naked capitalism

Anonymous says:

When they tell you we are trying to avoid a world wide melt down what they are saying is that the world economy net worth is zero or insolvent. There are no banks because they are worth zero. Any investments are worth zero. Any dollars you hold are worth zero. Why? Simply put, greed. They sold more paper than can be covered. Sold so much paper that the debt involved is more than the world economies net worth, for years to come.

Commodities are sold forward as necessities and will be the only values to compare against as national treasures since paper money will not be in vogue.

Maybe defenses can be monetized if you can value destruction, only useful if you plan to deploy them.

Anonymous says:

Sorry, one more thing…looks like the arrogant Ambac cheerleaders (who have been gloating for a few months now) are going to have to crawl back into their cave.

Anonymous says:

I believe the mechanisms are already in place for bailouts. Just need to raise the budget(debt) ceiling with a Congressional vote before recess, no debates, no problems.

Anonymous says:

OK Anon 3:04;

I’m John Q public – what is going to happen to me?

Anonymous says:

“OK Anon 3:04; I’m John Q public – what is going to happen to me?”

Bush/Paulson/Bernanke/Cox just proposed legislation that would let them buy an unlimited amount of junk debt at any price they choose, so they’d buy from rich investors at FAR above fair market value, so they’d be handing free money to these rich investors by paying say $3 for debt worth $2. They’d be able to resell the debt at any price they choose, so they’d sell to rich investors at FAR below fair market value, so they’d be handing free money to these rich investors by selling them debt worth $2 for $1. They’d also bar any court from reviewing their decisions. They legislation would let them hold up to $700B of debt, but that is no cap, because if they resell they can buy more as long as they stay under the cap.

This is a license to defraud the taxpayer. It is worse than the no-bid contracts the Bush administration was giving to contractors in Iraq. If Bush spends $1-2 trillion handing out free money to rich investors, you and your children will pay for it in taxes or inflation or both.

Swedish Trader says:

Hi Yves,

I got the feeling that were interested in knowing more about
what happened during the Swedish Bank crisis. I have now read in a number of articles that the handling of this crisis is somehow a great example of a fair and successful resolution. I was active as a derivative trader in Sweden during this period and would like present how it looked to me.

1. The background was quite similar to the present crisis in the US. The households had stopped saving, credit of all kinds had exploded, real estate and stocks had been in a long bull market. The main difference was that Sweden at the time (1992) was operating a fixed exchange rate.
2. I remember reading an article in an international magazine in 1991 that stated that the Swedish banks were the best run and most profitable in the world.
3. When the Germans hiked their interest rates as a result of the economic boom that followed the reunification, most of the other currencies that were pegged to the DM got in to trouble. I am sure that many remember the attack on the pound that happened during this period.
4. The Swedish Krona (SEK) also got under pressure and the central bank (Riksbanken, RB) hiked rates to defend it.
5. During the boom years the banks had given out massive loans to real estate speculators. First to buy properties in Sweden and then in other countries as well. I believe that Swedish speculators at the time owned about 7% of all commercial real estate in Brussels.
6. Many of the loans had been given in other currencies, mainly DM. The reason was that the rates were lower and since the FX rate was fixed the risk was perceived to be insignificant.
7. Now that the SEK came under attack and the RB took rates higher and higher ( at the peak rates were 500%, yes five hundred) the real economy and property prices went in to free fall.
8. It became clear that the banks were not going to make it. If rates stayed up, there was no way that they would get their SEK loans repaid. If the SEK was allowed to fall, there was no way that that they would get their DM loans repaid. This was 100% clear at the time.
9. One bank (Nordbanken, with a history as a state bank) was allowed to fail.
10. ALL the other banks were given a 100% state guarantee for ALL outstanding liabilities. They paid NOTHING for this and the state got ZERO equity.
11. In the end the SEK was allowed to fall. And it fell MASSIVELY, from 3 to 5 against the DM. It is very possible that the banks were tipped of beforehand by the RB and were allowed to bet heavily on this outcome.
12. For the man on the street, this meant that: He lost A LOT of the value of his savings and income as a result of the devaluation; he got to pay MASSIVE spreads on all his bank loans for many years after. In summary, he went from an upper class European to a lower middle class.
13. The Banks did fine. After a few years their stocks were back making new highs.

I hope that this is of interest to you and again I thank you for a fantasic blog.

Swedish Trader says:

To entropy pawsed,

I don’t know if it makes you feel any better, but the prosperity in Sweden that preceded the crisis I describe above was built upon smoke, mirrors and Social Democratic Ideology…….

Anonymous says:

"Opposing the package is one thing. Anyone got ideas for what should be in an alternative?"

Dean Baker has a progressive bailout proposal < href a="http://tpmcafe.talkingpointsmemo.com/2008/09/20/progressive_conditions_for_a_b/">Dean Baker Bailout Proposal<=a>