Financial Crisis

[12DrinkMore]

Getting a bit carried away with your jobless number there - the 10% level I believe is about 15,000,000.

Well the answer is that the US has a structural unemployment problem which isnt going to go away.

The good news I suspect is that the unemployed unskilled are probably not exerting much pressure on the skilled workforce in terms of wages. When I last looked there was still quite a lot of slack in the employed workforce, in that there was still room for man hours worked to increase.

Aah, misshit the keyboard.

The jobless, part timers after full time work and discouraged drop outs total about 17%. So around 25,000,000 peeps.

Bernanke reckons he just ain't finished yet.

http://www.bloomberg.com/news/2010-09-24/bernanke-says-economy-recovering-more-slowly-than-policy-makers-would-like.html

By buying mortgage-backed securities and Treasuries we did, I think, additionally stimulate the economy,”

Well, as long as he thinks, then we will be saved, in some way, shape or form.

[AlexLah]

Meh!

For those that are interested, here's a bigger picture.

http://ampedstatus.com/the-road-to-world-war-iii-the-global-banking-cartel-has-one-card-left-to-play#imf

And this is just part one.......

[badge]

Heres something Im sure the regulars will find [Classified].

[Abrak]

So if we look at the financial crisis there are a couple of facts I think we all accept.

1) Prior to the crisis the US was on a crazy consumption binge largely leveraged off an unsustainable property bubble. It was bound to end in tears and an economic crisis and could only have been avoided if the binge had been prevented,

2) The whole process was exacerbated by crony banking rubbish that was called financial innovation. In my view there is far too much blame placed on the Fed for keeping rates too low too long. Mortgages are 30 year loans from the bank and in any case what did the bankers do but lower rates even further with low initial interest rates to attract borrowers.

To some extent the financial crisis sharp recession that followed may well be looked back upon as a sharp shock that was needed to end the Wests asset bubble fueled boom economy. After two years things have sort of stabilized. Corporate profits have recovered for those that survived, jobs have been cut, the private sector is deleveraging very quickly, even faster than the Government is leveraging (this is more a wealth transfer as at least 50% of taxes are paid by people who dont have borrowings.)

There is no point in talking about growth because the economy wasnt really growing before. There is no point in complaining about the large pool of unemployed because the structural unemployment issue was there before. The bottom rungs of the workforce were bound eventually to be displaced by a Chinese economy that was pegged to your currency. They will just have to learn how to valet park. The employment situation does seem to have stabilized. Corporates - the likes of Warren Buffet - are pretty optimistic, the consumer is depressed, defeated and bored unless he holds gold in which case he is feeling pretty smug.

Something called QE went on. As far as I can ascertain noone apparently really knows what it does and what its long term affects will be. It seemed to work quite well and at the end of the day noone can work out whether there is too little or too much inflation. One thing we do know for sure is that it is a gross distortion of monetary policy. We know that because on the one hand the Government is borrowing long at say 3% and on the other hand the Fed is supplying short at 0% to very willing sellers of other long assets. How this crisis ended up with the banks being allowed to borrow at virtually 0% is beyond me.

And as far as I am concerned this is what is at the core of what has gone wrong in this crisis. Because nowadays it is common to see 'its time to stop bashing bankers', 'banks are making profits and profits reap bonuses', 'if you tax them they will leave', 'if you regulate them borrowing costs will rise'. What is so annoying is that the first point is absolutely right it is two years after the crisis 'so it is well past the time to be bashing bankers and it is very boring'. BUT during that two years absolutely NOTHING has been done to regulate and discipline their actions. And when they talk about profits - the UK banks are going to make US$28billion this year - what exactly have they done?

Banking is a pure and simple scam at present. Banks can leverage their equity at least 10x against government guaranteed financing of close to zero (including deposits). To claim you have made decent profits or a decent ROE on that basis is a total sham.

[Abrak]

I do have a suggested policy solution. I believe that deposit rates should be fixed at zero % for now and into the future and no longer guaranteed by the government. This sounds counter-intuitive but it is not. First of all, all evidence points to the fact that you should be penalised rather than rewarded for financing bankers. Secondly with no return and no guarantee money will only be placed in well capitalised and conservative banks - very well capitalised or very conservative. While you are penalised on your deposit it is better than the taxpayer being penalized.

Secondly it will force you to allocate capital efficiently. If you want zero risk buy a UST or a AAA bond fund. Finance would match risk with returns. Bubbles would self correct. We will all have cash in the bank but that will be for our cash needs. If you argue that investors are not sophisticated enough you are implying they are either lazy or stupid. The reality is that 90% of people are too lazy and they shouldnt be because they are not going to get a pension and they will be ripped off in deposits. It is a total waste to spend 40 hours a week working to save GBP200 a week for your retirement because you are too lazy to spend an hour allocating the capital.

And you cant base an efficient private capitalist banking system on short term leveraged zero risk financing run by cowboys with zero risk minimum returns and infinite returns on risk. There is a maturity mismatch, a risk mismatch, moral hazard, systemic risk, inefficient allocation of capital and a private plane. Lending would definitely be more conservative but systemic risk would be avoided.

Alternatively be done with it and nationalize the banks.

[flying]

So if we look at the financial crisis there are a couple of facts I think we all accept.

---snipped to save space--------

That is a very good/understandable summary Abrak..

I do have a slight problem with the focus up front on the US.

While I am well known as no cheerleader of the US & its many policies I am always a bit surprised when folks point to it as a main cause. Mainly because I see no way that all the others now suffering could have been instantly infected other than they themselves partaking of similar tainted policies.

That aside the somewhat stabilized part I am also reluctant to say I agree with. While it does appear so, even you said, none really know or understand QE or its long term effect. That being the case I am not sure we can claim stabilization based on it.

After all I think most would claim that without them throwing all that paper at the banks that the crisis would not have the illusion of being stabilized.

I do agree 100% with all the bad things you pointed out about banks & if anyone looks back in this thread they would see I said many times let them fail. The reason being at least if & when we did recover from it we would at least have a stabilization based on fact & not more fiction as we do now.

I do not think we are anywhere near the edge of the woods yet.

Lastly being one who did move to gold (&silver) I do not feel smug at all. Lucky/fortunate for now but it in no way replaces a feeling of well being that would have been based on a solid economy/financial policy/currency/banking practices etc.

It is almost tempting to just throw my hands up & say ok they want us to consume like we use to.....go in debt like we use to..All just to keep this illusion/emperors clothes in tact...

Fine lets go....how hard can it be? We can consume, go in debt etc.. If that is all it takes we are up for it.

But I have kids and someday probably grand kids too. I feel this mess is ours to clean up & hopefully we will find a way. If that means obliteration of the current system so be it.

Edited September 28, 2010 by flying

[flying]

I do have a suggested policy solution. I believe that deposit rates should be fixed at zero %

you should be penalized rather than rewarded for financing bankers.

Secondly it will force you to allocate capital efficiently. If you want zero risk buy a UST or a AAA bond fund.

Sounds good except the UST would just fill the shoes of the criminal banking practices.

Actually we all pretty much assume they do now with their straw men buying their own paper.

We can actually fix it ourselves by simply walking away from them altogether.

Stop feeding the beast

I did

[teletiger]

Alternatively be done with it and nationalize the banks.

I presume you're including the fed in there? Great idea.

Here's an ex fed supporter who's seen the light. (surprisingly)

Ambrose Evans Pritchard of the Telegraph.

"My pathetic assumption was that Ben Bernanke would deploy further QE only to stave off DEFLATION, not to create INFLATION"

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100007777/shut-down-the-fed-part-ii/

'And here's another central banker with more advice:

"Savers told to stop moaning and start spending"

http://www.telegraph.co.uk/finance/personalfinance/savings/8028884/Savers-told-to-stop-moaning-and-start-spending.html

This "private banker" is invoking nationalism here. "For the country". "We need you".

Hahaha. Now let me get this straight. We, who have worked hard, brought up families, lived frugally, saved responsibly, should now put our Autumn years in jeopardy, to help clean up the mess of a group of private bankers.

Hang on, this will take some thinking about.

I'll see your feet twitching first.

Regards.

[Abrak]

Alternatively be done with it and nationalize the banks.

I presume you're including the fed in there? Great idea.

Here's an ex fed supporter who's seen the light. (surprisingly)

Ambrose Evans Pritchard of the Telegraph.

"My pathetic assumption was that Ben Bernanke would deploy further QE only to stave off DEFLATION, not to create INFLATION"

I agree with that Telegraph quote. I think it did stave off deflation but there is pressure on Bernanke to create growth. Do you notice how QE is so tied to 'growth' nowadays. 'If growth weakens we may re-embark on QE?'. QE cannot create growth, only the illusion through asset prices.

As I see it, there is not much in the way of a growth dynamic, so you cannot create one. Bernanke knows that - he wrote the book on it - he actually got it right in my view. The only relation to growth is that levels of deflation and inflation do create growth or destroy it.

If I nationalized the banks it would definitely include the Fed and I would model it in a broadly similar manner to China but more passive. The underlying fault with the Chinese model is that they have many nationalized companies in sectors that should be privately owned which creates its own moral hazard. I actually quite like the concept of a nationalized banking sector within a totally private capital based economy. It sounds very socialist. But if you consider that it is solely an intermediary between depositor and lender it should have a very limited role in the economy.

An intermediary creates very little value and usually makes money by absorbing value creation of one or both of the two parties. Banking systems in general are extremely efficient at destroying value. If you consider that Johnson and Johnson issued a ten year bond at 2.95% and the purchaser receives 2.95% per annum over 10 years, it is hardly rocket science. You can justify nationalising the business because it isnt much of a business at all. A product like an MBS is inherently value destructive as it divorces the borrower and the lender. If you split a mortgage in 3 you destroy value, create expense, add risk and charge fees.

Anyways as the Government guarantees 90% of the funding basis they are pretty bloody irresponsible if they dont own the thing.

[Abrak]

That is a very good/understandable summary Abrak..

I do have a slight problem with the focus up front on the US.

While I am well known as no cheerleader of the US & its many policies I am always a bit surprised when folks point to it as a main cause. Mainly because I see no way that all the others now suffering could have been instantly infected other than they themselves partaking of similar tainted policies.

I do agree 100% with all the bad things you pointed out about banks & if anyone looks back in this thread they would see I said many times let them fail. The reason being at least if & when we did recover from it we would at least have a stabilization based on fact & not more fiction as we do now.

Flying,

I usually talk about the US because nobody is interested in Thailand but, more seriously, what happened in the US was 'systemic' risk - one thing led to another. And you should understand the power of both the US and globalisation. So like a flap of a butterflies wings.... just like 'Lehmans' started the crisis in the US, the US started it elsewhere. It actually could have started in the UK and created it in the US.

I believe the biggest mistake made with the banks in general (the US made a lot in my view) was that they didnt take some of the money and create a new Government Bank. Take US$100bn of the US$700bn of TARP money and create a US$1trn potential asset new bank. Certainly in the UK and I imagine in the US, there maybe businesses that should get lending that cannot despite banks having zero cost funding. I think it would be useful to have a clean bank to lend so that borrowers are not disadvantaged. It could have been floated by now and I suspect the Government would make a lot of money. This is not my idea btw - it was Stiglitz's comments I read.

[flying]

I believe the biggest mistake made with the banks in general (the US made a lot in my view) was that they didnt take some of the money and create a new Government Bank. Take US$100bn of the US$700bn of TARP money and create a US$1trn potential asset new bank. Certainly in the UK and I imagine in the US, there maybe businesses that should get lending that cannot despite banks having zero cost funding. I think it would be useful to have a clean bank to lend so that borrowers are not disadvantaged. It could have been floated by now and I suspect the Government would make a lot of money. This is not my idea btw - it was Stiglitz's comments I read.

That would have been a step in the right/fair/better direction...

Edited September 28, 2010 by flying

[Lancelot]

In a recent study conducted by US National Intelligence Council, India has been named as the third most powerful country in the world. With 8% of global power in its hands, India stands 3rd after United States (22% of power) and China (12% of power). If the European Union is included as a block, then it would account for 16% of global power, making India the fourth most powerful nation in the world. The model used by the agency took into account GDP, defense spending, population and technology for each country to come up with its rankings.

like i said the world does not revolve around USA

and we can see the changes happening

chip chip chip

Had you read my post carefully, you would note that I said that The USA and the European Union make up around 65 to 70% of world GDP.

That chunk of the world does import goods and exporting nations do need those markets to maintain growth, since their domestic consumption is either too weak or suppressed (to provide the required economic growth.)

Of course the world is changing and asia is growing richer, thats good for all. But its relative and the west still has a huge chunk of coin.

With respect to military power, I am currious to hear what the folks that complain about a strong America say about a weak one? You might ask Japan how she views the truculence of her number onbe trading partner-China

[Englander]

With respect to military power, I am currious to hear what the folks that complain about a strong America say about a weak one?

America can spend what it likes on its military, just its a fact they cant afford to.

I find it strange that the US criticises European nations for spending less in relation to GDP, as its non of your governments or peoples business.

I believe that the Tea Party has common sense and possibly affordable ideas about the role of the US military ... ie slash spending and keep out of other peoples business.

[Lancelot]

I find it strange that the US criticises European nations for spending less in relation to GDP, as its non of your governments or peoples business.

I view it differently. If the US and European nations agree to defend each other if attacked (NATO), then the US would have a legitimate point is requesting that the Europeans increase their defense spending relative to GDP. If the US has no treaty obligations to Europe, then I would agree with your opinion-its none of our (US) concern... or responsibility if a european nation is attacked

[Englander]

I find it strange that the US criticises European nations for spending less in relation to GDP, as its non of your governments or peoples business.

I view it differently. If the US and European nations agree to defend each other if attacked (NATO), then the US would have a legitimate point is requesting that the Europeans increase their defense spending relative to GDP. If the US has no treaty obligations to Europe, then I would agree with your opinion-its none of our (US) concern... or responsibility if a european nation is attacked

That may be the case but why does Americas clearly unaffordable military budget have to be the one adhered to?

Send your troops home from Europe we (Britain) and they Western Europeans can take care of ourselves that'll save you a few bucks, you have bases in England <deleted> we've not lost a war on home soil for almost 1000 years .... besides there is no marching army on its way to Europe just terrorist cells, as we've seen in London and New York armies arent much use to fight such ideology.

The point i make is not meant to confuse or even attempts to be mildly clever, im just simply stating the fact that America cant afford it, and neither can Britain.

[Naam]

With respect to military power, I am currious to hear what the folks that complain about a strong America say about a weak one?

America can spend what it likes on its military, just its a fact they cant afford to.

I find it strange that the US criticises European nations for spending less in relation to GDP, as its non of your governments or peoples business.

I believe that the Tea Party has common sense and possibly affordable ideas about the role of the US military ... ie slash spending and keep out of other peoples business.

it is the GOD given right of the Greatest Nation on Earth™ to criticise us Yewropians because we don't spend enough on defense! the potential threats to Yewrope are numerous. headhunters from Papua New Guinea are threatening to invade the Côte d'Azur to establish a strategic bridgehead in Monte Carlo, the seventh army corps of Moldavia has an eye on Poland, a fleet of Vikings from the Aleutes is on it's way through the north-west passage to occupy Norway, Sweden and Finland (only the presence of icebergs north of Greenland is delaying their landfall), a tank brigade of mongolian al-Qaeda terrorists is approaching the Black Sea and on its way through Bulgaria, Romania, Hungary and Austria to Germany's heartland Bavaria, the Irish and Scots are now allies and plan to subdue England and Wales.

who, pray tell, will protect Yewrope if not the brave soldiers of the GNoE™?

[Lancelot]

With respect to military power, I am currious to hear what the folks that complain about a strong America say about a weak one?

America can spend what it likes on its military, just its a fact they cant afford to.

I find it strange that the US criticises European nations for spending less in relation to GDP, as its non of your governments or peoples business.

I believe that the Tea Party has common sense and possibly affordable ideas about the role of the US military ... ie slash spending and keep out of other peoples business.

it is the GOD given right of the Greatest Nation on Earth™ to criticise us Yewropians because we don't spend enough on defense! the potential threats to Yewrope are numerous. headhunters from Papua New Guinea are threatening to invade the Côte d'Azur to establish a strategic bridgehead in Monte Carlo, the seventh army corps of Moldavia has an eye on Poland, a fleet of Vikings from the Aleutes is on it's way through the north-west passage to occupy Norway, Sweden and Finland (only the presence of icebergs north of Greenland is delaying their landfall), a tank brigade of mongolian al-Qaeda terrorists is approaching the Black Sea and on its way through Bulgaria, Romania, Hungary and Austria to Germany's heartland Bavaria, the Irish and Scots are now allies and plan to subdue England and Wales.

who, pray tell, will protect Yewrope if not the brave soldiers of the GNoE™?

Naam, good to know that at least one person is taking the Papau New Guinea head hunter threat seriously. Make no mistake, they are a clear and present danger. I'm watching the attack on Fox News now

[Naam]

Naam, good to know that at least one person is taking the Papau New Guinea head hunter threat seriously. Make no mistake, they are a clear and present danger. I'm watching the attack on Fox News now

who is in charge of reporting on FAUX News ? Bill O'Reilly or Sean Hannity?

[Lancelot]

Naam, good to know that at least one person is taking the Papau New Guinea head hunter threat seriously. Make no mistake, they are a clear and present danger. I'm watching the attack on Fox News now

who is in charge of reporting on FAUX News ? Bill O'Reilly or Sean Hannity?

O'Reilly and Hannity are onsite now, Hannity has the microphone and O'Reilly, out of ammo, is taking the savages on in hand to hand combat. They've alreay declared that they will fight to the last private, then high tail it back home.

Naam, I'm off, need to dump my military/industrialist stocks ASAP before they go to $0. Its the dark ages all over again...

[Naam]

i wonder how much the headhunters ask for the shrunk head of O'Reilly if financially affordable i'd know a nice place in my study

[Lancelot]

i wonder how much the headhunters ask for the shrunk head of O'Reilly

You meant t say "Pin Head" right?

[BlackJack]

In a recent study conducted by US National Intelligence Council, India has been named as the third most powerful country in the world. With 8% of global power in its hands, India stands 3rd after United States (22% of power) and China (12% of power). If the European Union is included as a block, then it would account for 16% of global power, making India the fourth most powerful nation in the world. The model used by the agency took into account GDP, defense spending, population and technology for each country to come up with its rankings.

like i said the world does not revolve around USA

and we can see the changes happening

chip chip chip

Had you read my post carefully, you would note that I said that The USA and the European Union make up around 65 to 70% of world GDP.

That chunk of the world does import goods and exporting nations do need those markets to maintain growth, since their domestic consumption is either too weak or suppressed (to provide the required economic growth.)

Of course the world is changing and asia is growing richer, thats good for all. But its relative and the west still has a huge chunk of coin.

With respect to military power, I am currious to hear what the folks that complain about a strong America say about a weak one? You might ask Japan how she views the truculence of her number onbe trading partner-China

i think the key word is changing

[lannarebirth]

I do have a suggested policy solution. I believe that deposit rates should be fixed at zero % for now and into the future and no longer guaranteed by the government. This sounds counter-intuitive but it is not. First of all, all evidence points to the fact that you should be penalised rather than rewarded for financing bankers. Secondly with no return and no guarantee money will only be placed in well capitalised and conservative banks - very well capitalised or very conservative. While you are penalised on your deposit it is better than the taxpayer being penalized.

Secondly it will force you to allocate capital efficiently. If you want zero risk buy a UST or a AAA bond fund. Finance would match risk with returns. Bubbles would self correct. We will all have cash in the bank but that will be for our cash needs. If you argue that investors are not sophisticated enough you are implying they are either lazy or stupid. The reality is that 90% of people are too lazy and they shouldnt be because they are not going to get a pension and they will be ripped off in deposits. It is a total waste to spend 40 hours a week working to save GBP200 a week for your retirement because you are too lazy to spend an hour allocating the capital.

And you cant base an efficient private capitalist banking system on short term leveraged zero risk financing run by cowboys with zero risk minimum returns and infinite returns on risk. There is a maturity mismatch, a risk mismatch, moral hazard, systemic risk, inefficient allocation of capital and a private plane. Lending would definitely be more conservative but systemic risk would be avoided.

Alternatively be done with it and nationalize the banks.

I'm heading to the US in a couple of hours to check on some bridge lending (hard money lending) projects I started this last year. The phone rang little at first but lots more now. Secured by RE at < 30% LtV. I couldn't think of much more to do with $USD's. I'd done it in the past but Greenspan started giving money to everyone for free so it dried up. Seems to be warming up again now.

[cloudhopper]

I couldn't think of much more to do with $USD's.

Spending them ? That was always the end game for me anyway.

I did the hard money thing in the 90s and I always thought it was easy money but I was lucky and I suspect it got that name for a reason. Be interesting to hear what it's like now. Well choke dee you deserve the reward for taking the risk.

edit-format

Edited September 29, 2010 by cloudhopper

[AlexLah]

Meanwhile at a Democratic National Committee (DNC) rally at the University of Wisconsin in Madison.......

Obama and Vice President Biden telling Democrats to “quit whining” and vote, the president pleaded for patience and loyalty from the crowd, telling them that “change is gonna come.”

“We are bringing about change, and progress is gonna come but you gotta stick with me,” Obama said. “You can't lose heart. Change is gonna come.”

http://thehill.com/homenews/campaign/121505-obama-asks-college-students-to-prevent-dem-blood-letting

[teletiger]

Alternatively be done with it and nationalize the banks.

From our mouths to Gods ears Abrak.

"Ireland Said to Weigh Taking Majority Stake in Allied Irish"

http://www.bloomberg.com/news/2010-09-29/ireland-said-to-hold-talks-to-take-a-majority-stake-in-allied-irish-banks.html

Regards.

[BlackJack]

As expected street marches starting around the world to protest about the people paying for the banks recklessness.

PLUS

from the 5 min report

Restrictions on China's gold imports have eased. And this means that the dragon nation is set to hog the limelight in the gold market. Earlier, the Chinese government was wary of importing gold for fear that it would lead to a drain of US dollars. Obviously, given the poor state of the global economy, the Chinese government seems more interested in gold, a tangible asset of value as compared to the US currency. It wants to hedge its position in the event that the value of the dollar considerably falls. And so, Chinese gold demand is expected to show at least single digit percent growth this year. This is despite high prices curbing buying in other major physical markets like India. Moreover, jewelry buyers in China are also upbeat about the growth that the Chinese economy is displaying. This has led to jewelry demand seeing an increase of 5-10% every year. What is more, the status of gold as a wealth preserver cannot be undermined. And China wants to make sure that it has enough of it at a time when it has been increasingly discontent with the US dollar.

[churchill]

Cyber Warfare

A “cyber superweapon” - Could Stuxnet be out of control ?

Computer virus could paralyse HK

An expert has warned that a highly sophisticated computer virus could bring Hong Kong to a standstill if it reaches the territory. Stuxnet, described as the world's "first cyber super-weapon", is reported to have attacked nearly 1,000 facilities on the mainland over the past few days.

It targets control systems created by the German company, Siemens, which are used in Hong Kong's railway system and power plants. Roy Ko from the Hong Kong Computer Emergency Response Team Coordination Centre, said that an attack could have a profound impact

http://www.rthk.org.hk/rthk/news/englishnews/20100930/news_20100930_56_701874.htm

Infecting Iran’s Nuke Program

http://frontpagemag.com/2010/09/30/infecting-iran%E2%80%99s-nuke-program/

[churchill]

An anonymous tip-off regarding Spanish GDP

http://ftalphaville.ft.com/blog/2010/09/30/356201/an-anonymous-tip-off-regarding-spanish-gdp/

[Lancelot]

Send your troops home from Europe we (Britain) and they Western Europeans can take care of ourselves that'll save you a few bucks, you have bases in England &lt;deleted&gt;

We do agree about this. If it were up to me, I'd close US bases in the UK & Europe in a heart beat