America's Financial Mess

[Ordr]

President Sarkozy made a statement regarding the financial crisis.

Full story: http://www.brisbanetimes.com.au/news/world...2217466847.html

Shocker.

[adrock3215]

This is evil, and it will take us a long time to dig our way out of it. With the government via the Secretary of the Treasury having almost total control of the credit and mortgage industry, there will be massive distortions in the economy -- and, unfortunately, we will all pay for that.

It doesn't have to be that way. The entire wooden arrow industry sector rallied on Friday with the passage of the bill. The next bubble is in wooden arrows, get in now or you'll be sorry!

[softwareNerd]

Purely in terms of money, the bail-out got more press than it deserved. The issue was not money, but something more fundamental: the role of government. This might be a turning point (hopefully temporary) where the U.S. goes through a phase of relatively-increased class-warfare and (resulting) government control.

To understand the money involved, contrast this bail-out to the recent "stimulus checks". If I remember right, that was a government outflow of $150 billion. In contrast, the "bailout" is an outflow of $700 billion, of which much will flow back when the paper is sold. Even if we assume that the $700 will become $1 trillion; there's a good chance that a large chunk of that will be repaid by the mortgage holders. It all depends on the prices at which the government buys the paper, but it's pretty reasonable to assume that the net outflow will not be much more than $200 - $300 billion. (Even Paulson's assertion that there may be zero net outflows is not total hogwash.) Yet, there is such a ruckus about the bailout, while many people I know ("Main Street" folk) were glad to get the stimulus checks. Why? Because it is not the amount, it is about the perceived unfairness. This perception is creating an environment where voters are more disposed toward socking it to the rich. This structural change has more serious consequences than the bailout itself.

The "bailout" has been framed as "Wall Street versus Main Street". Bush, Paulson, Obama and McCain, all say this package is not for Wall Street, but really for Main Street. Detractors say they don't want Main Street bailing out Wall Street. The battle of the two streets is the battle of class-warfare.

However, our problems were not caused by the rich to be paid for by the middle class. Primarily, this is a government-caused problem: caused by messing with the economy, distorting the price-mechanism, and the risk-tolerance of market-players. Even secondarily, it is not the rich (Wall Street) who took advantage of this (or were led astray); nor was it the middle class (Main Street) who were left out of the craziness. No, that is faulty categorization.

The fallen: People who took advantage of, and were misled by, government actions came from both places: on the one hand they were people who were buying more home than they would have if the government had not engineered artificially low interest rates and artificially low risk-premiums. And, then there were investors who bought into the same "reality".

The responsible: Meanwhile, people who stayed away from the fray also came from both Wall Street and Main Street. Many banks kept their distance from the madness, and some investors started selling Fannie and Freddie stock when those two began delving into sub-prime paper. On Main street too, many people did not use their homes as piggy-banks; and even today one in three U.S. homeowners own their homes 100%, with zero mortgage debt. Even among those who can get loans (incomes over $150,000 a year), 20% do not carry mortgages.

The tab: It is also false to say that Main street picks up the tab. The rich pay taxes too!

In summary: The Main Street vs. Wall Street classification is misleading. It would be clearer to use a different distinction.

Bonus: Here's a transcript of an interview with John Stumpf, CEO of Wells Fargo, a bank that has not made the news because it is safe and sound. It's boring today, and was not sexy yesterday. These are the types of people that make America great.

Edited October 4, 2008 by softwareNerd

[Thomas M. Miovas Jr.]

It doesn't have to be that way. The entire wooden arrow industry sector rallied on Friday with the passage of the bill. The next bubble is in wooden arrows, get in now or you'll be sorry!

Sure...of course, our entrepreneur spirit is still as strong as ever and will lead us out of this, according to a news story; alas, the contradiction is there as well, so who knows? maybe you can make a fortune making wooden arrows for kids to play with.

"Bush acknowledged that Americans are anxious about their personal finances and said the new package would help. "I'm confident by getting our markets moving, we will help unleash the key to our continued economic success: the entrepreneurial spirit of the American people," he said."

"Rep. Barney Frank, D-Mass., the Financial Services Committee chairman and a key negotiator over the past weeks, said the measure was just the beginning of a much larger task Congress will tackle next year: overhauling housing policy and financial regulation in a legislative effort comparable to the New Deal."

bold added

Doesn't one contradict the other? and how can that spirit of success rally when there will be more regulations?

[KendallJ]

Bonus: Here's a transcript of an interview with John Stumpf, CEO of Wells Fargo, a bank that has not made the news because it is safe and sound. It's boring today, and was not sexy yesterday. These are the types of people that make America great.

link?

[softwareNerd]

link?

Oops!

[Thomas M. Miovas Jr.]

This news story is predicting at least a few more years before we hit bottom:

"History tells us not to expect miracles overnight. After the last big U.S. bailout -- the formation of the Resolution Trust Corp. in 1989 to stop the U.S. savings and loan crisis -- it took a year for the stock market to hit bottom, two years for the economy and three years for the housing market, according to Merrill Lynch.

"And when Japan put a bailout plan in place in the late 1990s, its stock market took another five years to recuperate. By some measures, its economy still hasn't had a sustainable recovery, according to Merrill's chief North American economist, David Rosenberg."

And certainly, in my opinion, with more regulations, it won't recover any time soon. So, maybe ten years of little to no growth in the economy, if we are lucky enough that jobs and businesses don't go belly up. In the small business I work for, the Feds et al did such a good job of scare mongering that business has been rather bad. Don't know how long that can keep up and I can keep my job. In some respects, this might be a self-fulfilled prophecy type of thing -- the sky is falling, the sky is falling, and everyone runs inside to take cover.

[IchorFigure]

Yet, there is such a ruckus about the bailout, while many people I know ("Main Street" folk) were glad to get the stimulus checks. Why? Because it is not the amount, it is about the perceived unfairness. This perception is creating an environment where voters are more disposed toward socking it to the rich. This structural change has more serious consequences than the bailout itself.

I have noticed this too. One other thing that somewhat follows from that is I keep getting ideas for more idiotic laws politicians could pass. For example, everywhere you look you'll see sob stories of people who lost "everything" because their 401k lost value, or their stocks in the company they work for etc. and so they can't retire and are now a slave to labor until old age. If people continue to think that retirement is a "right" like health care, I can see a day where the government regulates companies so it is illegal to lose stock value to the point that your employees are put at harms risk, or some such garbage.

[Seeker]

I have noticed this too. One other thing that somewhat follows from that is I keep getting ideas for more idiotic laws politicians could pass. For example, everywhere you look you'll see sob stories of people who lost "everything" because their 401k lost value, or their stocks in the company they work for etc. and so they can't retire and are now a slave to labor until old age. If people continue to think that retirement is a "right" like health care, I can see a day where the government regulates companies so it is illegal to lose stock value to the point that your employees are put at harms risk, or some such garbage.

On the radio I heard UK's Gordon Brown say something like, "what we need is a new way" and the liberal commentator jumped in and said, "that sounds like 'New Deal'!" Which is exactly where we're headed. Of course 401(k)'s are going to lose value. The reality of demographics cannot be denied or evaded; America is set to retire with the baby boomers; common sense tells you that this means a massive reduction of productive activity at the same time 401(k)'s will suffer withdrawals in excess of additions. In other words, those suckers are headed south, and the latter years of the baby boom generation are set to be wiped out. The whole thing was a massive ponzi scheme to begin with, that is going to go bust. Demographics will meet democracy at the ballot box and a socialist wave will ensue. If you think what we're seeing now is bad, this is just a gentle breeze compared to the collectivist tsunami that is to come. There is no reason to think that anyone is going to mount a principled defense of capitalism at such a time. The interpersonal skills, in charismatic appeal and philosophic competence, necessary to pull that off are so great that it would take a political superman and I see none on the horizon capable of leading the charge. For capitalists, there are very dark days ahead.

[~Sophia~]

Bonus: Here's a transcript of an interview with John Stumpf, CEO of Wells Fargo, a bank that has not made the news because it is safe and sound. It's boring today, and was not sexy yesterday. These are the types of people that make America great.

It was a pleasure to read this interview. Thank you for posting.

[Thomas M. Miovas Jr.]

Well now, a global wave of pessimism hit the markets Monday morning after the "rescue bill" was signed into law last week. I hope they realize that this "rescue bill" is a type of enslavement and that it will be a while before the markets recover -- and probably a good long while before the Dow gets back up to 14,000; and it may get below 8,000 according to some analysts. More major banks are predicted to fail both at home and abroad; with European "rescue bills" and bail-outs in the works.

Since free trade markets are moral according to the trader principle, all of these regulations and more to come are the initiation of force into the market place. OJ Simpson was just convicted of doing just that, when he supposedly just went into a shop to recover his property, but that is not big news this time around with the markets tanking. I guess one could say that capitalism is making a come back when the regulators are convicted of pointing a gun at market participants -- but no one is even accusing them of that these days, aside from Objectivists.

[gags]

The Dow is down 500 points this morning, now having sunk below 10,000. Apparently this wasn't what the markets needed.

[EC]

Yea, apparently the only thing that can happen when the government interferes with the economy to the degree that it has over the last few days is happening. Things are getting worse just like I expected.

[gags]

It won't be long before the government announces massive public works programs designed to spur economic activity. You can bet that road and bridge projects (done at union wages, of course), refurbished airports, green energy facilities, etc.. are all in the pipeline. Sound vaguely familiar? The agencies and the programs are coming, TVA, WPA, NRA......

[Ordr]

I wonder what they'll call the Gift Certificate program.

[K-Mac]

There is a rumor circulating (that I sure hope is true) that some are planning to not participate in the bail out. Banks are willing to ride this out rather than agree to low CEO pay, etc.

Although, I'm not too worried since the Pope has the answer to all of our problems...

Pope Benedict XVI today said that the global credit crisis shows that the world's financial systems are "built on sand" and that only the works of God have "solid reality".

From http://www.timesonline.co.uk/tol/comment/f...icle4893190.ece Edited October 6, 2008 by K-Mac

[IchorFigure]

One of the heads of Lehman Brothers is getting roasted right now for his excessive profits by the house committee right now on CNN. If you look hard enough you can see the drool seeping out of the lower crack of the dems mouth. They aren't trying to decide if illegal activity took place at all. All they are focusing on is if his pay is "fair".

[Ordr]

One of the heads of Lehman Brothers is getting roasted right now for his excessive profits by the house committee right now on CNN. If you look hard enough you can see the drool seeping out of the lower crack of the dems mouth. They aren't trying to decide if illegal activity took place at all. All they are focusing on is if his pay is "fair".

It reminds me of when one of the nihilists in The Big Lebowski pouted "but it's not faaair."

[IchorFigure]

Wow, apparently Mr. Fuld wasn't playing along quite like they were hoping. One of the men on the committee just came right out and said to him "if you haven't discovered your role yet, you're the villain today, you gotta act like it". This is infuriating.

[brian0918]

Yea, apparently the only thing that can happen when the government interferes with the economy to the degree that it has over the last few days is happening. Things are getting worse just like I expected.

Haven't you read the news? It's not that government intervention is causing stocks to drop, it's that the government is not able to intervene fast enough that's causing this continued slump!

Edited October 6, 2008 by brian0918

[brian0918]

One of the men on the committee just came right out and said to him "if you haven't discovered your role yet, you're the villain today, you gotta act like it".

Wow, this sounds like it's straight out of Atlas Shrugged.

[KendallJ]

Wow, this sounds like it's straight out of Atlas Shrugged.

Nah, Rand could never had made AS look like reality. She'd get branded for being unrealistic!

Remember quotes like that senators when anyone tells you that AS doesnt' reflect reality.

[adrock3215]

Things are getting worse just like I expected.

Then you should be cashing in big time. Remember that fortunes are being made and lost right now. I want to remind people not to sit around like an "ivory tower" philosopher, but to profit from this insanity through the application of sound philosophical principles.

[Thomas M. Miovas Jr.]

Although, I'm not too worried since the Pope has the answer to all of our problems...

From http://www.timesonline.co.uk/tol/comment/f...icle4893190.ece

Al Qeuda has the answer as well. In a recent news story they said it was because America is corrupt for permitting money lending with interest, and Allah is punishing us, and the Evil American Empire will collapse shortly.

I guess having a day of prayer will help but they aren't the only ones vilifying the banker. Dumping on the victim is so in vogue today. I know,I know...some banks made it through OK, but even they won't come out for unrestrained capitalism in today's political and cultural atmosphere.

I heard on the radio that the Dow was down at least 800 points, but I think by the end of the day it was only down 675 points, so I guess their prayers were answered.

[Clawg]

Maybe the pope meant Silicium when he refered to sand.