That dreaded phrase: ''The system is fundamentally sound''

[LargoWinch]

Re: That dreaded phrase: ''The system is fundamentally sound''

Or maybe they planned this all along to obtain more power? More of the world's assets?

Maybe "your best friend" will save us?

http://static.technorati.com/asset/i...afa64ef2e6.jpg
ahhh that sweet, comforting smile...

[ASH]

Re: That dreaded phrase: ''The system is fundamentally sound''

If you are counting on them to save the day and prevent both the loss of your money, and of its purchasing power, I recommend you put aside at least a few month's cash just in case they prove to be as incompetent and full of shit as in previous instances.

I apologize for a "me too" post...

When a level headed guy such as you speaks, it is time to listen.

... but, seriously?

I mean, this is pretty close to an Alas, Babylon message for banking. Given EJ's credibility, I cannot but take this seriously.

Ironically, this is also exactly what Bank runs, inflation, and other desperate memes in the Internet age is about. By following EJ's advice, does that mean I am part of the leading edge of a run on the banks? (Better by far than being on the trailing edge, I guess.)

[EJ]

Re: That dreaded phrase: ''The system is fundamentally sound''

I apologize for a "me too" post...



... but, seriously?

I mean, this is pretty close to an Alas, Babylon message for banking. Given EJ's credibility, I cannot but take this seriously.

Ironically, this is also exactly what Bank runs, inflation, and other desperate memes in the Internet age is about. By following EJ's advice, does that mean I am part of the leading edge of a run on the banks? (Better by far than being on the trailing edge, I guess.)

I am not suggesting that anyone here run to the bank, withdraw all of their money and bury it in the back yard. I am asking readers to consider the pattern of behavior of the leadership and institutions of our financial system and ask, "Do I trust them?" And of not, "What shall I do?"

Anyone who has ever been in the position to hire and manage others knows that patterns of behavior are what matter in assessing the likely future behavior a person. The same holds true for institutions, especially those dominated by an individual as the Fed was under Alan Greenspan; even the Bernanke Fed with its group think is probably primarily directed by an individual, but not Bernanke.

Uneducated and ill informed men and women make bad decisions all the time. But brilliant, well educated, and well intentioned individuals can get together and, under circumstances of ideology born of political and economy convenience, make catastrophically bad decisions, too. Then, after the consequences of their catastrophic errors emerge, they come up with creative explanations for their group error and market the hell out of it.

I reach back a mere two years in this piece for the antecedent of this warning, but have been a student of these leaders and these institutions for a decade, and of scholars who have been students of theirs far longer than I. If you have been here for only two years, but especially if you have been here for the full ten – and bless you – I ask you to ask yourself, given the record, the pattern of behavior of understating risks – to the housing market, to the economy, to the dollar, to the financial system, to the banking system – only to be proven by the passage of time to consistently misunderstand or perhaps misrepresent the situation, why believe what they say? And if you do not believe them, then who and what should you believe, and what should you do?

Let me say this:

It is easy to give leaders too much credit.

It is easier to expect a benign outcome than a tragic one.

It is easier to hope that nothing unseemly will occur.

We are all quite busy, flat out paying the economic rent as it turns out, with no time to worry about whether the mechanics of the economy and financial system are doing their jobs.

I am telling you that there is precious little evidence that they have, and for the most mundane of reasons: they are paid not to. Not in the sense of a bribe but in the fact of executing on a set of collective false beliefs that fed on itself.

Things may in the end work out, but not due to the intelligence of leaders or the power of great institutions. The institutions are dysfunctional, the leaders confused but paddling very hard – the phrase Paulson used is "we're being very vigilant." But make no mistake, if things work out it will be due primarily to luck.

All I am asking you to do is not count on their luck.

What you do is a judgment call that depends on your circumstances. Most of you are already sufficiently skeptical of authorities that you are not still waiting around for someone to tell you, as we did in 2001, that the dollar is going to fall and the purchasing power of your hard earned income is going to be cut in half.

What is new here is that I am starting to suspect that with this pronouncement by Paulson that the crisis is about to enter a new phase, and that a prudent person acts on the facts before them, established by an enduring pattern of behavior, reinforced by historical precedent, and to me that means taking measures to ensure that those we love are not endangered by the mistakes of anyone betraying the public trust.

[sn1p3r]

Re: That dreaded phrase: ''The system is fundamentally sound''

I have exactly the same question as Mega, not sure what wasn't clear about his question but here it is again:

When you say have a few months of cash on hand, do you mean literally wads of notes under the mattress or do you mean cash deposit in a bank...

That much cash is a lot to have lying around.

...put it in the safe next to your physical gold

[ASH]

Re: That dreaded phrase: ''The system is fundamentally sound''

I am not suggesting that anyone here run to the bank, withdraw all of their money and bury it in the back yard. I am asking readers to consider the pattern of behavior of the leadership and institutions of our financial system and ask, "Do I trust them?" And if not, "What shall I do?"

Thank you, EJ, for the calibration. It turns out that you meant exactly what I took you to mean. However, I felt the subjective impact of what you said on this topic more strongly than other of your risk management warnings, because it concerns risk in an area I haven't previously encountered. I just barely remember the S&L failures of the late 80's (I was 12 in 1987), and for some reason risk in this area is harder to get my mind around than risk associated with mispriced assets -- even when the two are linked! In that sense, my post "Seriously?" amounts to a written word doubletake.

Withdrawing a few months' worth of cash is indeed different than closing out one's account (for some people, at least). Other than the threat of theft, there's no particular downside to taking such a limited precaution, and it's less likely to cause the banking institution a problem than if one closed their account. Nevertheless, it does occur to me that if enough people take even this limited step, others will observe, and there is the potential for a panic to develop. This is not a criticism of your advice, but rather a regurgitation of iTulip's recent observations. And that said, as with any other panic, it's better to be early than late.

[ronin]

Re: That dreaded phrase: ''The system is fundamentally sound''

Additional bank examiners looking at Fannie Mae & Freddie Mac.

posted in the middle of the night.
http://online.wsj.com/article/SB1216..._us_whats_news


"Fannie, Freddie Books Under Scrutiny

By JAMES R. HAGERTY
July 21, 2008 11:39 p.m.

Bank examiners from the Federal Reserve and the Office of the Comptroller of the Currency are looking at the books of mortgage investors Fannie Mae and Freddie Mac, a person familiar with the situation said.
The examiners are working with the two companies' main regulator, the Office of Federal Housing Enterprise Oversight, or Ofheo, this person said. This joint effort to assess the financial condition of the two government-sponsored companies was first reported by the New York Times Web site late Monday. ..."

Nothing that I can find tonight on the govt. site.
http://www.ofheo.gov/newsroom.aspx

[RebbePete]

Re: That dreaded phrase: ''The system is fundamentally sound''

To read normally reserved EJ writing something like this makes me sit up and take notice. :eek:

About two years ago, I did withdraw enough cash to tide me through a couple of months, and put it in the household safe, just in case. I wouldn't take out any more than that right now, just in case we do enter a hyperinflationary death spiral.

My "meltdown insurance" is physical silver and gold (for the hyperinflationary possibility) and physical Federal Reserve Notes (for the deflationary collapse/bank holiday possibility). I have realized that, either way, I'm going to lose some money, but the goal here is to not get wiped out, and have some seed capital to rebuild once "the event" passes.

Luke Skywalker: "I'm not scared."
Yoda: "You will be. You will be!"

From Star Wars, The Empire Strikes Back

- Pete

[fourthirtysix]

Re: That dreaded phrase: ''The system is fundamentally sound''

In lieu of the news "Wachovia has $8.9B loss, cuts 6,350 jobs, dividend" http://news.yahoo.com/s/ap/20080722/...earns_wachovia

Are there any sites that provide the overall condition of the major banks?

How about the financial condition of brokerages? Merrill, Schwab, etc..?

If you hold securities (GLD, FNM, T, etc), how safe are those assets if the underlying institution holding them for you has trouble?

[c1ue]

Re: That dreaded phrase: ''The system is fundamentally sound''

Sith Lord to EJ:

Come to the dark side. Everything is going exactly as I had planned. Can't you feel the anger coursing through your veins as your supposed leaders continue to fail abysmally?

If you only knew the power of the dark side.

[metalman]

Re: That dreaded phrase: ''The system is fundamentally sound''

Sith Lord to EJ:

Come to the dark side. Everything is going exactly as I had planned. Can't you feel the anger coursing through your veins as your supposed leaders continue to fail abysmally?

If you only knew the power of the dark side.

let me sum it up... they're idiots. they've blown it. all they can do now is try to keep everyone calm as they try to patch it up and hope they get lucky.

never hurts to have a bit of cash around... keep a small amount in the top drawer of your dresser along with a nice watch so if you get burgled they find something quickly and get out of your house instead of getting pissed off and smashing everything... keep some for bribes to the local gas station owner, the grocery story man, the heating oil guy, etc. can't cut your way in line in a shitstorm with a friggin credit card. maybe doesn't happen for a year, or it happens next week, or never... and if it does it'll pass, but it's stupid to trust these assholes after they've lied and lied and lied... it's a kind of arrogance to think 'it can't happen here'. why can't it? happened here before and many other places. it isn't expensive to keep a few grand around. what's it earn in the bank, a 2% a year? to save why that leave yourself when the storm comes with nothing but indignation and your weenie in your hand?

[jtabeb]

Re: That dreaded phrase: ''The system is fundamentally sound''

let me sum it up... they're idiots. they've blown it. all they can do now is try to keep everyone calm as they try to patch it up and hope they get lucky.

never hurts to have a bit of cash around... keep a small amount in the top drawer of your dresser along with a nice watch so if you get burgled they find something quickly and get out of your house instead of getting pissed off and smashing everything... keep some for bribes to the local gas station owner, the grocery story man, the heating oil guy, etc. can't cut your way in line in a shitstorm with a friggin credit card. maybe doesn't happen for a year, or it happens next week, or never... and if it does it'll pass, but it's stupid to trust these assholes after they've lied and lied and lied... it's a kind of arrogance to think 'it can't happen here'. why can't it? happened here before and many other places. it isn't expensive to keep a few grand around. what's it earn in the bank, a 2% a year? to save why that leave yourself when the storm comes with nothing but indignation and your weenie in your hand?

Don't hold cash, hold coins! US regular change, same effect, much better protection.

Oh and everyone go get one of these. Very nice, I have one, it's perfect.

http://www.msarinc.com/stg556_sporting.html

[metalman]

Re: That dreaded phrase: ''The system is fundamentally sound''

Don't hold cash, hold coins! US regular change, same effect, much better protection.

Oh and everyone go get one of these. Very nice, I have one, it's perfect.

http://www.msarinc.com/stg556_sporting.html

spoken like a true guns, gold, and guts guy.

sorry dude but that's bad advice based on sentimentality. no one wants coins in a crisis. 90% of the population does not know what they are and most of the remaining 10% either don't trust in a crisis they are not fake... lots of fakery and fraud in desperate times. the ave. joe is used to the paper of the realm which gets scarce in a crisis. (note to deflationists... that does NOT mean prices fall. just ask the folks in zimbabwe lined up at the bank for scarce cash while inflation is at 1mm%) coins are illiquid in the best of times and get more so in a crisis. even in hyperinflations no one wants coins in exchange for things. coins are for wealth storage, not trade/exchange because no one trusts them or the price. that's the reality.

[Guest]

Re: That dreaded phrase: ''The system is fundamentally sound''

... while inflation is at 1mm% ... coins are illiquid in the best of times and get more so in a crisis. even in hyperinflations no one wants coins in exchange for things ... that's the reality.

Can't say I agree with this conclusion. Hyperinflation or very high inflation doesn't make gold coins a coveted asset? Methinks not. There may be some slight awkwardness initially to find places to convert them into paper cash, but I seriously doubt a "cottage industry" in gold conversion does not spring up in a hurry - everywhere - that will willingly convert them into the local trash money. Especially very small fractional gold coins.

[Mega]

Re: That dreaded phrase: ''The system is fundamentally sound''

"pieces of 8"

Always wonder what that ment as a child, but no one knew..........till i gooled it.........a gold coin split into 8 parts..............theres your answer Luke.
Mike

[jtabeb]

Re: That dreaded phrase: ''The system is fundamentally sound''

Can't say I agree with this conclusion. Hyperinflation or very high inflation doesn't make gold coins a coveted asset? Methinks not. There may be some slight awkwardness initially to find places to convert them into paper cash, but I seriously doubt a "cottage industry" in gold conversion does not spring up in a hurry - everywhere - that will willingly convert them into the local trash money. Especially very small fractional gold coins.

Good points above, but I was really talking about nickles dimes and quarters, no kidding. Take the same amount of cash and put it into local usa coinage. Use that to buy stuff (and save your gold and silver to smuggle yourself across a boarder someday).

I've got several thousand in a fairly heavy piggy bank of sorts. I think "coin" cash will keep its value far longer than "paper" cash, and that was the point I was trying to make.