U.s. Banking Crisis: Capitalism "gone Wild"?

[Jingthing]

I Youtubed that speech. can't imagine what she could have been thinking, unless she was deliberately trying to undermine the Bill. She should have learned a thing or two from Tip O'neill.

Could you post the URL to this video ? Thanks.

Not everyone sees it this way. I hope you caught Barney Frank's humorous rebuttal of this amazingly lame excuse not to vote for an emergency finance bill. Folks, it was POLITICS. These poor congresspeople are constantly up for election and the people back home falsely think the bill is a bailout for billionaires, when actually it is all of our <deleted> on the line.

From slate:

Nancy Pelosi’s $700 Billion Speech

Posted Monday, September 29, 2008 5:09 PM By Christopher Beam

House Republicans and the McCain campaign are currently blaming Speaker Nancy Pelosi’s speech today introducing the bailout package for its failure. According to this narrative, she managed to alienate a dozen Republicans who otherwise would have voted for the bill.

But read Pelosi’s speech. (Transcript here.)* She wasn’t bashing Republicans; she was bashing Bush. She said the $700 billion price tag “tells us only the costs of the Bush administration’s failed economic policies—policies built on budgetary recklessness, on an anything-goes mentality, with no regulation, no supervision, and no discipline in the system.” Later, she thanked Democratic leaders Barney Frank and Rahm Emanuel while conspicuously omitting minority leader John Boehner. But she did thank Treasury Secretary Henry Paulson. Doesn’t he count?

Granted, it may have sounded unpleasant to sensitive Republican ears. But GOP members can hardly object to Bush-bashing—in fact, many of them have done it themselves. Vulnerable GOP congressmen have scrambled to distance themselves from the president on Iraq, immigration, Katrina, and now economic policy. Sure, Pelosi could have been more gracious to Boehner and other Republicans who voted for the package, especially after such delicate negotiations. But her speech also showed Democrats that you can be for the bailout and still run on a Bush-bashing economic message. It’s a message you’d think would resonate with Republicans, too.

[lannarebirth]

I Youtubed that speech. can't imagine what she could have been thinking, unless she was deliberately trying to undermine the Bill. She should have learned a thing or two from Tip O'neill.

Could you post the URL to this video ? Thanks.

Not everyone sees it this way. I hope you caught Barney Frank's humorous rebuttal of this amazingly lame excuse not to vote for an emergency finance bill. Folks, it was POLITICS. These poor congresspeople are constantly up for election and the people back home falsely think the bill is a bailout for billionaires, when actually it is all of our <deleted> on the line.

I don't do politics Jingthing , from either side of the aisle. If they want to fiddle while Rome burns, that's up to them. In the meantime I do what I must do to take are of my family.

I disagree that the "bailout" was of equal benefit to everyone. It' was for fiduciary criminals who were about to get rewarded for fuc_king up the markets. I also hold the gowernment responsible for extremely poor oversight. I want to see people jailed (100's) and new rules in place before I would even consider parting with one dime.

The good news is, the dollar is up, and of course you can't have it both ways(at least in the past several years).

Here's a pretty good writeup (which I don't wholly agree with) that I found in my Inbox.

Haste Makes Waste

By Michael Lewitt

"Examining the record of past research from the vantage of contemporary historiography, the historian of science may be tempted to exclaim that when paradigms change, the world itself changes with them. Led by a new paradigm, scientists adopt new instruments and look in new places. Even more important, during revolutions scientists see new and different things when looking with familiar instruments in places they have looked before. It is rather as if the professional community had been suddenly transported to another planet where familiar objects are seen in a different light and are joined by unfamiliar ones as well. Of course, nothing of quite that sort does occur: there is no geographical transplantation; outside the laboratory everyday affairs usually continue as before. Nevertheless, paradigm changes do cause scientists to see the world of their research-engagement differently. In so far as their only recourse to that world is through what they see and do, we may want to say that after a revolution scientists are responding to a different world."

Thomas S. Kuhn1

The problem with trying to legislate in the middle of a revolution is that you aren't sure whether you are governing the world that is being destroyed or the one that is coming into being. There can be little question that the Wall Street that existed at the beginning of this year is no longer the industry that Congress is seeking to rescue from its own excesses. The financial world has been permanently altered by the collapse of the debt bubble that inexorably built up over the past three decades. Now Congress is trying to design a rescue plan for a world whose shape is highly contingent and unstable. Such an undertaking requires more than two weeks of work. Conventional thinking tells us that the government must do something to stabilize the markets immediately, and that doing something is better than doing nothing. Once again, conventional thinking is wrong. Congress would be much better advised to take the extra few days or week it would take to structure a plan that the world is going to have to live with for a very long time. As we were completing this newsletter, the House of Representatives voted down the emergency package and the financial markets are panicking. Such panic is unwarranted. The world should take a deep breath and consider whether defeat of a deeply flawed bill should be treated as a catastrophe or a rallying cry to develop a better plan that addressed the underlying issues that need to be fixed.

The Paulson Plan

HCM has been warning for years that all of the king's horses and all of the king's men wouldn't be able to put this mess back together again. It is now time for America to take the pain and figure out how to move forward. Any plan that is adopted must include a sufficient dose of strong medicine to prevent the culture of self-delusion and moral hazard that created the current crisis from further perpetuating itself. The purpose of the Paulson Plan has to be to rebuild confidence in the financial system. The manner in which the plan was presented and debated rendered that more difficult but hopefully not impossible. For any plan that fails to bring confidence back to the market will not work.

The great economic historian Charles Kindleberger wrote in his seminal study of financial crises, Manias, Panics, and Crashes, that, "[f]or historians each event is unique. Economics, however, maintains that forces in society and nature behave in repetitive ways. History is particular; economics is general."2 This is a very important observation. While each financial crisis is unique in terms of its causes and the types of assets that it engulfs, the conditions that led to it are always driven by human irrationality and hubris. Financial busts are preceded by financial bubbles. The current bust was preceded by a debt bubble whose unique manifestations were debt securitization and credit derivatives. Underlying these novel debt structures were the human emotions of greed and fear that led to abuses by even the most sophisticated individuals and most highly respected institutions in the market. While these human attributes are the most difficult to legislate, their ability to wreak havoc is clear evidence that they must be regulated in a thoughtful way.

Recently, former New York Federal Reserve Governor Gerald Corrigan led a group of market experts that released a report entitled Containing Market Risk: The Road to Reform, The Report of CRMPG III (Corrigan III) (August 6, 2008). In that report, Mr. Corrigan and his colleagues wrote the following very wise words:

"The fact that financial excesses fundamentally grow out of human behavior is a sobering reality especially in an environment of intense competition between large integrated financial intermediaries which, on the upside of the cycle, fosters risk taking and on the downside, fosters risk aversion. It is this sobering reality that has, for centuries, given rise to universal recognition that finance and financial institutions must be subject to a higher degree of official oversight and regulation than is deemed necessary for virtually all other forms of commercial enterprise."

What is lacking from the public debate is a serious understanding of the difference between treating the symptoms of the crisis and trying to cure the disease. The disease is a total loss of confidence in the American model of debt-engorged free enterprise, and American economic and political leadership. The cure is regaining that confidence.

In his new book, economic consultant David M. Smick writes,

"the survival of the world financial system depends on an elaborate confidence game. The size of the financial markets, relative to the governments, has become so monstrously huge there is no other means of maintaining stability than to establish a psychology of confidence. The governments themselves cannot by edict restore order. They can only project to the markets a sense that they know what they're doing."3

What Henry Paulson and Ben Bernanke are desperately trying to explain to Congress is that America's leadership must immediately restore the world's confidence in American economic and political leadership. But the Paulson Plan was generated under impossible conditions. Were it to succeed, the best that could be expected at this point is a slow revival of the credit system. To hope for more is sheer folly. It is a certainty that America, and then the rest of the world behind it, is going to experience a severe recession the likes of which it hasn't seen for decades. Frankly, HCM can't see any way that such a slowdown can be avoided, although HCM has some ideas on how to begin to work out of it. Moreover, if by some miracle it were to be avoided, it would merely delay the inevitable purging of the psychological and financial excesses that have been piling up in our economic system over the past thirty years. One of the problems plaguing America is that we have become so frightened of short-term pain that we are willing to risk incalculable long-term suffering. Any plan that treats the symptom (the loss of confidence) and not the disease (the underlying problems that caused the loss of confidence) will not solve the real problem.

At one point during the bailout negotiations, Henry Paulson was seen genuflecting at the feet of House Speaker Nancy Pelosi, a fitting emblem of just how far the credibility of the Bush Administration has fallen.4 Earlier policy blunders are now haunting a lame-duck Administration. The Paulson Plan is being pushed with the same kind of urgency that pushed the U.S. to invade Iraq, and the President has no more weapons of mass destruction to sell. There are legitimate fears that anything approaching the Paulson Plan, like the Iraq War, will get quickly bogged down in the complexities and contingencies that will be encountered on the battlefield. Despite the cries of pain from the credit markets, HCM has never believed that the world would spin off its axis if a deal is not rushed to completion in the next few days. A bad deal would be worse than no deal at all.

There is one practical problem that will plague the Paulson Plan and any plan that involves the government purchasing distressed assets from financial institutions. These assets are NOT(!!!) accurately valued on the books of financial institutions.5 Accordingly, these institutions are not in a position to sell them to the government at current fair market value. Any sales at current market value would inflict huge losses on these institutions. The alternative is for the government to grossly overpay for these assets, which would constitute a disguised capital infusion into these firms that would short-change the American taxpayer. This flaw in the plan is why members of Congress from both sides of the aisle insisted on some kind of profit-sharing structure that would compensate taxpayers in the event the government pays above-market prices for assets. HCM fears that very little of the $700 billion is going to be spent in the near future because of the reluctance of banks to part with assets at anywhere near their current value, and the government's reluctance to overpay for these assets.

HCM views the Paulson Plan as a matter of form over substance. The details of how the plan will work are ultimately less important than whether the plan succeeds in rebuilding market confidence. In order to be successful, the Paulson Plan needs to be followed up by comprehensive regulatory reform that accomplishes the goals of convincing the public that the financial system will be fairer in the future than it has been in the past (i.e. that the gains will be spread more equitably and that failure will not be rewarded) and that strong steps will be taken to prevent the oversights that led to the current instability from being repeated.

An Alternative Bailout Plan

A successful plan must address the following elements:

Confidence: It must restore market confidence by convincing both Wall Street and Main Street that the government will stand behind the mortgage obligations that are the weakest part of the financial system.

Time: It must provide time for financial institutions to earn profits that can be used to absorb future losses on bad mortgage paper. The primary way financial institutions make money is by borrowing money at one rate and lending it out at a higher rate. The cost of money for financial institutions must be lowered immediately.

Prevention: It must convince both the American people and the global community that the regulatory lapses that allowed this disaster to occur will not happen again, and that the system will be fairer in the future. This is closely tied to the issue of restoring confidence in the markets as well as in American economic and political leadership.

The government's plan must restore market confidence, give companies the time to heal their balance sheets, and prevent a recurrence of the most abject series of regulatory lapses in the history of Western financial markets. For the sake of contributing to the public debate, which will continue even after the initial plan is adopted by Congress, HCM suggests that the government move ahead with the following measures in an effort to restore order and stability to the global credit and financial markets:

The HCM Bailout Plan

The government should announce that it will effectively stand behind the U.S. financial system against failure through some sort of guarantee or insurance program. The government has already done this with respect to money market assets.

Mark-to-market accounting for financial institutions should be suspended for an indefinite period. Since nobody knows what these assets are worth, we should not drive the system into insolvency trying to place a value on assets that nobody is willing to purchase at the current time.

The Federal Reserve should reduce the overnight interest rate by 75 basis points immediately. This will allow financial institutions to begin to earn more on their assets, which will begin the process of rebuilding their balance sheets.

The Securities and Exchange Commission should announce the formation of a study group that will report back no later than December 31, 2008 on a comprehensive regime for regulating the credit default swap market.

As noted above, HCM is concerned that the plan to purchase mortgage assets from financial institutions will not produce the intended results because of the difficulty of reaching agreement on price without inflicting too much further damage on the sellers' balance sheets. That is why we favor a guarantee or insurance program rather than the Paulson proposal.

Will The Paulson Plan Work?

The American taxpayer is going to suffer economically whether the Paulson Plan, or some variation on it, is passed or not. HCM does not believe for a second that taxpayers will profit from this bailout as some prominent commentators are arguing. The assets that are clogging bank balance sheets are highly complex and illiquid, and the time required for them to return to any reasonable value will consume their recovery value in present value terms. Nonetheless, voices considered wiser than ours are touting the plan as a good deal for the American taxpayer.

Bill Gross of PIMCO, for example, has argued that taxpayers could profit from the $700 billion plan put forth by the Bush Administration. According to Barron's, Mr. Gross "estimates that the average price of distressed mortgage debt that will pass from troubled financial institutions to Treasury will be about 65 cents on the dollar, representing about a one third loss for the seller from face amount. Financed at 3% to 4% by the sale of Treasury debt, Treasury will be in a position to earn a positive carry, or yield spread, of at least 7% to 8% on the purchases, even after taking into account severe assumptions of default rates and foreclosure recoveries."6 Mr. Gross to his great credit has offered PIMCO's services to the government gratis in this endeavor (provided his competitors do the same). In PIMCO's hands, he argues, the government will get a fair deal for the assets it buys. "'The prices that Treasury will get will be somewhere between par, which of course might screw the taxpayer, and a fire sale price of, say, 20 cents on the dollar, which would likely bankrupt some weak institutions and defeat the purpose of the bailout.'"

We think Mr. Gross is unduly optimistic from a couple of standpoints. First, he appears to be assuming that virtually all of the assets that the government will be purchasing will be AAA-rated mortgage securities, since these are the only mortgage securities trading remotely close to 65 cents on the dollar today. Unfortunately, many of the securities that are weighing down the balance sheets of financial institutions carry lower ratings, and many AAA-rated tranches are trading at well below 65 cents on the dollar today. (We would note that the Federal Reserve had already agreed to take onto its balance sheet much lower rated collateral, including equities, in order to support these same financial institutions.) Current trading prices may be unduly depressed by speculative shorting of the ABX indices as well as crisis conditions in the marketplace, but by all accounts AAA-rated tranches of 2006 and 2007 vintage collateralized mortgage obligations are deeply distressed due to inordinately high levels of defaults in the underlying pools of mortgages. While current prices may reflect unrealistically pessimistic projections of future mortgage defaults, the fact remains today's prices are today's prices. If the government pays more for these securities, it will be giving the seller a windfall. Mr. Gross's scenario glosses over this dilemma, which lies at the heart of why the Paulson Plan is unlikely to yield rapid progress in moving troubled assets off bank balance sheets.

Second, we have yet to see the non-financial economy bear the full brunt of the collapse of the financial economy. Main Street is only starting to pay for the sins of Wall Street. The stock market remains in deep denial about the scope and depth of the economic slowdown this country is about to face. As the consequences of tighter credit seep into the mainstream of the American economy, there is every reason to expect that mortgage default rates will rise and home prices will continue to fall, further depressing the value of the mortgage securities that the government is supposed to be purchasing under the Paulson Plan. We wish we could share Mr. Gross's optimism, but we question whether deep in his heart he isn't trying to use his bully pulpit to talk up the market.

Japan Redux?

One of the tough questions that deserve to be asked in the wake of the U.S. government's bailout of the U.S. finance industry is whether American prosperity of the 1990s and 2000s was as illusory as Japanese prosperity of the 1980s? Just as Japan's prosperity was based on a rigged economic system constructed out of a cheap currency, cross-ownership of institutions and a non­mark-to-market accounting system, America's recent prosperity was also built on a cheap dollar, a non-mark-to-market accounting system, and an addiction to debt. While this comparison can be debated endlessly, and will likely be the subject of many scholarly articles and books, the real question is whether the United States will suffer anything like the "lost decade" that haunted Japan (actually, it has been almost two "lost decades"). There are significant differences between Japan and the United States (the most troubling, perhaps, being that Americans do not possess nearly the savings that the Japanese did entering their difficulties), but the question will gain more attention in the coming months.

While it is too soon to make any judgments that far into the future, America is certain to see very slow economic growth in the immediate future. The world's only superpower may see its first trillion dollar deficit within the next couple of years, although Washington will try to dress up the number to keep it under thirteen figures (an unlucky number in too many ways to count). That alone should be sufficient to knock down American hegemony a further peg or two. Such a deficit will contribute to a further debasement of the U.S. dollar against Asian currencies and the Swiss franc.

The primary reason why economic growth is going to be sluggish is that credit is going to be strictly rationed for the foreseeable future, which means that only the most creditworthy borrowers will be able to access capital at a reasonable cost. Companies that need capital will be the ones that find capital most difficult and expensive to access. This means that many companies will have to pay exorbitant rates to borrow, and many highly leveraged companies that have to borrow will be forced into bankruptcy or capital restructurings in order to do so. Many leveraged companies are already drawing down their revolving credit lines before their banks withdraw them. General Motors was the most prominent company to have done this recently, but HCM is seeing this occur throughout the corporate credit market.

American Oligarchy

One of the most discouraging parts of the debate over the Paulson Plan was the discussion about limiting executive compensation for those firms that might benefit from the plan. While trying to help rebuild confidence in American capitalism, Mssrs. Paulson and Bernanke tried to convince Congress that bank executives would prevent their institutions from participating in the bailout if it meant that their compensation would be capped. One would think, as the financial system teeters on the brink of collapse, that the Secretary of the Treasury and the Chairman of the Federal Reserve could make a more persuasive argument than one that poses the likelihood that corporate executives would knowingly violate their fiduciary duty and refuse to participate in a plan to rescue the financial system because it might limit their compensation. If troubled financial institutions are going to be run by individuals who would conduct themselves in such a manner, there isn't much hope that any plan is going to work. The mentality that led two of our best and brightest public officials to attempt to defend the kind of avaricious conduct that played a central role in the current crisis is something that must be changed if we are to avoid future market crises.7

This brings HCM to two related areas that need to be legislated immediately: financial institution leverage; and the taxation of highly compensated financial executives. There is a point when free enterprise tips over into a degree of economic and social inequality that is politically unacceptable, and the United States has reached that point. HCM is well aware that its views on this topic genuinely anger many of its readers, but this is an issue that must be addressed as an essential component of any program that will return confidence to the financial system. Free market economic policies, in particular tax policies, have led to the creation of an American oligarchy whose wealth and power is excessive. While not as pernicious as the oligarchy that rose from the ruins of the Soviet Union and now lords over Russia and spends its money garishly over the world, an American oligarchy has unduly benefitted from ill-advised tax and economic policies and must be reigned in as a sign to Main Street that the game will no longer be rigged against it.

We do not believe it is presumptuous to state that the debate over whether Wall Street firms were too leveraged is over. The decision by Goldman Sachs and Morgan Stanley has decidedly ended the leveraged investment banking model that brought down Bear Stearns, Lehman Brothers and Merrill Lynch. The profits that Wall Street generated over the past few years were not the result of some new-found genius in the executive suites, but were merely the product of adding unprecedented amounts of leverage to balance sheets. Unfortunately, compensation schemes did not take into account the fact that adding leverage is far different than adding value (i.e. compensation schemes were not properly risk-adjusted). As a result, compensation structures for these executives were largely asymmetrical, particularly with respect to the portion of their pay that was distributed in cash. Multimillion dollar cash payments for profits earned in a single year were not subject to being repaid if losses in later years wiped out those earlier profits. Too much cash exited these firms each year in the form of compensation, significantly weakening their capital bases. Fortunately, a significant amount of compensation was also paid in stock, which did not weaken these firms' balance sheets but still failed to instill sufficient caution in management when it came to assuming balance sheet risk.

In addition to the gargantuan amounts of compensation being paid out, the taxes paid on these amounts continued to drop over recent years. This is a result not only of reduced taxes on capital gains and dividends, which are only good economic policy up to a point, but on tax deferral schemes and other aggressive tax stances taken by corporate, private equity and hedge fund executives to reduce their taxes to unconscionably low levels.8 Private equity managers, for example, are able to treat their "carried interests" as capital gains and pay taxes at only a 15% rate. Yet these earnings are no less the product of their labor than a teacher's or a policeman's earnings are a result of his or hers. Last year, several private equity billionaires actually had the gall to lobby on Capitol Hill to retain the 15 percent tax rate on their "carried earnings." These individuals argued that if their taxes were raised, they would no longer be willing to take the kinds of business risks that lead to new job formation and economic growth. Attempts to require these over-indulged [fill in the blank]9 to pay the same taxes on their income as ordinary Americans were derailed in what must go down as one of the most cynical lobbying efforts in history. It would be one thing if private equity firms were funding innovation and job creation, but in the last few years they have done little more than use cheap financing to engage in speculative transactions that generate fees for themselves and what are going to turn out to be at best mediocre returns for their investors.

Hedge fund managers play their own games. The most popular tax reduction technique among this crowd is the formation of offshore trusts that enable them to defer their management and performance fees for periods as long as ten years. A ten year deferral of taxes reduces the effective tax rate paid on these managers' already huge earnings to virtually zero on a present value basis while they continue to enjoy the ability to profit from investments in America's (once) free markets. This tax deferral scheme, which comes in a number of variations, further separates the interests of those hedge fund investors who are paying taxes on their income from those of managers who are not. (Of course, investors don't mind as long as they are making money. Investors never mind as long as they are making money. That's the problem.) As one memorable television commercial put it, "it's not what you earn, it's what you keep." And hedge fund managers have figured out how to keep virtually everything for themselves. Now that the bloom has come off the rose for many hedge fund strategies, investors are going to discover just how one-sided was the deal they made with their managers. Redemption requests from hedge funds are expected to reach epic levels this year, yet many investors are going to be greeted with the unhappy news that they can't get their money back right now (or anytime soon) because it is stuck in illiquid, hard-to-value investments. Others will be told that it would be unwise for their funds to liquidate positions to meet redemptions in the middle of a financial crisis, failing to be informed of the likelihood that many of these securities will most likely be worth less in the future.

Fairly taxing the upper 1/10 of 1 percent isn't going to plug the gaping U.S. budget deficit, but it will go a long way to returning a sense of fairness to a system that has lost its moral compass.

Edited September 30, 2008 by lannarebirth

[lannarebirth]

Ironically, the shorts they kicked out of the market would be taking the market back up now. Instead they've switched to options strategies and have plenty of time left to run. I can't believe how dumb these people are.

[pkrv]

Fairly taxing the upper 1/10 of 1 percent isn't going to plug the gaping U.S. budget deficit, but it will go a long way to returning a sense of fairness to a system that has lost its moral compass.

I disagree - the French had it right - off with their heads

[OriginalPoster]

I Youtubed that speech. can't imagine what she could have been thinking, unless she was deliberately trying to undermine the Bill. She should have learned a thing or two from Tip O'neill.

Could you post the URL to this video ? Thanks.

Not everyone sees it this way. I hope you caught Barney Frank's humorous rebuttal of this amazingly lame excuse not to vote for an emergency finance bill. Folks, it was POLITICS. These poor congresspeople are constantly up for election and the people back home falsely think the bill is a bailout for billionaires, when actually it is all of our <deleted> on the line.

If she was serious about getting the bill approved she would have made sure that she had enough votes lined up before letting it go to a vote. To instead use the opportunity to pick a fight with people that she knew she needed to be on her side if she hoped to get the bill through speaks to either her competence or to her true motives. It's not surprising though that the Party faithful would think that Pelosi handled this situation well, no matter the outcome.

Edited September 30, 2008 by OriginalPoster

[cclub75]

Indeed, it's amazing.

Pelosi's speech is very strong against the Bush administration... and the bill ! "Bipartisan" ? ! hum...

I mean, on one hand she supports it, and on the other hand she gave a strong speech just before the vote.

So what to think, dual speech ? Politician trick ? it's confusing.

[PeaceBlondie]

I have not heard Pelosi's speech yet, but the right wing hates her with 128 vengences. So how come 33% of House Republicans went ahead and voted for the bailout, and 67% let a hated woman change their vote? What Republican changes his mind on 700 billion dollar bailout of Wall Street because of what Nancy said? Millions of Americans contacted their Congressmen (all 435 of whom stand for election in six weeks) and said NO!

[OriginalPoster]

I have not heard Pelosi's speech yet, but the right wing hates her with 128 vengences. So how come 33% of House Republicans went ahead and voted for the bailout, and 67% let a hated woman change their vote? What Republican changes his mind on 700 billion dollar bailout of Wall Street because of what Nancy said? Millions of Americans contacted their Congressmen (all 435 of whom stand for election in six weeks) and said NO!

She didn't need to sway 67% of the Republicans, the bill fell only 12 votes short. A more skilled Speaker of the House might been able to sway 12 fence-sitters, either from the Republican party or from her own party. No matter how you slice it, Pelosi failed to get her job done. The fact that the right wing hates her doesn't mean that she should get a pass.

Edited September 30, 2008 by OriginalPoster

[Jingthing]

I have not heard Pelosi's speech yet, but the right wing hates her with 128 vengences. So how come 33% of House Republicans went ahead and voted for the bailout, and 67% let a hated woman change their vote? What Republican changes his mind on 700 billion dollar bailout of Wall Street because of what Nancy said? Millions of Americans contacted their Congressmen (all 435 of whom stand for election in six weeks) and said NO!

Polls say its about 50/50. Of course the loudmouths contacted congress. Congress is there to do the right thing, not follow the mob. Turns out their main function is getting reelected and that is a tragedy. Probably Bush cried wolf one too many times; this time it is for real.

[lannarebirth]

I have not heard Pelosi's speech yet, but the right wing hates her with 128 vengences. So how come 33% of House Republicans went ahead and voted for the bailout, and 67% let a hated woman change their vote? What Republican changes his mind on 700 billion dollar bailout of Wall Street because of what Nancy said? Millions of Americans contacted their Congressmen (all 435 of whom stand for election in six weeks) and said NO!

They might need to invent a new word for how huge this problem is and will be, PB. It's ginormous!

Ignore some of the goldbug stuff, but some of these revelations are mind boggling.

http://www.financialsense.com/editorials/e.../2007/1124.html

http://www.financialsense.com/editorials/e.../2008/0116.html

http://www.financialsense.com/editorials/e.../2008/0123.html

http://www.financialsense.com/editorials/e.../2008/0208.html

http://www.financialsense.com/editorials/e.../2008/0225.html

[brahmburgers]

I only saw a blip of her speech on the news, but look at this way:

Are the Republicans such a fragile bunch of sissies that one woman's remarks are going to offend them in to changing their vote - in spite? If they think an imminent financial collapse is a serious matter and a 'yes' vote was the correct vote, then they should have gone ahead and done what they think is the right thing to do.

Granted, Pelosi is #3 in line to be president. But, she was speaking her mind. Whether or not I agree with the message, I respect a person for saying what she deeply believes, rather than what she's supposed to say.

Personally, I believe the bail-out is too flimsy in how it deals with Financial Big Shots, and would have voted against it - but nobody asked me.

[flying]

No kidding !!

I cannot believe any of them. On the one hand we have our goverment asking us to bail out the financial genius's to the tune of Billions. On the other we have our Gov Genius's saying little digs & sticking out their tongues at each other.

We have them picking up their marbles & saying ok then I am not playing with you???

Yeah these are the folks I want to give billions to. I think I will buy a safe & drop out of this wacko system.

[pkrv]

Steppenwolf (John Kay) said in 1968 about the US, "now we are fighting a war over there - no matter who's the winner, we can't pay the cost." I heard him say the same thing in 1985, and he said that nothing had changed. So now, 23 years later....until this financial meltdown, you could almost attribute 95% of the US deficit to wars. What a man sows (plants), that shall he also reap (harvest).

Interesting, how did you come up with 95%. Seems quite high. Regardless, there are countless reasons why not to war.

I guessed. Start around 1915, when there essentially was no public debt, by standards of those days. Look what world war one did - waged on credit, never fully repaid even during the roaring '20's. Of course, the depression seemed expensive at the time, but just wait for the other wars. World war two caused the debt to skyrocket, and the cold war was simply, demonically, financially insane. Psychosis on a national scale. War budgets for decades.

That is what 95% of it is all about. The fact that there are countless reasons not to wage war is meaningless to warmongers, who control the economy. Oh, and the veterans' and soldiers' pensions are unfunded.

ohh you noticed - there is nothing they can do.

[ray23]

Just glanced through all this, this morning I will go back this afternoon and do a reread, good schtuff in there.

Never forget there is a Presidential election right around the corner. some of those comments were made to make a canidate look better. Worst timing in the world. Event he canidates are managing to keep that to a minimum.

The other thing pointed these guys want to get relected, to truth this is not goign to stop taking the medicine nothing is and they know it. So they want to look like they have been forced into it.

Bloomberg is filled with world leaders this morning telling them to get down to busuiness. They will, but not without the dog and pony show it's their bread and butter. My guess is something is going to pass tomorrow.

Imagine having to make that vote when all the experts are saying not enough. Now those same complainers are saying you got to pass it. Not what they were saying before the no vote is it

The other things that is consistent is no matter what direction they take they will be wrong. The very same people saying to today that they have to do this, will condemn as soon as it passes, any bets?

Where are all those who were saying to heck with America made it's own based let them roll in it. Oh they found it we are not decoupled as we Americans knew all along. What happens in China, Japan the UK and Europe has always have an effect on America. Or at least since WW one. Hardly logical tot hink it would n;t go the other way.

This vote is not only important to America but the world. In he end America will not be the only one taking medicine. This a time we need to stop pointing fingers and row together, we are all in the same boat. Hopefully the people who make that vote tomorrow will realize that. But it's obvious at best it is only going to lessen the blow and perhaps extend the true recovery time. We won't gain until we hit bottom the real one. I don't think we are there yet.

I have now read that Thailand has a plan if this fails. They are goign to their Asian nieghbors, thats nice idea, but wha makes then think their Asian nieghbors are going to be in any better condition then they are.

Why do they think the other countries will eb any different then they are themselves and try to save themselves. Tehy boost that they have 100 billion dollars in cash. Nope to me that sounds like a lot of money, but the truth is it is a meager sum to what has already being spent on this, we need 700 billion more and that is not enough. They spend that cash trying to prop up the baht to what end I don't know, certainly isn't inflation any longer.

For the first time a government official yesterday admitte Thailand will be effects in the ep xport sector. He didn't mention the almighty tourist dollar. But it will be a well. Especially for those coming from the E.U and the states. Why it's simply to expensive. But that baht looks good on paper.

Well I sure don;'t like to think of my children and grand children paying for the mistakes of my generation, but that is the cards they have been dealt.

Something will pass soon no choices left.

[cloudhopper]

Japan Redux?

...the real question is whether the United States will suffer anything like the "lost decade" that haunted Japan (actually, it has been almost two "lost decades"). There are significant differences between Japan and the United States (the most troubling, perhaps, being that Americans do not possess nearly the savings that the Japanese did entering their difficulties), but the question will gain more attention in the coming months.

While it is too soon to make any judgments that far into the future, America is certain to see very slow economic growth in the immediate future. The world's only superpower may see its first trillion dollar deficit within the next couple of years, although Washington will try to dress up the number to keep it under thirteen figures (an unlucky number in too many ways to count). That alone should be sufficient to knock down American hegemony a further peg or two. Such a deficit will contribute to a further debasement of the U.S. dollar against Asian currencies and the Swiss franc.

Thanks for the great post. I don't know if it's going to be an inflationary or deflationary or superslomo crash of the $ but the end result is going to be far worse than it was in Japan IMO. The attempts of the central banks that are themselves most vulnerable to a $ devaluation to prop up the value of the $ will prove, sooner or later, to be futile.

[Wrong Turn]

I have not heard Pelosi's speech yet, but the right wing hates her with 128 vengences. So how come 33% of House Republicans went ahead and voted for the bailout, and 67% let a hated woman change their vote? What Republican changes his mind on 700 billion dollar bailout of Wall Street because of what Nancy said? Millions of Americans contacted their Congressmen (all 435 of whom stand for election in six weeks) and said NO!

The Pelosi speech means basically nothing.

$700 billion does is at stake as well as pork, waste, and corruption.

There is a good article by an economist who teaches at Harvard who explains that in his opinion the bailout is not good, and it's better not to do it.

Addendum: here is the link to this article: http://www.cnn.com/2008/POLITICS/09/29/mir...ref=mpstoryview

Edited October 1, 2008 by Wrong Turn

[flying]

The Pelosi speech means basically nothing.

$700 billion does is at stake as well as pork, waste, and corruption.

There is a good article by an economist who teaches at Harvard who explains that in his opinion the bailout is not good, and it's better not to do it.

Addendum: here is the link to this article: http://www.cnn.com/2008/POLITICS/09/29/mir...ref=mpstoryview

Like you I have been reading & reading about the bail out.

In the end I am of the same mind as the economist you mention

( have not read his article yet but will )

I am against the bail out & glad the delegates from my State are voting NO

Edited October 1, 2008 by flying

[Carib]

[siamamerican]

Fairly taxing the upper 1/10 of 1 percent isn't going to plug the gaping U.S. budget deficit, but it will go a long way to returning a sense of fairness to a system that has lost its moral compass.

I disagree - the French had it right - off with their heads

The US tax revenues what take a huge hit. I don't know what the top 1/10 of 1 percent pay in taxes, but the top 1% pays 40% of the income taxes. The top 5% pay 60% of the taxes.

[lannarebirth]

Japan Redux?

...the real question is whether the United States will suffer anything like the "lost decade" that haunted Japan (actually, it has been almost two "lost decades"). There are significant differences between Japan and the United States (the most troubling, perhaps, being that Americans do not possess nearly the savings that the Japanese did entering their difficulties), but the question will gain more attention in the coming months.

While it is too soon to make any judgments that far into the future, America is certain to see very slow economic growth in the immediate future. The world's only superpower may see its first trillion dollar deficit within the next couple of years, although Washington will try to dress up the number to keep it under thirteen figures (an unlucky number in too many ways to count). That alone should be sufficient to knock down American hegemony a further peg or two. Such a deficit will contribute to a further debasement of the U.S. dollar against Asian currencies and the Swiss franc.

Thanks for the great post. I don't know if it's going to be an inflationary or deflationary or superslomo crash of the $ but the end result is going to be far worse than it was in Japan IMO. The attempts of the central banks that are themselves most vulnerable to a $ devaluation to prop up the value of the $ will prove, sooner or later, to be futile.

The dollar run isn't caused by it being "propped". I'm not sure what it's caused by other than it's 80 week cycle bottomed back in March. It's also possible that it's 18 year, 9 year and 4.5 year cycles (Cycles per most gifted Hurst Cycles practitioner I ever met)bottomed then, but that's probably not it, as it wasn't expected for a couple more years. Although in cycles as long as 18 years 1-2 years off is acceptable.

[Pakboong]

I have not heard Pelosi's speech yet, but the right wing hates her with 128 vengences. So how come 33% of House Republicans went ahead and voted for the bailout, and 67% let a hated woman change their vote? What Republican changes his mind on 700 billion dollar bailout of Wall Street because of what Nancy said? Millions of Americans contacted their Congressmen (all 435 of whom stand for election in six weeks) and said NO!

They might need to invent a new word for how huge this problem is and will be, PB. It's ginormous!

Ignore some of the goldbug stuff, but some of these revelations are mind boggling.

http://www.financialsense.com/editorials/e.../2007/1124.html

http://www.financialsense.com/editorials/e.../2008/0116.html

http://www.financialsense.com/editorials/e.../2008/0123.html

http://www.financialsense.com/editorials/e.../2008/0208.html

http://www.financialsense.com/editorials/e.../2008/0225.html

Well worth the time to read these. I recommend them to anyone wanting to understand the current mess. Thanks Lann.

[Pakboong]

Steppenwolf (John Kay) said in 1968 about the US, "now we are fighting a war over there - no matter who's the winner, we can't pay the cost." I heard him say the same thing in 1985, and he said that nothing had changed. So now, 23 years later....until this financial meltdown, you could almost attribute 95% of the US deficit to wars. What a man sows (plants), that shall he also reap (harvest).

Interesting, how did you come up with 95%. Seems quite high. Regardless, there are countless reasons why not to war.

I guessed. Start around 1915, when there essentially was no public debt, by standards of those days. Look what world war one did - waged on credit, never fully repaid even during the roaring '20's. Of course, the depression seemed expensive at the time, but just wait for the other wars. World war two caused the debt to skyrocket, and the cold war was simply, demonically, financially insane. Psychosis on a national scale. War budgets for decades.

That is what 95% of it is all about. The fact that there are countless reasons not to wage war is meaningless to warmongers, who control the economy. Oh, and the veterans' and soldiers' pensions are unfunded.

There is a piece in the oath taken by most US public officials, especially those in the Military, regarding defending the constitution against all enemies foreign and domestic. The domestic enemies are getting a lot of media time and seem to be getting easier to identify. Is it time to wage war?

ohh you noticed - there is nothing they can do.

[cloudhopper]

Japan Redux?

...the real question is whether the United States will suffer anything like the "lost decade" that haunted Japan (actually, it has been almost two "lost decades"). There are significant differences between Japan and the United States (the most troubling, perhaps, being that Americans do not possess nearly the savings that the Japanese did entering their difficulties), but the question will gain more attention in the coming months.

While it is too soon to make any judgments that far into the future, America is certain to see very slow economic growth in the immediate future. The world's only superpower may see its first trillion dollar deficit within the next couple of years, although Washington will try to dress up the number to keep it under thirteen figures (an unlucky number in too many ways to count). That alone should be sufficient to knock down American hegemony a further peg or two. Such a deficit will contribute to a further debasement of the U.S. dollar against Asian currencies and the Swiss franc.

Thanks for the great post. I don't know if it's going to be an inflationary or deflationary or superslomo crash of the $ but the end result is going to be far worse than it was in Japan IMO. The attempts of the central banks that are themselves most vulnerable to a $ devaluation to prop up the value of the $ will prove, sooner or later, to be futile.

The dollar run isn't caused by it being "propped". I'm not sure what it's caused by other than it's 80 week cycle bottomed back in March. It's also possible that it's 18 year, 9 year and 4.5 year cycles (Cycles per most gifted Hurst Cycles practitioner I ever met)bottomed then, but that's probably not it, as it wasn't expected for a couple more years. Although in cycles as long as 18 years 1-2 years off is acceptable.

Maybe I shouldn't have used an aviation term. According to this http://jessescrossroadscafe.blogspot.com/ blog by Brad Setser about 70% of ALL the outstanding treasury paper is held by foreign central banks and it is their voracious buying that is absorbing and continuing the demand for (now) the huge amount of $US debt being issued.

Edit - this is a more direct link to the original blog as well as commentary:

http://blogs.cfr.org/setser/2008/09/30/do-...heet/#more-3827

Edited October 1, 2008 by cloudhopper

[glyph]

"Although in cycles...1-2 years off is acceptable."

Ah, that's really covering your behind.

[BEENTHEREDONETHAT]

I have not heard Pelosi's speech yet, but the right wing hates her with 128 vengences. So how come 33% of House Republicans went ahead and voted for the bailout, and 67% let a hated woman change their vote? What Republican changes his mind on 700 billion dollar bailout of Wall Street because of what Nancy said? Millions of Americans contacted their Congressmen (all 435 of whom stand for election in six weeks) and said NO!

Polls say its about 50/50. Of course the loudmouths contacted congress. Congress is there to do the right thing, not follow the mob. Turns out their main function is getting reelected and that is a tragedy. Probably Bush cried wolf one too many times; this time it is for real.

The mob you speak of is over 90% of americans. I for one think congress should listen to them (the mob).

[Jingthing]

I have not heard Pelosi's speech yet, but the right wing hates her with 128 vengences. So how come 33% of House Republicans went ahead and voted for the bailout, and 67% let a hated woman change their vote? What Republican changes his mind on 700 billion dollar bailout of Wall Street because of what Nancy said? Millions of Americans contacted their Congressmen (all 435 of whom stand for election in six weeks) and said NO!

Polls say its about 50/50. Of course the loudmouths contacted congress. Congress is there to do the right thing, not follow the mob. Turns out their main function is getting reelected and that is a tragedy. Probably Bush cried wolf one too many times; this time it is for real.

The mob you speak of is over 90% of americans. I for one think congress should listen to them (the mob).

Oh you mean the 90 percent that believe in angels and astrology? Actually, objective polls have shown it is more like 50/50 and that is even before proper selling has been done. People aren't yet aware how serious this is to everyday people, small business owners, people depending on a paycheck, the 60 percent of Americans who own STOCKS, people want home loans, car loans, trying to sell a house, get a job, etc.

Edited October 1, 2008 by Jingthing

[BEENTHEREDONETHAT]

Commentary: Bankruptcy, not bailout, is the right answer

By Jeffrey A. Miron

Special to CNN

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.

CAMBRIDGE, Massachusetts (CNN) -- Congress has balked at the Bush administration's proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the "troubled assets" of financial institutions in an attempt to avoid economic meltdown.

This bailout was a terrible idea. Here's why.

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

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.

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.

Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.

On a lighter note check out these u-tube videos.

http://uk.youtube.com/watch?v=0YNyn1XGyWg

http://uk.youtube.com/watch?v=UC31Oudc5Bg&NR=1

http://uk.youtube.com/watch?v=Ptzml1qQvZE&...feature=related

[lannarebirth]

"Although in cycles...1-2 years off is acceptable."

Ah, that's really covering your behind.

I'm not trying to cover my behind, but I notice with your ... you left out the most important part, (18 year cycle). If a 4.5 year business cycle can vary as much as 18 months, it's not extraordinary that an 18 year cycle could have 1-2 years variance. Note the 100 year cycle is coming in a year late...

Edited October 1, 2008 by lannarebirth

[midas]

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

I just finished watching Professor Nouriel Roubini from New York University being interviewed on

BBC world " Hardtalk ". It is definitely worth seeing and for those are interested the program

will be repeated again later tonight.

Then I just finished reading this article and I'm even more convinced now that Treasury Secretary

Henry Paulson is not acting honestly !

Roubini quite correctly said this bailout plan has been put together quickly simply to satisfy

political timetable with elections coming up in weeks. He said there are a number of important

elements which are absent the bailout plan.

He warned that we need to accept the fact that " several hundred banks " are going to close

over the next few weeks and months which probably explains why they increased the bank

deposit insurance yesterday.

He described the Bush Administration as one who didn't believe in any rules and regulations

or market discipline and happily sat by doing nothing to prevent conflicts of interest

-in my opinion Henry Paulson being the most obvious one because Roubini agreed

Goldman Sachs is one of the endangered establishments!

Come on Jingthing and the rest of America ! You voted twice for George W. Bush

when it should have been abundantly clear even after four years that this was a mistake.

At the very least they should be using AN INDEPENDANT negotiator not

Henry Paulson who is one of the very Wall Street gurus that everyone is criticising

Edited October 1, 2008 by midas

[OriginalPoster]

I have not heard Pelosi's speech yet, but the right wing hates her with 128 vengences. So how come 33% of House Republicans went ahead and voted for the bailout, and 67% let a hated woman change their vote? What Republican changes his mind on 700 billion dollar bailout of Wall Street because of what Nancy said? Millions of Americans contacted their Congressmen (all 435 of whom stand for election in six weeks) and said NO!

Polls say its about 50/50. Of course the loudmouths contacted congress. Congress is there to do the right thing, not follow the mob. Turns out their main function is getting reelected and that is a tragedy. Probably Bush cried wolf one too many times; this time it is for real.

The mob you speak of is over 90% of americans. I for one think congress should listen to them (the mob).

Oh you mean the 90 percent that believe in angels and astrology? Actually, objective polls have shown it is more like 50/50 and that is even before proper selling has been done. People aren't yet aware how serious this is to everyday people, small business owners, people depending on a paycheck, the 60 percent of Americans who own STOCKS, people want home loans, car loans, trying to sell a house, get a job, etc.

CNN runs online polls that are scarcely scientific but on this issue interesting nonetheless. Prior to the vote in the House, thier poll showed that about 75% were opposed to the bailout and 25% were in favour of it. After the vote, they asked whether the House rejecting the bill was a good thing or a bad thing. In answer that that question, 52% said that it the rejection of the bailout was a bad thing and 48% said that it was a good thing. That seems to capture pretty well the conflicted feelings of Americans about this issue. Most find the bailout obscence but most are afraid of what might happen if nothing is done.

About your 90 percent beleiving in angels and astrology, it doesn't much reading between the lines to know how much respect that you have for the American people. I suppose that since they are such a bunch of backwards peasants they couldn't possibly have any idea of what is good for them.

Edited October 1, 2008 by OriginalPoster