Obviously.

3

[Edited on September 16, 2008 at 4:45 PM. Reason : 3]

9/16/2008 4:45:44 PM

so i'm a newb at all of this too, but from what i can tell i need to cash out on all of my investments and stuff the money under my mattress. also, if WaMu goes under does that mean that my credit card debt disappears?

[Edited on September 16, 2008 at 5:13 PM. Reason : f]

9/16/2008 5:11:32 PM

yes, it's just like in Fight Club. If WaMu goes under, everything is reset back to zero.
Go buy as much shit as you can on your WaMu credit card, then don't worry about it ever again

9/16/2008 5:14:24 PM

Pulling your money out would do nothing. It's already insured.

9/16/2008 5:44:46 PM

Quote :

"Actually, it would be insured up to 500k under SIPC"

401ks are NOT brokerages accounts by and large, and actually arent covered by sipc.


However, and this is important

Quote :

"Well, for the most part, you really don't have to worry. Even if your firm goes under, your securities should still be there. That's because brokerages aren't allowed to use your money for their own purposes. Your stocks and bonds and other securities are segregated from your broker's other accounts."

http://money.cnn.com/2008/09/15/pf/broker_leak.moneymag/index.htm

This also goes for IRAs and 401ks, etc.

IE, Your money is your money, who's managing it might change. They cant use your 401k/IRA/Brokerage account to pay of their debts. (well they can try but its same great combination of fraud, theft, embezzlement, etc)

9/16/2008 6:37:57 PM

i heard if you have a brokerage account that you need insurance because it is not guaranteed like a FDIC in a bank.

so unless you are insured you would lose everything.

9/16/2008 8:52:55 PM

Quote :

"so i'm a newb at all of this too, but from what i can tell i need to cash out on all of my investments and stuff the money under my mattress."

That would probably be the worst thing you could do at this point. If you wanted to be super safe, you should take your money out of those investments and put them into a money market account, so that at least you are earning interest, however pitiful it may be. Of course, I'm betting that if you took your money out of your investments right now, you would probably incur some kind of tax penalty for doing so, depending on what kind of investments you have.

So, no. Keep your shit where it is. If you can do so, you might want to change how it is invested, say moving it from one fund to bonds or something. But, without knowing your specific situation, it's tough to say.

BTW, I am not a financial planner, so don't take my words as gold

9/16/2008 10:41:49 PM

Quote :

"heard if you have a brokerage account that you need insurance because it is not guaranteed like a FDIC in a bank."

If its with a licensed broker/dealer you should be insured by SIPC for 500k. However thats normally only need in case of fraud, not if the company goes under ( you still OWN your portfolio, you just might need to have a different company manage it, and normally, the company going under will refer you to someone to take it over.)

9/17/2008 9:42:29 AM

Quote :

"This is not true of even a majority of Boards. Most companies have rules in place so that there aren’t many ties between the CEO and the Board."

sure, sure.....

Quote :

"Who was supposed to be watching these managers? Where were the boards of directors that are supposed to be overseeing these executives? I’m not going to judge the individual boards of these companies in what they did or should have done, but consider the following. All too often compliant boards are intimidated by managements in their cushy, well-paid worlds and refuse to rock the boat by asking hard questions and demanding CEO accountability. Why is this so? Because of excessive board compensation and allegiances to those who provide it. A new study shows that total remuneration for directors at the top 250 U.S. companies has risen 22% over the last three years. Many large companies pay board members almost $10,000 a week and what do these members do? In many cases, their job is simply to attend four to five board meetings per year. Total director remuneration at the largest American corporations is running over $1,000 per hour, according to the study by Steven Hall & Partners. With many U.S. corporations struggling, why are we paying board members all this money? Lehman's board members, for example, were paid just short of a half million dollars each last year."

http://www.icahnreport.com/report/2008/09/we-pay-so-much.html

fine, let's say that somehow there aren't direct ties between management and the Board. Even so, what again is their motivation to keep the management in line, given the above?


haha

Quote :

"Even John McCain and Barack Obama have expressed concern. "I warned two years ago that the situation was deteriorating and was unacceptable, and the old boy network … is directly involved," McCain said."

9/17/2008 8:39:52 PM

http://www.nytimes.com/2008/09/18/opinion/18kristof.html?_r=2&hp&oref=slogin&oref=slogin

Quote :

"A central flaw of governance is that boards of directors frequently are ornamental and provide negligible oversight."

Quote :

"In contrast, boards pay C.E.O.’s after negotiations that are often more like pillow talk. Relationships are incestuous, and compensation consultants provide only a thin veneer of respectability by finding some “peer group” of companies so moribund that anybody shines in comparison."

Quote :

"These Brobdingnagian paychecks are partly the result of taxpayer subsidies. A study released a few weeks ago by the Institute for Policy Studies in Washington found five major elements in the tax code that encourage overpaying executives. These cost taxpayers more than $20 billion a year."

9/18/2008 10:30:11 AM

Again, the shareholders, otherwise known as the owners of the company, can change this if they want. The problem is, as I'm sure you've realized, most of them don't want to change it, because for every Enron, there's a Google.

9/18/2008 1:50:55 PM

It's hard for shareholders who don't have a sizeable stake in the company to get anything done.

9/18/2008 1:57:29 PM

And it's hard for an individual voter to elect Obama, but that doesn't mean it can't happen. But like I said, most of the share holders don't actually want to make the changes, because the rewards are huge and the overall risk is comparatively minimal.

9/18/2008 2:08:04 PM

wait a second, i thought Government's were the only ones that were inefficient and wasted money. In a competitive free market, waste and inefficiencies will be hammered out of businesses, yes?

but I suppose it's just government regulations that are causing the inefficiencies in companies, right? You know, all those laws forcing the companies to makes their executives and board members millionaires?

http://www.icahnreport.com/report/2008/09/corporate-waste.html

Quote :

"The debt and obligations we carry as a nation, combined with our miniscule savings rate and monster trade deficit, is truly frightening. But what is even worse is the sheer amount of waste in corporate America that impedes our ability to generate revenue needed to finance these obligations. Already many infrastructure projects across the nation are suffering from declining tax revenue. America’s corporations need to be run more efficiently or tax revenues will continue to fall far short and we will be even more in hoc to foreign lenders. Inefficiency and mismanagement on a colossal scale is causing our corporations to lose their economic hegemony in the global marketplace every day. For the past 30 years, I have warned in countless articles and interviews that we as a country are losing our economic preeminence and my predictions are unfortunately becoming a reality. I am not claiming to be another Jeremiah or Biblical prophet here, because you don’t need divine inspiration to ascertain this. But it is obvious that our diminishing economic state reflects poor corporate management in America. We have all the resources to succeed, so there is no reason why we should lose on the economic battlefield. The recent debacles on Wall Street only further erodes our economic clout in the world."

Quote :

"The situation has gotten so egregious that we half-jokingly use a measure called EBITDAT when evaluating companies, i.e. earnings before interest, taxation, depreciation, amortization and theft. In my view, this theft is a measure of how much senior executives and boards of directors blithely take out of companies in lavish salaries, perks and benefits, even though they may be running their companies into the ground. I have observed first-hand the sheer amount of waste and inefficiency at a few companies that I have taken over."

Quote :

"The collapse of Fannie, Freddie, Lehman, AIG, Merrill and IndyMac and over a dozen regional banks is emblematic of the era of credit excess on the part of banks and abdication of government oversight in lending standards. What we’ve really seen over the last three or four years is greed gone wild and now we’re paying the price for it in a monster hangover. The fact is, we could end up in a major recession or even a depression with all the reckless lending that banks have done over the last few years, thanks to low interest rates, overabundant liquidity, lax lending standards and the wholesale offloading of risk to who knows where."

Quote :

"We simply cannot afford to allow our businesses to be run by hobbyists who parade around with the trappings of success like country club memberships, fancy limos, corporate jets, 50-yard line seats, skyboxes, golf outings, fishing trips, etc, all at shareholder expense, and pretend that they do a job that they abjectly fail to achieve. The evidence that board members and managers are failing is screaming at us from the front pages of every newspaper and the talking heads on every television show."

9/19/2008 5:12:51 PM

Quote :

"wait a second, i thought Government's were the only ones that were inefficient and wasted money. In a competitive free market, waste and inefficiencies will be hammered out of businesses, yes? "

Yes, in case you haven't noticed, until the government stepped in, these inefficient and wasteful businesses engaging in poor business decisions were going out of business. That would be how the market eliminates waste and inefficiency. Of course, now that the government has stepped in, we can be assured of many more years of inefficiencies from these companies, coupled with the inefficiencies of the government, and reactionary bureaucratic bullshit.

Quote :

"but I suppose it's just government regulations that are causing the inefficiencies in companies, right? You know, all those laws forcing the companies to makes their executives and board members millionaires? "

Not causing, but encouraging. Or did you fail to notice that we've decided some companies are too big to fail, and no matter the cost, they will be propped up by the government. I wonder if the senior executives of these companies will even be punished, or if the government will leave them in place, just with a leash on.

9/19/2008 8:44:27 PM

Quote :

"so i'm a newb at all of this too, but from what i can tell i need to cash out on all of my investments and stuff the money under my mattress."

that's the exact opposite of what you should do. you should be investing as much as you can right now. buying high and selling low is no way to live.

9/19/2008 8:50:33 PM

My financial advisor switched some of my stuff last April to a safer area....not a big amount....when it gets back to 12k I will put it back in.....right now you dont know how low it will go and you are throwing money away...need to wait a couple weeks to see if this truely keeps the market from tanking below 10k....before this happened, I was thinking that was for sure going to happen and it probably would...remember...the market was at 10,600 at one point this week.


you dont want to flush money down the toilet, wait for it to stablize then put it in....with the ups and downs now...new money will go negative fast....I got a feeling next week will be rough....investors will start to think it isnt enough and then it starts all over again....

[Edited on September 19, 2008 at 9:01 PM. Reason : e]

9/19/2008 8:59:46 PM

i don't really care if it goes negative. i have 30-35 years before i need the money. Even if it might go even lower, I'm pouring as much as I can into it while it's down. If it goes even more down, then that's ok, too.

9/19/2008 9:06:00 PM

Quote :

"Or did you fail to notice that we've decided some companies are too big to fail, and no matter the cost, they will be propped up by the government."

and one big reason these companies have gotten so big, like AIG, is through deregulation, by allowing the inherently conflicting businesses of banking, investing, and insuring under the same roof, a practice that was made illegal after the Great Depression. hmm, i wonder if it was illegal for a reason?

another bit of deregulation, or rather, blatant rule-exemption by the SEC to 5 particular companies to allow them to leverage themselves beyond reason, has also led almost directly to their failure.

Face it people - without rules or laws, greed will win out. Managers and boards will look out for their own self-interest because they will likely get rich no matter what happens to their company. If you are proposing a wild-west attitude for these companies, then be prepared for a never-ending roller coaster of extreme highs and lows, as these companies get new management, the management makes themselves rich, they effectively destroy the company, new management moves in or another company takes their place, and it all happens again.

Now it's complete bullshit to try to paint this as some kind of liberal-heaven, because all of us damn liberals want the government to just take over everything. That's ridiculous, and you know it. I think it's insane that the US Government is now effectively the owner of 70% of the homes in this country and much of the insurance policies. Keep in mind, of course, that it is the Current Occupant and his "compassionate conservative" administration that has pushed these purchases through, btw. But you're being completely disingenuous, or maybe you're just that stupid, when you see all these former Wall Street darlings, who were taking full advantage of the relative free market they have been granted in the past decade, make a complete disaster of themselves and endanger the entire world economy along with it, and then try to claim that this was somehow the way it is supposed to happen. Guess what, some of these companies are too big to fail, that is, unless you would like to be the first in line in the Raleigh bread line. So think about that, then think about how exactly these companies became so big and influential. I can tell you, it wasn't because of too much regulation

9/19/2008 9:08:02 PM

Quote :

"and one big reason these companies have gotten so big, like AIG, is through deregulation, by allowing the inherently conflicting businesses of banking, investing, and insuring under the same roof, a practice that was made illegal after the Great Depression. hmm, i wonder if it was illegal for a reason? another bit of deregulation, or rather, blatant rule-exemption by the SEC to 5 particular companies to allow them to leverage themselves beyond reason, has also led almost directly to their failure. "

So in other words, government intervention in the market, and as a result, special exemptions because the government is inherently a den of corruption and special treatment. If the government hadn't made special exemptions for favorite companies, these risks would have been spread thinly across the market, and some risks would not have even been taken on if it wasn't for the wink and the nod to say that Uncle Sam will make everything better if things go south.

Quote :

"Face it people - without rules or laws, greed will win out. Managers and boards will look out for their own self-interest because they will likely get rich no matter what happens to their company."

Do you even being to see the insanity of claiming that these people are all about the money and then suggesting that they would purposefully destroy their cash cow rather then do everything in possible to keep the money flowing in a growing? They make much more money keeping their company in business than they do driving it down the tube.

Quote :

"Guess what, some of these companies are too big to fail, that is, unless you would like to be the first in line in the Raleigh bread line."

No company is too big to fail, and every company will eventually fail. The sooner we learn this lesson the better off everyone will be. Now, instead of these companies going out of business, and their assets either being sold off or absorbed, and the economy taking the short term dip, we're instead saddled with all of their debts and a guarantee that they will continue to suck up resources and capital, and in addition, be again propped up by the backing of Uncle Sam, getting us into more messes.

Why is it that people expect our economy to have such fantastic surges like we saw with the tech boom, but don't expect to see the dips that balance them out?

9/19/2008 9:32:33 PM

Can we all agree? more government regulation, less government bailouts?

What limits should be set for the amount of government involvement in businesses, other than regulation? Or should there be no regulation?

9/19/2008 9:49:21 PM

Quote :

"So in other words, government intervention in the market, and as a result, special exemptions because the government is inherently a den of corruption and special treatment. If the government hadn't made special exemptions for favorite companies, these risks would have been spread thinly across the market, and some risks would not have even been taken on if it wasn't for the wink and the nod to say that Uncle Sam will make everything better if things go south."

yes, i get the inherent contradiction in what I said.
there were some pre-existing laws (regulation) that seemed to be doing just fine. Then the "government got involved" and exempted some companies from these laws (i.e. which would be closer to true free-market, no?), and now 3 of those 5 companies are dead and the remaining two are on the ropes.
So now you're in favor of the original tight regulations, but opposed to the loosening of the regulations for these 5 companies?

Quote :

"Do you even being to see the insanity of claiming that these people are all about the money and then suggesting that they would purposefully destroy their cash cow rather then do everything in possible to keep the money flowing in a growing? They make much more money keeping their company in business than they do driving it down the tube."

it's not insane, and i'm not at all suggesting they purposefully are destroying the companies.
But everything is a calculated risk, and when the downside of taking a huge risk is still a huge payoff in terms of an already gigantic salary and a sizable "exit package" (or golden parachute or whatever) if your risk doesn't pay off, then you will be unreasonably risk-prone.

Say a CEO is getting $5M/year already, and he owns 50M shares in his company, valued at $100 each when he takes over. Obviously he has a strong incentive to run the company well and raise the value of his stock. Now also imagine that he has written into his contract a $15M "exit package" that he will receive upon leaving the company, regardless of the circumstances of his departure. If the stock is in the shitter when he leaves, though, he will not gain anything from his stock.

So, say you're the CEO and you're presented with a series decisions that seem risky (40% chance of paying off), but have an incredible payoff. If the decision works out, he estimates it would double the stock price to $200 within 3 years. So he stands to gain ($200-$100)*50M shares = $50M in stock value. Multiply that by a 40% success rate, and he gets an estimated payoff of $20M.
Now compare that $20M payoff for all the hardwork he put in, vs. a 100% chance at getting a $15M exit package if his plan completely fails, and it's hard to see the downside. Of course, he would love the 40% chance of making it big with the $50M payday, but the guaranteed $15M waiting for him at the bottom is incentive enough to try anything.

Is this a contrived scenario? Of course. There are a lot more factors that go into these decisions, and certain investments that didn't seem risky at one time end up being bombs, but the general idea is the same. If you reward failure, a CEO has barely an incentive not to continue to throw hail marys.

9/19/2008 10:16:20 PM

Quote :

"Why is it that people expect our economy to have such fantastic surges like we saw with the tech boom, but don't expect to see the dips that balance them out?"

The tech boom was actually built on top of something, and we got immeasurable benefits from it even after the bubble burst. The incredible amounts of capital created in the 90's led to more technology and innovation in those 10 years than cumulatively through the history of the world up to that point (source? or maybe more than the prior 100 years or something like that). Yes there was a crash, yes, some people lost money, but overall we came out of the tech boom with amazing advances in computer and communication technologies, which in turn are leading to advances in every other field of science and technology, like medicine.


So, once this "dip" is all said and done, what will we have gained from it? What was this boom built on anyway? Debt spending and speculation, that's what. There was no driving technology or advancements for society fueling the boom, like there was in the 90s.
In 5 years is anyone going to be able to say "you know, the 2008-9 recession really sucked, but at least we got ____ out of it!"
What have we gotten out of this? CDOs and Credit Swaps? Great, what a legacy. The reaffirmation that some people at the top will put an incredible number of people at risk to make a buck for themselves? I think we already knew that....

9/19/2008 10:24:40 PM

Quote :

"Can we all agree? more government regulation, less government bailouts? "

I'll meet you halfway and agree with fewer gov't bailouts.

I might could go for more regulation in some specific instances, but generally I like to see less, even if it allows some people to fuck themselves over.

9/20/2008 6:33:53 AM

Quote :

"So, say you're the CEO and you're presented with a series decisions that seem risky (40% chance of paying off), but have an incredible payoff. If the decision works out, he estimates it would double the stock price to $200 within 3 years. So he stands to gain ($200-$100)*50M shares = $50M"

50M shares times $100/share gain is 5bn, not 50mm. Exactly why a CEO would much rather go with growing the company rather than sinking it.

9/20/2008 7:58:29 AM

Quote :

"there were some pre-existing laws (regulation) that seemed to be doing just fine. Then the "government got involved" and exempted some companies from these laws (i.e. which would be closer to true free-market, no?), and now 3 of those 5 companies are dead and the remaining two are on the ropes. "

Not at all. Heavy restrictions for all companies except those favored by the government or backed by the government is the antithesis of a free market. The fact that you don't see this concerns me greatly.

Quote :

"So, say you're the CEO and you're presented with a series decisions that seem risky (40% chance of paying off), but have an incredible payoff. If the decision works out, he estimates it would double the stock price to $200 within 3 years. So he stands to gain ($200-$100)*50M shares = $50M in stock value. Multiply that by a 40% success rate, and he gets an estimated payoff of $20M. Now compare that $20M payoff for all the hardwork he put in, vs. a 100% chance at getting a $15M exit package if his plan completely fails, and it's hard to see the downside. Of course, he would love the 40% chance of making it big with the $50M payday, but the guaranteed $15M waiting for him at the bottom is incentive enough to try anything. "

Aside from your bad math already covered, don't you see that if he gets his $15M regardless of what happens, if greed is what drives him, his best bet is to keep the company going for as long as he can and take the risks that will pay off the best for the company? That means he gets more money, and means that when he leaves, he will most likely be hired again by some other company. Also remember that the more successful the company is under his leadership, the more likely he'll be able to negotiate an even better retirement package than a mere $15M severance package.

9/20/2008 9:23:36 AM

Quote :

"If the government hadn't made special exemptions for favorite companies, these risks would have been spread thinly across the market, and some risks would not have even been taken on if it wasn't for the wink and the nod to say that Uncle Sam will make everything better if things go south."

Not really. Government intervention had little to do with this financial crisis or the vast majority of financial crises.

The central problem is that the financial industry is shot-through with externalities. Things that one firm does effects the profitablity and even solvency of other firms. However, those actions are not captured in prices.

The two most obvious externalities that are at the center of this one are liquidity transparency and asset valuation.

In the first, it is impossible for indivdual depositors, brokerage account holders or MMMF holders to observe how much liquidity their insitution has on a day to day basis. Thus, they must infer it from general liquidity conditions in the market.

If one firm runs low on cash, it serves as a single that other firms may be running low on cash and can induce runs on even good firms. Since, even the most well operated financial institution cannot survive a run without outside help this presents a serious externality.


In the second, the value of a firms stock of assets is determined in the market. However, the market price is influenced by the flow of supply and demand. If one firm attempts to dump lots of assets in a short amount of time then that will lower the market value and affect the valuation of the stock of assets held by other firms.

Since, the stock of assets serves as collateral for deposits, commercial paper etc. A large drop in asset value destroys the ability of the firm to back new deposits, or cp issues. It can also trigger default on some bonds or collateral clauses on derivatives contracts. Thus, the actions of one institution can have powerful effects on another.


There is also the issue of counterparty risk but that exists throughout the entire economy, it is just highlited in the financial industry by the speed at which firms can fail.


Combining rapid failure speed, with extensive externalities means that it is possible for the entire financial infrastructure to collapse in matter of weeks if not days.

In many ways its not unlike fire in a city. One house catching on fire raises the probablity of another house catching on fire, which raises the probability of still others. This induces a situation in which without government intervention an entire city can burn down in just a few days. Hence, fire departments and fire codes are some of the most common forms of government service and regulation.

9/20/2008 11:35:11 AM

only a fucking moron could look at a government giving special privileges to a few companies and consider that an example of "deregulation" or the "free market."

9/20/2008 5:09:10 PM

^^

I don't see how the financial market is different from any other industry with regards to the 'externalities' you describe, except that the failure can happen much faster in these "black swan" situations. Not because of the extent of interconnectedness per se, but the magnitude of the bets people are making and the fact that they're allowed to make those bets.

Call it an 'externality' if you want, I call it bad business sense and a flagrant misuse of statistical methods that proved useless the last time around (see: Long Term Capital Management). Last time it was the Asia crisis, today it's the Housing crisis, tomorrow -- why must there be a crisis tomorrow?

Warren Buffett himself looked at these mortgage-backed derivatives and thought they were too complex for any one human to understand. So he didn't buy in. Externalities my ass; if everyone else had two cents of common sense they would've made the same decision.

What we're seeing here isn't some Economics problem, it's a business problem. Wall Street has been culturally bankrupt, their management was lazy and ineffective, and now the industry is fundamentally restructuring. I see no reason why the government should bail them out; and I don't agree that intervention had "nothing to do" with this crisis. These companies already had the dubious example of Long Term Capital Management and the S&L crisis to guide them; and that in many ways must have affected their behavior. It's a moral hazard, plain and simple.

[Edited on September 21, 2008 at 2:40 PM. Reason : foo]

9/21/2008 2:40:06 PM

back to the whole "CEOs get paid so much, even on collapse, then they don't have as much disincentive to take incredible risks" argument.....

http://bigpicture.typepad.com/comments/2008/09/ceo-clawback-pr.html

Quote :

"• Lehman Brothers Chairman and CEO Richard Fuld Jr. made $34 million in 2007. Lehman (OTC:LEHMQ) filed for Chapter 11 Bankruptcy protection earlier this month. Fuld also sold nearly a half-billion –$490 million – from selling LEH stock; • Goldman Sachs (NYSE:GS)paid its Chairman and CEO Lloyd Blankfein $70 million last year. Co-Chief Operating Officers Gary Cohn and Jon Winkereid were paid $72.5 million and $71 million, respectively. • Bears Sterns (BSC JPM)former chairman Jimmy Cayne, rescued by a $29 billion Fed shotgun wedding to JPM, received $60 million when he was replaced; • American International Group (AIG) chief executive Martin Sullivan got a $14 million compensation package in 2007. He was ousted in June. The insurance giant (NYSE:AIG) is on the receiving end of an $85 billion federal bailout. Robert Willumstad was handed $7 million for his three months at the helm. (Edward Liddy took over as AIG’s chief executive earlier this month)."

9/24/2008 9:41:54 PM

JP Morgan buys Washington Mutual for just $1.9B
http://www.voanews.com/english/2008-09-26-voa7.cfm

amazing.... they had assets of over $300B and equity of $26B, and they're bought for as much as a medium sized manufacturing firm....

[Edited on September 26, 2008 at 7:35 AM. Reason : .]

9/26/2008 7:32:44 AM

^ their CEO got paid like 18 million for being on the job 17 days... damn, thats a good ass paying job.

9/26/2008 10:46:47 PM