[scottwww]

Originally Posted by Voltigeur

-
Clueless execs - of which there have been a few no doubt (MER, BSC, FNM, FRE ...) - does not now obviate a need to act in crises.

I'm not wanting us to go in to a deep recession - my bottom line.

Clueless execs - maybe, maybe not.
Clueless legislators - definitely
Clueless Federal Reserve Chairman - definitely
Clueless President of the United States - definitely

It seems that the greed of business and the incompetence of government led to the enthusiastic participation of a willing public in unsustainable debt. Now the same clueless idiots in government and the same greedy businesses want the money of a discouraged public.

Just say NO!

[E90SLAM]

[aut0sh0cker]

Originally Posted by E90SLAM

Nice video!

[toofasttooslow]

I'm sure many of you are too young to remember the S&L crisis of the 80's but there are some striking similarities to what is happening now. If we bailout these financial institutions again they will only perpetrate their greed again in the coming years and we will again be faced with another bailout. Sure the government made some money off of the junk bonds in the 80's and will probably make some off of the current "toxic assets" but that just shows the banks that the American people are willing to brunt the cost of any risky investment vehicles they choose. If this passes you can consider yourselves suckers ...again.

Forget what the media is saying. It is all scare tactics to make you believe that the market needs a cash infusion from government. Think of this. The Federal Reserve has absolute monetary power and can literally print more money to increase liquidity. We saw it over the past couple of days. Why then do they need to have the government subsidize them?

There is nothing anyone can do until the housing market makes a rebound plain and simple. All this magic number padding will only serve to make our country indebted more to the very banks we are attempting to bail out. Who do you think we borrow our money from when we go to war in Iraq or when we try to bail out financial institutions? We do NOT collect enough taxes to cover all of our spending - and thus we have a deficit and that deficit is funded by none other than the Federal Reserve and the other world central banks to which we pay interest on those trillions of dollars .

[Doc]

Someone needs to call Todd :

[dth656]

on a semi-related note, one thing is damn sure: the IMF, US and world bank preaching to LATAM and african countries about economic liberalization had better stop STFP after this...

i wonder how latam economies are weathering this (from totally socialist venezuela, to free market w/ substantial regulation like chile, to whomever is laissez faire style)

[TurboFan]

Originally Posted by gum5h03

....There is nothing anyone can do until the housing market makes a rebound plain and simple. All this magic number padding will only serve to make our country indebted more to the very banks we are attempting to bail out. Who do you think we borrow our money from when we go to war in Iraq or when we try to bail out financial institutions? We do NOT collect enough taxes to cover all of our spending - and thus we have a deficit and that deficit is funded by none other than the Federal Reserve and the other world central banks to which we pay interest on those trillions of dollars .
...

ok, I agree we as a country, and individuals in general, are in debt up to our eyeballs. That is the core of the problem.

I also agree that housing makes a huge impact on the economy. I think a turn around in housing will impact the broader economy, and stop the slide.

However, there is a problem here, a vicious cycle that needs to be broken. The banks can only lend so much money, until they reach a percentage of their available deposits. Then they must stop lending, or sell the mortgages to someone else. This has worked great for years, until they started writing mortgages to people who couldn't possibly pay them back. Now we have a lack of buyers in the marketplace for ANY mortgages right now, regardless of the CDO debt profile.

If we don't address these mortgages, then we will soon reach a point where very few people will qualify for a mortgage. The debt ratios required will be impossible, the downpayments will be unobtainable, and the housing market will not recover.

There needs to be an infusion of liquidity, but it needs to come with some pretty serious regulations that can't be eliminated when everyone gets amnesia in 10 years.

[toofasttooslow]

Originally Posted by TurboFan

However, there is a problem here, a vicious cycle that needs to be broken. The banks can only lend so much money, until they reach a percentage of their available deposits. Then they must stop lending, or sell the mortgages to someone else. This has worked great for years, until they started writing mortgages to people who couldn't possibly pay them back. Now we have a lack of buyers in the marketplace for ANY mortgages right now, regardless of the CDO debt profile.

And this is really the crux as why fractional reserve banking does not work. Without something backing the currency there is no limit to the amount of inflation, devaluation and greed that can accompany monetary policy. The housing boom and bust is just one symptom of a much larger problem. If you look back over the past century we have had one boom/bust cycle after another. Every sector that could be made to boom/bust has done so. Manufacturing, industrial, agriculture, tech, commodoties, and housing. Unfortunately the Federal Reserve and its member banks continue to ignore the fundamentals and repeat their same mistakes over and over.

I hate to say it but yes, we are in for some shitty times. I think we need to overcome like we have done in the past and not let them bully us into spending more of our hard earned tax dollars (present and future) into bailing out the financial industry.

Originally Posted by TurboFan

Now we have a lack of buyers in the marketplace for ANY mortgages right now

We are influenced too much by our on-demand microwave lifestyles and are unwilling to wait for things. We need the economy back on track right now as if we were waiting on a T.V. dinner. This is something we are all going to have to adjust to. Not everyone can or should have a house, plain and simple. Not everyone can or should drive a BMW.

The overall economy is receeding. ISM just released some pretty disappointing (but not unexpected) numbers today. We are heading for hard times, so let's do what we've done in the past, but keep government out of it. The more they intrude the longer the pain will last.

[scottwww]

Originally Posted by gum5h03

I hate to say it but yes, we are in for some shitty times. I think we need to overcome like we have done in the past and not let them bully us into spending more of our hard earned tax dollars (present and future) into bailing out the financial industry.

Bullying? Does this kind of speech qualify?

"The government’s top economic experts warn that, without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold. More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically. And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs." - George W. Bush

[Voltigeur]

Guys, this has gone so far past helping the financial system out of this mess.

The ISM manufacturing data out today were more than a little weak, they were awful. The manufacturing data were the worst since October 2001 during the last recession; and the largest drop since January 1984. The prices paid - a key for a read on inflation / deflation, saw the largest drop in 60 years, implying deflation is a critical risk. These data suggest an economy that is contracting faster than expected.

$850B got wiped out of 401(k)'s on Monday. If we're not careful the market can be 50% below its high, that's what happened in 1973-74.

ISI, a top-rated non-partisan economics advisory came out today and are showing that their trucking and home surveys are in deep recession territory. They are calling for a recession: This will be a big blow to Main St. irrespective of how many banks fail, just that the blow falls heavier the worse the liquidity crisis gets.

And agreed, this pkg was poorly sold and the nexus from banking to Main St was poorly explained up-front. It also needed oversight - which is coming in the pkg the Senate votes on tonight.

The jump in overnight dollar Libor (a key lending rate) – the London interbank offered rate – shows the fear of lenders that, with banks being rescued by the week, they may never see the funds they lend again. Not a good fear to leave unaddressed.

We need to get past B/S politics and consider the health of the wider economy. Do you know how we got out of the Depression? It was when govt funds were injected into fixing banks and housing sectors in 1933.

Two IMF economists did a study (Laeven and Valencia),
http://www.imf.org/external/pubs/cat...cfm?sk=22345.0
They systemically examined all banking crises between 1970-07, detailing how much financial crises cost and how they are fixed. The study examined 42 crises / 37 countries

The evidence is clear. In most financial meltdowns a comprehensive solution was required, and the sooner it was provided the better. Delaying, like Japan did - first bank failed in '91 and they started real action in '98 - does not work: Ostrich's head in the sand approach is plain dumb.

Eventually most governments realize the need for a comprehensive solution to the crisis, involving public monies via:
- bank recapitalisation
- debt forgiveness
In 75% of the cases, governments added to bank capital by:
injecting funds for preferred stock / common stock / debt
- 2/3 of of the time, governments set up institutions to manage distressed assets (this is closer to the Treasury plan, personally I'd like taxpayers to get some equity too)

I'll leave you w/ the gist of what we face from a BCA Economics summary - and while we may all be pissed that money will be spent to get in front of this, consider 2 things:
- we have had to act before and used govt funds and actually got money back for taxpayers as the problem was addressed; this has happened several times including Chrysler in '79 and more closely, The Resolution Trust Corp (to deal w/ S&L crisis) from 1989-93 (as mentioned by a poster above, but also look at Sweden's case in 92 where the cost was halved and worked out faster through quick, concerted action)
- the costs of not doing so can be far worse than doing something today

Originally Posted by BCA Research

The U.S. manufacturing ISM survey plunged today, signaling that the feedback loop from the financial system to the economy is now biting.

Washington is still debating the TARP plan, with changes/additions being considered. The crunch in the banking system has been steadily working its way into the economy this year. However, the floor gave way in September, according to the ISM manufacturing survey (other global purchasing managers' surveys showed a similar sharp drop, underscoring that a global slump is underway). The survey was taken before Monday's fiasco in Washington.

Companies have found it increasingly difficult to get working capital, and orders are now being slashed, with pink slips to follow. Those authorities still arguing about a "bailout for rich bankers/brokers", or worrying about future inflation, are out of touch with the real economy.

The immediate threat is a deep recession and accelerating debt deflation.

Bottom line: A major fork in the road has been reached: either the authorities quickly act to unfreeze the banking system (along the lines of the Ireland's 100% guarantee of bank deposits), or else the economy will slide into a black hole.

I'm not registered w/ either party. Nor am I affiliated w/ any independent party. I'm just an economics geek. There's times when politics gets in the way of doing what is needed.

[scottwww]

What if you don't get the bailout you want?

Here is a picture a coworker sent to me showing picketers down on Wallstreet:

[scottwww]

Originally Posted by Voltigeur

Guys, this has gone so far past helping the financial system out of this mess.

What do you think of this?

Greenspan: Why do we need a Central Bank?

[Artz 330]

I got an idea. Keep prices on everything the same and tripple everyones salaray so we can go out spend money on cars, homes, entertainment, food and so on. 70% of american economy is based on people spending... Problem solved!

[toofasttooslow]

Originally Posted by Voltigeur

[B]
$850B got wiped out of 401(k)'s on Monday. If we're not careful the market can be 50% below its high, that's what happened in 1973-74.

How much money would you have made if you had a 401k in 73/74 and were long until today? You have to look at it this way and not be trapped into the daytrader mentality that the media is portraying. This is a cycle. Upturns and downturns. Nothing goes up forever, there has to be market induced corrections which is what is happening today. Spending a trillion dollars more bailing out investment banks will not only not solve anything other than very short term but it will add to our already too high debt burden and further deflate our already vulnerable currency. Do you really want OPEC to go to the EURO standard? If we increase our national debt by this much there is a real potential for that to happen. Then we're all really up shit creek!

It's not a matter of if we go into a recession but when. It's inevitiable and has been for a long time. Throwing money onto the problem will not fix anything.

[toofasttooslow]

Here is a school of thought as to why we should let the market correct itself. It is regarding the recent Japanese recession.

Garrison has said, "the Austrian theory of the business cycles is a theory of the unsustainable boom. It is not a theory of depression per se." He then states, "The story of depression and recovery, which may involve reflation, devaluation, debt restructuring, and/or capital controls, is unique to each individual episode of each economy" (Garrison 2001, p. 120).

In Austrian theory, the recession is necessary, and once it sets in and bad investments are liquidated, the economy will self-correct. After 10 years, there are still no signs of economic correction. Austrian theory recognizes that time is required for economic self-correction but that the correction can only occur if the market process is allowed to work. Rothbard (2000) summarized the Austrian policy position this way:

If government wishes to alleviate, rather than aggravate, a depression, its only course is laissez-faire-to leave the economy alone. Only if there is no interference, direct or threatened, with prices, wage rates, and business liquidation will the necessary adjustment proceed with smooth dispatch. Any propping up of shaky positions postpones liquidation and aggravates unsound conditions. (p. 185)

As described above, Japan's government has done everything but leave the economy alone and allow self-correction.

The many Keynesian fiscal stimulus packages have shifted the structure of production to satisfy government demand instead of allowing the market to adjust to consumer demand. In particular, much "pump priming" expenditure has been public works spending that benefits the construction industry-a large, politically powerful segment of the Japanese economy, accounting for 7.6 percent of GDP and 9.7 percent of the labor force. The ruling Liberal Democratic Party, which has been the dominant political party in Japan since 1955, has seen construction companies as natural allies and has cultivated their support over the years through generous public works programs (EIU 2001).

The collapse in real estate prices and the economic slowdown that has put many borrowers out of business have left Japanese banks with a huge overhang of problem loans backed by collateral worth sometimes 60-80 percent less than when the loans were taken out (EIU 2001). Japan's financial institutions are estimated by the Financial Services Agency to have 31.8 trillion yen in problem loans, and even this estimate is widely believed to underestimate the extent of the problem (EIU 2001). In addition to these problems, banks that invested in the real estate boom have seen values fall 80 percent from 1991 to 1998 (Herbener 1999). Banks invested in the stock market have seen the Nikkei average drop from 40,000 yen in 1989 to under 12,000 yen by March 2001. Because of the increase in bad loans with poor collateral and the fall in other asset values, increased funds injected from the BOJ or additional deposits from savers have been used to hold as cash reserves against bad loans, instead of being used to extend loans to worthy borrowers.

The government's answers to the problems in the banking industry are bailout funds and nationalization. In late 1998, a $514 billion bailout fund was set up, with $214 billion designated to buy stock in troubled banks, and $154 billion to nationalize, restructure, and liquidate failed banks (Herbener 1999). Nationalization and bailout funds only serve to prop up unsound financial institutions, delaying the needed restructuring, which would allow them to serve their function as financial intermediaries again. The market deals with unsound banks by allowing bank failures, mergers, acquisitions, and restructuring.

After market-based corrections, banks would serve in their roll as financial intermediaries again. Some market corrections have taken place. Most bank mergers, however, have occurred among smaller, regional banks that have not had access to bailout funds (Herbener 1999). One large merger was announced that would combine Dai-Ichi Kangyo Bank Ltd., the Industrial Bank of Japan Ltd., and Fuji Bank Ltd., into one company with $1.2 trillion in assets (Herbener 1999). Until the government stops intervening with bailout funds and nationalization, the process of larger bank failures and mergers will be delayed, extending the time that the banks are unable to function as efficient financial intermediaries.

The Japanese government has gone to great lengths to prevent the liquidation of the boom's malinvestments. Japan set up a 20-trillion-yen credit guarantee fund to ease credit availability for companies. The Economist Intelligence Unit profile indicates "funds disbursed under the programme are often going to companies that are not creditworthy and that would otherwise go bankrupt" (EIU 2001).

According to Austrian theory, these are precisely the companies that must go bankrupt if the economy is going to recover. When a company goes bankrupt, real resources are not lost; capital and labor are reallocated to other companies in line with consumer preferences. The government controls and allocates more and more loans through the Fiscal Investment and Loan Program (FILP) (EIU 2001). FILP gets its funding from the postal savings system, which had 254.9 trillion yen in funds at year-end 2000-accounting for around 35 percent of total household deposits (EIU 2001). Government lending is usually made to political allies of the Liberal Democratic Party, such as the construction industry, resulting in wasteful, loss-producing projects that do not reflect consumer preferences. In one instance, a $5.3 billion loan was channeled into building a high-tech bridge-tunnel spanning Tokyo Bay-a project that will, by the government's own estimates, suffer losses until the year 2038 (Herbener 1999). This type of lending does not reflect consumer preferences.

[scottwww]

.

[scottwww]

The Senate vote is at 63 yes to 19 no now. Looks like a done deal to send to the House tomorrow.

[Ph0zenstone]

senate passed it! can't wait to see my stocks soar tomorrow

[scottwww]

Originally Posted by phozenstone

senate passed it! can't wait to see my stocks soar tomorrow

That might happen. But sometimes it is buy the rumor, sell the news.

[toofasttooslow]

I really really really hope it does not pass The House and the markets can come to equilibrium in their natural way. Otherwise we are in for a terrible time of things I'm afraid. It will appear to get better for some time, perhaps a year even, but in reality we will be worse off than we are today. You can quote me on that.

It seems that the mass hysteria and mass media marketing of a defunct proposal is working on the sheeple of America. The fleecing of America indeed.

[scottwww]

Market risk gets knocked out of wack with bailouts. Failure must be an option, or rate of return will need to be reduced. Maybe this will lower the payout for just about every type of investment.

[toofasttooslow]

Originally Posted by scottwww

Market risk gets knocked out of wack with bailouts. Failure must be an option, or rate of return will need to be reduced. Maybe this will lower the payout for just about every type of investment.

Not to mention that this is really a global crisis. It would take trillions upon trillions of dollars to affect this rollercoaster to recession, and if that happens you might as well burn your money for heat because you won't be able to buy anything with it.

Our housing boom isn't the only one imploding. Just about all of Europe had the same boom and are now busting. Asia is affected too (has been for some time actually).

Injecting this money will only prop up the economy for so long and then boom right back down, this time 700 billion dollars poorer.

I honestly can't think of one good reason we should spend this funny money.