Do you guys really believe...
I’ve been thinking about this problem for quite a while. Do you guys really think if we didn’t let Lehman go fail, the situation wouldn’t be contagious like these days? I see the rough picture. Lehman fails, and AIG gets tons of margin calls from its CDS buyers, and things BEGINS to continue. When will this f**king thing end? I think we’re indeed in great depression right now, and people just don’t acknowledge it. I see the news coming from the papers telling there is huge mess on credit cards. These kind of news pop up like this manner until just before the bomb explodes. I can recall the same things been happened before 2008. Some cautions occasionally stemming from the ground, and some warnings about the house markets. Maybe we’re just totally out of control. What the h*ll our we going to do of this?
I think Lehman needed to fail just like AIG, Fannie, Freddie, Citi, and the Detroit automakers need to fail. The fallout would have been terrible, no doubt, but now the American taxpayers on the hook for these terribly mismanaged companies to the tune of hundreds of billions of dollars for years to come. All the government is doing is delaying the inevitable, building false hope, and setting the country up for an even worse recession down the line. We continue to spend money we don't have and we are burying future generations in debt. The government is setting up our currency for an ambush; I can't believe these tactics won't destroy the purchasing power of the dollar. Bush/Paulson dug the hole and now Obama and Company seem fit to shovel the dirt on top.
I just think that we should have let the insolvent companies with illiquid assets, fail. We are in a recession and we are having "deflation". I think that the market is deciding the value correctly, because we were inflated before. Japan tried fighting deflation and then they suffered for a decade. It just does not make sense. For banks who did everything correctly and were competent, why not let them gain market share when incompetent banks fall. A bank gets toxic assets that it cant sell, so we give them more capital to compete with the competent banks? Alan Greenspan started all this by bailing out Long Term Capital Management, instead of letting it fail. Now the government intervention is just continuing, and I think this time next year people will realize that you cant throw good money after bad money. I would rather suffer for 2, 3, or 4 years rather than a decade or more with Hyperinflation, Obama's projected GDP numbers are way too inflated. Check out the "inflation" post from a couple weeks ago.
The government really needs to let these things fail, for so many reasons. Not only should equity holders be wiped out, but debt holders really need to suffer as well.
Didn't the government make a profit on LTCM?
The small profits went to the banks that participated in helping LTCM. I think the Fed Reserve, aka Greenspan, just organized the bail out. However, by bailing LTCM, it set a precedent that it was alright to take on risk, because the government would "bail" you out. If LTCM would have failed, I think you would have seen a huge difference in the future of CDS.
God, the days of LTCM are a fond memory now. Believe it or not, back then we were being told that if LTCM failed it would be economic Armageddon. I think that bailout was all of about $30 billion. Buffett came to the forefront of that mess warning about what would happen in ten years with derivatives.
If only LTCM was allowed to fail and we got a wake-up call on derivatives in the late 90's, we might all still be making bank. But we never learn.
I really have a problem with Geithner. He was in Japan in the 90s, and saw first hand what government intervention did. He was also the President of the Federal Reserve Bank of New York, and saw the derivatives mess happen in front of him. Not to make this political, Obama based his political platform on change, but he brought in the a person who has been in middle of an economic mess from the beginning. And the real absurd part is that when someone asked Geithner why we should spend to bail banks out when it didn't work for Japan, he said Japan did not spend enough!
"Economists tend to divide into two camps on the question of Japan’s infrastructure spending: those, many of them Americans like Mr. Geithner, think it did not go far enough".
..Let's keep debt monetization going, devalue the dollar, and hope all our foreign creditors never come to collect. What an outlook.
LTCM was not even a real bailout. Buffett was pissed off that the government stepped in because the prices were so low he figured he could make a killing. Their bets weren't bad, they just got fucked by margin calls and couldn't increase their bets like they wanted to when the spread widened
It was not a bailout in the sense that no direct government funding was involved? (I don't think so anyways), but it was an intervention by the government to organize the creditors to prevent the fund from a mass liquidation that would effect the markets. The end result of the action by the government resulted in an injection of capital, which is exactly what is going on now with the "too big to fail theory". I don't know, I'm just venting because I don't agree with what is being done, but only time will tell.
My point was more that it wasn't a bailout because they hadn't really made bad trades, the market was just acting irrationally and the government stepped in to give them time to unwind trades, so not really a bailout per se.
The great depression??? You need to get some perspective on that subject matter. I think a noteworthy individual who largely contributed to this mess would be Alan Greenspan. His book was awful by the way.
Obviously, this is not the great depression, but who knows if this isn't just the beginning. And I would actually argue that we might be in a depression right now, depending on how the next couple of months play out and on how you define it.
Although, I do agree that Greenspan was at fault, but so was everyone else. I blame the American public for taking out loans that they shouldn't have, as well as real estate agents and mortgage companies that got too greedy. I just hate it when everyone blames the republicans for this mess. During the 90s when democrats were in charge, 5 ibanks (GS, MS, MER, BSC, LEH) all went to congress and asked if they (exclusively) could go from 10:1 leverage to 30:1 leverage (from 10% tier whatever capital to 3%), since it was safe and would help boost the economy; and the democrats said yes. So, I blame the democrats for starting this mess just as much as I blame the republicans for not stopping it.
a good rule of thumb in life is that whenever there are two or more parties arguing over who was at fault, all of them are at fault. This also applies to relationship counseling and International politics.
Are you guys watching Bernanke on 60 Minutes? I want to reach through the TV and slap him. He's giving some analogy about houses being made of wood and the crisis being a fire. Also the contradictions he's issuing regarding the role of the Federal Reserve are just absurd. And to boot, the $165 MM of bonuses to AIG Execs seems pretty reasonable after a 4Q 60+ billion dollar loss doesn't it?
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