If I am shown wrong on this by November 1st - I will never post on an economic topic on this forum again. No one needs unnecessary fear spreading and I do not wish to add stress on others that are already feeling enough. However this is my read of the situation today.
I'm just going to come out and say it. Today was financial armageddon. It no longer is a looming threat, it no longer is something that may happen. It happened today, its done. We wont see the effects of it for a few days to weeks in our daily lives but we will see it, and we damn well will feel it. It may get worse, but I'm not sure it matters here. I say that in the sense of does it matter if you drown in 20 feet of water or 200?
I know, the stock market went up right? The stock market is not the economy.
Yes, it went up. It should have considering the ammo that went into it.
This week the Fed gave 80billion to Lehman to close trades via JPM, then 85bill to AIG, while juicing the slosh with a staggering additional 80billion in MBS.
Last night, after the 400 point decline we had the coordinated bazooka shell.
For release at 3:00 a.m. EDT
"Today, the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank are announcing coordinated measures designed to address the continued elevated pressures in U.S. dollar short-term funding markets. These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets. The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures."
http://www.federalreserve.gov/newsevents/press/monetary/20080918a.htm
1) The Fed - The Federal Open Market Committee has authorized a $180 billion expansion of its temporary reciprocal currency arrangements (swap lines). This increased capacity will be available to provide dollar funding for both term and overnight liquidity operations by the other central banks.
http://www.bank-banque-canada.ca/en/notices_fmd/2008/not180908.html
2) Bank of Canada - The Bank of Canada and the Federal Reserve have agreed on a US$10 billion swap facility (reciprocal currency arrangement) to be accessed, should the need arise, to provide U.S.-dollar liquidity in Canada.
http://www.bankofengland.co.uk/publications/news/2008/054.htm
3) Bank of England - The Bank of England will offer to lend each day US dollar funds overnight against eligible collateral. The first such operation will take place today. The amount offered in each repo operation will initially be $40bn.
http://www.ecb.int/press/pr/date/2008/html/pr080918.en.html
4) The US dollars will be provided by the Federal Reserve to the ECB, up to USD 40 billion by means of a temporary reciprocal currency arrangement (swap line).
http://www.boj.or.jp/en/type/release/adhoc/un0809a.pdf
5) Bank of Japan - At the unscheduled Monetary Policy Meeting held today, the Bank of Japan concluded a U.S. dollar swap agreement with the Federal Reserve of up to USD 60 billion and decided to introduce U.S. dollar funds-supplying operations, with the funds provided under the agreement, to supply U.S. dollar funds to market participants in Japan, in conjunction with the Federal Reserve.
http://www.snb.ch/en/mmr/reference/pre_20080918_1/source/pre_20080918_1.en.pdf
6) Swiss - In consultation with the Federal Reserve, the Swiss National Bank has decided to step up its US dollar repo auctions. The SNB will now hold US dollar repo auctions with a term of 1 day (overnight) on a daily basis and increase the volume of the previous auctions with a term of 28 and 84 days respectively. The US dollar repo auctions ease access to US dollar liquidity for SNB counterparties. Taking the market situation into account, the SNB plans to make US dollar liquidity available for as long as it considers this to be necessary.
Starting today, the SNB will hold US dollar auctions with a term of 1 day (overnight) on a daily basis, for an amount of up to USD 10 billion. The volume of the outstanding US dollar repo transactions with a term of 28 days will be increased from USD 6 billion to USD 8 billion and the volume of repo transactions with a term of 84 days from USD 6 billion to USD 9 billion.
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They gave it both barrels. It was a given the market was gonna shoot with that much tinder in the box. It may continue shooting tomorrow morning. However, the credit markets did not budge, were no closer to solving this. Its not liquidity, its solvency and lies. Without correcting the issues we cannot move forward and get back to growing.
As I have stated before, money markets are not fdic insured. Today we saw three mmfs "break the buck" meaning they are not returning the amount of capital people are putting into them. I read a blip that some 90bill left the mmf arena today, putnam has began efforts to simply shut its funds down. The rush to the exits are accelerating. Soon, maybe tomorrow they will disallow redemptions and lock that money in as panic escalates. Wamu put itself on auction today and recieved no bids. none. If the FDIC is called in on this one expect to see a fdic bailout and extreme bank runs. This is not avoidable anymore. Were here.
I am already hearing the positioning, its the SEC, its the shorts, its the Mark to Market rules, its regulation, its not enough regulation. Were past the point at which any correction can occur in the market and they are hoping congress can fix it ... in the next session because they have a vacation coming up you know.
The damage has been done, the artery cut. Now we get to bleed a bit before we understand the severity of the damage actually inflicted by those bastards at the fed and treasury this week. yes, I think its that bad.
QuoteIf I am shown wrong on this by November 1st - I will never post on an economic topic on this forum again. No one needs unnecessary fear spreading and I do not wish to add stress on others that are already feeling enough.
Sorry to disagree with you on that one, muldoon.
Right, wrong or otherwise, I for one would appreciate it if you continue posting, no matter what. I think knowing what little I know, that you are right, but you can never tell what the manipulators may pull.
I have never seen a financial analyzer that is correct all of the time. You are a great insight for us no matter which way this thing goes.
Thanks for all the time you put into this for us. We know you do your best.
Government intentionally generates fear to control the people regarding war policy approval.. In this case I think the financial problems are getting away from them - too many years of financial corporations cooking the books and CEO's running off with the big bucks, and a bit of fear and warning is warranted.
Your views on what is coming at least sounds a well thought out warning. Many would not have a clue if they weren't alerted.
Thanks again, muldoon.
I appreciate your breakdown of the economy/stock market etc, also, Muldoon. I've read quite a bit over the past few years on international banking, the North American Union, the Security & Prosperity Partnership... I think this has in one sense been planned to bring us to the One World Gov't that Daddy Bush spoke of so glowingly - the "Thousand Points of Light"... with the Trilateralists, Council of Foreign Relations & the Bilderbergs... just look at all the people in gov't that are part of these organizations... if you look at David Rockefeller's writings & statements, the United Nations, the military now to police our streets & "help people with the jaws of life"... so much is happening beneath the horizon to the majority of people... here are a few articles that seem to be pertinent & give a little history of where we're at now...
Is the US bankrupt?
A stunning 23 page report by Professor Laurence J. Kotlikoff titled "Is the U.S. Bankrupt?" was issued by the Federal Reserve Bank of St. Louis in November, 2005, and quietly posted on their public website. Although publicly accessible, it was totally ignored by the U.S. press.
http://www.minyanville.com/assets/File/Kotlikoff_USBankruptcy_paper%5B1%5D.pdf
U.S. Accounting Data May Obscure Impending Collapse
While Laurence Kotlikoff detailed bankrupt condition of the U.S. government, Martin Weiss has strong thoughts on how it's being covered up. Bottom line: Don't depend on the government to warn you of an impending financial meltdown! Martin Weiss
Washington's Enron-style accounting is now so widespread and so deeply ingrained, the nation could be bankrupt and not even know it.
You go to work. You save and invest. You vote in the November election. And you assume that everything is business as usual. Then, one day, you wake up to the shocking discovery that it's not.
Inflation is at least three percentage points worse than what they're telling you. Unemployment and the budget deficit is over double. The national debt is at least five times bigger than official tallies.
Almost every number coming out of Washington has been thoroughly massaged and greatly distorted, almost always with a bias toward sweeping the dirt under the carpet and sugarcoating the truth.
This is not a conspiracy. It just happens naturally. But that doesn't diminish the potential impact on your money. It's easily the greatest scam of all time.
http://www.augustreview.com/news_commentary/economy/u.s._accounting_data_may_obscure_impending_collapse_2006091817/
The Global Elders Print E-mail
Written by Patrick Wood
Friday, 01 August 2008
"We are moving to a global village and yet we don't have our global elders. The Elders can be a group who have the trust of the world, who can speak freely, be fiercely independent and respond fast and flexibly in conflict situations." (http://www.theelders.org website)
The Elders have arrived on the world scene. Thus far, there are 12 self-appointed "apostles" of globalism to manage the "global village." This group represents the cream of the globalist crop.
1. Nelson Mandela – Former president of South Africa
2. Desmond Tutu – Former general secre-tary of the South African Council of Churches
3. Ela Bhatt – Founder of SEWA (Self-Employed Women's Association) in India
4. Gro Brundtland – Former chair of the World Commission of Environment and Development (the Brundtland Commission), and driving force behind Sustain-able Development
5. Jimmy Carter – Former president of the United States
6. Muhammad Yunus – founder of Grameen Bank
7. Graca Machel – President of Foundation for Community Development in Mozambique
8. Kofi Annan – Former Secretary-General of the United Nations
9. Lakhdar Brahimi – Former Under-Secretary General of the United Nations
10. Fernando H. Cardoso – Former President of Brazil
11. Mary Robinson – Former President of Ireland; former United Nations High Commissioner for Human Rights
12. Aung San Suu Kyi – Freedom fighter and figurehead leader in Burma since 1988
Initial funding was secured from global players such as Richard Branson, Peter Gabriel, Humanity United, Tick Tarlow, the United Nations Foundations, and others.
The original idea behind The Elders came from British musical icon, Peter Gabriel.
The current Executive Director of The Elders is Dr. Robert A. Pastor (surprised?), who is also known as the "father of the North American Union" because of his tireless work to unite Mexico, Canada and the United States into a common block similar to the European Union.
http://www.augustreview.com/news_commentary/general/the_global_elders_2008080196/
Quotethe military now to police our streets & "help people with the jaws of life"...
Heck ..... my wife carries that around with her as standard equipment...and I don't think I need the military here to show me how to use it.... [crz]
QuoteIts not liquidity, its solvency and lies. Without correcting the issues we cannot move forward and get back to growing.
With that much fireworks the "Shock and Awe" can only last as long as the gunpowder holds out. That can't be much longer...
You are right muldoon (above), liquidity can be used to distract or temporarily paper over insolvency but it can't fix it.
I'm not sure we will know by 11/1 muldoon, but regardless, don't stop posting. Your insight is too valuable.
I am also concerned. If you remember, the last time the SEC decided to enforce the short rule, I said there was a lot more to it. This is loosely what I was thinking about. Again we see the rules being enforced. It is a desperation move to make the market appear as if it is improving with the FED's guidance.
As you said, the market is not the economy and todays rally was predictable. The market is not moving on fundamentals and hasn't all year. It moves on rumor, headlines, panic and relief.
I am anxious to see what happens today!
I didn't sleep well last night (Like not at all) so I started watching the overseas market early. What a rocket! Futures here are looking like market will gap up big.
That said, every annalist I've heard this morning has said the same thing. It is artificial. We still have the same problems we had two days before.
For someone that hates daytrading, I seem to be doing a lot of it lately. Unless I miss my guess, it will be a big day to do some momentum buying and selling and it may be the last good one for a while, Next week may be flat or start the downturn again.
You seem to have a good grasp on this stuff and I sure don't. I'm a little dense on the economics of things d*
Can you explain this one to me?
I have a mortgage with XYZ Bank. They played the leverage game and are out 30 times their assets. Current events force XYZ Bank to go bankrupt. The Feds decide not to bail them out. What happens to that loan of mine that they own? Would I get to wipe the slate clean and owe nothing? Or could they come knocking on my door and force me to pay in full (by mortgaging with another bank or other means)? Or would they just not have to pay back whatever loans they owe others and get to keep whatever loans they have out to people like me?
How about this one?
Are there strings attached to these bailouts? I mean if we (the tax payers) are giving out loans in the BILLIONS to AIG, do the CEOs et. al. get big fat bonus checks this year still? How about the ridiculous salaries they are drawing, any chance there are strings attached to the loans that require reorganization (streamline)?
And finally...
What about my 401K. How much in danger is this? I've watched it dwindle. If this was straight stocks instead of funds I'd be a bit less concerned since shares are selling low and should eventually climb back up unless the entire market goes belly up. If my understanding is correct, since it is all funds now, I don't actually own shares of stock but more like an investment in a group of stocks that are continually changing so money lost now won't come back in higher returns like stocks would. Do I have that correct?
I'm no economist by any stretch of the imagination but I am an engineer and I imagine that if I'm confused how can the average person understand this stuff without an economics background?
Of course any answers would not be taken as professional advice but more like an opinion with no liability strings attached. (hows that for a disclaimer?) ;)
I'll stumble around until muldoon jumps in
I have a mortgage with XYZ Bank. They played the leverage game and are out 30 times their assets. Current events force XYZ Bank to go bankrupt. The Feds decide not to bail them out. What happens to that loan of mine that they own? Would I get to wipe the slate clean and owe nothing? Or could they come knocking on my door and force me to pay in full (by mortgaging with another bank or other means)? Or would they just not have to pay back whatever loans they owe others and get to keep whatever loans they have out to people like me?
Your mortgage is an asset of that company. It would be sold to another company and in fact, probably has already...several times.
Are there strings attached to these bailouts? I mean if we (the tax payers) are giving out loans in the BILLIONS to AIG, do the CEOs et. al. get big fat bonus checks this year still? How about the ridiculous salaries they are drawing, any chance there are strings attached to the loans that require reorganization (streamline)?
They are all different. Atleast some have called for the key people to step down.
What about my 401K. How much in danger is this? I've watched it dwindle. If this was straight stocks instead of funds I'd be a bit less concerned since shares are selling low and should eventually climb back up unless the entire market goes belly up. If my understanding is correct, since it is all funds now, I don't actually own shares of stock but more like an investment in a group of stocks that are continually changing so money lost now won't come back in higher returns like stocks would. Do I have that correct?
To quote Mr Chicken "Go run up an alley and holler fish"
Who knows. Anything I told you would be a guess.
No, my mortgage is owned by the bank we signed on with but either way has nothing to do with the question. Sell off to whom, I mean who is buying mortgages now in this shaky economy? Or would that just mean someone could swoop in and pay 1/2 or 1/4 what the payout of my mortgage is to get the right to make me pay them instead? I'm only using me and my to make my questions simpler, I'm trying to see the behind the scenes stuff that is going on with this mess. It just seems fishy, I agree to pay someone back money I owe them, then that person dies, without some legal agreement as part of the loan, I don't owe anybody anything anymore. Is this different because of the small print buried somewhere in the mountains of forms signed when taking out a mortgage?
It seems to me that a bank that hasn't made these leverage mistakes and has fewer risky loans out (or perhaps a rich country) could make out like bandits in this environment right now as long as things don't get so bad that we all default on our mortgages because the economy collapses.
Quote from: Daddymem on September 19, 2008, 12:22:12 PM
Or would that just mean someone could swoop in and pay 1/2 or 1/4 what the payout of my mortgage is to get the right to make me pay them instead?
You have hit the nail right smack dab on it's head! :)
Quote from: Daddymem on September 19, 2008, 07:10:07 AM
You seem to have a good grasp on this stuff and I sure don't. I'm a little dense on the economics of things d*
Can you explain this one to me?
I have a mortgage with XYZ Bank. They played the leverage game and are out 30 times their assets. Current events force XYZ Bank to go bankrupt. The Feds decide not to bail them out. What happens to that loan of mine that they own? Would I get to wipe the slate clean and owe nothing? Or could they come knocking on my door and force me to pay in full (by mortgaging with another bank or other means)? Or would they just not have to pay back whatever loans they owe others and get to keep whatever loans they have out to people like me?
Yes, you will continue to pay the note. The mortgage is not owned by the bank, even though they may own the servicing of it. The mortgage is a part of a larger pool of mortgages in a bond. If your bank were to sell these those people will continue to expect payment. If your bank goes into receivership (equivalent of bankruptcy for banks) the fdic will seize those bonds and indeed all assets and try to sell them at auction to cover losses from deposits. Someone will always own the paper and expect to get paid.
Quote
How about this one?
Are there strings attached to these bailouts? I mean if we (the tax payers) are giving out loans in the BILLIONS to AIG, do the CEOs et. al. get big fat bonus checks this year still? How about the ridiculous salaries they are drawing, any chance there are strings attached to the loans that require reorganization (streamline)?
Yes, they all have various strings. The FNM and FRE bailout saw a replacement of the management and C level execs. They all recieved multimillion parachutes but left. The AIG bailout took 80% of AIG as collateral, and requires an 8% + libor loan rate. No we taxpayers do not get a bonus. As I understand it, the fed profitted from both the Chrysler and S&L/RTC bailout over a period of years went by. I never got a refund check for it.
Quote
And finally...
What about my 401K. How much in danger is this? I've watched it dwindle. If this was straight stocks instead of funds I'd be a bit less concerned since shares are selling low and should eventually climb back up unless the entire market goes belly up. If my understanding is correct, since it is all funds now, I don't actually own shares of stock but more like an investment in a group of stocks that are continually changing so money lost now won't come back in higher returns like stocks would. Do I have that correct?
I have no idea how safe your money is. Sorry.
Quote
I'm no economist by any stretch of the imagination but I am an engineer and I imagine that if I'm confused how can the average person understand this stuff without an economics background?
Of course any answers would not be taken as professional advice but more like an opinion with no liability strings attached. (hows that for a disclaimer?) ;)
...
Quote
Or would that just mean someone could swoop in and pay 1/2 or 1/4 what the payout of my mortgage is to get the right to make me pay them instead?
Yup. 2 weeks ago Merryl Lynch sold paper at 22.5 cents on the dollar, but they financed the deal for 75%. In reality they received 5.6 cents on the dollar for this. The conditions are much worse now then they were then. This is why the us government is stepping in to buy them at 70 cents on the dollar. No one else wants them, everyone in the financial world calls them junk and toxic, but the us treasury is happy to pay top dollar for them with taxpayer dollars.
That money wont help your house values, nor will it correct the underlying problems. If they wanted to correct some of this debt default they should make the same offer to homeowners. How many people would be willing to pay off the entire balance of their house if they only had to pay 5 cents on the dollar? thats 5k for every 100k.
There was a report recently of banks selling mortgages so many times without the required follow up paperwork that they could not even prove ownership and people were getting out of paying them.
I know my loans or leases have been sold in the past multiple times then one of the crooked lease companies got my paperwork back after it was paid off and restarted the lease even after we wanted to know what was required of us to close it. It was called an evergreen clause and cost me an extra $5000 plus to get away from the ripoff scum.
Well, martial law is on its way... now they can control the angry masses when they lose everything....
Brigade homeland tours start Oct. 1
3rd Infantry's 1st BCT trains for a new dwell-time mission. Helping 'people at home' may become a permanent part of the active Army
By Gina Cavallaro - Staff writer
Posted : Monday Sep 8, 2008 6:15:06 EDT
The 3rd Infantry Division's 1st Brigade Combat Team has spent 35 of the last 60 months in Iraq patrolling in full battle rattle, helping restore essential services and escorting supply convoys.
Now they're training for the same mission — with a twist — at home.
Beginning Oct. 1 for 12 months, the 1st BCT will be under the day-to-day control of U.S. Army North, the Army service component of Northern Command, as an on-call federal response force for natural or manmade emergencies and disasters, including terrorist attacks.
It is not the first time an active-duty unit has been tapped to help at home. In August 2005, for example, when Hurricane Katrina unleashed hell in Mississippi and Louisiana, several active-duty units were pulled from various posts and mobilized to those areas.
But this new mission marks the first time an active unit has been given a dedicated assignment to NorthCom, a joint command established in 2002 to provide command and control for federal homeland defense efforts and coordinate defense support of civil authorities.
After 1st BCT finishes its dwell-time mission, expectations are that another, as yet unnamed, active-duty brigade will take over and that the mission will be a permanent one.
"Right now, the response force requirement will be an enduring mission. How the [Defense Department] chooses to source that and whether or not they continue to assign them to NorthCom, that could change in the future," said Army Col. Louis Vogler, chief of NorthCom future operations. "Now, the plan is to assign a force every year."
The command is at Peterson Air Force Base in Colorado Springs, Colo., but the soldiers with 1st BCT, who returned in April after 15 months in Iraq, will operate out of their home post at Fort Stewart, Ga., where they'll be able to go to school, spend time with their families and train for their new homeland mission as well as the counterinsurgency mission in the war zones.
Stop-loss will not be in effect, so soldiers will be able to leave the Army or move to new assignments during the mission, and the operational tempo will be variable.
Don't look for any extra time off, though. The at-home mission does not take the place of scheduled combat-zone deployments and will take place during the so-called dwell time a unit gets to reset and regenerate after a deployment.
The 1st of the 3rd is still scheduled to deploy to either Iraq or Afghanistan in early 2010, which means the soldiers will have been home a minimum of 20 months by the time they ship out.
In the meantime, they'll learn new skills, use some of the ones they acquired in the war zone and more than likely will not be shot at while doing any of it.
They may be called upon to help with civil unrest and crowd control or to deal with potentially horrific scenarios such as massive poisoning and chaos in response to a chemical, biological, radiological, nuclear or high-yield explosive, or CBRNE, attack.
Training for homeland scenarios has already begun at Fort Stewart and includes specialty tasks such as knowing how to use the "jaws of life" to extract a person from a mangled vehicle; extra medical training for a CBRNE incident; and working with U.S. Forestry Service experts on how to go in with chainsaws and cut and clear trees to clear a road or area.
The 1st BCT's soldiers also will learn how to use "the first ever nonlethal package that the Army has fielded," 1st BCT commander Col. Roger Cloutier said, referring to crowd and traffic control equipment and nonlethal weapons designed to subdue unruly or dangerous individuals without killing them.
"It's a new modular package of nonlethal capabilities that they're fielding. They've been using pieces of it in Iraq, but this is the first time that these modules were consolidated and this package fielded, and because of this mission we're undertaking we were the first to get it."
The package includes equipment to stand up a hasty road block; spike strips for slowing, stopping or controlling traffic; shields and batons; and, beanbag bullets.
"I was the first guy in the brigade to get Tasered," said Cloutier, describing the experience as "your worst muscle cramp ever — times 10 throughout your whole body.
"I'm not a small guy, I weigh 230 pounds ... it put me on my knees in seconds."
con't at link below
http://www.armytimes.com/news/2008/09/army_homeland_090708w/
Here is the Brit take on this at least from one article.
http://www.dailymail.co.uk/news/article-1058601/Apocalypse-Now--New-world-order-devastating-implications-Western-nations.html
scary scenerio isn't it. he could be right on. stock up on silver to help the inflation. silver reacts to inflation, gold reacts to fear and chaos(primarily) :-[.
Interesting action from comex on increasing the margin costs on gold. they are loading up the stockyard cattle shoots with investors today. if your going to play metals, you need to be holding it by now.
http://www.bloomberg.com/apps/news?pid=20601012&sid=a6TkCUg_VQjI&refer=commodities
also, kinda funny if you are up for laughing right now:
http://www.youtube.com/watch?v=eVB-SSkkLnY
Here is at least a reasoned editorial on the Paulson bailout plan. See what you think:
September 22, 2008
NYT Op-Ed Columnist
Cash for Trash (http://www.nytimes.com/2008/09/22/opinion/22krugman.html?_r=1&oref=slogin)
By PAUL KRUGMAN
Some skeptics are calling Henry Paulson's $700 billion rescue plan for the U.S. financial system "cash for trash." Others are calling the proposed legislation the Authorization for Use of Financial Force, after the Authorization for Use of Military Force, the infamous bill that gave the Bush administration the green light to invade Iraq.
There's justice in the gibes. Everyone agrees that something major must be done. But Mr. Paulson is demanding extraordinary power for himself — and for his successor — to deploy taxpayers' money on behalf of a plan that, as far as I can see, doesn't make sense.
Some are saying that we should simply trust Mr. Paulson, because he's a smart guy who knows what he's doing. But that's only half true: he is a smart guy, but what, exactly, in the experience of the past year and a half — a period during which Mr. Paulson repeatedly declared the financial crisis "contained," and then offered a series of unsuccessful fixes — justifies the belief that he knows what he's doing? He's making it up as he goes along, just like the rest of us.
So let's try to think this through for ourselves. I have a four-step view of the financial crisis:
1. The bursting of the housing bubble has led to a surge in defaults and foreclosures, which in turn has led to a plunge in the prices of mortgage-backed securities — assets whose value ultimately comes from mortgage payments.
2. These financial losses have left many financial institutions with too little capital — too few assets compared with their debt. This problem is especially severe because everyone took on so much debt during the bubble years.
3. Because financial institutions have too little capital relative to their debt, they haven't been able or willing to provide the credit the economy needs.
4. Financial institutions have been trying to pay down their debt by selling assets, including those mortgage-backed securities, but this drives asset prices down and makes their financial position even worse. This vicious circle is what some call the "paradox of deleveraging."
The Paulson plan calls for the federal government to buy up $700 billion worth of troubled assets, mainly mortgage-backed securities. How does this resolve the crisis?
Well, it might — might — break the vicious circle of deleveraging, step 4 in my capsule description. Even that isn't clear: the prices of many assets, not just those the Treasury proposes to buy, are under pressure. And even if the vicious circle is limited, the financial system will still be crippled by inadequate capital.
Or rather, it will be crippled by inadequate capital unless the federal government hugely overpays for the assets it buys, giving financial firms — and their stockholders and executives — a giant windfall at taxpayer expense. Did I mention that I'm not happy with this plan?
The logic of the crisis seems to call for an intervention, not at step 4, but at step 2: the financial system needs more capital. And if the government is going to provide capital to financial firms, it should get what people who provide capital are entitled to — a share in ownership, so that all the gains if the rescue plan works don't go to the people who made the mess in the first place.
That's what happened in the savings and loan crisis: the feds took over ownership of the bad banks, not just their bad assets. It's also what happened with Fannie and Freddie. (And by the way, that rescue has done what it was supposed to. Mortgage interest rates have come down sharply since the federal takeover.)
But Mr. Paulson insists that he wants a "clean" plan. "Clean," in this context, means a taxpayer-financed bailout with no strings attached — no quid pro quo on the part of those being bailed out. Why is that a good thing? Add to this the fact that Mr. Paulson is also demanding dictatorial authority, plus immunity from review "by any court of law or any administrative agency," and this adds up to an unacceptable proposal.
I'm aware that Congress is under enormous pressure to agree to the Paulson plan in the next few days, with at most a few modifications that make it slightly less bad. Basically, after having spent a year and a half telling everyone that things were under control, the Bush administration says that the sky is falling, and that to save the world we have to do exactly what it says now now now.
But I'd urge Congress to pause for a minute, take a deep breath, and try to seriously rework the structure of the plan, making it a plan that addresses the real problem. Don't let yourself be railroaded — if this plan goes through in anything like its current form, we'll all be very sorry in the not-too-distant future
I agree for what that's worth. The "plan" is unacceptable.
Looks like they are trying to railroad it through before people come to their senses.
QuoteResident Bush prodded Congress during the day to pass the rescue plan quickly, declaring, "The whole world is watching."
Rep. Barney Frank, the House Financial Services Committee chairman, said the administration essentially had forced Congress to the negotiating table by creating an expectation in financial markets that a massive bailout was on the way.
"By the declaration that they made, by sending this proposal, I think we have to recognize the reality that we don't have a choice now of debating whether this is a good or a bad thing," said Frank, D-Mass, who was leading negotiations with Treasury Secretary Henry Paulson.
http://news.yahoo.com/s/ap/20080922/ap_on_bi_ge/financial_meltdown
A Violation of Public Trust
*
The real cost of Paulson's $700 billion bailout plan,
*
Gross mismanagement, violation of public trust and other government shenanigans,
*
Are the American people gullible enough to buy it? All that and more...
Dan Denning, reporting from Melbourne, Australia...
Ben Bernanke and Hank Paulson went before Congress yesterday to shill their plan for rescuing the financial industry from its poor risk management. Much of the discussion hinged on what price the proposed Treasury bail-out fund would pay for the asset-backed securities (mostly mortgage) that are lodged deep in the bowels of the global financial system.
Paulson and Bernanke argue that the fund (likely managed by either Goldman or Morgan, for a fee, of course) should not pay low, real-world prices for the bad debt. The market price of the bad assets is what Bernanke calls a "fire-sale" price. And that is bad, apparently (don't ever try to go discount shopping with Ben Bernanke).
As we mentioned earlier this week, forcing the banks to sell at fire-sale prices doesn't improve their capital position. So Paulson and Bernanke have advanced the theory that the tax-payer should pay the "hold-to-maturity" price for the securities. That price, as you might guess, is much higher than the "fire sale" (market) price.
Some people like paying higher prices simply because they can. It makes them feel rich, especially when they're paying with other people's money.
Hang on, though. What is the "hold-to-maturity" price? No one knows! Paulson and Bernanke argue that many of the mortgages will come good once the storm passes, and that the assets the taxpayer buys today at "hold-to-maturity" price might actually be a good investment in the proverbial "long term."
Gag.
Wretch.
Here's what we guess will happen. The Paulson plan is an attempt at price controls. Only here, the Plan is to value the impaired asset-backed securities much higher than the market values them at. This will not create a scarcity (as is the case with price controls in the stock market). It will create a surplus! How is that possible?
As Thomas Sowell explains, "A price set above the free market level tends to cause more to be supplied than demanded, creating a surplus...It is often lost sight of in the swirl of more complex events and more politically popular beliefs."
Translation: if the Paulson plan offers a higher price for assets than the market price, the banks have every incentive to off-load as many assets as they can. They increase the supply of assets for sale that they consider the riskiest. And why not? If someone pays you to get rid of your biggest liabilities, wouldn't take advantage of it too? If you could sell your garbage for gold, wouldn't all of your possessions suddenly look like garbage?
A better plan might be to slap a multi-year freeze on the valuation of the suspect assets and leave them on bank balance sheets. Just let the banks carry them on the balance sheet, Japan style, without having to mark them to market. Let them unwind the bad debts over time, rather than going out of business, or transferring the whole mess to the Federal balance sheet.
Not that we like that solution. And it certainly doesn't address the "root cause" of the problem. The assets the securities are tied to, American homes, are falling in value. As far as we can tell, there's no way to slap a price control on those and keep them from falling.
But the Denning Plan – leaving the toxic waste on the balance sheets of the folks who created it – seems more just than the Paulson Plan.
[Dan Denning appears courtesy of the Australian Daily Reckoning ] go to link for another revealing story...
http://www.agorafinancial.com/afrude/
Close. What will really happen is all the securities the treasury buys will be sold right back to the banks at a discount. I.E. we'll buy at 70% then sell back for 10%. All this paper will go around in a big circle and end right back where it started. Only then the banks will have much less invested in the paper than they do now. The taxpayer will get the bills in the end. May as well give the trillion away with no strings. Also who gets decide which banks get helped and which are thrown to the wolves? The wolves will have lots of extra cash to gobble up the unfortunate banks who didn't get the giveaway cash.
agreed. the bailout plan is structured so that only 700billion can be held at any one time. Nothing stopping them from buying 700b at 70 cents, selling it somewhere else for 5 cents. Now they can start over with a fresh 700B to work from because they are no longer holding it. Then they buy more at some price then sell it lower, this money laundering scheme does not restore investor confidence. It does not reduce foreclosures. It is not even clear if the banks will in turn even lend the money back out.
What makes me so mad is that as a democracy and with a capitalistic economy...What right does the government to ever spend the publics monies?
This bailout is basically the government borrowing money that will be paid back by the tax payer for years...To bail out banks that are only in trouble because they got Reagan to do away with banking regulations...
A bank is a license to print money... it is a time tested system that makes money... a system that has been in existence for thousands of years... it works it is brilliant and simple...It is only in trouble now because of greed and gross misconducts..
And the taxpayers are supposed to pay for a redo or a start over for the banking community...When for years the executives and CEO's make millions annually.
Let the banks go under and fall by the wayside...Let there be deflation instead of inflation...Let's see the price of oil cut in half...Lets see real estate drop by 25% across america...Let's see clothing cars and food go down in value.... What we need more than a bail out is a market correction...
And when the banks crumble and they conduct the investigations lets see the execs and CEO's go to jail for manipulating the system..
The whole point of the american revolution was to be free of a national or federal bank...It is not the job of the american worker to keep foreign banks solvent....
I want to know how much "kool Aid" you need to drink to think this is a good idea
let me start my new job first muldoon ;D if the fix wasn't in for so long i pretty much would agree with you. all the presidents of late were screw ups, not just reagan(clinton started the housing fiasco by ordering the loosening up of credit requirements to the point of insanity).
Well it all started when Reagan did away with regulations for financial institutions and Wall street...IMHO
I saw Carl Icahn on the tube the other night. He quoted the New York Times as having calculated some CEO's pay at $125,000/hr. The CEO then took the copororate plane and flew to the Superbowl or somewhere to play golf. He said I want my CEO's to be happy when I buy into a company. He has a good dry sense of humor, just my style. Only it isn't funny.
And we have to bail out the poor b.....'s - excuse my language... >:( d*