End of the World As We Know It

[CityK]

Perhaps you can explain how this plan is going to fix the liquidity problem. This plan assumes that by improving the balance sheets they will start lending again. There's no guarantee of that. The might just deposited the money and sit on it.

Exactly.

Zombiefication of the banks is a leading contender for the outcome of the Paulson doctrine. These monkeys had plenty of evidence (from Japan's experience) to draw upon, yet, instead, have steadfastly sworn off the torpedoes and slammed the gear into full steam ahead. There is little to suggest that they even remotely considered other more logical alternatives (i.e. the Scandinavian bailouts, and countless other recent suggestions).

Main street is slowing rapidly. What incentive will banks have to lend to commercial firms tettering on the brink?

The bailout figure is a drop in the bucket compared to the value of the bad assets. Now dropping mark-to-market and adoption of mark-to-fantasy/myth may fool some, it won't fool others. Removing transparancy is hardly a confidence building exercise.

An 800 pound gorrila sitting in the room is the continuing decline in the value of residential real estate. We have a ways to go with this. And if you look now, you'll see that there are several other 800 pounders just about to walk through the door (commercial RE, credit cards, CLO/leveraged loans ...).

Hedge funds are going to implode. Their deleveraging is going to surpress asset prices and compound their own problems. Loss of their business impounds the prime brokers bottom line, as well as any counterparty exposure they may have to failing funds.

Now if you thought several gorrilas was a bad thing, I remind you to not forget about the $55 trillion (notional amount) CDS elephant also eyeballing the doorway. While the US has been out in front for a while, Europe/UK has rounded the turn and has made up a lot of ground. The collapse of Hypo is a huge problem. Belgium is dashing to get something worked out with Fortis. The UK has Northern Rock under its wing, shotgunned HBOS, and adopted B&B, but there are still others waiting in the winds. Little Iceland has once again come under extreme pressure after the collapse, and nationalization, of one of their own. The present remainders bestow considerable counterparty risk to UK and Euro banks. Last week revealed that the real reason for the AIG save was the EU bank devastion that awaited its failure (let alone GS's consideralbe exposure). In turn, much has been revealed that AIG's coup d'etat was triggerd by Lehman's collapse. On US soil, you have the automakers staring into an abysis. Anyone of their collapses could also trigger a cascade.

So who is it going to be? Little Iceland? GM? Chrysler? Hartford? Anyone of them could make the head of the world's financial situation spin really fast. And all of these provide plently of reasons to hoard cash. And whose to know what problems lay lurking behind China & Russia.

In conclusion, deflating asset bubbles, entities which reman highly levered, and counterparty exposures are the problems. This is a global phenomenon.

The issue is confidence

Confidence ! Don't be naive. The issue is solvency and survival. Non confidence is the ramification.

 

[jtr1962]

An 800 pound gorrila sitting in the room is the continuing decline in the value of residential real estate. We have a ways to go with this.

I've been saying this for a long time but people just don't believe it. One way to see how low prices will probably go before stabilizing is to correct housing prices from maybe 30 years ago for inflation. That's historically where they should be. In most markets, especially big city markets, they're still more than double that. The rise in the last ten years especially was a huge anomaly which eventually must be corrected. Simply put, due to the easy access to cheap credit housing prices were a lot higher than their real worth. It was a stupid thing banks and buyers did by basing loans solely on the monthly payments. The old standard was to not loan to buyers unless they put 20% down and bought a house for 2.5 or less times their annual income. Had we done so, there would have been no real estate bubble to deflate as prices would have more or less risen with inflation.

 

[Stereodude]

Not to mention what happens when Paulson is gone and Obama give Franklin Raines (one of the people responsible for this mess) the job with the impossible task?

 

[ddrueding]

Not to mention what happens when Paulson is gone and Obama give Franklin Raines (one of the people responsible for this mess) the job with the impossible task?

And Paulson as CEO of GS wasn't?

 

[Stereodude]

And Paulson as CEO of GS wasn't?

I trust Paulson way more than Franklin Raines. The latter left after committing a bunch of fraud and other shady accounting.

 

[jtr1962]

Another article on credit default swaps

I tend to agree with the author's solution to the problem:

One excellent first step would be rejection of the $700 billion burden to be placed on the backs of taxpayers.

An excellent second step would be judicial declaration that the value of any and all credit default swaps is zero, as being against public policy that requires that activities than encourage mysterious fires or other forms of disaster are illegal as contrary to public policy.

Yes, you heard me right. Judicial determination that all $62 trillion worth of credit default swaps are null, void and totally worthless.

Only then can a just and humane financial system can be constructed upon the ashes of the old.

This process could and should be facilitated by all honest citizens withdrawing all their funds from all financial institutions, notably including bank checking and savings accounts and money market funds, but possibly excluding local credit unions that loan in and support the local community. I urge all American citizens to do this, as quickly as possible, to the maximum extent possible. If for no other reason, then for self-defense. All must realize no bank is safe and FDIC is one major collapse from insolvency.

The intended result: The quick death of the financial system that has sentenced all of us to a slow death.

 

[Stereodude]

He's an idiot. All your money will be completely worthless if you followed his advice, so taking it out of the bank won't do you any good.

If you want anarchy follow his advice.

 

[jtr1962]

He's an idiot. All your money will be completely worthless if you followed his advice, so taking it out of the bank won't do you any good.

If you want anarchy follow his advice.

Maybe but I think making the credit default swaps worthless is a good idea. These people gambled on a system they gamed, and well, sometimes you lose when you gamble.

And I'm seriously considering withdrawing every dime from my accounts and buying something tangible like gold. The money will probably be worthless soon anyway.

 

[Stereodude]

And I'm seriously considering withdrawing every dime from my accounts and buying something tangible like gold. The money will probably be worthless soon anyway.

At which point gold will be worthless too. If it gets to the point where money is worthless, gold will be worthless also. If you need bread good luck, cause the guy with the bread has no use for your gold.

 

[sechs]

Perhaps you can explain how this plan is going to fix the liquidity problem.

Well, if you had been reading this thread, you'd know that I doubt that it will.

But then again, that's you using that stuff between your ears.

 

[CityK]

I tend to agree with the author's solution to the problem:

Ugh ... I was going to respond, but I'm too tired to do long form.

- the sentiment is myopic -- its a global market, not an American market
- his end comment is seditious
- part of his argument is based upon that same old tired argument: shorts bad! speculation bad! ... why doesn't he call for judicial ruling against long positions? After all, many of those are speculative and can encourage behaviours that are contrary to public good (eg. accounting manipulation).
- I'm unconvinced he really understands CDS ... and he certainly trivializes it in an unrealistic manner.

CDSs, in of themselves, are legitimate instruments. They are actually very useful/have practical application. The problem with them is NOT that those with no financial exposure to the underlying reference entity are making speculative bets, rather, the problem is counterparty risk. And more specifically, the real danger is the interlinkage between global financial market participants and the risk of cascading-cross defaults. A move to a centralized clearinghouse model is desperately needed, and would drastically mitigate counterparty risk.

 

[sechs]

Maybe but I think making the credit default swaps worthless is a good idea. These people gambled on a system they gamed, and well, sometimes you lose when you gamble.

The problem with CDSes is that they were unregulated so no one was checking to see if the issuer could cover.

AIG issued these like candy, thinking that they'd never have to pay. And then they did.

If there were regulations on CDSes, and people used them as a hedge (as they were meant) rather than as a way of shorting a company's credit, then they'd work.

 

[CityK]

* Futures way again. Asian equity markets falling. Indonessia halted indefinitely.
* Overnight rates appear static from yesterday
* UK bailout should be announced any time now (its ~7:30AM London).
* Short sale ban on financials expires tonight around midnight (meaning that the equity markets will be fully exposed to those evil short sellers on none other then, (gasp!) the day of atonement! ... Setting humour aside, I'll point out the obvious in regards to how well removing shorts has kept the markets from sliding. NOT)
* Lehman recovery value to be set this Friday.

Barring the gignormous last hour rally that occurred on Monday (500pt retrace on DOW), Fri, Mon and Tues have a remarkable resemblance to the three days prior '87s black Monday.

....... (strums fingers across desk pondering) .....

.......

.......

.......

okay..UK news coming across 200B pounds. Futures responding positively to it so far, but I'm thinking that its not as strong a reaction as they're still down considerably. ... now pulling back again.

...... (strums fingers across desk pondering) .....

.......

.......

I think she's going to blow before the weekend.

 

[jtr1962]

CDSs, in of themselves, are legitimate instruments. They are actually very useful/have practical application. The problem with them is NOT that those with no financial exposure to the underlying reference entity are making speculative bets, rather, the problem is counterparty risk. And more specifically, the real danger is the interlinkage between global financial market participants and the risk of cascading-cross defaults. A move to a centralized clearinghouse model is desperately needed, and would drastically mitigate counterparty risk.

CDSs from what I understand are fine, if say one bank makes a loan to IBM and another issues a CDS against it. IBM is a known entity with known risk. The bank issuing the loan is simply insuring against the highly unlikely event of IBM defaulting on the loan. The problem was issuing CDSs against bundles of mortgages whose overall risk continues to be unknown to this day due to the complexity involved. Basically, they had to guestimate the risk and price the CDS accordingly. They guessed way wrong. And another problem was indeed uninterested parties buying CDSs on mortgages. One mortgage failure could result in liabilities of tens of millions of dollars. And since so many people had a vested interest in the failure of this mortgage, they could game the odds of failure in their favor by issuing to marginal borrowers. When my brother was shopping for houses I asked out of curiosity about getting a mortgage myself. I was told I could get a no income check loan. Needless to say, I thought something was up. I make $6K in a good year (long story). I even told the mortgage broker that. How on earth could they even consider loaning money to someone with no obvious way to pay it back? Now I know why. The best way to fix this is allow only allow one CDS per financial instrument. I can't think of any valid reason why disinterested parties should be allowed to bet (and that's what it really is) on the failure of mortgages or any other loan. This isn't like short selling. It's gambling, period, but of the worst kind as the downside is virtually unlimited.

 

[jtr1962]

Fed orders emergency rate cut to 1.5 percent

The Federal Reserve has ordered an emergency interest rate cut of a half a percentage point to cope with the worst financial crisis since the 1929 stock market crash.

Fed Chairman Ben Bernanke and his colleagues ratcheted down their key rate by 0.5 percent, to 1.5 percent. The action revives the central bank's rate-cutting campaign which had been halted in June out of concerns that those low rates would worsen inflation. Since then, however, economic and financial conditions have dangerously deterioriated, forcing the Fed to reverse course.

The fact that the Fed felt it could not wait until its regularly scheduled meeting late this month underscored the urgency of the situation.

Well, I'm glad they've finally stopped mincing words. 6 months ago I felt we were on the verge of something like 1929. At least now that we've admitted it to ourselves maybe we can start doing something constructive such as reviving the WPA program to fix the lousy infrastructure and give the unemployed jobs.

Food deliveries to commence to tent cities, US workers migrating to Mexico to find work. Oops, that's next month's news....

 

[Mercutio]

US workers migrating to Mexico to find work.

<threadjack>
I always thought it was funny that former Mexican President Vincente Fox's father emigrated from Ohio to find work in Mexico. Fox is living proof that the son of immigrants can become president... in Mexico.
</threadjack>

We now return you to the disastrous state of the economy.

Here, I'll get us back on track:

DOOM!!!!11!1one

 

[ddrueding]

Anyone here listen to Marketplace on NPR? They had an interesting and not groundbreaking concept the other day. That those who are older want the govt to do whatever it takes to save some of what is there now, and younger people are willing to watch it take a massive hit now, so long as it cleans itself up in the long term. Yay self-serving Americans!

Now, about me

I'm completely in cash, and have been merrily sitting by watching the shipwreck. But now the rates are coming down, money will be handed out like candy, and inflation will be getting out of hand. How do I get protection from that?

 

[timwhit]

You could buy gold. Or you could buy a broad range of currencies.

 

[Howell]

http://www.hulu.com/watch/38041/saturday-night-live-washington-approves-the-bailout

 

[Mercutio]

Or you could buy a broad range of currencies.

Gold is cyclical and on the way down right now from historic highs. A lot of currency trading - I'm not sure about dollar and euro (also falling right now) but a lot of other currencies require contracts that are pretty much going to be too large for a single consumer-level investor to afford.

For what it's worth, I have roughly my annual salary sitting in a savings account that earns something like .75% interest right now. I have no clue what to do with my money, either.

 

[ddrueding]

So long as you maintain a balance of over $50k, SFCU will give you a better rate. Right now it is about 3.2%.

 

[Mercutio]

My annual salary is not that high.

 

[ddrueding]

If you look at the daily graph for the indexes today, it really looks like a rollercoaster.

 

[CityK]

CDSs from what I understand are fine, if say one bank makes a loan to IBM and another issues a CDS against it. IBM is a known entity with known risk. The bank issuing the loan is simply insuring against the highly unlikely event of IBM defaulting on the loan.

STOP. You are already missing a fundamental point in your premise against speculation -- The second bank, the one that issues the protection, has no financial exposure to IBM (in your example). Zero, nil, zilch. In doing so, they are speculating on a default event not triggering.

The problem was issuing CDSs against bundles of mortgages whose overall risk continues to be unknown to this day due to the complexity involved. Basically, they had to guestimate the risk and price the CDS accordingly. They guessed way wrong.

The problem is not limited to CMO/CDOs.

And another problem was indeed uninterested parties buying CDSs on mortgages. One mortgage failure could result in liabilities of tens of millions of dollars.

No one mortgage could not. As a very first step, one needs to gain an understanding of the way non-homogenous pools of mortgages are securitized as passthrough securities. Second, one can move on to the nuainces of how cash flows from the underlying can be redistributed to different bond classes or tranches i.e. enter the CMO. Similarly with CDOs. Such study will take one through items of interest such as weighted average maturities, weighted coupon rates, prepayment risk, contraction risk, extention risk, and a whole host of assumptions involved and the impact of various parameters.

Perhaps what you meant was the occurence of a credit event on the underlying reference entity.

And since so many people had a vested interest in the failure of this mortgage,

Again, why is the assumption that failure is the end game? Why not the assumption that an asset is simply mispriced? If I short IBM stock it does not mean that I want IBM to default. Similar to CDS. If someone bought CDS protection on IBM at 100bp, but events have occured that have brought market prices up to 400bp, is it not conceivable that some may wish to take advantage of that change in asset pricing?

they could game the odds of failure in their favor by issuing to marginal borrowers.

Your stretching things here ... mortgage origination is an entirely differrent bailgame. A sad state of affairs, nonetheless, as you have gained personal first hand experience.

The best way to fix this is allow only allow one CDS per financial instrument. I can't think of any valid reason why disinterested parties should be allowed to bet (and that's what it really is) on the failure of mortgages or any other loan. This isn't like short selling. It's gambling, period, but of the worst kind as the downside is virtually unlimited.

I'm sorry, but I will have to disagree. I think your unfamiliarity in these areas are leading you down the wrong road of conclusion.

You have focused on the worse case -- failure. But the credit event need not be defined as such.

Second, your arguments ignore the fact that there is an active market for trading. If credit risk gets repriced, parties will trade for the available profit.

Buying CDS protection is exactly like shorting -- ever try to short a corporate bond?

Selling protection allows institutional investors (like a life co.) to synthetically create tailored portfolios, then the underlying cash market (i.e. say I want a 7 year US $ denominated bond on IBM, but only 2 year corporates are trading). In order to gain that via a CDS, your going to need the other side. (a darn speculator!)

etc etc

 

[CityK]

I think she's going to blow before the weekend.

Well, another wild ride. A quick rally up, then a slow slide into hell, broken at 1:03 by remarks by Trichet, monkey rally hats back on, then everyone out of the exits in the last 15min.

Before 1PM, I strongly felt that the big tank was coming. In the short term, I'm not sure now where things will head. Perhaps everyone will take a big breathe and reassess-- its direly needed. A lot of folks aren't suggesting the absolute bottom has been reached, but feel that a short sustainable rally could ensue. I don't discount that possibility. But with the Lehman recovery auction still overhanging, Fri could be spooky. Next week being options expiry week also sets the stage for some sure entertainment -- and if I do say so myself, what not a better time for another surprise 25 or 50bp rate cut!

In the longer run, I'm still pretty bearish --- too little, too late, rudder in wrong direction.

 

[jtr1962]

CityK,

Reading through your post one thing horribly bad occurred to me-I didn't understand half of it because I'm totally unfamiliar with how all that works. In fact, I'd say that's the root of the problem here. Institutions are commoditizing and repackaging financial instruments like mortgages to the point that risk evaluation is impossible because it's often impossible to trace these mortgages back to their origins. Another problem is simply commoditizing things just so others not directly involved can make profits off of them.

The way I learned it, a bank makes profit on the difference between what they pay in interest and what they take in. For literally centuries that model has worked well. Then banks got greedy. They started issuing credit cards, often with interest well in excess in 20%. But they didn't give their depositors more even though they were making more money. Then they started with all kinds of fees on accounts. And after that they began giving stupidly low interest rates. I remember for years that 5.25% was more or less standard on savings accounts. But in the late 1980s the banks pushed higher rate accounts (my first account started at 8.5% when I opened it). However, with every prime rate cut they lowered this. I figured that the traditional 5.25% was rock bottom but nooooo. Now lots of savings accounts pay under 1%. But the banks still have all these credit cards where they're raking in over 20%.

However, apparently lower depositor rates combined with higher fees/interest on credit cards still wasn't enough profit for these greedy SOBs so the banks got the bright idea to repackage and commoditize mortgages. I won't even get into the whole sub-prime loan mess even though that was probably yet another thing to generate more profit. Anyway, that brings us to where we are today. The banks created such complexity and obscurity that now they don't even know which assets are good and which aren't, so of course nobody wants to buy these mortgages. Their own fault, and something which never should have been. Like I said earlier, the bank and the bank alone should be the one to profit from a loan they make.

Exactly what has been the benefit of all these outsiders raking in profits but contributing not one iota of real wealth? The old model of capitalism was that an investor loans their money to a company which in turn provides some good or service that enhances the net wealth of the country. Maybe I'm wrong here but all I see are people manipulating financial instruments for their own gain while creating little of value for society. The one thing notable about this so-called prosperity of the last decade or more has been the total lack of valuable new infrastructure built. Isn't this what investors are supposed to provide, and in return they get to share in the profits the new infrastructure creates? Or at least that's how capitalism is supposed to work. About the only thing built in more than token numbers in the last decade has been the one thing we already have too much of-luxury condos. Now all that will be sitting largely unsold, or sold at a loss. We didn't rebuild our bridges, build our high-speed rail system (which the US sorely needs to stay competitve), didn't build nuclear power plants, didn't invest in solar or wind. It's been a more like a transfer of assets than a real prosperity where generally all or most citizens benefit in kind. And this commoditizing of everything is the root cause IMO. Of course investors will choose the easier and safe route of putting their money in these instruments, instead of more risky but potentially more lucrative ventures like building a new high-speed rail line. But when they do so, nothing of real value to society at large gets created. All that happens is the rich get richer, the poor get poorer, and the middle class loses ground. I personally want a lot of our system to collapse, even if the pain in the short term is greater, so that we can get capitalism back on track. This idea of "investing" in essentially pieces of paper, and also of private profit/public risk, should be consigned to the trash bin of history. It obviously doesn't work.

 

[Gilbo]

CityK,

Reading through your post one thing horribly bad occurred to me-I didn't understand half of it because I'm totally unfamiliar with how all that works. In fact, I'd say that's the root of the problem here. Institutions are commoditizing and repackaging financial instruments like mortgages to the point that risk evaluation is impossible because it's often impossible to trace these mortgages back to their origins.

You're right on to the fundamental problem: transparency. None of the banks will loan to each other, not because of liquidity problems, but because the real problem is solvency. And not even solvency per se... but the question of solvency, the suspicion of insolvency.

Because U.S. accounting rules allow companies to publish books that have no relation to the companies' true value, in a downturn, no one can tell where the bottom is. Speculators love it when everything goes up and up and up, but no one likes it when things are going down. No one can tell who is solvent or insolvent. Citibank has declared it has 1.1 trillion in off-balance sheet "assets"... what's the maximum downside liability associated with those assets? What kind of "assets" are they? Why aren't stockholders or other potential creditors being permitted to understand their constitution and associated liabilities. What is Citibank really worth?

No one has any clue. Business --all business-- is fundamentally built on trust. Without trust that the other party is going to live up to their part of any deal, business grinds to a halt. All business...



The U.S. Government and business community has broken the fundamental bonds of trust that allow business, commerce, and most large-scale, human social activities to be conducted. Trust needs to be restored.

The first step is that the banks must bring off-balance sheet "assets" onto the balance sheet so we know who is solvent and who is insolvent. Anyone too big to fail, whose insolvent, will need to receive public capital in an amount required to assure people of their solvency. They must then be dismantled orderly in a way that minimizes catastrophic risk to their counterparties, but everyone other than the public takes a haircut when needed.



With trust, there will be a bottom to this. Without trust... I suppose their must be a bottom, but it will be much lower.

 

[sechs]

For what it's worth, I have roughly my annual salary sitting in a savings account that earns something like .75% interest right now. I have no clue what to do with my money, either.

I'm glad that I wasn't drinking anything, as I would have snorted it.

I was at the local Wachovia (formerly World Savings and soon to be Wells Fargo) branch, and was shown the standard CD rate sheet. Nothing but one point something rates; terrible. This is where you are at. You need to at least *try* to keep up with inflation.

You might want to start here:
http://www.fatwallet.com/forums/topic_view.php?catid=52&threadid=783099&start=0

Plenty of options, and all of them with better rates than you have.

 

[jtr1962]

I'm pretty much in the same situation as Merc right now. The only money I have in the stock market are IRAs which I probably won't be touching for 25-30 years. There's a reason for keeping money in a relatively low interest account-safety. I'm not sure I'd touch any of those banks on the list you gave with a ten-foot pole except maybe Capital One. What's really cute are the banks I've noticed offering "variable rate" CDs. I always that the point of tying up your money for x amount of years in a CD is to have a guaranteed interest rate somewhat higher than a savings account. Now some banks are offering CDs where the rate can change after six months or a year. What's the point of tying up money in a CD if there's no guaranteed rate for the entire term? I honestly don't see one.

If banks want to attract capital so they can start making loans again, they had better start offering decent rates on savings accounts. 0.5% is a joke.

 

[jtr1962]

Interesting article: http://www.independent.co.uk/news/b...e-end-of-capitalism-as-we-know-it-799494.html

The disintegration of Anglo-Saxon-inspired markets has come about largely because of the confluence of two tendencies of the "free market": speculation and monopoly capitalism. Contrary to received opinion, free markets – unless subject to civil regulation, asset distribution and persistent intervention – always tend to monopoly.

Similarly, there is nothing inherently efficient about free markets – they do not of themselves promote sound investment or wise management. Rather, when markets are conceived wholly in terms of price and return, and when asset wealth and the leverage that this provides becomes as concentrated as it was in the 19th century (which is a scenario we are approaching), then markets encourage nothing other than gambling masking itself as sound investment.

.....


Thus wage earners – rather than asset owners – have faced a 35-year downward pressure on their standard of living. Indeed, the golden age for the salaried worker, as a share of GDP, was between 1945 and 1973 – and not this vaunted age of liberalisation.

 

[Tannin]

I confess to having difficulty in understanding the concept of "off-balance sheet" assets (or liabilities). I mean, what else is a balance sheet for?

 

[Tannin]

A short report from the other side of the world:

• Australia has experienced sustained growth, fairly low inflation, and low unemployment for many years now.
• This has been largely funded by the massive growth in resources revenue, in particular, minerals to China (and other places)
• For some time, Australia has been awash with cash: since the implementation of compulsory superanuation at around 10% of adult earnings, a major difficulty has been finding places to invest all the superanuation money. Perhaps largely in consequence of this, stock prices were driven up, up, up, well beyond the real undelying value of the stock.
• Largely because of some very dodgy taxation rules, housing and land has also been driven up beyond any sensible value, and out of reach of many ordinary people. Increased population through migration has further increased demand and made this problen worse.
• Consumer spending has gone through the roof, mostly on credit, nearly all of it going on imported goods of little or no lasting value. The only thing making this possible has been the massive resources revenue. Even so, national overseas debt is the highest it has ever been.
• Australians are stupid. Really stupid. Everyone here is in panic mode because of the collapse of the US economy. People seem to think that this actually matters here. In reality, the US is not our biggest trading partner and our exposure to the US banking crisis is, while not insignificant, far from catastrophic.
• The stock market has gone down a long way, and has now reached the point where it would make good sense to start buying to capitalise on the good value that can be had, particularly now that interest rates are getting lower.
• Land prices have changed only a little, but will probably drop a fair bit more.
• The underlying real economy remains as healthy as before.
• The banking system is sound - indeed, the Commonwealth Bank had enough spare cash last week to buy out a West Australian regional bank and increase its market share. Despite the soundness of the banking system, the government has felt obliged to guarantee all bank and quasi-bank deposits - a fairly meaningless gesture, in probability, as there is no current suggestion that any of the Australian banks are likely to fail - indeed, they continue to earn truly massive profits, much to the ire of their customers.
• The Australian dollar, no longer propped up by higher-than-average interest rates, has fallen from 100c US to around 70c US.

Summary: a lower dollar means better prices for exports, which should easily outweigh any losses in sales as the overheated Chinese economy slows. It also means significantly higher prices for imported consumer goods, which can only be good news. There is a lot of doom and gloom, but the overall outlook remains healthy, possibly healthier than it has been for some years. Presumably, after another few months, the rest of Australia will figure out what is going an and get on with what the more intelligent people are getting on with already: i.e., business as usual.

 

[Pradeep]

A short report from the other side of the world:
The Australian dollar, no longer propped up by higher-than-average interest rates, has fallen from 100c US to around 70c US.

Summary: a lower dollar means better prices for exports, which should easily outweigh any losses in sales as the overheated Chinese economy slows. It also means significantly higher prices for imported consumer goods, which can only be good news. There is a lot of doom and gloom, but the overall outlook remains healthy, possibly healthier than it has been for some years. Presumably, after another few months, the rest of Australia will figure out what is going an and get on with what the more intelligent people are getting on with already: i.e., business as usual.

One would imagine that the massive AUS-US dollar devaluation in the last couple of weeks has increased the price of your Canon bits considerably? Or do you source from the US?

 

[mubs]

As usual, you get the best prices in the U.S. - even cheaper than duty-free at Singapore, Malaysia, Hong Kong airports. The price for photo gear (Nikon and Canon) is 50-80% more in India compared to the U.S. Also true for other stuff like software and booze.

The problem is that they won't honor the warranty here if the camera is purchased outside the country. That sucks. I am planning to buy a Nikon DSLR system. I'll buy the body in India at the +60% price (I get a 2-year warranty). Fortunately everything else - lenses, flashes, etc have international warranties, so am planning to buy those in the U.S.

 

[Tannin]

Not yet, Pradeep. In fact, it may not increase them much at all. So far, at least, they are holding steady. I imagine that Canon is wearing the difference for the time being so as to maintain their market position ... and no doubt they were helping themselves to a fair bit extra when the $AU was high.

Buying from the US right now would be a bad move: you have to pay 100% of the currency movement (unless you have some $US already over the water, which I don't).

Computer bits are starting to go up, but there is still quite a bit of old stock around, and in any case I keep more stock on hand than any rational person would, so that won't be too much of an issue. The one thing that goes up instantly whenever the dollar goes down is Microsoft software. CPUs are pretty prompt also, but you can get a few days grace. With Windows, it's apparently recalclated daily.

 

[ddrueding]

I'm still getting XP Pro SP3 OEM licenses for $139.

 

[Tannin]

Yeah right, Dave. Good one.

Tell me, how many US dollars does your dollar buy right now? Exactly one? Well, how about that? Maybe that's even the same exchange rare you had a while back?

 

[ddrueding]

I was poking at you, I hope you realize...What has happened to an XP OEM licence over there?

 

[Tannin]

Ummm ... can't remember exactly. Don't pay too much attention to computers and prices these days, just do it all on rust and habit, and even hte rust is getting a little past it now. But it went down a fair bit, then it went up a fair bit, and is now araound about where it was maybe 6 or 8 months ago.

Is that vague enough for you? I can do vaguer if you want.

 

[Tea]

You want vague? Tanninn is good at vague. He's practically a world champion!