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

[luutzu]

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]

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]

"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]

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]

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]

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]

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]

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]

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]

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]

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]

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.

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.

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]

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]

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]

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]

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]

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]

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.