Paul Volcker gives Wall Street a "wake up" call

[Munky]

1. Repeal Glass Steagall through the Gramm-Leach-Bliley Act (combined commercial and investment banking as well as insurance)

2. Commodities and Futures Modernization Act (expanded CDS)

3. FAS140 (not a law, but an accounting standard from FASB, which sets US accounting standards). (Allowed off-balance-sheet securitizations, hiding liabilities, while booking gain on sale)

4. US Treasury decreasing the capital requirements of banks (allowed banks to get out of control)

Those are the top 4

These are the things that lead us into this economic mess, not policies that have since been adopted to lead us out of it.

 

[BoberFett]

bober - Gold may be in a speculative market right now similar to 1980. If you think hyperinflation will occur it's not at all but if real recovery occurs and govt stop printing and gets debt financed it will drop to about $600. So be careful.

I'm not buying gold. My dad has talked about it and I've thus far talked him out of it. I'm still of the opinion that we may be teetering on the edge of utter meltdown and that all we're doing right now with deficit spending is putting our thumbs in the dike. If a complete financial meltdown happened even gold will be worthless because, as others so frequently point out, gold has very little actual utilitarian value. A complete meltdown means that global trade grinds to a halt, and the only thing that has value will be what you can move locally. We're talking hard goods, things needed for survival. Tools, weapons, ammo, and whatever food you can grow. Trade skills would become extremely valuable. The world would essentially revert to a pre-industrial state.

So in short, in my opinion any financial crisis big enough to take down the dollar will also take down the world economy, rendering gold useless anyway, so I'm choosing not to worry about it and just live life as usual.

 

[First]

Ridiculous to chose gold price in speculative market. Should I pick stock in spring of 07 to show dows underperformance? You either didnt understand meaning of my post or are being dishonest is this debate. Try again

The fact that the best you can do is 2007-2009 proves my point. I said gold was a bad long-term investment. Long-term. You and Boober need to read more slowly.

 

[werepossum]

Gold will never be worth nothing; even subsistence level societies have valued it, if only for its rarity. But it could easily be worth half of today's value, probably much more easily than it could be worth twice today's value.

If we have a complete financial meltdown then I fully expect the government to seize all private stocks of gold to finance its own operations (thereby providing the most value to everyone.) We would then probably end up with one world currency and a ban on gold.

 

[Zebo]

I'm not buying gold. My dad has talked about it and I've thus far talked him out of it. I'm still of the opinion that we may be teetering on the edge of utter meltdown and that all we're doing right now with deficit spending is putting our thumbs in the dike. If a complete financial meltdown happened even gold will be worthless because, as others so frequently point out, gold has very little actual utilitarian value. A complete meltdown means that global trade grinds to a halt, and the only thing that has value will be what you can move locally. We're talking hard goods, things needed for survival. Tools, weapons, ammo, and whatever food you can grow. Trade skills would become extremely valuable. The world would essentially revert to a pre-industrial state.

So in short, in my opinion any financial crisis big enough to take down the dollar will also take down the world economy, rendering gold useless anyway, so I'm choosing not to worry about it and just live life as usual.

I'm thinking more dollar traded at 20 instead of 77 is a meltdown and a very real possibility and Gold will be at $5000. Utter meltdown is not getting welfare checks or they are worthless and won't buy anything then ammo & tactical courses are your best bet.

 

[LegendKiller]

and it's a horrible long-term investment, worse than practically any investment you could make over a long period of time.
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BS - 35 in 70 to $1132 now is pretty good. Better than etoys or a house in Detroit for example (and millions of other that went to zero)

No it's not the best investment there are better but it's not the worse either. It's a store of value with minor speculation.



merely represents what people are willing to pay for it and nothing more,
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The lowest it can represent is mining costs to get it out of the ground which is about $225.

No, the lowest gold can represent is $0. Once you get below $225 then it becomes worthless.

Consider the utter fact that only 10% or so of gold has any industrial value, that would mean that its intrinsic value is *ONLY* 1/10th of the current market value. However, that is a linear scaling of supply/demand, which would be incorrect. Thus, the intrinsic value of gold is likely less than 1/10th of its current price.

Furthermore, once you factor in that the industrial uses of gold can be easily replaced by other metals or technologies (gold plated banana plugs), it becomes worth even less.

This is why it is utterly foolish to depend on a shiny rock to set the value of the world's economic lubricant.

As Warren Buffet said:

[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.


Why does he take this mentality? Because gold produces no revenue, profit, and it has practically no real value.

What's really funny is that there is not a single truly wealthy person who believes gold is actually a good investment. Sure, John Paulson is riding the wave of stupidity, as is any investment manager's wont. However, people like Buffet know that it's really a stupid investment.

What's funny is that nobody of Buffet's wealth has invested in gold as a store of wealth, yet everybody thinks it's so great. If it were, then people like him would be using it. Why doesn't he? He's seen the doomsday stupidity before, after all, his father and uncle were both doomsdayers who stuck large portions of their wealth into gold or farms.

-------------------

We found previously that a gold standard is inflexible because it constrains an infinitely flexible commodity (human imagination, greed, and fear) by a finitely inflexible commodity. People like above continually claim that you get rid of fiat currency then you can't go into much debt. This is pretty fucking stupid, as it's been proven false many times. The ability to sell FUTURE revenue (currency) for PRESENT revenue (currency) may be constrained by the amount of home currency in circulation, but only when using home currency to purchase and transact. You can still give away items as repayment (such as the Lend Lease act), or find other ways to increase currency in circulation (change the peg).

Others then prattle on about "fractional reserve banking" as the great evil. This, again, is a silly demon to target, as holding 100% reserves not only massively stifles growth in an unneeded fashion, but it is not the cure-all they make it seem. Many believe 100% reserve banking would allow depositors to get ALL of their cash out, somehow magically calming the market. However, deposits would still need to be invested in assets (otherwise the bank wouldn't even take in deposits or depositors would have to accept 0% interest rates on assets), those assets cannot be 0-day assets, thus some assets have to be term assets.

Furthermore, the total amount of deposits at a bank is actually dwarfed by the amount of other capital or debt the bank has. In a downturn, sometimes failures happen, but depositors are still the first to be paid out, wiping out the debt/equity that funds larger amounts of assets, thus, deposits are still not *THAT* big of a problem.

Right now, "runs of the bank" are not by depositors, but by other banks.

At the end of the day, fractional reserve lending is the most efficient and beneficial to all. It provides depositors with returns on deposited money, it provides borrowers with lower costs of funds, and it provides investors at the bank (most likely the same people as depositors) returns on the assets. With 100% reserve banking you would turn a large asset base into a wasted asset, destroying value in the economy, and lowering growth.

Naturally, not everybody would turn to 100% reserve banking, giving them a greater ability to leverage their nation's wealth to prosperity, the same with fiat currencies. Thus, the US would be marginalized, all for what? Not a single gain except for some false sense of stability.

So, effectively, people like bamacre, want to turn this country into one of an 18th century utopia. Who wants to pass the straw hat?

 

[Zebo]

Good post LK I'm not gold bug FYI. Read my posts. I disagree about virtual no value. It has psychological value due to traditional form of money. Many Muslim states are talking of wanting to go back to Dinar. Diamonds have virtually no value either but they sure are expensive.

 

[BoberFett]

The true value of diamonds is as bad as that of paper money.

 

[LegendKiller]

Good post LK I'm not gold bug FYI. Read my posts. I disagree about virtual no value. It has psychological value due to traditional form of money. Many Muslim states are talking of wanting to go back to Dinar. Diamonds have virtually no value either but they sure are expensive.

Diamonds are a great example of something with limited supply (albeit artificially constrained by DeBeers), limited utility, but mass insanity appeal which sets the price (aka, the greater fool theory).

Psychological value is an even bigger joke than a fiat currency. Why? Because at least a fiat currency is backed by something real, the economy of the originating country (you know, real stuff).

Who cares about Muslim states. Not to sound harsh, but the ME states are headed for a fall.

 

[LegendKiller]

The true value of diamonds is as bad as that of paper money.

It's worse than gold, both of which are far worse than paper money.

 

[StageLeft]

[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

nice!

The true value of diamonds is as bad as that of paper money.

I don't know much about them but I have heard that the synthetic ones (think the evolution of cubic zarchonia) are so good that they are extremely hard to differentiate from real diamonds. Alchemy hasn't done that with gold yet. I'd not want my wealth based on little glass rocks.

 

[Craig234]

nice!I don't know much about them but I have heard that the synthetic ones (think the evolution of cubic zarchonia) are so good that they are extremely hard to differentiate from real diamonds. Alchemy hasn't done that with gold yet. I'd not want my wealth based on little glass rocks.

Seems to me that gold is better simpy because it's widely recognized as an investment commodity, while diamonds' value mainly comes fom the luxury consumer market that can fall apart in no time.

 

[LegendKiller]

Seems to me that gold is better simpy because it's widely recognized as an investment commodity, while diamonds' value mainly comes fom the luxury consumer market that can fall apart in no time.

Both derive nearly 100% of their value from the "luxury consumer market". The only difference is that gold is gold, it's the same no matter what. Diamonds have varied quality.

 

[Craig234]

Both derive nearly 100% of their value from the "luxury consumer market". The only difference is that gold is gold, it's the same no matter what. Diamonds have varied quality.

I don't know the percent of gold held for investment versus for consumer product (jewelry and art). I suspect for diamonds the investment percent is close to zero.

 

[LegendKiller]

I don't know the percent of gold held for investment versus for consumer product (jewelry and art). I suspect for diamonds the investment percent is close to zero.

Your point is irrelevant.

The funny thing about "investments" is that they should produce cashflow in the future, some are just by selling, but they should be tangible and intrinsically valuable goods either way. A house, for example, produces cash only by its sale or by renting (this is actually revenue above the value of the house, a key feature of "investments). However, it has a intrinsic value (a home) as well as a store of wealth and a creator of current income (since it delivers value as a home to the tenant). If shit hit the fan, you still have a place to live (or rent), as well as a store for barter or other transactions.

A stock or bond represents the cumulative value of both real assets, IP, and future cash from a company.

Gold is about the only "investment" that produces absolutely nothing and is practically worthless for creating cashflow in the future. The same for diamonds. Any value placed on the "investment" property of gold is psychological nature, not real, and thus, is the same exact thing as gold. Personally, I depend on more than mass insanity to determine whether to purchase an asset for long-term value.

Humans need to get over their infatuation for shiny rocks.

 

[BoberFett]

It's worse than gold, both of which are far worse than paper money.

Again, if you have facts behind you, why cherry pick? Paper money is as good or bad as the country issuing it. Just ask Zimbabwe.

 

[BoberFett]

nice!I don't know much about them but I have heard that the synthetic ones (think the evolution of cubic zarchonia) are so good that they are extremely hard to differentiate from real diamonds. Alchemy hasn't done that with gold yet. I'd not want my wealth based on little glass rocks.

Yep. In fact some fake diamonds are so good that it takes incredibly expensive machines to tell the difference. Last I heard the diamond industry is trying to force legislation which would mandate branding of "fake" rocks because there is no way without a laboratory to know whether you're buying a manufactured or a mined diamond.

 

[BoberFett]

Your point is irrelevant.

The funny thing about "investments" is that they should produce cashflow in the future, some are just by selling, but they should be tangible and intrinsically valuable goods either way. A house, for example, produces cash only by its sale or by renting (this is actually revenue above the value of the house, a key feature of "investments). However, it has a intrinsic value (a home) as well as a store of wealth and a creator of current income (since it delivers value as a home to the tenant). If shit hit the fan, you still have a place to live (or rent), as well as a store for barter or other transactions.

A stock or bond represents the cumulative value of both real assets, IP, and future cash from a company.

Gold is about the only "investment" that produces absolutely nothing and is practically worthless for creating cashflow in the future. The same for diamonds. Any value placed on the "investment" property of gold is psychological nature, not real, and thus, is the same exact thing as gold. Personally, I depend on more than mass insanity to determine whether to purchase an asset for long-term value.

Humans need to get over their infatuation for shiny rocks.

Again with the blanket statements. How's Enron stock doing? Worldcom?

Any investment can be good or bad depending on when you buy and sell.

 

[First]

Again with the blanket statements. How's Enron stock doing? Worldcom?

Any investment can be good or bad depending on when you buy and sell.

The vast majority of people have index/mutual funds/ETFs, the overwhelming majority of which do not vanish like Worldcom or Enron. It's not a blanket statement, just reality.

 

[Jhhnn]

Again with the blanket statements. How's Enron stock doing? Worldcom?

Any investment can be good or bad depending on when you buy and sell.

Sounds peachy, except that the current state of corporate governance and accounting promotes excessive risk taking and looting. That's very bad for people whose investment is indirect, either through pensions or 401K's. What's passed for "growth" recently is more along the lines of pump and dump, practiced at the highest levels of finance. Bubbles are very good for insiders, however, particularly when it comes to bonuses and options, basically looting your own company. Their cut comes off the top, off the perceived corporate value right now, not from any actual investment, any actual risk of their own. In cultivating such false perceptions, execs increase the size of their own pie slice at the expense of everybody else... and it's often big enough to mean that they're totally set thereafter, even if they've ridden their corporate steed into heart failure.

Soros' observations at the end of the linked piece are, as usual, right on the mark. The current state of derivatives is an abomination, particularly the very existence of synthetic derivatives which warp the market in much the same way as naked short selling... the whole edifice of finance is rendered more fragile by the fact that there's often more money riding on a particular outcome than what's involved in the outcome itself... It's not hedging, it's gambling, plain and simple.

 

[totalnoob]

Why does a currency have to be an absolute 0 flat, or increasing, currency?

All that matters is purchasing power parity and the dollar has maintained that.

hahahahahahahahahahahahahahaha!! *cough cough*

hahahahahahahahahahahaha!!!!

 

[totalnoob]

hahahahahahahahahahahahahahahahahahaha!!! (continued)

 

[Jhhnn]

LK is right- the dollar has maintained purchasing power parity. Otoh, income distribution has shifted to the top, putting the squeeze on anybody who's not at the top... Basic failure of trickle down economics, one of the greatest scams of the age...

 

[StageLeft]

Yep. In fact some fake diamonds are so good that it takes incredibly expensive machines to tell the difference. Last I heard the diamond industry is trying to force legislation which would mandate branding of "fake" rocks because there is no way without a laboratory to know whether you're buying a manufactured or a mined diamond.

This is why I refuse to buy mrsskoorb an expensive diamond ring, well one of the reasons. I'd rather she spent the money on clothes because frankly if you're paying $1000 for something from one brand and $500 from another and they are for all intents and purposes the same thing you would have to be an epic douche to pay the $1000. Does it really make it better that a poor african dug it out of the ground instead of somebody in a lab?

 

[BoberFett]

hahahahahahahahahahahahahahaha!! *cough cough*

hahahahahahahahahahahaha!!!!

Actually, he's correct. In the global economy, the dollar has maintained its purchasing power. In fact it has probably gotten better over the past 50 years. Life is only expensive now because we have much higher expectations for life than we did back then.

The question on everyone's mind however is how long the dollar will hold out.