The Sky is Falling! Or is it?

[Pax]

Good for you!
You're right, we do need to slow down and think things through before printing up money and throwing out the window.

I know it won't fix anything but I'd like to see some of these golden parachute boys be held accountable.

The very idea that we give that kind of power with ZERO oversight to Paulsen is mind boggling.

[blueskies]

And capitalism, as a system, cannot work if we let people keep the profits from risky investments, while the taxpayers cover the losses when those deals go wrong.

I've called my senators. I want accountability, and I want the equity holders to pay first. If they want us to bare the losses, then they can walk away from their ownership & profits & bonuses.

[Pax]

And capitalism, as a system, cannot work if we let people keep the profits from risky investments, while the taxpayers cover the losses when those deals go wrong.

I've called my senators. I want accountability, and I want the equity holders to pay first. If they want us to bare the losses, then they can walk away from their ownership & profits & bonuses.

We teach these kind of lessons to kindergartners, I can't for the life of me figure out why we would teach people that there is NO risk, do whatever you want and you'll still profit. It makes me want to bang my head on the wall.

[Mr. Bloom]

I'm sure Mr. Silver being in the banking industry can say a few words. Maybe like me, he doesn't want to say too much.

A correction and clarification: Don't confuse banks and investments banks...they're very different. I'm a banker and have a long term relationship orientation...I manage risk and submit to substantial regulatory oversight. Investment bankers are "transactionally" (aka "what's in it for them") oriented and they sell risk to someone willing to buy it...they tend to be unregulated although the products they sell may be regulated.

The fact is that the government created this problem nearly 20 years ago. There was a time when homeownership required equity and a lot of documentation to qualify. It was the GOVERNMENT who imposed the expectation on the industry of making home ownership a right and not a privilege...and the investment bankers found new ways to enable the political mandate by packaging and selling the risk to unsuspecting (but sophisticated) investors...who threw more money into the game...loosening risk and oversight...and voile - the bubble pops.

I disagree with some...the time to ACT is NOW. It's not investment bankers that they're bailing out, it's MAIN STREET America. The largest institutions are so, so, so intertwined that a liquidity crisis could be epic in it's impact and it will be years in correction...and it will permeate all areas of this economy.

So, what am I doing personally? Nothing much is different. I sold some mutual funds to raise our "cash" position to 50% of our portfolio, but I've not sold a single stock..because I like the stocks we own. I am keeping all cash in FDIC insured deposits (go to FDIC.gov for advice on how to get more than $100,000 in coverage or look for one of the banks that subscribes to the CDARS program).

Some may say "what if the FDIC fails?". It won't, because the government can print money...This would be incredibly inflationary, so if this happened, the best thing you could do would be to buy tangible assets immediately...things like cars, collectibles, and real estate...

Long term, this will materially reduce our flexibility. America's not the growth engine of the world anymore. Our influence and impact will reduce...and it's time for us to recognize that and adjust our global behavior accordingly.

In the end, I have no crystal ball. But, don't panic, don't overreact, don't think this is political. It is real. Be sober, be careful, be conservative. Expect volatility in the markets, and if you don't have tolerance for volatility, consider your options. I do not fear a tornado, but if I see one, I better respect its power

Just a humble opinion from the trenches...

[VeloVT]

I think Mr. Silver pretty much has it right.

I'm a little scared though. This is huge.

Also there is a part of me that worries that "the plan", which (although I have not studied it in great depth and cannot claim deep understanding of it) currently includes commitments to foreign banks that have invested in bad American debt, will end up not being able to avoid something that looks a whole lot like debt monetization...

[blueskies]

I watched the senate hearings today & realized that I had misunderstood the bail out plan. I now get (I think) that the plan is aimed at unsticking the market for mortgage related assets to free up capital/liquidity, rather than aimed at bolstering troubled financial firms. Will it work? I don't know. I'm comforted that Warren Buffett thinks it's a good idea.

[Pax]

I watched the senate hearings today & realized that I had misunderstood the bail out plan. I now get (I think) that the plan is aimed at unsticking the market for mortgage related assets to free up capital/liquidity, rather than aimed at bolstering troubled financial firms. Will it work? I don't know. I'm comforted that Warren Buffett thinks it's a good idea.

I heard that as well, and support it.

It is my personal desire that the greedy people who became wealthy (or more wealthy) from the practices that caused this crisis...are no longer wealthy. They should have to help pay for the mess they created.

[chutch]

I think my biggest concerns are the lack of oversight and that the people who caused this mess are going to get out with hefty bonuses.

I've never understood that- if your company is about to go under and you've got $10million+ to give to the CEO you're firing, why wouldn't you put that money towards the company's well-being? Who decided that was a good idea- what's the history behind this practice?

Does anyone else get money if they were to be fired or their company go under?

(Disclaimer: I do not have a lot of knowledge or experience with any of this stuff although I am trying to understand and learn more)

[blueskies]

Here's an interview with Warren Buffett on the matter:

http://www.cnbc.com/id/26867866/site/14081545/

I trust him.

Also, in his testimony yesterday, Paulson said he welcomed oversight & that transparency & accountability were essential.

[VeloVT]

One thing that Mr. Silver's post makes me think:

While it is true that this crisis is not partisan in origin, much of the blustering we are hearing, both from senators and from Paulson & Bernancke, IS to greater or lesser degree political. Do not forget that, although their positions are not partisan positions, the Secretary of the Treasury and the Chairman of the Fed serve at the pleasure of the president.

Sometimes it's not as easy as it seems to disentangle the "professional opinions" of knowledgeable people with their political biases.

Just saying...

[smilingcat]

I think it really depends on your personal situation. We have a disabled relative who is on a fixed income - you bet she feels it every time she has to decide on cat food or groceries for herself. The upcoming winter utility bill is already source of stress..

We follow the markets daily and are watching the kids college funds drop. They aren't for the long term so we see it more. The rest of it we'd like to hope is for the long term.

Also, housing is fairly stable in my community. It hasn't gone as high so the drops haven't been so bad.

Oh dear, I didn't mean it quite that way when I said "I'm not counting on my social security". What I meant by is that it will be worth very little after the heated inflation kicks in. That is why I also said, maybe we will see $500 and $1000 notes. Inflation is bound to happen if you just print money in large quantity and flood the market. Well, just print $700billion. When there is no tangible assets to back it up, the newly printed money will dilute what is out there. Dilution of $$ simply means that insted of spending $3.00 for a loaf of bread, you now spend $5.00 for a loaf.

[blueskies]

Inflation is bound to happen if you just print money in large quantity and flood the market. Well, just print $700billion. When there is no tangible assets to back it up, the newly printed money will dilute what is out there. Dilution of $$ simply means that insted of spending $3.00 for a loaf of bread, you now spend $5.00 for a loaf.

Yep!

[Mr. Bloom]

Here's an interesting release on the FDIC website.

http://www.fdic.gov/news/news/press/2008/pr08084.html

While I find the writer's claiming the industry's entire capital as the FDIC's a little disconcerting, the parallel drawn to the recession/crisis of the early 90's is very real by comparison.

This is a cyclical crisis and every cycle turns

[Mr. Bloom]

Today's news was a surprise.

The headline will say that "Largest Point Drop in History"...which is true, but it's more relevant what the % loss is...6.98%.

Unfortunately, in nearly 21,000 trading days, that's the 17th worst percentage loss of the last 80 YEARS! Of the 16 worse days, only 4 have been since the early 30's

Here are the numbers - compliments of some calculations off a Yahoo! data grab - Of those 16 days that were worse than today, the average change over the Dow over the next 3 months was -12.7%, 6 months was -13.7%, 12 months was -6.42%. In other words, history would imply (is past prologue???) that there's more downside ahead before things get better...and I'll personally be looking for the opportunties to buy...but for now, I'm on the sidelines.

Politics created today...politics may save the day tomorrow, but the world's trust is likely tarnished and will likely be that way for some time. My position from my 9/23 post remains unchanged and I'll be watching the market a lot more closely, but today is not a good day in my view

[Blueberry]

Mr. S-

I agree with you - today wasn't a good day. I only wish I had more answers...

CA