Economic Disaster Thread

[Loklorien s'Ilancy]

I think this topic deserves a thread of its' own, so that the presidential thread doesn't get bogged down with economy woes too much.

Now, as far as Wall Street tanking, is it at the point that it's going to happen any day now - especially with the bailout having been knocked down? As well, is there any real way that we can get out of this hole without a going through another depression?

I was talking with a friend today at work, and he seems to think that bringing our troops back is going to hinder things and make the situation worse (he doesn't believe we have any business being over seas any way, but he still thinks that it wouldn't help if they came home). I'm of the opinion though that if we bring the troops back and start taking that money spent on the war and start feeding it back into our own economy, it might start to help.

Course, my knowledge of how all that works is amazingly limited, so feel free to call me a nitwit.

But anyway, discuss the impending doom of America here :)

[Daiquiri]

Lets start by not paying the bigwigs of these companies that are failing. They make millions of dollars a year in wages alone and thats not counting thier bonuses. Even when the companies were going downhill, they still were able to cash thier checks - theres something wrong with that.

[Yog]

discuss the impending doom of the World here :)

Fixed.

I don't think for a single second this is going to be limited to United States. My father, a professor in economics is calling it a "tsunami approaching Europe and Asia". Any bank with derivatives in the housing bubble and collapsing financial institutions is going to be affected. It's going to be a domino effect of banks collapsing the world over. It's a world wide credit crisis we only seen the beginning of.

Today, Oslo stock exchange dropped 7.79% btw.

I am on the verge of stocking up on gold bars, soup cans, and barricading the doors and windows here. Ok, maybe not quite that bad. But anyone underestimating the long term effects on the world economy is in for a surprise.

[Lilaena De'Ville]

I think writing a check to bail out companies that were misbehaving so that they basically 'get away with it' isn't ideal, and shouldn't be done without restrictions in place. However! If Wall Street crashes and we're all back to making 5 bucks an hour and paying 10 dollars a gallon for gas and 9 bucks for a loaf of bread we'll be footing the bill for their mistakes anyway.

Personally I've always been fascinated by post-apocalyptic scenarios and movies and things like that. I just hope that we don't crash into one and start living it. It'd probably end up something like The Running Man/The Postman/Escape from New York. Wait, that would be cool!

I really don't think its that bad though. "Worst economic situation since the Great Depression" is not the same thing as "Another Great Depression."

edit: Also I've heard it said on the radio that perhaps if we don't help our big companies from failing that other foreign interests might, and then we could end up with non-democratic countries like China running our financial institutions, etc. I don't think I want that to happen. :uhoh Of course, I don't want the people who've been running them up to this point to keep running them, either. :shakefist

edit edit: Oh I heard that stocking up on gold bars isn't wise - when banks and economies collapse people aren't going to be running around asking for shiny gold coins. They'll be bartering and trading goods and services. So, learn a trade real fast! I'm going to buy a cow. Or maybe a few goats and chickens. Actually I bet I could get away with it in my big backyard.

[Jedieb]

The bill should pass tomorrow. It will be interesting to see how the market reacts in the morning as they follow what Congress does. I expect the market to bounce back tomorrow, especially if the bill passes. The question is how big of a jump are we likely to see.

[Loklorien s'Ilancy]

I believe we got a good view of what big companies do with bailout moneys earlier when the airlines got a check and still squandered it; ties in with what Daiq was saying about large company CEO's being so greedy that it's becoming a huge detriment to the stability of everyone and everything else.

I really honestly don't know how to feel about the bailout one way or the other though.

I do know however that the media can go jump in a lake, because they're a big contributer in my opinion of the rising panic.

[Yog]

I really don't think its that bad though. "Worst economic situation since the Great Depression" is not the same thing as "Another Great Depression."
The Great Depression had some 20%+ unemployment rates, if I remember correctly, so yeah, we REALLY don't want to go there. People are already feeling it in their pocketbooks though, and it is only going to get worse.



and then we could end up with non-democratic countries like China running our financial institutions, etc. I don't think I want that to happen. :uhoh Of course, I don't want the people who've been running them up to this point to keep running them, either. :shakefist
Whether we like it or not, China is going to be a big part of the economic puzzle here. Partly, because of their cheap labour producing cheap goods, and partly because of their ability to lend money. At least for the moment. But what happens when China starts to stagnate too. And what happens if China refuses to lend money? Your credit rating is not exactly stellar. You will then have to start printing more money, which leads to inflation.

I think at some point, Federal reserve and European Central Bank etc is going to be forced to work together at some point, because there is simply not enough money to stop all these banks from collapsing.

[Jedi Master Carr]

I am in school right now but if the economy got really bad I could lose my assistantship. I am not that pessimistic yet. I think a bill will get past either tomorrow or Wed. That will help some, but it will take a while for all the problems to be fixed.

[Lilaena De'Ville]

Still everyone should learn a trade so that they can contribute to society when we have to evacuate the unlivable cities and live in the mountains. I think I'm going to research 'milkmaid' or perhaps 'cowpoke.' We'll see.

[Jedieb]

I was wrong about this bill getting done tomorrow. There's a Jewish holiday and there won't be anything done until Thursday. Wow, there's no telling what's going to happen tomorrow. If things start to dry up in the next couple of days there's going to be alot of finger pointing. Everyone involved looks bad right now; Pelosi, House Republicans, McCain, and even Obama to an extent. This bill in intertwined with the election, I don't think I'll be discussing it much more in this thread. Because how McCain and Obama respond to this mess could very well determine who the next President is. McCain issued a statement earlier today blaming Obama and the Dems. Obama should be making a statement soon. I think 2 really bad days will knock down much of today's opposition. If I'm an aide to Obama I'd suggest he finally start twisting some screws. There were enough Democratic nays today to find the votes to pass this bill. Two bad days and public opinion will turn in support of this bill. Obama may want to get in there now.

[Lilaena De'Ville]

<dl><dt>I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.</dt><dd class="author">Thomas Jefferson (http://www.quotationspage.com/quotes/Thomas_Jefferson/), Letter to the Secretary of the Treasury Albert Gallatin (1802)
3rd president of US (1743 - 1826)</dd></dl>

[Jedi Master Carr]

<dl><dt>I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.</dt><dd class="author">Thomas Jefferson (http://www.quotationspage.com/quotes/Thomas_Jefferson/), Letter to the Secretary of the Treasury Albert Gallatin (1802)
3rd president of US (1743 - 1826)</dd></dl>

Well in his second term Jefferson flipped on that issue and allowed the creation of a national bank. I just don't think he saw the true picture of Banks before. Of course his political hatred for Hamilton could have been involved in that too. It got passed after Hamilton died.

[Lilaena De'Ville]

Of course he did. Everyone flips. We're all in here flipping out. :p

I just ran across the quote while searching for other quotes and thought it was timely and appropriate. He DID say it, after all. Do we have to nitpick it? I mean, you can if you want I guess.

[Jedi Master Carr]

Heh I was picking well non intentionally. It's my historical point of view that made me comment. I just disagree with that point of view. I think we need banks. Although, the problem here is more greedy corporate raiders that have gotten us into this problem.

[Yog]

That's a great quote though, and there is a lot of truth in that. I think there is a fundamental problem in lending money that does not exist. Money is by definition debt.

If you think that sounds crazy, check out this video:
http://video.google.com/videoplay?docid=-9050474362583451279

We do need banks though, but we need to regulate how they are run, otherwise you get these bubbles and collapses.

[Cat X]

I believe we got a good view of what big companies do with bailout moneys earlier when the airlines got a check and still squandered it; ties in with what Daiq was saying about large company CEO's being so greedy that it's becoming a huge detriment to the stability of everyone and everything else.

The point however is that the companies wont actually get the money - they will swap debt and assets at the Feds terms. This is what most dont actually understand about the proposed bailout - it wipes out stockholders and grabs assets (And debtors are an asset I have to add) and adds it to the Feds balance sheet. This debt is then restructured so the debtors can pay it back at terms the banks could not survive on. What the Feds then in effect do is taking a lot more than 700 billion in long term assets and retruns and well below market cost. It has in effect printed 700 billion and pumped it into the economy to get credit markets unfrozen. It is the credit market that is the big issue, without credit markets do freeze.

In effect, this is a huge nationalisation of the finance system.

There was a lot of issues about correct controls and procedures, plus oversight, but in fact the bill wasnt really too bad all things considered. It's certainly better than the carnage we are about to potentially get.


and then we could end up with non-democratic countries like China running our financial institutions, etc. I don't think I want that to happen. :uhoh Of course, I don't want the people who've been running them up to this point to keep running them, either.

Due to the laws of the Republicans that were introduced in their time controlling all three levels of Federal Govt AND due to the credit the Bush Admin have been running up due to their hamfisted actions... they already do. A lot of the root cause goes back the Voodo economics of Reagan. Clinton wasnt exactly the best even if he did pull back defiect spending, but Bush has been flat out horrific. The result was the sub-prime stupidity, which is directly blamable on Phil Gramm and his co-sponsors that allowed sub-primes to exist. And the collapse of the sub-prime that lead to the present crisis. Greenspan also has his share of blame for leaving interest rates too low for too long, directly leading to the too much easy credit.

The consequences for the financial mismangement and deregulation is now becoming rather clear.

[Yog]

^^ Above Aussie encapsulated the problem perfectly. :)

[Figrin D'an]

We do need banks though, but we need to regulate how they are run, otherwise you get these bubbles and collapses.


Emphasis added where I feel it's appropriate. The seeds were sewn for the collapse of this bubble with the massive financial deregulation that went on the early/mid '90s. As much as all of us here at least somewhat enjoy being capitalist pigs, this is a case study of how letting the system run wild and free leads to disaster... not because the massively free system is inherently a bad thing, but because greed takes over, boundaries are surpassed and there is no check and balance to push back.

Some regulation is a necessity. This the second time in the last 25 years we've had evidence for this, maybe we'll learn our lesson this time.

Oh wait, that's right, this is America, where we only look at the here and now and never fix anything until it's completely broken. Silly me.

[Loklorien s'Ilancy]

The point however is that the companies wont actually get the money - they will swap debt and assets at the Feds terms. This is what most dont actually understand about the proposed bailout - it wipes out stockholders and grabs assets (And debtors are an asset I have to add) and adds it to the Feds balance sheet. This debt is then restructured so the debtors can pay it back at terms the banks could not survive on. What the Feds then in effect do is taking a lot more than 700 billion in long term assets and retruns and well below market cost. It has in effect printed 700 billion and pumped it into the economy to get credit markets unfrozen. It is the credit market that is the big issue, without credit markets do freeze.

In effect, this is a huge nationalisation of the finance system.


Now see, that helps me a lot because I wasn't entirely clear on the nature of the bailout. While a bailout is still just that, it's comforting to know that the terms of what you're saying aren't a strict 'throw money at the problem to fix it' situation. And even if that's what it was, even I know something like that never solves such deep-rooted issues that started this whole thing.

I don't have a credit card, and honestly I've got approximately zero interest (did you see what I did there ;) ) in getting one. Charley says that I need to so that I can build up my credit history, but I just don't know. I pay my bills on time, my car loan will be paid off next month, and I'm just about done throwing money at Sallie Mae for my student loans; in fact I might even be able to pay those off by next January if I feel like living meager for a while (which isn't anything new for me).

And especially now, it just doesn't seem like a good idea to me.

[Figrin D'an]

Charley says that I need to so that I can build up my credit history, but I just don't know.


He's right, you should. Using credit cards responsibly (key word there) will improve your credit rating over time. You simply have to make sure you can pay off the balance in a short period of time whenever you use it. Try not to carry a balance for more than a few months, and you'll be fine.

The most responsible person who has no debts but has no credit history will still have a poor credit rating, which will effect your ability to get decent interest rates when you want to get, say, a home loan.

[Cat X]

Now see, that helps me a lot because I wasn't entirely clear on the nature of the bailout. While a bailout is still just that, it's comforting to know that the terms of what you're saying aren't a strict 'throw money at the problem to fix it' situation. And even if that's what it was, even I know something like that never solves such deep-rooted issues that started this whole thing.


And you see, this is the real issue I think we all have - it STOPS the fallout for a while but it does not fix the root cause of the issue. Without the root cause fixed, you will still be monumetally screwed in the long run - you are not facign a depression, but you DO have the long term structural recession that Japan had in the 90's as a model for whats coming. Zero economic growth, stagnation of the jobs market for a long term.


The root cause as we have said before in this thread is the excessive deregulation that is a mantra of the free market. To add to Figrin's point, the exact same deregulation lead to the Great Depression with almost EXACTLY the same causes. The Depression had a few additional factors that do not exist now, plus there is a bigger structure to prevent a economic freefall.

Much to my sadness tho, I feel Figrin is also right in that the root causes will never be properly fixed.



I don't have a credit card, and honestly I've got approximately zero interest (did you see what I did there ;) ) in getting one. Charley says that I need to so that I can build up my credit history, but I just don't know. I pay my bills on time, my car loan will be paid off next month, and I'm just about done throwing money at Sallie Mae for my student loans; in fact I might even be able to pay those off by next January if I feel like living meager for a while (which isn't anything new for me).

And especially now, it just doesn't seem like a good idea to me.
You dotn need to use a credit card :)

Al the banks are interested in is payment history. Using a card for a few small things and paying immediatly is what you do. But you are at the core correct - I would avoid credit for now, give it a few months for the fallotu to subside and get a decent rate at the bottom of the market. IF you can get it.

One good thing for you is that in a year's time, the credit you will need for a home will be vastly less. Because the house price will be very low and you will actually buy a liability with a potential upside. When I last talked to you about a home, I said that they are never assets but liabilities - this is still true BUT you will be buying at the bottom of the market. THIS is a damn good thing to do. You may even make money on it in the long term, despite how much a home actually costs to service.

So for you, you could be sitting pretty very soon if you time yourself well.

[Lilaena De'Ville]

Don't get a credit card and don't buy into the lie that you have to have credit history in order to get a house or whatever. You don't. With a down payment saved up you'll always get financing.

http://www.daveramsey.com/

^^ We're going through his steps to eliminate our debt and get rid of credit forever.

[Cat X]

Don't get a credit card and don't buy into the lie that you have to have credit history in order to get a house or whatever. You don't. With a down payment saved up you'll always get financing.

http://www.daveramsey.com/

^^ We're going through his steps to eliminate our debt and get rid of credit forever.

While it's true you dont need a credit history, banks WILL (should) be highly wary to loan as a result of no history. A proven history of prompt and proper debt management makes applications vastly easier and this is why a credit card with a small balance that you mange properly is actualyl quite prudent.

Ratings are not about how much you can pay, they are about good you are at paying, which is what is important.

Credit and debt is not actually a bad thing. The MANAGEMENT of it on the other hand is what truly matters. You can have a facilty of 200K and use it properly, or you can have 500 and default.

Banks will (SHOULD) crack down on credit and they will (SHOULD) check credit histories as a result of this crisis. The fact that they didnt is part of why we got here.

[CMJ]

Credit is a great thing to have if you're responsible. Problem is most people aren't when they initially get their cards. Either they are too young, or they just aren't ready.

I got my first card at 18 though, and have never had a problem. It have more credit available to me than I make working in a year.

I'm the kind of person they hate because I never carry a balance. In the dozen years I've had a credit card I can think of maybe 3 times I didn't pay off the entire amount I owed the first month(and those times it paid in off the next month).

They can really come in handy too.

[Csephion Draxus]

I'm a banker and I'm still on the fences on the bailout issue. I think one of the issues about it is exactly how the securities the government buys up will be priced. If they're priced high, it benefits the banks who are dumping the securitized debt, at the detriment of the taxpayer who is bankrolling it. If it's priced low, it's going to spread the taxpayer money out more carefully, but banks will take big hits on the books by selling at a discount. 700 billion is some arbitrary number because there's no real way to accurately value these instruments currently. I would hope for the latter as it would be a better compromise, but I seriously doubt this would happen. The banks can lobby, so they'll set the price. If this bailout is passed, the taxpayer just has to swallow the bill, no matter what the numbers end up as.

It's a turd sandwich either way. If it doesn't pass, lending confidence is going to be nonexistent and we're going to be in financial free-fall for a long time. If it does pass, we're going to have some really awful consequences in overloaded debt, devalued currency, and inflation. You're going to love spending $5 for gas when the dollar takes the beating of its lifetime.

As far as the "OMG GET MONEY OUTTA DA BANK" sentiment, that's rubbish. I can assume we're all small-time depositors and none of us hit above the FDIC threshold, so relax. The banks most in jeopardy over this are banks that were poorly capitalized and unbalanced due to purchasing toxic securities. These are going to be larger institutions that are naturally FDIC insured. You are fine.

Everybody's already said what needed to be said on credit. You really don't want to overload your leverage, but debt in and of itself is not a bad thing. It's like anything else, a tool in the toolbox. You still need to know when and when not to use it, but to go all chicken little and to run shrieking from debt instruments is certainly not going to help this situation, and it's not a very good idea.

[Cat X]

Credit is a great thing to have if you're responsible. Problem is most people aren't when they initially get their cards. Either they are too young, or they just aren't ready.

I got my first card at 18 though, and have never had a problem. It have more credit available to me than I make working in a year.

This is true - when I first got a card I screwed up BADLY and got myself defaulted. That was 21 years ago and I resisted a card for 15 years after that.

My cards now have a combined credit value of 21,500, which I manage properly and pay as required. For me running a business, they are a great way to accuratly know exactly what I am spending on because of the detail the statements have. And now there are tax modules that will take the electronic form of the statement and automaticaly allocate to the various P/L areas and makes doing taxation incredibly easy.

But the point is always MANAGE your debt properly. Dont get in over your head. Always pay off the minimums every month. Read the contracts. Take advantage of interest free periods.

Common money sense in reality, but it takes discipline. That kind of financial discipline is what banks should look for.

Which makes me look at the sahres account and grimace - I'm almost certainly going to have to reduce my exposure and cop the loss. Even if it's for tax reasons that I hold that exposure (Being a small business can really be effective tax wise) I'm not sure the 2500 a month interest is a good idea anymore (even if I can afford it). Even if that interest is 85% before tax deductable and the losses can be bought forward into next year's accounts.

[Figrin D'an]

Don't get a credit card and don't buy into the lie that you have to have credit history in order to get a house or whatever. You don't. With a down payment saved up you'll always get financing.


It's not about the ability to get financing. It's about the ability to get better financing and save yourself some money over the life of the loan. This is going to be even more important over the next several years while the mortgage market re-balances itself.

[Aurelias Kazaar]

For those who are worried please read this (http://www.financialpost.com/news/story.html?id=847962).

I have my own comments which are below:

Those who have been saying this going to lead into a Great Depression and the 777 point drop today in the Stock Market is proof of that are wrong. While the point drop is large, the overall percentage drop in the Dow was only 6.98%. Compare that with the October 1929 Stock Market crash, which was somewhere in between 20 and 22%, shows today's drop wasn't as bad. The key will be how the Market reacts later on the week like it did in 1987 when it went down 22.6% but rose sharply a few days later, making back all the money it had lost and more.

Also in 1929 Congress approved Smoot-Hawley Tariff (http://en.wikipedia.org/wiki/Smoot-Hawley_Tariff_Act), which apparently imposed a 60 percent tariff on over three thousand US goods and killed trade. Plus, they raised taxes. Which puts less money in people's pockets, so they don't have as much to spend (while the government gets money up front, companies don't so they can't survive and the economy crashes). The Treasury Department also didn't bother putting money into the system (ie making new bills). While this drives up inflation (which we should be very careful about), according to both an econmist and a history teacher I talked to, it would have helped. So the comparisons don't work. While the US dollar is going to be weaker (I think the exchange rate between that and the pound is currently $1.80 = one pound) money will be in the system. While I hate to say the next president will have to deal with inflation, it's something that's solvable and can be done (according to Steve Forbes (who knows much more than I do on this) the way to do this is to remove dollars from circulation).

I'm glad the bailout bill didn't pass in this form (mainly because I don't see how the federal government taking over the mortgages and hoping they'll make a profit on it will work and I don't like the government essentially socializing losses).

So what's the solution? I have to be honest, I don't know. I'll leave that to the actual economists to inform Congress/President and for them to decide on the solution (which I'm pretty cynical about). I know economists who say the bailout was "ugly but necessary" but I don't think 700 billion dollars is worth it.

The solution may be letting the people who failed to, well, fail. The same for the CEO/CFO/etc who failed too. Let them fail. And then do a federal investigation into why the banks and the companies like Freddie Mac, Fannie Mae, AIG, and Lehman Brothers did what they did and punish those who broke the law. That seems to me like a better use of taxpayer dollars than bailing out the companies who failed.

Of course letting Freddie Mac and Fannie Mae just fail probably can't be done because it's in the classification of 'too big to fail' and both are VERY large government sponsored organizations. So it may be better to break them up into smaller companies (this was suggested by Steve Forbes here (http://www.forbes.com/business/global/2008/0929/011.html)), recapitalize them (apparently costing 300 billion), and selling them for profit. There's more in the article, which I suggest reading because I can't explain it well. So that's one possible solution. Or at least the Fannie Mae/Freddie Mac portion.

As with Lehman Brothers and Washington Mutual, the solutions are all ready being reached. Lehman Brothers is reorganizing and selling assets ( http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4849619.ece) in hopes it can become profitable again, while WaMu was taken over by JP Morgan Chase (after the fed declared it a failed bank). By the way, it should be noted JP Morgan Chase has coveted WaMu for ages.

But I can not stress enough, I think the FBI should investigate to see if any laws were broken by the heads of the companies (which they are all ready doing (http://ktar.com/?nid=48&sid=963382)). The interesting thing will be who gets caught because there are certain members of Congress (http://www.youtube.com/watch?v=_MGT_cSi7Rs) who said in 2004 the two companies were fine. It's possible they were duped but they could have also, whether on purpose or not, denied that Freddie and Fannie were in trouble. Forbes did a lengthy analysis of the two companies. A summary can be found here (http://hotair.com/archives/2008/09/29/video-democrats-insist-nothing-wrong-at-fannie-mae-freddie-mac-in-2004/) with the full article here (http://money.cnn.com/magazines/fortune/fortune_archive/2005/01/24/8234040/index.htm).

I will say this: it's terrible for people to fail. I hate failure (especially when I fail) and feel bad when other people do. But if I'm not prepared and didn't do what I needed to do to be prepared then I deserve to fail. The key response is what people do afterwards. Do they pick themselves up and move on or do they let themselves go and stop trying. There's nothing wrong with failure, but giving up and not trying again is wrong.

Moving back to the plan itself, I like the idea of putting oversight into the Treasury Department and the Fed Chairman and how they handled Freddie Mac and Fannie Mae failing and the takeover of AIG. I'm all for that. But throwing 700 billion dollars in hopes it solves the problem? Uh uh.

This was an attempted "quick-fix" by the federal government (by both Congress and the Presidency and both parties have to take responsibility for this) without looking at all the issues. I have no doubt the problem needs to be solved. But reacting instead of responding isn't the right thing. The attempted push-through by the Bush administration was wrong, but adding things like bad credit cards, student loans, car loans, and any other "troubled asset" held by banks which both Paulson and Senator Chris Dodd proposed doesn't work either. It appears the new proposal was better (since it only authorized 250 billion and requires the President to authorize additional 100 billion, then report to Congress on why) but not enough.

Personally, I'm fine with the bill failing. Again, something needs to be done, but NOT for the sake of just doing something. And, of course, sometimes things just work themselves out.

[Cat X]

For those who are worried please read this (http://www.financialpost.com/news/story.html?id=847962).

I have my own comments which are below:

Those who have been saying this going to lead into a Great Depression and the 777 point drop today in the Stock Market is proof of that are wrong. While the point drop is large, the overall percentage drop in the Dow was only 6.98%. Compare that with the October 1929 Stock Market crash, which was somewhere in between 20 and 22%, shows today's drop wasn't as bad. The key will be how the Market reacts later on the week like it did in 1987 when it went down 22.6% but rose sharply a few days later, making back all the money it had lost and more.

The real story is not about a one day drop. It's the consistent slide for weeks, witht he market losing 3500 points in a year and the way there is so far no ground floor support. If you do the 1 year average, this is a lot worse than 1987 or other extended bear markets. I only have to look at my portfolio to see just how big the real losses have been in blue chips. I'm at 40% for the year with more to go. Many good stock have slid more. You will not make this back for quite some time, maybe years.

Plus unlike 1987, there IS fundamental problems. 1987 was an exhuberant market making an unexpected turnaround and also automated calls spiralling the market out of control. But there was no actual huge economic disaster that tripped the market. In 2008 however, there IS a economic structural problem. Banks really are collapsing. Liquidity in the market really is vanishing. The wave of bank problems is spreading.

There will be big economic consequences and stagnation. Not a recession as such I think and certainly not a depression. See Japan re 1990 and on for what's likely to occur.

While indeed there is less to fear than what is made out int he press, there is plenty to be concerned abou.t Much less if your attached stronger to China and India with their own strong internal growth, but the USA is going to have a Japan style stagnation. You can be depressed ro realise that recessions present real opportunities and surprising ones.



So what's the solution? I have to be honest, I don't know. I'll leave that to the actual economists to inform Congress/President and for them to decide on the solution (which I'm pretty cynical about). I know economists who say the bailout was "ugly but necessary" but I don't think 700 billion dollars is worth it.


Put 50 economists in a room, you will get 51 different opinions. The fact is when you are dealing with these things, they are as much in the dark as we are. They are however making what they hope is an educated guess instead of a wild guess.

One thing I do know is that the USA economy needs to be re-regulated and free market does not work. See how more regulated banking sectors around the world are surviving much better for proof of that statement.

Alos, this is undeniably a completely avoidable situation if certain acts of Cngress had not been repealed and presented the banks with the opportunity to bloat their balance sheets with the toxic debt and false accountign as they have now.

[Jedi Master Carr]

That tariff had nothing to do with the Great Depression. The European economies collapsed in 1929 which is what caused it. WW 1 and several other factors is what led to that awful event. I am not saying a depression is coming but I think we need more regulation to fix some of the problems we are in.

[Cat X]

That tariff had nothing to do with the Great Depression.


Yes it did, because it suppressed international trade to half what it had been a year earlier and ruining the economies of countries like Australia, which was hurt particularly hard beign a primary producer reliant economy, delfating prices and sending banks / businesses to bankrupcy. The deflation spiral is what really was the difference between a nasty recession and a decade long depression. Once you could not get the price to cover your loans, you defaulted. This lead to lower credit levels, thence less money in the system, reflected by less demand. Less demand lead to lower prices and on you go again.

A bit of a reference article on the Japan property bubble is worth reading for some similarities to the US housing bubble

http://en.wikipedia.org/wiki/Japanese_asset_price_bubble

[Lilaena De'Ville]

I wish the banks would just restructure people's loans into something they can afford and pay off, instead of foreclosing on them. I mean, if they'd just do that wouldn't that help quite a bit? Sure they wouldn't make as much money on the loans but they wouldn't go into bankruptcy either.

Seems to me the 'bail out' (which isn't 700 billion all in one go at least as it was written up in yesterday's paper) is just the government buying the loans from the banks and then restructuring them so people can pay them off. Why the middle man? WHY ARE BANKS SO STUPID?

[Jedieb]

The point however is that the companies wont actually get the money - they will swap debt and assets at the Feds terms. This is what most dont actually understand about the proposed bailout - it wipes out stockholders and grabs assets (And debtors are an asset I have to add) and adds it to the Feds balance sheet. This debt is then restructured so the debtors can pay it back at terms the banks could not survive on. What the Feds then in effect do is taking a lot more than 700 billion in long term assets and retruns and well below market cost. It has in effect printed 700 billion and pumped it into the economy to get credit markets unfrozen. It is the credit market that is the big issue, without credit markets do freeze.

In effect, this is a huge nationalisation of the finance system.


Now see, that helps me a lot because I wasn't entirely clear on the nature of the bailout. While a bailout is still just that, it's comforting to know that the terms of what you're saying aren't a strict 'throw money at the problem to fix it' situation. And even if that's what it was, even I know something like that never solves such deep-rooted issues that started this whole thing.

I don't have a credit card, and honestly I've got approximately zero interest (did you see what I did there ;) ) in getting one. Charley says that I need to so that I can build up my credit history, but I just don't know. I pay my bills on time, my car loan will be paid off next month, and I'm just about done throwing money at Sallie Mae for my student loans; in fact I might even be able to pay those off by next January if I feel like living meager for a while (which isn't anything new for me).

And especially now, it just doesn't seem like a good idea to me.

Before you go out and get a credit card you need to get your credit rating. If it's solid then I wouldn't get yourself into something that you're not comfortable with. You already have some credit history with your student loans and your car loans. If you've been paying those off your rating is probably excellent. You may just want to keep throwing away the credit card offers your mailbox gets flooded with. If it ain't broke, don't fix it.

[Jedi Master Carr]

That tariff had nothing to do with the Great Depression.


Yes it did, because it suppressed international trade to half what it had been a year earlier and ruining the economies of countries like Australia, which was hurt particularly hard beign a primary producer reliant economy, delfating prices and sending banks / businesses to bankrupcy. The deflation spiral is what really was the difference between a nasty recession and a decade long depression. Once you could not get the price to cover your loans, you defaulted. This lead to lower credit levels, thence less money in the system, reflected by less demand. Less demand lead to lower prices and on you go again.

A bit of a reference article on the Japan property bubble is worth reading for some similarities to the US housing bubble

http://en.wikipedia.org/wiki/Japanese_asset_price_bubble

Most historians don't seem to think it was a major cause though. Most seem to blame the situation in Europe, especially the Fall of the Weimer republic and other problems in the years leading up to 1929. I suppose it might have been a factor but I don't think it was the most important one.

[Daiquiri]

Wasnt it Clinton who helped pass the bill (or something) that basically stated to the BIG loan companies, 'Everyone should be able to afford a house. You give them the money and the government will back it up.'

[Jaime Tomahawk]

I wish the banks would just restructure people's loans into something they can afford and pay off, instead of foreclosing on them. I mean, if they'd just do that wouldn't that help quite a bit? Sure they wouldn't make as much money on the loans but they wouldn't go into bankruptcy either.

Seems to me the 'bail out' (which isn't 700 billion all in one go at least as it was written up in yesterday's paper) is just the government buying the loans from the banks and then restructuring them so people can pay them off. Why the middle man? WHY ARE BANKS SO STUPID?

Because banks cant afford to do that either, which is why they are going bust. The cost of money to banks has risen too high to support what they let out. There is also a total lack of credit to keep operations going, which has a flowon in raising money costs.

While the Feds set their base interest rate, there is also intrabank rates, which are higher. Banks rely on this flow to survive. Plus there is also liquidity and reserves to maintain...... when a bank gets a run on it, it basically runs out of reserves and cant liquidate what it has lent out fast enough to cover the money going out.

So the banks are not stupid - even the best run banks are being hit right now.. They simply do not and can not have the ways and means OR cost or reserves a Fed does. So yes indeed, only the Feds can do what is proposed because they are simply put the only ones that can afford it and even more to the point... the only ones legally allowed to do it!.

The issue isnt just sub-prime stupidity. It is now also GOOD debt is becoming tough for banks to support because of the tightness of money markets.

[Loklorien s'Ilancy]

I heard an interesting analogy on the radio this morning while driving to work, so I thought I'd throw it out for you guys to give your opinions on.

Apparently the bailout is like the sinking of the Titanic, with the government acting as the cruise staff who're only concerned with getting the rich folks safely on lifeboats, while us regular joes are locked down in steerage and doomed to go down with the ship.

When I heard that I really didn't know what to think, but then again I was still half asleep. Anyone else care to weigh in?

[Jedieb]

Wasnt it Clinton who helped pass the bill (or something) that basically stated to the BIG loan companies, 'Everyone should be able to afford a house. You give them the money and the government will back it up.'

That's was PART of the problem, but not as big as the deregulation that Republicans like Graham pursued. There's also some class/racial undertones with some of those arguments. Basically, some people are saying that the evil government forced banks to lend money to underqualified minorities. And that's why we're in this mess. Which is complete and utter crap. The sub prime mess and the ridiculous trading and selling of mortgages that got us into this mess was fueled by greed and irresponsibility. Sub prime mortgages weren't just given to poor people, but middle class Americans as well. Hell, when my wife and I bought our current house we spent about 100K LESS than what our bank was willing to lend us. Our real estate agent kept pushing us to buy something that was $50K more than we wanted to spend. But we stuck to our guns, we were patient and we ended up getting a great house from a very motivated seller. If we'd done what our bank or real estate agent had wanted us to we might be in a lot of trouble right now.

Banks were irresponsible. Congress (Dems and Reps, but more Reps IMO) were irresponsible. Consumers were irresponsible. Everybody got greedy.

[Jedieb]

I heard an interesting analogy on the radio this morning while driving to work, so I thought I'd throw it out for you guys to give your opinions on.

Apparently the bailout is like the sinking of the Titanic, with the government acting as the cruise staff who're only concerned with getting the rich folks safely on lifeboats, while us regular joes are locked down in steerage and doomed to go down with the ship.

When I heard that I really didn't know what to think, but then again I was still half asleep. Anyone else care to weigh in?

That's certainly one way of looking at it, but I've got some problems with it. Yes, some Wall Street fat cats will do very well under this bail out. But what that analogy misses is that the bail out, IF it succeeds, will loosen credit and keep many business afloat. Which means payrolls get made, people keep their jobs, they pay their bills, keep their homes, etc. If AIG goes under I'm afraid of who it will take with it. You could see unemployment hit double digits. I don't think we'll get anywhere near Great Depression figures, but a lot of people are going to be out of work. It's going to suck all the way around.

[Csephion Draxus]

I heard an interesting analogy on the radio this morning while driving to work, so I thought I'd throw it out for you guys to give your opinions on.

Apparently the bailout is like the sinking of the Titanic, with the government acting as the cruise staff who're only concerned with getting the rich folks safely on lifeboats, while us regular joes are locked down in steerage and doomed to go down with the ship.

When I heard that I really didn't know what to think, but then again I was still half asleep. Anyone else care to weigh in?

A kernel of truth to it yes, but it's mostly populist bluster. There are real objectives that people who tout the buyout are looking for at all sectors of the economy, and it's way beyond just an issue of golden parachutes.

[Yog]

If you wanna push the Titanic analogy further, the $700B Bailout is the difference between having a modern day lifeboat system and evacuation plan and not having lifeboats at all.

I talked to the economy professor again yesterday (my father), and he emphasised the Bailout plan is absolutely critical. The reason is, cash flow slows to a halt between the banks because of fear. The economy is in effect standing still. If you just let all these major banks go bankrupt, it leads to a chain reaction where thousands of banks go under. This affects businesses (because businesses need liquid assets to pay people, buy materials, pay bills etc), but it also affects private citizens (where are you supposed to get mortgages from). Eventually, the economy becomes frozen, and you get a situation at least as bad, if not WORSE than the 30's where the unemployment was at 25%. No, that's not an exaggeration. We're talking full system collapse here. He was quite specific about this latter point; with no Government response, this very bad situation would lead to a disaster. The bailout is absolutely necessary, and it needs to happen quick, as in days rather than weeks. The worst part is, no one knows if it is going to be enough.

He emphasised the point, this is is going to be a global problem. And it will eventually require Governments working together to stop it. And even with appropriate action, he anticipated stagnation in the world economy for 2-3 years. Btw, I watched the news recently, and I saw video photage of lines outside Swedbank, one of Sweden's biggest banks. They were queuing up to withdraw their money in fear the bank could go bankrupt. Swedbank made a lot of investments in the housing bubble, and some 9 billion kroner in Lehman. And that's just one example, it's about to get a lot worse at the other side of the pond. Banks are already going bankrupt over the world, but the media is only reporting on the biggest ones. Hundreds of billion Euros in assets are moved to save banks and economies. One problem for Europe though, we got some 27 countries, and that complicates and slows urgent cooperation.

[Csephion Draxus]

Liquidity is a huge issue that is unfortunately not understood by many laymen voters. If the economy is a big working machine, liquidity is the oil that keeps gears from grinding and rods from being thrown. That isn't to say the bailout is a real rah-rah choice, because it's got a lot of really ugly downsides to it, but people are seriously talking about a complete evacuation of liquidity at the macro level. That's insane.

[Yog]

Here is a very interesting radio interview with people who were actually involved in mortgage investment speculation, and they explain how the bubble happened and what went wrong. It is 1 hour long, but every minute is worth it. Highly recommended.

If you would like to learn more, click: Radio Interview (http://audio.thisamericanlife.org/player/CPRadio_player.php?podcast=http://www.thisamericanlife.org/xmlfeeds/355.xml&proxyloc=http://audio.thisamericanlife.org/player/customproxy.php)

[Jedi Master Carr]

The dow dropping 600 points isn't really encouraging news. Things aren't looking great at the moment.

[Yog]

Tell me about it. We just had a 8.84% drop earlier today in Oslo, so far this year, the drop has been 50% something. I also saw a really ugly map with red numbers over all of Europe. I think one country had 14% drop.

[Loklorien s'Ilancy]

Disgusting.

AIG execs going to a resort less than a week after they're bailed out by the government? Honestly, I don't even think I can be surprised at this kind of stuff anymore.

http://abcnews.go.com/Blotter/story?id=5973452&page=1

[Morgan Evanar]

Probably the best information about the big current problem: http://www.thisamericanlife.org/Radio_Episode.aspx?episode=365

[Jedi Master Carr]

What this about Iceland going bankrupt?

[Jedieb]

Disgusting.

AIG execs going to a resort less than a week after they're bailed out by the government? Honestly, I don't even think I can be surprised at this kind of stuff anymore.

http://abcnews.go.com/Blotter/story?id=5973452&page=1

That made it into the debate last night and I liked what Obama had to say about it. Basically, he thinks AIG should write a check to the Federal Government for the cost of the retreat and that the execs that went to it should be fired. Idiots, I WANT MY MONEY BACK!

[Lilaena De'Ville]

What this about Iceland going bankrupt?

http://ap.google.com/article/ALeqM5hJdb2RwrEg_X8yNRHcVvn_OE9vKwD93LRO8O1


Home to just 320,000 people on a territory the size of Kentucky, Iceland has formidable international reach because of an outsized banking sector that set out with Viking confidence to conquer swaths of the British economy — from fashion retailers to top soccer teams.

The strategy gave Icelanders one of the world's highest per capita incomes. But now they are watching helplessly as their economy implodes — their currency losing almost half its value, and their heavily exposed banks collapsing under the weight of debts incurred by lending in the boom times.

"Everything is closed. We couldn't sell our stock or take money from the bank," said Johann Sigurdsson as he left a branch of Landsbanki in downtown Reykjavik.

The government had earlier announced it had nationalized the bank under emergency laws enacted to deal with the crisis.

"We have been forced to take decisive action to save the country," Prime Minister Geir H. Haarde said of those sweeping new powers that allow the government to take over companies, limit the authority of boards, and call shareholder meetings.

A full-blown collapse of Iceland's financial system would send shock waves across Europe, given the heavy investment by Icelandic banks and companies across the continent.

.....

As regular Icelanders begin to blame the government and market regulators, Haarde said the banks had been "victims of external circumstances."


Richard Portes of the London Business School agreed, noting the banks were well-capitalized and had not bought any of the toxic debt that has brought down banks elsewhere.


"I believe it is absolutely wrong to say these banks were reckless," said. "Quite the contrary. They were hugely unlucky."


Hugely hugely unlucky!

[Morgan Evanar]

I don't normally say this stuff in a more public forum, but my gut says the DOW will bottom out at 8400.

[Cat X]

I don't normally say this stuff in a more public forum, but my gut says the DOW will bottom out at 8400.

Last close is 9258. Havent really got all that far to go.

[Jedi Master Carr]

What this about Iceland going bankrupt?

http://ap.google.com/article/ALeqM5hJdb2RwrEg_X8yNRHcVvn_OE9vKwD93LRO8O1


Home to just 320,000 people on a territory the size of Kentucky, Iceland has formidable international reach because of an outsized banking sector that set out with Viking confidence to conquer swaths of the British economy — from fashion retailers to top soccer teams.

The strategy gave Icelanders one of the world's highest per capita incomes. But now they are watching helplessly as their economy implodes — their currency losing almost half its value, and their heavily exposed banks collapsing under the weight of debts incurred by lending in the boom times.

"Everything is closed. We couldn't sell our stock or take money from the bank," said Johann Sigurdsson as he left a branch of Landsbanki in downtown Reykjavik.

The government had earlier announced it had nationalized the bank under emergency laws enacted to deal with the crisis.

"We have been forced to take decisive action to save the country," Prime Minister Geir H. Haarde said of those sweeping new powers that allow the government to take over companies, limit the authority of boards, and call shareholder meetings.

A full-blown collapse of Iceland's financial system would send shock waves across Europe, given the heavy investment by Icelandic banks and companies across the continent.

.....

As regular Icelanders begin to blame the government and market regulators, Haarde said the banks had been "victims of external circumstances."


Richard Portes of the London Business School agreed, noting the banks were well-capitalized and had not bought any of the toxic debt that has brought down banks elsewhere.


"I believe it is absolutely wrong to say these banks were reckless," said. "Quite the contrary. They were hugely unlucky."


Hugely hugely unlucky!


Wow that is bad, hey Yog since you are from Norway, how will this effect Europe?

[Cat X]

Wow that is bad, hey Yog since you are from Norway, how will this effect Europe?

I know the answer to this :)

Quite badly. Icelandic banks own quite a fair stake of other banks and businesses. PLUS, with the British using anti-terror laws to seize assets of said banks (Yes, you read that right), the political fallout could get quite big too. In seizing assets, the British basically guarentteed the final bank still standing in Iceland will now fail.

So yeah, this will be one hell of a mess.

There's only really a handful of countries with banking systems that are surviving this well - Yog lives in one, I'm in the other. Both have very good oversight and regulation, with plenty of cash. Both countries also run very stong govt surpluses.

Asia will probably get out of this one resonably intact. Some Europe countries will also do the same. But most the G7.... ouch.

And Maybe Morg was optimistic - Dow is 8,579.19 today.

[Cat X]

AND ASX 200 down 7.8% today and the Nekkei down 11% today. This is turning into an utter bloodbath. Biggest one day losses since 1987.

I really hope the Dow doesnt reach the 7000's

[Jedi Master Carr]

Things are looking awful. What sucks for me is I have some money that I was going to invest from a stock fund (I got the money out in August thank god) I was going to reinvest it I have 90 days from I took it out, so I have one more month. Should I bother. The Financial planner is telling me this is a good time to invest but I am worried the bottom will fall out. But I will end up paying a lot in taxes if I don't.

[Jaime Tomahawk]

I'd say actually about a month's time WOULD be the best time to get back in. My thought - seriously - is that if Obama is elected, the market may rebound. Say put it back in with about a week to go.



Originally posted by one of the blokes on ozvmx. He titled it with his name (Graeme), so he deserves the credit if he din't simply C&P...
---------------------------------

MUG'S GUIDE TO AMERICAN STOCK MARKET TERMS for 2008, and possibly beyond.

CEO --Chief Embezzlement Officer.

CFO-- Corporate Fraud Officer.

BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.

BEAR MARKET -- A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.


VALUE INVESTING -- The art of buying low and selling lower.

P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.

BROKER -- What my broker has made me.

STANDARD & POOR -- Your life in a nutshell.

STOCK ANALYST -- Idiot who just downgraded your stock.

STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves.

FINANCIAL PLANNER -- A guy whose phone has been disconnected.

MARKET CORRECTION -- The day after you buy stocks.

CASH FLOW-- The movement your money makes as it disappears down the toilet.

YAHOO -- What you yell after selling it to some poor sucker for $240 per share.

WINDOWS -- What you jump out of when you're the sucker who bought Yahoo @ $240 per share.

INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse.

PROFIT -- An archaic word no longer in use.

EDIT : WHEEEE, we're already under Chris' guess for a floor today. Yay. Not.

[Jaime Tomahawk]

13% drop opening. 10.17% drop at this point.

Bloody hell, a full blooded crash is truly on -_-

[Jedieb]

Things are looking awful. What sucks for me is I have some money that I was going to invest from a stock fund (I got the money out in August thank god) I was going to reinvest it I have 90 days from I took it out, so I have one more month. Should I bother. The Financial planner is telling me this is a good time to invest but I am worried the bottom will fall out. But I will end up paying a lot in taxes if I don't.

If you're in your 20's and 30's it is a good time to invest. If you're worried about your taxes then you should be buying your mutual funds in a ROTH IRA or even a traditional IRA. I've always liked the ROTH IRAs better, IRC, you deal with taxes when you withdraw them in your 60's. Another thing, it's usually better to contribute to a ROTH on a MONTHLY basis as opposed to one lump sum. The average price you pay for a stock/mutual fund is almost always cheaper if you average it out over 12 months then if you try to pick the low price of any stock or mutual fund. I also think it's much easier to go with a mutual fund than an individual stock, but you should really have a mix. There are some stocks out there that have been holding up well under this meltdown. I think I heard that Coca Cola is doing well. And if Coke is doing well it's a safe bet that Pepsi is hanging in there as well.

I may not even look at my 403b statement when it comes in at the end of the month. There's really no point. :cry

[Yog]

Personally, I would not touch stocks or housing market this side of christmas.



Wow that is bad, hey Yog since you are from Norway, how will this effect Europe?
I think the real question is if other countries will follow example. Iceland gave a good macro economic miniature model what happens when lots of banks collapse, and the Government is not able to cover the losses. Which lead to a rather awful situation where no one can withdraw money deposits from their banks, and the entire economy is frozen. I said it before, and I will say it again, we only seen the beginning of the storm.

The only reason I am somewhat optimistic on my own country's behalf, is because we have large money reserves, and one of the most regulated banking / finance sectors in the world. But make no mistake, this crisis is going to bite, for all of us. Any bank that had derivatives in the housing bubble is going to feel pain.

[Jedi Master Carr]

The advise is helpful, luckily I am young enough and don't need the money anytime soon.

[Lilaena De'Ville]

Bye bye retirement! :wave

The good news is that when it comes time to trade and barter instead of 'buy' things with our worthless money, my family is set because my parents own several acres out in Oklahoma that we can all go settle on. Hooray! And a farming co-op would probably form nearby so we wouldn't starve!

Actually that sounds awesome. Am I crazy?

[Miranda Tarkin]

Wow you are always about the worse case scenario lately. It's depressing enough with the stocks going down and then I read your posts :p

[Yog]

Bye bye retirement! :wave

The good news is that when it comes time to trade and barter instead of 'buy' things with our worthless money, my family is set because my parents own several acres out in Oklahoma that we can all go settle on. Hooray! And a farming co-op would probably form nearby so we wouldn't starve!

Actually that sounds awesome. Am I crazy?
You're well set, LD!

Inflation is to be expected, although, to be honest, it likely won't get THAT bad. The political leaders have experts around them advising them on this situation, and I do think they will work together to ride out the storm. One example of this is the G7 leaders meeting, and central banks all over the world are working hard to save the banks. It's eventually going to be a global effort to try and stop the collapse. I think continued stagnation for the next 2-3 years, maybe higher unemployment rates, rapid rising costs etc, but not the 1930s scenario. The economy is after all more robust since then.

[Jedieb]

Even the worst global depressions last only about 18 months. Domestic ones are usually half that. The question is, when did this one start? There's no doubt that whoever becomes President is going to inherit a crappy economy, but history tells us that by the time his first term ends the economy will more than likely be rebounding.

[Jaime Tomahawk]

Inflation is to be expected, although, to be honest, it likely won't get THAT bad. The political leaders have experts around them advising them on this situation, and I do think they will work together to ride out the storm. One example of this is the G7 leaders meeting, and central banks all over the world are working hard to save the banks. It's eventually going to be a global effort to try and stop the collapse. I think continued stagnation for the next 2-3 years, maybe higher unemployment rates, rapid rising costs etc, but not the 1930s scenario. The economy is after all more robust since then.


I think tho, inflation wont be coming this time. I was reading that deflation is more likely which I kinda agree with.

[Lilaena De'Ville]

Wow you are always about the worse case scenario lately. It's depressing enough with the stocks going down and then I read your posts :p
Oh I am so tongue in cheek its not even funny. :p Of course, if it comes down to it we'll implement Plan End Of The World As We Know It (And I feel Fine), but I highly doubt it'll come to that!

My sister is worse off (or better off?) with her 13th kid being born any day now. She'll either have tons of child labor to work the fields or she'll have to sell them/give them away like families had to do in the Great Depression. :lol/:(

[Yog]

Europe Unified On Proposal to Protect Banks (http://www.washingtonpost.com/wp-dyn/content/story/2008/10/13/ST2008101300446.html)

This is very good news, and the stockmarkets have a decent boost today.

Update: European leaders announce huge bank bailouts (http://edition.cnn.com/2008/BUSINESS/10/13/world.markets/index.html)


NEW: Germany and France announce bank bailouts worth more than $1 trillion
Financial markets bounce in Europe and Asia
UK banking giants announce they will take up to $63 billion off government
NEW: Dow Jones opens 400 points in the black on back of earlier gains


Merkel outlined a plan which could see the German government provide $536.7 billion in guarantees for banks and as much as $107.3 billion for recapitalization.

Sarkozy said his government was ready to spend up to $490 billion on its bank rescue plan. Watch more on the gold rush during the downturn »

Sarkozy said the money included $436 billion to guarantee bank refinancing and another $54 billion for a government-backed financing vehicle to provide banks with the capital they need. The figure was a maximum, which may not be reached if the market started functioning normally.

The world's major economic powers have been forced into action after weeks of turmoil on financial markets saw trillions wiped off the value of stocks. Most troubling has been the collapse in confidence and supply of liquidity in major banks burdened by unknown amounts of bad debs related to sub-prime mortgages. Read a timeline of the financial crisis

Earlier Monday, Britain's banks detailed their plans to take up to $63 billion of government money to boost their balance sheets.

Royal Bank of Scotland said it would raise $34 billion worth of capital. The government would buy $8.6 billion of preference shares directly and underwrite $25.7 billion of ordinary shares. Watch some Asian markets rise in Monday trade »

The government was also injecting a further $29.2 billion into Lloyds TSB Group and HBOS, two banks which are in the process of merging.

Meanwhile Barclays said it would boost its capital by at least $11.4 billion, but without government help. Read Todd Benjamin's blog

"It is not just important to economists and financial experts. It's something that matters for every family and business in Britain," British Prime Minister Gordon Brown explained at a Monday news conference.

We're talking trillions of dollars in emergency / stimulative packages for Europe. A critical step for the long term stability of the economy.

[Jedieb]

Stocks rose early this morning, but they've been decliing throughout the day. The Dow is down 181 right now, but we've still got a couple of hours to go so it may still rebound a bit. I went in and changed my 403b contributions yesterday. I actually increased my contributions to 15%. I'd been meaning to do it for ages, I just never got around to it. If I were in my 50's I'd be nuts to do this, but at my age it makes sense. A bigger contribution right now means I'm getting cheaper shares and more of them.

[Yog]

US faces worst recession in 26 years:
http://www.ft.com/cms/s/0/232eb4de-9e20-11dd-bdde-000077b07658.html?nclick_check=1


The US economy appears to be plunging into what many experts believe will be its worst recession since 1982.

Senior officials at the Treasury and Federal Reserve are confident that the rescue plan for US banks will succeed in preventing a financial system meltdown and ensure there will not be a repeat of the Great Depression. But they know that a sharp economic downturn is already baked in the cake. They do not, however, know how deep or protracted it will be.

The focus of concern is shifting from the markets – although these remain dangerously stressed – to the wider economy, where the consumer finally appears to be cracking.

The Fed and Treasury were expecting the economy to weaken but not as rapidly as it has, with collapsing consumer confidence, falling home starts, slumping retail sales and falling industrial production.

“The actual deterioration in the data in the last few weeks has been much more severe than anyone was expecting,” said Frederic Mishkin, a professor at Columbia university and former Fed governor.

Consumers, who account for 72 per cent of the US economy, are pulling back amid a brutal tightening of credit conditions on everything from car loans to credit cards and home equity lines. Meanwhile, foreign demand is also weakening.

Alan Blinder, a professor at Princeton and former Fed vice-chairman, said: “It looks to me like the economy has fallen off a cliff.”

He said it was all but certain the US would face a recession worse than in 2001 or 1990-1991.

“The game is now about making sure this recession is less deep and less long than the 1982 recession.”

Many experts expect unemployment will soar from its current level of 6.1 per cent and worry it could go above 8 per cent.

The Fed now thinks that unemployment will rise above 7 per cent and is likely to peak at about 7.5 per cent – a level last seen in 1992.

“We may be talking about one of the most severe recessions in the post-war period,” said Larry Meyer, chairman of Macroeconomic Advisers and a former Fed governor.

This is in spite of the extraordinary measures taken to stabilise the banking system, which senior officials believe will gain traction in the weeks ahead.

Policymakers believe that as the markets become more comfortable with the new arrangements the credit freeze will gradually thaw. If it does not, they are grimly determined to return with still more force.

“We are moving in the right direction. The Europeans are moving as well, which is very important,” said Mr Mishkin. “But we won’t know whether it is enough until we see how the market responds. A lot of damage has been done already.”

The battle over the $700bn bail-out was very costly, he said. “People are really terrified and this has the potential to have a big impact on spending.”

The US entered the crisis with a very low savings rate – unlike, for instance, Japan in the 1990s – making it vulnerable to a sudden consumer retrenchment.

Many economists think the savings rate – which was 0.2 per cent this year before being temporarily lifted by a tax rebate – will rise to between 3 per cent and 4.5 per cent. The fall in the price of oil will accommodate part of this.

But if it happens over a few quarters – as seems increasingly likely, given the shock to wealth and extreme denial of credit – it would produce a deep, if not necessarily long-lasting, recession.

Rising unemployment threatens to deepen the housing slump, further depress mortgage debt and increase delinquencies on car loans, credit cards and other consumer loans.

Meanwhile economic weakness is likely to multiply corporate defaults, including private equity deals. This second wave of losses for banks might prolong the credit crisis.

Some worry this could end in deflation. Senior Fed officials admit they cannot completely rule it out. However, Fed simulations with even severe recessions do not result in falling core prices, due to the high initial level of inflation, firm expectations and a weak relationship between unemployment and prices.

Standard models suggest that the US central bank should cut rates further from 1.5 per cent to 1 per cent and possibly lower, and do so quickly.

Policymakers will probably end up doing this. But senior Fed officials are unenthusiastic, worrying that further rate cuts will not have much impact and this could weaken confidence further.

At best, they now see rate cuts as a secondary issue, compared with bank recapitalisation, asset purchases, borrowing guarantees and Fed commercial paper purchases.

Some believe even these actions might not be enough. Democrats in Congress are calling for a second fiscal stimulus to hold down unemployment.


Factories close down in China:
http://edition.cnn.com/2008/WORLD/asiapcf/10/19/china.economy.ap/index.html

[Loklorien s'Ilancy]

Ugh. The company I work for has a secondary plant in Ningbo, China. I don't like the sounds of factories closing anywhere :(

[Jaime Tomahawk]

And just when we thought the idiots that ruined everything for us had decided to GTFO and leave the adults to clean the mess, this evening's news was enough to seriously annoy any rational human.

http://www.politico.com/news/stories/1208/16514.html

Yay to the GOP for putting ideology over common bloody sense. I wonder if for a moment these idiots realise the sheer amount of economic damage even one car company failing would cause? And that would seriously affect all of you. Do they realize just how many jobs the entire sector supports?

Yes, GM, Chrysler and Ford have problems and the need to change quickly. But allowing to fail really should not be an option, not when this would cost a hell of a lot less than the financial bailouts and it will help real people out. Do you really want to see big slices of the USA turned into Flint MI? If you think the recession your in is bad, wait until GM goes under. Oh THEN the real fun will start.

Yay GOP Senators. You really suck. I really dont want to look at my stocks and superannuation after tonight - I dotn know wether I'll just go postal or just laugh at the absurdity of it all.

[Daiquiri]

Yes, they support a lot of ppl in many different ways, but to bail out the auto industry? No way. I believe the majority of Americans agree on this.

[Lilaena De'Ville]

I don't really want them spending our money to fund companies that don't work well. Anymore than they already have. And give the Big 3 money and stipulate what they can or can't do with it + mandate things to them? The Government can't run businesses so I don't think that would work any better than letting the companies do what they want with the money.

Unfortunately some companies deserve to go under, which is really bad for the people they employ. But the GOVERNMENT can't hold everyone's hand.

And, I have a sister who lives in Flint. She likes it there. But yes, the recession is BIG in Michigan right now and has been for at least a year. They say that there are no U-Haul trucks in the area because people drive them out of state and no one is driving new ones into MI. :lol

[Dasquian Belargic]

VAT appears to have gone down 2.5% in the UK, and everywhere is having much bigger sales than usual.. handy savings in time for Christmas. Thanks, recession!

[Jaime Tomahawk]

I don't really want them spending our money to fund companies that don't work well. Anymore than they already have. And give the Big 3 money and stipulate what they can or can't do with it + mandate things to them? The Government can't run businesses so I don't think that would work any better than letting the companies do what they want with the money.

Unfortunately some companies deserve to go under, which is really bad for the people they employ. But the GOVERNMENT can't hold everyone's hand.


By the way, 700 billion was just applied to the finance industry. The Bush Admin just oversaw the largest Nationalisation of banks since the depression. So in fact they can and WILL step in when their mates screw up.

As for the car industry you have not a clue exactly what this will do otherwise you wouldnt say it wasnt worth helping. That in fact the industry supports 3 MILLION jobs. That those jobs have another 10 million that are directly or indirectly supported by that. That the industry is just an assembler, the car parts come from thousands of suppliers that you have now dismissed. This has enormous consequences if this sector fails. As in welcome to your new Depression, not just recession like you have been in for the last year.

The industry did not grind to a halt because of it's own problems - in fact the business in normal times is quite viable and was working on reducing the costs - this is a complete lie by those who don't understand or dont care how ALL car sales have been depth charged by the lack of credit and financing. The two main credit prodivers are now gone - not just tightening criteria, but GONE. If you cant get credit, no one buys cars and trucks. Hence the sudden 40% drop in sales which are gettign worse by the day.

28 billion is a very cheap way to prevent some very real and very nasty economic damage. To be partisan or to think idealogy when this kind of damage (which I cant stress enough is much bigger than you seem to realise) threatens is just plain stupid. At the least, the bailout would let GM fail gracefully and slowly, which while painful wont be the sudden collapse that will have dramatic flow on effects. It will be a structured selloff of assets and unwinding. Suppliers while hurt can either move or, wind up gracefully or retool for other items for surviving car makers.

And Governments cant run business?

Really?

Cant or because of idealogical driven fear of socialism based on lies shouldnt?

[Jedi Master Carr]

I don't really want them spending our money to fund companies that don't work well. Anymore than they already have. And give the Big 3 money and stipulate what they can or can't do with it + mandate things to them? The Government can't run businesses so I don't think that would work any better than letting the companies do what they want with the money.

Unfortunately some companies deserve to go under, which is really bad for the people they employ. But the GOVERNMENT can't hold everyone's hand.

And, I have a sister who lives in Flint. She likes it there. But yes, the recession is BIG in Michigan right now and has been for at least a year. They say that there are no U-Haul trucks in the area because people drive them out of state and no one is driving new ones into MI. :lol

What worries me is if they go belly up the U.S is going into a depression. Also if they liquidate China will buy them out they are just waiting to purchase them. Although right now Bush is probably going to take the 15 billion left of the bailout money and give it to them.

[Park Kraken]

This image sums up my feelings on the current auto industry bailout in so many ways -

http://blog.russnelson.com/images/bigthree.jpg

But seriously, while these companies don't need to tank, they do need to shape up and learn a thing or two from companies like Toyota. Getting handed a "Get out of debt free" card from the goverment ain't likely to inspire much in the learning process. What I would like to see is at least one of the big three merging with Toyota.

While that would result in the loss of jobs anyways, it's likely that jobs will continue to be cut anyways as the automakers try to get back on their feet.

[Cat X]

This image sums up my feelings on the current auto industry bailout in so many ways -

http://blog.russnelson.com/images/bigthree.jpg

But seriously, while these companies don't need to tank, they do need to shape up and learn a thing or two from companies like Toyota. Getting handed a "Get out of debt free" card from the goverment ain't likely to inspire much in the learning process. What I would like to see is at least one of the big three merging with Toyota.

While that would result in the loss of jobs anyways, it's likely that jobs will continue to be cut anyways as the automakers try to get back on their feet.

A GM - Toyota merger was in fact mooted about 20 years ago. In many places Toyotas were in fact sold as GM and GM sold as Toyota.

GM I think wont be saved in the end. But gracefully fail - with the parts that are well run (GM Asia and GM Europe are in fact successful!) being sold to help the unwind most likely will be on. And the assets and good brands (Like Corvette) absorbed into probably Chrysler. So this isnt a get out of jail free card - plus the bailout had a lot of strings attached. In reality, the bailout was simply a tie over till Obama takes office, when there will be a different direction required of the auto companies for support. The incoming administration wants that manufacturing capacity to still exist.

Some jobs will go yes - but at least some will go into other industries and much lessen the impact.

Which is in fact one of the reasons why you want the auto industry to stay afloat for now. Once you lose that manufacturign capacity, it stays lost except at great expense. GM has a lot of highly skilled workers and engineers that can be used. So why keep GM afloat? So it's infrastructure and supply lines stay active. It's worth throwing a bit of cash at as for the country that kind of thing has a very high value, far beyond the numbers beign thrown about now.

Heavy manufacture is very important in a healthy economy.


Although right now Bush is probably going to take the 15 billion left of the bailout money and give it to them

I'm surprised he is going to do the right thing for once. And yes, this IS the right thing to do.