Can you please explain to us simpletons* EXACTLY what the problem is, sparing the hyperbole of "another great depression", "credit freeze", etc?We've been told "This MUST be done immediately" - although it hasn't been, and yet the world is still here.We've been told "This is NOT a Bailout" - and yet the apparent benefit is for the banks who made stupid lending decisions and bought financial instruments they didn't understand (CDS). So far to me this appears to be a breathless tempest in a teapot, and I await convincing that I am missing something here.Thanks,Corbetti* when I say simpleton, I should note that I have an Undergraduate degree in Economics and Finance, and an MBA from a top 20 school - both with very high GPAs.
Can you please explain to us simpletons* EXACTLY what the problem is, sparing the hyperbole of "another great depression", "credit freeze", etc?We've been told "This MUST be done immediately" - although it hasn't been, and yet the world is still here.We've been told "This is NOT a Bailout" - and yet the apparent benefit is for the banks who made stupid lending decisions and bought financial instruments they didn't understand (CDS). So far to me this appears to be a breathless tempest in a teapot, and I await convincing that I am missing something here.Thanks,CorbettiFrom an even more "simpleton", no idea but Doll on CNBC says "It is important for Wall St. but even more important for Main St". Do you think he might be talking his book? }};-OHe and several others are assuring everyone that the taxpayers won't lose money on this and might even make some. }};-OI suppose as a non-USian taxpayer I should probably stay out of this one but the whole thing sure turned global in a hurry. I listened to a rant on the local news last night. For those of you not aware, we have an election up here as well. The gist was that the US wanted to be the global financial services provider but now that they appear to have royally screwed it up, they want the world to bail them out. A bit simplistic but people get mad when they see their monthly investment statements. Good luck to us all. Tim <simpleton> 443
I've got some more questions (I'm a simpleton too so these are probably real dumb questions...)We're being ask to give (not loan...give) $700B of *our* money to the banks that gambled and lost (with our money), which seems like a very dire circumstance to be in...no doubt about it. Very dire.These banks are in bad shape, obviously, and they desperately need to cut costs, so when do we see:1. All troubled banks cut equity dividends to zero immediately.2. Exeutive pay cuts across the board, no more spurious travel, and no more ridiculous expense accounts.3. Branch closures. Renegotiate leases. This is what troubled businesses do when times are tough. Right?Or you could just do nothing and wait on the taxpayer to bail you out. Yeah, that's way easier.
Can you please explain to us simpletons* EXACTLY what the problem isIn a single word, fear. (No, I'm not going to quote FDR.) It is usually expressed as it's opposite, confidence or lack thereof.With your background in econ you should be able to fill in the rest of the senario.DB2
I join Corbetti in his OP question.I would like to expand the question a bit. What about implementing some or all ofthe William Isaac proposal:If we were to (1) implement a program to ease the fears of depositors and other general creditors of banks [primarily by extending and increasing deposit insurance]; (2) keep tight restrictions on short sellers of financial stocks; (3) suspend fair-value accounting (which has contributed mightily to our problems by marking assets to unrealistic fire-sale prices); and (4) authorize a net worth certificate program [basically senior debentures -- see article], we could settle the financial markets without significant expense to taxpayers.Say Congress spends $700 billion of taxpayer money on the loan purchase proposal. What do we do next? If, however, we implement the program suggested above, we will have $700 billion of dry powder we can put to work in targeted tax incentives if needed to get the economy moving again.The banks do not need taxpayers to carry their loans. They need proper accounting and regulatory policies that will give them time to work through their problems.http://snurl.com/3yk3c [www_washingtonpost_com] the "Swedish Solution" Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.“If I go into a bank,” said Bo Lundgren, who was Sweden’s deputy minister of finance at the time, “I’d rather get equity so that there is some upside for the taxpayer.”http://snurl.com/3yk5k [www_nytimes_com] or other solid, well thought out, and even previously used and PROVEN plans.Why are these off the table???? I can understand that the Swedish solution is perhaps too obviously "socialist," for this government, but hey, IT WORKED GREAT and Helped Sweden Overcome Its Fossilized Socialism.Like Corbetti, I Really Don't Get It regarding the push to pass the Paulson Plan and only the Paulson Plan.david fb
Why are these off the table???? I can understand that the Swedish solution is perhaps too obviously "socialist," for this government, but hey, IT WORKED GREAT and Helped Sweden Overcome Its Fossilized Socialism.Like Corbetti, I Really Don't Get It regarding the push to pass the Paulson Plan and only the Paulson Plan.david fb /\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\How about decades of propaganda against anything it served their purpose to hang a "socialist" label on, by many of the very people who now want the money?We actually get a fair bit of that on this board as well. *****not signed so....
Here is David Brooks arguing for stuffing more sugar and spice into the sausage to make the rotten meat less obvious:The only thing now is to try again — to rescue the rescue. There’s no time to find a brand-new package, so the Congressional plan should go up for another vote on Thursday, this time with additions that would change its political prospects. Leaders need to add provisions that would shore up housing prices and directly help mortgage holders. Martin Feldstein and Lawrence Lindsey both have good proposals of the sort that could lead to a plausible majority coalition. Loosening deposit insurance rules would also be nice.http://snurl.com/3yl6q [www_nytimes_com] david fb
What must not be forgotten in the rush to try to fix this mess, is that entities that are "too big to fail" ought never be allowed to exist in the first place.Deregulation of the financial industry is the root of this problem. The repeal of the controls set in place by Glass-Steagall was a mistake, that both parties own a part of.--FY
corbetti explains: * when I say simpleton, I should note that I have an Undergraduate degree in Economics and Finance, and an MBA from a top 20 school - both with very high GPAs. Ah I see that we are both on the same playing field then. I dropped out of Iowa State with a 2.3 gpa and a drug and alcohol abuse problem. However with judicious use of QID and gold ownership I have managed to weather this storm by achieving my highest level of wealth ever in my portfolio.
Ya'know DocBob...you and I almost never agree on anything.....but on this one, we are in total and complete agreement.Can you please explain to us simpletons* EXACTLY what the problem isIn a single word, fear. (No, I'm not going to quote FDR.) It is usually expressed as it's opposite, confidence or lack thereof.DB2It really is that simple, and complex at the same moment in time.Confidence and trust are the foundations of all credit systems. Destroy that foundation and ya'all'got real trouble and not just in River City. What we're faced with, imho, is the possible forced abrogation of US debt [full faith & credit] amounting to roughly 10-15 trillion US$ depending on what you want to count.Once your unsecured creditors realize you have no intention of ever re-paying your debt obligations [to them] you are officially "bankrupt". KBM (it really isn't just about the all mighty US taxpayer)
I keep hearing:We must restore trust to the banking system!We must restore trust to the banking system!We must restore trust to the banking system!We must restore trust to the banking system!We must restore trust to the banking system!What if the banking system does not deserve the trust of each other?What if the banking system does not deserve our trust?Signed,Mark Wusinichso people know who said it.
This is AMNESTY for all CEO's as well as some in Congress take for example Barney Frank, Chris Dodd and Hank Paulson, all who are in position to have been in over site and to have known of the problems that came up, they just didn't happen over night! There needs to be people to admit to the blame of allowing this some of whom I mentioned above that are now in the middle of saying they are fixing it, they should be put out of office right NOW! One of the best articles written on this is from the South Florida Times http://www.sfltimes.com/index.php?option=com_content&tas...THE POLITICS OF BLACKNESS: Fannie Mae and Freddie Mac: Do you want the truth or the Kool-Aid? BY BARBARA HOWARD The facts show that both Republicans McCain and Bush called for oversight but were thwarted by congressional Democrats. Obama who, in his 143 days in the Senate, got $126,349 from Fannie and Freddie, just a little less than Dodd’s $165, 400 and more than John Kerry’s $111,000, making him number two on the Fannie/Freddie list of favored politicians.To even understand this more you have to go back and look at the Community Reinvestment Act of 1977 aka Jimmy Carter as well as the changes that were made in 1993 aka SLICK Willey Clinton who just recently was on TV taking about and LAUGHED that he's the "one" this is too long to list here so I'll give you the web site http://en.wikipedia.org/wiki/Community_Reinvestment_ActIn a nut shell on this last bill that failed there was also "PORK BILLS" added, part of was to "Bailout for Union Pensions" as well as for "ACORN" which if you read the above article I think you'll see where they come into play in this! Besides some CEO's "cooking" their books in order for them to get their HIGH incentives that are well into the MILLIONS, are reasons for fraud and SHOULD be made to pay back their incentives! This has angered me to a great deal to see this happened, as well as none wish to take the blame, but wish to STEAL our tax dollars and get MORE for their pockets!
All the bank failures haven't made an impression?
This is AMNESTY for all CEO's as.. some links.. Obama $$$! from Freddie.. Community reinvestment act.. SLICK WILLIE laughs at us.. bailouts for fatcats who made MILLIONS.. OUR money being stolen!Gah! for the love of God and Wendy, please use some punctuation, go lighter on the all-caps, and leave politics out of your posts. ~wPS - welcome to the board!
Sorry if I got carried away there. The denizens of this board long ago voted and decided that METAR should be a politics-free zone, in order to reduce the noise and be able to focus on the macroeconomic issues. This isn't a law, it's just a shared courtesy so that we can have a place to share useful information. There are some great boards on the Fool that are designed for politics + economics, such as Free-For-All Economics, Political Asylum, or Political Quagmire. http://boards.fool.com/Messages.asp?bid=117500http://boards.fool.com/Messages.asp?bid=113502http://boards.fool.com/Messages.asp?bid=116214~w
Why is the Swedish model off the table?Why is the Chile model off the table?Why are proposals from Newt Gingrich and others for a revision of mark to market and government loans to give the instutions breathing room to work out their issues off the table?I really don't think the instutions want a work out. They want a hand out. And I suspect the "starve the beast" fringe sees an opportunity to move the government a Trillion, or many more, dollars closer to the financial collapse they seek.Steve
I'm not for "the" bailout. I'm for a solution to the problem tout de suite. Sounds like the FDIC changes could fix some of it. Sounds like the changing of the reserve requirements (as JP Morgan did in 1907) will work/help. I could care less what fixes it. I could care less how they fix it. The problem is it needs done now. Why?You have noticed banks failing? No? Each one that fails causes others to fail as they have daisy chained their assets. It is most likely a geometric progression and is near critical mass. Time to split the banking atom and make a big boom.Adding to the problem is that this is a global problem. http://www.breitbart.com/article.php?id=080930121824.24k1fx4... -- Banks failing here cause banks to fail there. Banks failing there will cause more banks to fail here.Adding to the failures is massive runs on these banks as people try to get out their assets ahead to the big ba-da-boom. This causes more banks to fail.Time to fix it or die.
Why is the Swedish model off the table?Now that's a fat pitch.
It's been primarily a liquidity crisis that was created when the asset values were hard/impossible to measure. This resulted in capital impairment as loan loss reserves became impossible to determine. That created a need to de lever. That produced a credit crunch, because the easiest way to de lever is not to put new money out. A viscous cycle developed where institutions didn't trust the safety and liquidity of other Banks. So, cash flows among banks and businesses stopped. That in turn cascaded and created more capital and liquidity problems.It got very serious as you know. Before Trust and Confidence comes back, capital and liquidity have to be restored. Why do we have to act? Because we are the country - we are the government. We are the final go to part of this equation. There is no - one else. And - the financial system is our field of play. A football team needs a field. We do also. The financial system is also like our veins and arteries - without them, we bleed out.LANORTH!! North Carolina National Bank(NCNB), which is now BoA, came to Texas in '89, where NCNB stood for 'No Cash For Nobody'
So then set up a Bank of the United States, fund it with $1 Trillion and allow it to make loans to businesses and buy up banks when they go bankrupt.That'd restore the liquidity and trust we need in the system, while taking the control out of the hands of the PRIVATE Federal Reserve and put it back in the hands of us citizens who should, as you say, control the field.
OK...now there's three of us....Adding to the failures is massive runs on these banks as people try to get out their assets ahead to the big ba-da-boom. This causes more banks to fail.Time to fix it or die. ajKBM (digging the grave and picking out the headstone)
It's been primarily a liquidity crisis that was created when the asset values were hard/impossible to measure. This resulted in capital impairment as loan loss reserves became impossible to determine. That created a need to de lever. That produced a credit crunch, because the easiest way to de lever is not to put new money out. A viscous cycle developed where institutions didn't trust the safety and liquidity of other Banks. So, cash flows among banks and businesses stopped. That in turn cascaded and created more capital and liquidity problems.It got very serious as you know. Before Trust and Confidence comes back, capital and liquidity have to be restored. Why do we have to act? Because we are the country - we are the government. We are the final go to part of this equation. There is no - one else. And - the financial system is our field of play. A football team needs a field. We do also. The financial system is also like our veins and arteries - without them, we bleed out.LANORTH!!I respectfully take another view, Lanorth.We the People do not have to bail out Crony Capitalists.I agree with part of your post where you explained part of the credit problem. I say part because you left out one important reason for the credit crunch: Moral Hazard brought to us by the Federal Government.Think back to Fannie and Freddie. Their charter never stated the US Government would be the lender of last resort, it was implied.Both parties never mentioned this implication, but sure had fun touting in the press how many Americans bought their first home in the past 8 years.Hedge funds and investment banks didn't load up on derivatives until Phil Gramm rammed through his huge addendum to a bill which had nothing to do with the CFTC. Gramm's measure told the sharks on Wall Street, "Hey, Boyz, take your dollars, and go out and geometrically multiply them and don't worry about any agency oversite."The overturn of Glass Steagall (during the waning year of the Clinton Administration) before Gramm's majestic maneuver told investment banks they could enter the world of insurance, Real Estate, banking, etc., and signalled the government would not care if buy side analysts were pumping crap stocks which their investment side were bringing to market.And now I find it hard to believe any taxpayer wants to put their faith in this government to straighten out this mess by applying $700 Billion to the banks pain. This too is Moral Hazard.Think about it. With the first shotgun takeover of Bear Stearns by JP Morgan over a year ago, the Federal government signalled we would see a Paulson/Bernanke put anytime a "too big to fail" institution showed distress or insolvency.Since Bear Stearns, we've seen Freddie, Fannie, AIG, Lehman, Wachovia, etc., all tank, but suitors and rescues have come fast and furious through behind the scenes persuasion, money or takeover from the Fed and the Treasury.If I were a banker now, why would I try to balance my books on assets I feel in my gut are only worth .20 cents on the dollar? Why would I sell those .20 cents on the dollar assets for only .20 cents when I now feel the government is going to give me .50 or .75 cents for those same crappy assets?The government bailout tells bankers, "Go ahead, continue making mistakes, Uncle Sugar is always here to hold you and give you babies a pat on your back."Instead, the government should back up and let banks fail. Not every bank has made bad decisions. The CEO of BB&T came out and said the bailout would reward the guiltiest banks of bad behavior, while offering nothing to a bank which did not go overboard in lending to bad credit risks, or which did not sell their paper to a GSE just to have more capital to make more risky loans. I don't know if the CEO of BB&T is just talking his book, but it sounds to me there are banks out there across this great land which have the wherewithal to lend money to people who have 20% downpayments and who are good credit risks. I see distressed properties selling all over the Nation, so somebody has capital, somebody is scoring credit - it's just not these companies which went all in with their chips, turned around to the House manager and said, "By the way, that pile of chips? Can we make some 35 to 1 side bets on this pot that the number will be 7?"Again, capital is out there.Look at Buffet. He stepped in and gave Goldman $5 Billion. There are other cash rich companies in America which don't need credit and which could extend their cash to the best credit risk big banks - at Buffet type terms. Only those best of breed banks deserve private investor's money. (Would you tell Warren Buffet to invest Berkshire cash in Washington Mutual over Goldman? See, many of you who study banks know one is better suited for investment than another. Why should the US Taxpayers invest in just the crappy banks?)What we have now is most of the FIRE sector waiting rescue of themselves from themselves using other people's money. Screw 'em. All those young bucks who sold their souls to Mighty Mammon, who gave up on studying the sciences so as to enter the most lucrative field of all - banking, brokering, insurance, Real Estate - let them learn there is no such thing as a free lunch. A bailout ensures we undermine our US dollar. A bailout will signal to the world just how corrupt Crony Capitalism can be: we reward failure and allow the rich to whistle while they work, no matter if their work undermined the whole National Economy.This is not Armageddon. This is not the Great Depression Redux. Yeah, we might have a severe, prolonged Recession. But as many a poster has reminded, we have safety nets in place which were not around in the 1930s.By not bailing out the FIRE sector, we cleanse our economy of the biggest sociopathic leeches who gamed the system, played outrageous bets which could only blow up in their faces down the line (Buffet warned us years and years ago about derivatives and defecit thinking), and who just didn't skim short term profits, but stole them by the bags full.The white collar mountebanks who flamboyantly pumped their crap derivatives and hedge funds and who've run off with the loot should not be rewarded with cookies and milk. Let them eat scraps. Let them wander the streets looking for work. Let them sell their belongings on eBay. Let them see how hard it is to survive in an economy where wages never kept up with housing's vapor gains. Let them understand the value of a hard boiled egg vs. hard boiled books.To change the construct of Crony Capitalism, we have to burn it down to the ground and start anew. Lastly, by not bailing out these bankers, we are warning future charlatans the Government is not the lender of last resort, that true Capialism is not just rewards without risks.I say, let's get this blood purging on. If my Roth IRA takes a beating, so be it. Lets see which companies have real earnings. Lets buy more of them at a better price if the market drops 25% or more. Again, it's not the end of the world. The world was supposed to have ended last week. Now this week. Hey, are you still there? I'm still here. Living below my means, saving, buying stock on 700 point down days.Upbeat as ever,Thom
I'm just wondering if anyone in this thread actually knows the major components of the original 'bailout' package that was voted down? The internets is full of pundits lambasting it but I have yet to see one detail. Any links?
I don't disagree with your view of the 'Leaders' and others who got us here. If you look at some of my other posts (you might be the first), you would see a couple of themes dealing with the 'bailout'. They are:(1) Seeing that something is likely to be done, create a very good investment model for 'us' to follow. Using DIV (Derived Investment Value), we would have a very good margin (asset coverage), a high return (high discount rate), warrants to provide a kicker, participation in tax losses to provide an additional kicker.(2) I've advocated using an outside group of trustees/Directors pulled from the best knowledge/experience areas in the country. I try to keep the politicians as far out of control as possible.(3) I've also advocated pulling all possible legal violations together under a RICO Statute that would go after Sub Prime Profiteers. The violations would include mortgage/banking/thrift licences, fraud, insider trading, violations of SOX, and anything else.(4) I've advocated going back to the exiting CEO's and Others, and seeing if payments could be reversed due to Gross Negligence/Willful Misconduct.We were just about taken to the cleaners by Paulson and Bernanke. I'm still stunned and angry at all of our largest and sophisticated financial institutions, who allowed this to happen - including purchasing this crap. The senior management, Directors, Risk Managers, Credit Chain, Auditors, Appraisers, Rating Agencies, Credit Enhancers, Regulators and others, should all be held responsible for misconduct and gross negligence.I know this won't happen - they will generally just do what they want. But I thought this could work better than what they are proposing. This whole thing is very socialistic and takes a big slice out of our free market system. I know it and don't like it. The arrogance that's been evident is disgusting. But - when I look at the real liquidity crisis (and it is real), I'm proposing a compromise position, which I think optimizes our position within the context of this mess.Some specifics relative to your reply include the use of the valuation tool called DIV. This is like taking a DCS (Discounted Cash Flow) and making it DCS squared (It's a very high margining valuation). I'm trying to put us in the position that the Opportunity Funds enjoyed in the early '90s/RTC days. I'm pushing the economic losses right back to the Banks and, as they recover, we get the economic benefits through the warrants and participation in the value of the tax losses.I also think we should cull the Management and Directors of the sellers as any active investor would.RegardsLANORTH11
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