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GK

The basic concept of this bailout is to take swap bad debt (backed by sub-prime homeowner) owned by the bank for 'good' debt (backed by taxpayer) issued by the US Treasury.

As the global corporations strip away jobs, food quality, education from US citizens the global banks fill the gap by enslaving them by issuing them more debt.

As they get to crippling levels of debt it starts to go bad and banks fairly quickly start to FAIL due to Fractions Reserve Counterfeiting, uh, I meant Lending.

If you were a criminal global banker, wouldn't you want to swap that crap for some US treasury paper?

http://dandelionsalad.wordpress.com/2008/09/29/finally-someone-said-%E2%80%9Cno%E2%80%9D-by-richard-c-cook/

"“Demand” means, quite simply, “purchasing power.” The trouble is that a modern industrial economy does not produce enough purchasing power through wages, salaries, and dividends to buy what is produced at prices that must be charged to keep the system running. There is a gap, which was Keynes’ main point. The gap exists because of savings, or “retained earnings,” needed for reinvestment to keep the system operating and innovating. Without this savings, the system runs down due to entropy, or the law of diminishing returns.

Few of the writers commenting on the current economic situation—including most professional economists I’ve read on the subject—understand this basic point of Keynes’ thesis. That’s why none of their solutions ever work."
===
Still, the gap has been filled, except it has been filled by debt, by consumer borrowing, and by the hundreds of different kinds of exotic debt instruments dreamed up by Wall Street firms since Reagan took office in the 1980s. This debt pyramid is what is crashing today.

GK

The basic concept of this bailout is to take swap bad debt (backed by sub-prime homeowner) owned by the bank for 'good' debt (backed by taxpayer) issued by the US Treasury.

As the global corporations strip away jobs, food quality, education from US citizens the global banks fill the gap by enslaving them by issuing them more debt.

As they get to crippling levels of debt it starts to go bad and banks fairly quickly start to FAIL due to Fractions Reserve Counterfeiting, uh, I meant Lending.

If you were a criminal global banker, wouldn't you want to swap that crap for some US treasury paper?

http://dandelionsalad.wordpress.com/2008/09/29/finally-someone-said-%E2%80%9Cno%E2%80%9D-by-richard-c-cook/

"“Demand” means, quite simply, “purchasing power.” The trouble is that a modern industrial economy does not produce enough purchasing power through wages, salaries, and dividends to buy what is produced at prices that must be charged to keep the system running. There is a gap, which was Keynes’ main point. The gap exists because of savings, or “retained earnings,” needed for reinvestment to keep the system operating and innovating. Without this savings, the system runs down due to entropy, or the law of diminishing returns.

Few of the writers commenting on the current economic situation—including most professional economists I’ve read on the subject—understand this basic point of Keynes’ thesis. That’s why none of their solutions ever work."
===
Still, the gap has been filled, except it has been filled by debt, by consumer borrowing, and by the hundreds of different kinds of exotic debt instruments dreamed up by Wall Street firms since Reagan took office in the 1980s. This debt pyramid is what is crashing today.

milo

az has a prop up for vote to make it law that appropriations must get a vote of 50 percent of the voting populations / or unvoters are counted as no votes if the yes vote would put its hands in the publics pocket.. i reemember special interests holding ballots every other week in new york until they won after the public stopped coming and voting.... does not tho do anything for unfunded mandates forced on public and taken as land taxes by the public...............

rockpaperscizzors

Engraved on Andrew Jackson's tombstone:
"I KILLED THE BANK"

The Bank of the United States (1816-36), an early attempt at an American central bank,
was abolished by President Andrew Jackson, who believed that it threatened the nation.

He wrote:

"The bold effort the present bank had made to control the government, the distress it
had wantonly produced...are but premonitions of the fate that awaits the American people
should they be deluded into a perpetuation of this institution or the establishment of
another like it."

Hemlock

This is our "shock therapy":

http://www.democracynow.org/2007/9/17/the_shock_doctrine_naomi_klein_on

http://www.naomiklein.org/shock-doctrine

JT

Blunt,
"Tar and feathers" was courtesy of Morris-Goscinny and Lucky Luke comics.
http://en.wikipedia.org/wiki/Lucky_Luke
Hehee... my favorite as a kid.
Just read that that was a Belgian comic and never popular over there, so my bad.
So I guess my facetiousnesness effort was a total failure. Cultural differences I guess.

Taxing gas would mean lot of tax revenue, turn US in the right direction and make renewables more appealing?
All the best and peace to everyone.

Paul S

Accountability is the $64000 question. This is why proponents of the Bush bank bailout are saying,"Let's solve the crisis first and THEN fix blame". What a load of hooey. These guys won't even budge very much on limiting CEO compensation! Are we to believe any "investigation" will be little more than a coverup? Congress is in this mess too deep and they won't police themselves let alone the folks who are bribing them. Any 'investigation" will just be a shakedown of the Wall Streeters for more money to their favorite Congressman. I guess there is no honor among thieves. HAHA.

Bear of Little Brain

I'm puzzled. A quick look at my charts shows that the market has probably recovered half of the one trillion loss that Bush tried to frighten everyone with yesterday. Surely, if everything was so dire, today - September 30 - should have been catastrophic. But the sky has not fallen. How come?
Okay, tomorrow's another day, but we've also moved into another month, quarter, and financial year.
Has the bluff been called?
All this talk about LIBOR around 7% and how everything has seized up, but surely this just means that no-one wants to borrow at that rate. But what if real inflation is about 7%. Does this mean that no-one wants to borrow because they're not prepared to pay a FAIR rate?
I hear that companies will not be able to pay wages and settle bills, but isn't this just because no-one wants to borrow at a rate which reflects a fair return to savers, i.e. above inflation?
I'm obviously out of my depth here. Can someone explain?
Is the credit crunch just a cheap money crunch?

Elaine Meinel Supkis

HAHAHA. I was out working today.

Heard on the radio the bacchanalian orgy of the gnomes and the female Wall Street TV announcers. Lots of squealing and happy shrieks as they rioted for fun.

SOME EMERGENCY! Will make cartoons about all this dirty doings. First, have to have a beer.

Buffalo Ken

So today I've seen these headlines (one of em was from Henry Blodgett i think) saying "This will happen..." and politicians exclaiming "this must be done....".

Do the journalists think they can tell the future? (or are they nothing but a mouthpiece of some things that want something to happen).

Do the politicians think they are dictators?(or have they forgotten whom they represent).

How can someone objectively say: This WILL happen if it hasn't? That's called "projection" and is not good journalism. How can a politician tell others what they MUST do. Who do they think they are?

Peace,
Ken

RobG

here is the 0/0/0 limit being written into the bailout bill (DailyKos):

SEC. 203. EFFECTIVE DATE.

The amendments made by this title shall take effect October 1, 2011.

The amendment:

SEC. 202. INCREASED FLEXIBILITY FOR THE FEDERAL RESERVE BOARD TO ESTABLISH RESERVE REQUIREMENTS.

Section 19(b)(2)(A) of the Federal Reserve Act (12 U.S.C. 461(b)(2)(A)) is amended--
(1) in clause (i), by striking `the ratio of 3 per centum' and inserting `a ratio of not greater than 3 percent (and which may be zero)'; and
(2) in clause (ii), by striking `and not less than 8 per centum,' and inserting `(and which may be zero),'.

GK

http://www.fame.org/NotableQuotes.asp

"All the perplexities, confusions and distresses in America arise not from defects in the constitution or confederation, not from want of honor or virtue, as much as from downright ignorance of the nature of coin, credit and circulation." -President John Adams

"If ever again our nation stumbles upon unfunded paper, it shall surely be like death to our body politic. This country will crash." -President George Washington

"The Federal Reserve Board, and the Federal Reserve Banks are private Corporations." -Congressional Record JUNE 10, 1932, p. 12595

"Emitting bills of credit, or the creation of money by private corporations, is what is expressly forbidden by Article 1, Section 10 of the U.S. Constitution." U.S. Supreme Court, Craig v. Missouri, 4 Peters 410.

"Madison, agreeing with the journal of the convention, records that the grant of power to emit bills of credit was refused by a majority of more than four to one. The evidence is perfect; no power to emit paper money was granted to the legislature of the United States." -George Bancroft

"The system of banking we have both equally and ever reprobated. I contemplate it as a blot left in all our constitutions, which, if not covered, will end in their destruction, ... I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." -Thomas Jefferson

What is going to destroy our country is ignorance. The vast majority of our citizens really do not care about anything other than their daily routines. They don't take time to think about important issues, so they become enslaved to them. If you read all the quotations of our founding fathers that you can, you will see the big falling away from the prosperous Republic our nation began as.

Flying Dutchman

Excellent post rockpaperskizzers!!!!!!!!!

I think the next bill will pass the house and get killed in the senate. We need more time!

Another Jackson quote

"One man with courage make a majority!"


when asked if he had any regrets from his presidency, he replied "not having shot john calhoun or have hung henry clay!"

one more when Van Buren came back from a trip and saw Jackson on a couch visibly ill he asked the president what was wrong, to which he replied "the bank is trying to kill me! But I shall kill it!

Bear of Little Brain

Reminded by an article at WRH that tomorrow is supposedly the day when US banks are required to be in compliance with Basel II accords, after which other, compliant, banks are forbidden from dealing with them.

http://tinyurl.com/3fnh4r

In trying to verify this, the only useful info I could find was this, a speech by Krozner in May this year.
http://tinyurl.com/4xvtbe

Here's one quote:

"The large, internationally active banks subject to the final rule on a mandatory basis--the core banks--have until October 1st of this year to adopt an implementation plan and have it approved by their board of directors. This deadline for submission of plans by core banks is intended to ensure that the board of directors will provide the necessary resources and oversight and prevent delays in implementation efforts."

Here's another:
"The Basel Committee's enhancements, which it outlined in an April 16 press release,2 are intended to improve Basel II's ability to make the banking system more resilient to financial shocks. For one, the Committee will revise the framework to establish higher capital requirements for certain complex structured credit products, such as so-called "resecuritizations" or collateralized debt obligations (CDOs) of asset-backed securities, which have been the source of many losses during the recent market disturbances. There are also plans to strengthen the capital treatment of liquidity facilities extended by banks to support off-balance sheet vehicles such as asset-backed commercial paper conduits. "

and
"Going forward, the Committee will monitor Basel II minimum requirements and capital buffers to evaluate their appropriateness. It will also assess banks' internal capital management processes and associated risk management practices. This oversight will be particularly important given some of the breakdowns in risk management at institutions over the past year and the associated pressures on capital ratios. The Committee is also working to promote better disclosures by banking organizations under Pillar 3."

IS THIS THE CAUSE FOR THE PANIC?? I repeat a section of the second quote:
"For one, the Committee will revise the framework to establish higher capital requirements for certain complex structured credit products, such as so-called "resecuritizations" or collateralized debt obligations (CDOs) of asset-backed securities, which have been the source of many losses during the recent market disturbances."

Carli

whine & cheese, you hit on the crisis that not many are picking up! Good eye.
Libor Rises Most on Record After U.S. Congress Rejects Bailout
http://tinyurl.com/3qxofl

"The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 431 basis points to an all-time high of 6.88 percent today," the British Bankers' Association said.

"This is unheard of, the money markets should be the engine driving the financial system but they have broken down,'' said Kornelius Purps, a fixed-income strategist in Munich for UniCredit Markets and Investment Banking, a unit of Italy's largest lender. ``Any institution that hasn't completed its 2008 funding needs by now is going to be in very serious trouble. More banks are going to need to be bailed out."

Payroll is a very basic instrument, and if companies have to pay these rates all hell will break loose. The leaks are springing faster than they can plug them, and they are running out of fingers fast.

Bear of Little Brain

Should have said that the Basel II implementation is a multi-year process, so the first link is probably rumour/hysteria. Nevertheless, the October 1 deadline is interesting, although I could find no details of the oversight details/timetables or implications of failing to meet the October 1 deadline. Needs more research, but its getting late here. Goodnight, everyone.

CK

So I watched some football last night. Did you know that professional football players cheat? They play dirty when the refs aren't looking? They work the refs on close calls? Did you know that when there are rules there are loopholes? Did you know that words on paper are subject to interpretation when the action is close and the home team is close to losing? Did you know that rules don't mean shit if the ref is in the bag?

Elaine Meinel Supkis

Every month, I write a Basel II story. And thanks for reminding me of the Witching Hour. This whole exercise this month has been to spook the gnomes in Switzerland. Switzerland is the home base of all good gnomes. They are hard to spook.

It will fail.


Carli

http://tinyurl.com/42cgf8
http://tinyurl.com/4p6zkg

"Stock markets are the side show," said one trader in New York. "The centre ring is what is happening in the credit markets." Banks borrowing dollars overnight were faced with a Libor rate of 6.88pc, up from 2.57pc yesterday.

"The money markets have completely broken down, with no trading taking place at all," said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. "There is no market any more. Central banks are the only providers of cash to the market, no-one else is lending."

So even if they pass the bill and let loose $700 Billion, that cash will immediately be sopped up by cash strapped banks. Which defeats the exercise entirely, except for the clueless market players who will as usual attempt to rally the markets, and in the process get burned further. The crescendo of the musical chairs game is climbing rapidly...

RobG

Wow, yes I vote this as the best metaphor of 2008 (of course Elaine linked to Monty Python earlier and the those pesky pirates). Nevertheless, the 'cut-throat' nature is happening now.

Ha, ha, Ken. Good one.

You just described, in a roundabout sort of way, Wall Street and it playerz! Elaine would be proud.

"Pirates do not like to be trapped and when they are they have nothing to do but be pirates with each other. I expect there will be many more dead pirates in the coming days."


What is happening in the news? JP Morgan sucking up bank after bank. The Treasury tossing them ship after ship with sail ragged from cannon shot. FDIC taking no prisoner - toss them to sharks! walk the plank! Har! makes a good pirate laugh. But wait ... suddenly the winds calm ... all the pirates look around ... nothing but us pirates left. Arrgh, time to cower and stop the pirating and hide in our cove (yes, Elaine had it first). So banks have stopped lending. And they all look around, who will be next when the short (now Puts) attack with a bording party!!

Simon

When everyone is trying to pick a bottom, that just means market hasn't bottomed yet.
It will only truly rebound when even the bottom pickers have exhausted their capital.
This is mysterious, and may tie into the 'magical' nature people in this blog have talked about.
Yes, the Derivative Beast Doll! will buy one after it comes out, probably next to the HIV plush and the Cthulhu doll ;)

rockpaperscizzors

"The [privately-owned] Central Bank is an institution of the most deadly hostility existing against the principles and form of our Constitution..." T. Jefferson

"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth
of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world--no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small amount of dominant men." Woodrow Wilson

rockpaperscizzors

Today or tomorrow, the National debt may have hit/exceed $$$10 trillion. Hat tip to Calculated Risk
http://www.treasurydirect.gov/NP/BPDLogin?application=np

RobG

Huh, well this is a new one:

Specialists' Moves Monday May Have Staved Off Bigger Market Fall

Proponents of open-outcry trading say that specialist market makers on the New York Stock Exchange, faced with a flood of selling orders late Monday, took the buy side or aggressively solicited for buyers on several large financial companies that were selling off. By assuming the role of buyers or soliciting them, these specialists may have helped limit losses at the bell.

-- snip --
As for who bought from specialists, representatives for two floor brokers say specialists disseminated information out to "anyone in the stock market community" that they would take these buy orders in an extended session.

Among the names that changed hands in the crossing session were some of the large banks, including JPMorgan Chase & Co. (JPM), Bank of New York Mellon Corp. (BK), and Morgan Stanley (MS).

"The specialists performed an important function by soliciting contra-side buy interest and that helped cushion some of the downward move. It's happened on a stock by stock basis over the years, but I haven't really seen that happen on as broad a basis before," said McSherry.

Simon

free market at work! evil short sellers are defeated! oops they were banned so I guess they were genuine sellers, figures!
Morgans and GS: We own this joint!

Simon

http://marketrant.blogspot.com/2008/09/ozrant-click-your-heels-dorothy.html
some rants regarding short selling....

carli

Elaine said: "Heard on the radio the bacchanalian orgy of the gnomes and the female Wall Street TV announcers. Lots of squealing and happy shrieks as they rioted for fun."

http://tinyurl.com/5tsljr
http://tinyurl.com/6e2mrf

Everyone should listen to how George Parr defines and describe the subprime and investment banking business in the links above. I think Dubya plagiarized the excuse on the Financial Adviser parody when he was interviewed yesterday. Ironic how reality imitates comedy. Enjoy everyone!

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