These are tulmultous times. No more investment banks on Wall Street

bikezappa

Good article KEX

The following quote makes sense to me.

By Jeffery Miron

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.

shack

bikezappa wrote:

Good article KEX

The following quote makes sense to me.

By Jeffery Miron

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.

A bank is a different animal than just any business. An insolvent bank is a bank and not a business that just any creditor can buy and run. Sometimes the failed bank is sold to someone else (like WaMu and Wachovia) but more often than not, it simply closes it's doors. Some of the assets may be sold to someone else, but very often the government takes over the assets, covers insured depositors and the bank just fades away.

bikezappa

Shack

I agree banks are different from airlines. Shouldn't the government back any bank investment up to $100,000?

It just upsets me and many others to bail out bad banking or businesses practices with a bailout without preventing future risky business practices.

shack

bikezappa wrote:

Shack

I agree banks are different from airlines. Shouldn't the government back any bank investment up to $100,000?

It just upsets me and many others to bail out bad banking or businesses practices with a bailout without preventing future risky business practices.

Actually the banks themselves pay for the $100,000 that the FDIC covers. Every commercial bank pays SIGNIFICANT premiums to the FDIC insurance fund. The US Treasury must step in and cover anything the fund won't. Under normal circumstances bank failures are easily covered by the fund and it is constantly being replenished by the banks via premiums.

These are very unusual times however. It would take only ONE of the largest banks to fail and that fund is gone. It was not designed for what we have now. That is why I say large scale bank failures would cost significantly more than the so called bailout.

As I have stated in several posts, the issues of the type of lending that caused this problem within the banks has been addressed. Issues of what risk the the secondary market is willing to accept is another matter. But I wll tell you that commercial banks will not be able to make subprime mortgage loans for their own portfolios an most other type lending is being heavily watched. Bank examiners have extroidinary powers over the industry when/if they use them. I assure you they are using them.

Systems

I say divy up that 700 billion between the American people.....That should get things rolling again....

AsSiMiLaTeD

Lorthos wrote: »

I say divy up that 700 billion between the American people.....That should get things rolling again....

That's what, $2300 per person, more if you only divy it between the taxpayers...

Works for me

sucks2beme

Standby for the next round. Commercial property defaults are about to skyrocket.
In markets like Dallas, they have gone completely nuts with new apartments,
shopping, and office buildings. They are building new buildings next to vacant ones.
They are projecting only a 5% increase in XMAS shopping over last year.
They are in for a surprize. Guys hanging by a thread like CC and
Blockbuster are going down. My guess, 10% drop over last year.
No science. But like in stock picks, the monkey always wins. I'd like to think
I'm as lucky as a monkey.

exalted512

bikezappa wrote: »

Bikezappa Thanks for the clarification. You are saying that there will be NO tax increase if the bailout is passed.

Jstus I cannot say that nor did I say that. Do not put words in my mouth. The bailouts are not the responsibility of the U.S. tax payer but the funding from the bailout comes from the pot of money the U.S. taxpayer put there to begin with.

I have no idea what you are trying to say to me or this group.

It appears to me that you are contradicting yourself.

Its really not that difficult to grasp man. The Federal Reserve has been saving money before any of us were born. Jstas has already stated what it gets used for.

But if we use, say 700B bucks today, that does not mean youre going to get less of a refund when you file your next W2.

Yes, the money does come from the taxpayers. But think of it this way. You have a water faucet thats always on (the flow of money that goes into the Fed. Res.). Your faucet fills up a large container (the Fed. Res.) You use this water to water your dogs(what we take money out for) once a day (every time theres an event big enough to warrant taking money out). You have a bucket that you dip into your large container to water your dogs. Now this bucket can take out much more water than your faucet is putting in during the same time frame. Fortunately, your dogs only need water once a day, so by the time you need to use it again, its filled back up.

I don't think we've ever pulled out this much money (or would have had it gone through), and we have money in the fed. res. to pull it out from, so obviously were putting more in than were pulling out. So hopefully it'll be another 95 years before we have to do something like this again...hopefully never.

As said time and time again, our government is the only entity in the world that has the money (and time for a ROI) to fund something like this. But letting this continue will have much, much worse repercussions.

-Cody

SKsolutions

I'm not surprised to see these misconceptions about the Fed.
For those interested in how banks came about, and how the money system with the Fed works, here are two links to videos. The first is about money creation and fractional reserve lending. It's a cartoon. The second requires a small amount of tinfoil, but you can decide for yourself. The one word that I've not seen or heard uttered in any print or TV form lately is the word 'sustainable'. It would be a nice word to hear in conjunction with the economy, or maybe jobs, or earnings, etc.
Link-
Money Creation

Link- The Fed

average_guy

Years of bad decisions and stupid mistakes have created an economic nightmare in this country, but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support any congressperson who votes to implement such a policy. Instead, I submit the following three steps:

Common Sense Plan.

I. INSURANCE

A. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity.

B. In order for a company to accept the government-backed insurance, they must do two things:

1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage.
a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes.
b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while
working with the borrower—again limiting foreclosures and ruined lives.

2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs.

C. This backstop will cost less than $50 billion—a small fraction of the current proposal.




II. MARK TO MARKET

A. Remove mark to market accounting rules for two years on only subprime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate.

B. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks—and it costs the taxpayer nothing.




III. CAPITAL GAINS TAX

A. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing.

B. This move will be seen as a lightning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement investments that go up instead of down. This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to
stand up, speak out, and fix this mess.

shack

average_guy wrote: »

Years of bad decisions and stupid mistakes have created an economic nightmare in this country, but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support any congressperson who votes to implement such a policy. Instead, I submit the following three steps:

Common Sense Plan.

I. INSURANCE

A. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity.

B. In order for a company to accept the government-backed insurance, they must do two things:

1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage.
a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes.
b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while
working with the borrower—again limiting foreclosures and ruined lives.

2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs.

C. This backstop will cost less than $50 billion—a small fraction of the current proposal.




II. MARK TO MARKET

A. Remove mark to market accounting rules for two years on only subprime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate.

B. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks—and it costs the taxpayer nothing.




III. CAPITAL GAINS TAX

A. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing.

B. This move will be seen as a lightning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement investments that go up instead of down. This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to
stand up, speak out, and fix this mess.

I've seen the stuff above all over the internet and they are band-aids at best and do nothing to solve the problems.

I will not vote for any Senator or Representative that doesn't have the ball's (figuratively speaking) to do the right thing and approve some sort of plan (call it a bailout if you want) to fix the problems now...and that includes getting the bad assets out of the system. Not trying to dress them up and act like they are desirable investments for the market. Obama's pig comment comes to mind...you can't just put lipstick on it and act like it's now beautiful.

Kex

average_guy wrote: »

... Common Sense Plan.
...

Interesting points IMO, if only for the value of discussion. I have a problem understanding how eliminating Capital Gains tax would work though: I have no idea how much revenue this currently generates for the budget, but it would probably not be possible to simply end the source of a large source of tax revenue with the wave of a wand ...

Kex

shack wrote: »

... Obama's pig comment comes to mind...you can't just put lipstick on it and act like it's now beautiful.

Shame on you, macho sexist Palin basher!

Polksaladanni

I'm done worring about it. Damed if we do, damned if we don't. The Pubs knew the first 2 bills were turkeys and now they are getting their way on some things to keep us workin' stiffs from emptying our wallets (seriously the right things) and they told the Dems to piss up a rope on giving Acorn 20% of the $750bil.

How is it we mostly elect the sour cream of the crop in DC?

I'm feeling a little better now.

Paul

6'&glassy

exalted512 wrote: »

Its really not that difficult to grasp man. The Federal Reserve has been saving money before any of us were born. Jstas has already stated what it gets used for.

But if we use, say 700B bucks today, that does not mean youre going to get less of a refund when you file your next W2.

Yes, the money does come from the taxpayers. But think of it this way. You have a water faucet thats always on (the flow of money that goes into the Fed. Res.). Your faucet fills up a large container (the Fed. Res.) You use this water to water your dogs(what we take money out for) once a day (every time theres an event big enough to warrant taking money out). You have a bucket that you dip into your large container to water your dogs. Now this bucket can take out much more water than your faucet is putting in during the same time frame. Fortunately, your dogs only need water once a day, so by the time you need to use it again, its filled back up.

I don't think we've ever pulled out this much money (or would have had it gone through), and we have money in the fed. res. to pull it out from, so obviously were putting more in than were pulling out. So hopefully it'll be another 95 years before we have to do something like this again...hopefully never.

As said time and time again, our government is the only entity in the world that has the money (and time for a ROI) to fund something like this. But letting this continue will have much, much worse repercussions.

-Cody

People save money. The Federal Reserve devalues savings accounts when it prints up, out of thin air, billions of fiat currency in the form of IOUs. Good grief. No wonder Paulson and his thugs thought he could come into television living rooms and demand $700,000 without any provisions.

BaggedLancer

We're on the path to becoming Soviet America. An America where you don't work for the state, the state works for YOU!

exalted512

6'&glassy wrote: »

People save money. The Federal Reserve devalues savings accounts when it prints up, out of thin air, billions of fiat currency in the form of IOUs. Good grief. No wonder Paulson and his thugs thought he could come into television living rooms and demand $700,000 without any provisions.

And how does that differ from any other country that prints money?
-Cody

AsSiMiLaTeD

Well, with all the political and financial experts we have here on the board, maybe WE should be running the country

disneyjoe7

AsSiMiLaTeD wrote: »

Well, with all the political and financial experts we have here on the board, maybe WE should be running the country

We would come off as "No Heart" and not always "Politically Correct" at the time.

treitz3

You forgot the "mob" part as well Steve......:rolleyes:

shadowofnight

This should not have been allowed to happen...


" Congress wants to crack down on CEO mega-salaries for banks participating in the bailout. And while the politicians argue how best to do that, Alan Fishman of Washington Mutual is headed for the doors with $19 million in his pocket.

If that wasn't outrageous enough, consider this: Fishman started the job three weeks ago. I never saw the employment ad Fishman answered, but it must have read something like this:

WANTED: Top executive for train-wreck bank about to be seized by federal regulators. Must be able to look busy while FDIC sells business from under you. Previous experience with angry shareholders sitting on worthless stock a plus. Perks: $7.5 million hiring bonus and $11.6 million cash severance. "

I guess the banks in trouble have gotten a little better with their money management since this started :rolleyes:

By the way...very informative thread.....

disneyjoe7

brettw22

I fully agree that there should be a limit put on CEO's that are on their way out as part of this plan. I also think that something should be put into place that limits what CEO's get when they run a company into the ground.......

treitz3

I have worked for companies that this happens too. It seems to be a game amoungst CEO's as to who can make the numbers look great and split in the right amount of time. They get hired again to do the same thing, meanwhile laying off thousands of great workers, making bank along the way, bankrupting the business they were paid to "save" all the while not having any conscience, backbone or accountability to what they have done.

Don't you just love America?

treitz3

BTW, Steve.......that's funny. Gotta roll now........

Deadof_knight

the quote by shack was right on. The fact we got here and govt type officals set on there heals doesnt make me feel any better.. But if youve got time ride it out and the market will recover ....

this too shall pass......................................as long as they get it right !

Kex

We might end up like Japan: their stock market still has not recovered, seventeen years later ...

John30_30

BaggedLancer wrote: »

We're on the path to becoming Soviet America. An America where you don't work for the state, the state works for YOU!

The state never worked for the Soviets. A popular saying there used to be "We pretend to work, and they pretend to pay us."

John30_30

sucks2beme wrote: »

Standby for the next round. Commercial property defaults are about to skyrocket.
In markets like Dallas, they have gone completely nuts with new apartments,
shopping, and office buildings. They are building new buildings next to vacant ones.
They are projecting only a 5% increase in XMAS shopping over last year.
They are in for a surprize. Guys hanging by a thread like CC and
Blockbuster are going down. My guess, 10% drop over last year.
No science. But like in stock picks, the monkey always wins. I'd like to think
I'm as lucky as a monkey.

Yeah, that commercial property is gonna go for a dime on the dollar expected for anyone who can pony up in a year's time. Any connected guys in the forum, or is that the wrong question to ask?:eek:

exalted512

Wow...read this today.

"We're back to more normal underwriting standards," Casey-Landry said. "People will need to have good credit to get a loan."

Holy ****, now there's an idea! BTW, Casey-Landry is the chief operating office of the American Bankers Association.

http://money.cnn.com/2008/10/04/news/economy/will_it_work/index.htm

-Cody