Quote :

"These guys were the fraudulent gangsters. The iBanks and anyone else looking to invest in the CDO/MBSs paid good money to Moodys and S&P for them to accurately assess the risk. I can imagine they were so inundated with "work", that they just took huge shortcuts so they could get to the next profit monster."

ha, somehow I missed this on the first reading:

Quote :

"Regulators found that Moody's and S&P also didn't have enough people and didn't adequately monitor the thousands of fixed-income securities they were grading AAA. "

If it takes you 1 month to make 500k in profit, wouldn't you like it to only take 2 weeks to make 500k in profit?

Simply unreal these guys.

9/25/2008 10:39:41 AM

Quote :

"This Bail-out is a big shake-down."

yep, I think it will be a turning point in American politics we can look back on. America either bails out and stays on its current path of fiscal liberalism/globalism/corporatism or our government starts working for the common American again.


heres to hoping for the latter

9/25/2008 10:48:28 AM

Quote :

"John McCain claims to be a straight talker, but it is Senator Jim Bunning, Republican of Kentucky, who on Tuesday, in front of Treasury Secretary Henry Paulson and Federal Reserve Board chairman Ben Bernanke, labeled the Paulson/Bernanke $700 billion Wall Street takeover plan “financial socialism.” He also called it “un-American.” Bunning’s comments, which have been reported widely, have alerted many Americans to the proposed radical transformation of the U.S. economy that is being pushed by the Bush Administration and mostly Congressional Democrats on Capitol Hill. Bunning’s views are consistent with the 2008 Republican platform, which declares, “We do not support government bailouts of private institutions. Government interference in the markets exacerbates problems in the marketplace and causes the free market to take longer to correct itself. We believe in the free market as the best tool to sustained prosperity and opportunity for all.” Two weeks ago, in an interview with Bloomberg News, Bunning had denounced the federal takeovers of Fannie Mae and Freddie Mac, saying that Paulson was acting like China’s finance minister. “No company fails in communist China, because they’re all partly owned by the government,” he said. “I sincerely believe that Henry Paulson and Ben Bernanke should resign. They have taken the free market out of the free market.” At the Banking Committee hearing, Bunning called the new $700 billion Paulson plan “an attempt to do what we so often do in Washington?throw money at a problem.” He added, “We cannot make bad mortgages go away. We cannot make the losses that our financial institutions are facing go away. Someone must take those losses. We can either let the people who made bad decisions bear the consequences of their actions, or we can spread that pain to others. And that is exactly what the Secretary proposes to do?take Wall Street’s pain and spread it to the taxpayers.” "

http://www.aim.org/aim-column/senator-bunning-blasts-financial-socialism/

9/25/2008 10:48:34 AM

Damn...


I'm calling some Senators and Reps on my lunch break too, this is BS.

9/25/2008 10:49:41 AM

I already sent emails to Obama and Dole expressing my disgust at this bill. Might get some other ones later.

9/25/2008 10:59:08 AM

Quote :

"It's hard to blame democrats too much. Expanding gov't is their thing. "

you guys who continue to say this must actually think this is what it's like to be a liberal
http://www.youtube.com/watch?v=f3qgiNPVpSM

9/25/2008 11:03:18 AM

I agree that we cannot have a bail out without conditions, but at the same time doing nothing is also not a viable alternative.

9/25/2008 11:15:44 AM

can somebody that has a pretty firm grasp on the situation explain what would happen in a nutshell with a bailout, and then without a bailout?

9/25/2008 11:18:22 AM

Quote :

"can somebody that has a pretty firm grasp on the situation explain what would happen in a nutshell with a bailout, and then without a bailout?"

If it were that simple, don't you think it would be disseminated to the public and a course of action would already be chosen?

Here is a plan I can get behind, oddly, you don't see congress attempting to hold hearings from these types of folks, just throw money at it

http://www.rgemonitor.com/blog/roubini/253739/home_home_owners_mortgage_enterprise_a_10_step_plan_to_resolve_the_financial_crisis

You know this is a good plan when step 2

Quote :

"Second, in exchange for the purchase of illiquid asset (at whatever price it is agreed) the government gets preferred shares in the financial institutions that senior to existing common and preferred shares and that are convertible into common shares to allow government to participate into any future upside."

is a key component to Buffets investment in GS. What happens is GS gets some much needed capital to resume functioning, Buffet profits immensely (~20% yield if GS survives and prospers), everyone is happy.

9/25/2008 11:23:22 AM

hmm all the senators lines I called are busy

[Edited on September 25, 2008 at 11:28 AM. Reason : m]

9/25/2008 11:24:12 AM

yeah yeah, I know nobody can say for sure

I meant like a summary of some of the more widely agreed upon projections. Like... what exactly are the people arguing against the bailout saying will happen if we don't do anything?

9/25/2008 11:26:44 AM

Quote :

"what exactly are the people arguing against the bailout saying will happen if we don't do anything?"

I don't think they are saying anything, that isn't why they are against this bailout plan. The argument is against unfettered power with taxpayers money and no oversight. This is before even looking at the details of the plan and if it will actually work. That's how poorly thought out and ill conceived it is.

9/25/2008 11:32:25 AM

btw, here are some other "off the top of the head" alternatives (or supplements, or changes) to the $700 blank check
http://open.salon.com/content.php?cid=21982

Quote :

"1. Mortgage stamps. Think of them like foodstamps. Using the same bureaucracy, or the Social Security System, a person who is behind on their mortgage could qualify for public assitance. This would be provided in the form of a number of $100 monthly vouchers, which they would mail in with their mortgage payment. Qualification for, and the number of vouchers a homeowner could receive are TBD, but so is a lot of stuff. 2. Start slow. Authorize, for example, $100 billion, subject to review. Let the treasury go buy up bad debt with that money. If they like the way the system works, and they think that more is a good idea. maybe their experience will allow them to come up with a valuation model and criteria. Then, the next amount to be authorized would at least have some intelligence behind it. 3. Follow Warren Buffet's lead. If a bank thinks it needs additional capital to support it's bad debt holdings, let the Treasury buy permanent preferred stock, the same as Warren got. That provides a way for the banks to raise money, while providing the tazpayers with some hope that they can get their money back. I'd be willing to wager that the bill ends up being a lot less than $750 billion. 4. Just give the $2,300 per capita to the citizens as an economic stimulus. Many people who are behind on their mortgages would be able to get back on their feet with an influx of $7000, $10,000, or more. If not, at least they could go out and blow it all one one big party, which will make some bartenders happy."

9/25/2008 11:35:03 AM

^ thanks, that's kind of what I wanted to see

all I keep hearing is no bailout no bailout, but surely something HAS to be done, right?

9/25/2008 11:38:43 AM

Quote :

"the government gets preferred shares in the financial institutions...everyone is happy. "

Not me.

I don't want my gov't buying up ownership in private companies in order to save their butts.

9/25/2008 11:39:35 AM

They claim (cough) to be only planning on buying up 5% of the troubled mortgages that make up a huge amount of the bad debt. These at some point will have value since they are backed by actual houses.

I am kind of flustered that 5% of anything hitting the toilet could push all these large companies under but that is how overextended they are.

9/25/2008 11:42:48 AM

Quote :

"In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy. "It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."

http://www.forbes.com/home/2008/09/23/bailout-paulson-congress-biz-beltway-cx_jz_bw_0923bailout.html

ARE YOU FUCKING KIDDING ME? REALLY? REALLY?!? Jesus tittyfucking Christ. What a fucking joke.

9/25/2008 11:59:17 AM

On the statement that the Democrats voted for the Deregulation that caused this, particularly, the Gramm-Leach-Bliley Act, it was a bill passed along party lines with the Democrats voting no and the Republicans voting yes. Sure, Bill Clinton supported it, but don't try to pass a 1999 law off onto the Democrats when the only Senate Democrat to vote for it was Fritz Hollings of South Carolina.

9/25/2008 12:01:12 PM

Quote :

"I still haven't heard exactly why people believe the repeal of Glass-Steagall was the root of the credit crisis. If anything, the repeal of Glass-Steagall helped the credit crisis. Without it, Bear Stearns would not have been acquired by JPM. Morgan Stanley and Merrill Lynch (pending agreements) would not have been able to be absorbed by Wachovia and BofA. It is the diversified financial companies, those retail banks with I-banking arms like BofA, JPM ect, that are weathering the storm."

9/25/2008 12:20:25 PM

Quote :

"Not me. I don't want my gov't buying up ownership in private companies in order to save their butts."

Look, I know you libertarians feel high and mighty about your preferred choice of politics, but you can't suddenly go completely hands off on an industry where it was never purely free market to begin with.

Not doing anything WILL be more disastrous than doing the correct thing. Get this through your skull. Paulson's plan isn't the right thing, but only a retarded fool (or someone blinded but what they think is their superior form of ideology) would think imitating one of (if not) the greatest investors alive is a dumb thing to do.

9/25/2008 12:28:53 PM

This is how Adolf Hitler was able to come to power. Why haven't the bankers learned their lesson?

[Edited on September 25, 2008 at 12:48 PM. Reason : .]

9/25/2008 12:47:30 PM

Called Tuesday.

gg EarthDogg for rabble-rousing

9/25/2008 1:08:05 PM

Quote :

"can somebody that has a pretty firm grasp on the situation explain what would happen in a nutshell with a bailout, and then without a bailout?"

Our current situation involves a cause and effect relationship where American banks pumped huge amounts of assets into an unregulated housing market in an effort to make huge profits. Unfortunately, the banks were allowed to pump these assets in irresponsible ways by loaning people money that were clearly unfit to pay back the loans in the first place.

When a bank does this, the money that was loaned to the borrower is in essence forfeit or wasted, because that money was handed out without a realistic guarantee of a profitable return. For example, if the banks used that money to invest in a more stable market that money would of returned a profit instead of actually losing huge amounts of money. The obvious result is that the unfit borrowers are kicked out of their homes, and the banks end up owning tons of real estate with little to no chance of selling it for a profit.

Now these American banks own all of these homes scattered all throughout the country that they didn't have to invest in in the first place, and because the economy is going south, their chances of selling these homes for a profit quickly are next to nothing. Since the banks cannot sell these homes and their assets are tied to a dead market, we are now experiencing a huge financial vacuum where banks are at risk of imploding.

Since there are no buyers, no one honestly knows the actual value of these homes because the housing market is tumbling. A bailout would allow the banks to hold onto these homes until they have a chance to sell them for a profit. Once they do sell them, the banks can then reallocate their assets and stabilize their own finances, which in theory will stabilize the economy once again.

Think of it like selling a piece of art painted by an elephant. To some people, this painting is a true masterpiece valued in the millions of dollars, and to others it's worth a few hundred dollars because it's just a painting by an elephant.

With a bailout: The banks are given a grace period to liberate themselves from their real estate investments by finding buyers in an unpredictable market and selling for an acceptable profit. This gives banks a chance at recovering by keeping them afloat in the seas of uncertainty with a 700 Billion dollar floatation device. The 700 Billion dollar amount is a mere guess by the treasury and only time will tell the actual bailout cost of this crisis.

Without a bailout: The banks are expected to liberate themselves from their real estate investments by finding buyers in an unpredictable market. If the economy continues to go south, the chances of recovery are very low and they will sink in the seas of uncertainty.

Basically, do we throw these American banks a taxpayer lifesaver to swim to land, or do we risk waiting it out to see if these banks can sink or swim? If the banks fail to swim and sink to the bottom of the sea of uncertainty, the probability of America finding land together is even bleaker and more unlikely.

The question should not be whether or not we bail them out with a taxpayer lifesaver; the question should be more geared towards the way we get to land together with the most survivors as possible. The more survivors we have, the better the chances of recovering the entire economy on solid ground. This is why conditions are so important, because if we do not account for the waves, the current, the wind, and each banks ability to swim; we may be adding an anchor to the problem, instead of a sail.

Clear as mud?

[Edited on September 25, 2008 at 1:42 PM. Reason : -]

9/25/2008 1:28:07 PM

Quote :

"Not doing anything WILL be more disastrous than doing the correct thing. Get this through your skull. Paulson's plan isn't the right thing, but only a retarded fool (or someone blinded but what they think is their superior form of ideology) would think imitating one of (if not) the greatest investors alive is a dumb thing to do."

Why? We keep hearing comparisons to the Great Depression, despite the fact that the parallels are strained at best and the scope is far smaller relative to the GDP than before. Where exactly has the case been laid out that "doing something" is better than "doing nothing?"

Meanwhile, we keep hearing about how the government buying out all these toxic mortgages will somehow be the profit opportunity of a lifetime - just once the economy recovers. If that's the case, then why aren't we seeing savvy investors jumping all over this opportunity? Unless this whole "deal of a lifetime" isn't exactly the sure thing we're being sold it as.

Further, if we do a little examination of economic history, we can come up with a few things that created and perpetuated the Great Depression - and several of them were failures of the government. Just a few:

-Federal make-work projects which took labor out of the market and drove up the cost of labor
-Raising taxes
-Smoot-Hawley tarriff act
-Tightening credit to banks

If we're worried about a liquidity crisis, then the solution is to provide an adequate availability of credit to banks such that they can continue providing loans. But, you'll notice - plenty of conventional banks are doing fine. Bank of America, for one. Morgan-Stanley and Goldman-Sachs decided to leave the iBank business and join the ranks of mainline banks - granted, for regulatory purposes, but the point remains. We're not seeing a shortage of banks - we're seeing a shortage of investment banks.

So perhaps someone screaming their head off that we have to do something!!11!111! could offer us just a little more explanation of just why we need a bailout, and how exactly the consequences of this would outweigh both the negative effects of doing nothing and the positive consequences of allowing the market to actually allow some of these banks to fail. (And, you know, actually introduce a check upon future risk and such - rather than right now, which is remove that check and create a moral hazard toward future risk.)

9/25/2008 1:34:55 PM

Quote :

"Unless this whole "deal of a lifetime" isn't exactly the sure thing we're being sold it as."

you're right. it's not. that's just spin
http://bigpicture.typepad.com/comments/2008/09/latest-paulson.html

Quote :

"^ thanks, that's kind of what I wanted to see all I keep hearing is no bailout no bailout, but surely something HAS to be done, right?"

here's another collection of proposed alternatives
http://bigpicture.typepad.com/comments/2008/09/alternative-ide.html

9/25/2008 1:49:00 PM

from what I gather, doing nothing will result in an almost immediate, deep recession. This event, while affecting many people adversely will result in a market correction that will bring the economy back into balance within a fairly short amount of time.

the bailout plan will likely prevent the short term gloom and doom, but over the long term will support both the imbalance of the market, and the bad decisions of businesses and consumers....This will lend itself to continuing devaluation of the dollar and inflation.

Basically, we're looking at an abrupt free fall and subsequent recovery, or a long, gradual decline which may take decades to truly hit bottom.

imo, the market correction is the way to go. Believe it or not, there are still many institutions/citizens that were prudent during the mortgage free for all, who would likely fill the void left by the irresponsible ones fairly quickly....

i'm not saying the gov should do nothing, but the 700 billion bailout seems to be a knee jerk reaction that hasn't been thought out thoroughly....and after the past few years, when I hear that "there will be grave consequences if we don't act now" coming from the white house, i'm almost compelled to do the opposite of what they recommend.

I am by no means an economist, and just trying to make the most sense of the info available....so feel free to correct me.

9/25/2008 2:03:08 PM

I agree, the 700 Billion is merely a guess! We the tax payers should be allowed to guess too since it's our asses. This level of mistrust of the government by the people is truly remarkable, and although doing nothing is not an option, jumping the gun is just as foolish.

9/25/2008 2:07:59 PM

Quote :

"and although doing nothing is not an option"

Again, why the hell not? If we're going to talk about knee-jerk reactions, right here is a case study in them.

This has all the signs of a high-pressure sales pitch. "You have to act right now! Quantities are limited! You have to buy today!"

We all know what comes of high-pressure sales pitches.

9/25/2008 2:20:29 PM

What we are talking about here is the possibility of a cascading domino effect on global markets. Doing "nothing" is not an option, and doing "something" doesn't mean spending taxpayers money either. I'm a fiscal conservative just like you. I also do not trust the government's idea of fixing the problem, but pretending that the problem doesn't exist or doesn't need to be addressed is equally as dangerous.

[Edited on September 25, 2008 at 2:27 PM. Reason : -]

9/25/2008 2:25:26 PM

Quote :

"What we are talking about here is the possibility of a cascading domino effect on global markets. Doing "nothing" is not an option, and doing "something" doesn't mean spending taxpayers money either."

What we are doing is essentially rampant speculation. And in as much, doing "something" carries an equal probability of doing something just as or more harmful than doing nothing at all. I can easily come up with a dozen cures to "fix" the current crisis - whether or not they involve taxpayer money or novel regulations - that could easily prove worse than the disease over the long term.

So no - our null hypothesis ("do nothing") is not off the table. And only people trying to make a high-pressure sales pitch throw out that line.

It doesn't take pretending that there isn't a problem to propose that "doing something" other than letting the market clear out failing institutions is better than the proposed alternatives over the long run, especially from the perspective of future moral hazard.

[Edited on September 25, 2008 at 2:30 PM. Reason : .]

9/25/2008 2:29:04 PM

Have other people been getting this e-mail - I've gotten it from two different people today.

Quote :

" I'm against the $85,000,000,000.00 bailout of AIG. Instead, I'm in favor of giving $85,000,000,000 to America in a We Deserve It Dividend. To make the math simple, let's assume there are 200,000,000 bonafide adults in the U.S. Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up.. So divide 200 million adults 18+ into $85 billon that equals $425,000.00. My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend. "

With people forwarding e-mails with that much fail, maybe we do "deserve it"

9/25/2008 2:33:12 PM

Then they'll "deserve" to pay $1,000 for a loaf of bread too.

9/25/2008 2:36:52 PM

I understand the philosophy of "if it ain't broke, don't fix it." I just find that unwise and dangerous considering the fact that we know that the system is broken, and the real problem is that we don't know how to fix it. If doing nothing solves the problem, and doing something makes the problem worse, your position is sound. If it's the reverse, your position is lethal. The logical question is, which position has a higher risk of being unsuccessful? I believe doing nothing is more risky, you believe the opposite. Which is right? Letting the market fix the problem has already proven to be an unreliable fiscal approach.

9/25/2008 2:37:54 PM

Quote :

"I understand the philosophy of "if it ain't broke, don't fix it." I just find that unwise and dangerous considering the fact that we know that the system is broken, and the real problem is that we don't know how to fix it. If doing nothing solves the problem, and doing something makes the problem worse, your position is sound. If it's the reverse, your position is lethal."

First, this is not necessarily, "if it's not broke, don't fix it." This is a matter of where we have continued to add fuel to a fire because we have acted to inhibit temporary, painful market mechanisms.

There's a very useful analogy I want to pull out here. Way back when, when they used to manage forest fires, they'd put out every single blaze that would pop up - right away. Folks who did that thought they were doing the responsible thing, managing forests and all.

But something caught them off guard - despite their best efforts, they would see "mega-fires" - fires that would spring up and burn out of control. We've seen a few of those, but we don't tend to see them as often now. Why is that?

It turns out, those small fires we used to put out were actually serving a useful natural function - clearing out small brush that would otherwise catch on fire. Yet when we stopped the small fires, brush would accumulate, resulting in a massive blaze that would take out the whole forest.

Nowadays, we allow, and even perform controlled burns, in order to clear out that brush that could otherwise light up the whole forest.

The market is very much the same way, and our policy approach has been surprisingly similar - bail out every firm and industry showing even the slightest hint of trouble. The result is exacerbating the economic decay, because the dead wood doesn't get cleared out. We put out the fires of market churn before they have a chance. The result is larger fires - or, in this case, larger crises.

Again - if you feel like doing something, then make credit available to banks and stay the hell out of the way. Firms need to go under to put a check upon excessive risk-taking that got us into this mess to begin with.

Quote :

"The logical question is, which position has a higher risk of being unsuccessful? I believe doing nothing is more risky, you believe the opposite. Which is right? Letting the market fix the problem has already proven to be an unreliable fiscal approach."

No, it's not "lethal" - it is simply as harmful as the next failure-prone alternative being proposed. Again - this approach carries with it an implicit bias that every idea on the table is one of equal worth, and every idea on the table is of greater worth than doing nothing. Clearly this is not the case - plenty of proposed solutions are far worse in the short and long term than "doing nothing," including some we've already done - like bailing out several individual firms.

The fact is, doing anything that provides a bailout for failing firms carries the harm of future moral hazard. Future moral hazard means that firms will not be deterred from taking these kinds of dangerous risks all over again - which means this bailout will have been for nothing. In order for any kind of meaningful recovery to occur, there has to be an incentive against excessive risk-taking and over-leverage.

9/25/2008 2:48:30 PM

Quote :

"With people forwarding e-mails with that much fail, maybe we do "deserve it" "

i assume you "reply to all" and correct the math error?

9/25/2008 2:54:42 PM

Well, I called up my delegation. Wrote them all earlier this week, called today. FYI - Congressman Miller's office (13th District) is (202) 225-3032.

Dole's phone was apparently pretty busy - took me several tries to get through. Staff was pretty pissy when I talked to them - didn't even bother asking for my name / contact info. Burr and Miller's staff were pleasant, in comparison - both were polite and took down my info.

I doubt it'll do a damned bit of good, but at least people have to try.

9/25/2008 3:13:30 PM

Quote :

"With our economy in crisis, the US Government is scrambling to rescue our banks by purchasing their "distressed assets", i.e., assets that no one else wants to buy from them. We figured that instead of protesting this plan, we'd give regular Americans the same opportunity to sell their bad assets to the government. We need your help and you need the Government's help! Use the form below to submit bad assets you'd like the government to take off your hands. And remember, when estimating the value of your 1997 limited edition Hanson single CD "MMMbop", it's not what you can sell these items for that matters, it's what you think they are worth. The fact that you think they are worth more than anyone will buy them for is what makes them bad assets."

LOL

http://www.buymyshitpile.com/

9/25/2008 3:23:16 PM

Quote :

"How we got here: It's housing, stupid The Wall Street crisis has been caused by plunging housing prices. So despite the billions of dollars being thrown at the problem, experts say more trouble lies ahead. By Chris Isidore, CNNMoney.com senior writer Last Updated: September 18, 2008: 2:55 PM EDT NEW YORK (CNNMoney.com) -- The nation's financial system is in the midst of a massive shakeup and many on Wall Street and in Washington are pointing fingers and looking for someone to blame. But in the end, it all comes back to one issue - housing. Earlier this decade, it was much easier to get a mortgage. Home prices soared about 85% from 1996 through 2006in inflation-adjusted dollars, creating a bubble. Then the bubble popped. And the fallout isn't over yet, experts say. In the past two weeks, the government took over Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), Lehman Brothers (LEH, Fortune 500) filed for bankruptcy and Merrill Lynch (MER, Fortune 500) sold itself to Bank of America (BAC, Fortune 500). If all that weren't enough, the Federal Reserve announced late Tuesday night that it was loaning $85 billion to insurer American International Group (AIG, Fortune 500). None of this would have happened if the housing market had not imploded, leaving all these firms with staggering losses from their investments tied to mortgages. "These institutions, which weathered all kinds of calamities before, including depressions, are being knocked out," said Lakshman Achuthan, the managing director of the Economic Cycle Research Institute. "It's a testament to the significance of the problem we have here." Thus, experts agree that there are likely to be future shocks to the financial system until the housing market finally hits bottom. Even Treasury Secretary Henry Paulson, the administration's point man in the many rescue discussions of the past month, admits this. "The housing correction poses the biggest risk to our economy," Paulson said the day he announced the Fannie and Freddie seizure. "Our economy and our markets will not recover until the bulk of this housing correction is behind us." The problem of falling home prices But because of the depth of the housing problems, it may take a long time before real estate prices head higher again. Here's why. Home prices, while sharply off from the 2006 peaks, are still high in comparison to long-term gains in income, rents or overall prices, suggesting that they still have a way to fall, according to experts. The reason housing is wreaking havoc even on insurers like AIG and big investment banks, who do not make mortgage loans, is that during the boom, trillions of dollars of mortgages were packaged together into securities that promised to pay investors with the proceeds of those loan payments. Those securities paid better rates than other types of assets during the boom years. So many investors from around the globe poured as much money as they could into those securities. Faced with this demand, lenders starting making more loans to riskier borrowers, including people who might not be able to afford their mortgage payments in the future and even many with no proof of income. When prices were rising, this wasn't a problem. The risk of loan foreclosure or default was limited because many homeowners were able to sell their house for more than they owed and make a profit. But once prices topped out and began falling, loan defaults and foreclosures started shooting higher as homeowners found it more difficult to sell their house. This created problems not just for subprime borrowers but even for those with good credit and income. When foreclosures rose, the value of the various types of securities tied to mortgages started to fall, causing huge losses up and down Wall Street. It also made banks less eager to extend credit because of the risks involved. A downward spiral This credit crunch in of itself slowed the economy, leading to job losses and more defaults, feeding a downward spiral that has been difficult to stop. "A really bad situation -- a home price bubble bursting -- was made significantly worse when the recession began," said Achuthan. "Now we have to let this thing play out." Some experts even argue that the steps being taken to rescue firms like AIG could make a recovery in housing and the broader economy more difficult, as financial firms and investors become more reluctant to lend money. "We are certainly taking credit and squeezing it tighter and tighter," said Kevin Giddis, managing director of investment bank Morgan Keegan. "Housing needs buyers. Buyers need credit." Achuthan said that even though rates for mortgages and other types of loans have fallen in the last two weeks, those loans are becoming more difficult for many consumers and businesses to get because banks are severely tightening their lending standards. And if housing prices do fall further, that will only cause more losses in the financial sector and perhaps more failures of banks, insurers and securities firms. "I would hesitate to say the worst is behind us," Achuthan said. So even with perhaps hundreds of billions of tax dollars going to AIG, Fannie and Freddie, one expert said the only real solution to the housing problem is for the correction in housing to finish running its course. "We want home prices to return to normal," said Barry Ritholtz, CEO of Fusion IQ and author of the upcoming book "Bailout Nation." "Until that happens, you can throw as much money at the market as you want at the situation....and it ain't going to make any difference," Ritholtz said. To top of page First Published: September 17, 2008: 3:03 PM EDT"

9/25/2008 3:57:55 PM

A new bailout plan with taxpayer "protections"

http://money.cnn.com/2008/09/25/news/economy/deal_reached/index.htm?postversion=2008092513

I was watching lou dobbs last night (I know, Im lame) and Rep. Barney Frank, one of the key writers of this new plan, was on there. The oversight committee they came up with was just some financial analyst/planners that Pelosi and Reid would appoint. That doesn't exactly make me any more comfortable.

9/25/2008 4:19:49 PM

Quote :

"No, it's not "lethal" - it is simply as harmful as the next failure-prone alternative being proposed. Again - this approach carries with it an implicit bias that every idea on the table is one of equal worth, and every idea on the table is of greater worth than doing nothing. Clearly this is not the case - plenty of proposed solutions are far worse in the short and long term than "doing nothing," including some we've already done - like bailing out several individual firms. The fact is, doing anything that provides a bailout for failing firms carries the harm of future moral hazard. Future moral hazard means that firms will not be deterred from taking these kinds of dangerous risks all over again - which means this bailout will have been for nothing. In order for any kind of meaningful recovery to occur, there has to be an incentive against excessive risk-taking and over-leverage."

The theory of Occam's razor is that the simplest answer to a problem is usually the best. Our current financial system consists of cautious capitalism which forces us to privatize our earnings and socialize our overheads. This is how the economic disparity within the United States operates. The differences between blue-collar and white-collar accountability are exceedingly transparent. Both our financial system and our justice system are manifestations of the same power imbalance.

I can appreciate your stance for a number of reasons. The major reason is that your position requires the fewest leaps of logic. With all things being equal, doing nothing is the simplest resolution to the problem and has the potential for the safest outcome by letting nature take it's course within the banking industry. Unless there is evidence that can be provided which can prove the premise to be wrong, we can safely assume with your metaphor; like with a controlled burn in a forest, it is safer to cut the trees down which are in the path of the mega blaze than to waste the resources to put the blaze out with massive amounts of labor.

Water = 700 Billion Bailout
Trees on fire = Banking industry
Trees to be Clear-cutted that are in the path of the Mega fire = No Bailout/The Market Decides

Although I do not share your vision of not lifting a finger in regards to the crisis, I do recognize your approach as rational.

9/25/2008 4:37:58 PM

Quote :

"This has all the signs of a high-pressure sales pitch. "You have to act right now! "

"Have We Got Us a Deal Going?"

9/25/2008 7:03:28 PM

I've been clanging the "This is a Financial PATRIOT Act" alarm all week. It's transparent, and they're using the same arguments:

"We must act, because the consequences of doing nothing would be catastrophic!"

Fearmongering douchebags.

9/25/2008 7:30:21 PM

Quote :

"“Most people believe the Great Depression was caused by an ‘excessively’ free market--and they regard the massive expansion of government intervention under FDR as its cure. But as many economists have demonstrated, it was government intervention that caused and exacerbated the Depression--from the massive tariffs of Smoot-Hawley to a series of disastrous interest rate hikes by the Federal Reserve to antibusiness measures such as the National Recovery Act. “Few acknowledged this at the time, however. The Great Depression--a failure of government intervention--was called a failure of capitalism, and was used to justify even more government intervention. We are seeing this same process repeat itself today. “There is overwhelming evidence that our current crisis is the result primarily of government intervention in the economy, from the Fed’s inflationary policy of keeping interest rates artificially low to the creation and regulatory coddling of Freddie Mac and Fannie Mae to the government’s quasi-official policy of bailing out large financial institutions deemed too big to fail. "

9/25/2008 8:28:54 PM

Looks like the momentum of the bailout is stalling.

http://money.cnn.com/2008/09/25/news/economy/deal_reached/index.htm?postversion=2008092513

9/25/2008 8:43:43 PM

The Dark Bailout
http://www.youtube.com/watch?v=R1X6RQLZtoA

9/25/2008 9:33:45 PM

more like NO FAIL-OUT AMIRITE?

9/25/2008 10:02:16 PM

What would happen if McCain came out and took a 100% stance against the bailout?


Very very unlikely I know, but it would probably win him a few votes. Glenn Beck was saying today the old McCain would probably do it or think veryyy long about doing it, but nowadays, nobody will take a stand on anything.

9/25/2008 10:36:55 PM

Quote :

"House Financial Services Committee Chairman Barney Frank (D-Mass.) angrily accused House Republicans — with the tacit support of Republican presidential candidate John McCain — of crafting an alternative to undercut Treasury Secretary Henry Paulson. Both McCain and his Democrat rival, Sen. Barack Obama, left without any joint endorsement. A beleaguered President Bush had to struggle to maintain order and reassert himself. And when Democrats left after the meeting to caucus in the Roosevelt Room, Paulson pursued them, begging that they not “blow up” the legislation. The former Goldman Sachs CEO even went down on one knee as if genuflecting, to which Speaker Nancy Pelosi (D-Cal.) is said to have joked, “I didn’t know you were Catholic.”"

http://krugman.blogs.nytimes.com/2008/09/25/madness-on-pennsylvania-avenue/

Crap. This is getting nuts.

9/25/2008 10:57:09 PM

Quote :

"What would happen if McCain came out and took a 100% stance against the bailout?"

lol, it doesnt matter what he comes out and does, right now he looks like a complete jackass and the whole party, including his campaign is a big mess. Get this shit out of washington fast.

9/25/2008 11:00:22 PM

^^ yeah, i saw a crawl at the bottom of Fox News this evening when I was out that said "White house source says bail out meeting 'ended badly. Very badly' "

9/25/2008 11:07:12 PM