molson_golden2002 Posted September 17, 2008 Share Posted September 17, 2008 I know. I just wanted to point out as well to Stupid up there that bubbles aren't new, nor are they unique to the US. Isn't having "Stupid" in your name just asking for trouble? Link to comment Share on other sites More sharing options...
DC Tom Posted September 17, 2008 Share Posted September 17, 2008 Isn't having "Stupid" in your name just asking for trouble? It certainly made it easier for me to pigeonhole him. Barely had to read his posts. Imagine if all our screen names were so descriptive. "Hi, I'm Arrogant Abusive Know-It-All in DC." Link to comment Share on other sites More sharing options...
TPS Posted September 17, 2008 Share Posted September 17, 2008 It certainly made it easier for me to pigeonhole him. Barely had to read his posts. Imagine if all our screen names were so descriptive. "Hi, I'm Arrogant Abusive Know-It-All in DC." That was funny. Sometimes you are almost likeable... Link to comment Share on other sites More sharing options...
DC Tom Posted September 17, 2008 Share Posted September 17, 2008 So much for all those free market traders. I am glad that the financial markets were helped, a guess Keynesian principals work! To answer your original question...I'm not sure. The Bear-Stearns "bailout" I accepted as a necessary evil to maintain market liquidity and not so much a government bailout as a government-brokered bailout. Fannie and Freddie...again, not so much a criticism of the free market since it's arguable that as GSE's they didn't truly represent the free market anyway. The AIG bailout, however...yeah, you could use the same argument as for Bear-Stearns: propping them up is necessary to maintain market liquidity. However, we also just saw a private company basically get nationalized for the sake of maintaining liquidity. I don't know that that's socialism, truly...but I also don't know that you can't call it socialistic. I do know that, as a believer in free markets, I'm not entirely comfortable with this bailout, though, because it does seem a little too socialistic for me to be comfortable with. Link to comment Share on other sites More sharing options...
bills_fan Posted September 17, 2008 Share Posted September 17, 2008 To answer your original question...I'm not sure. The Bear-Stearns "bailout" I accepted as a necessary evil to maintain market liquidity and not so much a government bailout as a government-brokered bailout. Fannie and Freddie...again, not so much a criticism of the free market since it's arguable that as GSE's they didn't truly represent the free market anyway. The AIG bailout, however...yeah, you could use the same argument as for Bear-Stearns: propping them up is necessary to maintain market liquidity. However, we also just saw a private company basically get nationalized for the sake of maintaining liquidity. I don't know that that's socialism, truly...but I also don't know that you can't call it socialistic. I do know that, as a believer in free markets, I'm not entirely comfortable with this bailout, though, because it does seem a little too socialistic for me to be comfortable with. I understand your concern about AIG, but how much do you really know about them? Absent an AIG "bailout," we would be in 1929 territory today. At least a dozen regional banks and at least one national bank would have failed...overnight. The market would be trading in the 8000-9000 range, if at all. The market knew that AIG had to be saved, LEH did not. And I really think the "bailout" and its draconian terms will force AIG to cease to exist. It just bought AIG time for an orderly liquidation, without cancelling all of its counterparty insurance contracts. That would have happened in bankruptcy court. As an aside, I believe that Moodys and S&P are two of the most loathsome entities on earth. After their substantial role in creating this mess, to pull an 11th hour downgrade and obliterate a Dow component, is the ultimate in hypocrisy. AIG had a chance, albeit a small one, before the downgrade. After, they were toast. The rating agencies should be legislated out of existence, and thats not a concept in which I tread lightly. Link to comment Share on other sites More sharing options...
DC Tom Posted September 17, 2008 Share Posted September 17, 2008 I understand your concern about AIG, but how much do you really know about them? Absent an AIG "bailout," we would be in 1929 territory today. At least a dozen regional banks and at least one national bank would have failed...overnight. The market would be trading in the 8000-9000 range, if at all. The market knew that AIG had to be saved, LEH did not. And I really think the "bailout" and its draconian terms will force AIG to cease to exist. It just bought AIG time for an orderly liquidation, without cancelling all of its counterparty insurance contracts. That would have happened in bankruptcy court. I know quite a bit, albiet not as much as I'd like, and I'm well aware it "had" to be saved...in that the reprucussions of having AIG fail were severe. I'm just not sure, as someone who believes in the free market, I'm comfortable with it philosophically. Frankly, a lot of these companies deserve everything they're getting for their stupidity (and despite the "government bailouts", I'm not under the illusion that any of these companies or their officers are getting off easy in these deals). The government's deal with them, I find...interesting. An $85 billion loan and 80% of the company? "Draconian" barely covers it. I don't know all the details of the deal (haven't had time to look), but by the broad terms I've heard, it's theoretically possible for the government to turn a profit on the deal. As an aside, I believe that Moodys and S&P are two of the most loathsome entities on earth. After their substantial role in creating this mess, to pull an 11th hour downgrade and obliterate a Dow component, is the ultimate in hypocrisy. AIG had a chance, albeit a small one, before the downgrade. After, they were toast. The rating agencies should be legislated out of existence, and thats not a concept in which I tread lightly. Or better yet...the market could stop taking their ratings as gospel. If there's only one thing that Michael Milken managed to demonstrate with junk bonds, it's that the ratings agencies' ratings aren't absolute measures of credit worthiness. Link to comment Share on other sites More sharing options...
Dwight Drane Posted September 17, 2008 Share Posted September 17, 2008 Yes. We all recall. How are the commodities doing? Now that was perfect timing! That was like walking into the Atlanta mall and buying an authentic Michael Vick jersey, as the swat team showed up at his house! Link to comment Share on other sites More sharing options...
bills_fan Posted September 17, 2008 Share Posted September 17, 2008 I know quite a bit, albiet not as much as I'd like, and I'm well aware it "had" to be saved...in that the reprucussions of having AIG fail were severe. I'm just not sure, as someone who believes in the free market, I'm comfortable with it philosophically. Frankly, a lot of these companies deserve everything they're getting for their stupidity (and despite the "government bailouts", I'm not under the illusion that any of these companies or their officers are getting off easy in these deals). The government's deal with them, I find...interesting. An $85 billion loan and 80% of the company? "Draconian" barely covers it. I don't know all the details of the deal (haven't had time to look), but by the broad terms I've heard, it's theoretically possible for the government to turn a profit on the deal. I didn't mean to imply you were uninformed. Sorry, if came out that way. The government made an $85 billion credit facility available to AIG. Any drawdown by AIG would come at a rate of 8.5% plus LIBOR. Three-month LIBOR Wednesday was fixed at 3.06%, which would put the 24-month loan’s rate currently at 11.56%, which is a harsher rate than many of the sales of preferred stock by major banking institutions over the last few months. This rate is basically onerous and AIG will aim to repay its loan with sales of businesses. As to the why... My libertarian tendencies also cause me to shirnk when the gov't "bails" out individual institutions. But it really is more like the government backstopping the entire system. Bear was "bailed out" primarily due to the speed of its demise and the fact that Bear's clearing firm Pershing, is huge. The loss of Pershing would have caused a true market crash back in March, and people did not have the time to adjust. AIG, while an insurer of everything from individuals to drilling platforms and airlines, also had almost 70% of the market share for insurance of debt instruments and derivative products, the very products that got us into this mess. This insurance is necessary as a hedge against default. This insurance is also worthless if the company goes into bankruptcy court. If its worthless, then so is the hedge. Hence, a market riot. Many banks would have been exposed, unable to hedge and would have gotten pummeled (I know, a simplistic explanation, but it really is all I can say). Or better yet...the market could stop taking their ratings as gospel. If there's only one thing that Michael Milken managed to demonstrate with junk bonds, it's that the ratings agencies' ratings aren't absolute measures of credit worthiness. Problem is many of the securities laws are written to convey certain rights and privledges on investment grade rated products. So, if a product is investment grade (as determined by the agencies), it operates according to a different set of laws than junk products (as determined by the agencies). Thats why it is such a big deal. In theory, its a good idea...have an independent 3rd party analyze the product and give it a rating. In practice, not much analysis was being done. I also just read that the bastards are now going to take a second look at Barclays, following the purchase of certain LEH assets. I don't think a downgrade is coming, but these agencies have far too much power. Link to comment Share on other sites More sharing options...
GG Posted September 18, 2008 Share Posted September 18, 2008 Problem is many of the securities laws are written to convey certain rights and privledges on investment grade rated products. So, if a product is investment grade (as determined by the agencies), it operates according to a different set of laws than junk products (as determined by the agencies). Thats why it is such a big deal. In theory, its a good idea...have an independent 3rd party analyze the product and give it a rating. In practice, not much analysis was being done. I also just read that the bastards are now going to take a second look at Barclays, following the purchase of certain LEH assets. I don't think a downgrade is coming, but these agencies have far too much power. To play a devil's advocate, let's say that the ratings agencies go away. Who is going to be the arbiter of what constitutes "investment grade?" A government agency? The issuing banks? The market? The CDS spreads on AIG were in the junk category for weeks - that would have precipitated a capital call far sooner. Plus, market based indices are very volatile. How many corporate treasurers and index bond buyers would be ok with the wild swings of market based ratings that may have little to do with a company's creditworthiness? The mess that CDS has created is a perfect example of why bond investors wouldn't like this kind of volatility. When asked by the SEC, institutional investors haven't been keen on the idea of eliminating the agencies. What they, and everyone wants, is correct ratings. Link to comment Share on other sites More sharing options...
StupidNation Posted September 18, 2008 Share Posted September 18, 2008 How do you define "big ass bubble?" Here are a few before the fed was created: US Banking crisis of 1837, speculation in cotton and land. Depression lasted until 1843. 1873 financial crisis based on railroad speculation. 1893 sliver speculation crisis and a depression that lasted 5-6 years. 1907 financial crisis related to coffee and union pacific. 1837 depression was caused in part by banks who were privatized acting as a central bank. All the other things you listed forget one thing that you conveniently left out of the historical parallel, namely, we weren't growing in debt and printing money whenever these problems arised. America could have a future when the changes in the market brought back stability. Also, local markets weren't affected in the same way they are now. When Ma and Pa Johnson wanted rice and beans as well as a hammer the local economy in many parts of the country were just fine and operated like normal. Now with a more globalized economy everyone will feel the pinch in every corner. Our country was still solvent in the face of depression, now it is not. All empires are destroyed more by their financial collapses in response to their currency than any other reason. Link to comment Share on other sites More sharing options...
meazza Posted September 18, 2008 Share Posted September 18, 2008 I know quite a bit, albiet not as much as I'd like, and I'm well aware it "had" to be saved...in that the reprucussions of having AIG fail were severe. I'm just not sure, as someone who believes in the free market, I'm comfortable with it philosophically. Frankly, a lot of these companies deserve everything they're getting for their stupidity (and despite the "government bailouts", I'm not under the illusion that any of these companies or their officers are getting off easy in these deals). The government's deal with them, I find...interesting. An $85 billion loan and 80% of the company? "Draconian" barely covers it. I don't know all the details of the deal (haven't had time to look), but by the broad terms I've heard, it's theoretically possible for the government to turn a profit on the deal. Or better yet...the market could stop taking their ratings as gospel. If there's only one thing that Michael Milken managed to demonstrate with junk bonds, it's that the ratings agencies' ratings aren't absolute measures of credit worthiness. You were right about AIG. Morgan is on the block... you think Goldman (gasp) has a possibility of being a victim? Link to comment Share on other sites More sharing options...
DC Tom Posted September 18, 2008 Share Posted September 18, 2008 You were right about AIG. Morgan is on the block... you think Goldman (gasp) has a possibility of being a victim? WaMu's just about dead, too. It'll take a miracle to save them. The prevailing attitude towards that at work is "It's about time. What took so long?" As far as I know, I don't think Goldman or Morgan are in that bad shape. Seems more to me like Morgan's trying to "partner" with a commercial bank before they lose control of their own future like Lehman did. And I wouldn't be surprised if Goldman followed them. Link to comment Share on other sites More sharing options...
erynthered Posted September 18, 2008 Share Posted September 18, 2008 The rumor mill. http://www.bloomberg.com/apps/news?pid=206...&refer=home Link to comment Share on other sites More sharing options...
DC Tom Posted September 18, 2008 Share Posted September 18, 2008 To play a devil's advocate, let's say that the ratings agencies go away. Who is going to be the arbiter of what constitutes "investment grade?" A government agency? The issuing banks? The market? How about we set up a market where borrowers can trade investment rating credits, so that a company with Aaa rating can sell some of their rating to a Ba1-rated company, thus decreasing the risk of lending to the second company. Maybe we can get Al Gore on board... Link to comment Share on other sites More sharing options...
StupidNation Posted September 18, 2008 Share Posted September 18, 2008 It certainly made it easier for me to pigeonhole him. Barely had to read his posts. Imagine if all our screen names were so descriptive. "Hi, I'm Arrogant Abusive Know-It-All in DC." Well I said "big-ass" bubble as a preface. I guess reading fundamentals is part of my screen-name, so is contextual understand of what reality is. I guess it suffices to say that you live up to the claim. Link to comment Share on other sites More sharing options...
Adam Posted September 18, 2008 Share Posted September 18, 2008 I think the "Never have regulation" and "Always have regulation" arguments are fine if you listen to Painkiller Limbaugh or Everybody Hates Olberman, but here in the real world, absolutes don't work. Link to comment Share on other sites More sharing options...
GG Posted September 18, 2008 Share Posted September 18, 2008 How about we set up a market where borrowers can trade investment rating credits, so that a company with Aaa rating can sell some of their rating to a Ba1-rated company, thus decreasing the risk of lending to the second company. Maybe we can get Al Gore on board... You already have that. It's called the CDS market. Link to comment Share on other sites More sharing options...
StupidNation Posted September 18, 2008 Share Posted September 18, 2008 I think the "Never have regulation" and "Always have regulation" arguments are fine if you listen to Painkiller Limbaugh or Everybody Hates Olberman, but here in the real world, absolutes don't work. Absolutes work in reality all the time, but not in politics. It's absolutely true that 2+2 equals 4, but not absolutely true on the best way to run a government as it is a work in progress based on factors seen and unseen. There I agree. Link to comment Share on other sites More sharing options...
meazza Posted September 18, 2008 Share Posted September 18, 2008 You already have that. It's called the CDS market. I think the true method of preventing these kind of crisis' in the derivatives market is if you make sure that the people affected and around them truly have a full understanding of these instruments. The only curriculum I know that goes into detail with complex derivatives in Canada is the CFA curriculum. I did not learn much about these products in university... Link to comment Share on other sites More sharing options...
DC Tom Posted September 18, 2008 Share Posted September 18, 2008 Absolutes work in reality all the time, but not in politics. It's absolutely true that 2+2 equals 4, but not absolutely true on the best way to run a government as it is a work in progress based on factors seen and unseen. There I agree. My GOD, you're an idiot. Even your example of an absolute isn't even an absolute. I can think of two counter-examples without even trying. Link to comment Share on other sites More sharing options...
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