The Deal's Getting Done, But Will It Work? 83 comments
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One week ago, I posted Oppose The Treasury’s Bailout Plan. Since then, most criticisms of Henry Paulson’s original proposal supposedly have been incorporated into the new compromise bill, including my criticisms.
But my concern at present is whether the bailout will work at all. I think the complexities of the reverse auctions on small illiquid distressed securitized assets will prove difficult. Further, the talk that the bailout won’t cost anything is highly unlikely. Of all of the U.S. government’s bailouts, only the Chrysler bailout made money. So long as you are in a fiat money system, in a bailout, the job of the government is to prevent contagion and minimize loss, in that order. Bailouts don’t make money, and that should not be expected.
But hey, if they are going to play for profit, let them play big. I was joking around when I wrote my article 2300 Smackers, and I am joking a little here as well. Why not use the $700 billion to capitalize 10 new banks with $70 billion of capital each? Let them lever up 10:1 — you have $7 trillion of buying power. Let the public participate alongside the government and the power expands further. With a profit motive, they will buy and finance what makes sense, and five years from now, the government would sell its stakes, and pay down debt.
The rough part is that they have a non-profit-oriented main shareholder, looking to bail out dodgy institutions. Also, if the risk is smaller than $7 trillion, these institutions won’t do well. Also, what of the financials who don’t have government sponsorship? Couldn’t the government just take super-senior convertible bond stakes in institutions that are under duress? (Oh, that sounds like one-off bailouts? Could be a lot cheaper than the current plan…)
And what of the borrowing? Can this be funded at reasonable yields, and with the dollar at current purchasing power levels? I have my doubts, though the markets have been benign over the last few days.
Consider the actions of the Federal Reserve in concert with the Treasury. As I pointed out in Entering the Endgame for Monetary Policy, there is a panic quality to the Fed’s actions. This concept is endorsed by Brad Setser, Randall Forsyth, and Michael Panzner, among others. With the short term money markets in disarray, we have Asian Central Banks cutting rates, which aids the West, but increases inflationary risk.
Three notes to close:
- I don’t know what Monday will bring in entire, but a failure of Fortis seems likely. Note that the ECB is not on the hook here but the Belgian central bank (which probably feeds into their Treasury).
- What the FDIC did with WaMu affects other banks like Wachovia. Bidders will let the holding company fail, and bid for the operating bank subsidiary assets. Holders of holding company securities get hit, as their likelihood of getting reasonable recoveries disappears.
- We are putting a lot of faith in the health of Citigroup, Bank of America, and JP Morgan. If one of them fails, the game is over. Given their complexity, and the recent takeovers, the odds of there being a significant mistake are high. Consider further that they are counterparties for more than 50% of all derivative transactions, so the synthetic leverage is high as well.
All “solutions” to the crisis at this point in time are bad solutions. The time to act was 10-15 years ago, where we could have implemented contra-cyclical policies in bank regulation, as well as enforcing a strict separation between regulated and nonregulated financial intermediaries. (No ownership, no lending, no derivative agreements.)
I don’t know what this week will bring us. Last week was bad for me on a relative performance basis. My inclination is to look at companies that have good global demand, and not much debt. As for bonds, keep them short, unless you are buying long TIPS.
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This article has 83 comments:
"Among the last sticking points...how to pay for any losses that taxpayers may experience after distressed debt has been purchased and resold...
In the end, lawmakers and the administration opted to leave the decision to the next president, who must present a proposal to Congress to pay for any losses."
for me, this is unacceptable
As for the stock markets, the folks who've been manipulating them for months are unlikely to let the moment pass without helping along what would probably happen anyway - a relief rally. The herd will doubtless follow. How high and how sustainable is anybody's guess.
I'm guessing that herds of people chasing a rigged market are the ones about to get slaughtered. Especially when on Monday morning we all turn on CNBC and hear those windbags declaring (for the seven billionth time) the bottom.
I'm also curious to see if this causes the bozos over at the SEC to reconsider their recent short selling ban.
You want to create 10 banks and employ the people that got us on this mess? Why don't the government buy 700 billion dollars in gold instead. Move the currency to the right direction.
This all assumes that our elected representatives and government officials behaves rationally (collectively) to rein in the excess in the Wall Street as well as to limit the money supply growth (to moderate future inflation). If they all behave properly, what happened in the last few years would be just a little blip in the long history of the market. If they don’t, we may turn ourselves into a banana republic in a big way.
If the DJI dips below 10,000 and stays there for sometimes, there will be hardship.
The bail out as currently structured is simply irresponsible. We do not need a bail out to save, however briefly, the failing companies whose management teams should mostly be blamed for their failure. Investors who had ignored the historic lesson should also blame themselves and should not look to the tax payers to bail them out. We need a “bail out” that channels all the reserve we have to create new jobs (highway, energy, and so on) to avert the hardship. We need a “bail out” that institutes sound regulations in the financial market to let the market behave orderly and responsibly. We need a “bail out” that places safeguards for the vast majority of investing public not to be taken by people offering too-good-to-be true investment schemes.
Let the mismanaged companies fail. Let us think how we pilot through this troubled financial time with whatever it takes but prudently. It may take more than $700 billion. $700 billion is just a talking number. We don’t have that kind of money. Unfortunately, many of us, including those in the negotiation, think that is the money we have in pocket and will be spent one way or the other.
Come November, vote the political cronies out of office. I'm sure the elites will find some other work for them to do....
The term 'bailout' seems somewhat inaccurate and not constructive.
If everyone adopts a Cassandra-like, "can't work" point of view we can be sure it will be likely to fail.
Let's give it a chance, hope it works, and that it provides a stable environment so that people can reorder their investments thoughtfully and not in a panic, and that our 'leaders' have an opportunity to fix things that have been shown not to work.
beanieville.blogspot.c...
But at least until the government makes the hoped-for profit on this deal, isn't it massively inflationary? You are diluting the currency by a huge amount, correct? So my strategy for this would be opposite of what I just said, get out of dollars, probably into gold, etc.
I thought I knew what the enemy was a couple of months ago: deflation, and I was investing accordingly. Now I'm confused-- we seem to have hugely opposing forces at work here and I really don't know what to plan against-- a slowdown, or hyperinflation??
As I recall, taxpayers picked up around $126 B of the $160 B in losses. Of course, the balance was lost by depositors.
As the rich will get richer in this current bailout scheme, the rich picked up great properties for pennies on the dollar through the Resolution Trust Corporation's giveaways. It's the same old story; the little guys get bent over while the bigs guys laugh all the way to the bank.
Unfortunately, this bailout will only give these thieves a temporary respite. The next shoe to drop--commercial real estate loans, credit default swaps, derivitives?
Best,
Frank Miller
John McCain was involved in trying to steer the bank regulators to ease up on Charles Keating's Lincoln Savings which bellied up. His friend, Keating, let McCain use his private jet and vacation home in the Bahamas numerous times, gave him $112,000 and let McCain's family participate in a shopping center deal. All this from a guy who claimed during the debate that he has been fighting special interests and corruption for the past 26 years. What a jerk!
However, when I read statement like this below, I really question these people's judgments:
>>>All “solutions” to the crisis at this point in time are bad solutions. The time to act was 10-15 years ago, where we could have implemented contra-cyclical policies in bank regulation, as well as enforcing a strict separation between regulated and nonregulated financial intermediaries. (No ownership, no lending, no derivative agreements.)<<&l...
In hindsight, everything is 20-20. If I had known what I know now 10-15 years ago, I would have bought as much AAPL, RIMM, GOOG, POT as I could on margin! There will be time when we need to look back and reflect upon what had gone wrong and try not to make the same mistakes again. And that's exactly what Ben Bernake is trying to do by making sure that we don't make the same policy mistakes that we did back in the 1930's.
Folks, we have a 5-alarm fire going on right now in our financial system. Let's try to put the fire out first before we start blaming the builder for not putting in a sprinkler system 10-15 years ago.
Yes. Do more of EXACTLY WHAT CAUSED THE PROBLEM IN THE FIRST PLACE. Great idea there. Should we also put a couple hundred million into capitalising some new real estate agencies who will be responsible for reminding people that real estate only goes up? How about a few billion to take the place of all the builders who've gone belly-up? Right now, houses aren't getting built and it's up to the government to remedy this drag on the economy.
Nice work taking a dumb idea and making it dumber. For my part, I will continue to oppose the plan by voting with my wallet (the only vote that matters). Short Treasuries, own gold. As David Fry points out, this is how traders give Hankie the Jersey salute.
We plugged some figures in from at least what is *known* from the government - - what we found, is that since these debts were used as investment instruments the problem has been magnified or "multiplied" throughout the world's economy over at least the past decade in much the same way you calculate the "multiplier effect" on cash infusions. Big problem, of course, is that the investments and paper were phantoms. It is not a $700 billion or a $1trillion problem -- it may be in the $1trillion x 10's. The money being thrown at this, given amount in the worldwide credit pool, is a grain of sand at the beach.
If this will not work, then why are they doing it? That is the $700 billion question. Some ideas range from the following:
1. This will buy time until there is an election and perhaps an inauguration of a new president to provide a transfer of power to provide initial stability for what will be America's darkest days.
2. The United States is facing extortion by an element that may destabilize our country in some way if we don't pay-up.
There are too many strange things going on in our country. The price of gasoline is going *down*, while shortage in some states become more severe. They blame it on Ike, but after the storm passed news reports, too many to cite, said that there was no damage and later reports that gasoline production was "on-line" days after Ike passed.
We see snippets of things in the press like this from the AP:
"There must be no rush to misjudgment regarding this critical threat to America's economic future for generations to come," said Rep. Thaddeus McCotter, R-Mich. "All Americans want responsible progress toward a positive, pro-taxpayer solution."
Yet the AP REMOVED this quote from their web-published story within MINUTES of publication. What this guy is saying -- we are facing a THREAT that may impact generations -- so we must assume at least 80 years into the future. A major recession -- even the Great Depression did not last one generation....
I have a few questions for the board here:
1. What is REALLY going on?
2. What is/are the THREAT(S)?
3. What are the consequences of failure?
4. What will "success" look like?
Something doesn't pass the economics 101 smell test...
Curbs-In, your questions get at the issue of what the objectives of the recent government and Fed actions are and what the "bail-out" wants to accomplish. The factor repeated again and again by our "leaders" is action is needed to return confidence to the system. That begs the question: are we simply dealing with a confidence game?
Unfaire, I find your discussion very interesting in light of a recent SA article I published: seekingalpha.com/artic...
You discussion of fundamentals lines up very well with the cyclic analysis of my article.
dlr, as jlounsbury59 used the phrase "confidence game," if you think about it, another phrase comes to mind when we look at the banks -- "shell game"... As David says, when one goes down, "game over" -- I don't even know if you'll need one of them to go down to have game over. If they are noting but "props" on a stage, they can be around forever in a reduced role. After all, it is a confidence game... Appearances and reality will be different from this point forward...
Some of you may have the front pages of when a man stepped on the moon, or when JFK was shot, or the coverage of 9/11... but today is the day the dream called the United States of America died.
The history section of the library is filled with empires that dominated the world in their day -- and they are all gone. We all knew America's reign wasn't going to last forever -- but few of us realized just how quickly it would end or that we would die by our own sword.
The generation that talked about flower power and peace and put Woodstock on the map has proven to be the most greedy and selfish generation ever to have lived -- and they haven't even started hitting us with the bill for their "entitlement" programs yet.
The sissies running the country now are unable to take even the slightest little bit of pain. Everything requires a pain killer, a trip to the nail salon, and of course massive government "relief". Great Depression? Who do you debt addicts think you are kidding?
In your selfish rotten effort to avoid even slight discomfort, the flower children (who are now CEOs, Congressman, etc) are saddling their children with more debt than the world has ever known -- and the only way to pay for it is to be a mortgage banker or lawyer, since we no longer teach math or science or engineering and no American wants to be a "nerd" anyway. Heck, Americans refuse to even get their hands dirty.
George Washington and friends launched a full scale revolution over tax rates that are a fraction of what we already pay.
Lewis and Clark managed to explore the west without a government subsidy, and they didn't file a lawsuit every time they twisted an ankle.
Heck, even John D Rockefeller hauled barrels of oil by hand when he was a young man. How many CEOs today have ever done an honest day's labor? They went from private prep school to university to grad school to the executive suite -- a life of privilege the whole way.
I am ashamed at what America has become. This is no longer the America that was able to tame the west, defeat the Nazis and put a man on the moon. Today's America would go deep into debt to pay an illegal alien do it for them.
There was an article on Seeking Alpha a few days ago about this... That we can't take "the truth" about what is really going on... The tip toes of the Washington DC bureaucrats on this issue gives me, my family and everyone I know pause...
We ought to let market do it's thing even with threats of depression from Paulson/Bernake/Bush the very people who contributed to this crisis.
So let the bottom fall out for quick across the board climatic selling and let the market determine the value of bonds and stocks.
Folks, we have a 5-alarm fire going on right now in our financial system. Let's try to put the fire out first before we start blaming the builder for not putting in a sprinkler system 10-15 years ago.
Peter - as much as I respect you, you missing one very important point. This is turning point, end of very important cycle. The public is fed up with constant bailouts. NO MORE BAILOUTS. It is going to hurt a lot, but we need this fire, and these these 'risk blind' morons to burn and collapse.
That's what the Taxpayer is saying. Let it burn, and let it collapse - as a great episode to be remembered, and taught in business schools for generations.
Peter - there are banks in USA, that were well managed. Take for example the US Bancorp. These banks will need to survive. The idea of creating new banks, or capitalizing well managed regional banks, is a great one.
The only people in this land, that want the bailout, are the Wall Street investment banks that screwed up, and the crack addicts (addicted to leveraged capital), like Bill Gross or Warren Buffet (he is up here in derivatives).
The era ended. Let it burn. Let it hurt. It is time to figure it out. You are one of the greatest investors in this country, but you are missing the important point here.
The future? Oil, if it hasn't already peaked will do so shortly. What will we use for energy without money to develop alternative resources? If the economy "rebounds" oil will be driven up and up, killing off any rally. This is not the crisis of the 1920's/30's or the 1970's, 1980's or 2003. This is a different animal and it is very difficult to see the future or a way out that is positive or painless.
1. Goldman Sachs made a ton of money shorting the mortgages (and most likely the financials owning them) last year;
2. Now, shorting of financials is prohibited;
3. Goldman Sachs recently converted itself into a bank holding company which entitles it to access the bailout money;
4. Paulsen wants (or wanted) a blank check for $700,000,000,000.
5. Paulsen is the former CEO of Goldman Sachs with no doubt a continued close relationship with Goldman Sachs management. (and who knows if not a financial one at least indirectly).
That smells a little fishy to me. A prudent person doesn't usually let the fox guard the chicken coop.
This reminds me of lyrics to a somewhat recent popular song by the Blood Hound Gang:
" The roof, the roof, the roof is on fire
We don't need no water let the m____rf____r burn
Burn m____rf____r, burn"
Here it is in full www.youtube.com/watch?...
On a related note, we should vote out of the office anyone who votes for the bailout, since they are certainly not representing our interests.
Except, Fuel is down - and Financing - believe it or not, IS still available.
A friend owns a GM dealership - they're lending on cars (granted with GMAC money that was just given $25BB from the Government).
My local bank manager (it's a small, locally owned, closely held bank) says they're still happily lending - though they have always had tough lending criteria. And she proudly points out their balance sheet and that they have no exposure to anything going on right now.
One of our best lenders (who represents 30 different lenders) has lost 3 in the past month (KeyBank, Citizens Bank and Wachovia). He's still writing boat loans for over $100k at 6.5% - very happily.
Scary thing is, fuel IS down, credit IS available, and, because of fear mongering (by Administration & Media) and confusion (caused by Administraion and Media) I can't sell a boat to my upper middle class customers.
Who's getting screwed here? Middle class (me).
Even with all I have invested in a fossil fuel driven, discretionary income burning fun industry - I still would take higher fuel prices and a credit lockdown over a bailout of the very people who have driven orders on production builds of "Mega Yachts" (30 meters and above) so far that if they were lined bow to stern would reach over 100 miles.
This bailout stinks, and does nothing but remove the hook from the mouth of a failed administration - and pass it on to my kids and theirs.
btw - Anyone want to buy a 28' to 50' recreational boat?
These grassroots complainers haven't felt any pain, so it's easy to complain. Wait till their paychecks become delayed or reduced since the banks need to limit cash flow due to the sludge that has built up. Wait till their credit card limits are reduced to $500 even if they have always paid on time. Wait till stores, restraurants, and repair shops become cash only. Wait till banks restricted us to $50/week at the ATM.
It's this sludge in the banking system pipes that our Government is trying to clear so that the cash flows through banks that each of us need for clearing checks and paying bills. If that seizes up, everyone will affected immediately and likely it will cause a collapse since commerce of all types, all down main street, will plummet.
This rescue plan should buy some time for the economy to heal a bit so it doesn't totally collapse right now. If it did collapse, every's investments (like 401ks, ...) would go down with it immediately, millions of jobs would be lost, and millions of more homes owners will default on their debt. That would really hit home and those complaining today to "Block the Bill" would be calling on Congress the next day to "Pass the Bill."
This Bill is needed, and people should be grateful and supportive.
Absolutely not. We are an unwilling purchaser and should not be forced to buy something we don't want and arguably don't need. Inflation is not an answer to lack of confidence.
David missed the most fundamental point. How is the govt going to act on Monday. If they are banging on hope, then they will be sorry. They must take decisive action to back stop those in the brink of failing and not let FDIC do its dirty job of feeding the big and crooked banks. It is better to sustain rather then slash and burn only to pick up the pieces.
America have lost enough investment banks and with it valuable long therm edge to keep ahead. It cannot afford any failure and especially wwhen it just announced a major plan.
Rgds
The most funny thing from your article:
Why not use the $700 billion to capitalize 10 new banks with $70 billion of capital each? Let them lever up 10:1 — you have $7 trillion of buying power.
Unquote.
This banking sytem with fiat money is very funny:
When I bring 100 US$ to the bank (a clear future liability for the bank), the bank considers this an 'asset' and can borrow about 1000 US$ because they have some 'asset'.
Fiat money could work perfectly as long as you understand it is fiat money, interchanging 'assets' and 'liabilities' was always a handicap of the present system...
Let the markets work; anything else causes doubt.
In reality the $100 is both, an asset and a liability. The $100 you brought in is the asset and the $100 they owe you is the liability. Aside from this minor point, it is very funny. You go to bank one and borrow the $100 and deposit it in bank two. Someone else now goes to bank two and borrows $1000 and deposits it in bank one. A third person now goes to bank one and borrows $10,000, ... Then suddenly, you decide to withdraw the $100 to pay off your debt to bank one (i.e. you make "a run on the bank") and the house of cards comes crumbling down. Well, not always, but there is that possibility.
Today,the same author questions effectivness of the 700 billion dollars "stability plan".
For the record this is a very functional and effective plan.
It will provide mega liquidity into the financial sector by allowing the Treasury (government) to buy illiquid collateral held by the financial institutions at a discount to the face value but premium to the market value.
This will provide close to 5 trillion dollars of the stimulous(liquidity),u... the multiplier of 7(7x700 billion).
In addition , paying premium for the collateral(Treasury),w... allow further injection of liqudity by freeing reserves proportionally.
This "kick start" financial catalyst will allow for a major economic and the market rebound.
The collateral held by the Treasury could potentially trade at par(face value).
The end result will be a 5 trillion dollars stimulous potentially cost free.
U.S economy and the market are on the verge of the major rebound as Europe heads for a major economic and financial upheaval led by the problems with Fortis(only a drop in the bucket).
The European instability will contribute to a record dollar demand directed at the U.S assets(another sourcev of the U.S growth).
By the time Christmas arrives in the U,S economy should be in the state of Nirvana.
Let's hear the cheers for the Congress.
I believe the title of the next article by Mr.Merkel should be
"Gabe may be right but will Americans live to enjoy it?"
Putting financial expedience ahead of freedom is wrong.
Get the federal government out of the market.
Only honest people are being screwed by this BAILOUT.
I keep saying 1789 and no one listens...
I keep hopeing I am wrong, but I doubt it.
Does the recoupment section suggest OMB is to charge the whole financial industry for the bailout of the few problem companies on Wall Street that got in trouble? Hope Congressman read this disaster in the making.
1. Congress and the President should LEVEL with the American people as to what is REALLY going on here... Then WE can decide if this is right or wrong... OR-
2. Vote anyone who votes in favor of this bill out. If you are in favor of one party over another kick them out during the primary election. If you are a Democrat in California, run against Pelosi in a primary.
This is a "representative democracy" and we are NOT being represented. Simple as that! Here is something stranger... WHY was there such an urgent need to bail out the financial system IF this is true (from Bloomberg):
The actual cost of the program will be ``considerably less'' than $700 billion, said White House Budget Director Jim Nussle in a letter today to House Minority Leader John Boehner, a Republican from Ohio.
``No one knows just how much these assets will sell for, but since 90 percent of mortgages are currently being paid on time and in full, we can expect a substantial payback on our investment,'' Nussle said. ``If a mortgage asset is purchased at a deep discount from its face value, the taxpayer may even see a positive return on that investment.''
Well Nussle, if this is such a "sweet deal," why isn't the private sector sucking these piles of papers up?
For example (page 32 lines 10-22),
if (auction-based purchases) AND (the total is above $300M) then
1. The Secretary shall prohibit entering into NEW golden parachute agreements
2. MEANING: existing golden parachutes are not affected
3. The Secretary shall issue guidance to carry out this paragraph not
later than 2 months after the date of enactment of this Act, and such
guidance shall be effective upon issuance
4. MEANING: there is a 2-month window for making new golden
parachutes, or better yet, make them now before the law passes.
endif
Here is how it should have been:
For any company that sells assets to the treasury, any executives or
employee that has a golden parachute shall give up all provisions of
their golden parachute.
The World'sWorst StockPicker, Strange, isn't it? We needed this fix last week or we would face doom? The it is Monday or Tuesday of this week and we will face doom... Now we find out the money may not flow until WEEKS AFTER passage of this bill. So was this an emergency, or not?
Then Paulson plan part deux does even more. It says, essentially, that we are unwilling to let banks fail because of their dumb decisions. We will buy assets at prices that, as Bernanke says, are "held to maturity" (HTM) prices.
This is really another way of saying, "Hey, I think Americans are dumb. Let's use an "accounting" label, then they won't 'get it' and will believe there really is some 'price' that is different from the 'economic' price".
Bernanke is a criminal, as is Paulson, for even suggesting that there is something called a "held to maturity price". Google HTM price. You will not find anything.
What he should say is:
"We, Ben Bernanke and Hank Paulson, think that the intrinsic value of the cash flows are worth more than the current market value. We are willing to place the bet that the financial markets are wrong and we are right, and we are willing to bet your tax dollars on it."
He, and Paulson, Pelosi, Dodd, Frank, and others (except some House Republicans) believe that if we hold onto these assets for a few years, that Americans debtors will repay and that the present value of those cash flows are worth more than the market price today. They may be "somewhat" correct, but not altogether correct. There likely is some distressed value that is lower than the real intrinsic value, but it is nowhere near the levels Hank&Co believe (i.e., around 70-75% of face).
The reality is that many of these mortgage loans shouldn't have been made, and the losses are going to be realized - by someone.
No "waiting game" is going to make it better and, in fact, the government interference is working in perverse ways to, in some cases, make the situation far worse (as in the Sheila Bair and Indy Mac example above). We think these bureaucrats are heros? No. They need to go back and take Econ 101.
This is why I say: Americans don't understand what is happening. It is too complex, and most Americans have the attention span of a gnat.
Let us ask the right questions. It is really very basic.
1) What is the ability and willingness of the debtors to repay?
2) What is the value of the collateral?
#1 is being sabotaged by all the effort to "shore up" the system
#2 continues to be crushed by inventory on the market
Paulson is trying to solve #2 by buying up inventory at off-market prices before the loans even hit the "market", and thus artificially prop up price.
But it is all smoke and mirrors. The losses are real and need to be recognized. This is a capital and solvency issue, at the core. Read the article at:
us1.institutionalriska...
Right on the money.
LOL!!!!
Watch what they do, not what they say. IF this was to help US and "Main Street" as Pelosi, Paulson and Bush say, then why was the big effort made to make a bill passage announcement today, before 6:00 PM Eastern time, before the opening of Asian markets? The SAME tactic was used on ALL other bail-outs. Right before the Asian markets opened... If they were really worried about the American people and Main Street, 8:00 AM MONDAY would do just fine...
Without Paulson telling the American public and the world what is really going on, I doubt there will be ANY confidence in ANY bailout at ANY price. Our countries with huge trade deficits with the U.S.A. telling us to take a hike since they got burned on some of these "safe" U.S investments? South Korea is upset and wants to close outside investments (and the head of the KDB is facing public ridicule). Even Canada joined several other countries is calling for the U.S.A. to change its model - eliminating tax incentives for borrowing, for example.
Bloomberg has a headline: "Asian Stocks Climb as Financial Bailout Package Approval Nears." I would not, it any way shape or form, describe what I'm seeing as a strong vote of confidence in the bailout program by Asia. Does someone have leverage on Bloomberg? I know CNBC is heavily leveraged...
Lets see... We've had The War to End Wars, Prosperity is Just Around the Corner, The Brave New World... What will the epitaph be for the turn of the 21st Century? "Our economy is fundamentally strong."
Almost zero. 350,000 died from infection. No sterile field, no antibotics.
My expectation about the TARP that will eventually authorize $700B new debt, maybe $1.5T revolving graft, is a rush to the fire exits and a panic sell-off that trips the circuit breakers several days in a row.
"There will be time when we need to look back and reflect upon what had gone wrong and try not to make the same mistakes again. And that's exactly what Ben Bernake is trying to do by making sure that we don't make the same policy mistakes that we did back in the 1930's.
Folks, we have a 5-alarm fire going on right now in our financial system. Let's try to put the fire out first before we start blaming the builder for not putting in a sprinkler system 10-15 years ago."
here's what's wrong with this thinking mr. lynch:
those who try to ring alarm bells against oppressive and corrupt governments or corrupt/dysfunctional government policies are not heard. they are not heard because people want to believe in the benevelence of their leaders and the righteousness of their actions on behalf of the country. it's called blind patriotism, which is a disease that infects about 1/3 of the populace of this country. by your comments i suspect you are another of it's victims. political "leaders" rely on that emotion to achieve their often less than noble goals. you would give them the benefit of the doubt, thinking that if we survive this crisis they will have learned their lesson. they will not. their "cure" consists of buying up bad assets to loosen credit...cheaply provided through the fed...to permit an overlevereged country to further leverage up to keep the ponzi scheme running. how absurd.
this crisis was created and fostered by wall street, the federal reserve the u.s. treasury, the congress and the executive branch of government. when bush spoke of it while begging congress to approve the bailout plan, who did charge with responsibility for it's occurrence? greedy mortgage and investment bankers? year of a cheap and easy money policy by the federal reserve? years of overspending on government initiatives, military and civilian, that our country cannot afford? no. here's what he said:
"This large influx of money to U.S. banks and financial institutions, along with low interest rates, made it easier for Americans to get credit."
it was all those nasty foreigners loaning us money that was the problem. it beats taking responsibility doesn't it?
with no disrespect intended, mr. lynch, i bet you were one of those who believed this little mortgage crisis of a year ago was "no big deal." i also bet that you thought greenspan did exactly the right thing with year after year of cheap and easy credit and monetary policies designed to goose the economy. i bet you thought these morons knew what they were doing.
the lessons best learned are the harshest lessons. i think that if wish wish to save capitalism we have to burn to the ground the contaminated version of it we currently practice.
You might get a pop, but suspending reality will destroy what little is left of confidence. When everyone is lying, and everyone knows it, who will buy anything from anyone?
Suspending mark-to-market is a pathetic cry for a return to the way things were.
The Democrats haven't had the best plan for America since Grover Cleveland. FDR lengthened the Great Depression with his govt inteventions, LBJ gave us the problem of a $5 trillion War on Poverty that only created a permanent underclass, Carter gave us inflation that Reagan/Volket had to clean up, and the main reason the Clinton era was fiscally sound is due to Republican Speaker Newt Gingrich and crew writing the budgets and cutting the taxes and reforming welfare.
With BHO, we have the least qualified and most left-wing candidate ever, restrained only by his dishonest and dishonorable dissembling to the sheeple to get elected. He is anti-energy, anti-business, anti-capital, anti-low-tax-rates, anti-life-for-unborn, anti-traditional-famil... anti-free-market, anti-nuclear, anti-strong-defense. No wonder America's enemies and critics are eager to see us vote him into office. He will be an utter and complete disaster. Never fear, the crisis will be manufactured to be worse so that Obama's disasters will be blamed on those who went before him.
"U.S. bailout plan progress helps stocks and dollar Reuters (Sun 10:10pm)"
Well, if you look at the Asian markets at 0315 UTC it doesn't look that way from where I sit:
finance.yahoo.com/intl...
Maybe Paulson handed out rose colored glasses to members of the media. When Paulson parts the sea and cures cancer, please wake me up from this night mirror. They must be pulling out all stops to build confidence. Mr. Paulson, you can't buy confidence or respect.
"Watch what they do, not what they say. IF this was to help US and "Main Street" as Pelosi, Paulson and Bush say, then why was the big effort made to make a bill passage announcement today, before 6:00 PM Eastern time, before the opening of Asian markets? The SAME tactic was used on ALL other bail-outs. Right before the Asian markets opened... If they were really worried about the American people and Main Street, 8:00 AM MONDAY would do just fine..."
Interesting observation. Maybe China (and/or Japan) has made some private threat to our government regarding their need for the bailout? Perhaps they've threatened to start dumping dollars/dollar assets in massive quantities on the open market, which would (likely) crash the dollar. Dunno, but your observation makes me wonder. Seems like something is afoot in this regard.
So as troubled banks cannot recapitalize themselves, thus I expect that they will go under anyways, their good "valuable" parts will end up being taken over or sold to stronger banks and the bad assets being taken over by the government. Having warrants (or having the possibility of raising taxes in 5yrs time) of the remaining "bad bank" has no value so this provision will not help the government to recoup their losses.
If a financial institution finds the treasury bailout provisions to onerous, can they still dump the toxic assets on the Federal Reserve Bank as an end around?
How about the toxic assets the Fed Reserve received in the Bear Stears/JPM deal. Those assets were taken by the Federal Reserve without recourse? Can Fed Reserve now use the bailout legislation to dump those assets on the Treasury/taxpayer?
If this is a crisis of confidence, a credit crisis that banks will not lend to each other, a crisis that the financial system does not trust their counterparty because who will be insolvent next, a crisis where short sellers had to be stopped because there were not enough long buyers because buyerd did not have access to accurate information regarding what toxic assets an institution owned, a crisis of transparency,
a crisis where large banks cannot get funding from institutional investors, a crisis where depositors, especially large depositors are making runs on their bank.....then is not most all of this lack of confidence due to a lack of transparency in (1)what junk each individual bank owns, and (2) what remaining real capital does any specific financial institution really have??
If so, then as part of the process to solve or correct this, why would the new bailout legislation not require portfolio transparency at each financial institution, at least those whose access the TARP bailout benefits? Would it not be logical to have each financial institution publish electronically their portfolio of MBS,CMO,CDO,SIV,CDS, and other toxic assets, derivatives and exposures?
If the answer is these financial institutins are pri vate companies and that "specificity" of information is confidential for competitive reasons, I suggest you rethink that answer. Its that lack of specificity that caused the "systemic risk" and that resulted in the request for "public/taxpayer assistance" and that is now, in the legislation, going to make each of these institutions owned partially by the taxpayer?
Again, why no requirement of disclosure and transparency as part of the credit crisis solution??
or
REDS IN THE FED
You were right, FORTIS gone and DEXIA next
Right wing, National Socialist, gains in Austrian elections - they love this sort of thing!!!!!!!!!!
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You want to restore the economy? Two words: TAX CUT. And not the usual lip service...but a BIG, FRIGGIN', complete overhaul. A gutting of government agencies, and a restoration to the people of what is theirs! 40%+ to the Feds in taxes alone each paycheck is far too much. Frankly, more than 10% to the Feds is too much...no matter what income bracket you're in!! That's the traditional "tithe", and its where we should draw the line.