But I thought those foreigners were sophisticated investors, responsible for their own decisions...silly me, they're really Americans with funny accents.
``If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic."
After all these years, those Commies in China still don't understand Capitalism. Somebody explain to him that if you can't tell who the patsy is when you sit down at the poker table, then it's Yu.
Bill Moyers had a chilling segment on his program last night about the distress being felt in the middle class. Most of us who call ourselves middle class know we are only a job loss or major medical illness away from financial ruin. This story brings those fears to life.
As for Freddie and Fannie, I can't imagine how this situation and its bad consequences just doesn't keep growing worse. It's a terrible time.
And what does Barrack Obama do? He selects for his running mate the man who led the effort in Congress to reform bankruptcy laws on behalf of the credit card companies. If the Republicans had an ounce of brains, and no sense of shame, they will use this fact to their advantage.
So if the investors are expecting the GSEs to be as safe as treasuries then why are they not priced the same?
Nationalize the suckers and then calculate the average 5 discount on the GSE bonds over the last so many years compared to US Treasuries and pay that out. Risk will more than compensated that way.
Denninger captured the essence of this situation. Hank the thief wrote a "put" option on Fannie and Freddie debt, and now the market is going to exercise it's rights.
Time to pay up, Hankie boy, or we'll margin your sorry ass. Except, it's not his ass on the line, it's the taxpayers.
That's what I've been saying for the last 4 years.
P.S. The next disaster in the making is FHA.
P.P.S. Enron's ex CEO is 6 foot under, and F.D. Raines (ex CEO of Fannie) is an adviser to B. H. Obama. Go figure!
We are going to see more dollar weakness going into next week,'' said Mike Moran, a senior currency strategist at Standard Chartered in New York.The market is overly long on dollars.'' A long position is a bet a currency will advance.
"If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,''
If I lose my job, it's ok, it's creative destruction.
If I get sick and my medical insurance is inadaquate, it's just bad luck.
If I file for bankruptcy, it's all my fault.
But if YOUR fund makes a bad investment, it's my fault too.
Neil Cabooboo on Fox "News" has mentioned compound (as in Kenndy) at least twenty times. They are really working hard to make up for McCains gaffe and paint the Dems as elitist too. A pox on both their compunds.
umber2son writes:
"Bill Moyers had a chilling segment on his program last night about the distress being felt in the middle class"
I liked the fat lady with all the tatoo's singing the victim song.
It's hard to get any lefter than moyer.
Case in point. He singled out and chastised all the US companies for not decrying China's civil rights abuse. Funny, he didn't mention that no countries participating in the Olympics denounced China. It's the "evil" corporations who are the bad guys.
Sixteen of 29 analysts surveyed by Bloomberg News, or 55 percent, said prices will increase through Aug. 29. Seven of the respondents, or 24 percent, said oil will be little changed and six said there would be a drop in prices. Last week, 63 percent expected prices to increase.
I can certainly see crude continuing above $100 a barrel for the longer term,'' Cohen said.The fundamentals of supply and demand should be supportive'' of prices.
The difference between yields on 10-year Treasury Inflation Protected Securities, or TIPS, and conventional notes widened to 2.19 percentage points from 2.16 percentage points on Aug. 18. The figure reflects the inflation rate that traders expect for the next decade.
Treasuries lagged behind debt issued by Fannie Mae and Freddie Mac for a fourth day amid bets the Treasury will pump emergency capital into the two largest mortgage-finance companies. The spread between five-year debt issued by Fannie and similar-maturity Treasury bonds fell 2.4 basis points to 83.1 basis points, down from 104.1 basis points Aug. 18.
U.S. consumer prices rose 5.6 percent in July from a year before, the fastest pace in 17 years. The increase means that 10-year Treasury notes yield about 1.77 percentage points less than the pace of inflation.
On one hand, the GSEs are down approx. 95% off their highs, so I don't see the big concern over another 5% loss. On the other hand at the current market caps of only 5.35 Billion for FNM and 1.82 Billion for FRE, it would not be a big deal for the Feds to pay off stock holders at the current market value.
Possibly Yongding is either confused about who would be wiped out, or I am.
Most likely this is just a trival off the cuff comment taken out of context.
Laugh all you want, but when the Chinese demand payment for that TV in Yuan, and use their trillions to buy our corn for ethanol, many US former taxpayers will starve.
"Richard Smith, CEO of Realogy, the parent company for Coldwell Banker, Century 21 and Sotheby's International Realty, estimates that homes that are not bank-owned have actually only seen price declines in the low single digits over the past 12 months. That's compared with the 15% price drop recorded by the S&P/Case-Shiller Index for all homes over the same period."
Broker - want to back up that claim that Raines is advising Obama? I've never seen that reported anywhere, and I'd think that Obama's smart enough to know that Raines is pretty toxic in political circles.
Briefly, these programs are intended to mitigate what have been, at times, very severe strains in >>>>short-term funding markets>extended>beyond the end of the year,
About this time last year you were considered irrational if you used the word recession. An object of scorn or ridicule.
3 months ago many people who were considered experts were talking about a second half recovery (second half of this year).
Now people are saying this is the worst residential housing cycle since the depression but some still maintain that there won't be a commercial real estate crash even as bad as in the late 80's.
I wonder what we will be talking about a year from now? Probably something that at this juncture seems unfathomable to anyone other than Jas Jain and a few others on this blog.
Unfortunately all this discussion has sublimed to the point where the big picture is lost. Treasury intervention besides being illegal won't "fix" F&F. After Hank bails out the preferred bond holders we are still left with a dysfunctional mortgage landscape. The only difference is that when it comes time address the disease we will have 100s of billions less to work with.
Commodities headed for their biggest weekly gain in 33 years as oil traded near a three-week high and a weakening US dollar revived demand for raw materials as alternative assets.
The Reuters/Jefferies CRB Index of 19 commodities soared 3.7% to 405.92 in New York yesterday. A settlement at that level today would mark a 6.2% gain for the week, the most since July 1975.
The US dollar headed for its first weekly decline against the euro since July 11, while oil traded near $US121 a barrel after jumping more than $US5 yesterday.
A rebound in the CRB and a resumption of the dollar's decline may stall a rout in commodities that has sent the index down 14% from a record on July 3. Raw materials priced mostly in dollars often move in the opposite direction of the US currency.
The US dollar "had caused people to sell commodities aggressively, and a lot of that selling became overdone,'' said Chip Hanlon of Delta Global Advisors. "This move may tell us that those downtrends are over. Commodities could continue to rally from here.'
Foreign investors and sovereign banks now influence domestic financial (and military and political) decisions. We are the banana republic, foolishly afraid of illegal immigration while blind to monetary control by foreign money bosses.
"If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,'' [Yu Yongding, a former adviser to China's central bank] said in e-mailed answers to questions yesterday.If it is not the end of the world, it is the end of the current international financial system.'"
Alcoa Inc. Chief Executive Officer Klaus Kleinfeld said he's "very optimistic" aluminum prices will rise in the next five years as producers encounter difficulty finding enough power to meet demand for the metal.
Chinese demand for aluminum will climb again after the Beijing Olympic Games are finished and a "strongly managed ramp-down" of the country's industrial activity ends, Kleinfeld said yesterday in an interview in New York, where Alcoa is based. China, the world's fastest-growing major economy, will become a net importer of aluminum as use increases, he said.
Every commodity on the CRB except hog futures moved higher yesterday. Nickel jumped 8%, cocoa rose 6.8% and silver rallied 5.2%.
Commodities are also gaining on speculation demand will increase from China as the country resumes work at factories and infrastructure projects that were shut or slowed during the Olympics, which end August 24.
"China's demand is very important to the commodity markets,'' Mr Hanlon said. "Now that they're ready to start bringing back factories that had been idled, I wouldn't be surprised to see demand start to pick up again there. Their long-term outlook for growth and development hasn't changed.''
Possibly Yongding is either confused about who would be wiped out, or I am.
He is not talking about common or preferred. Common is already mostly wiped out (as you mentioned) and preferred is dropping precipitously. As near as I can tell, common will go to zero, and preferred should go to zero.
He is talking about the bonds. The question there is: how much of a haircut will they take?
End of this system maybe. Bad for China. Definitely. Bad for us? Short term, horrible for us. Long term? Probably just what we need. Forced discipline for everybody.
"What would the price of oil be if China spent a trillion dollars to buy some?"
I believe that's the correct translation of Yu's statement from the Cantonese.
yogi writes:
Laugh all you want, but when the Chinese demand payment for that TV in Yuan, and use their trillions to buy our corn for ethanol, many US former taxpayers will starve.
yogi | 08.23.08 - 11:29 am | #
A bit extreme but close to the truth...
They will demand payment for TVs in yuan... which won't be 6-7 yuan to the dollar anymore either WAY stronger & we won't be able to afford them... but we'll demand payment in dollars for corn... RESULT:
Their dollar holdings weaken so they really can't buy that much corn AND we don't buy TVs so they are out of work... Now who starves?
The Chinese are in Jeopardy Squared... they lose the value of their asset AND lose access to one of their largest customer bases (so lose income). We just lose access to credit we mostly use to buy unnecessary stuff... again, I can live w/out big screens and cheap clothes from Target... all around me is a veritable ocean of corn & beans & cattle & chickens & hogs.
The one area where both the Chinese & US hit the wall is OPEC & energy - we share that much.
E-mail from China doesn't seem like its a very reliable source. Anyway, our country favors economic power over military, so we are going to do what makes China happen.
The sad thing is most won't see anything wrong with this and the MSM will just report on it very ho-hum like...
"Bernanke is something of a known dove," said Richard Franulovich, a currency strategist at Westpac Banking. "He was the intellectual powerhouse behind the deflation concern. "
The dollar earlier fell the most in more than two weeks against the yen after Yu Yongdin, an adviser to the People's Bank of China, said a stronger Chinese currency was "inevitable."
A stronger yuan may make China's exports less competitive relative to products made elsewhere in Asia, including in Japan.
Taxpayers to Paulson: we didn't borrow that money to give it to deadbeats to buy property at outrageous prices. If you [and the Fed and IRS and FBI and the Attorneys General] don't go after the deadbeats and their friends and facilitators and grind them to dust, then you are way stupider than you look. Make them pay for this problem, even if it takes them the rest of their greedy lives. [Debtors Prisons and Work Camps, yes!]
I don't like seeing China frame the debate. They can use markets against us as retaliation, but, as dryfly points out, that will have uncongenial consequences for them as well.
They probably should take their lumps. But then we haven't really, have we?
FTS: Actually a) the taxpayers never were asked if we should borrow money, b) if we indirectly asked through Congress than it was implicitly approved by taxpayers since Congress hasn't done anything to lower how much we're going to borrow, in fact they raised our borrowing limits to give more money to the deadbeats.
You really think our government works for taxpayers anymore? All of the branches are corrupt... time to channel Jas!
The comments on SAFE's Web site reinforced earlier public warnings from Yu Yongding, an economist on the monetary policy committee of China's central bank, that the country's reserves are now vulnerable to a drop in the value of the dollar.
"The general trend for the U.S. dollar is continuously weakening," Yu said, speaking to reporters at a conference in Beijing last month. "Countries with huge foreign-exchange reserves will have their assets shrunken."
Last week, Hu Xiaolian, director of the foreign exchange administration, said China plans to "optimize the structure" of its reserves. Analysts took that to mean China would pursue a higher return than it can get from holding dollars by diversifying its reserves.
In the Sunday interview, Mr. Biden said of his claim that he went to school on full academic scholarship: ''My recollection is - and I'd have to confirm this - but I don't recall paying any money to go to law school.'' Newsweek said Mr. Biden had gone to Syracuse ''on half scholarship based on financial need.'' Says He Also Received Grant
It's clear you must be upper management at a fortune 1000 company, or similiar.
what is it that you call working the line at the big three, or the line at any industrial food co.(nestle, kraft, ufs, americoldetc..) or ups,fedex, or sanitation workers, or city employees etc...?
who is it that you think borrowed all the money to just survive in the system?
for the most part, the money makers(bankers ,trader's broker's)(dr's ,owners, senr exec's) have made so much, that there 'virtually' debtless... ie.. astounding net worth.
China thinks long term--remember the cultural revolution. Post Olympics gonna be scary--their factories reopen, their commodity purchases swing demand, their political voice gets louder. They, and the OPECs, own us.
Biden spends substantial ink in this book on the Iraq War, which he now describes as a "neocon fantasy." While Biden sounds legitimately against the war in Iraq now, his current analysis has some level of self-justification to it -- because he voted for the war in 2002. He justifies that vote now as a means for avoiding the war in Iraq, and blames the neoconservatives and Bush for going to war and for turning the war to negative results.
So this is the logical result of 30 years of conservative economic (free trade?) policy. It's time for a change. Does anyone honestly believe that McCain and the GOP are going to shift direction and turn this around?
BTW - Bill Clinton was the one who allowed China into the WTO. Oops.
Assertive Protest writes:
[NFG] Debtors Prisons and Work Camps, yes
It's clear you must be upper management at a fortune 1000 company, or similiar.
Either that or a parent concerned with the crushing consequences that formalizing a society without negative reinforcement would have on the entire lives of their children or grandchildren.
Mel, they may indeed attempt to treat us as "parasites", but the interdependence is perfectly real. To use your metaphor, they're in danger of scraping off their own skin.
effectively , there is no difference(was my point)
i'd be willing to bet that many of the indebted class(the line worker) would be happy to trade there 'ownership society' for a prison camp, doing the exact same job's, with gov't provided health care, food delivery and housing, schooling for the kids and on and on.
what about wal-mart? Who will provide slave labor for all the XMAS toys, if Fannie fails?
China's $376 billion of long-term U.S. agency debt is mostly in Fannie and Freddie assets, according to James McCormack, head of Asian sovereign ratings at Fitch Ratings Ltd. in Hong Kong. The Chinese government probably holds the bulk of that amount, according to McCormack.
Industrial & Commercial Bank of China yesterday reported a $2.7 billion holding. Bank of China Ltd. may have $20 billion, according to CLSA Ltd., the Hong Kong-based investment banking arm of France's Credit Agricole SA. CLSA puts the exposure of the six biggest Chinese banks at $30 billion.
`Beyond Imagination'
``The seriousness of such failures could be beyond the stretch of people's imagination,'' said Yu, a professor at the Institute of World Economics & Politics at the Chinese Academy of Social Sciences in Beijing. He didn't explain why he held that view.
``If it is not the end of the world, it is the end of the current international financial system.'
That would be the best thing that could happen, this out of balance world needs to hit the reset button because fiat currency, fractial reserve banking, debt based crap has gone on long enough.
So let's say we have to bail out F&F. How does McCain's plan to cut taxes pay for this? He assumes that cutting taxes on the rich will help the economy recover. It didn't really work out well in the last 7 years, but it could happen.
The problem is not that people are unemployed, the problem is that people are insolvent even with a job.
If you cut taxes for the rich in this environment, it will not trickle down in my opinion. If the Chinese refuse to continue to buy our debt, how can we afford to cut taxes?
This is not meant as a slam on McCain, I'm really trying to understand how this plays out.
What kind of a price tag is this bailout going to come with? It doesn't seem like something that can come with a price tag. Nationalization seems like the only feasible bailout. Then the U.S. gov keeps paying all bondholders and we never really know the cost to taxpayers.
If treasury tries to come out with a "number" to recapitalize F&F, the number won't be big enough and we will be right back where we started.
I've seen the F&F liabilities in the $5-6 trillion range. 10% is ~$500 billion. Anyone think we will need more? How can treasury possibly get away with a double digit billions bailout?
Maybe China is expanding their army because they know they will need it to collect on all the debts they are owed...
Of course, the key phrase in Yu's statement is "compensated adequately". That definitely leaves room for negotiation.
Try this syllogism. 1) Paulson wants the GSEs to continue to exist "in the present form". 2) The GSEs cannot survive without a taxpayer bail-out. 3) Therefore, taxpayer money will be used to subsidize equity holders.
In some ways, the government is only riding the economic currents that come with development and high growth. For instance, many manufacturers in southern China the countrys biggest export zone are moving to the interior because land and labor costs are cheaper, or expanding operations to include in lower-cost countries, like India, Vietnam or Bangladesh.
World-class brands that have grown dependent on outsourcing labor-intensive production to China are now searching for alternatives. Even the retail behemoth Wal-Mart, which moved its global procurement center here to Shenzhen in 2002, is going to be forced to find new sourcing channels to fill its 5,000 stores worldwide.
For millions of consumers around the world, experts say the policy shift could also mean higher prices for a broad array of goods, from pens and hammers to Barbie dolls and running shoes.
Basically the cost of things China produces for Home Depot and Wal-Mart are going up,said Dong Tao, an economist at Credit Suisse.But there is another side. In some areas that Chinas going to grab, like telecom equipment, theyll push prices lower.
Economists say Chinas development is following in the footsteps of Japan and South Korea, which successfully evolved from low-skilled manufacturing to high technology, services and the creation of global brands.
ENDANGERED PRODUCTS. The impact of the downward pressure on profits will hit Wal-Mart front and center. About 70% of the company's goods are made in China. By CEO Lee Scott's own admission a couple of months ago at the company's annual meeting, "Last year it was estimated we imported about $18 billion worth of goods from China."
What the Fu Manchu do they need us for? Everything is negotiable, as stated above. Brazil might trade sugar for those tv's. Nigeria can give them oil. Europe grows some stuff. Indians will work the phones. Ugly American arrogance. We're not symbiotic with anyone. We are the least multilingual country on the planet. We're insolvent, and we can either go quietly or whip out the nukes. A bazooka full of dollars will hold off the Chinese for only so long.
"Paulson wants the GSEs to continue to exist "in the present form"."
I saw her today at the reception
In her glass was a bleeding man
She was practiced at the art of deception
Well I could tell by her blood-stained hands
You can't always get what you want
You can't always get what you want
In regard to posts on wal-mart, to what degree is China debt related to expanding infrastructure for corporations like wal-mart? Thus, if China isleft holding devalued Fannie debt, how will that impact the food chain of enterprises that depend on state run goodwill?
"General Motors, Ford, Chrysler and US auto-parts makers are seeking $US50 billion in government-backed loans, double their initial request, to develop and build more fuel-efficient vehicles"
My question: Why the hech should the taxpayers be on the hook for mgmt that does not have the smarts to read the market right.
Same comment applies to F & F.
When Russia defaulted, they did not give a rats petuty - should we?
JP writes:
If the US bails out the GSEs and the auto companies, and private mortgages, etc--aren't we more socialistic than most formally "red" countries?
Yes and no. For example, US healthcare is of, by and for the wealthy.
Yup--we're so low--most of the industrialized world eliminated
capital punishment also. They have strange "values"--almost as if they're more Christian.
Nemo - I think you are correct. The logical consequence of continued foreclosures is the bondholders get only a % of their investment. We, the taxpayers, chip in a bit and the Chinese (and the reest of the bondholders) recover something. What is fair to the Chinese? 80 cents on the dollar? 60 cents on the dollar?
What will the Chinese et al. use as bargaining chips?
China buy tons of IOUs from a less than creditworthy borrower, and like every subprime lender, they are having an oh shit moment where they realize they could be sitting on huge losses. So they want the borrower to promise to give them paper for the paper they have so they won't be sitting on big losses. Uh-huh.
Sounds like the deal Merrill just did financing ~90% of the CDO's they just "sold".
"If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,''
I can see the sign.
"Welcome to the Korean Development Fund Grand Canyon"
we could pull a LEH and sell everything we own!
why not give the interna(opps) institutional investors failed FDIC banks? give them indymac. give them some foreclosed homes. heck, we could even tack on some tickets for not keeping up the property and help easy local budget deficits.
Alec writes:
What's the chinese translation for "end of the current international financial system"?
Smoot -hawree?
Alec | 08.23.08 - 11:51 am | #
I agree - I think they'd be happy as hell to get 50 cents on the 'old strong dollar' if they could be certain they'd keep their prols working... High unemployment in China is their definition of the 'end of the world'... and that end would start at their own neck.
One of the key elements in Chinas double-digit growth has been the turnaround and re-positioning of state-owned enterprises (SOEs), a hybrid mix of capitalism and government ownership explored in a feature article by George Dyer and Richard McGregor, Chinas Champions: Why state ownership is no longer proving a dead hand, (Financial Times, March 17,, 2008).
Unsurprisingly, while SOEs enjoy preferential financing and the advantage that comes from being at least partially, state-owned, they must also make their own way in the rough and-tumble of Chinas highly competitive economy, with cost-control, technology, design and marketing key determinants of success.
The Chinese model differs fundamentally, in combining rigorous profit and loss performance standards, coupled with state-approval for key decision-making, such as acquisitions of and stakes in foreign companies
1) Paulsen wants the GSE's to continue in the present form
2) The GSE's can't continue without a taxpayer bailout
3) The GSE's can't continue WITH a taxpayer bailout
4) Paulsen doesn't get what he wants
the only reason I haven't thought that Fannie and Freddie are zeros is because of the Bear Stearns bailout. that sets a precedent. a Fannie/Freddie bankruptcy would be worse than a Bear one. why favor bear over a more politically connected F&F that have large institutions and governments behind it?
plus, the fact that many local banks hold preferred as part of their risk capital and get a tax credit for it is outrageous. talk about a black swan.
number2son writes:
If it is not the end of the world, it is the end of the current international financial system.
Tell me again why that would be such a bad thing?
number2son | 08.23.08 - 12:20 pm | #
It isn't as long as you don't mind ending deficit spending - both current account & gov't deficits.
The minute the foreigners stop buying our debt is the day we either borrow from ourselves (meaning make stuff again) or REALLY cut back.
That is going to be a real eye opener for most folks who have no idea were their food comes from, the electricity in the wires, the basic services... etc.
Won't be bad at all so long as 'not being bad' means 'loving austerity'.
Re: "The Chinese model differs fundamentally, in combining rigorous profit and loss performance standards, coupled with state-approval for key decision-making, such as acquisitions of and stakes in foreign companies"
How is bear Stearns different than a communist SOE?
Is there a flaw in my logic?
Nemo | Homepage | 08.23.08 - 12:10 pm | #
Only one. The assumption that there is a logical pathway. Along those lines it's hard enough to say what the the US will do, let alone China. Everyone's fears are distorted by their history. And if history has shown us anything, it's that purely logical outcomes only happen after the fact, i.e., shit happens and then we get the explanation why. Until then it's WTF?
Yu's statement is simple and straightforward. It's not the end of the world, unless Americans can't tolerate a lower standard of living and try to bully the world with nukes, and something goes wrong. Remote.
Paul - a lot of garbage paper has been sold at 20 cents on the dollar. Sounds fair. The bondholders were presumably knowledgable about finance and market forces, no?
"Why the hech should the taxpayers be on the hook for mgmt that does not have the smarts to read the market right."
Because the taxpayers are the ones that voted in the current bunch of corrupt bastards which will not change after the election as all that will change is the names on the door. The taxpayers are going to get what they deserver good and hard.
If Fannie and Freddie fail, there will be anarchy. The losses are going to affect economies on a massive, global basis. And, if the Fed decides to bail them out, the US tanks, the rest of the world still gets screwed, and I'm going to be selling apples on a corner next to wall street execs sucking dick for quarters...lovely job by our trusted officials
"China buy tons of IOUs from a less than creditworthy borrower, and like every subprime lender, they are having an oh shit moment where they realize they could be sitting on huge losses. So they want the borrower to promise to give them paper for the paper they have so they won't be sitting on big losses. Uh-huh.
"
That is true from one standpoint but do they have the power to change what is accepted as the reserve currency? Did they buy bonds as an investment or a way to industrialize a country? Can their spare manufacturing capcity be put to other uses in case of a severe downturn?
tg...you know the answer. China is screwed one way or another here, and they aren't happy about it...same way no american is happy about expensive gas, higher taxes, shrinking home values, lack of available credit, job losses....I say we protect ourselves and let everyone else figure it out. if our economy is screwed, we can't buy anyones exports, and the rest of the world is screwed anyway
Feds should issue preferred to themselves. Let the government own preferred shares instead of bailing out foreign and investment bank bond holders. How much of the decline in bond price's is from the rise in interest rates versus the actual decline in value of the bond due to default or fear of default. If things were so dyer hedge funds with cash would not be buying up these bonds at deeply discounted prices. As soon as the fed decides to take an ownership position the sooner the slide will stop.
For example I have a fifteen year at 4.36. This is not the discounted intrest rate on my mortgage after it gets securitized and sold off two or three times. Current thirty year rates are 6.36 and higher. I have ten years to go on my mortgage. The holder of my mortgage is getting killed . Lets not confuse bond losses due to default with losess due to a major and growing increase in interest rates.
Having had a 30 year at 12.5 in the early eightys and having refinanced my mortgage at least three times on the way down. Bond holders deserve to get stuck for their stupidity. China b bought bonds because they had too. Lets not pay them off so they have the cash to by hard assets like coal companies.
If the feds need to inject money into the system let the taxpayer receive the benefit in terms of a revenue stream. Everybody else can suck eggs.
The Chinese are in Jeopardy Squared... they lose the value of their asset AND lose access to one of their largest customer bases (so lose income). We just lose access to credit we mostly use to buy unnecessary stuff... again, I can live w/out big screens and cheap clothes from Target... all around me is a veritable ocean of corn & beans & cattle & chickens & hogs.
The one area where both the Chinese & US hit the wall is OPEC & energy - we share that much.
So why not help them instead of our foreign debtholders?
number2son | 08.23.08 - 12:35 pm | #
We don't have to 'help' the foreign debtholders - but they do expect to get paid & if they don't they shut us completely off to any new additional credit for a very long time.
Its 'paygo' in 'hard currency' for us then on a national level from that point on.
Oh and the dollar hegemony - gone. Dollar ceases to be the world reserve currency almost over night.
That means oil at what in dollars? Might not change in euros, yen, yuan... but dollars? POOF - gone.
So in an effort to help those 'little people' here (us)... the easiest way is to make damn sure our GSEs don't default on our largest creditors (them). Even Hank & Ben get that much...
Unless those little people are in a hurry to go it alone... paygo in their own personal lives, find their own 'private Idaho'... they better hope the GSEs can avoid default. With the debt loads most little people are carrying that means a real step down if they go 'paygo' - where they live, how they live, their future plans.
My point was we are well down that road whether we like it or not - have been heading there for awhile. China just finally got the memo.
Nothing so terrible in the end of the current international financial system, although my fair city would become a valley of dry bones worse than the 70's, which in Manhattan were rough but a lot of fun.
But Americans who think the Chinese arebluffing and that they need us to spend their savings are living in a dreamworld.
Iran is Chinas leading oil supplier.
Doc at the Radar Station | 08.23.08 - 12:50 pm | #
So? Iranians will still want to get paid... will they accept dollars or will they force the Chinese to convert to euros first? If the latter then it means China isn't a lot different than us when it comes to buying oil - using weak dollars to do it.
umber2son writes:
"Tripleplay, at least you're watching Moyers. So there's some hope for you, after all."
Just channel flipping. As for hope, forget it. If government could solve all problems and make all people equal in wealth and health, some bureaucrat at some desk would have come up with the answer during the last 2,000 years.
Totally agree.
Current administration trying to hold off on failures to that it appears that the next administration fcked up. Next administration will blame the previous one.
Everyone will claim that We Couldn't See It Coming = hoooooocudanode.
Paulson will stand on his bald head to try and kick this into the next admin, too.
The government will do the diametric opposite of the good ideas floated here.
Sadly, the outcome will not be as funny as Seinfeld.
Jerry : If every instinct you have is wrong, then the opposite would have to be right.
George : Yes, I will do the opposite. I used to sit here and do nothing, and regret it for the rest of the day, so now I will do the opposite, and I will do something!
When SecTreas Paulson said he "had no plan" to rescue F&F, what he meant was "we haven't yet finished the plan which we're frantically working on". It's going to be expensive and require difficult and/or controversial measures. He will have to announce something soon, maybe Sunday evening.
dryfly, when I mentioned that Iran was China's primary oil supplier that wasn't what I was talking about. IF Iranian exports get cut off that China does without... then what?
DryFly: The Chinese are in Jeopardy Squared... they lose the value of their asset AND lose access to one of their largest customer bases (so lose income). We just lose access to credit we mostly use to buy unnecessary stuff... again, I can live w/out big screens and cheap clothes from Target... all around me is a veritable ocean of corn & beans & cattle & chickens & hogs.
This is why I hedged my long portfolio with EEV many months ago. I believe you are right, and at the end of the day, the Chinese are not our masters, but we theirs. We're holding food; they're holding paper chits. And yes, we've pulled "The Donald" on 'em - we owe the bank so much, we own it. They won't like it, but they have no choice - no other market.
He will have to announce something soon, maybe Sunday evening.
I think that's too soon.
He needs the preferred to start trading at 10-20 cents on the buck, so that the market communicates the preferred wipeout. Then they'll be happy with 5 cents on the buck during the bailout.
And of course the common goes to penny stock land.
The only way for preferred holders to come out whole is for Treasury to guarantee their dividend payments. But F&F need capital too. How to deliver it? Buy convertible preferred, and you don't dilute the existing preferred since they have a divi guarantee. See? And best of all, you sustain the fiction that the common shareholders own F&F, and they continue "in their current form". The problem, of course, is that the stock prices will always trade in the ultra-low single digits. So what? I said its a "fiction". We can all live with that, right?
What happens to the Agencies? Ah. A preferred divi guarantee is Not Enough for Mr. Yu. It doesn't help him at all. Mr. Yu says, "You have to guarantee the debt too: in writing please."
There's the rub. Guarantee the debt and it shows up on the USG's books. Does anyone care? I mean, it was there all along anyway, right?
That's the million dollar question Hank is noodling on this weekend. He has to peg the bond market's reaction; the dollar's reaction; the reaction of commodity prices. All those are sensitive to the idea that the Fed will eventually finance all this debt, or (highly unlikely) that the taxpayers will have to.
Does Hank fell lucky? If he does, he'll roll the dice, make Mr. Yu happy, make the bank preferred holders happy, and watch Treasury yields do...nothing. Or maybe something...
Hank is thinking: Oh shit, I have no pants and my 1 inch device is exposed for all to laugh at; oh shit....
An emperor who cares too much about clothes hires two swindlers who promise him the finest suit of clothes from the most beautiful cloth. This cloth, they tell him, is invisible to anyone who was either stupid or unfit for his position. The Emperor cannot see the (non-existent) cloth, but pretends that he can for fear of appearing stupid; his ministers do the same. When the swindlers report that the suit is finished, they dress him in mime. The Emperor then goes on a procession through the capital show off his new "clothes". During the course of the procession, a small child cries out, "But he has nothing on!" The crowd realizes the child is telling the truth. The Emperor, however, holds his head high and continues the procession.
But Americans who think the Chinese arebluffing and that they need us to spend their savings are living in a dreamworld.
yogi | 08.23.08 - 12:54 pm | #
The PBOC & SAFE don't give a shit about the 'savings' per se - they worry about the jobs. That's their mandate from CCP & Politburo - don't kid yourself.
The problem with their 'savings' evaporating is the dollar collapses & makes the peg that much more expensive to support.
There are 300-400 million in rural China still at near subsistence... not starving but not prosperous. Something like 30 million head to one of the large industrial cities every year looking for better pay... they suffer almost unbearable hardships (bad air, terribly crowded & congested, etc.) to get this 'new start'. It has been up to now all been driven my export trade to US and now also to Europe.
If the dollar tanks that is all at risk - no new jobs & previously created jobs could all disappear.
The party elite is very keenly aware of all of this... THAT is what has Yu & Hu worried. They should be worried too.
Agriculture, is the next (now) bubble, and watching it burst won't be pretty. This maybe "small potatoes" to many of you but when it pops there is a real danger of
food shortages, messing with a countries food supply isn't a pretty thing.
China is buying grain terminals in the Midwest. Think about that as you make fun of the Chinese. As Buffett has said, we will wake up one morining as share croppers with foreigners owning the assets in this country.
Short term if Russia/China/ME stops buying our junk debt including agency bonds/treasuries, just watch interest rates go ballistic.
The threat not to buy new debt unless current debt is honored is very real. The Chinese would prefer to have to pain spread more widely, via a weaker dollar, to all dollar-denominated debt holders. (That said, they'd probably sit still for a little haircut, if it was part of a package giving F&F debt an explicit Treasury guarantee.)
As to whether recapitalization of F&F would work, well, with estimates of loss mentioned between $0 and $1T, it's hard to say... so Paulson will do just enough recap to kick the ball down the road for 12-18 months. The Chinese can live with that. Small recap with no haircut is most likely outcome, with problem returning in 18 months.
If you're like me, and tend to skip down the thread, go back and read lawyerliz @ 11:37 a.m. I think that's what's going to happen -- IS happening. At least it's happening in MY immediate and extended family.
Also check out It is me from Europe @ 12:39 p.m. If the tax payers are going to pick up the F&F bonds because they are "implicitly" guaranteed by the US gov., how about the "explicit" bonds held by the Soc. Sec. Trust Fund? US just going to default on them? After all the money is not for the rich or the foreign CB's, it's for the rest of us peons.
1) F&F mgmt have to agree, and even a small ($5b) recap at current prices severely dilutes shareholders. To bypass management, they would have to make OFHEO take them into conservatorship and fire management. That, is tantamount to nationalization.
2) If you do a small recap and don't guarantee the debt, you still will have trouble rolling over the $200b of agenecies maturing between now and year end.
So, no matter what, you need an explicit guarantee.
"If government could solve all problems and make all people equal in wealth and health, some bureaucrat at some desk would have come up with the answer during the last 2,000 years.
Tripleplay | 08.23.08 - 12:57 pm | #
why such extremism...all or nothing
look government cant "solve all problems"
but good government, in consort with good business and informed citizens can move us forward
bad government on the other hand.... well just look at what we got now
the previous administration saw we were headed off a cliff and tapped the brakes (not hard enough but made small moves in the right direction)
this administration saw us heading towards a financial cliff and hit the accelerator
we are now about to have a Thelma and Louise moment (a long long moment)
China may not be the party framing the debate over F & F. It might be Bernake.
Yesterday I was puzzled by Bernake's spouting off about a haircut for bondholders. I thought, this might be what you do, but you don't talk about it in advance because it will tend to precipitate the bailout and/or nationalization in question. I thought he must be on crack.....
But, reading this new CR posting and the comments, and thinking more about the ineptness of the Bush Admn and the seriousness of the crisis, I can imagine another possibility - namely, that Bernake is forcing the Bush Admn's hand to take action on F & F.
Bush and Paulson have been dithering.
I don't know whether Bernake is smart and ballsy enough to force them to act by making comments that cause F & F to crash now (as opposed to sooner or later). But it sure looks like his comments (and Buffet's) are having that effect.
Nothing like getting China to start making calls, let alone the other international investors. Nothing liek making it impossible for F & F to raise another penny without paying bigger and bigger interest spreads.
Is Bernake smart enough to hatch such a plan and make it work?
Or this going to be the Bush Admn's parting gift to America, a systemic financial meltdown that will make us forget Iraq, the national debt, Katrina, and his vacation in Crawford before 9/11?
Dryfly's post reminding us of the agricultural and physical riches we still enjoy in this country got me thinking about China's domestic riches. It has great land area and water resources, even if both have been badly mismanaged in recent years. It has an enormous number of modern factories. It has an unimaginably huge population. Too huge for China's own sustainability. Now, how can they put that overfat resource to use when foreign resources have become inaccessible? War. OK, intercontinental war or intracontinental war? Remembering dryfly's comment that China is just as short of oil as we are, intracontinental war looks like the most profitable choice. The Russians and the Middle East are a relatively simple frog march away. Their comparatively tiny populations are no match.
If there were catastrophic failure of the current international financial system, the results could be quite astonishing. And to some extent we may yet profit from our ocean borders. But we sure as hell won't have oil.
lawyerliz writes:
End of this system maybe. Bad for China. Definitely. Bad for us? Short term, horrible for us. Long term? Probably just what we need. Forced discipline for everybody.
lawyerliz | 08.23.08 - 11:37 am | #
I don't think many disagree with that (except those who make a buck off shuffling US sovereign debt which it looks like GSEs have now become).
I just don't think people realize just how much it is going to suck from a 'lifestyle' perspective. Like I said above - few understand where their next meal actually comes from, how it is produced, and the real cost drivers associated with all of that.
JP WRITES: He needs the preferred to start trading at 10-20 cents on the buck, so that the market communicates the preferred wipeout. Then they'll be happy with 5 cents on the buck during the bailout.
SecTreas can't wait for that to happen, because he needs to keep the lid on the pot until January 2009. So he has to announce something soon BEFORE F&F preferred implodes. I think it will be a relatively modest proposal announced soon, rather than a more drastic proposal in October.
Saturday is free hunting day and opening of squirrel season theleafchronicle.com | Clarksville | The Leaf Chronicle
Squirrels are one of the most underhunted of the small game species in Tennessee and there are literally millions of the tasty tree climbers waiting to be harvested.
There are five species of squirrels in Tennessee, but two species the southern flying squirrel and the northern flying squirrel are not hunted because they are small, nocturnal and seldom seen.
Is Bernanke smart enough to hatch such a plan and make it work?
-Joe Schmoe
Bernanke very likely is going to be staying on the job, and he knows it, just my opinion. The others aren't. I think you're right. If he's going to be hanging around mopping up the mess, he certainly wouldn't want somebody sandbagging him for the next few months.
David Pearson writes: There are two problems with a small recap:
1) F&F mgmt have to agree, and even a small ($5b) recap at current prices severely dilutes shareholders.
My estimation is that F&F are political creations more than true "private" entities, and if the "greater good" demands it, they will fall on their sword. (However, the Democrats would have to sign off on any deal to make this happen, as this is where F&F have their strongest links.)
2) If you do a small recap and don't guarantee the debt, you still will have trouble rolling over the $200b of agenecies maturing between now and year end.
No different than now, other than an explicit infusion of gov't $ to calm the markets about the reality of gov't backing.
(If Mr. Market sits on their collective hands at an auction, then the explicit guarantee of new debt is inevitable.)
Isn't one big risk that, if GSE bonds take a haircut, China and others stop investing in US mortgages, turning the current slump in housing into a total meltdown, with banks dropping dead all around?
People talk about economic symbiosis with china, but as somebody else observed, the Chinese have a long-term time horizon and they also have a history of inflicting a lot of pain on their own economy in pursuit of long-term goals. So isn't there also a risk that China would use its power to crush our economy, if its leaders believed that would be to their long-term advantage?
"I just don't think people realize just how much it is going to suck from a 'lifestyle' perspective. Like I said above - few understand where their next meal actually comes from, how it is produced, and the real cost drivers associated with all of that." --dryfly
And some people don't have much farther to fall. Been down so long it looks like up to me...
"...few understand where their next meal actually comes from, how it is produced, and the real cost drivers associated with all of that.
They are going to learn.
my grandfather told me and my brother many a story of how he harvested fruit by hand in northern new jersey, during the great depression and walked across the george washington bridge to sell the fruit in NYC...lessons not lost
i pity the poor fools who own no land and are trapped in the bowels of the great megalopolis...fewer family farms , more urban dwellers...it will be very different this time
The thing is these GSE bonds clearly stated in the prospectus that they were not obligations of the US government. That China wants the USG to back them as if they were is understandable but not legally enforceable.
Of course, as Dryfly points out, the Chinese could refuse to finance our deficits but would they? It is not as if they are going to lose ALL of the $376 billion in the event a GSE default. These bonds are asset backed securities afterall and the long term loss is going to be related to the default rate on home mortgages. They mitigate their loss by staying calm and allowing the global economy to stabilize.
So many of you have pointed out that we are going to be Japan circa fifteen years ago or so.
So when the Japanese had to tighten their belts, what did it look like? Several of you say that our quality of life will have to sharply retract. Must have been so for the Japanese, too, right? What did that look like?
The authorizing legislation on the GSE bailout states explicitly that management has to request a capital injection from Treasury.
If Management requests a highly dilutive injection in advance of a liquidity crisis and after repeatedly arguing they have enough capital, they can be sued by shareholders.
As far as shareholders are concerned, they own F&F and the CEO's must pursue their interest or risk being sued.
Finally, if Treasury guarantees the liquidity and solvency of F&F, what possible incentive do the CEO's have to issue dilutive equity? This is known as moral hazard, and it occurs in all nearly-bankrupt companies: the mgmt's have a perverse incentive to "roll the dice" and wait for things to get better, rather than acting prudently and building capital.
New capital helps bondholders and hurts shareholders. Management works for shareholders.
So this is the logical result of 30 years of conservative economic (free trade?) policy.
Hardly. There's nothing free market about Fannie and Freddie, and conservatives have been trying to reform them for years. It's also not conservative to overspend and borrow hundreds of billions of dollars from our international friends every year.
I wish I could remember where I read on the 'net, about five years ago, an article proposing that the Third World War would be fought over the U.S.'s repudiation of its debt.
We're sitting here at the end of a long economic expansion that started about the time I was born, in 1950. The recessions in those decades were, comparatively, short-term blips. Many people (including the political and chattering classes) now seem to think that ever-expanding standard of living (meaning ever-increasing consumption) is the natural order of things, the only goal of economic policy.
Just two generations ago, people lived differently. None of my grandparents ever owned a car--although they owned houses. They walked, took streetcars--but in general they moved around a lot less. Their overhead was low, because a lot of the monthly bills I pay did not exist: broadband internet, cable TV, cellphone. Even land-line phone: my dad's house had a pay phone in it, and they paid by the call. A guy came around every so often to collect the nickels.
As dryfly notes, going back to that lifestyle is going to suck in many ways. Personally, I'm not so worried about the low-consumption lifestyle. I'm worried about how we get there and what happens along the way. Too many of us earn our living in parts of the current system that could disappear.
F&F and the CEO's must pursue their interest or risk being sued
not that it matters. They'll defend themselves with shareholder money. And if they lose, they pay the shareholders with shareholder money, or D&O insurance whose premiums are being paid by shareholders.
...Ah. A preferred divi guarantee is Not Enough for Mr. Yu. It doesn't help him at all. Mr. Yu says, "You have to guarantee the debt too: in writing please."
There's the rub. Guarantee the debt and it shows up on the USG's books. Does anyone care? I mean, it was there all along anyway, right?
That's the million dollar question Hank is noodling on this weekend. He has to peg the bond market's reaction; the dollar's reaction; the reaction of commodity prices. All those are sensitive to the idea that the Fed will eventually finance all this debt, or (highly unlikely) that the taxpayers will have to...
-David Pearson
Former Sec. of Labor Robert Reich says China is totalitarian capitalism vs. our democratic capitalism. I agree. -Bob Morris
I wonder how many everyday Americans really understand how our spending has been financed over the last decade and by whom? The actions that are taken over the next few weeks could bring that to their attention rather dramatically. If we had a referendum on satisfying Mr. Yu, what would its chance of success be? I get this really weird feeling that we are going to have decoupling afterall, but of a different kind.
"Moreover: Obama also has ties to the firms. James A. Johnson, the former head of his vice presidential vetting panel, was a chief executive of Fannie Mae, as was Franklin D. Raines, who said this week that he has been consulting with the campaign on housing issues." Posted: Thursday, July 17, 2008 9:15 AM by Domenico Montanaro, NBC Political Researcher
So the Japanese did not have to cut back at all? And if so, how did they pull that off? They just drained their savings? I'm not being obstreperous; I just am trying to understand.
So does "austerity" mean our thirteen year olds no longer get cell phones, and mommy and daddy no longer get a new model car every four years? Or does it mean junior literally doesn't get fed?
Ah, but the Chinese government is not without worries of its own. A collapse in its exports to the US would leave many millions of Chinese unemployed.
Was interested to see that China is now Japan's largest export market so a shriveling of world trade is going to cause a global recession of unprecedented severity.
For these reasons it seems logical to me that China will accept a certain loss on these agency bonds if the alternative is to provoke a global recession that endangers the regime there.
From the Wash Post Article: It's absolutely ridiculous that Fannie and Freddie are still paying out dividends," he said. "And it's ridiculous that you would have a company where shareholders make all kinds of money when the housing market is good and taxpayers have to shoulder all the costs when the housing market is bad. How is that good for the nation? I think it's only fair to taxpayers that the preferred shareholders get wiped out."
It's time to nationalize F&F. The case is made by Sebastian Mallaby at the Washington Post.
"If the government is going to risk taxpayers' cash, it should inflict punishment on private players and demand an equity-type payoff. So the issue is whether to become a minority shareholder or, at the other extreme, the sole one."
"Of course, we wouldn't want the feds buying General Motors even if its assets represented a bargain, because we don't want the government in the car business. But Fannie and Freddie are special. Their murky public/private status is odious."
"What do taxpayers get out of this arrangement? Fannie and Freddie used to say they were vital in making mortgages available to low-income households. But the subprime debacle shows that low-income households had too much access to credit, not too little."
"As long as Fannie and Freddie retain their private/public form, private managers will invent reasons to grow courtesy of public assistance. The best shot at taming them is to bring them into the government. Then, once financial markets have stabilized, the government should shrink the institutions radically and spin them off in pieces, creating maximum space in the mortgage market for smaller private players."
"Or does it mean junior literally doesn't get fed?"
No one can answer that question honestly. Yet.
mp | 08.23.08 - 1:56 pm | #
Guaranteed that getting food moves up to the top of priorities and recreational spending goes down. Status objects should shift, too, but I'm not bright enough to figure out what the new status symbol will be.
Almost seven billion people, all trying to live and find some joy. Limited resources, wealth concentrated among a few. Discontent growing because our toys are getting taken away.
All systems that run civilization are teetering and a failure cascade has started. We all know there is no fix, no plan, no outcome other than collapse followed by rebuilding. Why are we pretending otherwise? Why do we discuss the bad news over and over like that will change anything?
Life will continue it always has, the rules will change, the faces will change, you and I will struggle the best we can.
Throw out your best prayers to whatever it is you pray too and hope the people that own the ball don't decide to take it away. Nuclear weapons make game over a very real prospect.
Many people (including the political and chattering classes) now seem to think that ever-expanding standard of living (meaning ever-increasing consumption) is the natural order of things, the only goal of economic policy.
This is fucking retarded. Wealth -- stuff -- doesn't evaporate faster than we produce it.
This means over time we on the whole get wealthier and our standard of living goes up.
After age 35 if one is smart one can have acquired the package of goods that one needs to have a VERY good standard of living for the next 10 or 20 years, only needing to replace things as they break, wear out, or become horribly obsolete. My 25" Sony TV from 1993 is doing fine, TYVM.
Tanya Stafel writes:
"So the Japanese did not have to cut back at all? And if so, how did they pull that off? ...will junior get fed"
tanya, i dont know
and i dont think many , if anybody "KNOWS" for sure how this plays out
but it looks bad
the japanese really have not yet gotten themselves altogether out of their banking crisis of more than a decade ago, and they did "cut back" in several ways, but they also did avoid financial armageddon.
the US (us!) will not be so lucky because our individual savings rate and our imbalance of trade (current account deficit) and our national debt (10 trillion) and our future unfunded liabilities (20-40 trillion) are crushing
to cut thru the verbiage, yeah i think "junior" will get 3 square meals a day but it wont be the "first world" fare that most americans grew fat on, and maybe thats a good thing.
Fannie and Freddie are going to be nationalized. Period. Call it whatever you want, it's going to be nationalization, the same way they assumed the assets and liabilities of Bear Stearns.
I find it absolutely fascinating that the bunch in Washington, who describe themselves as "conservatives," are now engaged in the LARGEST FINANCIAL BAILOUT IN HUMAN HISTORY.
And that should tell you something about where the good old US of A is headed.
Right down the shitter, thanks to a bunch of CONSERVATIVES AND LIBERALS.
If the Feds bail out the GSE's and assume the trillions of debt, does that not make the Treasury subprime? Should S&P downgrade Treasury's to non-investment grade?
David Pearson writes: If Management requests a highly dilutive injection in advance of a liquidity crisis and after repeatedly arguing they have enough capital, they can be sued by shareholders.
Not to argue too strongly with your well-reasoned piece, but bottom-line here is that the gov't can write some damn nice D&O insurance, even post-facto. In normal times, your argument would carry, but these ain't normal times, and any laws that stand in the way will be rewritten as needed.
One wonders why the US government would formally have to announce a bailout of the GSEs as agency paper is already accepted by the Federal Reserve as collateral for loans to banks.
While currently this transaction involves a banking intermediary to buy agency debt and take it to the Fed for cash there is no reason why Fannie could not just present its paper to Bernanke and say 'give me some money'.
'M TALKING ABOUT THE LAST GODDAMNED THIRTY PLUS YEARS
I was entirely negative in 1992, yet was surprised by how well things had turned around by 2000. The government was actually running out of debt to issue.
1995-2000 wasn't unsustainable, though the seeds of destruction -- the trade deficit with China, cheap oil getting us re-addicted, not fixing our insanely insane medical insurance system -- were definitely planted then.
Good governance 2001-2005 would have seen us more like Canada now. We did not have good governance 2001-2005 however.
Tanya,
In my opinion Junior will be fed, but he won't have nearly as much stuff as you did.
A major economic result will be that inflation will erode the standard of living, because incomes won't keep up with prices. If we mismanage this problem, inflation could explode.
Despite the surge in inflation, house prices will fall because of soaring interest rates and falling real incomes. Many McMansions could become duplexes.
Many of the people who had good jobs in finance, real estate, and construction will be out of work. Hopefully they can get jobs in renewable energy and manufacturing.
HOW ABOUT THE FACT THAT BUSH I SOLD THE DRAWING SYSTEM FOR THE F16 TO JAPAN THEN, IN SPITE OF CONGRESSIONAL RESTRICTIONS NOT TO DO SO, SOLD THEM THE FLIGHT SYSTEM SOURCE CODE BY EXECUTIVE ORDER?
And to think...a couple of months ago, we were passing laws to raise the conforming loan limit so these firms could take on more loans for highly inflated houses.
There's a shortage of coal miners and oil field workers. Unemployed real estate brokers need to know that times are good in the Appalachian coal mines and up in North Dakota in the oil fields.
HOW ABOUT THE FACT THAT LBJ GAVE AWAY THE TELEVISION MANUFACTURING INDUSTRY TO JAPAN IN ORDER TO MAINTAIN NAVAL BASES IN JAPAN
Adam Smith has the answer there. If the Japanese want to put in 8 hour days in mindless labor, fine.
The economy is an odd beast. We understand it -- ie how to push it towards its optimal state -- like the Greeks understood the motion of the planets. sorta, but not really.
That some here refuse to see the rape performed by the Bushies shows that the free market is free as long as so many are free to be blind. Rape is terrible, and usually results in jail time. That means the deterrent operates like the free market and cops aren't needed. The neocons have done so much to put that theory in a coffin.
Granted - though is that solution oriented - or just more factual with respect to where the responsibility for the foundations of our current problems?
yeah deck chair re-arranging as a diversion while mp, energycon, dryfly, and others and i go looking for the captain while we are totin a length of rope.
of course a neck tie party wont save the whip will
LAND VALUE IS NOT CAPITAL.
CAPITAL IS CREATED BY LABOR.
LAND IS NOT CREATED BY LABOR.
Investing in LAND is empty, nonproductive rentierism and not capitalism.
We misallocated capital into ephemeral land valuations 2003-2006. The Japanese made this mistake 1986-1989, with similar consequences 1990-2003 to what we are facing now.
"If you really wanted to solve these problems, you'd be going after the thirty-plus year string of assholes in Washington who sold this country out."
Actually it was the Supreme Court when they ruled that corporations and the same rights as individuals. This allowed the lobbyist to come in and basically write the laws that are then rubber stamped for the right price. Individuals look at an issue short sighted where as a corporation may not get what the want with the current administration the are already working on the next one. The only way to fix this mess is to equate campaign contributions as bribery with a death penalty but it's a little to late now the system will implode under the weight of debt.
i respectfully disagree with one part of so much you have perceptively said
labor is not capital
labor per-se does not create capital
i would suggest that capital is the result of the difference between production , and consumption, that quantity put forward to increase further production...
in other words, savings put towards future productive use
"Personally, I'm not so worried about the low-consumption lifestyle. I'm worried about how we get there and what happens along the way. Too many of us earn our living in parts of the current system that could disappear."
With California's budget impasse now in its 54th day, financial services giant American Express Co. has warned the state that its workers may have to leave home without their state AmEx travel card if the dispute drags on too long.
"American Express will not suspend state billing accounts at the normal past due interval; however, we reserve the right to suspend service should the impasse become protracted," Doug Browne, an American Express government services manager, told government travel coordinators in a June 12 memo.
Browne declined to discuss his memo, which was obtained by The Bee.
AmEx spokeswoman Janet Lee said the financial services giant does not publicly discuss its corporate accounts.
California currently is not refunding its workers for any travel expenses they incur using their state credit cards, from airfare to car rentals to hotel rooms and conference room rental fees.
i was a union officer in my previous life and very much respect the value of labor
agree with at least half of what you said above
however as pro labor people we should not discount the value of entrepreneurs, the good ones, that is who take new ideas and put resources together in new ways...creativity...that give us progress.
i agree the flippers, quants, leveraged-siv-traders-squared are a bunch of thieves
mock, yes, that's one definition of capital wealth -- capital goods like tooling and stuff that is not (significantly) consumed in the production of goods.
I disagree with "labor does not create capital".
Labor creates all goods, modulo the scaling efficiencies of technology.
I am no macro-economist and my education is horribly spotty here, but the owner of production collects capital by selling his products for profit.
The profit can go toward capital re-investment, savings, or consumption.
Strictly speaking savings is not physical capital -- hyperinflation of the money supply can obliterate it -- but savings can be changed for capital goods and back quite easily, modulo transaction costs.
An average 85% backstop on the credit is more than reasonable. After all, if you wanted risk free, you should have purchased the real deal. Backstopping equity is ridiculous.
Treasury can simply announce this backstop. If FNM/FRE run down their portfolios, then GNMA can offer to purchase old fashioned conforming mortgages (20% down, std DTI, etc.).
Comments thread here is pretty depressing. Not even a jester around to make me smile.
America: Not as smart as we think.
America: Not as rich as we think.
At least we're still able to design and manufacture our expensive weapons systems. We'd be in real trouble if the rest of the world stopped providing us with parts for some of our weapons systems. I'm not sure if we have some back-up for key foreign components or not... but hey, at least there's a bit of a manufacturing base! Silver lining! Silver lining! I found the silver lining in borrowing to build up our military!
Mock, all I can say is that busy hands are happy hands.
Look at the labor force participation rate. It is falling. A tremendous number of otherwise able bodied folks have left the work force altogether. Why? There isn't any work that pays worth a damn.
All of this "financial engineering" is the direct result of people trying to extract "wealth" the only way they know how.
Mark my words: Everyone in this country is going to end up selling each other life insurance and real estate.
Why must we have a manufacturing policy. Why can we not have manufacturing?
Oh yeah gov't decreed fiat currency. Well lets get rid of that then...I don't want the born and bred and bought bozoz in Con-gang deciding on said policy.
administering web sites and counting beans does not.
I disagree. Those two examples of the service sector enhance the productivity of the secondary (manufacturing) sector; they are not entirely deadweight or consumptive in nature.
"If you really wanted to solve these problems, you'd be going after the thirty-plus year string of assholes in Washington who sold this country out.
mp"
mp, I have to admit an addiction to those 30 minute infomericials. The product doesn't matter - buying foreclosures, smc, buying notes whatever. It is the lifestyle that can be achieved with VERY little work (at least per the commercial) that I find fascinating. Until this country as a whole learns to ENJOY hard work and live within our means we are in for hard times.
I propose Irididum as the base metal. 3rd rarest stable element, densest element, most corrosion-resistant metal.
pah. Fiat money isn't the problem, bad government is the problem. Actually, bad government isn't the problem, either, rather a childlike population largely unable to think is.
This country is divided into thirds; one has their act together, one doesn't at all, and the mush middle is in an indeterminate state.
I think it is the coming hard times that will generate that appreciation of 'an honest day's work' - producing something of value - but not until the rest of the world stops sending us their production for us pooping out paper promises.
"Tanya,
In my opinion Junior will be fed, but he won't have nearly as much stuff as you did."
HA! Then Junior is in for a rude awakening--I still haven't gotten the taste of powdered milk and BX-brand "cheerios" out of my mouth.
Like most of you on this site, it sounds like, I'm a compulsive saver. In fact, I tried to get advice on this board a little while ago about where to stash my lucre, and pretty much just got sarcastic responses, which I guess I deserved given this isn't an investment site. (I came up with my own answer: just keep buying index funds like I always have. If the financial world doesn't end, I'm getting them on the cheap over the next few years. If it does end, it doesn't matter where I store it.)
So austerity: if Americans simply have to cut back their spending (duplex the McMansion, roll back to one car or even none, no more vacations using airplanes), then there will be grumbling but we'll be fine. Especially all of us, the already-austere types on this Board. But if junior can't get fed--not even powdered milk and generic cheerios--then we're talking revolution.
Realy. So you get to choose? The market chose gold and silver about 5000 years ago. No one was asking your mindless ass to choose...but when the entirety of human markets decides...well that makes sense. Who cares about the rare-ness off iridium.
and...that one ingredient is not sufficient unto itself to create capital.
the women 100,000 years ago who said hey, drag a stick along the ground and bury the seed in a row an more seed survive...that was entrpenurial expertise
the man the following year who said, hey if i take one small fish off the dinner table and drop it in the hole with each corn kernal i can forgo consumption now in favor of increase yield later...that was capital
the chief who said, hey lets move the encampment over the next ridge to the bottom land below where the ground is more fertile,, that was resources.
and all of them did labor to these ends
and so all im saying is takes four inputs to create wealth and i think we get into trouble when we dis any one of them, land (resources), labor, capital, and entrepreneurial expertise (knowledge, inventivess and risk-taking).
A few months ago, a Chinese submarine surfaced inside the defensive perimeter of a US naval task force on exercises in the Pacific.
The US Navy literally didn't know it was there.
Why? The Chinese navy now has stealth technology, super quiet propellors and hull assemblies. In order to make super quiet propellors, you need large precision multi-axis milling machines.
Why? About six years ago, Douglas Aircraft was selling off machine tools in Palmdale. One of the tools they sold at near scrap price was a large US-made multi-axis mill used for precision machining on extremely large parts. Who bought it?
The Chinese Navy.
That's only ONE of the reasons this country needs a manufacturing policy.
There is a rising tide of opposition around the world to America's unilateral assertion of its national interests. But few realize that for the United States to become a more responsible country, the world economy needs to move from the current U.S. dollar standard to a global currency.
U.S. dominance rests not only on military superiority and on the size and productivity of its economy, but also on the fact that most international transactions are denominated in U.S. dollars and more than 60 percent of world foreign exchange reserves are held in U.S.-denominated assets, like U.S. Treasury bills.
The problem for the rest of the world is that the U.S. dollar standard encourages the United States to be careless in its monetary and fiscal policies.
"That's only ONE of the reasons this country needs a manufacturing policy."
Militarist. It shows why we need to mind our own business. Gov't directed manufacturing for the War State. Didn't know until now that you were a war pig mp...but now I do.
and i think the vast number on this blog agree that the double dealin fat asses that sold this country down the river have gotten fat paychecks ofr doing little of value other than committ treason
let the trials begin
(disclaimer...we, i...joke about rope here...i DO NOT advocate violence (really), its such a waste of resources
and besides if we are violent against them when we take power, later they will too..its just a cycle that comes back when the other side wins (or fixes) the election.
now, as for trials and jail sentences and confiscation of ill gotten gains...yeah i'm for that
If the Feds guarantee the GSE debt, they should at the very least demand a haircut of the interest they've been paid above that for treasuries. Basically offer to swap GSE debt for treasuries of equal purchase value, with adjustments for paid interest.
Pratt and Whitney licensed production of radial engines to Japan during the thirties and the Japanese used them to visit us at Pearl Harbor. So, why make it easy for a present or future possible enemy.
It's not exactly like we attacked Japan, now is it?
and besides if we are violent against them when we take power, later they will too
talk of revolution is laughable when we couldn't find people worthy to stand in the same room as the original Framers.
The number of living public intellectuals I wholeheartedly admire can be numbered on one hand. Not that I am especially well-read, but we're no longer mature enough to get a constitutional amendment through the process, try imagining a new convention. LOL.
I think a certain amount of cutting back would be a good thing for both kids and their parents.
You can do without at least 2/3rds of the stuff sold at Walmarts. Some cosmetics are actually harmful.
There are unintended consequences everywhere. The hub told me that he heard that because of Russia's invasion and return to a sorta cold war posture that private investers were pulling out from there in droves. Droves being 16bill so far. That is a drop in the bucket here but probably more important there. And it's only so far.
Real estate falling? Dead banks? That is already built in. Once you are foreclosed, does it matter to you as a foreclosee whether or not your bank gets 75 cents on the dollar? or 60, or 50 or 40. Course not.
One thing I've always marveled at is how fast something can recover once the correct policies are put in place. Why? I asked myself. I think part of it is that entropy is so destructive anyhow, that proportionately the additional destruction such as what we are observing now is really a lot less that what it seems to be.
Japan never recovered because along with the loyalty and hard work etc, is also a reluctance to face up to things, so they never did resolve their debt/real estate thing.
We had the RTC. I shudder to think what the posters on this site would have said about the RTC. But you know? it all worked out, and as I recall didn't cost all that much relatively speaking.
The Chinese et al stole our tech? Well, you know, if we wanted to, we could steal it back. Or, we could recreate it.
Part of the ADVANTAGE, yes, I said advantage, of our bad schools is that your mind doesn't get frozen into a certain way of doing things. You didn't learn it in school, so you have to invent it. The Japanese are supersmart and super hard working and really good and loyal people, but from what I read, they have the creativity beat out of them. If you are Japanese, it might be a good idea to send your high school and college bound kid here, because the creativity could be less stifled.
I think, in order to really think about things you need to look at them upside down and backwards, and then abandon all anchoring whatsoever, and pretend you are the woman from Mars or Alpha Centari.
"But if junior can't get fed--not even powdered milk and generic cheerios--then we're talking revolution
"Every society is three meals away from revolution." "
Yes, but some societies have a bigger buffer before they get to the last three meals than others. And honestly? Call me Pollyanna, but... I think we've got a pretty big buffer. Put me down for "it will be more like Japan--belt tightening but no collapse."
Because, of course, my wild assed speculation matters!
The Japanese are supersmart and super hard working and really good and loyal people, but from what I read, they have the creativity beat out of them. If you are Japanese, it might be a good idea to send your high school and college bound kid here, because the creativity could be less stifled.
Really? I think this is a bit arrogant and disagree.
Naw, we just prevoked them. We're probably just a few decimal places off from agreeing on things
Our policy was to more or less support them as an anti-communist bulwark in the 1930s (eg. Manchuria), until their Army's predations in China proper passed the pale in the late 30s.
With the fall of France (and Holland )in 1940, the UK evicted from Continental Europe and in a fight for its very life in 1941, the game became deadly serious, and Japan had thrown its lot in with the revisionist Axis in the attempt to create a "New World Order".
Japan was moving toward forcibly "liberating" the Dutch holdings to its south; its "Asia for Asians" colonial policy ran counter to our own neo-colonial designs for these markets.
The FDR's choice was to lose unfettered trading access to the Dutch East Indies and further unpleasant evolutions in China proper, or put the nation on a collision course with the revisionist militarists running Japan.
WW2 started for us when the Japanese cabinet decided that it was time to poop or get off the pot WRT establishing a new colonial order in Asia; Germany's successes in 1940-41 was a once-in-a-millenium chance to reach for the ring.
FDR apparently originally proposed a milder "modus vivendi" in those crisis days of 1941, lifting some of the embargo if Japan moved back out of Indochina. According to WSC's history he persuaded FDR to strengthen our demands for the total removal of the Japanese Army from China proper (its post-1937 occupation).
This meant war -- the Japanese were not about to back down when the Axis so clearly held the whip hand here -- and the Chinese really owed us one over that.
We don't need to beat the Chicomms, we just need to hang on long enough for their internal social pressures tear them asunder. As much as our current economic situation is unsustainable theirs is doubly untenable. Anybody who remembers when the Japanese were going to eat our lunch and own the dinner plates knows things don't always work out. Could be we end up buying back a lot of our debt for pennies.
I'm with ya, Tanya. The (admittedly shriveled up from disuse) optimistic part of my nature says we'll see a long, slow decline in consumption, which need not be painful.
When I go on vacation, I go someplace where there's no TV or radio, much less cellphone, internet and so forth. It's great. I could live like that all the time, much as I would miss these Saturday morning CR gabfests. They will figure prominently in the stories I tell my grandkids about the old days.
Really? I think this is a bit arrogant and disagree.
Having lived in Tokyo for 8 years, I kinda agree. The centralized Japanese educational system is horribly conservative and rather Prussian in its nature and goals.
This is not entirely a bad thing but there's a million years between the best private schools eg. Azabu HS and the public system as a whole.
he tried an act that in hindsight proved to be in vain
the idea we could have stopped hitler at the sudetenland if we had acted tough up front is unproved
Actually, Chamberlain's appeasement was selling out the Czechs in the hope that Hitler's promise that this would be his last territorial demand.
The historical record indicates that Hitler's General Staff was largely arrayed AGAINST this confrontation as way too risky given the military situation. It was Chamberlain's accession to Hitler that fatally weakened the anti-Hitler contingent in the late 30s.
Chamberlain wanted no part of an alliance with Stalin. This proved to be . . . unwise.
btw, the history of the 1920s ~ 80s becomes a lot clearer when you try on the hypothesis that every nation state was in a struggle to secure its own currency trading bloc.
"the idea we could have stopped hitler at the sudetenland if we had acted tough up front is unproved"
That is absolutely untrue. In the records of the OKW it indicates they advised Hitler that, if they were challenged, they couldn't make the occupation stick.
They were ready to high tail it on a moment's notice.
USsA ?
But I thought those foreigners were sophisticated investors, responsible for their own decisions...silly me, they're really Americans with funny accents.
But I thought those foreigners were sophisticated investors
They may not be sophisticated any more than Vinny the loanshark
Coming soon to a balance sheet near you:
Fannie & Freddie, the SPE's from hell.
OT - F Biden!
Best blog ever!
Biden ate my baby
``If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic."
After all these years, those Commies in China still don't understand Capitalism. Somebody explain to him that if you can't tell who the patsy is when you sit down at the poker table, then it's Yu.
hu says? yu says?
Bill Moyers had a chilling segment on his program last night about the distress being felt in the middle class. Most of us who call ourselves middle class know we are only a job loss or major medical illness away from financial ruin. This story brings those fears to life.
As for Freddie and Fannie, I can't imagine how this situation and its bad consequences just doesn't keep growing worse. It's a terrible time.
And what does Barrack Obama do? He selects for his running mate the man who led the effort in Congress to reform bankruptcy laws on behalf of the credit card companies. If the Republicans had an ounce of brains, and no sense of shame, they will use this fact to their advantage.
In the meantime, I have my headline ready:
"Obama Lays Egg, ChooseS Biden"
So if the investors are expecting the GSEs to be as safe as treasuries then why are they not priced the same?
Nationalize the suckers and then calculate the average 5 discount on the GSE bonds over the last so many years compared to US Treasuries and pay that out. Risk will more than compensated that way.
wait, who's hu?
hu's on first?
Denninger captured the essence of this situation. Hank the thief wrote a "put" option on Fannie and Freddie debt, and now the market is going to exercise it's rights.
Time to pay up, Hankie boy, or we'll margin your sorry ass. Except, it's not his ass on the line, it's the taxpayers.
Feel that tickle? That's Uncle Sam reaching into your pocket taking your money so he can give it to his colleagues in the People's Liberation Army.
Treasury Secretary Henry M. Paulson Jr. ponders whether to pull the trigger on a rescue plan
i saw hank tell MR Brokaw on naitonal television, On a world stage,Beijing, that he has NO PLAN to use the backstop. that was two weeks ago.
he also said he's outa there when Bush goes to paraguay.
who made hu? who made yu? ain't no body told yu!
Wa's on second.
That's what I've been saying for the last 4 years.
P.S. The next disaster in the making is FHA.
P.P.S. Enron's ex CEO is 6 foot under, and F.D. Raines (ex CEO of Fannie) is an adviser to B. H. Obama. Go figure!
We are going to see more dollar weakness going into next week,'' said Mike Moran, a senior currency strategist at Standard Chartered in New York.The market is overly long on dollars.'' A long position is a bet a currency will advance.
"If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,''
If I lose my job, it's ok, it's creative destruction.
If I get sick and my medical insurance is inadaquate, it's just bad luck.
If I file for bankruptcy, it's all my fault.
But if YOUR fund makes a bad investment, it's my fault too.
wtf?
So what would this 'rescue plan' involve? Nationalization?
When Hank reaches into his pocket for that Bazooka,I hope he finds more than one piece of Gum.Oh and will someone remind him to recycle the wrapping?
"End of the world" if FUBAR goes Fan and Fred go under?
Since when did the mortgage industry equal the cold war and thermonuclear destruction?
We aren't all going to DIE if they go under, sheesh.
Sounds like China is panicking.
The old phrase about banks, if you owe enough you own them...
I've long thought that's the case in regards to China's massive holding of US debt.
jus sayin, you are wrong. It was Argentina he mentioned, not Paraguay.
Neil Cabooboo on Fox "News" has mentioned compound (as in Kenndy) at least twenty times. They are really working hard to make up for McCains gaffe and paint the Dems as elitist too. A pox on both their compunds.
umber2son writes:
"Bill Moyers had a chilling segment on his program last night about the distress being felt in the middle class"
I liked the fat lady with all the tatoo's singing the victim song.
It's hard to get any lefter than moyer.
Case in point. He singled out and chastised all the US companies for not decrying China's civil rights abuse. Funny, he didn't mention that no countries participating in the Olympics denounced China. It's the "evil" corporations who are the bad guys.
Sixteen of 29 analysts surveyed by Bloomberg News, or 55 percent, said prices will increase through Aug. 29. Seven of the respondents, or 24 percent, said oil will be little changed and six said there would be a drop in prices. Last week, 63 percent expected prices to increase.
I can certainly see crude continuing above $100 a barrel for the longer term,'' Cohen said.The fundamentals of supply and demand should be supportive'' of prices.
The difference between yields on 10-year Treasury Inflation Protected Securities, or TIPS, and conventional notes widened to 2.19 percentage points from 2.16 percentage points on Aug. 18. The figure reflects the inflation rate that traders expect for the next decade.
Treasuries lagged behind debt issued by Fannie Mae and Freddie Mac for a fourth day amid bets the Treasury will pump emergency capital into the two largest mortgage-finance companies. The spread between five-year debt issued by Fannie and similar-maturity Treasury bonds fell 2.4 basis points to 83.1 basis points, down from 104.1 basis points Aug. 18.
U.S. consumer prices rose 5.6 percent in July from a year before, the fastest pace in 17 years. The increase means that 10-year Treasury notes yield about 1.77 percentage points less than the pace of inflation.
Well, what else is China gonna say?
Oh, gosh, well, we made a booboo buying all your stuff, we don't mind we sent all our money down a black hole, bye-bye money?
I don't think so. This is another move on the chessboard of the international economy.
Yu to Paulson: "Where is our fuing money, you plic?"
On one hand, the GSEs are down approx. 95% off their highs, so I don't see the big concern over another 5% loss. On the other hand at the current market caps of only 5.35 Billion for FNM and 1.82 Billion for FRE, it would not be a big deal for the Feds to pay off stock holders at the current market value.
Possibly Yongding is either confused about who would be wiped out, or I am.
Most likely this is just a trival off the cuff comment taken out of context.
wait , hu's goin to argentina?
pesonally , i've got my 60 sloop stocked , sheeted and dialed in, for the sail south to patagonia
Laugh all you want, but when the Chinese demand payment for that TV in Yuan, and use their trillions to buy our corn for ethanol, many US former taxpayers will starve.
CR - What do you think of this article?
Houses in subprime shape lead price charge down - Aug. 22, 2008
"Richard Smith, CEO of Realogy, the parent company for Coldwell Banker, Century 21 and Sotheby's International Realty, estimates that homes that are not bank-owned have actually only seen price declines in the low single digits over the past 12 months. That's compared with the 15% price drop recorded by the S&P/Case-Shiller Index for all homes over the same period."
Broker - want to back up that claim that Raines is advising Obama? I've never seen that reported anywhere, and I'd think that Obama's smart enough to know that Raines is pretty toxic in political circles.
Briefly, these programs are intended to mitigate what have been, at times, very severe strains in >>>>short-term funding markets>extended>beyond the end of the year,
About this time last year you were considered irrational if you used the word recession. An object of scorn or ridicule.
3 months ago many people who were considered experts were talking about a second half recovery (second half of this year).
Now people are saying this is the worst residential housing cycle since the depression but some still maintain that there won't be a commercial real estate crash even as bad as in the late 80's.
I wonder what we will be talking about a year from now? Probably something that at this juncture seems unfathomable to anyone other than Jas Jain and a few others on this blog.
Paulson is going to need a bigger bazooka.
Unfortunately all this discussion has sublimed to the point where the big picture is lost. Treasury intervention besides being illegal won't "fix" F&F. After Hank bails out the preferred bond holders we are still left with a dysfunctional mortgage landscape. The only difference is that when it comes time address the disease we will have 100s of billions less to work with.
What is this about????
Commodities headed for their biggest weekly gain in 33 years as oil traded near a three-week high and a weakening US dollar revived demand for raw materials as alternative assets.
The Reuters/Jefferies CRB Index of 19 commodities soared 3.7% to 405.92 in New York yesterday. A settlement at that level today would mark a 6.2% gain for the week, the most since July 1975.
The US dollar headed for its first weekly decline against the euro since July 11, while oil traded near $US121 a barrel after jumping more than $US5 yesterday.
A rebound in the CRB and a resumption of the dollar's decline may stall a rout in commodities that has sent the index down 14% from a record on July 3. Raw materials priced mostly in dollars often move in the opposite direction of the US currency.
The US dollar "had caused people to sell commodities aggressively, and a lot of that selling became overdone,'' said Chip Hanlon of Delta Global Advisors. "This move may tell us that those downtrends are over. Commodities could continue to rally from here.'
"We aren't all going to DIE if they go under, sheesh."
Not directly. But instability has a way of spreading like spilled oil. Life is not divided into sealed compartments.
We're going to need all the calm good judgment we can get.
Foreign investors and sovereign banks now influence domestic financial (and military and political) decisions. We are the banana republic, foolishly afraid of illegal immigration while blind to monetary control by foreign money bosses.
"If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,'' [Yu Yongding, a former adviser to China's central bank] said in e-mailed answers to questions yesterday.If it is not the end of the world, it is the end of the current international financial system.'"
Alcoa Inc. Chief Executive Officer Klaus Kleinfeld said he's "very optimistic" aluminum prices will rise in the next five years as producers encounter difficulty finding enough power to meet demand for the metal.
Chinese demand for aluminum will climb again after the Beijing Olympic Games are finished and a "strongly managed ramp-down" of the country's industrial activity ends, Kleinfeld said yesterday in an interview in New York, where Alcoa is based. China, the world's fastest-growing major economy, will become a net importer of aluminum as use increases, he said.
Every commodity on the CRB except hog futures moved higher yesterday. Nickel jumped 8%, cocoa rose 6.8% and silver rallied 5.2%.
Commodities are also gaining on speculation demand will increase from China as the country resumes work at factories and infrastructure projects that were shut or slowed during the Olympics, which end August 24.
"China's demand is very important to the commodity markets,'' Mr Hanlon said. "Now that they're ready to start bringing back factories that had been idled, I wouldn't be surprised to see demand start to pick up again there. Their long-term outlook for growth and development hasn't changed.''
Possibly Yongding is either confused about who would be wiped out, or I am.
He is not talking about common or preferred. Common is already mostly wiped out (as you mentioned) and preferred is dropping precipitously. As near as I can tell, common will go to zero, and preferred should go to zero.
He is talking about the bonds. The question there is: how much of a haircut will they take?
End of this system maybe. Bad for China. Definitely. Bad for us? Short term, horrible for us. Long term? Probably just what we need. Forced discipline for everybody.
"What would the price of oil be if China spent a trillion dollars to buy some?"
I believe that's the correct translation of Yu's statement from the Cantonese.
yogi writes:
Laugh all you want, but when the Chinese demand payment for that TV in Yuan, and use their trillions to buy our corn for ethanol, many US former taxpayers will starve.
yogi | 08.23.08 - 11:29 am | #
A bit extreme but close to the truth...
They will demand payment for TVs in yuan... which won't be 6-7 yuan to the dollar anymore either WAY stronger & we won't be able to afford them... but we'll demand payment in dollars for corn... RESULT:
Their dollar holdings weaken so they really can't buy that much corn AND we don't buy TVs so they are out of work... Now who starves?
The Chinese are in Jeopardy Squared... they lose the value of their asset AND lose access to one of their largest customer bases (so lose income). We just lose access to credit we mostly use to buy unnecessary stuff... again, I can live w/out big screens and cheap clothes from Target... all around me is a veritable ocean of corn & beans & cattle & chickens & hogs.
The one area where both the Chinese & US hit the wall is OPEC & energy - we share that much.
E-mail from China doesn't seem like its a very reliable source. Anyway, our country favors economic power over military, so we are going to do what makes China happen.
The sad thing is most won't see anything wrong with this and the MSM will just report on it very ho-hum like...
"Bernanke is something of a known dove," said Richard Franulovich, a currency strategist at Westpac Banking. "He was the intellectual powerhouse behind the deflation concern. "
The dollar earlier fell the most in more than two weeks against the yen after Yu Yongdin, an adviser to the People's Bank of China, said a stronger Chinese currency was "inevitable."
A stronger yuan may make China's exports less competitive relative to products made elsewhere in Asia, including in Japan.
Do not feed the "SaturBot."
Taxpayers to Paulson: we didn't borrow that money to give it to deadbeats to buy property at outrageous prices. If you [and the Fed and IRS and FBI and the Attorneys General] don't go after the deadbeats and their friends and facilitators and grind them to dust, then you are way stupider than you look. Make them pay for this problem, even if it takes them the rest of their greedy lives. [Debtors Prisons and Work Camps, yes!]
And we say . . . what in response?
I don't like seeing China frame the debate. They can use markets against us as retaliation, but, as dryfly points out, that will have uncongenial consequences for them as well.
They probably should take their lumps. But then we haven't really, have we?
Sen. Barack Obama has selected Delaware Sen. Joe Biden as his running mate.
Big miscalculation. He should have selected Clinton, then he would have won the presidency.
So. Be. It.
FTS: Actually a) the taxpayers never were asked if we should borrow money, b) if we indirectly asked through Congress than it was implicitly approved by taxpayers since Congress hasn't done anything to lower how much we're going to borrow, in fact they raised our borrowing limits to give more money to the deadbeats.
You really think our government works for taxpayers anymore? All of the branches are corrupt... time to channel Jas!
So we are going to find out which of these is true.
Estragon | 06.11.08 - 11:14 am | #
Hu's you're daddy now.
El Cliffo | 08.23.08 - 10:56 am | #
The patsy at the poker table is Yu.
Jan 2006
The comments on SAFE's Web site reinforced earlier public warnings from Yu Yongding, an economist on the monetary policy committee of China's central bank, that the country's reserves are now vulnerable to a drop in the value of the dollar.
"The general trend for the U.S. dollar is continuously weakening," Yu said, speaking to reporters at a conference in Beijing last month. "Countries with huge foreign-exchange reserves will have their assets shrunken."
Last week, Hu Xiaolian, director of the foreign exchange administration, said China plans to "optimize the structure" of its reserves. Analysts took that to mean China would pursue a higher return than it can get from holding dollars by diversifying its reserves.
Posturing by the Chinese and Russians aside, everything is negotiable. Hey China, welcome to capitalism.
Get in line with the rest of us and take your lumps.
What's the chinese translation for "end of the current international financial system"?
Smoot -hawree?
Sheila will protect her banks...
In the Sunday interview, Mr. Biden said of his claim that he went to school on full academic scholarship: ''My recollection is - and I'd have to confirm this - but I don't recall paying any money to go to law school.'' Newsweek said Mr. Biden had gone to Syracuse ''on half scholarship based on financial need.'' Says He Also Received Grant
NFG,
Debtors Prisons and Work Camps, yes
It's clear you must be upper management at a fortune 1000 company, or similiar.
what is it that you call working the line at the big three, or the line at any industrial food co.(nestle, kraft, ufs, americoldetc..) or ups,fedex, or sanitation workers, or city employees etc...?
who is it that you think borrowed all the money to just survive in the system?
for the most part, the money makers(bankers ,trader's broker's)(dr's ,owners, senr exec's) have made so much, that there 'virtually' debtless... ie.. astounding net worth.
I think this article heading should be:
Fannie Mae, Freddie Mac: Is Hu your daddy, or is Yu the patsy (cuckhold)
China thinks long term--remember the cultural revolution. Post Olympics gonna be scary--their factories reopen, their commodity purchases swing demand, their political voice gets louder. They, and the OPECs, own us.
No, Mel. They don't. It's a symbiotic relationship.
Biden spends substantial ink in this book on the Iraq War, which he now describes as a "neocon fantasy." While Biden sounds legitimately against the war in Iraq now, his current analysis has some level of self-justification to it -- because he voted for the war in 2002. He justifies that vote now as a means for avoiding the war in Iraq, and blames the neoconservatives and Bush for going to war and for turning the war to negative results.
They (the Chinese), and the OPECs, own us.
So this is the logical result of 30 years of conservative economic (free trade?) policy. It's time for a change. Does anyone honestly believe that McCain and the GOP are going to shift direction and turn this around?
BTW - Bill Clinton was the one who allowed China into the WTO. Oops.
burnside writes:
No, Mel. They don't. It's a symbiotic relationship.
Except they're flush with our debt and they will treat us as parasites when the dollar tanks.
Assertive Protest writes:
[NFG] Debtors Prisons and Work Camps, yes
It's clear you must be upper management at a fortune 1000 company, or similiar.
Either that or a parent concerned with the crushing consequences that formalizing a society without negative reinforcement would have on the entire lives of their children or grandchildren.
Saturthingy:
The current topic is extremely important and I, for one, am keen to read what some of the sharper minds here have to say about it.
Please save your OT posts for a dull moment.
Thanks!
No the TV was just an example. This laptop was made in China, even the cord. Guess what? My Blackberry too.
So now while the camel's nose is under the tent, GM,F, Chyl. and suppliers want a double down to $50 bil.
I need to borrow a whole lot of Amerikansky pesos, buy barbaric relics, hide same and go broke.
"BTW - Bill Clinton was the one who allowed China into the WTO. Oops."
We needed their money--and cheap goods. Do you think China will try to kick us out of the WTO when we default?
Mel, they may indeed attempt to treat us as "parasites", but the interdependence is perfectly real. To use your metaphor, they're in danger of scraping off their own skin.
Bend over and lube up boys, this is going to hurt.
rd,
effectively , there is no difference(was my point)
i'd be willing to bet that many of the indebted class(the line worker) would be happy to trade there 'ownership society' for a prison camp, doing the exact same job's, with gov't provided health care, food delivery and housing, schooling for the kids and on and on.
i see no difference between the two.
what happens to markets & commodities when gse's get rescued, and preferred and bondholders are backed up?
What happens if preferred are not fully backed up and they take some hit?
Gold?
Stocks?
What do you think we will wake up to?
what about wal-mart? Who will provide slave labor for all the XMAS toys, if Fannie fails?
China's $376 billion of long-term U.S. agency debt is mostly in Fannie and Freddie assets, according to James McCormack, head of Asian sovereign ratings at Fitch Ratings Ltd. in Hong Kong. The Chinese government probably holds the bulk of that amount, according to McCormack.
Industrial & Commercial Bank of China yesterday reported a $2.7 billion holding. Bank of China Ltd. may have $20 billion, according to CLSA Ltd., the Hong Kong-based investment banking arm of France's Credit Agricole SA. CLSA puts the exposure of the six biggest Chinese banks at $30 billion.
`Beyond Imagination'
``The seriousness of such failures could be beyond the stretch of people's imagination,'' said Yu, a professor at the Institute of World Economics & Politics at the Chinese Academy of Social Sciences in Beijing. He didn't explain why he held that view.
``If it is not the end of the world, it is the end of the current international financial system.'
That would be the best thing that could happen, this out of balance world needs to hit the reset button because fiat currency, fractial reserve banking, debt based crap has gone on long enough.
So let's say we have to bail out F&F. How does McCain's plan to cut taxes pay for this? He assumes that cutting taxes on the rich will help the economy recover. It didn't really work out well in the last 7 years, but it could happen.
The problem is not that people are unemployed, the problem is that people are insolvent even with a job.
If you cut taxes for the rich in this environment, it will not trickle down in my opinion. If the Chinese refuse to continue to buy our debt, how can we afford to cut taxes?
This is not meant as a slam on McCain, I'm really trying to understand how this plays out.
Next bubble please.....
What kind of a price tag is this bailout going to come with? It doesn't seem like something that can come with a price tag. Nationalization seems like the only feasible bailout. Then the U.S. gov keeps paying all bondholders and we never really know the cost to taxpayers.
If treasury tries to come out with a "number" to recapitalize F&F, the number won't be big enough and we will be right back where we started.
I've seen the F&F liabilities in the $5-6 trillion range. 10% is ~$500 billion. Anyone think we will need more? How can treasury possibly get away with a double digit billions bailout?
We already have debters prisons. They are called overpriced houses that the government is feverishly trying to keep solvent. Inmates intact.
The illusion continues. 'You pretend I owe you, I pretend to pay.
Next bubble please.....
There you go. LOL
I hope I die before the next one bursts. They keep getting nastier and nastier each time.
Maybe China is expanding their army because they know they will need it to collect on all the debts they are owed...
Of course, the key phrase in Yu's statement is "compensated adequately". That definitely leaves room for negotiation.
Try this syllogism. 1) Paulson wants the GSEs to continue to exist "in the present form". 2) The GSEs cannot survive without a taxpayer bail-out. 3) Therefore, taxpayer money will be used to subsidize equity holders.
Is there a flaw in my logic?
In some ways, the government is only riding the economic currents that come with development and high growth. For instance, many manufacturers in southern China the countrys biggest export zone are moving to the interior because land and labor costs are cheaper, or expanding operations to include in lower-cost countries, like India, Vietnam or Bangladesh.
World-class brands that have grown dependent on outsourcing labor-intensive production to China are now searching for alternatives. Even the retail behemoth Wal-Mart, which moved its global procurement center here to Shenzhen in 2002, is going to be forced to find new sourcing channels to fill its 5,000 stores worldwide.
For millions of consumers around the world, experts say the policy shift could also mean higher prices for a broad array of goods, from pens and hammers to Barbie dolls and running shoes.
Basically the cost of things China produces for Home Depot and Wal-Mart are going up,said Dong Tao, an economist at Credit Suisse.But there is another side. In some areas that Chinas going to grab, like telecom equipment, theyll push prices lower.
Economists say Chinas development is following in the footsteps of Japan and South Korea, which successfully evolved from low-skilled manufacturing to high technology, services and the creation of global brands.
ENDANGERED PRODUCTS. The impact of the downward pressure on profits will hit Wal-Mart front and center. About 70% of the company's goods are made in China. By CEO Lee Scott's own admission a couple of months ago at the company's annual meeting, "Last year it was estimated we imported about $18 billion worth of goods from China."
What kind of a price tag is this bailout going to come with?
2.5 trillion.
If the US bails out the GSEs and the auto companies, and private mortgages, etc--aren't we more socialistic than most formally "red" countries?
What the Fu Manchu do they need us for? Everything is negotiable, as stated above. Brazil might trade sugar for those tv's. Nigeria can give them oil. Europe grows some stuff. Indians will work the phones. Ugly American arrogance. We're not symbiotic with anyone. We are the least multilingual country on the planet. We're insolvent, and we can either go quietly or whip out the nukes. A bazooka full of dollars will hold off the Chinese for only so long.
If the US bails out the GSEs and the auto companies, and private mortgages, etc--aren't we more socialistic than most formally "red" countries?
Yes and no. For example, US healthcare is of, by and for the wealthy.
"Paulson wants the GSEs to continue to exist "in the present form"."
I saw her today at the reception
In her glass was a bleeding man
She was practiced at the art of deception
Well I could tell by her blood-stained hands
You can't always get what you want
You can't always get what you want
I can see it now. Chinese gunboats up the Mississippi to protect their laundry interests.
In regard to posts on wal-mart, to what degree is China debt related to expanding infrastructure for corporations like wal-mart? Thus, if China isleft holding devalued Fannie debt, how will that impact the food chain of enterprises that depend on state run goodwill?
China is about to get it's Yankee Doodle Dandy, and it likes it.
O/T but a bit on topic, too
"General Motors, Ford, Chrysler and US auto-parts makers are seeking $US50 billion in government-backed loans, double their initial request, to develop and build more fuel-efficient vehicles"
My question: Why the hech should the taxpayers be on the hook for mgmt that does not have the smarts to read the market right.
Same comment applies to F & F.
When Russia defaulted, they did not give a rats petuty - should we?
JP writes:
If the US bails out the GSEs and the auto companies, and private mortgages, etc--aren't we more socialistic than most formally "red" countries?
Yes and no. For example, US healthcare is of, by and for the wealthy.
Yup--we're so low--most of the industrialized world eliminated
capital punishment also. They have strange "values"--almost as if they're more Christian.
Nemo - I think you are correct. The logical consequence of continued foreclosures is the bondholders get only a % of their investment. We, the taxpayers, chip in a bit and the Chinese (and the reest of the bondholders) recover something. What is fair to the Chinese? 80 cents on the dollar? 60 cents on the dollar?
What will the Chinese et al. use as bargaining chips?
Tripleplay, at least you're watching Moyers. So there's some hope for you, after all.
Yes and no. For example, US healthcare is of, by and for the wealthy.
So are the bailouts... so maybe 'Red' [as in Red Square] is the new black?
If it is not the end of the world, it is the end of the current international financial system.
Tell me again why that would be such a bad thing?
Re: China
China buy tons of IOUs from a less than creditworthy borrower, and like every subprime lender, they are having an oh shit moment where they realize they could be sitting on huge losses. So they want the borrower to promise to give them paper for the paper they have so they won't be sitting on big losses. Uh-huh.
Sounds like the deal Merrill just did financing ~90% of the CDO's they just "sold".
OT, but, WTF?
Sears Is Out Of Kitchen Appliances - The Consumerist
There's gotta be an awful lot more to this story.
If Sears is having problems, then we are further along than we think.
Hold on to your hats, ladies and gents.
Better Red than "Fred" (or Fannie).
"If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,''
I can see the sign.
"Welcome to the Korean Development Fund Grand Canyon"
we could pull a LEH and sell everything we own!
why not give the interna(opps) institutional investors failed FDIC banks? give them indymac. give them some foreclosed homes. heck, we could even tack on some tickets for not keeping up the property and help easy local budget deficits.
Alec writes:
What's the chinese translation for "end of the current international financial system"?
Smoot -hawree?
Alec | 08.23.08 - 11:51 am | #
I agree - I think they'd be happy as hell to get 50 cents on the 'old strong dollar' if they could be certain they'd keep their prols working... High unemployment in China is their definition of the 'end of the world'... and that end would start at their own neck.
In the Ruins of the Housing Bust, the Price of an Illusion
Ruins of an American Dream - NY Times
One of the key elements in Chinas double-digit growth has been the turnaround and re-positioning of state-owned enterprises (SOEs), a hybrid mix of capitalism and government ownership explored in a feature article by George Dyer and Richard McGregor, Chinas Champions: Why state ownership is no longer proving a dead hand, (Financial Times, March 17,, 2008).
Unsurprisingly, while SOEs enjoy preferential financing and the advantage that comes from being at least partially, state-owned, they must also make their own way in the rough and-tumble of Chinas highly competitive economy, with cost-control, technology, design and marketing key determinants of success.
The Chinese model differs fundamentally, in combining rigorous profit and loss performance standards, coupled with state-approval for key decision-making, such as acquisitions of and stakes in foreign companies
Uh, Nemo,
Here's the syllogism.
1) Paulsen wants the GSE's to continue in the present form
2) The GSE's can't continue without a taxpayer bailout
3) The GSE's can't continue WITH a taxpayer bailout
4) Paulsen doesn't get what he wants
What would Paulsen do? (WWPD)
the only reason I haven't thought that Fannie and Freddie are zeros is because of the Bear Stearns bailout. that sets a precedent. a Fannie/Freddie bankruptcy would be worse than a Bear one. why favor bear over a more politically connected F&F that have large institutions and governments behind it?
plus, the fact that many local banks hold preferred as part of their risk capital and get a tax credit for it is outrageous. talk about a black swan.
number2son writes:
If it is not the end of the world, it is the end of the current international financial system.
Tell me again why that would be such a bad thing?
number2son | 08.23.08 - 12:20 pm | #
It isn't as long as you don't mind ending deficit spending - both current account & gov't deficits.
The minute the foreigners stop buying our debt is the day we either borrow from ourselves (meaning make stuff again) or REALLY cut back.
That is going to be a real eye opener for most folks who have no idea were their food comes from, the electricity in the wires, the basic services... etc.
Won't be bad at all so long as 'not being bad' means 'loving austerity'.
Re: "The Chinese model differs fundamentally, in combining rigorous profit and loss performance standards, coupled with state-approval for key decision-making, such as acquisitions of and stakes in foreign companies"
How is bear Stearns different than a communist SOE?
Is there a flaw in my logic?
Nemo | Homepage | 08.23.08 - 12:10 pm | #
Only one. The assumption that there is a logical pathway. Along those lines it's hard enough to say what the the US will do, let alone China. Everyone's fears are distorted by their history. And if history has shown us anything, it's that purely logical outcomes only happen after the fact, i.e., shit happens and then we get the explanation why. Until then it's WTF?
How is bear Stearns different than a communist SOE?
saturbot | 08.23.08 - 12:27 pm | #
Or a power utility... or even Microsoft?
Once an organization gets that big & tangled up in policy they cease to operate like a 'private enterprise'...
You all want freer markets - put some teeth back into anti-trust.
How is bear Stearns different than a communist SOE?
The communist banks have a 25% reserve requirement.
Anonymous writes:
How is bear Stearns different than a communist SOE?
The communist banks have a 25% reserve requirement.
Anonymous | 08.23.08 - 12:32 pm | #
LOL!!!
Yu's statement is simple and straightforward. It's not the end of the world, unless Americans can't tolerate a lower standard of living and try to bully the world with nukes, and something goes wrong. Remote.
Paul - a lot of garbage paper has been sold at 20 cents on the dollar. Sounds fair. The bondholders were presumably knowledgable about finance and market forces, no?
Won't be bad at all so long as 'not being bad' means 'loving austerity'.
dryfly, thanks for indulging my facetiousness. But I just don't see how we can avoid some austerity at this juncture.
In fact, given the stresses already being felt by the people in the middle, it's already happening.
So why not help them instead of our foreign debtholders?
The on topic question really is, how is a communist SOE different that Fannie or Fred?
The 'taxpayers' will not be asked to bankroll F & F: dollar holders will.
"Why the hech should the taxpayers be on the hook for mgmt that does not have the smarts to read the market right."
Because the taxpayers are the ones that voted in the current bunch of corrupt bastards which will not change after the election as all that will change is the names on the door. The taxpayers are going to get what they deserver good and hard.
Let's bear in mind that the GSE debt was touted as backed up by the govt. At least implicitly. Time to pay up.
ryfly, thanks for indulging my facetiousness. But I just don't see how we can avoid some austerity at this juncture.
I agree... I've been saying that for YEARS here & elsewhere. Its coming - only question is what will it look like & how well will we accept it.
I never cease to be amazed at all of this "liberal" versus "conservative" crap.
Maybe, just maybe, you can put your philosophical crap away long enough to recognize that the United States, and its economy, are being screwed raw.
While you concerned citizens argue about the finer points of an economy that has become a floating crap game, the rest of the world is watching.
LIBERALS=CONSERVATIVES=INEFFECTIVE
Yah, antitrust, where is FTC? FTC should have stopped Bear Stearns and they should force Fannie to fail!
If Fannie and Freddie fail, there will be anarchy. The losses are going to affect economies on a massive, global basis. And, if the Fed decides to bail them out, the US tanks, the rest of the world still gets screwed, and I'm going to be selling apples on a corner next to wall street execs sucking dick for quarters...lovely job by our trusted officials
FRE and FNM will pop for 25% on Monday. Virtual lock.
"China buy tons of IOUs from a less than creditworthy borrower, and like every subprime lender, they are having an oh shit moment where they realize they could be sitting on huge losses. So they want the borrower to promise to give them paper for the paper they have so they won't be sitting on big losses. Uh-huh.
"
That is true from one standpoint but do they have the power to change what is accepted as the reserve currency? Did they buy bonds as an investment or a way to industrialize a country? Can their spare manufacturing capcity be put to other uses in case of a severe downturn?
tg...you know the answer. China is screwed one way or another here, and they aren't happy about it...same way no american is happy about expensive gas, higher taxes, shrinking home values, lack of available credit, job losses....I say we protect ourselves and let everyone else figure it out. if our economy is screwed, we can't buy anyones exports, and the rest of the world is screwed anyway
"BillGrossman, if we ever needed you, we need you now!"
Feds should issue preferred to themselves. Let the government own preferred shares instead of bailing out foreign and investment bank bond holders. How much of the decline in bond price's is from the rise in interest rates versus the actual decline in value of the bond due to default or fear of default. If things were so dyer hedge funds with cash would not be buying up these bonds at deeply discounted prices. As soon as the fed decides to take an ownership position the sooner the slide will stop.
For example I have a fifteen year at 4.36. This is not the discounted intrest rate on my mortgage after it gets securitized and sold off two or three times. Current thirty year rates are 6.36 and higher. I have ten years to go on my mortgage. The holder of my mortgage is getting killed . Lets not confuse bond losses due to default with losess due to a major and growing increase in interest rates.
Having had a 30 year at 12.5 in the early eightys and having refinanced my mortgage at least three times on the way down. Bond holders deserve to get stuck for their stupidity. China b bought bonds because they had too. Lets not pay them off so they have the cash to by hard assets like coal companies.
If the feds need to inject money into the system let the taxpayer receive the benefit in terms of a revenue stream. Everybody else can suck eggs.
The Chinese are in Jeopardy Squared... they lose the value of their asset AND lose access to one of their largest customer bases (so lose income). We just lose access to credit we mostly use to buy unnecessary stuff... again, I can live w/out big screens and cheap clothes from Target... all around me is a veritable ocean of corn & beans & cattle & chickens & hogs.
The one area where both the Chinese & US hit the wall is OPEC & energy - we share that much.
-dryfly
Iran is Chinas leading oil supplier.
I don't see what the big deal is.
Why don't we just do one of those IndyMac/FDIC loan mod thingys?
China can just send us a loan mod, and we can mail our first payment in with verification of income.
Problem solved right?
So why not help them instead of our foreign debtholders?
number2son | 08.23.08 - 12:35 pm | #
We don't have to 'help' the foreign debtholders - but they do expect to get paid & if they don't they shut us completely off to any new additional credit for a very long time.
Its 'paygo' in 'hard currency' for us then on a national level from that point on.
Oh and the dollar hegemony - gone. Dollar ceases to be the world reserve currency almost over night.
That means oil at what in dollars? Might not change in euros, yen, yuan... but dollars? POOF - gone.
So in an effort to help those 'little people' here (us)... the easiest way is to make damn sure our GSEs don't default on our largest creditors (them). Even Hank & Ben get that much...
Unless those little people are in a hurry to go it alone... paygo in their own personal lives, find their own 'private Idaho'... they better hope the GSEs can avoid default. With the debt loads most little people are carrying that means a real step down if they go 'paygo' - where they live, how they live, their future plans.
My point was we are well down that road whether we like it or not - have been heading there for awhile. China just finally got the memo.
Nothing so terrible in the end of the current international financial system, although my fair city would become a valley of dry bones worse than the 70's, which in Manhattan were rough but a lot of fun.
But Americans who think the Chinese arebluffing and that they need us to spend their savings are living in a dreamworld.
right about now paulson is thinking,,,
hmmm...... i asked for a bazooka instead of a squirt gun...hmmmmm
wish i asked for a howitzer instead of a bazooka..
of course that would have never fit in my pants.
i m facing it, the fabric is ripping apart at the seams and the blame game is about to rip too
Iran is Chinas leading oil supplier.
Doc at the Radar Station | 08.23.08 - 12:50 pm | #
So? Iranians will still want to get paid... will they accept dollars or will they force the Chinese to convert to euros first? If the latter then it means China isn't a lot different than us when it comes to buying oil - using weak dollars to do it.
Money & oil are both fungible in that respect.
umber2son writes:
"Tripleplay, at least you're watching Moyers. So there's some hope for you, after all."
Just channel flipping. As for hope, forget it. If government could solve all problems and make all people equal in wealth and health, some bureaucrat at some desk would have come up with the answer during the last 2,000 years.
and the blame game is about to rip too
Totally agree.
Current administration trying to hold off on failures to that it appears that the next administration fcked up. Next administration will blame the previous one.
Everyone will claim that We Couldn't See It Coming = hoooooocudanode.
Paulson will stand on his bald head to try and kick this into the next admin, too.
whoops
to that -> so that
This blog makes too much sense.
The government will do the diametric opposite of the good ideas floated here.
Sadly, the outcome will not be as funny as Seinfeld.
Jerry : If every instinct you have is wrong, then the opposite would have to be right.
George : Yes, I will do the opposite. I used to sit here and do nothing, and regret it for the rest of the day, so now I will do the opposite, and I will do something!
When SecTreas Paulson said he "had no plan" to rescue F&F, what he meant was "we haven't yet finished the plan which we're frantically working on". It's going to be expensive and require difficult and/or controversial measures. He will have to announce something soon, maybe Sunday evening.
dryfly, when I mentioned that Iran was China's primary oil supplier that wasn't what I was talking about. IF Iranian exports get cut off that China does without... then what?
I wish I was around to see the Italians implode when they finally realized they lost the rule of the world. Oh! Wait!
Re: right about now paulson is thinking,,,
Hank: Oh shit, I have a hole in my pocket
DryFly: The Chinese are in Jeopardy Squared... they lose the value of their asset AND lose access to one of their largest customer bases (so lose income). We just lose access to credit we mostly use to buy unnecessary stuff... again, I can live w/out big screens and cheap clothes from Target... all around me is a veritable ocean of corn & beans & cattle & chickens & hogs.
This is why I hedged my long portfolio with EEV many months ago. I believe you are right, and at the end of the day, the Chinese are not our masters, but we theirs. We're holding food; they're holding paper chits. And yes, we've pulled "The Donald" on 'em - we owe the bank so much, we own it. They won't like it, but they have no choice - no other market.
He will have to announce something soon, maybe Sunday evening.
I think that's too soon.
He needs the preferred to start trading at 10-20 cents on the buck, so that the market communicates the preferred wipeout. Then they'll be happy with 5 cents on the buck during the bailout.
And of course the common goes to penny stock land.
The only way for preferred holders to come out whole is for Treasury to guarantee their dividend payments. But F&F need capital too. How to deliver it? Buy convertible preferred, and you don't dilute the existing preferred since they have a divi guarantee. See? And best of all, you sustain the fiction that the common shareholders own F&F, and they continue "in their current form". The problem, of course, is that the stock prices will always trade in the ultra-low single digits. So what? I said its a "fiction". We can all live with that, right?
What happens to the Agencies? Ah. A preferred divi guarantee is Not Enough for Mr. Yu. It doesn't help him at all. Mr. Yu says, "You have to guarantee the debt too: in writing please."
There's the rub. Guarantee the debt and it shows up on the USG's books. Does anyone care? I mean, it was there all along anyway, right?
That's the million dollar question Hank is noodling on this weekend. He has to peg the bond market's reaction; the dollar's reaction; the reaction of commodity prices. All those are sensitive to the idea that the Fed will eventually finance all this debt, or (highly unlikely) that the taxpayers will have to.
Does Hank fell lucky? If he does, he'll roll the dice, make Mr. Yu happy, make the bank preferred holders happy, and watch Treasury yields do...nothing. Or maybe something...
Hank is thinking: Oh shit, I have no pants and my 1 inch device is exposed for all to laugh at; oh shit....
An emperor who cares too much about clothes hires two swindlers who promise him the finest suit of clothes from the most beautiful cloth. This cloth, they tell him, is invisible to anyone who was either stupid or unfit for his position. The Emperor cannot see the (non-existent) cloth, but pretends that he can for fear of appearing stupid; his ministers do the same. When the swindlers report that the suit is finished, they dress him in mime. The Emperor then goes on a procession through the capital show off his new "clothes". During the course of the procession, a small child cries out, "But he has nothing on!" The crowd realizes the child is telling the truth. The Emperor, however, holds his head high and continues the procession.
THIS HAS BEEN A PUBLIC SERVICE OF KONA ENTERPRISES ♥®©
But Americans who think the Chinese arebluffing and that they need us to spend their savings are living in a dreamworld.
yogi | 08.23.08 - 12:54 pm | #
The PBOC & SAFE don't give a shit about the 'savings' per se - they worry about the jobs. That's their mandate from CCP & Politburo - don't kid yourself.
The problem with their 'savings' evaporating is the dollar collapses & makes the peg that much more expensive to support.
There are 300-400 million in rural China still at near subsistence... not starving but not prosperous. Something like 30 million head to one of the large industrial cities every year looking for better pay... they suffer almost unbearable hardships (bad air, terribly crowded & congested, etc.) to get this 'new start'. It has been up to now all been driven my export trade to US and now also to Europe.
If the dollar tanks that is all at risk - no new jobs & previously created jobs could all disappear.
The party elite is very keenly aware of all of this... THAT is what has Yu & Hu worried. They should be worried too.
Next bubble please....
Agriculture, is the next (now) bubble, and watching it burst won't be pretty. This maybe "small potatoes" to many of you but when it pops there is a real danger of
food shortages, messing with a countries food supply isn't a pretty thing.
China is buying grain terminals in the Midwest. Think about that as you make fun of the Chinese. As Buffett has said, we will wake up one morining as share croppers with foreigners owning the assets in this country.
Short term if Russia/China/ME stops buying our junk debt including agency bonds/treasuries, just watch interest rates go ballistic.
The threat not to buy new debt unless current debt is honored is very real. The Chinese would prefer to have to pain spread more widely, via a weaker dollar, to all dollar-denominated debt holders. (That said, they'd probably sit still for a little haircut, if it was part of a package giving F&F debt an explicit Treasury guarantee.)
As to whether recapitalization of F&F would work, well, with estimates of loss mentioned between $0 and $1T, it's hard to say... so Paulson will do just enough recap to kick the ball down the road for 12-18 months. The Chinese can live with that. Small recap with no haircut is most likely outcome, with problem returning in 18 months.
If you're like me, and tend to skip down the thread, go back and read lawyerliz @ 11:37 a.m. I think that's what's going to happen -- IS happening. At least it's happening in MY immediate and extended family.
Also check out It is me from Europe @ 12:39 p.m. If the tax payers are going to pick up the F&F bonds because they are "implicitly" guaranteed by the US gov., how about the "explicit" bonds held by the Soc. Sec. Trust Fund? US just going to default on them? After all the money is not for the rich or the foreign CB's, it's for the rest of us peons.
DC Rogers,
There are two problems with a small recap:
1) F&F mgmt have to agree, and even a small ($5b) recap at current prices severely dilutes shareholders. To bypass management, they would have to make OFHEO take them into conservatorship and fire management. That, is tantamount to nationalization.
2) If you do a small recap and don't guarantee the debt, you still will have trouble rolling over the $200b of agenecies maturing between now and year end.
So, no matter what, you need an explicit guarantee.
We need good Chinese squirrel recipes.
Tripleplay wrotes
"If government could solve all problems and make all people equal in wealth and health, some bureaucrat at some desk would have come up with the answer during the last 2,000 years.
Tripleplay | 08.23.08 - 12:57 pm | #
why such extremism...all or nothing
look government cant "solve all problems"
but good government, in consort with good business and informed citizens can move us forward
bad government on the other hand.... well just look at what we got now
the previous administration saw we were headed off a cliff and tapped the brakes (not hard enough but made small moves in the right direction)
this administration saw us heading towards a financial cliff and hit the accelerator
we are now about to have a Thelma and Louise moment (a long long moment)
Is this Bernake's plan?
China may not be the party framing the debate over F & F. It might be Bernake.
Yesterday I was puzzled by Bernake's spouting off about a haircut for bondholders. I thought, this might be what you do, but you don't talk about it in advance because it will tend to precipitate the bailout and/or nationalization in question. I thought he must be on crack.....
But, reading this new CR posting and the comments, and thinking more about the ineptness of the Bush Admn and the seriousness of the crisis, I can imagine another possibility - namely, that Bernake is forcing the Bush Admn's hand to take action on F & F.
Bush and Paulson have been dithering.
I don't know whether Bernake is smart and ballsy enough to force them to act by making comments that cause F & F to crash now (as opposed to sooner or later). But it sure looks like his comments (and Buffet's) are having that effect.
Nothing like getting China to start making calls, let alone the other international investors. Nothing liek making it impossible for F & F to raise another penny without paying bigger and bigger interest spreads.
Is Bernake smart enough to hatch such a plan and make it work?
Or this going to be the Bush Admn's parting gift to America, a systemic financial meltdown that will make us forget Iraq, the national debt, Katrina, and his vacation in Crawford before 9/11?
Dryfly's post reminding us of the agricultural and physical riches we still enjoy in this country got me thinking about China's domestic riches. It has great land area and water resources, even if both have been badly mismanaged in recent years. It has an enormous number of modern factories. It has an unimaginably huge population. Too huge for China's own sustainability. Now, how can they put that overfat resource to use when foreign resources have become inaccessible? War. OK, intercontinental war or intracontinental war? Remembering dryfly's comment that China is just as short of oil as we are, intracontinental war looks like the most profitable choice. The Russians and the Middle East are a relatively simple frog march away. Their comparatively tiny populations are no match.
If there were catastrophic failure of the current international financial system, the results could be quite astonishing. And to some extent we may yet profit from our ocean borders. But we sure as hell won't have oil.
What Liz said...
lawyerliz writes:
End of this system maybe. Bad for China. Definitely. Bad for us? Short term, horrible for us. Long term? Probably just what we need. Forced discipline for everybody.
lawyerliz | 08.23.08 - 11:37 am | #
I don't think many disagree with that (except those who make a buck off shuffling US sovereign debt which it looks like GSEs have now become).
I just don't think people realize just how much it is going to suck from a 'lifestyle' perspective. Like I said above - few understand where their next meal actually comes from, how it is produced, and the real cost drivers associated with all of that.
They are going to learn.
JP WRITES: He needs the preferred to start trading at 10-20 cents on the buck, so that the market communicates the preferred wipeout. Then they'll be happy with 5 cents on the buck during the bailout.
SecTreas can't wait for that to happen, because he needs to keep the lid on the pot until January 2009. So he has to announce something soon BEFORE F&F preferred implodes. I think it will be a relatively modest proposal announced soon, rather than a more drastic proposal in October.
Kick that can down the road!
Ross writes:
We need good Chinese squirrel recipes.
Ross | 08.23.08 - 1:12 pm | #
How do you know we haven't been eating them most of our life? Every time we pick up some 'round eye take out'?
Saturday is free hunting day and opening of squirrel season
theleafchronicle.com | Clarksville | The Leaf Chronicle
Squirrels are one of the most underhunted of the small game species in Tennessee and there are literally millions of the tasty tree climbers waiting to be harvested.
There are five species of squirrels in Tennessee, but two species the southern flying squirrel and the northern flying squirrel are not hunted because they are small, nocturnal and seldom seen.
and yes tripleplay
i do fault clinton for signing phill gramm's bill ending first half of glass-steagal
and yes i do fault carter for deregulating the airlines
and every president in between and after has been more or less on the de-reg bandwagon
that was the koolaid that was being passed around washington and thruoughout many of the boardrooms in america
now see what it got us
Re: How do you know we haven't been eating them most of our life?
Where do you think chicken nuggets come from.... duh!
Is Bernanke smart enough to hatch such a plan and make it work?
-Joe Schmoe
Bernanke very likely is going to be staying on the job, and he knows it, just my opinion. The others aren't. I think you're right. If he's going to be hanging around mopping up the mess, he certainly wouldn't want somebody sandbagging him for the next few months.
"I say we take off and nuke the entire site from orbit.
It's the only way to be sure."
David Pearson writes: There are two problems with a small recap:
1) F&F mgmt have to agree, and even a small ($5b) recap at current prices severely dilutes shareholders.
My estimation is that F&F are political creations more than true "private" entities, and if the "greater good" demands it, they will fall on their sword. (However, the Democrats would have to sign off on any deal to make this happen, as this is where F&F have their strongest links.)
2) If you do a small recap and don't guarantee the debt, you still will have trouble rolling over the $200b of agenecies maturing between now and year end.
No different than now, other than an explicit infusion of gov't $ to calm the markets about the reality of gov't backing.
(If Mr. Market sits on their collective hands at an auction, then the explicit guarantee of new debt is inevitable.)
Questions from one of the students here--me:
Former Sec. of Labor Robert Reich says China is totalitarian capitalism vs. our democratic capitalism. I agree.
Only those on the hard right and hard left think China remains communist.
Reich blogs at Robert Reich's Blog
I think China will beat their plough shears into swords and gun for you if they don't get paid. Your neocon ass is grass, game over.
"I just don't think people realize just how much it is going to suck from a 'lifestyle' perspective. Like I said above - few understand where their next meal actually comes from, how it is produced, and the real cost drivers associated with all of that." --dryfly
And some people don't have much farther to fall. Been down so long it looks like up to me...
dryfly wrote
"...few understand where their next meal actually comes from, how it is produced, and the real cost drivers associated with all of that.
They are going to learn.
my grandfather told me and my brother many a story of how he harvested fruit by hand in northern new jersey, during the great depression and walked across the george washington bridge to sell the fruit in NYC...lessons not lost
i pity the poor fools who own no land and are trapped in the bowels of the great megalopolis...fewer family farms , more urban dwellers...it will be very different this time
The thing is these GSE bonds clearly stated in the prospectus that they were not obligations of the US government. That China wants the USG to back them as if they were is understandable but not legally enforceable.
Of course, as Dryfly points out, the Chinese could refuse to finance our deficits but would they? It is not as if they are going to lose ALL of the $376 billion in the event a GSE default. These bonds are asset backed securities afterall and the long term loss is going to be related to the default rate on home mortgages. They mitigate their loss by staying calm and allowing the global economy to stabilize.
Dear old grandad was wiped out and lost his business in the crash of 29.
Some idiot banker jumped out a window and landed squarely on grandad's apple cart.
Oh, great GoogaMooga, can't you hear me talking to you.
So many of you have pointed out that we are going to be Japan circa fifteen years ago or so.
So when the Japanese had to tighten their belts, what did it look like? Several of you say that our quality of life will have to sharply retract. Must have been so for the Japanese, too, right? What did that look like?
Tanya, it's going to look far worse here than it did in Japan because the Japanese are savers, Americans aren't.
DC Rogers,
The authorizing legislation on the GSE bailout states explicitly that management has to request a capital injection from Treasury.
If Management requests a highly dilutive injection in advance of a liquidity crisis and after repeatedly arguing they have enough capital, they can be sued by shareholders.
As far as shareholders are concerned, they own F&F and the CEO's must pursue their interest or risk being sued.
Finally, if Treasury guarantees the liquidity and solvency of F&F, what possible incentive do the CEO's have to issue dilutive equity? This is known as moral hazard, and it occurs in all nearly-bankrupt companies: the mgmt's have a perverse incentive to "roll the dice" and wait for things to get better, rather than acting prudently and building capital.
New capital helps bondholders and hurts shareholders. Management works for shareholders.
So this is the logical result of 30 years of conservative economic (free trade?) policy.
Hardly. There's nothing free market about Fannie and Freddie, and conservatives have been trying to reform them for years. It's also not conservative to overspend and borrow hundreds of billions of dollars from our international friends every year.
umber2son writes:
If the Republicans had an ounce of brains, and no sense of shame, they will use this fact to their advantage.
Obama makes Bi[n la]den his pick for running mate
I wish I could remember where I read on the 'net, about five years ago, an article proposing that the Third World War would be fought over the U.S.'s repudiation of its debt.
Buddy
Ok, mp, but concretely? By what % did Japanese consumer spending retract? What sorts of things did they buy before, that they no longer could buy?
Anonymous | 08.23.08 - 1:01 pm
Damn glad I wasn't drinking anything when I read that one! ROFLMFAO!
We're sitting here at the end of a long economic expansion that started about the time I was born, in 1950. The recessions in those decades were, comparatively, short-term blips. Many people (including the political and chattering classes) now seem to think that ever-expanding standard of living (meaning ever-increasing consumption) is the natural order of things, the only goal of economic policy.
Just two generations ago, people lived differently. None of my grandparents ever owned a car--although they owned houses. They walked, took streetcars--but in general they moved around a lot less. Their overhead was low, because a lot of the monthly bills I pay did not exist: broadband internet, cable TV, cellphone. Even land-line phone: my dad's house had a pay phone in it, and they paid by the call. A guy came around every so often to collect the nickels.
As dryfly notes, going back to that lifestyle is going to suck in many ways. Personally, I'm not so worried about the low-consumption lifestyle. I'm worried about how we get there and what happens along the way. Too many of us earn our living in parts of the current system that could disappear.
F&F and the CEO's must pursue their interest or risk being sued
not that it matters. They'll defend themselves with shareholder money. And if they lose, they pay the shareholders with shareholder money, or D&O insurance whose premiums are being paid by shareholders.
...Ah. A preferred divi guarantee is Not Enough for Mr. Yu. It doesn't help him at all. Mr. Yu says, "You have to guarantee the debt too: in writing please."
There's the rub. Guarantee the debt and it shows up on the USG's books. Does anyone care? I mean, it was there all along anyway, right?
That's the million dollar question Hank is noodling on this weekend. He has to peg the bond market's reaction; the dollar's reaction; the reaction of commodity prices. All those are sensitive to the idea that the Fed will eventually finance all this debt, or (highly unlikely) that the taxpayers will have to...
-David Pearson
Former Sec. of Labor Robert Reich says China is totalitarian capitalism vs. our democratic capitalism. I agree. -Bob Morris
I wonder how many everyday Americans really understand how our spending has been financed over the last decade and by whom? The actions that are taken over the next few weeks could bring that to their attention rather dramatically. If we had a referendum on satisfying Mr. Yu, what would its chance of success be? I get this really weird feeling that we are going to have decoupling afterall, but of a different kind.
Tanya Stafel
no comparison, us today to japan 15 years ago....
they had savings we dont and their industries funtioned upon the basis of keiretsu, and loyalty to country...ours are feckless
and finally the japanese work hard. my daughter is stationed by her company in Nihon and says 12 hour days are not uncommo
I wonder how many everyday Americans really understand how our spending has been financed over the last decade and by whom?
I do not wonder. I know the answer is approximately zero.
I think that there is a very good chance that China and other foreigners have wised-up and won't be financing our debt anyhow.
Austerity was not in my vocabulary before this point in time. I think it's going to be a big part of our vocabulary going forward.
Someone asked about 100 comments back about Raines consulting for the Obama campaign:
Obama vs. McCain: Fannie and Freddie - First Read - msnbc.com
"Moreover: Obama also has ties to the firms. James A. Johnson, the former head of his vice presidential vetting panel, was a chief executive of Fannie Mae, as was Franklin D. Raines, who said this week that he has been consulting with the campaign on housing issues." Posted: Thursday, July 17, 2008 9:15 AM by Domenico Montanaro, NBC Political Researcher
Inflection points. 1900-1950-2000 give or take a decade.
Chinese proverb? May you live in interesting times?
Thinking bout sharecropping my hay meadow? Anyone?
mp
agreed, re tanya, japanese are savers
sorry , i was typing as you were posting!
So the Japanese did not have to cut back at all? And if so, how did they pull that off? They just drained their savings? I'm not being obstreperous; I just am trying to understand.
So does "austerity" mean our thirteen year olds no longer get cell phones, and mommy and daddy no longer get a new model car every four years? Or does it mean junior literally doesn't get fed?
Ah, but the Chinese government is not without worries of its own. A collapse in its exports to the US would leave many millions of Chinese unemployed.
Was interested to see that China is now Japan's largest export market so a shriveling of world trade is going to cause a global recession of unprecedented severity.
For these reasons it seems logical to me that China will accept a certain loss on these agency bonds if the alternative is to provoke a global recession that endangers the regime there.
"Or does it mean junior literally doesn't get fed?"
No one can answer that question honestly. Yet.
Or which junior either...
"You all want freer markets - put some teeth back into anti-trust."
yeah free trade is kind like free sex...it sounds like a good proposition up front, till you get into the details.
From the Wash Post Article: It's absolutely ridiculous that Fannie and Freddie are still paying out dividends," he said. "And it's ridiculous that you would have a company where shareholders make all kinds of money when the housing market is good and taxpayers have to shoulder all the costs when the housing market is bad. How is that good for the nation? I think it's only fair to taxpayers that the preferred shareholders get wiped out."
It's time to nationalize F&F. The case is made by Sebastian Mallaby at the Washington Post.
Sebastian Mallaby - Nationalization: A Solution for Housing - washingtonpost.com
Escerpts:
"If the government is going to risk taxpayers' cash, it should inflict punishment on private players and demand an equity-type payoff. So the issue is whether to become a minority shareholder or, at the other extreme, the sole one."
"Of course, we wouldn't want the feds buying General Motors even if its assets represented a bargain, because we don't want the government in the car business. But Fannie and Freddie are special. Their murky public/private status is odious."
"What do taxpayers get out of this arrangement? Fannie and Freddie used to say they were vital in making mortgages available to low-income households. But the subprime debacle shows that low-income households had too much access to credit, not too little."
"As long as Fannie and Freddie retain their private/public form, private managers will invent reasons to grow courtesy of public assistance. The best shot at taming them is to bring them into the government. Then, once financial markets have stabilized, the government should shrink the institutions radically and spin them off in pieces, creating maximum space in the mortgage market for smaller private players."
It is the only way.
Japanese 'austerity' took the form of no growth for a number of years. Stagnant income is not quite the hardship that falling incomes are.
People lost big on the stock and property markets but they didn't lose their jobs.
"Outsider writes:
CR - What do you think of this article? "
Realogy hired David Lereah after he left the NAR. Consider the source.
Also, how do they justify the huge decrease in new home prices?
So the Japanese did not have to cut back at all? And if so, how did they pull that off?
Not hiring any women other than for decorative purposes, for one.
Firing everyone over 40 not pulling their own weight, too.
"Or does it mean junior literally doesn't get fed?"
No one can answer that question honestly. Yet.
mp | 08.23.08 - 1:56 pm | #
Guaranteed that getting food moves up to the top of priorities and recreational spending goes down. Status objects should shift, too, but I'm not bright enough to figure out what the new status symbol will be.
"I'm not bright enough to figure out what the new status symbol will be."
Debt free like me.
Almost seven billion people, all trying to live and find some joy. Limited resources, wealth concentrated among a few. Discontent growing because our toys are getting taken away.
All systems that run civilization are teetering and a failure cascade has started. We all know there is no fix, no plan, no outcome other than collapse followed by rebuilding. Why are we pretending otherwise? Why do we discuss the bad news over and over like that will change anything?
Life will continue it always has, the rules will change, the faces will change, you and I will struggle the best we can.
Throw out your best prayers to whatever it is you pray too and hope the people that own the ball don't decide to take it away. Nuclear weapons make game over a very real prospect.
Many people (including the political and chattering classes) now seem to think that ever-expanding standard of living (meaning ever-increasing consumption) is the natural order of things, the only goal of economic policy.
This is fucking retarded. Wealth -- stuff -- doesn't evaporate faster than we produce it.
This means over time we on the whole get wealthier and our standard of living goes up.
After age 35 if one is smart one can have acquired the package of goods that one needs to have a VERY good standard of living for the next 10 or 20 years, only needing to replace things as they break, wear out, or become horribly obsolete. My 25" Sony TV from 1993 is doing fine, TYVM.
Pfft. Y'all aren't going to get the apocalypse you so clearly crave. Sorry, it's just going to be a bad series of quarters, with most of us doing OK.
Tanya Stafel writes:
"So the Japanese did not have to cut back at all? And if so, how did they pull that off? ...will junior get fed"
tanya, i dont know
and i dont think many , if anybody "KNOWS" for sure how this plays out
but it looks bad
the japanese really have not yet gotten themselves altogether out of their banking crisis of more than a decade ago, and they did "cut back" in several ways, but they also did avoid financial armageddon.
the US (us!) will not be so lucky because our individual savings rate and our imbalance of trade (current account deficit) and our national debt (10 trillion) and our future unfunded liabilities (20-40 trillion) are crushing
to cut thru the verbiage, yeah i think "junior" will get 3 square meals a day but it wont be the "first world" fare that most americans grew fat on, and maybe thats a good thing.
Folks, you might just as well face it.
Fannie and Freddie are going to be nationalized. Period. Call it whatever you want, it's going to be nationalization, the same way they assumed the assets and liabilities of Bear Stearns.
I find it absolutely fascinating that the bunch in Washington, who describe themselves as "conservatives," are now engaged in the LARGEST FINANCIAL BAILOUT IN HUMAN HISTORY.
And that should tell you something about where the good old US of A is headed.
Right down the shitter, thanks to a bunch of CONSERVATIVES AND LIBERALS.
Homes are already overvalued and falling...throw in higher interest rates, higher downpayments and austerityville.
I am sure many people won't buy a home because they wouldn't be able to furnish it.
who won't get a bailout? the list of bailouts is getting long and the car companies are joining the lines.
mailgilbs wrote:
"Pfft."
that was the most deeply reasoned part of his 'argument" so i wont bother quoting the rest
mp, the critical mistakes were made 2003-2005 in not policing the debt markets and mortgage industry.
I believe this was a deliberate "laissez faire" decision to let the bubble blow, pushing the consequences, if any, until after the election.
I haven't seen much that is terribly egregious from the liberals on this. The workout stuff is pretty weak sauce.
Writing down principal via government credit would cross the line, however.
mailgilbs- you are correct sir, isn't it a shame that Larry Kudlow isn't on TV seven days a week?
"I'm not bright enough to figure out what the new status symbol will be."
Debt free like me.
Anonymous | 08.23.08 - 2:02 pm | #
Yes, but how do you display that to the world so that strangers think you're wealthy?
TROY, I'M TALKING ABOUT THE LAST GODDAMNED THIRTY PLUS YEARS.
THEY PISSED IT AWAY. ALL OF IT.
mailgilbs
you are mal glib
If the Feds bail out the GSE's and assume the trillions of debt, does that not make the Treasury subprime? Should S&P downgrade Treasury's to non-investment grade?
ut how do you display that to the world so that strangers think you're wealthy?
My California SESQUINTENNIAL plates (issued 1998-2000) are a good clue.
Yes, but how do you display that to the world so that strangers think you're wealthy?
I retired at 51, good enough?
David Pearson writes: If Management requests a highly dilutive injection in advance of a liquidity crisis and after repeatedly arguing they have enough capital, they can be sued by shareholders.
Not to argue too strongly with your well-reasoned piece, but bottom-line here is that the gov't can write some damn nice D&O insurance, even post-facto. In normal times, your argument would carry, but these ain't normal times, and any laws that stand in the way will be rewritten as needed.
One wonders why the US government would formally have to announce a bailout of the GSEs as agency paper is already accepted by the Federal Reserve as collateral for loans to banks.
While currently this transaction involves a banking intermediary to buy agency debt and take it to the Fed for cash there is no reason why Fannie could not just present its paper to Bernanke and say 'give me some money'.
'M TALKING ABOUT THE LAST GODDAMNED THIRTY PLUS YEARS
I was entirely negative in 1992, yet was surprised by how well things had turned around by 2000. The government was actually running out of debt to issue.
1995-2000 wasn't unsustainable, though the seeds of destruction -- the trade deficit with China, cheap oil getting us re-addicted, not fixing our insanely insane medical insurance system -- were definitely planted then.
Good governance 2001-2005 would have seen us more like Canada now. We did not have good governance 2001-2005 however.
me too, but age 56
and did it on a median income job by building my own house and saving 25% of every dime i ever made and investing KONSEVATIVELY
HOW ABOUT THE FACT THAT LBJ GAVE AWAY THE TELEVISION MANUFACTURING INDUSTRY TO JAPAN IN ORDER TO MAINTAIN NAVAL BASES IN JAPAN?
Tanya,
In my opinion Junior will be fed, but he won't have nearly as much stuff as you did.
A major economic result will be that inflation will erode the standard of living, because incomes won't keep up with prices. If we mismanage this problem, inflation could explode.
Despite the surge in inflation, house prices will fall because of soaring interest rates and falling real incomes. Many McMansions could become duplexes.
Many of the people who had good jobs in finance, real estate, and construction will be out of work. Hopefully they can get jobs in renewable energy and manufacturing.
HOW ABOUT THE FACT THAT BUSH I SOLD THE DRAWING SYSTEM FOR THE F16 TO JAPAN THEN, IN SPITE OF CONGRESSIONAL RESTRICTIONS NOT TO DO SO, SOLD THEM THE FLIGHT SYSTEM SOURCE CODE BY EXECUTIVE ORDER?
And to think...a couple of months ago, we were passing laws to raise the conforming loan limit so these firms could take on more loans for highly inflated houses.
Way to go, Paulie!
mp,
Try the Scrooge McDuck bro or spend some time with Conjure running after the fleet footed cuties...
Troy, the series of asset bubbles since 1990 has only built up the fuel load on the slopes...and there is lightning in the air.
There's a shortage of coal miners and oil field workers. Unemployed real estate brokers need to know that times are good in the Appalachian coal mines and up in North Dakota in the oil fields.
HOW ABOUT THE FACT THAT LBJ GAVE AWAY THE TELEVISION MANUFACTURING INDUSTRY TO JAPAN IN ORDER TO MAINTAIN NAVAL BASES IN JAPAN
Adam Smith has the answer there. If the Japanese want to put in 8 hour days in mindless labor, fine.
The economy is an odd beast. We understand it -- ie how to push it towards its optimal state -- like the Greeks understood the motion of the planets. sorta, but not really.
Sorry, but you guys are re-arranging deck chairs again.
If you really wanted to solve these problems, you'd be going after the thirty-plus year string of assholes in Washington who sold this country out.
Nationalization. How can the GSEs be nationalized and still "shareholder owned" as Paulson states. Can't be both, right?
That some here refuse to see the rape performed by the Bushies shows that the free market is free as long as so many are free to be blind. Rape is terrible, and usually results in jail time. That means the deterrent operates like the free market and cops aren't needed. The neocons have done so much to put that theory in a coffin.
mp,
Granted - though is that solution oriented - or just more factual with respect to where the responsibility for the foundations of our current problems?
Tanya, do you really want to know where all of this ends?
It ends with everybody on this planet earning a minimum wage because there is no longer any added advantage to shifting resources around.
That's where it ends.
yeah deck chair re-arranging as a diversion while mp, energycon, dryfly, and others and i go looking for the captain while we are totin a length of rope.
of course a neck tie party wont save the whip will
ok so forget that idea
suppose to read
a necktie party wont save the ship
built up the fuel load on the slopes
LAND VALUE IS NOT CAPITAL.
CAPITAL IS CREATED BY LABOR.
LAND IS NOT CREATED BY LABOR.
Investing in LAND is empty, nonproductive rentierism and not capitalism.
We misallocated capital into ephemeral land valuations 2003-2006. The Japanese made this mistake 1986-1989, with similar consequences 1990-2003 to what we are facing now.
figure out what the new status symbol will be.
Having your own mango tree.
Premium Mango Tree Shipped in Soil by Clifton's Nursery
"If you really wanted to solve these problems, you'd be going after the thirty-plus year string of assholes in Washington who sold this country out."
Actually it was the Supreme Court when they ruled that corporations and the same rights as individuals. This allowed the lobbyist to come in and basically write the laws that are then rubber stamped for the right price. Individuals look at an issue short sighted where as a corporation may not get what the want with the current administration the are already working on the next one. The only way to fix this mess is to equate campaign contributions as bribery with a death penalty but it's a little to late now the system will implode under the weight of debt.
Troy
i respectfully disagree with one part of so much you have perceptively said
labor is not capital
labor per-se does not create capital
i would suggest that capital is the result of the difference between production , and consumption, that quantity put forward to increase further production...
in other words, savings put towards future productive use
"Personally, I'm not so worried about the low-consumption lifestyle. I'm worried about how we get there and what happens along the way. Too many of us earn our living in parts of the current system that could disappear."
One of the more astute posts I've read here.
The only thing that adds value is the work of hands.
Construction, manufacturing add value. Flipping houses, flipping paper, administering web sites and counting beans does not.
If you want to solve this problem, you've got to make this country productive again, and the only way you're going to do that is to make things.
In order to do that, you've got to have a MANUFACTURING POLICY.
The EU has one, China has one, Japan has one, India has one. Hell, damned near the rest of the world has one.
So, unless you want to have a big global hug and sing Kumbaya together in your mud huts, you'd better get busy.
mock,
It may not be solution oriented, but that isn't to say I object to the idea altogether either!
Troy wrote
We misallocated capital into ephemeral land valuations 2003-2006.
i agree
Ouch...
American Express warns California over nonpayment
By Andrew McIntosh - amcintosh@sacbee.com
Published 12:00 am PDT Saturday, August 23, 2008
Story appeared in MAIN NEWS section, Page A3
With California's budget impasse now in its 54th day, financial services giant American Express Co. has warned the state that its workers may have to leave home without their state AmEx travel card if the dispute drags on too long.
"American Express will not suspend state billing accounts at the normal past due interval; however, we reserve the right to suspend service should the impasse become protracted," Doug Browne, an American Express government services manager, told government travel coordinators in a June 12 memo.
Browne declined to discuss his memo, which was obtained by The Bee.
AmEx spokeswoman Janet Lee said the financial services giant does not publicly discuss its corporate accounts.
California currently is not refunding its workers for any travel expenses they incur using their state credit cards, from airfare to car rentals to hotel rooms and conference room rental fees.
{snip}
mp
i was a union officer in my previous life and very much respect the value of labor
agree with at least half of what you said above
however as pro labor people we should not discount the value of entrepreneurs, the good ones, that is who take new ideas and put resources together in new ways...creativity...that give us progress.
i agree the flippers, quants, leveraged-siv-traders-squared are a bunch of thieves
energycon
yeah i hear ya
a little justice would salve the pain
like they useda say in the old west...
we gonna give ya fair trial
and then we're gonna hang ya
mock, yes, that's one definition of capital wealth -- capital goods like tooling and stuff that is not (significantly) consumed in the production of goods.
I disagree with "labor does not create capital".
Labor creates all goods, modulo the scaling efficiencies of technology.
I am no macro-economist and my education is horribly spotty here, but the owner of production collects capital by selling his products for profit.
The profit can go toward capital re-investment, savings, or consumption.
Strictly speaking savings is not physical capital -- hyperinflation of the money supply can obliterate it -- but savings can be changed for capital goods and back quite easily, modulo transaction costs.
An average 85% backstop on the credit is more than reasonable. After all, if you wanted risk free, you should have purchased the real deal. Backstopping equity is ridiculous.
Treasury can simply announce this backstop. If FNM/FRE run down their portfolios, then GNMA can offer to purchase old fashioned conforming mortgages (20% down, std DTI, etc.).
Comments thread here is pretty depressing. Not even a jester around to make me smile.
America: Not as smart as we think.
America: Not as rich as we think.
At least we're still able to design and manufacture our expensive weapons systems. We'd be in real trouble if the rest of the world stopped providing us with parts for some of our weapons systems. I'm not sure if we have some back-up for key foreign components or not... but hey, at least there's a bit of a manufacturing base! Silver lining! Silver lining! I found the silver lining in borrowing to build up our military!
Now I'm smiling...
Mock, all I can say is that busy hands are happy hands.
Look at the labor force participation rate. It is falling. A tremendous number of otherwise able bodied folks have left the work force altogether. Why? There isn't any work that pays worth a damn.
All of this "financial engineering" is the direct result of people trying to extract "wealth" the only way they know how.
Mark my words: Everyone in this country is going to end up selling each other life insurance and real estate.
mp,
Why must we have a manufacturing policy. Why can we not have manufacturing?
Oh yeah gov't decreed fiat currency. Well lets get rid of that then...I don't want the born and bred and bought bozoz in Con-gang deciding on said policy.
Just a thought.
Cheers,
administering web sites and counting beans does not.
I disagree. Those two examples of the service sector enhance the productivity of the secondary (manufacturing) sector; they are not entirely deadweight or consumptive in nature.
"If you really wanted to solve these problems, you'd be going after the thirty-plus year string of assholes in Washington who sold this country out.
mp"
and that road, my friends, is paved with rope.
Mark my words: Everyone in this country is going to end up selling each other life insurance and real estate.
Rentierism is such a lovely, accurate word to describe all that is wrong in any economy.
The Communists in their naive purity increasingly suffered under it.
Rentierism is the Corruption of Economics.
It saps that which is productive. It is cancer.
mp, I have to admit an addiction to those 30 minute infomericials. The product doesn't matter - buying foreclosures, smc, buying notes whatever. It is the lifestyle that can be achieved with VERY little work (at least per the commercial) that I find fascinating. Until this country as a whole learns to ENJOY hard work and live within our means we are in for hard times.
Oh yeah gov't decreed fiat currency
I propose Irididum as the base metal. 3rd rarest stable element, densest element, most corrosion-resistant metal.
pah. Fiat money isn't the problem, bad government is the problem. Actually, bad government isn't the problem, either, rather a childlike population largely unable to think is.
This country is divided into thirds; one has their act together, one doesn't at all, and the mush middle is in an indeterminate state.
black dog,
I think it is the coming hard times that will generate that appreciation of 'an honest day's work' - producing something of value - but not until the rest of the world stops sending us their production for us pooping out paper promises.
"Tanya,
In my opinion Junior will be fed, but he won't have nearly as much stuff as you did."
HA! Then Junior is in for a rude awakening--I still haven't gotten the taste of powdered milk and BX-brand "cheerios" out of my mouth.
Like most of you on this site, it sounds like, I'm a compulsive saver. In fact, I tried to get advice on this board a little while ago about where to stash my lucre, and pretty much just got sarcastic responses, which I guess I deserved given this isn't an investment site. (I came up with my own answer: just keep buying index funds like I always have. If the financial world doesn't end, I'm getting them on the cheap over the next few years. If it does end, it doesn't matter where I store it.)
So austerity: if Americans simply have to cut back their spending (duplex the McMansion, roll back to one car or even none, no more vacations using airplanes), then there will be grumbling but we'll be fine. Especially all of us, the already-austere types on this Board. But if junior can't get fed--not even powdered milk and generic cheerios--then we're talking revolution.
Re: Mark my words: Everyone in this country is going to end up selling each other life insurance and real estate.
They said that about Avon a few decades ago too...
Troy,
Realy. So you get to choose? The market chose gold and silver about 5000 years ago. No one was asking your mindless ass to choose...but when the entirety of human markets decides...well that makes sense. Who cares about the rare-ness off iridium.
Childishness,
Cheers,
Troy MP
i agree it takes labor to create capital
but that is one of several ingredients
and...that one ingredient is not sufficient unto itself to create capital.
the women 100,000 years ago who said hey, drag a stick along the ground and bury the seed in a row an more seed survive...that was entrpenurial expertise
the man the following year who said, hey if i take one small fish off the dinner table and drop it in the hole with each corn kernal i can forgo consumption now in favor of increase yield later...that was capital
the chief who said, hey lets move the encampment over the next ridge to the bottom land below where the ground is more fertile,, that was resources.
and all of them did labor to these ends
and so all im saying is takes four inputs to create wealth and i think we get into trouble when we dis any one of them, land (resources), labor, capital, and entrepreneurial expertise (knowledge, inventivess and risk-taking).
A few months ago, a Chinese submarine surfaced inside the defensive perimeter of a US naval task force on exercises in the Pacific.
The US Navy literally didn't know it was there.
Why? The Chinese navy now has stealth technology, super quiet propellors and hull assemblies. In order to make super quiet propellors, you need large precision multi-axis milling machines.
Why? About six years ago, Douglas Aircraft was selling off machine tools in Palmdale. One of the tools they sold at near scrap price was a large US-made multi-axis mill used for precision machining on extremely large parts. Who bought it?
The Chinese Navy.
That's only ONE of the reasons this country needs a manufacturing policy.
mock, yes, I consider your latter to be forms of intellectual capital and "social capital".
Some societies have more social capital than others.
In my thinking, Labor is simply physical and mental effort. That which makes a laborer skilled is intellectual capital.
This reminds me of the discussion about space without time.... philosophy dares you to think, but in a world run by retards, does debate matter?
So you get to choose?
heh, it was just a proposal
"...in a world run by retards, does debate matter?"
No.
The case for a global currency
The case for a global currency - Editorials & Commentary - International Herald Tribune - The New York Times
There is a rising tide of opposition around the world to America's unilateral assertion of its national interests. But few realize that for the United States to become a more responsible country, the world economy needs to move from the current U.S. dollar standard to a global currency.
U.S. dominance rests not only on military superiority and on the size and productivity of its economy, but also on the fact that most international transactions are denominated in U.S. dollars and more than 60 percent of world foreign exchange reserves are held in U.S.-denominated assets, like U.S. Treasury bills.
The problem for the rest of the world is that the U.S. dollar standard encourages the United States to be careless in its monetary and fiscal policies.
STAY TUNED because likely coming soon !
mp,
"That's only ONE of the reasons this country needs a manufacturing policy."
Militarist. It shows why we need to mind our own business. Gov't directed manufacturing for the War State. Didn't know until now that you were a war pig mp...but now I do.
YouTube -
Cheers,
Troy MP,
agreed
and i think the vast number on this blog agree that the double dealin fat asses that sold this country down the river have gotten fat paychecks ofr doing little of value other than committ treason
let the trials begin
(disclaimer...we, i...joke about rope here...i DO NOT advocate violence (really), its such a waste of resources
and besides if we are violent against them when we take power, later they will too..its just a cycle that comes back when the other side wins (or fixes) the election.
now, as for trials and jail sentences and confiscation of ill gotten gains...yeah i'm for that
but in a world run by retards, does debate matter?
LOL. Hope springs eternal. November is win-win for me. If one guy wins, I have hope he is smart enough to reverse things, or at least try.
If the other wins, well, 日本語を話せますので大丈夫。
If the Feds guarantee the GSE debt, they should at the very least demand a haircut of the interest they've been paid above that for treasuries. Basically offer to swap GSE debt for treasuries of equal purchase value, with adjustments for paid interest.
Misean, sorry, but you just don't get it.
Pratt and Whitney licensed production of radial engines to Japan during the thirties and the Japanese used them to visit us at Pearl Harbor. So, why make it easy for a present or future possible enemy.
It's not exactly like we attacked Japan, now is it?
and besides if we are violent against them when we take power, later they will too
talk of revolution is laughable when we couldn't find people worthy to stand in the same room as the original Framers.
The number of living public intellectuals I wholeheartedly admire can be numbered on one hand. Not that I am especially well-read, but we're no longer mature enough to get a constitutional amendment through the process, try imagining a new convention. LOL.
So, why make it easy for a present or future possible enemy
Friends are good. Right makes Might, in the end, usually, YMMV.
Tro
i cant speak japanese
but my daughter is in Nihon and is learning...
great people, great culture (not perfect, like us, many sins, much good)
because i cant speak japanese not so alright!!
Tro should be Troy
sorry i type bad
Hu-coodanode?
mp,
"It's not exactly like we attacked Japan, now is it?"
Naw, we just prevoked them. We're probably just a few decimal places off from agreeing on things. But like they say...
a Priest a Lutheran Minister and a Bhudist Monk enter a bar.
Cheers,
But if junior can't get fed--not even powdered milk and generic cheerios--then we're talking revolution
"Every society is three meals away from revolution."
You mean like we provoked the invasion of China and the establishment of the Co-Prosperity Sphere?
I think a certain amount of cutting back would be a good thing for both kids and their parents.
You can do without at least 2/3rds of the stuff sold at Walmarts. Some cosmetics are actually harmful.
There are unintended consequences everywhere. The hub told me that he heard that because of Russia's invasion and return to a sorta cold war posture that private investers were pulling out from there in droves. Droves being 16bill so far. That is a drop in the bucket here but probably more important there. And it's only so far.
Real estate falling? Dead banks? That is already built in. Once you are foreclosed, does it matter to you as a foreclosee whether or not your bank gets 75 cents on the dollar? or 60, or 50 or 40. Course not.
One thing I've always marveled at is how fast something can recover once the correct policies are put in place. Why? I asked myself. I think part of it is that entropy is so destructive anyhow, that proportionately the additional destruction such as what we are observing now is really a lot less that what it seems to be.
Japan never recovered because along with the loyalty and hard work etc, is also a reluctance to face up to things, so they never did resolve their debt/real estate thing.
We had the RTC. I shudder to think what the posters on this site would have said about the RTC. But you know? it all worked out, and as I recall didn't cost all that much relatively speaking.
The Chinese et al stole our tech? Well, you know, if we wanted to, we could steal it back. Or, we could recreate it.
Part of the ADVANTAGE, yes, I said advantage, of our bad schools is that your mind doesn't get frozen into a certain way of doing things. You didn't learn it in school, so you have to invent it. The Japanese are supersmart and super hard working and really good and loyal people, but from what I read, they have the creativity beat out of them. If you are Japanese, it might be a good idea to send your high school and college bound kid here, because the creativity could be less stifled.
I think, in order to really think about things you need to look at them upside down and backwards, and then abandon all anchoring whatsoever, and pretend you are the woman from Mars or Alpha Centari.
we did provoke them
needed an excuse to get into ww2
brits and us cut off japanese access to petrochemical
blockaded the straights their tankers passed thru to indonesia
of course the japanese were not nice people then and were doing terrible things to the mainland
they were also cozy with adolf
but then again so was prescott bush
but what the hell whos keeping score
o,
Like Rosevelte provoked the japanese to attack us.
You're not that far out of the loop mp...are you?
Cheers,
LawyerLiz is always worth reading.
mock turtle,
I'm keeping friggin score. And I'm pissed off about it.
Cheers,
"You're not that far out of the loop mp...are you?"
Misean, you're beginning to sound like an appeaser, a la Chamberlain, to me.
If that Chinese sub had entered my defensive perimeter, I would have blown the son of a bitch out of the water.
Those are the rules of engagement.
"But if junior can't get fed--not even powdered milk and generic cheerios--then we're talking revolution
"Every society is three meals away from revolution." "
Yes, but some societies have a bigger buffer before they get to the last three meals than others. And honestly? Call me Pollyanna, but... I think we've got a pretty big buffer. Put me down for "it will be more like Japan--belt tightening but no collapse."
Because, of course, my wild assed speculation matters!
i can see you are motivated
problem is both you and MP are spot on more often than not.
The Japanese are supersmart and super hard working and really good and loyal people, but from what I read, they have the creativity beat out of them. If you are Japanese, it might be a good idea to send your high school and college bound kid here, because the creativity could be less stifled.
Really? I think this is a bit arrogant and disagree.
Naw, we just prevoked them. We're probably just a few decimal places off from agreeing on things
Our policy was to more or less support them as an anti-communist bulwark in the 1930s (eg. Manchuria), until their Army's predations in China proper passed the pale in the late 30s.
With the fall of France (and Holland )in 1940, the UK evicted from Continental Europe and in a fight for its very life in 1941, the game became deadly serious, and Japan had thrown its lot in with the revisionist Axis in the attempt to create a "New World Order".
Japan was moving toward forcibly "liberating" the Dutch holdings to its south; its "Asia for Asians" colonial policy ran counter to our own neo-colonial designs for these markets.
The FDR's choice was to lose unfettered trading access to the Dutch East Indies and further unpleasant evolutions in China proper, or put the nation on a collision course with the revisionist militarists running Japan.
WW2 started for us when the Japanese cabinet decided that it was time to poop or get off the pot WRT establishing a new colonial order in Asia; Germany's successes in 1940-41 was a once-in-a-millenium chance to reach for the ring.
FDR apparently originally proposed a milder "modus vivendi" in those crisis days of 1941, lifting some of the embargo if Japan moved back out of Indochina. According to WSC's history he persuaded FDR to strengthen our demands for the total removal of the Japanese Army from China proper (its post-1937 occupation).
This meant war -- the Japanese were not about to back down when the Axis so clearly held the whip hand here -- and the Chinese really owed us one over that.
We don't need to beat the Chicomms, we just need to hang on long enough for their internal social pressures tear them asunder. As much as our current economic situation is unsustainable theirs is doubly untenable. Anybody who remembers when the Japanese were going to eat our lunch and own the dinner plates knows things don't always work out. Could be we end up buying back a lot of our debt for pennies.
I'm with ya, Tanya. The (admittedly shriveled up from disuse) optimistic part of my nature says we'll see a long, slow decline in consumption, which need not be painful.
When I go on vacation, I go someplace where there's no TV or radio, much less cellphone, internet and so forth. It's great. I could live like that all the time, much as I would miss these Saturday morning CR gabfests. They will figure prominently in the stories I tell my grandkids about the old days.
MP
chamberlain was not an appeaser
he ended up declaring war on hitler
he tried an act that in hindsight proved to be in vain
the idea we could have stopped hitler at the sudetenland if we had acted tough up front is unproved
the nazis were geared for war, a war they thought they could win
there was gonnna be a fight no matter what
as for the chinese sub and blowing them up, not what i would have done.
if that means i weak so be it. death for naught is not an even trade
if the chinese had launched a torpedo things would be different.
does everybody remember the iranian public airliner we shot down in the gulf by mistake?
Really? I think this is a bit arrogant and disagree.
Having lived in Tokyo for 8 years, I kinda agree. The centralized Japanese educational system is horribly conservative and rather Prussian in its nature and goals.
This is not entirely a bad thing but there's a million years between the best private schools eg. Azabu HS and the public system as a whole.
ok
ive ruined this thread enuf
im outside to work on the new and improved 1/2 acre victory garden (really .5 acre! all hand tilled)
Hankie Pu's best move would be to pull the ultimate con--sell Fannie & Freddie to the Chinese.
chamberlain was not an appeaser
he ended up declaring war on hitler
he tried an act that in hindsight proved to be in vain
the idea we could have stopped hitler at the sudetenland if we had acted tough up front is unproved
Actually, Chamberlain's appeasement was selling out the Czechs in the hope that Hitler's promise that this would be his last territorial demand.
The historical record indicates that Hitler's General Staff was largely arrayed AGAINST this confrontation as way too risky given the military situation. It was Chamberlain's accession to Hitler that fatally weakened the anti-Hitler contingent in the late 30s.
Chamberlain wanted no part of an alliance with Stalin. This proved to be . . . unwise.
"there was gonnna be a fight no matter what"
If Hitler had been confronted early on, things would have worked out much differently, but he wasn't.
Every early probe he made merely served to confirm to that son of a bitch he could have things his way.
"Actually, Chamberlain's appeasement was selling out the Czechs"
You got that right. He and the French sold them right down the damned river.
btw, the history of the 1920s ~ 80s becomes a lot clearer when you try on the hypothesis that every nation state was in a struggle to secure its own currency trading bloc.
"the idea we could have stopped hitler at the sudetenland if we had acted tough up front is unproved"
That is absolutely untrue. In the records of the OKW it indicates they advised Hitler that, if they were challenged, they couldn't make the occupation stick.
They were ready to high tail it on a moment's notice.