How will the Global Financial Crisis affect the future of F1

[Valve Bounce]

I know ioan and I have touched on this subject on another thread but the discussion there gets buried in a pro/anti Max discussion and Daniel suggests there is a better discussion in chit chat, which there really isn't pertaining to F1's future.

What is happening now is that banks are hoarding cash, if they havn't already gone bust. People are not spending like they used to; commodities are falling like lead balloons. And the indices have gone haywire. Only this morning, Channel 9's news announced at 6.30 am that the American market has recovered well over 100 points, only to find a quarter of an hour later that the Dow is suddenly down nearly 200 points.
Who the heck knows what will happen tomorrow?
Basically, the markets are down all over the world. Car sales have plummeted including Toyota. I don't know how Honda is faring saleswise, but can the parent company keep pouring squillions into F1 for the privilege of bring up the rear of the field?
How many teams have some form of sponsors directly or indirectly from Banks? Renault, (I'm not even going to check the pics of F1 cars and their rear wings) but I know HSBC is on the rear wing of another team.
If governments are going to pour billions into banks in the rescue mission, will the pouring of millions into F1 by banks be tolerated by tax payers?
Personally, I see a very bleak future for F1, with sponsors bailing out and credit drying up as you read this post.

[Hawkmoon]

This problem won't kill F1 if that's what you're asking. We may lose Force India or Honda and the likes of Raikkonen and Alonso will have to take a pay cut but F1 will come out the other side looking largely the same as it does now.

The budgets will be smaller and the largesse of the teams and sponsors will be curtailed but ten years from now Ferrari and McLaren will still be fighting it out for championships.

Incidentily, didn't HSBC leave F1 when Jaguar left?

[Valve Bounce]

This problem won't kill F1 if that's what you're asking. We may lose Force India or Honda and the likes of Raikkonen and Alonso will have to take a pay cut but F1 will come out the other side looking largely the same as it does now.

The budgets will be smaller and the largesse of the teams and sponsors will be curtailed but ten years from now Ferrari and McLaren will still be fighting it out for championships.

Incidentily, didn't HSBC leave F1 when Jaguar left?

I seem to remember HSBC on the rear wing of one of the teams, and I think ING supports Renault. We have to look at pics of all the cars to determine which one has bank support.

[AJP]

I'm worried for Williams...They will more than likely lose RBS as a sponsor at the end of this year.

[Hawkmoon]

ING - Renault
RBS - Williams
Santander - McLaren

Can't think of any other major sponsors who are financial companies.

[leopard]

I'm worried for Williams...They will more than likely lose RBS as a sponsor at the end of this year.
was it official about their move to support one of Ferraris?

[Roamy]

you better get out some ing cigarettes and start puffing into the Mop Midget's face. Maybe he will get a clue and go to the EU for reversal.
Oh but wait Mosely will get it "whipped" into shape.

[Daniel]

Valve. HSBC Were with Jaguar and left with them i'm fairly sure. I personally see this as a major problem for F1 because the banks are big sponsors and by nature of the fact that some manufacturers make cars they are going to be hit bigtime. Ferrari will lose AMD soon because they're going down the tube as well. Someone should list all the major sponsors and have a look at their health. I suspect that other than the oil companies and gulf investment groups it will make for a bleak picture

[ArrowsFA1]

How have similar crises affected the sport in the past?

[Valve Bounce]

How have similar crises affected the sport in the past?

Apart from the market crash in the 30's which cause worldwide recession, I am not aware there has been a similar crisis.

[Daniel]

Apart from the market crash in the 30's which cause worldwide recession, I am not aware there has been a similar crisis.
I don't remember the "recession we had to have" but wasn't that pretty bad?

[wedge]

ING - Renault
RBS - Williams
Santander - McLaren

Can't think of any other major sponsors who are financial companies.

Santander I wouldn't worry about.

[Valve Bounce]

I don't remember the "recession we had to have" but wasn't that pretty bad?

My Mistake. It was actually the 1930's Depression, and you can get all the information you need using google.

I have just heard on the news that the Sydney Motor Show, featuring some of the most exotic fast cars was a no show today.

[ArrowsFA1]

Apart from the market crash in the 30's which cause worldwide recession, I am not aware there has been a similar crisis.
How about the 1973 oil crisis - increased oil prices created a recession then as well.

A couple of motorsport related examples from those days - the withdrawl of the Motul oil company led to the Rondel Racing team winding up. GP race distances were shortened by 10% to show the sport was responding in some way to a global crisis.

F1 did not disappear.

[I am evil Homer]

The 70s Oil Crisis isn't as comparable. We're talking about the end of investment banking and leveraging debt to provide credit. It's not an F1 problem alone...football could be affected too. If no one is lending money the way they use to cars sales will decline, manufacturers will have less cash and all of a sudden F1 looks like a huge expense in the marketing budget.

Now the super rich, ie the Ferrari and high end Merc buyers may not be as effected but sponsors will be harder to find and Honda, Toyota and Renault may well abandon F1 altogether.

A lot of these trends point to the drastic need for customer cars.

[ioan]

We did not have a a fall of this proportions since 1929. That is for sure.

This crisis we are in now (and don't lie to yourself, we are all in it, no exception) has started more than one year ago and is only now nearing the lowest point (at least I hope so). It will take time for the situation to get at least stable and it will take time for the business to start going again. You may also bet that they will not start with pooring money into F1, where the only people getting some profit are the stuff, BE and CVC. No way. Everyone will invest into business that will give them a safe return over a longer period.

I saw that people only mentioned the teams that are sponsored by banks or other financial companies.

Get your head straight people, this crisis includes everything, from banks, to automotive companies, to clothing companies, to toy shops, all the way down to the lowest paid worker.
Did you see how high the inflation is ATM? Well it will go even higher, because governments will need to print money in order to save all those financial mammoths who's fall would mean the end of their economies.

I remember Credit Suisse ending their F1 involvemenet (with BMW I think) earlier than their contract stipulation.

Banks will surely pull out or cut the level of their involvement by a huge proportion, no question about that (that is in case they wont bankrupt and be nationalized).
The other sponsors will either pull out or will cut their involvement too.

The future looks black for F1. I wonder who will be willing to invest in such a money hungry mchine that produces only CO2?!

Most of all I fear for Williams. Their title sponsor is RBS, whom is in deep trouble. Their second sponsor (if I'm not mistaken) is Hamley's who are owned by Icelandic investor Baugur, and the whole Icelandic finance sector is collapsing ATM.
On top of that many other business across Europe has huge involvement from the Icelandic investors and are not looking good at all.

I know it looks very bad, I didn't believe it either 6 months ago, well I should have.

[ioan]

The 70s Oil Crisis isn't as comparable. We're talking about the end of investment banking and leveraging debt to provide credit. It's not an F1 problem alone...football could be affected too. If no one is lending money the way they use to cars sales will decline, manufacturers will have less cash and all of a sudden F1 looks like a huge expense in the marketing budget.

Now the super rich, ie the Ferrari and high end Merc buyers may not be as effected but sponsors will be harder to find and Honda, Toyota and Renault may well abandon F1 altogether.

A lot of these trends point to the drastic need for customer cars.

:up:

I think this is why Max and Bernie were pushing for customer chassis and single engines. As these would be cheap enough to keep the series alive.

People were laughing at Max's cheap F2 series. It might well be that that series will survive while others die.

[ArrowsFA1]

Panic and speculation is a very big part of the current financial crisis.

The fact is these things happen in peaks and troughs. Life is just one big cycle. It happens in the financial markets and it happens in F1 i.e. Ferrari don't win for 21 years, and then they can't stop winning.

Any speculation about the future of teams is just that. Speculation. Max said teams were in trouble. Which teams? There was nothing of substance in the interview, and nothing that hasn't been discussed during the course of this year which is already being addressed.

[ioan]

Panic and speculation is a very big part of the current financial crisis.

The fact is these things happen in peaks and troughs. Life is just one big cycle. It happens in the financial markets and it happens in F1 i.e. Ferrari don't win for 21 years, and then they can't stop winning.

Any speculation about the future of teams is just that. Speculation. Max said teams were in trouble. Which teams? There was nothing of substance in the interview, and nothing that hasn't been discussed during the course of this year which is already being addressed.

This crisis started because of the speculation, but sadly enough it isn't about speculation anymore it's about missing money, a lot of it, incredibly much money that never was but that should have been there when they started counting.

[ChrisS]

ING - Renault
RBS - Williams
Santander - McLaren

Can't think of any other major sponsors who are financial companies.

Credit Suisse - BMW

[Valve Bounce]

Panic and speculation is a very big part of the current financial crisis.

The fact is these things happen in peaks and troughs. Life is just one big cycle. It happens in the financial markets and it happens in F1 i.e. Ferrari don't win for 21 years, and then they can't stop winning.

Any speculation about the future of teams is just that. Speculation. Max said teams were in trouble. Which teams? There was nothing of substance in the interview, and nothing that hasn't been discussed during the course of this year which is already being addressed.

Sure!! it's speculation about the future. If I had rock solid knowledge which way the market was going, I'd be driving around in a brand new Red Ferrari.

I don't think you are fully aware of the severity/seriousness of the Global Financial Crisis. Perhaps if you accessed the Wall St Journal and The London Financial Times, you'll be able to get more information. For example, :"General Motors was the leading decliner on the Dow by a long shot, falling $US2.15, or 31 per cent, to $US4.76, its lowest level since at least 1950, according to the Centre for Research in Securities Prices at the University of Chicago."

Under the circumstances, some teams may find it difficult to get huge sums to keep their F1 teams running.

[ioan]

Sure!! it's speculation about the future. If I had rock solid knowledge which way the market was going, I'd be driving around in a brand new Red Ferrari.

I don't think you are fully aware of the severity/seriousness of the Global Financial Crisis. Perhaps if you accessed the Wall St Journal and The London Financial Times, you'll be able to get more information. For example, :"General Motors was the leading decliner on the Dow by a long shot, falling $US2.15, or 31 per cent, to $US4.76, its lowest level since at least 1950, according to the Centre for Research in Securities Prices at the University of Chicago."

Under the circumstances, some teams may find it difficult to get huge sums to keep their F1 teams running.

The problem is that what happened today is just that panic, induced by the fact that Standard & Poor's are considering reducing the rating of both companies in January, based on what exactly no one knows.
I certainly wouldn't listen to what rating companies say anymore. Those banks that went bankrupt a few weeks ago and AIG had ratings of AAA+ a day before they were bust.

[Valve Bounce]

The problem is that what happened today is just that panic, induced by the fact that Standard & Poor's are considering reducing the rating of both companies in January, based on what exactly no one knows.
I certainly wouldn't listen to what rating companies say anymore. Those banks that went bankrupt a few weeks ago and AIG had ratings of AAA+ a day before they were bust.

Well, we did have this guy who knew exactly what was going to happen in the future. Unfortunately, we had to sack him because he kept walking on the water and scaring the fish away.

[ioan]

Well, we did have this guy who knew exactly what was going to happen in the future. Unfortunately, we had to sack him because he kept walking on the water and scaring the fish away.

I'm not sure he would have indulged in predicting stock exchange values.

[Valve Bounce]

I'm not sure he would have indulged in predicting stock exchange values.

Just the correct order of my pickems would do. :(

[ArrowsFA1]

I don't think you are fully aware of the severity/seriousness of the Global Financial Crisis.
Don't get me wrong Valve, I'm very well aware of the seriousness of the situation. It's obvious for everyone to see. I just think this is a time for calm heads rather than doom and gloom merchants predicting the end of F1.

[ArrowsFA1]

Under the circumstances, some teams may find it difficult to get huge sums to keep their F1 teams running.
It seems that there are teams in NASCAR (I know, totally different series & costs!!) bucking the financial crisis:

Stewart's feat of signing more than 80 percent of the sponsorship space available on his two cars for next year is quite remarkable, given the current financial outlook in the United States, which has seen rival teams struggle to find enough backing.
http://www.autosport.com/news/report.php/id/71247

[wmcot]

I predict that F1 will survive in one form or another as will all major sports. In times of crisis such as this, people turn to sport to take them away from the "real world" for a few hours. Remember the 2001 Italian GP took place less than a week after the 9-11 terrorist attack. It brought part of the world back to normal for a little bit.

[Valve Bounce]

Don't get me wrong Valve, I'm very well aware of the seriousness of the situation. It's obvious for everyone to see. I just think this is a time for calm heads rather than doom and gloom merchants predicting the end of F1.

OK! just let me ask you this question:"Do you believe that the demise of some large Financial Institutions and Banks, Fanny Mae and Freddie Mack, the dramatic decline in the financial markets, and the demise of Iceland is a result of Speculation?"

[ArrowsFA1]

OK! just let me ask you this question:"Do you believe that the demise of some large Financial Institutions and Banks, Fanny Mae and Freddie Mack, the dramatic decline in the financial markets, and the demise of Iceland is a result of Speculation?"
The financial markets are little more than a casino to me, where those who are supposedly qualified to know what they are doing gamble with money that is not their own. The only difference to a casino is that it's not just money they're gambling with. The chips they're using are peoples lives and livelihoods. But they're professionals, they know what they're doing don't they? Well, no, not really. They're as much gamblers as those you'll find in a casino.

So in that context speculation, or rather 'gambling' is a contributary factor somewhere along the line IMHO but I'm far from being qualified to be able to explain the workings of the financial markets :crazy:

[Ranger]

Credit Suisse - BMW

And they are already on their way out.

[Valve Bounce]

The financial markets are little more than a casino to me, where those who are supposedly qualified to know what they are doing gamble with money that is not their own. The only difference to a casino is that it's not just money they're gambling with. The chips they're using are peoples lives and livelihoods. But they're professionals, they know what they're doing don't they? Well, no, not really. They're as much gamblers as those you'll find in a casino.

So in that context speculation, or rather 'gambling' is a contributary factor somewhere along the line IMHO but I'm far from being qualified to be able to explain the workings of the financial markets :crazy:

No!! it was bad management. You've got a lot to catch up on.

[Daniel]

Bad management? None of that in F1 so it's safe :p

[Knock-on]

No!! it was bad management. You've got a lot to catch up on.

The whole "credit crunch" is a result of the global economy stabalising back to a sustainable level.

For years, countries as well as businesses and individuals have overspent and consequently overvalued the world and everything on it.

Now we need to get back to real value instead of virtual value and F1 is no different.

Sponsors still want to be involved in F1 and will pay dearly for it but it's fair to say that there will be realignment of this as with everything else.

Keep Max and Bernie well out of this and let the teams decide where cost savings should be. Personally, I quite like most of the suggestions except the one about a 4 cylinder engine!!

Everything then will be sorted.

[ArrowsFA1]

No!! it was bad management.
By the gamblers I was talking about ;)

[Knock-on]

By the gamblers I was talking about ;)

You are in fact right.

The underlying problem is over inflated property values but it has provided opportunity for some very unscrpulous trader to abuse the system, creating instability in financial organisations and even bringing them down which is the speculation you are referring to.

[Valve Bounce]

By the gamblers I was talking about ;)

I'm talking about the financial institutions and banks, the principals of which badly managed their funds, pilfered their funds, and awarded themselves humongous parting gifts before the institutions (like Lehman ) go bust.

Organised pilfering is not gambling - it's very deliberate corruption in disguise.

[aryan]

Don't get me wrong Valve, I'm very well aware of the seriousness of the situation.

It is very clear by your tone that you are underestimating the severity of this. For everyone's sake, I hope you are right and prove us all wrong, but I fear for the worse.

You seem to imply that markets have cycles. True. But what we are experiencing right now is far and above what all of us have experienced in our lifetime (unless you are over 90). The tech bubble bursting was a very sector-specific downturn and the economy soon recovered from that and 9/11. In the early '90s we did experience a recession, and for those in the UK, Black Wednesday was indeed very black, but it was quite shallow compared to this.

The '73 Energy crisis was severe, but it only occurred due to political situation in the Middle East and the Arab-Israeli conflict. Once that situation was resolved (only partly of course), the markets went back to normal.

What is happening right now most resembles the Great Depression. Only that this time we know much more about market economy, and most policy makers have at least passed a subject or two on Great Depression in their Uni years. The October '29 market crash was less severe than this week's market crash, and back then, an ineffective US administration (surprise!) coupled with blind faith in free market principles made governments less inclined to interfere in the system.

Since then, we have mostly learnt our lesson. Keynesian economic principles have guided us through prosperity in the past 60 years, and they have given us clear guidelines on when to interfere in the market. Bernake and Paulson and much ridiculed in
the US media these days, but they both are experts on Great Depression, and know how not to repeat those mistakes. Yes, it is costing the tax payer a lot, but it would cost the tax payer a lot more if nothing was done.

This is a going to be a deep and prolonged recession, but hopefully not tip into a full scale depression. Listen to what ioan is saying: This is no longer just about the banks, or the traders, or speculators, or the rich people. This involves us all. Even if we hit the bottom line today (which I doubt we will), it will take 3-4 years for the market to go back to 'normal'. That means 3-4 years of no growth or worse, high inflation, higher than usual unemployment rate, higher crime rate, etc.

It will affect us all. No matter where you live. No matter what socio-economic class you belong to.

F1 will not disappear. But at 10% unemployment (fairly conservative estimate according to some), not many people will care about a luxury sport.

[ArrowsFA1]

I'm talking about the financial institutions and banks, the principals of which badly managed their funds, pilfered their funds, and awarded themselves humongous parting gifts before the institutions (like Lehman ) go bust.

Organised pilfering is not gambling - it's very deliberate corruption in disguise.
Absolutely :up: As ever with these things it's not about one thing, but a combination of factors.

[markabilly]

Panic and speculation is a very big part of the current financial crisis.

The fact is these things happen in peaks and troughs. Life is just one big cycle. It happens in the financial markets and it happens in F1 i.e. Ferrari don't win for 21 years, and then they can't stop winning.

Any speculation about the future of teams is just that. Speculation. Max said teams were in trouble. Which teams? There was nothing of substance in the interview, and nothing that hasn't been discussed during the course of this year which is already being addressed.

A short lesson in economics. The depression of 1929 was the result of peace treaties signed at the end of WW1. The germans were being required to repay the french and england vast sums of money because the Germans lost. Meanwhile Wall Street was soaring because USA banks were loaning money on stocks with stocks as collaterall. America had made big loans to the french and england during WWI and they were paying it back to american banks. Then the germans because they were tired of starving, started printing many more marks and then were being slow pays. As a result, the big european banks were not paying usa banks fast enough, things started and going bad and the european banks started collapsing. The lack of repayment was just enough to put american banks into the red, and suddenly there was no money for loans for stocks and then wall streeters started defaulting, the banks got decreasingly less valuable stocks, the banks could not meet the margin calls, so they started collapsing, and then one day there was a crash and wall street was sunk, happy days were over......

then Hitler came along and started applying Keynesian economics before Keynes discovered it, and thank good the japanese said John Maynard K was right so they attacked pearl harbor and put everyone back to work making war.

Meanwhile the Bear Sterns act was passed that strictly forbade banks from investing in loaning money on stocks and made them have reserves to pay their bills.........

Late 90's under the Democrats, Billy Boy Clinton signs the bill that does away with such silly restrictions around 1999 or so...


OK! just let me ask you this question:"Do you believe that the demise of some large Financial Institutions and Banks, Fanny Mae and Freddie Mack, the dramatic decline in the financial markets, and the demise of Iceland is a result of Speculation?"


oh no. it is the result of those who do not learn history's mistakes are doomed to repeat its failures.....



It is very clear by your tone that you are underestimating the severity of this. For everyone's sake, I hope you are right and prove us all wrong, but I fear for the worse.

You seem to imply that markets have cycles. True. But what we are experiencing right now is far and above what all of us have experienced in our lifetime (unless you are over 90). The tech bubble bursting was a very sector-specific downturn and the economy soon recovered from that and 9/11. In the early '90s we did experience a recession, and for those in the UK, Black Wednesday was indeed very black, but it was quite shallow compared to this.

The '73 Energy crisis was severe, but it only occurred due to political situation in the Middle East and the Arab-Israeli conflict. Once that situation was resolved (only partly of course), the markets went back to normal.

What is happening right now most resembles the Great Depression. Only that this time we know much more about market economy, and most policy makers have at least passed a subject or two on Great Depression in their Uni years. The October '29 market crash was less severe than this week's market crash, and back then, an ineffective US administration (surprise!) coupled with blind faith in free market principles made governments less inclined to interfere in the system.

Since then, we have mostly learnt our lesson. Keynesian economic principles have guided us through prosperity in the past 60 years, and they have given us clear guidelines on when to interfere in the market. Bernake and Paulson and much ridiculed in
the US media these days, but they both are experts on Great Depression, and know how not to repeat those mistakes. Yes, it is costing the tax payer a lot, but it would cost the tax payer a lot more if nothing was done.

.


You were doing great until you got to:

What is happening right now most resembles the Great Depression. Only that this time we know much more about market economy, and most policy makers have at least passed a subject or two on Great Depression in their Uni years. The October '29 market crash was less severe than this week's market crash, and back then, an ineffective US administration

Since then, we have mostly learnt our lesson. Keynesian economic principles have guided us through prosperity in the past 60 years, and they have given us clear guidelines on when to interfere in the market. Bernake and Paulson and much ridiculed in
the US media these days, but they both are experts on Great Depression, and know how not to repeat those mistakes. Yes, it is costing the tax payer a lot, but it would cost the tax payer a lot more if nothing was done


So, you think they done learned their lesson????Yep sure ....

First, the type of bailout under way now, would HAVE ABSOLUTELY DONE NO GOOD IN 1929!!!
Why? Because it would have been woefully deficient. A failure,complete and utter. There was not enough money in the entire USA government possession even if the printing presses were turned on full speed...Instead Herbert Hoover said was all we need was a good tax break (now from which two politicans are we hearing that from???Hint--BOTH wanna-be presidential ding dong prostitutes wall street street walkers....)
There was not enough money in the entire World--Germany was doing exactly that and they managed to keep ahead of the all consuming fire until they just could not print enough, fast enough.

What did help was massive overhaul of banking laws, the rules on limiting investment to very conservative and very well known predictable loans with plenty of reserves....then add in the FDIC to cover the losses...
But that was not enough, nor was the various new deal governemtn hand outs social security...not until ten years later and the WWII starts up.....

But "did we learn our lesson"?

Yep until the mid 1990's and Alan aka "I luv derivatives cause no one knows how they work except everyone thinks I do, but I do not" Greenspan.

In the good ole days of the 1920's when a home owner and his mortgage crashed, there was only one bank that owned that loan. true all the way until the mid the last 8 years or so.

With secured derivatives, those loans (and they are all sorts, such as business, home and so forth) are put into a package, such as in one package there are ten thousand loans, and 20,000 investors including pension funds, banks, AIG and other insurance companies and just regular folks (hence the term derivative and secured from the fact that there was a home securing the loan plus insurance with many investors holding a derivative interest from the bank's original loan)

One loan goes bad and all 20,000 investors are affected. BUT THERE was also insurance, so the group investors immediately profited from the foreclosure, even though in many derivatives, the originating bank (NOT the derivative owners) got the property or the property went to an insurance company who insured the investment which meant the investors got pure profit.

Then in 2007, these insurance companies went bust or quit issuing the insurance on sub prime loans (the big reason for AIG being in its current mess, was this insurance issued by them, which was extremely profitable if foreclosure rate was less than 3 percent in the "group" of loans)

So the national amount of foreclosures is about 3% this year, but that slight increase is enough to affect pension funds in Poland, banks in Germany.......and then there were these hedge funds where everyone is only paying a small percentage up front, hoping the income to go up (just like banks making stock loans in the 1920's) from FORECLOSURE PAYOFFS BY THE INSURANCE COMPANY--(every night those guys would say a little prayer, oh please god, may all of the homeowners in my investment pool go into foreclosure, so I can make much dollars!!!!) so when the rest comes due, they can sell at a profit (just like banks in the 1920's).

when this legislation was passed, a specific provision expressly pre-empted all state laws against gambling that could be applied against derivatives or hedges

So right now, not one single politican wants to say this and wants to outlaw this CR^p.

One reason is that in the USA alone, there is at least 72 trillion dollars that could come due on these derivatives, plus add in the other loan issues, and the total is easily 200 trillion PLUS but no one really knows...--------the entire USA national debt is currently around ten trillion dollars and the gross demostic product is about 12.9 trillion (six years of the entire income of the USA would pay off the mimimum of 72 trillion)

and then there is the social security and pension fund problems that will start coming into effect about 7 to 10 years from now because of inadequate investment over the years (and there is entirely seperate from the derivative problems where pension funds have made massive investments)
So learned our lesson??? :rotflmao:

The worse thing is a false sense of security....yeah at some point, things may be appearing to improve but not really, not until the insurmountable debt is cured and the the problems fixed to stop it.

[ioan]

A short lesson in economics. The depression of 1929 was the result of peace treaties signed at the end of WW1. The germans were being required to repay the french and england vast sums of money because the Germans lost. Meanwhile Wall Street was soaring because USA banks were loaning money on stocks with stocks as collaterall. America had made big loans to the french and england during WWI and they were paying it back to american banks. Then the germans because they were tired of starving, started printing many more marks and then were being slow pays. As a result, the big european banks were not paying usa banks fast enough, things started and going bad and the european banks started collapsing. The lack of repayment was just enough to put american banks into the red, and suddenly there was no money for loans for stocks and then wall streeters started defaulting, the banks got decreasingly less valuable stocks, the banks could not meet the margin calls, so they started collapsing, and then one day there was a crash and wall street was sunk, happy days were over......

then Hitler came along and started applying Keynesian economics before Keynes discovered it, and thank good the japanese said John Maynard K was right so they attacked pearl harbor and put everyone back to work making war.

Meanwhile the Bear Sterns act was passed that strictly forbade banks from investing in loaning money on stocks and made them have reserves to pay their bills.........

Late 90's under the Democrats, Billy Boy Clinton signs the bill that does away with such silly restrictions around 1999 or so...




oh no. it is the result of those who do not learn history's mistakes are doomed to repeat its failures.....





You were doing great until you got to:

What is happening right now most resembles the Great Depression. Only that this time we know much more about market economy, and most policy makers have at least passed a subject or two on Great Depression in their Uni years. The October '29 market crash was less severe than this week's market crash, and back then, an ineffective US administration

Since then, we have mostly learnt our lesson. Keynesian economic principles have guided us through prosperity in the past 60 years, and they have given us clear guidelines on when to interfere in the market. Bernake and Paulson and much ridiculed in
the US media these days, but they both are experts on Great Depression, and know how not to repeat those mistakes. Yes, it is costing the tax payer a lot, but it would cost the tax payer a lot more if nothing was done


So, you think they done learned their lesson????Yep sure ....

First, the type of bailout under way now, would HAVE ABSOLUTELY DONE NO GOOD IN 1929!!!
Why? Because it would have been woefully deficient. A failure,complete and utter. There was not enough money in the entire USA government possession even if the printing presses were turned on full speed...Instead Herbert Hoover said was all we need was a good tax break (now from which two politicans are we hearing that from???Hint--BOTH wanna-be presidential ding dong prostitutes wall street street walkers....)
There was not enough money in the entire World--Germany was doing exactly that and they managed to keep ahead of the all consuming fire until they just could not print enough, fast enough.

What did help was massive overhaul of banking laws, the rules on limiting investment to very conservative and very well known predictable loans with plenty of reserves....then add in the FDIC to cover the losses...
But that was not enough, nor was the various new deal governemtn hand outs social security...not until ten years later and the WWII starts up.....

But "did we learn our lesson"?

Yep until the mid 1990's and Alan aka "I luv derivatives cause no one knows how they work except everyone thinks I do, but I do not" Greenspan.

In the good ole days of the 1920's when a home owner and his mortgage crashed, there was only one bank that owned that loan. true all the way until the mid the last 8 years or so.

With secured derivatives, those loans (and they are all sorts, such as business, home and so forth) are put into a package, such as in one package there are ten thousand loans, and 20,000 investors including pension funds, banks, AIG and other insurance companies and just regular folks (hence the term derivative and secured from the fact that there was a home securing the loan plus insurance with many investors holding a derivative interest from the bank's original loan)

One loan goes bad and all 20,000 investors are affected. BUT THERE was also insurance, so the group investors immediately profited from the foreclosure, even though in many derivatives, the originating bank (NOT the derivative owners) got the property or the property went to an insurance company who insured the investment which meant the investors got pure profit.

Then in 2007, these insurance companies went bust or quit issuing the insurance on sub prime loans (the big reason for AIG being in its current mess, was this insurance issued by them, which was extremely profitable if foreclosure rate was less than 3 percent in the "group" of loans)

So the national amount of foreclosures is about 3% this year, but that slight increase is enough to affect pension funds in Poland, banks in Germany.......and then there were these hedge funds where everyone is only paying a small percentage up front, hoping the income to go up (just like banks making stock loans in the 1920's) from FORECLOSURE PAYOFFS BY THE INSURANCE COMPANY--(every night those guys would say a little prayer, oh please god, may all of the homeowners in my investment pool go into foreclosure, so I can make much dollars!!!!) so when the rest comes due, they can sell at a profit (just like banks in the 1920's).

when this legislation was passed, a specific provision expressly pre-empted all state laws against gambling that could be applied against derivatives or hedges

So right now, not one single politican wants to say this and wants to outlaw this CR^p.

One reason is that in the USA alone, there is at least 72 trillion dollars that could come due on these derivatives, plus add in the other loan issues, and the total is easily 200 trillion PLUS but no one really knows...--------the entire USA national debt is currently around ten trillion dollars and the gross demostic product is about 12.9 trillion (six years of the entire income of the USA would pay off the mimimum of 72 trillion)

and then there is the social security and pension fund problems that will start coming into effect about 7 to 10 years from now because of inadequate investment over the years (and there is entirely seperate from the derivative problems where pension funds have made massive investments)
So learned our lesson??? :rotflmao:

The worse thing is a false sense of security....yeah at some point, things may be appearing to improve but not really, not until the insurmountable debt is cured and the the problems fixed to stop it.

Good post! Now you'll be labeled republican! :p :

[Valve Bounce]

The problem is that what happened today is just that panic, induced by the fact that Standard & Poor's are considering reducing the rating of both companies in January, based on what exactly no one knows.
.

Poor sales wouldn't have anything to do with it by any chance, would it?

[ioan]

Poor sales wouldn't have anything to do with it by any chance, would it?

Might have, but they won't know it until the end of the year comes and numbers are made public.

The government is trying to reassure the markets and meanwhile the rating companies, many of them showing that they have a very poor rating system this year, are inducing more negativism!

+1+(-1)=0

So they should decide if they want to bring the calm on the market or if they want to kill it. What we get now is ups and down day after day, and this isn't looking like stabilization to me.

[aryan]

A short lesson in economics. The depression of 1929 was the result of peace treaties signed at the end of WW1.

First of all, let me say that I am glad to debate on such a matter with someone who clearly knows what he is talking about. Good post :)

And yet, in my view, while you are correct on many things, you are looking at things with a very different lens.

In regards to the Great Depression, I think you are looking at too small a picture. There are various studies and books and essays on the causes of Great Depression, and the breakdown of international trade that you are talking about, is but one cause.

Others have also blamed a combination of the following:

- The flawed Say's Law: investment necessarily automatically increases as a response to a fall in the interest rate. The monetary system of the '20s was based on this 19th century Utilitarian principle, which was proven wrong.

- Federal Reserve's expansionist policies. The Fed is mostly to blame for the Great Depression (The Friedman Argument). They only started tightening credit in '28, which was too little, too late.

-Constraints of relying on the Gold Standard

- Structural weakness in the banking sector (which as you correctly point out, might be at fault again here in this financial crisis)

-The reparations issue from Austria-Hungry and Weimar Germany that you refer to.

I hate the Versaille Treaty more than any other person, and I even blame it for the current issues in the Balkans and in Palestine, not to mention WWII, but to say that the reparations issue was the 'only' cause of the Great Depression, is a mistake.



then Hitler came along and started applying Keynesian economics before Keynes discovered it,

This is clearly uninformed. You either have a false view of Hitler's economics theory, or of Keynesian economics.

Hitler's economic programme (which he learned directly from Fascists in Italy) was nothing other than complete nationalisation of the economy, with a view towards military rearmament. Yes it did relieve Germany of exceedingly high unemployment and hyper inflation, but it could only continue whilst the War was in sight. It was not self-sustaining, and the whole thing would have collapsed spectacularly if Germany had not gone to war.

Of course, you are correct in saying the WWII had a massive impact on getting rid of Great Depression in the United States. But Britain and many other countries had already come out of Depression by then, Britain enjoyed a modest GDP growth from '36 to '39.



Meanwhile the Bear Sterns act was passed that strictly forbade banks from investing in loaning money on stocks and made them have reserves to pay their bills.........

Late 90's under the Democrats, Billy Boy Clinton signs the bill that does away with such silly restrictions around 1999 or so...



I could not find any "Bear Sterns Act". I Assume what you are referring to is the Great Depression era Glass-Steagall Act. You are correct in saying that that law regulated the amount of investment financial institutions could have outside of their domain. Gramm-Leach-Bliley Act of 1999 repealed that law. And the Gramm-Leach-Bliley Act is now under heavy criticism for this mess.

But blaming "Billy Boy Clinton" for this is really wrong. Look at the name of the Act. Phil Gramm (R-Texas) Jim Leach (R-Iowa) wrote this bill. Phil Gramm, by the way, is McCain's chief financial advisor.

In the senate, 53 Republicans and one Democrat voted for it; 44 Democrats opposed it. Clinton only agreed to sign it after Republicans agreed to strengthen provisions of the Community Reinvestment Act. Was it the wrong thing to do? Yes. You bet. But hindsight is always 20/20. And unfortunately, that's how the political horsetrading works when you have a president who doesn't control the Congress.




In the good ole days of the 1920's when a home owner and his mortgage crashed, there was only one bank that owned that loan. true all the way until the mid the last 8 years or so. [these days] One loan goes bad and all 20,000 investors are affected.

This is not true. One loan does not make them all go bad. We had economic modeling which supposedly clearly showed how many percentage of foreclosures we would have, and the risk involved with that. The number that are defaulting right now, 3% as you say, is much higher than the models would have ever anticipated. Their modeling showed that such a scenario would happen once in a billion years or so.

Obviously the modeling was wrong.

When I said we learned the lessons of Great Depression, I mean we would be in a much worse position (in the long term) had it not been for the government intervention, and had put blind faith in the market system, as happened with the Fed in the '20s.

There is also the danger of over-regulation and protectionism arising from all of this. As you point out, we need the right type of regulation, we need our New Deal era laws back. We need to repeal the Gramm-Leach-Bliley Act. But the right kind of regulation is not the same as over-regulation. There is a fine line between the two.

[markabilly]

In regards to the Great Depression, I think you are looking at too small a picture. There are various studies and books and essays on the causes of Great Depression, and the breakdown of international trade that you are talking about, is but one cause.

Others have also blamed a combination of the following:

- The flawed Say's Law: investment necessarily automatically increases as a response to a fall in the interest rate. The monetary system of the '20s was based on this 19th century Utilitarian principle, which was proven wrong.

- Federal Reserve's expansionist policies. The Fed is mostly to blame for the Great Depression (The Friedman Argument). They only started tightening credit in '28, which was too little, too late.

-Constraints of relying on the Gold Standard

- Structural weakness in the banking sector (which as you correctly point out, might be at fault again here in this financial crisis)

-The reparations issue from Austria-Hungry and Weimar Germany that you refer to.

I hate the Versaille Treaty more than any other person, and I even blame it for the current issues in the Balkans and in Palestine, not to mention WWII, but to say that the reparations issue was the 'only' cause of the Great Depression, is a mistake.



This is clearly uninformed. You either have a false view of Hitler's economics theory, or of Keynesian economics.

Hitler's economic programme (which he learned directly from Fascists in Italy) was nothing other than complete nationalisation of the economy, with a view towards military rearmament. Yes it did relieve Germany of exceedingly high unemployment and hyper inflation, but it could only continue whilst the War was in sight. It was not self-sustaining, and the whole thing would have collapsed spectacularly if Germany had not gone to war.

Of course, you are correct in saying the WWII had a massive impact on getting rid of Great Depression in the United States. But Britain and many other countries had already come out of Depression by then, Britain enjoyed a modest GDP growth from '36 to '39.



two.

1. What I meant was that the orginating cause was WWI peace treaties that required Germany to repay more than reasonably possible. Everything you list eventually made it all worse, far worse, but it was already fatal thanks to those treaties. Historically it was in Europe where the bank failures began and was creating a depression that sometime later struck America real hard, so I disagree with ole Milton on that particular point, but as to a recovery, Milton was right, except due to the massive nature of the events, his ideas would have made no real difference in the ultimate outcome just like the stuff now, is not going to.

2. The effect of what Hitler was doing was exactly the intended effect of the Keynes policy---put people to work---I was somewhat joking here, but if WWII had not occurred as it did, who is to say?....WWII certainly crashed his economy at the end. The Nazis were already advocating this program along with the Facists. Of course they were doing it for nationalism and "uber alles" but putting people back to work was just exactly what John Maynard wanted.

3. In 1936, great britain along with france had started re-arming in response to fears about germany who was grabbing all sorts of land in several years before they shooting started.; the "modest increase" was insignifigant compared to where they had been before in the 1920's....and by 1939, GB was about close to germany in steel production.

[markabilly]

I could not find any "Bear Sterns Act". I Assume what you are referring to is the Great Depression era Glass-Steagall Act. You are correct in saying that that law regulated the amount of investment financial institutions could have outside of their domain. Gramm-Leach-Bliley Act of 1999 repealed that law. And the Gramm-Leach-Bliley Act is now under heavy criticism for this mess.

But blaming "Billy Boy Clinton" for this is really wrong. Look at the name of the Act. Phil Gramm (R-Texas) Jim Leach (R-Iowa) wrote this bill. Phil Gramm, by the way, is McCain's chief financial advisor.

In the senate, 53 Republicans and one Democrat voted for it; 44 Democrats opposed it. Clinton only agreed to sign it after Republicans agreed to strengthen provisions of the Community Reinvestment Act. Was it the wrong thing to do? Yes. You bet. But hindsight is always 20/20. And unfortunately, that's how the political horsetrading works when you have a president who doesn't control the Congress.




This is not true. One loan does not make them all go bad. We had economic modeling which supposedly clearly showed how many percentage of foreclosures we would have, and the risk involved with that. The number that are defaulting right now, 3% as you say, is much higher than the models would have ever anticipated. Their modeling showed that such a scenario would happen once in a billion years or so.

Obviously the modeling was wrong.

When I said we learned the lessons of Great Depression, I mean we would be in a much worse position (in the long term) had it not been for the government intervention, and had put blind faith in the market system, as happened with the Fed in the '20s.

There is also the danger of over-regulation and protectionism arising from all of this. As you point out, we need the right type of regulation, we need our New Deal era laws back. We need to repeal the Gramm-Leach-Bliley Act. But the right kind of regulation is not the same as over-regulation. There is a fine line between the two.


1. "I could not find any "Bear Sterns Act". I Assume what you are referring to is the Great Depression era Glass-Steagall Act."
That is what I get for drinking and typing at 2 am in the morning :beer:

2. billy boy signed and did not veto. If he had, it would have died. When passed, i was horrified and said, have they learned nothing???
Instead we got the community reinvestment act thanks to Billy boy (more pork for the wall street pigs as it turned out, as it turned into a very very profitable contributor to the so-called and misleadingly named "sub-prime" problem--why? Because every foreclosure would pay off in those derivative investment pools insured by companies like AIG per my earlier post)

And my point is that the Demes talk a good game, but their actions betray them as being porkers just as big as and no different than Bush and Repubes, only difference is that they just like to feed in the dark--Barnie Franks, the dem in the house whose lover boy was a member of fannie mae or mac, or the senator (whose name I can not remeber right now, who got about a 100k of personal mortgage free-stuff from now crashed and burned Countrywide Mortgage) or Obama, who has outlead Mcain in terms of fat cat wall street contributions

They trust Obama more than they have ever trusted McCain......something definetly wrong here...could it be that they know that Obama knows he is just talking trash but behind the scenes, he is very much "buy-able", just like Franks and more than McCain?????



3. "One loan does not make them all go bad." No it just now affects thousands of investors in form or another in the pool, including direct investors and subsidary investors in the primary investors ......for example old Pino is setting there wondering why his pension fund in Italy just went belly up and Ron Dennis is wondering where his sponsors went, and bernie is saying we need more money for a race and is still hurting.....

4. "Obviously the modeling was wrong." oh yeah!!!Current rate of foreclosure is no where close to the late 1980's--YET!!!!
More lessons of history ignored.

5. But hindsight is always 20/20. And if the dumb sh&ts could just remeber what they saw, we would have no problems....Fine line? these guys are too blinded by greed.......

Sorry but we and everyone are in far worse condition than we realize, meanwhile F1 plays on, just like the band on the Titanic

[Valve Bounce]

Didn't that band go down with the Titanic? :eek:

[markabilly]

Didn't that band go down with the Titanic? :eek:


But they still put on a great show, worthy of respect and admiration, until the music was drowned out........