We Have a Bailout Plan

[smockers83]

Well, the bailout passed the House about 15 minutes ago. In the first 2 minutes, the Dow dropped 75 points, first 7 minutes it dropped around 100 points. This is just due to uncertainty in the markets.

I haven't really followed this very closely as it is controversial but it seemed the politicians would get their way eventually. Anybody who has been following this and knows what the bill entails what it could mean for the economy, could you explain? A lot of economists have said don't pass it, let the market do its thing, let the markets buy up these assets through auctions and what not yet we still get our $700 billion plan.

[96Qowner]

We just bought a bunch of mortgage paper, along with the rights to the underlying property. Either it recovers the value it was originally purchased at or it doesn't. It's either overpriced or it isn't.

It may work out just fine, but if none of the experts who did nothing about it while it went south can tell us for sure, I can't either. We'll see. The Savings & Loan thing worked out. Maybe this will, too.

[Encryptshun]

Wait, hold on.

Last time I read the bill, it primarily ASKED for funds up to $700 billion ($250 billion available immediately) with which to buy up tanking debts from financial institutions IF IT SO CHOSE TO SPEND THE MONEY. That, plus the 10 or so "riders" attached to the latest version, make up the bill. There were no specific purchases of mortgage paper -- just the approval of the $ to fund them.

Did something change at the 11th hour?

[96Qowner]

My understanding is that the funds are supposed to be used, not just stuck under the mattress. They're supposed to be used to clear upside-down paper from the investment banks who currently hold it.

Yes?

[Encryptshun]

^ Yes, absolutely they are funds allocated with the intention to be used. However, it's important to understand that, just because the President signs the Bill, that doesn't mean we instantaneously take ownership of $700 billion in bad debt. Only $250 billion is even available immediately. How the money is spent, the amount of strategy employed in deciding which debt to buy, from whom and in what quantities is what will make or break this effot.

A good example is this Wells-Fargo aquisition of Wachovia. Citi was going to need government money to buy Wachovia, but now WF is buying it without any government money. If the government plays second-fiddle to the private market and only spends the money when they need to, then the amount they need to take from that $700 billion pool can be lessened.

[smockers83]

My main concern is that this number $700 billion was thrown out there and now we're not sure what to do with that money. Shouldn't that have been thought about before even passing the bill? Shouldn't the markets have been analyzed to determine how much money we need, where to put it, etc.? On the other hand, if the market were to do its thing and were auctioned off or something, true price discovery would have happened, a real value of these assets would have been created, so on and so forth. How will the government determine how much these assets are worth and what price they will pay for them? Are the taxpayers being treated as investors, and if so, how much of a return should we expect from this? Or will the government unload these assets at break even, or will they hold on to them indefinitely until it just decides to, not worrying about a RoR?

[Encryptshun]

smockers, those are all good points. I'm not an expert in this bill, (though I've been following it pretty closely) and I believe some of the things you point out are issues that economists have with the bill as well.

Part of why this "had to happen" was consumer confidence. Businesses depend on credit to cover float in their balance sheets. This is called the "commercial paper" market. From 40,000 feet, every corporation would appear to have a constant gap between payables and receivables. However what looks like a constant rift is actually thousands of smaller, short-term rifts that commercial credit covers via short-term mid-interest loans. If a company can't get that credit to cover its float, then it can't pay its bills and has to default on its debts until it gets payables back in balance (which never really happens). So investors don't want to have stock in a company that defaults on its debts or in worst case goes into bankruptcy protection because its own customers are having the same issue and can't pay the company on time either (making the debt rift worse and more long-term).

By getting the credit market moving again, they free up the flow of money to cover float, which stabilizes the other buyer/supplier transactions. If there's one thing the stock market hates, it's stagnation. Movement (preferably steady, predictable movement)builds investor and consumer confidence and get the economy working again.

In theory. We'll see how it plays out in actuality.

[smockers83]

Makes sense, I understand the liquidity issue.

We're already getting the reports on the pork put into the bill. Whoever inserted these should be called out and removed from office immediately. Who in their right mind would push these non-issues into legislation in such an important piece of legislation. Washington = failure.

[Encryptshun]

Makes sense, I understand the liquidity issue.

We're already getting the reports on the pork put into the bill. Whoever inserted these should be called out and removed from office immediately. Who in their right mind would push these non-issues into legislation in such an important piece of legislation. Washington = failure.

They did it purely because of negotiation. They needed the bill to pass -- the politicians they wanted to woo were getting screamed at to NOT vote for the bill by their constituents -- so those politicians basically said "well, if my people are going to hate me for voting "yes" then I need to give them something that they've been wanting so they won't hate me so much, so put *this* [hands them rider clauses] in the bill as well, that way I can tell my voters that I did this for them".

One of the riders I DID think was a good idea -- that being a short-term change to capital gains. When the market has tanked that much and of you're selling people on the idea that they will make a ton of money by re-investing, better also to let them know they will get a tax break on the profit they make from that investing. Otherwise everone will "wait" until the market comes back up before they invest, which, of course, will never happen if no one is investing.

[96Qowner]

And remember, most of it was just extensions to current legislation that was going to expire - not "new" stuff.

[smockers83]

Capital-gains taxes, sure that's fine. But racetrack owners, wooden arrow makers, wool producers? Are you serious? The rum producers can get all the breaks they want, I don't care, I love rum (just kidding). Sometimes you just have to alienate your constituents to do what you think is right. If you voted for it and your constituents were against it and it proves to work out and be fine, what's the big deal. They say, oh ok you knew what you were doing. But if it fails, all of those people who voted for it, there are going to be millions upset.

[96Qowner]

Swell, the DOW dropped 400 points after the bailout passed. It was up about 250, closed down 150.

[smockers83]

^ It'll take a couple of days for the market to digest the information. The uncertainty it creates in the market causes the sell off.

[Encryptshun]

Swell, the DOW dropped 400 points after the bailout passed. It was up about 250, closed down 150.

I'm sure it was partly due to the plan, but it was also due to the quarterly unemployment numbers being posted. 159,000 new losses, with the only sector gaining jobs (9,000 to be specific), was the government. No detail on what part(s) of government account for those 9K additions -- could be military, I suppose, but when the government is the only one hiring we are up sh*t creek without a paddle. Last time that happened it was the Works In Progress act under FDR.

[96Qowner]

Yeah, I keep hearing "severe" recession for next year on the news. I suppose it's not related to the bailout. NOT a good period for equities - down another 8% in just 2 weeks, 21% YTD.

Ow.

[ishkabibble]

But the Republicans keep telling me "the economy is strong"!

[smockers83]

Someone correct me if I'm wrong, but before the Great Depression, wasn't there a period of some major deregulation? Then the New Deal came out under FDR in which the government basically took over the economy, also partially due to WWII. It is obvious that there is a need for regulation. Regulation can remove volatility in markets as history has shown, and most recently, history has shown that deregulation puts a lot of volatility into markets.

[telcoman]

But the Republicans keep telling me "the economy is strong"!

Sure it is! And for anyone that believes that there is a bridge in Brooklyn for sale. This bridge actually goes somewhere. To Manhattan.

The financial crisis is now spreading around the world. Great job GWB.

An interesting artice in this mornings New York Times which according to Sarah Palin she now reads.----------------------------------------------------------------------------------------Warren Buffett is a pretty smart guy and I have a lot of respect for him and his knowledge of the financial markets.+

"At a time when government looms so much larger in the economy than it did a century ago, Mr. Buffett, unlike Morgan, is not directly involved in the current rescue. Yet Mr. Buffett has said that the government has asked for his advice, and he knows and admires the architect of the rescue package, Treasury Secretary Henry M. Paulson Jr.

Mr. Buffett, according to Ms. Schroeder, has over the years become more comfortable and more committed to speaking out on public issues. “It’s not lost on him that people trust him more than they trust politicians,” she said.

Mr. Buffett still speaks to the press only occasionally, and he declined to be interviewed for this article. But after the House of Representatives rejected the rescue plan last Monday, Mr. Buffett got a call from Charlie Rose, the television interviewer, who has known Mr. Buffett for years. He urged Mr. Buffett to appear on his PBS interview show as soon as possible.

“I told him, ‘You have to do this,’ ” Mr. Rose recalled in an interview on Saturday. “ ‘No one has your credibility, and people want to hear what you have to say.’ ”

Mr. Buffett agreed to do it, and Mr. Rose flew to San Diego, where Mr. Buffett would be on Wednesday. The hourlong interview on Wednesday night was vintage Warren Buffett: calm, plain-spoken and wry.

He called the current crisis an economic Pearl Harbor, requiring immediate action. Its biggest single cause, he explained, was the real estate bubble. “Three hundred million Americans, their lending institutions, their government, their media, all believed that house prices were going to go up consistently,” he said. “Lending was done based on it, and everybody did a lot of foolish things.”

As far back as 2003, Mr. Buffett had warned that the complex securities at the center of today’s troubles — once so profitable, but now toxic — were “financial weapons of mass destruction.” These securities were engineered by the math quants on Wall Street, and in the interview Mr. Buffett expressed his disdain: “Beware of geeks bearing formulas.”

To help pay for the rescue, the government should raise taxes on the wealthy, Mr. Buffett suggested. “I’m paying the lowest tax rate that I’ve ever paid in my life,” he said. “Now, that’s crazy.”

On Friday, after public sentiment shifted, the House passed the financial rescue package. But the markets are still weak, and it remains to be seen whether Mr. Buffett’s recent investments will prove to be wise ones."---------------------------------------------------------------------------------------------

So which of the two candidates running for POTUS wants to follow Buffetts advice and raise taxes on the wealthy?

Now wasn't that an easy choice.

Who here on this forum claims to be smarter than Warren Buffett?

Telcoman

[Jesda]

The government managed to convince the public that it should be allowed to save itself from a mess it created while taking credit for offering a bailout.

Its a done deal, so I hope it works out.

[audtatious]

Sure it is! And for anyone that believes that there is a bridge in Brooklyn for sale. This bridge actually goes somewhere. To Manhattan.

The financial crisis is now spreading around the world. Great job GWB.

So, Buffet warned people and GWB wanted reform in '03. It was denied. The republicans wanted reform in '04 but were denied by the Democrats (I've posted up the video of some of those debates). McCain jumped on an established bill in '05 wanting reform but it was blocked in committee.

Your Democrat party is the one of innocence in this mess. They simply kept their heads buried in the sand while their bank accounts were open to reap the rewards of Fannie and Freddie. Then when crap goes bad they ignore the Republicans and try to press forth a partisan bill which is killed after your fearless Democrat leader tries to throw the Rep party under the bus. Then it goes back to the Senate and they conveniently figure it's a good time to add billions worth of earmarks because the pressure on the Rep party is high. It passes and we are now stuck with more crap.

Yeah, all GWB's fault

[marlin29311]

Sure it is! And for anyone that believes that there is a bridge in Brooklyn for sale. This bridge actually goes somewhere. To Manhattan.

The financial crisis is now spreading around the world. Great job GWB.

Anyone that blames GWB for all of our financial problems probably also believes in the great flying spaghetti monster and that pigs can fly. Look all of the past history - it's not his fault. Blaming the president for things that independent people have done because you don't like him is not only un-fair, its also extremely rude and crass. I have a feeling this entire situtation would be presented in a completly different light if flip-flop Kerry was our president right now.

[audtatious]

Not really. They would blame GWB for this issue as starting during his presidency (instead of when this initially started with the Carter Admin) and the Republicans for their 6 years of heading Congress. No accountability for their part in this regardless of video that shows differently.

[barrigas14]

Wouldn't it be easier to say that BOTH sides are to blame?

But then again, who wants to use reason?

Look both sides made costly errors all over the place. From my understanding this started about 20 years ago and slowly built as a snowball. So if it was 20 years in the making, BOTH sides are to blame. Pointing fingers now when the ball is an avalanche seems kinda pointless.

[audtatious]

I blame Congress as a whole. I always have. When digging down further into the issue it seems to be a 70/30 issue with the Dems pressing for more deregulation as a means of "helping the poor".

The result is FAIL for all of us

[mtcookson]

Then the New Deal came out under FDR in which the government basically took over the economy

Which some economists believe actually prolonged the depression...

[audtatious]

yep...

Well, since the EU is having issues, out dollar is at a 13-month high today.

[HashiriyaS14]

Not really. They would blame GWB for this issue as starting during his presidency (instead of when this initially started with the Carter Admin) and the Republicans for their 6 years of heading Congress. No accountability for their part in this regardless of video that shows differently.

This is partially accurate. GWB *does* have a tiny sliver of accountability in this debacle, but so do thousands of other people. The housing explosion, unlike this disastrous war, is actually NOT something that can be PRIMARILY foisted on the Bush Administration. It was just "irrational exuberance".

After the dot-com bust, there was a lot of cash out there looking for investment opportunities and nowhere to put it but real estate. Thus, real estate (both for primary residences and pure investment) got more cash pumped into it in a shorter time than at any other point in US history. A bubble formed, as is typical with any "investment rush", and people started paying more for things than they were really worth based on the idea that the appreciation was limitless and that they, while a fool, would be able to find a "greater fool" in the future to sell it to.*

Fundamentally, in regards to the housing crisis itself, individual buyers and lenders are really to blame. People didn't properly understand their loans and certain lenders intentionally misled the ignorant. There were faults on all sides, but it wasn't somehow a failing of government or policy.

That said, I DO agree that there should have been more regulation of what some of these commercial banks were carrying on their balance sheets. There's no reason that IndyMac should have been holding enough of this debt to be able to fail. That was a combined goof of deregulation and a lack of government understanding of complex derivatives. The government has, in the last few decades, been all too eager to approve new types of securities without completely understanding them. Additionally, commercial banks shouldn't have been allowed to carry half this stuff. The standalone I-banks should be, and thus they should also be allowed to fail if it goes bad, they're a whole other ball of wax, as they have no deposit bases.

So yes, while deregulation** is partially to blame, the larger crisis, at its core, is the result of awful choices made by both buyers and sellers, lenders and borrowers. Unfortunately, it's political suicide to tell the American people that a given crisis is their fault, lol.

* It PAINS me to invoke Robert Kiyosaki here, but it's accurate, so I'll use his pet phrase.

** Not so much really "deregulation" as just a propensity to approve things without understanding them. This is, however, a product of the same mentality that supports rampant deregulation, and so I'll just go ahead and use that term, as it's really all talking about the same people.

[audtatious]

I 100% agree that Bush has some accountability as he could have kept pressing the issue for additional regulation. He didn't. I agree the Republicans have some accountability as well. My issue is that the current Democrats finger point to the Republicans and Bush as being the whole problem. Nothing new I guess.

[HashiriyaS14]

I 100% agree that Bush has some accountability as he could have kept pressing the issue for additional regulation. He didn't. I agree the Republicans have some accountability as well. My issue is that the current Democrats finger point to the Republicans and Bush as being the whole problem. Nothing new I guess.

Yeah. What the Dems SHOULD be doing is point the finger at America and saying "you guys caused this", but they obviously won't do that, and neither would any other party, candidate, or elected official.

I will admit that the crisis is largely the result of things that occurred in the last eight years, when the GOP held majorities in both houses and the White House, BUT, I don't necessarily think that means that the GOP "caused" the problem. They were in charge when it happened, but they weren't the root of it. No one in government was. It was a private failing.

The massive explosion of the deficit, however, WAS their doing and their problem. The housing crisis? Nope.

[audtatious]

The "cause" started with Carter and flowed downhill like a turd in a sewer pipe from there. People want what they can't afford and people lowered the requirements to allow it to happen because they supposedly "deserved the American dream". Of course you have those who take advantage of it and you have heads of corporations who were making big bucks off of it.

How about they trace if back to who made the bonus money and take most of what they have in savings and investments as "penance"

If you want to discuss the defect, create another thread