Financial Meltdown (The World)

[slinky]

So the moral of the story is 'don't get into so much debt that you can't pay it back' (duh)

[slinky]

OK, how about this one:

Jim owes Greg $100
Greg owes Steve $100
Steve owes Jim $100

Rather than Jim withdrawing $100 from the bank to pay Greg and Greg turning around and giving the $100 to Steve and Steve in turn handing it back to Jim shouldn't the 3 of them just get together, cancel each other's debt and go for a beer instead?

Edit: And from the other story, couldn't John, the barman, the kitchen hand and the chef have all gotten together and cancelled their debts to each other?

[baloo]

Getting them together is the key. The problems we have with the whole credit melt down today is that no one knows who owes what to who(m).

[BoD]

What you need is some kind of intermediary to bring all the parties concerned together...something a bit like an Investment Bank perhaps

[slinky]

What you need is some kind of intermediary to bring all the parties concerned together...something a bit like an Investment Bank perhaps

There's a novel idea

[Burbage]

The problem is that the debts don't cancel.
It's more like

Bob borrows 100 from Jim at 2% interest rate. Bob lends 100 to Trevor at 4% interest rate. Trevor lends 100 to Mike 6% interest rate. Mike spends the money.

Jim wants his money back.

That's the problem.

[Bob the Builder]

What you need is some kind of intermediary to bring all the parties concerned together...something a bit like an Investment Bank perhaps

Then you parcel up all of this debt, sell it back to each of Jim, Greg and Steve in tradable form and charge a big fee for it. What a great idea!!!

[Tack]

What about this explanation?

"Linda is the proprietor of a bar in Cork. In order to increase sales, she
decides to allow her loyal customers - most of whom are unemployed
alcoholics - to drink now but pay later. She keeps track of the drinks
consumed on a ledger (thereby granting the customers loans).

Word gets around and as a result increasing numbers of customers flood into
Linda's bar.

Taking advantage of her customers' freedom from immediate payment
constraints, Linda increases her prices for wine and beer, the
most-consumed beverages. Her sales volume increases massively.

A young and dynamic customer service consultant at the local bank
recognizes these customer debts as valuable future assets and increases
Linda's borrowing limit.

He sees no reason for undue concern since he has the debts of the
alcoholics as collateral.

At the bank's corporate headquarters, expert bankers transform these
customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities
are then traded on markets worldwide. No one really understands what these
abbreviations mean and how the securities are guaranteed. Nevertheless, as
their prices continuously climb, the securities become top-selling items.

One day, although the prices are still climbing, a risk manager
(subsequently of course fired due to his negativity) of the bank decides
that the time has come to demand payment of the debts incurred by the
drinkers at Linda's bar.

However they cannot pay back the debts.

Linda cannot fulfill her loan obligations and claims bankruptcy.

DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better,
stabilizing in price after dropping by 80 %.

The suppliers of Linda's bar, having granted her generous payment due dates
and having invested in the securities, are faced with a new situation. Her
wine supplier claims bankruptcy, her beer supplier is taken over by a
competitor.

The bank is saved by the Government following dramatic round-the-clock
consultations by
leaders from the governing political parties (and vested interests).

The funds required for this purpose are obtained by a tax levied on the
non-drinkers."

[Morrolan]

it's interesting to look at some of the job offers that i turned down over the past 18 months: Royal Bank of Scotland, Macquarie, Babcock & Brown to name a few.

all in deep doodoo and shedding jobs like a molting cat.

[Burbage]

What about this explanation?

"Linda is the proprietor of a bar in Cork. In order to increase sales, she
decides to allow her loyal customers - most of whom are unemployed
alcoholics - to drink now but pay later. She keeps track of the drinks
consumed on a ledger (thereby granting the customers loans).

Word gets around and as a result increasing numbers of customers flood into
Linda's bar.

Taking advantage of her customers' freedom from immediate payment
constraints, Linda increases her prices for wine and beer, the
most-consumed beverages. Her sales volume increases massively.

A young and dynamic customer service consultant at the local bank
recognizes these customer debts as valuable future assets and increases
Linda's borrowing limit.

He sees no reason for undue concern since he has the debts of the
alcoholics as collateral.

At the bank's corporate headquarters, expert bankers transform these
customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities
are then traded on markets worldwide. No one really understands what these
abbreviations mean and how the securities are guaranteed. Nevertheless, as
their prices continuously climb, the securities become top-selling items.

One day, although the prices are still climbing, a risk manager
(subsequently of course fired due to his negativity) of the bank decides
that the time has come to demand payment of the debts incurred by the
drinkers at Linda's bar.

However they cannot pay back the debts.

Linda cannot fulfill her loan obligations and claims bankruptcy.

DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better,
stabilizing in price after dropping by 80 %.

The suppliers of Linda's bar, having granted her generous payment due dates
and having invested in the securities, are faced with a new situation. Her
wine supplier claims bankruptcy, her beer supplier is taken over by a
competitor.

The bank is saved by the Government following dramatic round-the-clock
consultations by
leaders from the governing political parties (and vested interests).

The funds required for this purpose are obtained by a tax levied on the
non-drinkers."

To continue...

The drinkers are now in debt to the receviers of the businesses that created the loans. The government creates a pot of money for the drinkers to save the bar and the jobs it creates. The drinkers, are given a cash handout. They use the cash handout to service the interest on their loans, but still have three years worth of payback to the bar. As a result, the drinkers cannot spend any money in the next three years but have to give all the money they ear over that period to the receivers in paying off their debts, the bar and all other business that the drinkers might have spent money at can't sell their products, and they go out of business. The staff at those businesses lose their jobs and can't find another job because no one has any money to spend. They can't service their mortgagaes and they all put their houses on the market at the same time. This drives the market price of houses down since there are now more sellers than buyers. As property prices fall, complex criminal money making schemes of the banks fail since they depended on property prices going up all the time. The whistle is blown on the dodgy practices of the banks and the share market goes Thud! People who have been sensible enough to keep their money now realise that their best investment is property rather than stocks. No one invests in business and more businesses go phutt causing more people to lose jobs and default on their loans driving the property market even further.

The American pesident looks at all this and thinks he can solve the problem by throwing good money after bad. This will fail since the greed in thesystem will mean that anyone who has any sense will take what the can from the handout and get the hell out of Dodge. The American president, having wasted more money that any president before him tries to divert attention from the disaster by declaring war on China. World war three starts and everyone dies.

[Joseph27]

Thats a pretty woeful tail made even worse by just how relevant it is - I had hoped that Obama's administration would offer a different perspective and solution but unfortunately he hasnt. The tools don't exists to fix this - selling another few trillion in debt doesnt solve the underlying issue - we are all fucked

[Fat Bob]

But surely you've still got hope that Professor Obama will wave his wand, utter something under his breath, and it'll be fixed in a jiffy? Or aren't American wizards as good as Prof Dumbledore?!

[Joseph27]

Hopes fading - the messiah is nothing more than a smooth talking black guy - (though in all fairness to him he was almost as adament as Brian in saying that he wasnt the messiah) - and the medias take well - 'only the true messiah would denies his divinity'

All in all we are in a pickle

[baloo]

give him some time.

But yes, as I said all along, Obama is first and foremost a Politician. Let's hope he goes down in history as a very good politician, but I'll be happy with just good.

[Joseph27]

My issue is that the solution only does more of the same - I hope it works but am not confident it will. I do enjoying hearing him speak though - he is so energising to listen to

[skank-la]

I've avoided posting on this thread as I just cant bear to talk about it any longer. Each day brings worse news & more revelations at how we were raped for short term gain during the Bush years. What can Obama do, what can anybody do? Bascially its a perfect storm with the foundation of the crisis based on the fact that Wall Street bet the global economic system on off balance sheet CDO's which they sold to the planet & are complete& utter garbage w/no funds to back them up. Add to that Bush's little war, the suprime mortage mess where everybody & anybody could buy a house they absolutely couldnt afford, the death of US auto industry brought about in large part by a a totally bankrupting non functional medical system (the worst in the world), the culture of lawsuits .......

I actually cant believe how bad it is. Since around Feb 15, Commerce in any real sense seems to have completey stopped & believe me as distributor of Networking hardware w/usual 5 million US$ in goods going in & out every month we are on the front lines. I've got some hard decisions to make; both my investment properties here my tenants have lost their jobs & are moving out. Sell now at reduced value or try to weather the storm & try to hold as a hedge against the inflation that has to come roaring back in the near future (the govt is printing trillions) . Our original plan was stay in the US till the skankster hits University then move back to Peens but now we may have to pull that plan forward.

Obama is an incredibally intelligent focused &very strategic leader but what really can he do. He inherited this mess in toto just 1 month ago. What a pile of shite he was handed.

Thank god for my 'escape hatch' in the peens. A home & business bought & paid for otherwise I would be totally shit out of luck.

[Joseph27]

Skank I can fully relate to what you are saying - retail is also a front line. Is it too harsh to say I totally despise Bush for the absolute ineptitude of the past 8 years - the lost opportunities to invest in renewables - to pave a path to the future.... just pisses me off so much.

Don't know what the next 2 years will bring - it seems however that the situation where the US is the worlds customer and their only payment method is an unlimited credit card backed by their major trading partners is over. This is radical structural change and will take several years to entirely realise what post Wall St WORLD truly looks like. In the meantime - its got to be a tough gig selling networking platforms......

Your refuge in the Philipines sounds ever more wise as the years go on.

[Joseph27]

Okay back to the worlds problems - a quick question to financial gurus(???) - what are the chances of the US having the credit rating dropped from AAA ? It would seem that with so much money being pumped into the economy - we are not even close to the other side of this mess with all these low interest loans resetting ? What are the ramifications for a downgrade?

[Morrolan]

Okay back to the worlds problems - a quick question to financial gurus(???) - what are the chances of the US having the credit rating dropped from AAA ? It would seem that with so much money being pumped into the economy - we are not even close to the other side of this mess with all these low interest loans resetting ? What are the ramifications for a downgrade?

US is AAA? according to our info (COFACE and OECD) the US' country risk is already at Medium, i.e at the same level as for instance New Zealand and China rather than Low for countries such as Switzerland, Japan, UK and the Netherlands...

correction: OECD still classifies US as 0 risk, COFACE has put US at A2 rather than A1.

[Dinosaur]

Numis report (a leading investment bank apparently) that there is now "a very real probability" that Britain will be bankrupted. Oh boy, there goes my state pension

http://www.telegraph.co.uk/finance/econ ... -cent.html

[Joseph27]

Okay back to the worlds problems - a quick question to financial gurus(???) - what are the chances of the US having the credit rating dropped from AAA ? It would seem that with so much money being pumped into the economy - we are not even close to the other side of this mess with all these low interest loans resetting ? What are the ramifications for a downgrade?

US is AAA? according to our info (COFACE and OECD) the US' country risk is already at Medium, i.e at the same level as for instance New Zealand and China rather than Low for countries such as Switzerland, Japan, UK and the Netherlands...

correction: OECD still classifies US as 0 risk, COFACE has put US at A2 rather than A1.

Maybe UK needs a correction after that article - move from Low risk to broke ass living in a caravan high risk...

[Morrolan]

good analysis concerning China's currency and currency policy.

i certainly agree with this remark:

China is not an export dependent economy. While the export-to-GDP ratio is large for a continental sized economy, the contribution to growth of net exports is modest, although it has risen in recent years. Investment remains the key driver of growth and it is here where the authorities have appropriately focussed their stimulus plan, which seems be gaining traction.

[slinky]

Everything's cool, guys:

Obama says it's 'not as bad as we think'

[BoD]

Well to a large extent it seems to me that the crisis is as bad as we let ourselves be persuaded that it is.

[Kooky]

Well to a large extent it seems to me that the crisis is as bad as we let ourselves be persuaded that it is.

So are you still unemployed, BoD?