Monday, September 29, 2008

Asian Markets in Free Fall

In my previous post I mentioned that the U.S. equity market's lost value of nearly 2X the bail out package.  Let us say, for arguments sake, that it is $1.4 Trillion, OK.  Let us also assume that investors realize the loss this year... at our current top marginal tax bracket of 35% or so X $1.4 T... tax revenues could decline $500 Billion?  Way to go, House Republicans. 

I forgot to mention that in a few hours the Asian markets (you know, those guys that lend us the money we need to fund things like our SOCIAL PROGRAMS) would be open and would pass judgment on the today's vote rejecting liquidity for the banking system by the U.S. Congress.  So far, our trading partners are less than impressed, as Asian markets are having their worst day in 21 YEARS as I write this.

The world wide decline in equity values for the 24 hour period subsequent to the house vote might be 4X or even 5X the $700 Billion package.

If you were looking for politically correct/influenced analysis - this Blog ain't for you.  

The House Republican's aberrant behavior today was nothing short of reckless.  They need remedial classes in economics and how the U.S. fractional reserve banking system operates, but I don't think they would pass the final exam.  What a bunch of Doinks!

Mentatt (at) yahoo (dot) com


gregoryw said...

Dude seriously, in your next post can you explain how $350 billion is going to reconcile losses on $32 trillion of private debt? It's too much to spend, and too little to matter. That's enough for a 2% default rate with 50% recovery.

There's going to be over $5 trillion of losses. Fannie and Freddie need $100b each several times a year to keep doing business. FDIC will need a bailout. Sallie Mae will need a bailout. Commercial real estate is about to hit the skids. Unemployment will approach 10% and include lots of non-wall street people who aren't skilled enough to find new work. They'll max out their credit cards and when it's too late, the issuers will reduce their lines because their exposure grew too huge.

Face the facts. 300,000 more people in financial services are going to get laid off. We're at about 100,000 thus far. These folks have masters degrees and were smart enough make six figures for a few years. They'll invent some new businesses. There's been a gigantic misallocation of the national braintrust in financial trading and derivatives. The future will be better. Let it happen.

Anonymous said...

The exponential increase in bad numbers suggests a national default within months.....

After that it will be a long long wait between oil tanker arrivals from overseas.

Let's hope we are able to close those 800 foreign military bases and get the boys back home.

Dan said...

If it passed you would be writing USD in freefall. What would that have helped? The bailout was doomed to fail because as the dollar fell commodities would have done a moon-shot. I don’t know if gas comes before the mortgage and other debt but I’m certain wheat does. The bailout will not work because the U.S. can’t fund it, simple as that.

Dan said...

This isn’t the way I would choose to cure of angelo disease but it will do the trick.

S Parker said...

Please, before you blame the Repubs, let's remember that the Dems have the majority, and they could've passed it without any Repubs at all, IF Madam Speaker had gotten them to go along. It appears as if both parties are to blame for this one. And lastly, I am glad it failed. Let's get this over with so we can start the rebuilding process. Take care.

Anonymous said...

Boohoo the Asians aren't going to fund our social programs now? You've got to be kidding me, you whine like that is a bad thing? Most of those programs should not have existed in the first place. So yes, I will be happy when they are gone.

Aside from the bailout helping YOU, why does the American public need this? They couldn't afford loans and cars on credit to BEGIN with and that is why we are in this mess in the first place.

I'd love to know how much money you lost today. :P

Greg T. Jeffers said...



I am more in your camp than you think. I believe there will be an ultimate housing writedown of 2.5 to 4 Trillion, so I won't argue with your $5T.

In a fractional reserve system $700 billion dollar priming of the "multiplier effect" would go a long way toward having the desired effect - causing inflation.

Right now the U.S. NEEDS inflation. Deflation and inflation are environments created by monetary and fiscal policy outcomes, and we are GRIPPED by deflation at the moment.

THose who value democracy would prefer inflation. The political outcomes associated with deflationary spirals have a very poor track record in history.


Did I say the plan was a perfect plan and everything would be wonderful, the grasses green, the flowers grow and life is so gay hurray, hurray?


Just that the best opportunity foe slowing the descent. Of course, if your politics leads you to HOPE for a collapse, the plan would not appeal to you.

Greg T. Jeffers said...


How does the bailout help me? My biggest holdings are farmland and precious metals, a collapse would do me wonders. ANd Bro, I am soooo used to spam & velvetta for breakfast and pb&j for lunch, you can't even imagine how much I don't give a shit...

But There are many, many implications you guys are not thinking through. Remember some of the outcomes of our last great deflationary spiral? 57 million violent deaths (WWII) in a much less populated and militarily potent world. I am a bit old to be drafted, but my oldest son is getting there... how old are you?

Be very careful what you ask for.

Greg T. Jeffers said...


Let it happen?

Have you been reading my blog for a while? It IS going to happen! But it is the rate of change that will determine whether or not we fucking kill each other down the other side of slope.

Spread the collapse over 10 years and we can get by... condense it into a couple of months or a year... not so much.

BTW, thank all of you for your comments... but many of you seem to think I WANT something in particular. Nope.

I am a career analyst. I hope to guess the closest to the eventual outcome. I do not for ONE BLOODY MOMENT THINK that I can affect that outcome. But when really, really silly decisions are made along the way - invading Iraq, expanding the Community REinvestment Program, the War on Drugs, voting down the injection plan - I throw a yellow flag.

Anonymous said...

You bring up a very good point. The chances for a goverment coup, long resource wars, etc are much higher when the economy is in the toilet.

Another global war a tthis point would likely lead to nuclear war. So lets hope they stay regional.

Conventional wisdom says we are to broke to take on Iran. But watch it happen anyway. Be ready for the draft.

And keep your eye open for a coup in government. And yes it can happen here just as easily as anywhere else.

gregoryw said...

Thanks for the thoughtful responses. I had not considered the multiplier effect of the $700b, nor had I linked war with deflation. Those are interesting points.

I'm disgusted with our Congresspeople cowering to the stock markets. Who, exactly, are they representing? They make direct comparisons of the bailout to the $1.1 trillion of evaporated stock market wealth, with one small problem: the $1.1 trillion was 90% owned by top 5%'ers (I bet half of them foreigners), and the $700b tab would get split among 300 million Americans. Further, it's dangerous to misrepresent the bill as some cure all for paper losses in the stock market. It's not going to stop the Dow from breaking the 2002 lows and possibly getting into the 5000's.

I am surprised that there has not been any violence. I'm guessing it would coincide with reduced credit availability (read: Joe Sixpack can't swipe).

Anonymous said...

You might add excessive and negligent derugulation to your list of failings. Most 14 year olds do need some sort of rules and adult supervision. Or do families run on libertarian principles too and you don't want to interfer with adolescent creativity.

Bureaucrat said...

Have a couple of questions here ....

Don't libertarians (your people)and the "Austrian school of economics" people believe fractional reserve lending, which is "creating money out of thin air," is a bad thing for its uncontrolled inflationary effects? It's adding additional imaginary money to the system.

And I'm sure you have an explanation of why suddenly you agree we are "gripped by deflation" at the moment, cause you and I have been agruing that we are/aren't. Deflation is far worse than inflation, cause nobody seems to know how to stop a deflation, whereas you fight inflation with higher interest rates. But under the Austrian school, both inflation and deflation are undesirable, no?

Anonymous said...

Take a look at that drivel.. That guy makes me want to puke. They had decades to solve the problem. They did nothing. But now they want us to trust them?

He has got to be kidding.

Greg T. Jeffers said...

Yes, I am a libertarian, and no, I don't think that digging metal out of the ground is a necessarily better meathod of creating money.

AT THIS MOMENT IN TIME, we are in a deflationary scare. It could ALWAYS TAKE A REAL HOLD - for my own interests, that of my friends and family, inflation is preferable.

Congress cowering to Stock markets? THey better. THE U>S. has ZERO savings, and declining home values... the only thing left are equity values and bond values.

Once again, is your anger at the system driving you to hope or work for a disaster? Be careful what you ask for, you may get it.

Anonymous said...

The reason this thing failed is simply its stench. The GD bill bails the irresponsible financiers, gives almost UNLIMITED power to the treasury and FED, and most likely the deadbeats in the foreclosed or soon to be foreclosed properties will be allowed stay in them. In Congress, the big money Republicans get to help out their good buddies, the Democrats (Socialists) get at US government that owns 2,000,000 houses that will NEVER be resold, plus equity in a bunch of financial institutions. I can smell it from here. Nothing but a $700,000,000 power grab from all sides. As usual, the people that pay their bills and taxes, work, and obey the law take the big one once again. Yes, I'm willing to cut off my nose. I can't stand the stink!


I absolutely agree with you. We need liquidity NOW, but this? I have a mortgage. Deflation puts my house at risk. BUT!!! The irresponsible in the financial community, the US Government, and the deadbeats need to LOSE in this thing!!

The insolvent institutions need to be closed and their performing assets distributed to institutions that are solvent. The less leveraged the institution, the bigger the proportion of seized assets it gets. Do it by balance sheet! The non-performing assets need to go to the same place the RTC put the S&L mess. The management of the failed institutions needs to be sent to the unemployment office. As you said, they are already rich. They're in it for the power. Take it.

The Left in Congress must not be appeased by permitting permanent attachment of private property, either houses or banks. The Community Redevelopment Act must be abolished.

The right in Congress must accept a Glass-Steagall type separation of commercial and investment banking, as well as a limit on how big a commercial bank can get. This too big to fail crap has to end.

The deadbeats must be evicted ASAP, and the houses resold. There are millions of responsible would-be home-buyers that are still frozen out of the market by the artificially high prices that all this insanely lax lending has engendered.

A bill that promoted these features would gain immediate acceptance with the American public.

Anonymous said...

Paulson, formerly known on Wall Street as "the King of Risk" wants house prices to stabilize or, preferably, start moving up again.

Better to let the housing market find it's own level and then stabilize. There are an awful lot of young families who need housing and are shut out by high prices.

Greg T. Jeffers said...

Dear Anon@1:27 pm: