Rolling US Economy Into The Shitbin Thread

Armageddon it

If the markets fear that the nays have thrown their toys out of the pram for the long term, the following scenario is quite likely:
* The US stock market tanks. Bank shares collapse...
* CDS spreads for banks explode, as will those of all highly leveraged financial institutions. Credits spreads generally take on loan-shark proportions, even for reputable borrowers...
* No US bank will lend to any other US bank...
* Assets not viewed as toxic before will become unsaleable at any price...
* Banks will stop providing credit to households and to non-financial enterprises.
* Banks will collapse... No bank will be safe, not even the household names...
* Households and non-financial businesses revert to financial autarky, among wide-spread defaults and insolvencies.
* Consumer demand and investment demand collapse. Unemployment shoots up.
* The government suspends all trading in financial stocks until further notice.
* The government nationalises all US banks and other highly leveraged financial institutions...
* We have the Great Depression of the 2010s.

Paulson's fumbles

Which is to say the average US citizen will see the market for their labor contract significantly.

this was already happening over a year ago.

Someone in this bitch is calling you out, Danny P.

I can't believe I'm now on this thread arguing the opposite of the title.
I transferred a big chunk of my MM into my high-growth stock and S&P Index funds last night, hopefully that went through this morning at opening time.

I'll say again I don't believe that only a few centenarian investment houses are capable of providing credit. It's like saying in the eighties that we were going to let America's computer industry die because we didn't bail out DEC and Cray.

I BELIEVE IN A BOLD NEW AGE OF PAYPAL

from comments in marginal revolution:

Those banks which most heeded government demands to make "politically correct" mortgages (Countrywide) vanish.

redlining kept our economy intact for years and years rite

I would like to see Adam's charts regarding wage stagnation in real terms applied logarithmically to reflect the actual amount of people stuck year over year with no raise

so the 250 limit is actually gonna happen?

Someone in this bitch is calling you out, Danny P.

okay first, don't call me Danny

second, lol @ Harvard MBAs anyway, one of them is George W Bush

from comments in marginal revolution:

Those banks which most heeded government demands to make "politically correct" mortgages (Countrywide) vanish.

i'm still looking for the section of the community reinvestment act that mandated the leveraging of risky loans into complex derivatives and then scattering them like poisoned easter eggs through the global economy.

It was near the back.

oops. sorry for misunderstanding and being a dick about it. i'm a little riled up today :o

― rogermexico., Tuesday, September 30, 2008 2:40 PM (31 minutes ago) Bookmark Suggest

Thanks. I'm just as riled up! No hard feelings!

What I know about the American economy and the financial system I learned through the Georgia public school system - some of the worst in the country for a long time - so I realize I have an exceptionally limited view of what is actually happening here. Nonetheless, it is my tax dollars at stake here so I'm trying to put my perspective into the mix, however ill-informed.

weren't only federally insured banks required to make "pololitcally correct" mortgages? ie. not Countrywide

i think this is the source of that countrywide reference. of course, it's hard to say if they were being "politically correct" or ripping off poor people. but you know, tomayto, tomahto.

good god the CRA meme is fucking infuriating.

― goole, Monday, September 29, 2008 10:25 AM (Yesterday)

keep a tally of anyone and everyone who says this and believes it: racists, all of them.

though in the olden days, when hard times hit these kinda people would storm into the ghetto and start torching the roofs, so i guess it's some improvement.

somebody give newsday's graphic design dept a raise

http://bigpicture.typepad.com/photos/uncategorized/2008/09/30/lli.jpg

those roofs are now collateral on the bad notes they hold. maybe now theyll just shoot ppl

xpost

I am kind of annoyed with the Junior Senator from Illinois parroting last year's news along with everybody else. Businesses will close! Jobs will be lost! Yes, that was true, last October.

It still is but what the fuck ever you know

Thanks. I'm just as riled up! No hard feelings!

You're a gentleman, and I was totally an ass.

The "round-up of sobering news" tipsy mothra linked upthread is actually a REALLY good summary of the "what" of what's happening. The "why" is that everyone is terrified that a dollar lent to *anyone* right now, under any terms, is a dollar they'll never see again.

It may seem like ancient history, but if you haven't read it I'd really recommend LIAR'S POKER right now. It's well-written and entertaining and turns out now in retrospect to offer a pretty direct look into the early days of the mortgage-backed security.

Excellent book -- Michael Lewis's first, if I remember right. I still have a copy around somewhere, I think.

When Genius Failed, about Long Term Capital Management, gives a decent overview of how hedge funds work, what it means to say a firm has gotten too big to fail, and how that comes about. A problem with the bailout is that there's no reason to expect it will discourage more firms from getting too big to fail.

Will the whole economy really collapse if we take another week to figure this crisis out better?

LOL this is going to turn into the Michael Lewis C/D, S/D thread...

That meme about CRA is not going to stick with all those lower middle class white folks who all know someone in their family/peer group with an unsustainable mortgage given to them by an unscrupulous loan officer sharking for another commission. My mother had to debunk that one for the person in our family who did this and was having a Do Not Look In Mirror moment because (this is uncharacteristic, but also never thought I'd hear this rel say he'd never vote for a black guy) pointy-finger so much easier.

When discussing with distaff parent we did speculate on whether or not all the constituent pressure is the real cat amongst pigeons here; voters were actually doing what they SHOULD do WRT their government and in effect keeping Congress hanging until the bill presented is livable-with.

Obama is behaving like someone who is working towards a solution, not necessarily the particular bailout on offer at present.

good god the CRA meme is fucking infuriating.

― goole, Monday, September 29, 2008 10:25 AM (Yesterday)

keep a tally of anyone and everyone who says this and believes it: racists, all of them.

though in the olden days, when hard times hit these kinda people would storm into the ghetto and start torching the roofs, so i guess it's some improvement.

― goole, Tuesday, September 30, 2008 3:42 PM (59 minutes ago) Bookmark Suggest Ban Permalink

my boss was talking about it yesterday--for him it seemed less "racism" and more "clinton's fault" but he made sure to specify that it was minority homeowners who were receiving the mortgages. i would have said something, but, uh, hes my boss, and im a wuss.

three sentence answer:

CRA was passed in 1977, Clinton was president eight years ago, the housing boom took off in the last eight years and the crash is happening now.

CRA covers banks, not mortgage lenders like countrywide.

mortgage lenders got into subprime because it was making them money, not because clinton forced them to, or to be PC.

YES. This. Thank fuck my mother knows all of these answers are correct.

o come on max u missed the perfect opportunity to call yr boss a racist get fired sue the company and sit out the great depression II burning trees and eating pizza

http://pageoneq.com/news/2008/Fundamentalists_blame_Wall_Street_0930.html

The Nation Will Right Itself If It Fixes Sex

"Doctor, my sex broke."

Bottom line (and not hindsight - I was saying this in 2003!): appropriate control of the money supply in 2003/2004 would have headed this off but there was way too much pressure on the fed to not turn the lights out on everyone's big party, especially with an election coming and a war on and all.

what the public thinks:

http://people-press.org/report/455/bailout-plan

and awaaaaaaay we go:

Cities, states and other local governments have been effectively shut out of the bond markets for the last two weeks, raising the cost of day-to-day operations, threatening longer-term projects and dampening a broad source of jobs and stability at a time when other parts of the economy are weakening.

The sudden loss of credit, one of the ripple effects of the current financial turmoil, is affecting local governments in all parts of the country, rich and poor alike. In New York, a real estate boom has suddenly gone bust. Washington has shelved a planned bond offering to pay for terminal expansion and parking garages already under construction at Dulles and Reagan National Airports.

Billings, Mont., is struggling to come up with $70 million more for a new emergency room. And Maine has been unable to raise $50 million for highway repairs.

“We really are in terra incognita here,” said Robert O. Lenna, executive director of the Maine Municipal Bond Bank, which helps that state’s towns and school districts raise money. He said he had worked in public finance for 34 years and had never seen credit evaporate so completely.

http://www.motherjones.com/kevin-drum/ in general

http://web.archive.org/web/20010211134621/www.investmentrarities.com/thebestofdn2.html

So, does anybody else find any fault with my plan to ride all this out with plenty of cheap beer and whatever old doctor who serials I can "acquire"?

At this point, I think it's the only proper course of action.

OK so here's a plan: We let the banks fail or suceed by the rules that are in place and look at better financial regulation. We take the $700bn, and more and set up an economic development bank to which states, enterprises and individuals can come for capital to create jobs. In return for this capital, equity has to go to individual workers and to a new universal pension scheme to compensate for the fact that people's 401k's have been hosed. People should be encouraged to buy further into the pension scheme, and to save with the cast iron guarantee of a government backed bank to keep the capital flowing into the bank.

I am a crazy pinko though so this will never fly and my office is in London whereas Goldman's is just along from the Oval.

Against the bailout because think it will be worse than what it is supposed to cure. How is this supposed to cure the excessive borrowing and saving of the last decade? the cure is somehow more of the same? Freeing up the credit system is surely just trying to put is back where we were, in a malstructured economy and postponing all this until a later date with an even bigger problem down the line? How does this change anything or address any of the fundamental problems of the economy. The fact is the badness of the system needs to be purged. It was postponed after 9/11 to give an illusion of prosperity but came back to hit us much later down the line and much bigger than it would have been if we had taken the medicine then, and now we want to do the same again. And with what consequence for the dollar?

Agreeing mainly with Aimless on this thread, and it is putting us between a rock and hard place, and saying no the bailout is also going to be a painful scenario but think it just needs to be met head on. hair of the dog never solves a hangover

Is the goal really to get back to an era of too-cheap and too-easy credit? I don't really buy that.

The goal is to get back to where we were before. Cheap and easy credit has be fuelling unsustainable growth for a decade and allowing government and industry to ignore serious economic structural problems (such as how to pay for the demographic time bomb)

Is the goal really to get back to an era of too-cheap and too-easy credit? I don't really buy that.

depends on your definition of too cheap and too easy but yes I think this is exactly what they are trying to do.

Can we get a sound effect for this morning's DJIA?

(someone should do a sound art project where they use the DJIA graph since inception since as a sound wave)

http://www.sadtrombone.com/

All that Baby Boomer 401(k) dough will be getting pulled from the markets in the coming years. Either this volatility will motivate folks to wait, or else to cash out.

Ok, I'm becoming convinced that national action is wise. This NY Times article explains the credit problems pretty clearly.

And this (behind firewall) hits closer to home for me:

"Wachovia bank has frozen the accounts of nearly 1,000 colleges, leaving institutions unable to access billions of dollars they depend on for salaries, campus construction, and debt payments.

The freeze, which affects most institutions that invest their endowment income and other assets through Commonfund, has some colleges worried that they won’t be able to make payroll this period, said Verne O. Sedlacek, president and chief executive of Commonfund, which manages investments for nonprofit institutions. Many colleges use the organization's short-term investment fund for operating expenses, “almost as a checking account,” he said.

Unless the credit markets thaw, enabling a new trustee to sell more of the short-term securities in the fund, colleges won’t be able to access all their money until at least 2010...."

Anyone seen this video? I've gotten several copies emailed to me today.

Tom Vu called it over a decade ago.