Magic numbers: retirement/investment coffers

I think the author lets her vivid imagination take things to some completely illogical place. So the "shock doctrine" is to burden things so much that previous programs need to be dismantled, eh? And there is no hope that the GOP will be anything other than a minority party, so who exactly will be architecting the 'dismantlement'? And what of the massive spending spree that the congress has been on? Is that going to come to screaching halt, further ensuring that the "bums will be thrown out"?

Too many holes in this conspiracy theory, so sorry.

Occam's Razor: The sweat pouring off the brow of Sec. Paulson, together with his ashen appearance suggest the bastard has slept about 14 minutes in the last week. This is a desperate situation. My god did ANYONE see Sen. Dodd and Rep. Boehner when Stephanopoulos asked in his somewhat cheery voice about "what sort of consequences might be expected if this does not work". It was as if he had asked a solar astronomer "so let's say the sun goes supernova, people might need more sunscreen, but we'd basically be ok, right?" and the astronomer just looks at him like "NO you moron, this is NOT something that ANYONE be OK after..." . There is no ulterior motive. There is only the abyss. Virtually no one will have cash to make payroll. Credit cards will not work. There will be no point in trying to borrow anything from anywhere because there just will be NO LENDERS. Que the Doors music and katy bar the door...

If you weigh the seriousness of Dodd and Boehner with the literal "face of death" that Paulson had on you quickly get the impression this is NOT something that Maher or Colbert should be yucking it up over. The next step might involve martial law.

The magnitude of this problem is like nothing the globe has ever experienced. If there is any attempt to "make sausage" we are ALL in for the hardest hard landing ever. When Dodd and Boehner BOTH nearly simultaneously stated that the "input of the entire Congress would not be helpful in this matter" there is little room for thinking that there is anything even remotely "routine" here. There will be a host of reforms that will easily pass AFTER debt slop bucket is in place, but to risk that guarantee not being in place is to dare the world to chuck the system of interconnected financial transfers that has taken decades of work to put in place. Rome was not built in a day but its sacking happening pretty damned quickly...

Stan, let me point you to the text of the proposed act:

Sec. 8. Review.

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.


Hmm, going to Iraq had to be done quickly, mushroom clouds were a matter of weeks...

Congress is falling in the same trap. The modus operandi is EXACTLY the same. Sure, there a loads of problems, but they have been there for years (the fundamental problems) and an agency handing out cash to financial institutions is probably going to work as good as it was hiring Halliburton to fight the war in Iraq.

>Either way, those who were screaming "Buy, buy, buy!" Friday afternoon will certainly be sorry they did.

Unless they were screaming "Bye, bye, bye!" to their money.

tliet:

All sides have agreed that they want to get this done quickly for a variety of reason. The first reason is that the quicker this happens the SMALLER the risk. The second reason is the quicker it happens the CHEAPER it will be. The third reason is the faster this happens the more likely both parties can back to the election. That is no small matter, as there are plenty of legislators that need to shore up their position.

There is no "trap". The paranoid delusions of the bloggers is legend. Please do not assume that every single member of the administration is part of some secret pact. Remarkably few 'players' from the Bush administration that crafted things 4+ years ago are still around. Many have left. The integrity of Paulson is such that Obama has already said he would be open to having him in his administration should things work out that way.

There has been a trap every single goddamn time the current Administration pulled this crap, from the Patriot Act to the Iraq War. They cannot and must not be trusted, and they need to be thoroughly examined before they pass muster. This shit's too serious to give them a blank check and blanket powers.

That said, it's not a conspiracy. It's incompetence. I almost wish it was a conspiracy - they might know what they're doing.

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The ratings agencies have a bias in the formula by which munis are evaluated that is a bit arcane. Unlike the FICO score that a consumer gets, and improves by paying loans back on time, the ratings on munis are pretty much locked to the size of the town and the scale of each new issue relative to the ratio of the debt that it has

But if the debts very rarely default, then there is no logical reason for the bonds to have anything but the highest rating. Given this obvious dichotomy, I don't see how the assertion about bonds on toll roads has any bearing on the 'real' economy. Logic wasn't enough in good times; why should it be in bad?

And I still don't see why no politicians have the guts to say: the market got us into this, the market can get us out.

My simple answer for the bonds is that the pricing / yield is what investors and issuers really care about in the end. The nominal rates are generally considerably smaller than bonds issued by corporations, due to their tax exempt status. Even factoring the tax advantage the yield on munis is almost always less than equal quality corporate bonds.

Politicians are generally ill equipped to answer or ask questions about anything having to do with even the most basic of economic principles. From dog catcher to school board to Governor to halls of Congress the experience of the vast majority of pols is that "money shows up when we send out tax bills". They generally have some vague sense that if employment is weak then the tax numbers are going to suffer, but beyond that...

The "market" does not always go up, and probably 99% of pols have nearly no understanding of how even simple debt load effects private entities. To expect them to understand how markets might deal with the rolling up of the safety net while the trapeze is hanging from broken anchor is way way too much. Cripes, real investors are not sure what to make of the mess.

The "real economy" does rely an awful lot on simple day-to-day credit. From the "30 days net" billing cycles that businesses generally extend to one another to simplify their own cash handling to the seasonal ups & downs of larger operations it is rare to find a firm that does not have a whole lot of credit spinning around. When the "mark to market" accounting rules effect the ability of banks to move their "regular credit" off the table and use it to shore up their regulatory reserves the regular customers of that banks has to call in all its "credit" or risk not having cash to pay its employees. Employees that do not get paid cannot pay their bills. The world stops spinning...


If the "paper loses" from credit derivatives and other exotics were merely "deeply discounted" than MAYBE the economy would just experience a massive deflationary depression of asset values, but instead there is/was simply NO MARKET whatsoever -- as in "I will NOT give a dime for what you wrote to be a dollar, nor will I give you penny, I simply do not want that instrument at any price". That is the essence of a "frozen market". Even more ominous, if literally NO ONE felt that the instrument could be fairly valued it would be similar to an auction house having no bidders when the gavel comes down. The auctioneer has to take the "goods" back to their warehouse and WAIT until the day that the tastes change and somebody again wants that "stuff". That wait costs money, the warehouse has to be paid for, the watchemen need paychecks. At that point it is not about "the markets getting us out" it is about the people that "drove the market" parking the car, throwing the keys into the weeds and deciding to walk instead. Only the goverenment can "print money" to pay the warehouse and watchmen until the day of a new auction. Normal investment houses would ALL whither up and die waiting around for each other to risk themselves to death. The government can't really die that way...

There is no way to "force" people to engage in a marketplace. If the participants walk away it is too late for anything else other than asking them what it would take to get back in. That question was asked and the answer, apparently, is "get the bad debt out, because there has been too many "one more things" and we can't do business here"...

To Soup's point, I do agree that there has been incompetence and a huge amount of 'inattention' of the current administration. That inattention has had many roots, from a misplaced distrust of institutions that really had profoundly changed during the 8 years of a Dem controlled Whitehouse, to a lack of seriousness with regard to the role of governing not just 'winning', to a pathetic faith that people with much incentive to abuse weakly enforced rules would see that adherence to high standards would win out over "bright line" rule making/enforcement. All of these are sign not so much of corruption, but incompetence.

Take a look at who the Wall Streeters were (are?) throwing money at. Hint it was not the GOP. Between the big lead that the Dems have and the fact it is better to grease rule makers before they make your life hell instead afterward there is a lot of Wall Street money in the Dem's coffers. Rules that make it hard to 'cheat' makes it easier for people to play the game. While the populist sucking up that the Dems are attempting to undertake with "compensation caps" or "high compensation tax surcharges" are grabbing headlines now I think it is all but certain that it is in all the Beltway's best interests to keep the donors happy. If there is any "cap" or "tax" look for their to be infinite number of loopholes introduced down the road...



Edited 1 time(s). Last edit at 09/22/2008 08:11AM by stan adams.

That inattention has had many roots, from a misplaced distrust of institutions that really had profoundly changed during the 8 years of a Dem controlled Whitehouse...

To paraphrase Fark: "B-b-b-b-but Clinton...!"

"Party of Accountability" my ass.

Clinton hasn't had any say in the running of the country since Limp Bizcut was edgy and underground. The fantasy that Dems are bad for business just because they're Dems is a fantasy, and has been utterly exposed as such in the past week. Bush had four years of a majority in house, senate and supreme court. He has had a Senate run by the opposition that mostly goes along with what he wants for all eight years. Plenty of time to fix any errors made by the previous administration. Clinton had zilch to do with this.

It's almost entertaining (if it weren't so enormous in the scope of the issue) to see the doctrinaire deregulationists try to point the finger at regulation for the complete failure of deregulation. Yeah. And I'm certain counterevolutionary elements were responsible for the failure of communism, too.

Soup:

You misunderstand my point of the 8 years between Reagan/Bush 41 & Bush 43 completely. My criticism was that the Bush 43 WH (with Cheney , Rumsfield, and guys like O'Neill & Snow in Treasury) failed to recognize that the bureaucracies really had changed. Things were not the ossified bones left over from the 1950s, there was a lot of valuable info that they SHOULD HAVE been putting into/taking from the system instead of just assuming (as they did for the Reagan years) that everything was designed to in an era of whale oil lamps. Clinton really did foster a lot of change, not just in welfare reform, but in making the government work better. Instead they started with the assumption that it was better to ignore/smash/work around what was in place. Big mistake, as recent events bear out. Essentially this is the same argument that Bush 43 administration "missed 9/11" because they did not build on what happened in the Clinton years.

Look, Rubin & Reich are/were very competent guys. They did help the expansion of the US role in global finance, to say otherwise is ludicrous. The tragedy is that instead of building upon the "knowledge based" regulations that Rubin & Reich foster the Bush adminstration figured, wrongly, that autopilot was good enough. My god, look at the contrast between the background of these two: http://en.wikipedia.org/wiki/Paul_Henry_O%27Neill http://en.wikipedia.org/wiki/Robert_Edward_Rubin



Edited 1 time(s). Last edit at 09/22/2008 08:58AM by stan adams.

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The world stops spinning...

No it doesn't. People won't suddenly stop needing the usual food, shelter and clothing. The demand - and opportunities - will remain for any business canny enough to exploit them. Almost certainly at reduced profit levels, but so what? The world might end for those who believe the world consists of the numbers on their trading screens, but the planet itself will do just fine.

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YDD

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The world stops spinning...

No it doesn't. People won't suddenly stop needing the usual food, shelter and clothing. The demand - and opportunities - will remain for any business canny enough to exploit them. Almost certainly at reduced profit levels, but so what? The world might end for those who believe the world consists of the numbers on their trading screens, but the planet itself will do just fine.

I don't think "just fine" is an accurate assessment at all. Honestly get out and talk to just about anyone that is not paid exclusively in greenbacks (which in my neck of the woods includes only street cart vendors and domestic helpers...) and the links they have to money center banks is not six degrees of separation. Maybe two.

While I am certain that Citi, BofA, JPM Chase would not choose to freeze access to retail customers they would have no other choice if the commercial side of their operations had no liquidity. Do the math -- http://www.bloomberg.com/apps/news?pid=20601087&sid=aJfytqttCmPc&refer=home

I am not saying that giving Paulson "sole power" is the only way to keep things floating, but to not authorize some kind of new ceiling will be worse than doing nothing. If it comes down to it, how much gold do you keep in the cupboard to shave onto the grocer's scale when you need some flour for bread? Will you be hand-delivering one Kugerrand or two to your landlord everymonth? Is the milliner in your burg still taking greenbacks? Those nearby cannot feed their piece-worker seamstresses with anything but hard currency...



Edited 1 time(s). Last edit at 09/22/2008 10:24AM by stan adams.

Stan,

The so called big boys that are all grown up that you like to talk about know very well that the 'world stops spinning' when everyone stops overnight lending to each other. So, it's extremely unlikely that that scenario will happen overnight. It's seven hundred billion dollars, any idea how much that is per taxpayer?

Incompetence, that might be true, Dubya is so incompetent, he doesn't even know it. Cheney, not so much, he's pretty much running everything. But incompetence or conspiracy, it's insane to hand over the cash register to the very same people who've been running the system into the ground.

But then again, sanity went out of the window when Bush stepped into the White House, so I guess our worst nightmare will become reality in the last few months he has left. I thought he could do no more damage, yet again he lives up to expectations.

Of course, the Dems get the blame again and Bush is loud mouthing them to hurry up in selling themselves out.

I agree with you too Stan -- I just like to be short in my replies, not in my root thinking. Your posts take too long to read(!) but I find them valuable. Thanks.

I agree with you, Stan, as well. The key here is liquidity. Everything grinds to a complete halt. Go back and look at the photos from the GD. People needed food, but they sure were rail thin. Credit has become the new currency. Sometimes it is called the dollar, the euro or pound, but it really is credit. The numbers that your paycheck represents really don't exist anywhere as real items. This is true for the local small business as well as the mega corp. If the merry-go-round stops, it all vanishes.

In my very uninformed opinion, this bailout buys everyone 12 months, pass or fail. After that is anyone's guess. I personally am trying to figure out ways to pay off my mortgage, start learning how to grow a large range of food in a coldish climate and stock piling some gold. Don't know if I can do it, but figure there isn't much time to figure it out.

Strange question comes to mind: If the company that holds my mortgage goes bankrupt and no one is left to pickup the pieces, what happens to my property?

Times like this, I don't want to be right. But I am. Indexes are in the tank, the dollar is in the tank, and commodities are off like a rocket again. They'll crash again just as hard once those seeking safe-havens realize the fundamentals aren't there and they've just stepped into a shark-pit, and they can't price anything realistically in the last gasps of a speculation-driven bubble.

I don't know where the safe-haven money goes now, I really don't. T-Bills are being bid on for =negative= yeild... some investors just want something safe to keep buckets of money in for a few years, and are willing to pay for the privilege. Insanity.

I think a lot of the activity in the market today, and in the coming few weeks, is going to be "slosh" of a half full milk jug sliding back and forth -- scary when comes close to an edge, but not too messy as long as the lid is screwed on properly. A lot of the "cash rich" funds themselves are driving volume. That is to be expected. For those that are scouting out positions on a soup line or picking out seeds for high protein veggies for the backyard, I'd say watch the Swiss Franc -- if people really get spooked CHF will climb like a cat being chased by a bear. http://finance.google.com/finance?q=CURRENCY%3ACHF RIght now the movement there is not sounding an alarm bell to my ears. Folks, the S&P 500 was down less than 4% today, not exactly jump from the tower stuff...

Just this evening I have seen at least half a dozen potential "add-ins" that might make sense for the big "TARP". I prefer to judge reaction across the sea, as the election adds too much "smoke" to determine what is really on fire. Here is an article that seems about as positive as I would hope for: http://ftalphaville.ft.com/blog/2008/09/22/16166/the-world-according-to-tarp/


If these guys were TOO eager to get this thing passed I would worry that the tax payers are going to get our clocks cleaned. Instead I think that it does seem like a ship that will leave port slowly and lumber along at sea without causing too many waves, though the bankers recognize that should THAT BOAT go down it'll have one helluva a "suction effect" and there may not be enough life boats to get everyone off safely...

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I am not saying that giving Paulson "sole power" is the only way to keep things floating, but to not authorize some kind of new ceiling will be worse than doing nothing. If it comes down to it, how much gold do you keep in the cupboard to shave onto the grocer's scale when you need some flour for bread? Will you be hand-delivering one Kugerrand or two to your landlord everymonth? Is the milliner in your burg still taking greenbacks? Those nearby cannot feed their piece-worker seamstresses with anything but hard currency...

Sounds like the world's still spinning there. People will still need things that others provide, so things will get worked out. Why are you so untrusting of the abilities of ordinary people?

I have no particular distrust of ordinary people. My concern is that the normal lending that basically has been going on for all eternity, and has proven to be an absolute requirement to keep normal day-to-day transactions of all kinds happening will STOP if the liquidity markets seize up. When people buy just about anything they do not bring a giant mountain of cash with 'em. From computers to TVs to cars to homes regular workaday people finance much/most of what they own. Ditto for the companies that make the stuff and pay workers.

Right now that part of the illiquidity is temporarily penned up, but it only penned up because the firms that hold that are waiting to see what happens to unburden the market of this trash. The idea that there are some real assets to be had, and they maybe realized at the maturity of these contracts is the "hope" that will come out of TARP, just as the RTC gathered up the assets of the failed S&Ls.


I have no idea if Newt Gingrich is the only person firmly opposed to all aspects of the TARP plans, nor do I know whether he is playing this for personal gain (he has a new book out) or even for partisan advantage (not sure how that would work either, other than to keep cranking the siren of 'deregulation solves all problems"...) but he certainly seems to be a voice that no one else is standing with: http://corner.nationalreview.com/post/?q=ZGE5MmE0YmRiODA3YTRiNzFlN2FmNDU5N2I0ZDc3YTE=

We. Are. Fucked.

Very happy no matter what to see someone with some balls the way Newt does there.
We have such a lack of leadership nationally and in our corporations. After 9-11 we had no leadership on energy...



Edited 1 time(s). Last edit at 09/23/2008 10:58AM by rino.

What, conquering the world's second largest source of proven oil reserves doesn't count?