Yep...and holding onto these "assets" for years will not increase their value. Unless of course, we anticipate an increased market for homes that have sit unoccupied for years with no maintenance and likely vandalised.

I wasn't responding to your post.

But I should have added a number #3. There's a HUGE amount of arrogance here - if someone disagrees with you (or even raises concerns), they "just don't get it".

Nobody knows what will happen. 100+ economists from elite American universities are against this. But they just don't get it either I guess.

I don't have a problem with someone telling me I'm wrong, but it gets annoying when pro-intervention crowd claims moral superiority, and when anyone has decided that they're 100% infallible and has a superior understanding than anyone who disagrees with them (even if the other people have better credentials than them).

this is certainly a problem with the current plan. however this problem is mitigated TO A DEGREE if the government takes equity stakes in these companies in exchange for removing the "toxic" assets off their books (really the only way the bailout has any hope of benefitting us -- i hold very little hope that the assets will recover enough value to make us avoid having to take a bath of say $250 billion. especially considering the housing market is overdue for a correction). IF the government takes an equity share in these companies then it will both have a say in corporate governance of them, and also have the ability to recoup some of the (what i view as inevitable) losses that it takes on the "toxic assets" by selling off its equity shares (either back to the companies themselves or to the market) when the companies stock prices recover due to the removal of the "toxic assets" from their books.

Here's the problem with that. These aren't straight loans. These are derivatives that have been pulped, sifted, processed, shat out, and in general made into such a mind-numbing mess that god knows WHAT they are based off of. The money that is directly tied to property have value (that can and will likely increase) by their very nature. These potentially don't, thusly causing the problem to begin with.

Arrogance has nothing whatsoever to do with it, it's consensus. You don't get Bush. You don't get the Senate Republicans. You don't get the Senate Democrats. You don't get the House Democrats, you don't get the 90% of financial commentators that are trying to get through to you.

There's the arrogance!

But I invite you again to point out all those posts that you refer to.

Agreed it will "help" loosen the lending in the short term. Agreed that the "current model" will likely collapse if nothing is done quickly. I think the distinction I have here, is that this assumes the banking system will not collapse again regardless...and with the government left holding worthless(or worth less than the debt purchase may be a better way to put it) assets.

Out of curiosity...do you not believe a short-term increase in borrowing to FI's is not a reasonable response until a more comprehensive solution can be reached? I'm not sold myself, just curious if you believe that the "affluent society" that I happen to live in is something that is sustainable(i.e. this bailout brings it to normalized)...or if you think it is artificially propped up(in which case this just propagates the same problem which could get even worse in the mid- to long-term)? Perhaps there is another way to see it that does not ignore the long term affects of government "owning" assets that are not guaranteed to come up in value.

what the government will have to do, or should end up doing is: taking them all in, absorbing them into one big pool and untangling the legitimate mortgages from all the derivative products that have no intrinsic value, passing new laws regarding how much they can be repackaged and in what form, and then reselling them back into the market.

ie govt says: "you can only resell a mortgage if it includes all of the years of one property. no breaking it up into tranches of years." So the govt assumes the burden of untangling all of these mortgages from each other and reassembling them back into "here's a 30 year fixed-rate on this one house" and packages it with a bunch of other 30 year fixed-rates at the same rate and resells that.

like i said though, i don't hold any hope that this will offset the entire cost of the bailout, which is why i think equity in any company that the govt takes these assets from is essential.

and in a significant percentage: $1bn = ~5% of the company (or something significant)

I may be wrong but as I read the revised bill the goverment receives equity in the companies participating - these would not be worthless regardless of what happens with the 'toxic assets' (which incidentally many economists believe will hold considerably value when held to maturity).

Marc - can you confirm please that the economic problems and the freeze of the credit markets won't affect the release date of FM 2009?? :)

Market indexes seem to be up today. So much for the bottom falling out. They apparently don't think the sky is falling after all.

I expected things to move up today, after that emotional outburst from yesterday.

great buying opportunities today on solid companies that were dragged along in the free-fall yesterday is primarily what's driving the uptick today.

The toxic assets seem to be toxic mainly because they are too complex and splintered and ultimately backed by houses that have dropped in value. If the government can purchase enough of them it seems they should be able to untangle them and perhaps even reconstruct the underlying individual mortgages. Those mortgages are ultimately backed by actual houses, so the only way the assets would truly be worthless is if you believe the housing market will never recover... if that's the case we're screwed no matter what we do.

No private party could do that because no private party could possible purchase enough of them to do any useful untangling or handle the exposure of waiting out the housing market.

nvmind

As long as Paulson doesn't get to do what he wants without judicial review or oversight....like he originally wanted

But... if they thought the whole thing was about to collapse, why would they buy anything? Especially in any amount that would move the Dow over 280 pts up?

Like he just said. A LOT of companies that have absolutely nothing to do with this situation got dragged down amidst the FUD. Investors spotted this and acted accordingly. There's a lot of money to be made after a sharp drop like that.

I realize I am simplifying the assets by referring to them as if they are straight property deeds or loans for property...but as you said, I'm not sure there is an effective way to grasp the fallout of owning these.

I'll readily admit that I'm out of my expertise on this topic...but the fact that it has come to an immediate "meltdown crisis" shows I'm not the only one.

But, I thought this collapse was going to take everybody with it? Are these foolish investors who are about to lose their shirt?

I'm trying to understand what is happening here. Chicken Little was out in full force yesterday afternoon, but now we either have over-confident investors pulling the market up today, or there are a significant amount of people out there who don't believe we are on the verge of a complete collapse.

I get it. I'm not even really against it.

I'll try another hypothetical. Imagine Congress had come up with a plan that was 10 times as massive as this one, incredibly more reckless, benefitted nobody, and ultamitely resulted in our currency being worthless. I'm just scared that in this environment, there would be huge pressure to do it anyway, because "it's the only plan we have".

So how do we know this plan isn't that plan? Panic moves during times of economic turmoil don't really have a great track record. Congress couldn't manage a pet store efficiently. The complete and utter confidence in this bill as our "only option" just feels like one of those historical moments in time where everyone should have seen the impending disaster but didn't.

And my second fear, as I've stated, is that propping up a unsustainable system will solve nothing and make things worse without appropriate further action that Congress isn't qualified or motivated to provide. Is that really that insane a concern? Again, it's a CONCERN, not at all an argument against any government intervention.

In the most simple terms, and going beyond this particular situation, I think we're just too afraid of recessions. That doesn't mean I don't care about people suffering from a recession. Under this CONCERN (I'm not arguing this will happen specifically, I'm just revealing the thought process behind my views), we can have a year of recession and then a recovery, or we can have 5 years of stagnation in a desperate attempt to avoid the recession, then 5 years of a deeper recession.

But as for the posts I was refering to, you can start with the one I was responding to, and then your debut post in this thread:

"I can't quite believe some of the posts above. Guys, this bail-out is FOR YOU!

If you have shares, it's for you (or your shares will plummet in price). If you have a house, it's for you (or the value of your house will drop like a stone). If you have a pension plan, it's for you (your money is invested in the stock market). If you have a health scheme, and insurance scheme, it's for you (your money is invested similarly). If you have a job, it's for you (unemployment will leap up). If you run a business, it's for you (you won't be able to get money to grow your business or maybe even pay your employees). If you have debt - credit card, loan etc - this is for you (the bank could call in the debt).

Wake up, guys. This is not about rewarding or punishing the perpetrators of this, it's about saving your own skins (and mine). The credit market is frozen. There is currently no money to do anything. The banking system is close to collapse."

The assumption you're making is that anyone who has concerns about all this must not understand that the intention is to help "main street and not wall street". As I responded to you then, we get the idea behind it. Whether it works long-term is another story.

The bailout isn't the be all and end all of the solution. But it's essential that this is done and then you begin removing the cause with improved regulation.


No because these currently worthless assets will still be on the banks' books and cause concern about the health of the bank. We have had a government loan to small banks here in Australia to offset the problem caused by the leak-through of this problem through the credit system but our banks don't have these bad debts so they're sound. The loan, for small banks and non-bank home loan operators, keeps them liquid but there's no need to improve their balance sheets so the loans are sufficient.

But the American banks need to lose those assets.


Yes. I have no problem with it at all. I live in such a society. The difference is that we have greater regulation on bank lending that has avoided the bad debt problem.

I wouldn't say that the bailout will normalise the system, it could be too late. But without it there could be a major catastrophe coming. With it there'll probably still be a recession but not as deep or long.


The housing market, and the value of the assets, will return. How long I've no idea. 5 years? 10 years? I don't know. But that's why government must hold them because no commercial organisation could. There's no reason to believe they'll remain forever valueless.

But even if they go belly up, you've lost 700 billion (assuming he spends it all - he's only after 250 billion to start with).

Compare that with what will happen if the bailout doesn't take place. The stock market lost 1.2 trillion yesterday. If the banking system fails there's no knowing where the stock market will end up. certainly many trillions can be lost.

It's something of a Hobson's Choice (two unacceptable choices). But the bailout is the better of two evils.

Plus, I think news that they will try a new bill on Thursday increased hopes as well.

I believe you are right, and it may in fact end up profitable if all goes as "hoped".

I think the problem I have is whether this crisis just pops back up in a few months with the same practices being continued by the FI's and general speculation.

Just curious, what regulations does Australia have?

Yeah, this is the part of it all that scares me.

SI

I'm presuming part of the arguement against this is that the FI's where the goverment has some control (ie. owns equity) aren't likely to allow those practices any more.

The ones which remain independant will hopefully have learnt their lessons or will eventually lose equity to the goverment and thus behave afterwards.

I think the new bill is almost a certainty to go through - the politicians have now done their posturing and 'played hardball' to get the 'best deal possible for their constituents' ....

So now they can fold quietly in confidence that they'll get re-elected ;)

LOL :D

Its definitely not affected Manchester City who have caused us to have to revamp the economic model somewhat to take into account the ludicrous budgets their new owners have made available ....

PS - FMH2009 PSP now comes with a 2d match view and multiple leagues running at once (end plug ;) ).

I don't believe we're on the verge of a complete collapse of everything and their little brother. I believe a lot of this action is investors buying up companies that were incorrectly dragged down yesterday - in my mind, a smart move.

One could argue that this is because of the White House + Congress's assurances that something will be done. To that I retort: They said that yesterday, and things kept plummeting. There was a lot of collateral damage yesterday, and I believe what we're seeing now is a response to that.

Be interested to see the breakdown in trading right now between companies most directly affected and those not particularly involved.

Manchester City - blahh. kooky new owners. *shaking my head*

Hahah - nice plug!

And yes, I was kidding with my initial question.

Apologies, bit of a one-track mind at the moment.

Which was going to happen for the large majority of them regardless of what they did yesterday. Congressional re-election rates have not dipped below 60% since 1932, and not below 70% since then.

Two factors - there was easy money to be made today and sentiment is that we're getting some kind of bill this week from Congress. The Congress leaders have already said "We'll get it done this week" so the market is calmed. Hopefully they do because if they don't we'll see yesterday all over again.

Valuation of companies is not driving this market (well at least outside of financials). Fear is in control - today the fear is less because of the belief that Congress is going to get it done. Like others said, there are GREAT deals to be had if you're a long term investor. I only wish I had money to put to work here because there are legendary companies at bargain prices. But if for some reason that bill fails it all goes out the window. Fear will skyrocket and we'll go crashing down again until we either do get some intervention or until we actually hit the bottom.

I wonder how rampant this kind of stuff is (my guess is very). And I don't hear about this stuff being prosecuted very often. I wonder how many US Attorney's Offices even have specific divisions for this kind of thing.

http://www.idahostatesman.com/localn...ry/518905.html

"Federal prosecutors say the scheme involved using more than 40 "straw borrowers" to get 49 construction loans totaling $20 million. Cobos, a loan officer, allegedly helped approve the loans and in return received kickbacks. Upchurch, a building contractor, withdrew the money from the loans but didn't always build the house, court records show. The others received "finder fees" for locating the straw borrowers, prosecutors say. The FBI spent two years investigating the case"

I wonder how much the government is paying for these loans - not really a great investment.

The three SuperBanks that have been formed out of the last couple of months scare me more than anything and definitely moreso than the government nationalizing anything.

SI

Essentially that any lender has to have reserves to cover a higher percentage of the loan. I don't know the figure but it means that, if defaults take place the bank has to have in place the reserves to cover them. This makes them demand acceptable documentary proof that you can afford the mortgage.

Part of the trouble is that house price rises force up the amount needed to buy the house. We've had that for the last 10 years or so - a tripling of prices in this town in 8 years. There are two solutions to this - there are now 40 and 50 year mortgages which means you can borrow twice the capital with approximately the same monthly repayments (but for twice the time) and there is a government scheme whereby you buy half the house and the government the other half. On selling the government takes half the capital gains - though you can make extra repayments if you wish and eat into the governments half and come to own more than half the house.

Defaults are kept within the ability of the reserve to cover.

Non-bank lenders have to stick to the same rules.

But all the time care is taken to see that you have the ability to service the loan. Nothing more than that is needed.

But it's just not that simple. $700B today is great. But that also equates out to a number with trillion after it in the future in terms of how much we just borrowed to fix it.

And what's to say the immediate, apparent plan is the correct one. Not acting for a couple of weeks this year might hurt. But stupidly spending that kind of money and sinking us into years of problems would hurt much worse.

SI

So, if the government buys and holds a company and then spins a profit, selling it on the free market, does that make the action capitalist or socialist? ;)

SI

Where's that Birkemeier guy? I think I'd like to cash out my $425,000 now. I deserve it.

Good intentions are at the root of American financial crisis | Commentary

Pretty good column by syndicated writer Clarence Page, which I believe highlights the blame that policies of both the Clinton & Bush administrations deserve for a lot of the current mess. edit to add: Although I think I'd argue that trying to buy votes had as much to do with those policies as "good intentions".

hmm - i have some $$ - I actually as I have mentioned before have been pondering putting into ETF's - particularly financials. Might have to take a look at things and see if there's a place there to put it to work before Thursday, or in ordinaries.

(I'm trying to word this nicely as I think it's a point worth making and I don't want to attack you as a poster but it illustrates my point perfectly. Also, why I tried to use the literary "we" rather than "you" in the directed comments since it's all inclusive.)

I think this mentality, for all it's worth, shows why many (particularly economists but also posters) are going around shouting that the sky is falling and no one can see it. Most of us only see a few steps beyond us and no one is really good at seeing the "entire picture". Sure, we have mortgages and small businesses but the big businesses- those that really make the economy run with large employment numbers- we just have no idea.

Indeed, at a nuts and bolts level, most of us will see very little short term change whether there is a bailout or not. Our bank deposits were all FDIC insured, our 401Ks take a beating but are still there, there's no change with our mortgages except perhaps that we're paying a bank with a different name, etc.

However, what happens long term with this? If we go into a prolonged recession as a result of this, you bet there's a huge effect to all of us. How about if we suddenly create some giant banks which control so much wealth that we don't allow them to fail? What if we don't implement some regulations and this becomes a downward spiral where this happens again and again every few years? What if we introduce huge moral hazard to the markets by just handing out checks to distressed companies which helps push us into that spiral? Are we missing a giant opportunity for the country to buy up some assets, sit on them, and then pay down the debt by trillions, thus saving huge future taxes?

We really don't know anything- either the doom-and-gloomers or the free-marketers. So, yeah, it's insulting to go around and tell you that we don't know anything, I know. But to them turn around and think we have a great grasp on the situation because we see such small snippets of the economy, that's just ignorant.

In short, we don't know anything.

(But I suppose that shouldn't keep us from speculating- it's not like the "experts" are doing any better :))

SI

Who gets to play the role of Ross Perot and the little graphs on network tv?

SI

Sorry molson for the delay in answering. I had just answered all your questions in detail and then accidentally touched a key and Firefox closed down losing everything. So if I get tetchy it's not you I'm getting at :)


I would have thought Congress was the least enthusiastic about this and least likely to pull this confidence trick on you.

But the compulsion comes from the financial world and the collapse of banks, insurance companies etc. I think we can accept that these have not been created just to enforce a Congress scam.

This thing is real.


The problem is that the consequences of your scepticism are so dire that you have to take a chance. It's a bit like a burglar holding a gun to your head - you're not going to argue with him that it's not loaded are you?

As I said Bush, Senate Republicans, Senate Democrats, House Democrats and 90% of financial commentators are all telling you the same thing. That's a hell of a crowd to get together for something that isn't important. I think that you have to give them some credit some time.


It's not insane but again you're playing with fire with enormous consequences if your wrong.


If the banking system collapses you're going to get something much more severe than a recession. You have a recession already and you'll have one even if the bailout goes ahead but if it doesn't and the banking system goes belly up then you're looking at something much closer to 1929/33.

The collapse of banks and insurance companies already should warn you that this isn't hyperbole.


The first question in this post justifies exactly this post, molson : essentially 'is this a Congress beatup?" You don't believe it's real. Many contributors' objection to the bailout is that it's a bailout of Wall St - they don't want these guys to be let off the hook (incidentally precisely the attitude that led to the 1929 crash). If you know your house value will plummet, if you know your pension plan will be savaged, if you know you may lose your job then you're not nearly as dismissive of a solution as so many posts are. At least you give a possible solution a fair hearing.

But the reaction to the bailout isn't a studied analysis of it's merits, it's an antagonistic attack with little attempt to understand. There is no feeling at all that these posts indicate the poster is aware of the consequences for him.

Was it arrogant to point these things out? I think not because no post had shown anything that suggested these consequences were known to the poster.

I didn't realize the information about lending from the fed. Very interesting article.

Also, it helps to hit home with the message that a lot of money isn't frozen. It's just waiting on the sidelines to see if they can get a more favorable deal from the government.

Once again, the more and more I read about this, the more and more I just want to let the markets sort themselves out but provide the banks with an out in terms of a government vehicle buying for buying up major stakes and holding onto them to spin for a profit later.

SI

Because the consequence of doing nothing is dire, will cost you very much more and hit you personally in ways you would never wish to be hit.

The collapse of the banks and insurance companies ought to convince you that this is real. It's not a beatup by Congress or Bush. These bankrupcies are real and there are many more on the way if you do nothing. The financial system that oils the society you live in is on the point of collapse. The "It'll be right" mentality would be fatal.

As for the amount of money, note the 1.2 trillion lost on Wall St yesterday. If the banking system goes belly up that's nothing with what will be lost.

I'd always seen it as 'pragmatic capitalism', where a society is generally free market apart from when that fails the societies basic aim (which is to improve the lifestyle of its people at its core).

In England British Steel was nationalised (years ago) because it would have adversely affected its core industrial areas for it to fall because it was the main employer in them.

Once it was 'turned around' (ie. made profitable) it was put back into the marketplace again.

Its similar to the idea of the 'lender of last resort' which I've heard mentioned in America but just in a slightly different way - the goverment steps in when required to prevent a potential social disaster because of poor management of a situation by a company.

(its not hugely dissimilar to whats proposed in America presently - most people accept that the American financial institutions are generally hugely profitable even when run sensibly, so taking ownership of them makes huge sense for the goverment in the long run because (1) it prevents further economic/social problems from this crisis, (2) they can flog them for a profit later on once they're back on their feet and thats ignoring the profit which will hopefully be made during the interim time)

FWIW, I'm pretty sure I get where you're coming from & took no offense to it.
I've got no problem with acknowledging that there probably isn't a soul on this board that has a full grasp on the subject.

What I took offense to, and was trying to illustrate, is
-- the suggestion that anyone who isn't fully on board with the proposals to date just "doesn't get it"
-- More specifically, that those who aren't on board somehow "get it" less than some of the more vocal ones here who support it.

There are quite a few people in this thread who seem to have at least a roughly equal understanding of both the micro & macro economics involved (however limited that equal understanding may be), they're just reaching different conclusions about the solution, impact, etc.

This whole bailout thing seems like someone pointing a gun at your head and asking you for all your money. It is all fear-mongering to get some really bad legislation enacted.

As for 90% of financial commentators, Congress, and the President, they LOVE to lie, hasn't anyone noticed it quite yet. Why believe them about the necessity of this bailout?

If you want to spend 700 billion dollars, track down the mortgage entry points. Somewhere, somehow, one guy mails one check to one bank to pay off his mortgage. From there somehow the money gets sent to a billion places thanks to these foolish derivatives (that should not have been created in the first place).

The market pressure is coming from that mortgage being defaulted, and effectively worthless, therefore all other derived value is worthless.

Have the government buy the mortgage right there, at whatever price they determine makes sense (say 50%). Rework the deal with the dude paying the mortgage so that they pay something with interest, say at least 90% of principle plus some interest rate.

All of the derivatives need to untangle themselves and request their payments from the government. If they can not demonstrate a clear claim to a portion of the mortgage, they are worthless. The amount paid to the derivative is prorated based on the relative proportions of the original mortgage and the reworked contract.

End result, less defaults, and a mechanism for some of those 'troubled assets' to have value greater than a penny on the dollar... if they can be resolved by these supposed experts into a valid claim.

Does nothing for bank trust, if they bought shit its still shit. Will change the liquidity situation though for anything that is trackable enough... once the mortgage is reworked by the government instead of being written off at 0 it will be at some percentage, probably a fairly high one (most people don't want to lose their home).

If a person cannot refinance, the home defaults and is written off, the government auctions off the property starting bid at the price it was acquired.

So the government acquires a large percentage of the mortgage revenue or a lot of land (hopefully some of it will sell, but some will just sit on the shelf to be sold during the next boom time whenever that is). Losses will at least be estimated, instead of buying fictional contracts that will become worthless because government acquisition does not effect the consumer side default situation whatsoever, the government restores some value in a REAL economic sense. It will not bail out the worst and naughtiest banks/funds, it will help people and derivatives that are transparent enough to hold water.


Tell me how that set up is worst than buying all the worst parts of various banks balance sheets, for equity in banks that will probably go under after everyone liquidates their position during the government cash infusion? That 700 billion will be sucked straight into stabilizing big speculators recent losses and halting their margin calls until they can get their fictional assets off the books (shift them onto the companies, which they will then suddenly back out of and they will mysteriously fail, setting off another round of stock market drops... if they are smart they'll remember to set up a put option before they do it too).

repeat

Breaking news according to CNBC - FDIC is seeking authority to boost the deposit insurance limit above 100,000.

It's quite wrong to say that we know nothing. We know a great deal - particularly about what happens if you do nothing. We know that because we've been doing nothing. And what has happened? The largest banks have gone bust. Insurance companies, mortgage lenders, mortgage security companies - all going bust. We also know that financial organisations are refusing to deal with each other. We know there's a credit crunch bordering on credit freeze. This is not "nothing". This is very real information indeed.

So what happens if we do nothing? Well, much of the same. We know many of the banks have exactly the same problems as the ones that have gone bust. So why would they not fail too if we do nothing. And we know when one financial company fails it brings down another. We know how this snowballs because we've seen it before.

If we do nothing there is no reason to believe that one bank, insurance company, mortgage lender etc after another not will fail.

That's not "nothing". That's real information.

Do we know how far this will go? Of course not. It's doubtful that we will wait 4 years as they did in 1929/33 before we realise we must intervene.

So, realising that we must eventually intervene then surely it is best to do so before half the financial system has disappeared.

If we enact the bailout do we know what will happen? Not exactly. We do know that we'll remove one of the causes of the banks failures - the toxic assets that are ruining their balance sheets. That's a start because that is the original cause of the whole problem.

Will it solve the problem? We really don't know. But there's a chance which is much better than the chance if we do nothing.

Not "surely" at all actually. A certain thinning of the herd might not be the worst thing possible.


Wouldn't the creation of those toxic assets be the "original" cause of that aspect of the problem? If so, are there adequate safeguards in place to prevent a bailed out lender from repeating the same mistakes again? For that matter, are there adequate safeguards in place to prevent the new government interest holders from repeating the same mistakes again?

And those are just quickie questions without adequate answers for starters.

Random question.

You know how they have guest people (like the executive board of companies that went public that day, or celebrities/dignataries who are visiting NYC) to ring the bell at the end of the day at the NYSE and it is a nice photo-op and feel-good moment for them?

Do they do that on the days when the markets lose 5+% of value? I mean, if you are in NY to ring the bell, it seems like a waste to not do it.

They noted on the radio yesterday that there was only one person ringing the bill at the end of trading. They joked that all of his friends likely were already at the bars crying in their beers.

Questions.

Can you thin the herd (moreso than already has been done) without bringing down the entire system? If so, how do you essentially choose which banks survive? Aren't JP Morgan, Bank of America, Citigroup and Wells Fargo essentially too big to fail? (WF is a very well run bank though so they shouldn't fail anyway) What about all the regional banks that are in trouble? What happens there?

How long do you feel it would take to create adequate safeguards to prevent these things from happening? Can it be done in a few days time? The market is impatient and wants a solution yesterday - how do you pacify the market to stop the bleeding while working out the ideal solution?

Don't know. Don't know that it happen couldn't either.




Careful not to overstate what I'm looking for there, specifically the word "ideal". I don't believe at any point I mentioned shooting for that lofty goal, I've tried to stick to more reasonable aims such as "adequate". Let 'em hit that threshold at least, then I'll worry about improving the plan toward ideal (meaning that among the changes I strongly favor was a phased plan rather than a lump sum up front payoff).

God, how much would I love that written into this bill is that any money actually "made" of this deal could only go to help pay off the national debt.

It sure sounds like a whole lot of "somethings" brought us here today:

RealClearMarkets - Articles - In Times of Crisis, Trust Capitalism

"somethings" can be good, "somethings" can be bad.

You (and most) haven't even conceded that it's possible for Congress to make this worse. It doesn't matter what they throw out. Imagine that environment - congressman knowing that they HAVE to do ANYTHING, and anything is perfectly enough. Horryfying.

Since were talking market here - did anyone who watches it see something crazy happen with Google at the end of the day? The price on my screen just started jumping all over the place - it showed as low as the 200s and appears to have closed at 341.43 - down over 10% - yet in after hours it seems to be back over 400 a share. Anyone else see that and if so any explanations for it?

It's scary- after being inundated for nearly a week with all of this information and taking a crash course in national and global economics with the rest of everyone here. This bailout seems like a horrible idea from a free market perspective.

And that's from someone who is "socialist" enough to let the government buy out the bad banks or nationalize stuff, if it were my call. Either let the government assume the risk and reward for all of it or let the free market sort it all out. The middle ground once again introduces huge amounts of moral hazard and just opens us up for this happening again.

While the free market people out there saying how great their system is- this isn't a victory for them. Unbridled capitalism got us into this mess because anytime you don't make a rule explicitly outlawing something, people will abuse rules to make a buck. That's why we're here. The free market doesn't give two whits about the good of the people, it just serves those who put money as their only priority in life. That's horrible for a society.



Onto the big tangent, tho: If I were dictator for a day, here would be my plan. Warning- I'm pretty sure most of this isn't feasable and borders on crazy as I'm mostly blue skying, but it's what I would go with off the top of my head as suggestions to look into the advantages and disadvantages of each.

Any bank who wants it gets nationalized and their CEO's and boards slapped for the American people's pound of flesh. Any bank who doesn't, gets to go play on the open market because no bailout is coming and there is no middle ground to continually artificially inflate the values. Don't like those assets? There's a market for them, they're all just waiting on the sideline to see what the government will pay. Similarly, the sellers want a higher value rather than having to let the market buy them at a cut rate.

Once they get back on their feet, these banks are sold back to the market and those profits go right back to paying off the national debt: not into the current year's budget, not into some fund, right back towards paying off the debt.

But along with this- new regulation *must be passed at the same time as part of a comprehensive bill*. Bye bye, ridiculous financial vehicles: what you buy is what you get. None of this buying up bundles of weird debt. Capital gains tax cut? No way- that's just a joke. Change leverage rules so they can't extend themselves out 30:1. That's an insane ratio.

I'd love to put in a CEO reform bundle, too, but I'm sure there is no way any of this is feasible. You can only make something like 15x your lowest employee or 10x your average- some sort of more fair multiplier. I don't know the number but the idea is there- your wages are tied to worker wages *and* that includes all of your oursources overseas partners. So you just shipped out 10000 jobs to China for $1 a day, that's going to drag your pay down You want more money, pay your people more. Not only that, but you don't get odd compensation like stock options- you want stock as part of your pay, you get it like the rest of us, as stock, at the price you bought it. The problem with the theory of tying CEO pay to 5 years like everyone is now suggesting is that you can cook the books for 5 years just as easy as you can for 1. I bet every company magically has an "accounting adjustment" just as soon as those 5 years are up and the CEO is paid.

This would just be a start. There are a couple of other good ideas that have come out of this which just are not coming to mind at the moment but there's my crazy plan. Really, is it any worse than "give $700B to a former Wall Street crony so he can buy up worthless assets from his old buddies to bail them out from awful, short-sighted decisions"?

SI

GOOG: Summary for GOOGLE - Yahoo! Finance

What the hell- I just looked at their chart for today. From 9:30 until 3:50, everything was just fine, somewhere between 390 and 420- but pretty much steady all day.

3:55 413 19K shares (roughly normal price and volume all day)
3:56 470 379K
3:57 249 1444K
3:58 401 226K
3:59 341 2673K (close)

No idea... WTF

SI

I actually own some google and shat myself. I think someone dumped a ton of shares at mkt and the stop limit spikes grabbed them, perhaps. unless they were mis-trades or erroneous. Kind of freaky though and after listening to how hedge funds may need to liquidate in the next few weeks to meet calls and withdrawals, its kind of scary.

Bolded for emphasis, as this is the fear that I have right now...even more than a consolidation of FI's(which I find to be the most likely if nothing happens...not complete armageddon).

Similar to the article JiMG linked to earlier stated...it seems too many "well intentioned" people are trying to fix things...and most of them should worry about their "actual" jobs(i.e. Bernanke should focus on keeping the dollar stable and high, Congress should be debating sound policy, etc.).

Sounds cliche...but I would rather measure twice and cut once...rather than hack the entire thing up doing "something".

CNBC reporting 'Erroneous trades' in GOOG but what exactly does that mean?

Someone fucked up big time.. the example I see elsewhere is "Someone fell asleep with their finger on the Sell Button"

Considering the stock is back up to $408 in after hours trading, I bet someone dumped shares that really didn't want to.


Ooooohhhh.. I see what happened. Someone DID fuck up big time. They entered the wrong value for a bunch of share trades, bunch of sales were recorded as shares being sold for 1 cent and 2 cents. (Considering the stock is at $400, that's obviously wrong). Wow.

So, everybody in the DJIA went up today, except for Caterpillar which went down 0.29. Citigroup, Morgan Chase, and Bank of America had big gains.

Even WaMu made a big gain (by percentage).

It is nice to know that bargain hunters are not convinced enough that we are facing imminent disaster to stay out of the market. Since credit is so hard to get, apparently, this must have been a play by those who actually have cash on hand and will then, presumably, still be standing when all the borrowers crash and burn.

Add Lou Dobbs to the list of those that apparently "don't get it"

Lou Dobbs: Hooray for those who defeated bailout - CNN.com

to reiterate that the markets (equities) are a tiny sliver of the picture. I dont know how many times I have to say it.

The rally occurred on the hopes of a bill Thurs/Fri and the SEC talking about a valuation change in their accounting rules for Lev. 3 assets. That was fuel to the fire.

The rally doesnt change anything and the selloff yesterday wasn't fully representative either. You have to take the info and bundle it with a ton of other info, that ive listed a ton of times already in this thread so there's no point in banging my head against the wall anymore and I want to say, again, I PRAY you are right.

Molson, hilarious that a GOP champion would side with Dobbs. LOL

Wait....How do you sell something for 1 cent when the market values it about $400, or whatever it was trading at the time.

Update on Google:

* Pursuant to Rule 11890(b) NASDAQ, on its own motion, has determined to cancel all trades in security Google Inc Cl - A "GOOG" at or above $425.29 and at or below $400.52 that were executed in NASDAQ between 15:57:00 and 16:02:00 ET. In addition, NASDAQ will be adjusting the NASDAQ Official Closing Cross (NOCP)and all trades executed in the cross to $400.52. This decision cannot be appealed. MarketWatch has coordinated this decision to break trades with other UTP Exchanges. NASDAQ will be canceling trades on the participant’s behalf.

Well, Dobbs is in favor of doing "something", you I figured you and Mac would agree with him.

"Dobbs: Well, the first thing we need to do is return to a traditional role of regulation. ... The problem here is not simply the housing market. ... But $700 billion and nothing in that bill deals with the foreclosure crisis, if you can imagine that. That's arrogance. That's stupidity. That is your leadership in Washington, D.C. Democratic leadership in Congress and Republican leadership in the White House.

So that's an absurdity. The first thing that has to be dealt with is mitigating the foreclosure crisis, period. Secondly, in terms of instilling confidence in the banking system and in our credit markets, the first thing to do is to deal with those institutions that are wildly out of balance, whose balance sheets, frankly, are a joke. And the regulators who should have been tending to them over the years are also a joke.

It's time to end the joke. That means aggressive regulation. It means aggressive intervention on an institution-by-institution basis."

Apparently someone fatfingered entering the trade into the NASDAQ tracker.. only thing I can think of...

I keep hearing about these other options. I have not heard of what they are, expect little things such as the FDIC providing higher rates (which will help, but it doesn't solve the problem). The problem with regulation, is it's too late. It doesn't solve anything right now. We need it, of course, but it doesn't fix the current problem.

What's done is done. Many seem to think that you should take the hit, address the underlying issues and then look forward, rather than delay that hit with an expansive bandaid.

DEAR AMERICAN:

I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH A TRANSFER OF FUNDS OF GREAT MAGNITUDE.

I AM MINISTRY OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800 BILLION DOLLARS US. IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT WOULD BE MOST PROFITABLE TO YOU.

I AM WORKING WITH MR. PHIL GRAM, LOBBYIST FOR UBS, WHO WILL BE MY REPLACEMENT AS MINISTRY OF THE TREASURY IN JANUARY. AS A SENATOR, YOU MAY KNOW HIM AS THE LEADER OF THE AMERICAN BANKING DEREGULATION MOVEMENT IN THE 1990S. THIS TRANSACTIN IS 100% SAFE.

THIS IS A MATTER OF GREAT URGENCY. WE NEED A BLANK CHECK. WE NEED THE FUNDS AS QUICKLY AS POSSIBLE. WE CANNOT DIRECTLY TRANSFER THESE FUNDS IN THE NAMES OF OUR CLOSE FRIENDS BECAUSE WE ARE CONSTANTLY UNDER SURVEILLANCE. MY FAMILY LAWYER ADVISED ME THAT I SHOULD LOOK FOR A RELIABLE AND TRUSTWORTHY PERSON WHO WILL ACT AS A NEXT OF KIN SO THE FUNDS CAN BE TRANSFERRED.

PLEASE REPLY WITH ALL OF YOUR BANK ACCOUNT, IRA AND COLLEGE FUND ACCOUNT NUMBERS AND THOSE OF YOUR CHILDREN AND GRANDCHILDREN TO [email protected] SO THAT WE MAY TRANSFER YOUR COMMISSION FOR THIS TRANSACTION. AFTER I RECEIVE THAT INFORMATION, I WILL RESPOND WITH DETAILED INFORMATION ABOUT SAFEGUARDS THAT WILL BE USED TO PROTECT THE FUNDS.

YOURS FAITHFULLY MINISTER OF TREASURY PAULSON

bingo, whether or not you agree with Lou or not is not the issue. shit, we may both agree but that doesnt change the fact that, IMO, we have to avoid the train in the next few days and weeks.

lol

This whole situation reaks of manipulation, fraud, and criminal activity. All I know is, I'm willing to lose my life savings to see some of these clowns that are running the Federal Reserve put in jail....

Cox from the SEC, too. The shit going down in the penny markets right now, under his watch, is flat out amazing.

Yes, it was a fantastic day for the market. People who had cash on the sidelines or had cash from bailing before the end yesterday or have margin available had the opportunity to put it to work today because the market sentiment was positive. People who did put their cash to work early today had large gains and with the renewed hope for the congressional bill this week as well as some of the other stuff I talked about like upping the FDIC insurance and changing mark to market rules possibly coming into play the overall mood of the market has gone from doom and gloom to hopeful.

But if say the bill does not get passed those same bargain hunters will do a complete 180, sell and take those easy gains and we'll be headed back down almost assuredly lower than where we started today.

I HOPE yesterday was the bottom. I don't want to see the fallout of anything worse than that. Congress seems to have bought themselves a couple of days to get something better on the table. Something that more people on main street either understand or are willing to support. Things look hopeful - they're not stable but there is hope. We need stable and I really think that right now everything hinges on Congress. Hopefully for once they can stop playing politics and actually work together to get something done to give stability to the financial system and allow for the proper time to figure out just how we're going to fix the underlying problems that will exist whether there is a bailout or not.

Do we positively know that there's ZERO credit for anyone right now, or it possible that premise is being overstated just a tad?

I was worried we weren't going to see Chicken Little today...until he showed up at 2:54 MST. :)

I never said there's zero credit right now - things are what they are right now. Credit is getting tighter and more expensive and the banks don't seem to be willing to lend to each other - I don't know what its like on an individual level at the moment for getting cars or houses but I'm sure credit is available right now. I don't think its a time for panic or despair but I do think that some people really are not concerned enough about what potentially could happen to the world's economy if our financial system goes in the tank. That's not a "correction" - that's a global disaster.

If our financial system collapses will credit be available? I doubt much will be available then but that's the whole point here - we can't get to that point. IF that happens that's when the trouble is going to be very real and very serious. I just don't want to see that point but I think it would be possible if we don't get the intervention soon. Today was a great day - we had a great gain in the market and we've got the hope that a number of things will come in play by the end of the week to provide support for our financial system. We have hope, we have confidence, we feel better today about our portfolios than we did yesterday. What we don't have yet is stability - once we get that hopefully things will be fine and our lawmakers will have a chance to take a good look at how we got to this point and take steps to make sure it never happens again.

gary, you should delete the word confidence....until a bill is passed thats one very important thing missing.

I guess I should clarify - I mean confidence in the bill being passed as opposed to the overall market. I think that exists as of this moment - I don't think we get a 500 point rebound today if we're not pretty confident that this bill is going to be passed this week. Its also why I think if it doesn't pass we'll get slaughtered again. Maybe I'm wrong though on that - at least I'm pretty confident at this point that a bill is going to get passed.

Tech Stocks Bounce Back Sort of | Epicenter from Wired.com

Just a couple of points from it:


the market believes that Congress will pass the bill and I think that's right but they're still wary. If the bill is passed the market will continue reacting to financial news as before until the effectiveness of the package can be assessed or hit by some major event. But if it isn't, Monday's fall will look like a day at the beach by comparison with the bloodletting we'll get.

A couple of quotes from tv this morning:

You know it is funny. It was too early for any sort of regulation before we got into this mess. Now that we are in the mess, it is too late for regulation. And after the bailout/investment plan/ whatever is the proper term is, it will not be the proper time for regulation then either.


Sidenote: If I can get one JUST one person in authority to stand up and say "I know I said everything was in good shape but I was wrong and I had a part in fucking up the whole situation", I would vote for a trillion dollar plan"


Accountability: What happened to it?:banghead:

Newt Gingrich, who ranted against the plan five days ago, said on O'Reilly to explain his switch to support for the bailout plan:


Of course you guys are going to jump on the "bad legislation" but the fact that Gingrich sees it as that only emphasises the importance of immediate action. That Gingrich sees all government intervention as "bad" puts it in context and his support for a bill that goes against everything he's ever believed in in his political career could not be a greater justification for action now.

This is a committed, right-wing politician who was totally against the bailout but has talked to those who understand the consequences of doing nothing and, though he dislikes the bill intensely, has realised that it is essential to pass it.

The Aussie market is up 3%.

From Sons of Steve Garvey...

:popcorn: :) :lol: :D

In a discussion with an economics journalist who expressed doubt that the "folks" were on board with the bailout yet, O'Reilly said "People are now wired into this".

So I sent him the url of this thread ;)

I missed this before...

When you short a stock, you sell it today and promise to buy it back at some unknown price in the future. When the market tanks like it did the other day, the closing out of short positions are the equivalent of BUYING stocks. Buying stocks make the price go up. If there aren't any buyers then the prices continue to fall.

If you short a stock and the price goes up, then you lose. If everyone is shorting a stock, it means that stock is a piece of trash. And wouldn't you want to know that before you invest in it?

Had short selling been fully allowed, your 401k wouldn't have lost as much as it did.

The changing of accounting rules is probably going to be even worse than the bailout, in terms of the unintended consequences that may come back and bite us in the ass later. No big deal, I suppose, since most people seem to be wailing for a quick-fix band aid type short-term solution to this, instead of one that attempts to prevent this from happening again.

My understanding of the proposed accounting change means we'll be staring at Enron 2.0 in the not too distant future (in terms of the accounting fraud involved).

No one is saying that the bailout is the be all and end all of the fix. The bailout is meant to bring things back under control and the regulatory changes needed to prevent this happening again should then be applied. It's too late to fix things with the regalatory changes alone now.

The problem I still have is that we waited this long to fix the problem, and now we have a real crisis to avert...we're going to pass some really bad legislation...and then after we pass it congress will break for election season and then we'll be onto some other topic while this bad legislation manifests itself for another 3 years and cripples us again because (as Tekneek pointed out), there is never a good time to fix anything.

I am not full of solutions...but this sounds like that commercial (cant recall the company now)..."Are you proposing we throw money at the problem?"

I still believe the mechanics to fix this lies in government credits...not government buying bad debt and reselling it. If banks own property(or at least the rights to sell the property), then they would also benefit from seller credits...as would struggling homeowners. EDIT: I understand this isnt just a real estate problem any more.

A couple of honest questions for those who are on board(or those who are not FTM) with this bailout as I have a hard time answering these for myself.
1) Who is going to buy this bad debt back from the government?
2) Why would somebody buy it?
3) Why do you believe that these debts will increase in value?
4) Do you believe Paulson(or the next Treasury Sec) will be capable of weeding out the inevitable fraud that the FI's will be trying to pass on to them? Or do you believe the FI's books are completely accurate and transparent?

1) Banks and other financial institutions will buy the mortgages back from the government in time, because the underlying assets (real estate) has value. It's not as if all land/houses will suddenly become worthless. Given it will take time to cleanse the balance sheets and recapitalize, and the financial institutions will no doubt demand (in a positive step) that it is more clear what they are buying, but they will buy it back.
2) See #1. Because housing and real estate cannot simply become worthless.
3) I don't believe the debts will increase in value to the point where it covers the bailout at all. And frankly I think anyone who truly believes that is scarily delusional, which is why I think we need equity in the financial institutinos whose crap-assets we take, so that when those financial institutions balance sheets are clear and their stock price begins to recover the government can sell those shares of stock and make some more of the money back.

Or as I saw (expressed much less tastefully) on another board:

"In 12 months, Paulson's going to say, 'hey, thanks for the $700 billion, now I need another $1.5 trillion or you're all going to die of AIDS".

You just don't get what the other side is saying at all.

(I just wanted to see what it felt like to say that. I feel all smug).

I agree with you - where was Congress a year ago when it was becoming increasingly clear that there was going to be a problem? Problem is we're on the edge of the cliff now - some kind of legislation - good or bad - buys the time to attempt to fix the problem. Now if Congress still can't figure out how to fix the problem you and some others are right - all we're doing is delaying the crisis. But I would rather delay the problem and have a shot at fixing it rather than just roll the dice and see how bad it could get. Living through a depression was never on my to do list in life.

Factoring in taxes, any property can in fact have a negative value.

The answers to Steve's questions are No one(short term), No one, they won't and no.

Maybe not worthless...but potentially worth less than what the government buys into it?


Similar to #1, if they have still not hit bottom...then will the derivitives not be worth less as well? Why not let the FI's get rid of the properties and offer them credits, while also increasing their borrowing amount temporarily?


I agree with this, and hope this actually works, if passed.

No matter what happens now it's a huge roll of the dice.

I see it as risking a depression to get out of a recession, but we'll see how it goes down.

I wish I had a world simulator that could quickly try out a bunch of different options, and sim out the results over 20 years. Maybe I'll build one in my garage.

That's my biggest fear (not quite in those words, tho).

"Hey, guys, thanks for the ill-conceived and hastily thrown together bad plan. But I've made a bigger mess of things so we'll need even more to dig ourselves out"

SI