Hi Thread, "But let's go back to that number: $700bn. The world of derivatives may be immune to the mention of figures followed by 11 zeros, yet such exposure is the equivalent of five times the portfolio of Long Term Capital Management at its height. Nobody noticed just how big the bets were this hedge fund had taken until Russia defaulted in 1998 and the firm's exposure threatened systemic collapse across Wall Street.
Federal Reserve chairman Alan Greenspan recently shrugged off remarks by the revered investor, Warren Buffett, to the effect that derivatives were akin to weapons of mass destruction. But if one of the biggest financial institutions in the US can hide exposure on such a scale, maybe Mr Greenspan should revisit whether the authorities really do have a handle on this often terrifying aspect of modern finance."
guardian.co.uk
I agree with Buffett on his point on derivatives. The USA government operates like a casino house.
And also liked Buffett's comment (and also Bill Gate's Dad's earlier comment) regarding taxes. Buffett believes Bush's tax structure isn't going to sufficiently help the economy in the most effective way, because the tax benefit is going more to those who are less apt to spend the money - which means it is less apt to drive consumer demand. Buffett pays a 5% tax rate which is a lower tax rate than his admin, the admin being more apt to spend the money to drive consumer demand.
Tax savings don't result in more spending beyond a certain threshold, where it isn't effective at influencing people's buying habits. Tax cuts are more influential on driving consumer spending for those that are under a certain threshold. If a person's growth on a portfolio exceeds both inflation & spending, a tax cut isn't going to do a thing to encourage spending.
Will I invest the tax savings? Maybe. But will banking it into a money market fund help the economy? Probably not much - since the money market funds are already close to hitting their profit limits due to the low interest rate nearing their management fee rate.
But how about if it's banked in an FDIC'ed account where it could help drive demand for government bonds and more government debt. Maybe this tax cut might help the government's debt (obvious sarcasm intended.)
I think tax cuts should benefit those people who are more apt to spend the money, not people who are simply going to reshuffle money around from taxed savings to tax deferred when they get it.
On another note, a couple of non-hightech local businesses have extended their hours due to a noticeable increase in their revenues. So, local businesses appear to be continuing their pick up.
And with luck, the businesses will pick up across the board in the USA, before the housing shoe drops onto the consumer.
With interest rates at 45 year lows, what happens when a debt-strapped consumer has a house that's "upside down" and they can't even pay to get out of it. Will 45-year low interest rates cause 45-year high bankruptcy rates, at some point? Businesses better get a move on it, before the consumer stumbles. Interest rates can only go so low before AG's game is over.
Fortunately, it does appear like businesses are picking up.
Regards,
Amy J |
