Senate passes $700 billion rescue package for financial companies.

[daboggeyman]

After one spectacular failure, the $700 billion financial industry bailout found a second life Wednesday, winning lopsided passage in the Senate and gaining ground in the House, where Republicans opposition softened.

 http://news.yahoo.com/s/ap/20081002/ap_on_bi_ge/financial_meltdown

[Doomzilla]

I don't want to sound stupid, but this whole thing confuses the shit out of me.  I don't really follow politics or the economy, but when my iPhone stocks app says that the major markets dropped like 9 percent in a day I knew something was awry.  Is it from Americans constantly living in debt or bad moves by the banks?  

Anyone want to explain to me why giving them a ton of money fixes things?  It almost sounds like the banks are the guy that accidentally killed the prostitute and the government is the "best bud" that helps him hide the body. Sure you might have got away with it for now, but there's still a body buried under the rose bushes.

[Clipperjay]

I don't want to sound stupid, but this whole thing confuses the shit out of me.  I don't really follow politics or the economy, but when my iPhone stocks app says that the major markets dropped like 9 percent in a day I knew something was awry.  Is it from Americans constantly living in debt or bad moves by the banks?  

Anyone want to explain to me why giving them a ton of money fixes things?  It almost sounds like the banks are the guy that accidentally killed the prostitute and the government is the "best bud" that helps him hide the body. Sure you might have got away with it for now, but there's still a body buried under the rose bushes.

All you have to remember is "We are all on BORROWED time and the future is not about luxuries the necessities’ of life today will be our luxuries of the future"

Everytime we have a new adminstration it adds just that little more pressure on top for the people becuase decisions are made by the select few and not the right of the people. But saying that sometimes the people don't get it right either!

To answer your question the money supply is being reduced from the banks writing down investments so all that potential money has just gone because certain investments have been over valued and gambled on it staying there, which is what the sub prime markets are about gambling on a position with no assets to back them up. So with such a fall in investment houses assets the money that had been lent out is never to return so the people who invest and save in retail banks get scared because banks are hungry for money to put back into the money markets. Most banks will lend short term to other banks, but things have gotten so bad no money is available. So what happens when savers and customers want to pull out money because they are scared there investments and money is being undermined by the crisis?
What happens when banks can't meet interest payments or recall money back fast enough to pay all those savers? FED steps in injects a load of cash to shore up short falls, which will increase the money supply and ease the demand for short positions. That’s a very Joe blogs way of describing the market system its far more intense and complex to explain sorry!

[Mefistofeles]

Everytime we have a new adminstration it adds just that little more pressure on top for the people becuase decisions are made by the select few and not the right of the people. But saying that sometimes the people don’t get it right either!

Up until very recently I used to give a damn but now I understand.  Who cares if they pass their silly bailout package the Fed has already injected $630 billion dollars into the system already:

The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

Let's be honest this hasn't done anything.  Its hard to see a how a "little" exercise like this "bailout" will change the fundamentals.  The system is primed to implode.

You know I used to care that this bailout bill sucked but now I don't.  The system will collapse its inevitable, America simply owes too much.  I could go into the details but doesn't matter because there is nothing that can be done.

Could we act rationally and pull together a good program, in theory yes.  Will we:hell no!   The politicians simply want to act without fixing or even analyzing the fundamental problems.

Fortunately the collapse will probably be severe that we probably won't have any choice but to restructure the global financial system.  There is no way it can survive in its present form.  There will be no monkeying around this time.

We have to be grateful for what we have and enjoy the time that we have in this society filled with innumerable material luxurious.  I can honestly say that my biggest problem everyday was deciding what I would eat, not wondering whether or not I  would eat.

This society has rewarded my laziness and indigence amply.  I drive a car I live in a nice apartment.  I have enough money to buy frivilous and needless items.  I'm sure all this will all end.

We should enjoy this society's comfort's with our friends and loved ones before this system as a whole simply disintegrates.

[Clipperjay]

Well Mef I have allways said my happiest days as a kid was being broke, back to basics and not too proud to take things head on.
I sometimes think back if my travel expenses warranted my forgoing to eat for that evening, it usually did!

The only soluition which I discussed to some friends at length is the change must happen on our level, meaning those who bought large houses instead of getting bankrupt they have to sell and down scale rent or move into smaller managable dewellings. This will ease the the pressure for familes to get bailed out. Too many proud people refuse to get out until too late thinking the government will help in time?
Look at the UK the government hasn't even garanteed the savings sector which is why Irish banks are doing well. But ironic Black Rock how much did we pump into that failing institution?

I've decided to sell my other cars because insurance and Road tax is too much, which means too get more liquid cash by myself, than expect a fall interest rates or reduction in taxes to help my disposable income?
So much waste...... I actually think this will make people into better people?
I think the cornerstone to all of this, its short term which means delaying the long term prospects for US sad but true!

[rrussell]

The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

Let's be honest this hasn't done anything.  Its hard to see a how a "little" exercise like this "bailout" will change the fundamentals.  The system is primed to implode.

Are you kidding? SIX HUNDRED AND THIRTY BILLION DOLLARS!

Just think how many mortgages you can buy up with that kind of money - and remember, the ones that are left are the GOOD ones!

What can go wrong?

[Nighteye]

What can go wrong?

You had to ask, didn't you? Better go knock on wood right now. ;-)

[Rocky]

I have done pretty extensive research on this issue now and am of the opinion that the gov't is going to end up making a lot of money on this deal, and in turn the taxpayers are going to benefit.  There are so many provisions in this bill to protect the money and benefits back to taxpayers that its a pretty sweet deal.  Not only is the government going to be able to buy up trillions of dollars worth of debt at a fraction of the cost, after they do they can simply change the rules that private investors would have to deal with.  They will assure the money gets made and the debt is off the hands of others.  Its a win win, most people just arent used to the sacrifices you have to make when investing like this.

[daboggeyman]

The big consern even though they have made it sound sweet is it going to work. Price's rising faster than wage's are just making this problem even bigger.

[Mefistofeles]

I have done pretty extensive research on this issue now and am of the opinion that the gov’t is going to end up making a lot of money on this deal, and in turn the taxpayers are going to benefit.

I have my doubts.  The Treasury is going to pay a substantial premium for what has been termed financial toxic waste.   So in effect you might as well mail these financial institutions a check, it would probably be cheaper and faster.

Of course once you buy these assets the primary problem, especially with subprime mortgages, is the homebuyer, they simply have too much leverage and can't pay off the debt.

Not only is the government going to be able to buy up trillions of dollars worth of debt at a fraction of the cost, after they do they can simply change the rules that private investors would have to deal with.  

This is actually a fundamental but no the primary issue behind the bailout.  How will Treasury set pricing for these Securities?  This where the taxpayer can get really screwed.  The market price for a security may be $0.10 on the dollar but the banks can always ask for more, alot more.  Chances are the Treasury will use reverse auctions to buy the securities where the sellers post the lowest price they are willing to accept.  Although I know direct collusion is illegal I imagine that the sellers have every incentive to be unreasonable, I would imagine that alot of these guys will be asking something very close to full value for these securities.  Why?  It's simple pure capitalism, and the fact they know the Feds are trying to do the industry a favor.

Of course we still have the issues with the subprime mortgages themselves.  The homebuyers need relief first and foremost.  If not the Feds will spend billions and many people will still lose their homes.  Not only that but they will be unable to make their payments, therefore the Feds will have overpaid for these securities.

The big consern even though they have made it sound sweet is it going to work.  

Actually this the big problem.  The problem right now is that despite huge injections of capital into the market by the Fed on the order of hundreds of billions of dollars by the Fed and various central banks the banks don't want to lend.

This shows up in the TED spread which tracks the difference between what banks lend to each other at

LIBOR and what the Treasury is willing to pay on three month bill.  If the spread is large that means there is a strong preference for U.S. Treasury Bills. Which is exactly what happened on September 19th, the difference was 300 basis points or 3%.  That means banks had to pay a 3% premium over Treasuries.

Why are banks upset?  Here's a fairly complete explanation of the crisis and why banks are upset:

Nouriel Roubini Explains the Crisis

Basically what Roubini is saying is that banks don't trust one another with Lehman,AIG,Bear,WAMU having gone into receivership even the strongest financial institutions are in trouble.  Therefore if you lend money you don't know if you are going to get it back.  In the United States we've been having one major financial failure every week in September, the Europeans just had three or four banks fail this week.

Roubini suggests a recapitalization through the banks issuing preferred shares.  He also suggest a systematic program to write down mortgage debt for individual borrowers.  

The Europeans seem to have a different approach .

Personally I think the only way to really succeed is for all the lenders to take a "haircut" (or a loss on their bonds) and let the debt reach a more sustainable level.  However this would probably put the  pensions and insurance companies in a world of hurt.

TARP sucks and it won't solve the fundamental problem of an overleveraged American consumer and banks that are on the brink of failing as a result.

[Rocky]

Sure makes you wish for the days of Bill Clinton and a balanced budget doesnt it?  Too bad we elected a bunch of conservatives...

[rrussell]

Now, Rocky... I'm sure that if the elected folks were doing such a bad job, they would have been voted out after the first term.

I mean, who on earth would be stupid enough to vote for the same short-sighted, self-serving regime twice?

It can't possibly be THEIR fault.

[Nighteye]

I mean, who on earth would be stupid enough to vote for the same short-sighted, self-serving regime twice?

People blinded by emotion (9/11) and/or faith.


Anyway, isn't the government going to basically lend money equal in value to those assets, rather than simply buying them? A loan from the government would restore liquidity, and with the banks paying everything back, with interest, the government will even make a profit on it.

[Mefistofeles]

Sure makes you wish for the days of Bill Clinton and a balanced budget doesnt it?  Too bad we elected a bunch of conservatives…

I think you're mistaken if you think Clinton was that much better than the rest of these idiots that got us in trouble.  Democracy is alot like pornography, it appeals to the most base elements of society.

[Salamander]

Fed Loans to Banks, Dealers Rise 60% as Credit Freeze Deepenshttp://www.bloomberg.com/apps/news?pid=20601087&sid=a.JgW6Kr2AXk&refer=home

Oct. 2 (Bloomberg) -- Commercial banks and bond dealers borrowed $348.2 billion from the Federal Reserve as of yesterday, an increase of 60 percent from the prior week amid a worsening credit freeze.

Loans to commercial banks through the traditional discount window rose about $10 billion to $49.5 billion as of yesterday, surpassing the previous record after the 2001 terrorist attacks.

Borrowing by securities firms totaled $146.6 billion, up from $105.7 billion. Under a new emergency program announced Sept. 19, banks borrowed $152.1 billion as of yesterday to buy commercial paper from money-market mutual funds, more than double a week ago.

The report reflects an expansion of the Fed's balance sheet and emergency-lending programs to halt the yearlong credit crisis.

Don't think 700 billion will be enough?

[rrussell]

Okay, wait, so this just sunk in.

We - our government - is LENDING money to institutions who have themselves shown very little common sense in lending practices themselves?

I don't know why this bothers me than outright giving them the cash, but it does.

I suppose it's true what they say, regardless - don't ever lend money you can't afford to lose.

[Mefistofeles]

Don’t think 700 billion will be enough?

There's no end in sight to the bleeding the Fed's going to expand the balance on its books ALOT .  It could be trillions of dollars.  We just need to let some of these guys bankrupt, survival of the strongest.  Besides the Feds are simply enabling bad behaviour which isn't very smart, again the bill could be in the trillions and still accomplish nothing.

[Salamander]

Seems they are trying to stop ''the great depression 2.0'', the Q is, They always said; the FED's mistake was to do not much, so they try to fix that ''mistake'' made back then. But the Q remains, will this action leads to a much greater depression, when it hits the fan? Maybe back then, it was the right thing to do? And also for this 2.0, it would have been better to use the same approach?

[Mefistofeles]

Seems they are trying to stop ‘’the great depression 2.0’’, the Q is, They alway said the fed mistake was to do not much, so they try to fix that ‘’mistake’’ made back then, but the Q remains, will this action leads to a much greater depression, when it hits the fan? Maybe back then, it was the right thing to do? And also for this 2.0, it would have been better to use the same approach?

I have a simple view, the longer and harder we try to hold onto this world the longer it takes for the new one to come into being.  Financial systems are imperfect(because the men that design them are imperfect) and sometimes they implode.

At the end of the day you have to ask yourself is it easier to save this system or start over?

Starting over is painful but its sometimes neccesary.  At some point your computer becomes so screwed up that maybe its time to grab a new hard drive and reinstall the OS.

The longer you delay the reinstall the longer you have to live with a screwed up computer.  Its painful but in the long run its worthwhile

Besides most of us on Sudhian are pretty young.  The key to social mobility (which is where I disagree with most liberals) is change.  When society changes their are vacancies in the top slot of the social ecosystem.  Its a chance for new life to rise and gain prominence.   Look at the collapse of the dinosaurs, before they were extinct our forbearers were simply small scavengers running around at night.  With the dinosaurs gone our ancestors filled so many niches' and developed into most dominant group of life, with one branch of the family homo sapiens particularly dominant.  A financial collapse is just that, a great chance for us to rise to prominence in a time of upheaval and chaos.  

Think of postwar Japan.  Huge companies such as Honda and Sony were literally started by guys running their own small business.  That's right
Sony started out as a radio repair shop.  Honda started off as an auto repair business.  

Change is an oppurtunity for us to rise to the top.  The only question is this: are you ready?

[Salamander]

Seems they are trying to stop ‘’the great depression 2.0’’, the Q is, They alway said the fed mistake was to do not much, so they try to fix that ‘’mistake’’ made back then, but the Q remains, will this action leads to a much greater depression, when it hits the fan? Maybe back then, it was the right thing to do? And also for this 2.0, it would have been better to use the same approach?

I have a simple view, the longer and harder we try to hold onto this world the longer it takes for the new one to come into being.  Financial systems are imperfect(because the men that design them are imperfect) and sometimes they implode.

At the end of the day you have to ask yourself is it easier to save this system or start over?

Starting over is painful but its sometimes neccesary.  At some point your computer becomes so screwed up that maybe its time to grab a new hard drive and reinstall the OS.

The longer you delay the reinstall the longer you have to live with a screwed up computer.  Its painful but in the long run its worthwhile

Besides most of us on Sudhian are pretty young.  The key to social mobility (which is where I disagree with most liberals) is change.  When society changes their are vacancies in the top slot of the social ecosystem.  Its a chance for new life to rise and gain prominence.   Look at the collapse of the dinosaurs, before they were extinct our forbearers were simply small scavengers running around at night.  With the dinosaurs gone our ancestors filled so many niches' and developed into most dominant group of life, with one branch of the family homo sapiens particularly dominant.  A financial collapse is just that, a great chance for us to rise to prominence in a time of upheaval and chaos.  

Think of postwar Japan.  Huge companies such as Honda and Sony were literally started by guys running their own small business.  That's right
Sony started out as a radio repair shop.  Honda started off as an auto repair business.  

Change is an oppurtunity for us to rise to the top.  The only question is this: are you ready?

It's hard to be ready, its like living near an earthquake. It's better to move perhaps where it won't hit as hard? Perhaps I could buy some gold and a piece of land. Though I don't have much too loose, really. And we need each others much more then, now everyone is looking out for themselves only, at least for the most part. So I rather stay.

After depression 1.0 we had ww2, so will we have another big war? Or will it go peacefully, where you see big shifts in power/wealth in this world. Personally- I think we will have a bad time ahead which could last for some time, and after all this we will probaly will be much wiser/smarter, where we look for long time sollutions, and where we live more in ''balance'' with each others, nature and where we are more equel.



Be sure; if they say; fight this enemy; who's saying it.

[Clipperjay]

That is very idealistic Mef not disagreeing with you either, but when you have congress trying to hold on to there investments and they can pump 700 billion dollars from tax payers monies you have to say to yourself those people in the upper classes are there for a reason?
What about the pensions & Life structures that have short falls to wipe a fresh the whole pension scheme would be in chaos and people will die as they cannot physically work up to a certain point?
What we also forget is that the markets help to creat IPO's and creates more jobs if there is no money markets to fund these enterprises how can industries grow or develope into global markets?
In my mind all that needs to be fixed is the regulators of the finacial industry. De-regulating the sector helped liquidity when times were good, but when times are lean, specific margins and instruments should and not be tightly controlled and regulated.
People seem to have short memories about the mortgage junk market its our fault aswell this happen speculating over and beyond the value of our properties.

[Mefistofeles]

but when you have congress trying to hold on to there investments and they can pump 700 billion dollars from tax payers monies you have to say to yourself those people in the upper classes are there for a reason?

That's the problem with rich people they start go crazy when they lose a few million.  In this environment I think its difficult to say what's a good investment.  I'm invested mainly in oil and natural gas myself, with some gold and silver.  I sometimes think about cashing out the oil and lng and just buying gold and silver.

But then I think if this bailout does pass it will be one of several.  The dollar will probably collapse and that's not going to bad for oil at all, although I can't say that will be good for me either.  

I guess what I'm trying to say is that you have to ride the wave. Just because you made money one way doesn't mean you can't make it another way.  I think that's the problem with rich people they only think of making money one way, what always worked.    In this new environment their could be some sick opportunities to make money, but its going to require new thinking and a bit of luck.

Real Estate bonds, all that stuff is so useless.   People think that's what creates wealth it doesn't, its only worth something if there's a market, which isn't at the moment.

Of course then insurance companies and pension funds will be hurt but they'll be ruined unless our governments get together and figure out how to restructure the ENTIRE GLOBAL financial system.  

All the solutions I have seen so far are regional and local if we want to resolve this crisis without a large scale banking "extinction" we need to have a global response.  At this point even if the Americans caused all these problems they've become the world's problems too.

In my opinion the individual countries are too weak, short of locking down their own financial systems and stopping international trade, there needs to be a global response.

There needs to be to an emergency summit in Davos or Genf, with the worlds central banks and governmental representatives.   Also key NGO's (aka national banks and financial institutions need to be invited).  

I think a global response will occur,although I have no idea how much damage needs to happen before these guys realize how truly large the problems are.

It’s hard to be ready, its like living near an earthquake. It’s better to move perhaps where it won’t hit as hard? Perhaps I could buy some gold and a piece of land. Though I don’t have much too loose, really. And we need each others much more then, now everyone is looking out for themselves only, at least for the most part. So I rather stay.

Just chill and don't worry too much, it won't help anyway.

[Salamander]

Just chill and don't worry too much, it won't help anyway.

I don't worry really. At least I'm mentally prepared I know what's it like to loose everything. Fearing it, is worse then when being there, what you feared. (at least that's mostly, the case...)
Although I do think the US got most too loose, the rest can gain in the long term. The US is sucking wealth from the world, and we all take part of it, which we shouldn't do anymore? Kinda like we all do it with the same hooker, she gets rich, but you get bad illnesses from it (in a very hard way to say it). Wish I could use a more friendly way saying it though :O

It's just a distribution of wealth so to speak.when it happens. I do fear that the US can get in a situation in which they simply can't recover from.


Nice read about the next great depression (why it comes, when it does): http://onlinejournal.com/artman/publish/article_1777.shtml

[daboggeyman]

Bush;

"This issue has gone way beyond New York and Wall Street. This is an issue that is affecting hard-working people," Bush said in his 14th appeal in a fortnight for lawmakers to back the controversial proposal.

http://news.yahoo.com/s/afp/20081003/bs_afp/usfinancebanking


This gripe's me how long did it take him to figure this out. If Washington wasn't so disconnected with the people who keep this country moving they would have seen this coming well after 9/11. The article link Salamander posted above shows all the warning sign's were in place far enough in advance that much of this could have been avoided. I said long ago that our government needs overhaul were the people's voice are hear and not just the greedy few who control it. We are no longer controlled by the majority but rather by the minorities and greedy rich sectors.
 Like some of you guys my pay has been falling for years and I don't see any of this helping any of us any time soon if at all. As far as I am concern it don't made a darn which way it go's now all we can do is hang on like hell for the ride and what a ride it will be.

[rrussell]

That's the problem with rich people they start go crazy when they lose a few million.  

That's the truth that folks tend to lose sight of: Stocks are all fake money until you cash out.

(Or, rather, "potential" might be a better term.)

Nobody's lost ANYTHING until they decide to sell. If you stand pat and let everything grow again, you'll be just fine.

I realize this doesn't take into account companies that have totally bombed and are, offically, worth ZERO