Turns out the US Debt Rating was Cut from AAA to AA

[LegendKiller]

It's your job to convince me and you're not doing a good job. We can agree that it may have been a good short-term move to have TARP, but it hasn't been a boon. I will take it that that was a subjective statement.

As for AIG, after selling their "crown-jewel", now what? What other part of the company will they sell in order to pay the government? I certainly hope you're right as I am a taxpayer, but $165b is not something you can just write a check for, at least not unless inflation shoots up.

Depends on what you consider a "boon". I consider preventing the economy from collapsing a boon. It is subjective.

Earnings? They were making 5-10bn a clip from 01-06. Might take a while, but it will likely get repaid.

 

[Narmer]

Depends on what you consider a "boon". I consider preventing the economy from collapsing a boon. It is subjective.

Earnings? They were making 5-10bn a clip from 01-06. Might take a while, but it will likely get repaid.

Well, they are in the insurance business and times are rather rough now, unlike 01-06. Also, that was when their derivatives business was riding high, lol.

 

[JockoJohnson]

Not sure if this is off-topic or not because I only had one semester of economics. I follow your guys and respect your opinions on money matters.

Question: When will the Fed (or Treasury, if I am mixing things up) raise interest rates? Are they still being held back because they want people to get mortgages?

 

[LegendKiller]

Well, they are in the insurance business and times are rather rough now, unlike 01-06. Also, that was when their derivatives business was riding high, lol.

The insurance industry is going through a hard market right now (technical speak), premiums are up but business is down. This has offset their losses in volume. Gains in the premium portfolios have helped.

The contribution of the derivs business wasn't a large as you'd think. Core businesses were the big moneymakers.

Not to mention they've already repaid more than 56bn.

 

[UglyCasanova]

There were several points in 2006 where this happened. It was an interesting dynamic.

The bond market is a bit funky. It is all about preferred habitat and what's "hot" at any given time.

Although bizarre things do occur, as far as the cc bond thing I'd need to see it to believe it.

And the preferred habitat theory in conjunction with a liquidity premium explain interest rates on bonds of different maturities (ST vs LT, and thus the shape of the yield curve), but that doesn't explain what happened here. These bonds were of the same maturity.

 

[UglyCasanova]

Not sure if this is off-topic or not because I only had one semester of economics. I follow your guys and respect your opinions on money matters.

Question: When will the Fed (or Treasury, if I am mixing things up) raise interest rates? Are they still being held back because they want people to get mortgages?

No way to tell when, and Bernanke doesn't just wake up in the morning and say that interest rates are such and such and thus it is so. It uses different tools, primarily its open market operations, to move rates in the direction it wants them to go. As of right now though essentially interest rates have no where to go but up, so yes rest assured in time they will rise. A look at the Treasury yield cure shows the markets anticipation of rates of different maturities, and clearly it slopes upward (rather steeply even).

 

[Woofmeister]

In another part of the broadcast, they talk about the Madoff Scam-within-a-Scam.

Because Madoff pleaded guilty to a financial crime, his investors are allowed to be compensated for their alleged losses by the US government. Not only are their losses covered - the investors are also making claims for the earnings they allege they would have earned for a normal investment.

And because Madoff has pleaded guilty - no proof is required.

Guess who pays for it ? US taxpayers.

It looks to me like what happened is, Madoff realized they were $X Billion in the whole, and they decided to make use of a law that allows investors to be compensated in the case of fraud (like the FDIC, but a different fund.) But first they needed somebody to confess.

It looks like the Madoff scam may not be the original Ponzi scheme.

Rather, it looks like the Madoff scam is using the claim of a financial crime to compensate investors who otherwise would have lost $50 to $75 billion. Clever.

Complete and utter bullshit.

U.S. taxpayers will pay nothing for the Madoff fraud and Madoff investors who are net losers are unlikely to receive anything close to their initial investments.

Because Madoff also ran a brokerage house, U.S. District Judge Stanton ordered that the Securities Investment Protection Corporation (SIPC) compensate Madoff investors in the same way as SIPC would be required to do so if any other member brokerage house went into liquidation. SIPC was created by Congress but it is funded entirely by assessments of member firms. Moreover, SIPC reimbursement is limited to $500k, which will not be anything close to the average loss by a Madoff investor. http://wcbstv.com/business/madoff.ponzi.scheme.2.888036.html

Madoff investors have been allowed to file amended income tax returns to recover income taxes paid on phantom gains, but that is the only role the U.S. government has in compensating victims.

There is no U.S. government fund to protect defrauded investors. None. You are on your own unless the U.S. Justice Department or the SEC somehow recovers the money, which almost never happens. Your only hope is the much-derided private securities class action or an individual private civil suit and a defendant that is still solvent.

 

[heyheybooboo]

Not sure if this is off-topic or not because I only had one semester of economics. I follow your guys and respect your opinions on money matters.

Question: When will the Fed (or Treasury, if I am mixing things up) raise interest rates? Are they still being held back because they want people to get mortgages?

Access to mortgages is really a very small part of the 'equation'.

This is a 'general' list of certain economic assumptions from a year or so ago:

http://i716.photobucket.com/albums/ww165/Back_at_the_Ranch/GOP%20Idiots/Econ-Ass_2Q09.jpg

This has nothing to do with the Fed --- it was contained within budget documents. My point is that when determining prospective rates the Fed makes certain economic assumptions and reviews substantial data when setting rates.

Since Nixon (Arthur Burns, Fed Chairman) and 'stag-flation' the Fed's 'objective' has been to control inflation. Rates are essentially set in order to prevent the economy from 'overheating' and driving inflation. (Volcker as Fed chair is a matter which I won't cover here.)

But then 'It' happened. In the Summer of 2007 financial markets 'froze'. A little more background:

Financial institutions 'settle' accounts between themselves. In 2007 they decided they didn't want to play at central bank rates. They would 'play' but demanded settlements 150-200 basis points above central bank rates.

To put it simply, they didn't trust each other and didn't want to trade in the financial paper normally used to settle accounts. They effectively became 'illiquid'.

In order to prevent rates from jumping 1-2% overnight in August of 2007, central banks began pumping cash into the system with 'reverse repos'. In subsequent months the Federal Reserve developed a handful of special options and collateral programs for banks to keep them 'liquid' --- so much so that since 2007 they have pumped around $2 trillion into the system (this does not include TARP from the Treasury).

I told you all that because, remember the objective: ""manage the financial system to keep inflation at bay""

It is estimated that the Federal Reserve will have to 'unwind' at least $1 trillion from the system while managing rates to promote economic growth and control inflation while keeping financial institutions 'solvent'.


I hope I didn't confuse you - LOL




--

 

[werepossum]

Access to mortgages is really a very small part of the 'equation'.

This is a 'general' list of certain economic assumptions from a year or so ago:

http://i716.photobucket.com/albums/ww165/Back_at_the_Ranch/GOP%20Idiots/Econ-Ass_2Q09.jpg

This has nothing to do with the Fed --- it was contained within budget documents. My point is that when determining prospective rates the Fed makes certain economic assumptions and reviews substantial data when setting rates.

Since Nixon (Arthur Burns, Fed Chairman) and 'stag-flation' the Fed's 'objective' has been to control inflation. Rates are essentially set in order to prevent the economy from 'overheating' and driving inflation. (Volcker as Fed chair is a matter which I won't cover here.)

But then 'It' happened. In the Summer of 2007 financial markets 'froze'. A little more background:

Financial institutions 'settle' accounts between themselves. In 2007 they decided they didn't want to play at central bank rates. They would 'play' but demanded settlements 150-200 basis points above central bank rates.

To put it simply, they didn't trust each other and didn't want to trade in the financial paper normally used to settle accounts. They effectively became 'illiquid'.

In order to prevent rates from jumping 1-2% overnight in August of 2007, central banks began pumping cash into the system with 'reverse repos'. In subsequent months the Federal Reserve developed a handful of special options and collateral programs for banks to keep them 'liquid' --- so much so that since 2007 they have pumped around $2 trillion into the system (this does not include TARP from the Treasury).

I told you all that because, remember the objective: ""manage the financial system to keep inflation at bay""

It is estimated that the Federal Reserve will have to 'unwind' at least $1 trillion from the system while managing rates to promote economic growth and control inflation while keeping financial institutions 'solvent'.


I hope I didn't confuse you - LOL

--

This alone shows how near the whole system was to collapse, when the Fed quickly pumps in around two trillion and there is no appreciable inflation. Government-driven housing scam plus removal of wall between financial institute types plus crap oversight equals massive disaster. We desperately need to dial back Fannie/Freddie mandates to sensible, conservative levels of subsidies for the poor, restore "outdated metrics" like income and credit history verification and third party appraisals, re-instate and strengthen Glass-Steagall, and beef up oversight now, while we are still near the bottom (and before we add on a whole 'nother crapload of bad debt.)

 

[JTsyo]

Complete and utter bullshit.

U.S. taxpayers will pay nothing for the Madoff fraud and Madoff investors who are net losers are unlikely to receive anything close to their initial investments.

Because Madoff also ran a brokerage house, U.S. District Judge Stanton ordered that the Securities Investment Protection Corporation (SIPC) compensate Madoff investors in the same way as SIPC would be required to do so if any other member brokerage house went into liquidation. SIPC was created by Congress but it is funded entirely by assessments of member firms. Moreover, SIPC reimbursement is limited to $500k, which will not be anything close to the average loss by a Madoff investor. http://wcbstv.com/business/madoff.ponzi.scheme.2.888036.html

Madoff investors have been allowed to file amended income tax returns to recover income taxes paid on phantom gains, but that is the only role the U.S. government has in compensating victims.

There is no U.S. government fund to protect defrauded investors. None. You are on your own unless the U.S. Justice Department or the SEC somehow recovers the money, which almost never happens. Your only hope is the much-derided private securities class action or an individual private civil suit and a defendant that is still solvent.

Thanks for clearing that up. It seemed unlikely that the US government was running "scam insurance".