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TranceAddict Investors Club @ Marketocracy (pg. 152)
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| Krypton |
| quote: | Originally posted by Capitalizt
It's not the ONLY cause krypt..but it's a biggie. |
Okay, but again, the Fed didn't sanction securitizing SPMs, or CDOs, or fraudulent lending. It was private investors which enables the subprime lenders to stay in business. It was not the Fed. PRIVATE individuals WANTED to invest in subprime mortgages. To blame it all on the Fed, I think is ridiculous. |
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| Capitalizt |
| quote: | Originally posted by Krypton
Okay, but again, the Fed didn't sanction securitizing SPMs, or CDOs, or fraudulent lending. It was private investors which enables the subprime lenders to stay in business. It was not the Fed. PRIVATE individuals WANTED to invest in subprime mortgages. To blame it all on the Fed, I think is ridiculous. |
Who is bailing these idiots out now krypt? Who is buying all those toxic assets that shouldn't have been created in the first place? Whose balance sheet are they being transferred onto?
You guessed it! ;) Even if the fed didn't have a direct hand in writing those contracts, the burden is still being transferred to them. The losses are being socialized and all of us are going to pay for it. Even if you don't agree that they played a big factor in creating the mess, you should at least recognize the evil of them forcing taxpayers to absorb private losses. |
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| Krypton |
| quote: | Originally posted by Capitalizt
Who is bailing these idiots out now krypt? Who is buying all those toxic assets that shouldn't have been created in the first place?
You guessed it! ;) |
What idiots? Subprime lenders? They'r out of business.
Remember when I said the Fed tries to limit collateral damage caused by asset bubbles? That necessitates recapitalizing the banks. Even then, bank after bank has failed, with the FDIC taking over. But a bank with over $1 trillion in assets can't be allowed to fail. They'r too big to fail. Citigroup has $2 trillion in assets. That's about 15% of the entire country's GDP! And you advocate just letting it all crash and burn and taking us all down with them!
There's a better idea. Stabilize the economy which entails having solvent banks. Then breaking up these "too big to fail" banks so they are no longer too big to fail. No need to let the economy die. |
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| Capitalizt |
| Every penny Citigroup lost is still lost krypt. The cost has simply been spread out from the shareholders to every taxpayer in America. This might have cushioned the blow and made it less obvious, but those losses are still there..and the act of bailing out all these companies has set a very bad precedent for American capitalism. We have gone quite far down the path to corporate/state merger. Allowing C to restructure in bankruptcy and possibly be purchased by a stronger firm like Chase might have caused more temporary pain and losses while the market adjusts, but it would have been a better solution than what we have now IMO. The things government has done in the name of fighting this "crisis" and the role they are now playing in the economy isn't going to be undone any time soon (if ever). |
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| jerZ07002 |
| quote: | Originally posted by Krypton
The Fed's job isn't to stop asset bubbles. |
actually, the fed's job is to limit asset bubbles. The fed is primarily concerned with managing inflation in the economy. Asset bubbles result in inflation during the rise in the bubble, and as we are now seeing, deflation occurs when the bubble bursts. So, a secondary role of the fed is to limit these sorts of price spikes. |
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| Shakka |
| quote: | Originally posted by Krypton
Citigroup has $2 trillion in assets. That's about 15% of the entire country's GDP! And you advocate just letting it all crash and burn and taking us all down with them! |
That's a meaningless comparison. Assets and Income are completely different things. , PIMCO manages well over $1T in assets--are they too big to fail? Same with Blackrock. While I will agree that several institutions post systemic risk because they have been allowed to grow so large that their failure would have substantial ripple effects, I strongly feel that we cannot have a truly capitalistic society that is dependent on risk-taking if we eliminate the risk of failure. It is necessary that any weaker institution be allowed to fail or be taken over by stronger hands if we want to have the strongest, leanest system possible.
| quote: | | Stabilize the economy which entails having solvent banks. Then breaking up these "too big to fail" banks so they are no longer too big to fail. No need to let the economy die. |
Agree with that notion. And let's not have some meaningless, arbitrary "stress tests" that are nothing but slight of hand maneuvers to attempt to fool people into thinking everything is hunky dory.
I strongly recommend reading Jeremy Grantham's latest letter. Or any/all of them for that matter. Go here: http://www.gmo.com/America/ |
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| jerZ07002 |
| quote: | Originally posted by Krypton
What idiots? Subprime lenders? They'r out of business. |
country-wide is still in business, now under BoA. Other subprime home loan originators are still in business. They simply can't sell those mortgages anymore.
| quote: | Originally posted by Krypton
Remember when I said the Fed tries to limit collateral damage caused by asset bubbles? That necessitates recapitalizing the banks. |
now, that's not the role of the fed. this role has evolved out of necessity. the historic role of the fed was to sustain growth, control inflation, maintain high employment, and moderate interest rates.
| quote: | Originally posted by Krypton
Even then, bank after bank has failed, with the FDIC taking over. But a bank with over $1 trillion in assets can't be allowed to fail. They'r too big to fail. Citigroup has $2 trillion in assets. That's about 15% of the entire country's GDP! And you advocate just letting it all crash and burn and taking us all down with them!
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a company that is too big to fail is simply too big. I am pretty much a free market guy, but when the failure of a company poses a systematic risk to the economy, we are allowing the CEO of that company to have too much power over the lives of ordinary people. |
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| Shakka |
| quote: | Originally posted by jerZ07002
actually, the fed's job is to limit asset bubbles. The fed is primarily concerned with managing inflation in the economy. Asset bubbles result in inflation during the rise in the bubble, and as we are now seeing, deflation occurs when the bubble bursts. So, a secondary role of the fed is to limit these sorts of price spikes. |
Just don't tell Greenspan. He believes that you can't tell that a bubble exists until after it's popped. I think that's a ludicrous notion. More likely, I believe that once the foundations for a bubble have been allowed to form, it is in nobody's personal best interest (yet it is in the collective's long-term best interest) to do something about it because the consequences of popping a bubble are ALWAYS extremely negative. Nobody wants to be that guy. It is political/career suicide to take the punchbowl away from a raging party of drunkards. |
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| Krypton |
| quote: | Originally posted by Capitalizt
Every penny Citigroup lost is still lost krypt. The cost has simply been spread out from the shareholders to every taxpayer in America. This might have cushioned the blow and made it less obvious, but those losses are still there..and the act of bailing out all these companies has set a very bad precedent for American capitalism. We have gone quite far down the path to corporate/state merger. Allowing C to restructure in bankruptcy and possibly be purchased by a stronger firm like Chase might have caused more temporary pain and losses while the market adjusts, but it would have been a better solution than what we have now IMO. The things government has done in the name of fighting this "crisis" and the role they are now playing in the economy isn't going to be undone any time soon (if ever). |
I never said Citigroup's losses simply vanish. But what is obvious is the potential losses which would have occurred had Citigroup been allowed to go insolvent. The FDIC would have been overwhelmed, and the economy would die along with it. If Lehman Brothers collapsed caused the freezing of inter-bank lending, then a Citigroup collapse, would have been apocalyptic. The mere thought of Citigroup going bankrupt would have started a massive bank run which would set off a chain reaction at other banks just as what happened in 1929-1933. |
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| jerZ07002 |
| quote: | Originally posted by Shakka
While I will agree that several institutions post systemic risk because they have been allowed to grow so large that their failure would have substantial ripple effects, I strongly feel that we cannot have a truly capitalistic society that is dependent on risk-taking if we eliminate the risk of failure. |
we can have such a society, the problem is it won't be nearly as successful as our economy has been in the past. At the same time, we can't arbitrarily choose which companies will survive and which companies will fail. We should break up those companies that pose a significant systematic risk (i.e., Citi, BoA, Wells Fargo, etc...), and allow all institutions to fail. |
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| Capitalizt |
| I really doubt we would have bank runs if C went bankrupt..When Washington Mutual went bankrupt and Chase bought them, every branch opened it's doors the next day with no interruption. Granted WAMU wasn't as big as C, but everything in the market is really a function of price..and Citigroup's price didn't get quite low enough to make them a takeover target. Had they gone into bankruptcy restructuring, they would have.. And even if this did cause some dislocations and panics across country, I think the price to the country would have been much less damaging over the long term than moving us leaps and bounds towards a mutated socialist/fascist economy. As bad as it would have been, I'll bank runs and a simple depression over what we are headed for any day of the week. |
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| jerZ07002 |
| quote: | Originally posted by Krypton
$10 trillion of lost capital, |
I was just thinking about whether 10 trillion in capital was really "lost." I'm not sure I agree with describing the situation as such. I believe a better way to describe what occurred is that capital was stolen from certain investors [in CDOs] to utimately be used by unqualified investors [subprime borrowers] by providing misleading or fraudulent information to the investors [provided to investors by rating agencies when rating the securities] to induce the investors to purchase those 'assets'. |
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