-
The Forum works well on MOBILE devices without an app: Just go to: https://forum.tsptalk.com
-
Please read our AutoTracker policy on the IFT deadline and remaining active. Thanks!
-
$ - Premium Service Content (Info) | AutoTracker Monthly Winners | Is Gmail et al, Blocking Our emails?
Find us on: Facebook & X | Posting Copyrighted Material
-
Join the TSP Talk AutoTracker: How to Get Started | Login | Main AutoTracker Page
-
The Forum works well on MOBILE devices without an app: Just go to: https://forum.tsptalk.com ...
Or you can now use TapaTalk again!
Market Talk / Sept. 14 - 20
- Thread starter Spaf
- Start date
Anyone knows of any news that triggered this move up?
James48843
Well-known member
Stocks surge on report of entity for bad debt
Thursday September 18, 3:17 pm ET
By Tim Paradis, AP Business Writer Wall Street soars on report that federal govenment will create entity to hold banks' debt
NEW YORK (AP) -- Stocks are surging with the Dow Jones industrials up more than 300 points following a report that the federal government is considering creation of a repository for banks' bad debt.
CNBC said Treasury Secretary Henry Paulson is considering creation of an entity like the Resolution Trust Corp. that was formed after the failure of savings and loan banks in the 1980s.
The Dow, which had been showing modest moves in the final hour of trading, jumped nearly 330 points to the 10,939 level following the report.
Thursday September 18, 3:17 pm ET
By Tim Paradis, AP Business Writer Wall Street soars on report that federal govenment will create entity to hold banks' debt
NEW YORK (AP) -- Stocks are surging with the Dow Jones industrials up more than 300 points following a report that the federal government is considering creation of a repository for banks' bad debt.
CNBC said Treasury Secretary Henry Paulson is considering creation of an entity like the Resolution Trust Corp. that was formed after the failure of savings and loan banks in the 1980s.
The Dow, which had been showing modest moves in the final hour of trading, jumped nearly 330 points to the 10,939 level following the report.
Stratfor article:
Global Market Brief: Of Bailouts and ... Recycling
September 18, 2008 | 2129 GMT
Global Market Brief - Stock<http://www.stratfor.com/mmf/102834/two_column>
Global stock markets are in a state of confusion — the word “meltdown” is being tossed around more than a small amount — and the question on everyone’s mind is: How bad will it get? While Stratfor is a forecasting firm, we do not have a crystal ball — and certainly not one that reveals the market’s future. If we did, our name would be Stratfor Virgin Islands Unlimited or some such appellation. What we can do, however, is remind our readers both how we got here and why we are going to get out of this just fine.
The business cycle seen from afar is a simple thing. Growth starts slowly, generating capital that is then reinvested. As the pace of growth quickens, more and more capital becomes available and the cost of accessing it drops. At first, this makes growth faster still, but eventually much of the capital is invested into projects of questionable profitability. Eventually, those projects make up a significant enough portion of the system that the system seizes up temporarily. Those projects are broken up, melted down or otherwise disposed of, and, for a time, growth stops. Then, the cycle picks back up at the beginning on a sounder footing.
Currently, the economy is in that “broken up, melted down” portion of the cycle; meanwhile, the “projects of questionable profitability” are subprime mortgages worth a total of about $540 billion in an $11 trillion mortgage market. In total, about $140 billion – just more than 1 percent of U.S. gross domestic product (GDP) — of those assets are in some flavor of delinquency, and that is the kernel of all of the blood and froth haunting the markets.
So how does $140 billion of questionable assets in the world’s largest economy precipitate a crisis, particularly when they are backed up by real, salable assets? Two ways.
First, the questionable mortgage assets sparked a crisis via their revaluation. Mortgages until recently were considered among the safest assets for investors to hold, the logic being that people will go to great lengths to make their mortgage payments and therefore not get kicked out of their homes. After mortgages are signed, however, they are not simply held by a bank or other mortgage issuer, but typically bundled into packages and resold to investors. On the upside, this brings much more capital to the mortgage system, thus making mortgages more affordable. (Mortgage lenders do not have to sit on their mortgage; they can sell it and use the proceeds to grant another mortgage.) On the downside, what happens when some of those loans go bad? The original issuer no longer holds the loan, so who is responsible for such things as negotiating or foreclosing? It turns out no one had a good answer for that question.
Since investors could not easily determine loan status — much less loan value — they were forced to revalue their mortgage assets downward from the safest of all assets to something less safe, writing off the difference in values as a loss. That process requires nothing other than cold hard cash to make up the difference. The more uncertainty in the housing market, the deeper the revaluations had to go — thus triggering a cash crunch.
Second, the questionable mortgage assets sparked a crisis via their liquidity. Investors are normally loath to hang on to large amounts of cash; cash under the mattress does not earn anything. So those who had gorged on subprime debt and had to revalue assets quickly ran out of cash. That forced them to sell some of their other assets, and to do so in softening economic circumstances. Since every major investor has at least some of this debt — and because the economy has slowed down and made many other assets suffer similar revisions in value — everyone is, to a certain degree, finding themselves short of cash. And without cash you cannot do much in the financial world.
The cascade-of-value drops eventually proved too much for some firms — most notably Bear Stearns, which broke in March, and now Lehman Brothers and American International Group (AIG), which both fell this week.
Now, onto the next question. The Federal Reserve System allowed Lehman to crash and burn, but launched an $85 billion bailout of AIG. Why the difference?
The short version is simple: Lehman didn’t matter, AIG did. Lehman Brothers is a traditional Wall Street trading house. Most of its business is managing accounts for its many clients. Since they do not actually own their clients’ accounts, odds are, when this is all over, those accounts will end up back in their clients’ hands. What ultimately was “destroyed” by Lehman’s bankruptcy is nothing more than the firm’s own independent investment arm. Like most Wall Street firms, Lehman was largely a vehicle to assist the investment activities of others. Losing that is no big deal.
AIG is a different beast. While, like Lehman, it is AIG’s investment arm that got it into trouble, AIG is first and foremost an insurance company and second an aircraft leasing firm. These are businesses that have little to nothing to do with subprime in specific, or investing in general. Among AIG’s loads of assets are a half-trillion dollar of policies insuring many of the world’s largest companies. The Fed took one look at that and thought, “No sir, this firm is not going to be allowed to go under.” So the Fed cobbled together an $85 billion loan and took over 80 percent of the company.
But this is not a bailout. Instead, the Fed has provided AIG with liquidity and insulation so it can ensure that the functional parts — the large majority of the firm, in fact — can continue operations unimpeded by the bits in need of revaluation. The intent is not to rehabilitate the firm and then let it go, but to sell off every piece of the firm over the next two years and bury it forever as punishment for bad investment decisions. The Fed decision, in effect, is a forced dissolution, but done in a way that will allow the market to recycle the firm’s constituent parts.
Ultimately, Stratfor has never been too concerned about the current problems on Wall Street because they are just that: the problems of Wall Street. That means they disproportionately strike Wall Street, which is only a portion of the financial industry — which is itself only a portion of the broader economy. In every expansion, a different sector generates the bubble that causes the recession (or slowdown). This time it was the financial services and housing industries. Last time it was the dot-com bubble (and, let us tell you, that was not fun for Stratfor).
It helps to keep some perspective. Even if all of the $540 billion in subprime assets went bust (laughably unlikely), and even if not one cent were raised at auction of those assets (simply impossible), the U.S. economy would still only be looking at a total hit of about 3.8 percent of GDP. This is roughly the same amount that the United States had to process from the 1980s savings and loan crisis <http://www.stratfor.com/subprime_geopolitics> .
Average GDP growth since this most-recent shakeout started in the third quarter has been 1.3 percent at an annualized rate. That figure is hardly stellar, but it is not awful. For most of the 1990s, large portions of Europe — not to mention Japan — would have been thrilled to have a figure that high. Stratfor is not saying there is not pain to be felt or that this is all about to be over momentarily. All we are saying is that this too shall pass.
Global Market Brief: Of Bailouts and ... Recycling
September 18, 2008 | 2129 GMT
Global Market Brief - Stock<http://www.stratfor.com/mmf/102834/two_column>
Global stock markets are in a state of confusion — the word “meltdown” is being tossed around more than a small amount — and the question on everyone’s mind is: How bad will it get? While Stratfor is a forecasting firm, we do not have a crystal ball — and certainly not one that reveals the market’s future. If we did, our name would be Stratfor Virgin Islands Unlimited or some such appellation. What we can do, however, is remind our readers both how we got here and why we are going to get out of this just fine.
The business cycle seen from afar is a simple thing. Growth starts slowly, generating capital that is then reinvested. As the pace of growth quickens, more and more capital becomes available and the cost of accessing it drops. At first, this makes growth faster still, but eventually much of the capital is invested into projects of questionable profitability. Eventually, those projects make up a significant enough portion of the system that the system seizes up temporarily. Those projects are broken up, melted down or otherwise disposed of, and, for a time, growth stops. Then, the cycle picks back up at the beginning on a sounder footing.
Currently, the economy is in that “broken up, melted down” portion of the cycle; meanwhile, the “projects of questionable profitability” are subprime mortgages worth a total of about $540 billion in an $11 trillion mortgage market. In total, about $140 billion – just more than 1 percent of U.S. gross domestic product (GDP) — of those assets are in some flavor of delinquency, and that is the kernel of all of the blood and froth haunting the markets.
So how does $140 billion of questionable assets in the world’s largest economy precipitate a crisis, particularly when they are backed up by real, salable assets? Two ways.
First, the questionable mortgage assets sparked a crisis via their revaluation. Mortgages until recently were considered among the safest assets for investors to hold, the logic being that people will go to great lengths to make their mortgage payments and therefore not get kicked out of their homes. After mortgages are signed, however, they are not simply held by a bank or other mortgage issuer, but typically bundled into packages and resold to investors. On the upside, this brings much more capital to the mortgage system, thus making mortgages more affordable. (Mortgage lenders do not have to sit on their mortgage; they can sell it and use the proceeds to grant another mortgage.) On the downside, what happens when some of those loans go bad? The original issuer no longer holds the loan, so who is responsible for such things as negotiating or foreclosing? It turns out no one had a good answer for that question.
Since investors could not easily determine loan status — much less loan value — they were forced to revalue their mortgage assets downward from the safest of all assets to something less safe, writing off the difference in values as a loss. That process requires nothing other than cold hard cash to make up the difference. The more uncertainty in the housing market, the deeper the revaluations had to go — thus triggering a cash crunch.
Second, the questionable mortgage assets sparked a crisis via their liquidity. Investors are normally loath to hang on to large amounts of cash; cash under the mattress does not earn anything. So those who had gorged on subprime debt and had to revalue assets quickly ran out of cash. That forced them to sell some of their other assets, and to do so in softening economic circumstances. Since every major investor has at least some of this debt — and because the economy has slowed down and made many other assets suffer similar revisions in value — everyone is, to a certain degree, finding themselves short of cash. And without cash you cannot do much in the financial world.
The cascade-of-value drops eventually proved too much for some firms — most notably Bear Stearns, which broke in March, and now Lehman Brothers and American International Group (AIG), which both fell this week.
Now, onto the next question. The Federal Reserve System allowed Lehman to crash and burn, but launched an $85 billion bailout of AIG. Why the difference?
The short version is simple: Lehman didn’t matter, AIG did. Lehman Brothers is a traditional Wall Street trading house. Most of its business is managing accounts for its many clients. Since they do not actually own their clients’ accounts, odds are, when this is all over, those accounts will end up back in their clients’ hands. What ultimately was “destroyed” by Lehman’s bankruptcy is nothing more than the firm’s own independent investment arm. Like most Wall Street firms, Lehman was largely a vehicle to assist the investment activities of others. Losing that is no big deal.
AIG is a different beast. While, like Lehman, it is AIG’s investment arm that got it into trouble, AIG is first and foremost an insurance company and second an aircraft leasing firm. These are businesses that have little to nothing to do with subprime in specific, or investing in general. Among AIG’s loads of assets are a half-trillion dollar of policies insuring many of the world’s largest companies. The Fed took one look at that and thought, “No sir, this firm is not going to be allowed to go under.” So the Fed cobbled together an $85 billion loan and took over 80 percent of the company.
But this is not a bailout. Instead, the Fed has provided AIG with liquidity and insulation so it can ensure that the functional parts — the large majority of the firm, in fact — can continue operations unimpeded by the bits in need of revaluation. The intent is not to rehabilitate the firm and then let it go, but to sell off every piece of the firm over the next two years and bury it forever as punishment for bad investment decisions. The Fed decision, in effect, is a forced dissolution, but done in a way that will allow the market to recycle the firm’s constituent parts.
Ultimately, Stratfor has never been too concerned about the current problems on Wall Street because they are just that: the problems of Wall Street. That means they disproportionately strike Wall Street, which is only a portion of the financial industry — which is itself only a portion of the broader economy. In every expansion, a different sector generates the bubble that causes the recession (or slowdown). This time it was the financial services and housing industries. Last time it was the dot-com bubble (and, let us tell you, that was not fun for Stratfor).
It helps to keep some perspective. Even if all of the $540 billion in subprime assets went bust (laughably unlikely), and even if not one cent were raised at auction of those assets (simply impossible), the U.S. economy would still only be looking at a total hit of about 3.8 percent of GDP. This is roughly the same amount that the United States had to process from the 1980s savings and loan crisis <http://www.stratfor.com/subprime_geopolitics> .
Average GDP growth since this most-recent shakeout started in the third quarter has been 1.3 percent at an annualized rate. That figure is hardly stellar, but it is not awful. For most of the 1990s, large portions of Europe — not to mention Japan — would have been thrilled to have a figure that high. Stratfor is not saying there is not pain to be felt or that this is all about to be over momentarily. All we are saying is that this too shall pass.
Frixxxx
Moderator
When you absolutely, positively, decidedly need someone to send to jail....create an oversight agency.....
Funded by ????
Controlled by????
Market injection determined by ????
How big is this bucket going to be.... & oh, can it bail out social security???
James48843
Well-known member
Show-me
Well-known member
Similar threads
