Bear down, Lehman to go

[DrEast]

Bear, Lehman, Freddie and Fannie. Lehman's going down as I'm posting this. So: the way things have been going, the Fed WILL bail it out. Apparently the winds are right right now for the government to protect the powerful at the cost to the rest of us. What a surprise!

But how far will it go? There are quite a few thinkers who have long held the flaws in this monetary system to be too great... the inevitability of failure is assured. So, when it does fail, do we all pay the price to let the merry-go-round spin a few more times to the next one, entrusting our wealth to a politician's promise? Do we, as a nation, finally get so upset that politicians learn to respect us more than their chief contributors and correct it, which will be a violent process in and of itself? Or does it all go under in a second great depression? Historically, it's been almost eighty years. We're just about due.

What are your predictions? Engage your creativity! Let's get some postapocalyptic (preapocalyptic?) vibes going here.

[Monte314]

You might have noticed that the announcement of federal assistance for the mortgage lenders caused the NYSE to jump 290 points.

When there is a significant business failure, or loss of confidence in a business sector, people pull their money out of the market. This is why stock values decline on bad financial news. If the large brokerages fail, there will be reactionary removal of invested capital that could produce a chain reaction: people pull out, this causes a stock drop, which causes more people to pull out, etc. Everyone knows that "the last man out" is left holding worthless stock... in simplistic terms, this is what happened in 1929. It is similar to a "bank run".

Such a cascade effect would not only wipe out thousands of businesses, but most Americans' retirement savings as well. The Federal government, which insures many of these accounts, will have to crank up the priniting presses to create money cover these obligations, and the resulting inflation will turn the $20 bill in your pocket into monopoly money in short order. We'd be dreaming about the good old days of $10/gallon gas... or finding gas at all.

The ripples of a major upset would not stop there, of course, but would reach out to devastate international markets, bankrupting entire nations (who hold investments in the U.S. because of its stability). Expect widespread social unrest, famine, and war soon afterwards.

The world economic system is analogous to the ecosystem. "Save FMAC" is a fiscal version of "Save the Whales". This "bailout", if it proves to be necessary, would not occur for the benefit of a few only, but could protect us all.

[DrEast]

If the large brokerages fail, there will be a cascade effect that will not only wipe out thousands of businesses, but most Americans' retirement savings as well.

The Federal government, which insures many of these accounts, will have to crank up the priniting presses to cover these obligations, and the resulting inflation will turn the $20 bill in your pocket into monopoly money.

The ripples will not stop there, of course, but will reach out to devastate international markets, bankrupting entire nations (who hold investments in the U.S. because of its stability). Expect widespread social unrest, famine, and war soon afterwards.

This "bailout", if it proves to be necessary, will not occur for the benefit of a few only.

Good times! Now, what happens if the bailout DOES happen? What's the tradeoff?

[Monte314]

Good times! Now, what happens if the bailout DOES happen? What's the tradeoff?

More of the same. Additional bailouts. Reduced corporate responsibility. Higher taxes.

Pick your poison.

[DrEast]

More of the same. Additional bailouts. Reduced corporate responsibility. Higher taxes.

Pick your poison.

I'm more interested in the higher deficits angle than the higher taxes. Deficits can only go so high before flipping over into hyperinflationary spending... at which point we have the same problems as we did with the "letting it all fail", only even more so. Still, that's the way it may end up heading, simply because that COULDN'T happen to the U.S., right?

[Dave C C]

As long as we are forced to use the US dollar it does not matter where it goes. We just learn to live with it. And it is always better to allow Americans to go hungry then to cut off aid to a foreign country.

[Jgib5328]

Lehman isn't going to be bought and looks like they're going to be forced to liquidate, Merrill is about to be bought out by BofA, and AIG is facing a huge shit storm.

It's going to progressively get worse until the back end of 2009 then there'll be a rebound.

The economy is pretty much a mess right now. Housing prices keep declining, all of the securities tied to subprime or any mortgage are going to shit, and financial firms are dropping left and right. Even the good things aren't good. The dollar has been booming, but what was keeping out GDP up was exports caused by the low relative dollar value. The rest of the world is having much more trouble than us too, so that'll impact us even more. More firms are expected to fall too, it'll be rough.

[PHS Philip]

Bank of America is in talks with Merrill Lynch to buy them at 25 or 30 dollars a share (it's at 17 or 18 dollars right now)

[Krazy P]

AS I mentioned in another thread - are you out of the market yet?

Average S&P P/E ratio is at 25 (buy at 10, hold at 15, sell at 20. 25?). Lehman is toast, AIG and Merrill are questionable, the short sellers are going to drive every weak financial down and maybe out.

Futures market trading today has the market down by at least 3% tomorrow - I am guessing its going down by at least 5%. Better get your trades in EARLY!

Hang on for the ride, it's going to get ugly.

[DrEast]

"This crisis is clearly deeper than anybody had imagined only a short time ago," Peter Stein, an associate editor at The Wall Street Journal in Asia, told CNN.


Got this from a CNN article this morning. LIES, Mr. Stein. You forgot to add the qualifier, "except the people we called crazy because we simply didn't want to believe it could be so bad. Oh, and the Austrian economists who have been predicting systematic breakdowns for, oh, fifty, sixty, seventy years now."

[Krazy P]

AS I mentioned in another thread - are you out of the market yet?

Average S&P P/E ratio is at 25 (buy at 10, hold at 15, sell at 20. 25?). Lehman is toast, AIG and Merrill are questionable, the short sellers are going to drive every weak financial down and maybe out.

Futures market trading today has the market down by at least 3% tomorrow - I am guessing its going down by at least 5%. Better get your trades in EARLY!

Hang on for the ride, it's going to get ugly.

What I said...

The Fed is now "relaxing" the collateral it will accept from banks borrowing at the discount window - guess what that collateral is going to be made of...

it's officially ugly, now....

I'll stick with my prediction that roughly 50% of banks will be gone within a year.

[DrEast]

What I said...

The Fed is now "relaxing" the collateral it will accept from banks borrowing at the discount window - guess what that collateral is going to be made of...

it's officially ugly, now....

I'll stick with my prediction that roughly 50% of banks will be gone within a year.

Tag a "plus" onto that number and I'm with you. Our financial system is built on underestimating risk, so I've found that it's downright hard to overestimate it.

[reb]

DrEast,

that's the 'bear' truth if i ever heard it.
reb

[DrEast]

DrEast,

that's the 'bear' truth if i ever heard it.
reb

Better to eat the bear than be hip-deep in bull.

[Sequoia]

Better to eat the bear than be hip-deep in bull.

Indeed. I'm prepared for a long bear ride. Seen them before and I expect I'll see them again. This one looks to be bad though.

[DrEast]

Indeed. I'm prepared for a long bear ride. Seen them before and I expect I'll see them again. This one looks to be bad though.

It's a byproduct of the centralized fractional reserve currency system, massively exacerbated by fiat currency practices. Nothing more, nothing less, and entirely predictable and predicted.

I wish it'd just crash like it did in the twenties and that people would respond by demanding a return to saner practices. But I know that if it did crash the demand would be more governmental intervention. Sigh.

[Chilibean13]

On yahoo's front page today, they ran an article about how the FDIC does only has a limited amount of funds. The article said that people should keep and eye on things and begin to spread their money around. After reading the article, it caused a brief moment of panic and the thought of running to the bank and closing my account. For those with less self-control or high anxiety, if they saw this article along with the news of the bankruptcys and stock market dropping, it could cause a banking scare.

I think we are on the verge of another Great Depression. I don't know that there really is anything that can be done to stop it. The Housing Market isn't going to bounce back any time soon. People are just going to continue struggling more and more. The government will keep making band-aid fixes. I predict we have another 2-3 years of problems.

[zippikay]

assuming we are going to great depression, any one recall how we get out of the last one? As far as i can remember, we got out because of the wwII... any other observation?

[DrEast]

assuming we are going to great depression, any one recall how we get out of the last one? As far as i can remember, we got out because of the wwII... any other observation?

Actually, we got out just before WWII. WWII sent us into a recession for another ten years. War is destructive and expensive, both being terrible for the economy. The only people who profit from it are the warmongers... what Eisenhower christened the "military-industrial complex." Victors in war can also profit from plunder and tribute, but of course America doesn't practice those barbaric practices (where's our cheap oil??!?!!?).

The depression was caused by the practices of central reserve banking, which we still follow today. In more concrete terms, it was caused by borrowing on margin to purchase stock, which would always and without any possibility of failure increase in value and thus offset the interest, an "ingenious new technique" in monetary practice guaranteed to create prosperity for all (sound at all familiar?). Until banks are forced to lend their own money, they're always going to overextend and we're going to keep on crashing like this.

It's not necessarily another great depression coming, but it very well might be. To a lot of people it may seem like it, even if it doesn't happen, though.

The myth that war is good for the economy as a whole is spawned by an accident of timing (sort of... the Great Depression did lead to WWII in many ways, since Germany had a great economic incentive to invest in a totalitarian leader, but it had to end before anyone had the wherewithal to make war) and excessively useful to many powerful people, which makes it a very widespread one. Mind, I'm lazy, so don't expect me to post a link to anyone who has the numbers in a nicely laid-out chart, but I'm sure you can find these numbers if you go looking (and any other numbers you want to support any other worldview you wish to hold, but who's counting?). Note, however, that we're at war with two nations and it's not helping US, now is it? Except, of course, from those who directly profit from it, the winners of government patronage.

[Krazy P]

assuming we are going to great depression, any one recall how we get out of the last one? As far as i can remember, we got out because of the wwII... any other observation?

I am not that pessimistic. I think we are in for a relatively severe recession - but since the last severe recession happened over 20 years or so ago, it will feel like a depression.

BRIC demand (the emerging consumer demand from Brazil, Russia, India and China) will bring us out. THey want flat screen TVs and cool clothes, too!

On the other hand, if the feds keep bailing everybody out (like AIG this evening), we could be in for something a lot worse.

A friend of mine ignored a strep infection when he was in his 20's - didn't treat the problem and hoped it would go away. THe strep settled in his kidneys and he lot both of them - requiring a kidney transplant from his brother.

If we keep ignoring the problem, it's just going to get worse.

The Fed does NOT have the authority to bail out an insurance company.

[Tyrant Soup]

Doesn't a bailout eventually involve printing money? This will result real inflation, which will in effect wipe out your life's savings if you keep in in cash. Cash will be trash.

[DrEast]

Doesn't a bailout eventually involve printing money? This will result real inflation, which will in effect wipe out your life's savings if you keep in in cash. Cash will be trash.

Worse than that. When the monetary system is unstable all valuation is skewed. NOBODY invests in a country with hyperinflation (see Brazil). The major defense everyone seems to invoke when this comes up is "The U.S. is too big to fail." But that just means it's gonna hurt more.

[zippikay]

okay, so we are in for a bearish ride with vicious cycle involved...
1.subprime debt goes sour, which mean by any reason the borrowers don't pay
2.the lenders get bad reputation, and thus those who give money to the lender start to fuss about and ask for more money
3.pressed, the lenders would turn on the borrowers and press for more cash
4.pressed, more borrowers go default and go back to number 1

on the other hand,
1.when company is strapped for cash, they would lay off employees
2. employees = customers, thus no job = no purchase
3. no purchase = no income for company
4. no income leads for lack of cash, go back to number 1

we all know this, and this is a downward spiral... during great depression i think the government initiated some construction projects that create jobs and thus reverse the cycle, but can't we say that during the WWII US did some lending to the other nations that benefit our banking system and create more jobs in banking? some weapon manufacturers (and most of other manufacturers also) were still making stuff in american soil, thus the war incite exports. plus, albeit inhuman, war casualty would reduce the population and reduce the unemployed people.

can we still do this now? by now, those flat screen tvs are made in china, the war in iraq and afghan is paid mostly by the us, and we got none of the oil. europeans are no longer in war, they make their own stuff and their economy may no longer depends on the us, they already have big market among themselves...

is this the end of pax americana yet?

[reb]

pax americana ended during the war of northern aggression. liken it, if you will, to russia's discontent of the 'separating republics'. the attack on georgia was very much like lincoln's baiting using ft. sumter. putin is no fool, and a student of history i would guess...he sees things from a 'what's good for putin is good for russia' perspective lol! the north could not stand to lose the agrarian assets of the south, and lincoln was an intj mastermind, anyway....until j.w.b. stopped the clock.

in re: economy, kudlow and company are having orgasms over 'the principles involved'. they seem to ignore that, with the government as it now exists, there ARE no principles...dey buncha ho's in d.c..

the fdic came up when i spoke to scottrade about my ira. the guy acted surprised when he quoted me 'your account is insured by the sbic' (whatever that broker organization is called...alphabet soup). i said, 'yeah, like the fdic insures my checking account...less than 10 cents on the dollar.' he kinda recoiled in horror...i've seen 155's do the same thing....

a house of cards, and they're cheap cards. none of my friends understood why i bought a drill press, a welder, a mill.....they thought i was nuts to not invest in the market. intrinsic value is the only value that really matters when the fertilizer hits the rotating oscillating device. if one had any money to use, a 20 acre piece of ground that'd grow wheat, feed goats, raise chickens would be an intrinsically valuable investment, i'm thinking, but i read backwoods home magazine, too. lol! most people don't want to dig taters, they want to tear plastic for supper. in fact, i frequently do...

the stock market...sounds so comforting, don't it? just like 'normal r us'...so 'stock'....they used to put you in the stocks for minor infarctions....
reb

[DrEast]

pax americana ended during the war of northern aggression. liken it, if you will, to russia's discontent of the 'separating republics'. the attack on georgia was very much like lincoln's baiting using ft. sumter. putin is no fool, and a student of history i would guess...he sees things from a 'what's good for putin is good for russia' perspective lol! the north could not stand to lose the agrarian assets of the south, and lincoln was an intj mastermind, anyway....until j.w.b. stopped the clock.

in re: economy, kudlow and company are having orgasms over 'the principles involved'. they seem to ignore that, with the government as it now exists, there ARE no principles...dey buncha ho's in d.c..

the fdic came up when i spoke to scottrade about my ira. the guy acted surprised when he quoted me 'your account is insured by the sbic' (whatever that broker organization is called...alphabet soup). i said, 'yeah, like the fdic insures my checking account...less than 10 cents on the dollar.' he kinda recoiled in horror...i've seen 155's do the same thing....

a house of cards, and they're cheap cards. none of my friends understood why i bought a drill press, a welder, a mill.....they thought i was nuts to not invest in the market. intrinsic value is the only value that really matters when the fertilizer hits the rotating oscillating device. if one had any money to use, a 20 acre piece of ground that'd grow wheat, feed goats, raise chickens would be an intrinsically valuable investment, i'm thinking, but i read backwoods home magazine, too. lol! most people don't want to dig taters, they want to tear plastic for supper. in fact, i frequently do...

the stock market...sounds so comforting, don't it? just like 'normal r us'...so 'stock'....they used to put you in the stocks for minor infarctions....
reb

On the one hand, I'll grant that you're not insane. Were I in any more precarious a position personally, I'd be right there with you.

But I? I have the ultimate in job security. I fear not my income.

Why?

Because I work for a family bankruptcy firm.