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Market meltdown caused by (who else) liberal media

by Jerome a Paris Thu Aug 9th, 2007 at 12:36:40 PM EST

The fun continues in the markets today, after a day of respite yesterday, following announcements by BNP Paribas, France's largest bank, that it was suspending 3 funds that had lost over 20% of their value, and a WSJ article suggesting that Goldman Sachs had lost significant amounts of money in some of its quant funds, and the European Central Bank's decision to inject an unprecedented 130 billion dollars of liquidity.

Who can be blamed for this?

One might naively think that "Bubbles" Greenspan, and his sidekick and replacement,  "Helicopter Ben", can be blamed:

We're even hearing nostalgic cries for the return of Alan Greenspan, who is remembered fondly for supplying liquidity during the credit crises of his era. But what these cries forget is that the Greenspan Fed is one reason for the current mortgage mess. It's tempting to blame Wall Street and other bankers for all those bad residential loans, and they are paying the price now. But they were also lending into a housing asset bubble fed by easy monetary policy. Risky mortgages always look better when home prices look like they'll never decline.

Current Fed Chairman Ben Bernanke was along for the Greenspan ride, so he's hardly blameless.

Keep throwing money at financial markets whenever there is a crisis of any kind, and bankers soon learnt that they'll be rescued from their reckless behavior - and they will take bigger risks to try to earn more, as it essentially costs them nothing to do so. It's what's been called the "Greenspan Put". Taking bigger risks invariably leads to poor decisions and real losses - but as they are borne by someone else, why care? Central Bankers' job is to prevent such behaviors, not to encourage them, and Greenspan failed miserably. And very few in the financial markets will be brave enough to blame him for that, given that financial players are the main beneficiaries of that casual attitude.

I hope that the lesson of this great unravelling will be that asset inflation is a lot more dangerous than the wage inflation all decision-makers in business, politics and finance have been obsessed with over the past 25 years.

:: ::

One might also point fingers at greedy,reckless and downright fraudulent lenders:

perhaps the most absurd aspect of the US subprime mortgage market in recent years is that lenders became so generous with credit provision for out-of-pocket borrowers that very few checks were ever made.

That left the system extraordinarily vulnerable to widespread fraud, a possibility that federal and state prosecutors across the US have begun to look into. With the subprime crisis expected to cost investors between $50bn (£24bn, €36bn) and $100bn, according to the US Federal Reserve, these investigations could transform it from a market correction to a full-blown national scandal.


Fraud has been detected up and down the financing chain: just as borrowers have lied to get better rates and larger loans, mortgage brokers and loan officers have lied to borrowers about the terms of their loans and may also have lied to the banks about the qualifications of the borrowers. Appraisers, likewise, have lied about the value of the properties involved.

"The recent rapid expansion of the subprime market was clearly accompanied by deterioration in underwriting standards and, in some cases, by abusive lending practices and outright fraud," Ben Bernanke, Fed chairman, recently told lawmakers.

Just look at the names that were invented: "ninja loans", as in no income, no job, no assets. How on earth can you justify lending 100% of the value of a house (and sometimes even more) to people that demonstrably do not have any way to repay them unless real estate prices go up? You do not bet an economy on ever rising house prices.

Unless, of course, you need to hide the fact that revenues are stagnant for most, inequality is growing, and the money oh-so-kindly loaned to those that could not keep up otherwise allows to hide the inconvenient underlying truths of policies aimed exclusively at the haves and have mores.

:: ::

Nah, you gotta create yet another diversion and blame - who else? - the liberal media:

If one guest or expert is a "bull," then the other must be a "bear," to keep things fair. Or, if there is a single guest on air, the host often takes the other side of the issue in order to keep things balanced.


a super-duper majority of professional forecasting economists believe the economy will continue to expand during the next year and have believed so for the past four or five years. (...) Americans have been bearish on the economy for quite some time.


If the actual economic data, the views of professional economists and the self-proclaimed personal financial situation of a majority of Americans have improved this much, why are people so worried about the economy? Why do people assume they are the exception rather than the rule?

Given that this article is titled "Fair and Unbalanced", we know that what follows only applies to non-Fox News media:

A randomly selected pairing of economists from The Wall Street Journal forecasting panel would pit two rather optimistic forecasters against each other in debate. But having two economists debate about whether GDP will grow 2.1% this year or 2.4% is downright boring. As a result, the producers of business news spice things up. They arrange for debates between a bullish economist and a bearish economist.

I don't think you hear bearish news very often on business TV. In fact, one gets an endless stream of CEOs, CFOs, analysts, traders, etc..., the vast majority of whom benefit from bull markets and thus mostly behave as cheerleaders for their companies or for the markets in general. So the complaint that there is a 50/50 "balance" between bullsih and bearish analysts is laughable on its face.

In fact, the incessant, hysterical, hiping of market performance as the sole proxy for the state of the economy has largely contributed to the dominance of the financial world over the real world (what I have called the Anglo Disease) and the ideology of greed (you are worth what the markets say you are; if you are poor it's because you deserve it; society does not exist; tax and transfers are 'inefficient' and need to be eliminated so that corporate profits and market value can go up; and of course, wages must be cut as they cut in aforesaid profits and market value; while extravagant CEO income is fully justified by these rising market values) that has both fed the bubble and made it possible to hide its consequences for so long.

To have the media blamed for the dismal opinion most Americans have of the economy is deadly accurate, but not quite for the reasons purported in that article. Most Americans, despite the flashy headline numbers for growth and unemployment, know that their incomes are stagnant, and see the ever widening gulf between them and the small minority of financiers and top managers that gorge on the "efficient markets" and feature so prominently on business news. They have absorbed the ideological model pounded 24/7, have joined, per force, the rat race (sorry, the quest for efficiency and ever higher productivity) and dream, mostly vainly, of coming on top. Mostly, they feel they don't have a choice - that, in fact, it is almost unpatriotic and un-American to question whether the Dow Jones is the appropriate measure of prosperity for all. The media sure provides incessant notice of that, day in and day out, not just via the totemisation of the Dow Jones and the idolisation of financial analysts (the grand priests of our capitalist religion and sole holders of the truth these days) but also by focussing so relentlessly on the lifes of the rich, providing at the same time the mindless entertainment that distracts and the not-so-subtle message that only they, the rich, are worth anything - starting with attention.

:: ::

That bears have made it to business news only proves one thing: that things are now so bad that it's no longer possible to paper over the cracks and hide the sheer hollowness, and the devastating price, of the Cult of the Market.


In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Aug 9th, 2007 at 12:37:06 PM EST
old fashioned conservatives consistent in their nawkish monetary positions. Good for them:

Our Subprime Fed

In recent years, monetary policy has created an expectation that the Federal Reserve will bail out investors when asset bubbles deflate. The recent crisis in the subprime mortgage market is at least partly the outcome of this new approach to monetary policy. That crisis has already had widespread ramifications for homeowners and investors.


The collapse of the subprime mortgage market is the latest in a series of financial bubbles whose existence reflects, at least in part, moral hazard in financial markets.


The new moral hazard in financial markets has its source in what can be best described as the Greenspan Doctrine. The doctrine was clearly enunciated by Alan Greenspan in his December 19, 2002 speech. Mr. Greenspan argued that asset bubbles cannot be detected and monetary policy ought not to in any case be used to offset them. The collapse of bubbles can be detected, however, and monetary policy ought to be used to offset the fallout.

Two months earlier, Mr. Bernanke endorsed the Greenspan Doctrine, arguing against the use of monetary policy to prevent asset bubbles: "First, the Fed cannot reliably identify bubbles in asset prices. Second, even if it could identify bubbles, monetary policy is far too blunt a tool for effective use against them." Since Mr. Bernanke is now Fed chairman, it is reasonable for market participants to assume that the Greenspan Doctrine still governs current Fed policy.


 In effect, the central bank is promising at least a partial bailout of bad investments.


If the Fed promises to "mitigate the fallout" from "irrational exuberance," then it is rational for investors to be exuberant. Investors may be at risk for some loss, as with a deductible on a conventional insurance policy, but losses are still being mitigated.


The Greenspan-era gains against inflation will then prove to be only temporary. His doctrine will be the death of his legacy, a legacy that already includes a housing bubble and its aftermath.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Aug 10th, 2007 at 09:27:23 AM EST
[ Parent ]
Why do I get the feeling you're not willing to clap louder like the Wall Street Urinal would have you do?

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Thu Aug 9th, 2007 at 02:19:51 PM EST
I first posted on open thread before I saw this diary

From my reading of the press (I work for BNP Paribas but I don't work where these funds are managed - here  I talk only for myself not my employer), those three funds were not marketed for "retail" clients so my guess these were only bought for other banks, hedge funds and "private banking" (ie rich people).

I also read there was no downgrade or negative view of the papers bought by the funds (AAA and AA) by rating agencies (for what they're worth...), just no liquidity so the usual technique of valuation by looking at the transactions don't work hence the one month valuation freeze (and not closure of the funds).

You can put lots of thing in your assurance vie portfolio, but funds labelled "100% capital guaranti" will not go under 100% so no problem for you (only risk if the seller of the fund cheats and the management company blows out but that's really really low).

From Felix Salmon:

http://www.portfolio.com/views/blogs/market-movers/2007/08/09/bnp-paribas-funds-a-non-story-with-big -consequences

BNP Paribas Funds: A Non-Story With Big Consequences

Why all the fuss about these BNP Paribas funds? They're long-only funds which own some very illiquid paper, and as a result they're impossible to value accurately. If someone wants to withdraw money from a fund, you first have to know how much the fund is worth. Since the fund managers don't know how much the funds are worth, they're not letting people withdraw money until they do know how much the funds are worth. There is no chance of the funds being wiped out, like the Bear Stearns hedge funds were, since they're long only.

And yet stock markets around the world are falling in response to this non-news, there's a flight to quality, and BNP Paribas stock has dropped over 5% - despite the fact that it's other investors' money we're talking about, here, not BNP Paribas's own. All I can conclude from this is that the market is very, very nervous, and will sell on just about anything.

BusinessWeek on the ECB action:


Another, bigger, shoe dropped later Thursday. The European Central Bank, in a move to calm market nerves and enhance liquidity in the European money markets, said it planned "a liquidity-providing tender of one-day securities" totaling 94.8 billion ($130.5 billion)--basically, an injection of available funds into euro zone money markets to soothe frayed market nerves.

Note that this is more in absolute term than what was done afte WTC attack (70 billion euros) but a tad less by some relative measure.

So it's huge, I guess the ECB want the banks to buy some of the junk papers themselves and put them in some closet until the mess is sorted out and "normal" valuations are happening again (there will be losses of course, but not 100%).

by Laurent GUERBY on Thu Aug 9th, 2007 at 02:27:22 PM EST

If someone wants to withdraw money from a fund, you first have to know how much the fund is worth. Since the fund managers don't know how much the funds are worth, they're not letting people withdraw money until they do know how much the funds are worth.

That's what they are admitting to, right now, anyway. But according to their logic that things are worth what the markets can bear, they are actually, in a very real sense, worthless.

If you insist that they are not worthless, you have to drop the pretence that markets can measure everything all the time. This is a fundamental point to make.

That banks and companies can be in long term commercial relationships and not just mercenaries focused on immediate profit. That trust has value, i.e. that relationships, social links, and, gasp, community have value.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Aug 9th, 2007 at 02:38:59 PM EST
[ Parent ]
The irony is that these bank sponsored papers are indeed worthless at market value (since there is no buyer) and that is the case because everyone is too leveraged by the very same banks and so no one has money left to be a buyer...

All of course caused by ECB total lack of willingness to act as a real bank regulator (since ECB now has a monopoly on this).

Politically the ECB actions are nothing short of incredible:

  • ECB criticize strongly workers union for asking for raises and going to strike, totally outside of ECB mandate
  • ECB criticize states for their work regulations, totally outside of ECB mandate
  • ECB says because of the two above it is forced to raise rate and create unemployment and unrest, hell to evil workers and policiticans!
  • ECB just creates 100 billions in liquidity to save rich people and irresponsible banks shareholder value, ECB fully responsible for the mess because it did not act
  • ECB, now that rich people and shareholders are involved  might not raise rates after all !!!!

No MSM will report those simple facts put together of course...
by Laurent GUERBY on Thu Aug 9th, 2007 at 03:06:27 PM EST
[ Parent ]
Now you know who the ECB really work for.

The US Fed is not different.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu Aug 9th, 2007 at 04:13:02 PM EST
[ Parent ]
From Bush's press conference

At home, Bush ruled out any bailout of homeowners hit with foreclosures in the form of direct assistance. But he said "enormous empathy" is in order for such people and indicated he was open to some federal help for people to refinance and keep their homes.

"The word bailout _ I'm not exactly sure what you mean. If you mean direct grants to homeowners, the answer would be no," the president said.

Wonder what he means by "federal help for people to refinance..."

I can swear there ain't no heaven but I pray there ain't no hell. _ Blood Sweat & Tears

by Gringo (stargazing camel at aoldotcom) on Thu Aug 9th, 2007 at 03:54:28 PM EST
Maybe easy conversions to fixed rate loans as someone mentioned yesterday.

you are the media you consume.

by MillMan (millguy at gmail) on Thu Aug 9th, 2007 at 04:15:57 PM EST
[ Parent ]
Wouldn't that mean federal loan guarantees?

I can swear there ain't no heaven but I pray there ain't no hell. _ Blood Sweat & Tears
by Gringo (stargazing camel at aoldotcom) on Thu Aug 9th, 2007 at 07:24:50 PM EST
[ Parent ]
On the big picture:


    "Markets can remain irrational longer than you can remain solvent."
    -- John Maynard Keynes

    "The only thing that can console one for being poor is extravagance."
    -- Oscar Wilde

    "It is pretty hard to tell what does bring happiness; poverty and wealth have both failed."
    -- Kin Hubbard

    "The key to making money in stocks is not to get scared out of them."
    -- Peter Lynch

    "If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem."
    -- JP Getty

    "You try to be greedy when others are fearful, and fearful when others are greedy."
    -- Warren Buffett

    "A cynic is a man who knows the price of everything, and the value of nothing."
    -- Oscar Wilde

    "Do you know the only thing that gives me pleasure? It is to see my dividends coming in."
    -- John D. Rockefeller

    "A gold miner is a liar standing beside a hole in the ground."
    -- Mark Twain

    "There was a time when a fool and his money were soon parted, but now it happens to everybody."
    -- Adlai Stevenson

    "It is generally agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of Stock Exchanges."
    -- John Maynard Keynes

    "The safe way to double your money is to fold it over once and put it in your pocket. "
    -- Frank Hubbard

    "Save a little money each month and at the end of the year you'll be surprised at how little you have."
    -- Ernest Haskins

(emphasis on John Maynard Keynes mine)

by Laurent GUERBY on Thu Aug 9th, 2007 at 05:01:53 PM EST
After investing on my own for about 7 years now I've learned several things. Your first Keynes quote sums it up.

  1. My combination of ecological/psychological doomerism and consideration of "sustainable" economic metrics (ie, not buying property back in 2001 because I already knew it was a bubble then) has cost me financially, as the market is a group psychological process and little else (ie, not in any way connected to my way of thinking, emotional or analytical).

  2. I don't have the financial muscle or insider knowledge to beat the market. The few areas where I can beat the street's common knowledge, such as going long in oil, still didn't work for me - you need a lot of money to buy actual oil contracts, and ETFs like USO are continually dropping vs. the spot price due to market contango. That outcome in particular has really killed my interest in the game of investing.

  3. The spots in which I've beat the market were effectively dartboard buys/sells. Over the long run, though, those moves have cost me almost as much as they have made me.

As a result there are only a few things I am willing to do now:

  1. buy CDs / insured bonds.
  2. basic mutual fund plays, such as taking advantage of the bull market and declining dollar buy investing in funds that buy Euro based shares over the past few years
  3. Currency trading (more to lower my overall risk vs. inflating fiat currencies and general dollar weakness than speculation).

With higher market volatility and a bear market on the way, my interest in buying individual stocks or even mutual funds (beyond bond funds) is pretty much zero.

you are the media you consume.

by MillMan (millguy at gmail) on Thu Aug 9th, 2007 at 05:58:21 PM EST
[ Parent ]
as the market is a group psychological process

The market is also about information. If you're not inside the inner loop, you won't get that information ahead of time.

Specifically it's about digested information. Without gossip, news, and good live analysis tools, you're already behind the professionals, and unlikely ever to catch up.

It was interesting looking at wchurchill's posts, because although we mostly disagreed with him politically, he was an excellent presenter of Wall St's common wisdom. His predictions also seemed to be more accurate than anyone else's on here.

In practical terms, it's only possible to make accurate predictions if you can enter the mindspace of the psychological process that drives the markets.

Since most of us assume that market processes are mostly insane, and clearly so, we're predictively disadvantaged in the short and medium term. Suspension of disbelief seems to be a useful skill which may be in short supply around here.

So even though we can see an approaching train wreck from far enough away to be able to say 'Wtf are these people doing?', it's very hard to turn that into an effective investment strategy.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Aug 9th, 2007 at 06:16:23 PM EST
[ Parent ]
In Europe if you want to do trading as a consumer you have cheap access to call and put options, they're called "warrants". They're leveraged and thus more risky than their underlying stock since you're much more likely to loose all your position.

My employer BNP Paribas markets warrants on various Brent futures, currently September 2007 to June 2008, many strikes/call/put. There are also gold, silver, housing indexes, indexes, stocks, etc...

It's curious because in the USA these products are not marketed at all, cultural thing?

Disclaimer: my wage comes in part from those warrants sales, and I personally own a few Brent warrants.

by Laurent GUERBY on Fri Aug 10th, 2007 at 02:00:06 PM EST
[ Parent ]
The quote of Warren Buffett is pretty instructive, not just in the "buy low sell high" way. It is a basic investment realization that market trends are determined not so much by actual prospects of economy, but of perceptions thereof. Surely, perceptions do "neurolinguistically" define much of economic reality - but with limits. Anyway, playing with human perceptions and impulses is frequently easier than playing with economic data.

In particular, fear and greed (as in Buffett's quote) determine most jitters of financial indices. Those market cycles tell more about human patterns of greed and fear than about "inherent" economic structures. I guess American cycles of greed and fear are different from Chinese or other ones - hedge fund modelists may know them all very well. At least those empirically determinable from the statistics up till now.

The flux of capital into asset markets was increasing faster than ever in America, China and other markets. Shares rose not so much because of better buisiness performance (though it is much easier to perform when the whole economy enjoys so much cash Viagra), but just because so many new greedy entrants in Americas, China and the rest of Asia and the world. The common wisdom was to "invest" whenever you have spare cash - and to borrow and invest more is you dare "as a man".

But now perhaps comes inevitable interaction with reality of cash flow sustainability. Still, this year will see a lot of game of fear and greed in the markets. Some ejaculation (if you pardon me) of the dear stiff global economy must be inevitable eventually, but the trigger will most likely be some rational measure to curb financial follies. Libertarian apologists would blame the rational "socialists" or "protectionists", never minding that the absurd sensitivity of the saturated markets is wholly thanks to the "supply" incentives to fuel cash from everywhere into one or few markets.

by das monde on Sat Aug 11th, 2007 at 12:52:09 PM EST
[ Parent ]
asset inflation is a lot more dangerous than wage inflation

Actually its not just a difference of degree but an inverse relationship.

Wage inflation, if slow and steady, is a sign of a very healthy economy as some English guy with three names wrote in real long, boring book a long time ago.

Asset inflation, also known as "irrational exuberance," is a is a sign of an economy that is due for a "correction" unless those who have overvalued their assets can find ways to extract short-term profits from them by driving down wages.

So we have a choice, one or the other. For the last 10 - 15 years, we've chosen the latter. Its about time we start to wonder if we shouldn't be getting back to policies that promote the former.

by desmoulins (gsb6@lycos.com) on Thu Aug 9th, 2007 at 07:37:46 PM EST

Countrywide Hit by Credit Market Woes

Countrywide Financial Corp. and other mortgage companies are facing "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company's financial condition, the Calabasas, Calif., lender said in a regulatory filing.


"While we believe we have adequate funding liquidity," it said in a quarterly filing with the Securities and Exchange Commission, "the situation is rapidly evolving and the impact on the company is unknown."

Payments were at least 30 days late on about 20% of "nonprime" mortgages serviced by Countrywide as of June 30, up from 14% a year earlier. Nonprime includes loans to people with weak credit records and high debt in relation to their income, as well as to people who don't document their income or assets. On prime home equity loans, the delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.

In a sign of the growing difficulty in selling loans, Countrywide said that it transferred $1 billion of nonprime mortgages from its "held for sale" category to "held for investment" in the first half. Countrywide marked the value of those loans down to $800 million.

That means that they are provisioning 20% of the mortages, i.e. that they are already counting these as losses. Actual losses will only be known later, as borrowers make payments or not - if the losses are lwoer than expected, the company will be able to book a profit by taking back these provisions; if worse, at least a portion of the losses will have been covered already. This is a way to spread losses over time - but it does mean that this quarter's accounts ARE impacted.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Aug 10th, 2007 at 03:48:08 AM EST
Robert Preston, BBC business editor in his blog:

Is there reason to believe that many of the securities manufactured out of subprime loans are worse than ordure?

I'm afraid so. Here are just three reasons:

  1. As the FT pointed out this morning, many of the underlying subprime loans were taken out by fraudsters and will therefore never be repaid in full.

  2. When repackaged as mortgage-backed bonds, they were given ratings by the credit rating agencies based on delinquency experience during the benign conditions of the past few years - which almost certainly means that the ratings flattered their innate (poor) quality. Or to put it another way, investors have bought the financial equivalent of poisoned mutton dressed as prime lamb.

  3. Hundreds of billions of dollars of these mortgage backed bonds have been re-engineered as collateralised debt obligations. These CDOs are customised bonds of varying quality and varying yields. There is nothing intrinsically noxious about them. However there are CDOs made out of other CDOs, called CDOs squared, which are marketed as high quality investments - and they've been bought by the "one-born-every-minute" brigade. What's more, there's accumulating evidence that even the simpler CDOs have been bought by naïve investors, who had no idea what they were buying.

It is wonderfully ironic that a disproportionate share of losses from America's dodgy mortgages should be born by financial institutions in France and Germany - and that the European Central Bank is pumping cash into the banking system to avert a possible crisis.
The incongruity is that the Anglo-American model of financial markets is despised in many European capitals; it is droll that their banks were seduced by Wall Street.

This comment on the blog struck my eye:

At 10:17 PM on 09 Aug 2007, Xeno7777 wrote:

The USA has no true Central Bank; The New York Branch; of the USA Federal Reserve; sets US Interest Rates. Its board is made up of the representatives of three Banks, J. P. Morgan Chase + two very small banks, 1 from New Jersey, 1 from upstate New York; these 2 banks will do whatever Chase asks. The controlling stockholder of J. P. Morgan Chase, thus sets USA interest rates; his position is derived from the controlling stockholder of the Rockefeller Fortune; his name is David Rockefeller. His predecessor and grandfather, John D. Rockefeller Sr.'s decisions sent the USA, and the world, into the Great Depression of the 1930's! In 1896, The Standard Oil Trust's President was sentenced to two years in Sing Sing Prison for dynamiting a competitor's Oil Refinery, while John D. Rockefeller Sr., was its Chairman of the Board!
How can the world avoid being sent into another Great Depression, much worse than the 1930's Original? The USA must replace the Federal Reserve with a True Central Bank! English nations must break up the Re-Assembled Secret Offshore Standard Oil Trust, consisting of J. P. Morgan Chase, Citi-Group, Exxon Mobile, Chevron Texaco, Royal Dutch Shell, British Petroleum, and the Saudi Royal Family. They must mandate the Two Controlled Combustion Cycles, The Texaco Gasoline and The Mann Diesel, which wil cut crude oil consumption for automotive engines in half! Then both nations must adopt Silver, perhaps include a market basket of other valuable metals, as the basis for their currency, and seize the four big international oil companies. Both governments must finance all political campaigns, and perhaps dissolve all political parties!

You can't be me, I'm taken
by Sven Triloqvist on Fri Aug 10th, 2007 at 06:12:58 AM EST
Owning "stock" in the Fed is not the same as for another company, in particular private banks must by law own stock in the Fed:


"National banks are required to be member banks in the Federal Reserve System. Federal statute provides (in part):

        Every national bank in any State shall, upon commencing business or within ninety days after admission into the Union of the State in which it is located, become a member bank of the Federal Reserve System by subscribing and paying for stock in the Federal Reserve bank of its district in accordance with the provisions of this chapter and shall thereupon be an insured bank under the Federal Deposit Insurance Act [. . . .]

by Laurent GUERBY on Fri Aug 10th, 2007 at 10:24:26 AM EST
[ Parent ]
with markets, you pump the liquidity in, not out.

Manning the pumps over the last 48 hours (in dollars):

The Bank of Japan: 8.5 billion
The Reserve Bank of Australia: 4.19 billion
The European Central Bank: 130.6 billion + 61 billion
The US Federal Reserve: 24 billion

Other central banks are also bailing inwards.

Numbers from: http://news.bbc.co.uk/2/hi/business/6939757.stm

You can't be me, I'm taken

by Sven Triloqvist on Fri Aug 10th, 2007 at 06:24:18 AM EST
A while back, I said that for me to become bearish at least two out of three things would have to happen.

  1. Total meltdown in the US housing/credit market. I think it's fair to say that has happened.

  2. Much higher oil prices. We're back in the $70-80 range, so while we have come a fair bit, we're not there yet.

  3. Higher interest rates. There's a fair chance rates will be lowered next year.

So, this far I believe global growth will bail us out and that this will just be a correction like the others we have seen once or twice a year for the last few years.

And remember, for stocks a shorter investment horizon than 5 years is just speculation.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Aug 10th, 2007 at 09:52:20 AM EST
[ Parent ]
It is ALL speculation ;-)

You can't be me, I'm taken
by Sven Triloqvist on Fri Aug 10th, 2007 at 10:09:27 AM EST
[ Parent ]
Total meltdown in the US housing/credit market. I think it's fair to say that has happened.

Not quite. The meltdown has just begun: there is a lot more melting to do yet.

Much higher oil prices. We're back in the $70-80 range, so while we have come a fair bit, we're not there yet.

Higher oil prices in dollars or lower dollar prices in oil?

There are two factors at play here: one is the ever increasing non-US demand for oil, and the other is the reluctance of oil sellers to KEEP the proceeds in dollars (the transaction currency is immaterial).

Higher interest rates. There's a fair chance rates will be lowered next year.

If dollar interest rates are lowered - which they will have to be - then the dollar's decline will continue to the extent that its role as global reserve currency will come under threat.

The Dollar is between a Rock and a Hard Place.


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Aug 10th, 2007 at 11:46:51 AM EST
[ Parent ]

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