"The money markets have completely broken down, with no trading taking place at all. There is no market any more."
Why don't they just come right out and say what they mean? "The sky is falling! The sky is falling! Give us a trillion dollars, NOW, or we're all doomed! DOOMED, I tell you!"
We needed someone with credibility to explain how fixing Katrina before the fact would have cost far less than after when something bad really happened. Announcing ways of ensuring cap on financial compensation would have also made the package go down better, although it might have endangered participation.
\tWASHINGTON (AP) Presidential candidates John McCain and Barack Obama urged Congress Tuesday to redouble efforts to save a financial system bailout and both said that a key part of the legislation should be increasing federal deposit insurance from $100,000 to $250,000.
\tSpeaking from the campaign trail on the 228-205 House vote that killed the $700 billion measure, triggering the biggest one-day sell-off on Wall Street since the 2001 attacks, both McCain and Obama called on lawmakers in their parties to stay at work until an acceptable plan is assembled.
\tThe first thing I would do is say, Lets not call it a bailout. Lets call it a rescue, McCain said in a CNN interview. The Arizona Republican said that Americans are frightened right now and it is the job of political leaders to give them both an immediate solution and a longer-term approach to the problem.
\tTop congressional and White House officials were stunned when the House rejected the massive rescue plan, and a host of lawmakers said Tuesday that they felt the Congress should persevere in its attempt to find consensus on a proposal that can be passed.
\tObama issued a statement Tuesday saying lawmakers should not start from scratch as they weigh their next move.
\tThe Illinois senator said that significantly increasing federal deposit insurance would help small businesses and make the U.S. banking system more secure as well as restore public confidence in the nations financial system.
\tObama also said further inaction would be catastrophic for the economy and for American families.
\tThe Dow Jones industrial plunged by 778 points Monday.
I don't get it. Hasn't the Fed been pumping huge amounts of liquidity into the system in the past year? Do you mean to say that it's not working? Isn't the Bailout Bill just pumping even more liquidity into the system?
here we go again.
First, the drop when the bailout was a certainty was already 300 points. Second, we're all screwed if we regard volatility in the market as representing real earned in-the-bank money. It is the part of the tide that washes up and down, not the sea bed..
I truly think there's a huge disconnect between the american people and the "experts". The american people are very happy the bill was defeated and every "expert" thinks it was horrible.
It is a great risk in my opinion, and I think people tend to underestimate risk -- why did so few people have earthquake coverage before the Northridge earthquake 1994 and it spiked after the fact, for example.
Mr. 19% is going on TV for two minutes to repeat what he's said the last week--but this time louder and more peevishly--and he expects that will put "popular pressure" on recalcitrant Congressfolk?
I truly think there's a huge disconnect between the american people and the "experts". The american people are very happy the bill was defeated and every "expert" thinks it was horrible.
That's cuz most peeps are payin their mortgage and wishing those that got bounced would STFU about bad loans, etc. Nobody's told Joe Average how this banking crisis will hurt him.
I truly think there's a huge disconnect between the american people and the "experts".
part of that is the increasing preparedness to see the hyper rich get torn down even at ones own expense. Very healthy attitude it is as well imo. Thats the disconnect: the expert thinks the problem is how to reflate the economy, many voters actually would rather see their own future more murky if that means they don't have to read about bankers getting $100 million pay packages anymore.
Not every expert thinks the rejection was horrible.
I think there is consensus that something must be done to re-capitalize the banking system. But there is debate about the precise form. The Paulson Plan had few proponents.
many voters actually would rather see their own future more murky if that means they don't have to read about bankers getting $100 million pay packages anymore.
The stop sign is when it comes out of MY pocket. No thank you.
Outsider writes:
One of those follow-the-money things.
Maybe, but I really think what is going on financially is complicated to understand and no one is explaining it clearly and simply (so a 3rd grader would understand) to the public.
If the market rallies today people are gonna be even more pissed if they end up passing this bill in the Senate.
BobSmith I think there is a huge disconnect between the amount of butter my dog thinks is good for her and the amount that her "veterinarian" would recommend.
We're all dancing around the huge issue that there is no longer any leadership of any kind in the U.S. Yesterday (and by extension this morning with Bush speaking at 8:45 a.m.!), America jumped the shark, at least in its capacity as THE superpower. The jig is up, the cat is totally out of the bag, there is no more pretending.
Now the American people must look more locally for good leadership. It will not be found on Wall Street or in Washington. Federal leadership has become a hollow shell.
Maybe, but I really think what is going on financially is complicated to understand and no one is explaining it clearly and simply (so a 3rd grader would understand) to the public.
Well, no, I think John Q Public understands the basic premise pretty well: bail out Wall Street from the pockets of Main Street. And they don't want that.
That's not to say they don't want ANY plan. Just one that is not so one-sided. Let Wall Street pony up FIRST.
BobSmith writes:
Outsider writes:
One of those follow-the-money things.
"Maybe, but I really think what is going on financially is complicated to understand and no one is explaining it clearly and simply (so a 3rd grader would understand) to the public."
Or Maybe EVERYONE has FINALLY figured out that you CANNOT trust these lying bastards
The best thing that could happen would be a relatively flat day.
The best thing that could happen is one of the captains of industry, so frequently given the spotlight on TV over the last five years, came out and said "my firm can survive a no-bailout scenario and we'd be glad to see the end of profligate lending".
Maybe Bush should take the deed to his big "getaway" spread in Paraguay down to PayDay Loans for a little quick cash to sweeten the pot. Just think of all the spare Lexi and vacation condos out there that could be used to help ease the pain felt by the lending community.
if this event triggers a resetting of 'fundamentals' (whatever the feck they are) over the next few years, this could be the best chance of unifying the environment and the economy, thereby creating economentalism. TA DA!!
Maybe Bush should take the deed to his big "getaway" spread in Paraguay down to PayDay Loans for a little quick cash to sweeten the pot. Just think of all the spare Lexi and vacation condos out there that could be used to help ease the pain felt by the lending community.
Absolutely. I mean, have ANY of our so-called leaders told us how THEY would sacrice to get through this "emergency"? You first, shysters.
anyone else think that ireland may have struck on an easy and fast template? simply guarantee everything: deposits, bonds, stocks, in financials..
If I understand the deal properly...
The Irish government gets nothing for guaranteeing $450B in debt -- nothing!
They don't have that kind of capital -- Irish economy is estimated at $150B in the article I saw.
It's basically an upfront acknowledgment that they will print and devalue if things come to that pass. The only thing that surprises me is that the Irish aren't bombing Parliament right now.
The Arm-Chair economics being thrown around here kill me. Unless you can present real framework for your analysis save it.
If one uses the Consumption-Savings Model to analyze the effects of tighter credit the effects are unambigious. Tighter credit will lead to lower consumption and lower GDP.
Sure a few on Wall St may bennefit but not to the degree that anyone thinks! Real companies that have never traded a CDO or CDS are suffering here.
I get why we needs banks solvent, open, and offering lines of credit to businesses for legitimate operating purposes (but no longer offering insane mortgage loans).
But here is what i don't quite understand yet. If banks get a lifeline from the bailout so they can keep operating, are they are going to resume making the types of loans to keep the engines of growth running or are they going to hoard the capital and not lend enough to make a difference.
CNBC is panicking because the market futures are up....they are doing everything they can to discount that fact in order to keep bailout 2.0 on track. Pathetic.
I'm not sure who or what to believe anymore. While I find it admirable that people so strongly voice their opposition to this bill now, I can't help but ask myself where was the outcry as this position built-up up over the last six years? As always, we now find that when things get tough the Amercians are quite happy to just walk away, after all these "tax payers" benefitted one way or another. Jingle keys and the infamous, "its our dollar but your problem really sums up that sorry state. Why would anyone put any faith in US cronyism er I mean capitalism ever again. Certainly not me.
On C-SPAN radio this morning a reporter from a well-known newspaper was asked why Congress didn't include extension of unemployment benefits in the bill. He replied that it would have antagonized GOP legislators, because they oppose big government spending.
I didn't know that C-SPAN was starting to do comedy in the morning.
The wall street conmen/salesmen have been on cnbc and bloomberg bemoaning their marketing screwup. It's not a 'bailout', it's the "only possible plan to keep your children fed plan".
I totally agree on reasonable mortgage loans and rates. Risk needs to be repriced and that by itself is going to cause dislocation in markets.
As to 'garbage in garbage out.' The Consumption-Savings Model creates the foundation of Modern Macroeconomic theory. The numbers don't matter, the populous will be much less happy and less rich if the crunch continues. That is no comment on the proposal just the need for a fix.
Bailout Wall Street?, what's next Las Vegas casinos, racetracks, gambling boats, dog races, rooster fights, shell games, and my next door neighbor's weekly poker game? Wall Street played high risk conmen games demanding all safety nets removed. Now they're begging for more liquidity at the taxpayers trough to keep the congame going. No regulations just more of the same.
can anybody explain me why paulson and friends not come with bailout plan like sweden and now done in europe with fortis. ergo take a equity stake in the company. Future inflation will guarantee that they will earn back their investments. or if losses are to big first also wipe out bond holders. why ? equity and bonds are the first in line to take the beating. i simply not ustand this. or is this seen as a credit event in which case the swaps are trickert and liabilities become to big. pls i need to ustand this.
Steve Pearlstein's take
tg | 09.30.08 - 9:11 am | #
And here's what I actually wrote the guy last night.
"There are multiple general responses on the part of the American Public. Some with whom I've talked are simply aghast that the Financial Elites have managed to gutshoot themselves and are now coming to the public trough. This is coming from citizens who are losing hours due to falling demand and are looking at how they're going to pay for the kids' college. Face it, the AIG management showed people what they perceive as the Wall Street colors - money without consequence, please.
Some are appalled that there is no apparent plan being put forward in the original Paulson proposal apart from "gimme some money and let me take a shot at it; but don't bother me while I do it." Once that one came through, then the opposition to that plan morphed easily to opposition to any plan.
Some are frustrated that they keep hearing about the free market system - we can "suggest" free market solutions to other nations - yet the market isn't allowed to correct without all kinds of talk of further rate cuts. I frankly view the stock market as being utterly divorced from reality, akin to a crackwhore looking for a cheap money fix. God knows, the financial planners keep talking about Dollar Cost Averaging and the advantages through poorer markets, yet the intent to keep the market up negates the apparent advantage of DCA.
Finally, the folks I know are done with just throwing money at the issues. Main Street isn't stupid and we understand that what's going on now could be the tipping point in terms of the ultimate stability of the dollar.
We'd rather take whatever hit is coming - and folks know at a gut level that it is - and deal with it now instead of destroying any future for our children and grandchildren.
And why $700B (at one time)? No clear answers and the closest that I can figure is an elegant irony in that that amount is about what goes to foreign energy suppliers.
So kindly spare the condescension. At it's heart, this is populism, not stupidity."
Most of the commentary I heard today was about how to arm-twist those 12 additional votes, get this thing passed, and then .... nothing. Apparently it's back to business as usual.
That is the goal, business as usual. Even though the same people mouth the words "earthquake" "end of Wall Street" "new playing field. Those words mean nothing. The goal is business as usual.
No effort find out deeper reasons for Joe 6pack's anger; no self-doubt about what they themselves have been doing wrong (if the subject is raised at all, it's as a quick skip, "We miscalculated. The End."
Every effort is being made to find a way around Joe 6pack's anger. No effort is being made to make concessions to him. The goal is not his well-being, but to Save the System.
Until I see that effort by the Financial System - concessions to Joe 6pack - then I hope this bill fails. And I'm going to try to withdraw some from this farce of an economy. I too need to find a different way.
BR writes:
Touting the retirement account loss is not a great strategy in my opinion.
Indeed. In fact he may just frighten poeple into actually opeing up their 401k statement instead of stuffing it into a drawer and selling whatever is left in a few weeks time.
godhatesfangs,
These are the same people who sold millions of annuities with 5% front end loads to the elderly. You'd think they would be better at marketing.
HC: spoken like the biggest armchair economist of all. well done.
Now please elucidate in your precious model HOW the $700b will open up the credit markets. Specifically, what in the bill will encourage these distressed banks to lend again? Clearly it will help to recapitalize them, but it is also clear given the notional size of the CDS market that $700b will be nowhere near enough.
why not, for instance, open up a governmental bank with that $700b? Or use the $700b to pay off every delinquent mortgage? why does it have to be a black-box purchasing of assets by the Treasury?
many of us oppose the current bill because we see it as treating symptoms (poorly) and not fixing the problem.
If one uses the Consumption-Savings Model to analyze the effects of tighter credit the effects are unambigious. Tighter credit will lead to lower consumption and lower GDP.
Well, why aren't you pushing for the Fed to loosen credit then? Why are you trying to borrow vast amounts of money to give away? That's a recipe to tighten, not loosen, credit.
Why is there the assumption that in all this mess, there can be no winners if nothing is done?
Not everyone in America is underwater on a house. Not everyone in America charged their brains out. Not everyone in America runs a business that depends on people charging their brains out.
I mean, I feel like a winner. I have no debt, I own my house free and clear, and I have a good but unsexy job in a stable industry likely to survive an economic downturn. All of that, I paid for in one way or another. Why the hell should I now pay for others' stupidity?
If I pay for others' stupidity, I want to be in charge. I want you fuckers to kiss my royal ring. Is that too much to ask?
Read Roubini on the Swedish crisis in the early 90's. One key component of that plan was that the institutions holding bad assets had to write them down IMMEDIATELY. Contrast this to Japan, which foot-dragged the process with predictable results.
CR, I wish you'd address the discrepancy between banks calling the CP market dead and the Bloomberg report yesterday about industrials having a field day getting plentiful, easy, low-interest loans because nobody wants to lend to financials right now. Seems a lot of the argument for the bailout hinges on Joe's Printing Co. not being able to borrow for that new machine. That's not what Bloomberg said.
The OMG LIBOR mentioned in the article is misleading because it's the sterling LIBOR. The dollar LIBOR isn't much changed. England is having the monster end-of-quarter tightening, not us.
I think they know what's going to happen plan or no plan--"this suckers going down so give us a trillion so we can tough out the hardtimes" America be damned.
Bailout bill defeat could cause painful recession
Tuesday September 30, 12:03 am ET
By Jeannine Aversa, AP Economics Writer
Deep recession, more job losses could come from defeat of $700 billion bailout package
WASHINGTON (AP) -- The fallout from the vote against a bailout package for the U.S. financial system may well be lasting pain for the economy.
The House's stunning defeat of a $700 billion package urgently championed by President Bush, sent shock waves through Capitol Hill, the trading floors on Wall Street and the Oval Office on Monday.
"An economic 9/11," warned Terry Connelly, dean of Golden Gate University's Ageno School of Business, of the potential fallout. As the package went down, panicked investors caused the Dow Jones industrials to nosedive nearly 780 points in their largest one-day point drop ever. Markets across Asia fell sharply Tuesday in the wake of the Wall Street downdraft.
Hey, I bought a lottery ticket. Illinois state lottery "promises" I may be a jackpot winner. So, I went to Wall Street and invested my promised winnings via loans using my lottery ticket as collateral? If I lose, will Paulson beg Congress to bail me out?
Yeah Doug Watts it's very interesting watching the dying twitches of the infected pundits and media. They can scream their bloody heads off... because the turtles know the rabbits are screwed and they're just going to keep racing their turtle race. Guess what? They'll win.
I guess most people here understand that the reduction of debt also requires a reduction in consumption.
That is not the point. The point is that the US and the world is at disequilibrium and they have to adjust.
Savings has to rise in US and consumption has to rise in China. Consequently consumption must fall in US and savings have to fall in China.
That s the inevitable. Bailout plan will only delay it not prevent it.
CNBC is panicking because the market futures are up....they are doing everything they can to discount that fact in order to keep bailout 2.0 on track. Pathetic.
They promised Armegeddon, and all we got was this one-time drop. Perhaps they will try and induce panic.
I mean, I feel like a winner. I have no debt, I own my house free and clear, and I have a good but unsexy job in a stable industry likely to survive an economic downturn.
And what if you lose your job and the economy is in such a shambles that there are none other to find?
People need to start looking beyond their own limited sphere and consider the implications of this crisis for the global economy.
All this talk of "hey, I'm not responsible for this mess" so let Rome burn is just nauseating in its selfish narrowmindedness.
Not everything can be "fixed". But this is a realization that our rulers are less aware of. They have spent their whole sheltered existences in a world where the fix is always in, and it is far too late for them to let the concerns of the reality based world intrude now.
More AP scare tactics (seriously, this stuff wreaks):
"In the meantime, the economic wreckage that the administration and Congress have warned about -- rising unemployment, shrinking nest eggs and prolonged recession -- might not happen immediately, but that doesn't mean it won't happen at all.
"This is like the advice you get from the doctor who says you should quit smoking," said Robert Brusca, chief economist at Fact and Opinion Economics in New York. "You know he's right. But if you don't, you're not going to die tomorrow and you're not going to die next week. But at some time, it's probably going to get you."
For now, Treasury was expected to work with other government agencies, including the Federal Reserve and the Federal Deposit Insurance Corp., to deal with problems on a case-by-case basis.
"Our tool kit is substantial but insufficient" without a bailout, Paulson warned.
"On average, House members who voted for the Emergency Economic Stabilization Act have received 51 percent more money from the finance sector since 1989 than those who opposed it."
"can anybody explain me why Paulson and friends not come with bailout plan like sweden and now done in europe with fortis."
Sure, lots of people can explain that. It is Paulson's ego and his connection to Goldman Sachs. He wants the power and wants it unobstructed by law. It says that right in his original 3-page proposal. Read it.
Feel free to google the C-S Model, you may just learn something. It makes no assertion to what the solution is just what the effects will be.
And by the way; ArmChair Economics is the attempt to analyze any of these things not using the appropriate frame-work. Traders and Wall St. does that and led us to this problem. Applying the best known framework to help solve the problem will help shorten the correction. Bantering about confidence and other factors wont get us anywhere. It is like attempting to grade a term paper haven never taken freshman composition.
Don't get stuck on stupid today...MSM is working for both parties building their coffers at a Bitch in heat pitch.
Pelosi called her newest Rep's yesterday and told them to vote no or they would get beat come election day.
This is all about politics, money and power.
Most of the US is in flyover country, which have no jobs, because of these pond skimmers, let the pond scum fall to the bottom and stay there until they can figure it out like the average taxpayer has to.
All this talk of "hey, I'm not responsible for this mess" so let Rome burn is just nauseating in its selfish narrowmindedness.
Really, cause here I was thinking how all these attempts to pass the proposed solution off as workable and anyone who opposes it as a mulish nihilist are disingenious at best.
"The bailout plan was intended to revive jittery and fragile banks on Wall Street and Main Street by buying billions upon billions of their worst mortgage-related assets so that lending, the oxygen of the American economy, would flow freely again.
"People are going to go home and look at their 401(k)'s and not be very happy, and these are not just people from New York, but Iowa and everywhere else. This bill is meant for everyone -- not just Wall Street but Main Street," said longtime New York Stock Exchange floor trader Theodore Weisberg.
Associated Press Writers Joe Bel Bruno, Martin Crutsinger, Adam Geller, Jim Kuhnhenn and Christopher S. Rugaber contributed to this report.
Yum. Yum.
Why not some chicken blood and scary Halloween masks ?
I spoke to Mel Watt in NC about the bailout and expressed my conviction that it should not be passed. He repeated at least five times that Hank and Ben said something must be done or it would lead to a depression. Mel stated "I don't want that on my hands". Now if Congress is so easy to blackmail, what the hell is up with the general public? I mean are they too stupid to realize this a REAL emergency???? My kid needs to go to an Ivey League school and I can't do that without a bailout, I mean WTF!!!!!
HC, you should read some Roubini and Setser to understand the worldwide C-S model aka Bretton Woods II. What you are seeing now is the unwinding of this unsustainable system. Also you should google for a historical savings ratio and compare it to the most recent figures.
You'll be surprised to find that any reasonable C-S model predicts: consumption in US must fall.
i read the paper. but there must be a reason other than power grab. maybe i am naive but i not believe it. i have one other theory and that is that the rest of the world dont want this way because it would make the usd going skyrocket in times they all need the usd to pay of debts. the usd is scare compared to other currencies this because the usd is the reserve currency. the economy world wide is still growing and i dont think the saudies are going to accept yuans for their oil.
Most of the commentary I heard today was about how to arm-twist those 12 additional votes, get this thing passed, and then .... nothing. Apparently it's back to business as usual.
About 25 of the Yea votes were Democratic Nay votes that had been armtwisted by the Dem leadership. When you add the need to keep them in line it's just too tough to get the bill through, so the leadership is letting things ride and hoping for a disaster that will let them cram it through.
Really, cause here I was thinking how all these attempts to pass the proposed solution off as workable and anyone who opposes it as a mulish nihilist are disingenious at best.
Who said it was workable? I want my congress to formulate a better plan, along the lines of workouts used in similar crises.
To repeat, a key to that plan would be a requirement that banks recognize their losses.
What I find objectionable is the notion that this is only the problem of those involved in its creation. It isn't.
I agree it must fall but we need to find a way to help it unwind so we can become more planful along the way. I fear the adjustment shock might forever damage the economy, dollar and our credit rating.
In our local rag, the Lakeland Ledger a powerful local investment banker is headlined today as quitting the republican party for their vote yesterday. Empty threats based on his fear of losing his scam-based lifestyle.
There has been an estrangement of affections, so to speak. And the truth is going to come out more and more.
Die, dinosaurs, die. We are not of the same blood, after all.
Mandate of Heaven being withdrawn. Katrina was the first major blow. Perceived legitimacy is nearing the tipping point of collapse of faith. Lobbyists for the status quo will be surprised one morning soon when they wake up and nobody believes in the pleasant fictions they abused into total implasubility.
Fair Economist - I applaud you for being about the only one here "on topic", but you are wrong. The 6.88 is the overnight USD LIBOR rate. Sterling Libor was at 6.78%.
Also - on your comment from yesterday: Yes insolvent banks might want to hoard cash; but the "bailout" package is an effort to keep them solvent in the first place.
"The normal legislative process that should accompany a monumental proposal to bail out Wall Street has been shelved. Yes, shelved! Only a few insiders are doing the dealing. These criminals have so much power they can shut down the normal legislative process of the highest lawmaking body in this land. All the committees that should be scanning every word that is being negotiated have been benched. And that means the American people have been benched. We are constitutionally sworn to protect this country against all enemies foreign and domestic, and yes, my friends, there are enemies....The people who are pushing this bill are the very same ones who are responsible for the implosion on Wall Street. They were fraudulent then; and they are fraudulent now. We should say No to this deal."
"forever damage the economy, dollar and our credit rating"
oh well, look at Germany in 1945. bombed to the stone age, 15% of population dead. victorious armies tearing the country into 4 and huge moral burden for all the shit they have done the previous 8 years.
well, they could have thought they were done for ever, couldnt they
Many traders and wall street used tons of models. but they used lots of poor inputs so the outputs were unreliable.
Sebastian (a longtime favorite around here) was rather fond of the Wright B model.
Regardless, economics (despite what it wants to believe) is not a science. It is too heavily dependent on mass psychology. this is why economics typically only can forecast the past. it is horrendous at projecting the future, regardless of model used. the biggest flaw with all the theories is that they rely on "rational" human beings. But humans aren't rational.
The problem now is that we have real economic fundamental problems, but also panic and anger. economic models will not mollify panicked angry people.
thus, part of the solution needs to be to come up with a rational economic plan. and part is to try to restore faith in the system of Fiat currency and Fractional reserve lending and esoteric untested financial products.
dryfly writes:
FYI - I was able to get through to the desk jockey's at both of my senators this morning. They actually had time to chat... I told them this bill was bad politics and worse policy and that they would be heroes to oppose it by any means possible. More importantly I told them there are other options, better options but we won't get them unless we kill this beast first.
I was polite, prepared to talk issues with them (not hysterical) and they each gave me about 2-3 minutes. I was astonished they gave me that much time. Asked what town in state I came from & my ZIP - they already had my phone number (caller ID).
Also - on your comment from yesterday: Yes insolvent banks might want to hoard cash; but the "bailout" package is an effort to keep them solvent in the first place.
You can't keep them solvent with $700BB. Ask Japan, which had a smaller bubble and a much larger capacity to borrow. It's just pouring money down a rathole.
But here is what i don't quite understand yet. If banks get a lifeline from the bailout so they can keep operating, are they are going to resume making the types of loans to keep the engines of growth running or are they going to hoard the capital and not lend enough to make a difference.
1) banks are supposed to keep a designated tier-1 capital ratio, as mandated by the FDIC.
2) some banks may have exposure to the "conservatorship" of FRE and FNM (i.e. the banks may have been investing in FNM/FRE preferred shares). The 9/30 CALL reports may reveal this.
3) banks want to look at strong as possible on the CALL report (which should represent close of business today).
the result of #1 plus #2 may be putting stress on bank lending practices.
Once the reporting period has closed, it will be interesting if banks loosen up a bit starting tomorrow.
Nice work, it will be interesting to see. Are you aware if WFC released any numbers relating to their own activity. They seem to be trying to be the market leader in transparancy.
"People are going to go home and look at their 401(k)'s and not be very happy, and these are not just people from New York, but Iowa and everywhere else."
I love this one!
"Your 401k will be just fine if we take your money to save your 401k". Priceless.
CR: I may have missed this a few thousand posts/threads ago, but if you were Secretary of the Treasury, what would your recommendations be for the bailout bill? If you post one, I'll be sure to call my Reps with your suggestion. (and thanks for all of the late hours of work.)
HC:
I don't mind using economic models. far from it. In fact, I'm perfectly happy using your model.
just so long as you realize that your model has significant flaws, and is heavily influenced by mass psychology.
it's fine to use a tool so long as you recognize its limitations. Greenspan, Bernanke, most of Wall Street all failed (and continue to fail) to understand the severe limitations of their models.
I am not against any bailout. I am against this bailout.
chicago pmi 56.7
abx aaa 07-01 low tick 41.54 july, yesterday close 51.71 down from an intra-week high of 55.
perhaps the real economic collapse is not occurring as advertised.
Dave writes:
CR: I may have missed this a few thousand posts/threads ago, but if you were Secretary of the Treasury, what would your recommendations be for the bailout bill?
Dave he posted it a few threads down (maybe as many as 15 threads down now?)... similar to depression era RFC where the gov't gets a sizable chunk of preferred stock in exchange for helping & dilutes existing owners - or even takes over directly. Then sells back into market later. RFC did make money even in the depression.
The reason Paulson et al is so opposed to this is the banks won't voluntarily come in from the cold until near death's door. Okay - I can live w/ that - who said bailing out had to be fun?
There is going to need to be some recapitalization & gov't will be who is doing it - eventually - but it doesn't have to be 'stupid' and reward reckless behavior (Paulson Plan). Ruin the idiots who got us into this first and ONLY THEN and IF NECESSARY go forward w/ a SYSTEM recapitalization.
There is an obstacle that prevents a proper plan from succeeding until after January 2009: The Bush Administration.
Even if Congress could pass the legislation for a Swedish nationalization (let alone a 10 step Roubini plan) - which it can't - Bush would veto.
And if the veto were overridden, which it couldn't be in the Senate, Bush/Paulson would not enforce the legislation.
No emergency plan of this magnitude ever starts in Congress for just this reason, even when the same party controls both branches of govt. Executive powers of enforcement rule in the last instance, up until the point of impeachment.
I have massive respect for your knowledge of economics and finance, and I think Conjure is an awesome figure, but I think your view on this political issue is not right.
mp writes:
There is nothing on the horizon that would prevent these congressional assclowns from coming up with a proper plan that would protect the taxpayer.
And it could be done in a matter of days.
mp | 09.30.08 - 9:29 am | #
HC:
I would prefer that we had a bunch of different people (wall street, govt, other public leaders, economists, etc) put ALL ideas on the table. Instead, this was started by Paulson and we're just doing permutations of the Paulson Plan.
But some of us wonder "is there another way?" is it feasible to open a Government Bank with $700b? is there a way to improve opacity? would changing regulations (like FASB) help or hurt? could you stem the problem by using the $700b on main street instead (stimulus, buying out all defaulting mortgages, etc?)
As an example:
a recent survey was just discussed on CNBC. Survery of the biggest pension funds and financial firms:
60% thought it might work
25% said they felt it would not work
15% undecided
even those who feel that the bailout is a good step do not feel that it is enough.
the 4 "C"s:
Credit (horrific)
Currency (holding up ok for now)
Clarity (rediculously horrific)
Confidence (rediculously horrific)
The bailout plan helps with credit. But it WORSENS the clarity. there is disagreement if it helps confidence or not. there is disagreement if pouring capital into insolvent institutions will cause them to lend more.
But I'm disheartened to read that the candidate who was a constitutional law professor doesn't believe we should scrap the existing plan and start over. Maybe January won't bring as much change as we're going to need.
The amount of speculative, leveraged frothstill in the stock market just defies belief.
You know that all over the U.S., people are calling up their brokers and mutual funds and moving their money to higher ground. But still the market goes gangbusters.
There was nothing unconstitutional about the bill presented yesterday, whether it was good economic policy or bad.
Also, I think it is clear that Obama agrees with the Krugamn view: it was/is a poor plan, but probably more or less the best that can be done at the moment and better than nothing. Plus the plan will always be a Bush Plan, no matter how much it is modified by Congress, so changing later would be a part of turning the country away from Bush's legacy (i.e., good politics)
Hey, dryfly, you're on the ground in the heartland working with business most likely to be impacted by the seize up in the credit markets. What are they telling you? Are things as dire as reported from Washington?
I am hungry for a solution but trust me I'm opposed to this bill as well. I think we begin work by mandating suspension of bank dividends immediately. After that there are several good ideas.
The model I cite is different from Wall St and other quantitative models. It is a theoretical framework for understanding the economic components of the situation. The C-S model does not attempt to quantify any of this just help understand what is happening or could happen in broad strokes.
And I agree that 'their' models are bad. One of the biggest pieces of evidence of this is the suspension of 'mark to market' in the bailout bill. Using the bailout they would continue to use their bad models to price these pieces of chit.
My bad - I guess I'm still stinging from the presentation of the Paulson Plan, when Obama didn't forcefully condemn Sec. 8.
Obama should be pushing harder for congress to look at all available options. We've got the time, and many experienced international voices are out there.
I don't understand why this is a problem. If the "true" LIBOR rate should be (say) 3%, while the "irrational" rate is 6.88%, why don't the central banks start lending straight to customers at (say) 5%. They'd make a killing, and the irrational banks that won't lend either get in line or fail (to be replaced by more rational players)...
"What I find objectionable is the notion that this is only the problem of those involved in its creation. It isn't."
I understand that even though, I did not contribute to the problem and stayed out of it, I might suffer. However, seeing the problem years ahead of time, I'm prepared, food, money, supplies, etc.
But I want to make @#$#@ sure those perpetrated this mess will suffer more.
The taxpayer's model is called "Cleansing".....Don't do anything until Bushzing from Redquare completly understands what has happened, which will not be in his lifetime. WHY WHY WHY no one is mentioning unemployment...0...No jobs for MainStreet, no jobs for our graduates, no jobs in science, no jobs in industry, and why in just eight years our infrasture is begining to look like Cuba.
CR: caught your suggestions about how you would fix the problem (30 posts ago). Now that you (maybe) had a chance to review others' plans, any update/changes/modifications on your thoughts on how to do the bailout the right way? Thanks.
To repeat, a key to that plan would be a requirement that banks recognize their losses.
What I find objectionable is the notion that this is only the problem of those involved in its creation. It isn't.
number2son | 09.30.08 - 9:45 am | #
2son, I agree, but it seems like the deck is stacked aginst it. Have you noticed the latest hew and cry about how we need to get rid of mark to market accounting. Mostly coming from GOP types. Leets just be crystal clear here, getting rid of mark to market accounting is nothing less than the legalization and ligitimization of securities fraud. The best indication of "true value" is that which a willing buyer and a willing seller will agree to. The essence of securities fraud is to misrepresent the financial condition of a company, by making it look more profitable or of greater value than it really is. To allow companies to pretend that their pennies are really dollars is misrepresentation of financial statements...a.k.a. securites fraud.
Yesterday (and by extension this morning with Bush speaking at 8:45 a.m.!), America jumped the shark, at least in its capacity as THE superpower.
America jumped the shark when we re-elected Bush in '04. We lost absolutely any credibility we had that day. It was a bellwether of how cynical, how selfish, and how short-sighted the U.S. population had become.
It's just taken a while for everything to fall apart.
"It looks like central banks are worried that the only thing keeping banks up now is the fragile commercial paper market, which banks have been desperately tapping in the past few days as a source of overnight funding.
Liquidity is being thrown at the system, but its just making things worse.
By pumping in more money central banks arent addressing the fundamental concerns of the banks at all. Going cold turkey is a very unpleasant thing, but the solution isnt more drugs, even if they alleviate short term pain.
In assuming they can rely on central bank money market operations - which will be expanded (as is the case) when the going gets tough - banks are naturally avoiding lending to each other."
From Naked Capitalism: Reader called Dan comments:
"...if the OIS spread represents eminently legitimate fears of inaccurate marks on banks books, how is a commitment from the treasury to buy hundreds of billions of distressed assets from the banks any assurance to a counterparty that that bank will not still become insolvent. Obviously it helps on the margin, but the staggering hole in LEHs balance sheet that was revealed after bankruptcy creates profound fears about the true solvency of C or UBS. Until the market is convinced they are solventand TARP does not do thisthe OIS spread will remain elevated and lending will remain frozen."
This in reply to my attempt to contact my congressman:
Messaging Service Unavailable
The House of Representatives is currently experiencing an extraordinarily high amount of email traffic. The Write Your Representative function is therefore intermittantly available. While we realize communicating to your Members of Congress is critical, we suggest attempting to do so at a later time, when demand is not so high. System engineers are working to resolve this issue and we appreciate your patience.
I'm writing and calling to demand that they implement the Roubini plan ASAP.
They need to know that if they think they can campaign for the next 30 days without something passed, that's it.
I got this off of Glen Greenwald on Salon....that there are all these great plans on the Roubini blog that would work and be cheaper,etc. but no one asked the experts. CR has also been showing up in the MSM as having all sorts of experts.
So they can bring all the experts and bloggers and come up with something by Friday.
Hey, dryfly, you're on the ground in the heartland working with business most likely to be impacted by the seize up in the credit markets. What are they telling you? Are things as dire as reported from Washington?
number2son | 09.30.08 - 10:32 am | #
Yes - its a mess but the Fed/UST can keep the wheels on until January w/ TAF & such. We have at least that much time.
Unless there is something out there we don't know - like a China ultimatum or something. If so address it directly.
I'd say you can't keep all them solvent with $700BB, but it sure beats the alternative.
Again, I point to Japan. Zombie banks are bad for the economy. It's better to have them fail and be recapitalized honestly than try to do it through the back door. You get a lot more bang for your buck.
"I don't get it. Hasn't the Fed been pumping huge amounts of liquidity into the system in the past year? Do you mean to say that it's not working? Isn't the Bailout Bill just pumping even more liquidity into the system?"
It can't work, since the banks are just hoarding the goddamn cash and sit on it.
They're scared of losing money; they can't trust each other. This mistrust is rooted in a panic mindset which makes rational thinking a joke.
Nationalization of the banking system a la Swede, or the Hussman plan are alternatives that should deserve a very serious look.
I say "should", because it won't happen; the adults left Washington in 1996 and the crazies took over in 2000. The incredible stupidity in display yesterday after the Congress vote is a testament to the Rise of the Fuckheads.
It is impossible to rescue an economy with a completely broken political process. Just doesn't happen.
IMO, there is no hope for a rational solution in the present context. Sad to say, but milions of people will suffer because we, the voters, just wouldn't look at the facts as they were.
Say whatever you want about Krugman, but when he analyzed the program AND the behavior of the Republicans during the 200 campaign, he warned us that what we were told was not what we would get.
A majority dismissed him and there we are now. Even today, the evidence does not matter, facts are just the opinions of those who oppose us.
That is why a substantial amount of pain awaits us. Pain is the only mechanism strong enough to shatter illusions and maladapted beliefs.
rich writes:
"The amount of speculative, leveraged frothstill in the stock market just defies belief."
Absolutely true. Meltdown arrives, market up. This is an absolutely sure sign that we are not near a bottom. I continue to believe that the Crash of 2008 has not yet happened.
Interesting
That means that AIG's loan is 14.88%...
"The money markets have completely broken down, with no trading taking place at all. There is no market any more."
Why don't they just come right out and say what they mean? "The sky is falling! The sky is falling! Give us a trillion dollars, NOW, or we're all doomed! DOOMED, I tell you!"
What's that make the TED spread, then?
Two minutes for Bush on CNBC
We needed someone with credibility to explain how fixing Katrina before the fact would have cost far less than after when something bad really happened. Announcing ways of ensuring cap on financial compensation would have also made the package go down better, although it might have endangered participation.
What did Bush say? Or has he spoken yet?
Blah, blah. The sun is still shining, food is still growing. Pace of life is slowing...
What's the problem again?
Bush: This is not the end of the legislation process.
Bush: This is not the end of the legislation process.
It is as far as he's concerned.
By JIM KUHNHENN
Associated Press Writer
\tWASHINGTON (AP) Presidential candidates John McCain and Barack Obama urged Congress Tuesday to redouble efforts to save a financial system bailout and both said that a key part of the legislation should be increasing federal deposit insurance from $100,000 to $250,000.
\tSpeaking from the campaign trail on the 228-205 House vote that killed the $700 billion measure, triggering the biggest one-day sell-off on Wall Street since the 2001 attacks, both McCain and Obama called on lawmakers in their parties to stay at work until an acceptable plan is assembled.
\tThe first thing I would do is say, Lets not call it a bailout. Lets call it a rescue, McCain said in a CNN interview. The Arizona Republican said that Americans are frightened right now and it is the job of political leaders to give them both an immediate solution and a longer-term approach to the problem.
\tTop congressional and White House officials were stunned when the House rejected the massive rescue plan, and a host of lawmakers said Tuesday that they felt the Congress should persevere in its attempt to find consensus on a proposal that can be passed.
\tObama issued a statement Tuesday saying lawmakers should not start from scratch as they weigh their next move.
\tThe Illinois senator said that significantly increasing federal deposit insurance would help small businesses and make the U.S. banking system more secure as well as restore public confidence in the nations financial system.
\tObama also said further inaction would be catastrophic for the economy and for American families.
\tThe Dow Jones industrial plunged by 778 points Monday.
Bush: "Urgent situation. Consequences will grow worse if we don't act. If we continue on this course, the economic damage will be painful and lasting.
$700 billion is a large amount of money."
I don't get it. Hasn't the Fed been pumping huge amounts of liquidity into the system in the past year? Do you mean to say that it's not working? Isn't the Bailout Bill just pumping even more liquidity into the system?
"the drop in the market represented 1T in losses" "ultimate cost far less than 700B"
Thank goodness he's not talking during NYSE trading hours.
Bush: Congress must act.
anyone else think that ireland may have struck on an easy and fast template? simply guarantee everything: deposits, bonds, stocks, in financials..
CR
"painful and lasting"
Just like his presidency.....
redbank
Taxpayers lost more than $700 billion yesterday because the market dropped?
I didn't.
Bush is done. "we will deliver"
After listening to The Great One, boy, do I miss Bill Clinton.
Bush: There's still a chance to fuck you all over, blah blah blah, have a nice day.
"the drop in the market represented 1T in losses"
here we go again.
First, the drop when the bailout was a certainty was already 300 points. Second, we're all screwed if we regard volatility in the market as representing real earned in-the-bank money. It is the part of the tide that washes up and down, not the sea bed..
Touting the retirement account loss is not a great strategy in my opinion -- I'd guess most people are not retiring soon.
Interesting pieces :
Seattle Post-Intelligencer: David Horsey
Seattle Post-Intelligencer: David Horsey
I truly think there's a huge disconnect between the american people and the "experts". The american people are very happy the bill was defeated and every "expert" thinks it was horrible.
"we will deliver"
I'd love it if one of the GOP reps who voted against this thing followed up with, "What you mean 'we', kemo sabe?"
After listening to The Great One, boy, do I miss Bill Clinton.
I'll see your silly romanticism and raise you a Glass-Steagall, fool.
Yeah, check the figures: only 20% of Americans have any amount of real money in equities. The rest have an average of $5,000 or so.
They're bankrupt anyway, so why bother?
I'd rather farm.
The american people are very happy the bill was defeated and every "expert" thinks it was horrible.
One of those follow-the-money things.
It is a great risk in my opinion, and I think people tend to underestimate risk -- why did so few people have earthquake coverage before the Northridge earthquake 1994 and it spiked after the fact, for example.
I'd rather farm.
Me too. Need land prices to drop though.
Wow, that was useless.
Mr. 19% is going on TV for two minutes to repeat what he's said the last week--but this time louder and more peevishly--and he expects that will put "popular pressure" on recalcitrant Congressfolk?
I truly think there's a huge disconnect between the american people and the "experts". The american people are very happy the bill was defeated and every "expert" thinks it was horrible.
That's cuz most peeps are payin their mortgage and wishing those that got bounced would STFU about bad loans, etc. Nobody's told Joe Average how this banking crisis will hurt him.
Shorter: No one's explained shit to us.
I truly think there's a huge disconnect between the american people and the "experts".
part of that is the increasing preparedness to see the hyper rich get torn down even at ones own expense. Very healthy attitude it is as well imo. Thats the disconnect: the expert thinks the problem is how to reflate the economy, many voters actually would rather see their own future more murky if that means they don't have to read about bankers getting $100 million pay packages anymore.
Not every expert thinks the rejection was horrible.
I think there is consensus that something must be done to re-capitalize the banking system. But there is debate about the precise form. The Paulson Plan had few proponents.
i want to see bush, paulson, and the people who benefited from this put some of their own money behind this, not mine
Bush has just inspired me.
To write more letters, send more faxes, and make more phone calls against this legislation.
Thanks!
The FDIC tweak by McCain and Obama is ridiculous
Thanks CR, I couldn't stomach listening to him, had to leave the room.
many voters actually would rather see their own future more murky if that means they don't have to read about bankers getting $100 million pay packages anymore.
The stop sign is when it comes out of MY pocket. No thank you.
Outsider writes:
One of those follow-the-money things.
Maybe, but I really think what is going on financially is complicated to understand and no one is explaining it clearly and simply (so a 3rd grader would understand) to the public.
If the market rallies today people are gonna be even more pissed if they end up passing this bill in the Senate.
BobSmith I think there is a huge disconnect between the amount of butter my dog thinks is good for her and the amount that her "veterinarian" would recommend.
We're all dancing around the huge issue that there is no longer any leadership of any kind in the U.S. Yesterday (and by extension this morning with Bush speaking at 8:45 a.m.!), America jumped the shark, at least in its capacity as THE superpower. The jig is up, the cat is totally out of the bag, there is no more pretending.
Now the American people must look more locally for good leadership. It will not be found on Wall Street or in Washington. Federal leadership has become a hollow shell.
If stocks finish even or higher today, "rescue bill" is dead
The first thing I would do is say, Lets not call it a bailout. Lets call it a rescue, McCain said in a CNN interview.
A past and much wiser president (Abraham Lincoln) was fond of asking, "How many legs does a dog have if you call its tail a leg?
"Four ... because calling a tail a leg does not make it a leg."
Go ahead and call it whatever you'd like, guys. Doesn't change the fact that it's still a bailout of Wall Street.
Ah, the wonderful world of Washington ...
Of course, if the market rallies today, the headlines will read: "Markets rally on expectation of bailout"
If the market drops today, the headlines will read: "Markets drop on concern over bailout"
The best thing that could happen would be a relatively flat day.
Maybe, but I really think what is going on financially is complicated to understand and no one is explaining it clearly and simply (so a 3rd grader would understand) to the public.
Well, no, I think John Q Public understands the basic premise pretty well: bail out Wall Street from the pockets of Main Street. And they don't want that.
That's not to say they don't want ANY plan. Just one that is not so one-sided. Let Wall Street pony up FIRST.
BobSmith writes:
Outsider writes:
One of those follow-the-money things.
"Maybe, but I really think what is going on financially is complicated to understand and no one is explaining it clearly and simply (so a 3rd grader would understand) to the public."
Or Maybe EVERYONE has FINALLY figured out that you CANNOT trust these lying bastards
Nobody's told Joe Average how this banking crisis will hurt him.
Nobody's told anybody how this bill will fix the banking crisis.
Mook writes:
The first thing I would do is say, Lets not call it a bailout. Lets call it a rescue, McCain said in a CNN interview.
A past and much wiser president (Abraham Lincoln) was fond of asking, "How many legs does a dog have if you call its tail a leg?
"Four ... because calling a tail a leg does not make it a leg."
Go ahead and call it whatever you'd like, guys. Doesn't change the fact that it's still a bailout of Wall Street.
Ah, the wonderful world of Washington ...
Give the guy a break, he's been a POW for five years..
I don't trust them, apparently the interest rates don't either.
The best thing that could happen would be a relatively flat day.
No, no, no! I want to see the shills on CNBC cry some more today.
AIG never has to pay interest. It's added to the loan. Why hasn't
Ben dropped the rates yet?
The best thing that could happen would be a relatively flat day.
The best thing that could happen is one of the captains of industry, so frequently given the spotlight on TV over the last five years, came out and said "my firm can survive a no-bailout scenario and we'd be glad to see the end of profligate lending".
that would be the best thing that could happen.
Bush should threaten to campaign for Republicans who are on the fence ...
That will break the log jam.
Maybe Bush should take the deed to his big "getaway" spread in Paraguay down to PayDay Loans for a little quick cash to sweeten the pot. Just think of all the spare Lexi and vacation condos out there that could be used to help ease the pain felt by the lending community.
C'mon George, set an example!
If stocks finish even or higher today, "rescue bill" is dead.
Yup.
if this event triggers a resetting of 'fundamentals' (whatever the feck they are) over the next few years, this could be the best chance of unifying the environment and the economy, thereby creating economentalism. TA DA!!
One can only hope
Maybe Bush should take the deed to his big "getaway" spread in Paraguay down to PayDay Loans for a little quick cash to sweeten the pot. Just think of all the spare Lexi and vacation condos out there that could be used to help ease the pain felt by the lending community.
Absolutely. I mean, have ANY of our so-called leaders told us how THEY would sacrice to get through this "emergency"? You first, shysters.
anyone else think that ireland may have struck on an easy and fast template? simply guarantee everything: deposits, bonds, stocks, in financials..
If I understand the deal properly...
The Irish government gets nothing for guaranteeing $450B in debt -- nothing!
They don't have that kind of capital -- Irish economy is estimated at $150B in the article I saw.
It's basically an upfront acknowledgment that they will print and devalue if things come to that pass. The only thing that surprises me is that the Irish aren't bombing Parliament right now.
Irish Financials Jump as Government Guarantees Debt (Update3) - Bloomberg.com
Comrade Bagholder Max,
"Nobody's told anybody how this bill will fix the banking crisis."
Nobody has said what happens if it doesn't pass. If congang does nothing, what HAPPENS?
Nostrovia,
"the drop in the market represented 1T in losses"
So.... if this giveaway were passed, the stock market would keep going up. Is that what you are saying? Then say it. Right out loud.
The Arm-Chair economics being thrown around here kill me. Unless you can present real framework for your analysis save it.
If one uses the Consumption-Savings Model to analyze the effects of tighter credit the effects are unambigious. Tighter credit will lead to lower consumption and lower GDP.
Sure a few on Wall St may bennefit but not to the degree that anyone thinks! Real companies that have never traded a CDO or CDS are suffering here.
Incalcuable risk.
oy vey
Steven Pearlstein - They Just Don't Get It - washingtonpost.com
Steve Pearlstein's take
My bad. Ireland is part of the EU. I wonder how this works?
Case Shiller Is a Whopper
CS-10 -17.5%, YoY, -21.1% From Peak
CS-20 16.3%, YoY, -19.5% From Peak
Jas
The Arm-Chair economics being thrown around here kill me. Unless you can present real framework for your analysis save it.
If one uses the Consumption-Savings Model to analyze the effects of tighter credit the effects are unambigious.
By the way, we have a saying with regard to computational inputs and outputs: "Garbage in, Garbage out."
I get why we needs banks solvent, open, and offering lines of credit to businesses for legitimate operating purposes (but no longer offering insane mortgage loans).
But here is what i don't quite understand yet. If banks get a lifeline from the bailout so they can keep operating, are they are going to resume making the types of loans to keep the engines of growth running or are they going to hoard the capital and not lend enough to make a difference.
any bankers out there willing to comment.
"If stocks finish even or higher today, "rescue bill" is dead."
Conjure says, "Well, Mr. Market, would you like to immolate yourself this morning, or get on with business?"
Dow futures are pointing up.
Doug Watts, thrip writes:
Bush should threaten to campaign for Republicans who are on the fence ...
That will break the log jam.
Doug Watts, thrip | Homepage | 09.30.08 - 9:04 am | #
LOL.
I guess that would be the nukular negotiating option?
rowen writes: That means that AIG's loan is 14.88%...
Anyone know what rates are being charged by Vinny and Rocko? Because at some point the mob looks competitive.
"A man is not finished when he is defeated. He is finished when he quits."
R. Nixo
The last day of the quater always throws the rates into a frenzy.
The Fed Funds rate opened at 6.00%
It will go back down tomorrow.
CNBC is panicking because the market futures are up....they are doing everything they can to discount that fact in order to keep bailout 2.0 on track. Pathetic.
I hope we don't get some sort of artificial spike based on hopes for a future bailout however. I'd like to see the market up, but not too up.
I'm not sure who or what to believe anymore. While I find it admirable that people so strongly voice their opposition to this bill now, I can't help but ask myself where was the outcry as this position built-up up over the last six years? As always, we now find that when things get tough the Amercians are quite happy to just walk away, after all these "tax payers" benefitted one way or another. Jingle keys and the infamous, "its our dollar but your problem really sums up that sorry state. Why would anyone put any faith in US cronyism er I mean capitalism ever again. Certainly not me.
I'm at a total loss.
all of the billionare boys club can all chip in and bail themselves out.
TED is inching up 3.52 now.
Correction Fed Funds opened at 7%
On C-SPAN radio this morning a reporter from a well-known newspaper was asked why Congress didn't include extension of unemployment benefits in the bill. He replied that it would have antagonized GOP legislators, because they oppose big government spending.
I didn't know that C-SPAN was starting to do comedy in the morning.
Could someone explain the difference between the 630 billion pumped into the market yesterday and the 700 billion that they want to add to it?
If the 630 didn't add liquidity why will the 700?
You know, I saw the headline about LIBOR and for a moment I thought the 6%+ figure was the TED. heart attack moment there...
The wall street conmen/salesmen have been on cnbc and bloomberg bemoaning their marketing screwup. It's not a 'bailout', it's the "only possible plan to keep your children fed plan".
I totally agree on reasonable mortgage loans and rates. Risk needs to be repriced and that by itself is going to cause dislocation in markets.
As to 'garbage in garbage out.' The Consumption-Savings Model creates the foundation of Modern Macroeconomic theory. The numbers don't matter, the populous will be much less happy and less rich if the crunch continues. That is no comment on the proposal just the need for a fix.
Bailout Wall Street?, what's next Las Vegas casinos, racetracks, gambling boats, dog races, rooster fights, shell games, and my next door neighbor's weekly poker game? Wall Street played high risk conmen games demanding all safety nets removed. Now they're begging for more liquidity at the taxpayers trough to keep the congame going. No regulations just more of the same.
can anybody explain me why paulson and friends not come with bailout plan like sweden and now done in europe with fortis. ergo take a equity stake in the company. Future inflation will guarantee that they will earn back their investments. or if losses are to big first also wipe out bond holders. why ? equity and bonds are the first in line to take the beating. i simply not ustand this. or is this seen as a credit event in which case the swaps are trickert and liabilities become to big. pls i need to ustand this.
Geez. If the rate stays high LIBOR financed Swaps are going to get ugly.
,i>"Nobody's told anybody how this bill will fix the banking crisis."
Nobody has said what happens if it doesn't pass. If congang does nothing, what HAPPENS?
it's because nobody knows what will happen if the bill does or doesn't pass.
Steve Pearlstein's take
tg | 09.30.08 - 9:11 am | #
And here's what I actually wrote the guy last night.
"There are multiple general responses on the part of the American Public. Some with whom I've talked are simply aghast that the Financial Elites have managed to gutshoot themselves and are now coming to the public trough. This is coming from citizens who are losing hours due to falling demand and are looking at how they're going to pay for the kids' college. Face it, the AIG management showed people what they perceive as the Wall Street colors - money without consequence, please.
Some are appalled that there is no apparent plan being put forward in the original Paulson proposal apart from "gimme some money and let me take a shot at it; but don't bother me while I do it." Once that one came through, then the opposition to that plan morphed easily to opposition to any plan.
Some are frustrated that they keep hearing about the free market system - we can "suggest" free market solutions to other nations - yet the market isn't allowed to correct without all kinds of talk of further rate cuts. I frankly view the stock market as being utterly divorced from reality, akin to a crackwhore looking for a cheap money fix. God knows, the financial planners keep talking about Dollar Cost Averaging and the advantages through poorer markets, yet the intent to keep the market up negates the apparent advantage of DCA.
Finally, the folks I know are done with just throwing money at the issues. Main Street isn't stupid and we understand that what's going on now could be the tipping point in terms of the ultimate stability of the dollar.
We'd rather take whatever hit is coming - and folks know at a gut level that it is - and deal with it now instead of destroying any future for our children and grandchildren.
And why $700B (at one time)? No clear answers and the closest that I can figure is an elegant irony in that that amount is about what goes to foreign energy suppliers.
So kindly spare the condescension. At it's heart, this is populism, not stupidity."
I was royally pissed.
Most of the commentary I heard today was about how to arm-twist those 12 additional votes, get this thing passed, and then .... nothing. Apparently it's back to business as usual.
That is the goal, business as usual. Even though the same people mouth the words "earthquake" "end of Wall Street" "new playing field. Those words mean nothing. The goal is business as usual.
No effort find out deeper reasons for Joe 6pack's anger; no self-doubt about what they themselves have been doing wrong (if the subject is raised at all, it's as a quick skip, "We miscalculated. The End."
Every effort is being made to find a way around Joe 6pack's anger. No effort is being made to make concessions to him. The goal is not his well-being, but to Save the System.
Until I see that effort by the Financial System - concessions to Joe 6pack - then I hope this bill fails. And I'm going to try to withdraw some from this farce of an economy. I too need to find a different way.
BR writes:
Touting the retirement account loss is not a great strategy in my opinion.
Indeed. In fact he may just frighten poeple into actually opeing up their 401k statement instead of stuffing it into a drawer and selling whatever is left in a few weeks time.
godhatesfangs,
These are the same people who sold millions of annuities with 5% front end loads to the elderly. You'd think they would be better at marketing.
Comrade YTL,
"it's because nobody knows what will happen if the bill does or doesn't pass."
Exactly.
Nostrovia,
HC: spoken like the biggest armchair economist of all. well done.
Now please elucidate in your precious model HOW the $700b will open up the credit markets. Specifically, what in the bill will encourage these distressed banks to lend again? Clearly it will help to recapitalize them, but it is also clear given the notional size of the CDS market that $700b will be nowhere near enough.
why not, for instance, open up a governmental bank with that $700b? Or use the $700b to pay off every delinquent mortgage? why does it have to be a black-box purchasing of assets by the Treasury?
many of us oppose the current bill because we see it as treating symptoms (poorly) and not fixing the problem.
If one uses the Consumption-Savings Model to analyze the effects of tighter credit the effects are unambigious. Tighter credit will lead to lower consumption and lower GDP.
Well, why aren't you pushing for the Fed to loosen credit then? Why are you trying to borrow vast amounts of money to give away? That's a recipe to tighten, not loosen, credit.
Why is there the assumption that in all this mess, there can be no winners if nothing is done?
Not everyone in America is underwater on a house. Not everyone in America charged their brains out. Not everyone in America runs a business that depends on people charging their brains out.
I mean, I feel like a winner. I have no debt, I own my house free and clear, and I have a good but unsexy job in a stable industry likely to survive an economic downturn. All of that, I paid for in one way or another. Why the hell should I now pay for others' stupidity?
If I pay for others' stupidity, I want to be in charge. I want you fuckers to kiss my royal ring. Is that too much to ask?
There is nothing on the horizon that would prevent these congressional assclowns from coming up with a proper plan that would protect the taxpayer.
And it could be done in a matter of days.
Read Roubini on the Swedish crisis in the early 90's. One key component of that plan was that the institutions holding bad assets had to write them down IMMEDIATELY. Contrast this to Japan, which foot-dragged the process with predictable results.
RGE Monitor
Clear the decks and move forward.
CR, I wish you'd address the discrepancy between banks calling the CP market dead and the Bloomberg report yesterday about industrials having a field day getting plentiful, easy, low-interest loans because nobody wants to lend to financials right now. Seems a lot of the argument for the bailout hinges on Joe's Printing Co. not being able to borrow for that new machine. That's not what Bloomberg said.
The OMG LIBOR mentioned in the article is misleading because it's the sterling LIBOR. The dollar LIBOR isn't much changed. England is having the monster end-of-quarter tightening, not us.
I think they know what's going to happen plan or no plan--"this suckers going down so give us a trillion so we can tough out the hardtimes" America be damned.
Associated Press: In the tank.
Any more scare words you can throw in ?
Bailout bill defeat could cause painful recession
Tuesday September 30, 12:03 am ET
By Jeannine Aversa, AP Economics Writer
Deep recession, more job losses could come from defeat of $700 billion bailout package
WASHINGTON (AP) -- The fallout from the vote against a bailout package for the U.S. financial system may well be lasting pain for the economy.
The House's stunning defeat of a $700 billion package urgently championed by President Bush, sent shock waves through Capitol Hill, the trading floors on Wall Street and the Oval Office on Monday.
"An economic 9/11," warned Terry Connelly, dean of Golden Gate University's Ageno School of Business, of the potential fallout. As the package went down, panicked investors caused the Dow Jones industrials to nosedive nearly 780 points in their largest one-day point drop ever. Markets across Asia fell sharply Tuesday in the wake of the Wall Street downdraft.
Hey, I bought a lottery ticket. Illinois state lottery "promises" I may be a jackpot winner. So, I went to Wall Street and invested my promised winnings via loans using my lottery ticket as collateral? If I lose, will Paulson beg Congress to bail me out?
Brad Setser has a stunning chart depicting the Fed's balance sheet. Simply stunning.
Brad Setser: Follow the Money » Blog Archive » Do not doubt that this is a real crisis: more on Fed’s balance sheet
Yeah Doug Watts it's very interesting watching the dying twitches of the infected pundits and media. They can scream their bloody heads off... because the turtles know the rabbits are screwed and they're just going to keep racing their turtle race. Guess what? They'll win.
I guess most people here understand that the reduction of debt also requires a reduction in consumption.
That is not the point. The point is that the US and the world is at disequilibrium and they have to adjust.
Savings has to rise in US and consumption has to rise in China. Consequently consumption must fall in US and savings have to fall in China.
That s the inevitable. Bailout plan will only delay it not prevent it.
CNBC is panicking because the market futures are up....they are doing everything they can to discount that fact in order to keep bailout 2.0 on track. Pathetic.
They promised Armegeddon, and all we got was this one-time drop. Perhaps they will try and induce panic.
I love clowns.
Again, no one will explain how fail-to-bail will cause a meltdown, nor how the bailout will prevent one. Banks still won't trust each other.
I mean, I feel like a winner. I have no debt, I own my house free and clear, and I have a good but unsexy job in a stable industry likely to survive an economic downturn.
And what if you lose your job and the economy is in such a shambles that there are none other to find?
People need to start looking beyond their own limited sphere and consider the implications of this crisis for the global economy.
All this talk of "hey, I'm not responsible for this mess" so let Rome burn is just nauseating in its selfish narrowmindedness.
"...dean of Golden Gate University's Ageno School of Business"
Who in hell is he? Golden Gate University?
Sounds kind of like Paduchah Community College to me.
"Let Wall Street pony up FIRST."
That $1T yesterday was a fine start.
Well-said Comrade Sue-cap-S
"Perhaps they will try and induce
panic. "
JP, they've been trying to do that for the last two weeks.
Not everything can be "fixed". But this is a realization that our rulers are less aware of. They have spent their whole sheltered existences in a world where the fix is always in, and it is far too late for them to let the concerns of the reality based world intrude now.
Again, no one will explain how fail-to-bail will cause a meltdown, nor how the bailout will prevent one. Banks still won't trust each other.
Good point. Which is why the "bad" banks need to come clean. And without delay. That's a key to restoring confidence in the system.
More AP scare tactics (seriously, this stuff wreaks):
"In the meantime, the economic wreckage that the administration and Congress have warned about -- rising unemployment, shrinking nest eggs and prolonged recession -- might not happen immediately, but that doesn't mean it won't happen at all.
"This is like the advice you get from the doctor who says you should quit smoking," said Robert Brusca, chief economist at Fact and Opinion Economics in New York. "You know he's right. But if you don't, you're not going to die tomorrow and you're not going to die next week. But at some time, it's probably going to get you."
For now, Treasury was expected to work with other government agencies, including the Federal Reserve and the Federal Deposit Insurance Corp., to deal with problems on a case-by-case basis.
"Our tool kit is substantial but insufficient" without a bailout, Paulson warned.
Expired
"Nobody's told anybody how this bill will fix the banking crisis."
Add to that: nobody has explained what Armageddon looks like. Except to say that McDonald's will have trouble expanding its breakfast menu.
And what if you lose your job and the economy is in such a shambles that there are none other to find?
What if, what if? Ooh, I'm scared.
What if I'm a member of a very safe cohort? What if?
My goodness, even when the dinosaurs were wiped out, some small mammals and even reptiles still survived. They did not need the dinosaurs.
What if I'm a small mammal, and you're a dinosaur?
you go, homedad!
HC,
bennefit is actually benefit
populous is actually populace
There are a lot more spelling errors around here than there used to be. Not a good sig
Repost, from nonpartisan watchdog opensecrets.org
"On average, House members who voted for the Emergency Economic Stabilization Act have received 51 percent more money from the finance sector since 1989 than those who opposed it."
"can anybody explain me why Paulson and friends not come with bailout plan like sweden and now done in europe with fortis."
Sure, lots of people can explain that. It is Paulson's ego and his connection to Goldman Sachs. He wants the power and wants it unobstructed by law. It says that right in his original 3-page proposal. Read it.
The United States Federal Government is borrowing $1.5 trillion per year.
Why does an additional $700 billion fix anything?
Debtors never believe that money matters. That's why they're debtors.
We've had 18 months of "fixes".
Isn't ANYBODY "getting it" yet?
We will deliver.
Stand and deliver, as the highwaymen were wont to say.
Feel free to google the C-S Model, you may just learn something. It makes no assertion to what the solution is just what the effects will be.
And by the way; ArmChair Economics is the attempt to analyze any of these things not using the appropriate frame-work. Traders and Wall St. does that and led us to this problem. Applying the best known framework to help solve the problem will help shorten the correction. Bantering about confidence and other factors wont get us anywhere. It is like attempting to grade a term paper haven never taken freshman composition.
Don't get stuck on stupid today...MSM is working for both parties building their coffers at a Bitch in heat pitch.
Pelosi called her newest Rep's yesterday and told them to vote no or they would get beat come election day.
This is all about politics, money and power.
Most of the US is in flyover country, which have no jobs, because of these pond skimmers, let the pond scum fall to the bottom and stay there until they can figure it out like the average taxpayer has to.
All this talk of "hey, I'm not responsible for this mess" so let Rome burn is just nauseating in its selfish narrowmindedness.
Really, cause here I was thinking how all these attempts to pass the proposed solution off as workable and anyone who opposes it as a mulish nihilist are disingenious at best.
And here's who at the AP to thank:
"The bailout plan was intended to revive jittery and fragile banks on Wall Street and Main Street by buying billions upon billions of their worst mortgage-related assets so that lending, the oxygen of the American economy, would flow freely again.
"People are going to go home and look at their 401(k)'s and not be very happy, and these are not just people from New York, but Iowa and everywhere else. This bill is meant for everyone -- not just Wall Street but Main Street," said longtime New York Stock Exchange floor trader Theodore Weisberg.
Associated Press Writers Joe Bel Bruno, Martin Crutsinger, Adam Geller, Jim Kuhnhenn and Christopher S. Rugaber contributed to this report.
Yum. Yum.
Why not some chicken blood and scary Halloween masks ?
Bush is done. "we will deliver"
Man, can't we just refuse delivery?
'Mission Accomplished
I spoke to Mel Watt in NC about the bailout and expressed my conviction that it should not be passed. He repeated at least five times that Hank and Ben said something must be done or it would lead to a depression. Mel stated "I don't want that on my hands". Now if Congress is so easy to blackmail, what the hell is up with the general public? I mean are they too stupid to realize this a REAL emergency???? My kid needs to go to an Ivey League school and I can't do that without a bailout, I mean WTF!!!!!
Yes, the biggest fallacy I'm seeing emerging is the assumption that "we're all in this together, right?"
Wrong. We haven't been "all in this together" for quite some time. Just ask the people in the Rust Belt.
There has been an estrangement of affections, so to speak. And the truth is going to come out more and more.
Die, dinosaurs, die. We are not of the same blood, after all.
It's not an all-time high.
It's an all-time high increase.
Bush will deliver, but it will be COD.
HC, you should read some Roubini and Setser to understand the worldwide C-S model aka Bretton Woods II. What you are seeing now is the unwinding of this unsustainable system. Also you should google for a historical savings ratio and compare it to the most recent figures.
You'll be surprised to find that any reasonable C-S model predicts: consumption in US must fall.
wall,
i read the paper. but there must be a reason other than power grab. maybe i am naive but i not believe it. i have one other theory and that is that the rest of the world dont want this way because it would make the usd going skyrocket in times they all need the usd to pay of debts. the usd is scare compared to other currencies this because the usd is the reserve currency. the economy world wide is still growing and i dont think the saudies are going to accept yuans for their oil.
Most of the commentary I heard today was about how to arm-twist those 12 additional votes, get this thing passed, and then .... nothing. Apparently it's back to business as usual.
About 25 of the Yea votes were Democratic Nay votes that had been armtwisted by the Dem leadership. When you add the need to keep them in line it's just too tough to get the bill through, so the leadership is letting things ride and hoping for a disaster that will let them cram it through.
Really, cause here I was thinking how all these attempts to pass the proposed solution off as workable and anyone who opposes it as a mulish nihilist are disingenious at best.
Who said it was workable? I want my congress to formulate a better plan, along the lines of workouts used in similar crises.
To repeat, a key to that plan would be a requirement that banks recognize their losses.
What I find objectionable is the notion that this is only the problem of those involved in its creation. It isn't.
I agree it must fall but we need to find a way to help it unwind so we can become more planful along the way. I fear the adjustment shock might forever damage the economy, dollar and our credit rating.
In our local rag, the Lakeland Ledger a powerful local investment banker is headlined today as quitting the republican party for their vote yesterday. Empty threats based on his fear of losing his scam-based lifestyle.
There has been an estrangement of affections, so to speak. And the truth is going to come out more and more.
Die, dinosaurs, die. We are not of the same blood, after all.
Mandate of Heaven being withdrawn. Katrina was the first major blow. Perceived legitimacy is nearing the tipping point of collapse of faith. Lobbyists for the status quo will be surprised one morning soon when they wake up and nobody believes in the pleasant fictions they abused into total implasubility.
"I fear the adjustment shock might forever damage the economy, dollar and our credit rating."
Sorry, but where were you sixteen years ago?
200 pts. up at opening, maybe it wasn't the best morning to tell the nation how the market was going to crash and burn without this bill passed.
Every time I see Nancy Pelosi with her Nurse Ratched face on, solemnly leading her dutiful little lambsies forward to our slaughter, I want to gag.
forever damage the economy, dollar and our credit rating
Get a clue.
The damage happened years ago when NAFTA was passed. What's being fought is the recogniation of damage.
Fair Economist - I applaud you for being about the only one here "on topic", but you are wrong. The 6.88 is the overnight USD LIBOR rate. Sterling Libor was at 6.78%.
Also - on your comment from yesterday: Yes insolvent banks might want to hoard cash; but the "bailout" package is an effort to keep them solvent in the first place.
Marcy Kaptur (D-Oh), the anti-Pelosi:
"The normal legislative process that should accompany a monumental proposal to bail out Wall Street has been shelved. Yes, shelved! Only a few insiders are doing the dealing. These criminals have so much power they can shut down the normal legislative process of the highest lawmaking body in this land. All the committees that should be scanning every word that is being negotiated have been benched. And that means the American people have been benched. We are constitutionally sworn to protect this country against all enemies foreign and domestic, and yes, my friends, there are enemies....The people who are pushing this bill are the very same ones who are responsible for the implosion on Wall Street. They were fraudulent then; and they are fraudulent now. We should say No to this deal."
"I fear the adjustment shock might forever damage the economy, dollar and our credit rating."
At this point, any sentence using the word "fear" as its active verb is more than suspect ...
I fear the adjustment shock might forever damage the economy, dollar and our credit rating.
Forever? Like for centuries and millenia or just 21st century forever, meaning at least through next election?
"forever damage the economy, dollar and our credit rating"
oh well, look at Germany in 1945. bombed to the stone age, 15% of population dead. victorious armies tearing the country into 4 and huge moral burden for all the shit they have done the previous 8 years.
well, they could have thought they were done for ever, couldnt they
I mostly fear for the ponies.
Will they have homes ... and fresh hay?
I mostly fear for the ponies.
Will they have homes ... and fresh hay?
Doug Watts, thrip | Homepage | 09.30.08 - 9:54 am | #
Pony Burger coming to a McDonalds near you soon....
HC:
I disagree with you.
Many traders and wall street used tons of models. but they used lots of poor inputs so the outputs were unreliable.
Sebastian (a longtime favorite around here) was rather fond of the Wright B model.
Regardless, economics (despite what it wants to believe) is not a science. It is too heavily dependent on mass psychology. this is why economics typically only can forecast the past. it is horrendous at projecting the future, regardless of model used. the biggest flaw with all the theories is that they rely on "rational" human beings. But humans aren't rational.
The problem now is that we have real economic fundamental problems, but also panic and anger. economic models will not mollify panicked angry people.
thus, part of the solution needs to be to come up with a rational economic plan. and part is to try to restore faith in the system of Fiat currency and Fractional reserve lending and esoteric untested financial products.
Posted on an earlier thread...
dryfly writes:
FYI - I was able to get through to the desk jockey's at both of my senators this morning. They actually had time to chat... I told them this bill was bad politics and worse policy and that they would be heroes to oppose it by any means possible. More importantly I told them there are other options, better options but we won't get them unless we kill this beast first.
I was polite, prepared to talk issues with them (not hysterical) and they each gave me about 2-3 minutes. I was astonished they gave me that much time. Asked what town in state I came from & my ZIP - they already had my phone number (caller ID).
Go for it.
dryfly | 09.30.08 - 9:49 am | #
You know what to do...
Shnaps - thanks for the correction
Also - on your comment from yesterday: Yes insolvent banks might want to hoard cash; but the "bailout" package is an effort to keep them solvent in the first place.
You can't keep them solvent with $700BB. Ask Japan, which had a smaller bubble and a much larger capacity to borrow. It's just pouring money down a rathole.
But here is what i don't quite understand yet. If banks get a lifeline from the bailout so they can keep operating, are they are going to resume making the types of loans to keep the engines of growth running or are they going to hoard the capital and not lend enough to make a difference.
1) banks are supposed to keep a designated tier-1 capital ratio, as mandated by the FDIC.
2) some banks may have exposure to the "conservatorship" of FRE and FNM (i.e. the banks may have been investing in FNM/FRE preferred shares). The 9/30 CALL reports may reveal this.
3) banks want to look at strong as possible on the CALL report (which should represent close of business today).
the result of #1 plus #2 may be putting stress on bank lending practices.
Once the reporting period has closed, it will be interesting if banks loosen up a bit starting tomorrow.
@Yearning To Learn
What method or framework do you propose we use to analyze the problem then? Idle talk about economic indicators gets us nowhere.
Call your reps and demand a vote of "No Confidence" in Secretary Paulson.
McDonald's introduced cheese and eggs sandwiched between portable syrup-filled pancakes in 2003.
We have seen enough expansion. Pull the credit line!
markets up 174+ points, nasdaq up 33 s&p up 23+.
The Multimillionaire bailout being pushed by multimillionaires Bush & Paulson and fearmongering senario of the end of the world, just ain't happening
@Comrade RayOnTheCollective
Nice work, it will be interesting to see. Are you aware if WFC released any numbers relating to their own activity. They seem to be trying to be the market leader in transparancy.
"People are going to go home and look at their 401(k)'s and not be very happy, and these are not just people from New York, but Iowa and everywhere else."
I love this one!
"Your 401k will be just fine if we take your money to save your 401k". Priceless.
You can't keep them solvent with $700BB.
I'd say you can't keep all them solvent with $700BB, but it sure beats the alternative.
Wally
You don't happen to work at a Northeastern Regional Financial Institution do you?
CR: I may have missed this a few thousand posts/threads ago, but if you were Secretary of the Treasury, what would your recommendations be for the bailout bill? If you post one, I'll be sure to call my Reps with your suggestion. (and thanks for all of the late hours of work.)
CNBC main street can not borrow. so why doesn't the FED set up a lending facility for Main Street?
HC:
I don't mind using economic models. far from it. In fact, I'm perfectly happy using your model.
just so long as you realize that your model has significant flaws, and is heavily influenced by mass psychology.
it's fine to use a tool so long as you recognize its limitations. Greenspan, Bernanke, most of Wall Street all failed (and continue to fail) to understand the severe limitations of their models.
I am not against any bailout. I am against this bailout.
why doesn't the FED set up a lending facility for Main Street?
Wouldn't benefit GS sufficiently.
chicago pmi 56.7
abx aaa 07-01 low tick 41.54 july, yesterday close 51.71 down from an intra-week high of 55.
perhaps the real economic collapse is not occurring as advertised.
Wouldn't benefit GS sufficiently. Of course.
The GOV takes wall street's debt=GOOD.
The GOV takes main street's debt=BAD.
Funny that.
Dave writes:
CR: I may have missed this a few thousand posts/threads ago, but if you were Secretary of the Treasury, what would your recommendations be for the bailout bill?
Dave he posted it a few threads down (maybe as many as 15 threads down now?)... similar to depression era RFC where the gov't gets a sizable chunk of preferred stock in exchange for helping & dilutes existing owners - or even takes over directly. Then sells back into market later. RFC did make money even in the depression.
The reason Paulson et al is so opposed to this is the banks won't voluntarily come in from the cold until near death's door. Okay - I can live w/ that - who said bailing out had to be fun?
There is going to need to be some recapitalization & gov't will be who is doing it - eventually - but it doesn't have to be 'stupid' and reward reckless behavior (Paulson Plan). Ruin the idiots who got us into this first and ONLY THEN and IF NECESSARY go forward w/ a SYSTEM recapitalization.
MP
There is an obstacle that prevents a proper plan from succeeding until after January 2009: The Bush Administration.
Even if Congress could pass the legislation for a Swedish nationalization (let alone a 10 step Roubini plan) - which it can't - Bush would veto.
And if the veto were overridden, which it couldn't be in the Senate, Bush/Paulson would not enforce the legislation.
No emergency plan of this magnitude ever starts in Congress for just this reason, even when the same party controls both branches of govt. Executive powers of enforcement rule in the last instance, up until the point of impeachment.
I have massive respect for your knowledge of economics and finance, and I think Conjure is an awesome figure, but I think your view on this political issue is not right.
mp writes:
There is nothing on the horizon that would prevent these congressional assclowns from coming up with a proper plan that would protect the taxpayer.
And it could be done in a matter of days.
mp | 09.30.08 - 9:29 am | #
HC:
I would prefer that we had a bunch of different people (wall street, govt, other public leaders, economists, etc) put ALL ideas on the table. Instead, this was started by Paulson and we're just doing permutations of the Paulson Plan.
But some of us wonder "is there another way?" is it feasible to open a Government Bank with $700b? is there a way to improve opacity? would changing regulations (like FASB) help or hurt? could you stem the problem by using the $700b on main street instead (stimulus, buying out all defaulting mortgages, etc?)
As an example:
a recent survey was just discussed on CNBC. Survery of the biggest pension funds and financial firms:
60% thought it might work
25% said they felt it would not work
15% undecided
even those who feel that the bailout is a good step do not feel that it is enough.
the 4 "C"s:
Credit (horrific)
Currency (holding up ok for now)
Clarity (rediculously horrific)
Confidence (rediculously horrific)
The bailout plan helps with credit. But it WORSENS the clarity. there is disagreement if it helps confidence or not. there is disagreement if pouring capital into insolvent institutions will cause them to lend more.
There is an obstacle that prevents a proper plan from succeeding until after January 2009: The Bush Administration.
I can wait until January...
Bush: "We will deliver."
Yes. We will deliver the country to Wall St. Bankers. In a silver tray.
I can wait until January too . . .
But I'm disheartened to read that the candidate who was a constitutional law professor doesn't believe we should scrap the existing plan and start over. Maybe January won't bring as much change as we're going to need.
Bush statement at 8:45 a.m.: "In my upcoming meeting with my president"
Is Bush "The President" is the "Trustee in Bankruptcy from China" the President?
The amount of speculative, leveraged frothstill in the stock market just defies belief.
You know that all over the U.S., people are calling up their brokers and mutual funds and moving their money to higher ground. But still the market goes gangbusters.
This is gonna be a long, slow grind down.
Misanthrope
There was nothing unconstitutional about the bill presented yesterday, whether it was good economic policy or bad.
Also, I think it is clear that Obama agrees with the Krugamn view: it was/is a poor plan, but probably more or less the best that can be done at the moment and better than nothing. Plus the plan will always be a Bush Plan, no matter how much it is modified by Congress, so changing later would be a part of turning the country away from Bush's legacy (i.e., good politics)
I can wait until January...
Hey, dryfly, you're on the ground in the heartland working with business most likely to be impacted by the seize up in the credit markets. What are they telling you? Are things as dire as reported from Washington?
I am hungry for a solution but trust me I'm opposed to this bill as well. I think we begin work by mandating suspension of bank dividends immediately. After that there are several good ideas.
The model I cite is different from Wall St and other quantitative models. It is a theoretical framework for understanding the economic components of the situation. The C-S model does not attempt to quantify any of this just help understand what is happening or could happen in broad strokes.
And I agree that 'their' models are bad. One of the biggest pieces of evidence of this is the suspension of 'mark to market' in the bailout bill. Using the bailout they would continue to use their bad models to price these pieces of chit.
this is why economics typically only can forecast the past.
and i thought they called that history.
"If stocks finish even or higher today, "rescue bill" is dead"
Nope. The claim will be "markets recovered because we kept hopes for the bill alive".
Anyways, it's the money markets and commercial paper that are the "Armageddon" issue.
must spend today doing real work....will check in tonight
meanwhile, all hail Conjure!
we who are about to be deflated salute you!
dryfly--thanks
Smaller Banks Thrive Out of the Fray of Crisis
http://www.opednews.com/maxwrite/linkframe.php?linkid=70750
Joe Schmoe -
My bad - I guess I'm still stinging from the presentation of the Paulson Plan, when Obama didn't forcefully condemn Sec. 8.
Obama should be pushing harder for congress to look at all available options. We've got the time, and many experienced international voices are out there.
.
I don't understand why this is a problem. If the "true" LIBOR rate should be (say) 3%, while the "irrational" rate is 6.88%, why don't the central banks start lending straight to customers at (say) 5%. They'd make a killing, and the irrational banks that won't lend either get in line or fail (to be replaced by more rational players)...
.
"What I find objectionable is the notion that this is only the problem of those involved in its creation. It isn't."
I understand that even though, I did not contribute to the problem and stayed out of it, I might suffer. However, seeing the problem years ahead of time, I'm prepared, food, money, supplies, etc.
But I want to make @#$#@ sure those perpetrated this mess will suffer more.
Call me nihilist . . . I call it Justice.
The taxpayer's model is called "Cleansing".....Don't do anything until Bushzing from Redquare completly understands what has happened, which will not be in his lifetime. WHY WHY WHY no one is mentioning unemployment...0...No jobs for MainStreet, no jobs for our graduates, no jobs in science, no jobs in industry, and why in just eight years our infrasture is begining to look like Cuba.
CR: caught your suggestions about how you would fix the problem (30 posts ago). Now that you (maybe) had a chance to review others' plans, any update/changes/modifications on your thoughts on how to do the bailout the right way? Thanks.
To repeat, a key to that plan would be a requirement that banks recognize their losses.
What I find objectionable is the notion that this is only the problem of those involved in its creation. It isn't.
number2son | 09.30.08 - 9:45 am | #
2son, I agree, but it seems like the deck is stacked aginst it. Have you noticed the latest hew and cry about how we need to get rid of mark to market accounting. Mostly coming from GOP types. Leets just be crystal clear here, getting rid of mark to market accounting is nothing less than the legalization and ligitimization of securities fraud. The best indication of "true value" is that which a willing buyer and a willing seller will agree to. The essence of securities fraud is to misrepresent the financial condition of a company, by making it look more profitable or of greater value than it really is. To allow companies to pretend that their pennies are really dollars is misrepresentation of financial statements...a.k.a. securites fraud.
Yesterday (and by extension this morning with Bush speaking at 8:45 a.m.!), America jumped the shark, at least in its capacity as THE superpower.
America jumped the shark when we re-elected Bush in '04. We lost absolutely any credibility we had that day. It was a bellwether of how cynical, how selfish, and how short-sighted the U.S. population had become.
It's just taken a while for everything to fall apart.
Anny comments bout this from FT/Alphaville:
"It looks like central banks are worried that the only thing keeping banks up now is the fragile commercial paper market, which banks have been desperately tapping in the past few days as a source of overnight funding.
Liquidity is being thrown at the system, but its just making things worse.
By pumping in more money central banks arent addressing the fundamental concerns of the banks at all. Going cold turkey is a very unpleasant thing, but the solution isnt more drugs, even if they alleviate short term pain.
In assuming they can rely on central bank money market operations - which will be expanded (as is the case) when the going gets tough - banks are naturally avoiding lending to each other."
From Naked Capitalism: Reader called Dan comments:
"...if the OIS spread represents eminently legitimate fears of inaccurate marks on banks books, how is a commitment from the treasury to buy hundreds of billions of distressed assets from the banks any assurance to a counterparty that that bank will not still become insolvent. Obviously it helps on the margin, but the staggering hole in LEHs balance sheet that was revealed after bankruptcy creates profound fears about the true solvency of C or UBS. Until the market is convinced they are solventand TARP does not do thisthe OIS spread will remain elevated and lending will remain frozen."
not sure why the ital won't turn off.
This in reply to my attempt to contact my congressman:
Messaging Service Unavailable
The House of Representatives is currently experiencing an extraordinarily high amount of email traffic. The Write Your Representative function is therefore intermittantly available. While we realize communicating to your Members of Congress is critical, we suggest attempting to do so at a later time, when demand is not so high. System engineers are working to resolve this issue and we appreciate your patience.
"I ask you to judge me by the enemies I have made." FDR
The Congress and The Bush Adm. should be asking themselves this at this hour in time.
You have made yourself enemies of The Average Public for your own good.
I'm writing and calling to demand that they implement the Roubini plan ASAP.
They need to know that if they think they can campaign for the next 30 days without something passed, that's it.
I got this off of Glen Greenwald on Salon....that there are all these great plans on the Roubini blog that would work and be cheaper,etc. but no one asked the experts. CR has also been showing up in the MSM as having all sorts of experts.
So they can bring all the experts and bloggers and come up with something by Friday.
Or else.
number2son writes:
I can wait until January...
Hey, dryfly, you're on the ground in the heartland working with business most likely to be impacted by the seize up in the credit markets. What are they telling you? Are things as dire as reported from Washington?
number2son | 09.30.08 - 10:32 am | #
Yes - its a mess but the Fed/UST can keep the wheels on until January w/ TAF & such. We have at least that much time.
Unless there is something out there we don't know - like a China ultimatum or something. If so address it directly.
This bill as constructed is BS.
I'd say you can't keep all them solvent with $700BB, but it sure beats the alternative.
Again, I point to Japan. Zombie banks are bad for the economy. It's better to have them fail and be recapitalized honestly than try to do it through the back door. You get a lot more bang for your buck.
"damage will be painful and lasting"
Now this is something that should be oft repeated regarding his presidency.
Can someone tell me why I don't get more than 3.5% for my bank deposits? Anybody can give me at least 5% for FDIC insured 100K?
"painful and lasting"
Just like his presidency.....
redbank
SNAP
Ouch. I like it. Buck Fush
"I don't get it. Hasn't the Fed been pumping huge amounts of liquidity into the system in the past year? Do you mean to say that it's not working? Isn't the Bailout Bill just pumping even more liquidity into the system?"
It can't work, since the banks are just hoarding the goddamn cash and sit on it.
They're scared of losing money; they can't trust each other. This mistrust is rooted in a panic mindset which makes rational thinking a joke.
Nationalization of the banking system a la Swede, or the Hussman plan are alternatives that should deserve a very serious look.
I say "should", because it won't happen; the adults left Washington in 1996 and the crazies took over in 2000. The incredible stupidity in display yesterday after the Congress vote is a testament to the Rise of the Fuckheads.
It is impossible to rescue an economy with a completely broken political process. Just doesn't happen.
IMO, there is no hope for a rational solution in the present context. Sad to say, but milions of people will suffer because we, the voters, just wouldn't look at the facts as they were.
Say whatever you want about Krugman, but when he analyzed the program AND the behavior of the Republicans during the 200 campaign, he warned us that what we were told was not what we would get.
A majority dismissed him and there we are now. Even today, the evidence does not matter, facts are just the opinions of those who oppose us.
That is why a substantial amount of pain awaits us. Pain is the only mechanism strong enough to shatter illusions and maladapted beliefs.
What a mess!
rich writes:
"The amount of speculative, leveraged frothstill in the stock market just defies belief."
Absolutely true. Meltdown arrives, market up. This is an absolutely sure sign that we are not near a bottom. I continue to believe that the Crash of 2008 has not yet happened.
maybe I am just showing my age- but 6.88% is not an all time high. I remember 21%
It might an all time high relative to the funds rate but even that I am not sure about- back then the Fed didn't set a funds rate.
Yes, Libor has been higher than today. The current rate is only a recent high.
It was 6.8% in Nov of 2000, and it was around 9% in 1989 and 1990. I am sure that it was well into the double digits before that.