What is wrong with the US economy?

[turbo]

Have you seen "Charlie Wilson's War"? It's a pretty instructive movie - it illustrates how a modest amount of cash, leveraged intelligently, can allow a lightly-armed indigenous force to defeat regular forces with $$$$$, technology, and superior firepower. Every time a Stinger took down a Hind, it was a bargain.

Our military is infatuated with high-tech, expensive stuff that can go toe-to-toe against other countries' high-tech, expensive stuff. The problem is that much of it can be easily neutralized with some pretty cheap low-tech stuff that is readily available.

 

[edward]

Here is a Lockheed Martin project that will probably never see combat.

The FCS lead systems integrator selected MULE to move into the *$290 million-plus SDD phase in 2003*. MULE production will consist of Transport, Armed Robotic Vehicle - Assault Light (ARV-A(L)) and Countermine variants, with final deliveries starting in summer *2011.*

$ 290 million and eight years of R&D for a mini tank??

http://www.spacedaily.com/reports/L...m_Begins_Work_On_Final_System_Design_999.html

I can see how the Pentagon went through the $300 billion so fast. All defence contractors get a piece of the pie.

 

[russ_watters]

Have you seen "Charlie Wilson's War"? It's a pretty instructive movie - it illustrates how a modest amount of cash, leveraged intelligently, can allow a lightly-armed indigenous force to defeat regular forces with $$$$$, technology, and superior firepower. Every time a Stinger took down a Hind, it was a bargain.

Our military is infatuated with high-tech, expensive stuff that can go toe-to-toe against other countries' high-tech, expensive stuff. The problem is that much of it can be easily neutralized with some pretty cheap low-tech stuff that is readily available.

Gulf I and Gulf II proved you quite wrong.

 

[turbo]

Gulf I and Gulf II proved you quite wrong.

Gulf I and Gulf II were fought with conventional weapons in which the US had overwhelming superiority in every regard. The current occupation of Iraq demonstrates how asymmetrical warfare (cheap IEDs) can limit the utility of technology (armored-up ground transports). We are extremely fortunate that there is not a well-financed force arming Shiite insurgents or our troops would be in even more danger than they are. In Afganistan, the US put taxpayer money at the disposal of the Pakistanis and the Afghans to finance a proxy war against Russia and drove the Russians out of the country. If the Russians wanted to do something similar in Iraq, they could bleed our military dry in short order.

Asymmetrical warfare means leveraging your advantages. If Israel bombs Iran and the US has their backs, do you think that Iran is going to try to go toe-to-toe with us? Not likely. However, it will become increasingly more likely that some innocuous ship sailing into NY harbor under that ubiquitous Liberian flag will be delivering something that we do NOT want.

 

[edward]

Gulf I and Gulf II proved you quite wrong.

I don't see it that way, considering thenumber of years we have been there and the amount of money we have spent

Gulf I resolved itself because we didn't occupy. Gulf II is stil not resolved and the insergents did a lot of damage with IED's and suicide bombers. The first IED's were simple devices. Now they have much improved penetration capablilty.

 

[OmCheeto]

I wasn't aware that there was something wrong with the US economy.

Perhaps it is the world economies catching up with ours that makes it look so bad?

 

[turbo]

I wasn't aware that there was something wrong with the US economy.

Perhaps it is the world economies catching up with ours that makes it look so bad?

Our economy is financed on foreign debt and trade imbalances are putting the US in a situation in which that debt is getting leveraged. Fannie Mae and Freddie Mac are not being bailed out to protect the primary shareholders or the US taxpayers, but the foreign banks from China, Japan, etc, that own their debt. Hard truth, but real. The US taxpayers take it in the neck for the managers of these entities who made $$$$$$$ making risky loans until the loans turned out to be junk.

Pretend "conservatives" privatize profit and socialize debt, while protecting the wealthy and screwing the average taxpayers. It's a high art.

 

[OmCheeto]

Our economy is financed on foreign debt and trade imbalances are putting the US in a situation in which that debt is getting leveraged. Fannie Mae and Freddie Mac are not being bailed out to protect the primary shareholders or the US taxpayers, but the foreign banks from China, Japan, etc, that own their debt. Hard truth, but real. The US taxpayers take it in the neck for the managers of these entities who made $$$$$$$ making risky loans until the loans turned out to be junk.

Pretend "conservatives" privatize profit and socialize debt, while protecting the wealthy and screwing the average taxpayers. It's a high art.

Fascinating.

Do the average people in the rest of the world know this?

 

[wildman]

Asymmetrical warfare means leveraging your advantages. If Israel bombs Iran and the US has their backs, do you think that Iran is going to try to go toe-to-toe with us? Not likely. However, it will become increasingly more likely that some innocuous ship sailing into NY harbor under that ubiquitous Liberian flag will be delivering something that we do NOT want.

Actually, Iran wouldn't take us on directly. They would simply give weapons to their peons in Iraq and tell them to go to it.

 

[edward]

Fascinating.

Do the average people in the rest of the world know this?

In the developed nations the average person probably knows more about the American economic situation than the average American does.

Foreigners own 39% of all asset-backed securities in the U.S. and would bear 39% of any mark-to-market write-downs associated with those securities. That's 39% of $5 trillion, or $2 trillion--double the losses forecast for all financial institutions. This makes the savings and loan bailout and the 1990 recession look like a minor irritation to the financial system and economy in comparison.

http://www.forbes.com/finance/2008/09/09/fannie-freddie-roubini-pf-ii-in_rl_0909croesus_inl.html

 

[joris20]

wow i thought that was 25%
40% (39) makes it even scarier :p
(tongue emote because i don't live in the US lol )

 

[Astronuc]

This is just stupid and points out a big flaw in the US economy - or at least the financial sector.

UAL hit by years-old bankruptcy story
Florida Sun-Sentinel publishes six-year-old story with a new date

NEW YORK (MarketWatch) -- Shares of United Airlines' parent company UAL Corp. were hit hard and briefly halted Monday after a 6-year-old story on the company's bankruptcy filing was reportedly republished with a new date on the South Florida Sun-Sentinel newspaper's Web site.

"The story was related to United's 2002 bankruptcy filing, and United has demanded a retraction from the Sun-Sentinel and is launching an investigation," the Chicago-based carrier said in a statement.

Trading in UAL stock was halted at about 11:06 a.m. Eastern time after falling nearly 76% to $3 a share. Shares resumed trading at about 12:25 p.m. They closed with an 11.2% loss at $10.92.

And as for debt!

A $75 trillion fright fest
Eight megahorror debts chilling America

ARROYO GRANDE, Calif. (MarketWatch) -- America's out of control, drowning in debt, gorging: $75 trillion and getting worse. Now we're dumping Fannie and Freddie on America's balance sheet. Every year we pile trillions more on future generations.

Can't trust McCain? Obama? Time for new leadership! The best qualified for president is the same great American hero we picked as our favorite write-in candidate for the 2006 elections: David Walker, former comptroller general, chief auditor of the U.S. Government Accounting Office for a decade before resigning last spring. He is ready.

Walker was the "voice of reason" in Washington while Congress and the White House kept wasting trillions like out-of-control drunks, digging America deeper into debt. Nobody listened. Politicians ignored Walker's warnings, making matters worse as we went from a surplus of $5 trillion in 2000 to crushing debt that's now $9.6 trillion.

Washington tuned out, so Walker went on the road, on the "campaign trail" so to speak, taking his fiscal-conservative message directly to the people in town-hall meetings with his "Fiscal Wake-up Tours," where he spoke of a "fiscal cancer," comparing America to Rome. Now his message is a new film: "I.O.U.S.A.: One Nation. Under Stress. In Debt."
. . . .

Now does this seem accurate?

So who will go see the film? Few:

• Liberals. Maybe a small contingent of lefties. But they already know the story about America's lethal addiction to living on borrowed money.
• Conservatives. No way. They actually love big deficits and big federal debt. That money comes out of taxpayers' wallets, pays for their wars and all the profitable deals with China and oil producers that make neocons personally rich.
• Main Street. The other 95% of Americans are too focused on their own personal problems; gas, food, rent, foreclosures, inflation, teen pregnancies, credit-card fees, outsourced jobs, and so much more. They'll go to the new Bond film, or stay home and watch the new fall shows, like "Terminator," "Prison Break" and "Fringe."

Interesting article. Afterall - it's only money.

 

[mheslep]

The point I find interesting about the Freddie/Fannie seizure: The government now controls all of those mortgages which means their subject to political influence. Many of those mortgages are owned by under water home owners and who are considering just turning in the keys and walking on the loan. So, is the government going to follow A) the Bad Cop plan of tough financial policy, recovering as much as possible, or B) the Good Cop plan of give the mortgage holders a pass as was proposed by Sen Clinton and now by Congress IIRC.

 

[edward]

The point I find interesting about the Freddie/Fannie seizure: The government now controls all of those mortgages which means their subject to political influence. Many of those mortgages are owned by under water home owners and who are considering just turning in the keys and walking on the loan. So, is the government going to follow A) the Bad Cop plan of tough financial policy, recovering as much as possible, or B) the Good Cop plan of give the mortgage holders a pass as was proposed by Sen Clinton and now by Congress IIRC.

The good cop plan is actually the most reasonable as far as cutting loses. Giving the home owners a restructured payment they can afford will be much better than dumping a massive number of homes on an already slow market.

Edit: In many areas forclosed home are being auctioned off for as little as $2,000, some buyers are flipping the homes on ebay.

 

[edward]

The government is going to have to be as careful getting us out of the mortgage crisis as the enttities who wrote and bought the loans were careless.

CLEVELAND (AP) - The growing trend of buying and selling foreclosed homes on eBay is making it difficult for local authorities to determine who owns homes in need of repair, several Cleveland-area officials said.

Cuyahoga County has been hit particularly hard by the nation's foreclosure crisis. In the past year, both local and outside entrepreneurs have been buying vacant houses from banks and government agencies and selling them on eBay, often to buyers who have never been to Cleveland.

Flipping homes is nothing new, but the eBay phenomenon has given the practice a new level of speed. Homes can be had for as little as a couple thousand dollars, and often come with boarded windows and stripped siding.

http://realestate.aol.com/article/_...LCOMMre00dynlsec003&ncid=AOLDSN00280000000034

http://realestate.shop.ebay.com/ite...Q_fromfsbZ0QQ_nkwuscZforclosureQQ_sacatZ12605

 

[mheslep]

The government is going to have to be as careful getting us out of the mortgage crisis as the enttities who wrote and bought the loans were careless.

Yep, as were many of the home buyers that speculated w/ no down payment, crazy ARMS, 2nd homes, etc.

 

[russ_watters]

So MSN Money is now promoting conspiracy theories? Wow.

See the name of the column you cited!: "Contrarian Chronicles". He's acknolewledging with the very title of the column that what he says is not mainstream/accepted economics. I do like that he is upfront about it, though.

That said, he doesn't go nearly as far as you do with what he said. He acknowledges that hedonics is needed, he just doesn't agree with all the calculations they've made.

 

[russ_watters]

Gulf I and Gulf II were fought with conventional weapons in which the US had overwhelming superiority in every regard.

The "overwhelming superiority" was almost entirely technological, and that's the point. Things like stealth are a direct analogue to the Russia-afghanistan situation. We didn't lose a single stealth aircraft in either war, despite the fact that they flew missions over areas that were better protected than Hanoi in Vietnam (and with spectacularly higher bombing efficiency).

Your example was in air warfare and air warfare is the place where the difference in technology makes the most difference.

The current occupation of Iraq demonstrates how asymmetrical warfare (cheap IEDs) can limit the utility of technology (armored-up ground transports). We are extremely fortunate that there is not a well-financed force arming Shiite insurgents or our troops would be in even more danger than they are.

Disrupting an occupation is another story, because high technology doesn't help you much in an occupation and therefore isn't used: it's mostly an infantry operation. So I'm not arguing that point.

Regarding the Sovs in Afghanistan, they were partly unlucky, partly unable to adapt. We found a specific vulnerability and exploited it and they didn't adapt. They were also outnumbered and trying to fight a conventional war. It is also important to remember that that is 20 years ago. In 20 years, low-tech warfare hasn't changed, but high-tech warfare has changed quite a bit. And besides - the Stinger was not exactly a low-tech weapon.

Gulf I showed that a technology-based military can defeat the military of a major world power that has only conventional technology, with a two+ order of magnitude difference in casualties.

[edit] Regarding the IEDs, they are somewhat analagous to the Stinger situation in that they found a specific vulnerability and exploited it. But a lot of the decline in violence isn't just a drop in attacks, it's a rise in our success in surviving (or even preventing) them. And that's about technology and adaptation: MRAPs, jamming, and finding/defusing them.

 

[edward]

Yep, as were many of the home buyers that speculated w/ no down payment, crazy ARMS, 2nd homes, etc.

It is easy to blame the buyers, but other entities made it happen. 1.2 million homes have been foreclosed.

During the three months ended June 30, 2.9 million homeowners, or 6.4%, were behind on their payments, up more than 25% from last year.

http://the-peoples-forum.com/cgi-bin/readart.cgi?ArtNum=4309

I doubt that they were all speculators. Most people who purchased homes in the last 2 years, even with prime mortgages, now owe more on the home than it is worth.

Dumping foreclosures on the market will drive prices down even further. Millions more people will be upside down on their loans.

If not handled with care the whole thing could become a national financial meltdown for homeowners.

People are being caught in a catch 22, they can't move to the new job location because they can't sell their existing homes.

 

[Gokul43201]

Are we taking bets on a Lehman bail-out waiting to happen? Guess we should first wait to see what they got planned in their quarterly statement coming out tomorrow.

 

[wildman]

Regarding the IEDs, they are somewhat analagous to the Stinger situation in that they found a specific vulnerability and exploited it. But a lot of the decline in violence isn't just a drop in attacks, it's a rise in our success in surviving (or even preventing) them. And that's about technology and adaptation: MRAPs, jamming, and finding/defusing them.

Our recent success has both technical and political. Unfortunately, I can't talk on the subject, but I will say that some of the recent technical solutions are really cool -- effective in both greatly reducing civilian collateral loses and killing the guys we want to kill.

 

[Astronuc]

Are we taking bets on a Lehman bail-out waiting to happen? Guess we should first wait to see what they got planned in their quarterly statement coming out tomorrow.

Lehman has limited options, e.g. layoffs and splitting off the bad investments in a separate (and high risk) entity.


Is Lehman Bros. next up for a bailout?
http://marketplace.publicradio.org/display/web/2008/09/09/lehman/



How about the Big-3 from Detroit?

Car makers want government loans too
http://marketplace.publicradio.org/display/web/2008/09/09/automakers_congress/

The thing about government bailouts is, once you start, everybody wants one. First, there was Bear Stearns. Now, there's Fannie and Freddie. And today in Washington, the car industry is looking for some love, I mean, money from Congress.

Should government help carmakers?
http://marketplace.publicradio.org/display/web/2008/09/10/wilkinson

Will Wilkinson: Detroit's "Big Three" automakers are struggling. Instead of making cars Americans want to buy, GM, Ford, and Chrysler are clamoring for tens of billions in taxpayer-subsidized government loans. Sadly, these sub-prime borrowers will likely get their cheap money. Both McCain and Obama are backing the bailout, lest the American public be visited with the calamitous extinction of the Pontiac Vibe and Chrysler Sebring.

Just this week, the government took over mortgage giants Fannie Mae and Freddie Mac. This put taxpayers explicitly on the hook for their massive liabilities. And earlier this year, the Fed opened the spigot to keep flailing investment houses afloat. There's a decent argument for these interventions. In each case, quick action might have kept these medium-sized disasters from snowballing and bringing down the whole economy. If so, the extravagant expense is worth it.

. . . .

According to David Cole at the Center for Automotive Research says because the government is requiring more fuel-efficient cars, i.e. he seems to be implying that the government is 'forcing' them to make fuel efficient cars. Um - NO! The market place is forcing them to give up SUVs (much fewer people want them or can afford them), and now there is demand for more fuel efficient vehicles.


http://marketplace.publicradio.org/episodes/show_rundown.php?show_id=14

The CEO of the New York Stock Exchange says he's thinking about the timing of when -- or if -- to de-list Fannie Mae and Freddie Mac shares from the Big Board. The two closed below a dollar today, traditionally the threshold for getting tossed.

Those who might want to would still be able to trade the shares. They'd just have to do it someplace else, through a system known as the pink sheets.

Alabama county facing bankruptcy
http://marketplace.publicradio.org/display/web/2008/09/10/alabama_bankruptcy/

Jefferson County, Alabama, has its own serious financial problems. Today, some local banks will meet with the county. They're hoping to find a way to avoid one of largest municipal bankruptcies in more than a decade.

So what's wrong with the US economy?

A lot apparently - and these problems have been developing since well before the OP.

 

[turbo]

Lehman Brothers is repositioning itself after posting huge losses - and may be for sale in its entirety.

http://news.yahoo.com/s/ap/20080910/ap_on_bi_ge/lehman_brothers;_ylt=AiEBYM6clOakSFHUJwF.4kes0NUE

 

[Astronuc]

http://dealbook.blogs.nytimes.com/2008/09/10/lehmans-fuld-speaks/

Lehman Brothers said early Wednesday that it expects to lose $3.9 billion in its fiscal third quarter, a much bigger loss than most analysts had expected, as the Wall Street firm struggles to stay afloat amid the roughest patch in its 157-year history.

The firm also said that it will spin off $25 billion to $30 billion of its commercial mortgages into a new public company to be owned by its shareholders, hiving them off from the rest of the investment bank. In addition, Lehman intends to sell a majority stake in parts of its investment management division, which includes the prized Neuberger Berman unit. And it will reduce its stock dividend to 5 cents a share.

 

[turbo]

Warren Buffett has decided to stop selling deposit insurance to banks in excess of that provided by the FDIC - a sign that he thinks the current spate of bank failures may continue.

http://online.wsj.com/article/SB122101423745118083.html?mod=hpp_us_whats_news

 

[edward]

Lehman is holding an (under) fire sale. They are selling off assets.

The embattled chief executive led a hastily scheduled 90-minute investor call Wednesday to outline a four-point plan to get Lehman (nyse: LEH - news - people ) back to profitability. The plan includes the spin-off of $30 billion worth of commercial real estate assets, the sale of $4 billion of U.K. residential real estate assets, the sale of a majority stake in Lehman's investment management business and a cut to the dividend.

http://www.forbes.com/business/2008/09/09/lehman-fuld-banking-biz-wall-cx_lm_0910lehman.html

 

[Astronuc]

The UK real estate market is apparently reeling as well, based on what I've heard about it being way over-valued. A lot of equity/value is disappearing there as well.

 

[edward]

The UK real estate market is apparently reeling as well, based on what I've heard about it being way over-valued. A lot of equity/value is disappearing there as well.

It appears that Lehman had a hand in the UK housing boom and bust.

LONDON (Reuters) - Lehman Brothers' plan to sell $4 billion of British mortgages as part of a survival strategy follows an aggressive bet on riskier UK mortgages in the last three years that has misfired.

Lehman plans to sell the UK mortgages to investment firm BlackRock Inc. as part of a far-reaching restructuring to raise much-needed capital to survive the credit crisis, it said on Wednesday.

In 2006 and early 2007, Lehman led a pack of investment banks who expanded from securitising mortgages to offering their own UK mortgages during the housing boom.

http://www.reuters.com/article/fundsFundsNews/idUSLA36656020080910

 

[Astronuc]

Just some more indication of how strong the economy is - NOT.

In Frantic Day, Wall St. Banks on Edge
http://www.nytimes.com/2008/09/15/business/15lehman.html

Lehman Expected to File for Bankruptcy - Unbelievable!

In one the most dramatic days in Wall Street history, Merrill Lynch was near a deal to avert a financial crisis, while Lehman Brothers hurtled toward liquidation.

Rush Is On to Prevent Big Insurer From Failing
http://www.nytimes.com/2008/09/15/business/15aig.html
By GRETCHEN MORGENSON and MARY WILLIAMS WALSH

State insurance regulators and executives of A.I.G. rushed on Sunday to arrange a capital infusion to stabilize the company in the face of possible credit downgrades.

Nation’s Financial Industry Gripped by Fear
http://www.nytimes.com/2008/09/15/business/15street.html

Fear and greed are the stuff that Wall Street is made of. But inside the great banking houses, those high temples of capitalism, fear came to the fore this weekend.

As Lehman Brothers, one of oldest names on Wall Street, appeared to unravel on Sunday, anxiety over the bank’s fate — and over what might happen next — gripped the nation’s financial industry. By late afternoon, Merrill Lynch, under mounting pressure, entered into talks to sell itself to Bank of America.

Dinner parties were canceled. Weekend getaways were postponed. All of Wall Street, it seemed, was on high alert.

In skyscrapers across Manhattan, banking executives were holed up inside their headquarters, within cocoons of soft rugs and wood-paneled walls, desperately trying to assess their company’s exposure to the stricken Lehman. It was, by all accounts, a day unlike anything Wall Street had ever seen.

In the financial district, bond traders, anxious about how the markets would react on Monday, sought refuge in ultrasafe Treasury bills. Greenwich, Conn., that leafy realm of hedge fund millionaires and corporate chieftains, felt like a ghost town. Greenwich Avenue, which usually bustles on Sundays, was eerily quiet.

It will be interesting to see if or how far the Dow and stock markets plunge. If there is a lot of cross investment, this could be the beginning of a crash! This reminds me of the crash of the PennCentral in 1969.

 

[mheslep]

Just some more indication of how strong the economy is - NOT.

In Frantic Day, Wall St. Banks on Edge
http://www.nytimes.com/2008/09/15/business/15lehman.html

...Dinner parties were canceled. Weekend getaways were postponed. All of Wall Street, it seemed, was on high alert...

LOL. The NYT has a strange perspective on extraordinary times. There's something else for a reporter to be wary of here: who has motivation to run around exclaiming the end is nigh? That is, the end is nigh if YOU Mr Taxpayer don't bail us (Lehman) out.

Lehman Expected to File for Bankruptcy - Unbelievable!

Why unbelievable?
http://blogs.wsj.com/deals/2008/09/...dates-wall-street-gets-set-to-make-a-killing/

...Still, there are tens of billions of dollars of Wall Street capital happy to bid for the assets. Goldman, private-equity firms like J.C. Flowers, Kohlberg Kravis Roberts, Carlyle Group, TPG or Blackstone Group, hedge funds, distressed-debt funds and sovereign-wealth funds all have capital. They are just waiting for the clearing prices on Lehman’s assets to get attractive.

Which is why a Lehman bankruptcy makes sense. Instead of a complex game of chicken between the U.S. Treasury and Wall Street, you have a straightforward auction. Lehman is broken up and its assets sold to the highest bidder. Only in this way will each buyer and the seller be able to fulfill its obligation to act in its self-interest.

Rush Is On to Prevent Big Insurer From Failing
http://www.nytimes.com/2008/09/15/business/15aig.html
By GRETCHEN MORGENSON and MARY WILLIAMS WALSH

Nation’s Financial Industry Gripped by Fear
http://www.nytimes.com/2008/09/15/business/15street.html

It will be interesting to see if or how far the Dow and stock markets plunge. If there is a lot of cross investment, this could be the beginning of a crash! This reminds me of the crash of the PennCentral in 1969.

Crash+1, 14

 

[mheslep]

Latest Sunday night updates from WSJ. BoA is buying Merrill as of an hour ago, so that should stop the OMG who's next panics. With Australia and DJ futures trading as a guide, looks like a ~3% drop is expected tomorrow. DJ September Futures down ~300 in 15 minutes to 11140 at 4PM EST, now creaping back up - 11190 8:30PM EST.
http://blogs.wsj.com/marketbeat/2008/09/14/the-mother-of-all-mondays/

UPDATE at 6:39 PM EDT: Dow Jones Industrial Average futures were down roughly 300 points in recent trading.

UPDATE at 7:04 PM EDT: The Journal reports the Merrill board is meeting now to consider a deal. Merrill shares ended trading on Friday at $17.05, down 12% from where they began the day. The shares had fallen 68% for the year to date and 77% over the last 12 months.

UPDATE at 8:26 PM EDT: Several major stock markets in Asia are closed Monday, but where there’s trading there are losses. Australian stocks were under early pressure, with financials taking a pounding. The benchmark S&P/ASX 200 was down more than 1%; shares of investment bank Macquarie Group tumbled more than 9%.

UPDATE at 8:37 PM EDT: The Journal, citing bankers, reports that the Federal Reserve will expand its lending facilities, with the central bank expected to accept a wider range of collateral, including equities, for short-term loans. The moves are expected to be temporary.

UPDATE at 8:44 PM EDT: Bank of America has reached a deal to buy Merrill Lynch for $29 a share, sources tell the Journal. The boards of both companies have approved the deal.

 

[russ_watters]

Just some more indication of how strong the economy is - NOT.

Everyone knows and accepts that the financial and construction sectors are in turmoil right now. Many people are refusing to accept that pretty much the entire rest of the economy is doing great. And that's what I like about the current situation. In previous times of misdeeds by financial companies, the misdeeds took down the rest of the economy. This time, they are in it alone.

It will be interesting to see if or how far the Dow and stock markets plunge. If there is a lot of cross investment, this could be the beginning of a crash!

How far? I think you mean IF. You tell me: with all we've seen so far, what is it going to take for a crash to start?

The Dow is almost exactly 20% below it's 52 week high, which is the definition of a Bear Market, but it is nowhere close to what happened in the last few bear markets. And it is two months since it hit that low and it has been remarkably stable - and up 6%.

In the last bear market (2002), the Dow lost 40% in a couple of months, gained most of it back, and then lost it all again in a few more - and took more than 3 years to recover back to the previous level. And about half of those drops came in crashes that took around a week.

 

[Astronuc]

Unbelievable that this mess was allowed to happen - but then it was predictable - except by those CEOs/managers running those comapnies, and by the Bush administration whose regulators seemed to have been asleep on the job. I'll have to find the piece about Phil Gramm's legislation that contribute to the current fiasco.


Meanwhile - U.S. Aug. industrial output plunges 1.1%

WASHINGTON (MarketWatch) - Led by a big drop in auto production, industrial output plunged 1.1% in August, the biggest drop since Hurricane Katrina three years ago, the Federal Reserve reported Monday. The decline was much worse than the 0.3% decline expected by economists. Industrial production has now fallen 1.5% in the past year and 2% since the peak in January. Falling motor vehicle production accounted for about half the drop in output in August, the Fed added. Manufacturing output declined 1% in August. . . . .

And the downturn will likely continue in September, especially with the damage inflicted by Ike.

Lehman bankruptcy filing shows $613 billion debt against total assets of $639 billion. AXA, ClearBridge Advisors and FMR, parent of Fidelity Investments, as Lehman's three largest stockholders, will take hits.

Meanwhile, AIG reportedly seeks $40 billion loan from Fed

AIG, is scrambling to avoid a threatened downgrade from credit-rating agencies, the Times said. An unidentified person close to the company said AIG may survive only 48 to 72 hours after such a downgrade, the Times added.

AIG shares were down more than 45% in premarket trading Monday morning. . . . .

The DOW dropped as predicted, but recovered somewhat. Perhaps a volatile session as the markets react to the troubles in the financial sector and digest the larger than expected dropped in industrial output.

The good news is that the price of oil keeps dropping.

 

[Jimmy Snyder]

Lehman bankruptcy filing shows $613 billion debt against total assets of $639 billion.

There must be more to this. I should be so lucky as to have $26 billion more in assets than liabilities. Perhaps they carry non-performing assets on the books.

 

[Art]

Everyone knows and accepts that the financial and construction sectors are in turmoil right now. Many people are refusing to accept that pretty much the entire rest of the economy is doing great. And that's what I like about the current situation. In previous times of misdeeds by financial companies, the misdeeds took down the rest of the economy. This time, they are in it alone.

Given the direct connection between the financial institutions and businesses which between them are the economy this is like saying the Titanic is sinking but my cabin has never looked so well so everything must be okay.

Because of other banks exposure to Lehman's millions of people will be affected indirectly as the credit crunch is going to tighten even further and if AIG falls, as is rumoured, then millions of businesses and individuals will be directly affected not just in America but worldwide.