Rolling US Economy Into The Shitbin Thread

Right under the surface of all this "recovery" wonderfulness are a multitude of grim facts that aren't going to change any time soon. Raise interest rates at all and they'll come popping up to the surface. Keep interest rates where they are and a new bubble (or bubbles) will replace the old one.

The basic elements of a productive economy have been ebbing in the USA for a long time and they will not reappear any time soon under current conditions; the USA has a long way to claw back.

lol Goldman Sachs, BTW ... carried over from the more general politics thread!!

i am thinking of an anecdote abt yacht buying

i read a WSJ opinion piece today that led to a question (unfortunately, it's behind a pay-wall, so i can't cut-and-paste). basically, it says that the "long investors" in the goldman CDOs weren't really investing in the mortgages inside the CDOs. instead, it says they were making a bet that the "short investors" were wrong, and if the "long investors" were right, they would make a "premium income stream" from the successful bet.

the author's point was that it wouldn't have mattered to the "long investors" if they knew that paulson -- a particular "short investor" on this CDO -- had a hand in selecting the mortgages that would go into the CDO, because the "long investors" knew they were in a bet against "short investors" on the mortgages in the CDO. does anyone know if this is right?

sorry, i realize this is a lot of jargon. i'm too tired from flying to unpack it all now, and i didn't want to forget the basic concept. it seems like an important piece of the puzzle to me. having said that, i have a lot of difficulty accepting that (a) the "long investors" and (b) the independent agent that signed-off on the securities put into the CDO "wouldn't have cared" if they knew that paulson was gaming the system.

actually, the author said that the "long investors" were buying CDS (credit default swaps -- or insurance on an investment) on the CDOs (collateralized debt obligations -- or a big box of debt obligations; "long investors" invest in the CDO, and are repaid via payments by the underlying consumers on their mortgages, car loans, and so forth; if the consumers default, the homes and cars and so forth secure payment of the debt). that didn't make sense to me.

are they talking about investor's timeframes or their actual positions in the market? this reads as a little confused to me and kinda clearly retarded: the idea of a "premium income stream" from held debt still requires the underlying assets to have value iirc?

its an empty truism to say that sum1 holding a long position in a stock is betting against a person shorting the stock but i also dont think was entirely about price manipulation - its also about the value of the assets inside the cdo itself. so the fraud doesnt just effect the mkt price of the asset but the income that can be derived from it?

Steve Waldman has a good post on this:

http://www.interfluidity.com/v2/784.html

are they talking about investor's timeframes or their actual positions in the market?

the latter.

haha oh okay waldman's ibm analogy is better than mine and yeah the crucial distinction here & what i was trying to get at is:

CDO, synthetic or otherwise, is a newly formed investment company. Typically there is no identifiable “seller”. The investment company takes positions with an intermediary, which then hedges its exposure in transactions with a variety of counterparties. The fact that there was a “seller” in this case, and his role in “sponsoring” the deal, are precisely what ought to have been disclosed. Investors would have been surprised by the information, and shocked to learn that this speculative short had helped determine the composition of the structure’s assets. That information would not only have been material, it would have been fatal to the deal, because the CDO’s investors did not view themselves as speculators.

the author's point was that it wouldn't have mattered to the "long investors" if they knew that paulson -- a particular "short investor" on this CDO -- had a hand in selecting the mortgages

This is pure shite.

Every investor who isn't shorting a market is effectively making a bet against those taking a short position. That is definitional. But if I were deciding whether to go short or long on a particular investment, and I knew that someone who stood to benefit from a short position had material control over the composition of that investment I would consider that to be vital information!

yeah, that certainly makes sense to me. i wish i was able to paste the article, because i think a further discussion of it is useful. that interfluidity blog post seems outstanding (i've only skimmed it), but -- at least at this juncture -- i don't understand all parts of it.

http://www.cnn.com/2010/POLITICS/04/23/sec.porn/index.html?hpt=T2

As the country was sinking into its worst financial crisis in more than 70 years, Security and Exchange Commission employees and contractors cruised porn sites and viewed sexually explicit pictures using government computers, according to an agency report obtained by CNN.

"During the past five years, the SEC OIG (Office of Inspector General) substantiated that 33 SEC employees and or contractors violated Commission rules and policies, as well as the government-wide Standards of Ethical Conduct, by viewing pornographic, sexually explicit or sexually suggestive images using government computer resources and official time," said a summary of the investigation by the inspector general's office.

More than half of the workers made between $99,000 and $223,000. All the cases took place over the past five years.

The inspector general's report includes specific examples of misuse by employees.

A regional office staff accountant tried to access pornographic Web sites nearly 1,800 times, using her SEC laptop during a two-week period. She also had about 600 pornographic images saved on the hard drive of her laptop.

Separately, a senior attorney at SEC headquarters admitted to downloading pornography up to eight hours a day, according to the investigation.

1,800 times during a two-week period. Damn!

The case against Goldman Sachs must be dropped at once!

biggest new-home sales jump since 1963

a couple more months of this and all other election-year questions will be academic

this made me feel a little better, gotta say

http://www.ritholtz.com/blog/2010/04/10-things-you-dont-know-gs-case/

there's no doubt we're in a recovery. and i think it's stabilizing. i understand aimless' concerns that the fundamentals are still weak, but for being such a pessimist, i'm optimistic about the economy. financial reform will help, steering industry towards green-technology and efficient automobiles will keep us innovative in areas where we can lead, and other reforms (e.g., cap-and-trade, if it comes) will jolt the economy, too. admittedly, we need (a) more personal savings (and less consumer debt), (b) more manufacturing-sector jobs, and (c) to reduce the debt (after the recovery puts us beyond the point where another stimulus may be needed).

We can fix fundamentals in the great crash of 2018

more manufacturing-sector jobs

so not gonna happen

It's funny, read any post-personal computer essay about the future (like those found in Asimov's "The Roving Mind") and it talks about how computer are beautiful machines that will make production incredibly efficient and in the future nobody will have to work because computers will give us this great abundance of the things we need.

They got it right, except their vision of the future sort of overlooked capitalism. Now we can make all the things we need except the people with the most stuff won't give any of it away.

soooooo the DOW was just down 900 points?

yes

my dad was telling me to buy short funds on sunday. I DIDN LISSEN. http://www.google.com/finance?q=NYSE:VXX

intertsing that earlier today ritholtz let it be known that his portfolio had just become 100% cash

Said Ritholtz post.

Smart guy. He's managed to stay one step ahead of this mess all along.

yeah but Ritholz said it had nothing to do with Greece, and today's plunge is all about Greece.

BR's always been pretty open about his positions.

i'm optimistic about the economy. financial reform will help, steering industry towards green-technology and efficient automobiles will keep us innovative in areas where we can lead, and other reforms (e.g., cap-and-trade, if it comes) will jolt the economy, too. admittedly, we need (a) more personal savings (and less consumer debt), (b) more manufacturing-sector jobs, and (c) to reduce the debt (after the recovery puts us beyond the point where another stimulus may be needed).

I'm not optimistic about the economy or the recovery at all. It's basically been jobless and no one I know or read thinks that is going to change significantly any time soon. 1 in 5 men aged 24-55 are out of work. That's an astounding number.

I really don't see how financial reform will help the economy i.e. help it grow. I don't see how green technology will help grow the economy significantly all, and the same goes for auto efficiency. How will cap and trade jolt the economy into growth? I think it's possible to be optimistic about these areas Daniel, I do not know where any of the things you mention offer significant impacts into our economy. I'm not saying these are bad economic ideas, I'm more suggesting that they are of almost no consequence (GDP-wise) to the US economy. And I'd argue that some of the things you mentioned could possibly have negative growth effects.

The debt and deficit, as you allude to, is a massive problem in the somewhat near future. It would take very significant GDP growth to buy us time on that issue.

Hahaha:

http://www.forexlive.com/104806/all/latest-rumor

!!

don, those are fair points and questions. i base my optimism on a raft of articles i was reading at the time. i'll dig them up later and link them. btw, my point on financial reform wasn't that it will cause the economy to grow, just that it will help manage and avoid future crises. my point on cap-and-trade is that the warrant market would create a need for experts, and thus a separate industry (similar to how the salary cap in pro sports leagues created an industry for "capologists"), tho i realize cap-and-trade might also have an inhibiting impact -- short-term, at least -- on growth. the green economy point is based, iirc, on a paul krugman article. again, i'll see if i can dig it up.

also, the cap-and-trade market will throw off other work (markets need market-makers).

no need to dig up links, really, unless the things you brought up will increase GDP. The things you noted seem more elements of political optimism, which is fine. No need to even debate the possible positive or negative effects of new regulation or programs like cap-and-trade unless you're pretty sure that economic growth will result. It may, but I don't think anyone thinks it will be significant.

I just don't see any fundamentals that are improving at consequential levels, and I don't see any good metrics forecast either. The housing market is still very shitty, the commercial real estate market is a disaster, the vast majority of states are broke, unemployment is dismal, we are adding major entitlement spending, reducing entitlement spending--even in the key areas of HCR--is far from a done deal, our major entitlement obligations are frightening, manufacturing jobs have been shit for years and show no signs of recovery (our gains in manufacturing have mainly come from productivity), our wartime spending is continuing, bringing home troops to a weak economy is scary, the cumulative effects of the past recession are largely unknown, and a handful of other things are keeping me not only pessimistic, but kind of frightened. But maybe that's just me, because I have employees and three kids to worry about.

i hear you. i have employees, and one kid, to worry about.

let's not turn this thread into an employees and kids contest

i have 0 employees and 0 kids. i win

ps I have 90 employees and 14 (afaik) kids so I think I am worried about the economy a little more than you guys

i have already conceded the "kid-count" contest.

iatee, you are an entrepreneurial force-of-nature

also a nonstop impregnation machine

it's really easy to have kids when you have that many employees tbh

but I just worry about the economy so much

so much

you're doing all you can.

keep your chin-up. remember: When the world says, "Give up," Hope whispers, "Try it one more time."

bonely guy just thinking baout cha-ching$

There are signs that a trade order error might have helped cause the brief spike down in prices today.

http://www.reuters.com/article/idUSTRE6455ZG20100506

IT IS A CONSPIRACY.

i blame the tri-lateral comm'n

Found out two brothers from high school apparently became solo traders or day traders or something via their OH FUCK OH FUCK OH FUCK Facebook updates. And they had such promise as human beings.

today's day-traders are tomorrow's chapter 13 petitioners.

http://2.bp.blogspot.com/_djgssszshgM/S-FkRO566BI/AAAAAAAABJA/EqiF8n8HDyM/s1600/Budget_2020.png

how does that differ from today's spending breakdown?

http://www.google.com/imgres?imgurl=http://digitivity.org/blog/wp-content/uploads/2010/02/death-and-taxes-poster-512x339.png&imgrefurl=http://digitivity.org/868/visualizing-federal-spending-the-federal-budget-in-one-poster&usg=__W7B06eidberUXZjEFS37ReHkm4I=&h=339&w=512&sz=246&hl=en&start=1&sig2=ABMBV_Y701a-N3Cowyl9pA&um=1&itbs=1&tbnid=5lkLekOxNeqaeM:&tbnh=87&tbnw=131&prev=/images%3Fq%3Dfederal%2Bspending%2Bposter%26um%3D1%26hl%3Den%26safe%3Doff%26client%3Dfirefox-a%26sa%3DN%26rls%3Dorg.mozilla:en-US:official%26tbs%3Disch:1&ei=-jHjS__QJoeqNs_z0bcC