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Jet Gorgon

That's what I'm on about. Not consumer spending, consumer prices.

Panda

Inflation is something that has got to happen before things can get back in balance. Why do you think that the US government is printing and borrowing vast amounts of money at virtually zero interest rates. They have got to get the tradable value of the $US down to a reasonable level (like -30%) to stimulate export driven jobs and debt control.

Jet Gorgon

^ When is that gonna happen, P? I doubt it will anytime soon coz then the value of China's debt holdings will shrivel up.

Panda

^ When will it happen? Who can put a date on these things? So long as the $US is the worlds default trading currency and the rest of the world holds faith in it, its tradable value will remain relatitively high. The only certain thing is that the general consensus is inflation is on the way due to mounting debt that cant be paid back at current exchange rates, and of course the creation of even more $USs which do not represent any increase in actual productivity. Creating money out of thin air to pay off debt only works so long as other countries are willing to accept that paper money and send real goods in return. Thats been going on for decades and thats primarily what has got the world into this financial mess we are all in now. The housing bubble/sub-prime/banking meltdown is nothing more than a symptom of a much bigger financial imbalance in the worlds economy.

If the $US is to remain the worlds default trading currency in the future it needs to be backed by productivity rather than spiraling debt if things are to work properly. The world might as well be trading in sea shells or cornflakes boxes if the US is just going to go deeper into debt and print more money to pay off that debt. Its a financial system built on faith alone rather than productivity. It cant go on forever. The sooner the worlds faithful figure out they are lending money to an unemployed guy who is paying off his bills on a credit card, the sooner we can get back to a functioning financial system based on productivity rather than debt.

As far as Chinas US debt holdings shrivelling up, -- well, thats the general idea. Good for USA, bad for China. In short, China managed to accumulate a lot of $USs by trading actual tangible goods for US paper money (or at least a promise to pay in $US paper money).

barbaro

Thanks for the great info, Panda. I learn a lot from you.

I'll put the following short video on Bank Stress Tests here. Worth a watch. It seems to many in the industry that these "stress tests" are a sham:

larvidchr

^ Nice one MM.

Ohh dear, so that's how all those good Bank numbers have been made the last 2 weeks, I was wondering about that, how can they suddenly be so healthy when they just have received billions in aid, and they need 1 trillion more (at least) But somehow the stocks went up on those rosy reports, don't the stock market know what is going on ??

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passengers

No. And that's one of the reasons why we are where we are.

Also. +1 to Panda. Another excellent post describing the situation accurately.

Boon Mee

Barney Fwank Announcing There Would Be No Collapse

Democrats must hate video. Here's prominent Dem Barney Frank, who put off Republican attempts to prevent the subprime catastrophe, declaring that the collapse wouldn't happen:





Fwank was not only being paid off by Fannie Mae and Freddie Mac, the horny old queen was literally in bed with a Fannie exec. This POS is still in office, having paid no price for the massive crisis he and his colleagues created...

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Jet Gorgon

Partly agree with you, P, but disagree on these points. Businesses (such as traders, ex-im) worldwide use the US$ (altho Russia et al have made moves to change the "world" currency and some ME countries are going for the Euro), but until they all decide on one trading currency, why bother? It's not that they have "faith" in the greenback per se, it's that it is the currency of trade. In that way, they do support its value.
? Not what I said. I am talking about China's holding of US Treasuries (ie, debt). You trying to tell me that this money is used for trading of goods?? In my view, most countries holding US debt are keeping the buck afloat coz if it falls, the principle of their investments fall, never mind the yields. Don't have the March stats to hand, but China did trim its US debt investment.
US Treasuries Investments: China, Mainland 2/09 744.2 1/09 739.6 12/08 727.4 (in US$ bils)

See all country US debt investments here.
http://www.treas.gov/tic/mfh.txt
I also beg to differ on the view of the econ prof in this video. Yes, the accounting "standards" changed, because...the FASB (the govt agency) changed the rules to allow banks to value their own assets. And, don't forget, the banks made bucks on refinancing mortgages and gee, borrowing $ at almost 0% from the Fed and lending it out at whatever rate they wanted. And credit card interest rates are going up -- sure, folks are screaming, but the banks also have to pay for the delinquents and the non-payers. I saw one news item where a couple were screaming about their credit card rate going up to about 16% (gee, that's cheap init? thought it was about 21%). Anyway, these nice folks had US$12,000 on their credit cards. What? Are they that stupid? Clean your credit card debt every month. Then no fees.

Boon Mee

Here's Barney again. He's one of the major players in this fiasco and now he's blaming conservatives and saying that he is the one who is going to fix the problem.

Jet Gorgon

^ When was this speech? Fekin hypocrite.

venturalaw

That is the most obnoxious, hypocritical, disingenuous spin regarding what happened and his part in it that I have ever heard. What a load of crap.

barbaro

Thanks for the vids on Barney Frank.

Here is an Op-Ed from the Asian Times. Comments and opinions. Some of the same notions raised, but what will be the fallout of all of this borrowing (running up deficits) and trying to get Americans to....borrow to spend, again. This was the problem, correct?

Link & Entire: Asia Times Online :: Asian news and current affairs

raycarey

obnoxious is a subjective term, so i'll not quarrel with you there, but what was hypocritical and disingenuous about what frank said?

the bush administration and the republican controlled congress were all about trumpeting the 'ownership society'. this is well documented and irrefutable.

secondly, the harsh reality is that not everyone is going to be able to own their own home. it would be nice to think it's true, but it's simply not true.

barbaro

VL,

Once again, partisanship is evident, IMO.

Yes, Barney Frank was in the wrong. And so were many Republicans, business people and stupid borrowers.

It's a big puzzle with many bad pieces.

venturalaw

This pretty much lays it out the way it happened. Bush tried to regulate, and ran up against Frank and Dodd who were in bed (Frank literally) with the 2 largest lenders.

Thursday, October 09, 2008

Barney Frank and Christopher Dodd deserve blame for Fannie and Freddie

The Independent, a British newspaper, blames the Democrats for the failure of Fannie Mae and Freddie Mac:

What is the proximate cause of the collapse of confidence in the world's banks? Millions of improvident loans to American housebuyers. Which organisations were on their own responsible for guaranteeing half of this $12 trillion market? Freddie Mac and Fannie Mae, the so-called Government Sponsored Enterprises which last month were formally nationalised to prevent their immediate and catastrophic collapse. Now, who do you think were among the leading figures blocking all the earlier attempts by President Bush — and other Republicans — to bring these lending behemoths under greater regulatory control? Step forward, Barney Frank and Chris Dodd.

In September 2003 the Bush administration launched a measure to bring Fannie Mae and Freddie Mac under stricter regulatory control, after a report by outside investigators established that they were not adequately hedging against risks and that Fannie Mae in particular had scandalously mis-stated its accounts. In 2006, it was revealed that Fannie Mae had overstated its earnings — to which its senior executives' bonuses were linked — by a stunning $9.3billion. Between 1998 and 2003, Fannie Mae's executive chairman, Franklin Raines, picked up over $90m in bonuses and stock options.

Yet Barney Frank and his chums blocked all Bush's attempts to put a rein on Raines. During the House Financial Services Committee hearing following Bush's initiative, Frank declared: "The more people exaggerate a threat of safety and soundness [at Freddie Mac and Fannie Mae], the more people conjure up the possibility of serious financial losses to the Treasury which I do not see. I think we see entities that are fundamentally sound financially." His colleague on the committee, the California Democrat Maxine Walters, said: "There were nearly a dozen hearings where we were trying to fix something that wasn't broke. Mr Chairman, we do not have a crisis at Freddie Mac and particularly at Fannie Mae under the outstanding leadership of Mr Franklin Raines."

When Mr Raines himself was challenged by the Republican Christopher Shays, to the effect that his ratio of capital to assets (that is, mortgages) of 3 per cent was dangerously low, the Fannie Mae boss retorted that "our assets are so riskless, we could have a capital ratio of under 2 per cent".

barbaro

Agree that Frank and Dodd screw things up. And so did, GWB and the whole system.

Look at the big picture.

GWB signed the ADDA - The American Dream Down payment Act.

Many players involved in this.

Muadib

The bottom line is that the US government and the muppets in office know fvck all about being fiscally responsible... Doesn't matter which side of the aisle they sit or their partisan proclivity..

Jet Gorgon

Haven't heard GWB lying about it tho.

barbaro

Both parties are heavily involved. (Phil Gramm, e.g.)

And non-politicians are involved.

Until people can't understand this, they won't really understand how deep this goes.

Also, as I've said, American culture is a very, very, big part of this.