Bush signs bailout bill

[bascule]

Well that's that, the bailout has been signed into law:

 

http://money.cnn.com/2008/10/03/news/economy/house_friday_bailout/index.htm

 

I'm going to wait for some analysis before I decide if I'm happy.

[Pangloss]

Wow. They must have stolen a Segway from a tourist to get it down Pennsylvania Avenue that fast.

[john5746]

Cheney probably signed it for him.

[bascule]

One of the most interesting things I've read is that this isn't so much a liquidity crisis as banks being afraid to lend money to each other.

[iNow]

It's mostly just semantics. In many senses, this is very much a liquidity issue, since liquidity reflects the ability to move money and wealth. If banks aren't lending to each other, then money isn't moving, and people contacting the banks can't get it either, further stifling the monetary kinematics.

[Realitycheck]

LOL. Dow down more than 777 points, again. 2 thumbs up for government market intervention that works. It only costed us 700 billion dollars, so far. Next up, 5 more bailouts to prop up this idea that the economy is really sound. Really!

 

Tip: Find a good company that dove today and buy and sell the next day.

 

Geez. The Lehman CEO collected 480 million dollars since 2000, resulting in a company going under. What brilliance.

Edited October 6, 2008 by agentchange

[jackson33]

Banks barrow from the Federal Reserve passing assets held for security. I don't know what the percentages are today, but there is plenty of cash in the Federal Reserve. All assets held by banks are then partially liquid and banks don't run around borrowing from each other.

 

Equity is by far another issue. All loans are based on the value of an asset at the time of the loan. If that asset becomes worth less then the bank is required to call that loan, if nothing else to the new value of the asset. Equity being the cash value (liquid) over that of the loan or whats owed.

 

Stocks, Bonds, Commodities and yes home values have been dropping. As these values dropped and continue to drop, your broker or banker are calling these loans or selling the asset, giving the loan holder the remains. The process on homes requires a process, where other assets are under agreements and mandated to be held by the lender, but all subject to sale of the asset. All in all, your talking about 20% of the value held by individuals being wiped out in recent weeks.

 

You also have a loss in faith of the financial system, for people to buy anything on credit. There is plenty of cash/money available to borrowers including California Government, but the requirements now asked by lenders has gone above the level of assets held. Its a chain reaction and will not correct itself until the bottom of a 'deflationary' cycle has been reached or the value of assets stabilize.

 

If the Federal Government had stayed out of this current bubble pop (housing/financial), IMO this bottom could have been reached much sooner, if in fact had not been already reached. Prolonging attention to the cause in an effort to protect a few in an election year has been destructive in turn to a world economy, which many very large international investors (some governments) hold US assets or are in nature international concerns.

 

LOL. Dow down more than 777 points, again. 2 thumbs up for government market intervention that works. It only costed us 700 billion dollars, so far. Next up, 5 more bailouts to prop up this idea that the economy is really sound. Really!

 

Tip: Find a good company that dove today and buy and sell the next day.

 

Geez. The Lehman CEO collected 480 million dollars since 2000, resulting in a company going under. What brilliance.

 

Based on actual P/E ratios (price earnings), values of most major concerns other than financial/housing, employments stats, inflation figures, orders for services/products...the economy is not in crisis. There is no reason the markets are in free fall, other than some panic mode by investors. This will not continue and IMO with in a few hours or days, you will see a giant increase in stock market values.

 

As for the Lehman CEO or any publicly owned CEO-CFO, the stock holders and their board of directors are at fault for pay packages, not the person. There are causes for all this and its my hope the actual reasons will be released over the next few months. IMO, it stems from both political parties and from some sense of redistribution of wealth or the attitude all should share in some pie, whether any participation in building that pie is required...another subject.

[iNow]

the economy is not in crisis. There is no reason the markets are in free fall, other than some panic mode by investors.

Are you suggesting that the fact that debtors are not able to pay creditors has no impact? If so, that doesn't really explain how we got here... After all, investors being in panic mode was in reaction to that, not the causative agent.

 

 

To Agentchanges post, barrels of light sweet crude are looking more attractive today.

[insane_alien]

agentchange, probably a bit too early to tell whether the bailout has worked. as is often the case in complex systems shoving more stuff in will temporarily decrease productivity for a while before a positive change is observed. particularly if you have no control over a large number of variables.

[iNow]

Damn, it feels good to be a banksta.

 

 

http://www.sinfest.net/archive_page.php?comicID=2952

[Realitycheck]

A big factor in today's drop was Friday's job report, another 159,000 jobs lost, totalling 760,000 lost for the year. It's just an accumulation of bad news' effect. I was kind of exaggerating the ineffectiveness of the bailout. It's still humorous to reflect on Bush's statement only a month ago that, "really, the economy is in good shape". (as long as we keep plugging these holes. Man, that one there was a doozy. Just keep the money flowin Paulson, we'll fix er up in no time. Negative growth, more and more lost jobs, frozen credit, yeah sure, the economy is in good shape. Just keep a positive attitude and keep plugging these darn holes. Just how did we get ourselves in this mess anyway? I told you all to keep the income statements fat, don't you all understand a dern thing? I kept telling you all that the best way to do that is to keep interest rates low, keep the war machine rolling, keep banking regulations lax, and drill more oil wells, for God's sake. Just what part of my way do you not understand?)

Edited October 6, 2008 by agentchange

[bascule]

The Dow dropped below 10,000 this morning, currently down some 370 points. Ugh.

[jackson33]

Are you suggesting that the fact that debtors are not able to pay creditors has no impact? If so, that doesn't really explain how we got here... After all, investors being in panic mode was in reaction to that, not the causative agent.

 

The investor shifting into panic mode came after Paulson's revaluations and the failures of several major financial concerns, including two basically Federal Institutions (Fanny/Freddie). They were already concerned, starting with New Housing permit cut backs (near two years ago) and the rising interest rates causing the extended arms to take hold and an increasing failure rate. The Federal Reserve, in over reacting once again by cutting rates and flooding the Reserve Banking system with dollars (not used) stimulated the panic and todays actions are curing nothing.

 

Were now talking about losses to investors into the trillions (est. 5T from highs) in market values and worldwide probably much more. IMO, if they had simply let those home owners that made bad deals (all levels of society), fail and let the home markets drop to whatever level they would have then, none of this would have been needed. The reality they will anyway, but the total home market mortgage system is ONLY about 12T and well spread out.

 

Now, the one thing that concerns me above all else is HOW/WHY, Henry Paulson convinced the Fed Reserve and Bush Administration that these actions were needed in the first place. Paulson was the CEO of Goldman Sach's on one side, but is also well versed in US/China relations and has been there nearly 100 times, no doubt an influence on China's purchase of a great deal of our National Debt.

 

Said another way, markets go up and down all the time, many times in percentages seen today. The Tech Bubble cost investors about 5 Trillion in todays dollar value, the Savings and Loan problems of the late 80's not much less, but never has government or its spokespeople literally yelled wolf, and then with no definitive mention of who/what the wolf was/is.

[Pangloss]

Are you suggesting that the fact that debtors are not able to pay creditors has no impact? If so, that doesn't really explain how we got here... After all, investors being in panic mode was in reaction to that, not the causative agent.

 

It's definitely a factor, but with 94% of the mortgages being paid on time it's clearly not a matter of perception, not reality.

[npts2020]

Just heard some more great news, not! Now the Fed is going to start doing unsecured (not asset backed) loans to non-financial corporations. Was on NPR so not sure where it might be in print, sorry.

[bascule]

IMO, if they had simply let those home owners that made bad deals (all levels of society), fail and let the home markets drop to whatever level they would have then, none of this would have been needed.

 

You mean if we had simply let the entire mortgage market collapse, everything would be dandy? Well, that's certainly Dr. Paul's opinion... I think it's myopic.

[jackson33]

You mean if we had simply let the entire mortgage market collapse, everything would be dandy? Well, that's certainly Dr. Paul's opinion... I think it's myopic.

 

I'll try to explain two examples; In Detroit hundreds of homes that no one would buy 5 years ago were selling for five times there real value to people who would live in them. The values didn't change but access to them did and artificially raised there values. In the meantime all associated cost to ownership was rising, taxes, maintenance, utility cost and interest. When these home owners defaulted, usually just walking off, they could not be resold for anywhere near the original price and for the most part remain vacant today, where all those cost continue to grow. Anyone, including government is subject to those cost while holding the property or any prospective new owner. This has happened in many specific areas around urban USA during the past two years.

 

We have record numbers of retiring people in the US, who have been moving to Las Vegas, California, Florida, Arizona, Texas and others to lessor degree.

Many purchased homes during the past five years, paying the what was probably a fair market value, but borrowed on the EXPECTED equity which did happen and now has reversed. In many cases these are 250k up homes, where the owners have no place left to go to pay for what should have been expected increases in that cost of ownership and unable to make the basic payment.

 

I have deliberately left out the extended arm, sub-prime principle because it really make little difference. That is just another area the market has suffered from, but ignorance whether by fraud (not explaining correctly) or some true deception...

 

What Government is doing is exactly what caused the original problem, propping up ownership for some temporary relief, which IF housing corrects itself in 2-3 years will still have suffered the expenses. If it does not correct, allowed to be purchased at market value, re rented, fixed up and sold at fair market values, your talking about 4-5 Trillion to patch up problems and end up in the same place.

 

Not that many years ago, urban areas would buy up such neighborhoods and build some road or Interstate through it, allowing markets to remain stable. Retiree's will continue to move to those same places and have a shot at some recovery, but during the time it takes, government is going to pay the cost future buyers will make.

 

Its not a Libertarian (Ron Paul) thing, rather basic economy 101. I live in SE New Mexico, where ten or more once thriving towns are deserted. By todays values were talking billions in real estate, still standing but the people are gone and whoever those people were have no current stake.

[ParanoiA]

You mean if we had simply let the entire mortgage market collapse, everything would be dandy? Well, that's certainly Dr. Paul's opinion... I think it's myopic.

 

Have you even considered, and I mean seriously considered, the consequences of bailing these companies out? We're not just talking about the consistent devaluation of the dollar, we're talking about the "implied government safety net" that will now cause other markets to get even more bold, and push the limits of risky behavior due to this precedence. We may never see these markets behave naturally again. Big corporations are taking note, they don't live in a cave.

 

I don't think that can even be measured, and it's effects will not be appreciated for awhile. Very dangerous willful ignorance it would seem. This is the kind of long term consequence that is overshadowed and dwarfed by near-sighted fears of financial problems.

 

I think if you're not considering that, you're being quite myopic. And that's just one dynamic to the consequence of this bailout hard-on.

[Realitycheck]

There's really no way to know what would have happened if intervention had not occurred. It's such a fixed part of the system now.

 

Hypothetical Situation B

 

No intervention occurred. Banks kept hoarding cash until a point of equilibrium was reached and coffers gradually openned again, though at a price, their own designated premium for borrowing money. Yes, this slows down sales across the board, raises the bar against the lower credit bracket, naturally. However, things could not have remained in stasis indefinitely. We were only talking about Fannie Mae and Freddie Mac. What's the total value of all mortgage debt across America? 10-20 trillion dollars, at least? Most of which is paid on time.

 

All of the dynamics are really beyond the scope of any of our knowledge, I bet, but it really does just seem like plugging holes with tax dollars to postpone further problems rather than confronting them head on.

 

And it isn't going to get better for a while. Just more reason to call it wasted money. Some interesting highlights from the lastest IMF report:

 

In the United States, the economy, which grew by 2 percent last year, is projected to slow to 1.6 percent this year. Growth would screech to a virtual halt in 2009, barely budging at just 0.1 percent. That would mark the worst showing since 1991, when the country was pulling out of a recession.

 

The IMF — and many private economists — believe the U.S. economy will probably contract in the final three months of this year and the first three months of next year, meeting a classic definition of a recession. The economy's last recession was in 2001.

 

The government's bailout package is aimed at thawing lending by buying bad mortgage-related debt from troubled financial institutions. The idea is that the banks' books would then be cleaner, putting them in a better position to lend and get the economy moving.

 

The IMF said this effort should help to stabilize markets but even so "the process of balance-sheet repair will be long and arduous." Credit availability is likely to remain constrained throughout 2009, the IMF said.

 

Inflation around the world remains high, driven up by surging energy and food prices through much of this year.

 

It will be tricky for Bernanke and his counterparts in other countries to navigate weak growth and inflation pressures, the IMF said.

 

"The immediate policy challenge is to stabilize financial conditions, while nursing economies through a period of slow activity and keeping inflation under control," it said.

http://news.yahoo.com/s/ap/20081008/ap_on_bi_ge/world_economic_outlook

[jackson33]

We can never know for sure, but in all likelihood (from what has happened before) a good many banks would have gone under, a good many folks would go back to renting or on to Welfare and price for homes, there equity and unseen savings lost. The then cost to Tax Payers, what ever those decreased values would have to be made up by the rest.

 

Instead were going to have those same outcomes, an increased loss to the tax paying base and pay the governments expenses nearing 2 Trillion. Even the interest on this will cost us next year. And next year is really looking bad. GDP is the total purchase of goods and services, this includes homes, which even if start selling again in those certain areas will be for 20-40% less. Your looking at a loss of 2-5% (possibly much more) in GDP which was headed for 16 Trillion and budgets in every local area, State and Federal Government based on that or possibly more from growth. The current loss in Capital Gains, which is what we all pay, regardless of income, will be -0- and regardless if 15% (now), 39% (Obama Plan and he will make it retroactive to 1-1-08), or 100%.

You looking at Bankruptcy in many urban areas, where tax revenues will be fractions of those current 2009 budgets and the exact opposite of all this well intended (?) action.

[Pangloss]

Then they go under. The thing I don't think people realize, and which I think ParanoiA was getting at, is that we're reacting, not acting. The actions we're undertaking here are not long-term strategies, they're short-term panic moves. It's like trying to steer a heard of cattle. Earlier we could poke and prod here and there and keep it on course, but today's half-point prime reduction is like a cowboy shooting his pistol next to the rampaging herd and not even being heard over the din.

 

And these massive bailout plans seem like a good idea on paper, but what they're really doing is transferring debt from risky ventures onto the backs of solid, risk-free labor -- citizens and companies that did NOT take risks. We're now going to depend on those people to save us from the folly of other individuals who should have known better.

 

So why would those risky, dangerous individuals do anything different in the future? And what happens if the NEXT venture has to be bailed out before we finish paying for the FIRST catastrophe?

 

Since when did the daily fluctuations of Wall Street become a reason to expend sums of money on the scale of the entire annual budget at the drop of a hat? Millions of businessmen and -women around the world are shaking their heads over the sheer idiocy of these massive bailouts, watching stock values of perfectly profitable, well-managed companies go into the tank for no reason whatsoever.

 

That's not the "failed economic policies of the Bush administration" at work, folks. It's the sheer stupidity of an under-informed public guided by partisan ideologues and a drama-oriented mainstream media.

 

This country has spent nearly $20,000 per taxpayer over the last two weeks, with no sign of anyone putting on the brakes -- on the contrary, it looks like we're just getting started. The wheels are falling off the bus, and BOTH PARTIES SEEM TO WANT THEM TO COME OFF.

[Phi for All]

I payed my $20K with these bills:

 

 

[bascule]

Have you even considered, and I mean seriously considered, the consequences of bailing these companies out?

 

Yes. And I'm not one to to quote Bush's statements in defense of a point very often, but I think the consequences of letting the financial sector collapse outweigh those of bailing them out. A bailout was successful in averting the S&L crisis, where we saw a much more averse stock market reaction and were able to bail out the financial sector to a much smaller degree.

 

We're not just talking about the consistent devaluation of the dollar, we're talking about the "implied government safety net" that will now cause other markets to get even more bold, and push the limits of risky behavior due to this precedence.

 

That "implied government safety net" must be met with much more stringent regulation. I think there was a total across-the-board failure of the government to regulate the economy.

 

We may never see these markets behave naturally again. Big corporations are taking note, they don't live in a cave.

 

I think the natural behavior of the markets is not conducive to a modern society, a lesson I hope we would've learned during the Great Depression.

 

To Dr. Paul's statements: he acts as if we let the entire financial sector collapse the dollar would be spared. I don't know what he's thinking in terms of a government response... well actually I do: he wants extreme cutbacks of all federal services. I assume at that point the government would go into a mode of simply paying off existing debts using taxpayer dollars, scaling back all other services. How many people would actually want to pay taxes to such a government?

 

That said, without some sort of strategy which is very much opposed to the way the government operates now, I don't see the dollar weathering a complete collapse of the U.S. financial sector any better than it would weather the bailout. Ron Paul draws a considerable amount of attention to the latter and says relatively little about the former. That's the sort of thing I consider myopic. But then again he does play to the Libertarian (capital L) fantasyland that if we just had Laissez Faire capitalism the market would magically solve all problems and we wouldn't have to think about them ourselves.

[ecoli]

Yes. And I'm not one to to quote Bush's statements in defense of a point very often, but I think the consequences of letting the financial sector collapse outweigh those of bailing them out. A bailout was successful in averting the S&L crisis, where we saw a much more averse stock market reaction and were able to bail out the financial sector to a much smaller degree.

 

Successful in what sense? Successful in cushioning the short term economic shakiness, maybe. But it also ensured that the business cycle could continue... when you pump credit into the economy you only delay the problem until it gets worse later on. With a 10 trillion dollar debt, we simply can't afford setting yet another problem aside and pretending that we'll somehow be able to deal with it later.

 

Now, the problem is, its too late in the game, I think, to switch to hard currency and disable the Fed and expect everything to be ok. The problem is, government is not offering any solutions for the long term that would help end the business cycle and limit the managerial power of the federal reserve. All they're offering is more debt and monetary inflation and some hopeful message of "maybe the taxpayers will make some money down the road by nationalizing these companies."

 

The government and FDR tried to do the same thing during the 30s and all we got were 10 years of great depression with massive inflation and unemployment, which only the production stimulated by WWII was able to help cure.

 

Now, I'm not saying we're facing the same thing, but we're in for a rough ride if we think bailing out and nationalizing these institutions are going to work in the long run. It's like trying to put a bandaid on a tumor.

[ParanoiA]

That said, without some sort of strategy which is very much opposed to the way the government operates now, I don't see the dollar weathering a complete collapse of the U.S. financial sector any better than it would weather the bailout. That's the sort of thing I consider myopic. But then again he does play to the Libertarian (capital L) fantasyland that if we just had Laissez Faire capitalism the market would magically solve all problems and we wouldn't have to think about them ourselves.

 

It only seems so since his long term solution is deeper and more fundamental. The Federal Reserve is on his hit list, and his economics depend on an asset based currency, preferably gold and silver, that even Greenspan admitted was the only way to protect the people's wealth - to protect our savings from being swallowed up by inflation.

 

Remember, he's a Jeffersonian and has demonstrated and vocalized a contempt for corporatism, which some say is the more accurate term for fascism, and repeatedly warns against the marriage between the military complex and the business sector, so Laissez Faire would hardly seem accurate.

 

You can disagree with it, but it's anything but myopic.