The bright side of the stockmarket collapse

If you look at M3 versus M2 in that graph to which I posted a link earlier in this thread, you can see it happening. It's no wonder the government no longer reports M3. It makes it look like the money supply is out of control. 'Can't have that, being monetarists and all...

Easy come, easy go. When you're leveraging 30:1 and you have that "1" hedged six ways to Sunday, who cares?

Ahhhahahmennnn...

-- Ed Huntress

So here comes the corollary.

More entities than banks participated in lending and creation of money (such as hedge funds buying mortgages on credit using leverage, etc).

And now, besides banks per se, these entities are also suffering from losses and forced liquidations.

So, obviously, bailing out banks would not restore lending capacity of these other entities. So the money contraction cannot be prevented by bailing out banks.

Therefore, do expect an interesting ride ahead.

i

I appreciate that you take the time to respond to my whining, Ed.

Ed Huntress wrote:

Ok, so looking back, was that a valid assumption?

IS the country better off?

Is it good for the country to have such a great difference between the rich and the poor?

And what about the shrinking "middle class". It's not shrinking because more of them are getting rich.

We had a great run for a while, but are we really better off?

I think it's the "as they see it" part that bothers me most.

I would doubt anyone who thinks he has answers to today's problems. Most people still wonder what the questions are...

BINGO.

And, pardon my high school education, but wasn't the original idea to PROTECT the individual from the whims of the masses?

AND from the whims of our government?!

Why?

Because they want to be?

Because they would rather tell me what to do than allow me to tell them what to do?

Seems a self serving idea at the least.

Yep. But neither are my concerns.

No, actually, I think you have touched on some of the things that bother me most.

Elitism will always be with us. And always be our curse.

I don't have your faith in politicians. I think I once did. But no longer.

It comes back to motives.

Business wants money. Politicians want to stay in power. Academics want to grade us. Evangelist want to save us.

Who, of all the groups on earth, can help us live together?

Ahem, Ed, are you reading this? HERE is MY political problem - exactly.

WoW!

Does that include voting for a fellow who tells you what he thinks you want to hear - then does the opposite when elected?

This paragraph seems to say that We, The People are to blame for believing what we hear from our candidates.

Hey Tom. You do indeed reap what you sew but then you are the one selling scrap as first goods. The statement I posred was from an editor at the Cleaveland Plain Dealer and it's a reflection of you and yours. Yopu have managed in your lifetime to turn a silk purse into a sowes ear. You "people" can't even help yourselves and I'm not surprised. You all want something for nothing.

Those five jobs you added weren't anything on your payroll. I've added thousands to mine by your measure, and buying scrap metal to build an order from isn't anything America ought to aspire to as a productivity enhancement. It's a return to a barter system. In fact, it's the Chinese business model in spades.

You have won in the great race to the bottom. Monday next, 10/13/2008, I'll begin to reverse the insanity in this country in my own small way. My group has ponied up, and we have gotten three to one leverage on, thirty million of our own dollars. Excluding my property in Costa Rica, I'll be all in. As the managing partner I won't get a thin dime unless our long term goals are met. Should this effort go to hell, so will I.

You Tom, would be horse laughed out of an exploratory talk about leverage. I got a six percent LOC and an interest in allowing that funding source to trade along side us. They would like to front run me but that would be illegal. I've known and done business with each of them for more than two decades Tom. We turned a couple hundred grand into five million dollars on Northridge.

Having sewn and sown well and reaped, we will once again cast aside the broken parochial model you thrive on and make a future for the generation we spawned that doesn't include mounds of debt - on them - to pay for our excercise.

JC

Ed, as a favor, would you mind including the link rather than refering to it as "earlier" or "in another thread".

It would sure be easier to follow when coming in late...

Richard

Sorry, Richard. I forget that other people might be so bored that they're reading this.

This is the best one. It includes an explanation of M1, M2, etc., plus the graph showing how it's been increasing. Search on M1 and it will get you to the right spot:

-- Ed Huntress

I've never posted a nasty word to anyone unless I feel maliciously insulted. You have triggered some bile-like verbiage from me when you do this. And, for this I am truly sorry. (I know, it's infantile to say "well, you started it.") I will no longer do that, as I no longer care about insulting, disingenuous, misleading, phony or provocative statements from anybody. You may post whatever strikes your fancy but, I will no longer react in kind. I've decided that it's beneath my dignity.

Now, can you explain the difference between 12 ga. x 2" x 36" stainless strip and "scrap" having the same grade and size? I have plenty of "scrap" carbon steel strip that is obsolete for me yet I carry it in inventory and have sold plenty of it at a discount to other companies that can use it...for making new parts. Your whole argument about this was just silly because I know that you know better.

Iggy. I think that was an option that individuals could select. People weren't going to be forced into taking market risk. The risk with social security as it is today for those of us with good incomes is that we aren't going to collect. In retirement we're going to continue to subsidize other people. No matter what we do, the politicians keep bleeding us. Term limits is one of the ways to keep politicians from becoming entrenched and making government their career.

We've never had a choice for president of "None of the Above" That's who I'd vote for this year if I had the choice. I can't say I've heard any really good ideas from any of the candidates this time around.

RWL

They would not be forced, yes, so they would voluntarily lose their money and then, guess what, another bailout of imprudent old retired people by prudent people.

BSEG!

Thanks Ed, I'll dig into it.

Let me expand that. Not only are the decks stacked, all the cards are marked, all the dice are loaded, all the wheels rigged, and all the slots fixed, and the sheriff has a half interest in the Casino.

A backup study.

that these people more or less self select for these positions, which then reinforce the egomania tendencies. Most likely very helpful/adaptive in hunter/geatherer tribal societies with short individual life spans, but now very maladaptive/counterproductive. This also should help explain why the application of criminal statutes will not be, and have not been, particularly effective.

To the extent that a record exists and you can see what the candidate did or did not do, and you chose to believe what they say because you like that better than what they have historically done, that is indeed the case.

There is however the case where the "paper trail" has been carefully erased and the story has been "spiked" by the media management. This is far more common than you might think in large organizations of all types.

With the expansion of the WWW/internet this is becoming more difficult. Look up the voting records to see how the gas bags voted on the repeal of Glass-Steagall and the exemption of derivative oversight. This is not a matter of opinion but of public record.

This is how New York will look in 10 years?

I've spent the last hour organizing my mail client Tom. Our exchanges lately certainly have portrayed me in a poor light and are an embarassment. We seem to have reached similar conclusions at nearly the same time.

I'd like to apologize for my posts both to you and the group.

I don't think there is anything more to say .

JC

Right.

Well, commercial banks are suffering (probably) *because of* the losses and forced liquidations of the "shadow banks."

I suspect that money contraction, at least at the M3 level, would be impossible to stop. At the M2 level it still will be somewhat contracted. But whether it's going to have a long-term effect on M1 is questionable.

Much of M2 and M3 is really ethereal stuff, which exists mostly in the form of claims by one institution upon other institutions, much of it out of connection to the system that provides real liquidity to the real economy. Now we're going to find out if its existence has irreversible consequences to the economy that produces goods and services. Recent comments by a couple of Chicago School economists say they don't think so. The answer to that is 'way over my head, but I can imagine a scenario in which the government intervenes at a point that cuts off that ethereal money and lets it disappear, while providing liquidity and enabling the credit system that operates for the real economy to continue.

That's all an abstraction, of course.

-- Ed Huntress

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Iggy. That's really what's going on now with our current social security system. It's a Ponzi scheme with an IOU from the government, and with our aging population, you and I are going to be left holding the bag.

Further off topic. One of the comments I heard growing up was that Roosevelt didn't get us out of the depression, World War II did. With the current lack of a response to interventions our by government, it's adding some credence to that allegation. I'm not implying that we need a war to get us out of this. It's just an interesting observation.

RWL

Yeah, I'm reading it. And I'm thinking about all those people who are really in the game, with $1 million or more, who couldn't care less. They care about what's happening to their money, period. The outrage is going on mostly among those of us who don't have that much money in the first place.

-- Ed Huntress

===================== Two insolvent companies with financial exposure [GMAC and Chrysler Finance] to combine and ask the FRB for a direct loan [of tax payer money]?

----------------- "GM, Chrysler in merger talks: source Sat Oct 11, 2008 2:48am EDT DETROIT/NEW YORK (Reuters) - General Motors has had talks with smaller rival Chrysler LLC about a merger that would combine the No. 1 and No. 3 American automakers at a time when both are struggling to cut costs and shore up cash, according to a source briefed on the matter.

Finally, Barron's reported that GM was preparing to approach the U.S. Federal Reserve about borrowing money from the central bank's discount window because of the logjam in credit markets that has shut it out of other kinds of borrowing.

---------------------------- Are these two organizations more like vampires or zombies? for the complete article click on

FWIW -- Anyone else notice how much Henry "Bazooka" Paulson looks like [and sounds/acts like] Daddy Warbucks [Little Orphan Annie]?

A part of it.

Keep in mind that M2 is also expanded by these "non-bank banks".

Here's a good graphic showing how this bear market compares to historical ones (Great Depression, 70s, etc).

It looks very scary.

This is a point where many bifurcations are possible, including flooding the economy with money to cause inflation and effectively erase all debts. What is not possible is to return to the pre-crisis times quickly.

I think that ultimately, we, as a whole, were misled about how wealthy we really were. Much of that wealth was self delusion and borrowing. So in the end we will wake up and realize that in fact we are collectively only 1/2 or 1/3 as wealthy.

Check out the above graphic.

It is very scary.

i