Redstate

abolish the Department of Education, the Homeland Security Department, and replace it with a Department of Alchemy :)

btw, I have no problems with dropping the Department of Education, including those lame NCLB country schoolyard entrances.

Molon Labe!

Fiat stock has been doing quite well, maybe we should stick with fiat.

Molon Labe!

Last time I trust google. I used the wrong conversion rate. Fixing now!

HTML Help Central for Red Staters

out of unabashed self-interest.

Nervously,
SW

is he is destroying the good name of many libertarians. He is a horrible front man for the libertarian ideas that have been a major part of Republican conservative thought for a long time.

Molon Labe!

So Ron Paul's solution to fixing inflation is... inflation?

HTML Help Central for Red Staters

That's the beauty of the plan. Because the currency is backed by gold the feds won't be able reduce the money supply by way of raising interest rates, so their only alternative will be to cut spending. Monetary policy will be on autopilot (gold standard) so all you have to contend with inflation is fiscal policy.

So, say there is a spike in inflation, what do you do? you get rid of the Department of Education.. another spike? there goes the department of Housing and Urban Development.. yet another? bye bye Department of Commerce.. Ron Paul is one of the greatest minds of the modern era.

This one makes less.

1. We don't have sufficient gold to "back" our current level of currency. Or did you miss that.

2. Inflation is caused by an increase in the money supply.

3. If you fix the money supply by hitching it to gold, which is fixed in it's supply, where does the inflation come from?

4. I was under the impression that as President Mr. Washington Jefferson Adams Paul was going to do away with the Departments of Education, HUD, Commerce, etc on his first or second day so where did you pull this comment come from. (Don't answer that one, it will violate the posting guidelines!)

5. RonPaul™ is one of the greatest minds of our time. I thought he had one of the greatest minds of the late 1700's.
____
CongressCritter™: Never have so few felt like they were owed so much by so many for so little.

well, the money supply has to be increased at a rate slightly higher than the growth of the economy. So there will have to be some inflation. If you keep the money supply constant you strangle the economy.

In the previous post that you did not understand I explained that there is enough gold. You are trying to calculate the amount of gold needed based on its current price. But when the government starts buying gold in large quantities the price of gold will increase sharply so you will need less gold to back all the currency. There is more than enough gold because the more gold you buy, the more expensive it gets and the more expensive it gets the more currency it will be backing.

And yes, inflation is caused by an increase in the money supply. That's why the only way you can control inflation is by reducing the money supply by raising interest rates or cutting spending.

1. Please explain EXACTLY how there is enough gold. The "buy it up" rationale doesn't wash. How much gold is currently available, how much new gold is mined every year, how much currency backed by gold is necessary in the marketplace. Specifics please. You might also want to address the impact of the price of gold artificially going up because the feds are buying it. You might want to check into the history of the silver market...

2. Why does the money supply need to be increased? Isn't the whole POINT of a gold backed currency to eliminate inflation and the arbitrary increase in the money supply?
____
CongressCritter™: Never have so few felt like they were owed so much by so many for so little.

HTML Help Central for Red Staters

You are missing the the point. You need to understand how supply and demand works before you can grasp this. As demand goes up for a fixed supply of gold, the price will keep going up until you reach a balance ie. price level, where supply and demand will match.

So basically if your money supply is $100 and you have one ounce of gold, supply and demand will set the gold price to $100/ounce and all your currency will be backed by gold. If you wanna know what the price of gold will be, you take all the money in circulation and divide by the amount of gold available. That will be the new price of gold and all your currency will be on the gold standard. From then on is where it gets interesting because the government won't be able to create money, so all new expenditures will require a corresponding amount of gold coming into the system.

Alan Greenspan agrees with Paul, BTW:

http://www.polyconomics.com/searchbase/02-01-00.html

Read the last sentence of that page.

For a gold standard to work the way you think it should (constraining the government's ability to spend), you need to do it the old fashioned way: the government sets a fixed conversion price between dollars and gold, and commits to convert any amount of dollars for gold at that price.

What you're describing with all this supply/demand nonsense is nothing different from what we have today. The market sets the dollar price of gold, valuing it not as money, but as an industrial commodity.

From the 1820's until early 1934, the gold price was $20.67/oz. Then FDR did the one thing that totally smashes your theory that the government can't create inflation with gold-backed money: he changed the conversion rate to $35/oz, which of course inflated the dollar by nearly 40%.

To this day, there is a legally-mandated official conversion rate for gold, but of course you'd never trade at the official rate. It's something ridiculous like $42/oz.

Greenspan has admitted that his fondness for gold-backed money is nothing more than a fondness, and one that is shared by very few others in his profession.

We are in agreement more than you think. I was answering to an earlier question about there not being enough gold available.

And the way you determine the price of gold that you're gonna use to work the transition is through supply and demand. You have a fixed money supply and a fixed amount of gold. You divide one by the other and that will give you the fixed price of gold that you're gonna use from that moment forward.

But you are right. You don't buy any gold. You use the gold that you already have and by decree you state that this gold is worth the same as all the money in circulation. That completes the transition and from then on the price of gold is fixed.

You have a fixed money supply and a fixed amount of gold ... and that will give you the fixed price of gold that you're gonna use from that moment forward.

Yeah right, and I've got some great ocean front property in Nebraska I'll give you a good price on.

History has shown there's nothing about a gold standard that keeps the government revaluing gold to expand (or shrink) the money supply, just as easily as it can expand the money supply now by in effect printing more currency to buy treasury bonds (or shrink it by selling bonds). The main difference is bigger lurches with a gold standard, and arbitrage opportunities at the expense of American taxpayers when we're trying to avoid adjusting the gold price to current reality.

The gold standard advocates used to push it as a way to constrain the Fed from accelerating inflation by monetizing debt. These days the more common complaint is that the Fed isn't increasing the money supply fast enough to keep short term interest rates as low as critics think it should be.

The optimal money supply size increases as our GDP increases (and other factors), and we're supposed to assume that changes in supply and demand for gold supply will occur at just the right rate to maintain stable prices and economic growth. Has anybody demonstrated that the supply and demand for gold changes in better sync with how the optimal size of the money supply changes, in comparison with how the Fed has controlled it for the last three decades starting with Volker?

I still think your idea is nuts.

Under a pure gold standard without any government manipulation, gold is money. How can you make gold more expensive by "buying" more of it? What are you going to use to buy it with, wampum? Cowrie shells? Remember, you've abolished fiat dollars, so they're now meaningless.

In the past when we've had free gold and silver coinage, the government didn't buy the metals. They just assayed and minted the metal of any miner who walked in the door with it. The miner walked in with bullion and walked out with money.

Exactly. "Buying" is not the best word. "Converting" would be better. Check my previous post.

n/t

The Fuzzy Puppy of the VRWC. I've been usurped!

You're just as dumb as he is.
____
CongressCritter™: Never have so few felt like they were owed so much by so many for so little.

But Booty is on stage every night at your local Gentlemen's Club starting at 2200 local...

"It's a book about a man who doesn't know he's about to die, and then dies...
...But if the man does know he's going to die and dies anyway. Dies, dies willing, knowing he can stop it, then...
Well, isn't that the type of man you want to keep alive?"
Karen Eiffel, Stranger Than Fiction

Just herd them, tin foil and all, in to the special FEMA camps for refugees.

They are probably there already.

When you see a conspiracy everywhere, something had to have happened to you... like when they told you to leave you decided to sit back in a city under sea level to "see what happens."

Come on.

HTML Help Central for Red Staters

n/t

Hadn't read the diary till now. My initial thought was "Isn't there a Harry Potter book by with a title to answer this question?"

Well played.

"My heart was here...I feel like I have unfinished business here." - Roy Hibbert

For those who prefer Anime (Full Meatl Alchemist)
or Alchemical Theory to Harry Plopper...

"It's a book about a man who doesn't know he's about to die, and then dies...
...But if the man does know he's going to die and dies anyway. Dies, dies willing, knowing he can stop it, then...
Well, isn't that the type of man you want to keep alive?"
Karen Eiffel, Stranger Than Fiction

---
(Formerly known as bee) / Internet member since 1987
Member of the Surreality-Based Community

Since when is support for the Gold Standard a definitive part of libertarian philosophy?

You're talking to a guy, remember, who wants to end all mandatory spending, eliminate multiple executive departments, and overall cut the federal budget from over two trillion to under one trillion.

But that doesn't mean I support the gold standard, or even see how it's feasible.

HTML Help Central for Red Staters

The gold standard is tin foil hat stuff at this point, but it is deeply intertwined with libertarian philosophy, going back to most of the austrians (Hayek and Mises were big gold bugs, Rothbard more contemporary). The idea obviously being that government is not to be trusted to do anything other than inflate the currency, which the gold standard doesn't allow (at least not as obviously). The experience of other countries with paper money doesn't exactly disprove this (though it doesn't make the gold standard any more feasible).

Now, most libertarians gave up on this in the 70s and 80s because it doesn't work. But Paul is in his 70s, and probably developed his philosophy when gold standards and libertarianism went hand-in-hand.

Again, I'm not saying don't crucify me on a cross of gold. I'm just saying there is some significant historical linkage.

http://www.myelectionanalysis.com

I'm sympathetic. Roosevelt and Nixon had major parts in our current system, and those aren't names that lend the greatest credibility. There are good arguments against it.

We just need to be sure of what we're doing is all, heh.

HTML Help Central for Red Staters

... more it's current moonbat-infested adherants.

Really.

-------------
Diplomacy is the art of saying 'Nice doggie' until you can find a rock.

Ron Paul is a poor libertarian. If you are interested in a real one, check out Wayne Allen Root. He is running for the LP nod. I am not supporting him by any means, but he beats the looney Ron Paul. Roots most well known book is titles "Millionaire Republican". He left the party over the social cons, particulary over the stupid internet gambling prohibition.

Molon Labe!

I don't like Ron Paul either, but do you even want the libertarian wing in our party anymore?

To the extent you can define a small-l "libertarian wing" of the Republican party I'm clearly part of it, and I'd resent being grouped with a kook like Ron Paul. He's more like the capital-L LSD wing of the party (thankfully smaller than the number of Kossacks who vote for him in the online "polls").

Moe! We need a dull, rusty harpoon here...
____
CongressCritter™: Never have so few felt like they were owed so much by so many for so little.

Trusting the government is what we conservatives stand for.

Stupidity is what a Moby stands for.

___________________________________
The CIA has better politicians than it has spies - Fred Thompson

The Fuzzy Puppy of the VRWC. I've been usurped!

conservatives actually believe. I suggest you do a little reading and I would bet it makes a lot more sense to you than the tripe you are getting fed from the libs.

It was Regan who said "the most dangerous words in the English language are: I'm from the government and I'm here to help" I may be paraphrasing, but you get the gist.

That is the real reason Republicans got whacked in Nov 06 - they forgot how to be conservatives.

He was saying I'm a statist because I asked about the logistics of the gold standard, which is to say he dodged the issue entirely.

HTML Help Central for Red Staters

Honest, I was... but then realizing he was a troll, I thought maybe he really did think that is what conservatives think. The way the libs paint it, you never know, they are sophists.

Yeah - that's about right.

"It's a book about a man who doesn't know he's about to die, and then dies...
...But if the man does know he's going to die and dies anyway. Dies, dies willing, knowing he can stop it, then...
Well, isn't that the type of man you want to keep alive?"
Karen Eiffel, Stranger Than Fiction

...he was faking his away through other comments threads before getting tossed. We don't like fake conservatives.

Moe

PS: All future concerns regarding our moderation policy are best made via the Contact link found at the top of the screen. Thank you in advance for your compliance.

The Fuzzy Puppy of the VRWC. I've been usurped!

Damn RINOs!

Nowhere in the diary did I criticize the plan. All I asked is how we're going to get the gold reserves necessary to back our currency.

It's a simple question. It's a fundamental question even. And with as many people around who want the gold standard, you'd think someone could answer it rather than digressing on why they want the gold standard.

The question isn't what or why. The question is how?

HTML Help Central for Red Staters

The key to having a stable commodity-backed currency is that the value of the commodity must be stable.

Things like coffee, diamonds, or oil are no good because factors like weather and technology can make the value fluctuate strongly. Aluminum once upon a time was as valuable as gold or platinum, but once we found a way to extract it cheaply from ore, it became as cheap as it is today.

Gold, though, isn't going to change value anytime soon unless the Earth starts passing through meteor showers made of gold or something. So it would work as a backing for our currency, in theory.

Another factor in choosing a backing is that the commodity has to be acquirable in the quantities you need in order to be able to survive a run on your currency. Whether gold qualifies is the question I'm asking in this diary.

I'm not inherently opposed to the gold standard. I just want to see some real argumentation for it, rather than stuff that sounds like tin foil hattery.

HTML Help Central for Red Staters

Gold demand fluctuates. Gold supply fluctuates. Outside factors, such as armed conflict, affects gold production. Gold mines run out. Technology makes it feasible to build deeper gold mines and harvest gold that wouldn't have been possible to get 20 years ago. As technology develops, gold is replaced with other metals in industrial uses or vice versa. As tastes change, gold is replaced in jewelery with other metals or vice versa. Seems to me, as a result, the price will vary just like any other commodity.

The price of gold has increased far beyond the rate of inflation over the past half dozen years. For over a decade before that period it couldn't even keep up with the rate of inflation, and in fact declined in value.
---
Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman

We've had almost 3 decades to observe very long periods of low inflation and economic expansion happening concurrently. Our unemployment rate would've been considered to be beyond full employment back in 1980.

Back in 1980 it is understandable that people would be willing to latch onto anything that might make a difference, because things were so miserable at the time.
---
Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman

This is interesting to read, given what we know happened after 1981:

Some supporters of the yellow metal favor a "fractional" gold standard in which money would be only partially covered by Government gold stocks. This would not entirely remove the Federal Reserve's role in monetary policy, but would restrain its powers to issue paper money. They believe that the Fed's policy of controlling inflation through the money supply is well intended but ineffectual. Lawrence Kudlow, chief economist of the Office of Management and Budget, says that the Federal Reserve has become a "monetary Gong Show."

Well someone didn't see Reagan and Volcker setting the stage for an extended economic expansion coming after the next recession, heh.

The notion of returning to the gold standard comes from the same supply-side economists who fostered the cuts in personal income taxes that President Reagan is now trying to get through Congress. Such supply-siders as Economist Arthur Laffer and Consultant Jude Wanniski have been putting the gold bug in politicians' ears for the past several years. Republican Congressman Jack Kemp of New York, co-author of the Kemp-Roth tax-cut bill, says that he plans to take up the gold banner as soon as he has completed his drive to lower taxes. Republican Congressman Ronald Paul of Texas and Republican Senator Jesse Helms of North Carolina have introduced bills that would restore some version of the gold standard. Says Laffer: "President Reagan is going to have a lot of trouble if he does not go to a gold standard soon." Laffer argues that a gold standard should accompany a supply-side tax cut to give consumers incentive to save.

Kemp: Success. Paul: Failure. Why didn't he just join forces with Helms? Because Helms was pushing a fractional system that left the Fed intact, and Paul didn't want that, or something?

HTML Help Central for Red Staters

South Africa and the U.S.S.R. South Africa mines more than half the world's gold, 21.7 million oz. last year. Most of it is extracted by black miners, whose treatment by their apartheid government is a matter of international concern. In the case of a revolt or strike by the workers, a halt in production could drive up prices and disrupt world commerce. The Soviet Union holds an estimated 60 million oz. of gold and has unmined reserves of perhaps 250 million oz. more. At today's prices, that would give the Soviets a $146 billion stranglehold on Western economies.

Between having the dollar's stability depend on some economists working with scant information, and having the dollar's stability depend on the Soviets and the South Africans, I know which I'd have preferred.

HTML Help Central for Red Staters

That article suggests it's possible to have a fractional backing, where we'd not have to have 1/660th of an ounce of gold for every dollar in the system. But that would require us to keep the Fed in place to continue regulating our existing fractional reserve system.

Ron Paul opposes the Fed though, so the burden is still on his supporters to show how we can operate without the Fed, which I assume means having the dollar 100% backed and creatable only by the Treasury, not by banks.

HTML Help Central for Red Staters

Are when you hire someone to manage your money and have no idea what it is invested in. If he is in a blind trust, he's not going to have most of his money in gold. Well, unless he hired some nutter to make his investment decisions, in which case he might, but he wouldn't know about it.
---
Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman

That's a perfectly fair answer. Thank you.

We wouldn't be able to ditch the Fed, though, because we'd still have to manage our current Federal Reserve Notes that were circulating with the new Gold Backed Notes.

HTML Help Central for Red Staters

The only real positive I can see to the gold-standard argument is that it (putatively) gets the Federal government out of the business of managing the banking system. Also, some people think it would be a good idea if the government were no longer free to create inflation.

These arguments have been hashed out many times, over many centuries. For us to do it all over again here seems like a waste of time. I know the Austrians were sympathetic to gold standards, as was (guardedly) Alan Greenspan. On the other hand, Ben Bernanke is aware, and has forthrightly (and famously) said so, that his job literally is to create inflation, and he does so by statutory mandate.

Silver was the primary monetary metal for most of human history. But the world has had two major eras in which more-or-less widely-used gold standards were used, and both ended badly. There was the Bank of England gold system used in much of the 19th century, that persisted (with some major interruptions, like WW 1) until about 1930.

Then there was Bretton Woods, which collapsed in 1971.

The feature of gold standards that you take for one of its great attractions (the fact that it operates "automatically") is also the source of the trouble.

Gold-standard periods are typified by frequent panics and major economic disruptions. There were four major panics in the 40-odd years before the Federal Reserve was created in 1913. And these weren't the candyass "recessions" we have nowadays. They were major problems, with double-digit percentages of unemployment, bank-runs, and suicides by people who lost their life savings overnight.

Gold standards interact very badly with periods of economic growth, because in such times they create huge deflationary pressures, which mercilessly squeeze farmers and wage-earners. The US went back to full gold convertibility in 1879 after a decade of preparation. This was a decade characterized by extremely high growth in the nation's industrial output, combined with technological innovations (most notably railroads) that reduced real costs throughout the economy. And yet, it was a deflationary decade.

Now you might very well make the argument that the United States of all countries could afford to go back to gold because we are no longer a growing economy in real terms. (Real growth this year will probably be less than one percent, about on par with population growth, including illegal immigrants.)

But economies in the rest of the world are hot as a firecracker. And to a very great extent, the world economy runs on fiat dollars. Going back to a gold standard will choke this growth right back to near nothing.

The fundamental problem with gold-standard advocacy is that it mistakes the real relationship between money and economic activity. The total amount of money doesn't actually matter at all. What matters is the total amount of economic activity, as it relates to the production of goods and services that enable people to meet not only their survival needs but their desire for personal fulfillment through interesting work.

Going back to a gold-standard will displace the development of economic activity in favor of the development of money. It's really not what you want to see happen.

Given the volume of gold that has been used for industrial purposes, my little baby's humidifier has gold in it somewhere, wouldn't there always be a problem of regulating how much specie was in circulation?

People could become very inventive in how they start extacting and recirculating this. They could do the same now, and they might even make some dough of it, if they can extract a lot of gold for a minimal effort. However, I tend to think this could be bad if these recycling efforts also effected the value of the national currency.

James Hansen - Scott THomas Beauchamp with a PhD.

The radical libertarian position rejects the idea of a "national currency." Money is just gold or gold certificates. The amount of money in circulation depends entirely on the amount of metal that gets mined out of the ground. (South Africa becomes one of the richest nations on earth.) You'd presumably have private labs to assay the purity of coined gold, or just use the services of the Treasury to do the assaying and print gold certificates or mint coins, as they did in the mid-19th century.

The fact that various private, unregulated activities such as you describe will affect the total amount of money, is part of what's good about a pure gold standard, according to its advocates. As long as the government doesn't do it, they're cool.

was the anthem of populism and industrial strife in this Country for most of the post-war 19th Century.

We argue a lot here about the various emanations and penumbras of the 14th Am., but the most significant and controversial clause at the time of enactment was the guarantee that US War Debt be repaid in gold while the rest of the economy lived on inflated and inflatable Greenbacks and subsistence agriculture. The huge silver strikes of the '70s and '80s made silver the more plentiful and attractive specie.

Since my home was once the richest town in America because it sits on one of the World's largest and most productive gold mines, I could get behind going back to the Gold Standard, but most of you wouldn't like it. The Alaska-Juneau Mine behind downtown Juneau has over seven hundred miles of tunnels in Mts. Roberts and Juneau and the Treadwell Mine accross Gastineau Channel was almost as large and even worked under Gastineau Channel. The Channel broke through in 1918 and the Treadwell never reopened. The A-J lost its deferments for its miners in '44 since gold was no longer considered strategic. With the low fixed price of gold after WWII, it was not reopened after the War. Attempts in more recent times have been stopped by the greenies.

In Vino Veritas

If we did go back to a Specie-Backed currency, I wonder how long it would be before politicians began to campaign for bimetalism. Imagine the populist appeal of a deliberately debased currency to a nation a wash in credit-card debt. It's about as ethical as paying the baloon payment on your non-traditional mortgage with North Korean $100 bills, but man would the voters eat it up.

James Hansen - Scott Thomas Beauchamp with a PhD.

...was the well-known good-money/bad-money problem that is endemic to bimetallism. You make good points about the post-Civil War peiod. (Greenbacks were finally withdrawn by 1879, if I recall correctly, after arduous and deflationary preparation.)

However, the weirdnesses and dislocations of bimetallism were in evidence from the Revolutionary period onward, not just after the Civil War. Different countries at different times set the gold-silver conversion ratio at slightly different points at different times, resulting in huge movements of metals in and out of countries.

As I said upthread, money isn't the point. Economic activity is. When you let metals run free, you get uncontrollable situations that are all about money, and not about jobs, goods, and services. Far more trouble than it's worth.

I think you may have meant to say that the "Cross of Gold" speech (which was made in the summer of 1896) was the culmination rather than the anthem of the late 19th century free-silver movement.

Bryan's speach was just the best, I think, articulation of how the farmers and laborer's felt about the gold-based economics of the last half of the 19th Century.

I remember my grandfather telling of going off to attend college in Savannah, GA in the early 1900s, don't know exactly when but he was born in '86. US currency was so scarce in the rural South that he had only trading script from a timber company that he'd sold timber to and his great fear - that ninety odd miles was a big trip in those days and the train ticket took all his cash - was that when he got there no bank would accept the script. They did and he got to go to school for a while. Modern Americans can't conceive of living like that.

In Vino Veritas

I already knew all that, but you put it in succinct words.

off of our disatrous fiat currency system

The past 25 years of economic expansion and low inflation in the US do not support your characterization.
---
Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman

Given that we ban retreads on sight.

The Fuzzy Puppy of the VRWC. I've been usurped!

but I think you've been a little "ban-happy" in this thread.

I'm not sure how you considered (the original) Wampuss's comments as trollish. Slightly obnoxious, annoying, less-than-brilliant?

Sure, but since when does that get you banned?

...and merely note that banning one moby, then rebanning him when he came back is an odd definition of "ban-happy." I think that the designation should be reserved for threads where I'm reproducing the aesthetics of the Japanese club fight scene in Kill Bill.

The Fuzzy Puppy of the VRWC. I've been usurped!

at least with respect to this particular harpooning, you made both Franz & I happy.
____
CongressCritter™: Never have so few felt like they were owed so much by so many for so little.

>>>We've had four major financial crises in the last 10 years alone.

I remember reading One Up On Wall Street where Peter Lynch chose the wrong weekend to plan an international golf outing during the late 1980's. When he came back, the DJIA had dropped about 300 points and the masses were hysterical.

Imagine if the DJIA had dumped c. 1000 points in 1987. This whole AU Standard would be a serious possibility. This leads me to wonder wether we still are as vulnerable to these financial crisis as we used to be.

James Hansen - Scott THomas Beauchamp with a PhD.

...as inflation. Its role as a lender of last resort gives the Fed's chairman a huge amount of moral force when dealing with individuals in crisis.

The reason that free markets occasionally go bananas and start destroying things with wild abandon, is because people are subject to panic attacks in combination with herd mentality.

Investors are like a huge herd of antelope at the watering hole. All it takes is for one guy to get spooked because he thinks he sees a lion in the underbrush, and everyone is suddenly running at top speed in the other direction.

You give the example of 1987. If I recall correctly, the situation after Black Monday was that S&P futures at the Chicago Merc finished the day trading far below the fair value of the index, which was already very low after the day of slaughter.

Supposedly, Alan Greenspan, who just had settled into the Fed Chairman's job, called Leo Melamed at the the Merc at midnight that Monday night, and asked him point blank if the Merc would open the next morning. The big concern is that one or more large futures traders wouldn't be able to meet their nightly mark-to-market.

The story continues that Melamed worked the phones through the night and right up till the minute the Merc opened the next morning to make sure no one would pull the trigger on their counterparties' positions. That's what it took: keeping everyone from blowing his stack. But all hell would have broken loose had the Merc failed to open that morning.

Same thing happened in September 1998 when Long-Term Capital blew. The story goes that the guys who run the New York Fed put the CEOs of Goldman, Merrill, Bear, Lehman, Morgan Stanley, and others in a room over a weekend, and told them not to come out until they had a deal to either buy or liquefy Long-Term.