The Economy, stupid

[Texsox]

Executive compensation.

 

Earlier I posted that I would be in favor of when a company goes under, or is managed in crisis, the top company executives should receive the same as their least paid employee in compensation.

 

Now I'm rethinking that.

 

Here's the thing, if that was the case, could a troubled company hire the kind of top level talent that they believe they need to get out of the problem without a so called golden parachute? Perhaps there is some merit, but I'm still hard pressed to like it.

[Cknolls]

After Enron (now that clearly was a matter of greed, corruption, and criminality) the accounting rules were changed to require companies to rate their assets each quarter as if they were selling their companies. Say an investment bank owned a security that consisted of a package of $100,000 mortgages. Let's assume that there were a thousand of these. If all were paying, the security would be worth $100,000,000. If 20 percent of the mortgages went bad, under the old accounting rules, the security would be worth $80,000,000. But if, at the end of a quarter when a panic has gripped Wall Street about mortgage backed securities, the investment bank, because it can't find an immediate buyer for the security, is forced to rate that $80,000,000 instrument at zero. Bam. A downward spiral spins even faster and banks and insurance companies start collapsing.

 

Will all due respect to John McCain this disaster is not the result of greed or poor oversight. It's in large measure the result of an overreaction to Enron.

[Balta1701]

Hmmm...

 

In a $100 million deal signed in 2006, AIG agreed to become the principle sponsor of the Manchester United soccer team.

 

Congrats Americans! We own a big sponsorship in European soccer!

 

[Soxbadger]

I hear Wamu may be on its way down.

[kapkomet]

Hmmm...

 

In a $100 million deal signed in 2006, AIG agreed to become the principle sponsor of the Manchester United soccer team.

 

Congrats Americans! We own a big sponsorship in European soccer!

 

That's like naming rights to anything. Whatever.

 

[whitesoxfan101]

The DOW was up over 400 points today (410 as of right now) at the closing bell. How the hell did that happen?

[NorthSideSox72]

The DOW was up over 400 points today (410 as of right now) at the closing bell. How the hell did that happen?

Dead cat.

 

[whitesoxfan101]

Dead cat.

 

Yeah you are most likely right, but it was still bizarre to see that today.

[Chisoxfn]

Well Fasb157 was a good response to the Enron crisis. Let's mark to market. Hey, what's the market? Don't know. S&P: You're downgraded two notches, you need to raise 50 billion in capital.

There is such a gray area surrounding FAS 157 valuations. Everyone keeps writing down these investments but as long as there is some logical evidence behind the value you tend to go with it and you typically use the major players as the trend setters (and there valuation flows through to everyone else). There is just so much "gray" area there.

[Chisoxfn]

After Enron (now that clearly was a matter of greed, corruption, and criminality) the accounting rules were changed to require companies to rate their assets each quarter as if they were selling their companies. Say an investment bank owned a security that consisted of a package of $100,000 mortgages. Let's assume that there were a thousand of these. If all were paying, the security would be worth $100,000,000. If 20 percent of the mortgages went bad, under the old accounting rules, the security would be worth $80,000,000. But if, at the end of a quarter when a panic has gripped Wall Street about mortgage backed securities, the investment bank, because it can't find an immediate buyer for the security, is forced to rate that $80,000,000 instrument at zero. Bam. A downward spiral spins even faster and banks and insurance companies start collapsing.

 

Will all due respect to John McCain this disaster is not the result of greed or poor oversight. It's in large measure the result of an overreaction to Enron.

The contrary argument is that if a company has no intent to dump said security in the down-ridden market why should they mark down? Of course if thats the case than you have inflated balance sheets and are more likely to be able to get additional financing. So that argument is a double-edged sword. The reality is FAS 157 is very good but people need to realize there is a major potential for fluctuation related to the valuation done.

[southsider2k5]

The DOW was up over 400 points today (410 as of right now) at the closing bell. How the hell did that happen?

 

Not at all. My fantasy about Congress leaving quickly didn't happen. They decided they were going to re-form an organization with its basis in the S&L mess that will buy and resell this worthless crap that is killing all of these companies right now. In case you are wondering, that mess only cost taxpayers $125 billion. Use a little inflation and multiplier, mix in all of the bailouts, and my silly little prediction of a trillion dollars is looking more and more likely.

[Texsox]

Hmmm...

 

In a $100 million deal signed in 2006, AIG agreed to become the principle sponsor of the Manchester United soccer team.

 

Congrats Americans! We own a big sponsorship in European soccer!

 

[Cknolls]

Not at all. My fantasy about Congress leaving quickly didn't happen. They decided they were going to re-form an organization with its basis in the S&L mess that will buy and resell this worthless crap that is killing all of these companies right now. In case you are wondering, that mess only cost taxpayers $125 billion. Use a little inflation and multiplier, mix in all of the bailouts, and my silly little prediction of a trillion dollars is looking more and more likely.

 

 

Not to mention that they are guaranteeing money markey funds. $3 trillion in money markets. Its hard to trade in a rigged market. But you have to trade the market that's before you not the one you want.

[Cknolls]

I have to think gold is a buy here again.

[StrangeSox]

Will the Fed. be guaranteeing 10% S&P 500 returns next?

 

So how much is this going to hurt the American taxpayer in the long run?

[kapkomet]

Will the Fed. be guaranteeing 10% S&P 500 returns next?

 

So how much is this going to hurt the American taxpayer in the long run?

I guess it depends, huh? But a lot, I have to figure.

 

[BigSqwert]

I guess it depends, huh? But a lot, I have to figure.

 

For all of your complaining that Obama would socialize this country it's hard to argue that the current GOP administration hasn't already done that.

[kapkomet]

For all of your complaining that Obama would socialize this country it's hard to argue that the current GOP administration hasn't already done that.

Yup. These bunch of idiots don't have a clue, and now they're panicking.

 

But it's not just the GOP, here. It's the whole bunch of them, not related to party at all.

 

[Rex Kickass]

They say that doing nothing would cost more. And although that may be true, isn't it necessary for the market to correct itself? It's funny how these bailouts are socialist when it comes to protecting money, but not people. We do have a basic safety net for most people, in the FDIC, right? Why do we need to protect more than that?

[kapkomet]

All Kaperbole ™ aside, I think that this is a much bigger issue of the structure of government being set up in the 1930's and not significantly changed since.

 

You do have to have certain regulations in place - of course. But, many sides of this fence don't talk to each other and there are too many inconsistencies in the marketplace which allows for the manipulation you see today.

 

 

[Balta1701]

They say that doing nothing would cost more. And although that may be true, isn't it necessary for the market to correct itself? It's funny how these bailouts are socialist when it comes to protecting money, but not people. We do have a basic safety net for most people, in the FDIC, right? Why do we need to protect more than that?

I just think it's amazing that we've had 2 periods of the free-market, non-socialists in the white house over the past 30 years, and it looks like both of them are going to end with the federal government dumping hundreds of billions to trillions of dollars in to the banks.

 

Privatized profits, socialized risks. Great period of history to be a banker.

[Cknolls]

Can I be the first to say we will sell off hard from here. Either late October or more likely November. Next target: 1998 lows near 990.

[Balta1701]

Can I be the first to say we will sell off hard from here. Either late October or more likely November. Next target: 1998 lows near 990.

If the government is going to print another couple trillion dollars and hand it casually to the bankers and say "Here, no questions asked, just keep the lobbyists working", why exactly would there be a selloff any time in the near future?

[southsider2k5]

All Kaperbole ™ aside, I think that this is a much bigger issue of the structure of government being set up in the 1930's and not significantly changed since.

 

You do have to have certain regulations in place - of course. But, many sides of this fence don't talk to each other and there are too many inconsistencies in the marketplace which allows for the manipulation you see today.

 

I have said many times that the regulation of the financial sector are a joke.

[Cknolls]

If the government is going to print another couple trillion dollars and hand it casually to the bankers and say "Here, no questions asked, just keep the lobbyists working", why exactly would there be a selloff any time in the near future?

 

 

Market cycles.