Flavor of the Month (not year, I Hope)

by R. Elgin on September 20, 2008

. . . congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.

. . . Somber doesn’t begin to justify the words (Ben S. Bernanke’ presentation),” he said. “We have never heard language like this.

Like his mother never cursed . . . and from the NY Sun:

“We are dangerously close to a $3.5 trillion collapse of America’s money market fund industry. “It’s an incredibly serious issue. A tipping point in this crisis would be when you have a run on money markets, and we are right on the cusp of that (PIMCO’s portfolio chief, Paul McCulley)

A Zerg rush on the money market? . . . suddenly the Lone Star fiasco is very passé.

{ 19 comments… read them below or add one }

1 NetizenKim September 20, 2008 at 2:23 pm: There is one man single-handly responsible for the complete meltdown of the US and global financial system…take a wild guess who he is. And, no, it is not George W Bush.
2 iheartblueballs September 20, 2008 at 2:59 pm: There is one man single-handly responsible for the complete meltdown of the US and global financial system…take a wild guess who he is. And, no, it is not George W Bush.

Jesus?
3 Ut videam September 20, 2008 at 3:09 pm: John Maynard Keynes?

George Soros?

I give up, NK. Enlighten us.
4 Iceberg September 20, 2008 at 3:20 pm: Robert Sorwitkzki
3728 Meadowdale Drive
Madison, Wisconsin 53701

This is the man single-handly responsible for the complete meltdown of the US and global financial system…not only that, he threw up on the bar at Jerry’s Pub last week.

Send your complaints to Bob.
5 abcdefg September 20, 2008 at 3:40 pm: Al Gore.

Although if this guess is correct, NK will have to do a lot of lifting and stretching to substantiate it. I’m only playing the card game.
6 R. Elgin September 20, 2008 at 4:42 pm: I was also reading from Brendon’s blog on Adjustable Rate Mortgages:

“virtually all (90%, according to the Korea Times story) of Korea’s home loans are adjustable-rate mortgages, the kind which are now roiling the US housing market as they reset”

Apparently the last poster says that the Korean bank he spoke to said there were no caps on Korean ARMs!

That could get really messy.
7 NetizenKim September 20, 2008 at 5:47 pm: Robert T Kiyosaki, author of Rich Dad, Poor Dad.

http://www.thesimpledollar.com/2007/01/26/deconstructing-robert-kiyosaki/
8 natto September 20, 2008 at 7:39 pm: Alan Greenspan, the former chairman of the Federal Reserve. He argued that it was impossible to spot bubbles and the central banks should wait to mop up the mess after the bubble had burst.

Not “single-handly” but single-handedly.
9 seouldout September 20, 2008 at 7:47 pm: I feared that once Rhie Won-bok’s monitoring of the Wall of Jews™ was supressed the world would be thrown into a calamity. Sure ’nuff, it has.
10 wjk, 검은 머리 외국인 September 21, 2008 at 4:51 am: no way, Netizen Kim. Kiyosaki explicitly stated that stocks and bonds are assets, but he viewed houses as liabilities. Kiyosaki wanted folks to invest in stocks, not houses. He said time and again that buying a house is a bad idea.

but, whatever.

I think Greenspan is the answer to your question.

natto is right.
11 judge judy September 22, 2008 at 1:33 am: kiyosaki’s strategies are dubious at best. in person, he is a very dim bulb.
12 judge judy September 22, 2008 at 9:29 am: can’t name any one man who’s responsible, but i can name one man who blames one organization-the SEC.

lee pickard, former SEC official, says in the NY Sun,

The SEC allowed five firms — the three that have collapsed plus Goldman Sachs and Morgan Stanley — to more than double the leverage they were allowed to keep on their balance sheets and remove discounts that had been applied to the assets they had been required to keep to protect them from defaults.

Making matters worse, according to Mr. Pickard, who helped write the original rule in 1975 as director of the SEC’s trading and markets division, is a move by the SEC this month to further erode the restraints on surviving broker-dealers by withdrawing requirements that they maintain a certain level of rating from the ratings agencies.

“They constructed a mechanism that simply didn’t work,” Mr. Pickard said. “The proof is in the pudding — three of the five broker-dealers have blown up.”

http://www.nysun.com/business/ex-sec-official-blames-agency-for-blow-up/86130/
13 Linkd September 22, 2008 at 10:58 am: Some look at the stock market as a fabulous wealth creation tool, and so, as the markets are going up and up, they say wealth is being created. By removing regulations at times when risk appetite is high, regulators make it possible for investment banks to ‘create more wealth’, so long as inflation remains low. The Greenspan dogma.

Others see the stock market as a casino partially rigged in favor of the major players, who enjoy an implicit guarantee of losses being socialized, while their gains remain privatized. When the markets go up and up, it’s not wealth creation, it’s a speculative bubble, that will leave the taxpayer in the lurch when it pops. The Volker dogma.

I don’t know where the truth, or the blame, really lies. I don’t know that it matters. If you enjoy the protection of public money to back-stop your errors, you should of course be publicly regulated. But this is burdensome, and has led a lot of finance to go private, escaping Sarbanes Oxley and all the intrusive and sometimes downright rude interference that so much disclosure puts on listed companies. The pendulum swings back and forth – sooner or later the finance that has been taken private will again want to list, because the hedge funds, sovereign wealth funds and private equity can only get so rich by trading with each other.

In the meantime, markets go up slowly and come down fast in endless cycles – it’s always been that way. Why complain? All you can do is buy low and sell high – the simplest golden rule that any investor can always cling to as an incorruptibly good strategy. Everything else is just theatre. Enjoy the show. And buy low. Now.
14 R. Elgin September 22, 2008 at 11:01 am: Some also point out that Congress is a major player in the deliberate failure to regulate:

. . . The Wall Street investment banking firms, their executives, their families and their political action committees contribute more to U.S. Senate and House campaigns than any other industry in America. By sprinkling some of its massive gains into the pockets of our elected officials, Wall Street bought itself protection from any tough government enforcement.

This is no doubt the same reason why so many members of Congress were consistently blocking attempts to reform and downsize Fannie Mae and Freddie Mac, which are essentially giant, under-capitalized hedge funds. These two entities have been huge money machines for Democrats in both the House and the Senate, many of whom recently had the gall to ask why these companies hadn’t been reformed in the past. Nor should several Republican congressmen and Senators who likewise contributed to watering down legislation aimed at reforming these institutions be let off the hook.
15 Linkd September 22, 2008 at 11:20 am: Fannie and Freddie were also great conduits for obtaining Chinese funding for the giant US deficit (along with T-bills). The Chinese gov’t held about $400 bil in Fannie/Freddie bonds at the end of 2007, it’s probably over $500bil now.

As I’ve said before, the ability of a military power to project power and maintain overseas hostilities is dependent upon the good will of its creditors. America’s adventures have not been free, your country has borrowed heavily to finance Bush’s misguided adventures. The Chinese have been your main creditor. Essentially, you borrowed $500 bil from the Chinese to fund your war, collateralized with overpriced residential real estate.

The Chinese do not want to take a hit on the value of those bonds. The US doesn’t want to lose its financing. Paulson took $5 trillion of Fannie/Freddie liabilities onto the backs of US taxpayers just to keep your country’s credit lines open. What would you have your congress do?
16 Linkd September 22, 2008 at 11:22 am: That is, you borrowed $5 bil JUST IN Fannie/Freddie agency bonds. With T-bills, you can double or triple it.
17 wjk, 검은 머리 외국인 September 22, 2008 at 11:24 am: deleted (off-topic and needlessly offensive)
18 wjk, 검은 머리 외국인 September 22, 2008 at 11:25 am: Deleted (off-topic and offensive)
19 Linkd September 22, 2008 at 11:53 am: You’re like a dog with diarrhea that has gotten into a picnic ground.

(PS – I am not a Canadian nationalist)