No, it doesn’t.
Thank God! I’ll have to go scratch out the no interference with contracts clause in my copy. Or maybe its just a figment of my imagination. Contract Clause - Wikipedia
Well, who broke out the sunshines and unicorns today?
I check at lunch time and my short positions on the USD and long positions on gold were humming along nicely. So I say to myself: “Self, even though prudence is telling you to bank the profits and get out, why not let it run for a day? I mean really, what are they going to do, fix the economy before dinner?”
I come back at dinner, the Dow jumps 800 points and my gold gains for the day are wiped out. 
Or you could just read it. The Contract Clause applies to state legislatures, not the Federal Government. You don’t even have to read the whole clause, just the first two words. G’head. I’ll wait.
You are absolutely correct about the cite I gave you, and I was wrong to cite it for the proposition I did. I am an idiot.
However, Wikipedia is misleading. The feds cannot change an existing and legal private contract per the Due Process clause of the 14th amendment. Courses - LMU Loyola Law School Article I, Section 10 forbids any state from passing a law that retroactively impairs the obligation of contracts.
- Not applicable to the federal government: The Contracts Clause applies to the states only, not to the federal government. Although there is no comparable federal restriction, a blatant contract impairment would be forbidden by the Due Process Clause of the Fourteenth Amendment.
- Retroactive: The Contracts Clause only applies to contracts that exist at the time of the law’s passage.
- Legislation Only: The Contracts Clause applies to legislation, not court decisions. The judiciary has the power to invalidate a contract without violating the Contracts Clause. See Tidal Oil v. Flanagan, 263 U.S. 444 (1924).
Sure they can. SCOTUS has held several times that government (including the federal government) can infringe on the liberty of contract if the infringement is a valid exercise of its police powers.
Avoiding mass foreclosures would be a valid exercise of the government’s police powers.
Can I cite you for that proposition? I’d agree that the government could get away with canceling private contracts that put strategic goods in the hands of enemy or embargo. But is there a case that let’s the government change interest rates on existing mortgages? If so, let’s pass it tomorrow: nothing over 5 percent. Retroactive.
The SEC has signalled it may ban short selling in the stock market. That’s going to change things radically.
Ooooh. Signaling. Hmmm. Very significant. I hope that they: Hurry. The. Fuck. Up.
Nope, that job is gone. If you retain a job it is almost certain to not be cushy any more. Just like the dotcom workers who saw their cushy jobs vanish, many, many jobs in the financial sector are going to go away and the ones which remain are going to get hard. There’s just no way to go through the kind of correction the market needs without this happening.
Does it suck? Hell yes. Watching my company’s stock go from $60 per share to <$1 per share sucked too. Years of raises of less than inflation, and no bonuses, with mandatory 10% overtime for all salaried employees sucked. The market cycles. People who bought my company’s stock when it was less than a dollar have made serious money now.
You don’t need to be told any of this, you already know it. About the only way it won’t happen is if the central banks keep the floodgates open and don’t require banks to make changes(like they’ve done so far) but that just isn’t sustainable and anyone who knows anything about the financial sector knows it. Sorry dude, eight years ago it sucked to be me, now it sucks to be you.
Enjoy,
Steven
They had a story on NPR/APM’s Marketplace that you might find of interest. It makes a compelling case that selling short might not necessarily be a bad thing, and disclosure might actually be a bad thing. As always, it is for you to decide.
One part really stands out:
I don’t necessarily consider that “risk” to be a good thing.
I totally agree with the OP, but the thing that really frustrates me is that the government is taking the worst possible approach to fix it. Instead of deregulating and refusing to bail failing companies out or using regulation to fix the problems when they’re small, they keep trying to solve problems only when they’re big, expensive, and hard to solve. I’d prefer they go with deregulation, but, for the love of God, go with regulation over “deregulation until with see a huge problem and spend billions halfway fixing it”.
And I agree that the Chicken Little mentality does not help anything—stop trying to read a Great Depression into every market downturn. The people claiming the total failure of market capitalism must have some pretty worried lives; I would too if I thought our entire economy were going to implode at the drop of a hat.
Valete,
Vox Imperatoris
This isn’t the drop of a hat. Fannie Mae and Freddie Mac went insolvent. Bear Stearns went tits up. Lehman went tits up. Merrill Lynch was lucky to be gobbled up by a competitor. Washington Mutual is teetering. Morgan Stanley is seeking to be gobbled up. AIG is tits up. Ford and GM are putting out feelers to ask to borrow $50 billion. That is in the past few weeks. Millions of homes are being foreclosed. Only the willfully blind would not worry about this. Only someone with suspect understanding would describe it as “the drop of a hat”. We are in a very serious situation.
Deregulation (or lack of regulation of the new tricks to make garbage loans look not garbage) is precisely what caused these problems, and they had no choice but to bail out the companies they did. Except possibly Bear Stearns, but that’s mostly in hindsight.
And no one wants to fix the problems when they’re small because they’re too happy to sit and enjoy the gravy train.
Finally, you know, you could actually have a repeat of the Depression. It happened before, you removed the regulations put in place to stop a repeat, why can’t it happen again? I don’t think it’ll happen, but it’s a definite possibility.
One of the major causes of the depression was that the US reduced the supply of money in circulation by about a third shortly before the stock market crash. FRB: Speech, Bernanke--Money, Gold, and the Great Depression --March 2, 2004 I’m not a big fan of Milton Friedman’s thinking on many things, but he was right that this was a huge contributor to what happened. Dollars were suddenly worth a whole lot more, so people hung on to them at all cost and the economy stopped. Certainly any single digit inflation is better than that, and probably low double digits too. This is not going to happen because almost all economists agreed that this was either the only cause or a large factor in causing the depth and length of the depression.
However, there were a number of problems identified early in the depression on separating banking, stock trading and insurance that were made illegal and kept illegal until the mid-90s. The removal of those barriers, at the behest of politicians and economists like Phil Gramm (who is both) made todays mess easier to happen. Also, Greenspan, when head of the fed, dramatically reduced the amount of reserves that banks had to keep. That should not have been done, rather the percentages reduced only a bit in times of downturns, and then slowly raised again during upturns.
How much of that is legitimate mismanagement, and how much of that is the herd running from good companies? Like I said earlier, it doesn’t take much to cause a collapse. Warren Buffett himself said that things like Schumer’s memo on IndyMac can cause serious damage, how much of this was avoidable were it not for the self-fulfilling prophecy? I’s impossible to tell.
What I do know is that if people continue to flee we are in deep and utter shit. But I won’t lose sleep over it. I’m already broke. What are they going to do, take my money? When this is over I will be in a phenomenal position to look out for number one. I suppose that is some consolation.
I’m plagiarising something from another board but it seems to make sense. What do you guys think of this:
*This is a crucial phase in the collapse of the international financial system. Thus far, folks are trying to save the system from within the system. It won’t work, it just prolongs and deepens the damage being done. Loans, conservatorships, behind the scene short-squeezes, special sessions to wind down deriviative trades this past Sunday, and a bank consortia of 70$ billion backstop funds to do the same, will not pound this square peg through that round hole.
Here is the coldest, hardest fact: Most of the debt claims on this planet can not–and will not–be repaid. This is not related to the little guy. It’s the end-game of a process that began in 1971, which accelerated during the Reagan years, which was pushed along with little attempt at reform during the Clinton admin, and which has been thoroughly mismanaged in a ham-fisted way by the current bunch.
And we’re still much closer to the beginning than we are to the end.
How to proceed, then? What can be done to prevent further damage to the real economy of tangible goods production and trade by the usurious financial sector?
Regional economic blocs (e.g. G8, SCO, Mercosur) must get together and jointly agree to a fundamental restructuring of the international system. On the financial side, a stable exchange rate system must be re-enacted to enable long-term capital investment in plant, transportation and other elements in the real economy. No more floating currencies. Developed countries must once again embrace manufacturing and raw materials exporting countries must prevent further looting of their resources. Equitable trade and economic treaties must be created by and among these nations. Most of all, the FIRE economy must be dumped and such associated activity ought to resume its properly subordinate place to/within the real economy.
I’m sure no one in the power structure wanted this before the election. That the contagion could not be prevented ought to give folks an idea of just how serious this is.
You are living in historical times. The question is: how long can you live if everything falls apart? *
Nah, it is not that bad for me. I work in consumer credit, not investments. My company is very much above water. We are just doing some reengineering, so part of the workdforce is being shed. It is not nearly as drastic as the badness in the various securities worlds. I don’t make the kind of money that they do, but I am also not so subject to the boom and bust. If I do get laid off, I know a bunch of people at the credit bureaus. Given the environment, they are hiring modelers hand over fist, so hopefully all will not be lost. My stock has gone from a high od about $60 to $38, but it could be worse.
If more people stop repaying their loans, however, it will get worse.
Speaking of Chickens with their heads cut off:
-Panic until the Feds cut you several checks, that’s a smart strategy!
Oh, that’s just silly. Yes, a panic has made things worse. That applies to every situation. If your money is tied up in something, and the guy in charge says, “Actually, I’m not really sure if we’re ahead or behind, and how far of either”, is it a ‘panic’ to say, “That’s it. I’m out. Give me my money.” If you don’t take your money out, you’ve moved from ‘trust’ to ‘blind faith’ or possibly ‘bending over and begging for it’.
The problem is that there was nobody who knew (or would admit to knowing) what the hell was going on. If the guy steering the money has no idea how much of what he has is worthless, that’s just…idiotic. These are the guys who are supposed to be the ‘smartest kids in the room’, and they don’t understand the products they’re selling?
The excuse I keep hearing is that all these whiz-bang new products they were selling were too new, and complicated, so they really didn’t know how bad they might or not be. Did their statements reflect that? Did their high profits last year have an asterisk next to it followed by the words “+/- 150%”?
If my ass gets audited by the IRS, I’d damn well better have receipts for every deduction…but when I’m handing off a couple million (or billion) in mortgages to another company nobody even wants to look at the details of any of those mortgages? Nobody asks why there is a $300,000 mortgage to a guy making $45k a year with no savings, and a W-2 that shows he actually made $29k last year?
All of this could have been documented and verified, but instead it was nothing but, “Finance companies exist to make money. This involves making money. Obviously they know what they’re doing.”
Fuck that. I think everyone five years from starting in the job market should consider accounting - because we sure as hell need more watching business that are “too big to fail”.
-Joe