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Old July 9th, 2008, 11:18 PM
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Default Oil Speculaters, the root of all evil?

http://www.msnbc.msn.com/id/25612414/

I am far from an expert regarding economics, but I got the letter this article referred to earlier today and it really got me to thinking. Is this really the cause of our skyrocketing oil prices? I really want to know what the Cruisemates Braintrust thinks about this. I think we have some really smart folks that hang out around here and would love it if some of you would share your thoughts on this issue.
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Old July 10th, 2008, 12:26 AM
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Speculators can trade contracts all they want; still, in the end, someone has to take delivery of the oil. As long as the recipient is willing to pay the price, the market is driven by supply and demand. However, if the end user decides the price has been bid too high and decides to refuse to pay, then you end up like the Hunt Brothers where speculators got their comeuppance [sp]. I have a friend who got caught up in the Silver speculation and ended up taking delivery and storing silver for decades until the price recovered. I don't know many oil speculators that want to take delivery and store millions of barrels of oil.

So, as long as refiners are willing to pay for the oil, the speculators are allowed to drive up the price. Once, the refiners take a stand and say that they won't take delivery at the current price, the market can drop like a rock. Will it ever drop very far; not at the current worldwide demand versus supply. It is the long term fear of shortages that is causing all the short term speculation. Until the long term problem is addressed (2012-2030+), speculators can always prosper by spikes in the short term markets.

Me, I think demand from China and India will dwarf any conservation in North America and Europe. Therefore, without additional oil drilling, and use of more Nuclear plants for electricity, we are going to be perennial subject to speculators and will have a steady increase in oil costs. Wind, wave, and solar plants can always help but I think (just speculating here) that Nuclear plants still put out electricity at lower cost given the economies of scale.

Just my two yen,
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Old July 10th, 2008, 12:56 AM
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Default Oil Speculators the Root of all Evil

Marc, you and I are not friends, but that is what my DH has been saying for years.

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Old July 10th, 2008, 02:17 AM
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I also agree with Marc. Using our own abundant natural resourses of oil, shale oil and coal as well as building more nuclear plants will give jobs to millions of Americans and make the dollar strong again. Unless our dim witted congressmen who proclaim that more drilling will not help us can find some way to make automobiles run on water, I can't think of anything better.
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Old July 10th, 2008, 03:10 AM
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Light sweet crude oil is just a commodity, like anything else. It's price is based upon supply vs demand.

Commodities can be extremely volatile, which is part of their charm. Investing in them, you can make (or lose.....) a great deal of money in a very short period of time. Days, as opposed to years.

Stay long on oil for right now; but be ready to go short on a moment's notice. It's great being able to make money on the way up -- and on the way down!
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Old July 10th, 2008, 03:29 AM
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Actually I think the number one problem is the "addiction to oil". Years back it made no difference because the largest customers for the product was American citizens.

The tremendous growth in demand from China, where no one used to own vehicles, will continue to grow at exponential rates. And they are willing to pay big bucks for the oil. And they can easily pay the price because their pockets are overflowing with money from loans they've made to the US.

In Alberta where I live we have tremendous oil and gas reserves. In fact if I remember the figures correctly we supply about 1/3 of the US consumption. The "oil gurus" here also just recently released a study saying we have approx. a 400 year supply.

Yet.... where the oil comes from, we're presently paying the equivelant of about $5.20 /gallon. In most European countries it was in that price range a decade ago. Today it's more like $9/gal. So the US citizens have been spoiled by low prices.

Those low prices are a result of the gov't not charging the high taxes on oil like Canadian and European gov'ts do.

But in place of those higher taxes, rather than to the American people saying we need more money to spend, they're borrowing the money from places like China.

In essence they've made the people bidding against them for oil, willing and able to bid more than they can, because they now have all the US dollars to allow it.

As for the speculartors. They have an affect as well. However they'd be easily taken care of it oil was not allowed to be traded as a futures at all, or at the very least no oil commodity trading using margins. If they had to pay full price for the futures they were buying, there would be far fewer players in the market.

I'm not a geolist, but have several friends who are, and are in the business and have done very well. They do question those who insist there are massive oil reserves off the coasts of the USA, when they can't no for sure, because they've never even been allowed to explore for it.
I'm told those who say the oil is there are guessing.

The long term solution is going to have to be to "kick the habit", because unless China and India and other countries with ever growing demand disappear the cost is going to continue to rise.
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Old July 10th, 2008, 08:51 AM
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I'm not an economists, (I did however, stay in a Holiday Inn Express last night. ) but I too agree with Marc. Until we get our legislators in Washington D.C. to work for us, the people, instead of concentrating on bringing down each other, and each others party, we'll continue paying these prices for energy. Yes, the world demand for oil has continued to rise, and yes, it's a game of supply and demand, but we have a tremendous supply at our feet, if only the government would step out of the way and let us tap it. At least, that should help while we develop new sources of energy, and build nuclear plants.

Ken
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Old July 10th, 2008, 11:21 AM
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I agree with most of what has been said. We need to develop cars that get better gas mileage, the car market will address that issue. Over the next three to five few years you will see many new gas & Electric cars as well as smaller cars. In the mean time I think Washington should allow us to drill for oil. The US has the oil we need but have not been allowed to drill for to many years. China is allowed to drill sixty miles off the coast of Florida, I think we should. If they allow drilling the gas bubble will pop. Gas will not return to $2. a gallon but stay around $3 , and that will be high enough to drive the improvements in cars and technology we need. The current pricing will destroy our ecomony, and impact all industries. Just my opinion. Mike
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Old July 10th, 2008, 11:48 AM
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Oil is a tricky subject most people think of Organization of the Petroleum Exporting Countries (OPEC) made up of Iran, Iraq, Kuwait, Qatar, Saudi Arabia, the United Arab Emirates, Libya, Algeria, Nigeria, Angola, Venezuela and Ecuador. To which I say what about Russia???? What About what happened to Yukos? From the New York Times
"Yukos was Russia's largest private company, worth more than $40 billion before tax authorities seized its largest production asset in 2004 in a case analysts linked to the opposition political activities of its founder, Mikhail B. Khodorkovsky."
This company supplied China with oil once they were disbanded this deceased the supply of oil but the demand for oil in China is increasing. The oil Speculaters are a side effect for increasing demand with deceasing supply they are not the cause of the problem. The Futures Market is a risky place to invest your money. You may end up taking delivery of live cattle then what do you do?
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Old July 10th, 2008, 12:52 PM
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What goes up, eventually goes down. Basic economics of the supply/demand curve. Yes, Alberta is rich in oil and I have been buying shares of their oil trusts since they now let Americans participate in their dividend reinvestment plans. It sure is nice to see that divedend rolled over every month, in my brokerage account, for more shares of stock as a unit holder. Thank you, Canada!
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Old July 10th, 2008, 03:21 PM
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End of story, Marc summed it all up, the reasons why gas prices are so high. Well written Marc.

Key point he made not picked up on

"demand from China and India will dwarf any conservation in North America and Europe".

'They' will pay TOP DOLLAR per barrel to feed their industry, we are then in catch up and when we buy it it is at a premium.

The 'small' thing that bothers me is, the UK and USA troops are out there defending and protecting this product and the people that produce it. The people we are protecting then drive the availability, ie how much they take out the ground..... and then others not involved and 'quoted above' then drive the price up and with no involvement in helping protect it.

But at what price for us??? Sorry, but is someone taking the piss here, we are paying in more ways than one? And of one of those you cant place a price on,,life
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Old July 10th, 2008, 03:26 PM
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Quote:
Originally Posted by DayvidB
End of story, Marc summed it all up, the reasons why gas prices are so high. Well written Marc.

Key point he made not picked up on

"demand from China and India will dwarf any conservation in North America and Europe".

'They' will pay TOP DOLLAR per barrel to feed their industry, we are then in catch up and when we buy it it is at a premium.

The 'small' thing that bothers me is, the UK and USA troops are out there defending and protecting this product. The people we are protecting then drive the availability, ie how much they take out the ground and then others not involved 'quoted above' then drive the price with no involvement in helping protect it.

But at what price for us??? Sorry but is someone taking the piss here, we are paying in more way then one?
Don't forget Russia, everyone always forgets Russia.
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Old July 10th, 2008, 03:32 PM
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Russia can supply itself and others with their own natural reseves of oil and gas, they are an exporter as far as I am aware
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Old July 10th, 2008, 08:24 PM
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Quote:
Originally Posted by Paul B
I also agree with Marc. Using our own abundant natural resourses of oil, shale oil and coal as well as building more nuclear plants will give jobs to millions of Americans and make the dollar strong again. Unless our dim witted congressmen who proclaim that more drilling will not help us can find some way to make automobiles run on water, I can't think of anything better.
True brother, true!
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Old July 10th, 2008, 09:03 PM
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Quote:
Originally Posted by TravelMike
I agree with most of what has been said. We need to develop cars that get better gas mileage, the car market will address that issue. Over the next three to five few years you will see many new gas & Electric cars as well as smaller cars. In the mean time I think Washington should allow us to drill for oil. The US has the oil we need but have not been allowed to drill for to many years. China is allowed to drill sixty miles off the coast of Florida, I think we should. If they allow drilling the gas bubble will pop. Gas will not return to $2. a gallon but stay around $3 , and that will be high enough to drive the improvements in cars and technology we need. The current pricing will destroy our ecomony, and impact all industries. Just my opinion. Mike
I'm a biker. Have been riding motorized two-wheelers since I was 13, and if people got around on scooters here like they do in most other places, we would not only use less oil, but there would be less congestion and road rage. It's easy to forget that big SUV with the black windows has a human being inside, but when you're looking right at him/her, it's different.
I will admit to being addicted, it's just that my addiction is cheap even if it is somewhat dangerous.
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Old July 11th, 2008, 12:07 AM
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I wish we had a train system like italy has instead of driving or flying we could take a high speed train.
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Old July 11th, 2008, 05:17 AM
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Quote:
Originally Posted by katlady
I wish we had a train system like italy has instead of driving or flying we could take a high speed train.
kat, how much did you ride the trains? Did they go all the way to your destination without going on strike? Italian trains are infamous for one hour strikes where the trains just stop in their tracks.

Italy is the size of Arizona; no great distances to fly over. Still, there is a very large market in Italy for domestic flgihts. We flew Rome to Venice a few years back; not too bad. Rome to Milan is one of the heaviest travelled air routes in the world. You would think that more people would take the trains; unfortunately they are not that fast, not that cheap, and not that reliable.
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Old July 11th, 2008, 10:51 AM
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Quote:
Originally Posted by Marc
Quote:
Originally Posted by katlady
I wish we had a train system like italy has instead of driving or flying we could take a high speed train.
kat, how much did you ride the trains? Did they go all the way to your destination without going on strike? Italian trains are infamous for one hour strikes where the trains just stop in their tracks.I agree with this. There was a 4 hour strike in Livorno and we have planned to take the train to Pisa but ended up with an expensive shore x instead.
Italy is the size of Arizona; no great distances to fly over. Still, there is a very large market in Italy for domestic flgihts. We flew Rome to Venice a few years back; not too bad. We took the train from Rome to Venice it was an early morning train 6:50AM it was on time and we arrived in Venice at 11AM the seats were comfortable. I would love a Sacramento to Los Angeles train. it's a long drive however, waiting in TSA security for an airplane means the flight is almost as long as driving there. Rome to Milan is one of the heaviest travelled air routes in the world. You would think that more people would take the trains; unfortunately they are not that fast, not that cheap, and not that reliable. Here is where I disagree with you. The train from Rome to Venice was cheaper then a flight. If you include the time spent waiting in check on and security lines the Eurostar trains are pretty quick (a little over 4 hours). Plus, you get the add bonus of seeing the countryside which in Italy was beautiful. I agree they aren't reliable because of the strike situation.
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Old July 11th, 2008, 11:54 AM
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Quote:
Originally Posted by skymaster
we have a tremendous supply at our feet, if only the government would step out of the way and let us tap it. At least, that should help while we develop new sources of energy, and build nuclear plants.

Ken
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I agree generally with the substance of this string, but I want to point out what I think is a clear fallacy in Ken's reasoning above. Assuming tapping our reserves could bring "instant gratification" in the form of a short-term solution (apparently it can't: it would take years for the oil from such ventures to actually flow), the assumption that a temporary fix would spur work on long-term solutions is very doubtful. History tells us that we are a greedy, short-sighted people that almost never adopt a long-term policy. Witness Social Security, Medicare, maintaining a strong military, etc. We want instant fixes. When we get them we move on to either the next pressing problem or to a false sense of security until we have to go into crisis mode again. There is no reason to assume that Ken's linking of a short term easing of the oil problem with an accelerated effort for conservation/alternative methods would ever come to pass. We'd just heave a sigh of relief and return to consumption as usual.

That's why Tom Friedman has got it right, in my opinion: far from working to cut back the price of oil, we should be establishing a $4.50 or $5.00 FLOOR on gas prices to discourage consumption. Hardship? You bet. Long term gain? Yes.
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Old July 11th, 2008, 12:44 PM
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Default Re: Oil Speculaters, the root of all evil?

I'm an oil and gas auditor and fraud examiner when not playing with the fishies. Yes, I know ways the system can be gamed and you can think back to Enron how long a gamed system can go on before it crashes. That said, I am afraid it is not gaming, but terrorism that you can thank for how oil got to where it is. At least my 13 year old will tell you that. He points to the high return on investment that came from the Twin Towers.
If oil lowers and the mideast looses money, expect a boom here and a boom there to goose the coffers.

Quote:
Originally Posted by beenie weenie
http://www.msnbc.msn.com/id/25612414/

I am far from an expert regarding economics, but I got the letter this article referred to earlier today and it really got me to thinking. Is this really the cause of our skyrocketing oil prices? I really want to know what the Cruisemates Braintrust thinks about this. I think we have some really smart folks that hang out around here and would love it if some of you would share your thoughts on this issue.
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Old July 11th, 2008, 12:49 PM
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Marc:

Per Pickens the future is wind. I agree - flood the midwest with turbines and transmission infrastructure. Nukes have vendor technology chokepoints where inadequate competition will allow massive cost escalation. Windmills are more lowtech and can be commoditized.

Simply put - blow the Arabs away with windpower!


Quote:
Originally Posted by Marc
Speculators can trade contracts all they want; still, in the end, someone has to take delivery of the oil. As long as the recipient is willing to pay the price, the market is driven by supply and demand. However, if the end user decides the price has been bid too high and decides to refuse to pay, then you end up like the Hunt Brothers where speculators got their comeuppance [sp]. I have a friend who got caught up in the Silver speculation and ended up taking delivery and storing silver for decades until the price recovered. I don't know many oil speculators that want to take delivery and store millions of barrels of oil.

So, as long as refiners are willing to pay for the oil, the speculators are allowed to drive up the price. Once, the refiners take a stand and say that they won't take delivery at the current price, the market can drop like a rock. Will it ever drop very far; not at the current worldwide demand versus supply. It is the long term fear of shortages that is causing all the short term speculation. Until the long term problem is addressed (2012-2030+), speculators can always prosper by spikes in the short term markets.

Me, I think demand from China and India will dwarf any conservation in North America and Europe. Therefore, without additional oil drilling, and use of more Nuclear plants for electricity, we are going to be perennial subject to speculators and will have a steady increase in oil costs. Wind, wave, and solar plants can always help but I think (just speculating here) that Nuclear plants still put out electricity at lower cost given the economies of scale.

Just my two yen,
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Old July 11th, 2008, 03:52 PM
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I think speculators play a role in higher prices but Marc has it exactly right -- it's a matter of supply and demand, and right now the demand is increasing dramatically due to the expanding economies of China and India.

Here in the U.S., we have managed to go for almost forty years now with no decent energy policy and finally the chickens are coming home to roost.

Wind is certainly part of the answer, a piece of the puzzle, but it is hardly the whole answer.

The solution will require a full court press on three fronts, all at once:

Drill our domestic reserves now.

Develop alternative energy including, wind solar, nuclear.

Conserve what we have.

Above all -- declare a national emergency and a goal of energy independence by 2018 -- just as we declared the goal of putting man on the moon in a decade.

This policy will greatly enhance our national security, allow us to tell the Arab sheiks and wacko dictators to pound sand, reduce the chance of war, create new industries and millions of new jobs, and go a long way toward solving our economic woes.

Of course it would require politicians with backbone to stand up to both ExxonMobil and the Sierra Club. If they don't have the guts, we should fire them and get new ones who do.

Here's a link to a piece I wrote for the Denver post on this subject:

http://www.denverpost.com/voices/ci_9755670
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Old July 11th, 2008, 04:48 PM
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R&S:

Wind is not the complete answer but the part of it we must jump on stat. We are asking for 10% renewable in Texas when we should raise the bar to 40% and accelerate the timeline at a Manhattan Project rate. I should be able to drive from Texas to Canada and see row after row after row of American made turbines spinning us money.


Here in the U.S., we have managed to go for almost forty years now with no decent energy policy and finally the chickens are coming home to roost.

Wind is certainly part of the answer, a piece of the puzzle, but it is hardly the whole answer.

The solution will require a full court press on three fronts, all at once:

Drill our domestic reserves now.

Develop alternative energy including, wind solar, nuclear.

Conserve what we have.

Above all -- declare a national emergency and a goal of energy independence by 2018 -- just as we declared the goal of putting man on the moon in a decade.

This policy will greatly enhance our national security, allow us to tell the Arab sheiks and wacko dictators to pound sand, reduce the chance of war, create new industries and millions of new jobs, and go a long way toward solving our economic woes.

Of course it would require politicians with backbone to stand up to both ExxonMobil and the Sierra Club. If they don't have the guts, we should fire them and get new ones who do.

Here's a link to a piece I wrote for the Denver post on this subject:

http://www.denverpost.com/voices/ci_9755670[/quote]
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  #24 (permalink)  
Old July 11th, 2008, 06:08 PM
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Speculators do play a part in the price of oil. Instances such as the price rising over $40/barrel in less than six months is an example of speculation having an impact on the market. Demand didn't increase 40% in six months.

However futures trading does not account for the final price of a barrel of oil. The lack of an energy policy has the greatest effect on the price of a barrel of oil. The greater the demand the higher the price. Oil! It's not just for North America anymore.

One good thing about "speculation" is that speculation about the Bakken Shale range in North Dakota has offset any of my losses in the stock market this year.

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Mike
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Old July 12th, 2008, 02:18 AM
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Default Its Begining to feel alot like christmas...

Well, actually October 1929

"U.S. banking regulators swooped in to seize mortgage lender IndyMac Bancorp Inc on Friday after withdrawals by panicked depositors led to the third-largest banking failure in U.S. history."

Hmmm....this ain't your father's little recession?
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Old July 12th, 2008, 03:01 AM
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So how many banks have failed this year? FIVE including IndyMac. The first four were all taken over by other institutions. It means nothing to say that IndyMac was largest in history as interstate banking is a recent phenomenom and banks did not have the size of assets as they do today.

Three banks failed in 2007; four in 2004; three in 2003; TWELVE in 2002; and four in 2001. Even if it gets worse, it is still not "historical." Between 1980 and 1994 over 1600 banks were closed. During the S&L crisis between 1986 and 1995, 1,043 institutions were closed. The S&L crisis cost taxpayers $124,000,000,000. It cost the industry another $29B. The estimate I saw today was that IndyMac would cost the FDIC between $4B and $8B. Remember that FDIC is supported by industry contributions.

Getting back to IndyMac...it looks like it was a letter from Sen Schumer to the Office for Thrift Supervision and FDIC that started a run on the bank. They paid out over $1.3B to scared depositors because of this letter. Others may now follow in IndyMac's footsteps. The FDIC was created to avoid panics; it doesn't help when a Senator goes and creates a panic on his own.
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Old July 12th, 2008, 10:16 AM
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Marc:

In the audit world we look for red flags. Where there is smoke there is fire. The red flags are everywhere and the smoke is getting thicker. Something wicked this way comes. About 25% of us sense it per the polls. This is not you father's recession, but a critter most of your generation has never seen before - the kind that destroys the value of assets and has long legs. This Godzilla hit Tokyo and it thrives on aging populations, income disparities, and overinflated assets. There has been no real market capitulation or panic - hence we are not near the bottom of this cycle and recovery is not just around the corner. Most people over here are not better off than they were 7 years ago, just more in debt, more worried about their employment, and growing more uneasy by the hour. IMHO.

Quote:
Originally Posted by Marc
So how many banks have failed this year? FIVE including IndyMac. The first four were all taken over by other institutions. It means nothing to say that IndyMac was largest in history as interstate banking is a recent phenomenom and banks did not have the size of assets as they do today.

Three banks failed in 2007; four in 2004; three in 2003; TWELVE in 2002; and four in 2001. Even if it gets worse, it is still not "historical." Between 1980 and 1994 over 1600 banks were closed. During the S&L crisis between 1986 and 1995, 1,043 institutions were closed. The S&L crisis cost taxpayers $124,000,000,000. It cost the industry another $29B. The estimate I saw today was that IndyMac would cost the FDIC between $4B and $8B. Remember that FDIC is supported by industry contributions.

Getting back to IndyMac...it looks like it was a letter from Sen Schumer to the Office for Thrift Supervision and FDIC that started a run on the bank. They paid out over $1.3B to scared depositors because of this letter. Others may now follow in IndyMac's footsteps. The FDIC was created to avoid panics; it doesn't help when a Senator goes and creates a panic on his own.
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Old July 12th, 2008, 02:06 PM
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Divemaster, you are an incurable pessimist. It is that very pessimism which is driving much of the current irrational economic woe.
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Old July 12th, 2008, 04:59 PM
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"Here in the U.S., we have managed to go for almost forty years now with no decent energy policy and finally the chickens are coming home to roost
"
Agreed

But the real price we pay for gas today is actually home grown, in the collapse of the banking / mortgage market or industry. That collapse will affect everything we have to pay for, gas, food, electricity, tax etc etc

Invisible people speculating, that then becomes a reality for the real people.

So this PROBLEM is closer to home than some may think,,we brought it on ourselves, lending money to those in either mortgage or credit card,,,that could never realistically repay it.......There is your or our problem for the position we "normos" now FIND OURSELVES IN TODAY.

Its,,,home grown, by giving money to people that should never have been given credit in the first place...simple. The banks and credit card companies ***edited for inappropriate language*** **** themselves when they see what they have done,,,we pay
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Old July 12th, 2008, 07:47 PM
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The oil issue has this funny twist on the airline issue......

"In an orchestrated letter signed by 12 airline CEOs, the airlines blamed the oil market for their companies’ woes....
".....the signature of United. Despite having a CEO who previously worked at Texaco...."


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