The existing liabilities in the Over The Counter (OTC) market of CDS (Credit Default Swaps) is
guesstimated to be above 60 trillion dollars. That is more than the entire world's GDP combined. So technically, if all the governments wanted to "bail out" the mortgage-backed securities and toxic assets, they couldn't. Which why it is appalling to see tax-payer money used to buy all these toxic assets. I don't want to get too political, but as far the US goes, both Democrats and Republicans are responsible for the mess. Ultimately, it is us voters who should have kept all those lobbyists in-check and out of DC.
A perfect example is Iceland. Argued to be the world's wealthiest nation a few years ago, it pretty much is bankrupt now. The topic is currently being prioritized by countries like Japan and Malaysia. Google it... very interesting. The entire Icelandic banking system collapsed within a matter of time - and what's amazing is their banking system did not even invest time in mortgage-backed securities. The argument is that this could happen, on a large-scale, to countries who don't have standard currencies. Following that, there could be a crippling effect on the entire world. Iceland, specifically is being covered as a 'priority topic' at Harvard right now.
We have allowed companies to grow so big that we don't know what's is going to come out of this. Wal-mart is the 31st largest economy in the world! When it comes to financial auditing, you pay one of the Big 4 auditing firms to tell you what the fuck is wrong with your financial statements. I am alluding to this because very few of the top auditors want to look at these banks' financial statements - simply put, they are too complex and filled with too many footnotes (Warren Buffet will not invest in your company if these footnotes don't make sense or there are too many of them). So, as Mark said, we have only scratched the surface - the USD 1.5 trillion set aside for 'bail outs' may or may not help. Even Timothy Geithner doesn't know. By the way, I am completely pro-capitalism and hate the fact that the CEOs are going to get pay-caps. IMO, the ones that took unnecessary benefits (people like Thain) should have been fired by the government. Of course, it is not socializing, as some might put it, because the banks are using our hard-earned money to buy preferred stocks in these firms. The perfect example, I think, was in the NYT a couple of days ago - you're going to throw a homeless guy for stealing behind bars, but all you'll do is interview the Thains on national TV and let them walk free. Only one CEO, Pandit of Citibank, agreed to a salary of $1 a year
until Citi returns to making profits. Whatever happened to the Big 3's CEOs' claim that they were willing to work for $1 a year... it's amazing how the Congress just hands out the money and then later, decides to "grill" these assholes.
What is disgraceful is that the CDS market is still an unregulated OTC market. Why the hell isn't the government shutting it down is beyond me. I am sorry if I digress into the economic side of things, but it's just so bad to see [good] people getting lay offs and just seeing them suffer emotionally and financially for something that they aren't even responsible for. It doesn't matter if you're a Conservative or a Democrat: the fact is, your 401K has reduced to 50%. Just imagine a 60-70-year old couple living in these torrid times - you will never recover that money and you might just die thinking about how are you going to sustain yourself for the next 20 years! On top of that, most companies are going to take a BIG BATH (Google it) on their accounting statements over the next couple of years which will subsequently (but unrealistically) show signs of recovery when in fact there is no real substance to back any of it. Combine this with the unruly nature of the economy and you've perfect breeding grounds for either panic or unworthy joy.
So yea, this may get better, but no one knows. As a side note, I think this is a great time to be in business school. I am not trying to overplay what I do in real life, but I totally believe that the current generation of business students will turn out to be highly ethical. There are some great things that will come out of this, but it is going to be bad overall. One of the good things that was brought up to Congress by someone in the SEC was the possibility of dissolving the current auditing structure (because of the unethical nature). The idea was to force all publicly traded companies to buy auditing insurance. The insurance company would hire the auditing firm it deems fit (thereby saving ALL the auditing jobs) and charge the company being audited based on its risk assessment - very much how auto-insurance works. As soon as you file unethically, your insurance goes up. It was an ingenious idea, but was opposed by (I believe) one of the committees on Capitol Hill.
What will happen if the government has to print that money?
Didn't you know, they already printed close to $1.3 trillion to fund the first bail out? Just think about the value being lost here... you're printing twice the amount of money you need, spending only one-fourth ($350 billion), and the interest rates are pretty much zeroed. It just gives me the shivers at times... may be I'll become old school and start pushing cash under the mattress while I have a job. As soon as the current stimulus bill becomes a law, they're going to print even more money.
So, presidentender, I think this is anything, but over.
PS: I don't mean to offend anyone with my political views, so please let me know if I did. I will formally apologize, but not the expense of altering my opinion
.
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