This is the big problem with the country right now. There is a MASSIVE, MASSIVE disconnect between main street and wall street. And the people who should be bridging that connection, the people in Washington, have no credibility left. No credibility with the people--heck, they don't even have any credibility with each other any more. The country has no leadership. And we are on the edge. These are strange times. I may be retreating into tinfoil hat mode here, but I'm one of those people inclined to believe that we have been victims of financial warfare, and that we are in a major world war right now and the bodies are piling up. Just that it's a different kind of war so nobody realizes it. Who is going to step up and bring the American people together and lead us out of this? We are like sheep without a shepherd right now, and the wolves are frothing at the teeth.
We are in a no win situation. The wealthiest bankers have sold bad loans long ago and made their billions. Packaged them up and made a nice profit they did. (The wealthy elite have leveraged the heck out of America's debt) Wealthy bankers are wealthy because they are so much smarter than the American citizen. They bought kings in Europe during the 18th century, they bought presidents in the US in the 19th-20th century and folks we are now about to pay the price. I suggest you pay off all your debts, and move your savings into something that can withstand a financial storm. This is a very good time to be liquid and have tangible assets that have intrinsic value. I don't think the situation is at all a 700 billion dollar problem. Too much leveraged loans globally. This is not the end of the world, just an adjustment to the American standard of living- especially the former class known as middle and upperwardly mobile. IMHO
Can you point me to anywhere that has the data from an independent source that supports this? Not just broad generalities and panicky opinions from bankers whose banks are in trouble. Hard numbers, about the whole system. I haven't seen this, and I doubt whether it exists. On the other hand, virtually every major economist, from the most interventionist to the most laizzez faire, say that this scale of bailout is certainly unneccessary and many say that any bailout is unnecessary. Thanks.
The credit default swap market is a $44 trillion dollar market. Do you think that the credit markets and the economy can withstand the destruction of $44 trillion in value? This is not even close to being true. Please don't tell me you claim to have made a systematic survey of "every major economist"....and please don't pull out the "Chicago economists believe...." either. The only Chicago economist whose work I have read recently (Gary Becker) indicates otherwise, though let's be clear that his conceptions of the financial markets (like that of many other economists) are rather quaint and old-fashioned (He refers to "Stanley Morgan" and "Bears Stern").
I don't think you are in touch with the reality of RIGHT NOW: Money has stopped flowing. Period. Nobody is lending to anybody anymore. The financial markets have frozen up already. Companies are not getting loans. Banks are not getting loans. Nobody is getting loans. Overnight rates are at historical highs. Everybody who can is going straight to the Fed to borrow funds. Banks are depositing money at the Fed even though there are far, far more lucrative places to do so. The economy is already suffering damage as we speak. Loans are already coming due, and companies, small and large, are already getting delinquent. The longer this drags out, the longer it will take to recover. At some point in the next week the situation will break and everything starts to unwind. This is not going to be like any recession you've seen in your lifetime. This is far, far worse.
Sure - just look at the cost of credit over the past few weeks. And that's with the hope of a bailout. The minute there's no bailout, the already absurd cost of credit skyrockets, and that's the end of the system. As others have pointed out, the entire credit system is dead right now. It's just not functioning. The economists are free to argue theoreticals - but that's all they are, pure theoreticals in how it *should* work. But theoretical economics doesn't account for fear and other such factors that drive the reality.
I don't think I'm the one that's out of touch with reality. Every single one of my customers is begging for product. All of their customers are begging them for product. Some of these companies are pretty debt-laden and would be hit hardest with a credit crunch. Everyone that I talk to in manufacturing tells the same story. Utilities can't keep up with refinery demand who can't keep up with chemical demand who can't keep up with fiber demand who can't keep up with clothing demand. Miners can't keep up with steel mill demand who can't keep up with industrial building demand to increase this capacity. A lot of companies have played it smart and built up cash reserves, but many haven't. My biggest customer (whose name I won't mention, but one of their largest shareholders is Governor of Utah) is incredibly debt-ridden, but they're not having any issue getting credit, and running balls to the ball. If credit were generally that tight, they'd be the first large company cut off. It seems to me like there's a lot of banks in trouble, but there's a lot that did things right and are positioned well to get some bargains in this market, and that, most importantly, credit is still available.
What do you mean by the cost of credit skyrockets? Do you mean interest rates on existing credit card debt will go up, or only rates on new credit/loans?
That is because the pain hasn't trickled to your side of main street yet. This is the disconnect I'm talking about. It WILL get there. When money stops flowing in the financial system, it's going to be a very short period of time before the taps to the rest of the economy start to shut off. Spreads are at ridiculous highs. This very disconnect you describe is why people are calling congressmen by the thousands telling them that they oppose this deal. Unfortunately by the time the pain does hit main street, it will be too late.
I'm not sure the exact effect on consumer debt - what I'm hearing right now is that very few people can get car loans and such, but I don't know the rates once you do get them. I was referring to lending rates between and within institutions, and the cost of insuring debt. For example, they were saying that yesterday, it cost Wachovia Bank $600,000 to insure $10 million in debt. Today, that quadrupled to $2.4 million. $600k isn't even healthy - it should be way, way lower than that. Once banks can't afford to give out credit, the entire system stops functioning.
Well, it it makes any of ya'll in favor of the bailout feel better, you are starting to scare me. My savings are already blasted - I don't particularly want to get out and "cut my losses", but nor do I want to lose a lot more coin. Ugly.
Why doesn't the united states government open its own bank? Get rid of of quasi private/public entity called the fed. The liquidity problem is solved. We already print money like it grows on tree so what would be the real difference?
Keep in mind that a specific business doesn't feel the pain until it has a bond that comes due or perhaps it has a customer whose bond comes due. So lets take a company say like Huntsman who has a bunch of debt (just like any chemical company - Dow, etc)...they may not be borrowing much new debt, but if they have some debt coming due in a few months, their plan, like most companies is to roll the debt over for another 10 years or so. Except no one is lending. So now they have to come up with the cash to pay that bond or see bankruptcy. What would happen? I suppose if rich investors (i.e, foreign sovereign funds, etc) thought this was a temporary thing, they could come in and buy a bunch of new stock in the chemical company and the company would use that cash to pay off the debt (deleveraging). The banks were over leveraged and got burned when they couldn't borrow anymore. All these industries aren't over leveraged but that doesn't mean they face problems if capital dries up. We could live with no deal if it just meant company's couldn't grow...its them closing shop that would be the issue.
Add my bingo to yours. While I'm not convinced about just how to measure the need of the size of this "bailout," mostly due to a dearth of information available, the sight of huge, famous, and very old firms, firms that, in some cases, survived the 1929 meltdown and the Great Depression, only to fail because of this mess, makes it clear the problems are grave. The sight of John McCain and the House Leadership playing political football with this is absolutely stunning.
No, it is not socialism....it is a blip in our history, and similar to what has been done in the past... People get caught in the number....but it is a credit crunch...it will effect everyone...... This bailout is needed, and I don't think it will cost as much as they think because they are buying assets......that are not worth zero. DD
They are still paying a premium, but if they some equity stake in these banks I would be happier with the deal.
