US Financial Crisis

Yet another good point, gcle. We keep forgetting that, if the war is being run on a credit card, there isn't any real money to bail the FMs out.

Seeing that i readily concede that i am no economists, i would like to submit for the readers veiwing pleasure, an interesting link that covers the debate of the US economy in quite a bit more context and perspective, from the Instapundit website:

Geez everyone is watching the Freddie and Fanny show, i am learning more on more about US Financials as this train wreck slide along. These guys are kinda a like our big four banks in importance (but are not retail). For us Aussies, this is like CBA and NAB tanking and Suncorp already belly up.

So far and its seem it will be the case going forward, the shareholder get screwed but debt holders will be guaranteed.

Freddie Mac said earlier this year that it planned to raise $5.5 billion selling new equity. However, the company hasn't managed to do that yet and has said more recently that any offering wouldn't take place until some time in August. By contrast, Fannie raised $6 billion earlier this year. Both companies may need more equity capital because they have huge mortgage exposures. They own or guarantee more than $5 trillion in home loans and borrow money to invest in mortgage securities. Since the credit crisis erupted last year, they have financed almost three-quarters of all the mortgages originated in the U.S. The government is stepping in because these companies are crucial to the mortgage market, but also because they're so connected with the rest of the financial system. Fannie and Freddie are major counterparties in the derivatives market, with roughly $2.3 trillion of notional exposure built up by efforts to hedge the interest-rate risk of their mortgage operations. The companies also have about $1.5 trillion in debt outstanding, much of which is owned by foreign governments. www.marketwatch.com

in US dollars

and yes faith in the system is paramount, we just saw a bank run on IndyMac and now  people are starting to doubt the Feds room for maneuver. Printing money is going to hurt the US in so many other ways, inflation, devaluation of the USD (and assets). Its hurting us with that dam Oil price


Edited by Leonidas - 15-Jul-2008 at 14:05

Originally posted by gcle2003 Originally posted by instapundit saying that it's a recession because you're worried about the economy is like demanding antibiotics because your child feels bad, without waiting for a diagnosis. People do it, but it's not smart. People being worried about the economy (i.e. about their own futures) is a major cause of economic depression. The whole financial system depends on faith in it.

^ Indy was very suspect all along in the financial press. Lets face it; massive subprime/atl A exposure in california, you do not have to be a rocket scientist to work out the outcome of that one. That website i linked to, had some very disturbing figures back in May, so what he said was stating the obvoius. however, agreed he should of keeped his mouth shut so not to panic depositors, who dont read that type of press.

After reading the latest news about these tremors at the us-banks, after trying to look behind these implications (what's nearly impossible), after comparing this crisis to similar previous crisis one can only come to one conclusion.

Originally posted by Cezar Originally posted by ulrich von hutten Again and again, there is only one conclusion. Disappropriation and socialisation of the key-industries and banks.Smash the capitalism, all power to the councils. That was done. It didn't worked. Not that I love the actual capitalism but though we seem to go from one crisis to another we are not going beyond the catastrophic limit. Not that something like that would be impossible. Socio-economics are way to complicated for anything else than short term predictions.

Edited by ulrich von hutten - 21-Jul-2008 at 20:56

For those worried about bureaucracies:

In socialism, bureaucracy increases in the government.

In capitalist, it increases in the private sector.

In either one, you will give them your money to support them.

In fact the general lesson is that all systems fail. The root problem is the belief that simple concepts that lend themselves to sloganising are ever enough.

(For instance, nationalising the banks makes no difference to the fact that the banks create money, and, particularly in a socialist democracy, they do so with an eye to electoral popularity - hence the inevitabilty of inflation. And for another instance, it has been screamingly obvious for a decade and more that the US needs to pay more in taxes - but is any politician who wants to be re-elected going to increase them?)

For a number of reasons, not least the inadequacy of information available to decision-makers, the economy is essentially out of human control. Riding it in a situation like now is essentially like captaining a full-rigged ship in a gale - patching and reeving everything that breaks or tears, and waiting and hoping for the wind to die down and the sun to come out.
 

Originally posted by gcle2003 People being worried about the economy (i.e. about their own futures) is a major cause of economic depression. The whole financial system depends on faith in it.

Originally posted by gcle2003 In fact the general lesson is that all systems fail. The root problem is the belief that simple concepts that lend themselves to sloganising are ever enough. (For instance, nationalising the banks makes no difference to the fact that the banks create money, and, particularly in a socialist democracy, they do so with an eye to electoral popularity - hence the inevitabilty of inflation. And for another instance, it has been screamingly obvious for a decade and more that the US needs to pay more in taxes - but is any politician who wants to be re-elected going to increase them?) For a number of reasons, not least the inadequacy of information available to decision-makers, the economy is essentially out of human control. Riding it in a situation like now is essentially like captaining a full-rigged ship in a gale - patching and reeving everything that breaks or tears, and waiting and hoping for the wind to die down and the sun to come out.

Fantastic posts!
In fact, I have always suspected this but never been convinced enough of my understanding of economics to really believe it.