What is wrong with the US economy? Part 2

[Astronuc]

Especially note in that article a major reason why Ireland boomed for so long:
And the US top corporate rate is 35% (with 3-5% surtaxes on top of that in some cases), one of the highest in the world. Astronuc - up thread somewhere you exclaimed about numerous US firms moving off shore. Here is one major reason why. Senator Obama correctly noted in the last debate that the US corporate law is full of loop holes, though I'd say loop holes are an irresistible temptation for lawmakers when the rate is high. Senator McCain has proposed lowering this rate to 25%, Sen. Obama will close the loop holes, raise taxes further on some firms (oil/gas), cut taxes for alt energy firms.
http://www.usatoday.com/money/perfi/taxes/2008-03-20-corporate-tax-offshoring_N.htm
http://www.taxpolicycenter.org/UploadedPDF/411693_CandidateTaxPlans.pdf

Actually, about 2/3's of corporations in the US do not pay taxes! If the government cuts taxes (along the lines of McCain's proposal) then they better cut all budgets across the board - by 20%.

Here are two interesting perspectives from Paul Krugman - who has been vindicated by the recent collapse in the US economy.

http://www.charlierose.com/shows/2003/09/15/2/a-conversation-with-paul-krugman-of-the-new-york-times
http://www.charlierose.com/shows/2007/12/26/1/a-conversation-with-paul-krugman

Krugman warned that the US economy was headed for a cliff - and that just happened.

Also - Private sector loans, not Fannie or Freddie, triggered crisis
By David Goldstein and Kevin G. Hall | McClatchy Newspapers
http://www.mcclatchydc.com/homepage/story/53802.html

WASHINGTON — As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.

Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.

Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.

Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height vrom 2004 to 2006.

Federal Reserve Board data show that:

_ More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

_ Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

_ Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law [CRA] that's being lambasted by conservative critics.

The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007," the President's Working Group on Financial Markets reported Friday.

Most Companies in US Avoid Federal Income Taxes
http://abcnews.go.com/Business/wireStory?id=5561455

Two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005, according to a new report from Congress.

The study by the Government Accountability Office, expected to be released Tuesday, said about 68 percent of foreign companies doing business in the U.S. avoided corporate taxes over the same period.

Collectively, the companies reported trillions of dollars in sales, according to GAO's estimate.

"It's shameful that so many corporations make big profits and pay nothing to support our country," said Sen. Byron Dorgan, D-N.D., who asked for the GAO study with Sen. Carl Levin, D-Mich.

An outside tax expert, Chris Edwards of the libertarian Cato Institute in Washington, said increasing numbers of limited liability corporations and so-called "S" corporations pay taxes under individual tax codes.
. . . .
More than 38,000 foreign corporations had no tax liability in 2005 and 1.2 million U.S. companies paid no income tax, the GAO said. Combined, the companies had $2.5 trillion in sales. About 25 percent of the U.S. corporations not paying corporate taxes were considered large corporations, meaning they had at least $250 million in assets or $50 million in receipts.
. . . .

And now the Irish economy has tanked.

It seems cutting taxes has not brought about the prosperity forecasted by Bush and the conservatives at Heritage Foundation or American Enterprise Institute. I don't think that was the intent. Reducing taxes and then borrowing the money to support social programs has undermined those programs and the US economy - and that appears to be very deliberate!

Most likely the money coming from the Caribbean Islands to finance US markets and government is money from US citizens who moved their millions or billions offshore in the 80's and 90's. Back in the late-90's. there was an article about one moderate-sized financial company that had improperly/illegally transferred $3.5 billion offshore. (I need to find that article) That was likely the tip of the iceberg - because there are lots of private investment/financial boutiques that have apparently quietly moved money out of the US (so no taxes paid) and then the money is loaned back to the US markets and Treasury. Pretty neat way to undermine an economy - and pretty intentional. I never understood why there was no investigation on the part of the state or federal AG. That's one more symptom that needs to be investigated in the new administration.

Taxes do have to be raised, debt reduced, and government expenditures reduced - or the system will collapse entirely. Loopholes need to be closed.

 

[CaptainQuasar]

And now the Irish economy has tanked.

Forgive me for wanting to tell a joke about the rising price of gold and leprechauns.

⚛​

 

[mheslep]

...Also - Private sector loans, not Fannie or Freddie, triggered crisis
By David Goldstein and Kevin G. Hall | McClatchy Newspapers
http://www.mcclatchydc.com/homepage/story/53802.html

The authors from the McClatchy 'Truth to Power'(their logo) Newspapers are largely mistaken. From that article:

"I don't remember a clarion call that said Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster," said Neil Cavuto of Fox News.

Neil and the McClatchy authors should get out more. As I've posted before:

Greenspan noted, "We have found no reasonable basis for that [GSE]portfolio above very minimum needs." He then proposed "a $100 billion, $200 billion--whatever the number might turn out to be--limit on the size of the aggregate portfolios of those institutions--and the reason I say that is there are certain purposes which I can see in the holding of mortgages which might be helpful in a number of different areas. But $900 billion for Fannie and somewhat less, obviously, for Freddie, I don't see the purpose of it."

Greenspan then articulated his reasons for limiting the GSEs' portfolios: "If [Fannie and Freddie] continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road." He added, "Enabling these institutions to increase in size--and they will, once the crisis, in their judgment, passes--we are placing the total financial system of the future at a substantial risk."

"A second element of the controversy surrounding the GSE portfolios arises from the fact that they are not only large but also potentially subject to significant volatility and financial risk (including credit risk, interest-rate risk, and prepayment risk) and operational risk. Many observers, including the Federal Reserve Board, have expressed concern about the potential danger that these portfolios may pose to the broader financial system; that is, the GSE portfolios may be a source of systemic risk (Greenspan, 2005a). Systemic risk is the risk that disruptions occurring in one firm or financial market may spread to other parts of the financial system, with possibly serious implications for the performance of the broader economy."

and this one is simply false; I've posted the contrary facts before:

...And at the height of the housing boom in 2005 and 2006, Republicans and their party's standard bearer, President Bush, didn't criticize any sort of lending...

And now the Irish economy has tanked.

Relevance? They also drink a lot of Guinness and grew a lot of potatoes.

It seems cutting taxes has not brought about the prosperity forecasted by Bush and the conservatives at Heritage Foundation or American Enterprise Institute

or http://en.wikipedia.org/wiki/Revenue_Act_of_1964" , or ...

 

[russ_watters]

US Trade Deficits
Year $Billion
2003 . 494.81
2004 . 617.31
2005 . 723.69
2006 . 765.27
2007 . 708.55
2008 . 473.90

In the last 3.66 years, the US has accrued $2.67 trillion deficit, and in the last 5.67 years the accrued deficit is nearly $3.8 trillion. That money then is either loaned to the US or finances other economies that compete with the US. Some of it also finances al-Qaida.

http://www.census.gov/foreign-trade/statistics/historical/index.html

Jeez, Astronuc. You keep saying it, but that doesn't make it true. The trade deficit is not any more borrowed than any other money in the economy. Do some friggin research on what the "trade deficit" is if you don't believe us!

Astronuc, seriously - this is a very simple economic principle that you have vastly wrong. You're right that the US borrows a lot of money, but that and the trade deficit are not related.

Here's the wiki on the balance of trade for you to ignore again: http://en.wikipedia.org/wiki/Trade_deficit

You may notice, Astronuc, that none of the links you used to support your position about the trade deficit being tied to the national debt mention the trade deficit.

 

[Art]

Then close those loop holes as both candidates have called for. What about your comment up thread on US companies moving out, followed by the article describing the Irish boom derived from drawing many of them there?

That's not actually what happened. The American companies in Ireland are only subsidiaries. There purpose is to satisfy the demand of European customers and so to save on freight and leadtimes it makes sense for these factories to be placed in a European country. For example one of the biggest single employers is Dell who also have several factories in the US and also in other world geographic markets each supplying only within their area of operation.

I cannot think of a single American company which has actually uprooted and moved to Ireland.

 

[Art]

Jeez, Astronuc. You keep saying it, but that doesn't make it true. The trade deficit is not any more borrowed than any other money in the economy. Do some friggin research on what the "trade deficit" is if you don't believe us!

Astronuc, seriously - this is a very simple economic principle that you have vastly wrong. You're right that the US borrows a lot of money, but that and the trade deficit are not related.

Here's the wiki on the balance of trade for you to ignore again: http://en.wikipedia.org/wiki/Trade_deficit

You may notice, Astronuc, that none of the links you used to support your position about the trade deficit being tied to the national debt mention the trade deficit.

Russ this has been explained to you several times now. If you can't understand the explanations offered here perhaps you should ask somebody at home to explain it to you though it's really quite simple.

 

[jal]

Was the housing market zero-sum?
Was the stock market zero-sum?
Were the transactions cost properly allocated before the financial institutes bundled these subprimes and sold them to others financial institutes?
Are the market corrections due to rebalancing and reflecting the accumulated transactions costs? (Every 5 – 7 years)
=======
http://en.wikipedia.org/wiki/Zero-sum
Economics
Many economic situations are not zero-sum, since valuable goods and services can be created, destroyed, or badly allocated, and any of these will create a net gain or loss. Assuming the counterparties are acting rationally, any commercial exchange is a non-zero-sum activity, because each party must consider the goods s/he is receiving as being at least fractionally more valuable to him/her than the goods he/she is delivering. Economic exchanges must benefit both parties enough above the zero-sum such that each party can overcome his or her transaction costs.
========
Have you all noticed that in the prospectus of a fund they always include a chart that shows … If you had invested $10,000 10 years ago … here is what you would have made
Heheh … Wait for the next set of charts and see if they end up being zero-sum.
Ask yourself where did all the money go? Did it go into transactions costs?
Hehe … My financials advisers were living pretty good on their commissions.
========

 

[OmCheeto]

If you can't understand the explanations offered here perhaps you should ask somebody at home to explain it to you though it's really quite simple.

Or do some independent research and analysis! That's what I do.

I was interested in some of Astro's quoted numbers the other day and came up with a somewhat right wing conclusion.

Astronuc

Most Companies in US Avoid Federal Income Taxes
http://abcnews.go.com/Business/wireStory?id=5561455
1.2 million U.S. companies paid no income tax, the GAO said. Combined, the companies had $2.5 trillion in sales.

I did the math and saw that the average sales for these companies was about $2,000,000.
Now those are sales, and not profits, so the taxable income is lower.

Add to that the following:

About 25 percent of the U.S. corporations not paying corporate taxes were considered large corporations, meaning they had at least $250 million in assets or $50 million in receipts.

This tells me that 75% of the tax evaders had annual profits of much less than $1,000,000.

On to part 3 of my analysis: S Corporations

yes, I got it from wiki...
In general, S Corporations do not pay any income taxes. Instead, the corporation's income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns.

Say you have some mythical friends who run a small successful business. Figure they have about $400,000 in profits a year. Bill owns the company and pays himself $50,000/yr, his wife the accountant $50,000/yr, his son the general manager $30,000/yr, and his employees the balance. So after payroll, the companies profits are zero, and Bill and his wife have tax rates of ~18%.

The corporate tax rate is 35%.

35%? or 18%? You choose.

But who in their right mind would not do what Bill and his family did?
Do we really want close that loophole?
Bill and his family are the US economy!
Not some market traders playing stock vegas.

I'd never thought I'd ever say a loophole was a good thing, but after researching it, this one should stay put.

 

[Astronuc]

Jeez, Astronuc. You keep saying it, but that doesn't make it true. The trade deficit is not any more borrowed than any other money in the economy. Do some friggin research on what the "trade deficit" is if you don't believe us!

Astronuc, seriously - this is a very simple economic principle that you have vastly wrong. You're right that the US borrows a lot of money, but that and the trade deficit are not related.

Here's the wiki on the balance of trade for you to ignore again: http://en.wikipedia.org/wiki/Trade_deficit

You may notice, Astronuc, that none of the links you used to support your position about the trade deficit being tied to the national debt mention the trade deficit.

I did not tie the trade deficit to the national debt. They are not directly related in the sense that one is the cause of the other, but they are related in the sense that they are both symptoms of a fundamentally unsound economy, i.e. they are two examples of what is 'wrong with the economy'. They are also related because part of the capital the leaves the US gets turned around an is 'loaned' back to the US to finance the government debt and commercial debt - and that just means more capital in the form of interest leaving the US.

The US is buying from the rest of world and then borrowing (taking credit). That is ultimately unstable.

I've been doing the research, which is why I've been saying the fundamentals are not strongl and I seem to remember mentioning that the economy could crash - which it just did. So have a lot of others like Paul Krugman, who mentioned in 2003 that the US economy is going off a cliff - which it just did.

Here's a good example of additional things that are wrong with the economy.
http://60minutes.yahoo.com/segment/197/credit_default_swaps

Only about 6% of mortgages are bad. Most of those did not come from Fannie Mae and Freddie Mac. Instead - 84% of bad mortgages originated at private institutions, only one of which was affected by CRA.

Wall Street (Bearn Stearns, Lehman Brothers, AIG, Citigroup, and apparently many others) compounded the problem by issue Credit Default Swaps, which are a kind of insurance (actually they are bets), which were used to cover (induce/entice) other financial institutions to buy the securities backed (collateralized) by the sub-prime mortgages. Now why were they called 'swaps' instead of 'insurance'. Well because swaps are not regulated and insurance is. Insurance requires that adequate capital be maintained to cover potential bad debt or defaults. By using swaps, the various companies did not have to retain sufficient cash/capital to cover the sub-prime mortgages. And the rest is history.

The unregulated markets on Wall Street took a reckless gamble (Jim Grant, the very conservative editor of Grant's Interest Rate Observer calls this 'criminal negligence') and lost big time, thus causing the recent seizing of the credit markets and collapse in the stock markets.

The government bailout is not necessarily a good idea since it simply transfers the bad debt from Wall Street to the government (taxpayers). But how will that debt be paid off? If it is not, and the government debt continues to increase, then it will crash. The higher the debt goes, the greater (more damaging) the crash.


And more or what's wrong:

I'm in luck. David Walker was on Bill Maher last night.

0NM5Q5VDpnA[/youtube][/QUOTE] Th..., according to David Walker. And he's right.

 

[jal]

If you know how to extract info from Federal District Court filings then this should be a gold mine.
http://dockets.justia.com/search?q=LEHMAN+BROTHERS+INC.
Maybe someone knows how the system works.
Who will be first in line to get their money? (I assume from the $850 B rescue fund.)

 

[Astronuc]

If you know how to extract info from Federal District Court filings then this should be a gold mine.
http://dockets.justia.com/search?q=LEHMAN+BROTHERS+INC.
Maybe someone knows how the system works.
Who will be first in line to get their money? (I assume from the $850 B rescue fund.)

Wow! That's a long list against Lehman Bros. Even before they filed for bankruptcy, folks and institutions were lining up lawsuits. I think creditors are first, then bond holders, the preferred stock holders, then those holding common stock. Probably nothing will be left for stock holders.

 

[Astronuc]

Global loss of confidence - Economic Uncertainty Spreads
http://www.nytimes.com/2008/10/11/business/worldbusiness/11ripple.html
By KEITH BRADSHER and CARTER DOUGHERTY

October 11, 2008 - In Korea, exporters are suddenly struggling.

In India, industrial growth has slowed drastically.

In Sweden, Volvo is cutting thousands of jobs.

In Japan, which thought it was immune to the market chaos, a credit squeeze seems to be forcing small companies into bankruptcy.

Around the world, fears of recession have fed a stock market panic, as worries about toxic assets spread from the financial sector to the credit markets and now to the broader economy.

Companies from Germany to Asia are hoarding cash because credit markets are tight. The sheer uncertainty of it all is upending plans for businesses to expand. Consumers have pulled back, just as they received some relief from high oil prices.

Even creditworthy companies cannot get money in Europe. And across Asia, export growth has slowed to a crawl or started declining in real terms — and that was before American retailers announced steep sales declines on Wednesday.

The United States, once the engine of the global economy, is ailing and in no position to inspire confidence, much less point the way around or out of recession. Americans are seen as both the root of the problem, and powerless to solve it.

But no government effort has been able to stanch the bleeding — even the unprecedented coordination of central banks on three continents, which only generates more fear.

The liquidity provided by the European Central Bank seems to be going through a revolving door. After releasing billions of euros into the market, the bank took in a record 102.8 billion euros on Sept. 30 and 64.4 billion euros on Thursday for banks. Instead of lending their spare cash to each other or the rest of the economy, banks have parked it with the central bank at extraordinarily low interest rates.

“No sane banker with good contacts and clients would do this,” Erik Nielsen, chief Europe economist at Goldman Sachs in London, said. “It would be a huge arbitrage profit if they wanted to lend, but they don’t.”
. . . .

The best thing foreign funds can do is pull out of the US - and force the US government from behaving irresponsibly.

As the Economy Sinks, So Do Odds of a Tax Cut (Thursday October 9, 6:15 pm ET)
http://biz.yahoo.com/usnews/081009/09_as_the_economy_sinks_so_do_odds_of_a_tax_cut.htm

One of the riskiest financial moves you make this year could be listening to the presidential candidates--and banking on a tax cut after the November elections.

John McCain and Barack Obama both promise that widespread tax cuts will be one major way they'll revive the economy and help lift consumers' sagging spirits. They differ, of course, on who should enjoy the largesse. McCain wants to cut estate and corporate income taxes, and extend broad-based tax cuts that were enacted earlier this decade. Obama agrees about extending some of those Bush era tax cuts, while offering lots of other relief to people earning less than $250,000 and raising taxes on the wealthy.

. . . .

Reflecting on last week -

Wall Street's 8 brutal days
http://www.washingtonpost.com/wp-dyn/content/article/2007/03/07/AR2007030702502_pf.html
Dow plunges 2,400 points, or 22%, as panicked investors run for the exits.

NEW YORK (CNNMoney.com) -- The Dow ended its worst week ever Friday and capped a staggering eight-session selloff that has seen the blue-chip index fall 2,400 points.

Investors could be in for another rough ride as Citigroup (C, Fortune 500) and Merrill Lynch (MER, Fortune 500) are on tap to report results this week, giving another glimpse into just how deep their losses continue to be. And a slew of economic reports are also due out, including readings on consumer spending and housing.

Much of the Dow's loss occurred over the most recent sessions as the global credit market crisis intensfied. In fact, last week the Dow fell just over 1,874 points, or 18%. The index has lost nearly 22% over the last eight sessions, as panicked investors ditched stocks across the board.

That panic also gripped the global markets, which have seen some brutal selloffs of their own.
. . .

 

[jal]

You might enjoy reading the following blog. It a daily play by play (with comments) of what is happening.
http://theautomaticearth.blogspot.com/2008/10/debt-rattle-october-12-2008-money-is-no.html
Debt Rattle, October 12 2008: Money is no object

 

[Astronuc]

You might enjoy reading the following blog. It a daily play by play (with comments) of what is happening.
http://theautomaticearth.blogspot.com/2008/10/debt-rattle-october-12-2008-money-is-no.html
Debt Rattle, October 12 2008: Money is no object

Form that blog - "Tomorrow is a holiday in North America, and Europe, especially England, may suspend trading. Yeah, that’s a great way to boost confidence." I'd forgotten that tomorrow is a holiday in the US. I have to work.

I wonder if EU/UK will suspend trading. Under normal circumstances, that might help calm the markets. On the other hand, with the global scale and bad news - it might cause further panic so Tuesday will be another bad day - especially if the Asian markets continue down. I imagine that the European governments and markets will watch the Asian markets - and if Asia recovers a little, then perhaps Europe markets will open. If Asia falls, then EU markets may not open. It'll be interesting to see what will happen.

One of my colleagues pointed out that a lot of people could take capital gains losses so this years tax returns will be substantially reduced - which means significant increase in deficit unless government programs are cut.

 

[jal]

Wow! That's a long list against Lehman Bros. Even before they filed for bankruptcy, folks and institutions were lining up lawsuits. I think creditors are first, then bond holders, the preferred stock holders, then those holding common stock. Probably nothing will be left for stock holders.

I don't know what kind of financial arrangements that they had done.
I think that they would want to be considered as depositors since the US will have to guarrantee all deposits.

 

[Astronuc]

I don't know what kind of financial arrangements that they had done.
I think that they would want to be considered as depositors since the US will have to guarrantee all deposits.

Lehman Brothers was an investment bank and I believe any investment accounts are not covered by the federal government (FDIC). Remember the investment banks did not want the regulation of commercial banks - hence the current problem with unregulated financial instruments such as credit default swaps.

http://finance.yahoo.com/q/pr?s=LEHMQ.PK - one can buy their shares for a dime. They are now a penny-stock company.

Profile.

Lehman Brothers Holdings, Inc., through its subsidiaries, provides various financial services to corporations, governments and municipalities, institutions, and high-net-worth individuals worldwide. The company operates in three segments: Capital Markets, Investment Banking, and Investment Management. The Capital Markets segment represents institutional customer flow activities, including secondary trading, financing, mortgage origination and securitization, prime brokerage, and research activities in fixed income and equity products. It also offers equity and fixed income products, including U.S., European, and Asian equities; government and agency securities; money market products; corporate high grade securities; high yield and emerging market securities; mortgage- and asset-backed securities; preferred stock; municipal securities; bank loans; foreign exchange; and financing and derivative products. The Investment Banking segment provides advice to corporate, institutional, and government clients on mergers, acquisitions, and other financial matters. It also raises capital for clients by underwriting public and private offerings of debt and equity instruments. The Investment Management segment consists of private investment management, which provides investment, wealth advisory, and capital markets execution services to high net worth and middle market institutional clients; and asset management that provide customized investment management services for high net worth clients, mutual funds, and other small and middle market institutional investors. Lehman Brothers Holdings was founded in 1850 and is headquartered in New York, New York with regional headquarters in London, the United Kingdom and Tokyo, Japan. On September 15, 2008, Lehman Brothers Holdings, Inc. filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the Southern District of New York, Manhattan.

I think this is more the story of LEH:

All that money you've lost — where did it go?
http://news.yahoo.com/s/ap/20081011/ap_on_bi_ge/where_s_the_money

. . . . If you're looking to track down your missing money — figure out who has it now, maybe ask to have it back — you might be disappointed to learn that is was never really money in the first place. . . . .

 

[Art]

Form that blog - "Tomorrow is a holiday in North America, and Europe, especially England, may suspend trading. Yeah, that’s a great way to boost confidence." I'd forgotten that tomorrow is a holiday in the US. I have to work.

I wonder if EU/UK will suspend trading. Under normal circumstances, that might help calm the markets. On the other hand, with the global scale and bad news - it might cause further panic so Tuesday will be another bad day - especially if the Asian markets continue down. I imagine that the European governments and markets will watch the Asian markets - and if Asia recovers a little, then perhaps Europe markets will open. If Asia falls, then EU markets may not open. It'll be interesting to see what will happen.

One of my colleagues pointed out that a lot of people could take capital gains losses so this years tax returns will be substantially reduced - which means significant increase in deficit unless government programs are cut.

Neither the UK nor the rest of the EU will suspend trading tomorrow. They have spent the weekend putting together a consolidated approach to fix the banking crisis and if nothing else they will need to see if it is working. Gordon Brown the main architect of the plan spoke afterwards saying he expects the markets to settle down within the next few days.

Tomorrow is likely to be fairly tumultuous as the banks give an indication of the size of the loan each needs from the gov't which will be indicative of how much trouble they are in but even then the shares will have a safety nett as investors fears will be about diluted equity rather than bankruptcy and so there are likely to be some gainers and some losers amongst financial stocks.

The commitment by all Eurozone states to guarantee inter-bank loans should begin to free up the movement of money once again and so ease the credit squeeze which I would think would help the wider index of shares as fears as to the size and depth of a recession are scaled back.

The US is said to be seriously considering adopting the same plan which would be a big deal for them as part of it involves part nationalization of troubled banks.

 

[jal]

Lehman Brothers was an investment bank and I believe any investment accounts are not covered by the federal government (FDIC). Remember the investment banks did not want the regulation of commercial banks - hence the current problem with unregulated financial instruments such as credit default swaps.

Let's take a simple example.
A worker at company X, agrees to have a "deposit" made from his paycheck to an account in the company account. That account is transferred to another account, ( for his pension), which is then transferred to the account of the "money manager". Until that money is invested it should still be considered a "deposit.
Where will the depositor "vanish" and turn into an "investor"?

 

[OmCheeto]

All that money you've lost — where did it go?
http://news.yahoo.com/s/ap/20081011/ap_on_bi_ge/where_s_the_money

. . . . If you're looking to track down your missing money — figure out who has it now, maybe ask to have it back — you might be disappointed to learn that is was never really money in the first place. . . . .

Gads. What a ridiculous system...

Do you mean to tell me that if on Tuesday, when the markets open up, and the people selling offer a share of their stocks at 10x market value, and someone buys that stock at that value, we'll all be rich again?

No wonder Binzing hasn't commented in this thread. Adolts are stupid.

 

[Astronuc]

Let's take a simple example.
A worker at company X, agrees to have a "deposit" made from his paycheck to an account in the company account. That account is transferred to another account, ( for his pension), which is then transferred to the account of the "money manager". Until that money is invested it should still be considered a "deposit.
Where will the depositor "vanish" and turn into an "investor"?

That part I am not sure about.

If one's deposit is put into a bank insured by the FDIC, then in the event that the bank goes bankrupt, the Treasury Dept of the US government would write a check, which one could deposit in another bank or one could cash it.

I have money in a mutual fund in which I could invest in a number of different funds. I invested in three stock fund, three bond funds and one guaranteed money fund. The guaranteed money fund had the lowest yield but was the most secure. Several years ago, with stock and bond funds doing poorly, I moved all the investment (money) into the guaranteed money fund - and it steadily increased a few percent, while the bond funds and stock funds dropped. I'll find out soon how it's doing or if it even still exists. I've been meaning to close that account and move it into my larger account where I now work. I have yet to see how either retirement account is doing.

 

[OmCheeto]

Let's take a simple example.
A worker at company X, agrees to have a "deposit" made from his paycheck to an account in the company account. That account is transferred to another account, ( for his pension), which is then transferred to the account of the "money manager". Until that money is invested it should still be considered a "deposit.
Where will the depositor "vanish" and turn into an "investor"?

Wasn't the original deposit real money?
Where did it go?
Did someone develop a new form of social welfare called "mortgage brokers" while we weren't watching?

 

[Art]

So far Asian markets are reacting well to the worldwide effort to save the financial sector.

Australia up 5.5%
S Korea and Singapore opened up 3%

Dow futures up too ~4%.

Fingers crossed things might be beginning to stabilize.

 

[jal]

hummmm ... something to reflect ...

Where will the depositor "vanish" and turn into an "investor"?

Wiil the deposited money, (in the money managers' account) be considered a deposit until there is an authorization to make an investment?
Will It be Guaranteed by the gov. until I turn into an investor?
=====

Australia up 5.5%

Maybe its because ALL deposits have been Guaranteed for 3 years.

 

[mheslep]

That's not actually what happened. The American companies in Ireland are only subsidiaries. There purpose is to satisfy the demand of European customers and so to save on freight and leadtimes it makes sense for these factories to be placed in a European country. For example one of the biggest single employers is Dell who also have several factories in the US and also in other world geographic markets each supplying only within their area of operation.

I cannot think of a single American company which has actually uprooted and moved to Ireland.

Yes they do just as you say - they set up subsidiaries there and thus move job growth, and revenue to Ireland where it incurs much lower taxes. Freight costs, until very recently with high energy costs, pale in comparison to the 15-20% tax advantage. US jobs and tax revenue consequently suffer when business that might very well have staid here goes offshore.

 

[Art]

Yes they do just as you say - they set up subsidiaries there and thus move job growth, and revenue to Ireland where it incurs much lower taxes. Freight costs, until very recently with high energy costs, pale in comparison to the 15-20% tax advantage. US jobs and tax revenue consequently suffer when business that might very well have staid here goes offshore.

The lower tax rate is what makes Ireland the European country of choice amongst the other EU countries but is not the reason why US firms have a European presence. The driver behind the European presence is to be close to one's markets.

If the US did not establish subsidiaries in their markets it would not help their domestic plants grow whatsoever, instead they would simply lose business to their competitors who do have a local presence. In fact one could argue the profits generated by these subsidiaries are vital to the health of the parent plants as they offset any potential downturn in domestic demand and deny these profits to their competitors.

Where the US has made a mistake is, in response to complaints such as yours, they tax repatriated profits made by these companies very heavily (last time I looked a couple of years ago it was 40%) which is totally counter-productive, as it practically forces companies to reinvest foreign made profits in foreign countries instead of back in the US.

 

[Art]

As expected the markets have responded positively to the coordinated European rescue plan. If the US follow suit then the worst may be behind us.

Britain's decision to take equity holdings in failing banks has worked well, as they are now in a position to force those banks to start lending again and as they got the stock at rock bottom prices they are likely to make a handsome profit over the next few years as they realize their stated intent to sell these shares off back into the market.

 

[Jimmy Snyder]

As expected the markets have responded positively to the coordinated European rescue plan. If the US follow suit then the worst may be behind us.

Yes I believe the current downturn is half over now.

 

[OmCheeto]

As expected the markets have responded positively to the coordinated European rescue plan. If the US follow suit then the worst may be behind us.

Britain's decision to take equity holdings in failing banks has worked well, as they are now in a position to force those banks to start lending again and as they got the stock at rock bottom prices they are likely to make a handsome profit over the next few years as they realize their stated intent to sell these shares off back into the market.

That sounds like a good idea. I think I'll start my variable high risk retirement account tomorrow. I've been waiting 20 years for this correction.

Yes I believe the current downturn is half over now.

Well. I hope the other half happens in the next few days. I've got spare money to invest.

Viva... stock Vegas...

 

[jal]

There are many opinions
Do read the following blog and the comments. If you got time read the previous days.
http://theautomaticearth.blogspot.com/
The time delay involved in writting a history book has been radically changed with the web.
======
Here is a quote:

However I&S,your efforts have shown many of us what's going on,and given a better framework to guide some critical decision making all of us will be making over the course of the coming months.For this I thank you,and wish luck to your own endeavors.
snuffy

October 13, 2008 12:30 AM

My feelings ...

 

[Astronuc]

Morgan Stanley said Monday that Mitsubishi UFJ Financial Group, the big Japanese bank, had completed its previously announced $9 billion investment in the Wall Street firm, under revised terms.

The infusion of capital was seen as a vital step for Morgan Stanley in its attempt to weather the credit crisis, and Morgan Stanley's stock fell sharply last week amid concerns the transaction would fall through.

Under the new deal, Mitsubishi acquired $7.8 billion of Morgan Stanley's perpetual non-cumulative convertible preferred stock with a 10 percent dividend and a conversion price of $25.25 per share, and $1.2 billion of perpetual non-cumulative non-convertible preferred stock with a 10 percent dividend, the companies said in a joint press release.

The transaction gives Mitsubishi a 21 percent stake in Morgan Stanley on a fully diluted basis.

http://dealbook.blogs.nytimes.com/2008/10/13/morgan-stanley-closes-9-billion-investment/

That and the bailout have buoyed the bank stocks.

GM jumped 6.59 or 35%!

JPM and GE are down, but Citigroup is up about 8%. Citigroup has not reported losses, but perhaps they don't mind so much since the government is expected to bail them out. I wonder what kind of bonuses the CEOs and managers will get.

Goldman Sachs would have been a great buy last Friday at the lowest. They open at 86.11 and are now 98.15 - an increase of nearly 12%

 

[jal]

Here is another quote from https://www.blogger.com/comment.g?blogID=4921988708619968880&postID=2433202042045327764

http://www.fcnp.com/index.php?optio...-culpa&catid=17:national-commentary&Itemid=79
The Peak Oil Crisis: Mea Culpa
Earlier this week The Washington Post's media critic, Howard Kurtz, published an apology on behalf of the media for its weak coverage of the multi-year run-up to the current financial debacle.

To quote the Post, "The shaky house of financial cards that has come tumbling down was erected largely in public view: overextended investment banks, risky practices by Fannie Mae and Freddie Mac, exotic mortgage instruments that became part of a shadow banking system. But while these were conveyed in incremental stories -- and a few whistle-blowing columns -- the business press never conveyed a real sense of alarm until institutions began to collapse."
In reading through the story I was struck by how eerily similar are the now admitted journalistic lapses and the failure to connect the dots in the financial story to what we have been witnessing in the media's coverage of peak oil. The heart of Kurtz's apologia is the troubling question "Why didn't they see this coming?"

Odinary people opinion (me) vs the experts.

They could not see the possible magnitude of the problem because they were benefiting from the taking of fees, commissions, expenses etc. from every transactions and were inflating the selling prices to hide their missdeeds.
A perfect shell game.
The correction is happening
Will the shell game continue?

 

[Ivan Seeking]

The Dow is up by over 500 points this morning.

 

[Astronuc]

Here is another quote from https://www.blogger.com/comment.g?blogID=4921988708619968880&postID=2433202042045327764

Odinary people opinion (me) vs the experts.

They could not see the possible magnitude of the problem because they were benefiting from the taking of fees, commissions, expenses etc. from every transactions and were inflating the selling prices to hide their missdeeds.
A perfect shell game.
The correction is happening
Will the shell game continue?

Some in the media did see it coming, e.g. Paul Krugman, economist from Princeton University and winner of 2008 Nobel Prize in Economics. But they were dismissed as alarmist. Krugman indicated back in 2003 that the US economy was headed for a cliff.

Others simply didn't want to report bad news. The mainstream media doesn't want to report really bad news on such a scale, because likely they do not want to alienate their sources of information or their readers.

There may be a few who benefit from insider information.

Many experts were apparently unaware of the magnitude of volume of the credit default swaps and sub-prime mortgage sector.


On a more personal level - Undergrads on the Bread Line
http://news.yahoo.com/s/time/20081013/us_time/undergradsonthebreadline

In my area, in nearby states, and across the country, food banks are getting much more requests for aid - even from middle income people. The current economic crisis is more severe than is being discussed.

 

[Astronuc]

Bill Moyers Journal - Interview with George Soros
http://www.pbs.org/moyers/journal/10102008/watch.html

Moyers: You are not alone if you are worried about the financial melt down. So is my guest George Soros, one of the world's best known and successful investors, making billions in times of boom or bust. He's been warning for years of a financial melt down fueled by easy credit and sleepy regulation. Now he's out with this timely book, "The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means."

In the interest of full disclosure, you should know that I served three years on the board of George Soros' foundation, the Open Society Institute, dealing with such issues as a free press, the rule of law, and human rights. But I've had no involvement in his political activities and nothing to do, with his business interests unfortunately. It's good to see you.
. . . .


BILL MOYERS:This is what's interesting, why wouldn't the government be able to look at what you looked at and see what's coming?

GEORGE SOROS:Because actually they have been working on false premises. This sounds very strange, but there's been this development of, this belief of market fundamentalism. And particularly the idea that markets always revert to the mean and deviations from the mean occur in a random fashion. And you can calculate it.

And you will get a nice distribution and you can anticipate it. And based on that, you can manage your risk. And that actually was based on a false idea. This namely, the markets self-correcting because the market moods have a way of affecting the fundamentals the markets are supposed to reflect.

And there's always a divergence between our perception and what actually exists. For instance, take the simplest situation, namely housing.

Banks give you credit based on the value of the houses. But they don't seem to somehow understand that the value of the houses can be affected by the amount of credit they are willing to give. Now, we've developed these fabulous new ways of securitizing mortgages, which has made credit much more amply available.

And we've been able to calculate risk. And, therefore, we were willing to give more and more credit. And that has pushed up the value of the houses. Also, of course Greenspan kept interest rates too low, too long. And so you had very low interest rates, easy credit, and house prices have been appreciating at more than ten percent a year for a number of years. And the willingness to lend actually increased. There was an insatiable appetite for these new fangled securities.

BILL MOYERS:Yeah. Nobody understood, really.

GEORGE SOROS:Which they didn't properly understand. And there was always a separation between the people who generated the mortgages and packaged them and sold them to you and the people who owned them. So nobody was paying attention to the quality of the mortgages because they didn't have an interest. They — all day collecting fees. And then there were other people holding the mortgages.

BILL MOYERS:Right.

GEORGE SOROS:And that was not factored into those instruments. The idea was that by distributing risk, you actually reduce risk. But by separating the principal from the agent, you actually greatly increase the risk. And that was not reflected. And the rating agencies didn't realize it. So they gave triple-A ratings. And then a few weeks later, those triple-A bonds became practically valueless. And that's what has happened.
. . . .

Interesting exchange at the end of the interview

GEORGE SOROS:Well, you know, it's very interesting. Actually, these market fundamentalists are making the same mistake as Marx did. You see, socialism would have worked very well if the rulers had the interests of the people really at heart. But they were pursuing their self-interests. Now, in the housing market, the people who originated the houses earned the fee.

And the people who then owned the mortgages their interests were not actually looked after by the agents that were selling them the mortgages. So you have a, what is called an agent principle problem in socialism. And you have the same agent principle problem in this free market fundamentalism.

BILL MOYERS:The agent is concerned only with his own interests.

GEORGE SOROS:That's right.

BILL MOYERS:Not with...

GEORGE SOROS:That's right.

BILL MOYERS:The interest of...

GEORGE SOROS:Of the people who they're supposed to represent.

BILL MOYERS:But in both socialism and capitalism, you get the rhetoric of empathy for people.

GEORGE SOROS:And it's a false ideology. Both Marxism and [free] market fundamentalism are false ideologies.

. . .

Free market fundamentalism and socialism - or any socio-economic or socio-politico-economic system fails when those who have the authority or power are "pursuing their self-interests," i.e. they are corrupt or otherwise morally and ethically impaired.

 

[edward]

The U. S. market seems to be coming back up today. Ironically the rally seems to be related to other countries taking action.

Here in the USA everything is still in the talking stage. The sub prime and foreclosure problems are far from being over. It sure would be nice if we could just talk our way out of it.

Just one week before all hell broke loose my nephew in LA closed the deal on a town house he was buying. He only paid $10,000 down on a 3.5% adjustable rate mortgage for $480,000 that will reset in five years. It is also an interest only deal and the builder bought down the interest rate from 7.5%.

The bank was Wells Fargo.

My point is that just one week before the crisis the banks didn't see a crisis even though several of them had already failed.

Countrywide is now offering no money down for closing costs loans.

https://loans.countrywide.com/FTLP/...ewControlS_A&gclid=CPiJs8TspJYCFRlRagod7y1R5w