One of Largest Financial Players devalued in a day - what is going on?

Discussion in 'IntroSpectrum' started by McGirth, Mar 17, 2008.

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  1. Offbeat

    Offbeat New Member

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    that is true, but it's really just superficial. imo, the bush economic stimulus is just a band-aid that will spike the economy briefly but isn't a long term solution because it's just a redistribution of wealth. when a buisnessman puts money in a bank it's loaned out to buisnesses, lay people for car loans/home loans, and invested in the economy. also, as an aside the money "saved" from outsoucing is actually closer to its real principle since it is not taxed from the government. example, buisnessman saves 200k on labor... his ss tax is already capped, and he must pay state, local, and fed taxes. on the other hand if it goes to workers, it gets ss taxed to the full 6%, along with other taxes, probably around 25%. whereas the capital gains of investing the 200k are capped at 18%. i remember a famous quote from warren buffet about him only paying 18% of his income in taxes and the majority of his employees were getting taxed 33%.

    the buisnessman will put 165k back into the economy whereas the employees will put about 138k back into the economy.

    this is not a major problem. if only the us would create policy to discourage outsourcing, control inflation, and encourage american made products we'de be much better off. and also consumer action. toyota and honda are more popular than gm vechicles. who's to blame for that?

    but the ceo of goldman sach's eats food everyday in the us, pays taxes in the us, puts his money in american fdic insured banks, invested with american sidc insured brokerages, buys his gasoline from mobil stations, employs american workers who do the same thing, owns property in american cities, uses utility service from american companies, gets cable from american suppliers, owns a dell computer, etc. etc.

    you are right that the guys in maine will spend more percentagewise on american goods than the ceo but at the same time he doesn't spend all of his cash, he probably invests most earned and spends the capital gains of his investments, which will be huge sums of money since he will have more than 100k/year to invest while the autoworkers would do good to invest 5k/year.

    unless we have a drastic shift into outsourcing i don't see it as a problem for capable, educated, productive workers. if you've been making 22/hr answering customer service calls for jc penny, then yeah, the gravy train is over. time to earn what your skills are worth.
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  2. Radium

    Radium f k

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    Ay rich youre right to point out that the businessman's money does find a way back in through the economy through things like banks, being taxed, and even consuming goods himslef but I think even you must agree that, though these are good contributions, they dont outweigh the contributions of many people simply buying various goods.

    that is what the whole economy is centered around right? when the consumer's ability to buy things gets hindered businesses everywhere suffer too. the whole things falls apart from the bottom.


    what good are the loans ulktimately dished out by the businessman from having put his money in a bank if people's ability to consume various goods was weakened to the point where it becomes difficult to sustain all these various businesses that would have otherwise been seeing a steady cash flow.

    That "contribution" becomes moot. To be more precise, the whole thing did more harm than good. To the economy, that is. To that businessman sitting at the top; he did Ok though.



    I'm completely for a person trying to maximize the gains made by his business. But when this means doing things that harm the general prosperity of the economy then we should take a close look and see if those gains were truly necessary.


    But anyway I dont think outsourcing is causing too big of a hurt on things. I dont think it helps and the consequences may be greater than people think but like you I dont think its widespread enough. not yet anyway. I think in the future though your capable, educated, and productive workers might could get their jobs taken too. not just low level phone operators but you skinny looking big head niggas at the top too.



    those are strong points. Rich do you know anything about any leading overseas economies? How are their policies and local consumer trends a far as purchasing locally made goods go compared to ours?
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  3. McGirth

    McGirth New Member

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    One more point concerning how quick Bears tanked.

    Today, liquidity in the market is higher given technological innovations in computers for 3 reasons:
    1) individuals can now withdraw their money more quickly from the market
    2)financial institutions can as well
    3)auto-buy/sell orders when certain news items are released/stock prices drop or rise can lead to the rippel effect of tons of parties buying/selling at the same time. This can cause a huge drop in price in a matter of minutes if every script activates at the same time.


    So basically, there are 3 groups of factors considered so far. There has been disagreement on their level of influence.

    They are:
    1)labour innovations, i.e. outsourcing, moving certain types of labour outside the state; reasons for this have varied
    2)legal innovations, changing definitions/allowable limits of things like property, debt, mortgages, etc.
    3)internet/computer innovations, allowing for greater collective liqudity in the market.


    As Sodium pointed out, i don't think we have a core idea just yet.
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  4. McGirth

    McGirth New Member

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    sorry had to. (that was my point FYI)
    He keeps his liquid money in the kayman islands/swiss banks, he eats fine italian/french/japanese foods that are imported from foreigners who send their money to their families back home or the money stays in cultural enclaves in america, he invests in funds that have most of their money in emerging markets, he takes taxi cabs (he is in NY afterall!) with srilankan who send their money back to their families there, he does own cars but they are strictly italian/german, he does have couple of condos (yet hires mexican labourers to do the work in them), one in NY the other in LA where property value is sky high (which is bad for actual people), his computer is toshiba, He spends 60% of the year abroad in meetings in branches in places like Dubai, Tokyo, Toronto, London, Paris, Prague, etc... he Flies in a private jet with a british pilot. The only thing american he owns are his Allen Edmonds shoes and his passport.

    AND FYI, he's not even the CEO, not a VP, but a mere partner. The CEO invests even less in US economy, at least this guy is using US law firms, the CEO uses strictly british financial and law firms to handle his personal finances/affairs.

    obviously this is a carichature, BUT i just wanted to see how far this could be taken. Funny thing is, this is actually pretty close to what high end business is like today. The US is just another market/state, it holds no special status. This isn't the 1960s anymore where the US CEO would have to spend most of his money in the US by neccesity.

    Keep in mind THIS is who you are calling for should get tax breaks when you want tax breaks for the rich in today's world.

    One other factor, not yet considered, is that american companies are less and less american owned anyway & are becoming more and more shells for foreign investors.
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  5. Offbeat

    Offbeat New Member

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    i think it tends to even out overall. the rich paying huge tax gains does contribute to social programs more allowing people with zero income to actually get government checks, and being poor they spend about 90% on consumer goods. ultimately the rich getting richer allow for bigger operations and more job creation (overseas and in the us). the biggest market for goods is in the us so there will be people needed to service them, and our economy is something like 70% service based. please, DO NOT WORRY (about the economy as a whole).

    i'm not an expert, but i do know they have higher interest rates, encouraging more saving and lessening inflation. their consumers can retain purchase power and the companies can increase profits more easily with revenue increases since they don't have to jack up labor costs frequently. also, there markets are not as *free* as the us. in the long run this will probably hurt them so i'm not for more control of the us economy.
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  6. Offbeat

    Offbeat New Member

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    those foreign banks are not fdic insured, so the bulk of his cash will be in american banks. the credit rating for those countries are not nearly close to the us. the food that he eats my be foreign, but the resturant employs american workers who buy american goods and pay american taxes, and pays property taxes to the american government who employes american federal employees, most of his money is *not* in emerging markets but rather in the strongest funds ever in the history of the market - the dow jones (100% american), and the s&p 500 (100% american), who are an index of companies who employ american workers... his taxi cab driver (but most likely a private car driver) is an american who pays rent to an american landlord and uses american utility and cable service, his computer can be whatever brand it is, but is probably bought from an american store like cdw, circuit city, or best buy, who again, employs american workers, and when he spends his time abroad, he uses his jet which he owns a timeshare of, which was built by boeing, and is garaged in an american hangar which pays american property taxes and employs american matinence workers..... the list goes on.

    this is the american economy. it is super strong. the marginal outsourcing neglects the 4.5 trillion we produce every year.
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  7. McGirth

    McGirth New Member

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    I think we can agree that with the advent of globalization/cosmopolitanism in the cities, the 'trickle down effect' has decreased in benefits accrued to the US economy (though, as you correctly pointed out, they are not entirely gone).


    now to get back on topic,
    "
    "Bear Stearns was a clear wake-up call. It resonates with everybody and highlights the severity of the stresses in the financial system," said Mark Zandi, chief economist at Moody's Economy.com.
    What got people's attention was how quickly Bear Stearns, the fifth largest U.S. investment bank, could go from a stock market value of about US$3.5 billion when the market closed on March 14 to being sold at the bargain-basement price of about $236 million two days later."

    http://ca.news.finance.yahoo.com/s/...ses-worries-deeper-recession-worst-since.html



    IMHO this boggles the mind.... I'm really having trouble trying to grasp how/why this happened... maybe it was a fluke?
    Any thoughts?
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  8. Offbeat

    Offbeat New Member

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    they were extremely leveraged.

    it happens.

    va linux traded at $247/share and then went under $1/share.

    the stock price doesn't always reflect the value of the buisness behind it.
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  9. McGirth

    McGirth New Member

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    ^ That can explain a huge drop off in reveneue for a period. But, it still dosent explain how the stock price could drop so quickly paving the way for an M&A. even if they lost liquidity, how on earth did the stock price drop so quick/much!?
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  10. Economics is the study of mass human behavior.

    Stock prices reflect what people THINK the value of something is worth.

    Even Google is dropping from its ridiculous 600+/share number.

    Of course, there are two major layers to that process: What people THINK something is worth, and what the company is actually capable of matching.

    It's possible poor business calls were made to invest in the housing bubble which everyone predicted would pop and cause disaster about two weeks into it growing.

    In short, people took a growth staple and abused it.
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  11. McGirth

    McGirth New Member

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    definately part of the answer, and also definately a variable that can override others. Is it all controlling/the only variable at play in macroeconomics? I don't think so.


    Can shifts in subjective perception explain why Bear Stearns was massively devalued in a short period of time? Again, i don't think so. If anything, it begs the question.

    One thing you want to keep in mind that alot of these mass money market stuff isn't "mass human behavior" but the behavior or individual agents/massive corporations with literally an army of analysts at their disposal. These massive corporations aren't individual persons, they are a function of rules and power. They don't act/react in the way that an actual person does. They don't suffer from the human condition of subjectivism that is inhernet to mass human behavior.
    Most of the $$ is in their hands, not in the hands of small-time investors. As such, looking at their operating mechanisms/tools of analysis they use to appraise value could be more fruitful than declaring mass perception (or mob mentality) the key factor.


    BUT, i agree with you that mass human perception is still an important point to consider.
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  12. Offbeat

    Offbeat New Member

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    most professional stock analysts don't know shit about making money in the stock market.

    most fund managers can't even beat the dow jones industrial average.
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  13. It's a matter of super simplified logic:

    1.) Americans will have a fuck load of immigrants coming in to offset white people's inability to breed.
    2.) America has crazy food... so much food, we have to burn excess food to keep prices stable.
    3.) American land is largely underdeveloped in comparison to older empires.
    4.) American architectural industry is highly advanced and efficient in comparison to newer empires.
    5.) American financial institutions are rooted in land ownership.

    These 5 variables are the major points in which mass opinion gets shaped on this issue. Eventually, this knowledge accumulates into someone trying to make a buck off of something that is perceptively nearly-infinite in abundance, poised for massive growth, and traditionally stable.
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  14. McGirth

    McGirth New Member

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    any new thoughts on this given recent events (i.e. world market crashes today)?
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  15. Offbeat

    Offbeat New Member

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    i don't think a 5% loss for the dow qualifies as a market crash.
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  16. McGirth

    McGirth New Member

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    semantics aside, any insights into the US's recent financial problems?
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  17. Offbeat

    Offbeat New Member

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    not really. the chickens are coming home to roost.

    there's a purging going on.
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  18. McGirth

    McGirth New Member

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    Okay. to clarify and expound on what I was writing earlier.
    Since a lot of it seems to be coming to a head today and I happen to be writing on these concepts right now at a fundamental level.

    The point is that: The Free Market Idea is applicable to actual things being produced (i.e. production, labour of real forms of property) and in this sense it is highly beneficial; but the idea has been ransacked and analogized to apply to methods of financing (intangible personal property), where in fact the analogy does not apply, which has led to dire consequences for the economy.

    You can see a transformation of 'what is property'. In the past, property was land and things. It soon became rights to things. After a while, contractual rights, and labour in intangibles became property (like copyrights). Eventually and implicitly, things like bundled debt came to be seen as Property.

    The current forms of property at the center of the crisis are Shares / Debentures / other financing legal mechanisms and radical shifts in their value. How can Bear Stearns, Fannie May, Freddy Mack go from 90$ to 1$ overnight - the answer is here.
    On the one hand, for the last while now, it has been argued by many that these financing legal mechanisms should be subject to free market mechanisms, which in fact they were.

    i.e. CONTRACTS & OBLIGATIONS THEMSELVES are said to be better off when left to the free market, the idea being that the invisible hand would take care and create the best possible situation for production.

    However, in the 19th C, Adam Smith, when talking of the benefits of the free market WAS NOT TALKING ABOUT FINANCING SYSTEMS. Rather, what he believed should be the subject of property that is subject to free markets are ACTUAL THINGS. I.e. free market is a macro-level legal mechanism that helps PRODUCTION overall of ACTUAL THINGS. i.e. to help in manufacturing.


    Its only with modern redefinition of property, from the last 100 years or so, that we begin to see ideas that intangible forms of property, like financing mechanisms, should be subject to the free market. Adam Smith's arguments were grafted onto these new forms of property, which in the past would never have been seen as property, but rather INTANGIBLE PERSONAL RIGHTS (i.e. contractual rights).
    Unfortunately, and we are beginning to see it today, the analogy of free market for legal mechanisms of property for financing DO NOT HOLD.

    This was never meant to be the object of property Adam Smith spoke of as producing good when subject to a free market.

    So in sum, By transforming a financing mechanism into a property right, Adam Smith's argument that property should be subject to a free market was bastardized, leading to unintended consequences.


    I'm not sure if this is correct. Someone who has studied Adam Smith in detail tell me if i'm totally off here. This seems right to be right now though.

    So to the Question What is the Cause of the Current Financial Crisis?
    Answer: Making Financing Mechanisms(Intangible personal property in civil/) Subject to Free Market Logic, When Free Market Logic was actually intended to address the Production of Actual Goods in Manufacture. (real property, and tangible personal property).
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  19. Radium

    Radium f k

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    McGirth are you saying that these intangibles are freezing up the economy and are failing to circulate (like blood) through the body of the economy as a whole?

    Makes sens but I'm not sure that is what you're saying.

    blood clots?
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  20. McGirth

    McGirth New Member

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    kind of.
    Interesting/good analogy, as usual you get me to simplify and clarify what i'm saying. now obviously this is not a perfect analogy so bear with me.


    Think of the economy as(1) a body , a system with veins, blood, organs, and skin/senses functioning (2) in an external environment.

    Money is the blood; veins are the legal mechanisms, pathways, or procedures; organs are key corporations in production and skin/senses are the people who feel everything/interact with the environment . The environment is nature or the world as it exists today. nutrients is production of things in the world into things the various parts of the body desire.

    The senses/skin (people) intially labour's on the raw materials in the environment, transforming the raw materials of nature into nutriments (i.e. property in actual things) which are useful for the body. These raw nutriments are further processed by organs (corporations). This property (nutrients) flows through in blood stream (the monetary system), ultimately nourishing all the parts of the body, including the organs (corporations) and the skin/senses (the people). The body is healthy.

    The current theory of free market was that by letting each individual organ and peice of skin/sense do its part it is best suited to, the body benefits the most. What determines what each sense/organ is best suited for depends on competition/experience, we see whats best overtime in nourishing hte body by seeing waht happens when differnt things are digested. This worked best, since it made more sesnse that allocating say, alcohom to be processed by the gall bladder as opposed to letting it run through the body and finding it best to let it be processed in the kidney.


    Now what has happened is that the economic/legal academics have ignored vein's role in actual production from the environment, as the pathway throuhg which flows the nutrient carrying blood. Instead, they have argued that the veins themselves infused with some blood (legal pathways with money infused into them) are themselves a form of property. i.e. that VEINS WITH BLOOD IN THEM, WITHOUT ANY NUTRIENTS IN THE BLOOD, IS WHAT NOURISHES THE BODY.

    They have then, further, subjected these blood/vein combos (blood clots) to the free market logic. That is, the body's organs and skin/senses should digest these blot clots to see which they can digest best. As you can see, the idea that the blood/veins (blood clots) bieng subject to a free market logic (i.e. see whick senses/skin/organs do the best job of processing the blood/veins makes no sense). They have put the organs to work, digesting the blod clots (i.e. the veins with blood in them).


    Academics have effectively characterized blod-clotted veins as nutrients, that is, legal financing mechanisms as property. Unfortunately, misguided politicians have made these ideas law, and these ideas have been largely popularized in the corporate world (i.e. the organs start to see veins as nutrients). We've all followed them down this blind path, as things seemed fine for a while, since the body can survive for a time living off what its already accomplished.

    The result of this incorrect characeterization of the veins and nutrients is that the body has effectively digested itself over time: blood (money value), organs (corporations), veins (the legal system), and the skin and senses (peoples) are all ailing as a result. It wasn't apparent at first how sick the body was, much like how when a person starves, the body begins to digest itself, but they can survive for a month without food.
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