The bill should be delayed indefinitely, until a rational approach is derived based on real evidence. This is not just our money at stake, this is our children's money as well.

9/30/2008 9:16:47 AM

^

This crap has just got to stop.

1) The government buys assets not give aways

2) If the assets drop in value banks have to pay the government back for its losses with share of stock

3) If the banks do not have enough value in their stocks to make the government whole, a tax on Walll Street automatically goes in place until the money is paid back.


Moreover the market lost 1300 Billion in value yesterday which at Bush's 15% capital gains rate means the government lost $195 Billion in potential tax revenue. At Obama's 20% rate the government just lost $260 Billion in potential revenue.

9/30/2008 9:25:28 AM

Quote :

"1) The government buys assets not give aways "

If the assets aren't worth anything, it's a give away. The reason these banks can't sell these assets is because there's no market for them, if there's no market for them, their value is effectively 0, so instead of paying a reasonable market rate, we just made up some number for the hell of it. Sounds like a give away to me.

Quote :

"2) If the assets drop in value banks have to pay the government back for its losses with share of stock"

Excellent, so if the market continues to plummet, the worthless businesses who are already on the brink of failure, will have to give the government their worthless stock. Explain to me how this is helpful?

Quote :

"3) If the banks do not have enough value in their stocks to make the government whole, a tax on Walll Street automatically goes in place until the money is paid back. "

Ah, so if the market can't rebound because of ill advised government interference, we'll just tax the hell out of the market, and somehow magically this will coax the market back to health and pay us back for all the money we loaned.

Quote :

"Moreover the market lost 1300 Billion in value yesterday which at Bush's 15% capital gains rate means the government lost $195 Billion in potential tax revenue. At Obama's 20% rate the government just lost $260 Billion in potential revenue."

Both of which are significantly cheaper than the 700 billion number the government pulled out of it's ass.

9/30/2008 9:40:46 AM

Quote :

"Harvard economist: Bankruptcy, not bailout, is the right answer... Commentary: Bankruptcy, not bailout, is the right answer 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. "

9/30/2008 9:42:28 AM

^

Which Harvard economist, is it Jeff Miron?

Quote :

"Excellent, so if the market continues to plummet, the worthless businesses who are already on the brink of failure, will have to give the government their worthless stock. Explain to me how this is helpful"

If the banking sector which was 25% of the market by value becomes worthless then we got bigger problems than that 700 Billion

Quote :

"Ah, so if the market can't rebound because of ill advised government interference, we'll just tax the hell out of the market, and somehow magically this will coax the market back to health and pay us back for all the money we loaned."

Nobody likes to pay taxes but its not going to cripple Wall Street to pay back 700 Billion over time and thats if the mortgages are worth zero. Moreover, you are "giving" money to Wall Street and the Wall Street is paying it back. How can you insulate the average taxpayer more than that?

9/30/2008 9:48:35 AM

^^Anybody who is still blaming this on Fannie and Freddie simply has no idea what they are talking about. The relaxation of lending practices started in the private sector, Fannie and Freddie just came along for the ride.

Quote :

"If the assets aren't worth anything, it's a give away. The reason these banks can't sell these assets is because there's no market for them, if there's no market for them, their value is effectively 0, so instead of paying a reasonable market rate, we just made up some number for the hell of it. Sounds like a give away to me."

The problem is, no one really knows how much those assets are worth. They are all tied up into MBSs and CDOs made up tranches of assets with various ratings. You've got bad debt tied up with good debt, but the products themselves are so complex, it's damn near impossible to tell how much of each there is. The reason they can't sell them isn't because they are "worthless", it's because no one wants to take the risk. They either already got burned and are scared to death of these things or they simply don't have the money to do so.

The fact is, these assets could very well be quite solvent in the long run, but it's contingent on figuring out exactly what kind of debt they are composed of, and renegotiating as many mortgages as possible to keep people from foreclosing. That's the idea anyway.

[Edited on September 30, 2008 at 9:54 AM. Reason : :]

9/30/2008 9:54:01 AM

Quote :

"If the banking sector which was 25% of the market by value becomes worthless then we got bigger problems than that 700 Billion "

Right, but in the even that happens, we'll have $700 Billion less to deal with that. Of course, we can always print more money, but massive inflation hardly seems the best way to handle financial problems.

Quote :

"Nobody likes to pay taxes but its not going to cripple Wall Street to pay back 700 Billion over time and thats if the mortgages are worth zero. "

Right, paying back a $700B loan over time won't kill Wall Street, when Wall Street is performing well. On the other hand, if wall street is failing such that the government can't recoup it's loan either from money paid by the companies, nor through ownership of the companies, do you really think a sudden tax is going to help? I mean, what you're saying here is that, in the event that the assets we buy are entirely worthless (meaning the market is still way down) and the companies can't pay us back with cash (meaning the market is even more down) and the stock of these companies is worthless (meaning the market is even more down) then we'll just tax the fuck out of Wall Street until those bastards pay up. Isn't that something akin to a bookie breaking a debtor's legs? Sure it might make the bookie feel better, but now the guy can't work to earn money to pay the bookie back.

Quote :

"Moreover, you are "giving" money to Wall Street and the Wall Street is paying it back. How can you insulate the average taxpayer more than that?"

By not giving them that money in the first place. It isn't like the tax payers couldn't use $700B.

Quote :

"Anybody who is still blaming this on Fannie and Freddie simply has no idea what they are talking about. The relaxation of lending practices started in the private sector, Fannie and Freddie just came along for the ride."

And got preferential treatment (see even looser lending requirements than even the banks had), leading them to take on huge risks, like buying and selling bad debt from banks because they were implicitly backed by the government. They didn't just come along for the ride, they were one of the many factors that caused this. Not the only, but hardly innocent bystanders by any means.

Quote :

"The problem is, no one really knows how much those assets are worth. They are all tied up into MBSs and CDOs made up tranches of assets with various ratings. You've got bad debt tied up with good debt, but the products themselves are so complex, it's damn near impossible to tell how much of each there is. The reason they can't sell them isn't because they are "worthless", it's because no one wants to take the risk. They either already got burned and are scared to death of these things or they simply don't have the money to do so. The fact is, these assets could very well be quite solvent in the long run, but it's contingent on figuring out exactly what kind of debt they are composed of, and renegotiating as many mortgages as possible to keep people from foreclosing. That's the idea anyway."

So like I said, there's no market for them, so they're worthless. And yes, some of them could be worth something in the long run, but we're just going to buy them all up and pray rather than actually sort it out and buy the ones that have potential, much like the sort of buying and investing that got us into this mess in the first place (remember, even Buffet wanted no part in these). And somehow this is sound policy.

[Edited on September 30, 2008 at 10:06 AM. Reason : sdfgsfdg]

9/30/2008 10:00:04 AM

Quote :

"And got preferential treatment (see even looser lending requirements than even the banks had), leading them to take on huge risks, like buying and selling bad debt from banks because they were implicitly backed by the government. They didn't just come along for the ride, they were one of the many factors that caused this. Not the only, but hardly innocent bystanders by any means."

I'm not saying they were innocent bystanders. They took their extra cash and invested into these garbage securities just like everyone else, they are just as guilty as any of the other big lenders who got fucked in the long run. But they weren't the ones who created it in the first place. The blame lies with the totally unregulated "shadow banking" industry which pooled bad debt with good debt and slapped a "AAA" credit stamp on it.

Quote :

"So like I said, there's no market for them, so they're worthless. And yes, some of them could be worth something in the long run, but we're just going to buy them all up and pray rather than actually sort it out and buy the ones that have potential, much like the sort of buying and investing that got us into this mess in the first place (remember, even Buffet wanted no part in these). And somehow this is sound policy."

Ugh, they weren't just going to into this blindfolded and buy up every piece of shit the banks were offering up. The first step of this whole thing was to try and figure where the good debt ended and bad debt begins by forcing the banks to expose their balance sheets. Then, you could assign proper credit ratings to each piece of debt and separate everything out. Buy up whatever looked good or at least salvageable, renegotiate what could be renegotiated, and let the rest of it go poof. Yes, it still very well could have failed miserably and may not have even been enough to save Wall Street from going under, but it simply was not the totally ridiculous payout you're characterizing it as.

9/30/2008 10:25:38 AM

Quote :

"Right, paying back a $700B loan over time won't kill Wall Street, when Wall Street is performing well. On the other hand, if wall street is failing such that the government can't recoup it's loan either from money paid by the companies, nor through ownership of the companies, do you really think a sudden tax is going to help?"

the DOW lost more than $700 billion yesterday.

Furthermore, thinking of this as a tax is not the way to go about it. it is repaying a loan. When someone gets a loan from the bank, they don't think of repaying that loan as the bank taxing them.

9/30/2008 10:34:33 AM

http://www.cnn.com/2008/US/09/30/dobbs.qa/index.html

Quote :

"Lou Dobbs: Hooray for those who defeated bailout NEW YORK (CNN) -- CNN's Lou Dobbs is no fan of the $700 billion bailout plan that went down to defeat in the U.S. House of Representatives on Monday. He spoke with Kiran Chetry of CNN's "American Morning" on Tuesday about how he thinks there are better ways to solve the financial problems plaguing the U.S. economy. Lou Dobbs: Americans "don't want to hear this nonsense about $700 billion to bail out financial institutions." Kiran Chetry, CNN anchor: CNN's Lou Dobbs joins us this morning from Suffolk, New Jersey. You expressed delight I guess you could say, at the fact that it did go down yesterday in defeat. We saw the largest point-drop on Wall Street ever. What happens now? Lou Dobbs, CNN host of "Lou Dobbs Tonight": Well, what happens now is that it sounds like the same fools who brought you this effort are going to try again. Henry Paulson saying he's going to come right back, suggests he's not learning. And he's not paying attention to the Congress. These Congress people are all at home in their home districts, nearly every one of them and they're hearing an earful. The American people don't want to hear this nonsense about $700 billion to bail out financial institutions. Frankly, Kiran, they don't need it. Economist after economist, with whom I've spoken, CEOs, they acknowledge that there are far better ways to deal with the issues confronting our financial system than this bailout. And it's absolutely obscenely irresponsible of House Speaker [Nancy] Pelosi, Treasury Secretary [Henry] Paulson, President Bush, Sen. Harry Reid, the leader of the Senate; for these people to be clucking about like hysterical -- so hysterically. It really must stop. And to hear there -- go ahead. Chetry: I was just going to ask you -- Dobbs: Go ahead. Chetry: You say that there's other ways around this. One of the things that everyone keeps talking about is the fact that credit markets are frozen and there has to be some way to free that up so that everyday business from Wall Street to Main Street can continue. Do you buy that? Dobbs: No, not at all. And neither do most of the CEOs and economists with whom I'm speaking certainly. The real issue, they say, is liquidity. The Fed has injected more than half a billion dollars in liquidity into this banking system. What we are watching are business -- quote, unquote -- leaders who won't surface and put their faces before the American public who are hysterical. Absolutely hysterical. These are not leaders of moment. They are not leaders of great character or vision. Only Warren Buffett has had the courage to step forward. And that's after he puts $5 billion into Goldman Sachs. To watch our political leaders, they have no idea in the world, Kiran, what they're doing. Literally. And the arrogance with which this administration asks for, not only money, almost $1 trillion, and surely more in the months ahead. But the absolute power for Treasury Secretary Paulson. Give me a break. The American people want this stopped. Those Congressmen and women at home right now, in their districts, are getting an earful because this is an absurdity and it has to end. Chetry: So in one way, you're knocking Congress. But on the other way you're saying that, I guess the system works in that the brakes were pulled. Whether or not you agree with the reasons why it didn't go through. So, weren't they doing their job and showing leadership? Dobbs: Let me be clear, Kiran. I'm saying leadership -- I'm saying the Democratic leadership of this Congress was absolutely in the same situation as this president. They don't know what they're talking about. They're trying to ram this thing down the people's throats and Congress. And those House Republicans and House Democrats who voted against this bailout deserve a great, great expression of thanks from the American people. Absolutely. Chetry: What do you think if you were up there making decisions? What do you think we need to do? Dobbs: Well, the first thing we need to do is return to a traditional role of regulation. ... The problem here is not simply the housing market. ... But $700 billion and nothing in that bill deals with the foreclosure crisis, if you can imagine that. That's arrogance. That's stupidity. That is your leadership in Washington, D.C. Democratic leadership in Congress and Republican leadership in the White House. So that's an absurdity. The first thing that has to be dealt with is mitigating the foreclosure crisis, period. Secondly, in terms of instilling confidence in the banking system and in our credit markets, the first thing to do is to deal with those institutions that are wildly out of balance, whose balance sheets, frankly, are a joke. And the regulators who should have been tending to them over the years are also a joke. It's time to end the joke. That means aggressive regulation. It means aggressive intervention on an institution-by-institution basis. Chetry: All right. Well, they're going to take this up again today, or throughout the week as they try to figure out what the best course of action is. Maybe they should listen to you a little bit more. Dobbs: They'll be back Thursday. Chetry: Right. Dobbs: They'll be back Thursday to try this nonsense all over again, Kiran. "

9/30/2008 10:40:07 AM

Quote :

"1) The government buys assets not give aways"

And yet, these businesses aren't willing to part with these assets at prices the market would be willing to pay. Instead, they want the government to buy them out. Which means the government will inevitably pay more than the market price - otherwise, this buyout would be unnecessary. Kind of the definition of a "windfall."

Quote :

"2) If the assets drop in value banks have to pay the government back for its losses with share of stock"

Except, as pointed out before, much of that stock isn't worth much. Taken a look at Countrywide stock lately? AIG? Not worth much. And meanwhile, it's not a question of the assets "dropping in value" so much as asking, "Were they ever worth what we will likely pay?" We don't even know their value - all we know is we're going to pay above the rate the open market would pay.

Quote :

"3) If the banks do not have enough value in their stocks to make the government whole, a tax on Walll Street automatically goes in place until the money is paid back."

So now wait - firms that had nothing to do with this are going to be paying a tax to recoup Washington's policy boondoggle? In essence, we're going to bail out firms that over-leveraged and made bad bets by paying above the market clearing price for their distressed assets, hope to god we can actually sell them back off, and if we can't, charge everyone else to cover the losses?

Brilliant!

9/30/2008 11:27:54 AM

Quote :

"The reason these banks can't sell these assets is because there's no market for them,"

Well, no market doesn't mean no value; some things do have intrinsic value that cannot be realized -- in this case because of a liquidity crunch. I'm sure if you or I bought a few "shares" of these assets, we'd make money off them over time.

But kwsmith is WAY off the mark on this one for a few reasons:

1. The bank pays back the government with shares of stock

And the bank's stock is forever depressed due to the built-in risk of government dilution in the future. Speaking of lost revenue from capital gains ...

More so the issue here is not just recouping cash, but the opportunity cost of cash. The money that the government spends is still an outlay; it's money that does NOT go to programs voters actually would like to see implemented. Did you notice that in the debates one of the first questions of the candidates was "What will you NOT be able to do because of this bail out?"

If the government fails to make money on these investments, that will represent a tremendous opportunity cost for us in that their money could have been better spent elsewhere. Not to mention the social costs.

Think about it like this: in the very simplest case, the $700B could have been a tax break to ordinary people, many of whom would have invested it it in private business or the markets and made a real return.

In short: even if you recoup the investment at the end of the day, in cash, you can't recoup the time lost in which the money could have been spent on better things.

2. A tax on Wall Street can recoup losses if stock isn't enough

I have a BIG problem with this one. A tax on "Wall Street?" Whatever. It'll just be passed along to the consumers of investment and banking products. See my post above about "banks are just businesses."

This is an amateurish idea -- and completely wrong. It just amounts to a hidden tax increase for everyone to pay for this thing.

kwsmith, I think you are wearing rose-colored glasses about the policy implications of this and it's clouding your better judgment about the actual economics of the matter.

[Edited on September 30, 2008 at 12:19 PM. Reason : foo]

9/30/2008 12:16:14 PM

Quote :

"Think about it like this: in the very simplest case, the $700B could have been a tax break to ordinary people, many of whom would have invested it it in private business or the markets and made a real return."

As the CEPR folks note, that or some other stimulus plan might well be a good idea rather soon.

9/30/2008 12:19:57 PM

Soo the overall tww consensus is we do....?

it seems like there is plenty of what ifs and don't do this going around, but what should we do?

9/30/2008 12:53:41 PM

Quote :

"Soo the overall tww consensus is we do....?"

Nothing. Or very little. Let these things play out and put public money to use where it will best help, and you do that by making very targeted and specific expenditures designed to do a specific thing. No $700B in unallocated cash for the the government to spend wherever and however it wants. You can't "save the financial markets", that's too broad and unfocused to do any good. But as a general rule, the public government stance should be something along the lines of "you made your bed, now lie in it". That isn't to say the government can't do some good, but talk about massive bail out packages will only freeze up the market and hurt it more. Instead of people getting on with their lives and with their investing, everyone is holding their money, waiting with baited breath for the next move the government makes.

9/30/2008 1:09:07 PM

http://time-blog.com/curious_capitalist/2008/09/really_good_questions_and_some.html#more

Actually made a lot more sense than some of the things that I've been seeing.

9/30/2008 1:13:30 PM

Quote :

"But kwsmith is WAY off the mark on this one for a few reasons: 1. The bank pays back the government with shares of stock And the bank's stock is forever depressed due to the built-in risk of government dilution in the future. Speaking of lost revenue from capital gains ... More so the issue here is not just recouping cash, but the opportunity cost of cash. The money that the government spends is still an outlay; it's money that does NOT go to programs voters actually would like to see implemented. Did you notice that in the debates one of the first questions of the candidates was "What will you NOT be able to do because of this bail out?""

Two things, essentially what happens is that the Treasury issues new debt and then uses that debt to buy bank assets. In theory, the Treasuries don't r have to be sold to the public. The Treasury could just issue bonds in exchange for mortgage baked assets. No direct outlay.

There is the fact that we would owe interest on those bonds, which captures the opportunity cost of government borrowing, however, T-Bill rates are crashing and yesterday were at .04% per year. A few days ago the nominal interest rate on T-Bills was negative. The government could have made a profit by borrowing money

Not to mention obviously real short rates are deeply negative at this point so the real opportunity cost is negative.

Quote :

"Think about it like this: in the very simplest case, the $700B could have been a tax break to ordinary people, many of whom would have invested it it in private business or the markets and made a real return."

This mixes social return with the return the government will see. There will be some increase in growth and hence taxes from a 700 Billion tax cut but not enough to generate a positive return from the government.

In social returns you can take a first guess this way. We lost 1.3 Trillion in market value yesterday because the probability of the bailout not passing rose. Now I am not going to argue that the market is at all times a perfect discounter, so you can't take that as the literal cost to capital of no bailout.

However, at the same time I think few traders thought that the bailout was completely dead so we are only taking a partial discount of the true cost.

Those factors cut in opposite directions so we cannot be sure what the cost is. Yet it is unlikely we are looking at less than hundreds of billions.

That is not even including the social costs to labor of no bailout.

Quote :

"2. A tax on Wall Street can recoup losses if stock isn't enough I have a BIG problem with this one. A tax on "Wall Street?" Whatever. It'll just be passed along to the consumers of investment and banking products. See my post above about "banks are just businesses." This is an amateurish idea -- and completely wrong. It just amounts to a hidden tax increase for everyone to pay for this thing."

Yes, the incidence of the tax will be split. Even if we suppose that financial institution makes zero economic profit some of the cost is borne by the employees. My best guess is that a fair bit of the cost will be borne by the employees since the supply of Wall Street employees is clearly quite inelastic and probably strongly related to the genetic characteristics of those employees. This is what allows such high salaries to persist in free labor market.

However, leaving all of that aside. My point is that to the extent that freeing up credit markets and lowering borrowing costs is "gift" to wall street, that is that it will not be passed on to the consumer, taxing wall street is a "takeaway."

In both cases I expect the consumer to see a substantial portion of those savings (or costs) directly, not including savings that will extend from not seeing a meltdown.

Quote :

"kwsmith, I think you are wearing rose-colored glasses about the policy implications of this and it's clouding your better judgment about the actual economics of the matter"

I don't pretend that this solution is definitely going to work or that if we fail to act it is impossible for the crisis to heal itself organically. However, given the magnitude of whats on the table this is currently the best shot we have.

If someone wants to talk about preferred stock purchases in troubled firms then I will be all over that, but so far that hasn't gotten much traction and I believe smacks too much of socialism to be acceptable to most people. Though buying non-voting shares rather than simply nationalizing capital is completely different but that's another argument.

So given the options available I think we should go with this plan. I admit that my anger over the vote has caused me to be more aggressive than I normally would be or even should be.

[Edited on September 30, 2008 at 1:30 PM. Reason : .]

9/30/2008 1:16:12 PM

I don't believe TWW operates by consensus.

9/30/2008 1:22:38 PM

No taxation without representation.

No “700 Billion dollar bailout” without “a series of financial critiques suggesting indisputable evidence that taxpayer’s contribution is essential.”

9/30/2008 1:36:19 PM

^^ never has. but i was hoping for more ideological consensus on the issue. are people leaning more towards free market or government principles in this debate?

i forget who is on what side of the aisle normally on here, and wanted to see if those sides has congealed around one answer or two.

9/30/2008 1:57:41 PM

Who can remember the stories of their Grandfathers or Grandmothers about the Great Depression, right now?

9/30/2008 2:28:20 PM

Quote :

"Duke professor offers 'proactive' plan to rescue economy Duke professor creates plan to rescue economy Posted: Sep. 29 10:17 p.m. Updated: Today at 9:35 a.m. Durham, N.C. — A Duke University professor says that lawmakers should have acted sooner to prevent Monday's meltdown on Wall Street. They did not, however, and Campbell Harvey, a professor of finance at Duke University's Fuqua School of Business, has formulated a "proactive" plan for Congress that he said would give a good return on buying bad assets and increase credit availability for small businesses and individuals. After the House voted 228-205 against a proposed $700 billion economic plan, the Dow Jones Industrial average fell by 777 points to its lowest close in three years Monday and its greatest-ever loss of points. "The $700 billion plan deserved to fail," Harvey said The bill would have given the treasury secretary wide authority to buy up bad assets, including mortgages, from financial institutions. Harvey said that plan asked taxpayers to spend too much on what are widely called "toxic assets." "I can understand that this is a nauseating proposition for the American people," Harvey said. Instead, he proposed that the government get a better bargain and use the investment to make more loans available to smaller businesses. "Toxic assets" would be bought for lower prices, used to fund loans to businesses and kept for three or five years, assuming a market recovery. "At these prices, financial firms would be pleased to sell – and the taxpayers would get to buy at a price where we can make a positive return," Harvey said. "Small and medium businesses are the driver of growth in our economy." Another problem with Congress' plan, Harvey said, was that it would have taken months to implement and been administered by asset managers with a conflict of interest. Lawmakers need to be looking ahead, the professor said – and preparing to handle as many a 1,000 more bank collapses. Such actions should have been taken more than a year ago. "The time for action was back then, but you let this thing fester, and this is what you get," Harvey said. Despite past mistakes, Congress needs to be taking the "proactive" approach that his plan urges, Harvey said. "You risk a deep recession, and nobody wants that," he said."

http://www.wral.com/news/local/story/3640269/

9/30/2008 2:35:54 PM

Question: If credit "dries up" which I understand to mean it could either be totally unavailable or interest rates on credit will just be really high. If it is the latter and interest rates on credit increase does that also mean interest rates on savings accounts will increase?

seems like if interest rates on savings accounts increased then America would finally be able to save some money rather than building an economy on credit and borrowing.

9/30/2008 4:32:02 PM

http://www.nytimes.com/2008/10/01/washington/01hispanics.html?ref=us
Black and Hispanic Caucuses Resisted Pelosi on Bailout

These seems meaningful somehow, but I don't feel like sitting down and figuring out how (our since i'm already sitting down, I don't feel like figuring out how).

9/30/2008 11:19:47 PM

^^ not likely.
and now with so much S&L consolidation (WaMu gone, Wachovia into Citi, etc) there will be even less competition. so.... more fees, lower savings

9/30/2008 11:46:47 PM

anyone know how to write to the representative for the Raleigh district to tell him not to vote for a bailout?

10/1/2008 9:28:12 AM

HOUSE
http://www.house.gov

SENATE
http://www.senate.gov/general/contact_information/senators_cfm.cfm

10/1/2008 9:53:16 AM

Quote :

"If credit "dries up" which I understand to mean it could either be totally unavailable or interest rates on credit will just be really high. "

Both, interest will be higher for high credit borrowers and unavailable for low credit borrowers. Note that low credit may also apply to borrowers with short credit histories and/or lower incomes.

Quote :

"If it is the latter and interest rates on credit increase does that also mean interest rates on savings accounts will increase?"

Unlikely, what happens is that spreads increase. That is the difference between savings and loan rates goes up. This provides the bank with more profit which it uses to offset losses on defaults.

10/1/2008 1:04:07 PM

Copy that, just trying to find a true silver lining

I guess we normal americans are gonna get the shaft either way.


however, message_topic.aspx?topic=542820

is that just Wachovia having to up their rates b/c they know they are considered a higher risk now?

[Edited on October 1, 2008 at 6:04 PM. Reason : wachovia: I still have First Union checks lol ]

10/1/2008 6:00:38 PM

It's going to pass. It's too great an opportunity for the gov. to sink it's claws into so much shit. Let's face facts, if you're in congress you favor big government. The people in power do not, nor have they ever, care about you or your best interest. It's only a matter of a few dozen years before we're a socialist nation. This proposed "bail out" that would buy up a whole bunch of shit is just one big step in that direction.

10/1/2008 6:13:59 PM

http://www.cnn.com/2008/POLITICS/10/01/paul.qanda/index.html

Quote :

" (CNN) -- Two days after the House rejected the $700 billion bailout bill, the Senate is set to vote on the rescue plan for financial institutions. Rep. Ron Paul said he believes the $700 bailout bill will not solve the financial crisis. Rep. Ron Paul said he believes the $700 bailout bill will not solve the financial crisis. The vote is scheduled for after sundown Wednesday. Republican presidential nominee Sen. John McCain, Democratic nominee Sen. Barack Obama, and Obama's running mate, Sen. Joe Biden, all said they would be present for the vote. Speaking to CNN's John Roberts on Wednesday, House Financial Services Committee member and former Republican presidential candidate Rep. Ron Paul discussed why he thinks the bailout bill is the wrong solution to the economic problem and what he would do to secure financial security. John Roberts: Congressman, great to see you. I was browsing around on your Web site, Campaign for Liberty. And right there on the very front page, you are appealing to your supporters -- and there are tens of thousands of them -- to get in touch with key senators to tell them to vote this bill down when it comes to a vote in the Senate at sundown tonight. Why do you want them to vote it down? Rep. Ron Paul: I think it's a bad bill. I think it's bad for the taxpayers. I think it's doing more of the same thing. The same policy that we're following now with this bill is exactly how we got into that trouble. And you know, I really don't have that much clout in Washington, D.C. And I recognize it. But there are a couple people outside of Washington that care about what I'm thinking and care about free market ... economics. And they will respond. And I think we did help generate a little bit of mail to the House members. So you go where you can have the influence. And I think that people -- the grassroots -- understand this a lot better than members of Congress give them credit for. Roberts: So, instead of the bills that are currently before the Senate, the one that may be before the House as early as Thursday, what would you do? Paul: Well, we need to do a lot, but a lot differently. We have to recognize how we got into this problem. We have too much debt. We have too much malinvestment. Roberts: OK, OK. So we recognize all of the things that got us here. But, right now, today, what would you do, if not this bill? Paul: You have to liquidate those mistakes. Those mistakes were made due to monetary policy. So you have to allow the market to adjust prices downward. And that's what we're not allowing to do. If there are too many houses and the prices are too high, the sooner we get the prices down to the market level, as soon as we quit trying to encourage more housing -- this is what we're doing. They're trying to stimulate houses and keep prices high. It's exactly opposite of what we should do. So, we should get out of the way and not buy up bad debt. There's illiquid assets, but most of those are probably worthless. They're mostly derivatives. And we're sticking those with the taxpayer. So we have to recognize that the liquidation of debt is crucial. And if we did that, we would have tough times, there's no doubt about it, for a year. But if we keep propping a system up that's not viable, we're going to have a problem for decades, just like we did in the Depression. That's what we're on the verge of doing. Roberts: Congressman Paul, what do you think of this idea that's being floated -- this process called mark to market, which would, they would modify the rules so that the, right now, paper that a lot of these institutions are holding, which is worth nothing, they would actually be able to assign some sort of value to it. Some people are saying that that would just hide the problem. Other people are wondering if maybe that might create some sort of voodoo accounting that would allow widespread abuse in the system. What do you think? Paul: It demonstrates the problem. You know, when they prevented them from marking them down, this was an SEC [Securities and Exchange Commission] regulation. Shows how regulations backfire. If you had a market economy and then if you had a market-adjusted FDIC, where insurance was based on the strength of the bank, this would have happened on a daily basis. But instead, we insure everybody, no matter what the bank is doing, and we do it, either we overkill -- we give you too much credit on bad investments -- and then we make changes all of a sudden, and they're drastic, to what they have done. So, it's impossible. It's either too little or too much. And what you need is insurance of, FDIC type of insurance, has to be driven by the marketplace to measure the viability of a bank. Roberts: So what do you think? Paul: This adds to all the moral hazard that we have in the system. Roberts: So what do you then think of this idea of raising the limit on [FDIC] insurance to $250,000, from its current cap of $100,000? Paul: Well, on the short run it will calm the markets. People will feel better. I might even personally feel better for a week or two. But I know that long term, it's the wrong thing to do. I opposed this in the early '80s when they went from 30 [thousand dollars] to 100 [thousand dollars], saying it would lead to more problems like this with malinvestment. It would cover over the mistakes. And the same thing will happen. But if we raise it to 250 [thousand dollars], people are going to feel better, then it will keep the bubble going for a little while longer and putting more pressure on the dollar. If the dollar lasts longer, then finally the world will give up on the dollar -- and then we will have a big problem that nobody has even really begun to think about. Roberts: A lot of people might hope that you're wrong with your projection. Paul: I do too. I hope I'm wrong. advertisement Roberts: You tend to be right on these things on occasion, though. Dr. Paul, it's good to talk to you. Appreciate it. Paul: Thank you"

10/1/2008 7:05:17 PM

Yup, the right thing to do, as painful as it will be, is to let the market correct itself. This means a lot of people will lose a lot of money. Some folks will lose their homes, some companies will go bankrupt, and so will some people, but in the long run it's probably better to bite the bullet now than to keep putting it off. You saw some of that correction earlier this week when stock prices plummeted following the original bailout being voted down.

10/1/2008 7:13:27 PM

All I know is that people who bought houses they couldn't afford absolutely need to get their dumbasses kicked out of their houses, and companies that have too many non-performing loans need to go out of business.


If this does not happen, every politician who votes for this shit needs to be tarred and feathered. This is fucking stupid. These people need to be punished for being poor at math.

10/1/2008 7:40:30 PM

Essentially, yes. Oh, and just making up and assigning a value to something, like they're talking about doing with these "assets" that no one else wants, is a terrible fucking idea. Things are worth exactly what you can get someone to pay for them. I might have a Honus Wagner baseball card and Beckett magazine says it's worth $500,000 and I'm asking for $275,000, but I can't find a bidder for more than $60,000. Guess how much it's actually worth.

10/1/2008 7:49:57 PM

Why should people be punished for being poor at math?

Secondly, I'm poor at math, but not likely to be affected.

What's the deal?

10/1/2008 7:51:42 PM

don't most people buy houses they can't afford?

seriously. i bought a condo. did i have 150,000 laying around to pay for it right then? no, i didn't. i have a mortgage. wait, what are we talking about anyway?? mortgage payments? foreclosures? neither of the two necessarily mean a person purchased a home she couldn't afford.

10/1/2008 7:54:12 PM

I'm making payments on my car, but I can afford it. There's a big difference between being able to afford something and being able to buy it outright. There's also a big difference between secured and unsecured debt. If you get a mortgage the bank is (or at least should be) relying on two things to secure the loan. 1. That you have the capacity to pay the loan off in the given time period. 2. That if you default they don't lose out because they have a piece of property that they can sell to recoup the loan amount.

The problem was that due to several federal programs they were encouraged to ignore #1 and #2 doesn't work if the value of homes was inflated and there's no market for those homes so they have no way of recouping those loans.

10/1/2008 8:04:22 PM

that isn't a very good argument

[Edited on October 1, 2008 at 8:04 PM. Reason : ^^]

10/1/2008 8:04:45 PM

Let us be clear. If the American economy is on the edge of collapse, we must act immediately.
However, this wallstreet rescue does not mean taxpayers must give away $700 billion dollars of our hard-earned money to save these "too big to fail" banks. Any government proposal, even if the economy is on the edge of collapse, must protect the middle-income working families from bearing the burden of this bailout. If there are no acceptable measures to protect the American people, it is our duty as Americans to demand that our representatives shoot down the bill where it stands.

10/1/2008 8:07:07 PM

^^ ummmm that is because it wasn't an argument it was more of a question asking what blah blah up there was talking about. and a general statement. not an argument? wat?

SEE:

Quote :

"neither of the two necessarily mean a person purchased a home she couldn't afford."

random statement, not argument. thx.

^^^ and i get that but the person whos post i was referring to didn't state that so how am i supposed to know what they are trying to say.

[Edited on October 1, 2008 at 8:07 PM. Reason : .]

[Edited on October 1, 2008 at 8:08 PM. Reason : .]

10/1/2008 8:07:16 PM

I don't think most people are supporting the banks here, I know I'm not, but let's not heap all the blame on faceless greedy CEOs and corporations. We, the people, deserve a lot of this blame because as a democracy we realized that we could vote ourselves a bunch of shit that we didn't deserve and couldn't afford. Fuck yes, everyone should own a home, who cares about how qualified they are for a home loan! That's a problem. Who fucking cares about the effects, let's lower interest rates some more so people will buy more shit, we can't keep doing it forever, but I want to get re-elected so we'll cross that bridge when we get there.

Well, those chickens have come home to roost and now our solution is what... print some money, buy a bunch of worthless "assets" and prop up the broken system that caused it for a little while longer. Fuck it, let it burn. Take the pain now over taking even bigger pain 10 years down the line. It's amazing, for the first time that I can remember the public is actually telling congress not to spend money. Of course, now that some folks have seen that it is going to hurt their wallets a lot of them are changing their tune, but still it is encouraging to see so many people saying no, fuck it, don't spend the money.

10/1/2008 8:12:33 PM

Quote :

"but let's not heap all the blame on faceless greedy CEOs and corporations"

agreed. we were talking about this is bus law. like if we take all the anger out on the CEOS and board of directors, take away their golden parachutes (yes i know everyone hates those) they won't really have an incentive to do a risky (yes RISKY...being on the b.o.d of a public corp can be risky) job. and what will happen? they'll walk away. they'll go private. its not like they'll have a lack of job opportunity. some have already gone. then what?

were also talking about how congress ALWAYS overreacts/overcorrects in a time of crisis and it ends up setting us back. i hadn't really thought of that before (besides the obvious patriot act and other absurd post 9/11 legislation) but even going back to the great depression. FDR did some great things/great ideas...but overcorrection? is the new deal hurting us now 70 odd years later? even sarbanes oxley after enron. overreaction. obviously there's a problem but geez do we like to do things out of panic and then fix them later in this country.

[Edited on October 1, 2008 at 8:22 PM. Reason : .]

10/1/2008 8:19:58 PM

Yup, one of my biggest concerns with the proposed bailout is that the first time that one of these assets that we purchase turns out to be worthless and we don't recoup the money, as you've heard them talk about on CSPAN this week, we'll end up taking the company out of private hands (ie stockholders) and make it a public entity all in the name of keeping the taxpayer's money safe. It really is the first step to socialism, and that's not a good thing.

10/1/2008 8:23:43 PM

Fuck yes the new deal is a big problem. If you think this is a clusterfuck, just wait until they can't pay out SS in a decade or so. You want to talk about a total shitstorm... hoo boy.

10/1/2008 8:24:53 PM

It's pretty clear that most americans are willing to do the right thing -- bear any fallout from no bailout for a couple of years while cleaning out the companies and home buyers who need to be punished for not competently managing their credit.

Pinhead, bailout-supporting economists like Paulson presume too much -- they don't really know what the consequences will be, they don't know how to solve the problem, they don't think wall street needs fundamental reforms, and they think that Americans can't stomach a little recession.

The economists have to suck it up: America has no confidence in you, it doesn't want your paternalistic help, and it will face the consequences, despite your hysterical warnings. It's time to let go and let the people choose their fate.

[Edited on October 1, 2008 at 8:32 PM. Reason : .]

10/1/2008 8:25:39 PM

Well, they thought they were until Monday when the market dropped 778 points and people suddenly lost a bunch of money out of 401k accounts. Now those people are screaming about it. However, the folks without any money in the market still don't give a shit.

10/1/2008 8:27:17 PM

but then i feel sorry for like the 65 year old retired man living off his investments. that blows. i don't want him to bear the costs. i mean the costs isn't going to be borne (?? is that the right word) equally. well....there i go with socialism again i guess. but still i don't know. i mean i guess the right thing is to do nothing but then people will just go apeshit.

and wasn't a lot of the support for this coming from the right (initially, not after the plunge/stall/no pass/etc)? or was that just from bush and has everyone like completely dissociated from him now?

[Edited on October 1, 2008 at 8:36 PM. Reason : .]

10/1/2008 8:34:56 PM

This shit tonight is pissing me off. If john mccain votes for this bill he has lost the election.

how the hell are you going to spend 20 minutes during the debate talking about earmarks, and then let this one pass?

all they did was sprinkle salt on a turd.

10/1/2008 8:37:07 PM

Quote :

"It's time to let go and let the people choose their fate."

Boy, it is very seldom that you and I agree on something, skoki. We should pause and reflect on this moment.

10/1/2008 8:38:26 PM

If you want to get re-elected you support this bill, because it'll prop up the broken system for a few more years. McCain and Obama both support it because in all likelihood it's good for another decade of economic growth based on nothing, if it isn't passed they'll likely preside over a recession period and won't be re-elected for a second term. If you don't pass it, they'll be a significant correction in the value of things, a lot of shit will go belly up, and a lot of people will lost a lot of money, but in the long run it's the right thing to do. When was the last time people thought of the long run? Fucking never.

The average American is not in favor of this bill because it's a shit ton of money being given to people and things that aren't them. That's it. Remember, most people didn't even take basic econ, most people believe that the Noah's ark story is true, most people think Dancing with the Stars and Lost are brilliant television. The American public is not sitting there thinking, "if this bill passes it will only be a short term solution to a long term problem which should be addressed by either massive regulation reforms (either drastically more or drastically less depending on your particular philosophy) or not addressed at all and allow things to shake out in the manner dictated by the market." No, they're thinking, "fuck those wall street fatcats, they fucked this up, we shouldn't be giving them 700 billion dollars when they could give it to us instead."

10/1/2008 8:47:24 PM