It is not over America home of Capitalism and us all are in trouble.
Threads about interest rates foreign debt and personal debt have flooded OLO.
But every rule in the book has changed America is buying debt paying for it with tax payers money.
Oil darts up near $20 over night as the greedy find new places to put money.
Capitalism can it survive?
Yes it is the best we have but can it fall?
Over night it can, maybe it will.
Who gets the profit?
If taxpayers pay the bills if world wide investors pay, even by losses in superannuation for sub prime mortgage crimes who gets the profits?
For get plus 10%, maybe forget any plus in the next few years from investments like super the world is paying for greed.
Mostly others greed.

True Belly, but it happens here also. Look at the machinations of the property market. Basically government restricts supply via severe regulation and jacks up demand via high immigration. The net result is no benefit, perhaps even a cost, meaning that one's profit comes at another's expense.

Feudalism at work.

Fester yes it happens here too.
My thread is not however an anti American rant.
It is not an anti capitalism post.
In the United States for years before ENRON criminal acts have weakened the world economy.
It is not just the greedy who pay.
In fact some of them pay less than the Joe averages around the world.
Who own shares via super funds or a few as an investment.
What could the trillions wiped from world share prices have done for mankind?
What truly happens if we are driven into a world recession such as the great depression?
Who can get their heads around a system that rewards some who bet share prices will fall?
I doubt we will ever see a system better than capitalism but what if it fails in hours from now?
It could, some will, some who think high returns are just months away are wrong it may be decades away.

“In the United States for years before ENRON criminal acts have weakened the world economy.”
Enron was the result of a misguided audit function not doing what it is supposed to do, that is to report to the share holders and creditors of the business, most particularly, whether the accounts reflected a “True and fair View” of Enron’s affairs.
The loopholes which Enron used was uniquely American, similar loop holes cannot be legislated against completely but the very nature of the exact Enron Loophole (fair market accounting), used to excess and way beyond what was normal in most US businesses, does not exist in Australia.
The Sarbane Oxley Legislation was subsequently enacted in US to regulate the relationship between auditors and corporate executives.
There are and always will be misguided people who look to steal from any and every system.
When the corporation is in the public light, audited and accountable to investors, any impropriety is far more difficult to conceal than when the enterprise is run by government. As the antics and shenanigans of government nationalized industries around the world show (Alitalia being a recent example and the Ceausescu’s Romanian railway workshops but one of thousands of socialist country examples).
As for “capitalism and its ability to survive”, you bet it is the best option.

Imperfect yes, but so much better than anything else which has ever been tried.

Fact: we will see progressive bull market growth over a time of economic stability and investor funds increasing steadily; offset periodically, by a crisis of some sort, a sub-prime, an Enron, a Dot.Com, a 1987 adjustment, the great depression, the south sea bubble….

Each time something happens in a bear market, people forget the value gains they experienced in the preceding bull market and they also forget that every investment comes attached to a “risk” factor.

Fact is a bear market is the consequence of its preceding bull and the bull market is the inevitable outcome of every bear.
The skill is to distinguish between the two and be able to act in anticipation, not as a reaction.

In Laymans terms, I see a win-win situation for dodgy investment banks. You might say the government should bail them out, for the good of the community, for stability, but where is the disincentive for this kind of behaviour.

http://business.smh.com.au/business/the-mother-of-all-ripoffs-20080924-4mrb.html

Hank Paulson has got to be kidding. He wants American taxpayers to hand a cool $US700 billion ($840 billion) to his pals on Wall Street in return for a gigantic bundle of their delinquent assets ... without his pals taking a pay cut.

Could there be a finer reward for failure? Could there be a worse deal for taxpayers?

Fannie Mae boss Daniel Mudd and his opposite number at Freddie Mac, Richard Syron, walked last month with $US9.43 million in retirement and pension benefits on their way out the door. Failed, sacked and showered with money as their two giant mortgage operations were nationalised.

Lehman Brothers chairman and CEO Richard Fuld picked up $US22 million for 2007, the year thousands of his staff found themselves on the street. He took $US35 million the year before.

Merrill Lynch boss John Thain took a $US200 million payout with two offsiders for less than a year's work. Merrill was so close to obsolescence it sold itself to Bank of America for $US50 billion in scrip few days ago just as Lehman was biting the dust.

Thain was given a $US15 million bonus for signing on. Two former Goldman Sachs executives hired by Thain may do even better. Head of global trading, Thomas Montag, has already received a $US39 million bonus since signing on in August. With stock options accelerated by the buyout, he could finish up with $US76 million.

It seems we are not going to truly debate the world wide financial melt down.
If we look back at threads about personal debt and over valued houses we rarely get past double figure posts.
It is true that we, yes us , have seen a change in the world economy we never expected to see.
It is not just about capitalism, it is about our whole life.
We should not fail to understand what is at risk, nore what may change over night.
Forget hight return investments, they may well be a thing of the past.
Do not blindly think China will save us.
China too may suffer if America does.
I pity those who bought investment property but can no longer pay even the interest as up to one third of the price they paid is lost.
It is said every America will pay $2.000 US just for the proposed bail out true costs are far more.
Australians just from superannuation loss will pay far more than that.

There are a couple of things I would like to add to this debate.

I share the distaste of many who believe that Big Business has been rewarded for failing terribly. That big business has privatised profits and socialised lossess. There is certainly some truth in this perception.

The fact remains that the current crisis was as much caused by average people borrowing money they could not afford to pay back, as by lax or improper lending practices. These people were then sheltered from the fallout of their bad choices through the "walkaway" laws which govern home lending.

Also, the CEO's etc who have walked away with golden handshakes are not being paid by the gov't. The bailout is shifting bad debt from the banking/financial sector, to the public.

If the economy, (ie the jobs, loans etc of ordinary people) could survive this calamity befalling the banking/financial sector without a bailout, I would agree that the bailout was unnacceptable.

I wonder whether anyone here would agree that perhaps the gov't should be bailing out the original borrowers, ie the morons who took out loans they couldn't pay back, and having those people in debt to the gov't.

Paul L,

Definately. But I don't think you can exonerate bad management from the lenders.

'These people were then sheltered from the fallout of their bad choices through the "walkaway" laws which govern home lending.'
True, but when I took out my mortgae over here, I paid $10k for insurance for the bank! I knew damn well I had a very solid financial position, earning power and a significant amount of money held back from the mortgage for emergency. Perhaps people should be left to get their own insurance if they so choose, and also not be able to walk away.

We keep hearing whenever executive pay comes into question, that the CEOs rise and fall on their performance. They don't really. They are in a win-win situation, when the very worst comes to reallity, they know the government will have to bail them out. Might be a bit different, and much stronger self regulation if those in power of these companies knew their multi-million pay packets were at stake.

Usual Suspect,

I agree that you can't exonerate the lenders. I think a 50/50 blame is probably the right allocation.

I further agree that executives who drive their companies into the ground only for them to be rescued by the gov't should certainly be liable if they are found to have acted negligently

The word is that our Australian Government) is going have to borrow 40 billion from Europe to Cover supper + some other investments made.

WOW, that is one expensive supper.

I eat a lot Bugsy.
Well it may refer, who knows? to superannuation, in fact most Australian governments have not funded the debt they owe to their employees.
It however is a spit in Sydney harbor compared to the world financial crisis.
We have debated non existent money being invested here in OLO.
And spoke of personal debt, over priced housing, credit card Christmas spending.
Yet some still think a collapse is unthinkable.
Just as payday comes so to does the day we must pay bills, that day is now.
We Aussies can get around it for a while, we can talk of China digging bigger holes and keeping us going but our day to pay is coming too.
Country towns, just take a ring 100 kilms from me, see homes bought for huge silly sums on the market for 40% less, and not getting interest at all.
Pay your bills burn the credit cards, but forget the next boom, it may take 50 years to fix this bust.