Read it and weep....

82CardsGrad

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The Next Financial Crisis Will Be Even Worse

Brett Arends on why we're doomed to make the same mistakes we made in 2008.


The last financial crisis isn't over, but we might as well start getting ready for the next one.
Sorry to be gloomy, but there it is.

Why? Here are 10 reasons

1. We are learning the wrong lessons from the last one. Was the housing bubble really caused by Fannie Mae, Freddie Mac, the Community Reinvestment Act, Barney Frank, Bill Clinton, "liberals" and so on? That's what a growing army of people now claim. There's just one problem. If so, then how come there was a gigantic housing bubble in Spain as well? Did Barney Frank cause that, too (and while in the minority in Congress, no less!)? If so, how? And what about the giant housing bubbles in Ireland, the U.K. and Australia? All Barney Frank? And the ones across Eastern Europe, and elsewhere? I'd laugh, but tens of millions are being suckered into this piece of spin, which is being pushed in order to provide cover so the real culprits can get away. And it's working.

2. No one has been punished. Executives like Dick Fuld at Lehman Brothers and Angelo Mozilo at Countrywide , along with many others, cashed out hundreds of millions of dollars before the ship crashed into the rocks. Predatory lenders and crooked mortgage lenders walked away with millions in ill-gotten gains. But they aren't in jail. They aren't even under criminal prosecution. They got away scot-free. As a general rule, the worse you behaved from 2000 to 2008, the better you've been treated. And so the next crowd will do it again. Guaranteed.

3. The incentives remain crooked. People outside finance from respected political pundits like George Will to normal people on Main Street still don't fully get this. Wall Street rules aren't like Main Street rules. The guy running a Wall Street bank isn't in the same "risk/reward" situation as a guy running, say, a dry-cleaning shop. Take all our mental images of traditional American free-market enterprise and put them to one side. This is totally different. For the people on Wall Street, it's a case of heads they win, tails they get to flip again. Thanks to restricted stock, options, the bonus game, securitization, 2-and-20 fee structures, insider stock sales, "too big to fail" and limited liability, they are paid to behave recklessly, and they lose little or nothing if things go wrong.

4. The referees are corrupt. We're supposed to have a system of free enterprise under the law. The only problem: The players get to bribe the refs. Imagine if that happened in the NFL. The banks and other industries lavish huge amounts of money on Congress, presidents and the entire Washington establishment of aides, advisers and hangers-on. They do it through campaign contributions. They do it with $500,000 speaker fees and boardroom sinecures upon retirement. And they do it by spending a fortune on lobbyists so you know that if you play nice when you're in government, you too can get a $500,000-a-year lobbying job when you retire. How big are the bribes? The finance industry spent $474 million on lobbying last year alone, according to the Center for Responsive Politics.

5. Stocks are skyrocketing again. The Standard & Poor's 500 Index has now doubled from the March 2009 lows. Isn't that good news? Well, yes, up to a point. Admittedly, a lot of it is just from debasement of the dollar (when the greenback goes down, Wall Street goes up, and vice versa). And we forget there were huge rallies on Wall Street during the bear markets of the 1930s and the 1970s, as there were in Japan in the 1990s. But the market boom, targeted especially toward the riskiest and junkiest stocks, raises risks. It leaves investors less room for positive surprises and much more room for disappointment. And stocks are not cheap. The dividend yield on the S&P is just 2%. According to one long-term measure "Tobin's q," which compares share prices with the replacement cost of company assets shares are now about 70% above average valuations. Furthermore, we have an aging population of Baby Boomers who still own a lot of stocks, and who are going to be selling as they near retirement.

6. The derivatives time bomb is bigger than ever and ticking away. Just before Lehman collapsed, at what we now call the height of the last bubble, Wall Street firms were carrying risky financial derivatives on their books with a value of an astonishing $183 trillion. That was 13 times the size of the U.S. economy. If it sounds insane, it was. Since then we've had four years of panic, alleged reform and a return to financial sobriety. So what's the figure now? Try $248 trillion. No kidding. Ah, good times.

7. The ancient regime is in the saddle. I have to laugh whenever I hear Republicans ranting that Barack Obama is a "liberal" or a "socialist" or a communist. Are you kidding me? Obama is Bush 44. He's a bit more like the old man than the younger one. But look at who's still running the economy: Bernanke. Geithner. Summers. Goldman Sachs. J.P. Morgan Chase. We've had the same establishment in charge since at least 1987, when Paul Volcker stood down as Fed chairman. Change? What "change"? (And even the little we had was too much for Wall Street, which bought itself a new, more compliant Congress in 2010.)

8. Ben Bernanke doesn't understand his job. The Fed chairman made an absolutely astonishing admission at his first press conference. He cited the boom in the Russell 2000 Index of risky small-cap stocks as one sign "quantitative easing" had worked. The Fed has a dual mandate by law: low inflation and low unemployment. Now, apparently, it has a third: boosting Wall Street share prices. This is crazy. If it ends well, I will be surprised.

9. We are levering up like crazy. Looking for a "credit bubble"? We're in it. Everyone knows about the skyrocketing federal debt, and the risk that Congress won't raise the debt ceiling next month. But that's just part of the story. U.S. corporations borrowed $513 billion in the first quarter. They're borrowing at twice the rate that they were last fall, when corporate debt was already soaring. Savers, desperate for income, will buy almost any bonds at all. No wonder the yields on high-yield bonds have collapsed. So much for all that talk about "cash on the balance sheets." U.S. nonfinancial corporations overall are now deeply in debt, to the tune of $7.3 trillion. That's a record level, and up 24% in the past five years. And when you throw in household debts, government debt and the debts of the financial sector, the debt level reaches at least as high as $50 trillion. More leverage means more risk. It's Econ 101.

10. The real economy remains in the tank. The second round of quantitative easing hasn't done anything noticeable except lower the exchange rate. Unemployment is far, far higher than the official numbers will tell you (for example, even the Labor Department's fine print admits that one middle-aged man in four lacks a full-time job astonishing). Our current-account deficit is running at $120 billion a year (and hasn't been in surplus since 1990). House prices are falling, not recovering. Real wages are stagnant. Yes, productivity is rising. But that, ironically, also helps keep down jobs.

You know what George Santayana said about people who forget the past. But we're even dumber than that. We are doomed to repeat the past not because we have forgotten it but because we never learned the lessons to begin with.

Brett Arends is a senior columnist for MarketWatch and a personal-finance columnist for the Wall Street Journal.
 

conraddobler

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2012, HOW DID THE MAYANS KNOW?

;)

They didn't have any choice really, when faced with willingly heading back into crap storm of epic proportions in order to restore fiscal sanity or heading into the great unknown by upping the ante, no one should be shocked at the choices that were made, they had no other real choice.

One dosen't often seen fraud on a massive scale just suddenly expose itself, it only is exposed when it collapses utterly and you can with a printing press delay that day for a while but you can't entirely get rid of it.

This is just a grand period of looting what's left, it's where the connected wink and nod and take all they can off the table before the epic crap storm that's baked in the cake starts really whirling.

The proof is the governments budget, it dosen't make sense because it can't make sense and it won't make sense until it absolutely has to and then it'll all come crashing down at once.

It's the grandest illusion humans have ever propagated simply because we're more numerous and spread out and yet interconnected than ever before, it's all blindingly obvious and yet sad at the same time.

None of that really is terribly important past what happens in the first moments of the collapse, if people sign up for more of the same that's what they'll get, but it'd be a great opportunity to end the madness.

Mankind has to either evolve quickly here or go down some dark dark alleys, I'd rather evolve myself but it's mostly out of my hands.
 
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Russ Smith

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After the last 2 weeks on the market I got nervous. I just moved a big chunk of both IRAs into cash, I guess technically it will take place tomorrow I think at close.

I'd lost about 18K in value during the several weeks downturn, I've got back about 15K of that and I'm just convinced this debt ceiling thing is going to cause another scare or two.

I'll probably miss a big runup over 13K in the Dow but I just don't trust things as they are here or abroad.
 

Russ Smith

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After the last 2 weeks on the market I got nervous. I just moved a big chunk of both IRAs into cash, I guess technically it will take place tomorrow I think at close.

I'd lost about 18K in value during the several weeks downturn, I've got back about 15K of that and I'm just convinced this debt ceiling thing is going to cause another scare or two.

I'll probably miss a big runup over 13K in the Dow but I just don't trust things as they are here or abroad.

Looks like I'm a day late big down day so far today.

Some of the data looks good but then just when you think we're out of the danger something else comes up.
 

RugbyMuffin

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http://finance.yahoo.com/banking-bu...-budgeting&sec=topStories&pos=2&asset=&ccode=

The middle class has been decimated and is under continuing siege from all sides, you have rich people who refuse to have any tax increases and poor people with more programs, the middle is getting power squeezed.

We didn't learn any lessons from the "Free Money for Bad Bankers" crisis of 2008 ?

The Middle Class is being squeezed ?

Shocko Dismayo!

I know neither of you two are surprised. Neither am I. Hopefully this time it will all come crashing down. Let the rats flee the sinking ship, rebuild the ship, and when the rats come back, kill them.

But people have been angry about this for years !!! While there is no term to use than "rich" or "the 2%", the fact remains that the average USA citizen knows this is all happening. That the ultra-rich are selling us all out. But, we are hand cuffed. No politician to stand up for us, because they are in this "Money Class" back pocket. No idea whom the real viilians are so we cannot hunt them down and kill them.

When people say "I don't understand all the hate towards rich people" well there is the reason. Most times it is uncalled for, and I agree with that, but there is a reason for the hate, it is not blind.

So, were f'd. Enjoy what you got while you have it. Nothing more you can do.
 
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82CardsGrad

82CardsGrad

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http://finance.yahoo.com/banking-bu...-budgeting&sec=topStories&pos=2&asset=&ccode=

The middle class has been decimated and is under continuing siege from all sides, you have rich people who refuse to have any tax increases and poor people with more programs, the middle is getting power squeezed.


It is amazing... 40% of the Federal Gov't revenues come from payroll taxes. Guess how much of that 40% comes from the rich? I don't have the exact figure, however, suffice to say, they have become expert at dodging payroll taxes and minimizing their tax burdens as a whole. Just like corporations - they find and then use every conceivable loophole.
So, the vast majority of that 40% is coming off the backs of the middle and lower classes.. people/families who make $250k or less.... sickening.... :bang:
 

RugbyMuffin

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So, the vast majority of that 40% is coming off the backs of the middle and lower classes.. people/families who make $250k or less.... sickening.... :bang:

In a good light. Those will be the same people who will be running things if it all collapses, and the rats leave.
 

conraddobler

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It is important to note that when I speak of the rich who refuse tax increases I'm speaking of the uber rich who can dodge it.

Someone who makes 250k a year or so, while very comfortable, is most likely getting pasted with taxes out the ying yang.

It's the very richest of the rich, who make bets in bad hedge funds then have the banks bailed out just to save their ass that need to become outed here.

The rich who scheme to hide income or assets from taxes in secret Swiss accounts that are nothing more than illegal tax shelter schemes.

I have nothing against someone being rich at all, when I'm talking about this problem it's about those who basically cheat the spirit of the system and REQUIRE that nothing is done to their cherished loophole that I'm speaking of.
 

DutchmanAZ

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So what's the best strategy to protect oneself? Doesn't look good no matter what.
 
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