Update, October 2: Wall Street Journal lists a chronology of links leading to current crisis
Links gathered from our blog & others about current financial crisis:
Jonathan: Healthy Banks to Congress ; Lex:Opposed economists & Bailouts Depressing historical parallel Blogs: Gary Becker , superman’s cape Visual histories: Fox , Weekly Standard, Mishu: The Mouth Peace; Old editorials: Paul Gigot A more humerous approach.
David Foster suggests four useful blogs: MaxedOutMama, Calculated Risk, The Big Picture, Hussman Funds Another blogger (via Insta): Granitegrok
Update: Another Visual (via Instapundit) of 2004 hearings
If anyone wants to add useful discussions or believes some here are not useful (and know more than I do which is pretty much anyone who posts here), then put others in the comments & I can add them above; or give reasons for their lack of insight or skewing of history that informs us.
I may not know much, but whatever happens is likely to affect me big time: the most interesting years of my retirement aren’t that far off & we are dependent (as are a pretty good-sized percentage of boomers who are a pretty good-size percentage of our population) on retirement funds. If this is really 1928, I’ll be well into my seventies before we get out of such a depression. Besides my husband (for reasons known only to him) thinks Outer Mongolia should be an important retirement holiday.
I’m doing this because I need guidance. At a faculty brownbag on Friday, the history of mortgage rates from our youths to now was set out by one of the retired (ex-military) administrators. That was somewhat helpful, but his conclusion was that we should all e-mail our legislators to get them on the band wagon. He also argued the Republican House members merely wanted distance from Bush. I assume there is some truth in this, but some marketplace arguments seemed honest (though perhaps not useful). I asked him about that afterwards and the letter from the economists Jonathan put up. He clearly knew more than I did, but his analysis seems poiticized & he’s retired; also he kept quoting CNN and I’ve never found Lou Dobbs’ as useful an interpreter as I’d like. I suspect the speaker is scared: the room was full of gray heads. He’s retired and many of us are uncomfortably close. A kind of inchoate and vague anger and fear seemed to permeate the room. I would be glad to hear from those on this blog who agree or disagree with his argument; I’ve learned to like and respect your takes.
MaxedOutMama, Calculated Risk, The Big Picture, Hussman Funds
As to youtr personal situation I can say but my systemic plan is posted on my blog.
http://anglosphereunionnow.blogspot.com/2008/09/gold-standard-solution-to-our-financial.html
The Gold Standard The Solution to Our Financial Crises
In the panic that has surrounded the present crisis, the best, most honest, and easiest way to save the financial system, a return to the gold standard, has been forgotten.
The problem with the banking system at present is a lack of capital and liquidity due to the bad lending practices encouraged, and in some cases required by the federal government. With their asset prices falling, the banks are on the verge of bankruptcy.
This is a problem for all of us. If banks fail, our money in the banks will go down with them, lending will dry up and the economy will grind to a halt, millions of people will be out of work. So we have to save the banking system, but at the same time we don’t want to reward them for the part of the crises that is their fault. We want to insure that the American people can get to the money in their checking accounts.
There is a way to do this. The Federal Government, holds about 260 million ounces of gold most of which was stolen from the banking system as an emergency measure during the great depression. I propose that the gold held by the Federal Government be returned to the people it was taken from, the people and banking system of the United States.
Under my proposal, gold would be declared money of the United States at the rate of $15,000 an ounce. Then 70 percent of the gold reserves of the United States would be transferred to banks in proportion to the dollar amount of the their checking accounts, sweep accounts, and retail money funds.
However this transfer would come with strings. First the banks would be required to maintain 100% gold reserves against their checking accounts, sweep accounts, and retail money fund accounts. They would be required to pay out gold on any withdrawal from any of the forgoing types of accounts when the amount of the withdrawal exceeded $500.
The rest of the gold reserve of the United States would be used to produce, a gold, silver, and copper coinage for the United States. This would be used first to redeem all of the outstanding notes of the federal reserve and the token coinage as it now exists and to pay off as much as possible of the federal debt.
The result of this would be a banking system which could not default on its payments to depositors, though savings account holders and CD holders would have risk, but the strengthening of the books of the banks would secure most of these obligations. It would end the current crises without cost to the taxpayers of the republic. It would end the possibility of such crises in the future because it would end the fractional reserve system that introduces great instability into our otherwise healthy economic system.
I will no doubt be denounced as a “gold bug” for proposing this, but it is the paper bugs of wall street and the federal government that have brought us to this crises. It is gold that can lead us out.
Ginny,
No one, repeat, no one knows what will happen. It sounds like you and I are on about the same chronological scale. I do not plan to quit working until 70 at the earliest. I hope not to retire. I anticipate that at some point the government will turn to devaluation of the currency, inflation, as the solution to its problems. This will result in many boomers ending their lives in deep poverty. The longer you work, the less likely this is to affect you so severely.
But as I say, the future is unknowable. Be prepared.
Mrs. Davis
Thanks & I’ve been thankful my husband and I have gotten on a slightly more rigorous exercise schedule and slightly more spartan diet – our work is the kind you can do (and generally do well) later in life. But probably we need some physical training to retain a zest for it and not get burned out.
Ginny–some useful blogs on things financial:
MaxedOutMama
Calculated Risk
The Big Picture
Hussman Funds
Ginny: I don’t want to give too much individual investment advice as I lack a sufficient understanding of your personal situation.
That said, I think that investors who have a portfolio of diversified investments in equities and bonds will come out fine. I think that we have a historic buying opportunity for municipal bonds. Coupons are high and taxes are sure to go up. Most of the people who will truly suffer from this fiasco are on Wall Street There are problem areas in the broader economy, but overall I think we will muddle through this one too.
If you want more personalized advice please e-mail me.
Hi Ginny
One of the things that has not gotten enough attention in this mess is the problem with credit default swaps (CDS). These are the little buggers that brought AIG down, and forced the government to “save” AIG while letting Lehman Bros. go broke.
Here is a good precis of the situation and the efforts to prevent a recurrence.
For those without the patience to get through it, here is my summary. A CDS has two parties to it. One is the seller of the CDS on the long side, the other is the buyer on the short side. Buyer and seller are on the opposite of their usual sides because a CDS contract is basically a promise that a certain bond will be good. It’s like an insurance policy: the insurance company is optimistic (long) that you won’t die soon; the buyer, being pessimistic (short), wants to be sure he gets paid if something bad happens.
A lot of investment banks were both buyers and sellers of CDS. AIG was a net seller by a lot. They were seduced by the analogy to insurance, which they understood, and took risks they did not understand at all. AIG insured mortgage-backed securities from the highest rated to subprime, plus corporate bonds of all description. Essentially, they were insuring all markets against every bad thing. Anything short of a perfect world would ruin them, and did.
If AIG had defaulted on its CDS obligations, there were a lot of holders of those contracts who would have had to default in their turn. It would not have been pretty at all. By way of contrast, Lehman’s customers met in New York on the Sunday night before the collapse. It was sort of a swap meet, where long and short sides met and used each other’s contracts to net out as close to zero as possible. This would not have worked at AIG, as the remainder that could not be offset was huge.
I’m not that far off from retirement myself. You are probably in a better situation than you realize, since you likely have very little debt at this point in life (an investor is a kind of net lender, not a borrower). If you have no mortgage, you have much less leverage in your real estate and are exposed to less risk. Unless you are using margin investing, your investment losses will not be cash losses. You can time your selling and are not forced to accept current market conditions. Stay diversified, stick to your savings and investment strategy, and cultivate serenity.
Hope this helps.
Thanks to both Mitch & Robert,
The truth is, I wasn’t asking for investment advice because our retirement funds are pretty much tied up in the groups our two schools are willing to put them in. (Unfortunately, that is all we have other than the house.) The choice you make that first year can be changed, but with difficulty. We paid off our mortgage 15 years ago or so, but took out one for the garage apt. The rent on that more than meets the payments; by taking some off the principle, we hope to pay it off before retirement, when they becomes our offices.
You two might be interested in changes in the big school’s retirement plans since my husband started there in 1976.
At that time, he could choose to go with a private, vetted broker. Some years he did well, some he didn’t. But overall, he has come to trust that broker and his son during the last years. That option was eliminated a few years ago. Hires must go (as we do at the junior college) with a small number of major investment firms. The argument is obvious: small brokers led to more choices by the faculty, results could lead to envy or disaster. Of course, it also took out the valuable sense of responsibility that comes from choice.
Sorry, I see the problem – what I meant by guidance was to understanding, not (though I wish) to investment. I’m lucky in that our jobs are not physicallly demanding, they require us to put aside money in the long term and not touch it until retirement, and the cost of living here is low. These are not necessarily the greatest advantages, but, overall, they do make life relatively easy. The “relatively” is always a matter of “to what.”
I FEEL OUR DO NOTHING CONGRESS PUSHED THIS BAILOUT BILL THROUGH TO PROTECT THERE OWN HIGH PAYING JOBS. IF THERE IS A DEPRESSION THEY HAVE A LOT MORE TO LOSE THEN THE AVERAGE MIDDLE CLASS TAX PAYER ! ALSO THERE SHOULD BE NO BONUSES OR GOLDEN PARACHUTES IN THIS NEW BAILOUT ! THE CORPORATE GREED IS WHAT GOT US IN TROUBE IN THE FIRST PLACE. WHY CAN’T THE PEOPLE VOTE ON SOMETHING THIS IMPORTANT ? WE HAVE A ELECTION IN A FEW WEEKS !