These are tulmultous times. No more investment banks on Wall Street

[Jstas]

http://money.cnn.com/2008/09/21/news/companies/goldman_morgan/index.htm?cnn=yes

When I saw that this morning, for some reason I got a sinking feeling in my stomach.

While I understand the motivation to the actions and changes put in place, I fear what kind of a sign this might be for the future. Granted, I know it's not 1956 where you could sneeze and make a hundred bucks but if the investment banks are going down the tubes so quick and investor confidence is shaken so much that 5 GIANT names in the industry all go down the dumper in a matter of 2.5 weeks, that's a scary proposition.

I can see how these changes are for the better but these changes are honestly dependant on a few things to go a certain way. If they don't, it could be a bigger problem than it is now. Investment banks don't drive the money, they drive the economy. It's the commercial banks that handle the money behind the investments and if confidence in them shakes to the point where there is a rush on the banks, we'll see 1929 all over again. No deposits in the bank, no money to make loans. No loans and credit, no interest payments from the bank. No interest, no income and banks default.

Oh and yeah, there's the FDIC but you know what funds the FDIC? The Federal Reserve. If we have to bail out a bunch of commercial banks and deplete the Federal Reserve too much, the FDIC doesn't mean anything. It actually doesn't mean much right now. The whole purpose of the FDIC is to instill consumer level confidence in banks and investments. There really is no tangible benefit from the FDIC.

[kgingras]

Whatever will happen, I bet my money on a Gold/Dow relationship of close to (2-3.5):1, whatever the nominal values may be. I'm not convinced that we will fool the world indefinitely with our inflationary monetary policies.

On a side note, the promised debt for social services will be another "bailout" that will make this $700Billion bailout look like small change. IMO this is just the beginning.

[I-SIG]

On a side note, the promised debt for social services will be another "bailout" that will make this $700Billion bailout look like small change. IMO this is just the beginning.

DING DING DING DING!!!! We have a winner!

Wes

[treitz3]

Sad. Sad indeed.

[Polksaladanni]

Yep, The Clinton admim wrote an IOU against SS to "Balance the Budget"

and tore apart our intellicgence services to save some bucks also...

My b-in-law sold bad Mort Portfolio's and said Fannie Mae will likely total around 200+ billon of bad paper when it's all said and done.

[Kex]

... When I saw that this morning, for some reason I got a sinking feeling in my stomach.

...
And in any case, even without a disaster scenario, it still looks bad. Sinking dollar equals rising oil. Rising oil and printing dollars by the truck load equals rising inflation. Rising inflation leads to stagnation and/or economic recession. Economic recession means we can't pay for the rescue plan in any case. Where this leads is anyone's guess, but I would bet it's not to lower taxes any time soon.

I have no idea what to do about it. We've weathered a difficult year on the markets this far, but now it really does look worse. When we thought the light might be at the end of the tunnel, somebody just lengthened the tunnel and it's nowhere in sight. Good reason for a sinking feeling.

[kgingras]

And in any case, even without a disaster scenario, it still looks bad. Sinking dollar equals rising oil. Rising oil and printing dollars by the truck load equals rising inflation. Rising inflation leads to stagnation and/or economic recession. Economic recession means we can't pay for the rescue plan in any case. Where this leads is anyone's guess, but I would bet it's not to lower taxes any time soon.

I have no idea what to do about it. We've weathered a difficult year on the markets this far, but now it really does look worse. When we thought the light might be at the end of the tunnel, somebody just lengthened the tunnel and it's nowhere in sight. Good reason for a sinking feeling.

I'll say. Oil wouldn't be as expensive if we had responsible monetary policies. Get rid of the quasi-private Federal Reserve and implement a strong dollar policy. No longer debasing our currency through inflation (creation of new money) would be an excellent start. But that wouldn't fit the agenda of neither major party....

If we had a non-intervention foreign policy we would be better off. But as long as we fight a war on terror that never can end we will enrich the private companies as our wars have become privatized. Amazing how we privatize the wars but socialize the losses of irresponsible financial companies....

Imagine what would have happened if we didn't help overthrow elected government in Iran back in the 50s. It was obvious that it was just because of the oil. Imagine what would have happened if we didn't invade Iraq because of the oil. Our foreign policy is as responsible as our flawed monetary (fiat) policy for high energy prices and our dependence on foreign oil.

But who gives a f**k about policies anyways. There won't be any changes coming anytime soon, otherwise we'd have Presidential Candidates that would make sense and convince us that they are about change. Address the root of the problem, the Federal Reserve and budget deficits.

[Old School Polk]

Who will be left to buy the Kharma Grand Exquisite? Dentists?

http://www.kharma.com/products/exquisite/index.htm

[Kex]

Who will be left to buy the Kharma Grand Exquisite? Dentists? ...
The answer to that question is "beyond imagination" ;). Follow the link above and you'll see what I mean (top right of web page).

By the way kgingras, since you are new to CP, I think there is some rule about political discussion in the Forum (avoiding it, that is), so don't get yourself in trouble! I can't find a link to the rules to check (I probably should not have mentioned "taxes").

[Kex]

Well, that isn't going to help your sinking feeling, Jstas ...

[SKsolutions]

I'll say. Oil wouldn't be as expensive if we had responsible monetary policies. . No longer debasing our currency through inflation (creation of new money) would be an excellent start. But that wouldn't fit the agenda of neither major party.If we had a non-intervention foreign policy we would be better off. But as long as we fight a war on terror that never can end we will enrich the private companies as our wars have become privatized. Amazing how we privatize the wars but socialize the losses of irresponsible financial companies.
Imagine what would have happened if we didn't help overthrow elected government in Iran back in the 50s. It was obvious that it was just because of the oil. Imagine what would have happened if we didn't invade Iraq because of the oil. Our foreign policy is as responsible as our flawed monetary (fiat) policy for high energy prices and our dependence on foreign oil.
But who gives a f**k about policies anyways. There won't be any changes coming anytime soon, otherwise we'd have Presidential Candidates that would make sense and convince us that they are about change. Address the root of the problem, the Federal Reserve and budget deficits.

^^+1000 ^^ . Today, you have to dig for credible facts because what is being reported is often at odds with general accounting practices. The U.S.'s 'books' are 'cooked', and the media won't report otherwise. . . . , while I have my tinfoil on.

There are rumblings of OPEC attempting to price Oil in non-dollar denominations, which would end their obligation (and others) to prop up our currency in order to buy the commodity at a fair and consistent price. That would be one hell of a huge trigger, and would make this week look like christmas. I'm sure there will be huge pressure coming from DC and all those that are dollar invested for this reason.

It seems we have a war every 20 years or so, whether we need it or not. It's spectacularly profitable for the bankers because the .gov is forced to borrow more and more of it's own money from the Fed/world banks, at interest. The fun part is that the US taxpayer gets to pay the interest, on those no-bid contracts for the friends of the pols, with currency/wages that continually lose value the more it's circulated. . another hidden tax.

Both Parties are funded and beholden to same special interest parties, so in effect the candidates are functionally the same. The wars that are not in our best interest will continue to be fought and we will all be propagandized and 'feared' into supporting them. It's not like we don't fund and arm both sides anyway. We will be in every corner of the globe with over 600 known military bases, because we need to protect and control the profits and the natural resources. It's not for our national interest, or a just cause, it's for the global interests, and in my opinion, in exchange for being able to float all this debt and negative yield Treasuries. It's also likely the reason we retain the best credit rating despite have a worse than third world balance sheet.

Measures:
The Fed no longer publishes the money supply (M3) report, so there is no formal number of monetary inflation. Credible analysts have it at almost 14% right now. That's newly printed, fiat money that debases the dollar proportionally in a world of perfect exchanges. The .gov/Fed/GAO has changed the CPI formula (price inflation) as well. Using the pre-Clinton formula for Consumer Price Index currently shows 9% rise, so that reinforces the 14% inflation figure. GDP growth is measured and adjusted for inflation. By using the old, pre-Clinton measurement, we've been in a recession for quite some time. Some analysts believe that's it's a double dip recession/depression that began in Q4 of 2000/2001. Fudging the numbers and changing the formula doesn't make it NOT a recession.

[kgingras]

The wars that are not in our best interest will continue to be fought and we will all be propagandized and 'feared' into supporting them.
Great point and the bailout is just another classic example of this. The same reasons why we have spent hundreds of billions on Homeland Security, fear sells. There is no reason to rush into this and whenever I hear people say "we must act immediately" I cringe. It's $700B and there is no need to get this done within a few days.

No question the impact would be big if nothing is done as banks would slow their lending to businesses and individuals BUT they would only slow lending where there is high risk, something they should have been doing in the first place. Some businesses would fail and then others would step in and take their place, it's always been that way. The hype is way overblown and the politicians are too scared to take a stand.


It's not for our national interest, or a just cause, it's for the global interests, and in my opinion, in exchange for being able to float all this debt and negative yield Treasuries. It's also likely the reason we retain the best credit rating despite have a worse than third world balance sheet.
You know what amazes me most right now? How there is still a tremendous flow of funds in US treasures but of course nothing goes on indefinitely in the financial markets. Putting your money in treasury bills guaranteeing you a (nominal) loss of e.g. 3% is f**ked up in my opinion. It's irrational behavior and I think it's only a matter of time until the market will come to its senses. And you just know that this behavior has to do with the potential/future failures of US Financial Institutions.

Also, one cannot ignore the fact that this is a Presidential year and I'm sure the President's working group on finance most likely worked very hard at pumping up this market...short term manipulation often comes at a long term cost and I doubt that it will be any different this time. If the USD could lose ~40% of its value over the past 6 years it shouldn't come at a surprise when "our" currency can "outperform" it's negative trend in the years ahead, severalfold.

Have you seen what the US Stock market looks like from a foreign currency perspective? Me thinks the time will come when people around the world will start putting their money in foreign markets. How will that affect u.s.?

It wouldn't surprise me one bit if we'd have a "bank holiday" within the next 10 years and your savings dollars would be replaced with a new currency at a hyper inflationary rate. It wouldn't be the first time a currency exchange would take place here. In 1737 Massachusetts devalued its fiat currency by 66% with the introduction of a new currency, Connecticut inflated their currency by 900%, Rhode Island 2,300%. Fiat currency doesn't really have a strong "track record" and we know what often happens to those that say "this time is different" and/or "but it can't happen here"....

[Jstas]

Wow, you guys really know how to drag a thread in a really different direction.

[Kex]

Wow, you guys really know how to drag a thread in a really different direction.
With reallllly long posts too ... Now where is that rule about politics in the forum? Did I just imagine it? I can't find where the rules about posting are any more. My brain must be numbed by dizzying losses.

Off to a bumpy start this morning again, but after yesterdays ups and downs, openings aren't always a good indication in any case.

[kgingras]

Wow, you guys really know how to drag a thread in a really different direction.

I think we're still vaguely on topic no? Perhaps a few tangents here and there but still good discussion although I admit I'm getting a little bored of this stuff.

On a more exciting note, I just pulled the trigger on a new Emotiva XPA-2. Now if AV123 could only get their act together I could move up to 5.1. Then that will give me an excuse to get the XPA-3!

[Jstas]

You two are talking politics and injecting your own political views in to why things are the way they are. Right now, I think you are way off base in your assessments because these problems go much father back than you are allowing.

I'm not going to discuss politics here because I have strong views that very few people agree with or if they do, they fear siding with me. But yeah, I started talking about investment banks and the economic situations that got us here. You all started talking about "propagandized " wars and scare tactics and such. "Propagandized", is that even a word? You're off topic and I for one don't care about your misguided and ill-informed opinions on world events especially when they are fostering paranoid delusions about the banking system and economy in this country.

[m00npie]

WSJ (online.wsj.com/article/SB122213378935565993.html?mod=yahoo_hs&ru=yahoo)

You have to me a member to see the whole article but not all investment banks are done. I work for one of them. I'm not saying they are not feeling the pressure right now; they just did a better job of mitigating risk with the amount of level 3 assets on the books than that of Bear, Lehman, etc....

[Kex]

No more WaMu (I know, it's not an investment bank, but still) ... No deal today ... Where are we going to be by Monday I wonder.

[mrbigbluelight]

^^+1000 ^^ .
There are rumblings of OPEC attempting to price Oil in non-dollar denominations, which would end their obligation (and others) to prop up our currency in order to buy the commodity at a fair and consistent price.

If I remember correctly, Saddam Hussein started requiring Euro's for oil payments.
Also, Hugo Chavez (sp?), the dictator/president/whatever of Venezuela requires Euro's for oil payments.

As I've mentioned many times, I don't know jack squat about this stuff, but I do know this much: all the oil boys start demanding Euro's instead of dollars and it's a bad thing for us. Real bad.

[kgingras]

No more WaMu (I know, it's not an investment bank, but still) ... No deal today ... Where are we going to be by Monday I wonder.

Another sweet deal for JPM. Just like the Bear Stears bailout they got. Not surprising considering that JPM was double-represented when the quasi-private Federal Reserve was created.

I would like to know how much money the Fed injects in "liquidity"... ;)

[bikezappa]

This isn't about politics it's about mine and your 401K. These are savings that I hoped to use in retirement.

Has anyone looked at what they are worth now compared to 6 months ago?

Who is running the show here? If you aren't pissed with these actions or lack there of then nothing will bother you.

The people with big money are cashing in as we speak and will do fine with the bail out but we little people will take a BIG hit on our 401K.

Retirement? I dodn't think so.

[bikezappa]

Why the government is bailing out Wall Street institutions instead of aiding struggling homeowners, especially when many financiers stand to earn millions of dollars in bonuses?

Why does this decision need to be made by this weekend?

Is the finacial health of the US that fragile?

[kgingras]

This isn't about politics it's about mine and your 401K. These are savings that I hoped to use in retirement.

Has anyone looked at what they are worth now compared to 6 months ago?

Who is running the show here? If you aren't pissed with these actions or lack there of then nothing will bother you.

The people with big money are cashing in as we speak and will do fine with the bail out but we little people will take a BIG hit on our 401K.

Retirement? I dodn't think so.

Well I guess it depends on how close you are to retirement. If close then I'd be worried, If not then think about how cheaply you're getting units for.

[bikezappa]

Well I guess it depends on how close you are to retirement. If close then I'd be worried, If not then think about how cheaply you're getting units for.

Ever play Monopoly? Every one that is over 50 just got a Go To Jail Card.

The thing that really pisses me off is that the Big Wigs have bailed out of this mess months ago.

I want the FBI and IRS to investigate people that make money on stocks this year. Insider trading?

Are other countries having the major finacial institiutions also going bankrup?

Or is this just in the US?

[kgingras]

Ever play Monopoly? Every one that is over 50 just got a Go To Jail Card.

The thing that really pisses me off is that the Big Wigs have bailed out of this mess months ago.

I want the FBI and IRS to investigate people that make money on stocks this year. Insider trading?

Are other countries having the major finacial institiutions also going bankrup?

Or is this just in the US?

Actually the FBI is conducting investigations into some of the CEO's and other upper level execs of these companies.

[Hawkeye]

I've got 8 years until I retire for good and my 401 is in fair shape. I saw this coming last year and moved my cash into what can be considered safe (in today's climate, who knows how long it will last?). While I'm not reaping the huge gains I made earlier, I'm not taking any loss either. If I was younger, I'd still keep ploughing the money in, just in a "safe" area until this works itself out.

Gordon

[shack]

Why does this decision need to be made by this weekend?

Is the finacial health of the US that fragile?

It is perception...nothing more. If nothing happens over the weekend the heath/stability (or lack thereof) will technically be no different than Friday...EXCEPT...for the perception of investors, consumers, etc...and that is a frightening thing. If you have ever seen a "run" on a bank you know what I mean.

Perception COULD become reality and the "perception" that the financial system is failing (and acting accordingly) is exactly the thing that could cause the system to collapse.

The rhetoric over the "bailout" is utterly stupid and is just another reason that shows how the politicians on both sides are screwing with us. They are more concerned with blame than a fix. Each side wants to blame the other for the problems and take credit for the fix. It disgusts me. :mad:

The reality of the situation is if the govt does the bailout correctly...they could actually make money on the whole deal. Think of them as an investor that has ready cash available to make huge purchases of real estate at deep, deep discounted prices. They have no real incentive to turn the property quick so they can hold on to the assets until the market improves and then systematically sell at a more appropriate time. THIS PLAN is exactly how most of the worlds richest real estate tycoons (were talking Forbes world 400 richest types here) made their money. At worst over the long run it will be a wash or small cost with the real possibilty of substantial gains.

The banks could hold on to these assets and do the same thing IF they had the capital. That's the problem...they don't have enough capital or the resources to raise more. The govt doesnt have that problem.

I am a capitalist through and through and in normal circumstances have no problem letting institutions that made bad decisions fail and let their investors lose their investment. Risk/Reward and all that. BUT this is a totally different situation because of the scope and the trickle down effect it will have on everyone. In this case it needs the govt to help...because it really is for the benefit of the Nation as a whole. I hate that is the case...but it is!

[Kex]

... Are other countries having the major finacial institiutions also going bankrup?

Or is this just in the US?
Britain had a "significant" takeover about six months ago: Northern Rock. They were a type of bank unique to the U.K. that used to be known as "building societies" (they specialize in home loans). They too ran into liquidity problems and suffered a "run" on the bank, initially borrowing billions from the (central) Bank of England.

Banks in France and Germany are more like Bank of America: large diversified institutions with national presence and not specifically investment banks. There was one large rescue of Crédit Lyonnais in France about ten years ago that got into trouble from risky loans to businesses, especially in Japan perhaps. I think they estimated at the time that it cost every taxpayer in the country about $200 to keep the bank going, and there was a huge uproar about it there, but that is peanuts compared to what we are facing here.

[shack]

Are other countries having the major finacial institiutions also going bankrup?

Or is this just in the US?

Yes this is a worldwide issue. Europe is starting to have serious issues as well. It is also not the first time a major economic power has had problems in their financial sector. A few years ago (mid to late '90s) several of Japan's large banks failed as they went through difficult financial situation similar to what we are seeing. Mergers and acquisitions brought them out of it along with govt intervention and they recovered. It will recover here...but not without some pain.

[Kex]

...
Perception COULD become reality and the "perception" that the financial system is failing (and acting accordingly) is exactly the thing that could cause the system to collapse.
...
The reality of the situation is if the govt does the bailout correctly...they could actually make money on the whole deal. ...

... this is a totally different situation because of the scope and the trickle down effect it will have on everyone. ...
Excellent summary of the situation, Sir, IMHO and if I may be so bold!

[Jstas]

I am a capitalist through and through and in normal circumstances have no problem letting institutions that made bad decisions fail and let their investors lose their investment. Risk/Reward and all that. BUT this is a totally different situation because of the scope and the trickle down effect it will have on everyone. In this case it needs the govt to help...because it really is for the benefit of the Nation as a whole. I hate that is the case...but it is!

Thank you!


As for WaMu, the bank failed. But the gubment stepped in and foisted the failed bank off to JP Morgan. For those that have assets in WaMu, they may have lost value but they did not go away. They are still there and honestly, a buyout and restructuring under JP Morgan is far better than a bailout because that essentially means that your new bank HAS the assets and capital needed to pull your failed WaMu from the trenches. That's a good thing!





And bikezappa, I usually respect the things you have to say because you offer insight and differing opinions without the drama but honestly, shut up dude. You can bitch about your retirement but if EVERYTHING you have is in one place well, now you are the poster child on why you should diversify your portfolio. It helps minimize risk and loss if risk matures.

As far as having a retirement, I don't want to hear it. I have to worry about my own retirement completely because there will be no gubment assistance like what most retirees are getting now. On top of that, I will likely have to help support my parents in their retirement. So I get to pay in to a system all my life only to be denied the benefits of that system due to mis-management by wonderful people who we all know but I'll leave nameless on Capitol Hill. Given the current fiscal crisis and the state of the Social Security system, I might as well work until I'm dead 'cause it's the only way I can ensure that me and my family have what they need to survive.

And yes this discussion has turned to politics. Talking about economics and how things are going down and what the gubment is doing to resolve it is one thing. But blaming one politician's actions for all of the problems or even an entire party of policticians for the problems is discussing politics. Our economy is based on a free market. It failed all by itself and it is not the government's place to step in and meddle unless something is going to harm the good of the country. The banking problem was caused by banks exploiting a loophole that had the potential to pay off in a big way or fail in a bigger way. Well, we know what happened. Should the government have stepped in sooner? Maybe. But that would have stifled growth and forced inflation causing another decade long recession after we just got out of one. What should have happened was banks should have handled risks better and consumers and investors should have ignored the dollar signs and studied the risk instead of getting themselves in over their heads.

But hey, that greed is an ugly thing and it rarely brings good.

[krabby5]

No more WaMu (I know, it's not an investment bank, but still) ... No deal today ... Where are we going to be by Monday I wonder.

nice...that's where I send my mortgage payment

Does this mean I no longer have to pay my mortgage?;)

[Danny Tse]

Or is this just in the US?

HSBC (Hongkong and Shanghai Banking Corp.) announced layoffs of over 1,000 people last night. This is one of the biggest banks in the world....bigger than Citicorp and certainly bigger than Bank of America. If it starts cumbling.....

[Jstas]

HSBC (Hongkong and Shanghai Banking Corp.) announced layoffs of over 1,000 people last night. This is one of the biggest banks in the world....bigger than Citicorp and certainly bigger than Bank of America. If it starts cumbling.....

Alot of American department store credit cards are backed by HSBC.

[shack]

HSBC (Hongkong and Shanghai Banking Corp.) announced layoffs of over 1,000 people last night. This is one of the biggest banks in the world....bigger than Citicorp and certainly bigger than Bank of America. If it starts cumbling.....

Some stuff about HSBC. It is not crumbling, but it is a sign of the economic times...

"The London-based lender is laying off 4 percent of its global banking and market division, with half of them taking place in the bank's operation in Britain, said spokesman Gareth Hewett in Hong Kong.

HSBC has a 335,000-strong work force globally, and so the job cuts will only hit 0.3 percent of its total employees.

HSBC has been hit hard by the credit crisis, largely because of its ownership since 2003 of Illinois-based lender Household International Inc. -- the biggest U.S. subprime mortgage lender."
Like I said...the trickldown effect has broad implications...even worldwide!

[bikezappa]

Thank you!
And bikezappa, I usually respect the things you have to say because you offer insight and differing opinions without the drama but honestly, shut up dude. You can bitch about your retirement but if EVERYTHING you have is in one place well, now you are the poster child on why you should diversify your portfolio. It helps minimize risk and loss if risk matures.

As far as having a retirement, I don't want to hear it. I have to worry about my own retirement completely because there will be no gubment assistance like what most retirees are getting now. On top of that, I will likely have to help support my parents in their retirement. So I get to pay in to a system all my life only to be denied the benefits of that system due to mis-management by wonderful people who we all know but I'll leave nameless on Capitol Hill. Given the current fiscal crisis and the state of the Social Security system, I might as well work until I'm dead 'cause it's the only way I can ensure that me and my family have what they need to survive.

And yes this discussion has turned to politics. Talking about economics and how things are going down and what the gubment is doing to resolve it is one thing. But blaming one politician's actions for all of the problems or even an entire party of policticians for the problems is discussing politics. Our economy is based on a free market. It failed all by itself and it is not the government's place to step in and meddle unless something is going to harm the good of the country. The banking problem was caused by banks exploiting a loophole that had the potential to pay off in a big way or fail in a bigger way. Well, we know what happened. Should the government have stepped in sooner? Maybe. But that would have stifled growth and forced inflation causing another decade long recession after we just got out of one. What should have happened was banks should have handled risks better and consumers and investors should have ignored the dollar signs and studied the risk instead of getting themselves in over their heads.

But hey, that greed is an ugly thing and it rarely brings good.

Jstas

I don't think anybody blamed one politican actions for this mess. I know I didn't.

I never explained the details of my 401K, but I know many people in my family that have lost over 30% of it. Doesn't that piss you off?

The question is who's next to lose more.

Discussing 401ks is not politics. But if they were why are you discussing it?

No one to my knowledge has given any explaination for this mess.

[kgingras]

No one to my knowledge has given any explaination for this mess.

Interestingly enough, NYT hinted at this back in '99.

September 30, 1999
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

[Jstas]

Jstas

I don't think anybody blamed one politican actions for this mess. I know I didn't.

I never explained the details of my 401K, but I know many people in my family that have lost over 30% of it. Doesn't that piss you off?

The question is who's next to lose more.

Discussing 401ks is not politics. But if they were why are you discussing it?

No one to my knowledge has given any explaination for this mess.

You don't get it. I'm sorry for the financial loss of your family but I have had nothing to do with it. Does it it piss me off? No, doesn't even register on my radar because I got bigger problems of my own.

At least you HAVE something to lose.

For the next 35 years of my life I get to pay in to this system, have my tax dollars taken to support the government social programs and if I don't have my own savings, when I retire I will have no income whatsoever. THAT pisses me off.

What I am REALLY glad I didn't do was get one of those sub-prime mortgages. My retirement savings got recently pummeled and depleted pretty much completely due to recent personal events. I pretty much have nothing after 10 years of saving. I get to start all over again and this market now sucks for investing so I'm most likely gonna lose my shirt again.

And all you care about is if I'm pissed off about your family's financial predicament?

Be angry all you want. Blame whatever politician you want. The ones you should be blaming are the ones getting shutdown, failing, bought out and bailed out. This isn't the doing of a government, but everyone is expecting the government to save it and honestly, the government has to. There are two options, let the banks fail and plummet the world into an economic recession and let our own economy collapse in to ruin or save them with a Federal Reserve buyout and weather the ensuing recession and listen to every yahoo with an opinion about it express it and then blame the President for it no matter how wrong they are.

Oh and I'm not discussing politics, I am responding to you questioning me. There's a difference.

[DaveMuell]

Interestingly enough, NYT hinted at this back in '99.

September 30, 1999
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

...Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

...''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.'' ....

Hmm, I wonder if that is the same Franklin D. Raines that is freshman Senator Obama's economic advisor? Would make sense seeing how in the last 8 years, Fannie Mae's top 2 political contribution recipients are Christopher Dodd (brokering the bail-out deal) and Obama (running for President). Obama must have been a particularily apealling person to contribute to as he rose to second-place in just 2 years...

Back to the point, anyone buying this junk paper knew that the risk in their portfolio was higher and they accepted that risk along with the reward. Now, we are expected to alleviate the concequences of that risk. BS.

[kgingras]

Hmm, I wonder if that is the same Franklin D. Raines that is freshman Senator Obama's economic advisor? Would make sense seeing how in the last 8 years, Fannie Mae's top 2 political contribution recipients are Christopher Dodd (brokering the bail-out deal) and Obama (running for President). Obama must have been a particularily apealling person to contribute to as he rose to second-place in just 2 years...

Back to the point, anyone buying this junk paper knew that the risk in their portfolio was higher and they accepted that risk along with the reward. Now, we are expected to alleviate the concequences of that risk. BS.

Hey – don’t you know the rules? No politics!!! Just kidding.;)

Don’t you find the fact that the article was published in 1999 more than a little interesting though? I think the LA Times has something similar as well but cannot find the link.

I find the political pressure applied to FNM and FRE even more interesting however. It's also worth noting that others in the lending industry were furious (in 1999) that Fannie and Freddie were cutting into their very profitable turf. Government influence got us into this mess - more regulation was not the issue. Nor was poor financial reporting. Risk management models were very, very broken. That is a bigger issue. As was market pressure to grow earnings without regard to the risk involved. Chuck Prince said it best - on another branch of the business, but I find it fitting – “As long as the music is playing, you’ve got to get up and dance.”

Congress was pretty fat and happy about this until things went south. Then they started blaming the banks that they themselves pressured into lowering lending standards to extend more credit to more borrowers. Ultimately I think the blame belongs on them and their perpetual f**king hardon for "the American Dream" of owning a home no matter how poor, unreliable, or unemployed you might happen to be. Policy after policy is based on buoying homeownership. What exactly is wrong with thinking that some people should remain renters... I don't know.

[BigMac]

Plain and simple/black and white.

[bikezappa]

jstas

Quote "Oh and I'm not discussing politics, I am responding to you questioning me. There's a difference."

This is your thread and topic.

You must have a mad on.

[Kex]

... This isn't the doing of a government, but everyone is expecting the government to save it and honestly, the government has to. ...
I don't entirely agree. Better oversight of accepted lending practices (just as there is oversight of trading practices and accounting practices) could have averted at least some of this IMHO, by not allowing such wholesale pushing of mortgages on people who could not reasonably afford them. Just like an investor understands that he should not risk more than 25% of his portfolio in speculative stocks, banks should not have been allowed to risk such large proportions of their lending portfolios on anyone paying more than 40% (or so) of their monthly income into a mortgage, solely on the strength of appreciating home values. Lots of commons sense rules were ignored here. Good oversight could have made it illegal to be so wreckless.

Flooding the market with poorly qualified buyers also contributed to the housing bubble in a large part, IMO, so it was a self perptuating house of cards to begin with. I'm only surprised it lasted this long. I personally think the governement deserves some of the blame, but it's just my opinion, FWIW.

[bikezappa]

BigMac

Funny but sad cartoons

[bikezappa]

kgingras

by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers.

I guess that explains how we got into this finacial mess. I wonder what the % is today?

Did anyone do the math?

[Jstas]

jstas

Quote "Oh and I'm not discussing politics, I am responding to you questioning me. There's a difference."

This is your thread and topic.

You must have a mad on.

Um, I know what I posted a thread about. I posted about a goverment bailout and the economic impact. I did not discuss anything about any political policy. I only discussed how the banking system in this country works. I have not discussed politics, I have only responded to your misguided and ill-informed posts.

You're the one crying about your 401K and how you were going to use that money to retire. Waaaa. Whoop dee friggin' doo! You're not the only one champ, we're ALL hurtin'! You're lucky you only lost 30% of your value. A friend of mine's cousin WORKED for a bank that went under. He has no money, no investments and his mortgage is in danger. Oh, he's also unemployed now too. All of his life was wrapped up in that bank and he lost it all. granteed, the funds and such are still there but when they go from a high of 33.60+ a share to 1.67, that kinda stings a bit more than a 30% loss. Especially when you took advantage of all the breaks your employing financial firm offered to its employees.

[Jstas]

I don't entirely agree. Better oversight of accepted lending practices (just as there is oversight of trading practices and accounting practices) could have averted at least some of this IMHO, by not allowing such wholesale pushing of mortgages on people who could not reasonably afford them. Just like an investor understands that he should not risk more than 25% of his portfolio in speculative stocks, banks should not have been allowed to risk such large proportions of their lending portfolios on anyone paying more than 40% (or so) of their monthly income into a mortgage, solely on the strength of appreciating home values. Lots of commons sense rules were ignored here. Good oversight could have made it illegal to be so wreckless.

Flooding the market with poorly qualified buyers also contributed to the housing bubble in a large part, IMO, so it was a self perptuating house of cards to begin with. I'm only surprised it lasted this long. I personally think the governement deserves some of the blame, but it's just my opinion, FWIW.

I'm not doubting any of this but when the economy is booming, making certain lending practices illegal overnight would have shut down investment growth and that would have halted everything. That would have led to stunting of teh economy and we'd be in roughly the same position because the lacking of capital backing is where the problem lies.

Besides, when this first started happening, the growth in the housing market was legitimate. How do you tell when it stops being legitimate and starts being a bubble? It's possible to see but difficult. But like what was said in another thread. Policies enacted by an earlier administration before this one opened up loopholes that were exploited. Those loopholes were intended to give disadvataged people a leg up to the American Dream. Nice, noble, good idea. Problem was it was unregulated and the policies were not very well thought out and poorly implemented to boot.

But again, when does the government step in? hind-sight is 20/20. What were the clues? Do you know? I'm not an economist, I don't really know. But I can see where the problems started. But when the problems started, we had other problems with a floudering economy that was going no where quick and skyrocketing inflation. At the time if it wasn't for these housing policies put in place and teh housing market bubbling up, the recession cause by the Tech Bubble bursting would probably still be going on. But you can't prop up a recessive economy with a whole other economic bubble.

When that happens we end up with inflated value (i.e.: inflation) and a bunch of over-valued stuff. The market bursts and adjusts itself through basic economic principles and we end up with a bunch of credit that isn't backed by anything. When that happens, interest rates go up to recover the losses and since all those high-risk loans were signed on adjustable rates, you now have people with mortgage payments doubling in size but paychecks stagnating and yearly raises barely covering the now inflated cost of living increases.

The market will adjust. How long it will take is how long this recession will be. You won't see much happen for 7 years because all those people who over-borrowed walked away and would rather take the 7 year hit than go live on the street. So they can't borrow anything for 7 years. No borrowers playing interest, no profit for banks to reinvest and generate more capital. That goes away, your growth goes away.

It's all crystal clear now but if you are going to put oversight in to that, who do you regulate? Lenders? Borrowers? Investors? Who? When you figure that out, how do you do that without crippling growth, stagnating the economy and driving a recession that you are trying to avoid? Yeah, we can sit here and say we shoulda coulda woulda but didn't but these answers are too late and no where near enough.

Besides, there is no amount of oversight that could have changed this because it would have needed congressional intervention at some point and why would any of them desire to anger their constiuents by limiting growth and taking away profit opportunities when the long term effects were not apparent immediatly? Congress would take too long to act and by the time they did, they would have passed a point where what they had planned to do was not enough and a waste of money and time.

[bikezappa]

I'm not doubting any of this but when the economy is booming, making certain lending practices illegal overnight would have shut down investment growth and that would have halted everything. That would have led to stunting of teh economy and we'd be in roughly the same position because the lacking of capital backing is where the problem lies.
.


WTF does that mean? Maybe slow down a bit.

[Kex]

... Besides, when this first started happening, the growth in the housing market was legitimate. How do you tell when it stops being legitimate and starts being a bubble? ...
Maybe when you're lending to an unusually large proportion of people who don't qualify according to basic common sense practices, adding extra buyers to a hot market who have no business being there, driving prices artificially even higher.

[bikezappa]

I wonder why the car dealers didn't start selling and financing cars to people that didn't qualify? Maybe they did.

Looking back it makes no sense to do business like that weather you are selling homes or cars. The buyer must convince the seller that they can pay for the produce. This would be economics 101. Otherwize you go out of business very fast.

I understand the explanation others have offered that selling to nonqualified buyers, who could never pay, is the root cause of this metldown. Thank you.

However, I can't imagine this finacial plan of selling to nonqualified buyes lasting more than a few years before the meltdown. But according to these articles this plan was going on for over 10 years. What kept this boat afloat for so long.

There is no politics intended in the about. Just economics 101B.

[bobman1235]

But according to these articles this plan was going on for over 10 years. What kept this boat afloat for so long.


You're talking about multi-billion-dollar companies, and despite all the hyperbole, all the lending to unqualified buyers and whatnot only increased their risk a small amount, so it takes a long time to catch up with them. Throw in how long it took the housing market to really shoot up (and then crash) and other things. Markets move slowly.

[bikezappa]

Thank you!
You can bitch about your retirement but if EVERYTHING you have is in one place well, now you are the poster child on why you should diversify your portfolio. It helps minimize risk and loss if risk matures.
.

I never said anything about my personnel 401K.

The fact is that most people I have talked to noticed that ALL the options in their 401K are down 20% to 30%. There were no good or safe options in their 401K.

Diversify into what?

[bikezappa]

You're talking about multi-billion-dollar companies, and despite all the hyperbole, all the lending to unqualified buyers and whatnot only increased their risk a small amount, so it takes a long time to catch up with them. Throw in how long it took the housing market to really shoot up (and then crash) and other things. Markets move slowly.

OK I'll buy that. But why would these billion dollar companies continue to do business with buyers that didn't pay from the get go. That would be bad business. Wouldn't they change the part of the business that was lossing and make adjustments? Stores stop selling items that are losing money.

[Kex]

... But according to these articles this plan was going on for over 10 years. What kept this boat afloat for so long.
...
As long as house prices kept going up, and they kept their job, however modest, and/or same level of income, they could keep refinancing every three years. Once house prices went down, they could no longer refinance (the home appraised for less than the requested loan) and the existing loan reset to a higher interest rate and/or much higher repayment, which they could not afford to pay.

Don't forget the flippers either, who could never qualify under sensible business practices for their loans. As soon as they ended up not being able to flip the house for an amount equal to, or greater than their loan amount, they quickly found themselves in hot water ...

[Kex]

... Diversify into what?
A 401K is considered by most to be diversified by nature, just like a Mutual Fund.

[shack]

I wonder why the car dealers didn't start selling and financing cars to people that didn't qualify? Maybe they did.

They did. It wasn't too long ago that there had to be a cash down payment to finance a car. That went away. Debt ratios went out the window. 72 month car loans became the norm. Upside down? No problem, they just added it to the new car loan amount and finance it as well (add that to the immediate depreciation and you could walk out the door $10-15,000 upside down the minute you drove off the dealer's lot). Can't afford to buy...they would lease it to you. Don't kid yourself into the belief that this is only a mortgage issue. Consumer debt, credit cards are going to be hit hard as well.

It is a change in the fundamental way of doing banking (and business) that was generated by greed. NOT JUST THE CEOs...but each and every one who owns a single share of a mutual fund is to blame as well. In striving to maintain "high rates of returns" MF managers, 401K managers, etc, have pushed publicly tradeed businesses (including banks) to continue delivering high rates of return by growth and income. The days of the largest stockholders of a bank being on the board and having direct input (and corresponding liability for their actions) into the long-term soundness of the institution are long gone. The largest stockholders are now institutional investors (mutual funds, insurance companies, pension funds, etc) whose sole concern is rate of return...even at the expense of the long term viability, stability and health of the business or institution. Banks and financial institutions were told they must maintain certain high levels of growth (say 15%) in economies that were growing at a 5% rate or their stock would be dumped by investors (decimating the value). There was no way they could grow with the economy or steal enough business from competitors to maintain the growth and income levels dictated to them. The only option was to TAKE MORE RISKS and do things to produce the revenues and growth to meet expectations of the "market". I am not saying the companies were not wrong in what they did, but much of it has been due to the nature of the ownership of publicly traded companies.

It’s all about greed…but not just the “evil corporate exec.” but anyone who owns mutual funds (either individually or in a retirement account) who made the determination based on the “rate of return” of that fund. We all have a part in this….and it is why the nation as a whole needs to FIX IT!

End of rant!

[Jstas]

I never said anything about my personnel 401K.

The fact is that most people I have talked to noticed that ALL the options in their 401K are down 20% to 30%. There were no good or safe options in their 401K.

Diversify into what?

Again, losing 20-30% is peanuts compared to the hits of 70-90% some people have taken.

In case you didn't notice, I'm down-playing the loss. Yeah, I know, I'm a jerk, yada, yada, yada.


A 401K may be "diversified by nature" like Kex believes but in reality it isn't. Most 401Ks and mutual funds are based around a certain kind of stock, say tech stocks or pharmceuticals or what have you. It depends on where the 401K is based. My 401K was based primarily around tech stocks because of teh company I worked for with the majority being based on the company I worked for because of their 401K matching policy. The same goes for mutual funds. Fund managers do like what shack said and go for rate of return. What returns hot? Booming markets, like tech or pharmaceuticals. So they load up on those stocks. Granted, they are from different companies but, not necessarily outside of the primary market the fund is based in.

The problem with that? When you get a single company taking a hard hit and the stock drops, it affects other companies in the same market and you get a ripple effect that magnifies the hit and turns say a 15% loss into 20-30% depending on the size of the company that took the hit and how heavily invested you are.

How do you diversify? Different stocks/funds/investments in different markets. You shouldn't have you sole reliance or the majority of reliance on something like a 401K or a single market mutual fund. It's almost as bad as having all your money in one company. What should you invest in? FIIK, do your research.


This investing/banking stuff isn't easy to predict at all and it is one of the biggest and most expensive gambling risks in the known world. If you play heavy, the benefits can be huge but so can the losses. If you play small, benefits and losses are both small. It's all about risk management which is why stock brokerages give you trend information for stocks so you can see where the stocks have been and if you are investing in a fund, how they affected that fund.

[Strong Bad]

Tell ya what, I'm so glad I held out to buy a home. The prices people were paying for pieces of shit is goddamm amazing! I scored very well!

I remember some former coworkers comments regarding home prices. Someone had mentioned that someone else was buying a townhouse for, I think around $280k. Immediately, someone spoke up and said that this house must be in some ghetto ass neighborhood and be a wreck if they were paying that price.

$280k roughly for a townhouse and it must be a piece of shit in a ghetto neighborhood??? This person obviously WAY overpaid for their house as I later discovered and had this incredibly inflated outlook on home prices. Chalk it up to their high society "I'm better than all of you" attitude.

Bullshit status symbols and egos drove too many people into these bad decisions, including car loans.

When I bought my Accord back in February, the dealership was also a VW dealer. On top of those nice shiny $40k + VW Toureg SUV's were these cutsie signs with financing options up to...yes indeed...96 months! Yes sir, 96 month financing options. So, when I sat down with the finance person to get my Accord for 60 months @ 4.79%, I asked if that sign was a misprint. He pretty much said people are coming in to get the biggest, most flashy and most expensive vehicles so they can look as high class as possible, show off to the world and want the absolute lowest monthly payment they can possibly get. So enter the 96 month option! He said they didn't care how much they were actually paying for it AFTER the 96th payment. Put me in it no matter what!

I settle on my townhouse/rowhome in 3 weeks. I paid $196k for it. It's in a nice neighborhood, an end of group, backs up to the water (I'm going to love my back deck) and is in amazing condition for a late '60's all brick house. I got a traditional 30 year fixed rate at 6.25%. My mortgage is well within my income level (I did not overspend), so i'll be very comfortable.

I have a friend and his wife that let their egos dictate their house shopping. Long story short, they had an ARM that just set to a higher rate. They tried to refinance and guess what, their home lost $80k in value, so they didn't qualify to refinance. Oh my oh my, that ARM added an extra $1400 a month (yeppers, $1400 a month) on to their existing mortgage. They can afford it, but it stings quite a bit!

Oh yeah, alot of stuff is on sale. Smart investors, go shopping!

[Old School Polk]

Wall Street hasn't been the same since the wall was dismantled by the British in 1699.

[Old School Polk]

A 401K is considered by most to be diversified by nature, just like a Mutual Fund.

No necessarily. All of the money in a 401K could be invested in your company's stock, another individual investment or an undiversified portfolio (i.e. all financial stocks).

So, keep your eyes on your 401K prize.

[WilliamM2]

Our economy is based on a free market. It failed all by itself and it is not the government's place to step in and meddle unless something is going to harm the good of the country. The banking problem was caused by banks exploiting a loophole that had the potential to pay off in a big way or fail in a bigger way. Well, we know what happened. Should the government have stepped in sooner?

The government already stepped in, that is exactly what caused this problem in the first place:

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F9582 60&sec=&spon=&pagewanted=1

[bobman1235]

I wouldn't blame it all on corporate greed, though that's in there. For the past couple of decades the government has essentially forced private mortgage companies (http://en.wikipedia.org/wiki/Community_Reinvestment_Act) to give out risky loans to low income families. It certainly didn't force the current state, but it definitely encouraged it and helped it along.

[shack]

Are other countries having the major finacial institiutions also going bankrup?

Or is this just in the US?

Just another example(s) that it's not just us....even though our problems may be helping to make their problems worse (and vice-versa)....

UK government nationalizes Bradford & Bingley
Monday September 29, 8:02 am ET
By Emily Flynn Vencat, AP Business Writer

British government nationalizes Bradford & Bingley to preserve financial stability

LONDON (AP) -- The British government is nationalizing troubled mortgage lender Bradford & Bingley, the Treasury confirmed Monday, taking over the bank's 50 billion pound ($91 billion) mortgage and loan books as turmoil from the U.S. credit crisis spread across Europe.

The sweeping move is intended to preserve financial stability, Prime Minister Gordon Brown told reporters at his Downing Street office. "We will work night and day to make sure that Britain can come through fairly this downturn," Brown said.

The move comes hours after Dutch-Belgian banking giant Fortis NV was partially nationalized with a 11.2 billion euros ($16.4 billion) rescue from the governments of Belgium, the Netherlands and Luxembourg, after investor confidence in the bank disappeared last week. Germany's second biggest commercial property lender, Hypo Real Estate Holding AG, said Monday it had secured a multibillion euro line of credit from several banks, as the financial turmoil in the United States spread further in Europe

[bikezappa]

shack

I read that also this weekend. I guess we do have a global economy.

I understand that Russia has the worst economic effects.

I guess we all are operating under the same economic rules or non rules.

[jdhdiggs]

More fun for everyone:

http://in.youtube.com/watch?v=H5tZc8oH--o

If you're politcally oversensitive, please don't follow the link...

[bikezappa]

Club Polk politically oversensitive?

[jdhdiggs]

Ya think? ;)

[kgingras]

Here is the draft legislation for the bailout: http://i.cdn.turner.com/cnn/2008/images/09/28/ayo08c04_xml.pdf. 110 pages in its current form. This thing started as a 3 page proposal. As John Boehner (House Minority Leader) said: "A crap sandwhich." I prefer the term "shit sandwhich"...that we're all gonna have to take a bite from, it seems. I read it last night, and I'm still not for it.

It transfers huge amounts of wealth to people who don't deserve it and haven't earned it. You're going to end up seeing a lot of "creative" accounting from a ton of these investment houses and banks, who'll try to rid themselves of assets they don't want (which we'll all end up "owning").

It also doesn't eliminate any of the policies that got us into this mess in the first place. By that, I mean the Community Reinvestment Act (when did credit become a civil right?), and the creation of Fannie Mae and Freddie Mac. This shit sandwhich also sets a horrible precedent: If you take huge (and stupid) risks, and become "too big to let fail," the good old U.S. government (meaning, we the taxpayers) will bail you out.

We're going down an extremely slippery slope here. And once some of the "incentives" in that package get into the system, it's going to be super-hard to go back to status quo ante, where the markets reward sound financial management and punish poor financial decision-making. And to me, it looks like Paulson is just bailing out all his friends from Wall Street (he was once CEO of Goldman Sachs, and his stock holdings have taken a 500 million dollar hit).

[shack]

If done right...this will end up costing the taxpayers NOTHING...and potentially show a profit for the treasury. This plan or something similar was necessary...if you don't believe that then you have no concept of the scope and magnitude of the problem/issues. This is not something created by Wall Street, bankers, politicians...it is a system wide problem created by ALL OF US in some form or fashion. It was either this (or similar) or many more massive failures in the US financial system which would have cost the taxpayers MUCH more in short and long run. Failure to act could have brought the whole thing crumbling down.

[bobman1235]

Which may still happen anyway. Listen to any economist, and they'll tell you they have no idea if any of this will even work. We're spending 800 billion on a gamble that NO one knows will work, and it doesn't seem to be fixing the root cause of much either.

Maybe it's time for everything to come crashing down and for us to reboot.

[shack]

The root cause of the "mortgage crisis" has already been fixed. If you think there will be anything resembling a "sub prime" mortgage going forward, you are sadly mistaken. The ability to stray from sound banking and lending practices has been taken off the table. and I don't see that changing any time in the foreseeable future.

What must be fixed is the notion that getting rich quick via the stock market, day trading, speculation of commodities and financial instruments, etc, etc, is acceptable. Too many people want to "get rich quick" and taking too many risks on someone elses dime. We must retun to the days of building wealth through systematic work and growth in a sound and reasoned manner. We need to get back to the days of valuing a business or enterprise on it's inherent strengths and/or weaknesses rather than speculation or demand by uninformed investors.

If you allow for everything to "come crashing down" and "reboot" you will get financial anarchy which will lead to things we have only seen in the failure of the economies of 3rd world countrys. It would not be pretty and would be devistating for our country.

[bobman1235]

I didn't mean to insinuate that I want that or that I hope it happens.


Thanks for all the insight shack. It's so hard to sort through the garbage you hear on the news it's nice to have someone that at least seems to have a deeper and more down-to-earth knowledge of what's going on. :)

[kgingras]

Which may still happen anyway. Listen to any economist, and they'll tell you they have no idea if any of this will even work. We're spending 800 billion on a gamble that NO one knows will work, and it doesn't seem to be fixing the root cause of much either.

Nouriel Roubini is quoted near the end of this article:

By Darryl Robert Schoon (author of How to Survive the Crisis and Prosper in the Process)

There is nothing more dangerous than when those responsible for a nation's troubles are believed to be its savior.

If the truth be known - and someday it will be - central banks are at the very center of today's problems. Indeed, they caused them. Today's disintegration of capital markets based on debt-based paper began in 1913 with the creation of the US Federal Reserve Bank, the central bank of the US.
...Debt-based paper money has led nations and the world down a very dangerous path. Facilitating expansion by encumbering future revenues with compounding debt inevitably indebts individuals, businesses, and governments beyond their ability to repay.
In the beginning, production expands, needs are met and everyone goes home happy. In the end, everyone's home gets repossessed. This is when the amount of debt has grown so large, governments, businesses, and consumers collapse under its collective weight.
That's where we are today. We lived off tomorrow and tomorrow has arrived. What a surprise.
Although in the past, continuing central bank intervention has proved inadequate, the ignorant, unknowing and desperate are yet again hoping that Paulson's latest plan will save them. But the collective solutions of Bernanke, Paulson, et. al. will again prove wanting.
Indeed, Paulson's and Bernanke's continuing attempts to reverse the accelerating credit contraction will only make the final rendering all the more devastating.?
Some are alleging that the US government's accelerating bailout of banks, insurance companies et. al. is socialism. Although it is government intervention in extremis, such intervention in the markets does not constitute socialism.
The bailout of investment banks and corporations by the US government is fascism; the control and intervention of government by corporate interests designed to further corporate and state control. The multi-trillion dollar state support of JP Morgan, AIG, Fannie Mae and Freddie Mac and now perhaps soon GM, Ford, and Chrysler is fascism, not socialism.
The August 2007 credit contraction was like a financial earthquake that unexpectedly shook global markets. It began as a series of crises that have continually escalated demanding greater and greater taxpayer resources.
Now, the house itself is on fire but the cause and the proposed solution are always the same. The cause is always investment bank greed. The proposed solution is always more taxpayer money to bailout out more investment banks. This is not a solution. This is societal blackmail.
When the US handed over the issuance of its money to the Federal Reserve in 1913 it did so in violation of the US Constitution. It illegally gave the right to issue US currency to a private bank and set in motion forces that would lead to today's extraordinary crisis.
Today's extraordinary banking crisis was not unexpected - as private bankers claim and we believe. Today's crisis was inevitable and was in fact prophesized long before it happened. We were warned about this very occurrence two hundred years ago by no less than a founding father of the American republic, Thomas Jefferson.
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.
Jefferson's prophecy has now come true and, yet, we act surprised; and, if we are, it is because the corporate controlled media has effectively misled Americans about the cause of their problems.
Double-dipping welfare moms? Illegal immigrants? Muslim terrorists? It's anyone - except, of course, the bankers and the Federal Reserve - or so say again and again America's corrupt corporate media in whose interest it is for Americans to mistakenly blame others for the real cause of its woes.
Otherwise, Americans, left on their own, might wake up.
It is bankers such as Henry Paulson who are responsible for America's disintegrating and imploding economy. Since 1913 America has allowed private bankers to control the issuance of America's money and now, in the very midst of the problems they themselves created, the bankers through Paulson's plan are seeking unsupervised control over America's economy complete with immunity from any future criminal prosecution.
This is because the bankers not only want America to bail them out, they are planning to steal their assets back in the process.
The Bush administration sought unchecked power from Congress to buy $700 billion in bad mortgage investments from financial companies in what would be an unprecedented government intrusion into the markets.
Through his plan, Treasury Secretary Henry Paulson aims to avert a credit freeze that would bring the financial system and the world's largest economy to a standstill. The bill would prevent courts from reviewing actions taken under its authority. [bold, Schoon]
"He's asking for a huge amount of power,'' said Nouriel Roubini, an economist at New York University. "He's saying, 'Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy.''
The investment banks are even now intending to violate the law in Paulson's proposed government takeover and redistribution of bank assets. It is in the redistribution and sale of bank assets where the crimes will occur - crimes which will be granted pre-existing immunity from judicial prosecution under Paulson's proposal.
This same caveat - immunity from subsequent criminal prosecution - was also written into the authorization of the original Resolution Trust Corporation which disposed of government seized property after the Savings & Loan crisis.
The reason no one remembers the hundreds of billions of dollars of seized property from Savings & Loans listed for sale by the RTC is because it never happened.
The greatest wealth transfer in recent history happened when taxpayer money was used to liquidate S&L properties which were then "sold" to well-connected insiders in transactions immune from criminal prosecution for literally pennies on the dollar.
The soon-to-be owned bank assets under Paulson's plan will not be sold to the highest bidders in an open and fair auction, they will be disposed of again to pools of the wealthy and well-connected at highly discounted insider valuations. The people will pay, the rich will profit.
No, this isn't a monarchy. This is fascism.
THE FOX IS IN THE HENHOUSE
Today, investment banker Henry Paulson, former CEO of investment bank Goldman Sachs is US Secretary of the Treasury. This is no coincidence. Thomas Jefferson would not be surprised.
Paulson's plan to bail out the banks is being presented to American citizens as a fait accompli, as a necessary step to prevent the complete meltdown of our financial system. Paulson's plan is exactly what every venal, opportunistic and self-serving banker would propose as a solution to America's problems in such circumstances.
When this is all over - and someday it will be - it is my hope that we will have learned the lessons that we have now forgotten. That bankers, like vicious dogs, must always be kept on short leashes for the public safety and public good (neutering should also be a requirement); and, that gold and silver, not credit and debt, are the only foundation of sound money.
PREDICTIONS
(1) Paulson's bailout of investment banks giving bankers total control over America's economy will be rushed through Congress and quickly signed into law damaging international perceptions of US creditworthiness which will lead to further uncertainty in the markets. US Treasuries and the US dollar will ultimately bear the long term consequences of Paulson's self-serving short term "solution".
Conclusion: Even greater financial disaster will result from Paulson's taxpayer bailout of his wealthy Wall Street friends.
(2) Written into the investment banking bailout law will be provisions expanding the police powers of the state, e.g. Congressman Ron Paul noted the recent passage of the housing bill contained the requirement that by 2009 "every credit card transaction will be reported to the IRS".
Conclusion: Fascism is the new zeitgeist. This, too, shall pass.

[shack]

Nouriel Roubini is quoted near the end of this article:

By Darryl Robert Schoon (author of How to Survive the Crisis and Prosper in the Process)

There is nothing more dangerous than when those responsible for a nation's troubles are believed to be its savior.

If the truth be known - and someday it will be - central banks are at the very center of today's problems. Indeed, they caused them. Today's disintegration of capital markets based on debt-based paper began in 1913 with the creation of the US Federal Reserve Bank, the central bank of the US.
...Debt-based paper money has led nations and the world down a very dangerous path. Facilitating expansion by encumbering future revenues with compounding debt inevitably indebts individuals, businesses, and governments beyond their ability to repay.
In the beginning, production expands, needs are met and everyone goes home happy. In the end, everyone's home gets repossessed. This is when the amount of debt has grown so large, governments, businesses, and consumers collapse under its collective weight.
That's where we are today. We lived off tomorrow and tomorrow has arrived. What a surprise.
Although in the past, continuing central bank intervention has proved inadequate, the ignorant, unknowing and desperate are yet again hoping that Paulson's latest plan will save them. But the collective solutions of Bernanke, Paulson, et. al. will again prove wanting.
Indeed, Paulson's and Bernanke's continuing attempts to reverse the accelerating credit contraction will only make the final rendering all the more devastating.?
Some are alleging that the US government's accelerating bailout of banks, insurance companies et. al. is socialism. Although it is government intervention in extremis, such intervention in the markets does not constitute socialism.
The bailout of investment banks and corporations by the US government is fascism; the control and intervention of government by corporate interests designed to further corporate and state control. The multi-trillion dollar state support of JP Morgan, AIG, Fannie Mae and Freddie Mac and now perhaps soon GM, Ford, and Chrysler is fascism, not socialism.
The August 2007 credit contraction was like a financial earthquake that unexpectedly shook global markets. It began as a series of crises that have continually escalated demanding greater and greater taxpayer resources.
Now, the house itself is on fire but the cause and the proposed solution are always the same. The cause is always investment bank greed. The proposed solution is always more taxpayer money to bailout out more investment banks. This is not a solution. This is societal blackmail.
When the US handed over the issuance of its money to the Federal Reserve in 1913 it did so in violation of the US Constitution. It illegally gave the right to issue US currency to a private bank and set in motion forces that would lead to today's extraordinary crisis.
Today's extraordinary banking crisis was not unexpected - as private bankers claim and we believe. Today's crisis was inevitable and was in fact prophesized long before it happened. We were warned about this very occurrence two hundred years ago by no less than a founding father of the American republic, Thomas Jefferson.
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.
Jefferson's prophecy has now come true and, yet, we act surprised; and, if we are, it is because the corporate controlled media has effectively misled Americans about the cause of their problems.
Double-dipping welfare moms? Illegal immigrants? Muslim terrorists? It's anyone - except, of course, the bankers and the Federal Reserve - or so say again and again America's corrupt corporate media in whose interest it is for Americans to mistakenly blame others for the real cause of its woes.
Otherwise, Americans, left on their own, might wake up.
It is bankers such as Henry Paulson who are responsible for America's disintegrating and imploding economy. Since 1913 America has allowed private bankers to control the issuance of America's money and now, in the very midst of the problems they themselves created, the bankers through Paulson's plan are seeking unsupervised control over America's economy complete with immunity from any future criminal prosecution.
This is because the bankers not only want America to bail them out, they are planning to steal their assets back in the process.
The Bush administration sought unchecked power from Congress to buy $700 billion in bad mortgage investments from financial companies in what would be an unprecedented government intrusion into the markets.
Through his plan, Treasury Secretary Henry Paulson aims to avert a credit freeze that would bring the financial system and the world's largest economy to a standstill. The bill would prevent courts from reviewing actions taken under its authority. [bold, Schoon]
"He's asking for a huge amount of power,'' said Nouriel Roubini, an economist at New York University. "He's saying, 'Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy.''
The investment banks are even now intending to violate the law in Paulson's proposed government takeover and redistribution of bank assets. It is in the redistribution and sale of bank assets where the crimes will occur - crimes which will be granted pre-existing immunity from judicial prosecution under Paulson's proposal.
This same caveat - immunity from subsequent criminal prosecution - was also written into the authorization of the original Resolution Trust Corporation which disposed of government seized property after the Savings & Loan crisis.
The reason no one remembers the hundreds of billions of dollars of seized property from Savings & Loans listed for sale by the RTC is because it never happened.
The greatest wealth transfer in recent history happened when taxpayer money was used to liquidate S&L properties which were then "sold" to well-connected insiders in transactions immune from criminal prosecution for literally pennies on the dollar.
The soon-to-be owned bank assets under Paulson's plan will not be sold to the highest bidders in an open and fair auction, they will be disposed of again to pools of the wealthy and well-connected at highly discounted insider valuations. The people will pay, the rich will profit.
No, this isn't a monarchy. This is fascism.
THE FOX IS IN THE HENHOUSE
Today, investment banker Henry Paulson, former CEO of investment bank Goldman Sachs is US Secretary of the Treasury. This is no coincidence. Thomas Jefferson would not be surprised.
Paulson's plan to bail out the banks is being presented to American citizens as a fait accompli, as a necessary step to prevent the complete meltdown of our financial system. Paulson's plan is exactly what every venal, opportunistic and self-serving banker would propose as a solution to America's problems in such circumstances.
When this is all over - and someday it will be - it is my hope that we will have learned the lessons that we have now forgotten. That bankers, like vicious dogs, must always be kept on short leashes for the public safety and public good (neutering should also be a requirement); and, that gold and silver, not credit and debt, are the only foundation of sound money.
PREDICTIONS
(1) Paulson's bailout of investment banks giving bankers total control over America's economy will be rushed through Congress and quickly signed into law damaging international perceptions of US creditworthiness which will lead to further uncertainty in the markets. US Treasuries and the US dollar will ultimately bear the long term consequences of Paulson's self-serving short term "solution".
Conclusion: Even greater financial disaster will result from Paulson's taxpayer bailout of his wealthy Wall Street friends.
(2) Written into the investment banking bailout law will be provisions expanding the police powers of the state, e.g. Congressman Ron Paul noted the recent passage of the housing bill contained the requirement that by 2009 "every credit card transaction will be reported to the IRS".
Conclusion: Fascism is the new zeitgeist. This, too, shall pass.

That is so full of shit I can smell it through my screen...:rolleyes:

[Jstas]

That is so full of shit I can smell it through my screen...:rolleyes:

You actually read it?




This thread is gonna go bye bye also because of all the political rhetoric that keeps pooping up.

Facts are facts, numbers don't lie. A ton of stuff has gone in to affecting this. Yes, many of us are either victims or bystanders in all of this but, if we want to continue our current standard of living, the government needs to take action mainly because it is the ONLY entity with the financial power to be able to do something about it.

Does it suck? Yes, yes it does. Should it affect how you cast your vote in November? Yes, yes it should. But instead of spewing political rhetoric, listen to what both sides are saying, do some of your own research and decide for yourself. The writing is on the wall and people are not what they seem to be nor are they what others want you to think they are.

But honestly, there is no amount of politics short of a dictatorship or other fascist or communist system that can affect an economy based on a free market. Even though some crackpots seem to think we live in a fascist regime, we don't. Nobody on Capitol Hill has enough power to act on the economy and change it. Things got out of hand here because many people who had the power to affect things shouldn't have had the abilty. But they did. It's just a shame that many of them were publicly elected officials who betrayed the constituency for the health of their own wallets.

That's politics, that how it always seems to go. It really doesn't have any place in economics just like it doesn't have any place in this discussion.

[shack]

Anybody that thinks this "really doesn't affect me" take a look at your 401K or IRA or mutual funds after the House decided to "play politics" rather than do the right thing. They are more worried about getting re-elected in 5 weeks than taking the necessary steps to fix the problem before it all goes to hell. The market was down 705 points or almost 7% in a matter of hours. There are too many people that think this is JUST ABOUT THE RICH GUYS. They are sticking their heads in the sand hoping it will all go away...or think it is overblown...or it is a conspiracy....

They just don't get it because it is about ALL OF US and is isn't going away and it isn't overblown.

[Ricardo]

^^^^+ 1,000

Unbelievable move by the House. Get ready for a roller coaster ride.

[Jstas]

Anybody that thinks this "really doesn't affect me" take a look at your 401K or IRA or mutual funds after the House decided to "play politics" rather than do the right thing. They are more worried about getting re-elected in 5 weeks than taking the necessary steps to fix the problem before it all goes to hell. The market was down 705 points or almost 7% in a matter of hours. There are too many people that think this is JUST ABOUT THE RICH GUYS. They just don't get it.

Even if you don't have investments it still affects you. This affects interest rates on bank accounts, credit cards and so on. If you don't have any of those and keep all your money in a mattress, it affects the value of what you have in that mattress too.

Keep in mind there is still the fuel cost problems that seem to have been forgotten about in addition to the fact that most of the southeast is still without fuel due to storm affects.

Things are only getting worse because it's an election year and nobody is paying attention to anything but getting re-elected.

[shack]

At its lowest point the market was down 705.06, not far from its previous record for an intraday drop, 721.32, set during the first trading day after Sept. 11, 2001. It could still beat that drop. I guess things aren't really as serious as we thought...:rolleyes:

[disneyjoe7]

I believe this will effect me either way, and I not convinced that one way or the other is more beneficial.

A.) Bail out cost us $700B, higher taxes over the years :(

To correct something that the government start some tried to stop before it got to this point. And some will pad the CEO's of fail corporations, which I have a hard time feeling ok with this. Not I blame the corporations which failed I think the Government had a strong hand it also.

B.) Do nothing yes my 401k sucks big time, but maybe I have less taxes over the years.

So like I stated it's a wash to me.

And then there's always another country to move to, if needed. This country is a fine place to live but not the only place to live. ;)

[Jstas]

Well, we'll see what happens tomorrow.

The bailout was rejected, no more voting will be done today.

http://money.cnn.com/2008/09/29/news/economy/bailout/index.htm?cnn=yes

[Jstas]

I believe this will effect me either way, and I not convinced that one way or the other is more beneficial.

A.) Bail out cost us $700B, higher taxes over the years :(

To correct something that the government start some tried to stop before it got to this point. And some will pad the CEO's of fail corporations, which I have a hard time feeling ok with this. Not I blame the corporations which failed I think the Government had a strong hand it also.

B.) Do nothing yes my 401k sucks big time, but maybe I have less taxes over the years.

So like I stated it's a wash to me.

And then there's always another country to move to, if needed. This country is a fine place to live but not the only place to live. ;)

Have you read anything in this thread at all?

[shack]

A.) Bail out cost us $700B, higher taxes over the years :)

This is simply not true. That is the amount of funds to be used to purchase the distressed loans and forclosed property. The plan was to work with the homeowners still residing in many of the homes and lower INTEREST payments to allow them to stay in the homes. The principal balance would still be paid back. The foreclosed properties would eventually be sold and the funds recovered in some cases for more than they were purchased for by the govt. The plan was to purchase distressed ASSETS not just give away the money.

DAMN...it pisses me off when our so called leaders have no understanding of something of this magnitude. They say they got calls 10-1 against it by their constituents....WHO DON'T UNDERSTANDING IT EITHER. There are times when they have to do the right thing...even when it is very unpopular.

[John30_30]

Well, we'll see what happens tomorrow.

The bailout was rejected, no more voting will be done today.

http://money.cnn.com/2008/09/29/news/economy/bailout/index.htm?cnn=yes

Do you get the impression it failed because Pelosi rubbed it in the faces of the Repubs just before the vote? Or is that just me....

[Polk user]

This is simply not true. That is the amount of funds to be used to purchase the distressed loans and forclosed property. The plan was to work with the homeowners still residing in many of the homes and lower INTEREST payments to allow them to stay in the homes. The principal balance would still be paid back. The foreclosed properties would eventually be sold and the funds recovered in some cases for more than they were purchased for by the govt. The plan was to purchase distressed ASSETS not just give away the money.

DAMN...it pisses me off when our so called leaders have no understanding of something of this magnitude. They say they got calls 10-1 against it by their constituents....WHO DON'T UNDERSTANDING IT EITHER. There are times when they have to do the right thing...even when it is very unpopular.


So some part time avacado picker in California who got bought a $600,000 house with nothing down and no income verification pays the mortgage for a few months and now can't pay it and hes in forclosure is gonna have the gov't redo his morgtgage at 3% and value the house at todays value of $300,000. So now he has a $300,000 mortgage at 3% while I am stuck at 6% for the full 2005 value of my house.

Does that sound fair?

[Polk user]

Do you get the impression it failed because Pelosi rubbed it in the faces of the Repubs just before the vote? Or is that just me....


Heres her speech.... With Barney Frank introducing her. Shouldn't he be in jail?


http://www.youtube.com/watch?v=ey3ZlsmIkz4

[shack]

So some part time avacado picker in California who got bought a $600,000 house with nothing down and no income verification pays the mortgage for a few months and now can't pay it and hes in forclosure is gonna have the gov't redo his morgtgage at 3% and value the house at todays value of $300,000. So now he has a $300,000 mortgage at 3% while I am stuck at 6% for the full 2005 value of my house.

Does that sound fair?


First of all....THAT loan never happened. And even if it did, he would be foreclosed on because he could not make ANY reasonable payment. The govt would give the lender the market value of the home (it was never stated that the lenders were getting 100% of the ORIGINAL amount of the loan) and the rest would be written off again income (and potentially capital). The govt would then sell the home when the market allowed. The government "gives" stuff to people that they don't give to me ALL THE TIME. Government funded student school grants, subsidised housing, free school lunches, food stamps, WIC, etc...etc...etc... This is no different.

An whoever told you life was fair was telling you a fairy tale. :rolleyes:

[bobman1235]

Democrats outnumber the Republicans in the house by quite a few (almost 40 I think) so how exactly are they being blamed?

[shack]

Heres her speech.... With Barney Frank introducing her. Shouldn't he be in jail?

No but you should be ignored...which is easily fixable.


DONE!

[DaveMuell]

Do you get the impression it failed because Pelosi rubbed it in the faces of the Repubs just before the vote? Or is that just me....

Absolutely. Calling them "Unpatriotic" and ignoring the fact that about 100 Democrats also voted against it was about as dumb as it gets. But, that pretty well sums up her tenure as Speaker of the House.

I respectfully disagree with those that think that those of us not in favor of this bailout simply don't understand. We have a legitimate concern that manufacturing about a trillion dollars from vapor could cause rampant inflation. The Fed has generally seen inflation as a bad thing and raised interest rates to combat it (or at least failed to lower rates). They were completely wrong on this the last couple of years.

I also question why I should be held to a fair interest rate that I negotiated when I purchased my home because I can make my payments. Why should I, or anyone else, need to subsidize the interest rate of someone that made a poor choice? Answer - I shouldn't, and I won't.

What about all those people that paid over-inflated prices for their homes? Has anyone seen "What's my house worth?" on HGTV? $500/sq foot is common in other parts of the country. $100/sq foot is common here. Why should I, or anyone else, be asked to rescue the lender who gave a loan on this property and asked for 0 down, etc, etc? Answer - I shouldn't, and I won't.

Our bank didn't make these ridiculous loans and others should not have. We are publicly traded and are well capitalized. Earnings have increased every quarter. Not ever quarter this last year, every quarter since we have been a charter. Conservative, prudent, business practices is all it takes.

[polkatese]

This is a precarious position for the baillout plan: Bush, The House's Democrats, McCain, and Obama on the "Pro" side, House's Republicans on the other.

I wish I could grab a bag of popcorn and watch them while they are goofing off with my 401K's money, and choking off the credit market.

[Polk user]

No but you should be ignored...which is easily fixable.


DONE!

Another liberal that can't handle the truth. So sad. And those loans DID happen.

[ohskigod]

Another liberal that can't handle the truth. So sad. And those loans DID happen.

I wouldnt put Shack as a liberal.......I would call him knowlegable in the banking sphere though but hey....thats just my .02


fact kiddie poos, fault lays on both sides of the aisle for this

Dems pushed low income house ownership ral early, and reinforced by 1995ish by Clinton. the govmt put heavy pressure on financial intitutions to push subprime so low income people who had "the right" to home ownership got homes (dont get me started on this). thanks to the boom housing market, subprime became insanely profitable........thus the recent subprime explosion with little to no need for prompting by the government. The private sector took the ball and ran.....hard. some on both sides saw the problem coming, neither spoke loudly enough.

however, the only side that actually tried to enact legislation that could have helped were repubs, and the one side that always shot it down = dems. hence, as pissed as I am at everyone, I know how I am voting.


hell, even the bailout vote failed becuase BOTH SIDES had alot of people vote no.

and someone here said Pelosi's rant might have had something to do with the shootdown, my response = "YA THINK?" :D

[DaveMuell]

I wouldnt put Shack as a liberal.......I would call him knowlegable in the banking sphere though but hey....thats just my .02

I agree. But, he is mistaken on this issue. At least in my humble opinion.

[shack]

If anything I'm a conservative Republican.

Dave you are looking at the micro and not the macro. My bank didn't make any of the loans in question either. But the trickle down is effecting ALL of my clients. It is the economy that needs this fix...not just the financial institutions. They are merely a conduit to get the funds back into the economy. It is not a "grant" program...it is a lifeline to keep the sinking ships and all that are attached to them (basically all of us) afloat until they can repair the holes.

[DaveMuell]

If anything I'm a conservative Republican.

Dave you are looking at the micro and not the macro. My bank didn't make any of the loans in question either. But the trickle down is effecting ALL of my clients. It is the economy that needs this fix...not just the financial institutions. They are merely a conduit to get the funds back into the economy. It is not a "grant" program...it is a lifeline to keep the sinking ships and all that are attached to them (basically all of us) afloat until they can repair the holes.

Understood. Yes, that is my micro-view of it.

How about this? Take these portfolios that have been "marked to market" and devalued off of their operating balance sheets. Let them borrow "fed fund" type of funds to capitalize them separately and appropriately after a risk rating is established. Charge a reasonable interest rate of say, who knows, fed funds rate + 1 or 2%. Put a five year pay-back on it. Over the next several years, institute a work-out program for these loans - as much as I don't like it, just dumping these homes on the market via forclosure or walk-aways will just de-value my house and everyone else's. Through a combination of principle write-offs and interest rate subsidies, we can clean most of these up over the course of a short time. I think you would see many otherwise conservative lenders participate in these work-outs as long as their is some sort of "gaurantee" that their principle will be re-paid. Just my 2 cents and some really random ideas that I haven't completely thought through.. However, mine is probably better than putting someone like Hank Paulson in charge of fixing this.

[BigMac]

This is pretty easy to understand. Bailing out financial institutions "crap" will only lead to more crap. This 700 billion is no more good than monopoly money.....not even worth the paper it is printed on. Maybe, just maybe, people will wake up and live "within" their means. For those that lived like millionaires on a janitor's salary, I say," killem' all and let God sort em' out". Not literally kill them but you get the idea.

Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime

Now will somebody please pass the the tarter sauce.

[ohskigod]

plus, the 700 bil would be the initial outlay, not the final cost (as Shack said a bunch of times I;m sure). the actual cost will be less. how much so will depend on too many factors for me to guess

I am, on so many levels, against this buyout, except for one level.....that being that the economy will collapse hard without it, hurting everyone.

is it right, no, butsometimes the right choice isnt always the perfectly right choice....nes pas?

[Jstas]

Understood. Yes, that is my micro-view of it.

How about this? Take these portfolios that have been "marked to market" and devalued off of their operating balance sheets. Let them borrow "fed fund" type of funds to capitalize them separately and appropriately after a risk rating is established. Charge a reasonable interest rate of say, who knows, fed funds rate + 1 or 2%. Put a five year pay-back on it. Over the next several years, institute a work-out program for these loans - as much as I don't like it, just dumping these homes on the market via forclosure or walk-aways will just de-value my house and everyone else's. Through a combination of principle write-offs and interest rate subsidies, we can clean most of these up over the course of a short time. I think you would see many otherwise conservative lenders participate in these work-outs as long as their is some sort of "gaurantee" that their principle will be re-paid. Just my 2 cents and some really random ideas that I haven't completely thought through.. However, mine is probably better than putting someone like Hank Paulson in charge of fixing this.

Dude, hate to break it to you but your home is already over-valued. You aren't going to lose value because of a buyout and foreclosures. You are going to lose value because the market will self-adjust, bailout or not. It's not even a question of if it will lose value. It already has. The Question now, increasingly daily becomes when will it stop losing value.

This goes so much farther than little banks that managed their assets well. Of course little banks are not going to be sucked up in the whole mess but still get a hurtin'. Little banks don't have the capital and resources necessary to lend against the risk let alone the ability to absorb the risk should it mature. If you can't play the big risk in the big game, your small risk is not going to matter much at all. The reason small banks get hurt is that they can no longer run the same high interest rates because even though they did play the high-risk game, their capital is still just as devalued as everyone else.

Does it suck? YES! Without a shadow of a doubt. But honestly micro-economics just doesn't apply here anymore. This is macro stuff on a global scale.

[Jstas]

This is pretty easy to understand. Bailing out financial institutions "crap" will only lead to more crap. This 700 billion is no more good than monopoly money.....not even worth the paper it is printed on. Maybe, just maybe, people will wake up and live "within" their means. For those that lived like millionaires on a janitor's salary, I say," killem' all and let God sort em' out". Not literally kill them but you get the idea.

Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime

Now will somebody please pass the the tarter sauce.

That really didn't add anything to the discussion and is honestly not only way off base but way over simplified.

[Jstas]

By the way, the Dow is down 778 points now.

[Polk user]

BOTH sides are to blame. In other countries Bush would be run out of town or voted out on a no confidence vote. And yet these fools will be voted back in. Bush is history. Start voting out the rest of these thieves. How come the media is not putting ANY blame on the people who ran these companies into the ground or these fools that ran the over site committees?

[DaveMuell]

Dude, hate to break it to you but your home is already over-valued. You aren't going to lose value because of a buyout and foreclosures. You are going to lose value because the market will self-adjust, bailout or not. It's not even a question of if it will lose value. It already has. The Question now, increasingly daily becomes when will it stop losing value.

This goes so much farther than little banks that managed their assets well. Of course little banks are not going to be sucked up in the whole mess but still get a hurtin'. Little banks don't have the capital and resources necessary to lend against the risk let alone the ability to absorb the risk should it mature. If you can't play the big risk in the big game, your small risk is not going to matter much at all. The reason small banks get hurt is that they can no longer run the same high interest rates because even though they did play the high-risk game, their capital is still just as devalued as everyone else.

Does it suck? YES! Without a shadow of a doubt. But honestly micro-economics just doesn't apply here anymore. This is macro stuff on a global scale.

My home's vlaue will be determined by supply and demand. Dump houses on the market and the supply will exceed the demand. So far, that hasn't happened at all in my area.

We aren't a small, locally owned bank. We are a fairly large publically traded bank. Not a global bank, but a pretty good sized one nonetheless.

Whether you consider my quick idea a micro or a macro solution, it makes more sense to resolve the root of the problem(s) than to just dump money into Paulson's lap and tell him to fix it.

[BigMac]

That really didn't add anything to the discussion and is honestly not only way off base but way over simplified.


Simple is good. Complex is what got us in this situation in the first place. The average American has no idea how the system works, they just know they could get alot of money NOW for almost nothing. People did not think about the effects or consequences of the long term.....kinda like people that go to payday loan offices and borrow money till payday but are forever stuck paying the money back because of the interest or the usual "something came up". Maybe now people will be "shocked" into reality and start paying attention to what is happening in this country instead of saying, "It wont happen to me". Well people it just happened to all of us.

I know if I personally gave someone $1000.00 for something and they decided to spend it on something else and they screwed themselves why should I trust their judgement with another $1000.00? It's like giving a crack addict another piece of rock and telling them to not smoke it and to hold on to it.

[Jstas]

My home's vlaue will be determined by supply and demand. Dump houses on the market and the supply will exceed the demand. So far, that hasn't happened at all in my area.

We aren't a small, locally owned bank. We are a fairly large publically traded bank. Not a global bank, but a pretty good sized one nonetheless.

Whether you consider my quick idea a micro or a macro solution, it makes more sense to resolve the root of the problem(s) than to just dump money into Paulson's lap and tell him to fix it.

The bailout is not a solution. It is a time buyer and a way for the banks to use what little capital they have left to fix the problems they have internally. The problem with your solution is not whether it fixes the root cause or not. It's not a scalable solution. It works in the small potatoes realm you are talking about but it doesn't blow up to the size need. How do you regulate it? On top of that, where do you get the capital to back it all? It also doesn't compensate for homes that are already in foreclosure. Even if a home is foreclosed on and not on the market, a boarded up bank held property will drop value of surrounding properties. It's something like for every foreclosed home in a 2 mile radius, your home could be devalued by up to 2%. In a 1 mile radius, as much as 5%. Granted the downward slide abates at some point and home value levels off but still well below the average market value.

The problem you are running in to is that you are equating property value to the value of your mortgage. The property value can go up and down independent of the stock market. The house is only your collateral backing. The value behind your loan. Even if the stock market was healthy and happy, your property value could still drop below what you owe and you would end up upside down on the mortgage. That doesn't need bank failures to happen. Piss-poor money management and acquiring too much debt could do it to you. I know people with 2nd and 3rd mortgages on homes that are now REALLY up the creek because they took on too much debt load well before the financial problems we are having.

[Jstas]

Simple is good. Complex is what got us in this situation in the first place. The average American has no idea how the system works, they just know they could get alot of money NOW for almost nothing. People did not think about the effects or consequences of the long term.....kinda like people that go to payday loan offices and borrow money till payday but are forever stuck paying the money back because of the interest or the usual "something came up". Maybe now people will be "shocked" into reality and start paying attention to what is happening in this country instead of saying, "It wont happen to me". Well people it just happened to all of us.

I know if I personally gave someone $1000.00 for something and they decided to spend it on something else and they screwed themselves why should I trust their judgement with another $1000.00? It's like giving a crack addict another piece of rock and telling them to not smoke it and to hold on to it.

The problem with your posts is not that they are too simple and complex is what got us here. The problem is that they are just as ill-informed as the "The average American has no idea how the system works," that you speak of.

This is not so simple as to say people borrowed beyond their means. If the lenders didn't offer it, the borrowers couldn't borrow it in the first place. The lenders wouldn't have the ability to offer the loans if they were pressed to by the government. But, this is not the time for pointing fingers and appointing blame. This is the time to fix it. Figuring out who is at fault comes later but honestly, what's it going to get us? Jailing or fining someone we think is responsible out the wazoo is not going to change the market and save our bacon. Politics is not what is driving this. Politics is what is holding it back. Just like war, politicians should stay out of wars and economics and stick to what they know which is a whole lot of nothing.

[Polk user]

The problem with your posts is not that they are too simple and complex is what got us here. The problem is that they are just as ill-informed as the "The average American has no idea how the system works," that you speak of.

This is not so simple as to say people borrowed beyond their means. If the lenders didn't offer it, the borrowers couldn't borrow it in the first place. The lenders wouldn't have the ability to offer the loans if they were pressed to by the government. But, this is not the time for pointing fingers and appointing blame. This is the time to fix it. Figuring out who is at fault comes later but honestly, what's it going to get us? Jailing or fining someone we think is responsible out the wazoo is not going to change the market and save our bacon. Politics is not what is driving this. Politics is what is holding it back. Just like war, politicians should stay out of wars and economics and stick to what they know which is a whole lot of nothing.


Well why should we look to the people who created this mess to fix it? Instead we should be putting their feet to the fire. 99.9% of the people we elect are NOT as smart as we are, AND they didn't stay at a Holiday Inn last night.:eek:

Vote em out. ALL of them

[Kex]

...
DAMN...it pisses me off when our so called leaders have no understanding of something of this magnitude. They say they got calls 10-1 against it by their constituents....WHO DON'T UNDERSTANDING IT EITHER. There are times when they have to do the right thing...even when it is very unpopular.
Which is why we need to elect people who are smarter than we are, otherwise they can only do worse than we would ourselves, and how much do we know (although you seem to know quite a bit shack ... maybe I'ld just vote for you if I were given the choice: "shack attack 2012!" Sounds good, does it not?!).

I was accosted this weekend by people trying to get me to sign a pettition against the $700B rescue plan. The reasoning is simply "let's not bail out fat cats on Wall Street". I don't know what to think of the plan, but I know what to think of that simplistic reasoning (and Polk User's antics FWIW).

Who knows where we go from here, but nothing looks too rosy. Maybe we should stop worrying if our politicians and leaders can "connect with the people" so much, and elect annoying pompous leaders who might actually know what they're doing. I'm not convinced Lincoln or Washington were seen as being down to earth and able to connect with the common man (can you be annoying and pompous shack?).

[kgingras]

By the way, the Dow is down 778 points now.

Look at the bright side - your rep just saved you $3500.

[Jeff Beaird]

Democrats outnumber the Republicans in the house by quite a few (almost 40 I think) so how exactly are they being blamed?

This is exactly what is wrong with our Government....!!!!!
Republican this,.. Democrat that...
Shouldn't they be there(in Washington) to do what is in the best interest of this Great Outstanding United States of America. Not Bitch and whine like a bunch of overpayed BITCHES????!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!:eek::eek::eek:

[shack]

An older article from the New York Times


September 30, 1999

Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called sub prime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called sub prime market.'' Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the sub prime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American an Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

[Jstas]

Look at the bright side - your rep just saved you $3500.

What rep?

I can honestly say I am not involved in this at all. I didn't get a sub-prime loan like everyone told me to even though I was "pre-approved" and instead I rented for a few years. It was cheaper to rent than buy and I thought it stupid to get a house costing way more than it was worth with an interest rate on the financing way higher than I could sustain only to end up paying 30% more for the house than the closing price and have paid over 50% too much. THAT is a bad idea IMO.

I took my 401K which was a mess and floundering and shut it down 3 years ago and used the money to get myself into a better debt situation. When the market recovers I can make it all back. I'm only 31, I got time.

I just went through a divorce and as a result, my credit got beat up pretty bad so I shut down every card I had. I have no credit cards and I'm this >< close to being literally, debt free. I will be 95% of the way there by the end of the year.

The only thing affecting me right now is gas prices but it's not an issue anymore because I now work at a job where I get paid more than I did two months ago and I can take public transportation.

I am sooooo glad I listened and learned from people like shack rather than all the "experts" out there. I know I don't know everything but I've been following this for years and I saw this coming. I just wasn't sure when it would get here. I chose to wait for it instead of jumping in. In a year and a half I'll have enough money to buy any house I want and at a disgustingly low rate. So yeah, I can honestly say I did not participate nor did I cause this. I'm not in the greatest financial position but right now my money is tied up in stuff like savings bonds and other bank accounts with small banks that are not greatly affected by this. So honestly, I'm doing better than most.

[kgingras]

An older article from the New York Times

Do you not know how to read?

[shack]

Do you not know how to read?

What the hell are you talking about?

[unc2701]

When I was in grad school, the place where I worked ran a study looking at those loans that Fannie Mae started in the late 90's and they weren't foreclosing at higher rates- they were actually doing things right back then.

The problem is the there are a few things that'll wreck your credit score, but don't actual mean that you're more likely to default on a loan. For example- a medical emergency can destroy your credit, but those people aren't really high risk loans. When this subprime thing started, they were actually looking for good borrowers with bad credit and it worked. Then they started giving money to anyone and everything went to shit.

[DaveMuell]

What the hell are you talking about?

He is trying to tell you that back in post 37 he posted this. 2 posts after your post in 35. I quoted some pertinent parts in post 39. No harm, no foul.

I think we are all coming to recognize that 20 years of liberal lending policies designed to encourage home ownership among certain groups that might not have otherwise realized their "American Dream" have back-fired. Couple that with the corruption on the over-site committees in both houses of Congress (research who controls these yourself) and we are in this mess.

Many, many people warned of the impending problems and some of our esteemed politicians ignored taking and/or blocked action on it for years.

Then, we are told all of a sudden this is a crisis that needs to be solved in a matter of hours. A solution is certainly needed to inject capital into the financial sector to keep the markets and our economy fluid. We all get that.

However, the proposed solution to the problem is to give the folks who either ignored this or didn't recognize the problem the keys to the solution. I think millions of people (myself included) don't trust the Chairman of the SEC, the Fed Chairman, or the Secretary of the Treasury to steer us out of this mess. I have heard many analogies, but the best was "You burned the turkey on Thanksgiving and now you want to cook the Christmas meal?". No, maybe we'll let you make the nachos for the Super Bowl...

I am confident that we'll see a much better solution proposed in the next couple of days. If we don't, we can always fall back on this plan that was defeated and let Hank Paulson bail out both foreign and domestic entities that he deems a threat to our economy. To some Democrats credit, 12 Democrat members (of 30 some) on Barnie Frank's sub-committee voted against the bail-out. Hmm. 11 votes shy of passing - it must have been the Republicans that killed it...

[kgingras]

Well put!


Many, many people warned of the impending problems and some of our esteemed politicians ignored taking and/or blocked action on it for years. Then, we are told all of a sudden this is a crisis that needs to be solved in a matter of hours.

How is it that 6 months ago the POTUS was encouraging us on the economy, and then we are headed over the cliff of no return. It's as if the public is a child's mouth to which Bush coaxes "open wide and chew" as he feeds us another heaping spoonfull of bullshit. Someone get a giant cane and yank that SOB off the stage already. haven't we had enough? I'm ready for homie the clown to take Bush away.


A solution is certainly needed to inject capital into the financial sector to keep the markets and our economy fluid. We all get that.

Here is a bailout plan I might be able to live with, from Robert Reich:

Prediction: A scaled-down bill will be enacted by the end of the week. It will provide the Treasury with a first installment of $150 billion. Treasury can use it to back Wall Street’s bad debts with lend no-interest loans of up to two years, until the housing market rebounds. Or to invest in Wall Street houses directly, in exchange for stocks and stock warrants. There will be strict oversight. Congressional leaders will promise further installments, but with conditions calling for limits on salaries and relief to distressed homeowners.

[mrbigbluelight]

Back in 1967, Martin Luther King, Jr., gave a speech regarding certain matters that were occurring during that time. He said, and referenced Dante in doing so, "The hottest places in hell are reserved for those who, in a time of moral crisis, maintain their neutralilty. There comes a time when silence is betrayal.".


"There comes a time when silence is betrayal."

Potent words.

I mention this because I question how this particular crisis came to be.

I'm not looking for the simple answer that the media would provide, or most politicians would provide, or those who are afraid to face the reality of the situation would provide:

"It's the Republicans fault !!", "It's the Democrats fault", "It's the greedy bankers fault", "It's the unwashed masses fault", or "It's the corrupt oversight committees fault".

Nope. Too simple.

Did all/most have a part in moving the economy to this, in my words, disaster ?

Absolutely yes, in my opinion.

BUT: a disaster of this magnitude doesn't occur unless it is allowed to occur.

The greed/incompetence/ignorance/stupidity of the previously mentioned parties is used, to be sure.
They are used to accomplish some goal.

My question is: What is the goal ? What is the desired outcome ?

As I've stated before, I'm totally ignorant on these issues, so I'm fully qualified to ask these questions.

Let me make that perfectly clear (and pardon my French beforehand; I don't normally speak French on here):

I don't know shit from apple butter about this crap.

But even I can smell something rotten in Denmark.
So why not the bankers ? Or politicians ? Or "experts" in the media ?

They HAD to see this coming, didn't they ? Impossible not to.

And if they didn't see this mess coming, what hope is there for the issue of the derivatives market ?
Will they remain silent on that coming fiasco, too ?

No, in my opinion, they (all or some) must have known. And chose to remain silent.

[bikezappa]

My question is: What is the goal ? What is the desired outcome ?

As I've stated before, I'm totally ignorant on these issues, so I'm fully qualified to ask these questions.

That is a key question isn't it.

I would hope that we end up with a better finacial system that's open and clear with regulations and laws that are enforced. We went through a similar, I think, situation in the savings and loans mess 20 years ago. We didn't change anything because we now have a bigger mess. If the finacial laws are vague then people will push the limits slowly. I see no changes to the regulations that are proposed in the bailout. I could be wrong about that, if so please inform us.

There must be other sources of money besides the tax payers to bail this country out this mess. Why do we always go to the tax payers? Because they will take it. Have another shit sandwich.

[bikezappa]

Forgot . Excellent post mrbigbluelight.

[shack]

I mention this because I question how this particular crisis came to be.

Did all/most have a part in moving the economy to this, in my words, disaster ?

Absolutely yes, in my opinion.

BUT: a disaster of this magnitude doesn't occur unless it is allowed to occur.

The greed/incompetence/ignorance/stupidity of the previously mentioned parties is used, to be sure.

They are used to accomplish some goal.

My question is: What is the goal ? What is the desired outcome ?
They HAD to see this coming, didn't they ? Impossible not to.

No, in my opinion, they (all or some) must have known. And chose to remain silent.

I've stated on several occasions that we ALL have a hand in this problem.

The issue was money. Not just the "wall street execs and bankers" but for all of us. As long as our 401Ks, IRAs and mutual funds were giving us "superior rates of return" we didn't care if the financial institutions (and other companies) were being pushed to increase profits at the expense of soundness. If you worked for a company that sold anything or provided services to the homeowner then as long as your business prospered did you really worry that the person you sold stuff to or worked for really didn't need to own a home as long as you got paid? If you bought a home and did so without putting 20% down did you worry that your lender was not following sound lending practices or were you just really glad YOU didn't have to come up with more of a downpayment. It goes on and on.

We all benefited from what was going on and people rarely complain about what "is good for them".

Now we ALL need to figure out how to fix it. Doing nothing is not an option.

That said...given what I know about the American economy and the American people as a whole...if we all put aside the petty blame/politics/class issues...WE WILL FIX IT! I truly believe that.

[Jstas]

There must be other sources of money besides the tax payers to bail this country out this mess. Why do we always go to the tax payers? Because they will take it. Have another shit sandwich.


For the last fucking time, the bailouts come from the Federal Reserve, NOT the taxpayers. The Federal Reserve is made up of tax monies already collected in previous years. Bailouts are low or even no interest loans that the Federal Reserve doles out to a company in trouble that has no other place to turn because they are so big. The company receiving the bailout is responsible for the loan and there are usually terms for the bailout that include the government getting a large share of the company or some other way for the tax payers whose bank account that is the Federal Reserve get to realize some of the benefits if the company sees benefits from the results of the bailout.

The reason these companies always go to the Federal Reserve is because they are VERY large and make up several percentage points of the GDP all by themselves. When a company that large goes in to trouble or even fails, it hurts the WHOLE country and drops the GDP. That devalues the dollar and pushes inflation making things more expensive.

Since these companies are so large, there are no other banks or other sources of capital to turn to that can fork over 10, 20, 50 billion in cash to get capital back in to the system. Mainly because the banks they would normally borrow from and in the same situations.

There are literally no places to turn for this so they go to biggest player in town. As much of a shit soup as everyone seems to think this country is in, there is no other company, market, country or even individual person out there that can match the economic might and financial power of this country. Let me make that absolutely clear. There is NO ONE with more money in the bank than the United States of America. The Federal Reserve has trillions, probably more, trillions of dollars in it for all kinds of reasons but mainly that's where the U.S. Government gets its budgetary money from. We balance a budget every year so that we can present what we need to the Federal Reserve. The budget has to equal or show a surplus of tax money at the end or the Federal Reserve will not release the funding for the year. We always put money back in to the Federal Reserve and it is there for many reasons beyond running the country.

Because of the Federal Reserve this country has a financial power unequaled by any other country. Add to the fact that our economy is still 5 times bigger than our closest competitor and you end up with a massive amount of power. Yeah, it's a world economy and all that bullshit (cause that's what it is, bullshit) but when the U.S. has financial troubles, it has a ripple effect that echoes around the globe.

The country is an economic juggernaught. It affects everything we do from fighting wars to sending relief. We export more grain products in the name of humanitarian aid than most other countries grown for domestic use. Yeah, we GIVE it away otherwise it will sit in silos and rot because we don't use it fast enough and if we flood the market with it, it will drop grain prices like a stone tied to a stone and ruin the grain farmers across the country. That's just one example.

But all the aid that we give to other countries for tsunami relief, AIDS epidemic relief, earthquake relief, feminine relief and so on. It comes from the Federal Reserve and bills are usually put in place to ear mark tax money to replace that humanitarian aid that comes from the Federal Reserve.

Bottom line, the Federal Reserve is a GIGANTIC cash pot that we in this country have for running our country and handling economic and financial emergencies. Your tax dollars go in to it every year but essentially, you've already paid for these bailouts and the taxes that get collected this year will likely help pay for some future bailout but your future taxes will not pay for any current bailout.

[bobman1235]

Thinking that just because the money comes from the reserve means it doesn't come from the taxpayers is very ignorant, Captain Angry. We're in a multi-trillion dollar national debt, "extra money" doesn't just sit ununsed, it comes from somewhere, it comes out of the budget, and has to be recouped via taxes. One way or another taxpayers will feel the burden.

[bikezappa]

Jstas

Thanks for the clarification. You are saying that there will be NO tax increase if the bailout is passed.

[kgingras]

There has got to be a massive amount of interest in the upcoming VP debate. I say we charge $39.95 pay per view to fund the bailout package.

[Jstas]

Thinking that just because the money comes from the reserve means it doesn't come from the taxpayers is very ignorant, Captain Angry. We're in a multi-trillion dollar national debt, "extra money" doesn't just sit ununsed, it comes from somewhere, it comes out of the budget, and has to be recouped via taxes. One way or another taxpayers will feel the burden.

We have a debt for other reasons, not the bailouts. The bailouts are coming from the Federal Reserve the companies getting the bailouts will assume the debt to the Federal Reserve, NOT the U.S. Government. The only ignorance here is your ignorance in how the Federal Reserve and a centralized banking system work.


Jstas

Thanks for the clarification. You are saying that there will be NO tax increase if the bailout is passed.

I cannot say that nor did I say that. Do not put words in my mouth. The bailouts are not the responsibility of the U.S. tax payer but the funding from the bailout comes from the pot of money the U.S. taxpayer put there to begin with. The company receiving the bailout is responsible for the debt and is responsible for repayment. The U.S. government will get a share of the company that they are bailing out and they will give strict oversight to the bailedout company. Because of that, if the company experiences significant growth because of YOUR TAX DOLLARS that you paid years ago, the Federal Reserve will gain capital also. That means you, the tax payer, benefit from the bailing out the companies.

Your taxes may increase, they may not. I don't know but they shouldn't increase to put the money back in the Federal Reserve. That's the problem of the companies that got bailed out.

[bobman1235]

We have a debt for other reasons, not the bailouts. The bailouts are coming from the Federal Reserve the companies getting the bailouts will assume the debt to the Federal Reserve, NOT the U.S. Government. The only ignorance here is your ignorance in how the Federal Reserve and a centralized banking system work.

I love how you jump down everyone's throat for misquoting you in the slightest but then you just make up stuff that you think other people say. Classy.

[shack]

The treasury could in a matter of hours pay the entire national debt in full. They have the full power to "print" as much money as they care to....they can truly create money. They would simply pay off every treasury instrument holder in full and the debt goes away. Of course the inflation rate would increase several thousand % and the cash would be better for burning as fuel than for purchasing anything. But that is another matter.

If done right a bailout of some sort should have no long term negative impact on taxpayers...certainly less than the impact an implosion of the financial system would create.

[Jstas]

I love how you jump down everyone's throat for misquoting you in the slightest but then you just make up stuff that you think other people say. Classy.

Care to elaborate? Or better yet, don't. Do me a solid and go take the time to learn about how your government works rather than tell me I'm ignorant because you mistakenly think "that just because the money comes from the reserve means it doesn't come from the taxpayers is very ignorant" and that "We're in a multi-trillion dollar national debt, "extra money" doesn't just sit ununsed, it comes from somewhere, it comes out of the budget, and has to be recouped via taxes. One way or another taxpayers will feel the burden."

Because honestly, you couldn't be more wrong.

[Kex]

If anyone wants a break from all the flaming going on, here is an interesting read IMO ...
http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html

[Jstas]

If anyone wants a break from all the flaming going on, here is an interesting read IMO ...
http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html

Don't turn this in to a political discussion.

Counter point:

http://www.cnn.com/2008/POLITICS/09/29/marshall.economy/index.html

[wizzy]

Jstas

Thanks for the clarification. You are saying that there will be NO tax increase if the bailout is passed.

Hopefully not, we need a good tax increase.

We've been funding the war in Iraq on credit cards these last six years. It's time we put up or shut up, if we're going to buy a war we need to pay for it - not borrow for it.

W

[Kex]

Don't turn this in to a political discussion.
...
I wasn't trying to, but I think the horse may have already bolted on that score. I thought the argument was more of an economic one (the author is a Harvard Economist, after all, and I'm not saying he's right either!).

[bikezappa]

For the last fucking time, the bailouts come from the Federal Reserve, NOT the taxpayers. .

Bikezappa Thanks for the clarification. You are saying that there will be NO tax increase if the bailout is passed.

Jstus I cannot say that nor did I say that. Do not put words in my mouth. The bailouts are not the responsibility of the U.S. tax payer but the funding from the bailout comes from the pot of money the U.S. taxpayer put there to begin with.

I have no idea what you are trying to say to me or this group.

It appears to me that you are contradicting yourself.

[Joe08867]

Jstas, you need to read the bailout agreement. It states at least 20 times how the Government is trying to minimize the cost to the Taxpayer.

I understand the Reserve is the main one reponsible but it will hit all of us also.

[brettw22]

But all the aid that we give to other countries for tsunami relief, AIDS epidemic relief, earthquake relief, feminine relief and so on.I wonder what country we've been turning into a male society.......lol.......

[John30_30]

The treasury could in a matter of hours pay the entire national debt in full. They have the full power to "print" as much money as they care to....they can truly create money. They would simply pay off every treasury instrument holder in full and the debt goes away. Of course the inflation rate would increase several thousand % and the cash would be better for burning as fuel than for purchasing anything. But that is another matter.

If done right a bailout of some sort should have no long term negative impact on taxpayers...certainly less than the impact an implosion of the financial system would create.

True. But now the drums of politicizing are beating full-blast and the regular Joes across the land are about to be convinced to convince their reps that they (we, the regular Joes) need to be able to shoot our own selves in the leg by saying "no bailout".

Is this a great country or what?

[Jstas]

Bikezappa Thanks for the clarification. You are saying that there will be NO tax increase if the bailout is passed.

Jstus I cannot say that nor did I say that. Do not put words in my mouth. The bailouts are not the responsibility of the U.S. tax payer but the funding from the bailout comes from the pot of money the U.S. taxpayer put there to begin with.

I have no idea what you are trying to say to me or this group.

It appears to me that you are contradicting yourself.

Um, no I'm not. The taxpayers put the money in the Federal Reserve and the elected officials (i.e.: Congress) that we have elected to act for us in governing this country are authorized to use that money for whatever is deemed necessary through a vote determining the majority of those in favor or against the policy/bill/law/whatever. If the bailout is necessary and everyone agrees, We, The People, through our elected representatives in Congress LOAN our pile of money to the entity in need of the bailout. The LOAN gets REPAID. If the bailouts are done properly, the taxpeyer should not see any financial burden at all. The operative word here is SHOULD.

And learn how to use the quote button and if you are at least going to try to tear me down through silly fallacies masquerading as arguments about semantics, learn to spell my name correctly.


Jstas, you need to read the bailout agreement. It states at least 20 times how the Government is trying to minimize the cost to the Taxpayer.

I understand the Reserve is the main one reponsible but it will hit all of us also.


You're talking about the bailout bill that didn't pass, right? Because that small fact right there is critically important. It didn't pass. And yes, I did read the actual bill and I did not read what all the news rags were telling me what was in the bill. I read all 119 pages of it. Well, skipped over a few part that were for clerical purposes. But I know what was in the bill and I know what it said needed to happen. That bill didn't pass and I'm kinda glad it didn't pass because it was too hastily put together and tries to give everyone involved a get out of jail free card. That cannot happen. But what is woefully needed right now is an influx of capital to give us time to clean up this mess. That, IMO, needs to happen. As to why, we have gone over it ad nauseum in this thread already.

[Jstas]

I wonder what country we've been turning into a male society.......lol.......

DOH! Stupid auto complete in SeaMonkey!


Was supposed to be famine.

[John30_30]

You're talking about the bailout bill that didn't pass, right? Because that small fact right there is critically important. It didn't pass. And yes, I did read the actual bill and I did not read what all the news rags were telling me what was in the bill. I read all 119 pages of it. Well, skipped over a few part that were for clerical purposes. But I know what was in the bill and I know what it said needed to happen. That bill didn't pass and I'm kinda glad it didn't pass because it was too hastily put together and tries to give everyone involved a get out of jail free card. That cannot happen. But what is woefully needed right now is an influx of capital to give us time to clean up this mess. That, IMO, needs to happen. As to why, we have gone over it ad nauseum in this thread already.

Word.

Oh, wait. +1.;)

[AsSiMiLaTeD]

I'm not an economic expert and do tend to over-simplify things like this, but here's my input...

I think what John is saying is 'technically' correct, in that the bailout funds 'technically' come from the reserve, not the tax payer. However, he also indicates the the tax payers fund the reserve.

A logical person is therefore going to conclude that the bailout funds come from the tax payer, albeit indirectly - the whole "If A=B, and B=C, then A=C" thing...

John is either at a higher level thinking than the rest of us where his thoughts transcend above the level of our logical correlation, has information about a factor unknown to the rest of us that breaks that correlation, or we're just not all on the same page.

John, you can't say something like "the bailouts come from the Federal Reserve, NOT the taxpayers" and then say "Your taxes may increase, they may not" and expect people not to be confused by that. While each statement in it's own vacumn may technically be correct, they simply contradict each other.

As for the point "Well they'll have to pay it back, so it won't cost us anything" that I've heard numerous people make, maybe that's true, but then again maybe it's not. Unless you can guarantee me that all of that debt will be repaid, which you can't, then that in itself is still a risk. As a taxpayer, I'm in effect 'loaning' the banks money on the premise that they may pay it back, so there's still an assumed risk on my end. Ya I know it comes from the Reserve and all that, but it stands to reason that if we take money out of there we're going to have to put it back at some point, and if the banks are unable to repay then that burden is going to fall on the taxpayer.

Plus, I want to know 'how' the banks are going to pay that back, really? You think all those people that welched on their debts are just going to pony up the dough and pay them off. People aren't going to have the funds or motivation to pay off those debts, so how are the banks going to raise money to pay those loans back?

Let's see, I'm a bank, and let's say I have 100 bad loans of 100,000 each, what's that 10 million dollars? So the government loans me 10 million to cover that. Let's say for grins that half of those people pay back their loans because they're good people, and I fork over that 5 million to the government to pay back the loans. That still leaves me owing the government 5 million.

Let's say all the banks effected fall under this scenario. That leaves the government being owed 650 billion, how are the banks going to raise that kind of money? Oh, I know, we'll increase our fees or interest rates for our other customers, we charge everyone a few extra bucks here and there and recoup the money that way. Only problem with that is now we the taxpayers are still the ones paying down those loans...

One way or another it's going to come out of our pockets.

[Jstas]

I wasn't trying to, but I think the horse may have already bolted on that score. I thought the argument was more of an economic one (the author is a Harvard Economist, after all, and I'm not saying he's right either!).

You mentioned a "Libertarian View" and that's just political flame bait whether you intended it or not.

We have been discussing the federal reserve and the banking system in this country and so far, politics siding with one party or another have been left out. Shack has posted a great deal of good info in this thread as well as others. I would hate to see it shut down over political rhetoric. Just asking to keep political views out of it. I probably could have been nicer about it. Sorry.

[Joe08867]

You're talking about the bailout bill that didn't pass, right? Because that small fact right there is critically important. It didn't pass. And yes, I did read the actual bill and I did not read what all the news rags were telling me what was in the bill. I read all 119 pages of it. Well, skipped over a few part that were for clerical purposes. But I know what was in the bill and I know what it said needed to happen. That bill didn't pass and I'm kinda glad it didn't pass because it was too hastily put together and tries to give everyone involved a get out of jail free card. That cannot happen. But what is woefully needed right now is an influx of capital to give us time to clean up this mess. That, IMO, needs to happen. As to why, we have gone over it ad nauseum in this thread already.

I agree they tried to hurry this bill through. The whole idea of a get out of jail free card for them just ticked me off. The bill wasn't ready and I am sure there were tons of holes in it for these corporate guys to get a nice big payout for a job not done well. Let alone what it could possible have done to the economy in the long run.

I read it myself. What a snoozefest that was. I still believe that these corporations made there own bed now they have to sleep in it.

This all had to come to a boil at some point. Housing prices have gone crazy in the last few years. They had to know they were privcing themselves into a corner.

DOH! Stupid auto complete in SeaMonkey!


Was supposed to be famine.

I hate when that happens. ;)

[Jstas]

Lotsa stuff was here, too much to quote. Click the "View Post" button to see it.

The money in the reserve came from previous taxes collected. It's been there a while.

When we make our budget for the year, it needs to settle out with the amount of taxes we expect to collect. Those taxes go in to the reserve to replenish the money we took out of it to run the country for a year.

If, say, Bear & Sterns takes 70 billion out of the reserve in a bailout, they have to put it back. They won't get the bailout if they cannot put it back. They get sent to a buyout hearing and sold off, like what happened to WaMu. That's a failure and buyout. It preserves the assets but the company is lost.

Bear & Sterns then gets the bailout money because they have enough other assets to continue to grow. The bailout is coming in this case because a risk level for another set of assets they had grew well beyond expectation and became unmanageable. Bear & Sterns cut in to too much capital and lost the financial backing of the other assets they had. This devalues the company and stock prices drop. It makes it hard to recoup capital and raise more because of that. If you can't raise capital, you start losing customers because you aren't returning on investments and people are losing money. They make a run on your bank and essentially you are stripped of capital. No capital, no bank, simple as that.

The bailout comes to inject Bear & Sterns with capital (i.e.: cold, hard cash) to prop them up so they can clean up their mess internally. The other option is to declare bankruptcy. The problem with that is that the investors in the bank lose all assets invested and the bank itself goes to the new owners acquiring the assets through defaulted credit just like the bank forclosing on a home. The investors don't see one red cent though just like a home owner that was foreclosed on. They lose it all.

Now, when you get a bank so large, like, say, Goldman Sachs, where, say 35% of the country, the whole country, has retirement funds and other investments like mortgages tied up and it goes bankrupt, the economic impact that has is staggering. Cleaning up that mess could take decades.

In the long run, the bailout is the better plan.

Now, the bailout shouldn't cost the tax payers money in the future because the bailout will come with conditions that are intended to replenish the reserve as fast as possible. The only excusable way to cost the tax payers money to put the federal reserve back is in an emergency like a war or a natural disaster that wipes a city like New Orleans off the map.

Otherwise, the bailouts are not give aways. They are also not funded by future taxes. Just like if I let you borrow $5 for lunch, I am not going to go to shack and tell him I need $5 more dollars for lunch than usual because I loaned you $5. If I didn't have the money to loan, I shouldn't have lent it to you. Then again, I shouldn't be going to shack for the money at all. I bailed your butt out of a bind, you owe me. Now if I need $5 and you haven't paid me, I might ask shack to spot me until you pay me back but shack can say no. That's why you should be watching the bills that come up and you need to tell your Congressman that is there is a bill that says we need to replenish the reserve because of the bailouts, they should not only vote no but hell no.

[bikezappa]

[QUOTE=Jstas; I probably could have been nicer about it. Sorry.[/QUOTE]

Ya think?

[Joe08867]

That's why you should be watching the bills that come up and you need to tell your Congressman that is there is a bill that says we need to replenish the reserve because of the bailouts, they should not only vote no but hell no.

I agree to this point whole heartedly.

I think the bailout could be a great thing, but I don't think it will happen until after the election. The boys in Washington are to afraid of there voters to do it beforehand. I also worry that it will get screwed up and end up hurting us. Sorry for the political view but it is part of the reason the bailout didn't happen.

My only question is how can any of these companies be ready to pay back the "Loan" by the next US budget? And when they don't who gets the bill?

Not trying to stir the pot just asking.

[Kex]

You mentioned a "Libertarian View" and that's just political flame bait whether you intended it or not. ...

I was merely quoting the Editor's note from the article:

Editor's note: Jeffrey A. Miron is senior lecturer in economics at Harvard University. A Libertarian, he was one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan.

... Just asking to keep political views out of it. ...
No problem at all. I wasn't expressing any political view myself. I still think the article contributes to the discussion and, as I interpreted it, I didn't think it was really attributing blame especially to either party. I apologize if this was perceived as flaming, it was certainly never intended.

[Jstas]

Ya think?

You're really not good with this quote thing.

[AsSiMiLaTeD]

you're really not good with this quote thing.lol, :)

[Jstas]

I agree to this point whole heartedly.

I think the bailout could be a great thing, but I don't think it will happen until after the election. The boys in Washington are to afraid of there voters to do it beforehand. I also worry that it will get screwed up and end up hurting us. Sorry for the political view but it is part of the reason the bailout didn't happen.

My only question is how can any of these companies be ready to pay back the "Loan" by the next US budget? And when they don't who gets the bill?

Not trying to stir the pot just asking.

The bailout doesn't have to be repaid by the time the next budget rolls around. It's not part of the U.S. Governmental budget. It's a bailout from the Federal reserve. Any money gets paid back by the bank and gets put in to the reserve directly. The only reason that the Government gets involved is because the reserve is made up of taxpayer money. They need to have oversight and they need to have regulation. That is what the bill is for, to outline the terms of the bailout.

As much as it seems the government wastes money, they always account for it. Even if the money is allocated wastefully, they appoint overseers to make sure the money is appropriated and used according to the bill/law that got that money to where it was going in the first place.

Don't think it doesn't happen? My last company got run through the ringer over the whole Coast Guard/Deepwater project. They watch, they know and they will not hesitate to call you out on the mat when it comes to tax payer money. Even if they make a bill saying every first born child will automatically be issued an ostrich buffer and put funding in place to do it. That is a waste of time and money but the tax payers voted for it because their congressional representatives voted for it. So every first born gets an ostrich buffer courtesy of Uncle Sam. As long as they get their buffers, everything is ok, doesn't matter how stupid it is, the bill was passed, the contract was written and put up for bid, the contractor was chosen and hired to build the buffers and money was allocated.

But if someone takes money allocated to buy ostrich buffers and dish them out and uses that money to buy tomato squeezers and give them to disadvantage Swahili children in Hoboken, then some government oversight committee or some independent watchdog will find out and someone will get fined and strung up for it. As silly as it all seems, that is honestly what happens. And I know first hand. 12 years doing government contracting work. I KNOW how that money system works!

That's also why it is important to vote and get the people in office that are going to do the best job they can.

[Jstas]

I was merely quoting the Editor's note from the article:

Editor's note: Jeffrey A. Miron is senior lecturer in economics at Harvard University. A Libertarian, he was one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan.


No problem at all. I wasn't expressing any political view myself. I still think the article contributes to the discussion and, as I interpreted it, I didn't think it was really attributing blame especially to either party. I apologize if this was perceived as flaming, it was certainly never intended.

The article is very relevant and I didn't think you were flaming. I didn't want anyone flaming you with political rhetoric. That gets stuff shut down and I hate seeing threads with good info and discussion get shut down over it.

[bikezappa]

Good article KEX

The following quote makes sense to me.

By Jeffery Miron

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.

[shack]

Good article KEX

The following quote makes sense to me.

By Jeffery Miron

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.

A bank is a different animal than just any business. An insolvent bank is a bank and not a business that just any creditor can buy and run. Sometimes the failed bank is sold to someone else (like WaMu and Wachovia) but more often than not, it simply closes it's doors. Some of the assets may be sold to someone else, but very often the government takes over the assets, covers insured depositors and the bank just fades away.

[bikezappa]

Shack

I agree banks are different from airlines. Shouldn't the government back any bank investment up to $100,000?

It just upsets me and many others to bail out bad banking or businesses practices with a bailout without preventing future risky business practices.

[shack]

Shack

I agree banks are different from airlines. Shouldn't the government back any bank investment up to $100,000?

It just upsets me and many others to bail out bad banking or businesses practices with a bailout without preventing future risky business practices.

Actually the banks themselves pay for the $100,000 that the FDIC covers. Every commercial bank pays SIGNIFICANT premiums to the FDIC insurance fund. The US Treasury must step in and cover anything the fund won't. Under normal circumstances bank failures are easily covered by the fund and it is constantly being replenished by the banks via premiums.

These are very unusual times however. It would take only ONE of the largest banks to fail and that fund is gone. It was not designed for what we have now. That is why I say large scale bank failures would cost significantly more than the so called bailout.

As I have stated in several posts, the issues of the type of lending that caused this problem within the banks has been addressed. Issues of what risk the the secondary market is willing to accept is another matter. But I wll tell you that commercial banks will not be able to make subprime mortgage loans for their own portfolios an most other type lending is being heavily watched. Bank examiners have extroidinary powers over the industry when/if they use them. I assure you they are using them.

[Lorthos]

I say divy up that 700 billion between the American people.....That should get things rolling again....

[AsSiMiLaTeD]

I say divy up that 700 billion between the American people.....That should get things rolling again....That's what, $2300 per person, more if you only divy it between the taxpayers...

Works for me :D

[sucks2beme]

Standby for the next round. Commercial property defaults are about to skyrocket.
In markets like Dallas, they have gone completely nuts with new apartments,
shopping, and office buildings. They are building new buildings next to vacant ones.
They are projecting only a 5% increase in XMAS shopping over last year.
They are in for a surprize. Guys hanging by a thread like CC and
Blockbuster are going down. My guess, 10% drop over last year.
No science. But like in stock picks, the monkey always wins. I'd like to think
I'm as lucky as a monkey.

[exalted512]

Bikezappa Thanks for the clarification. You are saying that there will be NO tax increase if the bailout is passed.

Jstus I cannot say that nor did I say that. Do not put words in my mouth. The bailouts are not the responsibility of the U.S. tax payer but the funding from the bailout comes from the pot of money the U.S. taxpayer put there to begin with.

I have no idea what you are trying to say to me or this group.

It appears to me that you are contradicting yourself.

Its really not that difficult to grasp man. The Federal Reserve has been saving money before any of us were born. Jstas has already stated what it gets used for.

But if we use, say 700B bucks today, that does not mean youre going to get less of a refund when you file your next W2.

Yes, the money does come from the taxpayers. But think of it this way. You have a water faucet thats always on (the flow of money that goes into the Fed. Res.). Your faucet fills up a large container (the Fed. Res.) You use this water to water your dogs(what we take money out for) once a day (every time theres an event big enough to warrant taking money out). You have a bucket that you dip into your large container to water your dogs. Now this bucket can take out much more water than your faucet is putting in during the same time frame. Fortunately, your dogs only need water once a day, so by the time you need to use it again, its filled back up.

I don't think we've ever pulled out this much money (or would have had it gone through), and we have money in the fed. res. to pull it out from, so obviously were putting more in than were pulling out. So hopefully it'll be another 95 years before we have to do something like this again...hopefully never.

As said time and time again, our government is the only entity in the world that has the money (and time for a ROI) to fund something like this. But letting this continue will have much, much worse repercussions.

-Cody

[SKsolutions]

I'm not surprised to see these misconceptions about the Fed.
For those interested in how banks came about, and how the money system with the Fed works, here are two links to videos. The first is about money creation and fractional reserve lending. It's a cartoon. The second requires a small amount of tinfoil, but you can decide for yourself. The one word that I've not seen or heard uttered in any print or TV form lately is the word 'sustainable'. It would be a nice word to hear in conjunction with the economy, or maybe jobs, or earnings, etc.
Link-
Money Creation (http://video.google.com/videoplay?docid=-9050474362583451279)

Link- The Fed (http://www.youtube.com/watch?v=_dmPchuXIXQ&feature=user)

[average_guy]

Years of bad decisions and stupid mistakes have created an economic nightmare in this country, but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support any congressperson who votes to implement such a policy. Instead, I submit the following three steps:

Common Sense Plan.

I. INSURANCE

A. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity.

B. In order for a company to accept the government-backed insurance, they must do two things:

1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage.
a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes.
b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while
working with the borrower—again limiting foreclosures and ruined lives.

2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs.

C. This backstop will cost less than $50 billion—a small fraction of the current proposal.




II. MARK TO MARKET

A. Remove mark to market accounting rules for two years on only subprime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate.

B. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks—and it costs the taxpayer nothing.




III. CAPITAL GAINS TAX

A. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing.

B. This move will be seen as a lightning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement investments that go up instead of down. This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to
stand up, speak out, and fix this mess.

[shack]

Years of bad decisions and stupid mistakes have created an economic nightmare in this country, but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support any congressperson who votes to implement such a policy. Instead, I submit the following three steps:

Common Sense Plan.

I. INSURANCE

A. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity.

B. In order for a company to accept the government-backed insurance, they must do two things:

1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage.
a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes.
b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while
working with the borrower—again limiting foreclosures and ruined lives.

2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs.

C. This backstop will cost less than $50 billion—a small fraction of the current proposal.




II. MARK TO MARKET

A. Remove mark to market accounting rules for two years on only subprime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate.

B. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks—and it costs the taxpayer nothing.




III. CAPITAL GAINS TAX

A. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing.

B. This move will be seen as a lightning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement investments that go up instead of down. This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to
stand up, speak out, and fix this mess.

I've seen the stuff above all over the internet and they are band-aids at best and do nothing to solve the problems.

I will not vote for any Senator or Representative that doesn't have the ball's (figuratively speaking) to do the right thing and approve some sort of plan (call it a bailout if you want) to fix the problems now...and that includes getting the bad assets out of the system. Not trying to dress them up and act like they are desirable investments for the market. Obama's pig comment comes to mind...you can't just put lipstick on it and act like it's now beautiful.

[Kex]

... Common Sense Plan.
...
Interesting points IMO, if only for the value of discussion. I have a problem understanding how eliminating Capital Gains tax would work though: I have no idea how much revenue this currently generates for the budget, but it would probably not be possible to simply end the source of a large source of tax revenue with the wave of a wand ...

[Kex]

... Obama's pig comment comes to mind...you can't just put lipstick on it and act like it's now beautiful.
Shame on you, macho sexist Palin basher! :D

[Polksaladanni]

I'm done worring about it. Damed if we do, damned if we don't. The Pubs knew the first 2 bills were turkeys and now they are getting their way on some things to keep us workin' stiffs from emptying our wallets (seriously the right things) and they told the Dems to piss up a rope on giving Acorn 20% of the $750bil.

How is it we mostly elect the sour cream of the crop in DC?

I'm feeling a little better now.

Paul

[6'&glassy]

Its really not that difficult to grasp man. The Federal Reserve has been saving money before any of us were born. Jstas has already stated what it gets used for.

But if we use, say 700B bucks today, that does not mean youre going to get less of a refund when you file your next W2.

Yes, the money does come from the taxpayers. But think of it this way. You have a water faucet thats always on (the flow of money that goes into the Fed. Res.). Your faucet fills up a large container (the Fed. Res.) You use this water to water your dogs(what we take money out for) once a day (every time theres an event big enough to warrant taking money out). You have a bucket that you dip into your large container to water your dogs. Now this bucket can take out much more water than your faucet is putting in during the same time frame. Fortunately, your dogs only need water once a day, so by the time you need to use it again, its filled back up.

I don't think we've ever pulled out this much money (or would have had it gone through), and we have money in the fed. res. to pull it out from, so obviously were putting more in than were pulling out. So hopefully it'll be another 95 years before we have to do something like this again...hopefully never.

As said time and time again, our government is the only entity in the world that has the money (and time for a ROI) to fund something like this. But letting this continue will have much, much worse repercussions.

-CodyPeople save money. The Federal Reserve devalues savings accounts when it prints up, out of thin air, billions of fiat currency in the form of IOUs. Good grief. No wonder Paulson and his thugs thought he could come into television living rooms and demand $700,000 without any provisions.

[BaggedLancer]

We're on the path to becoming Soviet America. An America where you don't work for the state, the state works for YOU!

[exalted512]

People save money. The Federal Reserve devalues savings accounts when it prints up, out of thin air, billions of fiat currency in the form of IOUs. Good grief. No wonder Paulson and his thugs thought he could come into television living rooms and demand $700,000 without any provisions.

And how does that differ from any other country that prints money?
-Cody

[AsSiMiLaTeD]

Well, with all the political and financial experts we have here on the board, maybe WE should be running the country :D

[disneyjoe7]

Well, with all the political and financial experts we have here on the board, maybe WE should be running the country :D


We would come off as "No Heart" and not always "Politically Correct" at the time. ;)

[treitz3]

You forgot the "mob" part as well Steve......:rolleyes:

[shadowofnight]

This should not have been allowed to happen...


" Congress wants to crack down on CEO mega-salaries for banks participating in the bailout. And while the politicians argue how best to do that, Alan Fishman of Washington Mutual is headed for the doors with $19 million in his pocket.

If that wasn't outrageous enough, consider this: Fishman started the job three weeks ago. I never saw the employment ad Fishman answered, but it must have read something like this:

WANTED: Top executive for train-wreck bank about to be seized by federal regulators. Must be able to look busy while FDIC sells business from under you. Previous experience with angry shareholders sitting on worthless stock a plus. Perks: $7.5 million hiring bonus and $11.6 million cash severance. "

I guess the banks in trouble have gotten a little better with their money management since this started :rolleyes:

By the way...very informative thread.....

[disneyjoe7]

http://i33.tinypic.com/t7lnr9.jpg

[brettw22]

I fully agree that there should be a limit put on CEO's that are on their way out as part of this plan. I also think that something should be put into place that limits what CEO's get when they run a company into the ground.......

[treitz3]

I have worked for companies that this happens too. It seems to be a game amoungst CEO's as to who can make the numbers look great and split in the right amount of time. They get hired again to do the same thing, meanwhile laying off thousands of great workers, making bank along the way, bankrupting the business they were paid to "save" all the while not having any conscience, backbone or accountability to what they have done.

Don't you just love America?

[treitz3]

BTW, Steve.......that's funny. Gotta roll now........

[Deadof_knight]

the quote by shack was right on. The fact we got here and govt type officals set on there heals doesnt make me feel any better.. But if youve got time ride it out and the market will recover ....

this too shall pass......................................as long as they get it right !

[Kex]

We might end up like Japan: their stock market still has not recovered, seventeen years later ...

[John30_30]

We're on the path to becoming Soviet America. An America where you don't work for the state, the state works for YOU!

The state never worked for the Soviets. A popular saying there used to be "We pretend to work, and they pretend to pay us."

[John30_30]

Standby for the next round. Commercial property defaults are about to skyrocket.
In markets like Dallas, they have gone completely nuts with new apartments,
shopping, and office buildings. They are building new buildings next to vacant ones.
They are projecting only a 5% increase in XMAS shopping over last year.
They are in for a surprize. Guys hanging by a thread like CC and
Blockbuster are going down. My guess, 10% drop over last year.
No science. But like in stock picks, the monkey always wins. I'd like to think
I'm as lucky as a monkey.

Yeah, that commercial property is gonna go for a dime on the dollar expected for anyone who can pony up in a year's time. Any connected guys in the forum, or is that the wrong question to ask?:eek:

[exalted512]

Wow...read this today.

"We're back to more normal underwriting standards," Casey-Landry said. "People will need to have good credit to get a loan."

Holy shit, now there's an idea! BTW, Casey-Landry is the chief operating office of the American Bankers Association.

http://money.cnn.com/2008/10/04/news/economy/will_it_work/index.htm

-Cody

[BaggedLancer]

NO WAY! People are going to have to have good credit to get a loan? Tell me it isn't true!

[exalted512]

NO WAY! People are going to have to have good credit to get a loan? Tell me it isn't true!

I know! Such a novel idea, why hasn't anyone thought of this sooner?
-Cody

[bobman1235]

It's kinda telling that everyone blames the lenders for giving out loans to people who couldn't afford them, rather than blaming people for borrowing money they couldn't pay back.

Who knows better what your financial situation is than you? You know how much you can afford, and if you're a moron, you borrow more than that.

If someone who makes 35k a year walked into a Ferrari dealership and mortgaged away everything he had to buy a Ferrari, would you blame the Ferrari dealership for selling him a car he couldn't afford, or would you blame the guy for being a moron?

[MikeC78]

They're both morons. However, I blame the lender more for pushing such a big mortgage in the first place to get more initial money in his pocket.

[exalted512]

It's kinda telling that everyone blames the lenders for giving out loans to people who couldn't afford them, rather than blaming people for borrowing money they couldn't pay back.

Who knows better what your financial situation is than you? You know how much you can afford, and if you're a moron, you borrow more than that.

If someone who makes 35k a year walked into a Ferrari dealership and mortgaged away everything he had to buy a Ferrari, would you blame the Ferrari dealership for selling him a car he couldn't afford, or would you blame the guy for being a moron?

I'm only 22, but I've known for years how stupid people are and how they are not to be trusted. So I ask myself this:

Who's actually dumber? The people who try and get the money? Or, the people who know the people can't afford it, and give it to them anyway?

The answer to that question is ultimately up to you, and it is a two street as it takes 2 to get a loan, but I'm only 3 years senior of a teenager, and yet I know not to give people money if theres a good chance I might not get the money back. In fact, I've had many instances of this when people have asked me money for lunch, or a drink. I've kindly said, "Sorry man, I don't have the money" This was in high school! I wasn't even allowed to vote, but I could make these decisions that.

So, ultimately, yes, I do blame the moronic guy that doesn't know his own means, but I do think that the lender is more of an idiot.
-Cody

[unc2701]

It's kinda telling that everyone blames the lenders for giving out loans to people who couldn't afford them, rather than blaming people for borrowing money they couldn't pay back.

Who knows better what your financial situation is than you? You know how much you can afford, and if you're a moron, you borrow more than that.

If someone who makes 35k a year walked into a Ferrari dealership and mortgaged away everything he had to buy a Ferrari, would you blame the Ferrari dealership for selling him a car he couldn't afford, or would you blame the guy for being a moron?

First off, yes the borrowers are morons, however... SERIOUSLY? These people working at the banks handing out the loans have ONE job. Assessing the risk of a lender. If I made $35k a year and asked you to lend me $400k for a Ferrari ...and you gave it to me, I'm pretty sure you'd be the bigger idiot.

Most people don't know how much they can afford. The bank does know and up until this thing hit, most people would be surprised to learn that the bank would just give them more money they they could afford. Used to be that it was hard to get a loan.

So, yeah. The borrowers were stupid and should have looked at their payments and made sure that they really could afford it, but there's NO excuse for a professional to be making these kind of stupid decisions.

The borrowers need to be held accountable for the money that they owe. The Lenders need to be held accountable for their stupid and illegal practices.


Edit: Dead on, cody and much more succinctly.

[Polk user]

NO WAY! People are going to have to have good credit to get a loan? Tell me it isn't true!


HOW RACIST!!!!

Lets start calling our representatives and get them to threaten to sue the banks if they don't loan to poor people.(redlining).

Call Barney Frank. He'll get right on it.

[bikezappa]

Hope this isn't considered political.

[obieone]

Call Barney Frank. He'll get right on it.

Don't get me started on that POS! I think Carl say's it best:eek::mad:

http://www.youtube.com/watch?v=vjiUrh_aR64&feature=related

[bobman1235]

I didn't mean to imply that the lenders are innocent. It's just funny that the people who are actually defaulting on the loans are considered victims rather than complicit in their own downfall and the ensuing economic problems. Saying everyone is stupid is just a cop-out. Saying the lender should know better than you what you can afford is ridiculous. Yes, it's the lender's business to know your risk level, but only you know what you can truly afford. Plenty of people who would be considered "risky" are capable of making their payments. Banks lend money based on a risk assessment, not some innate knowledge. They would never take those risks if it were IMPOSSIBLE for those people to make payments. We tend to exaggerate things like unemployed people were taking out half-million dollar mortgages. It's more like banks would say "we're willing ot give you up to X dollars" and people take the maximum they can, rather than recognizing that that upper bound is probably a difficult thing to pay back. A friend of mine bought a house a few years ago, and he was told by the bank he could have up to 300k or something, and bought a house that was 300k, and now he's struggling (though making it work with roommates and whatnot), where he would have been just as happy and much more financially comfortable with 250k. The bank just knows he's been a responsible person and makes enough money to afford up to 300k, but until he starts paying (or not) they don't know if he can REALLY afford it.

[exalted512]

I do agree that people defaulting are not victims by any means.

But, lenders are better apt to see how much is too much for people. Why? People are stupid, like I said above. That and the the thought of "oo, its just a couple hundred more a month and I can get this awesome house", failing to realize how much that couple of hundred bucks adds up. So yes, reasonable people should be able to know how much they can afford. Unfortunately, in our society, people want more and more and better and better. What also is unfortunate, is that lending companies, to an extent endorse this.

That's why the lenders do what they do. They are professionals in their area, where as we are not. Otherwise, there would be no lenders. I could go online, type in some numbers, get them verified by someone, then be on my merry way without having to contact a lender. This isn't the way it works.
-Cody

[tcrossma]

I think the borrowers are largely to blame for getting in over their head, but I think the banks took a huge risk in doling out the low variable interest rate mortgages and assuming that the borrower could refinance in a few years to get a better rate. I view banks like car dealers -- both will do anything they can to make a sale. And make no mistake, securing a mortgage with a client is the same to a bank as selling a car is to a dealer. If there's any way for the bank to make a deal happen, they will find a way -- they do NOT have the best interest of the borrower in mind.

From my personal experience in dealing with mortgage lenders, I'd be willing to bet that most of the lenders didn't fully explain to the borrower the implications of what a variable-rate mortgage could mean should the market take a downturn. Or if they did, they downplayed the significance.

[brettw22]

I can't even imagine the amounts of money that Lenders made for that stretch of time off all the loans that were issued with such high risk........scary.

[tonyb]

Both are to blame,except you'll never hear most politicians put any blame on the voteing public.We are all the victims dontcha know.Banks became greedy for sure until the housing market took a dump and they were stuck with all these high risk loans with no good ones to bundle them with.Add to that good old uncle sam mandateing banks lend money to risky consumers to try and get more minorities into homes and you have a recipe for disaster.Seems like it all started to come apart when the price of gas took off towards the sky.As an....adult,is it not our responsibility to know what we are signing up for? Don't most have attorney's at closeings to represent our interests? Alot of people are more concerned with keeping up with the Jones's than reading the small print on a contract.Personal responsibility.....these days.....seems to be chained to a cinder block at the bottom of the lake.

[dkg999]

Plenty of blame to go around, that's for sure. I do put a significant share of the blame on the lenders, as they knew what segments they wanted to market to and did the research on what messages to use. When you tell certain demographic segments that they too can have a part of the American dream, and that there is a quick fix for some of their nagging debt problems, it's a powerful message. I think we'll be debating some of the ethics of the situation for years to come.

[krabby5]

The mortgage mess has hit home with me:

I just received a letter in the mail from my original mortgage company where I have a Home equity loan. Basically they are saying that I can no longer draw off of that account with the checks they send me. Now I never wrote checks from that account anyways, but the value of my home has dropped 16% from when I refinanced 3 years ago..:mad:

Nice...Figures...all I ever heard when I was growing up was that buying a home is a great, sound investment...it will NEVER drop in value..then I buy a house 5 years ago and it's worth less than it was when I bought it:rolleyes:

I guess should just be happy that I didnt get an ARM loan.

[bobman1235]

Houses drop in value all the time, it's just over a long enough period of time that they never go down. Assuming you want to stay where you are, I'm sure in another five years you'll be back up.

At least your property taxes should go down! :)

[krabby5]

Houses drop in value all the time, it's just over a long enough period of time that they never go down. Assuming you want to stay where you are, I'm sure in another five years you'll be back up.

At least your property taxes should go down! :)

exactly...I was saying the same thing to my wife..if our property taxes go up, I'm raising holy hell

[dkg999]

There's the wrinkle locally! Home values go down, so property tax values should go down, so property tax revenue goes down, but local government/services costs stay the same or go up. What's next ..... raising property taxes to compensate :(