Great Recession?

http://www.thestreet.com/story/10449144/1/kass-times-running-out-for-a-rally.html

1. Six trillion dollars of wealth has been lost in home prices over the last year and a half.
2. Eighteen trillion dollars of wealth has been lost in global equities in only seven weeks.
3. Deleveraging continues to restrict accessibility to credit.
4. Job losses are accelerating.

And I would like to add:

5. Economic data has been revised, it looks like the worst is yet to come.
6. Still waiting for the losses from derivatives to come in... they've been held in check by US policy, but they haven't actually disappeared.
7. The recession has spread GLOBALLY. Local recessions are relatively easier to solve... just do more business with the rich nations, albeit at slightly disadvantageous terms. Global recession... what are you going to do?
8. Earnings figures are definitely going to be down. Price Earnings ratios are currently based on historical values... ie the earnings are based on an unrealistically high figure! At this point in time, US companies are trading at 20 times PE. But if their earnings drop in 1/2 next year, that means they are trading at 40 times! Companies that have historically given good dividends are going to cut or eliminate these dividends.
9. It has been overlooked, but the shipping industry is in trouble. And logistics problems invariably lead to supply problems. Apparently some shipments are getting stuck at ports. I think that the effect from this will not be TOO huge... probably just a few billion or so... might seem like a lot, but nowadays we're talking about trillions, 3 orders of magnitude, dude.
10. Bad Debt. It might seem like a lot now. But what do you think happens to bad debt during a recession/ depression? It BALLOONS. You think those debts look toxic right now? It's going to be like wading through Sarin Gas a few months down the road, if all those jobless people don't get rehired. ... BTW, just to be clear... most of them won't.
11. Russia. And other troubled economies/ financials. If they start defaulting, I have no idea what sort of financial disaster that would be... who knows what derivatives have been tied to Russia's default. Speaking of that, what happened to Iceland?

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.

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.