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Ch. 1: Introduction: The Panic of August 
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Post Ch. 1: Introduction: The Panic of August
Ch. 1: Introduction: The Panic of August

Please use this thread for discussing Ch. 1: Introduction: The Panic of August.



Mon Dec 22, 2008 12:39 am
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I'm embarrassed to admit that after this latest economic meltdown, I don't really remember much about a panic in August of 2007. Probably because real estate in my modest community wasn't part of the bubble, so it wasn't affected as much when it popped? I'm sure others are much more acutely aware of it... :wall:

Some interesting points mentioned:
- The existence of the semi-secret President's Working Group on Financial Markets, may have to look into that...
- How agricultural harvests used to affect credit markets and even military activities...
- Public and private debt quadrupled under Alan Greenspan.


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Thu Jan 01, 2009 8:41 pm
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Yes, well I don't acutally remember the particular crisis you are really talking about either *cough*. I actually do remember photocopying a Maclean's article around that time that was questioning the likelyhood of a future recession, the implications for Canada seemed minimal, I think the article was titled "Is Recession Ahead," or something like that, definatly non-alarmist. Maybe I can pull it up on archive somewhere.

http://articles.latimes.com/2007/aug/business

http://www.americanprogress.org/issues/ ... pshot.html

I can't find the exact article I was looking for but these two are helpful.

"Many insiders, of course, had sensed for months, even years, what was coming."

This kind of goes into what Phillips says that "if markets are not always rational, the same is true of their willingness to anticipate bad news."

The August 2007 certainty was quickly forgotten yet the question must be asked. If the insiders were so well aware, why were the people not warned? Or is it that America had more to gain from a runaway economy than the experts could have predicted would be the cost of a failure. Phillips goes on to say that "investors heard talk of the possible deleveraging of the global credit bubble - the privately feared "great unwind."

"Unfortunately, vague memories of past financial bubbles almost never suffice to inoculate a people or a nation against repeating an earlier generation's mistakes."

:book:



Last edited by Grim on Tue Jan 06, 2009 9:26 am, edited 2 times in total.



Sat Jan 03, 2009 7:52 pm
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The panic Kevin Phillips is writing about was in August of 2007, nearly 18 months ago. This book came out in April 2008, nearly 6 months prior to the latest round of investment bank failures, bailouts, etc....

Oh well, bad start I guess - perhaps someone else should reboot this thread. :whistle:



Tue Jan 06, 2009 5:48 am
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I don't know about a reboot for this thread but how about a really lame opening line like,

hey do you remember the Supertramp album from the seventies ... it was called "Crisis? What Crisis?"

sorry, couldn't resist. :bananadance:



Tue Jan 06, 2009 2:45 pm
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That was awesome.


My copy has just arrived so I'll be cracking it open sometime in the next couple of days after I've finished my other non-fiction, How Not to Begin a Thread.



Tue Jan 06, 2009 4:25 pm
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I haven't cracked my copy open yet either - I'm waiting for the stock market to recover.



Tue Jan 06, 2009 5:45 pm
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Mine is cracked and I'm half-way through this first chapter and I have to admit I'm a little lost. I don't have enough understanding about hedging, the stock market, subprime mortgages, national debt, world-wide oil pricing, just to name a few, to really understand what is being said here.

What I do understand in life is that any debt a person or country takes on, they must have the means to pay off. This simple concept seems to have no meaning in today's world. This has been on my mind for the past few years as my kids have joined the adult world and come to me with questions about credit cards and student loans after talking with friends. There seems to be such a lack of understanding out there with this generation that debt actually has to be paid off.

Also, if you get a mortgage with a lowered initial interest rate...eventually you have to pay more, and you have to be able to afford to pay more. Tomorrow does come.

I am also finding with this book that the metaphorical language the author uses is getting in my way because I'm really not positive what is literal and what is not. Hopefully through this discusssion with all those more intelligent than me, I'll learn.



Wed Jan 07, 2009 3:47 pm
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Grim said Yes, well I don't acutally remember the particular crisis you are really talking about either *cough*.

*cough**cough* indeed....Heh, I see how you are, revising history... :cylon:

It does anger me to read that quite a few people were expecting this latest meltdown, but that didn't filter down to the general public. Oh well, I prolly wouldn't have listened anyway, most experts say you shouldn't try to "time the market". Although I am reconsidering whether to ride out the next storm as I have this one. :crutch:


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Wed Jan 07, 2009 7:31 pm
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It does anger me to read that quite a few people were expecting this latest meltdown, but that didn't filter down to the general public.


The general public is more interested in today and themselves and individually do not really know how to make a difference. If all my neighbours are investing their retirement saving in Mutual Funds and my banker says it is a good solid idea, why would I believe some doom-sayer? If everyone I know is mortaging their houses to the max to buy that new boat, new car, new clothes why should I worry? Housing prices will always rise, right? We can all keep buying these mutual funds, where they invest in the financial sector, which in turn lends us more money, so we can in turn buy more expensive houses and more mutual funds. Can't this last forever?

I used to wish in Canada that we could apply our mortgage payments to reduce our taxable income, but now I can see that this has backfired by encouraging the American taxpayer to carry as large a mortgage as possible.



Thu Jan 08, 2009 2:55 pm
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What about the idea that acting individually in fact is what the system needs to remain operable? Its not about doomsaying its about seeing through the "hype" to the truth. This goes to the above quote in my eariler post about insiders seeing the bubble for what it was.

And no it won't last "forever," it will just seem like it's trying to. I mean the easiest way to get the "institution" upset is to suggest that there should be a radical paradigm shift to the market. There are few quicker way to be labelled a communist than to attack capitalism.

:book:



Fri Jan 09, 2009 9:23 am
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Perhaps individual action by small investors is a factor but only once a general trend is clear, so many of these individuals take the same or similar action, for example to invest more heavily in real estate or to disinvest. At this point, the wave of individual investment action will have a major impact.

There is a comment above about anger at the lack of warning of a breakdown in the economy and at the dangers of a highly exposed, highly leveraged economy that Phillips describes in this chapter. We may be angry about this but I don't think its not surprising. In this highly leveraged situation, where making money with someone else's money is the norm, the big risk takers have to keep things quiet and calm, they have to maintain confidence in the market and the economy generally, because loss of confidence en masse, like what has happened recently, will bring their risky investments down like a house of cards.

At this point small, individual investors get hurt as the shock wave spreads and more and more individuals react by looking for safe places for their money and Government tries to reassure everyone with $800 billion dollar stimulus programs. But the cow really is out of the barn at this point.



Fri Jan 09, 2009 1:22 pm
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I see your point, however there is a suggestion of personal complacency when Phillips says that, "the average American, with other things to worry about, had little inkling of the financial sector's gargantuan size and clout or its resemblance to a laboratory of digital wagering. Straightforward, candid discussion was about as easy to find in popular publications as a five-leaf clover in a vacant lot full of weeds." However it is clearly said that there was strong impediment to the ability of the people to inform themselves. Had they know would they have acted to stop it? "Analogies to the late 1920s would have been too disconcerting." Would it have been possible, even if given adequate information, for the gropus of average citizens unassociated with the large profits to effect meaningful change? "Many buyers, for their part, were quite ready to be misled or to fib themselves. "Housing inflation," pundits pointed out, was also "the American national religion."

So according to Phillips, even if the news had been given it would not effect the cyberspatial dimensions of the American centered global financial system. Scary in a way, like being of a runaway train with no way to stop it your self and an engineer who won't acknowledge the problem of too little track. A simple metaphor but an applicible one non-the-less.

"A mixture of naivete and patriotism made it hard for many Americans to believe that so many foreginers would work against the United States."

This book is reading very well, Phillips has great style.

:book:



Sat Jan 10, 2009 9:02 am
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I just got the book, read the preface and introduction. It's pretty clear I'll need some tutorial on this stuff, since Phillips really can't write to my level without making this a "for Dummies" book. I can get by (or fake it) in religion or philosophy, but how money works is a mystery to me. You other guys with more practical experience can help me out, I hope. (Do I recall that realiz is a bookkeeper/accountant type?--great.) I thought the intro was a bit rough going because he summarizes so much data, but I hope the other chapters spread this out so I can grasp more easily.

About the question of whether the public were willing accomplices, naive dupes, or just uninterested: my indignation is that all this arcanery was ever invented and allowed to operate in the first place. You really can't expect the average person to understand what's going on with this stuff. It's like expecting us to understand details on the frontiers of science. Not understanding finance shenanigans has more consequence for us, though, I believe.

I zeroed in on the part where Phillips tells us why he calls the book Bad Money: because the abuses he tells us about were also symptoms to some degree of the failures of former world empires, and, beyond that, that it's just bad for our society--concentrates money in the "top 1 or 2 percent of the population possessing capital " (p. 21), for example.



Sat Jan 10, 2009 11:11 am
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I'm sure many of us will struggle with the technical aspects of finance, investments and markets as we read this book. The first chapter was an overview and I think he laid on a great deal of wide ranging ideas, information and data and I would hope that this will be more sparingly done in later chapters.

Phillips does mention "derivatives" and I did a little scouting about and found this blog. This blogger states that derivatives are not investments (ie - the transaction is not tied to a specific investment vehicle, the investor does not own anything and the investment does not produce anything) .. these investments are gambles or bets just like casino gambling or horse racing. He also has some interesting $$ figures on how big the derivatives market is. His take is that the derivatives market is a giant Monte Carlo.

http://www.survivalblog.com/derivatives.html



Sat Jan 10, 2009 4:33 pm
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