United States Heading towards a Depression?

DOW is +410 on the RTC bailout plan. Wachovia rebounded 59%

 

I just get the biggest kick out of how these rating agencies rate all these MBS as Aaa and now turn around and start slashing the institution ratings. The rating agencies should be torn apart and executives thrown in jail with gangbangers.

 

Where was the FTC? What the hell is a level 3 asset?

Treasuary Secreatary Paulson has a meeting with House Leaders at 7:00 PM tonight

There is some talk of establishing a new RTC as well as a funding entity. I don't understand how Paulson does this without first doing a real audit of the books on the financials.

 

That is a highly presumptuous statement. Deeply qualified economists have made great efforts to understand both the causes of the Great Depression and why it lasted as long as it did in the US. They have also made efforts to study why various nations rebounded far more quickly then the US. Majority opinions across the globe disagree with that statement. Nations that rebounded more quickly than the US propped up their businesses with their respective aid.

I'm somewhat educated in economics but a business person by experience. The commercial real estate industry in the US was in a Depression (not a recession) at the tail end of the 1980's and early 1990's. There was neither capital or liquidity (I'd suggest the two terms are being used here with the same meaning) for any kind of activity. Essentially buildings that had been worth 10's of millions or hundreds of millions in the aggregate had ZERO value for a period of time. There was no money available to buy buildings. There was no money available to convert spaces in buildings for new tenants. The industry died.

During the early 1930's the US government didn't intercede. It allowed almost 10,000 banks (of a total of about 25,000) to fail.

All deposits vanished. Across the land individuals, families, and businesses
had no access to money. Properties went into foreclosure, people became homeless, unemployment rose to 25%.

I'd say the length and severity of the depression were caused by government inactivity. Noone was there to prop up the economy.

And it is being washed out. There is a helluva lot of bad debt that is being written down to zero. Even as some actions are being made to save the financial community from melt down....and keep economies going.....there are enormous valuation losses occurring everywhere.

Home prices continue to fall. Mortgages that are better quality than subprime are facing foreclosures. There are enormous losses. Businesses in these industries and those involved in financial industries are taking amazing beatings.

I suspect that when I use the word liquidity and you use the word capital our intent is the same.

My suspiceon is that governments across the world are going to try and prop up financial institutions to keep them from failing and closing. The result would be analogous to what I described above with the US banking system in the US during the 1930's.

Assuming that works, beyond that there are and will be huge losses on paper as assets lose enormous value. There is a recession taking place. World wide economies are being impacted. Big losses are occurring in stock markets, various financial instruments and real estate around the world.

 

We are heading that away unless we take action, America needs to stop worrying about what Paris Hilton is doing and wake up.

 

Damn earl you write a tome with every response.

But the SEC is contemplating putting a temporary ban on short selling. This is stupid. Short selling brings price stability. See China for what happens when short selling is not allowed. This seems like a desperate election season stunt. Stupid.

 

These deeply qualified economists went on to build a financial system totally devoid of real assets and built up billion dollar fortunes with stacks of derivatives originated on the "capital" of mortgages and other forms of debt.

If you take debt and multiply it a hundred times, you just have more debt.

You have to understand something, I already understand that debt is a necessary part of modern economic life. Businesses need it to get started and even to make it through their entire business cycle (the farmer is a perfect example). I get it, I know how to use debt responsibly.

Now, the point is, there's a difference between a responsible use of debt and building an entire financial and monetary system out of it and building those debt towers to the sky using more debt as a foundation. The farmer owns the land - he has real capital. The banks own debt: mortgages, treasury debt, corporate bonds...

Of course their balance sheets suck. They're using debt as collateral for their debt.

The fundamentals aren't sound because the system fundamentally doesn't make sense.

The government had been indirectly interfering for 15 years. Speculative bubbles are a natural side-effect of markets, but when the speculative bubble is directed by a central authority it can grow a lot bigger than it normally would.

So, what exactly "propped up" the U.S. economy from 1776-1907 the first time we needed a modern bank bailout??

 

Peter Schiff on Glenn Beck Show - 18th September 2008

http://www.youtube.com/watch?v=wy77gj3-Lco

 

And now Paulson plans to take over sick/distressed mortgage assets from balance sheets of financial institutions, is this really a solid solution to current mess Or is this merely a dress-up operation to desperately stabalise global financial markets?

 

Japan is in a recession. In the April-June Quarter Japan's GDP was -3.0%

http://business.timesonline.co.uk/tol/business/economics/article4739309.ece

Initial US unemployment claims rose to 455,000, up 10,000 from the prior week. Claims have now topped 400,000 for nine straight weeks, a level that is a sign of a weak economy.

http://news.yahoo.com/s/ap/20080918/ap_on_bi_go_ec_fi/economy;_ylt=ArjkwI77T5xI.zPjU6XpCTCyBhIF

 

@ Smatts: yup. I respond to uber radical concepts that sound nice in words but don't work in reality. I respond to deep politically inspired lies and misrepresentations of history.

@ Korr: There are plenty of assets in the US. In many cases their values are overstated. Now the values are being driven down by a market crisis. Once values settle, there will be plenty of asset value.

I agree. I've gone from employee to owner. I've made mistakes with debt. I'm in a very very conservative debt basis now. Debt is SCARY imho and experience. I use debt and am debt averse.

Look, you can't put all blame on the government for how individuals and corporations use debt. Who are making the decisions to take on the debt. Businesses for the most part ignore long term value and look at quarterly P & L statements. If debt helps them on the quarterlies, they tend to ignore risk elements and go for short term profits.

The independent investment banks are not loooong looong term publicly traded businesses. They didn't have the legal right to be equity investors until 1999. In this crisis they had huge investments, intertwined banking relationships and were leveraged at levels wherein they had $30 of debt for every $1 of equity. Way too much.

There was ZERO oversight. They were totally intertwined into the global banking system and were operating on high levels of risk.

Debt agreements are complex but powerful. They give the lender the right to call back funds that were loaned at various levels.

When markets crashed the lenders hit up the Investment houses for borrowed money. At $30 to $1 levels of debt to equity....the investment houses failed.

If they had the right to pull down a world wide financial system, then they should accede the right to have someone monitor or control their actions.

Otherwise billions of uninvolved suffer. The worst thing that can happen occurred. I can't get my money out of the bank.

Sure government has "some" blame. You sure as heck should be blaming the players that took on the debt.

They took it on in a system of TOTAL lack of oversight or outside controls. THAT is when the market goes KAPUT.

Korr: The government both interferes and takes huge periods when it doesn't interfere at all.

The govt didn't stop mortgage underwriters from writing trillions of dollars of sub prime mortgages. The govt. removed controls on Investment bankers and didn't interfere as they built up 30 to 1 debt equity ratios.

Korr: I'm not an historical economist by experience or training. I know the US went into debt to fund an initial army to fight the British. I know there were various financial crises that occurred during the 1800's.

Its absurdly different. Before railroads, Illinois could have collapsed and it probably wouldn't have had but a tiny impact on Virginia, Delaware, or Vermont. You couldn't trade that much.

Places weren't anywhere as interdependant on one another. The differences are monumental. New Jersey's nickname is the "Garden State" It was an agricultural land that supplied food to the NYC region.

Drive down the spine of New Jersey now on Rte 95 and you might want to rename the state the " stinky smell state of refineries".

The world has changed too much to depend on an economic model that was built to reflect a far simpler and less interactive world.

@ Bogart: Japan has been in sluggish sh!tty shape since 1989. It is still the world's second largest economy. Its car companies are kicking the cr@p out of American companies.

Its not a panacea but it does seem to keep on moving, albeit at a less than ideal basis.

What would you guys prefer, a less than ideal style Japanese economic experience or complete and utter collapse whereby you can't get to your funds as all financial institutions have failed, your bosses can't pay you because they can't get to their funds, and 25% unemployment?

 

Here's another thing to think about. Do you really think the Gov will allow the financials go to 0?

Im making bank now
Thanks all bye for now

 

One of Warren Buffett's companies just settled on a purchase agreement of Baltimore Gas and Electric (B G & E) at about $25/share. Because it is a utility with somewhat regulated rates to consumers there is a period of review. The other potential buyer was a foreign based utility.

In the last year the stock had peaked at a little over $100/share. Just before the purchase the stock had dove to about $10/share.

The stock had dove because a side part of the business involved buying and selling energy futures with debt. The liquidity risk caused a crash in the stock price.

Buffett is a GREAT business value buyer. History's best.

He now owns 5 or 6 energy companies; 3 or 4 in the midwest and west and one in Britain. I bet the guy now knows energy company valuations like the back of his hand.

That is the way to make money in a recessionary period when valuations are diving.

BTW; when the financial doom sayers scream about govts. and TOTAL and COMPLETE losses of values....its a pure politically inspired scream.....dramatically removed from reality. There is asset value in businesses and properties. Its just dramatically less than bubble inspired prices.

Buffett saw value at $25/share. Without knowing anything else I'd bet on his track record and modus operandi.

Hmmm....I learned to be a value buyer in real estate. I'm not doing it now. Takes too much of my time and effort. I may put time and energy into studying energy companies for stock purchases. If its good enuff for Buffett its definitely good enuff for me. Studying the stock market and an industry is a lot less time consuming than running around looking at 100's of properties, meeting w/ tons of potential sellers, and trying to "steal a deal" based on my experience and knowledge.

I wont start buying until I study the hell out of the industry to be able to make some fairly educated decisions, though.

 

I don't know what the government is going to do. When they intervened with Fannie and Freddie I greatly increased my cash position and when they went for AIG I got nearly completely out of the equity markets.

You have to pretty much day trade if you want to survive because you never know what the government is going to pull.

Good job on making your "bank". Make sure to hold on to your profits.

 

Buffett's "time bomb" goes off on Wall Street

I always knew Warren Buffet was a genius...

Ron Paul had warned about this, and he was sidelined by the MSM. Now they knw in the hindsight, Ron Paul was spot on... Ron Paul is Awesome...

Check out Ron Paul's interview...

Really important, highly recommended... http://www.lewrockwell.com/podcast/?p=episode&name=2008-09-18_029_ron_paul_talks_to_lew_rockwell.mp3

 

The Domino Effect

 

I sold, Ill be back next week to pick a new winner.
Not to worried about shorties!

 

Correction:

Buffett didn't buy B G & E. He bought their parent, Constellation Energy.

Here is a blurb, and some past commentary on Buffett

Ooooh! Ooooh! I so like that last phrase. If you want to buy real estate....get to the financial institutions that are overloaded w/ properties. Get to the people responsible with disposition. They are so miserable!!!!!

Be their buds. Do em a favor. Take a property or two off their workloads.

Just 2 notes. Better do your homework first. Better have cash to make the deal.

If you don't have the cash now....work hard for the next bad swing. It is so damn cyclical. While the rest of us big mouth blowhards are arguing about philosophy, economics, politics, blame.....you can pick off a couple of winners.

 

Here is the good news. The President is working hard on fixing the economy today.

A couple of more meetings like this and the economy will be hunky dory........

 

Bernake and Paulson are trying to do another weekend deal. The plan will have the US taxpayer assume the liability for $700 billion in toxic mortgage loans from the major banks.

Bear Stearns Taxpayer Cost: $29 Billion
Fannie Mae, Feddie MAc Liability: $200 Billion
AIG Taxpayer Cost: $85 Billion
Other FED Loans: $509 Billion
Mortgage/Bank Bailout: $700 Billion

Total US Taxpayer Cost: $1.5 trillion

Add to that a $500 billion defecit and that's $2 trillion

Btw, the LEH bankruptcy will cost Hugo Chavez $300 million. He was holding LEH securities.

http://clipmarks.com/clipmark/6E856640-C6E9-4EE1-8C4F-1C615BDF9496/