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

ramana · Post by **ramana** » 15 Feb 2011 00:27

Thread is getting hijacked from primary purpose established three years ago.

VikramS · Post by **VikramS** » 15 Feb 2011 00:36

Regarding INR and the Mid-East, one should also remember the context. Prior to the oil boom the economies of these regions were small and the INR made sense as the currency of local trade, especially due its peg to the Sterling. Once oil started flowing and the influence of the oil companies increased, the transition out of INR was not unexpected, especially since the INR itself was facing a problem of its own.

Regarding the Gold Standard: Though I recognize that that scarcity of gold itself would have limited fiscal indiscipline, it would also have restricted the growth of the global economy by artificially restricting money supply since it can not account for productivity gains.

Also another thing to keep in mind is that equity market performance and economic growth do not have a strong correlation. Often the markets with the highest growth will under-perform markets with lower economic growth. At the end of the day asset prices are determined by money flow and supply of the asset. Money flow is affected by a large number of variable, which include geo-political, military and systemic considerations.

paramu · Post by **paramu** » 15 Feb 2011 01:00

This article in FT may provide interesting view to the discussion going on here.The author looks like an Austrian economist.

No free lunches in debt-fuelled bear rally

I recall all too well that the 2003-07 bear market rally – yes, that is what it was.It was no 1949-1966 or 1982-2000 secular bull run. What drove that bear market rally was phony wealth generated by a non-productive asset called housing, alongside widespread financial engineering that triggered a wave of artificial paper profits.‪We have been patient and will remain so,
...
It goes without saying that as much as it hurts, not to be involved in a speculative rally that sees the market surge more than 90 per cent, it is much much tougher to actually experience a correction in the other direction. For the time being, it takes extreme courage and resolve not to jump on the bandwagon (“don’t fight the Fed”) and buy “the market” at current expensive pricing points.
...
This is not the 1949-66 secular bull market that was underpinned by troops coming home and spurring on a baby-boom that would unleash years of tremendously strong domestic demand growth. The demographics in the US are now downright poor — just look at the ratio of the working age population to the total population. Nor is this the 1982-2000 secular bull market that saw the central bank usher in years of disinflation (the current one is trying desperately to create inflation) and a wave of innovation that saw not just the mainframe, the personal computer, the internet, and then the smartphone, but also a boom in the capital stock that enhanced structural productivity growth and led to sustained gains in private sector economic activity. By the end of that secular bull run, these gains allowed the government to actually start to record budgetary surpluses.

What is the major innovation today? The iPod? The iPad? Facebook? These may be fun, but they don’t do much to promote the growth rate in the nation’s capital stock or productivity
...
Do not assume that Ben Bernanke, chairman of the Federal Reserve, has any more rabbits in his hat or that the new Congress is going to fill anyone’s stockings with more fiscal goodies towards the end of the year.‬

VikramS · Post by **VikramS** » 15 Feb 2011 01:15

paramu:

The folks who rode SPX from 750 to 1500 do not care whether it was a bear market rally. I think this time too we will see a higher high followed by another spectacular fall.

The biggest challenge in trading is the need to justify price-action; when it needs no rationalization. It is everything.

From a top trader:

"ON TECHNICAL ANALYSIS AND CRIES OF FOUL PLAY

The beauty of technical analysis is that it's the collective visual representation of all market influences and elements-- human emotion, earnings, geopolitics, manipulation, corruption, acts of god, the alignment of the planets, and smoke signals if you like. If you see it there, it's legitimate; it is what it is.

-- Brinkley
7-17-2009"

paramu · Post by **paramu** » 15 Feb 2011 01:54

So, it basically justifies foul play, if that exists, and asks people not to question it but to join the crowd.

Tragedy is that there is selective application law, in this particular segment, when things blow up. Everybody knows that there were a lot of corrupt practices that precipitated 2008 crisis. How many responsible people went to jail for that? Answer is Zero.

VikramS · Post by **VikramS** » 15 Feb 2011 02:33

paramu wrote:So, it basically justifies foul play, if that exists, and asks people not to question it but to join the crowd.

Tragedy is that there is selective application law, in this particular segment, when things blow up. Everybody knows that there were a lot of corrupt practices that precipitated 2008 crisis. How many responsible people went to jail for that? Answer is Zero.

What is foul play for one, is a lifeline to another. And regarding the foul practices, no one was complaining until the music stop playing.

And it is also hard to rationalize market behavior. This is because every participant in a market has their own perception of "facts". What drives prices is the group perception; what do most people think? The crowd is wrong at the tops and at the bottoms, but it is often right during the sweet middle spot of a move.

This is from Ray Dalio who runs one of the largest and must successful hedge funds out there:

We have crafted this understanding over the years into a systemized process of:
1. Measuring current economic and market conditions (i.e., where an economy is with
respect to the business cycle (cyclical) and the longer–term debt cycle (secular) relative
to market pricing).
2. Understanding policy choices that have been made (i.e., monetary and fiscal policies).
3. Applying our understanding of the cause–effect linkages (i.e., how the machine
works) to take educated guesses at what will occur based on the conditions and, as
necessary, the policy choices.

Everybody who is attributing the equity market's rise to the Fed's action is perhaps right. The danger lies in their conviction about how these policies will lead to a disaster for the US. Perhaps it will; but make hay while the sun is shining, since you do not know how the weather will be tomorrow. The SPX nailed 1332 today, 2x the 666 bottom in March 2009. Who would have thought then?

paramu · Post by **paramu** » 15 Feb 2011 02:49

VikramS wrote:What is foul play for one, is a lifeline to another. And regarding the foul practices, no one was complaining until the music stop playing.

If the justification is that nobody complains when party goes on, then ponzi schemes also are justified. When ponzi funds give super normal returns, nobody would think of complaining except the few who try to find out how this ponzi is making those return and smell something fishy. When that ponzi crashes, obviously people will start complaining and I don't think anybody in right mind would say that those complaints are not valid.

I would not have complained about the current money printing by Fed to create stability, had the govt. nationalized all those banks who needed govt. money, put the crooks in jail, and put an end to the huge money spinning culture in the wall street.

ramana · Post by **ramana** » 15 Feb 2011 02:59

So is the double dip over or you aint seen nothing yet? Or it will be inother sectors?

paramu · Post by **paramu** » 15 Feb 2011 03:07

Personally, I expect one since the root cause of the original problem, real-estate, has not been resolved yet. In fact, low interest rates (it has to go up some day), fraudclosure, breakdown in mortgage securitization etc. are still staring at it. Risk is that when that happens, government would already be much deeper into debt than it was in 2008.

Don't ask about the timings, that is the difficult one to predict.

Added later:
There is a judgement today that says that the Mortgage Electronic Registration System (MERS) used for mortgage securitization is illegal.

Merscorp Lacks Right to Transfer Mortgages, Judge Says

VikramS · Post by **VikramS** » 15 Feb 2011 03:39

paramu:
I could not agree with you more about the Wall Street culture; I had a front row seat into it.

But a policy decision was made and it is being followed through. The results are better than most expected on many metrics. If QE2 fails, there will be QE3.
Here is a Ray Dalio interview from last year
http://online.barrons.com/article/SB127 ... rticle%3D1

He felt that the next recession is coming, but the Fed short circuited that via QE2.

As long as the Fed can get away with different iterations of QE the ship will continue to float. And it will get away as long as the USD is the one-eyed king of the blind. Europe will be printing Euros. China has already given out a HUGE amount of loans which no one knows will ever be rapaid. So to save themselves, everyone has done what the US did wrong.

The problem with the rest is that the US can print its currency to fund QE. The others have their hands tied. The Chinese do not want the Yuan to rise since they are scared of social unrest. The Euro never integrated monetary and fiscal policy and the Union will collapse as the peripheral nations compare Ireland versus Iceland, and ask why they should suffer??

Of course inflation is going to be a problem. Fedex just said that fuel costs are hurting them. BUT the Fed wants inflation. If the replacement costs of homes goes up, it puts an underlying floor on the pricing. It buys time for prices to find their natural balance point. I think it will be till the mid-2010s before the slate is cleaned up completely, and even after that price gains are going to be modest. Structural changes are being proposed in the US mortgage market to help reduce the chances of another bubble but that is another story.

BTW all these challenges to mortgage backed securities etc are designed to delay foreclosure and keep supply off the market. The secondary market for the mortgages during that time is controlled completely by the Fed so any delays or problems with those securities will not affect the broad market of more recent vintages. And it also earns a lot of meaningless brownie points with the general public. All these legal challenges are a sham, designed to buy time to heal.

And unlike others the US has the unique luxury of being able to import productive, trained, young immigrants from the rest of the world. There is nothing like an injection of the right demographics to help jump-start the economy (and housing).

The bottom-line is this: Everyone is in the same boat. And the US has the most flexibility when it comes to dealing with the problem. It also has the natural resources which Europe and China lack. And it has demographic flexibility which is unique to the US. Plus it has geographic isolation which provides an element of geo-strategic security. And it has a strong military. The bull market in paper assets might end sooner rather than later, but no other country will be immune.

In times of chaos, what will you chose (apart from hard assets like gold)?

paramu · Post by **paramu** » 15 Feb 2011 05:37

VikramS wrote:All these legal challenges are a sham, designed to buy time to heal.

I assume that you have some inside scoop.

We can't trust the wall street, and the credibility of Fed is very very low. Let us not talk about politicians. If the legal process is also a sham, it looks down right scary.

How do you trust what you hear?

somnath · Post by **somnath** » 15 Feb 2011 07:02

paramu wrote: If it were a 100% British legacy, middle-east would have preferred to keep British Pound Sterling as reserve currency, instead of Indian Rupee. Indian Rupee, as silver coins, existed even before British came to India, and British replaced it with their versions of rupee.

It may not be like today's USD reserve currency, but attributing it entirely to British Raj will make the argument silly.

The decision was not taken by the ME countries, but by the British! The reason INR was chosen was because a) these economies were all quite small (while India was the largest colony) and b) they had a large volume of trade with India, hence having INR as the ccy reduced transaction costs of the trade...and by proxy, given that India was in the Sterling area with a fixed peg to GBP, it meant perpetuation of GBP as the reserve ccy, so it served British interests well!

Basic point is that it was NOT a reserve ccy, by no shape or form...

And of course, you can attribute it to any of the "golden" periods of India, thats a matter of perspective!

On the financial crisis aftermath, barring badmouthing bankers and central bankers (though I dont think all central bankers can be faulted - RBI for instance has an exemplary track record), I dont see the point of a lot of the discussion..

Is it about the decline of the US? Decline of the dollar? Emergence of another reserve ccy?

The first is by no means a given..the US has huge problems, but also has huge assets...Some of these are "real asets", ie, land and water..And its lead in the intellectual space is not going anywhere...

A more interesting discussion is on the dollar's status as reserve ccy...And that is really, despite all doomsdat scenarios, not going anywhere soon..Most Central bankers testify to that effect (incl our very own Duvvuri Subbarao garu), the largest money managers (PIMCO, the biuggest daddy!) testify to that..And the US remains the biggest consumer of goods and services by a distance...

No reserve ccy can be imposed by fiat...It has to stand up on its own strength...the only ccy that has some chance of replacing the dollar is the CNH, but for that to hapen, China needs to import more and export less, especially from the US! Now that is a bit difficult

VikramS · Post by **VikramS** » 15 Feb 2011 08:24

pramu:

In the big picture all these challenges do is delay the foreclosure process. A bank foreclosing has to prove ownership and with mortgages moving around different pools, often the paper-trail ends up being incomplete. There is absolutely no doubt that the person who has stopped paying the mortgage is in default and will eventually be evicted.

All this legal drama allows the foreclosure process to lengthen out. This allows the defaulter to live rent-free (and hence spend more), keeps the property off the market (and hence slow down the price decay), keeps the home occupied (ensures basic maintenance and up-keep). The note holders have already written of a lot of the debt, and the Fed is an active player, so the delay in resolution does not have any meaningful impact on the note holder(s). In fact some of them are hoping that this drama continues till the home prices finally start rising and then end up with a better net recovery. It is not that other fixed income investments are returning a lot any way.

So though the verdict itself may be on solid legal ground, and will result in a "stay" on foreclosures, all the parties involved actually benefit from it and no one is upset about it. That is why I use the term a "sham" since it does not alter the underlying fact that the defaulter will eventually be evicted (or their mortgage rewritten).

Hari Seldon · Post by **Hari Seldon** » 15 Feb 2011 09:34

Yup, the reserve currency debate is getting nowhere. INR was never the reserve currency, ever. The GBP was, for a while till the world wars bankrupted the empire. The USD is, for all its faults, one-eyed in the kingdom of the blind and hence will remain by default the de facto reserve currency of the world for the foreseeable future.

Great, with that out of the way, perhaps the dhaga can move forward, maybe, hopefully, eh? TIA.

VikramS · Post by **VikramS** » 15 Feb 2011 09:43

http://slopeofhope.com/2011/02/bear-cap ... niper.html

A wonderful post by a very active and successful trader and investor. Not related to the meltdown, but still something which help folks develop an investment hypothesis.

somnath · Post by **somnath** » 15 Feb 2011 09:53

For all the gloom and doom about the US, the underlying data is mixed at worst...In fact this year most houses have put out strong views on US equities outperforming everyone else, EM included...The markets till now have borne that out - US is the strongest performer this year amongst most large markets...

The biggest problem area is the Eurozone...Strip out Germany, and there isnt much that separates Europe from junk bonds..The joker in the pack is the Euro - a common ccy without a common debt market was always going to be a problem, and Greece has just exemplified why...The instruments available to European govts are all bad - as John Mauldin puts it, its a choice between painful and very painful!

I see the twin deficits (especialy debt) problem of the US to be similar to India's fiscal deficit problem..It is painful, it hurts at the margin, but it is not a deal killer...the circumstances for the two are different (India's high savings rate + domestic deficit funding, US's reserve ccy status for the USD) - but IMO its a problem that can be tackled without pushing the economy into an irretrieveable funk...

Mort Walker · Post by **Mort Walker** » 15 Feb 2011 10:00

US equities are doing well for two reasons. One, Quantitative Easing is putting money in to the US markets. Two, consumer spending has increased this year since the last two years people didn't replace goods and time is now. There is real inflation in the US which is whitewashed by shoddy statistics and markets will turn bearish by this fall. Its a good time to keep money in US equities and pull out at the end of summer.

Hari Seldon · Post by **Hari Seldon** » 15 Feb 2011 16:26

Seems the US deficit is projected to be $1.65 trillion as opposed to estimates of $1.5 trillion just a moon or so ago. Like TAE says, what's $150 bn but chump change anyway.

Further, for reference, $1.65 trillion is larger than the entire Canadian economy, G7 and all, which clocked some $1.56 trillion last year.

But, as some wise folk point out here, I wouldn't over-worry about bond vigilantes and bond mkt dislocations shaking Amreeki shores anytime soon. The US bond mkt is failsafe. The charmed circle of primary dealers (PDs) cannot not bid. So no no-bid failed auctions that the likes of some TFTA oirozone countries had to see recently. And the PDs also have access to Fed funds windows of all shapes and sizes. Like I said, failsafe only.

Hari Seldon · Post by **Hari Seldon** » 15 Feb 2011 16:35

Am not quite a Jeff sachs fan but some notable comments here...

Sure, go easy on the doomery that Sachs is pushing of the "Do we really need to have an Egypt here in America?" variety. But can't help but wonder if he doesn't have a point or 2.

akashganga · Post by **akashganga** » 15 Feb 2011 23:55

This is a good one. Republicans in the US by their blind faith in right wing ideology are causing havoc. Single biggest threat to world peace, and environment is far right takeover of US administration through republican party.

Hari Seldon wrote:Am not quite a Jeff sachs fan but some notable comments here...

Sure, go easy on the doomery that Sachs is pushing of the "Do we really need to have an Egypt here in America?" variety. But can't help but wonder if he doesn't have a point or 2.

paramu · Post by **paramu** » 16 Feb 2011 02:33

VikramS:

If FED is carefully orchestrating different problems to manage the crisis, why is that it doesn't take any action against the crooks who created it? If current mess is a drama, was the crash of 2008 also an engineered one to solve some other problems? Was FED aware that it was coming?

ramana · Post by **ramana** » 16 Feb 2011 02:44

I think the crisis is more severe and needs to be fixed than going after the crooks. That might come later.
No FED wasn't aware of the problem.

svinayak · Post by **svinayak** » 16 Feb 2011 03:12

VikramS wrote:
Regarding the Gold Standard: Though I recognize that that scarcity of gold itself would have limited fiscal indiscipline, it would also have restricted the growth of the global economy by artificially restricting money supply since it can not account for productivity gains.

They could have devalued the dollor to the gold and increased the money supply. Why was it not done. It may be due to cold war policies. But the bottomline is that they increased the dollar supply outside US using the oil trade and east asian trade and increased the money supply.
They went too much and created easy credit system which created the bubble for 40 years.

somnath · Post by **somnath** » 16 Feb 2011 06:39

Acharya wrote:They went too much and created easy credit system which created the bubble for 40 years

If a "bubble" exists for 40 years then it is not a bubble, it is a legitimate super super cycle...

All the critique on American loose monetary policy forgets the essential fact that as close to a decade back, the US govt was runnign a surplus, and the CBO was projecting humungous surpluses by 2010...Which is why US bond yields started plunging so low in the first place..the surpluses were so generous that it enbaled Bill Clinton lick the social security problem to a great extent, perhaps his most significant acheivement...

The deficits and money printing happened basically on account of two things - 1) Bush tax cuts, and 2) 9/11 - which triggered the two wars..

Those arguing for a return to gold standard forget some fundamental issues...

Take Fx reserves - Asian countries would have somehwere close to ~4 trillion dollars (maybe more)...that would be 3 billion oz of gold (assuming 1300/oz)...As a perspective, Fort Knox stores about 147 million oz of Gold..Where/how will all this gold be stored?

As another perspective, the total amount of gold mined since time immmeorial (Tutankhamen and beyond!) is 5 billion oz - according to World god Council....So how is the supply going to match even central bank demand?

Yet another perspective..the annual production of gold is effectively DOWN since 2001..while global GDP should be up by about 40-50% in dollar terms in the same time frame...How is a commodity whose production is decreasing be able to be "reserve ccy", or medium of exchange for an economy that is growing, and growing fast?

Of course, there are other issues with Gold, minly to do with storing and stowing, which I have written about earlier...

Therefore gold as a reserve ccy is more rhetoric than reality...Even strong critics of USD do not really think there is a viable alternative, as yet...

ldev · Post by **ldev** » 16 Feb 2011 07:05

27 years for Bretton Woods 1 and 40 years and counting for Bretton Woods 2 @ aka fiat money is a short time in the monetary history of the world. Until a solution is found for final settlement of imbalances, the present system will teeter with the imbalances which have brought the shortcomings of the present system to the fore. In the gold standard, inflows/outlfows of gold served as final settlement mechanisms. What will be the final settlement mechanism in the future? With the US accounting for a ever smaller share of global GDP the pyramid is now inverted, part of the reason for the instability.

paramu · Post by **paramu** » 16 Feb 2011 07:15

ramana wrote:No FED wasn't aware of the problem.

If FED didn't know it then, how can people assert that FED knows what is likely to happen now? How can one trust what they say when they missed such a major crisis that few people like Peter Schiff were saying that it was going to happen, much before the crisis?

Check this WSJ article.
Banks Push Home Buyers to Put Down More Cash

This demand by banks alone will push home prices down. Adding to that the food/gas and other price inflation will reduce the savings among the people preventing them from making higher down payments. Unless incomes rise drastically, which is very difficult in the current scenario, it is very unclear how Fed's tricks are going solve the problem few years down the line.

paramu · Post by **paramu** » 16 Feb 2011 07:21

I can't understand how people who understand economics still believe that gold price will remain at $1300/oz if countries move to gold standard. If there are way too many dollars, gold price will just go to $130,000/oz. Isn't that a simple price discovery mechanism?

Countries can always price their products in gold and decide to settle the account at periodic intervals. This will actually force countries to have a balanced trade. No country will be able to keep on exporting or to keep on consuming.

somnath · Post by **somnath** » 16 Feb 2011 07:36

paramu wrote:Countries can always price their products in gold and decide to settle the account at periodic intervals

Paramuji, do this thought experiment. In a ingle commodity situation, say just IPADs..Say Apple prices IPAD @ 1 oz..Demand in year 1 is for 1 million IPADs, requiring 1 million oz of Gold...Next year, Apple produces 2 million IPADs, and there is demand for all of it...But gold supply has gone down to (say) 0.9 million oz...How will that be tackled? suddenly IPADs would be worth half in "gold" terms...the conseuence for that will be people will prefer to keep everything in Gold rather than invest anyting at all, as increased production by others will cause an "inflation" in the price of gold!

In a real economy of paper money, this is tackled by Central Banks increasing money supply (which they are entitled to by fiat)...But any ccy that requires a "physical" backstop is bound to skew the process up, unless the physical cmdty is in ample supply, can be efficiently produced and stored and is scalable...

paramu · Post by **paramu** » 16 Feb 2011 07:42

I think you brought an interesting point.

However, if Apple decides to hord that gold, the demand for iPad will go down or has to become cheaper against gold. For the demand to exist, Apple will have to spend the gold to buy something else or give that to share holders so that they can spend. In other words, corporations, as we know today, may not be able to exist.

Neshant · Post by **Neshant** » 16 Feb 2011 08:26

Ambar wrote:And hence the reason anti-trust laws are passed which libertarian-right call "vile government shackles"! The examples i quoted are accurate examples of a 'de-regulated,free-market'.

Enron was one of the largest lobbyists in govt. which it did to obtain favors like taxpayer paid corporate subsidies from the Ex-Im bank and sticking the taxpayer with massive losses. As for Enron's private creditors, they deserve to go up in smoke as they made bad bets on a corrupt company.

Now how about the same metric be used on the useless middle man sector known as banking & financing which is offloading losses on suckers? Regulation or no regulation, not one banking crook has landed in jail for perpetrating blatant fraud on a biblical scale. The whole charade about "we need govt to regulate" is a bunk as even with the laws currently on the books, crooks are lobbying govt to subvert the law and collecting bonuses instead of spending their lives behind bars. Apparently you have not realised there is a revolving door between banking crooks & govt which is the hall mark of a rigged market not a free one.

A free market starts by returning the control of money to the person who *earned* it and stripping it from those who did not i.e. banking crooks, corruptable politicians and other shysters. This can only be done with honest money (gold & silver or local competing currencies). Those in govt looking to "regulate" are really just paid lobbyists looking to do just the opposite - perpetuate a useless middleman role for themselves and ultimately rip society off for their client. Lately there has been a trend of Goldman Sachs packing more and more of their ex-employees in the various govt financial regulatory positions to do their bidding. Govt regulating is a farce.

Competing local currencies? Care to explain? Why just pick on the Feds? Why not other central banks across the world who regulate the credit situation as per the needs? Shouldn't they all go ?

There is no central banker oracle sitting up top who knows how much credit the market needs at any given time. He's just bull&hitting others & himself. You have the mistaken notion that some guy needs to "regulate the credit situation" when there is no situation to begin with. If anything Bernanke has *created* a situation and a very dire one at that with his fiddling around.

A person who earned the wealth should be the one to extend credit to the person who needs it. The technology already exist to connect saver & entrepreneur directly without the fed or a gigantic useless middle man industry sucking up trillions of dollars in scams & fees, leverage that blows up, using lobbyists..etc. The only reason the federal reserve was setup by this useless middle man industry was to perpetuate their extraction of wealth between saver & entrepreneur.

Neighborhoods fell in heaps of dust as people lost their livelihood,couldn't repay loans and moved on,

Real estate and everything else needs to fall to a point where its affordable *without* govt using tax money and money stolen from savers to rig the prices. The job of Bernanke is not to engage in price fixing just to serve the interest of the member banks behind the federal reserve.

Think again. You said what cured it was WW-2 in your previous post and now it is deflation?,

I said excess capasity was wrung out of the system (deflation) and world war II. World war II came around at the lucky time without which deflation may have lasted longer till such a time when the market was ready to resume its climb.

Deflation did not solve it, it worsened it!

You got it ass backwards. Deflation is the CURE. It is painful medicine but that is the disasterous RESULT of wreckless issuing of credit and meddling around - which is the lesson to be learnt. The lesson here is not that credit should be issued even more wrecklessly by a clueless oracle up top! Mark my words, bernanke is going to lead the country into a financial mess the likes of which has never been seen. The last bubble to implode will be faith in the solvency of the US govt and the worthyness of its currency and that day is coming sooner than most people think.

If the Fed misread the situation,so did the private sector. So blaming Fed for everything thats wrong with the economy is ridiculous.

Hello you are contradicting yourself here. You claim a wise oracle is needed up top to regulate "the credit situation" as you put it and meddle around with the economy. Now if this wise oracle is as clueless as everyone else, what is he doing there to begin with? Since he's already been proven clueless, why is he still allowed to meddle around with TRILLIONS of dollars? This guy is going to cause a disaster of unbelieveable proportions!

Any private sector entity which got caught house flipping deserves to go up in smoke along with their creditor. The silly idea of putting the liabilities of these gamblers onto the backs of those who have no part in their gamble via govt guarantees (Fannie Mae, Freddie Mac, FHA..etc) is the problem linking the clueless oracle to the productive economy.

My solution would be to GET RID of all govt involvement in the mortgage market and certainly the liabilities of these parasite commercial banks should be handed back to them. Its very simple. People who have SAVED their hard earned money should be the creditor and their own rating agency (not govt sanctioned scammers like Moody's, S&P, Fitch..etc). You will protect your money far better than any wise oracle because you earned it. You would never lend it out to a person with no income looking to buy a house.

Houses are constructed because there 'was' a demand..

That was not demand, that was fraud. People were house flipping with 2 or 3 properties with free money from the foolish oracle at the fed. The demand I'm talking about has the Fed out of the picture. It comes from home buyers with savings being able to put at least a 35% down payment on a house they wish to purchase. Credit to finance the rest comes from private investors (savers) brave enough to take a chance of losing their money on these home buyers, not some fool at the federal reserve rolling dice. If the private investor is wrong, he gets burned and loses his money. Society does not suffer and the useless middleman industry and its lobbying power is kept out of the equation.

The credit worthiness of US will be concluded as 'ruined' when competing nations first stand head over heels higher than the US economy.

Wrong, it will be ruined when investors decide it is ruined and creditors are no longer willing to finance America's binge. As soon as they demand higher interest rates for holding US debt, that will be the beginning of the end. In 1979, there was a big loss of confidence in the dollar even when America was well ahead of all countries and had relatively low deficits (nothing like today!). Interest rates had to go to 20+% before the market was convinced otherwise. I can't imagine the horrors in real estate if that happened today.

I vaguely do seem to remember the Treasury making 40% profit on the pile of Citi stock they sold, and are sitting on more than 50% profit on their purchase price.

$100 dollars get stolen from a pocket. $5 gets returned. Did the person make a profit?

This is nothing more than money printing, negative interest rates (aka robbing savers), inflating, running up debt and stock market rigging. Do you think these so called profits come out of thin air. Its a RIPOFF of society that banks & financial institutions get loans at no interest from the fed, invest in govt bonds at a higher rate at society's expense and then claim they made a profit. Sh&t a monkey could make a profit doing what the useless middleman industry does.

that is yet to be sold. Banks that did borrow money through TARP paid it off as the markets stabilized,spreads on those 'toxic assets' shrunk,they could successfully raise capital through secondary issuance. .

Its all useless financing & high rolling jive talk and terminology designed to confuse you so just erase it from your mind. The money is coming out of the productive economy via taxing, printing, running up debt or good old scamming to cut a long story short.

You may call it parasitic, but most people just call it 'banking'.

What may have started off as a utility aspect to society has morphed into a parasitic scam that really needs to be done away with. Its for the greater good of society. In fact there is no use for banks anymore. All one needs is a non-profit clearing house to connect savers to those looking for capital. Maybe there are a few other utility aspects for banks but as Paul Volker said, the only thing of value invented by bankers that he could think of was the ATM machine!

I was hoping you would rant about taxation too. Like i said earlier,unless you prefer anarchy,i dont see how governments can function without taxation.

America functioned without taxation for a long time. The only tax allowed was excise tax on imports. It greatly limited the size of govt. The size of govt, the public sector, the useless middleman sector which is tied in via a revolving door with govt, and various other things have increased the cost of govt to unbelievable proportions. It needs to be shrunk down by a good 75%. The economy would do better if people saved more of their money.

None of these 'banking parasites' as you call them put a pistol to make you avail their services.

Its quite the opposite, they are availing themselves of my services at great cost to me - namely the fruits of my labor by offloading their gambling losses onto suckers like me. Since this is done through the govt which they bribe, I'm on the hook for their losses while my savings are stolen through inflation they insist should be promoted to serve their interest. The banks as I said are the federal reserve and vice-versa. This parasitic banking system needs to be done away with. It contributes nothing of value to the real economy and merely drains it of its surplus. It has no expertise in investing as we can clearly see since it has made itself insolvent.

If he ever grew as significant as LTCM, then he too would threaten the government how the ripple effect could swallow the economy

The idea that a gambler can hold an entire country hostage should itself be a warning sign that things have to change. None of these problems exist with honest money. It only exists with federal reserve issuing worthless fiat paper, fractional reserve aka leveraging which allows gambling and theft of other people's money. Hence the need for honest money. In fact with honest money, when prices collapse things can be bought at a bargain by the people who did not participate in the foolish mania.

Hari Seldon · Post by **Hari Seldon** » 17 Feb 2011 06:21

From Twitter:

Former BoE Monetary Policy Committee member Blanchflower says UK economy could go "belly up" with millions of job losses http://j.mp/i8p0jM

Yawn. While certainly possible, its highly unlikely and I wouldn't hold my breath waiting for this to come to pass.
In any case, the world khanomy could do with respite and not fresh tremors in these uncertain times. So yup, I'm rooting for no major dislocations anywhere, no, not even in UKstan.

Taibbi on Why No One on Wall Street Goes to Jail: There's a fine new piece by Matt Taibbi on the utter lack of c... http://bit.ly/hW6k0G

Taibbi of the 'vampire squid' fame again. Incisive and all that. Hoep the fellow has Z categ security and all that, just like sri Ron Paul should have.

For Germany’s Banks, a Grim Future http://nyti.ms/gjFOhb

Yawn. Show me which banks (other than the TFTA too big to failones) have any sorta rosy future at all anywhere in the emerged world? Yup, thought so, only.

Florida might be first state to withdraw from Medicaid, bill this year of $22 Billion http://j.mp/if76pL Though half comes from Feds

Exactly like Jeff Sachs moans about in that vid I linked a day or so ago. The services, even critical ones, for mango little people are the first to go. Whereas not one, not one mind you, fin-farudster perp jailwalks anywhere so far in that land of law, constitution and institutionalized justice delivery only. Ah, well. Amrika is ahead of the curve as usual, in making public what has always been going around.

Brent oil hits 2-1/2 year high on Israel-Iran tension http://reut.rs/hgyfjE Brent is THE standard now, WTI has fallen by the wayside

In '88 income of an avg taxpayer was $33,400 adjusted for inflation. 20 years later & the average is still just $33,000 http://bit.ly/hnlYDl

Richest 1% of Americans - those making $380,000 or more - have seen their incomes grow 33% over the last 20 years. IRS Data via CNNMoney

Well, in an increasingly winner-takes-all smarts-based khanomy, (so theory goes), its natural for the top few % to exert their welath-leverage and make more money per % point in GDP growth than those below.

You could take a sec to read today's post if you haven't yet--"We All Work at Enron Now": http://s.hbr.org/hrZqs6

Yawn, more sensationalistic doomery only. Been there, done that. Nothing to see here...

Chalo, dassall for to-din. jai ho.

svinayak · Post by **svinayak** » 17 Feb 2011 07:01

http://www.jpmorgan.com/cm/cs?pagename= ... s_2011.pdf

Pressure points for policymakers
Key themes for the year ahead
Theme 1: US joins EM Asia and Latin America in growth triumvirate
Theme 2: The service sector comes to life
Theme 3: Europe's budget deficit falls to half that of the US
Theme 4: Pressures build for long-term lending subsidies in EMU
Theme 5: US private sector job gains average 200,000 per month
Theme 6: US consumers spend and delever
Theme 7: EM consumption rises to 37% of global total
Theme 8: G-3 core inflation stabilizes below 1%; Fed stays on hold
Theme 9: Inflation threat builds in EM Asia and Latin America
Theme 10: China tolerates higher inflation, other EM follow in its wake
Theme 11: Capital flows to the EM simmer down
Global economic outlook summary 14
Central Bank Watch 15

Ambar · Post by **Ambar** » 17 Feb 2011 08:25

Neshant wrote: A free market starts by returning the control of money to the person who *earned* it and stripping it from those who did not i.e. banking crooks, corruptable politicians and other shysters. This can only be done with honest money (gold & silver or local competing currencies). Those in govt looking to "regulate" are really just paid lobbyists looking to do just the opposite - perpetuate a useless middleman role for themselves and ultimately rip society off for their client. Lately there has been a trend of Goldman Sachs packing more and more of their ex-employees in the various govt financial regulatory positions to do their bidding. Govt regulating is a farce.

Unfortunately, there is no utopian free-market that would create a egalitarian system in protecting everyone's interest.The so called 'free market' whenever implemented always weighs heavy on the end consumer and favors the corporates.It does not 'return' the control of money, but makes sure it flows unilaterally in favor of corporations.

Neshant wrote:There is no central banker oracle sitting up top who knows how much credit the market needs at any given time. He's just bull&hitting others & himself. You have the mistaken notion that some guy needs to "regulate the credit situation" when there is no situation to begin with.

I don't think any central bank chairperson has ever called himself as a 'oracle' and 'know it all'. The whole onus of "no situation to begin with" resides on your assumption that socio-economic situation never changes! The banks cater to the needs of the economy, and central banks caters to the needs of the banks who reflect the situation of the socio-economic conditions. Rates went down when there was need for investment towards y2k. Rates went down when WTC went down in dust. Any monolith head of organization/state shouldn't exist based on the premise of your argument.

Neshant wrote:A person who earned the wealth should be the one to extend credit to the person who needs it. The technology already exist to connect saver & entrepreneur directly without the fed or a gigantic useless middle man industry sucking up trillions of dollars in scams & fees,

Really? How? If i need a working capital that runs into hundreds of millions as most money market papers do, where do i go searching for these 'savers' ? The retirement homes perhaps?

Neshant wrote: Real estate and everything else needs to fall to a point where its affordable *without* govt using tax money and money stolen from savers to rig the prices. The job of Bernanke is not to engage in price fixing just to serve the interest of the member banks behind the federal reserve.

Everything has a intrinsic value. And when the nominal value drops below the intrinsic value there will be trouble. That's what happened to Cleaveland,Detroit,Tampa and a whole lot of other cities. If the seller of a shiny auto stores it forever thinking at a certain price he'll find a buyer, he'll have a bigger lemon on his hands in no time.

Neshant wrote:
I said excess capasity was wrung out of the system (deflation) and world war II. World war II came around at the lucky time without which deflation may have lasted longer till such a time when the market was ready to resume its climb.

I've got nothing more to add than what i have already mentioned in my previous posts. If deflation was indeed the cure, then using seashells as currency was probably 'sanity'.

Neshant wrote:The lesson here is not that credit should be issued even more wrecklessly by a clueless oracle up top! Mark my words, bernanke is going to lead the country into a financial mess the likes of which has never been seen. The last bubble to implode will be faith in the solvency of the US govt and the worthyness of its currency and that day is coming sooner than most people think.

The world is a relative matrix. Every great power rides the crest of a sine wave and falls for a variety of reasons, and US will be no exception. It is funny how people are keen to write eulogies for a shaky US when everyone else is standing on quicksand wearing lead shoes!

Neshant wrote: Hello you are contradicting yourself here. You claim a wise oracle is needed up top to regulate "the credit situation" as you put it and meddle around with the economy. Now if this wise oracle is as clueless as everyone else, what is he doing there to begin with? Since he's already been proven clueless, why is he still allowed to meddle around with TRILLIONS of dollars? This guy is going to cause a disaster of unbelieveable proportions!

Contradiction is in your pessimistic judgment. Ben Bernake is the head of a agency like hundreds of other agencies in this country.People were buying homes,banks made more mortgages,Fed supported the banks actions making sure there was no credit-constraint.Somewhere down the lane banks made too many bad loans,that caused an exponential collapse in the value of secondary instruments.Fed did what they had to do to salvage the situation.

Neshant wrote: Any private sector entity which got caught house flipping deserves to go up in smoke along with their creditor. The silly idea of putting the liabilities of these gamblers onto the backs of those who have no part in their gamble via govt guarantees (Fannie Mae, Freddie Mac, FHA..etc) is the problem linking the clueless oracle to the productive economy.

The 'real flippers' did go up in the smoke,and so did many risky primary mortgage issuers. Nobody spoke about FNM,FRE,FHA,GNM for over 3 decades until 2008.The bottom line here is if you cannot repay a loan, then don't borrow it in the first place. The government gaurantee is not the problem here, but the sheer stupidity of some borrowers , and lots of unlucky borrowers who became 'collateral damage' in this mess.

Neshant wrote:
My solution would be to GET RID of all govt involvement in the mortgage market and certainly the liabilities of these parasite commercial banks should be handed back to them. Its very simple. People who have SAVED their hard earned money should be the creditor and their own rating agency (not govt sanctioned scammers like Moody's, S&P, Fitch..etc). You will protect your money far better than any wise oracle because you earned it. You would never lend it out to a
person with no income looking to buy a house.

Apart from the debt of government backed mortgage agencies, the treasury is not holding "private liabilities". The private institutions that were supported through emergency windows had to park collateral that have since moved back to their original holders. The Feds role was to keep certain banks solvent who's insolvency could cripple the entire capital market. Companies like GE,ATT,US Steel and others were mere days away from coming to a grinding halt. It is all too easy to sit in front a keyboard trying to judge how things should have been in retrospect, but none of us were in the hotseat watching 200 years of capitalistic society goes up in smoke.

Every rating agency provides a 'objective' and 'independent' credit measure based on their own scale.What part of it is so hard to understand? Any 2 pence worth financial analyst would know it deals with probability and not absolutism of an obligation. Mark-to-market pricing of the assets meant short-term credit worthiness of most large financial firms were on solid grounds, and it reflected in the rating. Now, as an investor the onus is on me to understand the structural risks of my investment and not take a leap of faith based on the ratings.

Neshant wrote: That was not demand, that was fraud. People were house flipping with 2 or 3 properties with free money from the foolish oracle at the fed. The demand I'm talking about has the Fed out of the picture. It comes from home buyers with savings being able to put at least a 35% down payment on a house they wish to purchase.

Even a zero equity based loan defaults wouldn't have ruptured through the balance sheets of big banks had it not been for secondary mortgage instruments.Home builders constructed properties based on the 'real demand', weather those buyers were 'flipping' homes was least of their concern as long as they received their money. This to me is no different than a retail store selling a pint of milk to a customer who pays through credit card. Whether he pays his CC bills at the end of the month is upto the customer and not the retailer.

Neshant wrote:
Wrong, it will be ruined when investors decide it is ruined and creditors are no longer willing to finance America's binge. As soon as they demand higher interest rates for holding US debt, that will be the beginning of the end. In 1979, there was a big loss of confidence in the dollar even when America was well ahead of all countries and had relatively low deficits (nothing like today!). Interest rates had to go to 20+% before the market was convinced otherwise. I can't imagine the horrors in real estate if that happened today.

Investors need an alternative investment before they ditch the largest and the most open economy in the world which till date continues to be the safest sovereign to invest in. Again,you have your facts wrong. Volcker's actions were to take the economy out of a stagflation rut thanks to Johnson,Nixon and Yom-Kippur caused inflationary deficits.Even in the 70s, the large portion of M3 was outside the US,and post Bretton-Woods USD was still the safest bet as it is today. There are plenty of reasons to support Volcker (who btw is a vocal critic of the Austrial school of thinking), but he was also shortsighted as a dramatic surge in interest rate gave birth to the S&L crisis.

Neshant wrote: $100 dollars get stolen from a pocket. $5 gets returned. Did the person make a profit?This is nothing more than money printing, negative interest rates (aka robbing savers), inflating, running up debt and stock market rigging.

Again,statement with zero empirical proof. Most banks under TARP had to issue secondary issuance which diluted the shareholder value but de-shackled them from their obligations to the government.

Neshant wrote:
What may have started off as a utility aspect to society has morphed into a parasitic scam that really needs to be done away with. Its for the greater good of society. In fact there is no use for banks anymore. All one needs is a non-profit clearing house to connect savers to those looking for capital. Maybe there are a few other utility aspects for banks but as Paul Volker said, the only thing of value invented by bankers that he could think of was the ATM machine!

There's nothing more to add than what i have mentioned previously. Like i said,most of us here cannot convert every penny into gold and hide it in our backyards. Most head of states cannot go around door to door to door to park their tax/pension money, and most CEOs cannot post newspaper ads soliciting billions in money market funds.There's good reason why bankers have existed since the days of Hindu mythologies and why they'll exist as long as the mankind exists on this planet.

Neshant wrote: America functioned without taxation for a long time. The only tax allowed was excise tax on imports. It greatly limited the size of govt. The size of govt, the public sector, the useless middleman sector which is tied in via a revolving door with govt, and various other things have increased the cost of govt to unbelievable proportions. It needs to be shrunk down by a good 75%. The economy would do better if people saved more of their money.

Rubbish! Tariffs and duties on production and trade have existed since the birth of this nation (and probably every other nation).If all lived in a non-volatile isolationist bliss then the case for government revenue collect would not arise. Unfortunately that is not the case.

Neshant wrote: The idea that a gambler can hold an entire country hostage should itself be a warning sign that things have to change. None of these problems exist with honest money.

The idea is of folks like Schiff is that it is easy to make innocuous statements based on rational theories and not actual proofs.Had he really followed his own preaching, he would have been hunting squirrels by now. As for 'honest money', like i've said over and over again, human society is not and never will be egalitarian and Utopian as you claim. If it were to be, then we could all be communists and make it work.

shyam · Post by **shyam** » 17 Feb 2011 11:08

People who believe that countries have no choice but to rely on USD should watch what other countries are doing behind the scene.

Chinese Buy As Much Gold In January As They Did In Half Of 2010

Unless GOTUS takes some serious steps to preserve the confidence in USD, more people will try to move away from it - may not be openly till they are confident. That will not be good for US in the long run.

paramu · Post by **paramu** » 18 Feb 2011 03:52

America- Protest in Wisconsin Must See 2-16-11 13,000 workers in the capitol of Wisconsin

paramu · Post by **paramu** » 18 Feb 2011 04:27

Dylan Ratigan: Where Are The Damn Handcuffs?

Video is worth watching.

VikramS · Post by **VikramS** » 18 Feb 2011 05:54

paramu:

I am not sure what you mean Fed orchestrating crisis. Fed is a part of the system.

The housing mess was just the way the trade imbalances worked out.

Too many Chinese Exports => Dollars parked somewhere => Dollar buys US Debt => US Interest Rates go down => People lever up since cost of debt is low => Everyone is Happy and trying to make as much as they can => The music stops, the bubble collapses......

Fed is just one of the player. They do not orchestrate the MERS court case. But the case itself helps the system heal so no one is particularly perturbed.

Neshant · Post by **Neshant** » 18 Feb 2011 10:29

Ambar wrote: Unfortunately, there is no utopian free-market that would create a egalitarian system in protecting everyone's interest.

Claiming something is not possible on the basis of too many scammers abound is no excuse. All that's required for corruption to flourish is for honest men to sit back and do nothing. So its important one strives to remove the scammers from the system because plainly stated, the consequences of not doing so are disasterous.

I don't think any central bank chairperson has ever called himself as a 'oracle' and 'know it all'.

If he doesn't know what he's doing, why is he doing in the first place? By doing I mean fiddling around with interest rates, printing money, stock market rigging, bailouting..etc. Currently the wise oracle is 'fixing' a massive disaster he himself unleashed on the system.

Really? How? If i need a working capital that runs into hundreds of millions as most money market papers do, where do i go searching for these 'savers' ? The retirement homes perhaps?

Unless you have been so blinded by the foolish notion that 15 scamming middlemen werecklessly leveraging away are needed between your money and an investment, it is fairly easy. A simple open clearing house for enterpreneur to offer ownership of a venture/profits in exchange for a saver's non-leveraged capital is all that's needed. Shenanigans where banks make leveraged gamble with the savings of others and get productive society to eat the loss when it blows up is part of the scamming that needs to be done away with. To summarize, Saver <-> Enterpreneur in direct connection with no leverage - if anything blows up, the saver and nobody else that eats the loss.

Everything has a intrinsic value. And when the nominal value drops below the intrinsic value there will be trouble.

?? Says who? Who is defining what the intrinsic value is? Not the wise oracle at the federal reserve I hope. The reason for a free market is price discovery. Trying to subvert price discovery by rigging markets and perpetuating the useless middle man industry causes great harm to productive society.

If deflation was indeed the cure, then using seashells as currency was probably 'sanity'.

It sure as hell makes more sense than using money created out of nothing. At least sea shells (calcium carbonate) has industrial (building material) and medical (antacid) uses.

The world is a relative matrix. Every great power rides the crest of a sine wave and falls for a variety of reasons, and US will be no exception.

The US is falling due to one very specific reason right now. Bad money. Why the need to try and gloss over it with fancy explainations. Its like a robber trying to justify his robbery by saying the world is eventually going to end - so why should I consider myself a parasite on society. The reality is we are living in the world NOW and we don't want our lives ruined by scammers & robbers.

Contradiction is in your pessimistic judgment. Ben Bernake is the head of a agency like hundreds of other agencies in this country.People were buying homes,banks made more mortgages,Fed supported the banks actions making sure there was no credit-constraint.

Again, why is this clueless guy involved in issuing credit (the savings of the productive economy) to begin with? Its really a fundamental question which when one does even the most shallow soul searching realises that this guy is a fraud.

The 'real flippers' did go up in the smoke,and so did many risky primary mortgage issuers.

What goes up in smokes when these flippers declare bankruptcy or walk away from their upside down mortgages is the productive economy. Under the current corrupt system, the loss is passed on to the productive economy via printing, bailouts, stock market rigging, scamming..etc. This is a very bad system at the heart of which is the issuance of bad money that steals the fruits of a person's labor and transfers it to a useless middleman industry.

This is why the solution begins with a return to honest money (gold & silver). Quite frankly human infalibility is the reason why this kind of money is needed and needed urgently before people's entire lifes are stolen from them. The true value is the time you have in your life. If its spent working, you deserve to keep what you have earned, not some crook from a useless middleman industry.

The government gaurantee is not the problem here.

The hell it isn't.

The Feds role was to keep certain banks solvent who's insolvency could cripple the entire capital market. Companies like GE,ATT,US Steel and others were mere days away from coming to a grinding halt. It is all too easy to sit in front a keyboard trying to judge how things should have been in retrospect, but none of us were in the hotseat watching 200 years of capitalistic society goes up in smoke..

Dude the fed IS the problem. Sh&t like the above will only get worse with the promotion of bad money and with productive society taken hostage by the private banking cartel to perpetuate the useless middleman industry. Why does this straight forward logical conclusion escape you when its blindly obvious?

Every rating agency provides a 'objective' and 'independent' credit measure based on their own scale.What part of it is so hard to understand?

Are you pretending to be ignorant or are you really ignorant. Rating agencies were stamping VAST numbers of TOTAL GARBAGE mortgage backed securities with AAA status and collecting fees. It was blatant fraud which THE RATING AGENCIES KNEW ABOUT. At least the wise oracle can be pronounced ignorant but these rating agencies KNEW they were committing fraud.

Pension funds are required BY LAW to use the ratings of rating agencies to invest in high grade securities only. Well guess what happens when grandma's life savings are invested BY LAW in total garbage which the rating agencies knew were garbage but stamped AAA anyways to collect their bonus?

Not one of these ba&tards have seen the inside of a prison cell. Does anything above strike you as being fraud? If not you have a great career awaiting you in the useless middleman industry.

Any 2 pence worth financial analyst would know it deals with probability and not absolutism of an obligation.

I'm afraid you are selling snake oil. Garbage is garbage. That was absolute garbage at the time when people with no jobs were flipping houses yet stamped AAA by rating agencies. It was absolute garbage when grandma lost her pension on that AAA investment made on her behalf by pension funds required to only invest in AAA securities to protect grandma. Now grandma is on the street, rating agencies are pretending as if nothing happened and go on rating, the useless middleman sector is tapping the taxpayer for bailouts (plus a bonus) and the foolish oracle who created the mess is printing & inflating to rob the productive who chose to work hard & save their money instead of house flipping.

Home builders constructed properties based on the 'real demand',

There is no real demand for houses when the foolish oracle is promoting an economy based on house flipping, paper shuffling, scamming, printing .. basically anything other than honest work for honest money. There is only fake demand that leads to crisis.

Volcker's actions were to take the economy out of a stagflation rut thanks to Johnson,Nixon and Yom-Kippur caused inflationary deficits

Volcker action was to restore confidence in the collapsing dollar. Period. Anyway who cares about fiat shenanigans.

Again,statement with zero empirical proof. Most banks under TARP had to issue secondary issuance which diluted the shareholder value but de-shackled them from their obligations to the government.

These companies cannot possibly be earning any money on their own or attracting investors with a brain with real estate values sliding down the toilet, unemployment going up and people walking away from upside down houses. The only way they are making money is via the fed stealing money from the productive economy via printing, scamming, stock market rigging and bailouting. Getting free money from govt and buying govt bonds with it at higher interest rate is nothing other than a scam by the useless middleman economy.

why they'll exist as long as the mankind exists on this planet.

While leprosy and polio might have existed since the dawn of time, these pestilences have largely been eradicated. Likewise I forsee a great cleansing of the system coming, but not before many suckers are 'cleansed' of their hard earned life savings.

Neshant wrote:The idea is of folks like Schiff is that it is easy to make innocuous statements based on rational theories and not actual proofs.

What actual proof is needed when he laid out cold the premise of the housing bubble and it collapsed just as he said it would? It certainly is proof the wise oracle did not see one of the largest financial bubbles in history which he helped create.

Neshant wrote:As for 'honest money', like i've said over and over again, human society is not and never will be egalitarian and Utopian as you claim.

What silly notion are you trying to sell. The idea that a vast number of scammers should be running the system through fraud and subterfuge and that should be considered the norm? You just know you are at the end of your rope when you have to abandon your denials that a scam exists only to rush to its defence claiming its people should just accept it. Tell me you are not employed in this useless middleman industry.

Christopher Sidor · Post by **Christopher Sidor** » 18 Feb 2011 13:37

It is true the culpability of the Ratings agency have not yet been called into question. Stamping of AAA ratings on basically toxic products was not supposed to have been done. I remember in India also the same happening. Before the crash of 2008, Indian construction companies were valued by the same ratings agency, or to be specific the Indian branches of these rating agencies. The Indian construction companies were rated based on the land bank value. This disregarded two aspects
1) A significant amount of land bank claimed by these construction companies were of dubious value, as the ownership could not be directly established.
2) In case of need the shareholders could not stake a direct claim to these "land banks".
When such construction companies had an open house with potential investors, the rating agency officials were quized on how come so-and-so valuations were assigned to the company. The officials from the rating agency repeated the above 2 points and yet insisted on giving very high valuations to these companies. The rest as they say is history.

Basically the 2008 has thrown up the incestuous relationships in the financial world. Even after the great panic, practically nothing has been done to break up these incestuous relationships. How can an individual objectively and without any undue influence, rate a firm when he gets paid by the same firm? This is a classic case of conflict of interest. Ratings and audit should be done by people who are not paid by the company they are auditing or rating.

somnath · Post by **somnath** » 18 Feb 2011 13:47

^^^Ratings agencies do not give "valuations", they assess the credit quality..The former is the job of equty analysts...

the big issue with ratings during the crisis was the ratings given to CDOs, MBS, ABS...These were complex instruments made up of portfolios of assets that were "tranched"..So a senior tranche would get a rating of AAA, a junior tranche will get a rating of AA and so on...the problem was that the default probabilities were based on assumptions of correlations, default ratios and recovery rates that broke off when the crisis happened...And the bigg issue during the crisis was that of confidence..No bank can survive if even 10% of its depostiors turn up one day and ask for their money back..and the crisis of confidence meant that is precisely that was happening, creating a domino effect..

BTW, Indian property companies were seldom rated AAA, in fact none was...Most of them had ratings of A or below..