honestly I think his undermining of the TARP was borderline criminal.

what if the economy breaking itself means you end up homeless and without any job or any life-savings living in a cardboard box under an interstate?

fixed that for you (deleted borderline)

guy is fucking scum

Yeah I know it didn't happen, but that was what we were told the money was going to be used for.

Yep. and then it wasn't because Paulson is a criminal scumbag who decided it would be better used to give his banking-buddies untraceable handouts. and they brow-beat politicians on both sides of the aisle into going along with their plan, even as all of the ordinary people in the country were like "hey wait a second we can see where this leads."

If somebody were to actually follow through on that plan, it should start making a difference.

Bear in mind that I believe the TARP worked up until that very day.

Once again, you fail to grasp the situation in any meaningful manner. I've been highly critical of Bush and his cabinet regarding the handling of this problem in the last 6 months he was in office. When I did that, you told me I was speaking the truth. But when I similarly call out the buffoons on the other side, I'm suddenly partisan. Sorry, that's not how it works. I choose to not lump people together based on party, but rather how poorly they perform their job. All of the people I mentioned haven't shown a lick of leadership in the events surrounding this mess. I'm not going to put Obama in that group just yet.

Any thoughts on this idea from the WSJ?

This is strange. AFSCME is running commercials against foes of the stimulus including Eric Cantor. Cantor's office was asked for a reaction and they sent out this profanity laced video. WTF?

I disagree entirely, for one, I believe the initial TARP worked (until Paulson harpooned it). You are targeting the Democratic led congress and in some cases even forget that it was a GOP led congress for a long long time in your previous posts. Your argument above has no clothes.

whoops.

It's not whoops, though. When asked about it they said to take it as their response. Cantor's office meant this to be their comment. When this is the level of public dialogue of House Republican leadership I don't see any possibility of working together.

This is what I mentioned up higher in my response to Flash's (I think it was) longer post as one of the potential things to be done once you strip the assets out.

Essentially what this would be is a TRC, which is what Flasch was talking about up above. I'm not quite sure how I feel about the issuing the stocks out to the public idea...it's certainly got that populist feel, but I haven't thought enough about whether it'd be good or bad.

I'd almost rather the government take preferred stocks or convertible bonds of these banks and give the money gained back to the government as an entity with an ironclad law stating that they will use the proceeds to pay down some of the massive deficit we are in

It'll end up being explained as a whoops I'd think.

What the heck was that video? Then again Cantor's a tool. Unfortunately, I live in his district now

SI

I saw that video at least a year ago, I don't think it's a Cantor original.

I usually lurk around here but I’d thought I’d throw in my $0.02. I do have an MBA if that matters.

Let’s look at the first tarp fund.

Government allocates $700 billion to buy up bad assets which are estimated in the 2.0-3.9 trillion range. They say they will buy the assets for pennies on the dollar. Ok I can buy that… just one issue; mark to market accounting. Once the government buys up bad assets, the market price is set and all banks need to mark down their “bad assets” based on the market price. This places some banks in a position of liabilities greater than assets and ,by definition, insolvent. Now the government suspends mark to market accounting to keep banks from declaring bankruptcy. So now the treasury changes the strategies and starts buying other assets; I will not going into that but there are issues there too. The point is that they spent taxpayer’s dollars on a plan that had some bad unintended consequences.

Put aside the fact that the government just effectively wrote a check stockholders and any entity that holds unsecured debt; the whole moral hazard argument. The government basically proved that they didn’t understand the issue and congress will vote on any bill that is supposed to help because they are being warned of an impending financial Armageddon. The intent is there but the competence to analyze the plan is not. Fast forward to news of tarp the sequel and you can see why Wall Street in reacting negatively. The government has proven that they are incompetent when it comes to solving the problems because they don’t understand the issue.

In reality, legislation does not create wealth. They can print more money and give people incentive to create wealth, but it is the people/businesses that create wealth. This is not about political affiliation, the government as a whole has proven that they don’t think about ramifications of decisions they make and only have made the issue worse to date. So any plan that passes without the details is basically based on faith if you think it is going to work. And based on past performance, I think you can understand why people are skeptical.

i agree MO542, but that doesn't lead to the conclusion that the best thing to do is to do nothing. That leads to the conclusion that the best thing to do is to lay out the details and STICK TO THEM. IMO that's the key, and that's what Paulson (the sleezebag) didn't do the first time.

So if Paulson said, "This plan is designed to fleece the American taxpayers and move as much wealth as possible toward the controlling stakeholders of our country's finance and banking institutions," and then outlined exactly how that would happen, you'd be OK with it?

Wait, so that didn't happen and it was just all a bad dream? ;)

SI

I don't think it's a Cantor original, just that his office thought it was his best response. I hesitate to think what a shit storm there would be if Steny Hoyer sent out something simialr about the NRA or Focus on the Family.

Oh I agree, but I view re-doing the regulatory structure as a separate, though parallel, issue.


It was, until it got too complex (see MO542's post) and Paulson thought it would just be easier to inject cash directly into banks and see if they'd start lending, which was (charitably to Paulson) a measure more directed at the effects of the problem, not the cause.


MO542: I see your point about what happened to Paulson, but I don't agree with it. You're basically arguing that the TARP legislation painted Treasury into a corner because of the realities of some basic accounting rules. I'm arguing that in a time of national crisis the government (in this case the Executive) can go ahead and ignore some of those rules (i.e. whether or not a bank is technically insolvent prior to being relieved of its bad debts) for other ends. In fact Treasury already did this (with different rules) when selling off various banks to JPM Chase, Citi and BofA. There's precedent.

Fact is, Paulson took a look at what he had and decided it would be easier to give the banks carte blanche money and hope for the best. Since most were his old Wall Street cronies, he had reason to trust them, or at least look out for their interests. Clearly, hoping for the best, and hoping for these guys, who had already made colossal mistakes, didn't work.


And let's be honest, while most of these banks may not be "technically" insolvent, currently, because they still don't know the extent of their bad debts (though if they're clamoring for a suspension of mark-to-market I'll bet they have a good idea), in the eyes of most everyone else they're all very close to being really insolvent. And that, my friends, is why the financial system is still in collapse - because it's still the case that no one trusts it. You have to fix that, and by any means necessary.

somewhat agreed but I also have been arguing for a temporary suspension of MtM accounting.

Yup, which is why all of this is such a mess. They need to restore confidence (that's what causes a run like mentioned above), and no one is making any effort. This is why I've talked about how the media has handled this in past threads: no matter what the financial news is, it's bad, and the closest you see to good news gets buried (e.g. info that household debt had decreased for the first time in forever got buried on page 3). Since that first bailout was just seen as padding the wealthy, they need to do a much better job of selling actual solutions than they are right now.

Just to be clear, I was using the TARP legislation to point out that the plan was not thought through and succumbed to the law of unintended consequences. Thus, the reaction on Wall Street about TARP 2 and questioning of the government’s competence to resolve the issue.

OK, I see - thanks for the clarification.

Although I'm not sure if Wall Street is the best entity to be criticizing the government's competence.

Oh I think that Wall Street is very competent, they are just greedy and influential too. ;)

Oh, the consequences were intended alright. Only for us, not them. :(

I'm sure we had the same number of jobs in 1990 that we did in 2001 and that we do now. This needs to be a % to have any value.

Well there's clearly some difference. The population hasn't doubled since 1990 ffs.

hmmm, not a bad question for Arles to pose.

This better be worth equipment upgrades in GLB!

ouch, i hope that drop turns around faster rather than tapering off {eek}

Kind of tough to decide which thread to pose this semi-rhetorical question in, there's several where it could have gone I guess since the key phrase has made multiple appearances. I'll throw it in this one since it probably lies along the lines of a dead horse, which is what this thread sort of started from anyway.

I've seen the phrase "in shambles" used more than once to describe the stock market in particular lately. I haven't yet looked up the exact definition of the phrase but to me I feel like "in a state of disrepair" would be a pretty good explanation of what it implies. What crossed my mind was this at least partially rhetorical question: if the market is actually correcting inflated prices or even just moving toward current realistic values for various stocks then wouldn't that be more like a "case of repair" than disrepair?

In the end, isn't stock supposed to be an investment in a company with the hope of recouping the investment + a portion of the profit you anticipate the company making? And if you either don't believe there's a profit forthcoming or that there's better ROI available elsewhere or that the risk outweighs the likely benefits, then isn't collapsing prices pretty much what should happen?

I guess what I'm driving at here is that, for all the flurry of concern, it seems to me that the stock market is behaving in a fairly logical fashion and largely as it was primarily designed to do. More of a "harsh reality check" than "a shambles" is kind of where I'm heading with that.

Okay experts, 'splain to me why that isn't accurate. But please try not to base everything on side effects or unintended consequences or how much more complex the market has become than the simple individuals buying shares of companies. I know plenty of that already and I'm not arguing that any of those things aren't involved here or that they aren't at least worthy of concern. I'm posting this notion in a much narrower context & was mostly interested in how it stands up in that light alone for the time being.

Hopefully I at least managed to articulate it well enough so you can understand what the heck I'm trying to say, never mind agreeing or disagreeing. I hate it when I'm not quite satisfied with getting what's in my head across to the intended audience the way I meant it.

yes however, like MBBF's critical mistake, you cant take one market and draw a huge conclusion from it although the news would like to make you think so. There are a ton of markets that need to be put together on a pallet to figure out what is going on. When you do this things get more muddy but also more clear IMO.

That sounds exactly like the voucher system that was tried to transition the Soviet Union/Russian state-controlled industries to capitalist models. Between a majority of the public being both unaware of how their vouchers could be accurately valued, little trust they would ever see money and impatience to rectify short-term situations they ended up being bought up by a bunch of ruthless and/or previously monied interests. Then, combined with allegations of political corruption in the eventual auctioning off of the companies and arguments that many of the "impartial" Harvard-based economists were in fact deeply connected to and invested in many of the asset classes they were supposed to give impartial advice on, you ended up with a small class of oligarchs who were either politically connected, previously wealthy or connected to organized crime and Chechen mobsters, the only common thread being ruthlessness. Your Berezovsky's, Abramovich's, Gusinsky's and Khodorkovsky's all came out of this controlling a much larger percentage of private wealth than anyone had before. Of course, who were the economists in charge of the program? While Shleifer gets most the blame, Larry Summers played a large role as well. Brad Delong, another favorite economist of the Keynesian side, and one of the strongest proponents of the stimuli packages, also collaborated on most of their papers.

I had this discussion/argument with my Dad earlier today.

People play the stock market, knowing that it is a risk/reward-type of investment, but with the thought that it has geniuinely provides a 6-10% growth. If you do not want risk, you can open a savings account or buy bonds or CDs at ~.5%-3% that are FDIC insured. Smaller reward, but essentially no risk.

While I am sympathetic to folks that have lost a lot like the lifetime Enron employees and folks nearing retirement whose 401Ks have taken a dive, I don't feel terribly bad for folks that gave their money to investors who boasted ~20% growth, enjoyed it while it was paying, and are now upset that they lost it all.

@ JiMGa (in the interest of not having a page of quotes)

I used the phrase "in shambles" in another thread to describe the stock market. But I really only mean that in the sense that...at some point there was enough capital investment in companies to garner a 1400+ DJIA at some point. The vast majority of the 1400 to ~8000 that we're hovering around was pulled from the market within a very short period of time. The "hope" would be that some degree of that investment capital would come back to the market and allow companies to feel compelled to invest, hire, etc.

Now...I'm no economist nor anybody worth listening to on such matters...but that is what I mean by shambles. While I realize that stock prices and the DJIA are indicators of many things, the overall DJIA also indicates the amount of investment capital that is in the market. When that drops significantly in a few weeks...it doesnt just vanish, it is moved somewhere else(somewhere less useful to business as a whole). Or at least that's my "little kid" theory.

Let me ask a dumb question. For many of us (that are gainfully employed), what has really changed? I understand the value of 401k and stock options (or the lack thereof), but were those really short-term assets or will they recover given time? I also understand about home equity going down or needing to sell your home, but one shouldn't have been living off an equity LOC, I don't think. I also understand about job uncertainties, but I think job security had been a quaint concept.

My question is the difference between now and, say, 18 months ago. I don't think taxes are higher, gas prices certainly have come down, credit card interest rates seems to about the same, food prices are a little higher, incomes probably froze but don't think they took a cut, what else about everyday life?

It just seems that we are just in a bad mood and don't feel like doing shit? As I said before, part of me do like the conservation efforts related to being less of a consumer. 18 months ago I got both of our cars paid off and no interest in buying new ones (same thing for upgrading electronics and stuff). Still don't but somehow I'm being blamed for not being doing my part? I look at my credit card statement and my credit limit is still there, they haven't taken that away. I think I could go to my credit union and take out a loan, if I needed to. So I guess I could still spend but really don't need to. So what's the difference with others that are gainfully employed that's causing such problems that appear to be obvious?

Sorry for not making this clear, I'm trying to ask a question that I don't know how to phrase. I think it comes down to a perception that the economy depended upon all of us to spend beyond our means in order to survive?

I don't care about what the stock market is doing. I mean, I do a little as my future retirement has gone from not much to a meager pittance. But, realistically, I'm more than young enough to not really have to worry about that. Hell, so many people (wrongly) don't even start thinking about it until 40 or later and I'm already working on it at 29 and have been for a few years.

I've even decried it on a couple of instances, going so far as to say it looks a lot like a giant ponzi scheme where those who can game it continue to get rich off of those of us who are just in it for the long haul and the (in theory) intended goal of staying ahead of inflation when saving for retirement. In short, I don't really care what the stock market is doing (for the most part).

I think you're dead on that this is a correction where those who gamed the system made money by artificially inflating prices and now are making money on the way down by shorting it, siphoning off money from everyone else's retirement money and the dolts who we or our companies pay to invest it. My big concern about this situation is job loss and, in a broader sense, continued separation of the rich and poor as I think that's bad for our country on the whole.

SI

I'm in a similar boat, well sort of anyway. I havent necessarily cut back on a lot of things, especially prior to the rash of job losses. But I also wasnt highly leveraged with CC debt, car loans, etc. I suspect too many people overextended themselves and now we are at the point of finding real "value" for many products and services.

FTR, just to be clear, I don't really have a problem with the phrase insomuch as it just caused me to really think about the situation in a particular way. I'm not even sure off the top of my head whether it was your usage I saw or not, it was just a word that I felt like I had either read or heard several times in recent weeks.

(Quick question as I don't have the data at my fingertips: are gas prices really that much lower than, say 24- I pick 24 as 18 would be in the middle of summer- months ago? I would say they are on par with 2 February's ago, give or take maybe 20 cents.)

I think the bottom paragraph of yours is huge, but we'll get back to that.

If you've done "everything right", you've probably lost a year or two's paycheck in the value of your home. If you're the median person, your income hasn't gone up- it's actually gone down, never mind adjusted for inflation, which, admittedly is low but still there. If you wanted to buy a new car, for instance, you might or might not be able to get financing unless you're the cream of the crop, but you could just make yours last another year with a decent outlay of cash that would have been better spent on a new car.

So, in the end, you've lost about a third of your retirement and a third of the value of your home. So that means you'll be working an extra few years before retirement. Sucks, but not the end of the world. Problem is- that's the people who have done everything right and have been lucky.

I'm with you on this Bucc with how I personally live. My wife and I lived in a pretty crappy place for the last 8 years (well, she was there 5)- I paid between $420 and $460 a month rent for a 2 bedroom so you can imagine how it is. I had $60K in debt about 5 years ago between student loans, a car loan, and some credit card debt- that's down to a paid ahead $6K in student loan debt (next payment due sometime in 2014). That would even be gone except we've been wanting to stash away some money in case things get really ugly. But even if we did that, we'd still have around $20K to put towards a down payment on a house, which we've been considering, and we wouldn't be trying to go for something outside our means because we're just not like that. Both of our cars are paid off and the only credit card I've had issues with is one that was cancelled due to "lack of activity".

So, in short- yeah, I've done things the right way- I turned a bunch of post-school debt into savings by living well within my means and, in general, not being stupid with my money even as my wife and I don't exactly have high paying jobs. And we're doing just fine. That said, if one of us lost our job- we'd have a cushion for a while- but how long is a while? If both of us lost our jobs- well... then a while becomes much shorter. And there's a reasonable danger of that with pretty much anyone in this economy now.

The problem is that we've built our economy on that excess spending so a lot of those jobs are evaporating now. That would be acceptable except for the rate at which its happening. Because at this rate, with those jobs go a lot of other jobs. Hell, I think a lot of companies are using this year as an excuse to get "leaner" and cutting jobs even when they don't really need to just to make the bottom line look better. I know that who I work for is laying off large numbers and we had record profits last year, even Q4.

We've already had quite a few "I lost my job" posts on the message board and we aren't there yet. How many of us would be on great financial ground if we lost our job? How many of us would be rehired when you hear stories about 1000 people showing up for 35 firefighter jobs. Or the story a coworker, who just got his job in October after working at a local grocery store for nearly a year to make ends meet. He was telling some of us about a time in August, before things really fell apart- he knew a guy who was in HR for a company and he applied for an IT job (he's in networking with over 20 years of IT experience) advertised at $35 an hour but over 50 people were applying for it and it ended up going to someone overly qualified for $19 an hour.

So, in short- it all comes down to jobs in my mind, once again. If you're one of the lucky ones who isn't asked for a pay cut or given a pink slip, it's probably in your benefit right now as we've run into a spot of deflation. However, I do mean lucky because no matter how good you are, if someone higher up wants to reorg your department or cut 25% of the workforce or cut down on management staff and replace yours with a non-favorable one, your're gone no matter how good you are at your job and/or how well liked. And getting one back right now is almost impossible as no one is hiring- either frozen or going the other way.

EDIT: And this doesn't even scratch the surface of people who over leveraged themselves. So, for instance, after they declare bankruptcy or just stop paying- reasonable companies and places expecting payment (say, utilities, landlords, etc)- all of those people who also "did things the right way" in providing a reasonable service for a "reasonable" price (I use the quotes for anyone who wants to complain about how much electricity or cable or whatever cost) and expecting payment- those people and companies suffer and are subsequently unable to make their payments and we get a vicious cycle from that.

SI

Maybe I can shed some light, or add an in between perspective on that or something.

We've watched as "gainful employment" became a very loose description of what we're doing. As businesses dry up & the economy in general tanks so, traditionally, does the willingness of many businesses to advertise either at all or at even previous reasonable levels.

Our CC debt is pretty minimal, our two major debts are in mortgages (that damnable house that doesn't seem like it'll ever sell being the second besides our primary residence). Our retirement is pretty much wiped out at this point, same for our savings which were pretty substantial


"Job" maybe, but for us it's more like "industry" security. The amount of cutbacks in the agency business and in advertising in general is about (not quite) the worst I've seen in 20+ years. And I'm not knocking that, most of those cuts are sound business decisions IMO, but it doesn't change the volume of the cutbacks either. I'm a pessimist by nature, very much so, but I'd have been hard pressed to imagine it getting quite as bad as it seems to be right now, certainly not as quickly as it fell apart.


Our income definitely hasn't frozen, it's close to zeroing out. Taxes here are on track to rising, from additional sales taxes to the prospective loss of an ongoing property tax rollback from the state (may get saved for another year).

Food prices are quite a bit higher locally from two years ago, that's anecdotal but it's my personal situation.


I think I kind of get what you're thinking about here, and I'd say that you're not far from wrong in simplest terms. If available consumer credit crashes then an insufficient number of consumer goods are being purchased to maintain the means of a lot of people. And that seems to be a nasty spiral to get into it. I'm of the general opinion that it was a scenario that had to crash eventually, I'm just sorry I lived long enough to have to live through it.

Thanks SI, that makes a lot of sense to me. I do know that I am fortunate, working essentially in a somewhat recession-proof industry (utilities, not IT) and that my retirement fund is still fully intact. Also, wouldn't the housing value depreciation depend upon where you live? For example, our area did not experience the ridiculous housing value escalation that we saw in Florida and other parts of the country. So I don't think our value went down that much (I did read about 5-10%) but according to my recent property tax statement, it actually went up a little from last year (go figure).

I believe this would be a terrible time to lose ones job or to be forced to sell a house, and I can fully understand how that would cause anxiety and to prepare for the worst (i.e., not buy things). Maybe I was just reacting to the 80% of us that are not working minimum wage jobs and a good percentage of those that did not go crazy on debts. I think maybe we are all being catious and that caused the bubble to burst.

Thanks to Jon as well. I think "nasty spiral" is a good term, along with a domino effect.

The other side to the question is how all that crap the federal govt wants to do will effect me? I mean, I don't think they'll make part of my debt disappear, will they? Will they be reducing my FICA amount? They will probably make it easier for first-time home buyers or to buy a car but neither applies to me. Perhaps it's the trickle down effect of making my job or industry (and PERA) a little more healthier? It got to be something tangible since it's such a big deal.

With regards to real estate- that was mostly true in Kansas as well. Mostly the same in Richmond, too, from what I can gather. Most homes lost 10-15% but the ones that lost more were the ones in the richer neighborhoods.


I think the problem is that we're mostly a group of people who are fairly responsible (exceptions, of course) so maybe we're mostly isolated. Also, the cautious people didn't cause the bubble to burst. The inability of the irresponsible to no longer get credit from irresponsible lenders was probably the biggest thing that caused the bubble to burst.

The problem is that the rest of us are all on the same damn ship so even if we were all sleeping, reading, or playing shuffleboard like we were supposed to- the idiots playing with the power drill at the bottom of the boat can still screw it up for us all.

SI

we paid off our car sometime last year. unfortunately its time for us to get a bigger car (or to be precise, an SUV). i don't want to, but i sorta have to. i only wish we would've just opted for a bigger car when we made our purchase so that way we would've had a fully paid off and bigger car. we just don't feel safe driving around in a Hyundai Elantra with a baby in the backseat, and our current arrangements call for us to drive A LOT. we simply need a bigger car. this is not the time to add another $300 to our monthly bills, although it is a great time to be buying an SUV. just when i felt we were getting on top of our bills we decide we need a new car. our only saving grace is our income tax return will be sufficient enough to provide a good 2-3 months of security to us in the event that one of us loses our jobs. you may say "2-3 months isn't enough", but that's better than the pittance we currently have. some security is better than no security. we're fortunate that we're both valued in our respective companies so if heads have to roll ours are not likely to be the first ones or even the 3rd ones.

i wish this nonsense would've happened while i was in high school or even college, when i was living at home with no expenses. the fact that this happened now as i'm an adult with a mortgage and a baby angers me immensely. i missed out on the roaring '90's and have experienced nothing but roadblocks thanks to the recession in both the early and later part of this decade. i can't wait for 2010 to come along. this decade will be written off as one to quickly forget.

I saw that.


Except for the early (recession) and later part (dot bust). :)

Man, I hear that. When I was going to college in the late 90s, it seemed like they were tossing jobs at people left and right. I showed up my freshman year and I know a couple of sophomores who didn't even bother to finish school and went off and got 80-150K per year jobs in Silicon Valley. The next year, my sophomore, lots of paid internships for Junions. Junior year- they were still hiring seniors but only unpaid internships for the rest of us. Then the bubble burst in IT and it was all over and it's still never recovered entirely as there are still a lot of nitwits who want to get into this field for the mythical money that's not really there.

SI

lol, true. but the overall gist of the 90's was it was the cause of the most people generating wealth since the 20's. and i was too young to get in on it. if i was born just 5 years earlier i'd be an executive right now. of course as an executive i'd probably be laid off, but that's neither here nor there. it seemed as soon as Clinton came into office that mini recession in the 90's disappeared. from what i remember as soon as we left the Gulf area our problems vanished. not that i followed that stuff too much. my earliest memories of the 90's was as soon as Bill Clinton played sax on the Arsenio Hall Show and he got elected the good times rolled. by the time i graduated college the dot com era had died and two years later two airplanes took down the Twin Towers and thus my life as an adult began.

:D

SI

this is the 1st real financial crisis i've had to face. as previously stated i wasn't old enough to be impacted by the dot com burst (unless you count a shakier job market, but that'd be stretching it). previously the one major financial crisis in my mind was way back in the late 70's where people apparently had to line up for hours to get gas. but like a sucker i'm gonna have to tell my son what it was like to live through the 2nd Great Depression and how many paid the price for the moronic few and how while i didn't really worry about my job situation i did spend an hour or two at nite sometimes pondering what the hell i'd do "in case" cuz when he was born his parents were toeing a very fine line between comfortability and a really bad scenario. i guess its best i go through this nonsense that way by the time he's graduated college this shit will have been something to read about in history books.

Isn't this an interesting cadre we have discussing things tonight- JIMGA, Bucc, HA, and myself :)

(EDIT: and, on bill night of all nights- as I sit here balancing my checkbook and paying bills)

SI

You could have been born 17-20 years earlier and go through the fearful Cold War (yes, I did the duck and cover), the upheaval of the race riots and the awfulness of the Vietnam War. After the war, as I was in my teens, it seems that nothing was going to get better, adding two energy "crisis" on top of that. But you live long enough and things change, or at least you come to realize that we're all on a large ship that are riding up and down the waves.

I go back to my earlier question, which I was reminded after reading the article today about the amputee doctor who helps the poor in the Bronx. He asked, what's in it for the little guys? Since I am one of those relative careful and cautious people, will the stimulus not apply?

not for nothing, i blame the internet and 24/7 news stations on cable for maybe 25% of our current problems. kinda hard to move on when you got Chicken Little on every homepage and news station telling you the world the sky is falling. i seriously tell my shareholders "if you watch CNBC long enough they'll have you thinking the world is going to end. not to say its all lies - they're good for information, but the minute you start listening to opinions and educated guesses from 'experts' you won't be able to sleep at nite". if it wasn't for the internet, message board doomsdayers like Flasch and CNBC i really wouldn't feel so down on things, to be honest. to me this would be just another topic on the news like some bombing in a faraway country, you know, something to ponder for a little bit but not lose sleep over.

sometimes too much information is just that - too much information.

I know its a way back, but I think Jon described what the market is supposed to be. People have lost sight that the stock market is a financing instrument, not the be all and end all of business. It is in shambles because it is more and more just a giant confidence game, the increasingly likely scenario is a collapse where 'modern capitalism' fails... and we go back to the stock market meaning what it was intended (you buy shares, you sit on your ass and collect dividends). Price fluctations should more closely reflect changes in relative dividend growth rates and risk tolerance.

Pfft. You call me an old fogey. Every one of my bills are payed automatically online and my online banking syncs with my quicken account (but I do keep track of it).

:D

i read that article and the only thought i had after i finished reading it was "fuck him". that's right. you spend your life foregoing realizing your salary potential to help the little guy, accepting a lower salary to be a Good Samaritan - then suffer the consequences. you can't have it both ways. i was like "oh...*now* you worry about money. not when you were Robin Hood looking out for the poor and not your own bank account". sometimes these things will happen when you're too busy saving the day.

even Superman had to work.

That's all that needs to be said, HA (plus a dose of Flasch ;) ).

i'm certain the stock market is just a form of legalized gambling.

the only bad thing is that just like gambling in the casino the house wins in the end and the little guy goes home kicking himself for not getting out soon enough.

My father told me something many years ago that I will never forget. When I was young, I asked about the stock market (I think I picked up a stock market game back in the early 70s). He said it runs on two things: fear and greed. To this day, I have never bought stocks, nor have had any desire to do so. I come from a family of pious, frugal New Englanders, so it's probably never been in our nature to do so, you know?

Not that I care, but I thought it was kind of peculiar that the stimulus bill got snagged on school constructions. Why wouldn't they just add that to the Dept of Education budget - they're going to anyways?

My wife and I have both joked that even as I'm in my 20s, if I had a lawn, I'd be that guy yelling "Get off my lawn". Tho we also both agree it's mainly because I'd enjoy the looks I get more than anything :D

SI

Cannot disagree about the gambling aspect at all. I am starting to think its more about luck than anything.

For instance I doubted letting my short funds continue into today, and sure enough they slid down overall for the day (got lucky timing on two, and less than lucky on another). The volatility is way too nutty to assume rational investments are being made in the market.

Thanks for saying what I was shooting for in a more coherent fashion.

Your phrasing raises another good point too, it was never meant to be a business unto itself or at least not to remotely the extent it became that.

Well I think the first Tarp worked (for the most part), I think this stimulus will work, and I think the eventual Geitner plan will work. I dont think we're going to see hyper-inflation on the other end of this and think things will be fine now that we ARE doing something about it. Im actually looking for entry points in the markets over the next 6 months so that should tell you something. If I'm your doomsdayer things are looking pretty up IMO.

Regarding the market being gambling I dont think so. You saw the effects on balance sheets of funny money, yes FAKE money and what it does to the underlying valuations and now youre seeing a reset which is good. FWIW, Im not against an organized reset of valuations, Im only against a chaotic and anarchist type of dissolution. So once we get to what the 'real' valuations of money, sheets, and underlying internals the market will fairly represent which companies will get you a good return on your investments and which ones wont.

My 2 cents:

The root of the problem is people, and government, living beyond their means. Spending more money, be it stimulus or bailouts or whatever, does absolutely nothing to solve that problem, and in most cases will make it worse.

I think deflation is a bogeyman. The current government manipulation of numbers like GDP and CPI, combined with north america's willingness to rack up debt and Asia's willingness to lend us money and give us cheap shit while their own people live in comparative squalor and their children make tennis shoes, is hiding real inflation which is in fact relatively high. These factors cannot, and will not, last forever.

I see it playing out like this: governments will continue to toss money around like drunken sailors. Anyone who can claim their project is shovel-ready, regardless of what the project is, will be able to run away with wheelbarrows full of taxpayer cash.

In the meantime, China is going to start to wonder why the fuck they are storing tennis shoes in factories because no one in north america will buy them. Then they'll maybe get smart and let their own people have some new shoes for once, so their standard of living will go up while ours is dropping because we can't afford any new shit. Further, in order to make up for the lack of export income, China might even ask the US to have some of their money back.

Now it gets interesting. The US doesn't have any money to give them, so what they do next is really important. They can either take some more money from their own people, or they can just tell China they can't pay up and that the IOU's are kind of worthless. If scenario #1 happens, everyone in north america loses out because the government steals more wealth away from the people, inflation spikes, and basically our standard of living drops. If scenario #2 happens, then the ball is in China's court. Now, if I'm China and I just got stiffed a few trillion bucks, and I have all these factories sitting around, I get thinking that maybe I should start making missiles and destroyers instead of tennis shoes...

Small correction. Stocks were intended to be a financing instrument. Stock markets and/or exchanges are absolutely intended to be businesses.

Where to start?

I'm with you on living beyond our means, however, enforcing spending controls now would only damage the economy further. The structural deficit(that which rolls over from year to year) is a major issue that will need to be tackled as we emerge from this crisis, but furthur limiting the amount of capital now would be a disaster.

As for China, don't worry. They need as more than we need them. They need something like 8% growth just to keep up with the rural to urban migration. With the global slowdown they're already experiencing a large amount of unrest. Their economy is entirely dependent on exports. They're also resource poor and need to maintain easy trade.

In short, under current leadership they'll never call in the debt because it would cause a greater crisis fro them than it would us.

You have succinctly managed to capture my concerns as well in regards to our national debt, and the role China(and others) might play, and how that could potentially sink the country.




I hope you're right...but my concern is that while China has used us as a nice exporting partner and currently does need us...they also might be willing to potentially fund countries like Russia or Iran(just speculatively throwing those 2 out there) that might be inclined to engage in more untoward activities, or potentially adversarial activities to the US(or allies).

They do this today, to an extent, but tougher times and a failing dollar might drive the perfect storm environment where China actively (and unabashedly) funds counter-US interests. Just voicing a concer...I have no real way of proving such theories.

I don't believe this is true, it's just something we like to tell ourselves (or our governments like to lead us to believe). Yes, short term China is hurt by any downturn in exports to the US, but, long term, there are a lot of other countries to trade with.

But lets pretend they can't trade with anyone else, so times start getting really tough for them. At this point, what harm does calling in the debt do? They either get some cash or goods back from the US, or the US renegs and gives them a damned good excuse to send a few hundred million people over seas with rifles. I mean, they own half the country at that point, they may as well get to live there... right?

China's military has no potential for offensive action outside of their neighbors.

I don't doubt we'll have resource competition with China as they are shockingly resource poor, but it's not in their interest currently to push towards some sort of extreme confrontation. What do they get by calling in a bunch of debt that they know we won't pay back in a lump sum? Unlike NK or possibly Iran, China is a rational actor.

Out of curiosity, why do you think tarp is working? I’m only asking because I don’t think it is but I’m interested in hearing all sides of the argument.

Here is my reasoning; maybe you can poke some holes in it.

Excess reserves, reserves over the minimum requirement, totaled 793 billion dollars.
(Note: The reason I’m looking at excess reserves is because that implies there is more credit available that is not being used) Since we are on a fractional reserve system, banks could theoretically lend out 10 times that amount assuming the demand is there. In my mind there are two possible explanations for this:

1) Banks are hoarding cash. Banks are worried that the “toxic assets” on their books and are hoarding cash so that they will not be insolvent when they have to mark the assets down. Furthermore, the fed is paying interest on reserves, a practice that they just installed. So banks are making money by holding reserves.

2) Demand is not there. There could be a few reasons for a drop in demand. For example, commercial real estate inventory is high. Therefore, nobody is going to borrow money to develop more commercial real estate. Same could go for the housing industry. If demand is not there, then TARP will not work because the issue is not lack of credit, the issue is that nobody wants to borrow money because businesses already borrowed the money they need at this point in time .

In summary, I am of the opinion that it is not working at this point in time because there are excess bank reserves. That tells me that the credit is available but is not being used, but the reason the credit is not being used is not clear.

Either way, TARP’s effectiveness will be judged in the long run. I believe that there are more bubbles to burst and the next to come is commercial real estate and Alt-A loans. This will lead to more mark-downs of assets on balance sheets. Thus, I believe coming bubbles will be the ultimate judge of TARP.

I’ll be interested to hear if you can bring another angle to my thinking.

I said worked. At the time, I believe we were staring a really bad few weeks (3 or 4) which would metastasize into years (5+) of damage directly in the face and because of the passage of TARP we were able to minimize the damage back then (im sure you recall the thread at that point in time). Until Paulson torpedoed it it was doing what it was intended to do IMO which was instill confidence, since he at least let it run it's course for a while before torpedoing it we got far enough away from the panic in October to be able to get to today. Therefore I believe it worked and would continue to do yeoman's work if not for Paulson's verbalizing of the change of tact.


your intent of the workings of TARP and what it's underlying intent was, are different than mine.

I do believe Banks are hoarding cash because they cannot know what they will be required to balance out due to MtM accounting and reserve requirements, etc. to keep their ratings (and solvent) because the rules keep changing but that is not the whole picture IMO and there are a lot of other variables at play, consumer demand, debt rollover, fear of bad debts, etc.

I also worry about other bubbles and asset classes and markdowns BUT I do also believe that the gov't activities, whether right or wrong, will help us scale this mountain faster than if we didnt do anything at all.

A few months ago in one of these various threads I pointed out that if you took a ruler to a rolling average of the stock market from 1950 to 1995 and then extrapolated that out to roughly 2008 you'd have the stock market at, surprisingly, about 8,000 points (this is the DJIA, obviously).

Based on that my conclusion at the time, and still, is that we saw, from 1995 to say, 2007, an unjustified inflation of stock valuations. The dot-com boom is obvious, but it's also clear that the "recovery" from 2003 to 2007 was equally unfounded on, say, facts.

So I see the stock market being where it is now as a correction, more than anything, and certainly not "in shambles". I think "in shambles" comes from the 6,000 point drop and its effects on paper and retirement wealth.

But the stock market continues to function as it always has - like a bunch of 8-year-olds chasing a soccer ball.


Well, I think that's it, actually, the "gainfully employed" part. In any economic downturn with job losses and job insecurity I think we shouldn't underestimate the impact of the collective worry about job security (or, for those who have lost their jobs, what I'll call a "quality of life security).

The point is, even if you're gainfully employed, I'd say most still go to work each day with a little bit of dread. That adds up.


Absolutely. When the economy became dependent on Americans spending to the point that they had, on average, negative savings, there was always going to be a day of reckoning. The key question, I suppose, is what the economy will look like, long-term, if it's based on reasonable consumer spending levels.


Typically one doesn't throw capital improvements into operational budgets because they have a tendency to get re-prioritized (or slimmed down) to augment what are usually the chronically underfunded "operational" costs in budgets.

I'm curious about the clarification here of what you thought was should have been done to TARP. If done "as drawn up", it still doesn't solve the problem:

Yes, Paulson screwed the pooch but as MO542 pointed out- it wasn't possible to buy up troubled assets with TARP- not by a long shot. The best estimates put these things out there at $3-4T. $700B barely scratches the surface. Either the government buys up the most useless ones and taxpayers are screwed as that $700B is thrown into a hole while bankers get richer. Or they are bought up indiscriminately. Either way, Paulson comes back asking for another $2-3T more and that money is all targeted at the banks.

So what is the endgame in the world as you saw it?

SI

yeah - honestly, the Alt-A meltdown is going to make the subprime meltdown look like a walk in the park if something isn't done about it.

people seem to have conviently forgot about them, and they're going to hit and hit hard.

Well first I dont think they needed to buy them all, thats my point, it was the spectre of what was on the radar, or the idea, or the plan, etc. The plan meant more than the action and IMO it worked back then for the intent Ive laid out.

My endgame as I saw it back then was a complete and disorderly collapse of the banking and finance sector as we knew it which would ripple out in ways no one could know or fathom. With a trickling of bank failures and mergers, and gov't encouraged buy outs we get an orderly unwinding which is what I think we can stand.

No, I get that. I know something had to be done.

I just don't think using TARP to buy up $700B in assets was the best move (still unsure what is/was the best move). I mean in your scenario where TARP is used to buy up $700B of assets, what happens next?

SI

You can add @630 thousand to the job losses after today's announcement.

The best move was/is ending military operations in Iraq & Afghanistan and closing most of the 700+ bases we have around the world.

That savings would be enough to finance both bailouts and get us out from under much of our debt obligations.

Of course, we all know what the chances are of that happening, or even being discussed.

I agree 100% with holding the press somewhat responsible. Here are some of today's headlines...

Retail sales rise unexpectedly in January (AP)

New jobless claims drop slightly to 623,000 (AP)

So I don't expect them to be rah rah we are out of the water. But if retail sales were down slightly we wouldn't get "Retail sales down slightly" we would get "Retail sales down for 7th straight month. Recession CONTINUES!"

And everyday on the news we hear about 1 person out of work or a business. But 99% of the time these were people and busineses that were going under even in good times.

I am not saying they should lie to us if things aren't going great and I am also not saying they caused the metldowns but IMO they are very irresponsible about glooming and dooming everything.

To all those blaming the press, what should they say? How should they portray 2.4 million job losses in the past four months? How should they portray a 4% GDP drop? How should they portray a financial sector that's full of large institutions that are insolvent in all but name?

And more importantly, how would any media changes help the economy rebound?

by standing in front of the press and saying repeatedly and in the face of mounting evidence to the contrary that the fundamentals are sound. BWHAHAHAHAH

Interesting to see the large number of economists who support the idea that no stimulus package is needed and that the economy should be allowed to work itself through its current issues.

http://www.cato.org/special/stimulus...o_stimulus.pdf

Im certain, 100%, that anyone can find an equal amount of economists on the other side of the coin.


so MBBF, what'd you think a Libertarian think tank would come up with?

UIC

Sure you can. And I have no doubt that you'd imply that the other side of the coin was right, since you've already written off any possibility that doing nothing is a viable alternative. I'm open to new ideas, including the thought that other parties may have good or better ideas to solve this crisis. Closed-minded thinking is a good portion of what got us into this mess.

you site Cato and then argue for open mindedness?!

Please. Please. Keep going!!

UIC

EDIT: FWIW Im not arguing whether or not Cato is right or wrong or you are, however, Cato is certainly not the standard bearer for open mindedness IMO.

I sited that there are others who also believe that the current stimulus package is not the answer. I'm open to a stimulus bill that works, but this is not what we need. I believe that time will show that.

you sited one Libertarian thinktank that I couldve known their stance before you linked to them and said "Large number". Does not compute. Do you think the list they have includes those that disagreed? no, of course not so what's the point of pulling something off of one libertarian thinktank's site and claim that it is a Large group of economists. How many economists are out there.

Lets say percentages, you may argue that the unemployment aint that bad right now since on the whole we have a much larger workforce than before. Welp, I dont see you saying 'large' when compared to the ENTIRETY of the economists in the field?

I've said my piece. I believe that your assertion that the current stimulus bill is a good idea will fall flat a year from now when little has improved and we're further in debt. We'll see how it works out.

The economy is based largely in faith that the system works, that the dollar bill the government handed me will actually be worth something. When people start to feel worried, they stop spending, hoard cash, etc. Or you get a run on bank accounts, which as posted above led to the government panic.

What I want the press to be is balanced. When good news happens, report it as good news, and don't bury it on page 3! When you print a story saying "people are getting too much credit", and then household debt drops for the first time in recorded history, don't bury that or report it as bad news.

As MBBF and Flasch are pointing out, economists often differ. This is what gives us the "OMG! Oil prices are rising!" stories followed by the "OMG! Oil prices are falling!" stories. The press loves to choose which ever economist takes the day's story and puts a negative spin on it and quote them. So people ALWAYS get a bad view of the economy, and that wears on you. It becomes a self-fulfilling prophecy. Press only prints bad spin on economic news, people get worried, economy slows down, press has more bad news to give, etc.

Let's take how they treat the stock market. They treat rises and falls in the indices as a measure of total wealth, when there is no wealth unitl you sell. So we see things like "stock portfolios wiped out!", when in fact the only people who actually lost money were those who bought high and sold low. Heck, I've got a mutual fund that is basically treading water right now, and I'm sitting tight waiting for it to go back up (and might dump more money in shortly). I lost all my potential profit that it built up over the last few years, but that's all it ever was, potential profit. And now any dividends or gains are buying additional shares cheap. But the media spins me as having lost tons of money, which is simply not true.

So the press helps shape the public perception of the economy, which can actually drive the economy, and since doom and gloom sells, they are helping drive it right off the cliff. Sure, the greedy folks who decided to set up all these questionable investments are the main culpable parties, but the press is helping ensure that we going off the cliff a lot faster than we should be and making it more difficult to recover.

your piece is always the same, backed up by sites that are slanted and jest or have no credibility. youve been wrong on numerous occasions going back to your predictions throughout the political campaign but have never, in spite of evidence to the contrary within the same threads as your conclusions and predictions, admitted to being wrong. In some cases even parsing data out to conclude that you're right when said conclusions were in stark contrast to your claims. I have no doubt that at some point whether youre right or wrong you will be right.

Cite, not site!

Thanks, that was bugging me too.

and honestly i wasnt sure, switched the first one back and forth and finally settled on 's' due to it being a website. thanks for the correction and it is much much appreciated. MBBF deserves a pass as Im sure he was just jumping on board with me.

If little has improved a year from now, then I'll be happy. It will mean we have stemmed the tide and things might actually start perking back up in another year or two. I thoroughly expect it to be significantly worse but I am also of the belief that without some intervention, it would be much much worse. Again, whether this is the right plan, that remains to be seen.

The writing is no longer on the wall- it's all around us- these are bad economic times and there is still no quick fix. Whether something needed to be done to stem the time- that's where I think we differ. But I think, if you still had a house, you could safely bet that in 12 months things will be worse no matter what as the problem doesn't have a quick or easy solution.

SI

How do you explain the times when the economy is growing?

I'll never argue that our press isn't largely shitty, but all of the "it's the press' fault" comes off to me like whining about officials. At the end of the day the real problems with financial institutions, job losses, etc. are massively more important than what Maria Bartiromo tells me.

Or to put it in more technical terms, I don't see any evidence that the media plays a large role in the velocity of capital.