Automakers to get $17.4B

[Winehole23]

Why don't you explain it to me, because what B2B said makes no sense in the context of explaining the current economic crisis.

You can start here: http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

The total value of bad mortgage loans has already been dwarfed by the size of the bailouts, and if bad morgages were really the cause of the problem, how come none of the trillions in bailout money has been spent to address it?

Not in the case of sub prime lending. The outright made bad credit decisions.

They made bad decisions because they relied on technical models rather than analysis of the underlying risk. You seem to think my point is refuted by the bad decisions, but my whole point was to try to describe how the bad decisions were made.

If the banks are left to fail, the US taxpayer would suffer much more than chipping in for the bailouts.

Is this so hart to understand?

If the banks are backed by the full faith and credit of the US, what's to fear from the banks failing? You demand explanation and proof from me and B2B, but offer none yourself. Deflation and default are painful, but the price discovery and consolidation they allow are good for business.

Also, the bailout creates perverse incentives. Ever since the bailout started, banks have been standing on the sidelines with their hands in their pockets. Why should they stick out their necks as long as the USG is being the lender of last resort?

Additionally, if there are no adverse consequences for big banks running into insolvency and default, because they are "too big to fail" and the USG will always pick up the pieces, there is a gigantic incentive for banks to misbehave. By not allowing banks to fail, we are encouraging them to be bad.

[smeagol]

You can start here: http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

The total value of bad mortgage loans has already been dwarfed by the size of the bailouts, and if bad morgages were really the cause of the problem, how come none of the trillions in bailout money has been spent to address it?

They made bad decisions because they relied on technical models rather than analysis of the underlying risk. You seem to think my point is refuted by the bad decisions, but my whole point was to try to describe how the bad decisions were made.

If the banks are backed by the full faith and credit of the US, what's to fear from the banks failing? You demand explanation and proof from me and B2B, but offer none yourself. Deflation and default are painful, but the price discovery and consolidation they allow are good for business.

Also, the bailout creates perverse incentives. Ever since the bailout started, banks have been standing on the sidelines with their hands in their pockets. Why should they stick out their necks as long as the USG is being the lender of last resort?

Additionally, if there are no adverse consequences for big banks running into insolvency and default, because they are "too big to fail" and the USG will always pick up the pieces, there is a gigantic incentive for banks to misbehave. By not allowing banks to fail, we are encouraging them to be bad.

Ok, you've convinced me. Let's sit by the sidelines and let the banking industry fail. It's going to be fun!

[Winehole23]

Ok, you've convinced me. Let's sit by the sidelines and let the banking industry fail. It's going to be fun!

No!

Better to replicate Roosevelt's bank holiday or the RTC's bank audits. The first rule is to give no public money to banks that are already insolvent, because it's money flushed down the toilet.

Banks with sound balance sheets we should definitely help. Help the good, liquidate the bad, protect the taxpayer's money.

[LnGrrrR]

Smeagol, I think you must be deliberately obtuse.

Let me put this easily. Let's say I'm a bank employee. I tell you you can afford a house with no down payment. You say, "Great, I want to live in a house" and sign up for it.

Now, I don't know if you'll really be able to afford the loan. Just in case, I take out a CDS, kinda like a bet with a bookie. If you don't pay off, I'll get paid off by the bookie.

The bookies are loving these deals, because as long as a majority of house loans don't go under, they're making money off every bet they made. And they're not regulated like regular insurance, so everyone's making ALLLLL kinds of bets.

Eventally, there's ten times the amount of money floating out there in bets then there is in the actual loan!

So when something hits the fan, and you can't pay off your loan, you tell me so. Then I hear that everyone else on your block can't pay either. Then I ask the bookie to pay up. But turns out that he can't pay out either, because HE'S being asked to pay out on all HIS debts. This goes up and up. Hence the domino collapse.

Now, is the collapse caused by the loans? No. The collapse could not have occurred without those loans, true, but they were merely the vehicle with which the CDS could be generated. The CDS are what really killed the industry.

[BacktoBasics]

No!

Better to replicate Roosevelt's bank holiday or the RTC's bank audits. The first rule is to give no public money to banks that are already insolvent, because it's money flushed down the toilet.

Banks with sound balance sheets we should definitely help. Help the good, liquidate the bad, protect the taxpayer's money.

but but but this all very difficult to understand. Explain again why we help the ones who do better. Shouldn't we help the failures continue to fail. Yes...NO...very confusing.


/sarcasm for the inept/

[LnGrrrR]

Additionally, that's why no one knows how to fix the banking system right now. There are tons of bad 'bets' still out there, and because these bets were packaged together in many cases, it's like trying to untie the world's largest knot. Banks are even afraid to lend to each other!

[Winehole23]

Additionally, that's why no one knows how to fix the banking system right now. There are tons of bad 'bets' still out there, and because these bets were packaged together in many cases, it's like trying to untie the world's largest knot. Banks are even afraid to lend to each other!

This actually is the nub of it. Not only is everybody unsure who's got the turd in his briefcase, chances are, almost everybody does.

What chaps my ass is that instead of supporting the productive long term strength of the real economy (i.e., businesses and consumers) our government is protecting "the bonuses and dividends of Wall Street...by hiding away the bad assets that can no longer be foisted on gullible investors."

We've thrown a TARP over over MBS's and CDO's. The Fed won't say what's been accepted as collateral for $2 trillion loaned out. Why not? So the financial elite can continue exchange illiquid assets for real money at at the Fed pawnshop. Now all that crap threatens the US balance sheet.

The profits from the derivatives bubble were private, but the risk has been socialized.

The crisis in debt markets has been rolling since the sub-prime collapse of August 2007. The increasing illiquidity of commercial paper, trade credit, municipal finance and other debt markets was foreseeable and inevitable. And yet the central banks and treasury authorities of the Western nations have done nothing to shield these essential sectors from the ill effects of the financial sector implosion while giving virtually unlimited funds to the banks authoring the collapse