Perspectives on the global economic meltdown- (Nov 28 2010)

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VikramS
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by VikramS »

Arjun:

The 16 or so primary dealers make the market in Treasury bonds are required to bid on Treasury auctions. They are part of the Fed<=>Treasury<=>Primary Dealer troika which manages US Debt.

As a result they are a direct beneficiary of the ZIRP, POMO, interest on excess reserves, Operation Twist and the sundry schemes which have been put out to recapitalize the banking system. The banking system is under capitalized because:

-> It took too much leverage to increase the size of its books, and siphon off mark to market profits during the boom time.
-> It did not build a loss cushion but instead squandered the income on bonuses and $600 meals.

All these schemes which manage the interest rate curve put the interest of the banks in front of the savers. So retirees and other investors who want a steady income are seeing the value of their retirement savings deteriorate as negative real rates eat into their capital.

The TBTF primary dealers are being rescued at the back of average american and there is no reason for them to get outsized bonuses when the masses suffer.

====

You missed the point about PE/Activist Hedge Funds. While the street might court their business, the funds themselves are in no position to question the street's compensation structure. The street has its own way of fighting back.

Look at the IPO of Google where the street did not get its cut. The IPO was grossly under-priced and the stock really took off after it went public. And this was after the tech bubble had burst.

The issue is that even the largest activist fund is in no position to question the compensation of the TBTF. I noticed you had no comment about the gross margins of software companies. Wall St plays by its own rules far detached from the real world.

And all the Economics 101 stuff you wrote about share holders is far detached from reality.

Most of the longer term money in the equity market is controlled by institutions and they have their own portfolio allocation schemes etc which will always allocate a certain percentage to the banks. With the popularity of ETFs and basket trading the allocation is become even less company specific than ever before. And right now when there is so much uncertainty and volatility, entire investment classes are becoming strongly correlated and trading as a group. So the pricing of individual equities is of even less importance.


=======

Those Nassem Taleb interviews are a must-watch; they hit the nail on the head. Hedge funds which raise private capital have the right to exist and their managers have the right to profit from the success of their investments. Those institutions which are a part of the troika are not hedge funds and their comp structure can not ignore the damage they did over the past two decades.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by chetak »

American economy may be doing poorly but this has not affected the super Rich. The Americans who are adversely affected and mostly out of jobs are the poor and middle class who are in fact the producers. The 1% super Rich are getting richer as their income has disproportionately increased compared to middle class and poor. Such disparities are bound to cause distortion in the economy of the country. The Noble prize winning eminent Economist Robert Stieglitz who wrote this article in the last spring has brilliantly brought out the contradictions in a capitalist economy that provides easy money and no regulation.
Capitalist economy that provides Tax concessions to the 1% Super Rich compared to innovators and creators of wealth belonging to Bio-tech and Information Technology has shown how greed of the super rich could ruin the western economic structure. This article is of relevance to our country because increasingly the Super Rich are benefiting and disparities between Rich and Poor increasing in our country due to certain policies followed by our Govt. How do you explain the recent news that the Mr Mittal of Air tel collected Rs 70 crores last year in terms of remuneration, Bonuses and Dividends etc when we are told that the telecom industry is going through a rough patch and margins are falling due to stiff competition.How else one can explain that an Ambani builds a Super Palace spending thousands of Crores for himself and family?

http://www.readersupportednews.org/opin ... -for-the-1
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by sumishi »

ldev wrote:... Ask yourself a fundamental question. "When they agreed to give up their monopoly in 1913 and enter into this joint venture, what rights have they retained?" Because nobody will willingly give up the monopoly that they had without getting something ironclad in return. I hope that you do not ask who "they" are, or what "monopoly" they had or what this "joint venture" is. Because in the absence of answers to these fundamental questions, the rest is all tactical.
Larry Bates (Bank president for 11 years; As a member of the Tennessee House of Representatives he chaired The Committee On Banking And Commerce; Professor of Economics; Author of the best-selling book 'The New Economic Disorder') on the 1913 episode:
The Federal Reserve is neither federal and has doubtful reserve. It's a private bank, that is owned by member banks, and it was charted under the guise of deceit by an Act of Congress in 1913. December the 23rd, 1913, when most members of the congress had gone home for the holidays, the House of Representatives had passed the Federal Reserve Act of 1913.

But it was having difficulties in getting out the Senate. And most people had gone home. But one of the things I used to make sure and check is when we had a recess in legislating circles, you want to make sure that you adjourned what is called sine die without date. The Senate had not adjourned sine die without date. It was still technically in session.

So you had 3 members of the Senate, according to the Senate journal, present on that day, December the 23rd, 1913. And they passed the Federal Reserve Act in the Senate on an unanimous consent voice vote. There was no objection. Had there been one person there to object, and say in contest, the absence of a quorum, than it would not have passed.
Source: The Money Masters
VikramS
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by VikramS »

Acharyaji
Last edited by VikramS on 23 Oct 2011 12:17, edited 1 time in total.
svinayak
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by svinayak »

thanks
email sent
VikramS
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by VikramS »

Arjun:

The problem right now with the discussion is with the frame of reference. As you grow older, see more, and discover some more, you realize how little you know.

The frame of reference you are rationalizing against is the structure in which modern Finance operates. Its structure seems perfectly normal, and you are framing your arguments against that. When you talk about academic research, or share holder actions etc they are all rational and well justified in that particular frame of reference.

There is a bigger frame of reference which Neshant is trying to highlight. Modern finance is just one component in that frame. In that frame of reference Neshant is measuring the flow of wealth between different components of an economy. This includes the finance industry, the government, the tax-payer, the workers outside finance (and I might take the liberty, law). What he is highlighting is the obvious one-sided imbalances which have been created in this flow, and accumulation of wealth by the few.

While there is no doubt that efficient allocation of capital, and capital management is an integral part of any functioning economy, in the US they have become the dominant part controlling the destiny of industries, and even politicians.

You should try and do some more reading. The Big Short by Michael Lewis has a lot of information on how the system was gamed.

One place to start is the student loan industry. During the past decade or so the cost of higher education has been increasing at almost double digit CAGR. This is unheard of. One reason driving the cost of education is the easy availability of student loans. Couple that with a soft labor market and the universities are booming with a lot of students. Many of those students have no business taking that amount of debt given their overall capability and earning potential. It is not very different from sub-prime lending where those who had no business taking on a leveraged burden were given loans to keep the machine churning. That lead to a bubble in asset prices, just like there is a bubble in college costs.

Now here is the icing: A law was passed in 2005 which gave student loans a special designation under which they could not be discharged under bankruptcy. So you are stuck with that loan all your life. The "Workers of God" at GS also got involved in this scam, taking control of companies which cater to the student loan markets and converting counselling into a sell-job while they encouraged students to take more and bigger loans. They knew that the housing gravy train was ending so they created another one with this one having much lower risk.

Today total student debt exceeds the total credit card debt in the US.
http://www.bloomberg.com/news/2011-10-2 ... aults.html
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Arjun »

Neshant wrote:Now if this guy actually knew how to get rich by managing money, he would already be rich himself with his so called effective management of his own savings. The reality is his riches come from selling others a load of bullocks when really all he’s doing is gambling with their money and collecting a fee.
Savers choose to outsource management of their savings primarily because they have (a) either no time to spend on such management or (b) even if they had the time they might not have the ability to generate beyond 15% pa on a consistent basis; and most often the reason is a combination of both (a) and (b).

There are alternative investment managers who are able to generate 35% + returns on a consistent basis, to whom our saver outsources the job.

Why would the manager do it when he can get rich by managing his own money? The answer is simple. If he starts with say $1 Mil of his own money, after n years he has turned it into 1.35^n Mil. On the other hand if he takes in additional X Mil from other savers to manage, and 2/ 20 contract gives him an additional 10% of the saver's money, his net wealth after n years is 1.35^n + X*1.1^n.

As for the rest of your long explanation, you can rail however much you want against the Federal Reserve and I have zero objection to it. Its your ludicrous statement about the non-necessity of financial services that I am focusing on.

I see you have been evading a reply to a question I have asked twice: Are you even in synch with your guru Edward Griffin on your thoughts about this 'non-productive' industry of financial services? I would like a yes or no answer.
Last edited by Arjun on 23 Oct 2011 13:37, edited 1 time in total.
Arjun
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Arjun »

VikramS wrote:There is a bigger frame of reference which Neshant is trying to highlight.
Not sure what impression you carry about Neshant's agenda on this board - he has been consistently highlighting that he sees no necessity for a financial services industry. That's been his consistent stand over the last year or more.

I have no objection to Neshant arguing against fiat money, or even against the existence of the Fed.

Just so we are on the same page and not talking at cross-purposes - do you support Neshant's view that financial services as an industry is NOT required and can be done away with ?
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by ManuJ »

Interesting discussion going on. To put things in a historical perspective, the idea of a Federal Bank has always been controversial - it caused a huge uproar as far back as 1791, when the first Bank of the United States was established on Hamilton's insistence. It finalized a rupture among the former revolutionary colleagues and led to the formation of the first political parties - the Federalists, led by Hamilton, and the Republicans (not to be confused with today's party), led by Jefferson and Madison. It would be interesting to some that when Washington was debating about whether to heed Hamilton's advice and sign the bank bill, Jefferson advised against it, stressing that "the Constitution did not authorize Congress to charter a bank".

Washington did sign the bill in the end and the rest, as they say, is history.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by ManuJ »

Also, Jefferson and other influential members of his party were deeply suspicious of the financial sector, and strongly condemned "speculators, bank directors and holders of public debt".

I don't think anybody in today's world would go as far as to say that the financial sector is not needed, but there are certainly very strong arguments for curtailing its role and influence.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by ArmenT »

VikramS wrote: Now here is the icing: A law was passed in 2005 which gave student loans a special designation under which they could not be discharged under bankruptcy. So you are stuck with that loan all your life.
<nitpick>That law was in effect way before 2005. It was in effect in the 90s too and before that as well. What the 2005 act did was broaden the reach of loans that fell under this law. Earlier, only loans from Government funded programs and non-profit institutions (e.g. Sallie Mae, Freddie Mac) fell under the "student loan" classification (i.e.) these did not go away even if the student declared bankruptcy. Educational loans from other sources (say, a private bank) did not fall under this law, pre-2005. After the 2005 act was passed, it expanded the law to include all qualified education loans, irrespective of whether or not the lender is a nonprofit institution.

There are still a couple of ways to get the loan forgiven on a bankruptcy declaration, but extremely tough to get. You'd have to convince a judge that you've sustained an injury that has caused permanent disability to an extent that it makes it impossible for you to work any more, and there is no chance for you to make money at all. Even then, the judge may or may not grant you the loan cancellation.
</nitpick>
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by RoyG »

China pushes ASEAN to replace USD with yuan for trade

Saibal Dasgupta, TNN | Oct 22, 2011, 08.06PM IST

BEIJING: China is trying to persuade the 10-country Association of Southeast Asian Nations as the first trade bloc to use Yuan in preference to the US dollar in China-ASEAN trade.

If successful, the move will help Beijing pressurize the International Monetary Fund to recognize the Yuan as one of the basket of currencies supporting its special drawing rights.

"It's currently underway," the official Xinhua news agency quoted Jin Qi, assistant to the governor of the People's Bank of China, as saying on the sidelines of the China-ASEAN Business and Investment Summit in the southwestern city of Nanning. She did not give details of the plan.

Several developing countries in Africa and some in Asia like Pakistan have agreed to deal in the Chinese currency for the purpose of two-way trade. China is also giving some of its aid to the poor countries in its own currency. This is seen in some quarters as a move to force aid recipients to use the money for purchasing Chinese goods.

"We should speed up the work of signing and improving bilateral agreements on local currency-denominated settlement," Jin said at the Summit. She also tried to persuade the participating officials to allow trading of Yuan and currencies of ASEAN countries on interbank foreign-exchange markets in the north and South East Asian region.

The Export-Import Bank of China is also working on the Yuan plan using its capability to finance infrastructure and "livelihood-related" projects in ASEAN member countries, Sun Ping, assistant president of the Export-Import Bank of China, said at the conference.

"The bank will also make more efforts to provide financial support and services to promote bilateral economic cooperation," Sun said. It has sponsored a equity fund, which is being utilized by the China-ASEAN Fund on Investment Cooperation.

This is besides Chinese loan assistance for infrastructure projects in ASEAN countries, which has reached $12 billion in recent years.
http://timesofindia.indiatimes.com/worl ... 455383.cms
Theo_Fidel

Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Theo_Fidel »

ArmenT wrote:What the 2005 act did was broaden the reach of loans that fell under this law. Earlier, only loans from Government funded programs and non-profit institutions (e.g. Sallie Mae, Freddie Mac) fell under the "student loan" classification (i.e.) these did not go away even if the student declared bankruptcy. Educational loans from other sources (say, a private bank) did not fall under this law, pre-2005. After the 2005 act was passed, it expanded the law to include all qualified education loans, irrespective of whether or not the lender is a nonprofit institution.
Similar laws are now in effect for credit cards, some home loan amounts after foreclosure, hospital bills and even now business loans. It has become harder and harder for people to get a fresh start after some financial disaster. Before people think these folks are free loaders, statistics show that the largest chunk of bankruptcies are caused by a medical emergency. So those folks are unable to recover and permanently lost to the consumer economy.

There is a deep structural flaws with the forcefully financial victimization approach.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Neshant »

Arjun wrote:There are alternative investment managers who are able to generate 35% + returns on a consistent basis, to whom our saver outsources the job.
There is no 35% guaranteed return on investment unless the guy is selling narcotics. Now if you had any sense managing money, right about now an alarm bell should be ringing in your head as to whether this guy is another Bernie Madoff in the making. Even Madoff was only claiming 20% return year on year.

With compound interest, even 1 million turns into roughly half a billion ($404 million) in 20 years of compounding at 35%. I take it you are on your way to being worth hundreds of millions of dollars real soon? When can I expect to see your name on the Forbes list of billionaires.

There's one born every minute.

Maybe he's commiting a crime with insider information. Or maybe he's front running the market with the high-fequency trading scam. Either way if he's making 35% guaranteed returns, he'd be taking big loans from banks and using maximum leverage to multiply it hand over fist. One thing he WON'T be doing is letting you or anyone else in on the secret.

Personally I'm shocked you think people here are stupid enough to fall for such claims. The shysters in this "industry" are selling pie in the sky to suckers and cleaning them out with fees and sometimes outright fraud.
Arjun wrote:I see you have been evading a reply to a question I have asked twice: Are you even in synch with your guru Edward Griffin on your thoughts about this 'non-productive' industry of financial services? I would like a yes or no answer.
The useless middleman industry in its current form needs to go. Its existence is parasitic on productive society, its utility value marginal, its scam value is beyond all proportion and its potentially destructive effects on the productive economy is biblical. Unless you can understand that all of this is TIED IN to the high priest of corruption - namely private banking cartel issued money that is intrinsically worthless - you won't get far in deciphering the scam.

It's not so much the act of selling bridges to suckers (like that 35% pa stuff your peddling) that I’m against. The world has always had a good number of shysters running around milking ignorant suckers of their money. So long as the suckers are handing over their money VOLUNTARILY (and that is the key word), I have no problem with it.

Its more so the fact that the fiat-federal reserve racket which was put in place by the useless middleman industry is using coercion to INVOLUNTARILY extract wealth from productive society that I’m against. Get rid of the Federal Reserve and a good 90% of the useless middleman industry vanishes. Its like a river of stolen money dries up and the folks plying their trade on the river now have to find a productive role in society doing honest work & adding value instead of subtracting it. This however is an evil system that won't go quitely into the night as there are a vast multitude who profit from it and don't want it to end.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Arjun »

Neshant wrote:There is no 35% guaranteed return on investment unless the guy is selling narcotics.

Obviously, who said anything about guaranteed returns? I just said consistent returns over several years. As any prospectus says, past returns do not guarantee future performance....

Several well- known top quartile funds have produced in excess of 35% for several years running - I used 35% as a proxy for top-quartile returns. If you want to be more precise, what the saver should be looking at is to make sure that the fund has always been in the top quartile of returns since inception. I am talking about alternative investment vehicles out here.
Personally I'm shocked you think people here are stupid enough to fall for such claims.
The industry has long stopped making any claims whatsoever for ages. If a fund made a claim regarding how much it would make in the future - it would be reported to the SEC. The only way for folks to take a decision is to go through the historical performance, and determine whether the fund has been consistently top quartile or not and whether its returns are in line with the style of strategies employed.
Get rid of the Federal Reserve and a good 90% of the useless middleman industry vanishes.
So its only when you are pushed to the wall and your argument is exposed to have no intellectual legs, that you finally admit that its the Federal Reserve that you are after, and you really don't have a problem with the existence of the financial services industry beyond that, as long as it is well regulated.

Good. So rather than the 50 pages of rants against Financial Services that I am sure you have produced on this thread by now, it would have been much better if you had focused your efforts on the Federal Reserve, and used any limited solution-generation abilities to focus on what kind of regulation is required.

Btw, where did you get this mysterious 90% figure from? The Fed is only relevant to the commercial banks - even today the rest of the financial services world hardly has much to do with the Fed.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by neel »

Arjun wrote:Btw, where did you get this mysterious 90% figure from? The Fed is only relevant to the commercial banks - even today the rest of the financial services world hardly has much to do with the Fed.
Just a minor nitpick, as part of the new ad hoc discretionary authority that the Fed arrogated to itself in flagrante dilecto during the crisis in 2008-2009, the Fed now effectively backstops investment banks too.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by VikramS »

ArmenT:

In the context of the discussion, it is the private student loans I am referring to. They are the new sub-prime and because they can not be discharged the standards used were abysmal and guarantee a steady stream to the private lenders. Of course you can refuse to pay it and then let the bank come after you but you pretty much putting yourself outside the credit system and also putting your future wealth at stake since these loans will follow you till you are either dead or incapable of earning because of some egregious circumstances.

Arjun:

I agree with parts of what Neshant says in terms of the amount of debt in the system, the role of the TBTFs in perpetuating those debts, the share of wealth they siphon off from the non-finance (Neshant calls it productive) world, the socialization of risk, and the role of the Fed in keeping the ponzi afloat. In the narrow context of managing your investment I often disagree with him. While his predictions of utter collapse have a reasonable chance of coming true, it is not going to be a straight line and it might be decades before it truly hits the fan. My focus is on the zig-zags regardless of what the eventual destination is; he is fixated on one possible destination and appears to ignore the zig-zags.

You will have to dig up some more but the US banking system would not have survived the crash without the Fed and tax-payer backstop. The distinctions you make between IB/CBs etc become more and more meaningless because of the counterparty risk. The players hedge their risk by by offloading it to each other. That is why often when you have a settlement after a major credit event, the amount of cash truly transferred at the end is minimal since the different organizations hedge their exposure to each other. Checkout what the net settlement for the Washington Mutual debt was, even though the notional was orders of magnitude larger.

However it is that counterparty risk which is the killer. You might be hedge but if the counterparty is going under your hedgies are worthless. That was the reason for the AIG bailout; they were the counter party to a lot on the street and if they went down, the street went down apart from all the insurance contracts in the real economy. Of course the workers of God knew it and hence used AIG to get the protection in the first place.

This is also the reason why Morgan Stanley has been under pressure because of their European exposure. On paper their books are very well hedged, but if one of their European counter party goes under, that hedge book will blow up....

Also the big problem with the financial services industry is that it literally controls the life-blood of the capitalist system. Only the government can challenge them, no private citizen or group of citizens can since they wield a lot of power. And the government was literally in the back-pocket of the industry. And that is not an accidental occurrence. If you read about GS, they strongly encourage their partners to seek public office and serve the people as a way of giving back to the society. From to Corzine, to Paulson, to even Kashkari, GS makes it a point to have their partners seek government office. And once the only stakeholder with the power to make a difference is under control, then there is no one left. GS truly controls the world...

Welcome to the real world.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Theo_Fidel »

Why are all the groups not taking a haircut. The local Greeks, foreign depositors and EU should all take a 60% haircut a price for their foolishness. This is the only solution. All else is maya.

http://www.ft.com/intl/cms/s/0/88e54436 ... z1bhwSUJjf
Greek economists and business leaders have reacted strongly against the prospect of Greece taking a 50-60 per cent haircut on its sovereign debt, warning it could have dire consequences for the country’s recession-plagued economy.

There was no immediate comment from George Papandreou, prime minister, or Evangelos Venizelos, finance minister, both attending the European Union summit on Sunday – although the country’s debt managers have been in discussions with the International Institute of Finance on significantly increasing the 21 per cent haircut agreed with international lenders in July.

According to people with knowledge of the talks, Mr Venizelos is understood to support the new proposal, which they said had been “aggressively pushed by Germany in co-operation with the IIF”.

But Lucas Papademos, former vice-president of the European Central Bank and an adviser to Mr Papandreou, has warned that slashing the value of bondholders’ holdings by 50 per cent would reduce Greece’s overall debt by only 20 per cent and also delay economic recovery.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Neshant »

Obviously, who said anything about guaranteed returns? I just said consistent returns over several years.
Is this the slick talk you give clients? :)

How is consistent different from guaranteed? If you claim to consistently provide a 35% ROI, it is a guarantee. Otherwise what is consistent about it?

I need to learn this slick talk. It’s a kind of useful talent to have in the back pocket. With financing & high-rolling driving the productive economy into the ground, lord knows the day may come when I will need to separate fools from their money for my survival with some fancy talkin’!
So its only when you are pushed to the wall and your argument is exposed to have no intellectual legs, that you finally admit that its the Federal Reserve that you are after, and you really don't have a problem with the existence of the financial services industry beyond that, as long as it is well regulated.
My view is that it all needs to go. Federal Reserve & the useless middleman industry aka financial services – they are both one and the same.

Regulations will do nothing as even with current regulations on the books, not one banking crook has gone to jail. So what use is more regulations given that this "industry" relies on bribery & corruption of the political class not to mention stuffing its ex-employees into regulatory positions. Trace this thing to its roots and you will realise that the problem lies with the fradulent monetary system which is the ENABLER of all this corruption. That is why I keep harping on the source of the problem - the Federal Reserve.

The useless middleman industry is nothing more than an accessory to the crime of the Federal Reserve money counterfeiting racket. As such getting rid of the souce (the Federal Reserve) automatically gets rid of the the shyster pyramid built on top of it.

Banking should only have a utilitarian role and that is only possible once these scammers & the bad monetary system they setup are gotten rid of.

Read the book “How an Economy Grows and Why it Crashes”. It’s a good way to lead yourself out of the jungle of banking lingo in which you have gotten lost. It’s a humorous story (with cartoon pictures!) about 3 guys on an island where the currency is fish. It explains things in a straight forward way (unlike the babbling fools in the banking industry) and leaves the reader with a solid understanding of economics. If you read it and understand the message for real, your mind will clear up. It will be the best education you’ll ever have in this subject and no economists, banker, money manager, financial planner or shyster will ever be able to baffle you with BS thereafter.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Neshant »

Christopher Sidor
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Christopher Sidor »

Banks Clash With Lawmakers on Greek Rescue -- Bloomberg Dated 25-Oct-2011

It does seem that the banks are threating, the Euro-zone countries, so as to reduce the haircut which they will have to undergo.
Policy makers are seeking a voluntary agreement with Greek bondholders on reducing the country’s debt to avoid the unpredictable consequences of an outright default.
What exactly are the Policy makers seeking ?
Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said yesterday that talks on private-sector involvement in a second aid package for Greece are focusing on losses of 50 percent to 60 percent.
What are the bond-holders or the banks offering?
There are limits “to what could be considered as voluntary to the investor base and to broader market participants,” Charles Dallara, managing director of the Institute of International Finance, an industry group that’s participating in the talks on Greek debt.
....
....
Financial companies, represented by the Washington-based IIF, proposed a loss of 40 percent on Greek debt.
And finally what are these financial companies threatening the euro-zone countries with if they are forced to have a haircut of 50-60%?
Any approach that is not based on cooperative discussions and involves unilateral actions would be tantamount to default.
....
....
The IIF, whose members include 450 of the world’s biggest financial firms, said a default would risk keeping Greece locked out of international capital markets for years, further damaging the Greek economy, driving up costs for European taxpayers and triggering contagion.
So if the banks or bond-holders are forced to undergo a haircut in excess of 40% they are saying that the euro-crisis will spread to Italy, Portugal and possibly France. Forget Greece these companies are basically holding a gun to the entire euro-zone economies.

But let us not overlook the silver-lining over here. With Greek debt in excess of 160% of the GDP, there is a realization, all around that greek debt holders will have to take a haircut. The quibbling is all about the amount of haircut that has to be taken. Well quibbling for us mortals, but a matter-of-principle or life-and-death issues for the private bond-holders of Greek and consequently Euro-zone debt.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by sumishi »

A great link picked from IF (courtesy handle Savithri)
It’s All Connected: An Overview of the Euro Crisis -- NY Times, Sunday Review, October 22, 2011
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by vic »

All this business about Haricut may be bogus. Let us say that a "safe German 10 year bond" has a interest of 1.5% but Greek bond has interest of 4.5% but if the payment of Greek bond is assured then the return should be equal to German Bond only. So with even 25% haircut on 10 year bond, The return is equal to German bond.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by vishvak »

vic wrote:All this business about Haricut may be bogus. Let us say that a "safe German 10 year bond" has a interest of 1.5% but Greek bond has interest of 4.5% but if the payment of Greek bond is assured then the return should be equal to German Bond only. So with even 25% haircut on 10 year bond, The return is equal to German bond.
How come the haircut plans are unilateral for first world countries?

Why is there no collective haircut plans, including cutting Indian debt by the same %%?
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by vishvak »

More on black money in global economy.

Swiss banks may pay billions to US, disclose client names
Switzerland, the biggest haven for offshore wealth, wants an end to new US probes while preserving its decades-old tradition of bank secrecy.
...
"The Swiss would like to get out of this by paying money, and they've done that with other countries," said tax attorney H. David Rosenbloom of Caplin & Drysdale Chartered in Washington, who isn't involved in the talks. "For the U.S., it's not primarily a money question. It's a matter of making sure the laws apply fairly."
...
The Justice Department also may bring criminal charges or civil enforcement actions against any of the 11 financial institutions. They could avoid prosecution by separately paying fines, admitting wrongdoing and disclosing data, the people said.
...
Credit Suisse, the second-biggest Swiss bank, said July 15 that it was a target of U.S. prosecutors. On July 21, seven Credit Suisse bankers were indicted on a charge of conspiring to help U.S. clients evade taxes through secret accounts. The group of 11 also includes HSBC Holdings, the biggest European bank, Basler Kantonalbank, Wegelin, Zuercher Kantonalbank, and Julius Baer.
U.N. does not look like supports these nefarious banks and its rogue bankers, by any laws whatsoever. Considering how the country Switzerland supported these rogues and the dark banks, why is there no action taken on this first world country by the UN?

link
Theo_Fidel

Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Theo_Fidel »

vishvak wrote:Why is there no collective haircut plans, including cutting Indian debt by the same %%?
WE would have to go through the process of selling our assets like the Greeks are. Last time around we ended up hocking our gold in return for IMF money. And Sarkozy and Merkel arguing what to do with our stinking corpse as well.
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Arjun,

No investor makes 35% consistent/averaged returns without gol-mal. If they do for a short span it is not different from gambling. For every one that lucks out thousands upon thousands try identical things and fail. It is gambling, pure and simple. Even Warren Buffet does not make his real income from the open market but rather from getting preferential treatment from companies he invests in. When he does not get that, eg. Conoco Phillips, he becomes a mere mortal.

Everyone should not look for more than 7%-8% returns in massaland and maybe 10% in India due to higher growth/inflation. Anything more and you are asking for trouble big time. As a society and a nation. Just to point out Germans got rich with 2% bonds and tight fisted lid on inflation.
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http://www.nytimes.com/interactive/2011 ... risis.html

http://graphics8.nytimes.com/images/201 ... -popup.jpg

Image

Interesting charts on all the linkages.
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Meanwhile the banks are swimming in an ocean of cash and don't know what to do.

I've said it from the start, there is enough cash to payoff all these debts many times over sloshing through the system. And more is being created every year. The economies remain extremely productive and continue to generate gobs of discretionary wealth. The question is how to pay the workers so this flood of money can start growing the economies again.

The US economy has put off essential spending for 5 years and the system is starting to turn quite decrepit. I walked into a high end bank the other day and the were stains on the 10 year old carpet. :shock: I ran my hand on one of the low chandeliers and there was dust on it and couple of the spanicles were broken. It needs to be replaced. The toilet was starting to deteriorate big time and beginning head towards out Phenyle hell holes. :shock: Quite the shock for Moi. Especially in the US high class establishments must complete refurbish every 10 years or things start looking scary sorry.

http://www.nytimes.com/2011/10/25/busin ... y-use.html
Ordinarily, in a more robust environment, an influx of deposits would be used to finance new businesses, expansion plans and home purchases. But in today’s fragile economy, the bulk of the new money is doing little to spur growth. Of the $41.8 billion of deposits that Wells Fargo collected in the third quarter, for example, only about $8.2 billion was earmarked to finance new loans.

Normally, banks earn healthy profits by taking in deposits and then investing them or lending them out at substantially higher interest rates than what they pay savers. But that traditional banking model has broken down.

Today, banks are paying savers almost nothing for their deposits. As it turns out, the banks are not minting money on those piles of cash. Lending levels have not bounced back from only a few years ago and the loans going out are not keeping pace with the deposits rushing in.
Just free liquid cash. :eek:
Even as interest rates have fallen, bank deposits have grown at an impressive clip of almost 5 percent a year, according to Trepp, a financial research firm. This summer, as businesses and consumers withdrew their money from stocks, bonds and money market mutual funds because of fears about the debt crisis in Europe and another downturn in the United States, deposits surged to a record level of more than $8.9 trillion.
Last edited by Theo_Fidel on 25 Oct 2011 20:43, edited 2 times in total.
Christopher Sidor
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Christopher Sidor »

vic wrote:All this business about Haricut may be bogus. Let us say that a "safe German 10 year bond" has a interest of 1.5% but Greek bond has interest of 4.5% but if the payment of Greek bond is assured then the return should be equal to German Bond only. So with even 25% haircut on 10 year bond, The return is equal to German bond.
Actually the talk is to replace a bond with a longer maturity bond. For example let us assume that there is a 100 EURO bond issued by Greek government. Its face value is 40 Euro currently.

What the financial institutions, i.e. the bond-holders of Greek bonds, are saying that we will replace these bonds with a 60 euro bond of Greek government with a maturity of 30-years.

On the other hand the EURO-Zone policy makers are saying that you will be given a 40 or 50 Euro Greek bond with a maturity of 30 years.

Off course the option of replacing Greek bonds with German bonds or other AAA rated EURO zone bonds is still there, but the issue is that bonds face value is not 100 euro. So there is going to be massive pain on the financial industry side and this makes sense after all people are suffering on the streets of Athens. The adjustment should not be one sided.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Tanaji »

Stupid question: how is a haircut different from default? Isnt the end effect the same?

On another note:

http://www.bbc.co.uk/newsbeat/15431565
he events are becoming a regular fixture in New York with the company behind them planning to introduce them in the UK.

At one event near Times Square the club is sold out and the dancefloor is lined with men, most of them over 40.

They're far outnumbered by the number of young women.

The night starts when organiser Alan Schneider makes an announcement on the microphone.

"Men, you know what to do," he says. "Women, receive their generosity. We will touch you with passion and fire all night long."
At these parties, any couples who get together usually come to what is formally called "an arrangement".



There is a word for such type of ladies, but who are we to judge? We are not in their shoes, and I suspect similar things happen on the sly in Indian colleges as well. It is a sign of the times...
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Neshant »

I'm wondering what happens to the IMF loans made to Greece should they default. Europe was awfully eager to install a stooge like Christine Lagarde in the IMF chief's seat to rubber stamp all loans to Greece. She gave out a sh&tload of loans to Greece to repay French (her own country's!) & German banks.

Now that these banks have got their money, will Greece default on the IMF loans leaving us holding the bag. Its sure is a piece of slyness to palm off losses of French & German banks to the rest of the world via the IMF installed stooge.

Africa has to starve to repay IMF loans yet these guys get off scott free.
Last edited by Neshant on 26 Oct 2011 06:00, edited 1 time in total.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Singha »

um many UN bodies are based in switzerland. doesnt that tell you something ? a posting is switzerland is probably considered a plum position for senior govt officials of any country wanting to go on deputation.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by gakakkad »

^ interestingly the swiss became full members of UN only in 2002..but they were hosting various UN bodies since 1945 , even though they themselves wer not members till 2002... The country has displayed international political wisdom for 150 years..the true player's of real-politik ... During the ww-2 they were able to manage german funds as well as allied funds...while they themselves managed to remain away from the war (apart from accidental bombings by the americans and air-space violations by the germans)...they even managed to keep out refugees (something for Yindia to learn when paki fails )....true baniya country for 150 years... lucky are those who live there...
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by ramana »

Theo, Looks like Spain is a key in the chart. Greece gets attention but is not the key.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Satya_anveshi »

Ramana garu, It was nice headline reading Europe having greeko-roman issues :lol: . It is also amusing how Europe has been managing this issue for months now. At one time (a few weeks ago) I was thinking we are right about at the peak but they managed to extend it so far and the solution remains elusive. If they don't get excepected help from US, they will continue to 'manage' this issue and give US nightmares for many more weeks. We can already see frustration from WS types on when this EU thing gets resolved (read..Euro killed) and they can all go back home. The anxiety is taking its toll on the US economy even though they may be relatively immune compared to EU banks/institutions.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by ramana »

Its an interesting thing that you have spotted that the Euro crisis is a way for EU to manage US. I didnt think of it like that but chart which shows the net flows is very interesting to understand the moves. Wish it had PRC in the mix.

IOW just like US and PRC are tangoing, EU and US also tango.

Dance of the snakes and scorpions.

If one adds the oil countries then it becomes the dance of the seven veils.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by shyamd »

Guys, chck this out. Received by email

ZeroHedge has been saying of late that eventually the IMF will bail out EZ.



Here is a sample where they suggest that again:



About a year ago, we speculated that as part of the ongoing currency warfare between Brazil and the "developed" world, its finance minister Guido Mantega would keep his trade surplus trump card until the moment of biggest impact. That moment has come, after the financial head (with the Playboy-posing daughter) just told Europe to take a hike. "I believe that European countries do not need funds from Brazil to buy bonds. Brazil is not considering it," Mantega told reporters in Brasilia. "They have to find solutions to the European problems within Europe." And with Brazil out, it is certain that China will not step up over fears of appearing weak and needing to provide vendor financing to its biggest export partner. Unfortunately for Europe this means that at least one component of the revised SPIV: that which foresees public investment from third parties into the EFSF (a new twist proposed only last week), can now be safely forgotten, bringing us back to page one and the entire 5x levered CDO structure which as has been explained numerous times, is Dead on Arrival. There is, however, one loophole. "Mantega said Brazil would be willing to provide financial help via the International Monetary Fund." Which is rather laughable considering that by IMF, one typically refers to, at least in polite society, Uncle Sam. Then again, with a French woman (and one who until recently was solely reponsible for the grave French financial condition) in charge, it is easy to lose sight and to be, there is that phrase again, baffled by irrelevant bullshit even as following the bailout money always lead to the same old source.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Singha »

http://online.wsj.com/article/SB1000142 ... opWhatNews

Olympus embroiled in a accounting scam now
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Zynda »

This article talks about lot of manufacturing returning back to US from China in the next decade plus host of other things. Can gurus pitch in with their opinions about the article? :)

World power swings back to America
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by sumishi »

^^
AFAIK, the writer Ambrose Evans-Pritchard is considered an establishment shill. Here's what Max Keiser said on AEP's article Europe, Free Speech, and the sinister repression of the Rating Agencies
Ambrose Evans-Pritchard is dead wrong on this one. Every writer gets tripped up by their biases occasionally. AEP is no exception. He can’t see his hatred of the EU forest for the racketeering trees Moody’s gets involved with. Shame. He’s got a great voice and lots of readers, but he needs to stop shaping the news to fit his views and start to see the big picture more objectively.
Theo_Fidel

Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by Theo_Fidel »

ramana,

The link to big chart has China on it. Basically US owes $1.5 Trillion to China. Even NYTimes gave up on trying to find what EU owes China. The cash flows sloshing through the system are now in $ Trillions. No one is really sure what is going to happen.
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That writer sounds very campy but many of his points are correct and has been pointed out on this board before.

- The US has advantages the EU does not by having the reserve currency.
- FED is printing money to force Panda to back down on the trade surplus.
- US still has a growing population. For instance Texas is doing well based on the simple fact that it has increased its population by 25% (5 million) over the past 10 years. All its job growth is due to this. If you look at unemployment Texas is at 8.8% close of US average.
- US manufacturers are squeezing American into working longer for less and less pay, adjusted for inflation. It is only natural that they are now close to competitive with Pandaland.
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Re: Perspectives on the global economic meltdown- (Nov 28 20

Post by svinayak »

Theo_Fidel wrote:
- US manufacturers are squeezing American into working longer for less and less pay, adjusted for inflation. It is only natural that they are now close to competitive with Pandaland.
It is very simple. They have to put tariff and put pressure on the PRC currency
This act of not taking care of US interest is costing jobs for Americans and this is out of free will.

Recent NPR program had a CA state bridge project given to a PRC company. US state officials are staying in PRC with money given to them to monitor the construction. This kind of project infrastructure was unheard before.
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