The Great Recession - post mortem

[Flasch186]

However, this may improve consumer confidence in the short term so that people will be willing to spend a little more. no one knows the ramifications yet and it hasnt even been fully explored yet.

[Toddiec]

Just chiming in from a community bank standpoint for something to think about. Right now we are sweating a bit, but not because of mortgages or anything like that (we are part of the vast majority that didn't go crazy lending to sub-prime customers). The buzz in our industry today is about the guarantee on mutual funds. If the government decides to rush in and back these without structuring it in a similar way to FDIC coverage (fees paid by the mutual fund industry to participate, $100K limit, etc) then we are worried that a bunch of our liquid holdings will rush to mutual funds. In the past, the mutual funds can pay a higher rate than CD's and the like due to not having to pay fees for non-existant insurance which is one of the main reasons why people invested in CD's and bank money markets. The customer sacrificed rate earnings for the insurance coverage.

If the government just comes in and backs the mutual funds without putting it on a level playing field with FDIC coverage, what will most customers do? They will do the same thing I would. Higher interest rate AND a government guarantee...sign me up. There is concern that if that happens we will have a vast exodus of our liquid accounts which would not be a good thing at all.

Anyway, just some food for thought from the community banking industry. This will really help the mutual fund industry, but it could really hurt the banks that haven't done anything wrong if it is not structured correctly. I won't go into the taxpayer repercussions of all of this, it has already been well stated earlier. This is just a reminder that other industries could be affected by these bailouts and plans in a negative way in addition to our personal pocketbooks.

[Anthony]

being in the mutual fund industry, yesterday was hectic for me (thankfully i had scheduled today as a day off), having to reassure our shareholders that our money markets were still sound and that we haven't ever allowed our MMs to break the dollar in our history. i was able to stop the bleeding on the shareholders i came across. now with the government stepping in, backing mutual fund MMs (i don't know to what extent, i haven't analyzed this too much on my day off to decipher what's in the fine print due to the ramifications for making bank MM irrelevant) things should be easy when i come back to work, or at the worst more manageable.

[path12]

Originally Posted by flounder

Did you lend money to bad credit risks? You're saved.

Did you take out a mortgage you couldn't afford? You're saved.

Did you invest your money wisely and not buy things you couldn't afford? You're screwed.

LOL. Indeed.

Originally Posted by Anthony

i wonder how this affects the black friday/post thanksgiving deals? are big box stores gonna have to slash even more prices (afterall, who can think of buying plasma tvs when the world as we know is failing) or if all these bailouts means everyone who screwed up with regards to taking on more mortgage than they can afford can go back to ruining their credit with more unnecessary purchases?

Ms.Path and I decided last night not to buy each other Xmas presents this year and to try and make some food gifts for relatives, etc. Our spending is and will be way down for awhile.

[Edward64]

For all the financials folks in this community:

What does this mean for our 'free markets' and our concept of capitalism? Can we ever claim to be 'free' again (in the near future)? It seems that when it came to upholding the principle, we caved.

[Anthony]

Originally Posted by Edward64

For all the financials folks in this community:

What does this mean for our 'free markets' and our concept of capitalism? Can we ever claim to be 'free' again (in the near future)? It seems that when it came to upholding the principle, we caved.

what we have right now, currently in place, is becoming eerily similar to China's economy. yeah, they're communist over there, but they sure are loving all the spoils of capitalism, so instead of being 100% state run the businesses are expanding while the state is still in the picture but now in the background. america has an ever-increasing state involvement, china has an ever-decreasing state involvement, and when all is said and done and the dust has settled i think you'll find our economies wind up looking much too similar.

here's a quote that backs up what i was saying re: china's government taking a lesser and lesser role in their economy:

Although the government still dominates the economy in parts, the extent of its control has been limited by the sheer volume of economic activity. Furthermore, the concept of government supervision of the economy had changed from one of direct state control to one of indirect guidance of a more dynamic economy.

the end of the Laissez-faire approach will soon be upon us.

[Edward64]

Originally Posted by Anthony

what we have right now, currently in place, is becoming eerily similar to China's economy. yeah, they're communist over there, but they sure are loving all the spoils of capitalism, so instead of being 100% state run the businesses are expanding while the state is still in the picture but now in the background. america has an ever-increasing state involvement, china has an ever-decreasing state involvement, and when all is said and done and the dust has settled i think you'll find our economies wind up looking much too similar.

Good point. China will certainly play this mess to their favor and tell her citizens that their current method, pace etc is better.

[Fighter of Foo]

Originally Posted by Edward64

For all the financials folks in this community:

What does this mean for our 'free markets' and our concept of capitalism? Can we ever claim to be 'free' again (in the near future)? It seems that when it came to upholding the principle, we caved.

The people that make the rules took care of themselves. Principles be damned. Flounder's quote is the best summary of all this I've seen.

What's worse is of the trillions of dollars being thrown around and committed to these failing companies, none of it will ever make its way back to taxpayers. And the same people who caused this mess are the ones deciding how we're going to get out if it.

USA United Socialists of America

[BishopMVP]

Originally Posted by Edward64

I thought you were attributing blame to Bush per your quote below. What was that in reference to then?

OK, let's stop being socratic for a moment and lay our cards on the table.

I think we both agree mortgage lenders lowering standards and greedy/ignorant people taking on mortgages they couldn't afford were the base root of the problem. I also believe Greenspan is partially to blame for the reasons I stated in my previous post. I don't believe Bush (or Clinton/Obama/McCain/etc) is smart enough to understand what's going on, shouldn't be looked to for leadership and can only be blamed insofar as appointing the wrong people to run the financial arms. I think in hindsight (well, not really hindsight yet) there were some moves Paulson could have done slightly differently, but it certainly wasn't obvious at the time, and the main fundamentals of a disaster were in place and couldn't be worked around regardless what was done in the last 2 years Paulson has been there.

You have blamed Paulson and Bernanke for the crisis, then in seperate posts absolved/disagreed with others who put blame on Greenspan and Bush. Plus explicitly said more blame should be on Paulson than Greenspan.

Unless your argument is that what Greenspan set in motion would cause this mess we are in -regardless- of what anyone else does, there is a period of 1-2 years where the current responsible parties did not do their jobs.

On the Treasury part, this is pretty much my exact argument. Greenspan was responsible for events being set in motion that could not have been mitigated the past 2 years regardless what was done. (For example, I know I've seen the numbers on Fannie Mae/Freddie Mac approaching insolvency as early as 2003/4 and I think I may have even posted on it, but I can't find it here.)

What I (and I believe ISiddiqui) want to know is A) what you would have had Paulson do differently the past two years and B) how these mistakes contributed more to the problem than Greenspan's.

Originally Posted by Edward64

Good point. China will certainly play this mess to their favor and tell her citizens that their current method, pace etc is better.

I can't deny that the overwhelming narrative will probably go down this route, I just want to point out how silly it is. For starters, the Chinese government (and really, everybody) has no idea how fast the Chinese economy is growing - it's largely guesswork internally even before political considerations and corruption are taken into effect. Next, the Chinese banks and economy have vastly higher number of NPL's, possibly an order of magnitude higher. Lastly, the Chinese government has kept their currency artificially low for years, which undoubtedly makes it easier when they need to print money and bail out the banks, but clearly isn't something the world's currency can do, let alone would make sense to do. Finally, the main reason for the Chinese economic boom is cheap, borderline slave, labor, and when that gets tried in the US people call foul (rightfully so).

[st.cronin]

John Maynard Keynes ftw?

[Marc Vaughan]

USA United Socialists of America

I don't really understand the negativity about the actions - as I understand it yes the American Goverment is taking an active role in things, however also as I understand it they are expecting to get any money invested back and most likely with profit.

As such they are stepping into the breech where the capitalist economy is failing - the failure is one of trust and faith and only an institution such as a major goverment can breech this gap. Why is this - because in a capitalist economy everyone looks out solely for themselves and is always trying to invest wisely for maximum profits, it didn't make sense for a private company to risk themselves in this way - however the goverment is looking out for the American people and wants to unfreeze the financial system so is willing to stump up the cash.

I actually think this is going to be seen in history as a wise move, doing this will hopefully give some stability to the markets - allowing financial companies some breathing space to restructure/merge without ludicrous pressure and thus help the economy get back onto its feet in the long term.

PS - Personally I think there are various areas of business which make NO sense to be run privately because of either the physical risk to a society (Nuclear Power stations etc.) or because they're natural monopolies (ie. Electricity companies etc.).
In such circumstances it'd make sense for them to be ran by the goverment who can provide a fair service at a profit (which then subsidises what the goverment needs from taxes etc.) and avoid the risk of a company failure impairing society.
Natural monopoly - Wikipedia, the free encyclopedia
(basically I preferred the set up economically of England pre-Maggie Thatcher)

[st.cronin]

Originally Posted by Marc Vaughan

I actually think this is going to be seen in history as a wise move.

I agree 100%.

[Edward64]

Originally Posted by BishopMVP

I don't believe Bush (or Clinton/Obama/McCain/etc) is smart enough to understand what's going on, shouldn't be looked to for leadership and can only be blamed insofar as appointing the wrong people to run the financial arms.

I agree. Other than possibly appointing the wrong people, Bush is relatively blameless in this mess.

Originally Posted by BishopMVP

You have blamed Paulson and Bernanke for the crisis, then in seperate posts absolved/disagreed with others who put blame on Greenspan and Bush. Plus explicitly said more blame should be on Paulson than Greenspan.

Yes, I stand by this with the clarification that 'more blame' should be placed on Paulson and Bernanke, not that Bush/Greenspan should be absolved of all blame.

Originally Posted by BishopMVP

What I (and I believe ISiddiqui) want to know is A) what you would have had Paulson do differently the past two years and B) how these mistakes contributed more to the problem than Greenspan's.

I don't know, maybe implement the RTC plan earlier? I am not an economist nor a financial person but my reasoning follows below.

Greenspan was responsible for events being set in motion that could not have been mitigated the past 2 years regardless what was done.

Your position is A caused Z, and there is nothing inbetween that could have mitigated it. I disagree with this. I cannot think of any situation that could not be mitigated to some extent.

My position is A, B, C caused Z, but there were many steps inbetween D-Y that could have mitigated the situation and maybe caused a small z. Mitigation = lessen, not prevent.

Again, don't claim to be an economist or a financial person but as a consultant who is used to dealing with issues and resolving them (obviously at a much smaller scale), I cannot absolve Paulson and Bernanke who was on watch between M-Y when the issue came to a head.

1. I see (or should have seen) problem coming.
2. I am empowered but what I do is ineffective to either eliminate or mitigate.
3. I am accountable for the problem

[Edward64]

Originally Posted by st.cronin

I agree 100%.

I agree also for the most part. Nothing else seemed to be working.

[duckman]

Welcome to Socialism!

[BishopMVP]

Originally Posted by st.cronin

John Maynard Keynes ftw?

In the sense that's who politicians will be looking to, yes. In the sense that Free-Market principles of the Friedman variety failed, no. Free market principles are predicated on there being risk and occasional backsliding, but with the acknowledgment that the short-term pain is made up for by long run gain. For example, if the economy tripled from 100d to 300d in the last 20 years, then backslides to 250d based off the creative destruction phase, that's still a gain of 150% over 20 years, a phenomenal growth rate. Just because politicians and laymen are pussies looking only at short-term solutions who can't predict or accept the inevitable temporary downturns doesn't refute the original free-market ideas.

Now, there's clearly a debate between generally Keynesian vs. Freidman-esque economic theory, but even if it could be unquestionably proven Friedman-style economics were better long-term, advocating Keynesian policy would still be a winning political strategy because most people value stability over long-term gain.

Originally Posted by Edward64

Your position is A caused Z, and there is nothing inbetween that could have mitigated it. I disagree with this. I cannot think of any situation that could not be mitigated to some extent.

My position is A, B, C caused Z, but there were many steps inbetween D-Y that could have mitigated the situation and maybe caused a small z. Mitigation = lessen, not prevent.

Not quite. My position is Greenspan was there for steps A thru T, Snow in there for U, and Paulson for V-Y leading to Z. Paulson clearly could have mitigated the situation*, but I fail to see how a plurality of blame falls on his shoulders compared to Greenspan's.

*(You're also taking the odd position that Paulson's moves haven't mitigated the problem. Since no one really knows how bad this could have gotten, and the consensus is much, much, worse, up to a collapse of major banks in the US and a run on US currency, we clearly haven't ended up with a worse-case scenario.)

Again, don't claim to be an economist or a financial person but as a consultant who is used to dealing with issues and resolving them (obviously at a much smaller scale), I cannot absolve Paulson and Bernanke who was on watch between M-Y when the issue came to a head.

1. I see (or should have seen) problem coming.
2. I am empowered but what I do is ineffective to either eliminate or mitigate.
3. I am accountable for the problem

OK, let's install you as CEO of a bank with $200b in assets and $100b in bad loans due in a month. You can see it coming, you are empowered to act and it comes due on your watch. Are you really accountable for the problem? No, you're not.

Or because this is a football forum, Washington fires Ty Willingham and hires you. You've got a game with USC coming up in a month. Bottom line, you're gonna get smoked, but you're not accountable. If you lose 98-0, you are accountable for the extra 49 points scored, but to bring it back full circle, what has Paulson done to exacerbate the crisis?

[Flasch186]

We're not out of the woods yet, however. Next week will be key along with the temporary suspension rule on short selling expiration on ~oct 2.

[BishopMVP]

Originally Posted by Flasch186

We're not out of the woods yet, however. Next week will be key along with the temporary suspension rule on short selling expiration on ~oct 2.

That rule is overblown. If you want to ban naked short-selling, fine, otherwise it's a boogeyman.

[cartman]

Originally Posted by Edward64, Back in May

Okay, I know this may be an unpopular statement, but I am calling it. The market has hit bottom and it is rebounding. I've read bottom is hit approx 6 months into a recession and as the market is a leading indicator, I am predicting we are on the uptick.

Originally Posted by Edward64, today

I agree also for the most part. Nothing else seemed to be working.

lol

[Flasch186]

Originally Posted by BishopMVP

That rule is overblown. If you want to ban naked short-selling, fine, otherwise it's a boogeyman.

I dont think so and think it contributed to quite a bit of the upside today with options expiration and the rule. When it goes away youre going to see if we have a true floor. Im hopeful but nervous. You should hear the words being thrown about about how close we were to 'armageddon'.

[Edward64]

Originally Posted by BishopMVP

My position is Greenspan was there for steps A thru T, Snow in there for U, and Paulson for V-Y leading to Z. Paulson clearly could have mitigated the situation*, but I fail to see how a plurality of blame falls on his shoulders compared to Greenspan's.

*(You're also taking the odd position that Paulson's moves haven't mitigated the problem. Since no one really knows how bad this could have gotten, and the consensus is much, much, worse, up to a collapse of major banks in the US and a run on US currency, we clearly haven't ended up with a worse-case scenario.)

Okay. We'll differ on the allocation of A-Z.

I agree we have not hit the worse case as that would have been a global depression and your point is valid 'how do we know Paulson's moves haven't mitigated the problem'. My counter is we know that Paulson's moves hadn't mitigated the problem -enough- as it was still spiralling out of control (as of last Wed).

Originally Posted by BishopMVP

OK, let's install you as CEO of a bank with $200b in assets and $100b in bad loans due in a month. You can see it coming, you are empowered to act and it comes due on your watch. Are you really accountable for the problem? No, you're not.

You have me here as I am not familiar enough with running a corporation to be able to answer what a competant ceo should have done to mitigate the issue. Any attempted answer to this point could not be backedup by me. So I would answer in this way:

When did Paulson and Bernanke raise the red flag of imminent danger? Did they do their due diligence and tell congress, the public or did this situation catch them unware?

Why did Paulson and/or Bernanke -seemingly- not have a clear strategy or clearly express how they would deal with the issue? I use seemingly because I am sure they thought they did, but to the public perception they did not as their policies seem inconsistent.

Originally Posted by BishopMVP

Or because this is a football forum, Washington fires Ty Willingham and hires you. You've got a game with USC coming up in a month. Bottom line, you're gonna get smoked, but you're not accountable. If you lose 98-0, you are accountable for the extra 49 points scored, but to bring it back full circle, what has Paulson done to exacerbate the crisis?

Sorry, not willing to discuss WA because I cannot talk intelligently about their players, coach, program etc.. However, lets talk AR who did get smoked by USC two years in a row.

If I was brought in to replace Nutt and I had one month to prepare for USC and got smoked 98-0, I am -definitely- accountable. I don't see why not.

What has Paulson done to exacerbate the crises? Don't know. However I do know this is his/Bernanke's watch and they have not seemingly done anything as of last Wed to mitigate the problem -enough-.

[Edward64]

Originally Posted by cartman

lol

You got me and my mea culpa. See the Middle East thread for another .. although I am optimistic about the new Israeli Golda Meir !

[Logan]

Originally Posted by Toddiec

Just chiming in from a community bank standpoint for something to think about.

Just wondering if you guys are nationally-chartered.

[path12]

Originally Posted by Flasch186

We're not out of the woods yet, however. Next week will be key along with the temporary suspension rule on short selling expiration on ~oct 2.

I'd be tempted to wager they'll use the 30-day extension on that.

Now, hmmmmm, let's see.......what's happening 33 days after Oct 2?

[Flasch186]

I hope so because I think we can have nice little rally here and our best friend right now is time.

[Flasch186]

apparently the bill is only 3 pages long Just shows that the idiots up in Washington can actually do something efficiently once in a while.

[Galaxy]

Mark Cuban has an interesting view on the problem:

Stock Market Meltdowns - Why they will happen again and again and again « blog maverick

(BTW, his most recent two posts on defending Josh Howard is a good read).

[Galaxy]

What would you propose in regulation to help make companies more transparent and able to restore our banking and lending (as well as public companies in general) markets?

[Buccaneer]

Originally Posted by Flasch186

apparently the bill is only 3 pages long

I call BS. Maybe the preamble of whereas and therefore is only 3 pages long.

[Marc Vaughan]

If I was brought in to replace Nutt and I had one month to prepare for USC and got smoked 98-0, I am -definitely- accountable. I don't see why not.

I think the debate is whether anything tangible could have been done to repair efforts at the point where someone came into power.

The blunt equivalent of this would be - if you were the pilot on a plane where the controls had failed ... would it be your fault if the plane crashed?

IMHO someone can only be held responsible for something which is either the consequence of their actions or something which their actions could have directly affected.

Its also in my opinion impossible to judge the actions of the people in charge presently; history might find out more about their opinions and actions however at present a lot of what has been said by them is required posturing in an attempt to calm panic.

It is a well known problem that peoples opinions in economics can cause reality - that is if investors believe a company is going to tank then they will pull out from it, often causing it to lose stability and tank.

As such it would be considered irresponsible of people in power to potentially cause a crisis by shouting concern at the beginning of one, instead they're more likely to work quietly in the background trying to work out ramifacations and solutions - while publicly trying to slow things down by putting on a brave face.

(incidentally anyone else following the 'ratings' arguements going on at the moment - where downgrades on certain companies are causing problems and the companies involved are arguing that without the downgrades they'd be stable ... I actually think there is a LOT to answer for by the ratings companies, how they could downgrade anyone during this week with the volitile nature of the market and changing landscape of the financial scene seems incredible and somewhat irresponsible to me)

[Anthony]

Originally Posted by Galaxy

What would you propose in regulation to help make companies more transparent and able to restore our banking and lending (as well as public companies in general) markets?

in one of the financial talking heads shows that's on in the background where i work, someone mentioned that instead of rewarding CEOs for one-year performance figures, we take a long-term view of their accomplishments (like 5 year avg) in determining their bonus structure. logic being you eliminate the short-sighted, "quick buck" approach they've taken in the past and reward long term soundness. i agree with that.

i also say that if AIG, the world's largest insurer, was too large to allow to fail, it should be run by our government. this goes against my "small government" leanings, but some things need to be taken out of the hands of for-profit management. i don't think it's necessary to have an organization that is too important in the hands of private citizens. apparently my taxes are going towards propping up this failed company, might was well make it a matter of public domain now where we have a say in its operations through the voice of our elected officials. if the finger that's filling in the hole in the damn is too important to risk failing, take it out of the hands of the Dutch boy and let the government be involved with keeping the damn from breaking through. once things reach a certain point some things are just too crucial to keep in the hands of private corporations. so what does this mean? either cap how much assets a corporation can take on, and once that cap is exceeded you need to break the corporation up into separate companies, or you just allow the government to operate certain industries in our ecomony (insurance, healthcare, to name a very few).

[Edward64]

Originally Posted by Marc Vaughan

The blunt equivalent of this would be - if you were the pilot on a plane where the controls had failed ... would it be your fault if the plane crashed?

When you put the analogy that way, sure, no the pilot is not a fault.

I think a more accurate analogy is I am the pilot of a 757 that took off from point A to Z, somewhere along the flight route (lets say M), an engine lost power. At this time, I am responsible and safety of my passengers. I can either mitigate the situation (ex. emergency landing, calm reassuring tone over the intercom etc.) or possible make it worse (ex. continue to fly on, don't inform the passengers even though they know something is wrong).

Originally Posted by Marc Vaughan

IMHO someone can only be held responsible for something which is either the consequence of their actions or something which their actions could have directly affected.?

I think where we may differ is the degree of responsibility. The pilot certainly did not have -full- responsibility of the issue, however he definitely shares responsibility on how he handles (or doesn't) the situation.

Originally Posted by Marc Vaughan

Its also in my opinion impossible to judge the actions of the people in charge presently; history might find out more about their opinions and actions however at present a lot of what has been said by them is required posturing in an attempt to calm panic.

I agree. Paulson may pull off the RTC-like and resolve the crises and my opinion of him will certainly change more to favorable if that happens.

(Haven't read who led the charge on this solution, was it Bernanke, Paulson or someone from Congress?)

Originally Posted by Marc Vaughan

It is a well known problem that peoples opinions in economics can cause reality - that is if investors believe a company is going to tank then they will pull out from it, often causing it to lose stability and tank.

As such it would be considered irresponsible of people in power to potentially cause a crisis by shouting concern at the beginning of one, instead they're more likely to work quietly in the background trying to work out ramifacations and solutions - while publicly trying to slow things down by putting on a brave face.

I agree, self fufilling prophecy happens. I don't disagree shouting and panicking in a crises will do more bad than good (ex. my pilot informing passengers in a calm voice when they know an engine is out). My 2 questions from above don't go to that extreme.

• When did Paulson and Bernanke raise the red flag of imminent danger? Did they do their due diligence and tell congress, the public or did this situation catch them unware?
  
• Why did Paulson and/or Bernanke -seemingly- not have a clear strategy or clearly express how they would deal with the issue? I use seemingly because I am sure they thought they did, but to the public perception they did not as their policies seem inconsistent.

Help me understand your pov. Are you in agreement with others that this was inevitable due to Greenspan's actions during his terms and that Paulson/Bernanke could not do anything to mitigate the situation for the better (as of last Wed?).

[digamma]

Originally Posted by cartman

It was more than just that one bill, as I alluded to. After G-L-B was passed, Gramm put an amendment into an appropriations bill right before it was voted on that forbid government agencies from regulating the new financial derivatives that have led directly to the sub-prime meltdown. This directly circumvented some of the controls that were in place in the G-L-B measure. During his time as chair of the Senate Committee on Banking, Housing, and Urban Affairs, he shot down any attempts at bringing a bill to vote that would have put any oversight to these new derivatives.

It is convenient to call out the veto-proof vote as absolving Gramm of the blame, but his actions to keep oversight away after the Act was passed put the bulls-eye squarely back on him.

Not sure if I completely agree with this. While banks levering up balance sheets has certainly contributed to their failure, I think you can, to a large extent, separate derivatives from subprime.

Structured products (different from derivatives) have certainly spread the subprime crisis out over a much, much wider swath of banks, companies and investors, but the causes of the subprime crisis go back some time and are caused by the perfect storm of declining housing prices coupled with less real income for borrowers leading to more foreclosures and less return on mortgages. As the mortgages became illiquid (no one wants to trade a non-performing asset), they began to take up more and more space on bank balance sheets. We've seen a major, major liquidity crisis in the last 15 months as a result.

And that's when you bring in off balance sheet derivatives, and you don't have a clear picture of how stable a bank is because you don't necessarily know what their derivative book is. In an ideal situation (for the bank) they will have paired off most of these derivatives, so the net is minimal. We've seen though in the case of both Bear and Lehman (1) it takes a while to sort that out and (2) banks likely don't net as well as they would like.

With regard to (1), ISDA opened up a special trading session last Sunday to allow folks who faced Lehman on trades to find a netting partner and agree to face one another on matching trades. While helpful, that probably only affected other large sell side banks. Most of the buy side firms who face Lehman didn't participate. So, this week, you've had people terminating thousands upon thousands of open trades with Lehman. The working through of who owes what is going to take quite a while.

Now, (2) has likely contributed to the failure of these banks (along with the sizeable balance sheet taken up with illiquid real estate assets), but because of the difficulty in figuring out who owes what, it's hard to exactly tell.

Related, sure, but I'm not sure it is causal.

[Buccaneer]

It's refreshing to see a post like digamma, who actually knows what he is talking about, as oppose to those politicizing this.

[cartman]

Originally Posted by Buccaneer

It's refreshing to see a post like digamma, who actually knows what he is talking about, as oppose to those politicizing this.

So the politicians that made uninformed decisions or decisions heavily influenced by lobbyists had little to nothing to do with creating the current environment?

Specifically the derivatives I was referring to were the ones where subprime loans got put through a maze of redistributions, so that they could effectively be repackaged as A+ debt instruments. That scenario should never have been allowed to happen.

[digamma]

Originally Posted by cartman

Specifically the derivatives I was referring to were the ones where subprime loans got put through a maze of redistributions, so that they could effectively be repackaged as A+ debt instruments. That scenario should never have been allowed to happen.

Gotcha. I think these are widely being called derivatives in the media, and I think that is incorrect. These are generally structured products and the ultimate holder of the security holds just that: a security in a holding company backed by the underlying assets. The senior tranches of debt were able to get prime credit ratings because the structured vehicle built in a required amount of subordinated net to protect against the first losses in the portfolio. I think people largely agree that the credit bureaus threw up on themselves in a lot of this process, but that's a separate issue.

There is absolutely no doubt that the subprime crash has had a much, much wider impact because of structured products and resecuritizations. Again, though, I'd argue this is more of an impact magnifier than a causal relationship.

[Marc Vaughan]

Originally Posted by Edward64

Help me understand your pov. Are you in agreement with others that this was inevitable due to Greenspan's actions during his terms and that Paulson/Bernanke could not do anything to mitigate the situation for the better (as of last Wed?).

I think the bulk of the crisis was inevitable to be honest; this is mainly down to the short-term mindset of corporations rather than any action which Paulson/Bernanke could undertake.

Simply the people in charge of corporations are paid huge bonus's based on short-term profits - hence its more important to them to make huge profits NOW rather than more measured profits over a long period.

As such even if it'd been possible to privately warn them years in advance that this situation was going to come to a head I don't believe they'd have listened or coopererated to avoid it.

I'd equate the current financial situation and their handling of it to the command of a general during a war. All you can expect of a General in a battle is that they enter it with a plan and that they adapt to the situation as it unfolds - the current econmic situation is something which hasn't happened before and its evolution has been at least partially controlled by factors outside of the sight/control of the 'general' (ie. stock traders, banks who themselves didn't know their likely liabilities etc.).

I think that looking at things retrospectively it would indeed be possible for them to have handled things somewhat better, but in the circumstances I think they've done their best which is all that can be asked of anyone.

[JPhillips]

Now that details of the bailout are emerging, I'm very much against what's being proposed. The idea that Paulson should get a blank check to do whatever the fuck he wants with no concessions from the financial industry is bullshit.

Sebastian Mallaby is suggesting that the government should purchase equity in the institutions that can then be sold if things turn around. That's got issues due to government control problems, but it sounds eminently more sensible than a 700 billion dollar handout to the same people that got us in this mess.

[Flasch186]

Welp, Ill give him a blank check as opposed to the alternative at this point. Last week was fucking scary for me so I can imagine what it mustve been like for the people in the offices in washington and New york. (luckily this time, when the VIX spiked, I bought in to the mkt - probably sell in 2 wks though)

[JPhillips]

Originally Posted by Flasch186

Welp, Ill give him a blank check as opposed to the alternative at this point. Last week was fucking scary for me so I can imagine what it mustve been like for the people in the offices in washington and New york. (luckily this time, when the VIX spiked, I bought in to the mkt - probably sell in 2 wks though)

But that's not the only option. I'll agree that the government needs to intervene in a major way, but to demand nothing from those companies benefiting from this handout is absurd. No equity in these companies. No additional regulations. No demands for new leadership. Nothing.

It may be better than doing nothing, but rewarding the biggest fuck-ups with the biggest handouts while requiring nothing is ridiculous.

[darkenigma510]

Originally Posted by Marc Vaughan

I actually think this is going to be seen in history as a wise

More like the beginning of the end of the current system....

[Galaxy]

Originally Posted by darkenigma510

More like the beginning of the end of the current system....

In what way? I can see more regulation. And I agree with JPhillips (which I never do). Washington just doesn't seem to care anymore about listening to its citizens (on both sides of the parties). The interesting part is even Swiss banks have taken a hit.

[flere-imsaho]

Originally Posted by JPhillips

But that's not the only option. I'll agree that the government needs to intervene in a major way, but to demand nothing from those companies benefiting from this handout is absurd. No equity in these companies. No additional regulations. No demands for new leadership. Nothing.

It may be better than doing nothing, but rewarding the biggest fuck-ups with the biggest handouts while requiring nothing is ridiculous.

I know I've noted this before, but a month or two ago NPR's Marketplace had a guy from the Cato Institute on who said that one of the likely results of this when the next Administration comes to power, is more regulation of the financial industry during the next 4-year cycle. Furthermore, in his opinion, this was a good thing, as the people involved have proven themselves unable to behave like adults and were incapable of acting in a manner that did not put the entire system in jeopardy.

Given everything that the Cato Institute stands for, that was a pretty shocking statement.


Anyway, in my opinion the most successful national economies of the 21st century will be those that benefit from active, intelligent, and thoughtful oversight by their respective governments. A lot of emerging economies have taken a look at what's happened to the U.S. recently and decided that while the free market is a good thing, they should a) make sure greed doesn't get the best of their national economic actors to the detriment of their economic stability and b) the nation in question gets a reasonable cut of the benefits of the economic activity in that country.

This isn't socialism and it isn't planned economy. It's about sustainability and health for national financial and economic systems and we've just given the world an object lesson in how not to do it.

[Galaxy]

Originally Posted by flere-imsaho

I know I've noted this before, but a month or two ago NPR's Marketplace had a guy from the Cato Institute on who said that one of the likely results of this when the next Administration comes to power, is more regulation of the financial industry during the next 4-year cycle. Furthermore, in his opinion, this was a good thing, as the people involved have proven themselves unable to behave like adults and were incapable of acting in a manner that did not put the entire system in jeopardy.

Given everything that the Cato Institute stands for, that was a pretty shocking statement.


Anyway, in my opinion the most successful national economies of the 21st century will be those that benefit from active, intelligent, and thoughtful oversight by their respective governments. A lot of emerging economies have taken a look at what's happened to the U.S. recently and decided that while the free market is a good thing, they should a) make sure greed doesn't get the best of their national economic actors to the detriment of their economic stability and b) the nation in question gets a reasonable cut of the benefits of the economic activity in that country.

This isn't socialism and it isn't planned economy. It's about sustainability and health for national financial and economic systems and we've just given the world an object lesson in how not to do it.

I would like to see the law pass allowing shareholders to vote on CEO/High-level Executive/Board member compensation packages for public companies.

[JPhillips]

Originally Posted by flere-imsaho

I know I've noted this before, but a month or two ago NPR's Marketplace had a guy from the Cato Institute on who said that one of the likely results of this when the next Administration comes to power, is more regulation of the financial industry during the next 4-year cycle. Furthermore, in his opinion, this was a good thing, as the people involved have proven themselves unable to behave like adults and were incapable of acting in a manner that did not put the entire system in jeopardy.

Given everything that the Cato Institute stands for, that was a pretty shocking statement.


Anyway, in my opinion the most successful national economies of the 21st century will be those that benefit from active, intelligent, and thoughtful oversight by their respective governments. A lot of emerging economies have taken a look at what's happened to the U.S. recently and decided that while the free market is a good thing, they should a) make sure greed doesn't get the best of their national economic actors to the detriment of their economic stability and b) the nation in question gets a reasonable cut of the benefits of the economic activity in that country.

This isn't socialism and it isn't planned economy. It's about sustainability and health for national financial and economic systems and we've just given the world an object lesson in how not to do it.

If the regulations don't come with the money they won't end up being worth crap. If there's a new push to regulate next Spring you can guarantee that congressional allies of the financial sector will fight tooth and nail to stop any meaningful change and by then the consensus that something needs to change will have largely worn off.

[JPhillips]

I can see a reason for limited immunity, but this is crazy.

"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency"

[Flasch186]

Originally Posted by JPhillips

But that's not the only option. I'll agree that the government needs to intervene in a major way, but to demand nothing from those companies benefiting from this handout is absurd. No equity in these companies. No additional regulations. No demands for new leadership. Nothing.

It may be better than doing nothing, but rewarding the biggest fuck-ups with the biggest handouts while requiring nothing is ridiculous.

Oh dont get me wrong, I think i agree with you that there were other options on the table. One of the fastest ways to the vein is to write down or renegotiate people's mortgages (owner occupied). You want to save both the banks and give a quick injection of capital into the system (via confidence) and thats that. Thats just another of many options but an option had to be taken.

[Marc Vaughan]

But that's not the only option. I'll agree that the government needs to intervene in a major way, but to demand nothing from those companies benefiting from this handout is absurd. No equity in these companies. No additional regulations. No demands for new leadership. Nothing.

As I understood it the money was going to be lent and interest garnered upon the money - thus it isn't like the companies needing the biggest amount of money are being rewarded they still have to pay it back (with interest).

The goverment is acting as the 'lender of last resort' because no capitalist company would ... by doing so they lower the fear present in the market place and will hopefully reduce the risk of companies seizing up and collapsing.

Changes of leadership within the companies most affected by this crisis have already happened in many cases and in the others will undoubtably occur if the people in charge made mistakes ... I'd like to believe sensible regulation will occur once the immediate crisis is over, but time will tell ..

[Marc Vaughan]

Originally Posted by JPhillips

I can see a reason for limited immunity, but this is crazy.

This is sensible imho - the worst thing for the markets would be a fear that a new president or ruling could overturn the ruling.

[JPhillips]

Originally Posted by Marc Vaughan

This is sensible imho - the worst thing for the markets would be a fear that a new president or ruling could overturn the ruling.

Giving Paulson 700 billion with no oversight and no recourse if things go badly is not what I would like our government to do.