Old Wizard

Charlie Gasparino: Another Crash 'Has to Happen Again'

The analysis by Gasparino is correct as far as it goes in identifying root causes, but doesn't go far enough. I also don't believe that regulations couldn't be adopted that would check the out of control " risk taking" which I would better label gambling and misrepresentation bordering on fraud. Today the banks are borrowing money from the taxpayers [ re; gov] at close to zero and then from the subset of taxpayers, those who are saving money in banks, at 1% and then lending it at 5% or greater. To make matters worse the Gov [ re: taxpayers] under the guise of getting credit flowing again buy 300b of securities from banks much of which banks had loaned to the Gov[re: taxpayers] at between 2and 3% to ensure a safe haven. In all this machination the handlers of all these transactions are profiting[ this includes the government officials as well as the "bank" officials, those in fannie may and freddie mac, past and present, and all the agents of the gov who handle the bond transactions for the Gov of which Goldman Sachs is a big player]. Then the treasury says the people should save more and wall street says that the economic recovery will occur when the consumer spends more. Anybody see any inconsistencies here. The one salient constant here is that the hardworking individual who pays one's bills saves a portion of one's income and generally keeps a positive cash flow is the loser. Now meaningful reform can occur with some simple laws1] No mortgage or loan can be sold in any form more than once 2] Commodity traders must pay at least 50 cents on the dollar on purchases. 3] hedge fund managers must pay at the individual tax rate for income tax 4] No mortgage shall be granted by any lending institution with a down payment of less than 10%. 5] Lines of credit for small businesses will not be greater than 10% of gross sales or for start ups be administered by a special officer of the bank and a pool established by the banks with .1 of 1% of their profits. 6] Credit card limits for any holder will be no more than 10% of an individual's annual income and interest rates will be no higher than 10% annually.7] Rating agencies can not be part of any other company. While these may not do it all , they would go a long way toward decreasing the gambling, exploitation and fraud we've experienced and maybe just maybe get capital to make long term investments borne of the conviction that new products and services will bring adequate returns. All the parties who are now profiting don't have enough skin in the game and until the system allows them to play[gamble] with other people's money with little skin in the game, it ain't goona get any better.

How Bloomberg Fabricates U.S. Housing Numbers

I thought that the amount of mortgage money out was about 11trillion. If the derivatives created a 30 to 1 leverage and 10% defaulted, we would have a 30 X 1.1 trillion or 33 trillion problem. What the actual default rate is now is somewhat difficult to ascertain, but let's say it's half that amount which results in 16.5 trillion. While this is not nearly what the author computes, it is still a formidable amount. While much deleveraging has already transpired by bank and financial institution failures and other losses, I believe we are bearly past the half way mark. It is not clear that the existing gov. policy will not result in much of the remaining burden being borne by the asset holdings of those in the country who retain net positive assets, whose personal cash flows are positive, and have savings. For starters, we should put a moratorium on new home and building starts, Impose financial rules which restrict any financial instrument to be based on one actual asset[ a motgage can only be sold once, eg], Make commodity buyers pay at least 50 cents on the dollar and restrict individual short sales to no more than .0001% of asset value or market cap. We need the will to fix the problem and there will be pain, but I for one think our way of life is worth saving.

Five Reasons the Market Could Crash This Fall

Maybe this is too simple-minded, but isn't the country's problem a matter of cash flow. The conjecturing about what is happening and going to happen with the market seems never to address our underlying problem. The country's operating cash flow is increasingly negative and has been since 1991. We simply are not producing enough goods and sevices that either our population or the rest of the world wants to buy. All the regulation and financial trading tricks in the world don't address this issue. Borrowing by our Government to balance our domestic budget just keeps making the cash flow problem worse. Of course, there will always be some who can amass wealth in this circumstance by clever or deceptive short term actions but only production of the goods, commodities and services that drive the country's operating cash flow to 0 or higher will "fix" our economy .Every investment and regulatory action action the government takes should be subjected to the operating cash flow litmus test as a major measure of performance. I was surprised to read and very dismayed that the country's cash flow was only peripherally addressed in the macro economic model upon which our government relies which includes upwards of 150 variables. From my vantage point, this is a dramatic example of emphasis on the wrong sylAble.

Is the U.S. Banking System Safe?

Bravo Janice! This guy has obviously believed the cool aid drinkers who think america[ with a "c" ]is the bad guy. I guess he doesn't know that hundreds of thousands of Cuban-americans would much rather live here than there and that even illegal aliens in this country receive better medical care than the average person living in Cuba. By the way most of those people working multiple jobs in the US can afford to buy a cell phone and have the freedom to use it.

Is the U.S. Banking System Safe?

Muley, I have a different list of obstacles to overcome. Here goes: 1] Greed of the house speculators and many financial managers who pursued the quick get rich schemes that gave birth to the ponsi schemes of derivatives and no money down house specualating.
2] A religious but very unscientific belief in global warming in spite of a decreasing average global temperature over tha last four years.
3] Massive disinformation concerning any comprehensive energy policy.
4] A blatent disregard for the drastic effects on our economy of the impact of importing 12.2m barrels of oil/day@$150/barrel. I believe that a country with a negative cash flow of over $800b/year cannot sustain itself.
5] The almost facetious premise that a country that could go to the moon in 8 years can't drill for new oil in less than ten years and that using what amounts to roughly 60 days worth of our imported oil in the strategic oil reserve will solve the problem.
6] That only non-nuclear, non-fossil fuel sources of new energy will address the most important question concerning our energy problem soon enough to avoid an economic disaster.
7] That before G.W. the world loved us and because of him they don't. Let's recap, in the 90's we considered Pakistan a potential enemy. Libya was developing nuclear weapons, so was N KOREA, France, Russia and China were working against us at every turn and Iran and Syria were causing trouble in the mid-east. Reading Comarade J., A biographical account of a high level russian post cold war spy who defected is an eye-opener. The book is written by a former Washington Post reporter.
8] The misconception that our domestic oil companies can actually be controlled by the actions of the US congress when 75% of their operations are in countries over half of which are contolled by state entities.
9] The constant negative drumbeat of much of our media and sites such as this that the sky is falling, the solutions of which are sell short, buy gold, buy euros, blame it on Bush or dig a hole in the back yard and fill it with a year's worth of survival commodities. All very constructive.
10] Last but not least, the concept that it is Ameica's duty and for sure its obligation, to accept all the folks the rest of the world would like to get rid of, solve the aids epidemic in Africa, stop any genocide that is going on anywhere in the world, come to the aid of any natural disaster anywhere in the world and let any wide-eyed radical philosophic group blow up a govenment building, a skyscraper or one of our embassies whenever they choose and have a discussion about their motives so we can better understand them.

Is the U.S. Banking System Safe?

Too complex for me. I'd like to know when there wasn't a "banking crises" what the cash on hand position relative to non-performing loans was. Isn't it axiomatic that even in good times if the the depositors were to make a run on 2000 banks simultaneously there would not be enough cash for depositors to recover their money. Isn't the real problem that because of derivatives the real amount of non-performing laons wasn't and maybe still isn't known. Beyond that if panic and fear sets in, it will create a run on many banks which will certainly lead to a depression. Let's all yell the sky is falling and race each other to the nearest bank.