Fed Got Scammed

The FED thought wanted to increase liquidity by increasing lending.

Instead of just doing this themselves, they decided to lend a lot of money to the banks, which they thought would then turn around and lend to consumers and corporations. The whole "borrow at 3%, lend at 5%" thing.

Unfortunatly, Warren Buffet and top analysts have been going on and on about how this is a WONDERFUL opportunity to buy into the stock market if you have spare cash.

So, the banks make a quick calculation:

"Let's see... I've got USD 30 billion in my pocket now... I could lend it to people at 6% per annum... but then again, Warren Buffet is saying that I could make over 10% per annum annualized if I buy stocks, or even better buy over an entire bank...
Lending to consumers is looking risky... Buffet just said that buying stocks right now is really safe...

hmm... which shall I choose..."


Which option do you think they chose?

Keep in mind that unlike the the Fed, or Jesus, or a church or charitable organization, these are Public Traded Companies and their directors get sizeable bonuses based on profit...

Yeah. It seems fairly OBVIOUS in hindsight, doesn't it?

And that's why Treasury is now switching to a different plan of what to do with the remaining 350b from the 700b.


IDIOTS.

Warren Buffet... you have to stop giving naive advice. My personal opinion is that Buffet is a very kind and philanthropic man. Which is precisely why he should stop trying to analyse this economic situation.
He does not understand that PEOPLE ARE NOT THE SAME AS HIM.
Normal humans are... only human.
Warren Buffet is practically a demi-god, in some ways.
This actually has some negative effects. For instance, he has forgotten that in a crisis, people will look after their own interests first, that people are greedy and fearful, that people generally earn money in order to EAT not to grow their portfolios then give it away to charity.

Warren Buffet is the sort of man, if you gave him 700b to save America, I am sure he would do his greatest effort to save America.
These bank CEOS... are the sort of people... if you give them 700b to save America, they will happily start looking for the ways to make sure as much of that 700b goes into their own pockets as possible.

Basic human nature.
Frankly, if you gave ME 700b, I do not think I could... no. I admit it. I could not resist temptation completely. Whether it be giving myself a high salary, or a contract saying that I take some of the profit if it succeeds, or a huge expense account organizing "business trips"... I don't think I could resist it. Do any of you think you could?

Warren Buffet probably could. Heck he manages billions upon billions and yet the bulk of his income comes from his own investments, not yearly bonuses or salaries. He drives his own car, lives in a small house...
The trouble is... Warren Buffet has risen above human materialism. But he's unfortunatly forgotten that normal humans HAVE NOT.

The FED forgot this too. And got scammed big time. 350b to the banks, and not much of it going to help American citizens or corporations. Why doesn't the Fed hold a gun to citi's head and force them to buy General Motors, or force citi to extend credit to them?

Taking huge amounts of cash, and giving it to Profit Orientated Corporations, in the hope that they will "do the right thing"...

FED is DUMB.... and rather naive.

Confidence Crisis? WRONG, MORONS!

USA is saying that the current mortage problem is a confidence crisis.

They are saying that it's just fear.

They are also refusing to put 2 and 2 together, and realise that maybe, just MAYBE toxic troubled debts, and mortages, and foreclosures, are all connected?

It's is NOT a confidence crisis that is causing the mortage market to collapse.

It is the simple simple unescapable fact that a very large number of people bought houses that they cannot afford! And that number is in fact INCREASING every day. Mortage rates are going up. Credit card rates are going up. Employment is going down. How are people with no income supposed to pay a rising mortage?

The stupid American government is choosing to pretend that this group of people does not exist.
MADNESS.

Instead, they are trying to revive the mortage market by saying "look, there are plenty of people who are not in trouble, why don't we give mortages to these guys?"

Er... yes. You can give them mortages. This is a good idea.

But...

It's not going to solve the problem of the other section of the population who ARE in trouble!

These idiots are only trying to look at aggregate figures, instead of segmenting the mortage market.

They think that all they need to do is look at total mortages, total good mortages, and total bad mortages. At the moment, the ratio of good:bad is too low. So their theory is, to fix this problem, just raise the number of good mortages.

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Yeah, I know that it seems to make some sort of sense, but you can tell that theres some big flapping holes in this logic.

Unfortunatly, these morons haven't realised that.

Sooner or later, you HAVE TO restore the ratio of good:bad mortages by reducing bad mortages. You can't shuffle them around. You HAVE TO foreclose. Just like bankruptcy.

Also.

The fact of the matter is:

The mortage market is saturated.

The mortage market simply grew too fast, furious, and recklessly in the past few years.

The mortage market NEEDS to correct itself.

There are simply too many mortages in existance, with too high amounts attached to each mortage, compared to the earning power required to pay them back.


If America doesn't realize this, the depression is going to last for the next 20 years... basically, it will last until someone realizes that you in fact have to STOP giving out so much easy credit.

The analysts are saying that this problem was caused by too much easy credit...
And now the world banks are trying to solve this by giving out trying to make it EASIER to borrow and lend?


Are they STUPID?

Why, yes of course. Obviously. In fact I have pretty much confirmed that fact some time ago in this blog.

It's like a surgeon who bought a $7.5billion house and property. Obviously, he can't afford something like THAT. But he goes to the bank and says, "hey, you know... i'm a world famous surgeon. My fundamentals are still strong. I am one of the best paid doctors in the world... I earn $15million a year, you should have faith in me. Invest in me!" So... the bank doesn't want to take the pain of foreclosing so they try and help him refinance and refinance and take more loans and...

Well, obviously, what is not going to work cause due to being too expensive... simply cannot work because it is too expensive! NO AMOUNT of refinancing and juggling of debt will solve this problem. Because at the end of the day, you simply cannot run away from the simple fact that:

His income might be freaking high, but his debts are even higher. So, he just has to reduce his debts. Which means moving into a smaller house. Everything else is just delaying the inevitable.


The fact of the matter is, the market is and should be a self-correcting mechanism.
Too much borrowing and financing occured in the last decade. It MUST be wiped out. The market must correct itself. Basically, for the system to return to normal, this cancer must be purged through chemotherapy. Trying to avoid the pain and agony that would occur is only making things worse.

Diamonds from Tequila

http://www.physorg.com/news145255770.html

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Well, this is very interesting, and it looks like it's true, not some weird rumor. And it has some financial implications and business applications, so I guess it's legit to blog about it here.

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I've searched and done some detective work, and here's roughly what happened, the insider story, so to speak:

Javier Morales, Luis Miguel Apátiga, and Víctor Manuel Castaño were doing labwork at National Autonomous University of Mexico, experimenting with creating diamonds from organic solutions such as acetone, ethanol (aka drinkable alchohol), and methanol. As some of you postgrads and researchers might know, most research projects are tedious, boring, and yield very few interesting results. So the researchers find ways to occupy their time while bored. Eating, drinking, playing games...

So, anyhow, one day, Luis Miguel Apátiga buys a bottle of tequila from the campus shop. (he admitted this part to the press)
The part he didn't admit, IMHO, is that he and his buddies bought it for drinking purposes, not research. :)

Anyhow, a few shots of tequila later, or maybe a LOT of shots later, you have a bunch of slightly tipsy mexican researchers, experimenting with creating diamonds industrial alchohol, and a bottle of tequila next to them. And eventually, one guy there says "why not?"
Well other than the fact that you've got some liquid with who knows what impurities in it (it's not just tequila, it's CHEAP tequila), and that's some expensive lab equipment... well I guess it's easy to clean equipment and hard to damage considering it's usage, so it's safe, but... actually, if I was there I would probably say "why not?" too. If I was drunk. And if my supervisors/ boss/ etc weren't within earshot...

Anyhow... it worked.

Well, they admit now that they had doubts it would work since tequila contains a LOT of things other than ethanol and H20 in it. Then again, I would like to point out that most chemical reactions require some catalysts in some form or another...

But seriously, my theory is that they did it because they were drunk at the time.

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Can I get these guys to buy some shared lottery tickets with me? hahaha.


Wait. Does this mean that these new diamonds and diamond film, possibly having applications in cutting tools, high-power semiconductors, radiation detectors and optical-electronic devices, are HARAM, since they are derived from Tequila?
Sort of like how some people were calling muslims to stop using products containing pig lard?
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Interesting. Not my position to judge. Will wait to see how International Islamic Council votes.

FDIC+ Mortages

Excerpt from: http://www.thestreet.com/story/10448026/1/stocks-fall-as-investors-rush-to-lock-in-gains.html

"The FDIC released details of a plan to use $24.4 billion to guarantee 2.2 million mortgages, thereby helping some 1.5 million Americans stay in their homes."

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WTF?

A LOT of people are going to just look at this and say "oh how kind of them, they'll save all those people". But let's take a look at the Maths here...

How much does the FDIC think a house costs in America? Well, perhaps we are dealing with subprime. Or really small mortages. But seriously, 24.4billion divided by 2.2 million = USD20,000 per house.
Are they sure about that? ... And... my rough estimate is... let's see... assuming 20k mortage at 7% for 15 years... USD180 per month. You're telling me that the people living in those homes cannot afford to pay this? ... these are VERY sub-prime quality loans then. In fact these are so toxic, you might die from glancing at the balance sheet. It means that you are basically guaranteeing the mortages of people who don't have a real job. In reality, these folks are probably better off just declaring bankruptcy and freeing themselves from these debts, then starting over with a clean slate. Seriously, you should NEVER underestimate the power of starting out all over again when your life is in a mess. It can be a MUCH less painful choice than a long, painful and possibly ultimately failed uphill battle to turn your life around with large debts in your path. The bankruptcy laws are not to just to protect lenders... they're there to help the BORROWERS. Check your nearest government body for a free consultation. (if your government provides one. In malaysia it is http://www.akpk.org.my/)


Secondly. Er. Did anyone else notice? 2.2 million homes... 1.5 million Americans?
YEAH, there's a gap of 0.7million there... around 1/3 of those homes do not fall into this category?
No wait... in fact many of those homes will in fact have 2 or more Americans living in them. Families, as you know, would have more than 1 person living in a home.
So... dum de dum dum de dum estimate guesstimate.... They want to guarantee 2.2million homes. 1.2 million of which are not occupied by Americans?
So are they occupied by foreigners, or are those homes unoccupied, ie some fellas were just buying homes for INVESTMENT purposes and never intended to live there... it was a just a punt/ gamble on property going up?

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Something not looking quite right here. I have no idea what is going on, but I do smell something fishy.

hmm... will do more research and update blog later.


Summary: this mortage guarantee sounds like a nice idea, but the numbers are looking weird! Something is wrong somewhere...

Government is making things worse

http://www.thestreet.com/story/10440625/1/government-made-the-mess.html

"The total derivatives market, which is the real source of the turmoil in credit markets, is $1,400 trillion."

Geez... even more than I thought it was!



"The most recent and most disturbing proposal that is being promoted by lenders and politicians is an attempt to abolish fair value accounting. What this means is that lenders do not need to mark their assets to what those assets could be sold for in the market. Both regulators and auditors oppose this plan to eliminate, or water down, fair value accounting. "

Anyone who has learn about accounting knows that this is pure insanity and is totally ignoring the tenets of conservative accounting! It's would allow NONSENSE like saying that the General Motors stock that you bought for $100 dollars is worth $100 today... so the bank should take it as $100 worth of collateral! Why even bother having an annual report for shareholders if you are allowed such shenanigans???