The Current U.S. Recession and the Risks of a Systemic Financial Crisis

<p>"Finally, the widespread use of the FHLB system to provide liquidity – but more clearly bail out insolvent mortgage lenders – has been outright reckless. Countrywide alone – the poster child of the last decade of reckless and predatory lending practices – received a $51 billion loan from this semi-public system; in the absence of this public bailout Countrywide would have ended up where it should, i.e. into outright bankruptcy. And the largesse of the FHLB system does not stop at Countrywide. <u>A system that usually provides a lending stock of about $150 billion has forked out loans amounting to over $750 billion in the last year </u>with very little oversight of such staggering lending. The risk that this stealth bailout of many insolvent mortgage lenders will end up costing massive amounts of public money is now rising. "</p>

<p>This ticks me OFF!!!!!!!!!!! And that jackass walked off with a golden parachute? WTF! Such BS! </p>
 
<p><strong>So I guess what I'm hearing is that we're kinda </strong></p>

<p><img alt="" src="http://www.uploadandgo.com/images/1_FUCKED.jpg" /></p>

<p> </p>
 
<p>Our one advantage is that our debt is in dollars - Germany was in Gold, and Argentina was in Dollars. So we can always print more dollars. Not sure why they only forcast a 20%-30% decline in housing. I think it could be much worse. So far we have been trying to follow what Japan did (and we are failing at it). Japan had a much stronger currency, as it was and is a creditor nation. As Ben lowers interest rates, and inflation increases the 10yr bond should go up - and interest rates on houses. Japan's medium house price fell 70% over 12 years. How could that happen here? It is a cycle that feeds on itself. For every dollar a bank loses it must lend out 10 dollars less. Houses go down, Banks take loses, so they lend less, so houses go down more, so bank lends less, and so on. What are banks doing now, taking away HELOC's, next they reduce your credit card line. </p>
 
<p><em>This has been the unfortunate topic of discussion at the dinner table lately. Right now the struggle between my wife and I is between keeping our cash in the high interest savings account or moving it to the safe. She wants to at least match inflation, but I'm more worried that we won't be able to get to it when the fit hits the shan.</em></p>

<p><em>Anyone got some advice?</em></p>




Nude,





Some people I have read about are all moving there cash into <a href="http://www.treasurydirect.gov/">Treasury Direct</a> accounts... Don't know much on the subject, might be a place to start...
 
<p>Treasurydirect.gov</p>

<p>Accounts are a pain to set up, but worth it since they are safe. Since its the goverment.</p>

<p>However, short term yields are puny now.</p>

<p>1month 2/28: 2.363%</p>

<p>3month 2/28: 2.208%</p>

<p>6month 2/28: 2.127%</p>
 
<em>Nanowest says:





I find this to be a very interesting article, a little extreme though. </em>





My gawd... what is this world coming to? Dr. West is known as on of the biggest pessimistic bears on Lansner's blog, and if the bulls. er bull only knew he was not nearly as extreme as Roubini, then I don't want to know what they think of Roubini.
 
So I went to the bank this morning and withdrew my CD money. The teller asked me if I was getting a better rate elsewhere. I responded that I was investing it in Non-CD investments. She said it was a smart idea to invest in precious metals these days with the dollar tumbling along with the CD rates.



Just got me thinking about how short sighted the Fed Reserve's approach to handle the financial quagmire is. I mean if we were to just list the pros and cons of the fed's decision, you could clearly see that the risks outweigh the returns on the current Fed economic policy. The mindless cut in rates has seen people go from nervous to jittery. People want to pull out their money from banks which are already starved of liquidity. Savvy investors will send their money abroad to invest in regions where the rate of return is much better than here in America. What with the stock markets being as volatile as they are and looking bleaker in the future? And why do I spend that so to say "fat" check from IRS when I do not have confidence about tomorrow? The fed's policy is raising inflation, encouraging people not to save, raising the risk margin on all kinds of loans and causing people to lose their confidence in this government and its ability to get us out of the mess. The government's relief measures are battering the value of the US dollar and making it harder for the average American to live within his/her means due to rising costs of consumables which originate primarily from foreign imports (aka oil, consumables, toys, clothes).



All this points to the erosion of American values to the point where everyone in the White house and in the Fed Reserve is concerned about job preservation and do not care as much about what a financial mess our great country is heading towards.
 
<p><em>"Roubini is very pessimistic. He's been predicting this was imminent for years. There are other well-founded views."</em></p>

<p>There are lots of other views, most of them well-founded, but they have been wrong and Roubini has been right, well-founded or not.</p>
 
<p><em>"She said it was a smart idea to invest in precious metals these days with the dollar tumbling along with the CD rates."</em></p>

<p>The day a teller starts advising precious metals is the day I start getting nervous about precious metals.</p>
 
You are probably right awgee. I did not care as much for her advice as for the fact that tellers are getting quite familiar with people pulling out their money and looking for alternative means to invest.
 
<p>purplehaze,</p>

<p>The Fed is caught between a rock and a hard place. On the one hand, he can allow inflation to run rampant while tanking the dollar, on the other hand he can allow the complete collapse of the banking system when no one was prepared for it. He waited until the last possible minute to begin cutting rates because he knew inflation was going to be the result, but had he waited any longer there would have been no way to save the banks, big and small, from being taken over by the FDIC. Dropping the interest rates allows them to refinance some debt at lower rates, saving them from having to report losses caused by the credit crunch. Those losses would have been on top of the ones already taken on the multiple forms of ABS that tanked. 5.5% to 3% is a large enough change to prevent banks in trouble from being closed or worse, and creating the Term Auction Facility has gone a long way towards keeping the credit markets from completely locking up.</p>

<p>Now, I suppose he could have ignored all that and focused on inflation and the strength of the dollar, but where would that have left us? Standing in lines outside banks, demanding money that they don't have to give while businesses and governement closed down due to lack of any fundng? How happy would you be then, even if the dollar index was @ 100 and the real inflation rate was under 2%? Having seen the current state of the banking system in the last few days, the Fed actions make more sense to me than they ever have before. Having to choose between two evils, Ben's chosen the one he thinks is survivable and so far (knock on wood) it's working. </p>
 
Nude,

If you believe that delaying the inevitable i.e. the collapse of the banking system is a good strategy rather than letting the system self correct, then we definitely have a different perspective on how to deal with the problem. I would rather cut my losses today than suffer a systematic loss distributed over a longer period of time. I understand the Fed's predicament, but I do not agree that staving it off for as long as is possible is not going to create additional problems to deal with. These additional problems could draw this crisis much longer than a self correction.

I appreciate your counter view all the same.

Cheers,

PH
 
<p>ph,</p>

<p>With all due respect, the collapse of the banking system today would be several orders of magnitude worse that is was 80+ years ago. Trying to prevent it, even if it ultimately proves impossible, is the main purpose of the Federal Reseve. Minimizing inflation would be meaningless in a world with no functional banking system. Advocating anything that would provoke that collapse is short-sighted, dangerous, and completely evil. Slowly eroding the purchasing power of the dollar, even intentionally, is a heroic act in comparison. If this were being done on it's own, I agree that it would deserve scorn and I would be demanding Ben's head on a platter. But in contrast, I'm rooting for him to pull it off even it means bread is $4 a loaf and gas is $6 a gallon because the alternative means a five-fold increase in unemployment, bankrupt cities with no fire, police, or emergency services, rampant looting and violent crime due to lack of authorities to deter it, stores that cannot sell even $4 bread because they don't have ANY, etc.</p>

<p>We have different perspectives alright, and from where I am sitting, yours scares me to death.</p>
 
<p>And the Oscar for gold price prediction goes to ....</p>

<p><a href="http://www.bloomberg.com/apps/news?pid=20601109&sid=am.TmEULuVpo&refer=home">http://www.bloomberg.com/apps/news?pid=20601109&sid=am.TmEULuVpo&refer=home</a></p>
 
Agree with Nude on the banking crisis. At my school you can't even pay cash for parking - credit card only. No banking, no parking. No internet commerce either. A banking system collapse would literally bring the world to a halt.



Re Roubini - he's been right in 2007. But he was wrong before then.
 
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