Global Economy

Sanjay M · Post by **Sanjay M** » 23 Sep 2008 05:29

Today the price of oil soared by $25 in intraday trading -- the largest single-day jump ever -- and ultimately closed at $16 above the opening price.

This can be attributed to a flight to the security of oil and gold, due to a fear of a collapse of the US economy and fall of the dollar.

So oil as a commodity is going to continue to maintain value even in the face of diminished US economic activity and consumption, because of the potential for continued drop in the dollar, and also the potential for supply disruptions.

We all saw how the US legislation to cap commodities speculation heavily dampened the recent soaring rise in oil prices. The effect of this recent move will now be offset, since short-selling is now similarly being capped. So oil prices should be able to resume a slightly upward trend.

I would also imagine that food/crops will maintain healthy pricing, due to strong global demand, and heavy US farm subsidies, even in the face of a drop in the US dollar.

Sanjay M · Post by **Sanjay M** » 23 Sep 2008 05:49

Okay, as I see it, previously the main constraint against Fed cutting interest rates has been
1) concern about inflationary impact, and
2) concern that you can't mix fresh water with dirty water [ie. with all the bad debt out there, merely injecting more capital into the markets wouldn't be enough to offset the bad debt, and would only result in more capital overall going down the drain - aka. "no point in throwing good money after bad"]

So now that the bailout is happening, it's separating the good assets from the bad. Once the Fed sucks out the venom from the economy, then the level of good assets remaining in the free market should be of good enough quality that investment can proceed with adequate confidence.

Also, the need for economic stimulus in order to raise global investment confidence in the US economy would now be the greater imperative.

So doesn't this bailout now set the stage for a series of stimulatory rate cuts, as an attempt to regain lost economic ground?

Nayak · Post by **Nayak** » 23 Sep 2008 09:40

Nytimes whines, very delicious indeed.

http://www.nytimes.com/2008/09/22/opini ... ei=5087%0A

The Fleecing of America

By ROGER COHEN
Published: September 21, 2008

Yes, folks, the cash is elsewhere. Asians have been saving rather than spending. Their consumers are in better shape, as are their banks. The China Investment Corp. (C.I.C.), a sovereign wealth fund, is sitting on $200 billion (and a 9.9 percent stake in Morgan Stanley) while China’s central bank is managing another $1.8 trillion in reserves.

And what have we heard from the new centers of wealth and power — China, India, Brazil, Russia, the Gulf states — about America’s financial agony over the past week? Zilch.

Well, not quite. Asked about the crisis, Luiz Inácio Lula da Silva, the Brazilian president, said: “What crisis? Go ask Bush.”

Thanks, Lula. Brazil is sitting on $208 billion of its own in reserves, so perhaps Lula would say his flippancy is justified. But I don’t think it is.

Remember the last financial crisis in 1998? With the Russian economy in a freefall, Moscow officials scurried to the U.S. Treasury to secure vital American support for $17.1 billion in new International Monetary Fund loans. That steadied things.

The world has changed in the past decade. There’s been a steady transfer of wealth away from the United States in a shift most Americans have not yet grasped. But there has been no accompanying transfer of responsibility. New powers are free-riding as if it were still the American century.

It’s not. Imagine if Hu Jintao, the Chinese president, had declared last week: “China has a deep interest in the stability of the U.S. economy and the dollar. We stand ready to help in the essential return of confidence to financial markets. Talks with the U.S. Treasury are ongoing.” Or perhaps the BRIC countries (Brazil, Russia, India and China) might have put out such a joint statement.

Let’s be clear: this is an American mess forged by the American genius for new-fangled financial instruments in an era where the mantra has been that government is dumb and the markets are smart and risk is non-existent. The responsibility for undoing the debacle is chiefly American, too.

But toxic mortgage-backed securities were peddled by plenty of foreign banks. And the decision to pour $85 billion of U.S. taxpayers’ money into the rescue of American International Group (A.I.G.), the insurance giant, followed appeals from foreign finance ministers to Henry Paulson, the Treasury secretary, to save a global company.

Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, told me: “Paulson said he was getting calls from finance ministers all around the world saying, you have to save A.I.G. Well, they should have been asked to contribute to the pot.”

Frank has a point. (He should coach Barack Obama on how to put economics in plain language.) As Frank said on “The Charlie Rose Show,” “I don’t think the European Central Bank should be free to spend the Federal Reserve’s money and not put any in.”

I know, you reap what you sow. Nobody’s itching to help the Bush administration. World central banks did inject billions in concerted action to help stabilize money markets. But the U.S. has essentially been on its own. Now foreign banks with U.S. affiliates will want a slice of the $700 billion bailout. That doesn’t make sense until the burden of this rescue starts reflecting a globalized world.

I asked Frank why Paulson and Ben Bernanke, the Federal Reserve chairman, did not get more foreign support. “I think it’s a perverse pride thing,” he said. “We don’t ask for help. We’re the big, strong father figure. But let’s be realistic: we’re no longer the dominant world power.”

It’s time for a responsibility shift. Call it the Hirst reality check. If he can sell a formaldehyde-pickled sheep with gold horns for millions while Lehman goes under, perhaps it’s time for everyone to help a little when Americans get fleeced.

Massa wants us brown-skinned-noobs to help them out of the $hithole they have dug themselves in.

kumarn · Post by **kumarn** » 23 Sep 2008 11:49

I was trying to find out the origins of the current crisis and Ashok V. Desai has a possible explanation below.

A TIME OF TREMORS- Sensations may not have ended yet in the US financial markets

I would start the story with the election of George W. Bush. Like Manmohan Singh, he has been a spendthrift. Clinton inherited a budget deficit of $290 billion; in his last year he had turned it into a surplus of $526 billion. Then came Bush of the Afghan and Iraq wars. By 2004 he had a deficit of $413 billion; he has been running deficits of that order ever since. During his first presidency, he borrowed to finance the deficit; US national debt rose from $5.7 trillion in 2000 to $9 trillion in 2007. When the interest burden began to weigh, he started to issue non-repayable, zero-interest bonds; they are called currency. The growth of broad money (M3) rose from 4 per cent a year in 2004 to 16 per cent currently.

Money primarily collects in bank accounts. Banks were flush with funds, and tried to lend them out. Credit growth was 5 per cent in 2002; it rose to 10 per cent by the end of 2005.

pradeepe · Post by **pradeepe** » 23 Sep 2008 14:13

123 deal scenario aside, anyone who compared Bush to MMS for whatever reasons is an idiot in my opinion. The whole world is trying to distance itself from a stinking pile of poo and here goes Mr. Desai trying to find parallel's.

R Vaidya · Post by **R Vaidya** » 23 Sep 2008 19:12

India should re-joice at the decline of US institutions--

http://www.dnaindia.com/report.asp?newsid=1192432

rvaidya

John Snow · Post by **John Snow** » 23 Sep 2008 19:37

Following

Cash after Trash
Now

Shavings and Loans

Atish · Post by **Atish** » 23 Sep 2008 19:45

The jump in oil yesterday was actually due to a "short squeeze" on a soon to expire contract. Too many people had shorts so some ppl had the bright idea of buying big to raise prices, the real futures price was by now the next contract (wheer the price jump was much smaller but traing volume much larger). Thsi was possible due to teh fact that normally nobody trades on the last day so just a few trades could cause an 'artificial' spike. when that happened the people with shorts had to cover, coz else they would be cash settled at whatever settling price is. For example even if there is just one trade but its at 180, tahts wheer teh position will settle.

This was just a market anamoly, poosible due to the quirks in trading termination schedules etc.

Atish.

svinayak · Post by **svinayak** » 23 Sep 2008 21:59

http://www.marketwatch.com/news/story/w ... MostMailed
PAUL B. FARRELL
'America's Outrageous War Economy!'
Pentagon can't find $2.3 trillion, wasting trillions on 'national defense'
By Paul B. Farrell, MarketWatch
Last update: 7:27 p.m. EDT Aug. 18, 2008
Comments: 1014
ARROYO GRANDE, Calif. (MarketWatch) -- Yes, America's economy is a war economy. Not a "manufacturing" economy. Not an "agricultural" economy. Nor a "service" economy. Not even a "consumer" economy.
Seriously, I looked into your eyes, America, saw deep into your soul. So let's get honest and officially call it "America's Outrageous War Economy." Admit it: we secretly love our war economy. And that's the answer to Jim Grant's thought-provoking question last month in the Wall Street Journal -- "Why No Outrage?"

There really is only one answer: Deep inside we love war. We want war. Need it. Relish it. Thrive on war. War is in our genes, deep in our DNA. War excites our economic brain. War drives our entrepreneurial spirit. War thrills the American soul. Oh just admit it, we have a love affair with war. We love "America's Outrageous War Economy."
Americans passively zone out playing video war games. We nod at 90-second news clips of Afghan war casualties and collateral damage in Georgia. We laugh at Jon Stewart's dark comedic news and Ben Stiller's new war spoof "Tropic Thunder" ... all the while silently, by default, we're cheering on our leaders as they aggressively expand "America's Outrageous War Economy," a relentless machine that needs a steady diet of war after war, feeding on itself, consuming our values, always on the edge of self-destruction.

*
Why else are Americans so eager and willing to surrender 54% of their tax dollars to a war machine, which consumes 47% of the world's total military budgets?
*
Why are there more civilian mercenaries working for no-bid private war contractors than the total number of enlisted military in Iraq (180,000 to 160,000), at an added cost to taxpayers in excess of $200 billion and climbing daily?
*
Why do we shake our collective heads "yes" when our commander-in-chief proudly tells us he is a "war president;" and his party's presidential candidate chants "bomb, bomb, bomb Iran," as if "war" is a celebrity hit song?
*
Why do our spineless Democrats let an incompetent, blundering executive branch hide hundreds of billions of war costs in sneaky "supplemental appropriations" that are more crooked than Enron's off-balance-sheet deals?
*
Why have Washington's 537 elected leaders turned the governance of the American economy over to 42,000 greedy self-interest lobbyists?
*
And why earlier this year did our "support-our-troops" "war president" resist a new GI Bill because, as he said, his military might quit and go to college rather than re-enlist in his war; now we continue paying the Pentagon's warriors huge $100,000-plus bonuses to re-up so they can keep expanding "America's Outrageous War Economy?" Why? Because we secretly love war!

We've lost our moral compass: The contrast between today's leaders and the 56 signers of the Declaration of Independence in 1776 shocks our conscience. Today war greed trumps morals. During the Revolutionary War our leaders risked their lives and fortunes; many lost both.
Today it's the opposite: Too often our leaders' main goal is not public service but a ticket to building a personal fortune in the new "America's Outrageous War Economy," often by simply becoming a high-priced lobbyist.
Ultimately, the price of our greed may be the fulfillment of Kevin Phillips' warning in "Wealth and Democracy:" "Most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out."
'National defense' a propaganda slogan selling a war economy?
But wait, you ask: Isn't our $1.4 trillion war budget essential for "national defense" and "homeland security?" Don't we have to protect ourselves?
Sorry folks, but our leaders have degraded those honored principles to advertising slogans. They're little more than flag-waving excuses used by neocon war hawks to disguise the buildup of private fortunes in "America's Outrageous War Economy."
America may be a ticking time bomb, but we are threatened more by enemies within than external terrorists, by ideological fanatics on the left and the right. Most of all, we are under attack by our elected leaders who are motivated more by pure greed than ideology. They terrorize us, brainwashing us into passively letting them steal our money to finance "America's Outrageous War Economy," the ultimate "black hole" of corruption and trickle-up economics.
You think I'm kidding? I'm maybe too harsh? Sorry but others are far more brutal. Listen to the ideologies and realities eating at America's soul.
1. Our toxic 'war within' is threatening America's soul
How powerful is the Pentagon's war machine? Trillions in dollars. But worse yet: Their mindset is now locked deep in our DNA, in our collective conscience, in America's soul. Our love of war is enshrined in the writings of neocon war hawks like Norman Podoretz, who warns the Iraq War was the launching of "World War IV: The Long Struggle Against Islamofascism," a reminder that we could be occupying Iraq for a hundred years. His WW IV also reminded us of the coming apocalyptic end-of-days "war of civilizations" predicted by religious leaders in both Christian and Islamic worlds two years ago.
In contrast, this ideology has been challenged in works like Craig Unger's "American Armageddon: How the Delusions of the Neoconservatives and the Christian Right Triggered the Descent of America -- and Still Imperil Our Future."
Unfortunately, neither threat can be dismissed as "all in our minds" nor as merely ideological rhetoric. Trillions of tax dollars are in fact being spent to keep the Pentagon war machine aggressively planning and expanding wars decades in advance, including spending billions on propaganda brainwashing naïve Americans into co-signing "America's Outrageous War Economy." Yes, they really love war, but that "love" is toxic for America's soul.
2. America's war economy financed on blank checks to greedy
Read Nobel Economist Joseph Stiglitz and Harvard professor Linda Bilmes' "$3 Trillion War." They show how our government's deceitful leaders are secretly hiding the real long-term costs of the Iraq War, which was originally sold to the American taxpayer with a $50 billion price tag and funded out of oil revenues.
But add in all the lifetime veterans' health benefits, equipment placement costs, increased homeland security and interest on new federal debt, and suddenly taxpayers got a $3 trillion war tab!
3. America's war economy has no idea where its money goes
Read Portfolio magazine's special report "The Pentagon's $1 Trillion Problem." The Pentagon's 2007 budget of $440 billion included $16 billion to operate and upgrade its financial system. Unfortunately "the defense department has spent billions to fix its antiquated financial systems [but] still has no idea where its money goes."
And it gets worse: Back "in 2000, Defense's inspector general told Congress that his auditors stopped counting after finding $2.3 trillion in unsupported entries." Yikes, our war machine has no records for $2.3 trillion! How can we trust anything they say?
4. America's war economy is totally 'unmanageable'
For decades Washington has been waving that "national defense" flag, to force the public into supporting "America's Outrageous War Economy." Read John Alic's "Trillions for Military Technology: How the Pentagon Innovates and Why It Costs So Much."
A former Congressional Office of Technology Assessment staffer, he explains why weapon systems cost the Pentagon so much, "why it takes decades to get them into production even as innovation in the civilian economy becomes ever more frenetic and why some of those weapons don't work very well despite expenditures of many billions of dollars," and how "the internal politics of the armed services make weapons acquisition almost unmanageable." Yes, the Pentagon wastes trillions planning its wars well in advance.
Comments? Tell us: What will it take to wake up America, get citizens, investors, anybody mad at "America's Outrageous War Economy?"
Why don't you rebel? Will the outrage come too late ... after this massive war bubble explodes in our faces? End of Story

SK Mody · Post by **SK Mody** » 23 Sep 2008 22:43

R Vaidya wrote:India should re-joice at the decline of US institutions--

http://www.dnaindia.com/report.asp?newsid=1192432

rvaidya

Quoting from the article:

...
What should India have done?

Immediately after the collapse of Freddie Mac and Fannie Mae and the crisis in many investment banks, our finance ministry should have called a meeting of major banks, industrialists and some — shall I say obscenely rich — NRIs and announced the readiness of some Indian groups to acquire some of these institutions after due diligence.
This is just to put the cat among pigeons and announce to the world that we have arrived. It is not required that we should acquire these sick entities.

It is just to express our readiness and also to tell the world that we want orderly transition as a responsible global power. It is not late even now, since many more commercial banks of US origin are in the queue.

However, India was silent and generally mumbling that we are not affected, etc. It was behaving like a small sidekick country.

The country should call for an alternative global financial architecture, which is built on the real economy and not on the paper economy.

The disconnect between stock markets and the real economy was accentuated by the derivative markets where the tail had begun to wag the dog.

This fact has been told many a time by many from countries such as India.
India and China should play an important role in evolving the alternative global financial architecture and for which we should start working.

The existing institutions have failed and the existing market mantra has been exposed in the most compromising position wherein the market and government are caught in the act.

Unless we internalise the fundamental truth that the decline of the West is a pre-requisite for the emergence of India as a global power, we are not going anywhere.

svinayak · Post by **svinayak** » 24 Sep 2008 07:05

Hank and Ben testifying begore Senate Finance Committee.
The Congress is NOT roll over give the $700 B cheque with out some accountability, equity for JQ Public and over sight. The Senators asked all the right questions but never got any straight answers. I think this a Mexican Stand off.

What ever the out come, either the Taxpayer gets screwed and or the Banks will keep writing off their losses in the coming Qtrs. Business model of the Investing Banks ceased to exit the moment GS ans MS became holdings Company with close super vision of the Feds. No more risk taking, mergers/acquisitions, deals with hedge funds. Their business model became obsolete!

America became United Socialistic Republic of America (USSA) like past USSR with nationalization private Banking and other industries, just like Russia, Cuba and Venezuela!

ETFs are VERY, VERY VOLATILE and to be bought ONLY if you can trade them on line diring Mkt hrs. They are NOT Buy and Hold!

Mutual Funds are ok for most people but tricky. You ( your broker) should buy and sell them before the Mkt closes to get the full benefit. For example if the Mkt appears to go higher, you BUY these and SELL them, if it appears going down but before the Mkt closes, otherwise you end up getting next day's NAV. You will have to that decision by 3.00 or 3.35PM. Be aware that Mkt can reverse in the last minute and defeat your purpose. But they can be a part of your portfolio as uncorrelated assets.

There is no more confidence in the US or Intl Mkt for the near future. I could be wrong but I am not willing to lose sleep over what's happening, which is pure insanity and wishful thinking in the main stream media and our clue less Govt ( Bush, Hank and Ben) Hank Paulson is worth more than 500M, He lead Goldman Sachs as CEO from 1999 - 2006 before becoming Tres Secretary in 2006

ALL these Toxic loans and Derivatives ($62 Trillion worth of CDS Swaps with no central clearing house and unregulated - Shadow Banking) were invented along with his other Wall St buddies. He is trying his best to help his buddies. His GS shares in his 'blind' trust is around 600,000 shares ( around 25 M). Both of them won't be there after Jan 29th 2009.No body has a clue about the true nature of crisis or it's cure!

It will be up to McCain/ Palin - the III Bush dynasty or ? Obama/Biden. None of them have shown any intelligent grasp of the situation, let alone solutions, so far. The housing values will keep on falling, irrespective of bail out or not. Unemployment is 6.1% and increasing. Two thirds of US Economy is directly dependent upon CONSUMER SPENDING. You know the outcome down the road.

Sanjay M · Post by **Sanjay M** » 24 Sep 2008 07:17

The ship is sinking rapidly, while they argue over who gets to fit in the lifeboat and who gets a life-preserver. They'll all drown.

vina · Post by **vina** » 24 Sep 2008 08:52

Buffet Invests $5b in Goldman ..

After buying up under deep stress Constellation energy at throwaway prices , Buffet invests $5b in Goldman. What Goldman is getting from Buffet is not just the $5b. It is worth lot lot more than that. They are getting a vote of confidence that all is kosher with them. That is what it means. But of course, Buffet bania gets it at extemely favorable terms in return for that vote..

.

I expect Buffet to also pick up many of the good pieces of AIG when the break up and sell off of AIG happens. .

TimesPeople
The New York Times
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September 24, 2008
Goldman to Raise Capital, With $5 Billion From Buffett
By BEN WHITE

Warren E. Buffett, the country’s most famous investor and one of the world’s richest men, announced on Tuesday that he would invest $5 billion in Goldman Sachs, the embattled Wall Street titan, in a move that could bolster confidence in the financial markets.

Until now, Mr. Buffett, who has navigated the stock market with legendary prowess, has largely refrained from investing in the stricken financial industry, saying repeatedly that things could get worse.

Thousands of people on and off Wall Street follow Mr. Buffett’s moves, so his decision to invest in Goldman immediately heartened investors. After falling nearly 1.6 percent during the day, the Standard & Poor’s 500-stock index erased half its loss in after-hours trading Tuesday evening on news of the investment.

“Buffett is saying he’s confident,” said Brad Hintz, an analyst at Sanford C. Bernstein & Company.

Mr. Buffett’s conglomerate, Berkshire Hathaway, unveiled the move only days after Goldman, long the premier investment house on Wall Street, embarked on a radical plan to transform itself into a traditional bank to ensure its survival. Goldman, which examined various options over the last week as its shares tumbled and some clients abandoned the firm, also said Tuesday it would sell at least $2.5 billion of common stock to the public.

Since credit markets tightened more than a year ago, Mr. Buffett had stayed his hand even as other investors, including government-controlled funds from the Middle East and Asia, poured money into American financial companies like Citigroup and Merrill Lynch, only to see their investments plunge in value.

Such wariness is a hallmark of Mr. Buffett’s investing style, and many on Wall Street have wondered when he might jump in. Over the last four decades, he has built Berkshire, which is based in Omaha, into one of the world’s largest and most successful insurers. Along the way, he has also assembled a stable of holdings in widely known companies like Coca-Cola and the Washington Post Company, and more recently has increased his stakes in energy concerns and railroads.

Mr. Buffett, who plans to donate the vast majority of his fortune to charity, is known for his folksy guidelines for proper corporate governance and his investment expertise. His annual meetings are fondly referred to as the Woodstock of American capitalism by his many acolytes.

But Mr. Buffett, 78, has also learned from past mistakes in the financial sector. For instance, Berkshire’s 1998 acquisition of General Re, the insurance company, was marred by a portfolio of complex derivative securities and state and federal investigations into reinsurance policies written by the company. Salomon Brothers, the Wall Street firm that Mr. Buffett was pressed by the government to lead in the early 1990s amid a trading scandal, was another taxing experience.

But Goldman is a classic Buffett play: It is a blue-chip institution, with a premier brand and long, successful history, that has been beaten down in the stock market, and one that he is investing in on very favorable terms. Goldman’s share price has fallen nearly 50 percent from its peak of $247.92 less than a year ago.

Mr. Buffett, in the statement, called Goldman Sachs an exceptional institution.

“It has an unrivaled global franchise,” Mr. Buffett said, “a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance.”

Still, Mr. Buffett is not taking big risks based on the structure of the investment.

Berkshire Hathaway will receive perpetual preferred shares in Goldman, which will pay a 10 annual percent dividend, or $500 million a year. Those dividends take precedence over other payments to common shareholders. Goldman has the right to buy back the shares at any time for a premium of 10 percent.

In addition, Berkshire Hathaway will receive warrants to buy $5 billion in common stock at a strike price of $115 a share, which can be used at any time in a five-year period. Those warrants are already in the money: Goldman shares closed Tuesday at $125.05, up $4.27, and rose to $134.75 in after-hours trading after Mr. Buffett’s investment was announced.

Mr. Buffett’s possible stake in Goldman is hard to calculate, but the company had a market capitalization of $53 billion at the close of trading Tuesday, a value that would make the $5 billion in common stock worth about 10 percent of the company.

While Mr. Buffett’s risks may be limited, he is investing in Goldman at a time when many fear the bank’s long-run of soaring profits may be coming to an end. As a federally regulated bank holding company, Goldman may not be able to take the kind of risks that have yielded profits and bonuses that defined Wall Street’s latest Golden Age.

Goldman’s move came a day after a rival investment bank, Morgan Stanley, raised about $8 billion by selling up to a 20 percent stake to Mitsubishi UFJ Financial Group, Japan’s largest commercial bank. Goldman was widely expected to follow suit.

“We are pleased that given our longstanding relationship, Warren Buffett, arguably the world’s most admired and successful investor, has decided to make such a significant investment in Goldman Sachs. We view it as a strong validation of our client franchise and future prospects,” the chief executive of Goldman, Lloyd C. Blankfein, said in the statement. “This investment will further bolster our strong capitalization and liquidity position.”

For Mr. Buffett, the move is a long-awaited investment in a big financial firm. Though he has struck several deals since the credit market tightened, he has not invested heavily in the financial services sector, even though he has been approached several times.

Singha · Post by **Singha** » 24 Sep 2008 08:53

there must be debate and strong rules put in. they want to give an impression of 10..9..8..7
and make sure no restrictions on future loot taking and compensation type issues are brought in.
he is afterall, the ex-ceo of goldman and has a foot in both camps. bernanke is a academic and
probably not as influential as hank sahib in the halls of power.

its a fast breaking play to loot $700b shouting "fire fire" and insulate themselves from bankruptcy
for the next decade AND continue to enjoy the luxe perks, bimmers and hamptons residences.

the american public are sheep who can be made to line up on certain issues and do whatever
they are told to do. but looking at how 800+ people commented on a single NYT article,
there is a rising tide of anger and politicians always have their eye on that weathercock
named "public anger".

the "market" will wait for a while, short selling is banned and its all based on sentiment
....why would a month long debate be so bad unless these "giants" dont even the cash
to run day to day opex.

Satya_anveshi · Post by **Satya_anveshi** » 24 Sep 2008 08:59

vina wrote:Buffet Invests $5b in Goldman ..

After buying up under deep stress Constellation energy at throwaway prices , Buffet invests $5b in Goldman. What Goldman is getting from Buffet is not just the $5b. It is worth lot lot more than that. They are getting a vote of confidence that all is kosher with them. That is what it means. But of course, Buffet bania gets it at extemely favorable terms in return for that vote.. .

I expect Buffet to also pick up many of the good pieces of AIG when the break up and sell off of AIG happens. .

I speculate that Wells Fargo will merge with GS. I felt short of mentioning that yesterday but with this move, it is more likely.

svinayak · Post by **svinayak** » 24 Sep 2008 09:06

SNAPPING UP ASSETS

As the turmoil swirled, Japanese firms are snapping up U.S. assets. Nomura Holdings Inc agreed to buy bankrupt Lehman Brothers Holdings Inc's Europe and Middle East operations.

That came on the heels of Japan's top bank, Mitsubishi UFJ Financial Group Inc, agreeing to buy up to 20 percent of Morgan Stanley and Nomura planning to buy Lehman's franchise in Japan and Australia.

Singapore sovereign fund GIC said it still has plenty of cash after investing nearly $18 billion in UBS AG and Citigroup Inc, and would consider investing in U.S. distressed assets.

Singha · Post by **Singha** » 24 Sep 2008 09:21

from a blog:

I am also delighted that Senator Dodd and Congressman Frank have taken the lead in negotiating with Messrs. Bernanke and Paulson over exactly what form the massive bailout they have requested will take. Clearly, the Treasury's first draft of the proposed bailout suffered from a number of minor deficiencies, including the relatively trivial one that its demand of immunity for itself—

"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

—was egregiously unconstitutional on its face. (Nice try, Hank.) It is reassuring that a few of our brave elected representatives have chosen to smack the Hammer on the snout and try to come up with something more in keeping with truth, justice, and the non-fascist way.

SK Mody · Post by **SK Mody** » 24 Sep 2008 10:24

Finance/Insurance/Real Estate: Long-Term Contribution Trends.
Note the % contributions to republicans and democrats.

Check out the contributions of different groups.
Apart from usual suspects, this is interesting.

Manu · Post by **Manu** » 24 Sep 2008 13:24

BMR Advisors has been appointed to manage Lehman captive divestiture.

SDRE India operation.

vina · Post by **vina** » 24 Sep 2008 15:33

A good article ruing the fall of the gold standards based Bretton Woods system. While it is true the gold standard puts a limit on monetary expansion, the gold standard by its very nature limits monetary policy and the ability to use that to fight slowdowns and deflation. Lord Randolph Churchill as the Chancellor of Exchequer put Great Britain back on the gold standard at an ill advised wrong rate and Britain and it's common wealth never quite required from the stagnation of the 20s, until the massive monetary expansion of the 2nd world war.

September 24, 2008
Op-Ed Contributor
The Buck Stopped Then
By JAMES GRANT

CRITICS of the administration’s Wall Street bailout condemn the waste of taxpayer dollars. But the taxpayers aren’t the weightiest American financial constituency, even in this election year. The dollar is the world’s currency. And it is on the world’s opinion of the dollar that the Treasury’s plan ultimately hangs.

It hangs by a thread, if Monday’s steep drop of the greenback against the euro is any indication. We Americans, constitutionally inattentive to developments in the foreign exchange markets, should be grateful for what we have. That a piece of paper of no intrinsic value should pass for good money the world over is nothing less than a secular miracle. We pay our bills with it. And our creditors not only accept it, they also obligingly invest it in American securities, including our slightly shop-soiled mortgage-backed securities. Every year but one since 1982, this country has consumed much more than it has produced, and it has managed to discharge its debts with the money that it alone can lawfully print.

No other nation ever had it quite so good. Before the dollar, the pound sterling was the pre-eminent monetary brand. But when Britannia ruled the waves, the pound was backed by gold. You could exchange pound notes for gold coin, and vice versa, at the fixed statutory rate.

Today’s dollar, in contrast, is faith-based. Since 1971, nothing has stood behind it except the world’s good opinion of the United States. And now, watching the largest American financial institutions quake, and the administration fly from one emergency stopgap to the next, the world is changing its mind.

“Not since the Great Depression,” news reports keep repeating, has America’s banking machinery been quite so jammed up. The comparison is hardly flattering to this generation of financiers. From 1929 to 1933, the American economy shrank by 46 percent. The wonder is that any bank, any corporate borrower, any mortgagor could have remained solvent, not that so many defaulted. There is not the faintest shadow of that kind of hardship today. Even on the question of whether the nation has entered a recession, the cyclical jury is still out. Yet Wall Street shudders.

The remote cause of its troubles is the paper dollar itself — the dollar and the growth in the immense piles of debt it has facilitated. The age of paper money brought with it an increasingly uninhibited style of doing business.

The dollar emerged at the center of the monetary system that took its name from the 1944 convention in Bretton Woods, N.H. The American currency alone was made exchangeable into gold. The other currencies, when they got their peacetime legs back under them, were made exchangeable into the dollar.

All was well for a time — indeed, for one of the most prosperous times in modern history. Under the system of fixed exchange rates and a gold-anchored dollar, world trade boomed (albeit from a low, war-ravaged base). Employment was strong and inflation dormant. The early 1960s were a kind of macroeconomic heaven on earth.

However, by the middle of that decade it had come to the attention of America’s creditors that this country, fighting the war in Vietnam, was emitting a worryingly high volume of dollars into the world’s payment channels. Foreign central banks, nervously eyeing the ratio of dollars outstanding to gold in the Treasury’s vaults, began prudently exchanging greenbacks for bullion at the posted rate of $35 per ounce. In 1965, William McChesney Martin, chairman of the Federal Reserve, sought to reassure the quavering dollar holders. He lectured the House Banking Committee on the importance of maintaining the dollar’s credibility “down to the last bar of gold, if that be necessary.”

Necessary, it might have been, but expedient, it was not, and the Nixon administration, on Aug. 15, 1971, decreed that the dollar would henceforth be convertible into nothing except small change. The age of the pure paper dollar was fairly launched.

In the absence of a golden anchor, the United States produced as many dollars as the world cared to absorb. And the world’s appetite was prodigious. “Balance of payments” crises were now, for this country, things of the past. “Liquidity,” that bubbly speculative elixir, gurgled from the founts of the world’s central banks.

It was the very lack of gold-standard inhibition that permitted the buildup of titanic dollar balances overseas. At the end of 2007, no less than $9.4 trillion in dollar-denominated securities were sitting in the vaults of foreign investors. Not a few of these trillions were the property of Asian central banks. So, although the United States has run heavy and persistent current account deficits — $6.7 trillion in total since 1982 — they have been “deficits without tears,” to quote the French economist Jacques Rueff. The dollars American debtors sent abroad America’s creditors sent right back in the shape of investments in American stocks, bonds and factories.

Under the Bretton Woods system, worried foreign creditors would long ago have cleaned out Fort Knox. But, conveniently, the dollar is uncollateralized and unconvertible. America’s overseas creditors hold it for many reasons. Some — notably Asian central banks — acquire dollars simply to help make their exports grow. But even the governments that scoop up dollars for no better reason than to manipulate their own currency’s value presumably put some store in the integrity of American finance.

As never before, that trust is being put to the test. In the best of times, the Treasury and the Federal Reserve pretended as if the dollar were America’s currency alone. Now, in some of the worst of times, Washington is treating its vital overseas dollar constituency as if it weren’t even there.

Which failing financial institution will the administration pluck from the flames of crisis? Which will it let roast? Which market, or investment technique, will the regulators bless? Which — in a capricious change of the rules — will it condemn or outlaw? Just how shall the Treasury secretary spend the $700 billion he’s begging for? Viewed from Wall Street, the administration’s recent actions appear erratic enough. Seen from the perch of a foreign investor, they must look very much like “political risk,” a phrase we Americans usually associate with so-called emerging markets, not with our own very developed one.

Where all this might end, nobody can say. But it is unlikely that either the dollar, or the post-Bretton Woods system of which it is the beating heart, will emerge whole. It behooves Barack Obama and John McCain to do a little monetary planning. In the absence of faith, what stands behind a faith-based currency?

James Grant, the editor of Grant’s Interest Rate Observer, is the author of the forthcoming “Mr. Market Miscalculates: The Bubble Years and Beyond.”

vina · Post by **vina** » 24 Sep 2008 15:43

Basically the Bretton Woods laid the foundation for the US Global economic hegemony in the 20th Century, just like Great Britain's had been in the 19th Century. Germany did everyone a great favor by destroying Great Britain economically and ruining the old colonial powers of Europe, UK and France. The world would not be free if that hadn't happened.

The US is /was a "good' hegemon and played crucial role in setting up a free trade system and access to resources and raw materials based on functioning markets. It rebuilt devastated Europe and Japan and NICs in Asia and created unprecedented prosperity. No more need for imperialism /colonialism (atleast in theory).. All you needed was the good ol' green back and you could buy anything you wanted from wherever you want..

. No need for war, when you can trade instead..

Satya_anveshi · Post by **Satya_anveshi** » 24 Sep 2008 20:38

Hello Kgoan (if you are listening),

What is your take on the current turmoil in US/Global economy? Waiting to hear from you.

Thanks in advance.

John Snow · Post by **John Snow** » 24 Sep 2008 21:12

Maulana Al Bin Vina Jihadi e Hind, sirji
Benevolent/ "good' hegemon is a oxy moron.
COnsider the fact that The US and Spain did exactly what Britain, France, Germany did in Orient to the Latin America. The aneexation of Hawai, the conquest of phillapines, The control Latin american resources, Banana wars, even recent conquest of Paanama under Bush I the great are some examples.

The restoration of Europe and Japan after WW II was in itself a strategy to contain USSR whose GDP along with US was grestly helped by the war.

Its the National Interests period.

vina · Post by **vina** » 24 Sep 2008 22:02

Snow Garu, The Monroe Doctrine came into being to prevent any European interference in South America and was a good reason why many countries in South America could throw off the European colonial yoke. The fact that it also became a tool by which America became the hegemon in that region is a different matter.

John Snow · Post by **John Snow** » 25 Sep 2008 00:23

Daimler may sell remaining Chrysler stake
German auto giant in talks to sell remaining 19.9% of U.S. automaker to Cerberus Capital Partners, spokesman confirms.
DETROIT (AP) -- Germany's Daimler AG said Wednesday that it is in talks to sell its remaining stake in Chrysler LLC to private-equity firm Cerberus Capital Management LP.

Daimler (DAI) spokesman Han Tjan confirmed a report in Germany's Manager Magazin that the company is in talks to sell the 19.9% it owns in the U.S.-based automaker, but he declined to provide further details.

Cerberus Capital Management LP bought 80.1% of Chrysler from Daimler in August 2007 in a $7.4 billion deal. The sale ended a stormy nine-year partnership between Daimler and Auburn Hills, Mich.-based Chrysler.

Since Cerberus took control of the automaker, Chrysler has faced tough times. The U.S. economy and auto sales have slumped, and $4-per-gallon gasoline has sent consumers away from its trucks and sport utility vehicles toward small cars, where Chrysler's lineup is thin. Sales are off 24% through August.

As a private company, Chrysler does not have to report its earnings, but reporters and analysts were able to calculate Chrysler's performance from Daimler's financial statements. Buying 100% of the company would make Chrysler's earnings completely private.

On Tuesday top Chrysler executives told dealers that the company has lost $400 million this year. Chief Executive Bob Nardelli and Vice Chairman Jim Press used a satellite feed to address dealers who gathered in movie theaters across the country for a three-hour presentation on the state of Chrysler's business and future products.

Chrysler spokesman Stuart Schorr would not comment on what was discussed with dealers, but said the company has only talked about its performance for the first half of the year.

"There was no new financial information announced yesterday," he said.

The Chrysler executives, according to a dealer who saw the presentation, did not state the time frame for the $400 million loss, nor did they say if it was an operating or net loss. The dealer did not want to be identified because the meetings were private.

Chrysler also has issued a statement in the past saying it lost $400 million in the first quarter.

Daimler has indicated through its own financial results last month that Chrysler lost an estimated $510 million in the first quarter. Chrysler lost $1.6 billion in 2007.

How electric cars get their vroom
The presentations to dealers came just after Chrysler publicly unveiled three rechargeable electric car prototypes and promised to bring one of them to market in 2010.

Efraim Levy, a senior industry analyst with Standard & Poor's, said in a note to investors that the value of Daimler's stake in Chrysler has dropped. He maintained a "Hold" recommendation on Daimler shares.

"Given the materially weakened automotive retail environment, sharply lower Chrysler sales volume, and decreased valuation for publicly traded U.S.-based automakers since the 2007 transaction, we think DAI's Chrysler stake is worth much less now than it was at that time," Levy wrote. "However, we see little advantage in DAI keeping the minority interest."

Detroit wants its bailout too

svinayak · Post by **svinayak** » 25 Sep 2008 03:22

Buffett has made missteps in the past by venturing into Financial ( salmon Brothers). He buying preferred Stocks paying effective 14% interest! It is better buy Berkshire Hathaway than GS itself. Buffet stock lost 40% this year. People have started nibbling on his stock, which is very expensive - BRK.B $4300/per share!

Irrespective Bail out, no body is addressing the effect of unwinding of 62 Trillions CDS SWaps.! At the end of 3rd (after Sept 30) there talk that most of the clients in majority of hedge funds have already placed orders to redeem their investments b/c of ban on shorting, which is bread & butter of Hedge funds. They are holding quite bit of CDS swaps, which they will be forced to dump at fire sale prices triggering domino effect on the rest of the financial! This is one of the reasons people have become very defensive. Still one can go against financial with PUT options which is same as SHORTING with limited risk. Housing values will keep on falling with persistent pressure on financial s and in turn value of Treasury bail out effort!

Recently Pakistan banned short sales ( July 14th) with limited sale of equities and a stop at everyday 1% down and 10% up- every day . the graph showed that inspite of it Mkt went down 14%! This shows how the guys at SEC are fools and incompetent.Nearly 1000 stocks are on the list including GE.(2 stocks (?) asked them to take off the list!)

It plays well on the media but in reality, it is useless. People still made money buying puts after the short sale ban! Only thing is that one has to close the position before the expiry day, otherwise it will trigger short sale which is prohibited. Most of the financial are still going down. Inverse ETFs like SKF or RFN are being used against Financial in addition to puts. No one on CNBC wants to explain this. Money Honey ( Maria B.) is a high class prostitute for Industries. So is Larry Kudlow!

joshvajohn · Post by **joshvajohn** » 25 Sep 2008 03:41

For Better Global Economy

1. Traders should neither produce nor work on the basis of rumours in the share markets. Such traders in the stocks should be called criminals who try to control the share values - either increase or decrease through their manipulative engagements.

2. Oil companies and Oil producing countries should maintain the prices at steady increase and not allow the shareholders to determine the prices. If companies and countries play with these prices either by reducing their production or increasing their companies or countries should be banned for few months not to sell any oil to any country. This will burn them. This exploitative business fellows should be brought to Hague.

3. Prices for the basically needed good such as wheat or rice or sugar should be controlled internationally but at the same time subsidiaries for such goods should continue. Otherwise these things will also go up in their prices.

4. Neo-liberal economy has not made any impact on the developed countries rather has damaged them, so it is better to go back to simple buy and sell relationship between individual countries and companies rather than doing through such a complex system of thinking and practices.

These are from non-Economic lay's perspective

svinayak · Post by **svinayak** » 25 Sep 2008 03:52

CEO Clawback Provisions in the Bailout?
Posted by Barry Ritholtz on Wednesday, September 24, 2008 | 07:13 AM

With Congress recognizing the public's dismay over this massive taxpayer giveaway, we are starting to see some serious questions about the folks who drove the financial ship of state aground.

Hence, its time to take a closer look at pay and severance packages for CEOs at investment houses, banks and mortgage lenders, who perversely stand to benefit from the public's largesse.

Here's a quick overview:

• Lehman Brothers Chairman and CEO Richard Fuld Jr. made $34 million in 2007. Lehman (OTC:LEHMQ) filed for Chapter 11 Bankruptcy protection earlier this month. Fuld also sold nearly a half-billion –$490 million – from selling LEH stock;

• Goldman Sachs (NYSE:GS)paid its Chairman and CEO Lloyd Blankfein $70 million last year. Co-Chief Operating Officers Gary Cohn and Jon Winkereid were paid $72.5 million and $71 million, respectively.

• Bears Sterns (BSC JPM)former chairman Jimmy Cayne, rescued by a $29 billion Fed shotgun wedding to JPM, received $60 million when he was replaced;

• American International Group (AIG) chief executive Martin Sullivan got a $14 million compensation package in 2007. He was ousted in June. The insurance giant (NYSE:AIG) is on the receiving end of an $85 billion federal bailout. Robert Willumstad was handed $7 million for his three months at the helm. (Edward Liddy took over as AIG’s chief executive earlier this month).

• Morgan Stanley (MS) Chairman John Mack earned $1.6 million + stock. Chief Financial Officer Colin Kelleher got a $21 million paycheck in 2007. Morgan Stanley also received an expedited approval to become a banking holding company in 48 hours -- that's record time.

• Countrywide Financial's (CWF BAC) founder & CEO Angelo Mozilo, which has been at the forefront of the subprime fiasco, cashed in $122 million in stock options in 2007; His total take is estimated at over $400 million dollars;

• Stanley Neal, who steered Merrill Lynch (NYSE:MER) into financial collapse before being taken over by Bank of America, was given a package of $160 million when he left his post last year; That package makes current CEO John Thain was paid $17 million in salary, bonuses and stock options in 2007 look like a bargain.

• Bank of America (NYSE:BAC) is acquiring Merrill. BofA CEO Kenneth Davis brought home $25 million in 2007.

• JP Morgan Chase & Co. (JPM) Chairman and CEO James Dimon earned $28 million in 2007. Chase acquired troubled investment house Bear Stearns earlier this year with the federal reserve backstopping $29 billion in Bear assets to help get the deal done.

• Fannie Mae (FNM) CEO Daniel Mudd received $11.6 million in 2007. His counterpart at Freddie Mac (FRE) Richard Syron, brought in $18 million. Federal government is taking over the mortgage backers with Herbert Allison to serve as Fannie CEO and David Moffett the new CEO at Freddie.

• Wachovia Corp. (WB) Chairman and CEO G. Kennedy Thompson received $21 million in 2007. He was succeeded by Robert Steel as CEO in July. Steel is slated to get a $1 million salary with an opportunity for a $12 million bonus, according to CEO Watch. Wachovia (NYSE:WB) is one of the banks that could be sold in the midst of the financial crisis.

• Seattle-based Washington Mutual (WM) will pay its new CEO Alan Fishman a salary and incentive package worth more than $20 million through 2009 for taking the helm of the battered bank, according to the Puget Sound Business Journal.

>

Paul · Post by **Paul** » 25 Sep 2008 04:46

Jack Welch says U.S. faces "deep downturn"September 24, 2008 2:15 PM ET advertisement

All Reuters newsNEW YORK (Reuters) - Former General Electric Co Chairman and CEO Jack Welch said the U.S. economy faces a deep downturn in coming quarters, and he supports a proposed $700 billion government rescue package for the financial sector.

"I now believe we are in for one hell of a deep downturn," Welch told the World Business Forum in New York on Wednesday, adding that the first quarter of 2009 would likely be "brutal."

Until recently, Welch said, he had believed the U.S. economy could avoid recession, but he has now changed his mind.

"I am now caving," he said. "Get ready for real tough times. They're coming. There is no credit available."

Welch said mortgage lenders, legislators, investment bankers and others are all to blame for the crisis, which stemmed from easy credit and investors' appetite for yield.

"The problem was money didn't cost anything," Welch said. "People took swings."

Welch praised the actions taken so far by Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and New York Fed President Timothy Geithner, calling them "brilliant public servants" who have "not let ideology get in the way of taking action."

"Thank God we have Bernanke, Paulson and Geithner," Welch said. "We have to act."

He said the U.S. economy would eventually recover, but recovery would likely be gradual -- U-shaped rather than V-shaped.

Asked whether the current crisis would change the character or shape of the U.S. capitalist system, he held his index fingers about 5 inches apart and answered, "For this long."

Welch served as chairman and chief executive of GE from 1981 to 2001 and currently runs an advisory firm for business leaders. He has written or co-written two books on leadership.

He said the biggest change since his GE tenure is that globalization has intensified and the world is more interconnected. As economies become more interdependent, he said, prospects for world peace improve.

'SMART PEOPLE'

In the current environment, Welch said, business leaders should focus on their cost structure, reduce debt, and take care of their best employees. Leaders of organizations must also communicate as often as possible about their vision, he said, and should take advantage of investment opportunities as they arise.

"If you have capital, you can do what (Warren) Buffett did this morning," he said, referring to the billionaire investor's $5 billion investment in Goldman Sachs Group Inc . "That's what smart people do in times like these."

Welch said he supports Republican Presidential nominee John McCain and said he would work for $1 per year on a McCain task force to help the economy if asked to do so. He said McCain's policies were more likely to create jobs than those of Democratic nominee Barack Obama, in part because Obama was overly beholden to labor unions.

The United States functions better when the executive and legislative branches are held by rival political parties, Welch added, so there is an exchange of ideas.

(Reporting by Nick Zieminski; editing by John Wallace) ʘ

Copyright 2008 Reuters

vsudhir · Post by **vsudhir** » 25 Sep 2008 05:33

Headlines from the Drudge reporttell their own story

http://www.drudgereport.com/

MCCAIN SUSPENDS CAMPAIGN TO FOCUS ON ECONOMY; WANTS DEBATE DELAY

SOURCE: House Republicans met in am: Just 4 members support Paulson plan...

BUSH TO ADDRESS NATION:'We Are Facing a Once-in-a-Century Crisis'...

Paulson: Average American 'should be scared'...

Administration accepts executive pay curbs in bailout...

Reid: Bush Guilty of 'Fiscal Dereliction of Duty'...

Jack Welch says U.S. faces 'deep downturn'...

World banks pump more cash into tense markets...

Singha · Post by **Singha** » 25 Sep 2008 08:21

the CEO comp is even more obscene than I thought. my impression was take homes in the
20-40mil range but these guys were feasting on 100s of millions per annum. wow.

never has failure been so profitable and well rewarded

a typical guy who steals a old ladys purse would get 3 yrs RI minimum and these guys get
to retire in the hamptons or gated community in montana and drink fine wines and play golf

Nayak · Post by **Nayak** » 25 Sep 2008 10:35

A Street Where Businesses Still Have Some Sense
http://www.washingtonpost.com/wp-dyn/co ... 73_pf.html

By Marc Fisher
Thursday, September 25, 2008; B01

As each day's news brings more dire warnings of doom and panic, the people in charge tell us how urgent it is that we all bail out huge, rich businesses that massively mucked up their work. Politicians, journalists and business executives alike hide behind thick tapestries of incomprehensible jargon, tossing out words such as "asset-backed securities" and "derivatives" in an effort to convince us that they really understand what's happening.

If they did, they'd explain it in plain English. But they don't. So I visited some folks who know how business is supposed to work -- people who pay their bills on time and create jobs for their neighbors, borrowing only what they can pay back.

On Columbia Pike in Arlington County, a small strip shopping center at South Randolph Street is the picture of stability: five small, family-owned businesses and a church-run thrift shop. There are a vacuum cleaner store, a dry cleaner, a Bolivian restaurant, a hair stylist and a bakery, most owned by immigrants.

Most of the owners say business is soft of late, but nobody's defaulting on loans, no one's behind on rent, no one is laying off workers. They work within their means, something they don't see happening on Wall Street.

"We shouldn't be punished for their errors," says Reena Bawa, an immigrant from India who started out as a stylist at Beauty Fair 25 years ago and bought the shop nine years later. "Everything that's happening now is about power. They were just thinking of themselves, and as a result, the middle class, the people who are straight and smooth, are suffering."

In her business, there are no too-good-to-be-true interest rates, no great bursts of profit. "If we go up 50 cents in price, we lose customers," she says. "If I want to remodel, I might get a loan, but I know where I'm getting the money to pay it, and I don't do it if I can't."

So yes, the shop could use a facelift, and yes, the customer base is getting older, but Beauty Fair has delivered Bawa and her family their American dream. In Burke, where she lives, too many houses have "Foreclosure" signs out front, but hers is not among them -- and will not be.

Next door to the beauty salon, Derek Smith unlocks Vacuums Unlimited for another day of business and waits. Some days now, hours go by without a body coming through the door. "If I don't sell, I don't eat," says Smith, the manager. "I have to talk people into buying a vacuum for $200, when last year, I'd be talking to them about a $400 or $500 vacuum."

Smith, who grew up in the District and lives in Fort Washington, sees Wall Street executives who were sucking in $50 million a year and asks: "After a certain point, what do you need all that money for? You can't spend it all. If I was making $50 million, I'd be creating jobs for people. Instead, the banks were practically giving away loans. You give someone a loan they can't afford, you're not creating something they can leave behind for their kids, you're just putting them in debt, debt, debt, that they can't possibly pay."

Like every other shopkeeper I spoke to, Smith is staking his hopes on Democratic presidential candidate Barack Obama; he's got a poster up in the store. But like the other merchants, he expects that whoever is in charge, this crisis will once again demonstrate that the rich get richer and that the guy who does the right thing has to open his wallet.

"A new house isn't for everyone," Smith says. "Some people taking out loans don't know that, but the banker knows that, and he just looked the other way."

Across the pike, Luxury Auto Sales of Arlington sold 51 cars last month but only 17 so far this month, says salesman Miguel Santos. "Okay, the Dow Jones is down every day, people don't have health insurance, everybody's paying double for food, so much for gas," says Santos, who came to this country from the Dominican Republic 15 years ago. "And everyone is so worried -- 'Oh, my house, how will I pay for my house?' But let me tell you, I say, 'Thank you, America,' because if you work hard and pay your bills, you're going to go somewhere."

Santos says he hasn't taken a vacation in 15 years, and today his daughter is in college.

Another of the used-car salesmen, Nas Nazari, 24, doesn't pretend to understand the intricacies of the financial tomfoolery behind this collapse. He does get the basics: "You have to blame both the bank that made the loans and the borrower who couldn't afford the loan. Both of them are not thinking about tomorrow. In this country, everything is financed: your furniture, your car. That's okay, but when it blows up, the banker, he's always going to be okay. The middle class, we always pay. We have two different classes: people who buy new cars and people who buy used. And we pay."

These businesses survive because the owners know that greed will sink them, that their bottom line is only as strong as their relationships with their customers and that whatever their wares, what they really sell is trust.

Those rules don't change with the size of a business. The difference is that on Columbia Pike, merchants and their customers share a place and know each other. They're in it for themselves, sure, but also for everyone else.

Nandu · Post by **Nandu** » 25 Sep 2008 18:16

Something I posted on another, American, msg board.

Let us say "taxpayers" actually make money off the $700B bailout. How is that a good thing?

I guess it is better than losing money on the deal. However, ...

First of all, everybody says "taxpayer", but what it really means is the Federal Government of the United States. The bailout bill permanently increases the debt of the US government. The debt ceiling has been raised to $11.3T. Let us say, in Fiscal 2010, the bailout has worked and the value of the MBSs that the government has bought has increased to $1T and there is now a liquid market in MBSs again.

So now what happens? The government is sitting on $1T of liquid assets. You think they will just use it to pay down the debt? Think again. There will suddenly be new spending programs, from welfare to defense, that soaks up all of it. The actual taxpayers will never see a penny of it. Even if the President and Congress decides some of it should go back to "the taxpayers", we know very well from actual tax rebate history that it will only be going back to the non-tax-payers, i.e. those of lower income that do not pay that much in taxes in the first place, and it will only be a fraction of the money anyway. The bulk of it will be spend on new government programs.

And then, none of it can be cut back. Once the government adds a new budget item, that is it. It has to be there for ever. There will be too much of a hue and cry if they try to cut it in later years. There is no such thing as a temporary government spending program. But now, the assets they got from MBSs are gone, so the only way to pay for the spending is to raise taxes or go deeper into debt.

In other words, this bailout will lead to a huge and permanent growth in the size of the federal government and its burden on the US economy. Very bad idea.

Nandu · Post by **Nandu** » 25 Sep 2008 18:39

Two news items from lizard land.

Bank run in Hong Kong prompts $500M infusion
http://www.usatoday.com/money/world/200 ... bank_N.htm

Chinese banks told to halt lending to US banks
http://www.reuters.com/article/marketsN ... 3720080925

John Snow · Post by **John Snow** » 25 Sep 2008 23:55

Ok folks its official Pink slips all over in AIG.
DBG in nearby building is already vacant.
They are swicthing off lights in the reception area and security guards areas

All coffee machines are being ripped from walls
While The decider looks like

"Oh Dear caught in the Head Lights"

Getting ready fro unplanned planned vacation.

I thought I was done with that after I left GM (every July forced vacation)

Que Sara Sara... what ever will be will be, meanwhile

Cash is the King
Meanwhile
In God we trust a must!

Kakkaji · Post by **Kakkaji** » 26 Sep 2008 00:28

Congress has a plan

Lawmakers agree on bailout principles to protect taxpayers and ensure oversight.
By Tami Luhby, CNNMoney.com senior writer
Last Updated: September 25, 2008: 2:36 PM ET

NEW YORK (CNNMoney.com) -- Lawmakers have reached agreement on a bipartisan counterproposal to the Bush administration's $700 billion financial bailout plan.

Both parties and the House and Senate agreed Thursday to a set of principles on revisions to the rescue plan, which calls for the Treasury Department to buy up bad mortgage securities from banks in an effort to get them to lend again.

The proposal will help homeowners, curb executive pay packages at participating firms and provide oversight of Treasury's actions, said Sen. Christopher Dodd, D-Conn., a key architect of the congressional effort. He did not provide details but said lawmakers will sit down with Treasury officials to discuss it.

"We've reached a fundamental agreement on a set of principles, one, for taxpayers, which is tremendously important," Dodd said. "We're very confident we can act expeditiously."

At least one prominent Republican says matters still aren't settled.

"House Republicans have not agreed to any plan at this point," said John Boehner, R-Ohio, minority leader.

Instead of receiving the entire sum at one time, Treasury will receive the money in installments, with $250 billion in bailout funds available immediately, the Wall Street Journal reported. Lawmakers also said the deal calls for the government to receive stock warrants of participating companies, the Journal said.

Administration officials said they were pleased that progress is being made.

"We'll want to hear from Secretary Paulson, and take a look at the details," said Tony Fratto, a White House spokesman. "We look forward to a good discussion at the meeting this afternoon."

The provisions that Congress wants to add to the administration's plan should make Americans "legitimately feel better about the overall approach," said Rep. Barney Frank, D-Mass., who heads the House Financial Services Committee.

Taxpayers would be protected under the congressional version of the bailout, said Rep. Spencer Bachus, R-Ala., the top Republican on the House Financial Services Committee. Congress' additions to the proposal call for the Treasury to be "reimbursed for their expenditures," he said.

Lawmakers said they wanted to send a message to the markets to calm down. Wall Street heard the message, sending the Dow Jones Industrial Average up more than 300 points after the agreement was announced. It then settled back to a gain of 200 points.

First Published: September 25, 2008: 1:28 PM ET

svinayak · Post by **svinayak** » 26 Sep 2008 02:22

Credit Default Swaps Explained
Posted Wed Sep 24, 02:14 pm ET
Posted By: Dirk van Dijk, CFA

At this point, it makes sense to explain just what a credit default swap, or CDS, is. They were the key reason for the demise of AIG (AIG), and for the fear that if they were not bailed out that the whole ball of wax would come unglued. Essentially it is an insurance policy, but an unregulated one (the State of N.Y. just recently said that it would start to regulate part of the market -- can you say closing the barn door?).

If you buy a bond from, say, General Motors (GM), you are lending them money for a set interest rate for a specified length of time. You face two sets of risks in doing so. The first is that they go bankrupt and don't pay you back. The second is that interest rates rise and the bond falls in value (think of bond prices and interest rates as being on opposite sides of a see-saw).

With a CDS, you could go out and find someone who will insure against the default risk. For a given premium, the seller of the CDS will pay off on the GM bond if GM goes belly up. Now, if it was from a real insurance company, the insurance company would be regulated and would have to hold enough money in reserve to pay you off in case GM actually did go belly up. This is just like how a Life Insurance company has to have enough cash on had to pay off on your policy in case you die.

However, since this is an unregulated market, someone can sell you a CDS and blow the money in Las Vegas. In that case, if GM did go belly up, you would just plain be out of luck.

In the case of life insurance, there are strict limits on who can take out a policy on you. You can take out a policy on your own life, and on close family members. In some circumstances you can take out a policy on your business partner, but beyond that there are not many people you can take out a policy on. You have to have what is called an insurable interest; you can't just wander the halls of the hospital looking for people who are unlikely to make it and take out life insurance policies on them.

This is not true for the CDS market. You are perfectly free to take out a "life insurance policy" on GM, GE (GE) or any other firm that issues a bond, and you do not have to be holding the bond. You can even take out a "life insurance policy" on the synthetic garbage the Wall Street has been pumping out.

This ability to buy insurance on things that you have no insurable interest in transformed this market into a huge casino. It is totally unregulated, and even the new steps by the New York State Insurance Commissioner, Eric Dinnallo, only covers the least egregious part of the market, where people actually have an insurable interest (i.e. hold the underlying bond). Regulation of this market was specifically prohibited under the Commodity Futures Modernization Act of 2001. That provision was slipped into the bill in the dead of night by our old friend Senator Phil Gramm of Texas -- now Vice Chairman of UBS (UBS).

People use this market to bet on the credit worthiness of companies, and often hedge funds will hold both long and short positions on the same underlying credit. For example (NOTE: figures are made up here, not a reflection of the actual creditworthiness of GE), the hedge fund might make a bet that it is worthwhile to get $200,000 up front and be on the hook for $10 million if GE defaults sometime in the next five years. Then after a few months, GE raises a bunch of capital which significantly strengthens its balance sheet and lowers the risk of default, so it can make a bet with someone else who would now be willing to take just $100,000 to bet that GE will not go belly up within then next five years. The hedge fund could have a perfectly matched book, so in theory they were totally indifferent if GE survives or not.

However, suppose that the person who they made the bet with goes bankrupt themselves and can't pay up. That hedge fund might then have a hard time paying its counter party. This is where the fear of "cascading cross defaults" comes in.

All this is to say that the CDS market has seen more growth than practically any market in the history of mankind. It is currently at over $62 TRILLION, up from under $1 Trillion a decade ago. It would not take a very big percentage of that market to fail to leave a very big mark on the world financial system. When the dust settles from all the current mess, bringing this market under control has to be high on the agenda.

I would suggest that the contracts be standardized and that they be traded on an exchange, where the exchange itself acts as the counter-party for each trade (this is how the commodity exchanges work). It might also make sense to require that any party buying a CDS have an insurable interest in the underlying bond (i.e. that they are using it to hedge, not speculate).

This however, is work for the next Congress and Administration. First we have to put out the fire with a well crafted and responsible bailout bill to prevent these cascading cross defaults from occurring. The original Paulson proposal was not well crafted, yet Congress doesn't appear likely to make significant improvements to the bill.

Note here:

Come end of Sept 30th or the 3rd Qtr there may massive liquidation of Hedge funds ( stung by Ban on Short sales) by request by Private investors disillusioned with these funds. They are allowed to redeem only once at the end each Qtr! These Hedge funds are holding these mega toxic CDS SWAPS! ready to dump onto the open!

Nandu · Post by **Nandu** » 26 Sep 2008 05:54

Bailout plan "falls apart".

http://news.yahoo.com/s/ap/20080925/ap_ ... l_meltdown

WASHINGTON - Urgent efforts to lash together a $700 billion rescue plan for the national economy broke apart Thursday night, hours after key lawmakers had declared they had reached a deal.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke sped to Capitol Hill to try to revive or rework the proposal that the administration says must be quickly approved by Congress to stave off economic disaster.

Congressional leaders were to meet with the economic chiefs into the night.

WaMU folds.
http://news.yahoo.com/s/nm/20080926/ts_ ... organ_news

JPMorgan Chase & Co is expected to acquire the deposits of Washington Mutual Inc, the largest U.S. savings and loan, in a government-brokered bailout, the Wall Street Journal reported on Thursday.

svinayak · Post by **svinayak** » 26 Sep 2008 07:51

While the exact structure of the transaction wasn't immediately known, J.P. Morgan is expected to acquire Washington Mutual's deposits and branches, as well as other operations. The deal isn't expected to result in any hit to the Federal Deposit Insurance Corp.'s bank-insurance fund, according to a person familiar with the arrangement. Some analysts have worried that a WaMu failure could cost more than $20 billion.

Federal regulators have been heavily involved in orchestrating the transaction, which comes as WaMu grapples with its bad mortgage loans. Regulators were hoping to fend off a collapse of WaMu, which, with more than $300 billion in assets, would mark by far the largest banking failure in U.S. history.

svinayak · Post by **svinayak** » 26 Sep 2008 07:56

U.S. losing financial superpower status: Steinbrueck
By William L. Watts, MarketWatch
Last update: 6:18 a.m. EDT Sept. 25, 2008
Comments: 537

LONDON (MarketWatch) -- Germany's finance minister on Thursday laid the blame for the global banking crisis on the Anglo-American free-market model's quest for ever-higher near-term profits, predicting the United States would soon lose its role as the world's dominant financial power.

"The U.S. will lose its status as the superpower of the global financial system, not abruptly but it will erode," Finance Minister Peer Steinbrueck told the lower house of Germany's parliament in Berlin, according to published reports. "The global financial system will become more multi-polar."

Steinbrueck criticized the United States for failing to adequately regulate investment banks and said free-market policies embraced by the United States and Great Britain that emphasized a short-term "insane drive for higher and higher profits" were partly to blame for the crisis.
"Wall Street will never be what it was," he said.

The finance minister said he would push for a global ban on speculative short selling and would use next month's meeting of the Group of Seven finance ministers and central bankers in Washington to press for new rules that would prevent banks from fully securitizing loans and selling them to third parties.

Steinbrueck said U.S. authorities were late in undertaking rescue efforts, but said he welcomed the decision to attempt to bail out only organizations whose collapse would threaten the world financial system.

He repeated that he felt there was no need for Germany or Europe to echo the U.S. Treasury's proposal to spend around $700 billion to buy up toxic assets from distressed banks' balance sheets, saying the financial crisis is largely an "American problem." The minister warned, however, that the fallout from the crisis would make for lower growth in the near future and eventually impact the labor market. End of Story
William L. Watts is a reporter for MarketWatch in London.