Occupy Hobos

[RandBlade]

Wow, this shows such an utter lack in insight that a normal person would end this conversation with a 'whatever'.

First of all, the financial crisis was not two to three years ago, it broke out three years ago and it is still ongoing. The fall-out of it is so fucking unpredictable that nobody, and I mean really nobody, could predict how big the damage from that crisis will be. If it can be contained at all it is still questionable if it won't wipe out all the benefits of modern financials vehicles thought up since the beginning of the 90s.

No, the financial crisis was 2-3 years ago, now we're in an altogether different crisis. The current crisis is and should be called a sovereign debt crisis, it is a crisis in governments not a crisis in banks.

Financial vehicles were the problem under Lehman, today's crisis is far simpler: Can people [in this case governments] pay their debts.

This is NOT a cyclical crisis Randbland, this crisis is systemic, and the outcome can be uglier than anything any of us could imagine today. My hope is that it won't be quite that bad, but I would not put any money on a good outcome. Good meaning that we can more or less get back to where we thought we were.

I never claimed it was cyclical did I? Its a systematic problem of too much debt and expenditure though, one that I've always warned about. The banks are a mere distraction here.

Interestingly enough banks did not give a shit about whether or not those credits could be serviced, pretty much as with the sub-prime crisis. What counted was not sound business practise but short term balance sheet bloating as THAT delivered bigger bonuses.

Actually they did. The crisis is in part made worse for the governments now by the precautions the banks take: Loans are not indefinite but instead rolled over. Much in 10 or 3 year loans, any 3 year loans made prior to the financial crisis have already been repaid.

[Being]

The financial crisis was two to three years ago and no we weren't, however the cost of the crisis was far, far less than the positives of finance. The crises now are not simply because of the banks however much people love to blame them.

I'm guessing you work for McDonald's. Want fries with that?

[Hazir]

No, the financial crisis was 2-3 years ago, now we're in an altogether different crisis. The current crisis is and should be called a sovereign debt crisis, it is a crisis in governments not a crisis in banks.

Financial vehicles were the problem under Lehman, today's crisis is far simpler: Can people [in this case governments] pay their debts.
I never claimed it was cyclical did I? Its a systematic problem of too much debt and expenditure though, one that I've always warned about. The banks are a mere distraction here.
Actually they did. The crisis is in part made worse for the governments now by the precautions the banks take: Loans are not indefinite but instead rolled over. Much in 10 or 3 year loans, any 3 year loans made prior to the financial crisis have already been repaid.

You really make me laugh; if this crisis were only about governments not being able to pay back their loans there would be a simple solution for that. Those governments would default and that would be the end of it. Alas for us that would not be the end in the game of crapola we are really in. Which is that we have no idea whatsoever what will come down with those governments defaulting. Lehman's was not a different crisis, it was the canary in the mine. In a way Greece is too, abeit this time the canary has the size of a turkey. We suspect that it may pull the entire financial system into the abyss. But we're not even certain of that.

[RandBlade]

I'm guessing you work for McDonald's. Want fries with that?

No I don't. Anyway FYI my degree was in Economics and my Masters was in Finance, though that isn't the industry I work in now I do keep in touch with it. Anyway, the grown-ups are trying to have a conversation here, try and chip in if you think you can keep up.

You really make me laugh; if this crisis were only about governments not being able to pay back their loans there would be a simple solution for that. Those governments would default and that would be the end of it. Alas for us that would not be the end in the game of crapola we are really in. Which is that we have no idea whatsoever what will come down with those governments defaulting. Lehman's was not a different crisis, it was the canary in the mine. In a way Greece is too, abeit this time the canary has the size of a turkey. We suspect that it may pull the entire financial system into the abyss. But we're not even certain of that.

No, the difference is that early in the crisis the financial instruments that were failing were so convoluted that initially nobody knew who was holding what. That led to the credit crunch as banks were afraid to lend to each other not knowing who was holding what issues.

That is NOT the crisis today. Yes entire countries defaulting could bring the entire system down, but that's just because countries (like the banks of the previous crisis, except moreso) are "too big to fail", especially en-masse. Plus while countries could prop-up banks, its almost impossible for anyone to prop up a group of countries. Of course if France, Italy, Spain, Portugal, Ireland, Greece etc all failed that could bring the system crashing down around our heads. That is why its a sovereign debt crisis. But we know who holds Greek bonds, French bonds etc - uncertainty in who holds what debt isn't the problem. Can the debt be repaid is.

The magnitude of the crisis is probably bigger today than it was in 2008. But its a different crisis too. I am not in any way trying to diminish it, but the French, Italians, Greeks etc have been over-spending for far, far too long. Demographic issues that are making it harder to balance the books were known about when I was a kid in the 80s and not faced upto. In the 90s when I started studying economics we knew already that there was a ticking timebomb that could explode if not addressed this decade. The recession has brought it forward a few years, but governments were still putting off the inevitable until it was far too late. This sovereign crisis would have happened even without the financial crisis.

That makes it more serious, not less.

[Aimless]

You guys should write two short articles containing these views, for the front page

[RandBlade]

Not a bad idea Minxy.

[Hazir]

No I don't. Anyway FYI my degree was in Economics and my Masters was in Finance, though that isn't the industry I work in now I do keep in touch with it. Anyway, the grown-ups are trying to have a conversation here, try and chip in if you think you can keep up.
No, the difference is that early in the crisis the financial instruments that were failing were so convoluted that initially nobody knew who was holding what. That led to the credit crunch as banks were afraid to lend to each other not knowing who was holding what issues.

That is NOT the crisis today. Yes entire countries defaulting could bring the entire system down, but that's just because countries (like the banks of the previous crisis, except moreso) are "too big to fail", especially en-masse. Plus while countries could prop-up banks, its almost impossible for anyone to prop up a group of countries. Of course if France, Italy, Spain, Portugal, Ireland, Greece etc all failed that could bring the system crashing down around our heads. That is why its a sovereign debt crisis. But we know who holds Greek bonds, French bonds etc - uncertainty in who holds what debt isn't the problem. Can the debt be repaid is.

The magnitude of the crisis is probably bigger today than it was in 2008. But its a different crisis too. I am not in any way trying to diminish it, but the French, Italians, Greeks etc have been over-spending for far, far too long. Demographic issues that are making it harder to balance the books were known about when I was a kid in the 80s and not faced upto. In the 90s when I started studying economics we knew already that there was a ticking timebomb that could explode if not addressed this decade. The recession has brought it forward a few years, but governments were still putting off the inevitable until it was far too late. This sovereign crisis would have happened even without the financial crisis.

That makes it more serious, not less.

Ok, Randblade, you believe it's about sovereign debt, and that the UK is quite safe with a debt hovering around 75% of your GDP. I on the other hand will not ignore that the bank-sector has got you by the balls for twice your GDP and your sovereign debt is mostly bought by your own central bank.

In your fantasy world the UK hasn't a care in the world. In the real world, where I happen to live, the UK is just one of many countries that could be pulled under by a yet unsolved systemic crisis in the financial system. A crisis where the zombie banks are infecting sovereigns.

P.S. knowing who holds the debt is also not very interesting if you want to know who's going to bear the burden of a default that is covered by a CDS. For all I know the US government is on the hook (through AIG) for a big chunk of the Italian debt. Or the Chinese, or the Kuwaitis, or the Norwegians, or god-knows-who. Or alternatively, CDS are worth jackshit and then one would have to ask what all these investors are actually sitting on.

[RandBlade]

I didn't say that the UK was quite safe with debt of 75% of GDP did I? I think it's absolutely disgraceful that Brown devastated our economy leaving it like that. It should never have happened, but did. Thankfully we have a government now committed to cleaning up that mess - doesn't make it easy. Of course we have cares, Labour could get re-elected next election and then we'd be screwed.

Greece's debt though has been hoping at over 100% of GDP for decades and with a looming demographic crisis. Banks had nothing to do with it.

Two countries were brought down by banks: Iceland and Ireland. Iceland had the common sense to say that the banks were private organisations and allowed them to fail. Besides Ireland, which barely features in the news now, it is long-running problems caused by successive politicians that's causing this crisis.

[Ziggy Stardust]

Did Iceland have the common sense, or did it just not have the money to bail out the banks?

[RandBlade]

You say potato I say potato.

[Hazir]

Did Iceland have the common sense, or did it just not have the money to bail out the banks?

The reality is entirely not so easy.

Iceland did not have the money to save its banks; that didn't mean however that they could have gotten away with just letting them fail as 'common sense' proscribes. They were on the hook for a lot more money than their economy could have coughed up in a long long time. But in a way they got lucky; as it turned out the liquidation of the assets of the banks that almost bankrupted the Icelandic state brought in enough money for Iceland to repay the outstanding debts.

Other countries with a big banking sector are not so lucky as their banks didn't go on a real estate spending spree in the EU that could be reversed without incurring a real loss. Ireland is a prime example of how a sovereign debtor gets into trouble because of its banks being basically bust. Countries that are at risk from the same are, UK, Spain, France, The Netherlands and to a lesser extent Switzerland though they have a nice cushion of foreign cash for the time being to keep their banks afloat. Belgium is pretty much off the hook since they managed to offload their entire financial sector on the French.

Germany I don't see as being too much at risk as its banking sector is small relative to its GDP and as for Italy I really don't know what all the worries are about with that country. A bit of tweaking should enable them to deal with their debts in a reasonably short period.

[RandBlade]

Germany I don't see as being too much at risk as its banking sector is small relative to its GDP and as for Italy I really don't know what all the worries are about with that country. A bit of tweaking should enable them to deal with their debts in a reasonably short period.

The latter shows your failure to understand that this is a sovereign debt crisis and not a financial banking crisis.

The debt-to-GDP ratio, the demographics, the sclerosis, the perennial low growth etc are all catastrophic in Italy and have been for a long time. There is plenty of downwards pressure too and little upwards potential without major reform that the nation has shown little interest in doing.

[Hazir]

I didn't say that the UK was quite safe with debt of 75% of GDP did I? I think it's absolutely disgraceful that Brown devastated our economy leaving it like that. It should never have happened, but did. Thankfully we have a government now committed to cleaning up that mess - doesn't make it easy. Of course we have cares, Labour could get re-elected next election and then we'd be screwed.

Greece's debt though has been hoping at over 100% of GDP for decades and with a looming demographic crisis. Banks had nothing to do with it.

Two countries were brought down by banks: Iceland and Ireland. Iceland had the common sense to say that the banks were private organisations and allowed them to fail. Besides Ireland, which barely features in the news now, it is long-running problems caused by successive politicians that's causing this crisis.

Actually, it was I who said that, because 75% debt/GDP ratio is a bit on the high side, but it's manageable.

And seriously I do not understand how you don't see that there would be no EU-wide debt crisis if there wouldn't be serious doubt that the bank sector in the EU could not cope with a default of a minor state on its debts.

[Hazir]

The latter shows your failure to understand that this is a sovereign debt crisis and not a financial banking crisis.

The debt-to-GDP ratio, the demographics, the sclerosis, the perennial low growth etc are all catastrophic in Italy and have been for a long time. There is plenty of downwards pressure too and little upwards potential without major reform that the nation has shown little interest in doing.

I see you chose to forget that Italy has an informal economy the size of a mid-sized EU country, humming along just nicely. The combined soverereign and private debts of Italy are significantly lower than for any country of comparable size. The UK's indebtment is about 3 times as high. Banks are incredibly healthy too by the way, because they're a bit conservative. No zombies like Northern Rock, RBS and a bunch I can't care to remember.

FYI; the biggest company of the country in turn-over would be the mafia, to the tune of €140bn or so.

[GGT]

....

FYI; the biggest company of the country in turn-over would be the mafia, to the tune of €140bn or so.

I found that stat the other day, too. Italy has the mob, the US has pay-day lenders and banks issuing credit cards, and employers relying on credit scores for employment criteria. We also have the Federal Reserve that's supposed to be apolitical, but operates as the Banks' banker...in cooperation with our Treasury Dept, with conflicting dual mandates from congress.

For decades, tax payers didn't pay much attention to the men behind the green curtain, but that began to change after Northern Rock, Iceland, and Bear Stearns began to fail, and the global credit markets froze. That's when acronyms like SIFI, TBTF, CDO, MBS, TARP and HAMP went viral in MSM and people started paying attention. Politically, that's when the Ron Paul Revolution and Tea Party groups started to get attention, too. After the connections between politics, power, and policy were actually seen to be helping Big Banks and financial firms, while affecting tax payers and "the People's money" negatively, social movements like OWS and 99% popped up. Folks are trying to make sense of complicated and complex machinations involving their own money, and it makes perfect sense!

I'm suspicious of anyone who downplays citizen activism [Occupy Hobos] in order to justify the status quo, when that meant leaving complicated and interconnected monetary and fiscal issues to....our elected and appointed officials. Since they managed such a bang-up job of things we should simply continue to give them carte blanche? SSDD? I don't think that will work in our modern information age with open social media. Even grade school kids can now read about currency manipulation, trade deals, corporate subsidies, patent laws and pricing....regarding their smart phones or computer games.

As a lay person, it's not easy to keep up with the global financial crisis, since that means following Europe/Eurozone/EU dollars and politics (including trade), on top of our own USD/Federal Reserve/Treasury/Congress/Banks. So many moving parts, connections, contagions. I'm wary of anyone who claims things like it's just another business cycle...it's just a sovereign debt crisis....

[Lewkowski]

Comparing pay-day lenders to the mob is kind of silly. Last time I checked pay-day lenders were legal and citizens voluntarily signed agreements with them.

[RandBlade]

Pay day lenders are legalised Loan Sharks IMO.

They're not illegal, but I find them awful.

[Loki]

You don't think they provide a valuable service (i.e. lending money to people with terrible credit histories)?

[Aimless]

You don't think they provide a valuable service (i.e. lending money to people with terrible credit histories)?

What are the overall outcomes of their activities?



I always imagined these people as being one of the legal faces of the mob, kinda like dry-cleaners

[Loki]

What are the overall outcomes of their activities?

How would these people get money that they presumably need on short notice otherwise?

[Aimless]

How would these people get money that they presumably need on short notice otherwise?

No I mean things like do they help sustain poverty and smoking. As we've already established, the poor wouldn't need payday loans if they didn't smoke

[RandBlade]

You don't think they provide a valuable service (i.e. lending money to people with terrible credit histories)?

No.

[GGT]

Rand, as an employer with some employees that probably work paycheck-to-paycheck....would you be willing to advance their wages before "pay day"?

[RandBlade]

No. Used to when we were smaller. It got abused so we stopped it. If someone has a genuine unforeseen emergency then we do from time to time though.

[GGT]

What you're saying is pay-day lenders fulfill a need employers don't. Mostly because employers got so big they couldn't be connected to their own employees?

[RandBlade]

No that is not what I said. I said we stopped due to it getting abused, not due to size. I also said we help out sometimes.

However I don't think payday lenders charge 1700% APR as a service. They're no better than drug dealers in my eyes.

[Loki]

No.

Ok, then who do you think should lend money to people who are temporarily short on cash but have bad credit histories?

[Ominous Gamer]

We had a thread on this a short time back in the old place. When some state/county passed a law that made payday loans unprofitable, credit unions were finally able to move in, and they picked up that niche without problem.

I do believe that thread is what started lewk's ranting on payday crap, he hasn't been able to move on since.