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.