The Incredibly Shrinking Dollar!

[Dwight Drane]

If you're shocked about something, then likely your mind has been changed in some fashion...

 

Good point. This is the second major event that has led me away from the Republicans. I used to donate and defend...until Katrina happened. I have still trended Republican in ideas, or almost Libertarian....you know, don't tell me what to do or think, and trust me to know what is best for my own good. Instead a person who is ahead of the curve and makes what should be sound decisions ends up getting punished in the end. How can you do the rah-rah to the flag BS when you don't defend the pricipal of free will at it's most important juncture? That is what it is all about.....own it like a man.

 

It's pretty much an integrity issue I guess. Just don't set expectations too high.

[GG]

Good point. This is the second major event that has led me away from the Republicans. I used to donate and defend...until Katrina happened. I have still trended Republican in ideas, or almost Libertarian....you know, don't tell me what to do or think, and trust me to know what is best for my own good. Instead a person who is ahead of the curve and makes what should be sound decisions ends up getting punished in the end. How can you do the rah-rah to the flag BS when you don't defend the pricipal of free will at it's most important juncture? That is what it is all about.....own it like a man.

 

It's pretty much an integrity issue I guess. Just don't set expectations too high.

 

Or a cynic would say that you're pi$$ed because you were on the wrong side of a trade that went south with the Fed action. I can't see any other reason why a person who makes a living in the market isn't breathing a sigh of relief this week.

[Dwight Drane]

Wait, I'm confused. Are you implying that, had the Fed not bailed out Bear and instead thrown the credit markets over a cliff, foreclosures would have slowed down? Is this some sort of argument that, while the entire financial industry should suffer for their egregiously bad decisions, the individual homeowner who bought with a negatively amortized adjustable rate interest-only loan with a balloon payment five years out "because otherwise we couldn't afford a house" shouldn't suffer for their egregiously bad decisions?

 

Not that important a point, really...it just struck me as a really bizarre observation to stick in there.

 

 

No...everyone should suffer, or nobody should suffer. If we are all walking to the park on our own in the rain, and a bus pulls up to let us all on, I don't expect the driver to decide who pays and who gets on for free. If the bus has room, take everyone on. Or, don't send the bus and let the kids learn that walking in the rain because you want to play will get you pneumonia. Sure, it will cost you more and take more effort to take the kids to the doctor and the hospital afterwards....but sometimes you just have to let someone learn on their own.

[Dwight Drane]

What's not "fair" is Bear not knowing their liquidity position last week and becoming insolvent on Thursday. Fed took the prudent action to open the discount window for other major broker dealers.

The stock is trading up because it's a reasonable call option on the company. Note that the stock didn't jump back to $30. (how much did you make on those Lehman puts you bought yesterday, btw?)

 

And if Bear still ends up in Ch. 11, the Fed is off the hook, JPM walks and you have an orderly liquidation. Again, why the harangue over an averted disaster? The downside was much greater than crying about the Fed doing its job in restoring the sanctity of the US financial system.

 

What do you do for a living.....I know you have a good economics background, but are you a teacher or do you work for the government?

[GG]

No...everyone should suffer, or nobody should suffer. If we are all walking to the park on our own in the rain, and a bus pulls up to let us all on, I don't expect the driver to decide who pays and who gets on for free. If the bus has room, take everyone on. Or, don't send the bus and let the kids learn that walking in the rain because you want to play will get you pneumonia. Sure, it will cost you more and take more effort to take the kids to the doctor and the hospital afterwards....but sometimes you just have to let someone learn on their own.

 

Again, who would you have liked to be punished if Bear filed on Sunday night? The bus driver? The school kids?

[Dwight Drane]

Or a cynic would say that you're pi$$ed because you were on the wrong side of a trade that went south with the Fed action. I can't see any other reason why a person who makes a living in the market isn't breathing a sigh of relief this week.

 

I have made plenty of bad trades in my life. You could say a good trade was losing 60 of the 100 contracts at the close yesterday with the Fed coming up.

 

 

You can't see any other reason I am not breathing a sigh of relief because you value money over ethics. I am not saying that is the wrong decision for you, but it is for me. Yesterday was another "wizzard behind the curtain" moment, that's all. You can argue actions were taken in the best interest of the country at the time, but it was totally against the spirit of free markets and free will. The speakeasy avoided the raid for this weekend.

[TPS]

Geez, I go on my annual golf weekend and miss the best discussion in years! Good stuff guys. I can't even find a post where I disagree with GG. I would add that the creation of the Fed was instigated by Mr JPMorgan himself because he didn't want to have to put up his own (bank's) money to stave off the next crisis as he did in 1907.

 

A few other things to add:

- The Fed has really only two goals/functions: trying to maintain price stability; and maintaining trust/confidence (via ensuring adequate liquidity) in the system. In times of crisis, price stability goes out the window.

- A friend of mine's wife has been emailing me articles relating to the moral hazard issue, asking why shouldn't people have to "pay for their mistakes" (buying houses beyond their means)? My friend owns the best restaurant in my home town of Riverside (county), CA--the capital of mortgage defaults. I asked her, what would you rather have happen: make these people pay for their mistakes, or keep the restaurant in business? The FED is not trying to prevent a recession--we're in one; rather, it's trying to prevent a depression.

- My favorite economist, the late H. Minsky, has a book titled "Can IT Happen Again?" IT being a depression. He argued IT could NOT happen again because of a large government sector which stabilizes aggregate demand, and the Fed's "lender of last resort" function which ensures liquidity in times of crisis. This current environment is the most severe test of this view. While I joked in a response to GG that we're in a depression, I do believe that adequate monetary and fiscal policies can prevent IT from happening again. However, I also have to believe that there are some serious deals being made with those countries (China, Japan, OPEC countries) that hold significant $ assets, getting them to refrain from selling off these assets until things have "settled down." ??? Pure speculation on my part.

- Love "The Drane's" posts. However, I have to ask if you believe we really had a "capitalist system" before this crisis?

- Last point, this crisis reminds me a bit of the South American debt crisis of the 1980s. The solution then (The "Baker Plan") was to let banks carry "dead assets" for several years, slowly writing them off. It was manageable because banks' assets were more diversified.

- Great time to be teaching economics.

[Dwight Drane]

Again, who would you have liked to be punished if Bear filed on Sunday night? The bus driver? The school kids?

 

If everything went down, I would be in trouble since most of my profits are tied into our accounts. It doesn't matter. Sometimes you just have to sit there and take a good a$$whooping.

 

What has happened leaves me much in the same emotional state as homerun throwback. As the play was happening, I didn't care because I knew a flag was on the field. Then when there wasn't a flag I was sort of nervous, but figured it had to be reversed by replay. After it wasn't reversed, I couldn't believe it. The fact that it wasn't reversed in itself wasn't the shocking thing, it was the progression of events, starting with the fact that a flag would probably be thrown on that play 90% of the time. It is a close call, but you are forced to accept the 10% of the time that it plays through.

 

PS...it is what it is. Tennessee thinks they are right, Buffalo fans think they got jobed, both points are valid given the chain of events.....everyone lost in the end anyway.

[Chilly]

More like: if you never cease to be shocked at people never changing their minds, your not terribly open to changing yours...

 

Blarg. Too many damned negatives.

[GG]

If everything went down, I would be in trouble since most of my profits are tied into our accounts. It doesn't matter. Sometimes you just have to sit there and take a good a$$whooping.

 

What has happened leaves me much in the same emotional state as homerun throwback. As the play was happening, I didn't care because I knew a flag was on the field. Then when there wasn't a flag I was sort of nervous, but figured it had to be reversed by replay. After it wasn't reversed, I couldn't believe it. The fact that it wasn't reversed in itself wasn't the shocking thing, it was the progression of events, starting with the fact that a flag would probably be thrown on that play 90% of the time. It is a close call, but you are forced to accept the 10% of the time that it plays through.

 

It still doesn't answer the question. What principle are you talking about. The Fed's action is very consistent with similar crises over the last 20 years. There's no way the Fed was going to, nor should it have, let a primary dealer collapse in such a surprising fashion. Anyone thinking otherwise should read up history again and not make a bet against the Fed.

[Dwight Drane]

It still doesn't answer the question. What principle are you talking about. The Fed's action is very consistent with similar crises over the last 20 years. There's no way the Fed was going to, nor should it have, let a primary dealer collapse in such a surprising fashion. Anyone thinking otherwise should read up history again and not make a bet against the Fed.

 

The Fed didn't make an earth-shattering, hundreds of billions of dollars decision on a Sunday night, chosing who lived and who died in a span of 12 hours during the S+L crisis.

 

Assuming my only play was buying out of the money puts on banks, you have a valid arguement to say it is a sucker's bet. Me betting on the end of the system would be like betting someone that the end of the world will happen by a certain date. I could never collect. Sure, I may cash in 40x on some contracts, but the stock market would probably close for weeks along with the banks, who knows if the contract is still valid, who wrote it, if my clearing house is still in business, if the FDIC is still in business, etc. That is why you trade what you see happening and invest in what you know is happening. I am a value guy all the way, which is why I sort of disdain the credit bubble itself.

 

You can still bet against the Fed. Volatility is going to be up not just in the markets, but in the world current events. Desperate times require the measures as well. Now it's time to look at the next chain of events since this one is starting to really roll now.

[GG]

The Fed didn't make an earth-shattering, hundreds of billions of dollars decision on a Sunday night, chosing who lived and who died in a span of 12 hours during the S+L crisis.

 

Assuming my only play was buying out of the money puts on banks, you have a valid arguement to say it is a sucker's bet. Me betting on the end of the system would be like betting someone that the end of the world will happen by a certain date. I could never collect. Sure, I may cash in 40x on some contracts, but the stock market would probably close for weeks along with the banks, who knows if the contract is still valid, who wrote it, if my clearing house is still in business, if the FDIC is still in business, etc. That is why you trade what you see happening and invest in what you know is happening. I am a value guy all the way, which is why I sort of disdain the credit bubble itself.

 

You can still bet against the Fed. Volatility is going to be up not just in the markets, but in the world current events. Desperate times require the measures as well. Now it's time to look at the next chain of events since this one is starting to really roll now.

 

I was actually referring to the wind downs of LTCM and Enron, along with a close watch over Drexel, Salomon, & Kidder sales.

[East Brady]

The FED is not trying to prevent a recession--we're in one; rather, it's trying to prevent a depression.

As usual the Fed is protecting the elite at the expense of those on the bottom. They have avoided more than just a depression, it's called a Revolution, and most don't have the stomach to watch that.

 

Just par for the course, the top 1/10th vs the bottom 99.9, this has been happening about every ten years now, like clock work.

 

It's long past time to break out the shovels and pitch forks!!

 

What's next another war, fought, bought, and paid for by the average guy to protect their rotten asses?

 

Hey, I don't remember getting to vote for anyone associated with the Fed., yet they control all the money,

and we get to pay for all their stupid greedy mistakes. Free market, thats like saying we have had fair elections in this country, they simply don't exist, never have. I live for the day I can watch the pigs at the top hiding in their ivory towers with their knee's knockin, F' them.

[East Brady]

Read it and weep:

 

The Federal Reserve debunked

In recent American history, remarkable and knowledgeable authorities denounced the racket of the Federal Reserve. Here are some of their quotes:

Wright Patman (1893-1976) was a Democratic representative from Texas, who served in the U.S. Congress from 1929 to his death on March 7, 1976. He was chairman of the House of Representatives Committee on Banking and Currency for 40 years. For 20 of those years, he introduced legislation to repeal the Federal Reserve Banking Act of 1913.

Here are excerpts from what he said on September 29, 1941, as reported in the Congressional Record of the House of Representatives (pages 7582-7583):

“When our Federal Government, that has the exclusive power to create money, creates that money and then goes into the open market and borrows it and pays interest for the use of its own money, it occurs to me that that is going too far. I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money... I am saying to you in all sincerity, and with all the earnestness that I possess, it is absolutely wrong for the Government to issue interest-bearing obligations. It is not only wrong: it is extravagant. It is not only extravagant, it is wasteful. It is absolutely unnecessary.

“Now, take the Panama Canal bonds. They amounted to a little less than $50,000,000 — $49,800,000. By the time they are paid, the Government will have paid $75,000,000 in interest on bonds of less than $50,000,000. So the Government is paying out $125,000,000 to obtain the use of $49,800,000. That is the way it has worked all along. That is our policy. That is our system. The question is: Should that policy be continued? Is it sane? Is it reasonable? Is it right, or is it wrong? If it is wrong, it should be changed.

“Now, I believe the system should be changed. The Constitution of the United States does not give the banks the power to create money. The Constitution says that Congress shall have the power to create money, but now, under our system, we will sell bonds to commercial banks and obtain credit from those banks.

“I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they will actually blame you and me and everyone else connected with this Congress for sitting idly by and permitting such an idiotic system to continue. I make that statement after years of study.

“We have what is known as the Federal Reserve Bank System. That system is not owned by the Government. Many people think that it is, because it says `Federal Reserve'. It belongs to the private banks, private corporations. So we have farmed out to the Federal Reserve Banking System that is owned exclusively, wholly, 100 percent by the private banks — we have farmed out to them the privilege of issuing the Government's money. If we were to take this privilege back from them, we could save the amount of money that I have indicated in enormous interest charges.” (End of Patman's 1941 speech.)

Under Patman, a little booklet summarizing his views, in the form of questions and answers, called “A Primer On Money”, was prepared by the Sub-committee on Domestic Finance, House of Representatives, Committee on Banking and Currency — 88th Congress, 2nd session, August 4th, 1964. Here are excerpts:

Q.: Who has the right to create money in the United States?

A.: Under the Constitution, it is the right and duty of Congress to create money. It is left entirely to Congress.

Q.: To whom has the Congress delegated this money-creating right?

A.: To the banking system, that is, to the Federal Reserve System and to the commercial banks of the country.

Q.: If the Government can issue bonds, why can't it issue money, and save the interest?

A.: A few clear-headed and firm individuals, such as Abraham Lincoln, have insisted that the Government should.

The late Thomas A. Edison stated the matter this way: If our Nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good also. It is absurd to say that our country can issue $30 million in bonds, and not $30 million in currency. Both are promises to pay: but one promise fattens the usurer, and the other helps the people.

However, it has long been one of the political facts of life that private banks must be allowed to create the lion's share of the money, even if not all of the money. Thus there is little opposition to the Government's printing bonds, and then permitting the banks to create the money with which to buy those bonds; but proposals that the Government itself create the money instead of the bonds have always set off tremendous political upheavals. For example, Abraham Lincoln set off a political furor when he insisted upon having the Government issue $346 million in money (the so-called “greenbacks”) instead of issuing interest-bearing bonds, and paying interest on the money.

Q.: If the Government issued more money instead of Government bonds, isn't there a danger that the Government would issue too much money, and cause inflation?

A.: No. It is no more or no less inflationary for the private banks to create $1 billion of new money than it is for the Government to create $1 billion of new money. Furthermore, as an agency of the Government, the Federal Reserve System decides in any case the total amount of money to be created.

Louis Thomas McFadden (1876-1836) was chairman of the House Committee on Banking and Currency from 1920 to 1931. He said, on June 10, 1932:

“We have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks, hereinafter called the Fed. The Fed has cheated the Government of these United States and the people of the United States out of enough money to pay the nation's debt. The depredations and iniquities of the Fed has cost enough money to pay the national debt several times over. ”

Jack Metcalf, Washington State Senator for 20 years, and U.S. Congressman from 1995 to 2000, a republican senator in Washington, waged a war to abolish the Federal Reserve and restore to Congress its power to issue money, a power that is clearly stated in the U.S. Constitution:

”Our most basic document, the U.S. Constitution, states in Article 1, Section 8: `The Congress shall have the power to coin money and regulate the value thereof.' Nowhere is there the slightest hint of authorization to delegate that power even to another governmental institution — much less to a private banking system. That is absolutely outside the most broad interpretation possible.”

In 1986, Metcalf single-handedly persuaded the National Conference of State Legislators to endorse unanimously a resolution urging states to challenge the constitutionality of the Federal Reserve. He wrote a book, “The 200-year debate”, and undertook a campaign to educate the population on the workings of the banking system. One of his favorite ways to explain the workings of the Fed is to tell the story of the “Federal Reserve saloon”:

“Four cowboys put up their belongings as collateral to borrow a deck of cards. The hitch is that each of he four must bring back 14 cards at the and of be evening — a mathematical impossibility (there are only 52 cards in all, that is to say, 13 to each). In the end, one player ends up with only 10 cards and loses his belonging... that is the problem with be fed. It creates money to make loans the doesn't create the money to pay the interest.”

 

 

 

 

 

The Fed= just another scam run by the Elite, top vs. bottom people.

[GG]

Read it and weep:

 

 

The Fed= just another scam run by the Elite, top vs. bottom people.

 

Mightily educational to introduce lunatic ramblings from 50 years ago to justify a position today.

[molson_golden2002]

I know no one here other than stuckincincy remembers it first-hand...but haven't people at least read about 1929? Wasn't the Federal Reserve created in response to the banking collapse back then, with the mission of mitigating or avoiding a similar crisis?

 

And didn't they just do their job? I have no problem seeing stupid people get punished for it (and believe me, I can't wait until it's Countrywide's turn)...but are we really wishing for the same sort of implosion that precipitated the Great Depression?

Don't see how this is true. JPM has to pay back the Fed, and absorb Bear Stearns' asset valuations against their balance sheet. The Fed either gets their loan repaid or - worst case - would get the underlying collateral (presuming they have a senior claim on it). The only issue for the Fed is the value of the collateral relative to the amount of the loan - which I haven't seen numbers on - versus the risk of the entire sector collapsing.

Do they? Are you sure about that?

[East Brady]

Mightily educational to introduce lunatic ramblings from 50 years ago to justify a position today.

Typical response from those that fail to admit the truth. Nothing has changed has it?

 

Next you'll be telling me that the Fed is owned by the people and we the people control it. Yet members of congress have stated repeatedly for damn near 100 years that, this is simply not the case.

 

What has change today, nothing, we pay interest to a private bank for public money.

 

I guess all those dead presidents were wrong in your world. The congressional record is full of information on the banking system, just because you can't believe it, doesn't make it false.

[molson_golden2002]

I guess stagflation is the lesser of the evils?

We pay one way or the other for the welafe for the rich. Funny how easy it is to print money and let prices rise. Imagine i the solution was to raise taxes

[GG]

Typical response from those that fail to admit the truth. Nothing has changed has it?

 

Next you'll be telling me that the Fed is owned by the people and we the people control it. Yet members of congress have stated repeatedly for damn near 100 years that, this is simply not the case.

 

What has change today, nothing, we pay interest to a private bank for public money.

 

I guess all those dead presidents were wrong in your world. The congressional record is full of information on the banking system, just because you can't believe it, doesn't make it false.

 

Fail to see the truth about what? That a bond that pays out interest over a 100-yr time frame will bear more in total interest payments than the principal obligation? Simply shocking. And that folks, is the basis for getting rid of the Fed.

[meazza]

Do they? Are you sure about that?

 

That was the whole deal...