[frookenhauer]

Its been a while since I last posted on this, apologies, but I been busy. Anyway, back to the bailouts...

The one fact that you are missing or potentially ignoring or have no clue about is the sheer amount of money that is being protected here. The bailout is pretty much around the $750 billion mark, half of which is now gone at the very least. While this seems to be a huge princely sum and should never have been handed out to any stuck up banking body in any shape or form. In real hard fact terms it is much akin to that little boy sticking his finger in the dyke thereby saving everyone (admittedly trying something like this today would probably get you arrested). Allow me to explain.

Lets just concentrate on the US for this example:

Fanny Mae - worth $44 Billion with $885 Billion in assets under management
Freddy Mac - worth $26 Billion with $790 Billion in assets under management
AIG - worth $56 Billion with 850 Billion in assets...
JP Morgan Chase - worth $ 172 Bllion with $2 trillion in assets (yes, 2 trillion)
Bank of America - worth $175 Billion with $2.25 trillion in assets
Citigroup - worth $141 Billion 2ith $1.9 trillion in assets.

And the list goes on and on and the numbers are the same and if you add the number of employess these guys have each company has in the region of 100,000 plus, imagine trying to find jobs for them all. As for the assets under management...how many cents to the dollar are you going to extricate from them? half? a quarter? a tenth. And what of the plethora of companies that service these monlithic institutions from the cleaners to IT? Here again the list goes on and on and bloody well on. So much of the fabric of todays corporate world is tied to these comapanies. And they are all tied together in devious ways through hedge funds and whatnot. I say again, letting Lehman brothers go to the wall alongside the thundering herd (Merryl Lynch) was a huge mistake, it opened up a gaping, bloody hole into the sides of too many institutions for it not to have been. The bank bailout is something we should all be proud of.

I understand that its easy to listen to the tabloids and similar ilk, they shout the loudest and know exactly which buttons to push to get people to believe the cartload of manure they're peddling is solid gold truth.

Of course they dont actually produce anything GGG, they are in the business of making money by manipulating money. Nothing dishonest in that at all.

[Grand Goombah Graeld]

Frook, I'm sorry, but that's all no more than gloom and doom. Each of those companies mentioned, indeed all the companies that were recipients of the bailout, are large corporations. They're made up of many smaller companies. All of those corporations going into bankruptcy wouldn't have brought the sky down on us, though. You have to look at each entity individually. Let's just go with AIG. If AIG had went into bankruptcy, the corporate entity, AIG would have become debtors in possession of all it's assets and companies. Not all of the companies that make up AIG had trouble. Essentially, all the assets of AIG would've been sold through auctions. Some of the companies would have been bought by themselves. Most would've been bought by outside entities. There would've been a few which no one would buy without some or all liability being dissolved. All assets which had liability in excess of their value would have been lumped in with the corporate entity of AIG, the proceeds of all the sales of assets would've gone to pay as many of the debts as possible, and the corporate entity of AIG would've ceased to exist. Probably no more than 10% of all employees of AIG and all it's subsidiaries would've lost their jobs, many of those would have probably been well off white collar workers. The vast majority of employees of all the AIG subsidiaries (because the vast majority are employed by the subsidiaries, not the corporate entity) would have kept their jobs. We had an economic collapse anyway. Companies everywhere have downsized to bare bones in most cases. I'll bet if you look at all AIG subsidiaries, they have too. That may actually be more than would've lost their jobs through the bankruptcy process. Look at unemployment. Look at small business' inability to get loans. AIG and the others falling would've been more painful for a few weeks, but what we've done instead is draw it out over a much longer period of time and draw more people into the whole deal.

[Gothos]

There's an amusing thing to this collapse - even a crisis won't work well in Poland. We're doing pretty good in comparison to most EU states, and we've even had some growth within the last year. It could have something to do with our approach to the crisis - instead of bailouts and increased funding, our government cut on expenses as much as it could. Could it be this was the right way to go?

It kind of makes sense. Why help the incompetent compete with the competent? You might argue that we don't really have any "too big to fail" companies here, but really, in the long run is that the thing we should focus on? What if all those powerful governments sacrificed the companies that just failed, and made room for new, more effective ones to take their place?

[Grand Goombah Graeld]

Gothos, on 16 December 2009 - 09:38 AM, said:

There's an amusing thing to this collapse - even a crisis won't work well in Poland. We're doing pretty good in comparison to most EU states, and we've even had some growth within the last year. It could have something to do with our approach to the crisis - instead of bailouts and increased funding, our government cut on expenses as much as it could. Could it be this was the right way to go?

It kind of makes sense. Why help the incompetent compete with the competent? You might argue that we don't really have any "too big to fail" companies here, but really, in the long run is that the thing we should focus on? What if all those powerful governments sacrificed the companies that just failed, and made room for new, more effective ones to take their place?

Hear, hear!!
You, sir, are a genius! You've hit the nail right on the head!

[frookenhauer]

Erm...Poland has a GDP of roughly $600 Billion, which is pretty much the same as what Lehman brothers had under management when it went under. Hardly irrlevent, but in the grand scheme of things it shows some perspective, no?

GGG...Its funny how the tables have turned, I'm being accused of doom and gloom? Who'd a thunk? I look at your argument and think, okay it certainly makes sense, but the wheels of your jolly "dont worry, it wont all be bad cos somebody will buy up or end up owning or..." quick fix thingy will fly off if too many compnies fall at the same time and THIS was the reason the bailout was rolled out with a rapidity that left the world reeling. The threat of the whole system falling apart was REAL and this is why the bailout got lubed up and pushed out. And the funny thing is, it worked. Damn! Now people are talking about what will happen because of it and fail to see the effect its had on our economies. We are doing more than surviving. What was touted as the biggest crisis in modern times was met head on and we are financially doing rather well thank you very much.

Look, for a long time now I have been stating that there is nothing to really worry about and dont worry too much people it'll be alright and nice chaps like Nic have been venting one piece of alarmist crap or another for some time now. Months down the line and it seems I may have been correct. It might be possible that I might also be correct about the bailout, truth be told I'm sure of it as I am sure that the sky is blue or shite tends to smell.

Your argument with regards to AIG is purely skeptical, but if you look at the fallout created from the fall of lehman brothers you'll have a bloody good idea what would happen in real terms. Good god, even Florida lost out to the tune of $1 Billion Dollars and then you can add the rest. Make no mistake Lehman left a bloody hole in the side of everyone and another fall of a similar sized organisation would have been, I would assume, catastrophic and we would have been royally screwed to use a technical term. Have a dig around, its not really a nice story.

[Nicodimas]

Frook- I honestly hope your right!

Heres the dilemma and how we could be okay. I believe that American's will find a way to sort it out. Hope you like it.

"http://www.zerohedge.com/article/apocalypse-not-dollar"

The other forgotten thing is our military..If our military wasn't around we would be smoked out with amount of greed going on right now. So something to think about. All roads lead to wars<plural> at the end of this. Imo at the end of the day the math doesn't make sense to me. Of course this clear to you by now.

[Gothos]

Frook, scale is just that. I believe the USA mostly averted at least one gigantic crash within 1-2 months due to reduced govt spending (some time before the Federal Bank came into being). It was good then too. Following what you pointed out, it should be easier for smaller countries to fight the crisis, but it's not. See: Iceland, Germany, Lithuania, Latvia, Estonia...
If the system is falling apart, why not let it do that? If you start keeping it going for any cost, it'll just end up getting heavier and heavier. The Eastern Block couldn't cut it in the end, and couldn't keep up with the West either, and the socialist system ultimately collapsed, leaving most of it's countries in ball crushing turmoil, but now we're doing pretty good compared to then. Perhaps the capitalist world has to reform as well at some point - perhaps it's now. Or maybe in 30-50 years when the world won't give a damn about the american economy since it'll be overtaken by China and India by that point. But why wait and let them take over really? The epic fails have to go down sometime, and the sooner, the better. Just bite into your sleeve and accept a lower living standard for a decade or so and let a new quality rise to challange the incoming asian domination. The American Century is coming to a close, and seriously, you guys need to do something spectacular to stay on the top.

[Morgoth]

Umh, Latvia, Lithuania, Estonia and especially Iceland are struggling more than pretty much anyone else because of their absurd borrowing and spending up to the crisis. Big or small doesn't matter in that context. The three major banks on Iceland had a collective depth 12 times the size of Iceland's GDP for christ sake.

As for Germany they've had a slow economy for some time, and it is only natural that an economy so tied to exports suffers during an economic downturn.

[Nicodimas]

Quote

The American Century is coming to a close

No it isn't. The dollar is backed by our military. That trumps mostly anything.

[Obdigore]

Nicodimas, on 17 December 2009 - 08:03 PM, said:

Quote

The American Century is coming to a close

No it isn't. The dollar is backed by our military. That trumps mostly anything.

Says the guy who has claimed to be an Anarchist.

Of course, Trollthos over there isn't much better than your sandwich board wearing 'the end is near' posts, but I find it interesting that when a troll trolls a troll, the troll responds with 'my daddy can beat up your daddy.'

Im just saying...

[Gothos]

geez where's trolling in there?

[Grand Goombah Graeld]

Just wanted to do my fair share of trolling...

[Sindriss]

What I find interesting concerning this crisis is how it will affect the global competition. Will this be the trigger to a new paradigm shift in how organizations' compete? Scholars tend to agree that we are in the middle of the learning economy i.e. learning and de-learning is the staying competitive ability of any organization (before that we had the knowledge economy).

[Shinrei]

Here's some year end doom and glooming for thought.

http://dailyreckonin...ossal-blunders/

[Shinrei]

Hey Frook, I think I found something we will agree on again:

http://money.cnn.com...eymag/index.htm


The comments below this article....man, all I gotta say is some people have NO CLUE when it comes to financial matters, not to mention "target audiences".... I speak specifically of comments by Dennis Cica, Ryan Cornelius and John Peralta.

[Nicodimas]

http://www.zerohedge...ut-job-27-weeks

Everything is just fine! I have been enjoying the spin the news has been doing lately. Some of it downright funny, as that sad thing I keep looking at is how many people probably believe it. So so sad.

Quote

"What I find interesting concerning this crisis is how it will affect the global competition"

All paths we are taking lead to war. What is really going on behind the scenes is a brutal economic battle, we are now just starting to see the intial volleys. Track what the vampire squid<GS> does as the US unleashed a monster. If the 2010 are going to be like the 1930's you can figue out how this will roughly play out.


I await the five dollar/gallon + gas this next year...

Cool Graphic:

http://www.zerohedge...ebt%20Image.jpg

This post has been edited by Nicodimas: 12 January 2010 - 05:44 PM

[Cobbles]

I'm particularly intrigued by the situation in Iceland.

First, what happened in a few words:

For reasons I don't want to get into, Iceland had a high interest rate in the recent past. Icelandic banks thought to profit from that by opening branches mainly in the UK, the Netherlands and Germany to attract capital from small investors. Basically they could offer high interest rates on deposits. Since the banks were Icelandic, deposits were subject to Iceland's deposit insurance similar to the FDIC. When all the three main banks in Iceland collapsed (after an enormous growth spurt, the three banks corresponded to about 80% of the Icelandic stock exchange) the sh!t hit the fan.

For starters, Iceland's version of the FDIC did not have the reserves to pay out deposit insurance. The UK and the Netherlands had to step in and loan the money to Iceland so they could pay out the deposit insurance to depositors in the UK and the Netherlands. In essence it's a socialization of losses (after years of privatization of profits by the bank). Now the Netherlands and the UK require Iceland to pay back the loans and set pretty tough conditions. The Icelandic crown is pretty much trashed and will likely never recover as a freely convertible currency. It now has a status similar to the old Soviet ruble with strict supervision of who can exchange when and how much of it against, say, euro and dollar. Iceland's best hope is to join the EU (and euro zone) while the UK and the Netherlands threaten to block that unless they get favorable conditions for their loan repayment.

Iceland's main resource is fish and Iceland has clashed with the UK before, concerning fishing rights. Iceland has no military. The populist movement easily has a majority of votes to reject the most unfavorable repayment conditions, hence the Icelandic president has refused to sign the corresponding bill. The IMF and other countries will not loan money to Iceland unless the repayment conditions for the UK/Netherlands loan are agreed upon. So, Iceland is really caught between a rock and a hard place.

My thoughts:

1) Obviously, Iceland's financial regulatory agency was asleep. They should have required the banks to contribute more to the FDIC which likely would have put a stop to the irresponsible growth of the banks. Then again, that growth fueled the growth of the Icelandic stock exchange, so it probably would have been pretty unpopular. I guess they were amateurs at work who only saw the growth, never the risk.

2) Once the banks collapsed and it was clear that the Icelandic FDIC was overwhelmed, Iceland was practically bankrupt. Whatever is going on now, is just prolonging the pain. The effort which is going on by the UK, Netherlands, the IMF etc. is to extract as much wealth as possible. There's practically no chance to avoid total bankruptcy. Iceland could have gone that route in 2008 by trashing their valuta (say devaluate to 1% of its value) a short burst of hyperinflation together with a trashing of their credit rating (they're one notch shy of junk right now anyway, so no big deal) and then start anew. I think the option was unpopular inside and outside of Iceland because of the precedent it sets. Western, capitalist nations must not go bankrupt! It would undermine the system.

3) Lack of leverage (military, natural resources, market size) will screw you. It makes you a punching bag of larger nations. With quite a bit less than half a million inhabitants, Iceland has no leverage whatsoever. Even its importance as a Northern base in the cold war is gone. They're not in the EU and have few friends left. Not a good situation.

4) It's interesting where it goes from there. With the UK/Netherlands request, Iceland will be a people of debt slaves for one or two generations to come. However, 'the system' meaning the IMF etc. won't allow a Western, capitalist democracy to go bankrupt. It would destroy all confidence. Then again, the government, under strong pressure from the populace, might just decide not to play along.

5) What can we learn from it? Well, beside the obvious, that competent oversight is required? Would it have been possible to let Citybank, BoA, AIG collapse? Does for instance our FDIC have sufficient resources to cover for such? If not, no foreign country would step in to bail out our FDIC which could be a good or a bad thing. How much debt can we run up before everything comes tumbling down? Iceland, in some sense is a model of what could have happened here. It's not a 1:1 model, some aspects are similar, some not, but it's interesting.

Your thoughts?

[Morgoth]

There's been quite some outrage towards the Norwegian government for not giving more assistance to Iceland. Even though relationships have been sour on and off in regards to fishing Iceland is in many ways culturally closer to Norway than any other country. Norway could easily have provided the loans needed while providing much more favourable conditions.

Mind you, what we really should do is just buy the country thus rectifying a silly British error from the time of Napoleon.

[Nicodimas]

Ok since we are back to free crash mode again. Lets explain why the goverment plans aren't working in two simple steps over the last year.

1) more Unemployment.
2) more Debt.

The report came out for this year that they miscounted 1million more jobs lost this last year. Just a slight mess up on there part. There was another 700k lost, but they are moving those lost jobs out until next year. They raised the debt limit to 100% of the GDP. Eurozone is imploding quickly this week. We are looking at three countries close to soverign default and freaking germany isn't looking good at all right now.

When Bear Sterns Collapsed its leverage was 80:1...which sent the market into freefall. Well check out blackrock 162:1 Leveraged.
http://www.businessi...ngle-day-2010-2

Insolvent States:
http://www.zerohedge...yment-situation

They want your 401ks!
http://www.zerohedge...uitization-401k


Prepare!
Monthly dose of bad news--From Nico

[Nicodimas]

Haven't posted in here for awhile.
Well Greece put out 8% 3 month bonds and 15%--> 2 and 3 year bonds this morning. Which junked there status instantly. No worry is always if you let one country slide into oblivion will it take another with it? Seems like that is so:

Greece went from A-2 Status to JUNK in two weeks,
Portugal just got downgraded to A-2.
Others will follow

Deflationary sprials become very scary when people think they can control it.
http://finance.yahoo...n&asset=&ccode=

Most people don't have a clue what is really going on..Greece is where LEH/Aig were in late 2008, the question is will it tank the market. This will show a nice picture representation of how the dominos fall-->
http://www.zerohedge...0-bond-issuance


Oh then there is this:
http://www.irvinehou...by-600-in-2010/
7.5k /month Foreclosure rate to 45k/month! Neat.



Hail Mary time.

This post has been edited by Nicodimas: 28 April 2010 - 06:40 AM