News What is wrong with the US economy?

[russ_watters]

Guys I am not talking about; record highs, record lows or corrections. I have lived through them. Perhaps volatility isn't the word I should be using although it is the word most frequently used by the media.

For about the third time I am stating that I have never seen the market make the frequent and smaller down 250 up 240 cycles that I have seen in the past year or so.

I could be wrong, but I honestly just do not remember a prolonged period of time with this type of fluctuation.

Well then the problem here is simply that you aren't considering the fact that a 250 point rise or fall is 1.8% of 14,000 but 3.6% of 7,000. Of course there are more 250 point rises or falls today than there ever were before! It would be very unusual if there weren't.

Black Monday in 1987 was a drop of 508 points, or just over 20%. It was the second worst percentage drop in history. To equal it today, we'd need a drop of 2900 points. Could you imagine a drop of 2900 points in a single day!? [edit: And the 1987 Bear Market doesn't even make the list of the top 10 worst in history, below.]

The greatest points loss was 684 points on 9/18/01, just after 9/11. Unfortunately, I'm having trouble finding good info about that crash - such a big event that there isn't much news about it! . Near as I can tell, the market was trading in the 9,000 range before that day, making it a 7.6% drop

What we are seeing today comes nowhere close to those types of magnitude.

The news media doesn't help with their constant hype of the situation.

Yes. That's what the article I posted did with it's lousy title.

Here's an interesting article:

...And the Crash of 2007 Begins

http://chartingstocks.net/2007/03/04/and-the-crash-of-2007-begins/

Unfortunately, it was published in March.

Here's a list of the ten worst crashes since 1900: http://mutualfunds.about.com/cs/history/p/crash10.htm

Now these are not one day events (part of my point here is that one-day events are largely meaningless and because of that, I can't find a list of them), but anyway, only two of these happened in the past sixty years and only one in the past 30. Number 10 is 2000-2002, during which the market lost 38% of its value. Due to the fact that the market was vastly overvalued and people knew it, this one caused about the mildest recession you can have and still call it a recession. And we did not double-dip after 9/11.

Given the clear fact that the markets have been far more stable in the past 60 years than in the previous 50, I don't get too worried even by a one-day, 500 point drop.

 

[russ_watters]

The climate is getting milder. When I was a child, we used to get snowstorms where the snow would come up to my waist. But nowadays it only comes up to my knees.

Clever. Yeah, I noticed the same thing. A 20" snowstorm just doesn't seem as bad as it did when I was half the height I am today.

 

[russ_watters]

In any event, as with life itself, the market always has been and always will be close to the edge of disaster. Meanwhile, I'm planning to market a couple of new financial instruments. VIX futures, and options on VIX futures. My advertising will say "If you think the markets are volatile now, just wait and see what tomorrow brings". What do you think?

I'm in.

 

[turbo]

When I was a kid, Maine used to get snowstorms of several feet over a blizzard of several days, and we'd be digging out continuously. In the last few years, there has not been enough snow for people to operate their snowmobiles, and you can buy them with low miles for dirt cheap. I have an International Trail System trail running 1/2 mile along the eastern border of my property, and for most of the past 3 winters there has not been enough snow to even bother grooming the trails. The president of the snowmobile club and the trail-master had to trailer their $10,000 sleds to the Canadian border to put any miles on them in the last couple of years. This part of the world is warming big-time - the only controversy is about the cause.

 

[edward]

Well then the problem here is simply that you aren't considering the fact that a 250 point rise or fall is 1.8% of 14,000 but 3.6% of 7,000. Of course there are more 250 point rises or falls today than there ever were before! It would be very unusual if there weren't.

Black Monday in 1987 was a drop of 508 points, or just over 20%. It was the second worst percentage drop in history. To equal it today, we'd need a drop of 2900 points. Could you imagine a drop of 2900 points in a single day!? [edit: And the 1987 Bear Market doesn't even make the list of the top 10 worst in history, below.]

The greatest points loss was 684 points on 9/18/01, just after 9/11. Unfortunately, I'm having trouble finding good info about that crash - such a big event that there isn't much news about it! . Near as I can tell, the market was trading in the 9,000 range before that day, making it a 7.6% drop

What we are seeing today comes nowhere close to those types of magnitude.

Yes. That's what the article I posted did with it's lousy title.

Here's an interesting article: http://chartingstocks.net/2007/03/04/and-the-crash-of-2007-begins/

Unfortunately, it was published in March.

Here's a list of the ten worst crashes since 1900: http://mutualfunds.about.com/cs/history/p/crash10.htm

Now these are not one day events (part of my point here is that one-day events are largely meaningless and because of that, I can't find a list of them), but anyway, only two of these happened in the past sixty years and only one in the past 30. Number 10 is 2000-2002, during which the market lost 38% of its value. Due to the fact that the market was vastly overvalued and people knew it, this one caused about the mildest recession you can have and still call it a recession. And we did not double-dip after 9/11.

Given the clear fact that the markets have been far more stable in the past 60 years than in the previous 50, I don't get too worried even by a one-day, 500 point drop.

Russ

Thanks for the links and info.

There is a lot more on my mind than just the recent nervous market. Watching John Bogle on Moyers reinforced some of the things that I have been thinking about.

I think what bothers me most about short term profit taking practices is that it doesn't contribute anything to society in general. It looks to me like a big casino where some must lose in order for others to profit.

And I do realize that the markets have alwys been that way to some extent.

Back in the day, the long term investors provided companies with the means to develop and market new products. That just doesn't seem to be the case anymore. I just see investors swapping pieces of paper with the sole intention of trying to come out on top with a quick deal.

If the "go for the quick profit" scene can support and contribute to the overall economy that's great. Personally I have reservations that this type of investing will ever be self sustaining over the long run. But then that is just my opinion.

 

[Jimmy Snyder]

I think what bothers me most about short term profit taking practices is that it doesn't contribute anything to society in general.

But you do realize that without the secondary market, the primary market could not exist.

 

[edward]

But you do realize that without the secondary market, the primary market could not exist.

jimmysnyder

Of course I realize this. But what I am seeing since the computer age is a secondary market gone wild. When the market sector that gives back nothing to society starts to heavily outweigh that which benefits society, can it be self sustaining in the long term?

There has always been a delicate balance to the system. When the market falls it seems as if it is always the secondary market that triggers it with all of those nervous investors bailing out.

 

[Jimmy Snyder]

When the market sector that gives back nothing to society ...

Again, without the secondary market, there is no primary market. That is what the secondary market gives to society. It is not enough that the secondary market exist, it must fluctuate.

 

[russ_watters]

There is a lot more on my mind than just the recent nervous market. Watching John Bogle on Moyers reinforced some of the things that I have been thinking about.

I just read the transcript and honestly I didn't find much compelling about it. It is certainly true that there are sectors of the economy that are not properly regulated, so let's fix them! It doesn't mean the whole economy is headed toward a crash.

I think what bothers me most about short term profit taking practices is that it doesn't contribute anything to society in general. It looks to me like a big casino where some must lose in order for others to profit.

There are plenty of games you can play in this casino that are not zero-sum. Try your hand at the CD game - you're a guaranteed winner!

The belief that investing is a zero-sum game is common and straightforwardly wrong. There are, in fact, very few (if any) investments that are zero-sum.

Back in the day, the long term investors provided companies with the means to develop and market new products. That just doesn't seem to be the case anymore. I just see investors swapping pieces of paper with the sole intention of trying to come out on top with a quick deal.

Daytrading came about because of the internet. But I doubt it is a significant fraction of the market. I really don't know what the percentages are, but no sane person would day-trade with their 401k. You stick that money in an S&P index fund and leave it there for the next 40 years.

If the "go for the quick profit" scene can support and contribute to the overall economy that's great. Personally I have reservations that this type of investing will ever be self sustaining over the long run. But then that is just my opinion.

The beauty of the stock market (and the economy in general) is that the more more people play, the more everybody wins.

 

[turbo]

There is a guy who works with my wife that is jumpy as all get-out, and when he sees a particular fund dropping in his 401K, he sells, locking in his losses, and switches to one that is gaining value, perhaps overpaying as a result and incurring transaction fees. My wife and I are pretty stoic about swings, try to stay diversified in aggressive, moderate, and (very little) stable funds and just hang in there. Every year or so we assess where we are and usually just hang on to what we've got and ride out the swings. When the economy was going through some gyrations, my IRA gained 10% in value in the first 6 months after I established it and transferred my several 401Ks into it.

There is some danger in allowing poor adherence to fiduciary responsibilities enrich fund managers by letting them churn their clients' accounts. Investment firms that are run this way should be forced to shape up or be run out of business because they are a friction on our economy and they serve no useful purpose beyond self-enrichment.

I did some homework before choosing an investment firm, and now I've got an adviser at the Principal Group who gets in touch with me every 6 months or so to see if my motivations or exposure to market risks have changed. No hard-sell, no breathless recommendations, no problems. They pay 80% more than the highest rate that any local bank would offer me on my money-market account as well. I'm not trying to give out financial advice, just trying to acknowledge that there are some solid players out there that are honest and deliver what they promise.

 

[Astronuc]

Living Paycheck to Paycheck Gets Harder
http://biz.yahoo.com/ap/071019/stretching_paychecks.html

The calculus of living paycheck to paycheck in America is getting harder.

What used to last four days might last half that long now. Pay the gas bill, but skip breakfast. Eat less for lunch so the kids can have a healthy dinner.

Across the nation, Americans are increasingly unable to stretch their dollars to the next payday as they juggle higher rent, food and energy bills. It's starting to affect middle-income working families as well as the poor, and has reached the point of affecting day-to-day calculations of merchants like Wal-Mart Stores Inc., 7-Eleven Inc. and Family Dollar Stores Inc.

Food pantries, which distribute foodstuffs to the needy, are reporting severe shortages and reduced government funding at the very time that they are seeing a surge of new people seeking their help.

While economists debate whether the country is headed for a recession, some say the financial stress is already the worst since the last downturn at the start of this decade.

From Family Dollar to Wal-Mart, merchants have adjusted their product mix and pricing accordingly. Sales data show a marked and more prolonged drop in spending in the days before shoppers get their paychecks, when they buy only the barest essentials before splurging around payday.

"It's pretty pronounced," said Kiley Rawlins, a spokeswoman at Family Dollar. "It seems like to us, customers are running out of food products, paper towels sooner in the month."

Wal-Mart, the world's largest retailer, said the imbalance in spending before and after payday in July was the biggest it has ever seen, though the drop-off wasn't as steep in August. . . . .

 

[Astronuc]

Stocks Sink on Black Monday Anniversary
http://biz.yahoo.com/ap/071019/wall_street.html
Friday October 19, 10:00 pm ET

By Tim Paradis, AP Business Writer
Stocks Plummet Amid Lackluster Profit Reports, Credit Concerns on Black Monday Anniversary

NEW YORK (AP) -- The Dow Jones industrial average dropped more than 360 points Friday -- the 20th anniversary of the Black Monday crash -- as lackluster corporate earnings, renewed credit concerns and rising oil prices spooked investors.

The major stock market indexes turned in their worst week since July after Caterpillar Inc., one of the world's largest construction equipment makers, soured investors mood Friday with a discouraging assessment of the U.S. economy. In a week dominated by mostly negative results from banks facing difficult credit markets and rising mortgage delinquencies, investors appeared surprised that an industrial name was feeling an economic pinch, too.

Reports from Honeywell International Inc. and 3M Co., themselves big industrial names, gave investors little incentive to take chances on the market. In one bright spot, Google Inc. rose after reporting stronger-than-expected profits.

Investor sentiment took another hit when Standard & Poor's downgraded another batch of residential mortgage-backed securities, adding to investor unease about credit quality. The latest reduction follows a similar move earlier in the week and affects more than 1,400 classes.

And oil prices appeared on some investors' list of worries after briefly moving above the psychological barrier of $90 per barrel for the first time.

. . . .

The bump that the equities markets got with the Fed's rate cuts could not be sustained.

I've heard that more economists forsee recession ahead.

 

[turbo]

I've heard that more economists forsee recession ahead.

You can bet on it. Milk, eggs, and other food-stuffs have undergone double-digit inflation in the last year, and the push for ethanol (green as it may seem) will further drive up the cost of corn used for other purposes, including feed for chickens, pigs, and cows, further driving up food costs. The instability in oil prices caused by Bush's ill-advised adventures in the Persian Gulf will benefit his Saudi buddies and the domestic oil industry, while further eroding the abilities of US citizens to keep up with their bills. This oil-price manipulation is a big thing in Maine, where public transportation is practically non-existent (the cost of gas determines how much of your take-home pay you get to spend on other things), available jobs are often quite distant, and winter heating costs can be daunting. You don't have to squeeze working families too much harder in too many more places to precipitate job losses, foreclosures, and localized collapses that may extend state-wide.

Unless Congress starts reining in this administration, I see an economic collapse in the near future. Unfortunately, the true conservatives and the liberals are scared to unite across party lines (to save their cushy jobs) and lack the balls to challenge the crooks, creeps, and liars in the administration and the neocons that pull their strings.

 

[Astronuc]

Homeowners’ Reduced Equity May Slow Spending
http://www.nytimes.com/2007/11/08/business/08borrow.html

The Whitteys and others like them are at the center of deepening worries that the economy is headed for a substantial slowdown, possibly even a recession, as the artery of cash from Americans borrowing against the value of their homes has sharply narrowed.

The economy is over-leveraged, and likely many will not repay interest on principal on debt.

I've heard recently that the major banks have not disclosed all their losses - they might not even know until December.

The Bush administration is spending but taking in less.

More economists are seeing a recession ahead.

Price of energy (esp. oil) is increasing and dollar is falling meaning that outflow of cash is increasing and the trade imbalance will increase.

As for jobs - certainly more jobs are created - but at lower wages and salaries.

Markets and Dollar Sink as Slowdown Worry Increases
http://www.nytimes.com/2007/11/08/business/08econ.html

US productivity may have increased, but that may largely be due to people working more than 40 hrs, but not getting paid for more than 40 hrs.

 

[Astronuc]

From the NYTimes Dealbook -

E*Trade Financial lost more than half its market value Monday, after an analyst suggested that the company might have to seek bankruptcy protection if panicked customers withdraw deposits because of its faltering mortgage investments.

E*Trade, an Internet-based brokerage firm and bank, called the analyst's comments "irresponsible" and assured customers Monday that it remained "well capitalized by regulatory standards." Other analysts said the risk of bankruptcy for E*Trade was remote. But the 59 percent drop in its stock fueled speculation about the company's future.

TD Ameritrade Holding has already expressed an interest in buying E*Trade, and some were theorizing that it could try again now that E*Trade's price tag has dropped so sharply. But others doubted that TD Ameritrade would want to revisit talks amid the recent turmoil.

The big problem now in the economy is the undisclosed losses of various financial institutions. Another big problem is speculative investing - now that some instruments have lost value.

Ben Bernanke has warned that the worst is yet to come. But have the various troubled institutions provided full disclosure.

Goldman Sachs Chief Executive Lloyd Blankfein is on track to receive a year-end bonus of "at least $75 million in cash and stock," The New York Post reported Sunday, citing undisclosed sources.

Good for him - bad for investors whose money GS uses to do business. What did Blanfein do to deserve such largesse. Nothing.

Examining the 'Squandering' of American Promise
http://www.npr.org/templates/story/story.php?storyId=16217374

Fresh Air from WHYY, November 12, 2007 · Author Robert Kuttner writes in The Squandering of America that many of the economic policies and regulations established during the New Deal have since been replaced by a more business-friendly free market system. Kuttner is the founder and co-editor of The American Prospect.

Very interesting perspective on regulation and the role and failures of the US government in regulating the financial markets.

 

[ShawnD]

From the NYTimes Dealbook - The big problem now in the economy is the undisclosed losses of various financial institutions. Another big problem is speculative investing - now that some instruments have lost value.

When talking about growth investment, when has this ever not been true? Most investors would describe themselves as growth investors - they are placing a bet that a stock price will climb. They are not betting that a company will make money (value investor), but they are speculating that a company's future earnings will be good. This has always been the case. This is just one more cycle in the market; many have come before it and many will come after it.

Ben Bernanke has warned that the worst is yet to come. But have the various troubled institutions provided full disclosure.

This always depends on who is looking at what side. Me? I'm totally psyched. Banks are going to take a massive hit from the sub-prime thing, and right now they're giving high dividends to keep investors interested in their stock. High dividends are not sustainable, so the dividends will eventually be cut. I don't know how to check American banks, but right now Bank of Montreal is paying a 4.8% dividend. What do you think happens when BMO announces a loss for Q4 of 2007 and Q1 of 2008, and cuts dividends at the same time? The stock price tanks and you buy everything on sale. It's like going to Sears and finding a lawn mower on sale for $50. Everybody wins.


There's nothing wrong with the markets. Most investors are just too stupid to figure out how the market works, and they blindly throw their money at the first person to promise "low APR, low XYZ, low PER, low OCD" or "low" anything followed by 3 letters. People need to stop blaming the economy when they lose their shirts in the market. Somebody making wise investments won't be cut down so easily.

 

[Supercritical]

http://www.msnbc.msn.com/id/21931446/

"Low dollar 'threatens the life' of Airbus"

Mr Enders indicated to unions that Airbus could shift an increasing proportion of R&D activities to countries outside Europe and would have to move more production to dollar-zone economies.

"We need to question our business model. It is no longer sustainable," he said.

Airbus is having a great year orders-wise, with some sources reporting http://www.justplanes.com/Orders2007.htm booked than rival Boeing. The weak dollar, however, may reduce the significance of orders and increase the focus on profitability. The American sector of the highly-international aerospace industry stands to gain from the weak dollar as Boeing competes against Euro-pegged Airbus and Lockheed-Martin seeks to secure orders for its F-16/F-35 against competition from the Eurofighter Typhoon, Saab Gripen and Dassault Rafale.

 

[russ_watters]

The A320 is a great plane, but Airbus should be worried that the A380 has 36 orders and the 787 has 391.

 

[drankin]

The A320 is a great plane, but Airbus should be worried that the A380 has 36 orders and the 787 has 391.

And that is just fantastic for my situation. We have a 787 cargo door my company designed that is being tested in our shop right now.

Keep those orders coming!

 

[Astronuc]

The president denies the US economy is in recession, while some (or many) economists disagree.

Unemployment Report Shows Economic Frailty
http://www.npr.org/templates/story/story.php?storyId=87991782

All Things Considered, March 7, 2008 · Though the nation's unemployment rate fell to 4.8 percent in February, employers actually cut payrolls by a net 63,000 jobs. The rate fell because so many people decided to stop looking for work — a new sign of weakness in the economy.

Apparently government hiring boosted the numbers of the employed, which offset the decline in non-government employment.

Economy Lost 63,000 Jobs in February
http://www.npr.org/templates/story/story.php?storyId=87978667

February job losses were widespread, with hefty cuts coming from construction, manufacturing, retailing, financial services and a variety of professional and business services.

. . . overall, the national unemployment rate eased slightly to 4.8 percent from 4.9 percent in January — but that was because the number of people in the workforce fell by 450,000 last month.

So the 'real' unemployment is much higher, and of course, the government generally ignores underemployment.

 

[russ_watters]

The president denies the US economy is in recession, while some (or many) economists disagree.

That statement is out of date:

"This quarter's going to be a difficult quarter for the U.S. economy. We are in a low growth period in the economy," White House spokesman Tony Fratto says, according to Reuters.

"Recession is a technical term," he adds. "Regardless of what you call it, we are clearly in a period of a slowdown in economic growth."

Update at 1:59 p.m. ET: Bush says he's concerned about the nation's financial health, but remains optimistic about the long-term effects of "pro-growth, low-tax policies that put faith in the American people."

"It's clear our economy has slowed," the president says. "But the good news is that we anticipated this and took steps to bolster the economy."

http://blogs.usatoday.com/ondeadline/2008/03/bush-to-make-ec.html

I'm surprised that that didn't get more press.

 

[russ_watters]

So the 'real' unemployment is much higher

As always, I will point out that since people who aren't looking for work are not ever included in the data, there is no discrepancy as you are implying. If today we suddenly found a way to include those people, then the unemployment number would jump, but it would also then be impossible to compare it with unemployment numbers in the past.

I'd also like to point out something about the people who are being exlcuded from the stat. They are people who have chosen not to look for jobs. You can't get a job if you don't look. So screw them: they are leeches. They don't deserve jobs and they don't deserve government assistance. They deserve to live in the poverty they've resigned themselves to.

 

[edward]

I'd also like to point out something about the people who are being exlcuded from the stat. They are people who have chosen not to look for jobs. You can't get a job if you don't look. So screw them: they are leeches. They don't deserve jobs and they don't deserve government assistance. They deserve to live in the poverty they've resigned themselves to.

You have just insulted thousands of previously hard working people in the midwest.

When the factories close and the work goes to Mexico and China there are very few places left to look for jobs.

The more than 209,000 nonfarm jobs Ohio lost from 2000 to 2007 made up the largest proportionate decline in employment since the Great Depression, a national manufacturing trade group said Wednesday.

Employment dropped by 3.7 percent, the biggest seven-year drop since the period starting in 1939, near the end of the Depression and including the years the U.S. military absorbed millions of American workers to fight World War II.

Moreover, according to the analysis the American Manufacturing Trade Action Coalition commissioned, only Michigan lost a greater proportion of its employment than Ohio during the period - 9.1 percent or 431,000 jobs.

http://www.cleveland.com/economy/plaindealer/index.ssf?/base/iseco/1203586283198830.xml&coll=2

 

[russ_watters]

You have just insulted thousands of previously hard working people in the midwest.

I'm ok with it. If they become hard working again, they can have the respect back. In the meantime, didn't their parents teach them not to quit when the going gets tough?

When the factories close and the work goes to Mexico and China there are very few places left to look for jobs.

Just because it is tough, that doesn't make quitting a virtue.

And there's always Pennsylvania...

 

[edward]

I'm ok with it. If they become hard working again, they can have the respect back. In the meantime, didn't their parents teach them not to quit when the going gets tough?

You are mistakenly presuming that these are all young people. How about the thousands of fifty somethings who have worked hard for the last 20 + years? Are they really slackers Russ?

Just because it is tough, that doesn't make quitting a virtue.

And there's always Pennsylvania...

Beating ones head against the wall trying to find jobs that no longer exist isn't a virtue either. There aren't even enough Walmart type jobs for everyone.

Add Pennsylvania plus quite a few other states.

 

[Noone]

Sorry but there is one problem that makes all other problems that's mainly that people don't give back to that of which they had taken from. Companies don't give back to the market that they take from. Mostly they give to those that work for them and give taxes to the goverment. So its people just buying things over and over and working for the money to buy that of which they buy ,so the problem is hording which makes a reaction from the action of hording its a domino effect that is due to the way the foundation of are world markets and are money system and working plat-forms -.- that's life for us all un less you got a lot of stock and are rich...

 

[Noone]

but the first step to fixing a problem the people precevie as a problem is id'ing the problem and the things that feed it

 

[Noone]

mainly due to the point its a matter of perception of the masses, a lot of people want change that will bring equal food water and shelter and rights to entertainment but the greed and corruption of peoples desires and wants will allways be a problem aswell

 

[Noone]

i vote that we all just give people what they want, unless what they want takes from what someone els wants

 

[Noone]

and if what they want takes from what someone els wants just show them what they want isn't really what they want... T.V. ads do it all the time... how do you all think dimonds were worth so much when people didnt use them for science... they made people think that it was worth somthing and it was somthing they needed... and we don't need what people are selling we all just need Food, Water, Air, Shelter, Entertainment, and love. also the protection of those and the maintaining of the purity of them... it just takes time for people to change. just like a computer program it can't change unless we show it how to and tell it how to were no difrent. we just need more things to get us happy :D

 

[Astronuc]

Interesting story

Derivatives the new 'ticking bomb'
Buffett and Gross warn: $516 trillion bubble is a disaster waiting to happen

ARROYO GRANDE, Calif. (MarketWatch) -- "Charlie and I believe Berkshire should be a fortress of financial strength" wrote Warren Buffett. That was five years before the subprime-credit meltdown.

"We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly appreciative about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."

That warning was in Buffett's 2002 letter to Berkshire shareholders. He saw a future that many others chose to ignore. The Iraq war build-up was at a fever-pitch. The imagery of WMDs and a mushroom cloud fresh in his mind.

Derivatives bubble explodes five times bigger in five years

Wall Street didn't listen to Buffett. Derivatives grew into a massive bubble, from about $100 trillion to $516 trillion by 2007. The new derivatives bubble was fueled by five key economic and political trends:

• Sarbanes-Oxley increased corporate disclosures and government oversight
• Federal Reserve's cheap money policies created the subprime-housing boom
• War budgets burdened the U.S. Treasury and future entitlements programs
• Trade deficits with China and others destroyed the value of the U.S. dollar
• Oil and commodity rich nations demanding equity payments rather than debt

To put things into perspective:

• U.S. annual gross domestic product is about $15 trillion
• U.S. money supply is also about $15 trillion
• Current proposed U.S. federal budget is $3 trillion
• U.S. government's maximum legal debt is $9 trillion
• U.S. mutual fund companies manage about $12 trillion
• World's GDPs for all nations is approximately $50 trillion
• Unfunded Social Security and Medicare benefits $50 trillion to $65 trillion
• Total value of the world's real estate is estimated at about $75 trillion
• Total value of world's stock and bond markets is more than $100 trillion
• BIS valuation of world's derivatives back in 2002 was about $100 trillion
• BIS 2007 valuation of the world's derivatives is now a whopping $516 trillion

One of the big questions, how much leverage is uncovered. The subprime mortgage crisis (meltdown) is just the tip of the iceberg.


Meanwhile - another big story - Carlyle Capital on the Verge of Collapse

Carlyle Capital, an affiliate of private equity firm Carlyle Group, said today it was in default on margin calls of over $400 million, and that it was unable to meet its margin calls and was now in default on about $16.6 billion of its debt!

 

[Astronuc]

Paulson admits deregulation has failed us all
Commentary: Mortgage proposals spell end to decades of looking other way

WASHINGTON (MarketWatch) -- You know things are very very bad on Wall Street when a guy like Henry Paulson -- Treasury secretary, solid Republican, and former Goldman Sachs CEO -- joins the crowd calling for more regulation over the financial markets.

Paulson spared no one in his criticism Thursday of the excesses of deregulation that has now created the worst global financial crisis in a generation, threatening the health of the U.S. economy, the savings of millions of Americans, and the survival of some of the biggest financial institutions in the world.

Wall Street and Washington both failed big time, he said. Wall Street invented new ways to make money by selling securities so complicated that no one could really follow which shell the pea was under. Fortunes were made on the paper Wall Street sold.
At the same time, Washington's watchdogs were dozing, tranquilized by the false assurance that Wall Street would police its own.

It's been obvious for years now that Wall Street could not be trusted, and finally official Washington agrees. The markets need a tougher cop to make sure that money-center banks, investment banks, credit-rating agencies, hedge funds, mortgage brokers and the rest don't let their own greed and arrogance ruin it for the rest of us.

"Regulation needs to catch up with innovation," Paulson said, and he was backed up by the rest of President Bush's working group on financial markets, including Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commissioner Chris Cox. Not a commie among them.

The housing bubble wasn't a flaw; it was a predictable outcome of a system that rewarded smart people small fortunes for conjuring up ways to persuade people to borrow more than they could ever hope to pay back. All the profits were taken off the table quickly, but the staggering costs are only now being paid by homeowners, shareholders, builders and the rest of society.
. . . .

A sobering comment by Ted Campbell back in Jan 30, 2008 at the Commonwealth Club - According to a study by the Fed (Boston) approximately 60% of people pushed into subpirme (high interest rate) mortgages were clearly eligible for lower mortgage rates! That implies significant criminal culpability.

 

[russ_watters]

You are mistakenly presuming that these are all young people. How about the thousands of fifty somethings who have worked hard for the last 20 + years? Are they really slackers Russ?

I made no such presumption. Maybe those fiftysomthings also forgot what their parents taught them.

Beating ones head against the wall trying to find jobs that no longer exist isn't a virtue either. There aren't even enough Walmart type jobs for everyone.

Jobs exist, so people who don't have jobs should keep looking. Or not. I don't care: the point is that they don't deserve help if they aren't trying to help themselves.

 

[Poop-Loops]

I made no such presumption. Maybe those fiftysomthings also forgot what their parents taught them.

Go to war and get rich off of the profits of selling to needy countries at a high price? I thought that's what we were doing.

Jobs exist, so people who don't have jobs should keep looking. Or not. I don't care: the point is that they don't deserve help if they aren't trying to help themselves.

Right. Take a $6.50/hr job and call yourself "employed", forgetting that they cut your hours to 30/week and you can't feed your family for that.

Just out of curiosity, have you ever been in these people's shoes? Have you ever been unemployed and had trouble finding a job?

 

[russ_watters]

Go to war and get rich off of the profits of selling to needy countries at a high price? I thought that's what we were doing.

Since that doesn't make any sense, I doubt it.

Right. Take a $6.50/hr job and call yourself "employed", forgetting that they cut your hours to 30/week and you can't feed your family for that.

Right. If you aren't working and you are desperate and you find a job, you should take it. A bad job is better than no job and a little money is better than no money. This isn't rocket science.

Just out of curiosity, have you ever been in these people's shoes? Have you ever been unemployed and had trouble finding a job?

No.

 

[Astronuc]

Optimistic Bush says economy will bounce back

WASHINGTON (MarketWatch) -- The U.S. economy will emerge from its current problems "better and stronger than ever," President Bush said Friday in a major speech on the economy at the Economic Club of New York.

Speaking just hours after the Federal Reserve helped to engineer a rescue loan for investment bank Bear Stearns, Bush said that, although times are tough, the economy is resilient.

Bush says economic foundation is solid

Bush: "Our economy is obviously going through a tough time

Bush: Housing market is in process of correcting itself

Easy for him to say when he will walk away with a huge pension at taxpayers expense. Bush, Cheney, et al will laugh their way to the bank on the backs of US taxpayers while more people will face bunkruptcy and foreclosures, not to mention the nearly 4000 US soldiers killed and another 29300+ wounded. The wounded will receive minimal support from the US government - in order to keep cost down.


Paulson: Bear Stearns is another challenge for regulators

 

[Poop-Loops]

Since that doesn't make any sense, I doubt it.

Doesn't make sense? You think America just spontaneously jumped out of the Great Depression? No, WW2 had a LOT to do with it, and people were afraid that after the war, teh US would be back in the poor house.

The US made HUGE profits from WW2. Just like companies like Haliburton are making HUGE profits off of Gulf War 2. That is, after all, what their daddies taught them, right?

Right. If you aren't working and you are desperate and you find a job, you should take it. A bad job is better than no job and a little money is better than no money. This isn't rocket science.

You don't get hired at McDonalds if you have a degree in engineering or 20 years experience as some sort of technician. It's called being "overqualified" because they know that as soon as you get a better offer you are jumping ship.

Not to mention, your first two weeks at that sort of job are your "trial" weeks where you work part time to make sure you don't screw up.

Basically, what just happened was, the company, unless it went out of business, said "Thanks for all the money you made for us. Now GTFO." Shouldn't there be some sort of protection against that sort of thing?

Moreover, if you take a crappy job, you no longer count as being unemployed, even though it makes little difference since you can't feed your family. Country looks like it's doing fine when it's really going down the crapper.

No.

Why is it people who have had relatively easy lives who keep saying "Hurr hurr, if you don't have a job, it's your fault!"?

 

[turbo]

Why is it people who have had relatively easy lives who keep saying "Hurr hurr, if you don't have a job, it's your fault!"?

Because until they are confronted with some tough realities, they have no idea what suddenly-unemployed people are going through. It's easy to pontificate and say "just get a job" and put down the unemployed, but that glosses over some harsh realities. I have lots of friends in the pulp and paper industry and worked in it for many years. Many of the mills here are in remote locations, and towns grew up around the mills because they offered employment. When the former Great Northern Paper mill in Millinocket closed down, the town lost not only its biggest employer (BY FAR), but the bulk of its tax base. Guys I know with 20-30 years of experience were suddenly out of work, with kids in school, and with houses that were suddenly almost worthless. It's easy to smugly say "go find another job", but at 45-50 years old, it's tough to get a fair shot in the job market, and you somehow have to line up a place to stay near your new employment, pull what equity you can out of your property, and start over. When you have a house that might have been worth $80-100K in a remote mill town and the mill folds, you'll be lucky to get 25% of its previous value and if you're like many people, you may have about zero equity if you have refinanced to put in a new heating system, new roof, remodel, etc.

This same scenario has played out with mill after mill, as subsidized overseas paper (thanks for NAFTA, Bill!) has eaten more and more of the market. Now, with the collapse of the housing market, there is a huge glut of lumber here, and two of the three largest sawmills in the state have shut their doors, and the remaining one is operating at a loss so they can try to keep their skilled work force, and protect their share of the market, should the market improve in a year or two. Those paper mill and saw mill closures of course ripple back through the wood-suppliers, their truckers, the crews that harvest the wood, the landowners and on and on. It's easy to tell all those people "just get a job", but it is over-simplified and smug to do so.

 

[mheslep]

No

Why is it people who have had relatively easy lives who keep saying "Hurr hurr, if you don't have a job, it's your fault!"?

Just because he's never been unemployed, how can you possibly assume he's had it 'relatively easy'? Maybe he has, or maybe he's worked his butt off his entire life in jobs/education/the military and now has a demonstrated body of knowledge and work ethic that is highly desirable to many employers and also provides a good foundation for self employment?

 

[Poop-Loops]

You can work your butt off all you want, if you can't find a job, you won't get any money for it.

That's the whole point. There are times when the hardest working-people get a string of bad luck. To say that its their fault is ludicrous.

 

[russ_watters]

Easy for him to say...

It sure is easy to say, since it is trivially true. There is nothing wrong with reminding people of the obvious when they are feeling pessimistic and stop believing it.

 

[russ_watters]

Doesn't make sense? You think America just spontaneously jumped out of the Great Depression? No, WW2 had a LOT to do with it, and people were afraid that after the war, teh US would be back in the poor house.

That doesn't appear to have anything to do with what you said and its also self-contradictory. Yes, WWII helped a lot. So why do you say that war hurts the economy? And what does that have to do with "the profits of selling to needy countries at a high price"?

You don't get hired at McDonalds if you have a degree in engineering or 20 years experience as some sort of technician. It's called being "overqualified" because they know that as soon as you get a better offer you are jumping ship.

I don't see your point. Why would someone with an engineering degree want a job at McDonalds?

You're really jumping around here: in your previous post, you talked about if you can get a low-pay job. Now you're saying they can't get them. The truth of the matter is, though, that people do it.

Basically, what just happened was, the company, unless it went out of business, said "Thanks for all the money you made for us. Now GTFO." Shouldn't there be some sort of protection against that sort of thing?

Didn't the employee get anything out of the deal? And should there be protection for the company against a person quitting? And there is protection for employees who lose their jobs: unemployment insurance. But it is temporary and requires you to be actively looking for a job to qualify. And rightfully so.

Moreover, if you take a crappy job, you no longer count as being unemployed, even though it makes little difference since you can't feed your family. Country looks like it's doing fine when it's really going down the crapper.

Perhaps people who only look at one statistic might be fooled by that, but not people who look at a lot of different statistics. For example, what you talk about there would show up in household income stats.

Why is it people who have had relatively easy lives who keep saying "Hurr hurr, if you don't have a job, it's your fault!"?

I never said anything of the sort. And how do you know what kind of life I live or how I got where I am?

All I said was that quitting is not a virtue and is not something that should be rewarded.

 

[russ_watters]

Because until they are confronted with some tough realities, they have no idea what suddenly-unemployed people are going through.

Again, I never claimed to know what such people are going through. In fact, I made no general value judegment about such a group of people. I never mentioned them. What I said was very specific. Don't expand it to be something it wasn't. Here it is again:

They are people who have chosen not to look for jobs. You can't get a job if you don't look. So screw them: they are leeches. They don't deserve jobs and they don't deserve government assistance. They deserve to live in the poverty they've resigned themselves to.

Again, it's very specific and simple: if someone chooses not to look for a job they won't find one. And they deserve no help because they aren't trying to help themselves. Someone in a desperate situation who does whatever they can even if it means working at McDonalds is making a legitimate effort and is therefore worthy of assistance.

 

[Astronuc]

It sure is easy to say, since it is trivially true. There is nothing wrong with reminding people of the obvious when they are feeling pessimistic and stop believing it.

Except that Bush is wrong.

 

[turbo]

Again, I never claimed to know what such people are going through. In fact, I made no general value judegment about such a group of people. I never mentioned them. What I said was very specific. Don't expand it to be something it wasn't. Here it is again: Again, it's very specific and simple: if someone chooses not to look for a job they won't find one. And they deserve no help because they aren't trying to help themselves. Someone in a desperate situation who does whatever they can even if it means working at McDonalds is making a legitimate effort and is therefore worthy of assistance.

My comments were not directed at you in particular, Russ. You noticed I used the word "they" to make a general statement about people who over-simplify and say "get a job" without a feeling for the logistics involved. I have been there. A mill that I worked at in 1975 was bought out by a competitor. We processed all remaining inventory, and the new owners stripped the mill of all the best equipment and shut the place down. A mill that had provided the bulk of the employment to people in a 20 mile radius of the place was suddenly gone. The town never recovered. You can buy a 4-bedroom house there for less than $50K easy.

20 years later, a company that I worked for as a technical/sales consultant was bought out by a competitor, and since they had duplicate field services, they let all of us go and retained all their own staff. I went from making over $80K/yr to nothing. Fortunately, my wife and I are not idiots and we had socked away enough money to weather that, plus she was working. It took me about 9 months to find a job that would substantially replace those wages, but I did it.

I hope you never lose your job - at least without a Plan B firmly in place. It's pretty crappy, and you have to be ready to roll with it.

 

[edward]

This doesn't sound good. Are all of the fat cats going to expect a fed bail out now??

March 15 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke is being forced to throw out four decades of monetary history by a financial system choking on miscalculated risks and a deepening recession.

Bernanke and the four Fed governors voted yesterday to become creditors to Bear Stearns Cos., a securities firm that isn't a bank, by invoking a law that hasn't been used since the 1960s. Three days earlier, the Fed said it would swap Treasury notes on its balance sheet for privately issued mortgage-backed securities held by Wall Street firms.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aY2RvFA.yO_Q&refer=home

 

[russ_watters]

Except that Bush is wrong.

If the economy doesn't bounce back "better and stronger than ever", it'd be the first time in US history and if it happens we should just dissolve the country because the experiment has finally failed.

No, what he said is trivially, redundantly true. The US economy will bounce back and when it does -- redundantly -- it will be better than it was before the slowdown. That's why they call it a "recovery". Everything Bush said there is self-evidently true.

Jeez, Astronuc - you really believe the US is in for complete and permanent economic collapse?

 

[Jimmy Snyder]

If the economy doesn't bounce back "better and stronger than ever", it'd be the first time in US history and if it happens we should just dissolve the country because the experiment has finally failed.

The unprecedented prosperity of the US has often been cited as a kind of report card on our system of government of the people, for the people and by the people. None the less, I don't agree that if the economy stagnated, then we should revert to a kingdom as if the experiment were an economic one.

For all the griping you hear about the economy, it is actually doing great. How long do you expect it will be before you hear another one of those "In a country as rich as ours ..." arguments from the very mouths of those who now tell us that the economy is in a shambles and will never recover? It's a downturn people, buck up. Sit down and talk to your parents and/or grandparents that lived through the great depression.

 

[Jimmy Snyder]

As for Bush's speech in which he erroneously implied that it is not the end of the world, he is not so stupid as to repeat the Carter "malaise' speech. Carter was, of course, the smartest President we ever had. Just because Bush is the stupidest President we ever had doesn't mean he isn't more intelligent than Carter. The job of getting us out of the current downturn belongs to anybody who wants it. That means me for one. You too if you are interested in the position. Bush can't do it on his own you know. If you read his job description, it includes 'cheerleader in chief'. Carter should have been fired for misfeasance on the basis of that speech. All you cheerleaders for the opposition, shake your pompoms all you want, you can't discourage me, go discourage someone else.

 

[russ_watters]

As for Bush's speech in which he erroneously implied that it is not the end of the world, he is not so stupid as to repeat the Carter "malaise' speech. Carter was, of course, the smartest President we ever had. Just because Bush is the stupidest President we ever had doesn't mean he isn't more intelligent than Carter. The job of getting us out of the current downturn belongs to anybody who wants it. That means me for one. You too if you are interested in the position. Bush can't do it on his own you know. If you read his job description, it includes 'cheerleader in chief'. Carter should have been fired for misfeasance on the basis of that speech. All you cheerleaders for the opposition, shake your pompoms all you want, you can't discourage me, go discourage someone else.

You got it exactly.