2011: Full Castastrophe Banking?

[georgephillip]

"As we hope for the best in 2011, let's prepare for the worst. The big banks are sure to deliver."

Eight possible banking catastrophes ranging from the demise of Bank of America ("If Assange has emails showing that Countrywide or BofA knew they were recklessly abandoning underwriting standards and/or peddling toxic dreck to investors, the damage to the firm could be irreparable) to an epidemic of "flash crash calamities" ("Seventy percent of Wall Street trades take place in milliseconds...") to $4 a gallon gasoline (speculators are bidding up the asset classes like crude oil, metals, and food commodities.) make 2011 a likely candidate to re-popularize the word coined by Ferdinand Pecora in the 1930s "Banker + Gangster = Bankster."

BanksterUSA.org

 

[william the wie]

I think you are off on the date but otherwise I consider this a good topic. There tends to be lengthy lag times in the resolution of such problems. The Bear Sterns mortgage hedge funds went bankrupt in the summer of 2007 a full year after the housing bubble died but the meltdown still didn't happen until the fall of 2008. I would say late summer/fall of 2012 will be the earliest time to see the critical phases of the crises you are talking about. Good OP

 

[georgephillip]

If you're correct, some of these crises will go critical during the closing weeks of the next Presidential election.

Maybe a good time to convince US voters a choice between Republican OR Democrat has little chance of Hope or Change.

 

[william the wie]

If you're correct, some of these crises will go critical during the closing weeks of the next Presidential election.

Maybe a good time to convince US voters a choice between Republican OR Democrat has little chance of Hope or Change.

I suspect that's right but I don't know how to prove it. Afterall the S&L mess was a huge red flag that was ignored and repeated 15-20 years later. Long Term Capital Management was another huge red flag that was also ignored and repeated 10 years later. At the moment the US is poised to expand quite rapidly to fill in gaps caused by floods in Pakistan and Australia plus expected spring floods in northern Eurasia that will damage further harvests. But in 2012 that boost will be spent.

 

[georgephillip]

If During the Savings and Loan Crisis...

"What’s going on with the Federal and State governments? So far for the past year (2009) I’ve heard of no real prosecution going on against these fools in high places that have wrecked the economy.

"IE the hedge fund people, the mortgage brokers, the speculators that pushed oil prices sky high etc etc.

"Why aren’t we seeing more prosecutions?

"Who’s going try and recoup a generation of lost savings and investments?

"The average citizen unless they’re young can never recoup whats been lost.

"So what recourse does the average person have?"

DAY TRADING

The first reply to this post makes the claim the first S&L charges weren't filed until 4 to 5 years after the crisis went public.

Do you know if that's accurate, and do you think anyone will eventually be prosecuted for our most recent economic crisis?

 

[007]

I think that even if the republicans are able to trim the budget and cut spending, the chances of this country seeing a financial melt down are still pretty good. Very soon we'll be unable to even pay the daily interest on our national debt, and if countries like China quit lending to us, a total collapse will be inevitable. We are teetering on the brink at this very moment. Add to that we are monetizing our own debt, which history shows us by example of the Weimer Republic in Germany, leads to massive hyper inflation and a total collapse of currency.

 

[georgephillip]

If the Fed manages to turn every$10 bill in the country into a $5, we will experience our own Great(er) Depression.

Some believe Obama's recent compromise on taxes sets up a three step slide into debt peonage for 90% of Americans.

First, some Dems and independent voters will be looking for third party candidates in 2012. If Palin wins the Republican nomination, it's possible we could see four major candidates competing for the White House. A scenario that hasn't occurred since 1948.

Second, Obama's compromise frees income for the richest Americans to send abroad, "to economies not yet wrecked by neoliberals."

Finally, the $120 billion reduction in Social Security taxes means those looking to privatize that program will have far better arguments a year from now than they've ever had before.

I don't see how electing Republicans OR Democrats really changes any of the fundamentals of US government.

FLUSHING HUNDREDS of Republican AND Democrat incumbents from DC on the same day would Change Everything, but it's hard to predict how.

See: Obama's Sell Out...

 

[william the wie]

The fact is that the problem is that there are so many things that people think know that ain't so it is hard to know where to start. Had a debate with a lawyer last night about real assets vs. derivatives and I used housing as an example. 4-8 derivatives are used to get the lumber from the forest to the job site. Nails and tacks, sheet-rock etc., the same or worse, likewise construction and permanent financing, take home pay vs. labor costs for the workers and the margin for the contractor. Total middleman charges double or triple the cost of a house. Leaving aside asset inflation a $100K house is forced to sell for $300K.

The meltdown and bailout was an attempt by the Fed to rescue middlemen who were in the process of being eliminated as modern day buggy whip makers. Jobs for the elites particularly no show and barely show jobs like running an S&L in the 60s and 70s are being eliminated rapidly. They are being and have been eliminated by IT, automation and out-sourcing. This is the middleman job market and it was what used to be the middleclass job market only now those same forces are operating against people further up the food chain. That is what is causing the fear and loathing in DC and Wall Street. Well connected idiots are losing their competitive advantage and what locales those folks inhabit?

 

[georgephillip]

What happens when IT, automation and outsourcing create a USA in which there are not enough middle class jobs for all the qualified applicants who are actively seeking those positions?

One of the original talking points of the Industrial Revolution held that eventually the machine would free humanity from the need of daily toil.

Have millions of formerly middle class Americans already reached that point?

Is capitalism the most efficient economic system in a world where there are more qualified people seeking work than actual jobs in existence?

Maybe Social Credit has some of the answers.

 

[william the wie]

What happens when IT, automation and outsourcing create a USA in which there are not enough middle class jobs for all the qualified applicants who are actively seeking those positions?

One of the original talking points of the Industrial Revolution held that eventually the machine would free humanity from the need of daily toil.

Have millions of formerly middle class Americans already reached that point?

Is capitalism the most efficient economic system in a world where there are more qualified people seeking work than actual jobs in existence?

Maybe Social Credit has some of the answers.

Well Keynes termed this the money illusion. In terms of goods and services Americans are generally getting richer, although at a slower rate now. But there are two problems with that economic definition:

Status is determined by relative wealth not absolute wealth. Keeping up with the Joneses is a bigger goal than living in a McMansion filled with high-tech gadgets. Folks scrimp and save to live in multi-story shotgun shacks and efficiency apartments that are ocean front or even ocean view rather than a relatively inexpensive 5b/4ba house a 1/4 mile walk to the beach. Economics does not deal well with paying more for a lower standard of living and greater uncertainty of return on capital but it is a major problem.

People get really thrilled by paper profits but discount unrealized losses which borders on the psychotic. Assets should always be carried at cost or market whichever is lesser as in paper profits are fiction and paper losses are fact. Economists cannot make this compute either. A paradigm shift is desperately needed.

 

[georgephillip]

Part of that paradigm shift may require asking if most consumers behave rationally in the marketplace.

"Money illusion can also influence people's perceptions of outcomes.

"Experiments have shown that people generally perceive a 2% cut in nominal income as unfair, but see a 2% rise in nominal income where there is 4% inflation as fair, despite them being almost rational equivalents.

"However, this result is consistent with the Myopic Loss Aversion theory. [3] Further, money illusion means nominal changes in price can influence demand even if real prices have remained constant."

I don't think a majority can be fundamentally ignorant in a subject as important as Economics and still rationally believe they are "free."

Money Illusion - Wiki

 

[william the wie]

Part of that paradigm shift may require asking if most consumers behave rationally in the marketplace.

"Money illusion can also influence people's perceptions of outcomes.

"Experiments have shown that people generally perceive a 2% cut in nominal income as unfair, but see a 2% rise in nominal income where there is 4% inflation as fair, despite them being almost rational equivalents.

"However, this result is consistent with the Myopic Loss Aversion theory. [3] Further, money illusion means nominal changes in price can influence demand even if real prices have remained constant."

I don't think a majority can be fundamentally ignorant in a subject as important as Economics and still rationally believe they are "free."

Money Illusion - Wiki

It's not ignorance, it's neurology and it is subject to natural selection. By the time data set is long enough to measure the selection rate we'll be long gone