The Great Recession - post mortem

[digamma]

I read that article, too...but there was still a question there as to whether the mortgages the gov't would buy could be valued at a few pennies on the dollar or whether they were truly worthless (big difference). I'd be in favor of using a $700b check in order to get a bigger return at a later date, but other that that article, I haven't seen anyone explore that angle to such a depth that it would convince me that a "blank check" would benefit the country and leave us less exposed than a $700b loan would.

I think most investment advisers would tell you that the intrinsic value of these assets exceeds their current market value. That begs the question as to why folks in the market aren't buying them, of course. That's a more complicated issue related to the lack of liquidity, no institutional buyers (who wants to say they made a bet on subprime assets at this point), leaving you with vulture buyers (hedge funds, for instance) and huge bid-ask spreads.

[Flasch186]

when they sell the assets back to the market, once the markets unfreeze and get liquified and confident, they will be worth more than they buy them for today. this actually could take a HUGE bite out of our debt.

[Buccaneer]

A good day to be a libertarian and one that has never put much faith into the financial investment markets. A libertarian commentary posted on cnn.com


CAMBRIDGE, Massachusetts (CNN) -- Congress has balked at the Bush administration's proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the "troubled assets" of financial institutions in an attempt to avoid economic meltdown.

This bailout was a terrible idea. Here's why.

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.

Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.

[molson]

Yup: From the link in my last post

"They lost 2-1 on their own side, voting against their president, their presidential candidate and against every leader in their own party," one Democratic source said.

Pelosi said the Democrats lived up their side of the bargain. "We've entered into those conversations in a spirit of bipartisanship, with the understanding that each side would have half of our votes to pass the bill," she said.

"When the legislation came to the floor, the Democratic side more than lived up to its side of the bargain," she added. "While the legislation may have failed, the crisis is still with us."

That's kind of funny, in a sad way.

99% of the effort of this bill (and probably every bill) is political.

1% of the effort, of an already inept group, is being put towards the actual merits of this ridiculously overreaching bailout. So why does almost everyone here have so much confidence in it?

There's something odd about Pelosi blabbing about "the spirit of bipartisanship" when she's criticizing an entire party for not voting exactly per the plan. There's nothing bipartisan about a scheme like this. What's the gain in having a majority of the House when you're too wrapped up in politics to take advantage of it?

This display, more than anything else, damns both sides, and shows more than anything else that GOVERNMENT IS BAD. They cannot save the economy, they absolutely WILL make it worse if given the chance. Bucc's right, it's a good day to be a libertarian.

[VPI97]

99% of the effort of this bill (and probably every bill) is political.

1% of the effort, of an already inept group, is being put towards the actual merits of this ridiculously overreaching bailout.
That, in a nutshell, is what I have found so sad about today. More people concerned about the politics of this vote than the actual contents of the bill.

[molson]

because:

See the votes are mostly counted in the back hallways before the actual vote occurs. SOOOOOO, the ones who are in heated elections coming up would vote "no" while people who are comfortable in their races or are not in races at all vote "yeah." Same on the GOP side. Then add in variances and you get the results today.

And yet you have zero problem supporting WHATEVER they came up with in the few seconds they had to spare between the vote swapping.

[Coffee Warlord]

when they sell the assets back to the market, once the markets unfreeze and get liquified and confident, they will be worth more than they buy them for today. this actually could take a HUGE bite out of our debt.

You're assuming that a worthwhile percentage of these assets are viable.

You're assuming that management of the viable assets will be done properly, if the government has influence in said management.

I have doubts in the former, and complete doubt in the latter.

If this goes through, and my doubts are correct, we're 1000 times more fucked than we are right now.

[Flasch186]

And yet you have zero problem supporting WHATEVER they came up with in the few seconds they had to spare between the vote swapping.

the bill couldnt change.

[Flasch186]

You're assuming that a worthwhile percentage of these assets are viable.

You're assuming that management of the viable assets will be done properly, if the government has influence in said management.

I have doubts in the former, and complete doubt in the latter.

If this goes through, and my doubts are correct, we're 1000 times more fucked than we are right now.

you're right that we are on the opposite side in our assumptions.

[molson]

I'm sure there's PLENTY of quotes/clips of Republicans saying the same kind of stuff, but I wonder if it's as entertainingly feisty as these:

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[Coffee Warlord]

Would the government, aside from oversight, be running the "fund" (so to say), or would it Paulson and a group of business-minded people be running it?

Government oversight + an appointed board/commitee/whatever. They'll get their say.

And government appointees are rarely given their gigs based on merit, especially if we're talking money in the trillions. They'll play ball.

[Flasch186]

Government oversight + an appointed board/commitee/whatever. They'll get their say.

And government appointees are rarely given their gigs based on merit, especially if we're talking money in the trillions. They'll play ball.

What is the Judges and Stewards Commissioner for the International Arabian Horse Association, (IAHA), doing these days?

I digress.

[molson]

the bill couldnt change.

Of course it could. Not today, under this vote, but it's not this today or nothing forever.

[Coffee Warlord]

you're right that we are on the opposite side in our assumptions.

I tend to avoid most of the political threads on here like the plague, so I'm not up to full speed on everyone's overall views on various subjects. That said...

I'm extremely curious as to why you have so much faith in our government, especially in regards to money management.

[GrantDawg]

If this goes through, and my doubts are correct, we're 1000 times more fucked than we are right now.


I very seriously doubt this. This may not be a guarantee "fix," but I doubt it will kill us either.

[Coffee Warlord]

I very seriously doubt this. This may not be a guarantee "fix," but I doubt it will kill us either.

If taxpayers are on the hook for some 700 billion and mismanagement/screwups/overestimations of assets/corruption put us right back where we are now in a couple years, I don't see how we're NOT fucked.

[Flasch186]

I tend to avoid most of the political threads on here like the plague, so I'm not up to full speed on everyone's overall views on various subjects. That said...

I'm extremely curious as to why you have so much faith in our government, especially in regards to money management.

Well, in this case because theyre hiring experts to run it from outside the gov't. so consider them civilian contractors. I have faith they'll do better than actual Gov't employees.

[digamma]

Government oversight + an appointed board/commitee/whatever. They'll get their say.

And government appointees are rarely given their gigs based on merit, especially if we're talking money in the trillions. They'll play ball.

Actually, the treasury plan included hiring a number of outside investment managers to run the fund.

[Gary Gorski]

That, in a nutshell, is what I have found so sad about today. More people concerned about the politics of this vote than the actual contents of the bill.

Exactly - our government leaders are pretty much useless. The guy from Texas who appeared on CNBC just kept saying that the Dems could have passed it if they wanted to because they have the majority - his mission isn't to save the country from economic disaster - its to make sure we blame the Dems and the same holds true on the other side. Nobody cares about fixing the problems - they just want us to know that the other guy isn't fixing it. This is why elections now for office are "pick the guy you hate less that you think won't screw things up more than the other inept guy".

I'll say this again - SOMETHING needs to happen. If nothing is done today's almost 800 point drop won't be anywhere near the end. I can't even believe that the market fell almost 800 points in one session - like someone mentioned - this is no correction. You don't lose 800 points in one session in a "correction". Raise the FDIC guarantees, change the mark to market, reinstate the uptick rule on short selling - these things can be done immediately without waiting for our inept congressmen and women to continue their grandstanding to get reelected in a couple of weeks.

[Coffee Warlord]

Actually, the treasury plan included hiring a number of outside investment managers to run the fund.

Right, which I understand.

However, I am rather of the opinion they'll be hiring outside help who know exactly which people to help a little more than others. The opportunities for greasing palms here has got to be on epic scale, and the politicians are salivating to have these folks in their back pocket.

[Gary Gorski]

They shouldn't be punished. Don't make this about those who are for the little guy v. those who are against him. NOBODY wants regular people to lose their homes, or their jobs. But is it worth it to save a house today to lose thousands tomorrow?

There's room for difference of opinion, of course, in terms of how many houses are lost today v. tomorrow under varying plans. All I'm saying is that just because someone's a little concerned about a massive panicked government handout that feeds directly into the problems that brought us here in the first place, it doesn't mean that they take glee in people's present-day economic misfortune.

I realize you're not Mr. Potter here but I'm just pointing out that this problem requires intervention immediately. I personally do not want to see the fallout of letting the chips fall where they may on this one. I'm not in favor of bailing out any company but I'm less in favor of letting our economic system collapse in the immediate future. You're definitely right - this problem should have been handled long before now and I have little confidence that the people in Washington are capable of getting anything right let alone doing it in a weekend but time has run out. The market needs stabilty now before its destroyed further.

Cramer (and I'm no fanboy of his) wrote a piece a few days ago about the worst case scenario being the dow at 8400 and I thought how could we possibly lose 25% of the value of the market. Seeing a quarter of that drop happen in one day even with the possibilty of the bailout eventually happening is downright frightening.

[Flasch186]

Exactly - our government leaders are pretty much useless. The guy from Texas who appeared on CNBC just kept saying that the Dems could have passed it if they wanted to because they have the majority - his mission isn't to save the country from economic disaster - its to make sure we blame the Dems and the same holds true on the other side. Nobody cares about fixing the problems - they just want us to know that the other guy isn't fixing it. This is why elections now for office are "pick the guy you hate less that you think won't screw things up more than the other inept guy".

I'll say this again - SOMETHING needs to happen. If nothing is done today's almost 800 point drop won't be anywhere near the end. I can't even believe that the market fell almost 800 points in one session - like someone mentioned - this is no correction. You don't lose 800 points in one session in a "correction". Raise the FDIC guarantees, change the mark to market, reinstate the uptick rule on short selling - these things can be done immediately without waiting for our inept congressmen and women to continue their grandstanding to get reelected in a couple of weeks.

winner

and crazy as it sounds, Kramer's been right and the harbinger of bad things to come has been Oppenheimer's Meredith Whitney who has been looked at as crazy until she started beomcing the allstar for her predictions of dire dire circumstances.

[Coffee Warlord]

winner

Hey, we agree on something. :)

[Buccaneer]

The bailout should focus on fixing the root cause of the problems (which is different than not doing anything). Fix those and you are assured of a better future; otherwise, we are still facing downhill.

[molson]

Cramer (and I'm no fanboy of his) wrote a piece a few days ago about the worst case scenario being the dow at 8400 and I thought how could we possibly lose 25% of the value of the market. Seeing a quarter of that drop happen in one day even with the possibilty of the bailout eventually happening is downright frightening.

I'm just afraid the stock market will REALLY take a beating after the 2nd or 3rd massive bailout, when the sentiment seems to be "let's trust our lawmakers to figure it out in the meantime", at the same time everyone agrees that they're useless.

[Flasch186]

that needs to be in addition to, but the ball keeps getting further and further away from us.

[molson]

winner



Really? So now you're in favor of doing things short of a bailout?

[Flasch186]

Asian markets are getting destroyed.

[Flasch186]

Really? So now you're in favor of doing things short of a bailout?

There is nothing else on the table and something needs to be done yesterday....so the 'bailout' as youre calling it, needs to happen. Now.

BTW, youre not going to be convinced otherwise, so be it. Im backed up by the facts on the field, market action, number of foreclosures, Statements by experts (Buffet, etc), bankruptcies of huge banks, credit swaps, rates, etc. So stand over there and watch the blood.

[Galaxy]

Lawmakers quickly point fingers after bailout fails - CNN.com (http://www.cnn.com/2008/POLITICS/09/29/bailout.fallout/index.html)

Confirmed that the earliest a bill will come up is Thursday.

The House will not be in session Tuesday and Wednesday, but behind-the-scenes work will continue until it reconvenes on Thursday.

If this country faces a major crisis, does the fact that it's a holiday matter? I'm not saying you have to vote on the other bills and such, but this is such a lame excuse.

[Gary Gorski]

The bailout should focus on fixing the root cause of the problems (which is different than not doing anything). Fix those and you are assured of a better future; otherwise, we are still facing downhill.

You're absolutely right - and to do that takes time and thought. Time is up. We need stability immediately to buy the time to figure out how to fix it.

[Flasch186]

yup

[Gary Gorski]

I'm just afraid the stock market will REALLY take a beating after the 2nd or 3rd massive bailout, when the sentiment seems to be "let's trust our lawmakers to figure it out in the meantime", at the same time everyone agrees that they're useless.

If they were to bailout the system now and not fix the problems then yes - subsequent bailouts will mean further destruction of wealth and massive beat downs of the market. But I'm telling you that there is the potential to lose so much right here, right now that something has to happen to stop it. There's more options than the bailout but nobody is willing to do anything apparently. What happened to the days when down 100 was cause for a little worry? Now we're down close to 800 in a day and we're still not concerned enough to do anything about it?

[molson]

yup

So you acknowledge that the bailout merely delays the inevitable unless further change is made? What should the further change be? Do you trust Congress to do it?

[VPI97]

Im backed up by the facts on the field, market action, number of foreclosures, Statements by experts (Buffet, etc), bankruptcies of huge banks, credit swaps, rates, etc. So stand over there and watch the blood.
Actually, here are a couple hundred economists who disagree with Paulson's plan.

http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm

Of course, that was according to how the bill stood a few days ago, but as far as I can tell, nothing much has changed about the bill since then. All they did this weekend was argue politics.

[Flasch186]

So you acknowledge that the bailout merely delays the inevitable unless further change is made? What should the further change be? Do you trust Congress to do it?

if you mean 'inevitable' to mean additional fixes to the system, than yes. I'll leave add'l moves to the experts to come up with ideas, theyre smarter than me, hence my trust in Paulson and Bernanke on the need for this bill....now. I trust Congress to get this through, yes. I think it'll happen on Friday but hopefully it wont be too late for a bunch of the regional banks and hopefully we dont lose another big house.

and VPI I can find tons who do subscribe to the need for the bill to gain us some time. Your point is taken that there are always people on both sides and we can find facts to defend ours til we keel over...unfortunately my facts are going to bear fruit very very soon.

[DaddyTorgo]

Asian markets are getting destroyed.

Nikkei already down 477pts (4%)

[Gary Gorski]

Do you trust Congress to do it?

This is no longer a valid question - I don't think anyone trusts Congress to have been able to wrap their heads around this problem in a weekend when they've had over a year with it staring them in the face. We're out of time and the only people who can stop this bleeding, like it or not, is the SEC and Congress. Believe me, I could come up with a LONG, LONG list of people I would like to see fixing the problem before I got to either Congress or Christopher Cox but time's up and they're the ones who have the power to do something now.

[VPI97]

and VPI I can find tons who do subscribe to the need for the bill to gain us some time.
The difference is that you're talking about politicians and I'm talking about actual experts in the economy.

In '87, the market went down 22% and the world didn't end. Just because it's down 7% now doesn't mean we should throw $700b into the biggest money pit this country has ever seen.

[Buccaneer]

I'm curious. To those that are strongly advocating immediate actions, are you heavily vested in financial markets for personal net worth? I am trying to understand the difference in attitudes of those that are vs. not.

[GoldenEagle]

Gary, what line of work are you in?

[Raiders Army]

We need surgery, not a band-aid.

[GoldenEagle]

I'm curious. To those that are strongly advocating immediate actions, are you heavily vested in financial markets for personal net worth? I am trying to understand the difference in attitudes of those that are vs. not.

I think a bailout is a huge mistake. But I work in a recession proof industry and do not have much invested in my 401(k) yet.

[molson]

Your point is taken that there are always people on both sides and we can find facts to defend ours til we keel over...unfortunately my facts are going to bear fruit very very soon.

There's going to be a deal though, there's no question about that. I'm not particularly concerned about the stock market long-term, because it's been ridiculously overvalued for a while, and still will be after this mess. It, like the housing market WILL come down to earth, hard, there's absolutely nothing Congress can do about that. The point of the bill, as I understand it, is to ensure that credit will be available. That object isn't hindered by another week or two. Credit is available today, and it will be next week. The stock market is fickle. If the media didn't hype up today as THE DAY everything had to happen, the losses wouldn't have been as great. Once there's a deal, the stock market will quickly recover (and then it will continue it's inevitable decline once again).

But if you're right, we'll all know soon, because there will be a deal this week. You'll probably try to prove how correct you are by the stock market's increase that day, but nothing will be fixed, that money will be burned through in no time, and then we'll back here in no time (except that we'll have way more debt.).

[Buccaneer]

molson, some housing markets have and will fall hard, some are still doing ok. I also think "fickle" is an understatement. With the markets (financial, oil, etc.) becoming the domain of short-term speculative interests, it takes almost nothing to have major swings that up to a few years ago were unthinkable.

[Gary Gorski]

Gary, what line of work are you in?

Funny you should ask...I make computer games :) Well that and I do some accounting/financial analysis - but just until my games make it big ;)

I'm not a financial manager nor do I even play one on TV. I'm not heavily invested in the market (although if I did have piles of extra money I would be and I wouldn't be working two jobs) - I've always just liked the market alot and followed it and bought a few shares of stock here and there (plus having a 401k). And above all I pray that I'm very, very, very wrong about what I think could happen. I'm concerned about the greater global economical impact of what might happen as opposed to whether or not my couple shares of stock in a company get wiped out (not that I would be crazy about that either)

Why do you ask?

[SirFozzie]

We need surgery, not a band-aid.

You need to stabilize the patient before you do invasive surgery.

[Buccaneer]

Actually, here are a couple hundred economists who disagree with Paulson's plan.

http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm

Of course, that was according to how the bill stood a few days ago, but as far as I can tell, nothing much has changed about the bill since then. All they did this weekend was argue politics.

Jeffery Miron, the libertarian Harvard economist of the commentary I posted above, is on the list.

[Flasch186]

The difference is that you're talking about politicians and I'm talking about actual experts in the economy.

In '87, the market went down 22% and the world didn't end. Just because it's down 7% now doesn't mean we should throw $700b into the biggest money pit this country has ever seen.

hmmm, I'd say the people that are experts giving congress advice are, well, experts.

Bucc, I am not heavily invested but have a 401K and some stocks. I sell homes so I am on the front lines and see the people everyday that are being touched on 'main street'. Good question though.

[Flasch186]

There's going to be a deal though, there's no question about that. I'm not particularly concerned about the stock market long-term, because it's been ridiculously overvalued for a while, and still will be after this mess. It, like the housing market WILL come down to earth, hard, there's absolutely nothing Congress can do about that. The point of the bill, as I understand it, is to ensure that credit will be available. That object isn't hindered by another week or two. Credit is available today, and it will be next week. The stock market is fickle. If the media didn't hype up today as THE DAY everything had to happen, the losses wouldn't have been as great. Once there's a deal, the stock market will quickly recover (and then it will continue it's inevitable decline once again).

But if you're right, we'll all know soon, because there will be a deal this week. You'll probably try to prove how correct you are by the stock market's increase that day, but nothing will be fixed, that money will be burned through in no time, and then we'll back here in no time (except that we'll have way more debt.).

trust me when I say I want to be proven wrong and credit as you know it may be available but the credit Im talking about is NOT available today, and wont be tomorrow or the next day unless we do something fast. Either way Im with gary and hope Im way wrong.

[Gary Gorski]

If the media didn't hype up today as THE DAY everything had to happen, the losses wouldn't have been as great. Once there's a deal, the stock market will quickly recover (and then it will continue it's inevitable decline once again).

I don't think that the media hype caused this day - the drops in the market are caused by fear - we're at the point where the numbers don't even count anymore. It's a witch hunt for who's next to go down and we're not talking about regular companies - we're talking banks. If Ford goes down then people who owned Ford stock are wiped out and thousands are out of a job. When the banks go down not only do the same things happen but everyone else who has money in the bank starts to get worried about their money. You get people with very large sums of money getting nervous to protect those dollars and you get bank runs and you get the overnight closings of banks (like WaMu) or banks with no choice but to deal like Wachovia. People are worried about themselves and their money and where they can safely put it - every day that goes by without a reassurance and with yet another bank failure only makes people more jittery and more likely to pull their money out and to cause another bank to fail and so forth. The growing fear caused today and will continue to drive the market until its stemmed. Yes the media plays a part in it but not as much as the people with all the money who are suddenly doing whatever it takes to keep as much of their money safe as possible.

[VPI97]

hmmm, I'd say the people that are experts giving congress advice are, well, experts.
I'd say that the people giving congress advice are their campaign managers.

[Buccaneer]

I'd say that the people giving congress advice are their campaign managers.

I'd also say that the primary job of Congresspersons is to ensure re-election.

[Flasch186]

touche but I was talking about gurus like Buffett

[Surtt]

I'm curious. To those that are strongly advocating immediate actions, are you heavily vested in financial markets for personal net worth? I am trying to understand the difference in attitudes of those that are vs. not.

I am not.

[VPI97]

touche but I was talking about gurus like Buffett

http://www.qando.net/ - Explaining Buffet&rsquo;s support for the bailout (update) (http://www.qando.net/details.aspx?entry=9405)

[Gary Gorski]

I'm curious. To those that are strongly advocating immediate actions, are you heavily vested in financial markets for personal net worth? I am trying to understand the difference in attitudes of those that are vs. not.

I'll also add FWIW I'm not selling the stocks I own (although I don't own any financials) - I invested money I had hoped would grow and allow me to invest more later on. For the small amount I have there's no point in bailing now - I might as well wait for the turnaround. For people who actually make their living trading and the like I suppose that its got to be extremely gut wrenching unless you've timed it right when to be long and short over the past few months. I'm just worried about what might happen to the entire economy and the job and housing markets - not so much about what happens to the couple of shares of stock I own.

[Flasch186]

well im not so skeptical that no one can give advice anymore when theyre as knowledgeable on the subject as anyone.

[Marc Vaughan]

US Government and correctly managed institutions are two terms that rarely, if ever, go together. Especially with a LOT of money to be made.

It can definitely be done - if you look throughout Europe you'll find a history of profit making nationalised companes and indeed in England its been semi-frequent for a company to be nationalised, made profitable sent back into the private sector only to go bust again and be recyled again ...

Generally the companies involved are either flag bearers for the country (ie. associated with England - eg. Rolls Royce), natural monopolies (ie. British Rail) or have a fundamental import to the overall economy (normally a large centralised work force in one area - ie. British Steel).

I think there's definitely historic data indicating this approach is probably the safest and most sensible way to defuse this issue - indeed as might have been mentioned on the forum already Sweden went through a similar situation a while back and solved it by nationalising the banks involved.

[DaddyTorgo]

indeed - we mentioned sweeden a couple pages back. didn't know that it was an occurence in the UK though

[Galaxy]

indeed - we mentioned sweeden a couple pages back. didn't know that it was an occurence in the UK though

I believe Canada and it's provinces still own a handful of crown corporations. VIA Rail and CBC are the two big ones. Air Canada and Petro Canada used to be crown companies.

[Marc Vaughan]

indeed - we mentioned sweeden a couple pages back. didn't know that it was an occurence in the UK though

Its become a lot less trendy since Maggie was in power as she pushed a very heavy privatisation scheme into the country and backed it up with good feeling by flooding the cash from the company sales into the economy (so most people associate privitisation with 'good' and ignore the bad which came from the lack of ownership afterwards).

You might have noticed though that as this crisis unfolds a couple of the banks in the UK have been nationalised (Northern Rock a while back and Bradford and Bingley very recently), I'm not sure if the approach we're taking is 'learning' from Sweden or just us falling back on our roots ... but I think its a sensible approach myself.

BBC NEWS | Business | Bank shares fall after B&B move (http://news.bbc.co.uk/2/hi/business/7642394.stm)

[Buccaneer]

I saw this in another thread and was struck by this. That is another fear I have of any Congressional legislation - their one-size-fits-all mentality. There are a lot of sound and well-run financial institutions, esp. the ones that did not foolishly dive deep into high-risk endeavors.

It is extremely important that the bailout not damage well-run companies

[Raiders Army]

You need to stabilize the patient before you do invasive surgery.

tru dat

[wade moore]

hmmm, I'd say the people that are experts giving congress advice are, well, experts.

Bucc, I am not heavily invested but have a 401K and some stocks. I sell homes so I am on the front lines and see the people everyday that are being touched on 'main street'. Good question though.

I'm going to say this knowing that (especially with some past history) that this may come off as an attack on you, I really don't mean it that way at all - so try not to take it that way.

You are also very, VERY personally invested in the success of the lenders and more specifically the housing market. I think it's naive to not take everything you post here with a grain of salt because you are so directly personally impacted by this.

I also notice that most of the other people in favor of the bailout in this thread so far seem to not be invested in the market - i'm not so sure that is a coincidence.

Those that seem to be financiallys table, have some investments, and likely not relying completely on credit - seem to be skeptical on the bailout.

I myself would count myself as that - skeptical. Some aide here may be the right thing, but what I know fo this 700b bailout it seems like the wrong plan. I don't know a ton of detail but the continued effort to bailout copanies, individuals, etc who made poor decisions seems wrong to me. I tend to think the market needs to correct itself a bit, but I do worry that it will correct too far.

I wish the people elected to deal with these big issues would use experts, their intelligence, etc, etc to figure this otu rather than looking at the ballot in Novemeber.

[Flasch186]

no offense taken. On the idea of being bias towards the bailout due to selling houses I would argue that Im closer to the maelstrom and have 'expert' insight into this leg of things. Say what you want about the financial implications to my portfolio personally but I'm "on the inside" of this and it is a monster created by....well that's for the 'mortgage bailout' thread. agreed on the problem and dislike that politics is playing in their decisions on the hill but I think the results desired by us differ.

[GrantDawg]

It can definitely be done - if you look throughout Europe you'll find a history of profit making nationalised companes and indeed in England its been semi-frequent for a company to be nationalised, made profitable sent back into the private sector only to go bust again and be recyled again ...

Generally the companies involved are either flag bearers for the country (ie. associated with England - eg. Rolls Royce), natural monopolies (ie. British Rail) or have a fundamental import to the overall economy (normally a large centralised work force in one area - ie. British Steel).

I think there's definitely historic data indicating this approach is probably the safest and most sensible way to defuse this issue - indeed as might have been mentioned on the forum already Sweden went through a similar situation a while back and solved it by nationalising the banks involved.


Shhhhhhh!!! That's "socialism" and it is always evil and wrong. Free-market is the only way to go! De-regulate and ignore big companies that are the cornerstone of our economy and let them self-destruct. Who needs jobs and such anyway?

[wade moore]

no offense taken. On the idea of being bias towards the bailout due to selling houses I would argue that Im closer to the maelstrom and have 'expert' insight into this leg of things. Say what you want about the financial implications to my portfolio personally but I'm "on the inside" of this and it is a monster created by....well that's for the 'mortgage bailout' thread. agreed on the problem and dislike that politics is playing in their decisions on the hill but I think the results desired by us differ.

Yeah, to be quite honest a pretty heavy housing dip wouldn't phase me in the least. I know that i got a loan that my family can afford for a long period of time even in a tough economy - so even if I end up "upside down" i can ride it out.

[Flasch186]

Yeah, to be quite honest a pretty heavy housing dip wouldn't phase me in the least. I know that i got a loan that my family can afford for a long period of time even in a tough economy - so even if I end up "upside down" i can ride it out.

however, just because someone is touched by the crisis in some way doesnt mean that they cant have an opinion and somewhat of an educated one. Just because Buffett bought into GS doesnt mean all of a sudden he got stupid or shady....Im not buffett but Im just making a small, very small, point. Im glad for you and yours on the home front....I wish that all the foreclosures surrounding you didnt effect you too. BTW a housing dip, after the initial shock, would actually help me as selling homes in first time home buyer price range is much much much easier than move up buyers.

[Buccaneer]

Yeah, to be quite honest a pretty heavy housing dip wouldn't phase me in the least. I know that i got a loan that my family can afford for a long period of time even in a tough economy - so even if I end up "upside down" i can ride it out.

"Expert" side of things in a local market that, like other Florida metro areas, is falling. It's just one small, very biased experience that becomes the basis for debating - hence the grain of salt.

[adubroff]

I myself would count myself as that - skeptical. Some aide here may be the right thing, but what I know fo this 700b bailout it seems like the wrong plan. I don't know a ton of detail but the continued effort to bailout copanies, individuals, etc who made poor decisions seems wrong to me. I tend to think the market needs to correct itself a bit, but I do worry that it will correct too far.


I like any post with the phrase "correct too far". :)

Are you of the belief that we'll have a clear warning and chance to act before we potentially overcorrect?

[Flasch186]

"Expert" side of things in a local market that, like other Florida metro areas, is falling. It's just one small, very biased experience that becomes the basis for debating - hence the grain of salt.

which just so happens to be in contrast to your position....convenient.

[Buccaneer]

which just so happens to be in contrast to your position....convenient.

Except I am under no delusions that my opinions are worth any more than a grain of salt.

[Coffee Warlord]

Except I am under no delusions that my opinions are worth any more than a grain of salt.

I'm kinda hoping my opinions are worth at least a grain of pepper. :)

[Buccaneer]

I'm kinda hoping my opinions are worth at least a grain of pepper. :)

Consider that a low sodium is better, I go along with a grain of pepper.

[wade moore]

I like any post with the phrase "correct too far". :)

Are you of the belief that we'll have a clear warning and chance to act before we potentially overcorrect?

No. I think we decide whether we take the gamble or not, I don't think there's some point where there's some obvious decision point. Now seems like as good of one as any.

If we gamble that the market should correct itself we have to cross our fingers that it doesn't go "too far".

I'm far from an expert on this. I know I generally believe in minimal government involvement. I know that I have problems with people/companies being "rewarded" for "bad behavior".

I also know that a horrible collapse could do irrepeirable damage to the united States. This is why I say I'm at the point of "skeptical" about the bailout, but not necessarily 100% against it.

[DaddyTorgo]

NIKKEI (javascript:GoURL(wmURL,'')) 11,199.02 -544.59 -4.64%

HANG SENG (javascript:GoURL(wmURL,'')) 17,262.74 -617.94 -3.46%

[adubroff]

I also know that a horrible collapse could do irrepeirable damage to the united States. This is why I say I'm at the point of "skeptical" about the bailout, but not necessarily 100% against it.


I think even people who are for it, and I'd count myself among them, are skeptical of the bailout. I don't think anybody knows exactly what will happen if we do it, nor do I think anybody knows what will happen if we don't. Economics is a social science, and unfortunately difficult to model effectively. My greatest fear is that we're going to end up doing something along these lines anyway, but that we'll wait too long and miss our window.

[wade moore]

Yup. I think this is a very, very confusing time for economists - let alone us regular Joes.

I think those in this thread and elsewhere that are just so confident and cocksure that they have the right answer are very naive.

[adubroff]

Yup. I think this is a very, very confusing time for economists - let alone us regular Joes.

I think those in this thread and elsewhere that are just so confident and cocksure that they have the right answer are very naive.


It's also possible that neither course could work, or that both courses could work somewhat equally....

[Flasch186]

Yup. I think this is a very, very confusing time for economists - let alone us regular Joes.

I think those in this thread and elsewhere that are just so confident and cocksure that they have the right answer are very naive.

If you consider me and Gary as cocksure you should read our posts again. We're hoping the bailout will give us time to be able to do what it takes to fix things and have said we dont know if it will work but we sure are scared of the 'do nothing' fix. you may not have been talking about us though.

[Flasch186]

Wilbur Ross -

And it needs to be done quickly. "I think the people who voted against it should be ashamed of what they did. In order to save a $700 billion investment -- not spending, but investment --they caused investors a trillion dollars. That means for each of the guys that voted against it, it cost the investing public $4 million today," Ross said.

Ross believes that we will see consequences of the bailout's rejection in the money markets, the debt markets and the stock markets. The failure of the vote will simply make matters worse and ultimately cost more.

Larry fink, Blackrock -

Laurence Fink, who heads the largest U.S. asset management company, BlackRock, expects a proposed bailout plan ultimately to be profitable, but said Congress was "playing with fire'' by voting it down.

Laurence Fink, chairman and chief executive officer of BlackRock

Fink, an expert in the asset backed securities that lie at the heart of the recent problems of many banks, worried that banks are not able to lend at the moment and that a bailout plan must be approved quickly to restore confidence.

He also said there is deleveraging in financial markets, which has been accelerated by fears of heavy losses at hedge funds.

"I'm disappointed,'' Fink told CNBC after the U.S. House voted to reject the Treasury's proposed bailout. "I think Congress is playing with fire. Hopefully, this is just politics.''


...and if youre looking at guys like this like theyre bias is to have the market do better so he makes more money, id point to:

For BlackRock [BLK 191.00 -10.01 (-4.98%) ], which manages $1.4 trillion in assets, Fink said the current market decline represents a buying opportunity not a "time to run away.''

This reset is GREAT for guys like this who can buy a ton of depressed assets so in some cases when they save, "Save us Y2J" there is some sliver of benevolence in there.

[molson]

Completely lost in the shuffle is that "something" has already been done.

Fed makes billions available to battle crisis - Yahoo! News (http://news.yahoo.com/s/ap/20080929/ap_on_bi_ge/fed_credit_crisis)

[Mac Howard]

I can't quite believe some of the posts above. Guys, this bail-out is FOR YOU!

If you have shares, it's for you (or your shares will plummet in price). If you have a house, it's for you (or the value of your house will drop like a stone). If you have a pension plan, it's for you (your money is invested in the stock market). If you have a health scheme, and insurance scheme, it's for you (your money is invested similarly). If you have a job, it's for you (unemployment will leap up). If you run a business, it's for you (you won't be able to get money to grow your business or maybe even pay your employees). If you have debt - credit card, loan etc - this is for you (the bank could call in the debt).

Wake up, guys. This is not about rewarding or punishing the perpetrators of this, it's about saving your own skins (and mine). The credit market is frozen. There is currently no money to do anything. The banking system is close to collapse.

700 billion? You just lost 1.2 trillion today alone! Worldwide, that was closer to 5 trillion!

[molson]

I can't quite believe some of the posts above. Guys, this bail-out is FOR YOU!

If you have shares, it's for you (or your shares will plummet in price). If you have a house, it's for you (or the value of your house will drop like a stone). If you have a pension plan, it's for you (your money is invested in the stock market). If you have a health scheme, and insurance scheme, it's for you (your money is invested similarly). If you have a job, it's for you (unemployment will leap up). If you run a business, it's for you (you won't be able to get money to grow your business or maybe even pay your employees).

Wake up, guys. This is not about rewarding or punishing the perpetrators of this, it's about saving your own skins (and mine). The credit market is frozen. There is currently no money to do anything. The banking system is close to collapse.

I think we all understand the intention of it (this isn't a "bail out us, not the banks!" kind of crowd). And I don't think there's anyone that thinks the government should do absolutely nothing. The question is what's the right course.

What's scaring me is the mentality of - "YES - that's SOMETHING, let's do it". It doesn't seem to matter what the something is. We just want action of any kind. Surely, some actions must be better than others.

[Mac Howard]

I think we all understand the intention of it (this isn't a "bail out us, not the banks!" kind of crowd). And I don't think there's anyone that thinks the government should do absolutely nothing. The question is what's the right course.

What's scaring me is the mentality of - "YES - that's SOMETHING, let's do it". It doesn't seem to matter what the something is. We just want action of any kind. Surely, some actions must be better than others.

Is anyone offering you another solution other than do nothing? It is essential that something is done NOW! You're merely rationalising your procrastination.

Last week you carried out a buyout for 85 billion. Had you done it 5 days earlier it would have cost you 20 billion. As more and more banks collapse the cost soars. It's estimated that up to a thousand banks could collapse if nothing is done. If something is done quickly then that could come down to a couple of hundred. The more that collapse the bigger the cost. Two more went last night in Europe (Britain and Belgium) and that was before the failed vote. It is essential something is done very quickly even if the action isn't the optimum.

This vote has already cost you 1.2 trillion. How much more do you want to lose before you act?

[molson]

Is anyone offering you another solution other than do nothing?

Sure, there's been plenty of suggestions in this thread, and the fed took other actions today that I just posted about. There were alternative buyout proposals floated out last week.

We're talking about an amount of money that approximately equals what the entire Iraq war has cost to this point. And will it even stop banks from failing?

[Mac Howard]

Sure, there's been plenty of suggestions in this thread, and the fed took other actions today that I just posted about. There were alternative buyout proposals floated out last week.

There is no serious alternative out there.

We're talking about an amount of money that approximately equals what the entire Iraq war has cost to this point. And will it even stop banks from failing?

You just lost 1.2 trillion on the stock market today. How much tomorrow and the day after? How much before you stop procrastinating and stem the bleeding?

You're not giving 700 billion away - you're buying assets at a rock bottom price. They're not rock bottom because they're worthless but because no one has the money to buy them because of the credit freeze, the risk associated with them and the banking system has run out of trust. But they're all backed by bricks and mortar - houses - when the housing market recovers (and it will) the value of these will rise and you may well make a significant profit. Why do you think the big end of town persuaded the house Republicans to suggest a loan? Because the very people responsible for this could buy them and then sell at a profit later. That'll punish them!

[JonInMiddleGA]

So ... there's X number of bad mortgages out there right? And those total to Y amount of dollars. Anybody able to point me to some stats about who/what/where those mortgages are? Basically I'm looking for some figures & demographics about these "bad mortgages and other deficient assets held by troubled financial institutions" (as AP put it this morning).

[Mac Howard]

So ... there's X number of bad mortgages out there right? And those total to Y amount of dollars. Anybody able to point me to some stats about who/what/where those mortgages are? Basically I'm looking for some figures & demographics about these "bad mortgages and other deficient assets held by troubled financial institutions" (as AP put it this morning).

My understanding, Jon, is that the value of these packages is very difficult to lay alongside individual mortgages. These mortgages have been packaged, sold, split, repackaged, sold, split and amalgamated with other packages, sold, repackaged etc. At each stage the value of a package becomes less directly related to individual mortgages and more of a saleable asset in itself to the extent that it's extremely difficult now to determine their value. In fact, in some, the packaging has been so deceitful that it's virtually impossible to realise that they're based on mortgages at all - the buyer isn't aware he's buying an iffy product at all. That's why the 700 billion is so flexible - 250 billion now, 100 billion next and who knows what next up to a maximum of 700 billion. The first task will be to unravel the packages and rediscover the mortgages and consequently their value.

The one advantage for the buyout is that there's simply no other buyer and the government can almost dictate its own price -though there has been a warning that if they pitch it too low some banks will squirrel away some of the assets to rise again when prices have risen. But the government can certainly buy the packages at a rock bottom price.

There is of course genuine money in these packages. The house associated with a defaulted mortgage doesn't suddenly become valueless - it could still be worth a significant proportion of the mortgaged value. Donald Trump appeared on Larry King live last week and explained exactly how to make money in this situation (it probably had all the integrity of the looters in New Orleans after Katrina mind you :rolleyes: )

This 700 billion is not money thrown away - it could bring significant profits for taxpayers eventually depending on just how the eventual sale is handled - a Republican administration would probably feed them back into the market to their "grateful" friends as quickly as they reasonably could to satisfy their free market philosophy while a Democrat admin would probably try to make as much as they could to fund their nationwide health program ;)

Incidentally just to show you how the rest of the world sees this, here is the opening paragraph from The Times of London - a right wing, free markets newspaper:

In one form or another, the package will surely be passed in the next few days, since the alternative would be the failure of every leading bank in America, the inability of the US Government to honour its guarantees to retail savers and the bankruptcy of many large US corporations, probably including General Motors and Ford. For the rest of the world, particularly for Britain, a definitive collapse of the US bailout would mean nationalisation of all leading banks, insurance companies and other financial institutions – and that unthinkable international impact is another reason why we can be fairly certain that a bailout of some kind will be passed quite soon.

[molson]

You just lost 1.2 trillion on the stock market today. How much tomorrow and the day after? How much before you stop procrastinating and stem the bleeding?



So does your argument rely on the stock market being down again today?

Comparing the $700 billion to that 1.2 trillion is a little silly. Most of the latter can be made up in a few hours.

[Flasch186]

So LIBOR is off the charts today (LIBOR) - Wikipedia, the free encyclopedia (http://en.wikipedia.org/wiki/LIBOR)). Well how does this effect anything, Flasch? Countrywide is one of the biggest mortgagers in the entire country (even under BAC's umbrella) and almost ALL of their ARMS (Adjustable Rate Mortgages) were pinned to the LIBOR (+ points). So that squeeze on the ARMS coming up? Just got harder and faster. It also makes that credit that molson says is here today, here tomorrow, essentially gone today and really gone tomorrow....You have no idea how credit is the oil for the machine.

Now the equities market is going to hang on under the 'hope' that something gets done Thursday but the patient (as described above) is on life support.

[Flasch186]

So does your argument rely on the stock market being down again today?



As pointed out to Arles in the other thread the markets, the equity markets are just the most visible window into how it is interacting. It's actually a small window in. If you REALLY want to know look at the Taf/R auctions, LIBOR spreads, note yields, etc. A look deeper and you may actually see where the rest of the world is coming from. In Mac's post above, did you see that the ramifications is nationalization of ALL lending institutions, insurance companies....you have no idea how intertwined it all is.

[flounder]

Another thing to keep in mind is that not all banks are doing poorly (http://www.washingtonpost.com/wp-dyn/content/article/2008/09/25/AR2008092504155.html?sid=ST2008092600236&s_pos=).


Banks throughout the United States carried on with the business of making loans yesterday even as federal officials warned again that their industry is on the verge of collapse, suggesting that the overheated language on Capitol Hill may not reflect the reality on many Main Streets.

Many smaller banks said they were actually benefiting from the problems on Wall Street. Deposits are flowing in as customers flee riskier investments, and well-qualified borrowers are lining up for loans.

“We collect money from local savers, and we lend it in the local community,” said William Dunkelberg, chairman of Liberty Bell Bank in Cherry Hill, N.J. “We’re doing fine. There are 9,000 financial institutions out there, and most of them are small and most of them are doing fine.”

Dunkelberg, a professor of economics at Temple University and chief economist for the National Federation of Independent Business, added that a recent survey of that group’s members found that only 2 percent said getting a bank loan was the great challenge facing their businesses.

[Mac Howard]

So does your argument rely on the stock market being down again today?

Not at all. The markets in Asia and Europe were chaotic to begin with today but eventually wiser heads prevailed and the consensus was that the bailout package would go ahead anyway and markets recovered much of their original losses. I suspect the American market will recognise also that Congress views this vote with the same horror that others have and realise that they'll come back later this week and make certain this time.

here's the article I referred to in my previous post which reveals their thinking:

Banking crisis: the bailout will still go ahead one way or another - Times Online (http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4849789.ece?openComment=true)


But I'm not sure that those who saw their shares plummet will view the 777 point drop with quite your equinimity, molson.

[molson]

As pointed out to Arles in the other thread the markets, the equity markets are just the most visible window into how it is interacting. It's actually a small window in. If you REALLY want to know look at the Taf/R auctions, LIBOR spreads, note yields, etc. A look deeper and you may actually see where the rest of the world is coming from. In Mac's post above, did you see that the ramifications is nationalization of ALL lending institutions, insurance companies....you have no idea how intertwined it all is.

I totally agree with that, I just wonder then, why you and Mac are using the stock market impact as evidence of how necessary the bailout is (with Mac and others implying that the stock market will plunge every day until there's a deal)

[molson]

Another thing to keep in mind is that not all banks are doing poorly (http://www.washingtonpost.com/wp-dyn/content/article/2008/09/25/AR2008092504155.html?sid=ST2008092600236&s_pos=).

Big banks were painted as the enemy last week, with many even suggesting government imposed size-caps. Now all of the sudden, massive banks are considered critical to the economy.

[Flasch186]

I totally agree with that, I just wonder then, why you and Mac are using the stock market impact as evidence of how necessary the bailout is (with Mac and others implying that the stock market will plunge every day until there's a deal)

because it is the most visible market that people are involved with and it is the skin on the patient. It is a clear representation of a companies worth....and more.

[Gary Gorski]

So does your argument rely on the stock market being down again today?

Comparing the $700 billion to that 1.2 trillion is a little silly. Most of the latter can be made up in a few hours.

It can't be made up in a few hours - stocks were sold yesterday. People took their losses. Hedge funds got margin calls - sure for the people who are still holding their stocks today they technically haven't "lost" anything until they decide to sell so they can hold on and wait for the market to eventually come back - whenver that will be.

But look at something like Wachovia - there's no timeout they could call or somehow redo things. There's a finite amount of time you stay solvent as a business. People took a beating on Wachovia especially after their CEO was just out there recently talking about how they would be fine and Cramer was right on that bandwagon. That money is gone and it can't be made up.

[Mac Howard]

I totally agree with that, I just wonder then, why you and Mac are using the stock market impact as evidence of how necessary the bailout is (with Mac and others implying that the stock market will plunge every day until there's a deal)

Read my previous post.

Even Congress has begun to realise (or at least a sufficient number of them) that this bailout simply has to happen. Last Friday that well known neo-socialist lefty Newt Gingrich railed about the bailout and that more deregulation is the answer. Today we learn that even Gingrich has come over to support the bailout.

There is a feeling now that that house vote was a pigs ear of a deal with Pelosi carelessly sabataging it with a silly partisan speech and alienating some of the Republican participants and that that mistake will not be made again.

The problem with this vote is that the American public just doesn't seem to catch on to the seriousness of the situation and neither party wishes to be seen to be the promoter of the bailout and suffer the electoral consequences soon and so they're trying to rig a 50-50 vote. That's tricky in the circumstances of a huge bias towards the dems.

[Gary Gorski]

I totally agree with that, I just wonder then, why you and Mac are using the stock market impact as evidence of how necessary the bailout is (with Mac and others implying that the stock market will plunge every day until there's a deal)

Just curious - do you view the stock market as simply a tool that people use for some sort of legalized betting/gambling and that it has no real tie in to the actual business/company itself?

[Flasch186]

GOP Senator Orin Hatch has a good idea then followed it up with a fucked up one, again. He recommended adding in a tax break on people who buy a home in foreclosure.....

Then he said a reduction in Capital Gains tax. Nice.

[Flasch186]

Just curious - do you view the stock market as simply a tool that people use for some sort of legalized betting/gambling and that it has no real tie in to the actual business/company itself?

I got this feeling too.

[molson]

Just curious - do you view the stock market as simply a tool that people use for some sort of legalized betting/gambling and that it has no real tie in to the actual business/company itself?

Mostly. I think there's a % of substance and a % of speculation.

But here, I'm just responding to this idea that yesterday's decline is some kind of proof that we need a massive bailout, while a similarly massive increase today wouldn't mean anything. (I think neither mean anything, other than people trying to make/save a quick buck).

[Flasch186]

similarly? Just look at the credit markets and you have your answer and youll join us.

[ISiddiqui]

I wish this poll had who voted what :)

[Marc Vaughan]

Just curious - do you view the stock market as simply a tool that people use for some sort of legalized betting/gambling and that it has no real tie in to the actual business/company itself?

I think the stock market encompasses investors (long term view of things) and speculators (basically people gambling on very short term changes).

The investors are good for an economy where as speculators imho can have a very adverse affect on things by causing runs on stocks which have no basis in reality, you only have to look at the movement of stocks like 'Apple' and 'Nokia' to realise that those companies are solid and really for them to have had swings of 50%+ of their share price in the last 6-9 months is ludicrous.

The way I think it works is investors try and choose stocks which will perform long term purchasing them preferably when speculators have driven them down in price; whereas speculators will buy and sell wildly (based upon all sorts of models, none of which imho hold water 100% of the time) but can't keep a stock price from its natural level for any length of time (so it'll revert to a realistic level if you look at the 'mean' over time).

[Mac Howard]

I think the stock market encompasses investors (long term view of things) and speculators (basically people gambling on very short term changes).

The investors are good for an economy where as speculators imho can have a very adverse affect on things by causing runs on stocks which have no basis in reality, you only have to look at the movement of stocks like 'Apple' and 'Nokia' to realise that those companies are solid and really for them to have had swings of 50%+ of their share price in the last 6-9 months is ludicrous.

The way I think it works is investors try and choose stocks which will perform long term purchasing them preferably when speculators have driven them down in price; whereas speculators will buy and sell wildly (based upon all sorts of models, none of which imho hold water 100% of the time) but can't keep a stock price from its natural level for any length of time (so it'll revert to a realistic level if you look at the 'mean' over time).

But it's not random speculation, Mark. These companies need money to continue and if the bailout doesn't come and the credit market freezes then they can't get that money.

The speculation is based on an attempt to forecast the affects of current news, not just random - they don't just think "Oh, it's Tuesday, I'll sell my apple shares today". They think "Oh, a credit freeze. Apple won't have the money to pay their staff, fund their developments. I'd better sell.".

[JonInMiddleGA]

similarly? Just look at the credit markets and you have your answer and youll join us.

Not necessarily. I'm pretty sure there's always been some with a general view (minority to be sure, but existent) that our credit driven economy would eventually have to crash and readjust. Not eliminating credit but reducing it's impact I'm mean. For some I think it's finally reached a point of "better now than later".

FTR, I'm not entirely in that particular camp but I think it's existence has to at least be acknowledged as that (broadly described) view seems to be an element of the resistance.

[Flasch186]

there are soooo many small businesses that run on short term credit you have no idea. The ramifications of wiping out entire businesses simply because the grease got clogged is a horrible idea. And that's just one example off of the beaten path.

[Gary Gorski]

Mostly. I think there's a % of substance and a % of speculation.

If we saw an 800 point increase today in the market then yeah, I think it would mean something. I think it would say that the public realizes a bailout wasn't necessary and that they have faith that the system will work itself out. I'll say right now if that happens I'll be the happiest person in the world. I'd love nothing more than for the market to become stable on its own without government intervention. Just given the what's happened the past oh say 4-5 months and most importantly the past 2-3 weeks I would say that an 800 point gain today is highly unlikely unless there was some sort of intervention.

[Flasch186]

http://biz.yahoo.com/ap/080930/eu_belgium_dexia.html


Dexia bank gets $9.2 billion bailout
Tuesday September 30, 7:15 am ET
By Aoife White, AP Business Writer
Dexia bank gets $9.2 billion bailout from governments, shareholders

BRUSSELS, Belgium (AP) -- Dexia became the second Belgian bank this week to get a government and shareholder bailout Tuesday when Belgium, France and Luxembourg said they would inject almost 6.4 billion euros ($9.2 billion) to keep it afloat.

ADVERTISEMENT
Dexia's CEO Axel Miller -- who immediately stepped down -- said the bank had no real option to asking for state help because "our feeling was clearly that this week is going to be very tense on the market and we might be ... one of the banks that might be put under pressure."

Dexia, a French-Belgian specialist in lending to local governments that ran up huge losses in its U.S. operations, closed nearly 30 percent lower Monday -- triggering emergency talks with government officials.

This came barely two days after Belgium, the Netherlands and Luxembourg moved to save Belgian-Dutch bank Fortis on Sunday, pumping 11.2 billion euros ($16.4 billion) after its shares shrank by a fifth Friday. Traders saw the bank as overleveraged and lost confidence in its ability to pay for its expensive purchase of Dutch bank ABN Amro.

Markets clearly welcomed the bailout with Dexia's share price climbing 11 percent to 8.03 euros in Paris trading and Fortis rising 10 percent in Amsterdam by noon local time on Tuesday.

Dexia said the extra money would allow it remain "one of the better capitalized banks in Europe" even if market volatility further devalues securities and other products it holds. It said it expects its equities portfolio to lose more value.

Belgian authorities and Belgian shareholders said in a statement that they would invest 3 billion euros in the bank, while the French government -- via its investment arm CDC which holds just over 10 percent in Dexia -- will invest another 3 billion euros. Luxembourg will add 376 million euros.

For Dexia, the Belgian and French investments come in the form of a capital increase that will issue new shares at $9.90 per share, while the Luxembourg government will get newly issued convertible bonds.

In return the bank promised to improve the way it is run -- with Miller and chairman Pierre Richard saying they would resign and governments demanding "significantly" better corporate governance.

Miller said the company had been hit by "very nervous markets" and was partly a victim of Fortis' troubles that "drew attention to this corner of Europe."

"I don't know of many instances recently where investors have been found willing to put additional equity in banks," he told reporters on a conference call.

"We couldn't have foreseen just a week before last weekend that a major Belgian bank would be bailed out or that you'd have over the course of one single weekend signals that three, four, five banks across Europe were starting to have problems," he said.

Belgium is splitting its share of the bailout between the federal and regional governments, with 1 billion euros ($1.43 billion) each from the federal state, the three Belgian regions combined and shareholders Gemeentelijke Holding NV, Arcofin CV and Ethias.

The French government will invest 1 billion euros, with its state investment arm Caisse des Depots et Consignations injecting 2 billion euros. This will give France a 25 percent stake in Dexia, the Elysee palace said in a statement.

"This decision was taken to guarantee the continuation of financing for local French governments for whom Dexia Credit Local is the main lender, as well as to contribute to the security and stability of the French and European financial systems," the government said.

Dexia ran into trouble with its U.S. bond insurance unit FSA which was hit hard by the subprime housing crisis, which saw loans made to people with poor credit drop sharply in value on worries that borrowers could not make costly repayments. Holders of bonds based on those mortgages suffered heavy losses.

FSA quit asset-backed investments last month after setting aside $936 million (639 million euros) in the second quarter and securing a $5 billion (3.4 billion euros) unsecured line of credit from Dexia to cover potential losses that Dexia will now convert into a lower-risk credit facility.

Dexia will also inject up to $500 million to cover any extra losses at FSA exceeding the $316 million recognized at the end of June. These moves should allow the company to avoid selling off investments "at distressed prices" but would also cap Dexia's support and limit the amount of loss it is liable for.

Dexia was also hurt by the collapse of U.S. investment bank Lehman Brothers, saying it expects that to cause it 350 million euros ($512 million) in losses.

[Mac Howard]

Not necessarily. I'm pretty sure there's always been some with a general view (minority to be sure, but existent) that our credit driven economy would eventually have to crash and readjust.

Funnily enough, there's a newsletter that's put into my letterbox every couple of months and it's been predicting the collapse of the Global financial market for some time now. I always thought the guy was a crank, but maybe he's in fact a genius? :)

Not eliminating credit but reducing it's impact I'm mean. For some I think it's finally reached a point of "better now than later".

I'm not an economist but I suspect one would tell you the capitalist system can't exist without credit.

When they say 'credit" they really mean the money that is moved between banks, to companies, to individuals not just borrowing as you and I might do with a cc or home loan. Money simply isn't moving between banks currently because no one bank can trust that another will be around tomorrow. The whole system is based on trust and trust has disappeared and the movement has come to a halt.

[molson]

I'm not an economist but I suspect one would tell you the capitalist system can't exist without credit.



That's definitely true, but it doesn't necessarily follow that a capitalist system cannot rely too much on easy credit.

There's a breaking point that's simply not sustainable, and feeding a system to stay at that point merely delays the crash (at great expense)

[Warhammer]

RealClearMarkets - Articles - In Times of Crisis, Trust Capitalism (http://www.realclearmarkets.com/articles/2008/09/in_times_of_crisis_trust_capit.html)
I thought this was a great article.

[JonInMiddleGA]

there are soooo many small businesses that run on short term credit you have no idea.

Y'know, you keep using phrases like "have no idea". Considering the presence of a number of small business owners here, such a statement borders on the absurd. And as others have referenced up the thread, it's really getting to the point of being downright insulting.

[Flasch186]

ok, today another bank failed. Now that LIBOR has spiked and banks wont lend to eachother where do you think these Big and Small businesses are going to go to get the grease to run their machine? Look, this isnt talking down to you, Its factual that this is how businesses run. On credit, which you know. If the credit dries up so does payroll, so does inventory fill, etc. This isn't something to be debated....whether or not to do the bailout can be but the way businesses use and need credit isnt. You know me well enough to know that Im not trying to be insulting but digging in heels to prove a point or remain well platformed just doesnt make sense considering all of the evidence to the contrary.

[Mac Howard]

That's definitely true, but it doesn't necessarily follow that a capitalist system cannot rely too much on easy credit.

Oh, sure. But when they talk about the "credit" market being frozen they're not just taking about the credit you and I get, easy or not, but the whole movement of money between the institutions, banks, companies etc.

This whole thing may have been triggered by mortgage defaults but it's become serious because it's led to bank failures and the consequent loss of trust between banks and other financial institutions. They simply don't trust each other to be around for even a few days any more and you don't do deals with with those who might disappear. So the whole thing has frozen. If you want to borrow money for a business expansion, or even to pay your employees wages, that bank has to borrow that money from a lender. But that lender will no longer lend the bank the money so you don't get to pay your employees :eek:

That's where we're heading without the bailout. It's not just easy credit that's disappearing but credit of any sort.

It's already happening. As I mentioned earlier, Australia hasn't had trouble - it has much greater regulation on borrowing - but Australian banks have to borrow money on the world credit market and they can no longer do that so the government here has made 4 billion available purely for small banks and non-bank home loan companies so they can continue business and keep the housing market from tanking. Now that's a loan - there's no worthwhile bad debt to buy up - but the principle of government sponsered interference to keep things moving is the same..

[SteveMax58]

Not necessarily. I'm pretty sure there's always been some with a general view (minority to be sure, but existent) that our credit driven economy would eventually have to crash and readjust. Not eliminating credit but reducing it's impact I'm mean. For some I think it's finally reached a point of "better now than later".


I happen to be in the camp of "leaning that way". I'm more than open to hearing another way, but for the past 10 years I've been seeing this coming. I dont mean that in a "I'm smarter than the experts" sort of way, I mean that if you back up a few 100 feet and look at the big picture...it is simply not sustainable over the long term, in it's current form.

[JonInMiddleGA]

ok, today another bank failed. Now that LIBOR has spiked and banks wont lend to eachother where do you think these Big and Small businesses are going to go to get the grease to run their machine? Look, this isnt talking down to you, Its factual that this is how businesses run. On credit, which you know. If the credit dries up so does payroll, so does inventory fill, etc. This isn't something to be debated....whether or not to do the bailout can be but the way businesses use and need credit isnt. You know me well enough to know that Im not trying to be insulting but digging in heels to prove a point or remain well platformed just doesnt make sense considering all of the evidence to the contrary.

Sigh.

I'm sitting here with:
-- a house that hasn't sold over nearly three years, with a willing buyer who has been fighting his own mortgage situation which is holding up the sale
-- a current client that's a custom home builder
-- a small business that {gasp} has run for more than a decade without living off the sort of credit you're talking about but certainly encounters those who do on a regular basis

You think I don't have some passing familiarity with what you're talking about?
Give me a fucking break.

The issue isn't whether credit is a part of the equation at the consumer nor business level. I'm not even sure I've seen anyone question that. The issue is whether the bailouts on the table to date have been the appropriate response to the current situation.

I'm sitting here directly & negatively affected by the situation in more ways than one & yet I've not been remotely convinced that what's been proposed so far is the right solution. More to the point (since "right" is ultimately going to have to be proven by time), I'm not convinced that we've seen an acceptable solution to date. And at this point "acceptable" simply means better than the alternative of waiting until a revised plan is developed.

Sooner or later, there will be something that's deemed better than nothing. So far, that hasn't emerged for a sufficient number of people.

[JonInMiddleGA]

I happen to be in the camp of "leaning that way". I'm more than open to hearing another way, but for the past 10 years I've been seeing this coming. I dont mean that in a "I'm smarter than the experts" sort of way, I mean that if you back up a few 100 feet and look at the big picture...it is simply not sustainable over the long term, in it's current form.

Ditto, except I reached that conclusion more than 10 years ago (closer to 20, as much as that ages me to realize).

[Mizzou B-ball fan]

I happen to be in the camp of "leaning that way". I'm more than open to hearing another way, but for the past 10 years I've been seeing this coming. I dont mean that in a "I'm smarter than the experts" sort of way, I mean that if you back up a few 100 feet and look at the big picture...it is simply not sustainable over the long term, in it's current form.

I think the main level of opposition coming from voters involves the need for a dramatic increase in regulation as far as what is allowed on the credit market. Some say that we need to stick a band-aid on it and then they can fix it later. There's a lot of voters that want to know specifically when 'later' will be.

[Flasch186]

Sigh.
The issue is whether the bailouts on the table to date have been the appropriate response to the current situation.

we differ here at this moment in time.



I'm sitting here directly & negatively affected by the situation in more ways than one & yet I've not been remotely convinced that what's been proposed so far is the right solution. More to the point (since "right" is ultimately going to have to be proven by time), I'm not convinced that we've seen an acceptable solution to date. And at this point "acceptable" simply means better than the alternative of waiting until a revised plan is developed.

Sooner or later, there will be something that's deemed better than nothing. So far, that hasn't emerged for a sufficient number of people.

We are both in the same boat and I dont see a better alternative on the table, now and I feel something must be done now, "to stabilize the patient."

[Flasch186]

Ireland just guaranteed EVERY bank deposit.

[lungs]

Yikes. We took a blood bath on the milk market yesterday.

$30,500 margin call and it would've been 60,000 if we listened to the fucking broker.

[Fidatelo]

Ditto, except I reached that conclusion more than 10 years ago (closer to 20, as much as that ages me to realize).

Double ditto, except it's only been about 5 for me, and I doubted my instincts enough to just assume that I must be missing something and that the experts and geniuses like Greenspan etc knew what they were doing. Live and learn.

[CraigSca]

Interesting article in Time...

Let Risk-Taking Financial Institutions Fail

By Ari J. Officer and Lawrence H. Officer (javascript:void(0)) Monday, Sep. 29, 2008

http://img.timeinc.net/time/daily/2008/0809/risk_0929.jpg
Demonstrators protest the U.S. Congress's proposed $700 billion bailout of the financial industry in New York City's Times Square, Sept. 27
Keith Bedford / Reuters



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<!-- /div.artTools --> The Administration and Congress have felt compelled to do something about the "financial meltdown," so an inefficient and inequitable "bailout plan" has been rushed through the legislature despite harsh criticism from the right and left. That's unfortunate. Both presidential candidates were stalling by qualifying the plan. Whichever candidate had had the courage to reject outright this proposal would have had the better claim to be President.
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<!-- End Article Side Bar --> Do not be fooled. The $700 billion (ultimately $1 trillion or more) bailout is not predominantly for mortgages and homeowners. Instead, the bailout is for mortgage-backed securities. In fact, some versions of these instruments are imaginary derivatives. These claims overlap on the same types of mortgages. Many financial institutions wrote claims over the same mortgages, and these are the majority of claims that have "gone bad."
At this point, such claims have no bearing on the mortgage or housing crisis; they have bearing only on the holders of these securities themselves. These are ridiculously risky claims with little value for society. It is as if many financial institutions sold "earthquake insurance" on the same house: when the quake hits, all these claims become close to worthless — but the claims are simply bets disconnected from reality.
Follow the money. Average Joes and Janes are not the holders of the other side of complicated, over-the-counter derivatives contracts. Rather, hedge funds are the main holders. The bailout will involve a transfer of wealth — from the American people to financial institutions engaging in reckless speculation — that will be the greatest in history.
Rescuing financial institutions is not the best solution. Yes, banks are needed to provide capital to businesses. But it is not necessary to spend $1 trillion to maintain liquidity. If the government is to intervene, it should pick and choose which claims to purchase; claims that are directly tied to mortgages would be a good start.
Let financial institutions fail, merge or be bought out. The faltering institutions will see their shares devalued and will be likely to be taken over by stronger institutions — as has already started happening. This consolidation of the financial sector is both efficient and inevitable; government action can only delay the adjustment.
The government should not intervene. It should leave overleveraged financial institutions to default on their derivatives obligations and, if necessary, file for bankruptcy. Much of the crisis has arisen from miscalculating the risks involved in a large book of positions in these derivatives. It is only logical that these institutions pay for their poor management.
Rather than bailing out Wall Street, we propose that the government should buy up the actual mortgages in question and do nothing else. The government should not touch any derivatives; that is, claims that do not directly tie into the actual mortgages. If money becomes too tight, then the Fed can certainly increase its loans to financial institutions.
Let the poorly managed, overly risk-taking financial institutions fail! Always remember that Wall Street and the real economy are not the same thing.
— Ari J. Officer has completed his master of science degree in financial mathematics at Stanford University. Lawrence H. Officer is a professor of economics at the University of Illinois at Chicago.

[Mac Howard]

Sigh.

I'm sitting here with:
-- a house that hasn't sold over nearly three years, with a willing buyer who has been fighting his own mortgage situation which is holding up the sale
-- a current client that's a custom home builder
-- a small business that {gasp} has run for more than a decade without living off the sort of credit you're talking about but certainly encounters those who do on a regular basis

If the bailout doesn't go ahead your willing buyer will not be able to solve his mortgage situation. Your home builder client will not be able to grow his business and maybe not even able to pay his employees. The third is your choice.

With the bailout freeing up the credit market you may finally sell the house and your client grow and maybe become a bigger client.

Clearly you know that and I assume the second paragraph appeals to you, so what is it about this bailout that you don't like?

[Gary Gorski]

I'm sitting here directly & negatively affected by the situation in more ways than one & yet I've not been remotely convinced that what's been proposed so far is the right solution. More to the point (since "right" is ultimately going to have to be proven by time), I'm not convinced that we've seen an acceptable solution to date. And at this point "acceptable" simply means better than the alternative of waiting until a revised plan is developed.

Sooner or later, there will be something that's deemed better than nothing. So far, that hasn't emerged for a sufficient number of people.

Jon, I think that its great that you've been able to sustain your business without the need for credit and you and some others have done a good job taking care of their personal financial situation. But I think sadly the number of business that absolutely rely on credit (big and small) and people who for whatever reason (lack of job and needing to buy groceries to free spending people with no regard) live day to day on credit far outnumber those in your boat. You might say so what, those businesses and people were destined to fail then but I think alot of businesses and people fall into that category and if they do fail then will there be enough jobs and business to support even the people and businesses who did not get caught in the credit crunch let alone everyone else?

My question is this - what do you do with all of those people? Would unemployment be 10, 15, 20%? Are you going to foreclose on 20% of the population? Are you going to let them just stay in their houses not paying while you have to pay your mortgage every month? Is the credit score of a large portion of people just going to be obliterated? Will lending processes change to ensure those people can not get credit? How long with those people not have credit? Can you just cut credit off completely from those people and leave them with nothing?

Look I don't think the bailout proposed was the "best" solution and it in of itself does not fix the underlying problem. Right now I'm not concerned with fixing the problem - I'm concerned that the patient stays alive so we can fix the problem.

[Gary Gorski]

I also want to know is there opposition to some of the things I and I'm sure others before me probably mentioned in this thread? Things like raising FDIC insurance and changing the mark to market rules? Does anyone feel those things could buy us the time to put together perhaps a better "bailout" package or plan?

[bronconick]

I think a big chunk of the problem is that no one wants to explain to the American people why this is necessary.

For however long, Bernanke and Paulson went along and said everything's fine, the economy is strong, etc...and suddenly last week Paulson's in front of Congress saying I need $700 billion taxpayer dollars, no strings attached, or the world is going to end. We (the average American) don't trust this administration at their word anymore. We don't trust Congress. We don't trust the media, as it's all owned by massive corporations that we don't trust. We don't trust the financial sectors or Wall Street. And now, while a majority of us in this country have been struggling with the hikes in commodities ($150 barrels of oil trickling down), we're getting the image of throwing hundreds of billions of dollars at people with 15 houses and yachts.

I've done enough reading and paid enough attention to know that something is going to have to be done, and most of what I've just charcterized isn't actually what's occuring. But until someone actually sits down and tells Joe Six-Pack why this is necessary, don't be astonished when the public response is 500-1 against it. And in an election season with a lame duck President with low approval ratings, there's no one to do that talking.

[Marc Vaughan]

But it's not random speculation, Mark. These companies need money to continue and if the bailout doesn't come and the credit market freezes then they can't get that money.
The speculation is based on an attempt to forecast the affects of current news, not just random - they don't just think "Oh, it's Tuesday, I'll sell my apple shares today". They think "Oh, a credit freeze. Apple won't have the money to pay their staff, fund their developments. I'd better sell.".

I think you're misunderstanding me - investors do buy and sell based upon such estimates and hold investments for quite a while if they believe the company is fundamentally strong.

What I'm talking about are 'speculators' ...

I'm also not saying that the speculators buy and sell randomly - they do so to make a profit and often do it outside of the performance of a company.

You'll often find that certain companies tank and dive with little change in the company itself or the situation surrounding it because speculators have been 'pumping' a company to draw momentum investors in (ie. people who like to 'bet' on the next hot thing) and then sell off.

If you doubt the affect that speculators have on the market place then I recommend following Oil prices for a few weeks, each day they'll oscillate wildly and the analysts will 'attempt' to explain why they've changed ... after a while I think you'll conclude that their explanations don't truly hold water on a day to day basis - its speculation that is causing the changes.

(can you honestly say that 'day traders' are buying and selling based upon what is occuring within a company? ... most companies I've worked at don't change that much day to day ;) )

[Coffee Warlord]

I also want to know is there opposition to some of the things I and I'm sure others before me probably mentioned in this thread? Things like raising FDIC insurance and changing the mark to market rules? Does anyone feel those things could buy us the time to put together perhaps a better "bailout" package or plan?

I'd be in favor of some tweaks such as those, as an alternative to the whole bailout plan.

[Mac Howard]

I also want to know is there opposition to some of the things I and I'm sure others before me probably mentioned in this thread? Things like raising FDIC insurance and changing the mark to market rules? Does anyone feel those things could buy us the time to put together perhaps a better "bailout" package or plan?

No.

The problem is this: banks won't deal with each other. Any American bank may be gone before the week's out. So will you, as head of a bank, deal with them? Of course not. So you'll deal with no one and no one will deal with you.

That's the problem. Financial institutions simply will not trust each other and without trust the banking system can't work.

What causes the banks to fail? These "toxic" packages they have on their books. For the moment they're worthless and go onto the books as losses. That pushes banks into insolvency particularly as the frozen system means they're not making money - banks after all make money lending money (which they're not doing).

If the government buys these "toxic" packages they're removed from the balance sheet and the bank is solvent - providing the system cranks up again quickly enough for them to begin trading again.

The government holds these packages until the housing market recovers and sells them back into the market when they're no longer "toxic" - they refer to a house whose worth is more than the mortgage.

The big danger is that the banking system has become so sclerotic that some banks will fail before they're back up to speed.

The longer you wait before funding the bailout the more banks sink into trouble and the more banks never make it out of trouble even when the bailout goes through. We're now at a tipping point where any further delay will mean large failures.

So the problem now is the banks failures, not specifically the packages. But by removing the packages the banks may survive. But the longer you leave it the more banks will fail.

That's probably a gross oversimplification but that's roughly what's going on.

[flere-imsaho]

Is it still because of the jewish holiday?

Well, at first I thought that didn't seem likely, because today is Rosh Hoshannah, for which most Jews I know (including my wife & her family) don't take off work (aside from leaving a bit early to attend evening services). The holiday for which we take off work is Yom Kippur, which is at the end of next week, and is the most holy of all Jewish holidays (more holy to Jews than Christmas or Easter are to Christians, arguably).

But then I checked and yes, Congress is in recess because of Rosh Hoshannah. I'll bet you good money the only Congresscritters actually in temple today are Joe Lieberman and the small handful (if any) of other Orthodox Jews.

But, it is what it is. It's probably for the best anyway. Dodd said last night that clearly people need time to cool down and talk amongst themselves before trying again. Floating another bailout bill without some behind-the-scenes consensus-building would probably be a failure anyway, given the results of the vote.

Didn't the Democrats have about 90-some members vote against it? If so, why did they vote against it?

Left-wing Democrats voted against it because they don't approve of giving "free" money to independent corporations. Right-wing Republicans voted against it because they don't want the bill to come with any oversight/intervention strings.

However, I am rather of the opinion they'll be hiring outside help who know exactly which people to help a little more than others. The opportunities for greasing palms here has got to be on epic scale, and the politicians are salivating to have these folks in their back pocket.

My concern as well. If the "outside help" ends up being Paulson's cronies from GS, then we've put the fox in the henhouse. I'd rather see people in there with a track record of longer-term views and yes, these people exist even on Wall Street.

Cramer (and I'm no fanboy of his) wrote a piece a few days ago about the worst case scenario being the dow at 8400 and I thought how could we possibly lose 25% of the value of the market. Seeing a quarter of that drop happen in one day even with the possibilty of the bailout eventually happening is downright frightening.

Cramer is part of the problem, and why people continue to give his opinion weight is beyond me. 8400? Where does he get this number? From his posterior?

Cramer's built his reputation by treating the stock market (and, by extension the economy) as a game and now he's saying anything he can so that he can avoid losing more money as the market tanks.

Please, let's not speak of him again.

and VPI I can find tons who do subscribe to the need for the bill to gain us some time. Your point is taken that there are always people on both sides and we can find facts to defend ours til we keel over...unfortunately my facts are going to bear fruit very very soon.

I've looked at that list. It includes most of the very heaviest hitters on economics in the world today, including most of the faculty at the U of C, generally considered to be the best economics faculty in the world. This is not "just another set of viewpoints", Flasch.

And it's not like they're saying "no bailout". They're saying "Not this bailout, as it's currently written, and here's why."

Just curious - do you view the stock market as simply a tool that people use for some sort of legalized betting/gambling and that it has no real tie in to the actual business/company itself?

Largely, yes. The only way the stock market mirrors reality is that the aggregate growth of the market mirrors the aggregate growth of the economy over the long term. Everything else is a game that revolves around expectations and realities of short-term financial results, media hype, and whims of speculators.

Sheep, the lot of them. (http://consumerist.com/5046904/united-airlines-stock-temporarily-wiped-out-by-old-bankruptcy-story)

And I say this as someone with a significant amount of money invested in the stock market, for the long term. I, personally, view this as a buying opportunity, and I fully believe my investments will bear fruit within my time horizon, which extends to 3 decades.

[SteveMax58]

My question is this - what do you do with all of those people? Would unemployment be 10, 15, 20%? Are you going to foreclose on 20% of the population? Are you going to let them just stay in their houses not paying while you have to pay your mortgage every month? Is the credit score of a large portion of people just going to be obliterated? Will lending processes change to ensure those people can not get credit? How long with those people not have credit? Can you just cut credit off completely from those people and leave them with nothing?

Just to speculate a bit...these people presumably work for businesses in an industry(or more likely industries) that have market shares. When/if these people are laid off because these businesses can no longer get credit, they will also relinquish their market share to their competitors who do not need credit to maintain. This would increase the remaining businesses' need to ramp up to meet this demand, and subsequantly require the hiring of people in their induistries.

I'm not going to insult anybody's intelligence by saying it is as easy or will even play out that smoothly for many on "main street"...but I also think the doom and gloom is a bit overstated for the working class.

Just a thought(and not a thought I'm necessarily sold on myself)...but perhaps similar to home ownership not being something that everybody really can afford...perhaps the same can be said for businesses.

[flere-imsaho]

The issue isn't whether credit is a part of the equation at the consumer nor business level. I'm not even sure I've seen anyone question that. The issue is whether the bailouts on the table to date have been the appropriate response to the current situation.

Quoted and bolded for emphasis.

I never thought I'd see the day when JiMGA was the voice of calm and reason around here. Unreal.

[DaddyTorgo]

can we get a flere-gram of the situation?

[Marc Vaughan]

Just to speculate a bit...these people presumably work for businesses in an industry(or more likely industries) that have market shares. When/if these people are laid off because these businesses can no longer get credit, they will also relinquish their market share to their competitors who do not need credit to maintain. This would increase the remaining businesses' need to ramp up to meet this demand, and subsequantly require the hiring of people in their induistries.

But if the competitors also cannot obtain credit then it is likely they will find they cannot afford to expand sufficiently to take on those workers in the short term leaving an internal imbalance and unemployed workers.

Yes economically given time everything will balance out through market forces - but thats ignoring the individual personal pain that will be caused to people during the time of upheaval.

I dislike purely capitalist principles on this basis, people are NOT numbers and as such shouldn't be treated as such by goverments.

Explaining to a family that they are now on the breadline because economically speaking things are in an unheaval isn't acceptable imho* if there is the possibility of altering the circumstances to avoid this, that is what this bill is about.

Its been presented as only helping fat cats which I think is a travesty and shows the inadequacy of media reporting generally - this bill will help many large companies but also normal people imho.

*If it helps I felt the same about when Maggie Thatcher (another proponent of market forces over all) closed the coal mines in England en-mass, it should have been done in a gradual controlled manner over several years to give the goverment the chance to encourage alternative industries to the area and thus employment rather than decimate entire communities and leave a generation of people who had sincerely hard times and limited opportunities because of it.

[Gary Gorski]

What causes the banks to fail? These "toxic" packages they have on their books. For the moment they're worthless and go onto the books as losses. That pushes banks into insolvency particularly as the frozen system means they're not making money - banks after all make money lending money (which they're not doing).

If the government buys these "toxic" packages they're removed from the balance sheet and the bank is solvent - providing the system cranks up again quickly enough for them to begin trading again.

The government holds these packages until the housing market recovers and sells them back into the market when they're no longer "toxic" - they refer to a house whose worth is more than the mortgage.

The big danger is that the banking system has become so sclerotic that some banks will fail before they're back up to speed.

The longer you wait before funding the bailout the more banks sink into trouble and the more banks never make it out of trouble even when the bailout goes through. We're now at a tipping point where any further delay will mean large failures.

So the problem now is the banks failures, not specifically the packages. But by removing the packages the banks may survive. But the longer you leave it the more banks will fail.

That's probably a gross oversimplification but that's roughly what's going on.

I agree but that's why I mention changing the mark to market rules. Are these toxic packages really worthless? If they are then the government is buying something worthless and we really are throwing 700 billion at nothing and we the tax payers are taking the loss for the mismanagement at the bank. If these assets do have value then why not value them at book value (or some other valuation) rather than current market value?

Maybe like others have suggested the government should purchase these assets and then setup a fund that could be bought and traded by those who wish to invest in it rather than than asking each taxpayer to take on a burden they don't want to take on.

I'm with you on the danger of the situation and why the banks failing is a massive problem and the fact that they will continue to do so until something happens and I agree something needs to be done yesterday to stop the bleeding. But there is such a strong opposition to this "bailout" - partially because I think alot of people don't understand the severity of the situation and alot of people don't trust the government to mange it correctly anyway (which given its track record its not hard to see why people feel that way). I just think there has to be something, as Jon called it, "acceptable" that can be done right here, right now.

[CraigSca]

No.

The problem is this: banks won't deal with each other. Any American bank may be gone before the week's out. So will you, as head of a bank, deal with them? Of course not. So you'll deal with no one and no one will deal with you.

That's the problem. Financial institutions simply will not trust each other and without trust the banking system can't work.


But a bailout doesn't guarantee that the banks will trust the system and start lending money to each other again.

[Marc Vaughan]

But a bailout doesn't guarantee that the banks will trust the system and start lending money to each other again.

The idea is that by the banks being at least partially nationalised* (ie. owned by the goverment) they will trust in the goverments ability to print money when required rather than the economic viability of the other banks presently.

(so yes it should give them 'trust' back - in theory at least, but I think that theory is sound)


*Thats what it means by the goverment recieving equity in the banks, its just that talking about Nationalisation in America is a no-no because it sounds (dread shudder) like socialism ;)

[Gary Gorski]

Cramer is part of the problem, and why people continue to give his opinion weight is beyond me. 8400? Where does he get this number? From his posterior?

Cramer's built his reputation by treating the stock market (and, by extension the economy) as a game and now he's saying anything he can so that he can avoid losing more money as the market tanks.

Please, let's not speak of him again.


Cramer built his reputation by being an extremely successful hedge fund manager. Like I said, I'm not a fanboy and I think that between some of his long time friends who are still running businesses (like Eddie Lampert and the now failed Bob Steel) and having an hour show to pick new stocks every night leads him into making some poor suggestions and that nobody should simply buy a stock because he says so. I also think that when he fails miserably such as the Wachovia call that he admits to being "kind of wrong" but usually finds some reason why it wasn't completely his fault. That said, he does make some very, very good calls such as trumpeting Google early on and especially his now famous "they know nothing" rant now over a year ago when he said this downfall was coming.

He does try to make the market something interesting through his antics and his show and I think that's a good thing because I think people should learn about ways to try and grow their money. At the same time he's just another talking head and nothing he says should be taken as gospel but he admits that himself - he's a source of ideas. Its on you, the investor, to do the homework and figure out if the stock is good or not.

[Mac Howard]

I agree but that's why I mention changing the mark to market rules. Are these toxic packages really worthless? If they are then the government is buying something worthless and we really are throwing 700 billion at nothing and we the tax payers are taking the loss for the mismanagement at the bank. If these assets do have value then why not value them at book value (or some other valuation) rather than current market value?

They have an intrinsic value because they're based on houses but they're currently valueless because no one will buy them. There are several reasons why no one will buy them, one being that it's almost impossible to value them because of the way they've been packaged and repackaged and another because that intrinsic value is tied up with the recovery of the housing market that could be years away.

Financial institutions cannot afford to sit on these things for years until they're valuable again - government can. That's why only government can solve the situation.

Maybe like others have suggested the government should purchase these assets and then setup a fund that could be bought and traded by those who wish to invest in it rather than than asking each taxpayer to take on a burden they don't want to take on.

That isn't much different to buying them and selling them when they're worth something (except the profit goes to the traders - the very guys who brought about this mess). Nor is there any guarantee anyone will invest while they're worth so little.

Either way you have to purchase them first. If you keep them and feed them back into the market when they're valuable the taxpayer gets his money back. If you feed them in while they're not valuable the trader makes the profit and the taxpayer foots the bill. I don't see an advantage in that.


I'm with you on the danger of the situation and why the banks failing is a massive problem and the fact that they will continue to do so until something happens and I agree something needs to be done yesterday to stop the bleeding. But there is such a strong opposition to this "bailout" - partially because I think alot of people don't understand the severity of the situation

Then the answer to that is to educate them. Which everyone from Bush to Senate Democrats, to Senate Republicans, to house Democrats to any number of financial commentators has tried to do. The public won't listen - as this thread reveals.

The danger of doing nothing is so great then government must go ahead anyway. Sometimes government must lead.

and alot of people don't trust the government to mange it correctly anyway (which given its track record its not hard to see why people feel that way). I just think there has to be something, as Jon called it, "acceptable" that can be done right here, right now.

I've asked Jon to explain what is acceptable but you'll note there is no answer. It's easy to say that there is such a thing but nothing has come forward and there isn't time to wait around for the second coming.

[SteveMax58]

But if the competitors also cannot obtain credit then it is likely they will find they cannot afford to expand sufficiently to take on those workers in the short term leaving an internal imbalance and unemployed workers.

Yes economically given time everything will balance out through market forces - but thats ignoring the individual personal pain that will be caused to people during the time of upheaval.

Believe me when I tell you...I will be one of those people affected if they do not get something passed that actually helps the situation.

I have to sell my home(in Florida nonetheless) in order to relocate for a new and more stable opportunity. I do not believe "nothing" should be done, but I have yet to hear a compelling explanation that indicates this bailout, as it was proposed, will do anything more than continue to propagate the speculation that (IMHO) will continue to create these "emergencies" for the foreseeable future.

I dislike purely capitalist principles on this basis, people are NOT numbers and as such shouldn't be treated as such by goverments.

Whats the saying? Teach a man to fish, and he will eat for a lifetime.

Rather than invest in the debt of financial institutions, why not invest in the affected people by

1) offering government credits towards home sellers(x% between current mortgage and appraised value) who bought their current primary residence between 200x-2007(debatable on the beginning)
2) offering government credits for down payment/closing costs for buyers purchasing homes whi are currently a primary residence (i.e. keeping liquidity in the market)
3) increasing borrowing levels to lending institutions that comply with a series of new regulations which are long overdue
4) reducing the capital gains tax to lessen the ripples for businesses and encourage job creation
5) offering government credits towards businesses that hire affected individuals due to the financial institutions' mistakes

I am no economist to be sure...and there may be plenty of holes to poke in my "details"...but I think this is a problem that has to be fixed from a different angle than what the bailout suggests. Just my 2 cents...which is likely worth 1.134 cents as I type this.

[Mac Howard]

Believe me when I tell you...I will be one of those people affected if they do not get something passed that actually helps the situation.

I have to sell my home(in Florida nonetheless) in order to relocate for a new and more stable opportunity. I do not believe "nothing" should be done, but I have yet to hear a compelling explanation that indicates this bailout, as it was proposed, will do anything more than continue to propagate the speculation that (IMHO) will continue to create these "emergencies" for the foreseeable future.



Whats the saying? Teach a man to fish, and he will eat for a lifetime.

Rather than invest in the debt of financial institutions, why not invest in the affected people by

1) offering government credits towards home sellers(x% between current mortgage and appraised value) who bought their current primary residence between 200x-2007(debatable on the beginning)
2) offering government credits for down payment/closing costs for buyers purchasing homes whi are currently a primary residence (i.e. keeping liquidity in the market)
3) increasing borrowing levels to lending institutions that comply with a series of new regulations which are long overdue
4) reducing the capital gains tax to lessen the ripples for businesses and encourage job creation
5) offering government credits towards businesses that hire affected individuals due to the financial institutions' mistakes

I am no economist to be sure...and there may be plenty of holes to poke in my "details"...but I think this is a problem that has to be fixed from a different angle than what the bailout suggests. Just my 2 cents...which is likely worth 1.134 cents as I type this.

Because none of that will fix the financial/banking system which is on the verge of collapse and with that collapse will go the affluent society you currently enjoy.

Many of these things can be done after to avoid the situation being repeated but at the moment you have to bail out the banking system by removing these toxic packages that dog their balance sheets and free up the system again.

[molson]

I dislike purely capitalist principles on this basis, people are NOT numbers and as such shouldn't be treated as such by goverments.

Explaining to a family that they are now on the breadline because economically speaking things are in an unheaval isn't acceptable imho* if there is the possibility of altering the circumstances to avoid this, that is what this bill is about.

Its been presented as only helping fat cats which I think is a travesty and shows the inadequacy of media reporting generally - this bill will help many large companies but also normal people imho.

.

Those are two big myths that I see in pretty much every other post around here:

1. People who lean against government regulation and lean towards capitalism are anti-humanity and don't care about suffering
2. The only reason to have concerns about massive bailouts is the flawed idea that "it only helps fat cats".

The best way to help humanity isn't always the most direct way. There's room for disagreement, of course, but it's not just accurate to say that your one single view is the only one that has people in mind.

[DaddyTorgo]

Because none of that will fix the financial/banking system which is on the verge of collapse and with that collapse will go the affluent society you currently enjoy.

Many of these things can be done after to avoid the situation being repeated but at the moment you have to bail out the banking system by removing these toxic packages that dog their balance sheets and free up the system again.

+1. The Aussie understands.

[Coffee Warlord]

Many of these things can be done after to avoid the situation being repeated but at the moment you have to bail out the banking system by removing these toxic packages that dog their balance sheets and free up the system again.

You realize the 'toxic' packages you've been talking about are, by definition, the LEAST likely assets to have a legitimate value, and LEAST likely to rebuild value in the future.

This simply transfers who assumes a rather shitty risk. The government cannot indefinately hold onto worthless assets any more than a company can without severe repercussions down the road.

[Mac Howard]

Those are two big myths that I see in pretty much every other post around here:

1. People who lean against government regulation and lean towards capitalism are anti-humanity and don't care about suffering
2. The only reason to have concerns about massive bailouts is the flawed idea that "it only helps fat cats".

Point them out to me will you?

If that's what you think you're reading then it's no wonder you don't get it.

[SteveMax58]

You realize the 'toxic' packages you've been talking about are, by definition, the LEAST likely assets to have a legitimate value, and LEAST likely to rebuild value in the future.

This simply transfers who assumes a rather shitty risk. The government cannot indefinately hold onto worthless assets any more than a company can without severe repercussions down the road.

Yep...and holding onto these "assets" for years will not increase their value. Unless of course, we anticipate an increased market for homes that have sit unoccupied for years with no maintenance and likely vandalised.

[molson]

Point them out to me will you?

If that's what you think you're reading then it's no wonder you don't get it.

I wasn't responding to your post.

But I should have added a number #3. There's a HUGE amount of arrogance here - if someone disagrees with you (or even raises concerns), they "just don't get it".

Nobody knows what will happen. 100+ economists from elite American universities are against this. But they just don't get it either I guess.

I don't have a problem with someone telling me I'm wrong, but it gets annoying when pro-intervention crowd claims moral superiority, and when anyone has decided that they're 100% infallible and has a superior understanding than anyone who disagrees with them (even if the other people have better credentials than them).

[DaddyTorgo]

You realize the 'toxic' packages you've been talking about are, by definition, the LEAST likely assets to have a legitimate value, and LEAST likely to rebuild value in the future.

This simply transfers who assumes a rather shitty risk. The government cannot indefinately hold onto worthless assets any more than a company can without severe repercussions down the road.

this is certainly a problem with the current plan. however this problem is mitigated TO A DEGREE if the government takes equity stakes in these companies in exchange for removing the "toxic" assets off their books (really the only way the bailout has any hope of benefitting us -- i hold very little hope that the assets will recover enough value to make us avoid having to take a bath of say $250 billion. especially considering the housing market is overdue for a correction). IF the government takes an equity share in these companies then it will both have a say in corporate governance of them, and also have the ability to recoup some of the (what i view as inevitable) losses that it takes on the "toxic assets" by selling off its equity shares (either back to the companies themselves or to the market) when the companies stock prices recover due to the removal of the "toxic assets" from their books.

[Coffee Warlord]

Yep...and holding onto these "assets" for years will not increase their value. Unless of course, we anticipate an increased market for homes that have sit unoccupied for years with no maintenance and likely vandalised.

Here's the problem with that. These aren't straight loans. These are derivatives that have been pulped, sifted, processed, shat out, and in general made into such a mind-numbing mess that god knows WHAT they are based off of. The money that is directly tied to property have value (that can and will likely increase) by their very nature. These potentially don't, thusly causing the problem to begin with.

[Mac Howard]

I wasn't responding to your post.

But I should have added a number #3. There's a HUGE amount of arrogance here - if someone disagrees with you, they "just don't get it".

Arrogance has nothing whatsoever to do with it, it's consensus. You don't get Bush. You don't get the Senate Republicans. You don't get the Senate Democrats. You don't get the House Democrats, you don't get the 90% of financial commentators that are trying to get through to you.

There's the arrogance!

But I invite you again to point out all those posts that you refer to.

[SteveMax58]

Because none of that will fix the financial/banking system which is on the verge of collapse and with that collapse will go the affluent society you currently enjoy.

Many of these things can be done after to avoid the situation being repeated but at the moment you have to bail out the banking system by removing these toxic packages that dog their balance sheets and free up the system again.

Agreed it will "help" loosen the lending in the short term. Agreed that the "current model" will likely collapse if nothing is done quickly. I think the distinction I have here, is that this assumes the banking system will not collapse again regardless...and with the government left holding worthless(or worth less than the debt purchase may be a better way to put it) assets.

Out of curiosity...do you not believe a short-term increase in borrowing to FI's is not a reasonable response until a more comprehensive solution can be reached? I'm not sold myself, just curious if you believe that the "affluent society" that I happen to live in is something that is sustainable(i.e. this bailout brings it to normalized)...or if you think it is artificially propped up(in which case this just propagates the same problem which could get even worse in the mid- to long-term)? Perhaps there is another way to see it that does not ignore the long term affects of government "owning" assets that are not guaranteed to come up in value.

[DaddyTorgo]

what the government will have to do, or should end up doing is: taking them all in, absorbing them into one big pool and untangling the legitimate mortgages from all the derivative products that have no intrinsic value, passing new laws regarding how much they can be repackaged and in what form, and then reselling them back into the market.

ie govt says: "you can only resell a mortgage if it includes all of the years of one property. no breaking it up into tranches of years." So the govt assumes the burden of untangling all of these mortgages from each other and reassembling them back into "here's a 30 year fixed-rate on this one house" and packages it with a bunch of other 30 year fixed-rates at the same rate and resells that.

like i said though, i don't hold any hope that this will offset the entire cost of the bailout, which is why i think equity in any company that the govt takes these assets from is essential.

and in a significant percentage: $1bn = ~5% of the company (or something significant)

[Marc Vaughan]

Agreed it will "help" loosen the lending in the short term. Agreed that the "current model" will likely collapse if nothing is done quickly. I think the distinction I have here, is that this assumes the banking system will not collapse again regardless...and with the government left holding worthless(or worth less than the debt purchase may be a better way to put it) assets.
I may be wrong but as I read the revised bill the goverment receives equity in the companies participating - these would not be worthless regardless of what happens with the 'toxic assets' (which incidentally many economists believe will hold considerably value when held to maturity).

[DaddyTorgo]

Marc - can you confirm please that the economic problems and the freeze of the credit markets won't affect the release date of FM 2009?? :)

[Tekneek]

Market indexes seem to be up today. So much for the bottom falling out. They apparently don't think the sky is falling after all.

I expected things to move up today, after that emotional outburst from yesterday.

[DaddyTorgo]

Market indexes seem to be up today. So much for the bottom falling out. They apparently don't think the sky is falling after all.

I expected things to move up today, after that emotional outburst from yesterday.

great buying opportunities today on solid companies that were dragged along in the free-fall yesterday is primarily what's driving the uptick today.

[Daimyo]

You realize the 'toxic' packages you've been talking about are, by definition, the LEAST likely assets to have a legitimate value, and LEAST likely to rebuild value in the future.

This simply transfers who assumes a rather shitty risk. The government cannot indefinately hold onto worthless assets any more than a company can without severe repercussions down the road.
The toxic assets seem to be toxic mainly because they are too complex and splintered and ultimately backed by houses that have dropped in value. If the government can purchase enough of them it seems they should be able to untangle them and perhaps even reconstruct the underlying individual mortgages. Those mortgages are ultimately backed by actual houses, so the only way the assets would truly be worthless is if you believe the housing market will never recover... if that's the case we're screwed no matter what we do.

No private party could do that because no private party could possible purchase enough of them to do any useful untangling or handle the exposure of waiting out the housing market.

[darkenigma510]

nvmind

As long as Paulson doesn't get to do what he wants without judicial review or oversight....like he originally wanted

[Tekneek]

great buying opportunities today on solid companies that were dragged along in the free-fall yesterday is primarily what's driving the uptick today.

But... if they thought the whole thing was about to collapse, why would they buy anything? Especially in any amount that would move the Dow over 280 pts up?

[Coffee Warlord]

But... if they thought the whole thing was about to collapse, why would they buy anything? Especially in any amount that would move the Dow over 280 pts up?

Like he just said. A LOT of companies that have absolutely nothing to do with this situation got dragged down amidst the FUD. Investors spotted this and acted accordingly. There's a lot of money to be made after a sharp drop like that.

[SteveMax58]

Here's the problem with that. These aren't straight loans. These are derivatives that have been pulped, sifted, processed, shat out, and in general made into such a mind-numbing mess that god knows WHAT they are based off of. The money that is directly tied to property have value (that can and will likely increase) by their very nature. These potentially don't, thusly causing the problem to begin with.

I realize I am simplifying the assets by referring to them as if they are straight property deeds or loans for property...but as you said, I'm not sure there is an effective way to grasp the fallout of owning these.

I'll readily admit that I'm out of my expertise on this topic...but the fact that it has come to an immediate "meltdown crisis" shows I'm not the only one.

[Tekneek]

Like he just said. A LOT of companies that have absolutely nothing to do with this situation got dragged down amidst the FUD. Investors spotted this and acted accordingly. There's a lot of money to be made after a sharp drop like that.

But, I thought this collapse was going to take everybody with it? Are these foolish investors who are about to lose their shirt?

I'm trying to understand what is happening here. Chicken Little was out in full force yesterday afternoon, but now we either have over-confident investors pulling the market up today, or there are a significant amount of people out there who don't believe we are on the verge of a complete collapse.

[molson]

Arrogance has nothing whatsoever to do with it, it's consensus. You don't get Bush. You don't get the Senate Republicans. You don't get the Senate Democrats. You don't get the House Democrats, you don't get the 90% of financial commentators that are trying to get through to you.

There's the arrogance!

But I invite you again to point out all those posts that you refer to.

I get it. I'm not even really against it.

I'll try another hypothetical. Imagine Congress had come up with a plan that was 10 times as massive as this one, incredibly more reckless, benefitted nobody, and ultamitely resulted in our currency being worthless. I'm just scared that in this environment, there would be huge pressure to do it anyway, because "it's the only plan we have".

So how do we know this plan isn't that plan? Panic moves during times of economic turmoil don't really have a great track record. Congress couldn't manage a pet store efficiently. The complete and utter confidence in this bill as our "only option" just feels like one of those historical moments in time where everyone should have seen the impending disaster but didn't.

And my second fear, as I've stated, is that propping up a unsustainable system will solve nothing and make things worse without appropriate further action that Congress isn't qualified or motivated to provide. Is that really that insane a concern? Again, it's a CONCERN, not at all an argument against any government intervention.

In the most simple terms, and going beyond this particular situation, I think we're just too afraid of recessions. That doesn't mean I don't care about people suffering from a recession. Under this CONCERN (I'm not arguing this will happen specifically, I'm just revealing the thought process behind my views), we can have a year of recession and then a recovery, or we can have 5 years of stagnation in a desperate attempt to avoid the recession, then 5 years of a deeper recession.

But as for the posts I was refering to, you can start with the one I was responding to, and then your debut post in this thread:

"I can't quite believe some of the posts above. Guys, this bail-out is FOR YOU!

If you have shares, it's for you (or your shares will plummet in price). If you have a house, it's for you (or the value of your house will drop like a stone). If you have a pension plan, it's for you (your money is invested in the stock market). If you have a health scheme, and insurance scheme, it's for you (your money is invested similarly). If you have a job, it's for you (unemployment will leap up). If you run a business, it's for you (you won't be able to get money to grow your business or maybe even pay your employees). If you have debt - credit card, loan etc - this is for you (the bank could call in the debt).

Wake up, guys. This is not about rewarding or punishing the perpetrators of this, it's about saving your own skins (and mine). The credit market is frozen. There is currently no money to do anything. The banking system is close to collapse."

The assumption you're making is that anyone who has concerns about all this must not understand that the intention is to help "main street and not wall street". As I responded to you then, we get the idea behind it. Whether it works long-term is another story.

[Mac Howard]

Agreed it will "help" loosen the lending in the short term. Agreed that the "current model" will likely collapse if nothing is done quickly. I think the distinction I have here, is that this assumes the banking system will not collapse again regardless...and with the government left holding worthless(or worth less than the debt purchase may be a better way to put it) assets.

The bailout isn't the be all and end all of the solution. But it's essential that this is done and then you begin removing the cause with improved regulation.

Out of curiosity...do you not believe a short-term increase in borrowing to FI's is not a reasonable response until a more comprehensive solution can be reached?

No because these currently worthless assets will still be on the banks' books and cause concern about the health of the bank. We have had a government loan to small banks here in Australia to offset the problem caused by the leak-through of this problem through the credit system but our banks don't have these bad debts so they're sound. The loan, for small banks and non-bank home loan operators, keeps them liquid but there's no need to improve their balance sheets so the loans are sufficient.

But the American banks need to lose those assets.

I'm not sold myself, just curious if you believe that the "affluent society" that I happen to live in is something that is sustainable(i.e. this bailout brings it to normalized)

Yes. I have no problem with it at all. I live in such a society. The difference is that we have greater regulation on bank lending that has avoided the bad debt problem.

I wouldn't say that the bailout will normalise the system, it could be too late. But without it there could be a major catastrophe coming. With it there'll probably still be a recession but not as deep or long.

Perhaps there is another way to see it that does not ignore the long term affects of government "owning" assets that are not guaranteed to come up in value.

The housing market, and the value of the assets, will return. How long I've no idea. 5 years? 10 years? I don't know. But that's why government must hold them because no commercial organisation could. There's no reason to believe they'll remain forever valueless.

But even if they go belly up, you've lost 700 billion (assuming he spends it all - he's only after 250 billion to start with).

Compare that with what will happen if the bailout doesn't take place. The stock market lost 1.2 trillion yesterday. If the banking system fails there's no knowing where the stock market will end up. certainly many trillions can be lost.

It's something of a Hobson's Choice (two unacceptable choices). But the bailout is the better of two evils.

[Galaxy]

Like he just said. A LOT of companies that have absolutely nothing to do with this situation got dragged down amidst the FUD. Investors spotted this and acted accordingly. There's a lot of money to be made after a sharp drop like that.

Plus, I think news that they will try a new bill on Thursday increased hopes as well.

[SteveMax58]

I may be wrong but as I read the revised bill the goverment receives equity in the companies participating - these would not be worthless regardless of what happens with the 'toxic assets' (which incidentally many economists believe will hold considerably value when held to maturity).

I believe you are right, and it may in fact end up profitable if all goes as "hoped".

I think the problem I have is whether this crisis just pops back up in a few months with the same practices being continued by the FI's and general speculation.

[Galaxy]

The difference is that we have greater regulation on bank lending that has avoided the bad debt problem.



Just curious, what regulations does Australia have?

[sterlingice]

That's kind of funny, in a sad way.

99% of the effort of this bill (and probably every bill) is political.

1% of the effort, of an already inept group, is being put towards the actual merits of this ridiculously overreaching bailout. So why does almost everyone here have so much confidence in it?

Yeah, this is the part of it all that scares me.

SI

[Marc Vaughan]

I believe you are right, and it may in fact end up profitable if all goes as "hoped".

I think the problem I have is whether this crisis just pops back up in a few months with the same practices being continued by the FI's and general speculation.

I'm presuming part of the arguement against this is that the FI's where the goverment has some control (ie. owns equity) aren't likely to allow those practices any more.

The ones which remain independant will hopefully have learnt their lessons or will eventually lose equity to the goverment and thus behave afterwards.

[Marc Vaughan]

Plus, I think news that they will try a new bill on Thursday increased hopes as well.

I think the new bill is almost a certainty to go through - the politicians have now done their posturing and 'played hardball' to get the 'best deal possible for their constituents' ....

So now they can fold quietly in confidence that they'll get re-elected ;)

[Marc Vaughan]

Marc - can you confirm please that the economic problems and the freeze of the credit markets won't affect the release date of FM 2009?? :)

LOL :D

Its definitely not affected Manchester City who have caused us to have to revamp the economic model somewhat to take into account the ludicrous budgets their new owners have made available ....

PS - FMH2009 PSP now comes with a 2d match view and multiple leagues running at once (end plug ;) ).

[Coffee Warlord]

But, I thought this collapse was going to take everybody with it? Are these foolish investors who are about to lose their shirt?

I'm trying to understand what is happening here. Chicken Little was out in full force yesterday afternoon, but now we either have over-confident investors pulling the market up today, or there are a significant amount of people out there who don't believe we are on the verge of a complete collapse.

I don't believe we're on the verge of a complete collapse of everything and their little brother. I believe a lot of this action is investors buying up companies that were incorrectly dragged down yesterday - in my mind, a smart move.

One could argue that this is because of the White House + Congress's assurances that something will be done. To that I retort: They said that yesterday, and things kept plummeting. There was a lot of collateral damage yesterday, and I believe what we're seeing now is a response to that.

Be interested to see the breakdown in trading right now between companies most directly affected and those not particularly involved.

[DaddyTorgo]

LOL :D

Its definitely not affected Manchester City who have caused us to have to revamp the economic model somewhat to take into account the ludicrous budgets their new owners have made available ....

PS - FMH2009 PSP now comes with a 2d match view and multiple leagues running at once (end plug ;) ).

Manchester City - blahh. kooky new owners. *shaking my head*

Hahah - nice plug!

And yes, I was kidding with my initial question.

Apologies, bit of a one-track mind at the moment.

[JonInMiddleGA]

So now they can fold quietly in confidence that they'll get re-elected ;)

Which was going to happen for the large majority of them regardless of what they did yesterday. Congressional re-election rates have not dipped below 60% since 1932, and not below 70% since then.

http://www.thirty-thousand.org/graphics/QHA08_cover.png

[Gary Gorski]

But, I thought this collapse was going to take everybody with it? Are these foolish investors who are about to lose their shirt?

I'm trying to understand what is happening here. Chicken Little was out in full force yesterday afternoon, but now we either have over-confident investors pulling the market up today, or there are a significant amount of people out there who don't believe we are on the verge of a complete collapse.

Two factors - there was easy money to be made today and sentiment is that we're getting some kind of bill this week from Congress. The Congress leaders have already said "We'll get it done this week" so the market is calmed. Hopefully they do because if they don't we'll see yesterday all over again.

Valuation of companies is not driving this market (well at least outside of financials). Fear is in control - today the fear is less because of the belief that Congress is going to get it done. Like others said, there are GREAT deals to be had if you're a long term investor. I only wish I had money to put to work here because there are legendary companies at bargain prices. But if for some reason that bill fails it all goes out the window. Fear will skyrocket and we'll go crashing down again until we either do get some intervention or until we actually hit the bottom.

[molson]

I wonder how rampant this kind of stuff is (my guess is very). And I don't hear about this stuff being prosecuted very often. I wonder how many US Attorney's Offices even have specific divisions for this kind of thing.

http://www.idahostatesman.com/localnews/story/518905.html

"Federal prosecutors say the scheme involved using more than 40 "straw borrowers" to get 49 construction loans totaling $20 million. Cobos, a loan officer, allegedly helped approve the loans and in return received kickbacks. Upchurch, a building contractor, withdrew the money from the loans but didn't always build the house, court records show. The others received "finder fees" for locating the straw borrowers, prosecutors say. The FBI spent two years investigating the case"

I wonder how much the government is paying for these loans - not really a great investment.

[sterlingice]

Big banks were painted as the enemy last week, with many even suggesting government imposed size-caps. Now all of the sudden, massive banks are considered critical to the economy.

The three SuperBanks that have been formed out of the last couple of months scare me more than anything and definitely moreso than the government nationalizing anything.

SI

[Mac Howard]

Just curious, what regulations does Australia have?

Essentially that any lender has to have reserves to cover a higher percentage of the loan. I don't know the figure but it means that, if defaults take place the bank has to have in place the reserves to cover them. This makes them demand acceptable documentary proof that you can afford the mortgage.

Part of the trouble is that house price rises force up the amount needed to buy the house. We've had that for the last 10 years or so - a tripling of prices in this town in 8 years. There are two solutions to this - there are now 40 and 50 year mortgages which means you can borrow twice the capital with approximately the same monthly repayments (but for twice the time) and there is a government scheme whereby you buy half the house and the government the other half. On selling the government takes half the capital gains - though you can make extra repayments if you wish and eat into the governments half and come to own more than half the house.

Defaults are kept within the ability of the reserve to cover.

Non-bank lenders have to stick to the same rules.

But all the time care is taken to see that you have the ability to service the loan. Nothing more than that is needed.

[sterlingice]

I can't quite believe some of the posts above. Guys, this bail-out is FOR YOU!

If you have shares, it's for you (or your shares will plummet in price). If you have a house, it's for you (or the value of your house will drop like a stone). If you have a pension plan, it's for you (your money is invested in the stock market). If you have a health scheme, and insurance scheme, it's for you (your money is invested similarly). If you have a job, it's for you (unemployment will leap up). If you run a business, it's for you (you won't be able to get money to grow your business or maybe even pay your employees). If you have debt - credit card, loan etc - this is for you (the bank could call in the debt).

Wake up, guys. This is not about rewarding or punishing the perpetrators of this, it's about saving your own skins (and mine). The credit market is frozen. There is currently no money to do anything. The banking system is close to collapse.

700 billion? You just lost 1.2 trillion today alone! Worldwide, that was closer to 5 trillion!

But it's just not that simple. $700B today is great. But that also equates out to a number with trillion after it in the future in terms of how much we just borrowed to fix it.

And what's to say the immediate, apparent plan is the correct one. Not acting for a couple of weeks this year might hurt. But stupidly spending that kind of money and sinking us into years of problems would hurt much worse.

SI

[sterlingice]

It can definitely be done - if you look throughout Europe you'll find a history of profit making nationalised companes and indeed in England its been semi-frequent for a company to be nationalised, made profitable sent back into the private sector only to go bust again and be recyled again ...

Generally the companies involved are either flag bearers for the country (ie. associated with England - eg. Rolls Royce), natural monopolies (ie. British Rail) or have a fundamental import to the overall economy (normally a large centralised work force in one area - ie. British Steel).

I think there's definitely historic data indicating this approach is probably the safest and most sensible way to defuse this issue - indeed as might have been mentioned on the forum already Sweden went through a similar situation a while back and solved it by nationalising the banks involved.

So, if the government buys and holds a company and then spins a profit, selling it on the free market, does that make the action capitalist or socialist? ;)

SI

[Passacaglia]

Where's that Birkemeier guy? I think I'd like to cash out my $425,000 now. I deserve it.

[JonInMiddleGA]

Good intentions are at the root of American financial crisis | Commentary (http://onlineathens.com/stories/093008/opi_338209195.shtml)

Pretty good column by syndicated writer Clarence Page, which I believe highlights the blame that policies of both the Clinton & Bush administrations deserve for a lot of the current mess. edit to add: Although I think I'd argue that trying to buy votes had as much to do with those policies as "good intentions".

[DaddyTorgo]

hmm - i have some $$ - I actually as I have mentioned before have been pondering putting into ETF's - particularly financials. Might have to take a look at things and see if there's a place there to put it to work before Thursday, or in ordinaries.

[sterlingice]

Sigh.

I'm sitting here with:
-- a house that hasn't sold over nearly three years, with a willing buyer who has been fighting his own mortgage situation which is holding up the sale
-- a current client that's a custom home builder
-- a small business that {gasp} has run for more than a decade without living off the sort of credit you're talking about but certainly encounters those who do on a regular basis

You think I don't have some passing familiarity with what you're talking about?
Give me a fucking break.

The issue isn't whether credit is a part of the equation at the consumer nor business level. I'm not even sure I've seen anyone question that. The issue is whether the bailouts on the table to date have been the appropriate response to the current situation.

I'm sitting here directly & negatively affected by the situation in more ways than one & yet I've not been remotely convinced that what's been proposed so far is the right solution. More to the point (since "right" is ultimately going to have to be proven by time), I'm not convinced that we've seen an acceptable solution to date. And at this point "acceptable" simply means better than the alternative of waiting until a revised plan is developed.

Sooner or later, there will be something that's deemed better than nothing. So far, that hasn't emerged for a sufficient number of people.

(I'm trying to word this nicely as I think it's a point worth making and I don't want to attack you as a poster but it illustrates my point perfectly. Also, why I tried to use the literary "we" rather than "you" in the directed comments since it's all inclusive.)

I think this mentality, for all it's worth, shows why many (particularly economists but also posters) are going around shouting that the sky is falling and no one can see it. Most of us only see a few steps beyond us and no one is really good at seeing the "entire picture". Sure, we have mortgages and small businesses but the big businesses- those that really make the economy run with large employment numbers- we just have no idea.

Indeed, at a nuts and bolts level, most of us will see very little short term change whether there is a bailout or not. Our bank deposits were all FDIC insured, our 401Ks take a beating but are still there, there's no change with our mortgages except perhaps that we're paying a bank with a different name, etc.

However, what happens long term with this? If we go into a prolonged recession as a result of this, you bet there's a huge effect to all of us. How about if we suddenly create some giant banks which control so much wealth that we don't allow them to fail? What if we don't implement some regulations and this becomes a downward spiral where this happens again and again every few years? What if we introduce huge moral hazard to the markets by just handing out checks to distressed companies which helps push us into that spiral? Are we missing a giant opportunity for the country to buy up some assets, sit on them, and then pay down the debt by trillions, thus saving huge future taxes?

We really don't know anything- either the doom-and-gloomers or the free-marketers. So, yeah, it's insulting to go around and tell you that we don't know anything, I know. But to them turn around and think we have a great grasp on the situation because we see such small snippets of the economy, that's just ignorant.

In short, we don't know anything.

(But I suppose that shouldn't keep us from speculating- it's not like the "experts" are doing any better :))

SI

[sterlingice]

I've done enough reading and paid enough attention to know that something is going to have to be done, and most of what I've just charcterized isn't actually what's occuring. But until someone actually sits down and tells Joe Six-Pack why this is necessary, don't be astonished when the public response is 500-1 against it. And in an election season with a lame duck President with low approval ratings, there's no one to do that talking.

Who gets to play the role of Ross Perot and the little graphs on network tv?

SI

[Mac Howard]

Sorry molson for the delay in answering. I had just answered all your questions in detail and then accidentally touched a key and Firefox closed down losing everything. So if I get tetchy it's not you I'm getting at :)

I'll try another hypothetical. Imagine Congress had come up with a plan that was 10 times as massive as this one, incredibly more reckless, benefitted nobody, and ultamitely resulted in our currency being worthless. I'm just scared that in this environment, there would be huge pressure to do it anyway, because "it's the only plan we have".

I would have thought Congress was the least enthusiastic about this and least likely to pull this confidence trick on you.

But the compulsion comes from the financial world and the collapse of banks, insurance companies etc. I think we can accept that these have not been created just to enforce a Congress scam.

This thing is real.

So how do we know this plan isn't that plan? Panic moves during times of economic turmoil don't really have a great track record. Congress couldn't manage a pet store efficiently. The complete and utter confidence in this bill as our "only option" just feels like one of those historical moments in time where everyone should have seen the impending disaster but didn't.

The problem is that the consequences of your scepticism are so dire that you have to take a chance. It's a bit like a burglar holding a gun to your head - you're not going to argue with him that it's not loaded are you?

As I said Bush, Senate Republicans, Senate Democrats, House Democrats and 90% of financial commentators are all telling you the same thing. That's a hell of a crowd to get together for something that isn't important. I think that you have to give them some credit some time.

And my second fear, as I've stated, is that propping up a unsustainable system will solve nothing and make things worse without appropriate further action that Congress isn't qualified or motivated to provide. Is that really that insane a concern? Again, it's a CONCERN, not at all an argument against any government intervention.

It's not insane but again you're playing with fire with enormous consequences if your wrong.

In the most simple terms, and going beyond this particular situation, I think we're just too afraid of recessions. That doesn't mean I don't care about people suffering from a recession.

If the banking system collapses you're going to get something much more severe than a recession. You have a recession already and you'll have one even if the bailout goes ahead but if it doesn't and the banking system goes belly up then you're looking at something much closer to 1929/33.

The collapse of banks and insurance companies already should warn you that this isn't hyperbole.

But as for the posts I was refering to, you can start with the one I was responding to, and then your debut post in this thread:
"I can't quite believe some of the posts above. Guys, this bail-out is FOR YOU!

If you have shares, it's for you (or your shares will plummet in price). If you have a house, it's for you (or the value of your house will drop like a stone). If you have a pension plan, it's for you (your money is invested in the stock market). If you have a health scheme, and insurance scheme, it's for you (your money is invested similarly). If you have a job, it's for you (unemployment will leap up). If you run a business, it's for you (you won't be able to get money to grow your business or maybe even pay your employees). If you have debt - credit card, loan etc - this is for you (the bank could call in the debt).

Wake up, guys. This is not about rewarding or punishing the perpetrators of this, it's about saving your own skins (and mine). The credit market is frozen. There is currently no money to do anything. The banking system is close to collapse."

The assumption you're making is that anyone who has concerns about all this must not understand that the intention is to help "main street and not wall street". As I responded to you then, we get the idea behind it. Whether it works long-term is another story.

The first question in this post justifies exactly this post, molson : essentially 'is this a Congress beatup?" You don't believe it's real. Many contributors' objection to the bailout is that it's a bailout of Wall St - they don't want these guys to be let off the hook (incidentally precisely the attitude that led to the 1929 crash). If you know your house value will plummet, if you know your pension plan will be savaged, if you know you may lose your job then you're not nearly as dismissive of a solution as so many posts are. At least you give a possible solution a fair hearing.

But the reaction to the bailout isn't a studied analysis of it's merits, it's an antagonistic attack with little attempt to understand. There is no feeling at all that these posts indicate the poster is aware of the consequences for him.

Was it arrogant to point these things out? I think not because no post had shown anything that suggested these consequences were known to the poster.

[sterlingice]

RealClearMarkets - Articles - In Times of Crisis, Trust Capitalism (http://www.realclearmarkets.com/articles/2008/09/in_times_of_crisis_trust_capit.html)
I thought this was a great article.

I didn't realize the information about lending from the fed. Very interesting article.

Also, it helps to hit home with the message that a lot of money isn't frozen. It's just waiting on the sidelines to see if they can get a more favorable deal from the government.

Once again, the more and more I read about this, the more and more I just want to let the markets sort themselves out but provide the banks with an out in terms of a government vehicle buying for buying up major stakes and holding onto them to spin for a profit later.

SI

[Mac Howard]

But it's just not that simple. $700B today is great. But that also equates out to a number with trillion after it in the future in terms of how much we just borrowed to fix it.

And what's to say the immediate, apparent plan is the correct one. Not acting for a couple of weeks this year might hurt. But stupidly spending that kind of money and sinking us into years of problems would hurt much worse.

SI

Because the consequence of doing nothing is dire, will cost you very much more and hit you personally in ways you would never wish to be hit.

The collapse of the banks and insurance companies ought to convince you that this is real. It's not a beatup by Congress or Bush. These bankrupcies are real and there are many more on the way if you do nothing. The financial system that oils the society you live in is on the point of collapse. The "It'll be right" mentality would be fatal.

As for the amount of money, note the 1.2 trillion lost on Wall St yesterday. If the banking system goes belly up that's nothing with what will be lost.

[Marc Vaughan]

So, if the government buys and holds a company and then spins a profit, selling it on the free market, does that make the action capitalist or socialist? ;)

SI

I'd always seen it as 'pragmatic capitalism', where a society is generally free market apart from when that fails the societies basic aim (which is to improve the lifestyle of its people at its core).

In England British Steel was nationalised (years ago) because it would have adversely affected its core industrial areas for it to fall because it was the main employer in them.

Once it was 'turned around' (ie. made profitable) it was put back into the marketplace again.

Its similar to the idea of the 'lender of last resort' which I've heard mentioned in America but just in a slightly different way - the goverment steps in when required to prevent a potential social disaster because of poor management of a situation by a company.

(its not hugely dissimilar to whats proposed in America presently - most people accept that the American financial institutions are generally hugely profitable even when run sensibly, so taking ownership of them makes huge sense for the goverment in the long run because (1) it prevents further economic/social problems from this crisis, (2) they can flog them for a profit later on once they're back on their feet and thats ignoring the profit which will hopefully be made during the interim time)

[JonInMiddleGA]

We really don't know anything- either the doom-and-gloomers or the free-marketers. ... In short, we don't know anything.

FWIW, I'm pretty sure I get where you're coming from & took no offense to it.
I've got no problem with acknowledging that there probably isn't a soul on this board that has a full grasp on the subject.

What I took offense to, and was trying to illustrate, is
-- the suggestion that anyone who isn't fully on board with the proposals to date just "doesn't get it"
-- More specifically, that those who aren't on board somehow "get it" less than some of the more vocal ones here who support it.

There are quite a few people in this thread who seem to have at least a roughly equal understanding of both the micro & macro economics involved (however limited that equal understanding may be), they're just reaching different conclusions about the solution, impact, etc.

[SportsDino]

This whole bailout thing seems like someone pointing a gun at your head and asking you for all your money. It is all fear-mongering to get some really bad legislation enacted.

As for 90% of financial commentators, Congress, and the President, they LOVE to lie, hasn't anyone noticed it quite yet. Why believe them about the necessity of this bailout?

If you want to spend 700 billion dollars, track down the mortgage entry points. Somewhere, somehow, one guy mails one check to one bank to pay off his mortgage. From there somehow the money gets sent to a billion places thanks to these foolish derivatives (that should not have been created in the first place).

The market pressure is coming from that mortgage being defaulted, and effectively worthless, therefore all other derived value is worthless.

Have the government buy the mortgage right there, at whatever price they determine makes sense (say 50%). Rework the deal with the dude paying the mortgage so that they pay something with interest, say at least 90% of principle plus some interest rate.

All of the derivatives need to untangle themselves and request their payments from the government. If they can not demonstrate a clear claim to a portion of the mortgage, they are worthless. The amount paid to the derivative is prorated based on the relative proportions of the original mortgage and the reworked contract.

End result, less defaults, and a mechanism for some of those 'troubled assets' to have value greater than a penny on the dollar... if they can be resolved by these supposed experts into a valid claim.

Does nothing for bank trust, if they bought shit its still shit. Will change the liquidity situation though for anything that is trackable enough... once the mortgage is reworked by the government instead of being written off at 0 it will be at some percentage, probably a fairly high one (most people don't want to lose their home).

If a person cannot refinance, the home defaults and is written off, the government auctions off the property starting bid at the price it was acquired.

So the government acquires a large percentage of the mortgage revenue or a lot of land (hopefully some of it will sell, but some will just sit on the shelf to be sold during the next boom time whenever that is). Losses will at least be estimated, instead of buying fictional contracts that will become worthless because government acquisition does not effect the consumer side default situation whatsoever, the government restores some value in a REAL economic sense. It will not bail out the worst and naughtiest banks/funds, it will help people and derivatives that are transparent enough to hold water.


Tell me how that set up is worst than buying all the worst parts of various banks balance sheets, for equity in banks that will probably go under after everyone liquidates their position during the government cash infusion? That 700 billion will be sucked straight into stabilizing big speculators recent losses and halting their margin calls until they can get their fictional assets off the books (shift them onto the companies, which they will then suddenly back out of and they will mysteriously fail, setting off another round of stock market drops... if they are smart they'll remember to set up a put option before they do it too).

[SportsDino]

repeat

[Gary Gorski]

Breaking news according to CNBC - FDIC is seeking authority to boost the deposit insurance limit above 100,000.

[Mac Howard]

It's quite wrong to say that we know nothing. We know a great deal - particularly about what happens if you do nothing. We know that because we've been doing nothing. And what has happened? The largest banks have gone bust. Insurance companies, mortgage lenders, mortgage security companies - all going bust. We also know that financial organisations are refusing to deal with each other. We know there's a credit crunch bordering on credit freeze. This is not "nothing". This is very real information indeed.

So what happens if we do nothing? Well, much of the same. We know many of the banks have exactly the same problems as the ones that have gone bust. So why would they not fail too if we do nothing. And we know when one financial company fails it brings down another. We know how this snowballs because we've seen it before.

If we do nothing there is no reason to believe that one bank, insurance company, mortgage lender etc after another not will fail.

That's not "nothing". That's real information.

Do we know how far this will go? Of course not. It's doubtful that we will wait 4 years as they did in 1929/33 before we realise we must intervene.

So, realising that we must eventually intervene then surely it is best to do so before half the financial system has disappeared.

If we enact the bailout do we know what will happen? Not exactly. We do know that we'll remove one of the causes of the banks failures - the toxic assets that are ruining their balance sheets. That's a start because that is the original cause of the whole problem.

Will it solve the problem? We really don't know. But there's a chance which is much better than the chance if we do nothing.

[JonInMiddleGA]

So, realising that we must eventually intervene then surely it is best to do so before half the financial system has disappeared.

Not "surely" at all actually. A certain thinning of the herd might not be the worst thing possible.

We do know that we'll remove one of the causes of the banks failures - the toxic assets that are ruining their balance sheets. That's a start because that is the original cause of the whole problem.

Wouldn't the creation of those toxic assets be the "original" cause of that aspect of the problem? If so, are there adequate safeguards in place to prevent a bailed out lender from repeating the same mistakes again? For that matter, are there adequate safeguards in place to prevent the new government interest holders from repeating the same mistakes again?

And those are just quickie questions without adequate answers for starters.

[albionmoonlight]

Random question.

You know how they have guest people (like the executive board of companies that went public that day, or celebrities/dignataries who are visiting NYC) to ring the bell at the end of the day at the NYSE and it is a nice photo-op and feel-good moment for them?

Do they do that on the days when the markets lose 5+% of value? I mean, if you are in NY to ring the bell, it seems like a waste to not do it.

[Mizzou B-ball fan]

Random question.

You know how they have guest people (like the executive board of companies that went public that day, or celebrities/dignataries who are visiting NYC) to ring the bell at the end of the day at the NYSE and it is a nice photo-op and feel-good moment for them?

Do they do that on the days when the markets lose 5+% of value? I mean, if you are in NY to ring the bell, it seems like a waste to not do it.

They noted on the radio yesterday that there was only one person ringing the bill at the end of trading. They joked that all of his friends likely were already at the bars crying in their beers.

[Gary Gorski]

Not "surely" at all actually. A certain thinning of the herd might not be the worst thing possible.



Wouldn't the creation of those toxic assets be the "original" cause of that aspect of the problem? If so, are there adequate safeguards in place to prevent a bailed out lender from repeating the same mistakes again? For that matter, are there adequate safeguards in place to prevent the new government interest holders from repeating the same mistakes again?

And those are just quickie questions without adequate answers for starters.

Questions.

Can you thin the herd (moreso than already has been done) without bringing down the entire system? If so, how do you essentially choose which banks survive? Aren't JP Morgan, Bank of America, Citigroup and Wells Fargo essentially too big to fail? (WF is a very well run bank though so they shouldn't fail anyway) What about all the regional banks that are in trouble? What happens there?

How long do you feel it would take to create adequate safeguards to prevent these things from happening? Can it be done in a few days time? The market is impatient and wants a solution yesterday - how do you pacify the market to stop the bleeding while working out the ideal solution?

[JonInMiddleGA]

Can you thin the herd (moreso than already has been done) without bringing down the entire system?

Don't know. Don't know that it happen couldn't either.



how do you pacify the market to stop the bleeding while working out the ideal solution?

Careful not to overstate what I'm looking for there, specifically the word "ideal". I don't believe at any point I mentioned shooting for that lofty goal, I've tried to stick to more reasonable aims such as "adequate". Let 'em hit that threshold at least, then I'll worry about improving the plan toward ideal (meaning that among the changes I strongly favor was a phased plan rather than a lump sum up front payoff).

[GrantDawg]

Are we missing a giant opportunity for the country to buy up some assets, sit on them, and then pay down the debt by trillions, thus saving huge future taxes?



God, how much would I love that written into this bill is that any money actually "made" of this deal could only go to help pay off the national debt.

[molson]

It's quite wrong to say that we know nothing. We know a great deal - particularly about what happens if you do nothing. We know that because we've been doing nothing. And what has happened? The largest banks have gone bust. Insurance companies, mortgage lenders, mortgage security companies - all going bust. We also know that financial organisations are refusing to deal with each other. We know there's a credit crunch bordering on credit freeze. This is not "nothing". This is very real information indeed.


It sure sounds like a whole lot of "somethings" brought us here today:

RealClearMarkets - Articles - In Times of Crisis, Trust Capitalism (http://www.realclearmarkets.com/articles/2008/09/in_times_of_crisis_trust_capit.html)

"somethings" can be good, "somethings" can be bad.

You (and most) haven't even conceded that it's possible for Congress to make this worse. It doesn't matter what they throw out. Imagine that environment - congressman knowing that they HAVE to do ANYTHING, and anything is perfectly enough. Horryfying.

[Gary Gorski]

Since were talking market here - did anyone who watches it see something crazy happen with Google at the end of the day? The price on my screen just started jumping all over the place - it showed as low as the 200s and appears to have closed at 341.43 - down over 10% - yet in after hours it seems to be back over 400 a share. Anyone else see that and if so any explanations for it?

[sterlingice]

FWIW, I'm pretty sure I get where you're coming from & took no offense to it.
I've got no problem with acknowledging that there probably isn't a soul on this board that has a full grasp on the subject.

What I took offense to, and was trying to illustrate, is
-- the suggestion that anyone who isn't fully on board with the proposals to date just "doesn't get it"
-- More specifically, that those who aren't on board somehow "get it" less than some of the more vocal ones here who support it.

There are quite a few people in this thread who seem to have at least a roughly equal understanding of both the micro & macro economics involved (however limited that equal understanding may be), they're just reaching different conclusions about the solution, impact, etc.

It's scary- after being inundated for nearly a week with all of this information and taking a crash course in national and global economics with the rest of everyone here. This bailout seems like a horrible idea from a free market perspective.

And that's from someone who is "socialist" enough to let the government buy out the bad banks or nationalize stuff, if it were my call. Either let the government assume the risk and reward for all of it or let the free market sort it all out. The middle ground once again introduces huge amounts of moral hazard and just opens us up for this happening again.

While the free market people out there saying how great their system is- this isn't a victory for them. Unbridled capitalism got us into this mess because anytime you don't make a rule explicitly outlawing something, people will abuse rules to make a buck. That's why we're here. The free market doesn't give two whits about the good of the people, it just serves those who put money as their only priority in life. That's horrible for a society.



Onto the big tangent, tho: If I were dictator for a day, here would be my plan. Warning- I'm pretty sure most of this isn't feasable and borders on crazy as I'm mostly blue skying, but it's what I would go with off the top of my head as suggestions to look into the advantages and disadvantages of each.

Any bank who wants it gets nationalized and their CEO's and boards slapped for the American people's pound of flesh. Any bank who doesn't, gets to go play on the open market because no bailout is coming and there is no middle ground to continually artificially inflate the values. Don't like those assets? There's a market for them, they're all just waiting on the sideline to see what the government will pay. Similarly, the sellers want a higher value rather than having to let the market buy them at a cut rate.

Once they get back on their feet, these banks are sold back to the market and those profits go right back to paying off the national debt: not into the current year's budget, not into some fund, right back towards paying off the debt.

But along with this- new regulation *must be passed at the same time as part of a comprehensive bill*. Bye bye, ridiculous financial vehicles: what you buy is what you get. None of this buying up bundles of weird debt. Capital gains tax cut? No way- that's just a joke. Change leverage rules so they can't extend themselves out 30:1. That's an insane ratio.

I'd love to put in a CEO reform bundle, too, but I'm sure there is no way any of this is feasible. You can only make something like 15x your lowest employee or 10x your average- some sort of more fair multiplier. I don't know the number but the idea is there- your wages are tied to worker wages *and* that includes all of your oursources overseas partners. So you just shipped out 10000 jobs to China for $1 a day, that's going to drag your pay down You want more money, pay your people more. Not only that, but you don't get odd compensation like stock options- you want stock as part of your pay, you get it like the rest of us, as stock, at the price you bought it. The problem with the theory of tying CEO pay to 5 years like everyone is now suggesting is that you can cook the books for 5 years just as easy as you can for 1. I bet every company magically has an "accounting adjustment" just as soon as those 5 years are up and the CEO is paid.

This would just be a start. There are a couple of other good ideas that have come out of this which just are not coming to mind at the moment but there's my crazy plan. Really, is it any worse than "give $700B to a former Wall Street crony so he can buy up worthless assets from his old buddies to bail them out from awful, short-sighted decisions"?

SI

[sterlingice]

Since were talking market here - did anyone who watches it see something crazy happen with Google at the end of the day? The price on my screen just started jumping all over the place - it showed as low as the 200s and appears to have closed at 341.43 - down over 10% - yet in after hours it seems to be back over 400 a share. Anyone else see that and if so any explanations for it?

GOOG: Summary for GOOGLE - Yahoo! Finance (http://finance.yahoo.com/echarts?s=GOOG#chart1:symbol=goog;range=1d;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined)

What the hell- I just looked at their chart for today. From 9:30 until 3:50, everything was just fine, somewhere between 390 and 420- but pretty much steady all day.

3:55 413 19K shares (roughly normal price and volume all day)
3:56 470 379K
3:57 249 1444K
3:58 401 226K
3:59 341 2673K (close)

No idea... WTF

SI

[Flasch186]

Since were talking market here - did anyone who watches it see something crazy happen with Google at the end of the day? The price on my screen just started jumping all over the place - it showed as low as the 200s and appears to have closed at 341.43 - down over 10% - yet in after hours it seems to be back over 400 a share. Anyone else see that and if so any explanations for it?

I actually own some google and shat myself. I think someone dumped a ton of shares at mkt and the stop limit spikes grabbed them, perhaps. unless they were mis-trades or erroneous. Kind of freaky though and after listening to how hedge funds may need to liquidate in the next few weeks to meet calls and withdrawals, its kind of scary.

[SteveMax58]

You (and most) haven't even conceded that it's possible for Congress to make this worse. It doesn't matter what they throw out. Imagine that environment - congressman knowing that they HAVE to do ANYTHING, and anything is perfectly enough. Horryfying.

Bolded for emphasis, as this is the fear that I have right now...even more than a consolidation of FI's(which I find to be the most likely if nothing happens...not complete armageddon).

Similar to the article JiMG linked to earlier stated...it seems too many "well intentioned" people are trying to fix things...and most of them should worry about their "actual" jobs(i.e. Bernanke should focus on keeping the dollar stable and high, Congress should be debating sound policy, etc.).

Sounds cliche...but I would rather measure twice and cut once...rather than hack the entire thing up doing "something".

[Flasch186]

CNBC reporting 'Erroneous trades' in GOOG but what exactly does that mean?

[SirFozzie]

CNBC reporting 'Erroneous trades' in GOOG but what exactly does that mean?

Someone fucked up big time.. the example I see elsewhere is "Someone fell asleep with their finger on the Sell Button"

Considering the stock is back up to $408 in after hours trading, I bet someone dumped shares that really didn't want to.


Ooooohhhh.. I see what happened. Someone DID fuck up big time. They entered the wrong value for a bunch of share trades, bunch of sales were recorded as shares being sold for 1 cent and 2 cents. (Considering the stock is at $400, that's obviously wrong). Wow.

[Tekneek]

So, everybody in the DJIA went up today, except for Caterpillar which went down 0.29. Citigroup, Morgan Chase, and Bank of America had big gains.

Even WaMu made a big gain (by percentage).

It is nice to know that bargain hunters are not convinced enough that we are facing imminent disaster to stay out of the market. Since credit is so hard to get, apparently, this must have been a play by those who actually have cash on hand and will then, presumably, still be standing when all the borrowers crash and burn.

[molson]

Add Lou Dobbs to the list of those that apparently "don't get it"

Lou Dobbs: Hooray for those who defeated bailout - CNN.com (http://www.cnn.com/2008/US/09/30/dobbs.qa/index.html)

[Flasch186]

It is nice to know that bargain hunters are not convinced enough that we are facing imminent disaster to stay out of the market. Since credit is so hard to get, apparently, this must have been a play by those who actually have cash on hand and will then, presumably, still be standing when all the borrowers crash and burn.

to reiterate that the markets (equities) are a tiny sliver of the picture. I dont know how many times I have to say it.

The rally occurred on the hopes of a bill Thurs/Fri and the SEC talking about a valuation change in their accounting rules for Lev. 3 assets. That was fuel to the fire.

The rally doesnt change anything and the selloff yesterday wasn't fully representative either. You have to take the info and bundle it with a ton of other info, that ive listed a ton of times already in this thread so there's no point in banging my head against the wall anymore and I want to say, again, I PRAY you are right.

Molson, hilarious that a GOP champion would side with Dobbs. LOL

[Galaxy]

Someone fucked up big time.. the example I see elsewhere is "Someone fell asleep with their finger on the Sell Button"

Considering the stock is back up to $408 in after hours trading, I bet someone dumped shares that really didn't want to.


Ooooohhhh.. I see what happened. Someone DID fuck up big time. They entered the wrong value for a bunch of share trades, bunch of sales were recorded as shares being sold for 1 cent and 2 cents. (Considering the stock is at $400, that's obviously wrong). Wow.

Wait....How do you sell something for 1 cent when the market values it about $400, or whatever it was trading at the time.

[SirFozzie]

Update on Google:

* Pursuant to Rule 11890(b) NASDAQ, on its own motion, has determined to cancel all trades in security Google Inc Cl - A "GOOG" at or above $425.29 and at or below $400.52 that were executed in NASDAQ between 15:57:00 and 16:02:00 ET. In addition, NASDAQ will be adjusting the NASDAQ Official Closing Cross (NOCP)and all trades executed in the cross to $400.52. This decision cannot be appealed. MarketWatch has coordinated this decision to break trades with other UTP Exchanges. NASDAQ will be canceling trades on the participant’s behalf.

[molson]

Molson, hilarious that a GOP champion would side with Dobbs. LOL

Well, Dobbs is in favor of doing "something", you I figured you and Mac would agree with him.

"Dobbs: Well, the first thing we need to do is return to a traditional role of regulation. ... The problem here is not simply the housing market. ... But $700 billion and nothing in that bill deals with the foreclosure crisis, if you can imagine that. That's arrogance. That's stupidity. That is your leadership in Washington, D.C. Democratic leadership in Congress and Republican leadership in the White House.

So that's an absurdity. The first thing that has to be dealt with is mitigating the foreclosure crisis, period. Secondly, in terms of instilling confidence in the banking system and in our credit markets, the first thing to do is to deal with those institutions that are wildly out of balance, whose balance sheets, frankly, are a joke. And the regulators who should have been tending to them over the years are also a joke.

It's time to end the joke. That means aggressive regulation. It means aggressive intervention on an institution-by-institution basis."

[SirFozzie]

Wait....How do you sell something for 1 cent when the market values it about $400, or whatever it was trading at the time.

Apparently someone fatfingered entering the trade into the NASDAQ tracker.. only thing I can think of...

[Galaxy]

Well, Dobbs is in favor of doing "something", you I figured you and Mac would agree with him.

"Dobbs: Well, the first thing we need to do is return to a traditional role of regulation. ... The problem here is not simply the housing market. ... But $700 billion and nothing in that bill deals with the foreclosure crisis, if you can imagine that. That's arrogance. That's stupidity. That is your leadership in Washington, D.C. Democratic leadership in Congress and Republican leadership in the White House.

So that's an absurdity. The first thing that has to be dealt with is mitigating the foreclosure crisis, period. Secondly, in terms of instilling confidence in the banking system and in our credit markets, the first thing to do is to deal with those institutions that are wildly out of balance, whose balance sheets, frankly, are a joke. And the regulators who should have been tending to them over the years are also a joke.

It's time to end the joke. That means aggressive regulation. It means aggressive intervention on an institution-by-institution basis."


I keep hearing about these other options. I have not heard of what they are, expect little things such as the FDIC providing higher rates (which will help, but it doesn't solve the problem). The problem with regulation, is it's too late. It doesn't solve anything right now. We need it, of course, but it doesn't fix the current problem.

[molson]

I keep hearing about these other options. I have not heard of what they are, expect little things such as the FDIC providing higher rates (which will help, but it doesn't solve the problem). The problem with regulation, is it's too late. It doesn't solve anything right now. We need it, of course, but it doesn't fix the current problem.

What's done is done. Many seem to think that you should take the hit, address the underlying issues and then look forward, rather than delay that hit with an expansive bandaid.

[GrantDawg]

DEAR AMERICAN:

I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH A TRANSFER OF FUNDS OF GREAT MAGNITUDE.

I AM MINISTRY OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800 BILLION DOLLARS US. IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT WOULD BE MOST PROFITABLE TO YOU.

I AM WORKING WITH MR. PHIL GRAM, LOBBYIST FOR UBS, WHO WILL BE MY REPLACEMENT AS MINISTRY OF THE TREASURY IN JANUARY. AS A SENATOR, YOU MAY KNOW HIM AS THE LEADER OF THE AMERICAN BANKING DEREGULATION MOVEMENT IN THE 1990S. THIS TRANSACTIN IS 100% SAFE.

THIS IS A MATTER OF GREAT URGENCY. WE NEED A BLANK CHECK. WE NEED THE FUNDS AS QUICKLY AS POSSIBLE. WE CANNOT DIRECTLY TRANSFER THESE FUNDS IN THE NAMES OF OUR CLOSE FRIENDS BECAUSE WE ARE CONSTANTLY UNDER SURVEILLANCE. MY FAMILY LAWYER ADVISED ME THAT I SHOULD LOOK FOR A RELIABLE AND TRUSTWORTHY PERSON WHO WILL ACT AS A NEXT OF KIN SO THE FUNDS CAN BE TRANSFERRED.

PLEASE REPLY WITH ALL OF YOUR BANK ACCOUNT, IRA AND COLLEGE FUND ACCOUNT NUMBERS AND THOSE OF YOUR CHILDREN AND GRANDCHILDREN TO [email protected] SO THAT WE MAY TRANSFER YOUR COMMISSION FOR THIS TRANSACTION. AFTER I RECEIVE THAT INFORMATION, I WILL RESPOND WITH DETAILED INFORMATION ABOUT SAFEGUARDS THAT WILL BE USED TO PROTECT THE FUNDS.

YOURS FAITHFULLY MINISTER OF TREASURY PAULSON

[Flasch186]

I keep hearing about these other options. I have not heard of what they are, expect little things such as the FDIC providing higher rates (which will help, but it doesn't solve the problem). The problem with regulation, is it's too late. It doesn't solve anything right now. We need it, of course, but it doesn't fix the current problem.

bingo, whether or not you agree with Lou or not is not the issue. shit, we may both agree but that doesnt change the fact that, IMO, we have to avoid the train in the next few days and weeks.

[molson]

lol

[Bigsmooth]

This whole situation reaks of manipulation, fraud, and criminal activity. All I know is, I'm willing to lose my life savings to see some of these clowns that are running the Federal Reserve put in jail....

Cox from the SEC, too. The shit going down in the penny markets right now, under his watch, is flat out amazing.

[Gary Gorski]

So, everybody in the DJIA went up today, except for Caterpillar which went down 0.29. Citigroup, Morgan Chase, and Bank of America had big gains.

Even WaMu made a big gain (by percentage).

It is nice to know that bargain hunters are not convinced enough that we are facing imminent disaster to stay out of the market. Since credit is so hard to get, apparently, this must have been a play by those who actually have cash on hand and will then, presumably, still be standing when all the borrowers crash and burn.

Yes, it was a fantastic day for the market. People who had cash on the sidelines or had cash from bailing before the end yesterday or have margin available had the opportunity to put it to work today because the market sentiment was positive. People who did put their cash to work early today had large gains and with the renewed hope for the congressional bill this week as well as some of the other stuff I talked about like upping the FDIC insurance and changing mark to market rules possibly coming into play the overall mood of the market has gone from doom and gloom to hopeful.

But if say the bill does not get passed those same bargain hunters will do a complete 180, sell and take those easy gains and we'll be headed back down almost assuredly lower than where we started today.

I HOPE yesterday was the bottom. I don't want to see the fallout of anything worse than that. Congress seems to have bought themselves a couple of days to get something better on the table. Something that more people on main street either understand or are willing to support. Things look hopeful - they're not stable but there is hope. We need stable and I really think that right now everything hinges on Congress. Hopefully for once they can stop playing politics and actually work together to get something done to give stability to the financial system and allow for the proper time to figure out just how we're going to fix the underlying problems that will exist whether there is a bailout or not.

[molson]

Yes, it was a fantastic day for the market. People who had cash on the sidelines or had cash from bailing before the end yesterday or have margin available had the opportunity to put it to work today because the market sentiment was positive.

Do we positively know that there's ZERO credit for anyone right now, or it possible that premise is being overstated just a tad?

[Buccaneer]

I was worried we weren't going to see Chicken Little today...until he showed up at 2:54 MST. :)

[Gary Gorski]

Do we positively know that there's ZERO credit for anyone right now, or it possible that premise is being overstated just a tad?

I never said there's zero credit right now - things are what they are right now. Credit is getting tighter and more expensive and the banks don't seem to be willing to lend to each other - I don't know what its like on an individual level at the moment for getting cars or houses but I'm sure credit is available right now. I don't think its a time for panic or despair but I do think that some people really are not concerned enough about what potentially could happen to the world's economy if our financial system goes in the tank. That's not a "correction" - that's a global disaster.

If our financial system collapses will credit be available? I doubt much will be available then but that's the whole point here - we can't get to that point. IF that happens that's when the trouble is going to be very real and very serious. I just don't want to see that point but I think it would be possible if we don't get the intervention soon. Today was a great day - we had a great gain in the market and we've got the hope that a number of things will come in play by the end of the week to provide support for our financial system. We have hope, we have confidence, we feel better today about our portfolios than we did yesterday. What we don't have yet is stability - once we get that hopefully things will be fine and our lawmakers will have a chance to take a good look at how we got to this point and take steps to make sure it never happens again.

[Flasch186]

gary, you should delete the word confidence....until a bill is passed thats one very important thing missing.

[Gary Gorski]

I guess I should clarify - I mean confidence in the bill being passed as opposed to the overall market. I think that exists as of this moment - I don't think we get a 500 point rebound today if we're not pretty confident that this bill is going to be passed this week. Its also why I think if it doesn't pass we'll get slaughtered again. Maybe I'm wrong though on that - at least I'm pretty confident at this point that a bill is going to get passed.

[Mac Howard]

Tech Stocks Bounce Back Sort of | Epicenter from Wired.com (http://blog.wired.com/business/2008/09/tech-stocks-get.html)

Just a couple of points from it:

The tech-heavy Nasdaq index inched up 3 percent in Tuesday's session, but it has a ways to go before it makes up for Monday's selloff, when it fell 9 percent to 2004 levels.

Apple, one of the hardest hit tech stocks on Monday, climbed up roughly 5 percent on Tuesday, but it was still nearly 14 percent off of Friday's close.

the market believes that Congress will pass the bill and I think that's right but they're still wary. If the bill is passed the market will continue reacting to financial news as before until the effectiveness of the package can be assessed or hit by some major event. But if it isn't, Monday's fall will look like a day at the beach by comparison with the bloodletting we'll get.

A couple of quotes from tv this morning:

"It is well nigh impossible to get a loan right now and a large problem for everyone" - ABC News

The bottom line is this: if we don't act promptly around here, and effectively, then a lot of people are going to lose their jobs and Main Street is going to be put into dire straits" - Judd Gregg, Republican Senator

[miami_fan]

I keep hearing about these other options. I have not heard of what they are, expect little things such as the FDIC providing higher rates (which will help, but it doesn't solve the problem). The problem with regulation, is it's too late. It doesn't solve anything right now. We need it, of course, but it doesn't fix the current problem.

You know it is funny. It was too early for any sort of regulation before we got into this mess. Now that we are in the mess, it is too late for regulation. And after the bailout/investment plan/ whatever is the proper term is, it will not be the proper time for regulation then either.


Sidenote: If I can get one JUST one person in authority to stand up and say "I know I said everything was in good shape but I was wrong and I had a part in fucking up the whole situation", I would vote for a trillion dollar plan"


Accountability: What happened to it?:banghead:

[Mac Howard]

Newt Gingrich, who ranted against the plan five days ago, said on O'Reilly to explain his switch to support for the bailout plan:

"And I spent part of the weekend talking with people I trust, who are very, very successful, all of whom said to me as business people, not folks who have a lot of money in the market, that they believe we are on the edge of a real credit crisis and they said that doing nothing would be far worse than accepting a bad piece of legislation"

Of course you guys are going to jump on the "bad legislation" but the fact that Gingrich sees it as that only emphasises the importance of immediate action. That Gingrich sees all government intervention as "bad" puts it in context and his support for a bill that goes against everything he's ever believed in in his political career could not be a greater justification for action now.

This is a committed, right-wing politician who was totally against the bailout but has talked to those who understand the consequences of doing nothing and, though he dislikes the bill intensely, has realised that it is essential to pass it.

[Galaxy]

The Aussie market is up 3%.

[DanGarion]

From Sons of Steve Garvey... (http://www.sonsofstevegarvey.com/2008/09/mccourt-jumps-on-bailout-bandwagon.html)

:popcorn: :) :lol: :D

McCourt Jumps On Bailout Bandwagon
from Sons of Steve Garvey by Steve Sax

LOS ANGELES -- Salivating at the thought of handouts from the federal government, Los Angeles Dodgers owner Frank McCourt has decided to take advantage of the current congressional impasse and submit a Los Angeles Dodgers bailout plan, requesting relief from the "toxic contracts" of Andruw Jones (2 years, $36M), Jason Schmidt (3 years, $47M), and Juan Pierre (5 years, $44M).

"The Los Angeles Dodgers have a mounting credit crisis due to $127M in sub-prime contracts," said McCourt. "I'm hoping to get a piece of that $700 billion before Hank Paulson gives it away on superfluous pursuits like maintaining stability in the global capital markets."

McCourt went on to argue that the contracts were on the verge of default given a range of different factors (low batting averages, meager on-base percentages, and microscopically small cumulative win totals), which in aggregate threatened to destabilize the entire LA Dodger payroll. With capital in short supply following a highly-leveraged purchase of other non-revenue generating assets, and maximum limits already reached on beer and parking prices (some of the highest in the league), McCourt sought governmental relief to compensate for the failures of his high-risk, high-leverage contracts.

The fact of the matter is, these contract instruments, including those known as Boras-backed (offensive-woe-in)securities, were just too complicated for the average MLB GM to process," explained McCourt. "The complexities of these derivative instruments were simply too great, and the risks too high. And when those adjustable (pant waist) rates exploded, we were just not in a place to cover the (team snack table) payments." When asked a follow-up question asking for clarification on whether McCourt was insinuating Dodger GM Ned Colletti was an "average GM," McCourt refused to answer the question.

Other MLB teams did not understand why the Dodgers should be awarded federal relief when their own risks were not eligible for bailouts. "As if I didn't want to revoke that Zito deal," muttered Giants owner Peter Magowan. "What the hell do you think?"

"I have never wanted to fleece (blanket) the American public," explained McCourt, "which is why we only award that stadium giveaway to the first 50,000 rather than to every fan. But come on, someone's gotta help me out with these three toxic contracts. Anyone? Anyone?"

[Mac Howard]

In a discussion with an economics journalist who expressed doubt that the "folks" were on board with the bailout yet, O'Reilly said "People are now wired into this".

So I sent him the url of this thread ;)

[Fighter of Foo]

This seems rediculous to me. Betting on a company/stock to fail is good for the market? There has to be a better way to stabilize the damn market. Come on, people that are shorting stocks make money off of other shareholders losses. Short selling stocks reeks of organized crime IMO. Make no mistake, some bastards made millions off of our failing 401k's. I mean, isn't banning short selling of those 799 companies implying that short selling will crush a stock? Maybe if they ban short selling across the board, the market willl stabilize?

I missed this before...

When you short a stock, you sell it today and promise to buy it back at some unknown price in the future. When the market tanks like it did the other day, the closing out of short positions are the equivalent of BUYING stocks. Buying stocks make the price go up. If there aren't any buyers then the prices continue to fall.

If you short a stock and the price goes up, then you lose. If everyone is shorting a stock, it means that stock is a piece of trash. And wouldn't you want to know that before you invest in it?

Had short selling been fully allowed, your 401k wouldn't have lost as much as it did.

[Tekneek]

The changing of accounting rules is probably going to be even worse than the bailout, in terms of the unintended consequences that may come back and bite us in the ass later. No big deal, I suppose, since most people seem to be wailing for a quick-fix band aid type short-term solution to this, instead of one that attempts to prevent this from happening again.

My understanding of the proposed accounting change means we'll be staring at Enron 2.0 in the not too distant future (in terms of the accounting fraud involved).

[Mac Howard]

The changing of accounting rules is probably going to be even worse than the bailout, in terms of the unintended consequences that may come back and bite us in the ass later. No big deal, I suppose, since most people seem to be wailing for a quick-fix band aid type short-term solution to this, instead of one that attempts to prevent this from happening again.

My understanding of the proposed accounting change means we'll be staring at Enron 2.0 in the not too distant future (in terms of the accounting fraud involved).

No one is saying that the bailout is the be all and end all of the fix. The bailout is meant to bring things back under control and the regulatory changes needed to prevent this happening again should then be applied. It's too late to fix things with the regalatory changes alone now.

[SteveMax58]

The problem I still have is that we waited this long to fix the problem, and now we have a real crisis to avert...we're going to pass some really bad legislation...and then after we pass it congress will break for election season and then we'll be onto some other topic while this bad legislation manifests itself for another 3 years and cripples us again because (as Tekneek pointed out), there is never a good time to fix anything.

I am not full of solutions...but this sounds like that commercial (cant recall the company now)..."Are you proposing we throw money at the problem?"

I still believe the mechanics to fix this lies in government credits...not government buying bad debt and reselling it. If banks own property(or at least the rights to sell the property), then they would also benefit from seller credits...as would struggling homeowners. EDIT: I understand this isnt just a real estate problem any more.

A couple of honest questions for those who are on board(or those who are not FTM) with this bailout as I have a hard time answering these for myself.
1) Who is going to buy this bad debt back from the government?
2) Why would somebody buy it?
3) Why do you believe that these debts will increase in value?
4) Do you believe Paulson(or the next Treasury Sec) will be capable of weeding out the inevitable fraud that the FI's will be trying to pass on to them? Or do you believe the FI's books are completely accurate and transparent?

[DaddyTorgo]

A couple of honest questions for those who are on board(or those who are not FTM) with this bailout as I have a hard time answering these for myself.
1) Who is going to buy this bad debt back from the government?
2) Why would somebody buy it?
3) Why do you believe that these debts will increase in value?
4) Do you believe Paulson(or the next Treasury Sec) will be capable of weeding out the inevitable fraud that the FI's will be trying to pass on to them? Or do you believe the FI's books are completely accurate and transparent?

1) Banks and other financial institutions will buy the mortgages back from the government in time, because the underlying assets (real estate) has value. It's not as if all land/houses will suddenly become worthless. Given it will take time to cleanse the balance sheets and recapitalize, and the financial institutions will no doubt demand (in a positive step) that it is more clear what they are buying, but they will buy it back.
2) See #1. Because housing and real estate cannot simply become worthless.
3) I don't believe the debts will increase in value to the point where it covers the bailout at all. And frankly I think anyone who truly believes that is scarily delusional, which is why I think we need equity in the financial institutinos whose crap-assets we take, so that when those financial institutions balance sheets are clear and their stock price begins to recover the government can sell those shares of stock and make some more of the money back.

[molson]

The problem I still have is that we waited this long to fix the problem, and now we have a real crisis to avert...we're going to pass some really bad legislation...and then after we pass it congress will break for election season and then we'll be onto some other topic while this bad legislation manifests itself for another 3 years and cripples us again because (as Tekneek pointed out), there is never a good time to fix anything.

I am not full of solutions...but this sounds like that commercial (cant recall the company now)..."Are you proposing we throw money at the problem?"



Or as I saw (expressed much less tastefully) on another board:

"In 12 months, Paulson's going to say, 'hey, thanks for the $700 billion, now I need another $1.5 trillion or you're all going to die of AIDS".

[molson]

In a discussion with an economics journalist who expressed doubt that the "folks" were on board with the bailout yet, O'Reilly said "People are now wired into this".

So I sent him the url of this thread ;)

You just don't get what the other side is saying at all.

(I just wanted to see what it felt like to say that. I feel all smug).

[Gary Gorski]

The problem I still have is that we waited this long to fix the problem, and now we have a real crisis to avert...we're going to pass some really bad legislation...and then after we pass it congress will break for election season and then we'll be onto some other topic while this bad legislation manifests itself for another 3 years and cripples us again because (as Tekneek pointed out), there is never a good time to fix anything.



I agree with you - where was Congress a year ago when it was becoming increasingly clear that there was going to be a problem? Problem is we're on the edge of the cliff now - some kind of legislation - good or bad - buys the time to attempt to fix the problem. Now if Congress still can't figure out how to fix the problem you and some others are right - all we're doing is delaying the crisis. But I would rather delay the problem and have a shot at fixing it rather than just roll the dice and see how bad it could get. Living through a depression was never on my to do list in life.

[Fighter of Foo]

1) Banks and other financial institutions will buy the mortgages back from the government in time, because the underlying assets (real estate) has value. It's not as if all land/houses will suddenly become worthless. Given it will take time to cleanse the balance sheets and recapitalize, and the financial institutions will no doubt demand (in a positive step) that it is more clear what they are buying, but they will buy it back.
2) See #1. Because housing and real estate cannot simply become worthless.
3) I don't believe the debts will increase in value to the point where it covers the bailout at all. And frankly I think anyone who truly believes that is scarily delusional, which is why I think we need equity in the financial institutinos whose crap-assets we take, so that when those financial institutions balance sheets are clear and their stock price begins to recover the government can sell those shares of stock and make some more of the money back.

Factoring in taxes, any property can in fact have a negative value.

The answers to Steve's questions are No one(short term), No one, they won't and no.

[SteveMax58]

1) Banks and other financial institutions will buy the mortgages back from the government in time, because the underlying assets (real estate) has value. It's not as if all land/houses will suddenly become worthless. Given it will take time to cleanse the balance sheets and recapitalize, and the financial institutions will no doubt demand (in a positive step) that it is more clear what they are buying, but they will buy it back.

Maybe not worthless...but potentially worth less than what the government buys into it?

See #1. Because housing and real estate cannot simply become worthless.

Similar to #1, if they have still not hit bottom...then will the derivitives not be worth less as well? Why not let the FI's get rid of the properties and offer them credits, while also increasing their borrowing amount temporarily?


3) I don't believe the debts will increase in value to the point where it covers the bailout at all. And frankly I think anyone who truly believes that is scarily delusional, which is why I think we need equity in the financial institutinos whose crap-assets we take, so that when those financial institutions balance sheets are clear and their stock price begins to recover the government can sell those shares of stock and make some more of the money back.

I agree with this, and hope this actually works, if passed.

[molson]

But I would rather delay the problem and have a shot at fixing it rather than just roll the dice and see how bad it could get.

No matter what happens now it's a huge roll of the dice.

I see it as risking a depression to get out of a recession, but we'll see how it goes down.

I wish I had a world simulator that could quickly try out a bunch of different options, and sim out the results over 20 years. Maybe I'll build one in my garage.

[sterlingice]

Or as I saw (expressed much less tastefully) on another board:

"In 12 months, Paulson's going to say, 'hey, thanks for the $700 billion, now I need another $1.5 trillion or you're all going to die of AIDS".

That's my biggest fear (not quite in those words, tho).

"Hey, guys, thanks for the ill-conceived and hastily thrown together bad plan. But I've made a bigger mess of things so we'll need even more to dig ourselves out"

SI