TIPPING POINT

[just_wondering]

btjadenlepp
heard you on cross country checkup yesterday, good comments!

[FarmRanger]

“I just bet that people that voted for George 4 years ago thinking that George will keep us safe in these uncertain times , are now wishing they hadn't .”

Banks going broke was a major problem in the depression. What was the government of the day’s solution?

http://en.wikipedia.org/wiki/Glass-Steagall_Act

And why aren’t those safeguards still there?

From wikipedia:
“Provisions that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999 by a bipartisan, conference committee version of the Gramm-Leach-Bliley Act signed by President Bill Clinton”

And who tried to fix it 5 years ago, but was blocked?
“The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.” NY Times, Sept. 11, 2003

Those who voted for Clinton should be the ones now wishing they hadn't.

[agstar77]

Second commodity wave is about to hit. U.S. dollar is crashing, good for commodity prices but may lead to economic collapse of industry in Canada.

[charliep]

It is perhaps a real important time to have a clear understanding of investment objectives, time horizon, risk tolerance, etc. I like grassfarmers comments a couple of threads back about looking for quality but even then there will be risk short term. Will get hit from the critics but I don't mind having people solidify their balance sheet by paying debt first and parking money in safer income based investments until more is known about the current economic storm.

Also note agstar77 comments about US currency. Getting out the printing press to look after the rescue effort is not likely to help US currency much.

[charliep]

Will note the overall increase in commodity prices today. One day is not a market but interesting.

As a student of the market (can't claim to be an expert), I always find it interesting to note the relationship between risk and behavior. Will note the potential $700 mln (or whatever the real number is) has added liquidity back into the markets. The interesting thing to watch is how businesses behave after perhaps a near death experience. From there, how governments monitor the situation and what if any other tools they will use to insure value for taxpayers investment.

[charliep]

should be $700 bln - not mln. Numbers are too big for comprehension.

[cottonpicken]

I think we did fall off the cliff.

The real deficts of the us is about 4 trillion a year.

That means if there was a 100% tax on all personal and corprate profits there would still be a deficit.

In ten years 78 million boomers will retire.


It will cost 4 trillion a year in social security and medicare to take care of these oldsters.

The rumors coming out of the closed door meeting of congress back in march(only the fourth in 186 years)are some of the scariest things i have ever heard.


After the civil war the us was still following the constitution,which does not allow for these imbalances to occur.

The only way the usdx got away with it up until this point is that it is the worlds reserve currency.

And even then it has lost about 96% of its purchasing power.

[wedino]

Jim Sinclair's take on it.

Posted On: Monday, September 22, 2008, 12:12:00 PM EST


Consequences Is The Word To Remember



Author: Jim Sinclair








Dear Friends,

If the actions this weekend had not been undertaken, the world?s financial system would now be directly inside a category 5 hurricane. Between now and the election, intervention to keep markets somewhat calm is being undertaken

CONSEQUENCES is the word to remember.

The devil is in the details.

The purpose of this weekend's event is to attempt to consolidate a huge amount of OTC derivatives into one location in hopes of creating a wash. The point of this is to prevent OTC derivative counterparties from going broke.

When an OTC derivative fails, notional value becomes real value. They got a taste of what a broken counterparty meant when Lehman went Chapter 11. It wasn?t pretty.

Lehman Brothers, in Chapter 11, will be the first to benefit from the $700 billion to $1 trillion plus bailout.

Do not let your guard down. Continue to take all the precautionary measures spoken about here. The dollar is toast around election time. Gold will trade at $1200 and $1650.

The glory days of the naked short have passed even if they do not know it yet.

Respectfully yours,
Jim

[Fransisco]

From Bloomberg.com

<b>How the Democrats Created the Financial Crisis: Kevin Hassett</b>

Commentary by Kevin Hassett

Sept. 22 (Bloomberg) -- The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.

Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.

But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: <b>Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.</b>

Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.

<b>In the times that Fannie and Freddie couldn't make the market, they became the market</b>. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.

The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.

Turning Point

<b>Take away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.</b>

It is easy to identify the historical turning point that marked the beginning of the end.

Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations.

Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.

Greenspan's Warning

The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

<b>Different World</b>

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.

That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''

Mounds of Materials

Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.

<b>But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.</b>

Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.

There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.

Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.

[agstar77]

Although I believe they are all to blame , go back to Mr. Reagan , that astute economic expert , to see how the market was deregulated and the capitalist rabble unleashed.