Looking for Hope 58 comments
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Is democracy the winner here? Clearly, the people have spoken, through their elected representatives, and they've said no to the Paulson bailout plan. If that means a market crash, so be it. At 1,145, the S&P is now 27% off its highs, and 5.5% off where it closed on Friday -- bad, but not the end of the world. But it wasn't a stock-market crash which Paulson was trying to prevent. Rather, it was a complete seizing-up of the credit markets.
Bank of America (BAC) is leading the financials down, falling 15%: the no-shorting rule can't prevent this kind of price action. And Morgan Stanley (MS), which was rescued last time only by the promise of a bailout, is down 19% today. But many of the other big banks seem to be holding on OK, and even Morgan Stanley, at $20 a share, is still almost double the price it was trading at a couple of weeks ago.
With any luck, what we're seeing here is the market doing its worst. If we can get through this and the sun rises tomorrow morning, then maybe a more deliberately designed and less panicked Congress will be able to agree on a fiscal stimulus bill which could prevent a really nasty recession without being seen as bailing out Wall Street's millionaires.
But if a vicious spiral in the credit markets takes hold without any hope for hundreds of billions of dollars of US government money to come in and stabilize things, that could spell disaster for an economy which needs credit to grow.
There is one other option. The Scandinavian solution, which involves nationalizing banks rather than simply buying up their assets, could conceivably be implemented without legislative approval -- after all, it's already happened, to some extent, with Frannie and AIG. Since the likes of Paul Krugman and Brad DeLong think the Scandinavian solution is a better one anyway, maybe this will all work out OK in the end.
We can but hope. Or, as one reader just emailed me:
What we all need to do is Pray to our Lord because he is in charge anyway.
I don't think he's talking about anybody in Washington.
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This article has 58 comments:
only in 32 of the 42 cases was there government financial intervention of any sort;
in 10 cases systemic banking crises were resolved without any government financial intervention.
Of the 32 cases where the government recapitalized the banking system, only seven included a program of purchase of bad assets/loans.
In 25 other cases there was no government purchase of such toxic assets.
In six cases the government purchased preferred shares;
in four cases the government purchased common shares;
in 11 cases the government purchased subordinated debt;
in 12 cases the government injected cash in the banks;
in two cases credit was extended to the banks;
and in three cases the government assumed bank liabilities.
Even in cases where bad assets were purchased, Chile dividends were suspended and all profits and recoveries had to be used to repurchase the bad assets.
In most cases multiple forms of government recapitalization of banks were used.
Government purchase of bad assets was the exception rather than the rule. It was used only in Mexico, Japan, Bolivia, Czech Republic, Jamaica, Malaysia, and Paraguay. Even in six of these seven cases where the recapitalization of banks occurred via the government purchase of bad assets, such recapitalization was a combination of purchase of bad assets together with other forms of recapitalization (such as government purchase of preferred shares or subordinated debt).
In the Scandinavian banking crises (Sweden, Norway, and Finland), there was not government purchase of bad assets. Most of the recapitalization occurred through various injections of public capital in the banking system.
Purchase of toxic assets instead made the fiscal cost of the crisis much higher and expensive (Japan, Mexico).
You are looking through the wrong end of the telescope. If reading what you wrote doesn't make you stop and think "OMG, did I really just say that?" then you are missing the chain of causality.
What got us here was building an economy which 'needs' debt to 'grow'. You can't build a better life simply by borrowing it into existence and then borrowing even more to keep the charade going. Eventually that debt and its interest has to be repaid.
Cut off credit, let the chips fall, and rebuild with SAVINGS, not debt. You look old enough to remember savings. Wonderful stuff. Pays interest. Gets people ahead in life without having to drag a lot of debt around behind them.
Bring it on...
as Jim Morrison sang...."you cannot petition the Lord with prayer"
//////////////////////...
We can but hope. Or, as one reader just emailed me:
What we all need to do is Pray to our Lord because he is in charge anyway.
I don't think he's talking about anybody in Washington...
//////////////////////...
Has this country turned into nothing but WIMPS!!??? So you won't be able to drive your BMW, Mercedes or Hummer around, talking trash on the cell phone, while you are waiting at McDonald's to fatten your rear end some more. All of this done at the expense of other people in the world, I might add.
So you idiots in your SUV, with your fish on the bumper, G** did not kill the dinosaurs so you could get drunk on oil. Joel Osteen, what a joke.
America's days of living off everyone else in this global village are ending. Like it or not.
Power to the people! Give us OUR money back!
P.S. - yes, I am invested in the markets, but I let out a big BOO-YAH today after seeing the vote...despite taking a hit to my portfolio. Money comes and goes -- freedom is worth taking the hit for!
Look what you elected 4 years ago and how it turned out ?
In the meantime the market is heading lower until a deal is made. I suspect we will get some short term relief out of this with commodity prices increasing after the election. By 3Q 2009 we'll find out that the $700 billion wasn't enough and we will begin the downward trend once again. I only hope that my stock holdings get an artificial boost so i can sell and put the money under my mattress.
What King of France got beheaded for financially ruining his country?
Another 12 months and we will actually be tied with the 2000-02 bear market...
Its important to save main street instead of wall street brokerage houses...the supply and demand for the toxic paper will eventually reach a equilibrium without a bailout....what the country needs now is to get M1 on the move upward and that requires a return to fundamentals...reduce taxes, lower energy prices, adequate jobs for whoever wants to work. This is the Main Street Bailout that will answer all questions going forward.
*
Religious people never fail to amaze me! If the Lord was truly in charge, why pray to him?! Blaming Him for the mess would be more to the point, and asking Him to leave as alone even more so... But of course the true believer's relationship to "this"Lord is is one big Stockholm Syndrome.
The other thing we need a "new-deal" type philosophy. I liked the idea of floating wind turbine bonds, but why offer bonds? Why doesn't Congress just give the Department of Energy $700 billion to build some wind turbines and solar panels? Maybe this would slow down the huge amount of money draining into the middle east, and set America up for energy independence in the future.
While we're at it, let's see if we can't keep some jobs in America by taxing companies that out-source their work. That's another huge drain of money that gets put in India and China. This "crisis" has been obvious for the past 20 years.
Watch this series of films. Number 4 is really good:
Debt is Money on YouTube
www.youtube.com/watch?...
While leveraging can certainly make the bite that much harder when things don't work out, like the current situation, never forget that it also makes life easier, and that there isn't a predestined but delayed reckoning for our 'excesses.' As long as loans can be paid back, there is no problem.
1. Government officials deceiving the public about the situation.
2. Not being forthcoming about what we are REALLY up against.
3. Allowing entities (hello anti-trust regulators) to become too big to fail.
4. Not identifying who is causing this credit crisis.
I have heard every descriptor under the sun to describe what will happen if this bill didn't pass. Well, it didn't pass. We are still here. Paulson decribed a collapse that would occur on Tuesday if Congress did not pass the bill. Tomorrow is Tuesday Mr. Paulson.
NEXT, thanks to the Internet, we can rewind statements by Bush and Paulson about the economy on YouTube. Just a few weeks ago we were not on the brink, now were we? Remember the Wall Street is a bit drunk statement Mr. President? Either you are all liars and should be impeached/prosecuted, or you're the biggest bunch of idiots on Earth!
Mr. Paulson, remember: Tuesday is the day we face dire circumstances if the bill didn't pass. :-)
What gave you the idea that we have a free market? The market hasn't been free since 1913, when the bankers took over and started printing debt money. This is all part of the boom bust cycle written about by Von Mises and others. All this has done has brought forward the inevitable bust (not the last by any means).
Passing that republic breaking act would only postpone it. The USA will NEVER pay off its debt, that is impossible to do with the current rules. The only way to fix this is to move back to a system of sound money that is not manipulatable by bankers and special interests.
Our standard of living of have now and pay later (most people DO pay off their mortgages) relies upon people having money to lend. Should the government step in to preserve our way of life by using public funds or even gradually nationalizing these areas, or should we be left to roil in our freedoms and it'll all work out in the end, for better or worse?
Wall Street as well as individuals over-commiting to more than they could afford to create this monster. Let's all get real.
Yes pray to God, as he as real as a prudently managed US financial system
Anytime, guys..... we're waiting....
you CAN'T fix this problem until you know WHAT the problem is... we inserted socialism into capitalism with GSE's Fannie & Freddie.
it removed risk... and risk is required in a capitalistic market. So now we have the choice to walk down a road of socialism via nationalizing our problems. Or we can fix the problem.
1. people have lived WAY beyond our means for years... as people and a Government.
2. It is time we adopted a responsible monetary policy...
3. Building our economy around DEBT got us here. we can't BORROW our way out.
4. It's time to pay the piper and make some money
America is BROKE! Get off your butt...sell some stuff and cut your living.... you deserve what you get.
if you are debt free and live on less than you make... how scared are you right now????
Smartypants is right. Credit is the problem, not the solution. If these banks need some funds, how about raising interest rates on passbook savings accounts to 5%. That will re-capitalize a bunch of them.
These banks want to be able to pay 0.01% interest on checking and passbook savings, and they want their customers (taxpayers) to bail them out? I prefer to be kissed before getting screwed.
I'll make it... Bring on the rain
Deregulation back then ends up being the first part of the bailout in that scenario. Think about it.......
why shouldn't the loan officer execute the loan... The Government is a co-signer with Fannie and Freddie!!!! it removes RISK... and risk is imperative in a free market!
Government is the problem not deregulation
Government both regulates and deregulates, appropriately or not....In this case, as we have seen before, laws, regulations, usually don't address the whole problem........and therefore favor some and not others.
A fine thought. Put everything in the strong safe hands of JP Morgan and cos. One tiny problem: JPM's exposure to derivatives, $90,000,000,000,000 (ninety thousand billion). It is not a joke.
The strong will survive and hopefully I will buy them this week.
Anyone with this mentality has their head in the sand.
If the financial system melts down, there go the jobs of many on main street.
For an education on this mess, see
www.youtube.com/watch?...
A little economic meltdown is *exactly* what is needed in this country!! To get people good and mad...finally mad enough to disembowel the Beast in Washington that sucks them dry every pay period.
If you really thought this was just about the $700B...you have alot to learn.
On Sep 30 09:52 AM sdcougar wrote:
> "Bailing out wall street to save main street is absolutely rediculous."
>
> Anyone with this mentality has their head in the sand.
> If the financial system melts down, there go the jobs of many on
> main street.
>
> For an education on this mess, see
> www.youtube.com/watch?...
1)consider that this is not a bailout. the plan is to buy assets that are undervalued.
2) financial institutions that took huge risks did fail and will continue to fail. this plan does not heal those failures.
3) if you think that better run institutions can buy their assets and succeed, then the u.s. treasury should have no problem making a profit. why let large institutions make the easy money? why not let the taxpayer make it?
to kowalski: prayer is about giving thanks for what you get, no matter what you get. start everyday being thankful for every breath you take. the existence of god is not in doubt because he fails to live up to your expectations. the great power is. he has given us free will. that means we control what happens down here. blame people that borrowed without consideration to their ability to repay. blame people that should have exercised discretion in lending. blame everyone but god. he made us in his image, but we have to work for our intellect. god bless you.
answer: currently, banks must retain any capital that comes in. investors looking at their balance sheets cannot value the mortgage paper assets they hold. as those assets are constantly being revalued, or marked to market, lower, they are forced to come up with alternate collateral to prove that they are still solvent. as the banks solvency is questioned and their stock price is driven down in the stock market, they lose their ability to borrow money or sell their own stock. so, they are forced to sell those mortgage related assets at fire sale prices. this, in turn, forces all the other banks to again mark to market lower, and the downward spiral continues, until all the banks are broken or until someone with a large balance sheet can buy the assets and hold them to maturity. everyone knows that these mortgages repaid at the 88-90% rate during the great depression. so, their ultimate value is between 88-90%. our tax dollars have a chance to actually make money for a change. treasury can buy them cheap and make interest while they hold them. think before you vote.
Text of the bailout plan (from the NY Times):
graphics8.nytimes.com/...
Sec 109c line 14 "principal write downs" of mortgages
Sec 110-2 Modifications (to mortgages)
(a) Reduction in interest rates
(b) Reduction in loan principal
Now think about this example:
There are two neighboring houses.
In the first house, Peter was prudent, saved his money, lived within his means, worked hard, and could afford his mortgage.
In the second house, Paul took on too much debt, lived beyond his means (possibly even taking out a HELOC or two to "live the good life"), worked just enough, and frankly cannot afford the mortgage he got himself into.
The aforementioned sections essentially say that the tax money that Peter has paid will go to help his neighbor Paul. Truly robbing Peter to pay Paul's mortgage!!
On top of that, everyone else who knew they couldn't afford a house and thus are renting... their tax money goes to help Paul too!!
That is f***ing ridiculous.
Sec 113a1. "Minimizing negative impact" -- This section is pure fluff but does clearly say there *will* be a negative impact, which they will attempt to minimize (ya right). None of "the gov't might actually make a profit" absurd punditry.
Here is a graphic showing who in the House voted for or against this absurd, Socialist bill:
www.nytimes.com/ref/wa...
I will vote for, and contribute to, the incumbent campaigns of those who voted against this bill.
I will vote against, and contribute to, the challenger campaigns of those who voted for this bill.
As a taxpayer, one who lives well below his means, and an American, I am utterly furious that House Speaker Nancy Pelosi, D-Calif., Senate Majority Leader Harry Reid, D-Nev., Paulson and House Republican Whip Ray Blunt, R-Mo could come up with this absolute garbage.
Moreover, the fact that Henry J Paulson originally asked for $700,000,000,000 without any oversight at all, just a "trust me, I'll spend it right" attitude, is completely un-American and goes against our democratic system of checks-and-balances. He is a snake, a complete failure at his duties, and should resign immediately.
I implore all of you:
PLEASE send emails, write letters and tell your Senator and Representatives that you-- as a financially responsible homeowner-- REFUSE to help pay the mortgages of your financially irresponsible neighbors. They don't need to be very long-- just a paragraph or two to get to the point.
Tell them you will send money to support the challengers to kick out the incumbents to voted for this bill.
And tell those Representatives who voted against this bill that you wholeheartedly support their vote, and will be contributing to their campaigns.
They need to know: Vote for this bill and they will be out of office.
there are even commercials on tv welcoming delinquent tax payers to avail themselves of their opportunity to reduce their tax bills. most tax payers have to pay their bills, but some people are invited to skirt away, astonishing! people constantly refuse to pay their debts and courts back them up. in this country, for some reason, we have no debtor's prisons. we encourage debt as a life style. why? apparently, we believe that society as a whole benefits when there is risky business, creating new opportunities and jobs.
sure, it might be a better system if we had public executions of people who pass bad checks or steal someone's identity, but we are a kinder, gentler nation. from the constitution on, we guarantee the right to pursue happiness and happiness is not easily attained, 101010, especially if you are paul. so, we balance the system with forgiveness. let's see why, shall we?
simply put: there are not enough jobs for everyone. after farming, medicine, and royalty, what other positions are really needed in society? so, we allow criminals to flourish, this encourages the hiring of law enforcement agents, and employs the entire criminal justice system of lawyers and judges, clerks, secretaries, etc. yet, despite this huge expenditure, the game is still rigged to let our criminals to go free, so that we will pay more for insurance and so that we will buy replacements for our lost property. this leniency supports the huge insurance and manufacturing industries. our tax system, too, is unnecessarily complex, so that we can employ tons of otherwise idle numismatists as accountants. we also do not catch and punish all the people who send out viruses to our computers. instead, we support an entirely new industry designed to undo their handiwork, antiviral programming. get the picture? we don't just allow risk, we encourage it, primarily to maintain a healthy level of employment.
now, if women had not entered the work force and stayed at home, to raise children as god intended, there would still be an adequate supply of jobs, even considering all the time saving devices that have been invented since then. so, sure, you can blame paul for getting in over his head, buying more house than he needed and failing to live up to his financial obligations, but isn't it really his wife's fault? wasn't it mrs paul, who demanded equal employment, the right to sell fish sticks and a bigger house? so, isn't it peter's duty to help bail out paul? aren't we all brothers struggling to find a place in an unjust system simply to make our wives happy?
Please visit Martin Glob and his friends at MartinGlob.com
Write and call your Reps and Senators, people!!!
On Sep 30 09:17 PM 101010 wrote:
> I'm going to make this short and to the point.
>
> Text of the bailout plan (from the NY Times):
> graphics8.nytimes.com/...
>
>
> Sec 109c line 14 "principal write downs" of mortgages
> Sec 110-2 Modifications (to mortgages)
> (a) Reduction in interest rates
> (b) Reduction in loan principal
>
> Now think about this example:
> There are two neighboring houses.
>
> In the first house, Peter was prudent, saved his money, lived within
> his means, worked hard, and could afford his mortgage.
>
> In the second house, Paul took on too much debt, lived beyond his
> means (possibly even taking out a HELOC or two to "live the good
> life"), worked just enough, and frankly cannot afford the mortgage
> he got himself into.
>
> The aforementioned sections essentially say that the tax money that
> Peter has paid will go to help his neighbor Paul. Truly robbing Peter
> to pay Paul's mortgage!!
>
> On top of that, everyone else who knew they couldn't afford a house
> and thus are renting... their tax money goes to help Paul too!!<br/>
>
> That is f***ing ridiculous.
>
> Sec 113a1. "Minimizing negative impact" -- This section is pure fluff
> but does clearly say there *will* be a negative impact, which they
> will attempt to minimize (ya right). None of "the gov't might actually
> make a profit" absurd punditry.
>
> Here is a graphic showing who in the House voted for or against this
> absurd, Socialist bill:
> www.nytimes.com/ref/wa...
>
>
> I will vote for, and contribute to, the incumbent campaigns of those
> who voted against this bill.
> I will vote against, and contribute to, the challenger campaigns
> of those who voted for this bill.
>
> As a taxpayer, one who lives well below his means, and an American,
> I am utterly furious that House Speaker Nancy Pelosi, D-Calif., Senate
> Majority Leader Harry Reid, D-Nev., Paulson and House Republican
> Whip Ray Blunt, R-Mo could come up with this absolute garbage.<br/>
>
> Moreover, the fact that Henry J Paulson originally asked for $700,000,000,000
> without any oversight at all, just a "trust me, I'll spend it right"
> attitude, is completely un-American and goes against our democratic
> system of checks-and-balances. He is a snake, a complete failure
> at his duties, and should resign immediately.
>
> I implore all of you:
> PLEASE send emails, write letters and tell your Senator and Representatives
> that you-- as a financially responsible homeowner-- REFUSE to help
> pay the mortgages of your financially irresponsible neighbors. They
> don't need to be very long-- just a paragraph or two to get to the
> point.
>
> Tell them you will send money to support the challengers to kick
> out the incumbents to voted for this bill.
>
> And tell those Representatives who voted against this bill that you
> wholeheartedly support their vote, and will be contributing to their
> campaigns.
>
> They need to know: Vote for this bill and they will be out of office.