It is hard for people to understand what ‘capital’ is. Just like, the difficulties in understanding what ‘value-added labor’ is and how ‘socialism’ is actually good for manufacturing systems. The complex modern social systems we see in all ‘advanced’ countries are always under siege from people who wish to dump immense mountains of debt on top of capitalist systems that tap into manufacturing processes. Mass production is not like simple trading of valuables. It is an interesting process that works only so long as the labor class can get part of the profits and thus, be able to buy the output of their own labor.
“The analysis of this paper suggests that recent credit market prices are actually highly consistent with fundamentals. A structural framework confirms that bonds and credit derivatives should have experienced a significant repricing in 2008 as the economic outlook darkened and volatility increased. The analysis also confirms that severe mispricing existed in the structured credit tranches prior to the crisis and that a large part of the dramatic rise in spreads has been the elimination of this mispricing.”
The invisible hand of Adam Smith’s markets are welcome when we have inflationary bubbles. When the invisible hand chops the value of inflated assets back down to historic norms, it is hated and the bankers move heaven and earth to prevent this invisible hand from doing its work.
The concept that things must always be in BALANCE is key to running a sane and healthy economic system. When one detects instability, using statistics, graphs, charts, numbers, tabulations, censuses, and basic bookkeeping, then it is imperative to correct the imbalance and bring things back to ‘normal’.
Ergo: something is growing very fast, no matter what it is, it is bad in the long run. It will shrink just as swiftly, if not faster, if left unattended. The value of the credit derivatives grew at an insane speed and now are shrinking at an insane speed. This shrinkage shows up in the numbers: the rescue numbers are now well into the trillions and not even slightly slowing down.
This contrasts sharply with the analysis that underlies most of the financial rescue programs launched by the Federal Reserve and the Treasury Department. The white paper released to support the Private-Public Investment Partnerships, the program that seeks to encourage private firms to buy toxic assets with government subsidized loans, took the opposite point of view.
I am so glad the opposing professors are now moving to shoot down this ridiculous ‘Pirate-Public Infestation Partnership. Anything created by a group of Goldman Sachs gnomes will be a rip off scheme. They really do imagine, they can fool everyone.
Many prominent economists–including such diverse types as Anna Schwartz and Paul Krugman–have taken with this official view, saying the government was mistaking a solvency crisis for a liquidity crisis. This latest paper effectively demolishes the “fire sale” view. It draws three important conclusions.
The Chinese even told us, quite loudly, this is a solvency crisis. Anyone looking at the ocean of red ink that has washed over Japan, the UK and the US can see, this is a solvency problem, not a lack of enough lending.
- Many banks are now insolvent. “…many major US banks are now legitimately insolvent. This insolvency can no longer be viewed as an artifact of bank assets being marked to artificially depressed prices coming out of an illiquid market. It means that bank assets are being fairly priced at valuations that sum to less than bank liabilities.”
- Supporting markets in toxic assets has no purpose other than transfering money from taxpayers to banks. “…any taxpayer dollars allocated to supporting these markets will simply transfer wealth to the current owners of these securities.”
- We’re making it worse. “…policies that attempt to prevent a widespread mark-down in the value of credit-sensitive assets are likely to only delay – and perhaps even worsen – the day of reckoning.”
Now, these professors must hike to DC to yell. Maybe, lie in front of GS limos in Manhattan. Urge their students to pick up pitchforks and go forth, to wave them and yell. Anything short of this won’t work. We can’t just sit around and yap. We have to go into the streets which is why I encourage everyone to attend local April 11 demonstrations. The whole world is waiting for us to make some real noise and time is slipping by and GS never sleeps when there is an opportunity to finagle some money from us.
The Securities and Exchange Commission today holds its first policymaking session of the year, and under political pressure plans to introduce several proposals to restrict the short-selling of stock that many economists, including those inside the agency, say are likely to have little effect.
A number of financial firm executives, investors and lawmakers have blamed aggressive short-selling for collapsing the stocks of banks and other Wall Street companies last fall. In a short sale, traders make money when a firm’s shares decline in value.
Today’s meeting, the first held under new SEC Chairman Mary L. Schapiro, will examine several proposals to curb short sales. The commission is expected to formalize the proposals, allowing for 60 days of comment before deciding to vote on whether to implement them…
The proposals would try to make it more difficult for short sellers to push down a stock’s price when it is already declining. One way to do so would be to allow speculators to bet against a stock only when it moves at a higher price than its last trade. On any given day, a stock may trade more than tens of thousands of times.
A more dramatic proposal would ban short-selling in a stock if it has declined by a set percentage in a day.
One way to attract more investors is to kill the markets. If we have only ‘up’ encouragements, we get ‘up’ markets only they are fakes. In actuality, this leads to stagnant markets. In previous economic collapses, starting way back in Holland, in 1650, the shorting of paper issues frightened people who were of little wit and wanted their precious papers to only go up and up and up.
This is why smart dealers watch the weather, hobnob with each other, and gossip all the time. They want to quickly grab some script and play the odds when there are instabilities. When the markets are rigged, they lose interest and go away. This is why no stock market has ever tried to forbid short sales for very long. The traders simply pack their bags and go to greener pastures and the ‘protected’ market withers and dies.
This is why these ‘plug the hole in the dike’ plans fail in the long run. The invisible hand of the market has to be allowed to act. This is why we need risk: everyone in a protected market will do dumb things if they are not instantly punished.
A congressional panel overseeing the U.S. financial rescue suggested that getting rid of top executives and liquidating problem banks may be a better way to solve the economic crisis.
The Congressional Oversight Panel, in a report released yesterday, also said the Treasury may be relying on too rosy an economic scenario to guide its $700 billion bailout, and declared that the success of the program after six months is “mixed.” Three of the group’s members disagreed with at least some of the findings….
All depressions have the same depressing arc: first, denial. Then, manic attempts at preventing bear traders from doing business. Then, the artificial restoration of capital via government debts being moved to private ledgers. Then, the major bail outs whereby the government takes over all systems and assumes all risks and is the insurer of last resort and is the only source of lending. Then, the government goes bankrupt due to either hyper-inflation or revolutionary violence.
In the report, Warren’s panel said “it is possible that Treasury’s approach fails to acknowledge the depth of the current downturn and the degree to which the low valuation of troubled assets accurately reflects their worth.”
Goldman Sachs runs the Treasury and JP Morgan is one of the owners of the Federal Reserve. Between them, we get this insane and uneconomic system.
The group said it was offering an examination of “potential policy alternatives” for the Treasury and not endorsing any shift at this time.
How about taking over GS and JPM and closing them down?
Still, it said a bank liquidation would be “least likely to sap the patience of taxpayers” and “provides clarity relatively quickly” to the markets.
I bet, this would be greeted with joy.
“Allowing institutions to fail in a structured manner supervised by appropriate regulators offers a clearer exit strategy than allowing those institutions to drift into government control piecemeal,” the report said.
The report also said that past successful financial rescues were accompanied by governments’ “willingness to hold management accountable by replacing — and, in cases of criminal conduct, prosecuting — failed managers.”
And that is best of all! Arrest everyone for fraud, civil disobedience, bribery, moral degeneracy and of course, terrorism. It is beyond simple.
The first thing we need, in the wake of the recovery bill, is more recovery bills. The next efforts should be larger, reflecting the true scale of the emergency. There should be open-ended support for state and local governments, public utilities, transit authorities, public hospitals, schools, and universities for the duration, and generous support for public capital investment in the short and long term. To the extent possible, all the resources being released from the private residential and commercial construction industries should be absorbed into public building projects. There should be comprehensive foreclosure relief, through a moratorium followed by restructuring or by conversion-to-rental, except in cases of speculative investment and borrower fraud. The president’s foreclosure-prevention plan is a useful step to relieve mortgage burdens on at-risk households, but it will not stop the downward spiral of home prices and correct the chronic oversupply of housing that is the cause of that.
Sigh. I have lost huge funds in down real estate markets. I have also made killings that got me a lot of money in real estate markets. Just as housing finally is moving back to sane values where normal families can buy them again without taking on immense future debts, people want to go back to the old prices? Eh? Talk about INSANE!!!!
Those prices were wrong, two years ago. They annoyed the hell out of me, two years ago. Small shanties in California’s hot Central Valley shouldn’t cost more than my mansion in New Jersey, within easy commute of Manhattan, did back in 1992. This is sheer lunacy!
We play a free real estate game and we can’t always be winners. The losers get to lose and eventually, winners will get to pick up the pieces and take over. Keeping people in houses they shouldn’t have bought, in the first place, means all the people who buy only what they can afford and don’t play NINJA games, lose. We are punished for playing the game correctly while the dead beats get a new deal….AT OUR OWN EXPENSE since the losses will be made up by MY tax money, for example. NO THANK YOU.
Second, we should offset the violent drop in the wealth of the elderly population as a whole. The squeeze on the elderly has been little noted so far, but it hits in three separate ways: through the fall in the stock market; through the collapse of home values; and through the drop in interest rates, which reduces interest income on accumulated cash. For an increasing number of the elderly, Social Security and Medicare wealth are all they have.
No one making these suggestions mentions our immense and growing public debts. Bailing out the housing speculators and stock speculators will bankrupt America. Then, we have to save everyone who hoped to make money playing these games? Can’t work.
That means that the entitlement reformers have it backward: instead of cutting Social Security benefits, we should increase them, especially for those at the bottom of the benefit scale. Indeed, in this crisis, precisely because it is universal and efficient, Social Security is an economic recovery ace in the hole. Increasing benefits is a simple, direct, progressive, and highly efficient way to prevent poverty and sustain purchasing power for this vulnerable population. I would also argue for lowering the age of eligibility for Medicare to (say) fifty-five, to permit workers to retire earlier and to free firms from the burden of managing health plans for older workers.
There is one major problem here: we can’t do this because we no longer have a capitalist system. Labor can’t share capital if there is no capital. The wealth of the very rich came nearly totally from debt creation which they skimmed for their own profits. This is, in other words, illicit profits, not PRODUCTIVE profits. Proof is simple: our trade is in the red, our government is in the red and debt on business has doubled in less than 5 years.
This suggestion is meant, in part, to call attention to the madness of talk about Social Security and Medicare cuts. The prospect of future cuts in this modest but vital source of retirement security can only prompt worried prime-age workers to spend less and save more today. And that will make the present economic crisis deeper. In reality, there is no Social Security “financing problem” at all. There is a health care problem, but that can be dealt with only by deciding what health services to provide, and how to pay for them, for the whole population. It cannot be dealt with, responsibly or ethically, by cutting care for the old.
My old cat, Cream, died yesterday. She was fading for the last 2 years and quickly got weaker and weaker this last 2 weeks. She stopped lying on my lap and took to lying next to the fireplace because she was cold. Instead of spending thousands of dollars, trying to keep her alive, I simply fed her, watered her, cleaned her and made her comfortable until she die, very quietly.
What we have now is a very expensive system whereby, people no longer die quietly at home, in bed, but are rushed to the hospital to die in a tremendously expensive way. So long as we cling to this system, things will spin out of control. This is a harsh thing. I told my children, not to do this to me, the last place on earth, I want to be, when I die of old age, is a hospital. I want to be at home. Then, they can toss out my old carcass though I doubt they will do that. As far as I am concerned, I have no more say in the matter, once I depart, for good.
Third, we will soon need a jobs program to put the unemployed to work quickly. Infrastructure spending can help, but major building projects can take years to gear up, and they can, for the most part, provide jobs only for those who have the requisite skills. So the federal government should sponsor projects that employ people to do what they do best, including art, letters, drama, dance, music, scientific research, teaching, conservation, and the nonprofit sector, including community organizing—why not?
How about real work that produces real profits? We can’t treat this nation as some sort of daycare center. We have to be productive or our nation slides down the social scale to the bottom.
Finally, a payroll tax holiday would help restore the purchasing power of working families, as well as make it easier for employers to keep them on the payroll. This is a particularly potent suggestion, because it is large and immediate. And if growth resumes rapidly, it can also be scaled back. There is no error in doing too much that cannot easily be repaired, by doing a bit less.
The last suggestion is pure inflation. And is pure Zimbabwe. Already, we run immense government deficits. We can have this moratorium only if we raise taxes elsewhere. I would suggest, tariffs and barrier taxes. HAHAHA. Anyway, even if we tax someone, this still is very inflationary. Everyone gets an extra $5000, say, and watch prices shoot to the moon.
The other side of the deal is, people who are only slightly in debt [ahem] will use this for one purpose: to pay off the last of one’s excess borrowing! This is non-inflationary but is very depressionary since it will reduce the ‘assets’ of the lenders! Who then, can’t lend even more.
Japan’s current-account surplus narrowed in February as the global recession caused exports to plunge an unprecedented 50.4 percent.
The surplus shrank 55.6 percent to 1.117 trillion yen ($11 billion) from a year earlier, the Ministry of Finance said in Tokyo today. Japan had a 172.8 billion yen deficit in January, its first in 13 years.
The return to a surplus was because of a record drop in imports, suggesting demand at home is also weakening as companies from Nissan Motor Corp. to Panasonic Corp. cut output and fire workers. Confidence at large manufacturers fell to a record low in March and executives signaled more spending and job cuts, the Bank of Japan’s Tankan survey showed last week.
The Japanese sigh with relief. They had just ONE quarter with no export profits. This caused a major heart attack in Tokyo. The US has NEVER had a trade surplus except exactly once, in the last 45 years: when Bush Sr sold our military to the Kuwait and Saudi kings. They then fought and died for rich aliens who then allowed and even funded terrorist attacks on the US. This was a bad, bad deal.
But the present deal where we clobber ourselves with MORE debt in order to kill Afghani peasants is a worse deal. And we have to be as wary as our Japanese rivals, when it comes to trade profits. All the yap at the top of this story is so much childish prattle unless we get really serious about balancing our trade!
Gold prices are expected to tumble to $850 (Dh3,122) an ounce and then to $820 before finding support at sub-$800 levels in delayed successions, commodities analysts said.
The drop in prices will come as resilient equity markets and ameliorating prices of other commodities dampen gold’s position as a safe haven, they said.
Three important developments – a sale of 403.3 metric tonnes of gold by International Monetary Fund, the upcoming Central Banks Gold Agreement (CBGA) deadline and a new capacity coming online in Zimbabwe will, however, have little impact on gold prices, according to analysts.
The yellow metal for June delivery traded at $ 880.12 on the DGCX on Tuesday. Gold for August delivery was priced at $878.67. Bullion prices shot beyond $1,000 in February, spurring speculations that the prices are headed for $1,500 and even $2,500 levels in the long run.
Gold is dropping because the major banks have to sell gold so they can bail out the bad bankers. Take advantage of this! Don’t buy but force the price downwards even more and THEN buy. This is pretty simple. So long as huge bail outs are being attempted by ALL of the major G20 central bankers, the price of gold will drop and gold sales will surge.
Like anything on earth, if gold went up and up and up, it would be due to fraud, cheating and gaming the system and would therefore, be bad for ‘out of the loop’ buyers and traders! So we have to hold onto our hats. This is one market where there can be very sudden turn around points based on the various schemes and deals of the corrupt central bankers who are playing hard ball.
Gulf rulers are likely to meet in May to discuss the location for a GCC central bank, Oman’s central bank head said yesterday.
After a location was decided, policy-makers would decide whether the currency would be pegged to the US dollar, said Central Bank Executive President Hamood Sangour Al Zadjali.
Central bankers from the six-nation Gulf Co-operation Council have not reached agreement on the location of a common central bank to be used in plans for monetary union, he said.
“A signature is still not there on the agreement because there is still no agreement on the location and currency of the central bank,” he said.
The fat cats of OPEC hesitate due to the same reasons China and Japan hesitate: they all want mostly one-way trade with the US and then, be able to use US fiat dollars to buy up things all over the planet. People say, ‘We won’t sell important things to China’, but China simply has gone all over the planet, buying up industries, commodity sources, etc. They are on a major buying spree and so are the OPEC overlords.
But they know the dollar’s day is numbered and are nervous about China suddenly deciding to move swiftly and reset the world’s entire currency system—boom! So they want to at least make it look like they will do this, themselves.
A widening rift over hosting the proposed Gulf Central Bank is obstructing plans by regional oil producers to launch a landmark monetary union on time, a Saudi investment fund said yesterday.
But NCB Capital, an offshoot of the Saudi National Commercial Bank, said it believed there is a political resolve by the six Gulf Cooperation Council (GCC) states to push ahead with the project to launch the world’s second currency union and cap nearly 30 years of an economic integration process.
China is working on an Asian regional currency like the euro union. So OPEC will try this, too. It is inevitable. The dollar can’t hold value much longer. They all can see this. This is one big ocean of red ink the US is sinking into and it stretches into the future as far as the eye can see.
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