[Springboard] Correction to Economic synopsis
Robert Rafos
rafos at sympatico.ca
Wed Nov 19 15:45:27 EST 2008
Under Item 2. It should read Russia said we are NOT going to pay off
our loans. This is why we need proof-readers.
On 19-Nov-08, at 2:30 PM, M. George Walters wrote:
> Excellent synopsis.
>
> M. George Walters
> NetSuite Solution Provider
> EBS-RAD LLC
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> Em: m.george.walters at verizon.net
> From: springboard-bounces at wedgeblade.net [mailto:springboard-bounces at wedgeblade.net
> ] On Behalf Of Robert Rafos
> Sent: Wednesday, November 19, 2008 13:28
> To: jfwiegel at yahoo.com; Springboard Dialogue
> Subject: Re: [Springboard] Karen's car
>
> Jim,
>
> In a very short answer there are at least 3 drivers of the current
> crisis. 1. The need for higher returns, 2. Hedge Funds, 3. Desire
> for more or greed.
>
> 1. As stock returns diminished and bond yields fell, the big
> players; pension funds, endowments, and mutual funds needed to earn
> better returns to meet their obligations. For example pensions were
> experiencing liabilities to pension payments, but the money in the
> fund couldn't meet it. Under law the company has to make up the
> difference over time by paying into the fund. In some cases
> amounting to billions and one of the issues exacerbating the
> automotive industry problems. Ergo where can we get higher returns
> so we don't have to make those contributions. The return beast is
> very hungry.
>
> 2. Along come hedge funds with some neat ideas and all kinds of
> complex ways to make more money. One of the key ingredients to
> doing this is the use of leverage. That is I have $100 of capital,
> and I go out and borrow $500 from an investment bank (Merrill, Bear
> Stearns, Lehman, etc.). Now I have $600 to invest, and the plan is
> I can make more return on my investment then I have to pay in
> interest to the bank. A classic example is a company called Long
> Term Capital Management, started no less by several Nobel winning
> economists. They went out and raised a substantial amount from
> investors with the promise of very high returns. For a number of
> years they did and the numbers were extraordinary. The real numbers
> may never be known, but guesses indicated they had $2.0 billion and
> borrowed anywhere from 50 to 100 times that amount. Unbelievable
> leverage that worked until 1998. They were investing in debt of
> developing countries which was paying very high yields because of
> the risk. One day Russia said we are going to pay off our loans.
> Wham your investments were worthless or toxic. To deal with this
> situation the Fed stepped in and circled the wagons, the usual
> paragons of virtue JP Morgan, Citibank, B of A, etc. to bail out the
> investment banks. The cries of regulation for hedge funds was
> largely unheeded, hey those guys had deep pockets and a strong lobby.
>
> 3. Regardless of LTCM the return beast was still ravenous. All
> kinds of new and exciting ways were devised to make money. Special
> Investment Vehicles (SIVs) were designed where banks, hedge funds
> and investment dealers packaged all kinds of assets (auto loans,
> credit cards, mortgages, equipment leases, etc.) to sell to
> investors. As long as everything is running smoothly people are
> making money, the sellers and the buyers. I don't need to document
> the excesses that were driving this (get your Xmas bonus at the firm
> and buy yourself a Ferrari). Where it gets sinister is what
> happened in the mortgage market. In the desire to sell more to make
> more, they put out mortgages with 5% or nothing down, low interest
> rate for a couple of years and then it balloons to much higher
> rates. This is the teaser to the American dream of owning your own
> home. They even targeted low income and inner city residents.
> Often the homes were way beyond peoples means. The premise of this
> is real estate always goes up, right. NOOO, it can fall too. Here,
> I am in my $400,000 home with a $380,000 mortgage and the house is
> now worth $350,000. My payments are going up next year, so lets get
> the dog and cat and split. How many million defaults so far?
>
> This is pretty simplistic, but it was fun writing it.
>
> Bob Rafos
>
>
> On 18-Nov-08, at 9:39 PM, James Wiegel wrote:
>
>
> This is great. Talk a little bit, Bob, about where the explosion of
> investment and finance firms ties into this . . .
>
> Jim Wiegel
>
> I know nothing grander, better exercise, better digestion, more
> positive proof of the past, the triumphant result of faith in human
> kind, than a well-contested American national election. Walt Whitman
>
> 401 North Beverly Way
> Tolleson, Arizona 85353-2401
> +1 623-936-8671
> +1 623-363-3277
> jfwiegel at yahoo.com
> www.partnersinparticipation.com
>
> --- On Tue, 11/18/08, Robert Rafos <rafos at sympatico.ca> wrote:
> From: Robert Rafos <rafos at sympatico.ca>
> Subject: Re: [Springboard] Karen's car
> To: "Springboard Dialogue" <springboard at wedgeblade.net>
> Date: Tuesday, November 18, 2008, 7:11 PM
> To Jim's question, What is holding this in being?
>
> Page 36, Paragraph 67: Reagan described as the modern prophet of
> profligacy, gave MORAL sanction to the empire of consumption adding
> to America's civic religion two crucial beliefs: credit has no
> limits, and the bills will never come due. Page 60, Paragraph 139:
> Bush two weeks after 9/11 encourages Americans to "Get on board. Do
> your business around the country ... Get down to Disney World in
> Florida." Page 53: George H.W. Bush declared, "The American way of
> life is not negotiable." The political has given credence to the
> economic and supported its dominance. With the top leaders holding
> this image and vision out to the country, the result is not a
> surprise.
>
> To Jim's question, Where do we experience ourselves caught in this
> in our lives?
>
> It's subliminal and sneaks up on you. I remember arriving in
> Toronto from Tokyo with 2 suitcases and 8 cartons (the size that the
> print shop got its paper in). Now we have a house full of stuff.
> How did it happen? It's easy to rationalize, you buy a house you
> need furniture, then you have to decor it, one TV doesn't work since
> we watch different things, each need our own computer, etc. Well
> you have a job and need to look presentable for the staff and
> clients and wind up with 8 suits, 40 ties and 30 dress shirts. You
> can go on and on.
>
> One day the shoe drops and you say "What have I, we, the corporate
> we done". At that point I, we have the opportunity to change. The
> more that do, the bigger the impact.
>
> Society and our politicians need a new moral compass that inspires
> and leads us (the US) in a new direction.
>
> Bob Rafos
>
> On 18-Nov-08, at 7:01 PM, KarenBueno at aol.com wrote:
>
>
> But isn't the bottom line of the "Limits of Power" (first half,
> anyway) that we already have way more than we need? Why would I
> need any kind of new car? I've read studies that say my care, which
> gets 33 mpg on the highway, is still a less extravagant way to drive.
>
> But beyond that, why on earth is my decision, as one of some 300
> million people, going to make a difference in the way Americans are
> addicted to extravagance? Breaking that cycle of profligacy (which
> I had to look up in my Websters) seems even more impossible than
> renewing the church.
>
> Karen Bueno
>
> In a message dated 11/18/2008 2:44:36 P.M. Mountain Standard Time, geowanda at earthlink.net
> writes:
> If possible, I'd wait until the next generation of plug-in hybrids
> come on line, possibly this Spring. The Japanese car makers have
> them already, and the Americans are working on them pretty hard.
> They will be the bridge car to all electrics or alternate fuel
> types. They might let the diesels from Europe in next year that are
> also high mileage cars.
>
> George Holcombe
> 14900 Yellowleaf Tr.
> Austin, TX 78728
> Home: 512/252-2756
> Mobile 512/294-5952
> geowanda at earthlink.net
>
>
>
> On Nov 18, 2008, at 12:31 PM, James Wiegel wrote:
>
>
> Karen's answer. How about the rest of you??
> --- On Tue, 11/18/08, KarenBueno at aol.com <KarenBueno at aol.com> wrote:
>
> My 2000 Saturn is still running with over 100,000 miles. The new
> auto prices are so good. Do I with good conscience buy a new car,
> or do I continue to drive my Saturn until it dies?
>
> Karen Bueno
>
> In a message dated 11/17/2008 10:06:45 P.M. Mountain Standard Time, jfwiegel at yahoo.com
> writes:
> what is holding this in being? where do we find ourselves caught in
> and even reinforcing this crisis in our communities and in our lives?
>
>
>
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