The Fundamentals of are economy are STRONG?????

[swake]

When the Federal Reserve is having a liquidity crunch and is borrowing money to shore up banks and AIG, it's no exaggeration to say that we are in very scary times.

http://www.tulsaworld.com/news/article.aspx?articleID=20080917_13_WASH373124

[Conan71]

quote:Originally posted by swake

When the Federal Reserve is having a liquidity crunch and is borrowing money to shore up banks and AIG, it's no exaggeration to say that we are in very scary times.

http://www.tulsaworld.com/news/article.aspx?articleID=20080917_13_WASH373124

According to the article:

Notes have a 35-day maturation.

"Treasury officials said the action did not mean that the Fed was running short of resources but simply was a way for the government to better manage its financing needs."

Quit trying to frighten the simple-minded, Swake. []

[rwarn17588]

quote:Originally posted by Gaspar

quote:Originally posted by rwarn17588

quote:Originally posted by Gaspar

quote:Originally posted by rwarn17588

quote:Originally posted by Gaspar

GDP up. GNP up. CPI down (actually going down another .1 % today).   Consumer spending up.  Mortgage refinance index up 15.4% Wow!  Housing starts jump 1.6% announced today.  Target futures on oil are at $88 a barrel (unrelated but I'm happy about it none the less, gonna buy some options).

Gaspar, I don't think even the biggest optimist is delusional enough to be doing cartwheels over the current economy.

There have been just too many shocks to the system in a short time. The housing bust, doubled inflation, staggeringly high oil prices, rising unemployment and now a slew of financial houses teetering on collapse. About the only reason the GNP was in positive territory in the third quarter was the stimulus checks.

Yes, the U.S. economy is resilient. But no economy stands strong when it keeps absorbing massive body blows. You don't stand strong; you grab onto the ropes and hold on for dear life until the crisis passes.

That's not what this thread is about.  This thread is about the "fundamentals of our economy" as indicated in the title.  I agree that there are some very unfortunate economic occurrences that have slowed growth. But the fundamentals are still healthy and growth is still positive.

Fair enough.

However, the recent developments about AIG would make one question the fundamentals.

If AIG -- one company -- going belly-up would result in economic Armageddon, doesn't that call into question the true strength and fundamentals of the economy?

Should a economy with supposedly strong fundamentals have its fate that crucially tied to one insurance firm?

Or is the gloom and doom about letting AIG perish just hyperbole to satisfy a few Wall Street fatcats?

Again, these questions aren't rhetoric. I'm genuinely curious about your response.

Don't fall for media hype.  A % of the market is speculators and they will indeed be hurt.  The fate of the market is not tied to any one company.  The federal government takes action to soften the blow (though I don't agree with that).  But it looks like the private sector will mount a defense first (and far far more effectively).  

I'm not speaking from hype. I'm speaking as an investor. I learned many years ago the principle of "specific stock risk." In other words, keep your investments widely diversified among many stocks, so that if a company goes belly-up, the hurt to your portfolio doesn't hurt as much.

The same should hold true to the U.S. economy. But I find it deeply troubling that one corporation would hold so much sway over the markets that the Fed would need to step in. I can draw no other conclusion that parts of the U.S. economy -- particularly the financial sector -- aren't diversified enough and are in too few hands.

Which leads a second primary reason why antitrust laws were created, I'd say.

[swake]

Investment banks and insurance companies aren't like other businesses. A single company fails or even when an entire industry is troubled isn't that big of a deal. But these companies are different. Investment banks don't "do" anything, they invest their and other peoples money in lots of things. Insurance companies are very similar. They really make most of their money investing customer's premiums, they are largely investment banks themselves.

The issues with these companies reveal very large issues in the economy as a whole because they represent the economy as a whole in the form of what these companies are invested in. That's why they are important. These companies are taking a beating in the bond markets but they are so huge it's now killing the stock market too. No private banks bailed out AIG, it took the Federal Reserve, no private entities would touch them.

Now they, and others, are going to sell themselves off at fire sale prices further depressing the worth of the bits and pieces of the economy that they own. The sale of assets that is coming to try to meet these loan payments or to justify mergers is going to devalue a huge range economic sectors further depressing the stock market. Too many sellers and too few buyers. With the bond market still in bad shape maybe people will put their money into the bank. That would be a good thing as that would drive up the savings rate and stabilize local deposit based banks that have been hurt by the mortgage crisis and remove some of the pressure off of the Fed now that it's in the investment bank rescue business.

[Conan71]

quote:Originally posted by swake

Investment banks and insurance companies aren't like other businesses. A single company fails or even when an entire industry is troubled isn't that big of a deal. But these companies are different. Investment banks don't "do" anything, they invest their and other peoples money in lots of things. Insurance companies are very similar. They really make most of their money investing customer's premiums, they are largely investment banks themselves.

The issues with these companies reveal very large issues in the economy as a whole because they represent the economy as a whole in the form of what these companies are invested in. That's why they are important. These companies are taking a beating in the bond markets but they are so huge it's now killing the stock market too. No private banks bailed out AIG, it took the Federal Reserve, no private entities would touch them.

Now they, and others, are going to sell themselves off at fire sale prices further depressing the worth of the bits and pieces of the economy that they own. The sale of assets that is coming to try to meet these loan payments or to justify mergers is going to devalue a huge range economic sectors further depressing the stock market. Too many sellers and too few buyers. With the bond market still in bad shape maybe people will put their money into the bank. That would be a good thing as that would drive up the savings rate and stabilize local deposit based banks that have been hurt by the mortgage crisis and remove some of the pressure off of the Fed now that it's in the investment bank rescue business.

Pretty good analysis, Swake.  Actually, I think the gov't may have been trying to ward off a fire sale of AIG assets by taking this action.  Still not sure if that is right or wrong action by the gov't, but you are correct, insurance companies are amongst the largest institutional investors we have in this country.

It will be interesting to hear what shakes out in the coming weeks.

[pmcalk]

quote:Originally posted by cmatt1

quote:

Stop right there!  I'm not saying that Obama supporters are stupid, I'm just saying that his target demographic has other aspects of life that they focus on rather than the intricacies of the american stock market or the economy.

I think you are highly overestimating the public and republicans.  I am sure it is around the board on both sides.  But I have flat tax republicans complaining its wrong that if they make 78,849 they have to pay 25% and if they make 78,851 they pay 28% so they make less money!  I seriously doubt much of anybody knows what the hell is going on.  In fact, I would say that if we had another party in power they would swap sides whoever claimed the economy was strong.  I mean the worst the economy ever was was when Clinton was in power.  At least thats what I hear from some people.

???I am not really following you, but you do understand that under our tax code, you only pay the higher bracket on the amount of income that exceeds the cut off levels?  In other words, someone who makes 78,851 would pay 25% taxes on 78,849, and 28% on the remaining 2 dollars (I am assuming that your cut off levels are correct--I don't know what they are).  You don't suddenly pay 28% on all of your income.

I think you are talking to some very biased people about the economy under Clinton.

[pmcalk]

For those who claim that the fundamentals are strong and that McCain was correct in saying it, then please explain why your candidate is backpedaling?  Why is he "clarifying" that he meant the American worker when he said fundamentals--why didn't he just say American worker?  American worker vs. fundamentals, not something that I use interchangeably.  But what do I know--I am just a fundamental.

[Conan71]

quote:Originally posted by pmcalk

For those who claim that the fundamentals are strong and that McCain was correct in saying it, then please explain why your candidate is backpedaling?  Why is he "clarifying" that he meant the American worker when he said fundamentals--why didn't he just say American worker?  American worker vs. fundamentals, not something that I use interchangeably.  But what do I know--I am just a fundamental.

Because he's old, he's addled, he's angry, and Obama is a silver-tongued devil, that's why.

Why haven't you been answering questions raised about Obama being gilded by AIG, Fannie Mae and Freddie Mac?

Second-highest benefactor, that Obama is.  Few other questions raised about him you don't seem prepared to answer.  Just keep throwing darts and McCain and Palin, it will take the focus off your flawed candidate, and sleazy old DC politician he picked for a running mate.  Talk about not vetting the veep...sheesh.

[FOTD]

We've lost over a trillion dollars of our economy in three days ..... but vote for our souless old stupid white guy because he says that the economy is sound.

White House scraps press coverage of Bush meeting
http://www.boston.com/news/nation/washington/articles/2008/09/16/white_house_scraps_press_coverage_of_bush_meeting/?rss_id=Boston.com+--+National+news
WASHINGTON—With Wall Street in turmoil, the White House has canceled any press coverage of President Bush's meeting with his chief advisory group on the reeling financial markets.

Bush was scheduled to make a statement Tuesday to a pool of White House reporters after huddling with his financial working group. That won't happen now.

Spokesman Tony Fratto says the White House decided it would be best to limit public comment about markets.

The meeting went on as planned. The group is led by Treasury Secretary Henry Paulson and includes Federal Reserve Chairman Ben Bernanke and the chairpersons of the Securities and Exchange Commission and the Commodity Futures Trading Commission."


It probably went something like this: "Hell, those middle-classers are really taking it in the rear, aren't they. Well, you guys go out there and steal as much as you can before it all comes crumbling down. The Fed will bail all of you out with taxpayer money."

Off the record, the official white house source said their only comment about the economy was "oh sheett!".

[Hoss]

quote:Originally posted by FOTD

We've lost over a trillion dollars of our economy in three days ..... but vote for our souless old stupid white guy because he says that the economy is sound.

White House scraps press coverage of Bush meeting
http://www.boston.com/news/nation/washington/articles/2008/09/16/white_house_scraps_press_coverage_of_bush_meeting/?rss_id=Boston.com+--+National+news
WASHINGTON—With Wall Street in turmoil, the White House has canceled any press coverage of President Bush's meeting with his chief advisory group on the reeling financial markets.

Bush was scheduled to make a statement Tuesday to a pool of White House reporters after huddling with his financial working group. That won't happen now.

Spokesman Tony Fratto says the White House decided it would be best to limit public comment about markets.

The meeting went on as planned. The group is led by Treasury Secretary Henry Paulson and includes Federal Reserve Chairman Ben Bernanke and the chairpersons of the Securities and Exchange Commission and the Commodity Futures Trading Commission."


It probably went something like this: "Hell, those middle-classers are really taking it in the rear, aren't they. Well, you guys go out there and steal as much as you can before it all comes crumbling down. The Fed will bail all of you out with taxpayer money."

Off the record, the official white house source said their only comment about the economy was "oh sheett!".

Sounds like the ole 'nothing to see here, move along' defense.

If it wasn't so typical of this administration, I'd say unbelieveable.

[brunoflipper]

quote:Originally posted by Conan71

If a business owner is flush with cash...

i was flush with cash until three days ago...
despite being broadly diversified with the most "ideal portfolio"  and "safest bet for your age"...

i lost 35% of my net worth... ouch...

looks like ten more years until i retire...

but everything is rainbows and tomorrow is a new day

oh well, call me a vindictive SOB but i'm going to take it out on the boys in charge...

[Gaspar]

I lost 25%.  I'm going to take it out on those who created the regulations forcing banks and lenders to give money to people who had no means of paying it back, and those who pose any new regulation.

There needs to be a thorough investigation into who Fannie, Freddie, and AIG have had in their pockets.  Oh wait, we already know.

&.

The administration's decision to bail out AIG is foolish, not to mention illegal.  I don't care if it helps to soften the blow, it has far reaching consequences that we will see within the next few weeks as other companies crater, and request that the government bail them out.  Then there will be the litigation.  Oh, the litigation.

[we vs us]

quote:Originally posted by Gaspar

I lost 25%.  I'm going to take it out on those who created the regulations forcing banks and lenders to give money to people who had no means of paying it back, and those who pose any new regulation.

You keep saying this but I have no idea what you mean.  Who forced whom to lend to who again?

[Gaspar]

quote:Originally posted by we vs us

quote:Originally posted by Gaspar

I lost 25%.  I'm going to take it out on those who created the regulations forcing banks and lenders to give money to people who had no means of paying it back, and those who pose any new regulation.

You keep saying this but I have no idea what you mean.  Who forced whom to lend to who again?

Once upon a time. . .

Fanny and Freddy give Johnny who works at McDonalds a mortgage for a $200,000 house.  Now there is no way that Johnny could afford a mortgage of any size but because Johnny meets all of the criteria set forth by the Fanny and Freddy to grant loans to those who can't afford them they sign the papers and smile and shake.  

You see Freddy and Fanny are going to package Johnny's mortgage and exchange it for a government security.  Now if johnny has a college education and a good job, but still has no cash.  Fanny and Freddy are going to package Johnny's mortgage into a bond and sell it for profit, and they are actually going to market it that way.  What they are NOT going to market is the fact that Johnny has never proven any track record of paying debt on even the basic rudimentary level.  In fact Johnny has racked up quite a credit card debt, and as soon as he is granted this mortgage, he is going to be showered with more credit offers.

Now why can Freddy and Fanny operate this way and other banks usually will not shoulder the risk?

Because TA-DA Fanny and Freddy Bonds are guaranteed by the good folks at the federal government.  Fanny's and Freddy's operations are regulated and subject to congressional oversight (oxymoron the term congressional oversight, like getting a wolverine to watch your baby).

The End (no really The End)

[Breadburner]

You don't lose anything if you don't sell.....Big deal ya lost some dough on paper....