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Thread: Financial and Economic Crisis

  1. #121
    Chief Antagonist Ninjahedge's Avatar
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    Sep 2003


    You get the feeling that some investors knew about this beforehand?

    If teh stock market keeps pogoing up and down 5% per day, you know what is going to happen and you could make a LOT of money.

  2. #122


    The equity market lost more value today than the entire bailout package.

  3. #123


    The Bailout

    Now What?

    Joshua Zumbrun and Brian Wingfield 09.29.08, 2:45 PM ET

    Washington, D.C. -

    In a suspenseful vote of 205-228, the House of Representatives squashed a bill granting the Treasury $700 billion to shore up the U.S. financial system. Clearing the House was seen as the bill's biggest hurdle, and now the proposed bailout is thrown into disarray.

    The bill had majority support from House Democrats, at around 140-95. It was killed by staunch opposition from House Republicans, 65-133. The voting was left open for several minutes, while congressional leaders tried to get members to change nay votes, and the tallies shifted slightly but not enough to pass.

    On Wall Street, market response was swift and terrible. The Dow Jones Industrial Average, which had been trending down throughout the morning, plunged almost 7% in minutes before recovering somewhat. Prices for Treasury bonds soared into the stratosphere, pushing the yields down. The three-month Treasury yield sank to 0.68%, while the London interbank-offer rate rose to 3.88%.

    "This is bad," said Aaron Smith, senior economist at Moody's Investors Service's "This starts messing with their credibility."

    Though support for the bill was strong at the start of voting, it tapered off at the end, and the nays carried the day. A motion was made to reconsider the bill at an unspecified later time.

    There was already a sense that the plan would not be enough to break the log jam in the credit markets, where banks are even refusing to lend to each other. Earlier Monday the Federal Reserve raised the amount of swap lines it has with foreign central banks to $650 billion from $290 billion. It also announced bigger and longer-term auctions totalling more than $400 billion, but the credit markets remained stuck.

    Fixed-income strategists noted with alarm the string of bank failures and near-failures in the last three weeks, including Wachovia's regulator-assisted takeover by Citigroup on Monday. Previous credit crises would be punctuated by one or two failures, tops; now, "it's one a day--it's shocking," said William O'Donnell, the head of U.S. interest-rate strategy at UBS. "Armaggeddon it is."

    Expectations are now for the Fed to cut interest rates by as much as 50 points before the next meeting at the end of October.

    The vote came after more than three hours of floor debate and 10 days of intense negotiation since Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke warned that the economy was in crisis and urgent action was needed.

    The House Republicans were the last block of Congress with reservations about the deal. And although on Sunday evening, the House Republican leadership threw their support behind a compromise draft of the bailout proposal, the support was not enough. "The risk in not acting is much greater than the risk in acting," said House Minority Leader John Boehner, R-Ohio, in a passionate plea on the House floor before the vote. "These are the votes that separate the men from the boys and the girls from the women," Boehner said.

    Thinking they had enough support from both Democrats and Republicans in the House of Representatives, House leaders brought the bill to a vote.

    In an address Monday morning, President George W. Bush acknowledged how tenuous the situation was. "Now I fully understand that this will be a difficult vote," Bush said before markets opened in the U.S. But he tried to sound reassuring. "With the improvements made in this bill I'm confident that members of both parties will support it," he said.

    They were not enough.

    The legislation was voted unchanged from the draft released on Sunday. But the modifications made to the bill since it was first proposed by Paulson were not great enough to overcome the reservations of House members.

    Now it is back to the drawing board for the bailout, as congressional leaders must scramble to salvage the failed piece of legislation hammered out after 10 days of drama in the halls of Congress, including two lengthy congressional hearings on the matter, three nationally televised pitches by Bush in favor of the plan, a volatile and controversial meeting at the White House that included both presidential candidates, a full-fledged defection by a core block of Congress, and days of "deal or no deal?" The result: no deal.

  4. #124
    Senior Member
    Join Date
    Feb 2004
    Far West Village, NYC

    Default My idea for a solution

    At the heart of our current predicament is the declining value of real estate. Trillions of dollars of value have and will continue to evaporate. How can the government step in and actively reverse that trend? There is a way to do that that will simultaneously be a boon to our environment: in the vein of Teddy Roosevelt, take a massive amount of American real estate off the market, forever.

    Form a blue ribbon Department of American Natural Heritage Sites and Corridors, fund it with 1/7th of the $700,000,000,000 Congress is prepared to hand out to the banks that got us into this mess, and set as this entity’s mission the buying of land – as much land as possible – and forever designating it as owned by the public and barred from any future sale or development. Purchasing should be targeted at our most densely populated regions. Size could be anything from a single suburban home plot to a 10,000 acre farm. The department’s slogan: “if you’re sellin’, we’re buyin’.”

    Once purchased and designated part of the American Natural Heritage System, the land is to go completely fallow – keeping as low a maintenance and administration cost as possible. As some large swaths and many, many small scratches of land are taken off the shelf permanently, the remaining real estate in private hands will begin to increase in value, reversing the decline, bringing value back to homeowners and giving value back to the mortgage-based paper. With any luck enough land will be set aside as greenbelts so that future development and home construction will be in mass-transit-centered towns and cities, on already developed land or brownfields. Extraordinary times call for extraordinary measures.


  5. #125

    Default A future in government?

    Why don't we just burn down 20% of the housing stock in the country? This would have the dual purpose of propping up prices with an (artificial) shortage, as well as benefitting the economy when the properties are rebuilt.

    Frankly speaking, this is the most idiotic misguided scheme since the last depression when farmers were paid to plow under their crops in a futile attempt to keep up commodity prices while people were starving due to the artificial shortages and artificially high prices.

    Declining real estate value is not a loss of wealth, it is a market correction -- the 'wealth' was illusory.

    One final thing is that prices are determined by demand -- not supply. At these prices and in this credit market there is no demand to justify the falsely high valuation.

    In simple terms:
    You have to understand how ridiculous this whole debate looks to anyone who understands the price system. Let's change the example from houses to apples to see how silly it is to suggest that falling prices can be made to rise. Let's say that the Fed created an apple hysteria that drove the price from $3 per pound to $10. Stores loaded up and even used them as collateral for expansion. Suddenly the price collapsed to $5 and finally to $2.

    Now government takes notice. What can government do to deal with the problem? It can try to boost the price of apples by forcing stores to raise their prices. But what about consumers? They won't buy at $10. So the apples sit and rot. Maybe government should buy them all or force consumers to buy them. Also perhaps stores will just not buy any more at all. Government could force them to. But it can't force them to stay in business. People can always walk away. So perhaps government can just buy the stores, all in the interest of keeping the price of apples up. But it will have to buy the apple-leveraged stores at a much higher price than the market would offer, so this is a bad economic deal on the face of it.

    The tangles can get ever more complicated and billions and trillions can be spent. You can put everyone in a prison camp and force people at the point of a gun to buy and sell apples at $10. But in the end, the problem is still the same: the price of apples wants to fall. Nothing government does changes that one fact. To attempt to change it is like trying to change gravity. Of course, the government’s central bank can raise all prices through inflation to the point that apples do in fact cost $10, but this is purely cosmetic. In fact, in real terms, the price of apples is still $2. It is a pointless and destructive activity to try changing this. You only cause massive damage in the attempt.

  6. #126
    Banned Member
    Join Date
    Dec 2002
    Park Slope, Brooklyn, NY

    Default This is a all so pathetic.

    Fed Pumps Further $630 Billion Into Financial System
    By Scott Lanman and Craig Torres

    Sept. 29 (Bloomberg) -- The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

    The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

    The Fed's expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone.

    more inside...

  7. #127
    The Dude Abides
    Join Date
    Jan 2005
    NYC - Financial District


    Randy: your idea is, in practice, workable - but highly unadvisable, IMO. While you're correct that declining real estate prices are the proximate cause of the liquidity and credit crisis, the ultimate cause is what made real estate prices go up so much, over such a short time period, in the first place. That ultimate cause is, of course, a combination of factors, but the simplest explanation is the prolonging of a period of perceived market stability stemming from cheap credit, otherwise known as a "super-bubble".

    To understand this, you have to understand that - when it comes down to it - real estate prices ultimately depend on household income. While household income hasn't really gone up in the past decade, real estate more than doubled nationally. The ONLY reason this happened, and indeed went on for so long, is because borrowing costs were sharply reduced after September 11th - essentially amounting to a subsidy on housing. This led to reckless lending and speculation in real estate; you know the rest. What made this bubble doubly-bad, though, was its untimely confluence with the bursting of a previous, but still significant, equity bubble. Because that bubble didn't have the opportunity to fully unwind, a lot of it was tacked onto the newer real estate bubble.

    That brings me to my point. If the government were to follow a plan that tries to artificially prop up real estate prices, it threatens to toss us into yet another long-term bubble. This happens whenever prices have a floor put underneath them - basic economics. That's why the government should do nothing drastic except protect people's savings, and recapitalize the biggest banks. It needs to allow the debt level to decrease to an acceptable level, and, in turn, allow overinflated assets - like real estate and equities - to lose value.

    That will allow a return to a healthier, and hopefully more productive, economy.

  8. #128
    Chief Antagonist Ninjahedge's Avatar
    Join Date
    Sep 2003


    The key is a buffering of it to prevent catastrophic collateral damage not directly related to the debts in question.

    You let the ship sink slowly, and hope it will bottom out before going completely under, but it you let it go too fast, there are a lot of individuals in dinghies that will be taken with it.

  9. #129
    Disgruntled Optimist lofter1's Avatar
    Join Date
    Jun 2005
    NYC - Downtown


    I still don't understand what a hedge fund is.

    But this doesn't sound good for Funds or NYC, which would get hit hard if this comes to pass ...

    Link from Andrew Sullivan's Daily Dish:

    The "Bloodbath Ahead"

    01 Oct 2008

    Felix Salmon reports that hedge funds are in big trouble:

    Hedge Funds: The Next Shoe to Drop
    by Felix Salmon
    Sep 30 2008

    Market Movers

    You think things are bad now? Just you wait: the chart above gives you a very good indication of what Christine Williamson calls the "bloodbath ahead" in the hedge-fund industry.

    No one wants to be invested in an underperforming hedge fund right now -- and half of the hedge funds in America are underperforming. What happens when investors decide to take their money out tomorrow, as they're generally allowed to do on the first day of any quarter?
    Sources said they expect the body count to total as many as
    2,000 hedge funds and 500 hedge funds of funds between
    now and the end of March...

    Most hedge funds operate on an end-of-quarter deadline for
    requests from clients to have their money returned. If experts'
    predictions of very large collective redemptions come true,
    managers will have to liquidate their holdings en masse,
    pushing down prices and forcing many smaller hedge funds or
    those with poor returns out of business. The wave of closures
    could span six months, likely beginning in earnest in November
    and December at the end of the typical 45- or 65-day waiting
    period when fund managers have to return investor cash.
    What you see in the chart is the enormous range of returns between the best-performing and wosrt-performing hedge funds -- a range which has never been wider. Ironically, it's the result of the fact that hedge-fund returns during the Great Moderation of 2002-7 were very closely grouped together -- something which prompted funds to take on extra leverage to boost their returns. In turn, all that extra leverage helps explain why the top 10% of funds is up more than 50% over the past 12 months, while the bottom 50% is down more than 25%.

    It's not just redemptions which underperforming hedge funds have to worry about, either: it's also employees, who are going to have a much smaller performance-related bonus pot to split between them this year.

    These problems are propping up elsewhere on the buy-side, too: according to the WSJ, the reason that Lehman Brothers ended up selling Neuberger Berman for $2.15 billion rather than somewhere between $7 billion and $13 billion was that
    the deal was held up in recent weeks due in part to protracted
    contract negotiations with the Neuberger money managers.
    People involved the discussions have described the process of persuading
    them to sign on to the deal as something akin to "herding cats."
    Could it be that all these fund managers were simply paid far too much money over the past few years? After all, they can't all find well-remunerated work elsewhere. But for many of them, that probably doesn't matter: they can live quite comfortably off what they've earned already, and if they feel like making more they can just start investing their own funds, without having to worry about office politics or the trader sitting next to them blowing up the entire firm.

    In any event, the hedge-fund shakeout over the coming months could be brutal, and have nasty systemic consequences if hundreds or thousands of hedge funds are all trying to unwind their positions at the same time. In the worst-case scenario, a fund which wrote a lot of credit protection could go bust, leaving its investors with nothing and its counterparties with very little. If the counterparty dominoes then started to fall, the financial system could end up in much worse shape than anything we've seen so far. © 2008 Condé Nast Inc.

  10. #130


    Lofter, Tom Wolfe has an op-ed in Sunday's NY Times about the hedgies.

    InvestmentNews on yesterday's hedge fund redemption run.


    The Rescue Package Will Delay Recovery

    Daily Article by Frank Shostak | Posted on 9/29/2008

    In his testimony to the Congress on September 24, Fed Chairman Bernanke urged the legislators to quickly approve the bailout of the financial sector with a package of $700 billion. Bernanke echoed Treasury Secretary Paulson's view that the bailout expense, while hefty, is needed to remove from banks' balance sheets the mortgage-linked assets, which are paralyzing the flow of credit.

    I think it's extraordinarily important to understand that as we have seen many previous examples in different countries and in different times that choking up of credit is like taking the lifeblood away from the economy.

    Most experts came out in strong support for the package. Without the rescue package, many large institutions that are "too big to fail" could go belly up. Many believe that the consequences of all this could be very severe to the real economy.

    It is true that the financial system must be rescued; it must be rescued from the institutions holding bad debt that are currently draining capital while waiting for a bailout and adding little in return. It is they that are preventing wealth-generating activities in the financial sector and the other parts of the economy from expanding real wealth.

    The Essence of Economic Adjustment

    Conventional thinking presents economic adjustment — also labeled as "economic recession" — as something terrible, even the end of the world. In fact, economic adjustment is not menacing or terrible; from an economic point of view, it is nothing more than a time when scarce resources are reallocated in accordance with consumers' priorities.

    Allowing the market to do the allocation always leads to better results. Even the founder of the Soviet Union, Vladimir Lenin, understood this when he introduced the market mechanism for a brief period in March 1921 to restore the supply of goods and prevent economic catastrophe. Yet for some strange reason, most experts these days cling to the view that the market cannot be trusted in difficult times like these.

    If central bankers and government bureaucrats can fix things in difficult times, why not in good times too? Why not have a fully controlled economy and all the problems will be fixed forever? The collapse of the Soviet Union's centralized system is the best testimony one can have that controls don't work. A better way to fix economic problems is to allow entrepreneurs the freedom to allocate resources in accordance with society's priorities.

    In this sense, the best rescue plan is to allow the market mechanism to operate freely. Allowing the market to do the job will result in some activities disappearing all together while some other activities will in fact be expanded.

    Take, for instance, a company that has six profitable activities and four losing activities. The management of the company concludes that the four losing activities must go. To keep them alive is a threat to the survival of the company; these activities rob scarce funding from profitable activities.

    Once the losing activities are shut down, the released funding can now be employed to strengthen the winning activities. The management can also decide to use some of the released funding to acquire some other profitable activities.

    This is precisely what the government rescue package prevents from happening. The government package is not going to rescue the economy, but it will rescue activities that the economy cannot afford and that consumers do not want. It will sustain waste and promote inefficiency, draining resources from growth and efficiency. Remember: government is not a wealth generator; it can only take resources from A and give them to B.

    Can the Rescue Package Prevent Economic Disruptions?

    Some supporters of the package are of the view that the package is necessary in order to prevent economic disruptions. They mean by this that various phony activities should be kept alive by wealth generators for a little bit longer until a proper system is established. By "proper," they mean more controls.

    For a while, the government's package can appear to be working; this is because there is still enough real savings to support both profitable and unprofitable activities. If, however, savings and capital are shrinking, nothing is going to help, and the real economy will follow up with further declines.

    Hence the rescue package cannot prevent so-called economic disruptions. If anything, government intervention would make these disruptions much worse. Again, a better alternative is to let the market do the job. The market's ability to make swift adjustments without much drama was vividly illustrated only a few weeks ago when the very large investment bank, Lehman Brothers, was allowed to go belly up. The world did not come to an end. Instead, this was a healthy development. A money loser was eliminated from the market. This freed up resources to promote growth.

    One could have made the case that when Lehman was on the brink it was too big to fail — assets of $639 billion and employing over 26,000 people. Yet in a few days the market, once allowed to do the job, reallocated the good pieces of Lehman to various buyers and the bad parts have vanished. It was poetry.

    Likewise Merrill Lynch, which was bought by the Bank of America, will see the good parts of it reinforced while the useless parts are likely to be removed.

    On September 18, 2008, Washington Mutual, the largest US saving and loan bank, was forced into liquidation. The bank had $307 billion in assets and $188 billion in deposits. What prompted the closure are heavy losses on its $227 billion book of real-estate loans, of which a large portion was in subprime mortgages.

    The bank lost $6.3 billion in the nine months ending June 30. Against this background, and coupled with customers withdrawing $16.7 billion over the past ten days, government regulators decided to close the bank.

    Observe that this was the largest US banking failure. Note that the closure of the bank didn't result in the end of the world. JP Morgan Chase bought some of the good assets of Washington Mutual for $1.9 billion.

    On this, Jeffrey Tucker made the following observation,

    But as wonderful as the daily shifts and movements are, what really inspires are the massive acts of creative destruction such as when old-line firms like Lehman and Merrill melt before our eyes, their good assets transferred to more competent hands.… This is the kind of shock and awe we should all celebrate. It is contrary to the wish of all the principal players and it accords with the will of society as a whole and the dictate of the market that waste not last and last. No matter how large, how entrenched, how exalted the institution, it is always vulnerable to being blown away by market forces — no more or less so than the lemonade stand down the street.

    Most commentators have accepted that the root problem of the current financial crisis is the lack of proper control over mortgage lending. But the out-of-proportion explosion in the mortgage lending didn't occur out of the blue. Without the aggressive lowering of interest rates by the Fed, mortgage lending couldn't have exploded. The Fed lowered the federal-funds rate target from 6% in January 2001 to 1% by June 2003. The 1% was kept until June 2004.

    The loose monetary stance prepared the ground for various false activities that wouldn't have been around without the loose stance. If authorities had kept strong controls over mortgage lending, while at the same time creating money out of thin air, the excesses would have popped up in some other sector. The banks would have ended up having plenty of bad non-mortgage-related assets.

    The Fed's loose policies are the crux of the problem. So rather than blaming the symptoms, what is required is to let the market work and close all the loopholes that allow the creation of money and credit out of thin air.

    Can Making Banks' Balance Sheets Look Good "Fix" the Economy?

    Recall that Treasurer Paulson and the Fed chairman are of the view that once banks' bad assets are removed, the banks are likely to move ahead and start lending. We suggest that making the balance sheet look pretty is not going to alter the essence of the problem, which is the poor state of capital and savings to support such high lending activities.

    The essence of a sound credit market is not lending money as such but lending the real stuff that people require by means of money. Without the real stuff — the preceding savings and subsequent productivity to fund the lending — no lending is possible.

    Decades of nonproductive consumption (consumption that is not backed up by production) that emerged on the back of loose monetary and fiscal policies have severely damaged the store of wealth that serves as the foundation for credit markets. If this is the case, it will be futile to try to boost lending by pushing more money into the banking system. More money cannot generate real wealth. If it could, world poverty would have been eliminated a long time ago.

    When the market is allowed to take charge, the relationship between savings, lending, and productivity will be brought into proper perspective. At last we will know which activities are genuine and which are phony.

    Does the Fall in Stock Prices Cause an Economic Slump?

    The proponents of government intervention maintain that one cannot allow the market to take charge since this will cause a drop in stock prices, which will be bad for the economy. Within the confines of this way of thinking, it is not surprising that Bernanke and Paulson panicked on September 18, once a large money-market mutual fund — the Reserve Primary Fund — was on the brink.

    They argue that were it not for the Fed's injecting $105 billion and the subsequent announcement of the rescue package, the stock market would have had a massive fall. They also believe that the massive monetary injection prevented a run on money-market mutual funds and prevented a major disaster.

    They further believe that if people had taken the money out of their money-market mutual funds, banks wouldn't be able to secure money to fund credit cards and various consumer and business loans. This in turn would have paralyzed the economy.

    So let us think about this. Say that people take their money from the money-market mutual funds. What happens then? They will have placed it somewhere else, mostly likely with commercial banks. Hence money wouldn't disappear and banks could continue to fund activities as before.

    If large money-market funds were to go under, some of their assets would be sold and the shareholders would suffer losses; this however, cannot provide justification for the Fed to pump money and to introduce a rescue package. Monetary expansion and a rescue package do not undo the bad investment decisions of the money-market-mutual-fund managers. Why should people who didn't risk investments in the fund pick up the tab?

    A fall in asset prices, including stocks, and a run on financial institutions are just symptoms and not the cause of anything. The key factor behind the current difficulty in the credit markets is the lagged effect coming from the Fed's tighter stance between June 2004 and August 2007, when the federal-funds-rate target was raised from 1% to 5.25%.

    The tighter stance started to undermine various bubble activities that had emerged from the previous loose stance. A tighter stance slowed the diversion of real savings from wealth generators towards bubble activities. Without an adequate supply of real funding, these activities started to crumble. Obviously, then, banks that have been providing support to these activities by providing loans have ended up holding a large amount of bad assets.

    As a result, bank stock prices started to come under pressure. With a time lag, bubbles in the various other parts of the economy are also likely to come under pressure, and this again is going to hurt financial stocks. So the fall in economic activity is not the result of a fall in stock prices, but rather comes on account of the tighter Fed stance that throttled the supply of real savings to non-wealth-generating activities.

    Would the stock market have come under pressure if the Fed had kept the interest rate at 1% for an indefinite period of time? A prolonged loose stance would have given rise to a much greater amount of nonproductive bubble activities. As a result, the pace of real wealth generation would have continued to slow, and consequently the growth momentum of profits would have come under pressure. In response to this, commercial banks would have become more cautious in their expansion of credit out of thin air.

    All this in turn would have undermined the existence of bubble activities. Bubble activities cannot stand on their own feet; once the rate of growth of the money supply slows down, the pace of the diversion of real savings towards false activities follows suit. As a result, the survival of these activities is threatened.

    From this we can infer that a fall in non-wealth-generating activities — also labeled an economic slump — is not due to a fall in the stock market as such but to the previous loose monetary policy that has weakened the pool of real savings.

    The central-bank policies aimed at preventing a fall in the stock market cannot prevent a fall in the real economy. In fact, the real economy has already been damaged by the previous loose monetary stance. All that the fall in the stock market does is inform us about the true state of economic conditions. The fall in the price of stocks just puts things in a proper perspective. The fall in the stock price is just an acknowledgment of reality.


    Only a few weeks ago, we saw that the liquidation of a large bank such as Lehman Brothers and the sale of Merrill Lynch did not cause massive disruptions. In fact, the adjustment was swift and almost invisible. The reason for the smooth adjustment is that the market was allowed to do its job. If government and Fed bureaucrats had tried to intervene with bailouts, the whole process would have taken much longer and would have been very costly in terms of real resources.

    Frank Shostak is an adjunct scholar of the Mises Institute and a frequent contributor to He is chief economist of M.F. Global. Comment on the blog.

  11. #131


    This article is an eye opener in identifying the source of the crisis, it's not real estate, it's not too much cash. Read


    Under the terms of the insurance derivatives that the London unit underwrote, customers paid a premium to insure their debt for a period of time, usually four or five years, according to the company. Many European banks, for instance, paid A.I.G. to insure bonds that they held in their portfolios.
    Because the underlying debt securities — mostly corporate issues and a smattering of mortgage securities — carried blue-chip ratings, A.I.G. Financial Products was happy to book income in exchange for providing insurance. After all, Mr. Cassano and his colleagues apparently assumed, they would never have to pay any claims.
    Over all, A.I.G. Financial Products paid its employees $3.56 billion during the last seven years.

    So, in a nutshell, AIG London division took premiums from insured businesses, provided NOTHING in return, and got paid $3.6 billion. That sounds like a robbery.

    Now, the fascinating part. Goldman Sachs has $20 billion tied up in AIG. The current chairman of GS comes to talk to his buddy Paulson, the former chairman of GS, and shortly afterwords Paulson gives $85 billion of taxpayer money to AIG. Goldman Sachs is saved.

    The summary: AIG robbed other companies to the tune of billion of dollars, and then took taxpayers money to give to victims, keeping the loot.

    If the $700 billion bailout goes for the same purposes, that's wrong.

  12. #132


    Quote Originally Posted by Edward View Post
    This article is an eye opener in identifying the source of the crisis, it's not real estate, it's not too much cash.
    The entire scenario was a symptom of the gross misallocation of capital that took place during the credit bubble -- the C.D.O.'s being a byproduct of the malinvestment. The C.D.O.'s were a way for investment banks to hold risky high return loans, while simultaneously borrowing against them in a way that allowed them to not be as exposed in the advent of a default because the C.D.O. holders bought AIG's C.D.S.'s.

    The overall crisis has everything to do with the Fed's easy money flooding the housing sector and forcing investment banks to stay competitive by buying the risky mortgages. They tried to pass the risk on to an insurer, but it doesn't change the fact that too much money was going into real estate market-wide. Real estate was bound to have an economy changing correction -- insurance or not.

    That being said, it is a scandal that the risk pyramid scheme ended with the Fed covering the defaults and writedowns rather than have AIG liquidated to cover its obligations.

    For further reading check out Canada's National Post wherein Martin Masse describes the bailout proponents' Marxist affinity,
    In his Communist Manifesto, published in 1848, Karl Marx proposed 10 measures to be implemented after the proletariat takes power, with the aim of centralizing all instruments of production in the hands of the state. Proposal Number Five was to bring about the “centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.”

    If he were to rise from the dead today, Marx might be delighted to discover that most economists and financial commentators, including many who claim to favour the free market, agree with him.
    and describes the anti-communist opposition.
    For decades, Austrian School economists have warned against the dire consequences of having a central banking system based on fiat money, money that is not grounded on any commodity like gold and can easily be manipulated. In addition to its obvious disadvantages (price inflation, debasement of the currency, etc.), easy credit and artificially low interest rates send wrong signals to investors and exacerbate business cycles.

    Not only is the central bank constantly creating money out of thin air, but the fractional reserve system allows financial institutions to increase credit many times over. When money creation is sustained, a financial bubble begins to feed on itself, higher prices allowing the owners of inflated titles to spend and borrow more, leading to more credit creation and to even higher prices.

    As prices get distorted, malinvestments, or investments that should not have been made under normal market conditions, accumulate. Despite this, financial institutions have an incentive to join this frenzy of irresponsible lending, or else they will lose market shares to competitors. With “liquidities” in overabundance, more and more risky decisions are made to increase yields and leveraging reaches dangerous levels.

  13. #133


    I guess my point is that there are some smart and greedy people who got million-dollar salaries and bonuses and who do not care about the consequences. If it were not real estate and CDOs, it would have been something else.

    The AIG London division insured over half a trillion dollars debt against default. They obviously knew they would not be able to cover it.

  14. #134
    Forum Veteran TREPYE's Avatar
    Join Date
    Apr 2006
    Brooklyn, NY


    Quote Originally Posted by Edward View Post
    This article is an eye opener in identifying the source of the crisis, it's not real estate, it's not too much cash. Read

    So, in a nutshell, AIG London division took premiums from insured businesses, provided NOTHING in return, and got paid $3.6 billion. That sounds like a robbery.
    Read the article if it is true its this was pretty disgusting.
    3.6 Billion dollars over 7 yrs in compensation for one department in the company of about 400 people...that is a freaking outrage, and each one of these scoudrels shall be sued to give that money back.

  15. #135
    Disgruntled Optimist lofter1's Avatar
    Join Date
    Jun 2005
    NYC - Downtown


    Wall St. Protesters Shinny Up Flagpole,
    and Police Aren’t Amused

    (Photos: Josh Haner/The New York Times)
    Daniel Medina, a tourist from Spain, posed in front of the bull statue.
    Protesters from the Rainforest Action Network scaled two 40-foot
    flagpoles behind the statue on Wall Street and hung a flag with
    “Foreclosed?” written on it.

    By Michael Wilson
    October 1, 2008

    City Room

    Tourists in the financial district hoping for a good picture of the famous bull statue got an extra treat this afternoon: two urban climbers sliding up flagpoles and draping an anti-Wall Street banner between them.

    The event took place shortly after noon, and quickly drew a ring of onlookers with cameras around their necks to Bowling Green at the foot of Broadway. It also drew, just as quickly, the police, including Emergency Service Unit officers. The very same officers are among more than 400 who have been ordered to undergo retraining in dealing with disturbed people after last week’s fatal encounter with a man atop a 10-foot ledge in Bedford-Stuyvesant. An officer shot the man, Iman Morales, 35, with a Taser gun, and he fell to his death.

    Today’s encounter went smoothly enough to resemble a training exercise. The protesters had used straps and harnesses to climb about 40 feet to affix their banner, an American flag with the word “Foreclosed?” spread across the red and white stripes, and a Web site address ( along the bottom.

    The Rainforest Action Network organized the protest. Samantha Corbin, one of the climbers, said in a written statement before the climb, “It is time to stop the risky financial behavior that is now mortgaging our homes and our planet.” Anything she had to say atop the pole was drowned out by the spectators and traffic.

    Other groups arrived, including the Green Party, Code Pink and Billionaires for Bush, but mostly everyone watched to see what would happen to the climbers.

    Police officers arrested a protester,
    identified as Cy Waggoner.

    Officers strapped on their own harnesses and hard hats, and one, Shawn Soler, 32, leaned a ladder against Ms. Corbin’s pole and climbed up. He spent several minutes talking to Ms. Corbin, gesturing with his hands, occasionally nodding and shrugging and patting the pole with his gloved hand. Finally, Ms. Corbin lowered herself onto the ladder, unclipped her harness and climbed down to be handcuffed and placed in a police van.

    The other climber, identified by organizers as Cy Waggoner, climbed down mostly by himself, using a ladder for the last 10 feet, and was similarly arrested. Onlookers cheered. The van drove away.

    Officer Soler took off his hard hat and recalled his conversation up the pole. “Pretty much what I was doing was walking her through how I wanted her to come down in the safest possible way,” he said. “She was listening to me.”

    The flag stayed up while officers waited for a crane to arrive. No one was to climb up and cut it down. “You don’t know how stable those poles are,” Officer Soler said.

    Copyright 2008The New York Times Company

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