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Showing posts with label economic crisis world wide. Show all posts
Showing posts with label economic crisis world wide. Show all posts

Thursday, June 19, 2014

Argentina vs Vulture Hedge Funds: Who's the Bad Guy?


Fernando,
Your video on the ruling against Argentina was interesting because it passed moral judgment on hedge funds who buy bad debt in the hope that they can collect more money than they paid for that debt when they bought it.
I don't know all the details and motivations of the actors who are maneuvering to either not pay the loans or to make some "unreasonable" profit from their investment in the debt, but most of these things do not involve innocent people on either side.  However,

Let’s assume you borrow $100 from a bank.
And then you mismanage your finances or something happens and you cannot meet the schedule for repaying the bank, and the bank agrees to settle the debt if you will repay $35.
That means that the bank has lost $65 of its depositors’ money.
Those depositors have to be repaid by the bank or else the bank itself could default, go bankrupt, and leave all of its investors or depositors with monetary losses just because you did not pay back all of the money they had loaned to you through the bank.  That would be the equivalent of the people who had invested their money with the bank giving you a gift.
Of course, there is the fallback for the bank that the national government or whoever will insure them against certain types of losses, but if the any government is covering the risk then it means the government (in the case of Argentina, this means either the International Monetary Fund or other national governments which also are the ones who fund the IMF) are printing more money to cover your bad debt.  You know what the effect of this is:
·         Inflation downstream due to the increase of money in circulation.
·         Encouraging you and others to borrow money and then default on paying it back.  Creating a vicious circle.
Now, suppose that your bank had not held onto your loan, but sold it upstream to a larger bank or a hedge fund.  That larger bank or hedge fund has now made an investment in your loan using money that their customers entrusted to them.  Money does not come from “nowhere.”
Whoever owns your debt when you default is still going to lose money if you do not pay it back—and their depositors or their government or whoever insures the bank against such losses are going to have to absorb the loss because you did not honor the contract that you signed when you borrowed the money.
So—who is exploiting the system more—You who borrowed the money, and either through mismanagement or misfortune did not pay it back?  Or whoever is left holding your debt when you default on it?
Whether it is the hometown bank or a Wall Street bank or a hedge fund, they only loaned you the money or bought the note in the expectation that you would repay what you took.
Of course, their profit on the loan would be limited to the interest that you originally agreed to pay if only you had repaid the loan.
In the event it looks as if you will not be able to repay the loan, and your bank or whoever now holds the note does not want to take a total loss on it, perhaps there is somebody else who agrees to take the risk that you will not repay any of the loan, and who buys the loan from whoever holds it at this time for a very small amount of what you owe.  Whoever does buy such risky loans is betting that they can eventually recover more money than they invested (which is what you are trying to do if you do not repay any part of the loan).  Of course they want to maximize the amount they can recover—If they are in the business of buying bad debt, they lose money on some of them and make money on others—All with the aim of making more money than they lose.  Is that any more of a “vulture” behavior than your behavior when you fail to pay back the loan?  And especially if you perhaps never borrowed the money with the good faith intent to pay it back?
Actually, in this situation, one could wonder why anyone would lend money to those who are potentially at greatest risk of mismanaging their finances, or whose integrity is such that they are likely to do their best to avoid paying back their lenders, or who keep going back to get other governments and international financial institutions to cover their defaults.  If other countries and their financial institutions—private or public—stop lending Argentina money, what will that do to the quality of life for the citizens of that country?

This is interesting in part because it reflects what happened in the U. S. that brought on the housing bubble and financial collapse.


The government adopted a policy that required banks to ease lending to people who wanted to buy homes with easy terms that they could not actually pay back when repayment came due.  The borrowers were buying much more expensive houses than they could afford to pay for or continue to own, many borrowers were buying houses to flip quickly and use the money to buy one or two other houses that they also planned to flip for a profit, and mortgage lenders were processing these loans out of greed and under duress from the government who told them they had to make the loans [Oh, never mind, Freddie and Ginny are there to back up any losses].
Then, as the risky mortgages were repackaged and sold up the line to larger and larger banks and financial institutions (who hoped to get paid back, but who also bought insurance from AIG and others), the risk became owned by “Wall Street.”  In turn, Wall Street sold at least part of the debt overseas (Iceland, Ireland, and elsewhere) as part of managing its own risk.
I am surprised that nobody has talked about what would have happened if “Wall Street” had refused to buy the repackaged mortgages that were being sold up the line to them—But the government would have and might have exerted pressure on them to buy the debt rather than leave it at the lower levels in the financial pyramid:  In order to avoid another fiasco like the savings and loan collapse that happened in the 1980’s from just such a policy, and with a view that the level of risk would always be something that Freddie and Ginny would be able to cover!
However, recently I have heard some words from the Clintons about how the housing bubble originated on Main Street and not on Wall Street.  But this comes 20 years too late, since the whole policy originated as a Federal policy under Clinton and was allowed to continue right up until it imploded in 2007-2009.
-Larry


Hey Larry, good to hear from you, thanks for your email.
I understand what you say about paying back the money that you borrowed but I think there should be a limit to whats reasonable and whats not. It’s one thing to pay back your debt, its another when someone buys your debt with the only purpose in mind being to pick you clean for all you’ve got, and making 100 times what they paid for your debt a couple years later because they know they have the law in their pockets.
Expecting to get paid back is reasonable. Expecting to make a profit is reasonable, but expecting to get 100 or 1000 times as much money as you paid for is well beyond reasonable profit, especially when it has no explanation, no excuse other than you coming up with that number. Over 60% of Argentina lenders are getting paid back at a 20% rate for their bonds, some of the best rates in the market, but a smaller numbers of people, these vulture hedge funds, they are not interested in this because they knew they could get 1000% more, like they did in previous cases with Peru and Congo, because they own the courts.

Now dont get me wrong, no one here is innocent. I sure do know that very well. The argentine government is a bunch of murdering, corrupt scumbags of the worst kind. I just happen to think that the murdering scumbag that ruins the lives of 7 billion people is worse that the ones that ruin the lives of 40 million. Of course none of them are innocent in any way but I would get rid of the one that causes the most harm if I could only chose one. :-)
I think that the problem is that money is actually coming out of “nowhere.” At least when it comes to banks.
You mention banks or funds loaning money, did you know that banks actually loan money that doesnt exist, not even in digital form? A bank only needs about 1.000.000 real USD to be able to go out there and loan us poor suckers 40.000.000. The Fed allows that.

You see, when we no longer have money attached to something real like the case of the gold standard, big fish can start creating money out of thin air. That's the real problem here because you and me, we cant do that, we need real labor to create wealth, while the big fish just punches numbers in a computer, effectively enslaving us all.
Ok, I ranted enough, take care and thanks for sharing your thoughts!

FerFAL

 





Wednesday, June 18, 2014

Argentina (and YOU!) vs Vulture Hedge Funds


Monday, June 2, 2014

4 Things Doom-and-Gloomers got Totally Wrong



This article from the marketwatch.com  is about failed doom and gloom predictions.


Its well worth reading and although some of the content should be taken with a grain of salt (or two) it is true that some people just love fear mongering. The article mentions something I’ve written about many times before: Fear sells.

1) The economy and stock market will crash.
Even though there was clearly a serious economic crisis, the U.S. economy didn’t collapse as many predicted or some maybe even hoped for. Can it happen? Lots of things can happen eventually. Is it likely? Nope. The economy seems to collapse in Argentina every decade or so, other developing countries have similar problems, but its not that likely to see the same thing happen in the world’s most powerful country and anyone that spends his entire adult life predicting the end of the world every five years due to an American financial meltdown is either a lunatic or an unscrupulous money grabber. 

2)The Euro will Collapse, along with the EU.
Again, can it happen? Sure, and some politicians grab plenty of votes with their anti EU stance, along with their poorly hidden fascist and racist agenda. Likely? No. In a world with countries such as USA, China and Russia, European countries can only be a strong enough force if they stay together. The EU and the Euro may not be perfect but it does make those within the union stronger than they would be standing alone.  Countries that needed help such as Ireland are slowly getting back on their feet and the Euro isn’t likely to go away any time soon.

3) Gold will hit $5,000 an ounce.
As gold and silver “lose” value those that “invested” in it speculating are going nuts. “I’m losing money!”. Well, it depends. The gold and silver you have are still there, and if there is an economic collapse, even a big scare or crisis the price will no doubt go up, but the virtue of precious metals isn’t making people rich but somewhat retaining its purchasing power and value as centuries go by. The only difference between silver eagles at 40 bucks and the same coin at $20 should be that you can now buy two of them a month if that was the budget you had in mind for it. 

4) The U.S. will suffer Zimbabwe-like hyperinflation.
Given that U.S. is nothing like Zimbabwe (or Argentina for that matter) its unlikely that you’ll wake up one day and see prices triple, the USD losing 70% of its value over night. Having said that I do believe that inflation is very real, and while a sudden collapse isn’t likely because hyperinflation isn’t likely either, we are seeing inflation rise and some very clear attempts made to hide it. What this basically means is that life gets more expensive, the same amount of labor gets you less goods and services and as time goes by most people are forced to live in slightly worse conditions. This slow decay of quality of living does exist and we can see it, but it sure isn’t the hyperinflation (or deflation) many doom worshiping prophets have predicted. 

People, real-world survivalism isn’t about fear mongering. Having gone through what lots of self-claimed experts seem to fear (or maybe look forward to) and only guess or speculate about, I can tell you that so as to get by when things get that bad you don’t need to be some pessimistic doomer. Its actually the other way around, you need to be creative, resourceful and a positive thinker in general. You need to stay optimistic because if not you simply wont make it emotionally speaking when everything is in fact going to hell all around you. You wont make it in terms of financial survival when job unemployment sky rockets, inflation is killing you day by day and you need to make it work, may that be at your place or employment or in the business you run yourself.  Its not about seeing the glass of water half full, its about having less than 1/10 of the glass full and still say “Hey, that’s not bad, its all I need. I’ll make it work!”.

FerFAL

Monday, May 19, 2014

"Shrinkflation" in USA


 
Message:
Thought you might be interested in this. You predicted this would
happen after seeing it in Argentina. Interesting that mainstream media
in USA is now admitting it.
Before Collapse (or maybe After?)


Hello!
Indeed, this is nothing more than poorly hidden inflation. This link has a short video that explains whats going on very well and it has an interesting comment about holes that I never noticed before (you have to watch it to understand)

At the end of the day, you’re getting less stuff, but paying the same or more. That’s inflation. Sure, banks and gov. have ways of cooking the books and finding ways around the real figures. They will do anything they can to hide inflation as much as possible.
 
What’s going on
*Units are getting smaller. The bottles that used to be 1L are 750 or 800 ml instead. Things just keep shrinking. Sometimes the bottles dont look that different but a curve is there where there was none before, or the bottle seems more thin, with a new curved more organic looking design that is actually smaller than the previous one.

*A common trick is to leave the can or pouch the same, and just reduce the amount of product inside. Unless you keep an eye on the net weight, chances are you wont even notice it. Back in Argentina it got to a point where you would open a can of tuna and half the thing was empty!
*Increasing the amount of water or oil in different products. Tuna now is full of cheaper oil, the net weight being reduced. Meat is filled up with water. Each ounce of water hidden inside the meat saves the company money. Of course, once you cook it you see it shrink more and more each passing year.
*Reducing the quality. Food items and house cleaning products in general are made with cheaper ingredients so as to cut costs. More filler is used in microwave meals, soup cans and sauces. Chocolate has less actual chocolate in it.

What You can do
*Be informed. Read the labels and keep track of the actual amount of content so as to know if you are being ripped off.
*Don’t be afraid to try other brands. As quality becomes worse, you may want to change brands rather than keep paying premium for brands that are no longer delivering the goods.
*Stock up. When you find quality and you come across it during offers, buy extra and stock up. This both saves you money and ensures you get the better quality product.

FerFAL