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The Great Depression and todays finances ...

Discussion in 'Uncategorized Threads' started by W.P.T., Mar 20, 2008.

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  1. W.P.T.

    W.P.T. TS Member

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    TV news programs show grainy footage of Depression-era bankers as reporters tick off grim economic statistics. The Federal Reserve invokes powers it hasn't used since the 1930s. Critics of President Bush's economic policies are emboldened to use the H-word: "Hoover."

    On the surface, there are disquieting parallels between economic conditions in the early 1930s and those of today. There is the popping of enormous asset bubbles -- stocks then, housing now.

    And, as in the Great Depression, the financial system is in disarray. It was symbolized back then by the failure of thousands of banks, mostly small, local outfits -- 2,300 in 1931 alone.The parallel today is the crippling ofonetime giantssuch as Bear Stearns Cos., Countrywide Financial Corp. and Ameriquest Mortgage Co.

    Many economists believe that the U.S. will find it almost impossible to avert a recession, if one has not started already. Housing remains mired in a deep slump,with some analysts projecting that Southern California home values could plunge 40% from their peaks last year.The Commerce Department reported this week that new residential building permits nationwide plummeted 36.5% in February from a year earlier.

    Then, like now, stock prices were highly volatile. The S&P 500 index, which fell more than 56% from 1928 through 1940, nevertheless recorded four up years in that span, including a 46.5% gain in 1933.

    The shadow of the '30s looms over every economic downturn or crisis, no matter how modest. Pundits were quick to invoke the Depression as a cautionary model during the stock market crash of 1987, the bailout of the giant hedge fund Long-Term Capital Management in 1998 and the dot-com meltdown of 2000 and 2001.

    But there are vast differences between the 1930s and today. U.S. unemployment reached 25% during the Depression; last month it was reported at 4.8%. The international industrial economy was a shambles in the '30s. Today it is coming off a global boom.

    "I've been asked many times whether we will have another Great Depression," said David M. Kennedy, a Stanford University history professor and the author of "Freedom From Fear," a Pulitzer Prize-winning history of the Depression and World War II. "My standard answer is that we won't have that one again -- I'd be surprised to have one of that seriousness and duration. But that doesn't mean we wouldn't have a catastrophe we haven't seen before."

    Economists and historians say the most important difference between today's economic environment and the old days is the government's role.

    "There's a perception now that you don't stand around at the central bank and whack people with a ruler for making bad decisions," said Robert Brusca, chief economist at New York-based Fact and Opinion Economics. "Instead, you do something."

    Nothing demonstrates that as vividly as the Fed's orchestration of the takeover of Bear Stearns by JPMorgan Chase & Co. over the weekend. The deal staved off a possible Bear bankruptcy, which the central bank feared might traumatize financial systems worldwide.

    The resolution drew a stark contrast with the Fed's role in the 1930 collapse of the Bank of the United States, a New York institution largely serving Jewish immigrants. The failure was then the largest in U.S. history, and the Fed's inability to arrange a rescue by Wall Street banks -- including J.P. Morgan & Co., the predecessor to the "white knight" in the Bear Stearns case -- caused a cataclysmic loss of confidence in the entire national banking system. That fueled a panic that historians regard as a key cause of the Depression.

    The Fed's relative powerlessness in 1930 led directly to New Deal reforms that vastly expanded its authority. Some of the agency's new powers, such as its ability to lend directly to brokers and investment banks, were seldom or never used until the current crisis.

    Fed Chairman Ben S. Bernanke, an expert in the central bank's Depression-era history, is also knowledgeable about the instruments at its disposal in a crisis.

    In a 2002 speech -- he was then a member of the central bank's Board of Governors under Alan Greenspan -- he outlined a number of drastic steps the Fed could take in extreme conditions and still remain within its legal authority.

    Among them were buying up foreign government debt to influence dollar exchange rates, and even lending, if indirectly, against private assets. The subject of Bernanke's speech was how to combat deflation, a broad decline in consumer prices that is not currently a problem on the Fed's agenda. Still, the powers he described could apply in a wide range of dire scenarios.

    But as Fed Vice Chairman Donald L. Kohn conceded in testimony before a Senate committee this month, the most serious challenges generally arise not from scenarios that can be forecast but from the unforeseen.

    Alluding, in effect, to the tendency of regulated industries to burst at their weakest seams, Kohn blamed "the most sophisticated banks" for allowing credit rating agencies such as Moody's and Standard & Poor's to paper over the unsoundness of mortgage securities on their books.

    The agencies bestowed lofty AAA ratings on some extremely complex mortgage bundles even though their inherent risks were not understood. The banks and firms that packaged the securities and hawked them to clients simply accepted the rating agencies' conclusions, which were often favorable to the packagers. The dubious valuations of many of these securities are at the core of the credit crisis roiling the financial markets today.

    Brusca, the economist, says the most dangerous behavior often occurs just beyond regulators' reach -- in the exotic strategies of the hedge fund industry, to use a contemporary example. "We have a far more extensive regulatory network now," he said, "but it's always the unregulated sector that pushes change."

    Does it make sense to require banks to maintain adequate capital relative to their obligations, Brusca added, "but let them have an unregulated hedge fund?"

    There are also limits to what monetary policy -- the Fed's responsibility -- can achieve on its own to forestall a drastic economic downturn. The Franklin D. Roosevelt administration not only reformed the Fed but also experimented with stimulative fiscal policy, such as unemployment relief.

    New Deal programs aimed at staving off a wave of home foreclosures may be especially relevant today. Among the most important was the Home Owners Loan Corp., or HOLC, which is one of several models for homeowner relief being considered by Congress.

    HOLC took over 1 million mortgages in default starting in 1933, worked to keep the owners in their homes and made new loans to strapped mortgage holders. When the agency was finally liquidated in 1951, it even returned a small profit to the U.S. Treasury.

    The Fed's recent actions were "a temporary palliative" to the fundamental problem in the economy, which is the rapid fall in home prices and its ripple effect on mortgage bonds and other securities, said Barry Eichengreen, a professor of economics and political science at UC Berkeley. "You have to reorganize the system, but the discussion about that has only begun."


    And we wonder whats going on with trapshoot attendance ... WPT ... (YAC) ...
     
  2. nipper

    nipper TS Member

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    Well i cant reply any better,wake up and smell the coffee instead of just drinking some.

    Bill
     
  3. Chip

    Chip TS Member

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    In regards to the slumping housing market. Buyers who thought the market only went up, who bought more house than they could afford using; Liars Loans, interest only mortgages, no downpayments, low interest mortgages where the an additional % of the fianance charges was rolled over into the amount financied, ARM's, have no role in their current plight?

    Back in '83 I bought my first house using a VA loan. It was clear to me that if I borrowed as much as they were willing to loan I would have little money for anything else. I also believe I had to come up with 10% down just to qualify.

    Many facing foreclosure today borrowed more than they should have, failed to put a significant amount down and or used creative financing that never allowed them to build equity. Sad as it is, many people played musical chairs with the largest purchase of their lifetime. It's all fine in booming times, but when the music stops, and values stop rising or decline, those without equity or holding a variable mortgage payment can lose.
     
  4. Neil Winston

    Neil Winston Well-Known Member

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    WPT, in view of the following, it's better to link than copy.

    michael.hiltzik@latimes.com

    You may not republish any portion of the Content on any Internet, Intranet or extranet site or incorporate the Content in any database, compilation, archive or cache. You may not distribute any Content to others, whether or not for payment or other consideration, and you may not archive, modify, copy, frame, cache, reproduce, sell, publish, transmit, display or otherwise use any portion of the Content. You may not scrape or otherwise copy our Content without permission. You agree not to decompile, reverse engineer or disassemble any software or other products or processes accessible through latimes.com, not to insert any code or product or manipulate the content of latimes.com in any way that affects the user's experience, and not to use any data mining, data gathering or extraction method.

    Neil
     
  5. Jim101

    Jim101 Active Member

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    Deckart, There's jobs in this country. First you need to be willing to work and some times you may have to go farther than you can ride a stolen bicycle.








    Jim
     
  6. ou.3200

    ou.3200 Well-Known Member

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    Deckart, You are way off base on stating that people who run out of unemployment are no longer counted. Take a look at this link:

    http://www.dli.mt.gov/resources/howrate.asp
     
  7. BIGDON

    BIGDON Well-Known Member

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    At the same time as I condemn those Mortgage companies I also condemn the greed of their so-called victims. What did they do with all the equity they pulled out of the over valued house which they let go into foreclosure???

    Don
     
  8. pendennis

    pendennis Well-Known Member

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    Also remember that the prevailing economic theory at the time was that of Keynesian Economics. It posited that government would be able to fill the slack in business by government spending. Although there are those today who still espouse Keynes, the theory has generally been discredited. In fact Keynes distanced himself from the works in later years.

    Also, one of the great failings in the 1920's was the mass lending to individuals, who in turn, invested in a booming stock market. These are the same type folks who bought into a rising housing market in the 1990's.

    As the market started to cool in 1929, buyers who used margins to buy stocks, had to come up with amounts they thought would be due in several years. Banks were on the hook for these loans, and the financial houses came tumbling down.

    This finally bred the stronger securities and banking laws we have today. It took four years to pass the National Securities Act in 1934, and another year to create the Securities And Exchange Commission.

    Please understand that all markets move up and down. Witness the last several months. Gold is showing a needed correction, as are oil and lead. Anyone who believes that markets will only move upward will usually lose his/her shirt.


    Best,
    Dennis
     
  9. mercedesman1981

    mercedesman1981 TS Member

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    There is plenty of greed to go around with the banks being allowed to bundle up their junk loans to market at "bond funds". Greenspan has done much great work but dropped the ball on this on.

    The other issues: how about the high cost of oil and the making of a disaster on the trucking companies and transportation industries - more "fuel" for inflation or stag-flation and the devaluation of the dollar overseas where many economies have pegged their currency to. So what if all these countries decide to sell their dollars to buy euro's and now we REALLY have too many dollars chasing product.

    Mike
     
  10. halfmile

    halfmile Well-Known Member

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    In the 20's buying and owning stocks became very popular. The post WW1 prosperity and the advent of automobiles for people who never had them gave an illusion to many that was unwarranted.

    Margin requirements were very liberal. But way too many individuals got overextended on margin, and that brought down the brokers.

    Body rain ensued as fortunes were lost.

    But 2 things were different from today's scene.

    1. We produced most of our goods ourselves.

    2. We consumed less than we produced, and a negative trade balance was unheard of.

    The problem then was that there was no money in circulation. In my mother's home, if a quarter showed up, you hurried to spend it because there may not be another for a while.

    Now we have too much money and the dollar is careening downward. NO, Homer, Gold is not going up. You're just lookiing out the wrong end of the elevator window.

    Hang on to your hat, the ride is just getting under way.

    HM
     
  11. shannon391

    shannon391 Active Member

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    WE no longer make things we just buy them from China. In order to keep the good times rolling banks allowed people to use their over valued houses as ATM machines, spend money be a good consumer.They are now going to give the people Refund checks in hope they spend them to keep the good times rolling.

    The Fed cuts the rate, the market soars, next day sells off. Oil at $100+, INFLATION, endless war, worthless dollar, Failing banks.

    There seems to be multiple red lights flashing.
     
  12. Little Dog

    Little Dog TS Member

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    Is there any limit to deckfart/sammie's ignorance? Are all liberals this brainless?
     
  13. blizzard

    blizzard Active Member

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    I love it. " there are no jobs in this country". BULLSHOT!!. I get job offers every couple of days on average, both local, and from places all over the country. Three weeks ago I quit a job on a Friday and dropped my toolbox off at the place I started at the following Monday on the way home.



    If you want to work, and have some knowledge about what you are doing, there are PLENTY of jobs out there.



    One job I just turned down a couple of weeks ago was for a three month stint in Mass. 32.00/hr. 125.00/day per diem. 12 hrs./day 7 days per week. With a baby due May 21, that wasn't going to work, but don't tell me that there isn't jobs out there.
     
  14. W.P.T.

    W.P.T. TS Member

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    Neil,

    I didn't copy it, it was sent to me in the form that you see presented and did not include the attachment of copywrite ... I am innocent I tell you ... Makes for interesting reading and how true with the housing market in the so called tubes ... The classified section of the local papers have more useless crap in them that ever before with people trying to bail out on all of the stuff bought with the "Equity" that they had in their homes which was none to start with ... I get offers almost on a daily basis to come and bid on homes that are being foreclosed on, some that have never even been occupied ... This sure looks like the start of a recession to me with every thing going up except peoples abilty to pay ... WPT ... (YAC) ...
     
  15. Jerry944t

    Jerry944t Well-Known Member

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    Halfmile has it right. Things could get very ugly.

    I just went through a very disturbing session with a financial advisor. He told me basically to hold on to my hat. He said that the financial situation right now, world wide, is extremely unstable and he has no idea where it's going.
     
  16. b12

    b12 Well-Known Member

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    The wealth in this country is still trying to strain off every bit if dollars and cents from the middle,lower and poor class. Their is a proposition going on as we speak about letting people have a Debit card on their 401k's. Its just another trick to get the last drop of juice out of the lemon. You all know and I know that most people will never pay themselves back if the borrow their own money. The younger generation don't look at things the same way the older generation does. If that happens lookout. You think their is welfare now wait till those people reach retirement age. Bill
     
  17. pendennis

    pendennis Well-Known Member

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    Deckart, you wrote: "Dennis, I thought the reason for the crash was brokers buying stocks on margin. Looks like better controls over these practices would have saved a lot of people from disaster. Just a thought."

    Buyers (investors) had to purchase stocks through brokers, who in turn, worked for the various brokerage houses and exchanges. No one bought stocks directly. Brokerage firms set their own rules for stock sales and trades. There were no central rules for purchasing stocks. However, competition among the various brokerages, created sets of loose rules. At the time, there was no interest in tightening any rules because of the money to be made. Remember, brokers got their money on the value of the trade. The more and bigger trades, the more each broker and brokerage house made. They couldn't have cared less that you didn't have enough money to cover the margin call.

    It wasn't until the National Securities Act was passed and the Securities and Exchange Commission was created, that specific rules were created for margin accounts, stock trades, etc.

    The day of the percentage broker is probably coming to an end. With the advent of flat rate and portfolio value percentage fees, their days may be numbered.

    Today, we have a different problem, in that we have speculative traders making huge money on futures trading. It's one of the main problems with oil prices, and other commodities. It's taken the control of the price away from the producer.

    Oil is a relatively plentiful commodity. The production cost is low. However, because of demand, the speculators, read futures traders, manage to create a lot of havoc in the markets, including stocks. Remember, these trades are for contracts 90 days into the future.

    Several weeks back, a single trader managed to create a stir by purchasing a single 1,000-bbl contract for $100/bbl, when the price was running just under $100. He sold the contract for a loss, but managed to get his fame.

    Dennis
     
  18. Dahaub

    Dahaub Active Member

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    I've always said the Iraq war was all about the money and this administration basically everything is all about the money. It's money and how the Bush family can get control of more of it than they had control of before George Jr was appointed to office the first time. Did you notice who saved the day for America and came to the rescue of the Bear Stearns bank? JP Morgan Chase I just would like to know the % of that bank the Bush family has control of? Did you notice that now a major corporation in America can't even go belly up? Used to be that bad management and piss poor financial choices would let a business go belly up. Now the Fed and another bank wants to get a bargain basement takeover bid at 1/50th the price of the stock a couple days before that. Interesting isn't it? There isn't an economist out there that says we aren't headed for the black hole. Banking industry is suddenly told to pay the piper and they have to abide by the rules of business, i.e. earn your money the old fashioned way, don't lend money to those who haven't earned the priviledge of borrowing from a bank with a secure payment plan in hand. In short ya do business by the Golden Rule, Do unto others as you would have them do unto you. Plenty of money to be made out there just by being decent to the customers, and making sure that the people would be decent customers to begin with. Thats' taking care of business the old fashioned way and doing the leg work yourself. Dan
     
  19. deckart

    deckart TS Member

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    sticky troll, how did you ever learn to read? you are so dad gum stupid I feel sorry for you. Are you retarded or just trying to be cute? Why are you putting words in my mouth? ""he believes un-employment figures are bogus. He thinks the numbers should include everybody that don't work ie. prisoners, disabled people, the mentally ill-(himself), housewives, babies, retirees and senior citizens up to the age of 125 Yrs.""


    I wasn't talking to you little troll and i never said what you wrote. So that only leaves---YOU ARE A TROLL or YOU ARE A PERV. Which one is it LIAR????

    ************************** TROLL ALERT !!! ****************************
     
  20. halfmile

    halfmile Well-Known Member

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    Zara, you are half right. They (Islamofascists) hate us because of our support for Israel.

    But now we have have part of the breeding ground for subway bombs, hijackings, and a host of other ills under some semblance of order.

    If you remember, Saddam was giving rewards to the families of suicide bombers.

    Gassing the Kurds was just frosting. And last I knew, Sarin wass a WMD.

    HM
     
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