His sole purpose for suspending the campaign was supposedly to get House Republicans on board. Just yesterday, his campaign claimed success in doing so: http://blogs.abcnews.com/politicalpunch/2008/09/in-my-inbox-jus.html "What Senator McCain was able to do was to help bring all of the parties to the table, including the House Republicans, whose votes were needed to pass this" --McCain campaign manager Steve Schmidt, Meet the Press yesterday.
This isn't 2002. Back then it was OK to allow the economy to weed out a bunch of companies with bad business models. This time the whole system is at risk of collapse as money stops flowing. The problem we have now is that even the good banks are hoarding cash, and in every sector businesses are being denied access to the money they need to run on a daily basis. This is what most people don't get. I've tried to tell people this over and over again. The question is no longer whether we should pay for Wall Street's sins. That question was decided a long time ago. The issue right now is how much we will pay, and as of now the amount is growing exponentially larger every day. We thought $700 billion was a lot of money. Well, now we've lost $1.2 trillion in one day. So smart, us free-market idealists.
Thanks for the compliment. I do think something needs to be done, but it needs to be realistic... nothing is going to keep us from hard times. Nothing is going to make things the way they were. Anything sold as that is BS. We can hope for something that puts better regulation on Wall Street and doesn't rip off the people who played by the rules. I'm OK with softening this so long as those goals are met and it doesn't reward bad actors. Now that this bill is dead, let's do something better. (I could have reluctantly lived with the bill, I just don't like it very much and I really hate the original proposal.)
But you're asking the government to intervene? If it crashes it crashes. We will go through a couple years of crap and dig our selves out. I'm hoping the gov't helps us out, but if it doesn't happen, isn't it what the conservative small government sect of our country wanted anyways?
I guess that depends on if you thought the purpose of the plan was to prevent it or delay it. I don't know anyone that realistically thought this bill would prevent it.
Seems like a false comparison. The $700 billion was to be footed by the taxpayers. The $1.2 trillion would have been split among those heavy in the stock market; it's a large population but not the same types of people.
Yep. Just like the Nevada ranchers who always want the public land given to them until there's a fire and then really want that public ownership... the mantra of privatizing profit and socializing risks is at play here.
It's not an apples-to-apples comparison, sure. But this is just one day. Heaven knows what's in store as the consequences of this start to unfold. We're talking about large-scale job loss figures and decimation of retirement accounts everywhere. This was merely a kick-start. What was supposed to be a bout of flu just became the beginning stages of pneumonia. And the worst part of it was that the $700b figure wasn't even an expense. It was an investment. Even if we ended up losing half of that investment, it would be a far better proposition than what we face right now.
The bill had regulation in it. The bill also had taxpayer protection in it. If the Treasury had lost money on the buying and selling of these assets within 5 years, the President is required to submit a plan to Congress to recoup the losses from the institutions in the finance industry. I don't know what else people want. You talk all this game about having something different, yet I have yet to see someone come up with their own idea or modifications that can be made. Posting links to other people ideas don't count. If you have an understanding of the markets then explain yourself. You have no credibility just because you post some article. I have enough reason to believe that the people that are against it or want to see no bailout simply just do not understand the importance of the bill.
No, of course not. I agree with the essence of his post. I think you are wrong about this issue, but we can't agree on everything. This crisis was largely created by the Republican Party and the Bush Administration, along with a huge number of greedy bastards looking for a profit, and consequences be damned. I don't know of anyone who likes this bill. In my opinion, they would like even less what will happen if this bill, or another similar to it, doesn't pass and pass soon.
I'm really torned as my profession and my parent's professions (and some savings/asset) are in finance and/or tied to the market. So this bailout would've helped our immediate financial situation greatly and gave me a peace of mind. On the other hand, I do have a feeling that unless the bailout comes with more strings attached in terms of regulations, this is only a bandage on a problem that requires surgery. One problem I have is the way execs in the finance industry are compensated. It's being said before, but executive compensation that are tied to stock prices rewards risk takers. But that becomes even more dangerous in in finance as the we see executive getting compensated for strong verticals as they make horrible horizontal decision (look at the earning calls of financial services companies a couple of years ago). This is because if you "go big" and give out loans worse than what you booked in the past today, you can start collecting the interest on the new loans first while the losses wont come in till a bit down the road. Now, financial companies build reserves which should offset that (putting money aside during the period which you book the loans that should represent the money you expect to go to loss), however if the valuations of the loans are bad then you end up with a snow ball effect that we see today (losses coming in higher, which forces more vertical reserves, which scares the investors and forces banks to curb lending, which shrink outstanding balances, which make the vertical numbers even worse due to a smaller denominator, which erodes investor confidence and kills liquidity in the business). I think until financial execs and financial instituions are evaluated on their horizontal balance sheet, we might see the same mess some where down the line.
rimmy, i admire your stance. It's hard-headed and cynical - my cup of tea. I'm torn now. One part of me sees the need, the other part thinks a long-term solution that will actually rectify the fundamental flaws will require some short term misery. And I'm ok with that. Furthermore, if it means that the ultra-wealthy in this country start to realize that they need to give a damn about the little guy - I'm probably in favor of it. There is something fundamentally wrong with how our government panders to the rich - and I'd like to see that change. Of course, one part of me thinks that for the long term we are hosed no matter what we do, so I think I might still retain the "most cynical *******" award on this bbs.
Interesting surveyUSA info: http://www.surveyusa.com/index.php/...for-this-rainy-day-13-expect-to-be-wiped-out/ Half the USA doesn’t know enough about the specifics of the rescue plan to know whether they should support or oppose it, but of those with an opinion, opposition is twice as strong as support. That said, in striking contrast: by 4:3, Americans want their representative in Congress to vote ‘For’ the rescue plan. This is true across party lines. The country is not sure whether the plan will work short-term or long-term; there is significant pessimism about the long-term impact. 57% of Americans now worry the bank where they keep their money will fail. This is up from 53% on 9/26/08, up from 51% on 9/25/08. Half know someone who has lost their job. 3 of 4 Americans have reduced spending in the past 3 months. The second bold part is the potential panic I was referring to.
Don't think the leaders of America helped by spooking the market about imminent disaster, this problem has been going on for about over a year; things aren’t going to crash overnight just yet (are they?). Using the kind of language Bush used in his presidential address, he scared the crap out of people. Don't think this mess was handled very well by those in charge. I’ve read quite a few articles/blogs by economists who didn’t like how this mess was being managed, so it’s just not me. Then again I admit I don’t know if the markets are on the brink of going haywire as predicted by Bernanke, Paulson, and Bush. Did they scare the crap out of the markets unjustifiably/inappropriately?
How do you figure? If you have a $500 million MBS, backed by $750 million worth of mortgages. It takes a $150 million dollar loss, so your $500 million is now backed by $600 worth of bonds and those underlying securities are now selling at a weighted 50 cents on the dollar. You don't think you could make money off that? Think that's an exaggeration, if you ignore the media blah blahs, that's actually what is happening right now, because surprise surprise, most loans are still quite well collateralized. Now of course, there are stinkers out there, but even those are the exception instead of the rule, at least for the time being. Except that the alternative is worse. I believe Paulson called it systemic failure. Read above and tell me again if you're serious.
Just to be sure, this doesn't count, it is not my idea... but these guys got me out of the stock market in plenty of time. From the Daily Reckoning link Everything is happening just as it should - alas! Now the Europeans are getting into the act - albeit only in a minor, supporting role. Fortis - a huge Belgian/Dutch financial company - is going bust, says today's paper. And public officials of at least three countries are trying to rescue it. According to the Financial Times, the firm is likely to be nationalized by Luxembourg, Belgium and the Netherlands all at once. This will be a first - a company taken over by politicians who speak at least three different languages. We'd call it an "internationalization." Meanwhile, over on this foggy island, the government is preparing to nationalize another major bank - Bradford and Bingley. Nervous savers are taking their money out of B&B, leaving the firm dangerously short of cash, says the FT. But it didn't take a genius to see that there would be Hell to pay. That's what always happens when you reach the top of a credit bubble. People may spend more than they earn for years; eventually they reach the point where they can't go on. And lenders and investors inevitably go overboard too. They're so eager to earn a fee, they stop worrying about whether the loan will ever be repaid. But the geniuses didn't see it coming. They were too impressed by their own theories and their own financial models…and their own multi-million dollar bonuses. It fell to us here at The Daily Reckoning - poor, neglected, lonely as we are - to fly the "Crash Alert" flag day after day…and to say the obvious to anyone who would listen: "this too shall pass." And now, according to the New York Times, it is passing: "The End of Euphoria," the Times puts it. "Bill comes due for excesses of past 15 years." But where's the surprise? Mr. Market always has a surprise in store. And he always brings it out when you least expect it. So far, the surprise is that the financial sector has been hit harder than expected. Each time an institution goes bust, the feds react with more money and more credit. Each time, stocks rally and word goes out that the crisis is over. Then, another institution goes belly up. And now Warren Buffett is apparently on the phone - according to our sources at the Financial Times - warning Congress that if they don't take action on the bailout plan things could get a lot worse. Yes, that is all part of the program too. When people get the bill for their own mistakes they naturally want to pass it off to someone else. Who better than that chump of last resort - the taxpayer? The bill for the Paulson bailout plan could come to $1 trillion. At least, that's the estimate of Ken Rogoff, a Harvard economist. Let's see, that's about $12,000 for every family in the country. Yet, who complains? Where are the riots? Who's got a spare $12,000 to send to the feds so they can pass it along to Wall Street? It doesn't seem to matter to anyone…people figure it's all "funny money" anyway. And they worry that if it's not forthcoming, well…maybe Warren Buffett is right. And maybe Paulson and Larry Summers (opining today in the Financial Times) are right too - maybe the bureaucrats will do such a good job of managing this program that it will make a profit. Which gives us an idea: why not take TARP - as the program is called - public? Give public officials an opportunity to make some money for a change…let them put their own money into the rescue plan, along with the taxpayers' money. Let's see what the prospectus will say: 'Firm will buy up Wall Street's mistakes at above-market prices; later, when all this blows over, these 'assets' will be sold back to Wall Street.' Let's see how much of his own money Hank Paulson would bet on this business model! No, they're not likely to take TARP public. Too bad. We'd love to sell it short. Too bad also because it would nice to give Mr. Market a chance to sort this out himself. He'd probably mark down stocks, derivative financial assets, bonds and houses - fast. But so what? "Liquidate the farmers…liquidate labor…liquidate the railroads…liquidate investors…" - in 1929, that was US Treasury Secretary Andrew Mellon's idea of how to let Mr. Market handle a financial crisis. Let it be! Let Mr. Market do his savage cleaning work. Then, the economy can begin to grow again - on a healthier base. But that's not going to happen. Once again, the fix is in. This one bigger than any before… "We must regulate," says Dominique Strauss-Kahn, director of the IMF (perhaps forgetting that Fortis was regulated by hundreds of bureaucrats in dozens of different countries….). "The time has come to save capitalism from the capitalists," writes Luigi Zingales of the University of Chicago. Thank God for the bureaucrats. The economists. The Wall Street pros. Now, they're going to "rescue" us… But wait a minute… …wasn't it the US government that set up Fannie and Freddie with an implied guarantee? …wasn't it the SEC that was set up to regulate Wall Street and prohibit the sale of slimy "investments?" …weren't these same economists the ones who thought the U.S. financial system was the best in the world…because it was so "dynamic…inventive…and flexible?" …isn't it the Fed itself that has been lending money below the inflation rate since 2002? And wasn't that the major source of "liquidity" that created such a huge credit bubble? …and wasn't Hank Paulson the head man at Wall Street's most go-go firm when all this stuff was going on? Do you remember hearing him warn investors or lawmakers that the whole Vesuvius of hyper-credit was going to blow up? We don't… Yes, dear reader, as predicted in these pages…we are witnessing an epochal shift - from capitalism to socialism…from markets to politics…from subtle swindle to naked larceny…from white collar grifters to stick-up men…from slick fraud to brute force. And then…who will rescue us from the rescuers? *** This morning, Americans awoke to President Bush, "urging" Congress to pass the bailout. The bailout will "keep the crisis in our financial industry from spreading," he said from the White House. "We will make clear that the U.S. is serious about restoring our confidence and stability in our financial system." Obviously, Congress is going to pass the bailout…but what does it mean long-term? Our intrepid correspondent, Byron King, offers his insight: "[The bailout is] $700 billion that the nation does not have and cannot afford. The money will go to bail out banks that were run into the dirt by greedy idiots. It's bad for the dollar. "And if Congress does not approve the bailout? I guess the economy will just crash and burn. Or maybe not. It's still bad for the dollar. It's a good thing we all have gold bars buried out in the backyard, eh? "One way or another, the dollar is on the verge of a rapid and sharp loss of purchasing power. So precious metals should do well. And energy is going to get more expensive, because oil will not stay in the $110 range if the dollar tanks. So the good side of the dollar decline is that domestic sources of energy ought to do well. That's good for the geothermal companies in the ESI portfolio." *** Here's a sobering detail: For the last 15 years, the U.S. money supply has grown about twice as fast as GDP. Federal government liabilities, meanwhile, have grown three times as fast. It now has more financial obligations than assets. It is, effectively, broke. And here is another cup of strong coffee: U.S. debts are now compounding negatively like a Neg Am mortgage, that delightfully fatal confection invented at height of the housing bubble. Some house buyers didn't even pay enough to cover the interest on their mortgage; the missed interest payments were added to the mortgage itself, causing it to grow automatically. Exponentially. We don't know what Professor Chris Martenson is a professor of. But he has done the world a favor with his description of what happens when things grow exponentially, rather than arithmetically. Imagine you could make a football stadium watertight, he writes. Then, imagine that you put a magic drop of water in the center…a drop of water that doubles every minute…so that after six minutes or so, you'd have about enough water to fill a thimble. Now how long would it take before the stadium filled, he asks? We're not going to leave you in suspense. For the first 45 minutes, you can walk around the stadium and barely get your feet wet. But in the next 4 minutes the stadium fills and you drown. *** Clive Crook in the Financial Times: "If one idea caused the subprime meltdown and the subsequent financial emergency, it was the belief that house prices could not fall. Nationally, they had not dropped since the 1930s, it was often pointed out: it simply could not happen. A similar complacency now attends discussion of the fiscal outlook. "It is assumed that the US can borrow without limit. In fact, the US has a budget constraint - less binding than that of other countries, to be sure, because of the dollar's reserve currency status and other factors, but there nonetheless. This limit is about to be tested, and if the global capital markets decides enough is enough, the challenges confronting the Treasury and the Federal Reserve will make even last week's exertions seem mild. "The next administration's fiscal options are vanishing before our eyes. Somebody should tell the candidates and the country." Until tomorrow, Bill Bonner The Daily Reckoning
