Lawmakers on Capitol Hill seem determined to work together to pass a bill that will get the credit markets churning again. But will they do it this week, as some had hoped just a few days ago? Don’t count on it.
Sen. Sherrod Brown, D-Ohio, says his office has gotten “close to zero” calls in support of the $700 billion plan proposed by the administration. He doubts it’ll happen immediately either. “I don’t think it has to be a week” he says. “If we do it right, then we need to take as long as it needs.”
“The secretary and the administration need to know that what they have sent to us is not acceptable,” says Committee Chairman Chris Dodd, D-Conn. The committee’s top Republican, Alabama Sen. Richard Shelby, says he’s concerned about its cost and whether it will even work.
In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.
“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”
What!
I was inclined on 1st hearing to give Paulson and Bernanke the benefit of a doubt. The longer I reflect, the more time I spend investigating, evaluating, I think this is a bill with no real benefit to working people.
Speaking to friends in banking IT, those working in solvent banks accustomed to living by the rules – they said the credit “squeeze” lasted about 24 hours. Fact is, they can proceed on the assets they have. Which is what they’re supposed to be able to do.
BTW, I went to congress.org to express my opposition to the bailout – and that number is running at 91%…
Thanks, Justin
Thanks for the link Ed…I am going there now to bitch.
Good. It looks like both sides of the aisle are skeptical.
We should let the chips fall. It will show the real situation. And if that situation is that certain entities are broke, so be it.
“I was inclined on 1st hearing to give Paulson and Bernanke the benefit of a doubt.”
How much money has Bernanke (& Paulson) already created in the past few months. No. No. No.
No more!
Didn’t lenders at one time have to figure an “r” (for risk) in determining interest rates? If you made a bad loan, you ate it. After enough of those you were out looking for work. When did it become “zero”?
No more!!!
John,
Don’t you think its about time to have someone update your blog and bring it into the 21st Century? It takes awhile to load, some posts are broken and dont display at all, and..well..it just doesn’t look that good overall.
Hell,
Get someone from SquareSpace to redesign it…they just redid all of the Totally Rad Show host’s blogs..and they look great. (i.e. http://www.alexalbrecht.com/)
[The blog is in the process of being redesigned and the server it runs on is being updated. That’s why the site is running a little slowly off and on. Please bear with us. – ed.]
According to this link, the bail out is not for the banks at all, its a bail out of the Federal Reserve Bank itself, which has used up all its available capital and will be forced to start printing money to help banks.
I’m not sure what is going on myself, but $700 billion is stupidly expensive.
Worse it wont work! In 1931, Congress tried to save banks by doing the same thing. They failed anyways. 1998 Japan, same exact story.
We are due a correction in the economy, and if history has any lessons we will eventually recover. Except, in the last great depression we had a manufacturing base and oil exports to get us out, neither of which exist today thanks to 30 years of Reaganomics.
#5 “Except, in the last great depression we had a manufacturing base and oil exports to get us out, neither of which exist today thanks to 30 years of Reaganomics.”
I think being part of the WTO has crippled more. When did we join? 1995?
No way to protect our manufacturing base from slave wage country members…
I don’t like the Bail Out as it stands right now. I do however think some sort of action is required. I don’t think the average Joe Blow is thinking about the ramifications of this. I think they are looking a a bunch of rich asshole who caused the problem in the first place and will get away unscathed.
That is a fair view but the American people have all wanted to get rich and think if they support the rich peoples activities it will lead to them getting rich too. Well you drank the Kool-Aid now you either vomit it up or allow it to pass. It is your own fault.
I am going against my party and the civilian mobs on this one.
I wrote my congressperson and senators days ago.
And yesterday, too.
I’m really pumped to spend a trillion dollars on a plan that nobody is sure will work to solve a problem nobody actually understands.
Had lunch, today, with local folks in one biz or another – and one brought up something else we haven’t mentioned.
What about the investment firms and realtors and banks of all sizes who have been playing by the rules all along? They’re still solvent. They’ve made certain they kept capital aside to run their businesses without a bailout.
So, they are supposed to sit back and watch the government bail out their competitors – who stole and lied and cut corners and loaned money for mortgages on property that wasn’t worth the paper that describes it to people who couldn’t afford it. Baloney!
That’s telling the world you’re better off in America if you’re a crook than an honest man.
Bad management all the way around.
I remember back when I was a young pup, their was a bunch of talk going around how these banks were discriminating against minorities, who didn’t have very good credit and could not get a loan. I also remember the government making it clear that it thought everyone should be able to buy a house and that if these banks didn’t make it happen the government would be happy to pass a few laws to make sure everyone who earn 4.25 an hour down at 7-11 could afford a house.
The banks in their stupidity thought they could play ball, so they got creative and came up with all sorts of wild loans to give to people who could not afford them. And for a while, as long as real estate kept going up in value things were fine. After all if the person defaulted, the bank could take it and resell it. The people who could not afford a house got own a house for a while, and the banks made good money off the interest, and reselling.
But when property values began to stagnate, and people began to default on their loans, the banks could not get rid of the property. The more property you owned the worse it was going to get.
Everyone saw this coming, hell I knew property value could not keep going up the way it was back in 1995, I am just surprised it took so long for the cost of property to increase to the point where few could afford it.
I am in the camp of letting the banks fail, and if the people who have defaulted on their houses, will just have to lose their house and move into an apartment.
This entire chain of events started with the government leveraging control over the banks to begin with, and now because of government, and the banks stupidity, the tax payers are going to have to come in and save them.
Unfortenatly it isn’t the Bank’s IT department where the problems is.
CNN seems to think congress has come to an agreement.
Guys, guys… Relax.
Obama and McCain are on their way to save the day!
When I heard Colin Powell speak to the UN about Saddam’s bioweapons and atomic bombs, I was inclined to give him the benefit of the doubt too. And as a result we were stampeded into a pointless and costly pseudo-war that will grind on for years to come.
#12. James is right, the government can do anything it puts its mind to, I mean look what happened in New Orl…….
damn.
I’m stocking up on food today.
Well. That IS bad news.
(no story, all empty comments)
Wish I knew how to become one of these bankers, always in the fortune 500, their vast wages defended by the very cream of Harvard as necessary to attract the best candidates
Then just as your drowning in your own bullshit the Fed agrees to bail you out, the fewer questions asked the better, with the worlds largest wad of cash!
Fucking sweet!
This “bailout” will not work for the reason that the regular people will never benefit from this. They’ll be screwed no matter what’s done.
I only have 2 extremely simple questions:
1. Where did the money go (who has it now) that created this mess?
2. Will each and every dollar of the 700 Billion (or 1-1.2 trillion) dollars be accounted for to the American public to analyze?
I’m thinking that the public will have no clue as to where this money is going and who is raking in the cash. There’s going to be huge lawsuits coming!
So apparently hundreds of economists, from all sides of the political spectrum, have released a statement to members of Congress saying in effect, this bail out is a bad thing. This is giving political cover to many congressmen on both sides of the aisle to pass on this whole thing.
Primary two sticking points: Democrats want to give bankruptcy judges the ability to reduce mortgage amounts on homes rather than just foreclose on them. Republicans dont. There is wide agreement that they will not authorize all 700 billion now, but just a fraction until next year. There is disagreement about the fraction.
I have to go with Adam and crew on this one – this bailout package should be killed immediately, and the premise of it be re-examined. Let’s fix the problems that brought us here first. Actually the fix should be to put the entire financial system into receivership, allow homeowners a way to either keep their homes or allow a graceful way to exit out of the heavily leveraged ones, then revisit Bretton-Woods – go back to the gold standard perhaps. Do anything but put a band-aid on what we have now.
“I think this is a bill with no real benefit to working people.”
Now you get it? Politicians in Washington are not there to serve the people, they’re there to serve special groups of interest. To these individuals working people are nothing but scum not worth even the food they’re eating and they’re only valuable (if any) during the election years.
Dodd says White House meeting was a disaster
Link
I’m all for doing nothing until January.
I’m waiting for the real story: Was trumping all of this up an idea to help Obama, or help McCain.
I find it very hard to believe this is all genuine. This segment of the economy was due for a hit as it was, why act shocked?
One has to wonder where they got the figure $700 billion from? Was it arrived at thru careful research? Or did it just sound nice and quasi-religious like. You know, like that “700 Club” outfit. Do we get prayer clothes for this bailout.
Also, why are they still staying “bailout”, and never a phrase like “corporate welfare”? Or in this case, a case of the most massive corporate welfare? And since when is it our government’s job to selectively bailout anything. I’ve seen plenty of commercial entities go bankrupt or fail, and the feds or state government never stepped in to help. But they do seem to worry only about three entities. Anything aerospace, banks and finance, and gambling concern. In my state they fret every year about the state of horse racing. Yet our local steel mills when belly up, without them barely noticing. Obviously, the reason is that state has a vested interest in the revenue one generates. If the tobacco industry started to fail, do to people getting there heads straight about the product. I have no doubt the government would try to rescue them too. So I see this financial industry bailout as much the same thing. Politicians mostly interested in saving their nest eggs, at taxpayers’ expense.
Another way of looking at this. Just a few years ago, experts were talking about a “market correction” coming, because some things being traded were too over valued. Most likely there were referring to mortgages. But now that we’re finally seeing a “market correction”. The government is attacking like the free market can’t be trusted to recover. And it’s a correction of the wrong thing (by their opinion). Ok if something else get a correction. Just not the financial sector. That’s apparently sacred cow land. I say let it correct, just as a free market is suppose to. And quit pumping air into a leaking balloon, just to keep it high up in the stratosphere. If it came down to earth a little, it would make it more accessible to all who wanted a ride. But these financial giants are more about buying and trading among the super rich. And obviously their opinion is what’s being heard the most by congress.
hey guys.. mayhem is sure to follow now…
china just told its banks to stop interbank lending to US banks…just heard on the radio
that germany is thinking about the same..
http://www.reuters.com/article/marketsNews/idUSPEK16693720080925
now, i dont know squat really..but i remember hearing somewhere that if china stopped lending (and buying our debt) us money we’d sink pretty fast..?
-s
just found this…
“WaMu Seized by FDIC, Deposits to Be Sold to JPMorgan, CNBC Says”
http://www.bloomberg.com/apps/news?pid=20601087&sid=ai28jpSnP4IU&refer=home
cant wait to see how the market reacts tomorrow…
other thought…JP Morgan has been a key player
in all sorts of financial treachery from the beginning of time it seems…
Now you don’t have to be too big to fail to get a fat government bailout!! Just go over to http://www.buymyshitpile.com/
and you can list your sh*t on the web so Paulson can bail you out too!!
Some great deals, look at this slightly used constitution, I can’t beleive its only 5 cents!!!
Its hardly used, and still has George Bushes footprints on it.
http://www.buymyshitpile.com/node/2752
seriously like the clean layout of the current site, hope you don’t lose that part in the redesign, Great job John, always enjoy reading your stuff. Stock up on canned goods, looks like we might be having some problems soon.
Maybe this is cover for the auto industry bailout that just passed.
Why do they say it is too complicated to work out the derivatives? There are 100 million loans maybe and tens of thousands of bank workers. I think they can summarize the status of their loans, and get an exact picture.
The problem is leverage and a few non-payers hitting a tipping point, where everything changes in the unleashed financial tsunami.
On a side note – Who would have thought 0’s on a piece of paper could create such havoc.
Here’s a quick summary and a worst case forecast, just so you understand where this is headed. You might as well stay awake at night, along with all the people in the know
The banks made mortgage loans, and rather than put up their own money to fund them, they did the same thing the first house borrower does, they borrowed 95% of the money for the loan and paid 4% for it, while they made loans at 6%. Worked out OK as long as homes were being paid for and were going up in value. These were called enhanced yield products, because you could earn 20-30% on MOrtgage interest, if you were willing to take the yield risk. A sweet deal. (For those that can’t fo the math, here it is. If you had $1,000,000 of your own money to make loans with, through leverage, you could loan out $20,000,000 – 20 to 1 leverage. So for the 2% difference in cost of capital vs what you could loan it out for, multiply 2% x 20 = 40% less underwriters and others fees of 10% and you have a yield of 30%.)
When things started to head south a few months ago, the leverage which made them extremely profitable for a few years, came back with a vengence to put many of them into bankruptcy. Also, a provision in the accounting standards to mark down assets to the market value accellerated the decline. When there is not a market for an asset, you just guess. So Merrill was marking the loans down to 20% of the original value. This was a function of non-payment and leverage. Doesn’t take many non-payers to effectively put you out of business. (In the case above, you loaned out $20,000,000 and it’s now worth, $4,000,000 resulting in a loss of $16,000,000 while you only put in $1,000,000. The other $15,000,000 has to come from somewhere called capital infusion). So Lehmann Brothers, almost 150 years old is out of business. Stunning!!
Make no mistake, every major bank and insurance company and hedge fund owned some of these loans. China probably owns more than anyone else.
——————————————
So, what will happen if this is not “bailed out”
First, the major investment banks who have the exposure will liquidate. – Done.
Then the major commercial banks who put a lot of their money into the enhanced yield products. – In Process
Then the insurance companies that are exposed go under. – In Process
Along the way their stockholders will bail out. Losing significant funds. – In Process
Then the hedge funds will go broke. And also several mutual fund companies will go under. In Process
Then, auto’s and other major applicances will stop selling. In Process (Check last months metrics)
Then, all of the people who worked at the failed banks, insurance and manufacturing companies will be on the street looking for new jobs after those companies wind down. Probably 3 months down the road.
Oh, and the retiree’s of these firms will see significant parts of their pensions and 100% of their medical benefits evaporate. Probably 6 months down the road.
Then, the states will begin to decline from a wave of unemployment. Probably 6 months down the road.
Then the hospitals will begin to decline from a wave of uninsured. In Process
Then the cities will decline.
Then the federal government will have a wave of baby boomers retire early just to get access to money and the federal government will stoke inflation by printing money to cover the bills. You think $700 billion is a lot, just wait. Probably 6 months down the road.
Then, everything goes up in price worldwide significantly. 2010
Then civil order comes to an end as people can’t eat and begin stealing to cover their basic needs. 2011
Then, China and other countries who have significant exposure to these products decide to take their pound of flesh from the US. 2012.
Kinda reminds me of this:
http://www.youtube.com/watch?v=ueuauKKjPZI
#28: hilarious vid link..thanks.
/another late night blurb initiated by my lousy back pain keeping me awake..
—
you know..
we should just abolish the Federal Reserve.
-that would solve almost all our problems.
—
not to bring up old news..but do you think
its possible that all this “melting down”
of the economy and congress not signing off on the $700bill (sight unseen for the most part as well)down to 250bil will give the white house the excuse it needs(or wants) to activate the ever unpopular NSPD-51 that was written in May 2007? -so as to take control of
an obvious “non-compliant” congress.. ;p
(fwiw: nspd51 creates a new executive branch,
that can pretty much do what it pleases unchecked and unaccountable to no one but
itself and it’s self appointed henchman in a time of crisis. (its very vague and even has a secret section not even known by congress(in the name of national security, of course.)
white house link: http://tinyurl.com/NSPD51)
no doubt the news of WaMu going down and china cutting our credit line will go viral across all of our foreign lenders with a quickness..
hey….didn’t most all the other bank failures come out officially on a Friday as well?
(so as to keep market madness impact to an initial minimum, i gather.) odd..
call me a paranoid drama queen, but hey..did you ever think you’d live to see the real world events that are currently unfolding anywhere but in a movie in your lifetime?
(ps: 4th quarter report coming on Tuesday..(tic toc, tic toc..)
-wish i had some extra $$ to buy silver..its cheaper, and has medicinal values ta boot.
-s
“did you ever think you’d live to see the real world events that are currently unfolding anywhere but in a movie in your lifetime?”
NO, Never.
S – this is like a bad comedy. It’s like watching Titanic with a laugh track. I’m convinced Paulson and Bernanke are the only ones who fully appreciate the severity of the problem.
Meanwhile, everyone else will wake up in 3 months and wonder how in the world this happened, and they will be p-d off big time. By then, it will be 3 or 4 times the cost, rather than an investment that you can recoup the funds from.
I just keep hoping I’ll wake up and this was all a nightmare.
The sad thing is, the politicians I expected to have an understanding of this and be cooperative were the republican’s. They are now the ones standing in the way.
I read Hank Greenberg, the former chairman of AIG decided to sell his stock, 10% of the total outstanding shares. Here’s a guy that a year ago was worth 1.5 billion, now down to his last 81 million. Not that he’s ever going to hurt, but he has lost 95% of his net worth. Not so sad. What is sad is the thousands of AIG workers that now have no hope of ever retiring. And this is being repeated in financial company after financial company.
How about the GM workers, Same story. This is just the tip of the iceberg as this plays out, unless they can get this under control.
This is going to make Enron look like childs play when examined historically.
A little over 200 years and the American dynasty crumbles. Rome lasted for what, 2000 years