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raymond phule
climber
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"There is obviously something wrong."
yes, but it is also interesting to know what is wrong and why? The banks might not be the problem. The monetary system might not be the problem. I believe speculation is much more important. Regulations are more important.
"The main point of the thread is to make sure people understand the monetary system basics."
I think this thread are we are very far from understanding the monetary basics. When do a central bank lend money? How do they set the interests? What are the dynamics of the system? What decide inflation?
It is always interesting when people with no formal knowledge if any real knowledge at all claim that people with formal knowledge clearly are incorrect. This happened in the case of John in this thread and maybe about TIG but I am in general very skeptical about him.
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happiegrrrl
Trad climber
New York, NY
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I know this isn't about how banking works, but....From the NYTimes, here:http://www.nytimes.com/2008/10/06/business/06buffett.html?_r=1&hp&oref=slogin
"As far back as 2003, Mr. Buffett had warned that the complex securities at the center of today’s troubles — once so profitable, but now toxic — were “financial weapons of mass destruction.” These securities were engineered by the math quants on Wall Street, and in the interview Mr. Buffett expressed his disdain: “Beware of geeks bearing formulas."
To help pay for the rescue, the government should raise taxes on the wealthy, Mr. Buffett suggested. “I’m paying the lowest tax rate that I’ve ever paid in my life,” he said. “Now, that’s crazy.””
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 6, 2008 - 09:37pm PT
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The "Cause and problem" is easy to pinpoint...GREED!
Now greed, like any vice, is exacerbated by leverage (which is power) The leverage in the banking systems starts out with the FED lending 10x, the banks lending 10x and winds up with mortgage backed securities that further derivatives and CDSs are written from or about. (50+ trillion market on the CDS alone, that's leverage)
It's like, a couple angry guys with clubs can beat a few people but a couple angry nations with nukes can destroy the planet. That's leverage.
So what do we do? Give a near billionaire wall street former exec sweeping powers to hand out 700 billion (buying bad mortgages, securities and derivatives and so on) and hope that cures it, while folks are still sitting in overpriced homes they can't afford and will certainly have to walk from?
The time bomb is still ticking. The first victims have just been shifted from wall street to us, that's all.
Peace
Karl
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TradIsGood
Chalkless climber
the Gunks end of the country
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Karl, it is very easy to point fingers.
But Happiegirl is much closer to the truth than you are.
What we are seeing is closer to hubris than greed.
It is the financial equivalent of Chernobyl - a disaster caused by a ton of experts, any one of whom had you taken out of the chain of events, would not have happened.
If you ever studied disasters, they are almost always the result of a long series of bad decisions. Some of the worst are from a series of bad decisions by "experts".
This one includes Congress for pushing CRA and FNMA and FHLMC, FNMA and FHLMC themselves, mortgage brokers and builders, mortgage lenders, investment bankers, rating agencies applying models based on normal underwriting criteria developed since the 20s to a population outside that model, Wall Street financial "engineers" optimizing structures against the model, securities insurers, rating agencies, regulators (including state insurance regulators) who did not understand new markets, management of banks and investment banks that didn't, and investors, who just threw up there hands and said I trust everybody, people who had no business borrowing in the first place, and speculators who were willing to "value" derivatives.
Take even one of the above out of the picture, and the whole package never gets put together and the expert driven failures never happen!
Classic Disaster Scenario.
Perhaps if you had opened your mind, I would have continued the Cutting up the Pig, and banking threads and continued onto derivatives, and you would have learned something.
Cheers, and hope to spend some time with you at some point doing something that you are expert at.
Peace, out!
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 6, 2008 - 10:59pm PT
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Come on TIG, the mortgage meltdown has been obvious and predicted for years. The fact that few listened just shows we believe what we want to believe.
Here's a video on Lehmnan Ceo who got grilled by congress today. Got paid more than a half billion since 2001 including 106 million one year. Greed and hubris are interlinked when somebody is so rich they don't have a motivation for their greed except hubris!
http://www.cnn.com/video/#/video/business/2008/10/06/tsr.boudreau.lehman.ceo.cnn
peace
Karl
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TradIsGood
Chalkless climber
the Gunks end of the country
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To which one of the participants was it obvious?
Explain why he made a bad decision, despite the fact that it was obvious to him [for years].
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 6, 2008 - 11:38pm PT
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You already know anyone with a brain could figure that teacher or a fireman can't afford a $600,000 home once the teaser rates expire and the real mortgage kicks in.
Take a pile of that stuff and leverage it and many of us have been calling crash for years.
the lehman guy doesn't have to do with my statement. Just showing the the guys we're bailing out are walking away richer hundreds of millionaire put together. Bet he's found some good tax shelters to keep from paying his freight in the bailout.
Peace
karl
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WBraun
climber
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Hey Majid sent me this.
Since mid 2000, many big banks were pissed at smaller banks cause these guys were making money by lending loans to other institution and collecting interest. while big banks were sitting in the back, they let every mom and pop banks loan money to house buyer financing loan with not down payment.
Meanwhile they created a fake housing market so people with hard cash could to dump their money in the housing sector. some of these financial institution which traditional were in to 401 K and retirement plans were not in to loaning money but took the bait and got themselves involved with loaning money to these smaller mom and pop banks.This high housing market was artificiality build by the big banks only to get ride of the little banks or kill the competition. So how does this translate in English ?
Well lets say some small bank had 1000 loan or practically own 1000 houses and paid an average of $300.000 per hose. since these institutions can not collect money from people nor they can pay off the other banks which they borrowed money, they are selling their entire loans to other bank for almost nothing. I have heard, they are dumping their loans as much as 10 cents on a dollar. so their 300K loan is been sold for 30K or less to big banks.
Now, big banks are asking feds to loan them low interest money so they could buy the smaller banks without getting their own money involved with the transaction. few years from now, these same big banks will create another market to jack the housing back to where it was, sell the same 30K loan back to public for 200 k, make money and here is the funny part, they did not use their own money but used the govt's money or the rescue package.
So this whole thing was a set up from long long time ago and do not forget that a lot of middle eastern countries such as Saudis invested in the little banks and they all lost their cash.
For time been, feds are doing their best to keep the US market disaster in low key till election is over . Right after election, you will see a lot of bigger banks going down and the US economy will sink with a lot of unemployment.
Can this happen?
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 7, 2008 - 12:02am PT
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Hi Fatty
Don't know much about Europe except that our systems are linked. I did know and stated I thought the dollar would plunge and it did and more may be in store.
Werner, the practical result of this mess so far is that banks ARE consolidating, big banks are swallowing other banks on the cheap, and yes, lots of homes and mortgages are going to be purchased at deep discounts.
We can question how "intentional" such a thing is. Sometimes mass behavior seems conspiratorial when it's just the same mentality enacted by different players over and over in different places, like sport climbing!
peace
Karl
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TradIsGood
Chalkless climber
the Gunks end of the country
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Karl, that is my point. The teased guy new or should have. If "they" say no, party is over before it starts.
If Congress does not pass CRA (redlining) bill jamming bad lending down banks throats, they don't go there. Party over before it starts.
If there is no market outside the bank for these loan packages,
party over before it starts.
If FNMA and FHLMC say no, party over before it starts.
If ratings agencies do a better job,
you guessed it. party over before it starts.
A big giant friggin disaster. And like all disasters, no single cause.
Sure greed played a role - every hand in there from builder to investor, just wanting to do a little better.
I bet you would like to climb just a little better (than you do now, not than I do).
Disaster, because everybody in every cog thought he understood it well enough to do at least a little better, or maybe even a lot better.
Werner. Loans were packaged. Some have been sold as low as 22 cents (Merrill Lynch). 10 cents maybe, but I do not know of that transaction, nor dispute it. Any buyers who bought at discount will not get the same preferential treatment of institutions trying to get rid of it for the first time. TARP also won't be able to buy stuff at a premium (above 100 cents on the dollar).
The effects are hard to predict. But sales by one party will impact other parties who may be forced to look to the sale and use the public free market price to value similar holdings.
I suggested to a former top economist from a former top firm that they probably needed 700 days more than $700B. He said they likely would need both and more.
It won't be all cleaned up by Obama's inauguration. We will be lucky if it is cleaned up by the end of his first term. But we should be well on the way.
Chernobyl was never repeated because they learned something from it.
Over the counter derivatives. Now there is an interesting topic. That is why I suggest 700 days. Nobody trusts anybody else because these contracts are offset so many times amongst so many parties, that even if A trusts B, B depends on C and A may not trust C (from a credit standpoint). I hope somebody understands that, but if they do, they probably already knew it. In the Credit Default Swap market, just one "little" piece, offsets have been done, paring the notional amount down from $62T to $54T in the last few months.
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 7, 2008 - 12:57am PT
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Now remember, when former Wall Street CEOs like Paulson from G. Sachs or Dick Fuld from Lehman make a half Billion over 5 years, it's not because they invented widgets or stated their own productive company.
They are employees of the company who made money by moving money around! Some of it was your money, out of your stocks or 401k. Some of it was made on your mortgage. It wasn't by producing anything tangible that moves us forward.
Yet, even though these guys were beyond smart (they managed huge companies willing to pay them extreme sums for something!) and should have known the risks they were taking (the buck stops there) nobody is looking at their hundreds of millions with any eye toward them paying a bit extra to bail out the firms they ran into the ground. That's our system. Money is sacred and you never think of taking a rich guy's money no matter how many people got wiped out by his actions.
Some 23,000 Lincoln bondholders were defrauded and many elderly investors lost their life savings in the Keating 5 scandal that McCain was neck deep in.
http://en.wikipedia.org/wiki/Keating_Five
Peace
Karl
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 7, 2008 - 01:38am PT
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"I bet you would like to climb just a little better"
If I worked out more, ate less, and did "sports Nutrition" or worse, I would climb better. I don't bother.
" Loans were packaged. Some have been sold as low as 22 cents (Merrill Lynch). 10 cents maybe, but I do not know of that transaction, nor dispute it. Any buyers who bought at discount will not get the same preferential treatment of institutions trying to get rid of it for the first time. TARP also won't be able to buy stuff at a premium (above 100 cents on the dollar). "
Funny, some firms can buy bad mortgages at 10 to 22 cents on the dollar but we merely restrict the treasury from paying MORE than full, 100 cents on the dollar price. I feel so protected! Can we be assured they won't just pocket the cash like happened so many times in Iraq?
sorry for being so cynical. If this bailout is done right, it will be the first time in 8 years Bush has done something well and not just a handout to business (like the medicare drug benefit) Fool me once, shame on me, fool me....won't be fooled again
But I guess we're fooled again and again
Peace
karl
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Redwood
Gym climber
West Sacramento CA
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yossarian wrote:
"How do you know “energy input” is no longer increasing?"
A variety of estimates, production statistics, and discussion. Among them being:
http://greatchange.org/ov-campbell,outlook.html
yossarian wrote:
"Doesn't stating “energy” needs to perpetually increase assume efficiency remains the same?"
Yes, that is an assumption. If efficiency were greatly to increase, it could make a difference in the time frame.
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Redwood
Gym climber
West Sacramento CA
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Karl Baba wrote:
"The "Cause and problem" is easy to pinpoint...GREED! "
I'm not sure that is the whole of it. It might be planning to trick us and saddle us with enormous unrepayable debt, thereby reducing us to a kind of perpetual indentured servitude -- quasi-legally administered -- that nullifies in fact if not in theory the Constitution and Bill of Rights. So England, thanks to its famous Bank, and its bankers, wins in the end.
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 7, 2008 - 06:56am PT
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Since this thread has been going for awhile, it seems appropriate for it's "discipline" to slack up a bit. We haven't discussed the regulatory aspect of the government over banks and lenders (and we're posting this during the mortgage crisis) so I thought I'd repost the link McC made to Eliot Spitzer's writing on how the Bush Administration aggressively fought off attempts from the state to avoid the meltdown
http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html
This mess is a Bush mess.
Peace
Karl
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TradIsGood
Chalkless climber
the Gunks end of the country
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From Emergency Economic Stabilization Act of 2008
Section 101
...
(e) PREVENTING UNJUST ENRICHMENT.—In making
11 purchases under the authority of this Act, the Secretary
12 shall take such steps as may be necessary to prevent unjust
13 enrichment of financial institutions participating in a pro
14 gram established under this section, including by pre
15 venting the sale of a troubled asset to the Secretary at a
16 higher price than what the seller paid to purchase the asset.
17 This subsection does not apply to troubled assets acquired
18 in a merger or acquisition, or a purchase of assets from
19 a financial institution in conservatorship or receivership,
20 or that has initiated bankruptcy proceedings under title 11,
21 United States Code.
Sorry Karl, did not remember the exact language last night, and rather than get it just a little bit right...
BTW, the whole text is only about 113 pages double spaced. You can find it easily enough with Google "EESA full text".
The full bill is over 450 pages, but EESA is only about 113. It is an authoritative source, not some second or third hand stuff you usually find on the web.
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happiegrrrl
Trad climber
New York, NY
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http://www.nytimes.com/2008/10/07/business/07markets.html?_r=1&hp&oref=slogin
Today the news says the Federal Reserve is going to buy unsecured debt..... I am clueless, but don't get a good feeling. It seems that we are sticking our fingers in the leaking dyke only to have the water spill out at another weak spot.
The story even uses the term "Whack-A-Mole" which heretofore I thought was one of those Supertopo TM'ed words.....
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happiegrrrl
Trad climber
New York, NY
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TO FATTRAD: Can you use your influence to get me a ticket to the presidential debate coming up here in NY on 10/15?
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 7, 2008 - 11:29am PT
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"Today the news says the Federal Reserve is going to buy unsecured debt..... I am clueless, but don't get a good feeling."
Might not be a bad idea. It's short term debt that's not so daunting to value as the tangled mortgage securities. That might loosen credit without throwing gov cash at stuff they haven't had time to figure out.
Peace
Karl
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