card account, but my guess is that lines of credit are shrinking everywhere.[/quote]Oh yes, your experience is being reported by many others, too.
[quote]Any thoughts on the repercussions this will carry?[/quote]Well, it [I]does[/I] reduce banks' exposure to potential future defaults -- just as actually refusing a loan application does. Makes sense in each individual case. Too bad it isn't a positive indicator for recovery because it isn't what the world needs now to encourage [I]that[/I]. (Nor does it keep the overly-generous-credit-line-granting horses from having already left the barns of banks who overlent.) |
[QUOTE=cheesehead;165106]Are you hinting to us that the "BIG MEGAHUGE POWERFUL FINANCIALS-FUELED-BUT-REALLY-BROAD-BASED-SUPER-DUPER-RALLY!!! on Wall Street today" was a bear-market rally, not an after-establishing-the-bottom genuine bull rally?[/QUOTE]
Indeed, that's what my money's on - both figuratively and literally. -------------------------- [URL="http://money.cnn.com/2009/03/11/news/economy/state_unemployment/index.htm"]Four states' unemployment rates above 10%[/URL]: [I]Michigan, South Carolina, Rhode Island and California lead U.S. jobless rates, government says.[/I] [URL="http://money.cnn.com/2009/03/11/autos/gm_trouble.fortune/index.htm"]Fortune.com | GM has more troubles than you think[/URL]: [I]Bad cost-cutting ideas, poor efficiency and lousy cars - it's going to take a lot more than the Volt to save General Motors.[/I] [B]World News:[/B] [URL="http://www.bloomberg.com/apps/news?pid=20601080&sid=aF75Q0l1IFTc&refer=asia"]China's Investment Surges 26.5% on Stimulus; Exports Decline by a Record[/URL]: [I]China’s investment spending surged as the nation poured money into roads, railways and power grids to counter a plunge in exports, which a separate report showed fell by a record in February.[/I] [I]My Comment:[/I] It is to be hoped that China will reap the benefots of this spate of make-work infrastructure spending in the future ... but I fear much of it is going to be of the bridges-to-nowhere variety Japan squandered so much of its reserves on in an effort to pull itself out its housing-bubble-induced recession in the late 80s and 90s. [URL="http://www.bloomberg.com/apps/news?pid=20601085&sid=apE182UITs2E&refer=europe"]German Manufacturing Orders Fall Most Since Reunification as Exports Slump[/URL]: [I]German manufacturing orders collapsed in January as the global recession smothered exports.[/I] [quote]Orders plunged 38 percent from a year earlier, the biggest drop since data for a reunified Germany started in 1991, the Economy Ministry in Berlin said today. From December they fell 8 percent, four times as much as economists expected and extending their worst decline on record. “The annual slump is absolutely catastrophic,” said Alexander Koch, an economist at UniCredit MIB in Munich. “The extent of declines is terrifying.” [/quote][URL="http://www.bloomberg.com/apps/news?pid=20601085&sid=ah_6DCQHRkos&refer=europe"]Russia's One-Company Towns Suffer as Demand Plummets, Workers Grow Restive[/URL]: [I]Alexander Skachkov, waiting to sign up for unemployment benefits in Zlatoust in Russia’s Ural Mountains, laughed as he recalled a November newspaper interview with a local official.[/I] [B]Markets and Investing:[/B] [URL="http://moneyfeatures.blogs.money.cnn.com/2009/03/11/a-market-bear-says-its-time-to-return-to-stocks/"]A market bear says it’s time to return to stocks[/URL] [quote]The stock market’s huge bounce yesterday was its best performance in months. But by now, you know that a one-day rally isn’t something to hang your hat on in a bear market. Even with Tuesday’s surge, the Dow is off more than 50% since it peaked in October 2007. Here is something to think about, however. This month, Jeremy Grantham, chief investment strategist at GMO, who has long been bearish on stocks, wrote that now is not the time to sit on the sidelines. He argues that the fair value for the S&P 500 is 900. After yesterday’s close, the blue-chip index sits at 720. “Global equities are even cheaper,” he says.[/quote][I]My Comment:[/I] You go right ahead and load up, Jeremy, and make sure to come back to us in a year and let us know how that worked out for you. I`ve seen other credible estimates that say fair value for the S&P 500 is 450 ... given that housing prices, the ultimate driver of this downturn, still have a ways to fall before they get back to long-term Case-Shiller norms (and nothing says they can`t overcorrect), and the recession is looking quite likely to turn into a lengthy U-shaped or even L-shaped one, I think I'll hold off, thank you very much. (Or more proactively, short the bear-market rallies we are bound get along the way, inspired in part by bullish analysts or "reformed bears" like Grantham and "market oracles" like Buffett proclaiming "now is the time to buy"). [quote]There’s no way to know if Grantham is correct. Even he is unsure of when stocks will hit bottom. Grantham, for example, shifted cash into stocks back in October, well before the market hit fresh lows this year. But he also didn’t bet everything at once. “We made one very large reinvestment move in October…and we have a schedule for further moves contingent on future market declines,” he says.[/quote][I]My Comment:[/I] A.k.a. the "why lose your shirt all at once when you can lose it one large swatch at a time?" investing strategy. [URL="http://www.bloomberg.com/apps/news?pid=20601103&sid=a0SGzlISQfa0&refer=news"]Citigroup, Bank of America Bondholders May Be Next to Share Bailout Pain[/URL]: [I]Citigroup Inc. and Bank of America Corp.’s bond prices are sliding on concern that owners of debt issued by U.S. financial firms will be forced to swallow losses if the industry needs another bailout.[/I] [quote]U.S. bank debt has lost 7.8 percent and yields have jumped to record levels compared with benchmark rates in the past month, even after taxpayers committed more than $11.6 trillion to prop up financial firms. With shareholders almost wiped out at banks like Citigroup and lawmakers resisting more rescues, holders may be asked to swap bonds for new debt that offers reduced interest rates or lower face values, analysts said. “The bond market is getting more scared every day,” said Gary Austin of PDR Advisors in Charlotte, North Carolina, who manages $450 million in fixed-income securities. “At some time, the government is going to say enough is enough, the only way we will give you more cash is if the bondholders have to be hit.” [/quote][I]My Comment:[/I] Nowhere is it written that bondholders should be made whole at taxpayer expense ... but perhaps one reason the government has been so reluctant to even hint at bondholders getting a haircut is that foreign governments (especially China) own huge amounts of such bonds. There was a reason Hillary Clinton jumped through hoops to take human rights issues off the table during her recent visit to Beijing - if we want the Chinese govt to continue to dutifully buy U.S. treasury debt and help fund our record spate of bailout/stimulus-related deficit spending, we can`t afford to piss off the top brass in Beijing. Hence all the kowtowing by Hillary. [URL="http://www.bloomberg.com/apps/news?pid=20601103&sid=aFC2imt4ZK74&refer=news"]Fed Interest-Rate Policy Didn't Cause U.S. Housing Bubble, Greenspan Says[/URL]: [I]The U.S. Federal Reserve’s “easy money” policies during the first part of this decade didn’t cause the housing bubble, former Chairman Alan Greenspan wrote in the Wall Street Journal.[/I] [quote]A surge in growth in China and other emerging markets led to an excess of savings that pushed global long-term interest rates down between early 2000 and 2005, Greenspan wrote in an article. That caused mortgage rates and the benchmark Fed-funds rate to diverge after moving “in lockstep” from 1971 to 2002, he said. The article is part of the former Fed chief’s defense against charges in books such as “Greenspan’s Bubbles” by William A. Fleckenstein that his policy of keeping rates too low for too long inflated the housing bubble. The collapse in the U.S. subprime-mortgage market led to about $1.2 trillion in writedowns and the bankruptcy of Lehman Brothers Holdings Inc. “Given the decoupling of monetary policy from long-term mortgage rates, accelerating the path of monetary tightening that the Fed pursued in 2004-2005 could not have prevented the housing bubble,” Greenspan said. [/quote][I]My Comment:[/I] Poor "maestro", trying desperately to shore up his shot credibility, by peddling his only-half-the-story "savings glut" hypothesis. Of course the Fed couldn`t have prevented the housing bubble (which Greenspan refused to acknowledge even existed until very recently) in 2004-2005, because by then the cows had long left the barn. But the Fed certainly could have prevented the housing bubble by not ratcheting interest rates near 0 in 2002-2002, in a desperate, misguided attempt to bail the economy out from the effects of the previous Fed-fueled bubble, the DotCom one, made worse by the aftereffects of 9/11. In order to avoid paying the piper for the earlier bubble, Greenspan et al blew an even bigger, much-nastier one. And Greenspan is on record touting the wonderful benefits of "alternative mortgage products" which allow many more Americans (especially the ones lacking the wherewithal to buy a house) to "experience the joys of home ownership", "home ownership" of course being a euphemism for "debt slavery". Lastly, the Greenspan-led Fed studiously ignored the explosion in predatory and subprime lending accompanying all the "financially innovative" new mortgage products. I repeat: What a complete and utter douchebag is our Mr. Greenspan. |
[quote=ewmayer;165135][I]My Comment:[/I] Nowhere is it written that bondholders should be made whole at taxpayer expense ... but perhaps one reason the government has been so reluctant to even hint at bondholders getting a haircut is that foreign governments (especially China) own huge amounts of such bonds.[/quote]Wait a minute ... I know China owns about $1 trillion of [I]U.S. Treasury[/I] bonds; do you have a reliable source that China owns comparably large amounts of [I]corporate bank[/I] bonds? That article was about bank bonds, not U.S. Treasury bonds.
[quote]There was a reason Hillary Clinton jumped through hoops to take human rights issues off the table during her recent visit to Beijing - if we want the Chinese govt to continue to dutifully buy U.S. treasury debt and help fund our record spate of bailout/stimulus-related deficit spending, we can`t afford to piss off the top brass in Beijing. Hence all the kowtowing by Hillary.[/quote]Yes, but that's about treasury bonds, not corporate bonds AFAIK. |
[QUOTE=cheesehead;165151]Wait a minute ... I know China owns about $1 trillion of [I]U.S. Treasury[/I] bonds; do you have a reliable source that China owns comparably large amounts of [I]corporate bank[/I] bonds? That article was about bank bonds, not U.S. Treasury bonds.[/QUOTE]
Google "China Investment Corporation" ... but you're right, China's main holdings are US Treasuries and agency bonds, so Hillary's kowtowing was probably mostly with respect to keeping the money for those flowing, needed (among other things) to finance the Obama administration's stimulus spending spree. The agency bonds were a major issue last year when the government quasi-nationalized Fannie and Freddie - they absolutely needed to keep those bondholders whole, because of the implied (and perhaps made-explicit-to-Hank-Paulson-via-the-red-phone) threat of the SWFs dumping agency bonds. -------------------------------- [url=http://globaleconomicanalysis.blogspot.com/2009/03/boomers-future-went-down-drain.html]Boomers Go Bust: The Silver Lining to Shared Penury[/url] [quote]As more and more boomers scale down their retirement plans and consider alternative living arrangements, it's worth asking: Is shared housing such a bad thing for aging boomers? Does a return to the Communal idea, borne of economic necessity, also have emotional, social, and environmental benefits? Why wait for the retirement home or hospice to live with other people? With the nation full of worthless, ridiculously large, and mostly empty houses, why not fill them with the newly penurious and like-minded boomers in need of housing?[/quote] [i]My Comment:[/i] A startling excerpt from the second article in Mish`s roundup, one your local realtor probably wouldn`t want you to hear: [quote]These calculations imply that, as a result of the collapse of the housing bubble, millions of middle class homeowners still have little or no equity even after they have been homeowners for several decades. These households will be in the same situation as first-time homebuyers, forced to struggle to find the money needed to put up a down payment for a new home. This will make it especially difficult for many baby boomers to leave their current homes and buy housing that might be more suitable for their retirement. Finally, the projections show that for both age groups [i][45-54 and 55-64][/i], [u]the renters within each wealth quintile in 2004 will have more wealth in 2009 than homeowners in all three scenarios. In the second and third scenarios, renters will have dramatically more wealth in 2009 than homeowners who started in the same wealth quintile[/u].[/quote] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aDNGVfeY8lgQ&refer=news]Freddie Mac to Draw $30.8 Billion in Treasury Aid Following Quarterly Loss[/url]: [i]Freddie Mac, the mortgage-finance company thrust into a leading role in President Barack Obama’s homeowner rescue plans, said it will tap $30.8 billion in federal aid as deterioration in its loan holdings led to a record loss.[/i] [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=adE622bH2_kc&refer=news]Cuomo Says Merrill Employees May Have Marked Down Portfolios After Bonuses[/url]: [i]Merrill Lynch & Co. employees may have written down the bank’s holdings after their 2008 bonuses were set, leading to losses that were larger than expected, New York Attorney General Andrew Cuomo said.[/i] [quote]“Less than a week after Merrill voted its premature bonuses, Merrill determined that it would incur an unexpected additional $7 billion in losses for the fourth quarter of 2008, beyond the $8 billion it was already anticipating,” Cuomo said today in court papers. “It appears that some of these losses may have been booked by Merrill employees who marked down their portfolios only after their 2008 bonuses were set.” The papers were filed in opposition to Bank of America Corp.’s motion to intervene in a probe of the Merrill bonuses and stop public disclosure of who received the bonuses and how much they got. Bank of America acquired Merrill in January. [/quote] [i]My Comment:[/i] Can you say "conspiracy to commit fraud?" |
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We grew weary of watching our meager investments lose value day after day, so we pulled most our money out and bought a pile of lame treasury bonds and spent the rest on a neat new [URL="http://www.mersenneforum.org/pdf/Submariner.pdf"]watch[/URL]. It isn't a horological masterpiece like something from A. Lange & Söhne, but is is fun and it has a nice vintage look. If we are going to lose money we may as well look good while doing it.
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Madoff off to jail | GE gets an A- | Daily Show
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=arlJGM_6.zsM&refer=news]Madoff Ordered to Jail Pending Sentencing After Ponzi-Scheme Guilty Plea[/url]: [i]Bernard Madoff was jailed after admitting he masterminded the largest Ponzi scheme in history, an epic swindle that may have reached $65 billion and made him the symbol of investor distrust in a global recession.[/i]
[quote]The case doesn’t end with Madoff’s plea. Investigators have seized control of his offices at the lipstick-shaped building at 885 Third Avenue in Manhattan, where Madoff Securities operated out of three floors. Prosecutors say his subordinates helped him swindle investors. A central issue for investigators is whether employees knew of the fraud. No one else has been charged. Madoff didn’t sign a plea deal that would have granted him leniency or other consideration in exchange for cooperation with the government. He was forced to plead guilty to all 11 counts against him because he refused to admit to a conspiracy, a charge that would have required him to disclose co- conspirators, according to people familiar with the case. Prosecutors are hunting for Madoff’s assets, as they seek forfeiture of the $170 billion they said moved through Madoff Securities since the fraud began in the 1980s. The firm’s bankruptcy trustee has found about $1 billion in cash and securities.[/quote] [i]My Comment:[/i] Madoff`s lawyers claim his wife`s assets are unrelated to the scam, but based on recent revelations that she was not especially wealthy when she married him that hardly seems credible - wonder if prosecutors will really go after her and the rest of the [likely] unindicted co-conspirators. Meanwhile, a smaller-scale Madoff-style ponzi was revealed yesterday here in the SF bay area - like Madoff, this one promised unreasonably high returns (2-3% per month, "guaranteed") via magical stock-trading software, and was an affinity scam, in this case using the scammer-in-chief`s ties to the local Mormon community to pass the key hurdle for any scam, gaining the victims` trust. [url=http://money.cnn.com/2009/03/12/news/companies/ge_credit_downgrade/index.htm]GE loses top rating in downgrade[/url]: [i]Standard & Poor's knocks down conglomerate and GE Capital's credit to 'AA+' from perfect 'AAA,' citing worsening economic conditions.[/i] [quote]S&P said it lowered the company's rating to "AA+" from "AAA," because it expects the worsening economy to cause GE's holdings to deteriorate in value. GE's finance arm GE Capital Corp. (GECC) also received a one-notch downgrade to AA+. ... The rating agency said that it still believes that GE is on solid footing, predicting that the multinational company will be able to generate about $2 billion in cash flow due to its huge reduction of its dividend to 10 cents from 31 cents late last month. ... GE was one of only six American companies to hold AAA status. The five remaining are Berkshire Hathaway Inc. (BRK.A), Automatic Data Processing (ADP), Exxon Mobil Corp. (XOM), Johnson & Johnson (JNJ) and Microsoft Corp (MSFT). [/quote] [i]My Comment:[/i] Apparently Berkshire has enough cash on hand to keep its AAA despite Warren Buffett`s holdings getting a nearly 50% haircut in the past year. Saw on the evening n00z yesterday that Warren himself lost nearly $20 billion in net worth last year, causing him to slip back behind Bill Gates (whose portfolio also took a steep hit, just not as bad as WEB`s) in the official rankings of the World`s Richest [i]Überkapitalisten[/i]. In response to the reporter`s asking something to the effect of "yeah, but they`re still super-rich ... how much pain can they really be feeling?", the financial analyst being interviewed for the piece replied - and I`m not joking - to the effect of "For many, this means a wrenching change in lifestyle - if you were worth $2 billion and now you`re suddenly only worth $100 million, there goes the private jet ... [u]the worst thing for the economy is panicky billionaires[/u]." [Feel free to insert obligatory "that is so rich ... oh wait, it`s not anymore" joke here]. [url=http://money.cnn.com/2009/03/12/real_estate/new_foreclosure_jump/index.htm]Rise in foreclosures 'a shock'[/url]: [i]February saw an unexpected jump in foreclosure filings as the weak economy puts more pressure on borrowers.[/i] [quote]More than 74,000 homes were lost to bank repossessions during the month, up from 67,000 in January, according to a regular monthly report from RealtyTrac, the online marketer of foreclosed properties. Nearly 1.2 million have been lost since the foreclosure crisis hit in August 2007. The number of foreclosure filings rose 6% during the month after falling 10% in January. Worse, filings leaped nearly 30% compared with February 2008. And the results confounded expectations: A downtrend had been expected due to the numerous foreclosure moratoriums in effect during the month. 0:00 /1:07Plan to aid ailing homeowners "We were very surprised," said RealtyTrac spokesman Rick Sharga. "The moratorium were led by big players like Fannie and Freddie and all the major banks. It was supposed to cover the whole waterfront. The fact that foreclosures still went up was a shock." A particularly troubling aspect of the report was that, for many borrowers, once they go into default, they never get out despite moratorium efforts. That's borne out by comparing bank repossessions - homes actually lost by borrowers - with total foreclosure filings: Nationally, repossessions increased 11% for the month, almost double the 6% rise for filings.[/quote] [b]TV Guide Alert:[/b] U.S. Viewers and worldwide fans of comedy Central`s [i]The Daily show[/i] will want to make sure to catch tonight`s show: CNBC chief stock-pumping shill Jim Cramer goes toe-to-toe with Jon Stewart, who basically tore Cramer and the rest of the CNBC bulltards a [url=http://www.thedailyshow.com/video/index.jhtml?videoId=220252&title=cnbc-gives-financial-advice]new one last week[/url]. "If I`d listened to Jim Cramer, I`d have a million dollars ... assuming I`d started with a hundred million dollars." I fear however that the face-to-face format may lead to an excess of politeness, so don`t expect any fireworks. Cramer, despite being the ultimate contrary stock-market indicator, is smart at understand his real role of entertainer, and thus knows that for someone like himself there is no such thing as bad publicity. Thus the "entering the lion`s den" is not such a brave thing as it might seem for him. |
The high pay packages ceo's pull in are also part of Canada's culture.
[url]http://ca.finance.yahoo.com/personal-finance/article/canadianbusiness/1022/executive-compensation-bank-slips[/url] [QUOTE]Ed Clark of the Toronto-Dominion Bank (tsx: TD) is the latest CEO to renounce the whopping bonus he was awarded by his board. Earlier this month, Clark announced that he would be donating $3 million in bonus payments to charity after TD’s board awarded him $11 million in total direct compensation for the year. That $11 million was down 19 per cent from the $13.5 million Clark was awarded in 2007, according to the bank’s annual proxy circular. “While the Board stands behind its original compensation award decision, we respect Ed’s wishes,” TD chairman John Thompson said in a release. TD stock is trading at around $33 per share — less than half what it was worth last year. Earlier this year, Royal Bank of Canada (tsx: RY) CEO Gordon Nixon announced that he was declining to accept $2.75 million in deferred shares and another $2.2 million in stock options. The Bank of Montreal (tsx: BMO) announced that its new CEO, William Downe, would receive nearly $6 million — up from $5.5 million paid in 2007 — after the bank “performed well in challenging times.” After other Canadian bankers began turning down bonus money, however, Downe announced he would not be accepting $4.1 million of that compensation package. Rick Waugh, CEO at the Bank of Nova Scotia (tsx: BNS), took a 20 per cent cut in his compensation to $7.5 million. Canadian Imperial Bank of Commerce (tsx: CM) chief executive Gerald McCaughey’s compensation dropped to $5.3 million from more than $9 million last year. According to the bank’s annual proxy, however, McCaughey would have been eligible for a paycheque worth nearly $13 million because of a one-year lag in setting CIBC bonuses. McCaughey also received a sweetener to his pension plan that could increase its value to $1.6 million per year — up $300,000. In December, CIBC posted a loss of $2.1 billion for the year. To justify their generous compensation awards, most bank boards cited the relatively strong performance of our banks compared to their international rivals, many of which loaded their balance sheets up with sub prime mortgages, collateralized debt obligations and other now-toxic assets. And while the Canadian banks should be commended for not playing Russian roulette with shareholders’ capital, outperforming Wall Street’s mortgage markets this year is a little like being “taller than pygmies,” said Ian de Verteuil, an analyst at BMO Capital Markets in a recent research note. “It isn’t a harsh yardstick against which to be judged.”[/QUOTE] One major advantage Canada has is a much stronger bank regulatory framework than the U.S. as well as a pessimistic outlook on mega mergers. This has resulted in their banks coming through the fiscal meltdown relatively unscathed. Their stock price has slipped up to 50%, but overall, their business is solid. By comparison, all of the major U.S. banks are in serious trouble and quite a few regional and local institutions are seriously impacted. What should we be learning from Canada? DarJones |
[QUOTE=Xyzzy;165171]We grew weary of watching our meager investments lose value day after day, so we pulled most our money out.[/QUOTE]Those of us that hold on through the bottom of the dip will laugh at you on the way up.
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[QUOTE=Uncwilly;165213]Those of us that hold on through the bottom of the dip will laugh at you on the way up.[/QUOTE]
The same group of economists who sat around and "fiddled while Rome burned" have given Obama a failing grade (and Bernanke a passing grade!!) for their handling of the economy. (according to WSJ) Talk about Chutzpah!!!!! The only occupations that I hold in lower regard than economists are lawyers and politicians..... sad. really sad.... |
[QUOTE]We grew weary of watching our meager investments lose value day after day, so we pulled most our money out[/QUOTE]
[QUOTE=Uncwilly;165213]Those of us that hold on through the bottom of the dip will laugh at you on the way up.[/QUOTE] I got lucky enough to buy near the bottom, so I should have made a nice profit if I chose to sell my shares later today. Unfortunately, I wasn't brave enough to buy that many shares, so most of the profits were lost to broker fees :mad:. I guess I'll just have to hope for a better day tomorrow... |
[quote=ewmayer;165156]Google "China Investment Corporation"[/quote]Thanks.
From the Wikipedia article ([URL]http://en.wikipedia.org/wiki/China_Investment_Corporation[/URL]): [quote]Market watchdogs want to know what would happen if China, [URL="http://en.wikipedia.org/wiki/Russia"]Russia[/URL] and [URL="http://en.wikipedia.org/wiki/Arab_countries"]Arab countries[/URL] were to systematically acquire significant holdings in sensitive industries such as [URL="http://en.wikipedia.org/wiki/Telecommunication"]telecommunications[/URL], [URL="http://en.wikipedia.org/wiki/Energy_industry"]energy[/URL] and [URL="http://en.wikipedia.org/wiki/Defense_industry"]defense[/URL]. It could prove difficult to draw the line between sound government policies and neo-[URL="http://en.wikipedia.org/wiki/Protectionism"]protectionism[/URL].[/quote]- - - [quote=ewmayer;165156]China's main holdings are US Treasuries and agency bonds, < snip > The agency bonds were a major issue last year when the government quasi-nationalized Fannie and Freddie - they absolutely needed to keep those bondholders whole, because of the implied (and perhaps made-explicit-to-Hank-Paulson-via-the-red-phone) threat of the SWFs dumping agency bonds.[/quote]Oh yeah, I keep forgetting agency bonds. |
[quote=Uncwilly;165213]Those of us that hold on through the bottom of the dip will laugh at you on the way up.[/quote]
Perhaps, perhaps. But then those of us that weren't holding or were shorting for the past year were laughing at the buy and hold crowd (does that include you?) on the way down. |
Bull Run | 2008: U.S. Households lost $11 Trillion
[QUOTE=cheesehead;165238]From the Wikipedia article ([URL]http://en.wikipedia.org/wiki/China_Investment_Corporation[/URL]):
[quote]Market watchdogs want to know what would happen if China, [URL="http://en.wikipedia.org/wiki/Russia"]Russia[/URL] and [URL="http://en.wikipedia.org/wiki/Arab_countries"]Arab countries[/URL] were to systematically acquire significant holdings in sensitive industries such as [URL="http://en.wikipedia.org/wiki/Telecommunication"]telecommunications[/URL], [URL="http://en.wikipedia.org/wiki/Energy_industry"]energy[/URL] and [URL="http://en.wikipedia.org/wiki/Defense_industry"]defense[/URL]. It could prove difficult to draw the line between sound government policies and neo-[URL="http://en.wikipedia.org/wiki/Protectionism"]protectionism[/URL].[/quote][/QUOTE] Have we got a pertinent weekend [url=http://www.imdb.com/title/tt0083006/]movie pick[/url] for you foreign-debtholder-conspiracy-theory buffs...they should do a remake involving a splinter finacial-terrorist faction of the Irish republican Army, they could call it the "Rollover IRA". [QUOTE=garo;165270]Perhaps, perhaps. But then those of us that weren't holding or were shorting for the past year were laughing at the buy and hold crowd (does that include you?) on the way down.[/QUOTE] Tut tut, garo - not nice to gloat. ;) And as we both know from hard personal experience, playing the counter-market game has its perils. This week`s running of the bulls on Wall Street was a perfect illustration: [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aJehR_3xIkYM&refer=news]U.S. Stocks Extend Biggest Weekly Gain Since November on Health-Care Rally[/url]: [i]U.S. stocks rose, extending the biggest weekly gain for the Standard & Poor’s 500 Index since November, as a rally in health-care companies overshadowed a drop in energy shares on concern demand for oil is falling.[/i] [i]My Comment:[/i] Big rally in the beaten-down financial sector this week, on the major banks trying to one-up each other on sort-of-announcements that they didn`t really need the government`s bailout money (at least not this week) and that they just kinda sorta might be profitable so far this year, except for those pesky [url=http://money.cnn.com/2009/03/13/markets/thebuzz/index.htm]huge mortgage-loan portfolio writedowns yet to come[/url], which they curiously avoided mentioning in their various interviews and "leaked internal memos". The basis for a sustainable rally, or yet another dead cat bounce? Time will tell. [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=akXjReT2YryA&refer=news]Kravis Losses Show Obama Fails to Close Lending Gap Raising Bankruptcies[/url]: [i]Investment funds that purchased a majority of the lowest-rated loans during the credit boom have stopped buying, threatening to undermine President Obama’s plan to pull the economy out of the worst recession since 1982.[/i] [i]My Comment:[/i] so much for Geithner`s airy comments about "bringing in private capital alongside government investment" as a way to restart credit markets. [url=http://money.cnn.com/2009/03/13/news/companies/berkshire_hathaway_downgrade.reut/index.htm]Buffett's Berkshire loses 'perfect' rating[/url]: [i]Fitch ratings cuts Berkshire Hathaway's credit rating to 'AA+' from perfect 'AAA', citing CEO Warren Buffett's tight grip on the company.[/i] [quote]SINGAPORE (Reuters) -- Warren Buffett's Berkshire Hathaway was stripped of its 'AAA' credit rating by Fitch, barely hours after S&P cut General Electric Co's top-tier rating, as the global financial crisis pummels America's corporate titans. Citing concerns about Berkshire's equity and derivatives investments, as well as Buffett's tight grip on the company, ratings agency Fitch cut the insurance and investment company's issuer default rating by one notch to 'AA+'. The downgrade is another setback to Buffett, 78, coming a day after the billionaire lost his position as the world's richest man to Microsoft Inc founder Bill Gates, according to Forbes' annual list. Buffett's net worth plunged to $37 billion from $62 billion last year, the list said. "Fitch views the company's potential earnings and capital volatility derived from its large, unhedged market exposures as inconsistent with the stability required at the 'AAA' level," the ratings agency said in its statement on Berkshire. Those exposures include Berkshire's equity investments, as well as its holdings of derivative contracts tied to equity and credit markets, Fitch said. Fitch is the first major credit agency to cut Berkshire's 'AAA' rating. The move comes after General Electric Co. (GE, Fortune 500) was stripped of its 'AAA' rating by Standard & Poor's on Thursday.[/quote] [i]My Comment:[/i] Once again, Fitch shows that it is the only one of the major ratingshouses worth paying any attention to. Funny that Buffett, who has referred to the unregulated derivatives markets as "financial weapons of mass destruction", now finds himself hoist by his own petard by way of his-allegedly-"transparent" dealings in derivatives. [url=http://money.cnn.com/2009/03/12/news/economy/flow_funds/index.htm]Household net worth sinks $11.2 trillion[/url]: [i]As Americans watch their wealth crumble, the Fed says household debt fell 2% in the fourth quarter of 2008, the first recorded decline.[/i] [quote]NEW YORK (CNNMoney.com) -- Household net worth in the United States declined by $11.2 trillion last year, according to a government report issued Thursday, and Americans curbed their spending as they watched the value of their assets fall. The Federal Reserve said household net worth, which is the difference between assets and liabilities, sunk by $5.1 trillion in the fourth quarter to $51.5 trillion. It was the sixth straight quarterly decline from the peak of $64.4 trillion in the second quarter of 2007. The drop in net worth in the fourth quarter of 2008 was the largest drop in dollar terms on record, going back to 1951, when the government began keeping quarterly records. The 9% drop was also the largest drop as a percentage change on record.[/quote] [i]My Comment:[/i] Not that any of that evaporated paper wealth is "deflationary", mind you - just like the insane runup in home and equities prices between 2002 and 2007 wasn`t "inflationary", according to the Federal Reserve. And you know you can trust them to be straight with us. [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aOZ5WKjIF5aE&refer=news]Obama Seeks to Reassure China U.S. Debt Safe, Deficits Are Under Control[/url]: [i]The Obama administration sought to ease Chinese Premier Wen Jiabao’s concern about U.S. government debt, reiterating pledges to cut the budget deficit in half in four years.[/i] [quote]“The U.S. Treasury market remains the deepest and most liquid market in the world,” Treasury spokeswoman Heather Wong said in an e-mailed statement. “President Obama is committed to taking the steps necessary to restore growth and put this country on the path of fiscal sustainability, including cutting the long-term deficit in half over the next four years.”[/quote] [i]My Comment:[/i] So first blowing the annual deficit through the roof (admittedly much of that is by way of ending the Bush administration`s bogus accounting practices for e.g. the Iraq war spending) allows you set the "initial deficit" bar to upwards of $2 trillion ... then if you can manage to "cut it to just $1 trillion" you`ve made good on your promise. Kinda like those department stores that slap an inflated "regular price" label on a bunch of stuff and then put it "on sale". But I agree, words like "deep" and "liquid" do seem apropos when one is discussing an "ocean of debt". Also interesting: One wonders whether the choice of a Treasury spokesperson who happens to have a Chinese surname to make an announcement to soothe the worries of the Chinese Premier was mere coincidence. |
Revenge of the South Sea Bubble | Friday Funnies
1 Attachment(s)
[b]UK Spotlight: Revenge of the South Sea Bubble[/b]
[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aANXHOD12Q2A&refer=news]South Sea Bubble Survivors Say Lloyds Banking Must Break Up Along With RBS[/url]: [i]Henry Hoare made a 1.6 million- pound ($2.2 million) profit from the South Sea Bubble, a speculative bust that bankrupted thousands of English families in the 1720s.[/i] [quote]His great-, great-, great-, great-, great-, great-grand- nephew boosted the deposits of his family’s bank by 20 percent in the past year to come through one of the worst financial crises since then, which is why people might want to listen to him. “Keep it simple, stupid,” Alexander Hoare said in an interview in his drawing room on the first floor of C. Hoare & Co.’s 180-year-old office on London’s Fleet Street. “Get the depositors in, lend to people who can afford to borrow.” That’s a lesson Royal Bank of Scotland Group Plc should have learned, said Hoare, 46, whose family-owned firm started in 1672 and now has about 10,000 customers. Prime Minister Gordon Brown should now dismantle the bank, which required 20 billion pounds of taxpayers’ money to avoid collapse, Hoare said. “Break it up into all the component parts from which it was made and have them compete freely,” said Hoare, referring to his Fleet Street neighbors National Westminster Bank Plc and Coutts & Co. which are both owned by RBS. “The regional, smaller banks were much admired by their clients, they made money for their shareholders, they didn’t trouble the government.” Lloyds Banking Group Plc, taken over by the government after its acquisition of Edinburgh-based HBOS Plc, should also be dismembered, Hoare said. The banks got into “all sorts of exotic alphabet soups they didn’t understand,” Hoare said. ‘Bad for Taxpayers’ “If you look for example at the crashing together of Lloyds, a good bank, with HBOS, it was bad for competition, it was bad for consumers, it was bad for shareholders, it was very bad for taxpayers,” Hoare said. HBOS lost 7.5 billion pounds in 2008, while Lloyds earned 819 million pounds. RBS and Lloyds won’t be broken up soon because the government would receive “fire-sale prices,” said Neil Dwane, chief investment officer for Europe at Allianz Global Investors’ RCM unit in London. Hoare said he’s now paying for the mistakes of others. His bank and other lenders are subscribing to a government plan to insure depositors after the failure of Bradford & Bingley Plc and Iceland’s Kaupthing Bank hf and Landsbanki Islands hf. Hoare said the government’s plans put too great a burden on taxpayers and penalize banks that avoided failure. “There we were minding our own business for 300 years, and one day some Icelandic banks and Bradford & Bingley fail and we get landed with the bill,” Hoare, the bank’s chief executive officer, said. “The direction we’re heading is more and more depositor insurance, more and more regulation, more and more state ownership and these are the very things which did not make London great.” South Sea Frenzy Parliament passed the South Sea Act in 1720, which gave the South Sea Co. a monopoly on trade, including slavery, with South America in return for financing part of the national debt run up in the War of the Spanish Succession. The shares jumped from 128 pounds in January to 1,050 pounds in July before they tumbled to 100 pounds in December, costing clergymen, country gentlemen and even scientist Isaac Newton their savings. Chancellor of the Exchequer John Aislabie was expelled from Parliament after an inquiry found he had accepted bribes, the Postmaster General took poison, and even King George I’s two mistresses were implicated. Hoare acquired South Sea Co. stock as it rose and sold whenever it dropped. The bank made about 19,000 pounds, about 1.6 million pounds in today’s money, between February and September that year, according to the firm. ‘Chasing Fox Hounds’ In today’s crisis, Hoare has so far benefited, lifting deposits to about 1.8 billion pounds during the last 12 months. That’s mainly because it’s an “exclusive franchise” for the rich, said Simon Maughan, a financial analyst at MF Global Securities Ltd. The bank’s history has no relevance to the wider banking market, Maughan said in an e-mail. Hoare accepts his bank serves a niche, and it has missed out on historic opportunities to expand. “We managed to miss the industrial revolution,” he said. “The balance sheet didn’t grow. They were all out on their horses chasing fox hounds,” he said of his forebears. Hoare & Co. is an unlimited liability partnership, which means the family’s personal wealth, including Alexander Hoare’s solar-panel-topped residence and 50-foot yacht, can be seized if the lender collapses. That gives clients confidence, Hoare said. “Everything apart from the shirt on our back is at risk,” Hoare said. “It keeps you jolly nervous.” [/quote] [i]My Comment:[/i] No wonder Newton turned to alchemy ... he needed a magical way to turn all the dross left over by his playing the SS bubble back into gold. [b]Friday Funnies[/b] - Courtesy of Time magazine, [i]Madoff in Prison[/i]: |
[QUOTE=garo;165270]Perhaps, perhaps. But then those of us that weren't holding or were shorting for the past year were laughing at the buy and hold crowd (does that include you?) on the way down.[/QUOTE]In a 401k kinda way, yes. But then again, I took a loan on my account before the bottom of the bottom came. I should actually wind up making money on the loan.
Let's see, later 2006 sell real estate, buy gold. Late Feb 2009, sell gold, buy stocks. Mid 2010? sell stocks, buy real estate. Lather, rinse, repeat. |
[QUOTE=R.D. Silverman;165221]The same group of economists who sat around and "fiddled while Rome
burned" have given Obama a failing grade (and Bernanke a passing grade!!) for their handling of the economy. (according to WSJ) Talk about Chutzpah!!!!! The only occupations that I hold in lower regard than economists are lawyers and politicians..... sad. really sad....[/QUOTE] The economists in the WSJ deserve a 'G' for failing to spot the trick question: It's not the President's, the Fed's or anybody else' job to 'handle' the economy, especially when your only qualification is to have won a popularity contest, where the decision was made according to someones tan or whether one could do a choleric zombie's bimbo-escort, after being exposed to a full 30 second-dose of her weltanschauung. Economists cannot stop 'Rome from burning by laying down their fiddles' and performing magic, in the same way physicists can't solve an energy shortage by doing magic with the 'law of conservation of energy'. The really sad thing is that so many apparently intelligent people really believe that economists can perform magical zero-variance out-of-sample forecasting, as long as they have the same political ideology. Even if economic theory can only explain 1% of the variation in the data, given the huge amounts of noise, outliers and small sample sizes, this difference is compounded over time, so following a policy that _has_ a consistent economic theory to support it, is strictly better than one that doesn't. [QUOTE=Karl Popper] If you allow the end to justify the means, the only thing you will ever experience are the means, for the end will never come. [/QUOTE] That's why _I_ think Obama deserves an F. |
Well I did not mean to gloat. I was just taking exception to the gloat directed against Xyzzy. Most informed commentators - i.e. those that saw this bear market way back in 2006 - think that we are near a low (hate that term bottom - CNBC just loves "bottom-picking" doesn't it) but not the ultimate low. We may go below 666 in the next month or so or we may not but we are likely to see a multi-month bear rally and when all the pundits are declaring that the bear market is over and the retail investor has been lulled into complacency, the next down-led will strike taking us to 450-500 on the S&P.
Those of you who missed the Jon Stewart vs. Jim Cramer show-off, here is the extended version: [URL="http://blog.indecisionforever.com/2009/03/13/jon-stewart-and-jim-cramer-the-extended-daily-show-interview/"]Jon Stewart and Jim Cramer: The Extended Daily Show Interview | Indecision Forever | Comedy Central[/URL] |
[quote=AES;165105]There's also the credit line contraction that's happening concurrently. I received a letter from Citi explaining that since x of my line of credit has never been used, the new maximum line of credit is y. I have never missed a payment on this account and the principle payoff occurs quarterly.
It's not a credit card account, but my guess is that lines of credit are shrinking everywhere. Any thoughts on the repercussions this will carry?[/quote]More on this, [I]with warnings[/I]: "How to Blow Your Credit Limit -- Without Spending" (DarJones reminds me that I forgot the link: [URL]http://finance.yahoo.com/banking-budgeting/article/106716/How-to-Blow-Your-Credit-Limit-Without-Spending[/URL] Thank you, Fusion_power!) [quote=Kelli B. Grant]If you haven't had the credit limit cut on your credit card recently, count yourself lucky. Risk-averse card issuers are getting slash happy. And while many cardholders gripe that such cuts slice razor-close to their balance amounts, for an unfortunate few the cuts go far deeper: [I]below[/I] what they currently owe. Under different circumstances, David Chaplin-Loebell wouldn't have minded that American Express cut his unlimited credit line to just $5,000. Except that when AmEx reduced his line in October, he had an outstanding balance of $10,000. "I found out by having a business purchase declined," he says. Repeated calls to AmEx failed to yield an answer about why the cut was made. ... Nasty as it may be, the practice of cutting credit lines below the balance is legal -- at least, for now, says Chi Chi Wu, a staff attorney for the National Consumer Law Center, a consumer advocacy group. Federal Reserve rules requiring lenders to give cardholders 45 days notice before reducing a credit line to the point that it would trigger penalties won't go into effect until July 2010. "[Until] then, there are no federal protections," says Wu. Congress is also hoping to rein in unscrupulous credit-card practices. ... . . . The motivation among issuers to make such deep cuts that they plunge below a cardholder's balance amount isn't very clear. Usually, issuers cut credit lines to reduce outstanding liabilities -- they sometimes may even chase the balance on riskier accounts with further limit cuts as cardholders pay down debts, explains Bill Carcache, an analyst with investment bank Fox-Pitt Kelton. But cutting below the balance doesn't reduce an issuer's liability: The cardholder still owes the outstanding debt.[/quote]I can easily see motivation for that behavior: Issuers want to reduce their [I]future[/I] liability ([I]after[/I] cardholder will have paid down the debt) [U]now[/U], rather than "chase the balance". If the cardholder makes only minimum payments, s/he may still have more of a balance in July 2010 than the issuer is comfortable with, so the issuer wants the limit down now [U]before the new Fed rule takes effect[/U]. They've decided what they want the cardholder's limit to be in the future, and see no reason to delay imposing it since they can do so now without advance notice. The extra over-limit fees are a bonus, and there's little fear about cardholders "taking their business elsewhere" under current circumstances. If a high-risk cardholder leaves ... good riddance, so just pay the balance and don't let the door hit you in the back on your way out. If the cardholder's a desirable low-risk customer ... well, s/he's not going to have an easy time opening an account elsewhere with terms as good as or better than s/he has now with the current issuer. [quote]One possibility is that this is yet another attempt by card issuers to get consumers to close their accounts (while bringing in a little fee income in the short term), says Dennis Moroney, research director and senior analyst for consulting firm Tower Group. "I can't rationalize in my mind what other motivation there would be," he says. . . . HSBC ... has tightened its credit standards based on the economy. "As we have previously stated, in an effort to reduce credit risk and refine strategies for our card business, we have tightened credit standards, reduced or canceled higher risk credit lines, and closed a number of inactive accounts," ... While the fees, frozen accounts and default interest rates resulting from credit-line cuts can sting your finances, they can do some serious long-term damage to your credit score. Your credit utilization ratio -- the total amount of debt you owe in relation to the amount of credit available to you -- accounts for roughly 30% of your score. A credit line cut has the potential to decrease your score by 50 points or more if you don't have much other available credit, says Craig Watts, spokesman for FICO, the company that calculates and issues the credit score that most lenders use. Even cuts that are close to the balance have the potential to devastate if they're not caught quickly. Luckily for Carol Gressett of Decatur, Miss., she noticed the reduction in her Discover-branded Sam's Club card limit just days after it happened. The limit was cut to within $100 of her $3,000 balance. The official letter notifying her of the reduction arrived three weeks later. "We could easily have gone over if I hadn't been paying attention," she says.[/quote] |
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