However, this may improve consumer confidence in the short term so that people will be willing to spend a little more. no one knows the ramifications yet and it hasnt even been fully explored yet.

Just chiming in from a community bank standpoint for something to think about. Right now we are sweating a bit, but not because of mortgages or anything like that (we are part of the vast majority that didn't go crazy lending to sub-prime customers). The buzz in our industry today is about the guarantee on mutual funds. If the government decides to rush in and back these without structuring it in a similar way to FDIC coverage (fees paid by the mutual fund industry to participate, $100K limit, etc) then we are worried that a bunch of our liquid holdings will rush to mutual funds. In the past, the mutual funds can pay a higher rate than CD's and the like due to not having to pay fees for non-existant insurance which is one of the main reasons why people invested in CD's and bank money markets. The customer sacrificed rate earnings for the insurance coverage.

If the government just comes in and backs the mutual funds without putting it on a level playing field with FDIC coverage, what will most customers do? They will do the same thing I would. Higher interest rate AND a government guarantee...sign me up. There is concern that if that happens we will have a vast exodus of our liquid accounts which would not be a good thing at all.

Anyway, just some food for thought from the community banking industry. This will really help the mutual fund industry, but it could really hurt the banks that haven't done anything wrong if it is not structured correctly. I won't go into the taxpayer repercussions of all of this, it has already been well stated earlier. This is just a reminder that other industries could be affected by these bailouts and plans in a negative way in addition to our personal pocketbooks.

being in the mutual fund industry, yesterday was hectic for me (thankfully i had scheduled today as a day off), having to reassure our shareholders that our money markets were still sound and that we haven't ever allowed our MMs to break the dollar in our history. i was able to stop the bleeding on the shareholders i came across. now with the government stepping in, backing mutual fund MMs (i don't know to what extent, i haven't analyzed this too much on my day off to decipher what's in the fine print due to the ramifications for making bank MM irrelevant) things should be easy when i come back to work, or at the worst more manageable.

LOL. Indeed.


Ms.Path and I decided last night not to buy each other Xmas presents this year and to try and make some food gifts for relatives, etc. Our spending is and will be way down for awhile.

For all the financials folks in this community:

What does this mean for our 'free markets' and our concept of capitalism? Can we ever claim to be 'free' again (in the near future)? It seems that when it came to upholding the principle, we caved.

what we have right now, currently in place, is becoming eerily similar to China's economy. yeah, they're communist over there, but they sure are loving all the spoils of capitalism, so instead of being 100% state run the businesses are expanding while the state is still in the picture but now in the background. america has an ever-increasing state involvement, china has an ever-decreasing state involvement, and when all is said and done and the dust has settled i think you'll find our economies wind up looking much too similar.

here's a quote that backs up what i was saying re: china's government taking a lesser and lesser role in their economy:

the end of the Laissez-faire approach will soon be upon us.

Good point. China will certainly play this mess to their favor and tell her citizens that their current method, pace etc is better.

The people that make the rules took care of themselves. Principles be damned. Flounder's quote is the best summary of all this I've seen.

What's worse is of the trillions of dollars being thrown around and committed to these failing companies, none of it will ever make its way back to taxpayers. And the same people who caused this mess are the ones deciding how we're going to get out if it.

USA United Socialists of America

OK, let's stop being socratic for a moment and lay our cards on the table.

I think we both agree mortgage lenders lowering standards and greedy/ignorant people taking on mortgages they couldn't afford were the base root of the problem. I also believe Greenspan is partially to blame for the reasons I stated in my previous post. I don't believe Bush (or Clinton/Obama/McCain/etc) is smart enough to understand what's going on, shouldn't be looked to for leadership and can only be blamed insofar as appointing the wrong people to run the financial arms. I think in hindsight (well, not really hindsight yet) there were some moves Paulson could have done slightly differently, but it certainly wasn't obvious at the time, and the main fundamentals of a disaster were in place and couldn't be worked around regardless what was done in the last 2 years Paulson has been there.

You have blamed Paulson and Bernanke for the crisis, then in seperate posts absolved/disagreed with others who put blame on Greenspan and Bush. Plus explicitly said more blame should be on Paulson than Greenspan. On the Treasury part, this is pretty much my exact argument. Greenspan was responsible for events being set in motion that could not have been mitigated the past 2 years regardless what was done. (For example, I know I've seen the numbers on Fannie Mae/Freddie Mac approaching insolvency as early as 2003/4 and I think I may have even posted on it, but I can't find it here.)

What I (and I believe ISiddiqui) want to know is A) what you would have had Paulson do differently the past two years and B) how these mistakes contributed more to the problem than Greenspan's.I can't deny that the overwhelming narrative will probably go down this route, I just want to point out how silly it is. For starters, the Chinese government (and really, everybody) has no idea how fast the Chinese economy is growing - it's largely guesswork internally even before political considerations and corruption are taken into effect. Next, the Chinese banks and economy have vastly higher number of NPL's, possibly an order of magnitude higher. Lastly, the Chinese government has kept their currency artificially low for years, which undoubtedly makes it easier when they need to print money and bail out the banks, but clearly isn't something the world's currency can do, let alone would make sense to do. Finally, the main reason for the Chinese economic boom is cheap, borderline slave, labor, and when that gets tried in the US people call foul (rightfully so).

John Maynard Keynes ftw?

I don't really understand the negativity about the actions - as I understand it yes the American Goverment is taking an active role in things, however also as I understand it they are expecting to get any money invested back and most likely with profit.

As such they are stepping into the breech where the capitalist economy is failing - the failure is one of trust and faith and only an institution such as a major goverment can breech this gap. Why is this - because in a capitalist economy everyone looks out solely for themselves and is always trying to invest wisely for maximum profits, it didn't make sense for a private company to risk themselves in this way - however the goverment is looking out for the American people and wants to unfreeze the financial system so is willing to stump up the cash.

I actually think this is going to be seen in history as a wise move, doing this will hopefully give some stability to the markets - allowing financial companies some breathing space to restructure/merge without ludicrous pressure and thus help the economy get back onto its feet in the long term.

PS - Personally I think there are various areas of business which make NO sense to be run privately because of either the physical risk to a society (Nuclear Power stations etc.) or because they're natural monopolies (ie. Electricity companies etc.).
In such circumstances it'd make sense for them to be ran by the goverment who can provide a fair service at a profit (which then subsidises what the goverment needs from taxes etc.) and avoid the risk of a company failure impairing society.
Natural monopoly - Wikipedia, the free encyclopedia
(basically I preferred the set up economically of England pre-Maggie Thatcher)

I agree 100%.

I agree. Other than possibly appointing the wrong people, Bush is relatively blameless in this mess.

Yes, I stand by this with the clarification that 'more blame' should be placed on Paulson and Bernanke, not that Bush/Greenspan should be absolved of all blame.

I don't know, maybe implement the RTC plan earlier? I am not an economist nor a financial person but my reasoning follows below.

Your position is A caused Z, and there is nothing inbetween that could have mitigated it. I disagree with this. I cannot think of any situation that could not be mitigated to some extent.

My position is A, B, C caused Z, but there were many steps inbetween D-Y that could have mitigated the situation and maybe caused a small z. Mitigation = lessen, not prevent.

Again, don't claim to be an economist or a financial person but as a consultant who is used to dealing with issues and resolving them (obviously at a much smaller scale), I cannot absolve Paulson and Bernanke who was on watch between M-Y when the issue came to a head.

1. I see (or should have seen) problem coming.
2. I am empowered but what I do is ineffective to either eliminate or mitigate.
3. I am accountable for the problem

I agree also for the most part. Nothing else seemed to be working.

Welcome to Socialism!

In the sense that's who politicians will be looking to, yes. In the sense that Free-Market principles of the Friedman variety failed, no. Free market principles are predicated on there being risk and occasional backsliding, but with the acknowledgment that the short-term pain is made up for by long run gain. For example, if the economy tripled from 100d to 300d in the last 20 years, then backslides to 250d based off the creative destruction phase, that's still a gain of 150% over 20 years, a phenomenal growth rate. Just because politicians and laymen are pussies looking only at short-term solutions who can't predict or accept the inevitable temporary downturns doesn't refute the original free-market ideas.

Now, there's clearly a debate between generally Keynesian vs. Freidman-esque economic theory, but even if it could be unquestionably proven Friedman-style economics were better long-term, advocating Keynesian policy would still be a winning political strategy because most people value stability over long-term gain.Not quite. My position is Greenspan was there for steps A thru T, Snow in there for U, and Paulson for V-Y leading to Z. Paulson clearly could have mitigated the situation*, but I fail to see how a plurality of blame falls on his shoulders compared to Greenspan's.

*(You're also taking the odd position that Paulson's moves haven't mitigated the problem. Since no one really knows how bad this could have gotten, and the consensus is much, much, worse, up to a collapse of major banks in the US and a run on US currency, we clearly haven't ended up with a worse-case scenario.)OK, let's install you as CEO of a bank with $200b in assets and $100b in bad loans due in a month. You can see it coming, you are empowered to act and it comes due on your watch. Are you really accountable for the problem? No, you're not.

Or because this is a football forum, Washington fires Ty Willingham and hires you. You've got a game with USC coming up in a month. Bottom line, you're gonna get smoked, but you're not accountable. If you lose 98-0, you are accountable for the extra 49 points scored, but to bring it back full circle, what has Paulson done to exacerbate the crisis?

We're not out of the woods yet, however. Next week will be key along with the temporary suspension rule on short selling expiration on ~oct 2.

That rule is overblown. If you want to ban naked short-selling, fine, otherwise it's a boogeyman.

lol

I dont think so and think it contributed to quite a bit of the upside today with options expiration and the rule. When it goes away youre going to see if we have a true floor. Im hopeful but nervous. You should hear the words being thrown about about how close we were to 'armageddon'.

Okay. We'll differ on the allocation of A-Z.

I agree we have not hit the worse case as that would have been a global depression and your point is valid 'how do we know Paulson's moves haven't mitigated the problem'. My counter is we know that Paulson's moves hadn't mitigated the problem -enough- as it was still spiralling out of control (as of last Wed).


You have me here as I am not familiar enough with running a corporation to be able to answer what a competant ceo should have done to mitigate the issue. Any attempted answer to this point could not be backedup by me. So I would answer in this way:

When did Paulson and Bernanke raise the red flag of imminent danger? Did they do their due diligence and tell congress, the public or did this situation catch them unware?

Why did Paulson and/or Bernanke -seemingly- not have a clear strategy or clearly express how they would deal with the issue? I use seemingly because I am sure they thought they did, but to the public perception they did not as their policies seem inconsistent.

Sorry, not willing to discuss WA because I cannot talk intelligently about their players, coach, program etc.. However, lets talk AR who did get smoked by USC two years in a row.

If I was brought in to replace Nutt and I had one month to prepare for USC and got smoked 98-0, I am -definitely- accountable. I don't see why not.

What has Paulson done to exacerbate the crises? Don't know. However I do know this is his/Bernanke's watch and they have not seemingly done anything as of last Wed to mitigate the problem -enough-.

You got me and my mea culpa. See the Middle East thread for another .. although I am optimistic about the new Israeli Golda Meir !

Just wondering if you guys are nationally-chartered.

I'd be tempted to wager they'll use the 30-day extension on that.

Now, hmmmmm, let's see.......what's happening 33 days after Oct 2? ;) :popcorn:

I hope so because I think we can have nice little rally here and our best friend right now is time.

apparently the bill is only 3 pages long :) Just shows that the idiots up in Washington can actually do something efficiently once in a while.

Mark Cuban has an interesting view on the problem:

Stock Market Meltdowns - Why they will happen again and again and again « blog maverick

(BTW, his most recent two posts on defending Josh Howard is a good read).

What would you propose in regulation to help make companies more transparent and able to restore our banking and lending (as well as public companies in general) markets?

I call BS. Maybe the preamble of whereas and therefore is only 3 pages long. :)

I think the debate is whether anything tangible could have been done to repair efforts at the point where someone came into power.

The blunt equivalent of this would be - if you were the pilot on a plane where the controls had failed ... would it be your fault if the plane crashed?

IMHO someone can only be held responsible for something which is either the consequence of their actions or something which their actions could have directly affected.

Its also in my opinion impossible to judge the actions of the people in charge presently; history might find out more about their opinions and actions however at present a lot of what has been said by them is required posturing in an attempt to calm panic.

It is a well known problem that peoples opinions in economics can cause reality - that is if investors believe a company is going to tank then they will pull out from it, often causing it to lose stability and tank.

As such it would be considered irresponsible of people in power to potentially cause a crisis by shouting concern at the beginning of one, instead they're more likely to work quietly in the background trying to work out ramifacations and solutions - while publicly trying to slow things down by putting on a brave face.

(incidentally anyone else following the 'ratings' arguements going on at the moment - where downgrades on certain companies are causing problems and the companies involved are arguing that without the downgrades they'd be stable ... I actually think there is a LOT to answer for by the ratings companies, how they could downgrade anyone during this week with the volitile nature of the market and changing landscape of the financial scene seems incredible and somewhat irresponsible to me)

in one of the financial talking heads shows that's on in the background where i work, someone mentioned that instead of rewarding CEOs for one-year performance figures, we take a long-term view of their accomplishments (like 5 year avg) in determining their bonus structure. logic being you eliminate the short-sighted, "quick buck" approach they've taken in the past and reward long term soundness. i agree with that.

i also say that if AIG, the world's largest insurer, was too large to allow to fail, it should be run by our government. this goes against my "small government" leanings, but some things need to be taken out of the hands of for-profit management. i don't think it's necessary to have an organization that is too important in the hands of private citizens. apparently my taxes are going towards propping up this failed company, might was well make it a matter of public domain now where we have a say in its operations through the voice of our elected officials. if the finger that's filling in the hole in the damn is too important to risk failing, take it out of the hands of the Dutch boy and let the government be involved with keeping the damn from breaking through. once things reach a certain point some things are just too crucial to keep in the hands of private corporations. so what does this mean? either cap how much assets a corporation can take on, and once that cap is exceeded you need to break the corporation up into separate companies, or you just allow the government to operate certain industries in our ecomony (insurance, healthcare, to name a very few).

When you put the analogy that way, sure, no the pilot is not a fault.

I think a more accurate analogy is I am the pilot of a 757 that took off from point A to Z, somewhere along the flight route (lets say M), an engine lost power. At this time, I am responsible and safety of my passengers. I can either mitigate the situation (ex. emergency landing, calm reassuring tone over the intercom etc.) or possible make it worse (ex. continue to fly on, don't inform the passengers even though they know something is wrong).

I think where we may differ is the degree of responsibility. The pilot certainly did not have -full- responsibility of the issue, however he definitely shares responsibility on how he handles (or doesn't) the situation.

I agree. Paulson may pull off the RTC-like and resolve the crises and my opinion of him will certainly change more to favorable if that happens.

(Haven't read who led the charge on this solution, was it Bernanke, Paulson or someone from Congress?)

I agree, self fufilling prophecy happens. I don't disagree shouting and panicking in a crises will do more bad than good (ex. my pilot informing passengers in a calm voice when they know an engine is out). My 2 questions from above don't go to that extreme.


Help me understand your pov. Are you in agreement with others that this was inevitable due to Greenspan's actions during his terms and that Paulson/Bernanke could not do anything to mitigate the situation for the better (as of last Wed?).

Not sure if I completely agree with this. While banks levering up balance sheets has certainly contributed to their failure, I think you can, to a large extent, separate derivatives from subprime.

Structured products (different from derivatives) have certainly spread the subprime crisis out over a much, much wider swath of banks, companies and investors, but the causes of the subprime crisis go back some time and are caused by the perfect storm of declining housing prices coupled with less real income for borrowers leading to more foreclosures and less return on mortgages. As the mortgages became illiquid (no one wants to trade a non-performing asset), they began to take up more and more space on bank balance sheets. We've seen a major, major liquidity crisis in the last 15 months as a result.

And that's when you bring in off balance sheet derivatives, and you don't have a clear picture of how stable a bank is because you don't necessarily know what their derivative book is. In an ideal situation (for the bank) they will have paired off most of these derivatives, so the net is minimal. We've seen though in the case of both Bear and Lehman (1) it takes a while to sort that out and (2) banks likely don't net as well as they would like.

With regard to (1), ISDA opened up a special trading session last Sunday to allow folks who faced Lehman on trades to find a netting partner and agree to face one another on matching trades. While helpful, that probably only affected other large sell side banks. Most of the buy side firms who face Lehman didn't participate. So, this week, you've had people terminating thousands upon thousands of open trades with Lehman. The working through of who owes what is going to take quite a while.

Now, (2) has likely contributed to the failure of these banks (along with the sizeable balance sheet taken up with illiquid real estate assets), but because of the difficulty in figuring out who owes what, it's hard to exactly tell.

Related, sure, but I'm not sure it is causal.

It's refreshing to see a post like digamma, who actually knows what he is talking about, as oppose to those politicizing this.

So the politicians that made uninformed decisions or decisions heavily influenced by lobbyists had little to nothing to do with creating the current environment?

Specifically the derivatives I was referring to were the ones where subprime loans got put through a maze of redistributions, so that they could effectively be repackaged as A+ debt instruments. That scenario should never have been allowed to happen.

Gotcha. I think these are widely being called derivatives in the media, and I think that is incorrect. These are generally structured products and the ultimate holder of the security holds just that: a security in a holding company backed by the underlying assets. The senior tranches of debt were able to get prime credit ratings because the structured vehicle built in a required amount of subordinated net to protect against the first losses in the portfolio. I think people largely agree that the credit bureaus threw up on themselves in a lot of this process, but that's a separate issue.

There is absolutely no doubt that the subprime crash has had a much, much wider impact because of structured products and resecuritizations. Again, though, I'd argue this is more of an impact magnifier than a causal relationship.

I think the bulk of the crisis was inevitable to be honest; this is mainly down to the short-term mindset of corporations rather than any action which Paulson/Bernanke could undertake.

Simply the people in charge of corporations are paid huge bonus's based on short-term profits - hence its more important to them to make huge profits NOW rather than more measured profits over a long period.

As such even if it'd been possible to privately warn them years in advance that this situation was going to come to a head I don't believe they'd have listened or coopererated to avoid it.

I'd equate the current financial situation and their handling of it to the command of a general during a war. All you can expect of a General in a battle is that they enter it with a plan and that they adapt to the situation as it unfolds - the current econmic situation is something which hasn't happened before and its evolution has been at least partially controlled by factors outside of the sight/control of the 'general' (ie. stock traders, banks who themselves didn't know their likely liabilities etc.).

I think that looking at things retrospectively it would indeed be possible for them to have handled things somewhat better, but in the circumstances I think they've done their best which is all that can be asked of anyone.

Now that details of the bailout are emerging, I'm very much against what's being proposed. The idea that Paulson should get a blank check to do whatever the fuck he wants with no concessions from the financial industry is bullshit.

Sebastian Mallaby is suggesting that the government should purchase equity in the institutions that can then be sold if things turn around. That's got issues due to government control problems, but it sounds eminently more sensible than a 700 billion dollar handout to the same people that got us in this mess.

Welp, Ill give him a blank check as opposed to the alternative at this point. Last week was fucking scary for me so I can imagine what it mustve been like for the people in the offices in washington and New york. (luckily this time, when the VIX spiked, I bought in to the mkt - probably sell in 2 wks though)

But that's not the only option. I'll agree that the government needs to intervene in a major way, but to demand nothing from those companies benefiting from this handout is absurd. No equity in these companies. No additional regulations. No demands for new leadership. Nothing.

It may be better than doing nothing, but rewarding the biggest fuck-ups with the biggest handouts while requiring nothing is ridiculous.

More like the beginning of the end of the current system....

In what way? I can see more regulation. And I agree with JPhillips (which I never do). Washington just doesn't seem to care anymore about listening to its citizens (on both sides of the parties). The interesting part is even Swiss banks have taken a hit.

:+1:

I know I've noted this before, but a month or two ago NPR's Marketplace had a guy from the Cato Institute on who said that one of the likely results of this when the next Administration comes to power, is more regulation of the financial industry during the next 4-year cycle. Furthermore, in his opinion, this was a good thing, as the people involved have proven themselves unable to behave like adults and were incapable of acting in a manner that did not put the entire system in jeopardy.

Given everything that the Cato Institute stands for, that was a pretty shocking statement.


Anyway, in my opinion the most successful national economies of the 21st century will be those that benefit from active, intelligent, and thoughtful oversight by their respective governments. A lot of emerging economies have taken a look at what's happened to the U.S. recently and decided that while the free market is a good thing, they should a) make sure greed doesn't get the best of their national economic actors to the detriment of their economic stability and b) the nation in question gets a reasonable cut of the benefits of the economic activity in that country.

This isn't socialism and it isn't planned economy. It's about sustainability and health for national financial and economic systems and we've just given the world an object lesson in how not to do it.

I would like to see the law pass allowing shareholders to vote on CEO/High-level Executive/Board member compensation packages for public companies.

If the regulations don't come with the money they won't end up being worth crap. If there's a new push to regulate next Spring you can guarantee that congressional allies of the financial sector will fight tooth and nail to stop any meaningful change and by then the consensus that something needs to change will have largely worn off.

I can see a reason for limited immunity, but this is crazy.

Oh dont get me wrong, I think i agree with you that there were other options on the table. One of the fastest ways to the vein is to write down or renegotiate people's mortgages (owner occupied). You want to save both the banks and give a quick injection of capital into the system (via confidence) and thats that. Thats just another of many options but an option had to be taken.

As I understood it the money was going to be lent and interest garnered upon the money - thus it isn't like the companies needing the biggest amount of money are being rewarded they still have to pay it back (with interest).

The goverment is acting as the 'lender of last resort' because no capitalist company would ... by doing so they lower the fear present in the market place and will hopefully reduce the risk of companies seizing up and collapsing.

Changes of leadership within the companies most affected by this crisis have already happened in many cases and in the others will undoubtably occur if the people in charge made mistakes ... I'd like to believe sensible regulation will occur once the immediate crisis is over, but time will tell ..

This is sensible imho - the worst thing for the markets would be a fear that a new president or ruling could overturn the ruling.

Giving Paulson 700 billion with no oversight and no recourse if things go badly is not what I would like our government to do.

This is what I'm talking about. From the WSJ:

You make it sound like he's drawing this up by himself and likely to sneak in a small clause which puts a few billion in his back pocket ;)

He's the figure head for sure but I'd almost guarentee there will be a LOT of people working on this to ensure its as safe and sensible as possible.

Out of interest in America do bankruptcy judges have the power to mitigate any other forms of debt? (ie. would this be out of the ordinary or are mortgages presently handled differently to other debts?).

That's a tough position, I think. What about consumers who are responsible enough to be able to pay their mortgages and those people are responsible enough to have good credit scores (paying their bills on time, which means better rates). A lot them are already pissed that the government is putting forward this bailout plan. However, the people who are in trouble are now in a position to go the bank and work out a plan, if they really wanted to. I'm not saying they'll get 1% to 2% interest rates, but they banks do not want these homes, so the borrowers have some leverage.

I think this was something that was changed during the last bankruptcy bill.

I guess I just see this a lot like the parable of the talents.

Paulson urges quick action on $700 billion bailout: Associated Press Business News - MSN Money

Looks like Dems want more control to be inserted into the bill (which I agree with-depending on what exactly it is).

Oh hell no.

wow

welp, as of tonight we have no more 'major' investment banks as GS and MS change their status to become depositary banks as well.

One of the biggest beneficiaries of this is going to be UBS. Take a guess as to who is the vice chairman of UBS's US operations, and a registered lobbyist on behalf of UBS. That's right, Phil Gramm. Ugh.

I've written to both my senators and congressman against this bill. Doubt it means much, but I at least feel better for having done it.

Get your piece of the bailout!

http://www.buymyshitpile.com/

What does this "no investment banks" mean? I have money in a mutual fund that tracks the financial sector heavily... I figured I'd get in when low, and it's bound to jump back up one day (although I've lost money on it so far). Do you think this news is bad for the financial sector?

i need to throw some money into a financial-sector ETF - I still think we have yet to hit bottom, but it's time for me to do my research and pick one out

XLF is one of them but there are ones that are "ultra" with more beta to them.

yeah - i need to do some assesment - look at some of the metrics

I don't know that high-beta is necessarily the way to go ATM -- with the sector so depressed, even a low-beta option would likely produce favorable returns medium-term, in fact in the medium-longer run it might even be more sensible.

He's 100% spot on about the risk and reward being decoupled if you're a CEO. The only thing that keeps these things in check are the moral restrictions of a person who's main purpose in life is to be the most powerful person in a large company. That's not a very good measure of checks and balances.

I don't know if his solutions are sound, tho. Haven't really thought about the plusses and minuses but it sounds reasonable.

SI

I don't think that would do much. I'm sure the prospective executive/ceo/board member would just keep asking for different packages until they got what they wanted. I just don't think the average shareholder would pay enough attention.

It's like free agency for a team desperate for a new ace pitcher- they'll overpay because they want a change.

SI

I'm sure some have received this via e-mail, but I thought I'd post it for those who have not. Great stuff.........

Wow, the math in that is embarrassingly bad.

T.J Birkenmeier, A Guy that can't divide

85 billion / 200 million = 425

I'm not sure how people can read that e-mail and still wonder why American citizens take on loans they can't afford. ;)

What...$425 doesn't equal $425,000? Are you sure? We could still have a nice block party with whatever is left from $425.

oil superspike today....nice timing.

* He sure likes the asterisk.

Oil is fricken up around $18/Barrel today! I guess it went ever higher earlier in the day.

So, why do we allow Wall Street firms and investors to buy oil and gas that they don't even use?

Ask the GOP Congress that passed the bill removing those restrictions a few years ago (when they still had control of Congress).

My guess is that they have friends on Wall Street who stood to make a lot of money on speculation.

I used to be a big defender of the oil trading, but now I'm not. We're giving these companies $700 billion-$1 trillion, and now they do this shit? However, can you really stop it? Wouldn't it just push oil trading markets to another country's exchange?

I'm not too opposed to the proposals that Dodd put forward. My only problem is that this is the same man that let all of this crap happen under his watch as chairman. It may not have started under his watch, but he has had two years to put some band-aids on it and did nothing but accept lobby money to do just the opposite.

oh and new gov't guidelines on buying a new home, ready:

If you have an old home and planned on getting a renter for the old home you cant use that $ as income even if it covers the mortgage and then some. That is unless you have 75% LTV in the home. I get the idea behind it but talk about too little too late and actually now making things harder! Such a horrible implementation of tightening.

Are we going to have to do another bailout when the commodities market bubble bursts?

My God. The bad math, of course. But -- why would the money be taxed? And you'd think "A Creative Guy" could come up with some possible negative ramifications of giving out 425K to everyone in the country.

Oil is down quite a bit.

They were talking on NPR last night that yesterday's prices were arbitrarily high. Something about contracts being due for October crude and some traders getting caught trying to get lower prices and having to fill contracts. However, November prices were down around $110 like they are today.

SI

I'm still not convinced by the calls to regulate CEO pay. I think CEO pay is often very out of line with the actual return the CEO provides the corporation, but regulating pay seems to me to be regulation "just to make people feel better."

If we're going to go that route, I'd rather see some regulation around this cross-pollenation of boards & CEOs (where CEO X sits on the board of CEO Y and vice versa). That's a situation ripe for abuse.

What exactly are the details in how they will regulate pay? I don't mind allowing shareholders to vote on executive compensation packages. We need to move from a short-term to a long-term focus.

The CEO pay thing is tough. I don't mind them getting paid oodles of money if they are truly great at what they do, and they are steering the company in the right direction for both short-term and long-term health.

The problem is, you can only really judge their performance in hind-sight. So do you withhold a bunch of pay until 5 years after they leave? If so, how the heck does that work? Or do you make them take a bunch of stock options that can only be sold several years after they leave? But then how is that fair if they do a great job but their successor screws it all up, or any number of outside factors mess up the share price down the road?

It's so easy to say that we need to incent them to think long-term, but, outside of somehow instilling morals in people, I don't know how you actually do it.

you do not, i repeat, do not want shareholders to vote for CEO's pay. s/h's, and i deal with shareholders for a living in my company, are concerned with increases in share price (i know, duh!, far out concept). s/h's are among the most fickle groups known to man. you'll basically have CEO's having to generate massive amounts of gains to appease the s/h's. you know short term gains, its that thinking that got us into trouble in the first place.

no, you first need to have a cap on CEO payouts, and you secondly need to have it based on the avg's of several years. anything else is basically putting the company back in the same place it was before.

ok, bye.

I got this from Paulson via email today.

What about changing the capital gains tax from one year to a longer time period?

This is super interesting IMHO...

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Blame Urban Planning

The credit crisis has led to numerous calls for bigger government. Yet the truth is that big government not only let the crisis happen, it caused it.
This truth is obscured by most accounts of the crisis. “I have a four-step view of the financial crisis,” says Paul Krugman. “1. The bursting of the housing bubble.”
William Kristol agrees. His account of the crisis begins, “A huge speculative housing bubble has collapsed.” “The root of the problem lies in this housing correction,” said Secretary of the Treasury Henry Paulson.
So it all started with the bubble. But what caused the bubble? The answer is clear: excessive land-use regulation. Yet while many talk about re-regulating banks and other financial firms, hardly anyone is talking about deregulating land.

The housing bubble was not universal. It almost exclusively struck states and regions that were heavily regulating land and housing. In fast-growing places with no such regulation, such as Dallas, Houston, and Raleigh, housing prices did not bubble and they are not declining today.
The key to making a housing bubble is to give cities control over development of rural areas — a step that is often called “growth-management planning.” If they have such control, they will restrict such development in the name of stopping “urban sprawl” — an imaginary problem — while their real goal is to keep development and its associated tax revenues within their borders. Once they have limited rural development, they will impose all sorts of conditions and fees on developers, often prolonging the permitting process by several years. This makes it impossible for developers to respond to increased housing demand by stepping up production.
In contrast, when cities do not have control of rural areas, developers can step outside the cities and buy land, subdivide it, and develop it as slowly or rapidly as necessary to respond to demand. The cities themselves respond by competing for development — in other words, by keeping regulation and impact fees low. The Houston metro area, for example, has been growing at 130,000 people per year, yet it was readily able to absorb another 100,000 Katrina evacuees with virtually no increase in housing prices.
Before 1960, virtually all housing in the United States was “affordable,” meaning that the median home prices in communities across the country were all about two times median-family incomes. But in the early 1960s, Hawaii and California passed laws allowing cities to regulate rural development. Oregon and Vermont followed in the 1970s. These states all experienced housing bubbles in the 1970s, with median prices reaching four times median-family incomes. Because they represented a small share of total U.S. housing, these bubbles did not cause a worldwide financial meltdown.
In the 1980s and 1990s, however, several more states passed laws mandating growth-management planning: Arizona, Connecticut, Florida, Maryland, Rhode Island, and Washington. Massachusetts cities took advantage of that state’s weak form of county government to take control of the countryside. The Denver and Minneapolis-St. Paul metro areas adopted growth-management plans even without a state mandate. As a result, by 2000, prices of nearly half the housing in the nation were bubbling to four, six, and in some places ten times median-family incomes.
In the meantime, Congress gave the Department of Housing and Urban Development (HUD) oversight authority over Fannie Mae and Freddie Mac. While this was supposedly aimed at protecting taxpayers, Congress knew that HUD’s main mission is to increase homeownership rates, and Congress specifically pressured HUD to increase homeownership among low income families. So HUD responded to the housing bubble by directing Fannie and Freddie to buy increasingly high percentages of mortgages made to low income families, eventually setting a floor of 56 percent. This led Fannie and Freddie to significantly increase their purchases of subprime mortgages, which legitimized the secondary market for such mortgages.
Though everyone knows that the deflation of the housing bubble is what caused the financial meltdown, few have associated the bubble itself with land-use regulation. Back in 2005, Paul Krugman observed that the bubble was caused by excessive land-use regulation. Yet nowhere in his current writings does he suggest that we deregulate land to prevent such bubbles from happening again. Such suggestions have come only from the Cato Institute, Heritage Foundation, and a few other think tanks.
We know that if the regulation is left in place, housing will bubble again — California and Hawaii housing has bubbled and crashed three times since the 1970s. We also know, from research by Harvard economist Edward Glaeser, that each successive bubble makes housing more unaffordable than ever before — and thus leaves the economy more vulnerable to the inevitable deflation. This is because when prices decline, they only fall about a third of their increase, relative to “normal” housing, before bottoming out.
Thus, median California housing was twice median family incomes in 1960, four times in 1980, five times in 1990, and eight times in 2006. In the next bubble, it will probably be at least ten times. This means homeownership rates will decline (as it has declined in California since 1960), small business formation (which relies on the equity in the business owners’ homes for capital) will decline, and education will decline (children of families that own their homes do better in school than children of families who rent).
Worse, more states are passing growth management laws. Tennessee passed a law in 1998, too late to get into the recent housing bubble but enough to participate in the next one. Legislators in Georgia, North Carolina, and other fast-growing states are being pressured to also pass such laws. Naturally, the planners who promote such laws deny that their actions have anything to do with housing prices.
Even worse, the Environmental Protection Agency has proposed to “integrate climate and land use” — effectively using global warming fears to impose nationwide growth management. Supposedly — though there is no evidence for it — people in denser communities emit fewer greenhouse gases, and growth management can be used to impose densities on Americans who would rather live on quarter-acre lots. The California legislature recently passed a law requiring cities to impose even tighter growth restrictions in order to reduce greenhouse gases — and its implementation will be judged on the restrictions, not on whether those restrictions actually reduce emissions.
Instead of such laws, states that have regulated their land and housing should deregulate them. Congress should treat land-use regulations as restrictions on interstate mobility, and deny federal housing and transportation funds to states that impose such rules. Otherwise, hard as it may be to imagine, the consequences of the next housing bubble will be even worse than this one.

I don't but it.

The cause of the bubble was loans given out to people that could not afford them.
The loans could have been for cars boats or elephants.

I don't buy that either - yes housing regulation can cause price growth, but where I live in Florida the price growth was largely because of an influx of new people to the area and the timelag involved in building houses rather than regulations preventing them being built.

The big problem was excessive credit (mortgages) being given to people who couldn't afford them - fairly simplistic imho.

The future problem may be exactly the same but related to credit cards imho (as I've seen some horrifically scarey statistics in the last 6 months on credit card balance growth in America).

Ron Paul chimed in on CNN.com

Commentary: Bailouts will lead to rough economic ride - CNN.com

Thanks molson, I was going to do that if you hadn't. Why the spoiler?

Just because it was so long.

I need to vent, here. Directly from Paulson's proposal, I insert here the entirety of Section 8:

reviewed by any court of law or any administrative agency."

That is it. Under the Paulson plan, he is accountable to no one. So, to your point, Marc, since his decisions are not reviewable by a court of law, and his proposal allows him to buy and sell anything he wants at any price, Paulson could buy $750 billion in mortgage-backed securities, sell it to himself for a penny, and, under this proposal, there is no legal action possible.

That said, I do not believe he intends to do that; but it is absolutely ridiculous to write a law that would give someone that ability.

The only "accountability" under Paulson's proposal is to provide a report to Congress twice a year. In that regard, the report isn't required to include any specifics. The following text would comply fully with the legal requirement for the report to Congress: "Dear Congress: I spent all $750 billion. I complied with the law and, boy, did it sure help out a lot of folks. Smooches, H. Paulson."

The language proposed by the Administration is a joke. Not that I would expect anything else from this crew.