Sensible Erection | IndyMac Bank to Close

Friday, 11 July 2008

quote [ The IndyMac Bank, headquartered in Pasadena, will be closed and operations will be transferred to the Federal Deposit Insurance Corporation ]

Second largest bank closing in U.S. history. Announced Friday afternoon in what will probably be a futile attempt to soften the blow to the market.

...and I bet that Schumer won't even have to deal with a smidgen of fallout from this in the end.

[politics] [by sythe@9:36amGMT] [+10 WTF]

Comments

sacrelicious said @ 9:49am GMT on 11th Jul
bend over, I'll show you fallout in the end.

Context said @ 12:28pm GMT on 11th Jul [Score:2]
I for one would happily bend over, to see the end of this meme.

Dioxin said @ 1:16pm GMT on 11th Jul
In Soviet Russia, meme fucked your boyfriend.

cardinal said @ 3:26pm GMT on 11th Jul [Score:3 Funny]
I can tell this is a meme from some of the words and having seen quite a few memes in my time.

BergZ said @ 8:24pm GMT on 11th Jul
I see what you did there.

hoboninja said @ 11:21pm GMT on 11th Jul
BergZ is a pretty cool guy, eh sees what you did there and doesn't afraid of anything.

Fu Man Chu said @ 10:35am GMT on 11th Jul
Wonder who's going to service the loans now. My family has a mortgage with Indymac on what used to be their primary residence but now serves as an investment property.

sacrelicious said @ 10:40am GMT on 11th Jul
isn't that what FDIC is for?

Thathurt said @ 11:28am GMT on 11th Jul
FDIC only insures $100,000 or as they said $250,000 for SOME retirement accounts. Some people got sensibly shafted.

Crysallis said @ 10:42am GMT on 11th Jul
Read here. IndyMac is now IndyMac Federal Bank. The FDIC is going to be servicing the loan for now.

sacrelicious said @ 10:52am GMT on 11th Jul [Score:1 Funny]
haha, you said f-dick!

Crysallis said @ 10:55am GMT on 11th Jul [Score:1 Underrated]

...as seen at the end of every cartoon I ever watched. Little girl laying in bed whispering, "Dick."

Fu Man Chu said @ 11:19am GMT on 11th Jul
I suddenly have a craving for cereal

sacrelicious said @ 11:21am GMT on 11th Jul
you only watch DIC cartoons? my god, those shows were terrible!

cleanse your system with some warner bros., or at the absolute very least hanna-barbara.

jaxtraw said @ 1:58pm GMT on 11th Jul [Score:1 Underrated]
I hated Hannah Barbera as a kid. They always looked so cheap and nasty.

sacrelicious said @ 1:59pm GMT on 11th Jul
but they were pixar compared with DIC.

jaxtraw said @ 2:20pm GMT on 11th Jul
And Filmation too, it has to be said.

Crysallis said @ 2:22pm GMT on 11th Jul [Score:3 Interesting]
I used to lay in bed saying "Dic" too.

sacrelicious said @ 2:29pm GMT on 11th Jul
I used to lay in bed saying "Rankin-Bass"

mao tse helen said @ 11:21pm GMT on 11th Jul
I used to lie in bed saying "Ruby-Spears."

Todomanna said @ 12:32am GMT on 12th Jul
I used to lie in bed and sleep.

I was a very unimaginative youth.

assbastard said @ 3:14pm GMT on 11th Jul
I still do.

jaxtraw said @ 3:40pm GMT on 11th Jul
Last night I woke in great distress from a nightmare in which Gordon Brown was a ravenous dog, chewing off my fingers.

pshaw said @ 10:40pm GMT on 11th Jul
Looking through their cartoons I guess I never realized how horrendous their lineup really was. Only saving grace on there is inspector gadget.

v21 said @ 11:40pm GMT on 11th Jul
http://vids.myspace.com/index.cfm?fuseaction=vids.individual&videoid=17849936

SilverDraghyeon said @ 12:29am GMT on 12th Jul
Uh, Real Ghostbusters mothafucka.

sacrelicious said @ 3:48am GMT on 12th Jul
...was awful.

Crysallis said @ 10:43am GMT on 11th Jul

Crysallis said @ 2:22pm GMT on 11th Jul [Score:1 Informative]
(( ROME BURNING ))

assbastard said @ 3:12pm GMT on 11th Jul
You know, I saw the picture and thought that the first time, but I figured, that doesn't look like someone playing the fiddle, so that can't be it.

Fenny said @ 3:13pm GMT on 11th Jul [Score:4 Funny]

assbastard said @ 3:17pm GMT on 11th Jul
You, uh.. damn. You really put some thought into that. I didn't pay attention to the text until the second take. Nice work!

Fenny said @ 4:05pm GMT on 11th Jul
:) I love 'shopping!

nFiend said @ 9:31pm GMT on 11th Jul
(( WHAT? ))

afrasr said @ 12:13pm GMT on 11th Jul
Now you'll see a fun on Freddy mac and Fanny may, as they are reported to be in the same boat as Indy...

Oh by the way... why does the US have banks with suck fucking stupid names ?

It sounds like your money is being guarded by a pack of retarded inbred hill billies from the south...

Oh wait... never mind..

metternich said @ 5:13pm GMT on 11th Jul [Score:3 Underrated]
Fannie Mae is an easier way to say FNMA or The Federal National Mortgage Association. Freddie came later and is more of a stretch. You have the damn internet, look it up.

wieder said @ 6:09pm GMT on 11th Jul
My #1 pet peeve of internet posting is people who don't use it before posting.

afrasr said @ 12:17pm GMT on 11th Jul
...and I bet that Schumer won't even have to deal with a smidgen of fallout from this in the end.

Why the fuck should he be blamed for a bank not being run propperly. If the bank was in a propper, well managed postion, they should have been able to wether the run, with out much of an issue.

I more feel sorry for the poor bastards who didn't run the bank, and now look like they may have lost part or all of their life savings.

I'd be more calling for the banks entire managing board to be hauled up, stripped of all their assets, and beat to death in the streets.

But you can gurantee that all the senior management will bail with multi million dollar servance packages, and NO criminal charges.

mmmm depression all over again... Yummy

foobar said @ 12:47pm GMT on 11th Jul
He's not being blamed for any business missteps they may or may not have made. He's being blamed for yelling "fire" in a crowded theatre with entirely predictable results.

afrasr said @ 12:58pm GMT on 11th Jul
Well if the Theatre is full of smoke.....

Thats the thing, he didn't yell fire for no reason.

If there had been no reason, the bank could have just countered with their current books, showing they had plenty of capital, and everything is fine.

Ok, what he did was a bit dumb I admit, but he should only get a small amount of the blame.

The majority of the blame should be with the banks managing directors.. but here is the fucking retarded thing..

(from the article)

Under Perry's leadership, profit more than doubled from $118 million in 2000 to $343 million in 2006 amid the housing boom. The stock more than tripled over that stretch.

Perry will not be continuing with the new FDIC-controlled institution, while other executives will be retained, Bair said. The FDIC's John Bovenzi will assume the CEO role.

Ok they are sacking the CEO.. but the rest of the senior management team remain..

WTF?!?!

I would be taking those cunts out, hanging them by their heels, and pelting them with shit for the next 12 months for taking a massivley profitable bank, and cluster fucking it to death.

Useless fucking inbred American business culture..

metternich said @ 5:19pm GMT on 11th Jul [Score:1 Underrated]
Thank you for letting us all know what you would have done. What is it with you and your obsession with calling Americans inbred in your comments. Hanging the board from their heels and 'pelting them with shit for the next 12 months' is a pretty redneck/inbred thing to say.

foobar said @ 7:10pm GMT on 11th Jul
It isn't that black and white. Maybe the bank was mismanaged, maybe it was just doing what everyone else was doing and regulations (passed by the Senate, no less) allowed. I don't know, and I really doubt you do either.

Regardless, even if mismanagement occurred, they may have been able to recover had someone in authority not caused a panic. Hopefully there is some civil action Schumer's victims can take against him.

jaxtraw said @ 7:28pm GMT on 11th Jul
A business only fails like this when it is genuinely unsound. What triggers that awareness in the market- the breaking of the confidence spell- is neither here nor there. It would be possible for an irrational panic to occur, for instance a big investor sells all his shares in a company for some personal reason, the market follows like sheep and the shares crash- but if the company is sound the mistake will be realised and the shares rebound (and anyone who bought them at the low point during the panic will make a killing).

These financial bodies are crashing because they're unsound, and the only thing holding most of them up is ever dwindling "confidence". There are a hell of a lot of companies out there who are vulnerable to runs right now, because their balance sheets indicate that they are in deep trouble. The person who starts the run isn't to blame; to say they are is effectively arguing for a conspiracy of silence to deceive investors into keeping their money in rotten investments.

foobar said @ 9:11pm GMT on 11th Jul
You're betraying a fundamental misunderstanding of how banks actually operate. Shares have nothing to do with it. Private banks are just as vulnerable to runs.

No bank in operation holds anywhere near the capital it needs to service all it's accounts. Most of it is sunk in long term, non-liquid properties. Banks don't run on money, they run on confidence. If you break that confidence, the bank is sunk, regardless of how well or poorly it has been run. The very act of someone in authority saying a bank is unsound makes it unsound. Whether it was before or not is immaterial.

The stock market is an entirely different beast. If everyone up and decides to sell a companies shares, the number of shares stays the same. *Someone* still ends up owning them when the dust settles, and the company still exists. If everyone, or even a minority, up and withdraws their money from a bank, that bank no longer exists.

jaxtraw said @ 9:26pm GMT on 11th Jul
I swapped back and forth between banks and shares because they're both vulnerable to confidence issues but I agree it wasn't the best way of putting things. But I do understand how banks work.

Fractional reserve banking is inherently a risky business because they are indeed lending out money that isn't there. Some people call this fraudulent; it isn't if people understand how the system works, but it's time there was a clearer distinction between banking (storing your assets safely) and loan brokering, which are two distinct businesses that banks carry out simultaneously. People need to understand that if they put their money in a fractional reserve bank, they're risking its loss in return for interest. Once that's understood people can make a rational judgement.

But a bank doesn't become unsound because somebody in authority says so. The banks currently are all hopelessly unsound by your definition; what's the Basel rules? 8% reserves? Something like that? So we need a better definition. Banks fall not when they're short of money per se but when it becomes clear to the market that the loans they've made bear little chance of being repaid. That isn't caused by a politician saying so, it's caused by bad lending practices; overextending. We all know already that the banks can't pay every customer simultaneously, what we're interested in is whether their financial basis is sound for future trading. They're collapsing right now not because they lent money out, but because we now know they lent it to people who can't pay it back. That's what precipitates a bank run.

foobar said @ 11:39pm GMT on 11th Jul
No, you're still missing it. Stocks are not vulnerable to confidence in the way banks are. Yes, you can sort of have a "run" on a stock, but for every share sold there is also a buyer. If there are no buyers, the stocks stay put. They don't evaporate, and when cooler heads prevail, the company and its assets are still there.

When people withdraw from a bank, they're shrinking that bank's reserve. The output is not tied to an input, so the whole thing can unravel, and there's nothing for cooler heads to prevail over when the dust settles.

There is no such thing as safe asset storage. It doesn't exist. It's a fantasy in the feeble heads of the loons who object to banking and fiat currency because they can't wrap their minds around what money really is. You can have a run on a currency, though most are large enough and have enough confidence to absorb them. The Saddam Dinar had enough confidence to outlast the country that printed them by several years. You can have a run on gold or anything else you want to anchor a currency to if you don't understand fiat.

Money *is* confidence. Nothing more. It exists solely on the believe that its value today will be comparable to its value tomorrow, regardless of whether it's based on a substrate of beads, gold, or fiat. So no, banks don't lend out money that "isn't there". They take a bit of confidence in one form, and amplify it by confidence in themselves.

If someone in authority destroys that confidence, they destroy the bank just as much as if they set fire to the currency it holds. Whether that confidence is justified or not is entirely irrelevant to the process. If it isn't, it needs to be handled quietly, and publicized only after the fact.

jaxtraw said @ 12:09am GMT on 12th Jul
No sorry foobar, you've just wandered into the realm of "entirely wrong".

"There is no such thing as safe asset storage."

Of course there is. A bank vault is one example (yes, there can be theft, but I don't think you mean that). I put my assets in there and retrieve them later. That's pure banking.

Then you seem to claim there's no difference between asset backed and fiat currency. Of course there is. One relies on "confidence" and the other one doesn't. You can use anything for currency; indeed money is just a bartered good that everybody, or the people exchanging it anyway, agree has value. That's normally gold or precious metals because they don't degrade and have historically always had a fairly stable value but it could be anything. Now you may say that requires "confidence" but it's a different form of confidence to fiat, because it's related to the real world, a real world asset. Gold may have no value in some situations (the midst of a famine, for instance, when a tin of beans is worth more than all the gold in the world to a starving man) but if I own gold, I can be confident that in general it will still be of value next year. And if I have a gold certificate- asset backed currency, that will hold the same value.You don't need confidence in the currency, of the type you need with fiat.

Fiat has no intrinsic value. With fiat, the banks are lending nothing but bits of paper. If they keep printing it, it just loses its value and can lose its value entirely. That's why the financial system has to maintain this "confidence". The paper has value only while people believe it does, whereas gold, as a useful thing that people want to accumulate, has intrinsic value. People prize gold for itself, not just as currency. That's a fundamental difference.

With an asset backed currency, you're trading the asset. With fiat, you're trading nothing but belief in an intangible, which is why if somebody says the wrong thing it can just evaporate, because it never existed. Somebody who says "gold certificates have no value" would be ignored, because so long as the gold is demonstrably in the banks, they are basically lying. To make a 100% gold backed currency worthless, you've got to make gold itself worthless- something which has never happened in history.

foobar said @ 12:55am GMT on 12th Jul
It only appears that way to you because you don't understand what money is.

Let me repeat; money is confidence.

You're arguing for a gold backed currency because you have more confidence in gold than you do in government. We can debate back and forth as to which is the better bet, but it's beside the point. Currency backed by gold is based on the confidence that a set amount of gold will be worth something comparable to what it's worth today in the future.

If you bought gold in 1980 put it in your bank vault for 20 years, you'd have lost 80% of your assets. Why is gold a good store of value? Because lots of people have confidence that is is. (And lots of governments have taken actions to shore that up.)

Banks are just as vulnerable to runs whether their reserves are in gold, dollars or beaver pelts.

sythe said @ 1:20am GMT on 12th Jul
I'm not disagreeing with you entirely, but gold technically does have intrinsic value as a resource for manufacturing many goods. Not that it should necessarily be worth what it's currently worth based on that demand, but it is by its very nature worth a little more than firestarter.

foobar said @ 1:54am GMT on 12th Jul
That's beside the point. Gold has value because there's a demand for gold. It has currency because people believe that demand will continue in the future. Part of that demand is based on industrial usage and part on speculation, but it doesn't matter. There is demand, therefor there is value. There is demand for dollars, therefore there is value. Take away the demand for either, and you take away the value.

jaxtraw said @ 2:12am GMT on 12th Jul
Teh difference is that gold is intrinsically rare and thus prized due to scarcity by wealthy folk. That's unlikely to change whether it's used as a currency or not, as we see from the markets.

revchoppy said @ 6:16pm GMT on 13th Jul
It doesn't matter how rare it is... what matters is how much it is in demand. Historically, gold has always been in high demand, and seems a likely thing on which to base a currency, due to that fact.

But foobar is right: it's no less subject to the whims of confidence than fiat currency, and gold does lose and gain value like any other commodity.

There's nothing magical about gold.

jaxtraw said @ 1:20am GMT on 12th Jul
No, they're subtly different kinds of confidence. People have confidence in gold for rational reasons; because it has intrinsic value, because people want it for itself. Otherwise you may say that my faith in the sun still being alight next year is just "confidence". But I have good reason to be confident in that. It's not just an arbitrary belief. I can use inductive (and deductive) reasoning to justify that confidence. The "confidence" in fiat currency OTOH is just an arbitrary belief. It only holds while you believe it. There is no external reason for the confidence, which is why it's susceptible to the whimsical failure of that belief.

If we trade asset backed currency, e.g. gold backed, then we are trading the gold itself, by proxy. I give you a certificate for an ounce of gold; you now own an ounce of real gold. The certificate is a receipt for it. You can go and withdraw it from the bank and use it. The only confidence you need is that the receipt is genuine and will be honoured (which can be established by various practical means, e.g. independent auditing of a bank's reserves). I could pay you in some other currency if we agreed on it; a receipt for a ton of grain in my warehouse, or a ticket for a night of passion with the finest girl in my whorehouse, come to that. They are both currencies and both have an intrinsic value fixed by supply and demand. But fiat is not trading in assets (or fine ass). It's just bookkeeping with no assets on the books. That's why it's a different kind of confidence. We aren't trading things any more; we are indeed just trading nebulous "confidence"- belief. Gold, grain and whoring have value regardless of whether they are used as a currency; fiat does not.

We also need to distinguish between asset backed currency (receipts for gold) and asset based currency e.g. Bretton Woods in which paper is just pegged at an arbitrary value of gold. The latter is indeed no different in effect to fiat. Asset backed currency only has any meaning if each bank note (receipt) represents a real unit of the real asset being traded. You can't have a run on a bank if the vaults actually contain all the metal for which they've printed banknotes.

sythe said @ 1:24am GMT on 12th Jul
"You can't have a run on a bank if the vaults actually contain all the metal for which they've printed banknotes"

...unless they've leveraged all of that gold into other markets and, lets says, dubious mortgage investments. In order for a bank to not be "runable" you would need to forbid it from loaning (or even using) the money it was keeping.

foobar said @ 1:50am GMT on 12th Jul
I give you a certificate for an ounce of gold; you now own an ounce of real gold.

This is where your error lies. If you give me a certificate for an ounce of gold, I own a certificate for an ounce of gold. I accept it not because I want an ounce of gold, but because I have confidence I'll be able to use the value it represents. Ultimately it doesn't matter why I believe that, just that I do.

If the notes really do just represent an ounce of gold in a locker, it must necessarily be perishable. Gold doesn't store itself, resources must be spent securing it. The notes must then deflate in value by at least as much as is spent securing the gold (and lost to theft and forgery). This of course isn't acceptable, and never has been. Banking arose at the same time as people started trusting the goldsmith with watching their gold, because it had to.

The solution is of course the system of banking we have now, where only as much of the backing as is needed is kept on hand, and the rest lent out for use at a profit. Once you accept that, you've necessarily accepted everything else that goes along with a modern monetary policy.

Your objection to fiat currency is really just an emotional one, based on your government phobia. No good has an intrinsic value. There is no elementary particle of value. Gold has value because there is demand for it. Dollars have value for exactly the same reason. That's your precious market at work ;)

jaxtraw said @ 2:10am GMT on 12th Jul
You're still confusing two things. The value of gold or grain are set by supply and demand, so the value of receipts for them have the same value. Gold has value to people, like grain, beyond its currency usage. That's the thing you're not taking into account. Neither can gold magically disappear (which is why it is better than grain which perishes). Again, different to fiat. My gold is still in the bank whatever happens. If suddenly nobody in the world wanted gold, I'd be stuffed, but that would be true of any asset. But at least governments couldn't arbitrarily print more gold and destroy its value that way.

For a pure storage bank, it would indeed cost resources to store the gold; the bank would charge you a fee. The answer is indeed to run a loan-brokering business. The mistake people make, an error in which banks encourage them, and which causes bank runs, is to conflate the two; thus most people believe that their money can be both stored and loaned out at the same time, safe in the bank and earning interest. When it's realised that it's all loaned dangerously out, people want it back and run to the bank and of course it isn't there. A clear separation between storage and loan brokering is the answer.

For instance, my current bank account usually contains pitiful amounts of money I could store at home. It has utility though as it allows me to pay for things easily etc. There's no reason why they shouldn't charge me for that, while ensuring they have 100% assets to back it up. If I want interest (the amounts are so tiny on my current account they're not worth having anyway), I authorise them to loan it out, recognising I'm now exposed to risk but in return can earn interest. The practical problem at the moment is two distinct businesses running under one roof with all the assets pooled, so people who think their money is "in storage" get a nasty shock when the bank's loan business collapses.

As to fiat, I'm not a committed goldbug and see the worth of the system; a paper currency providing adequate liquidity is fine. The problem is the bastards running it can't be trusted to do it sensibly because it's politicised. Last I looked here in the UK that fuckwit Gordon Brown was pumping up M4 (the money supply) at about 4x the current rate of inflation. What an ass. And that's not getting into the flinging of imaginary money into the markets by the central bank cartel recently to try to pump them back up again. If some way could be found to have the money supply managed by disinterested automata, fiat would be fine.

foobar said @ 3:46am GMT on 12th Jul
The value of gold or grain are set by supply and demand, so the value of receipts for them have the same value.

This is the same error I pointed out above. They most certainly do not have the same value. The value of the gold or grain is based on it's demand. The value of the receipt is based on your confidence in the issuer. Just like fiat currency. The gold certainly can disappear; it can be stolen, the issuer can renege (and must, to some degree to cover costs), et cetera.

A clear separation between storage and loan brokering is the answer.

No, it's not. Encouraging people to "store" money is insane. The economy is best served by having as much of the money supply in motion as possible. The solution is to mandate depositors insurance up to a certain amount, as all modern economies do. Here in Canada, I think it's $60,000. That's enough to protect the vast majority of people, and those it doesn't should be sophisticated enough to mitigate further risk on their own.

I don't know how you could possibly have so little in the bank that you'd be comfortable storing it at home. I'd not be comfortable with that for even a month's earnings. If you're not getting a decent interest rate, you should find a better bank. Mine gives me 3-4%, which is all I could get for a short term financial instrument anyway.

The problem is the bastards running it can't be trusted to do it sensibly because it's politicised.

Well, of course it is. The issue isn't that they letting their political beliefs influence the process, but whether or not they're doing a good enough job anyway. Looking at the UK's economy over the long term (because I've not enough short term data), I think it's fair to say yes. Increasing the money supply at this point is a good idea; it mitigates the reduction in money supply caused by global downturn.

The US in the last 8 years is an object lesson in what happens to an economy without competent management.

jaxtraw said @ 5:12am GMT on 12th Jul
The value of the gold or grain is based on it's demand. The value of the receipt is based on your confidence in the issuer. Just like fiat currency.

Don't be silly. The value of a gold receipt is the value of the gold it's a receipt for. That's how the system works, or used to. You have one pound of gold in the bank, rather than take it out, hand it to the vendor, who then takes it and puts it in the bank again, you just transfer the receipt. You are now one pound of gold poorer, he is one pound of gold richer.

Stolen gold doesn't disappear either; it'll turn up again somewhere in the financial system eventually, or as gold goods. But whether some gold can be stolen is besides the point; it can't all be stolen, and it can't disappear at all. A theft of gold makes the receipt worthless, yes, but that is true of any asset. You may as well say a house has no intrinsic value because it might burn down. Apart from that unusual occurrence, it has value and, if I sold you the right to own it, that would have value too, equal to one house. That is intrinsically not the same as fiat, which is a receipt for nothing tangible.

Encouraging people to "store" money is insane. The economy is best served by having as much of the money supply in motion as possible.

What people do with their money is up to them. If there's stuff to buy, they'll spend it. You're falling into the Planner's Conceit of presuming that somebody needs to manage the economy for the common good or some such rot.

he solution is to mandate depositors insurance up to a certain amount, as all modern economies do.

Terrible, terrible idea. It encourages profligate lending (moral hazard again) and gives people the illusion that their money is safe, when it isn't. If people want to insure, fine, but the last thing you should do is mandate it. Unwise lenders need to be able to go bust.

I don't know how you could possibly have so little in the bank that you'd be comfortable storing it at home.

Oooh. Try being skint for a while, you'll understand. Anyway, I was talking about my current account which, like many peoples', only contains enough to pay the bills. It's just an easy payment method, its storage value and interest earning capacity are useless due to small sums involved.

he issue isn't that they letting their political beliefs influence the process, but whether or not they're doing a good enough job anyway. Looking at the UK's economy over the long term (because I've not enough short term data), I think it's fair to say yes. Increasing the money supply at this point is a good idea; it mitigates the reduction in money supply caused by global downturn.

You're kidding. Are you a keynesian or something? Broon has spent and spent building his client state, running up an enormous deficit (the EU are all upset with him over it) and now we're entirely exposed to the coming depression with nothing left for the hard times. Which is why he's thrashing around trying to tax the shoes off the urchins in the street. Really, it's a disaster.

The reduction in money supply? We're back with fiat's inherent problems. The money supply is contracting because a lot of imaginary money that never existed has been shown to be so and is thus vanishing again like magic. Yay, "confidence" based money. The market is trying to correct, and the banks are trying to prevent it correcting by pumping in more imaginary money, which is of course going to just make things worse. The result will just be racking up more debt that has to be paid with future inflation and another ratcheting down of real production. How lucky it is we don't actually need to produce any more, as the magic of imaginary money creates wealth out of thin air. Apparently.

foobar said @ 5:55am GMT on 12th Jul
Don't be silly. The value of a gold receipt is the value of the gold it's a receipt for. That's how the system works, or used to.

Now you're being silly. You're attributing complete, 100% no possible fail ever trust to the receipt issuer, and you're assuming he has absolutely no costs and takes no profit. The value of the receipt is the confidence people put in it. Sure, the issuer can enhance that confidence by saying you can trade the receipt for x amount of gold, or just say that he has it as a hedge but you can't claim it, or he can just say trust me because I say so. Regardless, the receipt only has value because you trust that it does. Why you do is entirely a side issue.

A receipt is not gold. A receipt is a piece of paper representing confidence.

What people do with their money is up to them. If there's stuff to buy, they'll spend it. You're falling into the Planner's Conceit of presuming that somebody needs to manage the economy for the common good or some such rot.

Yes, of course I do, as does everyone else who likes the whole idea of functioning economies and running water and all that jazz. It's a part and parcel of civilization. Yes, I am a Keynesian, and so are you if you're not living in a shack somewhere writing crazy rants and mailing bombs.

It's been thoroughly proven that economies have to be managed. Disputing that makes you sound like the whining communists who insist we just haven't given the revolution enough of a chance. We tried it, the Depression happened, the rest of us moved on. Case closed.

We're back with fiat's inherent problems. The money supply is contracting because a lot of imaginary money that never existed has been shown to be so and is thus vanishing again like magic.

We've already gone over this. Perhaps you could argue that this is a problem with fractional reserve banking (which is actually the bit that increases the money supply in this case), but not with fiat currency. Those mortgages would have been written just the same regardless of the substrate of reserve.

jaxtraw said @ 1:55pm GMT on 11th Jul [Score:2 Underrated]
What we're watching now is the inevitable disastrous consequences of political meddling in the markets, the unavoidable roosting of chickens. Well, they've caused their disaster now. Many of these financial institutions are worthless, and need to be allowed to collapse. The worst thing you can do is bail them out. Having caused a tsunami of malinvestment, the government will then send the wrong signal- if you malinvest, we will step in and commit taxpayers' money For The Good Of All.

The only rational way out of a recession/depression is to allow the bad companies to liquidate and the only lesson to learn is to not interfere. But governments won't do that.

All this has happened before, and all this will happen again, kind of thing. The governments foster debt expansion by pumping credit into the market for short term political gain. They create an environment in which it is perceived as a Good Thing to loan money to people who can't afford the debt, e.g. through the Community Reinvestment Act. Then when it all inevitably fails, the free market, which isn't free at all, it's heavily regulated and governmentally-entwined market anyway, is blamed.

Poor people can't afford mortgages, especially in a property market inflated by the very existence of easy mortgages. Extending credit to the uncreditworthy is not a solution. We have in the western world pushed the cost of a basic human necessity- shelter- far beyond the means of most ordinary people. We then offer them usurous loans, the payments on which are themselves barely within the means of many ordinary people. Madness. If you trace back the causal chain, looking always as Bastiat reminded us to beyond that which is seen, to that which is unseen, the dead hand of government is, as ever, revealed as the culprit.

Omegaphobic said @ 4:16pm GMT on 11th Jul
You know the parent's voices in the Charlie Brown cartoon movies?

That's what the above paragraphs read like to me.

You're really good at drawing bulbous titties.

jaxtraw said @ 5:01pm GMT on 11th Jul
But, it may be asked, are the benefits of freedom so well hidden that they are evident only to professional economists?

Yes, we must admit that our opponents in this argument have a marked advantage over us. They need only a few words to set forth a half-truth; whereas, in order to show that it is a half-truth, we have to resort to long and arid dissertations.

-Frederic Bastiat

mrcookieface said @ 5:29pm GMT on 11th Jul [Score:2 Insightful]
You make a number of very good and valid points, but I take issue with your first statement. What we're watching now is the disastrous consequence of not enough political meddling in the market. Had the Federal Government been on the ball through the whole game, we wouldn't be in this mess. Had they stepped in and said 'no' to these kind of lending practices, had they stepped in and said 'no' to merger after merger, or had they stepped in and 'no' (or at least 'are you fucking insane) on mortgage trading, we wouldn't be in this mess.

The federal government (whose mandate is to protect its citizenry from threats both domestic and abroad) stood by and let this get so big that the only way to hedge the fire is to bail out company after company instead of letting smaller institutions fail on their merit of their own mistakes and thereby uphold the entire principle of moral hazard.

jaxtraw said @ 6:10pm GMT on 11th Jul
No, I disagree. The Federal Gov didn't stand by and let this happen. They encouraged it. That's the problem. They encouraged irrational lending in the name of equality and opportunity, they made the money available via the Fed, and as you point out they eliminate moral hazard because big institutions know that if they get into trouble the government will step in and bail them out, at least to some degree. You can't trust governments to do the right thing; people complain that markets are short termist, but so are politicians, whose only incentive is to keep the balls in the air until the next election. They create feelgood bubbles, then blame everybody else for the inevitable busts.

Free markets make mistakes, but they are magnified by government intervention, is the point I'm making. Instead of a limited number of companies collapsing due to malinvestment, you end up with the whole economy collapsing.

structured_spirits said @ 7:37pm GMT on 11th Jul
Exactly, you'd be a fool to be a conservative investor. Risky investments either pay off or the government bales you out, either way it's a win for the risky investor.

Grubsteak said @ 8:21pm GMT on 11th Jul [Score:1 Insightful]
Agree with everything stated with the exception of the moral hazard component. Government bailouts, FDIC insurance, etc. CREATE moral hazard.

jaxtraw said @ 8:35pm GMT on 11th Jul
Quite right, I need to proofread :)

samejima said @ 9:58pm GMT on 11th Jul
I worked in the mortgage industry about 4-6 years ago when this whole refi wave was at full peak. Fundamentally, purchasing a house for the majority of peope is supposed to be a long term investment where your long term payoff is equity in the property you purchase as well as the profit you earn when you sell the house for a higher amount than what you bought it for.

The whole refi wave was for the most part highly unregulated. Interest rates were crashing. the majority of homeowners that I dealt with at the time were coming in as soon as they could to cash in the equity in their homes to pay credit card debt. i'm not saying that's wrong because people have to live and everyone likes the finer things in life. Unfortunately the results of this last housing boom are going to have devastating effects on the economy. What this refi wave created was a national mindset that it was ok not to build up the equity in your property, and that it was ok to go out and spend spend. T

The primary business model of firms like indymac was to form packages of loans which generated revenue created in the form of mortgage payments. the packages were valued in terms of the credit worthyness of the borrowers. these packages of loans were then sold to REITS,investment firms, insurance companies and institutional investors who used the revenue streams to pay off interest,and dividends to their investors.
what nobody prepared for was the effect of borrowers cashing in their equity to live beyond their means. The industry actively encouraged that more people took on ARM type mortgages at the lower rates because their mortgage payments would be lower and that would be an attractive incentive to potential borrowers. the industry did not encourage better controls with respect to making borrowers aware of the payment structure of these deals or on the merits of building equity. as soon as the market bottomed out and interest rates started to increase, borrowers with ARM type mortgages had to contend with higher mortgage payments, balloon payments and the tightening of credit. These people had been borrowing on equity to go on vacation buy new cars and live fancy extravagant lifestyles which they would not be able to maintain on just salary. more and more of these borrowers are less inclined and just plain incapable of sticking it out and making payments so they bail on the property. The majority of institutions that depended on mortgage payments to payout dividends are now facing liquidity issues. houses have no value until you find someone to buy them but that's not enough. the buyer has to stick it out and make the payments over the life of the loan for the system to function. spend because you could cash in the equity in your property every year. Where is the moral hazard in bailing bailing out on a property in which you have no equity while at the same time the societal norm is to live beyond your means? Someone better come up with an answer soon, or else this situation will get worse and collapse the economy.

-_- said @ 9:40pm GMT on 11th Jul
The interesting thing to me about the US mortgage crisis is that it was largely caused by foreign equity funds investing in American mortgagaes.
Because of the growth in developing nations like India, Russia, and China .. along with the growth all over the world which the spread of the internet has fueled, the private equity funds of nations and corporations went from a combined value of around 32 Trillion in 1990 to closer to 70 Trillion in 2000.
Most of these funds had their money in US Treasury Bills but then Greenspan announced that the US wouldn't be raising interest rates on T-bills above 1% and a lot of the Equity funds went looking for a similarly safe investment with a higher return.
They wound up settling on American property mortgages.
Historically American property values have never gone down and just about all mortgages are at an interest rate significantly better than T-bills and the like.

So yeah, these equity funds started buying up packages of mortgages from American companies (thousands of individual mortgages bundled together and sold together) and everyone got real excited..

The equity funds were excited because they felt they were buying a really good investment (it was a great investment at the beginning of the process)

The mortgage brokers got excited because they could sell off as many mortgages as they could write.

The consumers got excited because they could buy houses for no money down and were seeing their investments appreciate at a staggering rate.

And of course someone had to get left holding the bag.
So now we are seeing some big mortgage brokerages in the US fail.
We are seeing people lose their investment properties to foreclosure.
People are losing homes they never should have been able to buy.
And .. most interestingly..

Those foreign equity funds lost HALF THEIR EQUITY when the real estate market collapsed and are back in the 30-36 Trillion dollar range.
Where's all that money go?
American pockets, transaction taxes, construction/development companies, etc ... but it almost all stayed in America.

We need some high profile business/bank collapses in the US right now to help play up the idea that we are suffering too, or some of our foreign investors might get pretty angry at us ;D

Grubsteak said @ 9:49pm GMT on 11th Jul
Fractional reserve lending and fiat currencies are guaranteed to fail eventually. Fractional reserve lending enables the creation of money from nothing. It is the proverbial "printing press" - the Mandrake Mechanism as coined by G. Edward Griffin. The end result will always be debasement of the currency and eventual collapse, not only of the currency but of the economy that housed it.

ring riot said @ 10:57pm GMT on 11th Jul

"Indy! Indy, my friend, I'm so pleased you're not ... never mind."

Dan!el said @ 8:03pm GMT on 12th Jul
Good i hate Indymac! Goldman Sachs you're NEXT!