Looks like we can finally close the books on the American experiment with democracy. The Plutocracy has won.
The financial sector has, in a matter of months, looted half of everything that Americans do in their economy. And if you imagine this bailout will make any difference to the final outcome, please share what you are smoking.
THIS is why I am trying to prepare my family for the mother of all crashes; the people who produce nothing themselves have finalyl managed not only to destroy the economies that the supported them, but as they crash, to loot the edifice.
The only real question now is, where exactly are these thieves going to live? The Mafia must be so P'ed off; instead of risking their butts with gambling, prostitution and drugs, all they had to do was get into banking. Even bank robber Willie Sutton (of "that's where the money is" fame) must be squirming in admiration.
Still, there's a small corner of me that has to admire the audacity and the scope of the crime; my god what a looting there has been.
Update
The irony is that, while these guys will end up with all the money, it will be worth nothing because financial capitalism depends utterly on people being willing and able to borrow it at a profit to the lender. But as Christopher Wood points out, nobody wants to lend and nobody wants to borrow; credit/debt as a way of doing business appears, for a number of reasons to have come to an end. If I "own" a billion and get 5% my money is "earning" 5% but if I own 10 billion and only have a billion loaned out at 5% my stash is "earning" 0.5%, even though the total income hasn't changed.
But for the thieves into whose hands we have placed the economies orf the world, that isn't going to be nearly enough. Inflation is money printers creating too much money that ends up chasing too few goods and services, but when we stop the chase, it doesn't matter how much money they create out of thin air, iot just goes on piling up and doing nothing while the cost of everything continues to plummet.
I think we are about to learn again the hard way that money has no intrinsic value, that it can only ever represent the value that exists and is being exchanged in the physical economy and when that exchange of value slows or stops, it is not that the monety becomes "worthless" as in hyperinflation, it is that money becomes irrelevant.
I have no idea what happens then in a society as far removed from the production of necessary goods as ours, but I'll give good odds that it isn't pretty. At least we will have the schadenfreude of watching some formerly successful people as they run their fingers through their pointless wealth and wonder why it has stopped making them rich.
again mate, watch out for mistaking (imminently recoverable) investment for an expense.
the govt is simply providing a temporary floor to the price of the real-value of the assets, overriding the current market hysteria. this lets citi tick the capital adequacy box and return to credit-business as usual. once the market re-stabilises the temporary liquidity-driven discounts will evaporate and the govt can lift the guarantee and/or sell at full price any assets it had to take on to its own books.
ie, costless
Posted by: Saltation | November 26, 2008 at 08:15 AM
this is where I get lost again mate.
I can see that a mortgage is potentially a temporarily illiquid investment and swapping it for cash at something like face value makes sense in this environment. Although if the banks don't, or can't, then on-lend it for productive purposes, it means nothing.
But as far as I can see, they are also exchanging, at near face value, paper that has no actual asset backing at all.
If I take out a mortgage I can also take out an insurance to cover its payment (the old endowment insurance to pay it off was one of the early kinks that got us into this mess, especially when the "profits" from said insurance turned out not to be enough to pay off the mortgage)
You as the lender could insure the contract as well, both made sense and if the insurer went bankrupt it only mattered if I could not pay off the mortgage which, being prudent, I had geared to my actual possibility of doing so, not some fantasy wealth augmentation scheme.
However, it turns out that some of these contracts are totally dissociated from the assets. If I buy a policy from you that is based on my neighbour's mortgage (and I'm not a guarantor of that debt) and YOU pay ME if HE fails to pay his debt, then the status of our contract is a pure bet on a third party outcome.
It is exactly the same as betting on a horse or the lotto. From what I understand, a goodly bunch of these contracts are now being bought by the US government. But that Government has no way of ever selling them back to a market because, at least for the foreseeable future, nobody "gets" anything for the paper.
If I have a mortgage over your property, and you fail to pay, I can at least take ownership from you. If the mortgage exceeds the face value of the debt I can always hope to hang on till the inflation catches up again, but at least it is not a total loss -Turns out the ASB in NZ is now a major property owner because it has picked up the deeds on a whole pile of its non-performing mortgages which it has no immediate hope of selling on.
Now I can also see that, where mortgages have been bundled into CDS's, it makes sense for the government to buy them up and reassemble the slices into actual mortgages over actual property and good luck with unshredding those, but at least it is doable in principle and actually, for clarifying land ownership, it is necessary at a pretty basic level. Dana Blankenhorn managed to tet that one through my thick head.
But what I can NOT get my head around is why they are swapping money the US doesn't have for these ethereal bets on arcane calculations that can never be traced back to anything at all.
THAT's the bit I still need to have explained.
Posted by: Earl Mardle | November 26, 2008 at 09:56 AM
>However, it turns out that some of these contracts are totally dissociated from the assets.
the thing is, the "some" is actually proportionally quite small. in the uk, it's fuck all; in the usa, it's less than 10%. and even then, the underlying securitised property still has its original value, which is 90+% of the stated value even at the peak of the overheating. so consider a worst-case cost of 1% of nominal value assuming forced-sale by the us govt w/in 2 years. and there's nothing stopping them simply holding on for longer and taking advantage of the price pressure arising from growing population.
the drama is arising from wholesale players levering themselves up to fuck. when you're on a knife-edge of profitability, even small variations in default-rate will shoot you out the back door so fast it'll make your head swim and your bank crash.
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Posted by: Volunteer2009 | January 20, 2009 at 06:29 PM