Posted on 09/19/2008 8:27:07 PM PDT by B-Chan
AS I PASS through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.
We were living in trees when they met us. They showed us each in turn
That Water would certainly wet us, as Fire would certainly burn:
But we found them lacking in Uplift, Vision and Breadth of Mind,
So we left them to teach the Gorillas while we followed the March of Mankind.
We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market Place,
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.
With the Hopes that our World is built on they were utterly out of touch,
They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things.
When the Cambrian measures were forming, They promised perpetual peace.
They swore, if we gave them our weapons, that the wars of the tribes would cease.
But when we disarmed They sold us and delivered us bound to our foe,
And the Gods of the Copybook Headings said: "Stick to the Devil you know."
On the first Feminian Sandstones we were promised the Fuller Life
(Which started by loving our neighbour and ended by loving his wife)
Till our women had no more children and the men lost reason and faith,
And the Gods of the Copybook Headings said: "The Wages of Sin is Death."
In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: "If you don't work you die."
Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.
As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wabbling back to the Fire;
And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will bum,
The Gods of the Copybook Headings will with terror and slaughter return!
“The stock market strode out from under the shadow of a panic in call money that so lately threatened, revived in all its old strength yesterday. Assured that the New York banks were ready with their boundless resources to prevent a money crisis, the public and the professional trader set out to repair the damage done to prices on Monday and the major part of Tuesday. Stocks in the aggregate, though bucking a 15 per cent rate for loans, enjoyed the greatest advance they have known in a single day in the last two years. Not even the surging bull markets of the memorable year 1928 saw such a day of heavy buying.”
—New York Herald Tribune, March 28, 1929
“Several brokerage houses tumbled; blue-sky investment companies formed during the happy bull market days went to smash, disclosing miserable tales of rascality; over a thousand banks caved in during 1930, as a result of marking down both of real estate and of securities; and in December occurred the largest bank failure in American financial history, the fall of the ill-named Bank of the United States in New York.”
—Only Yesterday: An Informal History of the 1920’s by Fredrick Lewis Allen
And a bureaucracy that will not go away. We are all socialists now.
1. These are temporary, and these positions be unwound as rapidly as possible.
I don't believe it will happen. But perhaps someone can point out an example of a return to free-market principles, once the socialist genie is out of the bottle?
While it may be impolitic to say so, we need to take the hit manfully and without all the bellyaching. It's a part of capitalism.
So I have a question. If the gov’t is going to guarantee money market accounts and the current short term treasury note is yielding zero (or less) won’t aggressive MM managers just start buying riskier investments since any losses are guaranteed? If you don’t go the riskier route you get no business. Same deal, different market.
The USA is now like a person who can’t pay there Bills so they turn to putting everything on a credit card. At the same time there income is dropping. Sooner or later they won’t be able to pay the credit card bill. Or the card issuer will cancel the card. They will either have to cut back to bare minimum including stopping the payment of all entitlements(SS,Medicare,ect...) or they will default. The interest on the Debt will eat up most of the tax revenue. That is the position the US is putting itself in now.
No problem here. I never financed a hamburger.
The only justification for using fiat money is to increase supply during an expansion to avoid choking-it off (and all the crap that comes with the self-induced implosion).
Think of it in terms of driving: From a dead stop, you apply the gas (money throttle) to get up to speed. After you hit cruising speed, you let off (the money throttle). The engine (economy) will hum along steadily until you get to a hill- where more 'throttle' will be necessary. Once over the hill, everything is downhill and you could put it in neutral, turn off the iginition, and glide the entire way- if you wanted.
What the fed did (the driver of the bus, if you will) was keep the throttle down as we went over the top and what a ride it was to the bottom. So, now we find ourselves on our side and there are a few casualties who are just now being attented to by our government (taxpayers).
The tow trucks will right the bus and the ambulances will take Lehman, Bear, Fannie Freddie, and AIG to the hospital. Not all will survive, unfortunately.
Now, what's it gonna take to get the rest of you back on the bus to finish the trip? A bribe? Well then, try this: you don't get back on, you don't get home. And if you don't make it home, your kids will be saying things like, "My parents are stupid hippies!" "I can't take it anymore." "Gosh!"
Cool poem.
But you would not let your child run in front of a speeding truck, just to "teach them a lesson."
If they had let this financial collapse occur without such extraordinary measures to abort it, then all the dollars and Treasuries (trillions of dollars worth) overseas would have become nearly worthless within weeks. The dollar is the international currency, and has been since World War II. Trillions of dollars and Treasuries sit overseas, as we have overspent and over borrowed for decades.
Most commerce with other nations would have ceased, other than perhaps a little tourism, with other nationals (if their nations hadn't collapsed too) visiting us like we (used to) visit third world countries. That 70 percent or whatever of our energy we import, and major portions of other valued imports, would have pretty much ceased.
Our troops would have all been called home, because we could not afford them, and we needed them to keep the peace at home.
Our ability to sell Treasuries, which we are doing by the billions and trillions, would have ceased, overnight. The only way the government would have to buy anything would be with rampantly inflating dollars, similar to the Wiemar Republic in Germany or Zimbabwe.
Essentially all banks, all businesses relying on banks, all major commerce would have ceased.
Most of us would be unable to feed ourselves.
This leads to riots and loss of social order in most of the cities, within weeks.
I don't think you want to go there.
And in some areas, such as Southern California, it's not 2% or 3%. Half the mortgages let out in the last three years in Southern California are in distress (payments over 60 days late or the mortgage is greater than the current value of the house, or worse), if I am remembering correctly.
Any money flowing into the banks will not go to building more homes; there is no money there. That money will go into shoring up the balance sheets of the bank.
I am still amazed at LA housing prices. There are homes selling now for $400K that I wouldn't give $75K for here in central Illinois. If I wanted to live in a LA, I would have to double my current income. The weather is nice in LA, but not that nice..
$115K doesn't buy much house here in central Illinois. It will get you a roof over your head with 3 bedrooms in a marginal neighborhood.
Then sell the bad debt to collector's and move on. Let them go after the people who owe the money.
Still, a heck of a lot less money than California.
There is no "collector", because there is no underlying marketable asset.
One pretty readable explanation is available at It's the Derivatives, Stupid! Ellen Brown – Web of Deceit September 18, 2008.
Credit Default Swaps (CDS's) are just bets between various banks and hedge funds. Like bets on sport games with your brother-in-law, they are entirely unregulated. If the counter-party (your brother-in-law, or JPMorgan Chase in the CDS case) doesn't or can't pay up, they are instantly worthless.
There is a tangled web of them, built up over just the last decade or so, that is now vastly larger than the banks and hedge funds doing the betting. If some outfit such as AIG, which has played heavily in this CDS game, defaulted on their bets, then basically every bank would be bankrupt overnight, and every hedge fund panic selling any securities they hold, causing a stock market crash greater than 1929 or 1987. And that (financially) bloody day might well be "the best day of the rest of our lives" ... that is, it might well be downhill from there.
A huge number of these CDS's are bets on Fannie and Freddie paper, so if those two went down, even if they weren't into CDS's themselves that much, the house of cards collapses. ... Like I said, they can't sell the bad debt to the collector. The bad debt would have no collector and zero value. It's not really debt, actually. Debt might an underlying collateral that can be attached.
This is more like fifty drunk and rowdy men going into the sports bar on Super Bowl Sunday, each one making massive (a hundred times more than the value of their life savings) bets on the outcome of the game, and each thinking they are safe, because they bet both sides of the game equally.
If just one man in that bar reneges, then a bar room brawl breaks out, and the bets collapse. That's no so bad in the bar; everyone takes another shot of whiskey, punches the man standing next to them, and walks out ... or is carried out.
But the banks in this fiasco are -required- by recently introduced law to mark down their assets to current market value, and they are required by long standing law to have balance sheets with sufficient reserves to cover their (highly, 30 or 50 to one in the case of the five big investment banks ... well now two big investment banks ... only Morgan Stanley and Goldman Sachs are left standing) leveraged loans. The center of the world's financial system, the creator of the U.S. Dollar (since 1913, when the consortium of private banks known as the Federal Reserve was granted a monopoly on creating our dollars) and the creator of the worlds standard currency go "poof".
... and Morgan Stanley is desperately shopping for a buyer, with reliable reports that their CEO has told other CEO's this last week that Morgan cannot survive independently.
That bar room brawl, that massive financial collapse, had already begun, early last week. It was visible on the stock screens, showing once in a lifetime shifts in short term Treasury rates (down to 0.03 %, off the peg of 2.00 %) and LIBOR (London interbank lending rate) jumping sky high, in the space of minutes.
Paulson and Bernanke were (are) applying the defillibrator to the American, and world's financial system, as it had started a massive coronary collapse.
The defillibrator is not the problem. That we had allowed our financial system to become the equivalent of the world's fattest man is the problem.
Even if we determine later that it was a defective defillibrator, causing serious long term damage to our health, it's still not the problem, this week.
$150K gets you a little better neighborhood, which is about average for our area.
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