Hank Paulson, Ben Bernanke and the merry band of money printing republicans must be stopped! They are destroying our currency and the middle class. We are going to buy banks so Harvard legacies can earn 19,000,000.00 for three weeks of golf.
Everyone must understand that the "money" they are using dilutes your earnings and savings.
Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets
Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets - Bloomberg.com
Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.
Fannie and Freddie began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities, according to the people, who asked not to be identified because the plans are confidential. The purchases would be separate from the U.S. Treasury's $700 billion Troubled Asset Relief Program.
Every day this unwinds I am very thankful that it happened while Bush was still in office. The lunatic conservative fringe would blame Obama for this until the day they died if it had happened post-election. Hell, some of them are actually blaming the GLOBAL collapse on the ANTICIPATION of an Obama win.
Easy one liners aside, does Volcker have the mental tools to deal with this crisis? He did very well with the nasty inflation of the 1970s. The current problems seem much more complex though.
CalculatedRisk. Hopefully you are still up at this hour: I have a burning question: in this mad rush to bail out the economy, is it the right thing to be throwing taxpayer money at:
1) Homeowners who bought too much house or borrowed too much against their house.
2) Financial institutions whose greed led them to make very poor lending decisions.
The reason I ask, is that there's a third group which, if anything, deserves to be rewarded. That is, those who decided against borrowing and buying a home because the home price was too high and the loan would be too big. But instead of being rewarded, people want to kick this group in the ass.
By definition, if more people (both homeowners and banks/lenders) had recognized that prices were out of whack and lending was too loose, then by definition the bubble would have been smaller. Indeed if enough people had recognized this, then there would have been no bubble.
So we depend on people to be smarter to avoid devastating bubbles in the future. Why, then, would we attempt to punish these people while rewarding the behaviors which amplified the bubble?
McCain keeps yapping about keeping "everyone" in their homes. Why? For every foreclosure, there will be a financially more prudent family whose "time has arrived". They can purchase a home at much more reasonable terms than the reckless buyer before them. Either way, a family will be in the home. The decision is to incentivize reckless borrowing by keeping the existing family in it, or allow the new family to live in it at the proper price.
The home mortgage interest deduction and other tax incentives make things even worse. Why should a renter be more "on the hook" for taxes, including Wall Street bailouts, government-sponsored cram-downs, and lost Fannie/Freddie money than a homeowner? Is this not the renters subsidizing homeowners again?
How many years did we get the crap from the government and organizations about "affordable housing programs". What a bunch of crock! Homes are now becoming even more affordable all by themselves and all these clowns think it's a disaster! Isn't that hypocritical?
As you'd guess, my family is in the third group of people. Maybe that colors my judgment, but I think it's quite logical that my behavior (frugality, skepticism about bubble prices, financial prudence) should be rewarded while excess borrowing, spending, and recklessness should be disincentivized. Funny enough, the market wants to reward my family's patience, but government and greedy overconsumers have other ideas.
Ministry of Truth writes:
Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets
Oh, that's a good idea.
Seems rather a stealth way to re-capitalize the banks / financial institutions holding that bad paper. Wonder what kind of oversight will occur in that program? Any? And when the loans fail, any clawback provision to the selling banks?
May I offer this, though certainly not pretending to speak for our esteemed host...
Through the lens of Jas' scope, the moral hazard you decry is a natural by-product of pushing financial wizardry-cum-fraud on the masses. Every placed loan, every bundled security, every MBS and CDO and CDS carries / carried with it a corresponding fee.
Tin-foil colander on full gain, the system is designed to generate fees regardless of the 'morality' or ethics of doing so. Period. Rewarding bad players / punishing good players is then incidental to the actual goal - that is, generating a fee income for the trader.
Look at the 'financial advisors' or web-based trading platforms. They don't care if the underlying asset / stock / commodity goes up or down, or what the product is or does. All that matters is the transactional fee.
There's a corresponding fee for the people who provide maintenance of the tax code. No deductions means simplicity (old joke - IRS form 1040 short form - 1 question and 1 instruction - How much do you make? Send it in.) Simplicity means no reason for tax preparers.
The system requires transactional fees, and those set up to collect those fees end up the winners. All other are just sheeple.
What society should be doing is a moot point. This is a "democracy", and as such typically majority wants wins. Prudent renters are both a numerical minority and powerless (as in, people in political or financial power may be prudent, but are certainly not renters). Thus you will lose every time.
I'll take a before-bed whack at this...
For a society it makes sense. And yes, the responsible get penalized.
If society rewards those who are conservative with their borrowing and spending, we will get less borrowing and spending. So there is no incentive for society to reward those who sat out the bubble. They don't play with us (society) and they don't contribute to our growing ponzi scheme.
If society punishes those who take risks, borrow, and spend, people will do less of it. And that is bad for an economy expected to grow every year.
Encouraging borrowing and spending also creates a lot more winners at the top. They have more potential victims. They don't care if the prey explodes...there is more prey.
In this case, however, even the predators exploded. Now the gov is just trying to put the game back together again. The best way to do that is to encourage borrowing/lending, and selling/buying. It is not to help those who won't help the overall economy by borrowing and spending with abandon.
Encouraging conservatism in personal finance is not good for the economy as a whole, though it is for the individual who practices it.
Alright, but I would like to see CalculatedRisk answer the question. CR has tended to look favorably at "help the homeowner" programs, and was also positive about the $700 billion Wall Street bailout.
I have to wonder if CR would support a $700 billion "help the renter" program. I don't support any of the three, but why support the first two and not the third?
That is, unless the society actually is corrupted and its moral compass points to Hell...
Now, should one seek to introduce to the economic structure the concept of aversion to moral hazard - that is, an enforceable and explicit moral code (not incidentally and implicitly based on a Judeo-Christian coda), then it becomes necessary to (1) have well-written rules that are (2) enforced by (3) conscientious enforcers.
But who will appoint / elect the guardians? Again, following Jas, the selection is fixed, the game is rigged, the mantle of propriety has been stolen and only recently has the curtain on that theft begun to been parted.
The question then becomes, can the system be fixed, with steps 1-2-3 followed? Or is it too late? And if too late - now what?
Easy one liners aside, does Volcker have the mental tools to deal with this crisis? He did very well with the nasty inflation of the 1970s. The current problems seem much more complex though.
Captain Fish (Paper Pusher) | 10.11.08 - 3:09 am |
I disagree, the problem is simple if you choose the right problem to solve. The current errors are all choosing the wrong problem(s) to solve. They've been treating symptoms and not the disease; this is exactly what Japan went through.
South Korea, Russia, Brazil, etc did not pretend that there was only ever one more small thing to fix. They dealt with the main problem, took the immediate hit and then went on to grow 8% in the decade thereafter. By doing so, their countries reached a higher level than if they had tried to maintain the status quo.
Whatever you think about Volcker's ideas, he is a real person. He gave up lucrative offers to be Fed Chairman and he stood by his very sick wife (diabetes) and son (cerebral palsy). He's taken responsibility for every thing he's done. He's probably the last high ranking public official that saw public service as a privilege.
This afternoon NPR did a piece on the problem, in their view. The liquidity problem. Um, yeah, though I was yelling at the radio "it's a solvency problem".
So ersatz Hank - if it is a solvency issue, what can be done to address it?
Der Kommandant Weather Helm,
The answers are not simplistic as the bailout package is intended to save the economy and jobs too.
Prices of both stocks and assets(including homes) at most times do not reflect actual value because people are either way too optimistic or too pessimistic. And if prices are allowed to fall way below their intrinsic value, it chokes the economy.
The bailout package at best is a necessary evil
The most interesting thing, in a sense, in the Volker interview was his alluding to Roosevelt in the banking crisis of 1933. He pointed out that because Roosevelt was believed by the public, his fireside chat had the desired effect. He of course did not explicitly make the obvious contrast: that Bush has no credibility, is regarded by many as a serial liar, and no speech he can make would give anybody any confidence whatsoever. Bush has probably less credibility than Hoover. What we need, in short order, is another Roosevelt, a President the public can trust and believe. Not the one, sadly enough, presently in office.
I have to wonder if CR would support a $700 billion "help the renter" program. I don't support any of the three, but why support the first two and not the third?
Der Kommandant Weather Helm | 10.11.08 - 3:37 am |
I'm not CR but I'll share my opinion. I would rather spend $700bn to write down assets to their real hold-to-maturity value. From houses up to the derivatives sold on a CDO composed of other CDOs that contained all second mortgages insured by a 3rd party.
After the destruction of that which never was, I would spend the $700bn or whatever is needed to recreate the essentials of an economy (if done early enough, set up new banks with new names but hire the bankers worth their salt and motivate them with an IPO in 10-15 years)
Nothing more, nothing less. No moral hazard, no punishment of prudent decisions, minimal harm to bystanders.
What we're seeing now is the same thinking that the government can eliminate recessions through its own spending. Many are focussed on the immediate potential loss in their house, or in a bank, or in a business that needs a borrowing rate of less than 3% to survive. The truth is all those assets are impaired, and will still be impaired after they are 'rescued'.
The house has to compete with tens of thousand vacant units, the bank has no reputation or free capital and holds impaired loans at mythical valuations, and that business will still eventually have to face increased borrowing costs because eventually the leverage, which helps lower the cost of borrowing, must end since if it approaches infinity a infinitesimal movement in any single asset price along the chain will destroy an infinite amount of wealth
Remember all the raging debate in the early 90s about "Welfare Reform"? Remember all that talk about how the system was disincentivizing looking for work because if they did they risked losing their government handout? Meanwhile people with jobs had to pay higher taxes to support those on the dole?
It all made so much sense at the time. As it should, because it's correct reasoning.
Well, now we're going backwards, except instead of poor single mothers being on the dole, it's reckless homeowners and reckless lenders. Now, the smarter you are, the more you get punished. Nice switch!
I know people who are on this government dole. They bought at the worst time, against my own advice, and are now pursuing a handout from the government.
Four years ago I told my wife: "We're not getting a home because prices are in a bubble and credit is too loose." Just like that. This was before seeing any bubble blogs or anything remotely resembling a societal acknowledgment of a housing bubble.
I should have said instead, "Honey, we're buying a house now because if prices crash we can get a government handout for the difference."
Disease plaguing this society is not solvable without a revolution. Lets not look to the establishment to address fundamental problems. I don't want to sound like a Marxist - I'm not advocating any specific replacement system. Every system bears seeds of its own destruction, and this one is no different. If you can only survive on eternal growth and externalized costs you are a dead society walking. The political will to address this in any real way is zero and will remain so during out lifetimes.
You guys over in the US must give up on the notion that unregulated markets work and that the banks should not be socialized, which would inevitable lead to reregulation. Capitalism of the Adam Smith type works well when you have genuine libertarian markets with lots and lots of actors. However, the current corporatism with limited competition has very little to do with what Adam Smith envisioned. Besides, people are not rational and certainly do not have symmetrical and simultaneous access to perfect information, which is "assumed" in economics for capitalism. Hence, you need regulation for capitalism not to self-destruct and, given that we are presently in the self-destruction stage, you must sozialize the banks to prevent that. And then let the private again later with more regulation. I am not a socialist nor a communist. Instead, I am an economist and a realist. Capitalism, the best economic system ever, is far from being perfect, no matter what some Chicago school bozos say.
Der Kommandant Weather Helm,
Prices of homes are coming down and buying at an oppurtune moment can still fetch a good bargain.
And what is being done is to prevent collateral damage. In the eagerness to punish the guilty, a blood bath cannot be allowed. And it not that the naive have not lost, a lot of them have lost a lot...
Perhaps you should take this opportunity to vote for Bob Barr on the Libertarian ticket. I strongly suspect that by 2012 there will not be enough social surplus to support any organized expression of the romantic adolescent ideal of Randian individualism, so this may be your last chance.
In the future everybody is going to accept responsibility for what the group does. There is no other choice. If you don't like where we are headed, start educating your fellow 'merkins on the rational choices we all face together.
By the way, CR has not been supportive of the bailout as passed, although he has been optimistic that Paulson will be smart enough to make a slightly better sow's ear out of this sow's ear.
EHP:
If there is one thing we will not need more of after the fall, it is bankers. Bankers are not "the essentials of an economy," although they somehow seem to appear wherever economic activity exists, just like every other form of parasite.
Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.
That's a good way to rack up losses for Fannie and Freddie. They could lose 100 billion a year that way with no sweat at all. They could lose almost everything - 500 billion a year - if they tried.
It seems to me that much effort and time and money is being spent to save a financial system which should not be saved. The present credit crisis is an inevitable result of a fractional reserve banking system using fiat currency. Printing and shoving more "money" at the problem is just doing more of the same. The answer is to abolish the Federal Reserve and go to a receipt money gold standard.
Volker can't fix the problem because it can't be "fixed." None of the "fixes" being tried, and none of those that haven't been tried, are going to work.
Because the whole bloody system is beyond repair.
The problem is so multi-faceted that all of us focus on one particular aspect of it.
Such as the subprime or alt-A, the national debt, the opacity of bank assets, the price/income ratio, foreclosures, CDS's, derivatives, greed, taxpayer rape, oil prices and peak oil, investor distrust, etc.
It won't work to "fix" any one or even several of these.
Not just because of unintended consequences. E.g., Denninger wants to cramdown the debt of insolvent banks into equity. But that wipes out equityholders and haircuts bondholders, which devastates all the pension funds in the country.
None of the aspects of the problem that needs "fixing" are aberrations. They are intrinsic to the whole system, what it has become.
Sociopolitical systems don't last, any more than the systems we call human beings do. They are designed to fail.
The US is failing in a spectacular way. Theoretically, it could have adapted to changed circumstances back in the 60's, but it didn't.
And the turning point, lest any of you forget it, was when the nation agreed that maintaining its empire and defeating godless Communism were more important than having money expressed as tangible quantities of gold and silver.
Sooner or later the system would have acquired sufficient distortions and imbalances to implode anyway. But my belief is that our Constitution is such a masterpiece the system would have lasted many centuries, if we had held to the Founders' insistence that money be real, rather than fiat.
Anyway, this is beyond Volker's ability to "fix." Or anyone else's.
Hopefully the coming destruction of the US is not so complete that our nuclear power plants aren't safely decommissioned...
albrt,
I'm not saying bankers deserve the same levels of compensation or that we even need the same amount of them. I am however saying that a working financial system is imperative to being a competitive country: see portugal being overtaken by the Netherlands, then the British importing the Dutch banking system with William the Conqueror and proceeding to overtake the Dutch in global empire, followed by America having a unimpaired banking system due to events from the 1870s up to WWII
Perhaps reading about Yunus' Grameen bank would change your perspective on the role a financial system can play
That's a good way to rack up losses for Fannie and Freddie. They could lose 100 billion a year that way with no sweat at all. They could lose almost everything - 500 billion a year - if they tried.
Fair Economist
$100bn you say, maybe Citigroup can sue them for neglect of their duties as conservators due to conflicts of interest?
The financial system definitely plays a role, whether we like it or not. My point is that any money intentionally spent by the government should be spent on something productive, such as infrastructure or a decent health care system. A decent health care system would benefit everybody from small entrepreneurs to GM far more than resurrecting the Wall Street debt syndication machine.
We currently have too many folks who fancy themselves playing the banker role. We should not encourage them any more than they are naturally encouraged by the money they can siphon off from even a highly regulated system, using nothing more than their abundant animal cunning.
although this is OT I thought it is important to refute assertions made
by Mock Turtle in an earlier thread that now seems dead...
sorry CR
a disclaimer: Obama and I were classmates together at Columbia. he wasn't a great student, that came later at Harvard but he still possessed a certain aloofness and an inability to tell a joke - unless you think wearing aviator sunglasses to class is funny which Prof. Bialer did not!
"but not by the patsy [Oswald] who was set up...it was by others"
guess you depend on the fevered imagination of Oliver Stone, a moviemaker, for your set of beliefs
obviously, you have never read 'Case Closed' or reviewed the imaging analysis done on the Zapruder film, it reveals stress marks on JFK's face before the motorcade goes behind the white billboard adding roughly 1.4 seconds to the time bwt the firing of bullet 1 and bullet 2...
"getting out of vietnam (see mcnamara)" I assume you mean late brain addled McNamara?
I think you are confusing early McNamara with what JFK's key apologist A. Schelesinger said near the end of the 60s about his desire to pull out... read 'The Best and the Brightest' by David Halberstam for a more seminal historical account of JFK's years... btw, at the time of his death there were 19,700+ advisors in Vietnam and the number was increasing. JFK wanted to put off all big issues like Vietnam and others like the rehabilitation of a famous State Dept undersecretary John Paton Davies blamed for having 'lost' China, etc until after the '64 election which he was confident of winning.
"ending federal reserve"
I'm not aware of that so I'll stay silent.
"righs (sic) for blacks and others"
The civils rights legislation you refer to goes back to Truman in '48. Even if he wanted to, there is some doubt that he had the stomach for it, he had not the slightest idea how he would get it passed. LBJ had to pull in tons of IOUs and at times even threaten politicians to get it passed.
"and failing to pay the mob their due after the chicago fix...they wanted their havana toy back'
if believe that you have to believe that Jack Ruby was a made man with the Chicago mob, he wasn't, just a strip bar owner with delusions of grandeur...
SAN FRANCISCO (MarketWatch) -- Northville, Mich.-based Main Street Bank and Eldred, Ill.-based Meridian Bank became the latest victims of the ongoing financial crisis on Friday, when they folded and their deposits were transferred by the Federal Deposit Insurance Corp.
The closures are the 14th and 15th bank failures so far this year.
The FDIC said in a prepared statement that Main Street Bank had $98 million in total assets and $86 million in total deposits as of Tuesday. All of Main Street's deposits were assumed by Monroe, Mich.-based Monroe Bank & Trust, the FDIC said.
The FDIC said that Meridian Bank had total assets of $39.2 million and $36.9 million in total deposits as of Sep. 25. National Bank will buy roughly $7.6 million of Meridian's assets, while the FDIC will "retain the remaining assets for later disposition," according to its statement.
Der Kommandant Weather Helm | 10.11.08 - 3:17 am | #
I am sympathetic to your POV. I know my retirement savings are going to be wiped out once we inflate away the trillion odd dollars that has disappeared due to the housing bubble pop.
But you have to understand that, in 1930, we tried the "let the irresponsible banks go the wall" tough medicine approach. How does a 50% reduction in GDP and 40% (unofficial) unemployment rate strike you?
No-one wants to repeat that experience again.
Though letting Lehman go to the wall does appear paradoxically to have been a bit of 1930-thinking, and look how well that has worked out....
awgee, forget the gold standard. That isn't going to happen, ever.
And Volker is certainly right that the crisis can be resolved and will be. What is important is that previous rules and regulations, along with some new ones, that were cast aside and allowed these excesses to occur, need to be reinstated and enforced. I suspect this will be done and all will be well until some future time, hopefully years from now, when another mess of some sort will develop. After all the 1929-1933 mess, after it was resolved, led to 70 years of basic financial system stability. The main adjustment will be a poorer USA and more financial power located elsewhere in the world. This is but a blip, as it were, in the rise of China (and India) and the decline of the USA. Like Rome, we put irresponsible and decadent people in charge and they went to work to screw up the system with greed and avarice and complex stupidity. I do adore Buffett's classical allusion: "beware of geeks bearing formulas." Priceless example of wit.
It's kinda sad that 21 years after Volker was replaced nobody else has emerged with his level of credibility. I blame the cult of Greenspan that developed in the SCLM.
Sooner or later the system would have acquired sufficient distortions and imbalances to implode anyway. But my belief is that our Constitution is such a masterpiece the system would have lasted many centuries, if we had held to the Founders' insistence that money be real, rather than fiat.
A gold based system did not stop countries from printing more money and deflating the value of it. History is littered with failed currencies despite a gold based system.
A gold based system did not stop countries from printing more money and deflating the value of it. History is littered with failed currencies despite a gold based system.
D. | 10.11.08 - 8:06 am | #
Agreed, we tend to always want something for nothing, but that does not make it right.
Anybody who would argue against a gold and silver standard for money is not aware of or is not remembering world history. These metals must be removed from the control of the speculators and values allowed to arrive at real dollar amounts (whatever those amounts be and regardless how high they may go). Our paper must be redeemable in gold or silver. Anything else is 1) unconstitutional, 2) destined to fail as all have done since day one of world history and 3) will serve to impoverish people and hold them as debt slaves.
See, the fiat system is the deal that gets us into wars. And anyone who truly understands this has the knowing that war is a racket.
We need a draft and universal, compulsory service. We need a massive public works program staffed by these young people to rebuild our infrastructure, and; take back control of our military by making the rank and file citizen soldiers.
Investment analyst and entrepreneur Dr. Marc FABER concluded his monthly bulletin (June 2008) with the Following:
''The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China . If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India . If we purchase fruit and vegetables it will go to Mexico , Honduras and Guatemala . If we purchase a good car it will go to Germany . If we purchase useless crap it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part.
IMO -- I watched the first nine minutes of Paul V. and shut it off.
He's being a champ and delivering a confidence building measure, but I don't think he sees the issue, at least as he's detailing it. He knows his job too well to contradict the current pope.
The way he minimizes transfer of bank deposits to Ireland, and the way that he spins each state looking out for its key banks as leading directly toward resolution. Well, let's say I think Paul's got a good set of talking points and Charlie Rose gives him free reign to take jawbone measures to restore confidence. I'm glad Paul's solid enough to try to put a backbone in whatever lame scheme comes out of this weekend's attempt to write the Nicean Creed in 12 hours, but he's a shill.
No surprise, he's a central banker even in retirement, that's his job, but this is just another attempt to use this weekend to put a psychological floor under things.
The Enemy has a new general or strategic approach, and that general / approach frames in terms of media message management. The piecemeal, honest response has ended, and the Enemy will now attempt to transform darkness into light by weight of lies.
This appears to me to be the equivalent of a counterattack against limited aims to unbalance the enemy.
They are going to shift their axis of emphasis on meeting the problem this weekend and are throwing a razzle-dazzle display to multiply the impact of any sweeping changes.
who the hell needs a bank, when you got FedDirect(dot)gov.?
need a car loan, home loan, need to refi, need a business loan of any size(Walt's Plumbing up to GM), go over to FedDirect.gov, fill out the form, email it in. the actual service on the loan will be handled by a Fed. reserve bank, via one of it's many branch offices(that used to be banks). why continue to let banking be done by companies that fail.
what do you want an account thru, the failing/failed MS or GS or an account with the Fed.?
oh, by the way, nationalize the Fed. yep, no more privately owned Fed. reserve banks, uncle owns everything. if there isn't enough left over bank office space to run this operation, maybe they could have a booth in every post office. the few old, family owned, real banks could either be bought out or partner up.
after the cognizant voters get used to a nationalized banking system, how about some healthcare? geez, what next, nationalized transportation, how about energy? wow!
Some talking head on either NPR or a main stream medium, referred to the evils of people "hoarding money" instead of spending it. Ummm, isn't another name for hoarding money, saving it.
Another NPR type didn't advocate pulling your money out of banks en masse, but did say it was wise to pul one or 2 or 3 weeks out of the bank, just in case of a bank holiday/freeze up and keep it someplace safe (ie, the sealey).
"he minimizes the transfer of bank deposits to Ireland...."
Are you kidding me? Bank of Ireland and Anglo-Irish Bank have been calling us for more bank deposits and we not only decline, we continue to move our money out of Ireland. Ask any corporate treasurer whether they want exposure to Ireland with their international flows. The Irish guarantee isnt exactly money good - they are giving 2 years for an orderly outflow. Ireland had bigger RE speculation than the US. Anyone that is moving money into Ireland based on the government guarantee is foolish. It also isnt happening with foreign corporate funds - actually, the opposite is probably true their.
Are you kidding me? Bank of Ireland and Anglo-Irish Bank have been calling us for more bank deposits and we not only decline, we continue to move our money out of Ireland.
European nations are guaranteeing all deposits one after another for a reason. Easier for the Germans to bail it out in Germany than Italy.
ow that we have seen asset hyperinflation bursting to its natural level via delevering, a process that essentially brought huge disparity between middle class and the top 1% who owned large assests, a glimmer of optimism is in order.
Now the hyperinflated earnings, but hardly deserved, of TV anchors, model whores, Sports & hollywood personalities, should plunge back to fundamentals.
Of course some CEOs, Board of directors & pimp bankers/hedge fundies would be dumped in jail, of that i have no doubt. The scam that these criminals brought on deserves just short of capital punishment. US needs to bring accountability by severely punishing people who got adept at gaming the system. That, in turn, will provide the the much needed deterrence for future fulds/cains/blackfeins?/ of the world
Volker unimpresses me here. He's on the bank's side--he also speaks of tools--by which he means different ways to give abusive banks the reward of megabucks. We need new federally managed banks--not getting voting power for our money is insane--fucking crazy.
These bankers learned how to manipulate the market the same way Enron squeezed CA utility rates. Government is not a countervailing power to big banks because they don't carry a stick--put a couple of these guys in jail and credit will ease. Right now the only punishment threatened is loss of bonuses--and we see how effective that is.
We are helping the enemy to organize into a smaller number of competitors--a more manageable cartel.
Byz -
We have $100s of millions all over the world. We are moving it out of Irish banks and into banks like HSBC. We are also have shifted a significant amount of our cash into govt securities which we started doing over 6 months ago. Our mandate is to reduce our treasury exposure to Ireland (we dont have any exposure in Greece) - whether that is banks or govt securities - which I guess is now essentially the same thing. Corporate treasury departments that I know who control more money than we do are doing the exact same thing. We have money in many European countries and are not moving our exposure from places like Germany or teh UK to Ireland - effectively, we (and many other treasury departments I know) are doing the exact opposite. Ireland is desperate to retain their depository base and anyone moving their money to Ireland based on a govt guarantee should have their head examined. By govt securities or put money in a bank like HSBC which is probably a much better credit than Ireland anyway.
fyi, up on Bloomberg, "Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets" looks like Hank didn't really need the TARp after all, shovel the garbage into the GSEs.
I just realized something. Being from Europe, I realized that, save for the UK, the banking and financial sector has no respect and nor do the bankers. They are generally seen as leeches that they are and that was the case before the crisis too. Therefore, nobody cares the tiniest bit about what happens to them when banks are nationalized. Same with people owning shares in banks. They are generally seen as gamblers or speculators. This is why it is so easy to socialize banks over here. Nobody cares at all about what happens to bankers and shareholders. The irony being that such attitude is closer to capitalism. Then again, starting next week the US will have to start socializing banks as painful as it may be ideologically.
Earlier in the thread a comment was made that a return to the Gold standard was "never going to happen" I disagree:
As recently as Yesterday, Merkel suggested that she wants out of the Euro. She is not going to tow the line any longer and Germany will be the first to abandon the Euro for a newer-D Mark or North EU Type "Gold-backed " Euro.
Expect a split in the EU into two factions of those EU Countries that are using the Euro as its currency.
Call it the Latin Euro and the Northern Europe Euro.
France and Germany will most likely revive the Franc and the D. Mark respectively as a companion currency alongside the Northern Europe Euro currency as a back-up. Both will be accepted currencies until a final determination is made on the longevity of any common Northern Euro currency.
Latin Based Euro Countries
Cyprus
Greece
Ireland
Italy
Malta
Montenegro
Portugal
San Marino
Slovenia
Spain
Vatican City
Andorra
Northern Euro Countries "Gold Backed"
Austria
Belgium
Finland
France
Germany
Luxembourg
Netherlands
Monaco
Russia has already begun formal discussions on a Gold backed Rouble and given their immense Natural Resources reserves and the build-up of their Gold mining investments over the course of the last 10 years it will be a very easy switch for them.
Argentina and Brazil have already broken form the USD Reserve for settling trade accounts between each country. This was adopted over the Summer and went off with out a hitch.
China has been building it gold reserves and is now the largest sovereign nation invested in African Gold Mining, as well as oil exploration in Canada, and the Caribbean (Cuba).
What should concern the US and the UK the most is that no inclusion of the USD as a reserve currency going forward or the pound sterling as a benchmark currency for European Trade is being considered on a going forward basis.
What we are witnessing is a stern demand by BIS and stronger EU nations like Germany to Paulson, that the toxic bonds need to be repatriated to explode on American soil. The dollar rally is nothing more than the closeout of that debt being settled after which the USD will most likely shed 30%-50% of it value in a stunningly short amount of time. Months not years.
Don't underestimate Gold in the new World order. Just go out and try to buy some physical bullion today. Every Sovereign Mint in the world has either stopped or dramatically suspended any sales to the Public. And Every Central Bank has publicly said that it has suspend any future sales. The Paper futures manipulation on COMEX and LME are about to implode, as no Physical deliveries can be made on contracts the demand delivery at settlement. This may occur before the month is out.
Yeah, "Just Realized" you got it right. After all, unlike we Americans think...modern capitalism and banking is a European invention. Maybe that's why you take it less seriously from an ideological perspective. All is relative and I mean exactly everything.
I've never understood (well, I guess I do...) why so many here lionize Paul Volker. The policy he implemented at behest of the Milton Friedman crowd - targeting the FF rate via change in money supply - didn't even work and he abandoned that policy by the early/mid 80s (I think '83 or '84). So he needlessly caused a much more severe recession than would have occurred without such unjustifiably high interest rates.
Because they wanted to bring down inflation, they could have implemented policies such as, for example, arranging agreements for unions to set their wages at a fixed % across the board and start bringing that % down each year, which they would have had a good incentive to carry out because the alternative was the steepest recession since the '30s. But they didn't try to fix the wage-price spiral via coordinated policies but a blunt tool that didn't even work and was abandoned.
OT - Why does CR regularly site geniuses like Paul Krugman on this current crisis when he couldn't even identify the obvious speculative excess in oil prices this year? What a joke! The "oil bugs" should be running w/ tail between legs but all I see are claims that high oil prices collapsed the economy (check out <a href="http://www.theoildrum.com/>The Oil Drum to see such stupidity writ large).
Don't underestimate Gold in the new World order. Just go out and try to buy some physical bullion today. Every Sovereign Mint in the world has either stopped or dramatically suspended any sales to the Public. And Every Central Bank has publicly said that it has suspend any future sales. The Paper futures manipulation on COMEX and LME are about to implode, as no Physical deliveries can be made on contracts the demand delivery at settlement. This may occur before the month is out.
MW
MW, really thorough and accurate post. Nobody seems to be listening to 'us'. I have been trying to get others to understand what you have so articulately pointed out about Russia and China.
The Euro split is more newsy to me. Merkel may be able to pull it off, she has the backing of the central bank, which is dominated by Austrians.
I find it interesting that Italy is acting as a catalyst for a revisit of Bretton Woods, if in fact this is not a feint or a head fake. Italy could though align with the hard money side of the split.
I was struck by the difference in his disposition now vs. the U of M speech after the BSC bailout. Back then, he was highly critical of the bailout, of the Fed involvement and of the system as a whole.
His demeanor now is one of calming, quiet resolve to fix the immediate problems and address the larger systemic problems. For a former Fed Chair, he was highly critical of the current regime, without directly chastising them and risking further degradation of confidence and trust. For example he made the following points:
We have the tools to fix the problem, we need the leadership to pull it together and execute it.
The case by case nature of fixing the problems damaged credibility.
There is a lack of trust and a necessity to restore public confidence.
Unfortunately, it will take govt support as it has now impacted the real economy.
The bailout emphasis is shifting from liquifying the mortgage market to recapitalizing the banks.
The "fireside chat" comments obviously point out the lack of trust in Bush.
My take is he realizes how fragile the mess really is and conveying a sense of calm, reasoned leadership is paramount. And oh by the way, we aren't letting anyone off the hook. Banks are too big, have inherent conflicts of interest and the exotic instruments must go. But we'll deal with that after we save the ship from sinking.
sometimes, the curse of being highly intelligent is that your ideology gets in the way of your analysis of the REALITY of the situation.
you all know how the game is played - it isn't fair (never has been), and it exists to exploit the many for the benefit of the few. its all a big ponzi scheme; always has been, always will be.
volcker is right - the key here is a lack of confidence, which is essential.
Mel writes:
Volker unimpresses me here. He's on the bank's side--he also speaks of tools--
He IS a tool. He was hand picked out of the Chase Manhattan Bank by David Rockefeller and did what he was told. His policies (his used generically) did resolve the problem.
Once again he is embarked on fulfilling the masters orders: calm these unwashed dip shits a bit, then fly off to Asia and see about working something out with the Chinese.
I personally judge that Volcker identified with precision the exact nature of economic failure in the Carter years, grabbed easy credit by the throat, and strangled it.
As to the man's mental faculties, one may believe that these recede with the years. If so, there seems to be an uncommonly robust residue.
LawyerLiz, I've finally had to abandon NPR as a source of financial news or (especially) analysis. They're so far behind the curve they've disappeared. And doing a real disservice to their listeners. Time better spent here or with Yves Smith.
In the interview, I enjoyed PV brushing aside the subject of short selling - not going to get into it.
OK. Grouch burnside will now go find that first cup of joe and face the day.
The "fireside chat" comments obviously point out the lack of trust in Bush...
Of course, and Brown doesn't have much credibility either. Pity that this crisis erupted when the two nations that are the pillars of international finance both have klutzes at the helm. Brown is unpopular but reasonably smart; Bush was and is always a dunce.
Bush was and is always a dunce.
jim | 10.11.08 - 10:22 am | #
McCain =Bush and Palin is inferior to either. Next month determines the power of Special Ed.
The fundamental problem with the confidence issue is this: the only people that can get us out of this are the bankers. And no one trusts the bankers anymore.
As usual, there are no good choices. The well educated and well informed citizens are a very small minority. So, in a few weeks the uneducated and ill informed will decide our next president.
For me it makes little difference. Once I know who it will be I can make my market bets accordingly.
Lyndon LaRouche today mocked Treasury Secretary Hank Paulson's bailout scheme, warning that Paulson and all the other central bankers have been lying through their teeth about their ever-changing so-called bailout swindles. The real problem, that none of them wish to talk about, is the mass of derivatives obligations, that are in the quadrillions of dollars.
LaRouche called the derivatives bubble the hyperinflationary bomb, crushing the international financial system, warning, Until you just shut down the whole derivatives trade--wipe these gambling obligations off the books of the financial system--you are just kidding yourself. LaRouche declared, It is time to break the silence on derivatives. The true, hyperinflationary factor in the situation is the unregulated, insanely leveraged derivatives trade. This is what is killing us. This is the great crime of Alan Greenspan.
LaRouche concluded: Unless and until you deal with this derivatives bubble, which cannot and should not be bailed out, you are just kidding yourself. It is time for Hank Paulson to swallow the only real medicine: bankruptcy reorganization of the entire, dollar-based financial system. And the first step in any such bankruptcy reorganization would be the cancellation of these quadrillions of dollars in pure gambling obligations. Without such action, this planet is doomed to a horrible dark age, just like the dark age of the 14th century, that followed the collapse of the Lombard banking system.
I agree with your reward risk taker and penalise the frugal as a means to economic growth (even if not morally pleasant).
However in the long term is the fixation with growth a sound ideal?
Certainly it is not in the case of population or resource consumption. Look at the exponential effect of continual fixed rate growth.
I don't know enough about economics but it strikes me that if you want a natural system to persist it must reach an equilibrium with it's environment at which point growth would be zero.
Steven writes:
I don't think anyone is gonna be going to Bush for advice in 10 years time.
Jimmy Carter did get a Nobel Peace Prize years after his miserable term as president. Of course, I've always wondered if Peace Prizes are awarded based on how well you promote the United Nations, which I don't see Bush doing. But you just never know.
Oh for christ's sake folks. It's not the end of the world. We need to do exactly what Volcker said we needed to.
We need to take our lumps, implement a bushel of regulations to take our financial system out of the hands of Armani suit wearing pirates and start producing more real engineers and less financial engineers.
Course, many of the engineers I know have a pretty difficult time getting work doing actual engineering.
shut down the whole derivatives
trade--wipe these gambling
obligations off the books of the
financial system
Okay, even a blind sow finds an acorn now and then, as they say back home.
If only he could get over his preoccupation with the English royalty's secret conspiracies, people might listen to him.
My guess is it's the secret banking cabal funding Larouche -- so he will constantly say all his nutty things and say the occasional truth they want discredited by association.
Like wiping out the illegal Internet gambling transactions on the books completely, including the derivatives market for anyone just gambling there.
Mr Volcker describes no scenario to address the Swaps problem we have now and the counterparty problems it creates. Until we have meaningful discussion of how to get out of the swaps mess I see continued credit market dysfunction and flight to cash.
Hi
As promised I have come back to your great blog!!
I am still a bit confused by currency risk so found this article useful, this enhanced my basic knowledge acquired at The Finance Owl - Banks - Loans - Mortgages - Money but I was wondering if anybody could suggest some advanced analysis discussion blogs on ratio analysis?
Many thanks
Maggie
Is it possible this event is related to currency pegs that got too far off track, and thus this global crash results in currency baskets that are more aligned?
SEE: The yuan climbed to a record as the dollar slumped on concern the U.S. government's $700 billion bailout plan for the nation's banks will strain public finances and fail to avert a recession. Bonds gained.
The People's Bank of China fixed the reference rate for yuan trading at the highest since the end of a fixed exchange rate in 2005 after the dollar fell the most in a decade against the currencies of its major trading partners. China has managed the yuan's exchange rate against a basket of currencies, including the euro and the yen, since July 2005.
The dollar's slump increased the yuan's attractiveness,'' said Li Tao, a foreign exchange trader at Shenzhen Development Bank Co. in Shenzhen.But the central bank may still want to keep the exchange rate stable to support growth.''
The yuan strengthened 0.11 percent to 6.8223 a dollar as of 12:42 p.m. in Shanghai, from 6.8300 yesterday, according to the China Foreign Exchange Trade System. It gained as much as 0.29 percent to 6.8099 earlier today, the highest since the end of the dollar peg.
Volcker laments the lack of savings in this country. He even suggests a consumption tax.
Why should anyone save when central bank policy rewards borrowing and punishes saving with inflation?
Why should anyone save when the inevitable consequence of the Federal Reserve's monetary policy has brought us yet another painful boom/bust cycle? When, even now, the politicians are pitting prudent savers against imprudent lenders/borrowers and rewarding the imprudent while looting the prudent?
And why is there no mention in this propaganda piece, like so many other similar propaganda pieces, of the consequence of these ever more expensive "rescue plans" that are so "necessary"?
Corporate treasury departments that I know who control more money than we do are doing the exact same thing. We have money in many European countries and are not moving our exposure from places like Germany or teh UK to Ireland - effectively, we (and many other treasury departments I know) are doing the exact opposite.
If you are who you are and you're doing what you say you're doing, thanks for the correction and sharing your insight.
We are headed for the worst week in the the stock market since 1970... Are we bottoming... or is there a waterfall ahead of us? What do you think is in store for the retired senior? I am a member of Myinvestorsplace.com and we are forever looking for solutions. Any help out there?
Nothing Volcker said was very momentous nor was it anything that hasn't been observed repeatedly by sane critics of American neoliberalism -- Roubini, Hudson, Roberts, et al. He pulled punches, for obvious reasons, wryly refuting the toady Rose's absurd claim that Paulson must frequently consult with him.
The striking thing was seeing a sensible old man on US TV again talking about economic matters. One thought we'd seen the last of them in this era of "money honies," Cramers and legions of goosestepping touts.
Volker? - old regeim. They practically announced their true intentions. Check out the Project for the New American Century website Welcome to the Project for the New American Century - Bill Krystal, Paul Wolfowitz and the boys subtle outline for a strategic play for resources worldwide through militaristic corporatism. Democracy means dealing with congress and dissent - the kinds of things that make an "empire" lethargic and ineffective. Are These the Forging Fires of the NWO We Feel? « Your Mortgage or Your Life…
This is a truly great thread. Maybe the best I've read on CR and I've been lurking here for months. We need to have good dose of skepticism when any spokesman, official, or guru talks about what's really going on. I think I finally understand it now. It's the derivatives stupid. OMG!
the only people getting screwed by all of this are the people that did the right thing over the last 5 years. Saving, not spedning above one's means and acting financially responsibe. I say throw the MFer homedebtors out in the streets and round up all the miscreants that looted our system. this includes Realtors at the top of the list, mtg brokers appraisors builders Wall Street Ibankers,salespeople and Banker execs Fnm & fre execs and politicians.
Der Kommandant Weather Helm
I tend to agree with you.
But I agree we may need to throw money at the problem to fix it, but I still need to be pissed off that folks that try to save are pundished. In the posts above one said writing down mortgages creates no moral hazard. I have to call BS on that. That is the problem. At the top banks have no confidence they can get paid back if they lend. Thats bad.
On the bottom somebody borrowed $100,000. They now think things are not turning out like they planned so they would like to owe less. The bank was evil for lending it to me anyway, twisted my arm. Again BS. You borrowed it - pay it back.
"....We need fewer financial engineers and more electrical engineers, chemical engineers, and civil engineers to take care of our infrastructure. We put too much talent into false castles in the financial world...."
.
east coast first?
crusty old man?
Bush in Ten years?
I don't think anyone is gonna be going to Bush for advice in 10 years time.
Hank Paulson, Ben Bernanke and the merry band of money printing republicans must be stopped! They are destroying our currency and the middle class. We are going to buy banks so Harvard legacies can earn 19,000,000.00 for three weeks of golf.
Everyone must understand that the "money" they are using dilutes your earnings and savings.
2:24AM - right on target. Within a year we'll be facing a double digit inflation and still declining stock market. So, there will be no shelter...
"I don't think anyone is gonna be going to Bush for advice in 10 years time."
Maybe some of the other prisoners at the Hague will be interested in his Pruno recipe.
Volcker: "We're nowhere near anything like the Great Depression."
Oh, shit, run for the hills!
Volcker for Fed Chair.
Everything else is irrelevant.
Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets
Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets - Bloomberg.com
Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.
Fannie and Freddie began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities, according to the people, who asked not to be identified because the plans are confidential. The purchases would be separate from the U.S. Treasury's $700 billion Troubled Asset Relief Program.
We are going to be forced to imprison Bush, his administration is out of control.
Give the Fed back to Volcker. Heck, let him run the Treasury too. At least then we have a chance.
We need our medicine.
Got Popcorn?
Neil
Paul Volcker has real insight into where we are, what we're doing, and where we need to go.
Age hasn't dimmed his faculties at all.
Listening to him was a good use of 36 minutes.
Thanks for the post, CR.
gavone?
Every day this unwinds I am very thankful that it happened while Bush was still in office. The lunatic conservative fringe would blame Obama for this until the day they died if it had happened post-election. Hell, some of them are actually blaming the GLOBAL collapse on the ANTICIPATION of an Obama win.
Easy one liners aside, does Volcker have the mental tools to deal with this crisis? He did very well with the nasty inflation of the 1970s. The current problems seem much more complex though.
Comrade Kaboom,
+1
Right On.
CalculatedRisk. Hopefully you are still up at this hour: I have a burning question: in this mad rush to bail out the economy, is it the right thing to be throwing taxpayer money at:
1) Homeowners who bought too much house or borrowed too much against their house.
2) Financial institutions whose greed led them to make very poor lending decisions.
The reason I ask, is that there's a third group which, if anything, deserves to be rewarded. That is, those who decided against borrowing and buying a home because the home price was too high and the loan would be too big. But instead of being rewarded, people want to kick this group in the ass.
By definition, if more people (both homeowners and banks/lenders) had recognized that prices were out of whack and lending was too loose, then by definition the bubble would have been smaller. Indeed if enough people had recognized this, then there would have been no bubble.
So we depend on people to be smarter to avoid devastating bubbles in the future. Why, then, would we attempt to punish these people while rewarding the behaviors which amplified the bubble?
McCain keeps yapping about keeping "everyone" in their homes. Why? For every foreclosure, there will be a financially more prudent family whose "time has arrived". They can purchase a home at much more reasonable terms than the reckless buyer before them. Either way, a family will be in the home. The decision is to incentivize reckless borrowing by keeping the existing family in it, or allow the new family to live in it at the proper price.
The home mortgage interest deduction and other tax incentives make things even worse. Why should a renter be more "on the hook" for taxes, including Wall Street bailouts, government-sponsored cram-downs, and lost Fannie/Freddie money than a homeowner? Is this not the renters subsidizing homeowners again?
How many years did we get the crap from the government and organizations about "affordable housing programs". What a bunch of crock! Homes are now becoming even more affordable all by themselves and all these clowns think it's a disaster! Isn't that hypocritical?
As you'd guess, my family is in the third group of people. Maybe that colors my judgment, but I think it's quite logical that my behavior (frugality, skepticism about bubble prices, financial prudence) should be rewarded while excess borrowing, spending, and recklessness should be disincentivized. Funny enough, the market wants to reward my family's patience, but government and greedy overconsumers have other ideas.
Ministry of Truth writes:
Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets
Oh, that's a good idea.
Seems rather a stealth way to re-capitalize the banks / financial institutions holding that bad paper. Wonder what kind of oversight will occur in that program? Any? And when the loans fail, any clawback provision to the selling banks?
CR let me summarize the question.
Is this really what we as a society should be doing?
Stormy Weather -
May I offer this, though certainly not pretending to speak for our esteemed host...
Through the lens of Jas' scope, the moral hazard you decry is a natural by-product of pushing financial wizardry-cum-fraud on the masses. Every placed loan, every bundled security, every MBS and CDO and CDS carries / carried with it a corresponding fee.
Tin-foil colander on full gain, the system is designed to generate fees regardless of the 'morality' or ethics of doing so. Period. Rewarding bad players / punishing good players is then incidental to the actual goal - that is, generating a fee income for the trader.
Look at the 'financial advisors' or web-based trading platforms. They don't care if the underlying asset / stock / commodity goes up or down, or what the product is or does. All that matters is the transactional fee.
There's a corresponding fee for the people who provide maintenance of the tax code. No deductions means simplicity (old joke - IRS form 1040 short form - 1 question and 1 instruction - How much do you make? Send it in.) Simplicity means no reason for tax preparers.
The system requires transactional fees, and those set up to collect those fees end up the winners. All other are just sheeple.
/end tin foil
What society should be doing is a moot point. This is a "democracy", and as such typically majority wants wins. Prudent renters are both a numerical minority and powerless (as in, people in political or financial power may be prudent, but are certainly not renters). Thus you will lose every time.
I'll take a before-bed whack at this...
For a society it makes sense. And yes, the responsible get penalized.
If society rewards those who are conservative with their borrowing and spending, we will get less borrowing and spending. So there is no incentive for society to reward those who sat out the bubble. They don't play with us (society) and they don't contribute to our growing ponzi scheme.
If society punishes those who take risks, borrow, and spend, people will do less of it. And that is bad for an economy expected to grow every year.
Encouraging borrowing and spending also creates a lot more winners at the top. They have more potential victims. They don't care if the prey explodes...there is more prey.
In this case, however, even the predators exploded. Now the gov is just trying to put the game back together again. The best way to do that is to encourage borrowing/lending, and selling/buying. It is not to help those who won't help the overall economy by borrowing and spending with abandon.
Encouraging conservatism in personal finance is not good for the economy as a whole, though it is for the individual who practices it.
Alright, but I would like to see CalculatedRisk answer the question. CR has tended to look favorably at "help the homeowner" programs, and was also positive about the $700 billion Wall Street bailout.
I have to wonder if CR would support a $700 billion "help the renter" program. I don't support any of the three, but why support the first two and not the third?
That is, unless the society actually is corrupted and its moral compass points to Hell...
Well OK then.
Now, should one seek to introduce to the economic structure the concept of aversion to moral hazard - that is, an enforceable and explicit moral code (not incidentally and implicitly based on a Judeo-Christian coda), then it becomes necessary to (1) have well-written rules that are (2) enforced by (3) conscientious enforcers.
But who will appoint / elect the guardians? Again, following Jas, the selection is fixed, the game is rigged, the mantle of propriety has been stolen and only recently has the curtain on that theft begun to been parted.
The question then becomes, can the system be fixed, with steps 1-2-3 followed? Or is it too late? And if too late - now what?
Easy one liners aside, does Volcker have the mental tools to deal with this crisis? He did very well with the nasty inflation of the 1970s. The current problems seem much more complex though.
Captain Fish (Paper Pusher) | 10.11.08 - 3:09 am |
I disagree, the problem is simple if you choose the right problem to solve. The current errors are all choosing the wrong problem(s) to solve. They've been treating symptoms and not the disease; this is exactly what Japan went through.
South Korea, Russia, Brazil, etc did not pretend that there was only ever one more small thing to fix. They dealt with the main problem, took the immediate hit and then went on to grow 8% in the decade thereafter. By doing so, their countries reached a higher level than if they had tried to maintain the status quo.
Whatever you think about Volcker's ideas, he is a real person. He gave up lucrative offers to be Fed Chairman and he stood by his very sick wife (diabetes) and son (cerebral palsy). He's taken responsibility for every thing he's done. He's probably the last high ranking public official that saw public service as a privilege.
This afternoon NPR did a piece on the problem, in their view. The liquidity problem. Um, yeah, though I was yelling at the radio "it's a solvency problem".
So ersatz Hank - if it is a solvency issue, what can be done to address it?
In error, I failed to include a fourth group, also not getting a handout:
...DKWH
Der Kommandant Weather Helm,
The answers are not simplistic as the bailout package is intended to save the economy and jobs too.
Prices of both stocks and assets(including homes) at most times do not reflect actual value because people are either way too optimistic or too pessimistic. And if prices are allowed to fall way below their intrinsic value, it chokes the economy.
The bailout package at best is a necessary evil
The most interesting thing, in a sense, in the Volker interview was his alluding to Roosevelt in the banking crisis of 1933. He pointed out that because Roosevelt was believed by the public, his fireside chat had the desired effect. He of course did not explicitly make the obvious contrast: that Bush has no credibility, is regarded by many as a serial liar, and no speech he can make would give anybody any confidence whatsoever. Bush has probably less credibility than Hoover. What we need, in short order, is another Roosevelt, a President the public can trust and believe. Not the one, sadly enough, presently in office.
I have to wonder if CR would support a $700 billion "help the renter" program. I don't support any of the three, but why support the first two and not the third?
Der Kommandant Weather Helm | 10.11.08 - 3:37 am |
I'm not CR but I'll share my opinion. I would rather spend $700bn to write down assets to their real hold-to-maturity value. From houses up to the derivatives sold on a CDO composed of other CDOs that contained all second mortgages insured by a 3rd party.
After the destruction of that which never was, I would spend the $700bn or whatever is needed to recreate the essentials of an economy (if done early enough, set up new banks with new names but hire the bankers worth their salt and motivate them with an IPO in 10-15 years)
Nothing more, nothing less. No moral hazard, no punishment of prudent decisions, minimal harm to bystanders.
What we're seeing now is the same thinking that the government can eliminate recessions through its own spending. Many are focussed on the immediate potential loss in their house, or in a bank, or in a business that needs a borrowing rate of less than 3% to survive. The truth is all those assets are impaired, and will still be impaired after they are 'rescued'.
The house has to compete with tens of thousand vacant units, the bank has no reputation or free capital and holds impaired loans at mythical valuations, and that business will still eventually have to face increased borrowing costs because eventually the leverage, which helps lower the cost of borrowing, must end since if it approaches infinity a infinitesimal movement in any single asset price along the chain will destroy an infinite amount of wealth
So ersatz Hank - if it is a solvency issue, what can be done to address it?
Exit
Make a new bank.
No one wants to pay for something that is less than worthless.
Remember all the raging debate in the early 90s about "Welfare Reform"? Remember all that talk about how the system was disincentivizing looking for work because if they did they risked losing their government handout? Meanwhile people with jobs had to pay higher taxes to support those on the dole?
It all made so much sense at the time. As it should, because it's correct reasoning.
Well, now we're going backwards, except instead of poor single mothers being on the dole, it's reckless homeowners and reckless lenders. Now, the smarter you are, the more you get punished. Nice switch!
I know people who are on this government dole. They bought at the worst time, against my own advice, and are now pursuing a handout from the government.
Four years ago I told my wife: "We're not getting a home because prices are in a bubble and credit is too loose." Just like that. This was before seeing any bubble blogs or anything remotely resembling a societal acknowledgment of a housing bubble.
I should have said instead, "Honey, we're buying a house now because if prices crash we can get a government handout for the difference."
Disease plaguing this society is not solvable without a revolution. Lets not look to the establishment to address fundamental problems. I don't want to sound like a Marxist - I'm not advocating any specific replacement system. Every system bears seeds of its own destruction, and this one is no different. If you can only survive on eternal growth and externalized costs you are a dead society walking. The political will to address this in any real way is zero and will remain so during out lifetimes.
You guys over in the US must give up on the notion that unregulated markets work and that the banks should not be socialized, which would inevitable lead to reregulation. Capitalism of the Adam Smith type works well when you have genuine libertarian markets with lots and lots of actors. However, the current corporatism with limited competition has very little to do with what Adam Smith envisioned. Besides, people are not rational and certainly do not have symmetrical and simultaneous access to perfect information, which is "assumed" in economics for capitalism. Hence, you need regulation for capitalism not to self-destruct and, given that we are presently in the self-destruction stage, you must sozialize the banks to prevent that. And then let the private again later with more regulation. I am not a socialist nor a communist. Instead, I am an economist and a realist. Capitalism, the best economic system ever, is far from being perfect, no matter what some Chicago school bozos say.
Der Kommandant Weather Helm,
Prices of homes are coming down and buying at an oppurtune moment can still fetch a good bargain.
And what is being done is to prevent collateral damage. In the eagerness to punish the guilty, a blood bath cannot be allowed. And it not that the naive have not lost, a lot of them have lost a lot...
WH:
Perhaps you should take this opportunity to vote for Bob Barr on the Libertarian ticket. I strongly suspect that by 2012 there will not be enough social surplus to support any organized expression of the romantic adolescent ideal of Randian individualism, so this may be your last chance.
In the future everybody is going to accept responsibility for what the group does. There is no other choice. If you don't like where we are headed, start educating your fellow 'merkins on the rational choices we all face together.
By the way, CR has not been supportive of the bailout as passed, although he has been optimistic that Paulson will be smart enough to make a slightly better sow's ear out of this sow's ear.
EHP:
If there is one thing we will not need more of after the fall, it is bankers. Bankers are not "the essentials of an economy," although they somehow seem to appear wherever economic activity exists, just like every other form of parasite.
Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.
That's a good way to rack up losses for Fannie and Freddie. They could lose 100 billion a year that way with no sweat at all. They could lose almost everything - 500 billion a year - if they tried.
It seems to me that much effort and time and money is being spent to save a financial system which should not be saved. The present credit crisis is an inevitable result of a fractional reserve banking system using fiat currency. Printing and shoving more "money" at the problem is just doing more of the same. The answer is to abolish the Federal Reserve and go to a receipt money gold standard.
Volker can't fix the problem because it can't be "fixed." None of the "fixes" being tried, and none of those that haven't been tried, are going to work.
Because the whole bloody system is beyond repair.
The problem is so multi-faceted that all of us focus on one particular aspect of it.
Such as the subprime or alt-A, the national debt, the opacity of bank assets, the price/income ratio, foreclosures, CDS's, derivatives, greed, taxpayer rape, oil prices and peak oil, investor distrust, etc.
It won't work to "fix" any one or even several of these.
Not just because of unintended consequences. E.g., Denninger wants to cramdown the debt of insolvent banks into equity. But that wipes out equityholders and haircuts bondholders, which devastates all the pension funds in the country.
None of the aspects of the problem that needs "fixing" are aberrations. They are intrinsic to the whole system, what it has become.
Sociopolitical systems don't last, any more than the systems we call human beings do. They are designed to fail.
The US is failing in a spectacular way. Theoretically, it could have adapted to changed circumstances back in the 60's, but it didn't.
And the turning point, lest any of you forget it, was when the nation agreed that maintaining its empire and defeating godless Communism were more important than having money expressed as tangible quantities of gold and silver.
Sooner or later the system would have acquired sufficient distortions and imbalances to implode anyway. But my belief is that our Constitution is such a masterpiece the system would have lasted many centuries, if we had held to the Founders' insistence that money be real, rather than fiat.
Anyway, this is beyond Volker's ability to "fix." Or anyone else's.
Hopefully the coming destruction of the US is not so complete that our nuclear power plants aren't safely decommissioned...
albrt,
I'm not saying bankers deserve the same levels of compensation or that we even need the same amount of them. I am however saying that a working financial system is imperative to being a competitive country: see portugal being overtaken by the Netherlands, then the British importing the Dutch banking system with William the Conqueror and proceeding to overtake the Dutch in global empire, followed by America having a unimpaired banking system due to events from the 1870s up to WWII
Perhaps reading about Yunus' Grameen bank would change your perspective on the role a financial system can play
That's a good way to rack up losses for Fannie and Freddie. They could lose 100 billion a year that way with no sweat at all. They could lose almost everything - 500 billion a year - if they tried.
Fair Economist
$100bn you say, maybe Citigroup can sue them for neglect of their duties as conservators due to conflicts of interest?
troll treat,
If you are still awake, go take a nap or something.
a nap? I want a pony! and 50B for my party on monday.
EHP:
The financial system definitely plays a role, whether we like it or not. My point is that any money intentionally spent by the government should be spent on something productive, such as infrastructure or a decent health care system. A decent health care system would benefit everybody from small entrepreneurs to GM far more than resurrecting the Wall Street debt syndication machine.
We currently have too many folks who fancy themselves playing the banker role. We should not encourage them any more than they are naturally encouraged by the money they can siphon off from even a highly regulated system, using nothing more than their abundant animal cunning.
Steven writes:
I don't think anyone is gonna be going to Bush for advice in 10 years time.
I seriously doubt if anyone has ever gone to W for advice about anything ever ...
... even his own children.
/
although this is OT I thought it is important to refute assertions made
by Mock Turtle in an earlier thread that now seems dead...
sorry CR
a disclaimer: Obama and I were classmates together at Columbia. he wasn't a great student, that came later at Harvard but he still possessed a certain aloofness and an inability to tell a joke - unless you think wearing aviator sunglasses to class is funny which Prof. Bialer did not!
"but not by the patsy [Oswald] who was set up...it was by others"
guess you depend on the fevered imagination of Oliver Stone, a moviemaker, for your set of beliefs
obviously, you have never read 'Case Closed' or reviewed the imaging analysis done on the Zapruder film, it reveals stress marks on JFK's face before the motorcade goes behind the white billboard adding roughly 1.4 seconds to the time bwt the firing of bullet 1 and bullet 2...
"getting out of vietnam (see mcnamara)" I assume you mean late brain addled McNamara?
I think you are confusing early McNamara with what JFK's key apologist A. Schelesinger said near the end of the 60s about his desire to pull out... read 'The Best and the Brightest' by David Halberstam for a more seminal historical account of JFK's years... btw, at the time of his death there were 19,700+ advisors in Vietnam and the number was increasing. JFK wanted to put off all big issues like Vietnam and others like the rehabilitation of a famous State Dept undersecretary John Paton Davies blamed for having 'lost' China, etc until after the '64 election which he was confident of winning.
"ending federal reserve"
I'm not aware of that so I'll stay silent.
"righs (sic) for blacks and others"
The civils rights legislation you refer to goes back to Truman in '48. Even if he wanted to, there is some doubt that he had the stomach for it, he had not the slightest idea how he would get it passed. LBJ had to pull in tons of IOUs and at times even threaten politicians to get it passed.
"and failing to pay the mob their due after the chicago fix...they wanted their havana toy back'
if believe that you have to believe that Jack Ruby was a made man with the Chicago mob, he wasn't, just a strip bar owner with delusions of grandeur...
"the power structure hit back"
doesn't deserve the dignity of a response
The San Jose Mercury's Good Morning Silicon Valley column had these links Friday morning:
FDR's fireside chat on the banking crisis (audio):
Internet Archive: Error
The Roman business crisis of 33 AD:
The Influence of Wealth in Imperial Rome/The Business Panic of 33 A.D - Wikisource.
BFF's latest:
SAN FRANCISCO (MarketWatch) -- Northville, Mich.-based Main Street Bank and Eldred, Ill.-based Meridian Bank became the latest victims of the ongoing financial crisis on Friday, when they folded and their deposits were transferred by the Federal Deposit Insurance Corp.
The closures are the 14th and 15th bank failures so far this year.
The FDIC said in a prepared statement that Main Street Bank had $98 million in total assets and $86 million in total deposits as of Tuesday. All of Main Street's deposits were assumed by Monroe, Mich.-based Monroe Bank & Trust, the FDIC said.
The FDIC said that Meridian Bank had total assets of $39.2 million and $36.9 million in total deposits as of Sep. 25. National Bank will buy roughly $7.6 million of Meridian's assets, while the FDIC will "retain the remaining assets for later disposition," according to its statement.
Der Kommandant Weather Helm | 10.11.08 - 3:17 am | #
I am sympathetic to your POV. I know my retirement savings are going to be wiped out once we inflate away the trillion odd dollars that has disappeared due to the housing bubble pop.
But you have to understand that, in 1930, we tried the "let the irresponsible banks go the wall" tough medicine approach. How does a 50% reduction in GDP and 40% (unofficial) unemployment rate strike you?
No-one wants to repeat that experience again.
Though letting Lehman go to the wall does appear paradoxically to have been a bit of 1930-thinking, and look how well that has worked out....
awgee, forget the gold standard. That isn't going to happen, ever.
And Volker is certainly right that the crisis can be resolved and will be. What is important is that previous rules and regulations, along with some new ones, that were cast aside and allowed these excesses to occur, need to be reinstated and enforced. I suspect this will be done and all will be well until some future time, hopefully years from now, when another mess of some sort will develop. After all the 1929-1933 mess, after it was resolved, led to 70 years of basic financial system stability. The main adjustment will be a poorer USA and more financial power located elsewhere in the world. This is but a blip, as it were, in the rise of China (and India) and the decline of the USA. Like Rome, we put irresponsible and decadent people in charge and they went to work to screw up the system with greed and avarice and complex stupidity. I do adore Buffett's classical allusion: "beware of geeks bearing formulas." Priceless example of wit.
it just dawned on me, we are getting new banks,the fdic is making them for us.
It's kinda sad that 21 years after Volker was replaced nobody else has emerged with his level of credibility. I blame the cult of Greenspan that developed in the SCLM.
Der Kommandant Weather Helm says
Remember all that talk about how the system was disincentivizing looking for work because if they did they risked losing their government handout?
good, you started off talking about bankers
and then failed to draw the obvious conclusion because you had to have a j6p bash
try again....
Sooner or later the system would have acquired sufficient distortions and imbalances to implode anyway. But my belief is that our Constitution is such a masterpiece the system would have lasted many centuries, if we had held to the Founders' insistence that money be real, rather than fiat.
A gold based system did not stop countries from printing more money and deflating the value of it. History is littered with failed currencies despite a gold based system.
"Potemkin Village of investments" and "dead use of money"
What better more accuarate vindication for Mises and all the others that believe in the sound money.
And once again, check the freaking constitution Article 1 Section 10.
Now, can we please all just be quiet and get this right? Because until we do, we are destined to repeat this drill.
awgee, forget the Jim standard. He isn't going to happen.
D.
For example?
why are there 82 people here at 8:20 ET in the mornin'?
same reason as me probably...
there is so much stealth capital injection being planned/implemented it's tricky to keep track or discover.
ultimately it's just kicking the can down the road. sorry kids and grankids!
A gold based system did not stop countries from printing more money and deflating the value of it. History is littered with failed currencies despite a gold based system.
D. | 10.11.08 - 8:06 am | #
Agreed, we tend to always want something for nothing, but that does not make it right.
Gold : prices, facts, figures & research : A brief history of money
http://www.mises.org/Books/mysteryofbanking.pdf
Hey D., we're still waiting for our history lesson!
Anybody who would argue against a gold and silver standard for money is not aware of or is not remembering world history. These metals must be removed from the control of the speculators and values allowed to arrive at real dollar amounts (whatever those amounts be and regardless how high they may go). Our paper must be redeemable in gold or silver. Anything else is 1) unconstitutional, 2) destined to fail as all have done since day one of world history and 3) will serve to impoverish people and hold them as debt slaves.
See, the fiat system is the deal that gets us into wars. And anyone who truly understands this has the knowing that war is a racket.
We need a draft and universal, compulsory service. We need a massive public works program staffed by these young people to rebuild our infrastructure, and; take back control of our military by making the rank and file citizen soldiers.
Volk, I feel my hand being bitten by trolls.
Investment analyst and entrepreneur Dr. Marc FABER concluded his monthly bulletin (June 2008) with the Following:
''The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China . If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India . If we purchase fruit and vegetables it will go to Mexico , Honduras and Guatemala . If we purchase a good car it will go to Germany . If we purchase useless crap it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part.
U.S. Exchanges Said to Seek Targeted Short Sales Ban (Update2) - Bloomberg.com
Roubini's on C-Span right now. Tune in.
Roubini live on C-Span - excellent - all should watch.
IMO -- I watched the first nine minutes of Paul V. and shut it off.
He's being a champ and delivering a confidence building measure, but I don't think he sees the issue, at least as he's detailing it. He knows his job too well to contradict the current pope.
The way he minimizes transfer of bank deposits to Ireland, and the way that he spins each state looking out for its key banks as leading directly toward resolution. Well, let's say I think Paul's got a good set of talking points and Charlie Rose gives him free reign to take jawbone measures to restore confidence. I'm glad Paul's solid enough to try to put a backbone in whatever lame scheme comes out of this weekend's attempt to write the Nicean Creed in 12 hours, but he's a shill.
No surprise, he's a central banker even in retirement, that's his job, but this is just another attempt to use this weekend to put a psychological floor under things.
The Enemy has a new general or strategic approach, and that general / approach frames in terms of media message management. The piecemeal, honest response has ended, and the Enemy will now attempt to transform darkness into light by weight of lies.
This appears to me to be the equivalent of a counterattack against limited aims to unbalance the enemy.
They are going to shift their axis of emphasis on meeting the problem this weekend and are throwing a razzle-dazzle display to multiply the impact of any sweeping changes.
who the hell needs a bank, when you got FedDirect(dot)gov.?
need a car loan, home loan, need to refi, need a business loan of any size(Walt's Plumbing up to GM), go over to FedDirect.gov, fill out the form, email it in. the actual service on the loan will be handled by a Fed. reserve bank, via one of it's many branch offices(that used to be banks). why continue to let banking be done by companies that fail.
what do you want an account thru, the failing/failed MS or GS or an account with the Fed.?
oh, by the way, nationalize the Fed. yep, no more privately owned Fed. reserve banks, uncle owns everything. if there isn't enough left over bank office space to run this operation, maybe they could have a booth in every post office. the few old, family owned, real banks could either be bought out or partner up.
after the cognizant voters get used to a nationalized banking system, how about some healthcare? geez, what next, nationalized transportation, how about energy? wow!
Some talking head on either NPR or a main stream medium, referred to the evils of people "hoarding money" instead of spending it. Ummm, isn't another name for hoarding money, saving it.
Another NPR type didn't advocate pulling your money out of banks en masse, but did say it was wise to pul one or 2 or 3 weeks out of the bank, just in case of a bank holiday/freeze up and keep it someplace safe (ie, the sealey).
"he minimizes the transfer of bank deposits to Ireland...."
Are you kidding me? Bank of Ireland and Anglo-Irish Bank have been calling us for more bank deposits and we not only decline, we continue to move our money out of Ireland. Ask any corporate treasurer whether they want exposure to Ireland with their international flows. The Irish guarantee isnt exactly money good - they are giving 2 years for an orderly outflow. Ireland had bigger RE speculation than the US. Anyone that is moving money into Ireland based on the government guarantee is foolish. It also isnt happening with foreign corporate funds - actually, the opposite is probably true their.
Are you kidding me? Bank of Ireland and Anglo-Irish Bank have been calling us for more bank deposits and we not only decline, we continue to move our money out of Ireland.
European nations are guaranteeing all deposits one after another for a reason. Easier for the Germans to bail it out in Germany than Italy.
ow that we have seen asset hyperinflation bursting to its natural level via delevering, a process that essentially brought huge disparity between middle class and the top 1% who owned large assests, a glimmer of optimism is in order.
Now the hyperinflated earnings, but hardly deserved, of TV anchors, model whores, Sports & hollywood personalities, should plunge back to fundamentals.
Of course some CEOs, Board of directors & pimp bankers/hedge fundies would be dumped in jail, of that i have no doubt. The scam that these criminals brought on deserves just short of capital punishment. US needs to bring accountability by severely punishing people who got adept at gaming the system. That, in turn, will provide the the much needed deterrence for future fulds/cains/blackfeins?/ of the world
Volker unimpresses me here. He's on the bank's side--he also speaks of tools--by which he means different ways to give abusive banks the reward of megabucks. We need new federally managed banks--not getting voting power for our money is insane--fucking crazy.
These bankers learned how to manipulate the market the same way Enron squeezed CA utility rates. Government is not a countervailing power to big banks because they don't carry a stick--put a couple of these guys in jail and credit will ease. Right now the only punishment threatened is loss of bonuses--and we see how effective that is.
We are helping the enemy to organize into a smaller number of competitors--a more manageable cartel.
Ah yes, the Volcker Fed. Funds rate gyrations even crazier than the recent Dow behavior.
Byz -
We have $100s of millions all over the world. We are moving it out of Irish banks and into banks like HSBC. We are also have shifted a significant amount of our cash into govt securities which we started doing over 6 months ago. Our mandate is to reduce our treasury exposure to Ireland (we dont have any exposure in Greece) - whether that is banks or govt securities - which I guess is now essentially the same thing. Corporate treasury departments that I know who control more money than we do are doing the exact same thing. We have money in many European countries and are not moving our exposure from places like Germany or teh UK to Ireland - effectively, we (and many other treasury departments I know) are doing the exact opposite. Ireland is desperate to retain their depository base and anyone moving their money to Ireland based on a govt guarantee should have their head examined. By govt securities or put money in a bank like HSBC which is probably a much better credit than Ireland anyway.
fyi, up on Bloomberg, "Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets" looks like Hank didn't really need the TARp after all, shovel the garbage into the GSEs.
I just realized something. Being from Europe, I realized that, save for the UK, the banking and financial sector has no respect and nor do the bankers. They are generally seen as leeches that they are and that was the case before the crisis too. Therefore, nobody cares the tiniest bit about what happens to them when banks are nationalized. Same with people owning shares in banks. They are generally seen as gamblers or speculators. This is why it is so easy to socialize banks over here. Nobody cares at all about what happens to bankers and shareholders. The irony being that such attitude is closer to capitalism. Then again, starting next week the US will have to start socializing banks as painful as it may be ideologically.
Earlier in the thread a comment was made that a return to the Gold standard was "never going to happen" I disagree:
As recently as Yesterday, Merkel suggested that she wants out of the Euro. She is not going to tow the line any longer and Germany will be the first to abandon the Euro for a newer-D Mark or North EU Type "Gold-backed " Euro.
Expect a split in the EU into two factions of those EU Countries that are using the Euro as its currency.
Call it the Latin Euro and the Northern Europe Euro.
France and Germany will most likely revive the Franc and the D. Mark respectively as a companion currency alongside the Northern Europe Euro currency as a back-up. Both will be accepted currencies until a final determination is made on the longevity of any common Northern Euro currency.
Latin Based Euro Countries
Cyprus
Greece
Ireland
Italy
Malta
Montenegro
Portugal
San Marino
Slovenia
Spain
Vatican City
Andorra
Northern Euro Countries "Gold Backed"
Austria
Belgium
Finland
France
Germany
Luxembourg
Netherlands
Monaco
Russia has already begun formal discussions on a Gold backed Rouble and given their immense Natural Resources reserves and the build-up of their Gold mining investments over the course of the last 10 years it will be a very easy switch for them.
Argentina and Brazil have already broken form the USD Reserve for settling trade accounts between each country. This was adopted over the Summer and went off with out a hitch.
China has been building it gold reserves and is now the largest sovereign nation invested in African Gold Mining, as well as oil exploration in Canada, and the Caribbean (Cuba).
What should concern the US and the UK the most is that no inclusion of the USD as a reserve currency going forward or the pound sterling as a benchmark currency for European Trade is being considered on a going forward basis.
What we are witnessing is a stern demand by BIS and stronger EU nations like Germany to Paulson, that the toxic bonds need to be repatriated to explode on American soil. The dollar rally is nothing more than the closeout of that debt being settled after which the USD will most likely shed 30%-50% of it value in a stunningly short amount of time. Months not years.
Don't underestimate Gold in the new World order. Just go out and try to buy some physical bullion today. Every Sovereign Mint in the world has either stopped or dramatically suspended any sales to the Public. And Every Central Bank has publicly said that it has suspend any future sales. The Paper futures manipulation on COMEX and LME are about to implode, as no Physical deliveries can be made on contracts the demand delivery at settlement. This may occur before the month is out.
Yeah, "Just Realized" you got it right. After all, unlike we Americans think...modern capitalism and banking is a European invention. Maybe that's why you take it less seriously from an ideological perspective. All is relative and I mean exactly everything.
I've never understood (well, I guess I do...) why so many here lionize Paul Volker. The policy he implemented at behest of the Milton Friedman crowd - targeting the FF rate via change in money supply - didn't even work and he abandoned that policy by the early/mid 80s (I think '83 or '84). So he needlessly caused a much more severe recession than would have occurred without such unjustifiably high interest rates.
Because they wanted to bring down inflation, they could have implemented policies such as, for example, arranging agreements for unions to set their wages at a fixed % across the board and start bringing that % down each year, which they would have had a good incentive to carry out because the alternative was the steepest recession since the '30s. But they didn't try to fix the wage-price spiral via coordinated policies but a blunt tool that didn't even work and was abandoned.
"Nobody listens when things are going well!"
Amen Volcker.
"Nobody listens when things are going well!"
Amen Volcker.
lifeguard | Homepage | 10.11.08 - 9:36 am | #
And everyone talks when things are going poorly.
And, nobody makes sense when panicked.
And, nobody demands when things are going well.
I was not impressed by Volker--he's Paulson with a fatter head.
"Nobody listens when things are going well!"
Amen Volcker.
lifeguard | Homepage | 10.11.08 - 9:36 am | #
And everyone talks when things are going poorly.
And, nobody makes sense when panicked.
And, nobody demands when things are going well.
I was not impressed by Volker--he's Paulson with a fatter head.
OT - Why does CR regularly site geniuses like Paul Krugman on this current crisis when he couldn't even identify the obvious speculative excess in oil prices this year? What a joke! The "oil bugs" should be running w/ tail between legs but all I see are claims that high oil prices collapsed the economy (check out <a href="http://www.theoildrum.com/>The Oil Drum to see such stupidity writ large).
Don't underestimate Gold in the new World order. Just go out and try to buy some physical bullion today. Every Sovereign Mint in the world has either stopped or dramatically suspended any sales to the Public. And Every Central Bank has publicly said that it has suspend any future sales. The Paper futures manipulation on COMEX and LME are about to implode, as no Physical deliveries can be made on contracts the demand delivery at settlement. This may occur before the month is out.
MW
MW, really thorough and accurate post. Nobody seems to be listening to 'us'. I have been trying to get others to understand what you have so articulately pointed out about Russia and China.
The Euro split is more newsy to me. Merkel may be able to pull it off, she has the backing of the central bank, which is dominated by Austrians.
I find it interesting that Italy is acting as a catalyst for a revisit of Bretton Woods, if in fact this is not a feint or a head fake. Italy could though align with the hard money side of the split.
CR - Thanks for posting this. Very timely.
I was struck by the difference in his disposition now vs. the U of M speech after the BSC bailout. Back then, he was highly critical of the bailout, of the Fed involvement and of the system as a whole.
His demeanor now is one of calming, quiet resolve to fix the immediate problems and address the larger systemic problems. For a former Fed Chair, he was highly critical of the current regime, without directly chastising them and risking further degradation of confidence and trust. For example he made the following points:
We have the tools to fix the problem, we need the leadership to pull it together and execute it.
The case by case nature of fixing the problems damaged credibility.
There is a lack of trust and a necessity to restore public confidence.
Unfortunately, it will take govt support as it has now impacted the real economy.
The bailout emphasis is shifting from liquifying the mortgage market to recapitalizing the banks.
The "fireside chat" comments obviously point out the lack of trust in Bush.
My take is he realizes how fragile the mess really is and conveying a sense of calm, reasoned leadership is paramount. And oh by the way, we aren't letting anyone off the hook. Banks are too big, have inherent conflicts of interest and the exotic instruments must go. But we'll deal with that after we save the ship from sinking.
observations:
sometimes, the curse of being highly intelligent is that your ideology gets in the way of your analysis of the REALITY of the situation.
you all know how the game is played - it isn't fair (never has been), and it exists to exploit the many for the benefit of the few. its all a big ponzi scheme; always has been, always will be.
volcker is right - the key here is a lack of confidence, which is essential.
Mel writes:
Volker unimpresses me here. He's on the bank's side--he also speaks of tools--
He IS a tool. He was hand picked out of the Chase Manhattan Bank by David Rockefeller and did what he was told. His policies (his used generically) did resolve the problem.
Once again he is embarked on fulfilling the masters orders: calm these unwashed dip shits a bit, then fly off to Asia and see about working something out with the Chinese.
comments on comments:
I personally judge that Volcker identified with precision the exact nature of economic failure in the Carter years, grabbed easy credit by the throat, and strangled it.
As to the man's mental faculties, one may believe that these recede with the years. If so, there seems to be an uncommonly robust residue.
LawyerLiz, I've finally had to abandon NPR as a source of financial news or (especially) analysis. They're so far behind the curve they've disappeared. And doing a real disservice to their listeners. Time better spent here or with Yves Smith.
In the interview, I enjoyed PV brushing aside the subject of short selling - not going to get into it.
OK. Grouch burnside will now go find that first cup of joe and face the day.
UUU writes:
awgee, forget the Jim standard. He isn't going to happen
Hey I'm happening right now. And the gold standard? Dead as the proverbial doornail although there are still some goldbugs crawling about.
The "fireside chat" comments obviously point out the lack of trust in Bush...
Of course, and Brown doesn't have much credibility either. Pity that this crisis erupted when the two nations that are the pillars of international finance both have klutzes at the helm. Brown is unpopular but reasonably smart; Bush was and is always a dunce.
Bush was and is always a dunce.
jim | 10.11.08 - 10:22 am | #
McCain =Bush and Palin is inferior to either. Next month determines the power of Special Ed.
The fundamental problem with the confidence issue is this: the only people that can get us out of this are the bankers. And no one trusts the bankers anymore.
As usual, there are no good choices. The well educated and well informed citizens are a very small minority. So, in a few weeks the uneducated and ill informed will decide our next president.
For me it makes little difference. Once I know who it will be I can make my market bets accordingly.
Lyndon LaRouche today mocked Treasury Secretary Hank Paulson's bailout scheme, warning that Paulson and all the other central bankers have been lying through their teeth about their ever-changing so-called bailout swindles. The real problem, that none of them wish to talk about, is the mass of derivatives obligations, that are in the quadrillions of dollars.
LaRouche called the derivatives bubble the hyperinflationary bomb, crushing the international financial system, warning, Until you just shut down the whole derivatives trade--wipe these gambling obligations off the books of the financial system--you are just kidding yourself. LaRouche declared, It is time to break the silence on derivatives. The true, hyperinflationary factor in the situation is the unregulated, insanely leveraged derivatives trade. This is what is killing us. This is the great crime of Alan Greenspan.
LaRouche concluded: Unless and until you deal with this derivatives bubble, which cannot and should not be bailed out, you are just kidding yourself. It is time for Hank Paulson to swallow the only real medicine: bankruptcy reorganization of the entire, dollar-based financial system. And the first step in any such bankruptcy reorganization would be the cancellation of these quadrillions of dollars in pure gambling obligations. Without such action, this planet is doomed to a horrible dark age, just like the dark age of the 14th century, that followed the collapse of the Lombard banking system.
@ Currently Smoking Cannabis
I agree with your reward risk taker and penalise the frugal as a means to economic growth (even if not morally pleasant).
However in the long term is the fixation with growth a sound ideal?
Certainly it is not in the case of population or resource consumption. Look at the exponential effect of continual fixed rate growth.
I don't know enough about economics but it strikes me that if you want a natural system to persist it must reach an equilibrium with it's environment at which point growth would be zero.
Steven writes:
I don't think anyone is gonna be going to Bush for advice in 10 years time.
Jimmy Carter did get a Nobel Peace Prize years after his miserable term as president. Of course, I've always wondered if Peace Prizes are awarded based on how well you promote the United Nations, which I don't see Bush doing. But you just never know.
Oh for christ's sake folks. It's not the end of the world. We need to do exactly what Volcker said we needed to.
We need to take our lumps, implement a bushel of regulations to take our financial system out of the hands of Armani suit wearing pirates and start producing more real engineers and less financial engineers.
Course, many of the engineers I know have a pretty difficult time getting work doing actual engineering.
Okay, even a blind sow finds an acorn now and then, as they say back home.
If only he could get over his preoccupation with the English royalty's secret conspiracies, people might listen to him.
My guess is it's the secret banking cabal funding Larouche -- so he will constantly say all his nutty things and say the occasional truth they want discredited by association.
Like wiping out the illegal Internet gambling transactions on the books completely, including the derivatives market for anyone just gambling there.
Mr Volcker describes no scenario to address the Swaps problem we have now and the counterparty problems it creates. Until we have meaningful discussion of how to get out of the swaps mess I see continued credit market dysfunction and flight to cash.
We need to address the CDS problem first.
Somebody quotes Lyndon LaRouche on CR?
Hi
As promised I have come back to your great blog!!
I am still a bit confused by currency risk so found this article useful, this enhanced my basic knowledge acquired at The Finance Owl - Banks - Loans - Mortgages - Money but I was wondering if anybody could suggest some advanced analysis discussion blogs on ratio analysis?
Many thanks
Maggie
But Carter was a good main in the wrong place at the wrong time. Bush is either evil or stupid, or both.
Err, good man...
Is it possible this event is related to currency pegs that got too far off track, and thus this global crash results in currency baskets that are more aligned?
SEE: The yuan climbed to a record as the dollar slumped on concern the U.S. government's $700 billion bailout plan for the nation's banks will strain public finances and fail to avert a recession. Bonds gained.
The People's Bank of China fixed the reference rate for yuan trading at the highest since the end of a fixed exchange rate in 2005 after the dollar fell the most in a decade against the currencies of its major trading partners. China has managed the yuan's exchange rate against a basket of currencies, including the euro and the yen, since July 2005.
The dollar's slump increased the yuan's attractiveness,'' said Li Tao, a foreign exchange trader at Shenzhen Development Bank Co. in Shenzhen.But the central bank may still want to keep the exchange rate stable to support growth.''
The yuan strengthened 0.11 percent to 6.8223 a dollar as of 12:42 p.m. in Shanghai, from 6.8300 yesterday, according to the China Foreign Exchange Trade System. It gained as much as 0.29 percent to 6.8099 earlier today, the highest since the end of the dollar peg.
Volcker laments the lack of savings in this country. He even suggests a consumption tax.
Why should anyone save when central bank policy rewards borrowing and punishes saving with inflation?
Why should anyone save when the inevitable consequence of the Federal Reserve's monetary policy has brought us yet another painful boom/bust cycle? When, even now, the politicians are pitting prudent savers against imprudent lenders/borrowers and rewarding the imprudent while looting the prudent?
And why is there no mention in this propaganda piece, like so many other similar propaganda pieces, of the consequence of these ever more expensive "rescue plans" that are so "necessary"?
Corporate treasury departments that I know who control more money than we do are doing the exact same thing. We have money in many European countries and are not moving our exposure from places like Germany or teh UK to Ireland - effectively, we (and many other treasury departments I know) are doing the exact opposite.
If you are who you are and you're doing what you say you're doing, thanks for the correction and sharing your insight.
Volcker was still jawboning, though.
We are headed for the worst week in the the stock market since 1970... Are we bottoming... or is there a waterfall ahead of us? What do you think is in store for the retired senior? I am a member of Myinvestorsplace.com and we are forever looking for solutions. Any help out there?
Nothing Volcker said was very momentous nor was it anything that hasn't been observed repeatedly by sane critics of American neoliberalism -- Roubini, Hudson, Roberts, et al. He pulled punches, for obvious reasons, wryly refuting the toady Rose's absurd claim that Paulson must frequently consult with him.
The striking thing was seeing a sensible old man on US TV again talking about economic matters. One thought we'd seen the last of them in this era of "money honies," Cramers and legions of goosestepping touts.
What a radical idea - educate more electrical & chemical engineers and fewer financial engineers.
And less consumption.
Shocking.
He shouldn't be Fed Chair or Sec'ty of the Treasury - HE should be the President not the two Major Doodz we got running.
Love the bit where Charlie Rose and Volcker compare Roosevelt with Paulson/Bush: "That's leadership!", "You have to be convincing." BINGO!
Unfortunately, the current crew wouldn't know leadership if it hit them in the head and couldn't sound convincing even if their lives depended on it.
Volker? - old regeim. They practically announced their true intentions. Check out the Project for the New American Century website Welcome to the Project for the New American Century - Bill Krystal, Paul Wolfowitz and the boys subtle outline for a strategic play for resources worldwide through militaristic corporatism. Democracy means dealing with congress and dissent - the kinds of things that make an "empire" lethargic and ineffective. Are These the Forging Fires of the NWO We Feel? « Your Mortgage or Your Life…
This is a truly great thread. Maybe the best I've read on CR and I've been lurking here for months. We need to have good dose of skepticism when any spokesman, official, or guru talks about what's really going on. I think I finally understand it now. It's the derivatives stupid. OMG!
the only people getting screwed by all of this are the people that did the right thing over the last 5 years. Saving, not spedning above one's means and acting financially responsibe. I say throw the MFer homedebtors out in the streets and round up all the miscreants that looted our system. this includes Realtors at the top of the list, mtg brokers appraisors builders Wall Street Ibankers,salespeople and Banker execs Fnm & fre execs and politicians.
Der Kommandant Weather Helm
I tend to agree with you.
But I agree we may need to throw money at the problem to fix it, but I still need to be pissed off that folks that try to save are pundished. In the posts above one said writing down mortgages creates no moral hazard. I have to call BS on that. That is the problem. At the top banks have no confidence they can get paid back if they lend. Thats bad.
On the bottom somebody borrowed $100,000. They now think things are not turning out like they planned so they would like to owe less. The bank was evil for lending it to me anyway, twisted my arm. Again BS. You borrowed it - pay it back.
My favorite quote:
"....We need fewer financial engineers and more electrical engineers, chemical engineers, and civil engineers to take care of our infrastructure. We put too much talent into false castles in the financial world...."
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