OT: another long off-topic economics thread

Here, right here, is the part that ought to drop every jaw in site: George states that "The current US GDP is around 13 trillion dollars"

This is important in the scheme of 70 trillion dollars of financial loss on the immediate horizon. Ok, so these losses aren't confined to the US but they are definitely going to be concentrated here. I'm going to look and see what the combined value of the NYSE and NASDAQ are. I know that in relative terms US equities have lost half or more of their value since the turn of the century but I wonder just what that value is today.

============= From another time and place -- "I feel yo' pain."

A video clip that may be of interest

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

========== Several people have emailed me asking about, what on reflection is a very obscure reference, to what I meant about Argentina.

A very informative vide clip can be downloaded here.

This runs about 30 minutes so you will need a high speed connection to download.

Pay particular attention to the comments and observations about "privitazation/corruption," and the devastating impact privatization has had on the domestic economic sectors such as air transport/civil aviation, particularly in combination with globalization and the huge increase in the public/governmental debt at the same time the governmental assets such as the telephone system, and the post office were being sold off.

Argentina is currently in default on their dollar denominated bond payments. As part of the effort to avoid default, the Argentinean government seized the private dollar denominated accounts in the trans-national banks, after promoting the US dollarization of the Argentinean economy to help control inflation. Most of these accounts remain frozen, although some movement has been made for compensation in Argentinean Pesos, at the excessively low "official" exchange rate.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

Data indicate that the total notational value of just the

So do all the people with brains...and memories. The regulation of banks, the markets, and business that was instituted after the Great Depression was done for very good reasons. But even if there hadn't been a depression it was inevitable that there would have been a lot of trouble from all the excesses of business during that period. So the country learned the hard way after numerous cycles of a boom followed by a bust and crooked and fraudulent free market businessmen pulling scams all over the place. That was why the regulations were put in. To protect everyone else from the crooked and overzealous corporations and businessmen. But I can say from personal observation that ever since the regulations went in the business community has been trying relentlessly to get them removed. When they finally got a lackey as president everything began reverting back to the pre-depression days, and lo and behold we're starting to see the same things that happened back then. If we don't get some new people in charge and they don't get a grip on the corporations and the business community they may bring us Depression 2; a new and even larger financial crisis. What's really frightening is that it may be too late and the free marketeers may have already done us in.

Hawke

[ I consider it highly significant that this information is

You should have been reading some of Kevin Phillips' books. In them he discussed how the financial world was completely unstuck from the real world. The "value" of all kinds of financial instruments is so high and travels electronically all over the world so fast that it has become a power all it's own. It's similar to in the 1980s when the supposed value of the Tokyo real estate market was greater than all the real estate in the US. Or when the Japanese stock market was at 40,000. It's the same kind of thing only worse, a lot worse. There is so much paper "value" it isn't even funny. At some point the intrinsic values will pull down the phony paper values. No one knows what will trigger it but when it happens it's going to be real ugly. Maybe the credit crisis happening now will do it, maybe not. But it's a train wreck waiting to happen. All aboard!

Hawke

========== Problem is that Glass-Steagall was repealed under Clinton. On November 12, 1999, President Bill Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of

1933.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

See if you can get an invite to a road show sometime. As an editor, you will have fun just parsing the language. You will also see just how far people will delude themselves to put an honest face on something that really isn't because the upside is big and the demand for that big gain is so persistent. An entire industry has been built around the Tony Robbins/Brian Buffini model of "coaching".

She's sort of a K00K from what I can tell.

It's not my world Ed but our orbits cross on occasion.

=========== Its called "shopping for advice." You keep asking people or institutions for their opinion until you find one that tells you to do what you want to do, and you take (and pay for) that advice. The "free market" does the rest.

Unfortunately this was (and is) not limited to the securities ratings firms but also included most (all?) of the major and second tier accounting/auditing firms. The only reason the major accounting/consulting firms are still in business, and their "leadership" not in prison, is that the Feds and the courts are afraid to put them *ALL* out of business as they did Arthur Anderson. They also know where too many bodies are buried. For an article published in 2002 about this in an obscure Indian paper see

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

There is some of that in every industry. LOL In the law, it's called "Judge Shopping" and is illegal.

In the case of CDS's, there isn't and real and testable "thing" to use for the basis of establishing thier value. They are valued by computer generated/modelled scenarios that are highly subjective. There isn't a standard. That, and a bit of salesmanship and horse trading. In fact, this was why AIG had to report an increase of 3.6 billion dollars in losses. They had to go back and restate the value of their CDR swaps. I gaurantee you George that if you or I make a 3.6 million dollar boo boo, we'll be in big trouble. AIG? Not so much. Hah!

These swaps also aren't regulated or even reported by any statute or government regulatory agency. There is just sort of a rule in the industry that when they are traded you have 30 days to report the chamge in ownership and identify all of the parties. A lot of these trades don't report timely and what can easily happen is that they can be discounted and then sold to buyers unable to cover them in the event of an actual default.

The bigs really do sit around and just make this stuff up and they get away with it, profitably and seemingly reasonably, because they can. The model they really care about is the one that is derived from very sophisticated analysis of consumer data that they buy from the big providers af such information. It's funny that they can figure out very precisely which buttons to push when it comes to selling their wares and won't do the same analysis of the value f the product they are pushing. Wouldn't you say? HMMMM?

That leads back to what I said before. These guys know exactly and precisely what they are doing except for Donald Rumsfeld's "unknown unknowns". LMAO

=========== While there is a great deal of truth in this observation, the problem is that it is not the entire truth.

In an interview Senator Mike Gravel of Alaska observed that the mainstream Democratic Party has not had a new idea since WW2.

I will add that neither party has had a new idea since the end of the war, the problem being that for the mainstream Republican Party the war referred to is WW1 or plausibly the US Civil War. [c. 1865 for our non-US readers and the historically challenged].

The expected results are that the two mainstream parties are now (and have been for an extended period) bankrupt intellectually, bankrupt ethically, bankrupt ideologically, and the government they control are all of the above, plus bankrupt fiscally.

Like the Bourbon kings of France after their restoration, "they have forgotten nothing and they have learned nothing," and are no more relevant to the people's current needs, concerns, and problems than the Whigs and Federalists.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

That was a funny line and it speaks to Rumsfeld's lack of media insight; he should have known he'd get beat up over it.

But -- and correct me if I'm wrong -- he was just re-wording an idea from risk arbitrage, was he not? Risk arbitrageurs (who had their real heyday when Rumsfeld was a CEO) break risk down into two categories: measurable risk -- the known unknowns -- and unanticipated risk -- the unknown unknowns.

That's an oversimplification but I think that's the framework from which Rumsfeld delivered his wit and charm.

-- Ed Huntress

You are correct Ed, but it was funny as hell because Rummie took the long misleading road when he could as easily have given the short version - he couldn't know.

Arbitrageur, is that another word - like Entrepreneur - that the current admin. thinks the French need a word for?

Come to think of it, has Donnie popped in on the world lately?

F. George McDuffee wrote in news: snipped-for-privacy@4ax.com:

What is it?

=========

With these bonds paying 20% I did a little digging on "auction rate securities." Far more here than meets the eye. A quick internet search finds the usual spin/puff sites, but the less main stream sites appear to have the more accurate "skinny."

One of the less polemic and an easy read is

The situation is far more serious than just a single "pass" with a jump in interest rates to 20%. As Bloomberg reported ============== Banks including Goldman Sachs Group Inc. and Citigroup Inc. allowed more than ==>100 auctions

Were you ruthless and/or unscrupulous, the question you would ask is "Why not do this" and not "Why would I?". It would be profitable (at least this time), you would probably be placing the debt in the end anyway ( you might even have a buyer in mind now) and sometime soon the market for secutities is likely to be reregulated by an act of Congress and all will be forgiven anyway. The loss of good will and faith is something else that's in the wind so there really isn't any downside. You wouldn't have done anything illegal after all.

BTW, and I think you are starting to actually believe this, there really are people in the world that behave this way. We even exhalt them as pillars of our communities and society. Well, some do anyway.

It will also present a real opportunity if you can figure out what that opportunity will be. That will be the next play here. Be that guy, tell a good tale and you too can be the next Mike Milken!

If it's about finance and it's a French word, it's something that involves Punch and Judy or sleight-of-hand. d8-)

He's at the Hoover Institution at Stanford -- where old Republican elephants go to die.

-- Ed Huntress

i thought freddie did the first MBS in 1971 ? do you mean private label MBS ? but i thought those came out in the seventies also

Nope, at least not bonds. The first was bundled by Salomon Bros. and sold to BofA. I know the guy that got it done. They sold it and then had a "Holy Crap" moment and had to get the thing approved retroactively.

The S$L's had nearly their entire substance tied up in low interest mortgages and were borrowing short term to cover them. IOW, they were taking tremendous losses and were also unable to make new loans. The Regan administration got a tax law passed that let the S$L's sell the mortgages and take a 100 percent tax credit against their last ten years of paid taxes.

It helped but they couldn't easily find buyers so they were stuck. Along came SolyMolly with a guy who had been working in their back room. Mike had an idea, presented it to management and got them to approve the establishment of a new trading desk up front on a trial basis.

Oh yeah, I forgot to say "The rest is history". It's the history of things like the "Highly Confident" letter, arbitrage gone wild and so on and so forth.

These guys are still around and succesful as a private equity group on the east coast.