"20% More Wasteful!" Bailout Bill Passes Senate
 

[url=http://globaleconomicanalysis.blogspot.com/2008/10/bailout-bill-passes-senate-75-to-24.html]Bailout Bill Passes Senate 75 to 24[/url]
[quote]Tonight the Senate passed the most fiscally reckless bill in history. We fought a tough fight and even won a few battles but the reality is the war is likely over. A fear mongering campaign by Bush, Paulson, CNBC, CNN, and Bloomberg accompanied by a 777 point plunge on the Dow probably likely sealed the fate.

The media blitz was the financial equivalent of Bush's "Mushroom Cloud" speech that suckered Congress into a needless war in Iraq. The US has wasted a trillion dollars in Iraq for nothing, and now the Bush Administration with cooperation from Congress is going to waste $250 billion to $700 billion more at a bare minimum fighting an economic slowdown that is coming no matter how much money is wasted. I suspect the total will $trillions before all is said and done.

This is what we were up against.

* President Bush
* Treasury Secretary Paulson
* House Speaker Nancy Pelosi
* House Finance Chairman Barney Frank
* CNBC Cheerleaders
* CNN Cheerleaders
* Bloomberg Cheerleaders
* Prime Minister Gordon Brown
* ECB President Jean-Claude Trichet [/quote]


[url=http://money.cnn.com/2008/10/02/news/economy/jobless_claims/index.htm]Jobless claims at 7-year high[/url]: [i]Initial filings for unemployment rise more than expected to highest level since September 2001.[/i]


[url=http://money.cnn.com/2008/10/01/news/economy/mortgage_plunge/index.htm]Mortgage applications plunge[/url]: [i]In yet another sign of the economic crisis, applications down 23% in the week ended Sept. 26.[/i]


[url=http://globaleconomicanalysis.blogspot.com/2008/10/major-insurance-company-on-verge-of.html]Senator Reid: Major Insurance Company on the Verge of Bankruptcy[/url]: [i]The cost to protect against a default by Hartford Financial Services Group Inc., Prudential Financial Inc. and MetLife Inc. rose to record levels on speculation that the turmoil in financial markets may be spreading to insurers.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601039&sid=aguOUred8Bjg&refer=home]Bloomberg Commentary | If There Must Be a Bailout, Here's How to Do It: Jonathan Weil[/url]
[quote]The fatal flaw in Treasury Secretary Hank Paulson's $700 billion bailout plan was that it wouldn't fix the problem: Too many important financial institutions don't have enough capital.

If the government wants to save dying banks before they take others down with them, it should choose the clean and direct path: Inject capital into them. Take ownership stakes in return. And, where that's not feasible, seize them and sell their assets in an orderly way, just as the Resolution Trust Corp. did after the 1980s savings-and-loan crisis.

Only after a company's shareholders and debtholders have been flattened should taxpayers take a hit. And for a $700 billion investment, U.S. taxpayers should get a lot more in return than a gargantuan pile of toxic waste.

For that much money, at yesterday's prices, the government could buy 23 of the 24 banks in the KBW Bank Index, including Bank of America Corp. and Wells Fargo & Co. And it still would have money left to buy a stake in JPMorgan Chase & Co., the largest company in the index.

Infusing capital directly, though, was too simple for Paulson. It lacked subterfuge. He decided the way to save the financial system from the evils of structured finance was through more structured finance.

Instead of asking Congress to let Treasury recapitalize needy banks, he proposed buying some of their troubled assets at above-market prices. This would have let other banks create phony capital by writing up the values of similar assets on their own balance sheets, using Treasury's prices as their guide.

In short, Paulson's plan was one part robbery (with the banks doing the robbing) and one part accounting sleight of hand. No wonder House members rejected it. [/quote]


[url=http://money.cnn.com/2008/10/01/news/economy/mark_to_market/index.htm]The accounting rule you should care about[/url]: [i]The battle over how banks and Wall Street value their assets is at the center of credit crisis and the debate over the $700 billion bailout plan.[/i]
[quote]The one fact everyone agrees on is that the current financial crisis centers on trillions of dollars worth of mortgage loans that were packaged together into financial instruments known as mortgage-backed securities, or MBS. Those securities were purchased by banks and Wall Street firms.

But as home prices started to fall and foreclosures rose, the value of these securities plunged. Today, there is almost no market for the securities.

This is why Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke proposed that the government buy the securities. The hope is that doing so could restart the MBS market at something well above the current fire sale valuations and that the government could hold the securities until the market improves.

Some advocates of the plan argue that taxpayers will be able to eventually make money if the government sells the securities at a higher price down the road. But the more immediate hope is that banks and Wall Street firms, freed from the toxic loans on their balance sheet, will start lending again.

Still, others contend that it was not real financial losses from these securities that led to the credit crunch as much as it was an arcane accounting rule known as "mark-to-market."

Mark-to-market means that companies have to report what the fair value of their investments were if they sold them at the current time.

In recent years, firms were required by the Securities and Exchange Commission and the Federal Accounting Standards Board to use mark-to-market valuations for all the MBS on their books.

As more subprime borrowers started to default on their loans, that quickly eroded the value of many MBS pools. Major banks and financial firms around the globe have taken writedowns topping $500 billion in the last year, as a result.

For this reason, some have argued that fixing the rule would solve the credit crisis.[/quote]
[b]My Comment:[/b] Perhaps there is no market for these securities because they are widely - and correctly - perceived as being next to worthless at maturity, if the rate of defaults of their backing mortgages continues as expected. But - does this mean I get take my 401(k) and stock portfolio and "mark it to fantasy", as well? I just might be able to support the "King Henry" Paulson plan if it included that provision.

A Short Seller's Tale | MotWee Award!
 

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=a4JOcJNafRyQ&refer=news]Short-Selling `Math Geek' Says He Is Never Naked, Though Covered in Blame[/url]: [i]One of the stock market's latest villains is a 32-year-old self-described ``math geek'' from a Minneapolis suburb who won't move to Wall Street unless they let him wear flip-flops.[/i]
[quote]Matthew Paschke, who manages the $165 million Grizzly Short Fund at the Leuthold Group, says short sellers like him have become scapegoats for the financial crisis that's wiped out $20 trillion from stocks and brought down Bear Stearns Cos. and Lehman Brothers Holdings Inc.

Wall Street chiefs blame those who sell borrowed stock and profit when prices decline for driving shares down as the credit crunch unfolded. After wagers against Morgan Stanley, Merrill Lynch & Co. and Citigroup Inc. surged to records, the Securities and Exchange Commission last month banned short sales of almost 1,000 companies. Paschke says that was the wrong move.

``The whole witch hunt is unfounded and it's frustrating,'' said Paschke, a father of three, in Leuthold's 46th floor offices overlooking the Mississippi River. ``They're changing the rules on the fly, so for those of us that make our livelihood in this business that becomes a very, very difficult proposition.''

Moreover, the ban may prolong the downturn by propping up companies that borrowed heavily and took on too much risk, he says. The Grizzly fund has returned 41 percent this year. Through August it almost tripled the average gain for hedge funds specializing in bearish bets. Paschke declined to identify any companies his fund shorts.

`Who's Next?'

James Angel, a finance professor at Georgetown University in Washington who studies short selling, says the 400-year-old practice may have accelerated some companies' declines by undermining investor confidence.

``There was a financial panic going on,'' Angel said. As a result, there was ``the behavior of crowds going, `Who's next?' It's only human instinct to ask.''

At the same time, he said, ``When the shorts are circling around, on average they are right.'' [/quote]
[b]My Comment:[/b] All the anti-short-selling pundits like Angel seem to love embracing the illogical to make their arguments. According to Angel himself, most of the time, when the shorts pile onto a company and thereby "undermine investor confidence" in said company, the company DOES NOT DESERVE INVESTOR CONFIDENCE, and the shorts are usually by far the earliest red-flag warning that something is amiss. [You sure never hear the warnings from the bulltards in the mainstream financial media]. Yes, abuse of naked short selling was a problem, but naked shorting WAS ALWAYS ILLEGAL - the issue was that the SEC`s longstanding lack of enforcement of their own rule turned the naked shorting prohibition into a joke. Perhaps the fact that the same investment banks which have been going under left and right were some of the biggest abusers of naked shorting had something to do with the SEC looking the other way.

Anyway, there`s a very simple way to allow legitimate short selling and prevent such from being abused to manipulate a company's share price downward - simply reinstate the Depression-era "uptick rule" [by which a stock can only be shorted when its price is rising] which THE SEC ITSELF ABOLISHED IN 2007. In other words, all of the issues related to illegal and manipulative shorting are a direct result of the SEC`s own lack of enforcement of one sensible rule, and outright abolition of another. This is one thing I actually agree with John McCain on: SEC head Christopher Cox should be fired - what McCain had wrong was assuming that it is in the President's power to do so, which it isn't.

[b]Moron of the Week:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=ax1QCC1nFsjM&refer=news]Greenspan Says Markets Will Recover `Sooner Rather Than Later' From Crisis[/url]: [i]Former Federal Reserve Chairman Alan Greenspan said financial markets and the economy will recover ``sooner rather than later'' from the worst turmoil in seven decades.[/i]

[b]My Comment:[/b] Here`s your well-deserved MotWee, Al - how many is that on your trophy shelf, now? Now, will you please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please please just STFU already, you serial-bubble-blowing, economy-wrecking, irrelevant-statistics-blathering, incompetent, doddering old fool?

This Bill is VITAL for the Economy
 

That`s why the Senate version adds 107 pages` worth of critical funding provisions missing from King Henry`s original 3-page "modest proposal". for example, the economy would clearly collapse within weeks without the following earmarks:
[quote][b]New Tax earmarks in Bailout bill:[/b]
- Film and Television Productions (Sec. 502)
- Wooden Arrows designed for use by children (Sec. 503)
- 6 page package of earmarks for litigants in the 1989 Exxon Valdez incident, Alaska (Sec. 504)

[b]Tax earmark “extenders” in the bailout bill;[/b]
- Virgin Island and Puerto Rican Rum (Section 308)
- American Samoa (Sec. 309)
- Mine Rescue Teams (Sec. 310)
- Mine Safety Equipment (Sec. 311)
- Domestic Production Activities in Puerto Rico (Sec. 312)
- Indian Tribes (Sec. 314, 315)
- Railroads (Sec. 316)
- Auto Racing Tracks (317)
- District of Columbia (Sec. 322)
- Wool Research (Sec. 325 [/quote]
It is clear that the excessive and unfair taxation of "wooden arrows designed for use by children" is at the heart of the housing market implosion and the credit crisis.

"What we have here is a Failure To Communicate"
 

Briefly, my current view:

(1) My initial reaction upon reading about the original $700 billion "bailout" was the same as many folks': that the government was going to just give that to Wall Street companies. But I was (and they were) mistaken, mainly because the original plan was not explained well enough to the public. It's more complicated than I can discuss briefly, but I now agree with the president, etc. that it's an immediate necessity.

[I]Forbes[/I] explains it here: [URL]http://finance.yahoo.com/banking-budgeting/article/105887/The-Bailout:-An-Owner's-Manual[/URL]


(2) _However_, the original 3-page proposal omitted some absolutely essential provisions that were necessary to keep it from turning into an actual, not just theoretical, giveaway. Shame on the prez for that.

Such provisions _were_ added to the first version of the bill, that the House voted on. However, there was an ongoing failure to communicate to the public how the plan was necessary to the financial world, so that, quite understandably, the overwhelming majority of citizen messages to House members were to kill the bill.

(3) Though, ideally, in this occasion, legislators would set aside partisan and special-interest politics and just do what's necessary, enough wouldn't do that so that it became necessary to cater to them. Thus, we have earmarks and tax cuts and so on in the second version of the rescue bill. (* sigh *) Ugh-ly, but that doesn't make the rescue necessity disappear, so we'll have to pay that price for the aforementioned failure to communicate.

- -

Summary: Setting aside what led up to the crisis, the big blame for now is on those who failed to communicate to the general public why the rescue was so necessary and how it worked, and thus blundered in allowing the plan to be framed as a "bailout" or "giveaway".

It was possible to have presented the plan in a way that would have triggered more understanding and less opposition. Only because that was not done will we now have to pay an additional price in the form of "pork" and tax cuts in order to get what is necessary.

- - - - -

"What we have here is a failure to communicate." -- so apt to the national situation at the time of Paul Newman's death.

[QUOTE=cheesehead;144317]Briefly, my current view:

(1) My initial reaction upon reading about the original $700 billion "bailout" was the same as many folks': that the government was going to just give that to Wall Street companies. But I was (and they were) mistaken, mainly because the original plan was not explained well enough to the public. It's more complicated than I can discuss briefly, but I now agree with the president, etc. that it's an immediate necessity.

[I]Forbes[/I] explains it here: [URL]http://finance.yahoo.com/banking-budgeting/article/105887/The-Bailout:-An-Owner's-Manual[/URL][/QUOTE]

Cheesehead, how do you compare the Forbes take on the senate version of the bailout with the [url=http://www.bloomberg.com/apps/news?pid=20601039&sid=aguOUred8Bjg&refer=home]alternative proposal[/url] of the Bloomberg analyst I link to in post #583?

My take on the current plan:

1. Oversight of how much gets spent and on what is laughably weak. There is *nothing* keeping Paulson and his buddies from spending way too much, buying debt which is exceedingly unlikely to ever be repaid, and from effectively bailing out foreign banks and investors who bought toxic paper.

2. It is exceedingly vague on the government getting any kind of equity stake in the firms being bailed out. Again, this is all left up King Henry and his minions.

3. It probably won't work, because it does NOTHING substantive to address the fundamental issue driving the credit implosion, namely that there is a massive speculative asset bubble which will continue to unwind as housing seeks a long-term-sustainable price level, and that a tapped-out consumer is a tapped-out consumer, and banks are unlikely to start giving out risky loans again. [And if they do, it will only add fuel to the fire, this time with the taxpayers footing the bill for the fuel!]

To put the "will it work?" issue in perspective: Just last week, the Fed and Treasury did a coordinated pump of over $600 Billion in liquidity into the U.S. banking system in an attempt to unfreeze the credit markets - nearly the same amount as proposed in the bailout bill, just in a slightly different form. Did it work? Not even close. Similarly, the alphabet soup of good-assets-for-bad lending programs the Fed has created throughout the past year has not done a damn thing to "fix" the credit markets. That's because the fundamental issue dogging the credit markets is SOLVENCY, NOT LIQUIDITY. The bailout bill may temporarily rescue some troubled institutions from insolvency, but it only shuffles the bad assets around, and delays the day of reckoning, in very expensive fashion.

My prediction is that even throwing upward of a trillion dollars at the problem will only provide a temporary respite, and by the end of the year or early next year, we'll find ourselves no better off, and now with a trillion dollars added to the U.S. account deficit. But the foreign central banks and "friends of Hank" who will use this wonderful get-of-of-jail-free card to unload piles of toxic debt off of their balance sheets and onto ours will certainly be laughing all the way to the metaphorical bank.

In theory, mortgages are backed by real property.

Simple math shows that most of the mortgages in MBS have a bubble related mark-up of about 60% above the real and historical property value. This should translate that mortgages on average are worth about 40 cents on the dollar based on face value.

Now lets see if Paulson has the gumption to go to his high flying fiscal fudges and tell them he will pay them 40% of the value of their MBS's.

The next question would be to ask how the government will go about disposing of repossessed properties that they will in theory own as a result of the buyout.

DarJones

p.s. I'm saving my money just on the off chance I can pick up one of these el cheapo 40 cents on the dollar government houses!

[QUOTE=Fusion_power;144325]The next question would be to ask how the government will go about disposing of repossessed properties that they will in theory own.[/QUOTE]

This happened 2-3 decades ago. The Resolution Trust Corporation held the assets and sold them into "the market" at a rate that recognized the inherent value of the property rather than the "fire sale" value.

Understand that the "bubble" in prices is not actually as great as some claim. "Replacement cost" has to be taken into account.
If there is a $100,000 property that would cost $120,000 to replace, then it is worth more than the $40,000 that some investor might offer if it is forced "to be sold on the Courthouse steps".

There are a number of "deep pocket" investors who do nothing more than buy distressed assets at a steep discount, hold them until the market can absorb them at a "reasonable" price and profit on the difference. The federal government certainly has those "deep pockets".

[QUOTE=Wacky;144328]This happened 2-3 decades ago. The Resolution Trust Corporation held the assets and sold them into "the market" at a rate that recognized the inherent value of the property rather than the "fire sale" value.[/quote]
Not true, because unlike the proposed "new RTC", the "old RTC" only dealt with institutions which HAD ALREADY FAILED, and took entire possession of their assets, both good and bad, as opposed to "only the bad" as is being proposed in the current bailout bill. Nice 19 Sept article in the New York Times about this:

[url=http://www.nytimes.com/2008/09/20/business/20resolution.html]Looking for Lessons From Agency That Mopped Up 1980s Thrift Mess[/url]
[quote]WASHINGTON — Does the Resolution Trust Corporation — the government entity formed in 1989 to dispose of hundreds of failed savings banks and hundreds of billions of dollars in their bad loans and other assets — offer a model for dealing with today’s financial crisis?

Although some lawmakers and former officials are tempted by the idea, other experts say the analogy is faulty and the current situation is vastly larger and more complex than the comparatively contained savings and loan mess of two decades ago.

...
[b]
The biggest difference between the mid-1980s crisis and now, and where the R.T.C. model falls notably short, is that the government, which insured the deposits of the failing savings institutions, ultimately became the owner by default of the savings and loans, with all of their bad paper, foreclosed real estate and other assets, some above-par and readily marketable.

In the current crisis, the government is trying to keep private institutions like the American International Group and many commercial banks and investment houses operating while relieving them only of tens of billions of dollars in paper nobody else wants.
[/b]
The White House, Treasury Department and Federal Reserve are asking Congress to permit existing government entities to become a securities buyer of last resort. It is a more open-ended commitment, in part because the problem crosses international borders and its scope is as yet unknown.

It is also likely to be vastly more expensive. In its six-year existence, the R.T.C. handled 747 failed savings banks and disposed of more than $450 billion in assets. The cost to taxpayers, originally estimated at as much as $500 billion, ultimately totaled $120 billion to $140 billion.[/quote]


[quote=Wacky;144328]Understand that the "bubble" in prices is not actually as great as some claim. "Replacement cost" has to be taken into account.
If there is a $100,000 property that would cost $120,000 to replace, then it is worth more than the $40,000 that some investor might offer if it is forced "to be sold on the Courthouse steps".

There are a number of "deep pocket" investors who do nothing more than buy distressed assets at a steep discount, hold them until the market can absorb them at a "reasonable" price and profit on the difference. The federal government certainly has those "deep pockets".[/QUOTE]
But we are not talking about a "representative slice of mortgage-backed assets" here - we are talking only about the "toxic waste" worst-quality, highest risk stuff out there. I'm sure if the various "deep pocketed" private investment funds thought that the stuff was worth more than pennies on the dollar, there would be a market for it, since 40-50 cents on the dollar seems to be the range most of the financial firms are asking, unless they are really on the deg of the abyss. In other words, the government is almost certain to pay much more for this stuff than any private investor would. In the best-case scenario I envision, the government might recoup 3/4 of what they paid by the time the "assets" reach maturity, but that doesn't factor in the lost opportunity cost of putting the same amount of money to more productive use.

Anyway you slice it, it's gonna be a massive boondoggle.

Harry Ried's mishap
 

I'm sure that some of you read about [URL="http://money.cnn.com/2008/10/02/news/companies/insurance_stocks/"]this[/URL].

I'm amazed that the leader of the US Senate (a Democrat) would make such a ridiculous statement. His reckless statement significantly hurt a number of insurance companies financially. How does that make him any different than the short sellers on Wall Street who have help create the financial mess that the country is currently in?

To me, the real concern is related to "LIBOR". Banks do not trust other banks as "reasonable" credit risk. This translates into a situation where credit is no longer available to even "excellent" credit risk companies.
We are being forced into the situation whereby NO-ONE can "leverage" their financial position.

I don't have the ability to put $1MM into a business venture. But I may be able to present a reasonable plan to borrow a significant portion of that amount and reward the lender (bank) with a guaranteed rate of return (interest) for providing that capital.

In today's market, that is not possible. As a result, the entire community (populace) is harmed because these ventures cannot even attempt to find funding.

[QUOTE=Wacky;144332]To me, the real concern is related to "LIBOR". Banks do not trust other banks as "reasonable" credit risk. This translates into a situation where credit is no longer available to even "excellent" credit risk companies.[/QUOTE]
This gets right back to my point about "more productive uses for the bailout money" - $700 Billion would fund a *lot* of "excellent risk" corporate ventures. But instead of using the money to make good bets, we're gonna us it to help greedy banks weasel out of their bad bets.

[quote=ewmayer;144334]But instead of using the money to make good bets, we're gonna us it to help greedy banks weasel out of their bad bets.[/quote](1) Why do you write as though the current rescue bill will be the only financial-crisis legislation passed? The current bill is aimed (or was, before unrelated add-ons) only at the acute credit crisis subportion of the mess because that's what demands swift action to avoid a catastrophe. There certainly will be more legislation aimed at other portions of the mess, but those portions are less urgent than the credit system.

(2) As the Forbes article says,

"Once the bill becomes law, the Treasury will hire a team of consultants and managers to help the government figure out what to buy. This group will also assist the Treasury in determining how to price the assets, which are now tough to value."

The Treasury will not be obligated to purchase any securities at a price greater than this determined value.

You wrote that "we are talking only about the 'toxic waste' worst-quality, highest risk stuff out there." Yes ... [I]so that will be taken into account when evaluating it[/I] -- the evaluated fair market value will be the fair market value of that very "toxic waste", worst-quality, highest-risk stuff!

You wrote, "I'm sure if the various "deep pocketed" private investment funds thought that the stuff was worth more than pennies on the dollar, there would be a market for it, since 40-50 cents on the dollar seems to be the range most of the financial firms are asking, unless they are really on the deg of the abyss." So, the government group's evaluation [I]will be[/I] pennies on the dollar in that case!

You wrote, "In other words, the government is almost certain to pay much more for this stuff than any private investor would." Why? Why will the government be evaluating this stuff any higher than a private investor? If a firm offers stuff at a price higher than any private investor would pay, [I]the Treasury will have no obligation to buy it from them at that price.[/I]

(3) The Treasury is going to hold a "reverse" auction to purchase the securities, in which only the best deals (i.e., price relative to evaluation) offered to it will be accepted. If a firm offers to sell, at 40, a security evaluated to have a fair value of 5, the Treasury will not buy it.

For an analogy, notice the way the Treasury has always marketed its bonds, notes, and bills: it offers them for auction and accepts only the highest bids -- up to the point at which it purchases the total it needs. The "reverse" auction in the toxic securities case, in contrast, [I]will not have any [U]required[/U] total the Treasury must accept[/I], so there will be no reason for it to pay more than its own evaluation of any particular security. It need "accept" bids only up to the point at which the offered price is no higher than the evaluation (and it would stop before even that point if it reached the limit of its authorized amount to purchase).

(4) If a firm holds a security originally valued at 100, its evaluated fair market value is now 5, and the Treasury buys it at 5, where is the "greedy bank" "weaseling out" of its "bad bet"? The bank loses the same 95 it would lose when selling the security at 5 to anyone else.

- -

While I'm at it, why haven't you mentioned (maybe I missed it) that four months from now there will a different President and Secretary of the Treasury? Whatever power is granted to Paulson will expire then, and be given instead to the new Treasury Secretary. (How likely is it that Obama would retain Paulson, hunh?)

[quote=ewmayer;144321]Cheesehead, how do you compare the Forbes take on the senate version of the bailout with the [URL="http://www.bloomberg.com/apps/news?pid=20601039&sid=aguOUred8Bjg&refer=home"]alternative proposal[/URL] of the Bloomberg analyst I link to in post #583?[/quote]Look at the very first sentence of the Bloomberg piece in your own quote:

"The fatal flaw in Treasury Secretary Hank Paulson's $700 billion bailout plan was that it wouldn't fix the problem: Too many important financial institutions don't have enough capital."

Looks like the same mistake you make: referring to the current rescue bill as though it were [I]intended[/I] to be the solution to the entire problem, rather than acknowledging that it's only a first step to address the most time-critical part.

"And for a $700 billion investment, U.S. taxpayers should get a lot more in return than a gargantuan pile of toxic waste."

But the writer, like you, writes as though unaware that the "pile" will be acquired [I]only at the fair market value[/I] of that "waste". And it's not [I]really[/I] toxic waste, so don't press the analogy by arguing that the securities will actually share the properties of real-world toxic waste that are irrelevant to the securities.

"Instead of asking Congress to let Treasury recapitalize needy banks, he proposed buying some of their troubled assets at above-market prices."

As I already explained, there is no reason for the purchases to be made at above-market prices.

AIG and the French Connection
 

[url=http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3118994/Financial-Crisis-So-much-for-tirades-against-American-greed.html]The Telegraph | AIG and the French Connection[/url]: [i]Ambrose Evans-Pritchard says it is ironic that European banks have turned out to be deeper in debt than their US counterparts.[/i]
[quote]It took a weekend to shatter the complacency of German finance minister Peer Steinbrück. Last Thursday he told us that the financial crisis was an "American problem", the fruit of Anglo-Saxon greed and inept regulation that would cost the United States its "superpower status". Pleas from US Treasury Secretary Hank Paulson for a joint US-European rescue plan to halt the downward spiral were rebuffed as unnecessary.

By Monday, Mr Steinbrück was having to orchestrate Germany's biggest bank bail-out, putting together a €35 billion loan package to save Hypo Real Estate. By then Europe was "staring into the abyss," he admitted. Belgium faced worse. It had to nationalise Fortis (with Dutch help), a 300-year-old bastion of Flemish finance, followed a day later by a bail-out for Dexia (with French help).

Within hours they were all trumped by Dublin. The Irish government issued a blanket guarantee of the deposits and debts of its six largest lenders in the most radical bank bail-out since the Scandinavian rescues in the early 1990s. Then France upped the ante with a €300 billion pan-European lifeboat for the banks. The drama has exposed Europe's dark secret for all to see. EU banks took on even more debt leverage than their US counterparts, despite the tirades against ''le capitalisme sauvage'' of the Anglo-Saxons.

We now know that it was French finance minister Christine Lagarde who begged Mr Paulson to save the US insurer AIG last week. AIG had written $300 billion in credit protection for European banks, admitting that it was for "regulatory capital relief rather than risk mitigation". In other words, it was underpinning a disguised extension of credit leverage. Its collapse would have set off a lending crunch across Europe as banking capital sank below water level.

It turns out that European regulators have allowed even greater use of "off-books" chicanery than the Americans. Mr Paulson may have saved Europe.[/quote]

[QUOTE=cheesehead;144346]
But the writer, like you, writes as though unaware that the "pile" will be acquired [I]only at the fair market value[/I] of that "waste". And it's not [I]really[/I] toxic waste, so don't press the analogy by arguing that the securities will actually share the properties of real-world toxic waste that are irrelevant to the securities.

"Instead of asking Congress to let Treasury recapitalize needy banks, he proposed buying some of their troubled assets at above-market prices."

As I already explained, there is no reason for the purchases to be made at above-market prices.[/QUOTE]
Treasury Secretary Paulson stated before the Senate that he intends to buy securities at above fire-sale rates. He intends to use the purchases to assist conflated liquidity and solvency problems.

The Congressional Budget Office Director Orszag states that that will be an inefficient means of helping insolvency.

Secretary Paulson expects the price he pays will set a market price that will be above the fire sale price. He states that the amount over the fire sale price to pay is one of the determinations that will be made. I'm not sure how much recent changes to the bill have affected Paulson's intent to proceed in this manner.

That is a gloss of my interpretation of watching Paulson, Bernanke, and Orszag (on C-Span) speak before the Senate and also my reading of the director's blog at the Congretional Budget Office. I will, if need be, hunt down the relevant information.
[URL="http://cboblog.cbo.gov/"]http://cboblog.cbo.gov/[/URL][QUOTE]Cost of Division A

Under the TARP, the Secretary would have the authority—if deemed necessary to promote stability in the financial markets—to [B]purchase any financial asset at any price[/B] and to sell that asset for any price at any future date. That lack of specificity regarding how the authority would be implemented and even what types of assets would be purchased makes it impossible at this point to provide a meaningful estimate of the ultimate impact on the federal budget from enacting this legislation. Although it is not currently possible to quantify the net budget impact given the lack of details about how the program would be implemented, CBO has concluded that enacting Division A would likely entail some net budget cost—which would, however, be substantially smaller than $700 billion. The net budget cost would reflect several factors:

Net gains or losses on the TARP transactions. As noted in CBO’s recent testimony before the House Budget Committee, the net gain or loss on the TARP transactions would reflect the degree to which the federal government sought to obtain, and succeeded in receiving, a fair market price for the assets it purchased, and the degree to which, because of severe market turmoil, market prices would be lower than the underlying value of the assets.

Although some classes of assets and purchase mechanisms are conducive to determining a fair market price, it is unlikely that the program would be limited exclusively to those classes of assets and purchase mechanisms. The program would probably include assets that have the worst credit risks and hence are difficult to price, making it likely that the government would, in some cases, pay prices that fail to cover those risks. Although it is possible that future increases in asset values would generate gains even on assets for which the government initially overpays, an overall net loss is more likely if the government initially overpays.

The bill includes a provision intended to protect against such future net losses by requiring that firms selling troubled assets to the government also provide warrants or senior debt instruments. CBO anticipates that this provision would not have a substantial effect on the net cost of the TARP, however. On the one hand, warrants or senior debt instruments might reduce the incentive for sellers to overcharge for low-quality assets. On the other hand, since the warrants or debt instruments would have value, Treasury would generally face higher prices because sellers would seek compensation for both the value of the troubled asset and the value of the warrant or debt instrument. In addition, the warrants or senior debt instruments may be difficult for the government to value, complicating even those auctions in which the government is otherwise most likely to obtain a fair market price.

In any case, the ultimate cost to the government on the transactions would not be the total amount spent to purchase assets—limited to $700 billion outstanding at any one time—but rather the difference between the amount spent by the government and the amount received in earnings and sales proceeds when all of the assets are finally sold, presumably some years from now. That net cost is likely to be substantially less than $700 billion but is more likely than not to be greater than zero.

Recoupment mechanism. The recoupment mechanism is designed to offset any net losses the government experiences on the TARP transactions. The mechanism, however, requires only that the President submit a proposal to offset such costs after five years. Even if it would be fully effective in offsetting any net losses, the President’s proposal would require a future act of Congress to be implemented. Any savings from such legislation would be estimated when the proposal is considered and would be credited to that legislation for Congressional scorekeeping purposes.[/QUOTE]

[quote=only_human;144357]Treasury Secretary Paulson stated before the Senate that he intends to buy securities at above fire-sale rates.

. . .

I'm not sure how much recent changes to the bill have affected Paulson's intent to proceed in this manner.[/quote]My understanding is that that is partly addressed in the auction mechanism.

Of course, firms have colluded throughout history. I don't know how easy it would be to hide or prevent that in the proposed auction.

From the [I]Forbes[/I] article:

[quote][B]What About Oversight?[/B]

The Treasury secretary would periodically submit to Congress a detailed report of the bailout's progress, including all financial transactions and the "types of parties involved." In addition, every quarter, a special inspector general would provide Congress with a report including all purchases made and income received from the bailout.[/quote]So every transaction will be reported, and thus subject to investigative scrutiny.

Of course, that wouldn't necessarily deter Paulson during all of the four months he has left, but Bush probably doesn't want his administration to end with [i]too[/i] big a scandal.

[quote]That is a gloss of my interpretation of watching Paulson, Bernanke, and Orszag (on C-Span) speak before the Senate and also my reading of the director's blog at the Congretional Budget Office.[/quote]How long ago were those? Did they precede the current bill the Senate passed?

[QUOTE=cheesehead;144362][QUOTE] Originally Posted by only_human
Treasury Secretary Paulson stated before the Senate that he intends to buy securities at above fire-sale rates.[/QUOTE]My understanding is that that is partly addressed in the auction mechanism.[/QUOTE][QUOTE]
So every transaction will be reported, and thus subject to investigative scrutiny.

Of course, that wouldn't necessarily deter Paulson during all of the four months he has left, but Bush probably doesn't want his administration to end with [i]too[/i] big a scandal.

How long ago were those? Did they precede the current bill the Senate passed?[/QUOTE]
Yes, they preceded the current bill. Both this and a subsequent House session that I also watched (although not as closely) preceded the original House vote. I believe I was watching this:
[QUOTE]U.S. Credit Markets and Federal Rescue Plan

Product ID: 281281-1
Format: Senate Committee
Banking, Housing and Urban Affairs
Last Airing: 09/24/2008
Event Date: 09/23/2008
Length: 4 hours, 52 minutes
Location: Washington, District of Columbia
C-Span Video Library (This link points to a purchase, not viewing page) [URL="http://www.c-spanarchives.org/library/index.php?main_page=product_video_info&tID=5&src=atom&atom=todays_events.xml&products_id=281281-1"]U.S. Credit Markets and Federal Rescue Plan
[/URL][/QUOTE]
Additional impressions are that Paulson came across a bit squirmy and evasive, Bernake was terse and only slightly evasive, and Orszag was clear, helpful, non-evasive and deliberately non judgmental.

Basically Paulson explained reverse auctions, how the functioned, etc., but stated that as lower and lower prices were offered, he wouldn't necessary wait for lowest prices to be offered but would buy at a higher price. He intended to use market experts to evaluate tranches of MBS and other paper for purchases organized by CUSIP numbers and attempt to establish a prices that he felt were
--- (my interpretation and paraphrase here) --
a compromise between the best price he could get and the full possible value to full term etc. Not all securities were amenable to reverse auction purchases but in all his purpose was to use experts to decide on pricing and use the purchases to establish market prices above fire sale pricing. This way he would be attempting to get a fair (but not best) price and also driving money into the market to help solvency.

CBO Director Orszag drew a clear distinction between illiquidity and insolvency. He stated that buying toxic paper might help with illiquidity but paying extra for it would be an inefficient method of helping insolvency.

If you look back in my previous messages in this thread you will see some carping about overpaying for securities about the time that this played. I wish I had expanded in more detail then because it is harder for me to reconstruct now. I have also looked at the Senate site and Library of Congress but have not mastered them. Here is a page on that day (I am unfamiliar with this and can't seem to find what I need) from the Congressional Record: [URL="http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?dbname=2008_record&page=S9266&position=all"]http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?dbname=2008_record&page=S9266&position=all[/URL]

This link points to partial clips from recent C-Span programs (Page 15 of currently for what I watched). [URL="http://www.c-span.org/Recent/Default.aspx"]http://www.c-span.org/Recent/Default.aspx[/URL]

These following video clips are from the program I watched and are available for free viewing but I don't see any that help me at this time: [QUOTE] Senate Banking Cmte. on Federal Intervention of Financial Markets. Tuesday, September 23, 2008 : Washington, DC
Senate Banking Committee Chairman Dodd (D-CT) meets committee members in Washington.

Sen. Chris Dodd (D-CT) blamed the turmoil in the financial markets on "private greed and public regulatory neglect," the AP reported. Members of the Senate Banking Cmte. asked about the details of the Bush admin.'s $700 billion intervention in the financial markets. Witnesses include Sec. of Treasury Henry Paulson; Ben Bernanke, Chair of the Federal Reserve System; and others.
| Treasury Sec. Paulson
[URL="rtsp://video1.c-span.org/project/economy/econ092308_paulson.rm"]rtsp://video1.c-span.org/project/economy/econ092308_paulson.rm[/URL]

| Fed Chair Bernanke
[URL="rtsp://video1.c-span.org/project/economy/econ092308_bernanke.rm"]rtsp://video1.c-span.org/project/economy/econ092308_bernanke.rm[/URL]

| SEC Chair Cox
[URL="rtsp://video1.c-span.org/project/economy/econ092308_cox.rm"]rtsp://video1.c-span.org/project/economy/econ092308_cox.rm[/URL]

| OFHEO Dir. Lockhart
[URL="rtsp://video1.c-span.org/project/economy/econ092308_lockhart.rm"]rtsp://video1.c-span.org/project/economy/econ092308_lockhart.rm[/URL]

[URL="rtsp://video1.c-span.org/project/economy/econ092308_banking.rm"]rtsp://video1.c-span.org/project/economy/econ092308_banking.rm[/URL]

| Sens. Dodd & Shelby News Conference
[URL="rtsp://video1.c-span.org/project/economy/econ092308_dodd.rm"]rtsp://video1.c-span.org/project/economy/econ092308_dodd.rm[/URL] [/QUOTE]

Japanes banking situation
 

Following the problems with Lehmann Bros and in the sub-prime lending market in America and the run on Northern Rock, HBOS and Bradford & Bingley in the UK, uncertainty has now hit Japan.

In the last 7 days Origami Bank has folded, Sumo Bank has gone belly up and Bonsai Bank announced plans to cut some of its branches.

Yesterday, it was announced that Karaoke Bank is up for sale and will likely go for a song, while today shares in Kamikaze Bank were suspended after they nose-dived.

While Samurai Bank is soldiering on following sharp cutbacks, Ninja Bank is reported to have taken a hit, but they remain in the black. Furthermore, 500 staff at Karate Bank got the chop and analysts report that there is something fishy going on at Sushi Bank where it is feared that staff may get a raw deal.

(Not my own work, I'm sorry to say, but something seen on the cam.misc newsgroup)

Paul

Bank Rescue Nearing Passage in House
 

LOL, thanks Paul, I think we all needed that.

Now for the less-funny news...

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

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aWW9eVqEXKro&refer=news]Bank Rescue Nearing Passage After Lawmakers Switch Position on Legislation[/url]; [i]The U.S. House of Representatives cleared the way to complete action on a Senate-passed $700 billion financial-market rescue package that was refashioned to entice enough votes for passage.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=abRY32CorQYI&refer=news]U.S. Payrolls Plunge in Sign Economy May Enter Worst Recession Since 1982[/url]: [i]U.S. payrolls plunged in September, signaling the economy may be heading for its worst recession in at least a quarter century as the 13-month-old credit crisis on Wall Street finally hits home on Main Street.[/i]


[url=http://money.cnn.com/2008/10/03/news/economy/california_crisis/index.htm]California asks Fed for $7B loan[/url]: [i]In a letter to the Treasury secretary, Gov. Schwarzenegger said the state may need an emergency loan for day-to-day operations.[/i]


[url=http://www.nytimes.com/2008/10/03/business/03valley.html?ref=business]Credit Crisis Spreads a Pall Over Silicon Valley[/url]: [i]High-tech entrepreneurs, investors and executives now believe the question is when, not if, the financial chaos will hurt the country’s cradle of innovation.[/i]


[b]Nouriel Roubini's Take on the Bailout Proposal[/b]

[url=http://clicks.skem1.com/v/?u=99180740c0accc45f4392480b80cc8d4&g=2309&c=444&p=89fcd9c92ecd19db890a23233ef28fe3&t=1]Nouriel Roubini's Take on the Bailout Proposal[/url]
[quote]The claim by the Fed and Treasury that spending $700 billion of public money is the best way to recapitalize banks has absolutely no factual basis or justification. This way of recapitalizing financial institutions is a total rip-off that will mostly benefit – at the huge expense of the U.S. taxpayer - the common and preferred shareholders and even unsecured creditors of the banks.

The US and global financial crisis is becoming much more severe in spite of the Treasury rescue plan. The risk of a total systemic meltdown [url=http://clicks.skem1.com/v/?u=26dac8c7a219b472535a8ba9dc686e31&g=2309&c=444&p=89fcd9c92ecd19db890a23233ef28fe3&t=1]is now as high as ever[/url],[/quote]

Roubini, who has pretty much been spot-on on the whole sequence of unfolding housing and credit-market events to date, has a very worrying prediction for what`s next:

[url=http://clicks.skem1.com/v/?u=ec33143369fd6492ccc555679d706030&g=2309&c=444&p=89fcd9c92ecd19db890a23233ef28fe3&t=1]Roubini Sees 'Silent' Run on Banks, Urges `Triage': Bloomberg Radio Interview[/url]
[quote]The next step of this panic could become the mother of all bank runs: a run on the 1 trillion dollar plus of the cross border short-term interbank liabilities of the U.S. banking and financial system as foreign banks start to worry about the safety of their liquid exposures to U.S. financial institutions. Such a silent cross border bank run has already started as foreign banks are worried about the solvency of U.S. banks and are starting to reduce their exposure[/quote]

And Roubini`s Global EconoMonitor site also has an interesting article contrasting two different kinds of "Resolution Corporations":

[url=http://clicks.skem1.com/v/?u=e415d8e8856ecc81c3a356394c1ecf52&g=2309&c=444&p=89fcd9c92ecd19db890a23233ef28fe3&t=1]The RTC or the RFC? Taxpayers as Involuntary Equity Investors[/url]
[quote]Alex Pollock and John H. Makin argue that the Reconstruction Finance Corporation set up in response to the Great Depression would have been a better model for the bailout than the RTC. In the RFC model, the public would make equity investments rather than just provide subsidies to banks.[/quote]


[b]The "CRA Caused the Subprime Mess" Lie[/b]

The pro-deregulation crowd [mainly the Republicans and their shills like former House Speaker "She Turned Me Into a Newt" Gingrich] have been peddling this claim that the *real* blame for the subprime debacle lies with - not George Bush and Alan Greenspan and the reckless borrowing habits of American consumers! - but rather with Bill Clinton, by way of the Community Reinvestment Act (CRA) which Clinton promoted and signed into law. This is pure, unadulterated fiction, and [i]The Big Picture[/i]'s Barry Ritholz does a great job demolishing it in one of his recent posts:

[url=http://bigpicture.typepad.com/comments/2008/10/misunderstandin.html]Misunderstanding Credit and Housing Crises: Blaming the CRA, GSEs[/url]
[quote]"It's telling that, amid all the recent recriminations, even lenders have not fingered CRA. That's because CRA didn't bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA -- or any federal regulator. Law didn't make them lend. The profit motive did."[/quote]
[b]My Comment:[/b] This is not to say that Clinton and the Democrats are blameless in this mess- far from it. But let`s put the blame where it really lies, for instance the Greenspanian rock-bottom-interest-rates-forever policies which were already in full swing on Clinton`s watch [and which helped fuel the Dotcom bubble], and the 1999 [url=http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act]Gramm-Leach-Bliley[/url] Financial Services Modernization Act.

And whatever evils may have occurred under Clinton, keep in mind that that administration did not leave the country with a Trillion-dollar [and growing as we speak] annual account deficit, nor with a "hollow economy" in which very few people are engaged in the actual production and providing of value-add goods and services. Bush and Greenspan turned us into a nation of speculators and house-flippers, in which the vast majority of the populace now subscribes to the destructive notion that they are entitled to "the good life" without actually earning it, and that credit [i.e. borrowed money] rather than actual *capital* [= earned money] is "the lifeblood of the economy".

I'm laughing at citi vs wells fargo arguing over who gets to marry wachovia. What do you care to bet that citi now tries to beat the wells fargo bid?

The squabbling is worse than buzzards fighting over a dead rhino.

DarJones

The current NPR "This American Life" episode is ...
[quote=http://www.npr.org/templates/story/story.php?storyId=95395712]"Another Frightening Show About the Economy," a one-hour special report for [URL="http://thisamericanlife.org/Radio_Episode.aspx?episode=365"][I]This American Life[/I][/URL]. In the show, Alex Blumberg and NPR's Adam Davidson — the two reporters behind the popular "Giant Pool Of Money" explanation of the mortgage meltdown — explain what happened in the last week, including what regulators could've done to prevent this financial crisis from happening in the first place.[/quote]"Giant Pool of Money" was the first explanation of the origins of the mortgage meltdown that I understood.

Their new show is explaining why the commercial paper market froze, what credit default swaps have to do with that, how troubles in the mortgage market spread to companies to other companies that have nothing to do with mortgages, and what proper government regulation could have done to avoid the problem. Now (as I'm listening to the broadcast) they're starting to talk to people who urged such regulation years ago, and what happened ...

(Summary so far: Credit default swaps (CDS) were a type of "insurance" that was _highly_ leveraged. Lehman Brothers, which owned CDSes, went bankrupt because their CDSes went bad. That meant that the Reserve Fund money market fund that had invested in commercial paper from Lehman Brothers wasn't going to be paid back, so its mutual fund shares "broke the buck". That scared all other money market funds who routinely invested in commercial paper, so that froze the commercial paper market. ...)

Now they're talking to economists about the Paulson plan and proposed alternative stock injection plan ...

Financial Crisis hits Europe | Emerging Markets
 

[url=http://www.nytimes.com/2008/10/07/business/07euro.html?ref=business]Europe Tested by Financial Crisis[/url]: [i]European nations scrambled further Monday to prevent a growing credit crisis from bringing down major banks and alarming savers as Sweden followed Germany, Austria and Denmark in offering new protections for bank deposits.[/i]


[url=http://www.welt.de/wirtschaft/article2538368/Die-Finanzkrise-ueberfordert-die-Bundesregierung.html]Financial Crisis overwhelms German Government[/url]: [i]For weeks the chancellor and her finance minister understated the magnitude of the crisis. At least until the weekend, when the rescue of mortgage lender Hypo Real Estate once again stood on the brink. Now the government is hectically trying to become master of the situation, but Chancellor Merkel is making promises she will find difficult to keep.[/i]

[b]My Comment:[/b] Above is my translation of a [i]Welt Online[/i] headline. The automated translation I got from [i]Freetranslation.com[/i] was worth roughly what I paid for it - here it is, for your bemusement:
[quote]The Federal Government overcharges the finance crisis
[i]of Jan Dams and Jörg own village
6th of October 2008, 18:00 clock[/i]

For weeks the chancellor and its Treasury Minister had small spoken the crisis. To the weekend when the rescue of the Hypo hung actually Estate again in the balance. Now the country tries hectically to become gentleman of the situation. To be sure the chancellor delivers promises full-bodied, that she only heavily can hold.[/quote]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a0JXpRxlaAb8&refer=news]Overnight Commercial Paper Rates Advance as Bank Bailouts Spread Globally[/url]: [i]Corporate short-term borrowing rates soared as bank bailouts spread through Europe and the Federal Reserve committed to doubling its auctions of cash to banks to as much as $900 billion to unfreeze short-term lending.[/i]


[b]Emerging Markets:[/b] Things getting really ugly on that front:

[url=http://www.bloomberg.com/apps/news?pid=20601086&sid=aSp8Eh9.8S.8&refer=news]Brazil's Bovespa Plunges 15 Percent, Trading Halted; Vale, Petrobras Sink[/url]: [i]Brazilian stocks headed for their biggest drop in a decade as commodity producers plunged on concern the economic slowdown and global credit crisis are worsening.[/i]
[b]My Comment:[/b] The 1-year chart for [url=http://chart.finance.yahoo.com/c/1y/e/ewz]EWZ[/url] pretty much tells the story.


[url=http://www.bloomberg.com/apps/news?pid=20601086&sid=aUO.sou6cNzk&refer=news]Mexico's Peso Plummets to Record Low as Investors Fall Into `Fear Mode'[/url]: [i]Mexico's peso plunged to a record low as the global financial crisis deepened, prompting investors to pull money out of higher-yielding, emerging-market assets.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601086&sid=akjxsgfcZ_k4&refer=news]Emerging Market Stocks Head for Worst Decline Since 1997 as Russia Slumps[/url]: [i]Emerging market stocks fell the most in at least two decades and exchanges in Brazil and Russia were forced to halt trading as the global banking crisis escalated in Europe and oil fell below $90 a barrel.[/i]


[b]U.S. News:[/b]

[url=http://www.nytimes.com/2008/10/06/business/06econ.html?ref=business]Full of Doubts, U.S. Shoppers Cut Spending[/url]: [i]Consumers are pulling back on their spending, all but guaranteeing that the economic situation will get worse.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=a0PEnjbC3YMI&refer=news]FHA Takes on Subprime Mortgages, Alt-A Home Loans From Battered U.S. Bank[/url]: [i]The Federal Housing Administration has grown so large that by the end of the year it will guarantee mortgages for three in 10 U.S. borrowers, many of whom have bad credit or loans that required no verification of income.[/i[

[url=http://www.nytimes.com/2008/10/06/business/06buffett.html?em]Like J.P. Morgan, Warren E. Buffett Braves a Crisis[/url]: [i]J. Pierpont Morgan’s role in the Panic of 1907 has its echo in Warren E. Buffett’s actions during the current financial troubles.[/i]


[url=http://www.nytimes.com/2008/10/03/business/03sec.html?em]SEC’s ’04 Rule Let Banks Pile Up New Debt[/url]
[quote]On that bright spring afternoon [of 28 April 2004], the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.

They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.

The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary. [/quote]


[url=http://www.nytimes.com/2008/10/05/business/05fannie.html?_r=1&em&oref=slogin]Pressured to Take More Risk, Fannie Reached Tipping Point[/url]
[quote]When the mortgage giant Fannie Mae recruited Daniel H. Mudd, he told a friend he wanted to work for an altruistic business. Already a decorated marine and a successful executive, he wanted to be a role model to his four children — just as his father, the television journalist Roger Mudd, had been to him.

Fannie, a government-sponsored company, had long helped Americans get cheaper home loans by serving as a powerful middleman, buying mortgages from lenders and banks and then holding or reselling them to Wall Street investors. This allowed banks to make even more loans — expanding the pool of homeowners and permitting Fannie to ring up handsome profits along the way.

But by the time Mr. Mudd became Fannie’s chief executive in 2004, his company was under siege. Competitors were snatching lucrative parts of its business. Congress was demanding that Mr. Mudd help steer more loans to low-income borrowers. Lenders were threatening to sell directly to Wall Street unless Fannie bought a bigger chunk of their riskiest loans.

So Mr. Mudd made a fateful choice. Disregarding warnings from his managers that lenders were making too many loans that would never be repaid, he steered Fannie into more treacherous corners of the mortgage market, according to executives.

For a time, that decision proved profitable. In the end, it nearly destroyed the company and threatened to drag down the housing market and the economy.[/quote]

[QUOTE=ewmayer;144651][from bringing down major banks and alarming savers[/QUOTE]

Alarming savers......

Where is the bailout for those whose retirement savings/IRAs are being
ruined by the wall street incompetents???? Can we mount a class-action
lawsuit???

[QUOTE=R.D. Silverman;144653]Where is the bailout for those whose retirement savings/IRAs are being ruined by the wall street incompetents???? Can we mount a class-action lawsuit???[/QUOTE]
I have mixed feelings about this issue - on the one hand, you didn't hear most people complaining about their 401(k)s back in the heady bull-market days.

OTOH, the ever-looser nature of the federal rules on retirement accounts, coupled with the Greenspan [and now the Bernanke] Fed's keeping interest rates much too low for much too long had the effect of essentially turning us into a nation of house-flippers and stock-market speculators. Had the Fed kept rates at a more-reasonable 5-6% level, there would never have been the massive flight to riskier investments by investors in search of a decent yield on their savings. The standard IRA marketing pitch of "assuming an average return of [pick a number between 5 and 10%], $10000 invested today would be worth [pick some impressively large number] at retirement" only reinforced this trend.

[QUOTE=ewmayer;144658]I have mixed feelings about this issue - on the one hand, you didn't hear most people complaining about their 401(k)s back in the heady bull-market days.

.[/QUOTE]

And you didn't hear wall street and the banks complaining as long as
home prices were rising.......

Whatever happened to the days when I was growing up when you
could get a steady 5% on ordinary passbook savings????

I don't need a Bull Market. I would be happy with just a steady 5%.

Personally speaking I would like to see a ban on [b]ALL[/b] wall street
investments except for taking long positions -- no derivatives, no hedge
funds, no short selling, no commodities dealing, etc... These are all
contrived games to allow legalized gambling. Why is Internet poker illegal,
but gambling on Wall Street OK?

The difference between the two is just a word: Wall Street calls it
*investment*. To me, an investment is being part owner in a company
that [b]creates[/b] goods or services. When the company you own
makes money, then you make money. The stock price of a [b]profitable[/b]
company should not go down. In today's climate, however, a company's
stock price seems to have little to do with its long term viability and
profitability. And I think that [b]sucks[/b].

While I was working at RSA, one quarter the company's sales and profits
grew by 30%. Terrific, right??? Wrong. Pundits had predicted more,
so the company's stock dropped by 40%!!!!!

The Gordon Gecko "I create nothing" seems to be the Wall Street
creedo.

These people build nothing. They create nothing of value. They
simply make money off the buying and selling of others....

Let's get back to VALUE BASED investing.

[QUOTE=ewmayer;144186]Tonight`s "Special Guest Bulltard" on PBS` [i]Nightly Business Report[/i] was S&P Chief Market Pumper, erm, I mean "Strategist", Sam Stovall. He made a number of rosy predictions about how October has historically been a good month for the major indices, and that he expects the S&P500 to finish the year around 1250, i.e. roughly 10% above today`s close. He also suggested several equity categories he expects to lead the 4th-quarter recovery, including consumer discretionaries and technology companies.

Allow me to interject a noisy "WTF?" and make some slightly more bearish 4th-quarter predictions:

- Consumer discretionaries will suck, because consumer discretionary spending is falling off a cliff;

- Tech will suck, because exports will decline due to developing recessions in most of the rest of the world, and because tech leaders like Apple and Google are heavily dependent on consumer discretionary spending;

- Historical average behavior can be thrown right out the window when it comes to what`s going on currently;

- Major indices will have at least one halfway-decent rally, but will finish the year lower than currently: Dow < 10000, Nasdaq < 1800, S&P500 < 1000.[/QUOTE]
Did I say those indices would sink below the given levels by end of the year? Silly me ... I meant of course, "by end of next Monday". Sorry, I must have let my rampant optimism color my predictions.

[quote=R.D. Silverman;144662]Whatever happened to the days when I was growing up when you could get a steady 5% on ordinary passbook savings????[/quote]Deregulation -- Reagan Administration 1981-1989

[quote]Let's get back to VALUE BASED investing.[/quote]... that was taken away from us by f-values, f-based politicians? :smile:

[URL]http://www.cartoonbank.com/product_details.asp?mscssid=DA0H77J111Q98MWQHGTCKQUQUHNVF68B&sitetype=1&did=4&sid=125667&pid=&keyword=bailout&section=prints&title=&whichpage=3&sortBy=popular[/URL]

Stocks hit 5-year lows | 60% say depression likely
 

[url=http://money.cnn.com/2008/10/06/markets/markets_newyork/]Stocks hit 5-year lows[/url]: [i]Dow claws its way back - ends down 350 points, following 800-point deficit - after dropping below 10,000 for first time in 4 years.[/i]

[url=http://money.cnn.com/2008/10/06/markets/oil/index.htm]Oil tumbles to 8-month low below $88[/url]: [i]Global economic slowdown contributes to $6 decline in crude futures.[/i]

[url=http://money.cnn.com/2008/10/06/news/economy/depression_poll/index.htm]Poll: 60% say depression 'likely'[/url]: [i]CNN Poll finds 6 of 10 believe a depression is somewhat or very likely - seeing 25% unemployed and millions homeless and hungry.[/i]


A Small Piece of Good News (FNM/FRE related):

[url=http://www.reuters.com/article/marketsNews/idINN0639153920081006?rpc=44]Fannie, Freddie swaps may recover 92-94 pct area[/url]
[quote] NEW YORK, Oct 6 (Reuters) - Sellers of protection on mortgage finance majors Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) (FNM.P: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) (FRE.P: Quote, Profile, Research, Stock Buzz) will likely be repaid 92 to 94 percent of the insurance they sold, based on the initial results of an auction on Monday to determine the value of the contracts.

Initial indications are that swaps on the senior debt of Fannie Mae and Freddie Mac will recover 92.4 percent and 93.75 percent, respectively, and swaps on their subordinated debt will recover 92.65 percent and 93.8 percent, respectively, according to Creditex, one of the administrators of the auction.

The net open interest on all of the contracts was to buy the debt, indicating the final price may be higher than the initial results.[/quote]
[b]Disclosure:[/b] Currently long FNM, having bought some around last Friday`s close. Woke up this morning to find myself with a 20% haircut [at which point I promptly bought more], but on the plus side, I`m feeling very patriotic.


[url=http://money.cnn.com/2008/10/06/markets/dollar/index.htm]Dollar hits 14-month high vs Euro, plummets against yen[/url]
[quote]NEW YORK (CNNMoney.com) -- The dollar continued to rally against European currencies Monday but plummeted more than 4% to hit a 6-month low against the Japanese yen, as the credit crisis spreads around the globe.

The dollar fell a substantial 4.6% against the Japanese currency to ¥100.44 from ¥105.32 Friday. Earlier Monday, the dollar fell as low as ¥100.23, the first time the greenback traded that low since Mar. 31.

"The yen typically outperforms other currencies during periods of extreme risk aversion," said Reid.

Concern about tightening credit markets have affected currency values worldwide.

The euro traded at $1.3474, down 2.2% from $1.3772 Friday. Earlier Monday, the euro hit $1.3471, the lowest level the currency has seen since Aug. 20, 2007.

The British pound bought $1.7379, down 1.8% from $1.7690. At one point Monday, the U.K. currency sank as low as $1.7335, the lowest point the pound has seen since March 13, 2006.

With traditionally strong currencies in free fall, European governments are stepping up their efforts to restore confidence in large financial institutions in order to deal with the tight credit market.[/quote]
[b]My Comment:[/b] The rise of the yen also signals the end of the decades-long [url=http://en.wikipedia.org/wiki/Japanese_yen#Post-bubble_years]"carry trade"[/url], in which large investors would borrow huge sums in Yen at the rock-bottom interest rates set by the central bank of Japan in the wake of the bursting of their real estate bubble, then convert the yen to other currencies and invest in higher-yielding vehicles [typically government bonds] elsewhere, and pocket the difference.

US consumer borrowing falls; first time in decade
 

[url=http://www.iht.com/articles/ap/2008/10/07/business/NA-US-Consumer-Credit.php]AP | U.S. consumer borrowing falls for the first time since January 1998[/url]

Note that this was *before* Black September. While not good for the short run state of the economy, finally a sign that consumers are starting to do the single most important thing needed for a long-term sustainable economy, namely deleverage themselves. [Not willingly, mind you, but we’ll take “kicking and screaming” over “not at all”].

Central Banks in Coordinated Rate-Cut Experiment
 

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=azOWH.Rai3iY&refer=news]Fed, ECB, BOE Cut Rates in Unprecedented Response to Combat Credit Freeze[/url]: [i]The Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented coordinated effort to ease the economic effects of the worst financial crisis since the Great Depression.[/i]

[url=http://globaleconomicanalysis.blogspot.com/2008/10/global-coordinated-rate-cuts-wont-solve.html]Mish Shedlock's take[/url] on the global rate-slashing echoes my "trying to cure the patient with more of what made the patient sick is doomed to fail" sentiment:
[quote]The world is heading for a global recession and a sure bet is that it will be blamed on a subprime crisis in the US. The reality is the greatest liquidity experiment in history is now crashing to earth.

The root cause of this crisis is fractional reserve lending, and micromanagement of interest rates by the Fed in particular and Central Banks in general. The Fed started the party by slashing interest rates to 1%, but Central Banks everywhere drank the same punch to varying degrees.

The Greenspan Fed lowering interest rates to 1% fueled the initial boom, but like an addict on heroin, the same dose a second time will not have the same effect. The Fed, the ECB, etc. could have slashed rates to 0% today and it would not have mattered one bit.

The reason is simple: There is no reason for banks to go on a lending spree with consumers tossing in the towel, unemployment rising, and rampant overcapacity everywhere one looks with the exception of the energy sector.

Consumers are tapped out, not just in the US, but in nearly every country on the planet. We had our party, and a fine party it was. However, the party is over and the bill is now past due. The price is a global recession. That price must be paid no matter what Central Banks do.[/quote]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aM0QF6wHRPoI&refer=news]Pending Home Resales in U.S. Increase 7.4% as Foreclosures Reduce Prices[/url]: [i]More Americans unexpectedly signed contracts in August to purchase previously owned homes as mounting foreclosures pushed down prices.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=ahQ63GX1FSMs&refer=news]U.S. Stocks `Halfway Through' Downturn After 36% Drop, ISI's De Graaf Says[/url]: [i]U.S. stocks are only ``halfway through'' a decline that sent the Standard & Poor's Index down 36 percent in the past year, said Jeffrey de Graaf, a top-ranked market analyst.[/i]


[url=http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3158360/Bank-bail-out-The-winners-and-losers.html]Massive UK Bank bail-out: The winners and losers[/url]: [i]Interest rates have been cut by half a point and the Government has pledged billions of pounds in a bank bail-out but not every one is a winner[/i]


[url=http://money.cnn.com/2008/10/08/news/international/world_crisis/index.htm]World markets return to selloff[/url]: [i]Global rate cut sends stocks down sharply in foreign markets after having mostly recovered from some heavy losses earlier in the day.[/i]
[quote]NEW YORK (CNNMoney.com) -- Global markets turned sharply lower Wednesday, despite emergency action by global central banks that had initially calmed skittish investors.

Stock markets worldwide had briefly recovered after the United States, Canada, England, the European Union, Sweden and Switzerland announced coordinated interest-rate cuts at 7 a.m. ET.

But sentiment turned, and investors sent stocks falling way down to the low levels seen in the hours before the joint cut was issued.

...

Markets in Asia were already closed by the time the central banks moved. Investors in Japan suffered one of their worst days ever, with the Nikkei down more than 9%. Hong Kong's Hang Seng index plunged 8.2%, even as the Hong Kong Monetary Authority announced it would lower interest rates a full percentage point starting Thursday.

A Russian stock exchange was shut down after a huge decline at the open. [/quote]
[b]My Comment:[/b] The Russian stock exchange has been shut down more often than not of late - they should just get it over with, announce a blanket "no selling at a loss" rule. That would be a quintessentially Russian way to try to stem the bleeding - it is after all no accident that the word [i]ukase[/i] [a synonym for decree] [url=http://en.wikipedia.org/wiki/Decree]derives from the Russian[/url].

[b]World & Emerging Markets:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601086&sid=asD8s4Oggpi8&refer=news]Mexican Peso Has Biggest Intraday Decline Since `Tequila Crisis' of 1994[/url]: [i]Mexico's peso tumbled as much as 13.8 percent, its biggest intraday drop since a government devaluation in 1994, amid concern that a coordinated rate cut by central banks won't be enough to unfreeze global credit markets.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601086&sid=at4QYNuJbv4g&refer=news]: [i]Brazil Taps Reserves to Prop Up Falling Currency for First Time Since 2003[/url]: [i]Brazil's central bank sold U.S. dollars in the spot market for the first time in more than five years after the real tumbled as much as 10 percent, the most since the 1999 devaluation.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601086&sid=a.Kuy4FGAQM8&refer=news]Russia, Indonesia Shut Exchanges as Rout Worsens; Brazilian Stocks Decline[/url]: [i]Russia, Indonesia, Ukraine and Romania shut their stock exchanges and Brazilian stocks fell to the lowest in two years in the worst week for emerging markets in at least two decades on concern that a deepening credit crisis will halt global growth.[/i]


[b]U.S. Business:[/b]

[url=http://money.cnn.com/2008/10/08/news/economy/retail_sales/index.htm]Nervous shoppers pull back[/url]: [i]Wal-Mart and Costco's sales in September helped by consumers' shift to low-priced groceries. Clothing and department store sales slump as Americans cut back on everything else.[/i]


[url=http://money.cnn.com/2008/10/07/news/companies/alcoa.ap/index.htm]Alcoa earnings drop 52%[/url]: [i]The aluminum producer suspends buyback program after missing third-quarter profit expectations.[/i]
[quote]PITTSBURGH (AP) -- Alcoa Inc., one of the world's largest aluminum producers, on Tuesday reported a 52% drop in third quarter profit and said it would conserve cash by suspending its stock buyback program and all non-critical capital projects.

Alcoa, the first component of the Dow Jones industrial average to report earnings, said results were hurt by sharply lower aluminum prices, weaker demand and a charge from curtailing production at a Texas smelter.

As a global economic slowdown crimps demand for virtually every commodity, aluminum prices have dropped 32% from an all-time high of high on July 11. They're now trading about $2,250 per metric ton, down from about $3,380 at their peak. Copper, lead, nickel and other metals have also tumbled sharply.[/quote]
[b]My Comment:[/b] I picked Alcoa because of its flagship status, but the phenomenon of plummeting demand for commodities is now global - see recent oil-price action.

Iceland Teeters on the Brink of Bankruptcy
 

[url=http://www.nytimes.com/aponline/world/AP-EU-Iceland-Meltdown.html?em]Iceland Teeters on the Brink of Bankruptcy[/url]
[quote]REYKJAVIK, Iceland (AP) -- This volcanic island near the Arctic Circle is on the brink of becoming the first ''national bankruptcy'' of the global financial meltdown.

Home to just 320,000 people on a territory the size of Kentucky, Iceland has formidable international reach because of an outsized banking sector that set out with Viking confidence to conquer swaths of the British economy -- from fashion retailers to top soccer teams.

The strategy gave Icelanders one of the world's highest per capita incomes. But now they are watching helplessly as their economy implodes -- their currency losing almost half its value, and their heavily exposed banks collapsing under the weight of debts incurred by lending in the boom times.

''Everything is closed. We couldn't sell our stock or take money from the bank,'' said Johann Sigurdsson as he left a branch of Landsbanki in downtown Reykjavik.

The government had earlier announced it had nationalized the bank under emergency laws enacted to deal with the crisis.

''We have been forced to take decisive action to save the country,'' Prime Minister Geir H. Haarde said of those sweeping new powers that allow the government to take over companies, limit the authority of boards, and call shareholder meetings.

A full-blown collapse of Iceland's financial system would send shock waves across Europe, given the heavy investment by Icelandic banks and companies across the continent.

One of Iceland's biggest companies, retailing investment group Baugur, owns or has stakes in dozens of major European retailers -- including enough to make it the largest private company in Britain, where it owns a handful of stores such as the famous toy store Hamley's.

Kaupthing, Iceland's largest bank and one of those whose share trading was suspended last week to stop a huge sell-off, has also invested in European retail groups.

Thousands of Britons have accounts with Icesave, the online arm of Landsbanki that regulators said was likely to file for bankruptcy after it stopped permitting customers to withdraw money from their accounts Tuesday.

To try to wrest control of the spiraling situation, the government also loaned $680 million to Kaupthing to tide it over and said it was negotiating a $5.4 billion loan from Russia to shore up the nation's finances.

The speed of Iceland's downfall in the week since it announced it was nationalizing Glitnir bank, the country's third largest, caught many by surprise despite warnings that it was the ''canary in the coal mine'' of the global credit squeeze.

Famous for its cod fishing industry, geysers, moonscape and the Blue Lagoon, Iceland was the site of the Cold War showdown in which Bobby Fischer of the United States defeated Boris Spassky of the Soviet Union in 1972 for the world chess championship. Last year, Iceland won the U.N.'s ''best country to live in'' poll, with its residents deemed the most contented in the world.

No more.

Despite sunny skies Tuesday after three days of unseasonably cold weather, Reykjavik's mood remained grim -- cafes were half-empty, real estate agents sat idle, and retailers reported few sales.

''I'm really starting to get worried now. Everything is bad news. I don't know what's happening,'' said retiree Helga Jonsdottir as she headed to a supermarket.

Icelanders are also beginning to question how a relative few were able to generate the disproportionate wealth -- and associated debt -- that Haarde has warned puts the entire country at risk of bankruptcy.

Iceland's reinvention from the poor cousin in Europe to one of the region's wealthiest countries dates to the deregulation of the banking industry and the creation of the domestic stock market in the mid-1990s.

Those free market reforms turned Iceland from a conservative, inward-looking country to one of a new generation of internationally educated young businessmen and women who were determined to give Iceland a modern profile far beyond its fishing base.

Entrepreneurs become its greatest export, as banks and companies marched across Europe and their acquisition wallets were filled by a stock market boom and a well-funded pension system. Among the purchases were the iconic Hamley's toy store and the West Ham soccer team.

Back home, the average family's wealth soared 45 percent in half a decade and gross domestic product rose at around 5 percent a year.
[b]
But the whole system was built on a shaky foundation of foreign debt.
[/b]
The country's top four banks now hold foreign liabilities in excess of $100 billion, debts that dwarf Iceland's gross domestic product of $14 billion.

Those external liabilities mean the private sector has had great difficulty financing its debts, such as the more than $5.25 billion racked up by Kaupthing in five years to help fund British deals.

Iceland is unique ''because the sheer size of its financial sector puts it in a vulnerable situation, and its currency has always been seen as a high risk and high yield,'' said Venla Sipila, a senior economist at Global Insight in London.

The krona is suffering in part from a withdrawal by a falloff in what are called carry trades -- where investors borrow cheaply in a country with low rates, such as Japan, and invest in a country where returns, and often risks, are higher.

After watching the free-fall for several days, the Central Bank of Iceland stepped in Tuesday to fix the exchange rate of the currency at 175 -- a level equal to 131 krona against the euro.

Haarde said he believed the measures had renewed confidence in the system. He also was critical of the lack of an Europe-wide response to the crisis, saying Iceland had been forced to adopt an ''every-country-for-itself'' mentality.

He acknowledged that Iceland's financial reputation was likely to suffer from both the crisis and the response despite strong fundamentals such as the fishing industry and clean and renewable energy resources.

As regular Icelanders begin to blame the government and market regulators, Haarde said the banks had been ''victims of external circumstances.''

Richard Portes of the London Business School agreed, noting the banks were well-capitalized and had not bought any of the toxic debt that has brought down banks elsewhere.

''I believe it is absolutely wrong to say these banks were reckless,'' said. ''Quite the contrary. They were hugely unlucky.''[/quote]
[b]My Comment:[/b]: I highlighted what I consider to be the single-most-crucial sentence of the above article. Sad to see this happening to Iceland - spent several weeks there in the summer of 1995 - lovely place, wonderful people.

Re: Iceland

Maybe Canada or Denmark can pick up some land.:devil:

[QUOTE=ewmayer;144896][url=http://www.nytimes.com/aponline/world/AP-EU-Iceland-Meltdown.html?em]Iceland Teeters on the Brink of Bankruptcy[/url]

[b]My Comment:[/b]: I highlighted what I consider to be the single-most-crucial sentence of the above article. Sad to see this happening to Iceland - spent several weeks there in the summer of 1995 - lovely place, wonderful people.[/QUOTE]Yesterday some of the least diplomatic language I've ever heard came from government ministers acting in their official capacity.

[quote=Alistair Darling, Chancellor of the Exchequer]The Icelandic government, believe it or not, have told me yesterday they have no intention of honoring their obligations here,” [/quote]

Paul

[QUOTE=xilman;144933]Yesterday some of the least diplomatic language I've ever heard came from government ministers acting in their official capacity.[/QUOTE]
Iceland is not the only European country reverting to a "European Union be damned - our very economic survival is at stake" [url=http://www.nytimes.com/2008/10/07/business/07euro.html]modus operandi[/url]. And the UK finance minister accusing another country of lack of sufficient pan-Europeanism would appear rather a "pot, meet kettle" thing to do. Iceland probably feels it owes little to to the Europeans at this point in terms of good will, having pleaded for a loan facility to help it weather the immediate crisis and been turned away - the fact that they turned to Russia is indicative of their resulting desperation.

The Europeans were also very quick to blame the U.S. for "causing the whole mess", when in fact numerous European nations were wallowing in the same kinds of reckless lending and speculative housing bubbles, just on a smaller absolute scale [but e.g. the debt leveraging was even greater in the UK, in a relative per-capita sense.] I note the European [i]schadenfreude[/i] at the U.S.' woes appears to have been short-lived.

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

[url=http://money.cnn.com/2008/10/08/technology/ibm.ap/index.htm]IBM beats estimates with early earnings[/url]: [i]Information technology company is on track for a 22% jump in earnings in 2008.[/url]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aw1xLFeVR9bo&refer=news]U.S. Entered a Recession as Record Consumption Boom Ended, Economists Say[/url]: [i]By almost all accounts, the U.S. is now in a recession, according to economists surveyed by Bloomberg News.[/i]

[b]My Comment:[/b] Tell us something we didn`t already know a year ago, geniuses.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aCfBBqL4O9Xk&refer=news]Russian Farmers Curb Siberian Push as $10 Billion Debt Threatens Harvests[/url]: [i]The financial meltdown that started on Wall Street is now hurting farmers in Siberia, threatening a Russian agricultural revival that the United Nations says is needed to help avert a world food shortage.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aAm0SVGQnyFU&refer=news]Libor Holds Central Banks Hostage as London Rate Freezes Worldwide Lending[/url]: [i]Danilo Coronacion oversees 15 percent of global coconut oil production at CIIF Oil Mills Group in the Philippines. These days, he spends a lot of time worrying about events half a world away in London. The name of his pain? Libor.[/i]
[quote]CIIF has more than $60 million of debt, or 70 percent of its working capital, linked to London interbank offered rates that have soared since Lehman Brothers Holdings Inc. collapsed on Sept. 15. The cost of borrowing in dollars for three-months in London jumped 23 basis points today to 4.75 percent, the highest level since December.
[b]
Rising Libor, set each day in the center of international finance, means higher payments on financial contracts valued at $360 trillion -- or $53,500 for each person worldwide -- including mortgages in Britain, student loans in the U.S. and the debt of companies like CIIF in Makati City, the Philippines.
[/b]
``You can't afford to be caught in the wrong position at any given time,'' said Coronacion, chief executive officer of CIIF, which generally pays 1 to 2 percentage points more than Libor.

Central banks from the U.S. to England and China cut interest rates yesterday in an attempt to restart the flow of credit and prevent a global recession. The moves came after they had funneled trillions of dollars into money markets in a failed bid to end the blockage. South Korea, Taiwan and Hong Kong lowered their benchmark rates today.

`Fear and Panic'

The process of setting Libor is overseen by the British Bankers' Association, putting it outside the domain of central bank policymakers. The overnight dollar rate fell 29 basis points to 5.09 percent. That's still 359 basis points more than the U.S. Federal Reserve's benchmark rate.

Libor, a gauge of bank funding costs, continued to rise even after Spain and the U.K. acted to strengthen their banking systems and the U.S. Congress approved a $700 billion financial bailout. Even the Fed's decision Monday to double emergency cash auctions failed to unlock short-term lending. The European Central Bank today offered banks as much cash as they need for six days at its benchmark rate of 3.75 percent, bringing forward new measures to soothe money markets.

``You get to a situation where fear and panic take hold,'' said Peter Dixon, a London-based economist at Commerzbank AG, Germany's second-biggest bank. ``This is the eye of the storm.''

...

Banks aren't lending because they're worried any borrower may become the next victim and they'll be left with losses as the credit freeze deepens.

Late on Oct. 7, as U.S. stock indexes tumbled to their biggest annual declines since 1937, AXA Investment Managers, a unit of Paris-based Axa SA, sent out an updated list of acceptable counterparties to about 50 of the firm's most senior investors and traders.

The memo, obtained by Bloomberg News, barred all new trading with Royal Bank of Scotland Group Plc and ABN Amro Holding NV, even if the dealings were backed by collateral.

Money managers were also told to look for ways of cutting credit risk. Trading was also suspended ``even on a collateralized basis'' with banks including Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., American Insurance Group Inc. and Macquarie Group Ltd.

Axa Investment Managers CEO Dominique Carrel-Billiard yesterday said the memo was out of date.

``At any given point in time, there are buy lists, sell lists, inclusion lists and exclusion lists,'' any one list will not tell you much, he said. ``In the current environment, those snapshots age at the speed of light.''

Former Bank of England policy maker Willem Buiter said one way to stimulate lending may be for governments to guarantee interbank lending or act as the universal counterparty between banks borrowing for longer than overnight.

``It's quite possible, indeed likely, that unsecured lending will not return on any significant scale -- ever,'' he wrote on his blog on Oct. 6.

Money-market rates signaled the severity of the credit crisis 14 months ago when Libor began to diverge from central bank policy rates. That happened after Paris-based BNP Paribas SA halted withdrawals from three investment funds because it couldn't value assets tainted by the collapsing U.S. subprime mortgage market.[/quote]
[b]My Comment:[/b] The fact that central banks have no direct influence on Libor is the #1 reason the $700 Billion financial bailout is doomed to fail. If the Fed wants to unfreeze the credit markets, intervening to backstop Libor-based lending would be a much more direct [and likely much cheaper] way to do it. Oh well, what's another Trillion bucks or so between friends?

[quote=xilman;144933]Yesterday some of the least diplomatic language I've ever heard came from government ministers acting in their official capacity.



Paul[/quote]
A new Cod War?

[QUOTE=davieddy;144951]A new Cod War?[/QUOTE]

Would that require the sending in of UN "Cod peace keepers"?

[QUOTE=ewmayer;144955]Would that require the sending in of UN "Cod peace keepers"?[/QUOTE]:missingteeth::missingteeth::missingteeth:

[quote=ewmayer;144955]Would that require the sending in of UN "Cod peace keepers"?[/quote]
The peace of Cod which passeth all understanding.

[QUOTE=davieddy;144957]which passeth all understanding.[/QUOTE]That is lutefisk!

Can we get the update of the chart in [URL="http://www.mersenneforum.org/showpost.php?p=119399&postcount=23"]this post[/URL]?

[QUOTE=Uncwilly;144958]That is lutefisk!
[/QUOTE]

You can pass lutefisk?

[QUOTE=ewmayer;144955]Would that require the sending in of UN "Cod peace keepers"?[/QUOTE]

Is that Cod or Kod?

[QUOTE=ewmayer;144949]Iceland is not the only European country reverting to a "European Union be damned - our very economic survival is at stake" [url=http://www.nytimes.com/2008/10/07/business/07euro.html]modus operandi[/url].[/QUOTE]I never claimed it was. I was commenting only on the language used, not the underlying politics.
[QUOTE=ewmayer;144949]And the UK finance minister accusing another country of lack of sufficient pan-Europeanism would appear rather a "pot, meet kettle" thing to do. Iceland probably feels it owes little to to the Europeans at this point in terms of good will, having pleaded for a loan facility to help it weather the immediate crisis and been turned away - the fact that they turned to Russia is indicative of their resulting desperation.[/QUOTE]If you're in a position where you need all the goodwill you can get, such a response to potential helpers is very much on the lines of how to lose friends and alienate people.

It's subsequently transpired that the "we won't pay up, tough luck" response (or CLM as they are known within Microsoft) came from the head of the Icelandic national bank, not the Icelandic government [i]per se[/i]. I suspect that he will be lucky still to be in post next year. He may be lucky still to be in post next month.


Paul

[quote=Uncwilly;144958]That is lutefisk!

[/quote]

OK I've Googled lutefish and I come up with Codswallop.

U.S. Markets Selling off Huge Again Today
 

This is what I saw on the live ticker at roughly 10 mins before closing:

[url=http://hogranch.com/mayer/images/random/us_indices_10.08.2008.bmp]U.S. Major Stock Indices, 08 October 2008[/url]

Looks like we will finish a little above those levels on some late-day bargain hunting, but all the major indices have lost over 20% in under 2 *weeks*. I believe that is known as "a crash".

U.S. financials and automakers seem especially hard-hit. GM plunged below $5 today, Ford barely hanging on to $2. Both GM and Ford down ~30% for the day, and -90% and -80% for the year, respectively.

Coincidentally, today is the 1-year anniversary of the all-time high for the Dow of 14,164. Today's close of ~8600 is nearly 40% below that level, which puts us in the realm of "historic bear markets". The only major index that hit an all-time *today* was the CBOE Volatility index or VIX, more commonly referred to as the investor "fear index".

Another attempt to raise the tone of the conversation.

[QUOTE=davieddy;144965]OK I've Googled lutefish and I come up with Codswallop.[/QUOTE]

[url]http://netnet.net/~pineaire/Lutefisk.html[/url]

[QUOTE=davieddy;144971]Another attempt to raise the tone of the conversation.[/QUOTE]

And apparently a futile one at that. ;)

I didn't want to be accused of mollycoddling you fishy jokesters.

Remind me to tell y'all the story of how me and a college buddy once spent 4 hours unloading a boat of frozen-into-a-solid-mass cod in Alaska while stoned out of our gourds - yes, Mom, we did inhale. Suffice it to say, the time-dilation hallucination which pot sometimes induces is not very pleasant when one is engaged in intensely harsh physical labor in soaked, near freezing conditions.

We've been reading today that crude oil prices are lower today than they were a year ago, and that OPEC wants to stop exporting some to keep the price profitable.

Why isn't it profitable when gas cost almost $1 less last year? Where we live gas is $3.59[sup]9[/sup] to $3.79[sup]9[/sup], depending on what part of town you are in.

:confused:

Asian markets down
 

Get a load of the Nikkei tonight. Free-fall.

Is anybody else anticipating bank holidays and hoarding cash?

Hey, man, where's a captive bolt pistol when you need one?

I need you to call it.
 

Let me ask you something. If the rule you followed brought you to this, of what use was the rule?

What's the most you've ever lost on a coin toss?

I think you do. So this is what I'll offer - you bring me the money and I'll let her go. Otherwise she's accountable, same as you. That's the best deal you're gonna get. I won't tell you you can save yourself, because you can't.

I don't have any enemies. I don't permit such things.

[QUOTE=FactorEyes;145001]Let me ask you something. If the rule you followed brought you to this, of what use was the rule?

What's the most you've ever lost on a coin toss?

I think you do. So this is what I'll offer - you bring me the money and I'll let her go. Otherwise she's accountable, same as you. That's the best deal you're gonna get. I won't tell you you can save yourself, because you can't.

I don't have any enemies. I don't permit such things.[/QUOTE]I failed to understand this content and was a bit concerned prior to turning to Google, my friend, who gave me the context. I haven't seen "No Country for Old Men" yet but I suppose it is about time I get around to it. I generally prefer lighter fare like the Farrelly Brothers but the Coen Brothers did bring a lot of humor and biting irony to "Fargo."

Paul Volcker is on the Charlie Rose show (PBS) right now!

Roubini issues dire "systemic meltdown" alert
 

[QUOTE=cheesehead;145005]Paul Volcker is on the Charlie Rose show (PBS) right now![/QUOTE]

Could you summarize roughly what Volcker had to say?

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

Nouriel Roubini has always - at least in the 2 years I`ve been following his warnings about the collapse of the U.S. housing bubble - been extremely bearish, but with global financial markets imploding at breathtaking speed, his most-dire predictions look increasingly plausible - here is his latest, which landed in my inbox early this morning:
[quote]ALERT
RGE Monitor
October 9, 2008

On Thursday, October 09, 2008, Nouriel Roubini – Chairman of RGE Monitor and Professor of Economics at the NYU Stern School of Business – lays out his latest views on the global economic and financial crisis and the urgent necessary actions that need to be undertaken globally.
[b]
Nouriel Roubini: The world is at severe risk of a global systemic financial meltdown and a severe global depression
[/b]
The U.S. and advanced economies’ financial systems are now headed towards a [url=http://clicks.skem1.com/v/?u=8a5edf62af7d09ec77b6e5470c13c49e&g=2364&c=444&p=89fcd9c92ecd19db890a23233ef28fe3&t=1]near-term systemic financial meltdown[/url] as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof. There is now the beginning of a generalized run on the banking system of these economies; a collapse of the shadow banking system, i.e. those non-banks (broker dealers, non-bank mortgage lenders, SIV and conduits, hedge funds, money market funds, private equity firms) that, like banks, borrow short and liquid, are highly leveraged and lend and invest long and illiquid, and are thus at risk of a run on their short-term liabilities; and now a roll-off of the short term liabilities of the corporate sectors that may lead to widespread bankruptcies of solvent but illiquid financial and non-financial firms.

On the real economic side, all the advanced economies representing 55% of global GDP (U.S., Eurozone, UK, other smaller European countries, Canada, Japan, Australia, New Zealand, Japan) entered a recession even before the massive financial shocks that started in the late summer made the liquidity and credit crunch even more virulent and will thus cause an even more severe recession than the one that started in the spring. So we have a severe recession, a severe financial crisis and a severe banking crisis in advanced economies.

There was no decoupling among advanced economies and there is no decoupling but rather recoupling of the emerging market economies with the severe crisis of the advanced economies. By the third quarter of this year global economic growth will be in negative territory signaling a global recession. The recoupling of emerging markets was initially limited to stock markets that fell even more than those of advanced economies as foreign investors pulled out of these markets; but then it spread to credit markets and money markets and currency markets bringing to the surface the vulnerabilities of many financial systems and corporate sectors that had experienced credit booms and that had borrowed short and in foreign currencies. Countries with large current account deficits and/or large fiscal deficits and with large short-term foreign currency liabilities and borrowings have been the most fragile. But even the better performing ones – like the BRICs club of Brazil, Russia, India and China – are now at risk of a hard landing. Trade and financial and currency and confidence channels are now leading to a massive slowdown of growth in emerging markets with many of them now at risk not only of a recession but also of a severe financial crisis.

The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity where excessive leveraging and bubbles were not limited to housing in the U.S. but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression.

At this point the recession train has left the station; the financial and banking crisis train has left the station. The delusion that the U.S. and advanced economies contraction would be short and shallow – a V-shaped six month recession – has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the U.S. and close to two years in most of the rest of the world. And given the rising risk of a global systemic financial meltdown, the probability that the outcome could become a decade long L-shaped recession – like the one experienced by Japan after the bursting of its real estate and equity bubble – cannot be ruled out.

And in a world where there is a glut and excess capacity of goods while aggregate demand is falling, soon enough we will start to worry about deflation, debt deflation, liquidity traps and what monetary policy makers should do to fight deflation when policy rates get dangerously close to zero.

At this point the risk of an imminent stock market crash – like the one-day collapse of 20% plus in U.S. stock prices in 1987 – cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.

This disconnect between more and more aggressive policy actions and easings, and greater and greater strains in the financial market is scary. When Bear Stearns’ creditors were bailed out to the tune of $30 bn in March, the rally in equity, money and credit markets lasted eight weeks; when in July the U.S. Treasury announced legislation to bail out the mortgage giants Fannie and Freddie, the rally lasted four weeks; when the actual $200 billion rescue of these firms was undertaken and their $6 trillion liabilities taken over by the U.S. government, the rally lasted one day, and by the next day the panic had moved to Lehman’s collapse; when AIG was bailed out to the tune of $85 billion, the market did not even rally for a day and instead fell 5%. Next when the $700 billion U.S. rescue package was passed by the U.S. Senate and House, markets fell another 7% in two days as there was no confidence in this flawed plan and the authorities. Next, as authorities in the U.S. and abroad took even more radical policy actions between October 6th and October 9th (payment of interest on reserves, doubling of the liquidity support of banks, extension of credit to the seized corporate sector, guarantees of bank deposits, plans to recapitalize banks, coordinated monetary policy easing, etc.), the stock markets and the credit markets and the money markets fell further and further and at accelerated rates day after day all week, including another 7% fall in U.S. equities today.

When in markets that are clearly way oversold, even the most radical policy actions don’t provide rallies or relief to market participants. You know that you are one step away from a market crash and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls, and cascading falls in asset prices well below falling fundamentals, and panic is now underway.

At this point severe damage is done and one cannot rule out a [url=http://clicks.skem1.com/v/?u=63762b4ace5f25379c61c4ab32ab65b3&g=2364&c=444&p=89fcd9c92ecd19db890a23233ef28fe3&t=1]systemic collapse and a global depression[/url]. It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging market economies to avoid this economic and financial disaster. Urgent and immediate necessary actions that need to be done globally (with some variants across countries depending on the severity of the problem and the overall resources available to the sovereigns) include:

• another rapid round of policy rate cuts of the order of at least 150 basis points on average globally;
• a temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made;
• a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures;
• massive and unlimited provision of liquidity to solvent financial institutions;
• public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses;
• a massive direct government fiscal stimulus packages that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government;
• a rapid resolution of the banking problems via triage, public recapitalization of financial institutions and reduction of the debt burden of distressed households and borrowers;
• an agreement between lender and creditor countries running current account surpluses and borrowing, and debtor countries running current account deficits to maintain an orderly financing of deficits and a recycling of the surpluses of creditors to avoid a disorderly adjustment of such imbalances.

At this point anything short of these radical and coordinated actions may lead to a [url=http://clicks.skem1.com/v/?u=b6297efca489b8ce4cc7c45246429928&g=2364&c=444&p=89fcd9c92ecd19db890a23233ef28fe3&t=1]market crash, a global systemic financial meltdown and to a global depression[/url]. The time to act is now as all the policy officials of the world are meeting this weekend in Washington at the IMF and World Bank annual meetings.
***

Read more of Nouriel’s views on the current economic situation on Nouriel Roubini’s Global EconoMonitor at [url]http://www.rgemonitor.com/blog/roubini[/url].
[/quote]
[b]My Comment:[/b] While I agree with his diagnosis, at this point I am not confident that any intervention can halt the global leveraged asset bubble from unwinding. I think guaranteeing bank deposits and money-market funds without limit and keeping the absolutely most-critical parts of the credit markets - such as those which employers use for short-term borrowing to meet payrolls - should be top priority. Keeping homebuyers who are not grossly overleveraged from being foreclosed on by targeted [but not taxpayer-bailed] loan restructuring should also be done, but simply bailing out anyone who bought a home in the past 5 years irrespective of whether they were [b]financially in a position to service the resulting debt[/b] is pure lunacy. Owning as home is privilege, not a basic right.

Also, since it's obvious that the $700 Billion bailout King Henry asked for and got from the US congress has failed utterly to restore any semblance of confidence in the markets and the economy and has similalrly failed to unfreeze the credit markets - can we have out money back?

[quote=ewmayer;145051]Could you summarize roughly what Volcker had to say?[/quote]Volcker: The global financial crisis is complicated. Many things need to be done to fix it; they will take a while. Since problems started surfacing last year with [Bear Stearns -- IIRC], the problems have been attacked piecemeal instead of with a coordinated plan for the whole situation. That's why the G8 and [some other group -- IMF?] are currently meeting in [DC or New York], which is why Volcker was in town (and so able to do the interview).

It _is_ quite feasible for coordinated efforts to unwind the crisis and fix the flaws that led to it. Contrary to fears of some, we are _far, far away from anything like the Great Depression_. The global financial system has plenty of means to take care of the situation now; it will just require coordination and time to restore confidence.

That much I'm sure of, but I didn't take notes, and I also listened to other commentators before and since then, so the following may have come from someone besides Volcker:

A complicating factor is the differences between nations' banking laws. For example, recently Ireland started guaranteeing individuals' bank deposits (many countries haven't been doing what the US has done for decades in this regard), whereupon people started moving their money from (unguaranteed) accounts in England to accounts in Ireland, putting pressure on England to guarantee its accounts. So there needs to be international coordination and agreement about steps to be taken by each country in order to avoid adding such disruptions to the crisis.

The following definitely came from others.

Prediction: during this crisis the US dollar will continue to strengthen dramatically (and US Treasury yields will drop) as investors perform the traditional flight to safety. OTOH, there are counterfactors. For instance, it may be deemed desirable, globally, for the US to weaken the USD as part of helping other countries stabilize their economies. However, nations holding large amounts of USD, notably China, would strongly object to having their holdings of USD devalued.

- - -

Editorial: Notice that you can thank the GOP for making it possible for China to have a trillion-dollar voice there.

Today's Market terminology lesson: "Whipsaw"
 

[QUOTE=cheesehead;145060]Editorial: Notice that you can thank the GOP for making it possible for China to have a trillion-dollar voice there.[/QUOTE]

But at least "they didn't raise your taxes" ... they just mortgaged the nation's future to pay for the profligate spending of their "smaller government".

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

[b]Today's Market terminology primer: "Whipsaw"[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=acmUHi5CrPmA&refer=news]U.S. Stocks Drop in Rollercoaster Session; Dow Average Swings 1,000 Points[/url]: [i]U.S. stocks fell for an eighth straight day in a whipsaw session that sent the Dow Jones Industrial Average to its biggest point swing ever.[/i]

[b]My Comment:[/b] I believe the technical term for today's wild ride is "whipsaw". There was actually a nice closing rally, which hopefully means the utter-panic selling of the past week and this morning is coming to an end. We lost over 20% market value - according to one of the cover stories in this morning's [i]Wall Street Journal[/i] that represents over $2.5 trillion in equity valuation for U.S. stocks, and probably in the $5-10 trillion range for the global markets - in the last 8 days of trading. But remember, although the folks in charge here in the U.S. may have wiped out most of your life's savings, "they didn't raise your taxes".

The rest of the Bloomberg headlines continue to paint a grim macro picture:


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a9x54m7CNXTs&refer=news]Stocks Sink, Capping Worst Week in S&P 500's History; Exxon Mobil Declines[/url]: [i]U.S. stocks sank, capping the worst week ever for the Standard & Poor's 500 Index, on concern the escalating credit crises will snuff out consumer spending.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aLkOZnNcDmSQ&refer=news]Lehman Bonds Given Initial Value of 9.75% in Credit-Default Swap Auction[/url]: [i]Sellers of credit-default protection on bankrupt Lehman Brothers Holdings Inc. would be forced to pay holders 90.25 cents on the dollar under initial results of an auction, setting up the biggest-ever payout in the $55 trillion market.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=as6i..sFm62o&refer=news]GE Profit Falls 12% as Markets Roil Finance Unit; Company to Meet Forecast[/url]: [i]General Electric Co. profit declined for a third straight quarter, eroded by lower earnings at its finance arm during the deepest U.S. financial crisis since the Great Depression.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a5AM_QiSWD_M&refer=news]U.S. Exchanges Seeking Targeted Ban on Short Sales With `Circuit Breaker'[/url]: [i]U.S. exchanges may seek to impose a temporary ban on short sales for individual stocks that plunge, as regulators seek to rein in a practice blamed for forcing down shares of financial companies such as Morgan Stanley.[/i]

[b]My Comment:[/b] More idiotic meddling on the part of the SEC. Instead simply reinstating the short-selling uptick rule which they foolishly abolished last year, now they're proposing actively intervening to prop up prices of individual stocks, whether there is good reason for the price of the stock to be falling or not. Hey, why not simply start enforcing minimum-price targets for all stocks trading in the U.S.? Since our financial markets are already effectively socialized/nationalized/conservator-ized, that would seem like the logical next step: "You can only buy and sell [insert name of company owned by friend of Hank Paulson or Chris Cox here] above $[insert SEC-mandated minimum price here]." Presto, fixo - magically the markets are cured of this whole "falling down" ailment.


[url=http://www.bloomberg.com/apps/news?pid=20601209&sid=aeX21ndYuZN4&refer=transportation]GM, Ford, Chrysler May Face Bankruptcy on Slowdown in Auto Sales, S&P Says[/url]: [i]General Motors Corp., Ford Motor Co. and Chrysler LLC may be forced into bankruptcy by slowing economies and dwindling U.S. auto sales, Standard & Poor's analyst Robert Schulz said.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=abuImQvivKkc&refer=news]Libor Dollar Rate Rises as Central Bank Actions Fail to Thaw Credit Market[/url]: [i]The cost of borrowing in dollars in London for three months rose as cash injections and interest-rate cuts by 10 major central banks failed to thaw a credit freeze that put stocks on course for their worst week in 30 years.[/i]

[b]My Comment:[/b] Now that the credit markets have called Hank & Friends` bluff, we have officially gone from "too big to fail" to "too big to bail". Homedebtors with soon-to-reset ARMs tied to the Libor are going to be wiped out.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=anUDEEEP1_M0&refer=news]Cost of U.S. Crisis Response Is Ballooning, Along With the Deficit, Debt[/url]: [i]The global financial crisis is turning into a bigger drain on the U.S. federal budget than experts estimated two weeks ago, ballooning the deficit toward $2 trillion.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aIAWDrA4RSTQ&refer=news]Abramovich, Deripaska, Oligarchs Lose $230 Billion in Russian Stock Rout[/url]: [i]Russian billionaires from aluminum magnate Oleg Deripaska to soccer-club owner Roman Abramovich lost more than $230 billion in five months during the nation's worst financial crisis since the 1998 default on its debt.

[QUOTE=ewmayer;145064]But at least "they didn't raise your taxes" ... they just mortgaged the nation's future to pay for the profligate spending of their "smaller government".[/quote]

ewmayer, the national debt was just about doubled, in one week, by congress and senate, run by democrats. I imagine that almost every Republican who voted for the bill and who comes up for re-election will be voted out of office. That's partially because a majority of Americans (but especially the Republicans) did not want the bill. I just don't understand how you can blame the debt solely on Republicans.

On the other hand, I personally am sick of the ones we've elected. They do not represent the party of low taxes and lower spending.

[b][i][Editor's Note: Moved ensuing discussion to the "New U.S. President" thread.][/i][/b]

Op-Ed by Paul Volcker in today's WSJ
 

There is an op-ed by Paul Volcker in today's WSJ which seems to be very much in the spirit of what Cheesehead heard on Charlie Rose. The last 3 paragraphs [which I quote] are the salient ones, IMO:

[url=http://online.wsj.com/article/SB122360251805321773.html]Paul Volcker: We Have the Tools to Manage the Crisis[/url]: [i]Now we need the leadership to use them[/i]
[quote]The inevitable recession can be moderated. The groundwork can be laid for reconstructing the financial system and the regulatory and supervisory arrangements from the bottom up. The extraordinary interventions by the government (and taxpayer) should be ended as soon as reasonably feasible.

That rebuilding will be the job of another day -- of a new administration here in the U.S., of finance ministries and central banks working together. It must draw upon the strength of the now chastened private sector. It will require more understanding of the risks embedded in so-called financial engineering and of the perverse compensation incentives that have exalted risk over prudence.

There is, and must be, recognition of the essential role that free and competitive financial markets play in a vigorous, innovative economic system. There needs to be understanding, in that context, that financial ups and downs -- and financial crises -- will be inevitable, even with responsible economic policies and sensible regulation. But never again should so much economic damage be risked by a financial structure so fragile, so overextended, so opaque as that of recent years.[/quote]

Socialism: "(in Marxist theory) the stage following capitalism in the transition of a society to communism, characterized by the imperfect implementation of collectivist principles."

--dictionary.com keyword: Socialism

EU members announced various bailout plans this weekend intended to stabilize their financial markets. The total $ looks like it will be comparable to the US amount of $700 billion. The major difference is that the EU members are taking ownership stakes in the firms they rescue.

Early reports indicate the markets are reacting favorably to the news. I personally don't think they are doing enough to make a difference except in the short term prognosis. Are the lemmings er, um investors premature with their celebrations?

DarJones

[quote=ewmayer;144974]And apparently a futile one at that. ;)

I didn't want to be accused of mollycoddling you fishy jokesters.

[/quote]

At least you rose to the bait:smile:

Icelanders Empty Store Shelves; Krugman Wins Nobel
 

[url=http://money.cnn.com/2008/10/13/news/international/Germany_rescue.ap/index.htm]Germany unveils $671B bank bailout[/url]: [i]Finance Ministry says banks will have access to 'stabilization fund' through 2009.[/i]


[url=http://money.cnn.com/2008/10/13/news/economy/central_banks_dollar_funds/index.htm]Fed offers unlimited support to European Central Banks[/url]: [i]The Federal Reserve announced Monday it will offer an unlimited amount of dollars to the central banks of England, Switzerland and the European Union in an unprecedented move to provide liquidity to the global banking system.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601087&sid=aw6Y9TU3RioI]Royal Bank of Scotland, HBOS Set to Be Taken Over by Government[/url]: [i]U.K. Prime Minister Gordon Brown's government is set to buy majority stakes in Royal Bank of Scotland Group Plc and HBOS Plc to contain the worst financial crisis since the 1930s, two people familiar with the matter said. [/i]


[url=http://money.cnn.com/2008/10/13/markets/bondcenter/credit_markets/index.htm]Credit tight, but key lending rate eases[/url]: [i]Bank-to-bank lending rate reverses upward trend, but remains at very high levels, as international leaders pledge to steady the global financial crisis.[/i]

[b]My Comment:[/b] Keep your eyes on the Libor, folks - that says much more about the true state of the credit markets than any government announcements or rate cuts from the central banks.


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=afQAtnimDdRQ&refer=news]Stocks in U.S. Rally on Bank-Bailout Plan; Morgan Stanley, GM, Ford Climb[/url]: [i]U.S. stocks rallied after the market's worst week in 75 years, boosted by the government's plan to buy stakes in banks and a Federal Reserve-led push to flood the global financial system with dollars.[/i]

[b]My Comment:[/b] Europe and mot Asian Markets also up nicely. Will the rally have legs, or prove to be merely a brief respite?


[url=http://money.cnn.com/2008/10/13/news/companies/morgan_stanley/index.htm]Morgan Stanley seals deal with Mitsubishi[/url]: [i]Embattled Wall Street firm completes deal with Japanese bank, renegotiates terms of sale of 21% stake in exchange for $9 billion.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aVFtDRGwcc50&refer=news]Icelandic Shoppers Empty Shelves as Currency Woes Threaten Food Supplies[/url]: [i]After a four-year spending spree, Icelanders are flooding the supermarkets one last time, stocking up on food as the collapse of the banking system threatens to cut the island off from imports.[/i]


[b]Proving yet again that "Reality has a well-known liberal bias..."[/b]

[url=http://money.cnn.com/2008/10/13/news/economy/nobel_prize.ap/index.htm]Krugman wins Nobel economics prize[/url]: [i]The New York Times columnist, Princeton professor and Bush administration critic awarded for theory on free trade and globalization.[/i]
[quote]STOCKHOLM, Sweden (AP) -- Paul Krugman, the Princeton University scholar and The New York Times columnist, won the Nobel prize in economics Monday for his analysis of how economies of scale can affect trade patterns and the location of economic activity.

Krugman has been a harsh critic of the Bush administration and the Republican Party in The New York Times, where he writes a regular column and has a blog called "Conscience of a Liberal."

He has come out forcefully against John McCain during the economic meltdown, saying the Republican candidate is "more frightening now than he was a few weeks ago" and earlier that the GOP has become "the party of stupid."

"Krugman is not only a scientist but also an opinion maker," economics prize committee member Tore Ellingsen said. He added that Krugman's analyses tend to back free trade and his research gives no "support for protectionism."[/quote]
[b]My Comment:[/b] Interestingly, the kind of each-nation-its-own-way approaches that have dominated the governmental actions in the face of the global financial crisis [until very recently] are the ultimate expression of protectionism - are you listening, [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aVFtDRGwcc50&refer=news]Iceland[/url]?
[quote]The award, known as the Nobel Memorial Prize in Economic Sciences, is the last of the six Nobel prizes announced this year and is not one of the original Nobels. It was created in 1968 by the Swedish central bank in Alfred Nobel's memory.[/quote]
[b]My Comment:[/b] "Conservatives pounced on this, sneering that 'if that hippie Krugman really had a clue, he would have won a *real* Nobel, not a fake politicized one."
[quote]The award, known as the Nobel Memorial Prize in Economic Sciences, is the last of the six Nobel prizes announced this year and is not one of the original Nobels. It was created in 1968 by the Swedish central bank in Alfred Nobel's memory.

...

In contrast to his treatment of U.S. financial officials, Krugman has praised leaders in Britain for their response to the global financial crisis.

In an Oct. 13 column in the The New York Times, Krugman wrote that British Prime Minister Gordon Brown and Chancellor Alistair Darling "defined the character of the worldwide rescue effort, with other wealthy nations playing catch-up."

Whereas U.S. Treasury Secretary Henry Paulson rejected a "sort of temporary part-nationalization" involving governments giving financial institutions more money in return for a share of ownership, the British government "went straight to the heart of the problem ... with stunning speed."

Krugman said the major European economies have "in effect declared themselves ready to follow Britain's lead, injecting hundreds of billions of dollars into banks while guaranteeing their debts."

"And whaddya know," Krugman continued, "Mr. Paulson - after arguably wasting several precious weeks - has also reversed course, and now plans to buy equity stakes rather than bad mortgage securities."[/quote]
[b]My Comment:[/b] While my admiration for the British response is tempered by their [similarly to the U.S.] having done little to stem the tide of reckless lending which landed us in this mess, I agree that their recent responses have been far more clearly driven by the public interest, rather than the interests of the financial sector. Here in the U.S. that`s the price of having our Treasury Department be in effect a wholly-owned subsidiary of Goldman Sachs Inc.

The Rise of the Machines
 

[url=http://www.nytimes.com/2008/10/12/opinion/12dooling.html?em]NY Times | Op-Ed Contributor | The Rise of the Machines[/url]
[quote][b]The Rise of the Machines[/b]

By RICHARD DOOLING
Published: October 11, 2008

“BEWARE of geeks bearing formulas.” So saith Warren Buffett, the Wizard of Omaha. Words to bear in mind as we bail out banks and buy up mortgages and tweak interest rates and nothing, nothing seems to make any difference on Wall Street or Main Street. Years ago, Mr. Buffett called derivatives “weapons of financial mass destruction” — an apt metaphor considering that the Manhattan Project’s math and physics geeks bearing formulas brought us the original weapon of mass destruction, at Trinity in New Mexico on July 16, 1945.

In a 1981 documentary called “The Day After Trinity,” Freeman Dyson, a reigning gray eminence of math and theoretical physics, as well as an ardent proponent of nuclear disarmament, described the seductive power that brought us the ability to create atomic energy out of nothing.

“I have felt it myself,” he warned. “The glitter of nuclear weapons. It is irresistible if you come to them as a scientist. To feel it’s there in your hands, to release this energy that fuels the stars, to let it do your bidding. To perform these miracles, to lift a million tons of rock into the sky. It is something that gives people an illusion of illimitable power, and it is, in some ways, responsible for all our troubles — this, what you might call technical arrogance, that overcomes people when they see what they can do with their minds.”

The Wall Street geeks, the quantitative analysts (“quants”) and masters of “algo trading” probably felt the same irresistible lure of “illimitable power” when they discovered “evolutionary algorithms” that allowed them to create vast empires of wealth by deriving the dependence structures of portfolio credit derivatives.

What does that mean? You’ll never know. Over and over again, financial experts and wonkish talking heads endeavor to explain these mysterious, “toxic” financial instruments to us lay folk. Over and over, they ignobly fail, because we all know that no one understands credit default obligations and derivatives, except perhaps Mr. Buffett and the computers who created them.

Somehow the genius quants — the best and brightest geeks Wall Street firms could buy — fed $1 trillion in subprime mortgage debt into their supercomputers, added some derivatives, massaged the arrangements with computer algorithms and — poof! — created $62 trillion in imaginary wealth. It’s not much of a stretch to imagine that all of that imaginary wealth is locked up somewhere inside the computers, and that we humans, led by the silverback males of the financial world, Ben Bernanke and Henry Paulson, are frantically beseeching the monolith for answers. Or maybe we are lost in space, with Dave the astronaut pleading, “Open the bank vault doors, Hal.”

As the current financial crisis spreads (like a computer virus) on the earth’s nervous system (the Internet), it’s worth asking if we have somehow managed to colossally outsmart ourselves using computers. After all, the Wall Street titans loved swaps and derivatives because they were totally unregulated by humans. That left nobody but the machines in charge.

How fitting then, that almost 30 years after Freeman Dyson described the almost unspeakable urges of the nuclear geeks creating illimitable energy out of equations, his son, George Dyson, has written an essay (published at Edge.org) warning about a different strain of technical arrogance that has brought the entire planet to the brink of financial destruction. George Dyson is an historian of technology and the author of “Darwin Among the Machines,” a book that warned us a decade ago that it was only a matter of time before technology out-evolves us and takes over.

His new essay — “Economic Dis-Equilibrium: Can You Have Your House and Spend It Too?” — begins with a history of “stock,” originally a stick of hazel, willow or alder wood, inscribed with notches indicating monetary amounts and dates. When funds were transferred, the stick was split into identical halves — with one side going to the depositor and the other to the party safeguarding the money — and represented proof positive that gold had been deposited somewhere to back it up. That was good enough for 600 years, until we decided that we needed more speed and efficiency.

Making money, it seems, is all about the velocity of moving it around, so that it can exist in Hong Kong one moment and Wall Street a split second later. “The unlimited replication of information is generally a public good,” George Dyson writes. “The problem starts, as the current crisis demonstrates, when unregulated replication is applied to money itself. Highly complex computer-generated financial instruments (known as derivatives) are being produced, not from natural factors of production or other goods, but purely from other financial instruments.”

It was easy enough for us humans to understand a stick or a dollar bill when it was backed by something tangible somewhere, but only computers can understand and derive a correlation structure from observed collateralized debt obligation tranche spreads. Which leads us to the next question: Just how much of the world’s financial stability now lies in the “hands” of computerized trading algorithms?

Here’s a frightening party trick that I learned from the futurist Ray Kurzweil. Read this excerpt and then I’ll tell you who wrote it:
[i]
But we are suggesting neither that the human race would voluntarily turn power over to the machines nor that the machines would willfully seize power. What we do suggest is that the human race might easily permit itself to drift into a position of such dependence on the machines that it would have no practical choice but to accept all of the machines’ decisions. ... Eventually a stage may be reached at which the decisions necessary to keep the system running will be so complex that human beings will be incapable of making them intelligently. At that stage the machines will be in effective control. People won’t be able to just turn the machines off, because they will be so dependent on them that turning them off would amount to suicide.
[/i]
Brace yourself. It comes from the Unabomber’s manifesto.

Yes, Theodore Kaczinski was a homicidal psychopath and a paranoid kook, but he was also a bloodhound when it came to scenting all of the horrors technology holds in store for us. Hence his mission to kill technologists before machines commenced what he believed would be their inevitable reign of terror.

We are living, we have long been told, in the Information Age. Yet now we are faced with the sickening suspicion that technology has run ahead of us. Man is a fire-stealing animal, and we can’t help building machines and machine intelligences, even if, from time to time, we use them not only to outsmart ourselves but to bring us right up to the doorstep of Doom.

We are still fearful, superstitious and all-too-human creatures. At times, we forget the magnitude of the havoc we can wreak by off-loading our minds onto super-intelligent machines, that is, until they run away from us, like mad sorcerers’ apprentices, and drag us up to the precipice for a look down into the abyss.

As the financial experts all over the world use machines to unwind Gordian knots of financial arrangements so complex that only machines can make — “derive” — and trade them, we have to wonder: Are we living in a bad sci-fi movie? Is the Matrix made of credit default swaps?

When Treasury Secretary Paulson (looking very much like a frightened primate) came to Congress seeking an emergency loan, Senator Jon Tester of Montana, a Democrat still living on his family homestead, asked him: “I’m a dirt farmer. Why do we have one week to determine that $700 billion has to be appropriated or this country’s financial system goes down the pipes?”

“Well, sir,” Mr. Paulson could well have responded, “the computers have demanded it.”


[i]Richard Dooling is the author of “Rapture for the Geeks: When A.I. Outsmarts I.Q.”[/i][/quote]

[QUOTE=ewmayer;145311][url=http://www.nytimes.com/2008/10/12/opinion/12dooling.html?em]NY Times | Op-Ed Contributor | The Rise of the Machines[/url][/QUOTE]

As I said, we need to get back to VALUE BASED investing. Investments
need to be backed by something real; something tangible.

Aaron Krowne of the ML-Implode family of websites replies to my forwarding him the above "Rise of the Machines" op-ed:
[quote]That is impressive of him to note that for 600 years, "stock" had the form of sticks, broken in half, representing some amount of gold and payability of same, but then he fails to note that the problem isn't that we replaced this system with technology, [b]but that we replaced the "payability in gold" part as well, severing the connection of money to reality[/b].

Technology, by itself, is just a tool. There was nothing "intelligent" about the credit technology, per se -- it was very much a construct of greedy, short-term-thinking, self-delusional human beings.

An actual sentient intelligence probably wouldn't have fallen for the lie, as an analysis which reveals the folly would have been quite trivial!

The author's analysis is also dangerous by diverting culpability from the people that built up and advocated this system, to "technology" itself, which of course cannot be blamed (or arguably, stopped).

This is like having a "war" on terrorism.

-Aaron[/quote]
[b]My Comment:[/b] As you probably notice, Aaron tends to take a "gold bug's eye" point of view about our modern monetary system. I don`t advocate reversion to a gold standard, as it is simply not practicable to arbitrarily designate some otherwise-fairly-useless precious metal as "real money" and then expect its supply to expand roughly at the same rate as population growth and rising economic productivity increase the supply of "real wealth". However I do agree with the "severing the connection of money to reality" comment. The introduction of the giant Ponzi scheme known as fractional reserve lending has more to do with that than abandonment of the gold standard did, although those two things are inextricably linked.

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

[url=http://money.cnn.com/2008/10/14/news/economy/bank_bailout/index.htm]Government to pump billions into banks, expand deposit and loan guarantees[/url]: [i]The federal government on Tuesday announced an extraordinary and historic direct investment in the nation's banks - the biggest bet ever made with taxpayer dollars on the U.S. financial system.[/i]
[quote]As a start, the Treasury will pump $250 billion into financial institutions. Nine of the nation's largest banks have already agreed to take the capital and in return will give preferred shares to taxpayers and accept limits on executive pay. Half of the money, or $125 billion, will go to the nine large banks.

"This is an essential short-term measure to assure the viability of America's banking system," President Bush said in comments outside the White House. "These measures are not intended to take over the free market, but to preserve it."[/quote]
[b]My Comment:[/b] If he`s talking about "preserving" the kind of unregulated financial engineering, reckless credit expansion and insane executive compensation which helped get us here, then preserving *that* would be utter folly. Luckily it's clear Bush is his usual clueless babbling self, and is now also a de facto lame-duck - he gets up onto his little rostrum every few days and spouts his pre-scripted supposed-to-be-confidence-inducing pablum, while those around him shuffle their feet, nod politely, then go about their real business, which is of course way beyond his limited powers of comprehension.


[url=http://money.cnn.com/2008/10/14/markets/bondcenter/credit_markets/index.htm]Overnight lending rate falls[/url]: [i]Bank-to-bank rates decline, indicating that the global efforts to ease pressure in the credit markets may be working.[/i]
[quote]The credit market showed signs of confidence Tuesday, the first day that the Treasury markets were open in the United States after a weekend of global initiatives to loosen frozen lending.

The overnight bank-to-bank lending rate continued to slide, with the London interbank overnight rate (Libor) falling to 2.18% from 2.47% Friday, according to data from Bloomberg.com. That followed a sharp drop off from 5.09% Thursday.[/quote]
[b]My Comment:[/b] That is welcome news...
[quote]Treasury prices were sharply lower in a sign that demand for the safe haven investment was shrinking as investors look to get back to Wall Street.[/quote]
[b]My Comment:[/b] ...but I`m not so sure "getting back into the markets" is a good thing, as I believe there is lots more pain ahead for equities.
[quote]Stock markets around the world cheered the international moves to support struggling banks, with the Dow Jones industrial average surging in the largest one-day point gain ever Monday.[/quote]
[b]My Comment:[/b] That rally lasted all of 24 and one-half hours - big jump at the open today quickly sold off.


[b]Macro Picture:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a0AZ3ECSkvwc&refer=news]Roubini Predicts Worst U.S. Recession in 40 Years, Market Rally `Sputter'[/url]: [i]Nouriel Roubini, the professor who predicted the financial crisis in 2006, said the U.S. will suffer its worst recession in 40 years, causing the rally in the stock market to ``sputter.''[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=am95H4YHyr50&refer=news]Icelanders Sink Under Mountain of Foreign-Currency Loans as Krona Plunges[/url]: [i]Karl Karlsson, a Reykjavik taxi driver, has canceled his winter vacation. The money he saved is being eaten up by his car loan payment, which has jumped more than 20 percent since June.[/i]


[url=http://money.cnn.com/2008/10/13/news/economy/retail_shakeout/index.htm]Retail shakeout: 'Worst is yet to come'[/url]: [i]Experts warn that the credit freeze combined with slumping sales - and a likely dismal Christmas season - will force out many more retailers in 2009.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=apopr8w6gUIo&refer=news]GM Survival Questioned as Chevy Trailblazer's Early Death Chills Ohio Town[/url]: [i]Gloom is spreading across Moraine, Ohio, as General Motors Corp. prepares to shut a sport-utility vehicle plant two days before Christmas, abandoning a factory in the Dayton suburb of 7,000 that stretches back to making refrigerators in 1921.[/i]

[b]My Comment:[/b] Off-topic, but I`m fairly certain that the name of the town "Moraine" comes from the fact that it sits on or near one of large glacial moraines left by the retreat of the massive Laurentide ice sheet which covered Eastern Canada and the U.S. upper Midwest during the last 2 ice ages [Whose names, "Wisconsinan" and "Illinoisian" derive from the association with similar geogrpahic features in those nearby midwestern states]. Growing up in Ohio, one of our favorite spots to hit in our bicycling tours of the rural countryside was just such a moraine, near Seville OH, which we called "Seville Hill". These things are hundereds of feet high and miles across. This [url=http://www.dnr.state.oh.us/Portals/10/pdf/sem_tone.pdf]elevation map[/url] of Ohio nicely shows the moraines and other interesting geographic features resulting from the repeated glaciations and deglaciations. Ohio [and the midwest in general] may be a mostly-flat unexciting-looking landscape, but its geological history is very rich and quite fascinating.


[url=http://money.cnn.com/2008/10/13/news/companies/GM_closure.ap/index.htm]GM closing factories in Wisconsin, Michigan[/url]: [i]1,200 workers in Wisconsin SUV factory to lose jobs earlier than expected; Michigan plant to cut 1,340 hourly jobs.[/i]


[url=http://dailybriefing.blogs.fortune.cnn.com/2008/10/14/pepsi-cutting-back/]Pepsi to cut jobs, close plants[/url]: [i]Drinks-and-snacks conglomerate posted softer-than-expected third-quarter earnings Tuesday and set plans to cut 3,300 jobs as the economic slowdown and changing consumer tastes hit soda sales.[/i]


[url=http://money.cnn.com/2008/10/09/news/economy/virginia_layoffs.ap/index.htm]Virginia orders 570 state layoffs[/url]: [i]Governor says state nearly $1B short this year, plans cuts to college funding, puts off state employee raises.[/i]

[b]My Comment:[/b] Nationwide, I expect several hundred thousand state workers to lose their jobs over the next few years as dire budget deficits force deep cuts.

Retail Sales Plunge; Cod War victim:Poetic Justice
 

[url=http://money.cnn.com/2008/10/15/news/economy/retail_sales/index.htm]Worst retail sales in three years[/url]: [i]Sagging auto sales pace September downturn, as consumers pare back on all but health needs and gasoline.[/i]
[quote]NEW YORK (CNNMoney.com) -- Retail sales suffered their biggest drop in three years last month, as American households reined in spending amid a tough job market, the financial crisis and falling home values.

The Commerce Department reported Wednesday that retail sales fell 1.2% in September, nearly double the 0.7% drop expected by economists.

Retail sales have fallen for the third month in a row, the first time that has happened according to government data going back to 1992. Consumer spending accounts for nearly 70% of the economy.

A steep 3.8% decline in auto purchases help depress the overall sales for the month.

Even when volatile auto sales were stripped from the report, sales fell 0.6%, three times the 0.2% decrease economists had predicted.

The weak report shows that consumers cut down on everything except health care products and gas, according to Scott Hoyt, senior director of consumer economics at Moody`s economy.com.

"The numbers are pretty terrible. Consumers were clearly not spending," Hoyt said.

Particularly troubling is the sharp drop in retail sales from the same time a year earlier. The last time that happened was October 2002 and, prior to that, in 1991, he said.

"This report is very clearly consistent with a recession story," Hoyt said, who added that even gasoline retailers could see their sales decline in October. [/quote]
[b]My Comment:[/b] 9 straight months of job losses, consumer spending clearly plummeting, and the only "GDP growth" at all this year has been in nonproductive sectors, specifically government spending. Meanwhile, "experts" like Herr Bernanke et al are [url=http://money.cnn.com/2008/10/15/news/economy/yellen/index.htm]still trying to decide[/url] whether we are "officially" in a recession.


[url=http://money.cnn.com/2008/10/13/news/economy/Birmingham_brink_Whitford.fortune/index.htm]Birmingham, Alabama on the brink of bankruptcy[/url]: [i]With $3.2 billion in debt, the county that is home to Alabama`s largest city is about to go bust. How the credit crisis went South.[/i]
[quote]For months now, [Alabama governor] Riley and other civic leaders in Alabama have been battling to avert what appears almost certain - that Jefferson County will file for Chapter 9 protection, in what would be the largest municipal bankruptcy in our nation`s history. The county has fallen hopelessly behind on payments to service the $3.2 billion it borrowed - on reckless terms - from Wall Street over the past decade to build a new sewer system. As Fortune went to press, the Jefferson County Commission was days away from a vote that could make the bankruptcy official.

...

Every decade or so, something big and scary does happen in the normally staid world of public finance: There was a near miss in the `70s when New York City almost went broke ("Ford to city: drop dead" was the famous headline in the Daily News); in the `80s the Washington Public Power Supply System (or WPPSS; the traders called it "Whoops") defaulted on $2.25 billion in loans when it stopped construction of two nuclear power plants; and California`s Orange County went into Chapter 9 in the `90s, after the county treasurer made bad bets on interest rates and lost $1.6 billion.

But the saga of Jefferson County stands apart. Unlike previous municipal meltdowns, it is a financial disaster that was to a large degree invented, packaged, and sold by Wall Street. And there are striking parallels to the wider credit crisis that has enveloped the financial world - with overeager borrowers, willing enablers, and dangerously complex financial instruments.[/quote]
[b]My Comment:[/b] Without government bailouts, hundreds of counties and several states will be facing a similar choice soon.


[url=http://money.cnn.com/2008/10/14/news/companies/gmwoes_taylor.fortune/index.htm]GM: Better off bankrupt[/url]: [i]The automaker is in trouble, but even Chapter 11 would be better than hooking up with Chrysler.[/i]
[quote]NEW YORK (Fortune) -- GM certainly is keeping a close eye on its cash these days.

One supplier reports he is now getting paid 60 days after he presents an invoice - not the 30 days he was used to. Worse, the clock doesn`t start ticking until after the bills get approved in Detroit - and then sent to Arizona for processing.

Next thing you know, GM will be inflating its float by cutting supplier checks on banks in Fiji that will take weeks to clear.

It is a measure of GM`s desperation that it is reported to be considering a linkup with Chrysler to get access to Chrysler`s cash so it can remain in business. The idea has provoked nearly universal skepticism among analysts and GM watchers.

With good reason; they have history on their side. The list of unsuccessful auto mergers stretches from the present day - Daimler (DAI) and Chrysler, BMW and Rover - all the way back to Studebaker-Packard and Nash-Hudson. [/quote]
[b]My Comment:[/b] I blame short sellers for GM`s woes. It was the legions of naked short sellers hanging around GM showrooms [in the nude, obviously] and "waving their private parts at your aunties" who clearly spooked away millions of customers, and drove the price of oil through the $100 level, and kept GM from building the Chevy Volt on time, and forced GMAC to throw zero-interest financing at millions of people who didn`t have a dime to their name.


[url=http://money.cnn.com/2008/10/15/markets/oil.ap/index.htm]Oil drops below $76, back near 13-month low[/url]: [i]Crude falls to $75.94 a barrel, analysts say $50 oil possible.[/i]

[b]My Comment:[/b] The irony now being that the lower oil goes, the worse the global recession is becoming. Our pal Hugo Chavez in Venezuela will be *so* miffed, especially as his idiotic economic policies and massive oil giveaways to fellow radical leftist regimes have resulted in Venezuela`s economy only being viable if oil prices are around $100.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=ajjeFgtmfWuA&refer=news]Blankfein`s $70 Million Payday Would Survive Paulson Compensation Limits[/url]: [i]Goldman Sachs Group Inc.`s Lloyd Blankfein, whose $70.3 million paycheck made him Wall Street`s most highly compensated chief executive officer last year, could still earn tens of millions annually under the bank-rescue plan run by his former boss, Treasury Secretary Henry Paulson.[/i]
[quote]Executive-pay packages will be restricted for the nine banks receiving a $125 billion infusion of U.S. funds to restart lending, said Paulson, who earned $37.8 million in 2005, his last full year as Goldman`s CEO. The investment is part of a $700 billion bailout plan approved by Congress this month.

Blankfein, 54, was Wall Street`s best-paid CEO in 2007, according to data compiled by Bloomberg. He "could still make tens of millions of dollars if he continues to receive stock grants and Goldman`s stock rises," said David Schmidt, a senior consultant for New York-based compensation firm James F. Reda & Associates.[/quote]
[b]My Comment:[/b] Actually, the whole point of a stock *grant* is that you don`t need the share price to rise to make money. So here we see the giant loophole in the "limits on executive compensation" clause of the bailout package. Crony capitalism at its finest - you din`t honestly expect Hank Paulson wouldn`t take care of his buddies, did you? Why do you think he was so averse to the govt taking equity stakes in the banks until the markets forced his hand last week?


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aFOVig6chJls&refer=news]Iceland Crisis Brings `Justice,` Vengeance to U.K. Port for 1970s Cod War[/url]: [i]Jim Williams, who sailed through gales and Atlantic ice floes aboard British trawlers for almost 30 years, calls the crisis in Iceland ``poetic justice.``[/i]
[quote] Oct. 15 (Bloomberg) -- Jim Williams, who sailed through gales and Atlantic ice floes aboard British trawlers for almost 30 years, calls the crisis in Iceland ``poetic justice.''

Williams, 80, used to set out from Hull, his home in northern England, to catch cod 1,000 miles away off the coast of Iceland. He quit in 1973 as a dispute between the countries over fishing territory escalated, culminating in victory for Iceland and the demise of Hull's fleet two years later.

Relations between the countries are now at their chilliest since the so-called Cod War of the 1970s because hundreds of millions of pounds of U.K. savings are locked up in collapsed Icelandic banks. Iceland's struggle with the credit crisis is being marked as a reversal of fortune by the people of Hull, Europe's largest fishing port until 1975.

``People in their 40s and 50s, in a matter of a year or so they were unemployed,'' said Williams. ``You can understand the bitterness. It was disastrous. It wasn't just the industry, but the whole community.''

Prime Minister Gordon Brown threatened on Oct. 9 to freeze Icelandic company assets unless the country unlocked access to savings of British depositors who had been attracted by higher interest rates. A day later, a U.K. delegation arrived in Reykjavik to discuss who should compensate clients.

The last time talks between the countries were front-page news, about 35 years ago, it was Hull that ended up the loser as Iceland extended an exclusion zone for foreign fishermen to 200 miles from four miles in the 1950s.[/quote]
[b]My Comment:[/b] When I first saw the article headline, I thought it said "...Cold War", which made me think something was fishy. Can any Brits or Icelanders amongst our readership comment on what the *British* exclusion zone was, and currently is?

[quote][I]Crude falls to $75.94 a barrel, analysts say $50 oil possible.[/I][/quote]
Still $3.59[sup]9[/sup] here.

:jail:

lemmings made another mad dash today.

Gas here is $2.98 and falling an average of $.10 per week.

DarJones

[quote=Fusion_power;145483]lemmings made another mad dash today.

Gas here is $2.98 and falling an average of $.10 per week.

DarJones[/quote]
YOWZA! :shock: That's pretty low. Is that specific to a certain promotion or sale of some sort, or is that price an overall trend in your area?

[QUOTE=mdettweiler;145515]YOWZA! :shock: That's pretty low. Is that specific to a certain promotion or sale of some sort, or is that price an overall trend in your area?[/QUOTE]

I can't speak for DarJones` area, but that drop seems reflective of the national trend [outside of areas in the SE where Hurricane Ike led to some short-term supply and refinery disruptions].

Here in the SF bay area, gas is around $3.50 per gallon at the low end, which is down roughly a full dollar from its high of the summer.

Oil is down by ~50% from its summer spike up to $150. With worldwide demand continuing to wane due to the now-global recession, it will likely go lower still.

[quote=ewmayer;145559]I can't speak for DarJones` area, but that drop seems reflective of the national trend [outside of areas in the SE where Hurricane Ike led to some short-term supply and refinery disruptions].

Here in the SF bay area, gas is around $3.50 per gallon at the low end, which is down roughly a full dollar from its high of the summer.

Oil is down by ~50% from its summer spike up to $150. With worldwide demand continuing to wane due to the now-global recession, it will likely go lower still.[/quote]
Yes, it's been going down in my area too--currently at about $3.35-$3.45 (depending on the station), down from a previous average of $3.50-$3.60. It wasn't so much the overall drop that I was surprised at, more just hearing that gas has actually dropped below $3.00 somewhere in America! :smile:

U.S. Manufacturing Plunges | Oil Continues to Fall
 

[url=http://money.cnn.com/2008/10/16/markets/markets_newyork/index.htm]Wall Street gets hit again[/url]: [i]Stocks slump on Merrill and Citi's earnings and more woes for the manufacturing sector.[/i]
[quote]NEW YORK (CNNMoney.com) -- Wall Street remained in retreat Thursday - with the Dow turning lower for the week - as investors eyed Merrill Lynch and Citigroup's disappointing results and two surprisingly weak manufacturing reports.

The Dow Jones industrial average (INDU) lost about 246 points nearly 90 minutes into the session. That decline, combined with the losses of the past two sessions, erased Monday's record 936-point gain.

The Standard & Poor's 500 (SPX) index tumbled 3% and the Nasdaq composite (COMP) lost 2.4%.

The credit market showed some signs of loosening, as the initiatives taken by the U.S. and world banks began to have an impact. Treasury prices slumped, raising the corresponding yields. The dollar gained against other major currencies. Oil, gas and gold prices declined.

The major gauges zigzagged in the first 30 minutes of trading as better-than-expected inflation and labor market reports tempered the results from Merrill Lynch and Citigroup.

But the market soon turned lower, with the financial sector weakness spreading and the manufacturing reports reviving recession fears.

Recession talk pounded stocks Wednesday, with the Dow falling 733 points, its second worst session ever on a point basis. The slide of 7.9% was the Dow's 9th worst ever. Declines for the S&P 500 and the Nasdaq were comparable.

The decline Wednesday wiped out $1.1 trillion in market value on the Dow Jones Wilshire 5000, the broadest measure of the stock market.[/quote]
[b]My Comment:[/b] So much for Monday`s short-lived euphoria. Regarding the inflation numbers - as illustrated by plunging oil prices, inflation is now not the worry. A Great-Depression-like deflationary spiral [precisely the thing Ben Bernanke studied in his PhD work] is the threat. We already have one key component, which is a collapse in [admittedly previously inflated] asset values, from homes to equities. Wages are stagnant or falling for those who have jobs, and we are in the process of losing millions of jobs over the course of this year and the next several. Consumer spending is falling off a cliff, driving prices for just about everything but consumer staples lower. That`s deflation, folks. And once the negative feedback loop really gets rolling, it`s much more dangerous than inflation, which can be reined in - not without some short-term pain, mind you - simply by jacking up interest rates and reining in the growth of money supply, the way former Fed chair Paul Volcker in the 70s.

Here are links to stories about the earnings and manufacturing reports mentioned in the above article:

[url=http://money.cnn.com/2008/10/16/news/companies/citigroup/index.htm]Citigroup loses $2.8 billion[/url]: [i]Banking giant books its fourth straight quarterly loss but the loss was smaller than expected.[/i]

[url=http://money.cnn.com/2008/10/16/news/companies/merrill/index.htm]Big loss for Merrill[/url]: [i]No. 1 U.S. brokerage reports worse-than-expected quarterly loss of $5.58 per share, says it will issue $10B in equity to Treasury.[/i]

[url=http://money.cnn.com/2008/10/16/news/economy/industrial_production/index.htm]Factories: Drop worst in 34 years[/url]: [i]Manufacturing in September falls by a whopping 2.8%, according to Federal Reserve.[/i]
[quote]In other troubling news, The Philadelphia Federal Reserve reported that its regional manufacturing index decreased by 41.3 points, to minus 37.5 from positive 3.8 in October. It was the largest one-month decline in the history of the index. Economists polled by Briefing.com expected a decline of just 5 points.

The report also showed that industrial capacity utilization - a measure that tracks the percentage of factories in use - posted a seasonally adjusted decrease of 4.6% to 76.4%. Economists had expected a decrease of just 0.7% to 78%.[/quote]
[b]My Comment:[/b] Once again, the vast majority of mainstream economists proves it is clueless in the face of what`s going on in the real world. When your computer models so consistently and grossly mispredict key economic indicators, it`s time to throw the models out and consider perhaps descending from the ivory tower and actually *talking* to some industrial plant managers, retail store owners, and [url=http://globaleconomicanalysis.blogspot.com/2008/10/baltic-dry-shipping-collapses.html]bulk goods shippers[/url].


[b]Oil Prices Continue to Plunge:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aAtjcVbS2qFY&refer=news]Crude Oil Falls Below $70 as U.S. Inventories Rise; OPEC Moves Up Meeting[/url]: [i]Crude oil futures fell below $70 a barrel after a U.S. government report showed a bigger-than- forecast increase in inventories.[/i]

[url=http://money.cnn.com/2008/10/16/news/international/iraq_oil.ap/index.htm]Iraqi official: $100 a barrel is 'fair'[/url]: [i]Oil ministry spokesman, Assem Jihad, says if crude prices continue to fluctuate, OPEC will cut production.[/i]

[b]My Comment:[/b] The leaders of OPEC must be crapping their pants [or khaftans] to see the demand destruction that`s going on. It couldn`t have happened to a nicer bunch of people. Regarding the secnd story - I believe it`s the job of the global marketplace to determine what price is "fair", my Iraqi friend. We didn`t hear you complaining about "fairness" when oil leaped above $100 this past summer.


[b]EU Pushes to Overhaul Bretton-Woods II:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601087&sid=aOb4n0deWmNU]EU Pushes for Overhaul of Postwar Financial System[/url]
[quote] Oct. 16 (Bloomberg) -- European Union leaders pressed for an overhaul of the global financial system to prevent a repeat of the credit crunch that sparked the biggest stock-market selloff since the Great Depression.

EU leaders called for a global summit as soon as next month to rewrite the 1944 Bretton Woods accord that paved the way for Europe's post-World War II reconstruction and set up the institutions that oversee the world economy today.

``We do not have the right to miss this opportunity to re- construct our financial system,'' French President Nicolas Sarkozy told reporters today after chairing a two-day EU summit in Brussels. ``Crises can be turned into opportunities.''

The European initiative is likely to face resistance from the U.S., which has used its dominance of international financial institutions to promote its brand of capitalism.

``The U.S. got what it wanted in 1944 and, I suspect, will do so again simply because the Europeans won't be able to decide what they want,'' said Martin Weale, director of the National Institute of Economic and Social Research in London.

Sarkozy today went beyond calls by fellow European leaders such as U.K. Prime Minister Gordon Brown for global bank supervision and tighter regulation, saying governments need to consider re-anchoring currencies, the hallmark of the original Bretton Woods agreement.

Currencies

That dollar-based monetary system fell apart in the 1970s, giving way to today's freely floating currencies. [/quote]
[b]My Comment:[/b] while I don`t think a return to the gold standard is practicable, I do believe that anchoring the value of currencies in *some* tangible measure of wealth [perhaps on objective agreed-upon measures of an economy`s production of goods and services] is crucial, as is elimination [or at least a radical paring-back] of fractional reserve lending by banks. alas, I doubt either of those will happen, mainly due to the above-mentioned resistance from the U.S., which will do everything in in its power to preserve the post-WW2 hegemony of the US$ as the world`s reserve currency. Preserving that hegemony is one of the things that allows the U.S. to continue to swell its national debt and effectively force foreign governments with which we have a trade deficit to buy our debt at sub-market interest rates.,

[QUOTE=ewmayer;145564]Wages are stagnant or falling for those who have jobs, and we are in the process of losing millions of jobs over the course of this year [/QUOTE]

And a direct consequence of losing jobs will be a large rise in credit card
debt as people out of work start charging day-to-day living expenses on their
credit cards. This, of course, will be followed by a massive default on
those debts.

However we can all be sure that the senior executives responsible for
this mess will not lose THEIR jobs... nor see a reduction in their ridiculous salaries.......Instead, they will lay off productive people doing actual
work. Productive people will be punished for the mistakes of others...

We need some laws reeling in executive compensation. We need some
laws limiting executive authority to lay off others while retaining their
jobs. I have a "modest proposal" for such a law--> noone at a publicly
traded company can be laid off until the person they report to has been
laid off... This will force layoffs from the top down. Which is as it should
be. Executives claim they have the right to their ridiculous salaries because
they have responsibility for the well-being of their company. If they
are responsible when it does well, they they are also responsible when it does
BADLY and hence should be the first ones laid off. (and the last ones hired back)

'Knight Rider' Fans cheer lower oil prices
 

Stock market had a decent late-day rally today, apparently investors decided they liked lower oil prices after all ... "Lower oil and gas prices increase the likelihood that the series remake of 'Knight rider' will be able to keep its production budget under control and thus be picked up for a second season, said an unnamed CNDC spokeswoman."


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aq3ceEaJH4vA&refer=news]California Sells $5 Billion of Notes After Boosting Size of Offering Twice[/url]: [i]California sold $5 billion of short- term notes to avert a cash shortage after taking record orders from individual investors this week following a sales pitch featuring Governor Arnold Schwarzenegger.[/i]
[quote] Oct. 16 (Bloomberg) -- California sold $5 billion of short- term notes to avert a cash shortage after taking record orders from individual investors this week following a sales pitch featuring Governor Arnold Schwarzenegger.

State Treasurer Bill Lockyer added $1 billion to the size of the initial offering after individual investors bought more than $3.9 billion of notes. Lockyer also was able to reduce the yields on the two-part sale, which remained as much as 0.88 percentage point above what California paid last year.

California, the biggest borrower in the U.S. municipal bond market, typically sells short-term notes to cover bills until tax revenue arrives late in the year. This sale comes amid a global financial crisis that has constricted lending. The state had said it might run out of cash by November if it couldn't borrow.

``It's a good sign that there are investors out there buying, given the difficulties in the market,'' said Paul Brennan, who oversees about $12 billion in municipal bonds as portfolio manager at Nuveen Asset Management in Chicago. ``It is crucial that they get it done.''

Underwriters led by Bank of America Corp. and Goldman Sachs Group Inc. priced $3.8 billion of notes maturing June 22, 2009, to yield 4.25 percent, down from an upper estimate of 4.5 percent. The $1.2 billion of notes due May 20 were priced to yield 3.75 percent. California's $7 billion note sale in October 2007 was priced to yield 3.37 percent. [/quote]
[b]My Comment:[/b] Interesting - Despite the woes of the credit markets, the flight-to-safety effect resulting from the ongoing rout in the equities markets appears to be helping to boost the muni bond market. It would have been potentially disastrous if California had not been able to find buyers at a reasonably low interest rate.


Another interesting consequence of the dire economy - It's a buyer`s market for racehorse semen:

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=awNcv5yE42pk&refer=news]Stallion Fees Sink as Crisis Hits Racehorse Market `Plagued' by Oversupply[/url]: [i]Claiborne Farm, the 93-year-old breeding company that housed Triple-Crown winner Secretariat, slashed mating fees this month, a move that may signal the start of the thoroughbred industry's biggest slump in two decades.[/i]

However, I`m not sure if these are the kind of "liquidity injections" Fed chairman Ben "Hur" Bernanke had in mind to help recapitalize the banks and unfreeze the credit markets...


[b]Vacation Alert:[/b]

I'll be taking a short Fall break tomorrow through Monday, traveling to Yosemite Park. I encourage readers to post story links of interest and keep the discussion going during my absence.

Americans Finally Start Saving Again
 

[url=http://money.cnn.com/2008/10/15/news/rainy.day.fortune/index.htm]Americans Finally Start Saving Again[/url]: [i]Consumers are tucking away more money, and that's good for the long run. But it won't help battered job and housing markets.[/i]
[quote]By Colin Barr, senior writer
[i]Last Updated: October 16, 2008: 2:42 PM ET[/i]

NEW YORK (Fortune) -- The economic storm pelting the U.S. economy is going to do plenty more damage to already flattened job and housing markets.

But as dark as the next three or four quarters could be, the U.S. economy appears to be undergoing a more lasting, and ultimately uplifting, shift.

Americans who for decades have spent an increasing share of their incomes and taken on more and more debt are now, for the first time in years, saving instead.

The personal savings rate, which measures the amount of disposable personal income that isn't spent, ticked up to almost 3% in the second quarter of 2008, after almost four years below 1%.

While Americans still aren't going to win any awards for thrift - consumers save more than 10% of their paychecks in creditor nations such as Germany and Japan, for instance - the return to saving carries big implications for U.S. economic health.

More saving is good over the long haul, because domestic savings create a pool of money from which companies can borrow to invest in new plants and equipment, creating the jobs that push living standards higher over time.

A growing domestic savings pool could also reduce America's need to borrow money overseas - which would make the U.S. less beholden to foreign creditors who now supply us with hundreds of billions of dollars in financing every year.
The trouble with virtue

Unfortunately, thrift will cost in the short run. Saving more means spending less - which translates into more hard times in retail and other consumer-driven businesses like the auto industry. The latest evidence of the shift came in Wednesday's steeper-than-expected pullback in retail sales. They dropped 1.2% in September, in their first year-on-year decline in six years and only their third drop in the past 16 years. Economists had been looking for a 0.7% drop.

Given that two-thirds of economic activity is consumer spending, today's thrift will exacerbate a general downturn and will weaken the impact of the massive interventions the government has made in the financial markets.

"The breadth of the decline shows a broad-based pullback in consumer spending that will not quickly turn around," writes PNC economist Stuart Hoffman, "even with the arsenal of federal firepower now aimed at the Great Financial Crisis of 2008."[/quote]
[b]My Comment:[/b] Learning to live within our means, and doing so not just during the crisis times but rather in a lasting way, is the *only* long-term solution to the credit crisis. Ultimately the crisis is not one of too little credit - that is just the current symptom of the deeper problem - but rather one of too much. As Mish Shedlock likes to say, "frugality is the new reality". I hope his aphorism proves true in a long-term sense.

[QUOTE=ewmayer;
My Comment:[/b] When I first saw the article headline, I thought it said "...Cold War", which made me think something was fishy. Can any Brits or Icelanders amongst our readership comment on what the *British* exclusion zone was, and currently is?[/QUOTE]

The Zone was 50 miles and was expandet to 200 miles as it is now.

I think the government should have to act as very poor people do or at east historically have done. When poor people run out of money, they go without. I long for the days before credit was run amok and people could charge without having the money in their bank accounts to pay it at the end of the month. Bartering used to be a good idea that might be a good way to do things now instead of relying on currency. Surely we have something that other countries want that could be traded for something we need in the US. If it were made a law that the government couldn't just "get money because they need it", as in printing it on demand or somehow just somehow making it appear from nowhere or raising taxes to get it, there wouldn't be anymore 400 dollar toilet seats and such. If they just had to wait to do anything after they'd spent their money for the year, before taxes are paid in the year, like everyone else does who doesn't use credit as a crutch and is financially responsible, things would get better if you ask me.

I live within my means. I have 1 credit card which I use to run my business and I pay it off monthly. I have a mortgage on some land east of town, I intend to build a house and retire there. I work from home so the amount of gas I consume is minimal by comparison with most people around me. I am currently saving 10% of my income. I keep some chickens to produce eggs, I grow a huge garden that easily makes all the veggies I can eat. I even sell several hundred dollars of seed from my garden each fall. My day job is as an engineer designing telephone offices so I am well paid.

How come I still feel broke?

DarJones

[QUOTE=Fusion_power;145641]I live within my means. I have 1 credit card which I use to run my business and I pay it off monthly. I have a mortgage on some land east of town, I intend to build a house and retire there. I work from home so the amount of gas I consume is minimal by comparison with most people around me. I am currently saving 10% of my income. I keep some chickens to produce eggs, I grow a huge garden that easily makes all the veggies I can eat. I even sell several hundred dollars of seed from my garden each fall. My day job is as an engineer designing telephone offices so I am well paid.

How come I still feel broke?

DarJones[/QUOTE]

Wait until you have to put several kids through college.... You will learn
what "feel broke" [b]really[/b] means.

[QUOTE=Fusion_power;145641]I live within my means. ... How come I still feel broke?[/QUOTE]

My life story, too. We feel broke when allow our expectations to be set by people surrounding us who do not live within their means.

[QUOTE=Fusion_power;145641]My day job is as an engineer designing telephone offices so I am well paid.[/QUOTE]I don't want to derail the thread, but I feel compelled to ask what a "telphone office" is exactly. Thank you.

[QUOTE=Jwb52z;145692]ask what a "telephone office" is exactly.[/QUOTE]

Wikipedia has it more succinctly than I could:

In the field of telecommunications, a telephone exchange or telephone switch is a system of electronic components that connects telephone calls. [B]A central office [/B]is the physical building used to house inside plant equipment including telephone switches, which make telephone calls "work" in the sense of making connections and relaying the speech information.

[url]http://en.wikipedia.org/wiki/Telephone_exchange[/url]

There's a lot of "inside plant" that needs power and connections to other inside plant, as well as outside connections to the outside for the individual phone lines and trunks to connect to the rest of the world. Also a big battery plant and a generator for emergency power.

That you even ask what a telephone office is speaks loudly of how effective they really are. When you want to communicate with someone, you pick up your telephone or cellphone and dial a number. You have no idea of the millions of dollars invested in copper and fiber cables, electronic equipment, batteries, generators, and even the buildings themselves. They have sunk so far into the background and do their job so effectively that you never even realize they are present. Consider that a telephone system must deliver 99.99999% reliability. Downtime is calculated in seconds per year.

Now contrast this with your DSL service. My DSL goes down an average of 4 times a day though it is usually no more than a couple of minutes until it comes back up. If a telephone office operated that poorly, it would be hauled to the junkyard and replaced.

Of all the bugaboos that can happen, taking a major switching system down is one of the worst. 30 minutes of downtime gets you a chance to explain in triplicate to the FCC exactly why you did whatever you did. The worst I ever had was a 26 minute outage at 4:00 a.m. in the morning in a major tandem office. It was caused by someone disconnecting one pair of wires.... the wrong ones obviously.

If you make a call on your phone or cellphone, it goes to a local switching station, then to a regional system, then to a long distance carrier, then perhaps to an international gateway before reversing course down to a carrier, regional, and then local system to terminate to whomever you called.

I've been working in the communications industry for 27 years and have been an engineer for 11 years. I've written software that is deployed around the world, and I'm not even a software designer. I work from home using a DSL line and several telephones for communications. When I get up in the morning, I sit down on my couch or maybe lie back on my bed with a computer on a table, or I might even work at my desk if I feel like it. The good part is that I get paid very well for my ability and expertise. It takes 10 years to train a person to the level of skill required to do my job.

DarJones - who knows that wblipp has a similar background

Back on topic, the market is showing obvious signs that it does not know which way to go. up 1000 poiints, down 1000 points, go sideways a while, who knows where it goes tomorrow.

[QUOTE]Wait until you have to put several kids through college.... You will learn
what "feel broke" really means. [/QUOTE]
My oldest daughter gets out of college in 6 months. I have 3 more with the youngest due to start in less than a year. Believe me, I DO know what it feels like.

[QUOTE]We feel broke when allow our expectations to be set by people surrounding us[/QUOTE]

I set my own standards and expectations to a far greater degree than anyone else I've ever met. I'm happy with a roof over my head, some jeans to wear, and a beat up truck to drive.

It's interesting they're still called telephone offices. I think of offices as places where people do desk-based jobs. I assume telephone office is from when they had rooms full of people switching the calls. I've only heard their contemporary replacements called telephone exchanges. Obviously, I don't work in the industry. Thanks for the fascinating background, DarJones!

[QUOTE=markr;145728]It's interesting they're still called telephone offices. I think of offices as places where people do desk-based jobs. I assume telephone office is from when they had rooms full of people switching the calls. I've only heard their contemporary replacements called telephone exchanges. Obviously, I don't work in the industry.[/QUOTE][tangent]I know where my local office is and the one in my old home town. I also know where the last hand switched board was in my general area and when (1977). Then again, a relative used to work for the Bell system. And another was a PBX operator[/tangent]

Just got back from a week's vacation and read this:
[QUOTE=ewmayer;145564]Consumer spending is falling off a cliff, driving prices for just about everything but consumer staples lower. That`s deflation, folks. And once the negative feedback loop really gets rolling, it`s much more dangerous than inflation, which can be reined in - not without some short-term pain, mind you - simply by jacking up interest rates and reining in the growth of money supply, the way former Fed chair Paul Volcker in the 70s.[/QUOTE]Perhaps technical language has changed over the last few weeks, but I always thought that negative feedback drove a perturbed signal back towards the previous behaviour, and that positive feedback led either to runaway growth or to oscillations.

Paul

[quote=xilman;145786]Perhaps technical language has changed over the last few weeks, but I always thought that negative feedback drove a perturbed signal back towards the previous behaviour, and that positive feedback led either to runaway growth or to oscillations.[/quote]See? Ernst really [U]needs[/U] that vacation now!

[QUOTE=cheesehead;145794]See? Ernst really [U]needs[/U] that vacation now![/QUOTE]I've had some sleep since my posting and have since realised there is an interpretation under which Ernst's statement is correct.

If he was referring not to the process of reaching a deflationary state but a stable state reached after a period of deflation then, indeed, a negative feedback would act to maintain that stability.

We'll see which Ernst meant after he returns.


Paul

The problem is that negative economic feedback can only be maintained for a limited time before serious economic damage is done. I can see a situation where reduced demand leads to employee layoffs which leads to even more reduced demand which leads to plant closings and more layoffs, which leads......


You see the pattern. The problem is that it is very difficult to interrupt this pattern as was shown in the great depression of the 1930's. Caveat that today's economy is significantly different from the 1930's.

DarJones

[quote]Still $3.59[sup]9[/sup] here.

:jail:[/quote]Just 4 days and now $3.19[sup]9[/sup].

Do we fill up today or tomorrow?

[QUOTE=Fusion_power;145852]The problem is that negative economic feedback can only be maintained for a limited time before serious economic damage is done. I can see a situation where reduced demand leads to employee layoffs which leads to even more reduced demand which leads to plant closings and more layoffs, which leads......
DarJones[/QUOTE]That's very nearly a textbook definition of [i]positive[/i] feedback.


Paul

[quote=xilman;145892]That's very nearly a textbook definition of [I]positive[/I] feedback.


Paul[/quote]
You should know better than to expect practitioners of the
"dismal science" (economics) to use analogies with physics correctly.

[QUOTE=davieddy;145962]You should know better than to expect practitioners of the
"dismal science" (economics) to use analogies with physics correctly.[/QUOTE]
[condescension]I regard education of the ignorant as an act of charity[/condescension] :wink:

Paul

[QUOTE=xilman;145786]Just got back from a week's vacation and read this:
Perhaps technical language has changed over the last few weeks, but I always thought that negative feedback drove a perturbed signal back towards the previous behaviour, and that positive feedback led either to runaway growth or to oscillations.[/QUOTE]
Paul is correct - I am mixing up 2 common usage of "[insert qualifier] feedback" here. In dynamical systems-theoretic convention, I should indeed be using "positive feedback" but in the negative [economic] direction. The term "negative feedback loop" to describe the same phenomenon appears to be common amongst economists - the word "loop" at the end of it would be superfluous to a dynamical systems person, but I believe in the economic-theory usage is actually necessary, to connote a self-reinforcing process.

So I surely did need a vacation, if for no other reason than that I've been spending so much time on economy-related sites and blogs that I'm letting their mathematically sloppy [or downright incorrect] usages creep into my writing.

Yosemite was very nice - we got 3 nice warm days despite the longer, cooler nights. Fall colors mixed in with the dominant evergreen, and I always liked the "filtered" quality of the Fall sunlight, with the sun lower in the sky. If any of you have not been to Yosemite, please do add it to your "bucket list" - preferably don't leave it too late, since the park is much more fun to experience when one is still fit and able-bodied. There simply is no other place quite like it on earth. The only drawback of going this time of year [early Fall, before the late-Fall and winter rains start] is that the waterfalls are dry or down to a mere trickle. Spring is the best time to see those.

We did see plenty of wildlife - a magnificent stag late the first evening as we were returning to the hotel from a hike, and a bold Bobcat who trotted across the bike trail we were on yesterday morning, on our way back from Mirror Lake [a seasonal lake, currently dry] below Half Dome. No bears, though they is no shortage of them around those parts. [The ranger station had a vivid "Don't become food for a hungry bear" display out front, featuring a bent car door which was ripped open by just such a hungry bear, using the standard "just get your claws in along the window frame and pull" method. Usually they do it to empty cars containing food of some kind ... usually.

The National Park Service is advising hikers to be alert for bears and take extra precautions to avoid an encounter.

They advise park visitors to wear small bells on their clothes so they make noise when hiking. The noise allows bears to hear them coming from a distance and not be startled by a hiker accidentally sneaking up on them. This might cause a bear to attack.

Visitors should also carry a pepper spray can just in case a bear is encountered. Spraying the pepper into the air will irritate the bear's sensitive nose and it will run away.

It is also a good idea to keep an eye out for fresh bear scat so you have an idea if bears are in the area.

People should be able to recognize the difference between black bear and grizzly bear scat.

Black bear droppings are smaller and often contain berries, leaves, and possibly bits of fur.

Grizzly bear droppings tend to contain small bells and smell of pepper.

[url]http://news.yahoo.com/s/ap/20081011/ap_on_re_us/pot_environment[/url]

:sad: