180 Degrees - I did some thinking

[MannyIsGod]

I've been most of the night working on various things and I've taken some time to do a bit of thinking. I don't think I'm as upset as the bailout failing now, and I may be on the verge of simply thinking we should not pass any bailout at all.

I'm not coming to the line of thinking that passing the bailout will make things worse, and I'm not of the opinion that failure to pass the bill will work lessen any type of blow. I generally think we're on the verge of something pretty horrible, and I'm not sure how deep the hole will be but I'm hoping for the best and expecting the worst.

Now, that being said, I've long believed there would need to be something that hurt us all deeply as a motivator for change in this country. The fact is that when things are relatively good, and they've been good for quite some time, there is never the fuel needed for a revolution. When you look at our national debt numbers and when you look at the excess of our society you know that we cannot continue this way forever. My hope in supporting the bailout was that we could find a way to fix the system without a total collapse.

More than likely that's simply not the case. Revolutions do not occur without pain.

When I was a bit younger - even just 2,3 or four years ago - I think it was easier for me to be an ideologue. I was far more of a libertarian at that point and I felt that the free market always worked itself out. I'm a bit more cynical now, and I simply don't believe that companies can work in a environment with no regulation because the average consumer simply does not care enough for anything beyond the bottom line. It was easy for me to want a catalyst at that time in my life since I really had nothing to lose.

Fast forward a few years down the line and that's not the case. The idea of an economic depression is quite frightening to me. Not because I have much wealth to lose but because I have a greater perspective on things now and its much more than a ideology.

That being said, something has to change. This country HAS to hurt deeply to realize where its going wrong. There's no other way to explain to the American people and have them actually understand why they can't extend themselves so much based on so little. That Congress let us down in the manner they did during this crisis simply drives home how much accountability we need to learn from the bottom to the top.

I think I know how much this is going to harm this country. I also think maybe its what this country needs.

[timvp]

Nice take.

I've researched the bailout and its ramifications and I've come to the conclusion that its basically just a crap shoot. No one knows what the outcome will be with or without a bailout.

My conclusion as of right this second is that a properly drawn up bailout could help delay the inevitable bubble burst. It could even help to help block some of the damage done once the burst of the bubble occurs. If it takes some more monopoly money to accomplish those things, I think putting $700B onto the gigantic tab would be worth it.

Selfishly, I wouldn't care too much if the bubble did burst overnight. I've been planning for this ish for the last half decade and would be ready to start gobbling if it hits the fan. I've stayed as far away from the fake housing boom as possible and haven't used any form of personal or business credit in I don't know how many years. If the house of cards comes crumbling down, it'd obviously be sad for the country but I couldn't feel too sorry for those who couldn't see this coming . . .

[KenMcCoy]

Good take Manny...I think the worst thing we can do right now is give Paulson a 700B check.

I posted in another thread about changing the mark to market accounting rules. I've done more research on it and I think that's the best way to go at this moment. Paulson and Bernake have both admitted that no one really knows how much this stuff is worth, and it's because of the mark to market accounting. Mark to market overvalues assets in good times and undervalues assets in bad. Europe had warned us that mark to market didn't work after we switched the accounting rules in the wake of Enron.

Changing the rules would instantly free up the banks to start loaning again because they wouldn't be sitting on all of this "toxic" debt.

[SnakeBoy]

Nice take +1

Hopefully the mark to market rule will be suspended today which (from what I've read) should, at a minimum, buy some time for a better plan to be developed.

Edit- oops, Ken beat me to it.

[smeagol]

Am I the only one who sees many common themes between 1929 and 2008?

People who think the US will come out of this crisis without the help of the Government, (call it a bailout, call it a stimulus plan, call it wahtever you like), simply put, are living in another planet.

It will take another New Deal to come out of this crisis . . .

[smeagol]

By the way, the bailout will be passed. Some people do not understand how high the stakes are . . .

[KenMcCoy]

It will take another New Deal to come out of this crisis . . .

The New Deal actually lengthened depression...most economists today agree that raising taxes was the worst thing that Hoover/FDR could have done. THe New Deal took a recession and turned it into a depression.

[DarrinS]

They probably need to do SOMETHING, I just don't think they should rush some bill through, with an arbitrarily high number, with no provisions about golden parachutes, etc.


They need to spend more time THINKING about this one.

[smeagol]

The New Deal actually lengthened depression...most economists today agree that raising taxes was the worst thing that Hoover/FDR could have done. THe New Deal took a recession and turned it into a depression.

Who taught you Economics? Boutons?

[smeagol]

They probably need to do SOMETHING, I just don't think they should rush some bill through, with an arbitrarily high number, with no provisions about golden parachutes, etc.


They need to spend more time THINKING about this one.

I don't disagree. But something needs to be done. The market will eventually fix itself, but it will be a very, very painful process. People who happily cheer the bailout not passing don't realize it.

[boutons_]

Good thinking, but not original, as many others in the "expert" class of economists, economics professors, etc. have said the bailout was a bad idea with no certitude really helping the USA, other than gifting $700B+ to undeserving recipients.

Paulsen's 3-pager, a number already a hint of how bad it was, said:

The solution is "give me $700B, give it to me with no strings attached and no oversight, and do it within 7 days, else, I/my financial buddies will murder the the USA and commit suicide". aka, FUCKING EXTORTION.

This approach is the same BULLSHIT LIES used by the Exec to justify the Iraq-invasion-for-oil (mushroom clouds, etc). And we know how wonderfully that turned out.

This Repug Exec has had no credibility for years, and now they want $700B for their buddies in the financial community? Only a few weeks before dubya is finally and fatally lamed out of office? G M A F B

The mortgage bubble, the US federal deficit, household debt at record levels and several percent above household income, all add up to a greedy fucking materialisic culture living way beyond its means, deep in debt.

[KenMcCoy]

Smeagol, who taught you economics?? your HIGH SCHOOL history teacher??

http://www.cato.org/pub_display.php?pub_id=3357



Until 1937, New Deal revenue from excise taxes exceeded the combined revenue from both personal income taxes and corporate income taxes. It wasn't until 1942, in the midst of World War II, that income taxes exceeded excise taxes for the first time under FDR. Consumers had less money to spend, and employers had less money for growth and jobs.
New Deal taxes were major job destroyers during the 1930s, prolonging unemployment that averaged 17%. Higher business taxes meant that employers had less money for growth and jobs. Social Security excise taxes on payrolls made it more expensive for employers to hire people, which discouraged hiring.
Other New Deal programs destroyed jobs, too. For example, the National Industrial Recovery Act (1933) cut back production and forced wages above market levels, making it more expensive for employers to hire people - blacks alone were estimated to have lost some 500,000 jobs because of the National Industrial Recovery Act. The Agricultural Adjustment Act (1933) cut back farm production and devastated black tenant farmers who needed work. The National Labor Relations Act (1935) gave unions monopoly bargaining power in workplaces and led to violent strikes and compulsory unionization of mass production industries. Unions secured above-market wages, triggering big layoffs and helping to usher in the depression of 1938.
What about the good supposedly done by New Deal spending programs? These didn't increase the number of jobs in the economy, because the money spent on New Deal projects came from taxpayers who consequently had less money to spend on food, coats, cars, books and other things that would have stimulated the economy. This is a classic case of the seen versus the unseen -- we can see the jobs created by New Deal spending, but we cannot see jobs destroyed by New Deal taxing.
For defenders of the New Deal, perhaps the most embarrassing revelation about New Deal spending programs is they channeled money AWAY from the South, the poorest region in the United States. The largest share of New Deal spending and loan programs went to political "swing" states in the West and East - where incomes were at least 60% higher than in the South. As an incumbent, FDR didn't see any point giving much money to the South where voters were already overwhelmingly on his side.
Americans needed bargains, but FDR hammered consumers -- and millions had little money. His National Industrial Recovery Act forced consumers to pay above-market prices for goods and services, and the Agricultural Adjustment Act forced Americans to pay more for food. Moreover, FDR banned discounting by signing the Anti-Chain Store Act (1936) and the Retail Price Maintenance Act (1937).
Poor people suffered from other high-minded New Deal policies like the Tennessee Valley Authority monopoly. Its dams flooded an estimated 750,000 acres, an area about the size of Rhode Island, and TVA agents dispossessed thousands of people. Poor black sharecroppers, who didn't own property, got no compensation.
FDR might not have intended to harm millions of poor people, but that's what happened. We should evaluate government policies according to their actual consequences, not their good intentions.

[Viva Las Espuelas]

The New Deal actually lengthened depression...most economists today agree that raising taxes was the worst thing that Hoover/FDR could have done. THe New Deal took a recession and turned it into a depression.
ding ding ding
thank you. that's why we were one of the last, if not, the last country to come out of the great depression. FDR, a great president? puh-lease. why do you think democrats pushed for term limits DURING his tenure. when Obamessiah called FDR a great president it sent chills down my spine. go out and but the book called The Forgotten Man by Amity Shlaes.

[boutons_]

Arthur LAFFER! St. Ronnie's Economic advisor "nails" the US economic situation 2 years ago vs. Ron Paul adivsor, guess who got it right?

http://www.youtube.com/watch?v=IU6PamCQ6zw




http://s.ytimg.com/yt/img/pixel-vfl73.gif (http://www.youtube.com/activesharing_history)
http://s.ytimg.com/yt/img/pixel-vfl73.gif (http://www.youtube.com/activesharing_history) http://s.ytimg.com/yt/img/pixel-vfl73.gif (http://www.youtube.com/activesharing_history)

[whottt]

Am I the only one who sees many common themes between 1929 and 2008?

People who think the US will come out of this crisis without the help of the Government, (call it a bailout, call it a stimulus plan, call it wahtever you like), simply put, are living in another planet.

It will take another New Deal to come out of this crisis . . .



Two things going on in 1929 that contributed that aren't in play yet...


#1. Prohibition. That was an economy killer.

#2. The US withdrew it's troops from all around the globe(read South America) as it was going into a non-interventionist mode and cut it's military. This had the effect of putting a lot people back into the work force without jobs to give to them. This was a primary cause of the huge upsurge in unemployment. This is what lead to the semi-welfare state.

The New Deal didn't fix shit...WWII is what fixed our economy...when we rebuilt our military.





#1. Isn't a problem now.

But #2 damn sure could be.



Legalize weed and keep the military where it's at and we shouldn't have another depression.


Plus the world moves faster now...in a world wide depression the US will remain the A #1 market to invest in as they have the most sound financial infrastructure in the world.

[SnakeBoy]

Arthur LAFFER! St. Ronnie's Economic advisor "nails" the US economic situation 2 years ago vs. Ron Paul adivsor, guess who got it right?

http://www.youtube.com/watch?v=IU6PamCQ6zw


The only important question about that...Did he get his penny yet?

[Opinionater]

IMHO, this only means that the eventual bailout plan will be better.

[101A]

This smart guy from Harvard agrees with you: (http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html?iref=mpstoryview)




Commentary: Bankruptcy, not bailout, is the right answer



CAMBRIDGE, Massachusetts (CNN) -- Congress has balked at the Bush administration's proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the "troubled assets" of financial institutions in an attempt to avoid economic meltdown.
This bailout was a terrible idea. Here's why.
The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.
Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.
This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.
Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.
The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.
The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.
Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.
Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.
Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.
Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.
The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.
If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.
The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.
Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.
So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.
The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.

[spurster]

Well, the smart guy from Harvard is a lecturer there, not a professor, so I wouldn't say he was that smart.

But I like the idea of incorporating bankruptcy into the bailout. Financial companies who have lost the house on mortgage derivatives should go bankrupt or go on a fire sale. The government can step in to help then as it did for Wachovia. The government should not prop up bad companies.

[RandomGuy]

Smeagol, who taught you economics?? your HIGH SCHOOL history teacher??

http://www.cato.org/pub_display.php?pub_id=3357

Because, as we all know, we can count on the cato institute to give a fair, non-biased account of the root causes of the Great Depression.

:lmao

[Extra Stout]

My understanding is that if nothing is done, within two weeks all short-term and revolving credit will shut down. So for you individually, at first it means your credit and debit cards will stop working, and you won't be able to write checks. You'll have to pay cash for everything. That is, if you can get your money out. Within a few weeks, Bank of America, Citi, and Chase will declare bankruptcy.

Oh, and even if you have cash, it will be hard finding a place to use it. Most businesses float their operating expenses for 30 to 60 days on credit because that's how long it takes to process the invoices. When that stops, their whole business model stops. So basically all economic activity will stop, at least for a while. Your company won't be able to make payroll, so don't expect to get paid for a while. Don't expect to go to H-E-B for food, because they'll be closed. Hopefully you know a farmer and can pay cash, or you have a bunker somewhere where you've stored canned goods.

You'll also need firearms, because there will be hungry and desperate people ready to use violence to get some food or some money.

Be sure to avoid heavily populated areas in the cities where the food riots will be happening. Really, it would be better to flee the cities. Stock up on gas now, because once credit shuts down, the gas stations will be closed too.

Conditions will be kind of like Iraq circa 2005 for a while, but really, it's worth it to let the market work itself out. Nations have to be allowed to fail just like businesses.

[KenMcCoy]

Because, as we all know, we can count on the cato institute to give a fair, non-biased account of the root causes of the Great Depression.

:lmao

How about these...

http://www.econlib.org/LIBRARY/Enc/GreatDepression.html

http://www.opinionjournal.com/columnists/rbartley/?id=110004190

http://www.slate.com/id/2169744

http://minneapolisfed.org/research/qr/qr2311.pdf

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=515245

There's a lot more...

Look, the point is that what you learned about the New Deal in HS history was from a book written by HISTORY teachers and not economists. Accepting what is in the HS texts at face value is like asking the ice cream man if your car needs a new transmission...he might know a little background but you'd be better off going to a mechanic.

[Oh, Gee!!]

My understanding is that if nothing is done, within two weeks all short-term and revolving credit will shut down. So for you individually, at first it means your credit and debit cards will stop working, and you won't be able to write checks. You'll have to pay cash for everything. That is, if you can get your money out. Within a few weeks, Bank of America, Citi, and Chase will declare bankruptcy.

Oh, and even if you have cash, it will be hard finding a place to use it. Most businesses float their operating expenses for 30 to 60 days on credit because that's how long it takes to process the invoices. When that stops, their whole business model stops. So basically all economic activity will stop, at least for a while. Your company won't be able to make payroll, so don't expect to get paid for a while. Don't expect to go to H-E-B for food, because they'll be closed. Hopefully you know a farmer and can pay cash, or you have a bunker somewhere where you've stored canned goods.

You'll also need firearms, because there will be hungry and desperate people ready to use violence to get some food or some money.

Be sure to avoid heavily populated areas in the cities where the food riots will be happening. Really, it would be better to flee the cities. Stock up on gas now, because once credit shuts down, the gas stations will be closed too.

Conditions will be kind of like Iraq circa 2005 for a while, but really, it's worth it to let the market work itself out. Nations have to be allowed to fail just like businesses.

sounds like dubya's primetime speech.

[101A]

Well, the smart guy from Harvard is a lecturer there, not a professor, so I wouldn't say he was that smart.




:lmao

Oh holy shit that was ignorant on so many levels. "Lecturer and NOT Professor". Do you always know this little about what the fuck you are talking about?

Here is 2/3rds of the FIRST page of dude's TWELVE page CV: (http://www.economics.harvard.edu/faculty/miron)



CURRICULUM VITAE OF JEFFREY A. MIRON



January, 2008





Senior Lecturer and Director of Undergraduate Studies
Department of Economics
Harvard University
Cambridge, MA 02138
(617) 495-4129 (office)
(781) 856-0086 (cell)
(617) 495-8570 (fax)
[email protected]
http://post.economics.harvard.edu/faculty/miron/miron.html


Education

Swarthmore College, B.A. in Economics, Magna Cum Laude, 1979.

M.I.T., Ph.D. in Economics, 1984.


Honors, Fellowships, and Awards

Phi Beta Kappa, 1979

Joshua P. Lippincott Fellowship for Graduate Study, 1979.

Social Science Research Council Fellowship, 1981.

Rackham Faculty Fellowship, University of Michigan, 1987

Olin Fellowship, National Bureau of Economic Research, 1988 – 1989.

Sloan Foundation Faculty Research Fellowship, 1990 – 1992.

Senior Class List of Favorite Teachers, Harvard College, 2006

Senior Class List of Favorite Teachers, Harvard College, 2007

Senior Class List of Favorite Teachers, Harvard College, 2008
Yeah, not that smart.

:lmao

[101A]

My understanding is that if nothing is done, within two weeks all short-term and revolving credit will shut down. So for you individually, at first it means your credit and debit cards will stop working, and you won't be able to write checks. You'll have to pay cash for everything. That is, if you can get your money out. Within a few weeks, Bank of America, Citi, and Chase will declare bankruptcy.

Oh, and even if you have cash, it will be hard finding a place to use it. Most businesses float their operating expenses for 30 to 60 days on credit because that's how long it takes to process the invoices. When that stops, their whole business model stops. So basically all economic activity will stop, at least for a while. Your company won't be able to make payroll, so don't expect to get paid for a while. Don't expect to go to H-E-B for food, because they'll be closed. Hopefully you know a farmer and can pay cash, or you have a bunker somewhere where you've stored canned goods.

You'll also need firearms, because there will be hungry and desperate people ready to use violence to get some food or some money.

Be sure to avoid heavily populated areas in the cities where the food riots will be happening. Really, it would be better to flee the cities. Stock up on gas now, because once credit shuts down, the gas stations will be closed too.

Conditions will be kind of like Iraq circa 2005 for a while, but really, it's worth it to let the market work itself out. Nations have to be allowed to fail just like businesses.


link?

[101A]

And then there's this: (http://network.nationalpost.com/np/blogs/fpcomment/archive/2008/09/29/bailout-marks-karl-marx-s-comeback.aspx)


Bailout marks Karl Marx's comeback
Posted: September 29, 2008, 8:03 PM by Jeff White Martin Masse (http://network.nationalpost.com/np/blogs/fpcomment/archive/tags/Martin+Masse/default.aspx), mortgage crisis (http://network.nationalpost.com/np/blogs/fpcomment/archive/tags/mortgage+crisis/default.aspx)

Marx’s Proposal Number Five seems to be the leading motivation for those backing the Wall Street bailout
By Martin MasseIn his Communist Manifesto, published in 1848, Karl Marx proposed 10 measures to be implemented after the proletariat takes power, with the aim of centralizing all instruments of production in the hands of the state. Proposal Number Five was to bring about the “centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.”
If he were to rise from the dead today, Marx might be delighted to discover that most economists and financial commentators, including many who claim to favour the free market, agree with him.
Indeed, analysts at the Heritage and Cato Institute, and commentators in The Wall Street Journal and on this very page, have made declarations in favour of the massive “injection of liquidities” engineered by central banks in recent months, the government takeover of giant financial institutions, as well as the still stalled US$700-billion bailout package.Some of the same voices were calling for similar interventions following the burst of the dot-com bubble in 2001.
“Whatever happened to the modern followers of my free-market opponents?” Marx would likely wonder.
At first glance, anyone who understands economics can see that there is something wrong with this picture. The taxes that will need to be levied to finance this package may keep some firms alive, but they will siphon off capital, kill jobs and make businesses less productive elsewhere. Increasing the money supply is no different. It is an invisible tax that redistributes resources to debtors and those who made unwise investments.
So why throw this sound free-market analysis overboard as soon as there is some downturn in the markets?
The rationale for intervening always seems to centre on the fear of reliving the Great Depression. If we let too many institutions fail because of insolvency, we are being told, there is a risk of a general collapse of financial markets, with the subsequent drying up of credit and the catastrophic effects this would have on all sectors of production. This opinion, shared by Ben Bernanke, Henry Paulson and most of the right-wing political and financial establishments, is based on Milton Friedman’s thesis that the Fed aggravated the Depression by not pumping enough money into the financial system following the market crash of 1929.
It sounds libertarian enough. The misguided policies of the Fed, a government creature, and bad government regulation are held responsible for the crisis. The need to respond to this emergency and keep markets running overrides concerns about taxing and inflating the money supply. This is supposed to contrast with the left-wing Keynesian approach, whose solutions are strangely very similar despite a different view of the causes.
But there is another approach that doesn’t compromise with free-market principles and coherently explains why we constantly get into these bubble situations followed by a crash. It is centered on Marx’s Proposal Number Five: government control of capital.
For decades, Austrian School economists have warned against the dire consequences of having a central banking system based on fiat money, money that is not grounded on any commodity like gold and can easily be manipulated. In addition to its obvious disadvantages (price inflation, debasement of the currency, etc.), easy credit and artificially low interest rates send wrong signals to investors and exacerbate business cycles.
Not only is the central bank constantly creating money out of thin air, but the fractional reserve system allows financial institutions to increase credit many times over. When money creation is sustained, a financial bubble begins to feed on itself, higher prices allowing the owners of inflated titles to spend and borrow more, leading to more credit creation and to even higher prices.
As prices get distorted, malinvestments, or investments that should not have been made under normal market conditions, accumulate. Despite this, financial institutions have an incentive to join this frenzy of irresponsible lending, or else they will lose market shares to competitors. With “liquidities” in overabundance, more and more risky decisions are made to increase yields and leveraging reaches dangerous levels.
During that manic phase, everybody seems to believe that the boom will go on. Only the Austrians warn that it cannot last forever, as Friedrich Hayek and Ludwig von Mises did before the 1929 crash, and as their followers have done for the past several years.
Now, what should be done when that pyramidal scheme starts crashing to the floor, because of a series of cascading failures or concern from the central bank that inflation is getting out of control? It’s obvious that credit will shrink, because everyone will want to get out of risky businesses, to call back loans and to put their money in safe places. Malinvestments have to be liquidated; prices have to come down to realistic levels; and resources stuck in unproductive uses have to be freed and moved to sectors that have real demand. Only then will capital again become available for productive investments.
Friedmanites, who have no conception of malinvestments and never raise any issue with the boom, also cannot understand why it inevitably leads to a crash. They only see the drying up of credit and blame the Fed for not injecting massive enough amounts of liquidities to prevent it.
But central banks and governments cannot transform unprofitable investments into profitable ones. They cannot force institutions to increase lending when they are so exposed. This is why calls for throwing more money at the problem are so totally misguided. Injections of liquidities started more than a year ago and have had no effect in preventing the situation from getting worse. Such measures can only delay the market correction and turn what should be a quick recession into a prolonged one.
Friedman — who, contrary to popular perception, was not a foe of monetary inflation, but simply wanted to keep it under better control in normal circumstances — was wrong about the Fed not intervening during the Depression. It tried repeatedly to inflate but credit still went down for various reasons. This is a key difference in interpretation between the Austrian and Chicago schools.
As Friedrich Hayek wrote in 1932, “Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion. ... To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about ...”
The confusion of Chicago school economics on monetary issues is so profound as to lead its adherents today to support the largest government grab of private capital in world history. By adding their voices to those on the left, these confused free-marketeers are not helping to “save capitalism”, but contributing to its destruction.

[101A]

Why is it so easy to find reasoned, detailed explanations of why NOT to do the bailout, but very difficult to find the same FOR doing the bailout? ALL of the papers in support are full of chicken little sky is falling cliches, but very few details, and almost most no reasoned discussion. My cynic alarm is at full tilt.

[spurster]

:lmao

Oh holy shit that was ignorant on so many levels. "Lecturer and NOT Professor". Do you always know this little about what the fuck you are talking about?

Here is 2/3rds of the FIRST page of dude's TWELVE page CV: (http://www.economics.harvard.edu/faculty/miron)

Yeah, not that smart.

:lmao

:lol I didn't look at his CV. He has an unusual CV. Normally, lecturers in the US are underpaid, overworked teachers who are pining for a professor position, but this guy has been all over the place in all sorts of academic positions.

[boutons_]

Paulsen framed his self-enriching solution as if it were the only solution. Gradually, his frame is being busted and alternative solutions put forward. Here's one:

http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html?iref=mpstoryview

[101A]

Paulsen framed his self-enriching solution as if it were the only solution. Gradually, his frame is being busted and alternative solutions put forward. Here's one:

http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html?iref=mpstoryview


Do you ever read the threads you are posting in?

[Extra Stout]

link?

http://www.bloomberg.com/apps/quote?ticker=.TEDSP%3AIND

[Extra Stout]

http://www.bloomberg.com/apps/news?pid=20601082&sid=alszNo3N0CHo&refer=canada

[Opinionater]

IMHO, all these links prove that we all don't know much about economics on our own so we have to depend on those who apparently think they do.

[101A]

Stout, I understand credit it going to get VERY tight - and banks are going to hate it; but RIGHT NOW I can get a loan for damn near anything I want; called my bank to verify. INCLUDING a short termer to mean payroll (which I don't need).

With the uncertainty being what it is, and all the banks so shell-shocked; how can that be the case? People who can pay back loans will still be able to get them as long as their are people with capital to give them (which there will be) - just probably not the SAME people who screwed it up in the first place. That is a good thing.

[Ignignokt]

WE'll be fine.

[Viva Las Espuelas]

but RIGHT NOW I can get a loan for damn near anything I want;
someone here says that's not happening anywhere. very emphatically.

[BacktoBasics]

Stout, I understand credit it going to get VERY tight - and banks are going to hate it; but RIGHT NOW I can get a loan for damn near anything I want; called my bank to verify. INCLUDING a short termer to mean payroll (which I don't need).

With the uncertainty being what it is, and all the banks so shell-shocked; how can that be the case? People who can pay back loans will still be able to get them as long as their are people with capital to give them (which there will be) - just probably not the SAME people who screwed it up in the first place. That is a good thing.I'm not buying into the Stout panic earth shattering zomie community failure scenario but if the big banks fail and can no longer supply the smaller banks with working capital your ability to make that call and secure a loan is going to be more difficult or possibly non-existent for a time. That might happen. Might. At the very least the requirement will be tougher.

Its already tight though. Way tighter than people think. The bailout won't change that. I'm tired of hearing how this bailout will free the banks up to get back into the lending game when I know this isn't going to happen because not only are they not going to make the same mistake twice they'll make damn sure to protect themselves against anything remotely questionable. Which is already happening. If anything, the banks will continue to get tighter, bail out or not. Its going to happen regardless.

[BacktoBasics]

someone here says that's not happening anywhere. very emphatically.I'm sure he has no issue getting a loan if he's in great standing. Its going to get tougher though. I've stated previously that prime is moving way up, as far as qualifying criteria goes. What once could be done at 680 can no longer be had. Hell what once could be done at 620....or worse 700 can no longer be done.

Try looking a 710 in the face and tell them that no bank will buy the deal because their debt to income is sitting at 41% and their time on the job is less than 3 years. A year ago that would have locked at prime without even submitting the application.

[BacktoBasics]

Out of my own curiosity what was the original bill or law that was passed that allowed the big lenders to expand subprime lending guidelines? It wasn't a fearless move they had support from something.

[remingtonbo2001]

Legalize weed and keep the military where it's at and we shouldn't have another depression.

Let me see if I have this correct. No one would suffer from this great depression because everyone would be high.

BRILLIANT.

[JoeChalupa]

I'm just glad I have no need for any loans right now.

[smeagol]

WE'll be fine.

Not really.

[Indazone]

I am for the bailout/rescue

Banks stop lending then companies can't pay employees, they won't be able to buy raw materials, they cannot buy inventories. There would be massive layoffs and companies would be forced to shut their doors because of the credit crunch. Massive unemployment and the worst case would be that dollar would sink to zero anyways. At least if they do the bailout, there's a chance we can buy some time to get our fiscal house in order.

America has to get it together. A guy said it best. Imagine if you are on a desert island. Everyone has to have a job to survive. One does the fishing, one does the hunting, another gathers wood, another gathers vegetables and another one cooks. The American's job is to eat the feast. He gives just enough to everyone else so they can survive. This is the economist's dream and he will say this is great. Without the American, everyone else has to work hard to produce for the American. The reality is that without the American, the rest of the island would not have to work as hard, there would be more resources and food to go around and everyone would pull their weight.

How long will it be before all the other workers figure out they would be better off without the American and push him into the sea and feed him to the sharks?

[Extra Stout]

Stout, I understand credit it going to get VERY tight - and banks are going to hate it; but RIGHT NOW I can get a loan for damn near anything I want; called my bank to verify. INCLUDING a short termer to mean payroll (which I don't need).

With the uncertainty being what it is, and all the banks so shell-shocked; how can that be the case? People who can pay back loans will still be able to get them as long as their are people with capital to give them (which there will be) - just probably not the SAME people who screwed it up in the first place. That is a good thing.
The reason there is liquidity right now is because central banks are pumping money full-tilt into the markets. However, the economy is not at equilibrium.

According to macroeconomic theory as I understand it, financial markets have multiple equilibria. We tend to like the equilibrium where prices and investment are highest, because then the economy has lots of jobs and people are happy. However, during a panic, the markets can shift to lower equilibria because the supply/demand curve becomes inverted for a while. So rather than being a straight line, it's like a "Z." Right now, we are still on the top bar of the "Z," and desperately trying not to slide down the crossmember down to the bottom bar of the "Z." Down there, the markets will eventually settle down again, but at a low-price, low-investment equilibrium where there are a lot fewer jobs. We call that situation a "depression." We also know that once you get there, it's very difficult to get back out.

It appears right now that there might not be a stable equilibrium anywhere on the top bar of the "Z," so the idea is to artificially push the demand curve for financial assets up and to the right until we can reach an equilibrium without falling into depression. Bernanke and Paulson are guessing that buying up $700 billion in questionable MBS's will do the trick.

The problem with banks is that very little of their assets are appropriated to shareholder value. If they write down like 3%, their stock value is already at zero, and if they have to write down any more, they start cutting into bondholder equity and that means bankruptcy. The MBS exposure for most of these large banks is well in excess of that. Obviously the economists who thought they had made the system foolproof against these kinds of collapses were wrong.

The government started meddling with the market in the late 1990's to get more minorities into home ownership, and ultimately precipitated all of this.

[101A]

Ultimately though, isn't the bailout just delaying the inevitable? Doesn't this piper NEED to be paid?

We cannot just print money to get out of this mess, after all. Isn't it better to fight through it before the baby boomers hit 67 and start taking SS en masse?

[Extra Stout]

Ultimately though, isn't the bailout just delaying the inevitable? Doesn't this piper NEED to be paid?

We cannot just print money to get out of this mess, after all. Isn't it better to fight through it before the baby boomers hit 67 and start taking SS en masse?

You can liken it to being on an airplane. You've steered the airplane into a stall. You were stupid and reckless. It is going to crash. Now, you have a choice. You can go down with the plane, or you can grab a parachute and jump.

Regardless of which you choose, your descent to the ground is inevitable. However, only with one of the choices will you have the opportunity to fly again.

[BacktoBasics]

You can liken it to being on an airplane. You've steered the airplane into a stall. You were stupid and reckless. It is going to crash. Now, you have a choice. You can go down with the plane, or you can grab a parachute and jump.

Regardless of which you choose, your descent to the ground is inevitable. However, only with one of the choices will you have the opportunity to fly again.
The opportunity to fly a plane that will continue to crash. Perhaps a pilot death is in order to catapult change.

[smeagol]

Not doing anything will have disastrous effects on the average American.

I'm surprised people do not see that . . .

[BacktoBasics]

Not doing anything will have disastrous effects on the average American.

I'm surprised people do not see that . . .The average American has no clue this was even voted down yesterday.

[Extra Stout]

The opportunity to fly a plane that will continue to crash. Perhaps a pilot death is in order to catapult change.
Certainly one could argue that the best outcome would simply be for the United States of America to collapse and for the world as a whole to move on without it. If I were a Russian, I might enjoy that, and I might enjoy seeing Americans go through the deprivation and chaos I went through in the 1990's.

However, barring a tremendous sense of impersonal justice and irony, it's hard to see why an American would suggest that. Unless you are very rich, the 2010's will suck for you, to a degree of severity ranging from "moderate" to "on a waiting list to get a spot under that I-37 overpass."

Are you a Russian spy?

[Oh, Gee!!]

maybe we're the plane, man. maybe we're the plane.

[2centsworth]

Not doing anything will have disastrous effects on the average American.

I'm surprised people do not see that . . .

average american can't do simple math or understand simple financial concepts. Remember, most americans live paycheck to paycheck, so of course they would know best when it comes to finance. The fat cats are laughing, because they're rich already and the downturn will have little affect on them. It's these poor schmos who think everyone over the age of 18 would get 400,000 instead of the "bailout" or that the "bailout" is a handout.

I was listening to mike reagan this morning and the dude couldn't do simple math. I was flabbergasted. I love how the government caused this mess with Fannie and Freddie and now wants everyone to fend for themselves. It's a con so rich liquid republicans can come in after the mess and gobble up assets for pennies on the dollar while the average american gets bent over. Here's a solution let all the rich people gobble up assets and pay zero capital gains tax, so johnny doesn't go bankrupt.

I love it.

[Extra Stout]

maybe we're the plane, man. maybe we're the plane.
The way I had it, we're the pilot, but with your way...

It is true, if you want to have a violent revolution, it takes people who are desperate, angry, and have nothing more to lose.

[2centsworth]

The way I had it, we're the pilot, but with your way...

It is true, if you want to have a violent revolution, it takes people who are desperate, angry, and have nothing more to lose.

radical conservatives want a revolution to get rid of all the illegal immigrants.

[Extra Stout]

radical conservatives want a revolution to get rid of all the illegal immigrants.
Well, hell, when all the jobs dry up, they'll go back home of their own accord.

[2centsworth]

Why is it so easy to find reasoned, detailed explanations of why NOT to do the bailout, but very difficult to find the same FOR doing the bailout? ALL of the papers in support are full of chicken little sky is falling cliches, but very few details, and almost most no reasoned discussion. My cynic alarm is at full tilt.

give me well reasoned points why not to do it?

[Extra Stout]

I think when my insurance check comes in for my house, after I'm done repairing everything, then, rather than replacing my furniture and belongings, I'll just buy gold and sit on the floor.

[smeagol]

average american can't do simple math or understand simple financial concepts. Remember, most americans live paycheck to paycheck, so of course they would know best when it comes to finance. The fat cats are laughing, because they're rich already and the downturn will have little affect on them. It's these poor schmos who think everyone over the age of 18 would get 400,000 instead of the "bailout" or that the "bailout" is a handout.

I was listening to mike reagan this morning and the dude couldn't do simple math. I was flabbergasted. I love how the government caused this mess with Fannie and Freddie and now wants everyone to fend for themselves. It's a con so rich liquid republicans can come in after the mess and gobble up assets for pennies on the dollar while the average american gets bent over. Here's a solution let all the rich people gobble up assets and pay zero capital gains tax, so johnny doesn't go bankrupt.

I love it.

Rich people will not suffer. They never do. Actually, this will be an opportunitty for them to make more money. Volatile times help create fortunes.

By the way, this mess is not soley on the repbs. I remember ARMs flourishing in the late 90s. Hell, I took one in 1997.

[BacktoBasics]

The way I had it, we're the pilot, but with your way...

It is true, if you want to have a violent revolution, it takes people who are desperate, angry, and have nothing more to lose.
You're suggesting a rinse repeat cycle or we'll destroy the world you live in. I'm sick of waking up everyday to the world around me being as fucked up as it is. If it means we can do it differently from here on out I'm willing to eat it for now and live below the poverty line. The world needs ditch diggers too and I'm only 31. I'm gonna go get my shovel.

[2centsworth]

Well, hell, when all the jobs dry up, they'll go back home of their own accord.

that's the logic. Republicans feel like they are losing control, so want to blow up the country in hopes of change.

[Oh, Gee!!]

that's the logic. Republicans feel like they are losing control, so want to blow up the country in hopes of change.

they watched "v for vendetta" one too many times i guess

[RandomGuy]

Stout, I understand credit it going to get VERY tight - and banks are going to hate it; but RIGHT NOW I can get a loan for damn near anything I want; called my bank to verify. INCLUDING a short termer to mean payroll (which I don't need).

With the uncertainty being what it is, and all the banks so shell-shocked; how can that be the case? People who can pay back loans will still be able to get them as long as their are people with capital to give them (which there will be) - just probably not the SAME people who screwed it up in the first place. That is a good thing.

It takes a while for the ripple effects to truly wind their way down.

Not all credit will completely dry up, but enough will to exacerbate the slowdown.

I will take a wait and see attitude. I am certain that doing nothing is worse than doing what they are proposing.

It's going to get rough and we haven't seen the worst of it yet.

[101A]

Certainly one could argue that the best outcome would simply be for the United States of America to collapse and for the world as a whole to move on without it. If I were a Russian, I might enjoy that, and I might enjoy seeing Americans go through the deprivation and chaos I went through in the 1990's.

However, barring a tremendous sense of impersonal justice and irony, it's hard to see why an American would suggest that. Unless you are very rich, the 2010's will suck for you, to a degree of severity ranging from "moderate" to "on a waiting list to get a spot under that I-37 overpass."

Are you a Russian spy?

Who will be living in all the houses?

[101A]

give me well reasoned points why not to do it?


There's already been one posted in this thread - twice.

[Extra Stout]

that's the logic. Republicans feel like they are losing control, so want to blow up the country in hopes of change.
I seriously don't think that Republicans back in 1999 hatched a scheme where in case the Democrats looked like they were going to win the White House in 2008 the richers could sabotage the economy. I think there was a suspension of reality with Fannie Mae and Freddie Mac where the liberals liked subprime mortgage loans because it put their constituents in homes, and conservatives liked subprime loans because the financial markets seemed to be making a killing while the economy was good.

To the GOP's credit, the financial hawk wing of the party started making noise about problems in Fannie Mae and Freddie Mac back in 2004 or thereabouts. The Democrats called them bigots. I guess the Fannie Mae chairman must have been black or something. I guess it is racist to call somebody out for falsifying financial results in order to deliver himself a bonus when in reality the company is losing billions. It's TOTALLY different from when Enron executives did it.

Not that the Bush Administration did anything about it, but when have they ever done anything?

[Extra Stout]

Who will be living in all the houses?
Squatters, you mean? That works fine until the property owner calls out the National Guard to remove them.

[101A]

average american can't do simple math or understand simple financial concepts. Remember, most americans live paycheck to paycheck, so of course they would know best when it comes to finance. The fat cats are laughing, because they're rich already and the downturn will have little affect on them. It's these poor schmos who think everyone over the age of 18 would get 400,000 instead of the "bailout" or that the "bailout" is a handout.

I was listening to mike reagan this morning and the dude couldn't do simple math. I was flabbergasted. I love how the government caused this mess with Fannie and Freddie and now wants everyone to fend for themselves. It's a con so rich liquid republicans can come in after the mess and gobble up assets for pennies on the dollar while the average american gets bent over. Here's a solution let all the rich people gobble up assets and pay zero capital gains tax, so johnny doesn't go bankrupt.

I love it.

Bullshit.

These "assets" are available for pennies on the dollar RIGHT NOW!!!

The powerful are waiting around to see if they can get MORE THAN THEY ARE WORTH from the taxpayer.

[RandomGuy]

Who will be living in all the houses?

That is a good question. The people who are vacating them are, quite often, stripping them down to the studs. Appliances, copper wires, copper tubes, fixtures, etc.

Hard to sell that kind of property.

Foreclosed Homeowners Trashing Houses (http://www.newschannel9.com/news/people_967197___article.html/houses_literally.html)


As we hear of more people falling into the seemingly endless pit called foreclosure, we are finding out that people are taking out their frustrations and anger out on the very places they called home.

They are literally trashing the houses, which will ultimately cost us all in some way or another.

We went to a house on East 17th Street in Chattanooga so see for ourselves the damage that so many realtors are talking about. We found people taking desperate measures in desperate times.

Crye-Leike managing broker Cindy Walker took us on a tour of the house, beginning in the bathroom. We find walls literally ripped open where fixtures and plumbing were taken. The sink is laying on the floor because the vanity was taken.

Walker says this is becoming far too common, and it's costing the banks that now own these homes a lot of money.

"Typically on a national average, they're loosing about $50,000 per home. Back in the 80's when I started doing this they were loosing an average of $25,000," Walker explained.

Look around and you'll see light fixtures gone, and wires hanging out of walls and floors. This house is just one example, and it gets even worse.

"Sometimes they will strip a house down to the bare studs. I mean sheet rock, bathtubs, all the kitchen cabinets, everything totally stripped out of the house," Walker said.

Just outside, we find an empty concrete pad, where the airconditioner once sat. The wires and plumbing still dangle from the walls.

Back inside, the attic ladder was ripped out leaving a gaping hole in the ceiling - the electric wiring in the attic is gone too.

As are the kitchen appliances and counters.

You've heard the old expression, take everything and the kitchen sink? Well in this case that applies because the kitchen sink is gone too, and realtors say sometimes they find other surprises in the kitchen.

"Like in the kitchen drawers, and things like that people have actually went to the bathroom and just left that in the kitchen drawers for people," Walker said.

Walker said in almost all local foreclosures the owners never talked with their lender - they just got mad and decided to get even.

Walker said "I guess the main thing is people need to be more aware that they should be talking to their lender and try to resolve things, trying to stay out of foreclosure. There's so many avenues right now because the lender does not want their houses."

In almost all cases like this one the owners who were foreclosed on are not prosecuted because it's hard to prove they did the damage.

In Georgia, officials there say owners are taking even more desperate measures. Walker County fire marshal Waymond Westbrook said the number of arsons is on the rise and he says foreclosed owners are suspected in several cases.

In many cases it isn't only the homeowners, but roving gangs of theives.

If 40-80% of the houses in an area are vacant, who is there to report the crimes?

[Extra Stout]

Bullshit.

These "assets" are available for pennies on the dollar RIGHT NOW!!!

The powerful are waiting around to see if they can get MORE THAN THEY ARE WORTH from the taxpayer.
Yes, that is correct. The theory does require the government to buy the securities for greater than market value. If they buy them for current market value, it doesn't really solve the problem, because the current market valuation is what is pushing everybody into bankruptcy.

Citi and BoA bought the other banks in anticipation of a buyout. If there's no buyout, they go under regardless of whether they buy WaMu and Wachovia. If there is a buyout, they get those assets dirt cheap and make a killing.

It's really unfair that there might be a safety net for the rich. Really unfair. It's just that when they fall, they also crush all of us underneath them.

If you want revenge, you could always try the terrorist route. That's what the working classes did 100 years ago.

[101A]

That is a good question. The people who are vacating them are, quite often, stripping them down to the studs. Appliances, copper wires, copper tubes, fixtures, etc.

Hard to sell that kind of property.

What percentage of homes are currently in default?

[Extra Stout]

What percentage of homes are currently in default?
9%.

[101A]

Yes, that is correct. The theory does require the government to buy the securities for greater than market value. If they buy them for current market value, it doesn't really solve the problem, because the current market valuation is what is pushing everybody into bankruptcy.

Citi and BoA bought the other banks in anticipation of a buyout. If there's no buyout, they go under regardless of whether they buy WaMu and Wachovia. If there is a buyout, they get those assets dirt cheap and make a killing.

It's really unfair that there might be a safety net for the rich. Really unfair. It's just that when they fall, they also crush all of us underneath them.

If you want revenge, you could always try the terrorist route. That's what the working classes did 100 years ago.

Does the centralization of the credit markets to the Federal govt. not raise any red flags for you?

May prevent some economic disaster now, but at what cost? What can future (wise, prudent), lawmakers do with what is being proposed now, that we cannot imagine?

How does letting the people off the hook that did this, and leaving them in charge, help anything?

[dickface]

If you want revenge, you could always try the terrorist route. That's what the working classes did 100 years ago.

I already loaded up on shotgun shells and found a used Anarchist Cookbook at Borders. I'm ready.

[RandomGuy]

About 2.75 percent of all home loans, or about 1.75 million mortgages, were in foreclosure at the end of June, up from 2.47 percent in March. That was the highest foreclosure rate since 1979, when the Mortgage Bankers first collected the data.

The number of loans that were past due by less than three months fell to 4.58 percent, from 4.72 percent, the first decline since the start of 2006. Foreclosure rates were highest in California, Florida, Michigan, Nevada and Ohio.

Analysts and industry officials offered several explanations for the decline in delinquencies. The $100 billion in federal tax rebates that were sent out in the spring and early summer probably helped some families pay their bills, while efforts to modify adjustable rate loans may have helped others.

But the economic stimulus from the rebates appears to be wearing off, and the job market is weakening faster. The Labor Department reported on Friday that the unemployment rate climbed to 6.1 percent in August, up from 5.7 percent in July.

“The data over all still suggests that mortgage quality is weak, and I would expect that there will be further weakening and foreclosures that occur before the housing market improves,” said Celia Chen, director of housing research at Moody’s Economy.com.

A crucial concern is the fate of prime loans, which account for most home mortgages outstanding. Delinquencies on these loans have been rising fast over the last year and a half, and many analysts are worried they could climb higher because many borrowers with interest-only and other creative loans may not be able to make the higher principal and interest payments when their favorable introductory terms end.

At the end of June, 5.35 percent of prime loans were past due or in foreclosure, up from 4.93 in March. By contrast, 30.48 percent of subprime loans were past due or in foreclosure, up from 29.53 percent.

:wow


-------------------

http://www.nytimes.com/2008/09/06/business/06lend.html

6 september 2008

[101A]

9%.

That's delinquent, but regardless, I'll grant the number.

Bailout or not, those people are probably out on their asses, and can't get a loan, regardless of the market, right? Or with the bailout, is there going to be enough money for the cycle to start again? What safeguards are there going to be in place to prevent it?

[RandomGuy]

Does the centralization of the credit markets to the Federal govt. not raise any red flags for you?

May prevent some economic disaster now, but at what cost? What can future (wise, prudent), lawmakers do with what is being proposed now, that we cannot imagine?

How does letting the people off the hook that did this, and leaving them in charge, help anything?

This is not the complete centralization of credit markets. This is the absorbtion of losses.

You assume that the US government will not unwind its position as time goes on and wants to retain the position of holding onto this debt with no evidence to support this.

Letting these assholes stay where they are means not letting their institutions fail. It isn't "save the assholes" it is "save the institutions and investors".

If investors in the US didn't elect so many "rubber stamp" boards of directors that represent managment interests over shareholder interests, we probably wouldn't be in this mess.

[101A]

You assume that the US government will not unwind its position as time goes on and wants to retain the position of holding onto this debt with no evidence to support this.



Please link the abundance of evidence that the U.S. govt. cedes power and control readily:

_________________________________________
_________________________________________
_________________________________________
_________________________________________

[Extra Stout]

Does the centralization of the credit markets to the Federal govt. not raise any red flags for you?

May prevent some economic disaster now, but at what cost? What can future (wise, prudent), lawmakers do with what is being proposed now, that we cannot imagine?

How does letting the people off the hook that did this, and leaving them in charge, help anything?
The centralization of the credit markets to central banks is the situation today. It already happened. Everyone else stopped trading.

The proposal at its heart is for the Treasury to buy subprime mortgage-backed securities so that banks can trust that the next bank is solvent, and begin trading with them again. This will get the money markets moving, keep short-term credit alive, and prevent economic meltdown.

Yes, the Democrats tried to throw the kitchen sink into the proposal -- credit cards, car loans, etc., in a huge "vote for me and keep all that shit you bought on credit for free" scam. But that is not the proposal on the table now.

I guess there are unintended long-term consequences that could suck. But I think the contraction of the U.S. economy by 20-30% at least, with no prospects of ever getting back to the quality of life that has existed from 1945 to present for the bottom half of the population, is vastly worse than whatever those unintended consequences might be.

It's not really fair that some of the people who executed this scam might escape punishment. Franklin Raines probably deserves a life sentence, but nothing will happen to him. However, I think most people probably aren't willing to move into a favela just to insure that Daddy Warbucks gets what's coming to him. And what's coming to him? That he has to cut back to just one Aston Martin and sell his place in the Hamptons?

[101A]

If investors in the US didn't elect so many "rubber stamp" boards of directors that represent managment interests over shareholder interests, we probably wouldn't be in this mess.

I've never voted for an incumbent board member (or one "recommended" in a prospectus).

[RandomGuy]

Please link the abundance of evidence that the U.S. govt. cedes power and control readily:

_________________________________________
_________________________________________
_________________________________________
_________________________________________

Ah... the cynic's response.

It is not my burden of proof.

You implied that the government would keep these assets and attempt to remain "in the credit business" after winding down the losses.

Your burden of proof.

[101A]

The centralization of the credit markets to central banks is the situation today. It already happened. Everyone else stopped trading.

The proposal at its heart is for the Treasury to buy subprime mortgage-backed securities so that banks can trust that the next bank is solvent, and begin trading with them again. This will get the money markets moving, keep short-term credit alive, and prevent economic meltdown.

Yes, the Democrats tried to throw the kitchen sink into the proposal -- credit cards, car loans, etc., in a huge "vote for me and keep all that shit you bought on credit for free" scam. But that is not the proposal on the table now.

I guess there are unintended long-term consequences that could suck. But I think the contraction of the U.S. economy by 20-30% at least, with no prospects of ever getting back to the quality of life that has existed from 1945 to present for the bottom half of the population, is vastly worse than whatever those unintended consequences might be.

It's not really fair that some of the people who executed this scam might escape punishment. Franklin Raines probably deserves a life sentence, but nothing will happen to him. However, I think most people probably aren't willing to move into a favela just to insure that Daddy Warbucks gets what's coming to him. And what's coming to him? That he has to cut back to just one Aston Martin and sell his place in the Hamptons?

Now THAT'S a reasoned argument.

Thanks.

I still say fuck 'em.

I've formed a tribe; I'm ready for the coming anarchy.

[RandomGuy]

I've never voted for an incumbent board member (or one "recommended" in a prospectus).

You are part of a vanishingly small minority.

Most BOD's are elected, if memory serves, with 94% of shareholders approval.

[101A]

Ah... the cynic's response.

It is not my burden of proof.

You implied that the government would keep these assets and attempt to remain "in the credit business" after winding down the losses.

Your burden of proof.


http://www.heritage.org/research/features/BudgetChartBook/images/fed-rev-spend-2008-boc-S3-Federal-Government-Spending-per.gif


That's spending per household, by the Federal Government.

Your turn.

[BacktoBasics]

That's delinquent, but regardless, I'll grant the number.

Bailout or not, those people are probably out on their asses, and can't get a loan, regardless of the market, right? Or with the bailout, is there going to be enough money for the cycle to start again? What safeguards are there going to be in place to prevent it?You're right. Their out on their asses regardless. The cycle can't start again because the lending criteria is so tight. These people at best can jump back in the game after 8 years or 10 if they filed bankruptcy. With that said I figure the number to more like 15 years from now because I know first hand that foreclosures and bankruptcies typically follow someone well past the statute of limitations.

Each time a bad debt is sold to a new debt collector it appears like a new debt that wouldn't expire until 5-8 years from that date. That cycle can continue on for years if not decades until the debt is sold so cheap that no one wants it and they write it off for good.

If you're smart about your credit and do your homework to have some of that stuff removed you can be back in as little as 7 years. Almost no one knows how to keep tabs on their credit and what their rights are. This is why you see people with repos, bankruptcies and chargeoffs that never go away. 40 years old with bad debt from when they were 19.

A foreclosure is a foreclosure it won't go away with a bailout.


but were talking about bailing out short term lending immeadiately not the consumer.

[Extra Stout]

That's delinquent, but regardless, I'll grant the number.

Bailout or not, those people are probably out on their asses, and can't get a loan, regardless of the market, right? Or with the bailout, is there going to be enough money for the cycle to start again? What safeguards are there going to be in place to prevent it?
The point of the "bailout" is not to restart the housing bubble. It is to keep the financial system from collapsing.

The way the rules work, when the value of these subprime MBS's is written down, the value of other assets like prime MBS's also must be written down. There is a ton of uncertainty on just what these securities are worth, and that introduces a huge risk premium. That has to be reflected in the asset value. Since nobody knows what the bottom of the housing market is, the risk premium is basically open-market.

To sum it up, the way the system works, the losses incurred by the banks are vastly larger than actual money that was lent out to subprime borrowers. Just stopping subprime borrowing does not begin to solve the problem. If it did, the problem would be solved already.

As far as safeguards to prevent it... as long as there are politicans who are trying to find creative ways to hand out money to their constituents in exchange for votes, there will always be a risk of something like this happening again.

[BacktoBasics]

The point of the "bailout" is not to restart the housing bubble. It is to keep the financial system from collapsing.

With that said the financial system can't gain significant ground by simply stopping the bleeding.

Even if they come up with some kind of reasonable plan the long term is still catastrophic failure because not only have they cut out of the meat of this countries lending the average consumer is out of the game for half a decade if not a full 10 years.

Despite popular belief the well off or close to rich can't maintain with out median income spenders. It drives so much.


Edit: are you saying their trading 700 bil for a slow collapse rather than a fast one?

[whottt]

My understanding is that if nothing is done, within two weeks all short-term and revolving credit will shut down. So for you individually, at first it means your credit and debit cards will stop working, and you won't be able to write checks. You'll have to pay cash for everything. That is, if you can get your money out. Within a few weeks, Bank of America, Citi, and Chase will declare bankruptcy.

Oh, and even if you have cash, it will be hard finding a place to use it. Most businesses float their operating expenses for 30 to 60 days on credit because that's how long it takes to process the invoices. When that stops, their whole business model stops. So basically all economic activity will stop, at least for a while. Your company won't be able to make payroll, so don't expect to get paid for a while. Don't expect to go to H-E-B for food, because they'll be closed. Hopefully you know a farmer and can pay cash, or you have a bunker somewhere where you've stored canned goods.

You'll also need firearms, because there will be hungry and desperate people ready to use violence to get some food or some money.

Be sure to avoid heavily populated areas in the cities where the food riots will be happening. Really, it would be better to flee the cities. Stock up on gas now, because once credit shuts down, the gas stations will be closed too.

Conditions will be kind of like Iraq circa 2005 for a while, but really, it's worth it to let the market work itself out. Nations have to be allowed to fail just like businesses.


Sounds like someone is heavily invested in financials.

[Extra Stout]

With that said the financial system can't gain significant ground by simply stopping the bleeding.

Even if they come up with some kind of reasonable plan the long term is still catastrophic failure because not only have they cut out of the meat of this countries lending the average consumer is out of the game for half a decade if not a full 10 years.

Despite popular belief the well off or close to rich can't maintain with out median income spenders. It drives so much.
Oh, no doubt even in the best-case scenario the economy will be in the tank for 10 years or so. Don't get me wrong. There is no magic pixie dust that will prevent a long recession. We're in for it.

Right now, we're just trying not to collapse into a third-world country.

[Aggie Hoopsfan]

The centralization of the credit markets to central banks is the situation today. It already happened. Everyone else stopped trading.

The proposal at its heart is for the Treasury to buy subprime mortgage-backed securities so that banks can trust that the next bank is solvent, and begin trading with them again. This will get the money markets moving, keep short-term credit alive, and prevent economic meltdown.

Yes, the Democrats tried to throw the kitchen sink into the proposal -- credit cards, car loans, etc., in a huge "vote for me and keep all that shit you bought on credit for free" scam. But that is not the proposal on the table now.

I guess there are unintended long-term consequences that could suck. But I think the contraction of the U.S. economy by 20-30% at least, with no prospects of ever getting back to the quality of life that has existed from 1945 to present for the bottom half of the population, is vastly worse than whatever those unintended consequences might be.

It's not really fair that some of the people who executed this scam might escape punishment. Franklin Raines probably deserves a life sentence, but nothing will happen to him. However, I think most people probably aren't willing to move into a favela just to insure that Daddy Warbucks gets what's coming to him. And what's coming to him? That he has to cut back to just one Aston Martin and sell his place in the Hamptons?


Good argument. Though I did contact my rep and tell him that if they pass a bill then it needs to include a clause holding all the CEOs of the banks that put us in this position accountable with prison time.

I doubt anything will come of it, but I encourage others to voice the same to their reps. A bailout will get passed whether we like it or not.

[Extra Stout]

Sounds like someone is heavily invested in financials.
Well, my 401(k) probably is. It lost $5,000 yesterday. My spare cash is going straight to GOLD.

Anyway, I would guess 95% of the country has absolutely no clue what money markets even are, much less what they do or what happens if they dry up.

[whottt]

Even if that bailout passes the same thing is eventually going to happen again.

[Aggie Hoopsfan]

With that said the financial system can't gain significant ground by simply stopping the bleeding.

Even if they come up with some kind of reasonable plan the long term is still catastrophic failure because not only have they cut out of the meat of this countries lending the average consumer is out of the game for half a decade if not a full 10 years.

Despite popular belief the well off or close to rich can't maintain with out median income spenders. It drives so much.


Edit: are you saying their trading 700 bil for a slow collapse rather than a fast one?

Not to mention we'll be going through the same thing next year when commercial property loans tank. We're just seeing stage 1 right now with residential mortgages. Expect another 1-2 trillion for the commercial lending problem as well (that we'll all be asked to cover for the good of the country again :rolleyes ).

[BacktoBasics]

Not to mention we'll be going through the same thing next year when commercial property loans tank. We're just seeing stage 1 right now with residential mortgages. Expect another 1-2 trillion for the commercial lending problem as well (that we'll all be asked to cover for the good of the country again :rolleyes ).

On a side note I had to take a two and half hour drive through a bunch of small towns on my way the Hebbronville. I can't say I was shocked but every city I drove through Kingsville, Alice, Benavides, San Diego and Orange Grove looked like ghost towns. Commercial buildings like gas stations, restaurants, clothing stores and just about any kind of none residential building you can think of was boarded up and closed down. We're talking about towns from 2k to 20k residents. Alice and Kingsville didn't look as bad as the smaller towns which seemed to be on the verge of not existing anymore. Hell Corpus is looking a bit sparse these days.

[Ocotillo]

Good argument. Though I did contact my rep and tell him that if they pass a bill then it needs to include a clause holding all the CEOs of the banks that put us in this position accountable with prison time.

I doubt anything will come of it, but I encourage others to voice the same to their reps. A bailout will get passed whether we like it or not.

Actually, I am thinking that is the one thing that can get the public at large to support a bailout. People are pissed and want blood.

Congress realizes voting for the bill is a political liability hence the attempted deal yesterday of basically getting people who were not in tight races to vote yes.

You give the public a few heads on a platter and they likely will come around.

[RandomGuy]

[graph showing increase in federal spending omitted]

That's spending per household, by the Federal Government.

Your turn.

That is insufficient to prove your assertion.

You would need quotes from someone stating that the Government should be owning, widely lending, and selling mortgages in perpetuity, and that the Federal Government should set up a nationalized bank to do so, and that it is their intention as well as some consensus to carry through with this.

Your graph is sufficient proof of a reasonable possibility of increases in Federal Spending in the future, however. I will fully acknowledge this as reasonable possibility. Unfortunately for your assertion it is mostly irrelevent.

You could assert that it is part of an unconscious "creep", but again would have to point out the mechanism that would allow for continued ownership and purchases far into the future. The bailout does not do that.

[Spurminator]

Good argument. Though I did contact my rep and tell him that if they pass a bill then it needs to include a clause holding all the CEOs of the banks that put us in this position accountable with prison time.

I doubt anything will come of it, but I encourage others to voice the same to their reps. A bailout will get passed whether we like it or not.


Actually, I am thinking that is the one thing that can get the public at large to support a bailout. People are pissed and want blood.

Congress realizes voting for the bill is a political liability hence the attempted deal yesterday of basically getting people who were not in tight races to vote yes.

You give the public a few heads on a platter and they likely will come around.

How can Congress sentence the CEOs to prison? That's the job of the Judicial branch.

[101A]

That is insufficient to prove your assertion.

You would need quotes from someone stating that the Government should be owning, widely lending, and selling mortgages in perpetuity, and that the Federal Government should set up a nationalized bank to do so, and that it is their intention as well as some consensus to carry through with this.

Your graph is sufficient proof of a reasonable possibility of increases in Federal Spending in the future, however. I will fully acknowledge this as reasonable possibility. Unfortunately for your assertion it is mostly irrelevent.

You could assert that it is part of an unconscious "creep", but again would have to point out the mechanism that would allow for continued ownership and purchases far into the future. The bailout does not do that.

My premise is the govt. usurps an grabs more and more power; and seldom, if ever, relinquishes it. That was just the first graph I found, a reasonably compelling one, that supports that. $$$$ = Power, and the govt, spends more and more of it.

Do you see any of the Patriot Act provisions being removed? What about Federal programs that are more and more inefficient, that have annual cost overruns, and spending projections increased, only to have those projections increased again the following year. What about "No Child Left Behind" - which expands more and more requiring more accountability (oversight) in Washington for LOCAL schools. What about the U.S. Supreme Court Telling The Florida SC how ITS OWN CONSTITUTION should be interpreted!!! You sight for me any instance that the U.S. federal government has ceded power back after it grabbed it; I can go on ALL day showing how it takes it.

[101A]

How can Congress sentence the CEOs to prison? That's the job of the Judicial branch.

Without getting into too much civics class (Federal prosecutors are in the executive branch); the problem is, probably, that the people in question didn't violate any existing laws.

Oh, hell, while we're giving all this new power to the govt., let's throw in retroactive legalization privileges. That way, they can rewrite the law books, and prosecute people for all kinds of things we don't like now that they did in the past. That can't possibly be a bad idea, huh RG?

[spurster]

Yes, the Democrats tried to throw the kitchen sink into the proposal -- credit cards, car loans, etc., in a huge "vote for me and keep all that shit you bought on credit for free" scam. But that is not the proposal on the table now.


For free? I thought the proposal was to return (some) bankruptcy laws to the point where all the debt could be dealt fairly by the bankruptcy courts. It doesn't mean you can anything for free. It means that creditors should have prudence because you won't have the guarantee of keeping the debtor in debt forever under legalized usury.

Bankruptcy should mean you get to start over with a clean slate. You start over with shitty credit and few possessions, but without the debt burden. It's hard to start over though when you are still in debt over your head.

[spurster]

Without getting into too much civics class (Federal prosecutors are in the executive branch); the problem is, probably, that the people in question didn't violate any existing laws.

Oh, hell, while we're giving all this new power to the govt., let's throw in retroactive legalization privileges. That way, they can rewrite the law books, and prosecute people for all kinds of things we don't like now that they did in the past. That can't possibly be a bad idea, huh RG?

There has to be a huge amount of fraud and misrepresentation, but BushCo is loath to prosecute white-collar crime.

[2centsworth]

I seriously don't think that Republicans back in 1999 hatched a scheme where in case the Democrats looked like they were going to win the White House in 2008 the richers could sabotage the economy. I think there was a suspension of reality with Fannie Mae and Freddie Mac where the liberals liked subprime mortgage loans because it put their constituents in homes, and conservatives liked subprime loans because the financial markets seemed to be making a killing while the economy was good.

you're assuming they do any real planning. They are just seizing the opportunity of the moment.



To the GOP's credit, the financial hawk wing of the party started making noise about problems in Fannie Mae and Freddie Mac back in 2004 or thereabouts. The Democrats called them bigots. I guess the Fannie Mae chairman must have been black or something. I guess it is racist to call somebody out for falsifying financial results in order to deliver himself a bonus when in reality the company is losing billions. It's TOTALLY different from when Enron executives did it. I'm not going to argue with you that the power in the democrat party is clueless. However, there were enough republicans to stymie any real reform. Now the republicans have it in their heads that the financial destruction to come somehow will limit the size of government and chase away all the illegals.:lol Largest increase in government happened because of the depression, so lets bring on another to shrink the size of government. Talk about not learning anything from history.



Not that the Bush Administration did anything about it, but when have they ever done anything? The government started this mess and now they want to bail. Atleast Bush is trying to do the right thing here.

[2centsworth]

There's already been one posted in this thread - twice.

I'm not looking for you to copy and paste an opinion. Give me your well thought out ideas, because apparently the well thought out ideas of the American public is what's holding up this deal.

[MannyIsGod]

The one thing is that its so tough to believe Paulson right now. He's been firing the magic bullet for some time now. This is just the latest one. How are we to know this one is going to work?


We need a fundamental change in this country. I understand your position ES because its been my position. And really, if a bailout passes I won't be upset, but by the same token you cannot deny that this country needs fundemental financial change and thats not going to happen by any means other than a whole lot of people hurting a whole lot.

[101A]

I'm not looking for you to copy and paste an opinion. Give me your well thought out ideas, because apparently the well thought out ideas of the American public is what's holding up this deal.

That's what I've been doing.

1. I don't trust the govt.
2. The bailout gives the govt. unprecedented control of our mortgage market. (Here's an idea - "progressive" interest rates - could mirror the tax code)
3. I dont trust the people who got us into this mess.
4. The bailout allows those people to probably exploit the system for even more money - no doubt ALREADY have teams of accountants and lawyers figuring out how to do so with every proposal out there.
5. I believe strongly that people should be personally responsible for their actions; that includes those who took out the loans, sold the loans, packages the loans, etc....
6. Our economy, such as it is, is a house of cards; built on deficit spending and loans that, combined, have infused us with a wealth that isn't real. Hell, I could get a quarter of a million dollars in credit card debt, and live REAL GOOD for a little while; eventually it HAS to end. Our society must produce, and not just consume, otherwise, eventually, it WILL all come crashing down. This just delays the inevitable. Can't we be a generation that doesn't pass the buck?
7. I don't believe the naysayers; that it will be a depression level event. If our economy slows that much, fuels gonna get cheaper, jobs are gonna come home, etc.. We still have the most productive work force in the country, and by and large Americans want to work. We have resources, both natural and personal that will succeed. Third World? Please.

[MannyIsGod]

I never envisioned a scenario like the one ES laid out simply because our infrastructure is too damn good. This isn't 1933 without a real solid infrastructure from head to toe.

[JoeChalupa]

My head is spinning from reading these posts.

[whottt]

You guys really need to understand that even if the bailout works the problem has not been fixed. It's going to collpase at some point and the longer it gets put off the bigger it is going to be.

[JoeChalupa]

You guys really need to understand that even if the bailout works the problem has not been fixed. It's going to collpase at some point and the longer it gets put off the bigger it is going to be.

I have confidence in the US economy and when the going gets tough...the US gets going!!! There will be hard times but if we pull together as Americans always do we will get through this and be better for it. YES WE CAN!!

[101A]

I have confidence in the US economy and when the going gets tough...the US gets going!!! There will be hard times but if we pull together as Americans always do we will get through this and be better for it. YES WE CAN!!

Oh shit.

I've changed my mind.

I'm pro-bailout.

[KenMcCoy]

That's what I've been doing.

1. I don't trust the govt.
2. The bailout gives the govt. unprecedented control of our mortgage market. (Here's an idea - "progressive" interest rates - could mirror the tax code)
3. I dont trust the people who got us into this mess.
4. The bailout allows those people to probably exploit the system for even more money - no doubt ALREADY have teams of accountants and lawyers figuring out how to do so with every proposal out there.
5. I believe strongly that people should be personally responsible for their actions; that includes those who took out the loans, sold the loans, packages the loans, etc....
6. Our economy, such as it is, is a house of cards; built on deficit spending and loans that, combined, have infused us with a wealth that isn't real. Hell, I could get a quarter of a million dollars in credit card debt, and live REAL GOOD for a little while; eventually it HAS to end. Our society must produce, and not just consume, otherwise, eventually, it WILL all come crashing down. This just delays the inevitable. Can't we be a generation that doesn't pass the buck?
7. I don't believe the naysayers; that it will be a depression level event. If our economy slows that much, fuels gonna get cheaper, jobs are gonna come home, etc.. We still have the most productive work force in the country, and by and large Americans want to work. We have resources, both natural and personal that will succeed. Third World? Please.

I don't believe you...link???:p:

[MannyIsGod]

:rofl

I'm telling you, Joe Chalupa's posts make me want to poke my yes out.

[BacktoBasics]

I have confidence in the US economy and when the going gets tough...the US gets going!!! There will be hard times but if we pull together as Americans always do we will get through this and be better for it. YES WE CAN!!
:lmao

[1369]

As of 2:20 the DOW is up over 360 points.

Does this mean the zombie hordes aren't coming? And I shouldn't rip out grannies fillings to melt down for bullets?

[BacktoBasics]

As of 2:20 the DOW is up over 360 points.

Does this mean the zombie hordes aren't coming? And I shouldn't rip out grannies fillings to melt down for bullets?
Its a tarp pull the fillings

[MannyIsGod]

As of 2:20 the DOW is up over 360 points.

Does this mean the zombie hordes aren't coming? And I shouldn't rip out grannies fillings to melt down for bullets?

The DOW is up because no one really expects Congress to sit by and do nothing. No one is buying into that. I promise you if they sit on their asses and do pass it Thursday you'll see another drop comapreable to yesterday.

[1369]

Its a tarp pull the fillings

http://i199.photobucket.com/albums/aa217/DesTROYer8564/tarp-30198.jpg

Hey grannie, lean back, wouldja?

[2centsworth]

That's what I've been doing.

1. I don't trust the govt.



Ok.



2. The bailout gives the govt. unprecedented control of our mortgage market. (Here's an idea - "progressive" interest rates - could mirror the tax code)

no it doesn't. taking assets off the balance sheets of banks gives the control back to the banks.



3. I dont trust the people who got us into this mess. that's redundant. Fannie and Freddie deserve about 90% of the blame. btw, Fannie and Freddie are essentially government agencies. Oh yes.. governement deserves 90% of the blame here.



4. The bailout allows those people to probably exploit the system for even more money - no doubt ALREADY have teams of accountants and lawyers figuring out how to do so with every proposal out there.

will be an investors paradise, but I happen to love honest real estate investors. They tend to use free market principles to clean up the streets.



5. I believe strongly that people should be personally responsible for their actions; that includes those who took out the loans, sold the loans, packages the loans, etc....

Me too, so we blow up the entire bill for a few concessions. I don't think anyone is talking about paying off someones mortgage, but instead allowing them to refi and pay the money back themselves.


6. Our economy, such as it is, is a house of cards; built on deficit spending and loans that, combined, have infused us with a wealth that isn't real. Hell, I could get a quarter of a million dollars in credit card debt, and live REAL GOOD for a little while; eventually it HAS to end. Our society must produce, and not just consume, otherwise, eventually, it WILL all come crashing down. This just delays the inevitable. Can't we be a generation that doesn't pass the buck?

economics 101. What we produce must be consumed in order for there to be more production. What ever happened to the Republicans harping on production? I thought the republicans were the party of growth? Somehow you think you're teaching someone a lesson, but all you're really trying to do is send this country back to the stone age.



7. I don't believe the naysayers; that it will be a depression level event. If our economy slows that much, fuels gonna get cheaper, jobs are gonna come home, etc.. We still have the most productive work force in the country, and by and large Americans want to work. We have resources, both natural and personal that will succeed. Third World? Please.

Do you hate America? I swear the Republicans have turned into liberals. They hate Americans and what we stand for. Yeah, I see it now, the Fred Flintstone days are way better than they are today.

[MannyIsGod]

Will this be the next defining moment in our lives? So far thats obviously 9/11 and one would think nothing could top that, but this would seem to have potential if the worst case scenarios pan out.

[1369]

The DOW is up because no one really expects Congress to sit by and do nothing. No one is buying into that. I promise you if they sit on their asses and do pass it Thursday you'll see another drop comapreable to yesterday.

So, congress did nothing yesterday and stocks took it in the shorts. And if something passes Thursday, stocks will take it in the shorts.

Why anyone plays the market is a mystery to me.

Well, I for one am glad I invested in a Barrett Model 95 and about 150 rounds to go with it.

[101A]

Ok.
no it doesn't. taking assets off the balance sheets of banks gives the control back to the banks.

And who holds the paper for all of those mortgages, again?


that's redundant. Fannie and Freddie deserve about 90% of the blame. btw, Fannie and Freddie are essentially government agencies. Oh yes.. governement deserves 90% of the blame here.

For "essentially government agencies" they sure do a whole bunch of lobbying and donating to campaigns.


will be an investors paradise, but I happen to love honest real estate investors. They tend to use free market principles to clean up the streets.

Honest being the operative word.


Me too, so we blow up the entire bill for a few concessions. I don't think anyone is talking about paying off someones mortgage, but instead allowing them to refi and pay the money back themselves.


Hell, NOBODIES talking about paying off anyone's mortgage - this is a decidedly one-sided bailout. And you support giving loans to people who JUST defaulted on their mortgages. These are sub-prime risks; giving them MORE loans just starts the cycle over again, doesn't it? Did I misunderstand you?



economics 101. What we produce must be consumed in order for there to be more production. What ever happened to the Republicans harping on production? I thought the republicans were the party of growth? Somehow you think you're teaching someone a lesson, but all you're really trying to do is send this country back to the stone age.


I am harping on production; as it; we have been consuming MUCH more than we have been producing! Loans that aren't paid back at the personal, and Federal level, amount to spending what hasn't been produced...living large on credit.


Do you hate America? I swear the Republicans have turned into liberals. They hate Americans and what we stand for. Yeah, I see it now, the Fred Flintstone days are way better than they are today.

I'm liberal for NOT wanting the govt. to bail out people and corps that made horrible decisions? That's liberal now? Who knew?

[101A]

Will this be the next defining moment in our lives? So far thats obviously 9/11 and one would think nothing could top that, but this would seem to have potential if the worst case scenarios pan out.


Nah. For it to be a defining moment, it has to be in the history books. Do you have kids? Have you seen a history book lately? This is WAY too confusing for that!!! If it can't be explained in VERY short sentences, and with VERY large, colorful pictures, it won't make the cut!

Planes flying into buildings? Oh, yeah, there's a defining moment we can publish.

[MannyIsGod]

So, congress did nothing yesterday and stocks took it in the shorts. And if something passes Thursday, stocks will take it in the shorts.

Why anyone plays the market is a mystery to me.

Well, I for one am glad I invested in a Barrett Model 95 and about 150 rounds to go with it.

I meant to type don't not do. I'm running off no sleep after 36 hours. I'm allowed to fuck up a bit. :P

But seriously, the market is an indicator but its a flawed one. I think in this situation its more important to keep tabs on the credit market and big time financial companies.

I don't think I could ever become an economist. This shit just honestly blows my mind. Not to sound cocky, but there aren't many things I feel like I can't get a fundamental grip on. Not that I'm an expert, but if I want to learn how a system works I read up on it and I tend to gain a decent understanding of things. I'm sure this works for many of us here because there are quite a few intelligent people posting here (especially in this thread - its been a great read imo).

That being said, how many of us are comfortable with this shit? Its so fucking complex that I feel I need a damn model just to conceptualize how interconnected and dependent things are.

[MannyIsGod]

Nah. For it to be a defining moment, it has to be in the history books. Do you have kids? Have you seen a history book lately? This is WAY too confusing for that!!! If it can't be explained in VERY short sentences, and with VERY large, colorful pictures, it won't make the cut!

Planes flying into buildings? Oh, yeah, there's a defining moment we can publish.

In the end, I think I'm going to remember 2008 as one of the more historic yeas in my life. Its been such a fucking awesome ride so far. Its a bit scary right now, but I'd be lieing if I said I wasn't a bit wide eyed and just trying to take it all in.

[101A]

I
That being said, how many of us are comfortable with this shit? Its so fucking complex that I feel I need a damn model just to conceptualize how interconnected and dependent things are.

It's easy to understand.

1. Bend Over

2. Grab Your Ankles.

3. View the World by looking between the prism between your legs.

[BacktoBasics]

In the end, I think I'm going to remember 2008 as one of the more historic yeas in my life. Its been such a fucking awesome ride so far. Its a bit scary right now, but I'd be lieing if I said I wasn't a bit wide eyed and just trying to take it all in.
I just picture a homosexual train orgy with money falling from the rafters while whott burns hundred dollar bills as punishment for participating.

Its not pretty.

[101A]

In the end, I think I'm going to remember 2008 as one of the more historic yeas in my life. Its been such a fucking awesome ride so far. Its a bit scary right now, but I'd be lieing if I said I wasn't a bit wide eyed and just trying to take it all in.

I agree to an extent, but with three kids, a wife, a large mortgage, payroll....ah fuck it, I'm well armed, and my boy goes 6'2, 205 - we'll do all right if it comes to anarchy.

(And frankly, even at 40, my wife is pretty "marketable").

[JoeChalupa]

Will we see more meatloaf on our tables?

[JoeChalupa]

In the end, I think I'm going to remember 2008 as one of the more historic yeas in my life. Its been such a fucking awesome ride so far. Its a bit scary right now, but I'd be lieing if I said I wasn't a bit wide eyed and just trying to take it all in.

Ah, to be young and in love......

[JoeChalupa]

I just picture a homosexual train orgy with money falling from the rafters while whott burns hundred dollar bills as punishment for participating.

Its not pretty.

:lmao

[101A]

I just picture a homosexual train orgy with money falling from the rafters while whott burns hundred dollar bills as punishment for participating.

Its not pretty.

:lmao

Strange, in my vision, he was stuffing the bills down Stout's throat.

[MannyIsGod]

Wow dude. I don't even know what to say.

[BacktoBasics]

Wow dude. I don't even know what to say.
Manny speechless paaaa-lease

[RandomGuy]

I agree to an extent, but with three kids, a wife, a large mortgage, payroll....ah fuck it, I'm well armed, and my boy goes 6'2, 205 - we'll do all right if it comes to anarchy.

(And frankly, even at 40, my wife is pretty "marketable").

The problem is so are millions of other people. Yikes.

Where the hell did that nuclear fallout shelter go...?

5,000 boxes of spagetti-O's?
-Check

shotgun?
-check

shells?
-check

water purifier?
-check

Wheee!

[Aggie Hoopsfan]

How can Congress sentence the CEOs to prison? That's the job of the Judicial branch.

I'm fairly certain there was some pretty widespread fraud going on. Hell, it's already been established in prior Congressional hearings that Franklin Raines cooked the books at F so he could get his bonus each year.

On a more serious note, knowing about the mark to market rules, there is probably something somewhere in there that some of the big firms had to skirt or altogether ignore to do some of the things they were doing in reselling the MBS packages.

Just going to take some time to find it.

[2centsworth]

And who holds the paper for all of those mortgages, again?

control over the mortgage market is approving, funding, and servicing loans. That goes to the banks. However, as far as unprecedented control, have you ever heard of FHA, HUD, FNMA, FMAC? There is 10 trillion dollars in those programs. $700 billion is a lot, but please do not exagerate.




For "essentially government agencies" they sure do a whole bunch of lobbying and donating to campaigns.

lets see fully backed by the government... oh yeah lobbying against regulation makes sense.




Honest being the operative word. A lot more honest than bad. Nothing wrong with making a living outside of the medical industry.




Hell, NOBODIES talking about paying off anyone's mortgage - this is a decidedly one-sided bailout. And you support giving loans to people who JUST defaulted on their mortgages. These are sub-prime risks; giving them MORE loans just starts the cycle over again, doesn't it? Did I misunderstand you? come back to reality. Default makes the problem worse. Working out a payment plan makes is better. Come on dude, you're in the medical claims business you know the deal. Getting people to payoff their debts is 100 times better than foreclosure. It sounds like you have something against these people. Calm fears, workout a reasonble payment plan. Not that hard to figure out.





I am harping on production; as it; we have been consuming MUCH more than we have been producing! Loans that aren't paid back at the personal, and Federal level, amount to spending what hasn't been produced...living large on credit. No you haven't been harping on production. You're suggesting recession or even worse. The default on loans are a part of the equation, but I would say the devaluation of real estate and capital requirements are a bigger problem right now. The bailout is not about living large on credit, it's about hurting ordinary/neccessary credit practices.




I'm liberal for NOT wanting the govt. to bail out people and corps that made horrible decisions? That's liberal now? Who knew?

you hate how American's live. Well so do Liberals. The complexity of the problem requires a little more effort on your part IMO.

[Purple & Gold]

Legalize weed

About the only smart thing that whottt has ever said. Although I think it might be a huge reason for his lack of intelligence.

[Purple & Gold]

The bailout is to save the dollar. Without us (the taxpayers) backing it the dollar will just continue to fall and fall and fall. Anything bought on the global market will just skyrocket for us. Of course you could be banking that the rest of the worlds currency will fall as well making the devaluation of the dollar not as big of an issue. But if a country (say Russia) is able to withstand it or at least whether the storm better than us (vasts amounts of oil) then you really have a problem. Their global influence will only be that much stronger.

The thing about capitalism is that it relies on the buying and selling of goods. If no people are able to buy any goods then it will cease to work. The capital that has been fueling this economy has come from loans and credit and so on. Without it people won't be able to afford to buy goods, which will demolish the way our economy is set up.

[2centsworth]

People act like all credit is bad. It's not and the people who use credit responsibly, who happen to drive this economy, are being affected for the simple fact that there's a lack of capital.

I don't know about many of you, but I grew up in a very poor family. A loan of $20 was asking a lot from my relatives. Nevertheless, I was able to purchase a business, make real estate investments, and do a little development with the help of investors and credit. Now my investors are being scared off and credit is drying up, so yes it's going to cost me. However, it will cost everyone else too. And by the way, what did I ever do except work hard, manage my money, create jobs and help people.

I was able to do the stuff I have by working weekend roomservice to pay for school (no loans) and raising capital for investments and business projects.

[Wild Cobra]

The bailout is to save the dollar.

I thought it was to save the jobs of CEO's that are in bed with democrats.



Without us (the taxpayers) backing it the dollar will just continue to fall and fall and fall.

Fine with me.



Anything bought on the global market will just skyrocket for us.

Works for me. Fixes the trade imbalance rather well if you ask me. I see it as a plus as manufacturing becomes cheaper here rather than outsourced to other countries.



Of course you could be banking that the rest of the worlds currency will fall as well making the devaluation of the dollar not as big of an issue. But if a country (say Russia) is able to withstand it or at least whether the storm better than us (vasts amounts of oil) then you really have a problem. Their global influence will only be that much stronger.

Some currencies will fall a little with ours, but not linear. Russia will get stronger, regardless. They have become an oil exporter.



The thing about capitalism is that it relies on the buying and selling of goods. If no people are able to buy any goods then it will cease to work.

I don't see this being any more than a very short term event. Even if people are no longer to charge their goods, then a month or two, and people pay for with what they have on hand. There will still be credit card usage, although some rates will increase. Perhaps gone are the days of zero down loans. That was always a bad idea, and a major reason why we have these problems. They only people who should qualify for those are people who have enough disposable money they don't need to!



The capital that has been fueling this economy has come from loans and credit and so on. Without it people won't be able to afford to buy goods, which will demolish the way our economy is set up.

If loans are what fuels the economy, then we deserve to fail. I'm rather sure that loans are only a small aspect of a companies source of capitol. When I was in the loop of a small companies finances, the only time they considered taking out a loan was to expand. We have had such slow growth lately, that few places are expanding anyway. Besides, collateralized loans will still be available.

There are occasions a business needs to borrow money because of a temporary slowdown before paydays and or have unexpected expenses. Reputable businesses will still get loans. Any business always borrowing deserves to fail anyway, and now probably will because they are the ones that will be a credit risk. Most businesses should be fine, with good enough credit for unexpected needs. I don't think businesses will have too much of a difference in being able to get loans though. Different regulations involved that those that caused the financial institutes to lose capitol.

You underestimate the economy. People will still have jobs and people will still buy things.

Remember what caused this meltdown. people not paying their mortgages. At least two varieties involved. The common factor is low down to zero down payment. With 'flipping' houses, more properties were vacant. More new houses were being built. Now we have a overage of houses, and the bubble burst. Anyone with half a brain could see this coming miles away. With property values now less than what people paid for them, they choose or cannot pay for them, and would welcome foreclosure, but now the lenders have properties worth less than the loans if they foreclose, and they lose money either way. Not having mortgage payments come in, they no longer have the capitol to operate.

I say NO to bailing them out. They should have known this would happen, in fact, I think they did no, and just are waiting to be bailed out. I fail to believe that their financial experts are that stupid.

The only way I would go along with the bailout is to bring back the standards before political correctness corrupted the system. These regulations need to be removed. Also that all the people involved in making this happen in congress and the companies involved, resign.

This is a free country. At least it's suppose to be. When regulations mandate that corporations make bad loans, then make regulations allowing the lenders make even worse loans than required because of the scheme they are allowed to setup in converting to bonds... I want those who crafted such legislation in jail. I know that won't happen, so any left in congress... Make them resign!

[2centsworth]

I thought it was to save the jobs of CEO's that are in bed with democrats.

you're kidding right? those CEO's already have millions. Whether we pass or don't pass the bailout won't affect them nearly as much as you and I.



Fine with me.

right, because having your money and assets worth less makes a lot of sense.



Works for me. Fixes the trade imbalance rather well if you ask me. I see it as a plus as manufacturing becomes cheaper here rather than outsourced to other countries. alright, fire up them textiles. lets get back to the good 'ol day. while we're at it why don't we bring back the pony express.



I don't see this being any more than a very short term event. Even if people are no longer to charge their goods, then a month or two, and people pay for with what they have on hand. There will still be credit card usage, although some rates will increase. Perhaps gone are the days of zero down loans. That was always a bad idea, and a major reason why we have these problems. They only people who should qualify for those are people who have enough disposable money they don't need to!

anything else you would like to control? zero down loans have been gone for a while and have nothing to do with today. the Credit Crises is affecting those who use credit responsibly and for good reason. The conservative use of Credit is a wonderful thing in business. That goes away and you're asking for a world of hurt.



If loans are what fuels the economy, then we deserve to fail.

loans fund schools, hospitals, small business. If you have an idea that can make us money, I would consider loaning you some money.



I'm rather sure that loans are only a small aspect of a companies source of capitol. When I was in the loop of a small companies finances, the only time they considered taking out a loan was to expand. We have had such slow growth lately, that few places are expanding anyway. Besides, collateralized loans will still be available.

Credit is essential in Real Estate. Real Estate is arguably the backbone of our economy. IN fact, without real estate most people would be worth ziltch. you collateralized loans comment doesn't deserve a response.



There are occasions a business needs to borrow money because of a temporary slowdown before paydays and or have unexpected expenses.

for only those reasons right? who told you that, Michael Reagan? Most businesses use loans to make capital improvements (creates jobs), investments (creates jobs), Mergers&Acquisitions, and then what you mentioned. dude wake up.



Reputable businesses will still get loans. THERE"S A SHORTAGE OF CAPITAL!!!! THE UNDERWRITING HAS ALREADY BEEN ADJUSTED.



Any business always borrowing deserves to fail anyway, and now probably will because they are the ones that will be a credit risk.

I see, you're making this up as you go.


THERE'S A LACK OF CAPITAL!!!! THE UNDERWRITING HAS ALREADY BEEN ADJUSTED.

[quote]
You underestimate the economy. People will still have jobs and people will still buy things. Just like in Mexico.



Remember what caused this meltdown. people not paying their mortgages.

:lol way more sophisticated than that. add bad appraisals, credit rating agency failure, speculation, derivatives, the federal government, and a weakened economy.



At least two varieties involved. The common factor is low down to zero down payment. With 'flipping' houses, more properties were vacant. More new houses were being built. Now we have a overage of houses, and the bubble burst. Anyone with half a brain could see this coming miles away. With property values now less than what people paid for them, they choose or cannot pay for them, and would welcome foreclosure, but now the lenders have properties worth less than the loans if they foreclose, and they lose money either way. Not having mortgage payments come in, they no longer have the capitol to operate. nobody wants to invest in our banks. hence, there's a lack of liquidity.



I say NO to bailing them out. They should have known this would happen, in fact, I think they did no, and just are waiting to be bailed out. I fail to believe that their financial experts are that stupid. who's them and what the hell are you talking about?



The only way I would go along with the bailout is to bring back the standards before political correctness corrupted the system. These regulations need to be removed. Also that all the people involved in making this happen in congress and the companies involved, resign.

This is a free country. At least it's suppose to be. When regulations mandate that corporations make bad loans, then make regulations allowing the lenders make even worse loans than required because of the scheme they are allowed to setup in converting to bonds... I want those who crafted such legislation in jail. I know that won't happen, so any left in congress... Make them resign!

I'm all for voting most of them out starting with the Republican Party. The size of our governement has doubled in size since '00 and it has little to do with the war.

[Purple & Gold]

I thought it was to save the jobs of CEO's that are in bed with democrats.

:lol :lol Come on I know you can't really think that. Repubs are big business always have been. All the tax breaks for the rich are for these CEO's tax bracket. I don't really believe you think CEO's are in bed with the democrats. That's just ridiculous.


Fine with me.

Not fine with me. I don't want the dollar going to shit.


Works for me. Fixes the trade imbalance rather well if you ask me. I see it as a plus as manufacturing becomes cheaper here rather than outsourced to other countries.

Ahhhh no it will continue to be outsourced. There are still many countries populations that big business will continue to exploit. Since there are many things that have to be bought on the world market (oil, etc.) it won't fix the trade imbalance. It will just raise prices for those goods.


Some currencies will fall a little with ours, but not linear. Russia will get stronger, regardless. They have become an oil exporter.

Well we agree here, although not to the same extent of the more influence Russia will have. This will be a security issue for the U.S. (I know repubs love the security issue)


I don't see this being any more than a very short term event. Even if people are no longer to charge their goods, then a month or two, and people pay for with what they have on hand. There will still be credit card usage, although some rates will increase. Perhaps gone are the days of zero down loans. That was always a bad idea, and a major reason why we have these problems. They only people who should qualify for those are people who have enough disposable money they don't need to!

I don't know what you think short term is, but the selling of goods will drop dramatically. Certain things like food and energy of course will not be affected that negatively, but most industries will. I don't really see how you think this will be short term. People will lose jobs, credit will shore up, not sure where all this capital will come from to fuel the economy.


If loans are what fuels the economy, then we deserve to fail. I'm rather sure that loans are only a small aspect of a companies source of capitol. When I was in the loop of a small companies finances, the only time they considered taking out a loan was to expand. We have had such slow growth lately, that few places are expanding anyway. Besides, collateralized loans will still be available.

There are occasions a business needs to borrow money because of a temporary slowdown before paydays and or have unexpected expenses. Reputable businesses will still get loans. Any business always borrowing deserves to fail anyway, and now probably will because they are the ones that will be a credit risk. Most businesses should be fine, with good enough credit for unexpected needs. I don't think businesses will have too much of a difference in being able to get loans though. Different regulations involved that those that caused the financial institutes to lose capitol.

You underestimate the economy. People will still have jobs and people will still buy things.

Remember what caused this meltdown. people not paying their mortgages. At least two varieties involved. The common factor is low down to zero down payment. With 'flipping' houses, more properties were vacant. More new houses were being built. Now we have a overage of houses, and the bubble burst. Anyone with half a brain could see this coming miles away. With property values now less than what people paid for them, they choose or cannot pay for them, and would welcome foreclosure, but now the lenders have properties worth less than the loans if they foreclose, and they lose money either way. Not having mortgage payments come in, they no longer have the capitol to operate.

I say NO to bailing them out. They should have known this would happen, in fact, I think they did no, and just are waiting to be bailed out. I fail to believe that their financial experts are that stupid.

The only way I would go along with the bailout is to bring back the standards before political correctness corrupted the system. These regulations need to be removed. Also that all the people involved in making this happen in congress and the companies involved, resign.

This is a free country. At least it's suppose to be. When regulations mandate that corporations make bad loans, then make regulations allowing the lenders make even worse loans than required because of the scheme they are allowed to setup in converting to bonds... I want those who crafted such legislation in jail. I know that won't happen, so any left in congress... Make them resign!

I agree that our economy is built wrong and is way to dependent on banks (credit) and market confidence. But it is what it is. There are ways to get us off of this type of economy much less drastically than just letting it collapse. And influx of capital and stricter regulations so this type of abuse won't happen again will help. Big business has been allowed to run rampant for way too long and now you want to put even less restrictions on it. Didn't you learn from this.

And most companies will not be given loans, I can't see how you think most companies won't be affected. I think you're living in a fantasy land. They will definitely be affected. Very negatively I might add.

People not paying their mortgages is not the only thing that led to this crisis we're in now. It was a main factor, but many others had a major role to play in it too. Big Business cooking books, ridiculous tax refunds to "stimulate the economy", the money being spent in Iraq, etc. These are all factors that led to our economic bubble bursting. Lets not try to place all the blame on mortgage defaults. Plus the banks being in bed with the appraisers played a big part in this imaginary raise of property value we had.

Yes they knew this would happen and they knew we would bail them out. Sucks, I know but really nothing we can do about it. We gave them way too much power and allowed them to do whatever they wanted for too long. But we are now way too dependent on them to just allow them to fail. It will cause much more economic havoc than you think.

Banks were not forced to give out bad loans. Nobody is buying it. It actually amazes me that repubs on this board continue to think that. They gave out the loans cause they wanted to make money. They even inflated the real estate market on their own. Nobody believes that the banks were force by the dems to give out bad loans to people that wouldn't pay it back. It was the banks doing all on themselves.

And once again less regulations is just stupid. Don't you guys ever learn. Can we please learn from history? If not we will always be doomed to repeat it.

[whottt]

you're kidding right? those CEO's already have millions. Whether we pass or don't pass the bailout won't affect them nearly as much as you and I.



right, because having your money and assets worth less makes a lot of sense.

alright, fire up them textiles. lets get back to the good 'ol day. while we're at it why don't we bring back the pony express.



anything else you would like to control? zero down loans have been gone for a while and have nothing to do with today. the Credit Crises is affecting those who use credit responsibly and for good reason. The conservative use of Credit is a wonderful thing in business. That goes away and you're asking for a world of hurt.



loans fund schools, hospitals, small business. If you have an idea that can make us money, I would consider loaning you some money.



Credit is essential in Real Estate. Real Estate is arguably the backbone of our economy. IN fact, without real estate most people would be worth ziltch. you collateralized loans comment doesn't deserve a response.



for only those reasons right? who told you that, Michael Reagan? Most businesses use loans to make capital improvements (creates jobs), investments (creates jobs), Mergers&Acquisitions, and then what you mentioned. dude wake up.

THERE"S A SHORTAGE OF CAPITAL!!!! THE UNDERWRITING HAS ALREADY BEEN ADJUSTED.



I see, you're making this up as you go.

Most businesses should be fine, with good enough credit for unexpected needs. I don't think businesses will have too much of a difference in being able to get loans though. Different regulations involved that those that caused the financial institutes to lose capitol THERE'S A LACK OF CAPITAL!!!! THE UNDERWRITING HAS ALREADY BEEN ADJUSTED.

Just like in Mexico.



:lol way more sophisticated than that. add bad appraisals, credit rating agency failure, speculation, derivatives, the federal government, and a weakened economy.

nobody wants to invest in our banks. hence, there's a lack of liquidity.

who's them and what the hell are you talking about?



I'm all for voting most of them out starting with the Republican Party. The size of our governement has doubled in size since '00 and it has little to do with the war.



Well just so you know...bailout or no, whether it works or no, it's going to happen again.


And Paulson's plan is going to leave him completely autonomous and opaque. Can you give me one good reason why he deserves that?



And it's not just American banks taking the hit...banks around the world are getting hit.

[Purple & Gold]

:wow :wow Me and 2cents actually agree to a large extent on this "bailout".

Never would have thought that would happen. :lol

[2centsworth]

Well just so you know...bailout or no, whether it works or no, it's going to happen again.

"it' is called Medicare. Yes, we are absolutely going to collapse under the strain of Medicare if nothing is done quickly.



And Paulson's plan is going to leave him completely autonomous and opaque. Can you give me one good reason why he deserves that?

add oversight.




And it's not just American banks taking the hit...banks around the world are getting hit. as the united states goes the world goes as simple as that.

[Wild Cobra]

:wow :wow Me and 2cents actually agree to a large extent on this "bailout".

Never would have thought that would happen. :lol

Well, then explain to me why we need to bail out these failed lenders when the Treasury in one form or another can lend the money instead to the remaining lender who did things right?

2Cents... You went overboard on some of the types of loans. Schools for example request a bond. That is far from the same thing here. I'm not going to waste my time with counterpoints. You have my opinions and nothing you said changes them.

[Supergirl]

The New Deal actually lengthened depression...most economists today agree that raising taxes was the worst thing that Hoover/FDR could have done. THe New Deal took a recession and turned it into a depression.

reference? this contradicts what many, many, other economists and historians have said about the New Deal and the depression.

[Indazone]

If the gov't wanted to, could it ever payoff the 11 trillion dollar debt? Soon to be 12 trillion after this bailout.

[RandomGuy]

reference? this contradicts what many, many, other economists and historians have said about the New Deal and the depression.


It wasn't "raising taxes" per se, it was raising tariffs that was the problem.

It was the .... anyone? anyone?

Hawley-Smoot Tariff Act

[101A]

From reason.com (http://www.reason.com/news/show/129158.html)



The Roots of the Crisis

How did Wall Street get into this mess?

Michael Flynn (http://www.reason.com/contrib/show/769.html) | October 1, 2008


The unexpected 228-205 defeat of the housing bailout in Congress yesterday threw a curveball across Wall Street. It contributed to a large sell-off on Wall Street, where the bailout had already been "priced" into the market. The Dow shed just over 6 percent, the 18th largest drop in its history. But given the dire warnings about financial chaos that would result unless there were a bailout, this seems fairly modest.

Let's be clear: This is a Wall Street crisis, not a national economic crisis. The overall economy, while a bit weak, is still growing (http://www.bea.gov/newsreleases/glance.htm). Some politicians are comparing (http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092402076.html) the current environment to the Great Depression. But in 1932, when the federal government last moved to bail out the banking sector (http://www.infoplease.com/ce6/history/A0841310.html), economic output had fallen 45 percent and unemployment was a staggering 24 percent (http://www.english.uiuc.edu/maps/depression/about.htm). Today, economic output is actually up and unemployment is a historically modest 6.1 percent.

The overall economy doesn't even face a liquidity crisis in the current turmoil. Consumer, commercial/industrial, and real estate loans are all up over last year (http://online.wsj.com/article/SB122212959612065505.html). Main Street is doing fine. The liquidity crisis is confined to Wall Street, between and among investment banks, insurance and securities firms, and hedge funds. There is the possibility that the contagion could spread, but in a global capital market, this is hardly certain.

It is the intersection of several underlying trends that have brought us to this point, not a breakdown in any specific part of the financial sector. The fundamental flaw with the bailout approach is that it ignores these trends and simply seeks to shore up the finances of certain Wall Street institutions.

Mortgage-backed securities (http://www.sec.gov/answers/mortgagesecurities.htm) (MBSes) are the principal source of pain in the current environment. Investment houses would bundle individual mortgages from several banks together into a bond-like product that would be sold to individual investors. Mortgages have historically been seen as among the safest investments. In an era of rising house values, "safe" became "guaranteed returns."

One of the major factors pushing investors into these securities was the Federal Reserve's weak money policy. Immediately after the terrorist attacks of 2001, the Fed began a sustained period of easing interest rates. Its efforts went so far that, at one point in 2003, we had effectively negative interest rates (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=599907). Institutional investments needed a place to park money and earn some kind of return. Mortgage-backed securities became a favorite investment vehicle. Under traditional models, they were very safe and, because of Fed policy, even the most conservative fund could earn better returns than they could on treasury notes.

In the early years of this century, mortgage-backed securities exploded. Their growth provided unprecedented levels of capital in the mortgage market. There was a lot more money available to underwrite mortgages. At the same time, investment houses were looking to replace the healthy fees earned during the dot com bubble. MBSes had fat margins, so everyone jumped into the game.

The additional capital to underwrite mortgages was a good thing (http://www.ghb.co.th/en/Journal/Vol2/06.pdf)...up to a point. Homeownership expanded throughout the decade. Over the last few decades, the American homeownership rate (http://www.hoover.org/research/factsonpolicy/facts/26963064.html) has been around 60 to 62 percent. At the height of the bubble, homeownership was around 70 percent. It is clear now that many people who got mortgages at the height of the bubble should not have. But Wall Street needed to feed the MBS stream.

At the same time, Fannie Mae and Freddie Mac were going through a crisis. In 2003 and 2004, an accounting scandal was revealed (http://www.washingtonpost.com/wp-dyn/articles/A41165-2004Sep22.html). The two public-private partnerships were cooking the books to show phantom profits. The Bush administration and its allies on the Hill pushed a strong bill to reform how these institutions operated (http://gatewaypundit.blogspot.com/2008/09/bush-called-for-reform-of-fannie-mae.html). The measure came very close to passing, but Fannie and Freddie cut a deal. They would refocus on expanding mortgages for low-income borrowers if the feds kept out of their operations. The bargain worked. Virtually all the Democrats and a few Republicans backed the two companies and the reform effort failed.

Fannie and Freddie then went on a subprime bender (http://online.wsj.com/article/SB122212948811465427.html). They made it clear that they wanted to buy all the subprime or Alt-A mortgages that they could find, eventually acquiring around $1 trillion of the paper. The market responded. In 2003 subprime mortgages made up less than 8 percent of all mortgages. By 2006, they were over 20 percent. Banks knew they could sell subprime products to Fannie and Freddie. Investments banks realized that if they laced ever increasing amounts of subprime mortgages into the MBSes, they could juice the returns and so earn bigger fees. The rating agencies, thinking they were simply dealing with traditional mortgages, didn't look under the hood.

Unfortunately, after several years of a housing boom, the available pool of households who could responsibly use the more exotic financing products had dried up. In short, there were no more people who traditionally qualified for even a subprime mortgage. However, Fannie and Freddie were still signaling that they wanted to buy these products. At the same time, activist groups were agitating for more lending to low-income families. Banks realized they could make even more exotic loan products (e.g., interest-only loans (http://en.wikipedia.org/wiki/Interest-only_loan)), get the activists off their backs, and immediately diffuse their risk by selling the mortgages into MBSes. After all, Fannie and Freddie would buy anything.

Everything worked as long as housing prices continued to rise. The most pessimistic scenarios on Wall Street showed a leveling off of housing prices; no one foresaw an actual decline in prices. Suddenly, though, there weren't enough buyers. In hot real estate markets, builders raced to bring inventory to market that they thought was inexhaustible. But at this point everyone (essentially) who could possibly qualify for a mortgage had received one. At the same time, the first wave of the more exotic mortgages began to falter. Interest rates on adjustable rate mortgages moved higher—the Fed was finally tightening the money flow (http://financialmethods.typepad.com/fm/2005/11/fed_tightening_.html)—and mortgages that were initially interest-only were close to resetting, with monthly payments jumping to include principal. A not insignificant number of these mortgages moved into default and foreclosure.

The overall numbers moving into foreclosure were small. Someone simply looking at housing stats could be forgiven for wondering what all the fuss is about. Nationally, the number of mortgages moving into foreclosure is just around 1 to 2 percent (http://www.moneyweek.com/news-and-charts/economics/the-truth-about-us-mortgage-default-rates.aspx), suggesting that 98 to 99 percent of mortgages are sound. But the foreclosed mortgages punched way above their weight class; they were laced throughout the MBS market.

Then the MBS market collapsed. The complexity of these financial products cannot be overstated. They usually had two or three "tranches," different baskets of mortgages that paid out in different ways. Worse, as they moved through the system—being bought and sold by different firms—they were sliced and diced in varying ways. A MBS owned by one firm could be very different when it was sold to another.

No one fully understood how exposed the MBS were to the rising foreclosures. The market for them dried up. No one traded them. The market became effectively "illiquid." American accounting standards, however, required firms to use "mark-to-market (http://en.wikipedia.org/wiki/Mark-to-market)" to value their assets. This means that you value your assets based on what you could sell them for today. Because no one would trade MBSes, most had to be "marked" at something close to zero.

This threw off banks' capital requirements (http://wfhummel.cnchost.com/capitalrequirements.html). Under U.S. regulations, banks have to have a certain percentage of assets to back up the loans they make. Lots of banks and financial institutions had MBS assets on their books. With these moving to zero, they didn't have enough capital on hand for the loans that were outstanding. They rushed to raise capital, which raised fears about their solvency and compounded into a self-fulfilling prophecy.

We should pause here to note that two simple regulatory tweaks could have prevented much of the carnage. Suspending mark-to-market accounting rules (you could use a 5-year rolling average instead, for example) would have shored up the balance sheets. And a temporary easing of capital requirements would have provided banks breathing room to sort out the MBS mess. Although it is hard to fix an exact price for these in this market, they aren't worth zero.

Alas, the Fed and the Treasury decided simply to provide the capital to meet the regulatory requirements. They moved into crisis mode, making a series of tactical moves to deal with specific, present challenges. The first misstep, in March, was to force a hostile takeover of Bears Stearns (http://www.businessweek.com/bwdaily/dnflash/content/mar2008/db20080316_356646.htm). The Fed put up $30-40 billion to back JP Morgan's takeover of the investment bank. In the long term, it probably would have been better to let the bank fail and go into bankruptcy. That would have set in motion legal proceedings that would have established a baseline price for MBSes. From this established price, banks could sort out their balance sheets.

It is worth noting that immediately after the collapse of Bears Stearns, rumors quickly circulated on the Street (http://seekingalpha.com/article/70540-fast-money-recap-3-28-08-will-lehman-follow-bear) of trouble at Lehman Brothers. Lehman went on a PR offensive to beat back those rumors. The company was successful, but then did nothing over the next several months to shore up its balance sheet. Their recent demise was largely their own doing.

The collapse of the MBS market now started to pollute other financial products. (The Fed moves did nothing to deal with the MBS market, but simply provided temporary means to cope with it.) Credit default swaps and derivatives, both of which amount to hedges against the risk of bonds defaulting, came due. Suddenly, stable firms like AIG were overexposed. Insurance companies regularly sell these swaps, as an insurance policy against bonds defaulting. Traditionally they are fairly conservative investment products. These developments threw off the accounting in one division of AIG, threatening the rest of the firm. Given a few days, AIG could have sold enough assets to cover the spread, but iron-clad accounting regulations precluded this. So the government stepped in.

The one-two punch of Lehman's failure and the government's $85 billion bailout of AIG (http://www.cbc.ca/money/story/2008/09/16/aig-bailout.html) on September 16 seriously spooked the Street and the Bush administration. With Fannie Mae and Freddie Mac already in government receivership (http://www.economicnews.ca/cepnews/wire/article/2/115956/), there were fears that the MBS weakness would spread through the entire financial system. There was a big sell-off on the Dow (http://www.latimes.com/business/la-fi-markets18-2008sep18,0,94227.story?track=rss). The next day, the government announced there would be a bold rescue plan (http://www.cbsnews.com/stories/2008/09/19/business/main4459685.shtml). The market rebounded (http://www.nytimes.com/2008/09/20/business/economy/20cndleadall.html?_r=2&partner=rssnyt&emc=rss&oref=slogin&oref=slogin). Details emerged over the weekend. On Monday, the Dow had another sell-off. But, the most important signal was the rise of oil. The spot price for October delivery of oil jumped $25 a barrel. Some of this was covering trades, but a sizable amount of this appreciation was probably a "flight to quality," a place to park money while everything was sorted out. It was also a signal that the government's plan might not work.

The original plan crafted by Treasury would authorize the department to spend up to $700 billion to buy MBSes and other "toxic" debt and thereby remove them from banks' balance sheets. With the "bad loans" off the books, the banks would become sound. Because it was assumed that the MBS market was "illiquid," the government would become the buyer of last resort for these products. There is a certain simple elegance to the plan.

Except that no market is truly illiquid. It just isn't liquid at the price you want to sell. This summer, Merrill Lynch unloaded a bunch of bad debt at 22 cents on the dollar (http://www.thestreet.com/story/10430734/1/merrill-to-raise-capital-sell-cdos.html). There are likely plenty of buyers for the banks' bad debt, just not at the price the banks would prefer. Enter the government, which clearly intends to purchase MBSes at some premium above the market price. That was the nature of the bailout that failed on Monday.

Congressional leaders have vowed to bring a new proposal for a vote, possibly as soon as Thursday, proving yet again that Washington is fertile ground for really bad ideas. But with the market rebounding—as of this writing the Dow was up almost 300 points (http://news.yahoo.com/i/749;_ylt=AtNNSSo1NFqPiTMjv.Sr2ras0NUE)—and public opposition hardening, signs are emerging that banks are starting to clean house. The crisis may have already peaked. Of course, Congress' ability to further screw this up can't be overstated.

Mike Flynn ([email protected]) is director of government affairs at the Reason Foundation.

[101A]

I like the summary of that article:


But with the market rebounding—as of this writing the Dow was up almost 300 points (http://news.yahoo.com/i/749;_ylt=AtNNSSo1NFqPiTMjv.Sr2ras0NUE)—and public opposition hardening, signs are emerging that banks are starting to clean house. The crisis may have already peaked. Of course, Congress' ability to further screw this up can't be overstated.

Everybody needs to read the article just posted, and back away from the edge.

[MannyIsGod]

He's foolish as hell if he thinks its peaked.

[MannyIsGod]

What he doesn't understand is that selling the MBS at such low prices at this time HURTS the banks credit ratings as well. There's a reason the government buying them at higher prices is necessary. Otherwise you don't stop the cirlce of lower credit > selling off assets for higher liquidity > lowers the credit > etc etc