House turns down bailout

[Al_U_Card]

Au contraire, we are our salvation, if we will only listen to ourselves or....

 

famous politician, C. Lindbergh Sr:

 

"To cause high prices, all the Federal Reserve Board will do will be to lower the rediscount rate..., producing an expansion of credit and a rising stock market; then when ... business men are adjusted to these conditions, it can check ... prosperity in mid career by arbitrarily raising the rate of interest. It can cause the pendulum of a rising and falling market to swing gently back and forth by slight changes in the discount rate, or cause violent fluctuations by a greater rate variation and in either case it will possess inside information as to financial conditions and advance knowledge of the coming change, either up or down. This is the strangest, most dangerous advantage ever placed in the hands of a special privilege class by any Government that ever existed. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money. They know in advance when to create panics to their advantage, They also know when to stop panic. Inflation and deflation work equally well for them when they control finance."

[Al_U_Card]

Bank(er)s win! Bank(er)s win!

 

and sadly, we lose....but somebody HAS to lose, don't they?

[Al_U_Card]

Since you can't blame human greed (you can, but it won't change of its own volition) you must blame the government and the regulators.

 

Who decides who shall govern?

 

We have met the enemy ... and it includes you Al! :(

Can't say as I recall that the Federal Reserve position(s) get filled by vote....

[PassedOut]

More specifically, the current incentive systems are fixated on short term profits and encourage wild risk taking. I think that we'd all be much better off if bonuses structures incentivized long term long term thinking. Pay the bigwigs what you want, but make sure that a significant portion of their compensation package is in the form of highly illiquid options with a vest date 10 years out...

I agree with this 100%. The excessive focus on the numbers for this quarter and this year override building for the future. If you reward wild risk taking, you get wild risk taking.

[Al_U_Card]

And if the legislature allows skullduggery, you get...

 

Peter Schiff - Sep 18, 2008

 

By nationalizing nearly 80% of AIG for $85 billion, the Fed is doing a lot more than simply flushing taxpayer money down the toilet. The greater wrong is allowing the agency that has the power to print money to take control of a private enterprise, especially without the approval of the company's shareholders. The move represents the largest lurch toward socialism that this country has ever seen, and signals the end of the vibrancy of America's once vaunted free market economy. Since there is no limit to the amount of money the Fed can create, there is no limit to the number of assets they can acquire.

 

The "line in the sand" that the Government seemed to draw by refusing to bail out Lehman Brothers was erased in just two days by the very next wave of financial panic.

 

While Fannie and Freddie were arguably quasi-government agencies that deserved special protection, no such status exists with AIG. Where does the Fed get the authority to use the money it prints to take over private companies? Congress never gave such authority and, even if it had, it would be unconstitutional, as Congress itself has no such authority to delegate. What about the shareholders? Why didn't they get to vote on this acquisition? Whatever happened to private property rights?

 

AIG is not a bank; it is not even an investment bank. The "lender of last resort" power was supposed to apply only to banks, to prevent runs. It was not meant to apply to any company that had been declared "too big to fail".

 

I suppose the Fed is trying to get around some of the more obvious illegalities by having the new AIG shares issued on behalf of the Treasury. What happened to the concept of an independent Fed? Here you have the Fed seizing a private company and ceding control to the U.S. Treasury. Rather then acting independently, the Fed and the Government are merely partners in crime.

 

On the economic side, the Fed expects us to believe this is a smart investment. Does anyone really think that officials at the Fed and Treasury are suddenly private equity experts? These are the guys who missed both the tech and housing bubbles, and who assured us that subprime problems were contained. I would not trust them to run a lemonade stand, let alone one of the largest insurance companies in the world.

[barmar]

From my local paper:

Democratic Rep. David Obey of Wisconsin blamed President Bush and Republican presidential candidate John McCain for the defeat because they failed to deliver sufficient votes from members of their own party. "It is incredibly reckless on their part," he said.

 

This is nonsense. We want our elected representatives to use their best judgement, do we not? That they did not toe the party line does not, in my opinion, reflect poorly on Bush or McCain. To call them "incredibly reckless" is specious. OTOH, best judgement or not, it may be that those (of both parties) who voted against the measure were incredibly reckless. It may also be that those who voted for it fit that description. There are way too many variables to be sure one way or the other.

I have two responses to this:

 

1) I don't think the representatives used their best judgement. They were just doing what their constituents wanted -- as someone posted, public sentiment was 10-to-1 against the bailout. The problem is that most working class people don't understand the big picture, they just saw this as a a way for the fat cats on Wall Street to win despite all the trouble they caused -- rich politicians saving their rich financier friends' asses.

 

The purpose of a representative government is to put smart people in charge, and they should be allowed to use their best judgement. Unfortunately, they're also swayed by wanting to avoid being voted out. It's really unfortunate this is happening so close to Election Day, as it doesn't allow time for the benefits of the bailout to be felt. I wonder how many of the Congressmen who voted No are up for re-election this year?

 

2) There's some irresponsibility in the Finance Committee and other officials (including Bush and McCain) who were working on getting the bill passed. They should have understood the concerns of the rest of the House. A bill this important and visible should not have gotten out of committee until they had a version that could pass. The symbolic impact of the bill failing was much worse than it being stuck in committee would have been, IMHO, and that's what caused the stock market to plummet.

[Al_U_Card]

They saw well enough to get off their duffs and cry "foul!".

 

Would the markets have "responded" equally to a level-headed approach of naming a bi-partisan commission to come up with recommendations instead of the "sky is falling" fear mongering....btw the sky is still up there....

[DrTodd13]

More specifically, the current incentive systems are fixated on short term profits and encourage wild risk taking.  I think that we'd all be much better off if bonuses structures incentivized long term long term thinking.  Pay the bigwigs what you want, but make sure that a significant portion of their compensation package is in the form of highly illiquid options with a vest date 10 years out...

I agree with this 100%. The excessive focus on the numbers for this quarter and this year override building for the future. If you reward wild risk taking, you get wild risk taking.

This is a great story for those who love regulation. In the late 90s, the Democrats thought it was unfair that CEOs got paid huge sums of money independent of the performance of the company. So, they made it advantageous from a tax perspective to give a million in base (non-performance) pay and base any other pay on performance (and the easiest way to determine performance is by stock price). This is what created the CEO fixation on stock price and the endless manipulations to bump up the stock price while the current CEO is there so that he can cash in. I read a book on this that mentioned that GE had something like 42 consecutive quarters where each quarter's profit was higher than the previous. This is clearly an impossibly unlikely result in the absence of purposeful manipulations. The law of unintended consequences in brutal action here. Other than Ken Lay, you now know who to thank for Enron.

[jdonn]

I wonder how many of the Congressmen who voted No are up for re-election this year?

I heard on CNN last night that among congressmen who are likely or assured of retaining their seats after the election, 50% voted in favor. Among those in closely contested elections, 33% voted in favor. Take it for what you will.

[cherdano]

I wonder how many of the Congressmen who voted No are up for re-election this year?

I heard on CNN last night that among congressmen who are likely or assured of retaining their seats after the election, 50% voted in favor. Among those in closely contested elections, 33% voted in favor. Take it for what you will.

Among those retiring, almost everyone voted in favor...

[mike777]

"The Herald Tribune had a article along the line

"What would Warren Buffet do".

 

The answer was, get a stake in the companies you

are rescuing, that is what he did with Goldman

Sachs, ... and that is, what the bailout plan should

also include.

 

If taxpayer pay, they should get something back,

and I dint mean rubish papers, which may or may

not have something to do with mortages.

 

If this happens, I am pretty sure, that you could sell

the plan to the taxpayers, since it is clear, that the

community of taxpayer has to do something.

 

With kind regards

Marlowe "

 

 

 

 

Marlowe my friend:

 

Whether we should take a shareholder stake in these companies is worth discussing but let us back up a second on your entire post, please.

 

You seem a bit confused on who takes a higher claim on the assets of a company.

 

If a company goes bad the shareholders are last in line for the assets of a company, in other words they are going to get nothing. :(

 

 

"If taxpayer pay, they should get something back,

and I dint mean rubish papers, which may or may

not have something to do with mortages."

 

If you hold the shares in a company and I hold the mortgages I get first claim.

Simple example, If I spend 700 billion bucks on discounted paper I may get 3 trillion bucks of mortgage paper(face/principle value). Assume all this goes bad. Zero!

The 700 billion bucks I pay you goes back to the people in your bank who have savings and checking accounts.

 

I now own all the homes and land under these rubbish papers. :) You as a shareholder get nada. :)

 

If somehow these mortgages are paid off by the homeowners, I get 3 trillion bucks, maybe more if they also pay any interest. :)

[mike777]

"Pump the money in at the bottom, and then when the money has reached the top, take it away by taxing those at the top.

 

The focus should be on those who have lost everything, not those who are still millionairs but only less than before."

---------------

"Agree with Gerben."

 

----------------

 

Gerben:

 

First off I understand the concern of doing something for people who have lost everything. If you do not have a roof over your head and food in your stomach, we need to do something.

 

Still pumping money in at the bottom creates a moral hazard.

 

If I was a millionaire yesterday and today I got nothing I do not mind raising taxes on Gerben and Helene to feed and shelter my family but at some point you do not want me borrowing like crazy to buy a house I cannot afford and if I lose your family suffers.

[Lobowolf]

"Pump the money in at the bottom, and then when the money has reached the top, take it away by taxing those at the top.

 

The focus should be on those who have lost everything, not those who are still millionairs but only less than before."

---------------

"Agree with Gerben."

 

----------------

 

Gerben:

 

First off I understand the concern of doing something for people who have lost everything. If you do not have a roof over your head and food in your stomach, we need to do something.

 

Still pumping money in at the bottom creates a moral hazard.

 

If I was a millionaire yesterday and today I got nothing I do not mind raising taxes Gerben or Helene to feed and shelter my family but at some point you do not want me borrowing like crazy to buy a house I cannot afford and if I lose your family suffers.

It is a 2-sided coin, indeed. Reminds me of a semi-recent bailout of people who lived in a heavy mudslide area of Southern California and didn't have insurance. Yeah, you have to feel bad for the people whose houses got all but destroyed, but jeez, at the same time...why not attach a rider to the bailout plan that allows for spitting in the faces of the idiots who'd been paying their insurance premiums for years, knowing they lived in a high-risk area?

[mike777]

As a side note is not the purpose of this bailout to give money to banks to make more loans, lots of loans?

 

I assume alot of these loans are going to be for mortgages for "affordable housing" and non mortgage type loans that may be risky?

 

I am not saying do not do the bailout but lets keep in mind loaning money is a risky business and that is where this 700 billion is going to.

 

Banks get 700 billion, taxpayers get IOU's. Banks turn around and loan out the 700 billion(creating credit and in fact because of the multiplier effect they create even more money and loan out this newly created money, repeat process) and take in more and more and more paper IOU's. In fact they create much more than 700 billion in new loans(IOU)

[Al_U_Card]

Well, they certainly give money to farmers for not growing crops so why not give money to banks for not lending????

 

The best lessons are those learned by hard experience.

[glen]

For those still following this (and I understand why one would not, given the coverage), here are some calmly discussing the situation:

CNBC - Bailout - Just The Beginning

[Codo]

I am really wondering about this bailout.

 

700 billion bucks- this is around 2.500 $ for each citizen. Do you really want to pay this besides the normal tax costs you bury?

This is nearly twice as much as the German State is spending in a year for everything. 700.000.000.000 is quite a big number.

 

Any ideas how you will pay this sum back?

Will you simply print the money and have an inflation?

Or will you borrow it from your children?

Or from China and the middle east?

 

It really surprised me that any given human being should be able to decide whether this is a good idea for the world and for the USA within several days.

So I really respect the descission to vote no.

 

I have not yet read how they wanted to solve the problems behind this financial disaster.

The bankers who sell house to people who cannot afford them.

The bankers who bought and sold for trillions without knowing which risk they have.

A system where you earn trillions if you have success but pays nothing when you fail. This is the best way for shortsighted strategies, because you can win a lot and if you lose.. well who cares. It is not your money.

 

Maybe we need to care for the "poor" people who take credits and cannot pay them back. But first of all we need to solve the problems, I do not see any serious approach in that direction. (But maybe it is just not yet in the news).

[Gerben42]

The taxpayer wants to know how this package, that will cost him $2500 per capita, is going to help him. Before that happens, the taxpayer will be against it and prefer to vote for someone who also against it. So the delegates in the House will vote against it because they want to be reelected. Simple, really.

 

And people won't buy the argument that "Warren Buffett said it is necessary". I might, but the average voter won't.

 

I have also no idea what a recession looks like, especially in connection with my area of work. Our order books are well filled, and hire as much qualified personnel as can be realistically integrated. And projections are that this is not going to change, on the contrary.

[mike777]

The taxpayer wants to know how this package, that will cost him $2500 per capita, is going to help him. Before that happens, the taxpayer will be against it and prefer to vote for someone who also against it. So the delegates in the House will vote against it because they want to be reelected. Simple, really.

 

And people won't buy the argument that "Warren Buffett said it is necessary". I might, but the average voter won't.

 

I have also no idea what a recession looks like, especially in connection with my area of work. Our order books are well filled, and hire as much qualified personnel as can be realistically integrated. And projections are that this is not going to change, on the contrary.

A recession is when your neighbor is out of work

A depression is when you are out of work.

 

I understand to lose your job in Europe your employer needs to hire a lawyer and take you to court.

 

In Usa, your boss says bye..........you are wonderful worker!

[helene_t]

ROFL. Spot on, Mike :)

 

It seems to me as if congress is now suddenly starting to debate what to do about the credit crisis, as if it came as thunder from a clear sky. Not that I claim to have predicted the exact time and magnitude of the credit crisis, but it's not like it's a big surprise. The media have been speculating about this at least since the dollar started loosing to the Euro.

 

Or is it that this bailout has been prepared for years and everyone was expected to vote for it, except if the issue came up a few weeks before an election?

[Codo]

a nice summary had been in our local newspaper.

 

What can you do with 700 Billion dollars?

 

War against terror for the next seven years.

4 Missions to the moon.

Employ 22 Million americans with the average income for one year.

Pay a complete health insurance for all Americans for the next six years.

Help Africa for the next ten years to cure hunger and disease.

Cure ALL problems man made to nature.

Build 3.5 Million new houses in Germany (for 200.000 $ each).

Pay all 16 secret service of the US for the next 15 years.

Buy Denmark twice. The complete BIP is 350 Billion.

Save the money for the next onehundred Hurricanes like Katrina.

 

Do you still belive that it is good use of the money to help home owners who are not able to pay the mortage and bankers who failed to make profite and burned money instead?

 

I know about the concept, "Too big to fall". So I agree that without the bailout, the financial sector is in more then serious trouble. This will influence the world wide economy and unluckily not just the finacial part. We will have many companies closing. We will have more unemployed people. This will cost all of us more then these 700 Billion Dollars. Maybe all of this is horrible, and surely it is very hard to handle.

 

But maybe it is the only way to stop the silly concepts the finacial sectors have in the moment. Maybe they will stop to act like lunatics. And maybe they after the crah will start to buy and sell things they understand and which have a value for the buyer and the seller.

[glen]

I liked this quote from: CNN/Fortune: What Investors Should Do Now

It's weird - the canary in the mineshaft has fallen over, and now everyone thinks there's a problem with canaries

As noted in the article and elsewhere, investors should look for companies with:

- low debt (debt-to-capital ratios of 10% or less)

- modest valuations (price/earnings ratios of 14 or less)

- solid earnings forecasts (earnings-per-share growth of 10% or better for both 2008 and 2009)

- dividend-paying

In other words, the show me the money companies

[y66]

Quote of the day (from Thomas Friedman's column in today's NY Times):

 

Caller: What are the best positions to be in to ride out the market storm?

 

CNBC commentator (without missing a beat): Cash and fetal.

[Al_U_Card]

Forget about canaries, but the species is close....as far as the economy is concerned.

 

The chicken still running around, with its head cut off, is just a precursor to the plucking and the roasting......it will be a meal, it is just a matter of time.

 

"W" has sold you, lock, stock and barrel to the Chinese and his "buddies" are making out like bandits. They just want their 700 billion golden parachute to ease their exit.....interesting that this culminated at the end of 8 years of a bush-league presidency...

[y66]

Not duck?