The Great Recession - post mortem

[Gary Gorski]

Originally Posted by molson

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

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

[Flasch186]

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

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

[Flasch186]

Originally Posted by Gary Gorski

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

I got this feeling too.

[molson]

Originally Posted by Gary Gorski

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

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

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

[Flasch186]

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

[ISiddiqui]

I wish this poll had who voted what

[Marc Vaughan]

Originally Posted by Gary Gorski

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

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

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

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

[Mac Howard]

Originally Posted by Marc Vaughan

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

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

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

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

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

[JonInMiddleGA]

Originally Posted by Flasch186

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

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

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

[Flasch186]

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

[Gary Gorski]

Originally Posted by molson

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

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

[Flasch186]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[Mac Howard]

Originally Posted by JonInMiddleGA

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

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

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

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

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

[molson]

Originally Posted by Mac Howard

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

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

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

[Warhammer]

RealClearMarkets - Articles - In Times of Crisis, Trust Capitalism
I thought this was a great article.

[JonInMiddleGA]

Originally Posted by Flasch186

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

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

[Flasch186]

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

[Mac Howard]

Originally Posted by molson

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

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

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

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

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

[SteveMax58]

Originally Posted by JonInMiddleGA

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

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

[JonInMiddleGA]

Originally Posted by Flasch186

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

Sigh.

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

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

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

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

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

[JonInMiddleGA]

Originally Posted by SteveMax58

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

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

[Mizzou B-ball fan]

Originally Posted by SteveMax58

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

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

[Flasch186]

Originally Posted by JonInMiddleGA

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

we differ here at this moment in time.

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

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

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

[Flasch186]

Ireland just guaranteed EVERY bank deposit.

[lungs]

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

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

[Fidatelo]

Originally Posted by JonInMiddleGA

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

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

[CraigSca]

Interesting article in Time...

Let Risk-Taking Financial Institutions Fail

By Ari J. Officer and Lawrence H. Officer Monday, Sep. 29, 2008


Demonstrators protest the U.S. Congress's proposed $700 billion bailout of the financial industry in New York City's Times Square, Sept. 27
Keith Bedford / Reuters

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The Administration and Congress have felt compelled to do something about the "financial meltdown," so an inefficient and inequitable "bailout plan" has been rushed through the legislature despite harsh criticism from the right and left. That's unfortunate. Both presidential candidates were stalling by qualifying the plan. Whichever candidate had had the courage to reject outright this proposal would have had the better claim to be President.

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

[Mac Howard]

Originally Posted by JonInMiddleGA

Sigh.

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

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

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

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

[Gary Gorski]

Originally Posted by JonInMiddleGA

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

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

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

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

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

[Gary Gorski]

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

[bronconick]

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

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

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

[Marc Vaughan]

Originally Posted by Mac Howard

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

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

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

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

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

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

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

[Coffee Warlord]

Originally Posted by Gary Gorski

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

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

[Mac Howard]

Originally Posted by Gary Gorski

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

No.

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

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

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

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

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

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

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

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

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

[flere-imsaho]

Originally Posted by stevew

Is it still because of the jewish holiday?

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

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

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

Originally Posted by Galaxy

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

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

Originally Posted by Coffee Warlord

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

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

Originally Posted by Gary Gorski

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

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

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

Please, let's not speak of him again.

Originally Posted by Flasch186

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

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

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

Originally Posted by Gary Gorski

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

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

Sheep, the lot of them.

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

[SteveMax58]

Originally Posted by Gary Gorski

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

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

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

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

[flere-imsaho]

Originally Posted by JonInMiddleGA

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

Quoted and bolded for emphasis.

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

[DaddyTorgo]

can we get a flere-gram of the situation?

[Marc Vaughan]

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

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

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

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

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

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

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

[Gary Gorski]

Originally Posted by Mac Howard

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

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

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

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

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

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

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

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

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

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

[CraigSca]

Originally Posted by Mac Howard

No.

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

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

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

[Marc Vaughan]

Originally Posted by CraigSca

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

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

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


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

[Gary Gorski]

Originally Posted by flere-imsaho

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

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

Please, let's not speak of him again.

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

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

[Mac Howard]

Originally Posted by Gary Gorski

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

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

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

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

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

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

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

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

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

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

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

[SteveMax58]

Originally Posted by Marc Vaughan

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

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

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

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

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

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

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

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

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

[Mac Howard]

Originally Posted by SteveMax58

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

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



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

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

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

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

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

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

[molson]

Originally Posted by Marc Vaughan

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

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

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

.

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

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

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

[DaddyTorgo]

Originally Posted by Mac Howard

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

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

+1. The Aussie understands.

[Coffee Warlord]

Originally Posted by Mac Howard

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

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

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

[Mac Howard]

Originally Posted by molson

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

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

Point them out to me will you?

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