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The Telegraph reports German and French officials working on a multitrillion-dollar "firebreak."...
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Saturday, September 24, 2011, 3:07 PM ETThe Telegraph reports German and French officials working on a multitrillion-dollar "firebreak." Among the steps is a bank recapitalization going well beyond the laughable €2.5B tagged by the EU stress tests (the IMF puts the figure at €200B, others say €1T). A bump in EFSF firepower to €2T and a "controlled" Greek default giving a 50% haircut to lenders are also in the mix.
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And when you are confronted by massive insolvency, the banks must be prepared for major hits as insolvent sovereigns must be allowed to default in conjunction with instituting reforms to avoid repeating past mistakes. Leaders must be listening to markets who enjoy more financial insight than politicians.
They are recognizing the obvious and garnering the political will to address structural debt problems to avoid a complete financial collapse. Speeches have not proven to be effective.
It might though be a game changer in the short and medium term, as it might curtail panic and prevent much larger sell-offs.
IF YOU DIDN'T KNOW IT BEFORE....NOW YOU SHOULD KNOW. CENTRAL BANKS ARE THERE TO TAKE CARE OF THE "BROTHERHOOD OF THE BANKERS".
Conspiracy Theory? Not !!!
When the DAX is down 25%+ and banks keep getting smashed, you'd think they'd finally get it that its not going away.
I will not shed any tears for those who bought PIIGS bonds after 2008, they took a risk, and now the risk didn't pay off.
There has to be a sanction, against the PIIGS, Italy should leave G7 and China should take its place instead.
Let Greece officially default, wind down the over leveraged banks firing management in the process and let the bond holders take the losses. Stop this b.s. already.
Works in the short run, but is not going to work in the long run.
Denial at its best.
Drawing a similar analogy here, we have already recapitalized the banks, placing us ahead of Europe, but, for the usual political and sob-story media reasons, we haven't adequately wiped out the debtors, which is a necessary ingredient to cleaning up the bank books and getting things moving forward once again. Ironically, if Europe does both simultaneously, they could leap-frog the U.S. and be ahead of us in cleaning up the respective messes.
Of course, we have to see how these early rumors actually pan out. Any plan as incisive as rumored sure seems atypical for bureaucratic socialistic politicians, as are manifest in Europe.
It always seemed to me that what was reported about Geithner's visit to Europe last week was just a kind of head fake thing to cover up what was really afoot. The Telegraph seems to have good Conservative Party sources and this story seems to be sourced from "Whitehall officials", i.e. U.K. civil service sources which are centered in the Whitehall district of London. Also Jeff Miller here in SA is saying today that Geithner says there is 0% chance of a Greek default.
Like you I believe this news is good for the markets on Monday and will conduct myself accordingly.
You are a banker aren't you.
The banks should be wiped out and replaced by competent organisations. Instead they are being rewarded.
It's only when we have some competent as opposed to incompetent financial organisations that future growth will be possible. The history of the current muppets is that of decades of malinvestment... Why would that change in the future? It is this continuing malinvestment by the banks which is pushing the economy into a double dip recession. They have trillions in reserves... What do they do with them? Fund the government.
No, I am a private investor with no current or previous tie to the banking or financial worlds. But, I'm also smart enough to know that all this media-induced rage to trash the banks would be a disaster for world economies for a very long time.
You might redirect your vitriol about banks toward politicians, who caused 100% of the problem to begin with (everybody should own a house, even if you have no assets and can't pay) and are now, by their very own ZIRP policies, making it nearly unavoidable for banks to choose the safe bet of recycling money back to the very same big government that caused the problem initially and continues to be a parasite on productive society, starving the private sector of capital and incentive.
As a former Citibank employee who sat enthralled while Walter Wriston spoke to a group of us on the importance of the repeal of Glass–Steagall Act and who saw that repeal take place seventeen years later, I can only hang my head in shame at having bought the thesis way back then. The results speak for themselves. We taxpayers bear the burden while the perps walk and nothing has really changed, but killing banks is the same as killing the economy and is something no one should wish for.
Why should you? Back in those days banking was regarded as an honorable, profession like medicine or law. Bankers were respected and no one knew how they would irresponsibly abuse the freedoms they were granted.
Fallacy. Banks make money by discounting customer assets and cash flows, provided that borrowers have ample and unencumbered collateral. The engine of growth has nothing to do with banking, although banks win when their customers prosper. Corporate funding is traditionally from retained earnings; household income pays the mortgage, car note, revolving credit purchases. Minus out growth in mining and manufacturing jobs, nothing works right.
Great to see a former banker acknowledge the folly of Glass-Steagall repeal. And great to see a voice advocating that holding those responsible for privatizing profits and socializing losses should be held accountable and prosecuted.
The repeal of Glass-Steagall had almost nothing to do with the meltdown. The big problem wasn't in the commercial banks, but in the investment banks--Bear, Lehman and the rest. And their biggest problem (besides greed and stupidity, which are always present) was a lack of capital. They were levered almost 40 to one--a suicidal level but one the SEC approved in 2003 or so. Financial crises will always happen and over levered financial institutions will always be at risk of crumbling.
What all financial institutions need is an extremely sturdy capital cushion. Letting commercial banks underwrite securities isn't what drives them under--too much leverage does that.
Yes that is certainly partly true. However regarding the meltdown, the commercial banks as well as the investment banks were actively involved in the whole fraudlent securitization schemes, as were numerous other participants as well.
And yes, would certainly agree that leverage was yet another large part of the problem as well.
Would further agree that the SEC is by and large a total joke and largely an industry puppet that essentially does the industry bidding.
The banks should be wiped out and replaced by competent organisations (organizations). Instead they are being rewarded.
======================...
Who are these competent organizations ?
People want to argue that 'too big too fail' encourages excessive risk. Really? Find me a BAC or C shareholder that agrees? So losing 90% of your money wouldn't stop you?
Very much content that a Greece default and bank recapitalization would be similar to the Jobs retiring at Apple. It has been feared for so long that the market has already price it in. When the sun rose the next day at AAPL, the stock eventually rose to new all time highs.
When Greece defaults and the world doesn't end, the markets will rejoice. All of a sudden that $100+ earnings in the SP500 becomes legit. Everybody knows what a normal valuation would be once the doubt exits stage left.
Yes, I agree. The commercial banks certainly took part, as did Fannie and Freddie, the investment banks and a lot of other players. It wasn't all fraudulent, though. Some certainly was, but a lot that was done was just stupid and incompetent on the part of a vast array of private parties and governmental actors.
My point was only that Glass Stegall repeal was not central to the meltdown. If the investment banks had had enough capital, we still would have had the whole mortgage/securitization mess, but I think the financial meltdown would have been far more limited. Indeed, if the IB's had been required to have adequate capital, they never could have underwritten nearly as much toxic paper as they did (since they invariably kept some on their books).
so use the rally to sell cyclicals and add shorts.
USA, Japan, and Europe are comatose welfare states full of illegals, old people, parasitic banks, oil cos., politicians, insurance companies, all leeching off the system. If you want to do anything of any consequence move to Latin America, Asia (ex-Japan) or Africa.
You're falling victim to the "new think" that's always proven erroneous as soon as tested, i.e., the idea that "emerging markets" and third-world countries can and will prosper while the developed world stagnates or decays. Sorry, but as soon as the big boys suffer, the little guys get crushed.
So, if you really want to prosper, live, etc. in the exciting less-developed places, then, you better be hoping that those major countries you think are "finished" aren't because if they are, the secondary and tertiary economies, stock markets, you-name-it, are kaput.
medium term the BRICs will grow strongly without the debt and demographic overhang that keeps USA/Japan/Europe locked in a comatose state. Lower costs, less regulation, less debt, more demand from the emerging middle class. That's why on any serious corrrection down to the S&P level 950 you can buy CMI MCD or SBUX for Asian growth alone, plus the ongoing US/European Ops.
Another major difference is that Banks in Australia, NZ, South Africa and Asia (possible exception of China) are well run and credit growth is strictly limited.
Does anybody really beleive that the next generations of endebtted graudates in USA/Europe/Japan will have anything but second rate careers and earnings prospects whilst paying for bank bailouts, wars, welfare for millions of retirees, uneducated minorities and illegals? At least in Africa/ developing Asia the locals are paid according to the value they create and receive little or no welfare.
Having a spent a career in international business, I tend to concur with your extended outlook, on a relative basis. I think, however, that respective stock markets will still be linked rather closely for the foreseeable future.
So, one may be able to enjoy the fruits you mention by being there locally (as you are), but it may be more difficult to see investments in securites reflect the differences you suggest.
We'll find out in a few years.
Stock markets are an entire other story - EMs are already much lower and in bear market territory than the S&P, and are probably headed lower. Yet unemployment is basically zero in Asia, and the next generations will be even better educated, hardworking, and ready to steal the last remaining jobs from the USA/Europe, while USA/European sovereign debt grows and grows. So EM markets will be interesting some time in 2012.
I'm anticipating end of quarter manipulation this week as a payoff for hedgie's and fundies' campaign contributions to set fees and bonuses, especially so close to year end. Then down to S&P 950 as Q3 earnings show the first signs of the double dip. By then Asian rainy season will be over, time to move back to Laos for the winter..
It has been a big socialist conspiracy from the very beginning. We went from a chicken in every pot to a mansion on every lot.
Don't worry, you'll get there. It takes time to face your true enemy. The 'banks' are a nice, relatively convenient intermediary that helps us sleep at night. Who really wants to believe that the US govt. is our worst civilian enemy, including its public unionized mouth-breathing mob(I mean tax-fueled payroll lard ass-sitters of the cubicle farm people classes).
If we can scapegoat the banks, then we can at least keep Barney Frank out of Supermax, right? And that's the most important thing we can all do. Help Washington out. Washington is full of super neato people who want to help us. They'll 'fix' the banks for us, don't worry. We'll have 20% unemployment for as long as necessary if we can keep voting for these superheroes of government.
Capitalism sucks. Its the cause of all the bad things in the scary places.
I like the cyclicals on the way down, wherever 'down' is... or goes.
On the way up, wherever 'up' is I begin to sell them.
I'm not perfect, but that's how it works in my non-nostradamus world of not knowing the future.
Rope the herd, but don't follow them off the cliff.
That's how America moves between cycles, like a fat drunk suffering from amnesia, also blind, moving around the room trying to right itself by holding onto the walls, from its flirtations with socialism and soft marxist heavy petting to going back to supply siding freedom and low taxation. We veer right in the end. We tried the Obama stunt out of multicultural fealty. It was a one off novelty. Wheeeee. That was fun.
Now, we will move back to hiring an adult... hopefully and then go about reforming the tax code and capping spending along with entitlement modification(we're too much of a puss to really rework the failed programs).
Anyway. By the time most people wake up and realize America is a huge buy because of the political switchover, they will have lost the move.
Commercial banks must at least continue to serve a public utility function of providing credit and liquidity to private actors in the real economy. It is better for them to do so as private entities rather than as nationalized public entities, if for no other reasons than: (i) even an emasculated profit motive seems more likely to result in a socially efficient allocation of capital and liquidity than political motives, and (ii) if both the regulated and the regulator are arms of the government, their powers will be even less effectively separated than they are now where there is a significant extent of regulatory capture by the private banking system, and the regulator will be an even less effective check upon the regulated. Regulations governing capitalization and the provision of credit must be stringent - as long as the investment instrument of a "demand deposit" exists, banks will be susceptible to panics notwithstanding the existence of the fed discount window and deposit insurance, and as such, panic-driven losses may end up being socialized in one form or another. Tight regulation of credit will tend to reduce the availability of credit to the less fortunate and will reduce the velocity of money, and may therefore constrain home ownership and entrepreneurship by poorer segments of society and on overall economic growth rates. But to the extent that tighter regulation of credit may also limit the downside volatility of the business cycle by limiting socialization of losses, those constraints may well be an acceptable trade-off.
I agree with the commentators that find the SEC culpable of relaxing the net capital rule that could have been used to constrain the investment banks from taking on the leverage that led them to implode. The SEC should also spend more time and money prosecuting fraud than micro-managing the prospectus comment process, even in IPOs. They are no more adept at rooting out fraud ex ante than investors, so they should be vigorous in prosecuting it (criminally - not through wrist-slap C&D orders) ex post.
Ultimately, perhaps a strict separation of commercial banks (provision of credit and liquidity), investment banks (securities underwriting and M&A advisory services) and hedge/mutual funds (the assumption of proprietary securities and derivative trading risks) - Glass Steagall and the Volcker Rule - is the right way to go.
Would agree with everything you summarized and a very good overview at that. There is plenty of fault to go around at both the government and private sector level as well as at the regulatory level for the financial sector meltdown.
And the same is very much true today for much of the US economic situation on multiple fronts. From healthcare, to energy policy, to the military-industrial complex,tax reform, etc, etc. Essentially very large structural issues facing the US economy on multiple fronts that neither the politicians, government, regulators, or the big vested interests in the private sector are willing to confront. Probably because they themselves are the primary beneficaries of the dysfunctional system and those who benefit the most are never willing to seek major change.
The CRA act stated you must not deny credit etc etc
if you go to the ftc website
it also tells you
that welfare counts as income
everyone deserves a house is the socialist mantra ( yes, some gop /aka as rinos pushed it to)
those are the facts
I leave you to argue your opinions
Only folks nowhere near banks, mortgages, financing, and real estate proximate to the housing collapse cite it, and do so as a matter of political positioning and nothing more.
banks were never forced into anything .....they did it for one simple reason......GREED.
remember the original loans could have been manageable , it was the LEVERAGE that brought down the house of cards.
Subprime was mainstreamed. The big banks COULD NOT compete if they didn't engage in Fannie's new low lending bar since it opened up all the other banks exposing them to the same shit.
Its similar to the blue laws. Remember those? Used to be not too long ago that you couldn't conduct business on a Sunday. Well, we got rid of those. Guess what happened. All the other stores had to now stay open if they wanted to survive in business. Pandora's box. It was the same with the banks. Once you change the standard, you have to change your standard also unless you want to lose marketshare. Yeah, well, shareholders don't like that.
As applied by the government, the CRA did indeed force banks to make loans to subprime customers, because it was the only way to meet the government's demands. The idea then became that if one created a portfolio of mortgages, the risk in the subprime loans would be offset by the better loans. After that, various bankers discovered that one could create highly rated securities by slicing and dicing subprime mortgage streams.
And, in fact that worked. Wall Street being Wall Street, however, a workable idea was taken too far, and then far too far, and then to absolutely ridiculous extremes. Fannie and Freddie, those Congressionally favored landmarks of crony capitalism, aided this as well.
Wall Street greed certainly played a big role in the problem, but so did the CRA, Fannie and Freddie and the US Congress. There is blame aplenty.
Jeep
At the time of its creation banks would open branches in poor areas, take the deposits, charge high fees, and lend the capital out in the rich areas of town.
It worked initially but as time went on the US government made changes which diluted the bill.
" mandates that all banking institutions that receive Federal Deposit Insurance Corporation (FDIC) insurance be evaluated by Federal banking agencies to determine if the bank offers credit (in a manner consistent with safe and sound operation as per Section 802(b) and Section 804(1)) in all communities in which they are chartered to do business.[3] The law does not list specific criteria for evaluating the performance of financial institutions. Rather, it directs that the evaluation process should accommodate the situation and context of each individual institution.
The law, however, emphasizes that an institution's CRA activities should be undertaken in a safe and sound manner, and does not require institutions to make high-risk loans that may bring losses to the institution.[3][4] An institution's CRA compliance record is taken into account by the banking regulatory agencies when the institution seeks to expand through merger, acquisition or branching. The law does not mandate any other penalties for non-compliance with the CRA.[6][9]"
Underwriting standards that allowed dead people, no-doc, stated, recently bankrupt, etc folks to get loans were the BANK'S responsibility. I'm very much involved in the real estate industry, and loan brokers themselves were coming to me in 2007 incredulous at how little it took to get loans. I also have been involved with folks who were victims of mortgage fraud.
Rent rolls on derelict properties showing outrageous income numbers were getting rubber stamped.
A house purchased for 300k refi'd at 550k in two years? The CRA is responsible for that?
Lenders failed to perform appropriate underwriting, rubber stamped their way through loans in order to close as many as possible, and failed at every step of the way.
You folks need to stop blaming the government every time your business fails. I'm tired of the whining about how banks had their arms twisted to make liar loans to liars. No one thanks the government when it makes business viable, but when they fail its everyone's fault but their own. Give me a freaking break.
Take a look at the Chevy Chase Federal Savings and Fleet cases. If you do that you might want to reconsider your thoughts. Chevy Chase was sued by the government under the CRA not for having branches in minority neighborshoods and exporting the deposits, but for precisely the opposite reason--the government claimed it didn't have enough branches in minority neighborhoods. Fleet, like a lot of other banks, meanwhile was strong armed into setting aside a fund to provide mortgages to minority communities.
Did the text of the CRA require these results? No. The government instead read the CRA in light of "disparate impact" analysis. Disparate impact assumed that minorities and whites would get credit in the same proportions. Of course, in the United States, the minority groups the government thought it was helping have lower incomes and substantially less wealth than the white population generally. Thus, disparate impact analysis essentially required banks to make CRA loans to subprime customers.
Banks, of course, didn't want to be labled racists so they started making these loans. Since the government was requiring them to keep racial statistics, they were glad to do so so long as they could sell the loans to someone else. Yes, the CRA talks about "safe and sound" practices but in reality the government threw that out the window (although it could still point to that language to claim it wasn't at fault).
Did that mean that the banks had to make "liars loans?" No--though much of the faullt there lay with mortgage brokers (and of course, customers). And many subprime loans were made to whites, and for the most part there was no government coercion involved in those loans. Like I said, there is plenty of blame to go around. But to deny the important role the CRA (or the disparate impact interpretation of the CRA, if you like) played in this mess is to ignore reality.
Jeep
I'll grant that there is indeed plenty of blame to go around. What I won't grant is the ludicrous assertion that without the CRA there would not have been a housing collapse in 2007.
I'll tell you what. If I enter into a contract, and my due diligence is crap,and I lose money I blame myself, not the government. Even if my failure arose because of government restrictions on and ancillary to the deal with which I am working. Because I should have known better.
And so should the banks.
Housing collapses happen. They always have and they always will. I have no idea whether there would have been a housing collapse in 2007 without the CRA, but I do know that the implementation of the CRA put extremely strong pressure on the banks to make bad loans, which were subsequently securitized.
Bankers make enough bad loans by themselves. Government allocation of credit--whether directly through the CRA or indirectly through Fannie and Freddiw--almost always makes that problem worse, and it certainly did this time.
Meanwhile, Fannie and Freddie still hold trillions of dollars of mortgages and securities, all propped up by trillions of dollars of loans and virtually no capital. If those positions are not unwound, we have another financial bust in the making.
Jeep
Which is weak. Since the government regulates and gets involved to a far greater extent in other industries such as utilities, telecoms and airlines.
If you consider this for a minute I think you'll find that banks had a lot of rope to play with, and they strangled themselves.
Fannie and Freddie, by the way were solvent until they had to take on the crap banks gave them - poorly underwritten crap. And then they were used by the Fed and Treasury as a mechanism to protect and prop up the banks from the mess they had created.
There were issues with the GSEs prior to the housing crisis, solvency wasn't one of them, and they didn't originate the failed loans until after banks stopped lending - and they became the lender of last resort.
Every which way you cut it, banks failed.
Actually my position boils down to what I said above--government intervention (through the CRA and Fannie and Freddie) made things worse.
I'm not sure when Fannie and Freddie became insolvent, but if you use the insolvency test of the amount of liabilities being greater than the value of assets, there is a pretty strong case that they were insolvent years before 2007 on a mark-to-market basis.
As for Fannie and Freddie "having to take" the poorly underwritten mortgages, that is simply not correct. Fannie and Freddie both made choices to take riskier paper--they weren't forced to do so. And just like the bankers, they knew that low doc mortgages combined with small down payments was a road to disaster. The late 1980's and early 1990's had proved that.
Nothing I said excuses fraudulent or negligent behavior on the part of bankers. There was some of the former and a lot of the latter. But the blame belongs in Washington as well.
Did the banks fail? Yep. Did Washington fail? Yes again.
Jeep
Just in case how the GSE's functioned isn't clear - Fannie and Freddie determine what 'conforming' is - basically they universally purchase loans that 'conform' to certain standards that they set. Such as, single family under $412k. "Jumbo' would actually be considered 'subprime' since the loan rates on 'jumbo' are higher, and that would apply to single family with a loan -higher- than the $412k limit set by the GSEs. Presumably, a house purchased by a rather well off borrower. And yet... subprime.
As per 'having to take', if Fannie and Freddie accepted bank underwriting at face value, and that was their error. And fyi low doc low equity were not 'conforming'. Anyway, there's a lot going on there and I'm going to leave it at that, I don't disagree that there may have been an impact by the CRA, but I ascribe the bulk of the failure directly to the banks themselves who proved post crisis and pre, over and over again, that they rubber stamped their way to their own implosion.
MARK SCHINDLER, Rumors in Financial Markets
-Greece needs to default and bondholders take a haircut. 50% seems excessive. Isn't that letting them off the hook?
-Banks need to be recapitalized. Not sure they need it based off just losses in Greece but it would help put to rest the fears in the market.
-EFSF needs to be expanded so that Italy and Spain bonds can be bought without limit. Neither country has any debt worries beyond what the US should have. The fund could make 5% on current bond purchases.
Markets would soar. Remember market-to-market was the issue in the US. Once that rule was changed the markets soared. TARP was a big help though.
Flush the Banksters by fundamentally dis-associating yourself, family, friends, businesses, etc. from any of the top 100 banks. Take your business local. Look at a Credit Union. Kill your major bank issued credit cards. Tell them to go fly a kite.
Well I know how I'm going to trade.
The recapitalization of the banks is good but signals the fragility of the banking system.
It only buys time and the market is likely to rerate the debt even lower.
Ireland is actually running positive growth numbers while the Greeks blow their budget out even larger.
If, for example, they put into place extreme austerity measures like the reparations Germany had to pay after World War I, (or Haiti after independence, for that matter) it just won't work. Ultimately lots of Greeks will leave the country and go to work elsewhere in the EU, as they are entitled to do, just as many US blacks left the south after World War I and migrated to Chicago. Then they will send euros home to those family members left behind. The exodus will just shrink the economy more and make it less able to pay/
Greece is a country that does not have much manufacturing industry or export capacity. It has shipping companies, but I suspect their revenues are somewhat offshored. Its main industry, like many southern nations, is tourism. Greece is a SUPERB tourism destination, probably one of the best in the world, so long as it is affordable.
It has sunshine and dry heat all summer long, pavement restaurants, cheap alcohol, bouzouki music, somewhat indifferent beaches (mostly topless, some nude) and swimming, wonderful mountainous scenery, world class ancient monuments and museums, the Acropolis, etc. and is very popular with young northern Europeans who come from cold, gray countries like the UK, Netherlands, Germany, and Russia. It also has some scope as a winter or year round retirement destination.
http://bit.ly/qehh3D
For me the real problem lies in the structure of the economy which makes government jobs for life, the 40+ gardeners working for a hospital which does not have a garden, tax collection through electrical bills because the tax collectors are not trusted.
Without any significant structural changes to the economy we will revisit this scenario sooner than expected. The bond market will price the debt close to default levels after having gone through a default already.
Andrew Jackson
What should happen is that many of Greece's public entities be given to the creditors to sell as they see fit for whatever they can get.
If only we had forced bondholders to take the losses instead of taxpayers and seized the banks that were insolvent instead of giving them money. Then we could have prosecuted the fraud, sold off assets to better managers, and protected taxpayers.
A similar type thing needs to happen in the US in regards to our entitlement programs and our government employees. The bureaucrats salaries and benefits should be slashed by at least 25% and their pensions arbitrarily reworked to provide nothing more than basic social security like returns. Then we need to break the teachers' unions and forbid any public employees to have any unions at all!
Its long past the time of playing pretend - whether its in Europe or in the USA - bureaucrats, politicians, and the financial elite are destroying our societies and they must be stopped and crushed.
In fact they should be put in concentration camps when they are too old to work and given a basic diet and a daily vitamin pill. If they become sick, they should be euthanized and their corpses sold to pet food manufacturers to defray the cost. The camps could be run by private corporations without unions or pensions, and any employee who failed to perform could be sent into mandatory retirement. If we all work together, this dream can come true.
The dream is that government should only be involved in things that it is not realistic for an individual to be able to do. And that those that are bureaucrats are actually doing public service instead of enriching themselves. Public employees should earn LESS than the average person in their zip code. Don't like it, quit and start your own business!
Not quite conversely, private expansion if left unmolested by the public know-it-alls( ie, our legislators) ironically expands the public sector also as more people are ultimately employed by that very private sector itself for it is the only true fuel. And they are employed in real jobs doing real things, unlike the public sector.
The real problem was never the debt. That is merely the symptom. The problem has always been the lie. Government is never the answer. It is always the problem, a net destroyer of capital. Government has no earnings, only takings. Sure, the people who 'work' in government call taxes 'revenue' but it is not an earning. It is a stealing. They did not create it. They stole it. Worse, the Fed then dilutes any further capital gains through inflation, then has the gall to tax that. A double tax. In bad times, a triple tax.
And the real danger isn't even any of this. The real danger is that the people have become immune to all of this. Taxes are normative to them whereas they should incite revolt. But what is even worse than that is a growing number of people who believe government is actually required to "fix" the very system that provides them with real growth and actual earnings and scream for even higher taxes on the real earners(ie, the private sector), compounding the problem.
In the end, the death of entrepreneurialism is the real problem. As government promises(lies) to the people that is is the solution to their troubles when it in fact has been the very stranglehold on growth. Sarbanes-Oxley is but one small example of the death of small business expansion. Frank-Dodd is another, and worse, at at time when we now actually need the banks. The retardation is severe.
We are killing ourselves. The blind leading the blind.
But if the Greek government gets bailed out by the taxpayers of the other EU states why should any EU country be prudent? Why not borrow money like crazy to pay for votes, and when the time comes to pay the piper, tell the bondholders that, too bad, they only get 50 cents on the Euro, and if the bondholders are politically connected they get a TARP fund to bail them out?
Now for the second problem. Is there any chance whatsoever that the US (through the Fed) isn't going to help finance this bail out? I figure that US taxpayers are going to be ultimately responsible for a nice portion of this bail out as well.
For the most part, the bailouts only make things worse. The markets might like this in the short term, but in the long term we are going to create a situation in which the debt is piled so high that the eventual meltdown will be cause the mother of all depressions..
But to the extent that people who were using gold as a safe haven until Europe got straightened out move out of gold and into stocks, that would have a dampening effect.
Why does every citizen of the US not make sure to make him or herself debt proof, have a homesteaded house that is paid for and a retirement home overseas, funnel every penny they have into retirement accounts, max out their HELOC and dump the funds into retirement accounts or a trust fund, hide gold coins under the bed, and then file for bankruptcy when it is time to retire?
The answer, presumably, is that a society has a common sense of morality and how life is to be lived, and of what gains you respect and status in society, which may also be colored by religious beliefs and ethical traditions according to race and ethnicity.
All the concerns here are justified. However, the alternatives are just more ugly.
TARP did nothing except keep bad assets on the books and bad actors in business, rewarding failure. Fiscal stimulus was worse -- most of it funneled to states and localities to keep fake "public goods" in business, crowding out allocation of capital to private ventures. Look at the nonsense of Apple toys and Groupon games, a bubble of bullshit compared to stagnant oil, coal, steel, agriculture, electricity, transport. Government stands in the way of growth and free market "invisible hand" allocation. Subtract military spending and Boeing dies tomorrow.
I have no doubt that the European politicians will bail out PIIGS and TBTF banks, backed by Fed swap lines, pouring concrete over the problem just like Chernobyl. There will be bread and circuses to amuse their unemployable, badly educated children another year or two. And then what? Higher taxes. Capital flight. Savings buried in the back yard, one gold or silver coin at a time, hoarded rather than spent. Every individual of my acquaintance is spending less and expecting less in the future. Sean Hannity speaks of it openly, that Social Security probably won't exist when he retires. It'll be means tested.
The alternative is not ugly, it's rational and life giving. Mark to market. Liquidate. Privatize. Let people live in freedom. It's not complicated or unprecedented. Thatcher did it and saved Britain, 20 years ago.
There never was such a thing as a free lunch, but that's what government promises. Congress is a giant cafeteria. It hands out so-called 'free lunch'.
The 'voters' slurp it up, those free lunches, like a wind tunnel, sucking all light into the vortex created by their mouths.
The more free lunches promised, the more these people show up, waiting in line at the lunch counter.
Pretty soon these people *ahem* I mean voters begin banging their lunch trays against the walls, demanding more, faster!
They have been indoctrinated.
This is the lie.
We were(well at least some of us were) taught this in grade school in basic econ. There's no such thing as a free lunch. But now with public education, which relies on a free lunch itself, and gives the kids that go there, quite literally, free lunches every day, they ensure to never teach them that lesson ever again unless they figure it out and riot in the cafeteria.
The lie is the problem. Politics is the problem. And their lawyers are the problem. In a word, corruption is the problem.
The Constitution weeps.
I guess it really is 'a living breathing document'.
LOL.
The rapidity of social change unfortunately moves faster than most of us realize. A single generation of 40 years can obliterate a culture entirely. Wars can now be fought without firing a shot. You just immigrate, bring your host culture in, and have hundreds of thousands of babies, and their babies and pretty soon all their babies who all vote.
I invest wherever I can find the spirit of Thatcher alive and well. Too bad Estonia doesn't have an ETF. They adopted a Milton Friedman economic/political system. I expect them to be richly rewarded. The Eastern blocs. They suffered under commie red for so long that they now want growth and along with it freedom, naturally. Who wouldn't? It never fails. Wealth is a by-product. I invest heavily in Chile who reformed its social safety nets to align with private property rights. I invest wherever business is allowed to grow freely without encumberence. I wish there were more nations than there are. Hopefully someday there will be.
That's why it matters who we elect. Unfortunately, there is a solid majority of cafeteria drug addicts in favor of free lunch. Game over.
My guess is behind the scenes they are begging for US support which they will get. In some respects they are to be admired and in other respects they are totally unworthy and incapable of economic leadership.
Maybe one day you can understand how it was the U.S. and its housing debacle that pushed the world over the edge to begin with. The main culprit is actually the American ratings agencies. Had they actually understood what they were rating, none of this mess would have happened. Not even the housing bubble would have happened, because there would have been no investors lining up to hand out money to AAA rated deadbeats.
The idea of making home ownership available to more people is basically a conservative notion. Make people into home owners rather than renters and you give them a stake in the neighborhood and the community, plus a chance to build equity, and they are more likely to adopt more conservative values.
This idea of a democracy of homeowners was the cornerstone of Mrs. Thatcher's policies in England in the 1980's and the Right To Buy policy made it possible for over a million people who rented social housing to become property owners. The key to the success of the program was that people were offered reasonable terms and a discount according to the length of their tenancy.
Of course no program is completely without some kind of down side, but it worked reasonably well. Of course no one had the harebrained idea to bundle the mortgages and securitize them, so it didn't lead to a housing bubble.
http://bit.ly/nH5UOB
In the case of Greece, you have to ask of the bankers WHAT WERE THEY THINKING when they extended such vast lines of credit to Greece. Most likely they were thinking: "Wheeee! Look at my bonus for this loan to Greece. Way-hay! Another couple of years of this shit and I'm out of here."
And what where the Greek politicians thinking? "Hey, this is easy money and the bankers keep on coming. I can buy another election. Way-hay! Another couple of years of this shit and I'm out of here."
Wonder is they are going to tee up another Can to kick.
The bad actors will all be gone. This isn't morphine. Its resolving the problem.
Our banking system is much better off from TARP. Ken Lewis is gone so is Countrywide and WaMu and a bunch of other bad actors. Bank of America is still around but that was a must, but shareholders aren't happy. The problem was resolved!
It's not exactly as you portray.
The Government did prop up the banks by buying preferred shares to raise their capital. Meanwhile, the banks have, in fact, been writing down and off debt, vast amounts, but there's still lots more. But, what has held up the show has been the arbitrary (one could say unlawful) convolution of contract law into what sounds "fair" by vote-seeking liberal politicians and sympathetic activist courts.
When one borrows money with secured loans and cannot pay, one is stripped of one's collateral and often pays more in deficiency judgments. That's the harsh reality of debt. However, in the new through-the-looking-glass world, the lenders have been vilified, not the incapable and often dishonest borrowers, and every obstacle in the world has been thrown in their path to recover their secured collateral (i.e., foreclosure) and allow debts to be ameliorated, as far as possible, with the remainder being written off.
The entire "cleansing" process you seek has been forestalled by pandering politicians with "programs" to help distressed borrowers. This has helped neither the economy nor the banks, which refuse to get aggressive about future expansion until they complete the accounting for the past.
Lastly, we cannot go forward until this administration is thrown out, as obama has no clue what to do.
Meanwhile, I have been consistent with my mortgage payments the entire time, thank God.
However, there is a part of me that feels like I am being robbed and... I am.
This is a transfer payment. My good mortgage is offsetting and paying for the free rent of others. This is obscene and perverse.
Chances are the couple you know had negative equity in the home. I don't know what state you are in, but there is a chance that they could be sued for a deficit judgment if they both have good jobs and are just stashing the money they would have paid for a mortgage, or offshoring it. Even if there is no deficit judgment, fact is that the bank entered into a contract with the house used as security. "You make these payments, or we get the house." Now the bank does not like the deal it made so much. The bank should have, or perhaps it did, insist on mortgage insurance or a sufficiently large down payment to cover the possibility of default or depreciation of the secure asset.
Banks are necessary, or useful, but they write all the language into these mortgage contracts and promissory notes and insist on all their rights according to the fine print, so there is no need to feel sorry for them. However it might be a good time to bring back mutual savings societies that issue mortgages to people who have shown a good record of saving before they apply for a loan.
I am not a banker and it is not my job to teach bankers how to bank, but sheesh!
In any case, your aquaintances will probably still be renting when you are living in your paid-for home.
in many cases default is the smartest option, it made Trump a billionaire by keeping his winners and defaulting on his losing RE investments.
Quoted mortgage rates are basically a govt. sponsored false bid (quote stuffing). Where have I heard that before ?
So you are indeed losing.
a printing press?
its a joke
sure the market will react to draw in peoples money but the reality is its ALL B S GARBAGE BUNK
C R A P
SOCIALISM DESTROYS AND ONLY THE WEAK AND THE GOVERNMENT AND GEORGE SOROS WANT THIS
ANY ONE WHO WORKS NOT IN THE GOVERNMENT , THIS FAKE MONEY IS CRUSHING THEM
THE POOR COULDNT CARE LESS AS THEY CONTINUE TO BOTH SOAK UP THE FREEBIES BUT YET STAY POOR
EURO SHOULD CRASH!!!!!!!!!!!!!!!!!
F THE SOCIALISTS
sorry , no sale .
If we had US government dollars which are interest free and banks with 100% reserves than the economy could shrink in times as these and it wouldn't unleash a disaster of this scale.
The Federal Reserve created the great depression of the 30's and it also created the depression we are facing now. If that is not easily visible because of the timeframe during which that has taken place than it should at least be very clear that the Federal Reserve created the housing bubble of the last decade.
WHY ARE THOSE PEOPLE STILL IN CHARGE OF OUR MONEY??? Are we truly so dumb that we shut up everytime the disaster gets delayed even further?
My only hope to all this is that the central banks are losing control over the situation, they are basically setting fire to the house on too large a scale. Once the most powerful nations of this planet are so in debt that even the printing presses won't print anymore and rating agencies will be in jail,then the pyramid scheme is up and the debt won't be nothing but a number, at which point some genius will eventually enter a big 0 into the accounts and erase the "debt". And hopefully that will be it. In that sense KEEP PRINTING, lets parteeee.
We have to destroy all the debt now. This is a Kondrateff Winter -- creative destruction means that we are going to default and go bankrupt. No preserving the old money that is desperate to keep things as they are.
There will be civil wars, revolutions and wars. The turmoil has really just begun -- because we have been in the stage of denial now for about 10 years already.
2019 we hit bottom. I've been writing about this and saying it for many years now.
It is also alot harder to read...
Where is the money going to come from? EuroTARP and equivalent printing of euros. What to me seems crazy is the size- 2 trillion euros- thats an insane amount and likely doubles or triples outstanding euros. I think this just adds to perception of fiat currencies.
Short term winner - US dollar
Long term winner - gold and commodities
Gold is the anti-currency -- so yes. But copper? Iron ore? If industry is going belly up? Even agricultural futures are going to continue being drubbed.
Money needs to be made more expensive.
We've been stalling. All our tactics are to stall until organic growth comes back to the economy. But organic growth cannot come back until we kill our debt, which is suffocating the garden, clogging our economy artieries.
Raise rates and start the real creative destruction that we need to get back to sanity -- or pretend that lower interest rates -- the thing that has caused this crisis -- are magically going to heal us.
There is no way back to the start again without the 'insane act' of debt destruction. People who argue that we can somehow get through this by doing the same thing that got us into this crisis -- lower and lower interest rates, encouraging people to take on MORE debt -- seem to be suggesting that obesity will be CURED by more calorie intake and less exercise. Now that, to me, is the INSANE act, and the INSANE understanding.
The 'given' as I understand it is that the economy is going to collapse totally. We can do it now or do it later. The sooner we do it, the sooner we get to start rebuilding.
(The illusion that we don't need higher interest rates stems from the lies of the CPI and inflation calculation. Once CPI formulae begins to consider asset inflation (stocks, commodities, housing, real estate AND, most importantly, DEBT -- which IS income --) as income then our inflation numbers show very clearly that we are drowning in worthless money. The only way out of such a flood of worthless money is to raise interest rates -- dry out the earth -- evaporate the worthless money, the floodwater.)
How... strange.
Governments can recapitalize banks only if the governments have the assets and cash flow to do so. Otherwise, they ultimately increase their own debts, and in effect, have moved bad bank debt on to their own bond books.
Time for honesty—the debts can not be paid. Time for courage. A few years of very, very rough times and we could get us back to prosperity. However, we need to stop fooling ourselves, and stop expecting broke governments to save the economy with more debt. I also believe that our governments should use what little money and goodwill they have left to provide minimum food and shelter and thereby prevent starvation and unrest. Otherwise, they should do nothing, and especially get out of the way of business formation.
Thank you. Bill
More or less the true state of affairs. Would agree with the "few rough years solution" but it just may not happen for lots of reasons such as the governments don't want it to happen (they will get tossed out) and governments and vested interests worldwide don't want to change that which benefits themselves.
But you also need to consider that sovereign and even corporate debts don't truly need to be totally repaid and usually never will be. They simply have to be able to service the debt without undue strain to make the payments. The same is true or individuals making mortgage payments. Eventually the mortgage gets repaid, but the real issue is being able to make the mortgage payments. It is also true that the most astute borrowers don't over borrow or over mortgage and can meet the debt service payments easily.
The real solutions are major structural changes such as healthcare reform, energy reform, military reform, tax reform, political reform, etc. But again the politicians and vested interests don't want that. They are the beneficiaries of the current dysfunctional system. And those getting the benefits never want to change, they want to increase their benefits.
Replacing inefficient energy with more efficient energy...
Still baffled what "energy reform" means in the modern context -- unless it's a hysterical communist campaign to rig the market, seize assets and put drillers and refiners out of business?
China, actually.
In the modern context its the difference between your 5 year old computer sucking down 750watts and your late model computer using less than 100.
And by the way the US exported $250,000,000,000 for energy last year, or about half the total trade deficit.
Yeah its a lot of zeros.
First , what that trillions mean? This is the continuation of the preparation for the defaults! BUT Euro now has decided to draw off the defense line to just defend Italy and Spain. It has been already decided that Greece, Portugal and Ireland should be spent money to save Euro zone! So They are already dead meat for the Euro leaders.
Ok, let assume the defense line stands to defend Italy and Spain. How much debt does Italy has? The government debt is %109 of Italy's GDP , which is 2.2 Trillion USD.BUT there is private sector , house hold ...total debt is %336 of GDP. SO if you want to save Euro , you should spend much much more! And Germany , if really wants to save the Eurozone will be funding this, there is no any other option! And they should spend real good amount of money. This is clear as black and white , there is no grey for that!
I am not mentioning the money for Spain, or restructuring of banks.
Merkel, should decide now, they will save the Euro or they will save their asses! Hard choice but I sense they are not under real market pressure to accept to save the Euro!
cover shorts, use the rally to offload cyclicals and go short around S&P 1200/1250, R2K 700, Dax 5800.
First of all, they are part of the ones the created this mess, and second, they are the cream of the bureaucrats who are able to worm up there on top of other bureaucrats.
Talk about survival for the fittest and evolution.
sorry but this story is a bs bluff . no sale .
the euro-bond is DOA .....germans will never approve. so where does the 2 trillions come from ?
Let's audit the Fed books and see how much American money has already been sunk in to the great EU experiment.
This is one of those situations in which it is almost impossible to be too cynical.
http://bit.ly/qMejKx
Expecting big selloff and capitulation tomorrow.
Futures looking up at 02:00 CET
In the case of the European banks, their size probably precludes a buyer in the form of another bank, thus you need a capital injection directly from the taxpayers - all of them. Thus the taxpayer becomes the capital injection mechanism, but the politicians need a mechanism to tax them so that the tax is not obvious. The signs seemed to be pointing to the upcoming quarter, but politics in Europe could string it out into next year.
Maven, what is your take on the oil service slump last week? 20-30% down, will it go further down or not?
SLB is a good play, but -5%/-10% also possible. I'm most bullish on offshore drillers DO ESV MMR OII SDRL excluding RIG (overowned).
BUT WHEN THE GOVERNMENT SAYS TO DO SO YOU DO SO
SAME WAY BUSINESS WILL HIRE PEOPLE NOT QUALIFIED BUT THE EOE/GOVERNMENT SAYS YOU MUST
QUOTAS/ AFFIRMATIVE ACTION ETC
CANT BELIEVE SOME OF YOU THINK YOU CAN GET AWAY WITH STATING WHAT YOU ARE STATING
GLAD TO HAVE SET THE RECORD STRAIGHT
Business doesn't do what government says UNLESS it's going to make the superrich.
You're ideology is a bit warped, Worriedwart. And please don't shout or everyone will start shouting back. Then we'll all begin to sound and look like Cramer and his idiotic friends on CNBC.
Blow hard, Captain Ahab. The albatross was a liberal trick. And the great white whale is coming in to view.
Business doesn't do what government says UNLESS it's going to make the superrich.
now look who for sure is "warped"
gov has the guns and makes the laws
business will do whatever they are told
super rich or not
Don't be naive, Worriedwart. Capitalism is the religion; and the US Army is the police force of Capitalism.
THE DIFFERENCE IS:
WHEN THE GOVERNMENT BECOMES PART OF THE BUSINESS ( AS IN THE CRA) THEY CAN NO LONGER PERFORM THEIR MANDATED FUNCTION TO SERVE as the 3rd party, to judge, since they now have a conflict of interest
So it becomes good cop bad cop time
with the banks as the suspect
But we did what you asked in 1978-2000, cries the banker
Well were cleaning that mess up right now, says the Obamabot
But but but.... I dont want to go to jail
Dont worry you wont have to we have some more regulations ( frank-dodd) that will keep the street people riled up but knowing we're comng down on you, says the Obamabot czar
Oh, btw, did you get us our campaign $$$ yet?
Of course says the banker, as he sulks out of his office
and on it goes
UNLESS WE GET FISCAL CONSERVATIVES IN POWER AND NOW
Democrats who believe in big government arbitrarily re
Read more: http://fxn.ws/rjaFIc
When obama and crew stopped banks etc from diversifying into other endevours and those banks lost that income, including the fees etc they have to have a way to get margins back because layoffs make the same politicians look bad
so the idea is eventually the little guys will stop investing on his own and have to turn it all back over to the ( few) brokerage houses
notice what they did to daytraders a few years back, "FOR THEIR OWN PROTECTION"
if you violated the new "pattern rules" YOU COULD ONLY DAYTRADE IF YOU KEPT 25K IN THE ACCOUNT
So now the little guy who maybe only has 10k but might have done good will never get that chance
Thats ok if you're in the USSR but the USA was all about risk/reward and yes speculation
If it were up to those do gooder leftists ( and yes that does include many rinos) THE GOLD RUSH OF THE 1800 WOULD HAVE NEVER OCCURED
"TOO RISKY"
this country wouldnt have been founded ( obamabots applaud)
"TOO RISKY"
Nanny states are for losers
talk about timing
The FEDS ARE BANNING INHALERS
THATS RIGHT INHALERS
HERE IS THE TRADE-OFF I SPOKE OF:
SINCE THE OBAMABOTS HAVE HURT doctors with the whole get less see more people under COMMIE OBAMACARE THE FDA/OBAMA THROWS THIS BONE TO THE DOCTORS:
In lieu of Primatene Mist, the FDA has suggested users of the product get a prescription for sanctioned inhalers, such as those that use an "environmentally friendly" propellant known as HFA.
But Abramson said thousands of people swear by the Primatene Mist inhalers, and he described the HFA-based inhalers as inferior.
"They should have the right to have it, and now they don't," he said.
Read more: http://fxn.ws/qdKD9q
“At the moment, the battle over network neutrality is not to completely eliminate the telephone and cable companies. We are not at that point yet. But the ultimate goal is to get rid of the media capitalists in the phone and cable companies and to divest them from control
Read more: http://fxn.ws/qFlFDE
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