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The Senate will vote on the $700 billion bailout plan (or the Economic Rescue Plan, as the White House calls it) tomorrow. The NY Times, which described it as a "surprise move," reports that Senate majority leader Harry Reid (D-Nevada) said, "It has been determined, in our judgment, this is the best thing to move forward. This is good for the country.”
The package will reportedly have "new provisions-including raising the FDIC insurance cap to $250,000 from $100,000." Senator Barack Obama mentioned the idea early this morning and Senator John McCain also endorsed it; FDIC's chairwoman also supports a temporary increase, according to the Wall Street Journal.
Interestingly, after the House failed to pass the bill on Monday, the previously angry calls to lawmakers about the bill became angry calls wondering why they didn't take any action--Rep. Steven LaTourette (R-Ohio) said, "I started hearing from a lot of people who lost money on their investments thanks to the big drop on Wall Street yesterday." However, the Washington Post said House Speaker Nancy Pelosi "responded tepidly" to the Senate decision, "The Senate has made a decision about how to proceed and what can pass that body. The Senate will vote... and the Congress will work its will."
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First the gun to the American people's head by Wall St was, "the economy will collapse if we're not rescued". Now the new gun is, "see? ..you'll lose all your shitty little stock investments too, so let me keep my millions so you can keep your miserly $300"
I hope that when the economy collapses (and lets hope for *total* collapse with no bail out), the first thing they should do is completely ABOLISH the Federal Reserve.
It's a mater of when not if, and the best way to get back up is to let it burn and rebuild a better system.
And when the economy collapses, it's us young innovators that will bring it back up.
I want the Federal Reserve abolish, I don't want the looters (Bankers) getting taxpayer money for their own mess.
The bailout will put the younger generation and the following generations in bondage. I don't want that at all.
I want total economic collapse, let it go bankrupt and we can rebuild from there.
I am 25 and a long time to live and I surely don't want to be in bondage 'till I am 80 something!
And besides your savings will be gone anyway, this bailout is like putting chewing gum on a broken damn.
I mean that this bailout is only holding the inevitable, if the bail out passes (which is only there to help the Bankers i.e. NOT YOU) then it will hold out for a little bit and then the collapse (which will happen anyway) will be even worse.
Let's get t over with now, so we can rebuild soon. Rather then wait a year or two for an even bigger collapse then what would have been had the bail out not happen.
This is why people should have invested in commodities years ago (Gold, Silver, Copper, Sugar etc.)
Just let it collapse and get it over with now rather then later.
You guys are just beyond ignorant. You have no idea what the hell you're saying, no idea how bad it is for the average American with any savings in the market right now, no idea what "oh, just let it go bankrupt" really means, no idea what this plan actually does if you think it's only helping the bankers. Wake up man, the bankers that screwed us all are already fucked. All the investment banks are already wiped out or neutered.
We take your "do nothing" approach and you won't just be able to realize your naive, young innovators unite bullshit, because the country will fall into a long depression, and we'll destroy the life savings of half the country just to get a little revenge on a few rich people who are going to be rich no matter what. So what's the point? Why don't you just get over it already and move on to the solution.
This plan will keep people in their homes, keep businesses running, and keeps people in their jobs. This bill saves people who did nothing wrong and are a casualty of the bankers' mistakes. You don't want this to pass and you're just going to punish regular Americans.
We younger generations (late Xers and Yers) will not have long term bondage to bail out the mess of the Boomers.
Boomers are going to retire soon, we young people are the ones who are going to pay for this mess generations to come.
Let them eat cake (or rather an empty plate in this case).
NO to the bail out!
I'm not drinking your kool aid, sidenote.
you wrote three paragraphs of nothing but attacks.
the american dream, but you'd have to be asleep to believe it.
So when younger generations need credit for student loans, car loans, a night out with Visa/Amex/MasterCard, a mortgage for your first place or a job (won't be as many hires with a business credit crunch) will you pay for it all up front with bags of cash or stacked gold bars?
Angry God is right. This is about credit. Credit fuels our economy. Large institutions need credit, as do regular Americans. Without credit it will be extremely difficult on all Americans. It may not be apparent now, but do nothing and then wait a year.
http://www.nytimes.com/2008/10/01/business/economy/01leonhardt.html?hp
700 billion is a hell of a lot of money, but I disagree that it will take the US gov't a lifetime to pay it off.
disclaimer:I understand that credit got us into this mess and I'm not saying financial institutions should be leveraging 40 to 1, I'm saying what Angry God is saying: we need student loans, mortgages, small business loans, etc.
Reverting to a cash economy will inconvenience a lot of people. We would have to be a nation of savers once again yet because our economy is now based on consumption and not producing anything, there would be millions of jobs lost and people out of work could save little. No more cushy lifestyle on easy terms, anything you want would involve a lot of sweat equity. Some are well conditioned for such an economy but most people, especially younger ones, have no idea what this means. Credit has become our ball and chain but the way to deal with it is to shrink it, not cut it off.
I have an idea -- why not just give credit to people who can actually pay it back!
People with good credit will always be able to get credit. I'm against the bailout. Prez and Dems say the sky is falling. Bah. Bailing out the credit mess "on credit" just makes no sense. Why don't we just prosecute these execs for fraud, seize their multi-billion dollar assets and use that to clean up the mess?
And then throw out the bums who continually stonewalled efforts to curtail Freddie and Fannie a few years ago.
"People with good credit will always be able to get credit."
Even banks aren't loaning money to each other for fear that they or other banks will collapse. Banks are hoarding money and people will begin to do this too. I think your assertion is incorrect.
I'm generally not an idiot, but on this bailout thing, I have no idea what the right thing to do is. On the one hand, IF the people supporting the bailout are right, and a one shot $700 billion package will start things on the right track and prevent a depression, then it's probably a good idea as a preventative measure, save everyone a lot of pain. On the other hand, no one really knows if the supporters are right. It could easily turn out that this won't fix anything, in which case it's a big money grab based on scary stories by people who will profit from this. Initially I supported the bailout, but as time passes, I'm starting to think fuck it. My house value is declining, my 401k is suffering, and you know what? fuck it. It's almost worth the pain I will suffer to watch the idiots who have been living beyond their means for years finally have the music stop.
The people who have been trying to live responsibly have been supporting this for TOO long, earning low interest on savings and treated like fools for living within their means while everyone around them was buying million dollar homes on thousand dollar incomes paid for with adjustible rate mortgages.
Let the foreclosure rate skyrocket. Good.
Let the banks that supported this fail. Good.
Let the bankers that lied to us while pocketing millions lose their jobs. Good.
It's the old ant and grasshopper fable, and now the grasshopper is asking for another $700 billion in free money to get it through the winter (and will probably be back for more in a month or two). Maybe this time, the ant should say no. It might not be the best of times, but the ants will survive.
NYC Sniper,
Just to befair...
It's true that more Dems than Republicans voted for the bailout, but there are still plenty of high profile Dems who are against the bailout. Michael Moore is one that come to mind.
http://www.michaelmoore.com/words/message/index.php?id=236
And there are plenty of Republicans that are for the bailout. Bill O'Reilly thinks it should go through. http://latimesblogs.latimes.com/laland/2008/09/bill-oreilly-de.html
adding to NYCsniper comment, it was only a few years ago that lenders were being criticized for what was, at the time, the age-old practice of requiring 20% down, good credit and income history to support a mortgage. Refusing to lend to poors was called racist. Homeownership increases during one administration or another was touted as a positive accomplishment. The game changed. And I'm not just blaming poors for this, because the rich did the same thing. Started taking low or no money down mortgages with adjustible rates and balloon payments just because the money was made available to them, borrowing on the idea that they'd sell for a big profit 3 or 5 or 7 years, before the rate adjusted up. And idiots on both sides of the aisle supported this, with Alan Greenspan as the wizard behind the curtain, blessing the practice. This has been years in the making.
Bear Sterns collapse didn't solve it. Sale of Merrill Lynch didn't solve it. Bailout of AIG didn't solve it. I'm not sure why we are supposed to take it on faith that a hastily prepared 700 billion package, pitched to us by the idiots who created this crisis to begin with, is going to solve it.
Yes, it both Dems & Repubs are in on this, but it is the President who has issued the "dire warning" (uh, cried wolf one too many times?) and the Dems who are spearheading it (primarily because they are the ones who caused it mandating loans to what eyecantspell calls "poors". Add the greedy execs to the situation and you've got a lethal mix.
The way I see it, this is just the proverbial straw that is breaking the camel's back --- we are over-leveraged, due in large part to the war(s), hurricanes, etc. --- bailing this out on credit is nothing short of foolhardy. The market must crash to re-level. We have bought tickets for the ride, the roller coaster has clanked it's way up the hill, we can take the plunge now or later, but the more we wait the worse it will be.
The problem was caused by the lack of oversight by the government. If newer, tougher regulations aren't put in place it will happen again.
I don't know if Michael Moore is so much a Dem as he is a turd... if you canvas the opinion of anyone truly "in the know" you'd find that the vast majority of people that are very well informed about this nation's banking system support the "bailout" even if they do not like it, regardless of party affliation or political views.
Honestly, I think unless you can explain why Libor jumping 435 basis points yesterday is significant, explain the purpose and function of the swap market or understand what a repo is, I think its best to defer to those who *actually* understand the implications of all of this and reserve all of the ill-informed opinions.
It amazes me the number of ignorant comments people make because of what they heard some Republican Senator from the mid-west say on Larry King about this being on the "tax payer's shoulders" and "shoulda seen this coming". Or even the comments of those that do support it but dont even understand why, and only do so because they saw Suze Orman said she did on Oprah. Turn on Charlie Rose once in a while and learn something, no?
As far as the blame goes, Its beyond just wall street execs securitizing mortgages, rating agencies, or mortgage brokers overextending credit -- who in my experience are generally middle class, of modest means, and by no means an exemplification of greed-- Hell, it even goes back as far as the Clinton Administration (which as a faithful democrat pains me to say) and pressuring Fannie and Freddie to make money accessible to those down the credit chain to make home ownership more accessible.
So at the end of the day, I think most people should just STFU, wait, and hope that this gets passed, this is very serious folks. The meltdown of the banking system in the Western World is really really really really not good. The bailout wont *fix* the economy but it will cushion the blow to an extent that I think most cannot appreciate.
Meanwhile your wages, savings accounts, and fixed-income entitlements will have been halved or quartered by general inflation. That's how the present bailout will be paid for, not by increased taxes.
Sooner or later, the American financial system will have to be reconstructed, and that won't be done with the magic bullets being sold in Washington right now.
We already live outside of our means, as Americans. Going back to being a nation of savers would not be such a bad thing.
eat the rich. let them die. I already got a loan and a house. I overpaid for my house and now it's value is diminishing as we speak but I still have money to pay for the mortgage. I have to pay but these wall street fucks don't? hell no! I just talked to my friend from Goldman Sachs who works in the highly speculative, imaginary instruments department of derivatives and he says that most of them are fine anyways. It's only the newbie analysts who are fucked. pretty much everyone who has had tenure at an Ibank is still well off compared to main street folk. They might not be making as much in the future off bonuses but they've already accumulated great wealth from the crazy insane pay packages that came from the last decade. so why even shed a tear for them. Most of the people who will be fucked in this bailout are sheep from the republican party. the base that blindly listen to the heads of the republican party that say what's best for them but really look out for their wealthy asses and wield the power of white zombie jesus against them. let them feel the scourge of voting for bush. the only way they'll ever learn is positive punishment.
I am not enthused about subsidizing fatcat CEOs and deadbeat borrowers. Yeah, its an ugly picture allright, but the system is broken as will be our backs if we have to continure to carry this load.
Finance Guy,
I agree with you -- not because I understand the situation and not because I saw Suze Orman on Oprah, but because I really trust the bald guy on Mad Money.
@MrMel:
Yes, the problem was exacerbated by the lack of oversight by the government. This is the fault of many Republicans, who were ineffective in enforcing the laws, and many Dems who were in charge of covering up the great swindle(s).
Barney Frank should be shot. I don't understand why we aren't rounding up all the culprits and enforcing the laws we have. Instead, we're writing new laws when no one is enforcing the ones already in place.
@VanessaNYC
I don't know that I was referring to Jim Cramer..but, are you flirting with me? ;)
financeguy- as person who can explain why libor was up yesterday and the purpose of repos and swaps, I'll bite. Do think its a good thing for America on the whole (not just B/Ds, banks, funds etc) that the Fed and the Treasury to continue to add liquidity. The national debt is approaching $10 Trillion. CAT can get loans at rates 400 bps over market and maybe that speard is the new paradigm. Whats wrong with that?
We on the street have done a horrible job of marketing this plan to the American people. But we cant figure it out ourselves. We dont know what these assets are worth. Many of us see the housing market as being depressed for many many years to come which will only worksen the current problem. And for gods sake we're fighting of MTM accounting? Now?!?
Its scares the average American that we on the street cant easily pinpoint the issues that caused these problems.
When the times were good, all I heard was "we need less regulations" and "we need less govt intervention". Now that the times are bad, the rich assholes are trying to rob the taxpayers of 700 BILLION dollars. Privatize the profits, socialize the losses!
Oh, and Finance Guy, overnight Libor jumped yesterday because it was quarter end, it dropped today: http://www.bloomberg.com/apps/news?pid=20601087&sid=amb7quDeeWd0&refer=home
I am not in the industry but out of all the comments on here, I got the most out of FinanceGuy123's comment. I notice this trend recently...people arguing their point but not listening to the informed commentary around you. Go read his post, look up what you don't understand, and for heaven's sake proofread your comments before hitting "post." It just gives you slightly more credibility.
A lot of middle class folks are already being affected by this crisis. It's not just the rich. Hopefully we can come up with a workable long term solution to this.
FinanceGuy,
> pressuring Fannie and Freddie to make money
> accessible to those down the credit chain to make
> home ownership more accessible.
I've heard that before, and that's not true. They were happy to give people the mortgages, without any political pressure. That's because they were reselling the mortgages to investment banks for a fee, who in turn repackaged them into CDO's. They were interested in quantity, not quality.
> So at the end of the day, I think most people
> should just STFU, wait, and hope that this gets
> passed
Yup, just the failed banks some a lot of money and STFU! That's the spirit!
> this is very serious folks
Sounds like you're trying to scare us into compliance.
FinanceGuy,
Yes, I was flirting. ;)
yg ---
> I've heard that before, and that's not true.
It is absolutely the truth. Fannie and Freddie are GSEs -- Government Supported Enterprises --- and the congress legislated as far back as the 90s (yes Finance guy is right) that these companies provide "affordable housing" -- i.e., if you can't afford to buy a house, we'll set you up --- no down payment required! This has trickled through the system, sold and repackaged, to get us to where we are now.
FinanceGuy123 sounded reasonable until he said this:
that's when i realized he was full of shit.@TK
I remember the cover of the economist one week in-- I want to say January 2005 when things were still booming. The Cover: a picture of a falling brick with the word "Housing" on it which posed the question what will happen when the bubble bursts? Its a sick sad thing that we were so self aware, yet unable to stop. The rule of the day was: you had to make the case for why you were not going to issue a loan, not make a case for why the person/corporation asking for it deserved the loan. Capital was cheap, people had money to put to work.
Tough to say that seems almost irrelevant this week. As you said, we haven't the slightest clue what these assets are worth and unfortunately we need a vehicle to absorb the potential losses that are on the come.
I've heard arguements for a "bottoms up" approach, giving tax payers money to make up for negative equity, or swapping out part of high interest rate mortgage for old mortgage thus making the home affordable. To be honest I dont see how that solution works. Home values are, by most estimates, still overly inflated, prices need to adjust, giving homeowners money to make up for lost or what I consider "fictious" equity in the first place is the populist thing to do, it simply doesnt work.
By no means do I want to suggest the 700bn bailout is a good thing and I think it will ultimately be a money losing proposition. But I think its a better idea to collectively pay more in taxes to cushion the fall than to be faced with surviving half a decade or more of potential squalor where unemployment climbs to 8, 9, 10%+ as well. No one should fool themselves, its not the Harvard MBAs that'll be part of that 10%.
sniper,
They were supposed to be GSE's, until they were privatized back in the 60s. And even before that they were set up to make market - provide liquidity - for mortgages, not for giving away houses to people who can't afford them.
Please provide a link to any legislation that would have FORCED gse's to do anything.
@zodak
guess that depends on your definition of "modest means." Most of the mortgage brokers/loan officers I have dealt with live in what I would consider "modest" 400-500k homes. Yes, they do live in nice neighborhoods..yes comp was good when times were good, people I knew could made upwards of 90-100k..but that also represented great success for a smart hard working guy with only an associates degree who thought he was doing the right thing by putting people into homes and by no means the quarter million, half million, $1mm + salaries of late 20-something guys on Wall Street.
I have heard the idea that a mortgage broker is a sophisticated and meniachal and the true culprit for this whole mess thrown around a lot, not surprisingly by people on Wall Street sayig "hey it wasn't us, we didnt help to originate these things." Just saying that person is by no means a fat-cat and some of the first to feel the pain when credit dried up and they were downsized out of a job.
That said, there is a difference between your run of the mill mortgage broker and overly tan former CEO of country-wide..he's the fat cat.
@yg
Libor dropped compared to yesterday, yes, but typically at qtr end overnight libor does not jump to its all time high. If you take a look at the 3M that is up over yesterday, and up significantly to 4.15% and up significant over the middle of the month where it was around 2.8%, given its the base rate for a lot of corporate lending, could be problematic as it will dramatically increase the cost of funds for companies.
Of course the validity of Libor itself has been called into question for being underreported, etc. but thats a whole other financial doomsday that i do not believe it the topic of discussion here
@FinanceGuy123 I'm still not convinced that this plan is going to fix the problem or even that it will cushion the blow.
But I think its a better idea to collectively pay more in taxes to cushion the fall than to be faced with surviving half a decade or more of potential squalor where unemployment climbs to 8, 9, 10%+ as well. No one should fool themselves, its not the Harvard MBAs that'll be part of that 10%.
Who's to say that we still won't see 10% unemployment? A lot of the have-nots will be hurt, but the market for Harvard MBAs isn't immune from a crash. And those that are left standing will be taxed at a higher rate.
The failure of the credit market is the problem, and no bandaid solution is going to fix it. No matter what we do, the cost of borrowing is going to go up for the little guy. Even as the fed kept rates at 2%, banks were closing credit lines and keeping mortgage rates at 6+% There's no trickle down to consumers, the banks are just using the bigger spread to stay afloat. Yeah, I read the Economist too, and Fortune and Crains and so what. So did a lot of guys at Bear Stearns, and Lehman and Merrill, a lot of good it did them.
YG: FYI:
"Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more "affordable" loans made to these borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing."
http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html
Fair enough, but why cant the banks just pay up for liquidity? Thats what you and I would have to do. Rates have been too low for too long and easy money floating around. Money still has to go to work and people/businesses need loans but adding to the money supply is even more inflationary (assuming velocity stays the same) and will hurt more over time. That's why prices and rates need to adjust in the free market and not through government intrusion.
The discount rate might as well be 0 and the Fed is taking anything for collateral. The Fed used to be the lender of last resort but they have used all of their bullets. The Fed overstepped its authority and obviously needs help but is this bill needed now? Or maybe should it be thought through and discussed for a week or month more? This bill will pass, even if horribly flawed (like the PATRIOT Act) and the taxpayer will now become the lender of last resort and my gut tells me this loan will be default.
Oh and I do think we'll see more unemployed Harvard MBAs after people redeem their fund investments come Jan and Mar 09. (Of course they will be reconvening to start new funds right ;))
listening to these comments it seems that no one knows what the fuck they are talking about. They may sound like they know but there are way, way, too many confluencing agents to pinpoint this problem. It's the interest rates, it's subprime mortgages, it's soulja boy's shitty dance. bailout or no I will survive, If you voted for bush then you deserve everything that's coming.
ISM down, consumer spending down, non-residential construction down. The economy is in recession and that is a much bigger problem than tight credit markets IMHO.
You guys NEED a fucking recession. That's the only cure for this.
wall street : main street :: capital : labor
Friedman has a decent column in the Times today about this:
http://www.nytimes.com/2008/10/01/opinion/01friedman.html?em
"This is a credit crisis. It’s all about confidence. What you can’t see is how bank A will no longer lend to good company B or mortgage company C. Because no one is sure the other guy’s assets and collateral are worth anything, which is why the government needs to come in and put a floor under them. Otherwise, the system will be choked of credit, like a body being choked of oxygen and turning blue.
Well, you say, “I don’t own any stocks — let those greedy monsters on Wall Street suffer.” You may not own any stocks, but your pension fund owned some Lehman Brothers commercial paper and your regional bank held subprime mortgage bonds, which is why you were able refinance your house two years ago. And your local airport was insured by A.I.G., and your local municipality sold municipal bonds on Wall Street to finance your street’s new sewer system, and your local car company depended on the credit markets to finance your auto loan — and now that the credit market has dried up, Wachovia bank went bust and your neighbor lost her secretarial job there.
We’re all connected. As others have pointed out, you can’t save Main Street and punish Wall Street anymore than you can be in a rowboat with someone you hate and think that the leak in the bottom of the boat at his end is not going to sink you, too. The world really is flat. We’re all connected. "