Quote:
|
Originally Posted by loquitur
Matter of fact, Host, I just went back and looked at my first post in this subdiscussion, and it is a complete answer to what you just said:After I write something like that, and you come back extolling Cuba, I can hardly conclude anything other than that you like Cuba.
OMG I just read your last post, Host - you just said that regulation kills off wealth! That's an amazing insight!
|
No, loquitur, the leverage that the brokers use, kill off wealth, ala Bear !
If you are leveraged 30:1 and you experience losses of just 3.33%, you could be insolvent.... you no longer have any principle remaining in the porfolio. The next dollar lost is the dollar of the lender.... all of your portfolio is composed of debt.
If you put down 5% on a home purchase and borrow, 95%, and the home is appraised at $200k and you pay $200k, if the appraised value drops below $190K, you owe more than the house is worth, and your equity is gone, and that is an example where leverage is only 20:1.
If banks and brokerages were limited to 2:1 leverage, and all mortgage applicants were required to put a 50% downpament into their home purchase, do you suppose we would have lower, stable, home prices, and almost no foreclosures? Leverage is the cancer that makes the flood of money that bid up home prices, until they crashed, possible. Leverage does the same thing to equity markets.
This month, has our government socialized major losses, where it was previously in the process of minimizing the taxes on the profits of participants in the speuclative housing market bubble?
<h3>What do you call a political/economic system that does those two things, back to back?</h3>
Here is another explanation about leverage:
Quote:
http://market-ticker.denninger.net/2...sion-part.html
...The model of EVER INCREASING LEVERAGE is and ALWAYS WAS bankrupt.
It was a FICTION.
Ever-increasing leverage as the foundation of a financial spiral is trivially easy to prove as mathematically impossible. Charles Ponzi created the "original" scheme of this sort in American Jurisprudence but he was not the last one to try it, and the latest incantation of CHARLES PONZI'S WORK is now found in these "credit default swaps"!
These swaps NEVER HAD ANY CHANCE OF PERFORMING UNDER STRESS because eventually the ever-increasing spiral of geometrically-increasing amount of new business that underlay this model MUST RUN TO EXHAUSTION, and when it does THEY ALL BLOW UP, just as Charles Ponzi's scheme did.
YOU CANNOT CREATE MORE VALUE IN A POOL OF LOANS, AS EXPRESSED BY THEIR ORIGINAL RISK-ADJUSTED RETURN, THAN WAS THERE ORIGINALLY....
|
It's been a Ponzi scheme, loquitur...even the 7:1 leverage that the Fed permits the banks to max out at....is a Ponzi scheme.... It is the lack of regulation, the printing of fiat script out of thin air....fronted as "money: that permits the leveraging, that destroys wealth, the regulation is not the cause of wealth destruction.
The creation of the Fed was a deregulating mechanism, counter to the language about creation of money, specified in the constitution:
Quote:
http://www.usconstitution.net/const.html#A1Sec8
....Section 8 - Powers of Congress
The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
To borrow money on the credit of the United States;
To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;
To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;
To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;....
|
I'm sounding like Ron Paul, now, but he would refuse to socialize Bear, Lehman, and Merrill's losses, I hope.