$700 Billion - To Bail or Not to Bail...That is the question

[Vincent Vega]

Which begs the question, are they, just like cori said "pulling it out of their collective asses."

Maybe. I don't know how a meeting there looks like... or where it does take place exactly.

 

[yolland]

I posted a link to this in the general discussion thread, but here's a draft of the "Economic Rescue Principles" that House Republicans are now circulating as their proposed alternative to the revised bailout plan:

• Rather than providing taxpayer funded purchases of frozen mortgage assets, we should adopt a mortgage insurance approach to solve the problem.

• Currently the federal government insures approximately half of all mortgage backed securities. (MBS) We can insure the rest of current outstanding MBS; however, rather than taxpayers funding insurance, the holders of these assets should pay for it. Treasury Department can design a system to charge premiums to the holders of MBS to fully finance this insurance.

• Instead of injecting taxpayer capital into the market to produce liquidity, private capital can be drawn into the market by removing regulatory and tax barriers that are currently blocking private capital formation. Too much private capital is sitting on the sidelines during this crisis.

• Temporary tax relief provisions can help companies free up capital to maintain operations, create jobs, and lend to one another. In addition, we should allow for a temporary suspension of dividend payments by financial institutions and other regulatory measures to address the problems surrounding private capital liquidity.

• Increase Transparency. Require participating firms to disclose to Treasury the value of their mortgage assets on their books, the value of any private bids within the last year for such assets, and their last audit report.

• Limit Federal Exposure for High Risk Loans: Mandate that the GSEs no longer securitize any unsound mortgages.

• Call on the SEC to audit reports of failed companies to ensure that the financial standing of these troubled companies was accurately portrayed.

• Wall Street Executives should not benefit from taxpayer funding.

• Call on the SEC to review the performance of the Credit Rating Agencies and their ability to accurately reflect the risks of these failed investment securities.

• Create a blue ribbon panel with representatives of Treasury, SEC, and the Fed to make recommendations to Congress for reforms of the financial sector by January 1, 2009.

 

[A stor]

Since the American tax payer is going to be getting the bill, and I am one of them. I want to know where each dollar is going.

 

[MrsSpringsteen]

The head honcho at Lehman was making 17 grand an hour .

 

[A stor]

The head honcho at Lehman was making 17 grand an hour .

And the average senior citizen makes less than this in one year.

 

[anitram]

I posted a link to this in the general discussion thread, but here's a draft of the "Economic Rescue Principles" that House Republicans are now circulating as their proposed alternative to the revised bailout plan:

They are proposing more deregulation, corporate tax cuts, and for the free market to correct itself.

In case anyone is confused.

 

[A stor]

So who is accountable for this? Surly, no one in my neighborhood, since we are not Wall Street investors. More, plan Joe and Jane, from America's Main Street.

 

[yolland]

They are proposing more deregulation, corporate tax cuts, and for the free market to correct itself.

Right. I'm wondering though whether McCain's implicit endorsement of those principles yesterday (while refusing to actually commit to either plan) isn't now going to put the pressure on Obama to explain tonight why that approach won't work, and why a bailout plan with safeguards added is better. Because otherwise what a lot of voters get out of it might be "The Democrats asked me to bail out Wall Street and the Republicans didn't."

 

[Dalton]

I think its unfair for politicians to expect the American public to read up on issues like this economic crisis. There are so many good reality TV programs on every night and there are only so many hours in a day ...

 

[dazzlingamy]

In our news they said that the bail out deal has a part for all the CEOs to get their salaries paid and their payout clauses because they have contracts and they come first.

How bullshit is that? Taxpayer money going to some bastards who ran companies into the ground and now get to feck off with millions of dollars in their pockets. Its just completely ludicrious

 

[anitram]

Right. I'm wondering though whether McCain's implicit endorsement of those principles yesterday (while refusing to actually commit to either plan) isn't now going to put the pressure on Obama to explain tonight why that approach won't work, and why a bailout plan with safeguards added is better. Because otherwise what a lot of voters get out of it might be "The Democrats asked me to bail out Wall Street and the Republicans didn't."

Again, Krugman is really recommended reading. First he explains that the Republican (McCain) proposal is absolute garbage. Second, a nice summary of where we are and why.

First of all, we have the Republican Study Committee blowing things up with a complete nonsense proposal — solving the crisis with a holiday on capital gains taxes. How is that possible? Well, if a party runs on economic nonsense for 25 years, eventually many of its foot soldiers will be people who actually believe the nonsense.

More specifically, though, the failure to get a deal reflects the betrayals of the Bush years. Democrats weren’t going to trust Henry Paulson, because behind him they see the ghost of Colin Powell (and Paulson’s “all your bailout are belong to me” proposal, aside from being bad economics, showed an incredible tone-deafness.)

And after the way the Bushies and their allies double-crossed the Democrats again and again in the aftermath of 9/11 — demand national unity, then accuse you of being soft on terrorists anyway — there’s no way Pelosi and Reed will do the responsible but unpopular thing unless the Republicans agree to share ownership.

So what we now have is non-functional government in the face of a major crisis, because Congress includes a quorum of crazies and nobody trusts the White House an inch.

As a friend said last night, we’ve become a banana republic with nukes.

McCain has come up with a horrific "plan" - that should be repeated again and again and again.

Even people who don't know shit about the economy - ask yourself a very common sense question: what capital gains tax are you paying on assets which you are selling BELOW the asset's cost base? We are taxing what gain, exactly? I mean, the sheer stupidity of it is astounding.

 

[Vincent Vega]

And I thought sleep deprivation was the reason I was totally lost on the alternative proposal's economic sense in any way.

McCain might try to do campaigning with this crisis, but if he gets elected on that bullshit it will backfire.
Or his plan is rather kind of: Well, I'm going under in this campaign, but you will go under with me. I don't know.

 

[diamond]

The ecomonic bail out explained on how and why we got there:

YouTube - Burning Down The House: What Caused Our Economic Crisis?

 

[financeguy]

Please understand.

The credit markets are seized. The bailout must happen. We can worry about the post-mortems later.

This is not the time for the luxury of a debate over who is to blame, whether bankers are over-paid or even how we got here in the first place, etc, etc.

The Republicans are fools, knaves and hypocrites, with the exception of Ron Paul. They didn't have a problem with Bushco's enlargement of the milit-ind complex over the last 8 years, but now they have decided to get on their high horses because they see electoral advantage. This is not the time to decide to metamorphise back into free market purists all of a sudden.

Actual post from a trader on another forum:

In NY right now the brown stuff is really hitting the wall.

There are no t-bills or agencies available, none.
The overnight market is bananas....if this goes on much longer then there will be major major trouble.

At the moment, the sept t-bill, maturing in 3 days is trading above par, ABOVE PAR!!!....
I.E you have to pay money to lend overnight if you even have the cash which isn't there, everyone is hoarding everything and terrified...this has never happended before

Libor is 186 basis points above the fed and the municipal tax free rate is a whopping, enormous 7.96%

This rate is normally 70% of 3 month libor, so it should be about 3.50%
This is the rate the municipalities are paying in auction rate bonds, i.e. no one is buying.

The futures market is totally dislocated. Market makers are pricing it to close out the market as they don't want the business...the TED spread is over 300 bps, the highest level ever, the scariest thing the market has seen.

I'm not sure if this makes sense to many people over there as this stuff is a different market, but to put it simply the US is tethering on the edge of the abyss, if this doesn't calm down asap, there won't be much standing. Let’s see how the public service works when they don't get paid in the next few months as reserves dry up. Infrastructure can't be repaired or maintained....

you think that 1929 was bad, that was only equities and thier only a fraction of the fixed income market,

Weapons of mass destruction, now very very apt!!

Ambrose Evans-Pritchard in the Telegraph:

Credit is the lubricant of a modern economy. A seizure now would probably lead to the bankruptcy of General Motors and Ford in short order, but it would not stop with the US car industry. Waves of job losses would set off a self-feeding spiral. Yet more people would default on their mortgages (and car loans), driving house prices down even further. That, in turn, would threaten the solvency of the best banks. That is the way to Armaggedon.

As Mr Paulson says, US taxpayers are on the hook whether they like it or not. A $700 billion fund to soak up toxic debt and stabilise the credit market is the cheapest way out. It is certainly cheaper than Depression.

http://www.telegraph.co.uk/finance/...ail-out-plan-cannot-detox-global-banking.html

 

[AliEnvy]

This is not the time for the luxury of a debate over who is to blame, whether bankers are over-paid or even how we got here in the first place, etc, etc.

That's true, but it's definitely time to debate whether a bailout will do anything to remedy the situation or simply delay the worst until after the election towards an even deeper crisis.

Perhaps the banks should continue to buy each other out rather than look to government (taxpayer) intervention.

 

[ntalwar]

Perhaps the banks should continue to buy each other out rather than look to government (taxpayer) intervention.

Banks buying each other is not a solution to the crisis. The acquiring banks get the bad assets along with the good ones. The assets simply get transferred to the balance sheets of the acquiring bank, which does not improve interbank lending/credit availability.

 

[AliEnvy]

Again, I'm not a financial expert...but how does a problem created by too much credit get solved with even more credit?

At some point tomorrow becomes today.

 

[ntalwar]

Again, I'm not a financial expert...but how does a problem created by too much credit get solved with even more credit?

It's regulated credit unclogging the system of bad assets bought by unregulated credit.

 

[anitram]

Banks buying each other is not a solution to the crisis. The acquiring banks get the bad assets along with the good ones.

Absolutely.

Plus, bank buyouts usually freeze out shareholders of the collapsed banks.

 

[AliEnvy]

It's regulated credit unclogging the system of bad assets bought by unregulated credit.

So far there is no real assurance that it will be regulated credit unclogging the system.

 

[ntalwar]

So far there is no real assurance that it will be regulated credit unclogging the system.

Given that Paulson's original 3 page bill has grown to 120 pages so far, I think it's safe to assume that regulation will be a big part of the deal.

 

[financeguy]

Given that Paulson's original 3 page bill has grown to 120 pages so far, I think it's safe to assume that regulation will be a big part of the deal.

Are you in favour of the bailout?

 

[deep]

yes

 

[deep]

Banks buying each other is not a solution to the crisis. The acquiring banks get the bad assets along with the good ones. The assets simply get transferred to the balance sheets of the acquiring bank, which does not improve interbank lending/credit availability.

J P Morgan Chase made out better than bandits buying Washington Mutual

the shareholders got wiped out.

Executives of JPMorgan Chase & Co. arrived at Washington Mutual's headquarters in Seattle Friday, a day after snapping up the troubled Seattle thrift in a fire sale organized by the federal government.

U.S. regulators closed Washington Mutual Inc. (NYSE: WM) and quickly auctioned off the bulk of its assets after the company hemorrhaged nearly $17 billion in deposits in just over a week and the government determined it could no longer meet its obligations. It was the largest bank failure in U.S. history.

The fate of WaMu’s 43,000 employees remained unclear Friday. In Austin, WaMu is the ninth largest bank by deposit market share.

Darcy Donahoe-Wilmot, a WaMu spokeswoman in Seattle, says no layoff decisions have been made yet and that it’s too early to estimate the number of job cuts.

Washington Mutual shareholders — including Texas private equity firm TPG, which led a $7 billion cash infusion for WaMu — were essentially wiped out as a result of this week’s events. The company’s shares were down to 16 cents in Friday trading, a stunning descent from WaMu’s 52-week high of $36.47.

“In this case the shareholders got zero. It’s ugly,” says Bob Rogowski, banking analyst and managing director of McAdams Wright Ragen Inc. in Seattle.

 

[ntalwar]

Are you in favour of the bailout?

It depends on if the terms are favorable to the taxpayer somehow, but I'm not in favor of Paulson's blank check request.

 

[ntalwar]

J P Morgan Chase made out better than bandits buying Washington Mutual

the shareholders got wiped out.

The WM execs made out like bandits - a $38 million severance package and something like $13-18 million for Fishman for only 3 weeks work. JPM stock opened down actually on Friday morning. I'd have to review the quality of WM's balance sheet to determine how well JPM made out. JPM has to also absorb WM's losses.

 

[AliEnvy]

Deal reached on financial markets bailout - Economy in Turmoil - MSNBC.com

Tragedy in the Making in Washington and on Wall Street: The Canadian Solution

 

[purpleoscar]

Big Bad Capitalists? by Mona Charen on National Review Online

 

[bonoman]

This is such a confusing mess that I'm sure any side can manipulate it into their favor. How about they just solve it now and blame others later?

 

[purpleoscar]

This is such a confusing mess that I'm sure any side can manipulate it into their favor. How about they just solve it now and blame others later?

It's a political hot potato. The market needs regulation like freedom needs justice. Just because people have freedom doesn't mean they can cause crimes. Crimes need laws and crimes in economics need laws. We shouldn't be forcing poor people to have loans since poor people often can't pay back loans. It's better to save for a downpayment and buy a house when the job situation is better. Otherwise why force the market to supply these mortages? Just get the taxpayer in a less roundabout way to pay for it. But of course when presented that way, tax payers say NO.

It's going to happen on Monday with supposed safeguards so tax payers can get most of the money back. The U.S. is now in debt to the tune of 1 year of GDP. Either spending will have to be cut and frozen for a while or they have to raise taxes. The budget must be balanced. If republicans want lower taxes they have to deal with the debt first. If democrats want more entitlement spending then they have to deal with the debt first. If the people can't pay their own mortgages the taxpayer will. There is no free lunch.

I feel the pain of whoever is going to have to deal with this problem next year.

United States public debt - Wikipedia, the free encyclopedia

The 1940's was higher in percentage of GDP but there was a world war going on then.