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]

Originally Posted by molson

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

"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]

Originally Posted by molson

More Ron Paul telling us all we're doomed:

Ron Paul: Buying bad debt is the wrong solution - CNN.com

"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]

Originally Posted by Gary Gorski

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]

Originally Posted by molson

More Ron Paul telling us all we're doomed:

Ron Paul: Buying bad debt is the wrong solution - CNN.com

"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]

Originally Posted by Fighter of Foo

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

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

[DaddyTorgo]

Originally Posted by JonInMiddleGA

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]

Originally Posted by JonInMiddleGA

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]

Originally Posted by 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.

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]

Originally Posted by 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.

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

[sterlingice]

Originally Posted by molson

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]

Originally Posted by Galaxy

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/marke...00238620081001

SI

[Bigsmooth]

Originally Posted by Flasch186

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?p...RJc&refer=home

[Galaxy]

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

[sterlingice]

Originally Posted by DaddyTorgo

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

http://www.bloomberg.com/apps/news?p...RJc&refer=home

Yeah, 300B Euros

SI

[sterlingice]

Originally Posted by ISiddiqui

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


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

"....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/to...n-history.aspx


The best temp gig in history

Congress wants to crack down on CEO mega-salaries for banks participating in the bailout. And while the politicians argue how best to do that, Alan Fishman of Washington Mutual 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 before leaving earlier this month. He's eligible for around $20 million in severance pay.
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. 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]

Originally Posted by KWhit

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]

Originally Posted by 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.

You're thinking of Lane Kiffin.

[flere-imsaho]

Originally Posted by Galaxy

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]

Originally Posted by 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

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]

Originally Posted by molson

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]

Originally Posted by Flasch186

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

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

[Galaxy]

Originally Posted by flere-imsaho

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]

Originally Posted by Galaxy

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]

Originally Posted by sterlingice

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

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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]

Originally Posted by ISiddiqui

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]

Originally Posted by 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.

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]

Originally Posted by flere-imsaho

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]

Originally Posted by 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.

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.