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Originally posted by JaynezTown:
I think Merrill might survive but many other banks will collapse and this whole cris ain't good for the eocnomy, its going to damage the US dollar

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Originally posted by JaynezTown:
I think Merrill might survive but many other banks will collapse and this whole crisis ain't good for the economy, its going to damage the US dollar

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In the post “Future Uncertain” last June, one commentator named Mike wrote:

“An economic collaspe is not only concieveable but it is HIGHY likely. The mainstream media is not telling people the full extent of the credit market woes. Ten of billions (Possible up to a trillion) more dollars will be wote down by banks in the coming months. It would one thing if the toxic watse dumping was finished but these banks are going to flood the market with a lot more of these bad loans. The markets can’t withstand any more…. The Dow will most likely be below 10,000 by the end of July…”

Now, Mike’s prediction of the Dow below 10,000 by July turned out to be wrong, but as we watch the markets wobble over the problems at Lehman, it is becoming painfully clear that Mike may have been off primarily in his timing. The United States could be facing the most severe economic crisis since the Great Depression. We just can’t tell how deep the problems are, or how they’ll play themselves out. But consider the drama of the past couple weeks. First, Freddie Mac and Fannie Mae are literally taken over by the government.

We’re talking about nationalization of the most important financial backers of home mortgages, seized by a Republican pro-market government, obviously without enthusiasm. The reason they took over these giants is that they had no choice — if they failed, the mortgage market in the US would have ground to a halt, unleashing tremendous economic hardship to just about every sector of the economy. Why this happened was clear: close ties between these two corporations and government had led to laws that made it progressively easier for them to back mortgages without oversight. That’s fine when the market is booming and home values soaring. But when the bubble bursts, it was disaster.

Is this a domino effect that could reck havoc throughout the entire banking sector? Is this a limited problem? Nobody knows, but as with Enron a decade ago, it’s possible that the financial sector has been skating buy the last few years with accounting tricks and short term book keeping shemes to avoid having to publicly admit how bad things are. Consider: you might be making a decent salary, but yet due to purchases and poor spending habits, be in severe debt. For a long time you can keep this secret from your closest friends and in some cases, even a spouse. You can kite credit cards (get a new card to make minimums on the old), do home equity loans, find ways to make that debt something that isn’t felt in your day to day life. It may drive you crazy when you think about it, but you can usually find ways to get by another day. This can go on for years.

But when things start to go south, they go south fast. Soon you’re missing payments. Then suddenly interest rates jump from below 10% to above 20%. Suddenly you can’t get new loans, your house has negative equity and the result is personal financial collapse or bankruptcy. Now, what if the banking sector as a whole has this sort of problem? Drunk on the easy money and loose credit of the early part of the decade, they got themselves in over their head, perhaps expecting continued economic growth to simply allow them to go on making large short term profits. It wouldn’t be consumerism in this case, but “buying” more interest-bearing loans, with the idea that the money will be paid back and profits would rise. When the bubble bursts, then the whole thing implodes, as happened at Freddie Mac and Fannie Mae, and now Lehman.

One hopes that the other financial giants are on solider ground, but we’re not sure how solid, or who might be next. The fact that it’s so difficult to find other firms to buy Lehman and limit the scope of this credit shows the relative weakness of the entire financial industry. Add to that the troubled economic conditions: continued high oil prices (even if not as a high as mid-summer), a current accounts deficit, a weak dollar, and high unemployment. The result is an economy as vulnerable as ever. When we had our last major recession, the period of stagflation from 1979-81, the fundamentals were sound, but there was a real financial risk there as well. The US still had a current accounts surplus, the oil price increases were artificial, due to tension in the Persian Gulf that would soon be allayed, and the dollar was healthy. The credit markets, still mostly national and regulated as this was the ‘pre-globalization’ period, had only one glaring problem: the debt crisis.

The debt crisis emerged due to the way oil rich states invested “petrodollars” into major western financial institutions. Those institutions in turn loaned money in vast amounts to third world states, on the premise that without strings attached these states could allow the market to lead investment and growth, and the loans would be paid back easily. It didn’t happen. Much of the money in fact went to buy oil, and the rest usually went to failed projects or into corrupt coffers, divied it between various bureaucrats and bigwigs. When the truth came out that third world states might default, thus putting the entire western financial system in crisis, people panicked. At the time, the prognosticators also speculated about financial collapse. Is this another one of those crises we can get through?

Time will tell, but the way out of that crisis was: A) Buy time. Short term loans were made to third world states so they could make interest payments, thus keeping the loans on the books as assetts for the banks; political pressure kept third world states from defaulting. If they had defaulted, they may have lost aid, short term credit (necessary for trade), and access to markets; and B) Diversify risk. Loans were sold at a loss to other banks, spreading around the risk rather than centralizing it with the major banks. To be sure, high debt levels still exist, despite forgiveness of a lot of government debt. But the threat to the western banking system has been mitigated.

This crisis is different. It’s not one so easily controlled, as it is more than just a few states, and the sources of the crisis are the fundamentals of the credit markets, not just really bad decisions by banks on loans to third world states. Still, no doubt the movers and shakers on Wall Street are in board rooms and on conference calls, trying to figure out the best way to handle this. Perhaps they can come up with solutions, like in the late 90s when the ‘contagion’ in Asian currency markets threatened the world economy, or the response to the debt crisis. Perhaps they cannot, like in 1929 when, after several short term efforts to steady the stock market succeeded, it finally crashed.

So while the political junkies argue about lipstick wearing pigs, who’s gaffe is up next, or who lied about what, the US economy stands in the balance. The next few months may decide if we recover from these problems with a reformed, but able credit market, or if this is the start of a collapse that may profoundly harm our quality of life and material conditions.

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Originally posted by SergeantX:
Deep down, I really just want to see them all crash and burn. Does that make me a bad person?

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Originally posted by Hero:

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Originally posted by SergeantX:
Deep down, I really just want to see them all crash and burn. Does that make me a bad person?

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No. Just because you want all those innocent people out there to suffer, people who work hard trying to make ends meet, raise families and have modest homes in safe neighborhoods to raise their children. That does not make you bad. Just because you would rejoice at something that will cause untold suffering from a global economic collapse.

Naw...your a fine old fella you are.

H

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Originally posted by Hero:
...all those innocent people out there to suffer, people who work hard trying to make ends meet, raise families and have modest homes in safe neighborhoods to raise their children.

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"But it's not the end of capitalism," he said.

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"This may usher in something worse than what we've seen in terms of the economy, but the companies left standing at the end of this will be OK."

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Art Hogan, chief market strategist for Jefferies & Co., said the magnitude of the financial industry fallout is unprecedented, and could only be compared to the Great Depression of the 1930s or the railroad bankruptcies of the 1800s.

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Originally posted by SergeantX:
The only thing that bothers me is that taxpayers will likely take the hit rather that sleezy bastards who run the game. Gotta love the nanny state. Leave no millionaire behind!

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Originally posted by SergeantX:
Of course the problem with that is... we've accepted the notion that the government is there to protect us all from our bad decisions.

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The only thing that bothers me is that taxpayers will likely take the hit rather that sleezy bastards who run the game. Gotta love the nanny state. Leave no millionaire behind!

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Originally posted by HKCavalier:
Who's we, pale-face?

It might be very nice if the government had come along and protected me from my bad decisions in my life. Seriously, this is where the Libertarian rhetoric loses me. The only bad decisions this government seems to protect anyone from are corporate. Oh, and o' course, the bad decisions of the government itself! Who's being protected from the ruinous decision to go into Iraq? Not, our thousands of dead soldiers. Just Bush & co.

Sarge, that ain't a nanny, that's more like Mommy Dearest.

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The government should have left Fannie and Freddie to burn.

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Originally posted by Wulfenstar:
The government should have left Fannie and Freddie to burn.

Let the chips fall where they may. Maybe houses wont be so ridiculously priced then.

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Originally posted by FutureMrsFIllion:

Oh yeah, thats a good idea.

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Originally posted by SergeantX:
Call it what you like. It's bullshit. If you're saying the corporate bailouts are the first kind of welfare that ought to be done away with, I heartily agree. If your saying that it's hypocritical for conservatives to complain about welfare for the poor and then approve of corporate bailouts, I agree again.

But if we're going to accept the notion that the government is there to do any bailing out at all, it will be those with the money and power to control things who win. That's what I find ironic, and the point I wish my liberal friends could come to terms with.

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The government should have left Fannie and Freddie to burn.

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Ultimately, that would lead to revolution. But the govt is trying to preserve the status quo.

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Originally posted by Fremdfirma:
Saw a headline today...

"McCain, Obama promise Wall Street overhaul"

Got me thinkin that once upon a time, Mario Buda tried some remodeling of his own.
And while I found the means, method and end result unacceptable...

I have always silently pondered it, because the rise of crony-vulture-welfare capitalism and it's incest-like relationship with the Fedgov, if you run it down historically, was in fact due to a very small cadre of people, many of whom are held up by our propagandised history as laudable in spite of committing some of the most vile actions ever seen on this continent.

Thus Buda and companions wanted them dead.

Looking back up the pipe eighty-some and more years later, climbing over the endless history of carnage those people and their descendants, their little dynasties and influence on policy have caused...

I have to wonder if Buda had maybe a better point than folk ever realised.

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WULFENSTAR

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The government should have left Fannie and Freddie to burn.

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SIGNYM

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Ultimately, that would lead to revolution. But the govt is trying to preserve the status quo.

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...And not all revolutions are needlessly violent, or even necessarily violent at all.

You know damn well imma waitin in the wings for a chance to light the fuse the minute I think more will be gained than lost by it.

==================================================

To be absolutely honest, some long standing folk might have noticed that over time, my response to the question of things coming apart went from *IF*... to *WHEN*.

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Originally posted by HKCavalier:

Your philosophy seems to arise from the premise that all government is fundamentally destructive and I can see your point--

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Seems to me, what you're talking about amounts to cynically discounting the former and leaving us in the wolfish hands of the latter.

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But that's not really my pov. It's not that government is destructive. The issue is that government achieves its ends by use of force. That makes it unique as a social entity. The end result for anyone defying the will of government is that they're looking down the barrel of a gun.

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Those who've been following this crisis for more than a tick know that insurer AIG is scrambling to raise some capital , like Lehman Bros. was doing , just a week ago...

Turns out , AIG is the risk-taker holding the bond on the massive amount of leased space that Lehman occupied in London...

Seems that won't do anything to give AIG any ease , since Lehman filed bankruptcy Monday...

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Originally posted by Jongsstraw:
Where was the Federal Reserve while all this was going on?

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Would this be going on now if Greenspan was still the Chairman and not Bernake?

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Where was the Senate & House Banking Committees while all this was going on?

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Originally posted by JaynezTown:
Possible Global Recession Looming

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“The fundamentals of our economy are strong.”
-John Songbird McCain, Black Monday 2008, as Jewish Lehman Bros filed the world's largest bankruptcy

McCain Sells Immigration Amnesty in Spanish Only TV ads

http://voices.washingtonpost.com/the-trail/2008/09/15/mccain_revives_i
mmigration_deb.html

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Those who've been following this crisis for more than a tick know that insurer AIG is scrambling to raise some capital , like Lehman Bros. was doing , just a week ago...

Turns out , AIG is the risk-taker holding the bond on the massive amount of leased space that Lehman occupied in London...

Seems that won't do anything to give AIG any ease , since Lehman filed bankruptcy Monday...

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Originally posted by Kwicko:
Keep an eye on DiTech & GMAC, too. There are an awful lot of people who bought into ARMs who also bought into 72-, 84-, and 96-month car notes on cars they absolutely could not afford (Escalade, for example), and cars that are now worth far less than those people owe on them.

My gut feeling is that this might just be getting started...

Will it be the total collapse of our economic system and our way of life? Doubtful - most likely the weaker firms will end up being bought or leveraged by foreign investors, much like what happened in the 80s, when flush Japanese investors started buying up many American companies. The companies will probably survive; the "little people"? They're expendable, or so it would seem...

Mike

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Thank you Gulf States. Thank you for believing more in America than we may believe in ourselves.

Thank you Abu Dhabi for investing a billion dollars in the Hollywood film industry last week. Thank you Dubai for opening American-style malls and welcoming Donald Trump's latest hotel. And thank you Saudi Arabia for recycling some of your oil profits into purchases of American military hardware year after year. (Under pressure, Iraq is about to shell out 10 billion dollars to do the same!)

We are thrilled that even as we pay more for your oil, you pay out more and more for loans and investments in the US from your sovereign wealth funds, banks and investment portfolios.

And on behalf of these overseas investors and customers, thank you America, Mr. Obama AND Mr. McCain for not speaking out about our dependence on foreign money even as they both now denounce dependence on foreign oil.

Attention Drill, Baby, Drillheads: please note, they don't mind us drilling more oil pumps as long as you don't mess with the money pumps. In the end, piling on debt here is more profitable for overseas investors than supplying oil.

As CBS reports, "Forty-four cents out of every dollar our country owes in public debt is now owed to foreign investors - $2.2 trillion worth. That's nearly 10 percent more than just a year ago.

Because our debt at home is growing so fast, we've had to go abroad to borrow from the world's booming economies. The six Gulf States, including Kuwait, sit on $1.7 trillion in cash reserves; China's fund has $200 billion and Russia has $125 billion."

We clearly need the infusion of these funds to keep our economy afloat.

Last Friday, after the markets closed, The US government announced plans to take over the troubled mortgage giants Fannie Mae and Freddie Mac. This happened when their share price collapsed in part because they had trouble issuing debt to fund their operations. This bailout may in the end cost taxpayers more than the Iraq War. (In other words, forget all tax cuts now. This bailout is going to be expensive, $200 billion to start.)

Close to collapse, these institutions were kept alive in part through foreign investments. As everyone knew, they were too big to fail but not only in terms of their domestic impact. Their failure would undermine global confidence in the U.S. economy, i.e. stop the inflow of big bucks. Watch what happens: foreign investors will be protected one way or the other even as American shareholders take a bath.

The question is: what will happen to American homeowners? So far they have been the last to be helped.

Confidence is already in short supply. When Wall Street plummets, world markets take a dive. AP reported last week: "Asian stock markets plunged Friday in the wake of a sell-off on Wall Street amid mounting concerns about a slump the U.S. economy and its impact on the global economy...No Asian market was spared from the carnage..." (The market shot back up on Monday because of the bailout but there is no reason to believe it will not remain volatile.)

China is affected too. The Central Bank there is now short of capital. Why? The New York Times reported: "China's central bank is in a bind. It has been on a buying binge in the United States over the last seven years, snapping up roughly $1 trillion worth of Treasury bonds and mortgage-backed debt issued by Fannie Mae and Freddie Mac. Now the central bank needs an infusion of capital."

Welcome to a growing GLOBAL crisis as the Busheviks turn to socialism to save capitalism while China turns to capitalism to save socialism.

Bizarre, but true.

In the Gulf, money managers are aware of the depth of our financial crisis. They read the dismal IMF and Federal Reserve forecasts and know what's happening in the markets second by second. Ironically, just as billions from overseas are loaned DAILY to help with our debts, many of their lenders are going into debt themselves.

They can't escape the first law of karma: What goes around comes around.

They are not alone. Increasingly, there are foreclosures in wealthy areas like the Hamptons in New York, just as there are in our poor ones. The NY Times reports growing foreclosures in affluent neighborhoods in Manhattan. (I was just told that an alternative newspaper in Columbus Ohio moved into a historic mansion in foreclosure for just $1 a year because lenders there want to insure that criminals don't wreck the place.)

There were l00,000 foreclosures in August alone. Nine percent of all housing units are late or in default on payments -- a new record. A bleak situation is growing bleaker.

Greed and financial mismanagement, aided and abetted by a lack of regulation and media scrutiny, has not only forced our banks to write down billions, but is "blowing back" into the worlds of wealthy lenders in other countries who, in wanting to emulate our booms, are at risk of sharing our busts.

Case in point: the Gulf. Writer Peter Cooper notes in Emirates Business 24/7 that the Gulf States are now being impacted by the collapse of key sectors of our economy.

"What will this slowdown or recession in the world mean on the other side of the world for the Gulf States," he asks. "Is this the foot coming off the accelerator of the global economy?"

In a globalized entangled and interconnected economy, no region can expect not to be impacted when the world's number one economy goes south.

Recently, American bankers have been traveing the world, cup in hand, in search of partners and help from overseas banks and investors.

Some $7.5 billion in funds from Abu Dhabi was pumped into CitBank last Fall after Citi board member, ex-Goldman Sachs chief, and former US Treasury Secretary Robert Rubin went calling.

Peter Cooper offers more details:

"When Citibank and Merrill Lynch were hemorrhaging money because of the subprime crisis, they needed cash quick. It was Kuwait that came to the rescue, reported CBS

"You put $3 billion in Citibank and $2 billion in ..."

"Merrill Lynch," Banker Al-Sa'ad said.

"That's a big vote of confidence in those companies," the CBS reporter said.

"It is," Al-Sa'ad said.

But as he looks for the best investments for Kuwait, he is growing increasingly concerned for America's free-spending ways.

"You have a fundamental worry about what's happening in the U.S?" the journalist asked.

"This is fundamental. This a fundamental issue," Al-Sa'ad said. "This is a structural issue in the U.S. economy."

Nothing concerns him more than our spiraling debt! Neighbors like Turkish Finance Minister Kemal Unakıtan warns the US economy is unstable.

It is no wonder that neighboring states like Turkey warn that investing in the US today is dangerous and encourage the Gulf to put its money in Turkey:

"...These guys will leave you bankrupt. Is there any point in taking the money to the United States, investing there? Turkey is just next to you. Nobody's money will be lost here..."

At the same time, Gulf countries are piling up their own debt. The Memri Economics blog reported that Gulf region debt shot up by 50% in 2007.

"UAE-based companies defied the international credit crunch last year and raised 50% more funds through debt issues.

Another local financial tracker, AME, reports a debt crunch infiltrating into the consumer sector in part because what their oil wells make, their malls take.

"A potential debt crisis is beginning to worry analysts due to rising inflation in the UAE. Inflation is seen as fueling consumers to turn to borrowing to finance the soaring cost of living in the UAE," Khaleej Times has reported.

The UAE central bank data has recorded loans advances and overdrafts surging with a 38% increase over the same period in 2007. It also noted the UAE's daily per-capita consumer spending is among the highest in the world at $27, against an average of $3.50 in the rest of the Arab world."

And now, according to ArabianBusiness.com: "Consumer loans in the UAE have increased 46 percent during the past 12 months.

Bank data also showed that consumer loans have risen more than 73 percent since the end of 2006 and almost doubled during the past four years. The strong growth in personal loans is seen as a major contributory factor to higher inflation and the central bank recently raised the possibility of placing limits personal loans."

A financier I spoke to in Abu Dhabi finds this alarming and adds: "Also, interesting how one report cites inflation as a cause of increase in consumer debt, as people borrow to meet higher prices, another report cites rampant increase in consumer debt as the cause of inflation."

It seems as if our debt addiction is catching. Call it a virus, or a contagion. But don't call it good for anyone's economic future, theirs or ours.

In America, normally prudent business investors believed their own hype, until they no longer could. Due diligence went out the window because everyone was doing so well. They aren't now.

Others overseas seem to now be making the same mistake.

I have been tracking these issues for years as a filmmaker, writer and author. My documentary IIn Debt We Trust warned of the growth of this debt burden. It was called "alarmist" until the credit collapse was undeniable. My new book, Plunder, on the unregulated markets in America shows how Wall Street greed led to illegal and fraudulent practices that helped undercut the global economy leading to a loss of trillions.

The media and the financial press did not do a good job in exposing these practices when they might have been stopped. Transparency was inadequate. Writing in the Columbia Journalism Review, financial analyst Dean Starkman slams the quality of financial reporting by major news outlets for their failure to scrutinize illegal and unethical practices in the mortgage, investment banking and ratings industries.

Funny, isn't it, how for years, Americans pointed its finger at corruption in the Arab world and emerging economies when the USA itself may have been the "mother of all corruption," all along.

Alas, the political parties are still mostly avoiding these issues. One writer who analyzed the convention speeches of the four major office seekers, found that none of them mentioned the words, banks, financial crisis, Federal Reserve Bank or the collapse of Fannie and Freddie. Total references by Obama, Biden, McCain and Palin: 0.

(Later, after the government take over became news, Barrack Obama said that he supports whatever can stabilize the economy; Sarah Palin said the problem was the two agencies are too big, not displaying any awareness that these were public-private institutions, not government agencies. The question for progressives: what can we do to educate the public on these issues?)

Having recently returned from the Gulf, I found an "it can't happen here" attitude in cities that are growing office towers instead of food while expanding with landfills filled with environmental risks. Some thoughtful businessmen I met said that, of course, that bubble could burst too, but like the investors in subprime securities, no one thinks it will or can happen on their watch.

As the economy continues its decline, the continuing denial all over the world is not just idiotic, it is dangerous. This crisis ain't over yet.

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