Scenario: Financial system meltdown

This is a discussion on Scenario: Financial system meltdown within the Carry & Defensive Scenarios forums, part of the Defensive Carry Discussions category; Originally Posted by dtox That was my post. I know it sounds unreal, but it's true. You can find lots of info on google about ...

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  1. #31
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    Quote Originally Posted by dtox View Post
    That was my post. I know it sounds unreal, but it's true. You can find lots of info on google about it. Of course, the banks think it's the best thing since sliced bread. We can trust the banks, right? Here's one article I found in a quick search: US suspends mark-to-market rules on bank assets - Business News, Business - The Independent
    OK, I thought our banks ( the url is for the UK, could that be why we differ in views?) were required to use market value after the financial crisis hit the fan. But I'm no expert and could be wrong-very wrong. Suspending market pricing is indeed dumb-- though I guess it can work for some classes of assets. Plenty of paper gets bought and sold at a discount; then the question becomes a few months or years later, what is this stuff worth. The original price paid? The higher face value at maturity? The market value today? Since I know nothing about accounting and finance (and have probably lost more money investing than I ever made-- and by quite some large amount)--- I'll give you a thumb up for raising an important issue and I'll shut up.




    Here's a video that helps explain:
    New Mark-To-Market Rules - Bloomberg - YouTube


    I've got a new signature line, too.[/QUOTE]
    Last edited by Hopyard; September 3rd, 2011 at 11:05 PM. Reason: word "I'll" added for clarity
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  3. #32
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    Goblins, Wizards and Financial Accounting

    DTOX:

    I am a tax, not a financial accountant, but I am familiar with banking. I'll try..........

    First, M-T-M (Mark to Market) applies to a discrete sub category of bank assets - not all of their assets, thus it is not all-encompassing. Secondly, I believe what the FASB is trying to avoid for this discrete category of assets is a situation where markets cease to function, as they did after the Lehman failure. The FASB is trying to skate on some thin ice to be sure, but the rules as they now exist, are pretty inflexible. These changes are to add flexibility:

    The proposed FASB rule, according to a release from the agency, "provides a framework for measuring fair value and a definition of fair value that contemplates an orderly transaction between market participants, not a forced or distressed sale."

    It goes on: "In the current economic crisis, many constituents have requested additional authoritative guidance to assist them in determining whether a market is active or inactive, and whether a transaction is distressed. Proposed FSP FAS 157-e would provide this application guidance."

    In other words, if a bank asserts that the market for a certain asset is "inactive," then it need not write the value of it down to market prices. Critics such as Grayson insist this change would allow banks to continue a fiction of viability when in fact they may be insolvent.
    Second, I read the second article a couple of times, and never ever found the quote you provide. Did I sleep past that?

    I don't trust the press to understand financial accounting rules, or tax rules either, so they do tend to pull out sound bites that sell copy. The Huffington post, which is not on my daily reading list for obvious reasons, is so included. I don't know the other fella cited, not that he isn't quite qualified.

    The long and short of it, banks still record many of their assets at their cost if they can and intend to hold said assets to their maturity. Fixed assets (buildings, etc.) are recorded at cost less depreciation sustained, some assets are value at fair value under the M-T-M.

    If anyone wants more details on the arcane details of financial accounting, but realize the media tends to over-simplify and cry-wolf quite frequently, please ask. I can provide. Might take me a day or two, but I have some CFO type friends that can point me the right direction.

    Really, of more concern to me, is the lousy loan demand banks have, which keeps their margins too low, which weakens them.

    Just my .02

    Hopyard:

    The M-T-M was required a long time before the 2007-2008 financial meltdown - I don't have the exact timeframe, but M-T-M has been around a long time in banking.

    What happened in 2007 and 2008 was that the markets CEASED to function, and assets that had value, did not have a MARKET, and were thus required to be M-T-M of $00. These refinements are an attempt to provide a framework to address that type of problem if I understand what I am reading.

    I can find out more next week when my banking clients and friends are in their offices.

  4. #33
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    Quote Originally Posted by Rock and Glock View Post
    Just a couple of quick comments:

    Banks do not value assets based on what they will be worth in the future, e.g. when the recession ends.

    Second, the 47% while accurate currently, and alarming, is not too far off the mark historically for many years. Look here: The Tax Foundation - Summary of Latest Federal Individual Income Tax Data

    Otherwise, it is still of a concern, and we should be prepared, but I don'y spend too many nights worried about it. I worry more about what I can control.

    This is a good exercise though!
    Thanks. Also, in post 26 Barkn wrote, "But with 48% of Americans on food stamps..." Actually it is 14.1% on food stamps [http://blogs.wsj.com/economics/2011/...food-stamps/]; and that sure isn't surprising with real unemployment/underemployment probably higher than that by a few percent.
    Keep in mind too that lots of WORKING POOR receive food stamps. Anyway, it isn't 48% of the population.
    If the Union is once severed, the line of separation will grow wider and wider, and the controversies which are now debated and settled in the halls of legislation will then be tried in fields of battle and determined by the sword.
    Andrew Jackson

  5. #34
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    Quote Originally Posted by Rock and Glock View Post
    Really, of more concern to me, is the lousy loan demand banks have, which keeps their margins too low, which weakens them.
    Just my .02
    Trying to learn and not to cause a discussion or argument-- I thought that one of our present problems was that banks were loath to loan but that there was demand, which they were not meeting in part due to stringent loan practices so they don't get burned on bad loans. You seem to be saying there is no demand. Are you talking about the mortgage market, or the commercial/small business market or both? And I would appreciate an explanation of what you mean by their margins being too low. The banks are now practically borrowing at 0% . Are you saying the demand for loans is so low that they can not charge a high enough interest rate to have a decent margin/mark up?

    I'm asking because I keep hearing about all the poor business people being unable to get loans. You'd think if they want a loan they'd pay a higher interest rate and the bank margin would be adequate, no?

    I could use some help understanding this stuff.
    If the Union is once severed, the line of separation will grow wider and wider, and the controversies which are now debated and settled in the halls of legislation will then be tried in fields of battle and determined by the sword.
    Andrew Jackson

  6. #35
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    Quote Originally Posted by Hopyard View Post
    Thanks. Also, in post 26 Barkn wrote, "But with 48% of Americans on food stamps..." Actually it is 14.1% on food stamps [http://blogs.wsj.com/economics/2011/...food-stamps/]; and that sure isn't surprising with real unemployment/underemployment probably higher than that by a few percent.
    Keep in mind too that lots of WORKING POOR receive food stamps. Anyway, it isn't 48% of the population.
    Sorry about the mistake... It was 43.6 million people on food stamps, not 48%. BTW... that's about the entire population of Canada. I should have been paying closer attention to what I was typing. But no excuse. However, it was a 1.8% increase over last year or 5.4 million more people.

    WSJ: Some 43 Million Use Food Stamps.
    -Bark'n
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  7. #36
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    Quote Originally Posted by Rock and Glock View Post
    :
    Second, I read the second article a couple of times, and never ever found the quote you provide. Did I sleep past that?
    You have to scroll down. The article's author, Greg Hunter, wrote it in the comment section below the article in response to a reader's question. It was the most succinct and clear quote I could find. Greg Hunter, while not a household name, worked 9 years as a network and investigative correspondent for ABC and CNN.

    I'm definitely not an accountant, but I know that where there's smoke, there's fire. I encourage everyone on here to watch the documentary "Enron: The Smartest Guys in the Room". It is AWESOME and real eye-opener to accounting schemes and arrogance.

    I also encourage everyone to pick up the book "When Money Dies". Amazon.com: When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany (9781586489946): Adam Fergusson: Books
    I'm used to reading some dry history books (I have a degree in History), but this is something I think the average Joe will find riveting. It contains numerous entries from diaries kept by German citizens during the hyperinflationary crisis in the 1920's.

    One story I heard elsewhere that I'll share illustrates how quickly prices were rising in Weimar Germany: When you would go to dinner, you would pay for your meal at the beginning of the night because the price would be higher if you waited to pay after you had eaten. Also, If you ordered the most expensive bottle of wine with your dinner, the next day, the value of the empty glass bottle would be worth more than you had paid for the wine the night before.

    Anyway, back to the scenario!
    Those who do not learn from history are doomed to repeat it.

  8. #37
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    Quote Originally Posted by Bark'n View Post
    Do you have the money it will take to move? What happens if you can't sell your present home? Can you afford to sell it for cents on the dollar? And if you do take a big loss on your present house, will that be enough to buy one elsewhere? And if the Zombie Banks are all collapsing, who's going to finance your mortgage? Mortgage houses like Fannie Mae and Freddie Mac will vaporize this time around. They should have been shut down two years ago, but the government bailed them out. And they held over 10 trillion dollars in toxic mortgages. They won't survive this time.
    Back at the end of 2007, I took a new job that would have involved relocating about 250 miles right before the markets went off of a cliff. We were in a position of marketing a house at below appraised value and could not even get any viewing traffic. Even then, we couldn't (or rather wouldn't) compete with the foreclosures that were listed at deep discounts. Instead, we hauled our travel trailer to the job area and commuted back and forth on the weekends. This went on for three years until I was able to finally find a job (working for the state) that was within a drivable distance from home. We are fortunate to not be in the underwater position that many are in, even if we were to sell our house in this market, though I have no plans to do so. In the mean time, I am sitting tight with my relatively low interest payments and continuing to build equity. I have enough working years left that I am willing to buy one more home with the intent of being able to pay it off. Thankfully I am in a position where I am not under extreme pressure to do anything right now. Either this market situation will get corrected or it won't. If it doesn't, well, planning for the worst is part of why we are all here isn't it?

  9. #38
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    To kind of bring us back on the main point of the OP (if (when?) there is a meltdown of the fonancial system, which results in wide-spread chaos and civil unrest, how do we respond to people who coming knocking (or not knocking?)

    This is, for me, a difficult question moral question that I have been ruminating on for some time. I don't think that I have THE answer, but here is what my thinking has been. First off, I am a Christian--this is the single most important thing in my life (at least I like to think it is). [I know that we don't discuss religion or politics on this forum, and thats ok--I am not trying to start a religious discussion, but I need to clarify where I am coming from philosophically for my post to make any sense].

    So, given where I am coming from in a religious/philosophical position (helping the needy is a good thing), how do I respond when somebody comes knocking on my door?

    I have mentally classified folks into 2 broad categories. 1. Those who wish to take, by whatever means they decide, what I have; and 2. those who come looking for a handout.

    As far as group #1: I have lots of ammo and philosophically have NO problem shooting somebody trying to rustle any of my cows, horses or poultry.

    As far as group #2: I have lots of chores to do on my place, they can work for a meal or two.......
    Last edited by Chaplain Scott; September 4th, 2011 at 08:25 AM. Reason: typo
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  10. #39
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    Quote Originally Posted by Chaplain Scott View Post

    As far as group #1: I have lots of ammo and philosophically have NO problem shooting somebody trying to rustle any of my cows, horses or poultry.

    As far as group #2: I have lots of chores to do on my place, they can work for a meal or two.......

    It sounds like you live in the country (cows, horses & poultry). Those are renewable resources that put you in a much better position to be generous than us suburbanites who will only have what we've stored for a rainy day.

    I'll share a story from the Weimar Germany book I mentioned in my earlier post. At the beginning of the crisis, people in the country made off like bandits. They were bartering a wheelbarrow full of potatoes for a grand piano. There was a tremendous amount of wealth leaving the cities and going to farmhouses in the country.

    Well, this didn't last forever. One person wrote in their diary that their family had taken their horse and buggy into town in the morning on the same day that (unbeknownst to them) a huge angry mob of city-dwellers began walking into the country looking for food. These people weren't looking for handouts, or to do chores. They were taking whatever they wanted- slaughtering pigs and cows where they stood. It was a very scary, tragic scene that unfolded when they made it home.

    Just something to consider.

    I had planned on getting a generator for power interruptions. Who knows if the electric company workers will be willing to stay on the job. Well, after much consideration, I realized that, living in the suburbs, having a running generator and lights would be the equivalent of putting search lights in front of a theater during a movie premiere. "Here I am! I've got stuff you didn't even THINK about having". So, I'm stocking up on rechargeable batteries and a solar-powered battery charger as well as propane and related accessories. I'm looking into a more powerful solar system, but that would be vulnerable as it would need to be outside in order to work. Even if I had a gas generator, it would stop working eventually (either by breaking, being stolen, or running out of fuel) and I'd be back to square 1 anyway. So, I'm planning on roughing it and keeping a low profile, unlike Dilbert, or this guy: southernprepper1's Channel - YouTube

    The gentleman in the video may not be putting his address on national TV, but locals must know where he is, and if any of them see the show, then, well, word will spread like wildfire. There are lots of preppers on youtube, doing videos to help others. I think it's very admirable, but if any locals see it, their cover is blown. People think that just because they own a semi-auto rifle that they will be safe. Not true.

    Fer Fal did a whole article on City vs Country survival and said that the people in the country were being attacked very effectively by ambush when they would enter or leave their house.
    Sometimes criminals just drive up to where you are working, if you are far away from the home, but most of the time they sneak up on you. Criminals are not stupid, and they will spend days checking the place and specially YOUR ROUTINE. For example, if they see that you lock the gate at night, as most do, they will wait for you behind a tree until you are close.
    In Fer Fal's country (Argentina), there is hyperinflation but there is still food. He is talking about criminals with the intent to rob. In a scenario where food is scarce, people will be hungry, angry, and desperate. They will not be looking for a fair fight.
    Those who do not learn from history are doomed to repeat it.

  11. #40
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    A wise man once told me prior to the Y2K scare (yea, remember that one?) that if you store food and I store guns guess who wins? How many of you know that you can point a hamburger at me all day but if I have a gun I'm gonna take it?
    Last edited by smolck; September 4th, 2011 at 01:48 PM.

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    Quote Originally Posted by dtox View Post
    I also encourage everyone to pick up the book "When Money Dies". Amazon.com: When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany (9781586489946): Adam Fergusson: Books
    I'm used to reading some dry history books !
    For a little different viewpoint, try the books by Ha-Joon Chang, "Bad Samaritans" and "23 things they don't tell you about capitalism." And no, these aren't anti-capitalism diatribes. These are both solid economics/political economics (and all economics is political) books for ordinary non-economists. Real research, real data, citations and documentation to support the points made. Chang is a professor of economics @ Cambridge.

    There are plenty of protective mechanism operating against the sort of disaster anticipated by the book you cite.
    If the Union is once severed, the line of separation will grow wider and wider, and the controversies which are now debated and settled in the halls of legislation will then be tried in fields of battle and determined by the sword.
    Andrew Jackson

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    Quote Originally Posted by Chaplain Scott View Post
    To kind of bring us back on the main point of the OP (if (when?) there is a meltdown of the fonancial system, which results in wide-spread chaos and civil unrest, how do we respond to people who coming knocking (or not knocking?)

    This is, for me, a difficult question moral question that I have been ruminating on for some time. I don't think that I have THE answer, but here is what my thinking has been. First off, I am a Christian--this is the single most important thing in my life (at least I like to think it is). [I know that we don't discuss religion or politics on this forum, and thats ok--I am not trying to start a religious discussion, but I need to clarify where I am coming from philosophically for my post to make any sense].

    So, given where I am coming from in a religious/philosophical position (helping the needy is a good thing), how do I respond when somebody comes knocking on my door?

    I have mentally classified folks into 2 broad categories. 1. Those who wish to take, by whatever means they decide, what I have; and 2. those who come looking for a handout.

    As far as group #1: I have lots of ammo and philosophically have NO problem shooting somebody trying to rustle any of my cows, horses or poultry.

    As far as group #2: I have lots of chores to do on my place, they can work for a meal or two.......
    I run into this problem in ordinary times. What to do when folks show for a handout. A quick "triage" has to be accomplished to sort out from each other: 1) the criminals scouting your house and checking you out; 2) the professional moochers; 3) the truly needy. Sometimes it is hard to figure out where one starts and the other ends.

    I try to be charitable, but almost never give money. I will give food. I've even had folks come back to get a couple of bags of food bought specifically for them. I refer people to one or the other of the charities which operate in our community; food pantry, shelters, and if I am uncertain where to send them I may suggest they go to one of the larger churches.

    Now, being nice isn't without some risks. I had a pretty hard time getting rid of one fellow and eventually he got sufficiently hostile that I made it seem dawg was going to get some of him. He then left and never came back.

    There are no good answers to what to do with these situations. I wish our country had pursued and developed a viable "war on poverty" as started by Lyndon Johnson, but we got diverted and our collective attitudes toward the poor have definitely hardened in a very un - pretty way. Meanwhile, I salute the clergy who do remember to feed the hungry and cloth the naked.
    If the Union is once severed, the line of separation will grow wider and wider, and the controversies which are now debated and settled in the halls of legislation will then be tried in fields of battle and determined by the sword.
    Andrew Jackson

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    Quote Originally Posted by Hopyard View Post
    There are plenty of protective mechanism operating against the sort of disaster anticipated by the book you cite.
    The Titanic had plenty of protective mechanisms, too.
    Those who do not learn from history are doomed to repeat it.

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    Quote Originally Posted by dtox View Post
    Click the image for a larger version. This cartoon got me to thinking. Are you ready? And how would you respond to the lady in the Dilbert comic strip when she and her family come knocking?
    Attachment 52982
    It all depends on how they come knocking.
    If they have something I want and are willing to trade for what they want, everything is fine. If they just want to take what I have, there are going to be problems.
    Quote Originally Posted by Tyler11B View Post
    Well Dilbert should probably go ahead and bury her in the back yard
    Depending on how desperate a scenario we are talking about here I was thinking the dog has to eat too.
    Infowars- Proving David Hannum right on a daily basis

  16. #45
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    Quote Originally Posted by dtox View Post
    The Titanic had plenty of protective mechanisms, too.
    So too other ships. Yet plenty of folks happily take their Carnival cruise. It is all about the odds. Some authors make money selling fear.
    If the Union is once severed, the line of separation will grow wider and wider, and the controversies which are now debated and settled in the halls of legislation will then be tried in fields of battle and determined by the sword.
    Andrew Jackson

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