I don't think that the media hype caused this day - the drops in the market are caused by fear - we're at the point where the numbers don't even count anymore. It's a witch hunt for who's next to go down and we're not talking about regular companies - we're talking banks. If Ford goes down then people who owned Ford stock are wiped out and thousands are out of a job. When the banks go down not only do the same things happen but everyone else who has money in the bank starts to get worried about their money. You get people with very large sums of money getting nervous to protect those dollars and you get bank runs and you get the overnight closings of banks (like WaMu) or banks with no choice but to deal like Wachovia. People are worried about themselves and their money and where they can safely put it - every day that goes by without a reassurance and with yet another bank failure only makes people more jittery and more likely to pull their money out and to cause another bank to fail and so forth. The growing fear caused today and will continue to drive the market until its stemmed. Yes the media plays a part in it but not as much as the people with all the money who are suddenly doing whatever it takes to keep as much of their money safe as possible.

I'd say that the people giving congress advice are their campaign managers.

I'd also say that the primary job of Congresspersons is to ensure re-election.

touche but I was talking about gurus like Buffett

I am not.

http://www.qando.net/ - Explaining Buffet’s support for the bailout (update)

I'll also add FWIW I'm not selling the stocks I own (although I don't own any financials) - I invested money I had hoped would grow and allow me to invest more later on. For the small amount I have there's no point in bailing now - I might as well wait for the turnaround. For people who actually make their living trading and the like I suppose that its got to be extremely gut wrenching unless you've timed it right when to be long and short over the past few months. I'm just worried about what might happen to the entire economy and the job and housing markets - not so much about what happens to the couple of shares of stock I own.

well im not so skeptical that no one can give advice anymore when theyre as knowledgeable on the subject as anyone.

It can definitely be done - if you look throughout Europe you'll find a history of profit making nationalised companes and indeed in England its been semi-frequent for a company to be nationalised, made profitable sent back into the private sector only to go bust again and be recyled again ...

Generally the companies involved are either flag bearers for the country (ie. associated with England - eg. Rolls Royce), natural monopolies (ie. British Rail) or have a fundamental import to the overall economy (normally a large centralised work force in one area - ie. British Steel).

I think there's definitely historic data indicating this approach is probably the safest and most sensible way to defuse this issue - indeed as might have been mentioned on the forum already Sweden went through a similar situation a while back and solved it by nationalising the banks involved.

indeed - we mentioned sweeden a couple pages back. didn't know that it was an occurence in the UK though

I believe Canada and it's provinces still own a handful of crown corporations. VIA Rail and CBC are the two big ones. Air Canada and Petro Canada used to be crown companies.

Its become a lot less trendy since Maggie was in power as she pushed a very heavy privatisation scheme into the country and backed it up with good feeling by flooding the cash from the company sales into the economy (so most people associate privitisation with 'good' and ignore the bad which came from the lack of ownership afterwards).

You might have noticed though that as this crisis unfolds a couple of the banks in the UK have been nationalised (Northern Rock a while back and Bradford and Bingley very recently), I'm not sure if the approach we're taking is 'learning' from Sweden or just us falling back on our roots ... but I think its a sensible approach myself.

BBC NEWS | Business | Bank shares fall after B&B move

I saw this in another thread and was struck by this. That is another fear I have of any Congressional legislation - their one-size-fits-all mentality. There are a lot of sound and well-run financial institutions, esp. the ones that did not foolishly dive deep into high-risk endeavors.

tru dat

I'm going to say this knowing that (especially with some past history) that this may come off as an attack on you, I really don't mean it that way at all - so try not to take it that way.

You are also very, VERY personally invested in the success of the lenders and more specifically the housing market. I think it's naive to not take everything you post here with a grain of salt because you are so directly personally impacted by this.

I also notice that most of the other people in favor of the bailout in this thread so far seem to not be invested in the market - i'm not so sure that is a coincidence.

Those that seem to be financiallys table, have some investments, and likely not relying completely on credit - seem to be skeptical on the bailout.

I myself would count myself as that - skeptical. Some aide here may be the right thing, but what I know fo this 700b bailout it seems like the wrong plan. I don't know a ton of detail but the continued effort to bailout copanies, individuals, etc who made poor decisions seems wrong to me. I tend to think the market needs to correct itself a bit, but I do worry that it will correct too far.

I wish the people elected to deal with these big issues would use experts, their intelligence, etc, etc to figure this otu rather than looking at the ballot in Novemeber.

no offense taken. On the idea of being bias towards the bailout due to selling houses I would argue that Im closer to the maelstrom and have 'expert' insight into this leg of things. Say what you want about the financial implications to my portfolio personally but I'm "on the inside" of this and it is a monster created by....well that's for the 'mortgage bailout' thread. agreed on the problem and dislike that politics is playing in their decisions on the hill but I think the results desired by us differ.

Shhhhhhh!!! That's "socialism" and it is always evil and wrong. Free-market is the only way to go! De-regulate and ignore big companies that are the cornerstone of our economy and let them self-destruct. Who needs jobs and such anyway?

Yeah, to be quite honest a pretty heavy housing dip wouldn't phase me in the least. I know that i got a loan that my family can afford for a long period of time even in a tough economy - so even if I end up "upside down" i can ride it out.

however, just because someone is touched by the crisis in some way doesnt mean that they cant have an opinion and somewhat of an educated one. Just because Buffett bought into GS doesnt mean all of a sudden he got stupid or shady....Im not buffett but Im just making a small, very small, point. Im glad for you and yours on the home front....I wish that all the foreclosures surrounding you didnt effect you too. BTW a housing dip, after the initial shock, would actually help me as selling homes in first time home buyer price range is much much much easier than move up buyers.

"Expert" side of things in a local market that, like other Florida metro areas, is falling. It's just one small, very biased experience that becomes the basis for debating - hence the grain of salt.

I like any post with the phrase "correct too far". :)

Are you of the belief that we'll have a clear warning and chance to act before we potentially overcorrect?

which just so happens to be in contrast to your position....convenient.

Except I am under no delusions that my opinions are worth any more than a grain of salt.

I'm kinda hoping my opinions are worth at least a grain of pepper. :)

Consider that a low sodium is better, I go along with a grain of pepper.

No. I think we decide whether we take the gamble or not, I don't think there's some point where there's some obvious decision point. Now seems like as good of one as any.

If we gamble that the market should correct itself we have to cross our fingers that it doesn't go "too far".

I'm far from an expert on this. I know I generally believe in minimal government involvement. I know that I have problems with people/companies being "rewarded" for "bad behavior".

I also know that a horrible collapse could do irrepeirable damage to the united States. This is why I say I'm at the point of "skeptical" about the bailout, but not necessarily 100% against it.

NIKKEI 11,199.02 -544.59 -4.64%

HANG SENG 17,262.74 -617.94 -3.46%

I think even people who are for it, and I'd count myself among them, are skeptical of the bailout. I don't think anybody knows exactly what will happen if we do it, nor do I think anybody knows what will happen if we don't. Economics is a social science, and unfortunately difficult to model effectively. My greatest fear is that we're going to end up doing something along these lines anyway, but that we'll wait too long and miss our window.

Yup. I think this is a very, very confusing time for economists - let alone us regular Joes.

I think those in this thread and elsewhere that are just so confident and cocksure that they have the right answer are very naive.

It's also possible that neither course could work, or that both courses could work somewhat equally....

If you consider me and Gary as cocksure you should read our posts again. We're hoping the bailout will give us time to be able to do what it takes to fix things and have said we dont know if it will work but we sure are scared of the 'do nothing' fix. you may not have been talking about us though.

Wilbur Ross -

And it needs to be done quickly. "I think the people who voted against it should be ashamed of what they did. In order to save a $700 billion investment -- not spending, but investment --they caused investors a trillion dollars. That means for each of the guys that voted against it, it cost the investing public $4 million today," Ross said.

Ross believes that we will see consequences of the bailout's rejection in the money markets, the debt markets and the stock markets. The failure of the vote will simply make matters worse and ultimately cost more.

Larry fink, Blackrock -

Laurence Fink, who heads the largest U.S. asset management company, BlackRock, expects a proposed bailout plan ultimately to be profitable, but said Congress was "playing with fire'' by voting it down.

Laurence Fink, chairman and chief executive officer of BlackRock

Fink, an expert in the asset backed securities that lie at the heart of the recent problems of many banks, worried that banks are not able to lend at the moment and that a bailout plan must be approved quickly to restore confidence.

He also said there is deleveraging in financial markets, which has been accelerated by fears of heavy losses at hedge funds.

"I'm disappointed,'' Fink told CNBC after the U.S. House voted to reject the Treasury's proposed bailout. "I think Congress is playing with fire. Hopefully, this is just politics.''


...and if youre looking at guys like this like theyre bias is to have the market do better so he makes more money, id point to:


This reset is GREAT for guys like this who can buy a ton of depressed assets so in some cases when they save, "Save us Y2J" there is some sliver of benevolence in there.

Completely lost in the shuffle is that "something" has already been done.

Fed makes billions available to battle crisis - Yahoo! News

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.

700 billion? You just lost 1.2 trillion today alone! Worldwide, that was closer to 5 trillion!

I think we all understand the intention of it (this isn't a "bail out us, not the banks!" kind of crowd). And I don't think there's anyone that thinks the government should do absolutely nothing. The question is what's the right course.

What's scaring me is the mentality of - "YES - that's SOMETHING, let's do it". It doesn't seem to matter what the something is. We just want action of any kind. Surely, some actions must be better than others.

Is anyone offering you another solution other than do nothing? It is essential that something is done NOW! You're merely rationalising your procrastination.

Last week you carried out a buyout for 85 billion. Had you done it 5 days earlier it would have cost you 20 billion. As more and more banks collapse the cost soars. It's estimated that up to a thousand banks could collapse if nothing is done. If something is done quickly then that could come down to a couple of hundred. The more that collapse the bigger the cost. Two more went last night in Europe (Britain and Belgium) and that was before the failed vote. It is essential something is done very quickly even if the action isn't the optimum.

This vote has already cost you 1.2 trillion. How much more do you want to lose before you act?

Sure, there's been plenty of suggestions in this thread, and the fed took other actions today that I just posted about. There were alternative buyout proposals floated out last week.

We're talking about an amount of money that approximately equals what the entire Iraq war has cost to this point. And will it even stop banks from failing?

There is no serious alternative out there.


You just lost 1.2 trillion on the stock market today. How much tomorrow and the day after? How much before you stop procrastinating and stem the bleeding?

You're not giving 700 billion away - you're buying assets at a rock bottom price. They're not rock bottom because they're worthless but because no one has the money to buy them because of the credit freeze, the risk associated with them and the banking system has run out of trust. But they're all backed by bricks and mortar - houses - when the housing market recovers (and it will) the value of these will rise and you may well make a significant profit. Why do you think the big end of town persuaded the house Republicans to suggest a loan? Because the very people responsible for this could buy them and then sell at a profit later. That'll punish them!

So ... there's X number of bad mortgages out there right? And those total to Y amount of dollars. Anybody able to point me to some stats about who/what/where those mortgages are? Basically I'm looking for some figures & demographics about these "bad mortgages and other deficient assets held by troubled financial institutions" (as AP put it this morning).

My understanding, Jon, is that the value of these packages is very difficult to lay alongside individual mortgages. These mortgages have been packaged, sold, split, repackaged, sold, split and amalgamated with other packages, sold, repackaged etc. At each stage the value of a package becomes less directly related to individual mortgages and more of a saleable asset in itself to the extent that it's extremely difficult now to determine their value. In fact, in some, the packaging has been so deceitful that it's virtually impossible to realise that they're based on mortgages at all - the buyer isn't aware he's buying an iffy product at all. That's why the 700 billion is so flexible - 250 billion now, 100 billion next and who knows what next up to a maximum of 700 billion. The first task will be to unravel the packages and rediscover the mortgages and consequently their value.

The one advantage for the buyout is that there's simply no other buyer and the government can almost dictate its own price -though there has been a warning that if they pitch it too low some banks will squirrel away some of the assets to rise again when prices have risen. But the government can certainly buy the packages at a rock bottom price.

There is of course genuine money in these packages. The house associated with a defaulted mortgage doesn't suddenly become valueless - it could still be worth a significant proportion of the mortgaged value. Donald Trump appeared on Larry King live last week and explained exactly how to make money in this situation (it probably had all the integrity of the looters in New Orleans after Katrina mind you :rolleyes: )

This 700 billion is not money thrown away - it could bring significant profits for taxpayers eventually depending on just how the eventual sale is handled - a Republican administration would probably feed them back into the market to their "grateful" friends as quickly as they reasonably could to satisfy their free market philosophy while a Democrat admin would probably try to make as much as they could to fund their nationwide health program ;)

Incidentally just to show you how the rest of the world sees this, here is the opening paragraph from The Times of London - a right wing, free markets newspaper:

So does your argument rely on the stock market being down again today?

Comparing the $700 billion to that 1.2 trillion is a little silly. Most of the latter can be made up in a few hours.

So LIBOR is off the charts today (LIBOR) - Wikipedia, the free encyclopedia. Well how does this effect anything, Flasch? Countrywide is one of the biggest mortgagers in the entire country (even under BAC's umbrella) and almost ALL of their ARMS (Adjustable Rate Mortgages) were pinned to the LIBOR (+ points). So that squeeze on the ARMS coming up? Just got harder and faster. It also makes that credit that molson says is here today, here tomorrow, essentially gone today and really gone tomorrow....You have no idea how credit is the oil for the machine.

Now the equities market is going to hang on under the 'hope' that something gets done Thursday but the patient (as described above) is on life support.

As pointed out to Arles in the other thread the markets, the equity markets are just the most visible window into how it is interacting. It's actually a small window in. If you REALLY want to know look at the Taf/R auctions, LIBOR spreads, note yields, etc. A look deeper and you may actually see where the rest of the world is coming from. In Mac's post above, did you see that the ramifications is nationalization of ALL lending institutions, insurance companies....you have no idea how intertwined it all is.

Another thing to keep in mind is that not all banks are doing poorly.

Not at all. The markets in Asia and Europe were chaotic to begin with today but eventually wiser heads prevailed and the consensus was that the bailout package would go ahead anyway and markets recovered much of their original losses. I suspect the American market will recognise also that Congress views this vote with the same horror that others have and realise that they'll come back later this week and make certain this time.

here's the article I referred to in my previous post which reveals their thinking:

Banking crisis: the bailout will still go ahead one way or another - Times Online


But I'm not sure that those who saw their shares plummet will view the 777 point drop with quite your equinimity, molson.

I totally agree with that, I just wonder then, why you and Mac are using the stock market impact as evidence of how necessary the bailout is (with Mac and others implying that the stock market will plunge every day until there's a deal)

Big banks were painted as the enemy last week, with many even suggesting government imposed size-caps. Now all of the sudden, massive banks are considered critical to the economy.

because it is the most visible market that people are involved with and it is the skin on the patient. It is a clear representation of a companies worth....and more.

It can't be made up in a few hours - stocks were sold yesterday. People took their losses. Hedge funds got margin calls - sure for the people who are still holding their stocks today they technically haven't "lost" anything until they decide to sell so they can hold on and wait for the market to eventually come back - whenver that will be.

But look at something like Wachovia - there's no timeout they could call or somehow redo things. There's a finite amount of time you stay solvent as a business. People took a beating on Wachovia especially after their CEO was just out there recently talking about how they would be fine and Cramer was right on that bandwagon. That money is gone and it can't be made up.

Read my previous post.

Even Congress has begun to realise (or at least a sufficient number of them) that this bailout simply has to happen. Last Friday that well known neo-socialist lefty Newt Gingrich railed about the bailout and that more deregulation is the answer. Today we learn that even Gingrich has come over to support the bailout.

There is a feeling now that that house vote was a pigs ear of a deal with Pelosi carelessly sabataging it with a silly partisan speech and alienating some of the Republican participants and that that mistake will not be made again.

The problem with this vote is that the American public just doesn't seem to catch on to the seriousness of the situation and neither party wishes to be seen to be the promoter of the bailout and suffer the electoral consequences soon and so they're trying to rig a 50-50 vote. That's tricky in the circumstances of a huge bias towards the dems.

Just curious - do you view the stock market as simply a tool that people use for some sort of legalized betting/gambling and that it has no real tie in to the actual business/company itself?

GOP Senator Orin Hatch has a good idea then followed it up with a fucked up one, again. He recommended adding in a tax break on people who buy a home in foreclosure.....

Then he said a reduction in Capital Gains tax. Nice.

I got this feeling too.

Mostly. I think there's a % of substance and a % of speculation.

But here, I'm just responding to this idea that yesterday's decline is some kind of proof that we need a massive bailout, while a similarly massive increase today wouldn't mean anything. (I think neither mean anything, other than people trying to make/save a quick buck).

similarly? Just look at the credit markets and you have your answer and youll join us.

I wish this poll had who voted what :)

I think the stock market encompasses investors (long term view of things) and speculators (basically people gambling on very short term changes).

The investors are good for an economy where as speculators imho can have a very adverse affect on things by causing runs on stocks which have no basis in reality, you only have to look at the movement of stocks like 'Apple' and 'Nokia' to realise that those companies are solid and really for them to have had swings of 50%+ of their share price in the last 6-9 months is ludicrous.

The way I think it works is investors try and choose stocks which will perform long term purchasing them preferably when speculators have driven them down in price; whereas speculators will buy and sell wildly (based upon all sorts of models, none of which imho hold water 100% of the time) but can't keep a stock price from its natural level for any length of time (so it'll revert to a realistic level if you look at the 'mean' over time).

But it's not random speculation, Mark. These companies need money to continue and if the bailout doesn't come and the credit market freezes then they can't get that money.

The speculation is based on an attempt to forecast the affects of current news, not just random - they don't just think "Oh, it's Tuesday, I'll sell my apple shares today". They think "Oh, a credit freeze. Apple won't have the money to pay their staff, fund their developments. I'd better sell.".

Not necessarily. I'm pretty sure there's always been some with a general view (minority to be sure, but existent) that our credit driven economy would eventually have to crash and readjust. Not eliminating credit but reducing it's impact I'm mean. For some I think it's finally reached a point of "better now than later".

FTR, I'm not entirely in that particular camp but I think it's existence has to at least be acknowledged as that (broadly described) view seems to be an element of the resistance.

there are soooo many small businesses that run on short term credit you have no idea. The ramifications of wiping out entire businesses simply because the grease got clogged is a horrible idea. And that's just one example off of the beaten path.

If we saw an 800 point increase today in the market then yeah, I think it would mean something. I think it would say that the public realizes a bailout wasn't necessary and that they have faith that the system will work itself out. I'll say right now if that happens I'll be the happiest person in the world. I'd love nothing more than for the market to become stable on its own without government intervention. Just given the what's happened the past oh say 4-5 months and most importantly the past 2-3 weeks I would say that an 800 point gain today is highly unlikely unless there was some sort of intervention.

http://biz.yahoo.com/ap/080930/eu_belgium_dexia.html

Funnily enough, there's a newsletter that's put into my letterbox every couple of months and it's been predicting the collapse of the Global financial market for some time now. I always thought the guy was a crank, but maybe he's in fact a genius? :)


I'm not an economist but I suspect one would tell you the capitalist system can't exist without credit.

When they say 'credit" they really mean the money that is moved between banks, to companies, to individuals not just borrowing as you and I might do with a cc or home loan. Money simply isn't moving between banks currently because no one bank can trust that another will be around tomorrow. The whole system is based on trust and trust has disappeared and the movement has come to a halt.

That's definitely true, but it doesn't necessarily follow that a capitalist system cannot rely too much on easy credit.

There's a breaking point that's simply not sustainable, and feeding a system to stay at that point merely delays the crash (at great expense)

RealClearMarkets - Articles - In Times of Crisis, Trust Capitalism
I thought this was a great article.

Y'know, you keep using phrases like "have no idea". Considering the presence of a number of small business owners here, such a statement borders on the absurd. And as others have referenced up the thread, it's really getting to the point of being downright insulting.

ok, today another bank failed. Now that LIBOR has spiked and banks wont lend to eachother where do you think these Big and Small businesses are going to go to get the grease to run their machine? Look, this isnt talking down to you, Its factual that this is how businesses run. On credit, which you know. If the credit dries up so does payroll, so does inventory fill, etc. This isn't something to be debated....whether or not to do the bailout can be but the way businesses use and need credit isnt. You know me well enough to know that Im not trying to be insulting but digging in heels to prove a point or remain well platformed just doesnt make sense considering all of the evidence to the contrary.

Oh, sure. But when they talk about the "credit" market being frozen they're not just taking about the credit you and I get, easy or not, but the whole movement of money between the institutions, banks, companies etc.

This whole thing may have been triggered by mortgage defaults but it's become serious because it's led to bank failures and the consequent loss of trust between banks and other financial institutions. They simply don't trust each other to be around for even a few days any more and you don't do deals with with those who might disappear. So the whole thing has frozen. If you want to borrow money for a business expansion, or even to pay your employees wages, that bank has to borrow that money from a lender. But that lender will no longer lend the bank the money so you don't get to pay your employees :eek:

That's where we're heading without the bailout. It's not just easy credit that's disappearing but credit of any sort.

It's already happening. As I mentioned earlier, Australia hasn't had trouble - it has much greater regulation on borrowing - but Australian banks have to borrow money on the world credit market and they can no longer do that so the government here has made 4 billion available purely for small banks and non-bank home loan companies so they can continue business and keep the housing market from tanking. Now that's a loan - there's no worthwhile bad debt to buy up - but the principle of government sponsered interference to keep things moving is the same..

I happen to be in the camp of "leaning that way". I'm more than open to hearing another way, but for the past 10 years I've been seeing this coming. I dont mean that in a "I'm smarter than the experts" sort of way, I mean that if you back up a few 100 feet and look at the big picture...it is simply not sustainable over the long term, in it's current form.

Sigh.

I'm sitting here with:
-- a house that hasn't sold over nearly three years, with a willing buyer who has been fighting his own mortgage situation which is holding up the sale
-- a current client that's a custom home builder
-- a small business that {gasp} has run for more than a decade without living off the sort of credit you're talking about but certainly encounters those who do on a regular basis

You think I don't have some passing familiarity with what you're talking about?
Give me a fucking break.

The issue isn't whether credit is a part of the equation at the consumer nor business level. I'm not even sure I've seen anyone question that. The issue is whether the bailouts on the table to date have been the appropriate response to the current situation.

I'm sitting here directly & negatively affected by the situation in more ways than one & yet I've not been remotely convinced that what's been proposed so far is the right solution. More to the point (since "right" is ultimately going to have to be proven by time), I'm not convinced that we've seen an acceptable solution to date. And at this point "acceptable" simply means better than the alternative of waiting until a revised plan is developed.

Sooner or later, there will be something that's deemed better than nothing. So far, that hasn't emerged for a sufficient number of people.

Ditto, except I reached that conclusion more than 10 years ago (closer to 20, as much as that ages me to realize).

I think the main level of opposition coming from voters involves the need for a dramatic increase in regulation as far as what is allowed on the credit market. Some say that we need to stick a band-aid on it and then they can fix it later. There's a lot of voters that want to know specifically when 'later' will be.

we differ here at this moment in time.


We are both in the same boat and I dont see a better alternative on the table, now and I feel something must be done now, "to stabilize the patient."

Ireland just guaranteed EVERY bank deposit.

Yikes. We took a blood bath on the milk market yesterday.

$30,500 margin call and it would've been 60,000 if we listened to the fucking broker.

Double ditto, except it's only been about 5 for me, and I doubted my instincts enough to just assume that I must be missing something and that the experts and geniuses like Greenspan etc knew what they were doing. Live and learn.

Interesting article in Time...

Let Risk-Taking Financial Institutions Fail

By Ari J. Officer and Lawrence H. Officer Monday, Sep. 29, 2008


Demonstrators protest the U.S. Congress's proposed $700 billion bailout of the financial industry in New York City's Times Square, Sept. 27
Keith Bedford / Reuters

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The Administration and Congress have felt compelled to do something about the "financial meltdown," so an inefficient and inequitable "bailout plan" has been rushed through the legislature despite harsh criticism from the right and left. That's unfortunate. Both presidential candidates were stalling by qualifying the plan. Whichever candidate had had the courage to reject outright this proposal would have had the better claim to be President.

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Do not be fooled. The $700 billion (ultimately $1 trillion or more) bailout is not predominantly for mortgages and homeowners. Instead, the bailout is for mortgage-backed securities. In fact, some versions of these instruments are imaginary derivatives. These claims overlap on the same types of mortgages. Many financial institutions wrote claims over the same mortgages, and these are the majority of claims that have "gone bad."
At this point, such claims have no bearing on the mortgage or housing crisis; they have bearing only on the holders of these securities themselves. These are ridiculously risky claims with little value for society. It is as if many financial institutions sold "earthquake insurance" on the same house: when the quake hits, all these claims become close to worthless — but the claims are simply bets disconnected from reality.
Follow the money. Average Joes and Janes are not the holders of the other side of complicated, over-the-counter derivatives contracts. Rather, hedge funds are the main holders. The bailout will involve a transfer of wealth — from the American people to financial institutions engaging in reckless speculation — that will be the greatest in history.
Rescuing financial institutions is not the best solution. Yes, banks are needed to provide capital to businesses. But it is not necessary to spend $1 trillion to maintain liquidity. If the government is to intervene, it should pick and choose which claims to purchase; claims that are directly tied to mortgages would be a good start.
Let financial institutions fail, merge or be bought out. The faltering institutions will see their shares devalued and will be likely to be taken over by stronger institutions — as has already started happening. This consolidation of the financial sector is both efficient and inevitable; government action can only delay the adjustment.
The government should not intervene. It should leave overleveraged financial institutions to default on their derivatives obligations and, if necessary, file for bankruptcy. Much of the crisis has arisen from miscalculating the risks involved in a large book of positions in these derivatives. It is only logical that these institutions pay for their poor management.
Rather than bailing out Wall Street, we propose that the government should buy up the actual mortgages in question and do nothing else. The government should not touch any derivatives; that is, claims that do not directly tie into the actual mortgages. If money becomes too tight, then the Fed can certainly increase its loans to financial institutions.
Let the poorly managed, overly risk-taking financial institutions fail! Always remember that Wall Street and the real economy are not the same thing.
— Ari J. Officer has completed his master of science degree in financial mathematics at Stanford University. Lawrence H. Officer is a professor of economics at the University of Illinois at Chicago.

If the bailout doesn't go ahead your willing buyer will not be able to solve his mortgage situation. Your home builder client will not be able to grow his business and maybe not even able to pay his employees. The third is your choice.

With the bailout freeing up the credit market you may finally sell the house and your client grow and maybe become a bigger client.

Clearly you know that and I assume the second paragraph appeals to you, so what is it about this bailout that you don't like?

Jon, I think that its great that you've been able to sustain your business without the need for credit and you and some others have done a good job taking care of their personal financial situation. But I think sadly the number of business that absolutely rely on credit (big and small) and people who for whatever reason (lack of job and needing to buy groceries to free spending people with no regard) live day to day on credit far outnumber those in your boat. You might say so what, those businesses and people were destined to fail then but I think alot of businesses and people fall into that category and if they do fail then will there be enough jobs and business to support even the people and businesses who did not get caught in the credit crunch let alone everyone else?

My question is this - what do you do with all of those people? Would unemployment be 10, 15, 20%? Are you going to foreclose on 20% of the population? Are you going to let them just stay in their houses not paying while you have to pay your mortgage every month? Is the credit score of a large portion of people just going to be obliterated? Will lending processes change to ensure those people can not get credit? How long with those people not have credit? Can you just cut credit off completely from those people and leave them with nothing?

Look I don't think the bailout proposed was the "best" solution and it in of itself does not fix the underlying problem. Right now I'm not concerned with fixing the problem - I'm concerned that the patient stays alive so we can fix the problem.

I also want to know is there opposition to some of the things I and I'm sure others before me probably mentioned in this thread? Things like raising FDIC insurance and changing the mark to market rules? Does anyone feel those things could buy us the time to put together perhaps a better "bailout" package or plan?

I think a big chunk of the problem is that no one wants to explain to the American people why this is necessary.

For however long, Bernanke and Paulson went along and said everything's fine, the economy is strong, etc...and suddenly last week Paulson's in front of Congress saying I need $700 billion taxpayer dollars, no strings attached, or the world is going to end. We (the average American) don't trust this administration at their word anymore. We don't trust Congress. We don't trust the media, as it's all owned by massive corporations that we don't trust. We don't trust the financial sectors or Wall Street. And now, while a majority of us in this country have been struggling with the hikes in commodities ($150 barrels of oil trickling down), we're getting the image of throwing hundreds of billions of dollars at people with 15 houses and yachts.

I've done enough reading and paid enough attention to know that something is going to have to be done, and most of what I've just charcterized isn't actually what's occuring. But until someone actually sits down and tells Joe Six-Pack why this is necessary, don't be astonished when the public response is 500-1 against it. And in an election season with a lame duck President with low approval ratings, there's no one to do that talking.

I think you're misunderstanding me - investors do buy and sell based upon such estimates and hold investments for quite a while if they believe the company is fundamentally strong.

What I'm talking about are 'speculators' ...

I'm also not saying that the speculators buy and sell randomly - they do so to make a profit and often do it outside of the performance of a company.

You'll often find that certain companies tank and dive with little change in the company itself or the situation surrounding it because speculators have been 'pumping' a company to draw momentum investors in (ie. people who like to 'bet' on the next hot thing) and then sell off.

If you doubt the affect that speculators have on the market place then I recommend following Oil prices for a few weeks, each day they'll oscillate wildly and the analysts will 'attempt' to explain why they've changed ... after a while I think you'll conclude that their explanations don't truly hold water on a day to day basis - its speculation that is causing the changes.

(can you honestly say that 'day traders' are buying and selling based upon what is occuring within a company? ... most companies I've worked at don't change that much day to day ;) )

I'd be in favor of some tweaks such as those, as an alternative to the whole bailout plan.

No.

The problem is this: banks won't deal with each other. Any American bank may be gone before the week's out. So will you, as head of a bank, deal with them? Of course not. So you'll deal with no one and no one will deal with you.

That's the problem. Financial institutions simply will not trust each other and without trust the banking system can't work.

What causes the banks to fail? These "toxic" packages they have on their books. For the moment they're worthless and go onto the books as losses. That pushes banks into insolvency particularly as the frozen system means they're not making money - banks after all make money lending money (which they're not doing).

If the government buys these "toxic" packages they're removed from the balance sheet and the bank is solvent - providing the system cranks up again quickly enough for them to begin trading again.

The government holds these packages until the housing market recovers and sells them back into the market when they're no longer "toxic" - they refer to a house whose worth is more than the mortgage.

The big danger is that the banking system has become so sclerotic that some banks will fail before they're back up to speed.

The longer you wait before funding the bailout the more banks sink into trouble and the more banks never make it out of trouble even when the bailout goes through. We're now at a tipping point where any further delay will mean large failures.

So the problem now is the banks failures, not specifically the packages. But by removing the packages the banks may survive. But the longer you leave it the more banks will fail.

That's probably a gross oversimplification but that's roughly what's going on.

Well, at first I thought that didn't seem likely, because today is Rosh Hoshannah, for which most Jews I know (including my wife & her family) don't take off work (aside from leaving a bit early to attend evening services). The holiday for which we take off work is Yom Kippur, which is at the end of next week, and is the most holy of all Jewish holidays (more holy to Jews than Christmas or Easter are to Christians, arguably).

But then I checked and yes, Congress is in recess because of Rosh Hoshannah. I'll bet you good money the only Congresscritters actually in temple today are Joe Lieberman and the small handful (if any) of other Orthodox Jews.

But, it is what it is. It's probably for the best anyway. Dodd said last night that clearly people need time to cool down and talk amongst themselves before trying again. Floating another bailout bill without some behind-the-scenes consensus-building would probably be a failure anyway, given the results of the vote.


Left-wing Democrats voted against it because they don't approve of giving "free" money to independent corporations. Right-wing Republicans voted against it because they don't want the bill to come with any oversight/intervention strings.


My concern as well. If the "outside help" ends up being Paulson's cronies from GS, then we've put the fox in the henhouse. I'd rather see people in there with a track record of longer-term views and yes, these people exist even on Wall Street.


Cramer is part of the problem, and why people continue to give his opinion weight is beyond me. 8400? Where does he get this number? From his posterior?

Cramer's built his reputation by treating the stock market (and, by extension the economy) as a game and now he's saying anything he can so that he can avoid losing more money as the market tanks.

Please, let's not speak of him again.


I've looked at that list. It includes most of the very heaviest hitters on economics in the world today, including most of the faculty at the U of C, generally considered to be the best economics faculty in the world. This is not "just another set of viewpoints", Flasch.

And it's not like they're saying "no bailout". They're saying "Not this bailout, as it's currently written, and here's why."


Largely, yes. The only way the stock market mirrors reality is that the aggregate growth of the market mirrors the aggregate growth of the economy over the long term. Everything else is a game that revolves around expectations and realities of short-term financial results, media hype, and whims of speculators.

Sheep, the lot of them.

And I say this as someone with a significant amount of money invested in the stock market, for the long term. I, personally, view this as a buying opportunity, and I fully believe my investments will bear fruit within my time horizon, which extends to 3 decades.

Just to speculate a bit...these people presumably work for businesses in an industry(or more likely industries) that have market shares. When/if these people are laid off because these businesses can no longer get credit, they will also relinquish their market share to their competitors who do not need credit to maintain. This would increase the remaining businesses' need to ramp up to meet this demand, and subsequantly require the hiring of people in their induistries.

I'm not going to insult anybody's intelligence by saying it is as easy or will even play out that smoothly for many on "main street"...but I also think the doom and gloom is a bit overstated for the working class.

Just a thought(and not a thought I'm necessarily sold on myself)...but perhaps similar to home ownership not being something that everybody really can afford...perhaps the same can be said for businesses.

Quoted and bolded for emphasis.

I never thought I'd see the day when JiMGA was the voice of calm and reason around here. Unreal.

can we get a flere-gram of the situation?

But if the competitors also cannot obtain credit then it is likely they will find they cannot afford to expand sufficiently to take on those workers in the short term leaving an internal imbalance and unemployed workers.

Yes economically given time everything will balance out through market forces - but thats ignoring the individual personal pain that will be caused to people during the time of upheaval.

I dislike purely capitalist principles on this basis, people are NOT numbers and as such shouldn't be treated as such by goverments.

Explaining to a family that they are now on the breadline because economically speaking things are in an unheaval isn't acceptable imho* if there is the possibility of altering the circumstances to avoid this, that is what this bill is about.

Its been presented as only helping fat cats which I think is a travesty and shows the inadequacy of media reporting generally - this bill will help many large companies but also normal people imho.

*If it helps I felt the same about when Maggie Thatcher (another proponent of market forces over all) closed the coal mines in England en-mass, it should have been done in a gradual controlled manner over several years to give the goverment the chance to encourage alternative industries to the area and thus employment rather than decimate entire communities and leave a generation of people who had sincerely hard times and limited opportunities because of it.

I agree but that's why I mention changing the mark to market rules. Are these toxic packages really worthless? If they are then the government is buying something worthless and we really are throwing 700 billion at nothing and we the tax payers are taking the loss for the mismanagement at the bank. If these assets do have value then why not value them at book value (or some other valuation) rather than current market value?

Maybe like others have suggested the government should purchase these assets and then setup a fund that could be bought and traded by those who wish to invest in it rather than than asking each taxpayer to take on a burden they don't want to take on.

I'm with you on the danger of the situation and why the banks failing is a massive problem and the fact that they will continue to do so until something happens and I agree something needs to be done yesterday to stop the bleeding. But there is such a strong opposition to this "bailout" - partially because I think alot of people don't understand the severity of the situation and alot of people don't trust the government to mange it correctly anyway (which given its track record its not hard to see why people feel that way). I just think there has to be something, as Jon called it, "acceptable" that can be done right here, right now.

But a bailout doesn't guarantee that the banks will trust the system and start lending money to each other again.

The idea is that by the banks being at least partially nationalised* (ie. owned by the goverment) they will trust in the goverments ability to print money when required rather than the economic viability of the other banks presently.

(so yes it should give them 'trust' back - in theory at least, but I think that theory is sound)


*Thats what it means by the goverment recieving equity in the banks, its just that talking about Nationalisation in America is a no-no because it sounds (dread shudder) like socialism ;)

Cramer built his reputation by being an extremely successful hedge fund manager. Like I said, I'm not a fanboy and I think that between some of his long time friends who are still running businesses (like Eddie Lampert and the now failed Bob Steel) and having an hour show to pick new stocks every night leads him into making some poor suggestions and that nobody should simply buy a stock because he says so. I also think that when he fails miserably such as the Wachovia call that he admits to being "kind of wrong" but usually finds some reason why it wasn't completely his fault. That said, he does make some very, very good calls such as trumpeting Google early on and especially his now famous "they know nothing" rant now over a year ago when he said this downfall was coming.

He does try to make the market something interesting through his antics and his show and I think that's a good thing because I think people should learn about ways to try and grow their money. At the same time he's just another talking head and nothing he says should be taken as gospel but he admits that himself - he's a source of ideas. Its on you, the investor, to do the homework and figure out if the stock is good or not.

They have an intrinsic value because they're based on houses but they're currently valueless because no one will buy them. There are several reasons why no one will buy them, one being that it's almost impossible to value them because of the way they've been packaged and repackaged and another because that intrinsic value is tied up with the recovery of the housing market that could be years away.

Financial institutions cannot afford to sit on these things for years until they're valuable again - government can. That's why only government can solve the situation.


That isn't much different to buying them and selling them when they're worth something (except the profit goes to the traders - the very guys who brought about this mess). Nor is there any guarantee anyone will invest while they're worth so little.

Either way you have to purchase them first. If you keep them and feed them back into the market when they're valuable the taxpayer gets his money back. If you feed them in while they're not valuable the trader makes the profit and the taxpayer foots the bill. I don't see an advantage in that.



Then the answer to that is to educate them. Which everyone from Bush to Senate Democrats, to Senate Republicans, to house Democrats to any number of financial commentators has tried to do. The public won't listen - as this thread reveals.

The danger of doing nothing is so great then government must go ahead anyway. Sometimes government must lead.


I've asked Jon to explain what is acceptable but you'll note there is no answer. It's easy to say that there is such a thing but nothing has come forward and there isn't time to wait around for the second coming.

Believe me when I tell you...I will be one of those people affected if they do not get something passed that actually helps the situation.

I have to sell my home(in Florida nonetheless) in order to relocate for a new and more stable opportunity. I do not believe "nothing" should be done, but I have yet to hear a compelling explanation that indicates this bailout, as it was proposed, will do anything more than continue to propagate the speculation that (IMHO) will continue to create these "emergencies" for the foreseeable future.


Whats the saying? Teach a man to fish, and he will eat for a lifetime.

Rather than invest in the debt of financial institutions, why not invest in the affected people by

1) offering government credits towards home sellers(x% between current mortgage and appraised value) who bought their current primary residence between 200x-2007(debatable on the beginning)
2) offering government credits for down payment/closing costs for buyers purchasing homes whi are currently a primary residence (i.e. keeping liquidity in the market)
3) increasing borrowing levels to lending institutions that comply with a series of new regulations which are long overdue
4) reducing the capital gains tax to lessen the ripples for businesses and encourage job creation
5) offering government credits towards businesses that hire affected individuals due to the financial institutions' mistakes

I am no economist to be sure...and there may be plenty of holes to poke in my "details"...but I think this is a problem that has to be fixed from a different angle than what the bailout suggests. Just my 2 cents...which is likely worth 1.134 cents as I type this.

Because none of that will fix the financial/banking system which is on the verge of collapse and with that collapse will go the affluent society you currently enjoy.

Many of these things can be done after to avoid the situation being repeated but at the moment you have to bail out the banking system by removing these toxic packages that dog their balance sheets and free up the system again.

Those are two big myths that I see in pretty much every other post around here:

1. People who lean against government regulation and lean towards capitalism are anti-humanity and don't care about suffering
2. The only reason to have concerns about massive bailouts is the flawed idea that "it only helps fat cats".

The best way to help humanity isn't always the most direct way. There's room for disagreement, of course, but it's not just accurate to say that your one single view is the only one that has people in mind.

+1. The Aussie understands.

You realize the 'toxic' packages you've been talking about are, by definition, the LEAST likely assets to have a legitimate value, and LEAST likely to rebuild value in the future.

This simply transfers who assumes a rather shitty risk. The government cannot indefinately hold onto worthless assets any more than a company can without severe repercussions down the road.

Point them out to me will you?

If that's what you think you're reading then it's no wonder you don't get it.