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Old 09-26-2008, 02:46 PM   #21
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I think "OK" is overstating things, but in any event, Hoover was still president for all of 1932. FDR wasn't inaugurated until March 4, 1933.

And if something was already breaking down by 1932, it was obviously building for last few months and years... all on Hoover's watch. It's unfair to blame Hoover for all of it -- it's not like he passed all the laws or caused all the speculative froth of the 1920s that led to the crash and the subsequent bad legislation (though he did have to sign it).

Curiously, the Dow had one of its best years ever (on a percentage basis) in 1933 after reaching bottom in the summer of '32.
it was a rally after a 90% decline
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Old 09-26-2008, 02:48 PM   #22
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it was a rally after a 90% decline
True, but if you bought in 1932, that didn't matter, did it?
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Old 09-26-2008, 02:49 PM   #23
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I suspect it's not being spelled out for Joe Blow.

If Joe's employer is a capital-intensive business that relies on borrowed money to flourish, turning off the spigot of credit puts Joe out of a job.

If Joe has a 401K or IRA, he can look forward to watching his retirement feel farther and farther away as it shrivels in value.

If Joe has a pension, he can watch as his pension fund crashes in value, threatening its solvency -- and perhaps that of his previous employer.

If Joe is retired and on Social Security, he can worry about how a collapsing economy and massive job losses will allow SS to continue taking in enough payroll taxes to pay benefits.
Yes, exactly! It's not being spelled out for Joe Blow. The points you list above aren't that hard to grasp, but no one is out there articulating them. Doesn't seem that hard to spell out.

But what Joe Blow ALSO doesn't understand is how shoring up wall street after the recent shenanigans is going to help out. Seems to him the system is corrupt. Someone needs to also spell out how shoring up wall street is the most straightforward way to help him.

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Old 09-26-2008, 02:52 PM   #24
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Joe Blow also typically does not understand how cars work, how computers work, how most medications work, how to run a refinery, etc. So what?
Sorry. This is a democracy. Joe Blow has to be sold the solution. The lack of articulation from Govt. is stunning.

I think people really remember the urgency and crisis arguments going into a certain recent umm.... foreign intervention. I think the distrust from that is coming back to bite hard.

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Old 09-26-2008, 03:00 PM   #25
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Joe Blow also typically does not understand how cars work, how computers work, how most medications work, how to run a refinery, etc. So what?
This is certainly true. But right now there is a lot of disconnect among relatively ordinary people who see this as nothing but a giveaway to Wall Street fat cats at the expense of the "little guy." In other words, a megadose of Washington as usual. I think "we the people" have every reason to be cynical about it, and from both parties, when viewed from a quick glance -- given the track record of Congress and the White House.

And with an election in less than six weeks, many in Congress -- especially in the House, where ALL 435 seats are up and where the vast majority of them are incumbents seeking re-election -- are hearing from "Main Street" and from these Joe Blows *not* to do it.

I believe Audrey's point here (forgive me if I mischaracterize it) is that many of the folks putting pressure on Congress to "just say no" don't seem to realize just how badly everyday folks like them will likely be affected by letting the financial system implode spectacularly. If they understood how likely such an implosion would be to directly and VERY negatively impact them, maybe their populist opposition would thin out.
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Old 09-26-2008, 03:02 PM   #26
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and when businesses start laying people off by the thousands to conserve cash joe blow will be foaming at the mouth as to why the government didn't do anything to stop it
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Old 09-26-2008, 03:03 PM   #27
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We're not going to have bank runs with FDIC insurance. Nobody started pulling their deposits from WaMu, since they know the government will back them.

We may have to bulk up the FDIC fund, but that isn't hard or complicated.


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so why did Hoover get blamed for the Great Depression? until 1932 things were OK and it was just a recession. people could still get money from the bank. it was only in 1932 that the bank runs started and spread like wildfire and wiped out the banking system plunging the country into a depression.
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Old 09-26-2008, 03:07 PM   #28
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history doesn't repeat itself, but it comes close

the money markets will be wiped out if the credit crunch goes on and companies go under and default on debt. you can move your entire 401k into cash/MM and it will be wiped out if enough companies go under. and this isn't wall street companies that will go under, it's businesses on main street because they can't get access to financing and will see a slowdown in business.

everyone is afraid to lend and adding more bad debt to the system isn't going to fix anything
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Old 09-26-2008, 03:12 PM   #29
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We're not going to have bank runs with FDIC insurance. Nobody started pulling their deposits from WaMu, since they know the government will back them.

We may have to bulk up the FDIC fund, but that isn't hard or complicated.
Really?

"WaMu became ``unsound'' after customers withdrew $16.7 billion since Sept. 16, the Office of Thrift Supervision said yesterday."

Bloomberg.com: Worldwide
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Old 09-26-2008, 03:12 PM   #30
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and when businesses start laying people off by the thousands to conserve cash joe blow will be foaming at the mouth as to why the government didn't do anything to stop it
It would seem like this could be reasonably easily (and convincingly) explained to Joe Blow. Some real world examples of the businesses right now that are having trouble getting financing would really help - fast food franchises, farmers, etc.

But this will then focus the shift to how to help companies get that short term financing they need to function.

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Old 09-26-2008, 03:14 PM   #31
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Sure, but I'm not entirely convinced that this "credit freeze" is going to impact businesses in that way to a large degree.

There are plenty of banks that are running business as usual. Main Street businesses may have to switch banks, but I don't think that they are going to be unable to get credit at all, as long as they have very solid credit and collateral.

If they don't, they probably shouldn't have been getting money in the first place.

Corporate America has a pretty strong balance sheet overall, right now. Most companies are in a pretty good position to weather a tightening of credit. The ones that aren't will cause problems, but problems are unavoidable at this point.

Trying to prop a credit binge up with more credit is not going to help us down the road.

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Ummm - this is the problem. When Main Street businesses can't obtain the credit they need for their day-to-day functioning - not for expansion, not for anything fancy, just the basic inventory, payroll, etc. - the businesses start to shut down. This snowballs as people get laid off, suppliers are not paid, etc. Turns into a depression. You do not want this.

Thus something has to be done to unfreeze credit to these companies.

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Old 09-26-2008, 03:20 PM   #32
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Ok, but WaMu's been among the walking dead for months. There wasn't the kind of panicked withdrawls like before the Depression. And everyone is going to get their money.

I would be in favor of lifting the limits on FDIC insurance, though. The 100k limit seems a little archaic. I wonder how much of the 16.7 billion was in deposits over FDIC limits?


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Really?

"WaMu became ``unsound'' after customers withdrew $16.7 billion since Sept. 16, the Office of Thrift Supervision said yesterday."

Bloomberg.com: Worldwide
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Old 09-26-2008, 03:21 PM   #33
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Sure, but I'm not entirely convinced that this "credit freeze" is going to impact businesses in that way to a large degree.

There are plenty of banks that are running business as usual. Main Street businesses may have to switch banks, but I don't think that they are going to be unable to get credit at all, as long as they have very solid credit and collateral.
The problem is that it becomes a snowball rolling downhill.

A few banks tighten up their credit lines and a few businesses go under. A few creditors get stiffed.

In response, banks tighten a little bit more, and in turn that takes out a few more businesses. A few more creditors get stiffed.

Rinse, lather, repeat.

I believe it is this slow water torture -- drip, drip, drip -- which is constipating the credit market and, in fact, the housing market. As long as the belief persists that it's going to keep getting a little worse, and then a little worse, and then a little worse, people won't buy houses and skittish lenders with already low loss reserves won't lend.

In other words, there's a paralysis as long as entities conserve cash waiting for the other shoe to drop again and again and again -- constantly expecting another shoe to drop. I believe that to really free up the seized market, participants -- home buyers, businesses, lenders, savers -- need to believe that all the shoes (or at least the vast majority of them) have dropped.
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Old 09-26-2008, 03:22 PM   #34
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There are plenty of banks that are running business as usual. Main Street businesses may have to switch banks, but I don't think that they are going to be unable to get credit at all, as long as they have very solid credit and collateral.
That isn't the problem. Sure, there are some banks still plodding along as they always have. But those banks have to comply with regulatory capital ratio requirements so they cannot endlessly expand their balance sheets to accomodate all the demand that is out there for credit. Where is all this demand coming from? Partially from the banks that are hurting and frantically trying to shrink their balance sheets. But a lot of this demand is from the sudden withdrawal of capital market funded lenders that generaly are/were not banks ("shadow banking system"). Like it or not, the shadow banking system provided a huge amount of credit and now it is gone. The remaining healthy banks cannot replace all that supply on their own, at least not without large capital infusions. The capital infusions would be OK, except nobody wants to give banks capital any more, especially smaller institutions that might give a rat's patoot about Main Street businesses.

But I think you have already made up your mind, so this is probably a waste of my time.
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Old 09-26-2008, 03:24 PM   #35
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Ok, but WaMu's been among the walking dead for months. There wasn't the kind of panicked withdrawls like before the Depression. And everyone is going to get their money.

I would be in favor of lifting the limits on FDIC insurance, though. The 100k limit seems a little archaic. I wonder how much of the 16.7 billion was in deposits over FDIC limits?

Wanna bet there is a slow mo run going on right now on institutions that have been in the news? I am talking about banks that might well make it if left alone, but vulnerable to deposits running. How many of those can the FDIC absorb or find a willing partner for?
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Old 09-26-2008, 03:52 PM   #36
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I didn't say that this is going to be pleasant. You can't allocate capital this badly on this large a scale and not have horrible repercussions.

I just think that comparing to the Great Depression before we've even officially gone into recession (not that I doubt we will) is a little pre-mature.

The housing market will recover once we stop trying to prop up housing prices. When price fall to the point that it is cheaper to buy than rent, then the market will recover. All this stimulus/bailout stuff is just going to make it take longer.


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The problem is that it becomes a snowball rolling downhill.

A few banks tighten up their credit lines and a few businesses go under. A few creditors get stiffed.

In response, banks tighten a little bit more, and in turn that takes out a few more businesses. A few more creditors get stiffed.

Rinse, lather, repeat.

I believe it is this slow water torture -- drip, drip, drip -- which is constipating the credit market and, in fact, the housing market. As long as the belief persists that it's going to keep getting a little worse, and then a little worse, and then a little worse, people won't buy houses and skittish lenders with already low loss reserves won't lend.

In other words, there's a paralysis as long as entities conserve cash waiting for the other shoe to drop again and again and again. I believe that to really free up the seized market, participants -- home buyers, businesses, lenders, savers -- need to believe that all the shoes (or at least the vast majority of them) have dropped.
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Old 09-26-2008, 03:56 PM   #37
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So is this "program" going to solve the problem? I wonder, since none of the major players I have said it will. At best it might, but also may just prolong the agony.
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Old 09-26-2008, 04:12 PM   #38
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Sure, but I'm not entirely convinced that this "credit freeze" is going to impact businesses in that way to a large degree.

There are plenty of banks that are running business as usual. Main Street businesses may have to switch banks, but I don't think that they are going to be unable to get credit at all, as long as they have very solid credit and collateral.

If they don't, they probably shouldn't have been getting money in the first place.
I suppose that's the disagreement at this point. How badly might the credit freeze impact corporate america and could it snowball.

How bad will credit be to get. It might be very difficult to get, no matter how "solid" a company. How does one compel a lender to lend? Companies are already having problems. Credit is the engine oil of the US economy. I didn't say easy credit, just regular business-as-usual credit.

So only the companies that have a lot of cash on their balance sheet right now should survive? Boy - that sure will cause companies to pull back and rein in quickly! Layoffs, canceling plans, new orders, etc. It's so easy to see how this stuff could snowball, taking down the "good" guys along with the bad apples.

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Old 09-26-2008, 04:45 PM   #39
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Hey, I'm just trying to exchange ideas.

You're right that the good banks can't endlessly expand their balance sheets without access to capital, but they seem to have that access.

JPMorgan looks like it will get $10 billion no problem. Goldman Sachs just got $10 billion (5 from Buffet, 5 from elsewhere), and will probably get 5 billion more from Buffett's warrants.

I'm pretty sure Wells Fargo and US Bank could get capital if they wanted it.

Two of my Reits just announce secondary offering (O and NNN). It seems like there is access to capital for companies that don't look too risky to the market.

I think there are things that the government can do to help--

1. Remove the 100k limit on FDIC insurance so that small business don't have to start worrying about their payrolls
2. Remove the new mark-to-market rules so that banks can treat these loans as held-to-maturity
3. Re-instate the uptick rule on short-selling overall, rather than this silly ban on financials

If they do try this Paulson plan, I hope it works as Buffett described it. He envisioned the government buying these assets cheap enough to make money.

I'm just having a hard time thinking of this as the 2nd Great Depression when the actual effects so far have been just a very, very mild recession.


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That isn't the problem. Sure, there are some banks still plodding along as they always have. But those banks have to comply with regulatory capital ratio requirements so they cannot endlessly expand their balance sheets to accomodate all the demand that is out there for credit. Where is all this demand coming from? Partially from the banks that are hurting and frantically trying to shrink their balance sheets. But a lot of this demand is from the sudden withdrawal of capital market funded lenders that generaly are/were not banks ("shadow banking system"). Like it or not, the shadow banking system provided a huge amount of credit and now it is gone. The remaining healthy banks cannot replace all that supply on their own, at least not without large capital infusions. The capital infusions would be OK, except nobody wants to give banks capital any more, especially smaller institutions that might give a rat's patoot about Main Street businesses.

But I think you have already made up your mind, so this is probably a waste of my time.
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Old 09-26-2008, 04:46 PM   #40
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So is this "program" going to solve the problem? I wonder, since none of the major players I have said it will. At best it might, but also may just prolong the agony.
Nope. It doesnt fix the economy, it doesnt boost earnings, it doesnt do much for inflation, etc, etc, etc.

Its a fix for a very bad symptom. Maybe.

Goes back to what I said a few days ago about having a set of goals, a strategy and then tactics to bring that strategy to meet the goal.

We're just flailing away with tactics and hoping for the best.

And a bunch of people are going to walk away from mismanagement and deliberate wrongdoing with 7 and 8 figures.
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