The Economy, stupid

[southsider2k5]

The key factor here is the whole TARP aspect.

 

If GS, ML and others are paying out big stupid bonuses, I have zero issue with that. They want to bury themselves and lose mid-level employees who get frustrated, then fine. But, in this case, WE (the taxpayers) now are key stakeholders in the business. That's where it gets bad, and where they shouldn't be allowed to do this as long as they still have government funds.

 

If they pay it all back with the intended interest, then from their on, they can do what they want. But if it is found that while they were still on the government dole, and were doing this, while laying off thousands, then I hope Congress b****-slaps them and uses the muscle built into TARP to kick out the executives (again) and bring in a new team, rinse and repeat, until some management team finally gets it right.

 

To me, its the equivalent of... I'm on a board of directors of a firm that is in bankruptcy protection. If I find out the high level management gave themselves giant bonuses, when the company is still struggling, I push the board to can their asses.

 

Even in cases where companies weren't allowed to pay back funds?

[StrangeSox]

Even in cases where companies weren't allowed to pay back funds?

 

There's a conflict of interest there. They had incentive to pay back funds to give themselves obscene bonuses even if the company was still on shaky ground.

[NorthSideSox72]

Even in cases where companies weren't allowed to pay back funds?

When did that happen? Everything I've seen so far is that these funds could be paid back whenever. Many firms already have.

 

Now, there were some firms that were encouraged to take it even though they didn't need it, to a point of bullying even. But I haven't read anywhere that a bank wasn't allowed to pay it back when they wanted to (unless it was some small or regional bank that was insolvent or in protection/receivership or the like).

 

[kapkomet]

When did that happen? Everything I've seen so far is that these funds could be paid back whenever. Many firms already have.

 

Now, there were some firms that were encouraged to take it even though they didn't need it, to a point of bullying even. But I haven't read anywhere that a bank wasn't allowed to pay it back when they wanted to (unless it was some small or regional bank that was insolvent or in protection/receivership or the like).

Many of the companies that took the money were not allowed to pay it back for a long time. The threat was that they would fail the stress test (that the gov't came up with, of course) if they sent the money back.

[southsider2k5]

When did that happen? Everything I've seen so far is that these funds could be paid back whenever. Many firms already have.

 

Now, there were some firms that were encouraged to take it even though they didn't need it, to a point of bullying even. But I haven't read anywhere that a bank wasn't allowed to pay it back when they wanted to (unless it was some small or regional bank that was insolvent or in protection/receivership or the like).

 

The fed government forced all companies to wait for quite awhile to pay them back after practically forcing them to take it.

[NorthSideSox72]

Many of the companies that took the money were not allowed to pay it back for a long time. The threat was that they would fail the stress test (that the gov't came up with, of course) if they sent the money back.

 

 

The fed government forced all companies to wait for quite awhile to pay them back after practically forcing them to take it.

 

As I understood it, companies needed to be able to pass the stress tests before paying it back. That only makes sense.

 

[southsider2k5]

As I understood it, companies needed to be able to pass the stress tests before paying it back. That only makes sense.

 

Which was the biggest problem... they were imposing new standards after forcing companies to take the money in the first place.

[Cknolls]

Which was the biggest problem... they were imposing new standards after forcing companies to take the money in the first place.

 

 

And receiving a nice interest rate on top.

[NorthSideSox72]

Which was the biggest problem... they were imposing new standards after forcing companies to take the money in the first place.

 

 

And receiving a nice interest rate on top.

 

I don't have any problem with either of those things. We needed to set some sort of standard for capitalized safety nets, and as investors in these companies, you are damn right the government should get interest back.

 

I only have two issues with these rules. One, that some banks (mostly smaller ones as I understand it) were bullied into taking the money when they didn't need it. And two, if anyone was not allowed to pay it back EVEN THOUGH they could show their stability matched those standards (and I don't think this #2 ever happened).

 

[Balta1701]

The important detail being left out is; TARP is by no means anywhere close to the only government bailout that these banks received. The guarantees on their debts, AIG bailouts, and Federal Reserve "Cash for clunkers" program were much, much larger than the TARP bailouts, and frankly, without those, all of those firms would be gone.

[NorthSideSox72]

The important detail being left out is; TARP is by no means anywhere close to the only government bailout that these banks received. The guarantees on their debts, AIG bailouts, and Federal Reserve "Cash for clunkers" program were much, much larger than the TARP bailouts, and frankly, without those, all of those firms would be gone.

That is an exaggeration.

 

But, you make a good point that there were other programs. My feelings on those are the same as what I stated on TARP, though.

 

[Balta1701]

That is an exaggeration.

Name one that would have survived.

 

Seriously, just look at the numbers. The Federal Reserve has expanded its balance sheet by something like $2 trillion dollars buying up pieces of big s*&tpile from these banks. That's the scale of the bailout they've gotten. AIG has been another what, $200 billion payouts? And then there's the nearly infinite guarantees given out. The numbers are staggering. There wouldn't be a top 10 bank/financial firm left if they had to hold the paper they wrote.

[Cknolls]

The important detail being left out is; TARP is by no means anywhere close to the only government bailout that these banks received. The guarantees on their debts, AIG bailouts, and Federal Reserve "Cash for clunkers" program were much, much larger than the TARP bailouts, and frankly, without those, all of those firms would be gone.

 

 

I think the biggest of these programs that provided the largest safety net was the guarantee in the commercial paper market. GE would already be dead if it were not for the government backstop.

 

But the biggest crock of s*** of any of these programs was allowing GS MS GE GM and the like to become bank holding companies. Pure BULLs***!!!

[Balta1701]

The High-Frequency trading deal of Goldman I brought up a week or two ago has continued percolating and the SEC has launched an investigation. I'm going to throw in one bit of commentary in reply to the folks who defended the practice last time.

high-frequency trading in itself is not the problem. Speculators can and should be able to buy or sell things as often as they like, since the number of times you make a bet on a roll of dice does not change the probability of a six coming up in any given situation. Passive investors, who provides the overwhelming bulk of capital to US markets, should not be hurt by high frequency trading because they should be buying assets at the prevailing ask price in 2009 to sell at the prevailing bid price in 2029. Over this holding period, their profit on the investment will be the same regardless of whether the buy and sell orders are executed by humans in yellow coats running around with paper tickets or extremely advanced machines. Indeed, since people generally cost more to maintain, passive investors should profit from any fancy games that speculators play against each other, provided that the SEC keeps the two camps separate. That is, a well-functioning regulator should explain to the public that the most speculators lose money because of transaction costs and the cost of capital, and that most individuals can get a far better return on their time from reading a novel than by feverishly checking Yahoo! Finance. The last thing we as a society would want is to have the SEC announce that, with the elimination of some algorithms, active trading has become a safe and reasonable activity for working families.

 

Flash orders, however, are an entirely different beast. By probing the market without the intent to complete a purchase or sale, these transactions erode pricing quality by eating up the distance between the publicly known order price and the limit price, a secret rightfully held only by the investor and his servant, the broker. This pattern of activity means that instead of listing information, providing liquidity, and helping set prices, speculators are actively destroying the ability of a quoted market price to represent the availability of contracts in the market. If I understand the practice correctly, flash orders are nothing more than a simple bait-and-switch fraud enabled by really expensive computers. They should be made as illegal as other forms of lies about financial products.

[Balta1701]

Fascinating. I'll bet this has strong relations to the health coverage mess; you can't start a small business if it costs you your health insurance.

An important part of our national identity is built around the idea that – thanks to low taxes, limited

regulation, unfettered labor markets, and a national spirit of entrepreneurship – the United States

offers an environment for small business that is unmatched anywhere else in the world.

 

The international economic data, however, tell a different story about the state of U.S. small

business. By every measure of small-business employment, the United States has among the world’s

smallest small-business sectors (as a proportion of total national employment).

[Balta1701]

The SEC is officially going to start some sort of a crackdown, or at least paying attention, to GS et al.'s "Flash Trading" dealy.

The S.E.C. chairwoman, Mary L. Schapiro, said on Tuesday that she would push to eliminate a controversial high-frequency trading technique known as “flash orders,” which allow traders to peek at other investors’ orders before they are sent to the wider marketplace.

That was surprisingly fast turnaround after the original NYT/whistleblower report.

[Cknolls]

So last Wednesday the Treasury 5 yr note auction sucked some wind; but the next day teh 7 yera note auction was off surprisingly well. So well that the bidders ripped prices 5bps through where the when issued was trading just before the results were released. Why you ask??? Banana Ben and his men PURCHASED 16.97% of the auction. So the real bid/cover was much lower than reported. PPT to the rescue again. And I thought this only went on with the previous administration.

 

Next week we have 5's, 10's, and 30's being auctioned on Tue., Wed., on Fri. respectively.

[Balta1701]

So last Wednesday the Treasury 5 yr note auction sucked some wind; but the next day teh 7 yera note auction was off surprisingly well. So well that the bidders ripped prices 5bps through where the when issued was trading just before the results were released. Why you ask??? Banana Ben and his men PURCHASED 16.97% of the auction. So the real bid/cover was much lower than reported. PPT to the rescue again. And I thought this only went on with the previous administration.

 

Next week we have 5's, 10's, and 30's being auctioned on Tue., Wed., on Fri. respectively.

So, somehow I'm supposed to be surprised by that? The Fed has been doing exactly that deliberately; it's part of their "Quantatative easing" policy; basically they're buying up U.S. treasuries to expand the money supply since they can't drop their interest rates any more, and they need like another 5-10% of interest rate room to truly account for the hole created by the bubble bursting.

[Cknolls]

Libor spreads have returned to normal (we are guaranteeing this market).

 

Swap spreads have returned to normal (we are guaranteeing this market).

 

Housing starts and prices have stabilized (the U.S gov't. is providing 15% tax credits, effectively paying the down payment for first time home buyers).

 

Car sales are seeing signs of life (the U.S. gov't. is providing cash for clunkers).

 

The U.S economy has stabilized because the U.S gov't. has effectively become almost half of the U.S economy. But stimulus has been shown to have a zero multiplier: stimulus comes from either borrowing or transferring wealth from taxpayers, so every dollar eventually is taken back. Tax increases tend to have a minus 3 multiplier: tax increases eventually reduce growth by three times the increase.

 

Green shoots will whither away very quickly as the U.S. gov't has effectively become a very large part of the economy. That is temporary. Without the ability to generate more credit, growth will turn negative.

[southsider2k5]

Libor spreads have returned to normal (we are guaranteeing this market).

 

Swap spreads have returned to normal (we are guaranteeing this market).

 

Housing starts and prices have stabilized (the U.S gov't. is providing 15% tax credits, effectively paying the down payment for first time home buyers).

 

Car sales are seeing signs of life (the U.S. gov't. is providing cash for clunkers).

 

The U.S economy has stabilized because the U.S gov't. has effectively become almost half of the U.S economy. But stimulus has been shown to have a zero multiplier: stimulus comes from either borrowing or transferring wealth from taxpayers, so every dollar eventually is taken back. Tax increases tend to have a minus 3 multiplier: tax increases eventually reduce growth by three times the increase.

 

Green shoots will whither away very quickly as the U.S. gov't has effectively become a very large part of the economy. That is temporary. Without the ability to generate more credit, growth will turn negative.

 

All that means is that the government is going to continue to become more and more a part of our daily life.

[Balta1701]

New data: income inequality (the earnings of the top .01%) hit an all time high in 2007, surpassing the 1929 mark.

 

 

"...while the bottom 99 percent of incomes grew at a solid pace of 2.7 percent per year from 1993-2000, these incomes grew only 1.3 percent per year from 2002-2007. As a result, in the economic expansion of 2002-2007, the top 1 percent captured two thirds of income growth."

Full paper is available at link.

[kapkomet]

Punish those evil rich motherf***ers. They must give to the poor... oh wait. Nevermind.

 

[Balta1701]

The latest 2009 Federal Deficit prediction is $200 billion smaller than the last one.

[kapkomet]

The latest 2009 Federal Deficit prediction is $200 billion smaller than the last one.

Then why did they wait so long to release this? It's funny how all the stars are aligning so that everything is rosey and now not as bad as we thought only a month ago when we were going to need ANOTHER stimulus. Since then, rosey smelling crap has been generated. Why? Gotta pass that health care. Then reality will come back.

 

[Balta1701]

Then why did they wait so long to release this? It's funny how all the stars are aligning so that everything is rosey and now not as bad as we thought only a month ago when we were going to need ANOTHER stimulus. Since then, rosey smelling crap has been generated. Why? Gotta pass that health care. Then reality will come back.

Frankly, yeah, it's funny how everything is not as bad as we thought only a month or two ago. Almost as if the government did some sort of stimulative program.