Hi Everyone, Since it's kinda' quiet here today, I thought I'd throw out a bone. I'm curious what the upper-intelligence percentile (hey, that's YOU, comp.dsp) thinks of the bailout plan(s). Want to share your thoughts or opinions? OK, here's mine: It's utter bunk. There really is only one issue behind our current problem, and that's that we have not honored one another in our financial dealings. For the average joe, this "dishonoring" has taken the form of borrowing more than you can really take on and, in many cases, not paying it back. So, guess what my solution is for economic recovery? ... Start paying down your debt (yes, our personal debt) and stop over-extending ourselves. It would help alot if the government would also do the same. Probably stating the obvious..., but just curious if others agree. -- % Randy Yates % "Watching all the days go by... %% Fuquay-Varina, NC % Who are you and who am I?" %%% 919-577-9882 % 'Mission (A World Record)', %%%% <yates@ieee.org> % *A New World Record*, ELO http://www.digitalsignallabs.com
The Bailout Concept
Started by ●December 4, 2008
Reply by ●December 4, 20082008-12-04
On 4 Des, 20:04, Randy Yates <ya...@ieee.org> wrote:> Hi Everyone, > > Since it's kinda' quiet here today, I thought I'd throw out a bone. > > I'm curious what the upper-intelligence percentile (hey, that's YOU, > comp.dsp) thinks of the bailout plan(s). Want to share your thoughts or > opinions? > > OK, here's mine: It's utter bunk. There really is only one issue behind > our current problem, and that's that we have not honored one another in > our financial dealings.Don't know what the solution is, but it seems the basic problem is that the financial system is indistinguishable, in everything but scale, from a classical pyramid scam: As it seems from here, banks who have lent lots of money 'neutralize' the risks by selling whatever papers to others in exchange for profits I can't see where can come from, except for another level of papers which are sold for profits that come form still another level of papers, which are sold for profits from yet another level of papers... ad infinitum. Or rather, until the pyramid breaks down. Just my.. eh.. 5c... Rune
Reply by ●December 4, 20082008-12-04
Randy Yates wrote:> Hi Everyone, > > Since it's kinda' quiet here today, I thought I'd throw out a bone. > > I'm curious what the upper-intelligence percentile (hey, that's YOU, > comp.dsp) thinks of the bailout plan(s). Want to share your thoughts > or opinions? > > OK, here's mine: It's utter bunk. There really is only one issue > behind our current problem, and that's that we have not honored one > another in our financial dealings. For the average joe, this > "dishonoring" has taken the form of borrowing more than you can > really take on and, in many cases, not paying it back. > > So, guess what my solution is for economic recovery? ... Start paying > down your debt (yes, our personal debt) and stop over-extending > ourselves. > > It would help alot if the government would also do the same. > > Probably stating the obvious..., but just curious if others agree.My understanding is that there were financial instruments developed and sold that were effectively insurance policies by another name. As a result, they fell throught the regulatory cracks. These "policies" were neither subject to insurance regulations nor subject to securities regulations. This "insurance" wasn't adequately backed up with capital. So, when it was needed, it wasn't actually available. My simple-minded view is based on an analogy: "What if I find that my fire insurance company is inadequately capitalized and there is no other source of insurance?" What am I going to do? Well, I'm going to make sure that my house and my neighbors house, etc. etc. doesn't have a fire loss. I'm going to take extra measures so that there are no insurance claims. Then, the reduced number of claims won't trigger a failure of the insurance company. One can question the value of the "insurance" in that case but I've not extrapolated my analogy that far. I guess if all the ratepayers are making reasonable premium payments then the situation should normalize itself in time. The issue is the lack of capital backing. How does this apply in the current situation? Well, there would be less a problem if there were no "insurance claims". This means that people have to make their mortgage payments without fail. In order to make mortgage payments without fail, it would probably help quite a bit if poorly-structured loans (like very high-rate ARMS, etc.) were "normalized". I think this means that the interest rates would get "reset" to a market rate *as if* the risk were equal. Then, some fraction of the loans would be paid because of lower payments. The risk could be insured separately - according the the borrower's ability to pay instead of the artificial rates determined by the ARM formula. Of course, this ignores the likelihood that the mortages were sold. Presumably they were bought at a price established on the basis of the higher interest rates they promised in addition to the risk they represented. Were these bad investments? Perhaps so. So, we have a number of situations at the very least: - *Qualified* people took mortgages that had horrendous terms. Bad business decision on the part of the borrower. Of course, a good number of these people can refinance into a better deal. - *Unqualified* people took mortgages either on normal terms or on horrendous terms. Bad business decision on the part of the lender and likely on the part of the borrower as well - but who of the two is more qualified to know this? Not that I'm defending ignorance, I'm just suggesting that knowledge is power, etc. etc. These borrowers will have a much harder time refinancing - so they are rather stuck. - Lenders shed their risk through various complex instruments. Good business decision on the part of the seller of the paper and bad on the part of the buyer of the paper? Bad business decisions shouldn't be rewarded. But, when there's a wholesale effect then folks have to pull together it seems to me. I'm back to, "let's not let the little guys fail while having them live up to reasonable expectations like: - return of capital to the lender - at a *reasonable* interest rate Then the lenders don't fail .. although they may lose some book value relative to the "value" of the "old" loans. In the end there are mortgages ... plain and simple. Somebody owes and somebody gets the payments. I don't care who. If book value suffers from receiving *reasonable* interest that's less than the agreed interest, then so be it. If stock values suffer as a result then so be it. Maybe a place for government is in insuring the high risk situations - that are based on "reasonable" interest rates as opposed to insuring high risk situations that are based on *unreasonable* interest rates. At least that would create a "hurdle" to determine which borrowers are qualified vs. those who aren't. It's a lot tougher to determine when the general economy is hurting and people who would normally be qualified don't have a job just now. Best not to "tweak" too much. "Keep it Simple Stupid! is a good idea. I'm not denigrating businesses who would take risky investments for a higher interest rate. The problem, it seems to me, is that the risk is harder to assess than they might have imagined. They didn't charge enough to cover the risk perhaps. Had they charged less then the risk may have been less. Ever heard of feedback control? Seems to me there's a positive feedback mechanism involved here. Yeah, in a perfect world the added interest rate and the insurance premium would be the same. But, if the risk situation can be tweaked then maybe there's some room for improvement. Fred
Reply by ●December 4, 20082008-12-04
On Thu, 4 Dec 2008 11:32:53 -0800 (PST), Rune Allnor <allnor@tele.ntnu.no> wrote:>On 4 Des, 20:04, Randy Yates <ya...@ieee.org> wrote: >> Hi Everyone, >> >> Since it's kinda' quiet here today, I thought I'd throw out a bone. >> >> I'm curious what the upper-intelligence percentile (hey, that's YOU, >> comp.dsp) thinks of the bailout plan(s). Want to share your thoughts or >> opinions? >> >> OK, here's mine: It's utter bunk. There really is only one issue behind >> our current problem, and that's that we have not honored one another in >> our financial dealings. > >Don't know what the solution is, but it seems the basic >problem is that the financial system is indistinguishable, >in everything but scale, from a classical pyramid scam: > >As it seems from here, banks who have lent lots of money >'neutralize' the risks by selling whatever papers to others >in exchange for profits I can't see where can come from, >except for another level of papers which are sold for >profits that come form still another level of papers, >which are sold for profits from yet another level of >papers... ad infinitum. Or rather, until the pyramid >breaks down. > >Just my.. eh.. 5c... > >RuneSort of... The pyramid bit does apply in a way since the CDO and CDS stuff got way over leveraged, something like 40:1 when most instruments (to my understanding) stay around a 3:1 leverage rate. There was underlying value that secured the loan-based stuff, but it was shaky loans, so that when even a small percentage of the loans started to go bad the 40:1 leverage amplified the effect. I think it boils down to greed. People saw opportunity to sell loans with little to no regulation, almost forcing money on people who didn't even need it in many cases. The financial institutions saw opportunity to write all sorts of crazy, overleveraged derivatives on those loans in order to repackage them to make them look better (since the loans were pretty bad). The ratings agencies were somehow incentivized to call even the bad stuff AAA, so other people paid too much money for the debt. It's pretty crazy, and one can only hope that the magnitude of the disaster will lead to some practical regulations that will prevent a recurrance. I'm not that confident that the powers that be will write the regulations sensibly, though. To Randy's point, I tend to agree that in the long run it'd be better to let most of the financial institutions die the death that they deserve. It's a good way to rid the system of the sort of practices that led to the problem, which seem to me to be pretty systemic. Right now I'm following the automaker loan thing. I feel for those guys...they're between a rock and a hard place. Some of it is their own doing, much of it is not. Eric Jacobsen Minister of Algorithms Abineau Communications http://www.ericjacobsen.org Blog: http://www.dsprelated.com/blogs-1/hf/Eric_Jacobsen.php
Reply by ●December 4, 20082008-12-04
Eric Jacobsen wrote:> On Thu, 4 Dec 2008 11:32:53 -0800 (PST), Rune Allnor > <allnor@tele.ntnu.no> wrote: > >> On 4 Des, 20:04, Randy Yates <ya...@ieee.org> wrote: >>> Hi Everyone, >>> >>> Since it's kinda' quiet here today, I thought I'd throw out a bone. >>> >>> I'm curious what the upper-intelligence percentile (hey, that's YOU, >>> comp.dsp) thinks of the bailout plan(s). Want to share your thoughts or >>> opinions? >>> >>> OK, here's mine: It's utter bunk. There really is only one issue behind >>> our current problem, and that's that we have not honored one another in >>> our financial dealings. >> Don't know what the solution is, but it seems the basic >> problem is that the financial system is indistinguishable, >> in everything but scale, from a classical pyramid scam: >> >> As it seems from here, banks who have lent lots of money >> 'neutralize' the risks by selling whatever papers to others >> in exchange for profits I can't see where can come from, >> except for another level of papers which are sold for >> profits that come form still another level of papers, >> which are sold for profits from yet another level of >> papers... ad infinitum. Or rather, until the pyramid >> breaks down. >> >> Just my.. eh.. 5c... >> >> Rune > > Sort of... > > The pyramid bit does apply in a way since the CDO and CDS stuff got > way over leveraged, something like 40:1 when most instruments (to my > understanding) stay around a 3:1 leverage rate. There was underlying > value that secured the loan-based stuff, but it was shaky loans, so > that when even a small percentage of the loans started to go bad the > 40:1 leverage amplified the effect. > > I think it boils down to greed. People saw opportunity to sell loans > with little to no regulation, almost forcing money on people who > didn't even need it in many cases. The financial institutions saw > opportunity to write all sorts of crazy, overleveraged derivatives on > those loans in order to repackage them to make them look better (since > the loans were pretty bad). The ratings agencies were somehow > incentivized to call even the bad stuff AAA, so other people paid too > much money for the debt. > > It's pretty crazy, and one can only hope that the magnitude of the > disaster will lead to some practical regulations that will prevent a > recurrance. I'm not that confident that the powers that be will > write the regulations sensibly, though. > > To Randy's point, I tend to agree that in the long run it'd be better > to let most of the financial institutions die the death that they > deserve. It's a good way to rid the system of the sort of practices > that led to the problem, which seem to me to be pretty systemic. > > Right now I'm following the automaker loan thing. I feel for those > guys...they're between a rock and a hard place. Some of it is their > own doing, much of it is not.One of the arguments in favor of these bailouts is that the effects of letting these institutions go under would spread too far. They won't just fall out of the boat; they're so big and weighty that they'll turn the boat over on their way out. That's summed up as "too big [to be allowed] to fail". I think that argument is, unfortunately, by and large valid. There is a simple way to make sure that we're never in that bind again. Antitrust laws are now applied to maintain competition. They can also be used to ensure that no company ever again grows too big to fail. Sometimes, large size and dominance of the marketplace can be good for society. That's what regulated monopolies are for. Jerry -- Engineering is the art of making what you want from things you can get. �����������������������������������������������������������������������
Reply by ●December 4, 20082008-12-04
On Dec 4, 2:04�pm, Randy Yates <ya...@ieee.org> wrote:> Hi Everyone, > > Since it's kinda' quiet here today, I thought I'd throw out a bone. > > I'm curious what the upper-intelligence percentile (hey, that's YOU, > comp.dsp) thinks of the bailout plan(s). Want to share your thoughts or > opinions? > > OK, here's mine: It's utter bunk. There really is only one issue behind > our current problem, and that's that we have not honored one another in > our financial dealings. For the average joe, this "dishonoring" has > taken the form of borrowing more than you can really take on and, in > many cases, not paying it back. > > So, guess what my solution is for economic recovery? ... Start paying > down your debt (yes, our personal debt) and stop over-extending > ourselves. > > It would help alot if the government would also do the same. > > Probably stating the obvious..., but just curious if others agree. > -- > % �Randy Yates � � � � � � � � �% "Watching all the days go by... � � > %% Fuquay-Varina, NC � � � � � �% �Who are you and who am I?" > %%% 919-577-9882 � � � � � � � �% 'Mission (A World Record)', > %%%% <ya...@ieee.org> � � � � � % *A New World Record*, ELOhttp://www.digitalsignallabs.comHello Randy, Certainly you are right that individuals first need to get their own situations under control. Regardless of a person's financial resources, the rules of the "game" are a changin'. Banks are reducing credit limits even on those who have wonderful credit history. This just simply reflects the increased uncertainlty in the market. Also they are short cycling the billing, i.e., every 28 days instead of every month! Outstanding loans can and will be subject to interest rate increases. So people need to ween themselves off of unneeded credit. The problem with bailouts in general is they create a Moral Hazard ( http://en.wikipedia.org/wiki/Moral_hazard ). And it is moral hazards that created alot of this mess. Plus throw in meddling by the government and it is really gone bad. A little history: In 1978 Carter signs into law the CRA (Community Reinvestment Act) which says if banks take deposits in poor economic areas they must provide loans in those areas or lose their FDIC insurance. Now the low income people who benifited from these loans didn't default very often and the amounts of the loans were small so by them selves they were much of a burden. But when you ease the loans for one group, then you must ease them for all groups. We have seen a much large problem with defaults with the Donald Trump wannabes. When Reagan took office, the interest rates were up over 20% (yes the usery laws had been repealed along the way) and inflation was around 12%. So Reagan helped get into place the idea that potential homeowners could get houses with less than 20% down payment. (Start to sound like another moral hazard here) Over a decade later people could get zero down loans! Fannie Mae and Freddie Mac who were created by Congress but exempted by them from being regulated by the SEC (Securities and Exchange Commision) were encouraged to provide loans for all! (Both major political parties are behind this to various degrees over the years) Clinton backs and promotes the modification of the CRA to allow Fannie and Freddie to sell their debt as secured bonds on Wall Street. (Wow another moral hazard) Fannie and Freddie loosen the qualifications for conforming loans (these are the loans they will buy from mortgage brokers). Mortgage brokers are a prime example of a moral hazard since as soon as they underwrite a loan they will sell it off. So they have very little skin in the game. In fact they are motivated to bend the rules when writing up loan applications. They don't care if the loan defaults in a year or two since they will have alreay sold if off and made the commission. In this we see a whole situation where individual companies don't accumulate debt, so they aren't nearly are careful as they would be otherwise. Now to compound this whole thing is the flood of cheap money caused by the fed constantly flattening out the inflation rate by offering too low of interest rates. Couple this with the property of economic systems to consume all of the available monies and we get the housing bubble. When money is cheap you can spend more of it. Thus the house prices are all driven up like crazy. But eventually the pyramid scheme exhausts the bottom tier and we see a housing price collapse. We saw the money being sold so cheap that people were encouraged to pull all of the equity out of their homes and spend it on other things (remember consume all of the available monies). But once everybody had cheap loans either as original or refinanced, there was no one left to sell to. IndyMac bank (The collapsed bank spun off of Countrywide Finance) was offering non document loans to people who didn't have to show proof of income or even that they were employed. How fiducially careless is that? But this whole scenario of what led up to the credit freeze (the banks have to stop lending when there debt to asset ratio hits a set threshold and the falling house prices triggered this) is caused by greed, moral hazards and partial government regulation. So to answer your question, Randy, bailouts are a moral hazard. So treating the disease with the same type of poison as what caused the disease seems rather specious to me. On the other hand, the economic system's structure is essentially what the biologists refer to as a monoculture. I.e., like when potatos were first brought to Europe they were all genetically the same since they were all derived from just two plants. So when disease plagues part of the population it expands to all of it. This is why there was a potato famine. So our economic system is quite frail because the disease is already spreading through it. In the situation of the bailout for the big three, GM said it was losing a billion a month and originally the three were asking for a total of $25B, so how long would that shore up the auto manufacturers? What they have been asked to do is reasonable. They need to provide a plan that shows how they can be successful so as to be able to pay back the bailout loan. Chrysler did this years ago and we got a K car and the taxpayers got paid back with interest. We taxpayers now own preferred stock in the major banks, but it is not a typical bailout as the banks will have to pay back that money after 5 years with interest. Plus most of that money doesn't have to be spent, it fixes the debt to asset ratio. It is a tough situation, and I am generally against bailouts, but if the requesters can create a proper business plan that shows how with correct restructuring and planning to become profitable again, a line of credit can be provided along as the recipient meets milestones along the way. Yes no bulk bailout - the recipients must perform or they get fired! The foreign car manufacturers in the south are all doing okay. So the differences between the two groups need to be understood. Check out last March's article from the Wall Street Journal http://online.wsj.com/public/article_print/SB120450306595906431.html Clay
Reply by ●December 4, 20082008-12-04
Randy Yates wrote:> I'm curious what the upper-intelligence percentile (hey, that's YOU, > comp.dsp) thinks of the bailout plan(s). Want to share your thoughts or > opinions?(snip) Well, as I wrote here before I believe this is a good place to discuss this. Much of the problems involve dealing with positive feedback systems that must be properly stabilized. Where else do you find people that are good at doing that? One story of the cause, though, is about "credit default swaps." It seems that banks are supposed to keep some fraction of the deposits on hand. Among other reasons, that should help keep things stable. Apparently some people from MIT figured out a way around that, and even more convinced the regulators to go along with it. Instead of keeping the appropriate funds they buy an insurance policy that will pay them when they need the funds. Insurance is a good system for averaging out costs for statistically independent events. Car accidents and house fires are, for the most part, statistically independent. Even flood damage averaged over the country should be reasonably statistically independent, though there may be many claims on one area in a large flood. The need for funds from banks is not always statistically independent, as when the economy goes down it goes down for everyone at the same time. (Though the connection with the rest of the world may be relatively new.) It might be that Credit Default Swaps were invented by physicists, which is especially bad as they should be used to the problem if statistical dependence. It is very important in data analysis for many experiments. My understanding is that the best solution is to let the automakers declare bankruptcy which gets them out of some union contracts. They can then go about business with reduced expenses and most likely continue on building cars. If they can't compete on price with the foreign automakers (who build many cars in the US now, anyway) there is no way they can be expected to stay in business bailout or not. There is a story that the first thing FDR did when he became president during the great depression was to reduce all federal salaries by 15%. That might be the best solution now, followed by state and local governments doing the same, and then private companies might also. It seems to me that the economy was artificially elevated, so one should not expect stocks and house prices to get back to where they were a year or two ago. -- glen
Reply by ●December 4, 20082008-12-04
Rune Allnor wrote: (snip)> Don't know what the solution is, but it seems the basic > problem is that the financial system is indistinguishable, > in everything but scale, from a classical pyramid scam:Well, I call it a positive feedback system, but that is another way to say it. At the bottom, though, it is the use of non-renewable natural resources that fuel the economy. The value (in energy units, or equivalent $$$ units) of oil from the ground is much more than the cost to pull it out. Otherwise, a pyramid scam only works when the buyers don't know what they are buying, but we do. -- glen
Reply by ●December 4, 20082008-12-04
On Thu, 04 Dec 2008 17:07:25 -0500, Jerry Avins <jya@ieee.org> wrote:>Eric Jacobsen wrote: >> On Thu, 4 Dec 2008 11:32:53 -0800 (PST), Rune Allnor >> <allnor@tele.ntnu.no> wrote: >> >>> On 4 Des, 20:04, Randy Yates <ya...@ieee.org> wrote: >>>> Hi Everyone, >>>> >>>> Since it's kinda' quiet here today, I thought I'd throw out a bone. >>>> >>>> I'm curious what the upper-intelligence percentile (hey, that's YOU, >>>> comp.dsp) thinks of the bailout plan(s). Want to share your thoughts or >>>> opinions? >>>> >>>> OK, here's mine: It's utter bunk. There really is only one issue behind >>>> our current problem, and that's that we have not honored one another in >>>> our financial dealings. >>> Don't know what the solution is, but it seems the basic >>> problem is that the financial system is indistinguishable, >>> in everything but scale, from a classical pyramid scam: >>> >>> As it seems from here, banks who have lent lots of money >>> 'neutralize' the risks by selling whatever papers to others >>> in exchange for profits I can't see where can come from, >>> except for another level of papers which are sold for >>> profits that come form still another level of papers, >>> which are sold for profits from yet another level of >>> papers... ad infinitum. Or rather, until the pyramid >>> breaks down. >>> >>> Just my.. eh.. 5c... >>> >>> Rune >> >> Sort of... >> >> The pyramid bit does apply in a way since the CDO and CDS stuff got >> way over leveraged, something like 40:1 when most instruments (to my >> understanding) stay around a 3:1 leverage rate. There was underlying >> value that secured the loan-based stuff, but it was shaky loans, so >> that when even a small percentage of the loans started to go bad the >> 40:1 leverage amplified the effect. >> >> I think it boils down to greed. People saw opportunity to sell loans >> with little to no regulation, almost forcing money on people who >> didn't even need it in many cases. The financial institutions saw >> opportunity to write all sorts of crazy, overleveraged derivatives on >> those loans in order to repackage them to make them look better (since >> the loans were pretty bad). The ratings agencies were somehow >> incentivized to call even the bad stuff AAA, so other people paid too >> much money for the debt. >> >> It's pretty crazy, and one can only hope that the magnitude of the >> disaster will lead to some practical regulations that will prevent a >> recurrance. I'm not that confident that the powers that be will >> write the regulations sensibly, though. >> >> To Randy's point, I tend to agree that in the long run it'd be better >> to let most of the financial institutions die the death that they >> deserve. It's a good way to rid the system of the sort of practices >> that led to the problem, which seem to me to be pretty systemic. >> >> Right now I'm following the automaker loan thing. I feel for those >> guys...they're between a rock and a hard place. Some of it is their >> own doing, much of it is not. > >One of the arguments in favor of these bailouts is that the effects of >letting these institutions go under would spread too far. They won't >just fall out of the boat; they're so big and weighty that they'll turn >the boat over on their way out. That's summed up as "too big [to be >allowed] to fail". I think that argument is, unfortunately, by and large >valid. There is a simple way to make sure that we're never in that bind >again. Antitrust laws are now applied to maintain competition. They can >also be used to ensure that no company ever again grows too big to fail. > >Sometimes, large size and dominance of the marketplace can be good for >society. That's what regulated monopolies are for. > >JerryThat's certainly arguable, but I'm not convinced it's true. There are enough economists and financial analysts on both sides of that position (i.e., that some of the financial institutions are 'too big to let fail') that it's hard to know for certain. I tend to agree with Peter Schiff on this point that it'd be painful in the short run to let them disappear, but better in the long run. Eric Jacobsen Minister of Algorithms Abineau Communications http://www.ericjacobsen.org Blog: http://www.dsprelated.com/blogs-1/hf/Eric_Jacobsen.php
Reply by ●December 4, 20082008-12-04
On Thu, 04 Dec 2008 15:56:20 -0700, Glen Herrmannsfeldt <gah@ugcs.caltech.edu> wrote:>Randy Yates wrote: > >> I'm curious what the upper-intelligence percentile (hey, that's YOU, >> comp.dsp) thinks of the bailout plan(s). Want to share your thoughts or >> opinions? > >(snip) > >Well, as I wrote here before I believe this is a good place to discuss this. > >Much of the problems involve dealing with positive feedback systems that >must be properly stabilized. Where else do you find people that are good >at doing that? > >One story of the cause, though, is about "credit default swaps." > >It seems that banks are supposed to keep some fraction of the deposits >on hand. Among other reasons, that should help keep things stable. > >Apparently some people from MIT figured out a way around that, >and even more convinced the regulators to go along with it. >Instead of keeping the appropriate funds they buy an insurance policy >that will pay them when they need the funds. Insurance is a good system >for averaging out costs for statistically independent events. Car >accidents and house fires are, for the most part, statistically >independent. Even flood damage averaged over the country should be >reasonably statistically independent, though there may be many claims >on one area in a large flood. > >The need for funds from banks is not always statistically independent, >as when the economy goes down it goes down for everyone at the same time. >(Though the connection with the rest of the world may be relatively new.) > >It might be that Credit Default Swaps were invented by physicists, which >is especially bad as they should be used to the problem if statistical >dependence. It is very important in data analysis for many experiments. > >My understanding is that the best solution is to let the automakers >declare bankruptcy which gets them out of some union contracts. >They can then go about business with reduced expenses and most likely >continue on building cars. If they can't compete on price with the >foreign automakers (who build many cars in the US now, anyway) there >is no way they can be expected to stay in business bailout or not.One of the problems with allowing the automakers to go bankrupt (among many big problems) is similar to the argument that the financial institutions are "too big to let fail" that Jerry brought up. The spread and reach of the stock and bonds of these companies is huge, and letting their value go to zero would be a big upset to the financial system as a whole. I suspect most people would see a notable decline in their 401k or pensions or other holding spot for mutual funds, since many (maybe most) would be affected. Additionally, the automakers are essentially system integrators these days, and rely on suppliers to provide the vast majority of parts and assemblies for their products. The ripple would be substantial, and the loss (due to subsequent bankruptcy) of key suppliers could cripple their ability to continue. Likewise there is historical precedent that a bankruptcy (of any kind) would damage the brands enough that they'de become unrecoverable. Whether all or any of that is reality is arguable, but there's some very real risk to letting them go under. Unlike the financial institutions, these guys have real products, real supply chains, real customer support obligations, etc., etc., that could potentially be dealt fatal blows by a bankruptcy. That's the argument, anyway, but I think it has to be considered in this sort of analysis.>There is a story that the first thing FDR did when he became president >during the great depression was to reduce all federal salaries by 15%. >That might be the best solution now, followed by state and local >governments doing the same, and then private companies might also. > >It seems to me that the economy was artificially elevated, so one >should not expect stocks and house prices to get back to where they >were a year or two ago. > >-- glenI agree completely on that last point. A lot of economic activity has been funded by HELOCs and other "vapor money" fueled by the artificial inflation of real estate prices due to mortgage credit being too easy to the wrong people. Now that the housing values have dropped in many places, that underlying value has been erased and turned from equity to debt obligation for a lot of folks. That means not only no spending, not even saving, but just debt service for a lot of people for quite some time. Or they'll just walk away from the loan burdens and take the credit hit, and that'll stifle growth as well. Eric Jacobsen Minister of Algorithms Abineau Communications http://www.ericjacobsen.org Blog: http://www.dsprelated.com/blogs-1/hf/Eric_Jacobsen.php
