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To the Rescue
TO THE RESCUE....The feds have finally decided to stop screwing around and rescue Wall Street once and for all:
Treasury Secretary Henry Paulson announced plans Friday to quickly set up a "bold" government program to take over troubled mortgage assets from financial institutions, along with other efforts to step up the purchase of mortgage-backed securities.
....President George W. Bush warned that a "significant" amount of taxpayer funds will be put at risk with the government's plan to bolster shaky markets, but said intervention is necessary to keep the financial system from grinding to a halt.
A year ago (like most people, I imagine) I wouldn't have supported something like this. The credit markets were freezing up because banks had trillions of dollars in assets tied down in complex debt vehicles that, thanks to the tanking subprime market, no one could value. That made every bank suspect and every extension of credit a huge and unknown risk. But eventually, I figured, all the SIVs and CDOs would get unwound, the assets would be slowly and painfully revalued, and life would continue.
Well, it's a year later and that hasn't happened. I still don't understand all the gory details, but the SIVs haven't gotten unwound and no one knows how much the subprime toxic waste they contain is really worth — and there aren't any signs that that's going to end soon. And that in turn means the credit markets are still frozen.
So I'm all in favor of the feds stepping in. Sure, I'd like to keep punishing all the corrupt bankers and boiler room operators who caused this, but I'd like to avoid a global depression even more. In the end, the bankers are going to take a massive hit on this regardless, the feds will probably break even or maybe make a few dollars on the toxic assets, and (I hope) some eyes will be opened about the need to regulate this stuff in the future. For now, though, it's time to unstop the global economy and get things moving again.
I notice that the SEC has also halted short selling in a few hundred financial stocks, just like John McCain wanted. That's maybe not a bad idea, but I wonder if it's really necessary now. With the announcement of the rescue plan, stocks are booming and the short sellers are taking a bath. The rescue is a fundamental solution, and I suspect that's really all we needed. Short selling probably would have taken care of itself.
suspending short selling is a dumb idea.
more to your point, kevin, i'm prepared to live with some kind of deal like this provided: a.) we fix the tax rate issue for hedge funds; b.) every single failed institution's board of directors is fired; c.) no banker responsible for this is ever allowed to work in the industry again; d.) we fix the bankruptcy law; and e.) there is a clear committment to an improved regulatory environment.
I agree something probably had to be done but the fact that the clowns who created this mess get off with almost no consequences is an issue. these suggestions are excellent
This will delay price discovery for equities and assets, and prevent young people from being able to profit from 401ks. More generational economic warfare. The credit crunch would end faster if the Fed allowed assets to re-price, no matter how low. Instead, I'm stuck putting money into overpriced stocks and overpriced and depreciating real estate for the next 12 years.
Here is why Obama is the better chioce this time round:
Barack Obama turned to a team of advisers that shaped America's economy in happier days to fashion fresh ideas for calming the stomach-churning financial crisis that has thundered from Wall Street to Main Street.
Some of the most respected names in the business world were pitching in Friday, including billionaire investor Warren Buffett, former Federal Reserve Chairman Paul Volcker, former Treasury secretaries Robert Rubin, Lawrence Summers and Paul O'Neill and Laura Tyson, former head of the Council of Economic Advisers under President Clinton.
What's McCain doing? Yelling at clouds.
The current equities bubble is caused by unimaginable amounts of borrowed money to subsidize markets by the US government. Propping up equity prices this way will be unsustainable, setting up another crash.
Wow, we're all in favor of big government now, eh? Looks like hoodathunkit is replacing hoocoodanode.
But count me as deeply, profoundly skeptical. First, there's a mixture of short-covering and o-god-o-god-please-let-this-mean-its-over euphoria. We've moved from it's contained to Bear Stearns to Hank's got a bazooka so Fannie and Freddie don't need no bailout to Hank just fired the bazooka so we're cool to Lehman don't get no love but it's all cool to AIG can't be allowed to fail it's for your own good to today, and I left out all the alphabet soup measures the Fed has been throwing at the market.
Now we're to believe that this quick, "bold" plan is what we've needed all along? I don't think so. The authorities need to be seen to be doing something. I get that, as GWB would say.
But remember, the taxpayers needed stimulus a while ago to keep spending, and that's just run out. Now we're going to tap them to fix a trillion dollars worth (or more) of bad housing debt? Again, I don't think so. We'll try to borrow it, because that's how we've been operating these last eight years.
The real fix comes when the US consumer and government start running sustainable spending and borrowing - and taxation - patterns over time. Nothing will be said by the White House, Congress or the two candidates about this in the next few months. So nothing will really change.
Uh-oh. There's that bold word again. Years ago, "bold" was used to describe almost everything Bush did. Haven't heard it used lately. That's probably because if one goes back to all the articles and statements ascribing boldness to Bush and replaced the word "bold" with "reckless", one would have a better understanding of what was, is, and will happen.
Moral outrage over the bailout, whether from the left or right, is not really relevant or helpful. There are no good choices now, and this seems the least bad of them all. The key will be to make sure that grownups get back in charge again and that the need for regulation and oversight is really, really clear to all involved. And yes, let's make sure the Dick Fulds of the world are never allowed near a dollar bill again,
Kevin, I am worried that suspending short trades is coming from the exact same playbook that helped cause this crisis.
Rather than letting true market forces take over, the regulators are ONCE AGAIN using gimmicks and tricks to buttress what needs to fall.
I am not a pure, 100% free market capitalist ... I do believe in smart, targeted regulation ... but these gimmicks are just going to make the pain last even longer.
What are they going to do next? Halt trading on any stock that falls below 10%? Shut down the market when it doesn't do what they want it to do? This is taking a big disaster and making it worse by spreading it out. I say unleash the blood bath and return the market to a little thing called Reality, because Reality is how the world operates, regardless of how we may feel about it.
I have large short positions and am getting killed.
This nonsense (no shorts, purchase of bad loans) is pure market manipulation for the benefit of those who made bad financial decisions (banks, insurers, participants in housing bubble).
I'm furious.
Exactly why are capital gains taxed at a lower rate than other income?
Here's a suggestion: tax capital gains as ordinary income and use all of that extra revenue to pay the cost of this and previous bailouts.
This may be a much better and more transparent approach than having Paulson enginner one-off take overs for sure.
The issue that should be discussed more is not so much support / not support - a discussion that will produce more heat than light - but the more granular issues of the devilish details of precisely what's been done, as well as potential alternatives
"...unleash the blood bath"? You think you're going to be one of the smart or lucky ones who somehow escapes? Fat chance. Punishment will go to the deserving and undeserving alike. This sort of apocalypse-friendly thinking is exactly what's not needed.
And Quiddity, don't you think it's silly for someone with large short positions to complain about market manipulation? How is your bad financial decision any different than the ones you complain about?
Call me knee-jerk, but I get a rash every time I hear of the Bush administration asking for significantly expanded powers in order to deal with the __ crisis. What do they want to be able to do now? What have they decided to try for? This is shock doctrine territory, and I don't trust that the powers they're going to ask for will be necessary to save the economy.
I think people have got this backwards. These moves aren't going to prevent a global depression, they are going to cause one. It's inevitable. You can't deal with problems simply by writing blank checks on a bankrupt account, which is essentially what they're doing. But I'm not surprised to see so many liberals supporting it. When push comes to shove, liberal is just another word for corporate, and they'll always support any moves to rip off the American public.
Sorry I don't see any "crisis" here. Just a bunch of losers wanting free money. Just let it all fall, and it will fix itself.
Bet you anything Obama votes for this act of theft disguised as a bailout. Bet you anything...
jrw: So, it's a "bad financial decision" to correctly assess the false prosperity fueled by bad loans (unsupported by real wage growth), and then act on it?
My financial decision is now "bad" because the market is being artifically suported by government intervention.
Those "bad decisions" that others made were bad decisions based on a mistaken evaluation of economics. My "bad decision" as you rudely put it, is only bad because the rules have changed.
If you can't see the difference between my decision and those who foolishly bet on false prosperity, then you really shouldn't be wasting everybody's time commenting on this blog.
I hope that sometime in the future, you get screwed royally by someone upsurping the rules you thought held. Because you deserve it.
Okay, Quiddity, you're a genius who's been unfairly treated. Everyone else was an idiot who made bad decisions. I got it now.
Do the people who default on their mortgages have any blame at all? An unusually large portion of them are illegal aliens who have come to expect to such things as mortgage assistance. How about the Community Reinvestment Act that forces bad loans?
Kevin, please widen the comments box.
Howard wrote:
"suspending short selling is a dumb idea.
more to your point, kevin, i'm prepared to live with some kind of deal like this provided: a.) we fix the tax rate issue for hedge funds; b.) every single failed institution's board of directors is fired; c.) no banker responsible for this is ever allowed to work in the industry again; d.) we fix the bankruptcy law; and e.) there is a clear committment to an improved regulatory environment."
Howard art thy name and I can hardly disagree with these suggestions. There are probably some other things which need to be addressed too.
I also sympathize with "Lick" Quiddity who is taking a bath in razor blades. He's being ripped up by forces much larger than he can deal with. It's awful, much like losing your home because some guy in a far away city decides he would like to make money off bad mortgages. Many have and are suffering because of Republican politics. What else can I say?
The thing with banning short selling is a panicky move. Selling shorts actually intoduces a little stability ian Welsh over at Fire Dog Lake had a great post about ths http://firedoglake.com/2008/09/18/sec-panics-and-considers-banning-all-s...
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