Iraq is nearly over. BTW we won.

[Radar]

Originally Posted by xoxoxoBruce

I think he's referring to the fact that China has bought a large share of the US government bonds used to finance the military.

Bingo!

[tw]

Originally Posted by xoxoxoBruce

I think he's referring to the fact that China has bought a large share of the US government bonds used to finance the military.

China has long believed they were being helpful by returning boatloads of dollars to America by buying US government bonds. Unfortunately, this has further made Cheney, et al feel that massive deficits don't matter. If China did not buy so much American debt, then Cheney, et al would have to come to grips with a government without cash.

Well, the Highway Trust Fund has already been so depleted and having trouble meeting next month’s payments. States are complaining that Highway fund payments are no longer arriving in a timely manner. Even with China, et al massively buying American government debt, the government was still having cash flow problems in some locations. What happens if foreigners stop financing the George Jr administration? Well what do we stop funding? Infrastructure and education - or troops on the other side of the world?

The reason that George Jr (Cheney) could spend like drunken sailors? China, et al made Enron style accounting appear to be balanced. Without China, et al, the American government could not spend $2 trillion to bail out Wall Street.

[xoxoxoBruce]

Originally Posted by tw

...the American government could not spend $2 trillion to bail out Wall Street.

Really, is that what the final tab will be?

[Shawnee123]

Originally Posted by tw

China has long believed they were being helpful by returning boatloads of dollars to America by buying US government bonds. Unfortunately, this has further made Cheney, et al feel that massive deficits don't matter. If China did not buy so much American debt, then Cheney, et al would have to come to grips with a government without cash.

Well, the Highway Trust Fund has already been so depleted and having trouble meeting next month’s payments. States are complaining that Highway fund payments are no longer arriving in a timely manner. Even with China, et al massively buying American government debt, the government was still having cash flow problems in some locations. What happens if foreigners stop financing the George Jr administration? Well what do we stop funding? Infrastructure and education - or troops on the other side of the world?
The reason that George Jr (Cheney) could spend like drunken sailors? China, et al made Enron style accounting appear to be balanced. Without China, et al, the American government could not spend $2 trillion to bail out Wall Street.

bold text mine

My question is, and I am starting out professing I am no expert on this subject, what happens when China calls in the loans? Are we really immune to a takeover? Will China own us?

Also, why did everyone in the know walk around with their heads up their asses until the crisis got THIS BAD? Why is this typical of the Bush administration? Until things hit rock bottom, they're counting birds in the sky or something.

[classicman]

I am less of an expert than S123,
What has congress done about anything - anything at all - anyone?
Oh thats right - they went on ANOTHER three week vacation.

[Shawnee123]

Thank you, tw. I appreciate the explanation; I know it is a complex issue but even with limited knowledge I know it is a very scary situation.

Speaking of Cheney, I must read "Angler" by Barton Gellman.

The depths of evil have reached some proportion, eh?

[Shawnee123]

I know, I was just making sure, but also re-vamping my rant. I love a revamped rant, don't you?

[Pico and ME]

Oh yeah...vamping a rant always deserves a 2nd go around.

[Undertoad]

Our previous administration also contributed by putting lawyers in charge of Fannie Mae. No lawyers in charge of finance, please.

A few appropriate scapegoats of the current scandal are Franklin Raines and Jamie Gorelick.

[tw]

Originally Posted by Undertoad

A few appropriate scapegoats of the current scandal are Franklin Raines and Jamie Gorelick.

Both were gone when the major problem in Fannie and Freddie were created. Sub-prime loans that once never exceeded 10% of the loans were suddenly increased to something like 25% of all loans starting 2004 - after Raines and Gorelick were long gone.

Major problem with so many institutions were the large number of sub-prime and other (ie NINJA) loans that were implemented about 2004 to *stimulate* a sagging economy even to people who should not have had those loans. We are now paying for that economic boom recreated only by throwing money at the economy - after Raines and Gorelick were gone. A problem created by the George Jr administration need to *stimulate* the economy.

[Undertoad]

Originally Posted by tw

Both were gone when the major problem in Fannie and Freddie were created.

Leaving the organization just before and just after a major accounting scandal, leaving it leaderless until 2 weeks ago.

[tw]

Originally Posted by Undertoad

Leaving the organization just before and just after a major accounting scandal, leaving it leaderless until 2 weeks ago.

Leaving Fannie and Freddie to do what George Jr has been doing for the past seven years? Pumping government money into the economy. We are now reaping those economic stimulus packages including a feast of free mortgage money and 30 to 1 debt to equity ratios.

Let's see. Raines and Gorelick left in 2004. George Jr's people could not find anyone to take the job for four years? Oh. With all those White House lawyers rewriting science, then no lawyers were available to replace Franklin Raines and Jamie Gorelick? Apparently.

[Undertoad]

As near as I can figure out, we're both right.

Like modern airline crashes, the crash can't be pinned down to any single failure, but a perilous combination of them. Starting with the S&L failure, the community reinvestment act, the sudden need for backed securities and the eagerness of the congress to give it to them, the greed, the nest of backed and unbacked securities behind the mortgage market. The desire to put more money in the market. The desire to get poorer Americans into home ownership. The Countrywide "special loans" and lobbying and wheeling and dealing to preserve their setup and keep getting rich. Fannie Mae pushing ARMs because it was the only way they could keep growing. (By 2004 92% of FNMA-backed loans were ARMs) The sudden SEC deregulation was the final burst of too much water over the hull.

Nobody was smart enough to predict the combination of failures and everybody wanted to protect their phoney-baloney jobs. One obvious truth is that government can't really be trusted to ensure securities too far, because there's too much money and power to be gained; and thus we could expect the sort of wheeling and dealing where everybody could get a little richer and blame was spread around thin enough not to point the finger at any single entity.

[tw]

Demonstrated are some basic facts.

Any effort to fix an economy by throwing money at it; the economy will only take revenge with even more severe consequences.

Whereas money can be used to address isolated problems, the only solution for an economy in recession is to let companies go through bankruptcy early so as to fix their #1 problem - top management.

Deficits do matter.

Enron style accounting is still alive and well. The greatest reason credit market seizure - nobody could trust anyone else's spread sheets. Industries get the regulation they deserve. Historically, finance industry regulation was and should be massive since no other industry so worships "Greed is good" and so overpays their top management for doing so little.

Tax cuts without spending cuts simply guarantee even higher taxes or other equivalent economic punishment in the future. Warren Buffet was correct. There is no free lunch even though our government said otherwise six years ago. How many forgot $8billion of free money to the airline industry with no strings attached and no repayment required. How many saw increasing debts, saw current profits as high, and therefore assumed everything would be OK ten years later?

Always go to highest levels to find why all those other guilty parties exist.

Ross Perot said that if any company did accounting routinely done in the federal government, then all corporate officers would be jailed immediately.

Any industry that will not innovate until required to by government regulation deserves to be sold to foreigners OR terminated with the stockholders getting exactly what they deserved. There never was any reason for government to protect the auto industry, big steel, or airlines. Only thing that saves a company is the same thing that is the only purpose of that company - product innovation.

[tw]

Originally Posted by Undertoad

Nobody was smart enough to predict the combination of failures and everybody wanted to protect their phoney-baloney jobs.

These problems were predicted. For example, The Economist front cover showed a falling brick labeled housing prices. Everyone knew the economy would be hurt by the housing market. Housing prices at 40% too high must eventually fall and typically fall hard - especially when government was trying to protect those high prices rather than address the problem. From the Economist of 16 Jun 2005:

Perhaps the best evidence that America's house prices have reached dangerous levels is the fact that house-buying mania has been plastered on the front of virtually every American newspaper and magazine over the past month. Such bubble-talk hardly comes as a surprise to our readers. We have been warning for some time that the price of housing was rising at an alarming rate all around the globe, including in America. Now that others have noticed as well, the day of reckoning is closer at hand. It is not going to be pretty. How the current housing boom ends could decide the course of the entire world economy over the next few years.

This boom is unprecedented in terms of both the number of countries involved and the record size of house-price gains. Measured by the increase in asset values over the past five years, the global housing boom is the biggest financial bubble in history (see article). The bigger the boom, the bigger the eventual bust. …

Enron made it obvious how corrupt accounting had become. But we did nothing for how long? Few would admit how massive mortgage backed secuirities had so contaminated the financial markets. The few who openly acknowledged it included a Senior VP of Merrill Lynch (who got fired for being honest) and Goldman Sachs (who hedged sufficiently to protect themselves).

Everyone know NINJAs were widespread. Everyone knew these problems would come back with negative consequences (those not blinded by greed). However nobody knew 'when'.

I remember a girl who asked about investing in the market in August 1987. It was obvious that the market would suffer a big downturn. The only problem - as I told her - was that I could not say if it would occur next month or next few years. The downturn was that obvious and inevitable. I recommended waiting to invest after the crash. That became the October 1987 crash. Nobody could predict 'when' the obvious would occur.

These problems were obvious. What people cannot say is when the inevitable will occur.

Bankruptcy is averted by perverting the spread sheets. This only permits a simpler problem to get worse - ie Enron. The sooner a symptom of bad management becomes obvious, then less damage results. Unfortunately, the past decade plus had simply subverted regulations that require honest spread sheets. This became most obvious when Harvey Pitts (SEC Commissioner) refused to accept a doubling of his budget by Congress. The 'powers that be' wanted 'less regulation'. Those same 'powers' literaly has to be embarrassed when Oklahoma filed suite against Enron - forcing the 'powers that be' to concede and prosecute Skilling and Lay.

Deregulation to permit spread sheet games has only made it even harder to predict "when".