The General Economy Sucks Thread

[Arne]

Originally Posted by Mavdog

it seems that folks like lew are smiling that these companies, their employees and stockholders, are beaten down and whipsawed due to inflammatory news articles such as this.

If you think the reason for all this is the news media, then you truely are a socialist central planner.

P.S.: Lew has been one of the people warning about this situation for YEARS, while your favorite boys Bernanke and Paulson were telling people housing prices could never collapse. Lew has been the one forecasting this shit, actually trying to prevent it from happening to the best of his knowledge, while people like Greenspan (who is well aware of the effects of our banking and monetary system today, as can be seen by his works prior to being at the Fed chief and being in investment banks) have led the world into the situation today. Even after he was Fed chairman Greenspan has admitted that he personally likes the gold standart period prior to the Fed and thinks that "the US did rather well during that period".

[Arne]

What's Behind the Financial Market Crisis?

Daily Article by Antony Mueller | Posted on 9/18/2008


The financial crisis is not over. Neither tax rebates nor low interest rates nor higher or lower exchange rates can do the job of reviving an economy that is burdened by debt loads that are too high. On the contrary: the policy measures that the US authorities have been applying will prolong the agony. Be prepared for the challenges of extended financial turmoil and economic stagnation.

Early this year, the US central bank decided to manage the debt crisis in the light-hearted belief that a few aggressive rate cuts would "unfreeze" the banking system. Yet as of the end of the third quarter of 2008, the arteries of the financial system are still cluttered, and the financial system has moved even closer to total collapse.

Those banks and brokerages that haven't yet failed have been kept alive by emergency monetary transfusions from the US central bank. The Fed has cast away all restraints of economic rationality and is acting in a purely political way. The Board of Governors of the US Federal Reserve System is pursuing the goal of getting the financial system through the mess — at least until the end of the year, no matter how high the costs will be thereafter.

The American central bank has adopted the financial equivalent of the military strategy of scorched earth. The economic philosophy of the current chairman of the US Federal Reserve System can be summarized in the slogan, "No depression under my rule!" He resembles a military leader who stubbornly declares, "No defeat under my rule!" the more the chance of victory is slipping away, and defeat can be denied no longer.

The current economic disaster is the result of the combination of negligence, hubris, and wrong economic theory. For decades, an economic and monetary policy has been practiced based on the illusion of, "It doesn't matter." At first it was, "Deficits don't matter." From that, the policy of "it doesn't matter" got extended to money creation, the credit expansion, the stock-market bubble, and the housing boom. Now, we're being told that buying financial junk by the central bank to beef up banks and brokerages also doesn't matter.

As a byproduct of this mindless economic and monetary policy, financial market operators, too, have lost their heads. Trusting the official cheerleaders, investors hold on in the trenches until they will have lost their last shirt. Economic weakness is spreading around the globe. There is no new spurt of economic growth in sight. Yet many investors stay put because they have been conditioned to believe that government will bail them out.

The current financial crisis is not of a cyclical nature. The financial turmoil is the symptom of the structural imbalances in the real economy. Over decades, expansive monetary policy has gone hand in hand with implicit and explicit bailout guarantees, and this has distorted the process of capital allocation. Under such perverted conditions, those investors will win most who cast away the restraints of prudence. It is a game that can go on for a long time — up to the point when the irrationality has become systemic.

The behavior of the investment community reflects the incentive structure that has been put in place by the authorities. Investors have learnt to dance to the tunes of the pied pipers at high places. After all, the individual market player could see from those who were ahead of him in the abandonment of prudence how money is being made. In the wake of this, financial companies have become overextended and are now in need of deleveraging. Yet the core problem lies in the imbalances of the real economy.

In the Austrian theory of the business cycle, the distinction is made between the "primary" and "secondary" depression. The secondary depression is what catches the eye: the turmoil in the financial markets. Yet the underlying cause is the distortion of the economy's capital structure: the primary depression.

The simple fact is that the US economy is burdened with a highly lopsided capital structure as the consequence of a wide discrepancy between consumption and production, which, in turn, is the result of monetary policy. Persistent trade imbalances are the symptoms of this discrepancy. This means for the US economy that lower interest rates and government incentives aimed at boosting consumption work as pure poison. Instead of more consumption, more savings, less consumption and fewer imports are needed.

The current financial crisis reflects that many debtors have reached their debt limit and that creditors are lowering that limit. From now on, business and consumers, governments and investors must work under the restraints of lowered debt ceilings.

Economic policy as it is currently practiced is in a fix: lower interest rates may temporarily help to alleviate the financial crisis, but they exacerbate the fundamentals that are the cause of the financial crisis. Equally, a lower dollar would make imports costlier for the United States, while a strong dollar comes with lower import prices. But while a low dollar would help to expand exports, a strong dollar impedes export growth. Therefore, the United States will have high trade deficits as long as the economy does not fall deeper into recession.

Without an adaptation that would increase savings, decrease consumption, and reduce imports, the US economy can only go on in the old fashion with ever more debt accumulation. But the limit of debt expansion has been reached. The financial crisis has reduced the willingness of domestic and foreign creditors to extend loans.

Foreign creditors are getting ready to reduce their holding of US debt in a more drastic way. The governmental takeover of the mortgage agencies Fannie Mae and Freddie Mac bailed out the monetary authorities of China, Japan, Russia, and other foreign countries that hold agency debt. As a result of the socialization of the so-called government-sponsored enterprises, the Treasury opened a window of opportunity for these countries to unload their US assets at subsidized prices, all at the cost of the US taxpayer.

A profound restructuring of global capital has become unavoidable. Such a process is quite different from a recession in the traditional sense. In contrast to a sharp and typically short-lived recession, when, after the rupture, business as usual can go on, the restructuring of a distorted capital structure will require time to play out. Rebalancing the distorted capital structure of an economy requires enduring nitty-gritty entrepreneurial piecemeal work. This can only be done under the guidance of the discovery process of competition, as it is inherent in the workings of the price system of the unhampered market.

Anticyclical fiscal and monetary policies are of no help when it comes to the daily toil in business to work towards reestablishing a balanced capital structure. The so-called income multiplier won't work, and lower interest rates won't stimulate spending. On the contrary: these policy measures only make the task of the entrepreneur harder.

"Ignorant of the lessons of the Austrian School, the authorities will most likely continue with their disastrous policies."
The difficulties ahead arise from the problem that business as usual cannot go on under conditions of a credit crunch, which has its roots in the distortions of the economy's capital structure. Thus, even if the financial market turmoil were to settle, there won't be the simple resumption of the old ways of doing business. The belief that, after the financial crisis is over, the real economy can reemerge unscathed, is probably the greatest error that many investors share with the policymakers.

As a result of the bailouts and the socialization of the mortgage agencies, the financial system is now fully infected with moral hazard. The disastrous effects of these government interventions will show up soon. The major task of bringing the capital structure in order is still ahead and more pain is in the waiting.

As long as governments and central banks continue to focus on the monetary symptoms of the "secondary depression" and continue to ignore the structural aspects of the "primary depression," they act like quacks. Ignorant of the lessons of the Austrian School, the authorities will most likely continue with their disastrous policies.

Antony Mueller is the founder of the Continental Economics Institute . He is an adjunct scholar of the Ludwig von Mises Institute and academic director of the Instituto Ludwig von Mises Brasil. He maintains the blog Money, Markets, and the Business Cycle. Comment on the blog.

http://mises.org/story/3111

[Arne]

Morgan Stanley Said to Be in Talks With China's CIC (Update2)

By Christine Harper

Sept. 18 (Bloomberg) -- Morgan Stanley, the second-biggest independent U.S. securities firm, may sell a larger stake to China Investment Corp. and is in talks about a possible merger with Wachovia Corp., a person familiar with the matter said.

China's state-controlled fund may buy as much as 49 percent of the New York-based investment bank, said the person, who declined to be identified because the talks aren't public and may end in no agreement. Morgan Stanley resumed its decline on the New York Stock Exchange, falling as much as 22 percent.

Morgan Stanley, led by Chief Executive Officer John Mack, and Goldman Sachs Group Inc., the biggest U.S. securities firm, tumbled the most ever yesterday as the deepening credit crunch fueled concern their funding sources are drying up. Morgan Stanley shares plunged 42 percent this week through yesterday after Lehman Brothers Holdings Inc. filed for bankruptcy and Merrill Lynch & Co. sold itself to Bank of America Corp.

``Morgan Stanley must be talking to any suitor,'' said Roger Lister, a credit analyst at the DBRS Inc. rating firm in New York. ``But I'm not sure whether a merger with a bank will solve the problems. It's not a deposit-base issue but a crisis of confidence. And getting a capital infusion from the Chinese or somebody else brings huge dilution due to the depressed stock price, which scares investors even more.''

Morgan Stanley fell $4.32, or 20 percent, to $17.43 in New York Stock Exchange composite trading at 11:57 a.m. Wachovia rose 11.3 percent to $10.15.

Gao Xiqing in U.S.

China Investment Corp. bought a 9.9 percent stake in Morgan Stanley in December after the firm reported a quarterly loss. CIC's president, Gao Xiqing, is in the U.S. with Wei Christianson, who runs Morgan Stanley's business in China, the Financial Times reported today.

If Morgan Stanley ``could come out and say we're raising this slug of capital to stabilize our balance sheet and operate at a lower level of leverage going forward, that would help,'' said Ben Wallace, a securities analyst at Grimes & Co. in Westborough, Massachusetts, which manages $850 million. ``They're so levered that they need to have the confidence of the market, and they don't have that right now.''

Mack, 63, addressed employees this morning in a crowded meeting in New York, saying the firm's earnings and balance sheet were sound, according to people who attended or watched the firm- wide video broadcast. He said Morgan Stanley was in stronger shape than Lehman or Bear Stearns Co., which was forced to sell itself to JPMorgan Chase & Cos. earlier this year.

Talk With Pandit

Two of the attendees, who declined to be named because they weren't authorized to speak to the press, said Mack sounded upbeat and confident.

Mark Lake, a spokesman at Morgan Stanley in New York, declined to comment.

Mack tried unsuccessfully earlier this week to persuade Vikram Pandit, CEO of Citigroup Inc., to combine their two companies, the New York Times reported today, citing people briefed on the talks. A Citigroup spokeswoman, Christina Pretto, said comments the Times attributed to Mack were ``never stated.''

Mack got a call from Wachovia yesterday indicating interest, said a person with knowledge of the matter. Talks about a deal with Wachovia have ``advanced,'' CNBC reported today. A merger with Wachovia could involve dividing the assets of both companies into two separate entities, a ``good bank'' and a ``bad bank,'' the Wall Street Journal reported, citing an unidentified person familiar with the matter.

Wachovia Costs

``The smartest people at this firm are focused on solutions,'' Lake, the Morgan Stanley spokesman, said yesterday.

Wachovia spokeswoman Christy Phillips-Brown said it was bank policy not to comment on ``market rumors or merger speculation.''

Wachovia, the fourth-largest U.S. bank, plunged 21 percent yesterday after saying it would support $494 million of Lehman credits held by its Evergreen Investments money market funds. The lender, based in Charlotte, North Carolina, had a market value of $19.7 billion yesterday, 18 percent less than Morgan Stanley's $24.1 billion.

Wachovia Chief Executive Officer Robert Steel, hired in July to replace Kennedy Thompson, is cutting $1.5 billion of expenses and reducing risk to cope with mounting losses from Wachovia's $122 billion of option adjustable-rate mortgages.

Merrill analyst Guy Moszkowski called a deal with Wachovia ``unlikely'' and said in a note today that a combination with Wachovia would ``saddle Morgan Stanley with considerable credit risk.''

``It is difficult for us to perceive a strategic benefit for Morgan Stanley, which would be merging with the weakest of the five major U.S. banks,'' Moszkowski wrote.

Short Sellers

Morgan Stanley and Goldman have defended their business model, saying they have adequate capital and don't need the deposit funding that banks have. Mack lambasted short sellers for pushing his firm's shares lower.

In a memo to employees yesterday, Mack said the management committee is ``taking every step possible to stop this irresponsible action in the market,'' and he urged employees to contact clients to reassure them that the firm is performing strongly and has plenty of capital.

``There is no rational basis for the movements in our stock or credit-default spreads,'' Mack wrote in the memo. ``We're in the midst of a market controlled by fear and rumors, and short sellers are driving our stock down.''

The U.S. Securities and Exchange Commission may require hedge funds to disclose their short-sale positions and plans to subpoena the funds for their communication records, Chairman Christopher Cox said in a statement late yesterday.

Default Swaps

Short sellers try to profit by betting stock prices will fall. In a short sale, traders borrow shares from their broker that they then sell. If the price drops, they buy back the stock, return it to their broker and pocket the difference.

Credit-default swaps on Morgan Stanley rose to 900 basis points after falling earlier to 870 basis points, according to broker Phoenix Partners Group. Contracts on Charlotte, North Carolina-based Wachovia, the fourth-largest U.S. bank, rose to 695 basis points after falling to as low as 685 basis points. They are down from 747 basis points yesterday, CMA data show.

Credit-default swaps are financial instruments based on bonds and loans used to speculate on a company's ability to repay debt or to hedge against losses. The value of the contracts increases when investor sentiment deteriorates and the cost of protection rises.

Morgan Stanley's plunge may add impetus to calls from Democrats in Congress for a broader effort by policy makers to address the financial crisis, including setting up a government agency to take on devalued assets.

`Unscrew It'

``The private market screwed itself up and they need the government to come and help them unscrew it,'' House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, told reporters late yesterday after top lawmakers met with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke.

Frank this week proposed considering an agency to ``deal with all the bad paper out there'' and get financial markets ``out of the box'' they are in.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net.

http://www.bloomberg.com/apps/news?p...004&refer=home

Now let me translate that last statement by Mr. Frank: We're gonna print some more money, which we'll use to prop up some bad businesses and which in turn will lower the purchasing power of all the people but first and foremost the purchasing power of the poor and the middle class even more. Now please vote for me so I can debase your currency even more!

[rabbitproof]

Wall Street Retreats After Minor Rally -
Stocks Decline After Upbeat Morning; Fed Gives Markets $180B Boost; Future Uncertain For Washington Mutual, Morgan Stanley

http://www.cbsnews.com/stories/2008/...siness_4456953

(CBS/ AP) Wall Street's morning gains disappeared by midday Thursday despite a boost from the Federal Reserve which, along with central banks in Europe, Canada and Asia, pumped as much as $180 billion into money markets to combat shock waves from the worst financial upheaval since the Great Depression of the 1930s.

The move was aimed at boosting waning confidence that governments can stop the crisis from spinning out of control and at getting banks around the world to open their ever-tightening purse strings. Banks have been increasingly reluctant to lend to each other as distrust spread throughout the financial system.

Wall Street initially rallied, but trimmed gains as the morning wore on, after plunging 450 points Wednesday when a government bailout of American International Group Inc., one of the world's largest insurers, failed to settle the markets' frayed nerves.

In the first hour of trading, the Dow Jones industrial average rose 135.65, or 1.28 percent, to 10,745.31, but by the afternoon had dropped more than 100 points.

As the market fluctuated, speculation swirled about the futures of such major players as thrift bank Washington Mutual Inc. and investment bank Morgan Stanley. Media reports have been saying that Wells Fargo & Co. and Citigroup Inc. are interested in a possible takeover of Washington Mutual, and that Morgan Stanley and Wachovia Corp. are in talks about a possible combination.


---

Jesus moonwalking Christ.. who the eff was working this economy these last 8 years.. somebody better have come up in all this.

[mcsluggo]

Originally Posted by Arne

If you think the reason for all this is the news media, then you truely are a socialist central planner.

P.S.: Lew has been one of the people warning about this situation for YEARS, while your favorite boys Bernanke and Paulson were telling people housing prices could never collapse. Lew has been the one forecasting this shit, actually trying to prevent it from happening to the best of his knowledge, while people like Greenspan (who is well aware of the effects of our banking and monetary system today, as can be seen by his works prior to being at the Fed chief and being in investment banks) have led the world into the situation today. Even after he was Fed chairman Greenspan has admitted that he personally likes the gold standart period prior to the Fed and thinks that "the US did rather well during that period".

The US did rather well during "that period" (I assume he means Bretton Woods) not because there was a gold standard, but because there was an explicit DOLLAR standard. The Dollar was the only currency ostensibly pegged to gold... all other currencies were explicitly pegged to the dollar. ALL other currencies. THat is a sweet position to be in. We, and we alone, had full guaranteed currency stability. Any imbalances were upon the rest of the world to adjust, whether they were caused by us or them. THis gave us (and us alone) full monetary policy effectiveness while simultaneusly guaranteeing a stable exchange rate and allowing the flow of capital. Not anybody else, though.

Its a good gig if you can get it. However, the discipline not to abuse the position has to be fully internal, and we were definately NOT able to maintain that good discipline. Bretton Woods collapsed when the rest of the world got tired of having to import OUR inflation, without any of the benefits of an expansionary monetary policy (we were able to get ALL of the benefits, while exporting most of the costs abroad). Inflation didn't kick in here until the collapse of Bretton Woods, under Nixon.

Lets see if the rest of the world is interested in handing the US this sort of power and influence these days... 1945 (the start of Bretton Woods was quite a bit different. Ours was the only really functioning economy AND our attitude to our obligations to the rest of the world were COMPLETELY different. A US government dedicated to the Marshal Plan while simultaneusly maintaing fiscal and monetary discilpline for the whole world (while ALSO paying down our WWII deficits) .... well, lets just say that sort of discilpline is not apparent in US government today.

Maybe the chinese will let us all hich our wagins to the yuan....?

[Arne]

Originally Posted by mcsluggo

The US did rather well during "that period" (I assume he means Bretton Woods) not because there was a gold standard, but because there was an explicit DOLLAR standard. The Dollar was the only currency ostensibly pegged to gold... all other currencies were explicitly pegged to the dollar. ALL other currencies. THat is a sweet position to be in. We, and we alone, had full guaranteed currency stability. Any imbalances were upon the rest of the world to adjust, whether they were caused by us or them. THis gave us (and us alone) full monetary policy effectiveness while simultaneusly guaranteeing a stable exchange rate and allowing the flow of capital. Not anybody else, though.

Its a good gig if you can get it. However, the discipline not to abuse the position has to be fully internal, and we were definately NOT able to maintain that good discipline. Bretton Woods collapsed when the rest of the world got tired of having to import OUR inflation, without any of the benefits of an expansionary monetary policy (we were able to get ALL of the benefits, while exporting most of the costs abroad). Inflation didn't kick in here until the collapse of Bretton Woods, under Nixon.

Lets see if the rest of the world is interested in handing the US this sort of power and influence these days... 1945 (the start of Bretton Woods was quite a bit different. Ours was the only really functioning economy AND our attitude to our obligations to the rest of the world were COMPLETELY different. A US government dedicated to the Marshal Plan while simultaneusly maintaing fiscal and monetary discilpline for the whole world (while ALSO paying down our WWII deficits) .... well, lets just say that sort of discilpline is not apparent in US government today.

Maybe the chinese will let us all hich our wagins to the yuan....?

He meant prior to 1913. I said prior to the Fed... The Fed certainly wasn't founded in Bretton Woods.

[mcsluggo]

the US had a bunch of TERRIBLE, serial financial crises prior to 1913.

[Arne]

Originally Posted by mcsluggo

the US had a bunch of TERRIBLE, serial financial crises prior to 1913.

Read some books about them. Some were artificially created. But still, there was a century long period of real economic growth with actual price deflation. Still, it could have been even better if it combined a gold stadard and a non-fractional reserve banking system, which could have prevented ALL those bank runs. Fractional reserve banking is the reason for bank runs.

[mcsluggo]

actual price defaltion is a good thing?

the last 100 years saw solid real economic growth as well... with less volatility overall

[Arne]

Originally Posted by mcsluggo

actual price defaltion is a good thing?

It's not what the interventionists and Monetarists have told you, but yes it is. money supply is limited, productivity increases, more products enter the market, prices decrease.

Not to confuse with the deflation in central bank systems where prices go down because money has to leave the market, because there's already too much malinvestment in the market and nobody wants to borough anymore...

[Arne]

A murderer confesses

Posted by James Ostrowski at September 18, 2008 02:51 PM

"Raw capitalism is dead."

--Henry Paulson

Meanwhile, the President's Press Secretary announced that the rule of law was obsolete:

DANA PERINO, WHITE HOUSE PRESS SECRETARY: I think that if you look at the actions that have been taken, as they are taken on a case-by-case basis, I don't think any company could be guaranteed anything. I think that they -- everything will be reviewed individually and on its merits.
Pretty funny coming from the party that claims to support the rule of law.

http://www.lewrockwell.com/blog/lewr...es/022946.html

[Arne]

http://www.guardian.co.uk/business/feedarticle/7808566

Buffett's 'time bomb' goes off on Wall Street

Reuters, Thursday September 18 2008
By James B. Kelleher

CHICAGO, Sept 18 (Reuters) - On Main Street, insurance protects people from the effects of catastrophes.
But on Wall Street, specialized insurance known as a credit default swaps are turning a bad situation into a catastrophe.
When historians write about the current crisis, much of the blame will go to the slump in the housing and mortgage markets, which triggered the losses, layoffs and liquidations sweeping the financial industry.
But credit default swaps -- complex derivatives originally designed to protect banks from deadbeat borrowers -- are adding to the turmoil.
"This was supposedly a way to hedge risk," says Ellen Brown, the author of the book "Web of Debt."
"I'm sure their predictive models were right as far as the risk of the things they were insuring against. But what they didn't factor in was the risk that the sellers of this protection wouldn't pay ... That's what we're seeing now."
Brown is hardly alone in her criticism of the derivatives. Five years ago, billionaire investor Warren Buffett called them a "time bomb" and "financial weapons of mass destruction" and directed the insurance arm of his Berkshire Hathaway Inc to exit the business.
LINKED TO MORTGAGES
Recent events suggest Buffett was right. The collapse of Bear Stearns. The fire sale of Merrill Lynch & Co Inc. The meltdown at American International Group Inc. In each case, credit default swaps played a role in the fall of these financial giants.
The latest victim is insurer AIG, which received an emergency $85 billion loan from the U.S. Federal Reserve late on Tuesday to stave off a bankruptcy.
Over the last three quarters, AIG suffered $18 billion of losses tied to guarantees it wrote on mortgage-linked derivatives.
Its struggles intensified in recent weeks as losses in its own investments led to cuts in its credit ratings. Those cuts triggered clauses in the policies AIG had written that forced it to put up billions of dollars in extra collateral -- billions it did not have and could not raise.
EASY MONEY
When the credit default market began back in the mid-1990s, the transactions were simpler, more transparent affairs. Not all the sellers were insurance companies like AIG -- most were not. But the protection buyer usually knew the protection seller.
As it grew -- according to the industry's trade group, the credit default market grew to $46 trillion by the first half of 2007 from $631 billion in 2000 -- all that changed.
An over-the-counter market grew up and some of the most active players became asset managers, including hedge fund managers, who bought and sold the policies like any other investment.
And in those deals, they sold protection as often as they bought it -- although they rarely set aside the reserves they would need if the obligation ever had to be paid.
In one notorious case, a small hedge fund agreed to insure UBS AG, the Swiss banking giant, from losses related to defaults on $1.3 billion of subprime mortgages for an annual premium of about $2 million.
The trouble was, the hedge fund set up a subsidiary to stand behind the guarantee -- and capitalized it with just $4.6 million. As long as the loans performed, the fund made a killing, raking in an annualized return of nearly 44 percent.
But in the summer of 2007, as home owners began to default, things got ugly. UBS demanded the hedge fund put up additional collateral. The fund balked. UBS sued.
The dispute is hardly unique. Both Wachovia Corp and Citigroup Inc are involved in similar litigation with firms that promised to step up and act like insurers -- but were not actually insurers.
"Insurance companies have armies of actuaries and deep pools of policyholders and the financial wherewithal to pay claims," says Mike Barry, a spokesman at the Insurance Information Institute.
'SLOPPY'
Another problem: As hedge funds and others bought and sold these protection policies, they did not always get prior written consent from the people they were supposed to be insuring. Patrick Parkinson, the deputy director of the Fed's research and statistic arm, calls the practice "sloppy."
As a result, some protection buyers had trouble figuring out who was standing behind the insurance they bought. And it put investors into webs of relationships they did not understand.
"This is the derivative nightmare that everyone has been warning about," says Peter Schiff, the president of Euro Pacific Capital at the author of "Crash Proof: How to Profit From the Coming Economic Collapse."
"They booked all these derivatives assuming bad things would never happen. It was like writing fire insurance, assuming no one is ever going to have a fire, only now they're turning around and watching as the whole town burns down." (Editing by Andre Grenon)

[Arne]

Some Financial News Snippets and ... Absolute Insanity from a Wealthy Socialist

Posted by Karen DeCoster at September 18, 2008 03:05 PM

Putnam closed its Prime Money-Market Fund.

Putnam Investments LLC closed its $12.3 billion institutional Putnam Prime Money Market Fund yesterday and plans to return all cash to investors.

The fund, which was valued yesterday at $1 a share, experienced "significant redemption pressure," the Boston-based company said in a statement.

In other news, Bloomberg just reported that Morgan Stanley has been in talks with China Investment Corp about selling a 49% stake, otherwise it will merge with Wachovia. Wachovia stock has gone up 50% rather quickly, so there may be a new merger on the horizon.

The krazed keynesians have been all over the financial news today, spraying their venom to anyone who wants a sound bite. One guy, on the "Bloomberg Minute," said "about 10 banks will control 80% of the money....that's about the right number, and I'm sure a model would prove that.....we need to follow the French and Canadian models, where a very few highly-regulated banks are in existence."

Worse yet was Paul McCulley, the Managing Director of Pimco (he's cut from New Deal cloth, by the way). He was on BubbleVision this morning, and he stated that the government (he's calls it "the sovereign") "needs to inject the system with liquidity with overwhelming force." (He likes Colin Powell quotes.) He said that "Uncle Sam must put his capital (the loot stolen from the rest of us) at risk and buy GSE securities." He said Hank Paulsen must "open his wallet." When McCulley was asked about the inflationary consequences of the Fed's injection and the AIG bailout, he replies, "I don't think we should give one thought to the dollar or the inflationary consequences..." This nutcase, by the way, is a guy who gets extremely wealthy via central monetary planning. Listen to the last 30 seconds of the clip, where some gal in the background says, "This all sounds like socialism to me..." The sound is then cut immediately, and the clip ends. Funny, I was listening to this in the car, so I do not know who said that. But I immediately talked to a friend on the west coast who said he caught the interview, and he also caught the remark. We Austro-Libertarians have an ear for these things.

If you want to see this absolutely insane interview, here's a link. I strongly suggest you watch this to know what we are up against.
(the link to the video: http://www.cnbc.com/id/15840232?video=859763829)

http://www.lewrockwell.com/blog/lewr...es/022945.html

[Mavdog]

Originally Posted by Arne

If you think the reason for all this is the news media, then you truely are a socialist central planner.

wow, you take what I said to mean I say the news media is "the reason for all this" financial crisis?

no, that is FAR from what I said, and I was addressing the news repost on a "bank run..at wamu" specifically.

a bank run, especially in today's world of fdic coverage, is a huge overreaction. there is NO reason for people to get all crazy and pull out their $ from an insured bank.

the news report is merely throwing gas on a fire imo.

P.S.: Lew has been one of the people warning about this situation for YEARS, while your favorite boys Bernanke and Paulson were telling people housing prices could never collapse.

could you show ONE quote of bernanke when he says "housing prioces could never collapse"??

just ONE....

didn't think so.

Lew has been the one forecasting this shit, actually trying to prevent it from happening to the best of his knowledge, while people like Greenspan (who is well aware of the effects of our banking and monetary system today, as can be seen by his works prior to being at the Fed chief and being in investment banks) have led the world into the situation today. Even after he was Fed chairman Greenspan has admitted that he personally likes the gold standart period prior to the Fed and thinks that "the US did rather well during that period".

you know, most of us, people who understand real estate, knew the very same thing that you give lew credit for. he wasn't the only person who saw the bubble and predicted it would pop.

and he had a 50.50 chance of being right, just like he had a 50/50 chance of being wrong.

your posting of his stories, and the commentary you post, seems to be gleeful that there is this economic crisis.

[Arne]

Originally Posted by Mavdog

could you show ONE quote of bernanke when he says "housing prioces could never collapse"??

He implied the boom was legit:

Bernanke: There's No Housing Bubble to Go Bust
Fed Nominee Has Said 'Cooling' Won't Hurt

By Nell Henderson
Washington Post Staff Writer
Thursday, October 27, 2005; D01

Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve.

U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president's Council of Economic Advisers, in testimony to Congress's Joint Economic Committee. But these increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new households.

Bernanke's thinking on the housing market did not attract much attention before Bush tapped him for the Fed job Monday but will likely be among the key topics explored by members of the Senate Banking Committee during upcoming hearings on his nomination.

Many economists argue that house prices have risen too far too fast in many markets, forming a bubble that could rapidly collapse and trigger an economic downturn, as overinflated stock prices did at the turn of the century. Some analysts have warned that even a flattening of house prices might cause a slump -- posing the first serious challenge to whoever succeeds Fed Chairman Alan Greenspan after he steps down Jan. 31.

Bernanke's testimony suggests that he does not share such concerns, and that he believes the economy could weather a housing slowdown.

"House prices are unlikely to continue rising at current rates," said Bernanke, who served on the Fed board from 2002 until June. However, he added, "a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near its potential next year."

Greenspan has said recently that he sees no national bubble in home prices, but rather "froth" in some local markets. Prices may fall in some areas, he indicated. And he warned in a speech last month that some borrowers and lenders may suffer "significant losses" if cooling house prices make it difficult to repay new types of riskier home loans -- such as interest-only adjustable-rate mortgages.

Bernanke did not address the possibility of local housing bubbles or the risks faced by individual borrowers or lenders in a slowing market.

But if Bernanke is confirmed as Fed chief, and if the housing market slows more than he expects, he would be unlikely to use the central bank's power over short-term interest rates to prop up falling housing prices for the sake of individual homeowners, according to comments he has made in numerous speeches and statements in academic papers.

Rather, he has argued for many years that the Fed should respond to rising or falling prices for stocks, real estate or other assets only if they are affecting inflation or economic growth in an undesirable way. Thus, he would advocate cutting interest rates if a reversal in the housing market sharply dampened consumer spending, triggering job losses or a fall in inflation to very low levels.

Lower interest rates encourage consumers and businesses to borrow and spend, spurring economic growth and hiring. That would also make it less likely that very low inflation could turn into deflation, an economically harmful drop in the overall price level.

Bernanke believes "the Fed's job is to protect the economy, not to protect individual asset prices," said William Dudley, chief economist for Goldman Sachs U.S. Economics Research.

That view mirrors Greenspan's. He and Bernanke have both said it is unrealistic to expect the Fed to identify a bubble in stock or real estate prices as it is inflating, or to be able to pop it without hurting the economy. Instead, the Fed should stand ready to mop up the economic aftermath of a bubble.

Greenspan, for example, has rejected suggestions that the Fed should have raised interest rates in the late 1990s sooner or higher to slow soaring stock prices. He says the Fed got it right after that boom by cutting its benchmark rate deeply in 2001, in response to falling stock prices, the recession and the Sept. 11 terrorist attacks.

After Bernanke joined the Fed board in 2002, as the economic recovery remained sluggish and job cuts continued, he vocally supported Greenspan's strategy of lowering the benchmark rate further and holding it very low until mid-2004, when it was clear that both job growth and the economic expansion were solid.

Bernanke also warned in a November 2002 speech that the Fed would act aggressively to prevent deflation, which had devastated the economy during the Great Depression that followed the 1929 stock market crash.

A former chairman of Princeton University's economics department, Bernanke earned academic renown for his research on the Fed's role in causing the Depression.

After the 1929 crash, the Fed mistakenly raised interest rates to protect the value of the dollar, which was then pegged to the price of gold, Bernanke wrote in an October 2000 article in Foreign Policy. The higher rates contributed to surging unemployment and severe price deflation. The Fed then made things worse by not acting to counter the credit crunch that resulted from the collapse of the banking system in the early 1930s.

"Without these policy blunders by the Federal Reserve, there is little reason to believe that the 1929 crash would have been followed by more than a moderate dip in U.S. economic activity," Bernanke wrote.

In late 2000, looking ahead to the possibility of a sharp fall in then-lofty stock prices, Bernanke concluded, "history proves . . . that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse."

And in words that might come to mind if housing tanks, he said the economic effects of falling asset prices "depend less on the severity of the crash itself than on the response of economic policymakers, particularly central bankers."

http://www.washingtonpost.com/wp-dyn...602255_pf.html

Bernanke also said oil prices would decline for years. He also refers to price increases being the source of inflation, whereas any solid economist would tell you the reckless increase in the money supply is the source for inflation. In fact back in the days the term inflation was only used as a term for increase in the money supply. Ofcourse there's no way he believes all the crap he's saying, he's just saying it. Some times he's lying, sometimes he's stupid. He also tried to say a falling dollar is not necessarily related to inflation here at home....

[Mavdog]

a quote from 2005? are you kidding me?

was there a "bubble" in the time period to which he was speaking (2004-2005)?

nah

here's what he actually said. clearly he was NOT anticipating the continues run up in home prices, he actually at that time thought it would not.

House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals, including robust growth in jobs and incomes, low mortgage rates, steady rates of household formation, and factors that limit the expansion of housing supply in some areas. House prices are unlikely to continue rising at current rates. However, as reflected in many private-sector forecasts such as the Blue Chip forecast mentioned earlier, a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near its potential next year.

[Arne]

Wall Street Cheers Government Socialism

Posted by Karen DeCoster at September 18, 2008 04:33 PM

Here comes the rolling tide of intervention on a massive scale. Just days - or even hours - away from certain implosion, the central planners game up the stock market on a promise that will have all the beggars and leeches waiting in line impatiently, all night long.

U.S. stocks rallied the most in six years on prospects the government will formulate a `"permanent'" plan to shore up financial markets, while regulators and pension funds took steps to curb bets against banks and brokerages.

Traders erupted into cheers on the floor of the New York Stock Exchange as the Dow Jones Industrial Average jumped 617 points from its low of the day after Senator Charles Schumer proposed a new agency to pump capital into financial companies. The Standard & Poor's 500 Index climbed 4.3 percent as 68 companies in the gauge rose more than 10 percent.

http://www.lewrockwell.com/blog/lewr...es/022948.html

[Arne]

Originally Posted by Mavdog

a quote from 2005? are you kidding me?

was there a "bubble" in the time period to which he was speaking (2004-2005)?

nah

here's what he actually said. clearly he was NOT anticipating the continues run up in home prices, he actually at that time thought it would not.

House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals, including robust growth in jobs and incomes, low mortgage rates, steady rates of household formation, and factors that limit the expansion of housing supply in some areas. House prices are unlikely to continue rising at current rates. However, as reflected in many private-sector forecasts such as the Blue Chip forecast mentioned earlier, a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near its potential next year.

Housing prices that rise 25% are not a bubble. Right.

Moreover you should look at a chart and tell us when home prices actually decreased or better when the bubble really was created and not at when it was burst.


At the same time Peter Schiff was talking about the housing bubble and what was gonna make it burst:
http://www.youtube.com/watch?v=Y8922EPkzjw
In addition there were highly scientific discussions about what was gonna make the bubble burst going on at lewrockwell.com. See, some people know a bubble when they see it, others think the magic hand of monetary expansion is gonna make humans the master of money (as Keynes put it when he was applauding monetary expansion right before the Great Depression) and turn bubbles into real solid economic growth.

Update: I renewed the chart.

[Flacolaco]

Question: Will the massive exodus of cash and assets to foreign accounts once Obama gets elected have any tangible effect on the economy?

I have no idea if this is a good idea or not, or if that would even work, personally I haven't made enough money yet to be worrying about a lot of investments or anything, I'm very liquid right now....but I have heard a lot of people talking about moving their money offshore to protect it from those who would seek to punish their success.

[alexamenos]

i'm doing my best imitation of an ostrich as it comes to the economy these days -- head firmly buried in the sand.

[Mavdog]

Originally Posted by Arne

Housing prices that rise 25% are not a bubble. Right.

how can you make a general statement about a "rise [of] 25% not being a bubble"? it depends.

housing prices in some markets continue to rise, and it's in spite of the difficulties in other markets such as fl or ca.

are those markets with price appreciation in "a bubble"?

no, they may be experiencing fundamental soundness in the market.

so no, it's not correct to merely say a 25% rise in values automatically is a bubble.

Moreover you should look at a chart and tell us when home prices actually decreased or better when the bubble really was created and not at when it was burst.


At the same time Peter Schiff was talking about the housing bubble and what was gonna make it burst:
http://www.youtube.com/watch?v=Y8922EPkzjw
In addition there were highly scientific discussions about what was gonna make the bubble burst going on at lewrockwell.com. See, some people know a bubble when they see it, others think the magic hand of monetary expansion is gonna make humans the master of money (as Keynes put it when he was applauding monetary expansion right before the Great Depression) and turn bubbles into real solid economic growth.

Update: I renewed the chart.

do you realize that these moves by the us government to aid the financial system were done with no expansion of the money supply?

so much for the whining about "monetary expansion"...

[Mavdog]

Originally Posted by Flacolaco

Question: Will the massive exodus of cash and assets to foreign accounts once Obama gets elected have any tangible effect on the economy?

I have no idea if this is a good idea or not, or if that would even work, personally I haven't made enough money yet to be worrying about a lot of investments or anything, I'm very liquid right now....but I have heard a lot of people talking about moving their money offshore to protect it from those who would seek to punish their success.

right now, the world is buying dollars and fleeing other currencies..the foreign stock exchanges have suffered as much if not more than the usa's

[alexamenos]

Traders erupted into cheers on the floor of the New York Stock Exchange as the Dow Jones Industrial Average jumped 617 points from its low of the day after Senator Charles Schumer proposed a new agency to pump capital into financial companies.

great catch over at lrc.....

let's add to this that the government is attempting to outlaw gravity...

seriously....anybody out there noticed any spontaneous, mildly populist, national outcries to save AIG? Has anybody else attended a rally to demand that the government purchase of "distressed" loans (ie, stupid and bad loans) from ailing lenders?

no???? me neither, oddly enough.

our government more closely resembles a plutocratic kleptocracy than a representative democracy. they piss down our backs and we thank the heavens for the rain.

[GermanDunk]

What a crap

[GermanDunk]

German BaFin banned shortselling. Valid 20th of Sept - 1st Jan. 2009

[Arne]

Originally Posted by alexamenos

great catch over at lrc.....

let's add to this that the government is attempting to outlaw gravity...

seriously....anybody out there noticed any spontaneous, mildly populist, national outcries to save AIG? Has anybody else attended a rally to demand that the government purchase of "distressed" loans (ie, stupid and bad loans) from ailing lenders?

no???? me neither, oddly enough.

our government more closely resembles a plutocratic kleptocracy than a representative democracy. they piss down our backs and we thank the heavens for the rain.

See, government is only helping us out here. They now what's best for us and they are going to do it even if we object. This is an amazing plan and there's the same mastermind behind all of this who created Amtrak and the post office. It's gonna be brilliant and one day our school systems will be good enough to even help your poor and unknowing mind to realize this.

[Arne]

[b]Fed Lends Record to Wall Street, $28 Billion to AIG (Update1) [b]

By Scott Lanman

Sept. 18 (Bloomberg) -- The Federal Reserve lent a record $59.8 billion to securities firms and $28 billion to American International Group Inc. as of yesterday, while daily borrowing by commercial banks increased in the past week to a fourth straight high.

Loans through the Primary Dealer Credit Facility averaged $20.3 billion in the seven days through Sept. 17, the first time since July that Wall Street has tapped the emergency program, the Fed said today in its weekly report. Commercial bank borrowing through the traditional discount window rose $1.8 billion to $21.6 billion, finishing the week with a $33.4 billion balance.

Policy makers are trying to halt the yearlong credit crisis by expanding the central bank's balance sheet and pumping the most credit into the financial system since the Great Depression.

The Fed, acting after the failure of Lehman Brothers Holdings Inc., backed the government takeover of American Insurance Group Inc. on Sept. 16 with an $85 billion credit line.

``Funding yourself at the discount window right now and through these facilities that are in place is pretty much a no- brainer'' because of the higher cost of credit elsewhere, said Robert Eisenbeis, chief monetary economist at Cumberland Advisors and a former research director at the Atlanta Fed.

Still, the cheap funds may prolong the credit crisis by allowing financial institutions to hold impaired mortgage-related assets and other distressed investments longer than they otherwise would, Eisenbeis said.

Accepts Equities

The central bank also said on Sept. 14 it will accept equities as collateral from securities firms under the PDCF. That day Citigroup Inc. and nine other large banks said they would use the program starting this week as they create a $70 billion lending program. On Sept. 7 the Fed supported the U.S. Treasury seizure of Fannie Mae and Freddie Mac.

Today's report, providing statistics as of Sept. 17, doesn't identify borrowers through the primary-dealer facility.

The report doesn't yet reflect Treasury's plan, announced this week, to sell $200 billion of government securities to expand the Fed's balance sheet. The first special sale yesterday, totaling $40 billion of 35-day bills, was to settle today.

Fed holdings of U.S. Treasury securities rose $56 million to a daily average of $479.8 billion. The central bank had about $791 billion of Treasuries at the start of the credit crisis in August 2007.

Pumping Credit

The Fed and other central banks for the biggest economies announced today a plan to pump $180 billion into the global financial system. Separately, the Fed added $105 billion to the banking system with repurchase agreements after channeling $140 billion into banks this week.

Repurchases on the balance sheet rose $13.7 billion to a daily average of $124.5 billion.

The $33.4 billion balance for borrowing by commercial banks rose from $23.5 billion a week earlier. The Fed's single-day record balance for discount-window lending is $45.5 billion on Sept. 12, 2001, the day after the terrorist attacks on the World Trade Center and the Pentagon. The reported daily average for that week was $11.7 billion.

The subprime-mortgage collapse has led to $518 billion of writedowns and losses at major financial institutions since the start of 2007.

The PDCF showed during two weeks in July average daily loans of $9 million and $3 million. That month the central bank extended the PDCF through Jan. 30 because of ``continued fragile circumstances in financial markets.'' It was originally set to end as soon as this month.

Accrues Interest

The three-month London Interbank Offered Rate in dollars was 3.204 percent today. Commercial banks can take out up to 90-day loans from the Fed at 2.25 percent. Primary dealers pay the same rate for overnight loans. The AIG loan accrues interest at three- month Libor plus 8.5 percentage points.

The PDCF offers the 19 primary dealers that trade Treasuries with the New York Fed access to direct loans. Dealers can submit collateral including Treasuries and asset-backed debt, corporate bonds and municipal bonds with investment grades.

The Fed agreed in March to back the takeover of Bear Stearns Cos. by JPMorgan Chase & Co. by assuming about $29 billion of mortgage-backed and other debt from Bear Stearns.

Fed policy makers kept the benchmark rate at 2 percent at their last meeting two days ago, rebuffing calls by some investors for a cut to ease the effects of financial turmoil on the economy. Traders see a 78 percent chance of a quarter-point reduction at or before the next meeting, Oct. 28-29.

No Formal Target

The Fed also reported that the M2 money supply fell by $1.9 billion in the week ended Sept. 8. That left M2 growing at an annual rate of 5.8 percent for the past 52 weeks, above the target of 5 percent the Fed once set for maximum growth. The Fed no longer has a formal target.

The Fed reports two measures of the money supply each week. M1 includes all currency held by consumers and companies for spending, money held in checking accounts and travelers checks. M2, the more widely followed, adds savings and private holdings in money market mutual funds.

During the latest reporting week, M1 fell by $5.2 billion. Over the past 52 weeks, M1 increased 1.9 percent. The Fed no longer publishes figures for M3.

Meantime, the Fed reported two net misses in projections. The first occurred Sept. 15 ``when Foreign RP pool and Treasury balances were lower than expected, resulting in an increase in reserves,'' the Fed said in a press release. The other occurred yesterday ``when other F.R. liabilities was lower than expected, resulting in a decrease in reserves,'' the Fed said.

A net miss occurs when the actual reserve level in the banking system diverges from the Fed's projections for a day by $2 billion or more. If the level is outside expectations, the federal funds rate can deviate from target.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net

http://www.bloomberg.com/apps/news?p...d=a.oH8y8SBiyo

[Mavdog]

Government Bailouts: A U.S. Tradition Dating to Hamilton
By MICHAEL M. PHILLIPS

Today it is Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke putting together the rescue package for a financial system rocked by falling home prices and a wave of defaults on subprime mortgages.
But a short walk through U.S. history demonstrates the point made by Alex J. Pollock of the American Enterprise Institute: "If you would like an empirical law of government behavior, it is that in a panic or threatened financial collapse, governments intervene -- every government, every party, every country, every time."

The Panic of 1792
The nation's first president was in his first term when the U.S. ran into its first financial panic.
In 1791, the federal government assumed obligations that such states as Massachusetts and South Carolina owed from the Revolutionary War, part of a larger deal that included moving the national capital from New York to Philadelphia to Washington. Taking on the states' obligations added about $18 million to a total U.S. domestic debt of $65 million -- debt securities that proved attractive to financial speculators.
Primary among them was William Duer, a well-connected New York businessman who schemed to start a New York bank to drive down the price of Bank of New York stock and win control of BONY on the cheap. He and his colleagues also intended to corner the market on government 6% bonds, so-called Sixes.
Treasury Secretary Alexander Hamilton, the founder of BONY, watched the developments with alarm. "I have learnt with infinite pain the circumstance of a new Bank having started up in your City," Mr. Hamilton wrote to a New York associate, according to research by economic historians Richard Sylla, Robert E. Wright and David J. Cowen. "Its effects cannot but be in every view pernicious," because of the damage they caused to "the whole system of public Credit, by disgusting all sober Citizens and giving a wild air to everything."
The price for Sixes in New York jumped markedly from early December to mid-January. By March, the bubble had burst, with the price of the bonds dropping 25% over two weeks.
Working without a historical blueprint, Hamilton engineered an innovative response. The Treasury borrowed money from the banks and used it to buy government bonds, lifting the market price. He also told banks to accept bonds as collateral for loans to securities brokers, with the government guaranteeing the collateral.
"What Hamilton did in 1792 is just like what Paulson and Bernanke are doing now," said Mr. Sylla, who teaches at the Stern School of Business at New York University.
The financial system stabilized in April, and not a single bank failed until 1809. Mr. Hamilton's improvisation did the trick, or at least so concludes Mr. Wright, also at NYU. He named his son Alexander Hamilton Was Wright.

The Panic of 1907
The century that followed was punctuated by financial instability. There was the panic of 1819, during which states passed laws delaying foreclosures on real estate and personal property.
In 1841, another bout of financial volatility sent land values plummeting. States that had been depending on land taxes suddenly found themselves short of cash; nine of them defaulted on their debts. There was talk of a federal bailout, but Congress balked. Some states raised taxes and paid up; others swapped canals or other assets with their creditors.
"There were banking panics all of the time," said Princeton University economist Alan Blinder, former vice chairman of the Federal Reserve Board. "The banking panic of 1907 was particularly pernicious."
One immediate cause of the panic involved a failed attempt to corner the market on stock in a particular copper company. That led to a run on banks and trusts that had made loans for the plot, starting with the Knickerbocker Trust Co. Public confidence in other financial institutions soon evaporated.
The Treasury injected millions of dollars into the banking system. But it was really J. Pierpont Morgan, the banking magnate and undisputed king of New York financial markets, who saved the day. He had been in Virginia for a church conference when the panic hit, and he took an overnight train back to New York City. He dispatched his lieutenants to figure out which banks were in the worst trouble, then he called the bankers to his home. Working through the night, he browbeat the others into forming a joint pool of capital that they would use to pay depositors at banks that faced runs.
Once depositors saw that they were going to get their money, the panic eased. "Where's J.P. Morgan when we need him?" joked Mr. Blinder.
Six years later, Congress established the Federal Reserve system, creating a lender of last resort for the country's financial system.

The Great Depression
By 1933, four years after the infamous stock-market crash, about 1,000 American homeowners a day were losing their houses to the bank. President Franklin Delano Roosevelt and Congress created the Home Owners' Loan Corp., an ambitious government agency designed to prevent foreclosures on an enormous scale.
The agency bought defaulted mortgages from banks, then refinanced them at lower rates for fixed, 15-year terms. Over the three years it accepted applications, the agency was swamped with 1.9 million requests; about half of the applicants had monthly incomes of between $50 and $150.
Ultimately, the agency issued mortgages, averaging $3,039 apiece, to some one million homeowners. About one in 10 Americans with nonfarm, owner-occupied dwellings secured aid from the agency, according to a 1951 paper by C. Lowell Harriss of Columbia University.
The current mortgage crisis involves securities backed by subprime home loans. But during the 1930s, there was no secondary market for securitized mortgages. So the agency had to hold the mortgages for the full terms. It finally closed up shop in 1951, with about 80% of borrowers having paid their loans off on time or early.
The agency earned the government a small profit. "You save 80% of the people from being tossed out of their homes, and it didn't end up costing the government a dollar," said Lee Davison, a historian at the Federal Deposit Insurance Corp., another Great Depression creation.

Savings and Loan Crisis
It used to be that savings-and-loan associations were staid institutions that stuck to home loans and lured savings-account depositors with blankets and toasters. But during the 1980s, the industry expanded wildly into commercial real-estate lending, spurred by deregulation and poor regulation, according to Mr. Blinder.
The business model worked as long as the S&Ls made more money on their loans than they had to pay for deposits. But the model broke down when interest rates rose, and the institutions found themselves paying more for deposits than they earned from fixed-rate loans in their portfolios.
"In addition," said Mr. Blinder, "they went into a lot of what could only be called stupid real-estate investments."
From 1986 through 1995, about half of the 3,234 S&Ls in the U.S. closed, leaving federal insurers stuck with tens of billions of dollars in bad loans. In 1989, after eight months of debate, Congress created the Resolution Trust Corp. to make depositors whole, investigate allegations of wrongdoing and deal with the husks of the S&L industry.
At the time, skeptics warned that government was reaching too far into the marketplace, and predicted darkly the RTC would be saddled with bad assets for generations.
Indeed, the government ended up owning shopping centers, homes and resorts, along with an odd collection of assets put up as collateral for S&L loans, including Picasso and Warhol paintings, a 30-horse merry-go-round, a Colonial-era whiskey distillery, a drawstring made from Martha Washington's gown and 800 units of semen from a registered Brahma bull.
By the time the S&L cleanup was over, it had cost U.S. taxpayers about $124 billion in non-inflation-adjusted dollars, according to FDIC research. Mr. Davison, the FDIC historian, wrote in a 2006 journal article: "Perhaps a measure of the RTC's success is that little more than a decade after it closed, this agency that provoked so much debate is now largely forgotten."

[rabbitproof]

This is a hefty, meaty post and I'm still digesting but thought it was interesting and would like to hear thoughts...

http://tlrii.typepad.com/thelisciore...l-ec.html#more

[rabbitproof]

Pelosi Gives Thumb Down to Bailout Proposal

In a statement Sunday, the House Speaker says the Bush administration’s proposed financial package “does not include the necessary safeguards.”

“Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive executive compensation.”

“We will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome.”

http://thepage.time.com/2008/09/21/p...lout-proposal/

[alexamenos]

Originally Posted by NancyPelosi

“We will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome.”

I'd take this bet....Economic Minister Paulson will have his money in no time.

my short and dirty on the boondoggle:

you're gonna get raped if you don't do this, so drop your pants, bend over, spread your butt cheeks, and let us avoid this nasty outcome.

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

Let me add to this, as the federal government waltzes in and buys bad loans from banks......you know, because we can't have banks who make bad losses feeling any consequences...

....this is such a massive comingling of the Government and the Corporate that it's hard to call it anything other than a fascist economic policy. I submit that the reason this isn't commonly called fascism is because fascism is icky, not because the shoe doesn't fit.

[Mavdog]

and dr. alexamenos your prescription for relief from the malady is.....

[DelNegro]

Originally Posted by rabbitproof

Pelosi Gives Thumb Down to Bailout Proposal

“We will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome.”

What are the odds that if we lumped on a $150 billion economic stimulus package on top of that $700 billion she'd feel better about things?

[Flacolaco]

Last weeks headlines: "Stock market soars on news of government bailout"

This weeks headlines: "Stocks fall on bailout proposal"

[alexamenos]

Originally Posted by DelNegro

What are the odds that if we lumped on a $150 billion economic stimulus package on top of that $700 billion she'd feel better about things?

I wouldn't bet against this one.

[alexamenos]

Originally Posted by Mavdog

and dr. alexamenos your prescription for relief from the malady is.....

the malady is that people who made bad loans and invested in bad loans are suffering the consequences, and it's a malady I can live with.

[Mavdog]

and the collateral damage?

[GermanDunk]

Anyone an idea what the hell makes the oil soaring 16 $ in one day ?

[alexamenos]

Originally Posted by Mavdog

and the collateral damage?

there will almost certainly be collateral damage -- this is a consequence of a monetary system which incessantly fosters moral hazards.

it should be noted that the proposed (or is it dictated?) bailout expressly calls for $700 billion in collateral damage, so it's not at all a question of whether we feel any collateral damage, it's a question of which route will yield the most manageable collateral damage.

[alexamenos]

Originally Posted by GermanDunk

Anyone an idea what the hell makes the oil soaring 16 $ in one day ?

what's gold doing?