Small to medium businesses that are one step away from retail (small manufacturers, transportation and logistics, middleman wholesalers) seem to be taking hard right now. I wonder how fast that is spreading up to the big folks.
Obviously self-serving, especially since the new improved enhanced bailout now not only gives taxpayer mony away, but it also cuts the taxes of those who benefit. Doubly bad.
"The managers of big business took huge risks out of greed," said President Oscar Arias of Costa Rica, whose economy is highly dependent on U.S. trade. "What happens in the United States will affect the entire world and, above all, small countries like ours."
"They spent the last three decades saying we needed to do our chores. They didn't," a grim-faced Brazilian President Luiz Inacio Lula da Silva said Tuesday.
Even staunch U.S. allies like Colombian President Alvaro Uribe blasted the world's most powerful country for egging on uncontrolled financial speculation that he compared to a wild horse with no reins.
"The whole world has financed the United States, and I believe that they have a reciprocal debt with the planet," he said.
German Chancellor Angela Merkel called on U.S. lawmakers to pass a package this week, saying it was the "precondition for creating new confidence on the markets and that is of incredibly great significance."
Just before meeting with Silva on Tuesday, Venezuelan leader Hugo Chavez said he believes a new economic order is in store for the planet.
"What's to blame? Imperialism, the United States, the irresponsibility of the United States government," said the self-avowed socialist and frequent U.S. critic. "From this crisis, a new world has to emerge, and it's a multi-polar world."
Liu Mingkang, chairman of the Chinese Banking Regulatory Commission, said Saturday before a weeklong bank holiday in China that debt in the United States and elsewhere has risen to dangerous and indefensible levels.
In London, Jane Ayerson, a 20-year-old Irish exchange student, said Europeans share the blame.
"The problem started with America, but banks here have been greedy, too," she said.
Obviously self-serving, especially since the new improved enhanced bailout now not only gives taxpayer mony away, but it also cuts the taxes of those who benefit. Doubly bad.
Aww c'mon Wally. Cutting tax receipts while increasing cash outflows is like putting chili and cheese on everything you eat! It's the Rapture way of life!
I agree that funding for healthy businesses needs to be available at reasonable rates. We need to help the smaller healthier banks provide this valuable service. Let the idiots go down a Darwinian path with the neocons.
Guess what? Cheap capital for American businesses is not coming back.
Most of our economy is predicated on continued growth in consumer spending, facilitated by low interest rates and an unflappable conviction that the U.S. would make good on its debts in real terms.
As the household sector pulls back, many businesses--including Verizon, Microsoft, and other big names--are going to be riskier enterprises as earnings decline across the board. Ergo, debt will be more expensive.
Many businesses, from dog masseurs to aromatherapy shops, are uneconomical going forward. They will fail.
Get used to it, America. The sooner we tackle the economic problem of transitioning our economy, the sooner we arrest the decline in our standards of living.
From Bloomberg:The London interbank offered rate, or Libor, that banks charge each other for overnight loans slid 308 basis points today to 3.79 percent, the British Bankers' Association said
Where's the disaster, gloom and doom, wailing and gnashing of teeth?
Oh, you mean the billionaires who run the biggest companies in the world are lobbying the bought and paid for millionaire congressional scum to get hundreds of billions of taxpayer supplied dollars to their mutual billionaire banking buddies.
Now THERE is a shocker...
What's next? Do Paulson and Pelosi come and rob my frickin mad-money change jar?
What a joke American democracy/capitalism has become...
It doesn't matter one bit how much cash Microsoft has in the bank. What matters to them is that every time one of their customers can't get credit, they are far more likely to use an open source alternative. Free software is taking huge chunks out of Bill and Stevie these days.
Business is exhausting its credit lines not because credit is limited but because revenue is limited. The bailout does nothing to increase revenue. The problem at its fundamental level is economic not financial.
Get used to it, America. The sooner we tackle the economic problem of transitioning our economy, the sooner we arrest the decline in our standards of living.
safe_as_apartments
The decline in the standard of living is transitioning the economy. Tail wagging dog.
We are very very lucky that credit has been as cheap as it has for as long as it has. The smart companies have locked in credit for the long haul. If large numbers of companies had to float debt in the current market, the price they would have to pay would be insane. The borrowers who weren't smart are the ones dying on the vine. I expect we'll see a lot more counties failing to meet their debt obligations by christmas.
Anonymous writes:
From Bloomberg:The London interbank offered rate, or Libor, that banks charge each other for overnight loans slid 308 basis points today to 3.79 percent, the British Bankers' Association said
Where's the disaster, gloom and doom, wailing and gnashing of teeth?
Anonymous | 10.01.08 - 9:00 am | #
Our Fed gave the Bank of England a whole bunch of dollars. Read Setser. Guess they decided to start spending them before they get too moldy.
I plan to begin marketing thatch huts on 10' X 10' plots of rented land with a his/hers latrine. We are having a structural adjustment and the middle classs needs to be prepared to enjoy their new lower level of prosperity and appropriate diggs. We can't compete with China on wages unless you can afford housing on 5K a year. The new thatched hut, modeled after those in China will serve us well....
1) Money flow out of money markets into FDIC accounts (about to accelerate) and into treasury only money markets caused the commercial paper problem.
2) Banks don't trust each other causing elevated Libor and other measures of inter-bank lending rates.
But... might it be that banks that believe that they are still well capitalized are lending to businesses and individuals (lots of reports of banks continuing to reach out to customers to extend additional credit)?
As for MSFT saying that this will impact them... that just made me laugh a little. MSFT with its massive cash cushion and relatively high dividend (for a large cap US corporation, let alone a tech company) is well positioned to use any weakness caused by this crisis to gobble up small players.
I'm not saying we don't have a crisis here - just that it might not be helpful to look at inter-bank lending rates in trying to figure out what's going on with credit extension to companies, and that the problems with commercial paper while obviously part of the broader credit contraction we are seeing is a caused by the run on money markets, and at this point is somewhat dis-joint from the broader banking issues.
MEXICO CITY (AP) - Mexican billionaire Carlos Slim suggested Tuesday that the U.S. government acquire temporary stakes in failing financial institutions, rather than simply buy up their bad assets.
A US$700 billion bailout plan, currently stalled in Congress, would allow the government to purchase bad mortgages and other delinquent assets held by troubled investment banks. U.S. lawmakers were scrambling Tuesday to revise the plan after it was voted down on Monday, sending stocks plunging.
But Slim said buying those debts would be complicated, because the government would then have to manage and resell them. He said it would be better for the government to assume majority ownership of the institutions, giving them more capital for restructuring and recovery.
Slim, one of the world's richest men, also suggested ailing banks take responsibility for their losses and seek private investment from individuals or sovereign wealth funds.
Default, if you are still there, please comment on this post from Brad DeLong:
The federal government, in one form or another, is going to be in the business of insuring debt securities against steep declines in value. Securities that are not so insured will simply not be traded. What Fannie Mae did for "conforming" home loans, the Treasury or some other government agency will do for derivative securities. It will offer insurance, charge for that insurance, and supervise and oversee financiers much more strictly.
Hey Carlos Slim is the one the Kleptocracy here in the USA wants to emulate. Financial crash and get all the broken pieces for cheap. You can blame that sonnava beyotch for increased immigration over the border if anything.
MEXICO CITY (AP) - Mexican billionaire Carlos Slim suggested Tuesday that the U.S. government acquire temporary stakes in failing financial institutions, rather than simply buy up their bad assets.
Is Carlos here reading CR? Hola senor, Pleased to meet you!
The London interbank offered rate, or Libor, that banks charge each other for such loans in euros climbed to an all-time high of 5.07 percent today, while the equivalent dollar rate surged to the highest level since January, the British Bankers' Association said. Overnight dollar loans slid from yesterday's record of 6.88 percent after funding constraints tied to the end of the third quarter passed. The Libor-OIS spread, a gauge of cash scarcity, held near a record.
Hey Carlos Slim is the one the Kleptocracy here in the USA wants to emulate. Financial crash and get all the broken pieces for cheap. You can blame that sonnava beyotch for increased immigration over the border if anything.
Big corporates and government want more fiat money. This is fascism. That food prices will skyrocket next year and kill millions of people does not concern the fascists.
Slim, one of the world's richest men, also suggested ailing banks take responsibility for their losses and seek private investment from individuals or sovereign wealth funds.
Small to medium businesses that are one step away from retail (small manufacturers, transportation and logistics, middleman wholesalers) seem to be taking hard right now.
Definitely. My Groundshipmentmetric has been measuring in the bad times range. We have a lot delivered UPS Ground, which can be seven days. Lately it's been two almost every time. A sure sign of slack in the system.
That's right, the GNU is on the prowl, and M$ is shaking in its monopolistic boots at the thought that people will actually change how they acquire and use software.
Though it is never easy to beat free, when free also means better (you are all using Firefox, right?), you need to have an ace in the hole - otherwise, it is hard to choke off their air supply.
Wait - debt less available, consumer purchases declining? Hmm, seems like someone else needs to be real concerned about their air supply.
Since the GPL appears airtight, I think that it might be time to close the windows permanently.
This bail out is magical thinking. This $700B WILL NOT APPEAR OUT OF THIN AIR. It will suck it out of the market. This will reduce both liquidity and the availability of loanable funds. It will dry up credit.
I am simply stunned that all of these global officials do not understand this.
I know other people have said this and been taken to task but I'll repeat it.
If as the CEO of a company you couldn't see that buying up crap mortgages was a bad deal, do you deserve a bailout? Most people would say no. Bad choices, live with 'em.
So, as the CEO of a company in the US watching over this for the last year, making your $250 million or so in salary, if you couldn't see a looming credit crisis and prepare for it, don't you deserve to fail? Didn't we have a "credit crisis" last august? As a CEO were you so dim that you figured that it was all over? Do you believe the people on CNBC? Do you know who they work for?
And, if you worked for one of these companies and end up losing your job, shouldn't you have understood what you did for a living? I worked for a Fortune 500 company and it was very clear the books were cooked and the CEO was full of shit. I made other plans instead of deciding to be my future on that playbook. If you enjoyed the good times without understanding how you were profiting based on a ponzi scheme, shouldn't you have to learn a good hard lesson?
This bail out is magical thinking. This $700B WILL NOT APPEAR OUT OF THIN AIR. It will suck it out of the market. This will reduce both liquidity and the availability of loanable funds. It will dry up credit.
Well, the government will put the moneys right back into the system buy forcibly buying the shit securities.
The problem is in the future when risk appetite returns and the U.S. obligations remain. Higher interest rates here we come! The U.S. will no longer enjoy cheap credit. Not for decades.
Slim, one of the world's richest men, also suggested ailing banks take responsibility for their losses and seek private investment from individuals or sovereign wealth funds.
He cited Warren Buffett's US$5 billion investment in Goldman Sachs Group Inc. (GS) as an example. Buffett's company Berkshire Hathaway Inc. (BRKA) announced the investment last week, and Goldman said it was raising another US$5 billion through a common stock offering.
"I think the deal he made was very good, right on target," Slim told foreign reporters at a luncheon in Mexico City. "This is what banks need to do. This is the path for the financial rescue."
Unfortunately I expect this will be passed even though only a few days ago some of us were hoping for a senate filibuster if it was passed by congress. As much as I reluctantly agree something should be done I don't agree that anything should be done. I really hoped they would go back to the drawing board and construct something more like RFC / RTC or like Roubini's recommended plan.
Why hasn't Paulson resigned? He can't be impartial, not sure whether he has tried or what sort of oath he took. Goldman will always come before country. I think there is a lesson in this for future leaders, to separate banks and state, like church and state is separated, and to never put an investment banker in a Treasury Secretary role.
Aww c'mon Wally. Cutting tax receipts while increasing cash outflows is like putting chili and cheese on everything you eat! It's the Rapture way of life!
Anonymous Wag | 10.01.08 - 8:56 am |
You nailed it. Some folks think this is the beginning of the rapture, and don't give a shit about anyone else. Very self centered group of fundies.
"Well, the government will put the moneys right back into the system buy forcibly buying the shit securities."
BZZZZT! Wrong it puts into the vaults of the most troubled banks. It will simply swap tier 3 capital with tier 1 capital. It will not go back into the "system".
Increasing credit costs are the direct result of the markets not pricing in ANY risk over the last several years.
Over all of 2006-2007 we were usually greeted on monday mornings with the news that some hedge-fund or private buyer decided to over-spend on some asset. This always seemed to juice the market upwards several hundred points. Again this is the problem of over-spending with a lack of any risk-tolerance. The punch bowl of cheap credit has now been taken away and the entities who benefited from it the most didn't have any contingency plans for it to change.
this is the path but Paulson/Bush would veto the bill
I don't think it would get passed the House and Senate for Bush to veto. But, if it did he would have to sign. The public support for saving most of the $7B would be overwhelming from the left and right
The interbank lending market remains in a coma threatening us all, irrespective of what the Dow Jones Industrial Average may be doing on a short-term basis.
As Senior Economist Gordon Sellon of the Kansas City Federal Reserve discussed in his seminal paper "Monetary Policy and the Zero Bound: Policy Options When Short-Term Rates Reach Zero" published in the Fourth Quarter 2003 edition of the Kansas City Federal Reserve's "Economic Review", the Federal Reserve should now consider under taking "twist" operations in the open market.
That paper is available here at the bottom of the link:
A "twist" operation by the Federal Reserve in the current context would consist of the Fed SELLING 3-month Treasury Bills while simultaneously PURCHASING 5-year Treasury Notes. Such operations, applied judiciously, would affect the term structure of various markets in a positive way.
Such "twist" operations are not without precedent. It was performed during the Kennedy Administration:
I urge people to STUDY Sellon's critical paper at the link provided above to grasp some of the subtleties involved here before engaging in uninformed knee-jerk criticism.
This is not a cure-all, but it is clear that it should be on the short list of our policy options.
Hoarding cash is a natural behavior when times are tough and expected to get tougher. Companies with limited cash are getting squeezed. Darwinism and a massive swipe at Wharton Harvard Business school models...
"Liu Mingkang, chairman of the Chinese Banking Regulatory Commission, said Saturday before a weeklong bank holiday in China that debt in the United States and elsewhere has risen to dangerous and indefensible levels."
This should be considered a major warning, in flashing red lights. Our credit master is getting nervous about us, and may soon turn off our ATM. I have read at least four similar statements from influential Chinese officials. Unfortunately, I will bet that none of the Senators voting today have read Mr. Lui's warning.
"Well, the government will put the moneys right back into the system buy forcibly buying the shit securities."
BZZZZT! Wrong it puts into the vaults of the most troubled banks. It will simply swap tier 3 capital with tier 1 capital. It will not go back into the "system".
I agree that the money might not be lent, but Capital wants Treasuries and Banks want Capital. So Government sells Treasuries to get Capital and gives it to Banks. Am I wrong?
Again, I agree that Banks may not use Capital because of current economic problems.
A progressive income tax that is shaped like a hockey stick may be the best solution to all of this.
The head can be moved up or down the income range over time to allow a person to be rewarded for taking risk but to stop a person from ripping off the system.
BZZZZT! Wrong it puts into the vaults of the most troubled banks. It will simply swap tier 3 capital with tier 1 capital. It will not go back into the "system".
invisible,
It's a safe bet they didn't read it. I remember a poll taken 15 or so years ago that determined 60% of Congress had never had a passport. We keep voting them in, so who's the idiot?
Surprise, surprise. after years for cheap credit, businesses are angry that the cost of credit is rising.
it all plays into the theory that SPX EPS are going to take a long time to recover. Financials were almost 50% of SPX EPS in 2007....a lot of that is going away for good, never to come back. AND...corporate profit margins were at an all time high helped by cheap financing...so....margins will revert to the mean. Some EPS going away and lower margins on what's left adds up to major headwind for SPX EPS.
so the conclusion is we need to change accounting rules to "show" more profits, that will fit it!
Think of it this way. They (banks) have had access to a total of about $2.5t (since March when the rules were changed allowing I-banks to access alphabet soup auctions) and lending has deteriorated since then.
This is the smoke screen that is offered with the bailout. The simple fact of this is that nothing will force banks to lend...there is no provision in the bill that allows for this.
And even if it was there how is it to be enforced?? We've had a bit of a problem enforcing regs. that should have prevented some of this. THe various bodies (FDIC, OTS, SEC, etc) have all been complicit in the current problem...can't see any reason why they would change now.
If US authorities keep nationalizing mortgages and businesses the next dollar could become seen as backed by the value of people. The mortgages, loans and stocks our government is buying in bulk are people's houses and jobs. The value quantified in their work, credit and houses is being scooped up at fire sale prices. Most reasonable people realize that any bailout just delays the inevitable. Why then, do governmental entities want to subsume and consume such huge parts of the economy?
Market observers have noticed stocks rally all Summer on worsening financial news. Some suspected that the Fed and/or the Treasury were in the market buying equities to massage perceptions similarly to how they intervene in currency markets (gold and silver also are currency markets). It is now widely known and advertised that the Federal Reserve is trading U.S. Treasuries for stocks and other soured bubble investments at face value. While meddling in currency markets is nothing new, they have been buying tens of billions of dollars a day of mortgage toxic waste all Summer, hiding bank losses in the process. These purchases are all being made with newly printed money. $1.8 trillion so far plus a $630 billion fed "injection" yesterday alone. Printed money used this way can delay the pain of falling stock prices but it cannot prevent it. This is because nothing has changed to make business better, the fundamentals are still worsening.
The shock doctrine is now being applied to Congress by Boogieman Bush and Comrade Hank to scare them into giving at least $700 billion dollars and absolute power to the same bankers who caused the current problems by over leveraging themselves into insolvency. This money will be used to buy more mortgages, stocks, and their secret derivatives. It will legitimize any horde of stocks that may have been bought surreptitiously by government entities during the irrational price jumps of the Summer. Since this money does not exist in any government account, it too will have to be fabricated. These efforts will inflate the prices of imports and necessities.
The huge scale of purchases by our government and the private corporation that prints our dollars (the Fed) will eventually lead people to see our money as collateralized by stocks and mortgages. This opens up some very interesting issues. The largest of which is the shift from a fiat (unbacked) currency to one that is arguably backed by the value of people's work since, again, stock prices and mortgage values are ultimately tied to the value of the human effort that sustains them. The value of this collateral would be increased by preventing or limiting the discharge of debt through bankruptcy.
Why in the world would U.S. Authorities want to own so many stocks and mortgages? Clearly they intend to buy as many as they can get. They wouldn't be buying them if they didn't want them. The U.S. Government recently nationalized half of all outstanding mortgages after purchasing Freddie and Fannie. The Fed seems intent on accumulating the other half. If they own the majority of people's mortgages (their houses) and a large portion of employer's equity (their jobs) one could say the dollar will be backed by the earning potential of the U.S. Citizen, the value of it's people. What would you call a government that owns half the mortgages and half the stocks?
"Well, the government will put the moneys right back into the system buy forcibly buying the shit securities."
What's to stop the big banks from buying up T-bills with it instead of lending to municipalities and businesses? ABC News had a big scare segment yesterday about credit drying up, but it again was never clear whether businesses got denied or crappier rates because there was no money to lend, or whether the bank decided that maybe a hot tub business might not be a going concern in a bad downturn. Municipalities are dealing with cratering tax revenue and there's certainly a case for worrying about default there too.
If we're really worried about this problem, why can't we deal with this directly instead of shovelling money into the dinosaurs so they can go around and stomp on all the mammals?
For general interest: the TED Spread (intraday, soon w/ history) can be accessed at <a href="http://www.stockcharts.com>Stockcharts.com. Type in $TED and hit GO or enter.
If businesses are willing to give back the tax cuts that have lowered their effective average tax rate to 7%, if they're willing to return from the Bermudas onshore and have that tax dodge closed, if they're willing to pony up for the pension and health care shortfalls that are only going to worsen if our national debt increases, then they can have a say in using tax dollars to bail out Wall Street.
Short of all that, they can kindly shut their pie holes.
Dean Baker summed it up by saying this is the financial institutions holding a gun to their heads saying bail us out or we're going to pull the trigger
This is the smoke screen that is offered with the bailout. The simple fact of this is that nothing will force banks to lend
MS,
I think lending will continue to be contrained. Why lend to over-extended consumers. Why lend to businesses when over-capacity exists in almost EVERY industry (including energy).
Wealth concentration has made the situation almost un-fixable. The wealthy don't want risk and don't need loans. The majority don't qualify for loans as they are over-extended and have little or no collateral.
This will not be solved quickly. $700 billion or no $700 billion.
I think lending will continue to be contrained. Why lend to over-extended consumers. Why lend to businesses when over-capacity exists in almost EVERY industry (including energy).
Wealth concentration has made the situation almost un-fixable. The wealthy don't want risk and don't need loans. The majority don't qualify for loans as they are over-extended and have little or no collateral.
This will not be solved quickly. $700 billion or no $700 billion.
That was a pretty good thread from last night re: MTM.
Only thought I have is that Mark to Value vs. Mark to Market is how you get wealthy, but, you gotta know how to value financial instruments and what they represent. So, I'm of the opinion that if there is a traded market, there should be an observable price for balance sheet values.
However, if you've got to rely on market prices to tell you what something is worth, you probably shouldn't be involved in that market.
220mph, I don't accept your argument about the vale of the bonds that were written to support your activities. But, I appreciate that you made an effort to state your case.
Good luck. All I can say is that price finds it's own liquidity.
I called both Senator "B's" office and Senator "R's" office. At Senator B's number, I got an answering machine. I did speak to a live person at Senator R's office. Extremely polite. I pointed out that we're not sure $700 billion is enough; the cloudy selection of pricing; and the power grab by the executive branch.
Dead silence on the other end of the phone, so I continued by expressing my hope Senator R might ask how we as taxpayers might be made whole.
More silence.
I finished by thanking the staffer for listening, and told that person it was pretty scary the national debt was going over $10 trillion, and we were discussing a $700 billion bailout.
Not much, but at least I'm trying. It's your turn.
The government should set up new banks with the $700b to compete with the fat and sleazies. However they won't because that would be efficient socialism. There are similarities to this problem and the healthcare mess--we don't do what's right because it sounds unAmerican.
I think the calls need to get a little more threatening rather than polite. These people think they are above the constitution and their duty to the people. Fear of an uprising might make them think twice about ignoring the public.
Regarding HIG. I hung out 10 HIGOH (march 40 puts)at 12 yesterday. They filled.....that happened to be the HOD on that option. That tells me two things....option writer's are desperate to get people out of the puts now to soften the blow of the potentially massive payouts later and the stock action is really predicting that. The second thing is that a print on the HOD should be a buy not a sell...hence my reason for the first observation.
Video of Kudlow discussing the bailout of foreign banks with the rotating $700BB credit line.
It was always a credit line. Hence the estimates that the bailout was actually 1.8 trillion by the time Paulson revolves it a few rounds. Some news sources were honest about this. Most weren't. (For those j6p among us who who are aware that there are more news sources than the John Birch Society newsletter.)
The small companies have to have credit to buy the crap from the big ones...so they can hock it to Joe 6 P, at a profit. Come on guys..keep the debt train a rollin'.
Dean Baker summed it up by saying this is the financial institutions holding a gun to their heads saying bail us out or we're going to pull the trigger
Anonymous | 10.01.08 - 9:52 am | #
It has been extortion from the get-go. Life-long Dem here, but Independent candidates are starting to look mighty nice. Just can't bring myself to vote for anyone who votes for this bailout.
Main Streeter writes:
Dean Baker summed it up by saying this is the financial institutions holding a gun to their heads saying bail us out or we're going to pull the trigger
Anonymous | 10.01.08 - 9:52 am | #
It has been extortion from the get-go. Life-long Dem here, but Independent candidates are starting to look mighty nice. Just can't bring myself to vote for anyone who votes for this bailout.
This is what we desperately need. More of these lifelong intellectual comas to cease. The sooner the better for all of us.
I just made my 25th, 26th, and 27th calls this morning to my rep (Cantor) and Sens (Webb and Warner) opposing the bailout.
Webb's office was keeping a tally and said Webb was opposed to monday's version of the bill. Warner's office said they did not know yet his position. Cantor's (who voted yes monday) office sounded a little defensive when I mentionned "socialism".
My understanding is that the Fed injected $650 billion into the credit markets on Monday ... and it did diddly. Why aren't these geniuses considering that this $700 billion may do absolutely nothing, or it may make things worse?
Last week, eight days after the Federal Reserve agreed to an $85 billion bailout for the American International Group, and one day after the F.B.I. was first reported to be investigating its collapse, recently retired AIG executive vice president Robert M. Sandler bought a $3.45 million apartment at the Hampshire House on Central Park South.
comrade awgee writes:
My understanding is that the Fed injected $650 billion into the credit markets on Monday ... and it did diddly. Why aren't these geniuses considering that this $700 billion may do absolutely nothing, or it may make things worse?
The problem with banks is they don't know what the other one has on their balance sheets. Nobody wants to lend money to another bank if they're holding another 100 billion in write-downs. By passing the bailout, the Treasury would take the assets off the banks hands, and bring confidence back in the market. In theory.
This is what we desperately need. More of these lifelong intellectual comas to cease. The sooner the better for all of us.
Bailout 2.0 | 10.01.08 - 10:18 am | #
I do not consider myself to have been in an intellectual coma, but if my comment helps anyone else to rethink their voting patterns, that would be great.
Dean Baker summed it up by saying this is the financial institutions holding a gun to their heads saying bail us out or we're going to pull the trigger.
That's right, it's a suicide gamble. And when they're done robbing you at your desperate insistence, they're going to decamp to emirate city-states with all the cash.
I recall that point reaching the broader, public consciousness in the past, but only after Treasury rates had risen sharply did discussion of productive investment diverted into public debt become a commonplace.
If recent history is a guide, we're about to repeat that lesson shortly.
Business is exhausting its credit lines not because credit is limited but because revenue is limited. The bailout does nothing to increase revenue. The problem at its fundamental level is economic not financial.
Wowza. They closed the factories in September. Production 40.8...
Employment under 42."
Isn't this going to be the story for quite some time: while people are talking about how to deal with the current crisis, new problems keep hitting us one after another.
Next up?
Hedge fund blow ups?
Nation blow blow ups?
Unemployment rising sharply?
Economic brinksmanship if not warfare?
I don't see the news getting any better.
I see the "authorities" increasingly overwhelmed and the public increasingly distrustful of their competence.
So when our Glorious Department of Economic Statistics comes out with a GDP figure of +2% again, how will Bush convince us that that the economy is in an urgent need of rescue?
Unbelievable the lean, mean, fighting machines that led and survived the 2000 crash begging on behalf of bankers!! Thought the drop off in bonds etc. was a result of a return to corporate bank lending? Well if its immunity you are after.....voluntary nationalisation is always an option...
Got to admire that at least there is a debate going on helped by CR crowd et alia keep it up.
Everyone else is nationalising the bathwater and the kitchen sink without so much as counting a taxpayer penny.
The flu sucks...ther is no vaccine, no cure, no preventative care, no magic pill....just takes time to get over it. We just don't wnat to have to go through the healing process of getting over this economic flu. Thanks Doctor Paulson and Ben Bernanke for your snake oil.
You go to vote with the choices you have, not the ones you think are wiser. There are many issues this election--vote for the choice that you think can best unwind this--and so many other messes. Bush was so powerful because his party controlled everything--maybe splitting votes is not such a bad thing--or maybe it will lead to a logjam.
Remember, one more Scalia and we're screwed for a very long time--on so many issues.
So...with corporate America sitting on historic profits why do they need to borrow for payroll? I forget the exact numbers but average profits are in the 12-15% range. Obviously, the weak and unprofitable are in trouble as are many small businesses potentially. But don't most small businesses already use high interest rate (~10%) lines of credit?
"The problem with banks is they don't know what the other one has on their balance sheets."
They know......they all have the same worthless crap. Shiny packaging does nothing to disguise turds.....still a turd.
They are not lending because they need capital to pad balance sheets and the source for the last year (Fed) is rapidly loosing it's ability to continue the practice.
AS already mentioned above...they've put almost the same amount of cash into the system as Paulson wants to "save it".
Race to the bottom will only be lengthened by the bailout. Companies will get credit to pay wages, secure inventory, keep operations going etc..., a bit cheaper then right now for a month......
Anonymous Wag writes:
This is what we desperately need. More of these lifelong intellectual comas to cease.
Please don't insult people who are waking up to the scam. Treat them with sympathy, they've been had on a fundamental level for their whole lives.
Don't hold them in contempt, you were a chump once too.
Anonymous Wag | 10.01.08 - 10:27 am
Ignorance is not an excuse. I hold myself accountable for my ignorance and the mistakes I have made because of that ignorance. Why should I treat anyone else differently?
We have evolved to a "Best Pratices" society. Herd mentality trumps independent thought and personal intellectual development to the detriment of us all.
CNBC anchors are really REALLY looking for stories where businesses are having trouble because of the "credit crisis". They are trying really hard to find stories where businesses are being impacted, payrolls aren't being met...but so far, people they are interviewing aren't taking the bait.
for those that puke when they watch CNBC, bloomberg really is more even-handed and less hysterical. Marc Faber was on earlier and said that yes something needs to get done, but the bailout is too hasty and only hits directly at one of the three problems (toxic securities).
He says stocks might well rally for a quarter or two, and they are actually over-sold, but the recession will be deep and global, & recommends majority treasury holdings, some gold and some stocks.
Deep in the bowels of some non-descript garage in the Valley four bright guys are pulling all-nighters working on the concept - "no handout".
Deep in the bowels of DC and NY thousands of well-lit guys are pulling half-days working on the concept - "a garage's price must never come down..."
Note the incredible economic disparity of the efforts. This is not to the advantage of the Enemy.
In the words of Nathaniel Greene:
"We fight, get beat, rise, and fight again."
Cornwallis kicked Greene all the way across the Carolinas, fought Greene to a draw at Guilford Court House, and hung himself thereby.
The last week has cost the Enemy his credibility, his legitimacy, and his health, all to pursue a plan fated to disaster. Now he will sacrifice more legitimacy and credibility to seize his aims by brute force of bribes.
If they are forced to win two more such victories, we will triumph over them utterly. Do not despair; even if we are defeated in this engagement, it is merely one moment in the history of the Republic. The enemy bleeds from manifold wounds, inflicted by his own hands in the pursuit of we biting vermin.
Take the raw brutality of their efforts and the illegitimacy of their tactics and use them as a weapon in the next battle. We know there must be a next battle, and so we can prepare for it even while the enemy portrays himself as savior and victor, and rob the Enemy of yet more legitimacy and authority in the next engagement.
Thus, even by a sequence of defeats can we produce victory. Fight on, fellow Citizens. Our cause will triumph, for it is built on truth and reason, as the Enemy builds his case on falsehood and fear.
do you guys get the cnbc europe feed? they have a pretty entertaining guy as studio guest.
Extremely negative about the plan - he could be a commentator here his points are the same - but he does say the US still has a huge capacity to add more treasury debt from its current 40% GDP level.
Companies overall were forced to reduce their borrowings on the short-term commercial paper market by $212 billion between the end of February and last Wednesday, as investors continued to back away from the corporate IOUs.
I call BS. The Federal Reserve's commercial paper report shows that there was $162.7 billion (seaonally adjusted) of nonfinancial commercial paper outstanding at year-end 2007, and $199.1 billion as of October 1'st. That's a 22 percent increase over 9 months, which is more than 30% growth at an annual rate.
There have been big drops in CP issued by financial companies, and in asset-backed CP, but that's purely Wall Street, not Main Street.
Hey All,
I'm back...
-Default
Small to medium businesses that are one step away from retail (small manufacturers, transportation and logistics, middleman wholesalers) seem to be taking hard right now. I wonder how fast that is spreading up to the big folks.
Who is "default" and what has he done to Nemo?
Obviously self-serving, especially since the new improved enhanced bailout now not only gives taxpayer mony away, but it also cuts the taxes of those who benefit. Doubly bad.
Repost.
The PEASANTS ARE REVOLTING :-
US 'casino' mentality blamed for planet's meltdown
Yahoo! 404 - Page Not Found
"The managers of big business took huge risks out of greed," said President Oscar Arias of Costa Rica, whose economy is highly dependent on U.S. trade. "What happens in the United States will affect the entire world and, above all, small countries like ours."
"They spent the last three decades saying we needed to do our chores. They didn't," a grim-faced Brazilian President Luiz Inacio Lula da Silva said Tuesday.
Even staunch U.S. allies like Colombian President Alvaro Uribe blasted the world's most powerful country for egging on uncontrolled financial speculation that he compared to a wild horse with no reins.
"The whole world has financed the United States, and I believe that they have a reciprocal debt with the planet," he said.
German Chancellor Angela Merkel called on U.S. lawmakers to pass a package this week, saying it was the "precondition for creating new confidence on the markets and that is of incredibly great significance."
Just before meeting with Silva on Tuesday, Venezuelan leader Hugo Chavez said he believes a new economic order is in store for the planet.
"What's to blame? Imperialism, the United States, the irresponsibility of the United States government," said the self-avowed socialist and frequent U.S. critic. "From this crisis, a new world has to emerge, and it's a multi-polar world."
Liu Mingkang, chairman of the Chinese Banking Regulatory Commission, said Saturday before a weeklong bank holiday in China that debt in the United States and elsewhere has risen to dangerous and indefensible levels.
In London, Jane Ayerson, a 20-year-old Irish exchange student, said Europeans share the blame.
"The problem started with America, but banks here have been greedy, too," she said.
Obviously self-serving, especially since the new improved enhanced bailout now not only gives taxpayer mony away, but it also cuts the taxes of those who benefit. Doubly bad.
Aww c'mon Wally. Cutting tax receipts while increasing cash outflows is like putting chili and cheese on everything you eat! It's the Rapture way of life!
I agree that funding for healthy businesses needs to be available at reasonable rates. We need to help the smaller healthier banks provide this valuable service. Let the idiots go down a Darwinian path with the neocons.
The monopolies speak for the people! Bail out Wall Street because Microsoft says so!!
If we don't do this the Dow might lose 300 points and your 401K will be taken from you and given to a child in Dubai.
There is no way around life getting harder for the average american. Can't we at least help he richest of us maintain some dignity?
Someone desperately needs to formulate a plan that will work. The current one is not that plan.
Guess what? Cheap capital for American businesses is not coming back.
Most of our economy is predicated on continued growth in consumer spending, facilitated by low interest rates and an unflappable conviction that the U.S. would make good on its debts in real terms.
As the household sector pulls back, many businesses--including Verizon, Microsoft, and other big names--are going to be riskier enterprises as earnings decline across the board. Ergo, debt will be more expensive.
Many businesses, from dog masseurs to aromatherapy shops, are uneconomical going forward. They will fail.
Get used to it, America. The sooner we tackle the economic problem of transitioning our economy, the sooner we arrest the decline in our standards of living.
From Bloomberg:The London interbank offered rate, or Libor, that banks charge each other for overnight loans slid 308 basis points today to 3.79 percent, the British Bankers' Association said
Where's the disaster, gloom and doom, wailing and gnashing of teeth?
Oh, you mean the billionaires who run the biggest companies in the world are lobbying the bought and paid for millionaire congressional scum to get hundreds of billions of taxpayer supplied dollars to their mutual billionaire banking buddies.
Now THERE is a shocker...
What's next? Do Paulson and Pelosi come and rob my frickin mad-money change jar?
What a joke American democracy/capitalism has become...
Where's the disaster, gloom and doom, wailing and gnashing of teeth?
I repeat: Where is the disaster? Credit is still flowing, it is just more expensive.
This is the future. And it's not the end of the world. Get used to it--because bail out or no--that's our future.
It doesn't matter one bit how much cash Microsoft has in the bank. What matters to them is that every time one of their customers can't get credit, they are far more likely to use an open source alternative. Free software is taking huge chunks out of Bill and Stevie these days.
Oh, and the interbank rate was going to slide, with the quarter ending. I'm surprised it's not below 3.5%, personally.
MC,
You shouldn't have said anything about your mad money. Now they will ask you to send it in.
Business is exhausting its credit lines not because credit is limited but because revenue is limited. The bailout does nothing to increase revenue. The problem at its fundamental level is economic not financial.
Get used to it, America. The sooner we tackle the economic problem of transitioning our economy, the sooner we arrest the decline in our standards of living.
safe_as_apartments
The decline in the standard of living is transitioning the economy. Tail wagging dog.
We are very very lucky that credit has been as cheap as it has for as long as it has. The smart companies have locked in credit for the long haul. If large numbers of companies had to float debt in the current market, the price they would have to pay would be insane. The borrowers who weren't smart are the ones dying on the vine. I expect we'll see a lot more counties failing to meet their debt obligations by christmas.
Anonymous writes:
From Bloomberg:The London interbank offered rate, or Libor, that banks charge each other for overnight loans slid 308 basis points today to 3.79 percent, the British Bankers' Association said
Where's the disaster, gloom and doom, wailing and gnashing of teeth?
Anonymous | 10.01.08 - 9:00 am | #
Our Fed gave the Bank of England a whole bunch of dollars. Read Setser. Guess they decided to start spending them before they get too moldy.
I plan to begin marketing thatch huts on 10' X 10' plots of rented land with a his/hers latrine. We are having a structural adjustment and the middle classs needs to be prepared to enjoy their new lower level of prosperity and appropriate diggs. We can't compete with China on wages unless you can afford housing on 5K a year. The new thatched hut, modeled after those in China will serve us well....
I will even provide financing with 20% down.
Comrade Kaboom | 10.01.08 - 9:02 am |
Nice. Also accurate.
I think there are 2 distinct problems here:
1) Money flow out of money markets into FDIC accounts (about to accelerate) and into treasury only money markets caused the commercial paper problem.
2) Banks don't trust each other causing elevated Libor and other measures of inter-bank lending rates.
But... might it be that banks that believe that they are still well capitalized are lending to businesses and individuals (lots of reports of banks continuing to reach out to customers to extend additional credit)?
As for MSFT saying that this will impact them... that just made me laugh a little. MSFT with its massive cash cushion and relatively high dividend (for a large cap US corporation, let alone a tech company) is well positioned to use any weakness caused by this crisis to gobble up small players.
I'm not saying we don't have a crisis here - just that it might not be helpful to look at inter-bank lending rates in trying to figure out what's going on with credit extension to companies, and that the problems with commercial paper while obviously part of the broader credit contraction we are seeing is a caused by the run on money markets, and at this point is somewhat dis-joint from the broader banking issues.
And yet, Bloomberg reports extra cheap credit for industrials unrelated to financials.
Carlos Slim for US Treasurt Sec.:
MEXICO CITY (AP) - Mexican billionaire Carlos Slim suggested Tuesday that the U.S. government acquire temporary stakes in failing financial institutions, rather than simply buy up their bad assets.
A US$700 billion bailout plan, currently stalled in Congress, would allow the government to purchase bad mortgages and other delinquent assets held by troubled investment banks. U.S. lawmakers were scrambling Tuesday to revise the plan after it was voted down on Monday, sending stocks plunging.
But Slim said buying those debts would be complicated, because the government would then have to manage and resell them. He said it would be better for the government to assume majority ownership of the institutions, giving them more capital for restructuring and recovery.
Slim, one of the world's richest men, also suggested ailing banks take responsibility for their losses and seek private investment from individuals or sovereign wealth funds.
Default, if you are still there, please comment on this post from Brad DeLong:
The federal government, in one form or another, is going to be in the business of insuring debt securities against steep declines in value. Securities that are not so insured will simply not be traded. What Fannie Mae did for "conforming" home loans, the Treasury or some other government agency will do for derivative securities. It will offer insurance, charge for that insurance, and supervise and oversee financiers much more strictly.
Last time I checked, it wudn't the Senate that had a problem with this bill....
BFD if the Senate passes.
Hey Carlos Slim is the one the Kleptocracy here in the USA wants to emulate. Financial crash and get all the broken pieces for cheap. You can blame that sonnava beyotch for increased immigration over the border if anything.
MEXICO CITY (AP) - Mexican billionaire Carlos Slim suggested Tuesday that the U.S. government acquire temporary stakes in failing financial institutions, rather than simply buy up their bad assets.
Is Carlos here reading CR? Hola senor, Pleased to meet you!
Hey Default
Did you keep your job throughout all these bank failures?
Latest from Bloomberg re: Libor rates:
The London interbank offered rate, or Libor, that banks charge each other for such loans in euros climbed to an all-time high of 5.07 percent today, while the equivalent dollar rate surged to the highest level since January, the British Bankers' Association said. Overnight dollar loans slid from yesterday's record of 6.88 percent after funding constraints tied to the end of the third quarter passed. The Libor-OIS spread, a gauge of cash scarcity, held near a record.
Hey Carlos Slim is the one the Kleptocracy here in the USA wants to emulate. Financial crash and get all the broken pieces for cheap. You can blame that sonnava beyotch for increased immigration over the border if anything.
Maybe. But, his plan makes much more sense.
Viva, Carlos Slim!
Big corporates and government want more fiat money. This is fascism. That food prices will skyrocket next year and kill millions of people does not concern the fascists.
Slim, one of the world's richest men, also suggested ailing banks take responsibility for their losses and seek private investment from individuals or sovereign wealth funds.
Got it. He means like people such as himself.
Small to medium businesses that are one step away from retail (small manufacturers, transportation and logistics, middleman wholesalers) seem to be taking hard right now.
Definitely. My Groundshipmentmetric has been measuring in the bad times range. We have a lot delivered UPS Ground, which can be seven days. Lately it's been two almost every time. A sure sign of slack in the system.
the fed funds are trading pretty low those days, around 1.5
That's right, the GNU is on the prowl, and M$ is shaking in its monopolistic boots at the thought that people will actually change how they acquire and use software.
Though it is never easy to beat free, when free also means better (you are all using Firefox, right?), you need to have an ace in the hole - otherwise, it is hard to choke off their air supply.
Wait - debt less available, consumer purchases declining? Hmm, seems like someone else needs to be real concerned about their air supply.
Since the GPL appears airtight, I think that it might be time to close the windows permanently.
Comrades,
This bail out is magical thinking. This $700B WILL NOT APPEAR OUT OF THIN AIR. It will suck it out of the market. This will reduce both liquidity and the availability of loanable funds. It will dry up credit.
I am simply stunned that all of these global officials do not understand this.
Unbefrigginlievable.
Nostrovia,
Got it. He means like people such as himself.
And buffett. But he wants a better deal than buffett.
In a world without fences, who needs Gates?
I know other people have said this and been taken to task but I'll repeat it.
If as the CEO of a company you couldn't see that buying up crap mortgages was a bad deal, do you deserve a bailout? Most people would say no. Bad choices, live with 'em.
So, as the CEO of a company in the US watching over this for the last year, making your $250 million or so in salary, if you couldn't see a looming credit crisis and prepare for it, don't you deserve to fail? Didn't we have a "credit crisis" last august? As a CEO were you so dim that you figured that it was all over? Do you believe the people on CNBC? Do you know who they work for?
And, if you worked for one of these companies and end up losing your job, shouldn't you have understood what you did for a living? I worked for a Fortune 500 company and it was very clear the books were cooked and the CEO was full of shit. I made other plans instead of deciding to be my future on that playbook. If you enjoyed the good times without understanding how you were profiting based on a ponzi scheme, shouldn't you have to learn a good hard lesson?
Time to take the medicine. It won't be tasty.
Comrades,
This bail out is magical thinking. This $700B WILL NOT APPEAR OUT OF THIN AIR. It will suck it out of the market. This will reduce both liquidity and the availability of loanable funds. It will dry up credit.
Well, the government will put the moneys right back into the system buy forcibly buying the shit securities.
The problem is in the future when risk appetite returns and the U.S. obligations remain. Higher interest rates here we come! The U.S. will no longer enjoy cheap credit. Not for decades.
GE CDS up 65 bps today, to around 620 bps. High reportedly 740 bps. Term Libor up too. Hmmm....could there be a connection?
tht's the problem when you face a liquidity/insolvency crisis and all you have to give is more paper.
Slim on Buffet:
Slim, one of the world's richest men, also suggested ailing banks take responsibility for their losses and seek private investment from individuals or sovereign wealth funds.
He cited Warren Buffett's US$5 billion investment in Goldman Sachs Group Inc. (GS) as an example. Buffett's company Berkshire Hathaway Inc. (BRKA) announced the investment last week, and Goldman said it was raising another US$5 billion through a common stock offering.
"I think the deal he made was very good, right on target," Slim told foreign reporters at a luncheon in Mexico City. "This is what banks need to do. This is the path for the financial rescue."
Unfortunately I expect this will be passed even though only a few days ago some of us were hoping for a senate filibuster if it was passed by congress. As much as I reluctantly agree something should be done I don't agree that anything should be done. I really hoped they would go back to the drawing board and construct something more like RFC / RTC or like Roubini's recommended plan.
Why hasn't Paulson resigned? He can't be impartial, not sure whether he has tried or what sort of oath he took. Goldman will always come before country. I think there is a lesson in this for future leaders, to separate banks and state, like church and state is separated, and to never put an investment banker in a Treasury Secretary role.
Aww c'mon Wally. Cutting tax receipts while increasing cash outflows is like putting chili and cheese on everything you eat! It's the Rapture way of life!
Anonymous Wag | 10.01.08 - 8:56 am |
You nailed it. Some folks think this is the beginning of the rapture, and don't give a shit about anyone else. Very self centered group of fundies.
The suggestion by Carlos Slim, that the Treasury take up ownership stake rather than buy bad assets, is a good one.
John Hussman (in this week's letter) proposed the same thing, based upon how the current bail out will affect balance sheets. See "You can't rescue the financial system if you can't read a balance sheet" Hussman Funds - Weekly Market Comment - You Can't Rescue the Financial System If You Can't Read a Balance Sheet - September 29, 2008
this is the path but Paulson/Bush would veto the bill
Comrade safe_as_apartments,
"Well, the government will put the moneys right back into the system buy forcibly buying the shit securities."
BZZZZT! Wrong it puts into the vaults of the most troubled banks. It will simply swap tier 3 capital with tier 1 capital. It will not go back into the "system".
Nostrovia,
The Ireland Plan is a good deal. Pity it will not be implemented here.
Increasing credit costs are the direct result of the markets not pricing in ANY risk over the last several years.
Over all of 2006-2007 we were usually greeted on monday mornings with the news that some hedge-fund or private buyer decided to over-spend on some asset. This always seemed to juice the market upwards several hundred points. Again this is the problem of over-spending with a lack of any risk-tolerance. The punch bowl of cheap credit has now been taken away and the entities who benefited from it the most didn't have any contingency plans for it to change.
Tough shit I say...
Ciao
MS
this is the path but Paulson/Bush would veto the bill
I don't think it would get passed the House and Senate for Bush to veto. But, if it did he would have to sign. The public support for saving most of the $7B would be overwhelming from the left and right
Matt Dubuque
The interbank lending market remains in a coma threatening us all, irrespective of what the Dow Jones Industrial Average may be doing on a short-term basis.
As Senior Economist Gordon Sellon of the Kansas City Federal Reserve discussed in his seminal paper "Monetary Policy and the Zero Bound: Policy Options When Short-Term Rates Reach Zero" published in the Fourth Quarter 2003 edition of the Kansas City Federal Reserve's "Economic Review", the Federal Reserve should now consider under taking "twist" operations in the open market.
That paper is available here at the bottom of the link:
2003 Archive
A "twist" operation by the Federal Reserve in the current context would consist of the Fed SELLING 3-month Treasury Bills while simultaneously PURCHASING 5-year Treasury Notes. Such operations, applied judiciously, would affect the term structure of various markets in a positive way.
Such "twist" operations are not without precedent. It was performed during the Kennedy Administration:
History of Federal Open Market Committee actions - Wikipedia, the free encyclopedia
I urge people to STUDY Sellon's critical paper at the link provided above to grasp some of the subtleties involved here before engaging in uninformed knee-jerk criticism.
This is not a cure-all, but it is clear that it should be on the short list of our policy options.
Matt Dubuque
mdubuque@yahoo.com
Tough shit I say...
Let me buy your worst assets and pay a fantasy price so that I can make fantasy profits when I sell it...says Congress.
Hoarding cash is a natural behavior when times are tough and expected to get tougher. Companies with limited cash are getting squeezed. Darwinism and a massive swipe at Wharton Harvard Business school models...
"Liu Mingkang, chairman of the Chinese Banking Regulatory Commission, said Saturday before a weeklong bank holiday in China that debt in the United States and elsewhere has risen to dangerous and indefensible levels."
This should be considered a major warning, in flashing red lights. Our credit master is getting nervous about us, and may soon turn off our ATM. I have read at least four similar statements from influential Chinese officials. Unfortunately, I will bet that none of the Senators voting today have read Mr. Lui's warning.
Fellow Fascist Party Member Misean,
"Well, the government will put the moneys right back into the system buy forcibly buying the shit securities."
BZZZZT! Wrong it puts into the vaults of the most troubled banks. It will simply swap tier 3 capital with tier 1 capital. It will not go back into the "system".
I agree that the money might not be lent, but Capital wants Treasuries and Banks want Capital. So Government sells Treasuries to get Capital and gives it to Banks. Am I wrong?
Again, I agree that Banks may not use Capital because of current economic problems.
A progressive income tax that is shaped like a hockey stick may be the best solution to all of this.
The head can be moved up or down the income range over time to allow a person to be rewarded for taking risk but to stop a person from ripping off the system.
BZZZZT! Wrong it puts into the vaults of the most troubled banks. It will simply swap tier 3 capital with tier 1 capital. It will not go back into the "system".
It will go back to the Fed by buying treasuries
invisible,
It's a safe bet they didn't read it. I remember a poll taken 15 or so years ago that determined 60% of Congress had never had a passport. We keep voting them in, so who's the idiot?
Surprise, surprise. after years for cheap credit, businesses are angry that the cost of credit is rising.
it all plays into the theory that SPX EPS are going to take a long time to recover. Financials were almost 50% of SPX EPS in 2007....a lot of that is going away for good, never to come back. AND...corporate profit margins were at an all time high helped by cheap financing...so....margins will revert to the mean. Some EPS going away and lower margins on what's left adds up to major headwind for SPX EPS.
so the conclusion is we need to change accounting rules to "show" more profits, that will fit it!
invisible hand:
The whole world is pissed at the US if you read that article.
Damned if you bailout and damned if you don't.
The Senate version of the bill is over 400 pages?! They wrote this in one week?!
WWJB?
Who Would Jeebus Bail?
safe-
Think of it this way. They (banks) have had access to a total of about $2.5t (since March when the rules were changed allowing I-banks to access alphabet soup auctions) and lending has deteriorated since then.
This is the smoke screen that is offered with the bailout. The simple fact of this is that nothing will force banks to lend...there is no provision in the bill that allows for this.
And even if it was there how is it to be enforced?? We've had a bit of a problem enforcing regs. that should have prevented some of this. THe various bodies (FDIC, OTS, SEC, etc) have all been complicit in the current problem...can't see any reason why they would change now.
Ciao
MS
I love the smell of civil regression in the morning.
ALL YOUR STOCKS ARE BELONG TO U.S.
If US authorities keep nationalizing mortgages and businesses the next dollar could become seen as backed by the value of people. The mortgages, loans and stocks our government is buying in bulk are people's houses and jobs. The value quantified in their work, credit and houses is being scooped up at fire sale prices. Most reasonable people realize that any bailout just delays the inevitable. Why then, do governmental entities want to subsume and consume such huge parts of the economy?
Market observers have noticed stocks rally all Summer on worsening financial news. Some suspected that the Fed and/or the Treasury were in the market buying equities to massage perceptions similarly to how they intervene in currency markets (gold and silver also are currency markets). It is now widely known and advertised that the Federal Reserve is trading U.S. Treasuries for stocks and other soured bubble investments at face value. While meddling in currency markets is nothing new, they have been buying tens of billions of dollars a day of mortgage toxic waste all Summer, hiding bank losses in the process. These purchases are all being made with newly printed money. $1.8 trillion so far plus a $630 billion fed "injection" yesterday alone. Printed money used this way can delay the pain of falling stock prices but it cannot prevent it. This is because nothing has changed to make business better, the fundamentals are still worsening.
The shock doctrine is now being applied to Congress by Boogieman Bush and Comrade Hank to scare them into giving at least $700 billion dollars and absolute power to the same bankers who caused the current problems by over leveraging themselves into insolvency. This money will be used to buy more mortgages, stocks, and their secret derivatives. It will legitimize any horde of stocks that may have been bought surreptitiously by government entities during the irrational price jumps of the Summer. Since this money does not exist in any government account, it too will have to be fabricated. These efforts will inflate the prices of imports and necessities.
The huge scale of purchases by our government and the private corporation that prints our dollars (the Fed) will eventually lead people to see our money as collateralized by stocks and mortgages. This opens up some very interesting issues. The largest of which is the shift from a fiat (unbacked) currency to one that is arguably backed by the value of people's work since, again, stock prices and mortgage values are ultimately tied to the value of the human effort that sustains them. The value of this collateral would be increased by preventing or limiting the discharge of debt through bankruptcy.
Why in the world would U.S. Authorities want to own so many stocks and mortgages? Clearly they intend to buy as many as they can get. They wouldn't be buying them if they didn't want them. The U.S. Government recently nationalized half of all outstanding mortgages after purchasing Freddie and Fannie. The Fed seems intent on accumulating the other half. If they own the majority of people's mortgages (their houses) and a large portion of employer's equity (their jobs) one could say the dollar will be backed by the earning potential of the U.S. Citizen, the value of it's people. What would you call a government that owns half the mortgages and half the stocks?
"Well, the government will put the moneys right back into the system buy forcibly buying the shit securities."
What's to stop the big banks from buying up T-bills with it instead of lending to municipalities and businesses? ABC News had a big scare segment yesterday about credit drying up, but it again was never clear whether businesses got denied or crappier rates because there was no money to lend, or whether the bank decided that maybe a hot tub business might not be a going concern in a bad downturn. Municipalities are dealing with cratering tax revenue and there's certainly a case for worrying about default there too.
If we're really worried about this problem, why can't we deal with this directly instead of shovelling money into the dinosaurs so they can go around and stomp on all the mammals?
For general interest: the TED Spread (intraday, soon w/ history) can be accessed at <a href="http://www.stockcharts.com>Stockcharts.com. Type in $TED and hit GO or enter.
If businesses are willing to give back the tax cuts that have lowered their effective average tax rate to 7%, if they're willing to return from the Bermudas onshore and have that tax dodge closed, if they're willing to pony up for the pension and health care shortfalls that are only going to worsen if our national debt increases, then they can have a say in using tax dollars to bail out Wall Street.
Short of all that, they can kindly shut their pie holes.
Dean Baker summed it up by saying this is the financial institutions holding a gun to their heads saying bail us out or we're going to pull the trigger
So they are making the bailout deal considerably worse by adding both tax cuts and new spending items on it.
Good thing we tried to sink the first version... now they will pass a version that will damage America even worse.
What time is the Senate vote?
i dunno if Berny understand the danger of real interests rates over the medium term
This is the smoke screen that is offered with the bailout. The simple fact of this is that nothing will force banks to lend
MS,
I think lending will continue to be contrained. Why lend to over-extended consumers. Why lend to businesses when over-capacity exists in almost EVERY industry (including energy).
Wealth concentration has made the situation almost un-fixable. The wealthy don't want risk and don't need loans. The majority don't qualify for loans as they are over-extended and have little or no collateral.
This will not be solved quickly. $700 billion or no $700 billion.
Builder Bob writes:
What time is the Senate vote?
Well they need to vote before their daily 10pm lap dance
MS,
I think lending will continue to be contrained. Why lend to over-extended consumers. Why lend to businesses when over-capacity exists in almost EVERY industry (including energy).
Wealth concentration has made the situation almost un-fixable. The wealthy don't want risk and don't need loans. The majority don't qualify for loans as they are over-extended and have little or no collateral.
This will not be solved quickly. $700 billion or no $700 billion.
Soooo.... will GE go under and would CNBC cover it?
I too want my pony with chili and cheese. Blue cheese.
anon @ 9:52-
They won't pull the trigger....
Can't undermine themselves...it's a bluff...albeit a MASSIVE one with the mantra of jobs, credit and the 'merican way of life being used as bait.
I hope they continue to call it one.
The world will not end however bailout or not it has changed and will continue to do so in a way that is not beneficial to us plebs.
Ciao
MS
That was a pretty good thread from last night re: MTM.
Only thought I have is that Mark to Value vs. Mark to Market is how you get wealthy, but, you gotta know how to value financial instruments and what they represent. So, I'm of the opinion that if there is a traded market, there should be an observable price for balance sheet values.
However, if you've got to rely on market prices to tell you what something is worth, you probably shouldn't be involved in that market.
220mph, I don't accept your argument about the vale of the bonds that were written to support your activities. But, I appreciate that you made an effort to state your case.
Good luck. All I can say is that price finds it's own liquidity.
Well, I at least tried.
I called both Senator "B's" office and Senator "R's" office. At Senator B's number, I got an answering machine. I did speak to a live person at Senator R's office. Extremely polite. I pointed out that we're not sure $700 billion is enough; the cloudy selection of pricing; and the power grab by the executive branch.
Dead silence on the other end of the phone, so I continued by expressing my hope Senator R might ask how we as taxpayers might be made whole.
More silence.
I finished by thanking the staffer for listening, and told that person it was pretty scary the national debt was going over $10 trillion, and we were discussing a $700 billion bailout.
Not much, but at least I'm trying. It's your turn.
The government should set up new banks with the $700b to compete with the fat and sleazies. However they won't because that would be efficient socialism. There are similarities to this problem and the healthcare mess--we don't do what's right because it sounds unAmerican.
Video of Kudlow discussing the bailout of foreign banks with the rotating $700BB credit line.
Meaning he can do this over and over!!!??? WTF???
Video - CNBC.com
If you are incensed as I am, call your senators, they're voting on this TODAY!!!
I think the calls need to get a little more threatening rather than polite. These people think they are above the constitution and their duty to the people. Fear of an uprising might make them think twice about ignoring the public.
OT:
This is for Gavshire...
Regarding HIG. I hung out 10 HIGOH (march 40 puts)at 12 yesterday. They filled.....that happened to be the HOD on that option. That tells me two things....option writer's are desperate to get people out of the puts now to soften the blow of the potentially massive payouts later and the stock action is really predicting that. The second thing is that a print on the HOD should be a buy not a sell...hence my reason for the first observation.
Don't make ANY decisions based on my opinion
IMO
Ciao
MS
ISM 43.5?
Wowza. They closed the factories in September. Production 40.8...
Employment under 42.
So the 4Q GDP decline is gonna top 3%. Weekly retail numbers imply consumption heading for an outright decline in Xmas quarter.
Mariposa Barbie already below $10 at your local Walmart...
100-0 vote tonight in favor of this thing?
Let the world know we mean business (and the stock market will go up 1,000 tomorrow).
And what role does the House have? That may be a little more interesting, but I would guess they have the votes now to pass.
Video of Kudlow discussing the bailout of foreign banks with the rotating $700BB credit line.
It was always a credit line. Hence the estimates that the bailout was actually 1.8 trillion by the time Paulson revolves it a few rounds. Some news sources were honest about this. Most weren't. (For those j6p among us who who are aware that there are more news sources than the John Birch Society newsletter.)
Bill not passed yet? Another 700 point decline should do the trick.
The small companies have to have credit to buy the crap from the big ones...so they can hock it to Joe 6 P, at a profit. Come on guys..keep the debt train a rollin'.
Dean Baker summed it up by saying this is the financial institutions holding a gun to their heads saying bail us out or we're going to pull the trigger
Anonymous | 10.01.08 - 9:52 am | #
It has been extortion from the get-go. Life-long Dem here, but Independent candidates are starting to look mighty nice. Just can't bring myself to vote for anyone who votes for this bailout.
Email just sent to 2*S in opposition to the bill.
Bruce,
Why huts when you can have this..
Tumbleweed Tiny House Company
I think our consumer driven Mcmansion society will better adapt to these...
Huts? Maybe in Tahiti!
Main Streeter writes:
Dean Baker summed it up by saying this is the financial institutions holding a gun to their heads saying bail us out or we're going to pull the trigger
Anonymous | 10.01.08 - 9:52 am | #
It has been extortion from the get-go. Life-long Dem here, but Independent candidates are starting to look mighty nice. Just can't bring myself to vote for anyone who votes for this bailout.
This is what we desperately need. More of these lifelong intellectual comas to cease. The sooner the better for all of us.
Sam,
I just made my 25th, 26th, and 27th calls this morning to my rep (Cantor) and Sens (Webb and Warner) opposing the bailout.
Webb's office was keeping a tally and said Webb was opposed to monday's version of the bill. Warner's office said they did not know yet his position. Cantor's (who voted yes monday) office sounded a little defensive when I mentionned "socialism".
LOL...Bloomberg just reported that people started calling their senators yesterday telling them to pass the bill.
My understanding is that the Fed injected $650 billion into the credit markets on Monday ... and it did diddly. Why aren't these geniuses considering that this $700 billion may do absolutely nothing, or it may make things worse?
Last week, eight days after the Federal Reserve agreed to an $85 billion bailout for the American International Group, and one day after the F.B.I. was first reported to be investigating its collapse, recently retired AIG executive vice president Robert M. Sandler bought a $3.45 million apartment at the Hampshire House on Central Park South.
He and his wife, Annette, paid in cash.
Cash is the new credit.
comrade awgee writes:
My understanding is that the Fed injected $650 billion into the credit markets on Monday ... and it did diddly. Why aren't these geniuses considering that this $700 billion may do absolutely nothing, or it may make things worse?
The problem with banks is they don't know what the other one has on their balance sheets. Nobody wants to lend money to another bank if they're holding another 100 billion in write-downs. By passing the bailout, the Treasury would take the assets off the banks hands, and bring confidence back in the market. In theory.
This is what we desperately need. More of these lifelong intellectual comas to cease. The sooner the better for all of us.
Bailout 2.0 | 10.01.08 - 10:18 am | #
I do not consider myself to have been in an intellectual coma, but if my comment helps anyone else to rethink their voting patterns, that would be great.
Wall Street is an abstraction, according to Ben Bernecke.
Dean Baker summed it up by saying this is the financial institutions holding a gun to their heads saying bail us out or we're going to pull the trigger.
That's right, it's a suicide gamble. And when they're done robbing you at your desperate insistence, they're going to decamp to emirate city-states with all the cash.
MSM has been banging away at J6P for two solid days, screaming and hollering that Bailout 2.0 had better pass or it's financial circumcision for all.
Looks like it's working.
Be sure to also thank you MSM outlets for their treason.
Misean,
Absolutely. The money has to come from somewhere.
I recall that point reaching the broader, public consciousness in the past, but only after Treasury rates had risen sharply did discussion of productive investment diverted into public debt become a commonplace.
If recent history is a guide, we're about to repeat that lesson shortly.
Business is exhausting its credit lines not because credit is limited but because revenue is limited. The bailout does nothing to increase revenue. The problem at its fundamental level is economic not financial.
Amen. To the extent that we matter at all, we have to push for a plan that addresses increasing non-housing market demand, short and longterm. There are a few out there. The Campaign for America's Future has one you can sign on to.
And, of course, keep calling your Senators and Rep.
Absolutely. The money has to come from somewhere.
******* I still see lots of value left in the market, over 10,000 points worth.
This is what we desperately need. More of these lifelong intellectual comas to cease.
Please don't insult people who are waking up to the scam. Treat them with sympathy, they've been had on a fundamental level for their whole lives.
Don't hold them in contempt, you were a chump once too.
karelian writes:
"ISM 43.5?
Wowza. They closed the factories in September. Production 40.8...
Employment under 42."
Isn't this going to be the story for quite some time: while people are talking about how to deal with the current crisis, new problems keep hitting us one after another.
Next up?
I don't see the news getting any better.
I see the "authorities" increasingly overwhelmed and the public increasingly distrustful of their competence.
MSM has been banging away at J6P for two solid days, screaming and hollering that Bailout 2.0 had better pass or it's financial circumcision for all
**** i've sent emails, next i'll make phone calls to my 2*S
So when our Glorious Department of Economic Statistics comes out with a GDP figure of +2% again, how will Bush convince us that that the economy is in an urgent need of rescue?
They are truly caught up in their own lies.
Unbelievable the lean, mean, fighting machines that led and survived the 2000 crash begging on behalf of bankers!! Thought the drop off in bonds etc. was a result of a return to corporate bank lending? Well if its immunity you are after.....voluntary nationalisation is always an option...
Got to admire that at least there is a debate going on helped by CR crowd et alia keep it up.
Everyone else is nationalising the bathwater and the kitchen sink without so much as counting a taxpayer penny.
Just my 10c on the dollar worth...
The flu sucks...ther is no vaccine, no cure, no preventative care, no magic pill....just takes time to get over it. We just don't wnat to have to go through the healing process of getting over this economic flu. Thanks Doctor Paulson and Ben Bernanke for your snake oil.
Krugman just wrote a blog entry saying that bailout plan cost to taxpayer will be zero.
One more sellout.
You go to vote with the choices you have, not the ones you think are wiser. There are many issues this election--vote for the choice that you think can best unwind this--and so many other messes. Bush was so powerful because his party controlled everything--maybe splitting votes is not such a bad thing--or maybe it will lead to a logjam.
Remember, one more Scalia and we're screwed for a very long time--on so many issues.
The tinted black suburbans parked outside his house this morning did the trick.
The cost will be zero because all that will be left is a smoking crater. After the crash we re-set to zero. Poof problem solved....
on krugman...maybe not directly thru a tax...
but how many times have we heard "higher fuel prices act like a TAX on the consumer"
just add up all the higher prices on everything they consume...and that's your higher tax.
Builder Bob writes:
What time is the Senate vote?
Builder Bob | 10.01.08 - 9:57 am | #
BOB! Stop it!
CR/CNN/MSM have made it quite clear that the Senate votes tonight after sundown. One has to wonder if a little baiting is going on here:
Calculated Risk: Report: Senate to Vote on Bailout Wednesday Night
So...with corporate America sitting on historic profits why do they need to borrow for payroll? I forget the exact numbers but average profits are in the 12-15% range. Obviously, the weak and unprofitable are in trouble as are many small businesses potentially. But don't most small businesses already use high interest rate (~10%) lines of credit?
MSFT Market Cap. 242 bn... Tier one capital available 23bn... Mmmmmmmm
"The problem with banks is they don't know what the other one has on their balance sheets."
They know......they all have the same worthless crap. Shiny packaging does nothing to disguise turds.....still a turd.
They are not lending because they need capital to pad balance sheets and the source for the last year (Fed) is rapidly loosing it's ability to continue the practice.
AS already mentioned above...they've put almost the same amount of cash into the system as Paulson wants to "save it".
Race to the bottom will only be lengthened by the bailout. Companies will get credit to pay wages, secure inventory, keep operations going etc..., a bit cheaper then right now for a month......
Then what?
Ciao
MS
Anonymous Wag writes:
This is what we desperately need. More of these lifelong intellectual comas to cease.
Please don't insult people who are waking up to the scam. Treat them with sympathy, they've been had on a fundamental level for their whole lives.
Don't hold them in contempt, you were a chump once too.
Anonymous Wag | 10.01.08 - 10:27 am
Ignorance is not an excuse. I hold myself accountable for my ignorance and the mistakes I have made because of that ignorance. Why should I treat anyone else differently?
We have evolved to a "Best Pratices" society. Herd mentality trumps independent thought and personal intellectual development to the detriment of us all.
CNBC anchors are really REALLY looking for stories where businesses are having trouble because of the "credit crisis". They are trying really hard to find stories where businesses are being impacted, payrolls aren't being met...but so far, people they are interviewing aren't taking the bait.
I love when a media outlet has an overt agenda!
Deep in the bowels of some non-descript garage in the Valley four bright guys are pulling all-nighters working on the concept - "no handout".
Its high-sundow
Deep in the bowels of DC and NY thousands of well-lit guys are pulling half-days working on the concept - "a garage's price must never come down..."
Rep DeFazios plan in the house has no purchase of toxic securities. It's a dark horse, but it would be better than the Paulson crap.
for those that puke when they watch CNBC, bloomberg really is more even-handed and less hysterical. Marc Faber was on earlier and said that yes something needs to get done, but the bailout is too hasty and only hits directly at one of the three problems (toxic securities).
He says stocks might well rally for a quarter or two, and they are actually over-sold, but the recession will be deep and global, & recommends majority treasury holdings, some gold and some stocks.
Free Lunch:
Deep in the bowels of some non-descript garage in the Valley four bright guys are pulling all-nighters working on the concept - "no handout".
Deep in the bowels of DC and NY thousands of well-lit guys are pulling half-days working on the concept - "a garage's price must never come down..."
Note the incredible economic disparity of the efforts. This is not to the advantage of the Enemy.
In the words of Nathaniel Greene:
"We fight, get beat, rise, and fight again."
Cornwallis kicked Greene all the way across the Carolinas, fought Greene to a draw at Guilford Court House, and hung himself thereby.
The last week has cost the Enemy his credibility, his legitimacy, and his health, all to pursue a plan fated to disaster. Now he will sacrifice more legitimacy and credibility to seize his aims by brute force of bribes.
If they are forced to win two more such victories, we will triumph over them utterly. Do not despair; even if we are defeated in this engagement, it is merely one moment in the history of the Republic. The enemy bleeds from manifold wounds, inflicted by his own hands in the pursuit of we biting vermin.
Take the raw brutality of their efforts and the illegitimacy of their tactics and use them as a weapon in the next battle. We know there must be a next battle, and so we can prepare for it even while the enemy portrays himself as savior and victor, and rob the Enemy of yet more legitimacy and authority in the next engagement.
Thus, even by a sequence of defeats can we produce victory. Fight on, fellow Citizens. Our cause will triumph, for it is built on truth and reason, as the Enemy builds his case on falsehood and fear.
Microsoft may have limited borrowing needs, but what about all its business customers buying their products?
do you guys get the cnbc europe feed? they have a pretty entertaining guy as studio guest.
Extremely negative about the plan - he could be a commentator here his points are the same - but he does say the US still has a huge capacity to add more treasury debt from its current 40% GDP level.
I call BS. The Federal Reserve's commercial paper report shows that there was $162.7 billion (seaonally adjusted) of nonfinancial commercial paper outstanding at year-end 2007, and $199.1 billion as of October 1'st. That's a 22 percent increase over 9 months, which is more than 30% growth at an annual rate.
There have been big drops in CP issued by financial companies, and in asset-backed CP, but that's purely Wall Street, not Main Street.