The Economy, stupid

[lostfan]

Um, unfunded mandates?

 

And again, spending in 2010 is doing NOTHING to stem the recession today. If the money had been done the right way, you might not have needed the spending in 2012. And if you did, you would have had the option to tailor it around what you needed. Instead you are locked into Obama's plan, for better or for worse.

 

It's also really trite to blame the minority party for everything, when they have zero control over anything. They got the blame when they were in power, and now they get the blame if they were out of power. If they had that much ability to control everything, why did we end up with the plan the Democrats largely wanted? GMAB.

As long as they have 41 votes on any particular bill (not the same thing as seats) they have the filibuster. And of course they don't actually have to really filibuster, just say they're doing it, because Harry Reid was doing situps one morning and pulled on the back of his head a little too hard and his spine fell out.

[southsider2k5]

As long as they have 41 votes on any particular bill (not the same thing as seats) they have the filibuster. And of course they don't actually have to really filibuster, just say they're doing it, because Harry Reid was doing situps one morning and pulled on the back of his head a little too hard and his spine fell out.

 

That is god awful logic. Applying that same standard, I can blame the Democrats for every single thing that happened during the Bush administration, because they could have stopped it.

[lostfan]

That is god awful logic. Applying that same standard, I can blame the Democrats for every single thing that happened during the Bush administration, because they could have stopped it.

I'm not blaming anything on anybody, I'm just saying the fact that a filibuster or the threat of a filibuster being automatic makes the statement that the minority party has zero control inaccurate. Otherwise the Democrats would just be ramming through whatever they wanted. They're pretty much worthless in the House but they can still kill legislation in the Senate if they want to. Or they can just pretend they'll kill legislation and not really do it, same effect.

[Cknolls]

Another stimulus package adding in the stuff that was stripped out of the first one would be a solid idea.

 

 

Oh yeah absolutely!

[kapkomet]

I'm not blaming anything on anybody, I'm just saying the fact that a filibuster or the threat of a filibuster being automatic makes the statement that the minority party has zero control inaccurate. Otherwise the Democrats would just be ramming through whatever they wanted. They're pretty much worthless in the House but they can still kill legislation in the Senate if they want to. Or they can just pretend they'll kill legislation and not really do it, same effect.

 

They are.

[lostfan]

 

They are.

No they're not, they have to water it down and at least pretend to give a s***. The stimulus package for instance was completely watered down then it got 0 votes and 3 votes in the Senate (after adding in some custom pork, and one of those guys is now a Democrat). The cap and trade bill that just passed the House is watered down too and Pelosi had to beg and plead for some of the more liberal Dems to vote for it. Healthcare reform in the form that the Dems want it is probably going to die for the same reason and whenever it passes it won't look anything like the version they want.

[Balta1701]

Like most of Obama's proposed banking reforms this is a good idea, I'm just not sure it goes far enough.

Around Washington and Wall Street they have come to be known as TBTF — too big to fail. It's not just size, though. These companies are so far-flung, so intertwined and so precariously leveraged that a single one's collapse can create systemwide tremors that imperil the finances of millions of Americans.

Story continues below ↓advertisement | your ad here

 

With that fear in mind, the government stepped in to bail out Citigroup Inc., Bank of America Corp. and American International Group Inc. with tens of billions of public money last year.

 

Looking to avoid such a costly intervention, President Barack Obama's regulatory plan calls for large, interconnected companies to pay a heavy price for the systemwide risk they pose.

 

So far, however, congressional debate has centered on the administration's plan to put the Federal Reserve in charge of these "systemically significant" companies. Less attention has focused on the potential effect on the institutions and the financial system's hierarchy.

 

Under the administration's proposal, companies such as Citi, Goldman Sachs and others in a broad top tier engaged in complex transactions would face stricter scrutiny and have to hold more assets and more cash as cushions against a downturn.

 

They also would have to anticipate their own demise, drafting detailed descriptions of how they could be dismantled quickly without causing damaging repercussions. Think of it as planning their own funerals — and burials.

 

Obama's plan, in short, aims to make it far less appealing to be so big. That was the middle ground the administration sought, a step short of an outright ban on systemically risky companies.

[NorthSideSox72]

Like most of Obama's proposed banking reforms this is a good idea, I'm just not sure it goes far enough.

There is a lot of complexity in doing that correctly, though. Many of those large firms got big, in part, to mitigate those very risks. What risk calculations would the government impose? If some big equity player buys some large FCM, do you allow for the general risk mitigation between asset types? Do you get specific, into index presence hedging against the equities while the rest stands alone? What if the positions they would take (assets against risk) are already hedging at one level, but could be hedging factors against something else? Do you re-use collateral for hedging at a %, or only allow one-to-one holding against holding risk abatement?

 

[Balta1701]

Michael Lewis on AIGFP and Joe Cassano.

 

Seriously, I read this article and started unconsciously humming "The man who sold the world".

[Cknolls]

Another stimulus package adding in the stuff that was stripped out of the first one would be a solid idea.

 

 

Govt's cannot create wealth. They aren't creating wealth out of nothing and giving it away.; they are craeting money out of nothing and giving it away. But when they create money out of nothing, it has a cost. But the cost isn't apparent immediately. Price equals dollars divided by value. If you create more dollars, the value does not change, but, the price goes up. When the gov't creates more dollars in a stimulus, all its doing is keeping prices up, not giving

people more value. So by definition the stimulus is doing nothing of value. In addition, there's a longer term cost- lower productivity. By keeping prices high when they should be dropping, capital allocation is distorted, and capital is prevented from investing in productivity. Since productivity is wealth creation, every stimulus essentially takes away from long-term wealth creation.

 

The easiest way out of this mess is to let let the market do its job. Allow the debt to be destroyed and prices to drop.

 

If prices drop, the families that were productive, that saved their money, will at some point buy up the houses and work off the excess inventory. If prices drop, that entrepeneur will be able to start a newe company. If prices drop, those banks with all that debt will go out of business and new banks will take their place.

 

 

We need to raise margin requirements for banks back to reasonable levels, accelerate the destruction of debt(which is going to happen anyway), and let the markets (us) allocate capital back to productive activities based on prices.

[Balta1701]

Govt's cannot create wealth. They aren't creating wealth out of nothing and giving it away.; they are craeting money out of nothing and giving it away. But when they create money out of nothing, it has a cost. But the cost isn't apparent immediately. Price equals dollars divided by value. If you create more dollars, the value does not change, but, the price goes up. When the gov't creates more dollars in a stimulus, all its doing is keeping prices up, not giving

people more value. So by definition the stimulus is doing nothing of value. In addition, there's a longer term cost- lower productivity. By keeping prices high when they should be dropping, capital allocation is distorted, and capital is prevented from investing in productivity. Since productivity is wealth creation, every stimulus essentially takes away from long-term wealth creation.

Your claim that government cannot create wealth is only true in the conditions of no excess capacity in the economy. When you're in a depressed state like we are now, and there is no room to stimulate demand, then there is significant excess capacity that can be pushed in to service by act of the government. In this particular case, the government is taking funds that are sitting on the sidelines as savings and using turning them in to investment because the private sector has fled to safety. It is actively working to enhance productivity by utilizing the idled capacity in the economy in the form of both savings and workers.

 

In 1 more counterpoint; prices dropping does not destroy debt. Dropping of prices actually makes debt more onerous. Increasing prices (inflation) destroys debt.

[kapkomet]

Your claim that government cannot create wealth is only true in the conditions of no excess capacity in the economy. When you're in a depressed state like we are now, and there is no room to stimulate demand, then there is significant excess capacity that can be pushed in to service by act of the government. In this particular case, the government is taking funds that are sitting on the sidelines as savings and using turning them in to investment because the private sector has fled to safety. It is actively working to enhance productivity by utilizing the idled capacity in the economy in the form of both savings and workers.

Pass some of that crack. I need it.

 

[Balta1701]

Pass some of that crack. I need it.

Sensu Stricto, wealth is everything that there is in the economy. Investments, things you own, bridges, roads, etc. If the government produces a product like a road, and at the same time produces a return on investment for the person who invested in the government, and at the same time employs people to repair that road, and the road (or whatever) that the government produced serves a public good the government is creating wealth. The issue is in how wealth is defined. If you define wealth in such a way that only private goods count, then of course government actions don't matter.

 

Another way of writing it would be to go back to Keynes and say that government spending in these circumstances is the only way to get out of the paradox of thrift; where wealth is destroyed because the rational economic decision for everyone is to try to save.

[BigSqwert]

They've GOT To Be Kidding ...

 

From Bloomberg:

Morgan

S

tanley plan

s

to repac

k

age a downgraded collateralized debt obligation bac

k

ed by leveraged loan

s

into new

s

ecuritie

s

with AAA rating

s

in the fir

s

t tran

s

action of it

s

k

ind,

s

aid two people familiar with the

s

ale. ...

 

Two year

s

after the credit mar

k

et

s

began to

s

eize up, co

s

ting the world'

s

bigge

s

t financial in

s

titution

s

$1.47 trillion in writedown

s

and lo

s

s

e

s

, ban

k

s

are again ta

k

ing

s

o- called

s

tructured finance

s

ecuritie

s

and turning them into new debt inve

s

tment

s

with top credit rating

s

. While the Morgan

S

tanley deal i

s

the fir

s

t to involve CDO

s

of loan

s

, ban

k

s

have been doing the

s

ame with commercial mortgage-bac

k

ed

s

ecuritie

s

in recent wee

k

s

.

I'd love for someone to explain why this isn't the same old game of financial alchemy -- turning toxic crap into AAA gold with the wave of a wand -- that helped precipitate the financial crisis. Anyone?

 

LINK

[lostfan]

LINK

edited for stupidity

Edited July 8, 2009 by lostfan

[Balta1701]

edited for stupidity

Did you reply in the wrong thread? How did you pull that one off?

Edited July 8, 2009 by lostfan
to make lostfan look like less of an idiot

[lostfan]

Did you reply in the wrong thread? How did you pull that one off?

WTF? Did I? Wow. lol. BigSqwert was the last poster in both threads and I clicked the wrong one. Nice.

[NorthSideSox72]

LINK

Whomever wrote that piece doesn't seem to know much about finance.

 

"Repackaging" debt as securities is not a bad thing whatsoever - that's first of all. Second, the AAA rating is not provided by MSDW, it has to be applied by a rating agency like Morningstar or BB or one of those ilk. Now, if they rate it AAA, and its garbage debt, then blame the raters, not MSDW. But in the current environment, those rating agencies have become much more risk averse, so the chances of that being an overrating are actually pretty low. In fact, look at the BB link - its one third AAA tranche and two thirds Baa2 tranche, indicating significant risk (via Moody's). But by bulking the two risk levels together, you are hedging that risk, without using truly dangerous abatement techniques like swaps.

 

Third and finally, bulking off debt could actually help grease the wheels in the markets a bit, but its also buyer beware. When you buy a debt instrument, you take on risk. If whomever is investing your money is dumb with regards to risk, then that's their fault, and that is who you blame.

 

MSDW is doing exactly what they should be doing here.

[Cknolls]

AIG down only 64% since the 20:1 reverse stock split seven days ago. Down 22% today.

[Balta1701]

Thought I'd fire off this bit from former labor secretary Robert Reich.

In a recession this deep, recovery doesn't depend on investors. It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.

 

Problem is, consumers won't start spending until they have money in their pockets and feel reasonably secure. But they don't have the money, and it's hard to see where it will come from. They can't borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water -- owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can't are hunkering down, as they must.

 

Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can't be built on replacements. Don't expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don't rely on exports. The global economy is contracting.

 

My prediction, then? Not a V, not a U. But an X. This economy can't get back on track because the track we were on for years -- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere -- simply cannot be sustained.

 

The X marks a brand new track -- a new economy. What will it look like? Nobody knows. All we know is the current economy can't "recover" because it can't go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin. More on this to come.

[kapkomet]

Thought I'd fire off this bit from former labor secretary Robert Reich.

Our new economy is our government. Come on, everyone knows this.

[southsider2k5]

Thought I'd fire off this bit from former labor secretary Robert Reich.

 

That is just dumb. Where do consumers get their money from? Oh yeah, investors who are willing to fund the companies that consumers work for. Money doesn't come out of no where, well unless you are the federal government.

[Balta1701]

"Worse than Subprime"

For the third straight month, option adjustable-rate mortgages are generating proportionally more delinquencies and foreclosures than subprime mortgages ...

 

As of April, 36.9% of Pick-A-Pay loans were at least 60 days past due, while 19% were in foreclosure, according to data from First American CoreLogic, a unit of Santa Ana, Calif.-based First American Corp. In contrast, 33.9% of subprime loans were delinquent, with 14.5% of those loans in foreclosure, the figures show.

[mr_genius]

http://apnews.myway.com/article/20090714/D99DSUG00.html

 

WASHINGTON - The federal deficit has topped $1 trillion for the first time ever and could grow to nearly $2 trillion by this fall, intensifying fears about higher interest rates, inflation and the strength of the dollar.

 

top that off with unemployment numbers that will be over 10% for years along side 20% being underemployed or have just given up on getting a job. wages dropping due to massive influx of workers into the US with no job growth and the practice of massive outsroucing. not good. did you guys know that we are going to hit a mark where there has been 0% job growrth over a decade?

Edited July 14, 2009 by mr_genius

[Balta1701]

did you guys know that we are going to hit a mark where there has been 0% job growrth over a decade?

Yes. I pointed it out 12 days ago in this thread.