Upside Down to Right Side Up

[Charles Mackay]

Re: Upside Down to Right Side Up

The crash will be triggered by the usual source, a revelation of fraud that exposes the corruption. The most likely ground zero? The GSEs.

The GSE stocks act as if there are implicit government guarantees. There are no such guarantees.http://en.wikipedia.org/wiki/Mortgage_GSE_controversy

Read the conclusions in William Poole Jan 17, 2007 speech on GSE concerns.
http://www.stlouisfed.org/news/speec.../01_17_07.html

"Three essential reforms are needed to eliminate the GSEs’ threat to financial stability. First is a limit on their portfolio growth; second is an increase in their minimal required capital; third is satisfactory bankruptcy legislation so that, should the worst happen, federal authorities can deal with the problem in an orderly way. "

Has there been any bankruptcy legislation proposals? Even if there was I don’t see any orderly fashion of unwinding the real estate bubble. I call it a crash and burn the debt holders.

Whether the government bails out sub prime and GSEs is really the pivotal factor in deciding the inflation/deflation debate isn't it?

[jk]

Re: Upside Down to Right Side Up

does anyone here believe that the gov't would NOT bail out the gse's?

[bill]

Re: Upside Down to Right Side Up

The Goldman’s of the world have used the yen carry to borrow on the cheap and pool investors backed by real estate with attractive yields and using high approval rating’s (insurance) from Moody’s for example. The Goldman’s make a fortune brokering paper, pump the real estate to a all time bubble and have escaped liability. We call this activity corrupt as James put it, Goldman’s calls it business as usual and a good return. By the time, as EJ put it “crash will be triggered by the usual source, a revelation of fraud that exposes the corruption” I’m sure Goldman’s will already have their best finger pointing blame experts (legal counsel) assembled and ready to go. Goldman’s of the world will already be gearing up for the next potential bubble in another industry and put the last one behind them.
If the government does bail out the gse’s it will be a very slow process, dragging it out over time letting us tax payers foot the bill gradually.

[Charles Mackay]

Re: Upside Down to Right Side Up

does anyone here believe that the gov't would NOT bail out the gse's?

Well, letting the paper collapse in a debt default and then riding in on a white horse and buying it up at .30 cents on the dollar in a few years can also be a very profitable move by GS and MS. This cleans up the balance sheet of USA Inc. and then they can move on and create the next bubble while everyone else is worrying about a depression.

As investors we need to be nimble enough to anticipate that as a possibility.

[jk]

Re: Upside Down to Right Side Up

to clarify: i do not think the gov't would bail out the stock holders in fannie and freddie. but i am sure the gov't would bail out the holders of gse paper.

[EJ]

Re: Upside Down to Right Side Up

to clarify: i do not think the gov't would bail out the stock holders in fannie and freddie. but i am sure the gov't would bail out the holders of gse paper.

Or ala LTCM, get the boyz to buy them out and clean them up?

Blackstone, Rival Group Compete
In Bid to Get Control of Sallie Mae

By HENNY SENDER and JOHN HECHINGER
April 14, 2007; Page A3


Blackstone Group and a group consisting of JC Flowers & Co. and J.P. Morgan Chase & Co. are each in talks to acquire control of SLM Corp., or Sallie Mae, the nation's largest provider of student loans, in a deal that could be valued at as much as $20 billion.

[stumann]

Re: Upside Down to Right Side Up

Agreed, but Japan's 90s experience was hardly deflationary. Recall all those loaded Japanese tourists jumping off the buses and buying up everything in the overpriced gift shops!!! The Japanese consumer/wage earner was basically a hostage within a certain set of circumstances. Japan was in fact a figure of health during those years - "growth" tanked because they were so much more efficient compared to the ever wasteful-and-growing-ever-more-wasteful-awash-in-debt Americans.

I disagree with original article's position that the debt bubble was not the result of a conpiracy. Read Batra's "Greenspans Fraud" - back in the 80s, old Mr. Green-pants knew full well he was shifting the tax burdon from corporations onto the average working American in order to create the appearance that voodoo economics actually worked. This was the beginning of the "market logic" trend which culminated in the out of control debt bubble - a small lie covered up by a series of ever larger ones. I mean, come on...when Mr. Green-pants came out and told us to switch over to adjustable rate mortages - what better proof does there need to be he was out to inflict pain on the little people?

Until a few months ago, I figured there'd be "a big one" - a big market decline. Now I'm not so sure. I'm thinking both markets & information are now so manipulated, America will instead follow a 1980-90s Soviet style decline rather than a repeat of the Great Depression. The Soviet people continued to get poorer and poorer, all in the face of good news, until the system collapsed and the criminals running things from behind the curtain came out into the open. That's what seems to be occuring in America today. The Bush & Cheney crew no longer bother to hide their corruption - the PPT keeps markets within a trading range - gold & oil are kept artificially high - foriegn currencies are kept way over inflated in the lead up to another engineered "Asian Crises".

It's an in-plane-sight conspiracy (to borrow words from the 911 conspiracy theorists). America's financial community is setting things up to destroy foriegn markets. Watch for 50+% declines overseas and crashing currencies while the US markets hardly budge. Of course, not wanting to destroy these countries, the price of oil will have to come way down (oil & gold have remained practically constant in foriegn currency terms - more proof of conspiracy).

The US is positioning itself as the world's safehaven - the US$ will explode upward, and the subprime mess just won't matter - exactly what occured in New Orleans. The poor were destroyed & forgotten - eclipsed by Halburton's billions of contracts.

it's 100% conspiracy - and becoming more transparent because those pulling it off no longer bother to hide it. so DON'T short the US market - you might make 10-20%, but that will quickly reverse as the rest of the world take what capital they have left and head for American markets.