News What is wrong with the US economy? Part 2

[OmCheeto]

We could start the fix by making those who profited from the situation pay their share.

It would be interesting to see a list of who made how much money over the last two weeks.
I read up on "selling short" the other day.
I was amazed.

I keep reading that there is nothing wrong with the practice and that it is good for the market.

http://www.sundayherald.com/news/heraldnews/display.var.2450053.0.0.php
"Every hedge fund engages in short selling. In fact, lots of people who are not hedge funds engage in short selling. In an orderly manner, short selling is perfectly legitimate and indeed helps the marketplace."

My interpretation of short selling:
Frank owns a cow.
Bill rents the cow because he knows someone that needs milk.
Bill sells the cow to Suzy for $100, even though it's still Franks cow.
Next week Bill buys the cow back from Suzy for $80, because he didn't tell her the cow was a bull.
Bill returns the cow to Frank, along with the $1 rent.
So Suzies out $20, Frank made $1, and Bill got $19.

Is that the definition of "helping the marketplace"?
Screwing one person out of their money and putting it in some con artists pocket?

And is it just me, or are the only people who think selling short is ok, are the brokers making all the money?

This is interesting:

http://blogs.wsj.com/deals/2008/09/17/dear-main-street-a-letter-of-explanation-from-wall-street/

Dear Main Street: A Letter of Explanation From Wall Street

Of course, we deserve heaps and heaps of blame. Wall Street took the mortgages, sliced and diced them a hundred ways, sold and traded them. We took a nice cut along the way, blissfully oblivious to the risks.

oblivious to the risks. hmmmm... let's see. get washington to deregulate to the point of absurdity by telling them that only commies would regulate the market. inflate the bubble. pop the bubble. sell short. make several trillion dollars.

man I want to see the list of next years Forbes 400...

My apologies if my post is a bit naive. I've only been studying wall street for about 3 days.

 

[LowlyPion]

My interpretation of short selling:
Frank owns a cow.
Bill rents the cow because he knows someone that needs milk.
Bill sells the cow to Suzy for $100, even though it's still Franks cow.
Next week Bill buys the cow back from Suzy for $80, because he didn't tell her the cow was a bull.
Bill returns the cow to Frank, along with the $1 rent.
So Suzies out $20, Frank made $1, and Bill got $19.

Is that the definition of "helping the marketplace"?
Screwing one person out of their money and putting it in some con artists pocket?

Short selling is a bit different than that. Once you accept that the market operates like a balance of perceived values, you know the bid/ask thing, and understand that borrowing shares and selling them is a mirror transaction to buying shares and holding them, then short selling allows you to capture value that you see may exist between the current selling price and your expectation of what that value is if you think it is less.

If you own a stock and think it will go down - then you sell it. If you don't own a stock and think it will go up you buy it.

But if you think it will go down and don't own it ... why not allow someone with conviction to do that? And if they think it will go up, then they can sell that "negative" holding by in essence buying the shares and closing the position.

It makes the market efficient and rewards those that have the best perception - in both directions, not just those that think it will be worth more than it currently trades.

Short-selling then is a relief valve against manipulation where companies may misrepresent with positive outlook their prospects. Just as a relief valve to short selling pressure to the down side is for a company to post greater revenue and profitability.

 

[OmCheeto]

Short selling is a bit different than that. Once you accept that the market operates like a balance of perceived values, you know the bid/ask thing, and understand that borrowing shares and selling them is a mirror transaction to buying shares and holding them, then short selling allows you to capture value that you see may exist between the current selling price and your expectation of what that value is if you think it is less.

If you own a stock and think it will go down - then you sell it. If you don't own a stock and think it will go up you buy it.

But if you think it will go down and don't own it ... why not allow someone with conviction to do that? And if they think it will go up, then they can sell that "negative" holding by in essence buying the shares and closing the position.

It makes the market efficient and rewards those that have the best perception - in both directions, not just those that think it will be worth more than it currently trades.

Short-selling then is a relief valve against manipulation where companies may misrepresent with positive outlook their prospects. Just as a relief valve to short selling pressure to the down side is for a company to post greater revenue and profitability.

Sounds like my cow story to me.
Bill and Frank both knew the cow was only worth $80.(best perception)
But they sold it to Suzy anyways at the inflated price of $100.
Then she found out the cow was a bull(market efficiency), and sold it for what it was worth.
Suzy has still been ripped off.

Bill's willingness to sell the cow to an unsuspecting buyer at the inflated market value, knowing that the value would go down, making the market "efficient" after he'd ripped Suzy off is what makes me believe this practice should have stayed banned, as it was when that Dutchman first invented it, 400 years ago.

Ah. Here's an interesting blipvert:

http://www.prospect.org/cs/articles?article=shorts_and_fannies_a_brief_history
Shorts and Fannies: A Brief History
An explainer on Fannie Mae, short-selling and government economic regulation.
Robert Kuttner | July 22, 2008 |

A brief history lesson is in order. Fannie Mae, (nee the Federal National Mortgage Association or FNMA) was once an irreproachable government agency -- its troubles began only after it was privatized and wise-guy executives started paying themselves multi-million dollar bonuses for taking excessive risks. And reformers have been trying to get rid of short-selling since before Franklin Delano Roosevelt.

I really don't believe this flow of money has any purpose other than to make a few people rich off of a lot of other peoples pension funds.

 

[LowlyPion]

Sounds like my cow story to me.

Then I guess I agree with you, in that you do need more than 3 days of study.

 

[OmCheeto]

Then I guess I agree with you, in that you do need more than 3 days of study.

I don't think so.

http://www.scribblygumbooks.com.au/9781596054868.html

Wall Street Speculation: Its Tricks and Its Tragedies

It is a peculiar feature of Wall Street speculation that the novice never gets his courage worked up to buy stocks until the market is right on the top, and he never concludes to sell until the market is clear on the bottom. -from Wall Street Speculation Why small traders shouldn't rely on brokers. Why you shouldn't trust the financial "news" in the business press. How the market is manipulated into decline and panic by savvy insiders. In a 1904 lecture, reproduced in this slim but provocative volume, Franklin Keyes explained in simple language a nugget of wisdom that should be commonsense: the general public cannot avoid getting fleeced by the buccaneers of Wall Street. Keyes's words are shocking but, in retrospect, obvious, and still highly pertinent today. You'll never look at a stock-market report in the same way again. FRANKLIN C. KEYES was a New York lawyer.

It would appear that little has changed in 104 years, except for perhaps the inclusion of their own brand of new-speak into their vernacular.

 

[Art]

Short selling is a bit different than that. Once you accept that the market operates like a balance of perceived values, you know the bid/ask thing, and understand that borrowing shares and selling them is a mirror transaction to buying shares and holding them, then short selling allows you to capture value that you see may exist between the current selling price and your expectation of what that value is if you think it is less.

If you own a stock and think it will go down - then you sell it. If you don't own a stock and think it will go up you buy it.

But if you think it will go down and don't own it ... why not allow someone with conviction to do that? And if they think it will go up, then they can sell that "negative" holding by in essence buying the shares and closing the position.

It makes the market efficient and rewards those that have the best perception - in both directions, not just those that think it will be worth more than it currently trades.

Short-selling then is a relief valve against manipulation where companies may misrepresent with positive outlook their prospects. Just as a relief valve to short selling pressure to the down side is for a company to post greater revenue and profitability.

The problem is many of the 'shares' traded haven't even been borrowed, in a practice known as naked short selling.

Although theoretically this practice is regulated by the SEC in reality it hasn't been. One of the measures taken last week was a statement that rules governing this are actually to be enforced.

Another disturbing aspect of even properly covered short selling is most people buy their shares through a broker who then lends your shares without your permission to someone else so they can help push down the price of the shares you own.

With hedge funds with their massive resources being by far the biggest player in these 'shorts' it leaves companies' share prices wide open to manipulation. As has been seen lately all one has to do is identify a sector with problems where there is already a high level of nervousness amongst investors, pick a company within that sector, massively short their stock to get the ball rolling and accompany this with rumours regarding the company's financial health and hey presto the share price collapses and you make a fortune. Then simply move on to the next victim.

 

[LowlyPion]

The problem is many of the 'shares' traded haven't even been borrowed, in a practice known as naked short selling.

I will grant you that naked short selling is akin to fraud - selling something you don't have. But unlike fraud the seller remains at risk as there is recourse against such a participant as with any short position in that the risk remains unlimited. Tighter regulation may finally put an end to more rapacious practices.

And yes, it is true that there are all sorts of schemes to manipulate prices on the short side, as well as the long side I might add. But there are balanced strategies involving puts and calls and short and long positions and having the tools available does allow one to manage and hedge risk. That doesn't mean that the tools themselves are bad, so much as how the unscrupulous may use them.

Greed needs then the check and balance of regulation on both sides of transactions to insure that the markets are fair and orderly without penalty to those with the keenest insights, as they might make their profit off of making the flow of capital efficient and be appropriately rewarded.

 

[Astronuc]

THE EMPLOYMENT SITUATION: AUGUST 2008

The unemployment rate rose from 5.7 to 6.1 percent in August, and non-
farm payroll employment continued to trend down (-84,000), the Bureau of
Labor Statistics of the U.S. Department of Labor reported today. In August,
employment fell in manufacturing and employment services, while mining and
health care continued to add jobs. Average hourly earnings rose by 7 cents,
or 0.4 percent, over the month.

Unemployment (Household Survey Data)

The number of unemployed persons rose by 592,000 to 9.4 million in August,
and the unemployment rate increased by 0.4 percentage point to 6.1 percent.
Over the past 12 months, the number of unemployed persons has increased by
2.2 million and the unemployment rate has risen by 1.4 percentage points,
with most of the increase occurring over the past 4 months. (See table A-1.)

In August, the unemployment rates for adult men (5.6 percent), adult women
(5.3 percent), whites (5.4 percent), blacks (10.6 percent), and Hispanics
(8.0 percent) rose, while the jobless rate for teenagers was little changed
at 18.9 percent. The unemployment rate for Asians was 4.4 percent in August,
not seasonally adjusted. (See tables A-1, A-2, and A-3.)

Among the unemployed, the number of persons who lost their last job rose by
417,000 to 4.8 million in August, with increases occurring among those on tem-
porary layoff and those who do not expect to be recalled to work. Over the last
4 months, the number of unemployed job losers has increased by 810,000. (See
table A-8.)

In August, the number of long-term unemployed (those jobless for 27 weeks or
more) rose by 163,000 to 1.8 million, an increase of 589,000 over the past 12
months. The newly unemployed--those who were jobless fewer than 5 weeks--
increased by 400,000 over the month. (See table A-9.)

Total Employment and the Labor Force (Household Survey Data)

The civilian labor force, at 154.9 million, was about unchanged in August,
and the labor force participation rate remained at 66.1 percent. Total employ-
ment, at 145.5 million, was little changed from July. The employment-population
ratio fell over the month to 62.1 percent in August, down 1.3 percentage points
from its most recent high of 63.4 percent in December 2006. (See table A-1.)

In August, the number of persons who worked part time for economic reasons
was essentially unchanged at 5.7 million. This category includes persons who
indicated that they would like to work full time but were working part time
because their hours had been cut back or they were unable to find full-time jobs.
(See table A-5.)

The number of multiple jobholders increased by 298,000 in August to 8.1 million,
accounting for 5.5 percent of total employed. (See table A-6.)

http://www.bls.gov/news.release/empsit.nr0.htm (link shows current month)

 

[mheslep]

Senate Banking Committee Chairman Chris Dodd (D-Conn.) said on ABC’s “Good Morning America” said lawmakers were told last night “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications, here at home and globally.”

Stunning!

http://www.marketwatch.com/news/sto...00286-5BDC-433B-A2EF-A9B3CE520ADE}&dist=hpts"

Embattled mortgage finance giants Fannie Mae and Freddie Mac are "fundamentally strong" and questions about their capital are unwarranted, a top U.S. Senate Democrat said Friday afternoon. ... "This is not a time to be panicking about this. These are viable, strong institutions," Sen. Christopher Dodd, D-Conn., said at a Capitol Hill press conference

, actually,

 

[OmCheeto]

http://www.bls.gov/news.release/empsit.nr0.htm (link shows current month)

Has anyone discussed putting all of these people to work upgrading our national electrical infrastructure?(Ok. I did. In another thread) It's not like our entire current antiquated system wasn't built that way in the first place.

Perhaps we could get the DoD or Homeland Security to foot the bill for materials:

http://www.alcoa.com/global/en/news/news_detail.asp?pageID=231974841&newsYear=2003
The aluminum smelter was built and operated by Alcoa from 1941 to 1945 for the Department of Defense.

What is past is prologue.

 

[Astronuc]

http://www.marketwatch.com/news/sto...00286-5BDC-433B-A2EF-A9B3CE520ADE}&dist=hpts"


, actually,

Pretty sad indeed. Both sides of the aisle. The people in WDC are not doing their job, but they are collecting a hefty paycheck. I'll bet non on the Senate Banking Committee have done a review of the audits, and as far as I know, the audits done on behalf of Fannie Mae and Freddie Mac do not conform to FASB rules. Correct me if I'm mistaken.

 

[CaptainQuasar]

My understanding is that the subprime crisis and the fallouts we're seeing from it have a great deal to do with increased trading and speculation in credit derivatives during the past couple of decades. Someone pointed out to me this http://www.berkshirehathaway.com/letters/2002pdf.pdf" that seems to presage it all, from p. 13:

Charlie and I believe, however, that the macro picture is dangerous and getting more so. Large amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers, who in addition trade extensively with one other. The troubles of one could quickly infect the others. On top of that, these dealers are owed huge amounts by non-dealer counterparties. Some of these counterparties, as I’ve mentioned, are linked in ways that could cause them to contemporaneously run into a problem because of a single event (such as the implosion of the telecom industry or the precipitous decline in the value of merchant power projects). Linkage, when it suddenly surfaces, can trigger serious systemic problems.

 

[mheslep]

I am still trying to track down exactly what happened to Hagel/McCain's http://www.govtrack.us/congress/bill.xpd?bill=s109-190" Fed. Housing ... Reform Act 2005, which would have stopped Freddie/Fannie from growing. S 190 was reported out of the Banking Cmt. (barely) on a party line vote, at the time still under the control of Shelby. It is clear to me that Dodd and Frank were in the tank for Fred/Fan but they were not in charge then. Frist and Shelby were charge in 2005. So it got out of Banking, why did it never come to a floor vote? Threat of filibuster? Conflict w/ the House?

 

[Astronuc]

I am still trying to track down exactly what happened to Hagel/McCain's http://www.govtrack.us/congress/bill.xpd?bill=s109-190" Fed. Housing ... Reform Act 2005, which would have stopped Freddie/Fannie from growing. S 190 was reported out of the Banking Cmt. (barely) on a party line vote, at the time still under the control of Shelby. It is clear to me that Dodd and Frank were in the tank for Fred/Fan but they were not in charge then. Frist and Shelby were charge in 2005. So it got out of Banking, why did it never come to a floor vote? Threat of filibuster? Conflict w/ the House?

Yeah! It should be pretty straightforward to find out what happened to a Bill, i.e. the Bill's history in original committee, in conference committe, and then in the Senate or House.

I suppose one could email Hagel and others and ask 'What the heck happened?!"

Would it show up in the Congressional Daily Record?

Here it is again -

S. 1100: Federal Housing Enterprise Regulatory Reform Act of 2007
http://www.govtrack.us/congress/bill.xpd?bill=s110-1100

 

[Astronuc]

Big Financiers Start Lobbying for Wider Aid
http://www.nytimes.com/2008/09/22/business/22lobby.html

Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it.

Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages.

At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees.

Nobody wants to be left out of Treasury’s proposal to buy up bad assets of financial institutions.

“The definition of Financial Institution should be as broad as possible,” the Financial Services Roundtable, which represents big financial services companies, wrote in an e-mail message to members on Sunday.

I hope Congress learns to "Just Say No!"

 

[Astronuc]

The 65 mpg Ford the U.S. Can't Have
http://finance.yahoo.com/loans/article/105735/The-65-mpg-Ford-the-U.S.-Can't-Have

It's too expensive to import, and it would cost too much to build in the US.


Huh? What is wrong with this picture?

 

[Andre]

The 65 mpg Ford the U.S. Can't Have..[/url]

Only 65 mpg? Check my car

The Peugeot 308 currently holds the world record of the most fuel efficient mainstream car, averaging 3.13 L/100 km (75 mpg–U.S. / 90 mpg–imp) over a distance of 14,580 kilometres (9,060 mi).[2]

 

[nuby]

Lots of stock buyback announcements today: Microsoft 40B , HP 8B, and Nike 5B.

When it comes to the value of the stock market vs. the value of the dollar, it should be clear our government prefers the stock market over the dollar (for the last 80 years, anyway). And most corporate executives know these government handouts will increase the value of their stock. Maybe now would be a good time to invest?

 

[Jimmy Snyder]

It's too expensive to import, and it would cost too much to build in the US.
Huh? What is wrong with this picture?

Those are two reasons, but the main reason is:

"We know it's an awesome vehicle," says Ford America President Mark Fields. "But there are business reasons why we can't sell it in the U.S." The main one: The Fiesta ECOnetic runs on diesel.

 

[edward]

There are a number of clean burning new generation diesels about to hit the U.S. market. The Volkswagen Jetta TDI even gets the buyer a $1,300 federal tax credit.

http://www.tucsonvw.com/

Edit. I see there isn't a 2009 Jetta TDi yet in stock locally.

 

[Astronuc]

Those are two reasons, but the main reason is:

"We know it's an awesome vehicle," says Ford America President Mark Fields. "But there are business reasons why we can't sell it in the U.S." The main one: The Fiesta ECOnetic runs on diesel.

Yeah - I know about the diesel issue. But they can't just put a gasoline engine in it. OK - so it won't get 65 mpg, but will it get 50-55 mpg? If so, it beats 20-30 mpg.

Apparently the Europeans don't have as strict a NOx/sulfur limit as the US. I don't like being in rush hour traffic or on congested highways/autobahns in Europe since the reek of diesel exhaust.

 

[Astronuc]

Lots of stock buyback announcements today: Microsoft 40B , HP 8B, and Nike 5B.

When it comes to the value of the stock market vs. the value of the dollar, it should be clear our government prefers the stock market over the dollar (for the last 80 years, anyway). And most corporate executives know these government handouts will increase the value of their stock. Maybe now would be a good time to invest?

Looks like MS is going to dump a bunch of cash, and I'd expect some options will be exercised. MS also upped the dividend.

 

[edward]

The administration has added items other than just mortgages to the bail out list.

The three-page rescue plan sent to Congress Sept. 20 empowers Treasury Secretary Henry Paulson to purchase mortgage- related securities from U.S. financial companies. The administration widened the scope of bad loans that may be acquired, potentially including car loans, credit-card debt and other devalued assets held by banks.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a7iCv1F0kuvQ&refer=home


With nearly $800 billion in credit card debt in this country, that could increase the bailout by a very significant figure.

http://www.answerbag.com/q_view/132810

 

[mheslep]

Only 65 mpg? Check my car

Yeah - I know about the diesel issue. But they can't just put a gasoline engine in it. OK - so it won't get 65 mpg, but will it get 50-55 mpg? If so, it beats 20-30 mpg.

Apparently the Europeans don't have as strict a NOx/sulfur limit as the US. I don't like being in rush hour traffic or on congested highways/autobahns in Europe since the reek of diesel exhaust.

Actually with regards to diesel I believe particulate matter is the larger problem. The US standards are extremely high. I doubt the Peugeot 308 would be legal here.

Edit: Euro 4 vs EPA TII B5:
http://www.greencarcongress.com/2007/04/nissan_to_intro.html

...Meeting Tier 2 Bin 5 regulations requires an additional 83% reduction in NOx emissions from Euro 4 levels, and a 75% reduction in PM...

Hard but doable apparently by Nissan.

GM's Lutz addressed the subject too regarding the Volt which will be gas electric here, diesel or gas electric in Europe, in part because of the US emissions standards, in part because he claims gasoline ICE is closing on diesel in efficiency.
http://www.gm-volt.com/2007/07/14/diesel-volt/

 

[Astronuc]

I think anyone could put a gasoline engine in the Pugeot 308 for it to be legal in the US. Let GM/Chrysler/Ford/Honda do their own version.

Clearly it's possible to get a high mileage car in the US. The Big 3 have been fighting CAFE for how long?


Also - another volatile day on the Stock market

Marketwatch (9/22/08) - Dow industrials slide 370 points as Wall Street tries to assess bailout.

Oil's biggest gain ever - Crude makes its biggest one-day price gain since 1984 when futures first began trading. Oil closes up $16 to $120, but blasts as high as $130.

Not a sign of strong fundamentals.

 

[turbo]

Finally, a sane politician, as opposed to the screaming hair-on-fire neocons who insist that Congress must act now to give Paulson free rein to hand out a trillion dollars to his Wall Street cronies.

I have proposed a three part plan to accomplish that goal which includes a five-year, 10% surtax on the income of individuals above $500,000 a year, and $1 million a year for couples; a requirement that the price the government pays for any mortgage assets are discounted appropriately so that government can recover the amount it paid for them; and, finally, the government should receive equity in the companies it bails out so that when the stock of these companies rises after the bailout, taxpayers also have the opportunity to share in the resulting windfall. Taken together, these measures would provide the best guarantee that at the end of five years, the government will have gotten back the money it put out.

Second, in addition to protecting the average American from being saddled with the cost, any serious proposal has to include reforms so that we end the type of behavior that led to this crisis in the first place. Much of this activity can be traced to specific legislation that broke down regulatory safety walls in the financial sector and allowed banks and others to engage in new types of risky transactions that are at the heart of this crisis. That deregulation needs to be repealed. Wall Street has shown it cannot be trusted to police itself. We need to reinstate a strong regulatory system that protects our economy.

Third, we need to address the needs of working families in this country who are today facing very difficult times. If we can bail out Wall Street, we need to respond with equal vigor to their plight. That means, for example, creating millions of jobs through major investments in rebuilding our crumbling infrastructure and creating a new renewable energy system. We must also make certain that the most vulnerable Americans don't freeze in the winter or die because they lack access to primary health care.

Finally, we need to protect ourselves from being at the mercy of giant companies that are "too big to fail," that is, companies who are so large that their failure would cause systemic harm to the economy. We need to assess which companies fall into this category and insist they are broken up. Otherwise, the American taxpayer will continue to be on the financial hook for the risky behavior, the mismanagement, and even the illegal conduct of these companies' executives.

http://news.yahoo.com/s/thenation/20080922/cm_thenation/45362953

 

[CaptainQuasar]

 

[OmCheeto]

I think anyone could put a gasoline engine in the Pugeot 308 for it to be legal in the US. Let GM/Chrysler/Ford/Honda do their own version.

Clearly it's possible to get a high mileage car in the US. The Big 3 have been fighting CAFE for how long?

Step two of my "solve our economic problems" plan.

Fire all detroit execs. No billion dollar severance packages.

Put the 10 greenest(as in new, not worm eaters...) electrical engineers in charge of the corporations.

Tell them to to reorganize their corporations into something that will generate the most efficient vehicles on the planet. Promise them a quadrupling in pay if they succeed.
Tell them to give a $10,000 bonus to each engineer who does not say; "It cannot be done".
Tell them to fire the rest.

A couple of years ago I saw a SmartCar and researched it and found that it got close to 100mpg(euro-diesel).

My brother bought one last month(USA-gas) that gets worse gas mileage than his 1972 Toyota.

2 fewer seats, and no room for improvement. hmm.. 2008-1972= 36 years of nada single improvement. Unless you count of course shiny things.

DIY'ers all around me are getting better than 200mgp(equivalent) from their home-brewed EV's.

can anyone explain a credit derivative to me in 50 sentences or less...?

 

[mheslep]

...DIY'ers all around me are getting better than 200mgp(equivalent) from their home-brewed EV's...

So do golf carts, no DIY required.

 

[OmCheeto]

So do golf carts, no DIY required.

DIY EV-Porsche 914's, to my knowledge, are not allowed on the golf courses.

And they do better than 5 mph.

What is wrong with the US economy, is simply a matter of perception...

A lot of perceptions that is.