The Collapse of Capitalism

[scottwww]

Originally Posted by gum5h03

Here is another bad sign.

http://www.businessweek.com/ap/finan.../D9345FS80.htm

That won't help at all if WaMu goes down.

[ages944]

Originally Posted by ukthunderace

Study history...you can draw so many parallels between ancient Rome and the U.S.
The sweet sickly smell of decadence.

+1

[gonzo]

WaMu lost 25% of it's value at yesterdays close....My banker buddy told me to watch out 2 months ago.

[jaiman]

Originally Posted by scottwww

I'll bet that if you looked at equal investments over each of the last 38 years, that the gold investment wouldn't be as far behind today as your example. And with so many indicators of potentially severe economic trouble for the foreseeable future, the next many years could favor gold even more.

I ran some number to take a look and see, and this is what I get:

$100 per year in gold since 1970 = $15,614.79
$100 per year in the S&P 500 since 1970 = $59875.02 (assuming dividend reinvestment with a 3.3% average annual dividend yield)

It’s not even close. As for risk, the average return on gold was about 8% with a standard deviation of about 30% for a sharpe ratio of 0.26. Average return for the S&P 500 is around 10% with a standard deviation of 0.15 for a sharpe ratio of 0.66. So on a risk adjusted basis the index is 2.5 times better than gold. If I wanted to take the same risk as gold I could lever my stock investment 2.5 times and get an annual return of 25%.

[scottwww]

Originally Posted by jaiman

I ran some number to take a look and see, and this is what I get:

$100 per year in gold since 1970 = $15,614.79
$100 per year in the S&P 500 since 1970 = $59875.02 (assuming dividend reinvestment with a 3.3% average annual dividend yield)

It’s not even close. As for risk, the average return on gold was about 8% with a standard deviation of about 30% for a sharpe ratio of 0.26. Average return for the S&P 500 is around 10% with a standard deviation of 0.15 for a sharpe ratio of 0.66. So on a risk adjusted basis the index is 2.5 times better than gold. If I wanted to take the same risk as gold I could lever my stock investment 2.5 times and get an annual return of 25%.

I guess it's a good thing my investments are mostly in equity mutual funds. Never have bought gold (except jewelry for my wife). How do the numbers stack up for the last 15 years, rather than 38?

[toofasttooslow]

Another day, another bailout on behalf of the United States taxpayes. Socialism at its finest...

[toofasttooslow]

If you can't beat em...ban em...


SEC Plans to Temporarily Ban Short-Selling

The Securities and Exchange Commission says it will issue a temporary ban on short-selling CNBC has learned.

SEC Chairman Christopher Cox briefed Congress late Thursday of the agency's plans to take the extraordinary step of interfering with the market's regular functioning. Short-selling is a trading strategy of selling borrowed stock in hopes it falls and can be repurchased at a lower price.

The details of the SEC's measures are unclear. The ban must be approved by the commissioners, and there's no word on which stocks are covered or for how long it will be in
effect.

On Thursday, the U.K.'s Financial Services Authority said it would ban short-selling in financial stocks until January. The FSA said it would review the effect of the ban each month. The FSA also announced additional disclosure requirements from hedge funds of short sales if a certain threshold is met.

The SEC sped up its rule-making and on Wednesday the SEC announced three trading rules that were aimed at curbing abusive short-selling. That was followed late Wednesday night with intentions to require hedge funds to disclose more information about their short positions.

Cox said the SEC would have more to say on short-selling rules "as early as tomorrow" and commissioners were meeting on Thursday night to address the Bush administration's proposal to calm financial markets.

"We are likely to take additional steps in the days ahead that are more particularly addressed to this urgent situation," Cox told reporters after a meeting between senior administration officials and top lawmakers.

Cox said the SEC is coordinating with the United Kingdom's Financial Services Authority, which on Thursday imposed a temporary ban on short sales of financial stocks.

[toofasttooslow]

Get ready to pay more on your new federal mortgage (income taxes) to the tune of 500 Billion dollars more + interest of course that will go to you guessed it...the banks.


Capitalism at its finest when the government outright sponsors the banking industry...


Treasury Secretary Hank Paulson briefed Congressional leaders on plans to address the "illiquid assets" on U.S. financial institutions' balance sheets, possibly including the creation of a government facility to take on financial firms' bad debts.

The proposal to create a massive facility to buy mortgage-backed securities could cost as much as a half-trillion-dollars and would involve the purchase of both private-label and government-guaranteed mortgages, according to an administration official.

The plan would have two parts. The largest part would be the purchase of private-label (those underwritten by Wall Street) mortgages by some as-yet unnamed vehicle. Financing would occur through the sale of treasuries, the official said. That part of the plan would require congressional approval. The idea is to hold the securities to maturity. The average mortgage has a life of about 7 years.

A second part of the plan would involve the purchase by Treasury of additional government-backed (Fannie Mae and Freddie Mac) under a plan it announced several weeks ago to rescue the two government-sponsored entities. Back then, it said it would purchase $5 billion initially. The idea is to ramp up those purchases more quickly. It does not require approval by Congress.

The administration is contemplating hiring a private investment manager to run the mortgage vehicle. Yet to be worked out with Congress are the amount of mortgage securities the government would buy and from whom the government would accept them.

The price to be set on those purchases and the process for setting it was also unknown.

CNBC first reported the creation of a Treasury plan, similar to the Resolution Trust Corp., that would take mortgage backed securities off the market.

Paulson briefed House Speaker Nancy Pelosi and other congressional leaders at a meeting on Thursday night. Following the meeting, Paulson said the group's discussion focused on financial institutions' illiquid assets. "What we are working on now is an approach to deal with the systemic risk and stresses in our capital markets," Paulson said.

"As we've said for some time, the root cause for the stress in the capital markets is the real estate correction and what's going on in terms of the price declines in real estate," he said. "We're coming together to work on an expeditious solution, which is aimed right at the heart of this problem, which is illiquid assets on financial institutions' balance sheets."

Charlie Gasparino breaks the story on Paulson's plan. Watch the accompanying video.

A Treasury statement said Paulson and Bernanke were exploring all options available to them and would work with congressional leaders through the weekend. A government official speaking to CNBC ruled out any formal announcements Thursday or Friday.

The meeting, held at Pelosi's office, included House Financial Services Chairman Barney Frank, Senator Majority Leader Harry Reid, other Senate and House leaders from both political parties, Federal Reserve Chairman Ben Bernanke, and SEC Chairman Christopher Cox.

The Bush administration wants to make sure Congress is behind the idea before it moves ahead on the plan, a source told CNBC. Pelosi, a Democrat, said in a letter to Bush Thursday that the worsening economy demands another bipartisan economic recovery effort, and that Congress will stand ready beyond the Sept. 26 scheduled adjournment date to consider legislation.

The creation of a government facility for bad debts, according to its advocates, would allow banks to shovel bad debt off their balance sheets and allow the firms to go back to business as usual. It would also eliminate the need for individual company bailouts.

In turn, that could allow the housing market to recover because it would restore banks willingness to lend.

A federal government plan could also involve FDIC-type protection for money market funds, according to a report in the Wall Street Journal.

"This will bring real trust back into the market." Donald Marron, chairman of Lightyear Capital, said on CNBC. "It would free up real, spendable capital in these organizations. They can use that to make loans, to make transactions and to build confidence in the system. This is a confidence crisis."

The news sparked a big rally in stocks after a day in which investors remained nervous about the spreading effects the global credit crisis.

The Treasury Department and Federal Reserve, which engineered an $85 billion rescue plan for insurer American International Group earlier this week, declined to comment.

The aide also pointed to an opinion piece in Wednesday's Wall Street Journal by former Federal Reserve Chairman Paul Volcker, former Comptroller of the Currency Eugene Ludwig and former Treasury Secretary Nicholas Brady in which they said such a body could buy up troubled real estate debt to get credit markets working again.

[scottwww]

Originally Posted by gum5h03

If you can't beat em...ban em...

SEC Plans to Temporarily Ban Short-Selling

Of all the moves by the government so far in this financial crisis, this is probably the best.

Short selling in a healthy market is one attractive strategy for those who trade actively. However, it is not a strategy used by the typical investor. It is really a place for the professional investor to make money when buying long won't do it for them.

It's a nice strategy to use, but riskier than buying long. The reason is that long, the most you can lose is your entire investment. Short, you can lose well beyond your investment if the value of the stock you shorted more than doubles.

Since so many of us are invested only long (such as mutual funds) in our IRA and 401k, 403b, etc. the ones who benefit from short selling are generally participating in hedge funds or such activity as is used by qualified investors. By short sellers piling on, it can be a manipulation that effectively strips the middle class of their retirment funds while padding the accounts of the affluent.

To participate in hedge funds, I think you do have to be a qualified investor. The potential for manipulation of the markets to unfairly benefit those who have already made their money is a public concern.

If they didn't do it in this move, it should be considered to also restrict naked options which are used by few casual investors. Speculation can boost market volatility causing greater risk for regular investors and not just for the speculator.

Anyone who is not a short seller should be happy with this news.

[jaiman]

Originally Posted by scottwww

Of all the moves by the government so far in this financial crisis, this is probably the best.

Short selling in a healthy market is one attractive strategy for those who trade actively. However, it is not a strategy used by the typical investor. It is really a place for the professional investor to make money when buying long won't do it for them.

It's a nice strategy to use, but riskier than buying long. The reason is that long, the most you can lose is your entire investment. Short, you can lose well beyond your investment if the value of the stock you shorted more than doubles.

Since so many of us are invested only long (such as mutual funds) in our IRA and 401k, 403b, etc. the ones who benefit from short selling are generally participating in hedge funds or such activity as is used by qualified investors. By short sellers piling on, it can be a manipulation that effectively strips the middle class of their retirment funds while padding the accounts of the affluent.

To participate in hedge funds, I think you do have to be a qualified investor. The potential for manipulation of the markets to unfairly benefit those who have already made their money is a public concern.

If they didn't do it in this move, it should be considered to also restrict naked options which are used by few casual investors. Speculation can boost market volatility causing greater risk for regular investors and not just for the speculator.

Anyone who is not a short seller should be happy with this news.

Funny, I'm not a short seller, and I'm not happy. I generally don' tthink the US should copy the market rules of third world "emerging" economies.

I want short sellers in the market to help ensure that a stocks price includes as much information as possible about the viability of the firm. I'd rather have shorts uncover information about stocks and drive the price lower before I buy, rather than have the info come to light after I'm long.

Naked shorting, however, should be punishable by death.

[nissan]

While it's a legitimate point that most of the short selling is by hedge funds and institutions, I don't see why the govt. should interfere w/the free market to ensure the 'middle class'/longs are protected. That, in itself, is market manipulation. Bad move by the SEC IMO...this is not how a free market economy should operate. It's not surprising, however, given the recent govt. moves w/Fannie, Freddie, AIG etc.

[scottwww]

Could it be argued that the temporary move against short selling is to promote the general welfare? A totally free market may not be the most desirable market. Maybe it's too close to chaos. Wasn't some of the idea of the Constitution designed to protect the general public from the excesses of the powerful?

[nissan]

One goes down a slippery slope using that argument -- at what point is something an "excess" that's harming the general public? Isn't a huge part of this problem the general public itself getting into risky loans. What's next, a govt. appointed financial advisor for each potential homebuyer to ensure they are protected from their own stupidity which can, cumulatively, affect the entire economy?

Ntm. the SEC played a role in getting companies into this mess to begin with by relaxing leverage limits a few years back. There are rules in the stock market. Short sellers followed those rules. Now, you have more rules just b/c companies don't like the outcome of the free market/investors glaring a spotlight on their shitty financial position?

[scottwww]

Originally Posted by nissan

One goes down a slippery slope using that argument -- at what point is something an "excess" that's harming the general public? Isn't a huge part of this problem the general public itself getting into risky loans. What's next, a govt. appointed financial advisor for each potential homebuyer to ensure they are protected from their own stupidity which can, cumulatively, affect the entire economy?

Ntm. the SEC played a role in getting companies into this mess to begin with by relaxing leverage limits a few years back. There are rules in the stock market. Short sellers followed those rules. Now, you have more rules just b/c companies don't like the outcome of the free market/investors glaring a spotlight on their shitty financial position?

I hear your argument. I am in favor of federal government playing a far smaller role in nearly all aspects of our existence.

However, with the middle class mostly not being qualified investors, and primarily invested in retirement accounts, with those accounts regulated to not be able to use short positions, this already has made it not a free market for these people. Qualified investors are enjoying the closest thing to a free market.

Perhaps you would call for deregulation so that retirement accounts can be in hedge funds and short sales and derivatives?

[toofasttooslow]

Think about what will happen when this ban expires. Massive shorting and stock devaluation which will inspire even more panics and runs. We'll be exactly (or worse off) where we were in the past few days. This obviously has not been very well thought out and is a last ditch effort at stalling the inevitable --a full market collapse. Not to mention that it's no longer a free market but rather a government controlled market. It's fairly ridiculous for the SEC to say "You can't trade unless you have a positive impact on share prices right now". If you eliminate the short positions what do you have left? Primarily long's right? What are longs in for? Share gains. It's a very lopsided situation right now.

[nissan]

I see what you're saying about a majority of retail investors. However, there are no regulations that prevent the retail investor from shorting stock themselves as a hedge or, albeit w/more risk, for income generation. Yes, qualified investors get the benefits of having a HF manager making the calls and dealing with complex trades/positions, but who said things had to be fair for people at varying levels of income? Rich ppl will generally be able to afford the best lawyers, accountants, tax pro's, fin. advisors, etc. Yet, it would be pretty ridiculous for us to say that the middle class deserves the same quality of professional despite it being the case that these "better" professionals generally will win more cases, help you avoid more taxes, and plan your estate better than others.

I'm all for protecting the middle class and retail investors. However, there has to be a point where the govt. stops babysitting people and let markets work w/o outside interference. I also question the motive of the SEC/Fed/Treasury here. Do you think Paulson would have given a rats a$$ if the CEOs of GM and Ford came running to him one random day complaining that their stock had been battered for no other reason than short sellers? Paulson seems bent on doing anything to protect his beloved Goldman from any bad happenings in the market.

At the end of the day, short sellers provide an important function in the marketplace themselves. It's easy for everyone to make money in bull markets where everything goes up. Shorts are there bringing light to the truly troubled companies and, for that, they should be allowed to profit just like any other [long] investor who ID's a company that's the next best thing and can profit from its share price rising.

EDIT: Exactly, Gum5. This is market manipulation in itself by the SEC to ensure stocks stop their freefall. Shorts are screwed themselves and have no choice but to cover it which is a lot of the reason for these huge gains. Of course, when the ban is lifted, we'll likely see the same happen -- firms w/questionable financial stability will be shorted and for good reason.

[scottwww]

Originally Posted by nissan

I see what you're saying about a majority of retail investors. However, there are no regulations that prevent the retail investor from shorting stock themselves as a hedge or, albeit w/more risk, for income generation. Yes, qualified investors get the benefits of having a HF manager making the calls and dealing with complex trades/positions, but who said things had to be fair for people at varying levels of income? Rich ppl will generally be able to afford the best lawyers, accountants, tax pro's, fin. advisors, etc. Yet, it would be pretty ridiculous for us to say that the middle class deserves the same quality of professional despite it being the case that these "better" professionals generally will win more cases, help you avoid more taxes, and plan your estate better than others.

I'm all for protecting the middle class and retail investors. However, there has to be a point where the govt. stops babysitting people and let markets work w/o outside interference. I also question the motive of the SEC/Fed/Treasury here. Do you think Paulson would have given a rats a$$ if the CEOs of GM and Ford came running to him one random day complaining that their stock had been battered for no other reason than short sellers? Paulson seems bent on doing anything to protect his beloved Goldman from any bad happenings in the market.

At the end of the day, short sellers provide an important function in the marketplace themselves. It's easy for everyone to make money in bull markets where everything goes up. Shorts are there bringing light to the truly troubled companies and, for that, they should be allowed to profit just like any other [long] investor who ID's a company that's the next best thing and can profit from its share price rising.

EDIT: Exactly, Gum5. This is market manipulation in itself by the SEC to ensure stocks stop their freefall. Shorts are screwed themselves and have no choice but to cover it which is a lot of the reason for these huge gains. Of course, when the ban is lifted, we'll likely see the same happen -- firms w/questionable financial stability will be shorted and for good reason.

I mostly agree would with what you are saying if this were a permanent condition to stop short selling. But it is temporary.

When short selling is restarted, I think that the crisis will largely have subsided in the minds of the general public. This will help prevent a market panic that would cause a great crash.

Since it appears that you are advocating no SEC intervention, would you also advocate for all investors to have at least the same freedom from rules in all their accounts as qualified investors have in their non-retirement accounts?

[toofasttooslow]

The stopping of short selling might stop the bleeding temporarily but sometimes it's better to let these institutions fail. The survival of the fittest so to speak. In addition, if we bail them out like we have been what lessons are they really learning? They're learning they can do things like this and get away with it. Not a very good precedent to set to a bunch of greedy money grubbing whores.

[RBBMWE46M3]

Get ready to pay more on your new federal mortgage (income taxes) to the tune of 500 Billion dollars more + interest of course that will go to you guessed it...the banks.

What the hell does a federal mortage have to do with income tax? and what is a federal mortage?

[scottwww]

Ban on short-selling could distort market

TARGETED?: On Wall Street, professional short-sellers said they were unfairly picked out by the government, and analysts said the ban could distort already edgy markets

AP, WASHINGTON
Sunday, Sep 21, 2008, Page 11

The US government’s unprecedented move on Friday to ban people from betting against financial stocks might be a salve for the market’s turmoil but could also carry serious unintended consequences.

In a bid to shore up investor confidence in the face of the spiraling market crisis, the Securities and Exchange Commission temporarily banned all short-selling in the shares of 799 financial companies. Short selling is a time-honored method for profiting when a stock drops.

The ban took effect immediately on Friday and extends through Oct. 2. The SEC said it might extend the ban — so that it would last for as many as 30 calendar days in total — if it deems that necessary.

The short-selling ban is “kind of a time-out,” said John Coffee, a professor of securities law at Columbia University. “In a time of crisis, the dangers of doing too little are far greater than the dangers of doing too much.”

But on Wall Street, professional short-sellers said they were being unfairly targeted by the SEC’s prohibition. And some analysts warned of possible negative consequences, maintaining that banning short-selling could actually distort — not stabilize — edgy markets.

Indeed, hours after the new ban was announced, some of its details appeared to be a work in progress. The SEC said its staff was recommending exemptions from the ban for trades market professionals to hedge their investments in stock options or futures.

“I don’t think it’s going to accomplish what they’re after,” said Jeff Tjornehoj, senior analyst at fund research firm Lipper Inc.

Without short sellers, he said, investors would have a harder time gauging the true value of a stock.

“Most people want to be in a stock for the long run and want to see prices go up. Short sellers are useful for throwing water in their face and saying, ‘Oh yeah? Think about this,’” Tjornehoj said.

As a result, restricting the practice could inflate the value of some stocks, opening the door for a big downward correction later.

“Without offering a flip-side to the price-discovery mechanism, I think there’s a pressure built up in stock prices that only gets relieved in a great cataclysm,” he said.

Short selling involves borrowing a company’s shares, selling them, and then buying them to return them to the lender later, when the stock falls. The short-seller pockets the difference in price.

Although the practice can make markets more efficient and bring in more capital, the government argues that it has widened the scope of the recent financial crisis and contributed to the collapsing values of investment and commercial bank stocks in particular.

Government officials on both sides of the Atlantic have been denouncing hedge funds and other short sellers they say have swarmed over the limp bodies of venerable investment banks and other big companies. New York Attorney General Andrew Cuomo likened them to “looters after a hurricane,” and his office is investigating a possible conspiracy among short-sellers to spread negative rumors to pound companies’ stock prices down.

The turmoil in recent weeks has swallowed some of the most storied names on Wall Street. Three of its five major investment banks — Bear Stearns, Lehman Brothers and Merrill Lynch — have either gone out of business or been driven into the arms of another bank. Many contend that short-selling played a key role in forcing the collapse of these institutions.

Over the summer, the SEC imposed a 30-day emergency ban on “naked” short selling — where sellers don’t actually borrow the shares they sell — in the stocks of mortgage finance giants Fannie Mae and Freddie Mac and 17 large investment banks. But Friday’s ban expanded to all short selling, not just the more aggressive naked variety, and to a much wider universe of companies.

However, investors still have ways to place bearish bets: by trading in options that turn profitable when a stock drops.

Jim Chanos, a prominent short seller and president of a US$7 billion hedge fund, Kynikos Associates, called short-selling a “vital investment strategy” and said banning the practice “will not enhance long-term market integrity.”

He said that investment banks’ bad bets on risky assets — not predatory short-sellers — were the true cause of the steep declines in the stock price of financial firms.

“Far from being the cause of the crisis, many short sellers were warning months and years ago about problems in this area,” Chanos said in a statement.

[toofasttooslow]

Originally Posted by scottwww

Ban on short-selling could distort market


He said that investment banks’ bad bets on risky assets — not predatory short-sellers — were the true cause of the steep declines in the stock price of financial firms.

Well duh! But shorts are the badguys now because Merril said so...

If the investment houses weren't such greedy a-holes they would never have had this short problem in the first place!

[toofasttooslow]

Originally Posted by RBBMWE46M3

What the hell does a federal mortage have to do with income tax? and what is a federal mortage?

Who exactly do you think will ultimately pay for all of this? No such thing as a federal mortgage, it was meant to be sarcasm.