Rolling US Economy Into The Shitbin Thread

OTOH, wtfdoiknownothingthat'swhat. I realize this all too well.

xpost

When a bank is insolvent the government doesn't need an excuse to exert control and it certainly doesn't need to hold stock so it may hope to have some leverage with the management that drove it into insolvency.

No. It takes it over, cleans up the books, writes off bad assets, then looks for a buyer to run what is generally a much smaller, but stronger bank. If the bank was a total bust, it pays off the depositors and closes the doors.

The reason why the FDIC isn't doing this is politics. The big US banks have totally fucked the world economy, looting it with the tacit blessing of the Bush administration. They deserve to have electric wires attached to their genitals by Lyndie England. Instead they are being protected from the consequences of their rapacity, because the alternative appears too painful.

What is being missed here is that the present course will entail a lot of pain, too, a slow, grinding pain over many years that will punish the innocent more than the guilty and leave the USA worse off in the future than the clean, direct approach would.

Becoming captive shareholders of enormous failed banks is not a position of strength. I do not see this as a reason for hope.

The reason why the FDIC isn't doing this is politics

Or the Admin. is afraid of the reaction to -- and possible ripple effects of -- nationalization.

I'm not saying I buy into this, but that's my understanding of the reluctance to nationalize (aside from broader philosophical objections to nationalization, which I do think are rooted in defensive politics (Obama doesn't want to be tarred and feathered as a "socialist")).

He is anyway though.

long run, the diminishment of the financial services industry could be a boon to the rest of the economy in that in the future people who otherwise would've worked in that industry apply their lol talents elsewhere

Seeing as how even if they fail miserably and take down the world economy they can still rack up huge fortunes, I don't see why these lol talents would want to abandon what is being verified as a sure-thing as leveraged by us taxpayers. If anything this should be a lesson to the next generation of burgeoning banking criminal masterminds. In a few decades these banks will be racing against each other to make the 08s version of 'too big to fail' a laughably inadequate.

I think the idea is that forthcoming regulations will, by design, shrink the banking sector.

Just as long as it isn't simply shrinking the total number of banks.

"Nationalization" is a red herring, pure scare tactics. The FDIC is supposed to step in and take over insolvent banks, and always has since its inception.

The big banks have managed to sidestep this action by insisting that their worthless assets are really worth plenty, except for the small detail that they are not generating revenue and no one will buy them.

The idea that the managers of insolvent banks should be allowed to tap dance around bank examiners and lie their heads off and the media obligingly invokes the horrors of "nationalization" should be perceived as a hoot, except the CEOs and CFOs of ginormous money center banks like BofA have such solid brass cojones because they have routinely bought off the Congress and both political parties with the crumbs from their table, so really it is a scandal of the worst sort.

Well, I don't necessarily disagree. As I said upthread, I just see the possibility that the Admin. is laying the groundwork to do more, should current plans fail (having common stock with voting rights is one way to exercise power, should the Admin. choose to use that power).

But I might be totally misreading the situation. That is, Wall Street/Big Banks might have totally overpowered the Admin., which is why we're seeing less bold moves, and nothing -- besides muddling through -- in the works.

the banks are in bad shape, but most of them aren't comatose (as they were during the Great Depression). also, the "conventional wisdom" is that it's a few (very) bad apples -- like Citibank and Bank of America -- as opposed to the entire banking sector, which is in contrast to the S&L crisis 20 years ago (also, i don't remember if any of the S&Ls fell into the "too big to fail" category though i suspect that they didn't since all that occurred before Gramm-Leach-Bliley passed).

anyway, since the banking sector isn't dead it still can fight back (as they have been lately) which again is in contrast to the situation that prevailed during the Great Depression. i guess that we should be thankful for that, though it also means that they're still strong enough to fight any proposed reforms that would crimp their style as it were.

WOW: Real U.S. Unemployment Rate is 15.8%.

Certainly there are always people who fall into the category of "not working full-time but ought to be," so the real unemployment rate is always higher than the official rate.

Still: 15.8%. Yikes.

Reagan was the president who first oversaw messing with the unemployment stats, so as to stop counting "discouraged" job seekers who hadn't been looking for work lately because it was so fucking hopeless that they gave up.

People who are working 20 hours a week at minimum wage and living in their cars because they can't find more hours or better pay are obviously productive members of the work force, because, dude, they are subsidizing the rest of us by consigning themselves to starvation wage-slavery.

it's not online, but the current new yorker has a pretty good big-picture piece by nick paumgarten, talking to assorted wall street wizards, curmudgeons and cranks. the overall consensus is that most people (including the obama administration) are just still in denial if not deluded and the degree to which we are all fucked will continue to reveal itself a little at a time until we're all living in trash cans. or shitbins, as the case may be.

This fucking guy

http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?em

single income family with $4k/month in child support living $3k/month over their means now he's writing a book about it. possible title I'M DUMBASS

Hyperanalyzed here:

quiddities and agonies of the ruling class - a rolling new york times thread

Wasted it? We just blew trillions of dollars and are on our way to creating even more dependency.
http://baselinescenario.com/2009/05/26/the-crisis-is-over-and-we-wasted-it/

Oh, this little aftereffect of massive infusion will be fun in a few years.

http://www.businessinsider.com/get-ready-for-americas-double-dip-recession-2009-5

Hooray oh wait.

The U.S. economy appears destined for several years of weak growth and high unemployment

I hate to say it, but considering the alternatives we faced from this meltdown, this really does hit the sweet spot among the possible outcomes, in terms of how adversely most ordinary people will be affected.

our longterm fundamentals still suck. And we have no idea of the sterility of the rag we just put on a massive headwound. But hey, desperate times call for desperate measures, right?

http://www.ft.com/cms/s/0/4e9dadca-5057-11de-9530-00144feabdc0.html?nclick_check=1

Sigh. Luckily no one wanted to discuss this aspect of our economy six months ago.

http://bloomberg.com/apps/news?pid=20601087&sid=ahrOZ.gd85yc

It is kind of hilarious for Ben Bernanke to be "warning" about financial instability in June 2009.

In the same edition of the FT Martin Wolf describes the rise in bond yields as a reset as money flows back out of US government debt having flowed in there as a safe haven last year. However if yields stay above 4% for a significant amount of time then there is more to worry about. Long term high level of indebtedness is going to mean inflation, unless the US magically starts exporting more than it imports.

"I accidentally touched my head and noticed that I had been bleeding, for how long I didn't know"
-- US economy

http://dshort.com/charts/bears/four-bears-large.gif

So GM is insured by AIG?

General Motors is going bankrupt.
By now everybody knows that GM will not survive without a bankruptcy reorganization. President Obama has said that he will expect (require?) the bankruptcy soon.

Why?

GM makes plenty of money. It uses various accounting practices to avoid reporting a profit from its annual sales. And these practices are normal, ordinary, and legal. There is nothing wrong with reporting their income the way that GM reports theirs.

But it does make them look a lot less profitable than they really are.

It is worth noting, also, that GM make most of their sales during certain months of the year. In the autumn when new models are released, the make money. And they make money during the summer when people are out driving about and feeling good and prosperous. They don't make much money in the dead of winter. And they don't make much money in the last weeks just before the new models are released.

During the times when GM's sales are high they make enough money to keep them going for the entire year. But it is real hard to use this revenue to meet their day to day costs for the whole year. The available cash is just too bumpy and unpredictable.

That is why they use short term loans - to provide a constant availability of cash for the operational use of the company.

Corporate bonds are a great instrument. They are bought and sold through well regulated markets and their values are expressed in terms we all know how to understand and use.

A bond is issued at a specific value, say $100. This is its par value. It is sold at a price which is less than its par value, for example $70. This is its discount value. At the end of the bond's term it is bought back at full par value. Corporations can also buy them back early at markdown rates based upon market conditions.

Discount values for corporate bonds fluctuate as rapidly and as sharply as pork bellies or any other commodity. Banks don't like corporate bonds because of the fluctuation in their discount values.

During the last several years, banks have been combining corporate bonds under the CDO (Collateralized Debt Obligation) umbrella. CDOs are virtually illiquid. Mostly you can buy or sell them only with the entity that created them. Banks love CDOs because they are stable in value.

How does AIG come into this picture?

CDOs have another neat feature for banks. You can insure the value of a CDO by buying a CDS (Credit Debt Swap). A CDS is an insurance account for the par value of a CDO.

This is like an insurance policy on your home if it offers "full replacement coverage" against disaster.

It is a smart idea to buy a CDS for each CDO you own.

AIG wrote most if not all of the CDSs for the CDOs that were derived from GM bonds.

How is this driving GM into bankruptcy?

Last year the US government bailed out GM from a short term cash flow crisis and gave them instructions to reorganize their debts.

The thinking was that all of the holders of General Motors' corporate bonds would be forced to take a markdown in the discount value of their bonds.

Finances are supposed to work like that.

But the holders of CDOs derived from GM corporate bonds were insured for their full par value by AIG CDSs. And all AIG CDSs were guaranteed by the US government for their full par value. Therefore the holders of these CDOs said, "No, we're not going to take any markdowns. We are insured for the full value."

As a result, GM could not force the discount value of their bonds down and they could not buy them back at a low market value rate.

When you can't pay your creditors off, they come to collect. This is what has happened to GM.

So think about this:

If AIG did not insure the value of the CDOs derived from GM bonds, their value and the value of GM bonds would naturally decline. And GM could buy them back at a lower rate, and preserve enough cash to continue to operate. But the United States has guaranteed the value of the CDSs issued by AIG against those CDOs, so their value cannot decline. As a result, GM has no takers when they offer to buy back their corporate bonds at a discount value less than they were initially sold.

That's why General Motors is being forced into bankruptcy.

This is a case where the US government should get out of the market.

From this anonymous post http://hubpages.com/hub/AIG-Drives-GM-Bankrupt
Batshit or sense-making?

Sounds like a 911 truther.

This might be true but it generates a big "so what" from me. (Also it is most likely crazypants.)

Ugh:

http://www.nytimes.com/2009/06/05/business/economy/05bankrupt.html?ref=us

Throughout it all, the banks took advantage of the Obama administration’s seeming ambivalence. Despite its occasional populist rhetoric, the White House was conspicuously absent from weeks of pivotal negotiations this spring.

“This would have been a much different deal if Obama had pressed it,” said Camden R. Fine, head of the Independent Community Bankers of America and one of the chief lobbyists opposing the bankruptcy change. “The fact that Obama effectively sat it out helped us a great deal.”

I hope this makes some of you feel like saps.

for not voting for john mccain? i spent all year last year saying the choice was between being disappointed and being appalled. i voted for disappointment.

but yeah, that bill was pretty useless -- as also detailed here.

more predictably ominous rumblings:

Citigroup’s $1.6 billion in first-quarter profit would vanish if accounting were more stringent, says Martin Weiss of Weiss Research Inc. in Jupiter, Florida. “The big banks’ profits were totally bogus,” says Weiss, whose 38-year-old firm rates financial companies. “The new accounting rules, the stress tests: They’re all part of a major effort to put lipstick on a pig.”

Further deterioration of loans will eventually force banks to recognize losses that their bookkeeping lets them ignore for now, says David Sherman, an accounting professor at Northeastern University in Boston. Janet Tavakoli, president of Tavakoli Structured Finance Inc. in Chicago, says the government stress scenarios underestimate how bad the economy may get.

Batshit or sense-making?

Batshit. Starting with the notion that new models roll out in "autumn," which hasn't been true since the 80s and wouldn't be germane in any case given the beating GM takes clearing out the prior model year simply to make physical room for the new inventory.

Author may be honestly confusing "generates revenue" with "makes money."

no tips, I didn't mean for voting for Bam (tho it doesn't sound like you expected enough to be disappointed). I mean the "He'll fulfill our desires later in the term" posters.

He'll fulfill my desires, eventually, probably later on in the sperm

I am not defending this particular issue, which I think sucks, but do you really think people who have/had long-term aspirations for Obama's presidency were thinking in terms of weeks/months?

odds he'll be doing anything better in 2011? or that like Bill Clinton, he won't be worse as another campaign approaches?

open your eyes, dan... dudes been in office for FOUR MONTHS already!

yeah how many people has obama killed so far and then covered it up so it looks like a suicide--Vince Foster anyone?????

and he'll CHANGE! into a magic LIBERAL!!! LIKE V-CHIP BILLY IN A SCHOOL UNIFORM!

I had a reasonable response written out but what's the fucking point

V-CHIP BILLY

HI

(tho it doesn't sound like you expected enough to be disappointed)

well it's one thing to expect to be disappointed, another to experience it. it wouldn't be disappointment if it didn't feel ... disappointing.

but anyway, for whatever obvious weaknesses there are in the administration, there are much greater weaknesses in our system as a whole. i think the administration is, on balance, well intended, but feels politically constrained to operate within certain boundaries. whether they really are constrained that way or whether they're being more ginger than they need to be is up for debate -- i lean heavily toward the "they're being too soft" side. but on some issues (like the banks, like health care, possibly like energy policy), i'm starting to lean toward the view that the american system is just too corrupt at this point to correct itself. i don't know what that means in the long term, but it might mean that we cannot actually dislodge the assorted parasites attached to our economy and political system (banks, insurance companies, oil and coal companies, etc) and they're just going to feast until the host dies. i'd like to see obama fighting harder for all those things, but i don't know if it would even make a difference.

the important thing is not what obama does or doesn't do, but that dr. morbius is so much smarter than other posters on www.ilxor.com

stupidity not all that big a problem, it's denial.

what exactly is being denied here. use small words, i'm really dumb.