The Great Recession - post mortem

[DaddyTorgo]

in other news on the frontpage of cnn-business:

AT&T is having trouble in the commercial paper market (and they really shouldn't be), showing how frozen up that is day-to-day

The price of CDS contracts on U.S. Treasuries has risen significantly (although still very low comparatively).

[Mac Howard]

You just don't get what the other side is saying at all.


I suspect if I really did I'd be horrified ;)

[molson]

More Ron Paul telling us all we're doomed:

Ron Paul: Buying bad debt is the wrong solution - CNN.com (http://www.cnn.com/2008/POLITICS/10/01/paul.qanda/index.html)

"You have to liquidate those mistakes. Those mistakes were made due to monetary policy. So you have to allow the market to adjust prices downward. And that's what we're not allowing to do.

"If there are too many houses and the prices are too high, the sooner we get the prices down to the market level, as soon as we quit trying to encourage more housing -- this is what we're doing. They're trying to stimulate houses and keep prices high. It's exactly opposite of what we should do.

"So, we should get out of the way and not buy up bad debt. There's illiquid assets, but most of those are probably worthless. They're mostly derivatives. And we're sticking those with the taxpayer. So we have to recognize that the liquidation of debt is crucial. And if we did that, we would have tough times, there's no doubt about it, for a year. But if we keep propping a system up that's not viable, we're going to have a problem for decades, just like we did in the Depression. That's what we're on the verge of doing.

[Bigsmooth]

More Ron Paul telling us all we're doomed:

Ron Paul: Buying bad debt is the wrong solution - CNN.com (http://www.cnn.com/2008/POLITICS/10/01/paul.qanda/index.html)

"You have to liquidate those mistakes. Those mistakes were made due to monetary policy. So you have to allow the market to adjust prices downward. And that's what we're not allowing to do.

"If there are too many houses and the prices are too high, the sooner we get the prices down to the market level, as soon as we quit trying to encourage more housing -- this is what we're doing. They're trying to stimulate houses and keep prices high. It's exactly opposite of what we should do.

"So, we should get out of the way and not buy up bad debt. There's illiquid assets, but most of those are probably worthless. They're mostly derivatives. And we're sticking those with the taxpayer. So we have to recognize that the liquidation of debt is crucial. And if we did that, we would have tough times, there's no doubt about it, for a year. But if we keep propping a system up that's not viable, we're going to have a problem for decades, just like we did in the Depression. That's what we're on the verge of doing.

His brand of doom makes a lot more sense to me.

[JonInMiddleGA]

Living through a depression was never on my to do list in life.

Similar to how paying (my portion of) $700B for the mistakes of other people -- specifically those who loaned money they shouldn't have to people who borrowed more than they should have -- was never on my to do list.

[Fighter of Foo]

More Ron Paul telling us all we're doomed:

Ron Paul: Buying bad debt is the wrong solution - CNN.com (http://www.cnn.com/2008/POLITICS/10/01/paul.qanda/index.html)

"You have to liquidate those mistakes. Those mistakes were made due to monetary policy. So you have to allow the market to adjust prices downward. And that's what we're not allowing to do.

"If there are too many houses and the prices are too high, the sooner we get the prices down to the market level, as soon as we quit trying to encourage more housing -- this is what we're doing. They're trying to stimulate houses and keep prices high. It's exactly opposite of what we should do.

"So, we should get out of the way and not buy up bad debt. There's illiquid assets, but most of those are probably worthless. They're mostly derivatives. And we're sticking those with the taxpayer. So we have to recognize that the liquidation of debt is crucial. And if we did that, we would have tough times, there's no doubt about it, for a year. But if we keep propping a system up that's not viable, we're going to have a problem for decades, just like we did in the Depression. That's what we're on the verge of doing.

It's sad because he's right.

[molson]

It's sad because he's right.

Yup.

What I don't quite see is, after this bailout, how exactly will the housing and credit markets get back where they're inevitably going to go without, you know, the collapse of the housing and credit markets.

[Bigsmooth]

This is great. Marcy Kaptur is on it:

YouTube - Let's Play "WALLSTREET BAILOUT" The Rules Are... Rep Kaptur (http://www.youtube.com/watch?v=S27yitK32ds)

She gets it and I pray that the rest of congress is listening. We must control these crooks!

[DaddyTorgo]

Similar to how paying (my portion of) $700B for the mistakes of other people -- specifically those who loaned money they shouldn't have to people who borrowed more than they should have -- was never on my to do list.

heyyy...something else we agree on!

[Flasch186]

HOLY SHIT

France is going to propose a $300Billion bailout in the eurozone for banks! If they do that, and we do ours, we may actually shorten this recession instead of watching it fall into a depression. Consumer confidence will take a while to come back but this could help quite a bit.

[miami_fan]

Similar to how paying (my portion of) $700B for the mistakes of other people -- specifically those who loaned money they shouldn't have to people who borrowed more than they should have -- was never on my to do list.

Jon, the bailout is inevitable. Forget it and trust that Congress (Dems and Repubs.) and the financial policy makers now know what the fuck they are doing and will fix things for the future so this will never happen again.

You have that confidence, right? Right?

[molson]

We're entering a golden age of government power and control. I'm sure nothing can go wrong from this.

[Galaxy]

HOLY SHIT

France is going to propose a $300Billion bailout in the eurozone for banks! If they do that, and we do ours, we may actually shorten this recession instead of watching it fall into a depression. Consumer confidence will take a while to come back but this could help quite a bit.

Any link?

I love listening to Mark Cuban's thoughts on the closing of hedge funds. Charge you 20-25% of your profits as well as 2-3% yearly fee when things are great, but close up as soon as things are going south.

[Bigsmooth]

HOLY SHIT

France is going to propose a $300Billion bailout in the eurozone for banks! If they do that, and we do ours, we may actually shorten this recession instead of watching it fall into a depression. Consumer confidence will take a while to come back but this could help quite a bit.

If a depression is necessary to change an obviously flawed system....count me in.

[sterlingice]

We're entering a golden age of government power and control. I'm sure nothing can go wrong from this.

I'm all for big government and lots of liberal fluff and I don't like this idea :(

SI

[Flasch186]

Any link?

I love listening to Mark Cuban's thoughts on the closing of hedge funds. Charge you 20-25% of your profits as well as 2-3% yearly fee when things are great, but close up as soon as things are going south.

CNBC chime in from MCsquared.

and for the person above who is ok with a depression please go do some research on the personal ramifications of a depression. I get the feeling that a lot of people have forgotten what it looks like so go look at some pictures and then say youre ok with it happening again. Im not talking down, I just want to make sure we're talking about the same thing here before we debate the merits of it.

[DaddyTorgo]

hatcher - you got a linky on the france-thing?

[sterlingice]

Found this on Reuters:

http://www.reuters.com/article/marketsNews/idUSBAT00238620081001

SI

[Bigsmooth]

CNBC chime in from MCsquared.

and for the person above who is ok with a depression please go do some research on the personal ramifications of a depression. I get the feeling that a lot of people have forgotten what it looks like so go look at some pictures and then say youre ok with it happening again. Im not talking down, I just want to make sure we're talking about the same thing here before we debate the merits of it.

Yeah, I know that was a stupid comment about being okay with a depression. I am just so blinded with anger about this crap.

[DaddyTorgo]

nevermind - found it - and according to Bloomberg it'll be $442bn not $300bn

http://www.bloomberg.com/apps/news?pid=20601087&sid=agDyigQUvRJc&refer=home

[Galaxy]

Would that mean that our bailout plan won't have to support foreign banks?

[sterlingice]

nevermind - found it - and according to Bloomberg it'll be $442bn not $300bn

http://www.bloomberg.com/apps/news?pid=20601087&sid=agDyigQUvRJc&refer=home

Yeah, 300B Euros

SI

[sterlingice]

Of course people fail to realize that the US government made good money from the S&L takeovers.

Really? I'd love to see a source on that and read about it

SI

[flere-imsaho]

Good story from NPR's Morning Edition today about the 200+ economists opposed to the bailout plan: Bailout Clash: 200 Economists Vs. The Senate : NPR (http://www.npr.org/templates/story/story.php?storyId=95224933)


It seems to me that there are two problems here.

One - Credit Markets are Tight

It's undeniable that the credit paper market has tightened up a lot and this is a risk to the economy. It's affecting small businesses a lot and medium-to-large businesses somewhat (see the above story on Caterpillar having to raise its interest rate on its bonds in order to get takers).

Cochrane (the author of the economists' petition) suggests a direct solution to this problem (as opposed to the indirect solution(s) being proposed in the "bailout bill". Since the Fed is the lender of last resort, change the rules temporarily to make it far easier for banks to borrow money from the fed. Since there are still banks that are solvent and willing to lend, give them the tools to continue to do so and ease the strain on the market more.

This solves the immediate problem that's got people freaked out without a cost to the taxpayer.

Two - Bad Assets

What I think many, like Paulson & Bernanke, have finally realized, is that the financial system mess isn't going to be over until all of the bad assets are cleared off the books of these institutions one way or another.

This concept seems to be the fulcrum of opposition to the bailout bill.

On one hand Paulson is basically asking for the government to sponsor a "reset" of the financial system by spending money to clear the books of all of these institutions, allowing them to operate with transparent (to them) balance sheets again.

On the other hand, a coalition of right-wingers and left-wingers are saying either "let the market work and let them sort out their own mess or fail" or "this is basically a get-out-of-jail-free card for banks as paid by the taxpayers", respectively. Both have good points. For the right, it should be noted that Citi mostly bit the bullet and cleared its books, which allows it the position it has now, while JP Morgan and GS mostly divested in 2006 because they thought the subprime market was BS (GS' switch from investment to depository bank is, as I understand it, a move to allow them more avenues to capital, which is a smart decision in a market with less capital floating around). For the left, the argument that there should be accountability seems reasonable, as does a request for any bailout to also address the economy, as was done in the 1930s, if in fact the government wants to claim this is a Depression-Level crisis.


I agree with where Paulson is coming from. The fact is that we've floundered around for the past 2 years (at least), hoping that everything will turn out OK in the end. The Paulson plan is the quickest route back to "normal", but at a tremendous cost (and potential liability) to the government and taxpayer. Worse, it changes nothing about the financial system that got us here in the first place. If we "reset" without changes, we'll be here again in 20 years, as we are here about 20 years after the S&L crisis.

Again, I come back to the Sweden Plan:

1. Yes we, the government, will bail you out and wipe these bad assets off of your books. But we'll pay whatever we want for them (and since they're basically worthless, that's almost nothing) and we want a pound of flesh from you in terms of equity. Holding equity does two things: 1) assures other investors, because the government can afford to hold that equity until the financial institution rebounds to good market rates and 2) gives the government a chance to recoup its losses.

2. If you don't like our terms, you're free to do something else. For instance, you could get a Sovereign Wealth Fund to bail you out, for equity (i.e. what Saudi Arabia's SWF did for Citibank). Or you could sell out to a solvent bigger bank (WaMu to JP Morgan, for instance). Or you could just go bankrupt and the FDIC will refund your account holders while your shareholders take a bath as with any other company that goes bankrupt.


The government is in a position of enormous leverage right now and should use it. There are a ton of financial institutions who are collapsing under the weight of opaque bad assets and desperately need someone (or some way) to get these off the books if they are to continue operating. It's in everyone's best interest that these get cleared quickly, but it makes no sense that the government should do it without getting anything in return.

And that's really the crucial problem of the past two weeks. Paulson, Bush, the Congressional Leaders, and all the talking heads on the financial shows are being so blinded by the need to get this sorted out and "get back to normal" that they've convinced themselves that the financial institutions should just get effectively a blank check, a pat on the head, and told to go on their way. Amazingly, I think the American public has (for once) seen through this. Why? Because I think Americans actually intrinsically understand that what the "banks" are doing is like your kid who drives your car into a tree. It was a ridiculously stupid thing to do, and that kid's going to pay for it, both in the short term (grounded) and in the long term (you're paying for the high insurance premium, bucko). The "banks" are asking to get away scot free ("for the good of the entire economy") and we finally aren't buying it.

[Bigsmooth]

I've never even heard of the Constitution Party. That being said, this is a good read:

“They Just Don’t Get It”—Political Leaders and Pundits Are Clueless About Bailout Rejection (http://globalresearch.ca/index.php?context=va&aid=10395)

"....His name is Darrell Castle, and he is the 2008 candidate for vice-president of the Constitution Party. Castle has spent the last year traveling around the country meeting people on Main Street and listening to what they have to say.

This is what Castle proposes in the Constitution Party's latest newsletter:

“The Federal Reserve Banks should be seized by Congress under Article 1 Section 8 of the Constitution. The FED banks could survive as clearinghouse banks, but the Federal Reserve that has robbed the American people for 100 years would cease to exist. The debt owed by the American people to the FED banks would be discharged in bankruptcy. Congress would take monetary policy from the FED and would simply stand in place of the FED through a monetary board. The FED credit computers would be transferred to Congress who would issue new credit (money), because under our present system 97% of all money originates as credit. This new credit would keep the system going and prevent collapse. It could all be done without interest and without debt. The backs of the international banking cartel would be broken forever, and the American people through their elected representatives would control monetary policy; i.e. money in circulation, interest rates, and credit availability.”

Pearlstein, Bush, Paulson, Pelosi, et.al., along with Obama and McCain, should also read the U.S. Constitution. Then they would see that the problem stems from the fact that in 1913 Congress privatized our money supply by turning it over to the private banks that own the Federal Reserve System. This is also why we have lived under the mass delusion that a healthy financial sector leads to a healthy producing economy.

Actually it’s the other way around. The financial sector should support the producing economy, not bleed it dry through interest, fees, commissions, and the destruction that arises from financial profit-seeking.

There is also the fact that while the producing economy has been hammered by job outsourcing and bled white by financial parasitism, it is still a powerful machine that can produce the goods and services people need. We are a strong, capable nation. And we are blessed with the resources we require for a decent standard of living, though not necessarily at a rate of consumption that forever outpaces the rest of the world. But what is wrong with that? The underlying strength of the producing economy was on display this morning, when the Dow-Jones defied the doomsayers by coming back strongly the day after the bailout was defeated.

We now need to do what Darrell Castle of the Constitution Party recommends: Use the power of the money supply to rebuild the producing economy that we have given away and rebuild it from the bottom up: from Main Street.

Unfortunately the fat cats and their political and media apologists “just don’t get it.” But the American people and the members of congress who voted the right way yesterday do."

[DaddyTorgo]

+1

I agree with flere - i think like 100%. in case i haven't made that clear.

[KWhit]

The reason so many people are against the bailout is because of shit like this:

http://blogs.moneycentral.msn.com/topstocks/archive/2008/09/30/the-best-temp-gig-in-history.aspx


The best temp gig in history

Congress wants to crack down on CEO mega-salaries (http://blogs.moneycentral.msn.com/topstocks/archive/2008/09/29/bailout-will-have-no-effect-on-executive-pay.aspx) for banks participating in the bailout. And while the politicians argue how best to do that, Alan Fishman of Washington Mutual (http://moneycentral.msn.com/detail/stock_quote?Symbol=wamuq&getquote=Get+Quote) is headed for the doors with $19 million in his pocket.
If that wasn't outrageous enough, consider this: Fishman started the job three weeks ago. I never saw the employment ad Fishman answered, but it must have read something like this:
WANTED: Top executive for train-wreck bank about to be seized by federal regulators. Must be able to look busy while FDIC sells business from under you. Previous experience with angry shareholders sitting on worthless stock a plus. Perks: $7.5 million hiring bonus and $11.6 million cash severance.
Fishman got the best temp gig in history. He gets to keep the bonus and severance pay, though he must stay on the job while JPMorgan Chase completes its purchase of WaMu's banking assets.
To be fair, Fishman wasn't the one that took WaMu down a path lined with toxic mortgages and other bad assets. No, that role belonged to former CEO Kerry Killinger, who received $54 million over five years (http://www.theglobeandmail.com/servlet/story/LAC.20080927.RBANKSPANEL27/TPStory/Business) before leaving earlier this month. He's eligible for around $20 million in severance pay (http://www.portfolio.com/views/blogs/daily-brief/2008/09/11/killingers-eight-figure-severance-package).
Other execs are also cashing in big. President Stephen Rotella gets $12.7 million in cash if he's terminated or quits with "good reason," according to the Portland Business Journal (http://www.bizjournals.com/portland/stories/2008/09/22/daily55.html). And CFO Thomas Casey would get a cash severance of $6.3 million.
And WaMu shareholders got huge payments of...oh, wait. The stock is worthless. Shareholders got wiped out.

[molson]

The reason so many people are against the bailout is because of shit like this:



CEOs are going to be able to walk away with a lot more money without all these toxic assets on the books.

I realize that Congress is trying to create the appearance that that won't end up being the case, but ya, it will end up being the case. That's our next scandal - misappropriation of bailout-created assets.

[path12]

I thought I heard yesterday that they had found a way to prevent Fishman from getting anywhere near that whole package but it was from a friend who works there so take it for what it's worth.

[Galaxy]

How do you control CEO salaries? Everyone says cap, which I think is a bad idea. Can you structure compensation packages in a manner that rewards long-term success. I don't mind paying a CEO whatever it takes, as along as he delivers and creates a financially-strong balance sheet to go with it.

[flere-imsaho]

I thought I heard yesterday that they had found a way to prevent Fishman from getting anywhere near that whole package but it was from a friend who works there so take it for what it's worth.

You're thinking of Lane Kiffin. :lol:

[flere-imsaho]

How do you control CEO salaries? Every one says cap, which I think is a bad idea. Can you structure compensation packages in a manner that rewards long-term success. I don't mind paying a CEO whatever it takes, as along as he delivers and creates a financially-strong balance sheet to go with it.

I don't like the idea of a cap. It seems too arbitrary. Of course, one could argue that CEO salaries are pretty arbitrary, and they'd be right....

The correct place for a solution is at the board level. Ideally the board will be full of people who value long term success and will reward for it and punish when it's lacking. Also ideally the board would feel this way because the shareholders not only a) want long term success but b) are willing to vote in a board who feel the same way.

That's where it all breaks down. First of all, while some shareholders (maybe most, who knows) want long-term success, the market wants quarter-by-quarter success. The market wants exploding share prices off of which to make a quick profit or at least good dividends each and every quarter.

Secondly, even if shareholders wanted long-term success, the vast majority of shareholders aren't vocal/involved enough to vote the correct board slate.

I don't know how you solve it, but I suspect it involves a complete mindset change. We're so anti-saving in this country, so interested in immediate gratification, that we want to see results now, and so there's little reason to change to a long-term view. Maybe if we all get spooked by this and start saving and start demanding that the companies in which we invest show consistent good returns over a long-term period we'd finally see a correlation between lasting results and CEO salaries, but I still doubt it.


The one thing I would like to see, that's somewhat related, is some tighter regulation about CEOs sitting on each others' boards, which is a practice so rife that it's clearly being abused on a regular basis.

[sterlingice]

Good story from NPR's Morning Edition today about the 200+ economists opposed to the bailout plan: Bailout Clash: 200 Economists Vs. The Senate : NPR (http://www.npr.org/templates/story/story.php?storyId=95224933)


Not one of my favorite NPR stories on it. Sounds a lot more like what we're hearing here: "I can still get money from a bank so the economy must be ok!" I need more than that from economists.

One - Credit Markets are Tight

Cochrane (the author of the economists' petition) suggests a direct solution to this problem (as opposed to the indirect solution(s) being proposed in the "bailout bill". Since the Fed is the lender of last resort, change the rules temporarily to make it far easier for banks to borrow money from the fed. Since there are still banks that are solvent and willing to lend, give them the tools to continue to do so and ease the strain on the market more.

This solves the immediate problem that's got people freaked out without a cost to the taxpayer.

Two - Bad Assets

1. Yes we, the government, will bail you out and wipe these bad assets off of your books. But we'll pay whatever we want for them (and since they're basically worthless, that's almost nothing) and we want a pound of flesh from you in terms of equity. Holding equity does two things: 1) assures other investors, because the government can afford to hold that equity until the financial institution rebounds to good market rates and 2) gives the government a chance to recoup its losses.

2. If you don't like our terms, you're free to do something else. For instance, you could get a Sovereign Wealth Fund to bail you out, for equity (i.e. what Saudi Arabia's SWF did for Citibank). Or you could sell out to a solvent bigger bank (WaMu to JP Morgan, for instance). Or you could just go bankrupt and the FDIC will refund your account holders while your shareholders take a bath as with any other company that goes bankrupt.


The government is in a position of enormous leverage right now and should use it. There are a ton of financial institutions who are collapsing under the weight of opaque bad assets and desperately need someone (or some way) to get these off the books if they are to continue operating. It's in everyone's best interest that these get cleared quickly, but it makes no sense that the government should do it without getting anything in return.

And that's really the crucial problem of the past two weeks. Paulson, Bush, the Congressional Leaders, and all the talking heads on the financial shows are being so blinded by the need to get this sorted out and "get back to normal" that they've convinced themselves that the financial institutions should just get effectively a blank check, a pat on the head, and told to go on their way. Amazingly, I think the American public has (for once) seen through this. Why? Because I think Americans actually intrinsically understand that what the "banks" are doing is like your kid who drives your car into a tree. It was a ridiculously stupid thing to do, and that kid's going to pay for it, both in the short term (grounded) and in the long term (you're paying for the high insurance premium, bucko). The "banks" are asking to get away scot free ("for the good of the entire economy") and we finally aren't buying it.

I'll argue with problem number 1. I don't remember where I saw it the last couple of days but taking away the stigma from loaning from the fed with low rates last year by cutting some rate (the discount rate, or something) and removing transparency (these couldn't be tracked) is what got us into a lot of this loaning mess with banks over the last year.

As for the solutions, I'm onboard. Heck, I think those two were in my "proposal" yesterday :)

SI

[SteveMax58]

I realize that Congress is trying to create the appearance that that won't end up being the case, but ya, it will end up being the case. That's our next scandal - misappropriation of bailout-created assets.

Yep...and IMHO there is absolutely no doubt that it will happen. The question is...how much and will it bankrupt the fed?

That's the inevitable "worst case" scenario I see with a bailout. Odds of happening? I dont know if anybody could answer that with any credibility.

Serious (if not slightly ignorant) question...if all FI's fail tomorrow(or even if not)...whats stopping the government(other than the obvious partisan nonsense) from creating a new government-owned & operated national bank? Free from debt, free from bad assets, etc. and with an obvious ability to lend money, perhaps cheaper than private banks.

[Flasch186]

weird stuff happened with AMD's stock at the end of the day:

[Galaxy]

weird stuff happened with AMD's stock at the end of the day:

What happen? Did they track down the Google problem yesterday?

[Galaxy]

I don't like the idea of a cap. It seems too arbitrary. Of course, one could argue that CEO salaries are pretty arbitrary, and they'd be right....

The correct place for a solution is at the board level. Ideally the board will be full of people who value long term success and will reward for it and punish when it's lacking. Also ideally the board would feel this way because the shareholders not only a) want long term success but b) are willing to vote in a board who feel the same way.

That's where it all breaks down. First of all, while some shareholders (maybe most, who knows) want long-term success, the market wants quarter-by-quarter success. The market wants exploding share prices off of which to make a quick profit or at least good dividends each and every quarter.

Secondly, even if shareholders wanted long-term success, the vast majority of shareholders aren't vocal/involved enough to vote the correct board slate.

I don't know how you solve it, but I suspect it involves a complete mindset change. We're so anti-saving in this country, so interested in immediate gratification, that we want to see results now, and so there's little reason to change to a long-term view. Maybe if we all get spooked by this and start saving and start demanding that the companies in which we invest show consistent good returns over a long-term period we'd finally see a correlation between lasting results and CEO salaries, but I still doubt it.


The one thing I would like to see, that's somewhat related, is some tighter regulation about CEOs sitting on each others' boards, which is a practice so rife that it's clearly being abused on a regular basis.


I don't like the idea of a cap either. I've heard that proposals of a CEO not being able to earn X amount times the average employee. I don't think its the government right to tell anyone how much they can "earn" in that sense (unless the government has a stake or taken on debt of that company). Plus, a financial services company will always pay more than a retail operation, no matter how successful the CEO of the retail operation is, due the high-paying jobs that a financial services will offer. The problem with executive is that base salary has gone, and stock options have just grown out of control. I like the idea performance-base pay, but it just doesn't seem to work. The problem with the boards is who votes on them. As you noted, quarter-to-quarter success instead of a long-term focus. Hedge funds and other deep-pocketed investors are able to control boards due to the large amount of shares they own in a particular company.

What about these ideas:
1) Golden parachutes should be abolished.

2) Tax the hedge funds and others maintenance fees as regular income tax, instead of the old capital gains tax they are able to use.

3) Extend the Capital Gains Tax requirements longer than the one-year period. All income gained before this period will be as income. This will force people to hold on investments longer, instead of looking to make a quick buck.

4) Offer CEO's and execs straight up stock as part of it's compensation package. No tricky, backdating, re-pricing, stock options. Require them not to be able to sell or transfer their shares for a certain period of time. If they do, they'll forfeit the rights to these shares.

[Flasch186]

What happen? Did they track down the Google problem yesterday?

misdirected trades yesterday. They were cancelled.

Today's issue with AMD im not sure about yet.

[SportsDino]

Capping CEO salaries is not the solution, what needs to happen is massive reform of the corporate ownership system. Shareholders need to insist on high transparency of what a company is doing... and take their investment dollars elsewhere when corrupt CEOs stub up and refuse to play.

The solution to the subprime mess is someone five to ten years ago being able to see a balance sheet breakdown of these companies, notice massive leverage ratios and billions in assets covered with question marks... and then pulling all their money out and shorting the crappy company, tell everyone that the financials are messed up.

What I would really like to see out of this mess is not more government regulation about how a company should behave, the government is always asleep on the wheel. What I want to see is a standard of "Show us your books, or I take my money elsewhere and your crappy bank can go down the tubs". We need some truly ruthless and smart investors to see the profit in exposing fraudulent practices and companies, and protecting their money by looking for places willing to do their business in public.

Right now all the ruthless and smart people are just working at exploiting all the suckers in the U.S. economy, which is pretty profitable until you run up against fellow greed machines and overextend your position to the point where one mistake costs a billion bucks. Less smart investors are going to have to learn to LOVE their 5-8% growth that they get with a fully transparent economy... and leave the megagrowth funds based off derivatives and wacky business deals to the sharks who know those returns can evaporate if any light is shed on them.

We don't need super high growth rate mortgage banks, the whole point of being a banker is you can sit on your ass most of the day, make a few high quality loans, and collect interest while sipping margaritas. Take your cut and relax, don't keep pushing it for an extra percent at higher and higher risk levels (or buy AAA rated 'low-risk' stuff without understanding enough about it to see its really F grade junk paper... oh my goodness, doing basic research, its like they are being paid to handle money, oh wait they are...)..


You reset the incentive structure so everyone stops looking for money out of imaginary numbers, and you can pay CEOs whatever you want, because a good CEO who knows how to spot crap investments and avoid losing his company billions will be worth his weight in gold (even Ron Paulites can agree with that sentence!). If you pay someone to cook the books, they will do it, and as we have all just seen, they will do it extraordinarilly well to the point of massive economic damage.


Also, seize assets of any executive who has committed fraud, including misrepresenting contracts, violating mortgage regulations, insider trading, ignoring leverage controls, etc... you won't catch many cause most of the crap they did was perfectly legal.

[ISiddiqui]

Really? I'd love to see a source on that and read about it

SI

All I have is blurbs from NYTimes articles. The originaly S&L bailout cost around $450-500B. The government was able to sell off most of the "bad funds" and all the taxpayers had to pay in the end was around $120B

NY Times Advertisement (http://www.nytimes.com/2008/09/20/business/20resolution.html)

In its six-year existence, the R.T.C. handled 747 failed savings banks and disposed of more than $450 billion in assets. The cost to taxpayers, originally estimated at as much as $500 billion, ultimately totaled $120 billion to $140 billion.
So it wasn't like the government took over these funds and at all the losses. They made good money off it and the tax payer was not charged nearly as much.

I wonder if the opposition would be so spirited if people knew that it may only cost taxpayers $200B or less when all is said and done?

[DanGarion]

Email from John Campbell US Rep for 48th California District....

Why did the bill fail? I think it has been completely mischaracterized in the media as a $700 Billion Bailout of Wall Street. It is actually none of that. Let me explain further:

$700 Billion: This amount will not be spent. It is being invested in hard assets (mortgages secured by homes) which will have an expected cash flow in excess of the purchase price. So the taxpayers should get all their money back that way. But if that doesn’t work, taxpayers will also get warrants (stock options) in the companies from which these assets are purchased. So, if those companies recover, taxpayers get part of profits. And if both of those don’t get the whole $700 billion back, whoever is president in 5 years is required to submit to Congress a proposal to get any loss back from the companies who sold the government the assets. That’s 3 different ways to be sure the taxpayer is made whole and maybe makes a profit. This bill may wind up costing less than one year’s worth of earmarks.

Bail Out: The assets will be bought from companies at probably 30%-60% of what they paid just a year or two ago. If I offered to buy your house that you bought 2 years ago for half what you paid for it would I be bailing you out? I don’t think you would look at it that way. These companies will lose lots of money. Fine. They made an investment that went bad and they have to live with it. But they will not be bailed out. Many companies and a number of banks will still fail even with this bill. The purpose of the purchase is to cut out the cancer that is clogging the world’s financial arteries so that credit and loans and cash can flow again. No one is being bailed out.

Wall Street: If we do nothing, expect to see many days on the stock market like Monday. That will devastate the retirement plans of millions of everyday people. All forms of credit have already dried up. If they dry up more, companies small and large will not be able to get standard short term loans to buy inventory and make payroll. That means lots of job losses and layoffs. And people with money market funds and bank accounts may not be able to get their money, even with FDIC Insurance because these entities have to sell a loan to get you cash. And no one is buying the loans.

This bill is basically a cost-free plan to stabilize financial markets and save every American’s savings and investments, not a bail out.

As I write this, the US Senate is debating their version of the bill. I believe they will pass it overwhelmingly tonight. Perhaps as many as 70 votes or more. Then it will come to the House Thursday for a vote either Thursday or Friday.

That will be D-Day. The Senate will have probably adjourned for the year. So, the House either passes that bill or nothing. It is still a close vote in this House. The so-called “tax extenders,” which are the continuation of another of tax credits and deductions may attract some more votes in the House. But it may lose some Democrats, who want to see those or other taxes go up. The bill now also keeps the Alternative Minimum Tax from going up, which it would otherwise do. This provision will stop what would otherwise be about a $1500 tax increase on almost all California families with incomes over $75,000.

So, it is still close. But public sentiment, which was overwhelmingly against this bill, has now shifted. So, Congress may shift with it. More and more people are starting to realize how this bill will likely not cost them anything, but not passing it could cost them a whole lot.

I hope and pray that at least 217 of my colleagues will join me in supporting the bill in the next 48 hours.

[molson]

"Bail Out: The assets will be bought from companies at probably 30%-60% of what they paid just a year or two ago. If I offered to buy your house that you bought 2 years ago for half what you paid for it would I be bailing you out?"

I almost stopped reading after he promised we'd break even on this , but I'm DEFINITELY done reading after this gem.

[molson]

I wonder if the opposition would be so spirited if people knew that it may only cost taxpayers $200B or less when all is said and done?

Does that include the cost/foreclosures of this mess that that helped cause?

Edit: By that, I mean, how "cheap" the S&L bailouts were - we should really include this $700 billion in the cost of those.

[digamma]

"Bail Out: The assets will be bought from companies at probably 30%-60% of what they paid just a year or two ago. If I offered to buy your house that you bought 2 years ago for half what you paid for it would I be bailing you out?"

I almost stopped reading after he promised we'd break even on this , but I'm DEFINITELY done reading after this gem.

Why? Do you not think banks are going to take losses on the sales of these securities (to the extent they haven't already taken the loss by marking them to market or writing off the investment)?

[digamma]

The one thing I would like to see, that's somewhat related, is some tighter regulation about CEOs sitting on each others' boards, which is a practice so rife that it's clearly being abused on a regular basis.

Sarbanes-Oxley has been fairly effective at this. In the 90s, it was much more rampant, but a study out of U Penn showed only about 4% of companies had recipricol board members. Googling shows that in the early 90s this was as high as 1 in 7. The Penn study concluded that "networked" companies were still a problem--one CEO sits on another board, the CEO of company 2 sits on Company 3's board and Company 3's CEO sits on Company 1's board.

[Bigsmooth]

Capping CEO salaries is not the solution, what needs to happen is massive reform of the corporate ownership system. Shareholders need to insist on high transparency of what a company is doing... and take their investment dollars elsewhere when corrupt CEOs stub up and refuse to play.

The solution to the subprime mess is someone five to ten years ago being able to see a balance sheet breakdown of these companies, notice massive leverage ratios and billions in assets covered with question marks... and then pulling all their money out and shorting the crappy company, tell everyone that the financials are messed up.

What I would really like to see out of this mess is not more government regulation about how a company should behave, the government is always asleep on the wheel. What I want to see is a standard of "Show us your books, or I take my money elsewhere and your crappy bank can go down the tubs". We need some truly ruthless and smart investors to see the profit in exposing fraudulent practices and companies, and protecting their money by looking for places willing to do their business in public.

Right now all the ruthless and smart people are just working at exploiting all the suckers in the U.S. economy, which is pretty profitable until you run up against fellow greed machines and overextend your position to the point where one mistake costs a billion bucks. Less smart investors are going to have to learn to LOVE their 5-8% growth that they get with a fully transparent economy... and leave the megagrowth funds based off derivatives and wacky business deals to the sharks who know those returns can evaporate if any light is shed on them.

We don't need super high growth rate mortgage banks, the whole point of being a banker is you can sit on your ass most of the day, make a few high quality loans, and collect interest while sipping margaritas. Take your cut and relax, don't keep pushing it for an extra percent at higher and higher risk levels (or buy AAA rated 'low-risk' stuff without understanding enough about it to see its really F grade junk paper... oh my goodness, doing basic research, its like they are being paid to handle money, oh wait they are...)..


You reset the incentive structure so everyone stops looking for money out of imaginary numbers, and you can pay CEOs whatever you want, because a good CEO who knows how to spot crap investments and avoid losing his company billions will be worth his weight in gold (even Ron Paulites can agree with that sentence!). If you pay someone to cook the books, they will do it, and as we have all just seen, they will do it extraordinarilly well to the point of massive economic damage.


Also, seize assets of any executive who has committed fraud, including misrepresenting contracts, violating mortgage regulations, insider trading, ignoring leverage controls, etc... you won't catch many cause most of the crap they did was perfectly legal.

Bravo!

[Flasch186]

shortselling ban extended.

[Gary Gorski]

Senate passes the bill

[Flasch186]

by a wide margin, thank god. There is hope for Friday after all. The new bill has the AMT extension in it which is another thank god. FDIC raises limits....looks good to me. Yes there's more stuff including some pork but Ill take it as opposed to doing nothing.

[Bigsmooth]

Ha, back to business as usual I guess.

[molson]

Asian markets down anyway (when they were down after the House voted the bill down, that was cited as proof that it was a mistake to do so).

[molson]

by a wide margin, thank god. There is hope for Friday after all. The new bill has the AMT extension in it which is another thank god. FDIC raises limits....looks good to me. Yes there's more stuff including some pork but Ill take it as opposed to doing nothing.

Tax cuts are the opposite of "pork".

[Mac Howard]

The wonderful world of democracy - in order to make a spending package palatable that is rejected because it's a huge financial impost on the American people they increase the cost by $105 billion :D

[molson]

The wonderful world of democracy - in order to make a spending package palatable that is rejected because it's a huge financial impost on the American people they increase the cost by $105 billion :D

That's the problem, since this "had" to happen, they really could have thrown anything in there.

If there were a provision for every Congressman to have an army of monkey butlers assigned to them, it would still pass, because we have to do "something".

[Flasch186]

Asian markets down anyway (when they were down after the House voted the bill down, that was cited as proof that it was a mistake to do so).

however I explained it otherwise....didnt matter though.

[sterlingice]

Why? Do you not think banks are going to take losses on the sales of these securities (to the extent they haven't already taken the loss by marking them to market or writing off the investment)?

Yes, the banks will take losses. But more important to me, Joe Taxpayer, is whether they are worth anything at all.

Let's take an example. If these are bundled bad loans with little chance of repayment, say, a bundle of loans from badly inflated mortgages in California. Then, there's a chance that a very small percentage of them, say 20% will actually be paid back. However, if the government swoops in and buys them for 60% of cost rather than the 20% they would get on the open market, the banks certainly are losing money from the 100% they were initially. But, really, they don't take the loss they should have on the market.

Speaking of which, I heard mark-to-market was being suspended/adjusted so companies could pretty much put down whatever number they want for the value of these securities. This system is about to be horribly screwed.

SI

[Gary Gorski]

Yes, the banks will take losses. But more important to me, Joe Taxpayer, is whether they are worth anything at all.

As taxpayers we're constantly putting money into things that may or may not be worth anything. On that level how's this any different?

Let's take an example. If these are bundled bad loans with little chance of repayment, say, a bundle of loans from badly inflated mortgages in California. Then, there's a chance that a very small percentage of them, say 20% will actually be paid back. However, if the government swoops in and buys them for 60% of cost rather than the 20% they would get on the open market, the banks certainly are losing money from the 100% they were initially. But, really, they don't take the loss they should have on the market.

Speaking of which, I heard mark-to-market was being suspended/adjusted so companies could pretty much put down whatever number they want for the value of these securities. This system is about to be horribly screwed.

SI

Well they can't put down any number they want. Do you really think that they should value them all at zero though? The problem is that nobody knows what they are worth. If they were worth 20% don't you think that people with enormous amounts of money would come in and buy them for 15-20%? Maybe they're worth 50%. Maybe they are completely worthless. The main point of the whole bailout is to get the credit markets open again with the banks.

I think its going to take quite some time to untangle these things and find out what actually has value and what does not. The question I have is why are people concerned that the banks take losses? Its like we need to make sure that the bank gets punished. I understand the banks acted horribly stupid as did mortgage lending companies and as did some customers even and nobody likes the thought of paying for their mistakes especially if they are someone who is in a good mortgage and making their payments.

I don't think its "fair" either that we're going to be footing the bill here but look at what is going on. Banks won't lend to each other. Look at the car sales just reported yesterday. Ford down 34%, Toyota down 29%, GM down 16%. Jobless claims are now the highest in seven years at almost 500,000. I don't think the people so opposed to this really are considering what the alternative is. Things aren't noticeably different in your life today probably but they sure would be if the credit stops flowing whether you rely on credit for anything or not (house, car, credit cards). In some way EVERYONE relies on the credit system - if its not you its your employer or their customers or suppliers or your family members. This is a worldwide problem. It sucks that irresponsible business people are going to get bailed out and businesses in any other line of work would have failed without anyone batting an eyelash for this kind of mismanagement and few people are happy about having the government get involved but give a good look to the alternative. Do you really want to see what would happen if unemployment went to 25% like it did during the depression? You're not willing to be hit with a tax bill but you're willing to take the chance of losing your job over this?

If anyone's got a way to keep the credit flowing without a bailout of some kind for these banks I'm all ears. I don't care about saving Citigroup or Bank of America or whoever. I do care about saving all of the companies and employees that will be wiped out if they can no longer get access to the revolving credit they need to run their business every day.

[Gary Gorski]

Asian markets down anyway (when they were down after the House voted the bill down, that was cited as proof that it was a mistake to do so).

The Senate passing the bill was never really in doubt - the House is the problem and by no means is it the slam dunk everyone felt it would be Monday before the House shot it down. We're down today as well (about 150 as of right now) because I think people are being cautious. There was terrible news about the automakers and jobless claims are as high as they've been in seven years. On top of that you had people get in after the slaughtering on Monday and are willing to lock in some of those profits now just in case the House doesn't pass the bill.

[SteveMax58]

Let's take an example. If these are bundled bad loans with little chance of repayment, say, a bundle of loans from badly inflated mortgages in California. Then, there's a chance that a very small percentage of them, say 20% will actually be paid back. However, if the government swoops in and buys them for 60% of cost rather than the 20% they would get on the open market, the banks certainly are losing money from the 100% they were initially. But, really, they don't take the loss they should have on the market.

Yep...and in all likelihood the more that sell (even if you assume the optimal 60%), the more the rest of the market(i.e. individual homeowners who need to sell) continues to deflate further. The more the rest of the market deflates, the more these "assets" will continue to deflate as time goes on until a market bottom has been established. In many areas of the country, it's likely this has established, but places like California, Florida, Texas, and the like have not with this methodology. Not to mention...I havent seen where the estimates of increased administration for these assets has been projected, or if it is even part of the bailout bill itself.

Thats why, IMHO, I believe a more direct route to this has to be the answer. Probably not exactly the way I suggest...but along these lines.

1) You increase borrowing capacity and lower fed rates(for say, 1 year) to FI's in exchange for (gulp) equity shares of the FI and transparency of the accounting to address the short term credit crisis. This may add a degree of inflation, but it is still putting the administration and risk onto the FI's to liquidate...and not the government.

2) You provide government assistance towards sellers of Primary Residencies with negative loan-to-market value sales. "Sellers" could also be FI's who are in possession of a defaulted home which was (at the time of foreclosure), a Primary Residence. The amount can be debated, but my ballpark on it is up to $50k or 75% (EDIT:of the negative equity, not the toal value), whichever is lower, for scaling purposes from market to market. This also motivates the FI's to liquidate quickly, but does not give them carte-blanche to abuse the system.

3) You also provide government assistance to buyers of current Primary Resdiencies (negative or otherwise, bank-owned or otherwise) in the form of down payment/closing cost % to encourage liquidation of these types of assets. My ballpark for this would be 2-5%, but very debatable.

I know there are holes to poke in that, and certainly there are bad practices which need to be addressed (almost) immediately to reduce corruption(i.e. appraisal process), but at least the risk to the government/taxpayer is mitigated more than giving Paulson the green light to start gambling on our behalf.

[sterlingice]

I think its going to take quite some time to untangle these things and find out what actually has value and what does not. The question I have is why are people concerned that the banks take losses? Its like we need to make sure that the bank gets punished. I understand the banks acted horribly stupid as did mortgage lending companies and as did some customers even and nobody likes the thought of paying for their mistakes especially if they are someone who is in a good mortgage and making their payments.

Simple: moral hazard. It's clear that no one in this whole mess was looking out for anything except their bottom line. If people get off with a warning and "don't do it again", we're going to be right back here in a few years.

I don't think its "fair" either that we're going to be footing the bill here but look at what is going on. Banks won't lend to each other. Look at the car sales just reported yesterday. Ford down 34%, Toyota down 29%, GM down 16%. Jobless claims are now the highest in seven years at almost 500,000. I don't think the people so opposed to this really are considering what the alternative is. Things aren't noticeably different in your life today probably but they sure would be if the credit stops flowing whether you rely on credit for anything or not (house, car, credit cards). In some way EVERYONE relies on the credit system - if its not you its your employer or their customers or suppliers or your family members. This is a worldwide problem. It sucks that irresponsible business people are going to get bailed out and businesses in any other line of work would have failed without anyone batting an eyelash for this kind of mismanagement and few people are happy about having the government get involved but give a good look to the alternative. Do you really want to see what would happen if unemployment went to 25% like it did during the depression? You're not willing to be hit with a tax bill but you're willing to take the chance of losing your job over this?

If anyone's got a way to keep the credit flowing without a bailout of some kind for these banks I'm all ears. I don't care about saving Citigroup or Bank of America or whoever. I do care about saving all of the companies and employees that will be wiped out if they can no longer get access to the revolving credit they need to run their business every day.
I get that the sky is falling. I also get that we're looking at a "best of the worst" scenario- there is no great solution where we all come out smelling like roses. I'm all for spending money- again, I'm fairly fiscally liberal (tho I'm getting to realize that we're in this mess somewhat because of a weak dollar and that can be traced directly to the debt).

But of all the solutions out there for this problem, this $700B "blank check" to buy bad securities is one of the worst. There have been a couple of people who have made elaborate posts about multiple solutions to this problem (EDIT: hell, in the time it took me to write this post, there was one posted right above it). I have one a couple of pages back- it's 5 or 6 paragraphs long. And I'm sure it's flawed in many ways, as, again, we're in a "best of bad choices" scenario. However, it's certainly better than what Congress is proposing.

SI

[flere-imsaho]

Speaking of which, I heard mark-to-market was being suspended/adjusted so companies could pretty much put down whatever number they want for the value of these securities. This system is about to be horribly screwed.

The mark-to-market changes are horrific. The SEC has basically given corporations a blank check to value assets on their books however they wish. Fictional accounting here we come again!

[Mizzou B-ball fan]

Here's a silly question to ponder. I'm an individual with a substantial mortgage on my home. I have the money to start paying an extra amount on top of my monthly rate. For argument sake, we'll just say that I'm able to pay an additional 20% of my monthly payment, which goes directly against the principal amount.

Which option currently helps the banks more in their current financial situation? Pay the exact monthly payment and remain status quo or pay the extra amount, which would increase their immediate capital, but would reduce the amount of interest income they receive from me over the life of the loan? Note that I'm strictly speaking from the bank's perspective and not the home owner.

[Mac Howard]

That's the problem, since this "had" to happen, they really could have thrown anything in there.

If there were a provision for every Congressman to have an army of monkey butlers assigned to them, it would still pass, because we have to do "something".

That "something" has to be something that congressmen can to take back to their districts to justify voting for the bill to avoid suffering electorally otherwise it'll change no one's mind. The massive public opposition to the bill is, I believe, what caused many facing re-election to vote against it, particularly Democrats. So the "something" has to be seen as beneficial to "Main Street". I presume the tax cuts are aimed at doing that.

But the cuts have to be made up somewhere, either by increased taxes elsewhere or by cuts to projects, neither of which can impact Main Street if this is to be persuasive. Apart for $45 billion from "debt relief :confused: I've not heard where the other 105 billion comes from.

[molson]

however I explained it otherwise....didnt matter though.

You said that the stock markets were merely limited windows, which I totally agreed with, but that doesn't explain why you found the drop after the first bill died so telling.

Others (not you) implied that the stock market would see similar losses every day until something was passed, and one person compared the $1.2 trillion paper loss on that one day to the $700 billion bailout. Apparently a dollar to dollar comparison was relevant, even though a stock market is merely a limited window.

Obviously, a lot of that is fear-mongering. Fear-mongering (as liberals often argue in a completely different context), is very dangerous for two reasons. One, it creates policy that isn't necessarily good. And two, it can create a resistance to dealing with a REAL problem. Maybe I'm just experiencing that second part. (i.e. when people overstate say, a threat from terrorism, it can create the myth that there's no threat from terrorism. See all the people complaining about airport security when better security alone might have prevented 9/11).

[sterlingice]

The mark-to-market changes are horrific. The SEC has basically given corporations a blank check to value assets on their books however they wish. Fictional accounting here we come again!

I'm sure whatever they do, they won't just mark it to whatever gets them the most money from the Fed and screws us the most :mad:

SI

[flere-imsaho]

I'm sure whatever they do, they won't just mark it to whatever gets them the most money from the Fed and screws us the most :mad:

Technically-speaking this rule change won't change what's going to happen between Treasury and companies trying to off-load the bad assets. The rule only governs how they report their books. They're always free, outside of normal quarterly reporting, to state the value of their assets as whatever. We have to hope/assume that Treasury has enough intelligence and backbone to correctly value those assets and not overpay for them.

Analogy: A car dealer can try to sell you a flood-damaged car for $10,000, when its salvage value is $500. As long as you know it's flood-damaged (and you can (http://www.carfax.com/)), you'll probably not pay more than $500. However, the car dealer can't (legally) represent the value of the car as more than $500 to its insurance company. But if the insurance company did what the SEC has just done, the dealer could represent the value of the car as $10,000, because some sucker just might pay that much, and the insurance company would say "yeah, whatever, fine with us."

Basically it boils down to whether or not you trust Paulson to tend to do what's best for the Treasury or to tend to do what's best for his friends on Wall Street.

But the real problem with the rule change is that it makes these companies' accounting books opaque to investors/regulators again. Companies can now value assets on their books as whatever they'd like, and you have no idea how strong or weak a position they're in until they fail out of the blue.


The irony here is that Wall Street lobbied the SEC for the rule change on the basis that they're just sure their bad assets are worth something, even though the market says they're worth nothing. It's not fair, they said, to have to carry these assets at 0 value just because the market says they have 0 value. That's right folks, Wall Street doesn't believe in the free market when it's not in their best interest. :banghead:

[Anthony]

capitalism doesn't work, friends. let's just get that out of the way.

[digamma]

Let's take an example. If these are bundled bad loans with little chance of repayment, say, a bundle of loans from badly inflated mortgages in California. Then, there's a chance that a very small percentage of them, say 20% will actually be paid back. However, if the government swoops in and buys them for 60% of cost rather than the 20% they would get on the open market, the banks certainly are losing money from the 100% they were initially. But, really, they don't take the loss they should have on the market.


I think your numbers are pretty far off. There may be some second lien loan portfolios that recover nothing (these aren't going to be marked at 60 right now though), but in general even subprime first liens are likely going to perform way better than 20 cents on the dollar. The devil will be in the details of course of which assets make it into the Troubled Asset pool.

[boberot]

Since it would become immediately apparent anyway, I admit up front to having no true understanding of the mechanisms of high finance. But if it adds to the conversation at all, I'd like to add some thoughts as Joe Homeowner.

* I can't shake the feeling that the politics of fear are once again being used to cram something down our throat. From the war in Iraq to the formation of Homeland Security to the Patriot Act, etc -- all were sold to the American public with a healthy dose of fear to make them palatable.

* I've read article after article to try to understand what's really going on here. One thing I think I know is that this was perhaps an inevitable turn of events, based on "investment vehicles" becoming so complicated that even so-called Wall Street experts don't really understand what they consist of. As a result, nobody really knows how to value them, and rating agencies [out of immorality or ignorance] continue to rate many of them as sound investments. It is a multi-layered and complex problem, one that requires a slightly more nuanced response than throwing an arbitrary and massive amount of money at it.

* We've already bailed our Freddie and Fannie, we took over AIG, we've overseen other major purchases -- have any of these actions done an ounce of good? What would happen if we did not dump this money into the greedy, risky, brutal world of Wall Street? Frankly, nobody knows. I cant help but feel that our legislators -- none of whom have a grasp for the real issues here -- are being swindled.

* I'm not a fan of free-market capitalism, or that the notion that the market will correct itself. I think it's time for the government to grab its sack and somehow ignore the army of Wall Street lobbyists influencing -- oops, I mean educating it -- and establish some real order and means of control.

Well anyway, that's kind of a 10-cent response, but I'm still tyring to wrap my brain around the whole thing.

[Fighter of Foo]

Here's a silly question to ponder. I'm an individual with a substantial mortgage on my home. I have the money to start paying an extra amount on top of my monthly rate. For argument sake, we'll just say that I'm able to pay an additional 20% of my monthly payment, which goes directly against the principal amount.

Which option currently helps the banks more in their current financial situation? Pay the exact monthly payment and remain status quo or pay the extra amount, which would increase their immediate capital, but would reduce the amount of interest income they receive from me over the life of the loan? Note that I'm strictly speaking from the bank's perspective and not the home owner.

The latter. In a credit crisis, cash is king. If the 700B was allocuted to go toward mortgages in default instead of to the banks themselves, that would be the best solution. Mortgages would get marked down to reflect current house prices and banks would get their income stream up and flowing again.

The soultion on the table simply gives banks money without doing anything to improve their cash flows. As such, it's handout and it's fucking pointless unless you're the one getting a piece.

[molson]

* I can't shake the feeling that the politics of fear are once again being used to cram something down our throat. From the war in Iraq to the formation of Homeland Security to the Patriot Act, etc -- all were sold to the American public with a healthy dose of fear to make them palatable.
.

Good comparison. No matter the merits of the bill, don't be all surprised that some are skeptical when you promise another Great Depression if we don't act TODAY.

[Fighter of Foo]

Bob, you're exactly correct. Here's a quick primer for anyone trying to understand what happened to get us in this mess:

NOTE: powerpoint slides:

http:// pruningshears.us/storage/subprime.pps
(http://tinyurl.com/6ywjkj)

[Flasch186]

You said that the stock markets were merely limited windows, which I totally agreed with, but that doesn't explain why you found the drop after the first bill died so telling.



The stock market is going to react to this and a TON of other stuff. The initial drop was due to the prior expectations that the bill would pass and then didnt. The rebound was on the speculation that the bill would go through eventually. The drop today is due to the awful jobs number and other things. A rally or drop tomorrow will be on the vote. than wait ujntil monday and there will be something else to push it one way or the next.

In all honesty its a straw man.

You need to look at the whole picture and if you did, IMO, you'd be on board with those who think something must be done....NOW.

[Bigsmooth]

Holy crap this is getting laughable. When will these crooks be made accountable?

SEC rethinks letting public see who's 'shorting' stocks | Money & Company | Los Angeles Times (http://latimesblogs.latimes.com/money_co/2008/10/the-securities.html)

[Gary Gorski]

Good comparison. No matter the merits of the bill, don't be all surprised that some are skeptical when you promise another Great Depression if we don't act TODAY.

Talk about another Great Depression is not some pie in the sky thing. Others have said it in this thread - our economic system is pretty messed up. Its really in many ways held together by duct tape. Yes, you can let things fail and everything shake out as it will - essentially trying to cleanse the system but in doing so you will have massive fallout and you and everyone you know will be affected in some way - whether its your job lost, jobs lost of family and friends, your salary slashed, prices being higher...IF our financial system fails how can you not expect some kind of major thing like another depression?

Go look at the balance sheet from some of our major companies. Ford has 22 billion in cash...and 166 billion in debt. Boeing has 7.4 billion in cash and 8.2 billion in debt. Alcoa - 815 million in cash, 8.7 billion in debt. Home Depot - 1.1 billion in cash with 11.7 billion in debt. McDonalds - 2.4 billion in cash, 11.1 billion in debt. Caterpillar - 478 million cash with 31 billion debt. Bank of America - 322 billion cash with 623 billion debt. Out of these companies that I just chose at random only Ford is not profitable and all of them have far less cash than debt.

The economy runs on credit. If you take the credit away you will bring the economy to a halt. When businesses shut down people lose their jobs and they can't support the 'good' businesses any longer forcing them to lay off people and the cycle continues. Will the world end? No. Some companies will exist but not enough to keep unemployment at any kind of level like it is now. That's not fear-mongering unless you can explain to me how the global economy will continue to function in at least a somewhat normal state if nobody is willing to lend money (or lend at reasonable rates).

The idea of a blank check is not a great one. The idea of paying some made up price for assets you have no idea what they are worth or if they even have value is even worse. But it is what is on the table and its better than doing nothing. It could end up good, it could end up as a complete waste of money but give us time to work on fixing what caused the mess in the first place and if nothing is done to correct the underlying problems it would be nothing more than wasting the money to delay future disaster.

[molson]

Talk about another Great Depression is not some pie in the sky thing. Others have said it in this thread - our economic system is pretty messed up. Its really in many ways held together by duct tape. Yes, you can let things fail and everything shake out as it will - essentially trying to cleanse the system but in doing so you will have massive fallout and you and everyone you know will be affected in some way - whether its your job lost, jobs lost of family and friends, your salary slashed, prices being higher...IF our financial system fails how can you not expect some kind of major thing like another depression?

Go look at the balance sheet from some of our major companies. Ford has 22 billion in cash...and 166 billion in debt. Boeing has 7.4 billion in cash and 8.2 billion in debt. Alcoa - 815 million in cash, 8.7 billion in debt. Home Depot - 1.1 billion in cash with 11.7 billion in debt. McDonalds - 2.4 billion in cash, 11.1 billion in debt. Caterpillar - 478 million cash with 31 billion debt. Bank of America - 322 billion cash with 623 billion debt. Out of these companies that I just chose at random only Ford is not profitable and all of them have far less cash than debt.

The economy runs on credit. If you take the credit away you will bring the economy to a halt. When businesses shut down people lose their jobs and they can't support the 'good' businesses any longer forcing them to lay off people and the cycle continues. Will the world end? No. Some companies will exist but not enough to keep unemployment at any kind of level like it is now. That's not fear-mongering unless you can explain to me how the global economy will continue to function in at least a somewhat normal state if nobody is willing to lend money (or lend at reasonable rates).

The idea of a blank check is not a great one. The idea of paying some made up price for assets you have no idea what they are worth or if they even have value is even worse. But it is what is on the table and its better than doing nothing. It could end up good, it could end up as a complete waste of money but give us time to work on fixing what caused the mess in the first place and if nothing is done to correct the underlying problems it would be nothing more than wasting the money to delay future disaster.

I just don't buy the assumption that there's ZERO credit for ANYONE, FOREVER unless we pass THIS bill TODAY. Someone said earlier that there "might not be anything left to save" if we waited until today. We're talking what - 4-5 days?

That's how the fear-mongering is basically presented.

Somebody cited one example of one one company's issues with "tight credit". Where's the evidence of armageddon?

[JonInMiddleGA]

I'm sitting here with:
-- hada client that's a custom home builder

Quoting & revising to reflect new status as of about an hour ago.

The entire marketing department got it in the neck from the Exec. VP on down, as did all media planning/placement personnel (all outside contractors, like us), and all the creative department that designed the ads that ran.

FWIW, relevant to the direction this thread turned, the timing was virtually certain to be only coincidental to the current banking crisis, as the wheels for this had been in motion for quite a while (probably since before we were even brought on board).

It would be more applicable to the degree of ineptitude at the highest levels of large companies than to anything banking or housing related (i.e. they could be a widget company & still make the same mistakes). To wit, odd though it may seem, they intend to continue spending the same level on advertising ... except without paying anyone who has any knowledge or understanding of the subject on the payroll. The media expenditures are "marketing budget" which did not change or may actually increase over the next couple of months while all personnel costs related to advertising were labeled "overhead" and ordered to be slashed to the bone.

It was almost amusing this morning to realize that the few artists/creatives who weren't fired quit within minutes of getting the lowdown and that they now have over 40 print ads due from scratch in the next ten days with absolutely no one on hand to do them, particularly since that scenario didn't actually dawn on anyone involved in the decision process. It would have been more amusing if it weren't so sad an example of idiots making six & seven figure decisions.

[Gary Gorski]

I just don't buy the assumption that there's ZERO credit for ANYONE, FOREVER unless we pass THIS bill TODAY.

That's how the fear-mongering is basically presented.

Again, when did I say there would be ZERO credit for ANYONE FOREVER? I've never said there was ZERO credit TODAY even. Not a whole lot is different today than yesterday. I'm saying we're going to see massive changes if we see massive bank failures and if we see a credit freeze from the banks that still exist. Even if we were to go into another depression we would eventually come out of it like the country did before and the economy would grow then and everyone would be able to build up credit and all that kind of stuff but the period of time that took will be lengthy and painful for our country as a whole that is used to a much different lifestyle.

Go read about what's going on TODAY. Jobless claims are as high as they have been in 7 years at nearly 500,000. Banks are cutting their lending. Companies are slashing their economic forecasts left and right - that's not fear-mongering. It's real. TODAY there is still credit to businesses and individuals. If the parties giving that credit fail and go out of business then I don't know who's going to be giving the credit then. Maybe you can tell me that.

[Gary Gorski]

Someone said earlier that there "might not be anything left to save" if we waited until today. We're talking what - 4-5 days?

Like Flasch said - the market changes on a daily basis. Monday when the bill was defeated the market tanked and tanked hard. It would have likely continued to do so had there not been the statements from people in Congress that the bailout was not dead and that they would pass it this week. If the bill fails the House you will again see a dramatic selloff and destruction of wealth until either the market bottoms at some point (likely losing trillions of dollars along the way) or until some other force comes into play.

The longer you wait for something to happen the more people will pull their money from banks into something "safe" like T-bills and the more banks will fail and the less banks will be able to lend. That's the hurry. You can't operate businesses forever with the balance sheets these banks have.

[Gary Gorski]

The entire marketing department got it in the neck from the Exec. VP on down, as did all media planning/placement personnel (all outside contractors, like us), and all the creative department that designed the ads that ran.


Sorry to hear that Jon.

[Gary Gorski]

Somebody cited one example of one one company's issues with "tight credit". Where's the evidence of armageddon?

Here you go - here's an example of TODAY.


Back in 2006, Stephanie Christmas ran a bustling turf business in Gainsville, Fla., with 40 employees. Credit flowed freely and the housing market was hotter than the scorching summer sun in Florida's 'gator country.

Now that seems like an eternity ago.

Christmas' Hendrick's Turf farm, which delivers sod for landscaping projects, has seen business dry up with the housing slump. On top of that, Christmas can't get credit from the bank because her prime source of collateral—hundreds of acres of prime farmland—has lost much of its value with the real estate collapse. The family-run company is struggling to survive.

"I don't think people truly understand the gravity," she says in a phone interview. "Nobody in my generation and even the generation before me has seen hard times, and I don't think it's something they can possibly fathom. You go down to the local diner for lunch and everybody cries together."

As the credit crisis spreads around the globe, it is reverberating back to Main Street in ways never seen before. Financial institutions large and small have grown unwilling even to lend each other money—let alone their customers. As such, stories similar to the Hendrick's Turf farm are being played out across America.


In e-mail after e-mail to CNBC.com, people speak of having pristine credit scores and solid balance sheets—yet hear again and again that there's no money to lend.

One construction company owner wrote about his 60-year-old family business that can't get financing to build. Another businessman talked about having his credit line frozen. Still another, a prospective new home-buyer, related a story of trying to get a new-construction loan and being told that home equity would no longer be accepted as credit towards a downpayment.

Before housing values started tumbling nationwide in 2005 and 2006, business for Christmas' family-run operation was good, almost too good.

"At the end of '06 is when the building really started slowing around here," she says. "At that time, it was literally a welcome breath of air. We were all exhausted, You were literally running a race you were never able to win."

But a slowdown turned to a virtual shutdown, and revenue for the company dropped about 70 percent in the two-year span. A staff of 40 will soon shrink to nine.

While the company lost business on one end because of the housing decline, it lost access to credit on the other end because its farmland was no longer worth much. It was a rural version of Wall Street's mark-to-market accounting dilemma: How can you mark something to market when there's no market?

"Mark-to-market means nothing now," Christmas says. "It's only worth what someone's willing to pay for it, and nobody's willing to pay for it."

"Where's the bottom for this thing?" she adds. "The problem is, in this area we still don't feel like we hit the bottom. That is absolutely terrifying."

To raise money, Hendrick's Turf is holding what is referred to as an "absolute auction" on a 200-acre tract the family owns—awarding the property to the highest bidder no matter the price. It's a risky move that could end up with the land being severely undervalued. But Christmas and her family believe they it's their only recourse because of the lack of available credit.

The hope is not only to generate liquidity for the business but also to set a value for property in the Gainesville area that banks can use as a yardstick to start lending again.

"If this auction doesn't go the way we want it to," she says, her voice taking on emotion, "quite frankly I don't know what we're going to do."

Other Voices

Christmas is hardly alone with tales of credit woes from one end of the country to another.

"Eddie" from Brea, Calif., tells a familiar yet startling story of how even the most qualified borrowers are afforded little or no access to credit:

"Applied for a Super Jumbo Loan with a 735 Mid FICO score, 200K in liquid assets, 500K annual income. 1 million net worth and I was turned down."

Nikki, from Arlington, Va., had an issue with trying to buy a newly built home.

"We applied for a new home construction loan and despite of already having equity built into the total price, we were asked to put down 20% of the entire loan amount. In the past the construction loan always took into account the equity in the house as part of the down payment."

And "Jack" from Destin, Fla., relates another tale of businesses getting strangled by the lending freeze:

"Even though we are up to date and have never missed a payment, our credit lines have been 'basically' frozen. My 400,000 sq foot commercial project is sold out to some strong anchor clients and yet they too are having issues due to excessive financing scrutiny. My banker says regulators are forcing all banks to downgrade construction loans to sub-standard in my part of Florida. Perfect credit and a wonderful history do not matter.

"It is very hard to finance a big project like this out of pocket. Not good!"

[lighthousekeeper]

But everything that Gary cites still doesn't jive with a 'Great Depression' for me. Maybe i just need to adjust my concept of what a Great Depression is - I just never envisioned a Great Depression with so many channels available in HD.

[digamma]

I just don't buy the assumption that there's ZERO credit for ANYONE, FOREVER unless we pass THIS bill TODAY. Someone said earlier that there "might not be anything left to save" if we waited until today. We're talking what - 4-5 days?

That's how the fear-mongering is basically presented.

Somebody cited one example of one one company's issues with "tight credit". Where's the evidence of armageddon?

No one has said there will be no credit. But it will likely be more expensive, and in some cases prohibitively expensive.

Do a google search for "overnight lending" or "repo rates."

[Gary Gorski]

But everything that Gary cites still doesn't jive with a 'Great Depression' for me. Maybe i just need to adjust my concept of what a Great Depression is - I just never envisioned a Great Depression with so many channels available in HD.

We're not in a Great Depression now - not even close and I never said we were. Things are "ok" for the time being - there's alot of people out of work (especially here in Michigan) but hopefully it will not get worse. We may be in a recession but we're definitely not in a depression and I hope and pray we never are. I've said that it appears we're close to the financial system collapsing which then could lead to another depression. Frankly I don't understand what's hard to picture here. Banks have failed - major banks. WaMu was no mom and pop financial outfit. Neither were institutions like Bear and Lehman. What makes you think that the rest of the banks are going to survive this mess without help and if they can't then what happens? That's what I'm talking about - that's when I think you could see a depression.

[JonInMiddleGA]

I just never envisioned a Great Depression with so many channels available in HD.

Or sales of relatively expensive video games being a part of the landscape.

[molson]

"My banker says regulators are forcing all banks to downgrade construction loans to sub-standard in my part of Florida. Perfect credit and a wonderful history do not matter."

That's a really good thing in this economy. As I and others said, the housing market absolutely needs to collapse. Sucks for guys in Florida whose living depends on it, but we shouldn't be forever subsidizing a industry so it can mantain it's boom levels forever, especially something as important as housing, which has become so unaffordable and so tied into our standard of living. Banks won't loan them money because they know that a good number of these contruction-type companies won't exist soon. That's OK. That's good, responsible banking. More of that and we wouldn't be in this mess. It isn't a tragedy that a bank doesn't want to loan money to a slumping business, it's a good thing. If these banks suddenly have the toxic assets off the books, are they suddenly going to deal with these doomed construction companies again? If they did, there will soon be more toxic assets to bailout. If they didn't - who are we trying to save again?

A housing market collapse will of course impact everything else in the economy. But that's where we are.

But are banks lending to anyone outside of the housing sector? It's McDonald's having trouble getting credit? That would worry me, depending on the scale. If there were zero banks left, ya, that'd be a problem. A problem probably beyond the scope of government intervention. Until there's zero banks, there's banks with an opportunity.

[Mizzou B-ball fan]

Here you go - here's an example of TODAY.

To be fair, most of those examples are in areas where we've know for literally YEARS that the real estate market was heavily overvalued. In the case of the business mentioned, they should be glad they were allowed to borrow against an inflated real estate value for as long as they did. The property estimates were out of line with reality. In the case of the lady lamenting the 20% rule, she should understand that the relaxation of loan calculations was what allowed those kinds of transactions in past years. It's never a given that loaning processes remain the same. Asking for 20% down is a common thing and it honestly should become the standard for the next few years. Opening up interest-heavy loans with little down was a big mistake.

In contrast, most of the cities where inflation of real estate value never occured are still seeing modest gains in value or at worst, their property values remain steady. My home value in KC has gone up 10% since I bought it in 2006. People need to realize that they have to adjust to a new way of spending and budgeting in these times.

[Gary Gorski]

But are banks lending to anyone outside of the housing sector?

Where do you think that companies in any other industry borrow money from?

[molson]

Where do you think that companies in any other industry borrow money from?

Banks. Are they lending to anyone outside of the housing sector? Or is McDonald's frozen off too.

I guess your implication is that with zero banks, there's zero credit for anyone. I think we're far away from zero banks, or even a depression-level low number of banks.

[Gary Gorski]

To be fair, most of those examples are in areas where we've know for literally YEARS that the real estate market was heavily overvalued. In the case of the business mentioned, they should be glad they were allowed to borrow against an inflated real estate value for as long as they did. The property estimates were out of line with reality. In the case of the lady lamenting the 20% rule, she should understand that the relaxation of loan calculations was what allowed those kinds of transactions in past years. It's never a given that loaning processes remain the same. Asking for 20% down is a common thing and it honestly should become the standard for the next few years. Opening up interest-heavy loans with little down was a big mistake.

I'm not saying that the bank should just be willing to continue the same poor practices that got them here in the first place - I was just referring to a story regarding what changes people are seeing now in the credit market that they weren't a short time ago.

[sterlingice]

But everything that Gary cites still doesn't jive with a 'Great Depression' for me. Maybe i just need to adjust my concept of what a Great Depression is - I just never envisioned a Great Depression with so many channels available in HD.
Or sales of relatively expensive video games being a part of the landscape.

Congress Approves $4 Billion For Bread, Circuses | The Onion - America's Finest News Source (http://www.theonion.com/content/node/29392)

(An oldie but still a goodie and applicable today)

SI

[molson]

I'm not saying that the bank should just be willing to continue the same poor practices that got them here in the first place - I was just referring to a story regarding what changes people are seeing now in the credit market that they weren't a short time ago.

I asked this above but to emphasize the point, but wouldn't ANYTHING but frozen/tight credit to the housing sector be the "poor practices that got them there in the first place".

[Mizzou B-ball fan]

I'm not saying that the bank should just be willing to continue the same poor practices that got them here in the first place - I was just referring to a story regarding what changes people are seeing now in the credit market that they weren't a short time ago.

Right. And my point is that if people manage the change correctly, they will survive this whole thing and be just fine. People making really stupid decisions, both gov't and public in general, is what got us to this point. People need to realize that there's no shortcuts that don't come without an inherent risk that they should understand is present.

[Gary Gorski]

Banks. Are they lending to anyone outside of the housing sector? Or is McDonald's frozen off too.

I guess your implication is that with zero banks, there's zero credit for anyone. I think we're far away from zero banks, or even a depression-level low number of banks.

No, I doubt any major companies are frozen off at the moment and I don't want to see them be because then they will cease to operate. Credit may not only be not available in the future but could be at much higher rates instead which would still hurt a profitable business and would only make things worse for companies like Ford that are already plenty unprofitable and keep getting government help.

We are far away from zero banks or a low number of banks, right now. But play it out over time. All these toxic mortgages and investments caught up with places like WaMu and Wachovia - those things didn't go away. They're now part (at least in part) of JPMorgan and Citigroup. Bank of America bought Contrywide this year and that's chalk full of horrible mortgages and what about banks like National City, Sovreign, Regions, Fifth Third...if these things really are worth nothing like some are suggesting how do any of those banks end up surviving?

Please, I'd love to know how the banks will survive without help when they own so much stuff that is worthless and when they have less money to lend (thereby less chance to make money) because people pull their money from the banks because they're afraid the bank will fail. Look, if nobody had gone down but a couple of mom and pop institutions I don't think we're having this discussion. But we've had IndyMac, Lehman, Bear, WaMu all fail - we had Fannie and Freddie and AIG bailed out. We've had shotgun deals to sell Merril and Wachovia. We've had Goldman and Morgan Stanley change their banking structure. What makes you think that these other banks aren't going to eventually follow suit?

[Gary Gorski]

I asked this above but to emphasize the point, but wouldn't ANYTHING but frozen/tight credit to the housing sector be the "poor practices that got them there in the first place".

Standards need to change - absolutely, without a doubt but if the banks are going to make money they need to lend - they just need to be smarter in doing so and they need to have the resources to do it. It's hard to lend money if your balance sheet is full of worthless items and people are calling asking for their money to take from you. The question is do let the house collapse so you can rebuild it correctly (hopefully) or do you try to prop it up and then fix what's wrong with it.

[Fidatelo]

The question is do let the house collapse so you can rebuild it correctly (hopefully) or do you try to prop it up and then fix what's wrong with it.

If there is one thing I've learned from all this, the correct answer is to walk away from the house and let it be someone else's problem.

[SportsDino]

I keep hearing "do something, ANYTHING, now... TODAY!!!! EEEK!".

Everyone thinks this is a 750 billion dollar injection into the economy (or heck maybe more than that now, haven't read the latest bill)....

It is not. To disagree with the distinguished representative from California, they are not buying hard assets... an asset backed by a house, can easily be made worthless if it is a derivative. Heck, the simplest contract to demonstrate this is if the 'troubled asset' is a put to sell the house at 400,000 in 2010 and the market value is now 200,000 (and going to stay that way for the forseeable future).

You CANNOT EXERCISE THE PUT, it is worth zero and will be worth zero in 2010, at which point it expires. These derivatives under consideration are similarly complex... they are highly chopped up and hedged instruments that have value not tied directly to the underlying asset. If the value of the house goes from 200,000 to 300,000 the value of these assets may not go up by 50% like you would expect, it could go up more or less, or even go down if they have some very weird contract.

But lets say these silly contracts are tied to portions of value in the mortgage, even rebundled and divided up, that each contract is tied somehow to the value of a house. Given that the principle and the interest can be separated from each other, if a mortgage is reworked some of these contracts may no longer make sense whatsoever. Or may see drastic reduction in value, perhaps to zero based on the terms of what happens when a mortgage is refinanced (I'm sure they all have complicated clauses for when that happens since that is the point of an ARM right?).

We are not buying houses or land, that is my objection. Spend 700 billion dollars on acquiring property, and set aside a trust to distribute returns to anyone who has valid contracts on the mortgage. I would much rather trust the government to oversee awarding corporations their contract returns, because businesses will fight hard for every cent they can get so the government will not need to try hard to untangle these assets. I do not trust the government to buy troubled assets, and fight hard to actually sell them for some real value (the claim made by those saying it will only be 200 billion).

But back to the original point, 750 billion in troubled assets transfered to the government does not necessarilly resolve this crisis. Many banks could still have no liquidity because they are still over-extended. Or some places might use the 'cleaned' books to simply liquidate their company and run for the hills. Finally, some of these organizations might suddenly have a boost of fictional capital and invest it in some other scheme to make a quick buck (I'd like to dump all of my worst bets and keep my lucky ones, wouldn't you?). After it all, the stock market could just decide to panic anyway and wipe out another 1.2 trillion from the market anyway like Monday.

In the worst case, the inflation bubble goes out of control, and all of us with any savings of marginal value (say under a million), will get wiped out, while big money of course can maneavure to protect their billions, or survive inflation as mere millionaires in real dollars.

Everything I am saying is based on studying these particular assets in question, realizing a long time ago that they were bad, and when I finally had money to invest I bet against this foolishness and cleaned up (granted I'm 26 so I didn't have much capital to play with). I'm one of those evil shorters and speculators (except I play against the obvious bubble)... but I base it on the old fashioned research investors were supposed to have learned a long time ago. Look at the deal, read it, understand it, and realize that its not just a bad deal for taxpayers, an investment with terrible rate of return, but a potentially destabilizing shock for the real economy. Sure Wall Street may go up 400 after it passes, Wall Street lately has been all about the rollercoaster ride which is highly profitable if your lucky (like I have been recently) but is highly damaging if you are trying to invest for your life. I don't want to see 60 year old people getting wiped out, but they will still get wiped out if we waste all this money and the market still decides to flake out... and even worst we end up with inflation or bubble-nomics that tears apart what still works in our economy.


Overnight we suddenly did not get a shortage of food, or resources, or products, we have a shortage of sanity in our financial system. We need to triage it like a battlefield medic, go straight to the root problem (the valuable assets, even if they are in decline), and sew it up... not place a bucket under a bleeding wound and occaisonally bail it outside. [pun intended]


Also it would be nice to have companies transparent enough that I can go long in my portfolio more often. There may be a lot of bargins out there, but I can't begin to calculate their worth (and I don't buy what other people tell me to buy, do your legwork folks).

[Bigsmooth]

Aren't those the risks you take when you decide to open a small business? In the case of that turf company, for example, it's supply and demand. There is no more demand for what they are offering. Who's fault is that? The other example, oh no we can't get a loan to build, well, that means you shouldn't be trying to build, there is too much supply. Tough luck, you are in the wrong industry right now. Sure, these people (everybody?) will have to weather a severe financial storm... Like Ron Paul said, look to actual examples like Russia. They had to start over, and the people lived through a year of financial difficulties. Now, they have one of the strongest economies over the last 7 years.

[SteveMax58]

To be fair, most of those examples are in areas where we've know for literally YEARS that the real estate market was heavily overvalued. In the case of the business mentioned, they should be glad they were allowed to borrow against an inflated real estate value for as long as they did. The property estimates were out of line with reality. In the case of the lady lamenting the 20% rule, she should understand that the relaxation of loan calculations was what allowed those kinds of transactions in past years. It's never a given that loaning processes remain the same. Asking for 20% down is a common thing and it honestly should become the standard for the next few years. Opening up interest-heavy loans with little down was a big mistake.

Plus...those areas (i.e. Florida, where I live and hope to sell soon, gulp)...do not need increases in supply. Nearly the entire state is overbuilt for it's economy and population already. The last thing we need are new home loans.


In contrast, most of the cities where inflation of real estate value never occured are still seeing modest gains in value or at worst, their property values remain steady. My home value in KC has gone up 10% since I bought it in 2006. People need to realize that they have to adjust to a new way of spending and budgeting in these times.

Yeah...it's a real shame that speculative investing pretty much tanked some areas. I dont know how to fix or alleviate that, since the amount of real estate investors flooding the market was actually leading to a reverse panic (where many renters believed the prices of housing would continue going up beyond their means if they did not buy during the boom...and all things told, the "boom" values were still lower than many parts of the country).

It's a real issue if you live somewhere like Florida, California, Texas, etc. My sense of fairness says that the states need to handle the fallout of speculative investments internally through taxes, etc...but the realist in me sees the potential for 25% of the state to foreclose and make the problem even worse. I dont know...not a good time to own a home in those areas(unless you've owned for 8+ years).

[Gary Gorski]

There may be a lot of bargins out there, but I can't begin to calculate their worth (and I don't buy what other people tell me to buy, do your legwork folks).

Excellent advice for people interested in investing in anything and you make a lot of great points. I'm not necessarily in favor of the bailout but like I've said, I'm less in favor of massive bank failures. Maybe I'm missing something but I do believe that these "toxic" mortgages are worth nothing or close to it and I don't know how the banks are going to survive with them on their books. Is it possible? The problem I see is who else is going to buy the stuff? No private investor is going to pay for them if they don't know what they're worth and the banks don't know what they're worth if anything and if they could untangle them then why would the banks want to sell the "good" parts of them and be stuck with nothing but the bad?

[flere-imsaho]

It's funny how I can totally disagree with MBBF & molson in the General Election thread and totally agree with them here. :D

[Galaxy]

It's funny how I can totally disagree with MBBF & molson in the General Election thread and totally agree with them here. :D

I know. It seems like we are all crossing over here.

[Mizzou B-ball fan]

It's funny how I can totally disagree with MBBF & molson in the General Election thread and totally agree with them here. :D

Step towards the white light! Just give in to your true calling! :D

FWIW.....I think more positive discussion is done in threads like these with a varied set of people than is ever done in Congress. They're too busy patting each other's backs and slipping in pet projects. I haven't seen any FOFC earmarks entered into the discussion thus far.

[SteveMax58]

Maybe I'm missing something but I do believe that these "toxic" mortgages are worth nothing or close to it and I don't know how the banks are going to survive with them on their books. Is it possible? The problem I see is who else is going to buy the stuff? No private investor is going to pay for them if they don't know what they're worth and the banks don't know what they're worth if anything and if they could untangle them then why would the banks want to sell the "good" parts of them and be stuck with nothing but the bad?

I've stated this question before...and perhaps it is uninformed, or just plain ignorant...but while I wouldnt classify myself as a socialist, if we are going to essentially create government-partially owned banks by buying bad assets in exchange for equity; why not create "FED Bank" tomorrow which is completely owned and operated by the government, and free of all the bad assets/high risks of these other FI's? You could then slowly begin privatizing it over time buy selling equity at differing stages...but at least you'd be starting clean.

Who loses out? Private investors? Other global FI's? Who else? And if we're on the verge of a global economic meltdown...should we even care?

[flere-imsaho]

Step towards the white light! Just give in to your true calling! :D

Hey, I've already taken the first step and agreed with you in this thread. It's time for you to reciprocate and agree with me in the General Election thread. The Kool-Aid, you know it tastes good.... :D

FWIW.....I think more positive discussion is done in threads like these with a varied set of people than is ever done in Congress. They're too busy patting each other's backs and slipping in pet projects.

Based on my (brief, sure) time working on Capitol Hill, it seemed to me that everything they said about it being an "echo chamber" is 100% true. It's the rare Congresscritter that really steps back and thinks about things, much less has a good back-and-forth discussion with someone with which they disagree. I'd say it's even more true today than it was just 10-15 years ago, but that's another thread....

[Mizzou B-ball fan]

Based on my (brief, sure) time working on Capitol Hill, it seemed to me that everything they said about it being an "echo chamber" is 100% true. It's the rare Congresscritter that really steps back and thinks about things, much less has a good back-and-forth discussion with someone with which they disagree. I'd say it's even more true today than it was just 10-15 years ago, but that's another thread....

I became (and still am) pretty good friends with a few guys that were lobbyists for some major government contractors during my 1 1/2 years living in Baltimore. My cynical nature towards anything that these Congressman say in public comes from finding out just how dirty Washington is on the inside. I think that congressmen spend more time talking with lobbyists than they do with their constituents or their fellow members in Congress. The general public doesn't have a clue in that regard.

[BishopMVP]

shortselling ban extended.In addition, the S.E.C. would institute a ban on short-selling of financial stocks. Although Treasury officials concede that the move was mostly symbolic — investors can still buy put options that have the same effect as shorting stocks — they did it mainly “to scare the hell out of everybody,” as one official put it.So we've got this measure, which is entirely symbolic at best and actually harmful at worst, the M2M rules which are symbolic at best and harmful long term (not at worst, pretty much guaranteed). Let's go along with their $700b plan, I'm sure it's better thought out (and add another $150b of pork to get it passed. And no Molson, tax cuts are not the opposite of pork - cutting spending is. Tax cuts without a concurrent reduction in spending only exacerbate our long-term problems. Which is why I'm mostly unswayed by arguments we could make {up to} $1.2t back - we're just going to waste it anyways, and it will ratchet up government spending for that year, never to come back down again.)

The reasons behind this bailout are 90% psychological, and it annoys me to no end. "The American Public" would rather have stability than prosperity, Congress desperately wants to preserve stability and their cushy seats. The Banks aren't stabilizing themselves by unloading their securities at ~$.30/$1 in the private sector because they think a gov't bailout will buy them at $.50/$1. Overall, this is merly going to ensure it is more likely to be 20-years of stagnant growth rather than a sharp 1-2 year downturn and a recovery.

[molson]

Overall, this is merly going to ensure it is more likely to be 20-years of stagnant growth rather than a sharp 1-2 year downturn and a recovery.

Right, and these politicans are motivated by their elections in the next 1-2 years, so their stance on this makes perfect sense.

[Bigsmooth]

So we've got this measure, which is entirely symbolic at best and actually harmful at worst, the M2M rules which are symbolic at best and harmful long term (not at worst, pretty much guaranteed). Let's go along with their $700b plan, I'm sure it's better thought out (and add another $150b of pork to get it passed. And no Molson, tax cuts are not the opposite of pork - cutting spending is. Tax cuts without a concurrent reduction in spending only exacerbate our long-term problems. Which is why I'm mostly unswayed by arguments we could make {up to} $1.2t back - we're just going to waste it anyways, and it will ratchet up government spending for that year, never to come back down again.)

The reasons behind this bailout are 90% psychological, and it annoys me to no end. "The American Public" would rather have stability than prosperity, Congress desperately wants to preserve stability and their cushy seats. The Banks aren't stabilizing themselves by unloading their securities at ~$.30/$1 in the private sector because they think a gov't bailout will buy them at $.50/$1. Overall, this is merly going to ensure it is more likely to be 20-years of stagnant growth rather than a sharp 1-2 year downturn and a recovery.

Exactly. Status quo wins again, always. I'm literally nauseated/depressed right now.

[BishopMVP]

Right, and these politicans are motivated by their elections in the next 1-2 years, so their stance on this makes perfect sense.Not entirely though, because it was pointed out in the partisan part of the thread, it was legislators not running for re-election who voted overwhelmingly for the bailout. Maybe as a favor to their fellow legislators, or maybe they really think it is a good/"necessary" thing.

[Bigsmooth]

http://i172.photobucket.com/albums/w1/padre1/image002.jpg

Maybe more appropriate for that other thread about cool images and what not...funny though.

[JonInMiddleGA]

Not entirely though, because it was pointed out in the partisan part of the thread, it was legislators not running for re-election who voted overwhelmingly for the bailout. Maybe as a favor to their fellow legislators, or maybe they really think it is a good/"necessary" thing.

Or maybe they're the ones least likely to give a flying fark what the voters in their district think or want.

[Bigsmooth]

Check out this response from a Senator in Georgia.
From another board:

I sent both GA Senators emails regarding the bailout last week and again yesterday afternoon. I have not heard from Sen. Isakson but did receive this email from Sen. Chambliss today:


Dear Mr. XXXX :



Thank you for contacting me regarding the turmoil in our financial markets and the actions taken by the United States Treasury as they pertain to several leading financial institutions. It is good to hear from you.



This is the most serious and critical domestic issue I have dealt with in my 14 years in Congress. We have been betrayed by many people and by abuse of the system. Now we have two significant choices to make - do nothing or take action.



I strongly believe that doing nothing will destroy the financial security of millions of Americans and possibly lead us into a depression. I just as strongly believe the bill as now negotiated will arrest the crisis and begin to turn our economy around.



The bill that I voted for is not a bailout. H.R. 1424, "The Emergency Economic Stabilization Act," is crafted to address the crisis; restore security for the American taxpayer; and return our nation to the strongest economic power in the world. And in the process this bill enables us to root out and punish those who cheated us all.



I know that my vote in favor of this package was not the politically popular thing to do, but this is not a popularity contest. This is about the future of our country and the future that my children and grandchildren will inherit. I have absolutely no doubt in my mind or my heart that my vote in support of this measure was the right thing for our economy, for Georgians, and for our country.



My first reaction was one of anger and frustration. How could this happen in the strongest economy in the world? How could the best financial system in the world fail? After calming down, I realized the seriousness of the situation and the consequences of Congress failing to act.



The Treasury Department submitted a proposal to Congress requesting authority to purchase troubled assets from financial institutions. This program was intended to address the root cause of the market stresses by removing these assets from the financial system.



I did not support the original proposal submitted by the Administration because it did not address the critical needs of the American taxpayer, community banks, retirees, and small businesses and it concentrated too much power in a small group to administer the plan.



As the conversations in Washington and across the nation continued over how to address the challenge before us and as the details of the problems in our financial sector were revealed daily, I became convinced that something had to be done and done soon.



Moreover, when the House rejected the plan, the economy suffered a $1.2 trillion dollar blow in the stock market, which only made more apparent the impact this credit crunch is having on Main Street . Specifically, in some cases, Georgia community banks are unable to make auto loans.



Below are details of the legislation:



TAXPAYERS ARE PROTECTED. In its current form, the legislation before the Senate protects taxpayers in many ways. Accountability, safeguards, and oversight measures are numerous. There will be transparency, public reports, and triggers to end the program if, for some reason, it is not effective or end the program early if it is more successful. Moreover, I worked to negotiate a mechanism to stop all transfers of taxpayer funds if necessary. That said , I believe this legislation will be effective.



NOT A BLANK CHECK. I opposed the President's initial request to simply give a blank check to Secretary Paulson. I also opposed the second version submitted by the President and Congressional Democrats that would have given taxpayer money to liberal groups such as ACORN. Let me be clear - this current bill, the bill in the Senate, is not a blank check for anyone. First, it allows the release of $250 billion to purchase these toxic loans. Then, Congress can release another $100 billion but only with Presidential involvement and certification that it is necessary. And only if absolutely necessary and again with Presidential certification and Congressional approval, the remaining $350 billion could be released. However, I do not believe the entire $700 billion authorized will be necessary or used.



NO GOLDEN PARACHUTES. CEOs and other executive officers who drove their companies into the ground will not be able to walk away with millions leaving taxpayers holding the bill. Those companies that choose to participate in the program will be subject to strict compensation limits.



NO NEW GOVERNMENT SPENDING. The language is clear - all revenue generated through the repayment of any assets purchased and any sold must be used to pay down the national debt. No money will go to pork projects, new government spending, or liberal groups such as ACORN.



HELP FOR MAIN STREET . As this crisis continues, community banks are being affected more and more. Car loans and home loans, even to those with good credit, are drying up. People are losing their retirement savings. Small businesses are now having difficulty getting loans to make payroll or grow their business to create new jobs. If we allow this to continue, jobs will be lost, more retirement accounts will be impacted, and credit will get even tighter.



PUNISH CRIMINALS. The Federal Government is actively investigating cases of fraud and abuse. Where wrongdoing is found, the perpetrators, including, if implicated, members of Congress will be brought to justice. We have already seen subpoenas issued for records at Fannie Mae and Freddie Mac. This bill demands cooperation with the Federal Bureau of Investigation (FBI) and I expect we will see more subpoenas and criminal prosecution.



ADDRESS THE UNDERLYING CAUSE WHILE WE TREAT THE SYMPTOMS. We are seeing the symptoms now - lack of trust in the banking industry, daily tightening of the credit markets, losses in personal retirement accounts - and while this legislation addresses those issues, it also goes further to treat the cancer that got us here. This legislation authorizes the Securities and Exchange Commission (SEC) to modify the 'mark to market' accounting procedures that magnified this crisis by forcing banks to mark down the value of assets they had no intention of selling in the near future. This mark down of value caused a corresponding loss of value to the institutions. The SEC has already begun the process to modify this procedure.



RETURN TRUST IN THE BANKS. By increasing the Federal Deposit Insurance Corporation (FDIC) protection on bank accounts from the current $100,000 to $250,000, taxpayers and bank customers can once again trust that their money is safe in the bank of their choice.



DEBT REPAYMENT. Toxic loans will be purchased at a discount and 100% of the monies repaid to the government will go to reduce the debt we incur in this process. While we shouldn't expect full repayment, it is possible that all of the money expended will be repaid.



PROTECT OUR NATIONAL SECURITY. If we do not act and this crisis spreads like a cancer to every segment of our economy, it will destroy not only taxpayer savings but it will erode our ability to fund our military, supply our troops with the resources they need, and protect our homeland.



NO TIME FOR POLITICAL FINGER POINTING. There is plenty of blame to go around but now is not the time to throw stones, now is the time to address this crisis and get our economy moving again.



FOR THE COUNTRY; NOT POLITICAL POPULARITY. This is not a popularity contest, this is a crisis. And since this crisis began, I have had numerous conversations with economists, community bankers, small business owners, and taxpayers. I have weighed the costs of inaction versus the costs of unpopular action. I support this bill because it is good for the country, it is the right thing to do today for taxpayers and tomorrow for my children and grandchildren, and it is necessary to get our economy moving again.



Strong capital markets are vital to a prosperous U.S. economy and given the renewed focus of our regulators and market participants, I remain confident in our financial markets and our overall economy.



However, history warns us against inaction by hard lessons learned. Delaying to act would be a repeat of the mistakes of the 1920s, when thousands of banks failed before significant confidence was restored to our financial markets.



If you would like to receive timely email alerts regarding the latest congressional actions and my weekly e-newsletter, please sign up via my web site at: www.chambliss.senate.gov (http://www.chambliss.senate.gov/) . Please let me know whenever I may be of assistance.
-----------------------------------------------------------------------------------

**The bolded part is funny. Uh..it's not a popularity contest? Well, if 80% of his constituents were against the bailout, and were willing to risk a "Depression" to let the market work itself out...??

[GrantDawg]

**The bolded part is funny. Uh..it's not a popularity contest? Well, if 80% of his constituents were against the bailout, and were willing to risk a "Depression" to let the market work itself out...??


....then he is a very brave man. Especially considering he IS up for election in a few weeks (and the challenger has started closing in on him the polls). If he is really voting because he believes it is nessecary (which I think he just might be in this case, because I know this isn't a popular vote here), then he is doing exactly what he was elected for. Shoot, I wasn't going to vote for him, but I just might now.

[GrantDawg]

NO NEW GOVERNMENT SPENDING. The language is clear - all revenue generated through the repayment of any assets purchased and any sold must be used to pay down the national debt. No money will go to pork projects, new government spending, or liberal groups such as ACORN.



Dang, I said earlier I'd definitely be for if proceeds would go toward national debt. Doubly approved.

[digamma]

Fear not! Help is on the way!

Our chief investment officer has declared tomorrow "Park Backward and Wear a Rally Cap Day." This is a tried and true strategy, so you should see some market effects by, say, Tuesday at the latest.

[TazFTW]

They need a Rally Monkey.

[BishopMVP]

House Financial Services Committee hearing, Sept. 25, 2003:
Rep. Frank: I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing. . . .
----
Rep. Waters: However, I have sat through nearly a dozen hearings where, frankly, we were trying to fix something that wasn't broke. Housing is the economic engine of our economy, and in no community does this engine need to work more than in mine.... Mr. Chairman, we do not have a crisis at Freddie Mac, and in particular at Fannie Mae, under the outstanding leadership of Mr. Frank Raines. Everything in the 1992 act has worked just fine. In fact, the GSEs have exceeded their housing goals. . . .
------
Mr. Raines: But more importantly, banks are in a far more risky business than we are.Why were the Barney Franks, Maxine Waters and Chris Dodds put in control of our financial sector? And more importantly, why are they still in control of it?

[JonInMiddleGA]

Why were the Barney Franks, Maxine Waters and Chris Dodds put in control of our financial sector? And more importantly, why are they still in control of it?

Wiki is our friend ;)

Christopher John Dodd (born May 27, 1944) is an American lawyer and Democratic politician, who is currently serving as the senior U.S. Senator from Connecticut. Dodd served as a U.S. Representative from Connecticut from 1975 until 1981, when he became a Senator. He served as general chairman of the Democratic National Committee from 1995 to 1997. He is now the state's senior Senator. He currently serves as Chairman of the Senate Banking Committee.

Barnett "Barney" Frank (born March 31, 1940) is an American politician and a member of the United States House of Representatives. He is a Democrat and has represented Massachusetts's 4th congressional district since 1981. The district includes many of Boston's western and southern suburbs — such as Brookline, Newton, and Foxborough — as well as the South Coast. He is the chairman of the House Financial Services Committee.

Maxine Waters (born Maxine Moore Carr on August 15, 1938) has served as a Democratic member of the United States House of Representatives since 1991, representing the 35th District of California (map). Committee on Financial Services
* Subcommittee on Housing and Community Opportunity (Chair)
* Subcommittee on Financial Institutions and Consumer Credit

So, the answer to your question is:
1) Political affiliation & relationship to congressional control by party
2) Seniority
3) Committee Assignments

[ISiddiqui]

....then he is a very brave man. Especially considering he IS up for election in a few weeks (and the challenger has started closing in on him the polls). If he is really voting because he believes it is nessecary (which I think he just might be in this case, because I know this isn't a popular vote here), then he is doing exactly what he was elected for. Shoot, I wasn't going to vote for him, but I just might now.

Yeah, I have to give Senator Chambliss some props for that. Too often we have politicians doing things because they'll help them win elections rather than what they think is right.

[Flasch186]

anyone know if they think they have the votes to pass this tomorrow?

[duckman]

If God willing, no.

[JonInMiddleGA]

anyone know if they think they have the votes to pass this tomorrow?

If you see them call a vote, they think they've got 'em.
If you don't, they don't think so.

[Mac Howard]

Wiki is our friend ;)

Christopher John Dodd (born May 27, 1944) is an American lawyer and Democratic politician, who is currently serving as the senior U.S. Senator from Connecticut. Dodd served as a U.S. Representative from Connecticut from 1975 until 1981, when he became a Senator. He served as general chairman of the Democratic National Committee from 1995 to 1997. He is now the state's senior Senator. He currently serves as Chairman of the Senate Banking Committee.

Barnett "Barney" Frank (born March 31, 1940) is an American politician and a member of the United States House of Representatives. He is a Democrat and has represented Massachusetts's 4th congressional district since 1981. The district includes many of Boston's western and southern suburbs — such as Brookline, Newton, and Foxborough — as well as the South Coast. He is the chairman of the House Financial Services Committee.

Maxine Waters (born Maxine Moore Carr on August 15, 1938) has served as a Democratic member of the United States House of Representatives since 1991, representing the 35th District of California (map). Committee on Financial Services
* Subcommittee on Housing and Community Opportunity (Chair)
* Subcommittee on Financial Institutions and Consumer Credit

So, the answer to your question is:
1) Political affiliation & relationship to congressional control by party
2) Seniority
3) Committee Assignments

And your reason for Bush, McCain, Palin, the Senate Republicans and numerous Republican commentators supporting is .....

[digamma]

Think you folks are underestimating the power of parking backwards.

[BishopMVP]

So, the answer to your question is:
1) Political affiliation & relationship to congressional control by party
2) Seniority
3) Committee AssignmentsOh, I've worked at the Massachusetts State House before :) (for a rep who attacked the Speaker Finneran publicly before he was finally indicted and forced out - into a private lobbying job paying 500k/yr); I know the why. I just don't get the bigger why if ya know what I mean. (And there I know all about the 11% Congressional approval rating, but 70%+ approval ratings of individual Congressmen.)

Sadly my firsthand knowledge of state-level politics tells me even decentralization wouldn't have that big an effect.

[Arles]

Harry Reid drops the pretense on talking down the economy:
NEW YORK (CNNMoney.com) -- Several big life insurance stocks fell sharply Thursday, dragged down by jitters about their role in the credit crisis and fears sparked by a comment from Senate Majority Leader Harry Reid, D-Nev., Wednesday about a potential bankruptcy in the industry.

"We don't have a lot of leeway on time. One of the individuals in the caucus today talked about a major insurance company. A major insurance company -- one with a name that everyone knows that's on the verge of going bankrupt. That's what this is all about," Reid said prior to the Senate's approval of the $700 billion bailout bill.

Steven Schwartz, an analyst who covers insurance companies for Raymond James & Associates, said that even before Reid made his bankruptcy comment, investors were growing worried about life insurers' exposure to real estate as well as "secondary exposure" via investments in troubled finance firms like Lehman Bros, Wachovia and Washington Mutual.

But the comment from Reid clearly caused even more fear.

"Harry Reid didn't help any," Schwartz said.

Later in the same story, this was quoted:
A spokesman for Sen. Reid backtracked a bit Thursday and said that the senator was not aware of any company being in danger of bankruptcy.

"Senator Reid is not personally aware of any particular company being on the verge of bankruptcy. He has no special knowledge about [a bankruptcy] nor has he talked to any insurance company officials," said Jim Manley, spokesman for Sen. Reid, in an email to CNNMoney.com.
Ladies and Gentlemen, your leader of the US Senate!

Insurers dive on Reid's 'bankrupt' quote - Oct. 2, 2008 (http://money.cnn.com/2008/10/02/news/companies/insurance_stocks/index.htm)

[JonInMiddleGA]

And your reason for Bush, McCain, Palin, the Senate Republicans and numerous Republican commentators supporting is .....

Wasn't talking about "support", was commenting on the question about how those particular folks ended up in positions influencing the banking industry.
Try reading the post again & this time take note of the original question I quoted as replying to.

[Mac Howard]

Wasn't talking about "support", was commenting on the question about how those particular folks ended up in positions influencing the banking industry.
Try reading the post again & this time take note of the original question I quoted as replying to.

Ah, I didn't realise that it was just a statement of fact and did not mean to express an opinion in the debate in this thread ;)

But I would still be interested in your answer to the question as to why this collection of notable Republicans would support this bill. Incidentally you can to that list Gingrich and Rove.

[Mac Howard]

Harry Reid drops the pretense on talking down the economy:


Later in the same story, this was quoted:

Ladies and Gentlemen, your leader of the US Senate!

Insurers dive on Reid's 'bankrupt' quote - Oct. 2, 2008 (http://money.cnn.com/2008/10/02/news/companies/insurance_stocks/index.htm)

Is it really pretense?

A politician carelessly makes a statement that causes a run on insurance stocks don't you think they'd come down on him like a ton of bricks to deny he made the statement in the hope the pressure would come off the stocks?

[bob]

Wells Fargo says it is acquiring Wachovia for $15.1 billion, as Wachovia ends talks with rival suitor Citigroup.

Seems funny to me, given that Wachovia announced the sale to Citigroup on its website. In fact, its still there.

[SteveMax58]

Wells Fargo says it is acquiring Wachovia for $15.1 billion, as Wachovia ends talks with rival suitor Citigroup.

Seems funny to me, given that Wachovia announced the sale to Citigroup on its website. In fact, its still there.

Yeah that it is odd. I just heard a radio ad from Wachovia on my way home saying something to the effect of "Wachovia is now a part of Citigroup..."

[sterlingice]

159K more jobs slashed last month and unemployment stays steady at 6.1%

SI

[Marc Vaughan]

Wells Fargo says it is acquiring Wachovia for $15.1 billion, as Wachovia ends talks with rival suitor Citigroup.

Seems funny to me, given that Wachovia announced the sale to Citigroup on its website. In fact, its still there.

I got the impression that the Citigroup 'sale' was a firesale arranged by the goverment rather than one that Wachovia wanted or were involved in (similar to the WaMu break up).

The new offer looks more realistic in terms of pricing imho and shows just how badly the goverment institutions are paniced in terms of forcing sales through (still can't believe WaMu were dissolved so cheaply).

[ISiddiqui]

Interesting article on how the credit crunch is causing problems at the automakers:

Credit crisis sends auto sales plunging - Oct. 1, 2008 (http://money.cnn.com/2008/10/01/news/companies/autosales/index.htm?postversion=2008100120)


NEW YORK (CNNMoney.com) -- Sales at the nation's top automakers fell sharply in September, as tighter credit for buyers and dealers combined with high fuel prices resulted in industrywide U.S. sales falling below the 1 million mark for the first time in more than 15 years.

The sales declines were broad based, with Japanese automakers reporting the same kind of double-digit declines that hit U.S. brands earlier this year when the record gasoline prices sent buyers scurrying from SUVs and pickups to more fuel efficient car models. Overall Asian brands saw a 31% drop in sales, more than the 24% drop among traditional domestic brands.
This time it was the credit crisis, not just gas prices, that cut into sales.

Many buyers were unable to get the credit they needed to buy a car and a growing number of dealers saw their own credit cut off, causing widespread failures.

Add to that general nervousness about the economy and the industry was poised to sell fewer than a million cars in the United States for the first time since 1993. And auto executives say they don't think they've seen the bottom yet.

Overall industry sales toppled 27% to 964,873 vehicles, according to sales tracker Autodata, a level not seen since February, 1993. It was the biggest year-over-year drop in sales since January 1991, as the nation prepared for the start of the first Gulf War and experienced a gasoline price shock.

George Pipas, Ford's director of sales analysis, said the company estimates that industrywide sales to consumers were down slightly more, a 30% compared to last year, although a more narrow decline in fleet sales to business clients such as car rental companies limited the overall percentage drop.

Industrywide sales of light trucks, such as pickups, SUVs and vans, edged ahead of cars for 50.3% of industrywide sales. It marked the first time since March of this year that trucks outsold cars. But demand for both types of vehicles plunged from year-earlier levels with truck sales off 31% and car models down 22%.

Pipas said that sales, as well as traffic in showrooms, were down even more sharply the last 10 days of the month as the economic crisis got more and more attention.

"There are customers who are adopting a wait and see attitude," he said. "When the Dow falls 777 points [as it did this past Monday], I can assure you there weren't many people closing on a car or an HD TV or a home for that matter."

Market research firm CNW Research, which has tracked dealership traffic for 22 years, confirmed Pipas' view. The firm's reading on traffic in showrooms for the end of September was the worst it has ever reported, down 50% compared to a year earlier.

"Manufacturer incentives aren't pulling in the crowds. Dealer 'blow out sales' aren't working. And without showroom traffic, it's tough to sell anything," said Art Spinella, president of CNW.

Tom Libby, senior director of industry analysis for J.D. Power & Associates, said that even though the problems facing automakers in September were well known, the final numbers were "shocking."

Libby said it's now clear that credit market problems have become the greatest headwind for auto sales as buyers would need to pony up more cash if they really want a car.

"Who's going to put down $25,000 or $30,000 in cash right now? That explains a lot of this," he said.

GM, down 16%...but beats forecasts

General Motors (GM (http://money.cnn.com/quote/quote.html?symb=GM&source=story_quote_link), Fortune 500 (http://money.cnn.com/magazines/fortune/fortune500/2008/snapshots/175.html?source=story_f500_link)) reported that sales of cars and light trucks dropped 16% from a year ago. That was better than the forecast of a 24% decline from sales tracker Edmunds.com but it was still clearly a sign of weaken demand.

Still GM executives said they were pleased with the results.
"September marked the second consecutive month where GM performed extremely well in tough market conditions," said Mark LaNeve, the GM vice president in charge of North American sales.

Sales of GM's cars fell 10% while sales of light trucks - such as pickups, SUVs and vans - declined 19%.

More pain at Toyota

Toyota Motor (TM (http://money.cnn.com/quote/quote.html?symb=TM&source=story_quote_link)) reported that its sales toppled 32% from a year earlier. The forecast was for an overall drop of only 18%. It was the sharpest percentage drop in U.S. sales for the Japanese automaker in 21 years.

Sales of cars dropped 28% and light truck sales plunged 38%.

After years of steady gains that made it No. 2 in terms of U.S. sales, Toyota has now had year-over-year declines in U.S. sales in all but one month since last December.

Ford, Chrysler sales down by a third

The news was just as bad at Ford (F (http://money.cnn.com/quote/quote.html?symb=F&source=story_quote_link), Fortune 500 (http://money.cnn.com/magazines/fortune/fortune500/2008/snapshots/160.html?source=story_f500_link)) and Chrysler LLC.
Ford reported that U.S. sales tumbled 35% from a year earlier. The forecast had been for only a 25% drop.

"Consumers and businesses are in a very fragile place," said Jim Farley, Ford group vice president. "An already weak economy compounded by very tight credit conditions has created an atmosphere of caution."
Privately-held Chrysler LLC, which includes the Chrysler, Dodge and Jeep brands, posted a 33% decline, as light truck sales tumbled 34% and car sales dropped 29%.

Sales of virtually every model of car and truck at the two U.S. automakers fell by more than 10%. Among the exceptions where the Chrysler and Dodge minivans and Ford's Crown Victoria and the Lincoln Town Car. The latter two were helped by fleet sales.

Sharp drops at Honda, Nissan

Honda Motor (HMC (http://money.cnn.com/quote/quote.html?symb=HMC&source=story_quote_link)) posted a 24% drop in U.S. sales, far worse than the 6% drop forecast by Edmunds. It was the worst drop in Honda's sales since 1981, and a sign that good fuel economy is no longer enough to buck broad industry declines.

Earlier this year, Honda was able to steal market share by touting its more fuel-efficient cars as gas prices kept rising. Sales actually rose from January through July

But September marked the third straight month of sales declines for Honda. Overall sales for the year are now lower than a year ago.
Nissan (NSANY (http://money.cnn.com/quote/quote.html?symb=NSANY&source=story_quote_link)) posted a 37% drop in sales, far worse than the forecast of a 12% decline

[JonInMiddleGA]

Interesting article on how the credit crunch is causing problems at the automakers:...

I wonder if Bill Heard was included in those that had their credit cut off? And I wonder how many cases similar to his are out there if so.

For those not familiar, that was one of the largest GM dealers in the country who shut down operations last week due to a combination of reasons. Among the reasons was having their credit cut off by GMAC because of concerns about the dealer's financial situation. And those concerns in part involved continuing investigations into unethical (and possibly illegal) business practices.

In other words, I wonder how much of the credit crunch in this sector may be self-inflicted to some degree.

[flere-imsaho]

So today we'll see if the pork loaded into the Senate bill is enough to get 13 Reps to change their vote. *sigh*

[Mizzou B-ball fan]

So today we'll see if the pork loaded into the Senate bill is enough to get 13 Reps to change their vote. *sigh*

From an earmark perspective, this one is worse than the last one. I wasn't happy at all about it. I hope this bill doesn't pass either to make a clear signal that the junk won't be tolerated, but I probably shouldn't hold my breath.

[flere-imsaho]

I think it'll pass because:

1. The stock market swings this week scared enough of the population into submission.

2. Everyone in the House wants to get back to the campaign trail.


It is very disappointing that a bill of this importance has to get bogged down with earmarks. That's shameful.

[GrantDawg]

I think it'll pass because:

1. The stock market swings this week scared enough of the population into submission.

2. Everyone in the House wants to get back to the campaign trail.


It is very disappointing that a bill of this importance has to get bogged down with earmarks. That's shameful.


It is likely to pass, but with even less Republican votes than before. Many democrats standing on the side last time will vote for it now. I know John Lewis has already said he'll vote for it this time, as well as most of the black caucus, because Obama is actively recruiting them to.

[SportsDino]

Excellent advice for people interested in investing in anything and you make a lot of great points. I'm not necessarily in favor of the bailout but like I've said, I'm less in favor of massive bank failures. Maybe I'm missing something but I do believe that these "toxic" mortgages are worth nothing or close to it and I don't know how the banks are going to survive with them on their books. Is it possible? The problem I see is who else is going to buy the stuff? No private investor is going to pay for them if they don't know what they're worth and the banks don't know what they're worth if anything and if they could untangle them then why would the banks want to sell the "good" parts of them and be stuck with nothing but the bad?


Well, to start, they don't have toxic mortgages, they have toxic derivatives, and those are becoming toxic because of default risk. A big part of that default risk is coming from the banks not doing the reasonable thing and reworking their network of mortgages, either because they do not own the base asset to rework it, they don't want to offend the holders of these toxic contracts, or they are just plain ignorant or set in their ways that they insist people pay a usury rate or default.

My thoughts on the matter are you go to the root of the bad bank statements, the actual mortgages that are about to default causing these contracts to go belly up... Repair those mortgages that can be repaired, and create a structure for disentangling the derivatives and restoring some proportion of value to those banks. We don't guess the market value of the toxic contracts, we make it a business to clean up the imaginary ties and claim some value on the contract (otherwise the contract is treated as worthless).

The reason I prefer this, is that it will establish some very clear equity in the program from the start... it cannot be undone by a stock market panic, because the government basically gets the mother of all bargin real estate deals. We still potentially lose a portion of the 750 billion investment, we still potentially have the ability to get all 750 billion repaid with interest, but we make the central actors in the drama operate out in the public eye, and don't give the gamblers who got us in the mess a new infusion of borrowed chips. I know that mindset too, some will get that money and try to chase their losses with the next big win, and they will bet wrong.

Problem with my plan, it does not have any big lobbyists pushing it. There are a lot of people with a lot of money who have a lot to gain from having all their bad decisions for the last 5-10 years erased, but keep all their good ones intact. If I was one of them and unethical I would push it too, and act like its the end of the world to sell it (unfortunately I'm middle class and ethical once in a while ;) ).

We don't necessarilly save the country by rewarding the banks bad behavior, I don't want banks to close, so maybe this means taking the contracts AND the mortgages off the books, and the banks get a net zero for the whole until it gets untangled (BTW that means that yes they need to give up some of the goodies along with the bad). Maybe we set up a short term liquidity fix with a FED bank as described earlier (although it would need a lot of controls to avoid inflation boom, it should handle day to day cash/credit conversion only, not loans)... Instead we are getting politicians saying "we must do this for the economy" while at the same time saying "I do not support this bill" since they think the double speak will help their election chances (like the honorably representitive of Georgia). All allusion to '1984' aside, its obvious the politicos are hedging their position in case this thing goes sour, which indicates that the stink is getting bad enough that even they are getting ready to bolt.

It'll pass, hopefully the world won't end, but don't be surprised when it doesn't magically get saved. Hedge your bets and don't get caught in the next bubble is all I can say.

[Mizzou B-ball fan]

From the looks of the early voting, looks like the Republicans will split down the middle on the new bill while the Democrats have switched to the 'Yea' side en masse.

[Gary Gorski]

The bill is passed - the financial world is saved!!!

Ok, not really. Hopefully this will at least give our country some time to look at how we got to this point and as so many congressional people promised in their speeches on the floor, to act to make sure that these types of problems do not happen again in the future.

It's also a relief to not look at the market and be watching the numbers to the down side go speeding through the roof. The market had a nice rally and the rally was sold as every talking head figured it would be. The next few months will surely be filled with ups and downs because at the end of the day here nothing is fixed. We do have a chance to fix it though and hopefully our leaders will not blow that opportunity. This bill was never a solution to the problem - hopefully it allows the credit markets to flow and lets things stabalize enough so we can solve the problems.

[CraigSca]

Yes, nothing a little pork couldn't solve!

[boberot]

Man, is it frustrating to hear of all the ancillary bullshit that got packed into this thing.

:mad:

[CraigSca]

My stocks are getting pooed on.

[Mustang]

The bill is passed - the financial world is saved!!!


And the wooden toy arrow market and racetracks and black lung disability and Puerto Rican Rum and bikers that commute...

Good god....

[Flasch186]

Like Gary said this should unsqueeze the credit market over the next few weeks and give the Fed and treausury time to plan their next move....which should be rate cuts I'd imagine.

[Huckleberry]

Nobody really has a choice at this point - its either this bailout happens and these institutions are saved and hopefully can begin to fix the massive mess they are in or the economy is in big trouble. As much as I hate the idea of bailing out the people who caused this mess I'd still prefer to have our economy functioning and not be thrown into the Great Depression II

Selfish short-sightedness is on the above side of the argument.

They are making a desperate attempt to stave off a problem. They have unwittingly made it incredibly likely that the coming crash will be many times worse than this one would have been.

But no worries. We hopefully won't be in a good bit of economic hurt in the short-term if they get lucky and this works. But our children will be in a hell of a lot more trouble long-term. Yea for us.

[SteveMax58]

Well...since this seems to be aimed at short-term (aka short-sighted) goals...hopefully this adds enough credit lending to get my damn house sold so I can get started with my new company. Ugh.

[Tekneek]

But no worries. We hopefully won't be in a good bit of economic hurt in the short-term if they get lucky and this works. But our children will be in a hell of a lot more trouble long-term. Yea for us.

If there is anything the current generation of industry/economic and government leaders are good at, it is passing the buck.

[CraigSca]

Interesting to see that on the majority the Republicans in the house voted against the bill while Democrats were for it.

[BishopMVP]

It's also a relief to not look at the market and be watching the numbers to the down side go speeding through the roof. The market had a nice rally and the rally was sold as every talking head figured it would be.Stocks up 300 when the bill was passed, down ~500 to -157 at days end. Don't count your chickens.
Like Gary said this should unsqueeze the credit market over the next few weeks and give the Fed and treausury time to plan their next move....which should be rate cuts I'd imagine.Rate cuts? More cheap credit? That's what led to the last bubble, exacerbated into this bubble when it wasn't allowed to properly deflate, and now we're going down the same path again? Christ, look at the current accounts deficit with respect to foreign trade. I'm one who has played this down in the past bacause I felt eventually it would swing the other way - and it did. The US dollar fell precipitously against world currencies and suddenly imports were becoming expensive and our exports were competitive. But now Congress is working on short-sighted 2 year timelines and won't let the cycle bottom out so we can have positive trade surpluses and begin to recover before Social Security and Medicare balloon in 7-10 years when the baby boomers begin retiring.

We're doomed. Dooooooooooomed I say!

[Tekneek]

Stocks up 300 when the bill was passed, down ~500 to -157 at days end. Don't count your chickens.

Indeed. It doesn't seem to add up so far.

[DanGarion]

Another email from Congressman John Campbell (48th district of CA).
Dear Mr. Schoonover:



You are one of many people who called, wrote, or e-mailed my office with questions or opinions about the Emergency Economic Stabilization Act of 2008. As you probably know, the bill was passed by both houses of Congress, signed by the president, and is now law. The vote in the Senate was 74-25 and included yes votes from a wide range of the political spectrum including both Senators Obama and McCain, both California Senators, and the most conservative member of the Senate, Tom Coburn (R-OK). It then passed the House by a vote of 263-171 which included yes votes from The Speaker, Majority Leader and Minority Leader.



As you may also know, I voted in favor of the bill and was a strong advocate of it. I hope you will take the time to read on so I can explain why I feel so strongly about this legislation.



First of all, if you are personally opposed to the bill it is probably because you are against a $700 billion bail out of Wall Street. You should be against that. I am too. But that media term for the bill is a complete mischaracterization of what the bill does. It will not cost $700 billion and it is not a bail out of anyone. Let me explain:



$700 Billion: This amount will not be spent. It is being invested in hard assets (mortgages secured by homes) which will have an expected cash flow in excess of the purchase price. So the taxpayers should get all their money back that way. But if that doesn't work, taxpayers will also get warrants (stock options) in the companies from which these assets are purchased. So, if those companies recover, taxpayers get part of profits. And if both of those don't get the whole $700 billion back, whoever is president in 5 years is required to submit to Congress a proposal to get any loss back from the companies who sold the government the assets. That's 3 different ways to be sure the taxpayer is made whole and maybe makes a profit. This bill may wind up costing less than one year's worth of earmarks.



Bail Out: The assets will be bought from companies at probably 30%-60% of what they paid just a year or two ago. If I offered to buy your house that you bought 2 years ago for half what you paid for it, would I be bailing you out? I don't think you would look at it that way. These companies will lose lots of money. Fine. They made an investment that went bad and they have to live with it. But they will not be bailed out. Many companies and a number of banks will still fail even with this bill. The purpose of the purchase is to cut out the cancer that is clogging the world's financial arteries so that credit and loans and cash can flow again. No one is being bailed out.



Wall Street: If we do nothing, expect to see many days on the stock market like Monday, September 29th when the stock market suffered its biggest one day point drop ever. That will devastate the retirement plans of millions of everyday people. All forms of credit have already dried up. If they dry up more, companies small and large will not be able to get standard short term loans to buy inventory and make payroll. That means lots of job losses and layoffs. And people with money market funds and bank accounts may not be able to get their money, even with FDIC Insurance because these entities have to sell a loan to get you cash. And no one is buying the loans.



Many different proposals were looked at and discussed. I was actually part of a working group appointed by the Republican Leader to develop an alternative plan, which, in fact, developed several provisions that were included in the final bill. Our goal was to develop a virtually cost-free plan to stabilize the global financial markets and save every American's savings and investments, not a bail out. I believe that the final bill meets these criteria. There is no guarantee that this bill will work. But I have not seen an alternate plan that I thought had a better chance to both work and pass both houses of Congress.



If the bill works, some banks will still fail and some companies will still not make it. But it will be far, far fewer than would have otherwise occurred. Some of you have asked me why a believer in free markets would support this bill. I have done so because I believe this is a solution to preserve free markets, not replace them. In some ways, this bill is more of a free market solution than other actions that have been taken. The government will not take over any companies here. Even the warrants will be non-voting. No one will be compelled to sell the government their assets if they don't want to. Even the "reverse auction" process of establishing pricing for the assets, where sellers submit bids to one buyer rather than the other way around, is a market based pricing method.



No one wanted this bill. No one wished for this crisis to occur. But it is here. This is a worldwide problem and not just an American one. And we had to act. My vote was carefully considered, but made without reservation. I applaud my colleagues, both Republican and Democrat, who joined me in doing so.



I appreciate the great honor you have given me by allowing me to represent you in the United States Congress.



I remain respectfully,



JOHN CAMPBELL

Member of Congress

[Tekneek]

Economist: Bailout Makes Little Economic Sense : NPR (http://www.npr.org/templates/story/story.php?storyId=95076180&ft=1&f=3)

Morning Edition, September 26, 2008 · One opponent to the $700 billion financial rescue plan is Allan Meltzer, a former Fed economist and a professor at Carnegie Mellon university in Pittsburgh, Pa.

Meltzer tells Steve Inskeep he's against the proposal because he thinks if Wall Street created the problem, then Wall Street should solve it.

[molson]

So these Congressman are seriously claiming that this isn't a "bailout" because they're paying less than what the assets were worth 2 years ago?

[st.cronin]

Interesting article on how the credit crunch is causing problems at the automakers:

Credit crisis sends auto sales plunging - Oct. 1, 2008 (http://money.cnn.com/2008/10/01/news/companies/autosales/index.htm?postversion=2008100120)

Good news disguised as bad. The auto industry is so incredibly backwards, and in dire need of being shook up.

[SteveMax58]

So these Congressman are seriously claiming that this isn't a "bailout" because they're paying less than what the assets were worth 2 years ago?

Yeah...thats the type of "details" you dont really hear about until after the fact. So...30-60% of the value from 2 years ago?? Shit...my house is only worth 60% of what it was 2 years ago.

I really dont think these people have any idea how deflated the assets these debts are tied to truly are. Sure...we'll sit on them and wait for them to increase in value.

I really hope I'm wrong...but how many times does the government miss obvious and glaring data that's in front of their faces...let alone actually having to dig a little.

[CraigSca]

Good news disguised as bad. The auto industry is so incredibly backwards, and in dire need of being shook up.

St. Cronin - how do you see the auto industry as incredibly backward?

[Huckleberry]

Indeed. It doesn't seem to add up so far.

http://market-ticker.denninger.net/uploads/dji.png

[st.cronin]

St. Cronin - how do you see the auto industry as incredibly backward?

The problems that I see are primarily in design and marketing/sales. On both ends the industry leaves huge amount of profit lying on the floor.

[CraigSca]

Ok - I'm more apt to blame the consumer, but that's me. The auto industry can't help being a few years behind, really.

[SirFozzie]

Detroit is completely trying to weasel out of the MPG guidelines.. I'd like to see a portion of any auto bailout mandating high MPG vehicles.

[DaddyTorgo]

Stocks up 300 when the bill was passed, down ~500 to -157 at days end. Don't count your chickens.


it's standard "buy on the rumor, sell on the news" behavior. nothing to worry about.

[Flasch186]

For investors we need a floor put in next week.

[Gary Gorski]

Selfish short-sightedness is on the above side of the argument.

They are making a desperate attempt to stave off a problem. They have unwittingly made it incredibly likely that the coming crash will be many times worse than this one would have been.

But no worries. We hopefully won't be in a good bit of economic hurt in the short-term if they get lucky and this works. But our children will be in a hell of a lot more trouble long-term. Yea for us.

Ok so you would prefer that the world economy falls apart now and be willing to raise your children in that kind of environment for the next decade or two as opposed to doing something now to stave off and then have a chance to fix the problem so that our financial system doesn't end up failing at any point. Do any of you people who say you're willing to take on a deep, deep recession or even depression have any idea what living through that might be like? I hardly think it would be such a noble idea when you, your family or friends are among the 20%+ unemployed during such a time. If not wanting to experience that is "selfish short-sightedness" then sign me up for that camp.

For the billionth time - this bailout doesn't fix anything. The market did exactly what everyone knew it would do upon the bill passing and I'm sure it will continue to be volatile in the coming weeks and months. What the bailout needs to do is free up credit and give our lawmakers time to consult with people who truly understand the economy and figure out how to fix the problems that still exist today. And you know what, maybe its a massive failure and we head for a deep recession/depression anyway. Spending up to $700 billion isn't going to hurt any more than things like Freddie/Fannie, AIG, whatever we've spent on the war, the $400+ billion that was borrowed at the Fed discount window this week alone...I'm just happy at least they made an attempt to do something to inspire some confidence in our financial system. Now we can't really do anything but sit back and hope it works.

[Mac Howard]

159,000 more people unemployed in one month, now 760,000 in the year, might well have something to do with the fall in the market.

[sterlingice]

159,000 more people unemployed in one month, now 760,000 in the year, might well have something to do with the fall in the market.

I don't think that's quite how it works. Companies aren't doing well so they have to lay off people, similarly their stock prices go down. Stock prices don't have a causal effect on employment for the most part.

SI

[Mac Howard]

I don't think that's quite how it works. Companies aren't doing well so they have to lay off people, similarly their stock prices go down. Stock prices don't have a causal effect on employment for the most part.

SI

Unemployment has a causal effect on the stock market - it illustrates that the economy is on a downward path and profits will follow so investors sell the stocks.

It's the worst figure for 5 years and released on the same day as the vote. The vote initially caused a rise on Wall St but then the unemployment figures took over and forced the stocks down. It's particularly bad because it's across all areas of the economy bar one.

You guys will love this one: the exception is government :)

[Mac Howard]

So these Congressman are seriously claiming that this isn't a "bailout" because they're paying less than what the assets were worth 2 years ago?

No.

The term "bailout" was one used by the press not congress but it stuck. The press today understands that bad news sells and tends to report news with, at best, a bad spin. Also the press doesn't like to insult it's readers and so didn't want to present the problem as something they had some responsibility for. While the banks should not have lent money to those who couldn't make the repayments those who took out the loans are also responsible. They were aware they wouldn't be able to keep up the payments (the banks figured they could repossess and sell the house and recover their money - but they didn't figure on a house price downturn that meant the houses were worth less than the mortgage).

By calling it a "bailout" the press reported it as all the fault of the banks and not the individuals - their readers.

But it isn't just a bailout to banks, it's a rescue of a failing economy. You may have noticed banks, insurance companies, financial institutions going broke - big ones: AIG, Merryl Lynch, Lehman Brothers. Each time a bank goes bust other banks pick up further bad loans (in addition to any of the "toxic packages" they may have).

It snowballs, one bank's failure triggering another - on and on down further into recession and maybe depression.

Stopping it is like stopping a boulder rolling down a hill. When it's at the top and rolling slowly you can stop it but once it gets going it won't stop till it hits the bottom.

That's why this bill had to be done quickly even if it wasn't the best possible bill. That's why Gingrich backed it even though he thought it was a bad bill and railed against it a week earlier - the economy is so close to that tipping point it had become essential to act immediately.

And the unemployment figures illustrate that that tipping point is close. Unemployment indicates a failing economy. In the first 8 months of this year there were 600,000 lost jobs. So approximately 80,000 a month. It had gently accelerated to 105,000 in August. They were expecting 110,000.

It turned out to 159,000 - a 50% increase over expectations. In other words a big acceleration of the downturn. The boulder is beginning to accelerate down the hill.

So the "bailout" is in fact not the whole truth - it only refers to the banks. But in truth it's the economy that needs rescuing not just the banks. And with the economy the American people - their jobs, their savings in stocks, their pension schemes etc.

Just to put a number on that last. I was watching a financial advisor on tv after the Monday stock market fall. They pointed out that a pension scheme that had been worth $500,000 three weeks ago was now only worth $350,000.

In other words, some poor bugger who's been putting money into his pension plan all his life has just seen his retirement saving slashed by $150,000.

It's to avoid that sort of thing continuing to happen the "bailout" was necessary.

It may not work. It may be too late. It may be that the momentum of the recession is now too great to reverse. Let's hope not for all our sakes.

[Tekneek]

Do any of you people who say you're willing to take on a deep, deep recession or even depression have any idea what living through that might be like? I hardly think it would be such a noble idea when you, your family or friends are among the 20%+ unemployed during such a time. If not wanting to experience that is "selfish short-sightedness" then sign me up for that camp.

Not to get all survivalist here, but we have property off the beaten path a bit where we could self-sustain for many years if we had to. I'm not too worried about a bunch of greedy Wall St bastards ruining things. Those of you stuck in the big cities might have a rough go for a while, but those of us with the means to get off the grid could end up doing just fine with a simpler life for a while.

Whether that survival plan has to be put into operation or not, just about everything that has been fed to us via FUD (fear, uncertainty, and doubt) during this administration has ended up being a bad idea that many had regrets about. So, given that track record, I'll take my chances with the free market over another FUD-driven government response to a problem.

I was in favor of some sort of 'bailout' scheme that brought the money to individuals on Main Street, or put caps in place to stop the madness on Wall Street (mainly the top dogs running off with all the money and leaving everyone else with the problems). Absent of that, they can all just go fuck themselves. Every time that a manufacturing plant closed here and the work went to Mexico, or somewhere in South America, we heard lots of talk about the 'free market', 'free enterprise', and all that jazz. It's well and good to hold those ideals when times are good, or when it is good for big business to say such things. It takes real belief in that as an economic system to stand by it when times are bad, and when big business is in a death spiral. Anybody who voted for, or supported at all, this bailout scheme has surrendered their right to use the 'free market' argument from this day forward. They demonstrated, when times were tough, that they really preferred a different approach. The real test of bravery is not when everything is wonderful and the roses are in full bloom. It's when you don't know what tomorrow brings, but are willing to stand by your principles nonetheless.

[Edward64]

Past 2 weeks has been a roller coaster, so much has happened. For a recap of what we've been going through, check out the 20 days of pain ...

The crisis: A timeline - Sunday, Sept. 14 - Trouble brews (1) - CNNMoney.com (http://money.cnn.com/galleries/2008/news/0809/gallery.week_that_broke_wall_street/index.html)

[Tekneek]

In other words, some poor bugger who's been putting money into his pension plan all his life has just seen his retirement saving slashed by $150,000.

It's to avoid that sort of thing continuing to happen the "bailout" was necessary.

Sure, this constitutes an emergency situation because the government/big business has sold the 401k, IRA, etc, as vastly superior and reliable retirement offerings than the pensions of the past. When that system comes tumbling down, driven by the very financial institutions at the heart of the system, it will be a very hard sell. Imagine if people had bought the idea that even "Social Security" was to be put into this system. They might be worse off with it right now than they are with the current system.

[Edward64]

Ok so you would prefer that the world economy falls apart now and be willing to raise your children in that kind of environment for the next decade or two as opposed to doing something now to stave off and then have a chance to fix the problem so that our financial system doesn't end up failing at any point. Do any of you people who say you're willing to take on a deep, deep recession or even depression have any idea what living through that might be like? I hardly think it would be such a noble idea when you, your family or friends are among the 20%+ unemployed during such a time. If not wanting to experience that is "selfish short-sightedness" then sign me up for that camp.

I agree with this. Better to try do something now. I suspect it would not just be a depression but a global depression.

[boberot]

It's just disgusting that Congress couldn't even restrain itself when it came to this bill, which is under the greatest of scrutiny -- "sweetened" with all kinds of giveaways. Even our new "agents of change" didn't raise a fuss. Hard to believe they're going to come in and "put the people's interest ahead of special interests."

Beyond that, it's discouraging to see Congressional watch groups BEGGING our lawmakers to take at least 72 hours to actually read the bill. They had an online petition, but it was obviously all for naught.

Why bother taking the time to actually read a $700B "Troubled Asset Relief Program?" I know, what a naive question.

[Edward64]

Not to get all survivalist here, but we have property off the beaten path a bit where we could self-sustain for many years if we had to. I'm not too worried about a bunch of greedy Wall St bastards ruining things. Those of you stuck in the big cities might have a rough go for a while, but those of us with the means to get off the grid could end up doing just fine with a simpler life for a while.

Somewhat a tangent, but am interested in this (enjoy post acopolytic novels). Could you detail your setup? It would imply some farm land, fresh water, electric generator?

[Tekneek]

Beyond that, it's discouraging to see Congressional watch groups BEGGING our lawmakers to take at least 72 hours to actually read the bill. They had an online petition, but it was obviously all for naught.

Why bother taking the time to actually read a $700B "Troubled Asset Relief Program?" I know, what a naive question.

Didn't we (and them) learn anything from the way the PATRIOT Act went down? Apparently not. The Executive Branch runs to you with a truckload of FUD, and we're left to learn about, and deal with, the (supposedly) unintended consequences.

[Tekneek]

Somewhat a tangent, but am interested in this (enjoy post acopolytic novels). Could you detail your setup? It would imply some farm land, fresh water, electric generator?

Not in an open thread. Perhaps via PM...

[JonInMiddleGA]

I don't think that's quite how it works. Companies aren't doing well so they have to lay off people, similarly their stock prices go down. Stock prices don't have a causal effect on employment for the most part.

As much as I don't like the feeling, this is a case where I find myself more in agreement with Mac.

I'm personally familiar with several instances in the past few years where there was a pretty direct relationship between RIF's and stock price. The indirect element in each case was that no one said "we have to cut personnel because the stock price is down" but rather "we've got to do something to make investors happier, let's cut expenses" and in each case the first place cut was labor cost - without hesitation and without much thought to anything else. IMO that's sort of "indirectly direct" to coin a phrase.

[molson]

For the billionth time - this bailout doesn't fix anything. The market did exactly what everyone knew it would do upon the bill passing and I'm sure it will continue to be volatile in the coming weeks and months. What the bailout needs to do is free up credit and give our lawmakers time to consult with people who truly understand the economy and figure out how to fix the problems that still exist today.

For the billionth time, you're STILL obsessed with this assumption that this makes things better and not worse. That's an opinion and it's fine, but don't you see that we DON'T AGREE WITH THAT...

The arrogance of the supporters are still here, especially when you say things like "Do any of you people who say you're willing to take on a deep, deep recession or even depression have any idea what living through that might be like?"...YES AND THAT'S WHY WE'RE AGAINST THIS, BECAUSE WE BELIEVE THE FALL BE WILL BE GREATER WITH THIS BILL THAN WITHOUT IT.

You can disagree and that's fine, but don't assume that anyone who has concerns about just don't give a shit what happens to economy, it's insulting. I've glad you've stopped the whole "anyone against this doesn't care about people" angle but this isn't much better.

[molson]

No.


Did you miss the quotes from the two Congressman?

"The assets will be bought from companies at probably 30%-60% of what they paid just a year or two ago. If I offered to buy your house that you bought 2 years ago for half what you paid for it, would I be bailing you out? I don't think you would look at it that way."

When you buy shit that nobody else will buy, at a cost it's not worth, it's a bailout, I don't care how it's spun.

The Congressman is clearly trying to make the case that it's not a bailout because they're paying less than what something is worth TWO YEARS ago, which is just dumb.

I agree that it's not merely a bailout of the banks, but I don't think anyone really thinks that. Your debut in this thread was to helpfully explain to us all that the intention of this bill was to bail-out the whole economy. We get that. Still do. Doesn't make it a good idea. I'd be against a massive bailout of individual regular mortgage lenders as well. They SHOULD lose their houses, and rent if they can't afford ownership (like some of us have been doing all along). They SHOULD lose their privileges for easy credit and home ownership in the future, that's how the system works. And yes, I realize their (and the banks') stupidity effects us all. But artificially propping them, and all of us, does us no good in the long run.

[Flasch186]

German bank announces collapse of 35 billion euro rescue - Yahoo! News (http://news.yahoo.com/s/afp/20081004/ts_afp/usfinancebankinggermanyhypo)

And I am glad to see that Molson is for a redistribution of wealth model and that is not meant with any sarcasm at all. When taxes are proposed to go up on those who can afford to weather an increase in taxes so that the average standard of living in this country isnt dipping below an acceptable threshold, he will be supportive of such a measure. Im on board with you in that regard.

[Karlifornia]

Not in an open thread. Perhaps via PM...

LOL who the hell is this guy? David Koresh? Oh, and...

GET OFF MAH LAND!!!!

[Tekneek]

LOL who the hell is this guy? David Koresh? Oh, and...

GET OFF MAH LAND!!!!

Nope. Just somebody whose plan for a total collapse of the economy involves more than begging the government to spend hundreds of billions of dollars to only pass the buck to a future generation.

[Gary Gorski]

For the billionth time, you're STILL obsessed with this assumption that this makes things better and not worse. That's an opinion and it's fine, but don't you see that we DON'T AGREE WITH THAT...

The arrogance of the supporters are still here, especially when you say things like "Do any of you people who say you're willing to take on a deep, deep recession or even depression have any idea what living through that might be like?"...YES AND THAT'S WHY WE'RE AGAINST THIS, BECAUSE WE BELIEVE THE FALL BE WILL BE GREATER WITH THIS BILL THAN WITHOUT IT.

You can disagree and that's fine, but don't assume that anyone who has concerns about just don't give a shit what happens to economy, it's insulting. I've glad you've stopped the whole "anyone against this doesn't care about people" angle but this isn't much better.

Ok do me a favor and lay out for me what you see happening if the bill does make things worse and what you felt would have happened had the bill not been passed.

[CraigSca]

Ok do me a favor and lay out for me what you see happening if the bill does make things worse and what you felt would have happened had the bill not been passed.


That's easy - the banks, financial institutions continue to collapse due to a lack of credit movement, except now the currency is diluted and national debt is increased by $700 billion.

[Tekneek]

...except now the currency is diluted and national debt is increased by $700 billion.

Plus interest, as tax revenues continue to drop that will only be a bigger problem.

[Mac Howard]

Did you miss the quotes from the two Congressman?

"The assets will be bought from companies at probably 30%-60% of what they paid just a year or two ago. If I offered to buy your house that you bought 2 years ago for half what you paid for it, would I be bailing you out? I don't think you would look at it that way."

When you buy shit that nobody else will buy, at a cost it's not worth, it's a bailout, I don't care how it's spun.

It was probably silly to put numbers to it because no one knows the intrinsic value of these assets but they're not "shit" - many of these mortgages at the base of the packages are alive and well, others that have defaulted are still worth the value of the house even if it is below the money borrowed. It's because they have a high risk potential that they have little appeal to traditional financial institutions and therefore little market value - what someone will pay.

The Congressman is clearly trying to make the case that it's not a bailout because they're paying less than what something is worth TWO YEARS ago, which is just dumb.

He's illustrating the idea that they're being bought at a knockdown price in a way that people can understand. Perhaps it's clumsy but the idea he's expressing is sound.

I agree that it's not merely a bailout of the banks, but I don't think anyone really thinks that.

I'm very much in agreement with that. If you think that the part you said I "don't get" is that most Americans believe it is a bailout of the banks then let me disabuse you of that. I understand fully that the vast majority of Americans are not impressed at all by these arguments.

Your debut in this thread was to helpfully explain to us all that the intention of this bill was to bail-out the whole economy. We get that. Still do. Doesn't make it a good idea. I'd be against a massive bailout of individual regular mortgage lenders as well. They SHOULD lose their houses, and rent if they can't afford ownership (like some of us have been doing all along). They SHOULD lose their privileges for easy credit and home ownership in the future, that's how the system works. And yes, I realize their (and the banks') stupidity effects us all. But artificially propping them, and all of us, does us no good in the long run.

That would be cutting off your nose to spite your face. The cost to the average American (and citizens of the world, which is why I'm so interested) would be enormous. The acceleration of the unemployment numbers, the 35% drop in Ford sales in just one month (not the stuff of recessions but the stuff of depressions) indicate that the recession is accelerating. Failing banks are not like failing companies that have only limited affect on others. When a large bank fails millions of companies are hit. They can't get the money to pay their workers, they can't restock on materials, they can't maintain their equipment and so on. That's the current "credit crunch".

The whole thing spirals down.

By taking these "toxic assets" off the balance sheets of the financial institutions they stand a better chance of survival and the economy a better chance of avoiding a much deeper recession. Credit is restored and businesses start functioning again.

Punishing those who have caused this will come from the much greater supervision and regulation of their activities which has to follow this. The "free market" ideologues will oppose it -the truth is the only thing 'free" about free markets is the freedom of individuals to manipulate the markets to their own ends. Only governments are prevented from interfering but commercial interests are not. It's a self-serving philosophy from the top end of town. The increased oversight and regulation must occur.

Fortunately even McCain realises this (despite his previous belief in deregulation) and the next President, whoever it is, will hopefully institute significant changes even if they're not done before.

It may not be very satisfying to see the perpetrators not more deservedly "punished" but there is considerable danger in this.


You may have noticed that most recessions - the dot com crash for example - don't involve this sort of intervention. That's because banks are not involved - the market corrects itself without too much pain.

But when banks are involved it's a different matter. The last time banks went belly up was 1929. The reaction then was precisely what you are asking for - punish those who brought it about. The perpetrators were certainly punished but so was everyone else. Unfortunately this brought about the greatest crash in modern economic societies outside of the two world wars. There was absolute misery for all for 4 years. Unbelievable misery! And in the end it was government spending - Roosevelt's New Deal - that brought America and the rest of the world out of the economic dark ages and back to growth.

The danger now is that that could be repeated.

It won't of course, because we now know far more than then and what we do know is that only government can make available the funds needed to avoid this situation. And that it is best done early because far more will be needed if it's delayed.

That's why it became so necessary to pass the bill even though it was not necessarily what anyone wanted. Delay would have been worse than the flaws in the bill.

We now wait to see if it's enough and early enough. There's no guarantee it is.

[gkb]

And in the end it was government spending - Roosevelt's New Deal - that brought America and the rest of the world out of the economic dark ages and back to growth.

I think a lot of people believe that it was the war that actually brought America out of the depression.

[Mac Howard]

I think a lot of people believe that it was the war that actually brought America out of the depression.

If you'd still been in a depression by 1941 you'd have never been able to get into the war.

My understanding is that the depression was brought to an end (the beginning of the recovery) in 1933 with with the New Deal but others may correct me on that (I'm an Australian and this is American history ;) .

Wiki:

The New Deal was the name that United States President Franklin D. Roosevelt gave to a sequence of programs he initiated between 1933 and 1938 with the goal of giving work (relief) to the unemployed, reform of business and financial practices, and recovery of the economy during The Great Depression.

The "First New Deal" of 1933 was aimed at short-term recovery programs for all groups. The Roosevelt administration promoted or implemented banking reform laws, emergency relief programs, work relief programs, agricultural programs, and industrial reform (the NRA), as well as the end of the gold standard and prohibition.

[gkb]

If you'd still been in a depression by 1941 you'd have never been able to get into the war.

My understanding is that the depression was brought to an end (the beginning of the recovery) in 1933 with with the New Deal but others may correct me on that (I'm an Australian and this is American history ;) .



I'm not super knowledgeable about ... well, about anything. :) I don't know what actually brought us out of The Great Depression, but I've heard people argue that it was the war and other people argue that it was the New Deal.

Also from Wikipedia:

The Great Depression was a worldwide economic downturn starting in most places in 1929 and ending at different times in the 1930s or early 1940s for different countries. It was the largest and most important economic depression in modern history, and is used in the 21st century as a benchmark on how far the world's economy can fall. The Great Depression originated in the United States; historians most often use as a starting date the stock market crash on October 29, 1929, known as Black Tuesday. The end of the depression in the U.S. is associated with the onset of the war economy of World War II, beginning around 1939.

[molson]

Ok do me a favor and lay out for me what you see happening if the bill does make things worse and what you felt would have happened had the bill not been passed.

My big fear is the devaluation of our currency, inflation, and infinite economic stagnation surrounded by deeper and deeper recessions. If my view, a recession is a 100% certainty, and this kind of stuff just drags it out longer, at a great expense which adds to the economic collapse even more.

If the bill hadn't been passed (and this overall policy of bad-market appeasement continues), I'd expect a much briefer (though harsh) recession, a total correction of the housing/credit market and then sharp recovery.

As briefly as I can put it...And like I said, that's just an opinion, I certainly wouldn't bet on anything, and there's plenty of people much smarter than me that are on both sides of this, so my opinion is pretty much worthless. And the bill isn't the the end of anything - like Iraq, now that it's done, how things actually play out is the important thing. To me though, it seemed very much like we're barreling towards a disaster when I hear people willing to support ANYTHING. When the flaws are pointed out, it's "well, that's all we have". The supporters of this can't even acknowledge the possibility that Congress could in any way do ANYTHING to make this worse - if our Congress was doing it, it MUST be OK. It's a dangerous state of affairs.

[Mac Howard]

My big fear is the devaluation of our currency, inflation, and infinite economic stagnation surrounded by deeper and deeper recessions. If my view, a recession is a 100% certainty, and this kind of stuff just drags it out longer, at a great expense which adds to the economic collapse even more.

If the bill hadn't been passed (and this overall policy of bad-market appeasement continues), I'd expect a much briefer (though harsh) recession, a total correction of the housing/credit market and then sharp recovery.

As briefly as I can put it...And like I said, that's just an opinion, I certainly wouldn't bet on anything, and there's plenty of people much smarter than me that are on both sides of this, so my opinion is pretty much worthless. And the bill isn't the the end of anything - like Iraq, now that it's done, how things actually play out is the important thing. To me though, it seemed very much like we're barreling towards a disaster when I hear people willing to support ANYTHING. When the flaws are pointed out, it's "well, that's all we have". The supporters of this can't even acknowledge the possibility that Congress could in any way do ANYTHING to make this worse - if our Congress was doing it, it MUST be OK. It's a dangerous state of affairs.

It's not anything it's anything that takes these assets out of the banks' balance sheets. That's probably an overstatement but whatever is done it must prevent these "toxic assets" from driving down the credit market.

What you may not be aware of is that world banks have been pouring money into the credit market for around 14 months now without affect. On the 18th September world banks poured $180 billion into the international credit markets, I read today that the Australian fed has introduced $11 billion (that's equivalent to nearly $200 billion by American standards) into the Australian banking system to replace the money they can't get from the international credit system.

So this is not the first attempt to solve the problem. But pumping money into the system - similar to the House Republican's suggestion of a loan - simply hasn't worked. The problem is that the banks are frozen like rabbits in the headlights because they're afraid to do business with other banks because of these "toxic assets". There is a complete lack of trust between banks that is freezng up the system. I understand there isn't even a shortage of money - just a shortage of willingness to trade.

Any solution simply has to take these things out of the system to bring confidence back to the market. Only government is big enough to absorb these - all private entities would fold under the weight.

I think you'll find there are very few people who argue this action will worsen the situation outside of "free market" ideologues who, like left wing ideologues who denied that the collapse of the Soviet Union was caused by socialism, are desperate to convince themselves that their ideology could not be the cause of this. That is the nature of ideology - its supporters are always the last to recognise the flaws.

I think you'll find most commentators would agree that reduced supervision and regulation, which is what these argue for, would be pouring petrol on the fire. It comes out of this idea that leaving market forces to themselves will fix anything. As I said early on that's like allowing the bubonic plague to run its course because in the end it will reduce the population down to a level where the plague is no longer sustained and everything will be ok again. Economic recession/depression is the market's solution to this sort of problem.

Natural forces, including market forces, are not always benign to humanity and sometimes we have to oppose them. In this case it means regulating the financial system so that some humans can't manipulate the markets for their own gain or amusement.

[CraigSca]

I'm not super knowledgeable about ... well, about anything. :) I don't know what actually brought us out of The Great Depression, but I've heard people argue that it was the war and other people argue that it was the New Deal.

Also from Wikipedia:

It's my understanding it was the war and the massive amounts of weaponry the US sold to the rest of the world.

[CraigSca]

What gets me is the House. First, the bailout isn't good enough, but once pork is added, those chosen few say, "now this is something I can get behind!" So, preventing a worldwide economic collapse isn't enough to get them to vote, but once $192m for rum producers in the Virgin Islands is added that bill is "A-OK!"

Disgraceful.

[Flasch186]

leaving out some important stuff that was added too but I get it that that wouldnt help prop up the anti-argument.

AMT extension
FDIC elevation

[CraigSca]

But would it have passed without the pork? That's the point. If it's really so important couldn't congress have decided enough is enough and actually do something for the country as opposed to their own backyard? Nope, not even when it comes to Armageddon, 2nd Great Depression, End of the World as We Know It, etc.

It's pathetic.

[CraigSca]

leaving out some important stuff that was added too but I get it that that wouldnt help prop up the anti-argument.

AMT extension
FDIC elevation


And oddly, doesn't that only help the rich? Correct me if I'm wrong. I thought this was all about Mr. Main Street.

[molson]

And oddly, doesn't that only help the rich? Correct me if I'm wrong. I thought this was all about Mr. Main Street.

In terms of taxes generally, liberals don't believe in any kind of trickle down theory, but here, it apparently suddenly makes sense to them.

[flere-imsaho]

like left wing ideologues who denied that the collapse of the Soviet Union was caused by socialism

I can't resist....

Socialism did not cause the collapse of the Soviet Union. The development of a totalitarian plutocracy who didn't understand economics or, more specifically, economic sustainability very well, caused the collapse of the Soviet Union.

[Passacaglia]

I can't resist....

Socialism did not cause the collapse of the Soviet Union. The development of a totalitarian plutocracy who didn't understand economics or, more specifically, economic sustainability very well, caused the collapse of the Soviet Union.

I can't resist either...

I thought that's what socialism was? :cool:

[flere-imsaho]

Oh snap!

[molson]

I can't resist....

Socialism did not cause the collapse of the Soviet Union. The development of a totalitarian plutocracy who didn't understand economics or, more specifically, economic sustainability very well, caused the collapse of the Soviet Union.

If you take the power away from the people (Socialism) - where do you suppose it goes?

Apparently, you have a lot more confidence in our Congresspeople.

[flere-imsaho]

If you take the power away from the people (Socialism) - where do you suppose it goes?

Apparently, you have a lot more confidence in our Congresspeople.

Where did this come from? I've been against this bailout bill.

[Mac Howard]

I can't resist....

Socialism did not cause the collapse of the Soviet Union. The development of a totalitarian plutocracy who didn't understand economics or, more specifically, economic sustainability very well, caused the collapse of the Soviet Union.

As I said ....... ideologues are the last to recognise the failure of the ideology ;)

[Flasch186]

Europeans scramble to save failing banks - Yahoo! News (http://news.yahoo.com/s/ap/20081005/ap_on_re_eu/eu_europe_meltdown)

Europeans scramble to save failing banks

By MATT MOORE, AP Business Writer 55 minutes ago

STOCKHOLM, Sweden - Germany joined Ireland and Greece on Sunday in guaranteeing all private savings accounts, putting Europe's biggest economy at odds with calls for a unified European response to the global financial meltdown.
ADVERTISEMENT

The decision came as governments across Europe scrambled to save failing banks, working largely on their own a day after leaders of the continent's four biggest economies called for tighter regulation and a coordinated response.

Chancellor Angela Merkel said that no citizen should fear for the safety of their investments, speaking to reporters as her government held crisis talks on the collapse of a ballyhooed euro35 billion (US$48.4 billion) bailout of Hypo Real Estate AG, the country's second- biggest property lender.

In Iceland — particularly hard-hit by the credit crunch — government officials and banking chiefs were discussing a possible rescue plan for the country's overstretched commercial banks.

Belgian Prime Minister Yves Leterme said he aims to find a new owner for troubled bank Fortis NV to restore confidence in the company before the opening of markets on Monday.

Leterme told two media outlets that government officials were going over a takeover bid for Fortis' Belgian operations. The bank's Dutch operations were nationalized amid fears they could go insolvent.

British treasury chief Alistair Darling said that he was ready to take "pretty big steps that we wouldn't take in ordinary times" to help the country in weather the credit crunch.

In the past year the government has acted to nationalize struggling mortgage lenders Northern Rock and Bradford & Bingley.

"The European banking industry is feeling the wind of default blowing from the other side of the Atlantic," said Axel Pierron, senior vice president at Celent, a Boston, Massachusetts-based financial research and consulting firm.

The erosion has also been seen in overall confidence and concern among investors, politicians and the European public, too.

The leaders of Germany, France, Britain and Italy met Saturday to discuss the growing meltdown which has leapfrogged across the Atlantic from the U.S. to Europe, but shied away from the massive US$700 billion (euro506 billion) bailout passed by the U.S. Congress a day earlier that President Bush signed into law.

Their failure to agree an EU-wide plan showcased the divisions in Europe on how to deal with the crisis.

France had suggested a multibillion-euro (multibillion-dollar) EU-wide government bailout plan, but backed off after Germany said banks must find their own way out.

Hypo Real Estate said Saturday that the rescue plan had fallen apart after private lenders withdrew support, a key element to the proposal that had already been approved by the EU earlier this week.

Icelandic banks expanded rapidly after deregulation of the domestic financial market in the 1990s and now have combined foreign liabilities in excess of euro100 billion (US$138.34 billion) — dwarfing the tiny country's gross domestic product of euro14 billion (US$19.37 billion.

The government last week took over Iceland's third-largest bank, Glitnir, a decision that prompted major credit ratings agencies to downgrade both Iceland's four major banks and its government credit rating.

Looming large was a growing sense that the Federal Reserve and Europe's major central banks — which have been flooding euros and dollars to banks that have become increasingly stingy about lending money even to themselves — were ready to institute emergency cuts to their benchmark interest rates this week.

None of the banks, including the European Central Bank and Bank of England, have commented on potential rate hikes or cuts. But analysts believe the Bank of England, which meets this Thursday, will likely lower its rate from 5 percent. The ECB left its rate unchanged at 4.25 percent on Thursday, but opened the door to a rate cut.

Robert Brusca, chief economist at the New York-based Fact and Opinion Economics, said that the ECB does issue such a cut it would a be a sign "that they're really, really scared."

[sterlingice]

In terms of taxes generally, liberals don't believe in any kind of trickle down theory, but here, it apparently suddenly makes sense to them.

Uh, let's be honest here. No liberals were excited about adding the AMT changes but the GOP needed that pork so they would vote for it.

SI

[Buccaneer]

Did I read this right? A judge has blocked the Wells Fargo/Wachovia deal? WF would buy all of Wachovia without FDIC assistance, while Citi would require FDIC (and hence, using up to $42b of the bailout) just to buy part of Wachovia. Wouldn't the former be much better than the latter, since WF is on much firmer ground than Citi?

[Flasch186]

Its only a matter of contracts, so either they'll have to pay some sort of seperation fee or after looking at the contracts they'll be allowed to move with WF.

[Mac Howard]

Europeans scramble to save failing banks - Yahoo! News (http://news.yahoo.com/s/ap/20081005/ap_on_re_eu/eu_europe_meltdown)

It will be a long, long time before the antagonisms of the past are forgotten in Europe and they can act in concert.

There's an interesting article here - a potted history of capitalism, it's booms and busts and the oscillation between free market and Keynesian economics. It's very readable:

http://www.guardian.co.uk/business/2008/oct/05/creditcrunch.marketturmoil1

[Marc Vaughan]

Did I read this right? A judge has blocked the Wells Fargo/Wachovia deal? WF would buy all of Wachovia without FDIC assistance, while Citi would require FDIC (and hence, using up to $42b of the bailout) just to buy part of Wachovia. Wouldn't the former be much better than the latter, since WF is on much firmer ground than Citi?

To me this whole Wachovia/Wells deal has shown just how undervalued the forced sales by the FDIC have been (ie. the break up of WaMu, Bears etc.).

Especially with the case of WaMu imho in which alledgedly the executives of the bank in question weren't even aware that their company was being broken up and were busy negotiating their own deals when suddenly informed it'd all been done without them ...

[Tekneek]

FDIC should back off since Wells Fargo is presenting a free market/private solution that doesn't dip into taxpayer/government funds at all. Hank Paulsen should then inform Citi that they won't get a penny of the 'bailout fund' if they pursue this matter for one more second. If those two things do not happen, they've blown their first post-bailout approval opportunity to show they have a clue.

[Buccaneer]

Federal government solutions have to go looking for answers to questions, else how are they going to claim the justifications for doing things?

[Tekneek]

To me this whole Wachovia/Wells deal has shown just how undervalued the forced sales by the FDIC have been (ie. the break up of WaMu, Bears etc.).

And despite screwing this up, the government will surely handle this $700 billion bailout/buy-in much better and save us all...

[Marc Vaughan]

And despite screwing this up, the government will surely handle this $700 billion bailout/buy-in much better and save us all...

To be quite honest I don't think anyone knows accurately how this will pan out with the bail out - however most people agree things without it are going to get very hairy.

As such I see the bailout as a definite 'history in the making' moment - for good or bad I don't think we'll know until we've lived through it.

[Flasch186]

read the history of the great depression today and the similarities are striking and scary.

[CraigSca]

Uh, let's be honest here. No liberals were excited about adding the AMT changes but the GOP needed that pork so they would vote for it.

SI

And yet, Republicans voting against still outnumbered those voting "for".

[SteveMax58]

Uh, let's be honest here. No liberals were excited about adding the AMT changes but the GOP needed that pork so they would vote for it.

SI

I think it was "intended" to coax some GOP members into voting for it...but since we have no transparency into who adds what to a bill...we can only speculate.

The reverse argument might be that pro-bill Democrats & Republicans realized more House Repubs would need to be catered to in order to vote for this turkey. It certainly doesnt make anybody feel any better to argue that point...but it is a bi-partisan BS tactic that has, and will continue to, go on until these same corrupt people vote themselves into transparency. Utterly sickening how the whole process continues to move on while we (i.e. the genral public) continue to be brought into partisan food fights to distract from the real problem...corruption.

[NoMyths]

To be quite honest I don't think anyone knows accurately how this will pan out with the bail out - however most people agree things without it are going to get very hairy.

As such I see the bailout as a definite 'history in the making' moment - for good or bad I don't think we'll know until we've lived through it.

I'm with you. What worries me is the idea that we sign a check and the problem disappears, which seems very unlikely. Action was clearly necessary, but it remains to be seen how much of an effect that action will have.

[Gary Gorski]

I'm with you. What worries me is the idea that we sign a check and the problem disappears, which seems very unlikely. Action was clearly necessary, but it remains to be seen how much of an effect that action will have.

I don't think anyone is under the impression that the problem was going to disappear by signing a check. The problems do not just exist here - they're worldwide and its going to take time to work out of them. The 700b check just needs to free up the credit market so that things don't have to grind to a halt in order to work on fixing the problems.

[bob]

Dow is below 10k.

[NoMyths]

I don't think anyone is under the impression that the problem was going to disappear by signing a check. The problems do not just exist here - they're worldwide and its going to take time to work out of them. The 700b check just needs to free up the credit market so that things don't have to grind to a halt in order to work on fixing the problems.

I think you and I agree on the main point, but I'd disagree about the 'problem-solving check' -- I'm certain that plenty of Americans believe that now they've heard the bailout is going to happen that they can go back to watching TV and the crisis won't be a concern any longer. Long attention spans haven't been a hallmark of our national character lately.

[molson]

I don't think anyone is under the impression that the problem was going to disappear by signing a check. The problems do not just exist here - they're worldwide and its going to take time to work out of them. The 700b check just needs to free up the credit market so that things don't have to grind to a halt in order to work on fixing the problems.

Has Congress started fixing everything yet :)

What do you think they should do? I mean, if the problem is that the housing/credit market can't sustain itself without federal intervention, how exactly to you tear the whole thing down to sustainable levels WHILE you're propping it up? Or is it possible to just indefinitely keep it propped up?

I don't remember if I've heard you say if you think that a housing/credit collapse is inevitable.

[Mac Howard]

There is a question as to whether the bailout/rescue package is too late with banks already crashing and the unemployment figures indicating an increase in the speed at which the economy is tanking. I don't think it's ever been believed that the package will avoid a recession but that it will hopefully restrict it to a level that can be tolerated.

It's no longer just the toxic packages - banks crashing is a problem in itself and reinforcing the downturn.

[flere-imsaho]

Wait, so we passed the $700 Blank Check Bill and now its supporters are telling us they aren't sure if it's going to work or not?

Awesome.

[Mac Howard]

Wait, so we passed the $700 Blank Check Bill and now its supporters are telling us they aren't sure if it's going to work or not?

Awesome.

If you hadn't buried your head in the sand you would have heard all along that the bailout would not prevent a recession but hopefully prevent the situation becoming far worse that that - a much deeper, longer recession or even a depression. For all intents and purposes you've been in a recession for some time now.

[molson]

There is a question as to whether the bailout/rescue package is too late with banks already crashing and the unemployment figures indicating an increase in the speed at which the economy is tanking. I don't think it's ever been believed that the package will avoid a recession but that it will hopefully restrict it to a level that can be tolerated.

It's no longer just the toxic packages - banks crashing is a problem in itself and reinforcing the downturn.

Congress isn't exactly known for their foresight and recognition of a problem.

And yet now we have a "solution" that requires them (apparently) to "fix" the problem as this bides them time. That will NEVER happen. Why would anyone think it would?

This is more of a question for Gary, but I wonder if he would still be in favor of this temporary fix if he believed that Congress would do nothing to address the problems in the meantime (or conduct actions which are actually further destructive to the economy).

[Mac Howard]

Congress isn't exactly known for their foresight and recognition of a problem.

And yet now we have a "solution" that requires them (apparently) to "fix" the problem as this bides them time. That will NEVER happen. Why would anyone think it would?

This is more of a question for Gary, but I wonder if he would still be in favor of this temporary fix if he believed that Congress would do nothing to address the problems in the meantime (or conduct actions which are actually further destructive to the economy).

It is neither a fix nor a temporary fix. It's an attempt to prevent the situation getting completely out of control. You will have noticed that it was considered essential to act as quickly as possible even to the extent that the rescue package would not be the prefect one. That was because the economy is at a tipping point and we needed to act before the point was passed. Have we caught it in time? We can't know for some time.

But at least this will remove the initial cause of this - the toxic packages on the balance sheets of banks - but it's moving beyond that. Banks collapsing is a problem in itself - there can be a domino or snowball effect with one bank collapse triggering another. Hopefully we haven't reached that point and the removal of the toxic packages will mean that we get a manageable recession.

[flere-imsaho]

If you hadn't buried your head in the sand you would have heard all along that the bailout would not prevent a recession but hopefully prevent the situation becoming far worse that that - a much deeper, longer recession or even a depression. For all intents and purposes you've been in a recession for some time now.

Well, if it was too late anyway, then wouldn't it have made more sense to take this opportunity to do a root-and-branch overhaul of the financial system so as to avoid this in the future instead of just throwing money at the problem in the hopes that it'll make the next couple of years a little more bearable?

[Gary Gorski]

Has Congress started fixing everything yet :)

What do you think they should do? I mean, if the problem is that the housing/credit market can't sustain itself without federal intervention, how exactly to you tear the whole thing down to sustainable levels WHILE you're propping it up? Or is it possible to just indefinitely keep it propped up?

I don't remember if I've heard you say if you think that a housing/credit collapse is inevitable.

I never said that the bailout would fix anything - I only felt it would keep the credit market flowing and prevent our economy from dropping to depression type levels. I've always felt a recession is inevitable - the question to me was could we keep things away from a depression. Without the bill I still think we would be headed to a depression - with the bill we could too but I think there's at least the possibility that this bailout stops the bleeding before it gets to that point. I was very clear in saying the bailout would fix nothing - there's far more problems to be fixed than throwing $700B at it.

I think the housing/credit market can be fixed without a total collapse as long as 1) the credit stays available and 2) credit is not being loaned out to businesses/people that can and will pay it back. You can not forever prop up giving people loans for houses they will never be able to afford or loans to businesses that have no assets of value nor am I suggesting you should.

There has to be failure here to make things better. Some businesses have to go under and some people sadly will have to lose their homes. What I want avoided is for the rest of the economy to come tumbling down with it. Should we head to "depression" levels alot of profitable, well run businesses will be jeopardized and their employees put at risk. People who have done nothing to contribute to this problem will end up having their lives turned upside down by it. That's why I'm in favor of getting this stuff out from the banks. The banks failing helps nobody. Let the government take it on and free the banks to continue lending to the people who can afford to purchase the house they want or to the business that will be able to pay back its loan. Now if the banks take the bailout money and do the same stupid things again then we're all hopelessly screwed.

Before the bailout there was alot of talks about banks trying to be able to set up a "good bank/bank bad" situation. A bank can still be a very profitable business - IF they're loaning money and IF they're getting paid back. There's no business like compounding interest. But if they're essentially getting rid of all their crap they need to take that relief and make good decisions now. They must loan money to keep our economy moving but they've got to tighten the standards so they will not take on poor risks.

[Mac Howard]

Well, if it was too late anyway, then wouldn't it have made more sense to take this opportunity to do a root-and-branch overhaul of the financial system so as to avoid this in the future instead of just throwing money at the problem in the hopes that it'll make the next couple of years a little more bearable?

We don't know that it's too late. We hope not. We hope we caught it in time (the delay in congress passing the bill didn't help). We can't know for some time. The unemployment figures only came out on Friday, the day the bill passed so that information about an accelerating downturn is new.

But even if it is too late the removal of these toxic packages will still help reduce the depth of the recession.

The American economy is already in a recession. The question now is will it be like the dotcom crash with recovery a year or two away or will it be much deeper than that and take several, even many, years to recover.

[flere-imsaho]

So basically the argument is that we throw money into the system as fast as possible to avoid the credit market failing altogether, and then solve the root problems later when we have time.

I'm sure that'll work out great.

I don't have a problem with pushing money into the markets to free up the credit market. The credit market is tight, the economy runs on credit ("operating credit" is not a bad thing like "overextended credit" is), can't have that fail, fine.

I don't have a problem with clearing the books of all the banks who have toxic assets on them. We've done that before, we'll do it again, and it's clearly the only way we'll get to a point where banks feel comfortable loaning to each other again.

But to do it without enforcing more transparency in the way banks report their financials (a key problem that got us into this mess in the first place)? To do this without getting any return on our investment of $700 billion (such as equity in the institutions we're saving)? To do it without requiring that the banks being saved act as good citizens once they're saved (the bill just assumes they'll do this)?

Give me a break.


The freezing of the credit markets is a direct result of the financial institutions being greedy idiots. If you're going to rescue them, and everyone they affected, from the result of their greedy idiocy, it seems like an ideal time to ensure they aren't such idiots in the future.

[ISiddiqui]

I have heard that a lot of institutions may balk at some of the requirements attached to the $700B bailout and refuse the offer and just try to ride it out.

The US markets are falling because of fears about the situtation in Europe, it appears.

[Gary Gorski]

This is more of a question for Gary, but I wonder if he would still be in favor of this temporary fix if he believed that Congress would do nothing to address the problems in the meantime (or conduct actions which are actually further destructive to the economy).

Not a chance - if nothing is done to actually fix the problems then it is a complete waste of money. The bailout money is needed, IMO, to let the banks continue to operate and continue to lend and to keep the credit available to those businesses and people who should get it. As it was stated before, the patient needed to be kept alive so that surgery could be performed and that's what I believe the bailout to be.

[sterlingice]

The American economy is already in a recession. The question now is will it be like the dotcom crash with recovery a year or two away or will it be much deeper than that and take several, even many, years to recover.

I can't believe we're already back headed towards (or in) another recession. We really never really had a good recovery period from the last one.

SI

[Fidatelo]

I'm now $10,000 below book value. This is scary/ridiculous. If I was 55 right now, I'd be pooping my pants.

[Mac Howard]

So basically the argument is that we throw money into the system as fast as possible to avoid the credit market failing altogether, and then solve the root problems later when we have time.

Well, you not only give yourself breathing space but you remove much of the problem.

I don't have a problem with pushing money into the markets to free up the credit market. The credit market is tight, the economy runs on credit ("operating credit" is not a bad thing like "overextended credit" is), can't have that fail, fine.

World banks have been pushing money into the credit market for months now - well over $200 billion - but it hasn't worked because it doesn't remove the cause of the problem - these toxic packages poisoning the banks' balance sheets and threatening their survival.

I don't have a problem with clearing the books of all the banks who have toxic assets on them. We've done that before, we'll do it again, and it's clearly the only way we'll get to a point where banks feel comfortable loaning to each other again.

And that is what the bailout package is doing. But instead of a loan you're buying them and will sell them back into the market when their value has recovered.

The loans haven't worked because the poison remains. The government is absorbing the poison (only government can handle this size of debt) unitil it is no longer a problem.


But to do it without enforcing more transparency in the way banks report their financials (a key problem that got us into this mess in the first place)? To do this without getting any return on our investment of $700 billion (such as equity in the institutions we're saving)? To do it without requiring that the banks being saved act as good citizens once they're saved (the bill just assumes they'll do this)?

The bailout package isn't the end - there is a great deal of regulation and oversight to be added to it to avoid it happening again. Both Obama and McCain have made it plain that will come.


The freezing of the credit markets is a direct result of the financial institutions being greedy idiots. If you're going to rescue them, and everyone they affected, from the result of their greedy idiocy, it seems like an ideal time to ensure they aren't such idiots in the future.

Absolutely. Apart from a few free market ideologues that is what all believe must happen. These regulations etc have existed before but were progressively dismantled since 1980.

[Gary Gorski]

But to do it without enforcing more transparency in the way banks report their financials (a key problem that got us into this mess in the first place)? To do this without getting any return on our investment of $700 billion (such as equity in the institutions we're saving)? To do it without requiring that the banks being saved act as good citizens once they're saved (the bill just assumes they'll do this)?

Give me a break.


I'll give you a week to write up legislation that will not only fix the transparency issues, make sure you get the ROI you want and come up with new guidelines for the operating procedures of the bank...and to get enough votes in the House and Senate to guarantee it passes....and we're in election season.

Impossible.

This kind of stuff SHOULD HAVE been done LONG, LONG ago but it wasn't. Congress was not willing to act until the economy had flatlined - then they decided it might be worth looking into. They barely were able to pass a bill to simply get the toxic debt out of the banks - a free pass/redo for the banks for now - let alone try to do anything of substance. By their own fault they had no time to do anything here and they had to do something to buy themselves some time to fix the problem. Who knows if it will work but at least there's a chance it does as opposed to being on the bullet train to a deep recession/depression with no stops along the way.

[Galaxy]

I have heard that a lot of institutions may balk at some of the requirements attached to the $700B bailout and refuse the offer and just try to ride it out.

The US markets are falling because of fears about the situtation in Europe, it appears.

I've haven't heard about the requirements. What exactly are they?

[Huckleberry]

Not a chance - if nothing is done to actually fix the problems then it is a complete waste of money. The bailout money is needed, IMO, to let the banks continue to operate and continue to lend and to keep the credit available to those businesses and people who should get it. As it was stated before, the patient needed to be kept alive so that surgery could be performed and that's what I believe the bailout to be.


Gary -

I regret not having read the rest of this thread since my last post. Having my debit card stolen and my accounts cleaned out does work into this thread pretty well, though. :mad: Don't worry about me, though, the bank is going to give me a bailout equal to what was in the accounts to begin with. ;)

The problem with your above post and basically anyone that supported the bailout is that you don't see that it almost certainly will not work.

Just because you give banks free fake money does not mean they will lend it out. And if you only give them the money with strings attached that they have to lend it out to people that they wouldn't otherwise feel comfortable lending to, guess what you've now done? The exact same freaking thing that got us into this mess.

That's the whole problem. They are trying to fix a problem by doing the same thing that caused it.

[Tekneek]

I guess I picked a good time to sell what I had, since I knew I needed to sell and needed the liquidity. I sold all my holdings on the Friday before the first (and failed) vote on the bailout plan. I checked out with a decent gain, but not too much (important for my tax situation). I am going to start buying back in about 75 days or so, probably. I don't believe in timing the market, that's just when my new 401(k) picks up.

[Tekneek]

Congress was not willing to act until the economy had flatlined - then they decided it might be worth looking into.

Congress? Bush and McCain (and their cronies) were, even a few weeks back, saying everything was fine. Doesn't make it alright, but it shows that many in government believed everything was just fine when they thought it was only affecting 'deadbeats who couldn't afford their mortgages.'

[Mizzou B-ball fan]

Congress? Bush and McCain (and their cronies) were, even a few weeks back, saying everything was fine. Doesn't make it alright, but it shows that many in government believed everything was just fine when they thought it was only affecting 'deadbeats who couldn't afford their mortgages.'

Totally disagree with this. They were hoping everything was fine and wanting to increase confidence in the economy. Behind the scenes, the banks were telling everyone on both sides of the aisle in Congress that there could be a problem coming that could have been addressed over 6 years ago when the first warning signs showed up.

[Gary Gorski]

The problem with your above post and basically anyone that supported the bailout is that you don't see that it almost certainly will not work.

Just because you give banks free fake money does not mean they will lend it out. And if you only give them the money with strings attached that they have to lend it out to people that they wouldn't otherwise feel comfortable lending to, guess what you've now done? The exact same freaking thing that got us into this mess.

That's the whole problem. They are trying to fix a problem by doing the same thing that caused it.

Why would the banks not lend it out (assuming the other party is a worthwhile candidate to lend to)? How else does a bank make money? They're just going to sit there and hoard the money?

And I don't know what you mean about lending to people they wouldn't normally lend to. I said they should be lending to people and businesses that are not risky and that will pay the interest and loans back. It would be complete stupidity to get your books cleared and then go do exactly the same thing that clogged them up in the first place.

[Tekneek]

Totally disagree with this. They were hoping everything was fine and wanting to increase confidence in the economy. Behind the scenes, the banks were telling everyone on both sides of the aisle in Congress that there could be a problem coming that could have been addressed over 6 years ago when the first warning signs showed up.

And they failed...by not sounding the alarm soon enough. Hard for me to blame just Congress for it. Sounds like it is easy for you, so good for you, but there is plenty of blame to go around on this one.

[Gary Gorski]

Congress? Bush and McCain (and their cronies) were, even a few weeks back, saying everything was fine. Doesn't make it alright, but it shows that many in government believed everything was just fine when they thought it was only affecting 'deadbeats who couldn't afford their mortgages.'

Let's be fair here - Obama and his cronies have their hands in this whole mess as well. Seems there's been a mention or two of him and Freddie/Fannie in the same sentence not to mention that he's a Senator - why wasn't he storming through Congress a year ago to get them to do something. Democrat, Republican...Bush, the House, Senate, Treasury...this is on all of them.

[Huckleberry]

Why would the banks not lend it out (assuming the other party is a worthwhile candidate to lend to)? How else does a bank make money? They're just going to sit there and hoard the money?

And I don't know what you mean about lending to people they wouldn't normally lend to. I said they should be lending to people and businesses that are not risky and that will pay the interest and loans back. It would be complete stupidity to get your books cleared and then go do exactly the same thing that clogged them up in the first place.


Seriously? Banks can't even trust other banks right now. There is less credit being handed out and fewer loans being given out (basically zero interbank loans) because nobody trusts anybody else.

So that's why. Kind of the reason the economy has hit the fan.

[Gary Gorski]

Seriously? Banks can't even trust other banks right now. There is less credit being handed out and fewer loans being given out (basically zero interbank loans) because nobody trusts anybody else.

So that's why. Kind of the reason the economy has hit the fan.

Yes, I'm quite aware of that - I've been one of the people mentioning that in this very thread. That's the purpose of the bailout - you take this stuff off the books and then the banks will lend.

[Flasch186]

Wait, so we passed the $700 Blank Check Bill and now its supporters are telling us they aren't sure if it's going to work or not?

Awesome.

they have always said that it was an attempt but that it was a best guess of the options available at the speed needed.