"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey
I believe the stock market will begin to recover when investors see;
1) Obama will move more to the center, provide a stimulus package for the middle class,and delay tax increases until the economy recovers.
2) Mark to Market accounting rules are changed.
Valuations today are compelling. This is why the stock market seems to be stuck in a trading range from around 8000 to north of 9000.
In the mid 1990's we went through the same scare tactics as today relating to the pricing of derivative instruments. The Orange County, California's government bankruptcy was caused by abuses in derivatives. We are going through the same thing today, but on a national scale.
In 2000, former Senator Phil Gramm helped pass the Commodities Futures Modernization Act which deregulated the derivatives market. Thanks, Phil.
In 2003, Warren Buffett said;
"Another problem about derivatives is that they can exacerbate trouble that a corporation has run into for completely unrelated reasons," he wrote in his annual letter to shareholders. "This pile-on effect occurs because many derivatives contracts require that a company suffering a credit downgrade immediately supply collateral to counterparties. Imagine, then, that a company is downgraded because of general adversity and that its derivatives instantly kick in with their requirement, imposing an unexpected and enormous demand for cash collateral on the company. The need to meet this demand can then throw the company into a liquidity crisis that may, in some cases, trigger still more downgrades. It all becomes a spiral that can lead to a corporate meltdown."
If you stop and think about it, a zero coupon Treasury bond can be classified as a derivative instrument. If you bought a zero coupon Treasury bond with a 20 or 30 year maturity date, all you know for sure is how much it was worth when it was born, and how much it is worth when it matures. In the interim, it fluctuates in value according to what is happening with interest rates.
The difference today is zero coupon Treasury bonds have a secondary market in which they trade, but many of the derivative instruments creating havoc do not. Once the Mark to Market accounting rules are changed, the bonds in question can be held on corporate books as investments held to maturity. This will eventually allow the secondary market to open back up creating a viable mechanism for trading.
Let AIG Fail
Bailouts and loans for some businesses are a must, but not for AIG.
Letting AIG fail would not have resulted in the economic collapse that many claim. In past years when an insurance company got in trouble, the company was seized by the state insurance commissioner, and the various businesses of the defunct company were distributed to other insurance companies.
For years the insurance industry boasted to holders of annuities and insurance policies that they always took care of their own. They prided themselves on knowing that when one company went bankrupt, the companies within the industry would pick up the pieces, and assume the existing business lines.
This is what should happened with AIG.
What Should the Punishment be for Corporate Crooks on Wall Street?
You tell me. What punishment should a group of people get for stealing your money, padding their pockets with millions while driving the U.S. economy to the brink of a depression.
In 2004, the Chinese had a great idea!
Beijing cracks down on financial crime ahead of big IPOs
Updated: 9:44 a.m. ET Sept. 14, 2004 BEIJING - China executed four people, including employees of two of its Big Four state banks, for fraud totaling $15 million, the Xinhua state news agency said on Tuesday, amidst a high-profile campaign against financial crime.
The executions come after a string of arrests in white-collar crime as China prepares to sell shares in its big banks.
The latest cases involved China Construction Bank, due to raise up to $10 billion in an IPO next year, and Bank of China — which is moving towards an IPO worth up to $4 billion.
Wang Liming, a former accounting officer at China Construction Bank in the central province of Henan, worked with others to steal 20 million yuan ($2.4 million) from the bank using fake papers, Xinhua said in a report on its Web site. An accomplice, Miao Ping, was also executed.
Another Construction Bank employee, Wang Xiang, was executed for taking 20 million yuan from the bank in an unrelated case.
Liang Shihan, an official at the Bank of China's branch in the southern city of Zhuhai, helped cheat his bank out of $10.3 million, Xinhua said.
Xinhua did not say how the four were killed. China, which executes more criminals than the rest of the world combined, usually puts inmates to death with a gunshot to the back of the head, but has recently experimented with lethal injections.
The debt-laden state banks have been involved in other fraud scandals as Beijing tries to clean them up ahead of 2007, when the sector opens fully to foreign rivals as part of pledges made to the World Trade Organization.
China arrested Liu Jinbao, former chief of the Bank of China's Hong Kong branch, for corruption in February. Last December, Wang Xuebing, former head of Construction Bank, was sentenced to 12 years in prison for taking bribes.
The government injected a combined $45 billion into Construction Bank and Bank of China last year as part of a pilot scheme to reform the sector and prepare for the IPOs.
The precise number of people executed in China is a secret. Reports range from 5,000 to 10,000 a year, many for murder, but also for corruption and crimes as minor as bottom-pinching.
Legal experts have called for a "kill fewer, kill carefully" policy for non-violent crimes.
So, how did we get in this mess in the first place? Here is an interesting article- Globalresearch.
