Europe shares plunge in early trade as banks slide

Originally posted by tide88

Originally posted by Grumble
Have any of you guys read Atlas Shrugged? It is not even remotely about what you are thinking.

And the markets are not going to tumble down to zero. They are repricing stocks based on new evaluations of companies' worth, given the fact that this "crisis" has forced the revelations of trillions of dollars in phony book assets. Once the markets get through the write downs process, things will proceed as normal, albeit with a hangover we refer to as a recession to work our way through. In the end, the markets are simply about establishing prices based on the best available information, and that information changed suddenly, so they are adjusting.

No one world currency, no WWIII, no rapture, just people moving their money around to maximize returns.

I have read it and it is a great book. Everyone who is thinking of voting obama should read it. I guarentee it will change you mind.

Atlas Shrugged wiki

The theme of Atlas Shrugged is the role of the mind in man's life and, consequently, presentation of a new morality- the morality of rational self-interest.[4]

The main conflicts of the book surround the decision of the "men of the mind" to go on strike, refusing to contribute their inventions, art, business leadership, scientific research, or new ideas of any kind to the rest of the world. Society, they believe, hampers them by interfering with their work and underpays them by confiscating the profits and dignity they have rightfully earned. The peaceful cohesiveness of the world disintegrates, lacking those individuals whose productive work comes from mental effort. The strikers believe that they are crucial to a society that exploits them, denying them freedom or failing to acknowledge their right to self-interest, and the gradual collapse of civilization is triggered by their strike.

The novel's title is an allusion to the Greek Titan Atlas who was described as literally holding the celestial globe on his shoulders (as per Atlas), discussing what might happen if those holding up civilization suddenly decided to stop doing so. In the novel, the mythological analogy comes during a conversation between two protagonists, Francisco d'Anconia and Hank Rearden, near the end of part two, chapter three, where Francisco (convincing Rearden that he is under-appreciated) tells Rearden that if he could suggest to Atlas that he do one thing, it would be to shrug.

I like it!

"The main conflicts of the book surround the decision of the "men of the mind" to go on strike, refusing to contribute their inventions, art, business leadership, scientific research, or new ideas of any kind to the rest of the world. Society, they believe, hampers them by interfering with their work and underpays them by confiscating the profits and dignity they have rightfully earned."

Lets do this!
Money worth nothing. Let the world starve out of ideas and then they will realize the true value of things.

[edit on 8-10-2008 by spacebot]

Originally posted by nfotech
no offense but if you think they can put the cat back in the bag you're way off. Sure, people want what they want but the past decade was built on a bubble. There's nothing left in the near term to build a bubble on and the simple fact of the matter is the public has lost any trust it had in the market.
,,,

Again , I insist, you are thinking that people are way too literate to even think in terms of 'the market'. They don't . As long as they can live from state benefits, and buy with credit they will be happy. Just not how here in the UK the major worry if for the banks to get back to allow credit in the scale they previously did. Once that happens and everyone can ax their credit cards for X-Mas shopping people will be happy.

The time for revolutions is over, we have over 60 years of brainwashing , and constant educational downgrading, up to a point where people are so, so stupid, that they are even unable to understand that they are being completely played in the middle of all of is.

And I bet with you, that one way or the other, we'll get back to the point where we were, I'll also bet that who is going to pay for it will be all of us. Whilst all the CEO's laugh it out in their Cyprus vacation homes.

A brighter man than me once said, 'the bourgeois may demolish the world and destroy everything in their downfall. But we were the ones that build it in the first place , and we will do it again, but much better this time and without them'. He died weeks later fighting for his convictions. With him and with his fellow fighters died the last dream people had, squashed by the politics of the entire world.

Originally posted by jmlima


Again , I insist, you are thinking that people are way too literate to even think in terms of 'the market'. They don't . As long as they can live from state benefits, and buy with credit they will be happy. Just not how here in the UK the major worry if for the banks to get back to allow credit in the scale they previously did. Once that happens and everyone can ax their credit cards for X-Mas shopping people will be happy.

The time for revolutions is over, we have over 60 years of brainwashing , and constant educational downgrading, up to a point where people are so, so stupid, that they are even unable to understand that they are being completely played in the middle of all of is.

And I bet with you, that one way or the other, we'll get back to the point where we were, I'll also bet that who is going to pay for it will be all of us. Whilst all the CEO's laugh it out in their Cyprus vacation homes.

A brighter man than me once said, 'the bourgeois may demolish the world and destroy everything in their downfall. But we were the ones that build it in the first place , and we will do it again, but much better this time and without them'. He died weeks later fighting for his convictions. With him and with his fellow fighters died the last dream people had, squashed by the politics of the entire world.

I agree, you're dead on as to the motivations of the public. Who wouldn't like to roll back the clock?

The problem I see is that these banks and stock brokers didn't build the bubble on fraud and known bad loans without a huge motivation. For one, they planned to grab their share of the profits and let the taxpayers eat the losses. It's clear this was a planned set of events, what other reason would they have taken on that amount of risk for?

To go back to the easy credit means they need a new bubble. Where are they going to get it? What could they possibly build a quick bubble on? When the dot com bubble popped the housing bubble was already in play. Is there some other rising commodity able to be manipulated?

That same uneducated, simple "need" in the public is dangerous. If they've reached the end of the ponzi scheme and truly plan to hit the big red button, how do you think that same public is going to react?

[edit on 8-10-2008 by nfotech]

Originally posted by jmlima

Originally posted by nfotech
no offense but if you think they can put the cat back in the bag you're way off. Sure, people want what they want but the past decade was built on a bubble. There's nothing left in the near term to build a bubble on and the simple fact of the matter is the public has lost any trust it had in the market.
,,,

Again , I insist, you are thinking that people are way too literate to even think in terms of 'the market'. They don't . As long as they can live from state benefits, and buy with credit they will be happy. Just not how here in the UK the major worry if for the banks to get back to allow credit in the scale they previously did. Once that happens and everyone can ax their credit cards for X-Mas shopping people will be happy.

I'm afraid that you're over simplifying the problem. It isn't just a problem of the banks "getting back to allow credit," the problem is that they haven't got any money to lend to anybody.

They have destroyed £Billions of actual wealth by pouring it into worthless & overpriced assets, & now the cupboards are bare. Listen to the guff that the politicians come out with. One said yesterday that the banks "can't even borrow enough money to pay for day to day operations."

What do you think that means? They are a bank, not a factory. They have no raw materials to buy, machinery to run, rents to pay, & should be sat on a huge pile of deposits - they shouldn't need to borrow any money for day to day essentials. They are (were) hugely cash generative & have (had) excellent cash flow.

Secondly, the impression that people seem to have is that the banks won't lend to each other because they think they might not get their money back. Well if thats the case, some of the banks must be sat on a huge pile of cash that they would otherwise lend to the other banks - so why are they ALL in trouble then? Why don't they just stop thinking of lending their money to other banks & use it for themselves?

Because they haven't got a bean between them.

The actual problem is that they have huge exposure to leveraged financial products that they have lost heavily on, & are exposed to to an unbelievable level, & they haven't actually got ANY money AT ALL.

It isn't a matter of "freeing up the gridlocked markets," the money that was there no longer exists - they've blown it all & now we're all going to pay one way or another. Its extemely likely IMHO that the financial markets are inevitably going to crash & many World currencies are about to be decimated.

The government can't bail them out, or guarantee deposits without printing a huge amount of new money, which destroys the value of the currency. As soon as its being churned out like confetti all foreign investors will see that their holdings & bonds are being destroyed & they will offload all of their Sterling/Dollar/Krowns onto the market leading to a sharp & unrecoverable collapse.

They have well & truly #ed the financial system, so don't be counting on the bank pulling a big pile of money out of their sleeves just in time to make sure everyone has a jolly old Christmas.

reply to post by spacebot


Hey Space. Have you read it? I really highly recommend it. My dad tried to get me and my brother to read it for years. I always was reluctant because of the length and my dad was recommending it. One day I was bored and decided to pick the book up and start it. It was excellent. I read it about 6 years ago and am about to start reading it again. They are also making a movie that will be coming out in 2010 I believe with Angelina Jolie starring in it. This book describes exactly what Obama wants to do. Take away from the producers and give to the non-producers. He believes that it is our duty (the producers) as americans to help the less fortunate. Unfortunatly when you keep taking and taking from the producers they eventually will stop producing. After all what is the point if they are just taking what you have made and basically giving away for free to others. Most of the producers are already extremely successful so they can afford to just stop producing and live their life anyway they want. I always asked my dad what it was about. He would always tell me " It is about a man who decided to stop the motor of the world, and did." I recommend that book to everone. ATLAS SHRUGGED!

reply to post by tide88


This is getting OT - so I'll stop after this but I just had to respond Looks like we need to start a full on Atlas Shrugged thread ?

Comparing Atlas Shrugged to todays political and financial world as if we're on a par is wrong. We are, but it's in the very beginning and it's the leeches that are in control. The real producers are the ones that are being taken advantage of in this day and age, and the current "Masters of the Universe" have gotten where they are largely through theft and fraud. From the people and the system they are part of. The figures in Shrugged that go on strike created their own worth through real skill and integrity. How many of the current power elite could say the same ? I FIRMLY believe in the ideals of the novel, and for those reasons can't simply justify a vote for McCain if he means a continuing of Bush style corporate socialism and constitutional erosion.

Warning, There is a run on American banks. The largest gold dealer in Orange County, California, opened 5000 new accounts between 9/01/08 and 10/7/08.

Many multi-million dollar bullion delivery accounts were established and over $138,000,000 dollars were transferred from banks into gold and silver. The average Joe has figured that he needs precious metals and has been over 2/3rds of the firms business.

The amount of metal being shipped is taxing the USPS Registered Mail system and is proof that we are in an American financial crisis!

This information is not to solicit gold sales but to inform the public that it is a reality that billions of dollars went into metals in just 5 weeks. All our banks will fail if this continues!

Originally posted by nfotech
....

To go back to the easy credit means they need a new bubble. Where are they going to get it? What could they possibly build a quick bubble on? When the dot com bubble popped the housing bubble was already in play. Is there some other rising commodity able to be manipulated?...

Ahhh. But that's the beauty of the entire thing, I mean, c'mon guys, it's pretty obvious where will that money come from, since it is already coming from there. It will come from us. We will finance, via all these 'rescue' government operations a new golden age of banking, the age on which the banks charge you interest to loan you back your own money. It's the taxpayers that are going to rebuild the economical system, quite simply because they are the only source of money at present that:

a) it's easily manipulated, heck, governments manage to convince people that they are needed, it's much easier to convince people that there is a need to pony up and 'save the system' , otherwise doom will follow.

b) the taxpayers are a very easy target to remove the money from since it's basically a collection on the source scheme.

I must confess that I'm still surprised with the scale that people are willing to go to maintain the status quo, and how easily they are to complaint over the net, but then do absolutely nothing , in fact , many people are expression huge satisfaction with seeing the governments taking action (just look at any comments section of any newspaper).

Let's face it, when Ghandi said 'revolution starts inside you' , he was clearly talking to a different generation, our generation is the couch potato one , and looking at the schools , the future looks bright for the governments, but dire to anyone with a critical and analytical mind.

reply to post by maudeeb


I was comparing the book to what Obama wants to do. Which is take away from the producers. He wants to tax them, set limits on profits, make those products available to everyone, complete government regulation (see healthcare). I wasnt comparing the book to what is going on today. Look at his healthcare plan. In order for it to work he is going to have to make drug companies lower their prices on their drugs. He will go to, let say pfizer, and say "You need to cap your cost of drug A at X amount." Now maybe pfizer say fine. I have no choice. Even though it cost me billions to develope and that doesnt include the billions I have spent on other drugs that failed. When now pfizer doesnt thing it would be worth it to develope drug b. Because the cost to make it outweighs the profits the drug will bring to the company. He also want to tax the oil companies. Put a windfall tax on them. I know they make billions, but there profit margin is the smallest of all industries. They may think it isnt worth doing business either. At least locally in the US. ANd that is just the start of his socialism programs. Sorry for the OT post.

reply to post by Anonymous ATS


When the economies collapse, and everyone is rioting in the streets for food, U2U me and tell me if Wal-Mart will take gold.

Better yet, tell me how gold tastes. Do you have any recipes for gold soup?

Borrowed from a post at ADVFN & explained far more eloquently than I could manage, this explains why we're all knackered:

Around the world, banks must comply with what are known as Basel II regulations. These regulations determine how much capital a bank must maintain in reserve. The rules are based on the quality of the bank's loan book. The riskier the loans a bank owns, the more capital it must keep in reserve. Bank managers naturally seek to employ as much leverage as they can, especially when interest rates are low, to maximize profits. AIG appeared to offer banks a way to get around the Basel rules, via unregulated insurance contracts, known as credit default swaps.

Here's how it worked: Say you're a major European bank... You have a surplus of deposits, because in Europe people actually still bother to save money. You're looking for something to maximize the spread between what you must pay for deposits and what you're able to earn lending. You want it to be safe and reliable, but also pay the highest possible annual interest. You know you could buy a portfolio of high-yielding subprime mortgages. But doing so will limit the amount of leverage you can employ, which will limit returns.

So rather than rule out having any high-yielding securities in your portfolio, you simply call up the friendly AIG broker you met at a conference in London last year.

"What would it cost me to insure this subprime security?" you inquire. The broker, who is selling a five-year policy (but who will be paid a bonus annually), says, "Not too much." After all, the historical loss rates on American mortgages is close to zilch.

Using incredibly sophisticated computer models, he agrees to guarantee the subprime security you're buying against default for five years for say, 2% of face value.

Although AIG's credit default swaps were really insurance contracts, they weren't regulated. That meant AIG didn't have to put up any capital as collateral on its swaps, as long as it maintained a triple-A credit rating. There was no real capital cost to selling these swaps; there was no limit. And thanks to what's called "mark-to-market" accounting, AIG could book the profit from a five-year credit default swap as soon as the contract was sold, based on the expected default rate.

Whatever the computer said AIG was likely to make on the deal, the accountants would write down as actual profit. The broker who sold the swap would be paid a bonus at the end of the first year – long before the actual profit on the contract was made.

With this structure in place, the European bank was able to assure its regulators it was holding only triple-A credits, instead of a bunch of subprime "toxic waste." The bank could leverage itself to the full extent allowable under Basel II. AIG could book hundreds of millions in "profit" each year, without having to pony up billions in collateral.

It was a fraud. AIG never any capital to back up the insurance it sold. And the profits it booked never materialized. The default rate on mortgage securities underwritten in 2005, 2006, and 2007 turned out to be multiples higher than expected. And they continue to increase. In some cases, the securities the banks claimed were triple A have ended up being worth less than $0.15 on the dollar.

Even so, it all worked for years. Banks leveraged deposits to the hilt. Wall Street packaged and sold dumb mortgages as securities. And AIG sold credit default swaps without bothering to collateralize the risk. An enormous amount of capital was created out of thin air and tossed into global real estate markets.

On September 15, all of the major credit-rating agencies downgraded AIG – the world's largest insurance company. At issue were the soaring losses in its credit default swaps. The first big writeoff came in the fourth quarter of 2007, when AIG reported an $11 billion charge. It was able to raise capital once, to repair the damage. But the losses kept growing. The moment the downgrade came, AIG was forced to come up with tens of billions of additional collateral, immediately. This was on top of the billions it owed to its trading partners. It didn't have the money. The world's largest insurance company was bankrupt.

The dominoes fell over immediately. Lehman Brothers failed on the same day. Merrill was sold to Bank of America. The Fed stepped in and agreed to lend AIG $85 billion to facilitate an orderly sell off of its assets in exchange for essentially all the company's equity.

Most people never understood how AIG was the linchpin to the entire system. And there's one more secret yet to come out...

AIG's largest trading partner wasn't a nameless European bank. It was Goldman Sachs.

I'd wondered for years how Goldman avoided the kind of huge mortgage-related writedowns that plagued all the other investment banks. And now we know: Goldman hedged its exposure via credit default swaps with AIG. Sources inside Goldman say the company's exposure to AIG exceeded $20 billion, meaning the moment AIG was downgraded, Goldman had to begin marking down the value of its assets. And the moment AIG went bankrupt, Goldman lost $20 billion. Goldman immediately sought out Warren Buffett to raise $5 billion of additional capital, which also helped it raise another $5 billion via a public offering.

The collapse of the credit default swap market also meant the investment banks – all of them – had no way to borrow money, because no one would insure their obligations.

To fund their daily operations, they've become totally reliant on the Federal Reserve, which has allowed them to formally become commercial banks. To date, banks, insurance firms, and investment banks have borrowed $348 billion from the Federal Reserve – nearly all of this lending took place following AIG's failure. Things are so bad at the investment banks, the Fed had to change the rules to allow Merrill, Morgan Stanley, and Goldman the ability to use equities as collateral for these loans, an unprecedented step.

The mainstream press hasn't reported this either: A provision in the $700 billion bailout bill permits the Fed to pay interest on the collateral it's holding, which is simply a way to funnel taxpayer dollars directly into the investment banks.

Why do you need to know all of these details? First, you must understand that without the government's actions, the collapse of AIG could have caused every major bank in the world to fail.

Second, without the credit default swap market, there's no way banks can report the true state of their assets – they'd all be in default of Basel II. That's why the government will push through a measure that requires the suspension of mark-to-market accounting. Essentially, banks will be allowed to pretend they have far higher-quality loans than they actually do. AIG can't cover for them anymore.

And third, and most importantly, without the huge fraud perpetrated by AIG, the mortgage bubble could have never grown as large as it did. Yes, other factors contributed, like the role of Fannie and Freddie in particular. But the key to enabling the huge global growth in credit during the last decade can be tied directly to AIG's sale of credit default swaps without collateral. That was the barn door. And it was left open for nearly a decade.

There's no way to replace this massive credit-building machine, which makes me very skeptical of the government's bailout plan. Quite simply, we can't replace the credit that existed in the world before September 15 because it didn't deserve to be there in the first place. While the government can, and certainly will, paper over the gaping holes left by this enormous credit collapse, it can't actually replace the trust and credit that existed... because it was a fraud.

And that leads me to believe the coming economic contraction will be longer and deeper than most people understand.