On Price, Intrinsic Value, MBS, and Mark-to-Market

[Arraya]

And therein lies the problem with leverage…it relies on ever-expanding leverage and debt.

Our monetary system is based on debt and compound interest, which results in an ever expanding amount of “money” chasing dwindling natural resources on our finite planet.

To put another way: All money is born of debt and all interest on debt has yet to be created and is preferably created out of more debt. Got it, infinite debt has to be possible for it to work out. Faith-based economics.

The Chinese are starting to wake up that this might not work out.

http://www.bloomberg.com/apps/news?pid=20601109&sid=ai3pbN.JY7tY&refer=home#

Heightened tensions between China and the U.S. may worsen a contraction in world trade that already threatens to deepen and prolong the economic downturn. The friction comes as President- elect Barack Obama readies a two-year stimulus package worth as much as $850 billion that will require the U.S. to borrow more than ever from China, the largest buyer of Treasury securities.

Dec. 22 (Bloomberg) — China’s foreign-exchange reserves dropped for the first time in five years as a result of the global financial crisis, Market News International reported, citing Cai Qiusheng, head of the investment management bureau under the State Administration of Foreign Exchange.

The current figure must be lower than the peak of about $1.9 trillion, Cai told a trade forum in Beijing over the weekend, the English-language wire service said. He didn’t specify which period he was referring to or give a figure.

China’s foreign exchange reserves $1.9 trillion at the end of September, according to Bloomberg date.

To contact the reporter on this story: Jiang Jianguo in Shanghai at [email protected]

This is not so much financial bad weather as financial climate change

[CA renter]

arraya wrote:

To put another way: All money is born of debt and all interest on debt has yet to be created and is preferably created out of more debt. Got it, infinite debt has to be possible for it to work out. Faith-based economics.
——————-

Yes, you’ve got it. Leverage/debt needs more leverage/debt in order for all the previous debt to be paid off (in our financial system). I fail to see how this is a viable economic system over the long run.

Most importantly, a nation’s monetary system (money creation) should not be controlled by private parties (banks and the Federal Reserve). The U.S. Treasury should control all aspects of our national currency (actual dollars, not debt), and it should be based on population and productivity trends, IMHO; and the U.S. Treasury should be accountable to the U.S. citizens, not banking interests.

As it stands, there are two markets in our economy. One is the creation of money, which is not necessarily tied to production or population growth/shrinkage, but based on “faith” and leverage.

The other market is that of the real economy (goods and services traded), and this market is beholden to the first, as we are not legally allowed to barter or use other forms of payment.

It seems to me that it’s the financial markets that control the real economy instead of the reverse.

[CA renter]

arraya wrote:

To put another way: All money is born of debt and all interest on debt has yet to be created and is preferably created out of more debt. Got it, infinite debt has to be possible for it to work out. Faith-based economics.
——————-

Yes, you’ve got it. Leverage/debt needs more leverage/debt in order for all the previous debt to be paid off (in our financial system). I fail to see how this is a viable economic system over the long run.

Most importantly, a nation’s monetary system (money creation) should not be controlled by private parties (banks and the Federal Reserve). The U.S. Treasury should control all aspects of our national currency (actual dollars, not debt), and it should be based on population and productivity trends, IMHO; and the U.S. Treasury should be accountable to the U.S. citizens, not banking interests.

As it stands, there are two markets in our economy. One is the creation of money, which is not necessarily tied to production or population growth/shrinkage, but based on “faith” and leverage.

The other market is that of the real economy (goods and services traded), and this market is beholden to the first, as we are not legally allowed to barter or use other forms of payment.

It seems to me that it’s the financial markets that control the real economy instead of the reverse.

[CA renter]

arraya wrote:

To put another way: All money is born of debt and all interest on debt has yet to be created and is preferably created out of more debt. Got it, infinite debt has to be possible for it to work out. Faith-based economics.
——————-

Yes, you’ve got it. Leverage/debt needs more leverage/debt in order for all the previous debt to be paid off (in our financial system). I fail to see how this is a viable economic system over the long run.

Most importantly, a nation’s monetary system (money creation) should not be controlled by private parties (banks and the Federal Reserve). The U.S. Treasury should control all aspects of our national currency (actual dollars, not debt), and it should be based on population and productivity trends, IMHO; and the U.S. Treasury should be accountable to the U.S. citizens, not banking interests.

As it stands, there are two markets in our economy. One is the creation of money, which is not necessarily tied to production or population growth/shrinkage, but based on “faith” and leverage.

The other market is that of the real economy (goods and services traded), and this market is beholden to the first, as we are not legally allowed to barter or use other forms of payment.

It seems to me that it’s the financial markets that control the real economy instead of the reverse.

[CA renter]

arraya wrote:

To put another way: All money is born of debt and all interest on debt has yet to be created and is preferably created out of more debt. Got it, infinite debt has to be possible for it to work out. Faith-based economics.
——————-

Yes, you’ve got it. Leverage/debt needs more leverage/debt in order for all the previous debt to be paid off (in our financial system). I fail to see how this is a viable economic system over the long run.

Most importantly, a nation’s monetary system (money creation) should not be controlled by private parties (banks and the Federal Reserve). The U.S. Treasury should control all aspects of our national currency (actual dollars, not debt), and it should be based on population and productivity trends, IMHO; and the U.S. Treasury should be accountable to the U.S. citizens, not banking interests.

As it stands, there are two markets in our economy. One is the creation of money, which is not necessarily tied to production or population growth/shrinkage, but based on “faith” and leverage.

The other market is that of the real economy (goods and services traded), and this market is beholden to the first, as we are not legally allowed to barter or use other forms of payment.

It seems to me that it’s the financial markets that control the real economy instead of the reverse.

[CA renter]

arraya wrote:

To put another way: All money is born of debt and all interest on debt has yet to be created and is preferably created out of more debt. Got it, infinite debt has to be possible for it to work out. Faith-based economics.
——————-

Yes, you’ve got it. Leverage/debt needs more leverage/debt in order for all the previous debt to be paid off (in our financial system). I fail to see how this is a viable economic system over the long run.

Most importantly, a nation’s monetary system (money creation) should not be controlled by private parties (banks and the Federal Reserve). The U.S. Treasury should control all aspects of our national currency (actual dollars, not debt), and it should be based on population and productivity trends, IMHO; and the U.S. Treasury should be accountable to the U.S. citizens, not banking interests.

As it stands, there are two markets in our economy. One is the creation of money, which is not necessarily tied to production or population growth/shrinkage, but based on “faith” and leverage.

The other market is that of the real economy (goods and services traded), and this market is beholden to the first, as we are not legally allowed to barter or use other forms of payment.

It seems to me that it’s the financial markets that control the real economy instead of the reverse.

[TheBreeze]

[quote=davelj]

I can’t speak to this individual investment in IndyMac because I don’t know enough details, but John Paulson, the one guy who’s made more money on the real estate/banking decline than anyone else, is buying…

It’s completely anecdotal, but at least one guy that folks have universally deemed to be “smart” on the credit front is now taking the other side of the trade in some manner. Of course it could still blow up on him, but someone out there is seeing value in these turds. Only time will tell.[/quote]

Some excerpts from the article:

IndyMac Bancorp, one of the largest banks to fail as a result of the subprime mortgage crisis, is close to being sold to a consortium of private equity and hedge fund firms in a complex deal partly financed by the federal government, people involved in the deal said.

…

The team of buyers include the private equity firms J. C. Flowers & Company and Dune Capital Management and the hedge fund Paulson & Company, the people involved in the deal said. It was unclear exactly how much capital the buyers would inject into IndyMac, but they would be shouldering a portion of the losses the bank may have on mortgages and other assets, these people said.

…

Then in September, the Federal Reserve eased regulations to allow private equity firms and hedge funds to acquire larger portions of bank holding companies and gave them more control over the banks, including representation on bank boards.

…

Longtime foes of the private equity industry, like the Service Employees International Union, have raised concerns about allowing banks to be controlled by private investment firms. They argue that private equity firms would saddle banks with dangerous amounts of debt and exercise undue influence over lending practices.

Well, this dude either sees value in the turds or value in being backstopped by taxpayers coupled with the ability to operate with loosened regulations. My bet would be on the latter. Plus, I don’t trust any “federally-financed” deals that occur in the waning weeks of the Bush administration. This just looks like more of the same to me – the gains will go to private parties and the taxpayers will be stuck with the losses.

[TheBreeze]

[quote=davelj]

I can’t speak to this individual investment in IndyMac because I don’t know enough details, but John Paulson, the one guy who’s made more money on the real estate/banking decline than anyone else, is buying…

It’s completely anecdotal, but at least one guy that folks have universally deemed to be “smart” on the credit front is now taking the other side of the trade in some manner. Of course it could still blow up on him, but someone out there is seeing value in these turds. Only time will tell.[/quote]

Some excerpts from the article:

IndyMac Bancorp, one of the largest banks to fail as a result of the subprime mortgage crisis, is close to being sold to a consortium of private equity and hedge fund firms in a complex deal partly financed by the federal government, people involved in the deal said.

…

The team of buyers include the private equity firms J. C. Flowers & Company and Dune Capital Management and the hedge fund Paulson & Company, the people involved in the deal said. It was unclear exactly how much capital the buyers would inject into IndyMac, but they would be shouldering a portion of the losses the bank may have on mortgages and other assets, these people said.

…

Then in September, the Federal Reserve eased regulations to allow private equity firms and hedge funds to acquire larger portions of bank holding companies and gave them more control over the banks, including representation on bank boards.

…

Longtime foes of the private equity industry, like the Service Employees International Union, have raised concerns about allowing banks to be controlled by private investment firms. They argue that private equity firms would saddle banks with dangerous amounts of debt and exercise undue influence over lending practices.

Well, this dude either sees value in the turds or value in being backstopped by taxpayers coupled with the ability to operate with loosened regulations. My bet would be on the latter. Plus, I don’t trust any “federally-financed” deals that occur in the waning weeks of the Bush administration. This just looks like more of the same to me – the gains will go to private parties and the taxpayers will be stuck with the losses.

[TheBreeze]

[quote=davelj]

I can’t speak to this individual investment in IndyMac because I don’t know enough details, but John Paulson, the one guy who’s made more money on the real estate/banking decline than anyone else, is buying…

It’s completely anecdotal, but at least one guy that folks have universally deemed to be “smart” on the credit front is now taking the other side of the trade in some manner. Of course it could still blow up on him, but someone out there is seeing value in these turds. Only time will tell.[/quote]

Some excerpts from the article:

IndyMac Bancorp, one of the largest banks to fail as a result of the subprime mortgage crisis, is close to being sold to a consortium of private equity and hedge fund firms in a complex deal partly financed by the federal government, people involved in the deal said.

…

The team of buyers include the private equity firms J. C. Flowers & Company and Dune Capital Management and the hedge fund Paulson & Company, the people involved in the deal said. It was unclear exactly how much capital the buyers would inject into IndyMac, but they would be shouldering a portion of the losses the bank may have on mortgages and other assets, these people said.

…

Then in September, the Federal Reserve eased regulations to allow private equity firms and hedge funds to acquire larger portions of bank holding companies and gave them more control over the banks, including representation on bank boards.

…

Longtime foes of the private equity industry, like the Service Employees International Union, have raised concerns about allowing banks to be controlled by private investment firms. They argue that private equity firms would saddle banks with dangerous amounts of debt and exercise undue influence over lending practices.

Well, this dude either sees value in the turds or value in being backstopped by taxpayers coupled with the ability to operate with loosened regulations. My bet would be on the latter. Plus, I don’t trust any “federally-financed” deals that occur in the waning weeks of the Bush administration. This just looks like more of the same to me – the gains will go to private parties and the taxpayers will be stuck with the losses.

[TheBreeze]

[quote=davelj]

I can’t speak to this individual investment in IndyMac because I don’t know enough details, but John Paulson, the one guy who’s made more money on the real estate/banking decline than anyone else, is buying…

It’s completely anecdotal, but at least one guy that folks have universally deemed to be “smart” on the credit front is now taking the other side of the trade in some manner. Of course it could still blow up on him, but someone out there is seeing value in these turds. Only time will tell.[/quote]

Some excerpts from the article:

IndyMac Bancorp, one of the largest banks to fail as a result of the subprime mortgage crisis, is close to being sold to a consortium of private equity and hedge fund firms in a complex deal partly financed by the federal government, people involved in the deal said.

…

The team of buyers include the private equity firms J. C. Flowers & Company and Dune Capital Management and the hedge fund Paulson & Company, the people involved in the deal said. It was unclear exactly how much capital the buyers would inject into IndyMac, but they would be shouldering a portion of the losses the bank may have on mortgages and other assets, these people said.

…

Then in September, the Federal Reserve eased regulations to allow private equity firms and hedge funds to acquire larger portions of bank holding companies and gave them more control over the banks, including representation on bank boards.

…

Longtime foes of the private equity industry, like the Service Employees International Union, have raised concerns about allowing banks to be controlled by private investment firms. They argue that private equity firms would saddle banks with dangerous amounts of debt and exercise undue influence over lending practices.

Well, this dude either sees value in the turds or value in being backstopped by taxpayers coupled with the ability to operate with loosened regulations. My bet would be on the latter. Plus, I don’t trust any “federally-financed” deals that occur in the waning weeks of the Bush administration. This just looks like more of the same to me – the gains will go to private parties and the taxpayers will be stuck with the losses.

[TheBreeze]

[quote=davelj]

I can’t speak to this individual investment in IndyMac because I don’t know enough details, but John Paulson, the one guy who’s made more money on the real estate/banking decline than anyone else, is buying…

It’s completely anecdotal, but at least one guy that folks have universally deemed to be “smart” on the credit front is now taking the other side of the trade in some manner. Of course it could still blow up on him, but someone out there is seeing value in these turds. Only time will tell.[/quote]

Some excerpts from the article:

IndyMac Bancorp, one of the largest banks to fail as a result of the subprime mortgage crisis, is close to being sold to a consortium of private equity and hedge fund firms in a complex deal partly financed by the federal government, people involved in the deal said.

…

The team of buyers include the private equity firms J. C. Flowers & Company and Dune Capital Management and the hedge fund Paulson & Company, the people involved in the deal said. It was unclear exactly how much capital the buyers would inject into IndyMac, but they would be shouldering a portion of the losses the bank may have on mortgages and other assets, these people said.

…

Then in September, the Federal Reserve eased regulations to allow private equity firms and hedge funds to acquire larger portions of bank holding companies and gave them more control over the banks, including representation on bank boards.

…

Longtime foes of the private equity industry, like the Service Employees International Union, have raised concerns about allowing banks to be controlled by private investment firms. They argue that private equity firms would saddle banks with dangerous amounts of debt and exercise undue influence over lending practices.

Well, this dude either sees value in the turds or value in being backstopped by taxpayers coupled with the ability to operate with loosened regulations. My bet would be on the latter. Plus, I don’t trust any “federally-financed” deals that occur in the waning weeks of the Bush administration. This just looks like more of the same to me – the gains will go to private parties and the taxpayers will be stuck with the losses.

[davelj]

[quote=arraya]And therein lies the problem with leverage…it relies on ever-expanding leverage and debt.

Our monetary system is based on debt and compound interest, which results in an ever expanding amount of “money” chasing dwindling natural resources on our finite planet.

To put another way: All money is born of debt and all interest on debt has yet to be created and is preferably created out of more debt. Got it, infinite debt has to be possible for it to work out. Faith-based economics.

[/quote]

That first quote looked suspiciously canned, and indeed it can be found verbatim on many “green” websites on the internet, including this one: http://www.grassrootsnetroots.org/articles/article_15155.cfm. Next time, do the authors a favor and use quotes. Or better yet, state a position using your own words, if possible. But, to your point, have you noticed that as time and technology progress that humans have managed to become increasingly more efficient in their use of the “dwindling natural resources on our finite planet,” thus allowing both populations and standards of living to grow at the same time? Basically, Malthus called and he wants his theory back.

The “All money is born of debt…” bit comes almost verbatim from Paul Grignon’s “Money as Debt” animated piece, which I imagine many Piggs have watched at some point or other. Again, quotations would be in order.

But, again, to the point you’re trying to make, let’s use a quick micro example to show that debt, in fact, can be paid down without one’s micro economy collapsing. People who are in debt regularly cut back on spending and/or earn more money in order to pay down debt. Happens all the time. Their lives don’t necessarily require ever-expanding debts to keep their micro economy, as it were, expanding. And if the debts do expand, more often than not (the last few years excepted, of course), the expanding debt is accompanied by expanding earnings. There’s nothing wrong with debt expansion, per se, so long as it’s accompanied by an equal degree of earnings expansion.

We, as a nation, can pay down debt relative to GDP and still have GDP expand. But because our debt levels are so great relative to GDP (because we’ve been irresponsible with debt for the last 20 years), GDP will expand at a much lower rate (via lower consumption) than it has in the past as we pay down that debt. It’s simple economics. But we cannot pay down the debt all at once. It will take some time.

On a general note, when folks just use other peoples’ quotes verbatim (and don’t acknowledge them as such) to make their points I sometimes wonder whether they really believe what they’re quoting or whether they just think it “sounds good.” I suspect that many folks feel the same way. I don’t know where you stand, specifically.

[davelj]

[quote=arraya]And therein lies the problem with leverage…it relies on ever-expanding leverage and debt.

Our monetary system is based on debt and compound interest, which results in an ever expanding amount of “money” chasing dwindling natural resources on our finite planet.

To put another way: All money is born of debt and all interest on debt has yet to be created and is preferably created out of more debt. Got it, infinite debt has to be possible for it to work out. Faith-based economics.

[/quote]

That first quote looked suspiciously canned, and indeed it can be found verbatim on many “green” websites on the internet, including this one: http://www.grassrootsnetroots.org/articles/article_15155.cfm. Next time, do the authors a favor and use quotes. Or better yet, state a position using your own words, if possible. But, to your point, have you noticed that as time and technology progress that humans have managed to become increasingly more efficient in their use of the “dwindling natural resources on our finite planet,” thus allowing both populations and standards of living to grow at the same time? Basically, Malthus called and he wants his theory back.

The “All money is born of debt…” bit comes almost verbatim from Paul Grignon’s “Money as Debt” animated piece, which I imagine many Piggs have watched at some point or other. Again, quotations would be in order.

But, again, to the point you’re trying to make, let’s use a quick micro example to show that debt, in fact, can be paid down without one’s micro economy collapsing. People who are in debt regularly cut back on spending and/or earn more money in order to pay down debt. Happens all the time. Their lives don’t necessarily require ever-expanding debts to keep their micro economy, as it were, expanding. And if the debts do expand, more often than not (the last few years excepted, of course), the expanding debt is accompanied by expanding earnings. There’s nothing wrong with debt expansion, per se, so long as it’s accompanied by an equal degree of earnings expansion.

We, as a nation, can pay down debt relative to GDP and still have GDP expand. But because our debt levels are so great relative to GDP (because we’ve been irresponsible with debt for the last 20 years), GDP will expand at a much lower rate (via lower consumption) than it has in the past as we pay down that debt. It’s simple economics. But we cannot pay down the debt all at once. It will take some time.

On a general note, when folks just use other peoples’ quotes verbatim (and don’t acknowledge them as such) to make their points I sometimes wonder whether they really believe what they’re quoting or whether they just think it “sounds good.” I suspect that many folks feel the same way. I don’t know where you stand, specifically.

[davelj]

[quote=arraya]And therein lies the problem with leverage…it relies on ever-expanding leverage and debt.

Our monetary system is based on debt and compound interest, which results in an ever expanding amount of “money” chasing dwindling natural resources on our finite planet.

To put another way: All money is born of debt and all interest on debt has yet to be created and is preferably created out of more debt. Got it, infinite debt has to be possible for it to work out. Faith-based economics.

[/quote]

That first quote looked suspiciously canned, and indeed it can be found verbatim on many “green” websites on the internet, including this one: http://www.grassrootsnetroots.org/articles/article_15155.cfm. Next time, do the authors a favor and use quotes. Or better yet, state a position using your own words, if possible. But, to your point, have you noticed that as time and technology progress that humans have managed to become increasingly more efficient in their use of the “dwindling natural resources on our finite planet,” thus allowing both populations and standards of living to grow at the same time? Basically, Malthus called and he wants his theory back.

The “All money is born of debt…” bit comes almost verbatim from Paul Grignon’s “Money as Debt” animated piece, which I imagine many Piggs have watched at some point or other. Again, quotations would be in order.

But, again, to the point you’re trying to make, let’s use a quick micro example to show that debt, in fact, can be paid down without one’s micro economy collapsing. People who are in debt regularly cut back on spending and/or earn more money in order to pay down debt. Happens all the time. Their lives don’t necessarily require ever-expanding debts to keep their micro economy, as it were, expanding. And if the debts do expand, more often than not (the last few years excepted, of course), the expanding debt is accompanied by expanding earnings. There’s nothing wrong with debt expansion, per se, so long as it’s accompanied by an equal degree of earnings expansion.

We, as a nation, can pay down debt relative to GDP and still have GDP expand. But because our debt levels are so great relative to GDP (because we’ve been irresponsible with debt for the last 20 years), GDP will expand at a much lower rate (via lower consumption) than it has in the past as we pay down that debt. It’s simple economics. But we cannot pay down the debt all at once. It will take some time.

On a general note, when folks just use other peoples’ quotes verbatim (and don’t acknowledge them as such) to make their points I sometimes wonder whether they really believe what they’re quoting or whether they just think it “sounds good.” I suspect that many folks feel the same way. I don’t know where you stand, specifically.

[davelj]

[quote=arraya]And therein lies the problem with leverage…it relies on ever-expanding leverage and debt.

Our monetary system is based on debt and compound interest, which results in an ever expanding amount of “money” chasing dwindling natural resources on our finite planet.

To put another way: All money is born of debt and all interest on debt has yet to be created and is preferably created out of more debt. Got it, infinite debt has to be possible for it to work out. Faith-based economics.

[/quote]

That first quote looked suspiciously canned, and indeed it can be found verbatim on many “green” websites on the internet, including this one: http://www.grassrootsnetroots.org/articles/article_15155.cfm. Next time, do the authors a favor and use quotes. Or better yet, state a position using your own words, if possible. But, to your point, have you noticed that as time and technology progress that humans have managed to become increasingly more efficient in their use of the “dwindling natural resources on our finite planet,” thus allowing both populations and standards of living to grow at the same time? Basically, Malthus called and he wants his theory back.

The “All money is born of debt…” bit comes almost verbatim from Paul Grignon’s “Money as Debt” animated piece, which I imagine many Piggs have watched at some point or other. Again, quotations would be in order.

But, again, to the point you’re trying to make, let’s use a quick micro example to show that debt, in fact, can be paid down without one’s micro economy collapsing. People who are in debt regularly cut back on spending and/or earn more money in order to pay down debt. Happens all the time. Their lives don’t necessarily require ever-expanding debts to keep their micro economy, as it were, expanding. And if the debts do expand, more often than not (the last few years excepted, of course), the expanding debt is accompanied by expanding earnings. There’s nothing wrong with debt expansion, per se, so long as it’s accompanied by an equal degree of earnings expansion.

We, as a nation, can pay down debt relative to GDP and still have GDP expand. But because our debt levels are so great relative to GDP (because we’ve been irresponsible with debt for the last 20 years), GDP will expand at a much lower rate (via lower consumption) than it has in the past as we pay down that debt. It’s simple economics. But we cannot pay down the debt all at once. It will take some time.

On a general note, when folks just use other peoples’ quotes verbatim (and don’t acknowledge them as such) to make their points I sometimes wonder whether they really believe what they’re quoting or whether they just think it “sounds good.” I suspect that many folks feel the same way. I don’t know where you stand, specifically.

[Author]

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