Washington will figure out the breaking point for the haircuts which will be given. My question is every other country's whose bank have similar assets also going to be bailed out in similar fashion by there own government?
What effect will this have macro economically? Do budget deficits really "not matter"? Isn't his just Uncle Sam, already drunk at the debt bar, telling the bartender, "just put it on my tab, barkeep"?
At what point do the bouncers come and kick Uncle Sam's ass on the way out the door?
If the feds are going to absorb this toxic waste and take these non performing aseets off the books of banks going forward there needs to be a big tax penalty for the industry. Any bank or financial insitution that sells these assets to the FED need to give up their tax losses carried back and carried forward. They can not stick us with the losses make profits going forward and then ask for a tax refund for years to come. That is like taking a double hit to the treasury and tax payer so that CEO's and employees can continue to roll in the big bucks while I Joe6pack wonder if I am going to collect my social security.
I am tired of being on the loosing end of every deal that comes out of Washington.
Who is able to participate? Will pension funds? How about mutual funds? Are hedge funds eligible? I need clear definition of "financial firm". What about foreign entities that may have purchased some of these securities? As someone above noted - will Deutsche Bank, UBS, CSFB be allowed to hit the bid if they find the Treasury's bid to be fat?
I've got some level 3 crap in the junk drawer in my kitchen I'd like a bid on...
"I wonder who will service these loans once the government buys them?
Good point. Sheila Bair at the FDIC seems to have a pretty good idea of what needs to be done to modify loans for delinquent borrowers to keep them in their homes. Seems like a layup. It's not like the FDIC is busy doing anything else these days.
Whatever the plan is ,Goldman Sachs will win and taxpayers will lose. What is "systemic risk" anyway?Fat cats having to sell their luxury second or third homes? Looks like that Bernanke and Paulson scared the s*** out of dumb congressmen and will get whatever they want. This is the most important weekend in U.S economic history since the weekend of August 15, 1971 ,when Nixon took the dollar off the gold standard.
Yesterday Paulson said the 'cost' of the RTC would be "hundreds of billions", which implies his plan would be buying under market to keep the banks solvent.
After all, if he were buying assets cheap and selling when things improved there would be no 'cost' to taxpayers, it would be a gain.
I still don't understand how we are going to fund this whole thing in the next few months. A trillion + dollars is lot of money. Its not like the chinese, Japanese or Saudies can come up with this kind of money unless we plan to dig deeper into Social Security.
No. No. we can't have that, posh. marking thingies down to their market value. Pleeeease, what kind of deal is that for the banksters.
Then we know what the true state of everything is and how is that going to ensure that the plutocrats will make money. After-all putting their bonuses at risk? Can't do that because it's their ability to make money that trickles down to us. Gee, what's that warm feeling I have on my leg?
they still dont comprehend that this is a symptom of the problems the economy faces, Not the cause! In over a year now, no steps have been taken to actually solve the cause, only to try to limit damage to financial institutions.
We need immediate reduction in taxes, govmt spending, and low consumer interest rates to begin to climb out, else its simply hyperinflation which will get out of control
What is the most effective method to communicate respectful disatisfaction with members of Congress?
A. Phone call
B. Email
C. Fax
D. Snail Mail
E. All of the Above
Thanks in advance to anyone willing to make a suggestion. Considering the speed of the deliberation, I'm only including option D because I have little hope that anything said will be considered before a decision is made.
I read that the USG will only purchase from US based institutions. Perfect chance to SKIM more! Buy distressed assets quickly from foreign entities for fair ove market and sell to USG for above market. Bet your ass rampant fraud will be the rule of this game. It comes from those that conducted all the fraud that got us here. I thik just let all the crooks fail now and take the medicine. Plenty of money is available from vulture funds. This is a total scam.
With the S&Ls, we spent about $160b and sent Charles Keating to the slammer.
This time we better have executives from the SEC, FDIC, FRS, OCC, OTS, and a number of other agencies frog marched in front of the cameras for willfully failing to regulate.
Then we go after the boards and senior management of the financial firms that have ripped us off while the banking agencies were sleeping.
If we wind up with over a $t of bailout, I want blood and a lot of it.
Not sure its Armageddon but we were, almost literally, dancing on the edge of the precipice. Go chart IRX YtD, especially on a log scale. Tu the markets went deeper into cardiac arrest worldwide than just before the BSC rescue. Whatever the ideological merits or objections one might have to RTCII the equity markets were about to nose-dive, as we know, big time again and the world credit markets werent responding to the de-fillibrator. Im happy to debate the philosophical pros and cons but much happier to be around to do so. Thu up until 2:59 it wasnt clear that opportunity was on the table. Fri we could, and can continue, to criticize the dancing bear for being a bad dancer.
And another factor to think about. None of these is bailouts. Stockholders got wiped out in BSC, LEH and AIG. The evil Greenburg lost $14B in 24 hours. We the taxpayers picked up potentially valuable assets for mils on the dollar (mil = $.0001) and get a three-digit return if we can resell for pennies. Meanwhile keeping the world from collapsing if the bear keeps dancing. A pretty decent retur
Spend hundreds of billions of dollars placing a permanent bid under the most toxic financial garbage. Yeah, that's a plan.
If the bid is accurate then that's not a problem. Unfortunately, what I think they're going to do is overbid, rescue a bunch of banks that should be insolvent, and then proclaim that all they did was solve a liquidity problem. It'll be five years before someone looks closely enough at the assets acquired to discover that they've been burned.
Not one comment from you guys on the Lehman part of this post. These guys clearly lied about their finances...Fuld and his crooks need to go to jail for fraud.
"The originally agreed total sale price of $1.75 billion could be lowered by $100 million to $200 million"
This company had a market cap of over $60 billion...now they are worthless, the whole ponzi scheme is crumbling right before our eyes...I have a feeling every institution on WS has the same value as this
US Government to secure mortgage market with gold reserves
Lee Jones - 19-Sep-2008
The U.S. Treasury Department has promised hundreds of billions to save the US markets using its own gold reserves.
President Bush approved the use of existing authorities by Treasury secretary Hank Paulson to make available as necessary the assets of the Exchange Stabilisation Fund for up to $50 billion to buy more illiquid mortgage assets.
When the Government bailed out the the Government Sponsored Enterprises it promised to buy illiquid mortgage backed securities, but this announcement extends that pledge.
The ESF was created after the Great Depression and uses the US gold reserve as collateral for financial stability.
I've also heard that Bush had refused to do audits of the gold reserves.
Sounds to me like they want to raid Fort Knox and use an unknown and uncounted amount of gold to pay for mark-to-fantasy CDO paper - but seriously, I'd appreciate any explanation of what this really means.
Would a TIPS fund be a viable investment choice if in fact the intention is to inflate our way out of this debacle?
Not if interest rates rise (Treasuries fall) faster than inflation rises.
Doesn't it make sense that Treasuries will be weak in direct proportion to the hit this deal is going to put on taxpayers?
Now that Paulson has scared the bejesus out of everybody enough to rally financials, he has a real decision to make.
If he structures a big generous bailout for banks, he risks delaying the deal in Congress and tanking the dollar and Treasuries.
If he structures a tough, dilutive deal for banks, the deal can get done faster with less collateral damage to the economy.
Don't forget that one role of Treasury is to sit there and count federal tax receipts incoming every day. If he gives away too much to banks, he knows tax receipts will plummet.
Thank you Comrade Mike! As soon as I stop crying, I will write the nicest, most respectful plea for the taxpayers that I can. We may all be wasting our time, but we should say something to them directly. Blog venting is great - and this is certainly one of the best - but we need to respect our elected officials enough to let them know directly how we feel. They are terrified right now. If enough of them can calm down, they may realize that they are not getting complete information from Ben and Hank.
What everyone seems to loose sight of is that there are 95 trillion in derivatives built on an asset base of 5 trillion in home mortgages, car loans,etc....
It is a ponzi scheme that has come to an end. If 1 trillion of the collateral is underwater that does not means that the value of the derivative is down by a percentage....it means the value is down by 91 trillion.
They are just trying to prop it up a little longer, There is no fix or way of buying off the end.
Is this a blind bidding? That is do all the banks put their crap into a hat or do they know what the other guy is bidding? These things are going for 90cents on the dollar since there won't be many bidders. The FED says the 30 billion BSC assets only lost 10% so they are still pricing in fantasyland.
The purchase price was lowered because of lower appraisals of real estate in New Jersey.
Gov. Corzine, a former chief executive of Goldman Sachs, said about one-third of New Jerseys economy depended on Wall Street, more in the northern part of the state.
crispy&cole writes:
Not one comment from you guys on the Lehman part of this post. These guys clearly lied about their finances...
While one may go to Hell just as quickly for lying as for stealing our government obviously rewards both activities. The real big liars and stealers will get put on a commission to distribute the loot.
They are just trying to prop it up a little longer, There is no fix or way of buying off the end.
Yup. Kick it down the line.
Paulson is astute not to extend his term.
Cause the derivatives are sold globally am skeptical of the clearing house thingy.
But a clearing house is the only option now it seems.
rich,
Thanks for your thoughts. I was gone Wed/Thurs/Fri and am trying to sort through everything. I was fishing well out of range of any cell service so imagine my surprise when I got home yesterday.
So treasuries plumment in price and yields skyrocket faster than the inflation rate since the US Govt is issuing so much debt that no one wants to be a buyer - I get that.
The solution to financing this 500 billion to 1 trillion mess is simple. Since the money is being used to bailout the rich, all that is needed is to find financing to pay it off. Raise taxes on everyone who benefited from the excess - those who make 1 million a year should have their tax raised from 35% now to 55-75% to pay off their problem. Why should the poor and middle class pay for this - just so Goldman Sachs can hand out another 18 billion (in 2007) or 16 billion (in 2006) in bonuses? Couldn't Goldman Sachs use that 34 billion today? Couldn't we use it to finance this mess?
dblwyo writes:
We the taxpayers picked up potentially valuable assets for mils on the dollar (mil = $.0001) and get a three-digit return if we can resell for pennies. Meanwhile keeping the world from collapsing if the bear keeps dancing. A pretty decent return
Could you elaborate on this a bit? This is the real crux - are the taxpayers going to get good assets at a bargain price, or get crappy assets at a grotesquely inflated cost?
1944 - the US spends trillions to liberate Asia from the horrors of Japanese occupation, the sadism of Axis murder in Central Europe and the ravages of war.
A few years later, the world contemplates the wreckage and says... NEVER AGAIN!
2008 - the US spends trillions to keep GS from trading under 90 bucks.
A few days later, the world contemplates the wreckage and says... NEVER AGAIN!
"But a clearing house is the only option now it seems."
Actually, no that is not the only options. The markets will find a bottom and creative destruction will make a better system. That is what will happen in the end, this solution only puts off the end and makes some a few more dollars until the end.
It makes more sense to hand out $100,000 dollar checks on the street corner than to keep pumping money into institutions that are insolvent.
KRISHNAN writes:
Whatever the plan is ,Goldman Sachs will win and taxpayers will lose. What is "systemic risk" anyway?
SYSTEMIC RISK: definition A time of high emotion during which the high risk positions that existed during the prior regime reposition themselves to take advantage of the new change.
Here's to "getting ahead of the problem." The RTC has already had is only intended effect -- to assist with the engineered option-expiration price jump that allowed Goldman Sachs to reflate its balance sheet.
Don't be duped by the 800T number. Most of it is in "deep storage" as in still in the ground, not yet mined.
The US gold reserves in Fort Knox will eventually be given to Asian governments to settle part of our debts to them. But that step is still a ways off, as the trainwreck continues.
Comrades,
These are the times that try men's souls. Wall Street types are now having send their wives' and kids' out into the world with their own noses. What's next? Their own tits?
Please pass this bail out...it's for the ugly kids and wives of Wall Street.
For you peons that can't stand the look of your wives and kids...there's always Lefty's.
The last act of a dying pigman is to steal one more time. This group cannot be entrusted with $700 billion--we all know that. We're better off gagging until January--no matter who wins the election, otherwise the return of Brownie will be a horror movie that kills its audience.
why do you guys fixate on a few hundred billion bucks worth of US gold reserves?
this administration creates that amount in entitlements every few weeks. the federal government spends it every couple of months. it is irrelevant in the larger scheme of things. even russia has more reserves than us these days, including metals and currency.
If the concern is lack of lending, why not have the treasury and fed. just lend directly and let these banks take thier losses. Why not set something new up, rather than recapitalize these losers.
It makes more sense to hand out $100,000 dollar checks on the street corner than to keep pumping money into institutions that are insolvent.
But that goes against the sole purpose of the FED. To maintain the workings of the current financial system and the only way to do that is to save the institutions at the heart of it at all costs (to taxpayers of course).
So i think it's either the clearing house or something even worse. (again for taxpayers of course).
from mish- Options market makers would have been prohibited from making short sales starting next week under the ban adopted today to keep speculators from driving down stock prices. The Options Clearing Corp., which guarantees all trades exchange-listed options, said a ban would have proved "disastrous."
BTW, there is a great deal of doubt in some quarters as to whether we have any gold in Fort Know at all.
Who can say for sure, they have refused to do an audit for many, many years.
Maybe it's lead with a gold plating. And only on the end of the bars that can be seen from the guard posts. I wonder if the guards can even see, or if they ever have.
Anybody have any anecdotal reports from there. such as relatives who have served, etc.
I am with that guy that says tax the "richers". But I say 95%. I want to hear the giant sucking sound as the rest of private equity and capital leave the country. I hope your boss decides to close up shop first!!
I still have yet to see how this fixes the looming Alt-A problem. Residential Real Estate prices are going to continue to drop and this will continue to take down Alt-A. So, not only are we looking at toxic crap sitting on the books today, we have another trillion waiting in the wings 2009-2011.
Gold price will be destroyed if we dump 8000T of gold.
I think you misunderstand, even if they sell the gold it will be paper gold. And it can be done over time.
Adjusted for inflation gold isn't even at the all time high's. Which incidentally is about 2-3 fold above it's current price. There wasn't an over supply then in fact quite the opposite.
Anyway, moot argument gold probably is leased out already.
I'm not an economist, so someone more knowledgeable please correct me if I'm wrong, but...
"Securing" a mountain of bad debt with a molehill of gold simply means that whoever holds the debt will eventually get all the gold when there isn't any other way to collect, right?
If he gives away too much to banks, he knows tax receipts will plummet.
Call me skeptical that he cares about future tax receipts.
The overriding point is that he can't save the banks without buying at fantasy values, because it is a solvency issue. The difference from RTC-1 is that the banks were already gone... plus the home loans on the books were not nearly as toxic. We haven't even started the alt-a/option-arm implosion, which is going to make subprime look tame. My sense is they want the public to take over the bag before they realize what is coming.
Whatever number they give us - and notice it has already gone from 'several hundred billion' to $700B - the final cost will be double or triple.
This doesn't help housing unless we go back to funny standards again. It gets banks lending to each other for a couple months until housing continues to drop, CRE, credit cards, student and auto loans loss value, then they will not want to lend again, until we reauthorize another $700 Billion, I guess as the government doesn't have to mark to market we could hide this for a long long time.
the bailout will move through Congress just like the Patriot Act did after 9/11, with a few pro forma hearings and congressional representatives voting on language that many will not have read and few will understand, and, after the consequences become obvious, they will say, as they have with the Patriot Act, that "it was an emergency"
CR, please start a thread asking the posters to make suggestions, not criticisms or simplistic let the markets decide. Pure capitalism didn't get us into this predicament and it won't get us out without a lot of blood on the ground.
Gainas writes:
With the S&Ls, we spent about $160b and sent Charles Keating to the slammer.
This time we better have executives from the SEC, FDIC, FRS, OCC, OTS, and a number of other agencies frog marched in front of the cameras for willfully failing to regulate.
Then we go after the boards and senior management of the financial firms that have ripped us off while the banking agencies were sleeping.
If we wind up with over a $t of bailout, I want blood and a lot of it.
sue writes:
But we have operating nuclear weapons, which makes us a safe haven
sue | 09.20.08 - 10:49 am | #
Repeating what I said in the last thread:
This is a financial crisis - emotions run high and strong - complaining is a necessary human response to sudden change - one can't switch from a "free market" mentality to the kind of governmental intervention we have witnessed - even this far - without experiencing an emotional response. So, get it out of your systems - you need your head - you need to think. As for me, I'm gonna shut up and listen.
Tisall eyes | 09.20.08 - 9:19 am
Richard Estes writes:
the bailout will move through Congress just like the Patriot Act did after 9/11, with a few pro forma hearings and congressional representatives voting on language that many will not have read and few will understand, and, after the consequences become obvious, they will say, as they have with the Patriot Act, that "it was an emergency"
One important difference here is that large portions of the Patriot Act were ideas that were kicked around for years prior to its passage. With this proposal, even the sponsors don't understand what they're proposing. With so little thought and discussion, it's a given that it won't work as intended.
That NYT 'stunned silence' piece was truly hateful. Once again they legitimize the 'hoocooldanode' argument (for what - acces to bogus, pre-spun info about the 'stunned silence' room?) instead of asking hard questions.
Hey, times, try making yourself useful and stop covering the jestors in dc. This jestor you need to lisen to:
Hank Jestor writes:
What everyone seems to loose sight of is that there are 95 trillion in derivatives built on an asset base of 5 trillion in home mortgages, car loans,etc....
It is a ponzi scheme that has come to an end. If 1 trillion of the collateral is underwater that does not means that the value of the derivative is down by a percentage....it means the value is down by 91 trillion.
They are just trying to prop it up a little longer, There is no fix or way of buying off the end.
Hank Jestor | 09.20.08 - 10:30 amThat NYT 'stunned silence' piece was truly hateful. Once again they legitimize the 'hoocooldanode' argument (for what - acces to bogus, pre-spun info about the 'stunned silence' room?) instead of asking hard questions.
Hey, times, try making yourself useful and stop covering the jestors in dc. This jestor you need to lisen to:
Hank Jestor writes:
What everyone seems to loose sight of is that there are 95 trillion in derivatives built on an asset base of 5 trillion in home mortgages, car loans,etc....
It is a ponzi scheme that has come to an end. If 1 trillion of the collateral is underwater that does not means that the value of the derivative is down by a percentage....it means the value is down by 91 trillion.
They are just trying to prop it up a little longer, There is no fix or way of buying off the end.
Hank Jestor | 09.20.08 - 10:30 amThat NYT 'stunned silence' piece was truly hateful. Once again they legitimize the 'hoocooldanode' argument (for what - acces to bogus, pre-spun info about the 'stunned silence' room?) instead of asking hard questions.
Hey, times, try making yourself useful and stop covering the jestors in dc. This jestor you need to lisen to:
Hank Jestor writes:
What everyone seems to loose sight of is that there are 95 trillion in derivatives built on an asset base of 5 trillion in home mortgages, car loans,etc....
It is a ponzi scheme that has come to an end. If 1 trillion of the collateral is underwater that does not means that the value of the derivative is down by a percentage....it means the value is down by 91 trillion.
They are just trying to prop it up a little longer, There is no fix or way of buying off the end.
Hank Jestor | 09.20.08 - 10:30 amThat NYT 'stunned silence' piece was truly hateful. Once again they legitimize the 'hoocooldanode' argument (for what - acces to bogus, pre-spun info about the 'stunned silence' room?) instead of asking hard questions.
Hey, times, try making yourself useful and stop covering the jestors in dc. This jestor you need to lisen to:
Hank Jestor writes:
What everyone seems to loose sight of is that there are 95 trillion in derivatives built on an asset base of 5 trillion in home mortgages, car loans,etc....
It is a ponzi scheme that has come to an end. If 1 trillion of the collateral is underwater that does not means that the value of the derivative is down by a percentage....it means the value is down by 91 trillion.
They are just trying to prop it up a little longer, There is no fix or way of buying off the end.
Hank Jestor | 09.20.08 - 10:30 amThat NYT 'stunned silence' piece was truly hateful. Once again they legitimize the 'hoocooldanode' argument (for what - acces to bogus, pre-spun info about the 'stunned silence' room?) instead of asking hard questions.
Hey, times, try making yourself useful and stop covering the jestors in dc. This jestor you need to lisen to:
Hank Jestor writes:
What everyone seems to loose sight of is that there are 95 trillion in derivatives built on an asset base of 5 trillion in home mortgages, car loans,etc....
It is a ponzi scheme that has come to an end. If 1 trillion of the collateral is underwater that does not means that the value of the derivative is down by a percentage....it means the value is down by 91 trillion.
They are just trying to prop it up a little longer, There is no fix or way of buying off the end.
Hank Jestor | 09.20.08 - 10:30 am
YLSP writes:
Comrades,
I made glorious picture for you to laugh with. Some of you older comrades might not get it.
Congressional Leaders Stunned!
AGAIN repeating from the last thread:
The people who hold the constitutionally granted power to decide things were JUST INFORMED yesterday that "were literally maybe days away from a complete meltdown of our financial system". The people who gave them that information have unilaterally made virtually all of the changes we've seen in the past 12 months.
None of those changes were made with even my "hypothecated tacit approval". I am an American, I love my country... and it is with profound sadness that I recognize that we have been sold out. The financial community and all the little players and monetary theorists need to thank their lucky stars that Joe6pak is still asleep.
May not be able to keep the poor happy with cable tv and fast food.
CR, please start a thread asking the posters to make suggestions, not criticisms
My suggestion: Tell the Corporation SOBs the US Government has no obligation to rescue their sorry asses and let the pieces fall where they may. Then
see what remedies the private sector can come up with.
Mel writes:
CR, please start a thread asking the posters to make suggestions, not criticisms or simplistic let the markets decide. Pure capitalism didn't get us into this predicament and it won't get us out without a lot of blood on the ground.
Good idea. Here's my $0.02.
The U.S. private financial system is insolvent. Every proposal must acknowledge this and be based on the idea of allowing failed institutions to fail in as quick and orderly fashion as possible.
The risk to the financial system doesn't come from the MBS/CDOs as much as from all the leverage in the CDS market.
Here is my idea -
Have the govt create an emergency CDS clearing/netting facility where everybody can submit their notional contracts and we can figure out the net exposures. Presuming the nets against any individual player is small enough, the govt then sets up a reserve fund ($500B?) that acts as a backstop against participant failure.
The banks themselves might be toast... but the system doesn't go down.
maybe not effective, but in volume it might make 'em think a little (for a change)
write your congressman website of the House of Reps: https://forms.house.gov/wyr/welcome.shtml
Since I'm sure nobody saw this in the earlier thread.
On other news....
Federal Reserve is now offering non-recourse loans to finance ABCP from money market funds. Non-recourse means that banks can take the paper onto their books without having to worry about capital constraints.
This is big. Guess the Fed is serious about the run on MM funds.
Fed is also going to directly monetize Fannie Mae, Freddie Mac, and FHLB debt. I'm guessing they wanted another conduit so they could roll the debt without the Treasury.
For all the talk about helicopters, this is as close as we've gotten to it since the BSC debacle.
guarionex - the executive branch has access to the ESF (see 404 Not Found, which is supposedly backed by gold (via SDR's -- and please don't start with the SR's aren't gold argument, because though true, that's not the point), among other things. They have access to this money now, without going to congress. I would assume they mentioned the ESF is "backed by gold" in order to try to calm everyone down about the dollar. Ain't gonna work for long.
My suggestion: Keep the $1 trillion and let the banks reap the consequences of their actions. If this causes a collapse, where real companies (i.e., not banks) fire real people (i.e., not bankers), then spend the $1 trillion helping those people out.
Transferring $1 trillion into the banking system, without regard for the discipline of the market, is about the worst idea I have ever heard. Seriously.
You're going to tell me none of our smart leaders had any staffers that read a blog like this in the past 3 years? This problem has been evident for at least the past 2 years, and clear for at least the past year... due to the unknown nature of all the junk out there financial collapse couldn't be shrugged off.
The gold in Fort Knox doesn't directly secure our trillions of dollars in debt, because that link has been severed since 1971.
However, the USA needs to borrow hundreds of billions a year from our Asian creditors. (It's assumed that they will indirectly finance this latest bailout.) Sooner or later they will tire of bankrolling our economic trainwreck, and we will become an Argentina-like debtor at the mercy of a "credit committee" dominated by China and Japan. One of the first things they'll do is demand fiscal responsibility and reduced consumer credit, pretty much the way IMF treats international deadbeats.
At some stage they will also require transfers of most of the US gold reserves, as partial payment for our dollar debts.
BB: "Conspiracy theorists would argue quite the opposite.
Look at which banks are left standing at the end of this. Less competition for sure."
Life's too short to care what conspiracy theorists think about anything. Favored institutions may last a bit longer, but ruin faces everyone in the end. The survivors will be the ones who are legitimately in the best shape.
I guess my concern was - they can hand over all the paper and pixels they want to the holders of these toxic MBSs and CDOs - but when they start talking about handing over gold it starts to sound a bit more serious.
Serious question: Does anyone know what this means? Are they raiding Fort Knox to keep asset prices inflated?
No...
The Exchange Stabilization Fund was created through accounting tricks.
Basically, FDR nationalize the Federal Reserve's gold in 1933 at $20.67 an ounce.
Any newly produced or imported gold was taken to the Treasury. The Treasury would issue a check against the Treasuries account at the Federal Reserve (for $20.67 an ounce less a handling fee of .25%). The Treasury would then settle the account with the Federal Reserve by issuing the Fed a Gold Certificate with the same face value.
In 1934 FDR raised the price of Gold from $20.67 an ounce to $35 an ounce. This meant this meant that the amount of gold held by the Treasury was "worth" more than the gold certificates on deposit at the Federal Reserve. The Treasury then issued gold certificates to the Federal Reserve for the "extra" gold which the Federal Reserve credited to the Treasuries account.
The tidy little profit from the operation became the exchange stabilization fund.
There were other revaluations in the 70's till it was eventually valued at $45 an ounce. The Treasury could do it again.
Kind of fitting that the publics money being handed over to Wall Street was created through the Governments confiscation of private savings in 1934.
Bailout Nation writes:
What is the most effective method to communicate respectful disatisfaction with members of Congress?
I have been told that FAXs from voting constituents are always noted. Of course, this is in normal times. Today it seems the poster known as Pitchforks, Torches and Pikes has the right idea.
Of course, that is exactly why they will leave town and hide in their undisclosed location while this all melts down. They are physically afraid of the people.
"Great! You've selected Option One. If you're a bank, press or say 'one.' If you're a brokerage firm, press or say 'two.' If you're an insurance company, press or say 'three.' "
"Three."
"You've selected Option Three, which means you're an insurance firm. Did I get that right?"
"Yes."
"OK, let's drill down a little further. If you're calling because you're besieged by class-action lawsuits brought by take-no-prisoners plaintiffs' attorneys because your large corporate policyholders committed innumerable mass toxic torts, press or say 'one.' If you're calling because you insured billions of dollars' worth of undocumented, nonperforming mortgages, press or say 'two.' "
"Two. No, wait, one. I mean, uh, both."
"I'm sorry. I didn't understand. Let's try something else. If you're the CEO of an insurance company with a servile compensation committee that gave you an irrevocable golden parachute, press or say 'one.' If you've served on corporate boards with Henry Paulson, press or say 'two.' If you believe in strict market Darwinism for every company but yours, press or say 'three.' "
"Three."
"If you want your check automatically deposited into your company's bank account, press or say 'one.' If you want cash in small, unmarked, used, nonsequential bills delivered to a branch office in Zurich or the Cayman Islands, press or say 'two.' "
(Silence. Thinking. Surge of fiduciary energy.)
"One."
"OK. Please enter the amount you want using the number keys. Use the star sign for a decimal point, and press pound when you've finished."
(Lengthy series of numbers entered, followed by the pound sign.)
"Wow! You are in trouble! Your funds should clear in three business days. When you have another claim, call back. Thank you for calling and have a great day!"
YSLP: You can say that, that's your right. But there is no evidence to that effect. There have been no committee hearings, no sworn testimony, no inputs from officialdom. And they have damn sure never had a clue about all this. They are certain that this is the truth and cannot be proven otherwise.
"Have the govt create an emergency CDS clearing/netting facility where everybody can submit their notional contracts and we can figure out the net exposures. Presuming the nets against any individual player is small enough, the govt then sets up a reserve fund ($500B?) that acts as a backstop against participant failure."
This is a massive technological task even if you restricted it to just netting the CDS's at a large institution. That doesn't mean its a bad idea, though. Something like this has to happen, and the sooner the better.
YLSP writes:
You're going to tell me none of our smart leaders had any staffers that read a blog like this in the past 3 years? This problem has been evident for at least the past 2 years, and clear for at least the past year... due to the unknown nature of all the junk out there financial collapse couldn't be shrugged off.
YLSP | 09.20.08 - 11:12 am
If you can over your emotions - and calls for justice and/or personal profit - - you might be well advised to ADMIT THIS IS A CRISIS - and recognize you can't game it.
Powerful decisions have been made by very few people ---
It sounds like the US would be on the way to becoming just another banana republic (minus the good weather!) if we had to hand over our gold to the Chinese and Russians.
And who is going to value the toxic assets and what is the government trying to be, a market player...
The average American is going to be robbed if these plans are executed.
dblwyo Stockholders got wiped out in BSC, LEH and AIG. The evil Greenburg lost $14B in 24 hours. We the taxpayers picked up potentially valuable assets for mils on the dollar (mil = $.0001) and get a three-digit return if we can resell for pennies. Meanwhile keeping the world from collapsing if the bear keeps dancing. A pretty decent return
Nonsense.
Pigmen: In the boom they make billions and in the bust they lose billions. Even after their losses, they get to keep billions. Net gain.
Joe6Pack: In the boom his wages kept falling or about the same. In the bust he loses via inflation and taxes. Net loss.
Understand the whole Greenspan "bubbles don't exist" con job.
The racket is NOT that the Pigmen keep everything after the bust. That would be too simple.
The racket is the fact that at the end of the bubble-and-bust,
Pigmen have NET GAINS
Joe6packs have NET LOSS.
isnt this bailout just a huge Money laundering OP??
think of it, the (Shadow) Banks created fake wealth trough leverage and now want to change it into real taxpayer funded wealth!! even at cents on the dollar this makes a handsome profit...
its so outright criminal that i dont think anyone keeps his money in the US...
The situation has gotten so egregious that we half-jokingly use a measure called EBITDAT when evaluating companies, i.e. earnings before interest, taxation, depreciation, amortization and theft. In my view, this theft is a measure of how much senior executives and boards of directors blithely take out of companies in lavish salaries, perks and benefits, even though they may be running their companies into the ground.
I have observed first-hand the sheer amount of waste and inefficiency at a few companies that I have taken over
For instance, when I took over a rail freight car company called ACF during the 1980s, they had 12 floors in a Manhattan office building which was filled with workers. I couldnt figure out what they did. I really tried to find out what these people did and even went so far as to pay $500,000 to a consultant to study the issue and get back to me. After weeks of research, even the consultant couldnt figure it out. So I shut down the division and it had no discernable impact on the performance of the company, which I own to this day...." ;-----)
Don't the banks have both bad assets (CDOs, LLs, MBSs, etc.) AND big liabilities (guarantees for the above) on their books? Buying the assets solves only half of the problem - at best.
I, for one, would like to know where Paulson et al came up with this half a trillion dollar figure.
Here's a novel idea - how about we study the proposal before we put it into place. How about Congress asks the Congressional Budget Office to study the proposal before we rush it through? Executive Order 12291 under the Reagan Adminstration required that any federal spending package greater than $100 million has to be subject to cost-benefit analysis.
tisall eyes writes:
If you can over your emotions - and calls for justice and/or personal profit - - you might be well advised to ADMIT THIS IS A CRISIS - and recognize you can't game it.
Powerful decisions have been made by very few people ---
Shut the F___ up and listen.
We seem to have been inundated with a number of astroturfers. It's nice of you astrotufers to come and join in on the conversation we've all been having for the past 3 years, and make rational points... oh wait, you're coming in here and making irrational points, pointing fingers, and name calling.
In case you didn't notice we have been calling out against personal profit! We're against personal profit for the jerks who got us in this situation. Perhaps that might include you based on the attitude and scorn you are showing.
Do you think Paulsen is going to be able to game the system either? No! Game over! We are beyond the wrecking point.
I think they have a plan, and its to 1. drive stock prices up, and 2. ensure institutions are motivated to raise capital and not create any more weekend criseses (sp?) a la AIG.
Evidence: The mafia-like AIG takeover, with 12% interest rates, 80% ownership in the company, and an 85 billion dollar loan that has first priority over other debtholders. Together with the refusal to bailout Lehman, this should be seen by other financials as a warning that the government will not help.
Thus, the financials should now realize that they need to go to the markets ASAP if they have balance sheet holes to plug.
Next, they ban shortselling and announce the massive RCTII program, and this drives stock prices up.
The only thing missing now is companies coming out and announcing secondaries or other efforts to raise capital. If I'm right, we should see a lot of this in the next week or two, along with an extension of the ban on shorting.
Did the President of Columbia say that he was for Obama as President while George was standing beside him during his speach today in the rose garden? Hmmm... lol
The irony of Democratic lawmakers saying that the bailout plan needs more provisions to prevent foreclosure amuses me. "Keeping people in their homes" also means "Keeping them on the hook for something they overpayed for".
As the 2009 recasts play out, we'll find out just how many really want to stay in their homes. We're going to discover quite a few that don't want a workout of any kind, unless it means being able to keep the old teaser minimum payments.
There may even be people who if offered to continue on the teaser payments, will leave anyhow - simply because the pot of gold isn't there, at the end of the two-year IRS ownership exclusion.
Instead of talking about "Keeping people in their homes" the Dems would be more appropriately beeding heart if they were offering proposals to make it easier to short-sale and get out of the homes.
This is a massive technological task even if you restricted it to just netting the CDS's at a large institution.
All they need to do is make the contract look like a security, then they could use existing clearing/netting systems. There are plenty of good clearing facilities. They could have done this years ago, but the market grew too fast in too diffuse a manner to effectively organize.
I don't think Paulson understands the REAL problem. The subprime mess is just a symptom, not the root cause.
The best explanation I've read is due to fiat money and fractional reserve banking. Without the roughly 9:1 credit leveraging by the banks (higher with IBs), "irrational exuberance" could not have inflated housing prices so far. Too much money and credit naturally creates bubbles and boom/bust cycles.
I think the Austrian explaination of the business cycle makes the most sense -- too much credit that misallocates capital during the boom, and has to be painfully adjusted during the bust. Combined with no limits on fiat money creation, we get dot.com bubbles, housing bubbles, etc.
The subprime mess is just the latest symptom of a structural defect in the banking system. No amount of fiat in the bailout plan will fix that.
This episode should put an end to the Keynesians. Government spending will not give you a neverending boom.
No bail out after all...Wall Street feels your pain...
On the party circuit, many New Yorkers aren't canceling events, but some are seeking to make them less ostentatious, says Bronson van Wyck, who runs New York event firm Van Wyck & Van Wyck LLC with his mother and sister. Earlier this week, the children of a Wall Street executive who are planning his 65th birthday party contacted the firm to change the menu. Out went the caviar and truffles and in came Wagyu beef instead. The new menu won't cost any less, Mr. van Wyck says, but "it's less overt."
I feel compelled this morning to call the office of my President and elected Representatives and suggest the US Government declare a "hands off" approach to fixing these problems.
Let the genius of our wonderful free enterprise system, based on thousands of years of practical experience, trillions of dollars of collective profits, well fed, groomed and experienced cadres of executives and university trained consultants, living in the most technologicaly advanced nation on the planet, devise and execute thier own plan to deal with the current difficulty.
All they need to do is make the contract look like a security, then they could use existing clearing/netting systems. There are plenty of good clearing facilities. They could have done this years ago, but the market grew too fast in too diffuse a manner to effectively organize.
The devil is in the details. From what I have read there are 2.5M -- give or take -- custom contracts with different terms and conditions to somehow harmonize and value. The only easy way to do it is to create a "default" as in the FNM/FRE case which nets out near par. Presumably Monday's solution will make this happen.
I will continue to say: Paulson is buying time here. The threat/hope/promise of something by the government will temporarily interrupt normal market workings. Paulson has little or not control over what, if anything, may emerge from Congress ane he cetainly has no authority to set up new Federal bureaucracies, throw trillions of dollars around or commit the US to backstop cash funds, all banks, al motgages, all foreign investors and the stock market in general.
What is hinted at - proposed is too strong a word now - is about as well thought out as the Iraq war. What is the goal? How will success be defined? What is the exit strategy? Are we doing this for legitimate purposes? Do we even know what we are doing? Almost every person knows the answers to those questions.
Meantime, every unreformed speculation addict assumes the happiest of possible outcomes and continues to invest accordingly. Even taking away every last bit of panic and credit uncertainty, the US is a stagnanat or redeeding economy and the markets should be pricing that in. They have not. To that degree Paulson has ignited a new, though probably brief, bubble: the bubble of government blue sky.
My guess is they are using $50B tranches as they know it isn't going to work. I'd expect the plan to have to be changed after the first tranche/auction occurs. I also have a hard time seeing how a limited number of banks don't collude on a reverse auction. I think you have to allow for 3rd party bidders in there as well. If they are willing to buy then you really have a market clearing price. Otherwise, it's just a inefficient crony capitalist bailout by any other name...
Comrades,
Interesting a terrorist attack in Pakistan to coincident with the timing of Pakistan becoming more vocal regrading American raids into Pakistan.
I forgot who we are at war with, Pakistan, Afghanistan or Iran?
"All they need to do is make the contract look like a security, then they could use existing clearing/netting systems. There are plenty of good clearing facilities. They could have done this years ago, but the market grew too fast in too diffuse a manner to effectively organize."
If that's true, then the government should insist on it immediately as part of their bailout.
If that's true, then the government should insist on it immediately as part of their bailout.
It's not true and even if it were forcing the use of the clearing system would bankrupt the system as well. I can just see all the banks having to market to market based on those bids...
Interesting a terrorist attack in Pakistan to coincident with the timing of Pakistan becoming more vocal regrading American raids into Pakistan.
Recall what happened in Spain (from Wikipedia):
"A series of bombs exploded in commuter trains in Madrid, Spain on 11 March 2004. After a five month trial in 2007 it was concluded the bombings were perpetrated by a local Islamist militant group inspired by al-Qaeda. The bombings killed 191 people and wounded more than 1800, and the intention of the perpetrators may have been to influence the outcome of the Spanish general election, held three days later. Though initial suspicions focused on the Basque group ETA, evidence soon emerged indicating possible Islamist involvement. Because of the proximity of the election, the issue of responsibility quickly became a political controversy, with the main competing parties PP and PSOE exchanging accusations over the handling of the aftermath. At the 14 March elections, PSOE, led by José Luis Rodríguez Zapatero, obtained a relative majority, enough to form a new cabinet with Rodríguez Zapatero as the new Presidente del Gobierno or prime minister of Spain, thus succeeding the former PP administration."
Nemo says:
"Transferring $1 trillion into the banking system, without regard for the discipline of the market, is about the worst idea I have ever heard."
Absolutely agreed.
And the absurd political justification that this will somehow 'keep people in their homes' is the exact analogy of "Iraq has weapons of mass destruction'. Once again we blunder about in utter ignorance. The notion that Congressional leaders were 'stunned' obviously came from a reporter who had never reported on Congress before. That was the same look they always have on their faces.
"The devil is in the details. From what I have read there are 2.5M -- give or take -- custom contracts with different terms and conditions to somehow harmonize and value. The only easy way to do it is to create a "default" as in the FNM/FRE case which nets out near par. Presumably Monday's solution will make this happen."
I once participated in a presentation on CDS's put on by the legal department, and man there are a lot of terms. Most of the contracts have standard terms (eg. PAUG), and you can probably tie out large portions of the CDS market easily. I have no idea how many non-standard contracts there are, though, and I'm not sure anyone else does, either. At a minimum, you can start with ABS and move on to other sectors.
I've quit worrying about the merits of the deal since it is already done. The question is how far above fair market value is the government willing to pay? Too high a bid (any takers than it won't be?) and lenders will lose any motivation to modify. Why bother if the lender can pass to the govt for more than it can get in a mod/foreclosure. Seems to me the plan will lead to a GREATER number of foreclosure unless the government (or its chosen servicer. Is there anyone out there big enough to handle the avalance of bad loans) can quickly service the problem loans.
From what I have read there are 2.5M -- give or take -- custom contracts
No doubt part of the solution would have to involve the players willing to hyper-simplify their CDS contracts to some standard that could be easily securitized. Basically create an 'AIG-CDS' contract that is worth $1M against an AIG default. Do the same for the 800 other financial firms. They all figure out how many they have with eath other, throw them into the pot, and see how they net out. That is basically what they do with stock trades every day.
Sept. 20 (Bloomberg) -- The Bush administration has sent to Congress a $700 billion proposal that gives broad power to the U.S. Treasury Department to acquire troubled assets now on the balance sheets of U.S.-based financial companies.
The legislation gives Treasury Secretary Henry Paulson authority to own as much as $700 billion in mortgage-related assets at one time. The bill would raise the nation's debt ceiling to $11.315 trillion from its current $10.615 limit.
wally writes: The notion that Congressional leaders were 'stunned' obviously came from a reporter who had never reported on Congress before. That was the same look they always have on their faces.
Wally:
If they looked like they had seen this coming, wouldn't that suggest they knew this was coming ??
Wally, it's just for show. They did know. But you and I don't elect them. Joe6Pack does.
Why bother paying your mortgage at all, force the sale of the loan to the gov't and then work out a solution with the preferred servicer of choice (Goldman Sachs)
"No doubt part of the solution would have to involve the players willing to hyper-simplify their CDS contracts to some standard that could be easily securitized. Basically create an 'AIG-CDS' contract that is worth $1M against an AIG default. Do the same for the 800 other financial firms. They all figure out how many they have with eath other, throw them into the pot, and see how they net out. That is basically what they do with stock trades every day."
The mortgage default economic stimulus plan (MDESP, think of it as a tax cut for poor and middle class. The government isn't going to kick people out of their houses, this is a bad plan, it opens the floodgates to hell and further default.
And the absurd political justification that this will somehow 'keep people in their homes' is the exact analogy of "Iraq has weapons of mass destruction'.
Well, I see it a little differently. The Congress (esp. the Dems) want this bail-out to include provisions to "rescue homeowners".
So first the government will spend $1 trillion buying possibly worthless mortgages, then it will guarantee that they are worthless by writing them off.
The entire housing disaster -- from borrowers to lenders to securitizers to investors -- has been the worst mis-allocation of capital in the history of capitalism. And now our government is about to ratify it from front to end, starting with the banks.
Whether your goal is efficiency or fairness or just the future of the nation, this bail-out really is simply a hideous idea.
The more I hear about the US government plans to accumulate bad loans and "toxic" assets from financial institutions the more it sounds like an astronomical phenomena: a black hole.
BB: "My take is that the CDSs is too infinitely complex to unwind in any orderly manner.
Hence instead they will work to prevent the CDSs from blowing up
How? Buy Bad Assets, infinitely cheaper and kick the CDS problem to the next administration."
The problem is the sheer size of the CDS market. When you net the exposure, it's far less than the total market, and netting it out lets you know which institutions can fail. If you leave it be, you can't let any institution fail.
"No doubt part of the solution would have to involve the players willing to hyper-simplify their CDS contracts to some standard that could be easily securitized. Basically create an 'AIG-CDS' contract that is worth $1M against an AIG default. Do the same for the 800 other financial firms. They all figure out how many they have with eath other, throw them into the pot, and see how they net out. That is basically what they do with stock trades every day."
Even given that what you suggest was possible, the problem remains that the banks are insolvent due to bets on these contracts.
The real issue is how do you save the banking "system in the face of systemic insolvency?" Unfortunately, it's not a problem to be solved over a beer/weekend.
Personally, I was "happy" with the controlled implosion approach as it took out bad players one by one while allowing the markets to adjust. Unfortunately, it appears to have gotten away from the Fed/Treasury with LEH.
Any attempt to replicate the complexity of the existing CDS market would admitedly fail. The only way securitization works is to hyper-simplify. But Paulsen worked for GS... surely he knows how to be a market maker.
This doesn't prevent banks from going under... it protects the system, presuming that a fair majority are not insolvent and can ride this out.
from BB's post, Under the proposal, the Treasury secretary is given wide berth to take action ``as the Secretary deems necessary'' to hire people, enter into contracts, and issue regulations.
By starting the bailout process now, the democrats have effectively lost an opportunity to make regulatory changes.
Well, it looks like the Calculated Risk Hysteria Index went ballistic overnight. There were 671 comments on a story about a bank failure where the amount of assets involved was .033% of FDIC-insured assets.
Meanwhile, not only did my bank call me up yesterday with an offer to greatly expand my HELOC at an interest rate of prime minus 75 bp, on my way to coffee this morning I noticed that the price of gasoline is down $.10/gallon this morning.
This "catastrophe" seems to be occurring everywhere except the real world.
Whiskey writes:
The problem is the sheer size of the CDS market. When you net the exposure, it's far less than the total market, and netting it out lets you know which institutions can fail. If you leave it be, you can't let any institution fail.
You may be right but am thinking that it is far too complex, hence they will kick it down the road.
Nemo writes: The entire housing disaster -- from borrowers to lenders to securitizers to investors -- has been the worst mis-allocation of capital in the history of capitalism. And now our government is about to ratify it from front to end, starting with the banks.
Whether your goal is efficiency or fairness or just the future of the nation, this bail-out really is simply a hideous idea.
Response: Efficiency and fairness are equally difficult questions. However - at the bottom line - this "BAIL OUT" is the first smart thing "we" have done. It gets ahead of the systemic failure - or at least has a chance to do that.
There is MUCH to be sorted out. However, this BAIL OUT should not be viewed from the vantage of how much it will cost us. This is a systemic failure - and fault lies where it does - Nevertheless, the better view is two fold: [1] Does this save us from a failure on Main Street and [2] Does this put us in a position to save costs on reconstructing America - given that we still have a price to pay for the burst bubble. Both are questions.
"Any attempt to replicate the complexity of the existing CDS market would admitedly fail. The only way securitization works is to hyper-simplify. But Paulsen worked for GS... surely he knows how to be a market maker.
This doesn't prevent banks from going under... it protects the system, presuming that a fair majority are not insolvent and can ride this out."
I suppose one issue is that this helps solvent institutions and hurts the insolvent ones, because it makes it easier to identify the insolvent institutions. This might require the government stepping in to force everyone to convert from CDS's to the new swaps.
designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
politicians in France spend a lot of time listening to the people
What they hear is "we want a pony", they then do whatever they can to provide a pony while kicking the underlying costs down the road. Does this sound familiar?
(Full disclosure: my wife is French, and I have spent enough time there to have some idea of the progam)
BB: "You may be right but am thinking that it is far too complex, hence they will kick it down the road."
The CDS labyrinth is the main reason everyone uses to justify all of these bailouts. Get rid of the opacity, and a resolution is possible.
I think there's a lot of promise in kis's idea of market makers converting CDS contracts into securities with a stripped down, standard form to make tying out exposures much easier.
designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
This could mean anything.
In other countries if you were fascist, communist or socialist it was understood.
Get out the pitchforks and some rope. Heads need to roll. Of course, figuratively speaking.
For a start:
1. from 2000-present, track down the recipient of every bonus paid out to employees of investment banks (at any rank up to and including CEO) and seize equivalent assets on behalf of the taxpayer. Put yachts, mansions, bentleys on the auction block to help pay for the bailout. Illegal? Tough sh!t. The bailout is itself is unconstitutional and illegal.
2. irresponsible borrowers - get a 1099 for forgiven debt when walking away from a mortgage or when mortgage value is written down. Garnish wages for life if necessary. Allow more aggressive seizure of toys accumulated from home equity loan cash-outs.
3. Any financial institution receiving a dime of bailout money is nationalized. You don't get to repeat this crap in 20 years time.
4. No new mortgages with less than 20% down.
5. Criminal investigation into fed/treasury/congress participants in the bailout.
6. Criminal investigation into heads/boardmembers/decisionmakers of investment banks and financial institutions who have been involved in this mess. With this meltdown, they have proved that they are a danger to financial stability (w/ ridiculously complex derivatives, etc) and we need to return to a more regulated system, even if it resembles something from the 50s.
7. Add fraudulent mortgage brokers to the above.
I am willing to pay hundreds of millions of dollars in taxpayer money for this inquisition. Only fair since we are paying hundreds of billions for the bail-out. It will be good for the economy - employing many attorneys, clerks, repo-men, and prison guards.
In summary, screw all you financial geniuses who invented these 'creative' debt instruments and allowed stupid people to hang themselves with unsupportable levels of debt. You have added nothing to society. You are destroying the value of our currency. And now you need to pay for your participation in this massive fraud.
Volker the Viking writes:
BTW, there is a great deal of doubt in some quarters as to whether we have any gold in Fort Know at all.
Who can say for sure, they have refused to do an audit for many, many years.
Maybe it's lead with a gold plating. And only on the end of the bars that can be seen from the guard posts. I wonder if the guards can even see, or if they ever have.
Anybody have any anecdotal reports from there. such as relatives who have served, etc.
Netting it out lets you know which institutions can fail.
Yes, Whiskey. Precisely.
Triage makes more sense than indiscriminate support - we have a shortlist of 799 financial service operations, some of which are undoubtedly too weak to continue. And not all of them are needed in any future now imaginable.
As in the AIG negotiations, where terms set were in a number of ways preferable to bankruptcy proceedings, this broader operation requires facing the hard realities. What I've read thus far still smacks of 'softening the blow' instead of managing it.
How is this plan going to fix didly? Right now everybody is afraid to loan to anybody because nobody knows who has a lethal dose of guarantees on Lehman, AIG, WAMU, AMBAC, MBIA, and god know who else is in imminent danger of going under. MBS underlie most - but not all - of the losses, so the plan won't cover everything. Plus, many losses have already been incurred through changing values during trades and so changing the underlying value now doesn't back it out. So the financial industry will still be riddled with stealth zombie institutions once the plan is going and people will still refuse to make loans.
This doesn't address the imminent crisis at all. In a few months to years, the vast subsidies will refloat underwater institutions and get things back on an even keel (at enormous financial and moral cost). But that's going to take a long time and if the crunch that happened this week continues there won't be a financial industry to bail out. If it levels out on the basis of what's already been done, well, then we can take at least a few weeks to consider how to deal with the long term problems.
I have no problem seeing the Treasury and the FED using their authority to save a few critical financial institutions from going under. I have serious concern in seeing the government bailing out every wrong-doer. This is dangerously unproductive to our nation in the long-run.
ztexas writes:
I am fuming at this bailout of the irresponsible.
In addition to ztexas, I am fuming to the point of questioning paying my next credit card bill and mortgage to WaMu..
How many more people will naturally react like me when they are told they are bailing out everyone except them? How much credit card, Home equity loans and auto loans does this new bill cover?
ahh sebastian, great to have you back these last couple of days.
oddly, i agree with the premise of your last comment. the sheeple are not panicked, just concerned. even the high end folks are complacent. i was at a dinner party at the Mandarin Oriental here in NYC last night, and it was the farthest thing from folks mind.
lots of confidence in big daddy coming to the rescue.
meeting my macroeconomic geek buddies this weekend for drinks and plotting for next week. there's looting to be done and not planning on being left out. may bring eye patches and peg legs for fun. woo hoo!
Fair Economist writes:
How is this plan going to fix didly?
Response: Didly is going to face hard times - no matter how you choose to spell it. We are in for hard times.
However, this plan is an effort to cut the losses the economy { us - main street } would experience if "free enterprise" actually took it's well justified revenge. It was a very smart move.
There is no way to get around the fact that many people will be hurt - many businesses will fail. Those are just hard cold facts. Short them if you must.
Money is going to be tight going forward. The real question is whether you would have preferred the "Adverse Feedback Loop" solution.
At least this answer, the BAIL OUT, allows us to consider the possibility of saving "start up" costs. We will "start up" again. It's just an unfortunate fact that we face pain first.
mp writes:
You folks better stop whining and figure out how to preserve your wealth.
Did not buy a mcmansion, did not max out home equity, lost my contracting job from a financial services company (which is bankrupt now), don't qualify for unemployment and tried to hedge what I have left of my portfolio from downside risk with short etf's. How do you preserve your wealth? It does not pay to be prudent.
the sp500 had a 15% move from thursday to friday. If that is'nt the real world, i don't know what is.
the 500 represent some significant pensions and asset's, covering millions upon millions of people.
if that's not the real world, what is?
Even given that what you suggest was possible, the problem remains that the banks are insolvent due to bets on these contracts.
That's the crux. CDS implicitly assume the parties are solvent, and many (most?) aren't. For the system to work almost everybody has to be solvent - it appears even two insolvent major players is too many. So to stop this via bailout the feds have to make everybody else solvent, which basically entails a 100% guarantee on every high finance contract in existence, not just a partial guarantee on some MBS. If we're gonna do that, we should nationalize the finance system - after all, we'll have paid for it.
"That's the crux. CDS implicitly assume the parties are solvent, and many (most?) aren't."
Even insolvent institutions can be net neutral to the CDS market. If that's the case, it makes more sense to cancel out the CDS contracts first before liquidating the institution.
The Peoples Ministry of Central Economic Planning, in conjunction with the Politburo has ruled that there WILL be prosperity for the proletariat.
Ponies will be distributed to all children. Bread will be available every day from 4:00 am to 6:00 am. The circus will visit your oblast every three months.
We will expect your votes as a sign of appreciation.
Rejoice and praise the fine work of Comrades Paulson and Bernake for their excellent service to the Republik.
However, this plan is an effort to cut the losses the economy { us - main street } would experience if "free enterprise" actually took it's well justified revenge.
You're not addressing my point. The threat to Main Street is that the short-term debt markets have locked up and we are about to see a massive wave of illiquidity-driven bankruptcies in sound companies, which will have massive knock-on effects in turn. This plan does not address the "stealth zombie" problem causing that - even after the whole 800 billion or whatever has been spent the system will still be riddled with stealth zombie institutions and the loan market will still be locked up.
It will "help", alright - it will help some of those attached to high finance companies, those who manage to transform the government largesse into something that will survive the crash. But the benefits won't reach Main Street.
Ultimately, this is "trickle-down" economics writ large - hand vast sums to megacorps without strings attached and hope it trickles down to Main Street. It's not going to work here. The vast sums are still not enough to really bail out the megacorps and the mechanisms for the megacorps to send weath to Main Street are broken even if their hearts suddenly grow three sizes like the Grinch's did.
designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
Looks like a governmentally-sanctioned coup by The Fed...Is that PC? And we are paying them for the pleasure, how awfully polite we are...
Even insolvent institutions can be net neutral to the CDS market. If that's the case, it makes more sense to cancel out the CDS contracts first before liquidating the institution.
I'm all for netting out CDS when possible. But they are often fearsomely complex documents, written by flotillas of lawyers. It's not possible to net those out in a reasonable timeframe, and probably not possible at all.
CDS are frequently non-linear. When companies cross-insure and then enter bankruptcy together, "netting out" requires the solution of a vast system of non-linear equations. That may well not even HAVE a unique solution (in general, a complex nonlinear system is not solvable), and even if it does, finding it can be a monster mathematical problem.
Fair Economist writes: You're not addressing my point. The threat to Main Street is that the short-term debt markets have locked up and we are about to see a massive wave of illiquidity-driven bankruptcies in sound companies, which will have massive knock-on effects in turn.
You pose too many complex questions. One at a time. I addressed this question. In a collapse there are two issues: solvency and liquidity. Both are in play. The simple answer is... good businesses will fail before this is done. That is pain, and I addressed it.
Fair Economist writes:It will "help", alright - it will help some of those attached to high finance companies, those who manage to transform the government largesse into something that will survive the crash. But the benefits won't reach Main Street.
Survive first... seek justice later... and don't assume you will see much of it.
Fair Economist writes: Ultimately, this is "trickle-down" economics writ large - hand vast sums to megacorps without strings attached and hope it trickles down to Main Street.
I don't like being pissed on any better than you do. But, when you are drenched, you towel off first.
Don't you suppose that the 2003 SEC decision on leverage has something to do with this!? As I understand it, SEC decided to permit investment banks the ability to lever up to 30 or 40 to 1 instead of the earlier 12 to 1. This affected five banks (Bear, Lehman, Merrill, Morgan and Goldman). The dominoes are still falling. Sounds like SEC & this administration have a lot to account for.
Fair Economist writes: ....CDS are frequently non-linear. That may well not even HAVE a unique solution (in general, a complex nonlinear system is not solvable), and even if it does, finding it can be a monster mathematical problem.
Response: Personally - and this is just a wish on a star - I hope all quant systems implode.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Translated: The Treasury Secretary is the Lord Thy God. Thou Shalt Not Question the Divine Wisdom and Providence of the Lord Thy God.
Fair Economist : "I'm all for netting out CDS when possible. But they are often fearsomely complex documents, written by flotillas of lawyers. It's not possible to net those out in a reasonable timeframe, and probably not possible at all."
You can start with CDS's that are directly comparable. For instance, there's no reason the government needs to worry about CDS's between two desks at the same IB. If two contracts are very similar (same underlying, same coupon, etc.) but not identical, exchanging such contracts for one with streamlined terms will probably work. Tying out contracts on, say, the ABX 07-2 PAAA vs. a component of the index is not practical.
But it is funny to see how all these crucial moves are always scheduled on OPEX, and at major technical pivot points for the markets: like the 10 year major support level (1150) for SPX this week.
In addition, and if you look carefully at a 5 minutes chart of XLF Thursday it sure appears to me that the price-volume action indicates NOT a panic selling, but rather a very controlled driving of price down to the lowest level of the day while buying on the dip = shaking the last scared hands before the UP ramp as we were approaching the 1150 crucial level.
What is provocative to me is how these major news are nearly always coordinated with perfectly controlled market action that are so obvious even to me, a retail trader, with not so many years of experience
I mean it would be easier to believe the shock argument if it were not so clear that it is so well timed.
Interestingly, they felt that they had to throw in a short covering (the short rule), as if they were not sure the bailout would be sufficient to stimulate buyers.
An inflexion point was the bunch of econ. news over the last weeks so now I am really extra curious to see what crucial data next week is going to bring (home sales, durable goods, final GDP).
CDS are frequently non-linear. When companies cross-insure and then enter bankruptcy together, "netting out" requires the solution of a vast system of non-linear equations. That may well not even HAVE a unique solution (in general, a complex nonlinear system is not solvable), and even if it does, finding it can be a monster mathematical problem.
Thank you....
After the last couple of threads I'd almost forgotten why I love this blog.
Thanks Tisall. I appreciate the intelligent discussion. I agree we are in a dire crisis and that something needs to be done, and that almost any price is justified if needed for a good plan. I just don't think this is it. If this were the only way to fix things and it would do the job I'd give Bush his 700 billion protection fee.
You can start with CDS's that are directly comparable. For instance, there's no reason the government needs to worry about CDS's between two desks at the same IB.
I guess I'm focusing too much on the negative. That won't fix the whole problem BUT it's a good idea and should be done pronto.
Another limitation of the current bill is that it does not even DISCUSS any provisions to deal with the CDS mess. No leverage limits, no cancel-out policies, never mind the hairy issues.
MLM writes:
politicians in France spend a lot of time listening to the people
What they hear is "we want a pony", they then do whatever they can to provide a pony while kicking the underlying costs down the road. Does this sound familiar?
(Full disclosure: my wife is French, and I have spent enough time there to have some idea of the progam)"
One difference is the French are much more :connected to the idea that "gvt. is working for them" and not the other way around... and the crowds quicker to act to show it.
Another difference are the social advantages offered to the average citizen (job security, health care, free schools and universities, quality day care...)
are the US rushing to adopt all the "downsides" before they adopt any of the advantages??
(I have spent enough time there to have some idea of the progam as well)
"Another limitation of the current bill is that it does not even DISCUSS any provisions to deal with the CDS mess. No leverage limits, no cancel-out policies, never mind the hairy issues."
We're in agreement there. Roubini's "bottom up" proposal is interesting and represents what ought to happen at the homeowner level. The upside it is allows for a quicker discovery of just what institutions are in the biggest trouble. The problem, though, is, well, that it leads to a quick discovery of who is in the most trouble. Combine that with the CDS problem, which is like a gun to the government's head, and you can quickly find a problem that grows too big to solve.
With underlying such as the ABX, you already have market makers in place, and tying out should be tractable. After netting out exposures, you're still going to find idiots like AIG that are long to ABS credit in a big way. What other option is there but for the government to pay out? It might entail liquidating AIG's other assets to mitigate the loss, but at least you punish the AIG equity holders and end up rewarding the people who bet correctly.
«designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;»
«Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.»
These means that the Republicans are really sure that McCain wins, or Wall Street is sure that they have Obama in their pocket.
No way that Republicans would hand over that kind of power over their funding sponsors to someone that has not been nominated by them.
As to the delusionary fools that think that there will be some retribution for the looting that has been going on in the past 15 years, here is the editorial opiion of the Financial Times:
«Naturally, the need for such a government-sponsored rescue is annoying. Taxpayers may well wish for the imposition of a special tax on recipients of what have turned out, retrospectively, to be unearned dividends and unjustified salaries. But demanding such a pay-back is infeasible. The pragmatic thing to do is let bygones be bygones, though not without paying close attention to the longer-run consequences of the rescue plan.»
Let a trillion or two of dollars be bygone, bye bye...
As to why the bill has been loaded with the outrageous clauses above and it is entirely pro-WallStreet as {FairEconomist} points out, this is clear from:
«Asked about the chances of adding such items, Bush sidestepped the question, saying only that now was not the time for political posturing. ''The cleaner the better,'' he said about legislation he hopes Congress sends back to him at the White House.»
Not only the can is being kicked down the road to after the November election, now the Democratic Congress is going to be blamed for any further problems if they don't write a blank cheque to the Republican campaign donor base, and blamed later for tax rises because of the blank cheque they wrote if they do.
I have to admire the effrontery and skill of the Republican machine and their strategy advisors.
You are an idiot if you believe what you wrote above. The Fed will buy worthless shit at near face value, or else the process won't do anything to bail out the firms. If the Fed gives fair value for the shit, the firms will have, well, shit. And that won't do, apparently. The only way this helps the finance firms is if the taxpayers take it in the ass. Solvency is the problem, not liquidity.
Whisky, I agree any form of even half-honest price discovery will result in insolvency galore. My own thought is that the best solution is for the government to put BK'ing entities into receivership, and take the losses necessary for the short-term debts to keep the system going. Many are insolvent and belong in BK court anyway; I doubt the CDS issues can be completely resolved without legal intervention. So we may as well face up to it.
And the Oscar, for his performance in "Whocoodanode??", now goes to:
Senator Chris Dodd...
(CNN camera zooms in on Dodd's frightened face) "...and then, and then, well we were all just sitting around in Nancy Pelosi's office, you know, just shootin' the breeze wondering why we'd been called there... when Paulson & Bernanke walk in, & just before they lock the door behind them, I catch a glimpse of a coupla ponies standing out there in the hall behind them, & I'm thinking, "Well that's odd..." but then I get a good gander at Bernanke...
He's got this long grey cloak on with a pointy hat & somehow he's grown a big long beard overnight. He's toking on this funny-looking pipe, & blowing smoke rings that went right through one another, just smoking and glaring at us all, with his yellow eyes-- My God!-- the fellow actually has yellow eyes!
Meanwhile Paulson's sitting crosslegged on the floor, beating on a tomtom & softly chanting Jim Morrison's "The End..." Suddenly Bernanke starts weaving round the room, speaking in tongues--- I dunno, some stuff about CDS's and MS and a whole bunch of other alphabet soup-- none of us knew what in hell he was talking about-- so we were all just looking at each other real emabarrassed, like, are you gonna say something or shall I... & I was just about to say, "Hey, Hank, knock it off, all this crazy end of the world shit ain't funny" when he nods to Paulson.
So Paulson jumps up on the table & sets fire to a bunch of index cards-- and he reaches in his pocket, & pulls out a Golden Ring. He tosses it into the fire, & damn it starts to glow till its white hot, & the room temp shoots up to like 150 degrees. The Ring gets bigger & bigger, inflating right in front of our eyes, till it's HUGE, like this big giant bubble, hanging over the table like a mushroom cloud, threatening to squash us all like bugs. By this time we're all cringing & crying & trying to hide behind Nancy's skirt when suddenly Paulson's voice grates out, like the sound of breaking rocks: "Behold, you fools, what you have done!" Then he grabs the ring & waves it in our faces, like a severed head--- & as we flinch away in terror, as God is my witness, I can see it's got some sort of writing on it-- some funny-looking characters that look vaguely Chinese, and even though I can't read it and I know damn well that none of us in That Room can, somehow we all simultaneously telepathically recognize, in that hushed moment, exactly What is Written on the Ring...
I have to admire the effrontery and skill of the Republican machine and their strategy advisors.
You're wrong. It's actually politically tone-deaf. There are a number of Republicans in Congress who won't support this, because it goes against everything they believe about the dangers of big federal government.
It shows that Paulson hasn't acquired any political sensitivity or skill. It leave the door wide open to counter proposals from Republicans and Dems alike.
"You are an idiot if you believe what you wrote above. The Fed will buy worthless shit at near face value, or else the process won't do anything to bail out the firms"
Jeff, I side with the "idiot's" opinion too.
I bet the aim is NOT to help solvency of individual firms. The aim is to "help" the assets and the derivative network.
And this is where the short rule helps...some peeople need to unload those fiancial shares JMIO
One of the most sickening thing about this is the complete lie that there is no liquidity for any of these assets. I buy that some of the more exotic CDOs are virtually impossible to value (or perhaps just worth zero) but there is a very active market for resi whole loans, performing or NPL, subprime, Alt-A, even option ARMs. You're going to hate the price but you can get them sold. It is also complete crap that by holding, the value will increase. If there was ever a wasting asset, its a pick-a-payment, neg am option ARM.
Spend hundreds of billions of dollars placing a permanent bid under the most toxic financial garbage. Yeah, that's a plan.
CR's Tanta gets kudos.
Econbrowser: Some Observations on the Ongoing Crisis: Causes and Opportunity Cost Again
Not a permanent bid - just long enough to create a diversion until certain people can get away to Paraguay.
Washington will figure out the breaking point for the haircuts which will be given. My question is every other country's whose bank have similar assets also going to be bailed out in similar fashion by there own government?
Is any institution eligible, regardless of nationality? Deutsche Bank? If not, would likely violate various trade pacts.
How long before Wall Street figures out that stock dilution is not a good thing for prices?
What effect will this have macro economically? Do budget deficits really "not matter"? Isn't his just Uncle Sam, already drunk at the debt bar, telling the bartender, "just put it on my tab, barkeep"?
At what point do the bouncers come and kick Uncle Sam's ass on the way out the door?
The anon 10am above is me, as if anybody cares.
If the feds are going to absorb this toxic waste and take these non performing aseets off the books of banks going forward there needs to be a big tax penalty for the industry. Any bank or financial insitution that sells these assets to the FED need to give up their tax losses carried back and carried forward. They can not stick us with the losses make profits going forward and then ask for a tax refund for years to come. That is like taking a double hit to the treasury and tax payer so that CEO's and employees can continue to roll in the big bucks while I Joe6pack wonder if I am going to collect my social security.
I am tired of being on the loosing end of every deal that comes out of Washington.
The purchase price was lowered because of lower appraisals of real estate in New Jersey.
Just emailed this to my realtor!
Who is able to participate? Will pension funds? How about mutual funds? Are hedge funds eligible? I need clear definition of "financial firm". What about foreign entities that may have purchased some of these securities? As someone above noted - will Deutsche Bank, UBS, CSFB be allowed to hit the bid if they find the Treasury's bid to be fat?
I've got some level 3 crap in the junk drawer in my kitchen I'd like a bid on...
I wonder who will service these loans once the government buys them?
Let's just bailout every failing institution. The car companies are begging. Dirty bums.
What is to prevent banks from co-operating to get the highest price?
"I wonder who will service these loans once the government buys them?
Good point. Sheila Bair at the FDIC seems to have a pretty good idea of what needs to be done to modify loans for delinquent borrowers to keep them in their homes. Seems like a layup. It's not like the FDIC is busy doing anything else these days.
Whatever the plan is ,Goldman Sachs will win and taxpayers will lose. What is "systemic risk" anyway?Fat cats having to sell their luxury second or third homes? Looks like that Bernanke and Paulson scared the s*** out of dumb congressmen and will get whatever they want. This is the most important weekend in U.S economic history since the weekend of August 15, 1971 ,when Nixon took the dollar off the gold standard.
Yesterday Paulson said the 'cost' of the RTC would be "hundreds of billions", which implies his plan would be buying under market to keep the banks solvent.
After all, if he were buying assets cheap and selling when things improved there would be no 'cost' to taxpayers, it would be a gain.
How can markets be calm when Bush is asking for $.7 trillion to bail out all the Wall St. socialists? This is a death sentence for the USD.
I still don't understand how we are going to fund this whole thing in the next few months. A trillion + dollars is lot of money. Its not like the chinese, Japanese or Saudies can come up with this kind of money unless we plan to dig deeper into Social Security.
No. No. we can't have that, posh. marking thingies down to their market value. Pleeeease, what kind of deal is that for the banksters.
Then we know what the true state of everything is and how is that going to ensure that the plutocrats will make money. After-all putting their bonuses at risk? Can't do that because it's their ability to make money that trickles down to us. Gee, what's that warm feeling I have on my leg?
trader walt posted this on the last thread:
FT.com / Registration / Sign-up
fromSearch=n
Martin Wolf points out that the first thing the government should do is figure out whether this is a solvency problem or a liquidity problem.
Unfortunately, it seems they've already come to the wrong answer.
Are they going to call this puppy "Artsy"? It already smells Fartsy...
they still dont comprehend that this is a symptom of the problems the economy faces, Not the cause! In over a year now, no steps have been taken to actually solve the cause, only to try to limit damage to financial institutions.
We need immediate reduction in taxes, govmt spending, and low consumer interest rates to begin to climb out, else its simply hyperinflation which will get out of control
Proposal increases national debt to 11.3 Trillion. ZOMG
Hyperinflatio
CR
Looks like Bush will be the 11.3 trillion dollar man. Wow, ya don't get much for your money nowadays
Regards,
What is the most effective method to communicate respectful disatisfaction with members of Congress?
A. Phone call
B. Email
C. Fax
D. Snail Mail
E. All of the Above
Thanks in advance to anyone willing to make a suggestion. Considering the speed of the deliberation, I'm only including option D because I have little hope that anything said will be considered before a decision is made.
Any thoughts on a safe haven? Short of selling property and moving to a foreign country.
Would a TIPS fund be a viable investment choice if in fact the intention is to inflate our way out of this debacle?
I read that the USG will only purchase from US based institutions. Perfect chance to SKIM more! Buy distressed assets quickly from foreign entities for fair ove market and sell to USG for above market. Bet your ass rampant fraud will be the rule of this game. It comes from those that conducted all the fraud that got us here. I thik just let all the crooks fail now and take the medicine. Plenty of money is available from vulture funds. This is a total scam.
Who's going to service these loans.....
Why they will outsourced to one of the cronies and guess what happens and who makes money.
Remember Joe Stalin once said...It does't matter who votes, it matter who counts the votes.
In this case we get stuck paying for the garbage and the ones who manage collect the dough. What a country!
What is the most effective method to communicate respectful disatisfaction with members of Congress?
A. Phone call
B. Email
C. Fax
D. Snail Mail
E. All of the Above
Fax would be the quickest. snail mail would take a while since it has to be screened. emails I bet they just junk.
Commanding Heights: Germany's 1923 hyperinflation, on PBS
The Pla
With the S&Ls, we spent about $160b and sent Charles Keating to the slammer.
This time we better have executives from the SEC, FDIC, FRS, OCC, OTS, and a number of other agencies frog marched in front of the cameras for willfully failing to regulate.
Then we go after the boards and senior management of the financial firms that have ripped us off while the banking agencies were sleeping.
If we wind up with over a $t of bailout, I want blood and a lot of it.
Not sure its Armageddon but we were, almost literally, dancing on the edge of the precipice. Go chart IRX YtD, especially on a log scale. Tu the markets went deeper into cardiac arrest worldwide than just before the BSC rescue. Whatever the ideological merits or objections one might have to RTCII the equity markets were about to nose-dive, as we know, big time again and the world credit markets werent responding to the de-fillibrator. Im happy to debate the philosophical pros and cons but much happier to be around to do so. Thu up until 2:59 it wasnt clear that opportunity was on the table. Fri we could, and can continue, to criticize the dancing bear for being a bad dancer.
And another factor to think about. None of these is bailouts. Stockholders got wiped out in BSC, LEH and AIG. The evil Greenburg lost $14B in 24 hours. We the taxpayers picked up potentially valuable assets for mils on the dollar (mil = $.0001) and get a three-digit return if we can resell for pennies. Meanwhile keeping the world from collapsing if the bear keeps dancing. A pretty decent retur
Spend hundreds of billions of dollars placing a permanent bid under the most toxic financial garbage. Yeah, that's a plan.
If the bid is accurate then that's not a problem. Unfortunately, what I think they're going to do is overbid, rescue a bunch of banks that should be insolvent, and then proclaim that all they did was solve a liquidity problem. It'll be five years before someone looks closely enough at the assets acquired to discover that they've been burned.
Somethink is broken. Me fixy.
Neil Cavuto is playing games on the Fox News channel as I write this. Is this guy on the take?
Not one comment from you guys on the Lehman part of this post. These guys clearly lied about their finances...Fuld and his crooks need to go to jail for fraud.
Bob G - please dont waste your time watching faux news....
Bailout Nation writes:
What is the most effective method to communicate respectful disatisfaction with members of Congress?
A. Phone call
B. Email
C. Fax
D. Snail Mail
E. All of the Above
F. Cash in large bills, or even larger checks
F. works, and only F works. Better to just keep quiet and learn your place in the order of things if you don't enclose the Do-re-mi.
Yes, this too, sucks.
"The originally agreed total sale price of $1.75 billion could be lowered by $100 million to $200 million"
This company had a market cap of over $60 billion...now they are worthless, the whole ponzi scheme is crumbling right before our eyes...I have a feeling every institution on WS has the same value as this
Bailout Nation,
I have heard the best way to get a response from the politburo is to walk up to the office and give them the letter in person.
If the Federal Government takes the bad assets, which I assume will be houses, will the property taxes be paid by the fund or exempted?
If you think the neighborhood looks bad now just wait until the Fed gets involved.
(Reposted from previous comments thread)
Can anyone explain to me what this means?
US Government to secure mortgage market with gold reserves
Lee Jones - 19-Sep-2008
The U.S. Treasury Department has promised hundreds of billions to save the US markets using its own gold reserves.
President Bush approved the use of existing authorities by Treasury secretary Hank Paulson to make available as necessary the assets of the Exchange Stabilisation Fund for up to $50 billion to buy more illiquid mortgage assets.
When the Government bailed out the the Government Sponsored Enterprises it promised to buy illiquid mortgage backed securities, but this announcement extends that pledge.
The ESF was created after the Great Depression and uses the US gold reserve as collateral for financial stability.
US Government to secure mortgage market | News | Money Marketing
I've also heard that Bush had refused to do audits of the gold reserves.
Sounds to me like they want to raid Fort Knox and use an unknown and uncounted amount of gold to pay for mark-to-fantasy CDO paper - but seriously, I'd appreciate any explanation of what this really means.
Thanks.
Here's a good laugh: So the gov't is going to buy crapola based on the abx indices? Well those skyrocket on friday, because there's a buyer.
So thanks to the taxpayer, the buy will happen at stupid prices.
As an example: ABX-HE-AAA 06-2 went up 7% on Friday (eyeballing it from the graph). See here
Products and Services Overview
Comrade Mike writes:
"What is the most effective method to communicate respectful disatisfaction with members of Congress?"
.357 magnum
guarionex - my read was it means they can do something today without going to congress.
This rescue calls to my mind an image of the Hindenberg .... trying to land on the Titanic ....
Not if interest rates rise (Treasuries fall) faster than inflation rises.
Doesn't it make sense that Treasuries will be weak in direct proportion to the hit this deal is going to put on taxpayers?
Now that Paulson has scared the bejesus out of everybody enough to rally financials, he has a real decision to make.
If he structures a big generous bailout for banks, he risks delaying the deal in Congress and tanking the dollar and Treasuries.
If he structures a tough, dilutive deal for banks, the deal can get done faster with less collateral damage to the economy.
Don't forget that one role of Treasury is to sit there and count federal tax receipts incoming every day. If he gives away too much to banks, he knows tax receipts will plummet.
I'm getting sick and tired of NEMO always being first. I think he either has an inside track or is using a robot. It just isn't fair !!!
Thank you Comrade Mike! As soon as I stop crying, I will write the nicest, most respectful plea for the taxpayers that I can. We may all be wasting our time, but we should say something to them directly. Blog venting is great - and this is certainly one of the best - but we need to respect our elected officials enough to let them know directly how we feel. They are terrified right now. If enough of them can calm down, they may realize that they are not getting complete information from Ben and Hank.
What everyone seems to loose sight of is that there are 95 trillion in derivatives built on an asset base of 5 trillion in home mortgages, car loans,etc....
It is a ponzi scheme that has come to an end. If 1 trillion of the collateral is underwater that does not means that the value of the derivative is down by a percentage....it means the value is down by 91 trillion.
They are just trying to prop it up a little longer, There is no fix or way of buying off the end.
Is this a blind bidding? That is do all the banks put their crap into a hat or do they know what the other guy is bidding? These things are going for 90cents on the dollar since there won't be many bidders. The FED says the 30 billion BSC assets only lost 10% so they are still pricing in fantasyland.
The purchase price was lowered because of lower appraisals of real estate in New Jersey.
Gov. Corzine, a former chief executive of Goldman Sachs, said about one-third of New Jerseys economy depended on Wall Street, more in the northern part of the state.
City and State Brace for Greater Demands on Diminishing Resources - NY Times
Also there are many competing proposals - I've received many emails with proposed plans - and it appears this plan is still being worked out.
Before doing battle, in the temple one calculates and will win, because many calculations were made;
before doing battle, in the temple one calculates and will not win, because few calculations were made;
many calculations, victory, few calculations, no victory, then how much less so when no calculations?
By means of these, I can observe them, beholding victory or defeat!
Just sayin'.
To me this headline
US Government to secure mortgage market with gold reserves
US Government to secure mortgage market | News | Money Marketing
sounds like they're admitting the digital cash they're pumping in is worthless - so they have to back this up with gold instead?
crispy&cole writes:
Not one comment from you guys on the Lehman part of this post. These guys clearly lied about their finances...
While one may go to Hell just as quickly for lying as for stealing our government obviously rewards both activities. The real big liars and stealers will get put on a commission to distribute the loot.
Just do your duty and pay up and shut up.
Hank Jestor writes:
They are just trying to prop it up a little longer, There is no fix or way of buying off the end.
Yup. Kick it down the line.
Paulson is astute not to extend his term.
Cause the derivatives are sold globally am skeptical of the clearing house thingy.
But a clearing house is the only option now it seems.
How many significant digits in that 91 trillion dollar derivative number. One? None?
I think the problem is either-no one knows or two-some do not want everyone else to know.
This is quite a moment in the history of finance.
rich,
Thanks for your thoughts. I was gone Wed/Thurs/Fri and am trying to sort through everything. I was fishing well out of range of any cell service so imagine my surprise when I got home yesterday.
So treasuries plumment in price and yields skyrocket faster than the inflation rate since the US Govt is issuing so much debt that no one wants to be a buyer - I get that.
So cash is king for the time being is guess.
guarionex writes:
sounds like they're admitting the digital cash they're pumping in is worthless - so they have to back this up with gold instead?
Gold is probably leased out and made into derivatives itself already. Sounds of desperation even to imply that.
I am praying that some sense of reason and fairness wins in whatever plan the gov't passes.
CR.....I hope you have some influence.
Tisall eyes --
Of course I am using some automated assistance. I will stop when I get bored. Thank you for your input.
Back on topic, Yves Smith has a pretty good article on this mess. She's right; call your Representative and both Senators. Soon.
(Or at least send them Email.)
The solution to financing this 500 billion to 1 trillion mess is simple. Since the money is being used to bailout the rich, all that is needed is to find financing to pay it off. Raise taxes on everyone who benefited from the excess - those who make 1 million a year should have their tax raised from 35% now to 55-75% to pay off their problem. Why should the poor and middle class pay for this - just so Goldman Sachs can hand out another 18 billion (in 2007) or 16 billion (in 2006) in bonuses? Couldn't Goldman Sachs use that 34 billion today? Couldn't we use it to finance this mess?
The US has 8000T of gold. That's the offical line. Lets assume that number is right true.
8000T = 282191695.59664 ounces
= $253B
Where do we get the other 750B+?
dblwyo writes:
We the taxpayers picked up potentially valuable assets for mils on the dollar (mil = $.0001) and get a three-digit return if we can resell for pennies. Meanwhile keeping the world from collapsing if the bear keeps dancing. A pretty decent return
Could you elaborate on this a bit? This is the real crux - are the taxpayers going to get good assets at a bargain price, or get crappy assets at a grotesquely inflated cost?
1944 - the US spends trillions to liberate Asia from the horrors of Japanese occupation, the sadism of Axis murder in Central Europe and the ravages of war.
A few years later, the world contemplates the wreckage and says... NEVER AGAIN!
2008 - the US spends trillions to keep GS from trading under 90 bucks.
A few days later, the world contemplates the wreckage and says... NEVER AGAIN!
"But a clearing house is the only option now it seems."
Actually, no that is not the only options. The markets will find a bottom and creative destruction will make a better system. That is what will happen in the end, this solution only puts off the end and makes some a few more dollars until the end.
It makes more sense to hand out $100,000 dollar checks on the street corner than to keep pumping money into institutions that are insolvent.
Thanks for the PBS link. Perhaps when hyperinflation hits here history will repeat again.
KRISHNAN writes:
Whatever the plan is ,Goldman Sachs will win and taxpayers will lose. What is "systemic risk" anyway?
SYSTEMIC RISK: definition A time of high emotion during which the high risk positions that existed during the prior regime reposition themselves to take advantage of the new change.
Here's to "getting ahead of the problem." The RTC has already had is only intended effect -- to assist with the engineered option-expiration price jump that allowed Goldman Sachs to reflate its balance sheet.
Don't be duped by the 800T number. Most of it is in "deep storage" as in still in the ground, not yet mined.
REBear writes:
The US has 8000T of gold. That's the offical line. Lets assume that number is right true.
8000T = 282191695.59664 ounces
= $253B
Where do we get the other 750B+?
Assuming the 8000T figure is correct and they are really using it(never in my opinion) there is a simple way if they want the 750B+.
Increase the price of gold 4 fold.
The US gold reserves in Fort Knox will eventually be given to Asian governments to settle part of our debts to them. But that step is still a ways off, as the trainwreck continues.
What I don't understand is why gold all of a sudden is being mentioned - in connection propping up these toxic CDOs, MBSs, etc.
Up till now, it was fine to back up paper with yet more paper (or pixels).
Why the sudden mention of gold here:
US Government to secure mortgage market with gold reserves
US Government to secure mortgage market | News | Money Marketing
8000T= 8 quadrillion?
Comrades,
These are the times that try men's souls. Wall Street types are now having send their wives' and kids' out into the world with their own noses. What's next? Their own tits?
Please pass this bail out...it's for the ugly kids and wives of Wall Street.
For you peons that can't stand the look of your wives and kids...there's always Lefty's.
As Times Turn Tough, New York's Wealthy Economize - WSJ.com
8000T = 8000 Tons
1 Ton = 2000 pounds (lbm)
What we need is brand new clean banks to lend our money too and to do in an orderly manner.
The last act of a dying pigman is to steal one more time. This group cannot be entrusted with $700 billion--we all know that. We're better off gagging until January--no matter who wins the election, otherwise the return of Brownie will be a horror movie that kills its audience.
Comrade Mike | 09.20.08 - 10:20 am | #
methinks the pitchfork be swiftest of them all
why do you guys fixate on a few hundred billion bucks worth of US gold reserves?
this administration creates that amount in entitlements every few weeks. the federal government spends it every couple of months. it is irrelevant in the larger scheme of things. even russia has more reserves than us these days, including metals and currency.
If the concern is lack of lending, why not have the treasury and fed. just lend directly and let these banks take thier losses. Why not set something new up, rather than recapitalize these losers.
David J writes:
I wonder who will service these loans once the government buys them?
Who do you think? Golden Slacks.
BTW--source is BIS, total notional value of derivatives worldwide is $596 trillion at the end of 2007.
that is $596,000,000,000,000.00 as end 2007.
What is it today? A SWAG puts it at close to 3/4 of a quadrillion.
But we have operating nuclear weapons, which makes us a safe have
Gold price will be destroyed if we dump 8000T of gold.
Hank Jestor writes:
It makes more sense to hand out $100,000 dollar checks on the street corner than to keep pumping money into institutions that are insolvent.
But that goes against the sole purpose of the FED. To maintain the workings of the current financial system and the only way to do that is to save the institutions at the heart of it at all costs (to taxpayers of course).
So i think it's either the clearing house or something even worse. (again for taxpayers of course).
So this was all an elaborate scheme by the Chinese to get all our gold?
Whew. For a second there, I thought we were dealing with some sort of big financial crisis.
from mish-
Options market makers would have been prohibited from making short sales starting next week under the ban adopted today to keep speculators from driving down stock prices. The Options Clearing Corp., which guarantees all trades exchange-listed options, said a ban would have proved "disastrous."
BTW, there is a great deal of doubt in some quarters as to whether we have any gold in Fort Know at all.
Who can say for sure, they have refused to do an audit for many, many years.
Maybe it's lead with a gold plating. And only on the end of the bars that can be seen from the guard posts. I wonder if the guards can even see, or if they ever have.
Anybody have any anecdotal reports from there. such as relatives who have served, etc.
REGARDING EARLIER POST:
NY Times: Congress Stunned by Warning
Is it possible to find a copy of Bermamle's full speech before congress?
If so where?
Thank you.
I am with that guy that says tax the "richers". But I say 95%. I want to hear the giant sucking sound as the rest of private equity and capital leave the country. I hope your boss decides to close up shop first!!
I guess the new president gets the highest deficit ever.
RP: It was a conference in Pelosi's office. Not sworn testimony, not a committee, just a get together to make them shirt their pants.
I still have yet to see how this fixes the looming Alt-A problem. Residential Real Estate prices are going to continue to drop and this will continue to take down Alt-A. So, not only are we looking at toxic crap sitting on the books today, we have another trillion waiting in the wings 2009-2011.
Anonymous writes:
Comrade Mike | 09.20.08 - 10:20 am | #
methinks the pitchfork be swiftest of them all.
Anonymous I agree with you. I have my pitch fork handy and an Axe for thier heads.
REBear writes:
Gold price will be destroyed if we dump 8000T of gold.
I think you misunderstand, even if they sell the gold it will be paper gold. And it can be done over time.
Adjusted for inflation gold isn't even at the all time high's. Which incidentally is about 2-3 fold above it's current price. There wasn't an over supply then in fact quite the opposite.
Anyway, moot argument gold probably is leased out already.
I'm not an economist, so someone more knowledgeable please correct me if I'm wrong, but...
"Securing" a mountain of bad debt with a molehill of gold simply means that whoever holds the debt will eventually get all the gold when there isn't any other way to collect, right?
If he gives away too much to banks, he knows tax receipts will plummet.
Call me skeptical that he cares about future tax receipts.
The overriding point is that he can't save the banks without buying at fantasy values, because it is a solvency issue. The difference from RTC-1 is that the banks were already gone... plus the home loans on the books were not nearly as toxic. We haven't even started the alt-a/option-arm implosion, which is going to make subprime look tame. My sense is they want the public to take over the bag before they realize what is coming.
Whatever number they give us - and notice it has already gone from 'several hundred billion' to $700B - the final cost will be double or triple.
Anyway, moot argument gold probably is leased out already.
BB,
You are probably right
sue writes:
I guess the new president gets the highest deficit ever.
As will be true of every president after.
Until fiscal sanity returns.
The RTC2 can't happen. It's just a tactic to buy a few more days. The US doesn't have the money to make it work. The US never did.
Thegovernment and Congress are not the issue. If you use politicians as scapegoats, you'll never understand.
This is a collapse of the US economy.
P.S. I spent ten minutes watching a handful of people on Fox discussing this topic. They got evertyhing wrong. Breathtaking!
This doesn't help housing unless we go back to funny standards again. It gets banks lending to each other for a couple months until housing continues to drop, CRE, credit cards, student and auto loans loss value, then they will not want to lend again, until we reauthorize another $700 Billion, I guess as the government doesn't have to mark to market we could hide this for a long long time.
Did the US Treasury write $91 Trillion of CDS insurance?
Didn't think so.
Did it write even one dollar?
Didn't think so.
So let's keep our dick in our pants and let the chips fall.
Now is the time for growing a pair, Congresspeople.
the bailout will move through Congress just like the Patriot Act did after 9/11, with a few pro forma hearings and congressional representatives voting on language that many will not have read and few will understand, and, after the consequences become obvious, they will say, as they have with the Patriot Act, that "it was an emergency"
CR, please start a thread asking the posters to make suggestions, not criticisms or simplistic let the markets decide. Pure capitalism didn't get us into this predicament and it won't get us out without a lot of blood on the ground.
Gainas writes:
With the S&Ls, we spent about $160b and sent Charles Keating to the slammer.
This time we better have executives from the SEC, FDIC, FRS, OCC, OTS, and a number of other agencies frog marched in front of the cameras for willfully failing to regulate.
Then we go after the boards and senior management of the financial firms that have ripped us off while the banking agencies were sleeping.
If we wind up with over a $t of bailout, I want blood and a lot of it.
sue writes:
But we have operating nuclear weapons, which makes us a safe haven
sue | 09.20.08 - 10:49 am | #
Repeating what I said in the last thread:
This is a financial crisis - emotions run high and strong - complaining is a necessary human response to sudden change - one can't switch from a "free market" mentality to the kind of governmental intervention we have witnessed - even this far - without experiencing an emotional response. So, get it out of your systems - you need your head - you need to think. As for me, I'm gonna shut up and listen.
Tisall eyes | 09.20.08 - 9:19 am
Becoming a country of rich behind walls and squatters.
May not be able to keep the poor happy with cable tv and fast food.
Mel writes:
CR, please start a thread asking the posters to make suggestions, not criticisms
Here's one, pool together some cash and hire some good lobbyists.
Seems to have worked for every other excess that occurs.
8000T= 8 quadrillion?
8000T= 8000 tonnes (metric tonnes)
one tonne = 1000 kilos or 2204.6 pounds.
a metric tonne is larger than an American ton which weights 2000 lbs.
Comrades,
I made glorious picture for you to laugh with. Some of you older comrades might not get it.
Congressional Leaders Stunned!
We've got Government Attitude! today.
nostrovia...
I see dead ponies...
One important difference here is that large portions of the Patriot Act were ideas that were kicked around for years prior to its passage. With this proposal, even the sponsors don't understand what they're proposing. With so little thought and discussion, it's a given that it won't work as intended.
That NYT 'stunned silence' piece was truly hateful. Once again they legitimize the 'hoocooldanode' argument (for what - acces to bogus, pre-spun info about the 'stunned silence' room?) instead of asking hard questions.
Hey, times, try making yourself useful and stop covering the jestors in dc. This jestor you need to lisen to:
Hank Jestor writes:
What everyone seems to loose sight of is that there are 95 trillion in derivatives built on an asset base of 5 trillion in home mortgages, car loans,etc....
It is a ponzi scheme that has come to an end. If 1 trillion of the collateral is underwater that does not means that the value of the derivative is down by a percentage....it means the value is down by 91 trillion.
They are just trying to prop it up a little longer, There is no fix or way of buying off the end.
Hank Jestor | 09.20.08 - 10:30 amThat NYT 'stunned silence' piece was truly hateful. Once again they legitimize the 'hoocooldanode' argument (for what - acces to bogus, pre-spun info about the 'stunned silence' room?) instead of asking hard questions.
Hey, times, try making yourself useful and stop covering the jestors in dc. This jestor you need to lisen to:
Hank Jestor writes:
What everyone seems to loose sight of is that there are 95 trillion in derivatives built on an asset base of 5 trillion in home mortgages, car loans,etc....
It is a ponzi scheme that has come to an end. If 1 trillion of the collateral is underwater that does not means that the value of the derivative is down by a percentage....it means the value is down by 91 trillion.
They are just trying to prop it up a little longer, There is no fix or way of buying off the end.
Hank Jestor | 09.20.08 - 10:30 amThat NYT 'stunned silence' piece was truly hateful. Once again they legitimize the 'hoocooldanode' argument (for what - acces to bogus, pre-spun info about the 'stunned silence' room?) instead of asking hard questions.
Hey, times, try making yourself useful and stop covering the jestors in dc. This jestor you need to lisen to:
Hank Jestor writes:
What everyone seems to loose sight of is that there are 95 trillion in derivatives built on an asset base of 5 trillion in home mortgages, car loans,etc....
It is a ponzi scheme that has come to an end. If 1 trillion of the collateral is underwater that does not means that the value of the derivative is down by a percentage....it means the value is down by 91 trillion.
They are just trying to prop it up a little longer, There is no fix or way of buying off the end.
Hank Jestor | 09.20.08 - 10:30 amThat NYT 'stunned silence' piece was truly hateful. Once again they legitimize the 'hoocooldanode' argument (for what - acces to bogus, pre-spun info about the 'stunned silence' room?) instead of asking hard questions.
Hey, times, try making yourself useful and stop covering the jestors in dc. This jestor you need to lisen to:
Hank Jestor writes:
What everyone seems to loose sight of is that there are 95 trillion in derivatives built on an asset base of 5 trillion in home mortgages, car loans,etc....
It is a ponzi scheme that has come to an end. If 1 trillion of the collateral is underwater that does not means that the value of the derivative is down by a percentage....it means the value is down by 91 trillion.
They are just trying to prop it up a little longer, There is no fix or way of buying off the end.
Hank Jestor | 09.20.08 - 10:30 amThat NYT 'stunned silence' piece was truly hateful. Once again they legitimize the 'hoocooldanode' argument (for what - acces to bogus, pre-spun info about the 'stunned silence' room?) instead of asking hard questions.
Hey, times, try making yourself useful and stop covering the jestors in dc. This jestor you need to lisen to:
Hank Jestor writes:
What everyone seems to loose sight of is that there are 95 trillion in derivatives built on an asset base of 5 trillion in home mortgages, car loans,etc....
It is a ponzi scheme that has come to an end. If 1 trillion of the collateral is underwater that does not means that the value of the derivative is down by a percentage....it means the value is down by 91 trillion.
They are just trying to prop it up a little longer, There is no fix or way of buying off the end.
Hank Jestor | 09.20.08 - 10:30 am
YLSP writes:
Comrades,
I made glorious picture for you to laugh with. Some of you older comrades might not get it.
Congressional Leaders Stunned!
AGAIN repeating from the last thread:
The people who hold the constitutionally granted power to decide things were JUST INFORMED yesterday that "were literally maybe days away from a complete meltdown of our financial system". The people who gave them that information have unilaterally made virtually all of the changes we've seen in the past 12 months.
None of those changes were made with even my "hypothecated tacit approval". I am an American, I love my country... and it is with profound sadness that I recognize that we have been sold out. The financial community and all the little players and monetary theorists need to thank their lucky stars that Joe6pak is still asleep.
May not be able to keep the poor happy with cable tv and fast food.
CR, please start a thread asking the posters to make suggestions, not criticisms
My suggestion: Tell the Corporation SOBs the US Government has no obligation to rescue their sorry asses and let the pieces fall where they may. Then
see what remedies the private sector can come up with.
GOD sorry. halo hates me
Good idea. Here's my $0.02.
The U.S. private financial system is insolvent. Every proposal must acknowledge this and be based on the idea of allowing failed institutions to fail in as quick and orderly fashion as possible.
Whiskey writes:
With so little thought and discussion, it's a given that it won't work as intended.
Conspiracy theorists would argue quite the opposite.
Look at which banks are left standing at the end of this. Less competition for sure.
The risk to the financial system doesn't come from the MBS/CDOs as much as from all the leverage in the CDS market.
Here is my idea -
Have the govt create an emergency CDS clearing/netting facility where everybody can submit their notional contracts and we can figure out the net exposures. Presuming the nets against any individual player is small enough, the govt then sets up a reserve fund ($500B?) that acts as a backstop against participant failure.
The banks themselves might be toast... but the system doesn't go down.
maybe not effective, but in volume it might make 'em think a little (for a change)
write your congressman website of the House of Reps: https://forms.house.gov/wyr/welcome.shtml
Since I'm sure nobody saw this in the earlier thread.
On other news....
Federal Reserve is now offering non-recourse loans to finance ABCP from money market funds. Non-recourse means that banks can take the paper onto their books without having to worry about capital constraints.
This is big. Guess the Fed is serious about the run on MM funds.
Fed is also going to directly monetize Fannie Mae, Freddie Mac, and FHLB debt. I'm guessing they wanted another conduit so they could roll the debt without the Treasury.
For all the talk about helicopters, this is as close as we've gotten to it since the BSC debacle.
FRB: Press Release--Federal Reserve Board announces two enhancements to its programs to provide liquidity to markets--September 19, 2008
guarionex - the executive branch has access to the ESF (see 404 Not Found, which is supposedly backed by gold (via SDR's -- and please don't start with the SR's aren't gold argument, because though true, that's not the point), among other things. They have access to this money now, without going to congress. I would assume they mentioned the ESF is "backed by gold" in order to try to calm everyone down about the dollar. Ain't gonna work for long.
My suggestion: Keep the $1 trillion and let the banks reap the consequences of their actions. If this causes a collapse, where real companies (i.e., not banks) fire real people (i.e., not bankers), then spend the $1 trillion helping those people out.
Maybe hire them to build infrastructure
. For instance.
Transferring $1 trillion into the banking system, without regard for the discipline of the market, is about the worst idea I have ever heard. Seriously.
You're going to tell me none of our smart leaders had any staffers that read a blog like this in the past 3 years? This problem has been evident for at least the past 2 years, and clear for at least the past year... due to the unknown nature of all the junk out there financial collapse couldn't be shrugged off.
LMFAO nice YSLP
Guarionex,
The gold in Fort Knox doesn't directly secure our trillions of dollars in debt, because that link has been severed since 1971.
However, the USA needs to borrow hundreds of billions a year from our Asian creditors. (It's assumed that they will indirectly finance this latest bailout.) Sooner or later they will tire of bankrolling our economic trainwreck, and we will become an Argentina-like debtor at the mercy of a "credit committee" dominated by China and Japan. One of the first things they'll do is demand fiscal responsibility and reduced consumer credit, pretty much the way IMF treats international deadbeats.
At some stage they will also require transfers of most of the US gold reserves, as partial payment for our dollar debts.
BB: "Conspiracy theorists would argue quite the opposite.
Look at which banks are left standing at the end of this. Less competition for sure."
Life's too short to care what conspiracy theorists think about anything. Favored institutions may last a bit longer, but ruin faces everyone in the end. The survivors will be the ones who are legitimately in the best shape.
Thanks MLM.
I guess my concern was - they can hand over all the paper and pixels they want to the holders of these toxic MBSs and CDOs - but when they start talking about handing over gold it starts to sound a bit more serious.
Serious question: Does anyone know what this means? Are they raiding Fort Knox to keep asset prices inflated?
No...
The Exchange Stabilization Fund was created through accounting tricks.
Basically, FDR nationalize the Federal Reserve's gold in 1933 at $20.67 an ounce.
Any newly produced or imported gold was taken to the Treasury. The Treasury would issue a check against the Treasuries account at the Federal Reserve (for $20.67 an ounce less a handling fee of .25%). The Treasury would then settle the account with the Federal Reserve by issuing the Fed a Gold Certificate with the same face value.
In 1934 FDR raised the price of Gold from $20.67 an ounce to $35 an ounce. This meant this meant that the amount of gold held by the Treasury was "worth" more than the gold certificates on deposit at the Federal Reserve. The Treasury then issued gold certificates to the Federal Reserve for the "extra" gold which the Federal Reserve credited to the Treasuries account.
The tidy little profit from the operation became the exchange stabilization fund.
There were other revaluations in the 70's till it was eventually valued at $45 an ounce. The Treasury could do it again.
Kind of fitting that the publics money being handed over to Wall Street was created through the Governments confiscation of private savings in 1934.
Bailout Nation writes:
What is the most effective method to communicate respectful disatisfaction with members of Congress?
I have been told that FAXs from voting constituents are always noted. Of course, this is in normal times. Today it seems the poster known as Pitchforks, Torches and Pikes has the right idea.
Of course, that is exactly why they will leave town and hide in their undisclosed location while this all melts down. They are physically afraid of the people.
We are being left to eat our dead.
Alan Neff: 'For a bailout, press one ...' |
News for Dallas, Texas | Dallas Morning News
| Opinion: Viewpoints
DALLAS MORNING NEWS 09/20/2008
"For a federal bailout, please press 'one'...
Hello! You've reached the United States Treasury's automated bailout hotline. Please listen carefully, because our options have recently changed. If you're too big to fail, press or say 'one.' If not, hang up and dial 1-800-FOR-FEMA."
"One."
"Great! You've selected Option One. If you're a bank, press or say 'one.' If you're a brokerage firm, press or say 'two.' If you're an insurance company, press or say 'three.' "
"Three."
"You've selected Option Three, which means you're an insurance firm. Did I get that right?"
"Yes."
"OK, let's drill down a little further. If you're calling because you're besieged by class-action lawsuits brought by take-no-prisoners plaintiffs' attorneys because your large corporate policyholders committed innumerable mass toxic torts, press or say 'one.' If you're calling because you insured billions of dollars' worth of undocumented, nonperforming mortgages, press or say 'two.' "
"Two. No, wait, one. I mean, uh, both."
"I'm sorry. I didn't understand. Let's try something else. If you're the CEO of an insurance company with a servile compensation committee that gave you an irrevocable golden parachute, press or say 'one.' If you've served on corporate boards with Henry Paulson, press or say 'two.' If you believe in strict market Darwinism for every company but yours, press or say 'three.' "
"Three."
"If you want your check automatically deposited into your company's bank account, press or say 'one.' If you want cash in small, unmarked, used, nonsequential bills delivered to a branch office in Zurich or the Cayman Islands, press or say 'two.' "
(Silence. Thinking. Surge of fiduciary energy.)
"One."
"OK. Please enter the amount you want using the number keys. Use the star sign for a decimal point, and press pound when you've finished."
(Lengthy series of numbers entered, followed by the pound sign.)
"Wow! You are in trouble! Your funds should clear in three business days. When you have another claim, call back. Thank you for calling and have a great day!"
YSLP: You can say that, that's your right. But there is no evidence to that effect. There have been no committee hearings, no sworn testimony, no inputs from officialdom. And they have damn sure never had a clue about all this. They are certain that this is the truth and cannot be proven otherwise.
So there.
And now for a Saturday morning, end-of-the-world, phatty bowl of goodness.
Ahhhhh........ who cares, man? Just pretend we're all retiring early and camping till we die.
kis:
"Have the govt create an emergency CDS clearing/netting facility where everybody can submit their notional contracts and we can figure out the net exposures. Presuming the nets against any individual player is small enough, the govt then sets up a reserve fund ($500B?) that acts as a backstop against participant failure."
This is a massive technological task even if you restricted it to just netting the CDS's at a large institution. That doesn't mean its a bad idea, though. Something like this has to happen, and the sooner the better.
YLSP writes:
You're going to tell me none of our smart leaders had any staffers that read a blog like this in the past 3 years? This problem has been evident for at least the past 2 years, and clear for at least the past year... due to the unknown nature of all the junk out there financial collapse couldn't be shrugged off.
YLSP | 09.20.08 - 11:12 am
If you can over your emotions - and calls for justice and/or personal profit - - you might be well advised to ADMIT THIS IS A CRISIS - and recognize you can't game it.
Powerful decisions have been made by very few people ---
Shut the F___ up and listen.
Thanks @ Invisible Hand.
It sounds like the US would be on the way to becoming just another banana republic (minus the good weather!) if we had to hand over our gold to the Chinese and Russians.
YSLP - that did not include you --- you are smart
And who is going to value the toxic assets and what is the government trying to be, a market player...
The average American is going to be robbed if these plans are executed.
dblwyo
Stockholders got wiped out in BSC, LEH and AIG. The evil Greenburg lost $14B in 24 hours. We the taxpayers picked up potentially valuable assets for mils on the dollar (mil = $.0001) and get a three-digit return if we can resell for pennies. Meanwhile keeping the world from collapsing if the bear keeps dancing. A pretty decent return
Nonsense.
Pigmen: In the boom they make billions and in the bust they lose billions. Even after their losses, they get to keep billions. Net gain.
Joe6Pack: In the boom his wages kept falling or about the same. In the bust he loses via inflation and taxes. Net loss.
Understand the whole Greenspan "bubbles don't exist" con job.
The racket is NOT that the Pigmen keep everything after the bust. That would be too simple.
The racket is the fact that at the end of the bubble-and-bust,
Pigmen have NET GAINS
Joe6packs have NET LOSS.
Greenspan is the uber-conman.
isnt this bailout just a huge Money laundering OP??
think of it, the (Shadow) Banks created fake wealth trough leverage and now want to change it into real taxpayer funded wealth!! even at cents on the dollar this makes a handsome profit...
its so outright criminal that i dont think anyone keeps his money in the US...
Read this:
The Icahn Report™
"...EBITDAT
The situation has gotten so egregious that we half-jokingly use a measure called EBITDAT when evaluating companies, i.e. earnings before interest, taxation, depreciation, amortization and theft. In my view, this theft is a measure of how much senior executives and boards of directors blithely take out of companies in lavish salaries, perks and benefits, even though they may be running their companies into the ground.
I have observed first-hand the sheer amount of waste and inefficiency at a few companies that I have taken over
For instance, when I took over a rail freight car company called ACF during the 1980s, they had 12 floors in a Manhattan office building which was filled with workers. I couldnt figure out what they did. I really tried to find out what these people did and even went so far as to pay $500,000 to a consultant to study the issue and get back to me. After weeks of research, even the consultant couldnt figure it out. So I shut down the division and it had no discernable impact on the performance of the company, which I own to this day...." ;-----)
Don't the banks have both bad assets (CDOs, LLs, MBSs, etc.) AND big liabilities (guarantees for the above) on their books? Buying the assets solves only half of the problem - at best.
politburo is stunned?
REBear writes:
politburo is stunned?
REbear - you expected something else ?
I, for one, would like to know where Paulson et al came up with this half a trillion dollar figure.
Here's a novel idea - how about we study the proposal before we put it into place. How about Congress asks the Congressional Budget Office to study the proposal before we rush it through? Executive Order 12291 under the Reagan Adminstration required that any federal spending package greater than $100 million has to be subject to cost-benefit analysis.
tisall eyes writes:
If you can over your emotions - and calls for justice and/or personal profit - - you might be well advised to ADMIT THIS IS A CRISIS - and recognize you can't game it.
Powerful decisions have been made by very few people ---
Shut the F___ up and listen.
We seem to have been inundated with a number of astroturfers. It's nice of you astrotufers to come and join in on the conversation we've all been having for the past 3 years, and make rational points... oh wait, you're coming in here and making irrational points, pointing fingers, and name calling.
In case you didn't notice we have been calling out against personal profit! We're against personal profit for the jerks who got us in this situation. Perhaps that might include you based on the attitude and scorn you are showing.
Do you think Paulsen is going to be able to game the system either? No! Game over! We are beyond the wrecking point.
REBear :
"politburo is stunned?"
To paraphrase Alex Cockburn, the scandal isn't what they know, it's what they don't know.
I think they have a plan, and its to 1. drive stock prices up, and 2. ensure institutions are motivated to raise capital and not create any more weekend criseses (sp?) a la AIG.
Evidence: The mafia-like AIG takeover, with 12% interest rates, 80% ownership in the company, and an 85 billion dollar loan that has first priority over other debtholders. Together with the refusal to bailout Lehman, this should be seen by other financials as a warning that the government will not help.
Thus, the financials should now realize that they need to go to the markets ASAP if they have balance sheet holes to plug.
Next, they ban shortselling and announce the massive RCTII program, and this drives stock prices up.
The only thing missing now is companies coming out and announcing secondaries or other efforts to raise capital. If I'm right, we should see a lot of this in the next week or two, along with an extension of the ban on shorting.
I like the idea of a netting/clearing facility for the MBSs and CDOs.
There's info at this link...
Notional vs net
Information Processing: Notional vs net: complexity is our enemy
...which helps visualize the situation.
It seems that the $ 3/4 quadrillion notional derivatives market really could use a bit of transparency at some point.
tisall,
Disregard... I don't know what's going on in here... I don't know who you were responding to...
It would serve us all to stop asking questions such as:
Who profits from this?
Who will administer this?
Who will appraise or value the assets?
Who will whatever...
The answer is Golden Slacks. where the heck do you think Hank is going in January?
Answer; To his new job at Golden Slacks.
Just to be sure YSLP heard, I'll repeat:
Tisall eyes writes:
YSLP - that did not include you --- you are smart
Tisall eyes | 09.20.08 - 11:18 am |
Did the President of Columbia say that he was for Obama as President while George was standing beside him during his speach today in the rose garden? Hmmm... lol
The irony of Democratic lawmakers saying that the bailout plan needs more provisions to prevent foreclosure amuses me. "Keeping people in their homes" also means "Keeping them on the hook for something they overpayed for".
As the 2009 recasts play out, we'll find out just how many really want to stay in their homes. We're going to discover quite a few that don't want a workout of any kind, unless it means being able to keep the old teaser minimum payments.
There may even be people who if offered to continue on the teaser payments, will leave anyhow - simply because the pot of gold isn't there, at the end of the two-year IRS ownership exclusion.
Instead of talking about "Keeping people in their homes" the Dems would be more appropriately beeding heart if they were offering proposals to make it easier to short-sale and get out of the homes.
This is a massive technological task even if you restricted it to just netting the CDS's at a large institution.
All they need to do is make the contract look like a security, then they could use existing clearing/netting systems. There are plenty of good clearing facilities. They could have done this years ago, but the market grew too fast in too diffuse a manner to effectively organize.
Terrorist attack in Pakistan Marriot. 11 dead.
Look...over there! The GWOT!
Shut the F___ up and listen.
Tisall eyes
please consume your own advice
Point take
I don't think Paulson understands the REAL problem. The subprime mess is just a symptom, not the root cause.
The best explanation I've read is due to fiat money and fractional reserve banking. Without the roughly 9:1 credit leveraging by the banks (higher with IBs), "irrational exuberance" could not have inflated housing prices so far. Too much money and credit naturally creates bubbles and boom/bust cycles.
I think the Austrian explaination of the business cycle makes the most sense -- too much credit that misallocates capital during the boom, and has to be painfully adjusted during the bust. Combined with no limits on fiat money creation, we get dot.com bubbles, housing bubbles, etc.
The subprime mess is just the latest symptom of a structural defect in the banking system. No amount of fiat in the bailout plan will fix that.
This episode should put an end to the Keynesians. Government spending will not give you a neverending boom.
No bail out after all...Wall Street feels your pain...
On the party circuit, many New Yorkers aren't canceling events, but some are seeking to make them less ostentatious, says Bronson van Wyck, who runs New York event firm Van Wyck & Van Wyck LLC with his mother and sister. Earlier this week, the children of a Wall Street executive who are planning his 65th birthday party contacted the firm to change the menu. Out went the caviar and truffles and in came Wagyu beef instead. The new menu won't cost any less, Mr. van Wyck says, but "it's less overt."
As Times Turn Tough, New York's Wealthy Economize - WSJ.com
My suggestion, at more length.
To all at CR:
I feel compelled this morning to call the office of my President and elected Representatives and suggest the US Government declare a "hands off" approach to fixing these problems.
Let the genius of our wonderful free enterprise system, based on thousands of years of practical experience, trillions of dollars of collective profits, well fed, groomed and experienced cadres of executives and university trained consultants, living in the most technologicaly advanced nation on the planet, devise and execute thier own plan to deal with the current difficulty.
Thank you.
40 dead. now
All they need to do is make the contract look like a security, then they could use existing clearing/netting systems. There are plenty of good clearing facilities. They could have done this years ago, but the market grew too fast in too diffuse a manner to effectively organize.
The devil is in the details. From what I have read there are 2.5M -- give or take -- custom contracts with different terms and conditions to somehow harmonize and value. The only easy way to do it is to create a "default" as in the FNM/FRE case which nets out near par. Presumably Monday's solution will make this happen.
I will continue to say: Paulson is buying time here. The threat/hope/promise of something by the government will temporarily interrupt normal market workings. Paulson has little or not control over what, if anything, may emerge from Congress ane he cetainly has no authority to set up new Federal bureaucracies, throw trillions of dollars around or commit the US to backstop cash funds, all banks, al motgages, all foreign investors and the stock market in general.
What is hinted at - proposed is too strong a word now - is about as well thought out as the Iraq war. What is the goal? How will success be defined? What is the exit strategy? Are we doing this for legitimate purposes? Do we even know what we are doing? Almost every person knows the answers to those questions.
Meantime, every unreformed speculation addict assumes the happiest of possible outcomes and continues to invest accordingly. Even taking away every last bit of panic and credit uncertainty, the US is a stagnanat or redeeding economy and the markets should be pricing that in. They have not. To that degree Paulson has ignited a new, though probably brief, bubble: the bubble of government blue sky.
Clearly the RTC-II bill is going to include DAP. Clearly Bush will sign whatever Congress passes.
My guess is they are using $50B tranches as they know it isn't going to work. I'd expect the plan to have to be changed after the first tranche/auction occurs. I also have a hard time seeing how a limited number of banks don't collude on a reverse auction. I think you have to allow for 3rd party bidders in there as well. If they are willing to buy then you really have a market clearing price. Otherwise, it's just a inefficient crony capitalist bailout by any other name...
Comrades,
Interesting a terrorist attack in Pakistan to coincident with the timing of Pakistan becoming more vocal regrading American raids into Pakistan.
I forgot who we are at war with, Pakistan, Afghanistan or Iran?
kis:
"All they need to do is make the contract look like a security, then they could use existing clearing/netting systems. There are plenty of good clearing facilities. They could have done this years ago, but the market grew too fast in too diffuse a manner to effectively organize."
If that's true, then the government should insist on it immediately as part of their bailout.
Okay, I'm now willing to sign the 'Impeach Bush and Fire/Remove Paulson/Cox/Bernanke/Dodd/Schumer' petition, now.
If that's true, then the government should insist on it immediately as part of their bailout.
It's not true and even if it were forcing the use of the clearing system would bankrupt the system as well. I can just see all the banks having to market to market based on those bids...
I forgot who we are at war with, Pakistan, Afghanistan or Iran?
YLSP
you are at war with yourself!!
jg
+2
Interesting a terrorist attack in Pakistan to coincident with the timing of Pakistan becoming more vocal regrading American raids into Pakistan.
Recall what happened in Spain (from Wikipedia):
"A series of bombs exploded in commuter trains in Madrid, Spain on 11 March 2004. After a five month trial in 2007 it was concluded the bombings were perpetrated by a local Islamist militant group inspired by al-Qaeda. The bombings killed 191 people and wounded more than 1800, and the intention of the perpetrators may have been to influence the outcome of the Spanish general election, held three days later. Though initial suspicions focused on the Basque group ETA, evidence soon emerged indicating possible Islamist involvement. Because of the proximity of the election, the issue of responsibility quickly became a political controversy, with the main competing parties PP and PSOE exchanging accusations over the handling of the aftermath. At the 14 March elections, PSOE, led by José Luis Rodríguez Zapatero, obtained a relative majority, enough to form a new cabinet with Rodríguez Zapatero as the new Presidente del Gobierno or prime minister of Spain, thus succeeding the former PP administration."
as i see it the only way to go is passive resistance.. dont pay anything and get your money out of the US!! then wait till its over..
Nemo says:
"Transferring $1 trillion into the banking system, without regard for the discipline of the market, is about the worst idea I have ever heard."
Absolutely agreed.
And the absurd political justification that this will somehow 'keep people in their homes' is the exact analogy of "Iraq has weapons of mass destruction'. Once again we blunder about in utter ignorance. The notion that Congressional leaders were 'stunned' obviously came from a reporter who had never reported on Congress before. That was the same look they always have on their faces.
SS:
"The devil is in the details. From what I have read there are 2.5M -- give or take -- custom contracts with different terms and conditions to somehow harmonize and value. The only easy way to do it is to create a "default" as in the FNM/FRE case which nets out near par. Presumably Monday's solution will make this happen."
I once participated in a presentation on CDS's put on by the legal department, and man there are a lot of terms. Most of the contracts have standard terms (eg. PAUG), and you can probably tie out large portions of the CDS market easily. I have no idea how many non-standard contracts there are, though, and I'm not sure anyone else does, either. At a minimum, you can start with ABS and move on to other sectors.
@ Kis "All they need to do is make the contract look like a security, then they could use existing clearing/netting systems."
That sounds like a promising approach involving less work.
Unintended consequences.
I've quit worrying about the merits of the deal since it is already done. The question is how far above fair market value is the government willing to pay? Too high a bid (any takers than it won't be?) and lenders will lose any motivation to modify. Why bother if the lender can pass to the govt for more than it can get in a mod/foreclosure. Seems to me the plan will lead to a GREATER number of foreclosure unless the government (or its chosen servicer. Is there anyone out there big enough to handle the avalance of bad loans) can quickly service the problem loans.
We are on the road to revolution in the United States.
wally : i buy the stunned line!! they discovered there donors will go bankrupt soon..
From what I have read there are 2.5M -- give or take -- custom contracts
No doubt part of the solution would have to involve the players willing to hyper-simplify their CDS contracts to some standard that could be easily securitized. Basically create an 'AIG-CDS' contract that is worth $1M against an AIG default. Do the same for the 800 other financial firms. They all figure out how many they have with eath other, throw them into the pot, and see how they net out. That is basically what they do with stock trades every day.
For those that missed this :
Treasury Sends to Congress Proposal to Buy Assets
Treasury Seeks Authority to Buy $700 Billion Assets (Update1) - Bloomberg.com
Sept. 20 (Bloomberg) -- The Bush administration has sent to Congress a $700 billion proposal that gives broad power to the U.S. Treasury Department to acquire troubled assets now on the balance sheets of U.S.-based financial companies.
The legislation gives Treasury Secretary Henry Paulson authority to own as much as $700 billion in mortgage-related assets at one time. The bill would raise the nation's debt ceiling to $11.315 trillion from its current $10.615 limit.
wally writes: The notion that Congressional leaders were 'stunned' obviously came from a reporter who had never reported on Congress before. That was the same look they always have on their faces.
Wally:
If they looked like they had seen this coming, wouldn't that suggest they knew this was coming ??
Wally, it's just for show. They did know. But you and I don't elect them. Joe6Pack does.
Black Dog
Why bother paying your mortgage at all, force the sale of the loan to the gov't and then work out a solution with the preferred servicer of choice (Goldman Sachs)
kis:
"No doubt part of the solution would have to involve the players willing to hyper-simplify their CDS contracts to some standard that could be easily securitized. Basically create an 'AIG-CDS' contract that is worth $1M against an AIG default. Do the same for the 800 other financial firms. They all figure out how many they have with eath other, throw them into the pot, and see how they net out. That is basically what they do with stock trades every day."
A de facto market maker?
has there ever been, in the history of the country, a bill that asks for that much money on a % basis?
being 10% of GDP , at one time?
My take is that the CDSs is too infinitely complex to unwind in any orderly manner.
Hence instead they will work to prevent the CDSs from blowing up
How? Buy Bad Assets, infinitely cheaper and kick the CDS problem to the next administration.
The mortgage default economic stimulus plan (MDESP, think of it as a tax cut for poor and middle class. The government isn't going to kick people out of their houses, this is a bad plan, it opens the floodgates to hell and further default.
Bailout Nation writes:
What is the most effective method to communicate respectful disatisfaction with members of Congress?
Buy gold.
wally --
And the absurd political justification that this will somehow 'keep people in their homes' is the exact analogy of "Iraq has weapons of mass destruction'.
Well, I see it a little differently. The Congress (esp. the Dems) want this bail-out to include provisions to "rescue homeowners".
So first the government will spend $1 trillion buying possibly worthless mortgages, then it will guarantee that they are worthless by writing them off.
The entire housing disaster -- from borrowers to lenders to securitizers to investors -- has been the worst mis-allocation of capital in the history of capitalism. And now our government is about to ratify it from front to end, starting with the banks.
Whether your goal is efficiency or fairness or just the future of the nation, this bail-out really is simply a hideous idea.
The more I hear about the US government plans to accumulate bad loans and "toxic" assets from financial institutions the more it sounds like an astronomical phenomena: a black hole.
Pomp & Surkanstance: Capitol Hill beats physicists to create black hole
Faber Says Hopes for Bull Market Return are in 'Fantasyland'
Bloomberg News Video
Draft of the Treasury's Proposal for Toxic Debt
Page not found - - CNBC.com
LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY
WALL STREET IN CRISIS - A CNBC SPECIAL REPORT
TO PURCHASE MORTGAGE-RELATED ASSETS
BB: "My take is that the CDSs is too infinitely complex to unwind in any orderly manner.
Hence instead they will work to prevent the CDSs from blowing up
How? Buy Bad Assets, infinitely cheaper and kick the CDS problem to the next administration."
The problem is the sheer size of the CDS market. When you net the exposure, it's far less than the total market, and netting it out lets you know which institutions can fail. If you leave it be, you can't let any institution fail.
"No doubt part of the solution would have to involve the players willing to hyper-simplify their CDS contracts to some standard that could be easily securitized. Basically create an 'AIG-CDS' contract that is worth $1M against an AIG default. Do the same for the 800 other financial firms. They all figure out how many they have with eath other, throw them into the pot, and see how they net out. That is basically what they do with stock trades every day."
Even given that what you suggest was possible, the problem remains that the banks are insolvent due to bets on these contracts.
The real issue is how do you save the banking "system in the face of systemic insolvency?" Unfortunately, it's not a problem to be solved over a beer/weekend.
Personally, I was "happy" with the controlled implosion approach as it took out bad players one by one while allowing the markets to adjust. Unfortunately, it appears to have gotten away from the Fed/Treasury with LEH.
Any attempt to replicate the complexity of the existing CDS market would admitedly fail. The only way securitization works is to hyper-simplify. But Paulsen worked for GS... surely he knows how to be a market maker.
This doesn't prevent banks from going under... it protects the system, presuming that a fair majority are not insolvent and can ride this out.
If this had been France, there would have already been major riots in any town over 50,000 population.
Americans are easily blown off by their leaders.
Josh, you got that right. You've heard of "merger Monday"? This week will be "secondary semana".
from BB's post,
Under the proposal, the Treasury secretary is given wide berth to take action ``as the Secretary deems necessary'' to hire people, enter into contracts, and issue regulations.
By starting the bailout process now, the democrats have effectively lost an opportunity to make regulatory changes.
Well, it looks like the Calculated Risk Hysteria Index went ballistic overnight.
There were 671 comments on a story about a bank failure where the amount of assets involved was .033% of FDIC-insured assets.
Meanwhile, not only did my bank call me up yesterday with an offer to greatly expand my HELOC at an interest rate of prime minus 75 bp, on my way to coffee this morning I noticed that the price of gasoline is down $.10/gallon this morning.
This "catastrophe" seems to be occurring everywhere except the real world.
Sebastia
Whiskey writes:
The problem is the sheer size of the CDS market. When you net the exposure, it's far less than the total market, and netting it out lets you know which institutions can fail. If you leave it be, you can't let any institution fail.
You may be right but am thinking that it is far too complex, hence they will kick it down the road.
sebastian:
honestly if you cant see how criminal and illegal and rigged this is then well.. so long Astroturfer..
This doesn't prevent banks from going under... it protects the system, presuming that a fair majority are not insolvent and can ride this out.
That's it in a nutshell thought. The system is insolvent.
"Gold price will be destroyed if we dump 8000T of gold."
Right causality, wrong tense.
The bulk of that gold is long since swapped out and sold off. It DID destroy the gold price. That era is ending.
The USG recently suspended minting of Gold Eagles. Coincidence?
sebastian another tip: avoid pitchforks.. good luck
Nemo writes: The entire housing disaster -- from borrowers to lenders to securitizers to investors -- has been the worst mis-allocation of capital in the history of capitalism. And now our government is about to ratify it from front to end, starting with the banks.
Whether your goal is efficiency or fairness or just the future of the nation, this bail-out really is simply a hideous idea.
Response: Efficiency and fairness are equally difficult questions. However - at the bottom line - this "BAIL OUT" is the first smart thing "we" have done. It gets ahead of the systemic failure - or at least has a chance to do that.
There is MUCH to be sorted out. However, this BAIL OUT should not be viewed from the vantage of how much it will cost us. This is a systemic failure - and fault lies where it does - Nevertheless, the better view is two fold: [1] Does this save us from a failure on Main Street and [2] Does this put us in a position to save costs on reconstructing America - given that we still have a price to pay for the burst bubble. Both are questions.
LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY
mp - They're always rioting about something in France. A systemic financial crisis would have to get in line behind any number of issues.
re pitchfork: in a neighbour town somebody got shot dead for 700 euro robbery.. this in SPAIN!! good luck in the future over there in the US..
kis:
"Any attempt to replicate the complexity of the existing CDS market would admitedly fail. The only way securitization works is to hyper-simplify. But Paulsen worked for GS... surely he knows how to be a market maker.
This doesn't prevent banks from going under... it protects the system, presuming that a fair majority are not insolvent and can ride this out."
I suppose one issue is that this helps solvent institutions and hurts the insolvent ones, because it makes it easier to identify the insolvent institutions. This might require the government stepping in to force everyone to convert from CDS's to the new swaps.
"They're always rioting about something in France."
You're damned right they are, and maybe that's why politicians in France spend a lot of time listening to the people.
Unfortunately the people are no smarter than the politicians.
"In the long run, we're all dead".
"Unfortunately the people are no smarter than the politicians."
Yet another cop-out.
http://www.cnbc.com/id/26803766
designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
This could mean anything.
politicians in France spend a lot of time listening to the people
What they hear is "we want a pony", they then do whatever they can to provide a pony while kicking the underlying costs down the road. Does this sound familiar?
(Full disclosure: my wife is French, and I have spent enough time there to have some idea of the progam)
Nobody writes:
"In the long run, we're all dead".
Nobody | Homepage | 09.20.08 - 12:03 pm |
Response: In the mean time, I still love my country.
BB: "You may be right but am thinking that it is far too complex, hence they will kick it down the road."
The CDS labyrinth is the main reason everyone uses to justify all of these bailouts. Get rid of the opacity, and a resolution is possible.
I think there's a lot of promise in kis's idea of market makers converting CDS contracts into securities with a stripped down, standard form to make tying out exposures much easier.
Well, MLM, all I can say is:
Unlike France, I hope YOU enjoy paying for THEIR crimes.
REBear writes:
Page not found - - CNBC.com
designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
This could mean anything.
In other countries if you were fascist, communist or socialist it was understood.
In the US they legislate it.
I am fuming at this bailout of the irresponsible.
Get out the pitchforks and some rope. Heads need to roll. Of course, figuratively speaking.
For a start:
1. from 2000-present, track down the recipient of every bonus paid out to employees of investment banks (at any rank up to and including CEO) and seize equivalent assets on behalf of the taxpayer. Put yachts, mansions, bentleys on the auction block to help pay for the bailout. Illegal? Tough sh!t. The bailout is itself is unconstitutional and illegal.
2. irresponsible borrowers - get a 1099 for forgiven debt when walking away from a mortgage or when mortgage value is written down. Garnish wages for life if necessary. Allow more aggressive seizure of toys accumulated from home equity loan cash-outs.
3. Any financial institution receiving a dime of bailout money is nationalized. You don't get to repeat this crap in 20 years time.
4. No new mortgages with less than 20% down.
5. Criminal investigation into fed/treasury/congress participants in the bailout.
6. Criminal investigation into heads/boardmembers/decisionmakers of investment banks and financial institutions who have been involved in this mess. With this meltdown, they have proved that they are a danger to financial stability (w/ ridiculously complex derivatives, etc) and we need to return to a more regulated system, even if it resembles something from the 50s.
7. Add fraudulent mortgage brokers to the above.
I am willing to pay hundreds of millions of dollars in taxpayer money for this inquisition. Only fair since we are paying hundreds of billions for the bail-out. It will be good for the economy - employing many attorneys, clerks, repo-men, and prison guards.
In summary, screw all you financial geniuses who invented these 'creative' debt instruments and allowed stupid people to hang themselves with unsupportable levels of debt. You have added nothing to society. You are destroying the value of our currency. And now you need to pay for your participation in this massive fraud.
And all I can say is, it is not unlike France.
SOSBF - (Same Old Sh#$, Better Food)
Volker the Viking writes:
BTW, there is a great deal of doubt in some quarters as to whether we have any gold in Fort Know at all.
Who can say for sure, they have refused to do an audit for many, many years.
Maybe it's lead with a gold plating. And only on the end of the bars that can be seen from the guard posts. I wonder if the guards can even see, or if they ever have.
Anybody have any anecdotal reports from there. such as relatives who have served, etc.
Goldfinger stole it all in 1964.
Duh.
ztexas writes:
I am fuming at this bailout of the irresponsible.
Response: Survival first. Justice later.... but only if we are lucky.
Netting it out lets you know which institutions can fail.
Yes, Whiskey. Precisely.
Triage makes more sense than indiscriminate support - we have a shortlist of 799 financial service operations, some of which are undoubtedly too weak to continue. And not all of them are needed in any future now imaginable.
As in the AIG negotiations, where terms set were in a number of ways preferable to bankruptcy proceedings, this broader operation requires facing the hard realities. What I've read thus far still smacks of 'softening the blow' instead of managing it.
I'll be delighted to learn I'm wrong.
How is this plan going to fix didly? Right now everybody is afraid to loan to anybody because nobody knows who has a lethal dose of guarantees on Lehman, AIG, WAMU, AMBAC, MBIA, and god know who else is in imminent danger of going under. MBS underlie most - but not all - of the losses, so the plan won't cover everything. Plus, many losses have already been incurred through changing values during trades and so changing the underlying value now doesn't back it out. So the financial industry will still be riddled with stealth zombie institutions once the plan is going and people will still refuse to make loans.
This doesn't address the imminent crisis at all. In a few months to years, the vast subsidies will refloat underwater institutions and get things back on an even keel (at enormous financial and moral cost). But that's going to take a long time and if the crunch that happened this week continues there won't be a financial industry to bail out. If it levels out on the basis of what's already been done, well, then we can take at least a few weeks to consider how to deal with the long term problems.
You folks better stop whining and figure out how to preserve your wealth.
The talking heads are talking about the "stiff" terms paid by AIG for their bailout.
That's absolute bullshit. Fact is, AIG got one hell of a deal.
12:11 pm is myself.
I have no problem seeing the Treasury and the FED using their authority to save a few critical financial institutions from going under. I have serious concern in seeing the government bailing out every wrong-doer. This is dangerously unproductive to our nation in the long-run.
You folks better stop whining and figure out how to preserve your wealth.
Did that. Fourteen years ago, after the last debacle.
if your poor, go to someone you know who us rich, and demand a bailout.
ztexas writes:
I am fuming at this bailout of the irresponsible.
In addition to ztexas, I am fuming to the point of questioning paying my next credit card bill and mortgage to WaMu..
How many more people will naturally react like me when they are told they are bailing out everyone except them? How much credit card, Home equity loans and auto loans does this new bill cover?
ahh sebastian, great to have you back these last couple of days.
oddly, i agree with the premise of your last comment. the sheeple are not panicked, just concerned. even the high end folks are complacent. i was at a dinner party at the Mandarin Oriental here in NYC last night, and it was the farthest thing from folks mind.
lots of confidence in big daddy coming to the rescue.
meeting my macroeconomic geek buddies this weekend for drinks and plotting for next week. there's looting to be done and not planning on being left out. may bring eye patches and peg legs for fun. woo hoo!
Fair Economist writes:
How is this plan going to fix didly?
Response: Didly is going to face hard times - no matter how you choose to spell it. We are in for hard times.
However, this plan is an effort to cut the losses the economy { us - main street } would experience if "free enterprise" actually took it's well justified revenge. It was a very smart move.
There is no way to get around the fact that many people will be hurt - many businesses will fail. Those are just hard cold facts. Short them if you must.
Money is going to be tight going forward. The real question is whether you would have preferred the "Adverse Feedback Loop" solution.
At least this answer, the BAIL OUT, allows us to consider the possibility of saving "start up" costs. We will "start up" again. It's just an unfortunate fact that we face pain first.
If that makes me a Troll, then so be it.
mp writes:
You folks better stop whining and figure out how to preserve your wealth.
Did not buy a mcmansion, did not max out home equity, lost my contracting job from a financial services company (which is bankrupt now), don't qualify for unemployment and tried to hedge what I have left of my portfolio from downside risk with short etf's. How do you preserve your wealth? It does not pay to be prudent.
Yoda might say..."this maddening clusterFuck is, hmmmm!"
"...there's looting to be done and not planning on being left out."
Amen to that, but it's a hell of a way to run an airline.
the sp500 had a 15% move from thursday to friday. If that is'nt the real world, i don't know what is.
the 500 represent some significant pensions and asset's, covering millions upon millions of people.
if that's not the real world, what is?
Even given that what you suggest was possible, the problem remains that the banks are insolvent due to bets on these contracts.
That's the crux. CDS implicitly assume the parties are solvent, and many (most?) aren't. For the system to work almost everybody has to be solvent - it appears even two insolvent major players is too many. So to stop this via bailout the feds have to make everybody else solvent, which basically entails a 100% guarantee on every high finance contract in existence, not just a partial guarantee on some MBS. If we're gonna do that, we should nationalize the finance system - after all, we'll have paid for it.
Fair Economist:
"That's the crux. CDS implicitly assume the parties are solvent, and many (most?) aren't."
Even insolvent institutions can be net neutral to the CDS market. If that's the case, it makes more sense to cancel out the CDS contracts first before liquidating the institution.
"the sp500 had a 15% move from thursday to friday. If that is'nt the real world, i don't know what is."
The market moved on a promise, a hope, and that's all that moved it. Paulson's promise, at that.
Hope is not a plan. Trusting Paulson is not a plan.
Comrades,
The Peoples Ministry of Central Economic Planning, in conjunction with the Politburo has ruled that there WILL be prosperity for the proletariat.
Ponies will be distributed to all children. Bread will be available every day from 4:00 am to 6:00 am. The circus will visit your oblast every three months.
We will expect your votes as a sign of appreciation.
Rejoice and praise the fine work of Comrades Paulson and Bernake for their excellent service to the Republik.
Rejoice and praise the fine work of Comrades Paulson and Bernake for their excellent service to the Republik.
This is a time when all good citizens come to the aid of their country.
Maybe we can throw in Titles and "The Right of the First Night".
However, this plan is an effort to cut the losses the economy { us - main street } would experience if "free enterprise" actually took it's well justified revenge.
You're not addressing my point. The threat to Main Street is that the short-term debt markets have locked up and we are about to see a massive wave of illiquidity-driven bankruptcies in sound companies, which will have massive knock-on effects in turn. This plan does not address the "stealth zombie" problem causing that - even after the whole 800 billion or whatever has been spent the system will still be riddled with stealth zombie institutions and the loan market will still be locked up.
It will "help", alright - it will help some of those attached to high finance companies, those who manage to transform the government largesse into something that will survive the crash. But the benefits won't reach Main Street.
Ultimately, this is "trickle-down" economics writ large - hand vast sums to megacorps without strings attached and hope it trickles down to Main Street. It's not going to work here. The vast sums are still not enough to really bail out the megacorps and the mechanisms for the megacorps to send weath to Main Street are broken even if their hearts suddenly grow three sizes like the Grinch's did.
REBear writes:
Page not found - - CNBC.com
designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
Looks like a governmentally-sanctioned coup by The Fed...Is that PC? And we are paying them for the pleasure, how awfully polite we are...
Even insolvent institutions can be net neutral to the CDS market. If that's the case, it makes more sense to cancel out the CDS contracts first before liquidating the institution.
I'm all for netting out CDS when possible. But they are often fearsomely complex documents, written by flotillas of lawyers. It's not possible to net those out in a reasonable timeframe, and probably not possible at all.
CDS are frequently non-linear. When companies cross-insure and then enter bankruptcy together, "netting out" requires the solution of a vast system of non-linear equations. That may well not even HAVE a unique solution (in general, a complex nonlinear system is not solvable), and even if it does, finding it can be a monster mathematical problem.
Fair Economist writes: You're not addressing my point. The threat to Main Street is that the short-term debt markets have locked up and we are about to see a massive wave of illiquidity-driven bankruptcies in sound companies, which will have massive knock-on effects in turn.
You pose too many complex questions. One at a time. I addressed this question. In a collapse there are two issues: solvency and liquidity. Both are in play. The simple answer is... good businesses will fail before this is done. That is pain, and I addressed it.
Fair Economist writes:It will "help", alright - it will help some of those attached to high finance companies, those who manage to transform the government largesse into something that will survive the crash. But the benefits won't reach Main Street.
Survive first... seek justice later... and don't assume you will see much of it.
Fair Economist writes: Ultimately, this is "trickle-down" economics writ large - hand vast sums to megacorps without strings attached and hope it trickles down to Main Street.
I don't like being pissed on any better than you do. But, when you are drenched, you towel off first.
Main street will walk away from their mortgage obligations once this bailout is done, too big to fail is code for the fat cat bailout it is.
Don't you suppose that the 2003 SEC decision on leverage has something to do with this!? As I understand it, SEC decided to permit investment banks the ability to lever up to 30 or 40 to 1 instead of the earlier 12 to 1. This affected five banks (Bear, Lehman, Merrill, Morgan and Goldman). The dominoes are still falling. Sounds like SEC & this administration have a lot to account for.
Fair Economist writes: ....CDS are frequently non-linear. That may well not even HAVE a unique solution (in general, a complex nonlinear system is not solvable), and even if it does, finding it can be a monster mathematical problem.
Response: Personally - and this is just a wish on a star - I hope all quant systems implode.
I like this provision of the proposed new law:
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Translated: The Treasury Secretary is the Lord Thy God. Thou Shalt Not Question the Divine Wisdom and Providence of the Lord Thy God.
Fair Economist, If I left anything out. Let me know. Honestly, you do good work.
Fair Economist : "I'm all for netting out CDS when possible. But they are often fearsomely complex documents, written by flotillas of lawyers. It's not possible to net those out in a reasonable timeframe, and probably not possible at all."
You can start with CDS's that are directly comparable. For instance, there's no reason the government needs to worry about CDS's between two desks at the same IB. If two contracts are very similar (same underlying, same coupon, etc.) but not identical, exchanging such contracts for one with streamlined terms will probably work. Tying out contracts on, say, the ABX 07-2 PAAA vs. a component of the index is not practical.
Shock forces Paulsons move says the WSJ
But it is funny to see how all these crucial moves are always scheduled on OPEX, and at major technical pivot points for the markets: like the 10 year major support level (1150) for SPX this week.
In addition, and if you look carefully at a 5 minutes chart of XLF Thursday it sure appears to me that the price-volume action indicates NOT a panic selling, but rather a very controlled driving of price down to the lowest level of the day while buying on the dip = shaking the last scared hands before the UP ramp as we were approaching the 1150 crucial level.
What is provocative to me is how these major news are nearly always coordinated with perfectly controlled market action that are so obvious even to me, a retail trader, with not so many years of experience
I mean it would be easier to believe the shock argument if it were not so clear that it is so well timed.
Interestingly, they felt that they had to throw in a short covering (the short rule), as if they were not sure the bailout would be sufficient to stimulate buyers.
An inflexion point was the bunch of econ. news over the last weeks so now I am really extra curious to see what crucial data next week is going to bring (home sales, durable goods, final GDP).
CDS are frequently non-linear. When companies cross-insure and then enter bankruptcy together, "netting out" requires the solution of a vast system of non-linear equations. That may well not even HAVE a unique solution (in general, a complex nonlinear system is not solvable), and even if it does, finding it can be a monster mathematical problem.
Thank you....
After the last couple of threads I'd almost forgotten why I love this blog.
Thanks Tisall. I appreciate the intelligent discussion. I agree we are in a dire crisis and that something needs to be done, and that almost any price is justified if needed for a good plan. I just don't think this is it. If this were the only way to fix things and it would do the job I'd give Bush his 700 billion protection fee.
You can start with CDS's that are directly comparable. For instance, there's no reason the government needs to worry about CDS's between two desks at the same IB.
I guess I'm focusing too much on the negative. That won't fix the whole problem BUT it's a good idea and should be done pronto.
Another limitation of the current bill is that it does not even DISCUSS any provisions to deal with the CDS mess. No leverage limits, no cancel-out policies, never mind the hairy issues.
MLM writes:
politicians in France spend a lot of time listening to the people
What they hear is "we want a pony", they then do whatever they can to provide a pony while kicking the underlying costs down the road. Does this sound familiar?
(Full disclosure: my wife is French, and I have spent enough time there to have some idea of the progam)"
One difference is the French are much more :connected to the idea that "gvt. is working for them" and not the other way around... and the crowds quicker to act to show it.
Another difference are the social advantages offered to the average citizen (job security, health care, free schools and universities, quality day care...)
are the US rushing to adopt all the "downsides" before they adopt any of the advantages??
(I have spent enough time there to have some idea of the progam as well)
Fair Economist:
"Another limitation of the current bill is that it does not even DISCUSS any provisions to deal with the CDS mess. No leverage limits, no cancel-out policies, never mind the hairy issues."
We're in agreement there. Roubini's "bottom up" proposal is interesting and represents what ought to happen at the homeowner level. The upside it is allows for a quicker discovery of just what institutions are in the biggest trouble. The problem, though, is, well, that it leads to a quick discovery of who is in the most trouble. Combine that with the CDS problem, which is like a gun to the government's head, and you can quickly find a problem that grows too big to solve.
With underlying such as the ABX, you already have market makers in place, and tying out should be tractable. After netting out exposures, you're still going to find idiots like AIG that are long to ABS credit in a big way. What other option is there but for the government to pay out? It might entail liquidating AIG's other assets to mitigate the loss, but at least you punish the AIG equity holders and end up rewarding the people who bet correctly.
Thanks for these two quotes:
«designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;»
«Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.»
These means that the Republicans are really sure that McCain wins, or Wall Street is sure that they have Obama in their pocket.
No way that Republicans would hand over that kind of power over their funding sponsors to someone that has not been nominated by them.
As to the delusionary fools that think that there will be some retribution for the looting that has been going on in the past 15 years, here is the editorial opiion of the Financial Times:
http://www.ft.com/cms/s/0/ac088992-8679-11dd-959e-0000779fd18c,s01=1.html
«Naturally, the need for such a government-sponsored rescue is annoying. Taxpayers may well wish for the imposition of a special tax on recipients of what have turned out, retrospectively, to be unearned dividends and unjustified salaries. But demanding such a pay-back is infeasible. The pragmatic thing to do is let bygones be bygones, though not without paying close attention to the longer-run consequences of the rescue plan.»
Let a trillion or two of dollars be bygone, bye bye...
As to why the bill has been loaded with the outrageous clauses above and it is entirely pro-WallStreet as {FairEconomist} points out, this is clear from:
«Asked about the chances of adding such items, Bush sidestepped the question, saying only that now was not the time for political posturing. ''The cleaner the better,'' he said about legislation he hopes Congress sends back to him at the White House.»
Not only the can is being kicked down the road to after the November election, now the Democratic Congress is going to be blamed for any further problems if they don't write a blank cheque to the Republican campaign donor base, and blamed later for tax rises because of the blank cheque they wrote if they do.
I have to admire the effrontery and skill of the Republican machine and their strategy advisors.
dblwyo--
You are an idiot if you believe what you wrote above. The Fed will buy worthless shit at near face value, or else the process won't do anything to bail out the firms. If the Fed gives fair value for the shit, the firms will have, well, shit. And that won't do, apparently. The only way this helps the finance firms is if the taxpayers take it in the ass. Solvency is the problem, not liquidity.
Whisky, I agree any form of even half-honest price discovery will result in insolvency galore. My own thought is that the best solution is for the government to put BK'ing entities into receivership, and take the losses necessary for the short-term debts to keep the system going. Many are insolvent and belong in BK court anyway; I doubt the CDS issues can be completely resolved without legal intervention. So we may as well face up to it.
And the Oscar, for his performance in "Whocoodanode??", now goes to:
Senator Chris Dodd...
(CNN camera zooms in on Dodd's frightened face) "...and then, and then, well we were all just sitting around in Nancy Pelosi's office, you know, just shootin' the breeze wondering why we'd been called there... when Paulson & Bernanke walk in, & just before they lock the door behind them, I catch a glimpse of a coupla ponies standing out there in the hall behind them, & I'm thinking, "Well that's odd..." but then I get a good gander at Bernanke...
He's got this long grey cloak on with a pointy hat & somehow he's grown a big long beard overnight. He's toking on this funny-looking pipe, & blowing smoke rings that went right through one another, just smoking and glaring at us all, with his yellow eyes-- My God!-- the fellow actually has yellow eyes!
Meanwhile Paulson's sitting crosslegged on the floor, beating on a tomtom & softly chanting Jim Morrison's "The End..." Suddenly Bernanke starts weaving round the room, speaking in tongues--- I dunno, some stuff about CDS's and MS and a whole bunch of other alphabet soup-- none of us knew what in hell he was talking about-- so we were all just looking at each other real emabarrassed, like, are you gonna say something or shall I... & I was just about to say, "Hey, Hank, knock it off, all this crazy end of the world shit ain't funny" when he nods to Paulson.
So Paulson jumps up on the table & sets fire to a bunch of index cards-- and he reaches in his pocket, & pulls out a Golden Ring. He tosses it into the fire, & damn it starts to glow till its white hot, & the room temp shoots up to like 150 degrees. The Ring gets bigger & bigger, inflating right in front of our eyes, till it's HUGE, like this big giant bubble, hanging over the table like a mushroom cloud, threatening to squash us all like bugs. By this time we're all cringing & crying & trying to hide behind Nancy's skirt when suddenly Paulson's voice grates out, like the sound of breaking rocks: "Behold, you fools, what you have done!" Then he grabs the ring & waves it in our faces, like a severed head--- & as we flinch away in terror, as God is my witness, I can see it's got some sort of writing on it-- some funny-looking characters that look vaguely Chinese, and even though I can't read it and I know damn well that none of us in That Room can, somehow we all simultaneously telepathically recognize, in that hushed moment, exactly What is Written on the Ring...
It IS Chinese...
and it says...
"WOOT!!"
You're wrong. It's actually politically tone-deaf. There are a number of Republicans in Congress who won't support this, because it goes against everything they believe about the dangers of big federal government.
It shows that Paulson hasn't acquired any political sensitivity or skill. It leave the door wide open to counter proposals from Republicans and Dems alike.
Jeff in Texas writes:
dblwyo--
"You are an idiot if you believe what you wrote above. The Fed will buy worthless shit at near face value, or else the process won't do anything to bail out the firms"
Jeff, I side with the "idiot's" opinion too.
I bet the aim is NOT to help solvency of individual firms. The aim is to "help" the assets and the derivative network.
And this is where the short rule helps...some peeople need to unload those fiancial shares
JMIO
One of the most sickening thing about this is the complete lie that there is no liquidity for any of these assets. I buy that some of the more exotic CDOs are virtually impossible to value (or perhaps just worth zero) but there is a very active market for resi whole loans, performing or NPL, subprime, Alt-A, even option ARMs. You're going to hate the price but you can get them sold. It is also complete crap that by holding, the value will increase. If there was ever a wasting asset, its a pick-a-payment, neg am option ARM.
China's central bank would probably be pleased to pay a small premium to the gold price in order to buy the whole stock pile.