Us Senate Bails Out Us S&l's With $150 Billion

[brahmburgers]

I'm an American, but I can still see the blatant hypocrisy in the latest economic news from Washing ton D.C. On the one hand, US leaders spout on about ‘free enterprise’ yet every few years the Feds decide to plow infuse tens of billions of dollars to bail-out big business. They did it with Chrysler, they did it with Amtrack, they did it with the S&L debacle years ago (which helped the Hunt brothers and Bush senior’s sons avoid business realities).

Now the Feds are freaking out because Citicorp, Morgan Stanley, and others are reaping the results of their in-house bad management. The feds won’t allow free enterprise to take its course. Regardless of what happens, one thing is for sure: the top executives will never have a hard place to fall. Worst case scenario for them - they get eased out of their padded chair with a multimillion dollar golden parachute.

After the fall of the Soviet empire, the US sent ‘business specialists’ to the former USSR to teach them about free enterprise. What a joke. Did the US specialists also teach the Russians about making money by not growing crops (happens big time in the States) ….or of not allowing business to suffer the consequences of making faulty decisions?

By the way, $150 billion works out to around $400 for each man woman and child in the US. And that doesn’t take in to account the $2 billion per day spent dealing with Iraqis who are hel_l-bent on blowing each other up.

[samran]

You have a point there...

I've got a friend who was a fairly senior negotiator of the Australian US Free trade agreement. Her view is that the US's idea of 'free trade' differs somewhat between the private practice and the public rhetoric.

Anyway, enough American bashing.

[backflip]

I disagree with much of your post, including the title of your post. The "mortgage crisis" plan is private, and does not use the "goverment's" money. Bush's plan has nothing to do with the aforementioned. Bush is trying to do everything possible to avoid a second recession during his presidency. To be sure we're on the same page a recession is two consecutive quarters of negative growth. Nothing more.

You listed a few of the "bailouts", and you imply that the US received nothing in return, and that's an error of omission. In many cases, the bailouts were loans, and the loans were paid back with interest. Both Chrysler and Harley Davidson (a "bailout" you didn't mention) came back stronger than before. Perhaps you think America would be stronger if the employees of those companies lost their jobs, and Americans had fewer choices.

On the other hand, I think that Bush's plan is short-sighted and will be ineffective.

[ProThaiExpat]

Forget not about the tax breaks including the free return of foreign earned funds U.S. corporations were allowed to do without tax a couple years ago. The Republican party has always been kind to big business and it is recognized that it is.

Thus we have alternating party presidencies. A tenure of a Republican president to help big business and then a Democrat president to help out the needy. The problem is when the congress is dominated by the opposing party to such a degree that the president is stymied in his attempt to help his traditional electorate base.

When the congress is dominated by the same party as the president, as we saw during the early Bush years, excessive legislation occurs that puts things out of balance. Add to that a pre-emptive mentality and you get a government with blinders on. Hopefully it is over.

[brahmburgers]

I have to agree with Backflip that I may have ranted too soon. Though the gargantuan amount of money is federal and will increase the US's deficit (which never weemed to bother Uncle Sam before), it's not earmarked directly for US banks and corporations. Below are a few nuggets I garnered from today's Washington Post newspaper:

the deal includes provisions that would allow faster tax write-offs for corporate investment and immediate tax deductions for small-business investment in plants and equipment.

Under the deal, nearly everyone who earned a paycheck in 2007 would receive at least $300 from the Internal Revenue Service -- $103 billion in total. Most people would receive rebates of $600 each, or $1,200 per couple. Families with children would receive an additional payment of $300 per child. Workers who earned at least $3,000 last year -- but not enough to pay income taxes -- would be eligible for $300.

Overall, 117 million families would receive rebate checks, including 35 million with earnings too low to have qualified under an earlier Bush proposal that limited checks to income tax payers.

[PeaceBlondie]

I do not recall Harley getting any bank loans. I recall Vaughan Beals and a big LBO firm buying the Motor Company from AMF with their own money. I do recall the outrageous tariff on foreign bikes of over 700 cc's, to let Harley get its act together, fifty years after they invented the American cruiser. As stated, Chrysler repaid its loan. The S&L crisis required lots of federal bailout money, as I recall.

This crisis appears to be caused by bad lenders whose dealers made big profits. WAR is the most expensive addiction in human history.

[apetley]

I wonder how many unborn generations will find themselves paying for this latest giveaway.

[Irene]

What's wrong with helping the US economy from sliding down to recession? From past experiences, once you are there, it takes time to recover. The idea is to pump up consumers spending. All the financial institutions like Citi, Bear Stern, suffered their losses on bad lendings and had to charge those losses against their earnings. The persons who suffered from their misdeeds are their shareholders like myself. Many heads were chopped off. One good thing about the US is the rule on moral hazards. They never believe in helping out the wrongdoers.

[BEENTHEREDONETHAT]

Do you ever think about the US national debt, the optomistic number is 9,000,000,000,000 nine trillion dollars. The interest at 3% would be 270,000,000,000 two hundred and seventy billion dollars a year. At what point does that number get to big for off shore money to cover it?

[lannarebirth]

One good thing about the US is the rule on moral hazards. They never believe in helping out the wrongdoers.

Are you being ironic here? Cutting interest rates to bail out banks who made bad loans and keep crappy asset values high long enough to dump it to someone else. Punishing savers who live within their means while rescuing lenders who loan to high risk persons. Giving handouts to taxpayers in excess of tax receipts. No moral hazard? It reeks.

[Wrong Turn]

What's wrong with helping the US economy from sliding down to recession? From past experiences, once you are there, it takes time to recover. The idea is to pump up consumers spending. All the financial institutions like Citi, Bear Stern, suffered their losses on bad lendings and had to charge those losses against their earnings. The persons who suffered from their misdeeds are their shareholders like myself. Many heads were chopped off. One good thing about the US is the rule on moral hazards. They never believe in helping out the wrongdoers.

The very fact that the US Federal government is returning $145 billion dollars to taxpayers - about 4 months from now - means that there are underlying and comprehensive problems in the US economy.

As for consumption spending, it now accounts for over 70% of the US economy. Government solution: just go out and buy more stuff.

I don't think anyone really know how bad it will bet, or if it will get worse.

Again, the very fact there printing these checks out and mailing them to taxpayers means things are seriously, wrong.

I don't think this is a normal cyclical recession (if we are even in one). Since 1945, there have been 10 recessions, which average from 8 to 16 months in length.

[stumonster]

the effort to boost spending at walmart might be just "pissing in the wind"

Family pets fall victim to subprime crisis

By Mira Oberman in Chicago

January 25, 2008 01:04pm

Article from: Agence France-Presse

FORGET about the lost furnishings and finances, the most pitiful victims of the subprime mortgage crisis rocking the United States are the family pets.

Shelters across the country have seen sharp rises in the number of people giving up their pets in recent months because they have been forced out of their homes.

And - more tragically - neighbours, police and foreclosure agents are finding increasing numbers of pets left to fend for themselves in abandoned homes.

full story here

[Irene]

One good thing about the US is the rule on moral hazards. They never believe in helping out the wrongdoers.

Are you being ironic here? Cutting interest rates to bail out banks who made bad loans and keep crappy asset values high long enough to dump it to someone else. Punishing savers who live within their means while rescuing lenders who loan to high risk persons. Giving handouts to taxpayers in excess of tax receipts. No moral hazard? It reeks.

In my book, cutting interest rates was not specifically to bail out banks who made bad loans. They will still be in a jam even after the bail out. Their crappy asset values were already written down heftily to the extent that you need Asian and Middle East money to salvage them. (It is a reverse from 1997 when the US institutions came to Asia to pick up cheap assets).

Savers who live within their means are not affected. On the contrary, they are in a better position to buy cheap assets because they are cash rich.

Giving handouts to taxpayers was given universally to all and not to a specific group of wrongdoers. No moral hazard.

[LivinLOS]

Savers who live within their means are not affected. On the contrary, they are in a better position to buy cheap assets because they are cash rich.

Giving handouts to taxpayers was given universally to all and not to a specific group of wrongdoers. No moral hazard.

What crap.. Think deeper..

Savers have money.. By flooding new money into the system with low interest rates you feed inflation.. Inflation degrades the savers assets making them poorer.. Inflation is a form of stealth tax on savings and the government are racking it higher by producing more money hence lowering its value.

Second what the government are doing is rewarding speculators who made bad bets. They are essentially taking taxes from the frugal population and using it to bail out (by lowering interest rates) people who gambled and should have lost. Its morally backwards. Many people took out liar loans, took on board more credit than they could afford, at historically way out there low rates of interest gambling that the prices would rise and they would make a killing.. Why should the frugal and sensible pay the price to save these people ?? If groups of people go into the casino and gamble on something why should those that are risk averse pay to cover thier losses ??

[Irene]

What's wrong with helping the US economy from sliding down to recession? From past experiences, once you are there, it takes time to recover. The idea is to pump up consumers spending. All the financial institutions like Citi, Bear Stern, suffered their losses on bad lendings and had to charge those losses against their earnings. The persons who suffered from their misdeeds are their shareholders like myself. Many heads were chopped off. One good thing about the US is the rule on moral hazards. They never believe in helping out the wrongdoers.

The very fact that the US Federal government is returning $145 billion dollars to taxpayers - about 4 months from now - means that there are underlying and comprehensive problems in the US economy.

As for consumption spending, it now accounts for over 70% of the US economy. Government solution: just go out and buy more stuff.

I don't think anyone really know how bad it will bet, or if it will get worse.

Again, the very fact there printing these checks out and mailing them to taxpayers means things are seriously, wrong.

I don't think this is a normal cyclical recession (if we are even in one). Since 1945, there have been 10 recessions, which average from 8 to 16 months in length.

There is no doubt at all that the US economy is in a jam due to the credit crunch precipitated by greed and bad management of the US financial institutions and housing sector. They were worse than the misdeeds as previously committed by the Asian world pre-1997.

It can only resolve through confidence of consumers and the financial institutions come back to the fold after taking all the losses on their earnings.

[Irene]

Savers who live within their means are not affected. On the contrary, they are in a better position to buy cheap assets because they are cash rich.

Giving handouts to taxpayers was given universally to all and not to a specific group of wrongdoers. No moral hazard.

What crap.. Think deeper..

Savers have money.. By flooding new money into the system with low interest rates you feed inflation.. Inflation degrades the savers assets making them poorer.. Inflation is a form of stealth tax on savings and the government are racking it higher by producing more money hence lowering its value.

Second what the government are doing is rewarding speculators who made bad bets. They are essentially taking taxes from the frugal population and using it to bail out (by lowering interest rates) people who gambled and should have lost. Its morally backwards. Many people took out liar loans, took on board more credit than they could afford, at historically way out there low rates of interest gambling that the prices would rise and they would make a killing.. Why should the frugal and sensible pay the price to save these people ?? If groups of people go into the casino and gamble on something why should those that are risk averse pay to cover thier losses ??

Wow, what a confused mind. My thought may be crappy but at least I am polite.

[lannarebirth]

One good thing about the US is the rule on moral hazards. They never believe in helping out the wrongdoers.

Are you being ironic here? Cutting interest rates to bail out banks who made bad loans and keep crappy asset values high long enough to dump it to someone else. Punishing savers who live within their means while rescuing lenders who loan to high risk persons. Giving handouts to taxpayers in excess of tax receipts. No moral hazard? It reeks.

In my book, cutting interest rates was not specifically to bail out banks who made bad loans. I agree. It was specifically done to keep hedge funds and mutual funds from having to make forced liquidations in a plunging stock market that was repricing the cost of risk. They will still be in a jam even after the bail out. Their crappy asset values were already written down heftily to the extent that you need Asian and Middle East money to salvage them. (It is a reverse from 1997 when the US institutions came to Asia to pick up cheap assets).

Savers who live within their means are not affected. On the contrary, they are in a better position to buy cheap assets because they are cash rich. Savings is savings. It is not intended for picking up cheap assets. My 79 year old father is not buying the dip in Google or flipping condos. He lives on the return his savings provides. He is not a speculator, nor should he be.

Giving handouts to taxpayers was given universally to all and not to a specific group of wrongdoers. No moral hazard.

[britmaveric]

Good plan - world markets certainly appreciated it. Remember if yanks are fked - we all get it up the arse too!!!

[blizzard]

you guys do realize that those in the know,lol, seem to say its not enuff! more political than real economics.

[Irene]

My comments are in red:

One good thing about the US is the rule on moral hazards. They never believe in helping out the wrongdoers.

Are you being ironic here? Cutting interest rates to bail out banks who made bad loans and keep crappy asset values high long enough to dump it to someone else. Punishing savers who live within their means while rescuing lenders who loan to high risk persons. Giving handouts to taxpayers in excess of tax receipts. No moral hazard? It reeks.

In my book, cutting interest rates was not specifically to bail out banks who made bad loans. I agree. It was specifically done to keep hedge funds and mutual funds from having to make forced liquidations in a plunging stock market that was repricing the cost of risk. Now, I can see your point on the help to the hedge funds and mutual funds. But that help is also of benefits to the US population and world economy.They will still be in a jam even after the bail out. Their crappy asset values were already written down heftily to the extent that you need Asian and Middle East money to salvage them. (It is a reverse from 1997 when the US institutions came to Asia to pick up cheap assets).

Savers who live within their means are not affected. On the contrary, they are in a better position to buy cheap assets because they are cash rich. Savings is savings. It is not intended for picking up cheap assets. My 79 year old father is not buying the dip in Google or flipping condos. He lives on the return his savings provides. He is not a speculator, nor should he be. Point taken. But with the change of scenario of pricing especially in the property area, for many savers, they now have a chance to consider shifting some of their savings with the same degree of risk. For certain, fixed income instruments would not be so attractive because of downward trend of interest rates.

Giving handouts to taxpayers was given universally to all and not to a specific group of wrongdoers. No moral hazard.

[LivinLOS]

you guys do realize that those in the know,lol, seem to say its not enuff! more political than real economics.

Of course its not enough.. 3 trillion (thereabouts) my have been wiped out / lost in the recent debt debacle.. And 150 bn is going to change that ??

Heres a tin foil hat thought.. We all know Paulson is Goldmans boy.. We all know how corrupt and incestuous the Fed / big banks / wall street is.. So with that fact.. We know the banks are really underwater with bad debt from the US population.. So if your really in debt, and you receive an $800 windfall, what are you going to do ?? Rush out to buy a US made flat screen TV (ha ha ha.. Is there one ??) and stimulate the economy, or are you going to pay down your debt thereby giving the bankers back some of thier losses ?? So did Paulson, Bernanke, and Bush just pull of a really nice coup, of using taxpayers money, to bail out (or at least improve the losses of) the big bankers and wall street cronies ??

Gold wont go through the roof.. Its going to the moon.

[LivinLOS]

My comments are in red:

One good thing about the US is the rule on moral hazards. They never believe in helping out the wrongdoers.

Are you being ironic here? Cutting interest rates to bail out banks who made bad loans and keep crappy asset values high long enough to dump it to someone else. Punishing savers who live within their means while rescuing lenders who loan to high risk persons. Giving handouts to taxpayers in excess of tax receipts. No moral hazard? It reeks.

In my book, cutting interest rates was not specifically to bail out banks who made bad loans. I agree. It was specifically done to keep hedge funds and mutual funds from having to make forced liquidations in a plunging stock market that was repricing the cost of risk. Now, I can see your point on the help to the hedge funds and mutual funds. But that help is also of benefits to the US population and world economy.They will still be in a jam even after the bail out. Their crappy asset values were already written down heftily to the extent that you need Asian and Middle East money to salvage them. (It is a reverse from 1997 when the US institutions came to Asia to pick up cheap assets).

Savers who live within their means are not affected. On the contrary, they are in a better position to buy cheap assets because they are cash rich. Savings is savings. It is not intended for picking up cheap assets. My 79 year old father is not buying the dip in Google or flipping condos. He lives on the return his savings provides. He is not a speculator, nor should he be. Point taken. But with the change of scenario of pricing especially in the property area, for many savers, they now have a chance to consider shifting some of their savings with the same degree of risk. For certain, fixed income instruments would not be so attractive because of downward trend of interest rates.

Giving handouts to taxpayers was given universally to all and not to a specific group of wrongdoers. No moral hazard.

Part of the problem is the FED is supposed not supposed to be protecting wall street.. Thats what they are doing.. In the last decade they have openly said that they have a 'plunge protection team' actively suppressing the gold price, actively supporting the stock market, actively manipulating the markets all over.. Since when was this thier mandate ?? Why are the long protected and the shorts hammered by government mandate ?? I thought this was supposed to be 'free market econonomics' ??

This combined with Bubbles Greenspans activity this century has created a system totally out of whack, we have too many companies with >50x valuations, a housing market that has risen so much faster than income, and an entire US citizenship who are speculating on the price of thier homes whether they know it or not. The American dream of home ownership will become the American nightmare when housing retreats to historical norms in terms of multiples of income. When home owners are seeing -20 or -30% on thier purchase the avalanche of 'jangle mail' when home owners simply walk away from mortgages on homes that are a couple of 100k underwater will be immense. Those people know it will take half a lifetime to pay that difference in repriced home equity.

Risk is being repriced in all markets. The last 15 years of credit based asset bubbles are going to need to be popped. Historical norms of saving rates and assets prices will have to be returned (probably overshot before rebalancing)..

[ronz28]

It appears a French bank caused the market disruptions this week:

PARIS/LONDON, Jan 25 (Reuters) - French bank Societe Generale (SocGen) conducted a dramatic market sell-off operation in 48 hours after discovering a massive alleged fraud at the bank, traders and fund managers said on Friday.

Sources close to French banks said SocGen had been nursing losses of 1-1.2 billion euros when it discovered the fraud on Friday. It subsequently unwound more than a million Eurostoxx stock index futures contracts from Jan. 21 to 22, bringing the hit to 4.9 billion euros ($7.2 billion) by Thursday.

Estimates for the value of the dumped contracts ranged from 20 billion to 70 billion euros ($29-$103 billion).

"What's emerging is that SocGen was brutal in the way it unwound its positions," said a trader at an investment bank. .....

[LivinLOS]

It appears a French bank caused the market disruptions this week:

PARIS/LONDON, Jan 25 (Reuters) - French bank Societe Generale (SocGen) conducted a dramatic market sell-off operation in 48 hours after discovering a massive alleged fraud at the bank, traders and fund managers said on Friday.

Sources close to French banks said SocGen had been nursing losses of 1-1.2 billion euros when it discovered the fraud on Friday. It subsequently unwound more than a million Eurostoxx stock index futures contracts from Jan. 21 to 22, bringing the hit to 4.9 billion euros ($7.2 billion) by Thursday.

Estimates for the value of the dumped contracts ranged from 20 billion to 70 billion euros ($29-$103 billion).

"What's emerging is that SocGen was brutal in the way it unwound its positions," said a trader at an investment bank. .....

Nice piece of FUD that those in the banking elite would love you to believe.. Not that theres anything stucturally wrong with the mounting piles of toxic debt plaguing the system but it was simply the actions of one 'rogue' individual..

However the contagion spread from asian markets, which in case anyone didnt notice, were open long before the Eurostoxx indexes even began.

[brahmburgers]

How about a quote from Sleepy John Estes, right about now........

"that woman once looked to me like solid gold

now she got a lien on my body / a mortgage on my soul."

"Well my momma don't allow me to fool around all night long.

I may look like I'm crazy, but I do know right from wrong."

[Irene]

It appears a French bank caused the market disruptions this week:

PARIS/LONDON, Jan 25 (Reuters) - French bank Societe Generale (SocGen) conducted a dramatic market sell-off operation in 48 hours after discovering a massive alleged fraud at the bank, traders and fund managers said on Friday.

Sources close to French banks said SocGen had been nursing losses of 1-1.2 billion euros when it discovered the fraud on Friday. It subsequently unwound more than a million Eurostoxx stock index futures contracts from Jan. 21 to 22, bringing the hit to 4.9 billion euros ($7.2 billion) by Thursday.

Estimates for the value of the dumped contracts ranged from 20 billion to 70 billion euros ($29-$103 billion).

"What's emerging is that SocGen was brutal in the way it unwound its positions," said a trader at an investment bank. .....

No doubt at all that this week's disruption was part of the work of SocGen in closing the future contracts with a loss of 7 billion dollars. The question is now posed in Herald Tribune that whether the US Fed was duped in reducing the interest rate by 75 points when the market was then distorted by SocGen's actions. I don't blame SocGen for closing the contracts committed by Jerome Kerviel before the public announcement on Thursday thereby closing the painful chapter of this colossal misdeed of a rogue trader. But it is interesting to note that the revealed fraud may prove to be beneficial in calming the market a little bit by the Fed's early action before Jan 29. The whole question now is whether the reduction on Jan 29 will be 50 basis points as many have expected and hope for.

[sendbaht]

It will all work out just fine.

[lannarebirth]

It appears a French bank caused the market disruptions this week:

PARIS/LONDON, Jan 25 (Reuters) - French bank Societe Generale (SocGen) conducted a dramatic market sell-off operation in 48 hours after discovering a massive alleged fraud at the bank, traders and fund managers said on Friday.

Sources close to French banks said SocGen had been nursing losses of 1-1.2 billion euros when it discovered the fraud on Friday. It subsequently unwound more than a million Eurostoxx stock index futures contracts from Jan. 21 to 22, bringing the hit to 4.9 billion euros ($7.2 billion) by Thursday.

Estimates for the value of the dumped contracts ranged from 20 billion to 70 billion euros ($29-$103 billion).

"What's emerging is that SocGen was brutal in the way it unwound its positions," said a trader at an investment bank. .....

No doubt at all that this week's disruption was part of the work of SocGen in closing the future contracts with a loss of 7 billion dollars. The question is now posed in Herald Tribune that whether the US Fed was duped in reducing the interest rate by 75 points when the market was then distorted by SocGen's actions. I don't blame SocGen for closing the contracts committed by Jerome Kerviel before the public announcement on Thursday thereby closing the painful chapter of this colossal misdeed of a rogue trader. But it is interesting to note that the revealed fraud may prove to be beneficial in calming the market a little bit by the Fed's early action before Jan 29. The whole question now is whether the reduction on Jan 29 will be 50 basis points as many have expected and hope for.

If they can't get the 50bp reduction this month, maybe they can start another war. That's always good for the economy. The problem with having "everybody in" is, that there is no policy or behavior that is too repugnant if it can enrich "stakeholders". Every action is viewed through the "can I make a buck out of this?" lense. Probably get a nice rally if we could cull the old and lame as well.