Sometimes all one can do is sit back, scratch your head and wonder: Can all this be true?

As it appears to an outside viewer a gazillion miles away from ground zero(s) Washington and Wall Street some people do not appear to have grasped the implications of the financial crisis.

Washington Mutual has failed overnight, right along the lines where all of a sudden two presidential candidates rush in and out (after 60 minutes of "negotiations" - heck, tell me what can you negotiate in 60 minutes on an issue with such epic proportions?) to discuss the bailout plan. Eventually this election spectacle has cost the country and the rest of the world very important time needed to rescue the worldwide financial system, hopefully it wasn't the last second.

Contrary to what most think I still believe the US still is one of the most extraordinary countries in the world with an unprecedented potential to tap into new inventions and self healing powers. Could be the current administration has already overstressed their budget of "we must act now, or... disaster..."? Or are the presidential candidates indeed so ruthless to gamble with world economics (a field of which both, unless two weeks ago, expressed only mild interest and in case of one runner even openly admitted disinterest) to position themselves 2 percentage points better in weekly survey polls?

I'm unbelievably disgruntled today and this will likely turn out to be one of the posts I'll regret later typing at the first place.

First of all I am very much depressed since I think one of the best systems, a system of equality allowing each and everyone to level himself up with no regards to birth, skin colour or physical handicaps. True, the poor and uneducated have to face much harsher obstacles, but still they have a chance. I personally see this system at risk as a whole.

If the credit market remains frozen we'll see skyrocketing unemployment and a self accelerating downward spiral of business failures. You can neither drill, nor tax and especially not lend your way out of this.

There is a very real risk of a total system failure. There's always this last strain of straw which breaks the donkey's back. I know most people here do not appear to be as interested in running the numbers, so I will spare you more calculations in this post.

There is an understandably large number of people who feel betrayed by "bailing out wall street" or as it is getting portrayed - baling out people who have made three digit millions each year. What people should understand and have to understand that they are bailing out themselves. It's more than fair to point blames to Washington, the post 9/11 Fed, Wall Street and so on - I'd do the same, but it's a waste of time and energy. We all will receive a severe haircut, but I don't feel ready to loose my fully head yet.

What is more unpatriotic - saving the economy (and the connected social stability) with costly measures or flattening the whole system to maintain political positions? I feel this weekend may be one of the most important in modern times. It may steer us towards an urgently needed solution or simply into a very real abyss.

I'm going to go on a limp and give my 2 cents of personal experience in such matters. It's just my personal rules of thumb to keep in mind when thinking about these situations and how much 'stress/energy' I should invest in worrying about such things.

1 - The press exaggerates everything
Considering the only source of information we have comes from the press I can safely assume things are half as bad as they seem to be.

2 - These things happen for a reason.
If 1 crisis can bring an entire system to it's knees, then the system is flawed and needs to be replaced. If there ever was any time for re-examining the system, now is the time and I'm sure something positive will come out of it in the long run.

And in the end, the long run is all that matters.

My grandparents were in the heart of the second world war and they've experienced disease, famine and most horrible experiences. They came out of it triumphant and much stronger than before. Having survived daily Nazi raids, hunger and poverty one learns to see such experiences in a different daylight. The crisis during the 60's and 70's and the high-tide of the cold war were more severe than the current crisis. In other words, things'll be ok, focus on the important things in life: What can I do in my direct surroundings, how can I inform people? How can I stop people from panicking about these things? The more people you can send to stores and vacation, in the end.. the better it is for the world-economy.

Fear is the biggest enemy of any free-market-economy.

I've been watching this very closely mostly out of interest. Without trying to make light of the situation it's almost like a train wreck, you shouldn't watch, you don't want to watch but you can't help but stare.

Personally I don't think we will begin to see the full impacts of this situation for at least 6 months. I also believe that this will be like a very slow motion version of the stock market crash of 1929, instead of everyone panicking in a matter of 48 hours our slug-like citizenry will begin to clue in slowly and begin yanking all they know out of banks. Yes, most banks here are insured by FDIC but this insurance only covers an average of about $100,000 which is chump change when it comes to retirement funds and investments and the paniced will rather take a small loss by closing out several CD's early than lose all but maybe 10%, that 10% could take years before the FDIC finally gets around to issuing that check.

That is the negative take and this take is if nothing tried works. I'm still not sure what is going to be best. I'm the kind of bitter jerk that does not want to support some wealthy pug who promoted a series of bad loans to further a lifestyle that will get his about to be 16 year old daughter a brand new Ferrari but at the same time I can't justify cutting the nose off to spite my face either. I also have a hard time justifying faith in politicians when the vast majority of them have very significant personal ties (former CEO's/presidents, friends and family in high level positions, etc.) to most of the large corporations and banks in this country. When people panic it tends to boil down to "how do I save my own ass?" and most of those people couldn't stomach moving out of a mansion into a 2-3 bedroom ranch house in a lower/middle class community because their investments went bust.

BloodRayne wrote:

1 - The press exaggerates everything
Considering the only source of information we have comes from the press I can safely assume things are half as bad as they seem to be.

Study the terms and conditions of the Berkshire Hathaway/Goldman Sachs deal - you'll see things are double as bad as the press portrays.

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2 - These things happen for a reason.
If 1 crisis can bring an entire system to it's knees, then the system is flawed and needs to be replaced. If there ever was any time for re-examining the system, now is the time and I'm sure something positive will come out of it in the long run.

Simple take on a complex matter. The financial systems at all times since stone age relied on credit. Even if I let you live in one of my flats I expect you to pay rent. The time between paying rent and using the apartment is solely secured by me giving you credit to pay at the end of the month or, if you pay at the first of month, you giving me enough credit to trust me I'll be able to maintain that flat for you at least 4 weeks. Credit is trust and trust is credit. There is zero trust in the market (Japanese banks are currently no more allowed to lend money to US banks for example - that's also in the press, but most journalists don't get what it means).
A bailout plan is NOT about throwing money after executives, it is to re-establish enough trust to keep the financial system working - which is the only system we have, had and ever will have unless you go back to exchanging eggs for roof shingles.

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And in the end, the long run is all that matters.

Well, except for the millions who will die in starvation in poor countries, relying 100% on foreign monetary aid. It's far fetched, but that's what I am convinced in.

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My grandparents were in the heart of the second world war and they've experienced disease, famine and most horrible experiences. They came out of it triumphant and much stronger than before. Having survived daily Nazi raids, hunger and poverty one learns to see such experiences in a different daylight. The crisis during the 60's and 70's and the high-tide of the cold war were more severe than the current crisis. In other words, things'll be ok, focus on the important things in life: What can I do in my direct surroundings, how can I inform people? How can I stop people from panicking about these things? The more people you can send to stores and vacation, in the end.. the better it is for the world-economy.

Please allow me to note the uprising of Hitler was made possible by the German disgruntled working class, starving and poor after the loss of WW1, living in a broke country. Of course he had generous oversees funding too, like any dictator. Tell me one example where something good came out of a total economic meltdown? It's the fertilizer to grow extremists and dictators, the biggest threat to social stability. The high tide of of the 60ies, 70ies and of course the September 11th 2001ies have not been as severe. The 1929 depression was. Do you want to go there?
And excuse me, but what does this mean: "The more people you can send to stores and vacation, in the end.. the better it is for the world-economy." On what funding will the people get send on vacation or to stores? Revolving credit card debt? Social security paychecks?

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Fear is the biggest enemy of any free-market-economy.

Please re read parts of my post - you'll see that this fear is the missing trust between financial institutions which now needs to get removed buy a "bailout" program. It should have gotten named "trustshield" instead.

Bittoman wrote:

Personally I don't think we will begin to see the full impacts of this situation for at least 6 months. I also believe that this will be like a very slow motion version of the stock market crash of 1929, instead of everyone panicking in a matter of 48 hours our slug-like citizenry will begin to clue in slowly and begin yanking all they know out of banks. Yes, most banks here are insured by FDIC but this insurance only covers an average of about $100,000 which is chump change when it comes to retirement funds and investments and the paniced will rather take a small loss by closing out several CD's early than lose all but maybe 10%, that 10% could take years before the FDIC finally gets around to issuing that check.

I have sort of mixed feelings regarding 1929 comparisons, albeit both events sure shared things in common (most notably the high loan to equity ratios, but not the lofty P/E valuations). There are two reasons for that. In 1929 it is believed the depression caused the stock market crash. The crash was so devastating because people had been buying stocks on margin, just exactly as they now did buy houses on margin. Now the stock market crash respectively the financial crisis (heck, it hasn't even crashed yet if you think about, just large but isolated equity wipe outs in the three digit billions) would cause the economy to crash and slip into stagflation / recession / depression. It's a sort of chicken and egg - who was first - thing. Now we see a plop on the financial markets and later a bang of the corporations which leads to a kaboom on the employment market which... you get the idea. So yes, indeed, this has the potential to turn out extremely bad.

The FDIC by the way is so severely under capitalized, it would have gone bust more than three times with Washington Mutual alone last night. This is as close to a bank run as it gets, but there still is enough time for presidential candidates to carry on with election gaming...

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That is the negative take and this take is if nothing tried works. I'm still not sure what is going to be best. I'm the kind of bitter jerk that does not want to support some wealthy pug who promoted a series of bad loans to further a lifestyle that will get his about to be 16 year old daughter a brand new Ferrari but at the same time I can't justify cutting the nose off to spite my face either. I also have a hard time justifying faith in politicians when the vast majority of them have very significant personal ties (former CEO's/presidents, friends and family in high level positions, etc.) to most of the large corporations and banks in this country. When people panic it tends to boil down to "how do I save my own ass?" and most of those people couldn't stomach moving out of a mansion into a 2-3 bedroom ranch house in a lower/middle class community because their investments went bust.

The problem with politicians having ties to corporations is: When you only have career politicians who haven't worked a day in real life everyone complains and demands people with real world experience and proven track records. Once you got them everyone complains about their corporate history and track records. I don't think the honest to god assembly line worker will ever end up in office, justifying demands on both sides.

I really hope there will be a solution in the next 72 hrs.

BNA! wrote:

The problem with politicians having ties to corporations is: When you only have career politicians who haven't worked a day in real life everyone complains and demands people with real world experience and proven track records. Once you got them everyone complains about their corporate history and track records. I don't think the honest to god assembly line worker will ever end up in office, justifying demands on both sides.

I really hope there will be a solution in the next 72 hrs.

I actually agree 100% with what you said. But to clarify the last paragraph I made; my comments are largely based on two things.

Primarily when the US government was founded, the Feds had no power beyond tying together the states which had the real power and also to maintain diplomatic and military that would operate to defend the states. After the Civil War, Lincoln disolved this (and my memory is fuzzy so if I get my parties wrong, please correct me) caused the then Republicans, which he was a member of, to become the current day (or the beginnings of) Democrats (I think they were called Federalists, again correct me on my parties if you remember.) This became a huge encumbrance by the early 1900's when the now "big government" really started getting it's hands dirty and things really got messy because the biggest check and balance was now removed; the Feds were in power and the state Governors became basically figureheads with no real control on Capitol Hill. Welcome Big Brother.

The secondary is the biggest clarification and that is that the initial Congress, House and Presidential roles were not paying positions. You did not make money as a politician unless you worked outside of the government in some way. This was fine because there was no lobbying, the people in office worked and lived with the people they governed and better understood the public as a result (they were not detached from the actual society.) Today we have largely career politicians and armchair generals who survive solely on bloated benefits packages, donations and the "advice" of the friends they place in cabinet positions.

Below is just additional commentary outside of my original post.

More and more frequently we are being beset by reports of scandals, fraud among politicians and a quickly growing extremely wealthy that live off the blood and sweat of the lowest levels of society both in and out of the US. Even worse is the fact that we have pushed most of the better paying low end labor out of the country (outsourcing) to enact what amounts to slave labor (in terms of a meager wage) in other countries such as China and India while even the lowest positions that can't be outsourced are being taken over by illegal aliens looking for a better life and get paid (almost literally) beans. This has been having a slowly growing impact on the lower class and the lower middle class is beginning to suffer tremendously as a result. My fear is that the bailout will promote the ultra-rich to continue their practices without punishment while the middle class gets eaten alive due to no loans, foreclosures, high interest rates and an increased tax to cover the "mistakes" of those still living high. But if we fail to work with a bailout, we'll all suffer and the lower class will essentially be fighting over a cardboard box in the rain and digging in the garbage cans of the politicians that are supposedly working to improve the life in our country. The question that remains is who's life are they working to improve?

I don't have a solution but I definitely know what I don't want. It's probably safe to say most everyone feels similarly, all but the ones who are living "comfortably" and are afraid that any other solution but a bailout may reduce their level of comfort. If every ultra-wealthy person in this country gave up one bedroom of all the houses they own they could probably put a roof over the head of nearly every person without a home, they certainly aren't that willing to give up that one bedroom even if that means a simple reduction from a 10 bedroom house to 9 of which they only use 1.

Please don't mistake me for saying "let's pull a Robin Hood on every rich person", to be more clear my point is that reducing the comfort level by even 5% of the wealthy will not affect their way of life but will significantly improve the life (as well as economy) of those at the bottom because the profits lost by reducing the amount of outsourcing (for example) and using labor within this country can provide a significant amount of labor to those desperately looking for a job that doesn't entail flipping burgers for minimum wage.

BNA! wrote:

What is more unpatriotic - saving the economy (and the connected social stability) with costly measures or flattening the whole system to maintain political positions?

no bailout without REAL reform. reform meaning getting the government out of the free market once and for all. the free market did not fail in this case. it was the governemt's meddling with mortage lending that caused this mess.

Polls indicate that only 7% of the public approves this course of action so the politicians have to put on a show if they hope to keep their comfy jobs. Given both Obama and McCain are in favor of this I suspect that congress will eventually pass the legislation.

Personally I'm not one of those 7%. Our whole economy rests on a centralized bank that is shrouded in secrecy. Secret meetings. Fudged numbers formulated by rules they get to choose. There's no transparency. They can't be held accountable for anything.

This isn't just a loan for $700 billion. We're granting a select few people the power to endlessly bailout anyone they see fit without any oversight and full immunity. Those are the full stipulations of this proposed solution and it's a blank check.

You talk about credit equating to trust and you've hit the nail on the head. With all the corruption, lies, wars, and abuse of power we've been through over the last 8 years, I've completely lost faith in my government. They want to borrow money from me but I don't trust them.

I mean when a bank issues me a loan, I'm expected to pay them back. What's the collateral here? I get to keep my job? That's not a loan. That's extortion.

BloodRayne wrote:

I'm going to go on a limp and give my 2 cents of personal experience in such matters. It's just my personal rules of thumb to keep in mind when thinking about these situations and how much 'stress/energy' I should invest in worrying about such things.

1 - The press exaggerates everything
Considering the only source of information we have comes from the press I can safely assume things are half as bad as they seem to be.

2 - These things happen for a reason.
If 1 crisis can bring an entire system to it's knees, then the system is flawed and needs to be replaced. If there ever was any time for re-examining the system, now is the time and I'm sure something positive will come out of it in the long run.

And in the end, the long run is all that matters.

My grandparents were in the heart of the second world war and they've experienced disease, famine and most horrible experiences. They came out of it triumphant and much stronger than before. Having survived daily Nazi raids, hunger and poverty one learns to see such experiences in a different daylight. The crisis during the 60's and 70's and the high-tide of the cold war were more severe than the current crisis. In other words, things'll be ok, focus on the important things in life: What can I do in my direct surroundings, how can I inform people? How can I stop people from panicking about these things? The more people you can send to stores and vacation, in the end.. the better it is for the world-economy.

Fear is the biggest enemy of any free-market-economy.

Whats wrong with the system is just that: The free market economy. This is what happens when the market "regulates itself". The answer? Good ole fashion socialism.

And besides, this is no ordinary crisis. It's probably the biggest since the 1929 crack.

I bet they will offer the solution: North American Union and amero for national currency... :mrgreen:

No more America...

pbmax wrote:

BNA! wrote:

What is more unpatriotic - saving the economy (and the connected social stability) with costly measures or flattening the whole system to maintain political positions?

no bailout without REAL reform. reform meaning getting the government out of the free market once and for all. the free market did not fail in this case. it was the governemt's meddling with mortage lending that caused this mess.

Actually yes, real reforms are in dire need. But it was the lack of oversight which created mess - along with the Bush administration trying to (three important points):

- fight a costly war AND reducing tax at the same time to give the population a distorted level of comfort
- avoiding the cyclical post new economy recession to maintain consumer confidence by bullying the Fed into the creation of excess liquidity at negative interest rates which has led to a housing bubble (inevitable when negative interest rate mortgages rub on real world inflation to create heat in the market)
- no central clearing house for financial derivatives

The right dose of state does wonder for a market, completely unregulated markets do nothing but run wild and bust. If you really want to go the road of completely free markets, then see millions of US workers go unemployed first who are no more longer protected by state enforced trade agreements, import tax punishments... The whole market is completely distorted - don't forget the enormous US car maker bail out program which is silently passing along and now one notices. By market terms GM is insolvent, Ford in trouble and Chrysler is also as close as it gets. Should the state immediately withdraw and set free all the employees there?

I'm not a friend of having the state to interfere with everything, but there is no denial we need a good, efficient framework of laws, rules, oversight authorities and so on.

Bittoman wrote:

Please don't mistake me for saying "let's pull a Robin Hood on every rich person", to be more clear my point is that reducing the comfort level by even 5% of the wealthy will not affect their way of life but will significantly improve the life (as well as economy) of those at the bottom because the profits lost by reducing the amount of outsourcing (for example) and using labor within this country can provide a significant amount of labor to those desperately looking for a job that doesn't entail flipping burgers for minimum wage.

No, I don't mistake you. Reducing the comfort level of the rich by 5% should be the same as reverting the Bush tax cuts - I'm not fluent with these numbers, but I think they did benefit even more.

Warren Buffett has this funny habit to write in every annual earnings report for how long his holding company kept the US running. In 2008 it was for half a day that he paid the entirety of all government expenses. That means 599 more tax payers like him and no one in the country would need to pay a dime, zip, zero, nothing. That's why he's always advocating higher taxes for the super rich (which alienates almost every buddy of him in the sky high billionaire club).

rich_is_bored wrote:

Polls indicate that only 7% of the public approves this course of action so the politicians have to put on a show if they hope to keep their comfy jobs. Given both Obama and McCain are in favor of this I suspect that congress will eventually pass the legislation.

Personally I'm not one of those 7%. Our whole economy rests on a centralized bank that is shrouded in secrecy. Secret meetings. Fudged numbers formulated by rules they get to choose. There's no transparency. They can't be held accountable for anything.

This isn't just a loan for $700 billion. We're granting a select few people the power to endlessly bailout anyone they see fit without any oversight and full immunity. Those are the full stipulations of this proposed solution and it's a blank check.

You talk about credit equating to trust and you've hit the nail on the head. With all the corruption, lies, wars, and abuse of power we've been through over the last 8 years, I've completely lost faith in my government. They want to borrow money from me but I don't trust them.

I mean when a bank issues me a loan, I'm expected to pay them back. What's the collateral here? I get to keep my job? That's not a loan. That's extortion.

Actually the bailout will happen in a way where the assets get taken from the banks and held in a sort of escrow on the balance sheet of the US. With recovering values the 700bn bill will shrink (assuming it didn't cost personally guesstimated ~2tn) and the assets can get sold on the market again.

Still it's a large question no one so far asked - how will the tax payer benefit from the equity they are constantly talking about? Will they go public and send everyone a fixed number of shares to sell on the stock market of US Inc.? Will they send you back the money? Unlikely events. They'll probably have to use it to pay back the Iraq war loans.

Transparency I agree is a severe issue in the US. Go ask why the money supply rate M3 doesn't get published any more? I can't think of any countries besides privately run dictatorships and banana republics who act this way - it's unthinkable for an industrialized nation, let alone the US!

You may find a less hysterical writing site, it's the first quick and sound explanation google spat out:
http://inflationdata.com/inflation/Infl ... supply.asp

From my point of view there are too many things in the US which do not add up any more, probably didn't add up for a long time, but you got discredited in the public and by the public as "unamerican" when expressing even the slightest doubt.

Edit: I forgot to include this theory, far fetched for some, reality to others, I'm undecided but lean more towards reality.

If the US will take 700bn to 2+tn on their balance sheet with the only exit strategy are rising house prices, then it's the easiest for them to introduce you to high inflation rates by printing more money. Let's assume the house price index on which the loans went toxic was at a fictionary 140 points and is now at 100 points. Real estates are inflation hedges in a sense that they don't pick up value, but simply cost more, moving linear along with the inflation rate. A realistic and not too far fetched inflation rate of 6,5% would bring a 100 point index to a 137 point level within 5 years. See - a fast and easy way out of all problems, also often called the "soft" solution to deleverage. All papers held by the government would be valuable again and nothing is lost when you look at numbers not inflation adjusted. In 5 years time it's unlikely anyone will link it to inflation and if so, they're likely getting labelled unpatriotic again for not singing the praises of depreciating USD. And of course, goods produced in the US can get sold dirt cheap against a strong Euro. Apple collects 199 USD for some times and at the same time 199 EURO for the identical item over here. That means we send 290,50 USD back to Apple. Wonderful inflation AND currency hedge if you have such pricing power like Apple (here picked as an actual example most people can instantly relate to).

aardwolf wrote:

Whats wrong with the system is just that: The free market economy. This is what happens when the market "regulates itself". The answer? Good ole fashion socialism.

And besides, this is no ordinary crisis. It's probably the biggest since the 1929 crack.

Yes, it has good 1929 potential, but I really think 1929 did teach a lasting lesson to policy makers. In 1929 it was the government who tightened the credit market, now it's contracting all by itself and the government works against it. At least a silver lining.

rich_is_bored wrote:

That's not a loan. That's extortion.

No, that's government at work.

pbmax wrote:

reform meaning getting the government out of the free market once and for all. the free market did not fail in this case. it was the governemt's meddling with mortage lending that caused this mess.

You can blame regulation all you want, but the fact of the matter is it was the removal of New Deal regulation that is causing this mess. But hey, if you want to see what bread lines are all about continue supporting the further deregulation of the financial markets.

I love the analogy that's being floated, that is privatize profits and publicize losses. The new American way I guess.

I feel sorry for my American cousins. Your grand kids will be paying off the Iraq war and their great grand kids will be paying off this bail out of poor bankers and brokers. Personally I feel sorry for the CEOs, I mean, it must be tough making ends meet on only $20M annually. I'm just curious to know who's behind this one, Rockafeller, Rothchild or a Morgan perhaps? Why don't they just print more monopoly money? Seems that worked up to now.

I guess trickle down economics running upstream isn't happening fast enough for the elites, and bleeding the middle class slowly isn't efficient enough. May as well legislate the wealth transfer and get things back on track. Well if any of you guys want to stay at my place while your houses are taken by the banks, you're free to as long as you don't drink all of my beer.

May God (or whatever deity you prey to) have mercy on your messed up country. Hopefully the people will revolt and hang the rich mob that's bleeding your earnings dry.

DoV_Tomas wrote:

I love the analogy that's being floated, that is privatize profits and publicize losses. The new American way I guess.

I feel sorry for my American cousins. Your grand kids will be paying off the Iraq war and their great grand kids will be paying off this bail out of poor bankers and brokers. Personally I feel sorry for the CEOs, I mean, it must be tough making ends meet on only $20M annually. I'm just curious to know who's behind this one, Rockafeller, Rothchild or a Morgan perhaps? Why don't they just print more monopoly money? Seems that worked up to now.

I guess trickle down economics running upstream isn't happening fast enough for the elites, and bleeding the middle class slowly isn't efficient enough. May as well legislate the wealth transfer and get things back on track. Well if any of you guys want to stay at my place while your houses are taken by the banks, you're free to as long as you don't drink all of my beer.

May God (or whatever deity you prey to) have mercy on your messed up country. Hopefully the people will revolt and hang the rich mob that's bleeding your earnings dry.

This is a fun, un-reflected, more reflexive public perception of the issue, but I'd like to assume you intended to paint a more provocative picture.

Canadian banks held securities just as German and US banks and all banks did securitize loans. The idea of loan securitization is to distribute the risk of defaulting loans to more institutions to avoid epic failure. The idea was not to create a gazillion derivatives based on top of these securities, leveraging them into the sky and back.

Plenty of the profits got privatized of course by home owners selling their houses at bubble peak or with significant appreciation. No one on the other hand forced them to get second and third mortgages on their houses to speculate further or participate in the consumer spending shopping spree. But that is only one element which is certainly an important key figure, but it reads misleading, as of the consumer is (solely) to blame.

I tried to keep a sort of explanatory writing style, avoiding too blunt statements in all topics related. This obviously doesn't work, so I try a different, more direct approach.

What we're looking at is piss poor risk management, a bubble (real estate and financials) economy fuelled by a radically expansive monetary policy and the ubiquitous human greed at all levels of the chain.

Regarding printing more monopoly money - you probably didn't read what I wrote about the money supply M3. Click that link too, it's not all too bad writing.

CEOs of large banks didn't complain about meeting ends on high double digit, sometimes three digit million earnings per year. Private shareholders (sometimes investing the money taken on a second mortgage, effectively double leveraging themselves into the mess) demanded ROEs north of 20%. Bank CEOs not willing to take the risks of 30:1 debt to equity rations could not sustain the demanded growth rates and got called old school, incapable and ultimately or eventually got replaced. People like Warren Buffett warning for years that derivatives are weapons of financial mass destruction got zoomed out by the public (Berkshire Hathaway annual report, 2002 - available for free on the Berkshire website: http://www.berkshirehathaway.com/letters/2002pdf.pdf - page 13 / 14).

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Derivatives also create a daisy-chain risk that is akin to the risk run by insurers or reinsurers that lay
off much of their business with others. In both cases, huge receivables from many counterparties tend to
build up over time. (At Gen Re Securities, we still have $6.5 billion of receivables, though we’ve been in a
liquidation mode for nearly a year.) A participant may see himself as prudent, believing his large credit
exposures to be diversified and therefore not dangerous. Under certain circumstances, though, an exogenous
event that causes the receivable from Company A to go bad will also affect those from Companies B through
Z. History teaches us that a crisis often causes problems to correlate in a manner undreamed of in more
tranquil times
...
Total-return swaps of this type make a joke of margin requirements. Beyond that, other types of
derivatives severely curtail the ability of regulators to curb leverage and generally get their arms around the
risk profiles of banks, insurers and other financial institutions. Similarly, even experienced investors and
analysts encounter major problems in analyzing the financial condition of firms that are heavily involved with
derivatives contracts. When Charlie and I finish reading the long footnotes detailing the derivatives activities
of major banks, the only thing we understand is that we don’t understand how much risk the institution is
running.
The derivatives genie is now well out of the bottle, and these instruments will almost certainly
multiply in variety and number until some event makes their toxicity clear. Knowledge of how dangerous
they are has already permeated the electricity and gas businesses, in which the eruption of major troubles
caused the use of derivatives to diminish dramatically. Elsewhere, however, the derivatives business
continues to expand unchecked. Central banks and governments have so far found no effective way to
control, or even monitor, the risks posed by these contracts.
Charlie and I believe Berkshire should be a fortress of financial strength – for the sake of our
owners, creditors, policyholders and employees. We try to be alert to any sort of megacatastrophe risk, and
that posture may make us unduly apprehensive about the burgeoning quantities of long-term derivatives
contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view,
however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are
potentially lethal

This was written by the richest man of the world, surely not the "rich you want to hang". It should be noted that in every speculative market upturn he got blamed for having dropped the ball, being too old school, unable to understand the modern economics and so on. In 2002 when he issued out his warnings about the things to come (which have now arrived) he got viewed as a doom-sayer (again). He can't predict the future and is constantly downbeat about the earnings outlook of Berkshire (unlike other CEOs who spend their time talking the stock up rather than working, could be related to hundreds of millions payment compensations in stock options), but he has a clear an undistorted view on potential issues which can arise and put the Berkshire shareholders equity at risk (and the economy as a whole).

Back to greed, greed, greed and greed - that's what it's all about. Assume you were a guy dreaming of a house and see everyone and their mom around you to tell you these fantastic stories of amassing hundreds of thousands of $$ on paper in real estate value without having to pay down a dime on a loan which, at 120% of the underlying collateral, also finances a car, furniture and a vacation. Interest rates deferred into the future and all virtually risk free. Not many can resist such an offer. They slave away, missed the dot com bubble to become quick millionaires and now that - the second chance to get rich without a lottery ticked and by saving rental payments at the same time. If this doesn't sound compelling enough, I don't know what could unless you get promised to have a free orgy with Celebs of your choice every Firday night and optionally on Saturday too if you book the prime package.

Free market radicals step in such moments claim the consumer and corporations should know best which risk they can take, no need for government intervention, regulations and other communist evil ideas. Well, some more guidelines wouldn't have hurt I'd say.

I'm very much convinced all will get better in 5 years time, even significantly better up to the point where we'll experience some other goods to get bid up in the sky. But next time it will be different, just as any time a bubble forms. So invest cautiously but boldly and remember - the next time you read on an economic magazine cover why "this time it's really different" act accordingly, rush out, sell your investments and on top sell them short too.

Wall Street is a nice place to be or read about unless you never forget this: The value of equities of all kind can never reflect more than the underlying sustainable business value. Leveraging that value will increase it on paper, but not in reality, quite the difference - it will increase the downside risk.

BNA your posts are thoughtful and well read for sure, and I'm sorry for being so glib with my responses. Just that the whole US story - economy and the war - is starting to sound like a bloody soap opera.

Are all rich people evil and deserving of our revile? Of course not, but I think as we all know, to get rich, you have to crap on a few people along the way - nice guys finish last and all. But if anyone tells me that lenders who devised sub-prime mortgages didn't know what they were doing, and that they didn't know they were screwing a lot of people, I'd say they were lying. I can't remember who said, "Pretty soon welfare recipients will be picking up their paycheques in limousines." Although it's pretty common in Canada, I never expected to see it in America.

History shows instances where crashes were actually designed by a few powerful people, who in the end get fantastically rich off the misery and plight of average folks. Here in Canada its the lovely 30 year mortgage. I'm seeing a lot of young families - people married less than five years and making less than $100K combined - buying homes way out of their price range. Out of sight, out of mind I guess. I suppose paying your house three times over and ending up with zippo equity doesn't factor into the decision. Many of them depend on flipping the house or better still winning the lottery to pay for their kids' education and retirement. Consumers are nutty to begin with, and these lenders are helping to push them over the edge. Now you can't make stupidity against the law unfortunately, but you can crack down on unscrupulous lenders.

I agree with some of the experts who say a crash would help cleanse the system. Let market forces do their work.

DoV_Tomas wrote:

BNA your posts are thoughtful and well read for sure, and I'm sorry for being so glib with my responses. Just that the whole US story - economy and the war - is starting to sound like a bloody soap opera.

Well, thanks for the compliments and yes, it is a bloody soap opera, unfortunately the other channels stopped broadcasting.

DoV_Tomas wrote:

Are all rich people evil and deserving of our revile? Of course not, but I think as we all know, to get rich, you have to crap on a few people along the way - nice guys finish last and all. But if anyone tells me that lenders who devised sub-prime mortgages didn't know what they were doing, and that they didn't know they were screwing a lot of people, I'd say they were lying. I can't remember who said, "Pretty soon welfare recipients will be picking up their paycheques in limousines." Although it's pretty common in Canada, I never expected to see it in America.

"...but I think as we all know, you have to..."

No, you don't and making a gross generalization to lend this part of the sentence more credibility by implying broad public agreement as if it's knowledge or scientifically proved fact is wrong. I agree if you'd say "mainstreet feels the rich must do something ruthless otherwise they wouldn't be rich". It is a psychological trap. Many on the lower cash flow side justify their situation by "being unwilling to do the bad things rich people do". I keep hearing sentences like "I'm broke, but at least I'm not screwing other people over" very often. The funny thing is that both things are totally unrelated. I feel for those who are left behind, but I believe in helping people to help themselves is the pillar of solid social stability rather than simply shoving money over. There are plenty of such old sayings along these lines "If you want to enslave them, give them fish, if you want to liberate them, teach them how to fish". This is just what D3W does - it helps people getting better with custom content creation rather than simply providing download links for good maps. Those who could benefit from D3W come back and help others and so on - a pyramid of fishing teachers starts to evolve. I couldn't be more happier on how it worked out, it's still my first try in "website community" building.

However, if you defend the rich you get labeled establishment or a cold heartened advocate of enslavement and if you care for the poor you get labeled a whiner and Robin Hood wannabe or something. Let me put it this way, albeit I couldn't scientifically proof it (yet

):

Ten percent of all humans are flat out idiots, jerks, scam artists, annoying attention seekers... you name it. These ten percent distribute evenly across all classes, from the poor to the super rich. But they also have this genetic disorder which causes them to always be outspoken, everywhere, even unasked. So they get a much higher share of public coverage / exposure (to) than the remaining 90%, but it looks as if the 90% are speaking.

So the 10% of the poor claim the rich must be criminals while the 10% of the rich shout back the poor must be losers in their own fault. Nothing you can do about it.

And you are very right - the subprime lenders knew what they've been doing, but it's shocking to see how uneducated and naive the consumers ran into this trap. Once a good time again to advocate the introduction of financial planning as an obligatory school class from elementary school up through college. On the other hand the subprime debacle also shows how strong the desire of the poor and left behind is to level up, now many of them got leveled down to eternity by foreclosure. I'd say "light them the path" and society will be better off.

However, Wall Street knows the same comparison as limousine drivers picking up security checks. It's said to be the only place where people who come in a Rolls Royce ask for financial advice from people who arrive by train. Or even better this story. A guy gets shown around and they say "These are the yachts of the Wall Street financial advisors" and he replies "and where are the client yachts?" as there are none.

Quote:

History shows instances where crashes were actually designed by a few powerful people, who in the end get fantastically rich off the misery and plight of average folks. Here in Canada its the lovely 30 year mortgage. I'm seeing a lot of young families - people married less than five years and making less than $100K combined - buying homes way out of their price range. Out of sight, out of mind I guess. I suppose paying your house three times over and ending up with zippo equity doesn't factor into the decision. Many of them depend on flipping the house or better still winning the lottery to pay for their kids' education and retirement. Consumers and nutty to begin with, and these lenders are helping to push them over the edge. Now you can't make stupidity against the law unfortunately, but you can crack down on unscrupulous lenders.

Large riches alway and exclusively are made in downswings, upswings provide the exit. Everyone knows that buying low and selling high is the key concept to riches of all size. This does not prevent private investors from entering the market close to its height (after watching it rising for 5 years to convince themselves) and then sailing down to the lows, selling with large losses. The real good investors always wait for downturns to buy and in situations where the market feels like it has reached its height they sell short or buy put options. The same holds true for real estate acquisitions or any other market mispricing situations.

The real large crashes have never been engineered, not that I can think of (from the Holland tulip bubble over the Japanese economy bubble to the current real estate disaster in the US). An interesting exception may be the 1929 stock market crash which got surely supported by J.P.Morgan sucking money out of the market, but this only accelerated the crash vs. causing the crash. A co-responsibility yes, the cause maybe not. But the bubble growth got fueled by commonly shared interest between those who are rich and those who want to get rich. Sometimes even complex economic matters build down to be only as complex as pyramid letter money schemes. As long as it goes you can't go wrong thanks to herd behavior, but when it stops the whole pyramid not merely slows down, but collapses in an instant. There is no exit possible.

Despite all the doomsday news, it's still worth noting we haven't seen a crash yet and no economy contraction either. The indicators currently get worse, sure, but we're not there yet. We're a mere 20% off market heights. A cyclical movements sort of requires us to go through a 40% to 50% downswing, stay there for a year or two and then we go back up again. Frozen credit markets can accelerate these movements and cause irrational exuberances on the downside. Look for builders of expansive machinery to issue out profit warnings soon. Their customers wont get usual credit lines at the moment to acquire the installations. This will be the second larger ripple going through economy and this will be the ripple causing steeply rising unemployment, social instability and a potential depression. This is the ripple which is intended to get avoided by the bailout plan (as compared to bailing out rich bankers). The third ripple would / could be mass failure of US corporations, hyperinflation and social instability, probably leading to an even less democratic (as compared to the Bush administration) government.

In my opinion the largest beneficiary of the bailout will be the working class. The upper middle class can easily stomach to move to a smaller house and the rich can take care of themselves in any case, but the working class cannot afford to lose their jobs. A development which is, from my point of view, the inevitable outcome of credit markets remaining frozen for a prolonged amount of time.

Quote:

I agree with some of the experts who say a crash would help cleanse the system. Let market forces do their work.

I haven't heard any political-agenda-free experts advocating a crash and "system cleanse" on this level - and we're not talking crash here, we're talking systematic failure. If you mean we should have a segmental crash, then yes, agreed. What many don't see that the financial system has already crashed and wiped out many hundred billions of equity, including a fair share of the money of the CEOs responsible. The financial system cleansing is as close as done from a standpoint of erasing the bad companies and the let the good survive. I'd like to call it a total segment crash. The financial segment went through all signs and permutations of a heavy crash. They are getting shrunk bank to normal size and what is necessary to get saved to avoid total disaster is getting nationalized. Not many like that, neither the rich holding shares, nor the tax payer, nor the middle class seeing their pension funds shrinking to abysmal levels. We're not through yet, but we're coming closer.

Please give it a thought that the bailout is designed to prevent the economy from failing (as described above), not some golden parachute deals for bank executives. Anything else is deliberate(!) press and political distortion, in some cases even ruthless alarmism. There is no real world economy without a financial system behind it.

I'd like to give you another point to consider. A world wide bank failure, which based on current data is possible, will not only wipe out the greedy, but, which to me is extremely highly unsettling, the whole life savings of all those who work hard to make a living and want to simply live above social security levels. There is little doubt the bailout will also save some who do not deserve it, but I value the common good above demonstrative and isolated punishment. The self referencing issue is that the banking system in general needs to get saved, no doubt about that, but every bank is involved in lending. With subprime failing on large proportions the stable and sound credits are equally at risk - even AmEx the credit card for the well doing has severely deteriorating numbers. Would the credit issue be limited to subprime, we wouldn't see this. so by saving a bank you'll inevitable save a portion of bankers involved in inscrutable lending.

Most bank accounts aren't insured to the degree to a life worth of savings. Increased bank failure would cause a world wide run on banks to withdraw their savings in cash, which would cause a mass bank failure wiping out everything. It is the same self aggregated effect which makes values rise too. The markets are always populated by a herd which never walks but always runs from one side to the other at full speed. It seems to running uphill is more energy consuming, so it takes about 4 times as long as running downhill. Sometimes downhill is just a single jump, but uphill is never a single leapfrog...

Sometimes when I reread my posts they look as if I'm either a right wing neoliberal market radical, or a socialist dyed in the wool. This is sort of disturbing me, but not done on purpose. I guess it relates to my non-existing ties to any political camp.

BNA! wrote:

Sometimes when I reread my posts they look as if I'm either a right wing neoliberal market radical, or a socialist dyed in the wool. This is sort of disturbing me, but not done on purpose. I guess it relates to my non-existing ties to any political camp.

That is by and large true for anyone. Human nature is to take the opposite extreme when in a panic. Not that I know you are in a panic but right now a very large sector of the US and quite possibly the world is and I'm sure this influences everyone's opinion at least to a small degree and this is always what makes trying to find the right decision the most difficult task.

Do you have a decent third party in the US? Here we have the Liberal Democrats, that if everyone who wanted them in power actually voted for them, they'd win but people consider it a wasted vote. Quite funny when you think about it. I'm going to vote for them out of protest I think.

onto my daily DOW update...

its down 527 points right now. pretty much in a free fall.

pbmax wrote:

onto my daily DOW update...

its down 527 points right now. pretty much in a free fall.

See it bottoming at ~ 80% of today if everything goes well.

On a small positive spin(for me at least), is the price of oil per barrel has fallen to about 90$ and of course could go much lower with a global credit crisis thats going on. With the price of heating fuel(by me) dropping from about $4.50/gal to $3.75/gal and lower I'll easily save several hundred dollars over the next few months with the coming winter. Not to mention the money saved on gas for driving.

Deadite4 wrote:

On a small positive spin(for me at least), is the price of oil per barrel has fallen to about 90$ and of course could go much lower with a global credit crisis thats going on. With the price of heating fuel(by me) dropping from about $4.50/gal to $3.75/gal and lower I'll easily save several hundred dollars over the next few months with the coming winter. Not to mention the money saved on gas for driving.

Most people perceive it as a positive sign, yet they're not entirely right. Free falling Oil is a sign of a free falling economy too - world wide. As long as it's dangling between 80 and 100 there's hope, if it goes below 60 there is no one who needs it and if it goes above 120 it's pure speculation.

The virus of the credit crisis has sprung outside it's boundaries and now sinks the world economy. Those who write stocks are cheap now, should try to recalculate their models with 3 years of zero growth and 09 estimates slashed 25% in most sectors. This is not going calculate favourably for a DOW well above 8000 or DAX north of 5000 in the short term.

I'll save money on cheaper gas prices too, but I cannot drive enough in my lifetime to compensate for the coming loss of earnings. Costs are a good point to tighten the screws when times are good, because in bad times you cannot loosen the screws on earnings.

This said, the D3W server will be save for a few years to come.

Most of the money I will be saving with cheaper oil is on the heating bill, and many people where I live will save significantly. I typically have smaller deliveries at about 200 gallons per delivery as I have a small home, but a medium sized home gets deliveries around the 400 gallon mark per delivery. Multiply that by 2-3 deliveries in the winter and over 1$ drop per gallon, and middle/lower class families by me can save thousands over the next 4-5 months. For people whose jobs aren't affected by a bad market, but are affected by higher food prices and other necessities the offset with the upcoming winter helps significantly.

Deadite4 wrote:

Most of the money I will be saving with cheaper oil is on the heating bill, and many people where I live will save significantly. I typically have smaller deliveries at about 200 gallons per delivery as I have a small home, but a medium sized home gets deliveries around the 400 gallon mark per delivery. Multiply that by 2-3 deliveries in the winter and over 1$ drop per gallon, and middle/lower class families by me can save thousands over the next 4-5 months. For people whose jobs aren't affected by a bad market, but are affected by higher food prices and other necessities the offset with the upcoming winter helps significantly.

This will lead to smaller houses, better insulated, especially in the US, what in return will lead to reduced demand in heating energy what in return hopefully will lead to lower energy prices. Don't get me started on cars like SUV's.

I believe you can make a killing by investing in reliable alternative energy stocks once this mess is over. With reliable I mean corporations with a track record, no new economy style business plans to go public with. Buy the mid sized companies, the large ones will suck them in at one point, leaving you with healthy gains to withdraw from the table.

pbmax wrote:

the fact of the matter is that liberalism/socialism has failed everytime it has been tried.

Actually the fact of the matter is neither socialism nor liberalism have ever been tried.

Capitalism is one of the few systems that has been tried and it's a dismal failure if you bother to take a few things into account:

A very few people will end up with most of the wealth.

The system requires the majority of workers to exist on meager or slave wages.

The advocates of "free markets" will always be the power holders in the system. They call for everyone else's markets to be open and free while they quietly maintain protection of their own markets and investments for obvious reasons. If they were to practice what they preach, they would wind up as destitute and beholden to outsiders as, say, Sub-saharan Africa is to the IMF (i.e. the U.S.).

Capitalism embraces the very notion of greed at its core. This plays out in things like health insurance companies looking for every possible way to never pay out a reasonable claim, even if the customer has been faithfully paying their premiums since they started the plan. Or, take for example, the idea that companies going under manage to pay the severance packages of the very CEOs that drove the business into the ground while slashing pensions and retirement plans of the workers as the company tanks. Or they can go spend $400 grand on fuckin' pedicures and massages after being bailed out by the government (i.e. taxpayer).

On top of that, you have private tyrannies that are accountable to no one. In other words, corporations. If someone has a problem with a company, who do they call? Who is accountable? Done effectively, companies can set themselves up so that there is no oversight and no accountability. Just go check out the various financial scandals that have hit the news in the past, oh, 5 years.

The U.S. adds to this destructive backwards system the Federal Reserve. This is a private corporation that prints the money we use. However, each dollar it prints is essentially borrowed by the government (i.e. payed for by the U.S. taxpayer) at interest. In other words, every time the financial system gets into trouble, the Fed will be making oodles of money on just the interest alone. Every time you hear a news story about "the Fed pumping cash into the troubled financial system," know that those guys just made/will make a shitload of money by so graciously helping out our poor economy. I can't imagine what wonderful bliss the Fed is in regarding the current crisis and its $700B bailout.

Easy money.

goliathvt wrote:

Or they can go spend $400 grand on fuckin' pedicures and massages after being bailed out by the government (i.e. taxpayer).

Don't vent hot air - name them!

=> AIG

In this mornings news......AIG gets approved for an additional 37.8$ Billion from the New York Federal Bank on top of the 80$ Billion the Feds gave to them.

goliathvt wrote:

Capitalism is one of the few systems that has been tried and it's a dismal failure if you bother to take a few things into account:

A very few people will end up with most of the wealth.

The system requires the majority of workers to exist on meager or slave wages.

ha ha. you got to be joking. people that end up with the wealth usually deserve it. sure there are always exceptions like winning a lottery, but people that take risks should be rewarded. people that own small businesses like myself. small businesses actaully employ the vast majority of workers, not large corporations.

slave wages? is that why the poor in the US have a car, cable tv in each room, dvd players and an xbox? give me a break. compare the poor in this country and the poor in Zimbabwe. No, better yet, go ask the poor in Zimbabwe if they would rather be poor in Zimbabwe or poor in America. What answer do you think you'd get?

Its called equal opportunity and it works. If you don't want to take risks and try to make a better life for yourself, then don't. But its there if you want to.

The poor in America are not poor. Thay are wealthy beyond their dreams. They have freedom, cheap food and basic services and equal opportunity. The problem is that Americans have become lazy and take for granted what they have. Too many people thinks its ok to take a handout from Uncle Sam instead of working for it.

Quote:

This plays out in things like health insurance companies looking for every possible way to never pay out a reasonable claim, even if the customer has been faithfully paying their premiums since they started the plan.

in a free market, you could choose a different insurance company- one that's not going to screw you over. its called competition.

Quote:

Or, take for example, the idea that companies going under manage to pay the severance packages of the very CEOs that drove the business into the ground while slashing pensions and retirement plans of the workers as the company tanks.

i agree. that is despicable and they should be held accountable.

Quote:

The U.S. adds to this destructive backwards system the Federal Reserve. This is a private corporation that prints the money we use. However, each dollar it prints is essentially borrowed by the government (i.e. payed for by the U.S. taxpayer) at interest.

i agree. the federal government should not reward poor performance of certain markets by bailing them out. i'm against this even if it will throw us into a recession.

Quote:

slave wages? is that why the poor in the US have a car, cable tv in each room, dvd players and an xbox? give me a break.

If you think that is what the real poor here in America have, your perception is extremely skewed.

pbmax wrote:

i agree. the federal government should not reward poor performance of certain markets by bailing them out. i'm against this even if it will throw us into a recession.

I still hold my point that the rescue plan will hopefully avoid a depression, a recession you can only avoid by time travel.

It's a lose-lose situation. Pick up the tab for some corporate douchebags and we're promised that things will stabilize. Do nothing and the economy will surely tank.

When faced with the prospect of a depression of course the bailout is the more appealing option. But if we prop up the existing system, what measures are being taken to prevent this from happening again in the future? It seems like all we're doing at this point is throwing money at the problem as usual.

I can almost guarantee you that if these bailouts eventually stabilize the economy, that will be the end of it. Life will go on and nobody in congress will give a damn anymore.

And if that's the way things pan out, we aren't solving anything. It amounts to sparing ourselves the costs of serious reform and passing the problem on to a future generation.

rich_is_bored wrote:

And if that's the way things pan out, we aren't solving anything. It amounts to sparing ourselves the costs of serious reform and passing the problem on to a future generation.

The crisis affects the market long term. Investors will now keep an eye on risk too - something totally unknown over the last years. Everybody is currently paying severely for the reform, but it's not happening in congress.

BNA! wrote:

rich_is_bored wrote:

And if that's the way things pan out, we aren't solving anything. It amounts to sparing ourselves the costs of serious reform and passing the problem on to a future generation.

The crisis affects the market long term. Investors will now keep an eye on risk too - something totally unknown over the last years. Everybody is currently paying severely for the reform, but it's not happening in congress.

they will keep an eye on risk but only for awhile. after several years in a bear market, risk aversion will once again take a back seat.

bailouts are the wrong thing to do in the long run. a bailout is just another short term solution. it addresses the problem today, but does nothing to fix the underlying problems that will creep up in another 10 years.

if this bailout included REAL REFORM, constructive oversite and regulations where they are needed and accountability for this current crisis, then i would be more for it. but congress is going to screw it up- we all know they will. they are quite inept especially anything relating to economics.

pbmax wrote:

BNA! wrote:

rich_is_bored wrote:

And if that's the way things pan out, we aren't solving anything. It amounts to sparing ourselves the costs of serious reform and passing the problem on to a future generation.

The crisis affects the market long term. Investors will now keep an eye on risk too - something totally unknown over the last years. Everybody is currently paying severely for the reform, but it's not happening in congress.

they will keep an eye on risk but only for awhile. after several years in a bear market, risk aversion will once again take a back seat.

bailouts are the wrong thing to do in the long run. a bailout is just another short term solution. it addresses the problem today, but does nothing to fix the underlying problems that will creep up in another 10 years.

if this bailout included REAL REFORM, constructive oversite and regulations where they are needed and accountability for this current crisis, then i would be more for it. but congress is going to screw it up- we all know they will. they are quite inept especially anything relating to economics.

The re-occurrence of bubbles along more or less fixed patterns is the will of the free market. I don't have an issue with that. It is the impact of the bubbles. Living in Germany I am no stranger ot recessions a plenty and none of them has killed me or prevented me from living a happy life in more or less modest means. A total meltdown on the other hand would pretty much affect everything very negatively.

A bursting bubble is always unpleasant, but it should't have the power to deafen us all.

I get the sense that as all politicians do, they're only thinking as far as this election. They don't really want to mess with the issue at this point since it would take too long, and would be too complicated to fit into a sound bite that sounds good at election time. The original plan gave Paulson unfettered control and it guaranteed him immunity from any fallout that may result from the plan - sort of the same golden guarantee Bush et al get with respect to Iraq. Not sure if this provision was axed with the new plan, but I doubt it.

No matter what the reason or circumstances, one thing is for sure - us commoners will end up paying and the fat cats walk away free and better off for it. Clearly people don't trust banks or the stock exchange since at the first sign of trouble everyone is clamouring to get their money out. And all the Chicken Little hyperbole isn't helping to calm the panic. It's the panic and rhetoric that has me worried, since it smacks of the same hysteria used to whip people into supporting the war. One day everything is rosey, the next we're on the brink of the most serious meltdown in the history of man and the universe. Whether it's the cold war, the Iraq war, the war on drugs, the war on terrorism, the war on the recession, etc ad nausea, always something to panic about and always something to justify taking the people's money and rights away.

BNA! wrote:

pbmax wrote:

BNA! wrote:

rich_is_bored wrote:

And if that's the way things pan out, we aren't solving anything. It amounts to sparing ourselves the costs of serious reform and passing the problem on to a future generation.

The crisis affects the market long term. Investors will now keep an eye on risk too - something totally unknown over the last years. Everybody is currently paying severely for the reform, but it's not happening in congress.

they will keep an eye on risk but only for awhile. after several years in a bear market, risk aversion will once again take a back seat.

bailouts are the wrong thing to do in the long run. a bailout is just another short term solution. it addresses the problem today, but does nothing to fix the underlying problems that will creep up in another 10 years.

if this bailout included REAL REFORM, constructive oversite and regulations where they are needed and accountability for this current crisis, then i would be more for it. but congress is going to screw it up- we all know they will. they are quite inept especially anything relating to economics.

The re-occurrence of bubbles along more or less fixed patterns is the will of the free market. I don't have an issue with that. It is the impact of the bubbles. Living in Germany I am no stranger ot recessions a plenty and none of them has killed me or prevented me from living a happy life in more or less modest means. A total meltdown on the other hand would pretty much affect everything very negatively.

A bursting bubble is always unpleasant, but it should't have the power to deafen us all.

I may be wrong in my understanding but what I gather from pbmax's statement regarding the bailout being a fix only for the short term is that it is a bandaid only. The big problem(s) that so many media have been targeting has been the ludicrous pseudo-quote "the people who took these loans should've known better than to get a loan they couldn't afford" however that's not the problem.

The problem was that the average person knows very little about finance. They certainly do not understand extremely complex financing such as very tricky and detailed loans like those creative financing loans that were what got so many people in trouble. The issue here is that when people do not understand something like this they seek an expert, the loan officer is that expert in the average person's eyes. When banks build an environment that encourages a loan officer (whether intentionally or not) to promote loans that are as volatile as those that are the large part of the foreclosure rate, it's not the person who signed to accept it but the people behind creating it and pushed it on people who did not fully understand it.

Congress has already said that they are not going to go after the companies and banks that were behind this because they fear it would cause even more pessimism in the market. That may be true but that means they will all get off scott-free and as soon as everything has been cleaned up, most of these "professionals" (in what I'm not sure, maybe scams so far as I see) will be right back at it screwing everything up again because the goal is making money while everything else be damned.

I'm not against making money, that is the goal of business. But what this amounts to, and has proven, is that when poorly controlled it will certainly result in shooting yourself in the foot. The way this mess will turn out with the bailout is that the bankers and CEO's of major financial institutions in reality have shot everyone else in the foot while they live it up in at a $440,000 party to celebrate failure.

I don't like the bailout but I don't not like it either. There has to be a better solution but everyone keeps talking like these are the only two ways to straighten things out and it feels too much like a knee-jerk reaction.

Sometimes all one can do is sit back, scratch your head and wonder: Can all this be true?

As it appears to an outside viewer a gazillion miles away from ground zero(s) Washington and Wall Street some people do not appear to have grasped the implications of the financial crisis.

Washington Mutual has failed overnight, right along the lines where all of a sudden two presidential candidates rush in and out (after 60 minutes of "negotiations" - heck, tell me what can you negotiate in 60 minutes on an issue with such epic proportions?) to discuss the bailout plan. Eventually this election spectacle has cost the country and the rest of the world very important time needed to rescue the worldwide financial system, hopefully it wasn't the last second.

Contrary to what most think I still believe the US still is one of the most extraordinary countries in the world with an unprecedented potential to tap into new inventions and self healing powers. Could be the current administration has already overstressed their budget of "we must act now, or... disaster..."? Or are the presidential candidates indeed so ruthless to gamble with world economics (a field of which both, unless two weeks ago, expressed only mild interest and in case of one runner even openly admitted disinterest) to position themselves 2 percentage points better in weekly survey polls?

I'm unbelievably disgruntled today and this will likely turn out to be one of the posts I'll regret later typing at the first place.

First of all I am very much depressed since I think one of the best systems, a system of equality allowing each and everyone to level himself up with no regards to birth, skin colour or physical handicaps. True, the poor and uneducated have to face much harsher obstacles, but still they have a chance. I personally see this system at risk as a whole.

If the credit market remains frozen we'll see skyrocketing unemployment and a self accelerating downward spiral of business failures. You can neither drill, nor tax and especially not lend your way out of this.

There is a very real risk of a total system failure. There's always this last strain of straw which breaks the donkey's back. I know most people here do not appear to be as interested in running the numbers, so I will spare you more calculations in this post.

There is an understandably large number of people who feel betrayed by "bailing out wall street" or as it is getting portrayed - baling out people who have made three digit millions each year. What people should understand and have to understand that they are bailing out themselves. It's more than fair to point blames to Washington, the post 9/11 Fed, Wall Street and so on - I'd do the same, but it's a waste of time and energy. We all will receive a severe haircut, but I don't feel ready to loose my fully head yet.

What is more unpatriotic - saving the economy (and the connected social stability) with costly measures or flattening the whole system to maintain political positions? I feel this weekend may be one of the most important in modern times. It may steer us towards an urgently needed solution or simply into a very real abyss.

I'm going to go on a limp and give my 2 cents of personal experience in such matters. It's just my personal rules of thumb to keep in mind when thinking about these situations and how much 'stress/energy' I should invest in worrying about such things.

1 - The press exaggerates everything
Considering the only source of information we have comes from the press I can safely assume things are half as bad as they seem to be.

2 - These things happen for a reason.
If 1 crisis can bring an entire system to it's knees, then the system is flawed and needs to be replaced. If there ever was any time for re-examining the system, now is the time and I'm sure something positive will come out of it in the long run.

And in the end, the long run is all that matters.

My grandparents were in the heart of the second world war and they've experienced disease, famine and most horrible experiences. They came out of it triumphant and much stronger than before. Having survived daily Nazi raids, hunger and poverty one learns to see such experiences in a different daylight. The crisis during the 60's and 70's and the high-tide of the cold war were more severe than the current crisis. In other words, things'll be ok, focus on the important things in life: What can I do in my direct surroundings, how can I inform people? How can I stop people from panicking about these things? The more people you can send to stores and vacation, in the end.. the better it is for the world-economy.

Fear is the biggest enemy of any free-market-economy.

I've been watching this very closely mostly out of interest. Without trying to make light of the situation it's almost like a train wreck, you shouldn't watch, you don't want to watch but you can't help but stare.

Personally I don't think we will begin to see the full impacts of this situation for at least 6 months. I also believe that this will be like a very slow motion version of the stock market crash of 1929, instead of everyone panicking in a matter of 48 hours our slug-like citizenry will begin to clue in slowly and begin yanking all they know out of banks. Yes, most banks here are insured by FDIC but this insurance only covers an average of about $100,000 which is chump change when it comes to retirement funds and investments and the paniced will rather take a small loss by closing out several CD's early than lose all but maybe 10%, that 10% could take years before the FDIC finally gets around to issuing that check.

That is the negative take and this take is if nothing tried works. I'm still not sure what is going to be best. I'm the kind of bitter jerk that does not want to support some wealthy pug who promoted a series of bad loans to further a lifestyle that will get his about to be 16 year old daughter a brand new Ferrari but at the same time I can't justify cutting the nose off to spite my face either. I also have a hard time justifying faith in politicians when the vast majority of them have very significant personal ties (former CEO's/presidents, friends and family in high level positions, etc.) to most of the large corporations and banks in this country. When people panic it tends to boil down to "how do I save my own ass?" and most of those people couldn't stomach moving out of a mansion into a 2-3 bedroom ranch house in a lower/middle class community because their investments went bust.

BloodRayne wrote:

1 - The press exaggerates everything
Considering the only source of information we have comes from the press I can safely assume things are half as bad as they seem to be.

Study the terms and conditions of the Berkshire Hathaway/Goldman Sachs deal - you'll see things are double as bad as the press portrays.

Quote:

2 - These things happen for a reason.
If 1 crisis can bring an entire system to it's knees, then the system is flawed and needs to be replaced. If there ever was any time for re-examining the system, now is the time and I'm sure something positive will come out of it in the long run.

Simple take on a complex matter. The financial systems at all times since stone age relied on credit. Even if I let you live in one of my flats I expect you to pay rent. The time between paying rent and using the apartment is solely secured by me giving you credit to pay at the end of the month or, if you pay at the first of month, you giving me enough credit to trust me I'll be able to maintain that flat for you at least 4 weeks. Credit is trust and trust is credit. There is zero trust in the market (Japanese banks are currently no more allowed to lend money to US banks for example - that's also in the press, but most journalists don't get what it means).
A bailout plan is NOT about throwing money after executives, it is to re-establish enough trust to keep the financial system working - which is the only system we have, had and ever will have unless you go back to exchanging eggs for roof shingles.

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And in the end, the long run is all that matters.

Well, except for the millions who will die in starvation in poor countries, relying 100% on foreign monetary aid. It's far fetched, but that's what I am convinced in.

Quote:

My grandparents were in the heart of the second world war and they've experienced disease, famine and most horrible experiences. They came out of it triumphant and much stronger than before. Having survived daily Nazi raids, hunger and poverty one learns to see such experiences in a different daylight. The crisis during the 60's and 70's and the high-tide of the cold war were more severe than the current crisis. In other words, things'll be ok, focus on the important things in life: What can I do in my direct surroundings, how can I inform people? How can I stop people from panicking about these things? The more people you can send to stores and vacation, in the end.. the better it is for the world-economy.

Please allow me to note the uprising of Hitler was made possible by the German disgruntled working class, starving and poor after the loss of WW1, living in a broke country. Of course he had generous oversees funding too, like any dictator. Tell me one example where something good came out of a total economic meltdown? It's the fertilizer to grow extremists and dictators, the biggest threat to social stability. The high tide of of the 60ies, 70ies and of course the September 11th 2001ies have not been as severe. The 1929 depression was. Do you want to go there?
And excuse me, but what does this mean: "The more people you can send to stores and vacation, in the end.. the better it is for the world-economy." On what funding will the people get send on vacation or to stores? Revolving credit card debt? Social security paychecks?

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Fear is the biggest enemy of any free-market-economy.

Please re read parts of my post - you'll see that this fear is the missing trust between financial institutions which now needs to get removed buy a "bailout" program. It should have gotten named "trustshield" instead.

Bittoman wrote:

Personally I don't think we will begin to see the full impacts of this situation for at least 6 months. I also believe that this will be like a very slow motion version of the stock market crash of 1929, instead of everyone panicking in a matter of 48 hours our slug-like citizenry will begin to clue in slowly and begin yanking all they know out of banks. Yes, most banks here are insured by FDIC but this insurance only covers an average of about $100,000 which is chump change when it comes to retirement funds and investments and the paniced will rather take a small loss by closing out several CD's early than lose all but maybe 10%, that 10% could take years before the FDIC finally gets around to issuing that check.

I have sort of mixed feelings regarding 1929 comparisons, albeit both events sure shared things in common (most notably the high loan to equity ratios, but not the lofty P/E valuations). There are two reasons for that. In 1929 it is believed the depression caused the stock market crash. The crash was so devastating because people had been buying stocks on margin, just exactly as they now did buy houses on margin. Now the stock market crash respectively the financial crisis (heck, it hasn't even crashed yet if you think about, just large but isolated equity wipe outs in the three digit billions) would cause the economy to crash and slip into stagflation / recession / depression. It's a sort of chicken and egg - who was first - thing. Now we see a plop on the financial markets and later a bang of the corporations which leads to a kaboom on the employment market which... you get the idea. So yes, indeed, this has the potential to turn out extremely bad.

The FDIC by the way is so severely under capitalized, it would have gone bust more than three times with Washington Mutual alone last night. This is as close to a bank run as it gets, but there still is enough time for presidential candidates to carry on with election gaming...

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That is the negative take and this take is if nothing tried works. I'm still not sure what is going to be best. I'm the kind of bitter jerk that does not want to support some wealthy pug who promoted a series of bad loans to further a lifestyle that will get his about to be 16 year old daughter a brand new Ferrari but at the same time I can't justify cutting the nose off to spite my face either. I also have a hard time justifying faith in politicians when the vast majority of them have very significant personal ties (former CEO's/presidents, friends and family in high level positions, etc.) to most of the large corporations and banks in this country. When people panic it tends to boil down to "how do I save my own ass?" and most of those people couldn't stomach moving out of a mansion into a 2-3 bedroom ranch house in a lower/middle class community because their investments went bust.

The problem with politicians having ties to corporations is: When you only have career politicians who haven't worked a day in real life everyone complains and demands people with real world experience and proven track records. Once you got them everyone complains about their corporate history and track records. I don't think the honest to god assembly line worker will ever end up in office, justifying demands on both sides.

I really hope there will be a solution in the next 72 hrs.

BNA! wrote:

The problem with politicians having ties to corporations is: When you only have career politicians who haven't worked a day in real life everyone complains and demands people with real world experience and proven track records. Once you got them everyone complains about their corporate history and track records. I don't think the honest to god assembly line worker will ever end up in office, justifying demands on both sides.

I really hope there will be a solution in the next 72 hrs.

I actually agree 100% with what you said. But to clarify the last paragraph I made; my comments are largely based on two things.

Primarily when the US government was founded, the Feds had no power beyond tying together the states which had the real power and also to maintain diplomatic and military that would operate to defend the states. After the Civil War, Lincoln disolved this (and my memory is fuzzy so if I get my parties wrong, please correct me) caused the then Republicans, which he was a member of, to become the current day (or the beginnings of) Democrats (I think they were called Federalists, again correct me on my parties if you remember.) This became a huge encumbrance by the early 1900's when the now "big government" really started getting it's hands dirty and things really got messy because the biggest check and balance was now removed; the Feds were in power and the state Governors became basically figureheads with no real control on Capitol Hill. Welcome Big Brother.

The secondary is the biggest clarification and that is that the initial Congress, House and Presidential roles were not paying positions. You did not make money as a politician unless you worked outside of the government in some way. This was fine because there was no lobbying, the people in office worked and lived with the people they governed and better understood the public as a result (they were not detached from the actual society.) Today we have largely career politicians and armchair generals who survive solely on bloated benefits packages, donations and the "advice" of the friends they place in cabinet positions.

Below is just additional commentary outside of my original post.

More and more frequently we are being beset by reports of scandals, fraud among politicians and a quickly growing extremely wealthy that live off the blood and sweat of the lowest levels of society both in and out of the US. Even worse is the fact that we have pushed most of the better paying low end labor out of the country (outsourcing) to enact what amounts to slave labor (in terms of a meager wage) in other countries such as China and India while even the lowest positions that can't be outsourced are being taken over by illegal aliens looking for a better life and get paid (almost literally) beans. This has been having a slowly growing impact on the lower class and the lower middle class is beginning to suffer tremendously as a result. My fear is that the bailout will promote the ultra-rich to continue their practices without punishment while the middle class gets eaten alive due to no loans, foreclosures, high interest rates and an increased tax to cover the "mistakes" of those still living high. But if we fail to work with a bailout, we'll all suffer and the lower class will essentially be fighting over a cardboard box in the rain and digging in the garbage cans of the politicians that are supposedly working to improve the life in our country. The question that remains is who's life are they working to improve?

I don't have a solution but I definitely know what I don't want. It's probably safe to say most everyone feels similarly, all but the ones who are living "comfortably" and are afraid that any other solution but a bailout may reduce their level of comfort. If every ultra-wealthy person in this country gave up one bedroom of all the houses they own they could probably put a roof over the head of nearly every person without a home, they certainly aren't that willing to give up that one bedroom even if that means a simple reduction from a 10 bedroom house to 9 of which they only use 1.

Please don't mistake me for saying "let's pull a Robin Hood on every rich person", to be more clear my point is that reducing the comfort level by even 5% of the wealthy will not affect their way of life but will significantly improve the life (as well as economy) of those at the bottom because the profits lost by reducing the amount of outsourcing (for example) and using labor within this country can provide a significant amount of labor to those desperately looking for a job that doesn't entail flipping burgers for minimum wage.

BNA! wrote:

What is more unpatriotic - saving the economy (and the connected social stability) with costly measures or flattening the whole system to maintain political positions?

no bailout without REAL reform. reform meaning getting the government out of the free market once and for all. the free market did not fail in this case. it was the governemt's meddling with mortage lending that caused this mess.

Polls indicate that only 7% of the public approves this course of action so the politicians have to put on a show if they hope to keep their comfy jobs. Given both Obama and McCain are in favor of this I suspect that congress will eventually pass the legislation.

Personally I'm not one of those 7%. Our whole economy rests on a centralized bank that is shrouded in secrecy. Secret meetings. Fudged numbers formulated by rules they get to choose. There's no transparency. They can't be held accountable for anything.

This isn't just a loan for $700 billion. We're granting a select few people the power to endlessly bailout anyone they see fit without any oversight and full immunity. Those are the full stipulations of this proposed solution and it's a blank check.

You talk about credit equating to trust and you've hit the nail on the head. With all the corruption, lies, wars, and abuse of power we've been through over the last 8 years, I've completely lost faith in my government. They want to borrow money from me but I don't trust them.

I mean when a bank issues me a loan, I'm expected to pay them back. What's the collateral here? I get to keep my job? That's not a loan. That's extortion.

BloodRayne wrote:

I'm going to go on a limp and give my 2 cents of personal experience in such matters. It's just my personal rules of thumb to keep in mind when thinking about these situations and how much 'stress/energy' I should invest in worrying about such things.

1 - The press exaggerates everything
Considering the only source of information we have comes from the press I can safely assume things are half as bad as they seem to be.

2 - These things happen for a reason.
If 1 crisis can bring an entire system to it's knees, then the system is flawed and needs to be replaced. If there ever was any time for re-examining the system, now is the time and I'm sure something positive will come out of it in the long run.

And in the end, the long run is all that matters.

My grandparents were in the heart of the second world war and they've experienced disease, famine and most horrible experiences. They came out of it triumphant and much stronger than before. Having survived daily Nazi raids, hunger and poverty one learns to see such experiences in a different daylight. The crisis during the 60's and 70's and the high-tide of the cold war were more severe than the current crisis. In other words, things'll be ok, focus on the important things in life: What can I do in my direct surroundings, how can I inform people? How can I stop people from panicking about these things? The more people you can send to stores and vacation, in the end.. the better it is for the world-economy.

Fear is the biggest enemy of any free-market-economy.

Whats wrong with the system is just that: The free market economy. This is what happens when the market "regulates itself". The answer? Good ole fashion socialism.

And besides, this is no ordinary crisis. It's probably the biggest since the 1929 crack.

I bet they will offer the solution: North American Union and amero for national currency... :mrgreen:

No more America...

pbmax wrote:

BNA! wrote:

What is more unpatriotic - saving the economy (and the connected social stability) with costly measures or flattening the whole system to maintain political positions?

no bailout without REAL reform. reform meaning getting the government out of the free market once and for all. the free market did not fail in this case. it was the governemt's meddling with mortage lending that caused this mess.

Actually yes, real reforms are in dire need. But it was the lack of oversight which created mess - along with the Bush administration trying to (three important points):

- fight a costly war AND reducing tax at the same time to give the population a distorted level of comfort
- avoiding the cyclical post new economy recession to maintain consumer confidence by bullying the Fed into the creation of excess liquidity at negative interest rates which has led to a housing bubble (inevitable when negative interest rate mortgages rub on real world inflation to create heat in the market)
- no central clearing house for financial derivatives

The right dose of state does wonder for a market, completely unregulated markets do nothing but run wild and bust. If you really want to go the road of completely free markets, then see millions of US workers go unemployed first who are no more longer protected by state enforced trade agreements, import tax punishments... The whole market is completely distorted - don't forget the enormous US car maker bail out program which is silently passing along and now one notices. By market terms GM is insolvent, Ford in trouble and Chrysler is also as close as it gets. Should the state immediately withdraw and set free all the employees there?

I'm not a friend of having the state to interfere with everything, but there is no denial we need a good, efficient framework of laws, rules, oversight authorities and so on.

Bittoman wrote:

Please don't mistake me for saying "let's pull a Robin Hood on every rich person", to be more clear my point is that reducing the comfort level by even 5% of the wealthy will not affect their way of life but will significantly improve the life (as well as economy) of those at the bottom because the profits lost by reducing the amount of outsourcing (for example) and using labor within this country can provide a significant amount of labor to those desperately looking for a job that doesn't entail flipping burgers for minimum wage.

No, I don't mistake you. Reducing the comfort level of the rich by 5% should be the same as reverting the Bush tax cuts - I'm not fluent with these numbers, but I think they did benefit even more.

Warren Buffett has this funny habit to write in every annual earnings report for how long his holding company kept the US running. In 2008 it was for half a day that he paid the entirety of all government expenses. That means 599 more tax payers like him and no one in the country would need to pay a dime, zip, zero, nothing. That's why he's always advocating higher taxes for the super rich (which alienates almost every buddy of him in the sky high billionaire club).

rich_is_bored wrote:

Polls indicate that only 7% of the public approves this course of action so the politicians have to put on a show if they hope to keep their comfy jobs. Given both Obama and McCain are in favor of this I suspect that congress will eventually pass the legislation.

Personally I'm not one of those 7%. Our whole economy rests on a centralized bank that is shrouded in secrecy. Secret meetings. Fudged numbers formulated by rules they get to choose. There's no transparency. They can't be held accountable for anything.

This isn't just a loan for $700 billion. We're granting a select few people the power to endlessly bailout anyone they see fit without any oversight and full immunity. Those are the full stipulations of this proposed solution and it's a blank check.

You talk about credit equating to trust and you've hit the nail on the head. With all the corruption, lies, wars, and abuse of power we've been through over the last 8 years, I've completely lost faith in my government. They want to borrow money from me but I don't trust them.

I mean when a bank issues me a loan, I'm expected to pay them back. What's the collateral here? I get to keep my job? That's not a loan. That's extortion.

Actually the bailout will happen in a way where the assets get taken from the banks and held in a sort of escrow on the balance sheet of the US. With recovering values the 700bn bill will shrink (assuming it didn't cost personally guesstimated ~2tn) and the assets can get sold on the market again.

Still it's a large question no one so far asked - how will the tax payer benefit from the equity they are constantly talking about? Will they go public and send everyone a fixed number of shares to sell on the stock market of US Inc.? Will they send you back the money? Unlikely events. They'll probably have to use it to pay back the Iraq war loans.

Transparency I agree is a severe issue in the US. Go ask why the money supply rate M3 doesn't get published any more? I can't think of any countries besides privately run dictatorships and banana republics who act this way - it's unthinkable for an industrialized nation, let alone the US!

You may find a less hysterical writing site, it's the first quick and sound explanation google spat out:
http://inflationdata.com/inflation/Infl ... supply.asp

From my point of view there are too many things in the US which do not add up any more, probably didn't add up for a long time, but you got discredited in the public and by the public as "unamerican" when expressing even the slightest doubt.

Edit: I forgot to include this theory, far fetched for some, reality to others, I'm undecided but lean more towards reality.

If the US will take 700bn to 2+tn on their balance sheet with the only exit strategy are rising house prices, then it's the easiest for them to introduce you to high inflation rates by printing more money. Let's assume the house price index on which the loans went toxic was at a fictionary 140 points and is now at 100 points. Real estates are inflation hedges in a sense that they don't pick up value, but simply cost more, moving linear along with the inflation rate. A realistic and not too far fetched inflation rate of 6,5% would bring a 100 point index to a 137 point level within 5 years. See - a fast and easy way out of all problems, also often called the "soft" solution to deleverage. All papers held by the government would be valuable again and nothing is lost when you look at numbers not inflation adjusted. In 5 years time it's unlikely anyone will link it to inflation and if so, they're likely getting labelled unpatriotic again for not singing the praises of depreciating USD. And of course, goods produced in the US can get sold dirt cheap against a strong Euro. Apple collects 199 USD for some times and at the same time 199 EURO for the identical item over here. That means we send 290,50 USD back to Apple. Wonderful inflation AND currency hedge if you have such pricing power like Apple (here picked as an actual example most people can instantly relate to).

aardwolf wrote:

Whats wrong with the system is just that: The free market economy. This is what happens when the market "regulates itself". The answer? Good ole fashion socialism.

And besides, this is no ordinary crisis. It's probably the biggest since the 1929 crack.

Yes, it has good 1929 potential, but I really think 1929 did teach a lasting lesson to policy makers. In 1929 it was the government who tightened the credit market, now it's contracting all by itself and the government works against it. At least a silver lining.

rich_is_bored wrote:

That's not a loan. That's extortion.

No, that's government at work.

pbmax wrote:

reform meaning getting the government out of the free market once and for all. the free market did not fail in this case. it was the governemt's meddling with mortage lending that caused this mess.

You can blame regulation all you want, but the fact of the matter is it was the removal of New Deal regulation that is causing this mess. But hey, if you want to see what bread lines are all about continue supporting the further deregulation of the financial markets.

I love the analogy that's being floated, that is privatize profits and publicize losses. The new American way I guess.

I feel sorry for my American cousins. Your grand kids will be paying off the Iraq war and their great grand kids will be paying off this bail out of poor bankers and brokers. Personally I feel sorry for the CEOs, I mean, it must be tough making ends meet on only $20M annually. I'm just curious to know who's behind this one, Rockafeller, Rothchild or a Morgan perhaps? Why don't they just print more monopoly money? Seems that worked up to now.

I guess trickle down economics running upstream isn't happening fast enough for the elites, and bleeding the middle class slowly isn't efficient enough. May as well legislate the wealth transfer and get things back on track. Well if any of you guys want to stay at my place while your houses are taken by the banks, you're free to as long as you don't drink all of my beer.

May God (or whatever deity you prey to) have mercy on your messed up country. Hopefully the people will revolt and hang the rich mob that's bleeding your earnings dry.

DoV_Tomas wrote:

I love the analogy that's being floated, that is privatize profits and publicize losses. The new American way I guess.

I feel sorry for my American cousins. Your grand kids will be paying off the Iraq war and their great grand kids will be paying off this bail out of poor bankers and brokers. Personally I feel sorry for the CEOs, I mean, it must be tough making ends meet on only $20M annually. I'm just curious to know who's behind this one, Rockafeller, Rothchild or a Morgan perhaps? Why don't they just print more monopoly money? Seems that worked up to now.

I guess trickle down economics running upstream isn't happening fast enough for the elites, and bleeding the middle class slowly isn't efficient enough. May as well legislate the wealth transfer and get things back on track. Well if any of you guys want to stay at my place while your houses are taken by the banks, you're free to as long as you don't drink all of my beer.

May God (or whatever deity you prey to) have mercy on your messed up country. Hopefully the people will revolt and hang the rich mob that's bleeding your earnings dry.

This is a fun, un-reflected, more reflexive public perception of the issue, but I'd like to assume you intended to paint a more provocative picture.

Canadian banks held securities just as German and US banks and all banks did securitize loans. The idea of loan securitization is to distribute the risk of defaulting loans to more institutions to avoid epic failure. The idea was not to create a gazillion derivatives based on top of these securities, leveraging them into the sky and back.

Plenty of the profits got privatized of course by home owners selling their houses at bubble peak or with significant appreciation. No one on the other hand forced them to get second and third mortgages on their houses to speculate further or participate in the consumer spending shopping spree. But that is only one element which is certainly an important key figure, but it reads misleading, as of the consumer is (solely) to blame.

I tried to keep a sort of explanatory writing style, avoiding too blunt statements in all topics related. This obviously doesn't work, so I try a different, more direct approach.

What we're looking at is piss poor risk management, a bubble (real estate and financials) economy fuelled by a radically expansive monetary policy and the ubiquitous human greed at all levels of the chain.

Regarding printing more monopoly money - you probably didn't read what I wrote about the money supply M3. Click that link too, it's not all too bad writing.

CEOs of large banks didn't complain about meeting ends on high double digit, sometimes three digit million earnings per year. Private shareholders (sometimes investing the money taken on a second mortgage, effectively double leveraging themselves into the mess) demanded ROEs north of 20%. Bank CEOs not willing to take the risks of 30:1 debt to equity rations could not sustain the demanded growth rates and got called old school, incapable and ultimately or eventually got replaced. People like Warren Buffett warning for years that derivatives are weapons of financial mass destruction got zoomed out by the public (Berkshire Hathaway annual report, 2002 - available for free on the Berkshire website: http://www.berkshirehathaway.com/letters/2002pdf.pdf - page 13 / 14).

Quote:

Derivatives also create a daisy-chain risk that is akin to the risk run by insurers or reinsurers that lay
off much of their business with others. In both cases, huge receivables from many counterparties tend to
build up over time. (At Gen Re Securities, we still have $6.5 billion of receivables, though we’ve been in a
liquidation mode for nearly a year.) A participant may see himself as prudent, believing his large credit
exposures to be diversified and therefore not dangerous. Under certain circumstances, though, an exogenous
event that causes the receivable from Company A to go bad will also affect those from Companies B through
Z. History teaches us that a crisis often causes problems to correlate in a manner undreamed of in more
tranquil times
...
Total-return swaps of this type make a joke of margin requirements. Beyond that, other types of
derivatives severely curtail the ability of regulators to curb leverage and generally get their arms around the
risk profiles of banks, insurers and other financial institutions. Similarly, even experienced investors and
analysts encounter major problems in analyzing the financial condition of firms that are heavily involved with
derivatives contracts. When Charlie and I finish reading the long footnotes detailing the derivatives activities
of major banks, the only thing we understand is that we don’t understand how much risk the institution is
running.
The derivatives genie is now well out of the bottle, and these instruments will almost certainly
multiply in variety and number until some event makes their toxicity clear. Knowledge of how dangerous
they are has already permeated the electricity and gas businesses, in which the eruption of major troubles
caused the use of derivatives to diminish dramatically. Elsewhere, however, the derivatives business
continues to expand unchecked. Central banks and governments have so far found no effective way to
control, or even monitor, the risks posed by these contracts.
Charlie and I believe Berkshire should be a fortress of financial strength – for the sake of our
owners, creditors, policyholders and employees. We try to be alert to any sort of megacatastrophe risk, and
that posture may make us unduly apprehensive about the burgeoning quantities of long-term derivatives
contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view,
however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are
potentially lethal

This was written by the richest man of the world, surely not the "rich you want to hang". It should be noted that in every speculative market upturn he got blamed for having dropped the ball, being too old school, unable to understand the modern economics and so on. In 2002 when he issued out his warnings about the things to come (which have now arrived) he got viewed as a doom-sayer (again). He can't predict the future and is constantly downbeat about the earnings outlook of Berkshire (unlike other CEOs who spend their time talking the stock up rather than working, could be related to hundreds of millions payment compensations in stock options), but he has a clear an undistorted view on potential issues which can arise and put the Berkshire shareholders equity at risk (and the economy as a whole).

Back to greed, greed, greed and greed - that's what it's all about. Assume you were a guy dreaming of a house and see everyone and their mom around you to tell you these fantastic stories of amassing hundreds of thousands of $$ on paper in real estate value without having to pay down a dime on a loan which, at 120% of the underlying collateral, also finances a car, furniture and a vacation. Interest rates deferred into the future and all virtually risk free. Not many can resist such an offer. They slave away, missed the dot com bubble to become quick millionaires and now that - the second chance to get rich without a lottery ticked and by saving rental payments at the same time. If this doesn't sound compelling enough, I don't know what could unless you get promised to have a free orgy with Celebs of your choice every Firday night and optionally on Saturday too if you book the prime package.

Free market radicals step in such moments claim the consumer and corporations should know best which risk they can take, no need for government intervention, regulations and other communist evil ideas. Well, some more guidelines wouldn't have hurt I'd say.

I'm very much convinced all will get better in 5 years time, even significantly better up to the point where we'll experience some other goods to get bid up in the sky. But next time it will be different, just as any time a bubble forms. So invest cautiously but boldly and remember - the next time you read on an economic magazine cover why "this time it's really different" act accordingly, rush out, sell your investments and on top sell them short too.

Wall Street is a nice place to be or read about unless you never forget this: The value of equities of all kind can never reflect more than the underlying sustainable business value. Leveraging that value will increase it on paper, but not in reality, quite the difference - it will increase the downside risk.

BNA your posts are thoughtful and well read for sure, and I'm sorry for being so glib with my responses. Just that the whole US story - economy and the war - is starting to sound like a bloody soap opera.

Are all rich people evil and deserving of our revile? Of course not, but I think as we all know, to get rich, you have to crap on a few people along the way - nice guys finish last and all. But if anyone tells me that lenders who devised sub-prime mortgages didn't know what they were doing, and that they didn't know they were screwing a lot of people, I'd say they were lying. I can't remember who said, "Pretty soon welfare recipients will be picking up their paycheques in limousines." Although it's pretty common in Canada, I never expected to see it in America.

History shows instances where crashes were actually designed by a few powerful people, who in the end get fantastically rich off the misery and plight of average folks. Here in Canada its the lovely 30 year mortgage. I'm seeing a lot of young families - people married less than five years and making less than $100K combined - buying homes way out of their price range. Out of sight, out of mind I guess. I suppose paying your house three times over and ending up with zippo equity doesn't factor into the decision. Many of them depend on flipping the house or better still winning the lottery to pay for their kids' education and retirement. Consumers are nutty to begin with, and these lenders are helping to push them over the edge. Now you can't make stupidity against the law unfortunately, but you can crack down on unscrupulous lenders.

I agree with some of the experts who say a crash would help cleanse the system. Let market forces do their work.

DoV_Tomas wrote:

BNA your posts are thoughtful and well read for sure, and I'm sorry for being so glib with my responses. Just that the whole US story - economy and the war - is starting to sound like a bloody soap opera.

Well, thanks for the compliments and yes, it is a bloody soap opera, unfortunately the other channels stopped broadcasting.

DoV_Tomas wrote:

Are all rich people evil and deserving of our revile? Of course not, but I think as we all know, to get rich, you have to crap on a few people along the way - nice guys finish last and all. But if anyone tells me that lenders who devised sub-prime mortgages didn't know what they were doing, and that they didn't know they were screwing a lot of people, I'd say they were lying. I can't remember who said, "Pretty soon welfare recipients will be picking up their paycheques in limousines." Although it's pretty common in Canada, I never expected to see it in America.

"...but I think as we all know, you have to..."

No, you don't and making a gross generalization to lend this part of the sentence more credibility by implying broad public agreement as if it's knowledge or scientifically proved fact is wrong. I agree if you'd say "mainstreet feels the rich must do something ruthless otherwise they wouldn't be rich". It is a psychological trap. Many on the lower cash flow side justify their situation by "being unwilling to do the bad things rich people do". I keep hearing sentences like "I'm broke, but at least I'm not screwing other people over" very often. The funny thing is that both things are totally unrelated. I feel for those who are left behind, but I believe in helping people to help themselves is the pillar of solid social stability rather than simply shoving money over. There are plenty of such old sayings along these lines "If you want to enslave them, give them fish, if you want to liberate them, teach them how to fish". This is just what D3W does - it helps people getting better with custom content creation rather than simply providing download links for good maps. Those who could benefit from D3W come back and help others and so on - a pyramid of fishing teachers starts to evolve. I couldn't be more happier on how it worked out, it's still my first try in "website community" building.

However, if you defend the rich you get labeled establishment or a cold heartened advocate of enslavement and if you care for the poor you get labeled a whiner and Robin Hood wannabe or something. Let me put it this way, albeit I couldn't scientifically proof it (yet

):

Ten percent of all humans are flat out idiots, jerks, scam artists, annoying attention seekers... you name it. These ten percent distribute evenly across all classes, from the poor to the super rich. But they also have this genetic disorder which causes them to always be outspoken, everywhere, even unasked. So they get a much higher share of public coverage / exposure (to) than the remaining 90%, but it looks as if the 90% are speaking.

So the 10% of the poor claim the rich must be criminals while the 10% of the rich shout back the poor must be losers in their own fault. Nothing you can do about it.

And you are very right - the subprime lenders knew what they've been doing, but it's shocking to see how uneducated and naive the consumers ran into this trap. Once a good time again to advocate the introduction of financial planning as an obligatory school class from elementary school up through college. On the other hand the subprime debacle also shows how strong the desire of the poor and left behind is to level up, now many of them got leveled down to eternity by foreclosure. I'd say "light them the path" and society will be better off.

However, Wall Street knows the same comparison as limousine drivers picking up security checks. It's said to be the only place where people who come in a Rolls Royce ask for financial advice from people who arrive by train. Or even better this story. A guy gets shown around and they say "These are the yachts of the Wall Street financial advisors" and he replies "and where are the client yachts?" as there are none.

Quote:

History shows instances where crashes were actually designed by a few powerful people, who in the end get fantastically rich off the misery and plight of average folks. Here in Canada its the lovely 30 year mortgage. I'm seeing a lot of young families - people married less than five years and making less than $100K combined - buying homes way out of their price range. Out of sight, out of mind I guess. I suppose paying your house three times over and ending up with zippo equity doesn't factor into the decision. Many of them depend on flipping the house or better still winning the lottery to pay for their kids' education and retirement. Consumers and nutty to begin with, and these lenders are helping to push them over the edge. Now you can't make stupidity against the law unfortunately, but you can crack down on unscrupulous lenders.

Large riches alway and exclusively are made in downswings, upswings provide the exit. Everyone knows that buying low and selling high is the key concept to riches of all size. This does not prevent private investors from entering the market close to its height (after watching it rising for 5 years to convince themselves) and then sailing down to the lows, selling with large losses. The real good investors always wait for downturns to buy and in situations where the market feels like it has reached its height they sell short or buy put options. The same holds true for real estate acquisitions or any other market mispricing situations.

The real large crashes have never been engineered, not that I can think of (from the Holland tulip bubble over the Japanese economy bubble to the current real estate disaster in the US). An interesting exception may be the 1929 stock market crash which got surely supported by J.P.Morgan sucking money out of the market, but this only accelerated the crash vs. causing the crash. A co-responsibility yes, the cause maybe not. But the bubble growth got fueled by commonly shared interest between those who are rich and those who want to get rich. Sometimes even complex economic matters build down to be only as complex as pyramid letter money schemes. As long as it goes you can't go wrong thanks to herd behavior, but when it stops the whole pyramid not merely slows down, but collapses in an instant. There is no exit possible.

Despite all the doomsday news, it's still worth noting we haven't seen a crash yet and no economy contraction either. The indicators currently get worse, sure, but we're not there yet. We're a mere 20% off market heights. A cyclical movements sort of requires us to go through a 40% to 50% downswing, stay there for a year or two and then we go back up again. Frozen credit markets can accelerate these movements and cause irrational exuberances on the downside. Look for builders of expansive machinery to issue out profit warnings soon. Their customers wont get usual credit lines at the moment to acquire the installations. This will be the second larger ripple going through economy and this will be the ripple causing steeply rising unemployment, social instability and a potential depression. This is the ripple which is intended to get avoided by the bailout plan (as compared to bailing out rich bankers). The third ripple would / could be mass failure of US corporations, hyperinflation and social instability, probably leading to an even less democratic (as compared to the Bush administration) government.

In my opinion the largest beneficiary of the bailout will be the working class. The upper middle class can easily stomach to move to a smaller house and the rich can take care of themselves in any case, but the working class cannot afford to lose their jobs. A development which is, from my point of view, the inevitable outcome of credit markets remaining frozen for a prolonged amount of time.

Quote:

I agree with some of the experts who say a crash would help cleanse the system. Let market forces do their work.

I haven't heard any political-agenda-free experts advocating a crash and "system cleanse" on this level - and we're not talking crash here, we're talking systematic failure. If you mean we should have a segmental crash, then yes, agreed. What many don't see that the financial system has already crashed and wiped out many hundred billions of equity, including a fair share of the money of the CEOs responsible. The financial system cleansing is as close as done from a standpoint of erasing the bad companies and the let the good survive. I'd like to call it a total segment crash. The financial segment went through all signs and permutations of a heavy crash. They are getting shrunk bank to normal size and what is necessary to get saved to avoid total disaster is getting nationalized. Not many like that, neither the rich holding shares, nor the tax payer, nor the middle class seeing their pension funds shrinking to abysmal levels. We're not through yet, but we're coming closer.

Please give it a thought that the bailout is designed to prevent the economy from failing (as described above), not some golden parachute deals for bank executives. Anything else is deliberate(!) press and political distortion, in some cases even ruthless alarmism. There is no real world economy without a financial system behind it.

I'd like to give you another point to consider. A world wide bank failure, which based on current data is possible, will not only wipe out the greedy, but, which to me is extremely highly unsettling, the whole life savings of all those who work hard to make a living and want to simply live above social security levels. There is little doubt the bailout will also save some who do not deserve it, but I value the common good above demonstrative and isolated punishment. The self referencing issue is that the banking system in general needs to get saved, no doubt about that, but every bank is involved in lending. With subprime failing on large proportions the stable and sound credits are equally at risk - even AmEx the credit card for the well doing has severely deteriorating numbers. Would the credit issue be limited to subprime, we wouldn't see this. so by saving a bank you'll inevitable save a portion of bankers involved in inscrutable lending.

Most bank accounts aren't insured to the degree to a life worth of savings. Increased bank failure would cause a world wide run on banks to withdraw their savings in cash, which would cause a mass bank failure wiping out everything. It is the same self aggregated effect which makes values rise too. The markets are always populated by a herd which never walks but always runs from one side to the other at full speed. It seems to running uphill is more energy consuming, so it takes about 4 times as long as running downhill. Sometimes downhill is just a single jump, but uphill is never a single leapfrog...

Sometimes when I reread my posts they look as if I'm either a right wing neoliberal market radical, or a socialist dyed in the wool. This is sort of disturbing me, but not done on purpose. I guess it relates to my non-existing ties to any political camp.

BNA! wrote:

Sometimes when I reread my posts they look as if I'm either a right wing neoliberal market radical, or a socialist dyed in the wool. This is sort of disturbing me, but not done on purpose. I guess it relates to my non-existing ties to any political camp.

That is by and large true for anyone. Human nature is to take the opposite extreme when in a panic. Not that I know you are in a panic but right now a very large sector of the US and quite possibly the world is and I'm sure this influences everyone's opinion at least to a small degree and this is always what makes trying to find the right decision the most difficult task.

asmodeus wrote:

rich_is_bored wrote:

That's not a loan. That's extortion.

No, that's government at work.

Nope, it's Governments indentured to central bank, so it's big banks at work.

The banks aren't "bailing out" anyone, they're "buying up".

kat wrote:

asmodeus wrote:

rich_is_bored wrote:

That's not a loan. That's extortion.

No, that's government at work.

Nope, it's Governments indentured to central bank, so it's big banks at work.

The banks aren't "bailing out" anyone, they're "buying up".

I think you missed the caustic sarcasm of government loans being extortion. Regardless, the Democrats are forcing the Republicans to have a majority in favor of it before they'll pass the bill so they can't get saddled with the blame when the country enters a recession because of the large failures.

Nope, didn't miss anything. And it has nothing to do with "Democrats" or "Republicans", it's all central banks, a point you missed in your rush to be pendantic

Just a thought - the program is intended to prevent a depression, not a recession.
Recession is always part of the cycle, even more so in this case and it will be deeper and longer than usual. Expect something along the lines of 24 months.

But recession is nothing to worry about, a depression on the other hand is.

kat wrote:

Nope, didn't miss anything. And it has nothing to do with "Democrats" or "Republicans", it's all central banks, a point you missed in your rush to be pendantic

um, yes it does. this has everything to do with politics.

read up on Franklin Delano Raines, the disgraced former CEO of Fannie Mae who resigned due to fraud. he's liberal democrat.

watch this video of democrats blocking republicans from enacting closer oversight of Fannie Mae because the writing was on the wall way back in 2004!!! http://www.youtube.com/watch?v=_MGT_cSi7Rs

read up on the various affordable housing initiatives pushed by liberals which put people into homes they could not afford.

its free market vs socialism.

ding dong the wicked witch is dead. HOUSE DEFEATS $700 BILLION BAILOUT.

pbmax wrote:

kat wrote:

Nope, didn't miss anything. And it has nothing to do with "Democrats" or "Republicans", it's all central banks, a point you missed in your rush to be pendantic

um, yes it does. this has everything to do with politics.

read up on Franklin Delano Raines, the disgraced former CEO of Fannie Mae who resigned due to fraud. he's liberal democrat.

watch this video of democrats blocking republicans from enacting closer oversight of Fannie Mae because the writing was on the wall way back in 2004!!! http://www.youtube.com/watch?v=_MGT_cSi7Rs

read up on the various affordable housing initiatives pushed by liberals which put people into homes they could not afford.

its free market vs socialism.

ding dong the wicked witch is dead. HOUSE DEFEATS $700 BILLION BAILOUT.

Being a greedy f****** has nothing to do with party allegiance :roll:

Considering the Bush camp were calling those thinking of voting against the Bill "unpatriotic" ([sic]"vote for us, or else") that was a close call at 205/228 against.

Well Bush is of the ilk where if you aren't with 'em you're a terrorist who should be bombed. Hellava tactic if you ask me.

The good news, they defeated the bill. The bad news, they did it for political reasons and not what's best for the American people. But actually rushing this through with an election looming was dangerous anyway. Wonder when the discussion will start to centre on the Federal Reserve which seems up to now has escaped scrutiny. And why is the thinking not going beyond the bail out? I mean, is anyone learning that the fiat money supply and ravenous spending and out-of-control credit has to be curbed. Guess they wait until the bottom falls out before they even start to think about changing their bad financial habits. Too bad the American people and congress didn't stand up to the White House fascists like they're doing now when it came time to send soldiers to die in Iraq. Now this is reality television!

pbmax wrote:

ding dong the wicked witch is dead. HOUSE DEFEATS $700 BILLION BAILOUT.

I'm afraid I can't see you contributing anything here but blindfolded political fellowship.

The US got two options (and no one will be more happy than me if I'm wrong):

a) Buy distressed assets, stabilize the market on a 3 to 5 year term, sell the assets and recover a part of the money
b) Create more virtual money via the Fed, inject it into the market, sell Treasury bonds against it, depreciate the USD, carry a long term tax burden for US citizens via interest payment, recover nothing

If you spend some time running the numbers you'll see epic and disastrous proportions. A 700 Billion bill would restore some confidence to get the interbanking lending working again, but even this number appears too low for me. However, as compared to relentlessly t-bill selling the 700 Billion bill could at least viewed as a collective investment into the economic future of the US.

Once the economy is back on track (and with back on track I mean a mild recession which, if we're all lucky, wont last longer than 8 more Qtrs) the politicians can start wasting their time again with criss cross blaming. Too bad it's election time in the US.

And just a point to consider: the FDIC wouldn't be able to cover only one single large bank failing - Washington Mutual would have meant the end to FDIC. I don't think JP Morgan has endlessly deep pockets to buy up more banks and Berkshire Hathaway wont take up much more either (unless it comes with a full protection shield like Bear Stearns). Currently the official watchlist of endangered banking species in the US is 110 (albeit it's believe the next time it's getting published it will have grown north of 150). I too work hard for my life savings I cannot stomach seeing a large proportion of the US population with wiped out savings accounts and accompanying skyrocketing unemployment. The US is not designed to put 20% of the population on their payroll via social security checks.

To put it into proportion: The 700 Billion represents less than an estimated 30th share of distressed assets. Get the market back on track and you might not have to deal with that other 29 shares, let the "free market forces" do their wonders and you'll be in one hell of a mess lasting for decades and spreading world wide in less than six months. That means there will be no sovereign wealth funds any more or any where loading up on preferred stocks in a currency which is likely to be softer than today.

DoV_Tomas wrote:

The good news, they defeated the bill.

What's the alternative?

As far as spending and consumer credit goes - all we're talking about here are dried up credit markets. Exaggerated money flowing into private households via credit is the very last thing you have to worry about at the moment.

Quote:

a) Buy distressed assets, stabilize the market on a 3 to 5 year term, sell the assets and recover a part of the money
b) Create more virtual money via the Fed, inject it into the market, sell Treasury bonds against it, depreciate the USD, carry a long term tax burden for US citizens via interest payment, recover nothing

While I do lean towards the idea of having the bailout, wouldn't the option A bailout also include the Fed creating money to buy the assets? Where would this money actually end up coming from? We don't exactly have 700 billion$ sitting around somewhere. I understand the idea of buying the assets, letting things settle and then selling them down the line for hopefully what was paid(maybe a little more if lucky?) to recoup the money. But wouldn't the initial money kinda just be created.....something like this comes to mind:

http://www.nuklearpower.com/latest.php

As expected, they found a way to inject cash anyway
http://www.bloomberg.com/apps/news?pid= ... refer=home

BNA! wrote:

Just a thought - the program is intended to prevent a depression, not a recession.
Recession is always part of the cycle, even more so in this case and it will be deeper and longer than usual. Expect something along the lines of 24 months.

But recession is nothing to worry about, a depression on the other hand is.

You sure? It feels like a depression right now, I lost my home earlier this month. My wife and I have been and are both working, we just can't afford our overhead anymore seeing as how the cost of living and gas has more than doubled but our wages have stagnated for most of this past decade, and in my case they have decreased because my income depends on consumer spending. I have'nt really seen anything like this in all 34 years of my life, but I'm just angry and depressed right now, who knows if I'm thinking right. Not that I care much anymore because the worst thing that I was afraid of happening has happened, it's liberating.

This started over 15-20 years ago and its been a problem growing ever sense. The government knew about it and has been trying to slowly fix it. They weren't fast enough and didn't stop the root of the problem early enough.

I'm not against the buy out and say some form of a buy out is needed. But there also needs to be something thought of and put into to place soon to stop the millions of more people just about to fall into a hole. This isn't a bomb, its a cancer. There is no cure for cancer, just long painful treatment.

Deadite4 wrote:

While I do lean towards the idea of having the bailout, wouldn't the option A bailout also include the Fed creating money to buy the assets? Where would this money actually end up coming from? We don't exactly have 700 billion$ sitting around somewhere. I understand the idea of buying the assets, letting things settle and then selling them down the line for hopefully what was paid(maybe a little more if lucky?) to recoup the money. But wouldn't the initial money kinda just be created.

You're absolutely right - the US will have to "print themselves out" in any case, a fact the free market radicals do not acknowledge to the public since it would reveal a major flaw in their argumentation.

The bailout would simply take the assets on the balance sheet rather than vaporizing them. Basically you create a new security: the "TABS" (Toxic Asset Based Security to inject a lighter note here). Since the supply of M3 money does not get revealed any more (same as if banks would say: look, just trust us and forget about accounting, we only report earnings in the future and leave out all cost of capital, depreciation, leverage...) the FED can print as much as they want, further diluting the value of the USD (think of the greenback as one share of US economy value, if you double or triple the number of shares, it doesn't mean you'll end up with a multiple value).

Having assets on the balance sheet at least gives you something to claim the currency depreciation is not as bad as it looks like.

CrimsonHead wrote:

You sure? It feels like a depression right now, I lost my home earlier this month. My wife and I have been and are both working, we just can't afford our overhead anymore seeing as how the cost of living and gas has more than doubled but our wages have stagnated for most of this past decade, and in my case they have decreased because my income depends on consumer spending. I have'nt really seen anything like this in all 34 years of my life, but I'm just angry and depressed right now, who knows if I'm thinking right. Not that I care much anymore because the worst thing that I was afraid of happening has happened, it's liberating.

This is highly unsettling to hear! Your thinking is right.
You will experience some easing of overhead spending if the USD devaluation can get stopped (Oil is getting paid in USD and if the currency goes down the price goes up).

But unfortunately I am sure you're not in an economic depression. A key difference between recession and depression is: you still have a job. Like you I haven't seen anything like this in 39 years of my life, albeit the 1,5 decades after the reunification of Germany have been pretty rough, mostly recession phases, mass unemployment with two brief periods of economy upturns. I also was allowed to experience a fair share of liberating moments as far as personal belongings are concerned.

kat wrote:

And it has nothing to do with "Democrats" or "Republicans", it's all central banks, a point you missed in your rush to be pendantic

You are wrong about that, the Democrats had a majority to pass the bill in the house, they wanted a Republican majority to vote along with it so they wouldn't get saddled with the blame if it fails, the minority leader actually begged Pelosi on his hands and knees to pass the bill at one time last week, she told him that the Democrats weren't playing politics with the bill that it was the Republicans. This was reported in the NY Times and in UPI's news wire.

Now if you want to glaze over the facts about the non-passage of the first round of voting on this bill (they will vote on it again after rosh hashanna) that is fine, but to say that a bill that was three pages on introduction to the House that grew to this[1] 109 page novella wasn't politicized is a gross misstatement of the facts

The American Tax Payer does not want to pay for this when they aren't receiving any aid for the problems they are having[2].

[1] http://www.rules.house.gov/110/text/110 ... _samnd.pdf
[2] See S.3604 that would have increased unemployment benefits, increased food stamps, and created infrastructure jobs being voted down in the Senate with the White House threatening to veto it if it ever makes it out of the Appropriations Committee and past another Senate vote (A similar house bill has also been threatened with veto).

asmodeus wrote:

kat wrote:

And it has nothing to do with "Democrats" or "Republicans", it's all central banks, a point you missed in your rush to be pendantic

You are wrong about that, the Democrats had a majority to pass the bill in the house, they wanted a Republican majority to vote along with it so they wouldn't get saddled with the blame if it fails, the minority leader actually begged Pelosi on his hands and knees to pass the bill at one time last week, she told him that the Democrats weren't playing politics with the bill that it was the Republicans. This was reported in the NY Times and in UPI's news wire.

This will end up as eternal cross border blaming.
/Note to myself: Never raise a real important issue which needs to get resolved during election time/

And from a strategic point of view you're likely to be right with the majority of Republicans seeked to be on board.

BNA! wrote:

asmodeus wrote:

kat wrote:

And it has nothing to do with "Democrats" or "Republicans", it's all central banks, a point you missed in your rush to be pendantic

You are wrong about that, the Democrats had a majority to pass the bill in the house, they wanted a Republican majority to vote along with it so they wouldn't get saddled with the blame if it fails, the minority leader actually begged Pelosi on his hands and knees to pass the bill at one time last week, she told him that the Democrats weren't playing politics with the bill that it was the Republicans. This was reported in the NY Times and in UPI's news wire.

This will end up as eternal cross border blaming.
/Note to myself: Never raise a real important issue which needs to get resolved during election time/

And from a strategic point of view you're likely to be right with the majority of Republicans seeked to be on board.

Requoting for importance of this point BNA made.

@ asmodeus : I'll say this again for the hard of hearing

This problem has roots that are beyond political parties.

A little history never hurt anyone...

http://www.financialsense.com/fsu/edito ... /0511.html

You all realize that the "bailout bill" was a terrible thing, right? I’m elated that it was defeated, to be honest. If you dive into the text of it, you find that it would have just given away billions more to the same companies that got us into this mess AND set up a feeding trough for even more corporations to feed off of the plight of the U.S. taxpayer. There’s a reason why the bill was being referred to as “cash for trash” by skeptics.

The biggest problem with the "Paulson Plan" is that it has the federal government ONLY taking over the crappy assets of troubled financial institutions. The government doesn’t get any ownership in the beleaguered companies. In other words, if the rescue plan works and things get better, the government doesn’t see any reciprocation for its bailout efforts. Instead, the very companies that made the mess in the first place see all of the benefits: they get their shitty assets offloaded to the shoulders of the taxpayer now and don’t have to give up any company stock. So they essentially pay nothing now and there’s no “cost” to them later when things perk up because they haven’t given up any shares. It’s WIN-WIN for the rich and greedy, LOSE-LOSE for the government and, by association, the American taxpayer, who is footing the entire cost.

The $700 B of the "Paulson Plan" is designed to allow the government to buy up troubled assets—crappily crafted mortgage-backed securities mostly—with the slim hope that it that might slow the cycle of financial institutions paying down their debt by selling their assets. Normally this isn’t a problem, but since everyone and their mother has been doing this (especially trying to offload those shitty mortgage loans), the price for assets has been driven way down, so the financial position of these firms has just been getting worse and worse because they’re not getting anything back for their asset sales.

On top of that, there’s a lack of capital in the financial system for a number of reasons... the worth of the U.S. dollar being down, financial losses leaving institutions with high debt and few assets to bargain with, a shortage of credit and loan offers—giving out loans makes banks more money but they’re unwilling to do this because the risk is too high, in part, due to their debt/asset imbalance, etc.

So what you end up with, if this plan is even remotely feasible, is the government (U.S. taxpayer) needing to overpay for the assets it buys up. And by overpay, I mean OBSCENELY overpay, using our U.S. tax dollars, in order to flood the market with enough capital so that firms will be willing to hang onto their assets, start granting new loans, etc. So in the short term, this Paulson Plan basically says, “Let’s have U.S. taxpayer dollars from you and me overpay for shitty assets created by Wall Street greed-mongers. The overpayment has the nice side effect of giving a huge bonus check to the very CEOs and institutions that are at the heart of the problem, while the average Joe will be left suffering with the after-effects that will only exacerbate the fact that gas is still too expensive, mortgages are still too high, health insurance costs way to much yet wages, pensions and benefits are still in the toilet and getting worse.

SOMETHING is needed to help out the situation. There is no doubt about that... but I am very thankful that this bill didn’t pass. Any bill that is even remotely worth considering would at least need to have the government getting a stake in the companies they are bailing out so that when things get better again, the government (and by association, U.S. taxpayer) can see the benefits of the efforts and sacrifices made now.

govt wants to put $700 billion in to the banks. People can't afford to buy what they need/pay stuff they need (honestly, I doubt that, as a household that brings in under $30k with 4 people). my solution:

give the people the $$ (not the banks, etc) to pay off the LOANS. Only the loans. This takes $500-$2000 off people's shoulders a month. This put the $$ people owe back to the bank actually BACK to the bank. IE our new house is $85k. Govt gives us $85k, we give it to bank, all paid off on my end, bank gets their $85k. Bank looses the ~$110,000 interest on the loan, but they break even. The extra $$ a month gives me more to use, ~$500 in my case, to put back in to the credit market. IE as a new loan, etc.

Now, the question of "how to pay for it" & "what happens if banks fail again" & other questions are the same as any other "bailout bill". Nobody has answers, and it's very possible today the govt puts $700bill in banks, next week they STILL go down the tubes because instead of fixing things they re-invested.

not a perfect plan but I see no reason why I should make sure a large corp should survive if it's gotten so big it can't sustain itself. That's part of the finical natural selection process: you get to big, you die, someone else starts to take over, process goes again.

EDIT: on a personal note, majority of people should not be effected by this. The people who should be affected are people like CrimsonHead, ones who's income is based on the buying habits of others. But there's nothing wrong with more people working jobs that are NEEDED, not entertainment related jobs. Everyone needs food, water, roads, houses, education, power, clothes. People don't need TV's, high-end cars, etc. Great time for a company to get in to things that are needed & survive vs fight with other companies trying to get a dwindling market share.

This topic would be far shorter and insight far greater if everyone would have to deal with TED spreads on a daily basis. Inter banking lending is to the world wide financial markets like a monthly income is to the average joe.

The bill is to get interbanking lending back up again, not to "bailout Wall Street".

rich_is_bored wrote:

A little history never hurt anyone...

http://www.financialsense.com/fsu/edito ... /0511.html

Nice article - thanks for the link. My family went bankrupt during the oil crisis in the 1970ies due to credit contraction, high interest rates and customers who got goods delivered but they couldn't pay since credit markets froze up faster than hell in a nuclear winter. We did send 1.200 employees home. These are the secondary and tertiary ripple effects I'm always talking about here but no one wants to hear or can't hear since election time noise is louder.

The article would have been even more credible if the author would have been telling the dear reader it's intended to be an advertising write up for his physical metal fund. In other cases he would have told you the gold price stayed flat for 18 years before his dramatic portray of the situation how the number of ounces in gold purchased by USD fell.

Before that Gold was also trading relatively flat, except for a major spike in the late 70ies / early 80ies. Would you have bought Gold in the timeframe from 1980 to 1981 you would be in the negatives by today when measured for inflation adjustment. This, interpreting the article, shouldn't even be possible.

But indeed - natural goods are very good hedges against inflation. Like my real estate teacher used to say in 1991: I didn't get rich, bricks to build houses just cost more and the bank forgot to charge inflation on top of the interest.

A good book recommendation btw on how to deal with house price bubbles and bubbles in general is: "Irrational Exuberance".

goliathvt wrote:

So in the short erm, this Paulson Plan basically says, “Let’s have U.S. taxpayer dollars from you and me overpay for shitty assets created by Wall Street greed-mongers.

i agree with your post but for the fact that it isn't just the "Wall Street greed-mongers" that created these assets. carter, clinton and the liberals in congress for years have been pushing affordable housing for everyone (even those that cannot afford it). fannie mae and freddie mac got into the act as well.

we are talking billions and billions and billions of dollars given to people that could not repay it. you can thank liberals for the sub-prime mortgage mess we are in.

watch this video from 2004: http://www.youtube.com/watch?v=_MGT_cSi7Rs

democrat after democrat refuse to believe that there is anything wrong with fannie mae and its lending practices. why? for one, liberal crony Franklin Raines was the CEO. he resigned by the way as a result of this investigation because he was cooking the books.

now 4 years later, we have the exact same liberal do gooders in congress blaming repulicans and the free market for the mess THAT THEY CREATED.

where's nancy pelosi leadership on this? democrats own the both the house and senate right now. they have the power to pass this crapy bill if they really wanted to. she's terrible and the democrats have done nothing since taking over- including this crappy bill.

Actually you can thank the post 9/11 monetary policy of the current administration.

I don't know whether there is a youtube link explaining you this, but please look up negative interest rates and the temporary effect on house prices.

pbmax is right about Clinton though. Clinton was worse than Reagan about privatizing everything right and left, and endorsed policies that set the stage for a lot of the oversight problems we're seeing now... corporations aren't very good watchdogs of their own handiwork, yet Clinton loved the idea of companies taking over services (power, emergency medical services, etc. were privatized on Clinton's watch, for example). Bush II simply helped the process along by clearing out the government apparatuses that may have provided a shred of oversight and accountability. While not causes by any stretch of the means, these things are certainly factors in the current mess.

That said, there is a huge difference between "affordable housing" subsidies and handing out a loan that is far beyond the borrower's ability to repay it.

First off....I have been an "in"active member on this site for far too long..which I am sorry for..I have not been creating content for games for some time now but always seem to look here for my daily dose of good news and interesting insight..which BTW you guys have never failed to deliver.

But with this looming GLOBAL crisis I feel it is time for me to contribute as best I can.
Now I don't claim to be a economic brain child...or even care too much for money in general..but what I do care about is knowledge, both my own personal knowledge as well as others..so here goes.

First off I am "NOT" a conspiracy nut in any way shape or form...what I am is open to all forms of information, opinions and ideas.
I try to take it all in with a grain of salt so to speak and digest what I find plausible and discard what I feel is a load of crap!

K..so last night I was doing my usual surfing around after checking to see how much I had lost in my investments...not bad so far but still enough to get me pissed when I came across this link

http://ca.youtube.com/watch?v=QlIhhYGujoQ

It's the first part of a documentary made in 1996 about "The Money Masters". There are 20 parts to it on youtube, or any one wanting the whole thing can find it with a little creative searching

Question to all the Americans here?....did you know the Federal Reserve is a privately owned bank?..I didn't, I always thought it was a division of the American government but it's not.

Question to all you Americans here?...did you know that when the American government borrows money (say $700 billion) it borrows it from this private bank at an interest rate that this bank chooses?

Question to all you Americans here?...Did you know that this bank then prints the money up (which the American government can't legally do..yet) and gives it to the government to use as desired?

Now I could pose a bunch of questions to you AMERICANS as well as ANY BODY from ANY NATION about many interesting things concerning money, war etc... but I would like to wait until you've had a change to view this documentary and digest the implication to us all.

Please watch it and prove it wrong...please!

D

The Happy Friar wrote:

my solution:

give the people the $$ (not the banks, etc) to pay off the LOANS. Only the loans. This takes $500-$2000 off people's shoulders a month. This put the $$ people owe back to the bank actually BACK to the bank. IE our new house is $85k. Govt gives us $85k, we give it to bank, all paid off on my end, bank gets their $85k. Bank looses the ~$110,000 interest on the loan, but they break even. The extra $$ a month gives me more to use, ~$500 in my case, to put back in to the credit market. IE as a new loan, etc.

My only problem with this is that the people who are way in over their heads got there because they can't manage their spending habits effectively. Due to this, what needs to be done is educate people on credit and crack down hard on the banking industry to stop the "if you can't afford that $5,000.00 HDTV on your salary, get a credit card!" advertising schemes as well as target marketing 18 year old's and college students for a first credit card which as I mentioned before is as bad if not worse than any of the issues surrounding the ir-responsibilities of the tobacco industry.

BNA! wrote:

Inter banking lending is to the world wide financial markets like a monthly income is to the average joe.
The bill is to get interbanking lending back up again, not to "bailout Wall Street".

If I took all my monthly income to the dog track & bet on all the dogs that the owners said were going to win, everybody would want a piece of me when I win but everybody would laugh at me when I'm broke & people wouldn't feel bad when I lost my house & got fired for not having money to fix my car so I can go to work. Some times (I feel this is one of those times) falling flat on your face & realizing that you've done some REALLY REALLY stupid things & that you need to change how your life is BEFORE someone comes along & picks you up is what's needed. I used the term "bail out wall street" because that's what's being said. It's a bailout for big banks, which trade on wall street. Even if we do something, let them simmer for a little while (at least a week) with no show that help is on the way.

Interbank lending won't magically start back up. Bank A will still know that bank B isn't very good with their $$ & won't want to lend it like before anyway. Like you said, credit = trust = credit. Only an idiot would trust someone who blew all their own money. That's what I would be told if I couldn't handle my $$ & wanted to buy a house (or something on a loan)

But do I have a full grasp on the situation? No. Does it matter? Not really. The areas of govt that I *DO* care about & want changed will never be changed because people are stupid & I'm not as stupid. Stupid compared to many, but compared to the general population, no. So I have to deal with regulations, rules & stipulations because of the stupid people (I can't legally sell my goat milk or products because it's illegal to do anything milk related w/o being approved by the govt. Technically, I could get in more trouble selling my goat milk then the banks who killed themselves). Give me what I want & I'll give you want you want. I could make some decent $$ off my goats if I was legally allowed to, but I can't & nobody wants to change that.

Bittoman wrote:

My only problem with this is that the people who are way in over their heads got there because they can't manage their spending habits effectively. Due to this, what needs to be done is educate people on credit and crack down hard on the banking industry to stop the "if you can't afford that $5,000.00 HDTV on your salary, get a credit card!" advertising schemes as well as target marketing 18 year old's and college students for a first credit card which as I mentioned before is as bad if not worse than any of the issues surrounding the ir-responsibilities of the tobacco industry.

I never fell for any of that, I don't see why anyone would. You've got to be relatively stupid to do what many people have done. Heck, I ENCOURAGE the marketing. It gives lots of people jobs & pays very very well. Broadcast TV wouldn't be free unless there were marketing, just like going to webpages. But smoking does look cool though, can't be denied. Not good for ya, but cool.

Lets say a plan like mine was done, people shouldn't be just handed the $$, the people should fill out an application for the $$, with all loan info, incomes, etc. Then, if decided, the govt. pays the bank directly & the people have that much taken off the loan. In my case, I'd say I shouldn't get a penny. I'm not in trouble, I don't need it, I wasn't duped, screwed over, etc.

I've seen how many govt programs work. They suck. They're inefficient & the people working them don't care. IE foodstamps (this WILL be a national issue VERY SOON!): you don't NEED to spend it on food you NEED to eat. You can buy cakes, chips, pop, other junk. I don't do foodstamps (sure we qualify though but would rather avoid the headache) but we buy very little junk. Maybe a pie a week, some icecream every couple weeks, etc. My grocery bills are ~1/2 of what foodstamps allow. And let me tell you... we don't starve!

The Happy Friar wrote:

I used the term "bail out wall street" because that's what's being said. It's a bailout for big banks, which trade on wall street. Even if we do something, let them simmer for a little while (at least a week) with no show that help is on the way.

It is not a bailout for big banks - what does it take for people to understand or did the media hammer the whole country collectively? It is a plan to create a market for currently illiquid assets, which by the creation of it, become liquid again and therefore can get valued along IAS/IFRS rules (or whatever accounting technique applies).
The origination of the problem is American, the fallout is global. Alone Fortis bank which needed to get secured a few days ago had a balance sheet two and a half times of the country GDP which needed to save it.

Quote:

Interbank lending won't magically start back up. Bank A will still know that bank B isn't very good with their $$ & won't want to lend it like before anyway. Like you said, credit = trust = credit. Only an idiot would trust someone who blew all their own money. That's what I would be told if I couldn't handle my $$ & wanted to buy a house (or something on a loan)

Interbank lending is far more pragmatic than what Bank A thinks of Bank B. If there is a shield which protects Bank A and B from the US housing securities, then they start lending again. That's not magic.

Quote:

But do I have a full grasp on the situation? No. Does it matter? Not really.

Let me put it this way - no one should live below his intellectual means or above his financial means. If you keep on raising the intellectual bar it often pushes the other bar higher too. It does matter when someone who fights to meet ends every month keeps on getting a grasp on the situation, a grasp which is beyond headline catching from the newsstands while passing by (not that I say you do). The most wonderful thing we have is almost free availability of information. No one before us ever had that. I still can't believe my luck that the whole world is at tip of my fingers it costs nothing but the time invested to read (and the ISP).

Quote:

I could make some decent $$ off my goats if I was legally allowed to, but I can't & nobody wants to change that.

That's true, however if someone would get sick from goat mild the whole country would engage in a mass revolution to nail down the responsible congressmen who didn't institute regulations. At least you can save some buck by having all sort of goat product at home.

Quote:

Lets say a plan like mine was done, people shouldn't be just handed the $$, the people should fill out an application for the $$, with all loan info, incomes, etc. Then, if decided, the govt. pays the bank directly & the people have that much taken off the loan. In my case, I'd say I shouldn't get a penny. I'm not in trouble, I don't need it, I wasn't duped, screwed over, etc.

Well, wouldn't this encourage more people to load up on loans?

Quote:

You can buy cakes, chips, pop, other junk. I don't do foodstamps (sure we qualify though but would rather avoid the headache) but we buy very little junk. Maybe a pie a week, some icecream every couple weeks, etc. My grocery bills are ~1/2 of what foodstamps allow. And let me tell you... we don't starve!

There sometimes is a habit of those who need most to get what they urgently need in reverse priority. I often see poor people in Germany (we got some very dark areas too) walking out the store with booze, cigarettes, white bread and some cheap sausage at 9am. I'd advocate to exchange booze and cigarettes with fruits and vegetables, however this catapults some people out of their comfort zones (the 3*3 foot area in front of TV).

When I had rough times I was lucky enough to be so broke I couldn't afford junk. So I never became comfortable with the situation. This of course has turned me into someone whith unlimited respect for those who use their own arms and feet to make it (also if they receive additional govt support) and very limited understanding for those who carry home booze on the tax payers bill.

pbmax wrote:

we are talking billions and billions and billions of dollars given to people that could not repay it. you can thank liberals for the sub-prime mortgage mess we are in.

watch this video from 2004: http://www.youtube.com/watch?v=_MGT_cSi7Rs

democrat after democrat refuse to believe that there is anything wrong with fannie mae and its lending practices. why? for one, liberal crony Franklin Raines was the CEO. he resigned by the way as a result of this investigation because he was cooking the books.

now 4 years later, we have the exact same liberal do gooders in congress blaming repulicans and the free market for the mess THAT THEY CREATED.

If we're using caricatures then I'd rather be a liberal do gooder than a fascist arsehole any day. Besides doesn't doing good imply, well doing good. The term do gooder implies to someone who tries to tell other people what's best for them, which is much more of a right thing than left. It's also worth bearing in mind that what's considered a central position in the US is a right wing stance in most of the rest of the world.

I don't know if the bailout is the right thing to do or not. If it's a temporary fix to stabilise the markets until something meaningful can be done then fair enough. But it's the system itself that needs review. It's a right wing system with a design flaw, which is as obvious as a bird with wings I suppose. Socialism time. Capitalism has had it's day. Its time to put an end to the elitist fuck-heads. But I've been saying that for ever and it still hasn't happened. Nobody listens to me

BNA! wrote:

It is not a bailout for big banks - what does it take for people to understand or did the media hammer the whole country collectively? It is a plan to create a market for currently illiquid assets, which by the creation of it, become liquid again and therefore can get valued along IAS/IFRS rules (or whatever accounting technique applies).

The second half of what you say is true, BNA, but the solution that has been proposed IS A BAILOUT because it puts all of the hardship on the taxpayer. The firms that are in trouble are getting free capital that they do NOT have to pay back through stocks or other means. They aren't giving up anything in order to get a piece of the $700B pie. That, by definition, is a bailout. Yes, it may (and this is only hopeful speculation by Paulson) dump enough capital into the system to help stabilize the value of the currently shitty assets that these banks hold, but many economic analysts say this is wishful thinking and the 700B is probably too little money to do this effectively.

If the firms that were getting a piece of the $700B corporate welfare (let's call it what it is) had to give up shares to the government as collateral for the shitty assets the government is buying from them at a very inflated price, then I might show support for the Paulson plan. However, with the way it has been crafted, the banks that triggered this looming mess are getting a freebie. A handout. Corporate welfare.

Of course, corporate welfare is as American as apple pie... a point I tried to make several days ago. Our capitalist system does not function by the whims of the "market forces." It has always relied on the government to offer taxpayer-paid bailouts and welfare whenever a situation like this arose.

myself wrote:

(I added a few bits for clarity.)

I hate to break it to you folks, but capitalism has never ever worked. Free trade has never worked. "Market forces" are a myth. Sure, you can have some trade that has limited taxation and you might have supply and demand governing some aspects of trade... but the reality is that the U.S. economy has always and will always continue function stably only by the grace of government intervention.

Don't believe me? Then please explain the centuries of bailouts, subsidies and protections that the government has been practicing. Also please note that most of the time we had protections and regulations in place, our economy was fairly strong and stable. Yet when we let the "market forces" have their way (i.e. deregulate), things get FUBAR'd and that's when the government needs to swoop in and bail someone out using U.S.taxpayer money.

Want some concrete cases to look up? The automobile industry... for forever. The steel industry in 1999. The coal industry for the last decade or so. Boeing in 2003. Too far back in history for you? Heard of AIG in the news lately? These are only a handful of examples. Put simply, companies that act as the backbones of our economy regularly get handouts and protections and various forms of regulation. They have survived because of regulation and government handouts--i.e. corporate welfare. There wouldn't be a Ford, GM or Chrysler on the road today if it hadn't been for government regulation helping to protect the absolute terrible quality and lackluster designs that those auto makers have been putting out for decades. There also wouldn't be a U.S. airline functioning today if the government hadn't bailed out the industry several times.

The free market is a myth. Regulation can be helpful.

Now, that's not to say that all regulation is good... it's quite possible to over-regulate something. You can also regulate it poorly. And it's also possible to over-protect an industry. GM should have gone out of business years ago, for example. They are simply not a successful business.

Quote:

It is not a bailout for big banks - what does it take for people to understand or did the media hammer the whole country collectively?

Part of the problem is that the media here has not explained what could happen(worste case?) if things aren't done to stabalize the bad assets in the market. People have been told briefly that the money would go to buy sour assets in the market, and it was titled a "Bail Out Plan". These 2 things alone sound exactly like the reason people are raging.....they feel like the gov is "bailing out" the market from poor decisions they made of keeping a large portion of their assets in the housing market(all your eggs in one basket? where was that saying when all this started?). Anything more than that for the most part has been left out of the Mainstream Media because the powers in charge of this don't think the general population can handle the details, which they are right for a large part. It is, as everyone has said, a complex issue.

However, they also haven't detailed what could happen if the assets aren't bought up and things stabalized. More markets and companies falling, jobless rate going through the roof, more loans not able to be payed causing more companies to fail, and eventually possibly a freeze on all credit? If you tell people that they may not be able to get the smallest of loan, or use their credit card at the store if things don't sort out, they might have a different view that something needs to be done.

So far the general population has not felt much of the current situation. Yes some people have lost their jobs and home, but not the majority yet. People think they are safe from everything evening if a potential meltdown is lingering off the coast. It's human nature.

Maybe I shouldn't have taken a jovial tone with my last post when people are losing their homes. The bail out definitely takes the piss and I wouldn't like it if I had to pay for it. It effects us all but it's our own fault. I hope this is a lesson to the rest of us that being so reliant on one other economy, especially one in that much dept isn't a good idea.

I don't know if this would work because I'm not an economist but wouldn't limiting banks lending so that the credit given can't outweigh the deposits taken would be a simple solution to avoid a repeat in future? HSBC is the only bank in the UK to have done this, but it shows that it can be done. It would mean it would be much harder to get credit but easy credit created the problem. Maybe I'm oversimplifying.

Deadite4 wrote:

...they feel like the gov is "bailing out" the market from poor decisions they made of keeping a large portion of their assets in the housing market(all your eggs in one basket? where was that saying when all this started?)

It's not about an overabundance of bad assets that caused this. The problem began when the credit industry started using "creative" financing which helped get a whole lot of people who made under $100,000 a year (the WHOLE family combined) into houses selling for ~$750,000. You found this extremely common in what are called "McMansions". Now you have a whole lot of people who could not afford their house note because the financial market bombed and the promises that the "financial experts" gave them that their extremely variable interest rate would stay stable no matter what were nothing but lies to get a commission. So many people filed bankruptcy and defaulted on their mortgage that now the banks own all of this bad debt and no one's buying because they can't afford it.

The upside is that houses are going to get real cheap here but the downside is it'll be really hard to get a loan for a while so unless something is done the rich, who already have loads of cash on hand, are going to get richer while the poor are stuck in cardboard boxes sweating it out.

No one forced people to move into houses 4x more expensive than what they could afford. Many people could not afford their houses "all of the sudden" not because the market bombed but because they were foolish enough to buy their house with a Interest only loan with a teaser rate of 1% for the first 3-5 years after which resets to the current market rate....and average of around 6.5-6.75% over the last year. The people who agreed to this dugg their own fate.

I purchased a home here in 2006 and was offered the same type of creative financing options. I told the mortgage broker flat out....I want a principle plus interest mortgage payment and to start off at current rates(no teasers) and if I can't afford that then I don't want the mortgage.

the latest bailout bill now includes some mental health legislation. WTF? this one should be voted down as well.
http://www.cbsnews.com/stories/2008/10/ ... 3958.shtml

no wonder congress has an approval rating of 14%. that's more than TWICE as worse as bush's by the way. why don't we hear more about that? every time bush's approval rating drops a point its front page news, but the democrat led congress is at an all time low. 14%!!!

They do that as a backdoor to getting the core legislation passed, break it down and append it other Bills, or append other 'meaningless' fluff to make it more palatable whilst not changing anything fundamental to the original core wants.

Car salesmen, nothing more.

kat wrote:

They do that as a backdoor to getting the core legislation passed, break it down and append it other Bills, or append other 'meaningless' fluff to make it more palatable whilst not changing anything fundamental to the original core wants.

its pathetic.

we need a revolution. toss them all out.

Quote:

we need a revolution. toss them all out.

Absolutely and Its been needed long before this mess.

goliathvt wrote:

The second half of what you say is true, BNA, but the solution that has been proposed IS A BAILOUT because it puts all of the hardship on the taxpayer. The firms that are in trouble are getting free capital that they do NOT have to pay back through stocks or other means. They aren't giving up anything in order to get a piece of the $700B pie. That, by definition, is a bailout. Yes, it may (and this is only hopeful speculation by Paulson) dump enough capital into the system to help stabilize the value of the currently shitty assets that these banks hold, but many economic analysts say this is wishful thinking and the 700B is probably too little money to do this effectively.

Assuming I'm half true I'd say you're also half true. Let's combine it and see if we come up with a 100%.

A full bailout would mean to simply hand over money to financial institutions unconditionally without exchanging anything. AIG got bailed out, but the govt took over 80% of the shares and they get a 10% interest rate on the 85 billion USD loan. This was to prevent a multi trillion derivatives market to fail. If this market would have failed we wouldn't talk about any rescue plan today.

The financial institutions will sell assets in the like of asset backed securities with heavy discounts to any form of trust the govt is likely to set up. A market with zero buyers results in zero value for a good. Having the govt as buyer (the latest benchmark was 22 cent on the USD in a ML : Lone Star deal) effectively creates a market again. Every market participant knows these papers are liquid again and therefore all institutions involved (I cannot think of any not involved, including car markers) can mark them up in value above zero and unload parts to the US govt.

Now everyone says these papers are utter crap. In fact they aren't, but their face value is not 100% of the initial purchase price. If an asset backed security is linked with the housing market and has to stomach a 30% loss of the underlying collateral value, then it's worth 70% (give or take any risk premium an investor is willing to pay, currently the premium is at least negative 48 percentage points given the published Lone Star transaction).

Expect the housing market to drop another 15% in value throughout 2009, then to stabilize and go back to moderate growth in early 2011. These papers will appreciate in value alongside and the US govt will sell them back to the market. By that time the AIG loan, if they wont fail otherwise, expires and gets paid back. The 80% stake in AIG will be substantially worth more than the price the US govt has paid.

By that time also all FRE and FNM papers will have appreciated in value too.

I agree that some institutions in order to raise additional capital should issue preferred stocks to the US govt, yet this would lead to further dilution of the shareholder equity, effectively depreciating the equity of the tax payer who doesn't know they sit in the funds of the pension plan.

To say the US govt gets nothing in return for acquiring the securities is a false statement. In return it is very much allowed and welcome to question or doubt the value of these papers, especially today.

Quote:

If the firms that were getting a piece of the $700B corporate welfare (let's call it what it is) had to give up shares to the government as collateral for the shitty assets the government is buying from them at a very inflated price, then I might show support for the Paulson plan. However, with the way it has been crafted, the banks that triggered this looming mess are getting a freebie. A handout. Corporate welfare.

The problem currently is, as explained above, that any price above zero is inflated if the market is frozen. This is cold logic, but flawed. I'm sure about a few things. One thing is that the Paulson plan is urgently needed, more urgently than most think. Another thing is that these assets aren't shitty - they are distressed and therefore depreciated in value. The difference between shitty and distressed is, that the latter ones recover to a certain degree. Giving up shares is likely to hurt the wrong side of the table, but I see that in order to make it feel less like corporate welfare an compromise should and likely will get reached. Another thing I firmly believe is that 700 billion will not put an end of this crisis. Deleveraging will take years, but it will go faster when the economy still works along with moderate growth rates.

And for some reason this is not getting much publicity, but the institutions selling papers to the US govt have to issue warrants for their stocks too. If these institutions recover the US govt can cash in these warrants. This should basically satisfy your ask for shares in return.

This is the sort of downwards spiral which fuels itself if you don't put it to a halt at some place. A prolonged financial crisis will be felt severely in the industry sector - most companies have already started to lower their current guidances and refuse to give forward guidances. Economic contraction will lead to a loss of jobs. A loss of jobs will increase the credit crisis. And there it goes back to the start - that's why it's a spiral.

Quote:

Now, that's not to say that all regulation is good... it's quite possible to over-regulate something. You can also regulate it poorly. And it's also possible to over-protect an industry. GM should have gone out of business years ago, for example. They are simply not a successful business.

Well, I think it's a numbers game. How much will it cost the US to bail out GM, Ford and Chrysler this week (no one really commented on this bail out plan so far, as soon as the loss of jobs is immediately visible and felt by the voter the plan is good vs the Paulson plan which is not widely understood) vs having the entire workforce on the govt payroll via social security. And the politician who allowed any of these industrial mammoths to fall will burn in non-election hell forever.

This 8 page interview with Buffett is worth reading, spares me to write too much more of the same:

http://www.cnbc.com/id/26982338/site/14081545

My response is rather crass and I'll leave the more finer intellectual points of economics to my smarter colleagues.

Funny when the invisible hand slaps these politicians upside the head how they squeal.

It's about time the whole rotten edifice came crashing down under its own insidious weight. I think why the politicians off all stripes are disparately looking for a bail out, since it will calm the masses and prevent pitchfork justice. Personally I'd rather see it all meltdown, and out of desperation see average common people take back their society from these conniving elites who seem to judge people only by their credit rating. Shouldn't bother McCain though since he's not even sure of how many houses he owns. And sorry, I'm not a democrat either since I see no difference other than the "we care about people" rhetoric from the Left. I think its true to say many Americans don't have a clue about how money, loans and credit works, and parties of all stripes will gladly give certain folks plenty of rope to hang themselves with.

When I was 14 my first job was at McDonald's where I earned a dizzying $2.75 an hour. I saved up half the money to buy a drum set and begged my father for the rest based on paying him back once I saved the rest. He turned me down and said I'll buy it when I can afford it. I hated him for that. Here I am decades years later and I finally understood why he did that. Today I couldn't care less about a recession - other than having sympathy for my cash-poor buddies who are mortgaged to the tits. Funny how they tease me about taking the bus (I don't own a car), yet their quick to ask for a loan whenever they need extra spending money.

And as smart as many of you are in terms of economics and such, believing anything will change without addressing the underlying issues such as the Fed, the fiat money system and the dishonesty of our elected officials will surely lead us down a path of inevitable and inexorable destruction.

pbmax wrote:

kat wrote:

They do that as a backdoor to getting the core legislation passed, break it down and append it other Bills, or append other 'meaningless' fluff to make it more palatable whilst not changing anything fundamental to the original core wants.

its pathetic.

They are called "Earmarks" they get tacked onto every bill that goes through congress.

Quote:

we need a revolution. toss them all out.

To be replaced with what? Libertarians? Greens? Socialists? Reform Party? Or just the other party that is selling a slightly different version of the same policies?

asmodeus wrote:

pbmax wrote:

we need a revolution. toss them all out.

To be replaced with what? Libertarians? Greens? Socialists? Reform Party? Or just the other party that is selling a slightly different version of the same policies?

No, I think he is aiming more for an unelected regime of unilateral leadership and US isolationism. Something to rule the world or so. Could be wrong, but that's the impression what condenses from his posts. But I have to admit there is a shocking insubstantiality and one-sidedness in such posts which may mislead me. If so, I apologize.

BNA! wrote:

asmodeus wrote:

pbmax wrote:

we need a revolution. toss them all out.

To be replaced with what? Libertarians? Greens? Socialists? Reform Party? Or just the other party that is selling a slightly different version of the same policies?

No, I think he is aiming more for an unelected regime of unilateral leadership and US isolationism. Something to rule the world or so.

um, not quite.

on a lighter note, california, the liberal standard for america, needs its own 7 billion bailout from the us treasury. which means the us tax payer has to bailout california because its liberal social welfare policies didn't work as expected. oops! but its the good intentions that count, right? don't ever look at the results. just the good intentions...

http://www.foxbusiness.com/story/market ... an-report/

Yet its currently run by Arnold Schwarzenegger, a conservative. Blaming parties never got anyone anywhere for either side.

Deadite4 wrote:

Yet its currently run by Arnold Schwarzenegger, a conservative. Blaming parties never got anyone anywhere for either side.

arnie IS NOT a conservative. he's a RINO (republican in name only).

and identifying failed policies & learning from them does advance societies. the fact of the matter is that liberalism/socialism has failed everytime it has been tried.

You can call him a RINO, he still isn't a Liberal. Identify failed policies and learn from them in the future fine. Pointing fingers and blaming parties anytime a policy of either side fails is useless.....he said/she said garbage. Fix the problems and move on to the next and refrain from spending the next 2 months doing nothing other than bickering and arguing about who's policy this was cause both sides make bad policies.

Deadite4 wrote:

You can call him a RINO, he still isn't a Liberal.

whatever. you and i both know california is run by leftists. its not even arguable.

breaking news:
the new bailout bill passed and the dow immediately drops 180 points! ha.

dow now down 214 points since bill passed. ha ha ha.

dow now down 280 points since bill passed. isnt this what wall street wanted?

dow now down 341 points about 1 hr since bill passed.

pbmax wrote:

dow now down 214 points since bill passed. ha ha ha.

dow now down 280 points since bill passed. isnt this what wall street wanted?

dow now down 341 points about 1 hr since bill passed.

What about DOW down 500 points the day you wrote "ding dong, wicked witch is dead..." Actually the DOW is UP today, not DOWN - just to stop you from spreading more misinformation on purpose.

Billions of billions of market value destroyed since the the Paulson plan did not pass, ha ha ha - but it is not funny in any case. Someday even the bubble most radical no-knowers live in will burst into their daily existence, especially when they realize that all their pension fund money is on the brink.

But to give you some relief - the DOW will drop much more during the upcoming recession. However a 8,500 recession DOW for 12 months will represent excellent entry points for the money managers of the US tax payer and those rely on managed pension funds. A 2,500 depression DOW for 20 months on the other hand is devastating.

Don't forget, assuming you ever knew it or thought about it, the DOW represents the value of the underlying businesses in the long run, in the short run it represents the mood of the minute. The minute the DOW dropped today was the minute where the Republicans AGAIN did not understand the importance of the matter and voted against the Paulson plan. The DOW up today is for the expectation the vote will pass, the drop is for the decision of the Republicans and of course for the slash of another 159,000 thousand jobs in the US.

You think it's all about policy and boneheaded decisions, but in reality it's all about the well doing of the economy. Sure, Republican radicals would benefit from a mass unemployment and starving population in the US, but is it really worth it? I don't think so.

BNA! wrote:

Actually the DOW is UP today, not DOWN - just to stop you from spreading more misinformation on purpose.

first, its not misinformation. i clearly stated the dow dropped right after the bill passed

second, the dow is down 150 since the day began. its now down 425 since the bill passed.

the dow is down 150 points since the opening bell today.

the bill is garbage. is that misinformation too?

So the DOW closed 157.47 points down - not bad. Watch it fall and keep an eye on corporate bonds trading. It got better today but is still at levels indicating a major wave of bankruptcies ahead.

I'd also expect more FED and ECB action next week.

The Paulson plan will spell some relief, yet it does not remove the overpriced and oversupplied real estate market issue - the core of it all. Deleveraging this behemoth will take years and in order to achieve this goal companies need to grow, employ more people and increase wages over time.

I'd expect an enlargement of the Paulson plan within 12 months time.

Where will the economy be next year? In a recession, still. The year after? Probably till in a recession. But as long as there's no slip into a depression we'll be all fine in the very very long run. Consumer spending will be an issue nonetheless and the US depends heavily on it.

pbmax wrote:

BNA! wrote:

Actually the DOW is UP today, not DOWN - just to stop you from spreading more misinformation on purpose.

first, its not misinformation. i clearly stated the dow dropped right after the bill passed

second, the dow is down 150 since the day began. its now down 425 since the bill passed.

the dow is down 150 points since the opening bell today.

no misinformation here.

At the time you've been writing your post the DOW was postitive - you spelled misinformation based on intraday highs and lows.

BNA! wrote:

Where will the economy be next year? In a recession, still. The year after? Probably till in a recession. But as long as there's no slip into a depression we'll be all fine in the very very long run. Consumer spending will be an issue nonetheless and the US depends heavily on it.

and Americans have lost more freedoms to the federal government that continues to grow larger, wastes more money, meddles more & more in the free markets and bails out more and more private enterprises. once you give an inch to the governmant, they'll take a mile and never give it back.

what do you think the cost of that will be?

pbmax wrote:

BNA! wrote:

Where will the economy be next year? In a recession, still. The year after? Probably till in a recession. But as long as there's no slip into a depression we'll be all fine in the very very long run. Consumer spending will be an issue nonetheless and the US depends heavily on it.

and Americans have lost more freedoms to the federal government that continues to grow larger, wastes more money, meddles more & more in the free markets and bails out more and more private enterprises. once you give an inch to the governmant, they'll take a mile and never give it back.

what do you think the cost of that will be?

Significantly lower than 64 trillion.

pbmax wrote:

on a lighter note, california, the liberal standard for america, needs its own 7 billion bailout from the us treasury. which means the us tax payer has to bailout california because its liberal social welfare policies didn't work as expected. oops! but its the good intentions that count, right? don't ever look at the results. just the good intentions...

And the Republicans have done a great job haven't they? And they certainly can't even claim to have good intensions. It's the far right element of the wannabe rulers of the world that's hated so very, very much by nearly EVERYONE outside (and inside to some degree) of the US. They've proven themselves to be of low moral fibre (I'm being extremely polite) time and time again. Their archaic attitude has already lost them the election and hopefully will spell the beginning of the end of the elitist arseholes once and for all. This could very well be the start of the fall of capitalism and the rise of socialism with any luck. Socialists want what's best for everyone. Capitalists want what's best for themselves. The Republicans are pure evil. :twisted:

I'm going to make a point of countering ever fascist post of yours with a post of my own. Face it dude, your part of a dying breed that's been around for far too long already.

I think wide spread socialism/communism (that's not a dirty word btw) is some way off but we'll get there. Power to the people.

Due to the nature of the posts that inspired this one, this post is completley over the top and offensive to anyone with half a brain, but this one is at least rooted in the truth.

wal wrote:

I think wide spread socialism/communism (that's not a dirty word btw) is some way off but we'll get there. Power to the people.

I know it's a joke of yours, it must be, but just for clarification: socialism / communism is all power away from the people and give it to the selfelected elite. Each and any socialism / communist system ended in torture, jail, suppression and system failure. I prefer quarter-century meltdowns over torture, censorship and brain washing institutions.

Just having a little fun and bringing balance back to the force.

I think any extremes are wrong because the truth always seems to lay in the middle whatever the subject. Communism is the opposite extreme of fascism, and although great in theory, unworkable and too open to abuse in reality. Not suitable for the real world. I do think that mild socialism is workable though, and the current capitalist system is too far to the right in that it rewards greed and stupidity (with tax payers money now).

A completely open market is sounds great but it's now proven that it isn't, or rather the people involved have proven it. Using money you don't actually have yet and then being left not only in dept but with virtually unsellable assets when things go bad isn't something in my opinion that should have ever been aloud to happen. It does need to be better regulated when it's so competitive that everyone takes stupid risks with our money.

wal wrote:

And the Republicans have done a great job haven't they?

I'm not Republican. The Republicans disgust me just as much as liberals due- actually even more.

Do you have a decent third party in the US? Here we have the Liberal Democrats, that if everyone who wanted them in power actually voted for them, they'd win but people consider it a wasted vote. Quite funny when you think about it. I'm going to vote for them out of protest I think.

onto my daily DOW update...

its down 527 points right now. pretty much in a free fall.

pbmax wrote:

onto my daily DOW update...

its down 527 points right now. pretty much in a free fall.

See it bottoming at ~ 80% of today if everything goes well.

On a small positive spin(for me at least), is the price of oil per barrel has fallen to about 90$ and of course could go much lower with a global credit crisis thats going on. With the price of heating fuel(by me) dropping from about $4.50/gal to $3.75/gal and lower I'll easily save several hundred dollars over the next few months with the coming winter. Not to mention the money saved on gas for driving.

Deadite4 wrote:

On a small positive spin(for me at least), is the price of oil per barrel has fallen to about 90$ and of course could go much lower with a global credit crisis thats going on. With the price of heating fuel(by me) dropping from about $4.50/gal to $3.75/gal and lower I'll easily save several hundred dollars over the next few months with the coming winter. Not to mention the money saved on gas for driving.

Most people perceive it as a positive sign, yet they're not entirely right. Free falling Oil is a sign of a free falling economy too - world wide. As long as it's dangling between 80 and 100 there's hope, if it goes below 60 there is no one who needs it and if it goes above 120 it's pure speculation.

The virus of the credit crisis has sprung outside it's boundaries and now sinks the world economy. Those who write stocks are cheap now, should try to recalculate their models with 3 years of zero growth and 09 estimates slashed 25% in most sectors. This is not going calculate favourably for a DOW well above 8000 or DAX north of 5000 in the short term.

I'll save money on cheaper gas prices too, but I cannot drive enough in my lifetime to compensate for the coming loss of earnings. Costs are a good point to tighten the screws when times are good, because in bad times you cannot loosen the screws on earnings.

This said, the D3W server will be save for a few years to come.

Most of the money I will be saving with cheaper oil is on the heating bill, and many people where I live will save significantly. I typically have smaller deliveries at about 200 gallons per delivery as I have a small home, but a medium sized home gets deliveries around the 400 gallon mark per delivery. Multiply that by 2-3 deliveries in the winter and over 1$ drop per gallon, and middle/lower class families by me can save thousands over the next 4-5 months. For people whose jobs aren't affected by a bad market, but are affected by higher food prices and other necessities the offset with the upcoming winter helps significantly.

Deadite4 wrote:

Most of the money I will be saving with cheaper oil is on the heating bill, and many people where I live will save significantly. I typically have smaller deliveries at about 200 gallons per delivery as I have a small home, but a medium sized home gets deliveries around the 400 gallon mark per delivery. Multiply that by 2-3 deliveries in the winter and over 1$ drop per gallon, and middle/lower class families by me can save thousands over the next 4-5 months. For people whose jobs aren't affected by a bad market, but are affected by higher food prices and other necessities the offset with the upcoming winter helps significantly.

This will lead to smaller houses, better insulated, especially in the US, what in return will lead to reduced demand in heating energy what in return hopefully will lead to lower energy prices. Don't get me started on cars like SUV's.

I believe you can make a killing by investing in reliable alternative energy stocks once this mess is over. With reliable I mean corporations with a track record, no new economy style business plans to go public with. Buy the mid sized companies, the large ones will suck them in at one point, leaving you with healthy gains to withdraw from the table.

pbmax wrote:

the fact of the matter is that liberalism/socialism has failed everytime it has been tried.

Actually the fact of the matter is neither socialism nor liberalism have ever been tried.

Capitalism is one of the few systems that has been tried and it's a dismal failure if you bother to take a few things into account:

A very few people will end up with most of the wealth.

The system requires the majority of workers to exist on meager or slave wages.

The advocates of "free markets" will always be the power holders in the system. They call for everyone else's markets to be open and free while they quietly maintain protection of their own markets and investments for obvious reasons. If they were to practice what they preach, they would wind up as destitute and beholden to outsiders as, say, Sub-saharan Africa is to the IMF (i.e. the U.S.).

Capitalism embraces the very notion of greed at its core. This plays out in things like health insurance companies looking for every possible way to never pay out a reasonable claim, even if the customer has been faithfully paying their premiums since they started the plan. Or, take for example, the idea that companies going under manage to pay the severance packages of the very CEOs that drove the business into the ground while slashing pensions and retirement plans of the workers as the company tanks. Or they can go spend $400 grand on fuckin' pedicures and massages after being bailed out by the government (i.e. taxpayer).

On top of that, you have private tyrannies that are accountable to no one. In other words, corporations. If someone has a problem with a company, who do they call? Who is accountable? Done effectively, companies can set themselves up so that there is no oversight and no accountability. Just go check out the various financial scandals that have hit the news in the past, oh, 5 years.

The U.S. adds to this destructive backwards system the Federal Reserve. This is a private corporation that prints the money we use. However, each dollar it prints is essentially borrowed by the government (i.e. payed for by the U.S. taxpayer) at interest. In other words, every time the financial system gets into trouble, the Fed will be making oodles of money on just the interest alone. Every time you hear a news story about "the Fed pumping cash into the troubled financial system," know that those guys just made/will make a shitload of money by so graciously helping out our poor economy. I can't imagine what wonderful bliss the Fed is in regarding the current crisis and its $700B bailout.

Easy money.

goliathvt wrote:

Or they can go spend $400 grand on fuckin' pedicures and massages after being bailed out by the government (i.e. taxpayer).

Don't vent hot air - name them!

=> AIG

In this mornings news......AIG gets approved for an additional 37.8$ Billion from the New York Federal Bank on top of the 80$ Billion the Feds gave to them.

goliathvt wrote:

Capitalism is one of the few systems that has been tried and it's a dismal failure if you bother to take a few things into account:

A very few people will end up with most of the wealth.

The system requires the majority of workers to exist on meager or slave wages.

ha ha. you got to be joking. people that end up with the wealth usually deserve it. sure there are always exceptions like winning a lottery, but people that take risks should be rewarded. people that own small businesses like myself. small businesses actaully employ the vast majority of workers, not large corporations.

slave wages? is that why the poor in the US have a car, cable tv in each room, dvd players and an xbox? give me a break. compare the poor in this country and the poor in Zimbabwe. No, better yet, go ask the poor in Zimbabwe if they would rather be poor in Zimbabwe or poor in America. What answer do you think you'd get?

Its called equal opportunity and it works. If you don't want to take risks and try to make a better life for yourself, then don't. But its there if you want to.

The poor in America are not poor. Thay are wealthy beyond their dreams. They have freedom, cheap food and basic services and equal opportunity. The problem is that Americans have become lazy and take for granted what they have. Too many people thinks its ok to take a handout from Uncle Sam instead of working for it.

Quote:

This plays out in things like health insurance companies looking for every possible way to never pay out a reasonable claim, even if the customer has been faithfully paying their premiums since they started the plan.

in a free market, you could choose a different insurance company- one that's not going to screw you over. its called competition.

Quote:

Or, take for example, the idea that companies going under manage to pay the severance packages of the very CEOs that drove the business into the ground while slashing pensions and retirement plans of the workers as the company tanks.

i agree. that is despicable and they should be held accountable.

Quote:

The U.S. adds to this destructive backwards system the Federal Reserve. This is a private corporation that prints the money we use. However, each dollar it prints is essentially borrowed by the government (i.e. payed for by the U.S. taxpayer) at interest.

i agree. the federal government should not reward poor performance of certain markets by bailing them out. i'm against this even if it will throw us into a recession.

Quote:

slave wages? is that why the poor in the US have a car, cable tv in each room, dvd players and an xbox? give me a break.

If you think that is what the real poor here in America have, your perception is extremely skewed.

pbmax wrote:

i agree. the federal government should not reward poor performance of certain markets by bailing them out. i'm against this even if it will throw us into a recession.

I still hold my point that the rescue plan will hopefully avoid a depression, a recession you can only avoid by time travel.

It's a lose-lose situation. Pick up the tab for some corporate douchebags and we're promised that things will stabilize. Do nothing and the economy will surely tank.

When faced with the prospect of a depression of course the bailout is the more appealing option. But if we prop up the existing system, what measures are being taken to prevent this from happening again in the future? It seems like all we're doing at this point is throwing money at the problem as usual.

I can almost guarantee you that if these bailouts eventually stabilize the economy, that will be the end of it. Life will go on and nobody in congress will give a damn anymore.

And if that's the way things pan out, we aren't solving anything. It amounts to sparing ourselves the costs of serious reform and passing the problem on to a future generation.

rich_is_bored wrote:

And if that's the way things pan out, we aren't solving anything. It amounts to sparing ourselves the costs of serious reform and passing the problem on to a future generation.

The crisis affects the market long term. Investors will now keep an eye on risk too - something totally unknown over the last years. Everybody is currently paying severely for the reform, but it's not happening in congress.

BNA! wrote:

rich_is_bored wrote:

And if that's the way things pan out, we aren't solving anything. It amounts to sparing ourselves the costs of serious reform and passing the problem on to a future generation.

The crisis affects the market long term. Investors will now keep an eye on risk too - something totally unknown over the last years. Everybody is currently paying severely for the reform, but it's not happening in congress.

they will keep an eye on risk but only for awhile. after several years in a bear market, risk aversion will once again take a back seat.

bailouts are the wrong thing to do in the long run. a bailout is just another short term solution. it addresses the problem today, but does nothing to fix the underlying problems that will creep up in another 10 years.

if this bailout included REAL REFORM, constructive oversite and regulations where they are needed and accountability for this current crisis, then i would be more for it. but congress is going to screw it up- we all know they will. they are quite inept especially anything relating to economics.

pbmax wrote:

BNA! wrote:

rich_is_bored wrote:

And if that's the way things pan out, we aren't solving anything. It amounts to sparing ourselves the costs of serious reform and passing the problem on to a future generation.

The crisis affects the market long term. Investors will now keep an eye on risk too - something totally unknown over the last years. Everybody is currently paying severely for the reform, but it's not happening in congress.

they will keep an eye on risk but only for awhile. after several years in a bear market, risk aversion will once again take a back seat.

bailouts are the wrong thing to do in the long run. a bailout is just another short term solution. it addresses the problem today, but does nothing to fix the underlying problems that will creep up in another 10 years.

if this bailout included REAL REFORM, constructive oversite and regulations where they are needed and accountability for this current crisis, then i would be more for it. but congress is going to screw it up- we all know they will. they are quite inept especially anything relating to economics.

The re-occurrence of bubbles along more or less fixed patterns is the will of the free market. I don't have an issue with that. It is the impact of the bubbles. Living in Germany I am no stranger ot recessions a plenty and none of them has killed me or prevented me from living a happy life in more or less modest means. A total meltdown on the other hand would pretty much affect everything very negatively.

A bursting bubble is always unpleasant, but it should't have the power to deafen us all.

I get the sense that as all politicians do, they're only thinking as far as this election. They don't really want to mess with the issue at this point since it would take too long, and would be too complicated to fit into a sound bite that sounds good at election time. The original plan gave Paulson unfettered control and it guaranteed him immunity from any fallout that may result from the plan - sort of the same golden guarantee Bush et al get with respect to Iraq. Not sure if this provision was axed with the new plan, but I doubt it.

No matter what the reason or circumstances, one thing is for sure - us commoners will end up paying and the fat cats walk away free and better off for it. Clearly people don't trust banks or the stock exchange since at the first sign of trouble everyone is clamouring to get their money out. And all the Chicken Little hyperbole isn't helping to calm the panic. It's the panic and rhetoric that has me worried, since it smacks of the same hysteria used to whip people into supporting the war. One day everything is rosey, the next we're on the brink of the most serious meltdown in the history of man and the universe. Whether it's the cold war, the Iraq war, the war on drugs, the war on terrorism, the war on the recession, etc ad nausea, always something to panic about and always something to justify taking the people's money and rights away.

BNA! wrote:

pbmax wrote:

BNA! wrote:

rich_is_bored wrote:

And if that's the way things pan out, we aren't solving anything. It amounts to sparing ourselves the costs of serious reform and passing the problem on to a future generation.

The crisis affects the market long term. Investors will now keep an eye on risk too - something totally unknown over the last years. Everybody is currently paying severely for the reform, but it's not happening in congress.

they will keep an eye on risk but only for awhile. after several years in a bear market, risk aversion will once again take a back seat.

bailouts are the wrong thing to do in the long run. a bailout is just another short term solution. it addresses the problem today, but does nothing to fix the underlying problems that will creep up in another 10 years.

if this bailout included REAL REFORM, constructive oversite and regulations where they are needed and accountability for this current crisis, then i would be more for it. but congress is going to screw it up- we all know they will. they are quite inept especially anything relating to economics.

The re-occurrence of bubbles along more or less fixed patterns is the will of the free market. I don't have an issue with that. It is the impact of the bubbles. Living in Germany I am no stranger ot recessions a plenty and none of them has killed me or prevented me from living a happy life in more or less modest means. A total meltdown on the other hand would pretty much affect everything very negatively.

A bursting bubble is always unpleasant, but it should't have the power to deafen us all.

I may be wrong in my understanding but what I gather from pbmax's statement regarding the bailout being a fix only for the short term is that it is a bandaid only. The big problem(s) that so many media have been targeting has been the ludicrous pseudo-quote "the people who took these loans should've known better than to get a loan they couldn't afford" however that's not the problem.

The problem was that the average person knows very little about finance. They certainly do not understand extremely complex financing such as very tricky and detailed loans like those creative financing loans that were what got so many people in trouble. The issue here is that when people do not understand something like this they seek an expert, the loan officer is that expert in the average person's eyes. When banks build an environment that encourages a loan officer (whether intentionally or not) to promote loans that are as volatile as those that are the large part of the foreclosure rate, it's not the person who signed to accept it but the people behind creating it and pushed it on people who did not fully understand it.

Congress has already said that they are not going to go after the companies and banks that were behind this because they fear it would cause even more pessimism in the market. That may be true but that means they will all get off scott-free and as soon as everything has been cleaned up, most of these "professionals" (in what I'm not sure, maybe scams so far as I see) will be right back at it screwing everything up again because the goal is making money while everything else be damned.

I'm not against making money, that is the goal of business. But what this amounts to, and has proven, is that when poorly controlled it will certainly result in shooting yourself in the foot. The way this mess will turn out with the bailout is that the bankers and CEO's of major financial institutions in reality have shot everyone else in the foot while they live it up in at a $440,000 party to celebrate failure.

I don't like the bailout but I don't not like it either. There has to be a better solution but everyone keeps talking like these are the only two ways to straighten things out and it feels too much like a knee-jerk reaction.