An explanation of the problems with the banking system.

[Teeninvestor]

It isn't investment if you're merely seeking to profit from price fluctuations rather than the increasing value the underlying company has and may possibly distribute to you.

Man you are naive. Investing is about making a profit. that's all. It's the profit incentive.

 

[mrt144]

Man you are naive. Investing is about making a profit. that's all. It's the profit incentive.

Investing is about making a profit based on the increasing value underlying the security. Speculating is about profit made on the security. Technical analysis is a speculator's tool, fundamental analysis is an investor's tool.

You'd be wise to invest in an education so you can grasp the understanding of nuance.

 

[Cutlass]

To be fair, the history of economics and finance does people no favors with the English language in using some words repeatedly in very different contexts so that the real meanings are quite different. "Investment" and "capital" being cases in point.

 

[LightFang]

Who said teenagers couldn't be investors???? Ever heard of stock investing clubs????

I didn't!!!!

i am a teenager.

Congratulations, that's quite an accomplishment.

since the "experienced" pundits don't know what's going on, how about letting someone else try to explain?

No, because you'd be just as much of an empty suit as those "experts"

this is ignorant and ageist. don't discount information on the premise that the person saying it is young, or old or liberal or conservative. judge on the quality, evidence and relevance of the information.

I am judging your information rationally, though you may not find it fair. I'm screening the information. Obviously I don't have time to critically judge every piece of information, because the costs would outweigh the benefits. However, given some heuristics such as "Teenagers tend to be stupid," I can allocate my time more efficiently.

To be fair, the history of economics and finance does people no favors with the English language in using some words repeatedly in very different contexts so that the real meanings are quite different. "Investment" and "capital" being cases in point.

True, but then you shouldn't go around pretending to be some expert if you can't even get the relatively easy jargon right. I mean, at least postmodernism hasn't infused economics yet, right? None of this The Dynamics of Interbeing and Monological Imperatives in Dick and Jane: A Study in Psychic Transrelational Gender Modes business.

Also, a definition of investment, for the working man:

INVESTMENT: The sacrifice of current benefits or rewards to pursue an activity with expectations of greater future benefits or rewards. Investment is typically used to mean the purchase of capital by business in anticipation of the profit. By increasing the quantity or quality of resources, investment is a source of economic growth. While investment, in principle is diverse, in practice, the official government measure, as reported by the Department of Commerce, includes businesses' purchases of capital and consumers' purchases of new houses.

http://www.amosweb.com/cgi-bin/awb_nav.pl?s=gls&c=dsp&k=investment

 

[Teeninvestor]

Investing is about making a profit based on the increasing value underlying the security. Speculating is about profit made on the security. Technical analysis is a speculator's tool, fundamental analysis is an investor's tool.

You'd be wise to invest in an education so you can grasp the understanding of nuance.

Really. I am in a reputable university right now, so I am investing in my own education. Education is very important.

since the "experienced" pundits don't know what's going on, how about letting someone else try to explain?

You know I never made this quote eh.

I have a point. Isn't this thread about how to fix the banking system, not "can teenagers invest????"?????. So please post relevant stuff about the information????

 

[Bill3000]

Really. I am in a reputable university right now, so I am investing in my own education. Education is very important.

Okay, Red Stranger.

 

[tycoonist]

Congratulations, that's quite an accomplishment.

thank you.

No, because you'd be just as much of an empty suit as those "experts"

so you don't want to listen to what anyone says? why bother posting, seeing as you obviously have nothing to add to this discussion?

I am judging your information rationally, though you may not find it fair. I'm screening the information. Obviously I don't have time to critically judge every piece of information, because the costs would outweigh the benefits. However, given some heuristics such as "Teenagers tend to be stupid," I can allocate my time more efficiently.

you prove my point, and the points you make contradict each other.

 

[LightFang]

You know I never made this quote eh.

I know you didn't, dearie, but if you had actually read my post, you would have seen that this was addressing "tycoonist".

so you don't want to listen to what anyone says? why bother posting, seeing as you obviously have nothing to add to this discussion?

Do I have nothing to add? I've pointed out the empty suit problem. And anyway, I listen to some people, but not everyone!

you prove my point, and the points you make contradict each other.

You need to qualify your statement. I can say that your points contradict each other; that doesn't make it so in reality. Unless I've made a slip of the tongue, you'll have to point out the fallacy in my reasoning.

 

[Teeninvestor]

LightFang, you never add anything to the conversation. and you also took the thread in the wrong direction. It was meant to discuss the BANKING SYSTEM.

Do I have nothing to add? I've pointed out the empty suit problem. And anyway, I listen to some people, but not everyone!

If you have nothing to discuss please leave.

 

[carmen510]

@Teen: Pray, tell us of this reputable university so we may confirm its reputation and ahem, deal with the issue personally should someone wish to.

Also, your definition of investment is flawed. Lightfang's is the correct definition.

 

[Sharwood]

LightFang, you never add anything to the conversation. and you also took the thread in the wrong direction. It was meant to discuss the BANKING SYSTEM.



If you have nothing to discuss please leave.

TI, this is the problem I and others have with you in the History forum. When people argue with you or go off on slight tangents, you flame. You'd be taken much more seriously if you posted without the condescending manner you affect, regardless of whether or not you were correct.

 

[devilhunterred]

I don't reside in America, and I tend to only focus on economics in the Asian regions.

But isn't the current economic crisis in America caused by over-lending of banks from the past several years due to false optimism of the economy? When the optimism bubble bursted the US economy is left with a credit crisis as the masses realized their inability to pay back their debts. Now banks are relutant to give out loans thus further creating a slower economy, add in a negative multiplier effect and you have a economic crisis affecting all sectors.

Also the fact that US currently has a $10 trillion USD foreign debt doesn't help the matters either.

 

[Theige]

Bernanke has spent $10 TRILLION as of January 2009 trying to plug this hole and this amount is increasing at $1 trillion monthly.

Source?

Also the fact that US currently has a $10 trillion USD foreign debt doesn't help the matters either.

Foreigners held a little over $3 trillion as of Dec. 2008, according to the U.S. Treasury. http://www.treas.gov/tic/mfh.txt

 

[bigfatron]

As an investor, I find that people talk about the banking system and why it is in trouble. Here I will try to explain the whole issue of the trouble and what I think should be done.

Basically, the story goes back to the 1980's when something called derivatives was invented. Basically a derivative is an instrument whose value is related to another's.

For example, one derivative could be based on the stock of a company called XYZ. The derivative's value would be based on XYZ. This allowed something called leverage.

Leverage means to double or even triple your bets on paper by using derivatives. For example, if I think oil goes up , I can use leverage. This way, when oil goes up 1%, I will go up the amount of leverage I used---- 3% if 3X, 5% if 5X, and so on.

This new market grew like a storm. When derivatives were first used, they were so powerful they could manipulate the market easily. They were suspected of having caused the crash of 1987 and the crash in Japan.

The size of the derivative market grew heavily. As of now it stands at $300 TRILLION.
Leverage also grew---- US Lehman Brothers bank used 60X Leverage, which meant a 1% move was a 60% move for Lehman. Citigroup used 26X Leverage.

Anyways, it was only a matter of time before derivatives were based on housing and debt. This is when a new derivative called the CDS was invented. The CDS is sort of like insurance---- you pay a premium to make sure that an instrument(such as a bond) you bought would retain its value. If the bond became worthless, the bank you bought the CDS from would pay you. As of 2008, the CDS market stood at $50 trillion.
TRILLION. Of course, it along with the derivative market in general was unregulated. In addition, banks also invested heavily in subprime debt themselves.

When the subprime market began to collapse in 2007, the banks began to write down the value of their investments. However, that was not the only problem. Not only do the banks have most of their money tied up in the subprime debt, they also invested heavily in DERIVATIVES that were based on the subprime market. As you can imagine, when the subprime market collapsed they were all WORTHLESS. To make it even worse, the US Banks had guaranteed a lot of the debt by selling CDS's. When the subprime market collapsed, the CDS's activated and the banks had to pay out trillions of dollars.

The effects were devastating.
In october 2007, the dow was 14000
In March 2008, (when I started short selling banks) the dow was 12500
In October 2008, the dow dropped to 8400 after several companies went bankrupt.
In March 2009, the dow dropped to 6400.

No body knows how much the banks lost through this deadly combination. But just to tell you, here is a list of the bailouts/bankruptcies so far.

Citigroup= 3 bailouts
Bank of America=2 bailouts
AIG= 4 bailouts
Lehman= bankrupt
Bear Stearns, Merill Lynch= bought out
Fannie, Freddie= nationalized

In addition, Bernanke has spent $10 TRILLION as of January 2009 trying to plug this hole and this amount is increasing at $1 trillion monthly. THAT IS MONEY FROM YOUR POCKETS. And remember the derivatives market is $300 TRILLION.

Right now, the banks have one thread of hope- that the market for these subprime debt and more importantly the DERIVATIVES based on them will recover from the value they have now- which is zero. Right now these assets plainly put DO NOT HAVE A MARKET. NO ONE IS WILLING TO BUY THEM. In addition, CDS Payouts are increasing every month.

So what was Bernanke & Obama's solution?

Their solution was two-pronged. Their reasoning is that if the banks were kept alive for long enough and the economy recovered, the US banking system would not collapse. Therefore Bernanke is pumping 1 trillion+ of liquidity into the US banking system every month to stem the gap while Obama is trying to stimulate the economy through massive spending.

But here's the glitch:

If Obama's spending FAILS to revive the economy, than we are left with two options

Then, there will be two solutions:
a) print enough money to buy up all the derivatives which have gone bad at their 2007 PRICES. Considering the derivatives market is 300 trillion and the entire liquid wealth of americans is only 7.7 trillion, it will cause HYPERINFLATION.
b)NATIONALIZATION.
Isn't that socialism? is your first gasp. But it is actually the better solution.

It consists of this:
1. taking over all the banks and writing down the derivatives and other instruments they hold to ZERO.
2. Sell them back to the private sector.

This solution is not only less costly but also more market efficient- it punished the speculators who have blown up a HUGE bubble in derivatives.

Now I must explain i am not without bias in this matter as if this solution was pushed through I stand to double my money to 700% of my initial investments in March 2008.

So what do you think? what should be done???

Teen - can I ask a question or two to gauge your level of understanding?

When you quote the derivatives market as being worth $300 trillion, what do you think this number represents? Is this the notional value? The market value? The amount at risk? Or the amount of net profit or loss that can impact the economy?

Unless you understand the difference between these quantities, and why those differences are important, you do not understand what is happening in our banking system at all.

All the best
BFR

 

[Teeninvestor]

Well, heres the source for the bailout- http://www.moneymorning.com/2009/02/10/stimulus-bill/

And as for the derivatives market- that is a source for the size of the market overall, not the portion at risk(the portion at risk is about $10-15 trillion, mostly CDS's.)

TI, this is the problem I and others have with you in the History forum. When people argue with you or go off on slight tangents, you flame. You'd be taken much more seriously if you posted without the condescending manner you affect, regardless of whether or not you were correct.

Note How LightFang diverted the subject and started flaming on "empty suit" problems. He'd be wiser off NOT doing so and ACTUALLy discussing the problem. Same with you.

 

[Sharwood]

There is nothing wrong with diverting for a slight tangent. If it is completely unrelated - I don't know what the empty suit problem is, so I can't comment - then it's going off-topic and is infractible. If you believe people are breaking the rules, report them, don't be, as Cheezy called you before, "a dickhead out of the blue." Your posting style is very condescending, and considering you have been wrong in every one of your threads so far - including the "10 best generals" thread, which no-one got to post in because you were apparently incapable of noticing that there was an active thread on the very same question on the same page of the sub-forum in question - it frankly makes you a laughing-stock. I'm giving you some advice here. You're already being compared to Red Stranger, and that my friend, is a very bad reputation to get less than a week after joining the site.

I do not condone LightFang's flame. It does not excuse your behaviour. Although compared to that "Han vs Rome" thread, which was reason to boot you out for a week in itself in my opinion, you've been amazingly well-behaved in OT.

You're problem is you seem to take every argument as an attack on you personally, especially when it is actually pointing out a mistake on your part. Note that your first post on this page is clearly a flame directed against mrt144, who was correct. This has a little tendency to piss people off, who then begin to outright mock you.

Your threads are being shut down by mods for a reason, they don't shut them down for the hell of it. If you wish them to remain open, do not flame, do not troll - you should know what it is by now, someone defined it in one of your other threads -, don't post strawmen arguments, and actually answer questions directed at you. Also, if you make a claim, provide a source. People have repeatedly asked you to provide sources, and your response is often to scream "I did" when you have not, or respond with something that is highly unreliable.

I'm giving you some advice here, and I don't have to do that. I certainly don't have to do it publicly, I could PM you and no-one but me and you would know you ignored my advice if you did. But unless you want to go on repeated and possibly permanent hiatuses from these boards, clean up your act. I'm not reporting you, I'll leave that to the people you're actually flaming, but if you keep up the act you've got going currently, I won't need to.

 

[classical_hero]

This reminds of when Martin got rich in the stock market and then lost most of it.

 

[Theige]

Well, heres the source for the bailout- http://www.moneymorning.com/2009/02/10/stimulus-bill/

$5.7 trillion in expanded FDIC insured bank deposits does not equal money spent.

That is a backstop for the banking system, to prevent bank runs, and help keep capital from fleeing banks that are in trouble.

I can't find anything that says whether or not the Treasury is still guaranteeing money-market accounts.

 

[Teeninvestor]

There is nothing wrong with diverting for a slight tangent. If it is completely unrelated - I don't know what the empty suit problem is, so I can't comment - then it's going off-topic and is infractible. If you believe people are breaking the rules, report them, don't be, as Cheezy called you before, "a dickhead out of the blue." Your posting style is very condescending, and considering you have been wrong in every one of your threads so far - including the "10 best generals" thread, which no-one got to post in because you were apparently incapable of noticing that there was an active thread on the very same question on the same page of the sub-forum in question - it frankly makes you a laughing-stock. I'm giving you some advice here. You're already being compared to Red Stranger, and that my friend, is a very bad reputation to get less than a week after joining the site.

I do not condone LightFang's flame. It does not excuse your behaviour. Although compared to that "Han vs Rome" thread, which was reason to boot you out for a week in itself in my opinion, you've been amazingly well-behaved in OT.

You're problem is you seem to take every argument as an attack on you personally, especially when it is actually pointing out a mistake on your part. Note that your first post on this page is clearly a flame directed against mrt144, who was correct. This has a little tendency to piss people off, who then begin to outright mock you.

Your threads are being shut down by mods for a reason, they don't shut them down for the hell of it. If you wish them to remain open, do not flame, do not troll - you should know what it is by now, someone defined it in one of your other threads -, don't post strawmen arguments, and actually answer questions directed at you. Also, if you make a claim, provide a source. People have repeatedly asked you to provide sources, and your response is often to scream "I did" when you have not, or respond with something that is highly unreliable.

I'm giving you some advice here, and I don't have to do that. I certainly don't have to do it publicly, I could PM you and no-one but me and you would know you ignored my advice if you did. But unless you want to go on repeated and possibly permanent hiatuses from these boards, clean up your act. I'm not reporting you, I'll leave that to the people you're actually flaming, but if you keep up the act you've got going currently, I won't need to.

I'm flaming??? Good riddance. Ya. I don't answer questions. That's why I'm providing many links and sources. "Unreliable"??? I highly doubt it. I have yet to see more "reliable" sources in your definition. Also, I have "flaming" issues??? Check your flaming, my friend. It is quite serious.

$5.7 trillion in expanded FDIC insured bank deposits does not equal money spent.

That is a backstop for the banking system, to prevent bank runs, and help keep capital from fleeing banks that are in trouble.

I can't find anything that says whether or not the Treasury is still guaranteeing money-market accounts.

I believe that the Federal Reserve's balance sheet has been expanded to over $8.5 trillion as of November 2008. This figure refers to the amount of loans that have been granted by the Federal Reserve to banks. In addition, this figure should also include the two stimulus packages, obama's recent package, plus additional spending in 2009, which adds up to $12 trillion+. In addition, guarantees of assets in citigroup, bank of america, bear stearns, merill lynch, etc.. will also cost trillions.

 

[negZero]

I'm flaming??? Good riddance. Ya. I don't answer questions. That's why I'm providing many links and sources. "Unreliable"??? I highly doubt it. I have yet to see more "reliable" sources in your definition. Also, I have "flaming" issues??? Check your flaming, my friend.

Maybe because the burden of proof is on your shoulders, not ours. Also that post from Sharwood isn't in anyone flame but good advice that you should start following.