Entering the greater depression

[sprinter]

How long will this house of cards hold up? Are you ready to lose most or all of your pension and 401k's? And your Social Security, the pot is empty of real money. But filled to the brim with IOU's from a government that is technically bankrupt. Most of us will never see a dime of it because it was spent on wars and ‘bridges to no where’.

 

The derivative bubble created by the con artists of Wall Street is about to explode. They are desperately trying to prevent this

 

IT’S THE DERIVATIVES, STUPID!

WHY FANNIE, FREDDIE AND AIG ALL HAD TO BE BAILED OUT

 

 

http://www.webofdebt.com/articles/its_the_derivatives.php

 

 

Something extraordinary is going on with these government bailouts. In March 2008, the Federal Reserve extended a $55 billion loan to JPMorgan to “rescue” investment bank Bear Stearns from bankruptcy, a highly controversial move that tested the limits of the Federal Reserve Act. On September 7, 2008, the U.S. government seized private mortgage giants Fannie Mae and Freddie Mac and imposed a conservatorship, a form of bankruptcy; but rather than let the bankruptcy court sort out the assets among the claimants, the Treasury extended an unlimited credit line to the insolvent corporations and said it would exercise its authority to buy their stock, effectively nationalizing them. Now the Federal Reserve has announced that it is giving an $85 billion loan to American International Group (AIG), the world’s largest insurance company, in exchange for a nearly 80% stake in the insurer . . . .

 

The Fed is buying an insurance company? Where exactly is that covered in the Federal Reserve Act? The Associated Press calls it a “government takeover,” but this is not your ordinary “nationalization” like the purchase of Fannie/Freddie stock by the U.S. Treasury. The Federal Reserve has the power to print the national money supply, but it is not actually a part of the U.S. government. It is a private banking corporation owned by a consortium of private banks. The banking industry just bought the world’s largest insurance company, and they used federal money to do it. Yahoo Finance reported on September 17:

 

“The Treasury is setting up a temporary financing program at the Fed’s request. The program will auction Treasury bills to raise cash for the Fed’s use. The initiative aims to help the Fed manage its balance sheet following its efforts to enhance its liquidity facilities over the previous few quarters.”

 

Treasury bills are the I.O.U.s of the federal government. We the taxpayers are on the hook for the Fed’s “enhanced liquidity facilities,” meaning the loans it has been making to everyone in sight, bank or non-bank, exercising obscure provisions in the Federal Reserve Act that may or may not say they can do it. What’s going on here? Why not let the free market work? Bankruptcy courts know how to sort out assets and reorganize companies so they can operate again. Why the extraordinary measures for Fannie, Freddie and AIG?

 

The answer may have less to do with saving the insurance business, the housing market, or the Chinese investors clamoring for a bailout than with the greatest Ponzi scheme in history, one that is holding up the entire private global banking system. What had to be saved at all costs was not housing or the dollar but the financial derivatives industry; and the precipice from which it had to be saved was an “event of default” that could have collapsed a quadrillion dollar derivatives bubble, a collapse that could take the entire global banking system down with it.

 

The Anatomy of a Bubble

Until recently, most people had never even heard of derivatives; but in terms of money traded, these investments represent the biggest financial market in the world. Derivatives are financial instruments that have no intrinsic value but derive their value from something else. Basically, they are just bets. You can “hedge your bet” that something you own will go up by placing a side bet that it will go down. “Hedge funds” hedge bets in the derivatives market. Bets can be placed on anything, from the price of tea in China to the movements of specific markets.

 

“The point everyone misses,” wrote economist Robert Chapman a decade ago, “is that buying derivatives is not investing. It is gambling, insurance and high stakes bookmaking. Derivatives create nothing.”1 They not only create nothing, but they serve to enrich non-producers at the expense of the people who do create real goods and services. In congressional hearings in the early 1990s, derivatives trading was challenged as being an illegal form of gambling. But the practice was legitimized by Fed Chairman Alan Greenspan, who not only lent legal and regulatory support to the trade but actively promoted derivatives as a way to improve “risk management.” Partly, this was to boost the flagging profits of the banks; and at the larger banks and dealers, it worked. But the cost was an increase in risk to the financial system as a whole.2

 

Since then, derivative trades have grown exponentially, until now they are larger than the entire global economy. The Bank for International Settlements recently reported that total derivatives trades exceeded one quadrillion dollars – that’s 1,000 trillion dollars.3 How is that figure even possible? The gross domestic product of all the countries in the world is only about 60 trillion dollars. The answer is that gamblers can bet as much as they want. They can bet money they don’t have, and that is where the huge increase in risk comes in.

 

Credit default swaps (CDS) are the most widely traded form of credit derivative. CDS are bets between two parties on whether or not a company will default on its bonds. In a typical default swap, the “protection buyer” gets a large payoff from the “protection seller” if the company defaults within a certain period of time, while the “protection seller” collects periodic payments from the “protection buyer” for assuming the risk of default. CDS thus resemble insurance policies, but there is no requirement to actually hold any asset or suffer any loss, so CDS are widely used just to increase profits by gambling on market changes. In one blogger’s example, a hedge fund could sit back and collect $320,000 a year in premiums just for selling “protection” on a risky BBB junk bond. The premiums are “free” money – free until the bond actually goes into default, when the hedge fund could be on the hook for $100 million in claims.

 

And there’s the catch: what if the hedge fund doesn’t have the $100 million? The fund’s corporate shell or limited partnership is put into bankruptcy; but both parties are claiming the derivative as an asset on their books, which they now have to write down. Players who have “hedged their bets” by betting both ways cannot collect on their winning bets; and that means they cannot afford to pay their losing bets, causing other players to also default on their bets.

 

The dominos go down in a cascade of cross-defaults that infects the whole banking industry and jeopardizes the global pyramid scheme. The potential for this sort of nuclear reaction was what prompted billionaire investor Warren Buffett to call derivatives “weapons of financial mass destruction.” It is also why the banking system cannot let a major derivatives player go down, and it is the banking system that calls the shots. The Federal Reserve is literally owned by a conglomerate of banks; and Hank Paulson, who heads the U.S. Treasury, entered that position through the revolving door of investment bank Goldman Sachs, where he was formerly CEO.

 

The Best Game in Town

In an article on FinancialSense.com on September 9, Daniel Amerman maintains that the government’s takeover of Fannie Mae and Freddie Mac was not actually a bailout of the mortgage giants. It was a bailout of the financial derivatives industry, which was faced with a $1.4 trillion “event of default” that could have bankrupted Wall Street and much of the rest of the financial world. To explain the enormous risk involved, Amerman posits a scenario in which the mortgage giants are not bailed out by the government. When they default on the $5 trillion in bonds and mortgage-backed securities they own or guarantee, settlements are immediately triggered on $1.4 trillion in credit default swaps entered into by major financial firms, which have promised to make good on Fannie/Freddie defaulted bonds in return for very lucrative fee income and multi-million dollar bonuses. The value of the vulnerable bonds plummets by 70%, causing $1 trillion (70% of $1.4 trillion) to be due to the “protection buyers.” This is more money, however, than the already-strapped financial institutions have to spare. The CDS sellers are highly leveraged themselves, which means they depend on huge day-to-day lines of credit just to stay afloat. When their creditors see the trillion dollar hit coming, they pull their financing, leaving the strapped institutions with massive portfolios of illiquid assets. The dreaded cascade of cross-defaults begins, until nearly every major investment bank and commercial bank is unable to meet its obligations. This triggers another massive round of CDS events, going to $10 trillion, then $20 trillion. The financial centers become insolvent, the markets have to be shut down, and when they open months later, the stock market has been crushed. The federal government and the financiers pulling its strings naturally feel compelled to step in to prevent such a disaster, even though this rewards the profligate speculators at the expense of the Fannie/Freddie shareholders who will get wiped out. Amerman concludes:

 

“t’s the best game in town. Take a huge amount of risk, be paid exceedingly well for it and if you screw up -- you have absolute proof that the government will come in and bail you out at the expense of the rest of the population (who did not share in your profits in the first place).”4

 

Desperate Measures for Desperate Times

It was the best game in town until September 14, when Treasury Secretary Paulson, Fed Chairman Ben Bernanke, and New York Fed Head Tim Geithner closed the bailout window to Lehman Brothers, a 158-year-old Wall Street investment firm and major derivatives player. Why? “There is no political will for a federal bailout,” said Geithner. Bailing out Fannie and Freddie had created a furor of protest, and the taxpayers could not afford to underwrite the whole quadrillion dollar derivatives bubble. The line had to be drawn somewhere, and this was apparently it.

 

Or was the Fed just saving its ammunition for AIG? Recent downgrades in AIG’s ratings meant that the counterparties to its massive derivatives contracts could force it to come up with $10.5 billion in additional capital reserves immediately or file for bankruptcy. Treasury Secretary Paulson resisted advancing taxpayer money; but on Monday, September 15, stock trading was ugly, with the S & P 500 registering the largest one-day percent drop since September 11, 2001. Alan Kohler wrote in the Australian Business Spectator:

 

“t’s unlikely to be a slow-motion train wreck this time. With Lehman in liquidation, and Washington Mutual and AIG on the brink, the credit market would likely shut down entirely and interbank lending would cease.”5

 

Kohler quoted the September 14 newsletter of Professor Nouriel Roubini, who has a popular website called Global EconoMonitor. Roubini warned:

 

“What we are facing now is the beginning of the unravelling and collapse of the entire shadow financial system, a system of institutions (broker dealers, hedge funds, private equity funds, SIVs, conduits, etc.) that look like banks (as they borrow short, are highly leveraged and lend and invest long and in illiquid ways) and thus are highly vulnerable to bank-like runs; but unlike banks they are not properly regulated and supervised, they don’t have access to deposit insurance and don’t have access to the lender of last resort support of the central bank.”

 

The risk posed to the system was evidently too great. On September 16, while Barclay’s Bank was offering to buy the banking divisions of Lehman Brothers, the Federal Reserve agreed to bail out AIG in return for 80% of its stock. Why the Federal Reserve instead of the U.S. Treasury? Perhaps because the Treasury would take too much heat for putting yet more taxpayer money on the line. The Federal Reserve could do it quietly through its “Open Market Operations,” the ruse by which it “monetizes” government debt, turning Treasury bills (government I.O.U.s) into dollars. The taxpayers would still have to pick up the tab, but the Federal Reserve would not have to get approval from Congress first.

[suv_guy_19]

How long will this house of cards hold up? Are you ready to lose most or all of your pension and 401k's? And your Social Security, the pot is empty of real money. But filled to the brim with IOU's from a government that is technically bankrupt. Most of us will never see a dime of it because it was spent on wars and ‘bridges to no where’.

 

The derivative bubble created by the con artists of Wall Street is about to explode. They are desperately trying to prevent this

 

IT’S THE DERIVATIVES, STUPID!

WHY FANNIE, FREDDIE AND AIG ALL HAD TO BE BAILED OUT

 

 

http://www.webofdebt.com/articles/its_the_derivatives.php

 

According to BNN, the Canadian business network, there is a rumour that the US government will set up a debt bank like in the S & L crisis and the government and by extension the people will absorb any and all debt.

[Mark B. Morrow]

According to BNN, the Canadian business network, there is a rumour that the US government will set up a debt bank like in the S & L crisis and the government and by extension the people will absorb any and all debt.

 

 

The latest word is that a mortgage fund will be established in a similar fashion to the Resolution Trust Corporation which was formed to take over the assets of insolvent S&Ls and administer the liquidation of those asstes. My first job out of law school was with one of the foremost experts in RTC regulations and the FIRREA law.

 

http://en.wikipedia.org/wiki/Financial_Ins...Enforcement_Act

 

The law firm did financial workouts with the S&Ls and reformed the loan agreements to permit the borrowers to keep the asset, where possible or to liquidate the asset where necessary. The plan worked pretty well as the renegotiation of the loans at lower interest or extended terms were usually a much better deal for the S&L than selling the asset at a fire sale price would have been.

 

Many of the subprime mortgages are in the same position. adjustible rate mortgages that started out at 4% and have now moved up to 9-12% are not affordable to the homeowners.Some payments doubled or tripled. The original terms or something in the current average 6%-7% range would still allow the home owners to maintain their property and pay the mortgage.

 

The primary problem with these loans is that they were packaged and sold on the basis of the accelerated interest amounts and the mortgage servicing companies had no authority to renegotiate the terms to salvage something from the deals. This was not a problem in the days when mortgages were kept by the original lender.

 

Due to the huge foreclosure rate in some communities, the market has been flooded with foreclosure sales and housing prices have dropped substantially. This leads to a situation where homeowners owe more than their home could sell for and so they walk away. The ability to renegotiate these upsidedown loans will keep more people from walking away resulting in less property on the market at distress prices and prices will stay higher due to less supply.

[fmccap]

'The World As We Know It Is Going Down'

The only thing that is certain is that the era of the unbridled free-market economy in the US has passed -- at least for now. The near nationalization of AIG, America's largest insurance company, with an $85 billion cash infusion -- a bill footed by taxpayers -- was a staggering move. The sum is three times as high as the guarantee provided by the Federal Reserve when Bear Stearns was sold to JPMorgan Chase in March.

 

The most breathtaking aspect about this week's crisis, though, is that the life raft -- which Washington had only previously used to bail out the mortgage giants Fannie Mae and Freddie Mac -- is being handed out by a government whose party usually fights against any form of government intervention. The policy is anchored in its party platform.

 

"I fear the government has passed the point of no return," financial historian Ron Chernow told the New York Times. "We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams."

[sprinter]

And who is going to pay for this? They expect the American taxpayer of course.

 

http://www.politico.com/news/stories/0908/13602.html

 

Congressional leaders said after meeting Thursday evening with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke that as much as $1 trillion could be needed to avoid an imminent meltdown of the U.S. financial system.

 

Paulson plans to announce his “comprehensive” plan at 10 a.m. Eastern at the Treasury building, next door to the White House.

 

Stock markets soared around the world in anticipation of the rescue, with British and Chinese indexes recording their biggest gains ever.

 

Senate Banking Committee Chairman Chris Dodd (D-Conn.) said on ABC’s “Good Morning America” said lawmakers were told last night “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications, here at home and globally.”

 

“What you heard last evening is one of those rare moments — certainly rare in my experience here — was that Democrats and Republicans decided we needed to work together, quickly,” Dodd said.

 

The solution being proposed by the Bush administration is the most expensive bailout in the nation’s history, sharply curtailing the ability of the next president to push for tax cuts or new spending.

 

Congressional leaders tell Politico that to expedite the rescue, Treasury plans to seek additional authority rather than creating a new entity. The plan involves buying up hundreds of billions of dollars in bad mortgages to take them off the books of financial institutions that otherwise might fail.

 

Sen. Richard Shelby of Alabama, the ranking Republican on the Banking Committee, told “Good Morning America”: “I figure it will be at least half a trillion. But if you look at what the Fed has already done [by rescuing insurance giant AIG], and the extension of power to Treasury to deal with Fannie Mae and Freddie Mac, I believe we're talking about a trillion dollars.”

 

Some Republicans are expressing concerns about writing essentially a blank check to the Bush administration.

 

“They're lurching from one crisis to another,” Shelby said. “They don't seem to have a superplan to deal with this. ... We want to see the plan. This is not a done deal yet. But we know there's crisis, there's stress, in the financial markets that we haven't seen in, say, 70 years.”

 

Some conservatives are balking even more bluntly.

[fmccap]

And who is going to pay for this? They expect the American taxpayer of course.

 

http://www.politico.com/news/stories/0908/13602.html

I don't like Obama but I find it rather funny how all the Repubs always ask how he is going to pay for his policies and now you don't hear anything about this concerning these bailouts. They tell us now it will cost about a trillion. They said the S & L would cost about 50 billion, it ended up costing about 1.4 TRILLION.

 

So much for the FREE MARKET Repubs LOL. This is the biggest joke and most don't see it. This being more or just as much SOCIALISM as the LIBERALS they need to stop making that arguement, it's a big Contradiction.

[sprinter]

IT'S LIKE A FIX FOR A JUNKIE! Ron Paul on Economy Meltdown

 

http://www.youtube.com/watch?v=lQsC-F9YRxk

[Ford Jellymoulds]

Alarm bells should have started ringing at the the Fed and in Bushies ears when Northern Rock went under in the UK over a year ago, financial regulators in the US should have stepped in back then with the sort of legislation they are imposing on short-sellers, its a bit late in the day after nearly every big financial organisation has gone to the wall.

 

IOU's and printing money is only a short term fix it will only delay and create even bigger problems for the future meantime the value of the dollar will start to look more like the Zimbabwean dollar oil prices will head skywards again so the Fed will be forced into pushing interest rates up to new sky high levels not seen in decades so further battering the poor ole US consumer and prelonging the economic downturn for years to come you can see it coming.

 

Bushie is only about a year to late with new financial regulations that could have stopped the attacks on the financial institutions by short-sellers last week, now the taxpayer gets to foot the IOU bill and will get to face high interest rates caused mountain loads of Fed printed money somewhere down the line in the not to distant future which will prelong the economic downturn for ages not just a year or two.

Edited September 20, 2008 by Ford Jellymoulds

[Trimdingman]

I don't like Obama but I find it rather funny how all the Repubs always ask how he is going to pay for his policies and now you don't hear anything about this concerning these bailouts. They tell us now it will cost about a trillion. They said the S & L would cost about 50 billion, it ended up costing about 1.4 TRILLION.

 

So much for the FREE MARKET Repubs LOL. This is the biggest joke and most don't see it. This being more or just as much SOCIALISM as the LIBERALS they need to stop making that arguement, it's a big Contradiction.

 

The US went into debt to fund a war. It had to happen sooner or later. Our enemies would have continued to push our buttons. People who had too much faith in paper will lose. The difference between Democrats and Republicans is that Democrats love more government. Republicans don't. They had no choice this time. I hope the whole thing collapses and we end up with a new system like Ron Paul envisions.

[fmccap]

The US went into debt to fund a war. It had to happen sooner or later. Our enemies would have continued to push our buttons. People who had too much faith in paper will lose. The difference between Democrats and Republicans is that Democrats love more government. Republicans don't. They had no choice this time. I hope the whole thing collapses and we end up with a new system like Ron Paul envisions.

They had a choice to let it play out and adjust. Sure there will be hard times but these band-aids will only prolong it, eventually it will collapse and it will be worse when it does. Some like to say that everytime Socialism is tried it always fails, I agree. Fiat Monetary policy always fails also. These last "good times" we just went thru were just about all debt based, this is the start of a collapse. What are we doing, fixing it with more debt and inflation.

 

Some liked to call Paul the "KOOK" but I believe he is one of the most economic educated people in our Congress.

Edited September 20, 2008 by fmccap

[fmccap]

Alarm bells should have started ringing at the the Fed and in Bushies ears when Northern Rock went under in the UK over a year ago, financial regulators in the US should have stepped in back then with the sort of legislation they are imposing on short-sellers, its a bit late in the day after nearly every big financial organisation has gone to the wall.

 

IOU's and printing money is only a short term fix it will only delay and create even bigger problems for the future meantime the value of the dollar will start to look more like the Zimbabwean dollar oil prices will head skywards again so the Fed will be forced into pushing interest rates up to new sky high levels not seen in decades so further battering the poor ole US consumer and prelonging the economic downturn for years to come you can see it coming.

 

Bushie is only about a year to late with new financial regulations that could have stopped the attacks on the financial institutions by short-sellers last week, now the taxpayer gets to foot the IOU bill and will get to face high interest rates caused mountain loads of Fed printed money somewhere down the line in the not to distant future which will prelong the economic downturn for ages not just a year or two.

U.S. Govt. Soaks Taxpayers to Bail Out Wealthy Elite; $1 Trillion Rescue Fund Lands at Taxpayers' Feet

In its complete abandonment of free market principles, the U.S. government has banned all short selling of nearly 800 financial companies and set up a $1 trillion off-the-books "rescue" fund in an attempt to sweep financial losses under the rug while sending the bill to taxpayers. If you or I used the same accounting practices in our own businesses, we'd be arrested for serious white collar crimes, but the U.S. government respects no law and is now fully engaged in Enron-like accounting schemes to create the appearance of financial safety while it drives our nation deeper into unacknowledged financial disaster.

 

One can only step back and laugh at the hilarity of it all. By decree, no one can short sell financial institutions now. It's as if the King declared all markets shall always go UP, and anyone caught lowering stock prices shall be arrested for crimes against the State.

On the good side, all this means that you have extra time to bail out of the U.S. dollar before reality hits the fan. While these "rescue" decisions haven't solved any problems at all, they have delayed the inevitable. You now have extra time to get your own finances in order before reality strikes and U.S. dollars go up in smoke.

 

How much time? It might be a few months or even a few years. No one can say exactly how long you have before the purchasing power of the U.S. dollar evaporates, but make no mistake: The dollar is history. The taxpayers are being royally ripped off. The U.S. government has completely abandoned all free market principles. The future of the U.S. is now no longer in doubt by anyone who can do the math.

 

Today, by shifting $1 trillion in debt to the taxpayers and suspending free market trading rules, the U.S. government has guaranteed its own financial demise.

[Trimdingman]

They had a choice to let it play out and adjust. Sure there will be hard times but these band-aids will only prolong it, eventually it will collapse and it will be worse when it does. Some like to say that everytime Socialism is tried it always fails, I agree. Fiat Monetary policy always fails also. These last "good times" we just went thru were just about all debt based, this is the start of a collapse. What are we doing, fixing it with more debt and inflation.

 

Some liked to call Paul the "KOOK" but I believe he is one of the most economic educated people in our Congress.

 

Normally, I would agree, but when you are at war, you have to pull out all the stops. Losing is not an option, even if it means robbing all the people. Money has to be spent, even if it does not exist. We can make it up from the spoils, hopefully.

Edited September 21, 2008 by Trimdingman

[Edstock]

It's as if the King declared all markets shall always go UP, and anyone caught lowering stock prices shall be arrested for crimes against the State.

Jeez people are stupid. Short-selling, with today's data link-up, can be organized into gutting and filleting of a corporation. As a former stock-broker and Canadian Securities Course graduate, it's one change that makes real, solid sense to me.

 

Short-selling has always been an "insider" market tactic; the vast majority of trades are simple share purchases, not selling a "borrowed" chunk of stock with the obligation to buy its replacement within a specified time limit. So this limitation applies to a small segment of the trading population, but a segment that makes very large share movements in a negative direction.

 

Another way of looking at it is that the greed of Wall Street caused the current market conditions where financial stocks are going to be taking hits for some time. Should Wall Street be allowed to use short-selling to make even more money from a situation they created?

 

With the advent of derivatives, financial stocks became even more vulnerable.

 

So, eliminating short-selling of financial stocks is, IMHO an excellent idea.

[Ralph Greene]

If you look at the big picture....and take the long view....change some behavior....and act smart....

 

This most recent market melt down is a tremendous opportunity for you working folks accumulating assets for your retirement. They are on sale. And your regular contributuions buy more of those fund shares. This is the time you should be stepping up your contributions to your 401K plans. History shows the first few years out of a recession or severe slow down, the stock markets go up over 50% usually. Now is the time to invest, not when everyone is more comfortable with the economy. Wait for that, and you miss the rally. The markets will begin improving long before it's obvious why. Actually....for those in accumulation phase of their assets, you should hope imvestment values keep going down for a long time as you accumulate shares cheaper and cheaper...and getting lots more of those shares as they get cheaper. The goal should be to accumulate lots of shares.

 

Current market conditions mostly just hurt us retired folks who already have our assets. And we know....now is the time to invest. That knowledge is how we got retired to begin with. All my extra money is going into stock market investments these days. Stocks like GE, Bank of America, natural gas stocks, etc....or funds that buy stocks like that. I've even bought some Ford below $5.

 

The world (not just the US) is de-leavaging. Debt is no longer a smart way to make money and grow your assets. Think 15 year mortgages and no more than 3 year car loans. If you can't make the payments on those terms, you are buying too much house or car. Times have suddenly changed and gone back to how it used to be, you better change yourself in order to prosper. So work on getting yourself out of debt. Get over idea you need fancy new cars, fancy big houses. People with no debt will again prosper...and take the lead in asset growth. For people who understand this....tremendous opportunity ahead. Example....My Dad thought anything over a 10 year mortgage was too much. In his day, everyone he knew owned their homes free and clear after just a few years of payments. He didn't think every kid needed it's own bedroom, things like that. He believed in being debt free. I suspect....that's where we are heading again. I learned that leason from him.

 

I'm also retired from the securities business, and think this new temporary restriction on short selling is a necessary step. Perhaps when they reinstate it, they will at least reinstate the up tick rule...which worked for many years. They do need to allow some short selling, especially to option market makers. I was unable to do some covered call writing (getting paid to sell a stock at a price higher than current price) this past Friday on E Trade common stock, because the option market was closed to that kind of trading. Option market makers couldn't offset my trade with a short sale. I had recently bought a bunch of E Trade under $3, and wanted to sell the right to buy it from me at $5. This is a conservative strategy, not speculating, simple, common for us retired folks to do, but does require a functioning options market.

Edited September 21, 2008 by Ralph Greene

[Ford Jellymoulds]

Normally, I would agree, but when you are at war, you have to pull out all the stops. Losing is not an option, even if it means robbing all the people. Money has to be spent, even if it does not exist. We can make it up from the spoils, hopefully.

 

It's a shame Bushie went into the wrong country though most of the 911 flying bombers came from Saudi Arabia (15 of the 19 Hijackers were Saudi's the rest came from UAE) it just as well Bushie was not around in WW2 after the the Japs bombed Pearl he might have invaded China looking for WOMD, and no weopons of mass destruction were ever found in Iraq which main reason bLiar conned us in to UK into going to war, bLairs British Intelligence was all bang up to date based on a graduate students uni reseach paper based on Iraq in 1991. Gotta it was great seeing dictator Sadam getting hung and deposed gotta say we have not seen much of the spoils in the UK only the pain.

 

No weopons of NO mass destruction

http://www.msnbc.msn.com/id/7634313/

[Ford Jellymoulds]

If you look at the big picture....and take the long view....change some behavior....and act smart....

 

Poor ole US taxpayer has been severely punished.

 

Fed has has rewarded the investor who will now go on taking much bigger and much more worse risks than ever before knowing that the good ole US Government will use the taxpayer to bail the financial markets out if they should hit any problems.

 

Can't see where an already cash strapped public that will be highly taxed will ever find a lot of spare cash to invest but your advice was good.

[Ralph Greene]

Poor ole US taxpayer has been severely punished.

 

Fed has has rewarded the investor who will now go on taking much bigger and much more worse risks than ever before knowing that the good ole US Government will use the taxpayer to bail the financial markets out if they should hit any problems.

 

Can't see where an already cash strapped public that will be highly taxed will ever find a lot of spare cash to invest but your advice was good.

 

 

My point is....The average "joe" is cash strapped because, for the most part, he has a lot of debt. American business is getting rid of some of their debt....suffering a lot of pain as it does so....and the average "joe" needs to do the same thing. American business is being forced to modify it's bahavior to survive and compete, the averasge "joe" needs to do the same thing.

 

If you (over time) can put yourself in the position so that your only over head is basically food and utilities....then you will have some cash to invest. What people earn (at least above the poverty level) has little to do with how much they can save and invest.

 

Think you can't do that? I guarantee you some can....the ones that get ahead. Times have changed....allmost overnight.

Edited September 21, 2008 by Ralph Greene

[RaZor]

ISTM that you are right Ralph, however, that brings up a problem - especially for a tax-cut plan. You'll still hear some (McCain) argue that the Bush tax cuts were (are) meant to stimulate the economy, but this really was never true.

 

The amount of stimulus per dollar of deficit (caused by the tax cuts) —was very low. So the plan was to turn over the economic stimulation to the Fed Reserve, which stepped on the accelerator in a historically unprecedented way, driving interest rates down to 1 percent. The predictable result was a consumer spending spree. One could say that Bush's own fiscal irresponsibility fostered irresponsibility in everyone else. Credit was shoveled out the door, and sub-prime mortgages were made available to anyone this side of life support. Private debt increased to $900 billion by 2007.

 

"Qualified at birth" became the drunken slogan of the Bush era and Americans took advantage of the low interest rates, signed up for new mortgages with "teaser" initial rates, and went to town on the proceeds. The results - well, we all know what happened.

 

So now what? As you pointed out, the wise thing for average Joe would be to get rid of his debt - first and foremost. But that means lower consumer spending (to concentrate on debt reduction/elimination) and then the whole "tax cuts = increased revenues" (because of greater consumer spending) theory sorta goes out the door - unless the tax cuts go to the middle class. With much tighter credit, the middle class won't be spending on credit as they won't be able to get those loans for cars etc. So are they going to pay down debt, or, spend (consume like the days of old)?

 

ISTM Obama's plan is the only one that will work because it puts more money in the hands of the middle class. Unless, of course, you can come up with some sort of plan to force the 250k that have income above $250k to spend (and spread it around) enough to make up for the middle class not being able to.

 

If one takes a look at the whole Reagan/Bush tax cut theory with the argument that the near-doubling of revenues during Reagan's two terms proves the value of tax cuts is an old and flawed argument.

 

Yes, during Reagan's two terms, revenues did nearly double during the 80s(99%). However, what is usually not told is that they had doubled during EVERY SINGLE DECADE SINCE THE GREAT DEPRESSION! They went up 502% during the 40's, 134% during the 50's, 108% during the 60's, and 168% during the 70's.

 

And guess what, they nearly doubled (96%) in the 90s as well during a time we were paying down the Federal deficit at very good rate. Claiming that the Reagan (and Bush's) tax cuts caused the doubling of revenues is like a rooster claiming credit for the dawn.

 

Looking at the federal tax (from all forms) revenues as a percentage of GDP since 1970, we have averaged right at 18% and during those 38 years, contrary to conservatives blabbering about those tax & spend Dems, it really hasn't fluctuated AND never exceeded 20%. Our economy can grow like no other - as long as we do not exceed that taxation rate AND we are prudent in our spending. With the events of the last week, there is a whole new cloud (a very dark one) of debt on the horizon. And to think that we actually had a budget surplus 8 short years ago.

 

I couldn't believe my ears this Am on This Week when Cokie Roberts brings up a comparison to Herbert Hoover, Sam rug-head Donaldson pins the deregulation racket on McCain and Republicans, and George Will says McCain acted "unpresidential" and that the issue of age should re-enter the debate over whether McCain is fit for the job. Holy crapola - three conservative analysts blasting McCain.

 

If you missed it LINK

[sprinter]

If you look at the big picture....and take the long view....change some behavior....and act smart....

 

This most recent market melt down is a tremendous opportunity for you working folks accumulating assets for your retirement. They are on sale. And your regular contributuions buy more of those fund shares. This is the time you should be stepping up your contributions to your 401K plans. History shows the first few years out of a recession or severe slow down, the stock markets go up over 50% usually. Now is the time to invest, not when everyone is more comfortable with the economy. Wait for that, and you miss the rally. The markets will begin improving long before it's obvious why. Actually....for those in accumulation phase of their assets, you should hope imvestment values keep going down for a long time as you accumulate shares cheaper and cheaper...and getting lots more of those shares as they get cheaper. The goal should be to accumulate lots of shares.

 

Current market conditions mostly just hurt us retired folks who already have our assets. And we know....now is the time to invest. That knowledge is how we got retired to begin with. All my extra money is going into stock market investments these days. Stocks like GE, Bank of America, natural gas stocks, etc....or funds that buy stocks like that. I've even bought some Ford below $5.

 

 

Personally I think the “wall street investment” scenario is one big ponzi scheme. Who’s buying into the market? The baby boomers. Who is starting to retire now? Same answer. Are they going to leave their money setting around or maybe take it out to live on? The younger generation can’t afford to make that gamble of ‘investment’ because they can barely make ends meet.

 

Wall Street took our money and encouraged the corporations to invest into China and other 3rd world countries. As that happened, our jobs disappeared. We have screwed our younger generations out of the opportunities for better jobs and wealth.

 

The market will not return to the highs we seen just a few short years ago. The Dow’s climb started in 1980 the same year the 401k was put into law. The baby boomers were counting on that money for a good retirement life. The way it looking now, it could be gone. Buying low and selling high is what everyone hopes to do. Good luck with that. That manager on Wall Street needs a couple more years of those million dollar bonuses for his retirement dream.

 

http://finance.yahoo.com/echarts?s=%5EDJI#...s=0;logscale=on

[retro-man]

RaZor, Sprinter, good posts. I too am pessimistic about what will happen to the markets when the baby boom leaves their high earning years and enters into their taking it out years. And I too believe that there won't be much there to take out. We have seen this week what fluff it is. I don't have much regard for those who make a handsome living buying and selling the (real) productivity of others. Oh, I know there are rationales for "the market": to spread risk, assemble capital etc. and those functions are necessary to a point but let's face it: We passed that point of productive market development probably during the 80s, and have entered a period of simple decadence. A lot of these derivative instruments that have appeared in the last 10 or 15 years have no productive purpose whatsoever. The activity their trading represents is parasitic pure and simple. It funnels the wealth away from those producing it, and directs it toward the top. Census and CBO statistics tell us that it does not trickle down. I heard a Wall Street guy on the radio the other day talking about their "products". We need to whack that guy over the head with a dictionary so he knows what a "product" feels like. A relatively small handful of people have made a lot of money off of them, and now the taxpayer is left holding the bag. We are supposed to feel sorry that many investors have had their portfolios reduced from 10s of millions, or billions, to "only" millions. The government will bail these guys out with 700 billion dollars which we will get by printing it, which will set us up for the next shoe - massive inflation and the total collapse of the dollar - to drop. I do not think this is an ordinary cycle. I have seen a few of those and they were not preceded by 30 years during which we sent $1,000.000.000.00 a day out of our country, dismantled our industrial infrastructure and neglected our civil infrastructure. Well grasshoppers, the Winter is going to be long and cold.

Edited September 22, 2008 by retro-man

[sprinter]

run the company into the ground --- get a big bonus

 

http://www.independent.co.uk/news/business...aff-937560.html

 

Up to 10,000 staff at the New York office of the bankrupt investment bank Lehman Brothers will share a bonus pool set aside for them that is worth $2.5bn (£1.4bn), Barclays Bank, which is buying the business, confirmed last night.

 

 

The revelation sparked fury among the workers' former colleagues, Lehman's 5,000 staff based in London, who currently have no idea how long they will go on receiving even their basic salaries, let alone any bonus payments. It also prompted a renewed backlash over the compensation culture in global finance, with critics claiming that many bankers receive pay and rewards that bore no relation to the job they had done.

 

And now we are going to bail out the rest of the world too

 

http://www.iht.com/articles/2008/09/22/business/22global.php

 

The financial crisis that began in the United States spread to many corners of the globe. Now, the U.S. bailout looks as if it is going global, too, a move that could raise its cost and intensify scrutiny by Congress and critics.

 

Foreign banks, which were initially excluded from the plan, lobbied successfully over the weekend to be able to sell the toxic U.S. mortgage debt owned by their American units to the Treasury, getting the same treatment as United States banks.

 

On Sunday, the Treasury secretary, Henry Paulson Jr., indicated in a series of appearances on morning talk shows that an original proposal introduced on Saturday had been widened. "It's a distinction without a difference whether it's a foreign or a U.S. one," he said in an interview with Fox News.

 

The prospect of being locked out of the bailout set off alarm bells among chief executives of overseas banks whose American affiliates also hold distressed mortgage-related assets, like Barclays and UBS. The original text provided access to the $700 billion bailout for any financial institution based in the United States.

 

As the day wore on, some raised their concerns with the Treasury Department, arguing that foreign institutions were both big employers and major players in the American capital markets. By Saturday evening, the language had been changed to allow any financial institution "having significant operations" in the United States.

Edited September 22, 2008 by sprinter

[sprinter]

The plunge protection team working hard to extend the inevitable

http://www.nypost.com/seven/09212008/busin...ddon_130110.htm

 

The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post.

 

Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level - a 22 percent decline! - while the clang of the opening bell was still echoing around the cavernous exchange floor.

 

According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning.

 

The panicked selling was directly linked to the seizing up of the credit markets - including a $52 billion constriction in commercial paper - and the rumors of additional money market funds "breaking the buck," or dropping below $1 net asset value.

 

The Fed's dramatic $105 billion liquidity injection on Thursday (pre-market) was just enough to keep key institutional accounts from following through on the sell orders and starting a stampede of cash that could have brought large tracts of the US economy to a halt.

 

While many depositors treat money market accounts as fancy savings accounts, they are different. Banks buy a variety of short-term debt, including commercial paper, with the assets. It is an important distinction because banks use the $1.7 trillion commercial-paper market to fund their credit card operations and car finance companies use it to move autos.

 

Without commercial paper, "factories would have to shut down, people would lose their jobs and there would be an effect on the real economy," Paul Schott Stevens, of the Investment Company Institute, told the Wall Street Journal.

[Edstock]

A lot of these derivative instruments that have appeared in the last 10 or 15 years have no productive purpose whatsoever. The activity their trading represents is parasitic pure and simple. It funnels the wealth away from those producing it, and directs it toward the top. Census and CBO statistics tell us that it does not trickle down.

Right on.

[Ralph Greene]

You can complain all you want....and offer up whatever remedies you wish. You can also do nothing and be a victim.

 

I'm just going to figure out how to play the hand I'm dealt. Change with the times in order to survive. I'm an old guy, and if I can adapt and survive, so can you.

[fmccap]

This is off topic but I thought you might like to see it Sprinter.

Incredible Documentary Footage of Mass Arrest in St. Paul