Global Economies in trouble.

[dre]

That just shows that you have no historical context for your opinions. What is happening now is a joke, a minor inconvenience, a blip. It's not even in the same category as periods of time when vast numbers of people were thrown into real hardship, despite media hype.

That just shows that you have no historical context for your opinions.

Blah blah blah? blah. Blah blah.

What is happening now is a joke, a minor inconvenience, a blip. It's not even in the same category as periods of time when vast numbers of people were thrown into real hardship, despite media hype.

Not really. What we have now is a system where a large percentage of the financial industry is actively trying to crash the economy as a means of making profit. And you have securitization being used to hide all the bad paper involved. And regulators doing nothing about it. The sub-prime meltdown in 2008 was just a pre-cursor. The great depression at least wasnt a deliberate act.

[Bonam]

Blah blah blah? blah. Blah blah.

What an intelligent reply.

Not really. What we have now is a system where a large percentage of the financial industry is actively trying to crash the economy as a means of making profit. And you have securitization being used to hide all the bad paper involved. And regulators doing nothing about it. The sub-prime meltdown in 2008 was just a pre-cursor. The great depression at least wasnt a deliberate act.

Blah blah blah? blah. Blah blah.

[dre]

What an intelligent reply.

Blah blah blah? blah. Blah blah.

That reply was only focused on your retarded little personal attack. I addressed the rest of your post, and explained why the modern meltdown was different. Not suprised at all that you refused to comment.

Like I said... the difference this time around is that you have a large part of the financial sector actively trying to inflate huge bubbles because they make zillions of dollars on it, and hiding risk by bundling it into securities.

The great depression was a real economic crash, as opposed to an act of economic sabatauge.

Edited January 27, 2011 by dre

[TimG]

That just shows that you have no historical context for your opinions. What is happening now is a joke, a minor inconvenience, a blip. It's not even in the same category as periods of time when vast numbers of people were thrown into real hardship, despite media hype.

The government debt levels have me really concern. There is no historical precident for the combination of an aging population, fiat currencies and large government debts. I starting to feel more and more like a giant ponzi scheme that is going to collapse.

[dre]

The government debt levels have me really concern. There is no historical precident for the combination of an aging population, fiat currencies and large government debts. I starting to feel more and more like a giant ponzi scheme that is going to collapse.

Thats a big concern. But the biggest concern is securitization, and the unregulated shadow banking system. And nothing at all was done to fix any of it. Furthermore all the bad actors were bailed out with public money so they have an incentive to continue this behavior.

Ya know how big the Credit Default Swap market is? 45 TRILLION dollars. All COMPLETELY unregulated, and all enabled by Senator Phil Gramm in the Commodity Futures Modernization of Act of 2000. Since that act has been passed the CDS Market has grown by 44 TRILLION dollars.

This is what caused the housing bubble and all the risky behavior.

Heres essentially how the scam works.

Step 1.

You lend money to a sketchy borrower and then you insure that loan on a credit default swap (CDS). If that borrower defaults (and youre pretty sure they will) then the CDS will pay you out a wack of cash essentially insuring you against defaults. Sweet right? Lend money to Rufus the Stunt Bum, and you dont have to worry about him defaulting because youve "insured" his loan on a CDS. Companies were lending money to people they KNEW would default! Thats how the housing bubble got inflated.

Step 2.

Now that you have all these CDS insured loans step 2 of the scam can begin. You take all these bogus loans, and you bundle them into derivitives (Mortgage Backed Securities). Then you sell all these securities instruments to global investors without disclosing that theyre full of loans that you know are going to default.

Step 3.

This the beautifull part. Ok... you remember the CDS insured MBS's from Step 1 and Step 2 that you sold to investors? Well... you know the loans you bundled into those securities are going to default, because you made the loans to people with no ability to pay them back! So now you SHORT SELL them! You place bet on those exact same securities to fail The same fucking securities that you just pitched and sold to global investors

And finally?

Step 4

So youve pulled all this money out of your investment bank during steps 1, 2, and 3. And now you have the GLUT of foreclosures/defaults that you INTENTIONALLY CAUSED, then BET ON HAPPENING (by shortselling your own securities) and you tell the governments financial staff (who are investment bankers that worked for you up until a couple years before ) that you need to be bailed out because youre "TOO BIG TO FAIL".

Not a THING has been done to stop this from happening again.

Edited January 28, 2011 by dre

[Bonam]

Thats a big concern. But the biggest concern is securitization, and the unregulated shadow banking system. And nothing at all was done to fix any of it. Furthermore all the bad actors were bailed out with public money so they have an incentive to continue this behavior.

Ya know how big the Credit Default Swap market is? 45 TRILLION dollars. All COMPLETELY unregulated, and all enabled by Senator Phil Gramm in the Commodity Futures Modernization of Act of 2000. Since that act has been passed the CDS Market has grown by 44 TRILLION dollars.

This is what caused the housing bubble and all the risky behavior.

Heres essentially how the scam works.

Step 1.

You lend money to a sketchy borrower and then you insure that loan on a credit default swap (CDS). If that borrower defaults (and youre pretty sure they will) then the CDS will pay you out a wack of cash essentially insuring you against defaults. Sweet right? Lend money to Rufus the Stunt Bum, and you dont have to worry about him defaulting because youve "insured" his loan on a CDS. Companies were lending money to people they KNEW would default! Thats how the housing bubble got inflated.

Step 2.

Now that you have all these CDS insured loans step 2 of the scam can begin. You take all these bogus loans, and you bundle them into derivitives (Mortgage Backed Securities). Then you sell all these securities instruments to global investors without disclosing that theyre full of loans that you know are going to default.

Step 3.

This the beautifull part. Ok... you remember the CDS insured MBS's from Step 1 and Step 2 that you sold to investors? Well... you know the loans you bundled into those securities are going to default, because you made the loans to people with no ability to pay them back! So now you SHORT SELL them! You place bet on those exact same securities to fail The same fucking securities that you just pitched and sold to global investors

And finally?

Step 4

So youve pulled all this money out of your investment bank during steps 1, 2, and 3. And now you have the GLUT of foreclosures/defaults that you INTENTIONALLY CAUSED, then BET ON HAPPENING (by shortselling your own securities) and you tell the governments financial staff (who are investment bankers that worked for you up until a couple years before ) that you need to be bailed out because youre "TOO BIG TO FAIL".

Not a THING has been done to stop this from happening again.

Based on this description, there are two things that I see as wrong and needing of fixing:

1) The contents of any securities sold should be fully disclosed

2) The government should not be bailing out failed financial institutions

Nothing wrong with any of the rest of it though, that's just business.

[maple_leafs182]

GDP is calculated by adding consumption + investment + government spending + net exports.

A recession is when I think there is two consecutive quarters where GDP falls.

The only thing that has been bringing GDP up is government spending.

Of course there is gonna be a temporary recovery if you pump trillions of dollars into an economy and loan trillions more which the Federal Reserve is doing.

If you know anything about economics you know the only way to generate wealth is threw production. Until America gains a productive capacity, there will be no recovery.

I know Ben Bernake says inflation is contained but when he talks inflation he is only talking about core inflation which doesn't take into consideration food, oil and gas prices, the things that people buy the most. Food and gas prices are rising, the cost of living is rising as a result of all the money being pumped into the economy. As the cost of living rises, people won't be able to afford to buy as much, this will hurt the economy.

I wanna say that once QE2 ends and we get back to the real economy things will start to collapse but chances are there will be QE3 and QE4 which will be larger then the others and bring down the value of the dollar and increase the cost of living even more which will hurt the economy even more.

All that is happening now is we are delaying the collapse while making it bigger problem.

You guys say that this is just a blip, why is it just a blip, what makes you say that, is it because GDP is rising?

[dre]

Based on this description, there are two things that I see as wrong and needing of fixing:

1) The contents of any securities sold should be fully disclosed

2) The government should not be bailing out failed financial institutions

Nothing wrong with any of the rest of it though, that's just business.

I think the whole concept of CDS's should be looked at. These never even existed before 1998 and were created by Morgan Stanley for the purpose of offloading risk to third parties. Now youre probably thinking "Whats wrong with that? How is any different than me insuring my house?". The problem is that encourages high risk behavior. The risk of defaults was what made lenders properly screen borrowers. If lenders can offload that risk then a lot of people will get loans that really shouldnt get them, and well have more meltdowns.

The other thing thats really sketchy about CDSs is that you can now use them simply as a betting house. Meaning you can actually by default insurance against other peoples loans . Yeah... Im not kidding. I hedge fund can go to a CDS and they can buy default insurance against loans made by a third party to a fourth party and so on.

I also find it to be unscrupulous and completely dishonest that investment banks can short sell their own securities. Thats like a car dealer giving you a sales pitch about how great the car is, and making money from selling you that car... then taking that money they made selling you the car and using it to place a bet that the car they sold you wont last a week. Theres no way a market maker should be allowed to bet against their securities while theyre actively telling you how great and safe they and how you should buy them

Not only should they regulate credit default swaps but they should regulate derivitives as well.

[dre]

You guys say that this is just a blip, why is it just a blip, what makes you say that, is it because GDP is rising?

Most of the people that express much confidence in the financial system do so simply because they dont understand it.

[Bonam]

I think the whole concept of CDS's should be looked at. These never even existed before 1998 and were created by Morgan Stanley for the purpose of offloading risk to third parties. Now youre probably thinking "Whats wrong with that? How is any different than me insuring my house?". The problem is that encourages high risk behavior. The risk of defaults was what made lenders properly screen borrowers. If lenders can offload that risk then a lot of people will get loans that really shouldnt get them, and well have more meltdowns.

But the third party is willing to purchase the securities, hence they willingly accept the risk. Like I said, the contents of these securities should be disclosed. If an insurance company wants to sell insurance on very risky things, that is their choice. If it is as risky as that, and the insurance companies know it, they will charge a very high premium on that insurance, and that will have to be factored into the interest rate that the lender charges the borrower, which will deter the borrower from borrowing if they can't afford it.

I also find it to be unscrupulous and completely dishonest that investment banks can short sell their own securities. Thats like a car dealer giving you a sales pitch about how great the car is, and making money from selling you that car... then taking that money they made selling you the car and using it to place a bet that the car they sold you wont last a week. Theres no way a market maker should be allowed to bet against their securities while theyre actively telling you how great and safe they and how you should buy them

Honestly, I would not be against a restriction of this nature. I don't see it as absolutely necessary, but I have no real reason to oppose it. Short selling as a whole needs to remain allowed though, it is part of the efficiency of capital markets, without it, you get a stronger tendency to form bubbles, since short selling is the mechanism by which investors can make money from accurately forecasting that something will decline in value.

Not only should they regulate credit default swaps but they should regulate derivitives as well.

Regulation is great and all but it adds overhead costs and impedes individual investors who have to wade through all the red tape themselves, not having a financial department to do it for them. Regulations, while they can prevent some types of behavior, in the end only favor large established entities that can navigate all the fine print accurately while providing a barrier to individuals and smaller entities.

[Bonam]

Most of the people that express much confidence in the financial system do so simply because they dont understand it.

Oh, I have no particular confidence in the financial system, which is fraught with problems. What I do have confidence in is the underlying economy, the growth of which is correlated to technological progress to an extent that completely dominates over all other factors, such as the financial system.

[dre]

But the third party is willing to purchase the securities, hence they willingly accept the risk. Like I said, the contents of these securities should be disclosed. If an insurance company wants to sell insurance on very risky things, that is their choice. If it is as risky as that, and the insurance companies know it, they will charge a very high premium on that insurance, and that will have to be factored into the interest rate that the lender charges the borrower, which will deter the borrower from borrowing if they can't afford it.

Honestly, I would not be against a restriction of this nature. I don't see it as absolutely necessary, but I have no real reason to oppose it. Short selling as a whole needs to remain allowed though, it is part of the efficiency of capital markets, without it, you get a stronger tendency to form bubbles, since short selling is the mechanism by which investors can make money from accurately forecasting that something will decline in value.

Regulation is great and all but it adds overhead costs and impedes individual investors who have to wade through all the red tape themselves, not having a financial department to do it for them. Regulations, while they can prevent some types of behavior, in the end only favor large established entities that can navigate all the fine print accurately while providing a barrier to individuals and smaller entities.

But the third party is willing to purchase the securities, hence they willingly accept the risk. Like I said, the contents of these securities should be disclosed. If an insurance company wants to sell insurance on very risky things, that is their choice. If it is as risky as that, and the insurance companies know it, they will charge a very high premium on that insurance, and that will have to be factored into the interest rate that the lender charges the borrower, which will deter the borrower from borrowing if they can't afford it.

Absolutely... the concept is logically sound, but look at what the result was. CDS's provided a place where you could hide risk. Its a form of fraud. Really its no different than what Enron did a few years before, except that those guys got sent to prison.

Honestly, I would not be against a restriction of this nature. I don't see it as absolutely necessary, but I have no real reason to oppose it. Short selling as a whole needs to remain allowed though, it is part of the efficiency of capital markets, without it, you get a stronger tendency to form bubbles, since short selling is the mechanism by which investors can make money from accurately forecasting that something will decline in value.

I essentially agree. I wouldnt ban short selling but I would definately intentionally selling your customers bogus products then placing bets that the products will fail.

Regulation is great and all but it adds overhead costs and impedes individual investors.

It doesnt create as much overhead or impede individual investors as much as crashing the worlds economy, then siezing trillions of dollars from tax payers to bail it out.

[GostHacked]

Oh, I have no particular confidence in the financial system, which is fraught with problems. What I do have confidence in is the underlying economy, the growth of which is correlated to technological progress to an extent that completely dominates over all other factors, such as the financial system.

If the financial system is broken, would that not affect the overall economy?

[M.Dancer]

Not really. What we have now is a system where a large percentage of the financial industry is actively trying to crash the economy as a means of making profit. And you have securitization being used to hide all the bad paper involved. And regulators doing nothing about it. The sub-prime meltdown in 2008 was just a pre-cursor. The great depression at least wasnt a deliberate act.

I suggest increasing your tinfoil investments

[Bonam]

If the financial system is broken, would that not affect the overall economy?

Yes, it would affect it. And I'm sure the financial system, due to its many flaws, affects the economy adversely. Of course, whether flawed or not, it does also enable the economy to function to the extent that it does. But my main point is that that effect is small compared to the effect of technological progress, which is the underlying trend and cause for the exponential economic growth that we have seen unabated in the Western world for over 200 years, with the world's greatest wars and depressions barely denting the exponential growth trend.

[dre]

I suggest increasing your tinfoil investments

Thats not conspiracy theory in any way. Its EXACTLY what happened, and that fact is not even contraversial or disputed. Why dont you try reading about it?

[dre]

Oh, I have no particular confidence in the financial system, which is fraught with problems. What I do have confidence in is the underlying economy, the growth of which is correlated to technological progress to an extent that completely dominates over all other factors, such as the financial system.

I dont think you can really separate the economy from the financial system in that way. The financial system is the engine that allocates capital to various enterprises which is a big part of what drives economic activity in a capitalist system.

[Bonam]

I dont think you can really separate the economy from the financial system in that way. The financial system is the engine that allocates capital to various enterprises which is a big part of what drives economic activity in a capitalist system.

Yeah and while it might not be optimal it does so to a sufficient extent to allow that capital to be allocated in some way. Sure, it could be better, but it doesn't have to be... it allows sufficient freedom of the flow of capital so as not to drastically impede technological progress, and that's what matters.

[dre]

Yeah and while it might not be optimal it does so to a sufficient extent to allow that capital to be allocated in some way. Sure, it could be better, but it doesn't have to be... it allows sufficient freedom of the flow of capital so as not to drastically impede technological progress, and that's what matters.

Thats historical true! There has been an unpresidented period of economic growth, technological progress, and human development under the fractional reserve / financial market system. But things are changing now, and that may not be the case for much longer.

[Bonam]

Thats historical true!

Glad you agree.

But things are changing now, and that may not be the case for much longer.

How so?

[dre]

Glad you agree.

How so?

Its basically turned into a big Ponzi scheme and the financial industry is so closely tied to the givernment that they can deregulate themselves and take whatever risks they want and they know government will just steal a few trillion dollars from people that arent even born yet to bail them out. The system does not encourage risk averse behavior like it used to.

[Bonam]

Its basically turned into a big Ponzi scheme and the financial industry is so closely tied to the givernment that they can deregulate themselves and take whatever risks they want and they know government will just steal a few trillion dollars from people that arent even born yet to bail them out. The system does not encourage risk averse behavior like it used to.

And?

[dre]

And?

And what?

I said...

But things are changing now.

You said...

How so?

I answered.

[Bonam]

And what?

I said...

But things are changing now.

You said...

How so?

I answered.

Right, but I don't see how any of those changes will fundamentally effect the fact that technological progress will continue or that it is the main driver of economic growth. Big numbers will get thrown around and media will hype about recessions and financial problems meanwhile real people will keep on working, innovating, and making the world a richer place.

[GWiz]

Right, but I don't see how any of those changes will fundamentally effect the fact that technological progress will continue or that it is the main driver of economic growth. Big numbers will get thrown around and media will hype about recessions and financial problems meanwhile real people will keep on working, innovating, and making the world a richer place.

Sorry, gotta disagree with you here, at the rate the US has been printing money with no backing for it any other country would have an almost worthless currency... Actually so would the states, but the US's creditors, in particular China, don't want to "pull the plug" and lose their hold on the US economy... When you spend 4 Trillion and only take in 2 Trillion it's just a matter of time before the collapse happens... You might want to start learning Mandarin, eh... Incidently, the US banks know this, that's why they're converting credit into hard assets like property - to cash on hand even if it's only pennies on the dollar... Foreclosing on property that's only worth 10% of what's owed on it, and not even trying to collect what you can only makes sense if you are divesting credit into cash on hand... America, ergo the world, is in financial trouble, it'll be worse, probably by a lot, than the '08 downfall...