# What would you buy and hold if every stock was -40% off?



## MrChow

Pretend history repeats and we're in a similar situation to October 2008 (without knowing the future).

The market is down -40% during a financial crisis.

What types of stocks would you look to buy and why?

My thought might be a non-cyclical with high ROI like CSL.


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## luutzu

MrChow said:


> Pretend history repeats and we're in a similar situation to October 2008 (without knowing the future).
> 
> The market is down -40% during a financial crisis.
> 
> What types of stocks would you look to buy and why?
> 
> My thought might be a non-cyclical with high ROI like CSL.




Buy ones that will get bailed out.


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## So_Cynical

In late 2008 i bought MRE, LGL, MDL and TRY.

Nickel, gold, gold and more gold...paid off to, sold MDL and LGL in early 2009 and pocketed around 6K in profit and freed up about 17K right at the bottom of the market.

Trade Confirmation: BUY 200 CSL @ 30.200000 (25/05/2009) how i wish i had more patience with this one. ): once in a life time.


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## Smurf1976

Whenever it happens, and history is pretty clear that every so often there's a major fall in the market, I'll be buying shares in companies which:

1. Have an ongoing established business likely to continue.  

2. Have been profitable under normal economic circumstances.

3. Have a decent return on equity.

4. Have paid dividends over many years. I'm not too fussy about the amount but it's harder to fudge the accounts if you're actually paying out cash to investors year after year and aren't raising new capital with which to do so. Helps confirm that the business is reasonably sound.

That's the first level of research. Beyond that I'm cautious about anything where the underlying industry is in structural decline, is at odds with government (or a credible opposition party) policies or is subject to one major incident wrecking the company's finances either directly or through loss of reputation. I'll only invest in things like that if the expected return is high enough to warrant taking the risk.


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## Bill M

In 2008/09 I was buying the banks mostly. I remember buying CBA for around $24 and with the wife and I both holding parcels I double dipped on the discounted shareholders offers to buy more. 

If it happened now I would buy high dividend ETF's for my super fund. I would buy, VHY, RDV and SYI. They all pay reliable quarterly dividends and that's what us retirees need.


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## craft

MrChow said:


> Pretend history repeats and we're in a similar situation to October 2008 (without knowing the future).
> 
> The market is down -40% during a financial crisis.
> 
> What types of stocks would you look to buy and why?
> 
> My thought might be a non-cyclical with high ROI like CSL.





Your probably after a discussion on stocks – but let’s take a little side trip from “look” to buy too “actually” buy.


And the most like answer is nothing and if you do buy it probably won’t be much because you’ll be as scared as everybody else and if you do manage to buy a bit of something you’ll probably be pretty trigger happy to exit it and snatch a quick profit or cut a drawdown.


If something is worth buying 40% cheaper is it worth buying at 20% cheaper or even now?


So you can ignore the heard and buy in bulk at the bottom – there is still a trade off between keeping your powder dry rusting in a bank (2%) as you wait for your 40% discount and investing at a higher yield right now.(current equity yield ~6%). Even if you can act decisively at the bottom will it arrive in time to make the waiting option the better bet?  


40% down from here (5,800) would be the equivalent of 1974 in deviation from the linear regressed mean of the XAO and that’s the only time it has deviated that far in its history. So you could be waiting a while.


If you go the stay invested route, you by definition aren’t going to have much more than dividend stream to invest at the bottom but at least you’ll probably be drilled enough to keep re-investing continuously (which will accidently include the bottom) and hold through the recovery.  (As long as your businesses stay sound of course)


Sorry for the side tripping – but I reckon waiting for market corrections is a very costly mistake of omission in very many cases.  If something meets your quality and hurdle rates – buy it now! Unless you have near/med term liquidity requirements in which case don’t “invest” in equities – they are a long duration asset.


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## MrChow

Scenario would still apply whether you have 1% or 100% cash to deploy at the time.

Would your criteria remain the same in all market conditions like how Buffett ignores the overall ups and downs?


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## Huskar

It is actually not that straightforward to know what to buy when the whole market is down significantly. In 2008/09 I thought I was really clever buying an ETF over the ASX200 at what turned out to be very close to the bottom in March 09 (about 3200) but that was actually the wrong decision: apart from ETFs often lagging the index they track (due to ETF holdings not exactly mirroring the underlying and more in built costs than you might expect which compound the lag over time) I found to my chagrin and surprise that a year or two later I had only made a 20-30% return. This is after one of the greatest bear markets in history.

On reflection, I realised that what I should have done is - rather than look for broad exposure to the market or even robust companies that will plod away through thick and thin - buy deep cyclicals. The reason for this is because, provided they make it through (a big if, but the thinking is that the majority of those that have failed will have failed by the time of a 30-40% market pullback) then they will enjoy far greater margin and profitability expansion than the companies that have been profitable throughout.

This is simple maths: to go from 1 (or even -5) to 10 is a much percentage increase than to go from 10 to 20. Multiple expansion often compounds this increase.

So buy Flight Centre (from $4 to $20 in a year and at one point $60) or mining contractors or service providers rather than supermarkets or non-cyclicals (which is what you should be holding - although of course cash would be better - prior to the 30-40% broad market fall).

This is not to say I am not a fan of dollar cost averaging into ETFs as an entirely legitimate and profitable exercise for almost all investors, it is just not the correct play at market bottom.


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## MrChow

That's the philosophical debate about cyclicals vs non cyclicals.

I don't think I'd sleep well with the potential of entire loss of capital, like a bank compared to a supermarket.

Unfortunately companies like WOW, TLS, AGL have their own industry challenges and healthcare multiples have vastly expanded for companies like RHC and generally have lower ROC and higher debt.

Maybe you just stick to your usual processes, assuming they work and let the wider variables do what they do, I'm still thinking about it.


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## OmegaTrader

Caveat : How do you know if it is a fall based of fear or based on real fundamentals?
What if the government or monetary printing press does not/cannot provide the firepower to step in? 


Greece and japan my favourites again. The market didn't come back like US and Australia.

1) Easy way out is to buy etf or maybe index tracking derivative. This gives me survivorship bias and requires no work at all or research only the timing part. But if it is really major will the counterparties of derivatives hold up??


2) Big banks (which would be part of an index anyway): I feel these would be protected by the government in a major catastrophe like they were around the world during GFC  especially in the US. I don't see the gov bailing out woolies ahaha

3) Specific companies, I have no insight DYOR ...


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## Value Collector

MrChow said:


> What types of stocks would you look to buy and why?
> .





Disney and Berkshire Hathaway in the USA


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## Value Collector

luutzu said:


> Buy ones that will get bailed out.



You want to buy into companies who share holders had their equity destroyed in a bail out???

Remind me not to let you manage my funds, the "bail outs" were not good for shareholders, they were good for the government.

The US government made $22 Billion on the AIG bailout plan, AIG shareholders lost a lot more than that, you could say the $22 Billion Profit made buy the government came from the AIG Shareholders.

Listen to Hank Greenberg, he was an AIG share holder, he lost a about $3 Billion dollars, that $3 was transferred to the government, So don't act like the bailouts cost the government anything, they cost the share holders.


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## skyQuake

The AAA Bond ETF.
Or the 3xinverse SPY ETF


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## Klogg

craft said:


> Sorry for the side tripping – but I reckon waiting for market corrections is a very costly mistake of omission in very many cases.  *If something meets your quality and hurdle rates – buy it now! *Unless you have near/med term liquidity requirements in which case don’t “invest” in equities – they are a long duration asset.




I came to this exact conclusion only two weeks ago. Historically, I've kept a 10-20% cash buffer 'in case' of such an event. The cost in such a case is quite high, given annualised returns on the funds that are invested (my ROC is calculated on the cash as well, but calculated it without for this exercise). The other part to this is I'm now a little more tolerant to price volatility (I wasn't initially) simply because I check prices a whole lot less often.

As for the question itself, in short I'd answer: my current portfolio of companies. I know them best and am holding because I believe they offer the best return for risk, and they meet my 'required' rates of return (hurdle rates).
Correct me if I'm wrong on this one, but if everything uniformly dropped 40%, then the risk/return equation doesn't change in relation to other holdings, only to cash (everything gets 40% cheaper, hence '40% more attractive'). So if your current holdings are not your answer, I'm a little curious as to why.


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## luutzu

Value Collector said:


> You want to buy into companies who share holders had their equity destroyed in a bail out???
> 
> Remind me not to let you manage my funds, the "bail outs" were not good for shareholders, they were good for the government.
> 
> The US government made $22 Billion on the AIG bailout plan, AIG shareholders lost a lot more than that, you could say the $22 Billion Profit made buy the government came from the AIG Shareholders.
> 
> Listen to Hank Greenberg, he was an AIG share holder, he lost a about $3 Billion dollars, that $3 was transferred to the government, So don't act like the bailouts cost the government anything, they cost the share holders.





Say what?

AIG is still operational yes?

How's Lehman Bros and BearStearn? They went down the tube because the gov't didn't bail them out. 

AIG still got to live and grow enough balls to sue the gov't that bailed them out.

What were they expecting? All that bail out money should be given to them? Or loaned to them at zero interest? Well, those free loans are in another form but that's another story.

Don't know man, in a real capitalist system, when a company does stupid thing and is about to go under because of it... the more responsible operator might step in and take over, completely. Not return it later for some profit.


And no, it's a pretty good idea to buy into companies you know will be bailed out after the crash and before the bail out was annouced.

Works pretty well for Berkshire when Buffett loaded up on GM and a few of the major banks that got bailed out.


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## Value Collector

luutzu said:


> Say what?
> 
> AIG is still operational yes?
> 
> How's Lehman Bros and BearStearn? They went down the tube because the gov't didn't bail them out.
> 
> AIG still got to live and grow enough balls to sue the gov't that bailed them out.
> 
> What were they expecting? All that bail out money should be given to them? Or loaned to them at zero interest? Well, those free loans are in another form but that's another story.
> 
> Don't know man, in a real capitalist system, when a company does stupid thing and is about to go under because of it... the more responsible operator might step in and take over, completely. Not return it later for some profit.
> 
> 
> And no, it's a pretty good idea to buy into companies you know will be bailed out after the crash and before the bail out was annouced.
> 
> Works pretty well for Berkshire when Buffett loaded up on GM and a few of the major banks that got bailed out.



Dude the fact that you are recommending buying into the bailed out company when their shareholders were wiped out shows you don't have a good understanding about what happened.

You should probably learn a bit more about it. How the hell were they "free loans", the bail outs were not designed to help shareholders, they were designed to keep the company running and make big profits for the government,


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## Klogg

Value Collector said:


> Dude the fact that you are recommending buying into the bailed out company when their shareholders were wiped out shows you don't have a good understanding about what happened.
> 
> You should probably learn a bit more about it. How the hell were they "free loans", the bail outs were not designed to help shareholders, they were designed to keep the company running and make big profits for the government,




Couldn't be more accurate. Understanding why they were bailed out and the risks at the time is very important.
Just because a bank or financial institution was bailed out, it doesn't mean:
1) it was safe
2) it was a good investment

Yes, the government paid next to nothing, but that's because these institutions ultimately underestimated their liabilities were essentially unknown. The government didn't really know if it was going to bail them out again (at lower prices) or make a sh1tload of money.
What if AIG's derivatives book was even worse? That first bailout would've been very expensive in comparison


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## luutzu

Value Collector said:


> Dude the fact that you are recommending buying into the bailed out company when their shareholders were wiped out shows you don't have a good understanding about what happened.
> 
> You should probably learn a bit more about it. How the hell were they "free loans", the bail outs were not designed to help shareholders, they were designed to keep the company running and make big profits for the government,





Oh look, AIG is still trading like it's not broke during the GFC if the gov't hasn't stepped in. Its share price is not zero and its shareholders didn't lose everything.

From about $7 a share in 2008, it's now at $63 a share.

Dam big slimy government! Stepping in and bailing them out [at $180Billion?], getting them over that rough bankruptcy spot.






I didn't say the gov't hand out free money. But that money doesn't need to be use to bail the likes of AIG out right? It can be use to bail out the individual homeowners; or the gov't could simply own the entirety of all of those banks and not give shareholders a dime.

When the executives starts a fire that led to a fire sale, real capitalism dictate that the exec and shareholders lost the lot. Right?

Not sit there, get all those billions and trillions; pay themselves big bonuses and then dividends... then have the nerve to complaint that the big bad gov't were being unfair.


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## DeepState

If all stocks go down 40%, they don't necessarily become 40% cheaper if the earnings generation power of these stocks has also become impaired.  Such statements are made in the belief that things always recover and price movements arise primarily from sentiment.

In the event that all stocks are off 40%, buying those whose earnings generation has been impaired the least is a good place to start.  Energy and investment banks can blow up in a major stress event, but one suspects women will still need feminine hygiene products (eg. Asaleo).  You can go a step further and determine discount to intrinsic value, if you have that ability.


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## luutzu

Klogg said:


> Couldn't be more accurate. Understanding why they were bailed out and the risks at the time is very important.
> Just because a bank or financial institution was bailed out, it doesn't mean:
> 1) it was safe
> 2) it was a good investment
> 
> Yes, the government paid next to nothing, but that's because these institutions ultimately underestimated their liabilities were essentially unknown. The government didn't really know if it was going to bail them out again (at lower prices) or make a sh1tload of money.
> What if AIG's derivatives book was even worse? That first bailout would've been very expensive in comparison




I have a feeling you are making a case for me.


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## luutzu

DeepState said:


> If all stocks go down 40%, they don't necessarily become 40% cheaper if the earnings generation power of these stocks has also become impaired.  Such statements are made in the belief that things always recover and price movements arise primarily from sentiment.
> 
> In the event that all stocks are off 40%, buying those whose earnings generation has been impaired the least is a good place to start.  Energy and investment banks can blow up in a major stress event, but one suspects women will still need feminine hygiene products (eg. Asaleo).  You can go a step further and determine discount to intrinsic value, if you have that ability.




You buying Asaleo do you?


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## Value Collector

luutzu said:


> Oh look, AIG is still trading like it's not broke during the GFC if the gov't hasn't stepped in. Its share price is not zero and its shareholders didn't lose everything.
> 
> From about $7 a share in 2008, it's now at $63 a share.
> 
> Dam big slimy government! Stepping in and bailing them out [at $180Billion?], getting them over that rough bankruptcy spot.





Do you understand the US government took 92% of the shares in AIG?

so only 8% of AIG current equity position is attributable to the shares that existed prior to the bail out?

Please explain why you think the bail out was such a good thing for investors that you would recommend taking positions in those that needed to be bailed out.

Again, I don't think I will let you near my investments.

The Bailout wasn't a windfall for AIG, it destroyed investor value, it was a massive windfall for the US government and the FED


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## Value Collector

luutzu said:


> Not sit there, get all those billions and trillions; pay themselves big bonuses and then dividends... then have the nerve to complaint that the big bad gov't were being unfair.




You are confusing the employees with the share holders there.


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## luutzu

Value Collector said:


> Do you understand the US government took 92% of the shares in AIG?
> 
> so only 8% of AIG current equity position is attributable to the shares that existed prior to the bail out?
> 
> Please explain why you think the bail out was such a good thing for investors that you would recommend taking positions in those that needed to be bailed out.
> 
> Again, I don't think I will let you near my investments.
> 
> The Bailout wasn't a windfall for AIG, it destroyed investor value, it was a massive windfall for the US government and the FED




Beside my brother, I don't think anyone is smart enough to ever let me near their investment 

Soooo.... without that $182B bailout [got it from Fox News, so I won't want to believe that figure either], AIG would be where? Alive and kicking or down the tube?

With the bailout, those shareholders who hang on to their stocks; or those who buy in at or soon after the bailout would have had their holdings gain about 10 times in 8 years.

Somehow that's a bad deal for AIG? So bad that the former CEO - who left 2 years before the total collapse he obviously had nothing to do with, ha ha - thought he'd sue for $20B? 

-----------

Oh, so AIG have to issue new shares to the gov't for the bailout? 

That's a massive dilution for sure.

Poor AIG shareholders. From the edge of the abyss, they're given $182B, still get to keep 8% of what is about to be zero [that's a literal infinite-ly better deal right?]; gained 10 times on that in 8 years.

If I ever screw up and about to go under, tell the US gov't to give me that bad a deal please. Lots of it.


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## luutzu

Value Collector said:


> You are confusing the employees with the share holders there.




Pretty sure more than half AIG's workforce got canned with the collapse.

And why should shareholders expect to gain anything from the deal anyway? It's their fault for buying into the bs their board and executives were selling them. 

So it's all cool that tens of millions of American homeowners got kicked out of their home, losing practically all of their life's savings. That's just the market weeding out the weak.

For banking executives and shareholders... giving lotsa money to save their skin is just bad form?

What have you been smoking? Can I have some?


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## Klogg

luutzu said:


> I have a feeling you are making a case for me.




How so? All I mentioned was that one couldn't really quantify the risk because liabilities were unknown. So you have an unknown downside... with the limit that it's asymptotal at the $0 value (i.e. it can't touch zero, but can get forever closer to it)

For all we know, the next one might need 5 bailouts, each 90% cheaper than the last. Hardly bodes well for those who buy in at the first or second bailout.


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## Value Collector

luutzu said:


> Pretty sure more than half AIG's workforce got canned with the collapse.



When you are talking about people walking away with "fat bonuses", those are employees, not shareholders


> And why should shareholders expect to gain anything from the deal anyway? It's their fault for buying into the bs their board and executives were selling them.




It's not about gaining, there just could have been a deal done that wasn't so punitive.



> So it's all cool that tens of millions of American homeowners got kicked out of their home, losing practically all of their life's savings. That's just the market weeding out the weak.




The bail out was designed to protect the customers,



> For banking executives and shareholders... giving lotsa money to save their skin is just bad form?




They didn't save investors skin, investors took a very real hit, their shares went from $1,400 to $7, and now nearly 10 years later are only $63.

AIG got given a loan for $85 Billion to AIG, 

For this loan the government want 25% Interest, and 80% ownership. this is a very punitive deal, if you think its a great deal, maybe I can provide you with some financing.

The Fed also took equity, it bought assets from AIG for much less than what they turned out to be worth, and made billions on it.

I am not trying to make a moral judgement on it, but I am jut saying you seem to continually be saying the bail outs were free money and a windfall for investors, and they made the investment risk free for shareholders, but they didn't, its a perfect example of shareholders capital taking hits to protect the customers.


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## luutzu

Klogg said:


> How so? All I mentioned was that one couldn't really quantify the risk because liabilities were unknown. So you have an unknown downside... with the limit that it's asymptotal at the $0 value (i.e. it can't touch zero, but can get forever closer to it)
> 
> For all we know, the next one might need 5 bailouts, each 90% cheaper than the last. Hardly bodes well for those who buy in at the first or second bailout.




Yea, maybe there'll be a few bailouts next time round. Hard to pick the bottom.

But in general, if an investor somehow managed to buy into those companies that eventually got bailed out, they end up doing very well.

I think Buffett got some deal to buy Goldman Sachs at $110, then it went to $47. Similarly with GM. They've all done well soon after.


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## luutzu

Value Collector said:


> When you are talking about people walking away with "fat bonuses", those are employees, not shareholders
> 
> 
> It's not about gaining, there just could have been a deal done that wasn't so punitive.
> 
> 
> 
> The bail out was designed to protect the customers,
> 
> 
> 
> They didn't save investors skin, investors took a very real hit, their shares went from $1,400 to $7, and now nearly 10 years later are only $63.
> 
> AIG got given a loan for $85 Billion to AIG,
> 
> For this loan the government want 25% Interest, and 80% ownership. this is a very punitive deal, if you think its a great deal, maybe I can provide you with some financing.
> 
> The Fed also took equity, it bought assets from AIG for much less than what they turned out to be worth, and made billions on it.
> 
> I am not trying to make a moral judgement on it, but I am jut saying you seem to continually be saying the bail outs were free money and a windfall for investors, and they made the investment risk free for shareholders, but they didn't, its a perfect example of shareholders capital taking hits to protect the customers.




AIG dilute its shares, reducing it to the equivalent of 8% for the bailout right? 

From $7 to $67 in 9 years... has there been any share consolidation or the diluted share is still outstanding?

hmmm... to call CEOs and other executives "employees" is technically true, but in the real world, things tend to not work like it's written right?

btw, how many of them goes to prison? Prosecuted? None. 

No crimes or fraud were committed?


How were shareholders capital taking a hit to "protect the customers"? 
If we define customers as other big investment banks, yea. Customers as those whose mortgage got slice and diced and how they're being kicked out of their home and losing their lifes savings... 

anyway


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## kid hustlr

Incredible how Craft can make so many good points in one short post only to have it glossed over by people talking about trying to buy a company which needs to be bailed out


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## OmegaTrader

luutzu said:


> AIG dilute its shares, reducing it to the equivalent of 8% for the bailout right?
> 
> From $7 to $67 in 9 years... has there been any share consolidation or the diluted share is still outstanding?
> 
> hmmm... to call CEOs and other executives "employees" is technically true, but in the real world, things tend to not work like it's written right?
> 
> btw, how many of them goes to prison? Prosecuted? None.
> 
> No crimes or fraud were committed?
> 
> 
> How were shareholders capital taking a hit to "protect the customers"?
> If we define customers as other big investment banks, yea. Customers as those whose mortgage got slice and diced and how they're being kicked out of their home and losing their lifes savings...
> 
> anyway





*I think the point is timing.*

We can argue all day about morality and corruption and who benefits  but the proof is in the pudding.

If you bought after bailout in 2008 sept, $40 to about $60.  If before goodbye charlie to your money.

Also further to rehash the points already made.

1) 40% is not an indicator of value, but I think the OP did not mean this number in a literal sense rather that a drop is indicate of a dislocation in the market.

2) As stated it depends on whether the crash continues onward or is temporary and supported by the government or a rebound in economic conditions

https://au.finance.yahoo.com/chart/AIG


If you bought at 40% drop you would have lost alot of money. After bailout about 50% gain over 9-10 years.

At the low of $8.4 that is a fortune to be made or at $870 a fortune to be lost.

AIG Prices https://au.finance.yahoo.com/chart/AIG

May 2007 high about   $1450  

40% drop ~ march 2008    $870

Bailout sept/oct 2008  at $40 mark

Feb 2009 low of $8.4


Current price  2017 $62.88


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## luutzu

kid hustlr said:


> Incredible how Craft can make so many good points in one short post only to have it glossed over by people talking about trying to buy a company which needs to be bailed out




You do realise I do not mean buying into failed company before its collapse right? That is, don't buy when it's high flying, nose bleed level stock prices.

Let me look up the companies that got bailed out and see if buying ones that got bailed out makes money or not.


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## luutzu

OmegaTrader said:


> *I think the point is timing.*
> 
> We can argue all day about morality and corruption and who benefits  but the proof is in the pudding.
> 
> If you bought after bailout in 2008 sept, $40 to about $60.  If before goodbye charlie to your money.
> 
> Also further to rehash the points already made.
> 
> 1) 40% is not an indicator of value, but I think the OP did not mean this number in a literal sense rather that a drop is indicate of a dislocation in the market.
> 
> 2) As stated it depends on whether the crash continues onward or is temporary and supported by the government or a rebound in economic conditions
> 
> https://au.finance.yahoo.com/chart/AIG
> 
> 
> If you bought at 40% drop you would have lost alot of money. After bailout about 50% gain over 9-10 years.
> 
> At the low of $8.4 that is a fortune to be made or at $870 a fortune to be lost.
> 
> AIG Prices https://au.finance.yahoo.com/chart/AIG
> 
> May 2007 high about   $1450
> 
> 40% drop ~ march 2008    $870
> 
> Bailout sept/oct 2008  at $40 mark
> 
> Feb 2009 low of $8.4
> 
> 
> Current price  2017 $62.88




Why do you assume that I simply buy when it hit 40%?

APA [the pipeline company] could be halved tomorrow and I wouldn't touch it. Go down three quarter and it might be interesting.

This is not to say that I, definitely not I, could ever predict the bottom or near bottom. But it is to say that when a crash happen, if the investor know an approximate value of the company, getting in at below what a reasonable value would be tend to work out well.

That does not mean picking the bottom; does not mean a stock going halved or 90% mean good value either.


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## skc

craft said:


> And the most like answer is nothing and if you do buy it probably won’t be much because you’ll be as scared as everybody else and if you do manage to buy a bit of something you’ll probably be pretty trigger happy to exit it and snatch a quick profit or cut a drawdown.




Totally agree. The US market was 40% cheaper back in 2013. If someone didn't buy back then, on the way up, it's difficult to picture them buying a 40% drop on the way down.

Those who think buying a 40% dip is a no brainer are making a mistake of using price as the holy grail. Something has fallen 40% so it must be cheap... but the true answer is, as always, it depends. Individual markets fall 40% all the time... be it single stock or commodity or country index. Yet in most instances we would assess the new situation as it stands, rather than make a blanket statement like "If market X falls 40% I would buy it without thinking, because _surely _nothing has changed."

I have asked myself this question numerous times: "Knowing what I know about market now, what would I have done during the GFC?". I only started trading around the GFC so I was pretty green back then... and the honest answer is that I would trade it super carefully (meaning exactly what Craft said - trigger happy to exit) rather than buying with eyes wide shut.



Klogg said:


> Correct me if I'm wrong on this one, but if everything uniformly dropped 40%, then the risk/return equation doesn't change in relation to other holdings, only to cash (everything gets 40% cheaper, hence '40% more attractive').




That would be true if risk/reward equations are linear in all stocks. Often times though they are not. A simplest example would be a stock with a pretty solid base line (e.g. cash backing). You may not buy it today when it is trading at cash backing, but you might make a case for it when it's trading @ 60c in a dollar. 

Having said all that.... if every stock is 40% cheaper tomorrow, the one share I'd definitely buy would be BKN. Unconditional takeover offer @ $3.25, bought for $1.95.


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## skc

luutzu said:


> Buy ones that *will get bailed out. *




This statement implies that you are buying *before *a company gets bail out. This is what everyone is questioning about.



luutzu said:


> Let me look up the companies that got bailed out and see *if buying ones that got bailed out makes money *or not.




This statement suggests you are buying *after *a company got bailed out. So if this is what you meant then just make that clear.


----------



## luutzu

List of companies that got bailed out with the first $700B tranche bailout. There's trillions more coming, just you can't say it out loud and give it all at once.

But for our purpose, let's assume that the $700B is all that was unfairly given to bail capitalist/free market, not at all nanny state corporate welfare recipients.

See how they go with the bailout.

*Bailout Recipients*




SHARE PRICE PERFORMANCE:
Just straight line per share price performance from Yahoo finance.

i.e. not taking into consideration the possibility of massive, say, 1 for 10 dilution at GFC and no share consolidation since.  I mean, if they diluted their shares and has not bring the numbers back down, you'd need to multiply the gain by whatever factor the dilution was right?


----------



## luutzu

skc said:


> This statement implies that you are buying *before *a company gets bail out. This is what everyone is questioning about.
> 
> 
> 
> This statement suggests you are buying *after *a company got bailed out. So if this is what you meant then just make that clear.




Yea, before it get bailed out does not mean when its stock price was sky high. Does it?

And why can't people buy in after the bail out announcement? That'd be a smarter play.

What's with all these semantic? Whta's so hard to understand about buying ones that crashed and will get bailed out.

Main question you guys ought to challenge that premise is _*how*_ will the investor know the about-to-go-broke company will or will not get bailed out.

Too Big to Fail might be the answer.


----------



## OmegaTrader

luutzu said:


> Yea, before it get bailed out does not mean when its stock price was sky high. Does it?
> 
> And why can't people buy in after the bail out announcement? That'd be a smarter play.
> 
> What's with all these semantic? Whta's so hard to understand about buying ones that crashed and will get bailed out.
> 
> Main question you guys ought to challenge that premise is _*how*_ will the investor know the about-to-go-broke company will or will not get bailed out.
> 
> Too Big to Fail might be the answer.






MrChow said:


> Pretend history repeats and we're in a similar situation to October 2008 (without knowing the future).
> 
> The market is down -40% during a financial crisis.
> 
> What types of stocks would you look to buy and why?
> 
> My thought might be a non-cyclical with high ROI like CSL.




Rehashing again:

The 40% was from the original poster.

cheers


----------



## luutzu

OmegaTrader said:


> Rehashing again:
> 
> The 40% was from the original poster.
> 
> cheers




Fair enough.

I just took that -40% to simply mean a financial market crash. Not a literal stock down by 40%.


----------



## skc

luutzu said:


> Yea, before it get bailed out does not mean when its stock price was sky high. Does it?
> 
> And why can't people buy in after the bail out announcement? That'd be a smarter play.
> 
> What's with all these semantic? Whta's so hard to understand about buying ones that crashed and will get bailed out.
> 
> Main question you guys ought to challenge that premise is _*how*_ will the investor know the about-to-go-broke company will or will not get bailed out.
> 
> Too Big to Fail might be the answer.




The question was - what would you buy if everything was 40% off.

Your answer was - Buy ones that *will get bailed out. *

Wind the clock back to 2006, you identified that AIG was too big to fail. AIG's share price was ~$1450. 

The GFC unfolded, AIG's share price fell 40% to $870. You executed your strategy "If share price is 40% off, buy ones that will get bailed out".

Congratulations on your splendid return using your strategy on AIG (last price $63).

No one is saying you can't buy after the bailout... but THAT IS NOT WHAT YOU SAID!


----------



## luutzu

For those interested in the Bail Out:

*The Big Bank Bailout*
Most people think that the big bank bailout was the $700 billion that the treasury department used to save the banks during the financial crash in September of 2008. But this is a long way from the truth because the bailout is still ongoing. The Special Inspector General for TARP summary of the bailout says that the *total commitment of government is $16.8 trillion dollars* with the $4.6 trillion already paid out. Yes, i_*t was trillions not billions*_ and the banks are now larger and still too big to fail. But it isn’t just the government bailout money that tells the story of the bailout. This is a story about lies, cheating, and a multi-faceted corruption which was often criminal.
-----------

$200M would replace the lead and virus infested water system to Flint. Nope. Can't afford it so the people will have to learn to drink filtered water and bathed and cook in shiet.

$2 Trillion would create tens of millions of jobs rebuilding the US crumbling infrastructure - road, rail, bridges, water utilities... Nope! Can't afford it.

Affordable healthcare? Nope! Loan for higher education? Nope!

But the banksters crashing the economy... here's a few trillion dollars. Do whatever you want with it. 

Then a few farkers turn around and sue the gov't for it too.


----------



## Klogg

> That would be true if risk/reward equations are linear in all stocks. Often times though they are not. A simplest example would be a stock with a pretty solid base line (e.g. cash backing). You may not buy it today when it is trading at cash backing, but you might make a case for it when it's trading @ 60c in a dollar.
> 
> Having said all that.... if every stock is 40% cheaper tomorrow, the one share I'd definitely buy would be BKN. Unconditional takeover offer @ $3.25, bought for $1.95.




Good point - completely overlooked that.


----------



## luutzu

skc said:


> The question was - what would you buy if everything was 40% off.
> 
> Your answer was - Buy ones that *will get bailed out. *
> 
> Wind the clock back to 2006, you identified that AIG was too big to fail. AIG's share price was ~$1450.
> 
> The GFC unfolded, AIG's share price fell 40% to $870. You executed your strategy "If share price is 40% off, buy ones that will get bailed out".
> 
> Congratulations on your splendid return using your strategy on AIG (last price $63).
> 
> No one is saying you can't buy after the bailout... but THAT IS NOT WHAT YOU SAID!




From memory, the GFC kinda started in early 2007, didn't go full blown panic until about late 2008. So it's not 2006.

But let's play this game and get literal...

A DROP less than 40% followed by RISE soon after do not fit our literal definition of a 40% drop.

So the Dow drop by 40% starts in 1st Aug. 2008. @11,543.96.

A 40% drop would bring the Dow to about 6900 level. 

So Feb1 2009 at 7062 is close enough an approximation as the Dow never went below 40% in a straight line [we're taking this -40% literally, right?]









What was AIG's share price from that 1st Aug. 2008 to the Dow dropping to its lowest [close to 40% drop] on Feb1 2009?

From $429 to $8.40 a share.

So if a system was devised as MrChow's query stated, and my "advise" to buy in knowing AIG will be bailed out... on the 1st Feb 2009, we buy AIG at $8.40 a share.

It's now $62 odd a share.

Stupid idea yea?


----------



## InsvestoBoy

During the GFC I was buying ASX listed gold miners with lots of cash and no debt, to some success, however I only caught the initial rebound and sold well before they topped out in 2011.

However, lesson learned for me personally, next time such an event occurs I would buy:

*NOTHING!*

What I noticed is that it would have paid to wait. You can tell that conditions have eased when stocks start to make new all time highs again, and those flyers are also good candidates to buy as the first to exhibit strength and demand for shares.

As a random easy example, which I don't feel is cherrypicked because you can see a lot of stocks had similar performance:

In Nov 2007 AAPL peaked on the NASDAQ at a bit under 27USD. By Feb 2009 it had suffered ~50% drawdown from the high. But it was one of the first large stocks to make a new all time high in Oct/Nov 2009, again around 27USD.

Current price: ~138USD.


----------



## OmegaTrader

luutzu said:


> For those interested in the Bail Out:
> 
> *The Big Bank Bailout*
> Most people think that the big bank bailout was the $700 billion that the treasury department used to save the banks during the financial crash in September of 2008. But this is a long way from the truth because the bailout is still ongoing. The Special Inspector General for TARP summary of the bailout says that the *total commitment of government is $16.8 trillion dollars* with the $4.6 trillion already paid out. Yes, i_*t was trillions not billions*_ and the banks are now larger and still too big to fail. But it isn’t just the government bailout money that tells the story of the bailout. This is a story about lies, cheating, and a multi-faceted corruption which was often criminal.
> -----------
> 
> $200M would replace the lead and virus infested water system to Flint. Nope. Can't afford it so the people will have to learn to drink filtered water and bathed and cook in shiet.
> 
> $2 Trillion would create tens of millions of jobs rebuilding the US crumbling infrastructure - road, rail, bridges, water utilities... Nope! Can't afford it.
> 
> Affordable healthcare? Nope! Loan for higher education? Nope!
> 
> But the banksters crashing the economy... here's a few trillion dollars. Do whatever you want with it.
> 
> Then a few farkers turn around and sue the gov't for it too.
> 
> View attachment 70337
> 
> 
> View attachment 70338





1) people taking loans on non recourse they can't afford to repay is corrupt
2) borrowing 120% of GDP to spend on waste and bureaucracy is corrupt
3)Bailing out private capitalist institutions is corrupt
4) Ceo's pay levels is/are corrupt
5) Multinationals playing tax silly buggers is corrupt
6) politicians accepting donations from self interest groups is corrupt
7) Lawyers and medical professions cartel monolopy  is corrupt
8) Opec is corrupt
9) energy and water companies are corrupt creating false scarcity
10) people are corrupt

The man gets in the way of the game.

But we still have hot water and food don't we. Plus reasonable wages to waste disposable income on consumer knick nacks. I can also walk down the street safely.


gg


----------



## luutzu

OmegaTrader said:


> 1) people taking loans on non recourse they can't afford to repay is corrupt
> 2) borrowing 120% of GDP to spend on waste and bureaucracy is corrupt
> 3)Bailing out private capitalist institutions is corrupt
> 4) Ceo's pay levels is/are corrupt
> 5) Multinationals playing tax silly buggers is corrupt
> 6) politicians accepting donations from self interest groups is corrupt
> 7) Lawyers and medical professions cartel monolopy  is corrupt
> 8) Opec is corrupt
> 9) energy and water companies are corrupt creating false scarcity
> 10) people are corrupt
> 
> The man gets in the way of the game.
> 
> But we still have hot water and food don't we. Plus reasonable wages to waste disposable income on consumer knick nacks. I can also walk down the street safely.
> 
> 
> gg




Would it last?

We in the West are the very privileged few. To have enough savings/capital to invest in the stock market put us at a higher end of that already privileged few.

I'd count on it lasting forever the way I'd count on all previous imperial power lasting forever when they went down the same corrupt path.

So while it still last, of course the corrupt, polluted, unequal, increasingly violent world is all sweet for those with money. Money tend to do that - putting a bubble around our living space; pushing away all the shiets of the world to where they belong - somewhere else far far away.


----------



## OmegaTrader

Wars have decreased
equality has increased
corruption has decreased.

the tide raises all boats.

I think this is off topic enough from me 

cheers


----------



## OmegaTrader

luutzu said:


> Would it last?
> 
> We in the West are the very privileged few. To have enough savings/capital to invest in the stock market put us at a higher end of that already privileged few.
> 
> I'd count on it lasting forever the way I'd count on all previous imperial power lasting forever when they went down the same corrupt path.
> 
> So while it still last, of course the corrupt, polluted, unequal, increasingly violent world is all sweet for those with money. Money tend to do that - putting a bubble around our living space; pushing away all the shiets of the world to where they belong - somewhere else far far away.




 It is hard to reconcile the morality of a bailout, printing money and government overspending to support reckless risk taking and poor regulation, nevertheless it is part of the landscape and if one is investing an entity that is bailed out has a much better chance than an entity that is left for dead. 

Even if it is hard to accept it still needs to be considered but as with AIG timing is still supremely important.

After the smoke has cleared and if business continues as usual people seem to kick themselves for not buying a bargain. Especially if the government has stepped in to stop collapse.

I have said  enough I think


----------



## MrChow

When I was looking into this as a topic I found some non-cyclicals that fell over 30% during the 2008 period but still had consecutive EPS growth from 2007-2008-2009-2010 each year, so every part of the price drop was just a valuation discount.

Staples - WOW, TRS, BKL
Healthcare - RHC, CSL
Telecom - TLS
Utilities - ORG


----------



## DeepState

I'm curious to know how someone can tell whether a critical piece of the financial infrastructure would be nationalised (Northern Rock, predecessors to Nordea), allowed to collapse (Lehman), recapitalised as a stand alone entity which recovers (AIG), recapitalised as a stand-alone entity which gets merged with another organisation at punitive levels or nationalised because it's not working out and political will or the federal balance sheet has been exhausted, recapitalised via preferred stock which is then used to completely dilute base equity if things don't work out, or forced to merge with another organisation at punitive rates (Bear Sterns, Merrill Lynch).  

Isn't it amazing how much money you can make in special situations with perfect foresight and no emotions.


----------



## luutzu

DeepState said:


> I'm curious to know how someone can tell whether a critical piece of the financial infrastructure would be nationalised (Northern Rock, predecessors to Nordea), allowed to collapse (Lehman), recapitalised as a stand alone entity which recovers (AIG), recapitalised as a stand-alone entity which gets merged with another organisation at punitive levels or nationalised because it's not working out and political will or the federal balance sheet has been exhausted, recapitalised via preferred stock which is then used to completely dilute base equity if things don't work out, or forced to merge with another organisation at punitive rates (Bear Sterns, Merrill Lynch).
> 
> Isn't it amazing how much money you can make in special situations with perfect foresight and no emotions.




Nice piece of sarcasm there Youngie. I didn't know you had it in you.

But while no one can perfectly predict the timing of a turnaround or pick the bottom of any stock, the recent past does present a few opportunities to test whether or not those with limited understanding of the company, such as myself, can take advantage of some great market over-reaction.

There's oil, commodities, industrial/engineering services. Any idiot could see that some fire sales were a bit overdone.


----------



## luutzu

OmegaTrader said:


> Wars have decreased
> equality has increased
> corruption has decreased.
> 
> the tide raises all boats.
> 
> I think this is off topic enough from me
> 
> cheers




I don't think it's off-topic at all.

While history suggests that the gov't will step in and correct whatever shiet storm the masters of the universe brought down on the world next time... there is no guarantee of it; there is no certainty that the gov't can do what they've done - bail out - and still keep the masses in check as they have.

So while a strong and established business will, in time, recover its business performance and share price... to jump on companies we know are now weak but are so connected that a bail out is but a formality. Such things might not be possible in the future.

But yes, it is off topic in that we're interested in stock recommendation more than the armchair geopolitical/macro bs we think we know.


----------



## OmegaTrader

DeepState said:


> I'm curious to know how someone can tell whether a critical piece of the financial infrastructure would be nationalised (Northern Rock, predecessors to Nordea), allowed to collapse (Lehman), recapitalised as a stand alone entity which recovers (AIG), recapitalised as a stand-alone entity which gets merged with another organisation at punitive levels or nationalised because it's not working out and political will or the federal balance sheet has been exhausted, recapitalised via preferred stock which is then used to completely dilute base equity if things don't work out, or forced to merge with another organisation at punitive rates (Bear Sterns, Merrill Lynch).
> 
> Isn't it amazing how much money you can make in special situations with perfect foresight and no emotions.




Almost any investment/trade things can go wrong. I think that is a general problem, not specific to strategies taking advantage of market crashes/extremes. That is no different to when conditions are extreme except that maybe there would be more volatility and uncertainty etc 

How would a government justify not acting in a crises by throwing the kitchen sink, printing money, borrowing/eating surpluses to spend and helping financial institutions and transactions continue in the economy. Even taxing to raise the revenue or a bail in.

Sure they could be overwhelmed or the help could be partially ineffective and or inequitable. But even Obama and the fed eventually back flipped to support the banks.

I doubt many governments would not act.As mentioned recent and past history has not shown that around the world.



luutzu said:


> I don't think it's off-topic at all.
> 
> While history suggests that the gov't will step in and correct whatever shiet storm the masters of the universe brought down on the world next time... there is no guarantee of it; there is no certainty that the gov't can do what they've done - bail out - and still keep the masses in check as they have.
> 
> So while a strong and established business will, in time, recover its business performance and share price... to jump on companies we know are now weak but are so connected that a bail out is but a formality. Such things might not be possible in the future.
> 
> But yes, it is off topic in that we're interested in stock recommendation more than the armchair geopolitical/macro bs we think we know.




I think part of it is that it is for some people it is more interesting to talk about macro although they want a tip. Rather than just saying for example I would invest in BHP or ANZ etc etc . 

Also I think the reasoning is implicit in decision making and analysis anyway, or should be to some extent. Every-time you put money in the bank you hope the bank will be solvent, Aus gov bonds, the gov will be solvent, buy a derivative hope that the counterparty will not fail or exchange traded assets as well for that matter. Buy an asset, hope private property rights will be respected, hold cash, hope that the government will not inflate it's value too much or tax too much of the profits 

Every interaction is in the macro system, that is why it should always be in the back of the mind. Alot of people make assumptions but the GFC showed that those assumptions fall apart in extreme events. Even the poster assumed that the market would bounce back.


----------



## DeepState

OmegaTrader said:


> I doubt many governments would not act.As mentioned recent and past history has not shown that around the world.




The issue to hand wasn't so much about whether governments would act or not (since there were banks, there were property bubbles, busts and rescues) but the form and extent of their actions.  How they choose to intervene matters a lot to what happens at different levels of the capital stack.  Is is outright nationalisation? Pari-passu equity? Preferred stock? Guarantee of senior debt? Corporate restructure? Each of these is an intervention.  Each has very different implications for someone holding base equity in the hope of upcoming intervention. 

If a government published its policies up front and named which banks are systemically important and would be bailed out through the exclusive use of equity only, it would create a new wave of moral hazard.  So a degree of opacity is important to maintain financial stability.

Which entities they choose to rescue or, even, throw a lifeboat to even if a rescue is not required (eg. Goldman, JP Morgan to reduce stigma associated with drawing on certain special facilities) or leave to die (Lehman, LTCM, Laiki) changes outcomes substantively.  This makes an investment process of buying equity in companies which are sure to be bailed out rather dubious.

AIG wasn't even thought to be systemically important a week before it had to be rescued.  The issue of the size of CDS liabilities was not a feature on Geithner's agenda until quite late. It was highly uncertain as to how this would take place.  In future, the more likely course of action would be for Treasury to guarantee the derivatives liabilities but let the company die.

In the event that the markets fall 40%, my advice would be the same as if the markets fell by 20% or rose 10%.  Buy/hold the cheap ones. Like magic.


----------



## InsvestoBoy

DeepState said:


> AIG wasn't even thought to be systemically important a week before it had to be rescued.  The issue of the size of CDS liabilities was not a feature on Geithner's agenda until quite late.




What are you basing this statement on?

The book "Too Big to Fail" which has unprecedented insight into the timeline of events portrays a pretty different story, that Geithner was clearly made aware of AIG CDS exposure when Lehman was still trading (as you'll see below at $8.50 a share).

snippet from the book:


> As Dimon and Zubrow entered the Federal Reserve’s Eccles Building on Constitution Av-
> enue, Zubrow sneaked a quick look at his BlackBerry before passing through the security X-
> ray machine. He was alarmed at what he saw: Lehman’s stock had plunged 38 percent, dip-
> ping to about $8.50 a share.
> In Lower Manhattan’s financial district, Robert Willumstad, AIG’s CEO, sat on the thir-
> teenth floor of the Federal Reserve Bank of New York waiting to meeting with Tim Geithner.
> With the markets in turmoil, he had returned to see Geithner to press him again to consider
> making the discount window available to his company. While Geithner may have spurned his
> abstract request last month, this time Willumstad had come with a more detailed proposal to
> turn AIG into the equivalent of a primary dealer like Goldman Sachs or Morgan Stanley—or
> Lehman Brothers. “It’s going to be a few minutes. He’s on the phone,” Geithner’s assistant
> told him.
> “No problem, I have time,” Willumstad replied.
> Five minutes passed, then ten. Willumstad looked at his watch, trying to keep from getting
> annoyed. The meeting had been scheduled to start at 11:15.
> After about fifteen minutes, one of Geithner’s staffers, clearly embarrassed, came to
> speak with him. “I don’t want to hide the ball on you,” he said. “He’s on the phone with Mr.
> Fuld,” he revealed with a knowing smile, as if to indicate that Willumstad might be waiting a
> while longer. “He’s up to his eyeballs in Lehman.”
> Finally, a half hour later, Geithner appeared and greeted Willumstad. Geithner was clearly
> overwhelmed, his eyes darting around his office as he nervously twisted a pen between his
> fingers. He had also just flown back from an international banking conference in Basel,
> Switzerland.
> After some pleasantries, Willumstad explained the purpose of his request for this meeting:
> He wanted to change—no, very much needed to have—AIG’s role in the finance sector codi-
> fied. He said that he wanted AIG to be anointed a primary dealer, which would give it access
> to the emergency provision enacted after Bear Stearns’ sale, and thus enable it to tap the
> same extremely low rates for loans available only to the government and other primary deal-
> ers.
> Geithner stared poker-faced at Willumstad and asked why AIG FP deserved access to the
> Fed window, which, as Willumstad was well aware, was reserved for only the neediest of fin-
> ancial institutions, of which there were now far more than usual.
> Willumstad made his case again, this time with a litany of figures to back up his argument:
> AIG was as important to the financial system as any other primary dealer—with $89 billion in
> assets, it was actually larger than some of those dealers—and should therefore be granted
> the same kind of license. And he mentioned that AIG FP owned $188 billion worth of govern-ment bonds. But most of all, he told Geithner, AIG had sold what was known as CDS protec-
> tion—essentially unregulated insurance for investors—to all of the major Wall Street firms.
> “Since I’ve been here, we’ve never issued any new primary dealer licenses, and I’m not
> even sure what the process is,” Geithner said. “Let me talk to my guys and find out.” Before
> Willumstad turned to leave, however, Geithner posed the question that really concerned him,
> the one that had been occupying his thoughts all morning: “Is this a critical or emergency situ-
> ation?”
> Willumstad, fortunately, had been prepared to address this very topic. In meetings with
> AIG’s lawyers and advisers, including Rodgin Cohen at Sullivan & Cromwell and Anthony M.
> Santomero, the former president of the Federal Reserve Bank of Philadelphia, he had been
> guided on how to fie ld the question with the advice, “Tread carefully.” If he acknowledged
> that AIG had a true liquidity crisis, Geithner would almost certainly reject its petition to be-
> come a primary dealer, denying the company access to the low-priced funds it so badly
> needed.
> “Well, you know, let me just say that it would be very benefic ial to AIG,” Willumstad care-
> fully replied.
> He left Geithner with two documents. One was a fact sheet that listed all the attributes of
> AIG FP and argued why it should be given the status of a primary dealer. The other—a bomb-
> shell that Willumstad was confident would draw Geithner’s attention—was a report on AIG’s
> counterparty exposure around the world, which included “$2.7 trillion of notional derivative ex-
> posures, with 12,000 individual contracts.” About halfway down the page, in bold, was the de-
> tail that Willumstad hoped would strike Geithner as startling: “$1 trillion of exposures concen-
> trated with 12 major financial institutions.” You didn’t have to be a Harvard MBA to instantly
> comprehend the significance of that figure: If AIG went under, it could take the entire financial
> system along with it.
> Geithner, his mind still consumed with Lehman, glanced at the document cursorily and
> then put it away.


----------



## DeepState

InsvestoBoy said:


> What are you basing this statement on?




My recollection of what happened....which could be faulty, but is not on this occasion.



InsvestoBoy said:


> The book "Too Big to Fail" which has unprecedented insight into the timeline of events portrays a pretty different story, that Geithner was clearly made aware of AIG CDS exposure when Lehman was still trading (as you'll see below at $8.50 a share).
> 
> snippet from the book:




Lehman went over on 15 Sept 2008.  The share price for Lehman closed below $8.50 on 9 Sept 2008.  The AIG bailout occured on 16 Sept 2008.  16 - 9 = 7 days.  That would be a week.

Furthermore, the last sentence in your extract highlights that Geithner did not have it in his sights at that time.  It was all about Lehman.

To expand further, given the length of the extract provided...

One of the biggest errors of the time was letting Lehman go.  When it died, they knew they screwed up and stepped in hurriedly to bolster AIG.

The AIG issue was less about the magnitude of losses that might be spread to the rest of the system than it was about the complexity of unwinding a tangle of cross claims that would inevitably arise.  This creates a serious, system-wide, liquidity issue that would cause mayhem.

Their bailout figure, designed to safely cover the contingencies on the CDS liabilities (if you are going to bail-out, push it beyond doubt or there is no point), was USD $184bn.  That is not a particularly large figure when scattered around a lot of banks in terms of losses.  The issue was liquidity and uncertainty.

The Gross Notional of a couple of trillion isn't really a scary figure.  In Australia, our gross notional in the banking system was around USD 7tr at the time.  We're tiny.  It's like one of our banks going down, but as part of the US system.  You'd notice it but it would not kill if isolated.


----------



## Iggy_Pop

One share I looked at during the 2008 downturn was GMG, They were at $32 prior to the crash and fell to below $1. I did research and read many forums, and there were a few who kept buying on the way down, ultimately to lose a lot, and then sell at a significant loss. These stories got me thinking and I felt to buy GMG was a bit like gambling at the bottom, it was the banks who were deciding to keep them afloat or not. They survived and now are around $7. 
I did buy CBA and ANZ at low levels, missed out on NAB.
Got burnt with BBI
These days with a bit more wisdom, would wait and follow the coppock indicator as the signal to buy and would go for anything I was comfortable with in the top 50 on the ASX. 
Not sure I would sell all on the way down. In 2008 I did buy and sell a bit and had mixed results. 

Iggy


----------



## sptrawler

Iuutzu all the charts you showed were banks, is that a hint or just random choice?
After the GFC WES did a capital raising at $12, I jumped in, sold out at $20, back in at $40.
Nab went down to around $15, jumped in, jumped  out at $20, thinking second wave is coming, back in at $32.
It really is hard to jump in and jump out, you miss the dividends, then if it is a good company you buy in at a higher price.
To me that is the difference between charters and fundamental investors, one looks for the get in and get out price relative to historical trends, the other looks for underlying value and dividends.
Both have their merits, it really depends on the personality of the investor, as to which path suits them.


----------



## luutzu

sptrawler said:


> Iuutzu all the charts you showed were banks, is that a hint or just random choice?
> After the GFC WES did a capital raising at $12, I jumped in, sold out at $20, back in at $40.
> Nab went down to around $15, jumped in, jumped  out at $20, thinking second wave is coming, back in at $32.
> It really is hard to jump in and jump out, you miss the dividends, then if it is a good company you buy in at a higher price.
> To me that is the difference between charters and fundamental investors, one looks for the get in and get out price relative to historical trends, the other looks for underlying value and dividends.
> Both have their merits, it really depends on the personality of the investor, as to which path suits them.




Just went down the list of companies that got bailed out the most in that first $700B wave. GM was there but couldn't get its chart back to the GFC.

In a financial market crash, the banks are often the ones that will get hit the worst. But as with all credit crunch, I guess any empire builder with heavy debt burden will go too. 

So the likes of APA, property trusts... if they don't go under, investors will either have to bail them out in a massively dilutive cap raising; or if they're big and important enough, the taxpayers will have to step in.

BUt yea,  I was being smart about picking those you know to be bailed out. It's not easy to know which... though in Australia, the big four banks looks a good bet. 

Even I knew that way back then... but as with the recent oil crash, jump in too early and be out of ammo long before the bottom is hit.

Though with Santos, I did managed to buy some $5K's worth at $2.50s... but let's ignore the average price I jumped in when I see it was a bargain. Still think it's a bargain though, just hindsight show it could have been better.


----------



## sptrawler

luutzu said:


> Even I knew that way back then... but as with the recent oil crash, jump in too early and be out of ammo long before the bottom is hit.
> 
> Though with Santos, I did managed to buy some $5K's worth at $2.50s... but let's ignore the average price I jumped in when I see it was a bargain. Still think it's a bargain though, just hindsight show it could have been better.



With Santos I lost a lot, didn't expect the the management to turn down a good buy out offer, at the expense of the shareholder.
Just shows how little regard the management has for the shareholders, when their salaries are at stake, a really shitty company IMO
How many capital raising's have they done, since the what was it $7.80 or something like that offer?
Absolute bunch of idiots, that shouldn't be running a company .IMO
Absolutely appalling, the management is meant to take an objective view, has Wesfarmers ever knocked back an unbelievable offer for their companies?
IMO Santos management, were more interested in their own skins, than their shareholder interests, and I think through the share dilutions everyone is aware of it.
Anyway only slightly on topic.
Thankfully the Banks are always in the spotlight, and would struggle to get away with completely outrageous behaviour, one would hope.


----------



## luutzu

sptrawler said:


> With Santos I lost a lot, didn't expect the the management to turn down a good buy out offer, at the expense of the shareholder.
> Just shows how little regard the management has for the shareholders, when their salaries are at stake, a really shitty company IMO
> How many capital raising's have they done, since the what was it $7.80 or something like that offer?
> Absolute bunch of idiots, that shouldn't be running a company .IMO
> Absolutely appalling, the management is meant to take an objective view, has Wesfarmers ever knocked back an unbelievable offer for their companies?
> IMO Santos management, were more interested in their own skins, than their shareholder interests, and I think through the share dilutions everyone is aware of it.
> Anyway only slightly on topic.
> Thankfully the Banks are always in the spotlight, and would struggle to get away with completely outrageous behaviour, one would hope.




Yea, hard to sell into a buyout where your job will disappear and the share price is too low for those nice options.

They did two cap raising since. Glad I didn't buy the second one. 

But having said that, I still think it's worth at least $10 a share. Just need to be a bit, a lot, more patient and watch the oil price coming back up. 

With Trump and Tillerson of ExxonMobil... man we're doomed. But Santos would rise before that doom though 


Look into pharma companies. They're the new parasites feeding off of our Treasury and publicly funded intellectual properties.


----------



## luutzu

DeepState said:


> My recollection of what happened....which could be faulty, but is not on this occasion.
> 
> 
> 
> Lehman went over on 15 Sept 2008.  The share price for Lehman closed below $8.50 on 9 Sept 2008.  The AIG bailout occured on 16 Sept 2008.  16 - 9 = 7 days.  That would be a week.
> 
> Furthermore, the last sentence in your extract highlights that Geithner did not have it in his sights at that time.  It was all about Lehman.
> 
> To expand further, given the length of the extract provided...
> 
> One of the biggest errors of the time was letting Lehman go.  When it died, they knew they screwed up and stepped in hurriedly to bolster AIG.
> 
> The AIG issue was less about the magnitude of losses that might be spread to the rest of the system than it was about the complexity of unwinding a tangle of cross claims that would inevitably arise.  This creates a serious, system-wide, liquidity issue that would cause mayhem.
> 
> Their bailout figure, designed to safely cover the contingencies on the CDS liabilities (if you are going to bail-out, push it beyond doubt or there is no point), was USD $184bn.  That is not a particularly large figure when scattered around a lot of banks in terms of losses.  The issue was liquidity and uncertainty.
> 
> The Gross Notional of a couple of trillion isn't really a scary figure.  In Australia, our gross notional in the banking system was around USD 7tr at the time.  We're tiny.  It's like one of our banks going down, but as part of the US system.  You'd notice it but it would not kill if isolated.





"One of the biggest errors of the time was letting Lehman go."

Gotta love a true capitalist.

Put that on a t-shirt man. It goes real well with "...USD $184bn... is not a particularly large figure"

How much was set aside to bail out the millions of homeowners who's about to go homeless?

$1Billion.

Of that $1B, how many managed to claim some relief after going through all the hurdles? Diddly.

To bail out the bankster who screw up the world, putting some 30 million people out of work; destroyed trillions in people's savings... that's a must. Give them all the money they need, let them do whatever they want with it, no one goes to court, no one goes to prison.

To bail out the average homeowner... while that's "moral hazard". People got to be responsible for their actions.


----------



## Klogg

luutzu said:


> "One of the biggest errors of the time was letting Lehman go."
> 
> Gotta love a true capitalist.
> 
> Put that on a t-shirt man. It goes real well with "...USD $184bn... is not a particularly large figure"
> 
> How much was set aside to bail out the millions of homeowners who's about to go homeless?
> 
> $1Billion.
> 
> Of that $1B, how many managed to claim some relief after going through all the hurdles? Diddly.
> 
> To bail out the bankster who screw up the world, putting some 30 million people out of work; destroyed trillions in people's savings... that's a must. Give them all the money they need, let them do whatever they want with it, no one goes to court, no one goes to prison.
> 
> To bail out the average homeowner... while that's "moral hazard". People got to be responsible for their actions.




That's a very naive view. The system came so close to collapsing, so the actions of the Paulson, Geithner, Bernanke and others are far more important than given credit for. Yes, there is a moral hazard in bailing out these companies, but that's a tiny price to pay in comparison to what almost happened. It doesn't even compare to bailing out a home owner...

To really appreciate it, you need to understand the mechanisms behind the banking system. I don't know if it's the best one, but there's a two part course by Perry Mehrling on Coursera which I quite enjoyed called Money and Banking. (Maybe you know all this, but thought I'd throw the reference in, just in case).


----------



## luutzu

Klogg said:


> That's a very naive view. The system came so close to collapsing, so the actions of the Paulson, Geithner, Bernanke and others are far more important than given credit for. Yes, there is a moral hazard in bailing out these companies, but that's a tiny price to pay in comparison to what almost happened. It doesn't even compare to bailing out a home owner...
> 
> To really appreciate it, you need to understand the mechanisms behind the banking system. I don't know if it's the best one, but there's a two part course by Perry Mehrling on Coursera which I quite enjoyed called Money and Banking. (Maybe you know all this, but thought I'd throw the reference in, just in case).




Sure it's naive and simplistic. Got to really be paid in the millions to know and appreciate the need to hand over trillions of taxpayers money to the same bunch of clowns who brought the financial world to the brink. Then say that those hundreds of billions and trillions are really nothing at all. 

Then let them do whatever they want with it. Things like staying solvent with all that cash; like using those gov't cash to lend back to the gov't who need to borrow so they can give to the bank - at a higher rate of course; things like not lending to businesses because it's "too risky" and the economy is slowing down so it's more sensible to buy back stocks and give themselves big fat bonuses.

If the gov't actually run the country, instead of being a front for big businesses, they would have taken over and nationalised those banks - which was practically what they did anyway seeing how they own most of the bank but decided to not control, just passively invest.

Once nationalised, the gov't can solve whatever liquidity problem etc. etc. You don't need those CEOs and bankers who crashed their company to run it still do you?

Then once that liquidity issue is resolved, the gov't can put in regulation, downsize the bank, force it to bail out American homeowners, force it to lend to small businesses instead of stashing the cash away and stock buyback... things like that will help the economy grow again. The real economy, not this imaginary financial bs.

Imagine if tens of millions of American home owners could have their overpriced mortgaged renegotiated so that they could still pay and get to keep their home instead of being forced homeless. What would that do to the economy?

But ey, Warren Buffett did a whole hour of praising Hank Paulson for having the maturity and foresight to give Warren and his banks hundreds of billions of dollars. So it's all cool.


----------



## Klogg

luutzu said:


> Sure it's naive and simplistic. Got to really be paid in the millions to know and appreciate the need to hand over trillions of taxpayers money to the same bunch of clowns who brought the financial world to the brink. Then say that those hundreds of billions and trillions are really nothing at all.
> 
> Then let them do whatever they want with it. Things like staying solvent with all that cash; like using those gov't cash to lend back to the gov't who need to borrow so they can give to the bank - at a higher rate of course; things like not lending to businesses because it's "too risky" and the economy is slowing down so it's more sensible to buy back stocks and give themselves big fat bonuses.
> 
> If the gov't actually run the country, instead of being a front for big businesses, they would have taken over and nationalised those banks - which was practically what they did anyway seeing how they own most of the bank but decided to not control, just passively invest.
> 
> Once nationalised, the gov't can solve whatever liquidity problem etc. etc. You don't need those CEOs and bankers who crashed their company to run it still do you?
> 
> Then once that liquidity issue is resolved, the gov't can put in regulation, downsize the bank, force it to bail out American homeowners, force it to lend to small businesses instead of stashing the cash away and stock buyback... things like that will help the economy grow again. The real economy, not this imaginary financial bs.
> 
> Imagine if tens of millions of American home owners could have their overpriced mortgaged renegotiated so that they could still pay and get to keep their home instead of being forced homeless. What would that do to the economy?
> 
> But ey, Warren Buffett did a whole hour of praising Hank Paulson for having the maturity and foresight to give Warren and his banks hundreds of billions of dollars. So it's all cool.




You really don't want to consider that you might be at the very least, partially wrong, do you? My view could be very rosy and assume the best of people, but I'm always open to the alternative...

In any case, I'll add my 2cents:

_Once nationalised, the gov't can solve whatever liquidity problem etc. etc._
The government can solve liquidity problems regardless. The Federal Reserve can expand their balance sheet as they see fit and lend those reserves to those on the interbank market. In fact, they do this often to impact the effective fed funds rate.
The difference in this case was that the banks themselves were not the only problem. 'Shadow banks' were going bust, and their derivative liabilities having flow on effects. So they had to move further up the risk tree to buy bonds and ultimately equity. Interbank overnight lending was not enough, because shadow banks can't participate in interbank markets...

How does that relate to your point? Well, effectively what I'm saying is the gov't can solve liquidity problems regardless of whether they nationalise (I assume you mean take control of) the institutions or not.  They chose to go with intervention in equity markets because intervening in lower-risk/duration asset markets wasn't having enough of an impact. I'd hate to think what would have happen if they hadn't done so...


_...which was practically what they did anyway seeing how they own most of the bank but decided to not control, just passively invest._
The furthest thing from their mind at the time was treating it as an 'investment'...


_Then once that liquidity issue is resolved, the gov't can put in regulation, downsize the bank, force it to bail out American homeowners_
The government can regulate the banks regardless. Whether or not they choose to and who makes that decision is a totally different conversation. I agree - some more regulation is required. Shadow banks should not be able to bring down the system like that.


_Imagine if tens of millions of American home owners could have their overpriced mortgaged renegotiated so that they could still pay and get to keep their home instead of being forced homeless. What would that do to the economy?_
This really isn't the same thing, and to be blunt, highlights a lack of knowledge around the issues. In your scenario, you'd be saving some of the RMBS, rather than the institutions that had credit obligations. If you saved the underlying mortgages, it wouldn't really have mattered, as the short term credit used by shadow banks to buy these RMBS assets could not be rolled over. Confidence (and therefore, willingness to lend) was already out the window


_But ey, Warren Buffett did a whole hour of praising Hank Paulson for having the maturity and foresight to give Warren and his banks hundreds of billions of dollars. So it's all cool_
Sure, Buffett and Munger made money from Goldman equity and options. But do you think he'd dirty his reputation for a few more billion dollars? He's got more than he ever needs... At that point, reputation is far more valuable than any dollar figure.


----------



## luutzu

Klogg said:


> You really don't want to consider that you might be at the very least, partially wrong, do you? My view could be very rosy and assume the best of people, but I'm always open to the alternative...
> 
> In any case, I'll add my 2cents:
> 
> _Once nationalised, the gov't can solve whatever liquidity problem etc. etc._
> The government can solve liquidity problems regardless. The Federal Reserve can expand their balance sheet as they see fit and lend those reserves to those on the interbank market. In fact, they do this often to impact the effective fed funds rate.
> The difference in this case was that the banks themselves were not the only problem. 'Shadow banks' were going bust, and their derivative liabilities having flow on effects. So they had to move further up the risk tree to buy bonds and ultimately equity. Interbank overnight lending was not enough, because shadow banks can't participate in interbank markets...
> 
> How does that relate to your point? Well, effectively what I'm saying is the gov't can solve liquidity problems regardless of whether they nationalise (I assume you mean take control of) the institutions or not.  They chose to go with intervention in equity markets because intervening in lower-risk/duration asset markets wasn't having enough of an impact. I'd hate to think what would have happen if they hadn't done so...
> 
> 
> _...which was practically what they did anyway seeing how they own most of the bank but decided to not control, just passively invest._
> The furthest thing from their mind at the time was treating it as an 'investment'...
> 
> 
> _Then once that liquidity issue is resolved, the gov't can put in regulation, downsize the bank, force it to bail out American homeowners_
> The government can regulate the banks regardless. Whether or not they choose to and who makes that decision is a totally different conversation. I agree - some more regulation is required. Shadow banks should not be able to bring down the system like that.
> 
> 
> _Imagine if tens of millions of American home owners could have their overpriced mortgaged renegotiated so that they could still pay and get to keep their home instead of being forced homeless. What would that do to the economy?_
> This really isn't the same thing, and to be blunt, highlights a lack of knowledge around the issues. In your scenario, you'd be saving some of the RMBS, rather than the institutions that had credit obligations. If you saved the underlying mortgages, it wouldn't really have mattered, as the short term credit used by shadow banks to buy these RMBS assets could not be rolled over. Confidence (and therefore, willingness to lend) was already out the window
> 
> 
> _But ey, Warren Buffett did a whole hour of praising Hank Paulson for having the maturity and foresight to give Warren and his banks hundreds of billions of dollars. So it's all cool_
> Sure, Buffett and Munger made money from Goldman equity and options. But do you think he'd dirty his reputation for a few more billion dollars? He's got more than he ever needs... At that point, reputation is far more valuable than any dollar figure.




The banks and insurance companies "have to" be bailed out because if they collapsed, they can't meet their debt and insurance and contractual coverage obligations etc... then the whole world financial market would freeze. No liquidity in the system, no lending, no risk management through re/insurance.

No?

So when former GS CEO and then Sec of Treasury Hank Paulson decided to bail AIG out to the tune of some $180B, making sure that AIG will pay Goldman Sachs their due to the tune of some $15B; making sure that other banks whose AIG insurered get their due... that's all to help the world economy. Not about saving the banker's hinnies. 


When someone, like the gov't, throw in trillions of dollars, money without which the banks and insurers will collapse... then having practically own those banks but decided to not do anything but sit back and allow the same group of banking executives to do as they like... .OK, that's not really an "investment" because no one can be that stupid at investing.

But what is that? Emptying public treasuries to further enrich friends and masters? 

To save the economy and financial system? Serious?

All the executives at Lehman [the collapsed one] get to keep all their $1.5B pay and perks. The CEO get to keep his $450,000,000 golden parachute as the ship goes down. Same at Merryl Lynch where its CEO walks away with $160,000,000+ etc. etc.

Then all the executives at the banks that got bailed pay themselves billions in bonuses because they're so clever they managed to get free money from the taxpayers then lending it back to the gov't.

How do you seriously fix any system when you reward that kind of incompetent and criminal behaviour? Forget about the moral and equality issue. How does that incentivized good practises?

Then what? No regulation. The banks that was too big to fail are allowed to get bigger, acquiring smaller rivals and now, the top 12 banks in the US control some 70 to 80% of all capital. 

---------------

So helping some ten million American family staying in their home, allowing them to hold on to their life's savings... that's not going to do anyone any good because....

Anyway, just put this down to me not being sophisticated enough to understand why giving fraudsters $16 trillions of taxpayers money is really helping taxpayers, tens of millions of whom lost their home, millions more living in tent cities, millions more losing their job and watch as some $5 trillions of their pensions and savings disappear due to frauds from all Rating Agencies [who merely provide opinions no one should really follow], predatory lenders, corrupt banksters.... and all that while no one senior ever get prosecuted or serve time. 

I do own stocks, apparently not enough to see that these kind of crap is perfectly reasonable from both a moral as well as the economic point of view.


----------



## DeepState

Klogg said:


> You really don't want to consider that you might be at the very least, partially wrong, do you? My view could be very rosy and assume the best of people, but I'm always open to the alternative...




A truly admirable trait to be able to contemplate alternatives to your viewpoint with such an open mind.

In that vein, let us, for a moment, consider the alternative of a fully nationalised banking system with no central bank in place to manipulate the economy in favour of the wealthy.  It would have guaranteed (domestic) liquidity and all obligations would also be government guaranteed.  Sounds interesting.  How might it work?

Fortunately, there are living examples currently in place so we don't need to make too many assumptions on this.  The largest economy is North Korea.  Another notable one is the Federated States of Micronesia.

I might pass on those options, but others may have a different perspective.

In a future crisis, I do hope that whoever is in charge makes better decisions than they did in the past.  However, the problems they will face will be different as well and they too will make it up as they go to some extent.  Those with the benefit of hindsight will also criticise their actions and books will be written.

FWIW, I think Bernie Sanders had a perspective worth listening to in that regard.  Banking is a weird beast that doesn't naturally sit in either public or private hands.

If all stocks on the Federated States of Micronesia Stock Exchange fell by 40%, they'd still be fishing and not notice it. Perhaps there is something to that.


----------



## luutzu

DeepState said:


> A truly admirable trait to be able to contemplate alternatives to your viewpoint with such an open mind.
> 
> In that vein, let us, for a moment, consider the alternative of a fully nationalised banking system with no central bank in place to manipulate the economy in favour of the wealthy.  It would have guaranteed (domestic) liquidity and all obligations would also be government guaranteed.  Sounds interesting.  How might it work?
> 
> Fortunately, there are living examples currently in place so we don't need to make too many assumptions on this.  The largest economy is North Korea.  Another notable one is the Federated States of Micronesia.
> 
> I might pass on those options, but others may have a different perspective.
> 
> In a future crisis, I do hope that whoever is in charge makes better decisions than they did in the past.  However, the problems they will face will be different as well and they too will make it up as they go to some extent.  Those with the benefit of hindsight will also criticise their actions and books will be written.
> 
> FWIW, I think Bernie Sanders had a pespective worth listening to in that regard.  Banking is a weird beast that doesn't naturally sit in either public or private hands.
> 
> If all stocks on the Federated States of Micronesia Stock Exchange fell by 40%, they'd still be fishing and not notice it. Perhaps there is something to that.




That's the dumbest, meanest piece of shiet I've ever heard. And I watch plenty of mainstream news.

You simply have no freaking idea how Western societies managed to become wealthy and lift its society's standard of living so high. And that is why you haven't a clue that the temple of Free-Market and NeoLiberal bs have been producing high priests of your calibre, pulling the entire world down.

Correct me if I'm wrong... but your argument is this:

In some alternative universe where there are "... no central bank in place to manipulate the economy in favour of the wealthy...", the civilised world would be like North Korea and Micronesia. Let's pass on that.

So, let's give money to the wealthy and they'll trickle it down on all of us? That's what made a society rich and not another North Korea?

W.T.F?

Ey, I got an idea. How about you give me all your money. I become richer, and in me becoming richer, I'll spend more money and it'll find its way back to you. 

Well, let's look at North Korea. Ruled by a dictator and his henchmen. The elite shovel all the national wealth into their piggy banks. The country is better off? Well, that and sanctions since the 50s doesn't actually help does it.


Oh oh. I got an idea... what if, hear me out. What if a few billions were spent during the GFC to bail out the average American, saving 10 million households from bankruptcy and homelessness.

Average family have 4 members, that's saving 40 million people. Give them a break, not forcing them into motels or tent cities. The kids might be able to continue with their schooling; their mental and physical health might be better off than the stress and pain of losing everything they ever worked for.

Nooooo... that's a moral hazard. 

Giving those rich bankers who ruin the world $16 trillion dollars and a US gov't guarantee for more if it's ever needed. That's obviously the smart thing to do. That's what will lift America and the world out of its economic "recession". 

Oh wait, that didn't happen. 30 million people [at least] lost their job; trillions in savings got wiped out; bankers still get their bonuses.... and now we have Trump because American voters are racist.


----------



## DeepState

luutzu said:


> Correct me if I'm wrong... but your argument is this:
> 
> In some alternative universe where there are "... no central bank in place to manipulate the economy in favour of the wealthy...", the civilised world would be like North Korea and Micronesia. Let's pass on that.




Please stand corrected.  That is not what I argued, but please don't let plain statements prevent creation of yet more straw men to juice your aggravation and self-righteousness.  There is nothing about a nationalised banking system that requires the creation of a despot or bestows wonderful beaches to a civilisation.  Nuanced discussion seems an improbable outcome given the scaffolding is missing. I'll pass on the rest.


----------



## Klogg

luutzu said:


> The banks and insurance companies "have to" be bailed out because if they collapsed, they can't meet their debt and insurance and contractual coverage obligations etc... then the whole world financial market would freeze. No liquidity in the system, no lending, no risk management through re/insurance.
> 
> No?
> 
> So when former GS CEO and then Sec of Treasury Hank Paulson decided to bail AIG out to the tune of some $180B, making sure that AIG will pay Goldman Sachs their due to the tune of some $15B; making sure that other banks whose AIG insurered get their due... that's all to help the world economy. Not about saving the banker's hinnies.
> 
> 
> When someone, like the gov't, throw in trillions of dollars, money without which the banks and insurers will collapse... then having practically own those banks but decided to not do anything but sit back and allow the same group of banking executives to do as they like... .OK, that's not really an "investment" because no one can be that stupid at investing.
> 
> But what is that? Emptying public treasuries to further enrich friends and masters?
> 
> To save the economy and financial system? Serious?
> 
> All the executives at Lehman [the collapsed one] get to keep all their $1.5B pay and perks. The CEO get to keep his $450,000,000 golden parachute as the ship goes down. Same at Merryl Lynch where its CEO walks away with $160,000,000+ etc. etc.
> 
> Then all the executives at the banks that got bailed pay themselves billions in bonuses because they're so clever they managed to get free money from the taxpayers then lending it back to the gov't.
> 
> How do you seriously fix any system when you reward that kind of incompetent and criminal behaviour? Forget about the moral and equality issue. How does that incentivized good practises?
> 
> Then what? No regulation. The banks that was too big to fail are allowed to get bigger, acquiring smaller rivals and now, the top 12 banks in the US control some 70 to 80% of all capital.
> 
> ---------------
> 
> So helping some ten million American family staying in their home, allowing them to hold on to their life's savings... that's not going to do anyone any good because....
> 
> Anyway, just put this down to me not being sophisticated enough to understand why giving fraudsters $16 trillions of taxpayers money is really helping taxpayers, tens of millions of whom lost their home, millions more living in tent cities, millions more losing their job and watch as some $5 trillions of their pensions and savings disappear due to frauds from all Rating Agencies [who merely provide opinions no one should really follow], predatory lenders, corrupt banksters.... and all that while no one senior ever get prosecuted or serve time.
> 
> I do own stocks, apparently not enough to see that these kind of crap is perfectly reasonable from both a moral as well as the economic point of view.




I'm not arguing that the system isn't flawed. Nor am I arguing that the bonus system is completely wrong.

All I'm saying is that:

1) IF they let the system fail, it would have hurt the average american far more than those who received massive bonuses

2) Whilst helping out those with mortgages would have been nice, on average the middle class american would have been worse off, not better. In other words, they would have done more damage by bailing out mortgage holders directly.


----------



## MrChow

Performance by ASX200 sector (%) between November 2007 to March 2009

-68 industrials
-60 financials
-52 energy
-48 utilties
-43 materials
-38 telecom
-32 staples
-24 discretionary
-17 healthcare


----------



## Klogg

DeepState said:


> A truly admirable trait to be able to contemplate alternatives to your viewpoint with such an open mind.
> 
> In that vein, let us, for a moment, consider the alternative of a fully nationalised banking system with no central bank in place to manipulate the economy in favour of the wealthy.  It would have guaranteed (domestic) liquidity and all obligations would also be government guaranteed.  Sounds interesting.  How might it work?
> 
> Fortunately, there are living examples currently in place so we don't need to make too many assumptions on this.  The largest economy is North Korea.  Another notable one is the Federated States of Micronesia.
> 
> I might pass on those options, but others may have a different perspective.
> 
> In a future crisis, I do hope that whoever is in charge makes better decisions than they did in the past.  However, the problems they will face will be different as well and they too will make it up as they go to some extent.  Those with the benefit of hindsight will also criticise their actions and books will be written.
> 
> FWIW, I think Bernie Sanders had a perspective worth listening to in that regard.  Banking is a weird beast that doesn't naturally sit in either public or private hands.
> 
> If all stocks on the Federated States of Micronesia Stock Exchange fell by 40%, they'd still be fishing and not notice it. Perhaps there is something to that.




I'm not sure that's a completely valid comparison. There are many moving parts that impact the banking system, and these examples have possibly the worst of the lot (especially North Korea).

That said, I completely agree. Letting the government loose to run a bank is not a great idea. Nor is a completely unregulated banking system in private hands. Following the Munger advice, it's never wise to wed yourself to a particular ideology... and that doesn't change here.


On a separate note - what I don't understand is why they de-regulated the banking system so much? Removal of Bretton Woods is one thing, especially when the CAD was running so high in the US. But they went way too far in other respects...
For example, who on earth decided it was a good idea to adopt advanced basel accreditations, which then allows them to calculate ridiculously low risk weightings for mortgages? Not only have you dis-incentivised loans to business, you've caused a massive amount of credit into a non-productive asset class that may or may not be a bubble. It's ludicrous.

It seems to be going the other way, and if Basel 4 is implemented, it should help....
Hindsight is such a wonderful thing


----------



## DeepState

Klogg said:


> I'm not sure that's a completely valid comparison. There are many moving parts that impact the banking system, and these examples have possibly the worst of the lot (especially North Korea).




There are very few countries without listed banks or a central bank.  So these weren't cherry picked.  It is completely arguable what the relationship between their banking structure and socio-political situation is.

In my view, Nth Korea is totalitarian and so seeks to fully control resource allocation.  A credit system is not required.  As a result, they elect to dispense with the benefits of a price signal in favour of control.  It is open to debate as to whether this is a good thing overall, but I'm quite firm on it being wasteful on many important grounds.

A place like FSM is not really developed enough to have a bank.  Yet, they are trying to create a banking system as this allows credit to flow and, generally, allowing the transfer of savings and risk creates a more vibrant set of opportunities for society to flourish.  There are literally no developed nations that don't have a mechanism to transfer credit and manage financial risks at scale.  Hence, the absence of a decent banking system at all may preclude development.

However, with the creation of credit, there come credit crises.  However, I would argue that society is vastly better off for having a credit system even after allowing for these crises.  Imagine how hard it would be to do anything if all we had was a barter economy or traded sea shells for goods and services.

In order to create a great society without credit, it requires the application of force to direct people to act in a way that is seen to be desirable by the one with force.  I'm sure this sounds like a familiar, failed, economic model.




Klogg said:


> That said, I completely agree. Letting the government loose to run a bank is not a great idea. Nor is a completely unregulated banking system in private hands. Following the Munger advice, it's never wise to wed yourself to a particular ideology... and that doesn't change here.




I really do think there is an argument for a socialised banking system run by professional, well paid and highly competent, managers.  They may be an arm of the Treasury.  It would need to have good separation of powers... and there is a good argument for them to remain in private hands but with very strong regulations and oversight that are actually applied sensibly.  Nothing is perfect.  In the absence of banks, something like a bank would spring up eventually.  So I suppose we iterate over and over again to try and find something that works more of the time with less cost.



Klogg said:


> On a separate note - what I don't understand is why they de-regulated the banking system so much? Removal of Bretton Woods is one thing, especially when the CAD was running so high in the US. But they went way too far in other respects...
> For example, who on earth decided it was a good idea to adopt advanced basel accreditations, which then allows them to calculate ridiculously low risk weightings for mortgages? Not only have you dis-incentivised loans to business, you've caused a massive amount of credit into a non-productive asset class that may or may not be a bubble. It's ludicrous.
> 
> It seems to be going the other way, and if Basel 4 is implemented, it should help....
> Hindsight is such a wonderful thing




De-regulated banking is so closely associated to a banking crisis in the following couple of years I have no idea how the argument is even made and sustained.  Yet regulated banking is somewhat conflicted as well and can be used as an instrument of monetary policy by the government instead.  Who's to say if this is necessarily better or worse.

In my view, the banks went through a long period without a substantial crisis.  The greatest trick the devil pulled was to convince others that he didn't exist.  If a crisis hasn't happened for a while, it is often assumed to have been 'solved'. Safe as houses.  And another cycle with a new generation of bandits comes around. Except that they're not all bandits at all.  It only takes a cascade of small shifts to get an extreme outcome.  

The property-credit cycle is just like waves that don't end.  I suppose that any powerful tool should be used with care, but there is a tendency to get caught up in the moment.  Credit fuelled property booms and busts seem part of the economic fabric.  Someone probably has a thesis on it.


----------



## luutzu

DeepState said:


> Please stand corrected.  That is not what I argued, but please don't let plain statements prevent creation of yet more straw men to juice your aggravation and self-righteousness.  There is nothing about a nationalised banking system that requires the creation of a despot or bestows wonderful beaches to a civilisation.  Nuanced discussion seems an improbable outcome given the scaffolding is missing. I'll pass on the rest.




Dude, I just summarised your words. But alright, you didn't mean that say that civilisation depends on big banks to exist.

Not too sure how sensible it is to have banking and financial system that breaks down every few years. Requiring hundreds of billions in the 1980s, trillions recently, more trillions above that when the next one hit... all just to bail them.

That's not to mention the economic and financial disaster each crash still wreck on the world.


----------



## luutzu

Klogg said:


> I'm not arguing that the system isn't flawed. Nor am I arguing that the bonus system is completely wrong.
> 
> All I'm saying is that:
> 
> 1) IF they let the system fail, it would have hurt the average american far more than those who received massive bonuses
> 
> 2) Whilst helping out those with mortgages would have been nice, on average the middle class american would have been worse off, not better. In other words, they would have done more damage by bailing out mortgage holders directly.




I didn't argue for letting the system crash. 

By all mean step in, take control, and fix what needs fixing. But that's not what was done.

The gov't pour in hundreds of billions just to keep it from an immediate freeze (and to not outrage the population too much, I mean it's only $700B, a number Paulson himself admitted in private he pick out of his azz so that it doesn't sound too much it'd cause riots). Then soon after $6Trillion was used; then another $10Trillion.

Then there's the free gov't insurance policy - guaranteeing the solvency of all its major banks. The zero interest loans gov't have to borrow, some of which they borrow frm the very same bank they're borrowing to rescue...

Let's assume for a moment that all these gifts from the taxpayers was to not save the banks in itself, but to help the masses, just they can't appreciate the love. What has been done to regulate or in any way prevent a repeat?

Practically nothing. 

The last time this kind of disaster happen, the big banks was broken up; new regulation separates deposit-taking from high-risk speculation. 

That very basic of sensible regulation weren't even mentioned.

-----

Why can't the gov't both bail out the banks _and_ bail out the suffering homeowners? 

There's not enough money? They can't walk and chew gum at once?

Bush Jr. said in a press conference that there's no help for homeowners because people just have to be responsible in their decisions. 

yup. Because being foolish and over pay for a home you were tricked into, or got into because you're worried that the sky-rocketing property market will leave you behind... that's irresponsible while leverage 30 times your capital, fraudulently bet and advise against your clients interests; selling pieces of "****" all over the world... Those are the good ones that deserve the rescue and their bonuses.

As an exercise... how much would the bailout of American homeowners cost? 

Estimate was 10M home foreclosed. Some sort of reduction in their mortgage with banks the gov't practically own; or pass a special law like it's never been done before... and reduce the mortgage by $500K... That comes to $5Billion.

Too much to rescue some 40 million working class American [15% of the population], but $180B to rescue one bank, $16Trillion... that's nothing?


I'm not too sure rescuing the banks have made the economy any better. It certainly make the top 0.1% a heck of a lot richer. But what about the 50% of American who's literally $1000 away from bankruptcy?

Anyway...


----------



## skc

luutzu said:


> Why can't the gov't both bail out the banks _and_ bail out the suffering homeowners?
> Estimate was 10M home foreclosed. Some sort of reduction in their mortgage with banks the gov't practically own; or pass a special law like it's never been done before... and reduce the mortgage by $500K... That comes to $5Billion.




10m homes x $500k = $5 trillion.

And if the government was to announce such a rescue package, i am guessing 95% of homeowners will choose to default straight away. Making the total package size unimaginably bigger.


----------



## luutzu

skc said:


> 10m homes x $500k = $5 trillion.
> 
> And if the government was to announce such a rescue package, i am guessing 95% of homeowners will choose to default straight away. Making the total package size unimaginably bigger.




At $500K, then $5Trillion.

what about at $250K?


The Economist




At its peak, average US house prices is $230K.

How about a bailout like renegotiating their mortgage to its non-bubble price of say, half that.

People might still managed to pay $115K off over 30 years; the repayment would be less... how about extending the terms of repayment?

So that would bring it down to about $1T to $2T. Saving 10M households from homelessness.


And if this bailout mean everyone will declare bankrupt, put an income/asset test in. Those earning X and above won't be bailed out; Those having Y asset or above won't be bailed out.


But that's excessive. $16Trillion for the banksters is spare change though.


----------



## OmegaTrader

I think that the gov should have stepped in ....

But  there should have been penalties to the regulators and bankers who failed in the job both criminal and civil. Also the direction of the funds could have been alot lot lot better. People should also not be allowed to default on a non recourse loan, it just creates strategic defaults-that is moral hazard. Why would I loan someone money and just let them default with no income or assets, that is just stupid.

You can't say caveat emptor free market and then bail someone out and say free market when it is over. It is free market and if you stuff up we take over and you get punished big time for being reckless.

But people are weak and friends with each other in high places.


----------



## luutzu

OmegaTrader said:


> I think that the gov should have stepped in ....
> 
> But  there should have been penalties to the regulators and bankers who failed in the job both criminal and civil. Also the direction of the funds could have been alot lot lot better. People should also not be allowed to default on a non recourse loan, it just creates strategic defaults-that is moral hazard. Why would I loan someone money and just let them default with no income or assets, that is just stupid.
> 
> You can't say caveat emptor free market and then bail someone out and say free market when it is over. It is free market and if you stuff up we take over and you get punished big time for being reckless.
> 
> But people are weak and friends with each other in high places.




Free market is only for the poor. For the rich, it's the nanny state all the way.

I heard in some interview where a journalist said how when the big banking CEOs was called into the US Justice Dept [or Treasury]... they were expecting to be roughen up and punished. Instead they got some puny fines, no prosecution. 

I think it was Jamie Dimon who's quoted as saying to the other CEO that, ey, that wasn't too bad. 

And yea, Obama took office. Call the bankers in and tell them that he's the only thing standing between the mob and these bankers. So... better keep that donation coming when election season comes around. 

During the S&L crisis, the gov't have to spend something like $79B to bail out the S&L banks. But then they prosecute and imprison some 170 banking executives.

Compare that to the GFC bailout, with no one, except one guy who confessed, being charged. And all get to keep their job and bonuses.


----------



## OmegaTrader

luutzu said:


> Free market is only for the poor. For the rich, it's the nanny state all the way.
> 
> I heard in some interview where a journalist said how when the big banking CEOs was called into the US Justice Dept [or Treasury]... they were expecting to be roughen up and punished. Instead they got some puny fines, no prosecution.
> 
> I think it was Jamie Dimon who's quoted as saying to the other CEO that, ey, that wasn't too bad.
> 
> And yea, Obama took office. Call the bankers in and tell them that he's the only thing standing between the mob and these bankers. So... better keep that donation coming when election season comes around.
> 
> During the S&L crisis, the gov't have to spend something like $79B to bail out the S&L banks. But then they prosecute and imprison some 170 banking executives.
> 
> Compare that to the GFC bailout, with no one, except one guy who confessed, being charged. And all get to keep their job and bonuses.



Yep explains the whole crisis in a paragraph, not all the complicated bs on the news. 

Simple

 bad regulator, bad management, no penalties and people taking loans and defaulting. The derivative mess and fancy terms are only a sideshow to confuse people. Follow the money to find the crooks.


----------



## DeepState

Equating Fed off-balance sheet repo facilities (the vast bulk of this magical $16tr gift to the rich) - which were fully collateralised and returned whole - with debt forgiveness on mortgagees is just utterly ill-informed populist inflammatory BS.  The primary purpose of central banks is to provide an outlet for liquidity risk to be absorbed.  That's what it was doing.  Monetary policy implementation came much later and did not in any way take away the importance of being a lender of last resort.

However, crimes were committed in the lead up, in my view, for predatory lending. That's small fish level of operations though.  I am wondering where else you think they took place. And some actual rationale...  It's not a crime to have an opinion which may turn out to be stupid in retrospect, or to take excessive risk within the law.  I am asking about law...not morality as you might see it.

The huge rise in inequality post the crisis highlights the weakness in the capitalism model which is supposed to be countered by democratic governance.  Corporate governance was woeful at investment banks. We have dual systems failure at play.  It is endemic.  This does worry me as Trump is one manifestation of it.


----------



## DeepState

The Big Short, raised earlier, was an excellent representation of what happened.  The book was very good.  The movie struggles to capture the detail, but gives it a great shot.

My favourite scene is this one. In my view, it captures precisely how the madness came to be without a crime actually having to take place (after a loan was made) and how intertwined risk became.  It was utterly stupid. Yet anyone involved in the web usually had a very small part to play.  When it unravelled, confusion reigned for a very long time.  

It has taken years to understand what happened.  Paulson, Geithner, Bernanke, Draghi....did bloody well in the circumstances.


----------



## kid hustlr

Re-watched this other night.

Thought the movie was brilliant and steve carrell is just so great in his role.


----------



## luutzu

DeepState said:


> The Big Short, raised earlier, was an excellent representation of what happened.  The book was very good.  The movie struggles to capture the detail, but gives it a great shot.
> 
> My favourite scene is this one. In my view, it captures precisely how the madness came to be without a crime actually having to take place (after a loan was made) and how intertwined risk became.  It was utterly stupid. Yet anyone involved in the web usually had a very small part to play.  When it unravelled, confusion reigned for a very long time.
> 
> It has taken years to understand what happened.  Paulson, Geithner, Bernanke, Draghi....did bloody well in the circumstances.





The guy just confessed to fraud at all level but somehow it's "madness... without a crime actually having..." taken place?


----------



## luutzu

DeepState said:


> Equating Fed off-balance sheet repo facilities (the vast bulk of this magical $16tr gift to the rich) - which were fully collateralised and returned whole - with debt forgiveness on mortgagees is just utterly ill-informed populist inflammatory BS.  The primary purpose of central banks is to provide an outlet for liquidity risk to be absorbed.  That's what it was doing.  Monetary policy implementation came much later and did not in any way take away the importance of being a lender of last resort.
> 
> However, crimes were committed in the lead up, in my view, for predatory lending. That's small fish level of operations though.  I am wondering where else you think they took place. And some actual rationale...  It's not a crime to have an opinion which may turn out to be stupid in retrospect, or to take excessive risk within the law.  I am asking about law...not morality as you might see it.
> 
> The huge rise in inequality post the crisis highlights the weakness in the capitalism model which is supposed to be countered by democratic governance.  Corporate governance was woeful at investment banks. We have dual systems failure at play.  It is endemic.  This does worry me as Trump is one manifestation of it.




Caring for the poor masses is "populous bs" now is it? I thought that's what a democratic gov't is supposed to do.

Apparently not.

Its jobs is blah blah, here's the so-called $16 trillions. Use it and make poor Americans rich again, or not.

You can use jargon and bs mumbo jumbo all you like, the result of that imaginary bail out that ripped off the bankers is what?

The same group of bankers who was at the helm when their bank crashed and destroy trillions in people's life savings, they're still at the helm - this time, bigger than ever.

It's like a drunk driver plowing down an entire street, the cops call them in, pick the victim's pocket to give the drunk driver more money, let them buy more horse power and be on their way again.

But sure, only ill informed idiots doesn't appreciate blah blah.


----------



## DeepState

DeepState said:


> However, crimes were committed in the lead up, in my view, for predatory lending. That's small fish level of operations though. I am wondering where else you think they took place.  And some actual rationale...  It's not a crime to have an opinion which may turn out to be stupid in retrospect, or to take excessive risk within the law.  I am asking about law...not morality as you might see it.






luutzu said:


> Caring for the poor masses is "populous bs" now is it? I thought that's what a democratic gov't is supposed to do.
> 
> Apparently not.
> 
> Its jobs is blah blah, here's the so-called $16 trillions. Use it and make poor Americans rich again, or not.
> 
> You can use jargon and bs mumbo jumbo all you like, the result of that imaginary bail out that ripped off the bankers is what?
> 
> The same group of bankers who was at the helm when their bank crashed and destroy trillions in people's life savings, they're still at the helm - this time, bigger than ever.
> 
> It's like a drunk driver plowing down an entire street, the cops call them in, pick the victim's pocket to give the drunk driver more money, let them buy more horse power and be on their way again.
> 
> But sure, only ill informed idiots doesn't appreciate blah blah.





Evidently this was too much of a hurdle.


----------



## DeepState

luutzu said:


> The guy just confessed to fraud at all level but somehow it's "madness... without a crime actually having..." taken place?




I must have missed it. Please quote the exact phrase where "fraud at all level (sic)" was admitted....


----------



## luutzu

DeepState said:


> Evidently this was too much of a hurdle.




You're a fund manager of some sort right?

Ever heard of Stockholm Syndrome?


----------



## luutzu

DeepState said:


> I must have missed it. Please quote the exact phrase where "fraud at all level (sic)" was admitted....




Did you see the same movie the rest of the world did? Or there's an alternate version for die hard capitalist?

Let me explain it to you from an idiot's point of view why it's fraud, at all level.


The CDO Manager was paid by Merrill Lynch. His office, his staff, his bonuses, his business... was paid for by Merrill Lynch.

Why do they pay him? Because he promote and sell Merrill's junk.

But the investor, the fund manager, who buy his CDOs does not know that.

As far as his investors are concerned, the CDO Manager is independent, represents their interests in advising which CDOs to invest other people's money into.

That's not fraud? False representation? No?

But the fund manager aren't stupid people, obviously. So they do not take the CDO Manager's word for it.

They take the rating agencies "opinion" on these CDOs.

It's all AAA.

Why or how are these pieces of garbage AAA? Because of Moodys don't rate it AAA, S&P down the street will. 

So that's three level of fraud. No?


How about the fund manager, the investor.

What the hell are they paid so handsomely for? Where was their sense of responsibility to do their job. You know, look into the prospectus, read the fine print, think a little.

They were entrusted with people's life savings; paid very well for that secret skill... and they just take the word of salesman and rating agencies. 

-----------

It's a perfect crime. 

Give every jackass their plausible deniability; let them blame the other guy who blame the other guy who eventually blame the small working slob who had nothing whatsoever to do with all these shiet beside being force by their gov't to put their super somewhere.


----------



## DeepState

luutzu said:


> You're a fund manager of some sort right?
> 
> Ever heard of Stockholm Syndrome?



Comprehension of straight statements, Basic Arithmetic, Policy and Law are clearly too challenging and now you want to switch to psychology? Oh please spare yourself.

You clearly care about some notion of justice. Good. I'll leave it at that.


----------



## luutzu

DeepState said:


> Comprehension of straight statements, Basic Arithmetic, Policy and Law are clearly too challenging and now you want to switch to psychology? Oh please spare yourself.
> 
> You clearly care about some notion of justice. Good. I'll leave it at that.




"When plunder becomes a way of life, men create for themselves a legal system that authorizes it and a moral code that glorifies it. " -- Frederic Bastiat

Let's pass an idiotic law. That's how truth and justice is done.


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." -- Frederic Bastiat


You think those courtiers and nobility of old never have arithmetic and law to justify their taking from the poor and giving it to themselves?

They even bring out magic, god, heavenly mandate to justify the need for their palaces and fine food while the country starve for all they care.

That kind of system does not last. It ends with the masters having their heads chopped off.


----------



## DeepState

luutzu said:


> "When plunder becomes a way of life, men create for themselves a legal system that authorizes it and a moral code that glorifies it. " -- Frederic Bastiat
> 
> Let's pass an idiotic law. That's how truth and justice is done.
> 
> 
> "When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." -- Frederic Bastiat
> 
> 
> You think those courtiers and nobility of old never have arithmetic and law to justify their taking from the poor and giving it to themselves?
> 
> They even bring out magic, god, heavenly mandate to justify the need for their palaces and fine food while the country starve for all they care.
> 
> That kind of system does not last. It ends with the masters having their heads chopped off.




I can't believe this day has come, but I agree with what you have posted..... as it relates to the US, but less so in Australia, Europe (incl UK) and Japan.  Trump is the first strong indication of revolution in the air.  Except, once again, the downtrodden choose someone who makes their lot even worse when expressing dissent. The US has a choice to make about what to do from here.  It is more of an oligarchy than democracy.  I hope a strong, independent, candidate emerges that brings a nation together and that political engagement rises again.  Yet you have Fox News determining trans-Atlantic security posture.  I blame the Republicans since Clinton.

Yet Bastiat, for his moral musings, is Austrian School.  The Austrian School would do away with many of the interventions you had mentioned.  It would also do away with credit and fiat currency.  So we wouldn't have a credit crisis. We'd just have a different set of problems that come with that setup which are no less vexing.


----------



## luutzu

DeepState said:


> I can't believe this day has come, but I agree with what you have posted..... as it relates to the US, but less so in Australia, Europe (incl UK) and Japan.  Trump is the first strong indication of revolution in the air.  Except, once again, the downtrodden choose someone who makes their lot even worse when expressing dissent. The US has a choice to make about what to do from here.  It is more of an oligarchy than democracy.  I hope a strong, independent, candidate emerges that brings a nation together and that political engagement rises again.  Yet you have Fox News determining trans-Atlantic security posture.  I blame the Republicans since Clinton.
> 
> Yet Bastiat, for his moral musings, is Austrian School.  The Austrian School would do away with many of the interventions you had mentioned.  It would also do away with credit and fiat currency.  So we wouldn't have a credit crisis. We'd just have a different set of problems that come with that setup which are no less vexing.




They did say that wisdom come with age. Sometime a lot of age will have to past, but you're getting there. 

Yes, fortunate for us, Australia is not where the US is. But like all things in Australia, Hollywood movies will get here after a couple of weeks; its technology a couple of months; its minor policies a couple of years; and its major screw up in a couple of decade.

US didn't get where it is after Clinton though. It heats up with Reagan; Clinton carried it on, this time with Jazz and cool Southern charm.

Bill Clinton ramp up Reagan/Bush Sr. deregulation drive; bring the Dems Right of the Republicans.


----------



## DeepState

luutzu said:


> They did say that wisdom come with age. Sometime a lot of age will have to past, but you're getting there.
> 
> Yes, fortunate for us, Australia is not where the US is. But like all things in Australia, Hollywood movies will get here after a couple of weeks; its technology a couple of months; its minor policies a couple of years; and its major screw up in a couple of decade.
> 
> US didn't get where it is after Clinton though. It heats up with Reagan; Clinton carried it on, this time with Jazz and cool Southern charm.
> 
> Bill Clinton ramp up Reagan/Bush Sr. deregulation drive; bring the Dems Right of the Republicans.




Reagan (and Thatcher) were only doing what your bestie, Bestiat, would have wanted.   

I wasn't referring to deregulation when talking about the Clinton era.  I was referring to governance and the ability of elected representatives to prioritise the people in a bipartisan way, as necessary, when enacting legislation. It's disintegration can be traced back to those times, along with an enduring erosion of public trust in the government and effectiveness in preventing excessive inequality.

Wherever 'there' is for you right now, it takes a certain set of abilities to get there and remain firmly there.  Maybe, in no less than 100 years, our abilities might become more similar.


----------



## luutzu

DeepState said:


> Reagan (and Thatcher) were only doing what your bestie, Bestiat, would have wanted.
> 
> I wasn't referring to deregulation when talking about the Clinton era.  I was referring to governance and the ability of elected representatives to prioritise the people in a bipartisan way, as necessary, when enacting legislation. It's disintegration can be traced back to those times, along with an enduring erosion of public trust in the government and effectiveness in preventing excessive inequality.
> 
> Wherever 'there' is for you right now, it takes a certain set of abilities to get there and remain firmly there.  Maybe, in no less than 100 years, our abilities might become more similar.




Wit's getting a bit blunt there DS. 

Nice try but Reagan and Thatcher does what Bestiat wanted the same way all capitalists does what Adam Smith recommended. 

You do realise that Smith was against the vile maxim the masters of mankind always follow: all for ourselves and screw everybody else.

Being an enlightened and free thinker moral philosopher, Smith and Bestiat would be turning in their graves if they hear how their good names are being used by the current oligarch and their useful idiots.


----------



## Klogg

DeepState said:


> It has taken years to understand what happened.  Paulson, Geithner, Bernanke, Draghi....did bloody well in the circumstances.




This is 100% accurate. From the very little that I do understand of it all (and that's after the fact), I can see how close we came to economic Armageddon. It's plain ignorance to state that institutions should not have been bailed out, as if it was a black and white decision.

Geithner's book, _Stress Test_, is well worth a read, because it sheds a little bit of light on how they were thinking at the time.


----------



## DeepState

luutzu said:


> Wit's getting a bit blunt there DS.
> 
> Nice try but Reagan and Thatcher does what Bestiat wanted the same way all capitalists does what Adam Smith recommended.
> 
> You do realise that Smith was against the vile maxim the masters of mankind always follow: all for ourselves and screw everybody else.
> 
> Being an enlightened and free thinker moral philosopher, Smith and Bestiat would be turning in their graves if they hear how their good names are being used by the current oligarch and their useful idiots.




It appears that yet another straw man just materialised from thin air.  Hello.

Bestiat was even more free market (lower role for government beyond very basic protections) than Hayek. In turn, Hayek, was the primary economic influence behind Thatcher and whose policies and thoughts are also abundantly found in Reagan's significant moves towards market fundamentalism (a la supply-side economics, Laffer Curve). The thoughts and philosophies of both are at the core of the Austrian School free market philosophy which also strongly argues against redistribution of wealth, amongst many things.  In both cases of the UK and US, wealth inequality rose as would be expected when such policies are implemented. If you wish to argue that Thatcher and Reagan partook in legalised plunder, thereby besmirching Bestiat's memory, feel free to shout at the moon with all your straw friends.

Last one for this thread.


----------



## luutzu

Klogg said:


> This is 100% accurate. From the very little that I do understand of it all (and that's after the fact), I can see how close we came to economic Armageddon. It's plain ignorance to state that institutions should not have been bailed out, as if it was a black and white decision.
> 
> Geithner's book, _Stress Test_, is well worth a read, because it sheds a little bit of light on how they were thinking at the time.




Sure bail them out. Why not. 

But does a bail out mean just giving them more money, then leaving them as they were? Just bigger, controlling more of the nation's capital; same group of executives still in place.

The same guys, the same institutions, the same regulatory infrastructure that brought the world to the brink of Armageddon... are still in place. 

Forget about the moral, philosophical argument. This is just setting the world on fire again. We all know it, don't we?


----------



## luutzu

DeepState said:


> It appears that yet another straw man just materialised from thin air.  Hello.
> 
> Bestiat was even more free market (lower role for government beyond very basic protections) than Hayek. In turn, Hayek, was the primary economic influence behind Thatcher and whose policies and thoughts are also abundantly found in Reagan's significant moves towards market fundamentalism (a la supply-side economics, Laffer Curve). The thoughts and philosophies of both are at the core of the Austrian School free market philosophy which also strongly argues against redistribution of wealth, amongst many things.  In both cases of the UK and US, wealth inequality rose as would be expected when such policies are implemented. If you wish to argue that Thatcher and Reagan partook in legalised plunder, thereby besmirching Bestiat's memory, feel free to shout at the moon with all your straw friends.
> 
> Last one for this thread.




You're under the impression that what the world economies operate on is this thing call "free market". 

Free trade, free market, competitive advantage of nations blah blah... those are for weak, colonised nations.

For real economies, it's the nanny state... dating back to Egypt and its Pyramid schemes. 

What Reagan and Thatcher did was simple class warfare: taking from the masses, give it all to the rich. 

That's how societies have always been managed. Only difference with these two hacks is they got more theatrical and hire "intellectual" sellouts to put the "economics" and the fancy maths behind it.

Enough from me too.

btw, you sure about Asaleo? Seriously?


----------



## skc

DeepState said:


> Last one for this thread.




I gave you a like because you managed to remain in a prolonged exchange with someone who's known to have never lose an argument on this forum. He makes every rational person regret his/her decision to engage in discussion.  I applaud your courage and effort.... but let's face it, you never stood a chance.

Here's a good example...made a calculation error by a factor of 1,000 - basis of argument still stands!



luutzu said:


> At $500K, then $5Trillion.
> what about at $250K?


----------



## luutzu

skc said:


> I gave you a like because you managed to remain in a prolonged exchange with someone who's known to have never lose an argument on this forum. He makes every rational person regret his/her decision to engage in discussion.  I applaud your courage and effort.... but let's face it, you never stood a chance.
> 
> Here's a good example...made a calculation error by a factor of 1,000 - basis of argument still stands!




Yes yes, I misread the numbers when I multiply 500,000 by 10,000,000.

But the argument still stands because it's not $5,000,000,000,000 really is it?

My estimate of $500,000 happen to be 2x the average US property prices at the time.

The gov't does not need to bail out homeowners 100%. Just a mere 50% would bring them above water.

So that's rescuing them with a mere $100,000 or so. i.e. totals of $1 Trillion.


Your argument was that $5T is just too much.
Then you argue that it will bring others to declare bankrupt and oh my God that'll mean a lot more.

To which any idiot will tell you the gov't can simply put an asset/income test. It's that simple.


So $1Trillion, or $5Trillion, to save 40,000,000 citizens from homelessness and the consequences of being homeless... that's too much money.

$16 trillion to the bankers who crash the world, why not.

--------

Honestly, how much money do you guys have in these bank stocks and financial markets in general?

Whatever it is, know that that's the price you're willing to sell your yourself and anyone else for.

Rationality my azz.


----------



## skc

luutzu said:


> Your argument was that $5T is just too much.




No. My argument was that how can a cost of $5T, calculated using your estimates, be as acceptable as when the cost was incorrectly calculated at $5B.



luutzu said:


> Then you argue that it will bring others to declare bankrupt and oh my God that'll mean a lot more.
> 
> To which any idiot will tell you the gov't can simply put an asset/income test. It's that simple.




What is your guesstimate of the time required to establish a bureaucracy that can assess the income and assets of 10m households who are in default, plus the other ~50-60m households who may also wish to benefit from this bailout for households?

What is your guesstimate of the state of the financial system after such time has past in the question above?



luutzu said:


> Honestly, how much money do you guys have in these bank stocks and financial markets in general?
> 
> Whatever it is, know that that's the price you're willing to sell your yourself and anyone else for.




You are right. I have upwards of several billion dollars tied up in these banks stocks... and I strongly believe that arguing with someone on this forum over an issue that happened 10 years ago is the best way to protect and advance my interest.


----------



## luutzu

skc said:


> No. My argument was that how can a cost of $5T, calculated using your estimates, be as acceptable as when the cost was incorrectly calculated at $5B.




As incredible as it sound, but at my reading error of $5B or at your $5T, a rescue of homeowners still make sense.

10Million households were foreclosed. 4 person per household, that's 40M American. At some 305M people (2008 estimate), that's 40/305 = 13%.

13% of the population is not worth saving? They should get to a motel or tent city, think about what they've done?





skc said:


> What is your guesstimate of the time required to establish a bureaucracy that can assess the income and assets of 10m households who are in default, plus the other ~50-60m households who may also wish to benefit from this bailout for households?
> 
> What is your guesstimate of the state of the financial system after such time has past in the question above?




Write a database query. 

Exclude those with two properties.

Exclude those earning above $50K, say. 

Include those whose one property is their main and only residence.

Cap bailout at $115,000. 

Hell, just extend their repayment period; or reduce their principal repayment for the next couple of years.

Keep them afloat a bit.

Too much trouble?

Get the dataset from the IRS, run that querry and you got yourself a pretty decent list within an hour. Find, give it a week.

Freaking Paulson managed to pull $700B out of thin air, put it on a three page memo and demand it be given right away or else! 

There's no will when it comes to poor people.


And why do you assume the gov't can either bail out mainstreet OR wall st? Can't do both?

Know why they don't bother bailing out mainstreet? 

Because how the heck would guys from Goldman Sachs like Steve Mnuchin could make hundreds of millions going around foreclosing houses on people and make a killing?




skc said:


> You are right. I have upwards of several billion dollars tied up in these banks stocks... and I strongly believe that arguing with someone on this forum over an issue that happened 10 years ago is the best way to protect and advance my interest.




If you have billions, good on you.

If a few million, also good on you.

But you fail to understand how you're being played.


Let me explain it to you, and you welcome...

There's the uber rich who own everything.

Then there are guys like you... people of a professional class, some learning, people who know a bit about how the law and democracy work.

How would you get those professional class to fark the poor? Get them to ignore the bs that's being pulled on poor and defenseless people? How would you do it in a democracy where if people of some learning and education could use the laws and rights to organise and help defend the weak and less educated?

You bloody bring those tiny money into the fold. Get them to own a few shares, get their interests intertwine with the system.

Then for a song, they'll turn and defend any bs you want simply because they think they too own the company; and their couple thousands in dividend a year is worth it.


By all mean by and own stock. Doesn't mean you have to buy the bs that comes with it.


----------



## craft

DeepState said:


> Evidently this was too much of a hurdle.






skc said:


> and I strongly believe that arguing with someone on this forum over an issue that happened 10 years ago is the best way to protect and advance my interest.




Must be time for a coffee.


_SKC's great advice to me once about the need for these on some internet conversations.

_


----------



## luutzu

craft said:


> Must be time for a coffee.
> View attachment 70413
> 
> _SKC's great advice to me once about the need for these on some internet conversations.
> 
> _
> View attachment 70414
> 
> 
> View attachment 70415




Having Yes Man around is nice. You guys might even finish each other's sentences... it's lovely.

Doesn't do a whole lot of good for the brain though.

But I suppose you already know all about rationality and reasoning... hence parroting whatever bs those who gave people's money away to their friends and cronies as "brilliant", obvious and blah blah great job.

I can understand why a rich guy like Buffett would heap praises on Paulson and friends. They did, afterall, gave his many banks hundreds of billions, if not trillion, of dollars. I'd ignore my bs censor too if some idiot lend me that much money.

But for those who have but a few peanuts in the game to praise the same bs with money that's either partly theirs or taken from those poorer than themselves... That's pretty rational alright.


And stop with these bs about cutting your losses mate. If you can't argue anymore than just stop.


----------



## Ves

I've probably shot myself in the foot for saying this,  but...  I think luutzu's heart is in the right place.

I agree with him at a very high level on a lot of the issues  (wealth inequality, labour exploitation and for the sake of brevity what is called 'commodity fetishism')  but not necessarily how he arrives at those conclusions.


----------



## craft

Ves said:


> I've probably shot myself in the foot for saying this,  but...  I think luutzu's heart is in the right place.
> 
> I agree with him at a very high level on a lot of the issues  (wealth inequality, labour exploitation and for the sake of brevity what is called 'commodity fetishism') ....




Agreement at a high level counts for naught in a conversation with him - every detail on which he has a differing opinion will be twisted into an argument for argument sake.

Understanding of these incredibly complex topics won't be advanced by conversation with people who already "know" all the answers.


----------



## Ves

craft said:


> Agreement at a high level counts for naught in a conversation with him - every detail on which he has a differing opinion will be twisted into an argument for argument sake.
> 
> Understanding of these incredibly complex topics won't be advanced by conversation with people who already "know" all the answers.



Part of me agrees with everything you've said,  but another part of me thinks that contrarians like luutzu  (whilst their approach isn't appealing or agreeable) do provide the impetus for others to at least consider the basis for their own opinions or give them a reason to type up a reply.

At least,  without him in this thread,  we probably wouldn't have had any of the fascinating posts by a few other members.

Maybe that's just a glass half-full way of looking at it and I'm just as much of a nutter.


----------



## skc

Ves said:


> I've probably shot myself in the foot for saying this,  but...  I think luutzu's heart is in the right place.
> 
> I agree with him at a very high level on a lot of the issues  (wealth inequality, labour exploitation and for the sake of brevity what is called 'commodity fetishism')  but not necessarily how he arrives at those conclusions.




Ves, I actually never posted about my position on the bailout... I was simply making statements like "$5T is not $5B" and "bailing out 10m households is a huge practical challenge". And the responses we got was "$5T or $5B, they both smaller than the bailout paid to the banks", and "It would only take 1 week to query the database".... plus I must have a vested interest in the financial sector. 



craft said:


> _SKC's great advice to me once about the need for these on some internet conversations._




3 pictures for me?! Aww... You shouldn't have. Don't worry about my stop loss, I have one but it's not there yet.

If you treat it like you want to get your point across and convince him about certain things, then I can certainly think of other more enjoyable pursuits (like inserting bamboo shards into your nails). But treat it as an intellectual exercise and you can adopt a wider stop. It is quite difficult to logically explain why something isn't logical - it takes a long time to construct the arguments. Indeed I don't/can't respond to everything luutzu's posted because it's just too hard.


----------



## craft

Ves said:


> Part of me agrees with everything you've said,  but another part of me thinks that contrarians like luutzu  (whilst their approach isn't appealing or agreeable) do provide the impetus for others to at least consider the basis for their own opinions or give them a reason to type up a reply.
> 
> At least,  without him in this thread,  we probably wouldn't have had any of the fascinating posts by a few other members.
> 
> Maybe that's just a glass half-full way of looking at it and I'm just as much of a nutter.




O.K you engage with him then - perhaps raise the others side perhaps raise some facts or some reality that differs from his opinion. point out the complexities or perhaps consider unintended consequences, maybe consider that its not all a conspiracy but an social learning process  etc etc.....

In line with your point I'm sure we will enjoy and benefit from your responses and the forum will be the better for it. However from my experience you may regret it. Then again maybe you won't.

Me I don't enjoy futile internet conversions so it feels like a waste of precious time.  But I would enjoy reading your responses so maybe your right.


----------



## luutzu

craft said:


> Agreement at a high level counts for naught in a conversation with him - every detail on which he has a differing opinion will be twisted into an argument for argument sake.
> 
> Understanding of these incredibly complex topics won't be advanced by conversation with people who already "know" all the answers.




Ever thought that I don't agree with the "complicated", nuanced and very very hard to understand maths... don't agree not because I haven't heard or thought about it, but because I have and found them to be full of it?


----------



## craft

luutzu said:


> Ever thought that I don't agree with the "complicated", nuanced and very very hard to understand maths... don't agree not because I haven't heard or thought about it, but because I have and found them to be full of it?




Exhibit 1

Absolutely no understanding of me, what I think or how I go about things - Just an off topic straw man proposition to generate argument - placing me on the other side of what he wants to argue just because I have been silly enough to engage him on some points in the past.


----------



## luutzu

skc said:


> Ves, I actually never posted about my position on the bailout... I was simply making statements like "$5T is not $5B" and "bailing out 10m households is a huge practical challenge". And the responses we got was "$5T or $5B, they both smaller than the bailout paid to the banks", and "It would only take 1 week to query the database".... plus I must have a vested interest in the financial sector.
> 
> 
> 
> 3 pictures for me?! Aww... You shouldn't have. Don't worry about my stop loss, I have one but it's not there yet.
> 
> If you treat it like you want to get your point across and convince him about certain things, then I can certainly think of other more enjoyable pursuits (like inserting bamboo shards into your nails). But treat it as an intellectual exercise and you can adopt a wider stop. It is quite difficult to logically explain why something isn't logical - it takes a long time to construct the arguments. Indeed I don't/can't respond to everything luutzu's posted because it's just too hard.





In a meeting with Senator Sherrod Brown, Secretary Paulson and Federal Reserve Chairman Ben Bernanke said, “we need $700 billion and we need it in *3 days*.” -- Forbes

The banks didn't get their $700B in three days? Too tough of a challenge?

Scroll towards the end of the article... The Feds admitted to have secretly loan the banks another $7.7 Trillion soon after that. In total, they had some $16T at the ready if the bank ever need it. 

You reckon the bankers says no to all those trillions?  Conspiracy theory?

--------------

I did show how I got to the wrong $5B right? I didn't pulled out of thin air... 10M times $500K. OK, so I can't read numbers with so many zeroes behind it.

Does that disprove the argument though?

If each home was bailed out at 50% of the average house prices back then, that's $115,000. Times it up by 10M, that's $1.15Trillion?

Can't pull that off in a week? Too hard.

Somehow Congress managed to understand a memo for $700B and hand over the cash in 3 days.

-----

You do not have a vested interest in the stock market? 

Then you have a very strange idea of what's fair and competent. 

To take trillions and simply hand it over to the very same crew who wreck the place... What's wrong with that.


----------



## luutzu

craft said:


> Exhibit 1
> 
> Absolutely no understanding of me, what I think or how I go about things - Just an off topic straw man proposition to generate argument - placing me on the other side of what he wants to argue just because I have been silly enough to engage him on some points in the past.




Craft says: Understanding of these incredibly complex topics won't be advanced by conversation with people who already "know" all the answers.

You didn't say that?

And don't flatter yourself man. I don't argue against people, just their stupid ideas.


----------



## luutzu

Ves said:


> I've probably shot myself in the foot for saying this,  but...  I think luutzu's heart is in the right place.
> 
> I agree with him at a very high level on a lot of the issues  (wealth inequality, labour exploitation and for the sake of brevity what is called 'commodity fetishism')  but not necessarily how he arrives at those conclusions.




What's with these soft heart, hard head business?

Forget for a moment the good that comes from not having to have 40 million losing everything but whatever they can managed into their car and stuffed into a motel or a tent by the park.

As investors, business owners, how do we ensure a large and growing market for our goods and services? How do we ensure that no violent protests, no lost of law and order would burnt and loot our business and assets, if not our life?

We're not going to ensure that if we take from the already desperate and poor, hand it over to the very rich who not only cause the crisis, but literally does not do anything with the money that's given them beside more speculation and relending it back to the gov't that have to borrow to lend it to them.


Let's take what Bush Jr's and Obama's administrations did as using that hard head, as carrying out that "tough love" so that the country can get ahead.

Has the US, or those countries that follow the same approach... how has their country, their economy, fared under such tough love, hard headed thinking?

Half the country [that's some 150M Americans] are literally one paycheck from bankruptcy. Some 25,000 American committed suicide a year; some 68,000 die from being too poor to afford healthcare that they do not get diagnosed until it's too late. etc. etc.

Then we have the stock market doing great. The top 0.1% of American owing some 80%, the top 5% owning everything plus the debt that's owed to them.

Great thinking.

Then the financial infrastructure and incentives that led to the crash and trillion dollar bailout... it's practically left alone to set up for another big one.

When the last crash happen, it wiped out some $5 trillion in Americans savings; who knows how many more trillions in pensions and super all over the world; how knows how many trillions in bailouts across the world.

In those trillions, some of your and my savings were wiped out too.

So it's not about soft heart and hard head... it's just legalised plunder.


----------



## Ves

craft said:


> O.K you engage with him then - perhaps raise the others side perhaps raise some facts or some reality that differs from his opinion. point out the complexities or perhaps consider unintended consequences, maybe consider that its not all a conspiracy but an social learning process  etc etc.....
> 
> In line with your point I'm sure we will enjoy and benefit from your responses and the forum will be the better for it. However from my experience you may regret it. Then again maybe you won't.
> 
> Me I don't enjoy futile internet conversions so it feels like a waste of precious time.  But I would enjoy reading your responses so maybe your right.



I haven't really gone in depth with the GFC related topics for a few years now because every time I do it just ends up leading me back to the same basic line of thought:  How can any _sane_ society be so affected by something that it has _artificially_ created of itself that has absolutely no _material _reality?  That alone is fairly depressing.  99% of people wouldn't even know CDOs 'existed',  let alone be capable of understanding them,  yet here we are,  these _things_ had in a lot of cases, a long-lasting material impact on their lives.

It'd make a great science fiction dystopia if it wasn't true.


----------



## DeepState

Ves said:


> I haven't really gone in depth with the GFC related topics for a few years now because every time I do it just ends up leading me back to the same basic line of thought:  How can any _sane_ society be so affected by something that it has _artificially_ created of itself that has absolutely no _material _reality?  That alone is fairly depressing.  99% of people wouldn't even know CDOs 'existed',  let alone be capable of understanding them,  yet here we are,  these _things_ had in a lot of cases, a long-lasting material impact on their lives.
> 
> It'd make a great science fiction dystopia if it wasn't true.



This is what money is.  Vapour that we accept as a means to store and transfer wealth with.  Our society is built on things like "trust" and notions of "identity". Yet imagine what society would be like without that vapour or those soft notions.  If you wrote down how the monetary system now works in the days of barter and pre-credit, and certain political scientists thought it ridiculous and the people stupidly listened, we'd have stayed in the days of barter and pre-credit.  I'll take this any day of the week.

Anyway, sorry to hear about your foot.  At least you have another.


----------



## Ves

DeepState said:


> This is what money is.  Vapour that we accept as a means to store and transfer wealth with.  Our society is built on things like "trust" and notions of "identity". Yet imagine what society would be like without that vapour or those soft notions.  If you wrote down how the monetary system now works in the days of barter and pre-credit, and certain political scientists thought it ridiculous and the people stupidly listened, we'd have stayed in the days of barter and pre-credit.  I'll take this any day of the week.
> 
> Anyway, sorry to hear about your foot.  At least you have another.



Is that really what money _is _now though?  A smarter person than me might ask you if you were instead talking what about money_ was_?

Because correct me if I am wrong,  but in the early days of money it was far less complicated than it is now.  Now,   there are heaps of valid arguments,  that money did need to evolve to make it more useful and to allow it to facilitate ease of access as a medium of transfer/storage for a much wider group of people.

However,  at some point of time, during this whole phenomenon of the evolution of money, a whole industry,  let's call it the financial industry sprung up.   It's now so big,  and so complicated,  that it's fortunes are tied to whole economies,  and arguably the fortunes of this completely artificial construct are more important to modern societies than the underlying physical / tangible commodities/services.  The whole economic and political narrative is predicated on bringing future consumption forward to the present day ('debt')  and aside from this there is a whole sub-industry created around trading and betting on this debt.  Derivatives,  upon derivatives, upon derivatives.  You go down the rabbit hole until...

Between the barter/pre-credit society that you mention and the 'this' you gladly 'take'  there seems to be an enormous gap.  Don't you think somewhere in the middle could be or once was something 'better'?  Surely at some point the finance went from a useful piece of measurement/facilitation to something that has gone way too far and now has a life of its own?


----------



## DeepState

Ves, it is so nice to be interacting with you once again. I hope things are going well. These are the kinds of questions we all should have so much of and over which we can disagree and learn so much from.

This is what I think, but the answers fall in to a kind of 'what is your taste for living' sphere which is not strictly a fact thing.



Ves said:


> Is that really what money _is _now though?  A smarter person than me might ask you if you were instead talking what about money_ was_?



Money in paper or electronic form is inherently worth nothing.  It's vapour.  It has no value on its own.  It only has value because we agree that it does.  Seashells and gold (for the most part) are the same.  Our agreement that it has some value is buttressed by the law and societies ability and desire to enforce that law.



Ves said:


> Because correct me if I am wrong,  but in the early days of money it was far less complicated than it is now.  Now,   there are heaps of valid arguments,  that money did need to evolve to make it more useful and to allow it to facilitate ease of access as a medium of transfer/storage for a much wider group of people.



The monetary system was much simpler, but perhaps it was as complicated/sophisticated as could have been handled at the time.  The nature and uses of money grew because there was some sort of demand for it.  The number if ways to store wealth and obtain credit is enormously more varied.  The way is which risk is managed is so much more flexible.



Ves said:


> However,  at some point of time, during this whole phenomenon of the evolution of money, a whole industry,  let's call it the financial industry sprung up.   It's now so big,  and so complicated,  that it's fortunes are tied to whole economies,  and arguably the fortunes of this completely artificial construct are more important to modern societies than the underlying physical / tangible commodities/services.  The whole economic and political narrative is predicated on bringing future consumption forward to the present day ('debt')  and aside from this there is a whole sub-industry created around trading and betting on this debt.  Derivatives,  upon derivatives, upon derivatives.  You go down the rabbit hole until...



You may be referring to the over-financialisation of the economy.  There is a very strong argument for that.

Many of us who look into these things, care about societal outcomes and work in the industry rub our eyes at how much of the economy is made up of 'financial services'.  Now some of those are very primary to basic civic function.  You need a bank to make basic transactions like payroll and you need to make loans and supervise them.  Others are things like accounting and tax services... very core financial services.

Now, there are many other ways to store and transfer wealth.  Having a secondary market is very useful to improve resource allocation. But exactly how many people do you need in this field?  Exactly how much value is being created via price discovery?  Do you really need 20x synthetic CDO over the actual base one?

How much leverage is reasonable to take?  By the way, debt is not all about bringing future consumption forward.  It's greatest productive use is to allow investment in productive assets including the development of intellectual property.  Without debt, great stuff doesn't get built without force.

Who actually wears the risk?

In my view, there is far too much greed at all levels.  From the stripper in Las Vegas who somehow things she really can afford 5 houses, to the retiree who wants to believe the commission backed financial adviser that this latest hot hedge fund can double or triple their wealth in four years.  To the hedge fund manager who gets all the upside and little of the downside with the assets they have and act in accordance with their incentives.

The incentives we all have aren't so much focused on the absolute (that we may be making $100k and that's great), but on the relative (that the lady next to me is making $120k and now I'm really pissed off).  It's how we're built.  We live comparatively.  This leads to greed and motivation to improve and take more risk.

The tinderbox.

It is a reasonable question as to how to manage this seething mix of potency and flawed mix of incentives.  Hence cycles of boom and bust.  Regulation and deregulation.

Is this somehow the fault of the financial services (investment/banking)  industry?  I can understand that it seems like an amorphous unit where some very big wealth is created without producing a single widget.  The inequality is out of whack with value.  But when I look at society, how the heck does Justin Beiber earn what he does? We place a lot of value on hope and entertainment.  No-one forces anyone to borrow to buy a house or to invest in BrownSkyMining Hedge Fund any more than shell out to see Taylor Swift (yes, I thought it was a great concert).  How is it that Bruce Springstein gets a Congressional Medal of Honour?

The values of society create a desire for excessive risk taking.  The financial services community springs up to service that need.  Within that, there are also huge conflicts of interest.  The CEO who has options does not necessarily have an incentive to protect the financial integrity of the community.  Greenspan's 'flaw' was that the loan officers acted in their own best interests, rather than those of the bank they worked for.

This misalignment is everywhere.  It creates complexity and pushes things to the max.  It breaks because someone is always going to push it over.  The behaviour of the financial function can be expected to do this all day long because of its incentives.

Hence there is a role for regulation.  But it has to be competent and in the interests of society.  And therein lies the problem.



Ves said:


> Between the barter/pre-credit society that you mention and the 'this' you gladly 'take'  there seems to be an enormous gap.  Don't you think somewhere in the middle could be or once was something 'better'?  Surely at some point the finance went from a useful piece of measurement/facilitation to something that has gone way too far and now has a life of its own?



Before someone laments too much about the problems with the world today, we need to imagine a counterfactual of the world without credit.  I for one favour typing to you right now to farming pigs and wondering where I should take my next dump.

The key problem is the juncture of too much greed all the way from grass roots, too much misalignment in incentive all over the place and too much risk (credit).  However, finance remains utterly vital.  When you dig through it, there is so much that is amazing.  So little could get done without it.

These issues are appreciated by people in the position to do something about it.

So, here's some of what is being done:
- increased capital required to support lending at banks
- increased supervision of the banks
- stronger financial regulation and financial stability focus
- legislation and incentives to act as a fiduciary
- smaller banks
- central clearing for OTC derivatives
- demand for better corporate governance
- Volcker Rule (remove casino banking from deposits)

It's all serious stuff.  They are generally moves in the right direction, but some parts actually go too far.

Without the bail-outs, we would have gone back to the Great Depression.  It would be utterly devastating.  The extent of the rise in inequality is definitely wrong and that is an outcome of regulatory capture. It's ridiculous.  Democracy will be tested.  Capitalism and Democracy are supposed to balance each other out.  What we have is a dominant capitalist system which has usurped the Republicans in the US (and other stuff too).  And it affects all of us.


----------



## Ves

DeepState said:


> These are the kinds of questions we all should have so much of and over which we can disagree and learn so much from.
> 
> This is what I think, but the answers fall in to a kind of 'what is your taste for living' sphere which is not strictly a fact thing.
> 
> Money in paper or electronic form is inherently worth nothing.  It's vapour.  It has no value on its own.  It only has value because we agree that it does.  Seashells and gold (for the most part) are the same.  Our agreement that it has some value is buttressed by the law and societies ability and desire to enforce that law.




Agree with all of the above.

There are obviously a few different ‘lens’ or ‘systems’ from which you can approach these questions – both from inside the current system (Capitalism/Democracy) or from outside it (for instance Marxist approaches).

For the sake of simplicity,  I’ll mainly reply from a perspective that fits into the current system of Capitalism and Democracy.



DeepState said:


> The monetary system was much simpler, but perhaps it was as complicated/sophisticated as could have been handled at the time.  The nature and uses of money grew because there was some sort of demand for it.  The number if ways to store wealth and obtain credit is enormously more varied.  The way is which risk is managed is so much more flexible.




This is also agreeable.



DeepState said:


> You may be referring to the over-financialisation of the economy.  There is a very strong argument for that.




Thanks, that’s a good way of putting it.



DeepState said:


> Many of us who look into these things, care about societal outcomes and work in the industry rub our eyes at how much of the economy is made up of 'financial services'.  Now some of those are very primary to basic civic function.  You need a bank to make basic transactions like payroll and you need to make loans and supervise them.  Others are things like accounting and tax services... very core financial services.




I don’t think there is anything disagreeable here – it is pretty much impossible to imagine the current system being viable without some kind of banking and financial service apparatus.



DeepState said:


> Now, there are many other ways to store and transfer wealth.  Having a secondary market is very useful to improve resource allocation. But exactly how many people do you need in this field?  Exactly how much value is being created via price discovery?  Do you really need 20x synthetic CDO over the actual base one?
> 
> How much leverage is reasonable to take?  By the way, debt is not all about bringing future consumption forward.  It's greatest productive use is to allow investment in productive assets including the development of intellectual property.  Without debt, great stuff doesn't get built without force.
> 
> Who actually wears the risk?
> 
> In my view, there is far too much greed at all levels.  From the stripper in Las Vegas who somehow things she really can afford 5 houses, to the retiree who wants to believe the commission backed financial adviser that this latest hot hedge fund can double or triple their wealth in four years.  To the hedge fund manager who gets all the upside and little of the downside with the assets they have and act in accordance with their incentives.
> 
> The incentives we all have aren't so much focused on the absolute (that we may be making $100k and that's great), but on the relative (that the lady next to me is making $120k and now I'm really pissed off).  It's how we're built.  We live comparatively.  This leads to greed and motivation to improve and take more risk.
> 
> The tinderbox.
> 
> It is a reasonable question as to how to manage this seething mix of potency and flawed mix of incentives.  Hence cycles of boom and bust.  Regulation and deregulation.
> 
> Is this somehow the fault of the financial services (investment/banking)  industry?  I can understand that it seems like an amorphous unit where some very big wealth is created without producing a single widget.  The inequality is out of whack with value.  But when I look at society, how the heck does Justin Beiber earn what he does? We place a lot of value on hope and entertainment.  No-one forces anyone to borrow to buy a house or to invest in BrownSkyMining Hedge Fund any more than shell out to see Taylor Swift (yes, I thought it was a great concert).  How is it that Bruce Springstein gets a Congressional Medal of Honour?
> 
> The values of society create a desire for excessive risk taking.  The financial services community springs up to service that need.  Within that, there are also huge conflicts of interest.  The CEO who has options does not necessarily have an incentive to protect the financial integrity of the community.  Greenspan's 'flaw' was that the loan officers acted in their own best interests, rather than those of the bank they worked for.
> 
> This misalignment is everywhere.  It creates complexity and pushes things to the max.  It breaks because someone is always going to push it over.  The behaviour of the financial function can be expected to do this all day long because of its incentives.
> 
> Hence there is a role for regulation.  But it has to be competent and in the interests of society.  And therein lies the problem.




This is good.  And I agree, this is the crux of the issue.

There’s probably two main issues here that I’d like to bring up.  (As an aside, it probably goes without saying that this applies to any industry, it just happens that the finance industry is extremely topical and arguably very dominant in the world today).

The first, as we’ve both touched on, is to what extent and scope the finance industry should be allowed to operate.

What is its function to be:  is it there to support other industries, that is, to help facilitate the transactions between corporations or individuals, and to assist in storing their wealth?  Obviously, this function should entitle it to some profit on the capital or labour it has invested if we are indeed within a system of capitalism.

However, one must ask,  as you also have, how far should this be allowed to go?

Should it also be permitted to go further than this and have an entirely new role in its own right with the sole objective of creating more value (wealth/money) for itself?

Secondly how profitable should the finance industry be (both in terms of return on capital and also in magnitude in comparison to the economy as a whole).

For both of these questions a good example is participation in financial markets by big players in the finance industry.  I do accept that this is a grey area, because as you said, some of this participation is assist with managing risk, storing wealth or transactional purposes. However, in other cases, the sole purpose is to create profit, and in turn these actions create new risk (for instance by use of massive leverage), and because of the massive size of the finance industry as a whole, this risk has consequences that go well beyond the industry itself.

It's hard to make a decent argument as to why this should be allowed to occur, given the inherent systematic risks (as you said, the GFC was close to causing the ‘Great Depression’ all over again).

Obviously the cost to society is massive. It’s hard to find risks created by other industries that are anywhere near the same magnitude.

If I was an alien looking down on earth, this would be a strange concept to witness, men creating money out of nothing but more money!  And for what end?  It’s really hard for me, as an outsider to the finance industry, to see what benefit this has to the rest of society. As you eloquently say below they don’t produce a single widget. Nothing but numbers on a screen, formerly figures on pieces of paper.

By default a lot of the discussion around this, but not limited to just this facet, has to do with how much ‘surplus value’ is created and how this is distributed in society (whether it’s to the capital owners, paid in government as taxes for re-distribution, to stakeholders such as employers etc.).

There obviously needs to be a trade-off between the risks created (to society at large) and the benefits shared. But how can these be measured?  Certainly not objectively!  How do you make someone accept something when they will just argue it’s not objective?

A lot of people are upset because they, whether rightly or wrongly,  although they can see a large quantum of profits created by risk taking activities in the finance industry, there is a perceived lack of consequences to the individuals involved when it all goes wrong and these risks become reality.

We don’t tax corporations (of any kind) or individuals on the basis of the risks that they create for society at large, but only on the basis of profit.  This is a pretty hard discussion, and it’s really hard to have, because everything in capitalism is predominately measured on a monetary basis.  So it’s hard to quantify said risks because a) probability isn’t objective, b) you don’t know the costs of actions until risks become actual outcomes and c) even then there are unidentifiable costs, including those that are non-monetary (emotional, psychological). God help us with this discussion,  the carbon tax / climate change debate is a really good example of how this works in practice.

As for society as a whole you make some prescient points, especially on the culture of greed, and the fact that this creates a society that can be separated into winners and losers.

(As an aside I actually like the word ‘desire’ better than ‘greed.’  But beware that itself opens a can of worms: what is desire?  What causes it? The individual or an ‘Other’ amongst other deeply philosophic concerns)

Therefore I agree, the finance industry is a microcosm of society as a whole and alone it isn’t the only issue and maybe not the biggest,  but the problem is as I think we’ve both kind of said,  it’s magnitude is way out of whack, so it’s a pretty obvious one for which to take aim towards.

We could have a massive discussion around this. There is no end to where it could go.  



DeepState said:


> Before someone laments too much about the problems with the world today, we need to imagine a counterfactual of the world without credit.  I for one favour typing to you right now to farming pigs and wondering where I should take my next dump.
> 
> The key problem is the juncture of too much greed all the way from grass roots, too much misalignment in incentive all over the place and too much risk (credit).  However, finance remains utterly vital.  When you dig through it, there is so much that is amazing.  So little could get done without it.
> 
> These issues are appreciated by people in the position to do something about it.
> 
> So, here's some of what is being done:
> 
> - increased capital required to support lending at banks
> 
> - increased supervision of the banks
> 
> - stronger financial regulation and financial stability focus
> 
> - legislation and incentives to act as a fiduciary
> 
> - smaller banks
> 
> - central clearing for OTC derivatives
> 
> - demand for better corporate governance
> 
> - Volcker Rule (remove casino banking from deposits)
> 
> It's all serious stuff.  They are generally moves in the right direction, but some parts actually go too far.
> 
> Without the bail-outs, we would have gone back to the Great Depression.  It would be utterly devastating.  The extent of the rise in inequality is definitely wrong and that is an outcome of regulatory capture. It's ridiculous.  Democracy will be tested.  Capitalism and Democracy are supposed to balance each other out.  What we have is a dominant capitalist system which has usurped the Republicans in the US (and other stuff too).  And it affects all of us.




Thanks,  that’s a pretty good way to end your post.   Main takeaway is that there isn’t some magical solution, it be could be worse (a lot of us are on a good ‘wicket’ relative to history),  but that being said we need to keep having discussions and finding ways to improve the lot of everyone.

Apologies in advance, my post probably has way more unanswered questions than answers.

PS: There is a whole other (related) discussion around money and the focus on obtaining it,  what is gained by this approach to life,   but also just as importantly what is lost.  But I fear it's probably a bit beyond the scope of this discussion at this point.


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## DeepState

Ves, moved the discussion to Thought Bubbles.. as this has moved far off the thread topic.


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## MrChow

Just some ideas for the topic:

Funerals (Propel Funerals to be listed)
Hospitals HSO
Vitamins BKL
Dentists ONT
Accounting Software MYO
Paint DLX

Industries with limited cyclical earnings exposure, companies that have industry scale / brand leadership, attractive ROC metrics. Valuation contraction to provide a discount back to value range in a market downturn.


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## Huskar

Huskar said:


> It is actually not that straightforward to know what to buy when the whole market is down significantly. In 2008/09 I thought I was really clever buying an ETF over the ASX200 at what turned out to be very close to the bottom in March 09 (about 3200) but that was actually the wrong decision: apart from ETFs often lagging the index they track (due to ETF holdings not exactly mirroring the underlying and more in built costs than you might expect which compound the lag over time) I found to my chagrin and surprise that a year or two later I had only made a 20-30% return. This is after one of the greatest bear markets in history.
> 
> On reflection, I realised that what I should have done is - rather than look for broad exposure to the market or even robust companies that will plod away through thick and thin - buy deep cyclicals. The reason for this is because, provided they make it through (a big if, but the thinking is that the majority of those that have failed will have failed by the time of a 30-40% market pullback) then they will enjoy far greater margin and profitability expansion than the companies that have been profitable throughout.
> 
> This is simple maths: to go from 1 (or even -5) to 10 is a much percentage increase than to go from 10 to 20. Multiple expansion often compounds this increase.
> 
> So buy Flight Centre (from $4 to $20 in a year and at one point $60) or mining contractors or service providers rather than supermarkets or non-cyclicals (which is what you should be holding - although of course cash would be better - prior to the 30-40% broad market fall).
> 
> This is not to say I am not a fan of dollar cost averaging into ETFs as an entirely legitimate and profitable exercise for almost all investors, it is just not the correct play at market bottom.



Bump. And I still don't know what to do.

"I wasted time and now time doth waste me" (Richard II)


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## peter2

Sometimes doing nothing is the right thing to do.


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## Dona Ferentes

peter2 said:


> Sometimes doing nothing is the right thing to do.



and a bit of prepositioning, perhaps. "_Fail to plan, plan to fail_".


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## Redbeard

In May 2020, to the original question...   Something that was paying decent dividends 2 years ago. 
 IE a sold company that does not have its share price valued by Whispers in the Wind.


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## Belli

Do exactly as I am doing.  Buy the index or my preferred LICs when excess cash is to hand.


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## InsvestoBoy

Huskar said:


> Bump. And I still don't know what to do.
> 
> "I wasted time and now time doth waste me" (Richard II)




Huh?

In your quoted post you bought an ASX 200 ETF in March 2009 and "a year or two later" (double huh?) you found you had only made a 20-30% return?

AFAIK the only ASX 200 ETF on the market at the time was STW.

STW total return from March 01 2009 - March 01 2011



when was this period that you only made a 20-30% return?

FWIW, I don't really understand you're saying you still don't know what to do but in the quoted post you were telling everyone they should buy deep cyclicals? How'd that work out in March 2020?

Also FWIW, the ASX 200 in March of 2009 was chock full of deep cyclicals.


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## Garpal Gumnut

Well we will have an opportunity to buy the banks at 40% less than present prices at least by the end of 2020.

gg


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## noirua

I continue to hold 8 American and Canadian gold shares for some time. Apart from Covid19 connected gamble shares there appears little else worth holding. Other than gold and silver itself.
B2Gold Corp Com Npv BTO
DRD Gold Limited ADR (Repr 10 Ordinary NPV) DRD
Franco Nevada Corp Npv FNV
Newmont Corp USD1.60 NEM
Pretium Resources Inc NPV PVG
Barrick Gold Corp Com Stk (CDI) ABX
K92 Mining TSXV:KNT
Torex Gold Resources Inc (PK) USOTC:TORXF
--
Others held are Newcrest, Greatland Gold AIM:GGP sold 10 days ago, Red5 RED bought back a few weeks ago, Silver Lake SLR sold a month ago, Ramelius RMS bought back 6 weeks ago and Katora Gold AIM:KAT purchased late on Thursday.


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## noirua

I have bought a few Bitcoin, quite expensive just for one. The action on the 12 May where most mining software will be useless will make mining an expensive new equipment and electricity burn.

On *May 12*, the reward per miner will be cut in half again, to 6.25 new *bitcoin*. The effect is that the supply of *bitcoin* coming onto the market is reduced. Previous halving events, which happen every four years, have preceded big price increases in *bitcoin*.


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