People Never Learn...

People never learn, do they? Not in the stock market at least.

EVERY SINGLE major crash of the past, every has always ALWAYS quoted the previous crashes, looked at their current situation, and said "this time will be different"

Well, admittedly, of course the JE and birdflu outbreak really did turn out to be a very minor crash compared to say, the Great Depression, but, duh, that much was OBVIOUS from the start. A minor problem will create a minor crash. A major problem will create a major crash. Simple.

This current crisis... why is everyone calling it a financial crisis anyway? It has turned into an ECONOMIC crisis... which has far deeper implications, IMHO. Anyhow, a lot of people have been calling it the biggest crisis since the Great Depression. Some people are saying it is WORSE than the great depression. Personally, it looks impossible to tell for sure. But what is certain is that this crisis is pretty freaking serious. Much more serious than say, the Internet Bubble.

Yes, this is much more serious than the internet bubble. Anyone who thinks otherwise is just dreaming. Frankly, the internet bubble was small change compared to this. If the entire IT industry had been wiped out entirely and restarted from a clean slate, the world would recover in under a year. When all the "false value" built up was wiped out, it was a lot of wealth destruction, but in reality, people generally survived.

This Derivatives Bubble? If the entire derivatives industry is wiped clean and restarted from a clean slate, the world would be crippled for at least a decade. If all of this "false value" from derivatives is wiped out at once, everyone admits that the entire world will not just grind to a halt, but crash and BURN.

However... here is the bad news. That false value HAS to be written off. It is FALSE VALUE. The banking industry, quite frankly, has been growing it's asset sheets under false assumptions and false intentions. From what I hear, it's possible under the current system for $100 of mortages to have something like 5 separate CDOs on it for $80 each. That is... just stupid. From a different perspective, when an American family took out a loan on his house, 3 other people/banks across the globe took out a loan of equal value on his house too. And the global cash available jumped up by $500 based on a house worth $100.

Basically, what I am trying to say is, if everyone pays off all their debts today, this very day... it will show that the planet earth is NOT as rich as the balance sheet totalling up all the assets on every country would have us think.

http://www.larouchepac.com/news/2008/10/09/derivatives-hyperinflationary-bomb-crushing-international-fi.html

http://www.bestcyrano.org/THOMASPAINE/?p=1071

http://www.informationclearinghouse.info/article21071.htm




... basically. The networth of the entire planet Earth put together is estimated to be around 100,000,000,000,000 = 10^14 = 100 trillion.

The estimated value of derivatives flying around is 1,000,000,000,000,000,000 = 10615 = 1 quadrillion.

FALSE WEALTH??? No WONDER the banking and financial industry has been reporting huge earnings this decade! (and their board of directors have been receiving ungodly bonuses in their paychecks) Remember, these guys get a portion of the sales of derivatives as profit!

Why is this an ESTIMATED figure? Because, unbelievable as it sounds, this amount of ten times the value of the entire planet is UNREGULATED.

... Are they insane???

Of course, everyone is claiming that this number is not as bad as it sounds, because most of the positions offset each other. They THINK. Of course, they aren't quite certain, but they certainly assume that this is a logical conclusion... but they aren't really sure, since after all, this is UNREGULATED.
By the way, someone estimated that only 10% of total derivatives do not offset each other. Oh well... so that's only 100 trillion then. Erm, ok, so that's only the networth of the entire planet earth then instead of 10 times Earth!!!

AARGH!!!! The... the stupidity of it all! I... my head hurts...

The excuse? "If we don't do it, someone else will". Yes. It is true. If Citi hadn't packaged and sold derivatives, Wachovia or BofA would have.


Btw, a warning for everyone currently looking to buy bank stocks.
To those who are valuing banks based on projected amount of losses and future income... the losses will probably be greater than you think. Perhaps more importantly, these derivatives have PROVEN themselves to be dangerous. It would be totally irresponsible for the governments to not regulate and limit them to a greater extent.
So... my question is... guess how much that Citibank's earnings will be if it's derivatives sales are cut by 95%?
Yeah, you heard me correctly, 95%. It has become VERY apparent that CDOS and derivatives in general are being oversold to a ridiculous degree. I mean, Lehman Brothers was worth, what, 47billion in market cap? On October 21, 2008, creditors of Lehman Brothers who had acquired CDS in order to hedge them against the risk of a Lehman bankruptcy were scheduled to settle those accounts. This event appears significantly to have affected AIG which issued many of the Lehman CDSs. The amount of the settlement was estimated to be between $100 billion and $400 billion. The amount of global losses involving derivatives involving Lehmans was many MANY other billions.
In a regulated market, I would assume that you would not allow people to sell more than, say, 25% of the face value of Lehmans?

There is a REASON why companies with only $1million capital are not allowed to borrow $5billion! It is only sensible to not attach a huge amount of risk to a very small enterprise!

Similiarly, it is stupid to take a VERY large enterprise, and attach VERYVERYVERYx1000 large risks to these entities! Even if the entity is huge, that doesn't mean it should be allowed to take INFINITE risk, it should still be given a limit which is balanced with it's size!

Unfortunatly, even back then, people considered AIG and Lehman and such "too large to fail". So they just let them do whatever they liked. They were safe after all, weren't they? They were, after all, too large to fail...



Summary: Some idiots made some huge mistakes. And there WILL be a reckoning day, the only question is who is going to receive the pain of the eventual punishment?
This crash is like every other in history... people will keep saying that it won't be that bad, the governments will step in and solve the problem... the trouble is, these guys have not realised something very very critical. In fact, fiscal policy and such can NOT solve problems. They can't make REAL assets appear out of thin air. It's like conservation of mass and energy in physics. They can only change one kind of problem to another type of problem. Which they are hoping will be less severe. They're also hoping to spread it out over the next 10 years instead of dealing with it quickly and letting recovery begin.

Idiots.

Freeing up the capital markets

Let's go onto a very very basic fundamental here... that I am trying to argue against!!!

Basically, world banks all over have been fighting a MASSIVE battle to free up liquidity. Unfreeze credit markets. Which they seem to think (as I said, they are basing from theories cooked up after the Great Depression) will solve the financial crisis and let the healing begin.

Er.

Um.

Will I sound stupid if I ask WHY everyone is so caught up about lending?

...

Cause, you know. I don't REALLY see that much people trying to BORROW money.

So... if no one is desperate to borrow, why is everyone fighting so hard to make sure that the banks are going to lend?

...
...
...

No, seriously, consumers who are not in deep financial straights are not eager to increase their debt. Nor should they... in fact, that is what everyone has been educating everyone, for the past few decades, that having too much debt is a bad thing! duh!
Corporations are now cutting costs, not borrowing money to expand their businesses. With a few exceptions. Said exceptions who are making tidy profits are having no problems getting loans whatsoever, actually.
In fact the only people who I think should be getting increased credit facilities are those individuals who have been retrenched, and need a line of credit to support themselves until the economy picks up and they can get a job again. Which, frankly, the Fed could do with a much much smaller bailout package. There's no need to give billions and TRILLIONS to the big financial companies!

...

These idiots are going to wake up one day and realise that by the time credit markets are unfrozen, the economic climate will be so bad that NO ONE wants to borrow... except for those people who want to borrow but would be unable to service the loan whatsoever ie they need zero % loans for say 5 years. And NO bank will offer this to them. It has to be the government, pure and simple.
Whatever rate the government lends at to the banks... THE BANKS WILL LEND AT A HIGHER INTEREST RATE TO THE BORROWERS. DUH. Banks are PROFIT MAKING ENTERPRISES. If Fed lends to the bank at 3%, the banks will lend to consumers at 7% or 8% or in fact as high as they can possibly go.

Very good, America. Give out "altruistic non-profit loans" to the big corporations. So they can give out "greedy bloodsucking loans" to your American people.

You dumbasses.

You big big bunch of big big dumbasses.


The worst part? The worst part is, by the time they're done chasing ghosts solving the credit markets, they will realize that UNEMPLOYMENT has gone up to 10% or higher, consumer spending has reached new lows, as everyone is afraid of losing their job AND has also lost faith in the pension funds and hedge funds and investment funds BUT BUT BUT... due to the efforts of the Fed, have regained faith in the safety of the banks...
Can you guess it?
Your people then take their money and put it in their bank accounts saving money in case they lose their jobs! They don't put it into other asset classes which might generate higher returns, they put it in the bank.
Which is giving them probably 0% interest at this point. Thanks, once again to IDIOTS IN THE FED.
But it is no longer about the interest at this point!!! It is about security! All other forms of savings are failing, and income security is at a low, what else would they do???

So starts the vicious cycle where consumer spending drops, savings increase, companies cut more jobs, spending drops, savings increase etc etc etc and you've basically got a 2nd Great Depression.

Except it's even worse this time.

And internationalised too. Thanks to OTHER dumbasses outside of America.

Dumbasses.

Treasury Bailout has Changed yet AGAIN!!!

Excerpts from:

http://www.usnews.com/usnews/politics/bulletin/bulletin_081113.htm

Treasury Secretary Henry Paulson's announced changes to the $700 financial bailout plan -- to focus on shoring up financial institutions that offer consumer credit

The Politico, for example, reports Paulson's "announcement was a public acknowledgment by the administration that the hundreds of billions of dollars spent thus far to buy up complex mortgage-related assets were not solving the economic crisis

the government would continue flooding financial institutions with cash, but would also try to increase the availability of student loans, auto loans and credit cards

...
...
...

OK, no wonder Dow is dropping. Essentially, FED has just pumped 1 trillion into Wall Street... and it took this long for everyone to suddenly realise that they were only rewarding the board of directors and such, but not actually solving anything.


This guy says it very well. Better than I can, actually:
http://www.blueoregon.com/2008/11/henry-paulson-b.html

This is good too:
http://www.latimes.com/news/nationworld/nation/la-fi-paulson13-2008nov13,0,6205412.story
"Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards," Paulson said during a speech in Washington. "This is creating a heavy burden on the American people and reducing the number of jobs in our economy."

...

The problem is that Paulson is wrong AGAIN. He doesn't know it yet though. Well, I guess student loans are a good idea. It's REALLY going to mess up your countries economy if a large section of your population who should have been able to complete their education did not go to college.

But... car loans?

People are worried that they might not have a JOB next month! Look at the ridiculous number of lay offs! Frankly, you talk about restoring confidence? How can you have confidence when just about EVERYONE who has felt job security working for a major corporation is now suddenly in fear of being retrenched... and with no new job offers in sight for possibly years to come???

You... think they're going to put a down payment for a new car, do you?

Really?

... see, this is why I keep calling these so called experts dumb. I'm not REALLY that eager to be insulting (ok ok maybe I am) but seriously, these guys are just BEGGING for me to point out their idiocy.

It has taken this long for the rest of America to realize it too, but I think that it is starting to become rather clear that the Treasury has no idea what they are doing...

As I said. They are trying to fit a round peg into a square hole. They are putting their GREAT DEPRESSION EMERGENCY PLAN into action... but the situation now and 1929 is actually rather different!

They are trying to fix the short term (liquidity)... which frankly, left to it's own devices would simply blow up. Not blow over, but blow up. Like explode. Into a million pieces. Leaving the financial world in tatters. Something like the Tech Bubble, in fact. But... the world rebuilt after the tech bubble. Everyone acknowledges that it HAD to pop, in fact a lot of people insist that the tech industry was in fact more streamlined and grew more efficiently after the bubble burst.

Why won't they let this Derivatives Bubble pop? well... cause all their good buddies are working in that line, for one...

Instead of looking at the FINANCIAL world, they should be looking more at PRODUCTION.

Do you know how they ended the Great Depression? Look it up.

No, I am not suggesting another World War. Duh.

I am suggesting that America pumps money into the PRODUCTION sector. Only instead of war production, it's got to be something... more long term beneficial.

Ideally, the finished products should be something that the government can buy and use, since consumers won't be buying much. But something that gives back to the people too.

Er... actually, this is actually one case where the fact that America has good infrastructure is working against it.

See... China has quite neatly done exactly this. I didn't realise it until now, but basically constructing 10 nuclear reactors in China (assuming they don't mess up and create a 2nd Chernobyl... or even 10 Chernobyls!)... this creates a lot of jobs, industry, AND unlike America's clever quotes about paying 10 men to dig holes and 10 men to fill them up, or someone else's quote about building 1000 homes, and then burning them down... China will have their cake and eat it too! Assuming nothing goes wrong, China has just launched on some very large projects that will keep the construction industry going strong, AND it will give cheap clean power for generations to come!

Assuming they don't blow up of course. That would be bad.

... Frankly, I've never really been a fan of China. That was my grandfather's favourite though. Personally, I never forgave them from going from the most educated, most advanced culture, to some lazy country going nowhere. But it looks like they are more than redeeming themselves again now.
Seriously, China. A system where the SMARTEST and MOST EDUCATED and MOST QUALIFIED became the leaders. Not the MOST POPULOUR, MOST CHARMING ones.
Well, of course that was the intention of their government exams, but having poetry be the deciding part of the exam might have nixed the entire thing. Still, IMHO, that is the best system of choosing your leaders. Have them take an exam. The CONTENT of the exam... well, I assume that a Finance Minister should know something about economics, finance, etc etc. You know that sort of thing.

Or if you still want democratic elections, that's fine too. But I think EVERY candidate should be forced to take an exam in the related areas to doing his/her job... and the results should be made public.
And if your citizens decide that they want to vote for someone who thinks that the Russia is next to Alaska, doesn't know that what a bank run is, doesn't know how a stock's value is related to it's growth, earnings, and dividends... etc etc... then you deserve whatever you get. (ok, 1 cheap shot at palin there.)
BTW, thanks American voters for restoring my faith in your country. Well done.

Back onto topic:

To summarise: Henry M. Paulson. You and your team obviously have no idea what you're doing. Passionately begging for the 700b bailout package to save mortage owners. Then abandoning that to buy shares in banks (which was not what congress voted to allow!!!). And now abandoning that halfway to help offer more loans to the American public??? (which in fact used the STIMULUS PACKAGE... to pay off their existing debts!!! They don't WANT to increase their debts you idiots! ... except for the ones who can't afford to service their currents debts, who are in fact so desperate that they are willing to dig themselves into a bigger hole. Basically, anyone who WANTS to increase their debt, should not be allowed to do so.)

Henry M. Paulson and team. You are all a bunch of idiots. Please resign. And please admit that you are stupid on National TV too.