I would guess, and it can probably be validated by many on here, that I know more about finance and how the markets work than you do (not an attack, just my opinion). Even if I did get news via smoke signals.

 

That is of no consequence. If your argument is veracious then it can stand on its own right.

That is of no consequence. If your argument is veracious then it can stand on its own right.

 

Fair enough, just responding to the knock on my knowledge of the markets by H.

If your 401k tanks that is your own fault for not being allocated properly. If you are a long term investor, the market will sort it all out and the markets will make new highs once again. Downturns are an opportunity. Capitalism is not without problems, but there is not a better system out there.

 

I would guess, and it can probably be validated by many on here, that I know more about finance and how the markets work than you do (not an attack, just my opinion). Even if I did get news via smoke signals.

 

 

You probably already know this, but what is happening right now is not the standard business cycle. If it was, I would agree with you that downturns are opportunities, and that a 401K investor with a long-term time horizon shouldn't be bothered by this, etc.

 

However, what is happening in the U.S. financial markets is not the result of a typical business cycle. It is something we haven't seen since the Great Depression. Storied Wall Street institutions that weathered wars, recessions, and depression are beginning to fall like dominoes: Bear Stearns (founded 1923), Lehman Brothers (founded 1850), Merrill Lynch (founded 1914) are (or soon will be) gone. Other longstanding businesses (AIG, Washington Mutual) may not be far behind.

 

This is not a failure of capitalism, but it is a failure of under-regulated capitalism. As I said earlier, when a small group of individuals or companies can, through poor judgment or miscalculated risk assessment, cause the entire financial infrastructure and thereby the U.S. economy to become seriously imperiled, there is a clear lack of adequate regulation. Ben Bernanke, probably one of the foremost experts on the causes of the Great Depression, recognizes this and has been advocating and adding new regulations right and left for about the last year and a half.

'H', you definitely stayed at a Holiday Inn Express last night...

You probably already know this, but what is happening right now is not the standard business cycle. If it was, I would agree with you that downturns are opportunities, and that a 401K investor with a long-term time horizon shouldn't be bothered by this, etc.

 

However, what is happening in the U.S. financial markets is not the result of a typical business cycle. It is something we haven't seen since the Great Depression. Storied Wall Street institutions that weathered wars, recessions, and depression are beginning to fall like dominoes: Bear Stearns (founded 1923), Lehman Brothers (founded 1850), Merrill Lynch (founded 1914) are (or soon will be) gone. Other longstanding businesses (AIG, Washington Mutual) may not be far behind.

 

This is not a failure of capitalism, but it is a failure of under-regulated capitalism. As I said earlier, when a small group of individuals or companies can, through poor judgment or miscalculated risk assessment, cause the entire financial infrastructure and thereby the U.S. economy to become seriously imperiled, there is a clear lack of adequate regulation. Ben Bernanke, probably one of the foremost experts on the causes of the Great Depression, recognizes this and has been advocating and adding new regulations right and left for about the last year and a half.

 

 

This is the economic cycle and it is not the end of capitalism.

 

We will have to agree to disagree on regulation. The markets are efficient enough without more regulation. With or without more regulation, companies that make poor decisions and pursue risk with too small a regard will meet their end. In fact, they should meet their end and be allowed to fail. That is why Communism/Socialism does not work. Because it eliminates the ability to go bankrupt. Same reason that I do not want more of my tax dollars in the hands of the right or the left in D.C. They have proven to have poor ability to manage money. They are not tied to a budget/balance sheet like a corp is. If they manage poorly, they raise taxes or pull the dollars from somewhere else (SS trust fund, etc.).

 

Companies are failing because the people leading them made extremely poor decisions in trying to make a little more profit then they safely could. Shareholders are now paying for it, as they should.

 

One of the biggest single causes of the Crash in 1929 was the ability to purchase stock on 10% margin.

 

Bear Stearns failed because they loaned money to people who could not pay it back because they potential for profit was higher. Lehman Brothers much the same. However only one of these declared bankruptcy (Lehman). Like I said the market will sort it out and just because the market sentiment is that these assets are not worth much based on the debt load these companies are carrying, companies with healthier balance sheets (BAC, JPM, MS, etc.) will buy these assets at fire sale prices. That happened with Bear Stearns and with Merrill today. There have been 100's of reasons over the past century to sell stocks (WW I, 1929, WWII, Oil Embargo, S&L, Dot.com bubble, 9/11, etc. etc.). The market has gone on to make new highs after every single one of them. This one will be no different. Do you think that BAC is buying Merrill out of the goodness of their heart? No they are buying Merrill because it is an opportunity to capitilize on purchasing an asset at a bargain price. Capitalism at its finest.

 

For every Drexel Burnham, Enron, Lehman, Global Crossing etc. there are a dozens of other companies that did not take the unecessary risk and will benefit from the demise of those managed poorly.

We will have to agree to disagree on regulation. The markets are efficient enough without more regulation. With or without more regulation, companies that make poor decisions and pursue risk with too small a regard will meet their end. In fact, they should meet their end and be allowed to fail. That is why Communism/Socialism does not work. Because it eliminates the ability to go bankrupt. Same reason that I do not want more of my tax dollars in the hands of the right or the left in D.C. They have proven to have poor ability to manage money. They are not tied to a budget/balance sheet like a corp is. If they manage poorly, they raise taxes or pull the dollars from somewhere else (SS trust fund, etc.).

 

Companies are failing because the people leading them made extremely poor decisions in trying to make a little more profit then they safely could. Shareholders are now paying for it, as they should.

 

One of the biggest single causes of the Crash in 1929 was the ability to purchase stock on 10% margin.

 

Bear Stearns failed because they loaned money to people who could not pay it back because they potential for profit was higher. Lehman Brothers much the same. However only one of these declared bankruptcy (Lehman). Like I said the market will sort it out and just because the market sentiment is that these assets are not worth much based on the debt load these companies are carrying, companies with healthier balance sheets (BAC, JPM, etc.) will buy these assets at fire sale prices. That happened with Bear Stearns and with Merrill today. There have been 100's of reasons over the past century to sell stocks (WW I, 1929, WWII, Oil Embargo, S&L, Dot.com bubble, 9/11, etc. etc.). The market has gone on to make new highs after every single one of them. This one will be no different. Do you think that BAC is buying Merrill out of the goodness of their heart? No they are buying Merrill because it is an opportunity to capitilize on purchasing an asset at a bargain price. Capitalism at its finest.

 

 

Like I said earlier, free markets work great until they crash.

Like I said earlier, free markets work great until they crash.

 

And after they crash (which we are very far from at the moment) they recover. Boom and bust, trough and valley, economic cycle 101.

 

Do you really think this is the end???

 

I guess you are selling a going to cash? Write down what you sold your stocks for and you can buy them back from me 20 years from now. I bet they will be worth significantly more than what you sold them for.

And after they crash (which we are very far from at the moment) they recover. Boom and bust, trough and valley, economic cycle 101.

 

Do you really think this is the end???

 

No. Yet, it will certainly be a rough ride, even and especially for a whole lot of people who had nothing to do with the sub-prime/credit failure. And it brings to light some of the flaws of American capitalism, especially this particular hue of laissez-faire. Among other things, CEO and boss pay needs a closer look, especially, as H mentioned, the fact that there is an incredible paucity of accountability at that level. Richard Fuld, who made $40 million last year and the guy most fingers are pointing at, will most certainly get his before Lehman sighs its last breath. Not much of a disincentive to run a company into the ground.

No. Yet, it will certainly be a rough ride, even and especially for a whole lot of people who had nothing to do with the sub-prime/credit failure. And it brings to light some of the flaws of American capitalism, especially this particular hue of laissez-faire. Among other things, CEO and boss pay needs a closer look, especially, as H mentioned, the fact that there is an incredible paucity of accountability at that level. Richard Fuld, who made $40 million last year and the guy most fingers are pointing at, will most certainly get his before Lehman sighs its last breath. Not much of a disincentive to run a company into the ground.

 

The disincentive is larger profit as Mr. Fuld's options are worthless now. IMO incentive/option pay should be increased. But that is also a two edged sword that can put us in the situation we are in now by making the pursuit of greater profits too high in the face of risk. Puts leadership/management on the same side of the table as shareholders. Reminds me of the line from "Wall Street", management has no stake in the company.

The disincentive is larger profit as Mr. Fuld's options are worthless now. IMO incentive/option pay should be increased. But that is also a two edged sword that can put us in the situation we are in now by making the pursuit of greater profits too high in the face of risk. Puts leadership/management on the same side of the table as shareholders. Reminds me of the line from "Wall Street", management has no stake in the company.

 

Bingo. Executive pay is a very, very difficult thing for Boards of Directors to address. Put too much emphasis on profitability, and you seem some executives doing the kind of things that is causing the market to roil. Don't put enough emphasis on profitability, and you see executives getting paid big bucks when the company is losing money.

 

There are lots of lessons being learned in the market and in households throughout the country. I don't have the opinion that the need for more regulations is one of them.

And after they crash (which we are very far from at the moment) they recover. Boom and bust, trough and valley, economic cycle 101.

 

Do you really think this is the end???

 

I guess you are selling a going to cash? Write down what you sold your stocks for and you can buy them back from me 20 years from now. I bet they will be worth significantly more than what you sold them for.

 

 

The end? What does that mean? No, I don't think it's the "end". But if a deep 10 year economic funk is the side effect of the market purity you seem to advocate, I would say that is an unacceptable side effect. One of the reasons the U.S. financial system has historically been resilient and strong is that we have an effective regulatory structure compared to other countries. However, when the misdeeds and screwups of a small group of individuals and companies can lead to the collapse of the whole bloody economy (and I mean that in the context of a Great Depression-magnitude problem, not a run of the mill recession), that tells me market forces did not work and additional regulation is required.

 

Companies loan money on zero down ARM mortgages based on corrupted appraisal processes. They then sell the loans to other companies which bundle them, mislabel them as investment grade and sell them off, where they become ticking timebombs permeating large swaths of the financial landscape. That scenario reflects a lack of adequate regulation. The free market works when risk of negative consequences is limited to the economic actor making the decision. The free market doesn't work when the decisions of a relative few have spectacularly disproportionate negative consequences for the economy as a whole.

And again, this is where we disagree. This is NOT going to cause a 10 year depression. The entire system is not going to fail based on the action of a very few. IMO over regulation will not stop people/managment from making poor decisions. It is sort of like increased gun control. If someone wants to shoot someone, there is no law that is going to prevent it from happening. You can regulate all you want, but if management wants to make poor decisions on who they lend money too, then regulations mean zippo.

The markets will rebound...There was a significant amount of liquidity added to the market last night domestically and internationally. In the ballpark of $200B. The fact of the matter is Lehman is a company who made some suspect decisions and is now paying the consequences. M Lynch was purchased at a PREMIUM for what the stock was trading at yesterday...what it was trading at last year has no consequence. There are many stocks that are trading lower than they were last year...as there are many that are trading higher than last year.

 

But like Biden said...This is Bush's and McCains fault!!!:sleep:

This is how Warren Buffet and many of the world's entrepreneurs make their money, right? They buy these failing companies and turn them around.

 

We will be fine. People are buying into the hype that the economy is failing because the media won't stop telling them that. We will be OK.

Did anyone see the CNN news report that was live from the bank?