[Rhodes22-list] Economics/Politics - Significant Post about economic mess

Mon Sep 22 11:38:25 EDT 2008

Ben,

You are seriously out of touch with reality if you use "Krugman" and
"conservative" in the same sentence. Few on this list, or any other
gathering for that matter, are more fiscally conservative than me and
absolutely hate government meddling in markets, BUT, I've been on the
scene of a plane crash or two and know the difference between bravado
and death. There's a time for "brave talk" and a time for action. The
bottom line on all this is that we as taxpayers and income earners are
going to pay one way or the other.  Do you want to take the
chemo-therapy now or the drugs to 'ease your pain' later?  As I
alluded to a few days ago, let's not ignore the GPWS warning (you're
headed straight for a mountain dumbass) and figure out "who screwed
the pooch" later.

Brad

------------------

 ALMOST ARMAGEDDON

By MICHAEL GRAY

September 21, 2008 --

The market was 500 trades away from Armageddon on Thursday, traders
inside two large custodial banks tell The Post.

Had the Treasury and Fed not quickly stepped into the fray that
morning with a quick $105 billion injection of liquidity, the Dow
could have collapsed to the 8,300-level - a 22 percent decline! -
while the clang of the opening bell was still echoing around the
cavernous exchange floor.

According to traders, who spoke on the condition of anonymity, money
market funds were inundated with $500 billion in sell orders prior to
the opening. The total money-market capitalization was roughly $4
trillion that morning.

The panicked selling was directly linked to the seizing up of the
credit markets - including a $52 billion constriction in commercial
paper - and the rumors of additional money market funds "breaking the
buck," or dropping below $1 net asset value.

The Fed's dramatic $105 billion liquidity injection on Thursday
(pre-market) was just enough to keep key institutional accounts from
following through on the sell orders and starting a stampede of cash
that could have brought large tracts of the US economy to a halt.

While many depositors treat money market accounts as fancy savings
accounts, they are different. Banks buy a variety of short-term debt,
including commercial paper, with the assets. It is an important
distinction because banks use the $1.7 trillion commercial-paper
market to fund their credit card operations and car finance companies
use it to move autos.

Without commercial paper, "factories would have to shut down, people
would lose their jobs and there would be an effect on the real
economy," Paul Schott Stevens, of the Investment Company Institute,
told the Wall Street Journal.

Cracks started to show in money market accounts late Tuesday when
shares in one fund, the Reserve Primary Fund - which touted itself as
super safe - fell below the golden $1 a share level. It had purchased
what it thought was safe Lehman bonds, never dreaming they could
default - which they did 24 hours earlier when the 158-year-old
investment bank filed Chapter 11.

By Wednesday, banks sensed a run on their accounts. They started
stockpiling cash in anticipation of withdrawals.

Banks, which usually keep an average of $2 billion in excess reserves
earmarked for withdrawals, pumped that up to an astounding $90 billion
by Wednesday, Lou Crandall, chief economist at Wrighton ICAP, told The
Journal.

And for good reason. By the close of business on Wednesday, $144.5
billion - a record - had been withdrawn. How much money was taken out
of money market funds the prior week? Roughly $7.1 billion, according
to AMG Data Services.

By Thursday, that level, fed by the incredible volume of sell orders
pouring in from institutional investors like pension funds and
sovereign funds, had grown to $100 billion. It was still not enough to
stem the tidal wave.

The banks knew something drastic had to be done. So did Paulson.

The injection of capital into the market was followed up by calls from
Treasury Secretary Hank Paulson to major money market players like
Bank of New York Mellon and State Street in Boston informing them that
federal money was in the market and they should tell their clients the
Feds would be back with a plan to stem the constriction in the credit
market.

Paulson knew the $105 billion injection was not a real solution. A
broader, more radical answer was needed.

Hours after Paulson made his round of calls to calm the industry, word
leaked out that an added $1 trillion bailout of banks was being
readied. Investors cheered. At about 3 p.m., news of the plans was
filtering up and down Wall Street, fueling a 700-point advance in the
Dow Jones industrial average through 4 p.m. Friday.

By that time, Paulson had announced the plan. It included insurance on
money market accounts, a move that started in quiet Thursday morning,
when the former Goldman Sachs executive saved the country from a
paralyzing meltdown.

http://www.nypost.com/seven/09212008/business/almost_armageddon_130110.htm

On Mon, Sep 22, 2008 at 10:20 AM, Ben Cittadino <bcittadino at dcs-law.com> wrote:
>
> http://www.nytimes.com/2008/09/22/opinion/22krugman.html?hp
> http://www.nytimes.com/2008/09/22/opinion/22krugman.html?hp
>
> Friends, Romans, Countrymen:
>
> The above link is to today's Paul Krugman Column in the NYTimes.  It is a
> short, readable, and (in my view) very accurate picture of the current
> economic crisis and Treas Sec's plan to aleviate it.  If you think he's not
> conservative enough read William Kristol's column of the same date in the
> same paper. As far as I can tell he pretty much agrees with Krugman.
>
> Do you really think John "I'm always for less regulation" McCain and Sarah
> "I can see Russia from my porch" Palin are the right folks for the job?  At
> least Obama has a legion of top advisors whose advice he is willing to
> listen to.
>
> Cheers!
>
> Ben C. s/v Susan Kay, Highlands, NJ
>
> Andrew Collins-2 wrote:
>>
>> Guys
>>
>> Turn on 'Meet the Press'. The fix is not to 'allow financial institutions
>> to dump their toxic assets, clean up their books, and go back to "mark
>> to market" accounting with assets of determinable value', but to prevent
>> them from creating impenetrable uncollateralized investments in the first
>> place.
>>  This is called was all caused by too little regulation. In 2003 I said
>> "hedge funds will cause the end of the world as we know it", and I really
>> do
>> not understand the stock market.
>>
>> This morning we are all becoming super-socialist bail out participants, a
>> la
>> Social Democratic model adopted in Europe under the Marshall Plan. The
>> foreign press is alternately reveling in Schadenfreude that we
>> ultra-capitalists have to nationalize so many private and semi-private
>> companies, and blessing Paulson and Bernanke. And so am I.
>>
>> Andrew
>> sv Carmen
>>
>> On Sun, Sep 21, 2008 at 8:34 AM, Brad Haslett <flybrad at gmail.com> wrote:
>>
>>> Ed,
>>>
>>> It will take years to unravel this whole puzzle and no doubt a lot of
>>> money will be made writing books about it, but here's what we know for
>>> now.  The economy was about to grind to a stop like an engine running
>>> without oil, ie, financial institutions were about to stop lending
>>> money because no one trusted anyone.  The root cause was a lot of
>>> really nasty mortgages made with horrendous lending practices. Add in
>>> some new debt instruments that no one really understood (Mr. Buffet
>>> excepted) and the problems accelerated. The "fix", if you want to call
>>> it that, is for the federal government to allow financial institutions
>>> to dump their toxic assets, clean up their books, and go back to "mark
>>> to market" accounting with assets of determinable value.  What this
>>> will cost the government is unknown because the value of the assets to
>>> be dumped is unknown.  Just like the RFC during the Great Depression
>>> and the Resolution Trust in the late 80's, some of these assets do
>>> have value and the taxpayer will get some of their money back.  One of
>>> ideas being floated now is a reverse auction where institution bids
>>> down to a price that they are willing to sell the government the bad
>>> assets. This is truly new territory. Lehman Brothers had a chance to
>>> be acquired by Bank of Korea and CITIC bank of China months ago but
>>> thought they could get a better price.  Now they'll settle for pennies
>>> on the dollar.
>>>
>>> Ever heard of a NINJA loan?  Neither had I until a couple of years ago
>>> and it didn't make sense then and it sure as hell doesn't now.  NINJA
>>> - no income, no job or assets.  Who in their right mind would make
>>> such a loan?  No one, unless they thought they could palm the risk off
>>> on someone else.  Fanny and Freddie are the biggest culprits in this
>>> mess.  Now here's where it gets interesting. They and most banks
>>> operated using sound lending practices until the late 70's when the
>>> Community Reinvestment Act was passed by Carter. (I'm going to use a
>>> "cheap and easy" citation here instead of financial news articles to
>>> save time)
>>>
>>> http://en.wikipedia.org/wiki/Community_Reinvestment_Act
>>>
>>> Clinton strengthened the act in 1995 and shoved more bad lending
>>> practices down bankers throats. One of the "leaders" in subprime
>>> mortgages was Superior Bank in Chicago.
>>>
>>>
>>> http://query.nytimes.com/gst/fullpage.html?res=9C05E4D71E3CF934A3575BC0A9679C8B63&sec=&spon=&pagewanted=1
>>>
>>> Superior went belly-up in 2001.  Who ran Superior?  Penny Pritzker, B
>>> Hussein Obama's finance 2008 finance chairman, financial sponsor, and
>>> also chairman of the successor to the Chicago Annenberg Challenge. The
>>> point is, the demo model for subprimes was Superior and it failed.
>>> Pritzker was to the sub prime mortgage what Michal Malkin was to junk
>>> bonds.
>>>
>>> In 2003 the Bush administration tried to reform Freddie and Fannie and
>>> was shot down, led by Barny Frank.
>>>
>>>
>>> http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63
>>>
>>> Some Senators saw the handwriting on the wall in 2005 and again tried
>>> to reform Fan & Fred.
>>>
>>>
>>> http://www.govtrack.us/congress/record.xpd?id=109-s20060525-16&bill=s109-190#sMonofilemx003Ammx002Fmmx002Fmmx002Fmhomemx002Fmgovtrackmx002Fmdatamx002Fmusmx002Fm109mx002Fmcrmx002Fms20060525-16.xmlElementm0m0m0m
>>>
>>> By 2007, the problems were too big too ignore because so many
>>> homeowners were defaulting.  The financial markets stayed intact
>>> because these "toxic mortgages" were hidden behind some really clever
>>> debt instruments.  Then everyone got scared.
>>>
>>> I'll post more as information trickles in.  Both political parties
>>> have their fingerprints all over this mess and Wall Street threw some
>>> good old fashioned GREED into mix for the final meltdown.  Follow the
>>> money-
>>>
>>> http://www.opensecrets.org/industries/mems.php
>>>
>>> What interesting times we live in!
>>>
>>> Brad
>>>
>>>
>>>
>>> On Sun, Sep 21, 2008 at 6:16 AM, Tootle <ekroposki at charter.net> wrote:
>>> >
>>> > Brad,
>>> >
>>> > You are the accountant on this forum.  If there are others, they do not
>>> have
>>> > courage so speak up.
>>> >
>>> > This is also an ethical question, a legal ethical question.  And
>>> lawyers
>>> > should be speaking up.  But alas, they claim Marxism is good.  Or they
>>> say
>>> > their practice is limited to real estate transactions or business
>>> matters.
>>> > What the hell caused this mess?
>>> >
>>> > In South Carolina when the state legislature is not in session, lawyer
>>> > represenatives represent clients before judges they elect.  Right and
>>> Wrong,
>>> > good and evil, when working in a gray areas, it is important that
>>> actions
>>> > withstand the scrutiny of sunlight.
>>> >
>>> > Brad said, "Here's something you don't hear much about - I've read
>>> exactly
>>> > two articles that discussed "mark to market" including one from Steve
>>> > Forbes.  He didn't name it but he's referring to FASB 157 (Financial
>>> > Accounting Standards Board) which went into effect November 15, 2008
>>> that
>>> > requires all assets including level 3 assets which include
>>> collateralized
>>> > debt obligations (what Warren Buffet described as "weapons of mass
>>> financial
>>> > destruction" in 2002) to be shown on the books at market value.  There
>>> lies
>>> > the problem, no one knows what these obligations are "worth" and when
>>> faith
>>> > in these instruments failed, the system started grinding to a halt.
>>> >
>>> > If the people had been honest and ethical from the get go they would
>>> have
>>> > held the actions and the paper they were written on to sunlight and a
>>> simple
>>> > test of right and wrong.  These events remind me of the lady who
>>> spilled
>>> the
>>> > beans in the Enron situation.  And the media said Enron was big?
>>> >
>>> > As you find time tell us where to find Steve's article and Warrens
>>> > admonition.  And post any relevant sources.
>>> >
>>> > Yes, Marxism is at issue because of the Federal requirement of banks to
>>> loan
>>> > in questionable situations instead of holding federally backed loans to
>>> a
>>> > high standard.  The government compelled bankers to disregard risks.
>>> > Dictatorship, Marxism, Socialism, Progressivism, call it what you want,
>>> it
>>> > is wrong and leads to garbage.
>>> >
>>> > Ed K
>>> > Greenville, SC, USA
>>> > attachment:
>>> > http://www.nabble.com/file/p19593492/401k.jpg 401k.jpg
>>> >
>>> >
>>> > Ed,
>>> > The subject line should probably be edited to include 'Politics' since
>>> > that is always an aspect of economics, but let's stick primarily to
>>> > economics for now.
>>> >
>>> > First, a quick personal note.  My union called me this week - the wife
>>> > of one of our members is dying from cancer and he has burned through
>>> > his sick leave to be by her side.  They asked me to cover one of his
>>> > trips last night, which I did.  I contacted my superior in the
>>> > training department and asked that he get the word out to fellow
>>> > instructors to consider flying "back-side-of-the-clock" trips for
>>> > landing currency instead of the usual afternoon "gentlemen" trips, and
>>> > they have stepped-up to the plate.  This is a great country, and I am
>>> > fortunate to work for a wonderful company and with a very professional
>>> > union.
>>> >
>>> > Now about this little "financial problem" we face, it is bad. Just as
>>> > in every major airline crash that leaves a smoking hole in the ground,
>>> > the press immediately jumps to conclusions, focuses on the horror, and
>>> > is usually wrong in their analysis. What we are witnessing here is not
>>> > a crash (despite the MSM comparisons to 1929) but more like a GPWS
>>> > (ground proximity warning system) encounter - if immediate action
>>> > isn't taken, disaster will be the result. Like every aircraft
>>> > accident, the usual suspects start their spin, "It was the pilots
>>> > fault", "It was Boeings fault", "It was the company's fault", "It was
>>> > the weather".  The reality takes years to discover and the root causes
>>> > are often something completely different than the original pundits
>>> > analysis. And most importantly, there is usually plenty of blame and
>>> > responsibility to go around.
>>> >
>>> > Here's the quick and dirty on what we know.  The financial markets
>>> > were about to shut down because the trust and faith in the underlying
>>> > assets that props-up the entire system were suspect.
>>> >
>>> > I'll go into a more thorough analysis tomorrow after a good nights
>>> > sleep.  Here's something you don't hear much about - I've read exactly
>>> > two articles that discussed "mark to market" including one from Steve
>>> > Forbes.  He didn't name it but he's referring to FASB 157 (Financial
>>> > Accounting Standards Board) which went into effect November 15, 2008
>>> > that requires all assets including level 3 assets which include
>>> > collateralized debt obligations (what Warren Buffet described as
>>> > "weapons of mass financial destruction" in 2002) to be shown on the
>>> > books at market value.  There lies the problem, no one knows what
>>> > these obligations are "worth" and when faith in these instruments
>>> > failed, the system started grinding to a halt.
>>> >
>>> > I'm not very happy about the federal government nationalizing roughly
>>> > 7% of the economy but let's hope this only a temporary jolt of
>>> > medicine and the government will divest themselves of their new
>>> > "ownership" position as quickly as they acquired it.
>>> >
>>> > We'll discuss the culprits tomorrow.
>>> >
>>> > Brad
>>> >
>>> > On Fri, Sep 19, 2008 at 6:26 PM, Tootle <ekroposki at charter.net> wrote:
>>> >>
>>> >> Brad just posted a significant post to the list, but its significance
>>> gets
>>> >> lost in subject line.  All shoud read his last post:
>>> >>
>>> >>
>>> http://www.rhodes22.org/pipermail/rhodes22-list/2008-September/054616.html
>>> >>
>>> >> I am referring to the briefing to Congress.
>>> >>
>>> >> Ed K
>>> >> Greenville, SC, USA
>>> >> --
>>> >> View this message in context:
>>> >>
>>> http://www.nabble.com/Significant-Post-to-List-with-wrong-subject-line%21%21%21-tp19580917p19580917.html
>>> >
>>> > http://www.nabble.com/file/p19593492/401k.jpg 401k.jpg
>>> > --
>>> > View this message in context:
>>> http://www.nabble.com/Economics---Significant-Post-to-List-with-wrong-subject-line%21%21%21-tp19590875p19593492.html
>>> > Sent from the Rhodes 22 mailing list archive at Nabble.com.
>>> >
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>
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