Re: OT:Who killed the economy?

Bob Giddings wrote:
On Wed, 17 Sep 2008 08:34:00 -0700, "Nate"
<nsaptaemcscpnanm@xxxxxxxxxxxxxxxxxx> wrote:



The economy is weakening. It will require cash from the government
as more large companies fail. The banks are carrying a lot of risk
right now. No matter if you are republican or democrat, the
government is going to have to step in and spend money to keep this
thing going north. We voters have to decide how much we are willing
to fork over in the form of tax increases or lowered profits from
our investments. Either way, that pocket has a hand in it.

If you win in November, you get to look at a prettier face when the
State of the Union is given. But the message is going to be the
same. Grab your ankles.

If the conservatives win then we get to look at a pretty face
standing behind the president during that State of the Union, but we
still get to grab our ankles.

Nate

Pretty?

Ever since the Republicans foolishly brought the option of
impeachment back into political possibility, they seem to have
taken as a conscious strategy inoculating themselves by
nominating vice presidents so extreme as to make presidential
malfeasance an acceptable alternative. Witness Cheney. Witness
Palin.

But in regard to the "weak" economy, here's some red meat
comments on the economy for you from a few days back by Karl
Denniger, publisher of "The Market Ticker". There are things
that could have been prevented early on with just the least bit
of oversight, but have gotten too big to prevent under the
Republican Regime:

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I'm here to tell you that there is no resolution, no fix, and we
now face a stark choice between most of American Finance being
sucked into the vortex, and everything, including you, being
sucked into the vortex.

Yes, those are some stark - and harsh - words.

They're also true.

Let's begin with what we were told wouldn't happen after Bear
Stearns. We were told that Bear was an "extraordinarily" event,
and that it was a "liquidity run" that doomed them; absent that,
they were "fine."

This was a lie.

In truth what doomed them is the same thing that dooms all of
these other institutions - credit risk. The truth is that all of
these firms have written paper imprudently across the spectrum -
"subprime" loans, ALT-A loans, Commercial Real Estate loans and
leveraged buyout loans, for starters.

Lehman, allegedly, has some $80 billion of this trash on its
balance ***. Who knows what its worth. A good part of it is
probably worth 40 cents on the dollar - or less.

This charade has been promulgated and maintained by the ratings
agencies, who were more than happy to assign "AAA" ratings to
securities that had thin capital backing and assumptions about
loss rates that required that the price of whatever asset was
behind them would always and forever go higher.

This, of course, is an impossibility, but nobody in Congress
bothered them with that minor little fact - even though Congress
authorized them to play this game in the first place via their
"NRSRO" designation.

The Truth is that Merrill, Morgan Stanley, and even Goldman are
all in the same boat. The Fed and Treasury actions had given
them roughly six months to "cut that crap out", but they didn't.
They didn't sell off their portfolios of junk, but what they did
do was take the liquidity they were given and speculate in the
commodity markets, earning a nice profit and allowing them to
report better-then-disaster "earnings" while hiding the trash in
"Level 3" buckets on their balance sheets.

The entire game was predicated on the idea that the market for
housing and commercial real estate would turn within six months
to a year from last summer.

We now know, of course, that this is total garbage; housing and
commercial real estate are long-cycle businesses that average
fifteen to eighteen years from cycle top to cycle top, and THERE
IS ABSOLUTELY NOTHING YOU CAN DO TO CHANGE THAT.

As a consequence every one of these firms that has tried to "hide
the sausage" is ultimately going to die. They have made the
critical mistake of trying to play games instead of selling off
their portfolio of trash last summer when it was still possible,
and now are going to have to eat it - with disastrous results. It
is highly probable that three years from now none of these firms
will have survived in their present form.

Speaking of hiding the sausage, let's talk about AIG and WaMu.

In AIG's case they were writing credit default swaps like candy
over the last few years. As I have repeatedly pointed out these
instruments are nuclear devices and all of them tick at
inception, but the timer's window has duct tape over it. There
has been zero margin supervision on these as they're all "over
the counter"; that is, no centralized reporting, no central
clearing, no central control and no supervision - by anyone. Now
AIG is in the uncharitable position of having nearly $500 billion
of exposure to corporate loans and CDOs, with nearly all of it
written to banks - the very institutions that are now in trouble!

WaMu, for its part, still has some $50-80 billion (getting an
EXACT amount out of their 10Q is an exercise in high frustration)
worth of ALT-A "liar loans" on its books, most of them the worst
sort - "Pay Option" ARMs on which negative amortization builds
into the loan balance. This caught my eye last April and as I've
repeatedly noted should have caught the eye of regulators as
well, with the OTS and FDIC stomping on their neck instantly when
they reported 1Q 2007 "earnings" and were paying their dividend
out of capitalized interest! But that didn't happen and now we
have a huge thrift trading at $2 and change. Why is the stock
price $2? I'll bet that if they were to mark all of their
retained exposure to the current market price of those homes
they'd be instantaneously insolvent.

Of course none of these banks or other institutions are taking
their marks - including WaMu - but the market is quickly figuring
out that home prices are not going to reverse and head higher -
they are instead continuing lower, as they must, as until
affordability returns there is no other possible path forward.

In markets like California where the median family income is
$64,000 (as of 2006); this means the median home price must be
about $192,000.

As of August it was $350,000, or still a bit over 40% overvalued!

Every bank with retained exposure to California of any material
extent is in serious trouble and most of them with fail outright.
This is simple mathematics.

The regulators had to know this was going to happen years ago as
the median price reached nearly nine times median income in 2005
and 2006.

They willfully looked the other way.

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Bob, who wonders what it will take to make you want a change.

so your solution is to tax the heck out of the survivors? And then what?
think a year ahead, lets tax the rich now, give to the poor, and then what?
Are you assuming the us is going down the tubes in the next year? so what
his solution after he grabs all the money from the rich and gives it to the
poor? You really think them spending the money they get is gonna fix the
economy? Heck, even if they use it for fuel, where's it gonna go? back in
the us or to other companies outside the us that sell oil?


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