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RE: Can bailout fix US economy? - 10/2/2008 3:39:19 PM
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GroupW
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quote:
ORIGINAL: Ps103
It passed the Senate.
One down, one to go.
So far I've written half a dozen snarky emails to my congressman who voted no. Very odd - he's not calling me back. I might have to move this discussion to the "Offended" thread.
BT
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"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: Can bailout fix US economy? - 10/2/2008 3:41:28 PM
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bzirk
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quote:
ORIGINAL: sandrocksam
Where is this $700 billion coming from? Loans from China, Saudia Arabia ? Whoever supplies the money owns us, controls us. The people who got us into this trouble are the same ones who are fixing it ?
Well put.
This needs to be repeated until someone hears it.
_____________________________
may the God of hope fill you with all joy and peace in believing, so you will abound in hope by the power of the Holy Spirit. Romans 15:13
Great quote: I just ain't God and don't know it all. -- SonInMe1
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RE: Can bailout fix US economy? - 10/2/2008 4:08:13 PM
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Jhud
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quote:
Well put.
This needs to be repeated until someone hears it.
Here is the best explanation I have seen, from the NYTs.
But, people ask me, where will we get the money? Won’t we have to borrow it from the Chinese?
Actually, no.
Ten days days ago, I explained that the Paulson plan would actually move money in a circle. No outside financing would be needed.
What if we turn to a different and better plan, one that recapitalizes the financial system. Won’t that need outside funds? No.
First, a real-world example, the rescue of Wachovia. The FDIC got Citi to take over Wachovia’s assets and liabilities with a deal under which the feds limit the losses — they will cover any losses on mortgage paper over $42 billion — in return, basically, for receiving a share of ownership, in the form of warrants and preferred stock. No actual money changed hands, which illustrates a fundamental principle: recapitalization doesn’t mean laying out real money, at least initially — it just means having taxpayers take on some of the risk.
A large-scale recapitalization would probably take the form of a giant swap of debt for equity: the Treasury would issue several hundred billion dollars’ worth of bonds, and give them to financial firms in return for preferred stock. The bonds wouldn’t have to be sold to outside buyers — they would simply be credited to firms’ balance sheets.
*NB: This is the first and last time I will quote from a column called The Conscience of a Liberal. *
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It has been said that politics is the second oldest profession. I have learned that it bears a striking resemblance to the first..
- Ronald Reagan
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RE: Can bailout fix US economy? - 10/2/2008 4:35:11 PM
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GroupW
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quote:
ORIGINAL: Jhud
*NB: This is the first and last time I will quote from a column called The Conscience of a Liberal. *
That had to hurt. 
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: Can bailout fix US economy? - 10/2/2008 7:34:03 PM
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bzirk
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quote:
ORIGINAL: Jhud
quote:
Well put.
This needs to be repeated until someone hears it.
Here is the best explanation I have seen, from the NYTs.
But, people ask me, where will we get the money? Won’t we have to borrow it from the Chinese?
Actually, no.
Ten days days ago, I explained that the Paulson plan would actually move money in a circle. No outside financing would be needed.
What if we turn to a different and better plan, one that recapitalizes the financial system. Won’t that need outside funds? No.
First, a real-world example, the rescue of Wachovia. The FDIC got Citi to take over Wachovia’s assets and liabilities with a deal under which the feds limit the losses — they will cover any losses on mortgage paper over $42 billion — in return, basically, for receiving a share of ownership, in the form of warrants and preferred stock. No actual money changed hands, which illustrates a fundamental principle: recapitalization doesn’t mean laying out real money, at least initially — it just means having taxpayers take on some of the risk.
A large-scale recapitalization would probably take the form of a giant swap of debt for equity: the Treasury would issue several hundred billion dollars’ worth of bonds, and give them to financial firms in return for preferred stock. The bonds wouldn’t have to be sold to outside buyers — they would simply be credited to firms’ balance sheets.
*NB: This is the first and last time I will quote from a column called The Conscience of a Liberal. *
Jack,
The idea of moving money in a circle figuratively without any money actually changing hands goes on all the time with the govenrment and the financial sector. That's nothing new. In fact, the whole point of the Fed's existence is to facilitate money moving in a circle, and we see how miserably that is failing. Oh, I don't blame the Fed for all of these problems. I put it squarely on the socialistic idea of redistribution of wealth, which has prompted such things as the CRA.
What is so puzzling to me are the "conservatives" who like this idea of the government taking on so much "ownership" of the financial markets -- albeit no money would actually change hands. If the balance sheet changes, money has in essence changed hands. The fact that these companies would spread the risk to the taxpayers is a big problem. It is opening Pandora's Box with Obama and his ilk possibly controlling two branches of the government. Are you comfortable enough with that?
Rant:
Man, I can't help but wonder -- where are the conservatives? Have they sold out to fear? It surely seems that way.
I have spent the last two weeks speaking to numerous people who I respect greatly and who are in some pretty lofty positions in the financial sector, and they say things are bad, but they don't believe it requires quite this panic.
Knee jerks usually do more damage than they fix. This is a classic knee jerk.
The other side of me is aware that by not doing something we may be inviting even more socialistic programs. Man, I'm royally hacked.
_____________________________
may the God of hope fill you with all joy and peace in believing, so you will abound in hope by the power of the Holy Spirit. Romans 15:13
Great quote: I just ain't God and don't know it all. -- SonInMe1
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RE: Can bailout fix US economy? - 10/3/2008 1:08:42 PM
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GregandJenny
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we are now in house vote number 2.
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RE: Can bailout fix US economy? - 10/3/2008 1:23:35 PM
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GregandJenny
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It looks like it has passed the house..
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RE: Can bailout fix US economy? - 10/3/2008 1:54:20 PM
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GroupW
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Bigger margin than I would have guessed. Not surprised it passed so much, but 263-171???
That's a lot of changed minds on the topic. I'm in favor of the bill, but the degree to which some pork and some minor verbage changes swung the vote doesn't give me the warm soft fuzzies that people really knew what they were voting for or against.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: Can bailout fix US economy? - 10/3/2008 1:57:43 PM
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GregandJenny
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quote:
but the degree to which some pork and some minor verbage changes swung the vote doesn't give me the warm soft fuzzies that people really knew what they were voting for or against.
I agree.
I have a question, the market didn't seem to have as positive a reaction tot his news. the stock market actually got down to about 31 dollars above it's open. Why is that ?
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RE: Can bailout fix US economy? - 10/3/2008 3:47:35 PM
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ekserekseez
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The bailout sets yet another precedent, and an enormous one, for the federal government to intrude into private affairs to a degree that is entirely unprecedented. All the government has to do now is declare something an emergency, and the long arms of the state can start picking everyone's pockets to fund the solution.
There might be an extremely short-term economic fix from the bailout, but I doubt it. And in the long term, it will be not a fix, but yet another leap into the abyss that is socialism.
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RE: Can bailout fix US economy? - 10/3/2008 4:02:43 PM
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GroupW
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quote:
ORIGINAL: GregandJenny
quote:
but the degree to which some pork and some minor verbage changes swung the vote doesn't give me the warm soft fuzzies that people really knew what they were voting for or against.
I agree.
I have a question, the market didn't seem to have as positive a reaction tot his news. the stock market actually got down to about 31 dollars above it's open. Why is that ?
A fair amount of negative news on the economy this morning. 159,000 jobs lost last month. That's a pretty big number that, if repeated over the next few months, would be consistent with a significant slowing in the economy.
Seems like that's got the equity markets spooked.
If you wanted to see the reaction to the EESA bill passing, you would need to look at the debt markets. The answer there is that things today aren't getting worse, which they have been on nearly a daily basis for the past several weeks.
Ask me again on Monday after some of the dust settles and we'll see what the take is then. For right now, it seems like people are still digesting all of this.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: Can bailout fix US economy? - 10/3/2008 5:42:20 PM
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deliveredarling
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The bailout is not going to work. The revisions the Congress came up with DO NOT benefit the people.
The homeowners are going to receive help if THEIR lender DECIDES to change the agreement. Take a look at the following LINK for more information on it.
All that pork should have been enough of an indicator to know that this wasn't for or about the American people.
GroupW, I appreciate your optimism throughout this whole ordeal. I'm just wondering why it is that you seem to be so shortsighted?
Did it not occur to anyone that the revisions of the bill are from MARCH of this year? It didn't pass back in March the first time. (I'm referring to the pork). They couldn't get it passed, so they tacked all this crud on to the economic bailout. That is sneaky and underhanded.
I'm telling you people, wake up. Welcome to a socialist America, your freedoms have forever changed in one day.
Now anybody can have a disaster and call on good ole Uncle Sam and he will gladly help them with OUR tax dollars.
Just ask Governor Schwarzenegger, he is line too!
Edited to add link to HR1424
< Message edited by deliveredarling -- 10/3/2008 5:49:43 PM >
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RE: Can bailout fix US economy? - 10/3/2008 6:24:35 PM
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GroupW
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quote:
ORIGINAL: deliveredarling
The bailout is not going to work. The revisions the Congress came up with DO NOT benefit the people.
GroupW, I appreciate your optimism throughout this whole ordeal. I'm just wondering why it is that you seem to be so shortsighted?
Probably because I'm an economist by training, a banker by profession, and very informed on this issue. I'm not trying to be condescending here, but as a financial executive who's worked in both the smallest and largest banks in the country I think I know a few things about banking regulations, lending markets, and how banks influence the broader economy. I probably know more about these things than your average congressman. I've done investment management, bank risk management, trading, and lending. I've helped write white papers that have been presented to members of Congress showing how Fannie and Freddie were undercapitalized for the risks they took. I've even worked for one of the GSE's. Not long ago I was senior VP of one of the nations largest financial institutions. I left that firm due to strong disagreements over the ethical and risk management standards I observed.
I bring to this discussion a wealth of knowledge and a commitment to prudent financial management.
Here are some basic facts:
1) Companies involved in international trade are currently having issues getting their inventories and receivables financed. This is a normal function that banks have long engaged in. They currently do not have the cash to do this. When they do not have the cash to perform this function, people in the related companies lose jobs.
2) Companies like my own are currently having tremendous difficulties rolling over their existing debt. This is true for very responsibly managed companies. When this happens broadly, people lose jobs.
3) When banks can not lend, the economy falters. When the economy falters, people lose jobs, health insurance, their savings. It sounds over-dramatic, but it's true that people even lose their lives. Abortions increase, people delay necessary checkups, and postpone needed treatments because they can't afford it.
Here's why the EESA will help moderate the crisis (Note I did not say "fix". )
1) By allowing the government to bid for distressed assets, it puts a floor on how bad these prices can get. Each time prices decline, banks have less cash and less capital to continue to lend. Each time bank cash or capital takes a hit, there is one less buyer for some of these assets and prices have to fall again. At some point, the process becomes a self-reinforcing negative feedback loop that grows until the financial system locks up. That's where we are today.
2) Banks on their own can't unlock it. They need external help from a) private equity sources, or b) government. To-date, private equity has been waiting in the wings for prices to quit falling before stepping in. There is so much fear in this industry right now that even the vulture investors are afraid to commit capital. This level of irrational fear has to moderate before the industry can turn itself right side up again. With private equity so far unwilling to commit capital, and the cycle rapidly degenerating to the point where even state and local governments are having to delay infrastructure investment, there is a limited amount of time that we can afford to wait.
3) Currently there is NO market for some of these assets. Banks would love to be able to sell some of these assets, but they can't find a buyer at any price. Here's one example. In my portfolio (the one I manage, not mine personally), I own a very secure bond. I bought it for just pennies on the dollar despite the fact that there is less than a 1 in 100 chance of this bond defaulting. There is no reason for this bond to trade this low except for irrational fear and the fact that noone has any money or capital to buy it.
3) Bringing in the government as a buyer can alleviate this problem in a couple of ways:
a) provide a minimum bid that provides liquidity to the seller at levels that make sense for the bank to sell at.
b) provide a minimum bid that provides liquidity to the seller while still offering the Treasury a return in the 10-15% range.
c) provide a reason for substantial sums of private equity that's been waiting for prices to reach bottom to finally get in the game and begin making a market in these assets.
4) The problem is largely concentrated in the largest banks & dealers. These firms operate at the center of a web of interlocking trades and contracts. When one has a problem, we all have a problem. If you have your 401k invested in any sort of GIC or stable value contract, you have a problem (who do you think guarantees those, after all? AIG mostly.) If you have a money market fund, you have a problem.
5) We all know we need to go through a process of deleveraging. The choice is whether to do this in an orderly fashion and get bad assets off of failing banks balance sheets BEFORE those banks do serious damage to the rest of the economy. Or do we let a market which is currently pricing good assets at levels FAR, FAR below their real fundamental value push us into a recession strictly due to the impact of fear.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: Can bailout fix US economy? - 10/3/2008 6:36:36 PM
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deliveredarling
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GroupW, I appreciate your detailed explanation. (BTW, you were speaking Greek to me  However, I think we are discussing two totally different aspects of this scenario.
My problem with the bailouts is not the idea in it's principal, but in the whole hidden agenda behind it. (That's what I mean by short sighted, no offense was intended at all, nor did I mean to try to discredit you)
The promises the Congressmen have made, will not be kept, they were intentionally misleading in order to gain support. They added a ton of pork just to get this passed. It was not for the people that they wanted it to pass, they were bribed to switch their vote.
Again, my problem was not at all with your financial expertise and experience, but rather not calling them the crooks that they are. I heard more of a free pass for this inexcusable behavior of our Congress than calling them what they are.
Did you see that the lenders get to decide if the homeowner gets help or not? How is that for the people? Sounds like guarded protection for the mortgage company.
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Luke 8:16
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RE: Can bailout fix US economy? - 10/3/2008 6:51:45 PM
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GroupW
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For the most part, I'm not calling them crooks because I know many of them. These are not necessarily guys that intended to defraud anyone. Most of them made bad risk management decisions. Some of them got caught up in the frenzy and didn't take the time to really think about what they were doing. Most of them were overpaid. Yes, I've got very good and respected friends that I watched making terrible mistakes that are now hurting all of us.
Some of the people responsible for this are actually your Christian brothers & sisters. You might actually be surprosed.
Were there some crooks. Absolutely. There are a number of investigations already underway to figure out the saints from the sinners.
More often though, they weren't crooks so much as fools. There's a big difference.
Did some people get paid too much? Of course. Executive pay is something that probably needs to be looked at as part of this problem. People got paid too much to take risks that were too big.
Does some degree of regulatory reform need to take place? Of course. Our regulatory system hasn't kept pace with the increasing complexity of the financial system. We've relied on industry-run and voluntary regulatory bodies for too long. We've allowed financial firms to have too much lobbying power in congress on both sides of the aisle.
As far as letting the lenders decide how to help the homeowners, yes that's a bit like setting the fox to watch the henhouse but then again its the lenders that are holding the loans. There are issues of law that need to be allowed for as well as issues of fairness. It's going to be a very long process to figure out how to equitably work this all out. In the meantime, there's a liquidity crisis occurring and a means to moderate it. I think each item needs to be tackled in its fair time - first the liquidity crisis and then a fair and equitable means to work this out between borrower and lender.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: Can bailout fix US economy? - 10/3/2008 6:52:53 PM
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GroupW
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Quick question I forgot to ask above - what's the "hidden agenda" you're referring to?
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“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: Can bailout fix US economy? - 10/3/2008 6:59:27 PM
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GroupW
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quote:
ORIGINAL: deliveredarling
them what they are.
Did you see that the lenders get to decide if the homeowner gets help or not? How is that for the people? Sounds like guarded protection for the mortgage company.
FYI - did you know that most banks don't actually have very much discretion at all legally in how loans in default are worked out? Most loans are securitized and held in MBS format among a diverse set of investor. The bank typically services those loans under a strict set of rules spelled out in a contract.
Furthermore, the accountants have opined that you need to set these contracts up such that the bank has very little discretion in how it works out loans in default. The servicer is supposed to be "brain-dead" in this regard. And yes, the words "brain-dead" are actually used in a lot of the accounting literature on the topic. Essentially, the bank has to live by the contract because it owes a fiduciary duty to the investors in these loans. The contract has been designed to fit within a neat little box the accountants have set up. The box requires them to exercise the least possible amount of discretion and simply follow a given set of procedures to work out these loans.
There are no simple answers anywhere in this whole mess, I'm afraid.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: Can bailout fix US economy? - 10/3/2008 7:01:51 PM
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deliveredarling
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quote:
Some of the people responsible for this are actually your Christian brothers & sisters. You might actually be surprosed.
I would not be surprised and I'm still outraged at the GREED. I expect better of a person who calls themselves a Christian.
quote:
More often though, they weren't crooks so much as fools. There's a big difference.
The crooks I am referring to are our Congressmen and women who were bribed into changing their vote.
The bailout of Wallstreet is one thing, the empty promises of rescue to the American people is another. That's where my beef is. This plan is still all about protecting the finances of the super wealthy more than it is for the people.
Bad decisions were made and they still are being made. I could have supported another solution. Not the taxpayers footing the bill. Not Paulson overseeing the whole thing. Not curbing CEO pay. Not insisting upon the regulations being enforced and certainly not bringing bills that have died over and over in the Senate for the past year into the bailout plan! They have nothing to do with each other. the way to salve a problem is not to disregard it and bring in distractions..... That is exactly what was done so that the people would not notice that the first failed bill passed in it's entirety with the pork bills added.
_____________________________
"Now no one after lighting a lamp covers it over with a container, or puts it under a bed: but he puts it on a lampstand, in order that those who come in may see the light."
Luke 8:16
http://www.myspace.com/egaip
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RE: Can bailout fix US economy? - 10/3/2008 8:04:53 PM
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bzirk
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GroupW,
I appreciate the detailed explanation as well.
_____________________________
may the God of hope fill you with all joy and peace in believing, so you will abound in hope by the power of the Holy Spirit. Romans 15:13
Great quote: I just ain't God and don't know it all. -- SonInMe1
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RE: Can bailout fix US economy? - 10/3/2008 10:33:02 PM
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relady
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quote:
The crooks I am referring to are our Congressmen and women who were bribed into changing their vote. well, welcome to politics. That's why "pork" will never go away. It is a leverage to get or give a vote for something that otherwise might not get passed. It has always been that way and regardless of what any politician says to get elected....it ain't goin' away.
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RE: Can bailout fix US economy? - 10/3/2008 11:57:25 PM
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GroupW
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quote:
ORIGINAL: deliveredarling
The crooks I am referring to are our Congressmen and women who were bribed into changing their vote.
The bailout of Wallstreet is one thing, the empty promises of rescue to the American people is another. That's where my beef is. This plan is still all about protecting the finances of the super wealthy more than it is for the people.
Bad decisions were made and they still are being made. I could have supported another solution. Not the taxpayers footing the bill. Not Paulson overseeing the whole thing. Not curbing CEO pay. Not insisting upon the regulations being enforced and certainly not bringing bills that have died over and over in the Senate for the past year into the bailout plan! They have nothing to do with each other. the way to salve a problem is not to disregard it and bring in distractions..... That is exactly what was done so that the people would not notice that the first failed bill passed in it's entirety with the pork bills added.
I hear your frustration on that point. Unfortunately the "horse trading" that went on in passing this bill is a perfectly legal activity. I don't condone it, and I think it reflects very poorly on the folks that switched their votes like that. In my mind, either they didn't understand the importance of what they were voting for in the first place (very likely - there's a tremendous ignorance of economics in the House), or they allowed principles to get purchased by getting some pet projects passed. Whether you liked the bill or not, the behavior of a number of representatives left much to be desired.
Fyi - if you still believe this is all about protecting the very wealthy, then you also really don't understand how the banking system is central to our economic health and yours.
Here's just one little scary example: 40% of Americans have their 401k dollars invested in what's called stable value contracts. Kind of like CD's but without the government insurance. What's actually involved with creating those? The investments are normal risky investments that go up and down in value . What keeps the balance in your 401k plan from going up and down like the instruments your money is actually invested in?
Credit insurance. In the industry, we call it a "wrap."
Care to guess who the largest issuer of that credit insurance or "wrap" is?
AIG. The one the government bailed out. Had the government not bailed out AIG, a large portion of that 40% slice of Americans with 401k money would have seen the value of their supposedly safe retirement money decline by 10-30%.
If you have a 401k or other defined contribution retirement plan, there's roughly a 40% chance that the government bailed YOU out!
BT
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: Can bailout fix US economy? - 10/4/2008 12:05:21 AM
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GroupW
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quote:
ORIGINAL: bzirk
GroupW,
I appreciate the detailed explanation as well.
No problem. They're just my opinions of course. Strongly held opinions, but opinions.
Would be nice if the government itself tried to explain it to folks before they tried to ram a halfway decent solution down people's collective throats. That's the part that frosts me most. They wasted a lot of time, effort, and according to the OMB, about $112 billion dollars by not explaining it clearly to people up front.
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“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: Can bailout fix US economy? - 10/4/2008 8:05:37 AM
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bzirk
Posts: 2945
Joined: 4/11/2005
From: Where the deer and antelope play
Status: offline
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Lack of effective communication is one of the biggest weaknesses of this administration, and I say that even though I like some things that have been done during Bush's tenure. Not everything done but some things.
I don't know if I'll ever read the 450 page bill, but the more I hear that there are tax breaks, the libertarian in me can't really get as upset about that. I know many of us have heard about the wooden arrows and a few other things that sound far from the mainstream, but I'm going to trust the congress one more time and assume there are some tax breaks in there that actually help preserve a decent amount of jobs, and if someone has a job it means they can save some money and spend some.
But there is no question that this bill is not going to fix the economy because our problem is not Wall Street or Washington. Those places are a reflection of us. We are not disciplined, and we need to get that way or at least a significant number of us do. What I mean by not disciplined is that we are not used to waiting unless it's forced on us. How do I know that? We do not save money and we have a lot of non-essential things. Even people who say they're hurting have a lot of non-essential things. I'm not saying we can never have those things just that many of us have OD'ed on those things.
I had read a while back that the average savings rate in 1988 was almost 11% of income and it is 1/2% now. That is horrible.
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may the God of hope fill you with all joy and peace in believing, so you will abound in hope by the power of the Holy Spirit. Romans 15:13
Great quote: I just ain't God and don't know it all. -- SonInMe1
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RE: Can bailout fix US economy? - 10/4/2008 9:09:47 AM
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rlj
Posts: 2143
Joined: 4/14/2005
Status: offline
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quote:
I had read a while back that the average savings rate in 1988 was almost 11% of income and it is 1/2% now. That is horrible.
Incomes kept up with the rate of inflation better or to put it another way I don't save anything now compared to about 5 years ago because of $4 gas, increased energy costs and increased grocery bills. My wages don't keep up with it and many people's do not. Somehow though however they figure out inflation manages to ignore this. I know that my old ward in my old city the biggest demographic of people foreclosed on were 2 working parents with kids that had an average income of $35k a year. 5 to 10 years ago that was fine but people's wages in my area haven't gone up and there's no work here. Increasing things that are absolutely neccessary for being alive is killing them. Health care to.
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-Roger
This is who I'm voting for. He is from the same party I voted for last time. This is consistent with my belief in the failure of the two party system and my disgust with it.
http://www.baldwin08.com/#
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