Bailout, the $700 billion dilemma and world markets

[kgun]

Last week was a remarkable week for an economist. Short selling of stock were halted and financial markets are effectively frozen and losses of big financial institutions are socialized. We witnessed how Lehman Brothers was filing for bankruptcy and finally bought by Barclays.


This is not surpricing for economists that have followed these sites

1. Crosscurrents August 2008
2. Elliott Wave International: Expert Market Forecasting using the Elliott Wave Principle

since 1999.

Links:
Morning Brief: The $700 billion dilemma | FP Passport

BusinessWorld Online: Corporate Watch By Amelia H.C. Ylagan: "Banca rotta"

AFP: End of era as Goldman, Morgan Stanley agree overhaul

elliott wave - Google News

[ctabuk]

I think the concept has backfired and the stock exchange is heading further downwards

[kgun]

At least the persons behind the two links mentioned above (1. and 2.) will agree with you as far as I know.

Fareed Zakaria has written an interesting book "The Post-American World" and make some interesting interviews.

I watched this interesting yesterday where the video may be included later.

Facts: http://www.interbrand.com/best_globa...px?langid=1000

My own opinion.

1. This is not a characteristic of a market bottom.
2. Governments can postpone and hopefully soften the developement but it is difficult to control the social mood.
3. When everybody hates the market and there is silence, you may be close to a bottom.

[ctabuk]

The rotters left CTABUK off the list

We feel that the real crash will be in October.

[cw1865]

Essentially from what I have been reading the government is going to set up the equivalent of the Resolution Trust Corporation which existed during the S&L crisis. This entity will buy up bad debt, which, from what I have read is mortgage debt gone sour.

In any event I just find this amazing because mortgages are fairly well secured. First they're secured by the debtor (who has apparently defaulted), then they are secured by the land/property (which apparently has declined in value), and, at least in the case of sub prime loans where the debtor put up less than 20%, the loan is further secured by PMI which is essentially mortgage insurance that the debtor pays to the lender for the benefit of the lender. (What were all of these people paying PMI for to begin with?); essentially between foreclosure and the insurance company, that just isn't enough, they need the government bailout too.

It seems that the markets have become prone to bubbles; whether its stocks, housing, commodities....

I opine that the root of the problem is wanton speculation.

To reign in speculation, I suggest increasing the short-term capital gains tax. As many of you know, if you hold an asset for less than a year, its essentially taxed like income. If you hold it for longer than a year it gets taxed as a long term capital gain (which is a much lower rate). Housing is an exception because you must hold it for two years and you get an exemption on your primary residence of up to $500K for a couple and $250K for a single individual.

Notwithstanding, the rules could be changed to lengthen the time to qualify for long term capital gains and/or the rate on short term capital gains can be increased.

I suppose the 'they're too big to fail' argument works, but this bailout seems to be becoming a habit....

[cw1865]

Oh, and by the way, when the government says $700 billion, multiply by three, they don't know how to estimate costs. Guaranteed, five years from now it'll come in at over $2 trillion.

[kgun]

To reign in speculation, I suggest increasing the short-term capital gains tax. As many of you know, if you hold an asset for less than a year, its essentially taxed like income. If you hold it for longer than a year it gets taxed as a long term capital gain (which is a much lower rate). Housing is an exception because you must hold it for two years and you get an exemption on your primary residence of up to $500K for a couple and $250K for a single individual.

IMO a good proposal.

1. A new story under the headline "the end of the titans" Goldman Sachs and Morgan Stanley are being transformed from investment banks to traditional banks regulated by the Federal Reserve System. This reminds me of the Norwegian Banking crises where some went bust and others were take over by the Government for a periode.
2. Sometimes, in extraordinary situations, markets must be tamed.
3. In my opinion prioritizing are important. Since losses are socialized a sort of insurance system are imposed on the part of the population that can stand it via the tax bill.
4. It should be possible to make a temporary Financial institution backed by this social insurance system - the tax bill - that buys the bad loans in the housing sector so ordinary people can keep their homes.
5. Individual plans must be made so that it is possible to pay the periodic annituities until the sitution (that still may last for years) gets better.
6. That was done after the war here in Norway. Den Norske Husbank was invented for social house building. Loans were granted on an individual basis based on needs.
7. Now a similar bank / financial institution can be invented so people can keep their homes.
8. Message, don't only socialize company losses, but losses for the average citizen as well.
9. I have seen that some short selling has been halted. May be a tax should also be imposed on such transactions as long as it is needed.
10. So prioriticing correctly is important. No nation has so many Nobel Prize winners as the USA, so you should have the availble brain power to get out of the crisis. Political ability or will is another story. What happens in your country will have transmission effect to the rest of the world. The worlds monetary system is tightly integrated.

[kgun]

1. Start taking Elliott Wave analysis serious: Interesting reading Robert Prechters: "The Elliott Wave Theorist" August 15, 2008.
   "We continue to believe that, by the end of this bear market, money - whatever of it survives - will be king".
   
   The main problem is not the stock, but the credit market. Elliott meant the the stock market would reach it's top in 2012. That is even possible if you know what an expanded flat is. According to his theory, it will not be similar to the 1930 correction.
2. Our background written in 2004 / 2005.
   
   "The personal view of me, who have written this page.
   
   There are two candidates to the Nobel Prize in economics, Ralph Nelson Elliott (post mortem) and Arnold Zellner".
3. Personal view: This is not about democrates, republicans, USA, Europe, Asia. It is about social mood of homo sapiens - in short mass psychology.
   
   

[cw1865]

9/11 -

http://www.nypost.com/seven/02052007...m_topousis.htm

$3 billion

http://www.usatoday.com/news/sept11/...1/pentagon.htm

Pentagon repairs - $700 million

Four Airliners

Assuming Boeing 737 Next Generation - $50-$85 million per unit = $340 million

Now of course the absolutely tactless part is placing a value of lives. I have read that the EPA places an internal value of a life at $8 million. In other words, if the cost of regulation can save lives at an $8 million per life saved rate, they consider it efficient, if not, then they consider the regulation burdensome. Nevertheless, we'll say 3,000 * 8 million = $24 billion

TOTAL DIRECT COST OF 9/11 = $28 billion

Now of course there are other factors and major indirect costs, but in response to this we sent an army half way around the world.....Wall Street makes Al-Qaida look like mostquitos.

I'm not trying to belittle 9/11 - just really ticked off about this bailout thing...in case you haven't noticed....

[cw1865]

Personal view: This is not about democrates, republicans, USA, Europe, Asia. It is about social mood of homo sapiens - in short mass psychology.

I think this article supports your position: Herd mentality rules in financial crisis - Yahoo! News

Seems we're no better than lemmings after all