Banking Crisis

[rose-colored-coolaid]

[davidlosh@davidlosh.com]

OK, Warren Buffet produces what?

All factories are built on Real Estate. Ranch Land, Farms, Water Rights, Mining, Cell Phone Towers, Retai shops, and Wholesale outlets, are all Real Estate.

The stock market however is based, today, on paper profit. In my opinion that's why it is at 8,000 rather than 6,000. I think guys like Warren are pumping money in to prop it up and are begging Congress to do the same.

I'll also speculate that mortgages, the paper, were created for the benefit of paper profits. Mortgages are much different than the core value of the Real Estate.

There's a book called The Big Store that was written about Sears. A part of the story was the fact Sears owned acres of Real Estate. The founder of Sears believed one day every one would drive a car to the store. That's why you see huge parking lots around Sears stores. That Real Estate management is what saved The Big Store.

[anforowicz]

Sniglet,

Like many people I saw Roubini's statement that he thinks US banking system as a whole is insolvent (http://www.bloomberg.com/apps/news?pid= ... refer=home). Since Roubini has been right for the last few years I have to carefully consider that he may also be right this time. Unfortunately I still can't wrap my head around the possible consequences of having all the banks insolvent.

You say that depositors will most likely lose their savings. Where does that leave FDIC? There is a big question of where FDIC is going to get the money to cover everyone (increased taxation or inflation are 2 options), but are you saying that they will simply not pay at all?

I will need my savings for a downpayment in let's say 2 years, so I am reluctant to buy physical gold (I hope that if there is inflation or FDIC failure then it is not going to happen within the next 2 years). The 2 biggest drawbacks of buying physical gold that I see are having to pay markup to the coin shop and then accepting the risk of fluctuations in the price of gold. Also - if one believes in a possible failure of FDIC, then I guess TIPS can't be considered a safe haven?

A house would be a great hard asset Why can't those prices fall faster?!

[sniglet]

[rose-colored-coolaid]

[davidlosh@davidlosh.com]

causalities

Wow!

Then throw in Las vegas as another red herring and you have an argument?

What is the point?

[davidlosh@davidlosh.com]

OK, That was unkind. You are obviously trying to figure some stuff out and I appluad you for that. I can see you call yourself rose colored glasses because that's how you see the world. .

As much as many people may hope that our federal government will step in to save the day, the truth is American Corporations have more money than they know what to do with.

Paper profits and cash are two different things. The United States government right now is pumping in cash which corporations are refusing to let go of.

Your involvement here is probably because you think that mortgage backed securities are losing value and that is a bad thing. It's like foreclosure of American assets is going to bring down our way of life.

The last ten years has been a cash cow. It is very hard to imagine that by some fluke business people missed the basics of finance and just gave away all of the profits they have made in that time.

Look at the historical stock market graph as an example of how much paper profit there is.

Long story short is that there is no financial reason to nationalize banks. We are different from England, and India for sure.

Now, will banks fail? Of course. Will savings be lost? No doubt about it. Will the stock holders pay? That's the way it's set up.

[rose-colored-coolaid]

[WestSideBilly]

[SeattleMoose]

"I actually think cash is going to hold its value quite well, and that we will head into a period of deflation."

And deflation it is and shall be....at least for the next couple years.

Prices are not going to go charging up in a country with a quickly growing unemployment problem.

As much as the FED, the government, and all other debt "bagholders" would like to inflate their debt away (i.e. business as usual)....it ain't gonna happen in the near future. Uncle Ben is out of bullets and the governments attempts (like usual) to "fix the problem" will end up as a wash at best or will do more harm than good.

Buy food and store it. Keep cash in a safe. And be ready to protect your family as people become more "desperate" and city services are cut back.

I feel bad for Obama....he inherited a situation that before it gets better, will rival the Great Depression in both scope and human tragedy.

[rose-colored-coolaid]

[davidlosh@davidlosh.com]

Where to begin?

Many corporations lose money. It's a function of the corporate system. They are supposed to "lose" money.

The big problem I see with banks is that they can be larger than just providing banking functions. We allowed "banks" to function like financial instirutions and are now allowing financial institutions to function like banks.

In my opinion what has happened is that these huge corporate financial entities now move cash around exactly as a classic ponzi scheme. Some departments win and other "lose." Like a balloon you squeze at one end moves the air to the other end.

Inside of these huge, I mean enormous, I mean layer upon layer, of assets, and income, there's a guy in a basement office who knows where every penney is. Probably today it's a server with a financially engineered program.

Now track this. There is both paper profit and cash. Similar to leveraging you take larger and larger paper profits and convert those profits to cash. The cash position is only a fraction of the phantom, paper, profit, but the cash is king.

The people who are "losing' money are the stock holders who bet on the profitability of the corporations. The stock holders watched the stock market explode from 4000 in 1995 to 14000 two years ago. Even with the corrections of the Microsoft monoploy judgement in 2000 people still kept dumping in money.

So you think Real Estate was a balloon? What about a stock, like a dot.com, based on intellectual property. Financial engineering gave the illusion of a tangible asset where there was only paper.

As far as Real Estate; it's all dirt. Those office buildings in New York are dropping in value by the minute; about as fast as farm land is appreciating. You can't eat bricks, gold, or cash.

It makes sense that the mortgages would "launder" the paper profits, convert them to cash, through tangible assets. We all know what houses and commercial Real Estate are. We all see that, we invested in that, and have mortgages. If, and I mean if, banks are supposed to have cash reserves to cover the mortgages, if the mortgages are non performing where do the cash reserves go?

Once the cash reserves revert back to the "investors" the bank starts asking for more cash from our government.

Here's my point. In my opinion the "investors" in mortgage backed securities are actually other corporations that take stock holders money and "lose" it by taking pennies on the dollar by writing down the non performing mortgages. Another corporation forecloses on the property and another corporation manages the asset once all the cash is wrung out of it. Then the property is sold for more cash.