The Bailout

[muck]

Buffett is an Obama advisor, for whatever that's worth.

 

...and he's also in favor of passing the proposal as is and passing it immediately...

 

The advisor doesn't matter if the advisee doesn't listen.

[wiegie]

The bailout appears to be toast.

 

One version of the gloom that prognosticators are putting forward due to the probability that this does not get passed:

* unemployment hits double digits within the next 12 months (maybe by the end of the year)

* business failures increase 5-10x due to the lack of available funds

* the dollar will sink and imports will become relatively cost prohibitive

Even if the bailout doesn't go through, I don't understand why the Fed basically couldn't step in and do something similar all on its own (acting under section 13.3 of the Federal Reserve Act).

[muck]

Even if the bailout doesn't go through, I don't understand why the Fed basically couldn't step in and do something similar all on its own (acting under section 13.3 of the Federal Reserve Act).

 

Maybe it's trying to make the politicians look silly first?

[TheShiznit]

Maybe it's trying to make the politicians look silly first?

 

Don't politicians look silly by definition? Just thought I would put that out there.

[Azazello1313]

pretty good article

 

Dr. Frankenstein's Wall Street

By Victor Davis Hanson

 

When the mortgage bubble burst, Americans were "shocked" at how many Wall Street buccaneers had been gambling in a vast pyramid scheme with someone else's money. Paper fortunes were made buying and selling questionable sub-prime mortgages on the silly assumption that such gargantuan inside profiting would always expand -- even as the number of homebuyers able to buy overpriced properties was shrinking.

 

Now after the recent crash in sub-prime mortgages and the stock of several investment firms, a trillion dollars in "assets" could be nearly worthless. An already indebted American government must restore some sort of trust to banks and markets by either printing money or borrowing hundreds of billions of dollars from foreign creditors to guarantee loans.

 

All that remains of this Ponzi scheme is the election-year blame game. Republicans charge that important financial firewalls were dismantled by the Clinton administration while insider liberal senators got shady campaign donations in exchange for aiding Wall Street. Democrats counter that the laissez-faire capitalism espoused by Republicans for two decades encouraged financial piracy while tax policy favored the rich speculator over the middle-class wage earner.

 

But no one dares to ask what really drove the wheeler-dealer portfolio managers. Who re-elected these shady politicians of both parties? Who fostered the cash-in culture in which both Wall Street profit mongering and Washington lobbying are nourished and thrive? We citizens did -- red-state conservatives and blue-state liberals, Republicans and Democrats, alike. We may be victims of Wall Street greed -- but not quite innocent victims.

 

Let me explain. The profiteering was not just the result of a few thousand scoundrels on Wall Street or in Washington, as greedy and as bonus-hungry as many of them no doubt were. Look at the housing market as a sort of musical chairs in which everyone profited as long he grabbed a seat when the music stopped. Then those left standing -- with high-priced loans and negative equity when the crash came -- defaulted and stuck taxpayers with debt in the billions of dollars. But until then, most owners who had sold homes cashed out beyond their wildest dreams.

 

Thousands of dollars in past profits are still in sellers' bank accounts or were spent on their own consumption. If the shaky buyer at the bottom of the pyramid should not have borrowed to buy an overpriced house, then the luckier seller higher up hardly worried that the cash-strapped fool was paying him way too much with unsecured borrowed money.

 

We created the cultural climate for this shared madness. Television shows advised how to "flip" a house after putting in cosmetic improvements. Real-estate seminars and popular videos convinced us that homes were not places to live in and raise a family but rather no different from piles of chips on a Vegas table.

 

We created the phony populist creed that everyone deserved to own a house. So lawmakers got the message to relax lending standards in service to "fairness." But Americans forgot that historically nearly four in 10 of us aren't ever ready, or able, to sacrifice for a down payment, monthly mortgage bills, home maintenance and yearly taxes -- and so should stick to renting.

 

The problem went way beyond real-estate fantasies. Five-percent interest as a return on our money was once considered pretty good -- especially inasmuch as a factory or farm on the other side of the banking equation could not really stay in business paying 10 percent in interest to banks for its necessary borrowing.

 

But soon retirement-account holders and institutional investors began to expect as a given 7, 10 -- and even 20 -- percent "return" on their portfolios. Wage earners and professionals alike compared the glossy brochures that appeared in the mail, and then jumped to this 401(k) investment or that mutual fund to "maximize" retirement portfolio earnings.

 

How Wall Street managers, eager for more multimillion-dollar bonuses, planned to deliver on their promised sky-high returns no one asked. But it often proved to be more by hook-and-crook shell games than by financing new productive businesses or by extending credit for the production of real goods in vital plants.

 

In a larger sense, this zeal for quick profits and easy money reflected an oblivious too-good-to-be-true culture in which we drove larger cars but demanded more oil drilling from everyone except ourselves. We expected both expanded government entitlements and lower taxes.

 

Our government borrowed ever more money from foreign creditors, because it was a collective reflection of our own profligate financial habits. Of course, we should reform Wall Street and Washington -- and punish severely the crooks in both places. But Americans should remember that Frankenstein was not the name of the monster but of its creator.

[AtomicCEO]

I'm going to go out on a limb right now and say that this bailout without massive revisions is a poor idea. I remember the last time Bush got on TV and said "We have to do something grand and stupid and unprecedented immediately or all of you are in great danger!!" There ended up being no danger, just a bunch of people afraid to disagree.

 

The first reaction of everyone... press, experts, politicians... is to play it safe because they fear the disaster that is threatened. They don't want to be on the wrong side of the argument when the boogie man collapse of society is allegedly on the brink. Remember the runup to the Iraq war?

 

But I am highly suspicious of Bush and Co saying "We need a trillion dollar check cut immediately to fix this disaster. Hurry up!"

 

Bush cried wolf once before, and we're all idiots if we don't take some time and make sure that:

- We do what's best for the country

- We actually solve the problem

- We do not unduly reward the people who screwed up to begin with

 

Like the Iraq war, I bet there is a slow and thoughtful fix that would be a better option than an impulsive act of overkill.

Edited September 25, 2008 by AtomicCEO

[TimC]

As someone in the banking/lending industry for over 20 years, I'm fairly certain I wouldn't allow Paulson nor Bernake to reconcile my checkbook. And I definitely wouldn't even let Bush know I had a checking account.

[dmarc117]

"Socialism is the only route to the salvation of the world."

[muck]

As someone in the banking/lending industry for over 20 years, I'm fairly certain I wouldn't allow Paulson nor Bernake to reconcile my checkbook.

 

Care to elaborate?

[dmarc117]

this economy is toast. it has been built on all this easy money. that easy money is gone for a long time.

[wiegie]

Apparently a deal on the bailout rescue plan has been reached. No details yet.

[wiegie]

Economist Brad De Long has just blogged the following about the cause of the whole mess.

 

Well, because the investors and creditors did not do their due diligence and check that the banks that were the ultimate holders of derivative securities had done their due diligence and checked that the financiers who had created the derivatives had done their due diligence and checked that the purchasers of the securities had done their due diligence and checked that securitizers had done their due diligence and checked that the lenders had done their due diligence and checked that the home buyers had done their due diligence and checked that they could afford their mortgages if house prices stopped going up.

 

Catastrophic failures of risk management at seven different points along the chain--any one of which would have kept us out of this current mess.

[TimC]

Care to elaborate?

 

This problem is far too complicated to blame them exclusively, but they could've done a much better job of averting the crisis or stopping it altogether. Both were well aware of what was going on in the financial markets and loan areas. I believe a preferred stock agreement between the Federal Government and the private companies may be a far better solution. It would put the Federal Government at far lesser risk obviously. Let the companies deal with their own portfolios instead of taking them over. Of course, I don't claim to understand the whole mess 100% (and I don't think anyone does, but Paulson and Bernake should come as close to doing so as we get).

 

If it's good enough for Warren Buffet, it should be good enough for the Government.

[muck]

If it's good enough for Warren Buffet, it should be good enough for the Government.

 

Per the reports I've read, Buffett's investment in Goldman Sachs was in large part "because I believe that Congress will do the right thing and pass the Treasury's proposal" (with appologies to Mr. Buffett).

[CaP'N GRuNGe]

I read something about the House Republicans wanting to approach the situation from a different angle. Instead of buying up all the bad debt, encourage the free market to do it by insuring the purchases. I guess they would become an AIG of sort themselves in that situation?

[TimC]

Per the reports I've read, Buffett's investment in Goldman Sachs was in large part "because I believe that Congress will do the right thing and pass the Treasury's proposal" (with appologies to Mr. Buffett).

 

It's good to be rich, huh? This will be a great time for the rich to get even richer since cash is king right now.

 

Maybe we could tax Buffett more than his secretary?

 

I've heard the numbers come out to $3,500 for every citizen of the U.S. Let's just give everyone that and to hell with these companies and the economy. You know how much spam and torches $3,500 will buy? Bleh.

 

I guess if you artificially control the economy through policies like the community reinvestment act to the Fed playing with interest every other week, you need to artificially bailout these same people from time-to-time. It's a sad state of affairs and yes, we are one step closer to socialism.

[Ursa Majoris]

Economist Brad De Long has just blogged the following about the cause of the whole mess.

 

Well, because the investors and creditors did not do their due diligence and check that the banks that were the ultimate holders of derivative securities had done their due diligence and checked that the financiers who had created the derivatives had done their due diligence and checked that the purchasers of the securities had done their due diligence and checked that securitizers had done their due diligence and checked that the lenders had done their due diligence and checked that the home buyers had done their due diligence and checked that they could afford their mortgages if house prices stopped going up.

 

Catastrophic failures of risk management at seven different points along the chain--any one of which would have kept us out of this current mess.

 

This is, word for word, almost exactly what I was saying to my wife this morning. What the hell were the firms managers doing? This isn't a failure of government oversight, it's a colossal failure of management at every level, not just at the top.

[muck]

I read something about the House Republicans wanting to approach the situation from a different angle. Instead of buying up all the bad debt, encourage the free market to do it by insuring the purchases. I guess they would become an AIG of sort themselves in that situation?

 

Insuring the purchases only will guarantee that the proposal loses money for the taxpayers, unless there is some sort of insurance premium paid to the US Treasury...but a program that has a large enough insurance premium to make this viable will probably be prohibitive to the buyers (or sellers) of these assets, which is the exact thing that this proposal is trying to alleviate.

Edited September 25, 2008 by muck

[H8tank]

I really hate democrats.

 

We've just been alerted that despite House Democrats relenting on extending bans on offshore drilling and oil shale in the continuing resolution (CR) appropriations bill, Democrat Senate Leader Harry Reid has decided to sneak an extension of the oil shale ban through as Congress fights over the financial bailout. Oil shale in America's West is estimated to hold be between 800 billion and 2 trillion barrels of oil — that is more than three times the proven oil reserves in Saudi Arabia alone.

 

Adding this to the Stimulus package.

 

[Azazello1313]

 

very interesting reading, in hindsight.

[muck]

very interesting reading, in hindsight.

 

Racist.

[Jimmy Neutron]

Apparently a deal on the bailout rescue plan has been reached. No details yet.

 

That's fallen apart now. House repubs saying "no way" to what was proposed earlier today. McCain spent most of the day with them - don't know if he was trying to win them over or joining their opposition.

Edited September 26, 2008 by Jimmy Neutron

[Jimmy Neutron]

I heard that China came out today and cautioned lending institutions about lending America further $$$. Credit rating goes down, interest payments go up.

[Ursa Majoris]

I heard that China came out today and cautioned lending institutions about lending America further $$$. Credit rating goes down, interest payments go up.

The Capitalists will sell us the rope with which we will hang them.

 

In his tomb, Lenin is smiling.

[H8tank]

Senate Democratic leaders unveiled their $56 billion economic stimulus package on Thursday, less than an hour before leaving to meet President Bush at the White House to continue the fragile negotiations on the financial rescue bill.

 

 

• Unemployment benefits would be extended by seven weeks in all states and by an extra 13 weeks in high-unemployment states.

 

• Funding increases for food stamps, food banks, the Women, Infants and Children initiative and senior meals programs.

 

• Funding increases for low-income heating assistance and energy-efficiency programs.

 

• Increases in the federal funding shares for Medicaid payments to states, to help states coping with budget shortfalls due to Medicaid costs.

 

That is just awesome.