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bucheon bum
Joined: 16 Jan 2003
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 Posted: Sat Jan 31, 2009 8:45 pm Post subject: |
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yup. Or too many tax cuts, or spending was on the wrong things, blah blah blah.
Just like intervening in foreign countries didn't die with Vietnam and won't with Iraq. Supporters can just say things went amiss because the wrong plan was used and/or led by incompetent leaders (which I concede is a legit argument in regards to Iraq). |
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Joo Rip Gwa Rhhee
Joined: 25 May 2003
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| Posted: Sat Jan 31, 2009 9:40 pm Post subject: |
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Sad to say the US doesn't have the will to reform social security & medicare - it is not going to be done. . Just do the hyperinflation and get on with it. No sense waiting around for the inevitable. It is gonna suck , but the alternative is 100% of federal government spending is going to go for entitlements.
Get ready to watch who wants to be a trillionare. |
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RJjr
Joined: 17 Aug 2006
Location: Turning on a Lamp
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Sun Feb 01, 2009 6:49 am Post subject: |
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| bucheon bum wrote: |
yup. Or too many tax cuts, or spending was on the wrong things, blah blah blah.
Just like intervening in foreign countries didn't die with Vietnam and won't with Iraq. Supporters can just say things went amiss because the wrong plan was used and/or led by incompetent leaders (which I concede is a legit argument in regards to Iraq). |
Exactly. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Wed Feb 04, 2009 6:53 am Post subject: |
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Obama... He's not on the right track with the economy.
From Naked Capitalism:
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Dear God, let's just kiss the US economy goodbye. It may take a few years before the loyalists and permabulls throw in the towel, but the handwriting is on the wall.
The Obama Administration, if the Washington Post's latest report is accurate, is about to embark on a hugely expensive "save the banking industry at all costs" experiment that:
1. Has nothing substantive in common with any of the "deemed as successful" financial crisis programs
2. Has key elements that studies of financial crises have recommended against
3. Consumes considerable resources, thus competing with other, in many cases better, uses of fiscal firepower.
The Obama Administration is as obviously and fully hostage to the interests of the financial services industry as the Bush crowd was. We have no new thinking, no willingness to take measures that are completely defensible (in fact not doing them takes some creative positioning) like wiping out shareholders at obviously dud banks (Citi is top of the list), forcing bondholder haircuts and/or equity swaps, replacing management, writing off and/or restructuring bad loans, and deciding whether and how to reorganize and restructure the company. Instead, the banks are now getting the AIG treatment: every demand is being met, no tough questions asked, no probing of the accounts (or more important, the accounting).
Why is this a bad idea? Let's turn to a study by the IMF of 124 banking crises. Their conclusion:
Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.
In case you had any doubts, propping up dud asset values is a form of forbearance. Japan had a different way of going about it, but the philosophy was similar, and the last 15 year illustrates how well that worked.
What we have from Team Obama is a bigger abortion of a :"throw money at bad bank assets" plan that I feared in my worst nightmare. And (when we get to the Post preview), they have the temerity to invoke triage to make what they are doing sound surgical and limited.
Those who remember the origin know that triage means focusing on the middle third of the wounded on the battlefield : leaving the goners to die, leaving those wounded but stable to fend for themselves for the moment (they were in good enough shape to wait to be transported or hold on to be treated later). The middle third, those in immediate danger but who might nevertheless be salvaged, got top priority.
The concept of "triage" recognizes that resources are limited, tough decision need to be made, and some are beyond any hope. But in Team Obama Newspeak, triage means everyone can be saved because resources are presumed to be unlimited:
The basic problem confronting the government is that banks hold large quantities of assets that they value on their books for much more than investors are willing to pay...
The spin is so thick I have to interject after one sentence. Note how the problem is that the investors don't want to pay enough, not that the assets are in most cases fetid? Back to the article:
Since the early days of the financial crisis, officials have struggled to unwind that knot. If the government buys the assets at prices that banks consider fair, the Treasury would take a huge loss when it ultimately sells the assets for much less. If, instead, the government insists on paying market prices, the banks may not survive their losses.
Yves here. See how saving the banks in their current form is presumed to be necessary? This is the phony policy constraint that is leading to all the distortions. The savings and loan crisis' Resolution Trust Corporation is touted as a good "bad bank" model (it's far from the only one). But guess what? It got those bad assets from banks that died. That little detail seems to be neglected in modern accounts.
Back to the article:
Instead of taking a single approach, the Obama administration plans to divide assets and other loans into three categories, each with its own solution, according to sources familiar with the discussions, speaking on condition of anonymity because the details are not finalized.
The government would buy and hold on to those assets whose falling prices are putting banks under the most pressure. Officials want to limit these purchases because of the vast expense.
The centerpiece of the plan would be a guarantee to limit losses on a second group of troubled assets that can be kept by the banks because they have more stable prices.
And it would allow banks to retain and profit from their healthiest assets.
Beyond these initiatives, the government also is likely to inject more capital into troubled institutions.
Yves again. This sounds completely arbitrary, despite the pretense of faux science. Do they want to buy the assets most underwater? The assets most at risk of further price declines? The assets with that are the hardest to value (like lower rated CDO tranches?). It may simply be that the Post reporter doesn't appreciate the issues at work, but I wonder if the extreme vagueness reflects instead failure to come to grips with the real objectives (which means Wall Street will be able to manipulate them) or that they don't want the public to know what is going on (per the persistent stonewalling of efforts to find out what securities the Fed has bought and taken as collateral).
As John Paulson pointed out, a lot of poor quality paper is trading. The idea that it is illiquid is a myth.
The problem is not a lack of price discovery, as the discussion above pretends, it's a lack of investor willingness or ability to take losses. And readers have said if a particular piece of paper doesn't fetch a bid, that's because its real value is not materially above zero. But per above, that's the sort of dreck that Team Obama would buy.
And what, pray tell, is the point of the guarantee? The loss exposure on a guarantee (versus a purchase) at the same nominal price is the same, although the initial cash outlay is considerably different. Ah, but if the paper is guaranteed, then your friendly bank welfare recipient can bring the junk to the Fed and get nice cash back.
So we the taxpayers are going to eat a ton of bank losses that should instead be borne first by stockholders and bondholders This program should be labeled the Pimco bailout plan, since the giant bond fund holds a lot of bank debt. That show what a fiction Obama's populism is. It's mere posturing and empty phrases. Look at where the dough goes, and it is going first and foremost to the big money end of town.
Now I do no labor under the delusion that there are cheap or easy ways out of our financial sinkhole. People are suffering, and we are only partway through the process of contraction and writeoffs. I heard of a suicide today, a jewelry dealer who was $400,000 in debt (also owed a lot of money but unable to collect) who threw himself off 10 West 47th Street (from someone else in the building, this is no urban legend). A tragedy, and a visible one, and there is plenty of less acute but no less real trauma afoot.
But Team Obama is taking the cowardly approach of distributing the costs among the most disenfranchised group in the process, namely the taxpayer, when there far more obvious and logical groups to take the hits. Shareholders and bondholders bought securities KNOWING there was the possibility of loss. A lot of big financial institutions have been on the ropes for over a year. A security holding is not a marriage. When conditions change, prudent investors reassess and adjust course accordingly. If anyone is long a lot of dodgy bank paper now, they have only themselves to blame. Any why are rank and file bankers still exempt from pay cuts when the workers in another failing US industry, autos, expected to take big hits?
This is the most roundabout and probably the most costly way to not solve this problem. |
http://www.nakedcapitalism.com/2009/02/bad-bank-assets-proposal-worse-than-you.html
Those who deserve to take the loss are not going to. It is the fault of the individual/institutional stockholder that his investment went to shit. Know the company you're investing in, and if you're not willing to take a loss, put your money in a savings account. But these people are hugely influential and all the talking heads you see on CNBC etc are talking their book. This severe recession/soft depression could become an economic disaster in fairly short order. |
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mises
Joined: 05 Nov 2007
Location: retired
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asylum seeker
Joined: 22 Jul 2007
Location: On your computer screen.
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| Posted: Wed Feb 04, 2009 8:48 am Post subject: |
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[quote="mises"]Obama... He's not on the right track with the economy.
From Naked Capitalism:
| Quote: |
Dear God, let's just kiss the US economy goodbye. It may take a few years before the loyalists and permabulls throw in the towel, but the handwriting is on the wall.
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If this is true then it's pretty disappointing. I had really hoped that Obama might try to stand up to the self-serving banking/financial industry more than the Bush administration did. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Wed Feb 04, 2009 12:42 pm Post subject: |
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[quote="asylum seeker"]
| mises wrote: |
Obama... He's not on the right track with the economy.
From Naked Capitalism:
| Quote: |
Dear God, let's just kiss the US economy goodbye. It may take a few years before the loyalists and permabulls throw in the towel, but the handwriting is on the wall.
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If this is true then it's pretty disappointing. I had really hoped that Obama might try to stand up to the self-serving banking/financial industry more than the Bush administration did. |
It is so early in his administration... But so far, not so good. |
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Ya-ta Boy
Joined: 16 Jan 2003
Location: Established in 1994
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| Posted: Wed Feb 04, 2009 1:57 pm Post subject: |
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| Know the company you're investing in, and if you're not willing to take a loss, put your money in a savings account. But these people are hugely influential |
This is better in theory than in practice. Plans to wipe out investors is politically touchy because not many of those people would support you on any other policies in the future, and as is mentioned, these people are influential.
Another consideration: if big investors are wiped out, won't that scare pretty much everyone away from investing for the next decade?
As has been said before, ideology is behind much of economic theory. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Wed Feb 04, 2009 2:05 pm Post subject: |
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| This is better in theory than in practice. Plans to wipe out investors is politically touchy because not many of those people would support you on any other policies in the future, and as is mentioned, these people are influential. |
Ah, no. We can't "plan" to wide out investors. Bank of America, Citi, AIG, etc these firms are already wiped out. What the government is doing is propping up failed firms. The capital and equity is already looonnnngggg gone. We need to accept reality, because we have limited (VERY limited) resources. You want universal medicare? Too bad. They blew the money slowing the demise of banks.
| Quote: |
| Another consideration: if big investors are wiped out, won't that scare pretty much everyone away from investing for the next decade? |
No. What will scare investors off is the idea that firms are no longer held to market accountability. I will not put a dime in 'the market' until I know that competition ensures good companies succeed and poor ones fail. I will do my homework. What is the point in investing if you have no meaningful way to predict outcomes?
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| As has been said before, ideology is behind much of economic theory. |
This isn't "economic theory". We aren't discussing theory. This is accounting. Bank of America is leveraged 132/1. Citi is 88/1. These firms are toast. Do you want to pull the bandaid off fast or slow. Because, it is sure as shit coming off. |
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Ya-ta Boy
Joined: 16 Jan 2003
Location: Established in 1994
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| Posted: Wed Feb 04, 2009 2:24 pm Post subject: |
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So are you saying that the government is getting its economic advice from people who got their PhDs in a Cracker Jack box?
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| I will do my homework. |
PS:
Didn't a lot of people do their homework and we're still in a huge mess? |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Wed Feb 04, 2009 2:29 pm Post subject: |
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| Ya-ta Boy wrote: |
| So are you saying that the government is getting its economic advice from people who got their PhDs in a Cracker Jack box? |
I'm saying that the advice is compromised.
Further, the economic PhD is really an applied math PhD. It is a degree in mathematical modeling (which worked out so very well). I know of only one school that actually teaches about 'the economy' in the thrust of the program (George Mason). So when you hear about an economic guru with a phd, be very very skeptical.
What I mean by 'do my homework' is that I will actually examine a company before I purchase some of it (however small my portion). I will not buy "the financials" because some toothy or big-titted talking head on CNBC told me to. I will not invest in a "hot stock" because some flunky salesman posing as a financial planner tells me to. I will apply Ben Graham's rules from The Intelligent Investor.
http://en.wikipedia.org/wiki/The_Intelligent_Investor |
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Ya-ta Boy
Joined: 16 Jan 2003
Location: Established in 1994
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| Posted: Wed Feb 04, 2009 3:00 pm Post subject: |
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I'm saying that the advice is compromised.
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But isn't all advice compromised? Pure impartiality is a very scarce commodity.
Damage has already been done, but they are taking a calculated risk that the damage can be minimized. If they succeed, great. If they fail, then at least they tried. It's a little bit like chemotherapy. Some nasty side effects but it does offer some hope. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Wed Feb 04, 2009 3:03 pm Post subject: |
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| Ya-ta Boy wrote: |
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I'm saying that the advice is compromised.
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But isn't all advice compromised? Pure impartiality is a very scarce commodity.
Damage has already been done, but they are taking a calculated risk that the damage can be minimized. If they succeed, great. If they fail, then at least they tried. It's a little bit like chemotherapy. Some nasty side effects but it does offer some hope. |
I strongly disagree. We don't have an unlimited number of potential attempts to fix this. And anyways, what they propose simply can't work. Just like TARP. It is just good money after bad. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Wed Feb 04, 2009 3:25 pm Post subject: |
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| Ya-ta Boy wrote: |
PS:
Didn't a lot of people do their homework and we're still in a huge mess? |
No, they didn't. On April 28th, 2004, the SEC voted 5-0 to exempt the Big Five financial groups (Bear Sterns, Lehmen Bros, etc) from the already generous 15-to-1 Net Capital Rule in a 55 minute meeting. This ratio represented the obligations/liabilites (15) against liquid assets (1). Bear Sterns was leveraged 33-to-1 against liquid assets when it collapsed. Note that these ratios DO NOT INCLUDE credit default swaps, which were not defined as securities and thus excluded from this ratio.
I'd like to note that the Net Capital Rule has not yet been formally reinstated, and yet we're throwing money at the banks recklessly thru TARP. There's nothing deliberative about this strategy. Its all ad hoc and panic driven.
If anything, the past eight years should demonstrate that the authorities are not to be trusted on their word. |
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