” NOTHING ” It will have to run its course !!!! Isn’t anyone with the control of the U. S. Mints Printing Press ” LISTENING ” Stop throwing ” GOOD MONEY AFTER BAD MONEY !!! STOP REWARDING THE PERPATRATOR’S !!! SEND EVERY HOUSEHOLD IN THE UNITD STATES A CHECK FOR $400,000.00 THAT WILL CORRECT THE PROBLEM ….AND LET THE PERPATRATORS SOLVE THEIR OWN MESS THAT THEY CREATED WITH THEIR EVIL GREED….HELP THE PEOPLE…HELP THE PEOPLE !!! ANYONE REMEMBER ”FOR THE PEOPLE…BY THE PEOPLE ”…AND HAS THE FEDS….FORGOTTEN…” WE THE PEOPLE”’IF THEY DON’T HELP WE THE PEOPLE THE U.S.A. WILL NOT SURVIVE…WHEN THE DUST SETTLES EUROPE WILL STAND ON THEIR OWN !!! AND THE U.S.A. WILL BE OWN OUR OWN…SO ITS ” WE THE PEOPLE ” THAT MUST BE HELPED…WHAT IS THE PROBLEM WITH THAT…WAKE UP OUT THERE MR..PAULSON, BERNANKE, MR. CONGRESS ( BOTH DEMS. AND REP. )AND MR.. SENATE…”FOR THE PEOPLE ”….
Ah, yes. Let’s put out the fire by adding gasoline. This is going to fix *all* of our problems.
Seriously: the economic expectations that have been created over the past few decades are totally unrealistic and unsustainable. Whatever happened to “mortgage burning parties” people used to have when their homes were paid for? Whatever happened to paying for a car with cash?
As long as the savings rate remains negative and the wealth gap continues to grow, there will be no recovery. If the middle class is shored up again, asset values return to sane numbers, and our government takes steps to promote job creation on OUR soil, our country will become a growth engine again. Not before.
Until the Credit Default Swap market is addressed the leverage used against the bonds and mortgage backed securities of various stripes will not be eliminated. Many wont publicly admit that the failures of major trading houses trace back directly to the calls on their CDS contracts.
There is still 55 Trillion worth of CDS contracts outstanding, how many of these can fail ? look at how far the 2 trillion dollar loss has taken us so far and imagine that as a 25 trillion loss in CDS markets.
CNN – Give us an article about the link between CDS and the failed institutions – lets measure the failure to date against the outstanding CDS contracts!
It’s a sad story all-right. Those that have done the right thing and saved for their future and retirement are now being penalised by the Government bailout. Some of us have been frugal and have no debt, but we are forced to pay for this debacle through lower share prices, higher commodity prices and taxes. Yes governments are busy FORCING debt on ALL of us . Not a fair game.
Karen, your maths is not quiet correct. However, we baby boomers are not leveraged up to the eyeballs. This is where we have parked our hard earned savings of a lifetime to pay for the time when we can no longer work. We have done this so we will not be a burden on you kids. We are the generation who was working full time from the age of 14 and saving 25% each pay packet. We scrimped and saved so as to be independent and not have to live off you children or the Government.
Yes, Karen, I have had to take my money out of shares. Don’t blame us baby boomers – blame those self serving leeching criminally, fraudulent ‘money experts’ who have been manipulating the market and selling stocks they didn’t own and buying with money they didn’t have. For God’s sake – where are the regulators?
Sad story of hubris exposed in the New York Times today. It concerns the lack of concern on the part of the past FED Chairman Alan Greenspan with regard to Financial Derivatives, those, according to Warren E. Buffett, “Financial Weapons of Mass Destruction”.
First, the MOST (until now) ironic QUOTE of the new Y2K-Century, taken from that article:
“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan in 2004.
Please see http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html?_r=1&em&oref=slogin
What more is there to say?
The various stock markets will eventually stabilize at some level reflecting the future economic performance of their listed companies.
Right now the markets are just reacting to the reassessment of the reduced outlooks for future economic performance.
So it just depends on where economic activity itself “stabilizes” for the underlying listed companies.
The problem is best examined by forcing yourself to think about HOW FAR this could go.
Ask yourself — how many financial firms and other non-financial companies can or will the governments of the world effectively take over in their quest to ’save’ them?
Can our governments ’save’ everyone? Every bank, every car company, every person? Can forcing more debt on to over-indebted consumers — much like forcing grain down the throats of overfed geese to produce pâté de foie gras — ’save’ us.
It cannot — it simply shows how embedded our current, broken, paradigm is — that is, force-feed more Debt into the system — AND PRAY!
Clearly there is a limit to what the governments can do in this thought experiment using such a bankrupt approach as a ’solution’.
Right now, our governments are busy FORCING debt on ALL of us — even those of us who are SAVERS. This is because, in the collective, as taxpayers, we are ALL taking ON this new debt. We are not even given a choice. Why? Because in the estimation of our esteemed leaders, this is good for ALL of us. It is the only thing that will save us. Because this new DEBT is what we ALL need. Because only by incurring even MORE DEBT (which is what got us into this debacle in the FIRST place) can we POSSIBLY get OUT OF THE ‘CONUNDRUM’ we are in. Please don’t insult our intelligence. This is madness. Don’t drag us into your asylum that you so desperately seem to want to go into yourself.
Such thinking will force a sad truth upon us — our governments may be doing us a great disservice. They may not be ’saving’ anything. They may be destroying a lot.
Of course, the way politics works will force the governments to try and ’save’ us.
The limit of ‘help’ that our governments can extend to us will be uncovered and become ‘transparent’ in the parlance of our day, when such ‘help’ doesn’t do anything effective.
When our paper currencies become worthless. When even more of our jobs are lost. When overall economic activity implodes.
This is not a state that any of us relishes.
Debt Money will prove to be ineffectual in these ’saving actions’ because it was Debt Money that got us into this state in the first place, thanks to ever-more active and frequent interventions by well-meaning Central Banks — the FED for example, that wanted to act as Social Engineers in helping make sure that no recessions EVER disturbed our beautiful way of life from 1987 to 2006. They practically forced DEBT onto society with no regard to potential harm.
We created an unreal world — now we are waking up to reality — and “Reality Bites” sometimes.
In the logic of those who applaud the Greenspan/Bernanke medicine of cheap money via interest rate cuts, what every economy needs is zero percent return on cash savings. Right.
If, then, cash has no value, why is liquidity, in the form of CASH, so critical in the current discourse on rescuing reckless bankers, and putting steam in the economy, to use Palin speak?
In addition, why were Bush, Paulson, and Bernanke unmoved as spiralling oil,food,and real estate prices more and more constrainted personal discretionary income, affecting even the debt service capacity of many individuals?
The truth is that Americans should be as worried about the national security implications of cash dependency as they are told to be about similar implications in the USA’s energy dependency.
Low interest rates foster cash dependency; extreme consumption fosters energy dependency. Neither dependency state bodes well for the sustainability of the USA’s important geopolitical status.
There is no way the market will survive the coming five to ten years. As babyboomers retire and take their money out of the stock market there will be a huge selling pressure on Wall Street the like of which has never been seen before.
You think the downward spiral we have been in lately is bad just wait until there are 25 million retired people taking 50,000 dollars out each year and there are only 75 million people putting in 4,000 dollars each year a net loss of 950 billion and that is happening next year. Wait until we get to 2020 when 50 million retired people are taking out 50,000 a year and 50 million people are only putting in 3,000 a year. That is a short fall of 2.35 trillion.
So basically from here on out we are going to be losing 1 trillion dollars plus a year from the stock market which only has a market value of about 10 trillion. Let’s do the math in less than ten years the market will be down to zero.
So forget about a market recovery in five to ten years time it will never happen. Get your money out now.
This is how the world ends not with a bang but with a bankruptcy notice. Seems like Khrushchev is a prophet as the middle class takes back it’s 401k plans from the Wall Street bankers who have been stealing it.
On another occasion, Khrushchev said in reference to capitalism, “Мы вас похороним!” (My vas pokhoronim!), translated to “We will bury you”. This phrase, ambiguous both in the English language and in the Russian language, was interpreted in several ways. Later, he would refer back to the comment and state, “I once got in trouble for saying, ‘We will bury you’. Of course, we will not bury you with a shovel. Your own working class will bury you”.
I can sum-up the problem with one word- TRUST.
The problem is the politicians and business leaders.
They have failed the United States. They created Subprime and infected the global financial markets.
The Bailouts are a ruse. They know there isn’t enough money from the taxpayer to adequately fix the problem. The bailouts are only to demonstrate the backing of the United States. The aim to comfort investors, worldwide.
The problem is they are not dealing with the CORE ISSUE. That requires them to look in the mirror.
The credit markets are frozen because the so called “leaders” lack credibility. Their reputation is destroyed. AAA gone, BBB gone. Would you invest in junk? Junk being the “leaders”.
It is the epitomy of arrogance that in the face of the “worse economic crisis since the depression” they added $150 Billion of “pork” for such things as wooden arrow to a $700 Billion Bailout (Rescue plan).
AIG spent $500,000 of taxpayer funds at a spa, one week after receiving a bailout. The Treasury then gives them another $35 Billion, the next day after it is exposed.
No employee deserves $500 million after 11 years, $20 million after a month, etc. Yet, nothing is done about the “Golden parachutes”. Why is Paulson worth $400 Million.
The presidential candidates only talk of spending not conserving.
As in the storybook, the “leaders” need to face-up to what their subjects now know, “The Emperor is not wearing clothes”. Then maybe they will change. Grow-up, stop being so “slick” and lavish.
Bottom line, ACT RESPONSIBLY to the country, taxpayers, investors, company, and non-executive employees.
Paul, your optimism is waning.
The U.S. created a Financial Virus (subprime). Global markets are severly infected.
How are epidemics treated?
If Bush and Cheney resign tomorrow, the global stock markets will rocket skyward due to long-overdue regime change.
They have this idea that we need deregulation + capitalism running wild, and it is killing us.
It reminds me of Steve Forbes with the flat tax that could cure any problem, including the common cold: ridiculous.
bob — your figures about the relative sizes of CDS and real assets are incorrect.
there are about 12 trillion in home mortgages alone in America. The equity value in American real estate was last computed at some 50 trillion, which is also the approximate value of all American business enterprises.
Throw in a couple of hundred trillion for the rest of the world, and the total world CDS risks taken aren’t far larger than the underlying equity. High, yes — impossible, no.
Here’s what I’m going to do and I advise pretty much everyone else do the same. Ignore it.
Bubbles come and go, recessions come and go. The only difference between this one and the last 2 or 3 is someone working for the industry affected has convinced the federal government to give handouts to the extremely wealthy.
But for you and I, this is just business as normal. If you lose your job, I sympathise, if you’re about to retire, you shouldn’t have had the majority of your money in stocks anyway.
If you’re not going to retire for 5, 10, 15 or 20 years then you’re about to make the biggest amount of money you’ve ever made on the stock market.
Why? Apple, Coca Cola, McDonalds, Walmart, IBM, Microsoft, Intel – these companies are going nowhere and the price of their stocks has been irrationally lowered with those of the bubble industry.
In a year, maybe 3, they will start to go back up to their true value, and in the mean time your pension funds will be buying these up at discounted prices. Earning you a stack of cash.
If you’re not retiring, sit back, smile and enjoy the ride.
All this selling now is mostly in response to the “credit crisis” and the state of banks who leveraged smoke and mirrors into billions that the top people ran off with. There is more of this scandal left and a lot of down to go related to that.
BUT
We haven’t even really started with the drop in stock prices related to the real economy out “there” which has been sliding for quite a while, it has been running on nothing but borrowed money. It has depended on consumers buying YET MORE every year then the year before.
Guess what? This year they are going to buy less. Even if cheap credit comes back, they finally hit the wall and now have to pay the consequences of living above their means.
Our economy does not run on people living within their means. But don’t worry folks, the little people will create a new one. As always.
Truth will stop the selling. Time might stop it. How long will you wait to find out?
Here’s my suggestion — for 364 days, the Treasury and Federal Reserve guarantee all bank deposits and borrowed money agreements [NOT capital debt] to buy time. All US banks may participate if they wish, BUT must 1) stop all capital leakages (dividends, buybacks, options, etc.), 2) reduce all executive bonuses and salaries to some agreed figure ($7,500 per month?), 3) refrain from expanding their business more than 5%, and 4) begin publishing once a month their best and most complete loan loss picture [excluding borrower details], including the likely effect of a rollback in real estate prices to the January 2003 level.
The monthly publication requirement becomes weekly in the last month. Use both newspapers and the Internet for publication.
In the last month of the program, the FDIC/Federal Reserve supply whatever funds a firm needs. If, when the individual bank’s participation expires, it has insufficient funds from non-guaranteed sources [deposits and borrowings], it is declared insolvent, the executives and key managers are fired, and the shareholders and bondholders wiped out as the FDIC takes over and sells the corpse.
***
I’ve been watching real estate lending blowups in the banking industry since 1973 and the Arab Oil Embargo [from inside banks]. I earned MBA/CPA along the way.
Imo, the regulators do not and never have properly evaluated the safety of loans backed by real estate collateral — probably since at least 1933 and certainly since the 1950s.
It is time to publish the awful data and let the depositors and creditors see exactly how bad it is, while at the same time preventing bank runs and excess fear from freezing credit and thus destroying the economy.
Time and ultimately the failure of institutions that bet to large and lost to large will solve the problem. Its funny that the same problem that caused the crash in 87 is responsible today, the extreme over-leverage of assets – consider that the CDS world is 52 trillion at last count which is insuring 10 trillion real assets. so we have magically created bonds and swaps equal to 5 times the assets that back them, that is the mother of all bubbles and it has yet to burst and there isn’t an economy on the planet that can stop the CDS bubble bursting or even have any material effect upon it.
—————-
Paul – maybe you could write us up an article on how the CDS markets work, what their potential for failure is and why S&P is projecting a 9% default rate over the next 12 months. That default rate would total apparently 7 trillion in credit defaults. Makes 700bn sound like a small number.
Time and ultimately the failure of institutions that bet to large and lost to large will solve the problem. Its funny that the same problem that caused the crash in 87 is responsible today, the extreme over-leverage of assets – consider that the CDS world is 52 trillion at last count which is insuring 10 trillion real assets. so we have magically created bonds and swaps equal to 5 times the assets that back them, that is the mother of all bubbles and it has yet to burst and there isn’t an economy on the planet that can stop the CDS bubble bursting or even have any material effect upon it.
As one astute poster said – burn baby burn.
Keynes was a fool who had one economics class in college. An eminent economist of the first order, Friedrich Hayek, debunked his theories. Before you spout Keynesian dribble, please consider that it is Keynesian economics coupled with flawed monetarist policy that got us into this mess. We are currently doing what Keynes insisted governments (demand management) must do to get out of recessions and IT IS NOT WORKING. The State is spending like a drunken sailor to no avail.
There is only one way out of this mess, follow the advice of Von Mises and Hayek. It will be painful in the near term, but will allow, even cause, sustainable growth in the future.
These day-after-day knee-jerk reactions to this-and-that are becoming too exhausting to follow. Now we have a situation where it will be impossible to determine which response was meaningful and which response served to continue funding weekend retreats and spa-treatments for weary Wall Streeters.
I return the question…Who can know what it “is” that is working?
I watched Paulson’s speech at lunch today and thoughts of doom started rushing through my head.
Pure monetarism is one of the economic mantras that goes along with deregulation and unrestricted capitalism. Believe in those mantras and all of your economic problems will go away.
Just like George Bush’s sole economic policy of “eliminate the estate tax”, the leading “economists” in this country are clinging to a pure faith in monetarism even as it unravels before their eyes.
What we need is a mix of monetarism and good, old fashioned, Keynesian demand and tax management.
There. I said it. Now, go ahead and burn me at the stake for my economic heresy.
Economy is freefalling. We have to hit the bottom to be able to start the recovery process. Bailouts, ratecuts, loan modifications, etc, benefits only the privileged few. We are just prolonging the agony and giving people false hopes that things will be better. It wont. We are running away from reality and are in denial that we got to this point bec of greediness of Wall Street and greediness & ignorance of the masses. The sad part is that those who did not participate in this mess are now affected too. But then again, with this freefall, we have to hit the rock bottom to start the recovery process.
The problem is that stocks are overvalued. A lot of “earnings” over the last few years have turned out to be illusions. Lehman’s is the most catastrophic example of an apparently profitable company that was actually losing money.
And that is a problem not only because their balance sheets are now taking a hit, but because its not clear that they were ever as successful as they appeared when bloated by money made betting on real estate. Lending has dried up in part because many companies are way over-extended given their future revenue generating capacity.
So, no there isn’t anything you can do about that. But a good starting point to restore the economy’s health would be to force companies to uncloak their real estate losses so that people know who really owns them and how much.
A good second step would be to allow people who have mortgages under water to get bankruptcy protection and their mortgages reduced to the actual value of their homes with payments that they can afford. That would end the foreclosure tsunami that is helping to drive this mess.
What can stop this? The bottom. The markets were inflated for several years and are making a hard and fast correction. As I have said before, it is going to be painful. Only now, since the governmnet threw everything at the problem, we are going to deal with a longevity issue. Sure, the markets won’t crash as hard or as fast, at the same time, future generations will be paying for this. That means less down the road for everyone. Quite short sighted for the challenge presented. people making $15 an hour buying 500k houses. That’s what GOT us into this mess in the first place.
Matthew Jackson, Placentia CA hit on it. People living, and borrowing, beyond their means created most, if not all, of this. Now they are the ones crying the loudest. What ever happened to reality? Paul? Anyone?
Wall Street has come down significantly from its high of 14000+ a year ago.
With this rate cut and couple of more rate cuts due in coming months, the market will have enough liquidity and value. So a significant upside is at hand. But not before a retest of lows we are seeing now.
The issue that needs attention is that the underlying banking problem will be resolved in next couple of years. Also the housing market has yet to find resolution, since the homes are still significantly over priced.
So even though on a short term basis, the market may rally, but on a long term basis Wall Street could still see downward movement next year. Let us hope this happens after Pres. George W. Bush retires on Jan 20, 2009. We do not wish to spoil his farewell, now do we?
Nothing Will Stop It…
Wall Street and Consumers (yes, you too!)basically took payday advances worth about 2-3 years of income in the form of re-fi’s and other cheap credit loans. Now the assets are worth less (but not worthless!), and it is time for all of us to repay the advances.
That will just take time. No amount of praying or trying to work out deals with home owners is going to make home values stay at artificial levels. They will adjust themselves to the correct level!
I hope everybody out there saved up some cash to get through this slow time… Your going to need it.
Bernanke it is time you made good on your promise to Congress to drop money from helicopters in the towns and cities if anything bad happens.
I am looking forward to getting the money soon.
According to Simon Johnson the brightest minds at the IMF are now working hard on the financial crisis and are going to tell the world what to do. As the IMF has messed up every economy they have gotten involved in this certainly spells doom for the Western World.
It is now end game and we have lost big time. The West has now turned the corner on another dark age. There is no hope for us as the IMF will destroy us.
Again if you have not done it already get your money out of the stock market and 401k plans and major banks. Putting your money into local banks is the only thing that will save us now.
Simon Johnson, an economist at MIT who is now a senior fellow at the Peterson Institute in Washington, says this week’s annual meetings of the World Bank and International Monetary Fund in Washington offer another opportunity for joint action.
The meetings come as the IMF warned Wednesday that it expects no growth in several big developed economies next year.
“It is too late to avoid a slowdown, but strong and coordinated policies can avoid even worse scenarios,” the IMF said in releasing its annual World Economic Outlook report. “In many countries, plans are already being put in place to help resolve the crisis.”
But no matter how good those plans are, making them work will take time – which is something policymakers seem to sense they don’t have much of right now
Ban worldwide all short selling (including naked shorting) immediately until the end of the financial crisis. This will work.
Kill off the weak ‘non-banks’ and merge their assets into insured and regulated banks so that people can stop worrying about which ones will survive. We can’t afford to save all of them, and we have better places to invest that money.
Then, once the new team is in Congress and the White House, stop giving money to Wall Street and use the money that would otherwise be wasted in bailouts to start directly stimulating Main Street. Make investments in critical infrastructure that creates jobs onshore: bridges, power, roads, etc.
Oh, and did I say: stop wasting so much money subsidizing the offshoring of jobs.
WELL I BASICALLY THINK THE PROBLEM HERE IS NOT ONE OF LIQUIDITY BUT OF SOLVENCY. THE VERY POISON WHICH IS AT THE HEART OF THIS WHOLE DEBACLE IS CHEAP CREDIT. INSTEAD OF TRYING TO REIN IN SOME OF THIS THE FED IS JUST ENCOURAGING MORE. AHHHH BUT THEN CONSUMER SPENDING IS TWO THIRDS OF ALL ECONOMIC ACTIVITY…. MAN THAT IS A SCARY THOUGHT, CONSUMPTION NATION. THIS RATE CUT WILL DO NOTHING NOR WILL THE NEXT 50 BASIS POINTS OR THE NEXT. ALMOST OUT OF AMMO BEN. KINDA STARTING TO LOOK LIKE THE ALAMO HUH.
Start with just the tiniest show of faith: Congress needs to pass the Credit Card Holders Bill of Rights immediately. It’s a small enough gesture to say they are not in the pockets of the bankers.
The Bush Administration had the nerve to oppose it in a press release as King Henry was asking us to bail out the banks. Talk about adding insult to injury!
“I applaud Bernanke for being very creative and innovative” Mr. LaMonica quoted. It is as creative and innovative as German Government after WWI – Print more and more, make everybody pay for Wall Streets crimes, especially if you were responsible with your money – you will pay the most. Prepare to see double digit inflation next year.
I agree with Matt Jackson in California and can’t believe why this is not crystal clear to our government leaders, the fed chairman, and the treasury secretary. Most Americans lucky enough to buy a house in the seventies and eighties have already tapped their credit cards and home equity to buy everything under the sun and a $250,000 house, while a “bargain” to some, might not be considered affordable to anyone under 35. The issue is and has always been the gap between family income and the cost to live the “new” American dream. It has absolutely nothing to do with credit availability. You can lower the fed rate all you want and you can borrow the world’s money to bail out the finance companies, but you can’t force people to borrow more money when they can’t afford to pay on what they already owe. We have two choices – find a way to get every American family earning six figures or let the laws of supply and demand bring the cost of living in line with what the average Amercian can afford. We need a new perspective in congress instead of a bunch of old people who are completely out of touch with reality. For all the baby boomers who believe the current cost of living is affordable, try this. Go and dig out your monthly mortgage statement and multiply it by six or seven, shave about 10% off your paycheck for a 401K contribution, and then ask yourself if your lifetsyle is still affordable. There is a whole generation shut out of the market right now and until they are able to participate, this economy is going nowhere. It’s amazing that this is so clear to so many people but our leaders are still making the wrong decisions.
The stock slide may slow down as the money being thrown at the financial markets smoozes things. But this is only temporary. The underlying cause of this drop – unbridled growth as an end all of economics – has not been addressed. We will see much worse over the next year, and I expect, we will see a very tough next five years, minimum.
It’s been a year since the rate cuts began. When should we expect to see the results of those rate cuts?
I was reading a historical economic analysis of the Great Depression. The scenario we are now facing is eerily similar. Unfortunately, the government’s response is almost a page from the Herbert Hoover textbook.
All we need now is for some protectionists in the Congress to pass the Smoot-Hawley Tariff Act II and we’ll complete our journey towards the Second Great Depression.
The issue is that the lower and middle classes who drive most of the nation’s consumption don’t have any money. Throwing more debt on a group that already has a huge debt isn’t going to solve the problem. This issue has to be resolved at the Main Street level, not Wall Street. Wall Street is simply an indicator; you don’t lose weight by turning the adjustment screw on the scale.
I ran my own salary through some inflation calculators. I found that I made more fresh out of college 17 years ago than I make today, in real purchasing terms.
Most middle class households have piled on debt just to survive, hoping that things will turn around for them sometime in the future. Well, things didn’t turn around and now we’re at the end of the credit line.
The huge impact of the stimulus checks should have been a lesson to the powers that be that giving money to Main Street is the best way to juice the economy. If you give money to the rich, they just put it into Cayman Island bank accounts or buy foreign luxury goods. If you give a billion to Warren Buffet, he probably wouldn’t even notice it. If you gave $10,000 to an average family, it would be like manna from heaven.
In unrestricted capitalism, the rich soon take all of the money from the poor, then the factories stop because there’s no money for the poor to buy all the products made in the factories owned by the rich. This is what led to the Great Depression and why they created a regulated economy.
This isn’t socialist thinking. Henry Ford paid his workers high wages just so they would buy his cars. The rich have a vested interest in making sure there’s someone who can buy products produced with their capital.
I’m all for capitalism, but unrestricted capitalism didn’t work in 1929 and it doesn’t work now.
Excessive debt is what got us into this mess. Making the cost of borrowing lower than it already is isn’t going to get us out of it.
Paul,
You just don’t get it. I am actually quite surprised that you keep setting yourself up for this much abuse. You must be a masochist.
The underlying key to growth in the long term is savings. The Solow growth model will tell you that the US and the world are not saving near enough. Savings has to mean REAL savings, not smoke and mirrors, reserve ratio, money multiplier fiat money type savings. There has to be substance behind the savings numbers.
How does one encourage savings? Well, you have to raise the interest rates! What does our gracious and all knowing Central Bank do? Why, Bernanke lowers the Fed Fund rate. For a scholar of the Great Depression, he is sure making some counter-productive moves.
As long as our “leaders” in Washington keep doing what they are doing (bailouts, not letting interest rates float on the market, centrally planned monetary policy, etc…), we will be in deep, deep trouble. You are seeing the unraveling of our entire smoke and mirrors, fiat money system and the rise of naked power abuse by the State.
I think the Keynes-worshippers are gonna find out very soon that using gasoline and matches to try to put out a fire just … doesn’t … work.
John Law redux.
Right now it’s the hedge funds selling like crazy to push the stock lower, so they can buy it back later at a discount and screw everyone out of their retirement savings. This is the biggest scam in the history of the country. The bankers are demanding money from the government, or they threaten not to lend. But I have a BIG question: why is it that everyone is talking about a credit freeze, when I can see on the Fed’s website that loans outstanding are actually GROWING?!!!! What the hell is going on here? How can they say they won’t lend unless they get bad assets off their books, but yet they are still lending even though they say they are not?!!! Am I missing something here??? Also, I said a few months ago Dow 10K was coming, and I was spot on. Warning: Dow 5K is coming now…I guarantee it. The party is over folks. The Dow is crashing because the housing market, which crashed, was propping up the stock market. Hello???!!!!! Artificially high home prices spurred artificially high stock prices, and now stocks are coming back to fair value, just like home prices did. GD2? No, but maybe GD 1.5!
I’m in complete agreement with Matthew from CA. Karen I always laugh at your comments, they are always over the top. Did you get ripped off personally or something to feel this way?
Anyway the rate cut was just a show. And in my mind actually proves the Fed is incapable of handling this situation. They are reactive not proactive and these moves seem to indicate they really don’t know what to do.
I think the only way to a better place is to have our living expenses fall back to relative levels seen 7-8 years ago. We also need this idea of living more then a means to evaporate. I’m in my twenties and I personally know people that right after college/high school making $30,000-$40,000 a year buying brand new cars, homes, and expensive toys. I have always been thrifty and I hated being called cheap. Now I laugh at all of you idiots as I will buy your foreclosed properties at a great discount and buy discounted stocks with my saved money and almost perfect credit score. The best thing is I re-sell it back to you in 7-8 years when the cycle is back up. Hahahahah
We are in a real pickle now, Paul, because what the consumer and small investor needs to see to restore confidence is just the opposite of what the banks and institutional investors need to see.
We, the little guys, need to see the bankers, analysts, lobbyists and politicians who led us into this mess pilloried in the public square, stripped of their wealth, jailed and then forced to retire on Social Security or by working as greeters at Walmart. Then a nihilistic reconstruction of regulations, installing a structure transparent enough for someone with an 8th grade education to understand it. That should include dismantling the Fed and restoring the Constitutional mandates for printing and overseeing money to the public sector.
That would scare the bejeepers out of the fat cats, because they get rich by swindling the rest of us. They just went so far this time they could no longer hide it. They had the gall to take money from us to cover their losses and, as most of us expect, this bailout is just their biggest swindle yet. Bill is right, this is extortion on the grandest scale ever seen in our world.
When the boondoggles end, confidence will start to return. All the moves the governments and central banks are making now are hollow. Everyone knows the foxes are finished guarding the henhouse and are now eating all the chickens and our eggs. Until that changes, the markets will only get worse.
In the “good old days” CEOs and their management teams concentrated on running good companies so they could be profitable in the short term and remain so for years to come. When a company did this well their stock price went up and the CEOs were paid a reasonable compensation.
In recent years CEOs have shifted from managing the company to trying to directly manage the share price of the companies stock. The best recent example of this is GE who announced they were selling off their major appliance business because it could not support a 10% per annum increase in share value. This is their core business and what brought them to the party. Maybe they planned to become a financial services company because they saw the huge salaries made by the CEOs in that business. If that is the case they were foolhardy in light of the current crisis.
This strategy has worked really well for CEOs and their compensation has sky rocketed as the share prices went up. Unfortunately for the investors who paid these guys enormous salaries and bonuses, the artificial bull market that was created had to end, and end disastrously.
I have no doubt we are experiencing an over correction and there will be a rebound, but if management philosophy continues as it has been, we will see bubbles continue to be created and then bursting.
Here, I thought prostitution was illegal.
All I keep hearing is that house prices continue to fall – so what?
If you purchased a home for $400,000.00 and have a nice mortgage payment of 33 percent of your gross individual income and are able to make those payments, and are not planning on selling your home in the near future – who cares what’s it worth?
The PROBLEM is those people who should not have perpetrated unscrupulous lending practices by offering lifetime mortgages, subprime mortgages, lines of credit etc to people who clearly could not afford them.
This WHOLE problem would not have occurred if the feds didn’t reduce interest rates so low and those who took out the mortgages in the first place thought about what would happen if interests rates rose over the term of mortgage.
The honest people who knew they couldn’t afford a mortgage sat on the sidelines waiting for housing prices to come back down. They are the smart ones. They have cash in the bank, low debt and are waiting for the perfect time to buy.
Right now the government needs to cut out the middle guy – the national banks and deal directly with the problem.
Thousands more will lose their homes and rightly so.
Blame also needs to be assigned to TV shows. Give me a break. A waitress from the diner down the street buys a home and flips it making $80,000 in the process. People from all over the world were purchasing homes or investment properties beyond their means. Now they are all crying to mommy (the government) hoping they will fix the problem so that the spoiled child can go back out and play.
Economists worldwide have been saying this was coming as late as June of this year, (2008). So, this credit crisis should not be a surprise.
I do think there is a bottom here though, personally. And JUST MY OPINION, I have no basis in fact or expertise. I barely have enough knowledge to balance my checkbook. But I believe that the bottom is around 800 on the S&P and 7900 on the DOW, and things will slowly then start to recover. And possibly for the better. Maybe we have learned that “slow growth” and “steady returns” are far preferable to the “big risk/big gains” mentality the idiots on Wall St have been pursuing for the past 8 years.
To : David, Fairfax VA: October 8, 2008 12:43 pm
It’s not that companies are now worth 30 percent less than they were at the beginning of the year. It’s that the great Wall Street ponzi scheme to steal your 401k plan money had inflated stocks to about ten times what they are really worth. The Dow Jones Average will now keep falling until it reaches fair market value of about 1000 to 2000.
The market was just one ponzi scheme and now the game is over as nobody is playing. It’s all down hill from here.
Get use to it they stole 90 percent of your retirement money and not only got away with it but as an added bonus they got 700 billion dollars of your tax money also as they left the building.
Fear is running extreme. The world economy is slowing. Take this along with the additional bad economic news to come, and add the fact that technicals (LVW trends) have us in for an even larger drop than we have yet seen, and I would not be at all surprised to see the Dow hit 7000 within the next few months. While the fear levels we see now are probably unsustainable for too long, all the other factors remain in play.
It is my opinion that it isn’t going to work with articles such as this on your web site this morning: http://www.cnn.com/2008/POLITICS/10/08/politicians.meltdown.aig.ap/index.html
This is “OUR GOVERNMENT” at work for us…And not doing all that great at lieing to the American People that they are working for us. They are trying to “SAVE FACE” but that won’t work either. Thanks
I’m no economist…but this is how I see it. Say a couple of years ago I had one dollar in cash. Some guy comes up to me in the street and wants to sell me a solid gold rolex watch for 49 dollars. Well I go to the local loan shark and ask him to lend me the 49 dollars to buy this watch at a really great price. Fast forward to this month. As fate would have it the loan shark himself gets in a financial bind with the guy he borrows from who is in a bind with the guy……and so on. My guy wants his 49 dollars back. I say ok just let me find a buyer for this watch and I will get you your 49 dollars back. Well as it turns out the ’solid gold rolex’ watch is really a ‘gold-plated knock-off’ worth about .49 cents. As you can see in order to pay my guy off I have to sell some of my other stuff. Well everybody on the block knows I’m in a bind so they low ball me on the value of my other stuff. But I got to sell….or someone is going to break my legs.
The point is this once I pay off what I owe (de-leveraging) by being forced to sell things of true value (at a discounted rate); THEN THE SELLING WILL STOP.
This is an extremely dislocated market. All the creative interventions are making it very hard for traders and investors to get a footing; so they EXIT. In short the treasury, FED, and central banks are making the downturn worse.
Anyone watching can see what is going. The central banks are trying to save their buddies. A good place to start is look at the charts of the original “don’t short” banks. To me it looks like the rate cut was to save RBS… Main street yeah right
The market will eventually stabilize even in the face of intervention. But, when that happens for real we’ll be at a much lower level and higher taxes to pay for the “bailout”.
Definitely won’t play in a game with loaded dice.
The banks are just seeing what they can extort. They say “Give us more or we will not start lending.” Wall Street porkers all. I guess extortion is not a crime when it is done by a banker. They should join the AIG execs in an orgy, at taxpayer expense.
At this point Wall Street is in a self-fullfilling prophecy mode….they are the ones actually contributing to this free fall. I simply refuse to believe that all of a sudden every company in the US regardless of sector is suddenly worth 30-35% less that it was a couple months ago….
How can anything work? The money being poured in to the banking systems has already been spent, lost and loaned. Only a stupid person will go out and borrow money to start a new business or building a mal or a home, or to buy gifts for christmas (not that I have lost faith in the stupidity of the average person.
I amwaiting for the other “shoes” to drop, the cancellations of cell phone services, cable services, unemployment in restaurants, and the problem getting compounded.
Have we talked about the upcoming increses in crime, sucides, abuses, prostitution, on a world wide basis? I wrote about it five years ago.
The answer is straight forward: When the equities sre seen as great deals and people lose their fear of an even deeper drop. So what is going to get more people to buy the bargains? Cramer sounding like doom and gloom Monday did not help.
Pundits are always saying there is always the capitulation before the bull returns. What does capitulation look like in this environment? We’re not there already? RTP has a PE of about 5! GE is less than half of is purported book value. Buffet’s buying, why shouldn’t I?
This recession/depression is ONLY happening TO the middle/lower class. The top 1% are pulling $ from thier offshore accounts to scoop up deals and live as they always have. This isn’t an us against them statement. It’s a “they should pay thier fair share” statement.
I think the insulated wealthy actually WANT a recession to keep the plebeians in thier place.
LOL
If Fed interest rate at 2 percent can not get the economy moving a cut to 1.5 will be a waste of time. Look Wall Street bankers basically stole 30 to 40 percent of the values of our 401k plans and put into their pockets in a ponzi scheme.
Putting the Wall Street bankers in jail and taking their assets to pay people back is the only way for us to get our money back.
I say things are just going to get worse as the crooks are running the bail out money. They are merely going to steal the money for themselves and leave the tax payer with a higher tax bill next year. get ready to pay an extra $2,000 a year in federal income tax people.
Also now that the Wall Street bankers can get to your deposit money and give it to themselves and their super rich buddies the Arabs and Chinese we need to protect our money and take it out of the major banks and put it into local banks. At least local banks loan money to the local economy so we can help ourselves and not some super rich Arab.
Also take out your 401k money the pnzi scheme is dead and your money is going down the tubes. Please everyone take your money out now before it is too late.
Not a chance. I really want to know what color the sky is in Mr. LaMonicas world. Because I don’t think he’s living in the same one that most of us are. Anyone who thinks we can buy our way out of a recession and thinks that a perpetual Bull Market is somehow a God given birthright is living in LaLa land. Frankly, I don’t think the Dow can crash hard or fast enough. It seems that our esteemed “leaders” are determined to put a floor under the market in general and housing in particular at no matter what the cost. Housing will not “correct” until either prices come down in line with traditional fundamentals (roughly 2.5x per annum income) or else incomes double or triple. We can’t have it both ways; people making $15 an hour buying 500k houses. That’s what GOT us into this mess in the first place.
As long as prices remain artifically inflated (the obvious goal of the Bull cheerleaders) and wages flat or falling, our chances of coming out of this are basically zero.
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We need to consider carefully how our leaders are chosen. Too often these appointments seen to be based, not on ability and wisdom, but on political expediency, payback, race, gender and other political correct criteria.
What we need are the best experts available. We have to scrutinize their work and demand real openness and accountability.
We need to rid the world of intellectually comatose, self serving, knee jerking bunglers who are permeating every position of leadership. There is a culture of jumped up trolley boys running the store.
Morals, trustworthiness, ethics, principles, dilligency and accountability should be top of the list of must have attributes and qualifications of those who preside over the lives and fortunes of people.
They should not be there to line their own pocket, but should be willing to serve the people.
We need to clean the infection from the inside out – not only in Wall Street – but also in a lot of other workplaces. Ah yes! . . . but who will bell the cat? It will take courage and commitment and a deaf ear to all the yelling of these miscreants.