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Investment Portfolio: Spam and Shotgun Shells

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  • Investment Portfolio: Spam and Shotgun Shells

    Lehman Files for Bankruptcy; Merrill Is Sold

    Fed to Loan A.I.G. $85 Billion in Rescue

    Krugman: Financial Russian Roulette

    Not exactly the end of the world, but man what a mess. Let the marginally-informed discussion begin!
    In game handle: Steel Scion
    sigpic

  • #2
    Re: Investment Portfolio: Spam and Shotgun Shells

    Originally posted by Steeler View Post
    Lehman Files for Bankruptcy; Merrill Is Sold

    Fed to Loan A.I.G. $85 Billion in Rescue

    Krugman: Financial Russian Roulette

    Not exactly the end of the world, but man what a mess. Let the marginally-informed discussion begin!
    Let them fail! Let them fail! Let them fail!

    Should have let Freddie and Fannie fail as well. And all the others. We need some free market action.
    Iím not racists, I have republican friends. Radio show host.
    - "The essence of tyranny is the denial of complexity". -Jacob Burkhardt
    - "A foolish consistency is the hobgoblin of little minds" - Emerson
    - "People should not be afraid of it's government, government should be afraid of it's People." - Line from V for Vendetta
    - If software were as unreliable as economic theory, there wouldn't be a plane made of anything other than paper that could get off the ground. Jim Fawcette
    - "Let me now state what seems to me the decisive objection to any conservatism which deserves to be called such. It is that by its very nature it cannot offer an alternative to the direction in which we are moving." -Friedrich Hayek
    - "Don't waist your time on me your already the voice inside my head." Blink 182 to my wife

    Comment


    • #3
      Re: Investment Portfolio: Spam and Shotgun Shells

      Originally posted by El_Gringo_Grande View Post
      Let them fail! Let them fail! Let them fail!

      Should have let Freddie and Fannie fail as well. And all the others. We need some free market action.
      Well personally for my situation I am glad they didn't. With the fallout many people are pulling their money out of the stock market and putting them into mortgage bonds which lowers interest rates on a 30yr fixed. As of 9/16 a 30year fixed interest rate is sitting at %5.75 which is down from %6.3 on Fri 9/12 and are expected to continue to drop. I put a bid in on a house on 9/12 so this is all good for my situation.
      sigpic

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      • #4
        Re: Investment Portfolio: Spam and Shotgun Shells

        Originally posted by Drizzid View Post
        Well personally for my situation I am glad they didn't. With the fallout many people are pulling their money out of the stock market and putting them into mortgage bonds which lowers interest rates on a 30yr fixed. As of 9/16 a 30year fixed interest rate is sitting at %5.75 which is down from %6.3 on Fri 9/12 and are expected to continue to drop. I put a bid in on a house on 9/12 so this is all good for my situation.
        I agree. I was being a smart ass and fulfilling Steelers request for marginally informed discussion.
        Iím not racists, I have republican friends. Radio show host.
        - "The essence of tyranny is the denial of complexity". -Jacob Burkhardt
        - "A foolish consistency is the hobgoblin of little minds" - Emerson
        - "People should not be afraid of it's government, government should be afraid of it's People." - Line from V for Vendetta
        - If software were as unreliable as economic theory, there wouldn't be a plane made of anything other than paper that could get off the ground. Jim Fawcette
        - "Let me now state what seems to me the decisive objection to any conservatism which deserves to be called such. It is that by its very nature it cannot offer an alternative to the direction in which we are moving." -Friedrich Hayek
        - "Don't waist your time on me your already the voice inside my head." Blink 182 to my wife

        Comment


        • #5
          Re: Investment Portfolio: Spam and Shotgun Shells

          This is pretty serious. I was surprised to hear about the AIG buyout. The federal government cannot afford to do this right now with two active wars going on and a record deficit that's expected to reach $500 billion next year. Obviously Paulson and Bernanke thought they could not afford not to keep AIG afloat (and Bear Stearns, and Freddie and Fannie). It may very well stave off another great depression, but instead we're going to be saddled with an increasingly heavy debt for decades to come.

          Not good news, Americans. Not so 'fundamentally sound.' I don't think you'll be hearing that anymore, nor will you be hearing about tax cuts.

          Comment


          • #6
            Re: Investment Portfolio: Spam and Shotgun Shells

            Guess I'm glad I went with another insurance provider over a year ago. AIG was alright, but I found lower rates.

            One side of me goes "WTH!? ... crazy, make it stop!" the other half of me hopes it all fails, and sees what comes up out of the ashes.

            Though the latter half fails to remember that aside from observing all of this happening, I'm also affected by it as I'm living in this date and time and country when it occurs :) Friggen detachment...
            "But way back where I come from, we never mean to bother. We don't like to make our passions other peoples' concern." -Dar Williams
            Former Captain of the 55th Infantry Division

            Comment


            • #7
              Re: Investment Portfolio: Spam and Shotgun Shells

              Originally posted by AMosely View Post
              Not good news, Americans. Not so 'fundamentally sound.' I don't think you'll be hearing that anymore, nor will you be hearing about tax cuts.
              Of course you will. Don't you know that when the economy is bad, the best thing you can do is lower taxes? Come to think of it, when the economy is good, the best thing you can do is lower taxes! It works for everything!
              In game handle: Steel Scion
              sigpic

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              • #8
                Re: Investment Portfolio: Spam and Shotgun Shells

                This is the collapse of money, not the economy. And good riddance. We're in for quite a ride in the next 30 years. Avoid cities, if possible.

                Comment


                • #9
                  Re: Investment Portfolio: Spam and Shotgun Shells

                  Originally posted by Steeler View Post
                  Of course you will. Don't you know that when the economy is bad, the best thing you can do is lower taxes? Come to think of it, when the economy is good, the best thing you can do is lower taxes! It works for everything!
                  Also good for the common cold, psoriasis and arthritis.
                  Iím not racists, I have republican friends. Radio show host.
                  - "The essence of tyranny is the denial of complexity". -Jacob Burkhardt
                  - "A foolish consistency is the hobgoblin of little minds" - Emerson
                  - "People should not be afraid of it's government, government should be afraid of it's People." - Line from V for Vendetta
                  - If software were as unreliable as economic theory, there wouldn't be a plane made of anything other than paper that could get off the ground. Jim Fawcette
                  - "Let me now state what seems to me the decisive objection to any conservatism which deserves to be called such. It is that by its very nature it cannot offer an alternative to the direction in which we are moving." -Friedrich Hayek
                  - "Don't waist your time on me your already the voice inside my head." Blink 182 to my wife

                  Comment


                  • #10
                    Re: Investment Portfolio: Spam and Shotgun Shells

                    I've been informed that the government makes better decisions than the free market. (Not perfect. Just better.) So, assuming that's true, just get it over with and nationalize the whole mess. Eliminate the stock market, too. Private investors have demonstrated that they don't know what they're doing.

                    Should we allow small business to continue to exist? After all, we can't vote them out if we don't like the way they act. At best, we can crank up regulations to drive them out of business.
                    Dude, seriously, WHAT handkerchief?

                    snooggums' density principal: "The more dense a population, the more dense a population."

                    Iliana: "You're a great friend but if we're ever chased by zombies I'm tripping you."

                    Comment


                    • #11
                      Re: Investment Portfolio: Spam and Shotgun Shells

                      Well, we're not really talking about the faults of small business here, nor should we really be calling for more draconian regulation. According to what I've been reading, what we should be doing is enforcing the regulations that are already on the books, and for good reason:
                      http://bigpicture.typepad.com/commen...tory-exem.html
                      Originally posted by The Big Picture
                      As we learn this morning via Julie Satow of the NY Sun, special exemptions from the SEC are in large part responsible for the huge build up in financial sector leverage over the past 4 years -- as well as the massive current unwind

                      Satow interviews the above quoted former SEC director, and he spits out the blunt truth: The current excess leverage now unwinding was the result of a purposeful SEC exemption given to five firms.

                      You read that right -- the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.

                      Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1.

                      Who were the five that received this special exemption? You won't be surprised to learn that they were Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley.

                      As Mr. Pickard points out that "The proof is in the pudding ó three of the five broker-dealers have blown up."
                      In game handle: Steel Scion
                      sigpic

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                      • #12
                        Re: Investment Portfolio: Spam and Shotgun Shells

                        Originally posted by Steeler View Post
                        Well, we're not really talking about the faults of small business here, nor should we really be calling for more draconian regulation. According to what I've been reading, what we should be doing is enforcing the regulations that are already on the books, and for good reason:
                        http://bigpicture.typepad.com/commen...tory-exem.html
                        Weren't "special exceptions" at the heart of the Enron failure?
                        Iím not racists, I have republican friends. Radio show host.
                        - "The essence of tyranny is the denial of complexity". -Jacob Burkhardt
                        - "A foolish consistency is the hobgoblin of little minds" - Emerson
                        - "People should not be afraid of it's government, government should be afraid of it's People." - Line from V for Vendetta
                        - If software were as unreliable as economic theory, there wouldn't be a plane made of anything other than paper that could get off the ground. Jim Fawcette
                        - "Let me now state what seems to me the decisive objection to any conservatism which deserves to be called such. It is that by its very nature it cannot offer an alternative to the direction in which we are moving." -Friedrich Hayek
                        - "Don't waist your time on me your already the voice inside my head." Blink 182 to my wife

                        Comment


                        • #13
                          Re: Investment Portfolio: Spam and Shotgun Shells

                          Gee, the SEC sure made good decisions here, huh? I'm sure glad it "protected" us from an unrestrained free market.

                          The SEC gives the illusion of protection, and in doing so, absolves investors of looking harder at where they're putting their money. Another case where the regulator bends to become the servant of the richer regulated.
                          Dude, seriously, WHAT handkerchief?

                          snooggums' density principal: "The more dense a population, the more dense a population."

                          Iliana: "You're a great friend but if we're ever chased by zombies I'm tripping you."

                          Comment


                          • #14
                            Re: Investment Portfolio: Spam and Shotgun Shells

                            ScratchMonkey, I can't tell what you're arguing. Do you think the SEC should have stuck to it's guns and maintained their debt-to-net ratio rules, or do you think that there should never have been any rules to begin with?
                            Last edited by Steeler; 09-19-2008, 10:40 AM. Reason: grammar nazi dun come callin'
                            In game handle: Steel Scion
                            sigpic

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                            • #15
                              Re: Investment Portfolio: Spam and Shotgun Shells

                              Moral hazard issues abound, but IMO this is the sort of market distress that government has an appropriate role. The new instrument to buy these distressed assets is a terrific idea and may wind up being a good investment for the US taxpayer (and US debt owner, yay them).

                              There was an interesting and helpful analysis of "what's been going on" in yesterday's NYT: http://freakonomics.blogs.nytimes.co...ial-upheavals/

                              Several things have been happening lately. As I think many know, most of this crisis rests with the housing market's sudden correction. Much of the debt associated with real estate was bundled into CDOs. I won't rehash the details of all of that. What is important to understand is the accounting principle of "mark to market". When a business assigns values to its assets, it can't just make up a number. It must base the assets' values on comparable assets in the market. Makes sense right?

                              Unless of course you happen to be sitting on top of a bunch of assets that are extremely distressed. These CDOs, everyone understands, are not worthless, and yet no-one is buying them right now because no-one understands the risk. Moody's and S&P told us forever that these were bomber-proof assets and we all know that's not true. But the mark-to-market is making these assets look close to worthless today, which is sorta like telling someone in Houston (where we had a hurricane last week) who put their house on the market two weeks ago that since no-one is making an offer they must assess the home's value at $0.

                              So these fin. institutions have been marking their assets to market and their balance sheets have been shrinking and this kicks in some contractual obligations they have with any short-term debt, since now the ratio of assets to debt has changed. Any of us who have borrowed know that it's easier to get money from a bank if you don't need it - i.e. you're camping out on a fat pile of cash with valuable assets and a good income
                              . If you really need the cash because your pile of cash has dwindled and your assets are gone and your "cash from operations" isn't looking so good right at the moment, then you're going to pay higher interest.

                              This has happened. The combination of the housing dip with the CDOs' risk being unknown has resulted in sky-high short-term debt costs for financial institutions sitting on these CDOs and unable to sell them. Look for FASB to establish new standards around the "mark-to-market" rules in place.

                              The second big issue is naked short-selling. Instead of writing up a long technical boring description of that, I suggest folks hop over to the wiki and hope the info there is basically accurate. ;)

                              What I do want to point out is the math of naked short selling. Suppose that instead of leejo the extraordinarily good-looking, charming, and intelligent former fps player and current forum loudmouth, I were leejo the market maker. With me so far? OK now imagine that I'm interesting in the Bank of Fubar and want to open a long position on that business. As I buy shares, the price goes up, so opening my position and increasing my long position costs more and more leejo treasure to increase my position and my profit. This has an immediate cash impact, so leejo can only buy as many shares as available cash allows.

                              Contrast that with opening a short position. Suppose that I think that Bank of FUBAR now has the crosshairs on it and I want to short it as much as possible. When I open a short position, I create an obligation on my balance sheet (I owe someone X shares at some point in the future) and I receive cash from the proceeds of the sale. What's not to love? I get to keep the cash I have and even add to it. Since the market makers also happen to be these distressed financial institutions, it makes a lot of sense to preserve cash as much as possible and to execute trades that add to available cash - selling long positions and opening short positions.

                              One of the SEC's many roles in all of this is to determine and enforce when a short-seller must deliver the actual borrowed shares. The degree to which the window is small or large is basically a measure of how levered these trades can be. If I have to deliver the borrowed shares on the same day as the close of the trade, then it has the same cash impact as a long position and ensures that various market makers don't dogpile on a distressed business to generate fast, free cash. If I don't ever have to deliver the borrowed shares, then I could sell a million zillion shares of a stock when in reality only 250m shares exist. Obviously this dilutes the value of the actual shares!

                              All of this is to say that the SEC doesn't, I think, provide the illusion of protection. It does provide SOME protection. People who think it provides protection are equally mistaken, because in the markets there is only one person interested in you.

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