Just Let Them Die

[drkitten]

The second argument is not the right question to ask right now, we don't really have a choice here.

You go to war with the army you have, not the army you wish you had.

Similarly, you go into a recession with the banking system you have, not the banking system you wish you had.

 

[not_so_new]

You go to war with the army you have, not the army you wish you had.

Similarly, you go into a recession with the banking system you have, not the banking system you wish you had.

EXACTLY!!!!!

It is what it is at this point.

 

[ponderingturtle]

I understand the importance of credit and banks to the economy. I understand, also, how dangerous the merger-mania and aggrandizement of the banking community over the past decade has led to a dangerous amount of this credit being placed in the hands of a very few institutions, with questionable metrics that their management has used to drive its decisions.

I haven't seen any evidence that 1) AIG and Citicorp (private companies, last time I checked) are sufficiently trustworthy stewards of our economy to warrant opening our public coffers to them or that 2) A trillion or five or ten trillion in the hands of these crooks and boobs will do the taxpayers any good.

You know that the goverment owns most of AIG now right?

 

[drkitten]

But even assuming that AIG suddenly gets its house together and liquidity starts flowing again over the next several months (what - 3? 6? 12? Maybe 1 month for each $100 Billion we give them, is that a reasonable expectation? No, we just don't know.)

FWIW, my tea leaves suggest that we have hit a bottom in the credit crisis. I base this on several things:

* Major investors have started to notice that the interest rate spread is making ordinary, garden-variety loans incredibly profitable. Buffett, in particular, has written about this in the New York Times, so it's hardly "secret news."
* Citigroup made a profit for the first two months of the year, and is up something like 50% on that news, suggesting that it was ridiculously oversold.
* A number of banks are publically repudiating bailout money because it comes with too many strings. Obviously, those banks are confident enough of their own reserves and portfolios at this point that they're not only willing to go it alone, but they're willing to tell the world that they're going it alone (and risk humiliation if they misjudged).

And, yes, at this point I am long on Citigroup (NYSE:C). My tea leaves don't say much about the longer-term recession, but I figure I can make enough on Citigroup to justify not worrying about a lack of tea-related omniscience.

Oh, one more sign the credit crunch is lifting. I am starting to get home-equity-loan junk mail again. Which astonishes me, because it implies that someone thinks that I have equity in my home that is collateral-worthy.

 

[ponderingturtle]

The problem is that the world only has one financial system, and it's so tightly interlocked that any major failure is quite likely to bring down the whole system. (We've done that experiment already with Lehman Brothers.) If we had an emergency backup financial system --- a whole bunch of experienced and competent bankers waiting in the wings who for some astonishing reason did not have any financial dealings with any of the players in the primary banking system -- then, yes, we could simply allow AIG and Citigroup to fail.

I think it is clear that there is simply not enough competent bankers in the system we have now let alone to have back ups.

I am wondering if this is a lot becuase the markets got to complex so no one understands them. So that this complexity needs to be limited.

 

[drkitten]

I think it is clear that there is simply not enough competent bankers in the system we have now let alone to have back ups.

Dunno. Competent and trustworthy are two separate things. I think the current crop of bankers are astonishingly competent -- they did an extremely good job of sucking the world's money into their (private) pockets.

I think the regulators were astonishingly incompetent in failing to notice or prevent that.

But ultimately the regulators should win, because they've got the law on their side.

 

[ServiceSoon]

FWIW, my tea leaves suggest that we have hit a bottom in the credit crisis. I base this on several things:
...* Citigroup made a profit for the first two months of the year, and is up something like 50% on that news, suggesting that it was ridiculously oversold.
...

If the gov gave me millions of dollars I would post a profit too?

 

[drkitten]

If the gov gave me millions of dollars I would post a profit too?

My understanding is that the accountants behind the memo are smarter than that. (I forget what the actual phrasing was -- Citigroup made a profit "ignoring writedowns and unusual circumstances" or something like that.) Basically, ordinary operations are profitable in a way they've not been for a year and a half.

If the accountants behind the memo were not smart enough to point this out, this this just goes to show even more strongly how ridiculously oversold Citigroup was, since the accountants reading the memo would have spotted that, and yet they bought anyway.

 

[ponderingturtle]

Dunno. Competent and trustworthy are two separate things. I think the current crop of bankers are astonishingly competent -- they did an extremely good job of sucking the world's money into their (private) pockets.

They certainly understood that they have the worlds ecconomy by the balls are are going to squeeze as hard as they can to get more for themselves.

 

[not_so_new]

They certainly understood that they have the worlds economy by the balls are are going to squeeze as hard as they can to get more for themselves.

This may be the case but it does not negate the fact that they probably do "have the worlds economy by the balls." That is a fact we have to live with and work under because you are correct, our (collective) financial futures are tied to theirs now.

As I said in my reply to grunion above, people seem to have two arguments against any bailout.....

1) we don't need to prop these companies up because it isn't going to do any good for the average citizen (or the variant, they got themselves into this mess why should I help when I didn't do anything wrong)

2) look what they did, how can we trust them again

Argument #2 is water under the bridge at this point. The only thing we can do is try to prevent future problems by enacting and (maybe more importantly) enforcing proper regulations.

As drkitten said above, "....you go into a recession with the banking system you have, not the banking system you wish you had."

To use drkitten's analogy, we have to fight this recession with the situation we have now and what we have now is a failing banking system. THAT is our current battle. We will win the war by thinking long term about regulations but to win the war we need to get over this hurdle first.

 

[hamelekim]

Thanks for sharing your woo here

I can't believe how disrespectful are towards others on this forum. You are not God's gift to the world, and you certainly aren't some billionaire investor giving advise to presidents. You're just some person on a forum who thinks they know what's what about the economy, although given your past comments on the market last year and where it was going, I fear for whoever has their money managed by yourself.

Go read Market Ticker or Mish's comments on cleaning out the System. It is based on sound market principles, not a bunch of woo. I'd put my money with Mish any day of the week over a mainstream market cheerleader like yourself.

Just because you disagree with it doesn't give you the right to personally attack someone and ridicule their beliefs, especially without explaining why you disagree with their views.

Considering governments have been following the Keynesian path of trying to spend their way out of this economic malaise, we can see how much weight those economic "theories" really hold. Things are getting worse, and you will see that nothing will be solved by these current policies of keeping dead banks and companies alive.

I can tell you right now that the trillions of dollars being spent on trying to get people spending money and banks lending money will not work. It's only going to make things worse.

I'll stick by my words, just as I did in a previous thread back at the beginning of 08 where I was ridiculed for saying things were going to get much worse economically.

 

[hamelekim]

You accurately gauge my anger, but not my blame. By saying "just let them die" I am not saying "kill them."

What is it that you are continually accusing of being "woo"? I have expressed skepticism about the bailout. What are you expressing skepticism about? If by "woo" I am correct in assuming you mean (as I generally understand the use of that word on this forum) "assertions without any evidence," what assertion are you condemning here?

ETA: Oh, and I wouldn't have posted here (or joined at all) had I not been interested in learning more. I do not find condescension and labeling things "woo" as very productive to that mission.

Don't mind Francesca. She thinks because she manages peoples money for a living that it somehow makes her an expert on the economy.

Given that the experts have led us down the road to ruin I wouldn't trust anything that any of them have to say.

She can spout economic theory all day long, that doesn't make it fact. Economics is a social science at best, and at worst it's a bunch of woo.

Given none of the economic models predicted this crash shows how invalid their models all are, and how you cannot accurately predict markets because they are based on human beings, not laws of physics.

It is my personal belief that we are going to have a world wide depression, and that out of that we are going to create a new economic system that will be extremely regulated and visible.

There will be enough rioting and governments falling that people will demand these sorts of things, and governments will put them into place to protect themselves from the peoples wrath.

Call it woo if you want Francesca, but we will see if it comes to pass in the next few years.

 

[pgwenthold]

Oh, one more sign the credit crunch is lifting. I am starting to get home-equity-loan junk mail again. Which astonishes me, because it implies that someone thinks that I have equity in my home that is collateral-worthy.

So what do your tea leaves say about how long my variable rate home equity line (essentially paid off now, btw) is going to stay at 3.25%

Should I use a year's worth of payments to it to pay down my fixed rate mortgage at 5 7/8%? (btw, I know what you mean by the credit gap - with the "histortically" low interest rates, we still haven't hit low enough to justify a refi)

 

[ponderingturtle]

This may be the case but it does not negate the fact that they probably do "have the worlds economy by the balls." That is a fact we have to live with and work under because you are correct, our (collective) financial futures are tied to theirs now.

So we are negotiating with these financial terrorists?

These people will always have the ecconomy by the balls, we just have to understand that bankers will screw everyone.

 

[not_so_new]

Considering governments have been following the Keynesian path of trying to spend their way out of this economic malaise, we can see how much weight those economic "theories" really hold. Things are getting worse, and you will see that nothing will be solved by these current policies of keeping dead banks and companies alive.

Sorry... no you won't.

You can't tell if the "theories" hold or not because all economic situations are different, there are too many variables to say one recession / depression is exactly like the other.

You DO NOT now nor never will know (no matter how much you believe it to be true) what effect the current stimulus packages and bailouts are having.

You think these stimulus packages are hurting, so be it, you are entitled to your opinion but it could be that they are helping immensely. It could be they are softening the inevitable face plant the economy is going to take over the next few months / years.

It could be that the bailouts and stimulus packages are going to prevent a much deeper recession / depression but when that enevitable bottom does hit you can easly say "look the bailouts didn't do anything" to your hearts content right? That's how everyone who plays the "prediction / politics" game are you are ends up spinning it when all is said and done.

I can tell you right now that the trillions of dollars being spent on trying to get people spending money and banks lending money will not work. It's only going to make things worse.

You can now can you? And do you have a way to prove that without the lending etc. things wouldn't have been much worse on their own? Of course you can't because your quote above is nothing but an opinion. It might be backed up by some economist but their opinion is still just an opinion as well because no one really knows what's going to happen.

I am REALLY getting sick of the doom and gloom. The world is not over, the sky is not falling and it's not the end of society as we know it. It's going to be a rough patch, things are going to be bad but they are going to get better.

I'll stick by my words, just as I did in a previous thread back at the beginning of 08 where I was ridiculed for saying things were going to get much worse economically.

Great, nice pick there Nostradamus.

LOL (just a joke, just a joke, easy tiger)

I felt the same thing, so did most folks who watched housing prices around the nation. $50,000 homes going for $300,000? Who doesn't see a problem with that?

Just because you were right on something many people saw coming as well doesn't make you right with what is coming next.... sorry.

 

[not_so_new]

So we are negotiating with these financial terrorists?

No, I didn't say that. I said we are in a battle to save jobs, homes and our financial system.

The "war" is to take some power back from the people who have us "by the balls" as you put it but you can't win that war until we get out of the immediate battle we are in now.

Seems simple to me, and winning that war is already under way...

http://www.reuters.com/article/gc04/idUSTRE52B5LU20090312

These people will always have the economy by the balls, we just have to understand that bankers will screw everyone.

I disagree, but we can agree to disagree that's fine.

These things go in cycles...

1 People think they know more about the markets than anyone who has even come before, they let government regulations slide.
2 Bankers / business owners and regular citizens mess up the markets with economic bubbles
3 Banks / business owners and citizens suffer
4 Governments step in to ease the economic problems because they are the ONE and ONLY resource large enough to make a difference
5 Economies get better slowly
6 Citizens pressure governments to enact tighter restrictions through regulations
7 Things stay relatively fine and stable for long periods of time
8 People grow old and die, younger people forget the lessons of the generation before them
9 Go to #1 above.... repeat

It's really that simple. We are between steps 3 - 4 now. Of course when we are at step 3 we are going to feel PO'ed at the people we hold accountable. It is only natural that you have the feelings you do but I can't stress enough that these things go in cycles.

If I take out my crystal ball on this I see stronger government regulations around the bend that will limit the power of the bankers to get the "economy by the balls" and the citizens will have a little more power in the future..... until we forget all of this again and fall into the same trap (probably not in our lifetimes).

 

[ponderingturtle]

I disagree, but we can agree to disagree that's fine.

These things go in cycles...

1 People think they know more about the markets than anyone who has even come before, they let government regulations slide.
2 Bankers / business owners and regular citizens mess up the markets with economic bubbles
3 Banks / business owners and citizens suffer
4 Governments step in to ease the economic problems because they are the ONE and ONLY resource large enough to make a difference
5 Economies get better slowly
6 Citizens pressure governments to enact tighter restrictions through regulations
7 Things stay relatively fine and stable for long periods of time
8 People grow old and die, younger people forget the lessons of the generation before them
9 Go to #1 above.... repeat

Just think about it, we can get more and more complex financial instrument so no one will ever understand the market and keep it in 2 and 3. No one knows who these things work well enough to know who will be holding the bad and it will always end up as the public.

It is so nice to see that the Enron people were just ahead of the game. That and they were not being sufficiently complex people understood what they did.

 

[geni]

These things go in cycles...

1 People think they know more about the markets than anyone who has even come before, they let government regulations slide.
2 Bankers / business owners and regular citizens mess up the markets with economic bubbles
3 Banks / business owners and citizens suffer
4 Governments step in to ease the economic problems because they are the ONE and ONLY resource large enough to make a difference
5 Economies get better slowly
6 Citizens pressure governments to enact tighter restrictions through regulations
7 Things stay relatively fine and stable for long periods of time
8 People grow old and die, younger people forget the lessons of the generation before them
9 Go to #1 above.... repeat

Questionable. Historicaly there have been long periods of very low regulation without large scale problems.

One cycle that does seem to exist is ignoring long term risks to make more money in the short term. Problem is a company that doesn't match the people takeing more long term risks will have a hard time competeing in the short term.

 

[drkitten]

So what do your tea leaves say about how long my variable rate home equity line (essentially paid off now, btw) is going to stay at 3.25%

Not much, I'm afraid. All they're really saying right now is "switch to decaf."

Should I use a year's worth of payments to it to pay down my fixed rate mortgage at 5 7/8%?

My bet is that, if anything, the variable rate will go down in the moderate term; if the HELOC market heats up, there will be downward pressure on interest rates, precisely because of the interest rate spread.

But people who take investment advice from anonymous felines on teh Interwebz probably deserve what they get.

 

[dudalb]

If there are no investment bankers, where is the money to start up new businesses gonna come from?
There has been a HUGE amount of incompentece in the Inverment banking industry, and a number of people in the management positions there need to have their butts fired, but let's not throw the baby out with the bathwater.