The economy and the bailout blah blah blah, part VI

wendersfan · 10-01-08, 09:28 AM

Continued from here.

Venusian · 10-01-08, 09:31 AM

Current happenings: Senate will vote tonight on the bailout bill. They'll add a raise to FDIC limits and will extend some business tax cuts and "fix the AMT".

Tracer Bullet · 10-01-08, 09:32 AM

I'm reposting this from the previous thread, because I want to see if anyone smarter than me can tell me why it makes or doesn't make sense:

I can't believe I'm about to type this, but I think Thomas Friedman had a good idea in his column from today. If the lack of capital is causing credit markets to freeze, he suggested a temporary government loan program to extend credit. Banks that made bad investments would fail, but the credit program would keep it contained.

I admit I'm way in over my head with all this stuff, but it made sense to me.

Venusian · 10-01-08, 09:33 AM

I think the fed has already done that, haven't they? The Fed keeps pumping more and more money in the form of loans to loosen up the credit

Pharoh · 10-01-08, 09:36 AM

Quote:

Originally Posted by mbs

With large sums of money (~$100,000), you can get quite high APYs (comparable to online savings) while having instant access to the money (unlike online savings). And there is always time to move the money out before any collapse (which is what I did this week with my Key account). But maybe I have no common sense.

I was scared off before you from Key. Plus, there are some good alternative right now. Why did you wait so long?

And your username always amuses me in this thread.

Pharoh · 10-01-08, 09:37 AM

Another repost from previous thread:

Another $65B or so of liquidity pumped into the markets overnight.

With the global recession, (perhaps sans America), looming, when will the dollar intervention take place?

Will the coordinated cuts be 50?

Larry C. · 10-01-08, 09:39 AM

Are they really raising the FDIC limits? Does anyone know to what?

Tracer Bullet · 10-01-08, 09:41 AM

Quote:

Originally Posted by Venusian

I think the fed has already done that, haven't they? The Fed keeps pumping more and more money in the form of loans to loosen up the credit

The idea was not to extend loans to banks, it was to extend lines of credit to businesses.

mbs · 10-01-08, 09:42 AM

Quote:

Originally Posted by Pharoh

I was scared off before you from Key. Plus, there are some good alternative right now. Why did you wait so long?

I liked Key Bank a lot. They were my hometown bank from years ago and my local branch was giving me great rates (4.25% APY) for a money market account. I was a little concerned in June when they cut their dividend, but didn't get terribly concerned about their health until recently. I have some small money in online accounts, but I hate the long float times (non-instant access).

Quote:

And your username always amuses me in this thread.

It's my initials, but yes, given what MBSs have done to our economy, quite fitting.

Pharoh · 10-01-08, 09:45 AM

Quote:

Originally Posted by mbs

I liked Key Bank a lot. They were my hometown bank from years ago and my local branch was giving me great rates (4.25% APY) for a money market account. I was a little concerned in June when they cut their divident, but didn't get terribly concerned about their health until recently. I have some small money in online accounts, but I hate the long float times (non-instant access).

...

Many of the same reasons why I was there. I just bailed out about a month or so ago.

al_bundy · 10-01-08, 09:49 AM

i think the bailout as originally proposed is dead and the congress will waste some time until everyone forgets it.

i have a conspiracy theory about but will probably take a few more weeks of reading the news to see if it's true.

And I wouldn't be surprised if rates are cut in the near future

Save Ferris · 10-01-08, 09:59 AM

CAMBRIDGE, Massachusetts (CNN) -- Congress has balked at the Bush administration's proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the "troubled assets" of financial institutions in an attempt to avoid economic meltdown.

This bailout was a terrible idea. Here's why.
The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.
This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

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.

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.
Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.
If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.

Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.
The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.

Editor's note: Jeffrey A. Miron is senior lecturer in economics at Harvard University. A Libertarian, he was one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan.

Mordred · 10-01-08, 10:04 AM

Quote:

Originally Posted by mbs

It's my initials, but yes, given what MBSs have done to our economy, quite fitting.

Let's get him!

wishbone · 10-01-08, 10:05 AM

Jeffrey Miron is certainly popular here.

Pharoh · 10-01-08, 10:07 AM

Bad data today.

Venusian · 10-01-08, 10:16 AM

LIBOR fell, that's good, right?

http://www.bloomberg.com/apps/news?p...Wd0&refer=home

Pharoh · 10-01-08, 10:19 AM

Quote:

Originally Posted by Venusian

LIBOR fell, that's good, right?

http://www.bloomberg.com/apps/news?p...Wd0&refer=home

The overnight isn't that critical. The one month, and especially the three month are what matter. The three month was up another 10 points.

starman9000 · 10-01-08, 10:33 AM

I just heard that part of the new bailout plan forces mental diseases to be covered by health insurance. That fixes everything!

Ranger · 10-01-08, 11:01 AM

Quote:

Originally Posted by starman9000

I just heard that part of the new bailout plan forces mental diseases to be covered by health insurance. That fixes everything!

Ugh, Congress is just shameless. I read in the other thread that the bill grew to over 400 pages. Paulson's plan was only 3 pages!

SoSpacey · 10-01-08, 11:10 AM

Quote:

Originally Posted by Ranger

Ugh, Congress is just shameless. I read in the other thread that the bill grew to over 400 pages. Paulson's plan was only 3 pages!

they need to make it seem like they are doing something.

kvrdave · 10-01-08, 11:23 AM

Quote:

Originally Posted by Tracer Bullet

I'm reposting this from the previous thread, because I want to see if anyone smarter than me can tell me why it makes or doesn't make sense:

I can't believe I'm about to type this, but I think Thomas Friedman had a good idea in his column from today. If the lack of capital is causing credit markets to freeze, he suggested a temporary government loan program to extend credit. Banks that made bad investments would fail, but the credit program would keep it contained.

I admit I'm way in over my head with all this stuff, but it made sense to me.

That is what I was advocating as well, but I never heard why that wasn't a good thing. I think the reality is that you can't have the biggest bailout in history without also having the biggest payout and payback.

mbs · 10-01-08, 11:23 AM

Quote:

Originally Posted by Ranger

I read in the other thread that the bill grew to over 400 pages. Paulson's plan was only 3 pages!

Yeah, 405 pages according to an NPR report this morning. And they will not be making it public pre-vote, apparently.

starman9000 · 10-01-08, 11:26 AM

Quote:

Originally Posted by mbs

Yeah, 405 pages according to an NPR report this morning. And they will not be making it public pre-vote, apparently.

I hope there is a provision in there to save Stargate Atlantis and freeze the price of ground chuck at $1.00/lb.

kvrdave · 10-01-08, 11:26 AM

Quote:

Originally Posted by Pharoh

Another repost from previous thread:

Another $65B or so of liquidity pumped into the markets overnight.

With the global recession, (perhaps sans America), looming, when will the dollar intervention take place?

Will the coordinated cuts be 50?

I am too dumb to follow. How was $65B pumped into the markets? Where did it go, etc? Is it having any affect on liquidity? What is it doing?

Mordred · 10-01-08, 11:31 AM

Quote:

Originally Posted by starman9000

I just heard that part of the new bailout plan forces mental diseases to be covered by health insurance. That fixes everything!

And you guys thought Sarah Palin was full of it when she said this bailout was about health care.

10-01-08, 09:28 AM	#1
wendersfan Moderator Join Date: Jun 2002 Location: Yo soy la voz, la voz de Columbus Posts: 23,822	The economy and the bailout blah blah blah, part VI Continued from here. __________________ "Fifth Element may be as dumb and artless as Johnny Mnemonic, but since a frenchman made it it must be ART!" -Pants "...I think it's a low blow to draw attention to wendersfan's drunken state. " - dork "Just because their victims are still alive doesn't mean they didn't commit murder." - grundle "You concentrate on the sad wanna be hooliganism and let us worry about the actual soccer." - rocketsauce (final score: Columbus 2-Chicago 1)

10-01-08, 09:32 AM	#3
Tracer Bullet DVD Talk Legend Join Date: Sep 2003 Location: Zorgonia Avenue, Queens Posts: 17,380	I'm reposting this from the previous thread, because I want to see if anyone smarter than me can tell me why it makes or doesn't make sense: I can't believe I'm about to type this, but I think Thomas Friedman had a good idea in his column from today. If the lack of capital is causing credit markets to freeze, he suggested a temporary government loan program to extend credit. Banks that made bad investments would fail, but the credit program would keep it contained. I admit I'm way in over my head with all this stuff, but it made sense to me. __________________ http://www.cartridgeblowers.com kvrdave. Making gay men hard since 1999. I agree it is correct, but Enterprise kind of botched the continuity. -wmansir THE BORG ARE NOT A SPECIES. THANK YOU.

10-01-08, 09:39 AM	#7
Larry C. DVD Talk Gold Edition Join Date: May 2001 Location: Miami, FL Posts: 2,355	Are they really raising the FDIC limits? Does anyone know to what? __________________ "I'd rather be a nation of Chinese than an unethical dick shooter." - Eric Theodore Cartman Xbox360 Gamertag = Jackal666666 My Countdown Counting down to: 100 Movies. 31 Days. The 5th Annual "October Horror Movie Challenge" Let the Horror Begin!!!

10-01-08, 09:59 AM	#12
Save Ferris DVD Talk Legend Join Date: Nov 2001 Posts: 11,085	CAMBRIDGE, Massachusetts (CNN) -- Congress has balked at the Bush administration's proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the "troubled assets" of financial institutions in an attempt to avoid economic meltdown. This bailout was a terrible idea. Here's why. The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk. Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared. This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle. Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets. 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. Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time. Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen. Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents. The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion. If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth. The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients. Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets. So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending. The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer. Editor's note: Jeffrey A. Miron is senior lecturer in economics at Harvard University. A Libertarian, he was one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan. __________________ this weeks horoscope: "The good news is that all that blood is actually ketchup. The bad news, however, is that all that ketchup is actually blood."

10-01-08, 10:05 AM	#14
wishbone DVD Talk Limited Edition Join Date: Mar 2005 Posts: 6,640	Jeffrey Miron is certainly popular here. __________________ "Wishbone is spelled with an E not a 3..... Be gone" - Minor Threat

10-01-08, 09:31 AM	#2
Venusian Moderator Join Date: Nov 1999 Posts: 34,634	Current happenings: Senate will vote tonight on the bailout bill. They'll add a raise to FDIC limits and will extend some business tax cuts and "fix the AMT".

10-01-08, 09:33 AM	#4
Venusian Moderator Join Date: Nov 1999 Posts: 34,634	I think the fed has already done that, haven't they? The Fed keeps pumping more and more money in the form of loans to loosen up the credit

10-01-08, 09:37 AM	#6
Pharoh DVD Talk Legend Join Date: May 2000 Location: Show Me State, indeed Posts: 18,531	Another repost from previous thread: Another $65B or so of liquidity pumped into the markets overnight. With the global recession, (perhaps sans America), looming, when will the dollar intervention take place? Will the coordinated cuts be 50?

10-01-08, 09:49 AM	#11
al_bundy DVD Talk Legend Join Date: Aug 2001 Location: Transfatfreeville Posts: 22,216	i think the bailout as originally proposed is dead and the congress will waste some time until everyone forgets it. i have a conspiracy theory about but will probably take a few more weeks of reading the news to see if it's true. And I wouldn't be surprised if rates are cut in the near future

10-01-08, 10:07 AM	#15
Pharoh DVD Talk Legend Join Date: May 2000 Location: Show Me State, indeed Posts: 18,531	Bad data today.

10-01-08, 10:16 AM	#16
Venusian Moderator Join Date: Nov 1999 Posts: 34,634	LIBOR fell, that's good, right? http://www.bloomberg.com/apps/news?p...Wd0&refer=home

10-01-08, 10:33 AM	#18
starman9000 DVD Talk Hall of Fame Join Date: Mar 2004 Location: MN Posts: 9,609	I just heard that part of the new bailout plan forces mental diseases to be covered by health insurance. That fixes everything!