Chile Forum

Chuck J 3.0 wrote:. . . . When I came back to the USA I noticed that typically norte-Americano indifference and ig-norance of the things they don't want to face. In this case the impending financial catastrophe. . . .

But this is typically human, not just American. Even among Argentines, who've gone through crisis after crisis over the past eighty years or so, ostrichlike behaviour is common.

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

Not sure if you were asking me for a source or not but how about a recording of Allan Greenspan and congressman Ron Paul

http://www.youtube.com/watch?v=9g1UtFDytfk

Another interesting series of 6 parts. http://www.youtube.com/watch?v=Wt1Lo-WPDQg

Its a really interesting series one point I thought quite appropriate for the moment was how they showed that just before each economic collapse they pumped huge amounts of money into the economy then cut back.

John

just before each economic collapse they pumped huge amounts of money into the economy then cut back

They "inject liquidity" into the market, otherwise the wheels of the economy will come to a grinding halt. In this particular case all the firms seem to be stock with worthless paper that nobody wants to buy, which is where the government money bailout comes in, 700 billion, that is a lot of pesos.

John, check pbs.org, and look for the Bill Moyers show, he's got some real interesting programs on the subject

Hughjb wrote:

just before each economic collapse they pumped huge amounts of money into the economy then cut back

They "inject liquidity" into the market, otherwise the wheels of the economy will come to a grinding halt.

I think we've been better off for that strategic, forward-thinking position instead of pure, volatile free markets (in the literal sense). I think it's a sign of maturity (or sanity) after going through periods where policy makers sat back and said "markets work themselves out." We learned society is an integral part of the "market" (in the collective sense which the term is commonly used) and there may be ways to help the market work itself out.

But, what I'm not clear about is whether it creates a different kind of undulating "market" which comes to expect moderation, and therefore returns to volatile extremes, requiring greater moderation, to the extent it's not a "market" any longer (and can't be sustained by society).

This latest thing where the Administration will buy worthless investments goes beyond what I'm comfortable with. I can see "greasing" the economic skids by loaning cheap money to business (or individuals). I can see being the "lender of last resort." But, what they're talking about now is being the "buyer of last resort." That seems a bit circular. We'll loan money when nobody else will, to buy things to keep the market going. When it seizes up enough that there aren't any buyers, we'll be the buyer too!

I just hope there is some serious retrospection about how we got here, and how the market can be better regulated to reduce the potential in the future. If two people want to buy/sell all day, in a way that they destroy each other, I don't care. But, if it has the potential to take society down with it, requiring intermediary reaction by society, I don't see anything wrong with regulation of that market.

But, I'm not certain any regulation will come out of this. When they lowered interest rates there was little or no talk about investigating what had happened, and how to prevent it. IMO, a large part of the problem is the size of investment banks. Break them up. Make them smaller so they have less potential impact (and less need for regulation). But, instead, the result of this crisis is that banks are merging, becoming fewer and larger(!).

Mark

So the $85B for AIG is for an international company, not simply a US-based one, but the US is now underwriting all of them?

Paulson says foreign banks can use U.S. rescue plan

WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson said on Sunday that foreign banks will be able to unload bad financial assets under a $700 billion U.S. proposal aimed at restoring order during a devastating financial crisis

http://news.yahoo.com/s/nm/20080921/bs_ ... cjcYpv24cA

Please make more chicha.

Another interesting point of view:

http://www.chrismartenson.com/blog/what ... means/5149

ben stein was interviewed by geraldo last night and he was "sunday morning" (the CBS show) earlier today. i thought he made some great points. among them:

1. the sub-prime mortgage loans are a problem, but a much bigger problem is the trillions of dollars in bets that that the banks made that the loans would not default (i think they call this a "default swap"). it is truly is a house of cards...wealthy people, who play golf all day and create wealth for themselves on paper while not actually producing anything of value for society or contributing anything positive to society, betting on the middle class to keep their nose to the grindstone and pay off the loans they were swindled into. now that the sky is falling, the US government has to save the system with public dollars which will, ultimately, be extracted from the middle class. US taxpayers will be paying for this for decades.

2. the bailout is coming, a massive one, that will require congressional approval. they need to act quickly, and because of this they can't put serious, thoughtful, reform measures in place right now....BUT....if the government steps in and saves these financial institutions then they are no longer "private", and the government can (should) place limits on "executive compensation" so that the criminals who raped the system don't skip away with any more than they have already stolen.

there are also some good articles on <http://www.thenation.com/>

As a result of the SEC's latest crackdown against "naked" short-selling.. hey, short-sellers, buy shorts!

cali_chile48 wrote:1. the sub-prime mortgage loans are a problem, but a much bigger problem is the trillions of dollars in bets that that the banks made that the loans would not default (i think they call this a "default swap").

For a discussion of Credit Default Swaps, see:

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

I don't know if the subprimes are necessarily the problem. It seems to me the problem is the new style of bundling mortgages into investment instruments, and there's no regulation concerning how those are rated. Investors were buying anything real-estate related. They just assumed the mortgage bank did its job correctly. The mortgage bank was paying brokers for any new paper they could create. They just assumed the brokers were following the usual conventions to qualify people. The brokers were arranging loans for everyone, regardless of ability to pay. Often not requiring proof of income, etc.

The end result was a lack of accountability throughout the system. The brokers had no fear of anything coming back on them (for poorly qualifying buyers). Banks had no fear of hiding poor-quality mortgages in a bundle. If someone else purchased it, "caveat emptor."

Additionally there is the problem with derivatives. These bundles, and the default swaps are so confusing that it's not clear who owns what. It's not clear if the institutions' books accurately reflect their assets and liabilities because these things are extremely opaque.

I think we crossed the "regulation" bridge a few months ago when the Fed had to cut interest rates. That alone (altering monetary policy for the benefit of Wall St. investment banks) should be enough reason to regulate these banks to reduce the chance that society will have to react to more "free market" episodes.

We should also go after the Wall St. employees who received absolutely obscene bonuses 2-3 years ago. They didn't receive just 10-30% bonuses. It was more like 100-300%. We should make them pay it back. Basically they were paid for implementing this nightmare, with no long-term incentives.

Mark

RWS wrote:

Chuck J 3.0 wrote:. . . . When I came back to the USA I noticed that typically norte-Americano indifference and ig-norance of the things they don't want to face. In this case the impending financial catastrophe. . . .

But this is typically human, not just American. Even among Argentines, who've gone through crisis after crisis over the past eighty years or so, ostrichlike behaviour is common.

True. It's a humanoid thing. But, it's just so evident in the USA, it's almost the defining feature of American life.

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/19/AR2008091902804.html

I found this article from the Post interesting

On a separate note the Redskins whip the Cardinals today