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Old 09-20-2008, 05:26 PM   #21
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Financial media throwing the d-word around. Anyone for a self-fulfilling prophecy?
Is it a sign of a bottom?
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Old 09-20-2008, 06:51 PM   #22
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I caught the last 20 minutes or so of Mad Money with Jim Cramer last evening. I was surprised by his comments that this weeks actions by the Federal government avoided the US from slipping into the Great Depression II. He also advised investors to reduce current equity positions by 20% as we go into the fall. Thoughts?

very simple

AIG insures a lot of mortgages. AIG BK would mean the ratings agencies would have to downgrade the ratings. mortgages are now worth less and banks would have to mark to market and reduce the values of their assets. this would mean they would have to raise capital to meet reserve requirements which they probably wouldn't be able to do and they would fail. meanwhile their stock prices are crashing which causes the ratings agencies to further downgrade their debt and make the banks raise more capital.
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Old 09-20-2008, 07:02 PM   #23
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AIG insures a lot of mortgages. AIG BK would mean the ratings agencies would have to downgrade the ratings. mortgages are now worth less and banks would have to mark to market and reduce the values of their assets. this would mean they would have to raise capital to meet reserve requirements which they probably wouldn't be able to do and they would fail. meanwhile their stock prices are crashing which causes the ratings agencies to further downgrade their debt and make the banks raise more capital.
This requirement of "marking to market" for even fully performing assets results in a domino effect that can blow up into a full-blown death spiral.
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Old 09-20-2008, 07:32 PM   #24
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or we can let companies be like Enron and make up values for the assets on their balance sheet

personally i kind of prefer the Enron way. wall street will figure out that something is wrong long before it's news and the stock price will tank alerting anyone that pays attention that something is wrong.
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Old 09-20-2008, 07:34 PM   #25
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or we can let companies be like Enron and make up values for the assets on their balance sheet.
I'd like to think it's not a complete either-or situation.

"Enron" has become to financial discussions what Hitler is to political ones.
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Old 09-20-2008, 07:36 PM   #26
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i like to joke with coworkers that our company is the next Worldcom in 20 years or so
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Old 09-20-2008, 08:06 PM   #27
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Show me the evidence.
I'd have to spend a lot of time digging up data (or you could find it yourself if you are interested) but inter-bank lending was grinding to a halt, commercial paper balances declined the most in 26 years, people were beginning to flee money market funds (which finance the CP market), lower quality companies were drawing on their revolving bank lines because of fears that the investment banks in their bank syndicate were going to go the way of Lehman, broker dealers were charging each other the equivalent of 1 yr CDS spreads (at up to 800bp over LIBOR) to do business with one another, etc, etc.

Most of this doesn't get reported in your daily paper but it was getting very, very ugly.
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Old 09-20-2008, 08:07 PM   #28
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LIBOR jumped way above the fed funds rate as well
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Old 09-20-2008, 08:14 PM   #29
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It appears to me that one money market fund breaking the buck on Thursday, was enough to make everyone in Washington go "Oh $h!t !!"

A run on money market funds had already started. 1 month T-bill rates had gone negative for heavens sake! Money market funds, not bank deposits, are the real lubricant of our economy. If money markets seize up then suddenly corporations can get any of their basic day-to-day stuff done because corporate America uses money markets for short term financing.

A prolonged seize-up in short term liquidity would be the equivalent of a depression - it would cause a horrible ripple effect throughout corporate america as suddenly no one could pay anyone else. Horrible to contemplate.

So, US Govt got religion. Can't have money markets seize up. Had to step in.

Audrey
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Old 09-20-2008, 09:41 PM   #30
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IIRC, one of the causes of the great depression was fear.
I don't really understand the US economy or know much about the Great Depression, but that doesn't mean I don't have an opinion

I think fear is what caused the run on the banks when the bubble burst in the stock market. And, for good reason. There was no SEC back then and there was a lot of stock market scams. There also was no FDIC. Once the run on the banks occurred, the bankers started calling due mortgages! Back then, a bank could recall a mortgage and ask for the balance due on the loan immediately, which caused a lot of farmers and home owners to lose their property.

The thing I worry about now is the level of debt we have going into this. There was no income tax back then and I don't believe the national debt was very high. Now we have the twin deficits and a heft tax rate. Add in inflation to service the debt and we are stretching our limits.

In regards to the Depression, I think the Government did all the wrong things initially. They raised interest rates to squeeze liquidity out of the economy and slapped on tarriffs.

What we are up against right now seems opposite to me. It has felt for a long time that we have had too much liquidity in the economy. I wish I had a better understanding of both the Great Depression and the current economic situation.

Has anyone read a really good book on the Great Depression? I have read a few books about it, but nothing I would say offers a good explaination.

I believe Bernanke has put a lot of effort into understanding the Great Depression.

My Dad graduated from college in 1930 and was one of three people in his class to get a job. He said in the class of 1931, no one got a job. He went to an engineering school. I always tried to pump him for information on what the Great Depression was like, but he never had much to say except, "Hey, it was an awful time". He was definately frugal in his later years.
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Old 09-20-2008, 10:08 PM   #31
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At the risk of the tinfoil hat designation, I will offer Nouriel Roubini, noted economist and NYU professor, also know as Dr. Doom, who has been analyzing the current economic situation for quite a long time, to the ridicule and dismissal of many, but who has now become a media star.

RGE - The Worst Financial Crisis Since the Great Depression

Also, this article in the NY Times about him
http://www.nytimes.com/2008/08/17/ma...ss&oref=slogin
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Old 09-20-2008, 10:24 PM   #32
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My Dad graduated from college in 1930 and was one of three people in his class to get a job. He said in the class of 1931, no one got a job. He went to an engineering school. I always tried to pump him for information on what the Great Depression was like, but he never had much to say except, "Hey, it was an awful time". He was definately frugal in his later years.
A depression on the scale of the 30's now would be worse in some ways than it was then.
- Personal debt load
- No extended family to fall back on
- Expectations of what the necessities of life are high (cable TV, eating out etc)
- Expectations that the government will provide for the individual and can solve the problem
- It would get real ugly in the USA and around the world if there was 25 - 30% unemployment in the USA
The Great Depression

If it did happen - I would head for the hills.
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Old 09-20-2008, 11:06 PM   #33
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If it did happen - I would head for the hills.
And where are they? Here in Colorado -- as a typical example -- the hills are alive with McMansions and bumper-to-bumper traffic. There are no "back woods" anymore.
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Old 09-20-2008, 11:22 PM   #34
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And where are they? Here in Colorado -- as a typical example -- the hills are alive with McMansions and bumper-to-bumper traffic. There are no "back woods" anymore.
I was it the Salida area recently - more affordable than where you live and the only traffic jam is on the river.
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1929
Old 09-20-2008, 11:40 PM   #35
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1929

" Has anyone read a really good book on the Great Depression?" Helen

I can recommend "The Day The Bubble Burst" by Gordon Thomas and Max Morgan-Witts. Doubleday and Co. 1979

It chronicles the events leading up to Tuesday, October 29th 1929.

Much has changed but some things to watch for are...

1. A major bank collapse

2. A powerful financial figure stepping in with an attempt at rescue

3. The speech (usually from the President)

4. Powerful counter rallies

5. Coordinated efforts to help

6. Fraud discovered

7. Denial

8. Anger

9. Acceptance
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Old 09-21-2008, 07:47 AM   #36
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Interesting group of interviews on this morning's Al Jazeera website. Germane to this thread is this:

Gerald Friedman, economics professor, University of Massachusetts

The end of US capitalism? I really doubt it.
This is a very serious financial crisis and if mishandled could become a serious recession even a depression, but it is unlikely to be as bad as the Great Depression of 1929-40 as the authorities have learned to co-operate in crises.
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Old 09-21-2008, 11:35 AM   #37
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Any comparison to the Depression of the 1930s is absurd fearmongering.
Ask anyone who lived throught it.
Most Americans haven't a clue how bad it was back then.
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Old 09-21-2008, 11:45 AM   #38
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Any comparison to the Depression of the 1930s is absurd fearmongering.
Ask anyone who lived throught it.
Most Americans haven't a clue how bad it was back then.
And that is part of the problem. People forgot how bad it could get so they didn't save and went into debt and took out mortgages they couldn't afford.

History might not repeat itself but, it does rhyme.
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Old 09-21-2008, 11:55 AM   #39
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Is it a sign of a bottom?
I can see the bottom from here...

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Old 09-21-2008, 03:52 PM   #40
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Woo hoo!
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