News What is wrong with the US economy? Part 2

[Astronuc]

I don't know what kind of financial arrangements that they had done.
I think that they would want to be considered as depositors since the US will have to guarrantee all deposits.

Lehman Brothers was an investment bank and I believe any investment accounts are not covered by the federal government (FDIC). Remember the investment banks did not want the regulation of commercial banks - hence the current problem with unregulated financial instruments such as credit default swaps.

http://finance.yahoo.com/q/pr?s=LEHMQ.PK - one can buy their shares for a dime. They are now a penny-stock company.

Profile.

Lehman Brothers Holdings, Inc., through its subsidiaries, provides various financial services to corporations, governments and municipalities, institutions, and high-net-worth individuals worldwide. The company operates in three segments: Capital Markets, Investment Banking, and Investment Management. The Capital Markets segment represents institutional customer flow activities, including secondary trading, financing, mortgage origination and securitization, prime brokerage, and research activities in fixed income and equity products. It also offers equity and fixed income products, including U.S., European, and Asian equities; government and agency securities; money market products; corporate high grade securities; high yield and emerging market securities; mortgage- and asset-backed securities; preferred stock; municipal securities; bank loans; foreign exchange; and financing and derivative products. The Investment Banking segment provides advice to corporate, institutional, and government clients on mergers, acquisitions, and other financial matters. It also raises capital for clients by underwriting public and private offerings of debt and equity instruments. The Investment Management segment consists of private investment management, which provides investment, wealth advisory, and capital markets execution services to high net worth and middle market institutional clients; and asset management that provide customized investment management services for high net worth clients, mutual funds, and other small and middle market institutional investors. Lehman Brothers Holdings was founded in 1850 and is headquartered in New York, New York with regional headquarters in London, the United Kingdom and Tokyo, Japan. On September 15, 2008, Lehman Brothers Holdings, Inc. filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the Southern District of New York, Manhattan.

I think this is more the story of LEH:

All that money you've lost — where did it go?
http://news.yahoo.com/s/ap/20081011/ap_on_bi_ge/where_s_the_money

. . . . If you're looking to track down your missing money — figure out who has it now, maybe ask to have it back — you might be disappointed to learn that is was never really money in the first place. . . . .

 

[Art]

Form that blog - "Tomorrow is a holiday in North America, and Europe, especially England, may suspend trading. Yeah, that’s a great way to boost confidence." I'd forgotten that tomorrow is a holiday in the US. I have to work.

I wonder if EU/UK will suspend trading. Under normal circumstances, that might help calm the markets. On the other hand, with the global scale and bad news - it might cause further panic so Tuesday will be another bad day - especially if the Asian markets continue down. I imagine that the European governments and markets will watch the Asian markets - and if Asia recovers a little, then perhaps Europe markets will open. If Asia falls, then EU markets may not open. It'll be interesting to see what will happen.

One of my colleagues pointed out that a lot of people could take capital gains losses so this years tax returns will be substantially reduced - which means significant increase in deficit unless government programs are cut.

Neither the UK nor the rest of the EU will suspend trading tomorrow. They have spent the weekend putting together a consolidated approach to fix the banking crisis and if nothing else they will need to see if it is working. Gordon Brown the main architect of the plan spoke afterwards saying he expects the markets to settle down within the next few days.

Tomorrow is likely to be fairly tumultuous as the banks give an indication of the size of the loan each needs from the gov't which will be indicative of how much trouble they are in but even then the shares will have a safety nett as investors fears will be about diluted equity rather than bankruptcy and so there are likely to be some gainers and some losers amongst financial stocks.

The commitment by all Eurozone states to guarantee inter-bank loans should begin to free up the movement of money once again and so ease the credit squeeze which I would think would help the wider index of shares as fears as to the size and depth of a recession are scaled back.

The US is said to be seriously considering adopting the same plan which would be a big deal for them as part of it involves part nationalization of troubled banks.

 

[jal]

Lehman Brothers was an investment bank and I believe any investment accounts are not covered by the federal government (FDIC). Remember the investment banks did not want the regulation of commercial banks - hence the current problem with unregulated financial instruments such as credit default swaps.

Let's take a simple example.
A worker at company X, agrees to have a "deposit" made from his paycheck to an account in the company account. That account is transferred to another account, ( for his pension), which is then transferred to the account of the "money manager". Until that money is invested it should still be considered a "deposit.
Where will the depositor "vanish" and turn into an "investor"?

 

[OmCheeto]

All that money you've lost — where did it go?
http://news.yahoo.com/s/ap/20081011/ap_on_bi_ge/where_s_the_money

. . . . If you're looking to track down your missing money — figure out who has it now, maybe ask to have it back — you might be disappointed to learn that is was never really money in the first place. . . . .

Gads. What a ridiculous system...

Do you mean to tell me that if on Tuesday, when the markets open up, and the people selling offer a share of their stocks at 10x market value, and someone buys that stock at that value, we'll all be rich again?

No wonder Binzing hasn't commented in this thread. Adolts are stupid.

 

[Astronuc]

Let's take a simple example.
A worker at company X, agrees to have a "deposit" made from his paycheck to an account in the company account. That account is transferred to another account, ( for his pension), which is then transferred to the account of the "money manager". Until that money is invested it should still be considered a "deposit.
Where will the depositor "vanish" and turn into an "investor"?

That part I am not sure about.

If one's deposit is put into a bank insured by the FDIC, then in the event that the bank goes bankrupt, the Treasury Dept of the US government would write a check, which one could deposit in another bank or one could cash it.

I have money in a mutual fund in which I could invest in a number of different funds. I invested in three stock fund, three bond funds and one guaranteed money fund. The guaranteed money fund had the lowest yield but was the most secure. Several years ago, with stock and bond funds doing poorly, I moved all the investment (money) into the guaranteed money fund - and it steadily increased a few percent, while the bond funds and stock funds dropped. I'll find out soon how it's doing or if it even still exists. I've been meaning to close that account and move it into my larger account where I now work. I have yet to see how either retirement account is doing.

 

[OmCheeto]

Let's take a simple example.
A worker at company X, agrees to have a "deposit" made from his paycheck to an account in the company account. That account is transferred to another account, ( for his pension), which is then transferred to the account of the "money manager". Until that money is invested it should still be considered a "deposit.
Where will the depositor "vanish" and turn into an "investor"?

Wasn't the original deposit real money?
Where did it go?
Did someone develop a new form of social welfare called "mortgage brokers" while we weren't watching?

 

[Art]

So far Asian markets are reacting well to the worldwide effort to save the financial sector.

Australia up 5.5%
S Korea and Singapore opened up 3%

Dow futures up too ~4%.

Fingers crossed things might be beginning to stabilize.

 

[jal]

hummmm ... something to reflect ...

Where will the depositor "vanish" and turn into an "investor"?

Wiil the deposited money, (in the money managers' account) be considered a deposit until there is an authorization to make an investment?
Will It be Guaranteed by the gov. until I turn into an investor?
=====

Australia up 5.5%

Maybe its because ALL deposits have been Guaranteed for 3 years.

 

[mheslep]

That's not actually what happened. The American companies in Ireland are only subsidiaries. There purpose is to satisfy the demand of European customers and so to save on freight and leadtimes it makes sense for these factories to be placed in a European country. For example one of the biggest single employers is Dell who also have several factories in the US and also in other world geographic markets each supplying only within their area of operation.

I cannot think of a single American company which has actually uprooted and moved to Ireland.

Yes they do just as you say - they set up subsidiaries there and thus move job growth, and revenue to Ireland where it incurs much lower taxes. Freight costs, until very recently with high energy costs, pale in comparison to the 15-20% tax advantage. US jobs and tax revenue consequently suffer when business that might very well have staid here goes offshore.

 

[Art]

Yes they do just as you say - they set up subsidiaries there and thus move job growth, and revenue to Ireland where it incurs much lower taxes. Freight costs, until very recently with high energy costs, pale in comparison to the 15-20% tax advantage. US jobs and tax revenue consequently suffer when business that might very well have staid here goes offshore.

The lower tax rate is what makes Ireland the European country of choice amongst the other EU countries but is not the reason why US firms have a European presence. The driver behind the European presence is to be close to one's markets.

If the US did not establish subsidiaries in their markets it would not help their domestic plants grow whatsoever, instead they would simply lose business to their competitors who do have a local presence. In fact one could argue the profits generated by these subsidiaries are vital to the health of the parent plants as they offset any potential downturn in domestic demand and deny these profits to their competitors.

Where the US has made a mistake is, in response to complaints such as yours, they tax repatriated profits made by these companies very heavily (last time I looked a couple of years ago it was 40%) which is totally counter-productive, as it practically forces companies to reinvest foreign made profits in foreign countries instead of back in the US.

 

[Art]

As expected the markets have responded positively to the coordinated European rescue plan. If the US follow suit then the worst may be behind us.

Britain's decision to take equity holdings in failing banks has worked well, as they are now in a position to force those banks to start lending again and as they got the stock at rock bottom prices they are likely to make a handsome profit over the next few years as they realize their stated intent to sell these shares off back into the market.

 

[Jimmy Snyder]

As expected the markets have responded positively to the coordinated European rescue plan. If the US follow suit then the worst may be behind us.

Yes I believe the current downturn is half over now.

 

[OmCheeto]

As expected the markets have responded positively to the coordinated European rescue plan. If the US follow suit then the worst may be behind us.

Britain's decision to take equity holdings in failing banks has worked well, as they are now in a position to force those banks to start lending again and as they got the stock at rock bottom prices they are likely to make a handsome profit over the next few years as they realize their stated intent to sell these shares off back into the market.

That sounds like a good idea. I think I'll start my variable high risk retirement account tomorrow. I've been waiting 20 years for this correction.

Yes I believe the current downturn is half over now.

Well. I hope the other half happens in the next few days. I've got spare money to invest.

Viva... stock Vegas...

 

[jal]

There are many opinions
Do read the following blog and the comments. If you got time read the previous days.
http://theautomaticearth.blogspot.com/
The time delay involved in writting a history book has been radically changed with the web.
======
Here is a quote:

However I&S,your efforts have shown many of us what's going on,and given a better framework to guide some critical decision making all of us will be making over the course of the coming months.For this I thank you,and wish luck to your own endeavors.
snuffy

October 13, 2008 12:30 AM

My feelings ...

 

[Astronuc]

Morgan Stanley said Monday that Mitsubishi UFJ Financial Group, the big Japanese bank, had completed its previously announced $9 billion investment in the Wall Street firm, under revised terms.

The infusion of capital was seen as a vital step for Morgan Stanley in its attempt to weather the credit crisis, and Morgan Stanley's stock fell sharply last week amid concerns the transaction would fall through.

Under the new deal, Mitsubishi acquired $7.8 billion of Morgan Stanley's perpetual non-cumulative convertible preferred stock with a 10 percent dividend and a conversion price of $25.25 per share, and $1.2 billion of perpetual non-cumulative non-convertible preferred stock with a 10 percent dividend, the companies said in a joint press release.

The transaction gives Mitsubishi a 21 percent stake in Morgan Stanley on a fully diluted basis.

http://dealbook.blogs.nytimes.com/2008/10/13/morgan-stanley-closes-9-billion-investment/

That and the bailout have buoyed the bank stocks.

GM jumped 6.59 or 35%!

JPM and GE are down, but Citigroup is up about 8%. Citigroup has not reported losses, but perhaps they don't mind so much since the government is expected to bail them out. I wonder what kind of bonuses the CEOs and managers will get.

Goldman Sachs would have been a great buy last Friday at the lowest. They open at 86.11 and are now 98.15 - an increase of nearly 12%

 

[jal]

Here is another quote from https://www.blogger.com/comment.g?blogID=4921988708619968880&postID=2433202042045327764

http://www.fcnp.com/index.php?optio...-culpa&catid=17:national-commentary&Itemid=79
The Peak Oil Crisis: Mea Culpa
Earlier this week The Washington Post's media critic, Howard Kurtz, published an apology on behalf of the media for its weak coverage of the multi-year run-up to the current financial debacle.

To quote the Post, "The shaky house of financial cards that has come tumbling down was erected largely in public view: overextended investment banks, risky practices by Fannie Mae and Freddie Mac, exotic mortgage instruments that became part of a shadow banking system. But while these were conveyed in incremental stories -- and a few whistle-blowing columns -- the business press never conveyed a real sense of alarm until institutions began to collapse."
In reading through the story I was struck by how eerily similar are the now admitted journalistic lapses and the failure to connect the dots in the financial story to what we have been witnessing in the media's coverage of peak oil. The heart of Kurtz's apologia is the troubling question "Why didn't they see this coming?"

Odinary people opinion (me) vs the experts.

They could not see the possible magnitude of the problem because they were benefiting from the taking of fees, commissions, expenses etc. from every transactions and were inflating the selling prices to hide their missdeeds.
A perfect shell game.
The correction is happening
Will the shell game continue?

 

[Ivan Seeking]

The Dow is up by over 500 points this morning.

 

[Astronuc]

Here is another quote from https://www.blogger.com/comment.g?blogID=4921988708619968880&postID=2433202042045327764

Odinary people opinion (me) vs the experts.

They could not see the possible magnitude of the problem because they were benefiting from the taking of fees, commissions, expenses etc. from every transactions and were inflating the selling prices to hide their missdeeds.
A perfect shell game.
The correction is happening
Will the shell game continue?

Some in the media did see it coming, e.g. Paul Krugman, economist from Princeton University and winner of 2008 Nobel Prize in Economics. But they were dismissed as alarmist. Krugman indicated back in 2003 that the US economy was headed for a cliff.

Others simply didn't want to report bad news. The mainstream media doesn't want to report really bad news on such a scale, because likely they do not want to alienate their sources of information or their readers.

There may be a few who benefit from insider information.

Many experts were apparently unaware of the magnitude of volume of the credit default swaps and sub-prime mortgage sector.


On a more personal level - Undergrads on the Bread Line
http://news.yahoo.com/s/time/20081013/us_time/undergradsonthebreadline

In my area, in nearby states, and across the country, food banks are getting much more requests for aid - even from middle income people. The current economic crisis is more severe than is being discussed.

 

[Astronuc]

Bill Moyers Journal - Interview with George Soros
http://www.pbs.org/moyers/journal/10102008/watch.html

Moyers: You are not alone if you are worried about the financial melt down. So is my guest George Soros, one of the world's best known and successful investors, making billions in times of boom or bust. He's been warning for years of a financial melt down fueled by easy credit and sleepy regulation. Now he's out with this timely book, "The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means."

In the interest of full disclosure, you should know that I served three years on the board of George Soros' foundation, the Open Society Institute, dealing with such issues as a free press, the rule of law, and human rights. But I've had no involvement in his political activities and nothing to do, with his business interests unfortunately. It's good to see you.
. . . .


BILL MOYERS:This is what's interesting, why wouldn't the government be able to look at what you looked at and see what's coming?

GEORGE SOROS:Because actually they have been working on false premises. This sounds very strange, but there's been this development of, this belief of market fundamentalism. And particularly the idea that markets always revert to the mean and deviations from the mean occur in a random fashion. And you can calculate it.

And you will get a nice distribution and you can anticipate it. And based on that, you can manage your risk. And that actually was based on a false idea. This namely, the markets self-correcting because the market moods have a way of affecting the fundamentals the markets are supposed to reflect.

And there's always a divergence between our perception and what actually exists. For instance, take the simplest situation, namely housing.

Banks give you credit based on the value of the houses. But they don't seem to somehow understand that the value of the houses can be affected by the amount of credit they are willing to give. Now, we've developed these fabulous new ways of securitizing mortgages, which has made credit much more amply available.

And we've been able to calculate risk. And, therefore, we were willing to give more and more credit. And that has pushed up the value of the houses. Also, of course Greenspan kept interest rates too low, too long. And so you had very low interest rates, easy credit, and house prices have been appreciating at more than ten percent a year for a number of years. And the willingness to lend actually increased. There was an insatiable appetite for these new fangled securities.

BILL MOYERS:Yeah. Nobody understood, really.

GEORGE SOROS:Which they didn't properly understand. And there was always a separation between the people who generated the mortgages and packaged them and sold them to you and the people who owned them. So nobody was paying attention to the quality of the mortgages because they didn't have an interest. They — all day collecting fees. And then there were other people holding the mortgages.

BILL MOYERS:Right.

GEORGE SOROS:And that was not factored into those instruments. The idea was that by distributing risk, you actually reduce risk. But by separating the principal from the agent, you actually greatly increase the risk. And that was not reflected. And the rating agencies didn't realize it. So they gave triple-A ratings. And then a few weeks later, those triple-A bonds became practically valueless. And that's what has happened.
. . . .

Interesting exchange at the end of the interview

GEORGE SOROS:Well, you know, it's very interesting. Actually, these market fundamentalists are making the same mistake as Marx did. You see, socialism would have worked very well if the rulers had the interests of the people really at heart. But they were pursuing their self-interests. Now, in the housing market, the people who originated the houses earned the fee.

And the people who then owned the mortgages their interests were not actually looked after by the agents that were selling them the mortgages. So you have a, what is called an agent principle problem in socialism. And you have the same agent principle problem in this free market fundamentalism.

BILL MOYERS:The agent is concerned only with his own interests.

GEORGE SOROS:That's right.

BILL MOYERS:Not with...

GEORGE SOROS:That's right.

BILL MOYERS:The interest of...

GEORGE SOROS:Of the people who they're supposed to represent.

BILL MOYERS:But in both socialism and capitalism, you get the rhetoric of empathy for people.

GEORGE SOROS:And it's a false ideology. Both Marxism and [free] market fundamentalism are false ideologies.

. . .

Free market fundamentalism and socialism - or any socio-economic or socio-politico-economic system fails when those who have the authority or power are "pursuing their self-interests," i.e. they are corrupt or otherwise morally and ethically impaired.

 

[edward]

The U. S. market seems to be coming back up today. Ironically the rally seems to be related to other countries taking action.

Here in the USA everything is still in the talking stage. The sub prime and foreclosure problems are far from being over. It sure would be nice if we could just talk our way out of it.

Just one week before all hell broke loose my nephew in LA closed the deal on a town house he was buying. He only paid $10,000 down on a 3.5% adjustable rate mortgage for $480,000 that will reset in five years. It is also an interest only deal and the builder bought down the interest rate from 7.5%.

The bank was Wells Fargo.

My point is that just one week before the crisis the banks didn't see a crisis even though several of them had already failed.

Countrywide is now offering no money down for closing costs loans.

https://loans.countrywide.com/FTLP/...ewControlS_A&gclid=CPiJs8TspJYCFRlRagod7y1R5w

 

[Jimmy Snyder]

Ain't life funny? I hope you are all benefitting from this bout of panic buying.

 

[jal]

Ain't life funny? I hope you are all benefitting from this bout of panic buying.

A knowledgeable investor, would have invested this morning, sell off early tomorrow, before the market fall, and re double his profits by investing in the markets that were closed, such as Canada.
Hang on! ... it's going to be day traders dreams come true.

 

[Jimmy Snyder]

A knowledgeable investor, would have invested this morning, sell off early tomorrow, before the market fall, and re double his profits by investing in the markets that were closed, such as Canada.
Hang on! ... it's going to be day traders dreams come true.

A genius investor would have started buying in chunks starting Wednesday last week. Knowlegable investors will be sharing spit in prison.

 

[Gokul43201]

The U. S. market seems to be coming back up today.

That's a bit of an understatement, isn't it? Even for 2:30pm!

Does anyone know if there's ever been a better day for the Dow?

 

[Art]

Death of an ideology

As I said earlier about the US considering following the UK recovery model. The US has now indicated it is adopting PM Brown's plan and will part nationalise it's troubled banks.

This is the final nail in the coffin for the economics of Reagan and Thatcher. Unbridled capitalism has proven to be as deeply and as fundamentally flawed as communism as evidenced by the crash of the financial system and the need to adopt socialist policies to rescue it.

The danger is of course that no doubt once these institutions are profitable again capitalists will be looking for ways to privatise the profits once more but will the general public be okay with them socialising losses whilst privatising profits?

Unfortunately I suspect whether folk approve or not that is exactly what will happen.

US set to outline banking rescue

The US government is due to unveil a $250bn (£143bn) bank rescue plan later, as world shares rise in anticipation.

Echoing steps taken by the UK and other European countries, the US will buy stakes in its largest banks including Goldman Sachs and Morgan Stanley.

http://news.bbc.co.uk/2/hi/business/7668704.stm

Meanwhile world markets continue to soar today on the back of the rescue measures taken which bodes well for main street.

 

[Jimmy Snyder]

None of the nine banks getting government money was given a choice about it, said people familiar with the plans. All of the banks involved will have to submit to compensation restrictions as mandated by Congress, people said.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a1v8Hglg4jBs&refer=home"
This doesn't sound like Uncle Sam, it sounds like Uncle Gangster. This is how a protection racket works. I thought WE won the cold war.

 

[Astronuc]

That's a bit of an understatement, isn't it? Even for 2:30pm!

Does anyone know if there's ever been a better day for the Dow?

Highest single day gain, and the 5th largest %gain.

http://en.wikipedia.org/wiki/List_o...Industrial_Average#Largest_percentage_changes

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

Some history
http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average


I'd still like to know how much the banks lost, and why they got into trouble, and what is really going on. After all, the government is using public money to support private companies in the sense that they are run by private individuals CEO and boards of directors whose main interest is their own wealth - not the wealth of the depositors or borrowers.

The systemic problems that lead to failure are still not addressed. I waiting to hear about the regulation of the types of financial instruments that got us into this mess. I agree with Jim Grant's assessment - it was criminal negligence, and the government ought to check the RICO statutes.

 

[Gokul43201]

Unbridled capitalism has proven to be as deeply and as fundamentally flawed as communism as evidenced by the crash of the financial system and the need to adopt socialist policies to rescue it.

It doesn't appear obvious to me that the current financial mess is entirely a result of "unbridled capitalism". I do believe that the form of capitalism you refer to, if I'm interpreting it correctly, is problematic, but I don't see the proof in this case. As has been mentioned before, among the key players in the current situation are the quasi-socialist GSEs.

 

[Astronuc]

Former Fed chief says U.S. now in recession
http://news.yahoo.com/s/nm/20081014/us_nm/us_financial_volcker

SINGAPORE (Reuters) - Former Federal Reserve Chairman Paul Volcker said on Tuesday the U.S. housing sector faced more losses and the economy was in recession even as authorities moved to stabilize the financial system.

Volcker said the priority for U.S. authorities in the credit crisis was to stabilize the financial system even though that meant heavy government intrusion.

"The first priority is to stabilize the financial system. It is necessary even though the cost involved is heavy government intrusion in markets that should be private," he said in a speech at a seminar in Singapore.

"House prices in the U.S. are still declining. There are still more losses to come there. The economy, I believe, is in recession."

Volcker is chairman of the board of trustees of the Group of 30, an international body composed of central bank governors, leading economists and private financial sector experts.

Shhhh - don't say anything - and maybe no one will notice.

 

[nuby]

wow, traders must love the stock market these days.