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raycarey

IMO that's the question surrounding these massive firms that no longer have access to the funds required to operate day to day operations....are US taxpayers just throwing good money after bad? and if (or as it is seeming ever more likely, when) AIG fails, look out below.

Panda

If these banks have to borrow money to lend out, what useful purpose do they serve to society? Seems like the whole system evolved to rely on credit in a continuous cycle of borrowing and lending. A bit like the pyramid selling system. The last one left holding the bag looses. Sure, these financial wizards will tell you that they are really smart people with economics degrees and they can make it work. But common sense tells you that its got to peak out sometime. Too bad these financial wizard CEOs are unavailable for comment since they have now retired on multi million dollar bonuses for their handy work.

Milkman

This is fractional banking.

It allowed the the rise in economic expansion.

A bank has 100,000 in deposits, for example, deposited by customer.

They can have 1/14 (I believe) available for reserves, which is actual cash in the bank.

They can give loans and loans and loans. It's seems to be on paper. Not real money but paper.

The bank gets X% return on $1 for making say, on each 10 separate loans from that $1 dollar in reserves.

Someone can correct me if I'm wrong.

__________________

Panda

So the bank borrows from another bank who borrows from another bank who borrows from another bank. And none of it, except for a small proportion in the first bank is real money but rather just money represented on paper by some numbers with a $ sign in front of it. They then lend this imaginary money to people who they know cant pay it back. They then package up the bad mortgages and sell them off to other banks as investments. The architects of these deals then retire on multi-million dollar bonuses when the house of cards falls down and the taxpayers are then required to pay for the excesses of those who have siphoned off the cash into their own pockets.

The government believes house prices should remain so high that the sub-prime borrowers cant afford the repayments, so they fund the banks losses and take over the debt by borrowing more money from other countries and lowering interest rates so that people will be encouraged to borrow more money from the banks who don't have any real money left to loan out.

With such "smart, and educated" people in charge we should all be preparing for a real economic meltdown.

bkkandrew

^Correct. We have had 15-years of magic money creation by debt leveraging. The next 15-years will be distinguishable by monetary destruction caused by debt deleveraging.

Most people in developed countries will find out they are endebted to a far greater extent than their main (real estate) asset. As Mervyn King said:

House prices are a matter of opinion. The debt is real.

Panda

Now that the financial geniuses are crawling under a rock and pocketing their cash bonuses generated out of imaginary money, I do believe that some other very basic economic principles will come into play.

What I am trying to say here is that the people who borrow a lot and don't produce much will become indebted to the people who lend them money and do produce real things for trade.
Currency values reflect the worlds confidence in a countries ability to pay off its debts. Right now the $US hegemony as the worlds principal trading currency is artificially inflating the value of the $US.

What needs to happen for the world's economic situation to get back on track is for the collapse of the $US hegemony and a more reasonable trading medium to be implemented. Actually, such a change is exactly what the USA and the rest of the world needs right now. Its way overdue and a fundamental reason why the worlds economy is in such a mess based on a paper fiat currency that cant be backed up with trade in real goods and services. Virtual Monopoly money in other words.

When things get bad enough that the rest of the world looses confidence in $USs
and a new form of world exchange evolves, the world economic situation will get back to functioning normally with a countries wealth determined by its productivity rather than by its debt.

My guess is that such a turn around is not going to happen until the world has been pushed to the limit and suffered a couple of years of economic pain. Virtually all countries except USA (who can print their own $s) are hoarding stores of $USs as a hedge against the value of their own currencies. So no-one wants to give up the $US hegemony before they absolutely have to. When Countries like China and Japan start to dump $USs its bound to start a stampede and the $US will crash to trading values well below its true worth for a time till things settle out. That will be the next and by far the biggest economic crash we the little people of the world have to face. But it is something that is coming no matter how much governments around the world try to stave off the inevitable by propping up financial institutions built on Monopoly money.

bkkandrew

^China have been diversifing their USD reserves quietly for nearly two years now. It is a stated aim of the Chinese State Investment Fund to do exactly that.

Investments have spanned the globe, including the ones that made headlines in Zimbabwe and Burma.

Panda

Yes China is wise to divest itself of $USs now. I guess they saw it coming.
But the thing is that as one of the USAs main debt holders they dont want to spook the international market and create a stampede. Still, China is going to take a big hit when the $US crunch comes. China is in really deep owning a very large chunk of US debt through trade imbalances and US government bonds aside from business investment.

There is no way China can get rid of all its US debt before he $US collapses so they are going to get skinned. Since all US debt is written in $USs, China will get paid back in the numerical value of $USs at the time of maturity rather than the actual tradable value of goods and services then. It means USA will be paying back the rest of the world and China only about half what they owe them in terms of tradable value of real goods and services. Not a bad scam if you can pull it off. But thats the way the $US hegemony works. And the rest of the world has been silly enough to swallow it for decades. Now its nearly time to pay.

bkkandrew

Indeed so and in a manner that not many can imagine.

bkkandrew

When Peter Schiff predicted the past two year's events with startling accuracy in 2006 here:



I feel confident in my (much derided) prediction of the imminent coming failure of the banking system (specifically ATM and credit cards) when he states as such in his radio talk show last night.

One article he referred to is available here:

Bloomberg.com

Now then. No CC bond sales = no funds for CC issuing banks = 'computer says no' at the checkout.

I am sure that after my warnings, no member of this site is actually relying on credit card use over the next 2-3 years are they?

Butterfly

^ yeah I predict the banking collapse in the coming century

give it up, bkkandrew, this is just another of your failed predictions. A banking crisis is not a collapse, and you keep claiming the same thing saying tomorrow for the last 3 weeks !!! OwNED !!!

go back to reading your doom newsletter and betting websites, thank you

oh and I almost forgot, you are a fraud

bkkandrew

^As I have been proven right every step of the way since before this crisis became mainstream news and you have disagreed at every point, I think the board has made its own mind up on the respecive validities of your opinion and mine.

Total collapse was postponed by the multinational bailouts, NOT cancelled. All the world's Governments have done by bailing has ensure their own severe endebtedness for years to come and in the case of some, such as the USA (and probably the UK), ensured sovereign debt defaults too.

Butterfly

yeah everyone pretty much see you as a fraud and a silly doom sayer,

Only in your dreams,

bkkandrew

Perhaps this is time again for a reminder of facts verses Butterflyworld...

The facts:

While in your world you thought this:


http://teakdoor.com/us-domestic-issu...tml#post794335 (A note of caution for those with deposits in US Banks)

Butterfly

^ yeah, one witness account vs. reality indeed

bkkandrew

^Because in your world, you know sooooo much more being 10000 miles away about Icelandic banking than a Icelandic customer exiting an Icelandic bank in Reykjavik.

I see. What a wonderful world Butterflyworld must be.

Butterfly

^ and of course you are currently in Iceland to interview that very same person

you have been caught so many times twisting facts and reality, a whole thread could be dedicated to you

bkkandrew

No, Associated Press did. They are a news agency and they do that type of thing. I am surprised you have never heard of them.

As this is a false statement, I will adopt the Clint Eastwood approach: Go ahead, make my day.

bkkandrew

.

...A thumping $29BN third quarter loss at Fannie Mae!

Fannie Mae posts record $29 billion loss

NEW YORK (Reuters) - Fannie Mae, the largest provider of funding for U.S. residential mortgages, on Monday said it lost a record $29 billion (18.4 billion pounds) in the third quarter as the company wrote down a tax-related asset that has its buoyed capital.

The quarterly loss is the fifth consecutive for the Washington-based mortgage finance company that has been operating under a government conservatorship since September.

Fannie Mae in October warned it would write down "substantially all" of its deferred tax assets, which had become a controversial addition to capital as losses mounted. Deferred tax assets can be used to offset future taxes, but only if the company can show it will return to profitability.

Credit expenses soared to $9.2 billion in the quarter due to deteriorating mortgage credit conditions and as home prices declined, the company said in a statement.
Fannie Mae's loss equaled $13 per share, compared with a loss of $1.4 billion, or $1.56 per share a year earlier. The company said it expects a significant loss for the fourth quarter if downward trends in U.S. housing and financial markets continue.

Further losses for the company this quarter mean the government may have to inject billions of dollars of capital to help the company maintain routine operations. The government pledged to keep a positive level of shareholders equity.

Stockholders equity fell to $9.3 billion in the third quarter from $44 billion at the end of 2007. The figure may be negative by December 31, the company said.
Fannie Mae and rival Freddie Mac own or guarantee nearly half of all U.S. residential mortgages.

Equity investors, while nearly wiped out under the conservatorship, have been eager to see if the regulator will instruct the companies to sacrifice profit for bigger volumes in their mortgage guarantee and investment businesses. Both have been given the room to expand portfolios by a combined $200 billion through 2009, but they have been slow to follow through as their funding costs have risen.

Fannie Mae posts record $29 billion loss | Reuters

Its funny how these companies keep the real losses back to announce after they have been nationalised. I am sure that the US taxpayers are delighted with the arrangement...

Spin

Horrific days for news coming out of the US. GM, Ford, Chrysler, AIG, Goldman Sachs, Fannie May......Its absolutley awful but for some reason today(the chinese stimulus package i think) the market is more or less unchanged