Great Depression Ii

[JAMESBJOHNSON]

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[Roxanne Appleby]

ROXANNE

I understand about the bundled mortgages.

A local judge tossed out several foreclosures because the 'lender' sold the paper as bundled credit. The judge said the school board from North Dakota or whoever is the real plaintiff.

Let me display the problem a different way. If 90% of Americans work, is 10% unemployment a problem? Is 25% unemployment a problem? I mean, most people are working!

Let's say your car runs okay 90% of the time. Is the 10% it doesnt run a problem?

Yes. I didnt want to badmouth Rubin.

Nope your analogies don't work here. Someone unemployed is 100 percent lacking a job, and the people who were foreclosed 100 percent lost the house, but they are not the problem at this point (except for themselves, of course). The problem is banks and similar institututions that own a certain about of bad paper all bundled together with the good. They are not 100 percent broke, not even close, because they have lots of good assets on their books, but they are (nearly) 100 insolvent, because many of those good assets are bundled with bad ones, they can't tell right away how much or which is good or bad, and no one's willing to buy any of their assets for fear of ending up with some of that bad paper.

 

[JAMESBJOHNSON]

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[Roxanne Appleby]

ROXANNE

Then none of whats happened is a problem, if I understand you correctly.

Not that big of a problem. Oh sure, several hundred billion in losses on bad mortgages is pretty big, but it's chickenfeed compared to the full US economy and capital reserves. That's the "real" problem. The secondary problem - the fact that all that bad paper is mixed in with the good in a way that takes time to un-mix - is not a "real" problem at all, merely an accounting mess, but it's the thing that is threatening to lock up the world financial system. The RTC approach cuts the Gordian knot on that and allows the entire mess to be unraveled in an orderly fashion over a year or two. The losers still lose but they don't take anyone else down with them.

 

[incubus666]

Nope your analogies don't work here. Someone unemployed is 100 percent lacking a job, and the people who were foreclosed 100 percent lost the house, but they are not the problem at this point (except for themselves, of course). The problem is banks and similar institututions that own a certain about of bad paper all bundled together with the good. They are not 100 percent broke, not even close, because they have lots of good assets on their books, but they are (nearly) 100 insolvent, because many of those good assets are bundled with bad ones, they can't tell right away how much or which is good or bad, and no one's willing to buy any of their assets for fear of ending up with some of that bad paper.

What is happening is a problem because of a GAAP called "mark to market". This says your assets are only worth what you can sell it for today.

I was talking to my teen yesterday and came up with an analogy that I thinks work.

Assume you go to your accountant and five him 10 $10 bills. He examines them and says. One of the bills is counterfeit. There may be more bills that could be counterfeit but, we can't tell you which ones and when we will be able to tell.

You ask him how much money you have and he says he doesn't know. Try and sell them on the street. What ever someone offers today is what they are worth.

You try and get 0 offers. The accountant says you can keep them but you can't count them as part of your assets. But, you protest, There is only one bad bill. He replied I know but you still can't sell them so you can't even value them at 90% you must value them at 0%.

That is what is happening to banks today. They need a specific value of liquidity to loans you have out. By being forced to write off billions in assets, despite the fact they may be performing at 90% of their values, they are facing a liquidity crisis. They can't sell their assets and they can't borrow the money from other banks since they too are in the same boat.

http://online.wsj.com/article/SB122186515562158671.html

Mike S.

 

[incubus666]

Double post

 

[incubus666]

Double post

 

[Roxanne Appleby]

What is happening is a problem because of a GAAP called "mark to market". This says your assets are only worth what you can sell it for today.

I was talking to my teen yesterday and came up with an analogy that I thinks work.

Assume you go to your accountant and five him 10 $10 bills. He examines them and says. One of the bills is counterfeit. There may be more bills that could be counterfeit but, we can't tell you which ones and when we will be able to tell.

You ask him how much money you have and he says he doesn't know. Try and sell them on the street. What ever someone offers today is what they are worth.

You try and get 0 offers. The accountant says you can keep them but you can't count them as part of your assets. But, you protest, There is only one bad bill. He replied I know but you still can't sell them so you can't even value them at 90% you must value them at 0%.

That is what is happening to banks today. They need a specific value of liquidity to loans you have out. By being forced to write off billions in assets, despite the fact they may be performing at 90% of their values, they are facing a liquidity crisis. They can't sell their assets and they can't borrow the money from other banks since they too are in the same boat.

http://online.wsj.com/article/SB122186515562158671.html

Mike S.

That's pretty good analogy, I-6. I think the only way it could be improved is to change those dollar bills into gold coins which are supposed to be 24 karat, but you know at least one of them is only 12, and supsect couple more might be. Because unlke dollar bills, underneath these mortagages are real houses. They may not have the value written on their face, but they aren't worthless, either - they're houses. They might be 20k, 18k or 10k, and per your story it's the uncertainty that's bollixing everything up.

 

[xssve]

XSSVE

If you get a Barbie Doll from me its either a GIFT, THEFT, BARTER, CASH EXCHANGE, or CREDIT.

You can keep your Barbie Doll, what's your point?

The word you're looking for here I think, is value.

 

[JAMESBJOHNSON]

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[xssve]

Cash is merely an abstract measure of value - barter is not cash for example - are we really going to argue this all night? You made a technical error, I corrected it, for all practical purposes, we are talking about cash and credit in this circumstance, but to claim that markets cannot exist without these things is erroneous.

It is not a small distinction, cash, particularly fiat cash, is not a fixed unit of value, but is capable of fluctuations - capital, property in this instance also has a value, as Appleby correctly points out, and credit has yet another value, and they are all subject to fluctuation due to market forces, because value is an assignment made through an agreement by both seller and purchaser, according to the laws of supply and demand.

In the end, Appleby may be correct, and this might all blow over with nobody really losing much except the poor fools holding stock in the GSE's, but they are a minor consideration as we all know.

I think different, mainly because nobody has ever been able to cure republicans of their deep fondness for debt and debt financing - they really love OPM, it's like catnip, and that tends to create situations where notions of value can become highly unstable.

 

[trysail]

... nobody has ever been able to cure republicans of their deep fondness for debt and debt financing - they really love OPM, it's like catnip, and that tends to create situations where notions of value can become highly unstable.

Eh? Wha? Huh? Say what?

I've seen more than my share of lallapaloosa, off-the-wall assertions in my time but that beauty just might take the cake. Just where did you glean that little whopper? Science? Nature? Thin air?

 

[Roxanne Appleby]

Eh? Wha? Huh? Say what?

I've seen more than my share of lallapaloosa, off-the-wall assertions in my time but that beauty just might take the cake. Just where did you glean that little whopper? Science? Nature? Thin air?

There's some validity to it, but it's absurd to think that the Blue Team in the biannual Power and Control over Other People's Lives (and Money) are any different in this regard.

Politico reports who's on Obama's "Economic Cabinet" to advise him on the banking crisis:

Robert Rubin-Former Treasury Secretary (1995-1999)
Gene Sperling-Former National Economic Adviser for President Bill Clinton (1997-2001)

Lawrence Summers-Former Treasury Secretary (1999-2001)

Laura Tyson-Former Chairman of the Council of Economic Advisers (1993-1995), Former National Economic Adviser for President Bill Clinton (1995-1997)

Paul Volcker-Former Chairman, U.S. Federal Reserve (1979-1987)

The following advisers will participate by phone

Warren Buffett-Chairman and CEO, Berkshire Hathaway

William Daley-Former Commerce Secretary (1997-2000)

Paul O'Neill- Former Treasury Secretary (2001-2002)

Joseph Stiglitz- Former Chairman, CEA (1995-1997)

 

[incubus666]

That's pretty good analogy, I-6. I think the only way it could be improved is to change those dollar bills into gold coins which are supposed to be 24 karat, but you know at least one of them is only 12, and supsect couple more might be. Because unlke dollar bills, underneath these mortagages are real houses. They may not have the value written on their face, but they aren't worthless, either - they're houses. They might be 20k, 18k or 10k, and per your story it's the uncertainty that's bollixing everything up.

Rox you are absolutly right. Your's is a better analogy. I was working on the fly trying to explain the whole mess. Congressional intervention, "Liar loans" and all the rest in one "swell foop" All of this was totally unplanned. Since he,our teen, is a stock holder, a few shares bought from his savings, we needed to let him know what was happening and, to the best of our ability, why.

Thank you for your input it was nice of you.

Mike S.

 

[xssve]

Eh? Wha? Huh? Say what?

I've seen more than my share of lallapaloosa, off-the-wall assertions in my time but that beauty just might take the cake. Just where did you glean that little whopper? Science? Nature? Thin air?

Try history, maybe even recent history.

 

[JAMESBJOHNSON]

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[JAMESBJOHNSON]

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[JAMESBJOHNSON]

Not A Good Omen

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[xssve]

It's gonna be up and down all week, the nimble ones will be playing, "guess the bottom", the rest are looking for shelter till they see which way the wind blows.

 

[incubus666]

The DOW closed down 372 points. Oil increased $25/barrel.

Looks like the folks who know, dumped dollars and fled to oil.

Maybe not, CNBC was reporting a short squeeze earlier today. So the shorts were covering and when you need it cheap the price always goes up.

I heard just a few minutes ago oil was going for about $109/bbl in futures(?) markets.

I read a quote today by Prof. of Economics. Something about when things settle down rationality will return to the market. It always does.

That may be the most irrational statement I've heard anywhere except the GB.

Mike S.

 

[JAMESBJOHNSON]

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[xssve]

Who's left? Nah, Paulson won't allow it, if we screw the Chinese on this, who's going to finance the government?

 

[Roxanne Appleby]

I dont know...everyone in Washington is trying to get something from the bailout, and I'm betting the game continues thru the election.

It may be the biggest game of political chicken in our lifetimes. Whoever queers the deal "owns" whatever bad things happen from that point on. If Bush had any balls he's say, "Hey, I'm a lame duck, and you've already demonized me as much as you can, so go ahead - make my day. This is the deal - take it or leave it." He's never shown those kind of balls, though.

Would I like that? The devil's in the details of this deal - if it's "clean" (no big special interest handouts tacked on), transparent and minimizes taxpayer exposure (those two things could be accomplished by creating a market for the funny paper through an auction that would allow multiple bids) then I think it's prudent and smart. If it turns into a Christmas tree then I hope that Bush does tell them to stuff it - but only if I know in advance so I can liquidate my 401k stock funds before the news (dream on, Rox).

 

[JAMESBJOHNSON]

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[incubus666]

It may be the biggest game of political chicken in our lifetimes. Whoever queers the deal "owns" whatever bad things happen from that point on. If Bush had any balls he's say, "Hey, I'm a lame duck, and you've already demonized me as much as you can, so go ahead - make my day. This is the deal - take it or leave it." He's never shown those kind of balls, though.

Would I like that? The devil's in the details of this deal - if it's "clean" (no big special interest handouts tacked on), transparent and minimizes taxpayer exposure (those two things could be accomplished by creating a market for the funny paper through an auction that would allow multiple bids) then I think it's prudent and smart. If it turns into a Christmas tree then I hope that Bush does tell them to stuff it - but only if I know in advance so I can liquidate my 401k stock funds before the news (dream on, Rox).

Careful Rox. Remember the tax implications and the penalties. Since the Fed is covering the MM funds liquidity is best.

I will say while I do not like Jim Cramer very much. He is a trader not an investor. He says grade your stocks with a grade of 1=Best to 4 the worst and sell the stocks rated as 4. That money into MM Funds. I like Vanguard for their low costs. I think he may be correct in this case.

Just Cramer's and my take. He is a multimillionaire and I have $1.87 in the bank. <LOL>

Actually you are correct. Should the Dems use this as a bail out for the mortgagee defaulters then we are in a world of hurt. I really doubt there is a any single safe place. Well maybe SW Uzbekistan.

Mike S.