The OFFICIAL Unofficial Achewood Message Board
Trivial Pursuits => History => Topic started by: Arachno-capitalist on September 17, 2008, 06:12:26 am
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Someone PMed me asking about the current thing going on - the thing that has been called Financial Armageddon.
Recent events are the culmination of the mortgage crisis plus some other highly leveraged bad investments. Without getting into the particulars of the mortgage thing (I feel like it has been talked to death on the news), financial institutions ended up with large amounts of mortgage backed securities that they are forced to continually down-value on their books as people default and housing prices decline. Investments at this level are very highly leveraged, so writing down 1 dollar actually results in a much larger effect. The financial institutions can't make new investments, their old investments are failing, and no one will give them a loan - not even the foreign oil barons or the Asians.
Now they are having trouble keeping enough cash around to operate so they seek buyouts, bailouts, and bankruptcy protection so they can get rid of their bad investments and move on.
AIG has the added problem of holding Credit Default Swaps which are like insurance policies against debt defaults, and defaulting on debt is kind of in style lately.
When a 160 year old company fails and a trillion dollar company fails, we get very uncertain about the future and pull money out of investments.
Today the government put together an 85 billion dollar bailout loan to AIG to keep them from bankruptcy, which would be bad news for everyone.
So there. Just in case anyone is interested.
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So in other words, all that big scary Government Regulation between FDR and Reagan was actually a good thing, a fire wall against the kind of short-term profiteering that can bring down an entire economy if done on a large enough scale.
And now we're fucked, because laisse-faire ain't so faire after all.
Still.
Better than that asteroid movie.
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I predicted this response, and it would seem like that is the case. A lot of supposedly smart people made very bad decisions.
However, the government contributed to this in at least three ways:
1. The Community Reinvestment Act which requires banks to offer mortgages to every group of person, not just the ones who are likely to afford them.
2. The repeal of the uptick rule, which requires a stock to have upward movement before it can be sold. Hedge funds can spiral a stock into oblivion.
3. Policies that increase Moral Hazard. When the government goes out and actively participates in bailouts like it has, people come to expect it as an option. Bailing out failed companies may have more net benefits in the end, I prefer to live in a world where the governments policy isnt "You pays ya money, ya takes ya chances" when it comes to homes and jobs. Govt bailout activity, though, is addictive.
But even I can't pretend that most of the fault is on people who made very poor decisions about mortgages. People in boardrooms and people in bedrooms, alike.
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A-Cap, I thought this was all your fault. Didn't we lately learn in another thread that the top financial decisions for the nation were made according to information that you provided?
OK, I'm going out now to exchange money for some things that can't vanish like food and books.
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I keep hearing that AIG is the biggest insurance company, but the news never seems to answer the most important question about them. Which is, does AIG own any of my insurance?
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Not anymore?
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I keep hearing that AIG is the biggest insurance company, but the news never seems to answer the most important question about them. Which is, does AIG own any of my insurance?
All insurance policies are solvent and will continue to pay as normal. Its unclear yet where these policies will go from here, as in, will they stay in subsidiaries or be bought by other insurance companies.
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I keep hearing that AIG is the biggest insurance company, but the news never seems to answer the most important question about them. Which is, does AIG own any of my insurance?
Who is your insurance with?
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Who is your insurance with?
Honestly I don't even know what sort of insurance AIG provides. Health? Car?
But to answer the question Anthem BC/BS, Delta, Progressive, and Travellers
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None of those are AIG companies.
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Today the Russian stock market tried to open, but closed again, it is unclear when it will reopen. Washington Mutual announced it is auctioning itself, and Wachovia has moved to take over Morgan Stanley. Lloyd's is
acquiring merging with England's largest lender HBOS. The FDIC that insures your bank deposits is operating below their legislated minimum reserves, so in an interesting move, the government will likely loan money to itself to keep the FDIC solvent. Dow Down 449 points.
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If you want to keep your money in a mattress, are you just supposed to put it between the mattress and the boxsprings, or are you supposed to cut the mattress open and actually put the money inside?
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ew, Wachovia is trying to hire my dad back, apparently he left due to tensions over decisions they were making that he thought were stupid... now he gets a call saying basically "you get to say I Told You So if you want, but please come work for us again."
considering he was in "Consumer Lending" I feel pretty proud if in fact he was telling them that they were being stupid.
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The FDIC is about 2 blocks from my house. Today I rode down in the apartment elevator with a guy who had an FDIC badge on his belt. Everybody else in the elevator was like, "damn, it must really suck to be in that office right now."
I also got an e-mail from ING basically saying, "we mainly do savings and CDs. Those are both totally safe. Please don't panic and close your accounts."
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now he gets a call saying basically "you get to say I Told You So if you want, but please come work for us again."
Damn, there are so many places I would kill to get that call from, and say noooo fuck*ng way.
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If you want to keep your money in a mattress, are you just supposed to put it between the mattress and the boxsprings, or are you supposed to cut the mattress open and actually put the money inside?
You cut open the underside, between the mattress and the boxspring, and slip the money in there. Warning: do not do this with an air mattress.
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Or a waterbed. I see.
Thanks, it is good to have specific instructions at a time like this. Why does it somehow make sense that Ben is the one who can provide these?
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Because he's a man of action who gets things done, a two-fisted detective.
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Things seemed to be put on hold if the congress passes ~$1 trillion package to buy out all the bad mortgage debts. Whatever entity is created to handle the instruments will slowly unwind them and try to sell them. News of this is why markets rebounded at the end of the week. As said by Bush, this is a big problem that needed a big solution. Personally, however, I wonder why the money is going to financial institutions, paid by tax payers, as opposed to relief to the people who were led by fraud by financial institutions into mortgages they can't pay. It seems that a broad mortgage restructure plan would help the actual people involved, as opposed to the financial firms. This week has been the grandest example of government privatizing wealth and socializing costs. Taxpayers will pay to bail out the companies, but you'll fly before you see a check from any of the supposed "profits" from this scheme.
Further, there is a ban in place on short-selling. Short selling is when investors are allowed to sell stocks they don't own and then buy them back later. While ostensibly bizarre, it actually serves a very necessary market function. The market effect is that stocks cant go down as fast as they did in the past. The political effect is that the administration looks like they saved the crisis, when in reality they have frustrated people looking to short sell stocks. What exactly do they expect to happen when the ban is lifted?
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Any comment on this (http://dealbook.blogs.nytimes.com/2008/09/21/goldman-morgan-to-become-bank-holding-companies/?em)? To be very superficial and cynical it seems like investment banks becoming holding banks will mainly mean that the next time this lesson is forgotten and people start taking stupid risks out of greed it will be people's savings as well as their investments that go up in flames. I realise that this also means there'll be more oversight but it seems like a vaguely worrying move.
I'm only just starting to appreciate what's going on here. I'm not the type of person who thinks regulation or deregulation are inherently good or bad things, they are tools to be applied when appropriate, but the gall of an industry that has made a lot of people very rich by being allowed to play by their own rules being bailed out by the government now that they've taken too many stupid risks is really, well, galling. I understand that it's basically become so big at this point that a lot of people of varying degrees of innocence would be taken down along with the idiots in charge but... ech. I suspect not many CEOs will be losing their houses once this is through y'know? And it seems like they should be, if you're willing to take huge risks for great reward you should also have to pay up when it all goes to hell.
On top of that this (http://thepage.time.com/pelosi-statement-on-legislation-to-address-crisis-in-financial-markets/) and this (http://www.bloomberg.com/apps/news?pid=20601070&sid=ae6b6P1L8E_E&refer=home) leads me to believe that the people who wrote the current $700,0000,0000,000 (I just love writing that out because it's so goddamn huge, that's something like $2,295 per person) proposal seem to think a continued lack of oversight is the best way to deal with the situation. Seriously, what the hell?
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(http://www.threepanelsoul.com/comics/098.png)
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Supposedly Bush was initially against the bail-out as "free market" means that huge banks are free to fail if they fuck up. But then he was convinced otherwise for this one case. I'm not sure if I buy that, but it's what the local news station is saying.
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Supposedly Bush was initially against the bail-out as "free market" means that huge banks are free to fail if they fuck up. But then he was convinced otherwise for this one case. I'm not sure if I buy that, but it's what the local news station is saying.
Well look, the lesson learned is that its ok to fuck up a little. But when you fuck up ROYALLY, the government will help you out with other peoples money.
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Steal a little and they throw you in jail, steal a lot and they make you king.
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Three Panel Soul. Very nice.
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That man understands history.
Can't take credit ... that man would be one Robert "Zimmy" Zimmerman.
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Really, old Zimmy said that? Nice to know.
Oh, he said it in the 80s, thats why I don't know already.
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Doc, i made sure that comic found its way around the department today.
So Investment Banking used to be this profession that people in business school would aspire to. It used to be a thing people did with money. I think I read somewhere that the new largest investment bank is some 300 person firm no one has heard of.
I like the thing we're doing now where the government is asking the government for a bailout. Because the financial wizards in congress know more about business than people in business, they are writing a bill to spend 900 billion of your dollars to engineer some kind of government company whose sole job will be to buy and sell the most toxic investments in the world.
900 billion dollars. The iraq war in its entirety has cost 845 billion. :-\
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In further effort towards starting my blog, I posted this on my facebook:
Wtf are Credit Default Swaps? I explain in a non-boring way.
The Credit Default Swap, or CDS market, is a multi-multi-trillion-dollar thing where each vendor sells special IOU notes, as opposed to things with actual value. These special IOUs, CDSs, aren’t actually good for any money. They are really just a quasi-insurance policy against default.
When you buy a CDS, you pay the person who sold it to you a premium. If someone who owes you money says they can’t pay up on their IOU, that's not a thing. The person who sold you the CDS will find you and throw money at you to cover the loss. Natch.
Not sure who to buy a CDS from? That's cool. You can buy or sell CDSs to and from invisible people, too (Due diligence? What is that?). Don't worry about identifying the person who will actually pay you when someone defaults on a loan. A wizard will appear to create money when defaults occur.
When defaults on the IOU occur, search for the person who issued the CDS. If you can’t find them: (1) Hire a lobbyist and learn the meaning of "rent seeking". (2) Someone from the government will hand you a sack with a dollar sign on it.
If you don't have the resources to send people to D.C., wrap your CDSs in rubber bands (print them out so they look like real things) and then tell your accountant they are "Assets".
Then, if other people are in trouble, tell them you have "Assets" and can help them by buying them out with these "Assets". Repeat these steps until someone from the government hands you a blank check.
See: AIG, Bank of America, Citicorp, Wachovia, etc
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A wizard will appear to create money
I had just kind of ASSUMED this is how the system works, but it's nice to see that fact confirmed.