What is wrong with the US economy? Part 2

[Jimmy Snyder]

No the government is using debt to buy-up companies at rock bottom prices when they are forced to sell - it's pure 80s corporate raider. Gordon Gecko for president?

When Gordon Geckos (that is real ones, not fictional ones) raid, that's capitalism. When the gov't does it, it's socialism.

 

[Astronuc]

When Gordon Geckos (that is real ones, not fictional ones) raid, that's capitalism. When the gov't does it, it's socialism.

What's the diff? They both use other peoples' money.

Anyway - more signs of how wonderful the economy is doing:

Thirty-one states are experiencing a dive in revenue and may be asking for help.

http://finance.yahoo.com/loans/article/105909/States-That-Can%27t-Pay-for-Themselves

The ten most distressed states. Budget gaps given in % of total budget.
California
Budget gap: 22%
Gap: $22.2 billion

New York
Budget gap: 9.8%
Gap: $5.5 billion

Florida
Budget gap: 19.9%
Gap: $5.1 billion

New Jersey
Budget gap (as a % of the total budget): 7.7%
Gap: $2.5 billion

Arizona (Hey, Johnny!)
Budget gap: 19.9%
Gap: $2 billion

Georgia
Budget gap (as a % of the total budget): 8.7%
Gap: $1.8 billion

Nevada (so the gambling doesn't help)
Budget gap: 16%
Gap: $1.2 billion

Maryland
Budget gap (as a % of the total budget): 7.2%
Gap: $1.1 billion

Alabama
Budget gap (as a % of the total budget):
9.5%
Gap: $784 million

Rhode Island
Budget gap: 13.1%
Gap: $430 million

And towns and school districts are having problems too!

 

[Jimmy Snyder]

What's the diff? They both use other peoples' money.

Look to the Soviet Union for the diff. People take care of the the things they own.

 

[turbo]

And towns and school districts are having problems too!

That's a problem that is falling on home-owners here. As prices of basics rise, jobs disappear, and wages fall (in real dollars), defaults on property taxes increase. In Maine, property taxes pay for the school districts (about 50% of all property taxes), municipal government services, and the town's portion of the cost of county government, including the sheriff's department and jail.

As property tax defaults increase, town revenues decrease, and the towns' tax rates have to be increased to keep up. Our tax bill this year took a substantial jump. Last winter was particularly brutal, and many towns had exhausted their road-maintenance budgets (salt, sand, overtime for plow-truck drivers and equipment operators) before winter was half-way through. As a result, many small towns are in trouble. Unlike the federal government, towns are not allowed to run deficits, so shortfalls = reduced services. Apart from a gravel road that was badly washed out in the spring and had to be rebuilt, there has been no improvement to our town's infrastructure this year, and precious little maintenance. Some day this will come back to bite us.

 

[mgb_phys]

The crisis is starting to have a real noticeable effect http://news.bbc.co.uk/2/hi/business/7660409.stm

 

[jal]

Thirty-one states are experiencing a dive in revenue and may be asking for help.

They are all bigger than Iceland.
Did those state overspend as much as Iceland?

 

[OmCheeto]

Anyway - more signs of how wonderful the economy is doing:

Thirty-one states are experiencing a dive in revenue and may be asking for help.

Oh and look at this, next month we get to vote on whether or not to bankrupt our state:

http://www.oregonlive.com/politics/oregonian/index.ssf?/base/news/1219200915204700.xml&coll=7"
A November ballot measure that would remove the $5,600 limit on federal income taxes that can be deducted on Oregon tax returns would cost the state budget $1.1 billion to $2.4 billion every two years, according to new estimates.

And who does it benefit? Rich People! (defined as people making more money than me.)
Looks like intrastate pork barrel to me.

No on 59!

------------------------------------
this has been an unpaid advertisement by the OmCheeto for president committee.
i aproved this message.

 

[Jimmy Snyder]

Here's the real skinny from the People's Democratic Republic of Northern South Jersey. My neighbors on both sides are moving out.

On one side is a successful lawyer. His wife is a horse riding enthusiast and they bought a house with facilities for keeping and riding horses. He has been trying to sell his house for about 6 months now. His asking price is way above the market so I guess he can afford to wait it out. He told me that he would sell it cheaper, but his wife won't have it. No panic here.

On the other side is a contractor. He does odd-job type house repair in the neighborhood. When he bought the house it was not exactly a fixer upper, but because of his skills, he treated it like one, fixing it up to be worth more than he paid for it. However, business has been too slow and he is going to foreclosure because he can't make the payments. It's a sad story. It is the only hard case I know of in a neighborhood of 100 or so homes. We live in the nicer part of town and I don't know what the figures are for the rest of the town.

My neighbor across the street was also a contractor and a successful one, but he retired years ago. He is putting a lot of money into his house just now, replacing windows, redoing the exterior and putting on a new roof. He is doing some of the work himself, but he is not in the best of health. I think some of the people helping him are former employees of his contracting business. Anyway, this upgrade offsets the loss a little bit.

That's it. The neighborhood is stable otherwise.

 

[Astronuc]

The crisis is starting to have a real noticeable effect http://news.bbc.co.uk/2/hi/business/7660409.stm

They just need to start denominating in 1000's or kilo-dollars. So then the debt would be reduced to less the $k 10 billion (kilo-dollars) instead of $ 10 trillion. See - it's real simple to manage the debt.

 

[mgb_phys]

They are all bigger than Iceland.
Did those state overspend as much as Iceland?

Worse, they did overspend!
Iceland didn't really overspend, it's just that a lot of global banks have offices in Iceland - it's a bit like deciding the Wall St bailout should be entirely paid for by Manhattan tax payers.

 

[Astronuc]

http://news.yahoo.com/nphotos/Zero-Dollar-Bill/ss/events/bs/100808zerodollargilb

Always look on the bright side of life - Monty Python, The Life of Brian

 

[Astronuc]

GM shares fall to lowest level since 1950
http://biz.yahoo.com/rb/081009/business_us_gm_shares.html
Thursday October 9, 11:53 am ET

DETROIT (Reuters) - General Motors Corp (NYSE:GM - News) shares fell as much as 21.6 percent to their lowest level since 1950 on Thursday amid financial market turmoil and the car maker's report of European sales declines through the first nine months of 2008.
. . . .
GM, whose shares fell as low as $5.42 on the New York Stock Exchange, blamed the credit crisis and inflation for hurting consumer confidence in Europe, where its sales have declined 1.9 percent in 2008 through September.

GM, the largest U.S.-based automaker, posted a $15.5 billion net loss in the second quarter and announced plans in July to cut costs by about $10 billion. The company has been restructuring in North America to meet increasing demand for more fuel-efficient vehicles.

An investment banker who declined to be identified attributed the share decline to elimination of short-selling restrictions on the shares that had put the equity value out of balance with bond and credit-default swaps values.
. . .
Ford shares fell 20 cents, or 7.5 percent, to $2.46 on Thursday. Ford stock had reached its lowest level in a quarter century on Wednesday, falling as low as $2.10.

The bailout bill has $25 billion in tax credits for the automakers, but if they are losing money, it's not clear to me how tax credits can help.

A local analyst is predicting a deeper, more severe depression than the Great Depression of hte 1930's, and he also predicts the breakup of the United States. His argument is that the US is too big to be managed by a central government. He plans on doing a presentation to the Vermont Secessionist movement soon.

IMO - those prediction are not necessarily going to happen, but the could if enough people chose to let that happen.

 

[jal]

As a side line ... problems with the compensation structures
comment/question.

Is there any law that prevents taking a commission? (Golden parrachutes)
Is there any law that would be broken by going to a spa? (Incentive programs)
What laws did the financial "big wigs" break? (huum They probably had an input into the making of those laws)
How can you send someone to jail or punish them for not breaking the law?
-----
As far as I know ... it isn't a crime to skim, (take a percentage on a transaction), and then to assume that the value of the item, (in transaction), has a greater value, after the transaction.
-------

 

[mheslep]

As a side line ... problems with the compensation structures
comment/question.

Is there any law that prevents taking a commission? (Golden parrachutes)
Is there any law that would be broken by going to a spa? (Incentive programs)

That last demonstrates the fundamental problem with broad attempts to cap executive pay - they can simply take compensation as fringe benefits. Indeed, that mechanism is how we entered into the current US employer based health care system. IMO, executive pay has to be controlled by the shareholders who can look can take time to look at the books and executive total compensation. Government should be involved only to demand the facts are transparent as possible.

 

[mgb_phys]

A director has a legal duty to 'enhance shareholder value' - in theory anything they do must have the intention of raising shareholder value or they face criminal penalties.
Of course they could always argue that them being well manicured means they can do their job better, which is good for the shareholders!

This has been tested in court - if for instance a product recall would cost more than the compensation paid to the families of victims of a lethal product. Then the company has a legal duty NOT to order a recall, unless they can claim that bad publicity would harm future sales.
The view taken by the courts is that poor widows and orphans have invested in this company, and by not being merciless capitalists you are defrauding them.

 

[Art]

As a side line ... problems with the compensation structures
comment/question.

Is there any law that prevents taking a commission? (Golden parrachutes)
Is there any law that would be broken by going to a spa? (Incentive programs)
What laws did the financial "big wigs" break? (huum They probably had an input into the making of those laws)
How can you send someone to jail or punish them for not breaking the law?
-----
As far as I know ... it isn't a crime to skim, (take a percentage on a transaction), and then to assume that the value of the item, (in transaction), has a greater value, after the transaction.
-------

It is against the law to misrepresent your accounts through off balance sheet transactions to make it look as if you are making a ton of money to justify huge bonuses when in reality you are in deep trouble. Enron executives went to prison for this and I expect some high flying financiers will be going there too.

 

[Astronuc]

At 3:05PM ET: The Dow 30 Industrials are: 8,979.50 -278.60 (-3.01%)

GM down, also the oil stocks are down on falling oil prices.

 

[jal]

That last demonstrates the fundamental problem with broad attempts to cap executive pay

There is a fundamental problem that is greater than this.
NOW, The present system, ... The markets must have a "correction" every few years because of the "compensations" and "inflated assume" values.

Take the example of when you buy a new car ... the "correction" is immediate ... it is worth less than what you paid for it if you try to resell it immediately. You cannot "assume" that it is worth the same or more for five years, and then take the "correction" when you try to resell it.
Therefore, how do you remove the "need" to have market corrections (Adjust for the fees that have been taken by the middle men)?
The present "problem' is just a "correction" that been deferred for too long and is hitting harder than the previous corrections.
Without changing the compensation structures the "corrections" will keep happening.
--------

 

[Astronuc]

At 3:30PM ET - Dow 30 Industrials: 8,864.01 -394.09 (-4.26%)

Dow is taking huge swings by the minute. Another bad day.

Only 3 components IBM, Intel and McDonald's positive - and just barely.

 

[Greg Bernhardt]

DOW now down over 500

 

[Ivan Seeking]

This really is an economic Pearl Harbor! Buffet was right.

 

[Ivan Seeking]

The only prediction for a floor that I have heard was about 8200

 

[Astronuc]

DOW now down over 500

A really bad day!

At 3:46PM ET: 8,655.01 -603.09 (-6.51%)

The only prediction for a floor that I have heard was about 8200

So what constitutes a crash?

There seems to be little confidence in the stock markets right now.


Last Friday at about 1:10 pm the Dow as at 10773. And in less than 5 days it's fallen more than 2000 points.

 

[lisab]

Has anyone looked at their 401(k) yet? Yesterday a bunch of us at my work all worked up the guts and looked at the same time...

I'm down 30%, year to date, as of yesterday. Ouch. I still have a long way before I retire, but still...seriously...ouch.

 

[mgb_phys]

I'm down 30%, year to date, as of yesterday. Ouch. I still have a long way before I retire, but still...seriously...ouch.

Typically it takes less than 18months to recover after a 'crash' - and think of all the contributions you are buying this month at rock-bottom prices!

 

[Astronuc]

U.S. stock indexes slammed as GM, financials hit
Dow Jones Industrial Average off 5,000 points, or 37%, from year-ago peak

One year to the day after climbing to its peak of 14,164.53, the Dow Jones Industrial Average was down 397.76 points at 8,860.34, pushing the blue-chip index under the 9,000 level to under 9,000 for the first time since August 2003.

The Dow's late-afternoon level has it down more than 5,000 points, or 37%, from its year-ago high.

It's seems to be pulling a last minute rally.

 

[Borek]

-507 now.

 

[Astronuc]

Has anyone looked at their 401(k) yet? Yesterday a bunch of us at my work all worked up the guts and looked at the same time...

I'm down 30%, year to date, as of yesterday. Ouch. I still have a long way before I retire, but still...seriously...ouch.

Not yet. I have two - one is a guaranteed income fund. The other a mix. My colleague is down about 50%.

 

[Ivan Seeking]

In 1929, the Dow dropped about 43% in thirty days.

One year ago we were at about 14,000. We are now at about 8700 - down about 37% over the last year.

 

[lisab]

Typically it takes less than 18months to recover after a 'crash' - and think of all the contributions you are buying this month at rock-bottom prices!

Yep, I know. I'm still contributing the max amount...a bit nervously, though...

 

[LowlyPion]

If this isn't the blow out bottom -678.91 down, if there's not panic in the street yet, the ride is going to get mighty bumpier.

 

[Astronuc]

At 4:07PM ET - Dow 30: 8,582.13 -675.97 (-7.30%) on Yahoo's site. Down 5582 (~39%) from a high a year ago.

All components ended up in the red.

 

[LowlyPion]

On a gloomier note Iceland has crashed completely.

British have frozen Icelandic assets.

 

[Gokul43201]

REYKJAVIK: People go bankrupt all the time. Companies do, too. But countries?

Iceland was on the verge of doing exactly that on Thursday as the government shut down the stock market and seized control of its last major independent bank. That brought trading in the country's currency to a halt, with foreign banks no longer willing to take Icelandic krona, even at fire-sale rates.

As the meltdown in the Icelandic financial system quickened, with the government seemingly powerless to do anything about it, analysts said there was probably only one realistic option left: for Iceland to be bailed out by the International Monetary Fund.

"Iceland is bankrupt," said Arsaell Valfells, a professor at the University of Iceland. "The Icelandic krona is history. The IMF has to come and rescue us."

http://www.iht.com/articles/2008/10/09/business/icebank.php

Back on the domestic front, let's see how Morgan Stanley comes out of this...

 

[Greg Bernhardt]

http://www.iht.com/articles/2008/10/09/business/icebank.php

Does this mean it's a good time to visit?