I'm lurkin, drooling over the Maxim girls video and reading about football instead of watching it like I should be! (well MSU vs CMU kind of turned me off this season... was there in person, did not have the heart left in me to comment in the college football thread).

Boom time for me at the moment means I have even less time than ever to preach about the evils and wonders present in our so called capitalism!

Just read a fascinating excerpt from a book about the financial system meltdown called "Too Big to Fail".

Tim Geithner and Hank Paulson do not come off very well in this excerpt and the investment bankers, while looking better than the feds, seem to miss the irony about the market taking advantage of their situation when in fact their entire business model involves them taking advantage of others in the market.

Anyway, a pretty fascinating read. Will make you even more cynical.

yeah...was wondering how that book was...been wanting to pick it up. i wonder if the local library has it yet...

i read that same excerpt (or a similar one i suppose) and thought it was pretty good.

It's a very amusing read.

It's set just after Lehman fails and Morgan Stanley and Goldman Sachs are trying to find ways to avoid going bankrupt.

Tim Geithner comes across as an arrogant, self-absorbed ass. Not surprising.

Hank Paulson comes across as exhausted, out of ideas, and out of his depth.

Ben Bernanke comes across as out to lunch.

The only people who come out looking pretty good are JPM's Dimon and Citi's Pandit, both of whom spend the entire piece politely telling the government they're not going to be railroaded into buying more in-trouble companies (pity Ken Lewis of BofA couldn't have done the same, for his own sake).

well i put a hold on it at the local library when the copy they ordered 3 months ago arrives

I'm tempted to buy it and give it a read. My BS detector is flaring up though... but as long as you don't believe it to be the gospel truth I'm sure there is plenty to learn in it.

The title says it all:

Greenspan Says U.S. Should Consider Breaking Up Large Banks

http://www.bloomberg.com/apps/news?p...d=aJ8HPmNUfchg

I agree. 'Too big too fail' is a systemic failure, and really a big key is this:

"Those banks have an implicit subsidy allowing them to borrow at lower cost because lenders believe the government will always step in to guarantee their obligations. That squeezes out competition and creates a danger to the financial system..."

This is my biggest concern with all big business protectionism. We don't need big businesses, we need BUSINESS, and often that is done best through several vigorously competitive/cooperative/engaged firms rather than one bloated/content/extracting firm. Growth (and its motivation, greed) is good, easy money for the established is bad.

Sadly, these banks are even bigger, more entrenched, and will eagerly stir up a new panic in order to maintain their fortified position. They will bank on the apathy and gullibility of the American public to successfully destroy the American economy in the end (and their own wealth).

Best I can figure the recession must be over, at least for people in advertising sales.

I recently bitched about the piss poor to non-existent "service" when trying to buy newspaper but I swear I think trying to buy online adv. is just about as bad. About 1/3rd of the people selling it are complete idiots & I know their product better than they do, about 1/3rd of them seem to be con artists who abhor honest answers more than anything else on earth, and the other 1/3rd are apparently making so much money they don't have anyone available to even take a call from a guy standing here with cash in hand looking to buy.

Yes ESPN.com I'm talking about you. And CBSSportsline.com.

And ESPN the cable network, and ESPN the Magazine (which we both know you can't hardly give away much less sell).

And NBC affiliates in over a half dozen markets than can't be bothered to return a f'n phone call in a month's time.

Swear to God, a lot of the problems are self-inflicted, up to & including businesses who continue to make advertising decisions based on who bought them lunch last or who they play golf with instead of any remotely fiscally sound rhyme or reason.

I've truly reached the point of hating what I do for a living because of the other people involved in doing it.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Cash Cow - High-Frequency Trading
www.thedailyshow.com
Daily Show Full Episodes Political Humor Health Care Crisis

If anyone is interested in this topic still, this Daily Show sketch illustrates something that bothers me quite a bit (and I'm one of the heavy computer modeling monster people out there).

These auto-trading systems have a really ugly achilles heel, they rely on a 'status quo' of sorts so that the gaps that develop between two linked instruments (say oil company stock A, and oil future B) can be reasonably assumed to synch themselves over time. Because this synch reaction time is generally rather small these systems are built to run pretty much on automatic and zip as fast as possible through the trading process.

The problem is these auto-traders often do not account for a fundamental change in the objects being modeled, say a massive never before seen downturn. If the assumptions that cause synch to be restored are broken, these trades can go into the red. Historically this has already happened (I think in the 80's?). The assumption by the finance nerds is they simply need a smarter computer... the problem is they forget the science of how markets function and only consider the game that has developed around that function. If you get enough computers making enough flash decisions about overly flashy models that increasingly only reflect market momentum psychology and not fundamental economic principles, you can end up with devastating feedback loops where the 'first mover' may profit fine, but can wreak massive economic damage on the system on either subsequent movers, or if each manages to eek out a fractional profit, this ultimately ends up shifting down to the slow moving 'dead money' (i.e. your 401(k) or other brokerage funds that are investing on a time horizon not based on jumping on a dime).

A chain reaction where the computers all predict sell and a group of slower computers says buy, can lead to an overreaction in the market price and lots of transactions, and that pain eventually has to land somewhere. It is my theory that for the most part the firms are using their less connected clients as a buffer for when they jump the wrong way, so that their well connected clients can play the rapid timing games for huge gains.

I personally never let my computer place a transaction (well I do, but its a scheduled transaction I create manually), because I read my finance 101 and don't have the connections to play statistical arbitrage (and the theory is bogus based on inefficient markets, which they are, but have no fundamental value to the economy, just for extracting money out of the zero sum game that is the stock market).

Anyway, thought the Daily Show clip highlights something most people don't see the dangerous consequence of, these auto-traders sound like get rich schemes but they are a terrible thing for the economy.

I don't trust Greenspan much either. After all, I think he had a role in this mess.

With me, it's more regulations than "breaking up" big banks. Why not bring back the Gramm–Leach–Bliley Act? Require banks to hold a certain % of its deposits in reserves? Tighter lending requirements?

What is "too big to fail"?

"Too big too fail" apparently is when a bank is so massive and has made so many bad decisions, that not bailing them out would lead to catastrophic failure of the economy.

Since capitalist economies kind of assume that a single firm failing is a natural occurrence, this pretty much flies in the face of all financial common sense, but is enough of a scare tactic to start the mob rolling. The only economy where a firm is not supposed to fail is a planned economy... enforcing a constraint that firm X cannot be allowed to fail prevents the option of an alternative, better run firm, from taking its place.

I agree reserve requirements are an important start. I'd also severely up the transparency of the derivatives trade (its full of massive abuse in my opinion). Tighter lending requirements, as in actually assuming an income stream of payments, instead of planning for repossession and refinancing as a source of profit, is supposed to be banking 101, but easily forgotten by the morons running our government and economy.

I am so in the camp of the double dip that you all ought to know it is almost assuredly not going to happen.

Research Triangle Park in North Carolina is now seeing some pretty high profile job cuts with Sony Ericsson, Pfizer, and Kellogs all announcing layoffs. From what I could tell, RTP (and the Triangle generally) were dealing with the recession pretty well. But even we are, apparently, not immune to it.

And, based on those job cuts, I would say that we have not yet bottomed out on the job-loss front of this recession.

No we haven't, for shame, if anything the inflation I so fervently predicted is on the way before the job bounce. Bloody lying scum running the country and banks and businesses are doing their damn best to flatline the country.

Oh well, stocks are up, rejoice, for the most meaningless part of the economy with the most money stashed in it is generally considered to be better than the start of the year.... now thats progress you can shit on! I mean rely on!

I think the naughtiest stat that will come out in hindsight is the descrepancy between the public money bounce (money in giant endowments, mutual funds, etc) and the private money bounce related to stocks. They must really know how to pick winners! Gosh, they are practically bragging about frontrunning on the national news... so whatyagonnado?!

Time to shut up before I get all stressy again. Gamblers still makin out like bandits so I shouldn't whine too much.

Yeah, the (biggest) problem I see is that we've not done anything (significant) to reduce what we spend recurring money on...like energy, resources, etc.

We're just trying to figure out ways to take money (i.e. tax) from some Americans so we can give it to other Americans (i.e. entitlement programs). Not to say we don't always (need to) re-evaluate this balance but this is a zero sum game in the nationalistic sense...and therefor not the highest priority IMHO.

Petition: U.S. Senator Bernie Sanders (Vermont)

This is one of my favorite little things out there, tho it has no chance of ever seeing the light of day.

As a friend of mine described it, Sanders basically said: "I have a two page bill. The first page says 'give me a list of institutions that are too big to fail'. Page two says 'break up all institutions on page one using Sherman anti-trust act"

SI

love it

I'm a little crazier so I'd apply that across all industries. I'd love us to actually dust off the Sherman anti-trust act. But we're so gun shy because corporations have such better lawyers than the government and the whole mess with Microsoft in the 90s left egg on their face. Europe saw it through and got a bunch of cash and concessions there but the US folded their case.

SI

Sounds like a good start. There is a lot to be said for smaller, more service oriented banks that actually do their due diligence and are on the hook for the consequences, than the derivative assembly line we have today.

What gets me is what still exists out there, after all the panics we recently had. Same game is going on, and same result will occur, except now they have us taking even more of the fall for their bad bets.... so smart Bernanke, Paulson, Geitner, Bush, Obama, ... fucktards ...

Yeah- I can't believe how little action is happening. But I think it does speak to how complex of issues there are out there. Two years ago, how many of us could say we knew 1/10th of what we understand now because we've all had this crash course in the system?

That said, they aren't that complex. I'd like to think I have a pretty decent grasp on them and that's just casually looking them over the past year. I couldn't solve all of the problems, certainly, and I'm sure my solutions would have massive unintended consequences. However, we're just sitting on our hands and the only big solution I've seen is "give more oversight to various institutions". I don't want oversight. Oversight with very limited power is useless. These are people driven only by money so you need to threaten them with a loss of money and jail time. If you don't give them hard and fast rules- they can lawyer around squishy ones. I want cold, hard regulations that are set in stone and ironclad.

We're already back to re-bundling securities (thanks, Morgan Stanley!) and there are still credit default swaps out there worth more than 10x the value of all the money in the world. How does anyone not see this as a problem?!? Oh, and banks are still allowed to severely over-leverage. We're talking about dropping them from 30x to 15x. Really? That's your solution? So, for every $1B, you can only have $15B in phony money floating around as opposed to $30B? Yeah- that'll be a great cushion when the next crisis comes about. You'll only have 15 different guys asking for money when the economy goes south instead of 30.

Where's the repeal of major parts of the Gramm-Leach-Bliley Act and the systematic unwinding of "too big too fail" conglomerates whose very structure is rife with all sorts of conflicts of interest?

Where's the reinstatement of the uptick rule or, better yet, stock shorting rules like they have in Europe where you have to possess the stock to short it? Where are the investigations into the DTCC and who shorted Bear Stearns and Lehman Brothers as clearly whoever did it had insider information and might have even caused their downfalls.

Where's the complete rewrite of CFMA which is long overdue- I mean, really, how are credit default swaps and other exotic financial instruments even allowed to exist? These add no value to the economy but open it up to huge systemic panic-style risk. They exist only to bleed dry the long term investors by sucking out any sort of long term gains they might receive, which will eventually lead to massive inflation.

Where are the corrections to the bond rating system so junk doesn't continue to get AAA ratings? Unless these are changed, companies will keep bundling their crap with good stuff and no one will be able to tell the difference.

And where's my audit of where *my* damn taxpayer money went? I'm pretty sure, Hank, that a bunch of your buddies got it with no strings attached. I want to know how and why.

SI

Well, arguably we are paying these guys to have foresight, and either they don't or they are corrupt (I think some of both, but mostly the latter). Sure everyone is aware about various things now, but the fact that so many people had so much of their money in things that were exposed to factors they didn't even know about? That is dangerous. It is why I don't think we should be drug dealers pushing stock investing (or even mutual fund investing as I ranted about long long ago) on the masses.

It has been pushed so much because it creates a massive pool of dead money that can be finessed into a cushion for really large gambles by banks. This is if they don't outright use the foreknowledge of how that money operates to do some arbitrage like situations (for instance, knowing a fund needs to have a certain balance in its portfolio so timing buy/sell orders with a little information to turn around some pennies on 'sure money').

Like you say, oversight is useless, there does need to be criminal prosecution, even of the laws that already exist.

Mass leverage is a mess, as are the portfolio creation techniques that are en vogue today. They act like these are models created by quantum physicists and such (and brag about it), but really they have blinded themselves with their own math. Just because you made a several page equation that returns an incredible boundary case of awesome where the only way you lose money is if the market cuts in half next year.... often they don't even do the first step right... fill in the proper variables! They assume a default rate for a particular type of mortgage based on historical stats, often when those stats no longer correspond to the sample (for instance ARMs being given to an entirely differently class or mortgage consumer than they had ever been before, in far greater quantities, and in different sizes). Quickly, hiring that advanced mathematician to do all that work sort of fails because the assumption on what x and y are IS COMPLETELY WRONG! Instead of the economy dropping by half in order to destroy the portfolio, it soon becomes: 'Well if 10% of these mortgages to people who can't afford them fail, it will set off a chain effect and margin calls that trigger auto-sell orders and swap contracts which happen to change the value of other assets in our crazy portfolio.... whoops'.

We need more money invested in real economy, even if its slower growing, than imaginary games that rely on leverage and timing. If you ask me, we should get it such that most loans are through and held by banks small enough that they actually know the customers expected to keep them afloat. If that means 10 regional banks instead of the awesomeness of Citigroup mcNational Super Bank... or a 1,000 city-level banks, than so be it. Efficiencies of scale can be achieved in other ways, certainly better for the small consumer, and probably more risk-aware for the megabank. Instead we have the rubber stamping, mcMortgage, where plenty of people who could probably pay a mortgage will now get denied, and plenty of people who shouldn't somewhere else are probably still getting them.

But ya, need to focus:

- No bundling. That is what a portfolio is for fools! Quit tricking yourself into the idea that you are creating products like a factory... get back to making bets and admitting it... or actually searching out real investments and making them, and living with the risk and reward. Maybe we would actually see some of that capital start flowing into business creation instead of expanding pools of finance for finance...

- Kill anything labeled 'too big to fail'

- Repeal legislation that lets companies pull shenanigans

- Reinstante legislation that prevented known shenanigans companies pulled in the past.

- You must require shorts to actually borrow the stock (which I always assumed I did, but only later on could I actually be close to sure whether a physical stock was tied to my work). There actually is quite a few things wrong with allowing imaginary selling (or imaginary buying) for that matter, some are even outright illegal... There are economic necessities for there to be only one physical stock involved in each transaction.

- To be fair, I shorted Bear Sterns, while I don't doubt there being insider information somewhere, if you knew what to look for you could spot a number of banks that were overstretched and due for a stock crash. And once the crap hit the fan, just about every bank it was a smart bet to short at one point (hence my profitable love affair with the SKF). The fact it was shorted potentially more shares than existed though.... that needs to be investigated since that can only happen with the help of regulatory agencies and big banks! :)

- Derivatives are like a bazooka in the hand of a three year old. Unless you are a soldier trying to take out a tank, don't use em. Like you said, they have no value add to the real economy... in the ideal world they provide risk management and transaction smoothing factors (sort of like how currency gets you away from a barter economy, a derivative like a future contract can get you away from temporal jitteriness)... but a lot of them are pure junk to obfuscate shenanigans. It is mostly an attempt to all gamble on a 'sure thing' and then leveraged out the eyeballs to turn the extremely small margin into something worth mentioning (because a bet on a sure thing should surely get small odds on your money of course). That we have many times the size of the real economy in messy bets is just plain shameful.

- I'm starting to get the impression they should just disband bond rating agencies! :) I'll be honest, i stopped using them a long time ago, any bond I go after gets the full treatment as if I was investing in the company like a stock (which in the case of say, oh numerous institutions, that is EXACTLY WHAT IT IS< MWAHAHAHAHAHAHHAHAHA!!! OH FUCK THE SADNESS.... )

- The taxpayer money went into a black hole. I think Paulson likes 'ass to ass'. (okay that is sick, but at least my bad joke didn't cost a trillion dollars)

We've been running a mythical economy for years - it's our new model. If we suddenly try and "correct it", we'll be in recession for years.

Without massive leveraging allowed to banks/lending institutions, Americans will be called out on their 25-50+K in unsecured debt. This will lead to a ton of bankruptcies which will injure the financial sector even more (maybe end up being $40B to $1B after the bankruptcies occur). Many people will have crappy credit and purchases will begin to seriously slow down.

Everyone loves to play the "let's just fix it and stick it to these lending giants", but the people who will pay for that are small business owners and over-leveraged middle class consumers.

I think we are already getting called out on our debt! :eek:

No, you don't flip a switch and have it fixed overnight. But you don't use that as an excuse to charge full steam ahead until the wheels come off the train and you spill nuclear waste all over disneyland.

You triage the machine, and hack it in the order that keeps the beast alive. That means letting the imaginary being that gone too far die its death... the money is a tool for making it easier to keep the machine that feeds, shelters, and entertains you alive. Right now we have politicians across the country making 'money' decisions that will result in incredible suffering for people either now or down the road (reduced aid to needy, reduced education, reduced crime budgets putting felons back on the streets to shoot you or cops, etc...). This is because the mythical budget is not balancing... and the numbers to just 'inflate it away' would screw just about anyone who saved money ever in their life, leading to another crisis and need for aid. Unless you want to live like North Korea!

This is why I say we target the ten biggest problems facing the U.S. and solve them, we need the mythical economy to start reflecting reality again, even if the process itself seems overly idealistic. Do we want a myth that encourages the rise of gambling addicts living the luxury elite lifestyle and bankrolling their bad debts at the expense of the middle class? Or do we want a myth where you can fish out of the rivers, not smell landfill while driving through the city on pothole filled roads, breathe the air, and not waste resources like they are going out of style?

Since the first gold coin was minted in ancient times it has, and always will be, WORTHLESS. A chunk of circular metal, no matter how pretty, will never feed, house, bathe, or save you. All it represents is some concept of luxury value, which eventually is parlayed into a system of imaginary value to lubricate transactions. In itself, quite worthwhile, it makes life easier because it is a simplifying abstraction... but when the abstraction does not make transactions easier, it has failed its purpose.

That is what we have now. Banks that are afraid to lend, not because there is no good reason to lend, but because they have gotten so silly and now have to 'balance the books' and 'avoid past mistakes', that they are engaging in transactions that make sense in a flawed game, but have no value to humanity. There is nothing wrong with starting to redirect all that wasted energy, the question is how, not whether we should.

You need to pay off your credit card, short and simple, resolving the abstract deferred obligation you made to get some pleasure in the past is a necessary component of how the economy fundamentally works. The idea you can get something for nothing is how the economy is fundamentally failing (at all levels).

As for the how, you turn off the giant pipe spewing sewage into the river. That means stopping the increase of new leverage by banks. Chop that fractional reserve to actually be in line with the default risk at the least (note this a core equation that must be balanced for the entire concept of fractional reserve to match its reason for existence!!!).

The leverage itself is triggering off the chain effect margin calls. Hell, even relatively healthy banks were sweating bullets as they realized that credit default swaps don't balance out if a party catastrophically fails! I can't stress enough that our pleasant consumer culture, dumb as it is, even if it works, it is in extreme danger if we don't cut off the excesses at the top of the pyramid.

We are already seeing this happen, normal people are seeing their credit card rates jump into the teens if not the twenties on that debt you mention. I'm sure any small business looking for a loan could report horror stories. And once another wave of inflation hits and the jobs don't come with it... it'll start to burn pretty dang badly. Ignoring this is not going to make it go away.

The problem is that this is about to happen anyways if we don't do anything to arrest it. That 20~50K in debt won't seem like a lot when the dollar is worth 10c and in the next 5 years. We're due for horrible inflation when this recession unwinds.

Too bad all of our wages will also adjust accordingly to that horrible inflation and our standard of living is going to fall through the floor. But maybe that's what is meant to happen. No one economy is meant to be heads and shoulders above all others with free trade floating around. Face it, we were lucky- our success was primarily based on being the only civilized infrastructure intact and primed following World War II and then extended with massive borrowing from the early 80s on through today.

SI

Inflation fears are way overblown. A little bit of inflation right now would be a good thing.

As for meaningful reforms, no chance. Once they got the money with no strings attached it was over.

I'm afraid that we're going to have a double dip, at least in the construction sector.

Are you referring to the looming defaults in the commercial real estate space that I've been reading about?

Ha, a little bit of inflation when everyone is being laid off, is already out of work, or has flat wages because companies are passing on the pain to their workers (and firing them if they bitch)...

Ya, lets see the wage/inflation gap increase yet further. Based on how you measure it, we've already had inflation out pacing wage growth for most of this decade. And that is based on things like CPI that are completely bogus by now anyway (its nice to report 0.5% inflation each and every year, never mind the equation for it CHANGING every few years... with various important variables excluded for 'variance' though they are always POSITIVE growth, gotta love statistical liars).

We don't need a little bit of inflation to help hide some billion dollar blunders by some big banks. That little bit of inflation is basically a tax on every poor person who is not seeing their primary income source (wages) grow with the rate of inflation. In fact, I've ranted a long time ago about the necessity of having a job recovery before the inflation bill comes due for the very reason that a combo of inflation and massive competition for employment makes it hard for wages to correct to price inflation, and you end up overall with less wealth in the non-investor class (who have massive assets in forms like stocks which due rise with inflation pretty rapidly).

And since I run pretty much a zero debt philosophy myself, I'm also screwed as an investor with any of my money in 'safer' investments that does not automatically adjust with inflation. I'm basically losing real value on my low risk investments to help pay for the risk taking behavior of super wealthy people that are stupider than me.

We can't stop the coming wave of inflation, but pretending it is a good thing is bullshit. Name me one positive effect on the economy it is going to have, preferably one that doesn't lead to massive destruction of standard of living or wealth for the larger number of Americans. And don't give me the trickle down line of thought where 'healthier banks = more jobs for Ameruka'.

I can only think of one possible benefit (far outweighed by the consequences): the national debt isn't nearly the concern when it's only half as much in real dollars. It's also why I'm not nearly as scared about deficit spending because it's going to actually get a better return on investment.

SI

Interesting report I came across through work the other day - McKinsey's Global Capital Markets report from 9/30/09.

I had to zip it up as it's a 3.77mb PDF, but it gives a nice look at where things are and what has happened.

Time for a good old fashioned bump to this thread. I am shocked (sic) to see John Thain landing on his feet as the incestuous executive wheel continues to turn. He goes from one failed company (Merrill) to another (CIT).

John Thain Taking Reins at CIT - NYTimes.com


For those who forgot who he was, here's a clip that might have the greatest line I can recall about the recession: "Is there no greater metaphor for the dysfunction of our economy than a thirty-five thousand dollar toilet you cannot take a sh*t in?"

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Stim City
www.thedailyshow.com
Daily Show Full Episodes Political Humor Health Care Crisis

SI

Interior decorating aside, Thain is another in a long line of incompetent board room scum (buddy network over brains). His actions in Merill at the end of 2007/early 2008 were shameful, this is before the $35,000 toilet hit the news.... Essentially he's on my list of CEO's who will gladly extract money from shareholders and support his own fiefdom of cronies (and he himself is little more than a crony).

Didn't surprise me who would be the subject of an epic fail news story later on. Another bum who takes credit for things that arguably have nothing to do with him (although you could give him credit for polishing the Merill turd to sell at a high price, you have to look at the incompetent scum performing the due diligence and realizing its an idiot fleecing idiots).

Anyhoo, CIT isn't even on my radar, it self destructed pretty much on schedule, not to mention was one of the TARP losers that seem to get buried in the public media among the stories of the US being 'paid back'. Essentially paying out a couple billion dollars to... see the company head into bankruptcy, yay! I wonder how many 'jobs' they saved with that smooth move. Fuck ups all of em.

I don't know if this is a leading indicator, a lagging indicator, or just a personal thing that has nothing to do with the broader economy, but based on the last couple weeks of mail, Mrs. A and my unsolicited offers for credit cards, car loans, etc. are back to pre-recession levels.

After the crisis hit, those "you are pre-approved" offers slowed to a trickle. Now, they seem to be back, like nothing ever happened.

Again, it may mean nothing. But it is one sign of "back to normal," I guess.

Yeah, I've seen the same thing over the past month or so, come to think of it.

Dang, you're right. Me, too :(

SI

Don't know about you guys, but I've started moving from cash back into mutual funds, specifically Fairholme and Matthews China. I'll have to watch Matthews China carefully due to the "bubble" talk and will pull out quickly. Looking to buy GM when they IPO. All in all, feeling optimistic ... but what do I know.

Can we please start locking up some of these motherfuckers? From Felix Salmon.

http://blogs.reuters.com/felix-salmo...-bond-scandal/

re:
But wouldn't the failure of the bond investors to either perform due diligence or be smart enough to walk away from the investment opportunity in the absence of such put a good bit of the burden back on them? I mean, if you're willing to buy a pig in a poke then shouldn't you be pissed at yourself if it turns out to be a dead pig?

Don't worry, there is always some sucker pool of money out there to buy up the bad sides of all these deals... oh wait, we bankrupted a lot of that money recently... I wonder how many more times this trick will work before all the money is in the swindlers' hands.

Agreed, ultimately it falls upon the buyer to beware, unless they specifically make an inquiry to the seller and the seller puts in writing a lie it should know to be false, you might be able to make grounds on fraud there. That rarely happened, most buyers were simply being dumb.

My problem is when the dumb buyers happen to be representing 401k funds with seemingly harmless names like QuadroSlick Real Estate Advantage High Growth II (made up name so as to not offend the real culprits)... or worst, HyperSmooth Low Risk Finance III which markets itself as buying up AAA securities. More and more the dumb buyers are turning out to people like the average bum disconnected through their money through the magic of massive mutual funds.

Or those companies are doing the buying much more often, trying to get rich quick, and then their stock is being fed to the 401k's, which is even more disconnected and nearly impossible to track (without deeply researching the prospectus of the fund then doing detailed research on each company within it, often themselves opaque to the point you can't figure out what their holdings are based in).

There is no free lunch out there, you give your money to an 'expert' you are as dumb as that expert, or often that expert's sucker. Get someone you trust with your life, and then review the hell out of what they are doing with your moeny is all I can say (or take the time and have the luck to do it yourself).

I read this morning that nearly twelve percent of mortgages are currently in default.

This ain't over.

Heh. I noticed today in one of my textbooks that home ownership was up 10-15% over previous norms during the Bush era.

Those default statistics are also measured AFTER a number of foreclosures have already gone down the process, so the number is pretty scary.

Home ownership is a good goal I'd suggest for any family, but the problem is people using it as a get rich quick scheme, or depending on the bubble to flip a house... along with a number of people simply buying when they haven't put in the hard work yet to afford it.

Don't be a shifty banker's victim, having your equity wiped out to finance their margin.. use some common sense and look hard at the terms of the papers you are signing. This should be beat over the head of every high schooler and college student before they leave school.

Our government (both parties) has always been obsessed with increasing the number of homeowners in this country. Isn't it time to rethink that? It's definitely tough to look for a job when you're stuck to a house in a particular town (especially an underwater mortgage).

But it almost seems like a downward spiral, because the collapse of home values just creates more buying opportunities. Certainly, the only reason I own a house now is because of lower prices and the ridiculous homebuyer's credit. So the government has successfully tempted me into locking myself into this house and this town - but I'm not sure why it was so damn important for them to do so, and what the real benefit is.

Let's also not forget that a lot of people have lost their job and simply can't make payments, even if they had handled everything responsibly in the past.

A number that is interestingly similar to the unemployment rate. Obviously I realize that the relationship is greatly coincidental, since everyone out of work didn't have a mortgage, I just thought it was randomly interesting.

Sure, and things would be a lot easier for those people, and they'd have a lot more options, if they were renters and not owners.

So I'm not sure why our government has always been obsessed with promoting home ownership. The personal financial level at which people feel entitled to own a house here is just too damn low.

Or is it?

We're kind of in the middle among industrialized nations (as of 2002)
List of countries by home ownership rate - Wikipedia, the free encyclopedia

But in the top 5-6 on the basis of GDP Purchasing Power Parity
List of countries by GDP (PPP) per capita - Wikipedia, the free encyclopedia

edit to add: I looked this up because my gut reaction was to generally agree with your statement, but now I'm not as sure of that.

I agree that we subsidize home ownership too much. My point was that not all people in default were irresponsible in their purchase.

Is it that people are obsessed with owning a home or people are obsessed with owning a home they can't afford?

Here is a cheap house...
http://www.trulia.com/foreclosure/30...troit-MI-48214

That's awesome. Why aren't people at least buying up this land? Taxes? Detroit is bound to have a revitalization someday.

People are obsessed with having a home they can't securely afford. They look at what the make, assume they'll make at least that much every month forever, and then get into a commitment that requires them to make that much forever.

I guess they had mortgages 60 years ago too, but there were also a lot of ordinary people saving up and buying houses with cash. Great deal for them once the government decided everybody had to own a home and the cost of everything exploded.

I think if you moved there, you'd probably not be alive for very long. There's a reason it's so cheap.

That said, there's a lot of chatter that in some of these cities, developers are buying up a ton of that land on the cheap, boarding them up and not doing upkeep to suppress the value of all the surrounding houses even more so those will be abandoned or sold on the cheap. It's a nice way to buy up whole neighborhoods for future development that's ethically (if not legally) dubious.

SI

Reminds me of a house I once bought on Oriental Ave.

I expect the location and structure are far from desirable - but I've also always considered it likely that there'd be 'leans' against a lot of these places - ie. debts which you'd inadvertantly pickup when you purchased the house.

Heh, just saw this posted by an FB friend
Mortgage Backed Securities are America’s Herpes—the gift that keeps on oozing.

It sure looks like a majority of the country's mortgages may not have a legal chain of custody. How the fuck does this get solved?

This is exactly the crux of "progress" that I see right now. Many professionals today are mobile people. They relocate for job opportunities to gain valuable experience & skill sets and then move on when/if there are better opportunities. This mobility is a good thing as those doing the majority of voluntary movements tend to be very talented people who are very good at what they do.

Unfortunately, there is less of this going on these days and businesses have to settle sometimes for who they can get. Not the worst thing if that job goes to (figuratively) you, but not the best way to grow or innovate the business either.

I'd argue that with most people once they reach a certain age regardless of whether they rent or own a house they stick in an area - simply because if you have a family then things get complicated by how it affects people other than yourself (for example school performance, partners job etc.).

They get made 'wards of the court' and given adoptive parents? ...

(sorry - couldn't resist ;) )

The Fed has released a report to show just how bad things were in the aftermath of the Lehman Brothers collapse. The commercial paper market dried up so completely that the Fed had to lend money to companies like McDonalds, GE, and Toyota so that they could meet payroll and short term accounts payable.

Fed Documents Reveal Scope of Aid to Stabilize Economy - NYTimes.com

We'd be so much better off if we'd let the economy implode.

Thank goodness for George Bush, the pragmatist. :p

Well, I guess it all sounds so glorius and gallant when the Fed puts out say 9 trillion in short term loans, has 1.5 trillion credit outstanding, and offering thousands of behind the scenes transactions to SAVE the economy.

Am I the only person who questions where the cash comes from and where it goes? How phenomenon like that described above are pretty rational explanations for why a cash flooded group of corporations are bearish on employment growth?

Never mind, it is pointless to explain that 1% of a trillion dollars is either $10 billion dollars that will be extracted from the real economy or $10 billion dollars (or more) worth of inflation. Particularly in an environment where inventories are falling (less goods to distribute over more dollars would suggest higher prices, although prices tend to be sticky in short term).

Granted, all the numbers are imaginary now, so its hard to quibble too much over more imaginary numbers being thrown around. But when those imaginary numbers come back in the form of a 36% tax rate on the top bracket, a multi-billion cut in unemployment benefits, or debt service in the hundreds of billions, we all seem to forget we could print $X trillion to save a few well placed banks that overleveraged beyond the wildest dreams of anyone else.

I don't want a crashed economy, I want one that is healthy. You get there fastest by letting some of the worst performers die (liquidate them in a way that preserves the overall economy, but extract all of the equity you can out of Mr Paulson and his best buddies). The people at the top are NOT the economy, they are the parasites bringing it down repeatedly. Their 'talent' is unnecessary, and in most cases dangerous and self-destructive.

BTW, for anyone who is wondering, a long time ago when I referred to there being more reasons for the turnaround then TARP, the things described in this article are a big part of it. If the media would just do some numbers analysis of these big banks during the crisis they could have seen that there were injections coming from somewhere, and it couldn't be TARP funds. Even I wasn't aware it was in the multi-trillions, but it shouldn't surprise me.

What we really need is transparent public corporations. There is no reason the exact portfolio can not be described in general terms at any point in a company. With such a simple real-time data stream most forms of larger fraud could be detected very easily, not to mention investors could know that someplace like Bear Stearns was loaded up in derivatives... or how much exposure Citigroup had to credit default swaps. I missed a lot of the banking rebound in stocks because I had no idea how to evaluate their worth with their special ability to grab cash from nowhere and obfuscate it in their books. At least with GE or even GM or F you can figure out what is possible from their books and make a prediction with some assumptions.

Everything about Citigroup said it should die a horrible horrible death, in my opinion, but this lifeline that no one could track was there and odd numbers kept creeping out, even crazy declarations of profit (while they were still drawing on the Fed I might add, which made me insane with rage back in early 2009). Most people don't care if there is a shell game, as long as they get their job back and are okay themselves... but this shell game is leaking money out of the economy at terrifying rates, and while Dems and Reps squabble over billions we have these games costing us ten times as much.

It's going to all come crashing down and probably in our lifetime. The question are when, how hard is it going to be, and are we going to learn from it and get smarter going forward?

SI

Clients come, clients go, nature of the beast & all that. But it's still kind of depressing to lose a project even when you've known for weeks that it was coming.

Semi-sigh ... at least I've got something else to work on for a change. Not as nearly good as having both projects, but better than having none at all.

Boeing gets 35 billion dollar air tank refueler contract. Fantastic news for my area, will create 11,000 new jobs over the next few years and 40,000 overall.

If the US instead of printing money and giving it to the banks had nationalised (forcibly purchased the banks which needed bailouts) the banks then the economy and GDP balance would be looking far healthier today.

Or to put it another way - bank stocks are generally between 2-4x what they were when the bailout went on, instead of that profit in share price going to rich individuals it'd have gone into government coffers ...

This would also have had the advantage of discouraging stupid investment setups for banks in the future by punishing the people involved by taking their toys (and profits) away from them ... and of course its far easier to regulate an industry if you own a decent chunk of it yourself ;)

The financial fear mongering that led to the U.S. government bank takeover was similar in a lot of ways to the security fear mongering that led to the Iraq war.

Take a legitimately serious problem, and convince everyone that there's only one way to deal with it (that happens to benefit the military industry and/or the banks and the rich). There was an escalation in difficulty there too - terrorism fear mongering is pretty easy. But then they managed to convince people who generally support the poor and distrust the rich that handing billions to the rich on taxpayer "credit" (and also giving them all unofficial "pardons" for any financial crimes they committed) was the smartest thing to do.

I was of the same opinion when the bailout happened. There had to be a penalty to those poorly run financial institutions but we also needed to avoid collapse. Nationalize the collapsing banks into (essentially) their own Fed Bank...remove the idiot executives(while not honoring golden parachutes because you force them to insolvency before absorbing)...and then allow the private sector to buy back into the nationalized conglomerate eventually when there was/is a reasonable degree of stability to the market.

I said at the time and still believe today that giving the money without strings attached was a major mistake. But, my snide comment was a refutation to the idea that we should have allowed the banks to collapse and that somehow that would have been netter for the economy. That line of thinking is madness.

It's interesting to go back and read page 1 of this thread. "Getting worse or bottomed out" ended up just being the beginning. Soon after the thread started, Bear Stearns went for $2 and there went that.

Then at post 207, that's when things heat up. That September was downright scary.

SI

I am thinking this will become the new normal.

High gas prices.
High food prices.
Limited jobs.
A lot of people depending on the government.
A lot of people going back to school to hide for a while.

International Law here I come.

Yup.

January jobless rate hits record || OnlineAthens.com
10.4% in January 2011, exactly the same as January 2010. The more chilling stat is that long-term unemployed (27 weeks or more) now account for a record high 54.2 percent of the 484,668 jobless workers in Georgia.

When the people in charge depend on this to stay in charge, the others follow I think.

Makes perfect sense that in 2011 we're likely to pass into law policies that will slow economic growth and cost hundreds of thousands of jobs. :banghead:

Don't they stop counting people as unemployed after a year as well? As well as those who get part-time work. Which makes the number in reality worse.

I know my Dad is in that area. He's working a retail job just to have some income coming in until a better job is found.

Taking a pulse from the folks here. How's everyone doing.

No double dip, commercial real estate didn't seem to explode etc.

• Profession - consulting is doing great, practice's pipeline looks good
  
• Real Estate (Atlanta) - more houses going up for sale in the neighborhood (pretty sure not foreclosures) so sign of healthy real estate activity
  
• Personal - I've fenced in the backyard, hired the TruGreen guys again, bought some other non-essential stuff
  
• 401k - back to pre-Great Recession but only because of my continued contributions. In another IRA where I did not contribute, I am still approx 10% below the all-time high

I'm feeling pretty good.

I thought this graph was pretty shocking.

Still not panicking (although did sell some mutual funds to increase my cash position) ... but damn ... not again.

Thought I would change the thread title. Whether its officially a double dip etc. seems somewhat irrelevant. With EMEA issues, China slowing down and US still in the doldrums I think we have this continued period of struggle.

Interestingly in the IT consulting business, our pipeline is still pretty strong and clients still seem interested in buying.

Does anyone have a link that shows the stocks/mutual funds that did well during the first recession? I've read buying good consumer brand companies like P&G but would like to know the top 10-20 stocks that did well.

I missed that graph when it was posted...but I think it speaks volumes to some of the problems we have. Look at how people are frantically trying to educate themselves for the "new economy". Unfortunately...I think it is all for naught in most cases.

Notice how most of the problems we seem to face are related to credit, debt, or obfuscating the true cost of something. This is IMHO, the primary source of the wealth disparity we've seen over the past few decades. We've given wealthy people a check to give us something (a house? education? health care/insurance?) and said we will take the gamble and work to pay it back. Meanwhile, what education you need is different than when you went to school. Your house is now worth less than you financed it for (10 years ago). And you must stay in your job because if you get sick or injured...you can't afford the cost of health care service.

We've seen cost explosions in those three areas where politicians have tried (or have claimed to try) to distribute wealth/benefits a bit and make things more available to everyone. At least in the case of the housing bubble, things came back to earth (a phenomenon which of course, does what the government claimed to want to do but ultimately failed to do - give more people the ability to buy houses). Student loans debt is almost a more difficult problem, because there's really no way for the tuition bubble to burst except Americans turning away from education, which is of course not ideal. Schools have gotten billions from the federal government, all in the name of giving more students access, and the universities, predictably, have just hiked up the tuition for everyone and admitted anyone with a pulse to get a bigger share of that pie. It's now more difficult than ever for people of regular means to start life their adult life in anything but huge debt. Healthcare is maybe the toughest issue of the three, because everyone needs it to some degree. But again, our government seems more concerned about giving everyone access (through "insurance", rather than actually providing healthcare or attempting to control costs),which of course, will just make healthcare costs explode even more.

Totally random observation here (and one that largely flies in the face of my own personal reality frankly) but ... TV stations in 9 markets in the MW & SE that I'm currently working with are typically reporting about 90% of their October advertising inventory is already sold. That's up from anywhere from 65%-80% at this same time last year. And 8 of those markets don't have any significant political dollars being spent in them at the moment, so that isn't the source of the increase.

On the one hand that's an indication of a recovery in that sector of the economy. On the other hand, some of the categories for that advertising are certainly not traditional niches. One of the biggies at the moment is things like reverse mortgage lenders, another are 1-888-Some-Lawyer-Somewhere offering to get you a cash settlement for everything from slip & fall cases to medical malpractice/product liability claims to helping you get your disability claim certified.

In short, it's good for the TV stations but it doesn't exactly paint a picture of economic recovery on the whole either.

Tech job market in LA seems to have just gone insane in the last 2 months as well.

Purely anectodal but I was getting 2-3 calls from recruiters a day in that period whereas I was lucky to get one a month prior to that and my (now ex-) company has had 15 developers and business management staff leave for greener pastures in the last couple of months alone after a couple of years with no movement and everyone just thanking their lucky stars they were still around.

I'm sure it's nothing other than a local phenomenon but it did strike me as interesting as the financial sector prepares itself for the double dip and the media starts sounding the horn of doom.

Yeah, it seems to be the common theme with anything that breaks down. Almost as if we cannot be more deliberate with what we implement and allow a generation to go by. I think the radical changes we've seen in the job market, the economy, the skills one needs, and the massive disparity in wealth earning sorta highlight this. Maybe we're changing things too quickly for the common person to keep up with...or more likely, we haven't adapted our society to be capable of changing rapidly.

Government trying to provide benefit to a group that wouldn't otherwise be able to obtain it on their own seems noble enough. But being unwilling to more gradually phase in policy which enables the common person to rise up; they create programs which immediately provide a "solution" from which the bourgeoisie can create further disparity in wealth while creating the dependency on the ruling class oligarchy. This essentially enables them to create the debt slave culture.

I wish I could be less pessimistic about the future...but I honestly can't see a viable economic model emerging in the US for at least 10 years. And when I say viable, I mean something which will stop the cycle of people becoming debt-slaves just to find a job and take part in the new economy.

Sell your greek bonds if you have any.

Greek default is just a matter of time - Oct. 5, 2011

The housing bubble was caused by government policy, but it wasn't because of the policy advocating home ownership. That had been around since the 1970s. The housing bubble was caused by a removal/drastic lowering of bank liquidity limits on derivatives. So banks were more than happy to hand out loans if they could then bundle them up and leverage them 100 to 1. It wasn't just housing where they got burned, but it was by far the biggest and most visible spot. The banks would have been more than happy to give out the loans with those low liquidity requirements, regardless if there was an official government policy to advocate home ownership or not.

The impression I get is the turmoil in the market is simply the governments and financial people arguing over exactly how much of a haircut debt owners are going to take within Europe generally ....

When a default looks likely the market drops in an attempt to scare governments into avoiding the default, but the governments are reluctant to foot the entire bill for things and its likely that debt owners will have to accept a 'cent on dollar' restructuring for their debt imho.

Agreed on the housing policy but it leads me to ask 2 questions...

1) Why did banks see this is as a viable strategy?
I believe they saw this as acceptable strategy because Freddie/Fannie would buy those loans from them given the lower FHA requirements (or lack thereof). Those lower requirements were not around in the 70s & 80s, but came around in the late 90s/00s coupled with the (practical implementation of) buying ANY loan from a private broker. This isn't to say that just because the requirements are low, that banks should be reckless with what they do from there, but I do think it is evidence of government once again not understanding the practical implications of policy enactment.

In other words...you can't enact a policy of "we will buy all of your bad contracts that you wouldn't enter into without that safetynet" and then wonder why everything collapses when it is leveraged against contracts that would not have a market in the first place. Private market was busy being the private market...trying to make profit within the rules that exist. The private market then failed because of their own poor implementation choices...so we kept them running as reward for becoming such a massive clusterf---.

Its a complicated series of factors and certainly not saying government was completely to blame for it as banks certainly could have been responsible actors in all of this and avoided leveraging bad investments. But this leads me to my 2nd question...

2) How did we fix the collapse?
We didn't...we simply pumped cash into the private accounts of companies that should have been liquidated. Instead...we gave them everything "they" needed to continue their business model which proved to be faulty. This faulty model included everything from people who saw bad contracts as a worthwhile thing to leverage, a salary structure that is incompatible with the value of such people (after all, you could pay me $10M to make bad decisions that collapse your company...but I'm certainly not worth that), and a complete violation of the very reasons we give them the "privilege" to borrow at the fed rate.

All of this is not new news...but it is still holding our economy back. How, you might say? Because those faulty business models are still being rewarded for their incompatibility with success by continuing to try & squeeze every last dollar from customers, the government, and anywhere else they can in order to maintain their bad compensation structures which are not congruent with their value any longer. So while "we" have all adapted, found jobs that don't pay as well, had it outsourced to China, or simply given up...the banks' core management hasn't had to do any of that messy stuff. As a matter of fact...completely anecdotal I realize...the majority of commercial construction I keep seeing in my area is (you guessed it) more banks.

"Let em fail" didn't have to mean "let the economy collapse". It would have meant (massive) temporary measures to be deployed but I'm not sure we will truly recover from this as we keep adding more leaches to the economy every time we hear "something really bad might happen...rich people who made bad decisions might not be rich any more!!!"....and think that is a problem.

Dola,

Holy crap that post is long!! Sorry...didn't realize I wrote a blog entry. :)

One of the things I find interesting is that this is a 'national debt' crisis - however bear in mind that money is actually a ficticious concept, no currency is linked to anything real today (no Gold Standard in other words) .....

As such the US Government has been effectively printing money willy nilly in recent years to stimulate the liquidity in the economy - this means literally that billions more dollars than before have come into circulation.

This 'billions of dollars' isn't debt - its money printed, why not just use that to pay down some of the debt once its retrieved from the banks it was lent to? ... its replaced the ficticious money the banks were spending (their mutliple of leverage against the funds they really had) with more ficticious money already so it might as well be used for something useful rather than quietly shuffled off the balance books?

I've read serious proposals from economists arguing that each American should be given some amount of printed money that would have to be spent on some form of debt reduction. Inflation would be a concern, but given the historically low levels of inflation currently it might work.

But it won't happen because too many people see the economy as a morality tale where those that have are chosen by God and those that don't have should suffer for their sins. So we'll muddle along for a decade or so blaming all of our problems on the poor and powerless.

Honestly, it's probably not even printed. However, it's a convenient way to shuffle monies to where you want them- you inflate the value of your currency which basically makes everyone a little poorer, meanwhile, you create billions out of thin air and hand it out to those who bought Congress. It's simple, really.

SI

Absolutely its a strategy, in fact, this is what they are doing (where politically possible to pass).

The problem with it is that this strategy continues to benefit the mega-wealthy that have been given the lifeline while being able to hoard their money until such time the market is flooded with all of that money being printed. At that time, very real inflation (by any definition) will occur and many (myself included) believe it will be hyperinflation. So the more that is printed today...the more that those who have the means to maximize returns will have once hyperinflation begins to hit. And what that means from a practical standpoint (imho), is that many of the people who are getting artificially propped up will be the same people that are best prepared for the inflation. In other words...wealth disparity will increase further thanks to government (which in turn, allows them to use this wealth to lobby for more wonderful giveaways in the future) and we'll all just blame outsourcing to China as the culprit when its really a rigged buddy-system to begin with.

If the billions that are being printed never make their way into "real" circulation, then certainly there will not be hyperinflation. There will also not be increased employment as well, though, nor will there be a viable way to pay down debt unless we want to start taxing "stagnant funds" (i.e. raiding the cellar of the rich people).

Its a mess all around and a difficult thing to fix. But I think the fundamental problem in all of this is policy which encourages consolidation of businesses into larger companies. There is a line between allowing for cost-effective scaling and simply sitting on the market with your weight (so to speak)...but I think we need to get back to the fundamentals (for all Western societies) and re-evaluate everything we do to ensure there are checks & balances in place.

Oh its almost certainly not printed - its just a sequence of zero's added to a tally in a computer somewhere ...

I'm following the unrest in Europe (and the beginnings of it in the US) with interest, I don't think the populace is quite as stupid as the financial powers were hoping - whether they can cause enough ruckus to make a difference remains to be seen.

This mortgage deal is a flaming piece of shit.

And the lawyers win again.