"a separate $400B pool at the FDIC to insure investors in money market funds.
Not much has been written on this. So a MMF can buy the riskiest of short term investments knowing the Gov't is backstopping his fund should a loss occurr. Talk about moral hazard. Oh yes, the ratings from the rating agencies will protect the fund. right.
ProShares Announcement
Friday September 19, 11:25 am ET
BETHESDA, Md.--(BUSINESS WIRE)--Due to the emergency action announced by the Securities and Exchange Commission on September 18, 2008, temporarily prohibiting short sales of shares of certain financial companies, Short Financials ProShares (SEF) and UltraShort Financials ProShares (SKF) are not expected to accept orders from Authorized Participants to create shares until further notice. Unless notified otherwise, shares will be available for redemption by Authorized Participants as normal. The shares of these ProShares are expected to trade in the financial markets today, but may trade at prices that are not in line with their intraday indicative values.
Since the Fed is permitted to lend money without limit in "unusual and exigent" circumstances, I thought I'd look up the meaning of "exigent".
From Bouvier's Law Dictionary, Revised 6th Ed (1856):
EXIGENT, or EXIGI FACIAS, practice. A writ issued in the course of
proceedings to outlawry, deriving its name and application from the
mandatory words found therein, signifying, "that you cause to be exacted or
required; and it is that proceeding in an outlawry which, with the writ of
proclamation, issued at the same time, immediately precedes the writ of
capias utlagatum. 2 Virg. Cas. 244.
"Look. Market Makers, hedge funds,institutions,and investors are scrambling now. They took everyone that was obeying the rules and made what they were doing legal, illegal. So what are we supposed to do, just throw out all the rules?"
I like the idea of jail time along with a return to cruel and unusual punishment for Wall Streeters, CEOs and elected or appointed officials who have reamed us. Let the witch hunt begin. However I think a preemptive war(Thanks George) "nucalur" lesson administered by one or more of our creditors is more likely to happen.
CNBC's Liesman says Ben & Hank saw what was coming if we don't do this bailout while pictures of the Great Depression filled the screen.
Once the rest of the MSM start doing the same this bailout will go through without a hitch.
Another poster in another thread noted that (s)he was sure that Doctors Without Borders could use a $10B "bailout": much, much less expensive than bailing out the banks, for sure.
You can't solve fraud with fraud, because fraud and illusions on wall street will not create jobs and increase confidence in the financial system -- which depends on cash flow. If fraud is not contained, we will crash before XMAS IMHO!
As I understand it, the hope is that the real estate that forms the collateral for all this paper will stabilize, at some endurable level. That would enable this paper to recover some of its value, and the downward spiral will stop.
At present, with so much uncertainty, the market value of the paper is catastrophically low--especially if banks and other holders tried to sell it all at once.
But millions of people are still making their mortgage payments, so not all of this paper is worthless. Its price is depressed because of the uncertainty. So if the uncertainty went away, the price of the paper could stabilize at some level short of financial armageddon.
That appears to be the theory. We are going to test this theory in practice, it seems.
Herr Krugman said: Basically, lenders went on strike:
You know, I'd feel better if the government, instead of bailing out the douchbags on wall street, simply opened a competing bank of their own. If capital for business was the goal, why not just provide it directly. It'd have been cheaper and it would have left moral hazard in place.
I have seen NO information on how the purchase amounts will be determined.
If the fund buys out all those loans at the outstanding principal balances then the taxpayers get the losses and the stockholders get totally and unconsciably bailed out. If the loans are bought at a discount, who is going to determine the pricing?
It's all dejavu to me. The situation closely resembles Japan circa 1998. Paulson's TARP policy reminds me of massive bank bailout plan by prime minister Obuchi of the time.
The next step for this type of policy is deciding who to save and not to save. Yes, the plan will not bailout everyone. Paulson will draw up ad hoc algorithms for deciding the line. Sometimes, the line seems to be arbitrary and scrambling continues but in a much minor scale.
The good news is that Obuchi's baiout policy has finally ended the severe credit crisis. The Japan economy started showing positive growth. The bad news is that Obuchi's plan cost Japanese tax payers about 50 to 60 trillion yen. That's approximately several hundreds billions US dollars.
I strongly suspect the U.S. plan can turn out to be more expensive.
the global neoliberal era that commenced in the late 1970s, implemented by figures like Reagan, Thatcher, Pinochet and Deng Xiaoping, among others, is now officially over
in the short term, investors and the financial sector will be winners, having pocketed outsized returns, bonuses and transactions fees, with a government backstop, but, in the mid to long term, they will be losers, as the consequences of their actions are visited upon us
it might be called, "The Return of History", in juxtaposition to Fukuyama's famous declaration, "The End of History", in the early 1990s
class conflict is going to return with a vengence, when people realize that they are being brutally subjected to the discipline of a market administered by politicians and corporations that not only exempt themselves from it, but require everyone else to pay for their mistakes
Serious questions. Long term, does this huge increase in gov't debt finally crash the dollar? I've been seriously considering moving into foreign currencies but am hesitant to do so with the buck currently near all time lows vs. most other currencies. Between UK and Spain we know the Eurozone is likely to have a similar RE crash, Japan needs to keep the yen weak vs the dollar or lose their biggest customer, the Aussies have a bigger housing bubble, etc. etc.
How can you hedge against a dollar crash while not getting screwed if the buck rebounds back closer to historic norms?
Texas Reader writes: I have seen NO information on how the purchase amounts will be determined.
If the fund buys out all those loans at the outstanding principal balances then the taxpayers get the losses and the stockholders get totally and unconsciably bailed out. If the loans are bought at a discount, who is going to determine the pricing?
Yup. The pricing of this stuff would be fun to watch. But I'm betting we won't get to watch.
When you have Friends Of Angelo people like Dodd in the fraud loop, how can you expect change? How can America move forward if Congress and The Senate are the root of the problem??
In an unexpected move intended to prevent the continued slide of financial stocks, the SEC has banned all forms of frowning, scowling or cursing with regards to stock market activities.
NC Jim - "cost" doesn't work for the bonds. What happened is that the home loans were made, then put into pools, and bonds were issued with the home loans as security. The bond buyers have been receiving payments on teh bonds. Each time a bondholder receives a payment the bond is worth less.
So you can't use "cost" to determine it. And if you use the outstanding principal balances of the loans securing the bonds as a way to determine what to pay the bondholders, then any loss of principal goes 100% to the government, which is us.
What can we do about it??? If you want guaranteed results theres nothing that will give you that. AS feckless as it feels, despite anything else you do, you have to voice your opposition to the ONLY people who can actually prevent this, and thats your 2 Senators and your House rep. Do whatever else you think will help, but dont just blow off writing your reps. Its still an election year.
Despite the assumed futility of the effort I believe that it is very important to communicate to our Congressional reps our intolerance for this bailout (TARP). We simply must make the effort to inundate these people with our disapproval.
The plan is due to be announced Monday, so we should each spend the weekend composing a succinct, civil, and non-inflammatory letter to EACH of our reps. Theres no reason it cant be the same letter to all three. We each have 2 Senators and a House Rep.
I personally will then copy all of my associates with a copy of my letter, preceded by a short summary of the situation (not everyone reads CR) and ask them to contact their reps as well.
Im told that these congressional offices put more weight on faxes than emails. Snail mail is useless as the time to pass thru anti-terror inspection negates the urgency of the message. So in order to make it easier, and cheaper, for everyone, heres some info on free faxing from your PC and also a way to use a temporary email address if you want.
Free Fax
Fax from your PC for free (limit 2 faxes per day)
Not everyone was satisfied with the Senate Ethics Committee conclusions. Fred Wertheimer, president of Common Cause, which had initially demanded the investigation, thought the treatment of the senators far too lenient, and said, "The U.S. Senate remains on the auction block to the Charles Keatings of the world."[33] Joan Claybrook, president of Public Citizen, called it a "whitewash".[33] Jonathan Alter of Newsweek said it was a classic case of the government trying to investigate itself, labelling the Senate Ethics Committee "shameless" for having "let four of the infamous Keating Five off with a wrist tap."[34] Margaret Carlson of Time suspected the committee had timed its first report to coincide with the run-up to the Gulf War, minimizing its news impact.[33] One of the San Francisco bank regulators felt that McCain had gotten off too lightly, saying that Keating's business involvement with Cindy McCain was an obvious conflict of interest.[35]
[edit]
For starters govmt should increase funding for the Public Company Accounting Oversight Board to prosecute the Wall Street crooks that got us into this mess
Second, unfortunately Sabanes Oxley only contemplates a max of 20 yrs in prison (SOX section 802(a) 18 U.S.C. § 1519 ). Maybe Guantanamo Bay?
I just can't see how this can work unless the TARP buys the bad debts at above-market values. And, to do that will cost us a fortune. Every estimate from govt. we've seen on this crisis has been way too low (remember Bernanke's top end of $50 billion when this was "contained" to subprime?). We just don't have the money or the ability to repay the cost if we borrow it.
If the fund buys out all those loans at the outstanding principal balances then the taxpayers get the losses and the stockholders get totally and unconsciably bailed out. If the loans are bought at a discount, who is going to determine the pricing?
Yup. The pricing of this stuff would be fun to watch. But I'm betting we won't get to watch.
John Stark
Depends on how the deal is structured. If the entity buying those bonds is owned 100% by the US government then Freedom of Information Act will apply, and it will just be a matter of someone who understands complex transactions translating the legalese.
IF however, the govt gets a private entity to do the purchasing, and just issues a guaranty of a certain return on assets, then we won't.
FYI: I worked for a Dallas bank that failed and was bought by then named NCNB. The FDIC got NCNB to buy ALL the loans, but guaranteed a certain return on any loans in a high risk pool. NCNB got the right to decide what loans to put in that pool over a certain period of time. Figuring out how much that failure ultimately cost the FDIC would be difficult.
The US is long mortgage back securities and credit swaps and short T-bills, Notes and Bonds.
The taxpayer (US) runs the risk of having to roll selling its paper regardless of the market or world situation.
This only works if during the time the US holds this position volatitilty remains in a band that allows the taxpayer to earn enough to stabilze the housing market and pay back the loans.
This trade works only through the election because predicting volatility through any number of potential crises is unknowable.
However, I might be wrong...so what is cash flow position of the US Treasury in 2009 given potential declining tax revenue, a war and Alt - A resets?
Given our best efforts to price volatity this year, the 52 week range on the VIX was 42.16 to 15.82.*
That's a quadrillion just for the case the you may need it.
Quadrillion will be a number we'll hear about only for a week or so. Then we'll be talking quintillions. This is all heading towards parity with the Zimbabwean dollar.
Overly simplistic analysis... between 2004-2007, when most of these shenanagans went on, the tax bills for AIG totalled $16.6b; MS - $7.8b; GS - $15.8b; MER - $1.7B; LEH - $6.5b.
They collectively paid $48b into the govt over the past 4 years and get a freakin $1.2T+ bailout. That's a hell of an ROI.
So - does this mean the USG has 3.5 trillion dollars??
"Investors pulled a record $89.2 billion from money-market funds on Sept. 17, according to data compiled by the Money Fund Report, a newsletter based in Westborough, Massachusetts. The withdrawals totaled a decline of 2.6 percent in money-market assets.
The redemptions countered a trend in which assets in money- market funds increase almost 14 percent, to $3.58 trillion, from January to the beginning of September, according to IMoneyNet Inc., the research firm that publishes the Money Fund Report"
Hey, I've got an idea... let's let the free market work this out! We'll create TWO TARPS: call them "Fannie TARP" and "Freddie TARP". They can COMPETE when they bid on the prices of the assets! That'll get us REAL price discovery!
ajw writes:
Jason - as of the past year or so, I don't believe we're Japan's biggest customer, China is. Just something to bear in mind.
ajw | 09.19.08 - 1:33 pm | #
A lot of what China buys from japan ends up in final product the Chinese then ship to NAFTA Zone & Euro Zone.
A lot of what China buys from japan ends up in final product the Chinese then ship to NAFTA Zone & Euro Zone.
Yeah. For better or worse, We're Number One!! at end user consumption. if / when that dries up, whence the dollar? Up? Down? Will it buy you 50 yen, or 150?
As I understand it, the hope is that the real estate that forms the collateral for all this paper will stabilize, at some endurable level. That would enable this paper to recover some of its value, and the downward spiral will stop.
fyi: the real estate secures the mortgages, and the mortgages secure the loans. The problem isn't the value of the real estate, its primarily the subprime borrowers becoming unable to make the loan payments due to either their worsening financial condition OR adjustable rate notes adjusting at rates that push the payments above what they can pay. A lot of ARMs had very low initial ("teaser") rates and are now resetting the market rates.
The only time the value of the house comes into play as to the bond secured by a mortgage is when someone needs to sell their house for some reason and won't get enough to pay off the mortgage. Then the house gets foreclosed and the lower rated bonds don't get all their payments.
Inflationary writes:
Well so much for the deflationistas.
Wonder how they are going to argue that unlimited bailouts are deflationary this time.
Deflating house prices, stock prices, commodities, new and used cars, durable goods, gas prices falling, natural gas prices tanked, electronic equipment lower each year, and most importantly wages falling. So where's the inflation?
class conflict is going to return with a vengence, when people realize that they are being brutally subjected to the discipline of a market administered by politicians and corporations that not only exempt themselves from it, but require everyone else to pay for their mistakes
Richard, I think you missed a key comment in CRs post: Shareholders are going to get severely wiped out. This bailout is going to leave EVERYONE pissed off. The only ones who will be happy is the employees of the financials, who get to keep a job.
And even then, if paulson demands change in leadership, a pay cut is the first logical step of a new CEO.
Inflationary writes:
Well so much for the deflationistas.
Wonder how they are going to argue that unlimited bailouts are deflationary this time.
Inflationary | 09.19.08 - 1:46 pm | #
Deflation delayed not deflation averted. That will be the argument and they'll be right as soon as the world stops buying our debt and we have a complete blow off - so until that time or we unless we rediscover fiscal discipline - its monetize debts. IMHO.
Why am I getting the feeling that Goldman will be the last and only investment banking standing. Paulson will get MS in line to get taken over, and then GS rules the roost. They must be licking their chops thinking of competing against the new IB divisions of the banks - like taking candy from a baby. Does anyone else see this coming?
"Anyone willing to try and explain where the money for all this will come from given the already huge deficit and off balance sheet occupation?
Jim"
Where all fiat money comes from - printed out of thin air or magically manufactured by pressing a few keys on a keyboard somewhere. This massive increase in monetized debt will result in outright theft of the people's life savings purchasing power by inflation. It won't be long now before legal controls are put on all IRAs/401ks preventing early withdrawal. Glad I got mine out in January.
Deflation delayed not deflation averted. That will be the argument and they'll be right as soon as the world stops buying our debt and we have a complete blow off - so until that time or we unless we rediscover fiscal discipline - its monetize debts. IMHO.
This is plausible.
But am thinking the world won't stop buying our debt, it would be far worse for them. If that however then i will cede the argument.
Inflation is NOT wages - it is NOT prices - it is money supply. Period.
Usually that effects prices/wages but not necessarily YOURS. Don't kid yourself - there are are going to be some pretty tasty bonuses from this pop today. Just 'cuze your wages suck doesn't mean their wages suck.
Dr. Doom, how much do you need to save by avoiding any crash to make up for the early withdrawal penalties and tax liabilities that come with emptying an IRA?
Oh and gold is just a shiny commodity, not some sacred substance with untouchable value.
You take far too short a time frame to argue asset prices are rising. Even my call that commodities are falling is based on 3 months - not 2 days like the stock market.
the real estate secures the mortgages, and the mortgages secure the loans. The problem isn't the value of the real estate
Yes, so you would think there's always some value, no matter how minuscule. But somehow we ended up with derivatives that went to zero. There's a lot of those things out there.
You take far too short a time frame to argue asset prices are rising. Even my call that commodities are falling is based on 3 months - not 2 days like the stock market.
Fine. Let's take a longer period.
When you started working, what were your wages? And what are your wages now? (Assuming you didn't start working these past few years)
More importantly, what is your purchasing power present compared to the past.
Massive price inflation supported by an increase in money supply and credit.
dollar getting wached and commodity complex up. The trade is clear. rising prices offset lower volumes EPS nuetral. Market flat but not down. In nominal terms you can do anything.
You take far too short a time frame to argue asset prices are rising. Even my call that commodities are falling is based on 3 months - not 2 days like the stock market.
Persecuted Comrade Anonymouse | Homepage | 09.19.08 - 1:58 pm | #
Look at commodity prices farther back in time... say 5 years... the drop over the last few months is a small blip in most cases.
But again - so what? Prices aren't inflation. We've just taken all those so called 'deflationary asset losses' and monetized them - turning them into money-like instruments courtesy of the Fed & Treasury. That increase in money-like instruments IS inflation... until people refuse to recognize those instruments as money-like... then we'll experience 'deflation' BIG TIME.
I think eventual 'deflation' was made more likely today & last night by these actions - but we aren't there yet. Not even close. More monetization before we get there - IMHO.
"Sept. 18 (Bloomberg) -- Genetically engineered animals would be regulated by the U.S. Food and Drug Administration under proposed rules backed by the biotechnology industry and opposed by consumer advocates
Can someone explain the rationale behind the rule against naked shorting? Ive never shorted any shares, and dont have any plans to do so in the future (not that I could now, even if I wanted to, with the new ban), but Im just trying to figure this out.
Here is my understanding of how it works and why the rule is in place: naked shorting is not allowed because of the possibility that delivery may not occur if the investor does not have the shares. Thus, the investor has to borrow shares to cover their short position, thus ensuring delivery.
But, these shares are usually borrowed from a brokerage (who borrows them from its customers who have the shares in a margin account). OK, so now the investor can deliver the shares, but what guarantee is there that the shares that were delivered (i.e., the borrowed shares) are replaced?
By requiring borrowing, arent we really just transferring the risk to the poor schmuck whose shares were borrowed (or the brokerage, who I guess would be liable for the shares that they allowed someone else to borrow)? Am I wrong or missing something?
Under normal circumstances, this would be deflationary. However, the market is not being allowed to correct. Paulson is spending up to one trillion dollars to prop the markets up. Where is the deflationary crash? If they didn't step in today, where would gold, oil and the dollar be?
It looks more like 1930 Germany to me. Hyperinflating out of debt.
Isn't it more likely that Paulson is having a Linda Blair Moment and that he has been possessed by satan for the last few years and that every day, we are seeing less of hank and more of the other entity?
I also see that satan is using these new JEDI-like Enron special purpose vehicles as a way for him to leave Dodge with a shit load of taxpayer revenues!!
"Anyone willing to try and explain where the money for all this will come from given the already huge deficit and off balance sheet occupation?"
Dilution - exactly as for any company issuing new stock. Money - or gold for that matter - is all fiat. It is a promise for future work from somebody else. There is only so much of that to promise, so you can divvy it up in whatever size pieces you want; the total is the same. Everything else is just manuevering and noise.
"I think eventual 'deflation' was made more likely today & last night by these actions - but we aren't there yet. Not even close. More monetization before we get there - IMHO."
Deflation is inevitable. Homes are overvalued, as is any financial product dependent on home prices, and this includes the equity of financial institutions.
Worst adminitration in my lifetime?
Worst ever.
Certainly the worst in mine. I only remember as far back as Nixon tho.
At least Hoover didn't fuck up a hostile occupation of an islamic country.
concur, worst ever
I think eventual 'deflation' was made more likely today & last night by these actions - but we aren't there yet. Not even close. More monetization before we get there - IMHO.
This statement may be prescient.
But if the financial systems are allowed to continue as they are, and it seems so by the actions initiated recently, may be a generation away.
Unlike the RTC v1, this new entities purpose will be to NOT sell it's assets. The whole point of RTC 2 is to take the toxic assets out of the financial system, and make them vanish into some sort of black whole.
In theory, the government will just hold them until prices recover. What a load of crock that is... As long as those RTC 2 assets remain hanging over the market asset prices will NEVER recover. The sad fact is that someone, sometime, has to take a complete loss on these assets and dump them on the market for whatever can be had.
My first reaction is something like, do you have a plan for rebuilding the nation (USA:economy) after the war is won ?
Without trying to contort this metaphor too much, I sense here a healthy appetite to 'win the battle' but minimal clue about how to restore the normal business functioning once the patient is stabilized.
Like it or not we will be affected by whatever "solution" is hastily created by the congress. I sent the following questions to some lawmakers. There are so many smart bloggers here that I would like to invite your answers.
How does the government punish corporations that took imprudent risk? Wipe out common and preferred stock holders? Even Alan Greenspan envisions the formation of a group akin to the Resolution Trust Corp. to step in, take a troubled company into conservatorship, wipe out the equity, Greenspan: Fed is not a ‘magical piggy bank’ - Stocks & economy- msnbc.com
How does the government ensure that the good guys prudent citizens do not become collateral damage?
How do the taxpayers ensure that they do not overpay for the bad assets they may buy from banks and mortgage lenders?
How do the taxpayers ensure that speculative gamblers, second-home owners, vacation-home owners are not bailed out?
How do the taxpayers ensure that the stakeholders in the companies provide the liquidity first? Convert existing corporate bonds into equities?
How do the taxpayers get every penny earned by the banks until the bailout money is repaid with returns that properly reflect a risk premium?
How do the taxpayers ensure that the executives that created the problems are no longer in a position to cause additional damage?
How do you recover bonuses, excessive pay (ask any honest citizen for a definition of excessive) and stocks received by the executives that created the problems? In particular, are you going to consider Henry Paulsons salary and bonuses during his Goldman Sachs years when the problem was growing? Excerpt from Goldman Gives Ex-Chief $18.7 Million Bonus - NY Times
The incoming Treasury secretary, Henry M. Paulson Jr., was awarded an $18.7 million cash bonus for half a year of work as the chief executive of the Goldman Sachs Group, the company said yesterday.
In its quarterly report, Goldman said the compensation committee of its board approved the payment on June 29 in recognition of Mr. Paulson's leadership for the six months ended in May, when profit doubled to $4.79 billion.
How do you limit the roles of Paulson, Bernanke and others who failed to see the problem, created harmful unintended consequences by their actions, vastly underestimated the cost of bailouts, and made grossly misleading public statements?
Also - as an aside - when the banks make their assets transparent (should be a requirement for participation), we will discover if any executives misrepresented their assets and filed false reports with the SEC. That could be prosecuted under Sarbanes-Oxley, and perhaps a few executives spending time in jail might help with the moral hazard issues.
The previous bailouts at least had the merit of wiping out the common equity; this one doesn't. We also have to recognize that there is no market price for these securities. Some government appointed person will be making up the price.
Better solution if the Federal Reserve wishes to establish transparency is to establish the valuation model and assumptions that are to be used to value the these assets and then require the financial institutions to mark to market at that level. Those with negative capital get taken over, those with capital shortfall get a specific time to rebuild failing which they get taken over. The ones who can mark to market and still have sufficient capital will attract funds and grow.
Has anyone mentioned the fact that banks are now at a competitive disadvantage? They must pay the FDIC premium and their I/R are substantially lower than MM funds. I would expect to see a massive outflow of funds from low or zero % savings and checking accounts to the New & Improved FDIC MM funds from ABC Mutual fund company.
What he giveth to one, he taketh away from the other.
what's to prevent the gov excuse me taxpayer from taking on this toxic garbage at levels where the financial institutions are actually marking them. i'm assuming most banks hae this garbage marked up at ludicrous levels when it is worth 0-20 cents on the dollar. what if taxpayer is on hook for worhtless loans that we end up paying 60-70 cents for
Has anyone mentioned the fact that banks are now at a competitive disadvantage? They must pay the FDIC premium and their I/R are substantially lower than MM funds. I would expect to see a massive outflow of funds from low or zero % savings and checking accounts to the New & Improved FDIC MM funds from ABC Mutual fund company.
I was wondering when that would bubble up.
Like I said, they are fighting skirmish actions, without dealing head-on with the core issues.
Where are the EFFIN regulations?! I don't want to swallow this bailout pill, but I will grudgingly accept it as long as there are strict new regulations to prevent this bullshit from happening again!!
Now all the bullshit about market efficiency is exposed as such. Imagine values created and benefits generated by spending monies required to bail "market" out today, by (corrupt and inefficient) goverment via public spending to build trains and hospitals?
Organizing universal health coverage is too expensive and, anyway, not a function of the state. Helping his banker buddies who got their fat bonuses from bank profits that turned out to be imaginary is Paulson's moral obligation.
Either way, it appears the current shareholders face massive dilution.
If a bank fails, dilution should be 100%, meaning nationalization and following privatizing without benefits to former shareholders. Shareholders had the power to stop the party by insisting on aligning executives' incentives to their interest or selling the stock. Loosing their investment should remind some of them, like pension funds, to be not so gullible next time.
Four years ago my grandfather who's 90 and hadn't voted Demo since FDR said to a shocked Texas family gathering... "the worst since Harding, it feels like teapot dome to me". I had to look up Harding and teapot dome.
He still follows CD rates on-line like a hawk. I talked to him last week and he seemed extremely worried about the future.
I'd like to ask someone with perspective, but worst US administration ever seems about right.
Despite the assumed futility of the effort I believe that it is very important to communicate to our Congressional reps our intolerance for this bailout (TARP).
If you have to ask how much a congress person costs... you obviously can't afford one.
It's early, can't they invent one more way to screw me before sunset?
Sad to see Rick Santelli tell of 5 friends wiped out this morning by volatility from the corrupt federal bank bailout measures.
The recent actions of the government in triggering this short squeeze are going to bankrupt many people. There could be suicides. This is very bad. There will be much anger from those affected. I wonder if some of them will be violent.
"Also - as an aside - when the banks make their assets transparent (should be a requirement for participation), we will discover if any executives misrepresented their assets and filed false reports with the SEC. That could be prosecuted under Sarbanes-Oxley, and perhaps a few executives spending time in jail might help with the moral hazard issues. "
Even better, let's give the righties their beloved 'tort reform' that sets a person's life at a value of no more than $250,000, but let's tie that to beefed up regulation and simplify prosecution on business and finances and give a life sentence for every $250,000 of fraud, embezzlement or other financial misdeed. Of course these culprits' thousands of life sentences would never get served, but a lot of people would think twice before even trying the smallest of business shenanigans knowing there is no longer a hand slap sentence or complex rules to protect them.
"class conflict is going to return with a vengence, when people realize that they are being brutally subjected to the discipline of a market administered by politicians and corporations that not only exempt themselves from it, but require everyone else to pay for their mistakes.."
There are no social forms any more that can carry on class conflict.
While Im as angry as anyone else here (and paying for it via ownership of QID, TWM, SKF, etc). However, I think that bailout may be less of a bailout than anyone thinks.
Remember the terms of the AIG bailout? Here they are:
"The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.
The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firms assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders."
Those are the terms of a business ending, not being bailed out. Remember FNM and FRE? Common and Preferred to (effectively) zero value.
What do we know: no short selling of a huge number of financial companies AND a new government entity to purchase the distressed assets (mortgage obligations, in all their varieties). The banks cant liquidate these at book/face value and are unwilling to write down to a FMV, whatever that may be.
So maybe, just maybe, Hank and Ben are going to do a forced liquidation of the obligations with a substantial haircut. Maybe 50%. Maybe 70%. And the new government entity is the buyer and holder.
The banks (not I-banks) are instantly recapitalized (albeit as MUCH smaller entities), lending resumes and life goes on.
The best thing about screwing the "little people" is that most of them haven't a clue that it is happening. Like taking candy from a baby. When the US economy begins to deteriorate a few years from now probably "Muslims" will be blamed, or someother scapegoat fashionable at the time and fingered by Fox News.
"class conflict is going to return with a vengence, when people realize that they are being brutally subjected to the discipline of a market administered by politicians and corporations that not only exempt themselves from it, but require everyone else to pay for their mistakes.."
There are no social forms any more that can carry on class conflict.
Pavel Chichikov | 09.19.08 - 3:08 pm | #
yes, I guess you are correct, if one construes this is Marxist sense, and it might be more accurate to conflict of, for lack of a better term, sub-proletarian kind
with potentially anarchist influences, as anarchism doesn't insist upon class identity for validation as Marxism does
but, I think that there will definitely be conflict, especially when one factors in the disasterous wars in Iraq and Afghanistan, which many of them, however defined, are fighting
yes, I guess you are correct, if one construes this is Marxist sense, and it might be more accurate to describe the conflict as, for lack of a better term, a sub-proletarian kind
"But millions of people are still making their mortgage payments, so not all of this paper is worthless. Its price is depressed because of the uncertainty. So if the uncertainty went away, the price of the paper could stabilize at some level short of financial armageddon. "
NO!
The price is "depressed" because PEOPLE CANNOT AFFORD STUPIDLY OVERPRICED HOUSES!!
Gah! When housing STARTS at 5x your income and goes up rapidly from there, you CANNOT afford it.
We can't "stabilize" at unaffordable - that doesn't make sense.
I don't see any evidence of class conflict arising at all. McCain who ought to be 20 points down from Obama is neck and neck, or close to it. Americans can always be distracted from their material problems with religion (Marx understood that very well) or racism, or some other red herring. America is pretty much immune to any kind of class conflict. And if anybody tried to stir it up, they'd be labeled a "Muslim terrorist" or as one of my reactionary acquaintences called Obama, a "Muslim in sheep's clothing."
There is no need for the government to buy these toxic securities as this will cause banks to register more losses. The Fed can offer to recapitalize the banks like the Arab and Singapore Wealth Funds have done so far. The existing shareholders will be diluted and the dividends will be suspended for several years. The real recovery will come when house prices stabilize, probably 2010.
"yes, I guess you are correct, if one construes this is Marxist sense, and it might be more accurate to conflict of, for lack of a better term, sub-proletarian kind"
I meant it in an empirical sense. Who is going to storm what? With what?
"The price is "depressed" because PEOPLE CANNOT AFFORD STUPIDLY OVERPRICED HOUSES!!"
Let's break it down...
1) No one buys
2) Land prices drop as builders drop their options
3) Builders start to build at lower price points on the now, much cheaper land.
4) Builders sell the new, smaller, less expensive houses.
5) Existing (used) house prices plummet; as who wants to deal with remodeling an old house when you might not get the money back when you sell. Or heating and cooling costs are just too great for those McMansions.
it's hard to object to the government's mass bailouts as similar debt-producing methods were put into action to bring the U.S. out of the Depression... our economy has been supported and driven by debt ever since
The SEC has banned urinating and defecating because these activities remind the investor of the actual value of their investments. Violators will be severely punished.
Why is it that every swingin' dick remotely associated with the securities industry, from the janitor to the CEO, has a smile on his face?
And I'm frownin'!
Richard Estes has a good point that this is a class war. I think we should start to think of small steps we can take to fight back.
For instance, maybe we can start a movement to end the tax deferment for 401ks and IRAs. Why should the government provide incentive to individual working people to hand over their savings to scam artists?
Maybe we can start a support local movement, which is all the rage for farming and food, but for saving and investing?
There must be many ways in which we can stop participating in our own impoverishment. I am sure the creative people on the board can come up with dozens of them.
My radical suggestion is that we don't re-capitalize the banks.
Don't you mean "persecuted" - in the same way thet President Bush vowed to capture the short sellers earlier on today?
shtove | 09.19.08 - 3:55 pm | #
yeah, just like we captured bin laden. no problem man, just go hide in a cave and send your short orders to the exchange via messengers on donkey's and they'll never find you.
Windowdog writes:
"Dr. Doom, how much do you need to save by avoiding any crash to make up for the early withdrawal penalties and tax liabilities that come with emptying an IRA?
Oh and gold is just a shiny commodity, not some sacred substance with untouchable value."
Yep, I paid my income tax + 10% penalty. Considering some friends I've talked to who are down 40-60% this year, I know I've made the right move for me.
And you're right, Gold is just a shiny commodity, not with "untouchable value" but definitely untouched by Hank and Bernanke's grubby hands. To me that's priceless!
Firstly, we ALL had a hand in this, let's get real. You all bought into the real estate market. Plenty of you flipped and were glued to the Sunday real estate paper.
2nd, right now this is the only option, regardless of how we got here.
3rd, it all depends on the price the gov pays for this paper, they're obviously not going to buy it at $1, something in between $1 and the $.22 it's currently being flogged for most likely. This way banks will still have to write some more down but get this toxic crap off their books. The gov will loosen cap rates for now.
The gov will still own the asset in this exchange, what's stopping them from holding it to maturity or market stabilization and recovering a large portion of the bailout? This isnt cash that's going to flood the economy!
"I'd like to ask someone with perspective, but worst US administration ever seems about right."
Warren G. Harding traditionally takes the honors as the worst and most corrupt presidential admin., but I see no way that George W doesn't knock him right out of the number one slot.
"Firstly, we ALL had a hand in this, let's get real. You all bought into the real estate market."
Who's this "we"...? Your greed and gullibility have nothing to do with me. I continue to rent, as housing prices relative to incomes flew past any sane metric 4 years ago. Why would anyone but a kool-aid drinking fool buy in a bubble?
You're exactly the Darwin-award winner Bush wants to "save". Hopefully, you haven't reproduced.
"My radical suggestion is that we don't re-capitalize the banks."
LOL, that's a good one. You think the GOP is not going to fix things up, at least temporarily, with an election around the corner? If Bush&Co. don't socialize the finance sector Obama will win handily. So they will swallow their phony "principles" and socialize. Hypocrisy? Sure, but who cares? Capitalist principles exist only to make money. If they get in the way, out the window with them.
It's already over 5 trillion potentially with the takeover of Freddy and Fannie, so what's another 500 billion? Will someone please declare the US Government to be bankrupt please? Who is there to take over a bankrupt government?
NYTIMES: A Hail Mary Pass, but No Receiver in the End Zone
"This time, the assets are complex derivatives of uncertain value that the big firms will actually be selling to the government.
But how is the government going to assess these securities and what price will it pay for them? In many cases, these securities arent being sold because they are still overvalued on a firms books. That is, their mark-to-market price is unrealistically high. Will the government buy it at the too-high price? If it does, the firms wont have to take additional write-downs but it will constitute a huge, unjustified bailout of Wall Street. (More moral hazard.)
But what if the government drives a hard bargain, and gets the securities for what they are really worth 20 cents on the dollar, say, instead of 50 cents? In that case, the firms would have to take yet more enormous write-offs, which would further damage their balance sheets, and they would have to raise billions more in capital. Maybe the removal of these bad assets would allow the firms to raise the capital. But maybe not meaning one or more could conceivably have to file for bankruptcy, creating yet another spasm of financial turmoil. Its a huge roll of the dice by the government.
Finally, there is the question of how much it will ultimately cost. Institutions so far have written down $550 billion globally of bad debt, said Daniel Alpert, managing director of Westwood Capital. We think that when you add up all the problems in the residential housing market still to come further erosion of housing prices, mortgage foreclosures and so on we are going to need another $1 trillion of write-downs."
Pavel Chichikov writes:
"yes, I guess you are correct, if one construes this is Marxist sense, and it might be more accurate to conflict of, for lack of a better term, sub-proletarian kind"
I meant it in an empirical sense. Who is going to storm what? With what?
Pavel Chichikov | 09.19.08 - 3:48 pm | #
Ever hear of the 1992 LA Riots? There was a major class dimension to them, lower middle income and poor people of all races (not just blacks) rioting during some of the worst economic conditions in the LA basin in the 20th Century
Ah well. If the executives pay for their morally hazardous behavior with time @ a Club Fed, they'll rub shoulders with a higher class of folks--
MMM--Mafia Middle Management. Perhaps they'll learn some new sales tactics.
No bailout after all...Wall St. 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."
What's the Iraq war cost to date? Curious to see how it compares.
What's the Iraq war cost to date? Curious to see how it compares.
Spunkmeyer
$341.4 million per day
Fifth Third?
Or fourth?
Taxes must rise aggressively. Either that, or the whole US goes the way of the Jefferson county sewer system.
The "D" word is not Depression, it's Default.
"a separate $400B pool at the FDIC to insure investors in money market funds.
Not much has been written on this. So a MMF can buy the riskiest of short term investments knowing the Gov't is backstopping his fund should a loss occurr. Talk about moral hazard. Oh yes, the ratings from the rating agencies will protect the fund. right.
CR writes:
Either way, it appears the current shareholders face massive dilution.
Got SKF? (it's now the only way w/out excessive premiums)
Read Krugman's column today:
OP-ED COLUMNIST; Crisis Endgame - NY Times
ProShares Announcement
Friday September 19, 11:25 am ET
BETHESDA, Md.--(BUSINESS WIRE)--Due to the emergency action announced by the Securities and Exchange Commission on September 18, 2008, temporarily prohibiting short sales of shares of certain financial companies, Short Financials ProShares (SEF) and UltraShort Financials ProShares (SKF) are not expected to accept orders from Authorized Participants to create shares until further notice. Unless notified otherwise, shares will be available for redemption by Authorized Participants as normal. The shares of these ProShares are expected to trade in the financial markets today, but may trade at prices that are not in line with their intraday indicative values.
Toxic Rot Syndrome
KfW board members suspended over Lehman payment |
Business |
guardian.co.uk
Spunkmeyer, estimates are between 2.5-3T when it's done. I'd rather pay for the bailout;)
Its probably $500 [billion] to a trillion dollars,
Boy, good thing we didn't already spend that much on a pointless war... oh, wait...
Since the Fed is permitted to lend money without limit in "unusual and exigent" circumstances, I thought I'd look up the meaning of "exigent".
From Bouvier's Law Dictionary, Revised 6th Ed (1856):
EXIGENT, or EXIGI FACIAS, practice. A writ issued in the course of
proceedings to outlawry, deriving its name and application from the
mandatory words found therein, signifying, "that you cause to be exacted or
required; and it is that proceeding in an outlawry which, with the writ of
proclamation, issued at the same time, immediately precedes the writ of
capias utlagatum. 2 Virg. Cas. 244.
Outlawry indeed!
To quote KD: "Bring on the ASS-POUNDING!!! YEAH!!!" (while holding a jar of vaseline and a box of Kleenex.)
GovTrack: Senate
Vote On Passage:
S. 900 [106th]: Gramm-Leach-Bliley Act
Gramm-Leach-Bliley Act
Aye\tAZ\tMcCain, John [R]
this will NEVER be paid
it's like they've inflated the stock market with knock out gas
Flickenstein on Bloomberg. RIPPING into the TARP.
"Look. Market Makers, hedge funds,institutions,and investors are scrambling now. They took everyone that was obeying the rules and made what they were doing legal, illegal. So what are we supposed to do, just throw out all the rules?"
Uh, looks like they did Bill.
Some interesting news :
US Government to secure mortgage market with gold reserves
US Government to secure mortgage market | News | Money Marketing
Comex Raises Margin Rates on Gold Contracts by 47%, Silver 20%
Comex Raises Margin Rates on Gold Contracts by 47%, Silver 20% - Bloomberg.com
I like the idea of jail time along with a return to cruel and unusual punishment for Wall Streeters, CEOs and elected or appointed officials who have reamed us. Let the witch hunt begin. However I think a preemptive war(Thanks George) "nucalur" lesson administered by one or more of our creditors is more likely to happen.
CNBC's Liesman says Ben & Hank saw what was coming if we don't do this bailout while pictures of the Great Depression filled the screen.
Once the rest of the MSM start doing the same this bailout will go through without a hitch.
Another poster in another thread noted that (s)he was sure that Doctors Without Borders could use a $10B "bailout": much, much less expensive than bailing out the banks, for sure.
Thread music;
YouTube - Salt of the Earth - The Rolling Stones
You can't solve fraud with fraud, because fraud and illusions on wall street will not create jobs and increase confidence in the financial system -- which depends on cash flow. If fraud is not contained, we will crash before XMAS IMHO!
As I understand it, the hope is that the real estate that forms the collateral for all this paper will stabilize, at some endurable level. That would enable this paper to recover some of its value, and the downward spiral will stop.
At present, with so much uncertainty, the market value of the paper is catastrophically low--especially if banks and other holders tried to sell it all at once.
But millions of people are still making their mortgage payments, so not all of this paper is worthless. Its price is depressed because of the uncertainty. So if the uncertainty went away, the price of the paper could stabilize at some level short of financial armageddon.
That appears to be the theory. We are going to test this theory in practice, it seems.
Herr Krugman said: Basically, lenders went on strike:
You know, I'd feel better if the government, instead of bailing out the douchbags on wall street, simply opened a competing bank of their own. If capital for business was the goal, why not just provide it directly. It'd have been cheaper and it would have left moral hazard in place.
I have seen NO information on how the purchase amounts will be determined.
If the fund buys out all those loans at the outstanding principal balances then the taxpayers get the losses and the stockholders get totally and unconsciably bailed out. If the loans are bought at a discount, who is going to determine the pricing?
It's all dejavu to me. The situation closely resembles Japan circa 1998. Paulson's TARP policy reminds me of massive bank bailout plan by prime minister Obuchi of the time.
The next step for this type of policy is deciding who to save and not to save. Yes, the plan will not bailout everyone. Paulson will draw up ad hoc algorithms for deciding the line. Sometimes, the line seems to be arbitrary and scrambling continues but in a much minor scale.
The good news is that Obuchi's baiout policy has finally ended the severe credit crisis. The Japan economy started showing positive growth. The bad news is that Obuchi's plan cost Japanese tax payers about 50 to 60 trillion yen. That's approximately several hundreds billions US dollars.
I strongly suspect the U.S. plan can turn out to be more expensive.
Bush. Bernanke. Cox. Paulson.
the global neoliberal era that commenced in the late 1970s, implemented by figures like Reagan, Thatcher, Pinochet and Deng Xiaoping, among others, is now officially over
in the short term, investors and the financial sector will be winners, having pocketed outsized returns, bonuses and transactions fees, with a government backstop, but, in the mid to long term, they will be losers, as the consequences of their actions are visited upon us
it might be called, "The Return of History", in juxtaposition to Fukuyama's famous declaration, "The End of History", in the early 1990s
class conflict is going to return with a vengence, when people realize that they are being brutally subjected to the discipline of a market administered by politicians and corporations that not only exempt themselves from it, but require everyone else to pay for their mistakes
My bet next week:
S&P puts the AAA rating on watch with negative implications.
Coffee, tea, or China?
Serious questions. Long term, does this huge increase in gov't debt finally crash the dollar? I've been seriously considering moving into foreign currencies but am hesitant to do so with the buck currently near all time lows vs. most other currencies. Between UK and Spain we know the Eurozone is likely to have a similar RE crash, Japan needs to keep the yen weak vs the dollar or lose their biggest customer, the Aussies have a bigger housing bubble, etc. etc.
How can you hedge against a dollar crash while not getting screwed if the buck rebounds back closer to historic norms?
-Jaso
Never Forget writes:
Bush. Bernanke. Cox. Paulson.
The Gang of Four?
If the assets are purchased at cost, there would be no writedowns - right?
Anyone willing to try and explain where the money for all this will come from given the already huge deficit and off balance sheet occupation?
Jim
A trillion here, a trillion there, pretty soon you're talking real money!
What happends when this doesn't work?
Basically, we have shown that the market does not value investment banks. They cannot generate profits except by Ponzi schemes that crash.
Re: That could be prosecuted under Sarbanes-Oxley, and perhaps a few executives spending time in jail might help with the moral hazard issues.
"class conflict is going to return with a vengence"
Richard Estes
I agree with this. A lot!
The have nots cannot and will not support a system that shuns responsibility.
Jason - as of the past year or so, I don't believe we're Japan's biggest customer, China is. Just something to bear in mind.
Texas Reader writes:
I have seen NO information on how the purchase amounts will be determined.
If the fund buys out all those loans at the outstanding principal balances then the taxpayers get the losses and the stockholders get totally and unconsciably bailed out. If the loans are bought at a discount, who is going to determine the pricing?
Yup. The pricing of this stuff would be fun to watch. But I'm betting we won't get to watch.
When you have Friends Of Angelo people like Dodd in the fraud loop, how can you expect change? How can America move forward if Congress and The Senate are the root of the problem??
Yup. The pricing of this stuff would be fun to watch. But I'm betting we won't get to watch.
John Stark
And this is something that will never be open and transparent - Good Luck
SEC bans frowning
"SEC bans frowning" by Peter Forth, FSU Editorial 09/19/2008
In an unexpected move intended to prevent the continued slide of financial stocks, the SEC has banned all forms of frowning, scowling or cursing with regards to stock market activities.
NC Jim - "cost" doesn't work for the bonds. What happened is that the home loans were made, then put into pools, and bonds were issued with the home loans as security. The bond buyers have been receiving payments on teh bonds. Each time a bondholder receives a payment the bond is worth less.
So you can't use "cost" to determine it. And if you use the outstanding principal balances of the loans securing the bonds as a way to determine what to pay the bondholders, then any loss of principal goes 100% to the government, which is us.
What comes after a Trillion? A gazillion?
What can we do about it??? If you want guaranteed results theres nothing that will give you that. AS feckless as it feels, despite anything else you do, you have to voice your opposition to the ONLY people who can actually prevent this, and thats your 2 Senators and your House rep. Do whatever else you think will help, but dont just blow off writing your reps. Its still an election year.
Despite the assumed futility of the effort I believe that it is very important to communicate to our Congressional reps our intolerance for this bailout (TARP). We simply must make the effort to inundate these people with our disapproval.
The plan is due to be announced Monday, so we should each spend the weekend composing a succinct, civil, and non-inflammatory letter to EACH of our reps. Theres no reason it cant be the same letter to all three. We each have 2 Senators and a House Rep.
I personally will then copy all of my associates with a copy of my letter, preceded by a short summary of the situation (not everyone reads CR) and ask them to contact their reps as well.
Im told that these congressional offices put more weight on faxes than emails. Snail mail is useless as the time to pass thru anti-terror inspection negates the urgency of the message. So in order to make it easier, and cheaper, for everyone, heres some info on free faxing from your PC and also a way to use a temporary email address if you want.
Free Fax
Fax from your PC for free (limit 2 faxes per day)
Free Fax • Free Internet Faxing
Temporary email address
Disposable email address (good for 15 minutes. You can use this for the email address if youre concerned or paranoid)
GuerrillaMail.com
Funny that the two biggest nuts (no moe short selling and debt trasfer) were born on the same day.
The DOW gains we are seeing because of ??
I think it is short covering - buy at any price and a few hedgies are sweating bullets right about now.
So should I hold on to my small SKF position? I have no problem riding it out if it will recover; I guess my question is will the value go to zero?
I do not trust McCain or Obama!
Keating Five - Wikipedia, the free encyclopedia
Not everyone was satisfied with the Senate Ethics Committee conclusions. Fred Wertheimer, president of Common Cause, which had initially demanded the investigation, thought the treatment of the senators far too lenient, and said, "The U.S. Senate remains on the auction block to the Charles Keatings of the world."[33] Joan Claybrook, president of Public Citizen, called it a "whitewash".[33] Jonathan Alter of Newsweek said it was a classic case of the government trying to investigate itself, labelling the Senate Ethics Committee "shameless" for having "let four of the infamous Keating Five off with a wrist tap."[34] Margaret Carlson of Time suspected the committee had timed its first report to coincide with the run-up to the Gulf War, minimizing its news impact.[33] One of the San Francisco bank regulators felt that McCain had gotten off too lightly, saying that Keating's business involvement with Cindy McCain was an obvious conflict of interest.[35]
[edit]
The Gang of Three...Bernancke, Geithner, and Paulson.
Bush is just along for the ride.
"What comes after a Trillion? A gazillion?"
That's a quadrillion just for the case the you may need it.
"What comes after a Trillion? A gazillion?"
That's a quadrillion just for the case the you may need it.
I was thinking more along the lines of "revolution".
So what happens to all the toxic paper
that has been put up as collateral by the various drinkers at the numerous Hank's and Ben's discount windows ?
Is Joe three-pack supposed to eat that too ?
For starters govmt should increase funding for the Public Company Accounting Oversight Board to prosecute the Wall Street crooks that got us into this mess
Second, unfortunately Sabanes Oxley only contemplates a max of 20 yrs in prison (SOX section 802(a) 18 U.S.C. § 1519 ). Maybe Guantanamo Bay?
Trillion is the new black.
I just can't see how this can work unless the TARP buys the bad debts at above-market values. And, to do that will cost us a fortune. Every estimate from govt. we've seen on this crisis has been way too low (remember Bernanke's top end of $50 billion when this was "contained" to subprime?). We just don't have the money or the ability to repay the cost if we borrow it.
If the fund buys out all those loans at the outstanding principal balances then the taxpayers get the losses and the stockholders get totally and unconsciably bailed out. If the loans are bought at a discount, who is going to determine the pricing?
Yup. The pricing of this stuff would be fun to watch. But I'm betting we won't get to watch.
John Stark
Depends on how the deal is structured. If the entity buying those bonds is owned 100% by the US government then Freedom of Information Act will apply, and it will just be a matter of someone who understands complex transactions translating the legalese.
IF however, the govt gets a private entity to do the purchasing, and just issues a guaranty of a certain return on assets, then we won't.
FYI: I worked for a Dallas bank that failed and was bought by then named NCNB. The FDIC got NCNB to buy ALL the loans, but guaranteed a certain return on any loans in a high risk pool. NCNB got the right to decide what loans to put in that pool over a certain period of time. Figuring out how much that failure ultimately cost the FDIC would be difficult.
Where are the Enron-like investigations???
"What comes after a Trillion? A gazillion?"
seashells again.
I am calling this trade LTCM II:
The US is long mortgage back securities and credit swaps and short T-bills, Notes and Bonds.
The taxpayer (US) runs the risk of having to roll selling its paper regardless of the market or world situation.
This only works if during the time the US holds this position volatitilty remains in a band that allows the taxpayer to earn enough to stabilze the housing market and pay back the loans.
This trade works only through the election because predicting volatility through any number of potential crises is unknowable.
However, I might be wrong...so what is cash flow position of the US Treasury in 2009 given potential declining tax revenue, a war and Alt - A resets?
Given our best efforts to price volatity this year, the 52 week range on the VIX was 42.16 to 15.82.*
*http://www.cboe.com/DelayedQuote/SimpleQuote.aspx?TICKER=VIX
For comparison here are some CBOE VIX charts...
CBOE - Micro Site
Harndog
I can hear Mozillo laughing his tan ass off.
Comrade Baron Von Helmut III writes:
Trillion is the new black.
That's not black, that's tar. The feathers will be along shortly.
You can also try exponential notation...
That's a quadrillion just for the case the you may need it.
Quadrillion will be a number we'll hear about only for a week or so. Then we'll be talking quintillions. This is all heading towards parity with the Zimbabwean dollar.
Overly simplistic analysis... between 2004-2007, when most of these shenanagans went on, the tax bills for AIG totalled $16.6b; MS - $7.8b; GS - $15.8b; MER - $1.7B; LEH - $6.5b.
They collectively paid $48b into the govt over the past 4 years and get a freakin $1.2T+ bailout. That's a hell of an ROI.
After trillion? Meltdown. Actually its Quadrillion! Easier to lop off three zeroes. $100.00=10.00. Problem solved! That'll be $500.00 please.
So - does this mean the USG has 3.5 trillion dollars??
"Investors pulled a record $89.2 billion from money-market funds on Sept. 17, according to data compiled by the Money Fund Report, a newsletter based in Westborough, Massachusetts. The withdrawals totaled a decline of 2.6 percent in money-market assets.
The redemptions countered a trend in which assets in money- market funds increase almost 14 percent, to $3.58 trillion, from January to the beginning of September, according to IMoneyNet Inc., the research firm that publishes the Money Fund Report"
Bloomberg.com
Who the hech provides insurance AFTER the disaster?
Hey, I've got an idea... let's let the free market work this out! We'll create TWO TARPS: call them "Fannie TARP" and "Freddie TARP". They can COMPETE when they bid on the prices of the assets! That'll get us REAL price discovery!
I'm preparing my letter to the Fed right now...
ajw writes:
Jason - as of the past year or so, I don't believe we're Japan's biggest customer, China is. Just something to bear in mind.
ajw | 09.19.08 - 1:33 pm | #
A lot of what China buys from japan ends up in final product the Chinese then ship to NAFTA Zone & Euro Zone.
Just sayin'...
OT: XLF volumes dropping off. Just like housing, which also has no short sellers.
I forget, what happens next?
Richard Estes,
Would you mind if I posted your analysis at the Fiction International Blog, which I co-edit?:
fictioninternational.blogspot.com
Expired: Equities.
Tired: Dollar.
Wired: Strong dollar. Inflation adjusted, minus three zeroes! (a.k.a., the dollar fuerte).
Well so much for the deflationistas.
Wonder how they are going to argue that unlimited bailouts are deflationary this time.
A lot of what China buys from japan ends up in final product the Chinese then ship to NAFTA Zone & Euro Zone.
Yeah. For better or worse, We're Number One!! at end user consumption. if / when that dries up, whence the dollar? Up? Down? Will it buy you 50 yen, or 150?
-Jaso
John Stark writes:
As I understand it, the hope is that the real estate that forms the collateral for all this paper will stabilize, at some endurable level. That would enable this paper to recover some of its value, and the downward spiral will stop.
fyi: the real estate secures the mortgages, and the mortgages secure the loans. The problem isn't the value of the real estate, its primarily the subprime borrowers becoming unable to make the loan payments due to either their worsening financial condition OR adjustable rate notes adjusting at rates that push the payments above what they can pay. A lot of ARMs had very low initial ("teaser") rates and are now resetting the market rates.
The only time the value of the house comes into play as to the bond secured by a mortgage is when someone needs to sell their house for some reason and won't get enough to pay off the mortgage. Then the house gets foreclosed and the lower rated bonds don't get all their payments.
sorry, "mortgages secure the BONDS"
Man, one of these days I'd like to get a hat tip.
The shareholders should be pummeled, maybe then people will stop driving for short term profits uber alles.
Inflationary writes:
Well so much for the deflationistas.
Wonder how they are going to argue that unlimited bailouts are deflationary this time.
Deflating house prices, stock prices, commodities, new and used cars, durable goods, gas prices falling, natural gas prices tanked, electronic equipment lower each year, and most importantly wages falling. So where's the inflation?
class conflict is going to return with a vengence, when people realize that they are being brutally subjected to the discipline of a market administered by politicians and corporations that not only exempt themselves from it, but require everyone else to pay for their mistakes
Richard, I think you missed a key comment in CRs post: Shareholders are going to get severely wiped out. This bailout is going to leave EVERYONE pissed off. The only ones who will be happy is the employees of the financials, who get to keep a job.
And even then, if paulson demands change in leadership, a pay cut is the first logical step of a new CEO.
Inflationary writes:
Well so much for the deflationistas.
Wonder how they are going to argue that unlimited bailouts are deflationary this time.
Inflationary | 09.19.08 - 1:46 pm | #
Deflation delayed not deflation averted. That will be the argument and they'll be right as soon as the world stops buying our debt and we have a complete blow off - so until that time or we unless we rediscover fiscal discipline - its monetize debts. IMHO.
Persecuted Comrade Anonymouse
So where's the inflation?
It was just announced. Or are you being selectively deaf?
Why am I getting the feeling that Goldman will be the last and only investment banking standing. Paulson will get MS in line to get taken over, and then GS rules the roost. They must be licking their chops thinking of competing against the new IB divisions of the banks - like taking candy from a baby. Does anyone else see this coming?
Long live Goldman!
RUMOR: .gov plans to sell some national parks for much needed cash. Grand Canyon and Everglades top of the list.
"Anyone willing to try and explain where the money for all this will come from given the already huge deficit and off balance sheet occupation?
Jim"
Where all fiat money comes from - printed out of thin air or magically manufactured by pressing a few keys on a keyboard somewhere. This massive increase in monetized debt will result in outright theft of the people's life savings purchasing power by inflation. It won't be long now before legal controls are put on all IRAs/401ks preventing early withdrawal. Glad I got mine out in January.
Got Gold?
Deflation delayed not deflation averted
Yeah! That debate is not settled yet.
There is a good argument for hyperinflation. The Fed just threw a trillion dollars into the market.
Goldman won't exist in a vacuum, it's not like investment banks are the only players in the market.
Inflationary writes:
It was just announced. Or are you being selectively deaf?
They're almost guaranteeing dilution for financial equities - lower prices. What prices did they raise today?
dryfly :
Deflation delayed not deflation averted. That will be the argument and they'll be right as soon as the world stops buying our debt and we have a complete blow off - so until that time or we unless we rediscover fiscal discipline - its monetize debts. IMHO.
This is plausible.
But am thinking the world won't stop buying our debt, it would be far worse for them. If that however then i will cede the argument.
So where's the inflation?
Inflation is NOT wages - it is NOT prices - it is money supply. Period.
Usually that effects prices/wages but not necessarily YOURS. Don't kid yourself - there are are going to be some pretty tasty bonuses from this pop today. Just 'cuze your wages suck doesn't mean their wages suck.
Dr. Doom, how much do you need to save by avoiding any crash to make up for the early withdrawal penalties and tax liabilities that come with emptying an IRA?
Oh and gold is just a shiny commodity, not some sacred substance with untouchable value.
Not only is Paulson going to relieve the banks of their toxic waste, but he is going to trade them for US government gold.
US Government to secure mortgage market | News | Money Marketing
Persecuted Comrade Anonymouse writes:
Inflationary writes:
They're almost guaranteeing dilution for financial equities - lower prices. What prices did they raise today?
It's coming. And the stock market going up 1000pts in 2 days is deflationary? Please.
Inflationary writes:
It's coming. And the stock market going up 1000pts in 2 days is deflationary? Please.
They allowed me to add positions in SDS, DXD, TWM, and some SKF. We'll see where the market goes from here- I say SPX 1080 before SPX 1300.
dryfly writes:
Inflation is NOT wages - it is NOT prices - it is money supply. Period.
By this argument then it's definitely inflationary. It will only stop when the dollar isn't the global reserve currency.
That will be about $2500 per citizen or a debt service of about $100 pa per citizen. Sounds less bad that way.
wait a minute, taxes going up.
i work70-90 hours a week, never go home, for 50k a year, and my taxes are going higher.
F*** this job... go get your own d*** food
Persecuted Comrade Anonymouse writes:
hey allowed me to add positions in SDS, DXD, TWM, and some SKF. We'll see where the market goes from here- I say SPX 1080 before SPX 1300.
I wish you luck in your positions. But an increase in money supply and credit as well as an increase in asset prices is not deflationary.
Inflationary,
You take far too short a time frame to argue asset prices are rising. Even my call that commodities are falling is based on 3 months - not 2 days like the stock market.
the real estate secures the mortgages, and the mortgages secure the loans. The problem isn't the value of the real estate
Yes, so you would think there's always some value, no matter how minuscule. But somehow we ended up with derivatives that went to zero. There's a lot of those things out there.
Persecuted Comrade Anonymouse writes:
You take far too short a time frame to argue asset prices are rising. Even my call that commodities are falling is based on 3 months - not 2 days like the stock market.
Fine. Let's take a longer period.
When you started working, what were your wages? And what are your wages now? (Assuming you didn't start working these past few years)
More importantly, what is your purchasing power present compared to the past.
Massive price inflation supported by an increase in money supply and credit.
dollar getting wached and commodity complex up. The trade is clear. rising prices offset lower volumes EPS nuetral. Market flat but not down. In nominal terms you can do anything.
BigRig Driver :
The biggest tax you'll experience will be because the printing of all of this money leads to higher oil prices.
You take far too short a time frame to argue asset prices are rising. Even my call that commodities are falling is based on 3 months - not 2 days like the stock market.
Persecuted Comrade Anonymouse | Homepage | 09.19.08 - 1:58 pm | #
Look at commodity prices farther back in time... say 5 years... the drop over the last few months is a small blip in most cases.
But again - so what? Prices aren't inflation. We've just taken all those so called 'deflationary asset losses' and monetized them - turning them into money-like instruments courtesy of the Fed & Treasury. That increase in money-like instruments IS inflation... until people refuse to recognize those instruments as money-like... then we'll experience 'deflation' BIG TIME.
I think eventual 'deflation' was made more likely today & last night by these actions - but we aren't there yet. Not even close. More monetization before we get there - IMHO.
Worst adminitration in my lifetime?
All doubt has been removed. The carnage is beyond belief.
GO Commies GO!
"Sept. 18 (Bloomberg) -- Genetically engineered animals would be regulated by the U.S. Food and Drug Administration under proposed rules backed by the biotechnology industry and opposed by consumer advocates
Genetically Engineered Animals May Get U.S. Rules (Update2) - Bloomberg.com
Next Up:
"US takes control of stem cells to control distibution and use"
wally writes:
Worst adminitration in my lifetime?
All doubt has been removed. The carnage is beyond belief.
wally | 09.19.08 - 2:04 pm | #
Worst ever.
Worst adminitration in my lifetime?
Certainly the worst in mine. I only remember as far back as Nixon tho.
All doubt has been removed. The carnage is beyond belief.
At least Hoover didn't fuck up a hostile occupation of an islamic country.
concur, worst ever
Slightly OT question.
Can someone explain the rationale behind the rule against naked shorting? Ive never shorted any shares, and dont have any plans to do so in the future (not that I could now, even if I wanted to, with the new ban), but Im just trying to figure this out.
Here is my understanding of how it works and why the rule is in place: naked shorting is not allowed because of the possibility that delivery may not occur if the investor does not have the shares. Thus, the investor has to borrow shares to cover their short position, thus ensuring delivery.
But, these shares are usually borrowed from a brokerage (who borrows them from its customers who have the shares in a margin account). OK, so now the investor can deliver the shares, but what guarantee is there that the shares that were delivered (i.e., the borrowed shares) are replaced?
By requiring borrowing, arent we really just transferring the risk to the poor schmuck whose shares were borrowed (or the brokerage, who I guess would be liable for the shares that they allowed someone else to borrow)? Am I wrong or missing something?
TIA
Under normal circumstances, this would be deflationary. However, the market is not being allowed to correct. Paulson is spending up to one trillion dollars to prop the markets up. Where is the deflationary crash? If they didn't step in today, where would gold, oil and the dollar be?
It looks more like 1930 Germany to me. Hyperinflating out of debt.
Get real,
Isn't it more likely that Paulson is having a Linda Blair Moment and that he has been possessed by satan for the last few years and that every day, we are seeing less of hank and more of the other entity?
I also see that satan is using these new JEDI-like Enron special purpose vehicles as a way for him to leave Dodge with a shit load of taxpayer revenues!!
"Anyone willing to try and explain where the money for all this will come from given the already huge deficit and off balance sheet occupation?"
Dilution - exactly as for any company issuing new stock. Money - or gold for that matter - is all fiat. It is a promise for future work from somebody else. There is only so much of that to promise, so you can divvy it up in whatever size pieces you want; the total is the same. Everything else is just manuevering and noise.
dryfly:
"I think eventual 'deflation' was made more likely today & last night by these actions - but we aren't there yet. Not even close. More monetization before we get there - IMHO."
Deflation is inevitable. Homes are overvalued, as is any financial product dependent on home prices, and this includes the equity of financial institutions.
Worst adminitration in my lifetime?
Worst ever.
Certainly the worst in mine. I only remember as far back as Nixon tho.
At least Hoover didn't fuck up a hostile occupation of an islamic country.
concur, worst ever
You think this one's bad...
dryfly writes:
I think eventual 'deflation' was made more likely today & last night by these actions - but we aren't there yet. Not even close. More monetization before we get there - IMHO.
This statement may be prescient.
But if the financial systems are allowed to continue as they are, and it seems so by the actions initiated recently, may be a generation away.
Palin will walk right into power and destroy what's left of America!
Unlike the RTC v1, this new entities purpose will be to NOT sell it's assets. The whole point of RTC 2 is to take the toxic assets out of the financial system, and make them vanish into some sort of black whole.
In theory, the government will just hold them until prices recover. What a load of crock that is... As long as those RTC 2 assets remain hanging over the market asset prices will NEVER recover. The sad fact is that someone, sometime, has to take a complete loss on these assets and dump them on the market for whatever can be had.
It looks more like 1930 Germany to me. Hyperinflating out of debt.
M3 rose from $4T in 1994 to $14T today.
Extrapolating, that's ~$30T or more in 2020.
Worst administration in my lifetime?
All doubt has been removed. The carnage is beyond belief.
In contention for worldwide historical mismanagement. Maybe not as bloody as some, but starting from a far higher base.
Over at L.A. Land they're referring to the proposed Absolution Trust Corp. as "Bailie Mae. Nice.
More credit to Hoover: too busy screwing the economy to also screw your civil liberties. Whereas the current crop of jokers are multitasking.
At least Hoover didn't fuck up a hostile occupation of an islamic country.
Troy
Priceless!! LOL
My first reaction is something like, do you have a plan for rebuilding the nation (USA:economy) after the war is won ?
Without trying to contort this metaphor too much, I sense here a healthy appetite to 'win the battle' but minimal clue about how to restore the normal business functioning once the patient is stabilized.
Like it or not we will be affected by whatever "solution" is hastily created by the congress. I sent the following questions to some lawmakers. There are so many smart bloggers here that I would like to invite your answers.
The incoming Treasury secretary, Henry M. Paulson Jr., was awarded an $18.7 million cash bonus for half a year of work as the chief executive of the Goldman Sachs Group, the company said yesterday.
In its quarterly report, Goldman said the compensation committee of its board approved the payment on June 29 in recognition of Mr. Paulson's leadership for the six months ended in May, when profit doubled to $4.79 billion.
Also - as an aside - when the banks make their assets transparent (should be a requirement for participation), we will discover if any executives misrepresented their assets and filed false reports with the SEC. That could be prosecuted under Sarbanes-Oxley, and perhaps a few executives spending time in jail might help with the moral hazard issues.
CR from your blog to gods ears
The previous bailouts at least had the merit of wiping out the common equity; this one doesn't. We also have to recognize that there is no market price for these securities. Some government appointed person will be making up the price.
Better solution if the Federal Reserve wishes to establish transparency is to establish the valuation model and assumptions that are to be used to value the these assets and then require the financial institutions to mark to market at that level. Those with negative capital get taken over, those with capital shortfall get a specific time to rebuild failing which they get taken over. The ones who can mark to market and still have sufficient capital will attract funds and grow.
Sad to see Rick Santelli tell of 5 friends wiped out this morning by volatility from the corrupt federal bank bailout measures.
Has anyone mentioned the fact that banks are now at a competitive disadvantage? They must pay the FDIC premium and their I/R are substantially lower than MM funds. I would expect to see a massive outflow of funds from low or zero % savings and checking accounts to the New & Improved FDIC MM funds from ABC Mutual fund company.
What he giveth to one, he taketh away from the other.
Bush will pardon them. Better hurry with those prosecutions.
peAkcredit writes:
Sad to see Rick Santelli tell of 5 friends wiped out this morning by volatility from the corrupt federal bank bailout measures.
I like Rick, he tells it as it is.
what's to prevent the gov excuse me taxpayer from taking on this toxic garbage at levels where the financial institutions are actually marking them. i'm assuming most banks hae this garbage marked up at ludicrous levels when it is worth 0-20 cents on the dollar. what if taxpayer is on hook for worhtless loans that we end up paying 60-70 cents for
harold hecuba writes:
what if taxpayer is on hook for worhtless loans that we end up paying 60-70 cents for
I thought that was the plan. Only way to keep the banks solvent.
Certianly the worst in my lifetime, as far as worst ever, Jimmy Buchanan gives him a run for his money, but right now I think W might be in the lead.
Has anyone mentioned the fact that banks are now at a competitive disadvantage? They must pay the FDIC premium and their I/R are substantially lower than MM funds. I would expect to see a massive outflow of funds from low or zero % savings and checking accounts to the New & Improved FDIC MM funds from ABC Mutual fund company.
I was wondering when that would bubble up.
Like I said, they are fighting skirmish actions, without dealing head-on with the core issues.
Strike my earlier comment. PONY = Persistantly Overpriced, Non-Yielding assets.
Where are the EFFIN regulations?! I don't want to swallow this bailout pill, but I will grudgingly accept it as long as there are strict new regulations to prevent this bullshit from happening again!!
Now all the bullshit about market efficiency is exposed as such. Imagine values created and benefits generated by spending monies required to bail "market" out today, by (corrupt and inefficient) goverment via public spending to build trains and hospitals?
What does capitalism look and act like in a de facto plutocracy ?
You just saw it !
Organizing universal health coverage is too expensive and, anyway, not a function of the state. Helping his banker buddies who got their fat bonuses from bank profits that turned out to be imaginary is Paulson's moral obligation.
If a bank fails, dilution should be 100%, meaning nationalization and following privatizing without benefits to former shareholders. Shareholders had the power to stop the party by insisting on aligning executives' incentives to their interest or selling the stock. Loosing their investment should remind some of them, like pension funds, to be not so gullible next time.
dryfly-
Four years ago my grandfather who's 90 and hadn't voted Demo since FDR said to a shocked Texas family gathering... "the worst since Harding, it feels like teapot dome to me". I had to look up Harding and teapot dome.
He still follows CD rates on-line like a hawk. I talked to him last week and he seemed extremely worried about the future.
I'd like to ask someone with perspective, but worst US administration ever seems about right.
ew comment. CR is making them like hotcakes today.
Despite the assumed futility of the effort I believe that it is very important to communicate to our Congressional reps our intolerance for this bailout (TARP).
If you have to ask how much a congress person costs... you obviously can't afford one.
It's early, can't they invent one more way to screw me before sunset?
Sad to see Rick Santelli tell of 5 friends wiped out this morning by volatility from the corrupt federal bank bailout measures.
The recent actions of the government in triggering this short squeeze are going to bankrupt many people. There could be suicides. This is very bad. There will be much anger from those affected. I wonder if some of them will be violent.
I wonder how many sigmas this is? Let me guess, this wasn't supposed to happen but once every 600 billion years according to all the models.
Here's a little reminder to the little guys out there exactly what you are saving.
Wall Street Bonuses Set New Record
Now get back to work so you can pay your master's bills!
"Also - as an aside - when the banks make their assets transparent (should be a requirement for participation), we will discover if any executives misrepresented their assets and filed false reports with the SEC. That could be prosecuted under Sarbanes-Oxley, and perhaps a few executives spending time in jail might help with the moral hazard issues. "
Even better, let's give the righties their beloved 'tort reform' that sets a person's life at a value of no more than $250,000, but let's tie that to beefed up regulation and simplify prosecution on business and finances and give a life sentence for every $250,000 of fraud, embezzlement or other financial misdeed. Of course these culprits' thousands of life sentences would never get served, but a lot of people would think twice before even trying the smallest of business shenanigans knowing there is no longer a hand slap sentence or complex rules to protect them.
And they say there's something wrong with MY math . . .
"class conflict is going to return with a vengence, when people realize that they are being brutally subjected to the discipline of a market administered by politicians and corporations that not only exempt themselves from it, but require everyone else to pay for their mistakes.."
There are no social forms any more that can carry on class conflict.
While Im as angry as anyone else here (and paying for it via ownership of QID, TWM, SKF, etc). However, I think that bailout may be less of a bailout than anyone thinks.
Remember the terms of the AIG bailout? Here they are:
"The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.
The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firms assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders."
Those are the terms of a business ending, not being bailed out. Remember FNM and FRE? Common and Preferred to (effectively) zero value.
What do we know: no short selling of a huge number of financial companies AND a new government entity to purchase the distressed assets (mortgage obligations, in all their varieties). The banks cant liquidate these at book/face value and are unwilling to write down to a FMV, whatever that may be.
So maybe, just maybe, Hank and Ben are going to do a forced liquidation of the obligations with a substantial haircut. Maybe 50%. Maybe 70%. And the new government entity is the buyer and holder.
The banks (not I-banks) are instantly recapitalized (albeit as MUCH smaller entities), lending resumes and life goes on.
Just a thought Id appreciate comments.
Joe the Lion: yes, you can post my comment on your blog
(and a link to my blog,
American Leftist
along with it would be even better)
I'm not claiming originality, just saying with a lot of left oriented types would probably say
The best thing about screwing the "little people" is that most of them haven't a clue that it is happening. Like taking candy from a baby. When the US economy begins to deteriorate a few years from now probably "Muslims" will be blamed, or someother scapegoat fashionable at the time and fingered by Fox News.
Pavel Chichikov writes:
"class conflict is going to return with a vengence, when people realize that they are being brutally subjected to the discipline of a market administered by politicians and corporations that not only exempt themselves from it, but require everyone else to pay for their mistakes.."
There are no social forms any more that can carry on class conflict.
Pavel Chichikov | 09.19.08 - 3:08 pm | #
yes, I guess you are correct, if one construes this is Marxist sense, and it might be more accurate to conflict of, for lack of a better term, sub-proletarian kind
with potentially anarchist influences, as anarchism doesn't insist upon class identity for validation as Marxism does
but, I think that there will definitely be conflict, especially when one factors in the disasterous wars in Iraq and Afghanistan, which many of them, however defined, are fighting
oops, meant to say
yes, I guess you are correct, if one construes this is Marxist sense, and it might be more accurate to describe the conflict as, for lack of a better term, a sub-proletarian kind
but that was probably clear the first time
"But millions of people are still making their mortgage payments, so not all of this paper is worthless. Its price is depressed because of the uncertainty. So if the uncertainty went away, the price of the paper could stabilize at some level short of financial armageddon. "
NO!
The price is "depressed" because PEOPLE CANNOT AFFORD STUPIDLY OVERPRICED HOUSES!!
Gah! When housing STARTS at 5x your income and goes up rapidly from there, you CANNOT afford it.
We can't "stabilize" at unaffordable - that doesn't make sense.
I don't see any evidence of class conflict arising at all. McCain who ought to be 20 points down from Obama is neck and neck, or close to it. Americans can always be distracted from their material problems with religion (Marx understood that very well) or racism, or some other red herring. America is pretty much immune to any kind of class conflict. And if anybody tried to stir it up, they'd be labeled a "Muslim terrorist" or as one of my reactionary acquaintences called Obama, a "Muslim in sheep's clothing."
Stop the bailouts...
U.S. Senate: Senators Home
Not only call your senators, but go down the list and call as many as possible. I am on # 23.
There is no need for the government to buy these toxic securities as this will cause banks to register more losses. The Fed can offer to recapitalize the banks like the Arab and Singapore Wealth Funds have done so far. The existing shareholders will be diluted and the dividends will be suspended for several years. The real recovery will come when house prices stabilize, probably 2010.
There is no need for the government to buy these toxic securities as this will cause banks to register more losses.
Depends what price the gov't pays. Banks should be carrying these at market value right now, if the govt pays par it is a huge windfall to the banks.
"yes, I guess you are correct, if one construes this is Marxist sense, and it might be more accurate to conflict of, for lack of a better term, sub-proletarian kind"
I meant it in an empirical sense. Who is going to storm what? With what?
"The price is "depressed" because PEOPLE CANNOT AFFORD STUPIDLY OVERPRICED HOUSES!!"
Let's break it down...
1) No one buys
2) Land prices drop as builders drop their options
3) Builders start to build at lower price points on the now, much cheaper land.
4) Builders sell the new, smaller, less expensive houses.
5) Existing (used) house prices plummet; as who wants to deal with remodeling an old house when you might not get the money back when you sell. Or heating and cooling costs are just too great for those McMansions.
And sign this petition -
No Bailouts!
"That could be prosecuted under Sarbanes-Oxley, and perhaps a few executives spending time in jail might help with the moral hazard issues."
Don't you mean "persecuted" - in the same way thet President Bush vowed to capture the short sellers earlier on today?
http://www.abolishthefederalreserve.com/
it's hard to object to the government's mass bailouts as similar debt-producing methods were put into action to bring the U.S. out of the Depression... our economy has been supported and driven by debt ever since
OK! So, we're on the hook for gigabucks as taxpayers, yet Moose-o-lini Palin and McSame are screaming that tax raises are "unpatriotic".
...
Well, if I read the Patriot Act correctly, unpatriotic behavior susceptible to harm the Motherland is to be prosecuted.
Are they suggesting we arrest the current Administration?
@0@
The SEC has banned urinating and defecating because these activities remind the investor of the actual value of their investments. Violators will be severely punished.
Why is it that every swingin' dick remotely associated with the securities industry, from the janitor to the CEO, has a smile on his face?
And I'm frownin'!
Richard Estes has a good point that this is a class war. I think we should start to think of small steps we can take to fight back.
For instance, maybe we can start a movement to end the tax deferment for 401ks and IRAs. Why should the government provide incentive to individual working people to hand over their savings to scam artists?
Maybe we can start a support local movement, which is all the rage for farming and food, but for saving and investing?
There must be many ways in which we can stop participating in our own impoverishment. I am sure the creative people on the board can come up with dozens of them.
My radical suggestion is that we don't re-capitalize the banks.
Don't you mean "persecuted" - in the same way thet President Bush vowed to capture the short sellers earlier on today?
shtove | 09.19.08 - 3:55 pm | #
yeah, just like we captured bin laden. no problem man, just go hide in a cave and send your short orders to the exchange via messengers on donkey's and they'll never find you.
There must be many ways in which we can stop participating in our own impoverishment.
Live a self-sustaining lifestyle with little income. That leaves little to be taxed.
bet bullets to the back of the head while these ******* are kneeling on Wall / Main Street would put a quick end to this absolute horsesh*t.
Windowdog writes:
"Dr. Doom, how much do you need to save by avoiding any crash to make up for the early withdrawal penalties and tax liabilities that come with emptying an IRA?
Oh and gold is just a shiny commodity, not some sacred substance with untouchable value."
Yep, I paid my income tax + 10% penalty. Considering some friends I've talked to who are down 40-60% this year, I know I've made the right move for me.
And you're right, Gold is just a shiny commodity, not with "untouchable value" but definitely untouched by Hank and Bernanke's grubby hands. To me that's priceless!
Firstly, we ALL had a hand in this, let's get real. You all bought into the real estate market. Plenty of you flipped and were glued to the Sunday real estate paper.
2nd, right now this is the only option, regardless of how we got here.
3rd, it all depends on the price the gov pays for this paper, they're obviously not going to buy it at $1, something in between $1 and the $.22 it's currently being flogged for most likely. This way banks will still have to write some more down but get this toxic crap off their books. The gov will loosen cap rates for now.
The gov will still own the asset in this exchange, what's stopping them from holding it to maturity or market stabilization and recovering a large portion of the bailout? This isnt cash that's going to flood the economy!
Richard Estes,
Your comments have been posted at the FI blog:
fictioninternational.blogspot.com
Many thanx.
"I'd like to ask someone with perspective, but worst US administration ever seems about right."
Warren G. Harding traditionally takes the honors as the worst and most corrupt presidential admin., but I see no way that George W doesn't knock him right out of the number one slot.
"Firstly, we ALL had a hand in this, let's get real. You all bought into the real estate market."
Who's this "we"...? Your greed and gullibility have nothing to do with me. I continue to rent, as housing prices relative to incomes flew past any sane metric 4 years ago. Why would anyone but a kool-aid drinking fool buy in a bubble?
You're exactly the Darwin-award winner Bush wants to "save". Hopefully, you haven't reproduced.
"My radical suggestion is that we don't re-capitalize the banks."
LOL, that's a good one. You think the GOP is not going to fix things up, at least temporarily, with an election around the corner? If Bush&Co. don't socialize the finance sector Obama will win handily. So they will swallow their phony "principles" and socialize. Hypocrisy? Sure, but who cares? Capitalist principles exist only to make money. If they get in the way, out the window with them.
It's already over 5 trillion potentially with the takeover of Freddy and Fannie, so what's another 500 billion? Will someone please declare the US Government to be bankrupt please? Who is there to take over a bankrupt government?
NYTIMES: A Hail Mary Pass, but No Receiver in the End Zone
"This time, the assets are complex derivatives of uncertain value that the big firms will actually be selling to the government.
But how is the government going to assess these securities and what price will it pay for them? In many cases, these securities arent being sold because they are still overvalued on a firms books. That is, their mark-to-market price is unrealistically high. Will the government buy it at the too-high price? If it does, the firms wont have to take additional write-downs but it will constitute a huge, unjustified bailout of Wall Street. (More moral hazard.)
But what if the government drives a hard bargain, and gets the securities for what they are really worth 20 cents on the dollar, say, instead of 50 cents? In that case, the firms would have to take yet more enormous write-offs, which would further damage their balance sheets, and they would have to raise billions more in capital. Maybe the removal of these bad assets would allow the firms to raise the capital. But maybe not meaning one or more could conceivably have to file for bankruptcy, creating yet another spasm of financial turmoil. Its a huge roll of the dice by the government.
Finally, there is the question of how much it will ultimately cost. Institutions so far have written down $550 billion globally of bad debt, said Daniel Alpert, managing director of Westwood Capital. We think that when you add up all the problems in the residential housing market still to come further erosion of housing prices, mortgage foreclosures and so on we are going to need another $1 trillion of write-downs."
Hail Mary Full of Grace!
Pavel Chichikov writes:
"yes, I guess you are correct, if one construes this is Marxist sense, and it might be more accurate to conflict of, for lack of a better term, sub-proletarian kind"
I meant it in an empirical sense. Who is going to storm what? With what?
Pavel Chichikov | 09.19.08 - 3:48 pm | #
Ever hear of the 1992 LA Riots? There was a major class dimension to them, lower middle income and poor people of all races (not just blacks) rioting during some of the worst economic conditions in the LA basin in the 20th Century
Ah well. If the executives pay for their morally hazardous behavior with time @ a Club Fed, they'll rub shoulders with a higher class of folks--
MMM--Mafia Middle Management. Perhaps they'll learn some new sales tactics.
@fallonpdx:
Great analysis. This isn't close to finalized. Many Ave Marias to you!
No bailout after all...Wall St. 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