Wall Street Implosion

[groucho]

That's just plain stupid, gold is heavy.  How am I gonna transport that to my secret end of the world location?

(Hey a little levity can't hurt).

in this

[bdlaw]

That's just plain stupid, gold is heavy.  How am I gonna transport that to my secret end of the world location?

(Hey a little levity can't hurt).

[missa]

the price of gold increased $86 dollars today as people scramble to shore their funds

love the chart

[super_furry]

End of day Sept 17:
DOW -449.36 -4.06%
NASDAQ -109.05 -4.94%

Yikes!

[bdlaw]

Yeah, now all we need are party's actually interested in buyin' em.

[duke_of_earl]

Just in case you actually thought your tax money was safe and the Fed was playing with its own bank account.  Here's today's press release from the US Treasury...

September 17, 2008
HP-1144

Treasury Announces Supplementary Financing Program

Washington- The Federal Reserve has announced a series of lending and liquidity initiatives during the past several quarters intended to address heightened liquidity pressures in the financial market, including enhancing its liquidity facilities this week.  To manage the balance sheet impact of these efforts, the Federal Reserve has taken a number of actions, including redeeming and selling securities from the System Open Market Account portfolio.

The Treasury Department announced today the initiation of a temporary Supplementary Financing Program at the request of the Federal Reserve.  The program will consist of a series of Treasury bills, apart from Treasury's current borrowing program, which will provide cash for use in the Federal Reserve initiatives.

Announcements of and participation in auctions conducted under the Supplementary Financing Program will be governed by existing Treasury auction rules.  Treasury will provide as much advance notification as possible regarding the timing, size, and maturity of any bills auctioned for Supplementary Financing Program purposes.

duke

[bdlaw]

DUEL DUEL DUEL!

as opposed to "Dool, dool, dool" which is a totally different beast, all together.

[AmbushBug]

also - is the use of recondite and prolix, also somewhat willfully recondite?

How dare you, sir!

[skwirrlking]

With strong regulation, you can be guranteed that nothing will go wrong. You can also be assured that nothing will go right.
  --Alan Greenspan

Coming from a man with an impeccable legacy. One we're living in right now.

Admittedly, the quote is notable if only because it shows that Alan Greenspan can in fact construct two sentences in a row that aren't willfully recondite or prolix.

if you give him credit from his start in the late 1980's when the dow was 2k, i don't think his legacy is terrible.

also - is the use of recondite and prolix, also somewhat willfully recondite?

[AmbushBug]

With strong regulation, you can be guranteed that nothing will go wrong. You can also be assured that nothing will go right.
  --Alan Greenspan

Coming from a man with an impeccable legacy. One we're living in right now.

Admittedly, the quote is notable if only because it shows that Alan Greenspan can in fact construct two sentences in a row that aren't willfully recondite or prolix.

[jcpeace]

i realized as soon as i typed "scandanavian models" that there might be some jokes.
but i'm thinking of the systems in sweden, norway etc....that seem to strike a healthy balance between a free market and social reponsibility.

i think our current system is more akin to late period soviet communism. it is a system that discourages individual initiative, and consolidates wealth into an elite. just replace the word "party" with the word corporation and you get the picture. throw in state run media, add a little dash of authoritarianism and you have all the ingredients of a fatally flawed system.

the US system, both economically and politically is an unsustainable failure. it was, however, a nice, well intentioned experiment.

[duke_of_earl]

Your Utopian, *workable* alternative for six billion people striving toward progress as opposed to agrarian stagnation is... ?

Capitalism is the worst system in the world, except when compared to all others.
  --Milton Freidman

With strong regulation, you can be guranteed that nothing will go wrong. You can also be assured that nothing will go right.
  --Alan Greenspan

[duke_of_earl]

perhaps we can draw on the scandanavian models....

it aint workin, yo

I can't tell if you are joking or not....but the statement is accurate.

duke

[jcpeace]

goodnite capitalism......nice knowin' ya

Your Utopian, *workable* alternative for six billion people striving toward progress as opposed to agrarian stagnation is... ?

why anarcho syndicalism....duh! http://en.wikipedia.org/wiki/Anarcho-syndicalism

in the meantime, i'll settle for  a version of capitalism that works for all citizens....via heavy regulation.... not this weird alienating version that can only be described as governance by corporation. perhaps we can draw on the scandanavian models....

it aint workin, yo

[TheFang]

From a lovely economics colomn in Salon called: How the World Works  But I'm sure you're all right that McCain has the judgment and the advisors around him to properly handle this.

How is McCain connected to the almost bankrupt AIG?

So why, after the Federal Reserve Bank declined to give investors the rate cut that they were slavering for, did the stock market, after an initial swoon, come back strong? Why, in the middle of a meltdown, did the Dow Jones Industrial Average close up 141 points?

One theory is that investors were heartened by rumors suggesting that the Fed was changing its tune about whether or not to come to the rescue of the huge insurance company, American International Group (AIG). At of the close of the business day in New York, there was no hard news confirming a bailout, but multiple media outlets were quoting unnamed sources as saying some sort of loan might be in the works.

This would be no ordinary loan, either, if reports that AIG needs $75 billion to remain a going concern are to believed.

But why, after snubbing Lehman, and initially denying AIG's request for help, would the Bush administration change its mind? There's a great story that isn't getting enough attention -- a clear a connect-the-dots drama that links AIG to the unregulated credit derivatives market to former Senate Banking Committe chairman Senator Phil Gramm all the way back to John McCain, the Republican presidential candidate currently fulminating all across the land about the recklessness and impropriety of using taxpayer money to bail out corporations such as.... AIG.

Here's how it works. The reason explaining why the possibility of an AIG bankruptcy is sending shudders of fear through financial markets is AIG's role as one of biggest sellers of credit default protection on the planet. So called "CDS" (credit default swaps) are a form of bankruptcy insurance for bond-holders. Worried that your subprime mortgage-backed CDO might default? No problem, AIG can help, happy to sell you an insurance policy protecting you against that default. For a nice premium, of course.

According to HousingWire, AIG is on the hook for "CDS protection on $441 billion of fixed-income assets, including $57.8 billion in subprime-mortgage related securities."

If AIG delcared bankruptcy, all the other financial players who bought insurance protecting the default of, for example, subprime-mortgage related securities, would be in an unpleasant position, stuck with having to bear the losses that are piling up in this most woeful sector of the bond market.

Too many other financial institutions would run the risk of swirling down the drain after AIG, if the big insurer declared bankruptcy. Thus Monday's stock turmoil, and Tuesday's wild swings.

Now, if you followed Barack Obama's speech on the state of the economy earlier today, you might have noticed him referring to the "complex financial instruments like some of the mortgage securities and other derivatives at the center of our current crisis." He brought up these financial products for a specific reason: he believes that the markets for new derivative products should be better regulated. Right now, for example, credit derivatives are almost completely unregulated. No one in a position of governmental responsibility is officially entrusted with ensuring that the hedge funds and investment banks and insurance companies buying and selling many trillions of dollars worth of credit derivatives own assets sufficient to handle their potential liabilities.

This is not an accident -- it is a direct result of political leadership -- on both sides of the aisle. Neither the Clinton administration nor the Bush administration was interested in regulating credit derivatives. As Salon reported more than six years ago, one Clinton appointee at the Commodity Futures Trading Commission (CFTC), Brooksley Born, did attempt to bring derivatives trading under the CFTC's regulatory ambit, but she was shot down by a powerhouse of government officials, including Fed Chair Alan Greenspan, SEC head Arthur Levitt, Treasury Secretary Robert Rubin and Senate Banking Committee chairman Phil Gramm.

A bipartisan effort, no doubt about it. But nobody made it more of a sacred mission to ensure that credit derivatives were kept unregulated than Senator Gramm, long recognized as the key force in the passage of the Commodities Future Modernization Act of 2000, which specifically exempted new derivative markets from government oversight. As Mother Jones' David Corn reported earlier this year:

    The act, he declared, would ensure that neither the SEC nor the Commodity Futures Trading Commission got into the business of regulating newfangled financial products called swaps -- and would thus "protect financial institutions from overregulation" and "position our financial services industries to be world leaders into the new century."

History will judge whether Gramm was successful in his mission. But in the meantime, let's not forget who chaired John McCain's presidential run in 2000, and who, until he made his tactless comment about Americans being "a nation of whiners" was considered a top economic advisor to the Senator from Arizona.

Former Senator Phil Gramm.

So there you go. And if AIG has to be bailed out with taxpayer money, now you know who should get a significant part of the blame: John McCain's good buddy, and economic mentor, Phil Gramm.
― Andrew Leonard

[bdlaw]

McCain spokesman Brian Rogers said McCain supports allowing company shareholders to vote on CEO compensation. However it's unclear how any president could enforce such a measure within a private company.

It seems pretty simple, really- let the company get to a point where it needs an $85 billion dollar loan and then take over 80% of the company.

[TheFang]

Does McCain really oppose golden parachutes?

The political world is, for a reason I don't fully understand, captivated by some comments Carly Fiorina made Tuesday. Fiorina, the former CEO of Hewlett-Packard and now a senior advisor to John McCain, is a very legitimate subject of discussion, but for other reasons entirely.

The attention given to Fiorina on Tuesday started when, during a radio interview, she was asked if she thinks Sarah Palin is qualified to run a major company. "No, I don't," Fiorina responded. "But you know what? That's not what she's running for. Running a corporation is a different set of things." Fiorina later dug herself in deeper when she said the same thing about John McCain, Barack Obama and Joe Biden.

This is the type of mini-scandal that dominates the race these days, sadly. In the meantime, going practically unremarked upon is the much more important way in which Fiorina is currently undermining the McCain camp's message. Fortunately, ABC News' Lisa Chinn and Jennifer Parker stepped into the void on Tuesday morning with a blog post in which they noted that the promises McCain and Palin have made over the past two days about how they'll fix the economy are thrown into question simply by the presence of Fiorina inside their campaign.

As Chinn and Parker noted, on the trail on Monday, McCain said, "We are going to reform the way Wall Street does business and put an end to the greed that has driven our markets into chaos. We will stop multimillion dollar payouts to CEO's who have broken the public trust. We will put an end to running Wall Street like a casino. We will make businesses work for the benefit of their shareholders and employees."

And Palin, for her part, said, "We are going to reform the way Wall Street does business and stop multimillion dollar payouts and golden parachutes to CEOs who break the public trust."

But when Fiorina was deposed as head of HP after overseeing a decline in the value of the company's stock, she walked away with a nice little chunk of change valued, by different estimates, at $21 million or $42 million. In doing so, she became a symbol of the kind of payouts McCain and Palin were speaking out against.

But McCain spokesman Brian Rogers said he didn't see the relevance of Fiorina's history. "We're talking about Freddie and Fannie and CEOs like Jimmy Cayne of Bear Stearns, Angelo Mazillo at Countrywide, folks that are largely responsible for what happened and walk away with this kind of multimillion dollar payout," Rogers said. "I don't think there's any analogy there."

ABC's Chinn and Parker also asked how, exactly, McCain plans to deliver on his reform promises. The answer wasn't all that encouraging. Chinn and Parker write:

    The McCain campaign was asked by ABC News to clarify what a McCain administration would do to "stop multimillion dollar payouts" to CEOs.

    McCain spokesman Brian Rogers said McCain supports allowing company shareholders to vote on CEO compensation. However it's unclear how any president could enforce such a measure within a private company.

― Alex Koppelman

[duke_of_earl]

For all the legal nuts, here's a good analysis of the AIG issue.  I guess Bush raised the bar for how far the government can go when acting in an emergency...

Can the Government Buy an Insurance Company for Cheap?
Posted by David Zaring

Anyway, as you've all probably read, the Fed opened the discount window for AIG in exchange for 80% of its stock.  Amazing dilution. No, I can't recall the government having ever done this before.  And yes, this sort of invitation to trade credit for equity is utterly unprecedented in the Fed's use of section 13 of the Federal Reserve Act.  The below analysis of this administrative action reserves all M&A questions to other corporate experts.

There's really no statutory authority for the AIG takeover (the Fed and Paulson went to the Hill, and got nothing, not that they possibly could have in a couple of Tuesday evening hours).  I won't bother noting that the DC Circuit, were it to sit in judgment on whether the Fed could buy the world's largest insurer, would undoubtedly conclude that the plain language of its governing statute (which is to make emergency loans, not require takeovers in exchange) would not permit the takeover under Chevron USA v. NRDC.

...more...

duke

[Toxic Spiderman]

Regarding the events over the weekend, I am not sure that any additional regulation would have prevented the meltdown. It could be that the business model for the standalone investment bank is simply antiquated. 

The government would have to know exactly what they are to defend against in order to regulate it.  Any presidential candidate who purports that s/he could have foreseen and regulated out the risk to the system and mitigated the current disaster should forget the presidency and apply to be some form of deity.

“In February of 2006, I introduced legislation to stop mortgage transactions that promoted fraud, risk or abuse. A year later, before the crisis hit, I warned Secretary Paulson and Chairman Bernanke about the risks of mounting foreclosures and urged them to bring together all the stakeholders to find solutions to the subprime mortgage meltdown."

I'm just saying, this direct quote was posted not three posts down in this thread.

[Soshin]

The government would have to know exactly what they are to defend against in order to regulate it.  Any presidential candidate who purports that s/he could have foreseen and regulated out the risk to the system and mitigated the current disaster should forget the presidency and apply to be some form of deity.

+1. seems like a more ridiculous claim than inventing the blackberry or internet. this election's fear mongering of a pending economic depression is starting to look like last election's terrorist apocalypse.

Whilst you both have a point, surely it would be easier for the government to actually attempt to stabalize the market if they were not spending $9bn a month on an illegal war.

The AIG bail-out does not even get a full year in Iraq.  Let McCain try to crunch those numbers into the equation then start talking about how he is going to fix the defecit.

[url]http://usgovinfo.about.com/library/weekly/aairaqwarcost.htm[/url]

[skwirrlking]

The government would have to know exactly what they are to defend against in order to regulate it.  Any presidential candidate who purports that s/he could have foreseen and regulated out the risk to the system and mitigated the current disaster should forget the presidency and apply to be some form of deity.

+1. seems like a more ridiculous claim than inventing the blackberry or internet. this election's fear mongering of a pending economic depression is starting to look like last election's terrorist apocalypse.

[jc_insomniac]

Doubtful, but in case y'all haven't seen this yet:

<a href="http://www.youtube.com/v/ERtDaAtkvhQ&amp;hl=en&amp;fs=1" target="_blank">http://www.youtube.com/v/ERtDaAtkvhQ&amp;hl=en&amp;fs=1</a>

[groucho]

I can prove it to you watch the rotation
It all adds up to a funky situation
So get up get, get get down
The FREE MARKET is a joke in yo town
Get up, get, get, get down
THE FREE MARKET wears the late crown

The FREE MARKET is a joke

 

[bdlaw]

goodnite capitalism......nice knowin' ya

Your Utopian, *workable* alternative for six billion people striving toward progress as opposed to agrarian stagnation is... ?

[bdlaw]

Fed to take over AIG with $85 billion bailout.

Let the fur fly.

I take issue in general with points 4, 5, and 6 in AB's quote of Obama's approach but won't post about them until I've had a chance to read the linked pdf.  Sorry if that's a bit evasive, I've got a lot going on right now- but they seem like vague pie in the sky ideas which involve, essentially, ignoring that government helped create the problem in the first place, and a general crackdown on the free market system, without a viable way of dealing with "identified systemic risk". 

Again, not judging it on its details, just the executive summary provided.

PS I'm an economic dilettante (thanks for bringing that word back into my lexicon, d_o_e) but between Fannie/Freddie, and this, this (AIG news) kind of has a stink of nationalization about it.