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192 comments on DrumBeat: November 26, 2008

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BrianT on November 26, 2008 - 10:58am Permalink | Subthread | Parent | Comments top

Contrary to NY Times spin, the situation is that there are no longer any buyers at all for securitized garbage as all buyers have been burned badly. The grand plan is now to have the USA taxpayer buy the securitized garbage. Perfect plan: USA taxpayer borrows money he cannot repay, Wall Street takes a huge slice by putting it all in a fancy package, and the USA taxpayer pays for it all. It makes Ponzi's scheme look rather legitimate.

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hightrekker on November 26, 2008 - 11:29am Permalink | Subthread | Parent | Comments top

Brian-
They are monetarizing this virtual toxic paper, and making sure they were not the last one holding the bag in the Ponzi scheme.
This is a suicide economic model, with the players spinning the chamber, and pulling the trigger.
Of course, the second law does not care one bit, and this anthropocentric nonsense will soon end.

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BrianT on November 26, 2008 - 11:35am Permalink | Subthread | Parent | Comments top

This isn't Russian roulette-in this version they spin the chamber and hold the pistol to your head, not theirs, as they pull the trigger.

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Carolus Obscurus on November 26, 2008 - 12:20pm Permalink | Subthread | Parent | Comments top

Hightrekker, you write:

They are monetarizing this virtual toxic paper

... [snip]

and this anthropocentric nonsense will soon end.

Peak Credit meets Peak Oil.

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xeroid on November 26, 2008 - 12:43pm Permalink | Subthread | Parent | Comments top

Peak Credit meets Peak Oil.

More like peak credit ensures peak oil, it is a lack of adequate profitable oil well investment that will cause/has caused peak oil.

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Round Tripper on November 26, 2008 - 12:05pm Permalink | Subthread | Parent | Comments top

Wall street needed one last sucker to be the last level in the pyramid scheme. The US gov't signed up to be that sucker.

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Carolus Obscurus on November 26, 2008 - 12:27pm Permalink | Subthread | Parent | Comments top

Wall street needed one last sucker to be the last level in the pyramid scheme. The US gov't signed up to be that sucker.

Actually, the last suckers are more likely to be those countries which are awash with dollars as their reserve currency.

Here's my back-of-the-envelope prediction:

2009 - contraction plus deflation
2010 - hypercontraction plus inflation
2011 - hypercontraction plus hyperinflation

Perhaps I'm just an incurable optimist.

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NeverLNG on November 26, 2008 - 1:23pm Permalink | Subthread | Parent | Comments top

2012 hyperinflation produces gas giant
2012-2013 Gravitational collapse of gas giant, production of supernova
2014 neutron star residual of supernova found on ranch in Paraguay. Dust clouds everywhere else.

3000-- Development of new economic planet from consolidated dust clouds of supernova explosion

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Stoneleigh on November 26, 2008 - 10:03pm Permalink | Subthread | Parent | Comments top

It makes Ponzi's scheme look rather legitimate.

Speaking of Ponzi schemes, they happened to be the topic of today's Debt Rattle - From the Top of the Great Pyramid.

Everyone has heard of pyramid, or Ponzi, schemes. In their simplest form they are short-lived deliberate frauds where a small number of existing members are paid from the buy-in of a larger number of newer members until the supply of newer members is exhausted, whereupon they collapse. Typically, the founders, and perhaps a few others who got in early and out before it was too late, end up making a lot of money at the expense of later entrants, who end up holding the empty bag. There are always many more losers than winners. What most do not realize, however, is that Ponzi dynamics are far more pervasive than people think. There are many human systems that ultimately rest on the buy-in of new entrants, and every one of them will ultimately meet the same fate, although it can take far longer for complex constructions than for simple pyramid frauds.

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DaveMart on November 27, 2008 - 6:55am Permalink | Subthread | Parent | Comments top

Stoneleigh,
thanks for your excellent site.

Perhaps you would clarify the alternative you advocate.
I can understand why the present approach of soaking up madly over-leveraged derivatives must fail, and it is obvious that there is no 'good' solution, but just the same it would be beneficial if we could get some better idea of our alternatives.

I take it that what you advocate is allowing the failed institutions to fail, but what else?

As the major banks go down, would the Governments compensate the people who have deposits in them?
What, in a ball-park, would be the cost as opposed to bailing out the banks?

Would you advocate setting up new banks to ensure liquidity for the economy?
What would it cost?

Would you advocate that new mortgages valuing houses at more realistic rates should be offered?
That would put huge losses directly onto the bank's books, and I doubt that any would survive.

No precise estimates are possible, of course, but perhaps you would give a better idea of what else could be attempted.

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Stoneleigh on November 27, 2008 - 1:49pm Permalink | Subthread | Parent | Comments top

Sadly, there is nothing that can be done to prevent what is going to happen as the losses have already been incurred, just not recognized yet. What various governments and central bankers are dong now is running up vast amounts of new public debt to bail out a banking system that can't be saved. The only people really being bail out here are banking insiders who will walk away with a lot of money while everyone else is dispossessed. That's all bailouts ever do. They never reach the little guy, although the little guy is usually the justification for them.

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DaveMart on November 28, 2008 - 9:03am Permalink | Subthread | Parent | Comments top

I agree that the losses will occur.
Just the same, the argument you are making, with which I agree, is that further monies may be lost as the banks are bailed out.
If this argument is correct, then it should be possible to roughly guess what the savings will be.

Real estate, for instance, is going to depreciate and loose the value that was imputed to it, wither in nominal terms or via inflation.
However, it seems likely that even if we don't bail out the banks as an institution, some efforts will be made to recompense the people who have deposit accounts in the banks.

Since this would not go into the realms of the vastly leveraged CDS instruments etc, there is presumably a relatively modest cost involved, I believe on the order of the $1.5 trn that has already been spent on the ineffectual bail-out.

Presumably this monies couls also then be used to finance a new banking system, on sane levels of leverage.

Are my figures in the right ball-park?
IOW, for around the cost already committed to the bail out, could both depositors be given their money back and a new banking system set up, which would be able to bankroll business?

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192 comments on DrumBeat: November 26, 2008

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