End of the World As We Know It

Gilbo

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You pretty much hit the nail on the head. The gov't has been tampering with the housing market for a long time (through Fannie and Freddie suppressing interest rates on high risk people and loose fiscal policies creating easy / cheap credit) and now they try to pretend they had no part in the problem, but more involvement from them is needed to fix it.
Well, like I said above, the government does need to unravel this carefully - in this specific circumstance. Freddie Mac & Fannie Mae can't just go under like any normal banks - they've gotten too huge. Like I said they insure & manage nearly 5 trillion dollars in debt, an amount equal to the total debt of the entire U.S. government (which is the most debt-ridden government in the world). At the same time, taxpayers shouldn't pick up the tab - the people who took the risk (and realized the profits) need to take the associated hit.

But in general, you shouldn't have institutions with the kind of implicit guarantees the GSEs had, nor the special rules, and these corporations need to be allowed to fail, their managers need to be publicly humiliated, and everyone who owned a piece of them needs to take the full hit they deserve --the government damn well shouldn't baby them--, because the stock holders, however much they'll cry about it when the shit hits the fan, condoned the management that got them to where they are, often because those fake assets and hidden liabilities benefited them too...

The same thing happens anywhere they get involved. If the gov't makes school tuition tax deductible or gives tuition tax credits the only thing that happens is that education get more expensive because you're effectively not paying as much for it anymore and they raise the price to compensate.
True. The half-assed way it's done in the U.S. is the problem. You can't have your cake and eat it too. In Canada, it's completely regulated, and it works much better. If you're going to offer government aid, tax credits, etc. to the population you also need to step in and tell the Universities what they can charge - otherwise the free market takes over and the Universities just factor those government subsidies into their fees.

I realize you probably object to this method on general principle, but forgetting the completely free market alternative, I think you could probably grant that the half-assed way the American government has been doing these things is the worst of both worlds.
 

jtr1962

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Lastly, jtr is a closest socialist (in that regard) who wants us all to live in gov't run housing in big cities like happened in the USSR.

Frankly I think Fannie and Freddie are just a big scam to get as many people dependent on the gov't as possible. People think they need gov't help to buy a house. :mad:
Speaking of socialism, you conveniently left out a few socialist aspects of government which you probably benefit from:

1) The home mortgage interest deduction is effectively the government paying part of your mortgage interest in the form of reduced taxes. If a similar break was available to renters then at least everyone would be treated equally under the law. I'm personally against either tax break. In fact, I'm against an income tax period because the government will always use deductions for social engineering.

2) The gasoline you use in your car has enormous indirect subsidies. Little things like foreign wars to secure oil supplies are a start. And then who pays for all the people who get sick from pollution? And who pays to clean up the mess pollution causes? This certainly isn't figured into the price of gasoline.

3) The roads and infrastructure to jump start suburban living were largely subsidized by government. They're deteriorating now in many places. The suburban residents can't be taxed at a high enough rate to even maintain the existing infrastructure, let alone rebuild it.

Funny how socialism which directly benefits you isn't seen as such. Unlike you, I realize that there are certain endeavors too huge and risky to expect private industry to lead the way, and provided these things have widespread public benefit I see nothing wrong with the government getting involved. I don't necessarily object to the government paying to build roads, for example, provided they generate enough traffic to pay for their operating expenses afterwards (note I said operating expenses, not initial cost). What I do object to is favoring roads over rail. Why is rail expected to entirely pay its own way (including the initial infrastructure), but it's OK for the government to pay for both building and maintaining roads? This has skewed the whole living arrangement we have here in favor of suburbia. Same thing with cheap gasoline.

I'm not for forcing people to live anywhere. But by the same token living in suburbia is something the majority could not afford if it wasn't indirectly subsidized. The problem with subsidies is they can't last. Now we're finally starting to pay something resembling the real cost of the fuel we're using. Cheap loans to subsidize housing in places where it wouldn't exist in a free market are finally coming to an end as well. As a result probably two-thirds of America's housing stock is no longer economically viable. People will live in a way they can afford, which will mean denser living, and for many giving up mechanized personal transportation (although bicycle usage will undoubtedly increase). And maybe rail will finally start to get the same share of subsidies as roads.

As for government-funded housing, the only reason it has existed is because the free market in some places is either unable or unwilling to provide affordable housing. Take NYC for example. All I see being built are luxury condos. That doesn't do much good for an average worker making, say, $35,000 annually. These low-wage workers perform many essential functions, and they're not going to live 150 miles from where they work just because the affordable housing might be there. Builders are astonishingly often given tax breaks to build affordable housing, and then skew the definition of affordable to deny this housing to the very people it was supposed to serve. They sell it at near market rates instead. In effect, the government tax breaks increased the profits of a private entity while failing to provide the desired public benefit. This is why housing subsidies are falling out of favor. In theory they're a good idea in some markets. In practice most of the time they end of lining the pockets of real estate developers while providing little tangible benefit. Same thing for government-funded home loans. The builders got rich. The home "owners" who were duped into buying more house than they could afford are going to lose everything. In many cases their homes are worth less than the purchase price. But the problem of where and how to house the average workers needed in big cities isn't going to go away anytime soon. Whether through direct rent subsidies or tax breaks some way needs to be found to house the influx of displaced suburban residents in the next decade in places like NYC which have a high cost of housing.

We have hard times ahead but at the same time the changes being made now are going to bring a return to normalcy. People will once again live where and how they can afford. The suburbs will largely be a place where the wealthy few live, just as it was prior to the 1950s. Remember that the cities only recently became expensive. Two generations ago there were loads of affordable middle class housing in NYC. I'm sure we can return to that.
 

jtr1962

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These people bought risky financial products, chasing higher returns. They need to accept the downside risk just like they pocketed the upside profit when things were good.
You're 100% right but hasn't the model for business in the US in the last decade been "private profit, public risk"? When you have companies like Walmart who actually tell their employees how to get Medicaid and welfare subsidies instead of paying them a living wage, well, you don't think other businesses will follow suit? Now you have investors who can't accept the "risk" portion of the higher returns they received. I say let them take a bath. Bailing them out is effectively the middle class subsidizing the wealthy. Sure, these investors will be hurt by the downturn but guess what? Many of them will still probably be rich when the dust settles. Why do we need to use public money so they end up even richer? Exactly how does that benefit the general public?
 

jtr1962

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It must be nice to live in a delusional utopia. You truly are a socialist.
No, I'm against people feeling they're entitled to live in a certain way just because artificial factors have made that way of life possible in the past. The era of cheap energy and sprawl is coming to a close. There's just no way the free markets you love can sustain it. Government shouldn't step in to try to reduce gas prices or prevent foreclosures. If you can't afford to buy a house with cash, or gas for your car, guess what? You don't have a house or a car, just as was the case 75 years ago.. You rent and you take a bus, train, walk, or bike. Oh, the horror! That's only the way most of the rest of the world lives anyway. It's the free market at its very best, not socialism. Socialism is trying to make everything think they're entitled to a house and a car, and then playing a shell game to give them the illusion they actually own these things. Well, it turns out the bank owns them instead, and now the piper has to be paid. A delusional utopia is thinking things could go on the way they were forever. The American public is on the verge of a massive reality check. This time around there's not going to be a white unicorn on the horizon to save the day. I just wish more of the people responsible for this mess would be made to pay the price. If it were up to me quite a few government leaders and CEOs would be made to hang for high treason.

Let's also have some definitions while we're at it:


socialism
so·cial·ism

Pronunciation: \ˈsō-shə-ˌli-zəm\
Function: noun
Date: 1837

1: any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods


2 a: a system of society or group living in which there is no private property b: a system or condition of society in which the means of production are owned and controlled by the state


3: a stage of society in Marxist theory transitional between capitalism and communism and distinguished by unequal distribution of goods and pay according to work done



Funny but somehow none of this sounds like any of the ideas I espouse. I'm for some government involvement in jump starting important enterprises like transportation which enable an economy to function. However, what people do and where they live should be entirely determined by the free market. This free market includes paying the real operating costs of any transportation they use. Under those terms, only the fairly wealthy can afford houses with huge lots or private motorized transportation.
 

Stereodude

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No, I'm against people feeling they're entitled to live in a certain way just because artificial factors have made that way of life possible in the past. The era of cheap energy and sprawl is coming to a close. There's just no way the free markets you love can sustain it. Government shouldn't step in to try to reduce gas prices or prevent foreclosures. If you can't afford to buy a house with cash, or gas for your car, guess what? You don't have a house or a car, just as was the case 75 years ago.. You rent and you take a bus, train, walk, or bike. Oh, the horror! That's only the way most of the rest of the world lives anyway. It's the free market at its very best, not socialism. Socialism is trying to make everything think they're entitled to a house and a car, and then playing a shell game to give them the illusion they actually own these things. Well, it turns out the bank owns them instead, and now the piper has to be paid. A delusional utopia is thinking things could go on the way they were forever. The American public is on the verge of a massive reality check. This time around there's not going to be a white unicorn on the horizon to save the day. I just wish more of the people responsible for this mess would be made to pay the price. If it were up to me quite a few government leaders and CEOs would be made to hang for high treason.
Lets start by getting rid of all the social programs like Social Security, Medicare, Medicade, welfare, WIC, Food Stamps, then we can talk about the gas tax and highway subsidies which relatively speaking are in the noise. We can also get rid of all the gov't propping up of ethanol, wind energy, solar energy etc too. The last big highway bill from congress put about 0 money into highways, but sunk a pile of money into money pit light rail systems. Let start with the big socialist money pits first which you oddly ignored.

The policies of the US Federal Gov't have created the oil crisis we're in now. They don't need to step in to reduce the price of oil. They just need to get the hell out of the way. You refer to the gov't stepping in to reduce the price of oil. The gov't doesn't have to do anything other than get out of the way of private corporations in order for the price of oil to drop. But you don't want that because you like to see all the people suffering don't you?
 

Stereodude

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Let's also have some definitions while we're at it:


socialism
so·cial·ism

Pronunciation: \ˈsō-shə-ˌli-zəm\
Function: noun
Date: 1837

1: any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods


2 a: a system of society or group living in which there is no private property b: a system or condition of society in which the means of production are owned and controlled by the state


3: a stage of society in Marxist theory transitional between capitalism and communism and distinguished by unequal distribution of goods and pay according to work done



Funny but somehow none of this sounds like any of the ideas I espouse. I'm for some government involvement in jump starting important enterprises like transportation which enable an economy to function. However, what people do and where they live should be entirely determined by the free market. This free market includes paying the real operating costs of any transportation they use. Under those terms, only the fairly wealthy can afford houses with huge lots or private motorized transportation.
And, you're still a socialist. You want the potential of equal outcomes for everyone. You want everyone to have an equal chance. You want people to be rewarded fairly based on their work. You don't think it's fair that some people thrive under the rules of the current system while others don't. That my friend is the very spirit of socialism (and #3 in that definition above).

You're not happy that people who buy a house get to deduct the interest on their mortgage and renters don't. Well fantastic... You have two choices. Whine about how it isn't fair to you since you don't have a house and can't get the deduction, or you can get out there, buy a house, and take advantage of it yourself.

I hate to break it to you but life isn't fair. Everyone isn't guaranteed an equal chance to succeed. Some people work hard for what they have, some people don't. Some people who work hard don't make it. That's life. But, you instead want the gov't to eliminate a few select "subsidies" that you don't like to help "equalize" the playing field.
 

Mercutio

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Yes, yes, yes, Stereodude. We know you're a rugged individualist in the mold of Ayn Rand, and we'd all be better off if we weren't subjected to such inequities and predations as taxes so that the general public can have roads, schooling and police.

I'm sorry, but it's unregulated or insufficiently regulated capitalism that got us in to this mess. It's the drive to monetize every single possible aspect of everything that can possibly have value that has ultimately led us to this point. Financial instruments were created and used before anyone could really analyze whether they were a good idea or not.

Corporations will always act in the interests of shareholders and to the expense of any and everything else. They need to be strictly controlled in the interest of everyone who is not or cannot be a shareholder. Our current legal and accounting systems limit corporate responsibility to an unconscionable degree, and as a result, our news is filled with the outcome of some corporate interest or other shirking responsibility to the general public.

Basically, we've tried laissez-faire capitalism for the for approximately the last 30 years. Look where it's gotten us.
 

Gilbo

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Speaking of socialism, you conveniently left out a few socialist aspects of government which you probably benefit from:
...
3) The roads and infrastructure to jump start suburban living were largely subsidized by government. They're deteriorating now in many places. The suburban residents can't be taxed at a high enough rate to even maintain the existing infrastructure, let alone rebuild it.
...
I'm not for forcing people to live anywhere. But by the same token living in suburbia is something the majority could not afford if it wasn't indirectly subsidized. The problem with subsidies is they can't last. Now we're finally starting to pay something resembling the real cost of the fuel we're using. Cheap loans to subsidize housing in places where it wouldn't exist in a free market are finally coming to an end as well. As a result probably two-thirds of America's housing stock is no longer economically viable. People will live in a way they can afford, which will mean denser living, and for many giving up mechanized personal transportation (although bicycle usage will undoubtedly increase).

Well said jtr. This is a particularly large problem in Ottawa, Canada as well. We've seen property taxes go up and up and up. Even as property values have been rising (so the government has been raking it in in an absolute sense without even increasing the relative size of the tax!). Since it's a percentage cost on the assessed value of your house, it's absolutely much larger for people living downtown or in more central neighbourhoods, where housing prices are higher. However, the need for these property taxes is driven by government bills for building roads and services to the people living in the suburbs! So the wrong people are paying more in taxes, and the people that deserve to pay more are getting a free ride.

Property tax should be inversely proportionate to your distance from the centre of the city. Or inversely proportional to the density of the neighbourhood or perhaps a combination of the two. (Proportionality to the density is probably ideal since it accounts for pockets of densification outside the city centre, which is desirable). For the owner of a $200,000 condo in a building containing 150 condos on a floorplate of 18,000 sq. ft. to pay the same property tax as an owner of a 4000 sq. ft. $200,000 suburban property is disgusting travesty.

It's also a massive subsidy to Suburban developers that gives them a competitive advantage over developers trying to build denser dwellings, discouraging densification.

As for government-funded housing, the only reason it has existed is because the free market in some places is either unable or unwilling to provide affordable housing. Take NYC for example. All I see being built are luxury condos. That doesn't do much good for an average worker making, say, $35,000 annually.

This is a problem I don't understand, but I can certainly recognize its existence. I'm not sure why the free market fails in this particular area so often, but it clearly does. It likely has something to do with the fact that the value of a property does not just lie in the property itself but in the quality of its neighbours, so there's a positive feedback loop of price inflation as more and more luxury-type residential construction arrives in an area, until it displaces everything.

The same thing happens in reverse in ghettos. A symptom of human nature perhaps? Is it a problem economics and the free market can solve? I don't know; I don't think I have a good basic understanding of how the problem comes to be, but I'm certainly going to think a little harder about it.
 

Gilbo

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It's the drive to monetize every single possible aspect of everything that can possibly have value that has ultimately led us to this point. Financial instruments were created and used before anyone could really analyze whether they were a good idea or not.
Exactly.

Corporations will always act in the interests of shareholders and to the expense of any and everything else. They need to be strictly controlled in the interest of everyone who is not or cannot be a shareholder. Our current legal and accounting systems limit corporate responsibility to an unconscionable degree, and as a result, our news is filled with the outcome of some corporate interest or other shirking responsibility to the general public.
I'll disagree here, a bit. Yes, the most we can ever expect of a corporation is that it acts in the interests of its shareholders, the implication being that when those interests conflict with the public interest, the public loses. However, in most cases, today, you're not even getting that. In a lot of cases the shareholders are getting completely screwed here. The off-balance sheet vehicles and complex securities that caused this mess were specifically designed to obscure corporate liabilities from the shareholders' eyes!

It's the corporate managers (CEO's, CFO's), and the investment managers (who manage the vast majority of shares on behalf of the actual stock holders) who are acting against the interest of their shareholders and clients. The American people in aggregate own approximately 51-52% of the NYSE, but they own it through proxies like Mutual Funds in their retirement accounts. Do their account managers vote their shares in the interest of their clients or in their own interest? What do you think?

Do the interests of the account managers coincide with the interests of their clients? Unfortunately not. In fact, in the current environment they run almost exclusively counter.



We live in an era of "managers capitalism", in contrast to "owners capitalism". The people who actually own the company are the ones who take the risk, with their own capital and they deserve to be compensated (or punished) accordingly. But presently, corporate managers and investment managers have managed to create a situation where they retain the lion's share of the profits and their actual shareholders or clients, who provided the capital, receive a relative pittance in exchange, and if the shit hits the fan, well guess who gets to pick it up...

There's an outstanding book on this perversion of capitalism that has arisen in the United States (and elsewhere), called The Battle for the Soul of Capitalism. It's written by John C. Bogle, the founder of Vanguard Mutual Funds, and one of the richest and most successful Capitalists of all time (and yes he deserves Capitalist with a capital 'C'). It's a fantastic book which, while strongly persuasive and well written, is very heavy on facts. I can't recommend it enough.

Summary, corporate management and investment managers/bankers are fucking the other 99.9% of society in the ass, really hard, because of a confluence of circumstances that have arisen. All these circumstances have obvious solutions, but somehow nothing is being done.
 

CityK

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Good bye Lehman (Ch.7). Good night Merrill (just bought, in a desperation sale, by BAC)
 

ddrueding

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Since I'm looking to buy a house in a bit, I just keep rooting for it to go down. If it keeps crashing for another year or so that would be great.
 

jtr1962

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Since I'm looking to buy a house in a bit, I just keep rooting for it to go down. If it keeps crashing for another year or so that would be great.
Same here. I'm not currently in the market for a house, but I know they still have a way to go down in most parts of the country. My mom's house was purchased for $52K in 1978. Historically housing prices keep up with inflation in the long term but not necessarily in the short term. Anyway, going by the CPI the house should be in the low 200s now, not high 500s (it actually peaked at ~$700K). That's why I wouldn't buy a house now even if I could afford it. Chances are it'll be worth a lot less than I paid for it in a few years.
 

CityK

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That must explain why they got a big premium over their closing price from Friday. :rolleyes:
Thain did well to get that, but make no mistake, MER was desperate and guided (read: pushed) to the alter.

But there is a problem. First, lets take note that its an all stock deal (which, in itself, doesn't exactly give an resounding vote of confidence by BAC's mgmt!) of 1:0.8595 BAC.

Now, second, take note that SD's comment came when, during the pre-core trading session, MER was up some ~24% from its Fri (4PM) close price....one of a very few equities in an otherwise sea of red. That of course was then and this is now. As I type, in after hours trading, MER is now up only 1.47% from its Fri close ... or, if you prefer, since the core's open today (930AM), its down 17.3%, or -$3.70 to $17.34. Turning to BAC we see that it too got hammered. (Currently priced @ $ 26.75). Of course, everyone got hammered today -- quelle surprise, stocks go down when the financial system is coming apart at the seams!

But here's the crux: for a co. that just got such a big premium, the current spread certainly isn't indicative that Mr.Market believes that this deal is going to fly (i.e. compare $17.34 to $23) ... in its current form at least.
 

Mercutio

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Where the hell is this money coming from?

There are congressional debates that can last hours or days over paltry half-billion dollar sums of money, but we're able to dole out tens of billions to banks and insurance companies with no approval from Congress?
 

P5-133XL

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The money comes from the ability of the government to borrow: These purchases just get tagged onto the current deficit. In the end, everyone pays, but the point is that everyone will pay a lot less than the cost of these large-scale financial instutions failing.

The agencies will at some point need to go to congress, but it is just a rubber stamp authorization. It really is no different, than FEMA spending money like mad during a natural disaster. Congress budgets an estimated annual amount but in times of emergency, that budget means nothing.
 

time

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Reuters: The yield on 3-month U.S. Treasury bills fell to 0.02 percent early afternoon on Wednesday.

The yield "may have traded negative earlier today".

The last time the 3-month U.S. T-bill yield was at or below zero was in January 1940.
 

Mercutio

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You know, I can't remember which giant insurance company Fushigi works for. I think it's Aon. Maybe AIG. something that started with an A.
 

CityK

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I can not begin to tell you how bad things have become.

Make no mistake, the equity markets were teetering on the edge of a cliff on Thursday (if you were just to look at the indexes you won't see that, as they weren't particularly too far down, but the volatility was climbing dramatically, and tension/fear was very high).

I think it was just about 1:05PM when the news of the FSA (UK) ban on shorts came across and this sparked a mini rally pulling things back from the edge. Then a little later on in the afternoon word surfaced of a Paulson bailout a la RTC II style, and the markets went ballistic. Of course, over night the SEC mirrored the FSA on the no shorting of financials. And the powers that be moved in to backstop the money market. All this on the day before the Sept options expirary date.

All but the very last vestigases of a free market were thrown out the window. The scape goat has been found, let the vilification of the shorts begin. What an absolute farce. Do some research -- you will find that there is no increase in the short positions against the financials. This is a complete distraction -- a deflection of blame from the truth (that many of these co.s are in deep financial trouble as a result of no other then their own retardedness, greed, unhedged speculative behaviour and heavy participation in unsustainalbe leveraged credit finance transcations). Also be aware of the gigantic vaccum that has now been put into place -- if there is a market down turn during the ban there is no longer short positions there in place to buy back shares (offsetting/closing out their short position) -- any long position panicking to get out will be greeted by no bid (and don't for a second expect that the market makers will be there to fill your orders -- we saw how well that worked out in 1987, where the mm's didn't answer phones, didn't bother to open their desks, took long walks etc...).

The fact that the equity markets rally upon news that will dilute shareholder wealth and saddle the taxpayer with countless unknown amounts of liability -- astonishing pump and dumps. Of course, some of it is assisted by programmed trades -- quantitative statistical models that pick up on momentum and just trade into the market. But there is plenty of live operators behind this too. Madness. Wash rinse repeat.

Most people will not have the faintest clue at the astronomical wealth transfer that has (and will) be played out. Sunday night Paulson will unveil some more info on the TARP program and the equity markets will likely again rise upon it. INSANITY.

These actions are horrible. The US taxpayer is looking to be on the hook for Trillions (of course, it will be downplayed as just a couple hundred billion). Nothing like privatizing profits and socializing losess. Its pathetic. Mainstream media's cheerleading coverage is nothing short of sickening. Unconcern by the common man is mind blowing.

It is unclear how long these temporary measures will last. But it likely won't be long. A few days? A couple of weeks? A month? I don't know (no one does). But I'll bet you a shinny nickle that a catastrophic crash is coming soon. I'll give Paulson and his henchmen credit that they are playing a heck of a hand (as much as I dislike it and find it dispicable), but there will be no soft landing, despite all their current efforts (and those to come -- as I don't for a moment discount the fact that they still have some dry powder to burn).

In addition, the above says nothing of the accounting shennaigans (forestalling new FASB rules, goodwill counting as capital), laxing of protection required against customer account deposits at the banks, the complete absence of any SEC or FDIC usefulness, a corporate banking culture that discouraged anyone who so dared question that something might be too risky, and on and on....

Oh, and to see the market begging for a rate cut this past Tuesday -- it was pathetic. Bunch of whiny spoiled brats. And such nice people like Mack the knife (Morgan Stanely) go on and on about those evil shorts ... funny, did anyone (at the broker dealers, who make tonnes of money off of the trades) ever say anything about shorts in the good times? (<-- rhetorical )

Anyway, I'm exhausted. The last two weeks have kept me super busy trying to stay on top of every new development. I think I've read the equivalent of 80 war and peaces novel's just through online news, blogs and journals.
 

ddrueding

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Anyway, I'm exhausted. The last two weeks have kept me super busy trying to stay on top of every new development. I think I've read the equivalent of 80 war and peaces novel's just through online news, blogs and journals.

I gave up a while back. All the money is out of the markets making 3.2% in savings accounts ;)
 

ddrueding

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... where you'll get negative ROI on it due to dilution of the value of a dollar due to the actions of the Fed that CityK is ranting about.

Indeed. For a while we had some money in a CitiBank account that was in Euros, but when it looked like we would buy a house, we moved it back. Looks like we were way early.
 

jtr1962

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There's really no place to park your money now so that you'll win. Stock market? We all see where that is going. Savings/money market? You lose with inflation. Real estate? Still heading down. Gold? If you're lucky you'll keep up with inflation but don't expect to actually make anything. Maybe with all the misfortune booze, hookers, and controlled substances might be the only growth industries left.

Watching the news today, I find it funny how they said if this bailout doesn't work we might be in for a "very deep recession". Stop mincing words and just call it what it is-a depression. Ramen soup, anyone?
 

ddrueding

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Depression? Likely. But what does that mean these days? Did I just order my last pizza? Will inflation top 100% annually? 50% unemployment? Will my next TV be 37" instead of 60"?
 

ddrueding

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Depression? Likely. But what does that mean these days? Did I just order my last pizza? Will inflation top 100% annually? 50% unemployment? Will my next TV be 37" instead of 60"?
 

jtr1962

Storage? I am Storage!
Joined
Jan 25, 2002
Messages
4,168
Location
Flushing, New York
In practical terms depression means deflation, not inflation. My mom's house might end up being worth less than the $52K she paid for it in 1978. I have no idea what it'll mean as far as bank deposits. Maybe the bank will give me ten cents on the dollar when I go to take it out, but with prices it'll probably buy what it would today. Jobs? Yeah, figure 25% or greater unemployment. Probably with all the accumulated wealth you still won't have a lot of people living in boxes like the last one, but it won't be pleasant, either. My mom's house is paid for. She won't lose it. But if my brother and sister lose theirs guess who they'll be coming to live with? And my neice also in all likelihood. So now you'll have five people crowded in a small house. Repeat this all around the country. You'll have massive tracts of housing in more remote areas abandoned. As for TVs and other consumer goods, expect to see a lot less new stuff and variety. Nobody is going to bother developing new stuff when most people can barely afford to put food on the table. Speaking of which, figure most meals cooked at home, using staples like rice and pasta. Eating out will probably be a treat solely for special occasions. Well, on the bright side this might solve America's obesity and health problems as people will have to eat less and walk more.

I guess depression doesn't sound like much fun, even on today's terms.
 

CityK

Storage Freak Apprentice
Joined
Sep 2, 2002
Messages
1,719
I gave up a while back.
Just reading through the news and blogs/forums today, it is apparent that a lot of retail investors are capitulating, but in other areas too. An insane amount of money fled the money market funds the past day -- confidence clearly shaken. Gold was 780/oz on Tues, but jumped to 865 on Wed, and then further increased to 905 on Thurs (has now fallen back, IIRC ~875 at the end of today). Treasuries were bid up tremendously high (flight to safety --- just hope those folks hold till maturity, else they'll be burnt on the downside if they try to cash out during the deflation of that bubble).

All the money is out of the markets making 3.2% in savings accounts ;)
And hopefully that money is (i) under complete FDIC insurance limits (ii) in a bank that won't fail (and there are going to be hundreds, if not more than a 1000, of regionals that will and (iii) if it does fail, that it is still in the early period of collapse, before the FDIC is begging for additional funding.

And speaking of the FDIC -- talk about a completely understaffed, under senior/experienced staffed (which is desperately needed to handle the waves of forthcoming failures), underknowledged (i.e. really have no clear grasp of the entire situation, but have slowly come around to that uh-oh moment of realization that things are well over their head), and utterly underfunded body to handle the insurance needs for secured deposits.
 

ddrueding

Fixture
Joined
Feb 4, 2002
Messages
19,511
Location
Horsens, Denmark
deflation

I was under the impression that the govt would print tons of money to cover the debt, and that this would trigger inflation.

And hopefully that money is (i) under complete FDIC insurance limits (ii) in a bank that won't fail (and there are going to be hundreds, if not more than a 1000, of regionals that will and (iii) if it does fail, that it is still in the early period of collapse, before the FDIC is begging for additional funding.

If (i) is covered (it is), then (ii) isn't an issue unless (iii) happens. Correct? I suspect that Stanford FCU is a fairly safe place to be. Would you try to part of something that is "too big to fail"? Or will that stop mattering soon?
 

CityK

Storage Freak Apprentice
Joined
Sep 2, 2002
Messages
1,719
Jtr's got it right -- deflation.

Right now we are in the mother of all deflations. Yes, there is certainly price inflation of certain assets (gas, groceries, etc), but that pales to the deflation of the money/& credit stock that is occurring. One need turn no further then housing to see the tremendous deflation of one asset class. In the credit markets, everything is contracting. We are in the wake of a huge global deleveraging.

In the longer term, the printing presses are going to be glowing red hot from continuous over use...and that will be big time inflation.
 

ddrueding

Fixture
Joined
Feb 4, 2002
Messages
19,511
Location
Horsens, Denmark
In the longer term, the printing presses are going to be glowing red hot from continuous over use...and that will be big time inflation.

Interesting. So currently having more cash and less assets than the average American is beneficial (I do). When will be the time to move? Or is that the million-dollar question?
 
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