We Stand at a Precipice 18 comments
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Because some men aren't looking for anything logical, like money. They can't be bought, bullied, reasoned or negotiated with. Some men just want to watch the world burn.
-- Dark Knight (2008)
Take your third deep breath in ten days. Because we stand at a precipice in U.S. markets. Congress is playing political brinkmanship with the biggest financial decision of our generation. We just had the largest bank failure in U.S. history. Credit spreads have widened to the point of gibbering meaninglessness. And some people are still nattering about what might be the perfect variant of the Paulson bailout plan.
Listen. There is no perfect. As Voltaire wrote, "Le mieux est l'ennemi du bien". The perfect is the enemy of the good. No plan is perfect; no plan will be static. But standing on the precipice and inching ever closer to the abyss is stupid and suicidal. We need to ease the pressure in the system by moving to allow losses to be written off over longer periods, by getting bad paper out of institutions so counterparty trading can happen, and perhaps by some easing as well. Credit markets can't be left like this for much longer.
Some people don't care. A few just haven't thought it through, but others are so wrapped up in their anti-Wall Street vendettas, their ideological purity and their Calvinist moralizing that they would rather see everything come down around their ears -- look at all the shiny creative destruction! -- than worry that it's their economy too. Fuck them. While some men want to watch the world burn, we don't need to stand idly by while they set the fire.
I shouldn't be posting things tonight as I'm too tired and frustrated, but in case you can't tell, I've had it.
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this problem did not arrive last week, and mortgaging our country with a non-transparent solution leads me to assume there is something somebody does not want to reveal.
After the fire, there is always the question, where's the insurance? The answer in this case will be that the insurance, credit default swaps on failed financial institutions, is held by persons who did not own any of the debt involved. Strictly speculators who stood to profit from a financial conflagration.
What nobody wants to talk about is that Congress in 2000 exempted credit default swaps from regulation. Regretfully, that created a situation where there has been no oversight. The SEC and NY State Attorney General are belatedly starting to investigate.
True, but when (and I'm still inclined to think that it's a matter of 'when' rather than 'if') some form of plan is rolled out, just how quickly do you expect it to have a meaningful impact on the banks' willingness to take on counterparty risk? The ship may or may not already have sailed, but it's bow is already a hell of a long way out of the harbour. Getting it back to the wharf will be neither quick nor easy - and it might be impossible.
Thought for Rokjok777: when being critical of hedge funds (and I wouldn't disagree with you on that), it can be helpful to use the expression 'highly leveraged hedge funds'. This helps us focus on the fact that these thousands of little puppies have borrowed a fair bit. Who from? Banks, perhaps? Will Paulson be buying bank hedge fund exposure as well?
The rest of the markets are drastically weaker than DJIA on a relative strength basis, no surprise there... they aren't headline, the public doesn't watch them, and they can't be moved as relatively easily by the whales as the DJIA.
This train wreck was decades in the making. All it took was hubris, stupidity, greed and the collusion of Congress, the Fed, the Treasury, and the Financial institutions. There were just such HUGE piles of nice sweaty money that everyone got a cut.
Our economy was being propped up on the absurd notion that you could create true prosperity out of a MOUNTAIN of debt.
That mountain of debt was built on the back of the American consumer. Now that he is TAPPED OUT, the corrupt ponzi scheme is collapsing.
The bank that just jacked your credit card interest rate up to 30% needs more juice and you have been squeezed dry. No one will loan it any money and nobody will buy buy its toxic garbage assets at any price above 5 cents on the dollar.
This plan would CONFISCATE YOUR FUTURE EARNINGS using the force of law via TAXATION and essentially give it to the banks.
This is called "taxation without representation" and our forefathers fought a revolution against an Empire over this crap.
Don't kid yourself, anyone that says that this plan is "good" for the Average American is a LIAR and a TOOL!
You are already screwed! Your savings, your retirement accounts, your equity, the buying power of your US dollar. POOF. There is no easy button quick fix for this disaster but this so called "financial rescue" digs the hole you are in much, much deeper and fits you with a nice yoke of slavery to corporate fascism. (Remember you will be paying for this whopper with or without your participation or consent via TAXES for generations.)
There were credible people who saw this coming and tried to warn us, but they were marginalized as "nut jobs." None of them think this plan will work.
I am not rooting for "financial distruction". I just know that it is inevitable.
Same problem in the UK.
Well, no. The mortgage is paid off. FDIC deposits spread in two uber banks. Some foreign cash and insured deposits. Some gold. Well out of harm's way. It was prudent, because we saw the Crash coming about a year ago. Outsourcing the Dreamliner was a bad omen.