The $700 Billion Bailout Package

Maybe we need a fundamental change in how we do business and how our country is run, the only way that happens is by a tough few years. We need to say no ! I have faith our nation will recover.

WAMUpum wrote:

Your ignorance is almost as silly as your continual whoppers you've posted here about your perfect timing as a trader.

Bear Stearns, as a prime broker and clearing agent to "everyone" had way too much counter-party risk and entanglements that would have crippled virtually every market today.

Ahhh, cripple is the operative word here. Bear had tentacles alright, but the system is going to be stress-tested no matter what. It's already happening. Instead of sending a clarion call, the government merely postponed and exacerbated the inevitable by allowing the corpses to decay even further. And now here we are.

As for the insults, do you have a 20% return on your 401k this year? I'm just curious, because you act like you know a thing or two. I'm guessing not.

BTW, nobody has perfect timing. It's the risk management that counts.

you are correct, it is everybody's fault. so let those everybodys fail and go bankrupt. someone will be there to buy up any remaining assets. that's the free enterprise system. don't get the u.s. taxpayers involved in buying worthless securities. the u.s. taxpayer is alreay saddled with a $7T deficit, which includes $2T for the Crusades and Pentagon waste.

Sagarin wrote:

As for the insults, do you have a 20% return on your 401k this year? .

You don't. Jackass.

You go on believing that if it helps you sleep better at night. Do you even work in the sector, or are you just another avid regurgitator of the financial op-eds? Way to turn this into a personal thread by the way.

Blame can be put on the Fed for it's cheap money policies, and it can be put on Washington for deregulating the banking industry without proper oversight for the elevated risk introduced to the finance system, but without the shitty underwriting that the banks performed in granting all these loans there isn't a problem. Crumbling underwriting policies led to moving all this toxic paper into the system - the SEC enabled, as did the rating agencies, the iBanks, and the pressure of banks and mortgage lenders to match the originating and revenue growth of their competitors.

The problem with the bailout is this: The Fed has already slashed target interest rates; Emergency liquidity has been added to the system; Large financial institutions have been taken-under, left to fail, and been bailed out. None of these actions to this point have stemmed the tide of foreclosures, lower home sales, or tightening credit. The idea that the current proposal will succeed is based on what exactly?

I think most people familiar with the current problems would consider a second bailout of banks and financials - in 4-6 months - very likely. This doesn't include likely federal aid for other faltering industries like Detroit and the airlines (strategic industries with strong lobbying influence). The guys that say this bailout will fix things are the same guys 6 months ago saying this problem was contained. The assets they're planning to buy up can't be priced by the market, which is why they're considered toxic. Hate to be alarmist, but there is no good ending for the current crisis.

I agree with you. Let them fail. They won't starve to death. They will only lose their homes, cars, savings, and their kids will have to enroll at a public secondary school. They may have to live in their cars or in the city park or a homeless shelter. There are plenty of services available to keep them healthy and clean such as government public assistance, county health care, the Union Mission, St. Vincent DePaul, private charities, etc. America is a very caring country with people who care deeply about one another. USA USA USA !

Jeez,I am glad I live in Australia.The Americans need to learn that they are not the chosen people and the rest of the world is not there just to keep them in the style to which they are accustomed.Letthe market work itself out,something might then be done about the horrific American debt problem.

Responding in the order raised...

Wrong. The blame falls on wall street first, consumers a distant second....

Companies have been writing mortgages for decades. It is no secret to the companies who write mortgages how risky mortgages are. There are literally generations worth of info out there that says how risky a certain debt to income loan is...

However, consumers do not have this info-- lenders do. There is an information assymmetry at work--- the lenders knew how risky those loans were, the borrowers didn't.

Think of it this way-- one lender writes loans to 100's (1000's) of borrowers. The lender is the one who should be responsible for figuring out the parameters by which loans are reasonable-- not the individual borrowers..

Exactly-- the lenders are incompetent. It is their job to understand their business. It is not the job of consumers to understand Wall street's business...

Fine-- catastrophe is imminent. It does not naturally follow that the current bailout package must pass...

Look-- if the government has to rescue these incompetent fools-- the government and the taxpayers need to be compensated.

-Buffet just negotiated terms with Goldman Sachs. Fine-- the taxpayers should get those same terms with every company that offloads their waste to the gov't.

-When people work for the government, they get paid according to something called the GS scale. If we are in the business of federalizing Fannie, Freddie, et al., put the execs in those companies on the GS scale. These people are incompetent-- they are bringing down the entire financial system. To argue that they need to be paid more than a mid-level governmental official is just silly...

So what do you guys think is going to happen to the value of the dollar when the Fed creates $700 trillion out of thin air? And what do you think are foreign creditors are going to do with their worthless U.S. treasury bonds as a result?

iflyboats wrote:

So what do you guys think is going to happen to the value of the dollar when the Fed creates $700 trillion out of thin air? And what do you think are foreign creditors are going to do with their worthless U.S. treasury bonds as a result?

700 trillion? yikes, we are in trouble.

ha, thanks for pointing that out

$700 billion

Hmm, what happened to oil this week about the time the bailout was announced.

This bailout isn't going to work, it will just make things worse. We're going to repeat the mistakes of the great depression all over again.

Where is this 700 billion coming from? Oh, we're borrowing it. So people have bad debt and we're going to pay them money by... going into further debt.

Time Is Running Out (email from Ron Paul)

Wednesday, September 24, 2008

Dear Friends,

Whenever a Great Bipartisan Consensus is announced, and a compliant media assures everyone that the wondrous actions of our wise leaders are being taken for our own good, you can know with absolute certainty that disaster is about to strike.

The events of the past week are no exception.

The bailout package that is about to be rammed down Congress' throat is not just economically foolish. It is downright sinister. It makes a mockery of our Constitution, which our leaders should never again bother pretending is still in effect. It promises the American people a never-ending nightmare of ever-greater debt liabilities they will have to shoulder. Two weeks ago, financial analyst Jim Rogers said the bailout of Fannie Mae and Freddie Mac made America more communist than China! "This is welfare for the rich," he said. "This is socialism for the rich. It's bailing out the financiers, the banks, the Wall Streeters."

That describes the current bailout package to a T. And we're being told it's unavoidable.

The claim that the market caused all this is so staggeringly foolish that only politicians and the media could pretend to believe it. But that has become the conventional wisdom, with the desired result that those responsible for the credit bubble and its predictable consequences - predictable, that is, to those who understand sound, Austrian economics - are being let off the hook. The Federal Reserve System is actually positioning itself as the savior, rather than the culprit, in this mess!

• The Treasury Secretary is authorized to purchase up to $700 billion in mortgage-related assets at any one time. That means $700 billion is only the very beginning of what will hit us.

• Financial institutions are "designated as financial agents of the Government." This is the New Deal to end all New Deals.

• Then there's this: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." Translation: the Secretary can buy up whatever junk debt he wants to, burden the American people with it, and be subject to no one in the process.

There goes your country.

Even some so-called free-market economists are calling all this "sadly necessary." Sad, yes. Necessary? Don't make me laugh.

Our one-party system is complicit in yet another crime against the American people. The two major party candidates for president themselves initially indicated their strong support for bailouts of this kind - another example of the big choice we're supposedly presented with this November: yes or yes. Now, with a backlash brewing, they're not quite sure what their views are. A sad display, really.

Although the present bailout package is almost certainly not the end of the political atrocities we'll witness in connection with the crisis, time is short. Congress may vote as soon as tomorrow. With a Rasmussen poll finding support for the bailout at an anemic seven percent, some members of Congress are afraid to vote for it. Call them! Let them hear from you! Tell them you will never vote for anyone who supports this atrocity.

The issue boils down to this: do we care about freedom? Do we care about responsibility and accountability? Do we care that our government and media have been bought and paid for? Do we care that average Americans are about to be looted in order to subsidize the fattest of cats on Wall Street and in government? Do we care?

When the chips are down, will we stand up and fight, even if it means standing up against every stripe of fashionable opinion in politics and the media?

Times like these have a way of telling us what kind of a people we are, and what kind of country we shall be.

In liberty,

Ron Paul

Carnivore 69,

Nice opening remarks.

Here's my take on it:

1) At this point, as much as I hate it, I think this package is necessary.

2) I think Paulson and Bernanke & Co. have done themselves a disservice by calling this a "bailout". That's the term that critics of the plan should call it. It conjures images of the American taxpayer just helping out Wall Street. This is bad. First of all, not all Americans are involved in investing and therefore don't care about Wall Street as much, and many think of the firms and people there are evil and greedy, and why the hell should we help them?

3) This financial package will of course help to keep other bad bad things from happening. Credit isn't a big part of MY life, but it is for most Americans and businesses, and so in order to enable banks to loan money so that businesses can grow and jobs can be created and people can get car loans, etc., this step is necessary.

4) If I understand this move correctly, the American taxpayer will feel the pain of this initially but ultimately it should be a money maker. On that point I don't mind so much as I'm always about paying the piper NOW and reaping the benefits later.

5) This is a case of actually helping out people who shouldn't be helped -- bad lending practice banks and irresponsible people who took out loans they could not afford. BUT, it has to be done. The practice was so widespread that it is affecting people who DO have the ability to pay back loans, and that just can't happen. Again, I'm not a fan of loans of any kind, but I do understand the need for a home loan at least -- MOST people can't simply plop down 100% of the money needed for a house. Car loans less so, but even there, I understand how sometimes it is necessary to finance a vehicle.

6) Part of me wants to just NOT do this and let all the banks and irresponsible people suffer -- they DO deserve that after all. But, I'm not a vindictive person, and while this plan will help those who don't deserve it, it will also help those who didn't do anything wrong and will be responsible with their money. I'm not afraid of a recession; recessions can be good long term for the economy, but it appears that without this intervention it might be too deep and last a little too long to be worth the benefits.

Prediction -- this plan helps soften the blow but that it still takes another 18 months before we see a significantly growing economy again.

Judy wrote:

Jeez,I am glad I live in Australia.The Americans need to learn that they are not the chosen people and the rest of the world is not there just to keep them in the style to which they are accustomed.Letthe market work itself out,something might then be done about the horrific American debt problem.

Your rush to be snotty and arrogant has outed you as a clueless idiot. Pick up a copy of FT today:

"So why isn’t the dollar collapsing outright?

Because as bad as things are over here, they are just as bad overseas! The FT runs with some pretty nifty stats – the total liabilities of Barclays, as one example(with a leverage ratio of 60x), roughly match the size of the entire UK economy.Deutsche Bank (leverage ratio is 50x – nice to see how isolated this is to the USA) has liabilities equivalent to 80% of Germany’s GDP! Fortis (leverage ratio of 33x) has liabilities three times as large as its home country’s GDP (Belgium).

This was a global bubble."

Do you actually think Australia has zero exposure? If you do, you are naive and hopelessly uninformed.

Yours in Kangaroos,

An American

frednorris wrote:

Sure....

Do you see the CEO of Goldman Sachs moving to Hoboken in the hear future?

The former CEO of Goldman Sachs, John Corzine, lives in Hoboken. It's not such a bad place.

good job asshole wrote:

[qoute]

Every last word you have uttered on the economy over the last 12+ months has been dead wrong. You stubbornly refuse to learn from past mistakes under any circumstance.

I've written similar things in the past and somehow they always wind up being deleted.

There are many like Flagpole who by being lucky and reading internet blogs,portray themselves as financial oracles. They will be the next group wondering what hit them, just like the real estate agents are now.

The days of throwing a dart, making 20% on your portfolio and telling everyone what a genius you are have ended.