Rolling US Economy Into The Shitbin Thread

There is a phrase in the vernacular idiom about taking your medicine. Medecine is notoriously bitter.

We may face 1933 again. It may be that the medecine is unavoidable. The financial 'industry' built a vast edifice out of fraud and excess. Saving all or most of it may not only be a doomed effort, but even if it is successful it may just start another cycle of something worse.

brownie,

try here: http://economistsview.typepad.com/economistsview/2008/04/yet-again-it-wa.html

CRA only governs a certain class of federally insured banks. Problem is, half of the subprime loans came from mortgage companies with no CRA involvement at all. Another 25%-30% came from companies with very little CRA exposure. For those who left their abacus at home, that's 80% of the loans which were fully or largely outside CRA jurisdiction. More than that, the non-CRA mortgage firms made subprime loans at twice the rate of CRA-covered firms. Which basically leaves a stake in the heart of this particular theory. Indeed, until now, some conservatives have been moaning that no one is talking about the CRA part because it's so racially charged. Poppycock. It's just a false charge...

the plan is here

http://www.clusterstock.com/2008/9/analyzing-the-bailout-what-s-in-it-anyway-

Creation of an "Office of Financial Stability."

Well that'll certainly fix things now, won't it?

Treasury gets $250 billion now, and another $100 billion when the President tells Congress it is needed (i.e., now). If $350 billion isn't sufficient, the President can tell Congress he/she is authorizing another $350 billion, at which point Congress can issue a "joint resolution" to block it. In other words, the default amount is $700 billion, and Congress could conceivably block the second $350 billion (the rules for blocking it are complex and doing so wouldn't be a cinch).

I propose we keep a rolling thread for the next year to see just how high this amount gets to. For a while they were saying $500B before it changed to $700 and if all they have to do is get the Prez to say it needs to be done to get another $350B....ugh it makes me shudder. It looks like the Treasury will be buying the fallout with taxpayer money at above market prices so right off the bat it's going to cost plenty more than it should. I expect tens of billions of dollars to be dealt out and mysteriously disappear...

Citigroup seems to have swallowed Wachovia.

om nom etc.

DJIA down 333 aaaaaand falling

so, completely anecdotal, but this weekend at a dinner party i had a long conversation with a very sober (in both senses) lawyer who has been working on the whole financial mess (for whom i do not know). here's what he had to share over the course of dinner:

+ that if the public were aware of how bad it really is, and could become, everyone would panic. he was pro bailout, simply because he thought that there had to be an attempt to stop the bleeding (he was not hopeful, however). as it is, he said credit cards are in very serious danger of a similar fate as mortgages very, very soon.

+ large amounts of money are being loaned to various financial institutions that we are not being told about. this is to keep these folks solvent, and in many cases it will just be a one or two day loan of hundreds of millions. without them, many more would have already failed.

+ the amount of money spent on fannie/freddie was well over a trillion.

+ at one point in the past couple of weeks, there was not enough money in the treasury to insure everyone's deposits. fdic was literally in jeopardy, and it could conceivably happen again if things don't change.

+ we are nowhere near the bottom of this. the problems run very, very deep. money markets are in serious danger of going under. many more institutions. 401ks and pensions. he kept saying that it could be avoided if everything worked out perfectly, but if not...

+ finally, and this was the most shocking of all to me considering what a normal guy he was, he told me that in the past few weeks he has started buying gold. he said, "i know it sounds crazy and like i'm ron paul, but i started doing it. other folks i know are as well."

so yeah. i haven't stopped thinking about this conversation ever since. good times!

Yay! Uh.

Meantime, good story on the NPR show "The Giant Pool of Money"

http://www.nytimes.com/2008/09/29/business/media/29carr.html?ref=media

Yeah, I remember that story from when it aired on NPR. One of the best of the myriad features on how-we-got-into-this-mess.

Also classic example of the myth of the common-sense dude outsmarting the smarties actually coming true.

as it is, he said credit cards are in very serious danger of a similar fate as mortgages very, very soon.

I'm helping!

I've been hearing rumors like the above as well. Of course, if you don't know in what capacity he works on the situation you also don't know where he gets his info -- could be inside sources, could just be bloggers that he thinks are good. He's a lawyer, not an economist. Still, scary shit.

it's dawning on markets that new bailout means the cash has to be paid back in future.

Why do people buy gold bricks anyway? Is it really a good idea to have a few hundred thou in a single, fairly easily carryable object that no one is ever going to make change for? Why not instead have a big tank fulla gold coins to be swum in, scrooge macduck style?

im going to invest in love and friendship because as we all know, they are more precious than diamonds and gold.

good god the CRA meme is fucking infuriating.

hurting i do know where he works and under what capacity. just didn't wanna give too much info.

(and based on the above yes he would know a lot)(this is sounding more and more like something to be snopes'd, but it isn't)

i've been thinking about it a lot becuase a rep from southern MN, noted batshit pinup Michelle Bachmann, was the first elected official to float the idea in public. Keith Ellison (D-Mekkah) lit into her about it so the whole argument has taken on a local catfight aspect around here.

xp

Old Friends
New York Mercantile Exchange Dec '08 222,656 904.80
$/troy oz. +16.30 Daily 872.20 913.00

New Friends
Comex Division of NYMEX Dec '08 62,831 1,326.00
¢/troy oz. –24.30 Daily 1,272.00 1,346.00

+ finally, and this was the most shocking of all to me considering what a normal guy he was, he told me that in the past few weeks he has started buying gold. he said, "i know it sounds crazy and like i'm ron paul, but i started doing it. other folks i know are as well."

invalidates every other thing he said.

"The markets are in turmoil. I will invest in a SINGLE COMMODITY while it is more expensive than it has ever been."

not only that but the one commodity that has a price that correlates with the amount of panic in the world.

I wouldn't buy gold until it hits at least $1000

Why do people buy gold bricks anyway? Is it really a good idea to have a few hundred thou in a single, fairly easily carryable object that no one is ever going to make change for? Why not instead have a big tank fulla gold coins to be swum in, scrooge macduck style?

As long as you have it physical allocated (rather than a paper promise of some kind) you don't have to hold it yourself. http://www.bullionvault.com is one of a few that do this.

Tombot you think a certain % of savings in gold is a bad idea?

Well, me and paul krugman are apparently about to look like assholes for keeping our nest eggs in MMs, so sure, have some gold lying around. Or banana futures, or oil barrels, pork bellies, etc. It's all COMEX and COMEX fleeces amateurs on a regular basis. Also, as pointed out, now or soon from now is time to SELL gold, not buy it. Classic forehead slapper.

+ large amounts of money are being loaned to various financial institutions that we are not being told about. this is to keep these folks solvent, and in many cases it will just be a one or two day loan of hundreds of millions. without them, many more would have already failed.

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

lol the fed is doing the things the fed always does AND NO ONE IS TELLING US ABT IT

i'm pretty sure that yes, the whole point of the bailout is to prevent consumer panic, and the reason they haven't broadcast every word of everything paulson said to congress in that meeting that left them all freaked out has everything to do with keeping hysteria under control.

It's kind of interesting to read this NY Times article from December 2005 that talks about parallels of US housing market at that time to the Japanese bubble of the late '80s, and the long, painful aftermath of that bubble:

Take It From Japan: Bubbles Hurt
http://www.nytimes.com/2005/12/25/business/yourmoney/25japan.html?pagewanted=1

at what point since 9/11 did the bush admin not exploit fear to its advantage whenever possible? they just got a ridiculous deal made on the strength of "the depression is upon us." If they wanted more they could have gotten it by selling us the lines YGS' lawyer was spinning; so why didn't they?

true, but just because the administration cried wolf a bunch of times doesn't mean that this time they aren't on point. it's to their detriment (and ours) that they did that and now no-one believes them, and I'm no financial expert, so I'd have to defer to economists. the parallels to the iraq war runup are obvious, but that's not proof that there isn't something legitimately wrong going on; we've had three massive financial failures in two weeks.

Also, as pointed out, now or soon from now is time to SELL gold, not buy it

Are you in the deflation camp? What do you think of Mises?

I'm still fence-sitting on this issue (but surely running the printing presses devalues cash?) which is why I only hold 25% of savings in gold. I want it to go down because I'm more in cash than in gold

Do you see any other currencies as safer havens than the dollar? What is your opinion on yen right now (given implications of unwound carry trade)

It's kind of interesting to read this NY Times article from December 2005 that talks about parallels of US housing market at that time to the Japanese bubble of the late '80s, and the long, painful aftermath of that bubble:

Weren't Japan a creditor nation at the time whereas the US is a debtor nation? And did Japan have a larger savings cushion (well having one at all would be an improvement)

I'm just saying I think the worst is over. The vast majority of bankers and bank shareholders would rather stay solvent by more conventional means, hence the mergers. Now if citi and jp morgan are able to spread the risk thin enough over their business that they can deal with the next year and a half of continued write-downs, I think we should be ok. The best thing about old institutions being eaten is that it can make room for new ones to breathe; I don't buy for one second that there's nobody out there who wouldn't love to step in if something like mastercard were to give up the ghost.

Weren't Japan a creditor nation at the time whereas the US is a debtor nation? And did Japan have a larger savings cushion (well having one at all would be an improvement)

I think there were some important differences, as you mentioned, though I haven't found hard figures on it yet. I think Japan generally had a better savings rate, even during the bubble years, though it seems that many people still took on more debt than they could afford to buy inflated properties. I think after the bubble popped, Japanese investors increasingly sent their money overseas, where they could expect better returns, which would probably have a similar effect if foreign investors increasingly direct their money outside the US.

kondratieff, you sound far more interested in those types of instruments than I will ever be. I tend to view currency and commodities investing as a ludicrous thing for the individual to engage in, since it's hard enough to play the markets (what is it, 80% of investors underperform the s+p index?) and once you're in currency and commodities you're swimming in a pool of institutional capital driven by black boxes, basically getting carried along by the tide. Gold and Currency trading are also right up there with penny stock schemes in "% of people invested in them that are total marks" imo

Ah ok - I think we're maybe a third of the way in. I think 2010 will be the worst. Feel that the recovery for the US likely to be swifter than for most of Europe though

I agree that currency markets seem to be rather counter-intuitive and probably not well suited for the average investor. At a gut level I feel bearish on the dollar, but I'd probably try to play that by investing in some quality foreign stocks or US companies that have a lot of revenue from overseas.

xp

in other news, I checked my Wachovia bank balance. It's still there!

i have bank accounts

Meanwhile, the FTSE is off 5% today.

Agreed re:currency trading (though interesting to compare CHF vs $ since 71). Find it interesting all the same (esp the yen currently - and why is the won tanking so bad?)

gold to me seems to be an insurance policy against a rapid decline of a currency (argentina 2001, japan 1946ish, yugoslavia).

I think after the bubble popped, Japanese investors increasingly sent their money overseas, where they could expect better returns, which would probably have a similar effect if foreign investors increasingly direct their money outside the US.

― o. nate, Monday, 29 September 2008 17:01

The new Dollar Carry Trade!

The other thing about the dollar is that so long as it is worlds reserve currency that gives the US a lot more leeway than other countries have (be interesting to see to what extent the UK try follow the US on recent form)

swimming in a pool of institutional capital driven by black boxes

kinda sounds like equities trading, too.

in other news, I checked my Wachovia bank balance. It's still there!

Mine too. But what's really exciting, or something, is that some of my retirement savings are in a bank stock mutual fund. AAAAAAAAH-HAHA-HAHAHA-HAHA!

*is dragged off to St. Elizabeth's*

I have to say that I am already pretty sick of hearing about "Main Street"

Main St will be kept alive by underground meth labs as it has been since 1994.

I'm receiving spam e-mails today encouraging me to open high-interest savings account with credit card companies. How sound are the various credit card companies?

stop opening your spam.

Will the size of your m4nh00d keep up with inflation?