Rolling US Economy Into The Shitbin Thread

Well, not exactly a trade- a 28-day loan of a Treasury with a AAA-rated mortgage-backed security as collateral.

ah ok. So does that basically add liquidity by temporarily letting banks hold more safer securities? I really don't understand this stuff that well.

Yes, it's supposed to be a liquidity injection - since the banks can easily convert the Treasuries to cash. There are some things that are not yet clear, such as will the Feds automatically roll these loans over every 28 days as long as the MBS hasn't been downgraded? What haircut will be applied to the MBS collateral?

So is there any big risk here? Like what if the MBS turn out to be even worse than we thought?

I guess there is some risk of the bank defaulting on the loan, but if that happens, I think we can assume the bank is hosed anyway since I don't think the government is going to let them just walk away from the loan unless they are in fact bankrupt.

The Fed's discount window is always portrayed as the 'lender of last resort' for banks in liquidity trouble. Hiowever, if a bank takes advantage of this, there is generally a presumption that the bank is in deep, deep shit. Their stock takes a big hit, other banks view them with increased suspicion, etc.

What this gambit seems to be doing is offering roughly the same opportunity, but without (they all hope) as much adverse baggage. It looks to me like an attempt to buy time for the banks while the latest interest rate cuts work their way into the system. It probably can't make anything worse in the big picture, but if things still look as bad in three months, then it won't accomplish jack shit.

rearranging chairs on titanic

yes. middle class now actually sitting in the ocean itself.

or I should say anybody who actually has to worry about expenses, as opposed to worrying about returns.

Approvals for new loans are dropping through floor in UK but mortgages and loans are how money is introduced to the economy, right? Money supply has been increasing at around 10-14% in the UK over last 3-5 years (similar figures in US?) - which all backs up a continuing inflationary scenario (which has been happening for years but had been hidden as it went into real estate). Is this now a pushing on a string situation? ie, for the inflationary scenario to continue won't loans need to continue?

obviously money has been going into commodities and gold but isn't this 'existing' money?

intuitively a continuing inflationary scenario seems to make more sense, if only because ben has read a lot of books on the depression and they'll do anything to avoid a repeat, and interest rates will presumably be cut aggressively further...but how is it going to get out there without loans and mortgages (I guess in UK mortgages and consumer loans take up a larger proportion of total debt since all UK industry got closed down)

guess it comes back to that old inflation vs deflation argument. or whether oil/wheat/gold are going to 'correct'. still have trouble conceiving of gold as anything but an 'inverse dollar' sometimes though

talking of which....close to 990 again

Unless a commodity is in a genuine shortage (i.e. orange juice after a massive freeze in Florida) then commodities are not really a value-added, growth-oriented kind of investment, but rather a hedge against capital losses, at times when financial instruments appear to be bad risks (i.e. bond ratings are being cut or inflation is accelerating).

Right now, traders (it's more neutral than calling them speculators, but let's stop calling them 'investors', ok?) have given up looking for returns and are looking to preserve capital from loss. That's why commodities are surging. There's a disctinct chance that the low interest rates are just going to fuel commodity speculation and push inflation up at a dizzy pace.

The Fed's goose is really cooked right now. They are nudging the dollar towards the cliff. As I said several months ago, if it comes down to saving the banks or saving the dollar, the Fed will jettison the dollar like a jet pilot hitting the big red EJECT button.

If I were the fed I would be quietly tapping up the good folks in the gulf, china and singapore and pleading with them to start buying up banks (moreso than the stakes they have already bought).

Funny, but sobering.

laughing and crying

a toxic blend. just in time for spring break.

Anyone want to buy a slightly used Bear Stearns

Although probably good to see JP Morgan Chase involved in the bailout rather than just the Fed. Wasn't it JP Morgan who locked the US banking community in his ballroom until they agreed to bail out a collapsing bank?

It was his library

took this at a local bagel shop a few days ago:

http://img.photobucket.com/albums/v335/gypsyfrocksbedlam/IMG_0479.jpg

Indeed, although you'd have to be blind not to have noticed the price of staples going up.

they should print some of these

http://bankjegy.szabadsagharcos.org/xxcentury/p136_b.jpg

http://upload.wikimedia.org/wikipedia/en/9/97/500000000000_dinars.jpg

Who is next after Bear Stearns? Lehmann?

how long before one of those, buys one of these:

http://thelongestlistofthelongeststuffatthelongestdomainnameatlonglast.com/images3/currency5.jpg

xpost

http://www.underconsideration.com/speakup/archives/idiocracy_money.jpg

Ouch. Bear Stearns sold to JPMorgan at $2 a share. Tomorrow should be a fun day for the markets.

http://online.wsj.com/article/SB120569598608739825.html?mod=hpp_us_inside_today

tell me, a total ignoramus, what the difference is between a recession and a depression---

Also, how did normal people with no savings make it through the depression?

"a recession is when your neighbor loses his job; a depression is when you lose yours" (i've seen that quote attributed to truman and reagan, among others).

i think that an economic depression is an economic downturn that lasts more than one year and an at least 10% decrease in a nation's economy during that period.

Bear Stearns was on the brink of financial collapse Friday when JPMorgan (JPM, Fortune 500) and the Federal Reserve Bank of New York said they would provide the brokerage a short-term loan. Bear was dealing with a classic run-on-the-bank: The firm's short-term creditors refused to lend the firm any more money and simultaneously demanded repayment of outstanding debt.

O_O

In the nineteenth century, these were called "panics". Then some bright early version of a PR-type person substituted the more soothing euphemism "business depression".

Consequently, President Hoover spent a vast amount of time in 1930 and 1931 making soothing speeches about how the "depression" was a temporary matter and "prosperity was just around the corner." By the time he was done the great public had connected the term "depression" with a soul-scathing cash famine.

Thus, the new euphemism "recession" was born. Now the public (especially those who weathered 1981-84) has learned to connect "recession" with a soul-searing cash drought. No new term has been substituted as of yet, although the term "banana" was attempted by one Fed chairman with an odd sense of humor.

http://weblogs.newsday.com/sports/watchdog/blog/wl_100208.jpg

the early 1980s recession was definitely the worst economic downturn since the great depression (at least till now). though that one was caused by the feds (under volcker) setting the prime rate at close to 20%(!) in order to kill late 1970s inflation dead (and we may yet see that kind of inflation given how bernanke has been shitting out money). depending on where in the USA you lived, it probably seemed a helluva lot like another Great Depression -- e.g., i'm old enough to remember what allentown/bethlehem, PA were like before the 1980s; both towns today are a hollowed-out shell of what they once were. shit, if you live in some parts of the USA right NOW (e.g., around detroit and cleveland), it probably ALREADY feels like another Great Depression.

and for those who really wanna shit their pants -- is the head of lehman brothers whistling past a graveyard?

oh man if more than just bear stearns winds up closing shop before this quarter's out it's going to be a fucking party

You know, I knew Kudlow was off the deep end, but I hadn't realized HOW deep.

That sign in the bagel shop is appaulling!!

It's "trebled", damnit!!!

Why didn't I graduate college 10 years earlier?

Seriously, I could have made and lost a few hundred grand and would have been smart enough to have saved money to weather this shitstorm.

golds gone up $25 dollars this morning already and europe and us markets haven't even opened.

$1025 now, going to be a pretty rough day it seems!

Gonna be a rough decade from here on in.

So if you were 56 years old and had a 401(k), would you take the penalty and cash out now?

so what should i invest in at this point besides a shotgun and a water purifier

find something to sell to freaked-out white dudes. those guys will buy anything.

Just make something that Europeans and Canadians will buy.

I wouldn't rely on Europeans...they are on same path just a little behind

so fucking glad I work for the govt

Even though I live in the UK I'm glad that I work for an org that's funded by a flat universal tax fee rather than anything dependent on profits

Nothing to fear but the Daily Mail.

Even though I live in the UK

This part of that sentence is probably superfluous

Maybe, but this comment on a Larry Elliot article the other day made me wonder:

Please note that the dooomsters are missing one thing, reality. The reality is that in the new global economy the US growth engine is something of a side show. Globalisation has done one good thing, it has reduced the world's reliance on US growth. Anyone doubting it should look up the latest Chinese growth stats and tell the rest of us on this blog just how small the US export component of China GDP actually is....they will realise that China growth is not reliant on rising US growth. Neither is Russia's, India's, Brazil's, etc etc. Decoupling is not a wonky idea, it is a fact in a global economy that we have now, and for the next 15-years, wherein the primary driver is not US demand but internal infrastructural demand from the emerging markets (Brazil, China, India, Russia, and others). A US GDP slowdown from 4% real growth to 1-1.5% in 2008 does nothing to stop this process. As the UK is the epi-centre for all the financial, legal, insurance service provision for the new global economy, we too are surprisingly unreliant on US growth. These facts are rarely appreciated outside of capital markets... but facts are facts, the trends in the past few months have become clear. The UK will grow only slighlty under trend in 2008 before growth goes back to trend or above in 2009. This is not the year to fret about marginal debt, it is the year to avoid USD assets.