Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 09-24-2008, 12:26 PM   #61
Thinks s/he gets paid by the post
 
Join Date: Jun 2005
Posts: 1,543
Our total debt is not that bad compared to GDP and most other countries in the world.

compared to the initial RTC estimates in 1990, $700 billion in 2008 dollars is pocket change. back then the deficit was a lot higher as a percentage of GDP.

RTC wasn't a magical fix either. Back then Citi almost went belly up in 1994 and home prices were flat for most of the decade with a lot of 1987-1990 buyers being upside down until 2000 or so.

the goal is to make any downturn controlled and gradual so that asset prices don't go in crazy directions very fast.
__________________

__________________
al_bundy is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-24-2008, 12:58 PM   #62
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,044
I think the bailout is unpopular with people because they haven't suffered enough themselves. So far a few fat cats got run over by a bus, big deal! But wait until unemployment explodes, incomes fall, people's 401Ks plummet, retirees start eating cat food, and shanty towns start burgeoning all over, and I bet you that you'll start to see people clamoring for congress' mercy... We will spend that $700B, it's just a matter of time. But the more we wait, the harder it will be to avoid some severe damage to our economy. History shows that in similar crises, inaction or belated action by the government has always resulted in deep and prolonged recessions.

I hope people have been studying how the Scandinavians handled their own credit crisis in the 1990's. It was eerily similar to ours. The root causes were a real estate bubble coupled with loose lending practices which resulted in a financial market crisis... Sounds familiar? At one point, interest rates spiked to 500% in Sweden. Unemployment shot up to almost 20% in Finland. Scandinavian governments intervened swiftly and decidedly to stabilize the markets using a scheme not unlike the one proposed by Paulson. There were massive nationalizations of banks and financial institutions. It is said that, in the end, the Swedish government actually managed to make a profit out of the bailout. But economists generally credit the swift government action for the relatively "quick" recovery of Nordic economies. The government bailout did not have an immediate impact on the economy however. Scandinavian countries still went through 3-5 years of a deep, nasty recession before things started to improve. In Japan, the government waited many years before intervening and I think it is pretty safe to say that Japan has still not recovered from the 1989 crisis. And, after reading about it, I think that the great depression in the US was probably caused by an unwillingness for the government to step in at the onset of the crisis, and then the government's decision to step in much later with sweeping reforms and programs that just made the situation worse.
__________________

__________________
FIREd is offline   Reply With Quote
Old 09-24-2008, 02:01 PM   #63
Thinks s/he gets paid by the post
ladelfina's Avatar
 
Join Date: Oct 2005
Posts: 2,713
What political brinksmanship disallows a rational-sounding appeal like yours, FIREdreamer, from coming out of Bush's mouth, or Paulson's?? Or from any congressional leader so far?

(I heard Obama answered some questions on the economy and need to find a video link to that.. at least he is out there and not "sequestered")

It appears that the Rs in particular are blocked from saying the "R" word.. much less the "D" word.

That being so.. I'm still not convinced that the ills you describe won't come to pass all the same in the US, though I will study the Scandinavians as you suggest. Don't forget in all this that they have much stronger social safety nets (esp. universal health care) and less income inequality.. Whatever their ills, I wonder whether an extreme dog-eat-dog scenario was ever going to be in the cards (shantytowns and cat food.. tho' I hear the Scandinavians eat some pretty alarming fish products as a matter of course).
__________________
ladelfina is offline   Reply With Quote
Old 09-24-2008, 03:19 PM   #64
Full time employment: Posting here.
 
Join Date: Nov 2005
Posts: 829
Quote:
Originally Posted by FIREdreamer View Post
I hope people have been studying how the Scandinavians handled their own credit crisis in the 1990's. It was eerily similar to ours. ... Scandinavian governments intervened swiftly and decidedly to stabilize the markets using a scheme not unlike the one proposed by Paulson. There were massive nationalizations of banks and financial institutions.
I seriously doubt that the Scandinavian crisis was similar to ours. Do you have a good primary reference from an unbiased source (this does not include Fox News )? Also, Paulson is not proposing a massive nationalization of U.S. banks and financial institutions. In Paulson's plan, the U.S. gov't (i.e. the taxpayer) gets no ownership stake in the companies bailed out.
__________________
socca is offline   Reply With Quote
Old 09-24-2008, 03:26 PM   #65
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,044
That's the thing ladelfina, all the ills I described will probably come to pass anyways. There are already reports of people living in tents on the outskirts of many large cities, people are already seeing their 401Ks dwindle, and unemployment is already on the rise. It will probably get worse in the short term no matter what congress does. As I said, the early government intervention in Scandinavia did not prevent a deep recession that ultimately hurt people. But what it did, was to make for a speedier recovery.
__________________
FIREd is offline   Reply With Quote
Old 09-24-2008, 03:29 PM   #66
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,044
Quote:
Originally Posted by socca View Post
I seriously doubt that the Scandinavian crisis was similar to ours. Do you have a good primary reference from an unbiased source (this does not include Fox News )? Also, Paulson is not proposing a massive nationalization of U.S. banks and financial institutions. In Paulson's plan, the U.S. gov't (i.e. the taxpayer) gets no ownership stake in the companies bailed out.
My original source was Bloomberg. Do your own research. I don't do Fox News. And I said the plan was "not unlike" paulson's, I did not say it was identical.

Oh and by the way is it a coincidence that the Scandinavians are on a "lecture tour" in the US to explain how they handled the crisis back in the 90's? I think not...
__________________
FIREd is offline   Reply With Quote
Old 09-24-2008, 03:35 PM   #67
Thinks s/he gets paid by the post
OAG's Avatar
 
Join Date: Jun 2006
Location: Central, Ohio, USA
Posts: 2,598
I am itching to buy my neighbors $400K Ferrari for $20K (Cash) when he has to sell it to eat post-collapse.
__________________
Vietnam Veteran, CW4 USA, Retired 1979
OAG is offline   Reply With Quote
Old 09-24-2008, 03:46 PM   #68
Thinks s/he gets paid by the post
ladelfina's Avatar
 
Join Date: Oct 2005
Posts: 2,713
Wondering why someone can't come out with an explanation is also Krugman:

Quote:
The two striking things about the Paulson push since last Friday have been (1) demands for complete discretion, with zero accountability and (2) a complete refusal to explain the theory of the case — to explain why this thing is supposed to work, so that we can have an open discussion of whether he’s right.
The trust problem - Paul Krugman - Op-Ed Columnist - New York Times Blog
__________________
ladelfina is offline   Reply With Quote
Old 09-24-2008, 03:56 PM   #69
Thinks s/he gets paid by the post
 
Join Date: May 2008
Posts: 2,260
Someone posted this link on diehards.org forum...

10/26/98 JAPAN'S BANK BAILOUT: PAINKILLER OR REAL REFORM? (int'l edition)

This is what Japan did in 1998 and it sounds like what US is *thinking* of doing now...

History should not repeat itself if we all know the dire consequences.......?
__________________
tmm99 is online now   Reply With Quote
Old 09-24-2008, 05:14 PM   #70
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
Quote:
Originally Posted by al_bundy View Post
the problem is perceived risk, same thing when worldcom and enron went belly up. the TED spread and all the other indicators went crazy because everyone stopped trusting everyone else because no one trusted the public financial info. everyone went into bunker mode and conserved cash and didn't lend it to anyone.

same thing happened last week. people started pulling money out of MM's because everyone believes it's as safe as cash and the details don't matter. what matters is the effect it has which is no short term lending and the possiblity of MM's going belly up which is even worse. If the Fed allowed the risk part to happen and MMs to go belly up it would have been very bad.

imagine the only people getting credit are only those with 800 or higher FICO's? fortune 500 corporations would have cash problems because everyone relies on short term financing for working capital. there is a formula i learned in finance classes that is used to figure this out, but i can't remember it. you can figure out a company's working capital requirements from it's public investor documents.

if you look at your average fortune 500 company the bonds usually yield around 4%. the way the libor was last week that might double. now imagine if the government allowed things to go on and institutions to keep on failing. at the minimum it could have been a recession like 1980 with 10% unemployment.

the meltdown comes from the fact that everyone is linked to everyone else via credit default swaps. rumor is that the bear stearns bailout was really a JP Morgan Chase bailout because Chase had around $80 trillion of CDS's with bear stearns. once institutions like AIG fail everyone calls in their IOU's via CDS's and forces everyone into bankruptcy as no one can pay up and each BK will cause more BK's down the line.

Then you have the problem with the Federal Reserve stretching it's balance sheet with all the junk they took on over the last year from the banks. this bailout will go forward because it's as much a Federal Reserve bailout as wall street. no one has the money to pay the Fed back for the loans they made over the last year and this is how it's going to work out.

i bet if you add up all the lending facilities over the last year it will add up to around $700 billion. and you can't seriously say we should let the Federal Reserve fail? Last time we got rid of a central bank it turned into a 20 some year depression, a war with mexico, and hatred between the states that later turned into the civil war.
(My bold) I don't think that "everyone" relies on short term financing. See this, for example: www.latimes.com/technology/la-fi-microsoft23-2008sep23,0,1847736.story?track=rss You can look at public documents and figure out how much working capital a firm had in the past, and see if the curent amount is high or low relative its history, but I don't think there's a formula that tells you what they "should" have.

I'm picking on this point because it's a good example of choices. Businesses make a choice on how much leverage they are going to use, and how much of the debt will be short term. Firms that use lots of short term debt will show better profits in good times and worse in bad. An occaisional "credit crunch" keeps people from going overboard. The firms that emphasized equity ride out the storm and expand at the expense of those that were heavy with debt. Our root problem may well be that we've had good times for businesses with low interest rates for a long time, so perceptions of "safe" levels of debt have become pretty high.

I understand that when things go bad people get conservative and try to build cash. This effectively shrinks the money supply and the Fed should do something to offset it.

Theoretically, it's possible that so many firms are so highly leveraged that there would be a chain reaction of bankruptcies. That worries me more than Money Market funds. I'm questioning whether we're in that situation. Are most firms really that dependent on that much debt? or are we at a point where some highly leveraged firms are going to fail while the others endure a bump in the road? The problem is that the "experts" who should know those answers seem to be the same people who will profit from the bailout. I'm not sure if we're getting an impartial analysis. I haven't seen a poll of the academic "experts", but I happened to hear one "free market fan" last night who says we shouldn't panic (see Meltzer at: www.pbs.org/newshour/bb/business/july-dec08/bailouttalk_09-23.html

(I'm not worried about the Fed - it owns the printing presses.)

I notice that Lehman seems to be finding buyers for its parts. Merrill and GS are doing painful things that don't involve bankruptcy. I hope we find out soon if most of the pieces of AIG turn out to be sellable.

I can remember the 10% unemployment rate in the 80's. It wasn't a good thing, but it was the cost of squeezing decades of inflationary psychology out of the system. In the long run, it seems to have been worth it. I hope we don't get that high this time (I've got a family with jobs on the line, and the US has more economic inequality now then we did then.), but maybe it's time to squeeze the "it doesn't matter how much you borrow" psychology out of the system.
__________________
Independent is offline   Reply With Quote
Old 09-24-2008, 05:21 PM   #71
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,044
Quote:
Originally Posted by tmm99 View Post
Someone posted this link on diehards.org forum...

10/26/98 JAPAN'S BANK BAILOUT: PAINKILLER OR REAL REFORM? (int'l edition)

This is what Japan did in 1998 and it sounds like what US is *thinking* of doing now...

History should not repeat itself if we all know the dire consequences.......?

Off course, in the case of Japan, the patient had been in the ER for 9 years before they finally decided to give him a "morphine injection".

And I think that Paulson has made it abundantly clear that his bailout plan is just a morphine injection. Real reforms will have to follow. On its own, the bailout plan won't cure the problem. But it might stabilize the financial system enough so that we have time to treat the real, underlying problems. At least that's my understanding.
__________________
FIREd is offline   Reply With Quote
Old 09-24-2008, 05:27 PM   #72
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by Independent View Post
If we have a stampede out of MM funds, the money has to go somewhere. It seems to me that it goes to commercial banks.
So out of the frying pan and into the fire? You take your money out of a MM fund because you think it might fail and put it in a commercial bank that might fail? Sure you have FDIC insurance, but only up to $100K. I don't have a statistic about the composition of MM deposits, but I strongly suspect a very high percentage of total deposits are in accounts that exceed FDIC insurance limits.

Also the "friction" in moving from a predominately market based financing system back to a commercial bank lending model is huge. Right now banks aren't lending. And even if they got a good fraction of the MM withdrawals back in deposits, it would take a long while for them to turn around and lend that money back out.

Sure over the "long-term" we'd adjust but people forget how long the long-term can be . . . we came out of the Great Depression too, over the long-term.
__________________
Gone4Good is offline   Reply With Quote
Old 09-24-2008, 05:28 PM   #73
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by ladelfina View Post
"nice"? Hmmm. The deeper question is: how long and far can we run on "faith-based" investing? We're about to find out.
It's called "fiat currency" and I'm afraid you're going to have to get used to it.
__________________
Gone4Good is offline   Reply With Quote
Old 09-24-2008, 05:35 PM   #74
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by tmm99 View Post
Someone posted this link on diehards.org forum...

10/26/98 JAPAN'S BANK BAILOUT: PAINKILLER OR REAL REFORM? (int'l edition)

This is what Japan did in 1998 and it sounds like what US is *thinking* of doing now...

History should not repeat itself if we all know the dire consequences.......?

My understanding of Japan's situation is that many banks continued to hold bad loans at face value (never wrote them down). The banks appeared solvent, but really weren't. They wouldn't die, but couldn't lend and became known as Zombie banks. They plagued Japan for years.

Our banks are very rapidly writing down assets (some suggest too much, others aren't so sure). In either case, Paulson's plan will result in banks selling assets for far below their face value. But once the assets are sold the banks can hopefully move forward as more normalized (non-zombie) institutions.
__________________
Gone4Good is offline   Reply With Quote
Old 09-24-2008, 05:35 PM   #75
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Quote:
Originally Posted by . . . Yrs to Go View Post
Sure you have FDIC insurance, but only up to $100K.
I'm not sure why people keep saying this. An individual can have an unlimited amount of money in FDIC-insured accounts, this limit is 100K per registration-type per bank. So, a couple could have $300K in a single bank (his, hers, theirs) and do the same thing at as many banks as necessary.

Just open accounts in multiple banks, it's as easy as that.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 09-24-2008, 05:36 PM   #76
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Back to the original question "What happens . . . ", we may soon find out. Credit markets are starting to melt again while Congress dithers. Tick-tock, tick-tock.
__________________
Gone4Good is offline   Reply With Quote
Old 09-24-2008, 05:47 PM   #77
Full time employment: Posting here.
Helena's Avatar
 
Join Date: Aug 2006
Posts: 626
Quote:
Originally Posted by tryan View Post

yeah, just when we need these people to show some kaunas and take a stand (or at LEAST understand the problem and vote accordingly) ... they RUN and HIDE.

Now there's talk of canceling the Friday debate.
__________________
Helena is offline   Reply With Quote
Old 09-24-2008, 05:53 PM   #78
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by samclem View Post
I'm not sure why people keep saying this. An individual can have an unlimited amount of money in FDIC-insured accounts, this limit is 100K per registration-type per bank. So, a couple could have $300K in a single bank (his, hers, theirs) and do the same thing at as many banks as necessary.

Just open accounts in multiple banks, it's as easy as that.
Yes, although doing this takes some work and not everybody almost no one understands this.
__________________
Gone4Good is offline   Reply With Quote
Old 09-24-2008, 05:56 PM   #79
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by Helena View Post
Now there's talk of canceling the Friday debate.
Unacceptable! With only ~40 days before the election the American people should get a chance to evaluate the two men who hope to inherit this mess on Jan 20, 2009. If 2, out of 100 US Senators, can't spare 90 minutes to audition for the Presidency in a national forum then we should find a way to select another two candidates . . . pronto.
__________________
Gone4Good is offline   Reply With Quote
Old 09-24-2008, 06:32 PM   #80
Thinks s/he gets paid by the post
 
Join Date: May 2008
Posts: 2,260
Quote:
Quote:
Originally Posted by Helena
Now there's talk of canceling the Friday debate.

Unacceptable! With only ~40 days before the election the American people should get a chance to evaluate the two men who hope to inherit this mess on Jan 20, 2009. If 2, out of 100 US Senators, can't spare 90 minutes to audition for the Presidency in a national forum then we should find a way to select another two candidates . . . pronto.
McCain wants to postone the debate. Omaba wants to do it. I agree with Obama.
__________________

__________________
tmm99 is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
AIG Bailout? Purron FIRE and Money 75 09-22-2008 10:53 AM
Weighting game: New 'lazy' portfolio using 'fundamental' ETFs sparks furor chinaco FIRE and Money 15 05-05-2007 06:12 PM
Fundamental Indexing debate in JOI ats5g FIRE and Money 0 03-15-2007 02:34 PM
fundamental premise windsurf FIRE and Money 46 03-03-2007 07:43 AM
Fundamental Indexing donheff FIRE and Money 1 09-29-2006 08:38 AM

 

 
All times are GMT -6. The time now is 11:37 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.