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The U.S. on the Precipice

TonyC-SA wrote:
...Yes, I know they are not actually saving and their contributions are redistributed to the elderly. ...

This is another way of describing a ponzi scheme. If you have any mathematics at all, you know what happens to a monotonically increasing series - it tends to infinity. That is why ponzi schemes are illegal, they are guaranteed to reach a collapse point.

So I agree with huangjin on this. They should have been abolished by someone with insight a long time ago. Currently they have put us on the hook for 54 trillion dollars in unfunded liabilities. What is going to happen when those liabilities aren't met? Will it be worse than what would have happened if all those people got to keep the ponzi payments they made to others and spent them in the economy?

SS and medicare looked like they worked for a long time. But all they were doing was making the eventual collapse more severe. A ponzi scheme is a ponzi scheme, whether it is run by the government or a private entity. No net good can come of it.

As far as people not taking responsibility for their lives, well, that is what they were promised; life, liberty and the pursuit of happiness. And you exaggerate. Many people *do* think to the future, and *do* provide for themselves in old age. Under the current system, they pay not only for themselves, but for the irresponsible too. Kind of like the way the responsible are paying for the speculators in the mortgage meltdown with the federal bailouts. Of course, the death of SS and medicare would be the death of unbridled consumerism as well.

If society wants these benefits, make it explicit. Put in place a death tax of 100% and use the proceeds to fund programs like social security and medicare. That fixes the level of funding. No ponzi scheme, no guarantees. Everyone knows that whatever they leave behind when they die goes to support other people at the end of their lives, and that the only support they can expect is what those who die leave behind.

The Frannie Debacle: Let's Give Credit Where Credit Is Due

Can you imagine walking into your performance review and finding this in your manger's hands? :-)

Fannie and Freddie: We All Support You!

MediaGuy said
...Why do I and many others such as myself need to be "punished?"...

The problem you have is in the statement
...I'm a little guy who bought shares in the company many years ago because everybody told me how safe an investment it was....
This contradicts the basic tennet of investment in a capitalist society. You gain excess rent (profit) because you take risk. If there is no risk, no profit. You are paying for your ignorance, not being punished. That is almost always expensive. Common stockholders are *always* the people who lose first in a financial disaster at a firm.

And you haven't been wiped out yet, and in fact there is a chance you will do well. This is a bankruptcy by another name, and it is possible the GSEs will come out of it with common stock still having value. And if this intervention turns the market around, you could participate in a nice rally and even make money.

Why the Panic over Fannie and Freddie?

I read this as the US government trying to prop up the world financial system. With the full support of that system. Its collapse, which has a measurable chance of occurring, would lead to worldwide economic chaos. The US wouldn't escape that.

The sad thing is that those who caused the problem are being rescued and those who didn't cause the problem are paying. But if you've ever known any MBA holders, that won't be surprising. :-)

And it is disappointing. Socialist capitalism. Comrades! During good times we collect the profits, during bad times you pay for the losses. All animals are equal, but pigs are more equal than others.

Global Stock Markets: We All Fall Down!

Yes, thanks. That was a lot of nice information consolidation, I imagine it took quite a lot of work to bind it into a coherent picture.

And that picture isn't pretty. Unrelentingly grim seems to be a more apt description. And yet, I don't think we're at a bottom yet. I get the impression the 'crowd' is just waiting for the turn up so they can jump back on the escalator. We haven't had a downturn this severe for a long time, but I've read that the bottom is always a time of capitulation. If that is true, definitely *not* at the bottom here.

Given the breadth of the bad news, it also seems that this is a global phenomenon, a working out of the imbalances in the system. How can there be a developed economy with zero interest rates for over a decade? How can the country driving industrial growth in the world have a severely undervalued currency and fund its customers with loans for over a decade? How can commodity prices shoot the moon with no effect on the world economy?

Can the players prop it up for a while longer? They are certainly trying. But sayings about straws and camel's backs come to mind. The one item too many being juggled. Interesting times.

The Unfair Treatment of Certain Common Equity Holders

You said it well and I agree with your article right up until the last paragraph.

But when you said
...
I don't fault our Government leaders from trying to ward off a massive systemic meltdown by providing credit to ensure the orderly disposition of obligations and maintenance of a functioning credit market. But no such obligation is owed to common equity holders. And every time policy-makers elect to bail out their interests, it lays the foundation for an even greater disaster down the road.
...
I disagree.

This conclusion isn't warranted by the arguments you put forth. Until firms fail if they aren't responsible, and shareholders lose everything, politics will keep trumping market discipline. Leading to the excesses becoming larger over time, the effects of failure more egregious, the interventions greater.

What gets rewarded, gets done. And if management gets rewarded for taking risks, you get managements that take risks. Incentive compatibility, the thing congress and regulators, like most people, doesn't understand.