OT - When does a recession become a depression?
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serpentman
part time superhero
I read have been reading several articles regarding the economic ramifications of credit-default swaps, another unregulated business that appears to make this current bank crisis look like a drop in the bucket. Not to fear monger but its pretty scary that there is an estimated $45-60 trillion in credit swap contracts out there basically hedging against/for the credit worthiness of large financial entities. If the bottom were to continue to drop out in the CDS market, I am pretty sure the govt couldn't offer a bailout on that scale.
Hopefully, Congress will have something written by Sunday evening. If not, we could start to see the fallout in trading trickle across the global markets starting in asia. My guess is if we hit below 10k on the DJI we won't be coming back for a long time.
Aqua Keepers
New member
Sounds like some of you guys know what to expect. My question is, where does the small guy (me) place his first investment? It almost seems like keeping it in savings isn't that bad of an idea.
ronc98
New member
The last thing I would do is put money in the market. Cash is king at this point. If you can find a short term Cd of around 3 months that is FDIC insured then that miI have might be a good idea.
For the last three years I have predicted te Dow around 8K I hope I am wrong. Sadly my other predictions have been right. This is one time I will be happy to be wrong.
For the last three years I have predicted te Dow around 8K I hope I am wrong. Sadly my other predictions have been right. This is one time I will be happy to be wrong.
Savings yields very little return on your investment. Usually, the percentage is less than inflation which means you are losing your purchasing power over time. CDs yield higher but lock in the money for specific periods of time. There are many investments out there. I prefer the market as its relatively easy to pick companies that will make you money over time.
Aqua Keepers
New member
I don't mind the $$$ being locked up. I just don't want to leave it in savings as I know the inflation rate is killing the value of my dollar. I'll look into CDs.
ITs the normal cycle sorry to say. When our economy starts to go bad. WE GO TO WAR. Plain and simple. Its in our history books which i can almost guarantee you dont lie. Maybe in small bits. But everytime our economy starts to fail we find a war. Give our take we may not have found this one that were currently in. But i can almost guarantee you that we had someting to do with getting it in motion. Economy start to fail, We go to war, Creates jobs , we hit a recession then it starts to turn around eventyually back to the point were economy starts to grow. This was seen 5 years ago and yet we close our eyes to it. Over and over we have been losing jobs. American comapanies that we pay to know have 90% of their workers over seas ex DELL, GATEWAY, SPRINT majority of cell phone providers our goverment helps them to do this imagine i sell products in the US i have all more support in indonisia the goverment doesnnt tax me more i pay less in taxes, less in adult slavery wages and so on. We let the goverment do this to us and the whole time left our eyes closed to it. IMHO we deserve it. We have no way of stopping or telling our goverment how and what to do. Try it and see what happens lol. Maybe im over exageration but then maybe not.
serpentman
part time superhero
They are worried investor confidence in US financial markets will drop significantly triggering a panic sell which would place additional pressure on banks causing them to fail.
serpentman
part time superhero
I agree. However, I suspect it has more to do with the recipients of the bailout themselves. Because they have basically frozen their willingness/ability to extend credit, it sounds like it has become of situation where they can only hold out so long.
Hey Ronc98, I can try to explain what I know to you. Mostlikely it won't be Monday but Tues or Weds. The credit market has been stalling for a few months now with intervention needed at the beginning of summer, not the end. As for the financial meltdown there are two factors, after the president's televised speech stating we need the bailout it has now become required by wall street to have this. If we do not see it at the open of the financial markets we will be in for a potential free fall that hasn't been seen since 1929. I'm sure at this point the government will suspend trading. But my guess if this happens, there will be a run to withdraw money from banks and long lines for buying food and gas. Think of that catastrophe.
The other factor, which is the mess that needs cleaned, stems from how we buy, sell, and bundle credit. It has a growing road bump from downgraded credit derivatives which has lead to a run on the big five financial institutions. With the inability to know what is in these bundled credit packages people have essentially stopped buying them, one problem. The next is no one is willing to lend money to any other institution as they are not sure if 1) they need the money 2) the company being lent will not collapse.
It goes like this. If I, as a bank, lend money to 5 people buying houses I could take this and bundle these five into something I can sell to wallstreet to be traded. With the past few years of house price increases, due to Federal rate being so cheap, there was an incredibly high demand for this. So banks started loaning money to people without background checks and people that really couldn't afford the house by giving them options like interest only and ARM mortgages. With these people were more or less buying a second or third house as investments. They would sell a few years later potentially doubling their money. Once the Fed increased the rate the ARMs went through the roof, causing an increasing amount of defaults. This lead to a squeeze on people that couldn't afford the house and either went to market or losing it completely. Once this number started to rise the "housing bubble" burst. Leading to lower prices.
Now this sounds good for buyers, however, the US has not seen a decline across the nation in housing prices which is now going on in at least 50 years. The packaged houses I just mentioned were considered high grade investments that were sold and insured by banks to investors and financial institutions as a higher rate of return than treasuries and just as safe. They were also used to borrow against to issue more credit. So with those five houses with AA standings I could now borrow money against that to buy say... more investment grade mortgages. So the financial institutions would borrow this money to buy more mortgage bundles or loan out that money they borrow for a premium. Now say in that first bundle 2 of 5 houses lied about their income just to buy a larger "investment" to sell later. They default and the institutions write it off. However, the high number of houses defaulting leads to the lower market value. Also, AA standing packages should not have any defaults, leading investors to believe there could be more of this in these packages. Leading to a hault in buying and trading.
Now, I believe this has lead to a few new issues. First, the financial institutions that sold these off as investment grade wrote contracts to cover losses by the holder. So as the market degrades these institutions are giving money to the holder to compensate for the loss. This is severely crippling these institutions. Second, with less value on a house the institutions can no longer use these to issue credit. Think of it like how margin causing the Great Depression but with issuance of credit where the value of the borrowed good is no longer worth what it was and getting called to pay. The only way to solve this is to essentially remove this "call" using the credit of the government.
If we pass this bill and everything works we still are in for a recession not seen in generations from the potential collapse of the housing market. In 4-6 months when the government issues another 400B to help refinance people that overbought on houses with incredibly low interest rates, I will not be surprised. That's my take on it. Anyone can chime in if they know anything or see something I missed.
QuagmireMan
New member
I got this in an email:
Hi Pals,
I'm against the $85,000,000,000.00 bailout of AIG.
Instead, I'm in favor of giving $85,000,000,000 to America in a We Deserve It Dividend.
To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+.
Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up..
So divide 200 million adults 18+ into $85 billion that equals $425,000.00.
My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.
Of course, it would NOT be tax free.
So let's assume a tax rate of 30%.
Every individual 18+ has to pay $127,500.00 in taxes.
That sends $25,500,000,000 right back to Uncle Sam.
But it means that every adult 18+ has $297,500.00 in their pocket.
A husband and wife has $595,000.00.
What would you do with $297,500.00 to $595,000.00 in your family?
Pay off your mortgage - housing crisis solved.
Repay college loans - what a great boost to new grads
Put away money for college - it'll be there
Save in a bank - create money to loan to entrepreneurs.
Buy a new car - create jobs
Invest in the market - capital drives growth
Pay for your parent's medical insurance - health care improves
Enable Deadbeat Dads to come clean - or else
Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.
If we're going to re-distribute wealth let's really do it...instead of trickling out a puny $1000.00 ( 'vote buy' ) economic incentive that is being proposed by one of our candidates for President.
If we're going to do an $85 billion bailout, let's bail out every adult U S Citizen 18+!
As for AIG - liquidate it.
Sell off its parts.
Let American General go back to being American General.
Sell off the real estate.
Let the private sector bargain hunters cut it up and clean it up.
Here's my rationale. We deserve it and AIG doesn't.
Sure it's a crazy idea that can 'never work.'
But can you imagine the Coast-To-Coast Block Party!
How do you spell Economic Boom?
I trust my fellow adult Americans to know how to use the $85 Billion
We Deserve It Dividend more than I do the geniuses at AIG or in Washington DC
And remember, The Chandler plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.
Ahhh...I feel so much better getting that off my chest.
Kindest personal regards,
Gene
G.W. Chandler, A Creative Guy & Citizen of the Republic
PS: Feel free to pass this along to your pals as it's either good for a laugh or a tear or a very sobering thought on how to best use $85 Billion!!
Hi Pals,
I'm against the $85,000,000,000.00 bailout of AIG.
Instead, I'm in favor of giving $85,000,000,000 to America in a We Deserve It Dividend.
To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+.
Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up..
So divide 200 million adults 18+ into $85 billion that equals $425,000.00.
My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.
Of course, it would NOT be tax free.
So let's assume a tax rate of 30%.
Every individual 18+ has to pay $127,500.00 in taxes.
That sends $25,500,000,000 right back to Uncle Sam.
But it means that every adult 18+ has $297,500.00 in their pocket.
A husband and wife has $595,000.00.
What would you do with $297,500.00 to $595,000.00 in your family?
Pay off your mortgage - housing crisis solved.
Repay college loans - what a great boost to new grads
Put away money for college - it'll be there
Save in a bank - create money to loan to entrepreneurs.
Buy a new car - create jobs
Invest in the market - capital drives growth
Pay for your parent's medical insurance - health care improves
Enable Deadbeat Dads to come clean - or else
Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.
If we're going to re-distribute wealth let's really do it...instead of trickling out a puny $1000.00 ( 'vote buy' ) economic incentive that is being proposed by one of our candidates for President.
If we're going to do an $85 billion bailout, let's bail out every adult U S Citizen 18+!
As for AIG - liquidate it.
Sell off its parts.
Let American General go back to being American General.
Sell off the real estate.
Let the private sector bargain hunters cut it up and clean it up.
Here's my rationale. We deserve it and AIG doesn't.
Sure it's a crazy idea that can 'never work.'
But can you imagine the Coast-To-Coast Block Party!
How do you spell Economic Boom?
I trust my fellow adult Americans to know how to use the $85 Billion
We Deserve It Dividend more than I do the geniuses at AIG or in Washington DC
And remember, The Chandler plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.
Ahhh...I feel so much better getting that off my chest.
Kindest personal regards,
Gene
G.W. Chandler, A Creative Guy & Citizen of the Republic
PS: Feel free to pass this along to your pals as it's either good for a laugh or a tear or a very sobering thought on how to best use $85 Billion!!
Aqua Keepers
New member
That's crazy!!! I was just thinking about the same thing. I don't see how that could not boost the economy.
.
QuagmireMan
New member
lol, I didn't even catch that.
Still seems like a better idea to give everyone the money
Still seems like a better idea to give everyone the money
I was looking at that thinking "Wait a sec $425,000 is not right at all" And don't get me wrong if they sent me a check for $425 I'd cash it, but I don't think it would all of a sudden change investor sentiment on Wall Street, or make the little old lady down the street believe her money is any safer in the bank.
