United States Heading towards a Depression?

Kudos to smatts for calling his shot with Lehman going down!

Dow down 300 in early trading. Gold up over $15, almost back to $800.

Oil is plummeting, expect an attack on Iran soon.

From the LRC blog,

Toasted financials
Posted by Michael S. Rozeff at September 15, 2008 08:18 AM

Europe has had a semi-crash (stocks down 5%) and the US will open badly. Merrill Lynch is gone. The large insurer, AIG, is toast, or almost. AIG is an insurer of bonds, having written a huge amount of business in credit default swaps. NY State reports a sharp drop in its manufacturing index.

A moment of recognition has arrived. This is when the average Joe begins to see what informed observers have been seeing for some time.

One of the most massive credit bubbles in financial history, the largest ever in absolute terms, exceeding that of 1929, has burst. There is no lender of last resort, not the Fed nor the U.S. government, large enough to hold asset prices up indefinitely. If they cannot support currencies when fundamental values change, then they surely cannot support a market as large as the stock market.​

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During Black Monday in 1987 the DOW declined 22.6%.

Gov David Paterson announced that the State of New York is providing bridge loans to AIG.

There are $3.5 trillion dollars in money market funds and another 500 billion in private equity. A market crash will cause a lot of pain.

 

Isn't there provisions in place now that would not allow the market to completely crash in one day? I thought I heard/read somewhere that if the market lost a certain amount, then trading would be stopped for the day?

I know if this provision does exist, it really isn't going to stop the long term damage, but I was mainly just curious to know....

 

There are automated stops IIRC. The market will actually shut down if certain loss thresholds occur. Ironically, I don't believe that such stops exist in the case of hyper-gains lol.

You are correct, this will not help anything except to slow down the pain, and to let the government exacerbate it.

While everyone would hate a crash, a crash and bad recession could clean up trillions in problems in under 6 months. What is going on now, is that the problems are being paid forward to future generations. When this bill comes due, it is going to be a doozy.

 

Some knob called me today trying to sell my Lehman brothers stock... Didn't they just go bankrupt?

 

George Bush has bankrupted the country just like every company he's ever owned.

Lehman Bros. has been around for over 150 years!!!! WTF!

 

Rob, I'm no fan of Bush, but he is not to blame, he's a minor character in this. It's inappropriate to blame him, and then people think if they vote in Obama or McCain, the debt, deficits and inflation will disappear because Bush is gone.

The problem started at the beginning of the last century. When you have a debt (fiat) money system, it is inevitable that you will accumulate debt, malinvestment and inflation in bubbles. This bubble is a carry on from the Reaganomics era. It keeps getting pushed forward, growing each time. Clinton was lucky to be in a postwar (gulf 1) boom stage but he has just as much to do with this as Bush.

The real criminal here is the private Federal Reserve. It's the one facilitating the transfer of wealth from the Treasury (Main street) to Wall Street. Of course, this is it's only real purpose. Millions of people around the world are starting to wake up to the sham that is central banking.

 

I bet Obama's almost wishing he's not going to win the election now - what a mess to inherit.

 

Doubtful. He's got a lot of experience with transferring wealth.

 

One of his companys was called Arbusto too! LOL that's a classic.

 

AIG going under, LEH just filed bankrupcy, whos next?
Lets just have all the biggest companies go bankrupt while the FED JUST WATCHES

I bought WM at $3.23

Cause I thought JP morgan would OWN THEM BY NOW GOOD LORD.... Im going to be broke I swear.

 

Does anyone know what those thresholds are? Has it ever happened since these thresholds were put in place? Do you think we are going to see this anytime soon?

Provide me with knowledge, wise Guerilla!

 

Buying WaMu? That is stupid, just saying.

You still chasing SIRI around, even after the merger? They are now a penny stock

They are called "circuit breakers". At 10%, 20% and 30%.

http://www.sec.gov/answers/circuit.htm

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Also, there is no way Goldman nor Morgan can survive in this market, they must be folded into a bank, guaranteed.

AIG is on its way to $0, I also believe C and GM (two other DOW parts) can easily hit bankruptcy.

 

And I bought Apple at $12/share... Never put your money in a bank.

 

The only thing the FED can do, is prop up these companies by stealing from the citizenry. Do you want the government to confiscate the wealth of every person in order to subsidize your losses in the market?

(1) You shouldn't have been gambling by playing stocks whose balance sheets are toilet paper.

(2) You have been warned in this thread for nearly a year, and insisted upon gambling. Why should anyone subsidize your gambling losses?

(3) Learn how to read a balance sheet. Learn Austrian Business Cycle Theory.

 

I had business meetings all day on Black Monday, in 1987. The first meeting in the morning was w/ the CEO/President of a regional brokerage investment house. It was memorable. We had renegotiated his headquarters office lease and were meeting w/him and the real estate attorney who was reviewing the lease document. The Dow plunged about 22%--bigest one day percentage drop in Dow history. After that meeting i returned to the office building for the company for whom I worked. On the top floor was the downtown regional office for one of the national stock brokerage offices. The offices were locked for visitors. They knew me--colleagues and I had put them into the building. Some customer in a Miami regional office had jumped to his death from a high rise building. Definitely memorable and scary.

Subsequent to that there have been automatic stops built into the NYSE and probably other exchanges to prevent such brutal melt downs over a day.

Now here are some upsides. While Lehman declared bankruptcy--that doesn't mean that it is assetless or value less. From a financial institution perspective, a business like Lehman must maintain capital reserves to meet calls on its assets by depositors and invetors. When a business takes such huge Losses it loses that instant capital to meet the immediate needs of lenders and depositors. It doesn't mean that all the assets have value.

In fact--they have a lot of assets and even the packages of securitized sub prime mortgage debt have value. Having taken losses on these sub prime debt holdings Lehman may have written them down to Zero value. Yet actually there are producing mortgages within these packages. Maybe 1/4 of them are producing, maybe 1/2, maybe 3/4. The problem it is incredibly hard to ascertain which are working, which aren't, which might default in the future, etc. Since one can't determine this...one probably writes this stuff down to zero.

Whoever ends up with the assets will get them dirt cheap. They will make big money on them. This kind of rebound refuels growth.

Frankly, the one thing I agree on with Guerilla is that there is too much debt. The difference is that there is way too much corporate debt and I don't believe that is solely or possibly even represents a majority of impact from expansion of the American financial liquidity.

It is a result of enormous expansions of corporate debt fueled by their own actions and a result of ZERO oversight, and an expansion of world wide credit and liquidity, the result of continuing growth of world wide economies.

Financial institutions such as Lehman are leveraged with so much debt and with so many potentially confusing financial instruments that they themselves can't manage their own risk. The most senior financial officers within these firms really don't have a fix on the risk factor of their many financial instruments. Hedge funds, derivatives, risky loans such as sub prime mortgages, plus consumer loans that they are handling that will take a beating in a weakened economy. They are simply handling way too much debt and its being freely packaged and sold throughout the world.

All this stuff will play out over time while markets continue to take big hits.

Its going to be one big ugly bronco busting ride for a while, though.

 

Stocks get pummeled
Wall Street sees worst day since just after 9/11 attacks, with Dow down 500 points, as financials melt down.
http://money.cnn.com/2008/09/15/markets/markets_newyork2/index.htm

Oh, so the economy will be devastated, but the big players left standing will be fine. I'm sure John Smith and Joe Blow will really be happy about that.

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The Social Imperative of Sound Money
http://www.lewrockwell.com/rockwell/imperative-sound-money.html

Excerpt

Lew, brilliant as usual. The article is from a speech he gave on the weekend. Very good read if you want to understand the Fannie Freddie Fannie (pizzaman).

 

Jim Rogers: 'The US dollar is in trouble'
http://www.business-standard.com/india/storypage.php?autono=334370

Excerpt

Great interview from one of the best investors in the world.

 

Bogart: What is the source for the $1.5 trillion, $10.5 trillion, and $0.5 trillion in mortgages? I've been looking around for that kind of information.

$1.5 trillion is 1/7. That is a big big percentage in crappy @ss loans, no doubt.

I have real estate. I'm not sweating it now. The only thing I sweat is vacancy. I owned real estate and lost my shirt in the debacle of the 1980's/1990's.

You make money in real estate in either buying low, developing or rehabbing and creating new value. Once you lock in rental rates that are making money the value proposition is pretty much locked in, subject to changing demand/supply and changing rental rates. That is something that plays out over long periods of time.

Playing the spec buy and sell game is a speculative game.

Meanwhile 14% of the value of loans in sub prime is a lot and a problem.

 

Korean Markets are setting off the circuit breakers right now, if you wanted to know.