^agreed, flipping coins could probably run our country as well as our politicians

heads: we pass the bailout

tails: we dont

9/26/2008 11:49:25 AM

So let me get this straight:

Quote :

"Rep. Brad Sherman, a California Democrat, told reporters after a party caucus meeting that it looked like Republican presidential candidate John "McCain and the Republican caucus are blocking this bill.""

Quote :

"Rep. Allen Boyd, a Florida Democrat, said McCain's visit to the White House threw the negotiations over the bailout package into disarray. "What's he done? This did not help matters ... it just makes it much more complicated," Boyd said. "McCain has come in and tried to play the hero.""

http://www.reuters.com/article/politicsNews/idUSTRE48O9VC20080925

So, his insertion of presidential politics messed everything up?

Quote :

"BOB SCHIEFFER: I am told, Maggie, that the way McCain got involved in this in the first place, the Treasury Secretary was briefing Republicans in the House yesterday, the Republican conference, asked how many were ready to support the bailout plan. Only four of them held up their hands. Paulson then called, according to my sources, Senator Lindsey Graham, who is very close to John McCain, and told him: you've got to get the people in the McCain campaign, you've got to convince John McCain to give these Republicans some political cover. If you don't do that, this whole bailout plan is going to fail. So that's how, McCain, apparently, became involved."

http://newsbusters.org/blogs/mark-finkelstein/2008/09/25/schieffer-paulson-warned-bailout-would-fail-unless-mccain-got-invo

He was asked by Paulson to come to the meeting. Forgetting why he was even there in the first place, how did McCain affect the meeting? From CNN...

Quote :

"Multiple sources said McCain didn't say much. Two Democratic leadership aides said he didn't speak until 43 minutes into the meeting."

http://www.cnn.com/2008/POLITICS/09/25/campaign.wrap/?iref=mpstoryview

So where's the stunt and outrageous ploy by McCain? Looks like more bullshit from the Democrats and they're treating the crisis as an election tool

9/26/2008 12:48:18 PM

It's like this:

House Democrats: We want a bailout!
Bush: We want a bailout!
McCain: WTF? NO! No government spending!
House Republicans: Woah, you mean we can be fiscal conservatives again? Sweet, I'm with you McCain!



Obama: Hey McCain, you're still coming to my party on Friday, right?

9/26/2008 1:15:38 PM

Quote :

"House Democrats: We want a bailout! But we also want the Republicans to sign off on the bill because when it fails, we can share the blame! Bush: We want a bailout! Paulson: Well I better get McCain in here to convince fellow Republicans to sign off on the plan, he has no choice because if he doesn't, all us Democrats can pile on him on how he's screwing everything up. McCain: WTF? NO! No government spending! (Says nothing in White House meeting while Obama shows he can't lead for shit even though the entire meeting was set up for him to show leadership abilities) Obama: Oh shit, I forgot I'm not a leader. I'll hold a press conference to tell everybody I'm better talking with real leaders on the phone while they make the decisions. House Republicans: Woah, you mean we can be fiscal conservatives again? Sweet, I'm with you McCain! This bailout is earmarked to give money to organizations like ACORN, National Council of La Raza and potentially the National Urban League? Fuck that."

[Edited on September 26, 2008 at 1:23 PM. Reason : .]

9/26/2008 1:22:17 PM

Yeah, I can totally see where Paulson (or anyone) asked McCain to suspend his campaign and postpone the debates All McCain had to do was issue a statement of support (or not) for the bailout. Instead he pulls his little stunt, flies to Washington, and does absolutely nothing.

To top it all off, he's now going against his original word to put the campaign on hold until a bill is passed, and is going to attend the debate anyway.

..

Quote :

"McCain: WTF? NO! No government spending! (Says nothing in White House meeting while Obama shows he can't lead for shit even though the entire meeting was set up for him to show leadership abilities) Obama: Oh shit, I forgot I'm not a leader. I'll hold a press conference to tell everybody I'm better talking with real leaders on the phone while they make the decisions."

Actually, Obama came out looking pretty good.

http://www.politico.com/news/stories/0908/13918.html

Quote :

"It was McCain who had urged Bush to call the White House meeting but Democrats made sure Obama had a prominent part. And much as they complained later of being blindsided, the whole event turned out to be something of an ambush on their part—aimed at McCain and House Republicans. “Speaking professionally,” said one Republican aide, “They did a very good job.” When Bush yielded early to Pelosi and Senate Majority Leader Harry Reid (D- Nev.) to speak, they yielded to Obama to speak for the assembled Democrats. And it was Obama who raised the subject of the conservative alternative and pressed Paulson on what he thought of the idea."

[Edited on September 26, 2008 at 1:50 PM. Reason : :]

9/26/2008 1:47:25 PM

McCain is clueless and scared stupid. Palin is vulnerable and even more clueless. The GOP has now hit rock bottom in public support. This political stunt by McCain, coupled with the Bail-Out ramifications, plus the debates tonight... have sealed the deal. Oh, and by deal, I don't mean the Bail-Out deal.

9/26/2008 1:51:34 PM

Quote :

"Politicians are McCain is clueless and scared stupid."

9/26/2008 2:31:42 PM

9/26/2008 4:42:02 PM

Quote :

"he's now going against his original word to put the campaign on hold until a bill is passed, and is going to attend the debate anyway."

How well do you think it would have gone over if he had not show up.


He would have gotten completely destroyed by the press, his party, and the voters. That is why it was stupid for him to say he was not going to show up......it created a situation where he had to go back on his word two days later and make Obama look a lot more levelheaded.

9/26/2008 5:38:14 PM

So apparently the only sane people on Capital Hill are a minority of House Republicans. yay.

9/26/2008 7:27:57 PM

^ lol and now they're the most powerful people in Congress all of a sudden

if this proposal was worth a shit, it would be passed by now

9/26/2008 7:54:35 PM

Quote :

" Truth be told I look for politicians to vote for this Nov. who have a plan to fix the problem, not to point fingers. The debate of who caused it Liberals v Conservatives can go on as long as the Israeli conflict with Palestein, with neither side winning."

i agree whole fucking heartedly

9/26/2008 10:51:26 PM

NO CEO Left Behind

Glad my credit union is not tanking. I enjoy my high interest checking, low fees, and no-hassle service unlike the Big Banks.

9/27/2008 3:23:56 AM

I wish I could spend recklessly and then have the government bail me out of my debt.

9/27/2008 6:09:46 AM

Quote :

"Joel Stein: Sure, like any American, when I see a photo on the Internet of an adorable little investment bank and find out it's at risk of being put to sleep, I want to throw in $2,000 to $3,000 of my own money to adopt it. But instead of jacking up inflation, letting the dollar sink further and paying higher taxes so we can keep up cheap borrowing -- which is what this plan amounts to -- I think we need to let those who made bad loans get burned. We need to accept that credit will dry up and that maybe -- for just a bit -- we'll have to stop buying more than we can afford."

9/27/2008 10:26:43 AM

Quote :

"Capital Hill "

9/27/2008 12:24:43 PM

Why is there no talk of pulling our troops out of Iraq, Afghanistan, South Korea, Japan, Germany, and Italy and saving hundreds of billions of dollars in spending? Our politicians are crazy. They just voted to spend hundreds of billions of dollars to defend a whole bunch of Borats in Poland from non-existent Iranian missiles with a missile defense defense system a few days ago.

9/27/2008 3:34:37 PM

srsly.

9/27/2008 3:39:54 PM

^^ That system is not designed to defend poland by the way.

9/27/2008 3:50:13 PM

i'm against the fact that they just pulled the figure 700 billion out of their ass, is it going to that CEO who usually makes 40 million? i wouldn't want him to have to drop out of his yacht club of course, but let's have some accountability before we just throw money at them when lots of responsible americans are having problems and not getting bailed out

9/27/2008 7:48:12 PM

So when the middle class is hurting, the upper class promises trickle down economics for all of the lower classes, and when the upper class is hurting, the upper class is guaranteed huge direct deposits from all of the lower classes?

That seems fair. Shouldn't cause an increase in class warfare. Nope...

[Edited on September 27, 2008 at 8:00 PM. Reason : -]

9/27/2008 7:58:31 PM

Quote :

"i wouldn't want him to have to drop out of his yacht club of course, b"

lol.

honestly though this is my only problem with the plan.

9/27/2008 7:59:51 PM

Quote :

"So apparently the only sane people on Capital Hill are a minority of House Republicans"

It is unfortunate that it is being percieved this way because there is nothing in the House Republican statements that I have seen that suggests any improvement over the revised Paulson plan.

Rather than taking the effort to explain exactly what this plan does and why they are deciding to play chicken with the world economy.

While I think predicitions that we face a global collapse if we don't settle this by Asia Open on Monday are overstating the case a bit the fact remains that there is a non-trivial probabity of financial collapse in the near future.

Lets be clear - this does not mean that you will have "Live within your means"

This means that commerical paper, lines of credit and payroll accounts will dry up overnight. It means there will be no funds for some corporations to meet payroll. It means credit and charge card purchases even on accounts with zero balances will suddenly be denied. It means that the FDIC will be responsible for ensuring that the same thing doesn't happen to hundreds of billions in checking accounts.

That scenario is not probable but it remains possible. Some form of action is necessary in the short term to credit markets.

9/27/2008 8:55:50 PM

^

You're not putting forth a very credible case for a massive and probably unconstitutional expansion of the role of the Treasury.

The point of this bill seems to be, in my best estimation after having read voraciously about it all week, to calm irrational pessimism that would stymie markets in the way you describe. But that begs the ultimate question about whether or not markets work at all, ultimately, and whether or not rationality prevails in markets. Clearly it does.

If the government wants to overcome the short-term pain you describe, they should provide "bridge loans" directly to the parties you describe. That's a much more certain outcome than providing an expensive, overarching "umbrella" for buying securities in order to jump-start market confidence (and therefore free flows of capital) which is inherently unpredictable.

It's a sad day when Ron Paul is the smartest guy in the room. The government distorted the market by creating an irrational, privatized-upside, socialized-downside institution in Freddie and Fannie. The market reacted as best it could by trying to optimize profit based on bad information. Then it blew up in their faces and the government seeks to correct the original distortion with more distortions in the market.

What no one has explained to me, beyond the mechanics, is how the market will react to the overall intervention. The moral hazard aspect of this seems to be totally ignored or poo-poo'ed away -- in my view we are counter-balancing irrational pessimism with an unhealthy dose of irrational optimism, and that will lead to an even larger catastrophe down the road.

9/28/2008 3:42:11 AM

It doesn't matter how the market will react. If they throw 700 billion at the problem, we're going to be facing some ugly, ugly inflation.

9/28/2008 6:52:43 AM

Quote :

"You're not putting forth a very credible case for a massive and probably unconstitutional expansion of the role of the Treasury."

First, It is not entirely clear what is unconstitutional in the provisions set forth except for the lack of oversight, which Paulson caved on the first day. I honestly think it was just there in case the bottom fell out in the hours they were drafting the bill. The federal government, through the Fed, holds a wide range of securities today. The primary difference in this case is their would be explicit authority to issue debt in order to buy assets.

To the larger point, what is this supposed to do. In short it is supposed to calm rational fear in the markets. I can post more on how we got here but for the purposes of this conversation lets begin with the fact that financial institutions are holding lots of mortgage backed securities which are declining in value.

They are declining in value because the models used to estimate their value are turning out to be wrong. The securities are often complex, involving sending mortgage payments to different parties based on the timing of those payments, how many payments have been made so far, etc.

The goal of this complexity was to create securities that were relatively safe out of an underlying asset that was risky. In short, the plan did not work and now it is unclear exactly what will happen because we have never had securities like this before.

Moreover, housing prices are declining which wipes out home owner equity. Homeowner equity is the primary factor in predicting default. This is because a homeowner with equity can always sell to pay off the loan if he gets into trouble. The more equity the faster one could profitably sell, the less likely a default.

This means even loans that looked safe under traditional models may now be in jeopardy of default.


So we have high uncertainty about increase in homeowner default which will produce even less certain effects on MBS. All of this uncertainty raises the risk premiums on those securities and thus drives the price down.


As the price goes down the assets side of financial institutions balance sheets goes down. Eventually some banks will, and indeed have, seen their assets decline until they are lower than their liabilities.

Now if a bank has lower liabilities than assets then the FDIC will take it over in an effort to protect depositors. Other financial institutions face problems because people are very reluctant to lend to an institution that has a negative net worth.

To make matters worse, we do not know which institutions have already crossed the line and which institutions are teetering on the line and which are safe. This is because institutions only say what the total assets and liabilities are and not what they are. Couple that with the fact that as things currently stand the institutions pick the value they want to write down for mortgage backed securities.

Why? Because no one is trading them and therefore there is no solid market price. One can only take a "best guess" and few will guess a value that makes them insolvent.

The reason that no one is trading them is because if they sold the MBS for what the market values them at then they would be forced to acknowledge this loss. This would bring the institution closer to insolvency in the least.

So out there are institutions which are insolvent or going insolvent but we don't know which ones. Therefore, there is fear to lend to anyone.

Add to that the critical factor that in finance the rumor that one is insolvent can make one insolvent. This is because if creditors start to pull out you have to sell assets quickly to pay them off and quick sale prices are always lower than current market prices.


So if I am a creditor I may think that Wachovia for example might possibly be approaching insolvency. But I KNOW that there are some people who think Wachovia is approaching insolvency and further I KNOW that other people KNOW that some people think Wachovia is approaching insolvency. This means there could be an effective run on Wachovia and so I should rationally run Wachovia right now.

None of that is irrational. Yet, this is the type of cycle we want to avoid.


How can we avoid it.


The government could buy the assets from the bank at prices that would keep them from being insolvent.

Wouldn't that be giving money to banks.

Well yes, but more importantly if we do it right, no.

The prices of those assets are falling not only because of the probability of default but because the risk premium is rising. In short people will not pay $50 for a 50% chance to win $100. This is because they fear being out of the $50 more than they look forward to wining an extra $50. Risk premiums are heightened in poor economic times because losing money is even more painful.

However, in theory the US government is risk neutral. So it can pay $50 for a 50% chance to win $100. This is what Paulson means when he says the "hold-to-maturity" value of these securities.

If we pay this no risk deflated value then many of the institution will actually stay solvent.

No there is still risk, not least of which is financial institutions attempting to unload the very riskiest assets on unsuspecting bureaucrats.

So provisions have been created which basically say that if the assets turn out not to have the hold-to-maturity value that the government and the banks agree, then the banks have to turn over enough stock to the government to make up the difference.

In part this gives the government a potential asset. But more importantly it helps to remove adverse selection in this instance.




To your other point of moral hazard. There is of course a saying in finance that the only good time to deal with moral hazard was yesterday. That is some of what is going on. A repeat of the Japanese Depression is on deck and is also one of the worst possible scenarios so in some sense if you stopped this transaction over concerns about moral hazard you would be lowering the risk of disaster tomorrow by ensuring disaster today. That doesn't pass most risk reward calculations.

In a larger sense though moral hazard is unavoidable in the financial industry because finance works on the principle that you trust your security to these people. If these people fail then your security fails.

This is why regulation is a practical necessity in financial markets. I don't know if another practical way to get around the fundamental problems. In the days before regulation panics and ensuing severe recessions were more common, not less.


As to Fannie, Freddie. I really think they are starting to be scapegoated here. There wasn't much that Fannie or Freddie did to cause this situation. They could have been a little more careful about protecting themselves but in doing so they would have increased the risk on everyone else. In short they saw their marketshare collapse in the wake of the Wall Street mortgage boom.

If they had not pushed to to try to take some of that back we would simply have more bad MBS on Wall Street. The MBS issued by Fannie Freddie is almost universally safer than Wall Street MBS because of the standards that they set.


[Edited on September 28, 2008 at 11:24 AM. Reason : .]

9/28/2008 11:13:13 AM

Pelosi's office has released this info on the new compromise:

http://calculatedrisk.blogspot.com/2008/09/pelosi-summary-of-draft-proposal.html


No word of the actual bill yet though.

9/28/2008 12:40:05 PM

^^

You're still not making a convincing case for the _policy_. It's not enough to list a bunch of general reasons why we (taxpayers) should accept this bail out. You mentioned Wachovia, but everyone has known for months that they're in hot water. Everyone knew for months that Lehman was in trouble.

But beyond the immediate, obvious problems -- Wachovia and Citigroup, for example -- WHO, exactly, is going bankrupt soon? JP Morgan Chase? Bank of America? The government is telling us on the one hand, that the market is effectively insolvent; on the other, when WaMu collapses JP Morgan Chase magically gobbles them up in a back-room deal.

I have read plenty of economists' points of view, from both sides of this, and I appreciate your insight -- but nobody, yet, has laid out where, specifically, the big meltdown is going to come from. Who is going to go bankrupt, and why will that cause any more disruption to the system than we've already seen with a $1.1 trillion insurance provider going under; not to mention Bear Stearns, Lehman, WaMu, Fannie & Freddie, and ... we're all still alive and kicking, the Dow is over 11,000 at last close, and the government is starting to look like the Friends of Jamie Dimon Charity Ball.

Moreover I haven't heard any evidence yet that the credit market will absolutely stop functioning; versus slowing. In my mind credit markets SHOULD be allowed to slow. Small businesses won't be able to make payroll -- why? Who won't be lending to them? And why can't the federal government just insure them directly to smooth out the pain of this restructuring?

9/28/2008 2:06:27 PM

^

The short answer is that we don't know. We know that among most vulnerable institutions are Wachovia, Goldman, Morgan Stanley, Citi and UBS.

However, all institutions are vulnerable to run. Thats the ultimate fear. There is nothing a financial institution can do to protect itself from a run besides inspiring confidence.

This is an email I sent giving an overview of why now is different.

Dear Colleagues:



Many have asked why it is that the Treasury Secretary Paulson is asking for so much money on such a short time table. Why is this all necessary now? Hasn’t this crisis been going on for a while?



Some things have happened recently which create urgency. In all of my talks on the credit crisis I mention at the end that we cannot rule out the possibility of a Japanese Style Depression. In 1989 the Japanese real estate and stock markets collapsed and Japan experienced a banking crisis that led to shutdown in short term lending among other things. A large recession began and lasted for 11 years. This event was the worst economic crisis since the Great Depression.



Last Thursday, the United States became perilously close to slipping into the same process. Many corporations, financial institutions and even the Federal Government depend on very short term loans to finance their debts. These loans range in duration from one week to 90 days. At the end of that period a new loan must be taken out to pay off the old loan. This is termed rolling over the debt.



The reason corporations and our government does this is that it is typically cheaper to borrow for short periods of time than longer periods of time. For every large institutions that savings can be significant.



Much of the money which finances those short term loans comes from Money Market accounts or other types of deposits that investors think of as safe and easy to access. When Lehman went bankrupt it could not pay its short term loans. Funds in some Money Market accounts became frozen. Investors became afraid and began to pull money out of the accounts that were still accessible.



By Thursday night Wachovia was shopping for a loan to roll over some of its debts. It was offering 30% interest but found no takers. Many other institutions were locked out as well. Friday morning the government took action to calm fears including the announcement of a bailout plant.



If fears had not been calmed then within a matter of days many corporations and banks would have run out funds. They would not be able to roll over the debt. If this continued they would not have had funds or credit to make payroll or pay vendors. Credit card and line of credit purchases for consumers would not be able to be funded. Spending would grind to a halt. Without that spending other companies would be forced to cut cost by laying off workers and reducing their spending. A ripple would spread throughout the economy creating a deep recession.



This is the worst case scenario. This time we were able to stop the cycle and hopefully we could stop it again. However, the fact that a big name like Wachovia could not find financing at 30% interest shows how close we came to a complete shutdown in short term lending. This is the scenario that Paulson and Federal Reserve Chairmen Ben Bernanke feared when they came out with the plan that they did. Many opposed that particular plan for a variety of reasons but the sense of urgency in Washington stems from fear of the worst case scenario playing out fully in the next few weeks. Fundamentally very little has changed since last Thursday so the possibility remains.



I hope that provides some clarity on the current economic crisis and this crisis within a crisis.


[Edited on September 28, 2008 at 2:43 PM. Reason : .]

9/28/2008 2:28:25 PM

looks like they are probably going to pass something, if anyone had any doubts they wouldnt

Quote :

"Lawmakers' goal is to shore up a deal before financial markets around the world open on Sunday evening. "

http://money.cnn.com/2008/09/28/news/economy/Sunday_talks_bailout/index.htm?cnn=yes



America tried, but you cant stop our gubment from sucking that corporate dick

9/28/2008 5:17:30 PM

http://www.sundayherald.com/news/heraldnews/display.var.2453817.0.rbs_will_get_billions_in_us_bailout_of_economy.php

RBS will get 'billions' in US bail-out of economy
September 28, 2008

THE ROYAL Bank of Scotland is to be one of the biggest beneficiaries of the planned $700 billion bail-out that comes courtesy of the American tax-payer if the US Congress gives the financial rescue package the go-ahead this weekend.

The bank's share of the bail-out will enable RBS to offload billions of dollars of questionable assets.

9/28/2008 5:38:02 PM

Quote :

"This is the worst case scenario. This time we were able to stop the cycle and hopefully we could stop it again. However, the fact that a big name like Wachovia could not find financing at 30% interest shows how close we came to a complete shutdown in short term lending. This is the scenario that Paulson and Federal Reserve Chairmen Ben Bernanke feared when they came out with the plan that they did. Many opposed that particular plan for a variety of reasons but the sense of urgency in Washington stems from fear of the worst case scenario playing out fully in the next few weeks. Fundamentally very little has changed since last Thursday so the possibility remains."

So what this basically means is that the banks are borrowing money at a 30% interest and are actually expecting to be to pay that back? It sounds like we're about to be experience 30% inflation if that much money gets dumped into the system like that.

^ I'm not too happy about that either.

[Edited on September 28, 2008 at 6:37 PM. Reason : ]

9/28/2008 6:34:49 PM

Quote :

"so in some sense if you stopped this transaction over concerns about moral hazard you would be lowering the risk of disaster tomorrow by ensuring disaster today. That doesn't pass most risk reward calculations. "

So essentially, we're doing what loads of individuals do that cause them to go bankrupt. Borrowing from peter to pay paul, playing shell games with our money, floating checks and trying to stave off a mini disaster today, at the risk of a huge disaster tomorrow.

And you wonder why people are concerned.

9/28/2008 6:46:51 PM

^ Yes, but the USA has something individuals lack: the world's mightiest military.

Anyways, your posts are enlightening as always, kwsmith2. You bring an unusual and much-needed perspective to the Soap Box. Let's say I accept the argument that the government has to act now and throw in a big old pile of money. What's the long-term solution? Judging by history, financial crises will keep on happening. Can we do anything to stop this trend? I know the CEPR folks suggest popping bubbles early, but that seems like a rather unsure strategy. Do we simply have to put up with occasional meltdowns?

9/28/2008 9:36:20 PM

Quote :

"Capital Hill"

Not as wrong as you think it is.

9/28/2008 9:41:07 PM

Gosh, kwsmith, I have to say -- your analysis is basically just Chicken Little. For one thing, there's no causality established; it's all just "the Japanese style depression looked like this superficially, so we'd better act now to prevent that." So the counter-argument goes: our fundamentals are strong. Surely the factors in the Japanese economy's prolonged downturn were myriad, not to mention the failures of interventionist government policy over the years there.

Preventing a recession, even a deep one, if it lasts for a few quarters or perhaps even a few years isn't a good enough reason for this policy step. We as a nation cannot afford to be deathly afraid of recessions. It's damned near un-American, I say. Even if our standard of living does recede, there is no indication that such a recession would be on the level of bread lines. Shouldn't we endure real pain for a better future overall? Otherwise we are, as Ron Paul suggests, going to continue to revisit these scenarios as the market is continually distorted and re-distorted, ad infinitum.

The argument for the bail-out goes like this: the government will make money on the deal because it has a low risk premium. Put another way, Cash Is King, the government can always make more cash appear than a private company can, and these assets are just a question of liquidity. And to add more fuel to the argument, securities that under-perform can be treated as mini-Chapter 11s where the government trades down side for equity. Bleeding a turnip, as they say.

I have the following major problems:

First, we're throwing good money after bad. The government will issue a ton of new debt to cover these purchases, and then the purchases themselves are inherently very risky. It's like going to the bank and asking for a loan so you can use it to buy drugs for sale on the street corner. Sure, drugs are profitable, but ...

Clearly the issue here is riding out the down-side in the market and reaching some "maturity date" on assets that are subject to unthinkably variable macro-economic factors. Riding out any down side is no small proposition, and in fact the length of the long bet is the reason why so many companies are now bankrupt -- lots and lots of smart people thought that in the worst case scenario, mortgages were safe bets and the downside wouldn't last. They are, after all, people's homes.

The reality is that banks have very little recourse when the value of collateral drops and people just decide to walk away from their homes. Bankruptcy carries a big penalty for individuals but generally speaking, the end result is really just a credit score hit for 10 years. As a society we don't have very Draconian bankruptcy laws, and that is part of our value system. Given the turbulence in the housing markets, especially here in California, I would wager the situation is still volatile in ways people don't yet understand. And how long that uncertainty lasts -- well, it's foolish to make predictions about markets like that.

Furthermore, I still haven't heard a reason why the government shouldn't just intervene in insuring credit markets by providing liquidity to the borrowers themselves instead of buying out these "toxic assets." Chapter 11 provisions and ad hoc bail-outs and FDIC will run their course as normal; we already have these mechanisms in place. Let's just protect the most vulnerable and let the situation run its course.

9/28/2008 11:32:14 PM

9/29/2008 3:26:30 AM

Let them fail. Once the storms subsides, then rebuild. Otherwise, we are re-building a broken system before the storm has showed us the cracks in the foundation, which isn't rational.

9/29/2008 7:40:44 AM

According to the text of the bill, foreign owned banks will be bailed out as long as they aren't owned by the foreign government.

9/29/2008 8:30:46 AM

so when will be the best time to dump money into the stock market?

9/29/2008 9:02:45 AM

at the bottom

9/29/2008 9:14:09 AM

It is a bit like refurbishing homes in New Orleans Lower Ninth Ward isn't it?

9/29/2008 9:23:36 AM

i know... will this bailout cause stock to go up or down?

9/29/2008 9:23:44 AM

we'll let you know in a few months.

seriously, it's just a crapshoot. Nobody knows what will happen, least of all us.
This may help temporarily stabilize everything, and the market could go sailing along for a few more days, weeks, months, or maybe forever. But more than likely, the worst is yet to come. There are some serious fundamentals wrong in the market right now, and a cash injection, no matter how big, is going to fix that.
Anyone who starts calling the bottom is likely talking out of their ass. At some point in the next couple years, we'll all look back and say "oh yeah, obviously that was the bottom. I should have bought-in there". But to try to call it now is just not gonna work

9/29/2008 9:31:58 AM

Abraham Lincoln FTW!!

Quote :

"It is an old maxim and a very sound one, that he that dances should always pay the fiddler. Now, sir, in the present case, if any gentlemen, whose money is a burden to them, choose to lead off a dance, I am decidedly opposed to the people’s money being used to pay the fiddler …all this to settle a question in which the people have no interest, and about which they care nothing. These capitalists generally act harmoniously, and in concert, to fleece the people, and now, that they have got into a quarrel with themselves, we are called upon to appropriate the people’s money to settle the quarrel."

Remarks of Abraham Lincoln, Congressman from Illinois, January 11, 1837
http://tinyurl.com/lincoln1837
via thismodernworld.com

9/29/2008 9:35:27 AM

^ lol nice

gingrich just said on the radio a 3rd party by 2012 is a definite possiblity

9/29/2008 9:40:15 AM

Quote :

"Furthermore, I still haven't heard a reason why the government shouldn't just intervene in insuring credit markets by providing liquidity to the borrowers themselves instead of buying out these "toxic assets." Chapter 11 provisions and ad hoc bail-outs and FDIC will run their course as normal; we already have these mechanisms in place. Let's just protect the most vulnerable and let the situation run its course."

I would have said the zero lower bound, or the fact that the fed funds rate cannot go below zero.

But holy fuck this morning the Fed got authority to pay interest on reserves which means they can and may take the Fed Funds Rate negative. In theory, because we really have no idea in practice, one could provide infinite liquidity with negative nominal interest rates.


Also, real quick on chicken little. I am not trying to pooh-pooh on everything but I know that Paulson and Bernanke cannot publicaly lay out their worst case scenario, and thats what it is -- worst case, because even talking about it could spread fear among depositors.

So, I've tried to paint the worst case scenario. Not that it will happen but that some elements of that scenario appear to be materializing and we should prepare to deal with it.

9/29/2008 10:11:58 AM

I am waiting for someone to jump on this politically in a big way. People hate this thing and that makes it dynamite in the hands of the right person. It won't be McCain or Obama; they were already around the bargaining table ...

9/29/2008 10:14:11 AM

The world as the average American realizes it has fundamentally changed.

9/29/2008 10:25:29 AM

Quote :

"It is a bit like refurbishing homes in New Orleans Lower Ninth Ward isn't it?"

Great thought. Our gov't does so much to help people avoid the consequnces of their poor judgement...thus encouraging more of the same.

Quote :

"The world as the average American realizes it has fundamentally changed."

The gradual decline of our country into socialism has been the result of a lazy, inattentive populace..letting politicians use gov't to build up their own power by shifting wealth to those who didn't earn it.

9/29/2008 10:49:56 AM