Chile Forum

are we going to have food riots in LA and New York?

Not to get into worst case scenarios but the proximity to such an event increases in direct proportion to the C.P.I.
On the other hand, at the fonda, it increases in direct proportion to the C.H.I.C.H.A. Acronyms aren't my strong point but I bet Gloria can decipher that one.

I just read an article that suggested Lehman's collapse was due to speculation in commodities (especially oil), not the real estate market. Something like a margin call after oil prices dropped to a certain level, and then the London commodities exchange banned Lehman last Monday (fears it couldn't meet its margin call, which coincides with the news that began last Friday that Lehman was going under, and the Fed bailout on Monday).

I'm sure real estate had something to do with it, such as diminishing Lehman's cash reserves and ability to meet a margin call. But, it's interesting if the "bailout" phenomenon is taking on a new life, where Wall St. banks are being aggressive in other areas and expecting bailouts (moral hazard), and the public sees it as just one continuous event related to the residential housing bubble.

Back when the Fed slashed interest rates to help the banks (last Sept. through Dec?), there were stories that the banks who were supposed to be helped by this (creating liquidity) began a "carry trade." They began using the newly-available cheap money to invest in risky instruments. Makes me wonder if Lehman's (purported) exposure to oil had anything to do with that cheap money. Instead of using the money to renegotiate mortgage defaults, etc., they ran off and leveraged oil? And now they're being bailed out again?

Makes me curious what AIG's collapse is related to. Is it really the real estate bubble? Or, were they speculating on commodities too? And, did the Fed's cheap-money bailout last year contribute to their speculation?

I'm not really opposed to bailouts. I think the alternative would be worse. I'm just repulsed by the US habit of never taking small steps to moderate "free market" actions which we know could require society to "bail out" the "free marketeers." There's never a sensible middle ground. Even after we've bailed out banks with deep interest rate cuts, there was little talk about how to regulate those banks to limit society's exposure in the future. And now, it sounds like the bailout itself was abused, leading to more bailouts. This is so typically US.

Mark

All the central banks working together ...

I saw an article early this morning that had a tone of alarm - the central banks working together to avert disaster - but this one up a couple hours later seems to be much more positive, business as usual. This is not usual.

Fed, central banks move to boost global confidence

By ELLEN SIMON, AP Business Writer
1 hour, 47 minutes ago

NEW YORK - The Federal Reserve, working with central banks in Europe, Canada and Asia, pumped as much as $180 billion into money markets on Thursday to combat a seizing up of lending between banks that is intensifying global financial crisis.

http://news.yahoo.com/s/ap/20080918/ap_ ... c6xidv24cA

Here's another one:

Central banks launch $300 billion assault on credit crisis

NEW YORK (AFP) - Central banks threw more than 300 billion dollars at the global credit storm Thursday as pressure mounted on Wall Street legend Morgan Stanley and Swiss bank UBS.

http://news.yahoo.com/s/afp/20080918/ts ... ncebanking

eeuunikkeiexpat wrote:QUOTE OF THE DAY

Chavez nationalizes winners.
The US nationalizes losers.

Another cute slogan heard today:

Socialism for the wealthy.
Capitalism for the poor.

Mark

So basically the Federal Reserve and Treasury have lost their minds and the U.S. CONgress pretends like they don't understand what is happening...Either way, what has happened here in the last weeks is what happened in October, 1929...What is coming will be unprecedented. Stocks will open with 'no bids'....Of this I am certain...The crash will be terrific and it will be worldwide....The time has come to set things straight from this fraudulent credit bubble....

If memory serve me right, in 1929 the government acted after the crash, here they are trying to give the financial system a floor by purchasing all the bad debt, hold that for a while and then marketed out again to the public once things get better, of course that may take a long time.

What I do know for sure is that regulators are going to be busy very soon..

Hughjb wrote:If memory serve me right, in 1929 the government acted after the crash, here they are trying to give the financial system a floor by purchasing all the bad debt, hold that for a while and then marketed out again to the public once things get better, of course that may take a long time.

What I do know for sure is that regulators are going to be busy very soon..

I agree. I don't know if it will work. But, we have plenty of experience with truly "free" markets not working (and a long history of socially moderating markets for stability as a result). This article about "credit default swaps" have contributed to today's problems, and how they were a way to evade the regulation that was placed upon insurance companies after they were abused decades ago:

www [dot] moneyandmarkets [dot] com/Issues.aspx?I-Have-Seen-the-Enemy-and-He-is-CDS-2279

I think the problem we've had for the past few years is that we dismissed everything as "it's just a free market." We didn't objectively examine things like CDSs, CDOs (and the other new and exotic investment vehicles) to see if they were just a way around decades of regulations that resulted from abuse of traditional investment institutions. We waited until it reached critical mass, and then said "oh yeah, that's right, free markets don't work." It seems like it would have been much less painful if we'd admitted that back when everything looked rosy, and greed ruled the day.

Mark

What really looks fishy is all these 'experts' who for years ignored the problems with over priced stock and real estate and kept pumping stocks all at once decided that everything was falling apart.

Now we find out that the Federal Reserve, a privately owned bank is buying out Fannie and Freddie. Doesn't any one else smell a rat?

That is what happens when a house of cards is build it only takes a little push for it to fell down and BTW the Federal Reserve is a Government Entity.

The Federal Reserve System is the part of government that regulates the private banks. The balance between privatization and government involvement is also seen in the structure of the system. Private banks elect members of the board of directors at their regional Federal Reserve Bank while the members of the Board of Governors are selected by the President of the United States and confirmed by the Senate. The private banks give input to the government officials about their economic situation and these government officials use this input in Federal Reserve policy decisions. In the end, private banking businesses are able to freely run a profitable business while the U.S. government, through the Federal Reserve System, oversees and regulates the activities of the private banks.

In effect the Gov. is bailing out this companies, what I do hope although is it unlikely that fines and limits on compensation are place on the CEO so they are kept from running the companies into the ground on account of greed!

Source?? For the benefit of discussion for the others that disagree.

Me, I say run and protect yourselves and argue about the details after the dust settles.

Have reentered the waters with a small spec position in AG. Do not want to lose out on the obvious precedent and implications to reinflate the system now that the bank and insurance industries have been nationalized. Guess the auto, airline and _______, _______, _______, _______, <fill in the blanks> are next.

Good luck.