All one needs to do is determine the debt to income ratio of the US taxpayer to see that insurance is not going to be a viable means to save people, financially. There are going to be some really broke people soon. All I can say is get out of debt, buy hard assets and learn a fall-back trade – like subsistence farming.
[quote]
Headhunter wrote:
Banks, especially the big ones, can’t be allowed to fail. That would bring on a global depression. The populations would call for governments to ‘do something!’ and Fascism would result.
LIFTICVSMAXIMVS wrote:
If banks aren’t allowed to fail now everyone fails later. There are consequences that must be faced. Propping up failure is not the road to recovery.
The American economy is like a strung-out junkie. He can only heal if he is locked away and not allowed to continue to put poison in his blood. In the this case the poison is more credit. Our dealer is going to cut us off soon and the pain is going to hurt that much worse. Better that we should be in charge of our own fate in that regard.[/quote]
HH, I hate to admit it…here it goes… I agree with what you posted. There I said it, happy now? 
In all seriousness, LIFTI, be careful how you use “propping up failure”. There is a huge difference between the Fed coming in and covering a Bank’s liabilities and/or buying out the common stock and the Fed facilitating a takeover through asset/liability guarantees.
If we look at Bear Stearns again, the initial bailout was a great idea. $2/share plus guarantees for the purchaser. In this instance, the shareholders of Bear Stearns got nothing and the management/directors would be booted. That’s how it should work, the subsequent increase to $10/share was bullshit.
The reason I prefer this method to letting the Bank outright fail is because a failure has the potential to increase distrust between Banks, hence they will limit their exposure to each other, leading to further restriction in available credit in the market, which will in turn lead to higher interest rates for customers/business, etc…
The only way a global system such as ours works is with a certain level of trust that Governments and the larger market players bear a greater proportion of the risk than they actually have. An example of this is the $70 billion in pooled some of the Banks recently established.
[quote]Ruggerlife wrote:
The reason I prefer this method to letting the Bank outright fail is because a failure has the potential to increase distrust between Banks…
[/quote]
Yes, but why are we trusting the FED to protect our money? It is beholden to none but itself. A bank must be true to its customers or it goes broke as any other business would. The FED will never go bankrupt because of unsound business practices and at the same time give bank owners a “get out of jail free” card while devaluing our money. This is called moral hazard.
[quote]ryanjm wrote:
Can you explain this a bit? I don’t understand the financial markets as well as some. I thought a lot of those investments were secured/insured for like $250,000? I know banks are insured up to 100k, but if you have a lot of money can’t you just split up the CD accounts into a lot of under 100k accounts? Thanks.[/quote]
Damici may or may not be right, but IMO the big issue is confidence in our markets. With Bear, Merrill, Lehman, AND Fannie & Freddie essentially failing, domestic and overseas investors will have diminished confidence in our markets, which makes other markets relatively more attractive. If there were a large migration of capital from Wall Street into the EU & Asian markets the value of a large chunk of our investment markets could plummet, which would directly affect your 401K etc…
Also, these banks are actually hemorrhaging actual value. They essentially overpaid for debt and now that the value is correcting itself they are losing value. The crazy thing is that the giants who we thought could weather any storm (price correction) are collapsing.
There still are many many safe investments one could make in the USA. I doubt this will sink the entire US economically, but it’s going to sink some people and affect a lot of people indirectly.
[quote]LIFTICVSMAXIMVS wrote:
Ruggerlife wrote:
The reason I prefer this method to letting the Bank outright fail is because a failure has the potential to increase distrust between Banks…
Yes, but why are we trusting the FED to protect our money? It is beholden to none but itself. A bank must be true to its customers or it goes broke as any other business would. The FED will never go bankrupt because of unsound business practices and at the same time give bank owners a “get out of jail free” card while devaluing our money. This is called moral hazard.[/quote]
I understand moral hazard and I am not in favour of letting the top management of Bank’s or shareholders off easy.
However, the issue is more systemic than that and you cannot look at a failure in this environment as an isolated event.
Also, one correction from your comment above. Bank’s (or any company) are responsible to their shareholders, not their customers. Making nice to customers is just marketing. As for the Fed, the Government would effectively be the shareholder since it granted the Fed its authority and it can remove it.
[quote]Ruggerlife wrote:
Also, one correction from your comment above. Bank’s (or any company) are responsible to their shareholders, not their customers. Making nice to customers is just marketing. As for the Fed, the Government would effectively be the shareholder since it granted the Fed its authority and it can remove it.
[/quote]
Businesses who put their shareholders before their customers are destined to fail. Customers are everything to a business. Share holders are just gamblers. A business can survive without shareholders. It cannot survive without customers unless it has some special privilege that protects it from failing.
Overall, I think you miss my larger point. How does government (the FED) know when it makes a bad investment decision if it cannot be allowed to go bankrupt? Should we just keep propping up government to make the same mistakes over and over again?
[quote]Headhunter wrote:
Hope no one had their retirement nest egg here.[/quote]
no but I dont know if I should sell off my merril lynch account or not
I am thinking seriously of closing it.
if i do that now I take am still slightly ahead but if I wait and they never recover then Im out.
not talking a large chunk of cash its no nest egg but it is worth worrying about still.