More Doom & Gloom to Come

Post by **KHONDAHM** » October 6, 2011, 4:36 am

I came across this nicely written summation of the impact the current Eurozone problem will have on the USA. Just in time for another Presidential election. Gee, how about that? As I posted previously elsewhere, IMHO, we've been postponing the inevitable failure of fiat currencies everywhere (aka fractional banking system, aka The Fed).

http://robertreich.org/post/11033625495

Reich's books were some of the first I read to educate myself about the problems we face which the media takes pains to avoid in favor of the latest media frenzy about some lost child in Idaho, blunder by some celebrity, or story about cheeseburgers cause cancer...distractions.

There should have been a media frenzy when and since Republicans repealed the Glass-Steagall Act of 1932 and other legislation which got us to where we are now.

If you haven't been planning for it, time to get "radical" now, get your head out of the sand, and protect yourself...

Post by **maaka** » October 6, 2011, 6:55 am

I dont know much about you Demos and Repubs, and all the hoo haa that you throw at each other from time to time, but yes we are riding for a fall..we are like a runaway freight train coming to the end of the line..the lending banks cant even loan to other banks anymore, so the end is nigh..when Greece and the rest of Euro topple over, look out, the montary tsunami will wash us all away, unless we get to high ground now....

Post by **semperfiguy** » October 6, 2011, 8:28 am

Question for the more experienced financial gurus: What's the risk of having all IRA funds tied up in an Oppenheimer Money Market Fund! It's making 0% return right now, but is there assured preservation of capital in the worse case scenario? Just considering some options right now to protect myself.

Post by **rjj04** » October 6, 2011, 9:24 am

KD you missed my personal favorite, stumbled upon by myself when the remote control somehow changed the channel to that brainwashing US "news?" outlet... ah Faux News I believe it is... the seriously considered, and highly evidential Pizza Diet. I and TGF couldn't stop laughing.

semperfiguy, I might be mistaken but MMFs will be particularly vulnerable. I would suggest moving to a brokerage house, such as Scottrade, that keeps your cash in savings accounts at the top banks ranked for security as opposed to say WFG which I believe was ranked C before the crisis. I believe most banks have declined in viability since the 08-09 scare. Capital preservation is far more important than getting another fraction of a percent of interest. Better yet, get an account outside of the USA, say Canada where banks are on a much better footing - though not invulnerable. All IMHO!!

I believe the actual quote is closer to...
"Ignorance is preferable to error, and he is less remote from the truth who believes nothing than he who believes what is wrong." -President Thomas Jefferson (Notes on Virginia, 1782)

a favorite of mine...
Question with boldness even the existence of a god; because if there be one he must approve of the homage of reason than that of blindfolded fear. -President Thomas Jefferson, letter to Peter Carr, August 10, 1787

Post by **KHONDAHM** » October 6, 2011, 12:03 pm

semperfiguy wrote:Question for the more experienced financial gurus: What's the risk of having all IRA funds tied up in an Oppenheimer Money Market Fund! It's making 0% return right now, but is there assured preservation of capital in the worse case scenario? Just considering some options right now to protect myself.

Great question. Easy answer: Look at what happened to that fund (or any other) in 2008. Then magnify it BUT do away with any assistance it [the offering investment house] might have received afterward from TARP and the like - because there will be no "rescue" next time.

Oppenheimer’s Bond-Fund Blowup: Worse Than You Think
http://moneywatch.bnet.com/investing/bl ... think/185/

Oppenheimer May Seek TARP Funds to Repay Auction-Rate Clients
http://www.bloomberg.com/apps/news?pid= ... ljCvW87J0M

Post by **Sateev** » October 6, 2011, 3:04 pm

Robert Reich is the real deal. If he were only dumb enough to run for President, I would vote for him.

But he's not.

Post by **rjj04** » October 6, 2011, 3:29 pm

Sateev wrote:Robert Reich is the real deal. If he were only dumb enough to run for President, I would vote for him.

But he's not.

Ditto! I've always had great respect for him.

Post by **semperfiguy** » October 6, 2011, 6:48 pm

KHONDAHM wrote:
semperfiguy wrote:Question for the more experienced financial gurus: What's the risk of having all IRA funds tied up in an Oppenheimer Money Market Fund! It's making 0% return right now, but is there assured preservation of capital in the worse case scenario? Just considering some options right now to protect myself.
Great question. Easy answer: Look at what happened to that fund (or any other) in 2008. Then magnify it BUT do away with any assistance it [the offering investment house] might have received afterward from TARP and the like - because there will be no "rescue" next time.

Oppenheimer’s Bond-Fund Blowup: Worse Than You Think
http://moneywatch.bnet.com/investing/bl ... think/185/

Oppenheimer May Seek TARP Funds to Repay Auction-Rate Clients
http://www.bloomberg.com/apps/news?pid= ... ljCvW87J0M

KHONDAHM and others, I was actually referring to the Money Market Fund, Inc. and not a bond fund. I think after doing further research I have answered my own question. No return for now is OK...preservation of principal is all I'm after right now. What are your thoughts based on below?

Money Market Fund, Inc. (Oppenheimer)
ClassA OMBXX

Strategy
The Fund is a money market mutual fund that seeks the maximum current income that is consistent with stability of principal. The Fund seeks to achieve this objective by investing in "money market" securities meeting specific credit quality standards.

Post by **Sateev** » October 6, 2011, 7:17 pm

Money Market funds are rooted in the financial industry's definition of 'cash-equivalents', but are NOT cash. Nor are they all the same. What they have in common is that they're all very liquid - easy to buy and sell - which is why you can write a check against your money-market account without having to sell shares and wait for them to clear.

However, it is NOT cash, in the sense that it is invested in some security or other that you don't know about and certainly don't own. If the fund, Oppenheimer, Fidelity, etc., goes down, you have no recourse - they are NOT FDIC insured.

They may, in fact almost certainly, have bonds as the underlying asset, so it's still a bond fund.

The quality and risk/yield of various Money-Market funds are not the same, either. They range from US Treasury-only funds on up the ladder of risk/return. The problem is illustrated in the language they use (and you have quoted) to describe the Fund: it isn't clear just what securities they invest in, or exactly what risks are incurred.

So, the real question is whether a money market fund is as safe as cash. And they answer: they are, until they're not.

Post by **semperfiguy** » October 6, 2011, 7:58 pm

Sateev wrote:Money Market funds are rooted in the financial industry's definition of 'cash-equivalents', but are NOT cash. Nor are they all the same. What they have in common is that they're all very liquid - easy to buy and sell - which is why you can write a check against your money-market account without having to sell shares and wait for them to clear.

However, it is NOT cash, in the sense that it is invested in some security or other that you don't know about and certainly don't own. If the fund, Oppenheimer, Fidelity, etc., goes down, you have no recourse - they are NOT FDIC insured.

They may, in fact almost certainly, have bonds as the underlying asset, so it's still a bond fund.

The quality and risk/yield of various Money-Market funds are not the same, either. They range from US Treasury-only funds on up the ladder of risk/return. The problem is illustrated in the language they use (and you have quoted) to describe the Fund: it isn't clear just what securities they invest in, or exactly what risks are incurred.

So, the real question is whether a money market fund is as safe as cash. And they answer: they are, until they're not.

Well defined and articulated Sateev! I recall from previous posts that you have money tied up in an IRA as well. Since I can't take it out all at once without incurring some heavy taxes, I guess I'm about as safe as I can be for the time being...stuck between a rock and a hard place! If the situation gets so dire that a money market fund goes under, I guess I could always try my luck at BASE jumping from a 5th floor Pattaya balcony!

Post by **KHONDAHM** » October 6, 2011, 8:32 pm

My thoughts on any fund are pretty much the same: They all tank under pressure of mass redemptions. There is no safe paper investment haven. They are all leveraged. They are all derivatives or the basis for a derivative. Every derivative is another domino set to fall. There are no exceptions.

Post by **parrot** » October 6, 2011, 8:46 pm

My credit union (Pentagon Federal) insures all accounts (savings, checking, money market, CDs, IRAs, etc) up to $250,000.

According to the National Credit Union Administration:
NCUA protects the money you have in a federally insured credit union up to $250,000, same as FDIC protects money in a bank account. And just like FDIC, NCUA insurance is backed by the full faith and credit of the U.S. government.

Whereas I also have a small money market account with Charles Schwab that does not carry the same FDIC backing.

This extract from PFCU's website:
For nationally high yields with government backed insurance, look to a Pentagon Federal Money Market Savings Account (MMSA)

Yes, I understand that the 'full faith and credit of the U.S. government' could be called into question, but if that happens, I'm likely going to be in front of Semper on that fifth floor balcony.

For what it's worth, money market accounts aren't giving squat for interest these days.

Post by **KHONDAHM** » October 7, 2011, 12:43 am

The only thing is...the FDIC is broke. Google and read all about it. Sounds like some here are not aware of that little problem (playful sarcasm). So what to do when the insurer of last resort is broke? Well, the Republicans thought of that during the height of the bubble and passed new legislation to freeze any or all accounts in any financial institution backed by the FDIC. That was a huge red flag to me at the time that some knew more than the public that the potential for runs on banks ala circa late 19th century was likely a future possibility. Sinister, but makes sense in a wicked sort of way.

Post by **kumphawapi** » October 7, 2011, 12:44 am

Money in the bank may retain its value in numerical terms, but the latest buzzword - as used by the UK government - is quantitative easing, or printing more money. Another word for this is devaluation. The UK pound lost 1% of its value today. This is effectively a 1% tax on anyone and everyone who holds assets in UK pounds. Used carefully this is a strategy that may improve the longer term prospects for the pound, The UK shows a reduction in International Investment Position from owing 757 341.7 million dollars in 2006 to owing 282 415.7 million dollars to 1st quarter 2011. The US peaked in 2008, dropped in 2009, but has risen again in 2010 to owing 2 470 989.2 million dollars. If they try and follow the same strategy than your dollar savings go down as well. However there is a risk if countries start to compete with each other to devalue their currencies. We all lose our savings!
Countries that are the big creditor nations like Switzerland and Japan are also at risk if the money they have lent out is put at risk by world wide financial instability.
On paper I would suggest that the most stable home for savings are those countries least exposed to international lending and borrowing, and have sufficient natural resources to be relatively immune from worldwide financial contagion. That would suggest countries like Russia or Argentina. It is a shame that detailed and accurate figures for Thailand are not on the system. It would be nice to know how it compares.
Figures from the IMF statistics at http://imfstatext.imf.org/WBOS-query/In ... eryId=6325

statement for Thailand
http://www.imf.org/external/am/2011/mme ... 6312224001

Post by **KHONDAHM** » October 7, 2011, 12:54 am

Just one look at the FDIC Bank Failure list should be enough proof of how things have been going for them:

http://www.fdic.gov/bank/individual/fai ... klist.html

2005-2011. Bank failures are not slowing down, my friends. The only reasons why there are not even more is because they are broke and they still do not have enough staff even after going on a hiring rampage 2009-2010.

As for what countries are "safe", that would be one with zero exposure to the global financial system AND has a 100% (not fractional) reserve banking system. That would be...ummm...none?

Post by **WhoUrDaddy** » October 7, 2011, 7:05 am

Singapore

Post by **rjj04** » October 7, 2011, 7:55 am

KHONDAHM wrote:... passed new legislation to freeze any or all accounts in any financial institution backed by the FDIC.

KD, I can count on you to ruin my morning

You are always the bearer of bad news, but in a helpful sort way of course

I thought this legislation only applied to IRA accounts? So, even if the sweep account of my non-IRA brokerage account - Scottrade - does use the banks with the highest safety rankings (supposedly) and those banks do not go under when the proverbial hits, my cash could still be locked up by our wonderful US government? During the Great Depression not ALL banks went under, that is a fact I was counting on here. I surmised that I might lose some cash if some proportion of the banks in the sweep system went under, but definitely not ALL the cash. I thought perhaps I could even do some vulture investing since everything would be collapsed. That might offset the losses. Seems once again I was wishful thinking? I moved from Etrade and TD Waterhouse before the previous collapse (08) because it scared the heck out of me that these "brokerages" were starting to give out mortgages, and I could see where that was leading. Scottrade - being privately held (more skin in the game) and not acting like a bank giving out mortgages - seemed the best bet for me. Now I need to rethink this situation.

Leave it to the best and brightest on the Wall Streets of the world to screw things up this badly!

I guess this is why they deserve the millions (if not billions) in bonus checks each year.

Post by **rjj04** » October 7, 2011, 8:01 am

WhoUrDaddy.... can you please be a bit more specific, as in maybe a link or two? For those of us unfamiliar with Singapore [-o< thx

Post by **parrot** » October 7, 2011, 9:25 am

I may be the one to regret this, but: If the warranty on my new car 'five year guarantee', I don't lay awake in bed all night worrying that the company will go out of business before my 5 years are up. If the FDA says fluoride in my drinking water is okay for me, it's okay with me. When my insurance company says it will pay my family in the event of my death, I sleep well at night. When my airline says the plane will take off at noon, I don't lose sleep worrying that it will take off late. If the US government says it will cover my savings or says it will provide me social security when I'm of age, then I trust the US government will do that......and I sleep well at night. Matter of fact, I generally sleep 8 hours a night. If all the world's big economies go bust, I'll still be in the same shoes as 98% of everyone else....which is generally where I am today. So, I don't imagine my sleep patterns will change much. JMHO.
On the positive side of things, the weather sure has been nice the past few days.

Post by **rjj04** » October 7, 2011, 2:52 pm

Save for the odd trip to the loo, I manage to get my eight hours of sleep in as well. I also manage to try and take care of my finances. The two tasks are not incompatible. Thinking things through, kept me away from buying that $1M house at the top of the market when some people were pushing me to do that, and kept me from speculating in the insane dot.com fiasco of the late 90's. To each their own, I guess natural selection will sort it all out in the end.