What's Really Wrong With The Economy?

[EmpireAutopilot]

This is not an endorsement of this comment but I thought many here would like to read it. I do agree with most of it but that's for another day.

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This isn't going to settle out until after the Credit Default Swap payoff auctions on Oct 23. Only then will everyone know just how exposed everyone else is. Many banks will fail no matter what the government does. But many will also survive and once shown to be sound their business will resume.

What is scary to me about this is the way governments are taking over ownership of private sector financial institutions and private industry. Just think of the banks being run like the IRS or the Post Office - and by the very same people with political mandates. While it would hurt, it would be better to just let many of these banks fail and be replaced with new ones. All this life support is going to do is lead to perpetually sick banks run by politicians for political purposes.

Guess I will repost this for those who didn't see it the first time. Skip it if you have seen it already.

The $45.6 trillion Credit Default Swap Crash vs. the $700 bil Sub Prime Crash

All of this because 5% of U.S. mortgages are defaulting? This 5% isn?t that big a number compared to the world financial markets. After all, the other 95% are still paying and yielding a cash flow. So if sub primes didn?t cause this what is going on?

What is going on is a Credit Default Swap caused crash. A CDS is a form of insurance on loans that pays off if the loan defaults. CDS are totally unregulated and un-monitored by any government agency. CDS are not called insurance because insurance is regulated. If it was called insurance, and regulated, the issuers of the policies would be required to have assets enough to cover any claims. But it isn?t insurance. And it turns out the issuers of CDS never had the assets to cover any claims ? even a small claim like the sub prime mortgage defaults. If they had paid off the sub prime defaults everyone would have their money and there would be no bailout.

The banks and financial institutions that issued unregulated CDS made billions collecting the premiums (but they are not called premiums because it isn?t insurance). But when the sub prime backed instruments started to default they couldn?t pay off because they had no assets to pay off with. AIG is one example. And everyone noticed and started to worry.

The real problem is that CDS were not sold to cover just mortgages loans. They were sold to cover almost every kind of lending instrument. Obviously, a bond that is insured against defaulting is more valuable and higher rated than one that is not insured. So once the CDS began defaulting on the subprime market it became obvious they were worthless insurance on everything else they insured, which is just about everything else out there. So the value of every bond, hedge fund and other investment instrument dropped on the books of every institution holding them. And they dropped fairly sharply. . And then there are the CDS themselves. They were on the books as an income producing investment instrument just like a bond from a legitimate insurance company. Now they are virtually worthless. How much were they worth before the truth about them was revealed? $42.6 TRILLION. For perspective, this is equal to the entire household wealth of the U.S.; the U.S. stock market is capitalized at $18.5 trillion. So what really has happened is that the global financial markets have just taken a $42.6 trillion dollar loss of assets.

Our recent bailout is only $700 billion, a tiny fraction of the outstanding CDS and not enough to make a tiny tiny dent in the debt the financial institutions are now holding. So what did our elected officials just do? They bailed out their campaign donors and gave them a chance to cash in their chips and leave the game with some cash in their pockets. . The sub prime defaults are just a minor diversion that takes your eyes off what has really happened. Huge companies, here and abroad, (CDS started in Europe) committed a fancy complicated form of fraud. They sold insurance that wasn?t really insurance, collected billions in ?premiums? that pumped up their books and made billions for their executives and brokers. They often issued a CDS to a buyer to pump up the price of a bond or financial instrument they were selling and thus increased their profits two ways.

If a real regulated insurance company had done this the executives would all be indicted, prosecuted and put in jail for a long time. It was fraud and I hope our government will go after these weasels and put them in jail. But I doubt that will happen.

The problem right now is that no one knows who is holding what or even how to begin to value holdings. The value of holdings of all kinds have clearly dropped. But by how much? In the sub prime mortgage market, for example, the houses are still out there and clearly they have some considerable value. But how much? The same holds across all the markets. The tangible assets securing most of the loans are still out there. But what are they worth now? We are about to see a huge 100 year shake out on the value of everything and everyone is going to take a hit. The more leveraged any business or individual is the more they are going to devalue. And that is another new aspect of this crash. . Super low interest rates made borrowing possible ? smart ? at rates that would have been unthinkable 20 years ago. 20 years ago being leveraged at a 5 to 1 rate was the normal limit. Today 30 to 1 is normal. 4% interest rates simply could not be ignored and go unused. Hedge funds with 4% interest rates made extreme leveraging even more extreme for large investors and funds. It turns out some hedge funds had 100 to 1 leveraging. (Hedge funds are another unregulated market) So our entire economy, the businesses, the banks, individuals are credit extended like never before in history. So they are all going to be devalued like never before. This is going to be the perfect financial storm. And it isn?t going to end anytime soon.

A lot of companies are going to fail ? unavoidably. There is going to be a lot of unemployment. A lot of retirement funds are going to fail ? including government backed retirement funds like state funds. And the U.S. government cannot bail them all out. But it will try at first. And the government will have unemployment claims and welfare claims like never before. And all this will cause another problem that will cause more pain. Inflation.

Inflation like we haven?t seen in decades. Because the only way the government will have to pay off its debts ? and they are going to be huge, even compared to our present huge debt ? is to print money. Lots of money.

We are going to see something unthinkable in the past. High unemployment, bankruptcies, banks closing and a very slow economy, BUT with high inflation because every government in the world is going to print money to try and bail things out.

What to do? Getting out of debt would be a good idea. Cash is good ? but vulnerable to inflation. Gold is better. Start minimizing your expenses in every way possible. If you are about to retire don?t. Keep the job if the job is still there. If your retirement fund doesn?t go bust, inflation will devalue the retirement payments. Things will settle out. The economy will restart. New companies will be started to replace the ones who go under. The sun will come out again. But not for a long time.

[Pleasurepays]

what a bunch of bullshit. I know its bullshit because Obama and McCain keep telling us how they are going to take care of us, create jobs and grow the economy.

[grumpy]

whats wrong? Crooks at the top.

[EmpireAutopilot]

Originally Posted by Pleasurepays

what a bunch of bullshit. I know its bullshit because Obama and McCain keep telling us how they are going to take care of us, create jobs and grow the economy.

Obama will create jobs, McCain will keep exporting them. What does Obama have to do with any of this?

[AlienQ - BANNED FOR LIFE]

5% of US MOrtgages are defaulted? Where you find this?

The U.S. mortgage market is estimated at $12 trillion[14] with approximately 9.2% of loans either delinquent or in foreclosure through August 2008.[15] Subprime ARMs only represent 6.8% of the loans outstanding in the US, yet they represent 43.0% of the foreclosures started during the third quarter of 2007.[16] During 2007, nearly 1.3 million properties were subject to foreclosure filings, up 79% versus 2006.[17]

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

[EmpireAutopilot]

Originally Posted by AlienQ

5% of US MOrtgages are defaulted? Where you find this?

The U.S. mortgage market is estimated at $12 trillion[14] with approximately 9.2% of loans either delinquent or in foreclosure through August 2008.[15] Subprime ARMs only represent 6.8% of the loans outstanding in the US, yet they represent 43.0% of the foreclosures started during the third quarter of 2007.[16] During 2007, nearly 1.3 million properties were subject to foreclosure filings, up 79% versus 2006.[17]

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

As noted, this is just a comment someone posted. However, I just heard on the CSpan that 5% of mortgages are defaulted, I guess the other 4.2% are just delinquent but not forclosed?

I don't doubt that it will get much worse but that's where we are now from what I can tell.

[Pleasurepays]

Originally Posted by EmpireAutopilot

Obama will create jobs, McCain will keep exporting them. What does Obama have to do with any of this?

he has everything to do with it. he's black jesus. the messiah. he's going to use his black jesus powers to grow the economy and create jobs in spite of the fact that we are headed into a global financial meltdown of unthinkable proportions.

how? doesn't matter. he's black jesus. he'll save us all. he's going to lower taxes on the middle class... give everyone affordable health care and create jobs. can't wait to see it... should be a miracle much better than turning water into wine or parting the red sea.

clinton once said something like "in a time of great crisis, people would rather have a leader thats strong and wrong, than weak and right" in referrence to Bush/terrorism and the election.

kinda ironic that we are getting the same thing again after 8 years of unthinkable idiocy.

[AlienQ - BANNED FOR LIFE]

Well someone is getting filthy rich from these events.

I would like to know who.

Regarding Obama...
It's just to bad he is gonna have to be President for all this.
White or Black...
It's hard to believe either one of them want to be President at this point.
McCaine has an excuse. McCaine if fucking senile or nuts.

Obama... Well shit if you were a black man and finally got to bat as a President after all the shit the Black man has been through in this country... What black man wouldnt go for it?

[Pleasurepays]

Originally Posted by EmpireAutopilot

Obama will create jobs, McCain will keep exporting them. What does Obama have to do with any of this?

BTW... exporting jobs?

really?

how can people be so fucking retarded?

what is your solution genius? stop america from outsourcing jobs while others remain doing so and as such have a massive competitive advantage and can employ 2-3-4-5 times the man power?

America would be a great place if people hadn't became so fucking useless in the last 50 years.

its a shame so few remember that this country was founded on the very notion of the individual, self determination and self reliance and now, in its twilight years, has become nothing but a nation of fat, lazy retards holding their hands out waiting for government to fix their problems while they sue McDonalds for making them fat and busy themselves with important things like stopping public schools from keeping score at sporting events because god forbid, there actually be a winner and a loser... and the loser might have to actually get motivated, focus, work harder, train harder and try harder

[BlackCrayon]

Originally Posted by Pleasurepays

BTW... exporting jobs?

really?

how can people be so fucking retarded?

what is your solution genius? stop america from outsourcing jobs while others remain doing so and as such have a massive competitive advantage and can employ 2-3-4-5 times the man power?

America would be a great place if people hadn't became so fucking useless in the last 50 years.

its a shame so few remember that this country was founded on the very notion of the individual, self determination and self reliance and now, in its twilight years, has become nothing but a nation of fat, lazy retards holding their hands out waiting for government to fix their problems while they sue McDonalds for making them fat and busy themselves with important things like stopping public schools from keeping score at sporting events because god forbid, there actually be a winner and a loser... and the loser might have to actually get motivated, focus, work harder, train harder and try harder

Do you really believe people like that are the majority? I think its just easier to think that way and blame people in general instead of blaming the fucked up system we've created over the decades. Cost of everything is constantly rising in America, yet companies keep making things cheaper and cheaper. Constantly trying to keep stockholders happy, they have to constantly cut and constantly bring in bigger profits which just isn't possible to keep up forever. More and more jobs (even high tech) get outsourced because the average American can't afford to do them and support a family. At the same time there aren't enough high paid jobs to go around, not to mention its hard to have the money to support a family and pay to go to school to get more education to get a high paid job or just a job in a field that isn't outsourced. What are people to do? Regress and live in shacks and work for less than minimum wage so the American machine can keep on ticking?

[Lamis]

Al those geniouses like Ben Bernanke and Paulson... with 10 degrees in Harvard and BLA BLA BLA and see what happens.. All those degrees and education are worth shit.

Even a housewife could tell USA was going directly to a crisis..

Check threads opened in this very same forum 1 year ago.

Now Bush looks like Fidel, buying private banks and making them public.

[Pleasurepays]

Originally Posted by BlackCrayon

Do you really believe people like that are the majority? I think its just easier to think that way and blame people in general instead of blaming the fucked up system we've created over the decades. Cost of everything is constantly rising in America, yet companies keep making things cheaper and cheaper. Constantly trying to keep stockholders happy, they have to constantly cut and constantly bring in bigger profits which just isn't possible to keep up forever. More and more jobs (even high tech) get outsourced because the average American can't afford to do them and support a family. At the same time there aren't enough high paid jobs to go around, not to mention its hard to have the money to support a family and pay to go to school to get more education to get a high paid job or just a job in a field that isn't outsourced. What are people to do? Regress and live in shacks and work for less than minimum wage so the American machine can keep on ticking?

people ARE to blame. PEOPLE elect governments to represent them and their values.

all your arguments ignore a simple, obvious truth. we are a global economy (which is now in a global meltdown) and competition is global. My adult business is competing with a porn company from Prague, from Moscow, from London, from Isreal, from Romania, from Spain, from the philippines and so on. Outsourcing isn't a choice about greed. its a choice to stay alive, to grow a company by lowering costs and investing that money in growth. Outsourcing, whether you want to admit it or not creates domestic jobs. When companies grow, wealth is created. when wealth is created, more money is loaned to small business, to home owners, paid in taxes into the system etc. the economy is not a zero sum system. just because some uneducated turd in Smellyfart Louisiana lost his AOL customer support job to India.. doesn't mean that AOL isn't growing as a result, becoming a healthier company and ultimately creating more jobs in the US.

We don't live in Stalinist Soviet Union. The State isn't supposed to be the one offering you some type of security and coddling you. YOU are the one that is supposed to be bettering yourself, educating yourself, improving your skills, improving your value, improving your marketability in the job market and increasing demand for yourself. YOU are the one that is supposed to be out there creating the next big thing, creating a small business, creating jobs and taking your own future and destiny into your own hands to control the direction of your life.

The world changes... you don't want to change with it. You want to resist the change thats happening, refuse to adapt and then you want government to step in stop the clock, stop the wheels of progress, pick you up, dust you off and tell you that you no longer have to worry about anything. BAD NEWS bro, that's not reality. It's an idea that has always looked great on paper and NEVER worked in practice.

Until this nation starts waking up every morning and asking "what can i do to control my destiny" and stops asking "how can government make my life easier" - nothing is going to change.

That's how this country began. That's what made it great. People were escaping the restraints of government for the freedom to build their own lives, on their own terms.

People were hungry...people wanted it. that is why most of the world used to look up to the US and why it became known as the place where anyone could make their dreams come true.

Like any empire.. once the people get fat, lose perspective and the priorities and values change... and that's were we are today... a stunned nation full of retards that can't figure out why government isn't taking care of them... eager to elect the candidate who is able to best communicate the notion that he is going to fix their lives... erase a retarded amount of credit card debt, save them from foreclosure on the house they couldn't afford, stop the repossession of the car they shouldn't have bought, save the job that never should have existed in the first place.

[BlackCrayon]

Originally Posted by Pleasurepays

people ARE to blame. PEOPLE elect governments to represent them and their values.

all your arguments ignore a simple, obvious truth. we are a global economy (which is now in a global meltdown) and competition is global. My adult business is competing with a porn company from Prague, from Moscow, from London, from Isreal, from Romania, from Spain, from the philippines and so on. Outsourcing isn't a choice about greed. its a choice to stay alive, to grow a company by lowering costs and investing that money in growth. Outsourcing, whether you want to admit it or not creates domestic jobs. When companies grow, wealth is created. when wealth is created, more money is loaned to small business, to home owners, paid in taxes into the system etc. the economy is not a zero sum system. just because some uneducated turd in Smellyfart Louisiana lost his AOL customer support job to India.. doesn't mean that AOL isn't growing as a result, becoming a healthier company and ultimately creating more jobs in the US.

We don't live in Stalinist Soviet Union. The State isn't supposed to be the one offering you some type of security and coddling you. YOU are the one that is supposed to be bettering yourself, educating yourself, improving your skills, improving your value, improving your marketability in the job market and increasing demand for yourself. YOU are the one that is supposed to be out there creating the next big thing, creating a small business, creating jobs and taking your own future and destiny into your own hands to control the direction of your life.

The world changes... you don't want to change with it. You want to resist the change thats happening, refuse to adapt and then you want government to step in stop the clock, stop the wheels of progress, pick you up, dust you off and tell you that you no longer have to worry about anything. BAD NEWS bro, that's not reality. It's an idea that has always looked great on paper and NEVER worked in practice.

Until this nation starts waking up every morning and asking "what can i do to control my destiny" and stops asking "how can government make my life easier" - nothing is going to change.

That's how this country began. That's what made it great. People were escaping the restraints of government for the freedom to build their own lives, on their own terms.

People were hungry...people wanted it. that is why most of the world used to look up to the US and why it became known as the place where anyone could make their dreams come true.

Like any empire.. once the people get fat, lose perspective and the priorities and values change... and that's were we are today... a stunned nation full of retards that can't figure out why government isn't taking care of them... eager to elect the candidate who is able to best communicate the notion that he is going to fix their lives... erase a retarded amount of credit card debt, save them from foreclosure on the house they couldn't afford, stop the repossession of the car they shouldn't have bought, save the job that never should have existed in the first place.

You make some good points, I don't have the time to respond to them all but will say I am not in favor of letting people starve while they figure out how to adapt to this new reality. Its American workers and consumers who have allowed these companies to become as successful as they are, yet they aren't the ones who suffer. its unfair, and although "life isn't fair" not everyone is going to be able to come up with the next best thing, not everyone will be able to have their own successful business. Its easy to think that everyone should just fend for themselves when you run your own business, you figure if you can, so should everyone else but when these retards run out of money, and out of jobs, your business is going to suffer as well.

[pornguy]

Someone stated the other day how stupid it is for a bank or lending institution at this time to forclose on a mortgage..

Contact the people. Work out a payment plan, and keep the money moving. Booting them out of the house and leaving it empty is so fucking stupid its amazing.

[Serge Litehead]

Ctrl+Alt+Del, then format C:

[farkedup]

Originally Posted by AlienQ

Well someone is getting filthy rich from these events.

I would like to know who.

Well there is still an invasion force in Iraq. The insane spending over there has been killing our national debt. Worries about the national debt help get this snowball rolling. Bush's buddies have all gotten insanely rich

[jpv]

"the U.S. stock market is capitalized at $18.5 trillion. So what really has happened is that the global financial markets have just taken a $42.6 trillion dollar loss of assets."

that statement is a little messed up. Most companies (except banks and a few others) are traded based on P/E not book values. Book values of many companies did go very high over the past 5 years but the market cap of those stock did not follow. They followed the P/E. In many cases bank stocks followed the P/E and not the inflate book value.

So yes $42 trillion was lost in book assets (if that is actually the correct number). But that just brings the P/B more in line to where they should be. The market cap of the stock market will still trade more in line with P/E. The P/E of the markets were not too crazy but because of the recession we are going through the earnings of companies will come down.

To sum this up... All companies are NOT going to 0 because $42 trillion was lost on the books compared to a market cap of $18 trillion.

[Pleasurepays]

Originally Posted by BlackCrayon

You make some good points, I don't have the time to respond to them all but will say I am not in favor of letting people starve while they figure out how to adapt to this new reality.

no one wants people to suffer. but how do people learn the lesson? how do people start accepting responsibility? how do people start holding themselves accountable?

when does the morbidly obese person accept responsibility for eating 10,000 calories a day? and when are we going to stop tolerating people like that from telling an airline that they should be allowed to take up two seats while paying for one?

what is the solution right now? well.. the solution right now is government pays for everyone, government fixes mistakes, everyone looks to government to solve all problems and the lessons aren't learned.

that all sounds real nice in theory. looks great on paper. sounds wonderful in a campaign speech. the net result over the long term is a weakened society with increasingly blurred values and a decreased sense of self reliance and a guarantee that these things issues with fester and grow and never go away.

Its American workers and consumers who have allowed these companies to become as successful as they are, yet they aren't the ones who suffer. its unfair, and although "life isn't fair" not everyone is going to be able to come up with the next best thing, not everyone will be able to have their own successful business.

regardless of what happened, with who, who exploited what loopholes etc etc etc.. the entire situation needs to adjust. the adjustment should come by the market learning some painful lessons... not by government stepping in to save failing companies.

its interesting watching obama/mccain discuss this idea of government regulations, less regulations etc... and the idea that somehow government needs to intervene or get out of the way.

Obama keeps poking fun of McCain for this idea that government needs to get out of the way. His argument is that is the very thing that caused this problem. It can also be argued that the government getting involved and trying to be the solution is what causes the lessons to not be learned and for these things to happen again and again.

the fact of the matter is that we really don't know how a free market would react and correct itself because we don't allow it to. instead, we prop up failing institutions, we bail out failing airlines, we manipulate interest rates, we print more money, we create laws forcing banks to lend so much money to shitty, high risk communities ... etc. etc etc. we don't let things run their course, lessons aren't learned and the attitude that government should ultimately step in and make peoples lives better is reinforced every time.

Its easy to think that everyone should just fend for themselves when you run your own business, you figure if you can, so should everyone else but when these retards run out of money, and out of jobs, your business is going to suffer as well.

it's not easy at all. i know the world needs ditch diggers and strippers. thats a fact. however, my point was that NO ONE should be aspiring to be ditch diggers or strippers.

EVERYONE should be aspiring to be more, achieve more, get educated and fulfill their dreams. encouraging people to look around and always say "its not my fault" and continually reinforcing that is ultimately making everyone weaker. it makes the nation weaker and hurts everyone.

Right now things are tough... the economy needs to crash, these shitty institutions need to fail and the market needs to be allowed to adjust and begin working again with a new set of rules based on incredibly harsh lessons that were learned.

people need to suffer. suffering is a part of creation and growth. maybe now people will actually think about the stocks they are buying.. maybe they will think about whether or not they can afford the home they are buying, maybe they will start thinking about the future instead of living from credit card statement to credit card statement.

this entire country, lack of personal accountability, culture of excess consumerism and credit over-extension is to blame and as such, needs to suffer and learn its lesson.