Bear Stearns gets emergency funding.

[Admiral Valdemar]

Lehman has lost over half its value in the last few hours. Still a long way till the close...

[Uraniun235]

LOL

I'm reminded of a story my dad told me when I was young. He had a finance teacher in high school who, weeks after giving a lesson on buying on margin and the risks therein, was totally wiped out by a margin call.

Mind you, this would have been in the early 70s, so it seems that since then we have advanced to entire companies being wiped out by margin call.

Who knows, maybe in the future we can have the whole world find out it doesn't have as much money as it thought it had in its imaginary money pile, and be completely unable to do real work because of it!



Someone should build a supercomputer designed to model the global financial system. We can generate the irrational human inputs by integrating it with an MMO where people play as financiers and brokers, while constantly updating the simulation with real-world data.

[Admiral Valdemar]

It's funny to think that so much misery and panic can be brought on by the simple arbitrary evaluations of fiat currency that only ever exists as easily manipulated noughts and ones in a computer.

The vast majority of our economies now are based on non-material values, so we feel good by having the stock market reach a certain point level, even if that is a made-up number and not all that useful compared to physical gold, oil or grain.

[Col. Crackpot]

today went a lot better than i thought it would.

[Keevan_Colton]

today went a lot better than i thought it would.

Yeah, Lehman for example managed to claw back up from a real mid afternoon slump....shame the six month graph looks like an olympic grade ski course...

[J]

today went a lot better than i thought it would.

You can say that again, I made my entire yearly salary in a single day!


Actually if you look at little closer, the only reason the Dow ended up in the green is because JPM shares went on a tear after they picked up the remains of BSC with a little help from the Fed. Every other index was well into the red, S&P 500, Nasdaq, TSX, you name it.

I expect a nice bounce tomorrow after the rate cut, after that, all bets are off.
It's going to be a fun week...

[Darth Wong]

today went a lot better than i thought it would.

It's all so volatile, though. Financial stocks plummet at opening, investors see a buy opportunity and snap up the stock at bargain prices so it shoots back up. But all it takes is another confidence buster, and the stocks plummet again. The whole market is lurching from opportunity to fear and back again.

It's easy to say that people should just hold fast, but after the collapse of Bear Stearns, that's harder to say. And not everyone is a single person with no real obligations in life who can afford to stare down big risks for big gains in this market, or shrug off losses thinking that they can make it back in the long run. A lot of people are older, or have families, or are nearing retirement age and they aren't planning to go Vegas with their money. They want something they can count on, and they're not feeling the love here.

[brianeyci]

LOL

I'm reminded of a story my dad told me when I was young. He had a finance teacher in high school who, weeks after giving a lesson on buying on margin and the risks therein, was totally wiped out by a margin call.

Mind you, this would have been in the early 70s, so it seems that since then we have advanced to entire companies being wiped out by margin call.

I had the same kind of teacher, except mine was a statistics major and a math teacher. It was the dot com bubble, and Nortel had just lost a huge amount of its value. He bought a shitload, convinced it would go back to historic values. Nowadays, Nortel is at historic lows. I hope he hasn't killed himself. At least teachers have a steady job.

At least yours was an economics major so he had an excuse. Anyway, back to worrying about my own student loans.

[Darth Wong]

today went a lot better than i thought it would.

You can say that again, I made my entire yearly salary in a single day!

It's funny ... when I was growing up, this kind of incessant public bragging about one's good financial fortune (especially knowing that so many others are suffering) would have been considered extremely uncouth at the least: a sign of a poor upbringing and bad manners. It was taboo to even discuss salary with others. But perhaps times have changed.

[brianeyci]

It's funny ... when I was growing up, this kind of incessant public bragging about one's good financial fortune (especially knowing that so many others are suffering) would have been considered extremely uncouth at the least: a sign of a poor upbringing and bad manners. It was taboo to even discuss salary with others. But perhaps times have changed.

It hasn't. It's still extremely bad to talk about money in university at least, especially where I am. And where I am there's 300 students from richass families combined with student loan people so it is completely taboo, unless you're trying to make an enemy. When I say rich, well you wouldn't believe it. Girls have inventive ways to find out how much money guys have though: sometimes I wish they would ask directly. It'd make the whole mating ritual a lot easier.

But in J's case it is unique I think because

1. It's J.

2. Nobody believes the economy is going into the shitter. She can't brag about it to anybody and it can't speak for itself, because nobody would know what they're looking at. So she's left with a message board of people who do get it and well, it is the outlet.

[J]

It's funny ... when I was growing up, this kind of incessant public bragging about one's good financial fortune (especially knowing that so many others are suffering) would have been considered extremely uncouth at the least: a sign of a poor upbringing and bad manners. It was taboo to even discuss salary with others. But perhaps times have changed.

In my department we never talk about our salary or the dollar amounts we've made or lost, or even the number of shares or options traded; all our office cooler and lunch hour financial talks are discussed in terms of fractions & percentages of our salary. Which is kinda funny since we all know what everyone makes since it's a government payscale, but it's seen as having a layer of vagueness so it's acceptable for us. Go figure...

My fiancé says it's far worse at his workplace, people there will outright brag about how many shares they bought & sold and put specific dollar amounts on their gains & losses. He doesn't talk to those people since in his words, "they're all fucking union assholes".

[aerius]

LOL

I have feeling it's about as real as this potential suicide.

[J]

As a sidenote, I just had a rather disturbing conversation with one of my friends. She mentioned her mutual funds were taking a large hit in the last couple months so she went to the bank to have a little talk with the investments manager, a talk which did not end well.

It turns out the "growth oriented mutual fund" is split as 60% financials, weighted towards mortgage & insurance companies, 20% energy, and the remainder in the manufacturing & tech sectors. The bank (RBC) does not let customer change the mix of the fund, but they did offer to switch her to a "lower risk" fund, which is also in the red, oh, and there's a fee.

And that's where we run into a new problem, return of capital as opposed to return on capital, as in "I want my money back because it's clear you have no clue what you're doing with it". She now manages her own investments.

So, if you have investments, retirement savings, or anything like that, now would be a very good time to make sure your bank isn't up to any funny business with your money. Check the mix on your mutual funds and RSPs, and if for instance there's a bunch of subprime lenders on the list, you likely want to do something about that before the house of cards comes tumbling down and takes your money along with it. Don't wait for the bank runs to begin before thinking about your savings, prepare now and get ahead of the crowd.

[Col. Crackpot]

As a sidenote, I just had a rather disturbing conversation with one of my friends. She mentioned her mutual funds were taking a large hit in the last couple months so she went to the bank to have a little talk with the investments manager, a talk which did not end well.

It turns out the "growth oriented mutual fund" is split as 60% financials, weighted towards mortgage & insurance companies, 20% energy, and the remainder in the manufacturing & tech sectors. The bank (RBC) does not let customer change the mix of the fund, but they did offer to switch her to a "lower risk" fund, which is also in the red, oh, and there's a fee.

And that's where we run into a new problem, return of capital as opposed to return on capital, as in "I want my money back because it's clear you have no clue what you're doing with it". She now manages her own investments.

So, if you have investments, retirement savings, or anything like that, now would be a very good time to make sure your bank isn't up to any funny business with your money. Check the mix on your mutual funds and RSPs, and if for instance there's a bunch of subprime lenders on the list, you likely want to do something about that before the house of cards comes tumbling down and takes your money along with it. Don't wait for the bank runs to begin before thinking about your savings, prepare now and get ahead of the crowd.

you can't change the structure of a fund unless you're the fund manager. Thats pretty common knowledge...That's the deal with mutual funds, they are fork over the funds and forget it. You just have to be careful. ie Don't by a mutual fund that you don't know the holdings of.

[Admiral Valdemar]

Oil is down, the markets are up; God's in his Heaven, all's right with the world. Crisis averted.

[Darksider]

Oil is down, the markets are up; God's in his Heaven, all's right with the world. Crisis averted.

For now.......................



DUN DUN DUN!!!!!

Short term crisis can be resolved, but the long-term issues behind them are still looming on the horizon like the sword of damocles.

[Admiral Valdemar]

A seventy-fiver rather than the full one-hundred has been cut and the Dow just dropped like a stone (then shot up like a rocket. Now it doesn't know what to do). Oil is almost back where it was this time Friday. I hear there was dissent in the Fed, so I can only expect further issues in the future.

Sooner or later, Helicopter Ben is going to run out of ammo for the big guns. And then it gets interesting. Not that listening to him "worry" about inflation whilst printing like crazy isn't interesting per se.

[Starglider]

Not that listening to him "worry" about inflation whilst printing like crazy isn't interesting per se.

As I understand it, in a credit crunch you can print money like crazy and get away with it, because the destruction of credit (by calling in debts and withdrawing savings) is rapidly shrinking the effective money supply. Printing more money maintains the status quo. Problems come during the recovery, when the ratio of real money to imaginary money tries to return to its previous value, causing inflation as the overall money supply increases again.

[brianeyci]

Hey: is it possible to have a "negative" interest rate?

When it hits zero and the ammo is gone well... nowhere else to go. In the end I think J is right... got to open up all the toilets and see who's been hiding the turds.

[Admiral Valdemar]

As I understand it, in a credit crunch you can print money like crazy and get away with it, because the destruction of credit (by calling in debts and withdrawing savings) is rapidly shrinking the effective money supply. Printing more money maintains the status quo. Problems come during the recovery, when the ratio of real money to imaginary money tries to return to its previous value, causing inflation as the overall money supply increases again.

The key word here is "inflation". Doing that to attack inflation, yes, but we are definitely seeing deflationary pressures mounting up now. So as the dollar continues to plummet from this move, Bernanke is only exacerbating the problem without letting anyone get out of the hole. Americans, at least, just don't have the spare cash, given the clamp down on liquidity and the solvency problem playing out.

The bottom line is, the Fed is trying to provoke more consumer spending to get us out of the abyss we seem to be falling into. But it doesn't matter if, no matter how much liquidity you throw at the problem, people have lost confidence and can only just pay for life's essentials, let alone forking out for luxuries. $200bn was absorbed like nothing and the falling values of mortgages and companies is accelerating. Lower interest rates and higher food/energy bills will not change this state of affairs for the better one iota and I think the dissenters are the ones who, unlike Helicopter Ben, actually got a clue, if only for delaying the inevitable.

Hey: is it possible to have a "negative" interest rate?

When it hits zero and the ammo is gone well... nowhere else to go. In the end I think J is right... got to open up all the toilets and see who's been hiding the turds.

Yes, it is, though I can't remember the last time the Fed actually went to that extent from memory.

[phongn]

Hey: is it possible to have a "negative" interest rate?

What, the Fed pays someone else interest to take their money?

Yes, it is, though I can't remember the last time the Fed actually went to that extent from memory.

The Federal funds rate has never reached zero percent, though Japan did it for five years.

[Admiral Valdemar]

Must've been another nation then. The Japanese ZIRP policy was used during deflation rampant times, so we may be heading the same way if no one reigns in Bernanke. There may be no way out of a major downturn, but we can at least try and stave off a massive correction that could lead to a collapse.

[Big Phil]

Hey: is it possible to have a "negative" interest rate?

Being very simplistic, if you currently have $100K, and you invest that in property, stocks, bonds, etc., in a deflating economy that $100K would theoretically be worth only $90K in a year (for example). Rather than invest that money, it's better for you to just stick it in the bank, and then in a year, you can buy those same property, stocks, and bonds for $90K and still have $10K left over, or you can keep sitting on it.

In other words, deflation discourages investments and spending - no point investing in something today that will be worth less in a year after all.

[Darth Wong]

Under deflation, even the bank would be a bad idea, since they would presumably be giving you negative interest. You'd want to keep your cash in your mattress, and a shotgun by the bed.

[fnord]

Are you guys talking about negative nominal interest rates, or negative real interest rates?

I'm not sure if negative nominal loan rates have ever been offered, but am not certain.

Negative real rates happen when inflation outpaces the nominal rate

eg

invest $100k at 2% pa nominal, with inflation running 5% pa (numbers abstracted from the air)

In the year's time, you get back $102k nominal, but it's purchasing power has declined to $97,142.86 - a net loss of real purchasing power, effectively a negative real rate of -2.86% pa.