Financial Crisis

[midas]

When I jokingly prophesized that in the future, everyone would be either a daytrader of stocks or an Ebay seller, I overlooked one sector of the economy with real growth potential:

http://www.miller-mccune.com/business_econ...s-of-wrath-1506

" The women across the street have a small crop in their vegetable garden" they make it sound

so " quaint " ....maybe they can develop " tupperware " style marketing to promote it

[lannarebirth]

The Warning

"We didn't truly know the dangers of the market, because it was a dark market," says Brooksley Born , the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission [CFTC] -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. "They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?"

http://www.pbs.org/wgbh/pages/frontline/warning/view/#morelink

"The Father, Son and the Holy Ghost, they caught the last train for the coast..."

[Abrak]

what is wrong with a good hard crash ? After that the US will be the best emerging economy in the world. Shoot this dog of an economy and start over.

So you deflate US GDP say 15% in real terms and we assume the financial system survives. Current deficit is cured. Not so sure about the fiscal one. What I dont get is how or why this will actually turn the 'US into the best emerging economy in the world'?

[sokal]

what is wrong with a good hard crash ? After that the US will be the best emerging economy in the world. Shoot this dog of an economy and start over.

So you deflate US GDP say 15% in real terms and we assume the financial system survives. Current deficit is cured. Not so sure about the fiscal one. What I dont get is how or why this will actually turn the 'US into the best emerging economy in the world'?

Karl Denninger says that the US would have needed to take a 10% hit on GDP in 2000 to purge the system, would lead to a minor depression. Now he says that if we took the hit this time(last year) we would have had a worse depression then the 30s but we would have saved the country. Now if things do not change soon, we lose the country. Unless you think we can repeat the last couple decades ?????

[Abrak]

Karl Denninger says that the US would have needed to take a 10% hit on GDP in 2000 to purge the system, would lead to a minor depression. Now he says that if we took the hit this time(last year) we would have had a worse depression then the 30s but we would have saved the country. Now if things do not change soon, we lose the country. Unless you think we can repeat the last couple decades ?????

Well I do sort of have plan. I dont how good it is but against 25% real GDP growth decline (with a possible collapse in the financial system) then the bar for a vaguely good plan is not being set extremely high - I mean no choices look good.

To me the key structural imbalance in the world is the dollar especially against the yuan. The problems this cause go way beyond the US$200bn trade deficit between the countries....

1) The yuan peg transfering technology and manufacturing to China actually effects US exports to all countries

2) The US$ is structurally overvalued as it is tied to another country that keeps its currency structurally undervalued

3) The causality of the reduction in US savings runs both ways. In other words, it can only really happen if someone is paying for it. The Chinese purchases of US$ kept interest rates low, encouraging a consumer binge.

4) Manufacturing is still important in the US, about the same size as China's

5) Exports only account for 12% of GDP but when consumption is 70% that is still a big figure

6) Pegging an undervalued currency to yours is essentially a 'beggar my neighbour' policy. Where by growth and capital is exported from one country to another.

7) Other countries copy China and buy dollars to limit their currency appreciation relative to the yuan.

The thesis was that this was a mutually beneficial arrangement. The US reduced inflation by 1.4% per annum and had someone to finance their consumer boom at low rates. Ok manufacturing jobs were lost but in fact it didnt really matter as many thought they didnt actually need to work given house prices rising rapidly. The Chinese imported job, capital, growth.

Now we get the antithesis. This relationship cannot go on forever. As the US overconsumes and gets increasingly into debt, China et al become increasing unwilling to finance. Plus as they have undermined growth there is essentially less income which is bad for the value of their debt and demand for their products. The US no longer sees importing deflation as a plus and is realizing exporting everything else is a minus. So potentially conflict will ensue.

A sensible solution is either an RMB float or say a 33% revaluation. Other currencies in the region react and appreciate accordingly. Much of the effect will come from the depreciation of the dollar. Obviously this should solve the current a/c problem, engender some growth in the US (which would help the fiscal deficit) and might even attract capital investment. Under the best case it could get the US back on a sustainable self-financing growth path. Obviously less good for China but then the current arrangement wasnt sustainable, massive c/a surplus is as much a structural imbalance as a deficit and is potentially misallocating capital by making the economy overdependent on external demand. Finally by pegging their currency to the dollar they lose most control over monetary policy which is determined by the US with no growth - this is almost certainly a recipe for a boom bust asset bubble in China.

So if it doesnt happen there will be a trade war - which is mutually assured destruction. Obama is already slapping on tariffs and it is clear that Bernanke is wanting to move this way. Quote from Oct 19th speech 'In particular, trade surpluses achieved through policies that artificially enhance incentives for domestic saving and the production of export goods distort the mix of domestic industries and the allocation of resources, resulting in an economy that is less able to meet the needs of its own citizens in the longer term.'

Edited October 22, 2009 by Abrak

[lannarebirth]

The Warning

"We didn't truly know the dangers of the market, because it was a dark market," says Brooksley Born , the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission [CFTC] -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. "They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?"

http://www.pbs.org/wgbh/pages/frontline/warning/view/#morelink

"The Father, Son and the Holy Ghost, they caught the last train for the coast..."

Volcker Fails to Sell a Bank Strategy

“The guy’s a giant, he’s a genius, he is a great human being,” said Austan D. Goolsbee, counselor to Mr. Obama since their Chicago days. “Whenever he has advice, the administration is very interested.”

Well, not lately. The aging Mr. Volcker (he is 82) has some advice, deeply felt. He has been offering it in speeches and Congressional testimony, and repeating it to those around the president, most of them young enough to be his children.

He wants the nation’s banks to be prohibited from owning and trading risky securities, the very practice that got the biggest ones into deep trouble in 2008. And the administration is saying no, it will not separate commercial banking from investment operations.

http://www.nytimes.com/2009/10/21/business...=3&emc=eta1

Edited October 22, 2009 by lannarebirth

[flying]

11 Incredible Homes From Around the World for Under $50K

http://www.moneycompare.com.au/blog/11-inc...r-under-50k.php

Mostly rip-offs time shares etc....

But Hey....Hey even one in Thailand

Edited October 23, 2009 by flying

[Abrak]

11 Incredible Homes From Around the World for Under $50K

http://www.moneycompare.com.au/blog/11-inc...r-under-50k.php

Mostly rip-offs time shares etc....

But Hey....Hey even one in Thailand

Mostly rip offs?

I love the way the Thai house isnt actually a house but a computer generated picture.

And beachfront, house, Hua Hin, from $28,000

1. Is in Pranburi, 50kms from Hua Hin

2. The $28,000 gets you a quarter rai plot.

3. The house is another $100,000

4. 'Beachfront' is actually 800m from the beach

Still it looks a bargain compared to this....

It is a 38 year old bus available for $46,000.

Edited October 23, 2009 by Abrak

[samuibeachcomber]

there are probably thousands of houses right now in the USA for under 50,000 dollars for sale due to foreclosures.

[flying]

there are probably thousands of houses right now in the USA for under 50,000 dollars for sale due to foreclosures.

Many are in burnt out places like Detroit but.........There are some really nice ones in Las Vegas. I'm sure there are quite a few other places too though.

[midas]

As of last Tuesday, the US debt stood at $11.95 trillion...............

The Senate must soon increase the national debt limit to above $13 trillion — and Democrats are looking for political cover.

http://www.politico.com/news/stories/1009/28586.html

[flying]

As of last Tuesday, the US debt stood at $11.95 trillion...............

The Senate must soon increase the national debt limit to above $13 trillion — and Democrats are looking for political cover.

http://www.politico.com/news/stories/1009/28586.html

I just read somewhere today that we will break the 12 Trillion next week.

Hard to believe & if I remember right they said we are moving at 52k a second now.

Pretty amazing thought.

http://www.usdebtclock.org/#

Edited October 23, 2009 by flying

[midas]

read about these idiots

New Jersey Pays Goldman Sachs for Swaps on Nonexistent Bonds

Oct. 23 (Bloomberg) -- New Jersey taxpayers are sending almost $1 million a month to a partnership run by Goldman Sachs Group Inc. for protection against rising interest costs on bonds that the state redeemed more than a year ago.

http://www.bloomberg.com/apps/news?pid=206...id=aufmSRtDn0gg

[ThailandLovr]

As of last Tuesday, the US debt stood at $11.95 trillion...............

The Senate must soon increase the national debt limit to above $13 trillion — and Democrats are looking for political cover.

http://www.politico.com/news/stories/1009/28586.html

The American people are getting just what they voted for. Obama made all his philosophies well known during his campaign. Furthermore the people voted in a filibuster-proof Democratic, mostly liberal, congress so now they shouldn't be surprised. Those who don't like what they are seeing need to voice their complaints in the voting booth more wisely next time. Until then, hold on, the spending and redistribution of wealth is just beginning! Obama will be relentless in fulfilling those promises.

Edited October 23, 2009 by ThailandLovr

[Naam]

there are probably thousands of houses right now in the USA for under 50,000 dollars for sale due to foreclosures.

here's one of them:

[Abrak]

As of last Tuesday, the US debt stood at $11.95 trillion...............

The Senate must soon increase the national debt limit to above $13 trillion — and Democrats are looking for political cover.

http://www.politico.com/news/stories/1009/28586.html

To me it is all one big Ponzi scheme.

I mean Thailand has so far accumulated US$20bn of additional foreign currency reserves this year (to about US$131bn). Now given that GDP is about US$250bn the increase in foreign exchange reserves for the full year will be approximately 10% of GDP. It is sort of like 1997 in reverse. Intervention effectively by the BOT to prevent appreciation. The more debt the USA piles up the more the BOT will end up buying.

To put things in perspective Thailand had about US$35bn of forex reserves before the run on the baht in 1997. And the general rule of thumb is that you should have forex reserves of at least 3 months imports so around US$35bn.

And when Bretton Woods 2 finally collapses the losses for Thailand will probably be US$25bn or 10% of GDP.

[lannarebirth]

^ Probably still better than the bank:

http://www.southparkstudios.com/clips/222624

[midas]

. Intervention effectively by the BOT to prevent appreciation. The more debt the USA piles up the more the BOT will end up buying.

To put things in perspective Thailand had about US$35bn of forex reserves before the run on the baht in 1997. And the general rule of thumb is that you should have forex reserves of at least 3 months imports so around US$35bn.

And when Bretton Woods 2 finally collapses the losses for Thailand will probably be US$25bn or 10% of GDP.

But why wouldn't they start pulling back ( like many other countries are now starting to do ) and begin

diversifying into alternative forms of reserve ?

[Abrak]

. Intervention effectively by the BOT to prevent appreciation. The more debt the USA piles up the more the BOT will end up buying.

To put things in perspective Thailand had about US$35bn of forex reserves before the run on the baht in 1997. And the general rule of thumb is that you should have forex reserves of at least 3 months imports so around US$35bn.

And when Bretton Woods 2 finally collapses the losses for Thailand will probably be US$25bn or 10% of GDP.

But why wouldn't they start pulling back ( like many other countries are now starting to do ) and begin

diversifying into alternative forms of reserve ?

Actually Midas I dont know to what extent Thailand's forex reserves are US$, it used to be 80%.

But continued buying - it was called by Larry Summers the 'balance of financial terror'.

Total say UST issuances will rise from US$500bn to US$2trn. The Fed is going to take US$300bn. So who is buying the rest.

Well supposedly foreign purchasers have been increasing their buying. (I thought it would be bought by US domestic banks.)

http://www.chrismartenson.com/blog/insatia...se/28559?page=1

The idea is you are so long you have to keep buying. With sterling it was known as the 'sterling trap'.

But seriously I cant think why anyone is buying USTs at the moment.

[teletiger]

there are probably thousands of houses right now in the USA for under 50,000 dollars for sale due to foreclosures.

here's one of them:

Does it include the hairsuite (sic) daleks?

Regards.

[12DrinkMore]

Haven't posted for a while. Just keep seeing the same old stuff being regurgitated in one way or another.

But if you have a bit of time, then I think that this is well worth a read.

http://www.lrb.co.uk/v31/n10/lanc01_.html

There was a lot that I could repeat here, but the one sentence that has stuck in my mind is

instead of schools and medicines and roads and libraries, huge chunks of public money will go to RBS’s balance sheet.

That is really the killer, the opportunity cost of all the tax payer's money bailing out the dam_n banks, which don't create any real wealth. Instead of letting the bastards fail the governments were coerced into squandering incredible amounts of tax payers' current and future income into propping up a bunch of thieves and fraudsters. Who are, by all accounts, now laughing with "bumper bonuses all around".

This was and will be REAL money evaporating into the PSEUDO money that swills around the financial industry. Just think what could have been achieved if it had been spent in education, medicine, research, manufacturing?

So just one more quote

I get the strong impression, talking to people, that the penny hasn’t fully dropped. As the ultra-bleak condition of our finances becomes more and more apparent people are going to ask increasingly angry questions about how we got into this predicament. The drop in sterling, for instance, means that prices for all sorts of goods will go up just as oil and gas prices have spiked downwards. Combined with job losses – a million people are forecast to lose their jobs this year, taking unemployment back to Thatcherite levels – and tax rises, and inflation, and the increasing realisation that the cost of the financial crisis is going to be paid not over a few years but over a generation, we have a perfect formula for a deep and growing anger. Expectations have risen a lot, over the last three decades; that’s going to have a big impact on how furious people feel about the hard years ahead. The level of future public spending cuts implied in Darling’s recent budget – which included the laughably optimistic idea that the economy will grow by 1.25 per cent next year – is greater than the level of cuts implemented by Thatcher. Remember, that’s the optimistic version. If we’re lucky, it won’t be any worse than Thatcherism.

And then from Bloomberg

http://www.bloomberg.com/apps/news?pid=206...id=aoJTUKcx.E9A

GDP fell 0.4 percent from the previous three months, the Office for National Statistics said today in London. Economists predicted a 0.2 percent increase, according to the median of 33 forecasts in a Bloomberg News survey. None forecast a contraction. The economy has now shrunk over six quarters, the most since records began in 1955.

None forecast a contraction. The economy has now shrunk over six quarters, the most since records began in 1955.

Anybody care to believe the spin from Brown?

Edited October 23, 2009 by 12DrinkMore

[flying]

^ Probably still better than the bank:

http://www.southparkstudios.com/clips/222624

Thanks

[AlexLah]

Dear all,

I have been away for a while but still followed this Fred.

It seems that no one of you is learning history as I have mentioned so many times. And I do not talk about looking at a 10 or even 20 years time line.

It goes further back than that. To understand what is happening now, you need to know what where and when. Think of cause and effect. You need to understand what and who the shadow economy is, and the influence of the global organized crime and how much influence each one of them organizations have on a global scale, (including those corporations that say they do legitimate bizz). Globalisation is the word, but do you know what it really means?

I challenge you all to describe what you think globalisation is all about and how it is connected to the situation we are in now.

Alex.

Apologies for all the spelling and grammar errors, me not a native speaker

Edited October 23, 2009 by AlexLah

[Naam]

You need to understand what and who the shadow economy is, and the influence of the global organized crime and how much influence each one of them organizations have on a global scale...

Globalisation is the word, but do you know what it really means?

I challenge you all to describe what you think globalisation is all about and how it is connected to the situation we are in now.

i think it means that all of us should buy a Globus and mark with a felt pen the areas where organised crime exerts its influence. once we have completed that task we know what globalisation is all about.

[churchill]

Possible Credit Dislocation: Be Warned

http://market-ticker.denninger.net/archive...-Be-Warned.html

[midas]

Possible Credit Dislocation: Be Warned

http://market-ticker.denninger.net/archive...-Be-Warned.html

A Message from FDIC Chairman Sheila C. Bair

“ don’t worry, the economy is recovering” oh really Sheila ?

http://www.youtube.com/watch?v=7BxiEJcOoo0...player_embedded

[midas]

is this why Sheila Bair needed to " comfort " the people ?

Bank DIF Loss Assets Loss Ratio

PR-192-2009 First Dupage Bank $59.0 $279.0 21.15%

PR-191-2009 Riverview Community Bank $20.0 $108.0 18.52%

PR-190-2009 Bank of Elmwood $101.1 $327.4 30.88%

PR-189-2009 Flagship National Bank $59.0 $190.0 31.05%

PR-188-2009 Hillcrest Bank $45.0 $83.0 54.22%

PR-187-2009 American United Bank $44.0 $111.0 39.64%

PR-186-2009 Partners Bank $28.6 $65.5 43.66%

$356.7 $1,163.9 30.65%

[flying]

is this why Sheila Bair needed to " comfort " the people ?

Hmmm

I was surprised to see 7 shuttered today.

Thought they were slowing down till the bailers got bailed.

Also.....

Nouriel Roubini: Big Crash Coming

Edited October 24, 2009 by flying

[midas]

A Message from FDIC Chairman Sheila C. Bair

“ don’t worry, the economy is recovering” oh really Sheila ?

http://www.youtube.com/watch?v=7BxiEJcOoo0...player_embedded

Question for flying who seems to have a good insight into this topic.

Is Sheila C. Bair correct - i.e. that the S+L crisis was worse than the current one.

Yes there were far more failures then but I feel the damage

from this crisis is still much deeper and more far reaching than the S+L crisis- am i right ?

Finally even though the following is distinctly British humour.......it is very funny

http://www.ft.com/cms/4fe40d1a-07b4-11dd-a...mp;fromSearch=n

[flying]

Is Sheila C. Bair correct - i.e. that the S+L crisis was worse than the current one.

Yes there were far more failures then but I feel the damage

from this crisis is still much deeper and more far reaching than the S+L crisis- am i right ?

I did not know she said that & I'm surprised.

She always impressed me with having a firm grasp on the severity of the current situation.

But I do not see how in the world she can say that when the true depth of this one is yet to be found.

The S&L crisis was a storm in a tea cup compared to what we are seeing even so far IMHO

Look at what we know so far.....

Who was bailed & for how much...

although we know some of the banks it is obvious we dont know all & it is becoming apparent some are not even in the US.

What they did with that money......

While they get money for nothing or near so interest wise,,,,,

Credit as in Credit Cards while it still exists is getting downright insane.

With banks many of whom got the free ride now sending notices to folks who have been with them for over 15 years always on time payments etc.. Raise their interest rates to close to 30% also raise the minimum due.

Glad I carry no debt but feel for those folks as they were not intending to be defaulters yet those banks seem hel_l bent on pushing them into it.

Lending.... Tight if existent at all. Both commercial & residential levels.

Thank goodness for credit unions as they have been lending to some new home buyers recently & those have been able to get that 8k tax reduction for 1st time buyers.

But mainly I just dont see how Ms Bair or anyone for that matter can compare this to the S&L crisis given the fact we have yet to address the cause instead of just running to treat the symptoms

Edited October 24, 2009 by flying