Financial topics

[tobyguy]

Okay, I agree with the idea that these generational/social forces have a very large impact. However, I still believe that the people in power and their policies have a significant impact. Certainly, did Greenspan have to loosen credit as much and as long as he did? He did have some control over these actions. As far as the President is concerned, it is very difficult to make things better; but it is relatively easy to make things worse. IMO, a direct rebate to people as a stimulus would have HELPED the situation instead of the spending spree that we got.

I would agree with you that some actions make things worse or more difficult. IMO, all these bailouts will only delay the inevitable and move money from the savers and prudent people to the ones who got us into this mess in the first place. We're going to need the savers and prudent people to get us out of this mess eventually. Government action is only going to delay this, making matters worse.

That being said, baring some significant war or similar "grand" event, there is little any one particular person can do to change the course we are heading in. Anything any one particular person does (or their accomplishments), will easily be overshadowed, forgotten or ignored in such almost unprecedented times.

Tobyguy

[mannfm11]

For my part of the debate? I think Paul Volker made as many mistakes as anyone. Volker strangled the economy for 7 years and maybe destroyed much of my early career out of college. I guess I should have gone to NY and joined a Wall Street firm because I had the eye for it, but I fooled around with the DFW real estate market instead. You might be familiar with what happened to the Texas real estate market in the 1980's seeing as they didn't build much anywhere else. In any case, once they severed the dollar from gold there was probably going to not be any other end to this mess than an eventual bubble. This is where i part company with John in that I don't believe the end of this game was caused by the Boomers or the Xers but by the form that money had taken over time and it was doomed to run its course. If anything, much of this stuff only postponed the inevitable and created a bigger mess in the end. Hyman Minskey called it putting coins in the fusebox and now we have history's greatest Minskey moment.

[JimZ]

manfm11,

once they severed the dollar from gold there was probably going to not be any other end to this mess than an eventual bubble

I agree, but John can still be correct also. In some respects the question is "which came first, the chicken or the egg". In other words, did the generational forces drive an inevitable step to debase our paper (fiat) currency, or did the debasing of the currency provide a temptation that, based on generational forces, the boomers and "x-ers" couldn't resist. Or were the currency decisions completely disconnected from generational theory.

I suspect that generational forces must be a factor, regardless of the exact circumstances. In 2009 we have managed to repeat the errors of the Great Depression time period, but have found new and innovative "circumstances" that supposedly should not repeat since laws were put in place to prevent them.

But as the saying goes - you cannot legislate human nature. Close one door and eventually human nature will find another one.

[John]

-- Market summary, Tuesday afternoon, March 3, 2009

Today is square root day.

Analysts are surprised that the market fell further today. They had
expected a recovery after it fell 4% yesterday.

According to one Bloomberg reporter, "The market is influenced by
logic and by emotions. Today it was obviously influenced by
emotions."

Translation: Up means "logic," down means "emotions."

One interesting thing in Bernanke's testimony today: He always has a
calm demeanor, but today he said that the AIG investments in CDSs
infuriated him. He said that they took advantage of a loophole in
the law and made disastrous investments.

Ex-CEO Maurice Greenberg is going to sue AIG about lying about this
issue in December 2007 -- telling investors that their portfolio was
safe when they knew it wasn't. I wonder if they'll defend themselves
by saying, "But, but, but the regulators ASKED us to lie."

John

[reviresco]

Hello all,

Regarding Chairman Bernanke’s anger at AIG, I have read that the current estimated value of outstanding Credit Default Swaps hover somewhere around 30 trillion dollars, and with many individuals, corporations and entire countries worldwide teetering on the edge of default on debt of all types, claims may be made by many holders of these CDS. There’s only one problem:

“A policy without insurable interest is void”

A basic tenet of all insurance for hundreds of years, this asserts that one cannot insure your neighbor’s house in the hopes that it will burn down and thus profit from your neighbor’s misfortune.

While the underwriters of these contracts (and especially those that would benefit financially from defaults) argue that the lack of regulation and accounting rules that normally apply to insurance contracts prove that Credit Default Swaps are not insurance products, such facetious arguments can no longer be entertained by financial officials and regulators at this dangerous juncture. And because they’ve been traded for over a decade now, one might assume that many swaps are no longer in the possession of the party who was actually attempting to offset risk at the signing of the CDS. For arguments sake, let’s venture that at this point 2/3 of Credit Default Swaps (or Twenty Trillion Dollars worth) probably violate this basic ethical principle of insurance.

Right now, the web of recursive counterparty valuations of these CDS are so complicated that the years necessary to sort things out are simply not available, and while a clearing house or market to trade and offset these contracts lessens the murkiness, it does nothing to block the path down bankruptcy road and government bailout for the institutions who so unwisely agreed to underwrite them in the first place.

One solution might be for the Treasury or the Courts to declare that Credit Default Swaps are in fact an insurance contract and subsequently a claims office could be organized by a special committee of State Insurance Commissioners (since it is the states, after all, who regulate insurance contracts at this time) to review all Credit Default Swaps at the claim stage, and to void the claim of any holder of a triggered CDS lacking verifiable insurable interest.

This would save trillions of US taxpayer dollars that would otherwise have to be passed into insolvent institutions (i.e. AIG & others) who in turn would pay these dollars out to hedge funds and other speculators for what are legal, but de facto fraudulent insurance contracts.

And so, instead of moving trillions of dollars from the taxpayers to speculators, the SIC claims office could instead recompense any not-at-risk entities only their premiums paid, rather than the face value of the swap, since they purchased what amounted to a fraudulent insurance contract to begin with.

[aedens]

For my part of the debate? I think Paul Volker made as many mistakes as anyone. Volker strangled the economy for 7 years and maybe destroyed much of my early career out of college. I guess I should have gone to NY and joined a Wall Street firm because I had the eye for it, but I fooled around with the DFW real estate market instead. You might be familiar with what happened to the Texas real estate market in the 1980's seeing as they didn't build much anywhere else. In any case, once they severed the dollar from gold there was probably going to not be any other end to this mess than an eventual bubble. This is where i part company with John in that I don't believe the end of this game was caused by the Boomers or the Xers but by the form that money had taken over time and it was doomed to run its course. If anything, much of this stuff only postponed the inevitable and created a bigger mess in the end. Hyman Minskey called it putting coins in the fusebox and now we have history's greatest Minskey moment.

In context to your Volker mistake most may agree.

http://homepage.mac.com/ttsmyf/3warnsRD.html

One interpretation is that The Great Pump-Up, which lasted over thirty years, is finished and the Age of De-Leverage is fast upon us.

Until the current administration shows a willingness to lead equities simply aren't a buy yet based on fundamentals based on information provided by John also.

[freddyv]

In his blog, Nouriel Roubini writes the following, very telling lines:

"So without a recovery in the US and global economy there cannot be a sustainable recovery of Chinese growth."

"Thus, correcting for the fall in net worth personal savings are not 5% - as the official NIA definition suggests – but rather sharply negative. In other terms given the massive destruction of household wealth/net worth since 2006-2007 the NIA measure of savings will have to increase much more sharply than has currently occurred to restore the severely damaged balance sheet of the households. Thus, the contraction of real consumption will have to continue for years to come before the adjustment is completed."

While it may be true that Professor Roubini has often been behind the curve in his conclussions, his data is the best I have come across and I prefer to draw my own conclussions after considering the additional data provided by the few other economic experts I really listen to.

There is much more that you have probably already heard but you can read the entire article at http://tinyurl.com/cc4deb

I would like to point out that Mr. Roubini has made his blog free of charge during this time of economic crisis and that is very much appreciated and tells me a lot about the man himself as I am sure he would be making bank on subscriptons right now.

-Fred

[freddyv]

...

http://homepage.mac.com/ttsmyf/3warnsRD.html

One interpretation is that The Great Pump-Up, which lasted over thirty years, is finished and the Age of De-Leverage is fast upon us.

...

This chart shows that in 2007 the stock market was as overvalued as in 2000. Some nutcase on SeekingAlpha tried to insist that we weren't in a bubble in 2007 so the market didn't have far to fall. Of course the market was in a bubble in 2000 and in 2007 was some 30% higher so even after adjusting for inflation we were right back at that 2000 level only now we had a rather massive housing bubble to go along with it and inflated corporate earnings that looked real but were built on all that false wealth that came out of the housing/securitization bubble.

--Fred

[John]

-- Market Summary, Wednesday afternoon, March 4, 2009

Interesting day.

Someone turned all of yesterday's frowns upside down into smiles, as
the market rose 2-2.5% on Wednesday.

The reason appears to be optimism caused by the expected announcement
tomorrow of China's next stimulus package. Shanghai's markets
rallied 6%.

http://www.theaustralian.news.com.au/bu ... 99,00.html

Commodities prices rose 3% on the hope that China's manufacturing
industries would begin to recover, and that led to rallies in
American manufacturers.

Sincerely,

John

[scared_sh+tless]

The reason appears to be optimism caused by the expected announcement
tomorrow of China's next stimulus package. Shanghai's markets
rallied 6%.

http://www.theaustralian.news.com.au/bu ... 99,00.html

Commodities prices rose 3% on the hope that China's manufacturing
industries would begin to recover, and that led to rallies in
American manufacturers.

And today.... not so much LOL.

The chinese announcement apparently didn't confirm anything so the markets tank. The markets are truly a casino, anybody investing is just gambling with their money.