Fucked Yen : Dollar Oil Politics

[Big Booger]

I look at a lot of this shit as normal. It has happened in the past and it will happen yet again in the future. I would have liked to see more of these huge banks fail, those responsible left on the hook, and the investors losing their shirts. Instead you have fucking tax payers bailing these fucks out and soaking up massive amounts of future debt for generations to come. What a fucking scam.

Fuck all those banks, bankers and overpaid CEOs who really shit all over the American tax payers by running their banks into a mess like the sub-prime mortgage crisis that has struck America. They deserve to go belly up, have to file bankruptcy, close down and then for future banks to be hit with some serious oversight and regulation.

[omae mona]

I look at a lot of this shit as normal. It has happened in the past

No it hasn't. Not on this scale.

and it will happen yet again in the future. I would have liked to see more of these huge banks fail, those responsible left on the hook, and the investors losing their shirts. Instead you have fucking tax payers bailing these fucks out and soaking up massive amounts of future debt for generations to come. What a fucking scam.

Agree with the sentiment, but the reason for this weekend's failures is that the Fed explicitly said they will not bail them out. Not sure if you realized that. Paulson told them there was "no political will" for more taxpayer-funded rescues. That was the end of the line. Potential suitors pulled their offers off the table for Lehman once they realized the government would not provide any guarantees, so Lehman had to file their chapter 11. This led to the BAC/MER deal immediately.

[Greji]

Agree with the sentiment, but the reason for this weekend's failures is that the Fed explicitly said they will not bail them out. Not sure if you realized that. Paulson told them there was "no political will" for more taxpayer-funded rescues. That was the end of the line. Potential suitors pulled their offers off the table for Lehman once they realized the government would not provide any guarantees, so Lehman had to file their chapter 11. This led to the BAC/MER deal immediately.

It's the about biggest since Drexel blew a tire in the Junk Bond fandango in 1990 and WorldCom in 2002. But this time everyone is laying the blame on the CEO Tricky Dick Fuld. He maneuvered them into the sub-prime mortgage markets and then refused to lay off his bets. He turned down a sale of about a quarter of the firm to the Korean Development Bank saying their offer wasn't high enough and he had another chance to off half of the company to China's CITIC Securities and let that fall through because of the price. Too late now.

It looks like they broke the existing Word Bankruptcy record as Lehman had about $639 billion in assets at the time of filing, while previous record holder WorldCom had about $107 billion when it filed for bankruptcy protection in 2002. But not all is lost as Tricky Dick purportedly got a 22 million dollar bonus this last March for their bonus profit last year.

[Takechanpoo]

By the way,
The burglar who financed Horie Takahumi, Live door, 80 billion yen is Lehman.

[Catoneinutica]

Lehman Lists Debts Of $613 Billion In Chapter 11 Filing Monday

http://money.cnn.com/news/newsfeeds/articles/djf500/200809150751DOWJONESDJONLINE000296_FORTUNE5.htm

[INDENT]AOZORA of Tokyo is listed as the largest bank lender, with a loan of $463 million. Next is Mizuho Corporate Bank Ltd. of Tokyo, with a $289 million loan.

Additionally, Lehman listed as unsecured debts a $275 million bank loan from Citibank, a $250 million bank loan from BNP Paribas, a $231 million bank loan from Japan's Shinsei Bank Ltd., a $185 million bank loan from UFJ Bank Limited of Japan, a $177 million bank loan from Sumitomo Mitsubishi Banking Corp. of Tokyo and a series of other sizable bank loans.

Mizuho Corporate Bank, Shinkin Central Bank, and Chuo Mitsui Trust & Banking, all of Japan, the Bank of Nova Scotia's Singapore branch, Lloyds Bank in New York, Hua Nan Commercial Bank of Taipei and Bank of China, New York Branch, are all on the list of unsecured creditors owed more than $50 million by Lehman.[/INDENT]

Once again, J-banks, and by extension J-taxpayers, are the biggest losers.

[pheyton]

Greji, Caton, I know this is just breaking but which is it? $639 billion in assets or $613 Billion in debt? Jesus christ, $613 billion in debt is ubelievable! That is just 1 institution.

Today is looking like Black Monday all over again. Grab your knickers boys, cause it's all downhill from here.

[Mulboyne]

By the way,
The burglar who financed Horie Takahumi, Live door, 80 billion yen is Lehman.

Mizuho tried very hard to get that deal so they must be criminals too by your reckoning.

[Jack]

Mizuho tried very hard to get that deal so they must be criminals too by your reckoning.

To remain consistant on the "Americans are evil" theme, isn't Mizuho owned by Americans? Ripplewood I believe? Or was it Shinsei Ginko they own?

[omae mona]

To remain consistant on the "Americans are evil" theme, isn't Mizuho owned by Americans? Ripplewood I believe? Or was it Shinsei Ginko they own?

No to your first question. Mizuho is as Japanese as it gets, having been formed by a merger of several banks (DKB, Fuji, IBJ).

[Kuang_Grade]

Here's the link to the PDF to bankruptcy filing. I count $1.67 billion in listed creditor claims in institutions with Japanese addresses...the largest is AOZORA at $463 million, however they are owned by the Cerberus Group so its Japanese-ness is up to debate.


http://www.thedeal.com/dealscape/images/Lehman_show_case_doc-3776.pdf

[Takechanpoo]

All of Vultures run away from Japan.
Of course it is inevitable for them to release Japanese assets which they bought, more accuatelly, stole in the bottom of the price.
[SIZE="7"]TIME TO GO HOME, VULTURES!!!!![/SIZE]
BUHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA
:lol::lol::lol::lol:

[Greji]

All of Vultures run away from Japan.
Of course it is inevitable for them to release Japanese assets which they bought, more accuatelly, stole in the bottom of the price.
[SIZE="7"]TIME TO GO HOME, VULTURES!!!!![/SIZE]
BUHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA
:lol::lol::lol::lol:

I got dry ear wax, can I stay?

[Greji]

Today is looking like Black Monday all over again. Grab your knickers boys, cause it's all downhill from here.

The market is holding, probably on the rumors that the Fed will take over AIG. Lehman Bros, is big, but so was WorldCom. Corporations come and go and the market will adjust accordingly. Don't see that much doom and gloom in the future.

[omae mona]

The market is holding, probably on the rumors that the Fed will take over AIG. Lehman Bros, is big, but so was WorldCom. Corporations come and go and the market will adjust accordingly. Don't see that much doom and gloom in the future.

Greji - things are indeed looking a lot better now that the Fed is stepping in for the AIG rescue. However, I think you are missing the point by comparing these potential failures to the failure of a corporation like WorldCom. Unfortunately, financial instituations are very interconnected, and the aftereffects of a Lehman, or *particularly* an AIG failure, are very hard to fathom.

While a shame, it wouldn't be a global crisis just because LEH and AIG shareholders lost their money. It wouldn't be a global crisis just because their employees got laid off. The problem is all the other financial institutions that are entagled in deals with LEH and AIG. Imagine you had all your money in a big, famous bank and found out that the bank just collapsed, taking your money with it. Or that your stock portfolio completely disappeared - not because you made bad investments, but because your stockbroker went out of business. These are probably better analogies to the situation than imagining you lost your telephone long distance provider, Worldcom

For example, AIG is a massive provider of instruments called "credit default swaps" which are a form of hedging, or insurance, for other financial instruments. Countless financial instutions would be scrambling to rebalance portfolios and take massive swings on profits if AIG disappeared. AIG is part of what a lot of people call the "shadow banking system" - non-bank entities which are effectively acting in a banking role in some ways. Nobody was expecting their bank to disappear (you can argue they should have known!). But that's the collapse that the Fed is trying to prevent with its rescue of AIG. The concern is that the collateral damage to companies and individuals with AIG relationships (even indirect ones) might be enormous. Nobody quite knows what would happen, and the Fed doesn't want to take the risk of finding out.

They were willing to take the risk on letting Lehman fail (much smaller impact than AIG, probably) and only time will tell how that plays out.

[pheyton]

The market is holding, probably on the rumors that the Fed will take over AIG. Lehman Bros, is big, but so was WorldCom. Corporations come and go and the market will adjust accordingly. Don't see that much doom and gloom in the future.

Please pass what ever it is you are smoking. 1 WorldCom compared to Bear Stearns, Lehman Bros. 11 banks and the bail outs of Fannie, Freddie, AIG and Merril. Next up Wamu? Combine that with rising unemployment, declining wages, a recession, inflation and well, like I said I want what ever you are smoking.

[Big Booger]

Please pass what ever it is you are smoking. 1 WorldCom compared to Bear Stearns, Lehman Bros. 11 banks and the bail outs of Fannie, Freddie, AIG and Merril. Next up Wamu? Combine that with rising unemployment, declining wages, a recession, inflation and well, like I said I want what ever you are smoking.

Unemployment has been artificially low for far too long. Wages should decline, it's part of globalization, suck it up! Recession smession... Inflation... have you been to Zimbabwe lately? Stop complaining you panzy.. take your down slide and BEAR it!

[Jack]

For example, AIG is a massive provider of instruments called "credit default swaps" which are a form of hedging, or insurance, for other financial instruments. Countless financial instutions would be scrambling to rebalance portfolios and take massive swings on profits if AIG disappeared.

This is the part that many don't understand and is the main reason for the bailout. A company enters into a swap agreement to realize that at expiry the countreparty is no longer there. There are so many companies out there that have hedged credit, interest rates or currency or fucked around with the duration of debt to find out the other party is no longer there would be disastrous. Actually the whole market is disastrous as it stands without any help that the collapse of a few large financial institution would provide.

For all the problems these highly-paid incompetent cocksuckers have created, have you heard any one of them appologies like they would do if it were in Japan? Nope!! Now everyone will expect a Feds bailout when things go bad.

[Buraku]

Economic Critical Juncture Towards a Generational Depression ?

http://www.marketoracle.co.uk/Article5949.html

[Jack]

Looks like Morgan Stanley is the next one to go Tango Uniform.

[pheyton]

Dow is currently down 450 points. Hey, but these things happen right? I mean the last time the fundamentals were this bad was the Great Depression.

Gold & Silver both shot up over 10% so it looks like the money is moving back into commodities. Probably food and energy will spike again since everyone needs those. There's always money to be made, screw grandma right.

[pheyton]

Economic Critical Juncture Towards a Generational Depression ?

http://www.marketoracle.co.uk/Article5949.html

Buraku, I skimmed through the article and there is a lot of information to digest. Lots of charts that maybe someone like TFG or yourself could explain clearer. But the overall message is clear, according to this guy we are in for a good 5 years of hell unless something radical is done, like tax the shit outta the people and companies who created this mess and put everyone back to work immediately. It's not something people like to hear, but it beats a Depression.

We are in some real bad times and despite our different beliefs we are in this together. I am my brother's keeper right? I do not wish ill to any of you and hope that none of you lose your homes, your jobs, your retirement, etc. Hang in there and clean your house. Cash is king.

[Buraku]

Stock Market was up on Friday - The Nikkei rose 3.8 per cent thanks to the bailout. YAY !!

Helicopter Ben didn't cut rates
but serious problems remain


This crisis in the United States is like the J-recession of the 90s except its on STEROIDS and moving 100 X times faster

[yt]0el9-A2RMrc[/yt]

not every firm will be saved and could there be serious dollar fallout from taking more taxpayer money?

[yt]ieQrgX9bNtg[/yt]

domino effect from a system built on falsifications
AIG had to be saved? Can the nation function when the FED will own 50% of everything?

[pheyton]

Let me add to Baraku's list of videos. I would urge everyone who is interested to watch all of these parts. You'll find the one I am about to post to be very independent of both parties, laying blame at the foot of both of them.
[YT]<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/3xqwP6dnZSE&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/3xqwP6dnZSE&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>[/YT]

Now, about this bail out, there is something misleading about the 700billion figure. While staggering, the actual amount could be ridiculously higher. As Bernie Sanders points out:
http://www.sanders.senate.gov/news/record.cfm?id=303317

Let us be clear. If the economy is on the edge of collapse we need to act. But rescuing the economy does not mean we have to just give away $700 billion of taxpayer money to the banks. (In truth, it could be much more than $700 billion. The bill only says the government is limited to having $700 billion outstanding at any time. By selling the mortgage backed assets it acquires -- even at staggering losses -- the government will be able to buy even more resulting is a virtually limitless financial exposure on the part of taxpayers.) Any proposal must protect middle income and working families from bearing the burden of this bailout.

So you can see once again they are fudging the numbers.

Also, as many people are worried, this would give Boosh and his cronies unprecedented powers and backroom deals with no accountability.
http://www.bloomberg.com/apps/news?pid=20601087&sid=acVoMK3FiuqQ&refer=home

The system is at the breaking point, and despite Wall Street's elation from the proposed $1 trillion dollar bailout to remove toxic mortgage-backed debt from banks balance sheets, the market is still correcting in what has become a vicious downward cycle. This cycle will persist until the bad debts are accounted for and written off for or until the exhausted dollar-system collapses altogether. Either way, the volatility and violent dislocations will continue for the foreseeable future.

Most people don't understand what happened on Thursday, but the build-up of bad news on the Lehman default and the $85 billion government takeover of AIG, triggered a run on the money markets and a freeze in interbank lending. The overnight LIBOR rate (London Interbank Offered Rate) more than doubled to 6.44%! Bank of America reported overnight borrowing rates in excess of 6%. Longer-term LIBOR rates also rose sharply. On Wednesday, jittery investors removed their money from money markets and flooded short-term US Treasurys for the assurance of a government guarantee on their savings even though interest rates had turned negative which means that their balance would actually shrink at the date of maturity. This is unprecedented, but it does help to illustrate how raw fear can drive the market.

The TED spread (the TED Spread measures market stress by revealing the reluctance of banks to lend to each other) widened and the credit markets froze in place. Borrowing three-month dollars on the interbank market and the U.S. Treasury's three-month borrowing costs widened five full percentage points. That's huge. The banking system shut down.

What does it mean? It means the Federal Reserve has lost control of the system. The market is driving interest rates now, and the market is terrified. End of story.

When the Fed announced its emergency program to dump $180 billion into the global banking system, short term Libor retreated slightly but long-term rates have remained stubbornly high. The noose continues to tighten. These rates are pinned to 6 million US mortgages which will be resetting in the next few years. That's more bad news for the housing industry.

The entire system is deleveraging with the ferocity of a Force-5 gale touching down in the Gulf, and yet, Henry Paulson has decided that the prudent thing to do is build levies around the system with paper dollars. Naturally, many people who understand the power of market-corrections are skeptical. It won't work. Libor is pushing rates upwards--that's the "true" cost of money. The Fed Funds rate (2 percent) is supported by infusions of paper dollars into the banking system to keep interest rates artificially low. Now the extreme pace of deleveraging has the Fed on the ropes. Trillions of dollars of credit is being sucked into a black hole which is raising the price of money. It's out of Bernanke's control. He needs to step out of the way and let prices fall or the dollar system will vanish in a deflationary vacuum.

The problems cannot be resolved by shifting the debts of the banks onto the taxpayer. That's an illusion. By adding another $1 or $2 trillion dollars to the National Debt, Paulson is just ensuring that interest rates will go up, real estate will crash, unemployment will soar, and foreign central banks will abandon the dollar. In truth, there is no fix for a deleveraging market anymore than there is a fix for gravity. The belief that massive debts and insolvency can be erased by increasing liquidity just shows a fundamental misunderstanding of economics. That's why Henry Paulson is the worst possible person to be orchestrating the so called rescue project. Paulson comes from a business culture which rewards deception, personal acquisitiveness, and extreme risk-taking. Paulson is to finance capitalism what Rumsfeld is to military strategy. His leadership, and the congress' pathetic abdication of responsibility, assures disaster. Besides, why should the taxpayers be happy that the stocks of Morgan Stanley, Washington Mutual and Goldman Sachs surged on the news that there would be a government bailout yesterday? These banks are essentially bankrupt and their business models are broken. Keeping insolvent banks on life support is not a rescue plan; it's insanity.

No one has any idea of the magnitude of the deleveraging ahead or the size of the debts that will have to be written down. That's because 30 years of deregulation has allowed a parallel financial system to arise in which over $500 trillion dollars in derivatives are traded without any government supervision or accounting. These counterparty transactions are interwoven throughout the entire "regulated" system in a way that poses a clear and present danger to the broader economy. It's a mess. For example, there are an estimated $62 trillion of Credit Default Swaps (CDS) alone, which are basically insurance policies for defaulting bonds. AIG was as heavily involved in CDS as they were in regulated insurance products. So why would AIG sell CDS rather than conventional insurance?

Because, just like the banks, AIG could maximize its profits by minimizing its capital cushion. In other words, it didn't really have the capital to pay off claims when its CDS contracts began to blow up. If it had been properly regulated, then government regulators would have made sure that it was sufficiently capitalized with adequate reserves to pay off claims in a down-market. Now taxpayers will pay for the lawless system which men like "industry rep" Henry Paulson put in place. That's deregulation in a nutshell; a system that allows Wall Street banksters to create credit out of thin air and then run weeping to Congress when their swindles backfire.

Inflating the currency, printing more money, and increasing the deficits won't help. The bad debts have to be accounted for and liquidated. The Paulson strategy is to create another ocean of red ink while refusing to face the underlying problem head-on. This just further exacerbates the consumer-led recession which economists know is already setting in everywhere across the country. Demand is down and consumer spending is off due to falling home equity, job losses, and tighter lending standards at the banks. The broader economy does not need the added downward pressure from higher taxes, bigger deficits, or inflation. Paulson's plan is a band-aid approach to a sucking chest wound. The debts are enormous and the pain will be substantial, but the problem cannot be resolved by crushing the middle class or destroying the currency.

The malfunctioning of the markets and the freeze-over in the banking system are the outcome of a massive credit unwind instigated by trillions of dollars of low interest credit from the Federal Reserve which was magnified many times over via complex derivatives contracts and extreme leveraging by speculative investment bankers. This has generated the biggest equity bubble in history. That bubble is now set for a "hard-landing" which is the predictable result of an unsupervised marketplace where individual players are allowed to create as much credit as they choose.

http://www.counterpunch.org/whitney09202008.html

An explanation from BBC:
http://news.bbc.co.uk/2/hi/uk_news/magazine/7625107.stm

[omae mona]

In some Japan-related news:

http://online.wsj.com/article/BT-CO-20080922-700575.html (sorry, subscription required)

Nomura Wins Auction
For Lehman's Asian Operations

TOKYO – Nomura Holdings Inc. is paying $225 million for the bankrupt U.S. investment bank Lehman Brothers Holdings Inc.'s Asian operations, including $50 million in goodwill, according to a person familiar with the matter.
Nomura, which won the auction for Lehman's Asian business Monday, will be acquiring the equities and investment banking operations of Lehman across Asia, including in Japan and Australia, but will not be taking on any of Lehman's balance sheet.
...
Lehman employs about 2,940 people in the Asia Pacific region across 10 offices. The firm reported net revenues of $1.4 billion for the first six months of fiscal 2008 in the region, according to its Web site.

[Buraku]

Many bloggers predict the US Dollar will be fucked
http://larryhodges.livejournal.com/10156.html

The $700 Billion Bailout . . . Wow!!! Let's see how we can illustrate how much that is.

The following are my own calculations--I do have a bachelor's in math!:

* 700 billion dollar bills stacked on top of each other would be over 22,000 miles high.
* 700 billion dollar bills laid end to end would be about 68 million miles long, enough to circle the Earth's equator over 2700 times, or to the moon and back 142 times.
* 700 billion dollar bills would cover an area of about 2800 square miles.
* 700 billion dollar bills would weigh 1,541,850,220 pounds, or 770,925 tons.
* If you typed 700 billion dollar signs (12-point Times) at a rate of two per second, it would take over 11,000 years, and would be about 920,000 miles long, which would circle the Earth's equator about 37 times.
* If you put these 700 billion dollar signs into a web page, it would take up about 700,000 MB.
* At minimum wage ($6.55/hour), working 40 hours/week, 50 weeks per year, it would take about 53 million years to earn $700 billion.
* 700 billion is 1.75 times greater than the estimated number of stars in our galaxy (400 billion) and 8.75 times the estimated number of galaxies in the known universe (80 billion).
* If you sold the 100 billion neurons in your head for $7/each, you'd have $700 billion.

http://euronews.us/?p=496

The Bailout Will Kill the Dollar

http://shamaniceconomist.blogspot.com/2008/09/worst-disaster-ever-to-hit-us-economy.html

The Worst Disaster Ever to Hit the U.S. Economy

If you have to choose between keeping your current bank and heating your home this winter, which would you choose?

http://bid-ask-traqde2020.blogspot.com/2008/09/there-should-be-outrage-over-bailouts.html

There Should Be An Outrage Over Bailouts.
It is absolutely amazing how there is no real public outrage right now against the government's proposed $700 billion in bailouts.

The main stream media is manipulating the minds of Americans into believing these bailouts are necessary for our financial security... when it is actually the complete opposite.

We can live with AIG, Fannie Mae, Freddie Mac and others going bankrupt. Sure, housing prices would collapse and we would have a severe recession... but that is unavoidable. With these bailouts, not only will housing still collapse as a part of a more severe and prolonged recession... but we are now headed towards hyperinflation and a complete and total collapse of our currency.

Not one person in the media today is talking about the consequences of the bailouts. They blame high oil prices today on "speculators" when it is the government's own inflationary practices that have caused it. By wasting $700 billion on these bailouts... we are now likely to see $10 per gallon gas next year; which is good if you are invested in an Oil and Gas deal.

We have two candidates running for President who don't understand a thing about the economy. Never once have I heard McCain or Obama mention the words "national debt" or "inflation" in their speeches. Never once have I heard them place any blame for our problems on the Federal Reserve and discuss our need to eliminate it.

I have been telling you since mid-2005 to sell Real Estate and Buy Gold. If you listened to me, you would've gotten out at the top of the Real Estate bubble and doubled your money in Gold.

Back in 2005, nobody in the media even suggested the possibility that Real Estate prices could go lower. They all thought Real Estate would go up forever and offered absolutely no warnings to get out of the housing market.

In 2006, as it started to become more obvious there were major problems in Real Estate... the media said it was just a "softening" and the rate of gains each year might slow down.

In 2007, when the market started to collapse... they blamed everything on "subprime" mortgages. They said these "subprime" mortgages would quickly wash out and the market would bottom and rebound.

I told you the crisis would expand throughout the entire mortgage market and to short FNM/FRE and buy puts in them. FNM and FRE both crashed from $30 down to pennies... and my four put option plays gained at their highs between 263% and 335%.

I then predicted LEH would crash and said to short it at $46.49. LEH is now bankrupt, and my two put option plays made gains at their highs of 366% and 698% respectively.

The bailout plan doesn't even begin to address the problems to come next... credit card and student loan defaults... which will likely wipe out JPM and BAC's shareholder equity completely.

For the past few months, I have been telling you to put 75% of your portfolio into DGP, the double-long Gold ETF or buy physical Gold at http://www.crowne-gold.com; as for Oil check out CETG.

DGP is up over 50% in the past eight days, but this is just the beginning. Gold is still below March's high of $1,032. Gold's 1980 high adjusted for inflation was $2,275 per oz, and our crisis today is much worse than back then. Oil is going over $200.00 a barrel.

For the past two months... everybody on CNBC has been hyping the U.S. Dollar... saying it will rally and strengthen. These are the same people who said to buy Internet stocks in 2000 and Real Estate in 2005... and now they are saying to go long the Dollar and the commodities bubble is bursting.

There was never a commodities bubble... we have a Dollar bubble. Soon, as the U.S. public begins to discover the truth... there will be a huge rush out of the Dollar and into Gold or OIL.

As I am writing this... Jim Cramer has now flip flopped again. After predicting Gold and Oil were about to collapse a few weeks ago... he is now saying to buy it. He is finally going to be right about something for once.

[pheyton]

Well Buraku, it seems like you and I are the only ones reading this thread.

Let me restate:

(In truth, it could be much more than $700 billion. The bill only says the government is limited to having $700 billion outstanding at any time. By selling the mortgage backed assets it acquires -- even at staggering losses -- the government will be able to buy even more resulting is a virtually limitless financial exposure on the part of taxpayers.)

Now, listening to Thom Hartman this morning he referenced a good article to the last 2 times this kind of crisis has happened, The Great Depression and The Japanese Bubble. The results of the bailouts were not pretty. The bailout is only for the affluent.

The best example of Hoover history repeating under the Bush Administration is the current policy of the Federal Reserve swapping treasuries for nearly worthless mortgage-backed securities.

New York Times, October 8, 1931

Real Estate Men On Hoover Plan

Skepticism as to President Hoover's plan to liquidate frozen bank assets was expressed yesterday by Charles G. Edwards, president of the Real Estate Securities Exchange. The exchange deals almost exclusively in real estate bonds, of which it is estimated that $1,500,000,000 at par value are in default throughout the country.
[...]
"President Hoover's financial plan," Joseph P. Day said in part, "is a step in the right direction towards making real estate investment more liquid. The system will make it possible for the Federal Reserve Bank to issue acceptance notes against sound real estate securities, thus stabilizing their values. Real estate mortgages are commonly regarded in banking as frozen assets. The Hoover plan seeks to take these substantial investments from the frozen asset class and give them a recognized value."

All of these things President Hoover tried, and all of these things failed to save both the real estate market and most of the Wall Street banks.
There is a cost to that failure, and that cost is wasted taxpayer money that could have been better used if it was simply directed at the working man and woman.

Lessons from Japan

The most important historical example happened very recently on the other side of the Pacific.

Recognizing that this bubble was unsustainable (resting, as it did, on unrealizable land values - the loans were ultimately secured on land holdings), the Finance Ministry sharply raised interest rates. This popped the bubble in spectacular fashion, leading to a massive crash in the stock market. It also led to a debt crisis; a large proportion of the huge debts that had been run up turned bad, which in turn led to a crisis in the banking sector, with many banks having to be bailed out by the government.

Eventually, many become unsustainable, and a wave of consolidation took place (there are now only four national banks in Japan). Critically for the long-term economic situation, it meant many Japanese firms were lumbered with massive debts, affecting their ability for capital investment. It also meant credit became very difficult to obtain, due to the beleaguered situation of the banks; even now the official interest rate is at 0% and have been for several years, and despite this credit is still difficult to obtain.

Japan's "Lost Decade" is extremely similar to our recent history. It involves an overvalued stock market, an extremely overvalued real estate market, both of which were caused by a near total collapse in lending standards. Initially the Japanese government responded with stimulus packages totaling about 6% of GDP between 1992 and 1993.

In 1998, Japan decided to "recapitalize" its banks to the tune of 60 trillion yen, or 12% of the GDP of Japan. Just 6 months later another 7.5 trillion yen of taxpayer money was dropped into 15 banks.
These are similar numbers to what is being passed around Washington this week. Which brings up the important question of - how well did the bailout work?

So far, 25 trillion yen in tax money has been spent, or $238 billion at current exchange rates, on a government overhaul of the financial system, out of $666 billion allocated for that purpose in 1998. Even more has been spent to prop up banks and other financial institutions indirectly, through credit-guarantee programs and the like.

"We are standing at the same divide where we were standing two years ago, when we recapitalized the banks," said Yasuhisa Shiozaki, a youngish legislator from the governing Liberal Democratic Party, who has been a rather lonely advocate of painful financial restructuring. "We can either recapitalize the banks again, or we can just let them go bust."
[...]
Mr. Shiozaki doubts that the government has the will for a second round of refinancing in the wake of Sogo's collapse, when a plan to spend close to $1 billion to waive debt and keep the company afloat was swamped in an outcry of public disapproval.

Ruling-party politicians quickly scrapped the plan, and Sogo failed, blowing away the fig leaf that covered Japan's supposedly resolved bad-debt problems. "What we found out with Sogo and afterward is that the essential and fundamental problems of the Japanese economy were still there or perhaps even worse," Mr. Shiozaki said.

It seems the bailout is a golden parachute for the investors and foreign banks. The alternative is to offer limited help and instead turn around and pump money into public works, putting people who have lost jobs or on the verge of losing jobs, back to work. Pump massive amounts of money into the greening of America ridding ourselves of fossil fuels and leading the world into future technologies. History repeats itself. Don't know your past, don't know your future.

[pheyton]

Yen is now at 101 vs $, US market is crashing as it passed a psychological mark of going under 10k. Everyone who is paying attention knows things aren't going to be getting better for a long, long time. All this as I go for a job interview for a postition in sales, in Japan. I must be crazy, or the gods must be crazy.

[Mike Oxlong]

By the way, remember this: The yen will rise to 90 to the dollar this year.

Would you like to bet on that?

You fellas settled up yet?

[canman]

The price of gasoline just jumped by 8 yen yesterday at the local gas stations! What is up with that. Oil is still hovering at $45 a barrel, consumption is way down, and yet the bastards are trying to screw us drivers. t just goes to show how Japan has no idea how to spur demand. On the one hand they are cutting the tolls for the highways and giving a Y5000 rebate if you buy the etc device, and then they raise the price of gas making it less attractive to drive.
I was watching CNN and they were talking about how the big oil companies in the states have more than 40 tankers sitting off the coasts of different countries, just waiting for the price of oil to jump again so they they can cash in. I'm not a fan of pirates, but it would serve the bastards well to have a few ships taken over just to punish them for their greediness. Also I saw that Chevron posted their biggest profit ever last year. Nice!