Quote :

"^^ make the loans conditional on firing all the upper level executives. Seriously."

That doesn't solve the moral hazard issues inherent with gigantic, government sponsored enterprises like Fannie Mae and Freddy Mac. The executives were simply trying to do what they were hired to do: Maximize profits. The problem is that these 2 companies were not regulated effectively and it's understood that they are too big to fail.

See this passage from the article I linked:

Quote :

"But there is a parallel narrative, the story that critics and competitors of Fannie and Freddie have told for years: how the two companies exploited their pedigree as entities backed by the government to secure an unfair advantage over the private sector. They swelled into highly leveraged behemoths, it was said, on the implicit guarantee that the government would step in and rescue them if they ever got into trouble. This allowed them to borrow money more cheaply than their competitors could, enabling them to make loans more cheaply. That secured more business and rewarded their shareholders, along with their handsomely compensated executives. It emboldened them to trade in highly risky investments. “They were using their privileged position as favored children of the government to dominate the market, and taxpayers were on the hook for substantial risk,” said Martin N. Baily, a chairman of the Council of Economic Advisers in the Clinton administration. “You couldn’t possibly say this was a pure unfettered market.” The government was getting something for its protective largess. It was using Fannie and Freddie to pursue the social goal of broader homeownership, particularly among racial minorities. “When you’re looking at the upside, here’s the government helping people get mortgages and student loans,” said David R. Henderson, a self-described libertarian economist at the Hoover Institution at Stanford University. “The downside is there might be a bailout and then you pay in taxes. These things don’t come cost-free when government gets involved.” "

[Edited on July 15, 2008 at 1:38 PM. Reason : 2]

7/15/2008 1:36:11 PM

Quote :

"Again, The more money they continue to print the more worthless it will become."

Yes. And in a money drought 'more money' is often a valid answer. Afterall, if the purpose is to bail out all those that need bailing in the short term, the long term value of the currency is irrelevant. You will run out of people to bail out long before the currency becomes 'worthless'. Even hyper-inflation does not satisfy the definition of a collapse.

So, any idea that a lender of last resort system is prone to collapse needs to be put out of your mind. I know of no mechanism for it to be so. Especially when we witness third world crap-holes which use their central banks as their sole source of revenue and they don't even fall victim to that form of collapse. It turns out "run the presses faster" is always an option. A terrible option, I will grant everyone, but it is a lie to suggest it is unsustainable.

7/15/2008 3:37:21 PM

So what are all the people who didn't get shitty mortgages supposed to do? Put up with it?

7/15/2008 4:34:13 PM

^ They entered into contract.

You saying the other side shouldn't be able to enforce?

Quote :

"LoneSnark: the long term value of the currency is irrelevant."

Please expand on this.

I'm curious what you mean and how you mean it...

7/15/2008 4:41:41 PM

No, I'm saying that all of America is paying for this shit because some people can't handle their finances/banks fucked everyone over. Inflation is not limited only to people who lost their houses. THis is something the entire country is now having to deal with.

7/15/2008 4:49:31 PM

Indeed. When interest rates are cut and inflation soars it is the fiscally responsible parties that get screwed.

7/15/2008 4:52:49 PM

Quote :

"Even hyper-inflation does not satisfy the definition of a collapse."

What is the definition of collapse then? Hyper-inflation scenarios seem to me to be about the most chaotic and tumultuous economic conditions that exist.

With all the problems of Social Security/Medicare, etc, now that the retirement sector's home values have been wiped out, the last thing we'd want to see as taxpayers is if their savings are wiped out by hyper-inflation as well.

That said, I don't think we are in any danger of hyper-inflation, unless our government is dumb enough to just massively print money. Then again, they just might be.

7/15/2008 6:13:53 PM

^ Uh...what do you think their current policy represents exactly?

7/15/2008 7:51:19 PM

^ They aren't printing money. The Fed is opening up the discount window and taking on garbage in their swaps, but there hasn't been any marked increase in the money supply. In fact, private credit is being wiped out, a deflationary pressure.

The two forces at balance right now seem to me to be massive deflationary pressure caused by asset collapse and private credit reduction, balanced against a weak dollar (caused by low interest rates), and expanding (or threat of expanding) public debt, and also materials shortage (e.g. oil)

7/15/2008 8:55:22 PM

Fair enough. A worldwide dollar sell-off has the same effect, though.

7/15/2008 9:41:02 PM

What's the difference between printing money and creating e-money? Both are supposed to represent the "value" of a dollar. Suppose everyone wanted to get their e-dollars out of the bank. It'd be the same effect as if everyone wanted to get their money handed to them in person. It's still an artificial creation of money either way you do it. Value is lost every time a new one is created.

7/15/2008 9:57:25 PM

No, the creation of new money does not destroy value, it just moves it around (from existing bills to new bills). This is a fact of life and abolishing the Fed would not abolish money creation through credit expansion. All it would do is guarantee that eventually all such credit booms end in horrible busts where prices must painfully fall back to match the physical money supply.

slamjamason is right, it is not clear right know that the Fed is being expansionary or if it is simply filling the hole left by a lack of e-dollars, as IMStoned420 put it.

7/15/2008 11:11:55 PM

Quote :

"No, the creation of new money does not destroy value, it just moves it around (from existing bills to new bills)"

what?

7/15/2008 11:17:14 PM

Quote :

" slamjamason is right"

Haha, it's not everyday you see a phrase like that...

7/15/2008 11:34:38 PM

IMStoned420, which part of that sentence do you have a question about? As I print new slips of paper the paper in your bank account loses a tiny bit of its value. But society as a whole is no poorer for it, because all the value you lost was gained by me. Similarly, if I make it a habbit of cashing my entire salary and then burning it in a big bonfire, society as a whole is no worse off for it (everything I lost was gained by others because their salaries now buy more).

7/16/2008 12:34:17 AM

Who the fuck cares if society in total isn't any worse off if each and every individual has less money?

7/16/2008 12:37:08 AM

But that is not the case. Some individuals have money that was just created, so they have more money than otherwise.

As such, inflating the money supply by itself, as long as it is by a small amount, is neither good nor bad because society as a whole is just as wealthy as it otherwise would be. However, it allows the creation of a lender of last resort which solves a lot of collective action problems for society, which is a major benefit. To continue arguing you either need to show this benefit is too small to care (absurd) or the moral hazard created outweighs the benefits, which I find extremely unlikely.

7/16/2008 8:44:22 AM

This is retarded. I don't have to argue anything because everyone already knows that printing too much money is a hazard to the economy. It's well documented. It doesn't solve anything. All they're doing is taking monetary value away from ordinary Americans in order to save these banks that fucked themselves in the ass but then they send out the economic stimulus checks that are likely just a way to slightly pay money back to Americans that they already had. It's just that the value of our money is worth less, so they have to hand it out to everyone to keep up with inflation.

The Fed has said that their main goal is to combat inflation and yet there is an article that recently that inflation is at a 26 year high and that is the result from before the bailout of Fannie and Indy. They're doing a pretty piss poor job if they were trying to fight inflation. This has the potential to be the worst economic action ever taken. They were already creating money at a pace that is high enough to have extremely high inflation and now they're creating even more money. If you can't see how this has the potential to have a runaway effect on inflation, then you should not be debating economics period.

The government is robbing the American people for the sake of American businesses. I'm not saying that this isn't the right thing to do (because we might be in an even worse situation if didn't), but if you can't see the effect this is having on the economy, you are fucking blind.

7/16/2008 10:20:50 AM

^

Quote :

"They aren't printing money. The Fed is opening up the discount window and taking on garbage in their swaps, but there hasn't been any marked increase in the money supply. In fact, private credit is being wiped out, a deflationary pressure."

7/16/2008 11:28:06 AM

^

7/16/2008 12:21:58 PM

Here's a thing I read

Quote :

"It's a perfect storm scenario: 1) The big one right now is that the housing market is melting down, and it turns out that huge sections of our economy were based entirely on the housing market booming forever. Well, the laws of gravity reasserted themselves (as they always do), and the damage keeps spreading and magnifying. Loss of jobs in housing/construction/real estate. Failures of housing companies and mortgage companies. Foreclosures and defaults skyrocket, the value of peoples' houses plummets. Banks suddenly have a ton of money lent out that will never be paid back on collateral that is suddenly worth a lot less than it was. Banks run out of liquidity, creating a credit crunch. Large chunks of the stock market tank, creating a bear market. There's a lack of confidence as nobody knows what anything is worth and the various rating agencies go out of business or have zero credibility. New investment dries up, large chunks of the economy screech to a halt simultaneously (in Silicon Valley, not a single VC-funded firm went IPO last quarter [not year]. Not one. And tech is one of the few economic bright spots!). Now, Fannie Mae, Freddie Mac, and lots of other foundation-stone too-big-too-fail entities are teetering. 2) The other side of that is with consumer spending. Our economy has been propped up for the last decade by those soaring home values. People borrowed zillions of dollars out of their home equity and pumped it into consumption. How do you think people were able to afford all those SUVs and HDTVs and iPhones in an environment where real wages were flat or declining? They were pre-spending the sale price of their homes. Well, the values of the homes have collapsed and that money spigot is shut off. So suddenly car dealers are seeing their sales collapse. So are chain restaurants. So is Starbucks. There's been a big shift in spending from national brands to blue-label store brands. And so on. Consumers have suddenly tightened their purse strings. 3) The fall off in consumer spending, along with the collapse in multiple sectors (see 1 above), leads to a shitty job market. Starbucks closes stores, GM lays off workers and closes plants, Indymac lets half its workers go. Hours are cut, benefits are cut, and nobody complains because they're just happy to have a job. Can you see the magnifying feedback loops here? The value of houses goes down, so consumers stop spending money like they used to, so jobs are lost, and those unemployed people can't make their house payments, so they default on their house, so the bank has even more bad debt, which makes the market stagger some more and tightens lending, so there's no new investment or jobs being created, so sales forecasts are flat, so business lay off workers and cancel plans to expand, and round and round and round and round. Usually, Uncle Sam steps in to clear out bad debt, restore confidence, and prime the pump to keep the economy humming. But... 4) Through bad policy, the government and the Fed don't have a lot of options. Interest rates are so low, they can't be cut any more. We've been running $300 billion/year deficits for the last 6 years to pay for Bush's war and "stimulus" tax cuts, so there's not much more economic stimulus to be pumped into the system. We've run up an enormous amount of debt under Bush, which we've financed by selling promisory notes overseas (China mostly), which has led to a collapse in the dollar, which is making the price of government borrowing rise even higher. And states are reeling from the loss of property tax revenues, so they're going to be cutting spending and payments and new projects just when they need to start spending on that stuff to stimulate their economies and deal with increased welfare loads. 5) All of that is bad enough, but we're also going through a period of elevated supply costs, which makes everything more expensive. Energy costs have doubled, seemingly permanently, resulting in huge disruptions (and they can still go up!) and raising the price of everything. Food costs are skyrocketing, too - because of energy costs, environmental degradation, biofuel diversion, and shifting weather patterns (see 7 below). And lots of other basic commodities are running low - check out the price of copper, or even weird metals with critical industrial uses like tantalum or niobium. 6) Bad policy plus worthless dollars plus spiking commodity costs = inflation. Most of you aren't old enough to remember pre-1982 America, when inflation was last a problem but I gotta tell ya: it sucked. The only worse was the cure, which was the early Reagan recession that had national unemployment at 10%. Also, this inflationary risk really constrains the Fed's ability to act. Hope you like your economic slumps long-lasting! 7) And there are a whole bunch of long ignored but worsening problems that are coming due soon. The climate crisis is real, and it's worsening faster than the consensus projections indicated. The peak oil people are being proven right. Water supplies are becoming a huge problem worldwide. We've underinvested in decades in infrastructure - public transit, sewage, water, electrical grid, schools, you name it. Medical costs keep skyrocketing 5-10% a year, every year, with no end in sight. Oh, and the boomers are going to start retiring in about 18 months. And the number of undropped shoes grows exponentially as you stare into the future. What are we gonna do if global fisheries collapse completely, or we can't get this honeybee disease situation under control? What if a chain of hurricanes leaves Florida devastated? What if the long-predicted avian flu pandemic finally arrives? The problems are global, and economic and ecological crises will lead to all sorts of political and military and economic disruptions that will spell the end of the long peace we've had since the end of the Cold War. Think of the 1930s: unstable countries, masses of refugees, charismatic opportunists casting about for scapegoats, dwindling resources - fun! Add it up, and it's bad. Real bad. I get a distinct 1970s vibe from the whole thing - from the supply shocks of the early years to the stagflation of the Carter era. And I think it has a great possibility to get worse rather than better. It took Japan 15 years to dig itself out of the hole the 1989 collapse of their property bubble caused them, and their society was at least socialized enough to provide a safety net for people so they wouldn't be pensionless or homeless or without medical treatment. And what really has me depressed is the collapse in my faith in our institutions - political, economic, cultural, media - to deal with these problems. You think the American people are capable of making hard choices? You think the media is capable of presenting the problems and the solutions in a way that leads to the right options being supported? You think Wall Street and the GOP (and too many Democrats) won't figure out a way to make money on this whole thing while sticking us with the bill? How long do you think it's going to take for it to sink in - REALLY sink in - that people's houses are never going to be worth what they were five years ago, that the price of gas is never going to go down below $4/gallon, that the stock market might be flat or declining for the next decade (again, like the 1970s)? When are we going to get policy decisions that aren't just selling magic beans like increased offshore drilling or opening ANWR or coal liquifaction or hydrogen or one-shot stimulus checks or gas tax holidays or (lord help us) more capital gains tax cuts?"

7/16/2008 12:23:56 PM

Quote :

"The climate crisis is real, and it's worsening faster than the consensus projections indicated. The peak oil people are being proven right. Water supplies are becoming a huge problem worldwide. We've underinvested in decades in infrastructure - public transit, sewage, water, electrical grid, schools, you name it. Medical costs keep skyrocketing 5-10% a year, every year, with no end in sight. Oh, and the boomers are going to start retiring in about 18 months. And the number of undropped shoes grows exponentially as you stare into the future. What are we gonna do if global fisheries collapse completely, or we can't get this honeybee disease situation under control? What if a chain of hurricanes leaves Florida devastated? What if the long-predicted avian flu pandemic finally arrives? The problems are global, and economic and ecological crises will lead to all sorts of political and military and economic disruptions that will spell the end of the long peace we've had since the end of the Cold War. Think of the 1930s: unstable countries, masses of refugees, charismatic opportunists casting about for scapegoats, dwindling resources ... How long do you think it's going to take for it to sink in - REALLY sink in - that people's houses are never going to be worth what they were five years ago, that the price of gas is never going to go down below $4/gallon, that the stock market might be flat or declining for the next decade (again, like the 1970s)?"

LOL, the sky is falling!

Alarmism much? He makes some good points (1-5), but then overreaches in his conclusions.



[Edited on July 16, 2008 at 12:33 PM. Reason : 2]

7/16/2008 12:31:29 PM

^^ Link or source please.

[Edited on July 16, 2008 at 12:33 PM. Reason : .]

7/16/2008 12:32:45 PM

Here you go, here is a link you can chew on

http://www.bls.gov/news.release/cpi.nr0.htm

And this for some more analysis

http://bigpicture.typepad.com/comments/2008/07/cpi-june-2008.html

Quote :

"Consumer Price Index surged 1.1% in June, almost twice the rate in May, and far above the consensus expectations of Wall Street economists, who were looking for a 0.7% rise. It was the biggest monthly gain in the inflation indicator since June 1982. Year over year, the price index has risen 5%, the biggest 12 month jump since May 1991."

That bolded bit is impressive!

7/16/2008 12:57:04 PM

Now is when everyone tells me to go smoke some more weed because of how wrong I am.

Wait...

7/16/2008 3:04:09 PM

TroleTacks, the price index you are referring to is being driven up by food and fuel prices which do NOT represent inflation, but a shift of purchasing power from consumers to producers. During periods of inflation prices rise to cover rising costs, that is not the present, as 80+% of the price jump is being pocketted as unmittigated profit.

IMStoned420, you should go smoke some more week because of how wrong you are. What the Fed did for BS is not going to drive inflation, all it is going to do is prevent contagion and therefore stem deflationary pressures. In other words, we will experience no more inflation than if BS was not in trouble.

7/16/2008 3:11:02 PM

Oh... so the price of energy and food really isn't skyrocketing. I'm so relieved.

7/16/2008 3:16:22 PM

Quote :

"TroleTacks, the price index you are referring to is being driven up by food and fuel prices which do NOT represent inflation, but a shift of purchasing power from consumers to producers. During periods of inflation prices rise to cover rising costs, that is not the present, as 80+% of the price jump is being pocketted as unmittigated profit."

Ooookay, that's BS. Tell me again, who's profit is this? Let's see... it's not retailers. It's not farmers.

I'd have to say prices are going up because the world is running out of oil. What's your explanation again?

7/16/2008 3:29:15 PM

Quote :

"TroleTacks, the price index you are referring to is being driven up by food and fuel prices which do NOT represent inflation, but a shift of purchasing power from consumers to producers. During periods of inflation prices rise to cover rising costs, that is not the present, as 80+% of the price jump is being pocketted as unmittigated profit."

Eh? I'm not very adept at the finer nuances of economics. Can you please tell me how virtually EVERYTHING rising in price is not inflation? I don't have enough econ knowledge to know what "shift of purchasing power from consumers to producers" means and how that being related to rising prices is not inflation. Everything I am paying for is going up in price. That's inflation. Please, dumb it down and convince me otherwise. Maybe it isn't inflation the way you'd like to think of the term, but it's what I feel in my pocket, and the misery index tells me many others are thinking the same way.


The funny thing is, the last time I posted a bigpicture link, you dismissed it in a similar very arrogant sort of way. Barry Ritholtz has been one of the more accurate assessors of the state of the economy. He was calling for the housing house of cards to fall I think as far back as mid-2006. He was predicting heavily leveraged banks to go bust last fall, BEFORE the market started trending down. When he talks about inflation, I'm going to be quite a bit more inclined to believe him than an ECE major that has a decent grasp of economics.

7/16/2008 5:10:49 PM

Core inflation based on the Consumer Price Index, which ignores the fuel and food prices that are largely out of the Fed's control, is the standard.

Core inflation rose .3% for the month of June.

7/16/2008 5:16:45 PM

You mean it's a standard for a government that doesn't want the consumer (and thus, the voter) to get restless?

7/16/2008 5:19:31 PM

Yeah, it's a little hard to take the core inflation seriously at a time when the two things it doesn't measure are rising at outrageous rates. Normally, it works fine. But right now you absolutely have to take into account food and energy prices. Leaving those out basically amounts to ignorance in this situation.

7/16/2008 5:22:52 PM

^^You make it sound like we are in a communist state.

The Fed is a quasi-public, nonpartisan, independent institution. I fail to see how placating voters comes into play.

[Edited on July 16, 2008 at 5:25 PM. Reason : 2]

7/16/2008 5:24:32 PM

Quote :

"^^You make it sound like we are in a communist state. "

Capitalism is the new Coummunism.

I'm not saying it is done on purpose. But the standard was set in a time when people probably never envisioned oil would be this high and drive the price of everything else up. I suppose if this is a short term problem, then we'll be able to proclaim in hindsight that the core measure indeed is fine. But somehow, I don't think that is the case.

Barry has torn the inflation measurement apart many times over the years. He's also pretty good at posting commentary counter to his arguments. And I can't remember any time where someone has really challenged him on his stance about how it is measured. It isn't just inflation that the government is doing a shitty job of measuring.

The unemployment number is also terribly flawed and he has gone into detail about the reasons for that, too.

Again, I don't know if the powers that be have decided to do this on purpose or what the motivations are, but the reporting of the numbers is off due to the way it is measured and calculated. And the fact that the numbers that are reported don't jive at all with a lot of other contradictory data and consumer sentiment should be a pretty big red flag.

7/16/2008 5:32:38 PM

Quote :

"But the standard was set in a time when people probably never envisioned oil would be this high and drive the price of everything else up."

Actually, the metric of "core" inflation has been adopted precisely because of the volatility of oil and fuel prices. Keep in mind, measures of inflation are used pervasively throughout the business world. This is not just a number that "the government" comes up with through some convoluted calculations and risky assumptions. Core inflation measures the underlying long-term rise in price among common goods. It ignores temporary price shocks from oil and food. If these shocks turn permanent, they get incorporated into the price of common goods and push core inflation upwards.

There are several other metrics out there that take into account food and energy costs, and they are all tracked by investors.

[Edited on July 16, 2008 at 6:06 PM. Reason : 2]

7/16/2008 6:04:52 PM

Quote :

"Can you please tell me how virtually EVERYTHING rising in price is not inflation?"

Simple. virtually everything is not rising in price. The prices of housing, automobiles, appliances, electronics, and clothing, which collectively represent a huge chunk of any family's budget, are all down in price from last year if I remember correctly.
But that is largely irrelevant: what you need to understand is that the current price rises in oil and fuel are not permanent.

For example, think back to the 1980s. As of early 1980 the price of oil had risen six fold from 1973 to $70 (2007$), contributing a lot to the price index you listed. However, this was not a weathering of the monetary base (a lot of which had taken place, I admit), because when 1986 rolled around the price collapsed back to $20. If a loss of value of the dollar had been the cause of $70 oil, how did oil return to $20? The answer is simple: the cost-price of oil had been $20 all along, what had changed was the market had shifted from a buyers market to a sellers market (the price was no longer dictated by producers willingness to produce but by consumers willingness to consume). In 1986 the market switched back to a buyers market.

So, again, inflation is permanent, supply shocks are not. If you live long enough then you will regain the entire difference between your measure and the core CPI.

Quote :

"Ooookay, that's BS. Tell me again, who's profit is this?"

The oil shieks in the desert, oil companies in Texas, the rice farmers in Tailand, and the corn farmers in America. They are not being killed by higher costs of production and therefore are pocketing most of the current price rises. This is not inflation, just ordinary everyday windfall profits.

Quote :

"I'd have to say prices are going up because the world is running out of oil. What's your explanation again?"

The world has been running out of oil since 1870, so I don't see what that could possibly have to do with sudden price changes. Or are you saying oil has never been cheap (in 1998 it was $8 a barrel).

[Edited on July 16, 2008 at 7:39 PM. Reason : .,.]

7/16/2008 7:35:17 PM

lol kinda odd that while the dems it was really low...then we go in there and start to make them ack right, and they move the price up

seems to me they want to rise the price when they are up to no good and we call them out on it...

7/16/2008 7:38:31 PM

Quote :

" So, again, inflation is permanent, supply shocks are not. If you live long enough then you will regain the entire difference between your measure and the core CPI."

Precisely why energy and food should be included in the measure of inflation. It just doesn't make sense to exclude them if your time scale of which their effects have an impact are greater than a lifetime.

7/16/2008 8:49:49 PM

Then we have no word that means 'debasement of a fiat currency' as all our current words would suddenly mean the same thing: 'a general rise in prices'.

By the way, the time scales are long but not that long. Oil has shot up many times, but it has always come back down within a decade (seven years on average). Food I know less about, but as prices were rock bottom for half a century I suspect the response to high prices will be quicker than it is for oil.

7/16/2008 9:23:22 PM

Quote :

"Barry Ritholtz has been one of the more accurate assessors of the state of the economy"

Even a broken clock is right twice a day. Check BR's blog archives. He is what we in the biz call a perma-bear.

7/16/2008 9:25:59 PM

Quote :

"Even a broken clock is right twice a day. Check BR's blog archives. He is what we in the biz call a perma-bear."

Nope

http://bigpicture.typepad.com/comments/2007/06/media-appearanc.html
http://bigpicture.typepad.com/comments/2008/07/wtf-10-best-glo.html

Sorry, I don't have more time to make a better case. If you followed his blog regularly enough, you'd know he is just a numbers man. Nothing more, nothing less.

7/16/2008 10:03:10 PM

I've been following his blog for several years now, as well as his appearances on CNBC and Bloomberg. Trust me when I tell you, his analysis is almost always one-sided. Read the WSJ's econ blog alongside BR's for a few days and you'll see the dichotomy. It may seem that he has been "right" quite often lately, but it's only because he is almost always bearish on the economy.

I continue to follow his blog almost daily (although with a grain of salt) and believe he is a bright guy, but if you have been following his commentary before the current slowdown, you would know he is a perma-bear who relentlessly cherry picks for the negative side of all news/data.



[Edited on July 16, 2008 at 11:01 PM. Reason : .]

7/16/2008 10:45:01 PM

Wall St. soars on banks' best day in 16 years

Quote :

"NEW YORK (Reuters) - Stocks rallied more than 2 percent on Wednesday, powered by the best day for banks in 16 years as unexpectedly strong results from Wells Fargo & Co relieved worry about a credit crisis spiraling out of control. A $4 drop in oil prices gave more fuel to the rally, offsetting an early report that showed U.S. consumer prices in June rose by the most since the aftermath of Hurricane Katrina in September 2005. Investors poured into bank stocks, driving Wells Fargo (WFC.N) up 32.8 percent, while shares of rivals like Citigroup (C.N), JPMorgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N) jumped 13 percent or more. Wells Fargo, the fifth-largest U.S. bank and a big mortgage lender, also raised its dividend at a time when competitors are cutting them. That allayed some concerns about financial companies just days after IndyMac collapsed in one of the biggest bank failures in U.S. history. Shares of mortgage finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N), which had lost over 60 percent of their value since the beginning of the month, were also swept up in the broad financial rally, surging 30 percent or more. Both companies got a lift from Federal Reserve Chairman Ben Bernanke's remarks that they are 'in no danger of failing.' 'Oil prices came down $4 a barrel and financials went up, particularly on the Wells Fargo news. One popular trade was to short financials and long energy and that trade got killed today,' said Brian Gendreau, an investment strategist in New York for ING Investment Management Americas, which recently went 'neutral' on U.S. stocks. The Dow Jones industrial average (.DJI) jumped 276.74 points, or 2.52 percent, to 11,239.28, while the Standard & Poor's 500 Index (.SPX) gained 30.45 points, or 2.51 percent, to 1,245.36. The Nasdaq Composite Index (.IXIC) shot up 69.14 points, or 3.12 percent, to 2,284.85. The three indexes had their largest single-day percentage gain since April 1 and the KBW bank index (.BKX) soared 17.27 percent, its largest one-day percentage gain since it began tracking in May 1992."

http://news.yahoo.com/s/nm/20080716/bs_nm/markets_stocks_dc

7/17/2008 8:48:37 AM

^It's good news, widespread bank failures will be painful and hopefully we don't see it. It looks like the rally may continue through today as well.

However, keep some context.

10 days ago Wachovia was at $16 a share, after yesterday's rally it closed at $10.50.

Its day low on the 15th of $7.80 a share was pushing the lowest in company history. Its 52 week high is $53 a share.

Wells Fargo and JP Morgan (who has announced positive result today) are two of the strongest banks in the industry, there are plenty of other banks out there in very difficult waters.

7/17/2008 9:21:49 AM

^ Context? I simply offered the story--without commentary.

I'll leave it to the panic-stricken here and elsewhere to find the negatives in every good bit of news. As for me, I intend to remain positive--I've never seen that any other approach did much good.

7/17/2008 9:31:46 AM

^ Didn't say you offered commentary - you offered the story without context, and I offered some context that the "best day in 16 years" may be reason to offer a small sigh of relief, but it is probably not a reason to celebrate that banks are out of the woods.

7/17/2008 9:35:57 AM

^ No shit--I never said the banks were "out of the woods" or anything else, for that matter. But thanks for pointing it out--you have a firm grasp of the obvious.

7/17/2008 9:38:42 AM

Hooksaw, why are you so defensive when you refuse to post commentary and someone else adds commentary afterward? Does it really hurt your feelings that much?

7/17/2008 9:40:56 AM

^ I was clear in my meaning. Why are you involving yourself in this A-and-B conversation?

7/17/2008 10:12:01 AM

A and B conversations don't exist on these forums unless it's in PM's. Suck it up.

If you can't provide commentary to your original posts, don't complain when someone adds their own to the article you posted.

7/17/2008 10:13:34 AM