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" "Gang of 6" seem to be taking the issue seriously"
bull . The Peterson commission was nothing but another battle in Wall St Banker Peterson's decades long attack to destroy SS, leaving Wall St as primary pensions manager(destroyer).
After we get downgraded they will take some real actions to seriously address the problem. As I've said before this is just a political show by both sides to set up who gets the blame in the next election.
From what little details I've heard the "Gang of 6" seem to be taking the issue seriously (spending cuts, en lement reform, tax reform) but such an approach has no chance until after we are downgraded and everyone in Washington is in crisis mode.
" "Gang of 6" seem to be taking the issue seriously"
bull . The Peterson commission was nothing but another battle in Wall St Banker Peterson's decades long attack to destroy SS, leaving Wall St as primary pensions manager(destroyer).
Quelle Surprise! Banks Don’t Want to be in IRA Business if They Can’t Treat Customers as Stuffees
This object lesson is IRAs. Bloomberg reports that if brokerage firms who manage IRAs were required to act as a fiduciary, as in put their customers’ interests first, many would exit the business.
The dirty secret of the retail asset management business at brokerage firms is that their profits depend on treating you badly. Unless you are a big enough customer that they would not like to lose you, you are going to be abused (well, take it back, even being a billionaire is not rich enough to be safe from bank predation). The one check on this, ironically, is that salesmen are de facto small businessmen in a bigger corporate umbrella, and their clients are their book of business. They thus have incentives to make sure the customer thinks he is being treated well (whether he is actually treated well is another matter).
The big firms have generally if not completely inferior in-house fund management products they push (inferior by virtue of higher fees and/or not so hot performance). Your “investment advisor” also has an incentive to encourage you to trade if you are in a commission-paying account. The alternative, a wrap fee account, has annual charges that make a serious dent in your principal over time.
http://www.nakedcapitalism.com/2011/...+capitalism%29
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Moving SS $Ts, in mostly small amounts from naive, trusting customers, to IRAs and other private investment accounts is what Wall St is drooling over.
Anybody who assumes that the financial markets are fair and not predatory on your average small investor, has probably never worked in the financial sector, or read much on the mechanics of said markets.(one big caveat: read Benoit Mandelbrot’s The Misbehavior of Markets. Everyone needs to recognize that the tenets of financial economics underestimate the risk of markets and as a result, encourage too much risk-taking. Any standard advice on what level of stock holdings are desirable needs to be dialed down. Rule number one of investing is preservation of capital, and that too often is ignored
I would note that at some larger corporations it is entirely possible to buy stock directly, and that dividend reinvestment plans for companies like Coca Cola incur zero transaction fees.
Not quite sure why anyone thinks a downgrade will create a crisis. It will cause our securities to generate more interest and considering the state of Europe and other currencies around the world you can bet that it won't change much other than the amount of interest we'll pay. Thats why a downgrade is so bad.
The US bonds don't get weaker the instant the rating is lowered. However, that will effect interest rates. In other words, investors will make more money at the cost of the US tax payer will no real increase in risk what so ever. Sounds just dandy huh?
"investors will make more money"
and 40%+ of US debt holder are American.
I think it's Issa who actually placed an short bet on it happening. His oath of office requires him to bet against the country he helps run (into a ditch)
Actually Manny, bond values work inversely from interest rates. When interest rates go up the value of the current bondholders investment goes down.
Thats because it doesn't make sense to buy bonds with lower interest rates. That is because new bonds would be more profitable. Since the US sells new bonds in order to raise money thats what is worth considering here.
The US could always implement the right-wing strategy defaulting only on bonds (respectfully known as worthless IOUs, unless wealthy people own them) that the Feds sold to SSA. Cool way of reducing the debt, screwing 10Ms of old people.
"Low" interest rate is a relative term. The Fed is already talking about QE3. The higher rates of next year may look really low in 5 years.
Well anything could happen in 5 years. My point is that the rating getting lowered in no way will be a catalyst for financial reform in this country. I'm not sure at all why people are thinking thats the case.
The problem is that an increase in 0.1 in interest rate increase means our interest payments on the debt raise by a few billions per year. Meaning the budget needs to reflect this and removes that kind of money to be allocated somewhere else.
Don't misunderstand - I obviously don't want interest to go up. I just don't see how an extra 100 billion per year is going to be some huge catalyst for financial change. Do you?
For a true novice the "little book of big dividend investing " is a good way to oriented yourself on this stuff.
I will try to give a few examples without rambling:
Say an investor (ins utional, personal, pension, etc) holds a lot of bonds and has a loan secured by those bonds (or has invested on margin with their equity position being represented by those bonds). The moment the credit rating of the US goes down the prevailing interest rates will go up which will decrease the value the bonds being held by the aforementioned investor. This decrease in value can mean that it is no longer sufficient to secure the margin, or loan (essentially the same thing) which can result in a margin call. If the investor doesn't have enough in cash to cover the call, then they will have to start selling other assets (stock in companies, cars, houses, etc) in order to cover the cost of the margin call. If this happens the value of the assets in question begins to decline due to an increase in supply. This sparks a panic wherein investors decide to move back out of the stock market, but will likely not want to move into bonds because as this spiral continues there could be another increase in interest rates which will devalue their bond holdings again... So what do they invest in? Commodities. So now gold is shooting through the roof, Glen Beck looks like a genius (a catastrophe all by itself), but another more important commodity is skyrocketing too... Oil. So now EVERYTHING is more expensive right at the time that real household income is falling precipitously. I am sure I can go on, and I am sure that there are different branches in the preceding steps that I could have explored, but I am going to stop now. There is also the possibility that nothing happens because the markets have faith that even after a default the US govt will fix itself resulting in no changes in market rates at all (I doubt it), but you asked why people are panicing, and the scenario above seems real enough (and possible enough) to panic about.
It's more than that. Those extra 100 billion could go into propping up the economy, paying unemployment checks, etc. With the economy the way it is, it's certainly bad timing to have less resources.
Th only consistent message from Obama since he was elected has been that economic armegeddon is just around the corner unless he gets what he wants. Seems to work well on some of you. If the terrists don't getcha the economy will getcha...be afraid be very afraid.
That's been the republicans message too. Hence the gridlock we're now seeing.
This is a pretty measurable phenomenon. Especially since the "risk free" rate is tied into EVERY SINGLE financial, project valuation, or investment decision. It is easy to see how far reaching of an effect that this kind of shift would have.
so is "the plan" ready yet?
the armageddon was coming Obama or not. Wake up
I definitely see the potential for economic hard. Anytime the economy tanks you see commodities such as oil and gold rise. Thats pretty basic. That being said, if the 2007-08 financial crisis didn't generate financial reform then you'd have to imagine that the bond market would have to have an effect greater than the previous crisis to generate such reform. I don't think thats really going to happen because even now those bonds are selling very well. So even now, at midnight before the debt crisis with no apparently solution with a looming rate hike these bonds are selling well. I just find it hard to believe that all of a sudden they're going to flip based on a ratings agency given the relative weakness of other bonds.
Missing my point again. I'm not arguing against that. I'm arguing against it being enough of a catalyst for real legislative change. Especially when you consider the way the word trillion is tossed around now. 100 billion is simply not a game changer, IMO. I'm not arguing its insignificant in the least.
But Obamageddon has come!
I hate it when you guys force me into defending Obama, but given the level of the economic crisis that unfolded prior to his taking office and the level of the the current situation your statement is out of context bull .
9/11 can't hold a candle to the depth of the financial crisis.
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