Government bailout hits $8.5 trillion!

[Sassy]

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/11/26/MNVN14C8QR.DTL

[glenn kangiser]

Why am I not surprised - the thief is in charge of the purse strings

[glenn kangiser]

For now, the Fed has had little trouble raising trillions of dollars to fund its buying spree. In theory, the central bank can raise as much cash as needed simply by issuing more of its own Federal Reserve notes — also known as dollars.

Roll the presses... like they weren't doing that already.

http://www.msnbc.msn.com/id/27912025/

[harry51]

The spin on this makes me want to puke. It's been a foregone conclusion from the get-go that the politically connected will be "made whole" at the lowly taxpayer's expense. Ponder, if you will, what would have happened if the banksters and broksters had succeeded in selling all the securitized worthless mortgages to retail customers before their worthlessness became apparent.......... Bailout? I don't think so..............

[muldoon]

I have pretty much held the same basic thesis on this topic all year.  On this site, if you search
for the terms "primary dealers" by me you'll find 4 posts dating back a few months.

July 15th
The topic came up about naked shorts, to which I pointed out that the only equities on the no naked
short list were the GSE's and the primary dealers.  I didn't really catch the significance at the
time, but it's clear as day now.

August 5th
Basically this post defines the underlying fundamental reason banks were not loaning to each other.
They did not meet minimum reserve requirements and thus did not have funds available to loan
because they were borrowers themselves.  We talked a bit about oil and how it was about to get
crushed.  It did.  Talk about bailouts being the only possible option and it was.

September 30th
This was a post made just before the bailout, the 700billion bailout.  I think was was the defining
point in our current meltdown.  That bailout was never about wall street, never about main street,
never really even about the banks (although they benefited).  The bailout is about 1 thing,
keeping the ability of the us governments ability to continue funding itself intact.  The current
model the us uses is to sell treasuries which in turn finance our way of life.  Letting those 15 or
so banks die on the vine stops everything.  To this day I believe this more than ever because it
still holds true when you look at the actions.  Yes, there are many unintended consequences from
it, yes others have profited from these choices, but the underlying motivation still holds sound.

October 23
In this post I talked about the strain of the bailouts and commitments being made was straining the
treasury markets ability to auction T's and was showing up as serious problems.

---

---
Since then, treasury yield rates have plummeted.  This means that there has been NO SHORTAGE of
people wanting to buy them.  As the stock market has melted down, the only safe place has been
treasuries which has forced the rates down and prices up.  There are two sides to this, one is that
money is literally being sucked from the stock market (down some 50% this year), and into
government bonds.  But even that doesn't really explain all the action.. unsettling action.

Until today on cspan.  Bernanke gets up to testify to congress and made some comments that helped
clear things up for me.

http://www.marketwatch.com/news/story/bernanke-says-fed-still-has/story.aspx?guid={A03BB585-54D0-4E8E-8804-612BE2194A3E}&dist=SecMostCommented

"The Federal Reserve has lowered interest rates just about as far as they can go, but the U.S.
central bank still has plenty of available firepower it could deploy to restore financial markets
to normal, Fed Chairman Ben Bernanke said Monday.
The Fed could buy Treasury notes and bonds or agency bonds in a bid to drive yields lower and "spur
aggregate demand," Bernanke said. Many analysts refer to such a policy as "quantitative easing,"
because the Fed would target a specific amount of money to flood into the economy. "

... humm.  The fed is going to buy debt in order to keep rates low and spur aggregate demand?  That
sounds ok at first glance but what does it mean?  It means that we are NOT seeing the demand for
treasuries the rates are indicating.  It means that the fed is buying this debt, with printed
dollars.  No China, not Saudi Arabia, us.  It should be a simple exercise to understand that if you
buy your own product you'll go broke -- no matter how much aggregate demand you spur up, if it's
all you in the aggregate you go broke.  The reality is that it will lead to a vicious circle,
foreign sellers just cause us to buy more which requires more dollars being printed which raises
inflation, which requires us to buy more, and on and on.

For history buffs, this is EXACTLY the path of Wiemar Germany in the 30's.  Damn near same economic
climate, we took a different path in the great depression -- we "ring fenced" the government from
the banks and forced a decade long depression.  Germany printed money to cover losses (and war
reparations) and led to Wiemar and eventually the SS and all that horribleness.

I'm not saying were headed to repeat Nazi Germany.  I don't know what comes next.  What I am saying
is that the events were seeing now are manifestations of a crashed market.  We have generated some
8 trillion (as this post is named) in debt in the past few weeks for this bailout.  The hole dug is
massive, I don't think it can be fixed because I don't think the event is ahead of us anymore.  I
think the crash has already occurred -- we are just now seeing the ramifications of it hit our
lives.  It is a very real possibility that the US dollar will be gone in the next 5 years.  It's a
very real possibility that the banks will be entirely nationalized; borrowing from the government
at 9% and getting 3% back from T's pretty much guarantees it in my opinion.  They will own it all.

Anyway Harry, the point I was getting at on your post is that things are never quite as black and white as it may first appear.  I don't think it was ever about bailing out the banks because they were all corrupt and greedy.  I think it was about bailing out the banks because without those greedy banks we have no form of functioning government.  They got us good don't they. 

[glenn kangiser]

Thanks, muldoon.  Not much goodness to come of all of that but I appreciate your insight and explanations.

[muldoon]

One interesting tidbit before I let this lay for a while.  Interestingly enough, Germany and Poland are not pursuing this method of intervention in their markets.  Almost like they know something from personal experience or something... 


http://www.ft.com/cms/s/53bb2ac6-bf1b-11dd-ae63-0000779fd18c,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F53bb2ac6-bf1b-11dd-ae63-0000779fd18c.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fworld%2Feurope

Poland rejects borrow and spend

By Jan Cienski in Warsaw

Published: November 30 2008 23:34 | Last updated: November 30 2008 23:34

Poland has no intention of trying to spend its way out of the looming economic slowdown, Donald Tusk, the prime minister has said. The comments align his country with Germany rather than the US and the UK as international divisions grow over how to handle the recession.

"When I talk to European politicians who boldly tell me how much money they are going to pump into the economy, I pose the question, 'Where do you have the money for that?'," Mr Tusk told the Financial Times.

[glenn kangiser]

No one wants to ask that question and surely no one will answer it here.  Lucky for us, we have the money tree.

[harry51]

Hey, Muldoon,

I appreciate the big picture you've painted, and I'm afraid you're right! The Fed gets richer, the gov't can still sell its paper, the credibility of which is propped up in the eyes of the uninitiated by the Fed fabricated "demand", and the man on the street pays the bill through losses to inflation. What's ahead? I don't know either, but another devaluation seems inevitable and stagflation a la Japan is a possibility. Certainly there will be plenty of pain to go around......

My post referred to the mortgage default microcosm of the big picture, which I see as a fraud the banksters and broksters attempted to foist on the retail investment community. They knew lots of those loans were bad when they securitized them, and I think they expected to sell them off at retail before that fact became apparent. As it happened, they were too slow, the real estate bubble burst before they got rid of the "old maid" packaged mortgage securities. The sudden decline in the value of the paper pushed some of them below reserve requirements, and the calls for a bailout began. If they had passed along the "old maid" to the retail investors in time, IMO there would have been no bailout to help them, not even discussion of one.

There have been some nagging questions that are explained by your comments, the answers to which I frankly have not taken the time to try to learn. Notable among these is: How does basically the whole banking system crash due to bad real estate loans when something over 90% of all existing mortgages are paid current? Answer: It's just an excuse, smoke and mirrors, to justify a hidden agenda.

"I think it was about bailing out the banks because without those greedy banks we have no form of functioning government." The question is, will the gov't own the banks, or will the banks own the gov't? Or do they already?

"They got us good don't they." Oh, my, yes. Where the hair is very, very short!

Off Topic / Off Topic - Ideas, politics, rants / Re: Eminent Domain...again    on: March 16, 2006, 07:38:13 PM
Quote from harry51 on Mar 12th, 2006, 2:23pm:

...Unfortunately, wars are not the only excuse for inflating the currency supply beyond what would truly represent the increase (if any) in the goods and services available in the economy across a given period of time; social programs work the same way. It's smoke and mirrors, it's a huge source of the power available to politicians, and it's one of the biggest hammers they hold over our heads to make us keep working for them whether we like it or not.

[apaknad]

muldoon, have you read the book called "the mystery of banking" by murry rothbard? i just got it and the person i got it from warned me that i would want to take all my money out of the bank and buy gold after i read it. it mentions how FDR ruined the banking system by artificially propping the bad banks up w/the FDIC which did not allow the mismanaged banks to fail over time and give people an option to put thier money in well managed banks. it is 320 pges long and i haven't started it yet.