[Elianna]

cherdano, on Sep 29 2008, 03:37 PM, said:

pclayton, on Sep 29 2008, 02:48 PM, said:

Classic.

Nice to be a House Republican and hold everyone's nuts in a vise.

Translation for non-native speakers?

An actual vise is a tool that is used to clamp something down to a workbench. It's not something pleasant to have one's genitals caught in it.

See also http://en.wikipedia....iki/Vise_(tool)

[hrothgar]

Lobowolf, on Sep 30 2008, 06:36 AM, said:

With respect to tax cuts for the rich...well...to be fair, they ARE the ones paying the taxes.

If anything, I would think that the recent Wall Street meltdown would help demonstrate why we need a progressive tax system. (The House Republican's suggestion to cut capital gains taxes to zero and decrease regulation is a sick joke. Its another stellar example why the modern Republican party shouldn't be trusted to manage a Qwikie mart, let alone the government)

Wall Street managed to turn significant portions of the economy into a giant house of cards. Now its time to pay the piper. I think its only fair that the folks who benefited so greatly creating this mess bear as much of the burden as possible.

One thing that I would love to see is some kind of reconciliation between the size of bonus payments and the bailout plan. Does anyone have any good numbers regarding the magnitude of the bonuses paid out by AIG and the Wall Street I Banks over the past 2-3 years? I'd be very interested to understand the total amount. More specifically, how close is this figure to 700 billion dollars.

For what its worth, I think that some kind of bailout scheme is very much necessary. However, I think that it needs to come with some significant strings attached. Unfortunately, I think that the Democrats are missing the boat by focusing so much on the size of executive compensation. I think that it would be much more useful to regulate the forms that that compensation can take.

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'd very much prefer to see shareholders driving these sorts of initiatives. It would be better if these sorts of reforms were driven from the bottom up rather than the top down. Sadly, shareholders have been largely neutered in this day and age. Then again, it looks as if the Feds are about to become significant shareholders on Wall Street. This provides a bit more weight that they can swing around.

[Gerben42]

If this bailout is done, it should be made sure that the first 700 billion of profits from the banks who now get the bailout should be used to pay it back to the taxpayer. With interest.

Quote

Note mainstreet lost over a trillion bucks today in the market.

The "trillion bucks" that were lost were never really there. The people owning the shares thought tehy had their trillion bucks, true. But does that make them real?

BTW when is a company or bank big enough to be bailed out? Who decides? I would prefer some solution where those who were talked into the bad loans are bailed out. In that case, their bad loans are no longer a problem for them because they now are good loans, which in turn will help the banks too.

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.

[P_Marlowe]

pclayton, on Sep 29 2008, 06:34 PM, said:

fred, on Sep 29 2008, 02:59 PM, said:

pigpenz, on Sep 29 2008, 08:10 PM, said:

is this good or bad?

I do not know anywhere near enough about economics to offer an informed opinion, but I do know that my friend Warren Buffett claims that some form of bailout, though highly distasteful, is unfortunately necessary.

Warren understands the workings of the financial world as well as anyone and he is also a man of great integrity - he would never make a statement like this unless he genuinely believed it was true.

So I am concluding that it is bad

Fred Gitelman
Bridge Base Inc.
www.bridgebase.com

Sure, but just because it doesn't pass today, doesn't mean it won't pass, and the next version will be a reasonable one.

Mr. Buffett also has a dog in the fight with Goldman-Sachs, although I'm sure his feelings would be the same without this investment.

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

[P_Marlowe]

jdeegan, on Sep 30 2008, 12:28 AM, said:

Latest as of midnight CST in the U.S. - Yesterday's bill got defeated because e-mails and phone calls were running almost 100% against it in conservative congressional districts. Since 6pm CST a complete reversal - the same e-mails and phone calls are running 10 to 1 to do something to reverse the stock market decline by passing something - anything - next time around. Look for a finished bill by next Monday at the latest. It should include a directive to deep six the ridiculous (at least during a financial crisis) 'mark to market' accounting rule.

Do I think the delay is a good thing or a bad thing? I doubt anyone cares, but for what it's worth, I think the delay in passing a bailout will be seen on balance as a bit of a negative. The ultimate bailout bill will be better, but the delay has rattled the financial markets, and this might turn things ugly for a while. In the final analysis, if you can't trust Baron Paulson and Cardinal Bernanke, at least for a few months time, then we are all screwed.

The delay cant harm, if the final plan got improved,
that means his long term prospects for being succesful
will be better.

As it is, the american household cant afford a lot of
failed plans, so you better insure, that your first
attempt is good.

With kind regards
Marlowe

[helene_t]

Agree with Gerben.

[Lanor Fow]

Harm whom?

Last friday Washington Mutual basically went under, Monday Wachovia got bought out. Its only been a very short length of tiem since lehmans went under and since then 5 investment banks have gone under beenboguht or changed, AIG has been nationalised, those two i mentined earlier, fortis in belgium, bradford and bingly and hbos in the uk, the list keeps growing.

IN fact banks seem to be failing on almost a daily basis at the moment, so coudl this bill ebgin delayed a few days have an impact? Most definatly it could.


As for the money in teh stock market not being real, well what is?

Even cash in hand changes value on a daily basis both in the country its worth (inflation and deflation) and in other countries (exchange rates). The old 'gold standard' means very little either as gold is one of the most volitile comodities around.

In the end money and worth is all abstract, peoepl beleive that one dollar will buy such and such just as they beleive that a stock in a company is worth such and such.

[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.

You can drive on the hiway at 100 km/hr and pass the radar cop with no fear.

If you "know" that he will not cite you for less than 120, you will go close to 120 until you see him, when you will slow a bit (just in case) and then resume your 120....if there was no cop, or you are in an ambulance (or cop car) you go as fast as you want.

Rules are there to protect us from their (human greed) tendency to push the envelope and they need to be clear and to be enforced.

[Al_U_Card]

It is not like they didn't see it coming...

If the global economy is as safe as houses.....,
then there's a crash on the way

David Hirst - August 20, 2008

I TRY to be very, very careful about calling a crash. Others are not. But
most of the economic "yea-sayers" are, as usual, finding a bottom, like
our friend from A Midsummer Night's Dream, who had no bottom.

For a few weeks I have been hearing of a big one coming, a very bad
moon rising. I have, until now watched and wondered, but as the evidence
mounts, the muttering of a major bank collapse that will bring the whole
show down around our heads increases.

Ambrose Evans-Pritchard of London's The Daily Telegraph is reporting
"the US money supply has experienced the sharpest contraction in
modern history, heightening the risk of a Wall Street crunch and a severe
economic slowdown.

"Data compiled by Lombard Street Research shows that the M3 'broad
money' aggregates fell by almost $US50 billion in July, the biggest one-
month fall since modern records began in 1959."

This might, on its own, be dismissed as Ambrose doing what he does best,
hunting down headlines. But this article does not exist in a vacuum.

Unhappily, Professor Nouriel Roubini is in a glum mood even by his
standards.

"The UK economy is not my brief," he writes, "but I see that hedge funds
are circulating a report from the US guru Jeremy Grantham predicting a
very bad end to Gordon Brown's debt experiment.

"The UK housing event is probably second only to the Japanese 1990 land
bubble in the Real Estate Bubble Hall of Fame. UK house prices could
easily decline 50% from the peak, and at that lower level they would still
be higher than they were in 1997 as a multiple of income." That is one hell
of a call.

"If prices go all the way back to trend, and history says that is extremely
likely, then the UK financial system will need some serious bail-outs and
the global ripples will be substantial," says Grantham.

Roubini notes that for months the exchange markets ignored this
impending train crash, just as they ignored the property bust in Europe's
Latin Bloc, or the little detail that UBS alone had just lost the equivalent of
8% of Switzerland's GDP. All they cared about in the currency pits was the
interest rate gap: US low, Europe high.

"Now," Roubini writes, "the paradigm has flipped. The Fed may have been
right after all to slash rates to 2%. The European Central Bank may have
panicked by tightening in July. Note that the elder Swiss National Bank did
not do anything so rash.

"Bulls now believe America is turning the corner. Financial stocks are up
20% since early July. Some 'monoline' bond insurers have risen 1200% in
a month as fears of Gotterdammerung give way to sheer intoxicating
relief, and a 'short-squeeze'. Such are bear-trap rallies.

"Regrettably, I remain beset by gloom. The US fiscal stimulus package
that kept spending afloat in the second quarter is running out fast. There
is nothing yet to replace it. The export boom cannot keep adding juice as
the global crunch hits. My fear is that the US will tip into a second, deeper
leg of the downturn, setting off a wave of savage job cuts. This will start to
feel more like a real depression.

"The futures market is pricing a 33% fall in US house prices from peak to
trough, based on the Case-Shiller index. Banks have not come close to
writing off implied losses on this scale."

Daniel Alpert from Westwood Capital predicts that a mere 28% fall would
alone lead to a $US5.4 trillion haircut in US household wealth, and leave
lenders nursing $US1.25 trillion in losses. So far they have confessed to
less than $US500 billion.

Meredith Whitney, the Oppenheimer Bank's Cassandra, predicts a
gruesome 40% fall in prices. "I do not think we are near the end of write-
downs. I continue to see capital levels going lower, and stocks going
lower," she said.

"So no," says Roubini, "this painful ordeal is far from over. We are not
witnessing a dollar rally so much as a collapse in European and
commodity currencies. The race to the bottom has begun in earnest."

In an interview with CNBC, David Kotok of Cumberland Advisors
argued that the financial crisis is only about halfway over and another
leg down is in the offing. His main reason is that banks have continuing
needs for capital and at current costs in the markets, the maths doesn't
work. Some banks will be unable to raise funds privately.

[y66]

Quote

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!

[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]

y66, on Sep 30 2008, 08:31 AM, said:

Quote

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]

hrothgar, on Sep 30 2008, 05:27 AM, said:

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]

blackshoe, on Sep 29 2008, 05:06 PM, said:

From my local paper:

Quote

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]

PassedOut, on Sep 30 2008, 05:44 AM, said:

hrothgar, on Sep 30 2008, 05:27 AM, said:

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]

barmar, on Sep 30 2008, 10:56 AM, said:

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]

jdonn, on Sep 30 2008, 10:29 AM, said:

barmar, on Sep 30 2008, 10:56 AM, said:

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...