Comments on: End of the beginning?

By: J Thomas

J Thomas — Mon, 24 Nov 2008 16:04:35 +0000

Chris, if that’s across-the-board should it include the special T-Bonds that form the government’s IOUs to Social Security? People have argued whether Social Security is facing a big funding problem in 20 or 30 years, but if it was suddenly funded at 100-X cents on the dollar that would sort of slide it toward the funding problem side, right?

And of course a whole lot of loans are people’s retirements. But retirement isn’t all in the form of bonds, some people have a lot of their retirement money safely in the stock market, or in the value of their homes.

I think it would make a big difference if we could easily and simply cut the national debt by X%, and also the value of all foreign debt owed by the USA or by US citizens. We’d be a lot better off that way. Of course, if the foreigners cut their debt to us by X% also, who would come out ahead? I think it’s the ones who’d come out behind who’d be particularly against the idea.

By: Chris

Chris — Mon, 24 Nov 2008 15:39:26 +0000

Naive non-economist question: What would happen if a government or combination of governments mandated a write-down of all debt by X%? Credit card, home and vehicle loan, bank-to-bank, everything gets repaid at 100-X cents on the dollar? Wouldn’t this un-default a lot of loans and re-secure some currently inadequately secured debt? Of course net creditors would take a haircut, but surely they of all people can afford it…

By: MQ

MQ — Mon, 24 Nov 2008 13:35:57 +0000

Well, they announced the Citigroup rescue plan today, and it does sort of look like the same “half-measures that have been tried so far”. Although I guess the scale of the losses to be backstopped could change that?

By: John Quiggin

John Quiggin — Sun, 23 Nov 2008 03:55:33 +0000

#39 As a general observation, unless you have exceptionally strong grounds for your case, as opposed to some superficially plausible arguments, it’s a good idea to start out a bit more politely. The point about gold reserves is a red herring, since gold is a trivial component of reserves for most countries these days – even if the price goes up, it’s still trivial. According to this source total Swiss reserves are $64 billion, 22nd in the world, just ahead of Poland and just behind the US. That’s approximately the amount of the bad UBS assets they just took on, and a tiny fraction of the contingent liabilities implied by a guarantee of UBS and CS.

It’s true that the market hasn’t yet panicked about Switzerland, and it’s also true that, by the same criteria, the US looks weak as well. But if those are the best grounds you have for confidence, you ought to be pretty worried.

By: J Thomas

J Thomas — Sat, 22 Nov 2008 18:25:41 +0000

Bernanke knows that he’ll never be forgiven by the group to which he’d like to suck up and toady, if he saved them, if that lost them their power, perquisites and privileges.

How could they think they were saved, if they lost their power, perqs and privileges?

By: woody

woody — Sat, 22 Nov 2008 17:02:56 +0000

You Ain’t Seen NUTTIN’ Yet Oh, well you cant access it unless you’re a subscriber, and if you were a subscriber, you wouldn’t NEED to access it on-line. So go buy the magazine, this month…Or follow the links: By John Gray, adapted from a September 28 column in the Observer of London. Gray’s Black Mass: Apocalyptic Religion and the Death of Utopia was published last year by Farrar, Straus and Giroux.

The end is just about here, friends. Brought on by the moronic triumphalism that attended the fall of the Soviets, after which an Utopian fantasy based on the infallibility of “markets” took over and led us to the precipice down which we are sliding now.

Screwed is when they overcharge you for a tune-up.

What we are is fu(ked…wholly, deeply, irremediably, and irredeemably…

By: John Evans

John Evans — Sat, 22 Nov 2008 16:57:38 +0000

The UK has just used drastic monetary policy—a huge base rate cut—to head off a bout of deflation. It couldn’t have done that in the eurozone.

The UK will not “be forced into the eurozone”, especially as an incoming Conservative government—probably in 2009 will be totally opposed.

By: Barry

Barry — Sat, 22 Nov 2008 13:19:35 +0000

Re: Michael Turner’s comment #3:

And that’s part of our problem – as we’ve seen, the right has neither forgotten nor forgiven FDR for saving capitalism from itself. Bernanke knows that he’ll never be forgiven by the group to which he’d like to suck up and toady, if he saved them, if that lost them their power, perquisites andprivileges.

By: vonbek

vonbek — Sat, 22 Nov 2008 11:26:20 +0000

ajay 11.21.08 at 5:48 pm

we’ll have to survive a global recession which is already the worst in decades, even though it’s still in the opening phase where unsold inventories pile up on wharves

Unshippable, not unsellable.

Isn’t this entire financial fiasco overkill just to deal with some Somali pirates…

By: Corrupted Mind

Corrupted Mind — Sat, 22 Nov 2008 11:03:45 +0000

I must say that this article is funny. The author displays a complete misunderstanding about why Iceland failed and why it is difficult to apply the ‘Iceland situation’ to Switzerland. I think we all can agree that UBS and CSFB’s balance sheets are extremely large (about $3tr) but the reason Iceland went kaput so spectacularly was because in economic shorthand, their failed to meet some of their obligations and the rest of the world decided that they couldn’t meet all of their obligations. Switzerland on the other hand have the 4th largest gold reserves in the world (after IMF, US and the EU combined) and the 18th biggest foreign reserves in the world (yes, chaps they are ahead of the US in that little game!) Their combined reserves are a shade smaller than the US and I’m sure everyone on this forum would agree that the US because of this fact would be considered as a solvent – even with its mamouth deficit – pls note that the swiss deficit isn’t even in the same universe. In summary, creditors would be willing to wait for the Swiss to pay. This might reflect why you’re yet to see any shorting of UBS or CFSB stock, especially since the SNB gave its guarantee. One final note, an effect of the economic shock has seen a strengthening on the price of Gold which rather randomly strengthens the Swiss economy in times of economic stress. But perhaps more importantly the Swiss have taken steps to balance its foreign exchange with less Dollars over the last 10 years (http://www.snb.ch/en/iabout/assets/id/assets_reserves) only 28% currently held in dollars as opposed to the near 50% it has in EUR - in shorthand by converting its foreign reserve to EUR at present its Forex is strengthening as the EUR strengthens against the dollar. In short they have a huge gold reserve, a huge foreign reserve – with both strengthening (despite the market being distressed) – If I was one of those faux US investment TV show presenters I would probably end this little comment with a – BUY!

By: John Quiggin

John Quiggin — Sat, 22 Nov 2008 03:00:23 +0000

David G, I’m not claiming that a failure of Citi will cause a systemic financial meltdown; if anything the opposite. As the post title indicates, the beginning phase of the crisis (credit crunch, partial meltdown and so on) is probably over. So, if you thought that this was essentially a liquidity crisis caused by a breakdown of financial intermediation, you’d be predicting a reasonably swift recovery.

The fact that Citi is on the brink suggests otherwise. The problem now is that, given the likely severity of the real downturn, the accompanying rise in defaults, and the inability to bring down debt levels at anything like the pace that is needed, major financial institutions like Citi are effectively insolvent. This can’t be fixed by monetary easing.

Keith, the major Swiss banks have huge assets and liabilities in Euros, dollars and sterling as well as SFr. So, resort to the printing press wouldn’t help. Of course, the situation of the US is a bit different.

By: Barry

Barry — Sat, 22 Nov 2008 02:43:58 +0000

Robert Worstell 11.21.08 at 8:36 pm

” Good thing I live where the “chicken littles” of mainstream media aren’t able to cluck around and scare everyone half to death. Looks like we’ll put in a bigger garden this year…”

Considering that the ’ “chicken littles” of mainstream media’ would have to include Paulson, Bernanke, Bush, most of the GOP Congress, and by now even the Sacred Oracles of the Wall Street Urinal, I think that note [1] of my previous comment applies.

By: Keith M Ellis

Keith M Ellis — Sat, 22 Nov 2008 01:50:12 +0000

I thought that the problem for Iceland was that all their debt was denominated in foreign currencies. Switzerland doesn’t have that problem; at least not to the same degree. Right? Or not right?

By: BlueCollarDollar.com

BlueCollarDollar.com — Sat, 22 Nov 2008 00:33:20 +0000

Perhaps it will be the end of growth through acquisition, something that does little for the company’s long-term value while it appeases the shareholder. We are seeing giants falter for a good reason. These behemoths may have never been intended to survive. Too big and unwieldy to move quickly. So they bought everything. Eliminating the competition as we now know, is not such a good thing and when something big breaks, like a Citi, there are few smaller businesses standing at the ready to pick up the pieces and prosper. This may be what we need to learn. Business with a diverse amount of competition.

By: David Galbraith

David Galbraith — Fri, 21 Nov 2008 22:58:56 +0000

Although, as you say, Felix Salmon spelled out doom for Citi a while back, he points out that this isn’t the systemic failure you claim, since the credit markets aren’t now terminal.

“Banks’ capital structures can cope with this: once the common is eroded, the bank belongs to its preferred stockholders. It’s not the end of the world if Citi stock goes to zero”.

http://www.portfolio.com/views/blogs/market-movers/2008/11/21/this-is-not-financial-meltdown