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House Appears to Reject Financial Market Bailout

Discussion in 'Economics and Financials' started by joeydolfan, Sep 29, 2008.

  1. joeydolfan

    joeydolfan Season Ticket Holder Club Member

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  2. texasPHINSfan

    texasPHINSfan New Member

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    i was a big fat "nay".

    while the immediate responses by the markets would indicate this is a bad thing, i think ultimately it is a good thing. i just hate how everyone is pointing fingers and making this a partisan thing. Bottom line is the idea to rectify everything is a good one, but i don't like how they were going about it. $700B of our money, with $250B of that initially going carte blanche to Paulson is NOT my idea of trustworthiness fixing at all.

    last week i watched the house debate the severance package for execs in the bill.... what is to debate? if your company is running to the Fed for rescue, you (as an executive of said firm) are NOT entitled to ANY severance pay.

    the WAMU CEO just walked away with a $13M package.... he got paid more on a "running-into-the-ground" severance than most of us will ever make in our lives.
     
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  3. joeydolfan

    joeydolfan Season Ticket Holder Club Member

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    Funny but true story, my brother is a mortgage broker in Houston and he told me today I was the only financial adviser he knew that was against the bail out plan.

    Looks like there are 2 of us out there. :knucks:

    I mentioned in another post I realized the consequences of what could possibly happen to the equity, debt and credit market if the plan was not passed, but that pain could be dished out over the next 6 to 12 months initially to let the free markets reset assets back to normal historical pricing, wipe out the bad debt and also as a major point to teach Wall Street and investors to stop chasing such high rates of return by over leveraging.

    If we think we have had it tough as advisers over the last few years with Americans, try dealing with a lot of Aussie clients the last few years with their market running up an average of 15 to 18% a year with the commodity boom and their firm belief they were now linked to the Asian markets and de coupled from the U.S. market. That misguided belief was thrown out the window 6 months ago.
     
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  4. FiN.in.RI

    FiN.in.RI Paul pierced through..

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    It will end up reworked a bit and come to another vote and it will likely have the same premise with more oversight and restriction on the Treasury. Though it may be another 1000 points on the DOW before it happens.

    (with a layman's eye as I don't work in the financial industry) I read some of the bill and have read various opinions of writers I respect on it to support it as it was. It has a good upside for us the taxpayers. I think too many lawmakers are playing politics on both sides of the aisle. If the election wasn't a month away I think you would have had a different result. Don't let them tell you it had nothing to do with politics, that would be B-S.

    If the SEC had any brains or balls they would stop mark to market for these securities and resume short-selling but only on an uptick. That would give the congress a little more time to have their voices heard and prove that they didn't
    "rush or panic" to get this thing into law.
     
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  5. padre31

    padre31 Premium Member Luxury Box

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    The Bill was not a good one, in fact, in what a invisible one, the House members did not have an opportunity to read it, but were supposed to "sign the check" as it were.

    And for me, it just seems that several companies made some bad decisions to the tune of hundreds of billions of dollars, if not more, there is a point reached that makes saving the patient impossible and IMO several Banks went into DNR mode.

    No one knows if it would work, it might in the short term.
     
  6. FiN.in.RI

    FiN.in.RI Paul pierced through..

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    to Joey:

    It's about confidence too though. The confidence in and of itself gained with the passing of the bill, i thought, would give enough time for the bill to work as it's supposed to and get Banks to lend to one another and to commerce much sooner (like tomorrow) rather than later (like really too late).

    I think Wall street got the message about what happens when you over-leverage.
    Storied firms, giants of Wall street, collapsed.
     
  7. FiN.in.RI

    FiN.in.RI Paul pierced through..

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    I don't know about that.

    DNR? I think you mean to say CMO and if you think saving the patient is impossible than welcome to the Great Depression part 2.

    No one knows if it will work but when I hear a dissenting Republican throw out "Zeroing out Capital Gains tax instead" as a remedy, I find that pretty telling.
     
  8. padre31

    padre31 Premium Member Luxury Box

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    Not to go too political with all of this, but here is Congressmen Burgess discussing why he voted against that bailout:

    [ame=http://www.youtube.com/watch?v=l7B4laX1E70]YouTube - We Are Under Martial Law! As Declared By The Speaker Last Night! Rep Burgess[/ame]

    The Cap Gains stuff is useful but not really relevant R.I.
     
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  9. FiN.in.RI

    FiN.in.RI Paul pierced through..

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    Not relevent? Don't tell me. I'm not the Congressman bringing it up as a possible solution to this crisis. You're right it's not relevant.

    Burgess seems upset but it sounds like some personal sour grapes to me. It wasn't just the republicans who nay'd the vote. There was still a bunch of Pubs who voted for it (1/3) and a third of dems who didn't, were they all left in the dark and kicked out of meetings? From my standpoint, they were more pissed off that Pelosi threw Bush and McCain right in front an 18 wheeler hours before the vote and that there was too much power given to the treasury.
     
  10. Ludacris

    Ludacris Season Ticket Holder Club Member

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    This is the position i'm in :(
     
  11. joeydolfan

    joeydolfan Season Ticket Holder Club Member

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    You are absolutely right about confidence in the market right now since I see very little on a day to day basis with clients. I have a few that actually ignored my advice and wanted to buy the QQQQ or the S&P 500 today which may turn out to be a winning trade in the end. With the turbulence though, I have nothing as far as previous market statistics to give back to them in their support.

    Overall though, most clients want to sit on cash and ride it out or look at FDIC insured CDs and some are even half scared of that move. I love my profession, but I be damned if it is not really hard to stay objective at this point.
     
  12. Ludacris

    Ludacris Season Ticket Holder Club Member

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    Congress Vows to Try Again On a New Bailout Plan - Financials * US * News * Story - CNBC.com
    Something needs to be done fast. Financial markets must stabilize. Credit spreads are getting even wider. Credit markets are frozen. This means businesses and thus jobs are at stake if banks are not rescued. These will be dire times if nothing is done as the economy falls under considerable stress.
     
  13. texasPHINSfan

    texasPHINSfan New Member

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    that's interesting.... i don't know a single advisor that actually supports the bill. everyone was against it for all the reasons we are. In fact most non-advisors i know (friends, family, etc) were all against it, although for them it was more about using taxpayer money to bail out the struggling companies.

    apparently Capitalism is more popular than we thought ;)

    something i read the other day - the bill is allocating more funds to rescue poorly-run companies than we've spent on the entire Iraq war. I am not condoning the war, but the fact that we're spending more on this than we did on the entire war over 5+ years? :pity:
     
  14. texasPHINSfan

    texasPHINSfan New Member

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    FWIW it has gotten to that point because of stupid federal intervention in capitalist markets. If the Fed would undo it's bullcrap legislation and let capitalism work, this market WILL right itself over time. The reason you have days where the market falls 770 points is because the federal government gets TOO involved in the market.

    if there was no "vote" for a federal intervention bill yesterday, it would have been business as usual. Yes, it might have very well been a down day, but nowhere near the losses we saw due to the government's role.

    free markets allowed to run themselves also have consumer confidence. it goes up and down, but it should be left to its own devices. the fact that we're letting the Fed and Congress affect the investor/consumer confidence in the market is a bad thing. :up:
     
  15. FiN.in.RI

    FiN.in.RI Paul pierced through..

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    Intervention/deregulation by the FED/Greenspan and Congress is what got us here, only makes sense for them to get us out. Buying securities low and selling high is the Free market way, albeit in this case, by the governments hand.
     
  16. Ludacris

    Ludacris Season Ticket Holder Club Member

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    I don't care about the stock market. I care about the effect a failed plan will have on the credit markets and thus the global macroeconomic consequences of no bailout. Do you know the far reaching implications if the credit cruch gets worse?

    No bailout means banks have to lend at exorbitant interest rates to stay afloat. Businesses have to pay those rates to borrow to keep their businesses running on a day to day basis. That means they have to push the cost of goods and services higher. That means global inflation. That means businesses no matter how big or small will cut cost and sack staff. This means sky rocketing global unemployment.

    Sure the taxpayers don't want to pay for the bailout but at least they have jobs to pay taxes. How about no one having jobs so you don't have to pay taxes.

    If we let this travel through a free market economy we will see a depression and then try to dig ourselves out of it. Do we all really want to see a depression?
     
  17. adamprez2003

    adamprez2003 Senior Member

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    [​IMG]
     
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  18. adamprez2003

    adamprez2003 Senior Member

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    this is good reading from an old economist Von Mises, since there are alot of similarities between now and the great depression namely the government trying to step in and bailout the speculators. The fed caused the great depression last time and may do so again if they are able to devalue the dollar and cause runaway inflation

    In an unhampered market economy, borrowers are users of savings who make sure that savings are employed in the most efficient way: generating profits. This means that real savings are employed in accordance with consumers' most important priorities. We can thus see here that as long as banks facilitate commodity credit, they should be seen as agents of wealth generation.

    In contrast, whenever banks embark on the lending of circulation credit they in fact become agents of real wealth destruction. As opposed to commodity credit, circulation credit is not supported by any real saving. This type of credit is just an empty claim created by banks. In the case of commodity credit, the borrower secures goods that were produced and saved for him. This is, however, not the case with respect to the circulation credit. No goods were produced and saved here. Once the borrower uses the unbacked claims, it is at the expense of the holders of fully backed claims. In this way, circulation credit undermines the true wealth generators.

    Now, as a result of an increase in the supply of circulation credit money, market interest rates fall below the natural rate, that is, the rate that would be established by supply and demand if real goods were loaned directly in barter without the use of money. (In his later articles, Mises referred to the natural rate as the rate that would be established in a free market.)

    As a result of the artificial lowering of interest rates, businesses undertake various new capital projects to expand and lengthen the production structure. Prior to the lowering of interest rates, these capital projects didn't appear to be profitable. Now, however, as money market rates are kept below the natural rate, economic activity zooms ahead and an economic boom emerges.

    Such a situation cannot last. Mises here explains the important role played by the subsistence fund. The expansion of the production structure is always constrained by the availability of the means of sustenance (saved consumer goods) to maintain workers during the period of the expansion and the enhancement of the production structure.

    The forced lowering of interest rates bring into being production processes that would not otherwise be undertaken. A production structure is now created that produces goods and services that consumers in fact cannot afford. Instead of using the limited pool of the means of sustenance to make tools and machinery that will generate consumer goods on the highest individual priority list, the means of sustenance are wasted on capital goods that are geared towards the production of low-priority consumer goods. At some point, the producers of such goods will discover that they cannot make a profit or even complete their plans. What we have here is not over-investment but misdirected investment or malinvestment.

    The expansion of the production structure takes time and the limited subsistence fund may not be sufficient to support the expansion of the capital structure. If the new flow of the production of consumer goods does not emerge quickly enough to replace the currently consumed consumer goods, the subsistence fund comes under pressure.

    At some point in time, banks discover that they don't have the savings to back their loans and that marginal businesses are starting to under-perform. All this causes them to curtail the expansion of circulation credit, which in turn raises interest rates. This undermines business funding, and can often be the precipitating event that leads to an economic bust.

    Mises wrote that the bust phase of the business cycle process could be precipitated by other events. The expansion in the money supply enriches the early receivers of money. Those individuals who have now become wealthier as a result of receiving the money may alter their pattern of consumption. This may force businesses to adjust to this new setup. Once the rate of expansion in money slows down or comes to a halt, the new pattern of consumption cannot be supported and the new capital structure that was erected becomes unprofitable and must be abandoned.



    The Prophet of the Great Depression - Frank Shostak - Mises Institute
     
  19. Ludacris

    Ludacris Season Ticket Holder Club Member

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  20. texasPHINSfan

    texasPHINSfan New Member

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    can you give an example of what "de-regulation" you're talking about that got us here?

    also you are forgetting the whole mark-to-market issue, and on top of that the Fed's bailout of a lot of these bad debts at unreasonable (non-market) prices.... this won't help us or the economy. it is going to help the companies that have proven they shouldn't be allowed to run themselves.

    When a company falls due to it's own doings, you have to let it fail. if you bailout the people who make mistakes, then they don't learn and the economy as a whole will expect they can run to the Fed everytime there is any turbulence. I'm not saying and have never said that the government should not be involved at all....

    i'm saying that they are too involved and need to step down their involvement.
     
  21. texasPHINSfan

    texasPHINSfan New Member

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    i understand what you are getting at Luda, but i think you don't really know what is going on, or at the very least aren't aware on what scale. (as far as WHO is failing or WHAT is causing the failure)

    well for starters you should care about the stock market. what do you think is the backbone of all this? i realize that was more of a quip by you than an actual heartfelt comment on the topic, but it is still a relatively large issue.

    my beef is that the spin machine created by so many about how bad this all actually is, is affecting everyone; even you! to think that if the government doesn't step in and bail everyone out that there will be HUGE global macroeconomic consequences is a tad misleading and very chicken-little in approach & theory. Other countries have initiated their own steps & legislation to fix their problems.... plans & legislation that is more sound and makes more sense than what we are trying to do. We should take note. keep in mind, it is what it sounds like... a BAIL out. we can attempt to fix and improve things without buying up all the bad debt from banks and using taxpayers money.

    Case in point: Goldman Sachs raised over $10B in capital in one day last week. ONE DAY. quality investments will attract quality money. when people lose money, it doesn't disappear. it goes elsewhere. when one person loses money, another makes money. So while many people are hurting, there are a lot of people who are sitting fat right now. Why punish them because those who didn't invest wisely made mistakes?

    first of all the reason banks are lending at exhorbitant rates is because of masking of lending created by the Fed. taken from the article i posted:

    There has always been a stigma attached to borrowing directly from the Fed and for good reason. If a bank can’t get other banks to lend it money, that tells the market something about the condition of the bank in question. Last August, Bernanke convinced three large banks to borrow at the discount window in an effort to remove that stigma. When that didn’t work, he concocted a scheme to allow banks to borrow from the Fed in anonymity via a mechanism he called the Term Auction Facility. When Bear Stearns blew up, he added the Term Securities Lending Facility for investment banks. By removing the stigma of borrowing from the Fed and hiding the identity of the borrowers, Bernanke removed important information from the market.

    Now we face a situation where banks are not willing to lend to each other and have therefore become dependent on the Fed for daily liquidity. This is a direct result of the Fed’s actions. Banks will not lend to each other because they don’t know which ones are really in trouble. The rise in inter-bank lending rates is a rational market response to a lack of information. Furthermore, why pay those inter-bank rates when the Fed or ECB is offering easier terms?


    i think this sums up my argument to you on that topic perfectly. the reason we have the high lending rates is due to this masking. If you lend money to kids in the schoolyard, wouldn't you want to know which kids aren't paying you back? how would you feel if the teacher said "you will lend to everyone, but if anyone asks you can't tell them what is going on." that's not very fair is it? hiding/not disclosing information to the public prevents us from using logic in the markets. You think people would have still been buying WM, Bear, Lehman, & Wachovia's stocks if they knew how bad these companies really were in their balance sheets? problem is, due to the government's assisting in dis-information on major companies, it ultimately screwed the stockholder of all these companies.

    If you want to go to the lower levels of debate here, that's fine too. the banks that don't have the cash to lend are the banks who were irresponsible with their lending practices in the first place. There still are many banks who are completely solvent who engage in lending everyday.

    I have some friends who are loan officers at local banks... business as usual for them. They might be more strict with their lending guidelines, but there is still lending going on. rates are dictated by the Fed, prime, or LIBOR, depending on what kind of loan you're talking about. the Bank is not artificially inflating interest rates due to lack of funds. there is a constraint of lending, for sure, but it is on a huge scale most of us can't comprehend. the huge credit crunch is on a macro-scale involved with major lending houses for mortgages, business operation loans, etc.... If you want the Fed to help, how about freeing up locked-up cash to make available for those loans? That's the biggest problem i have with all this is that this isn't fireproofing the house, it's putting out this fire.... buying out the bad debts is like giving a guy a fish, instead of teaching him how to fish.

    depression? no. recession? yes, and unfortunately for us we would have already experienced the worst of it if the government hadn't gotten SO involved. either way you slice this, even with the bailout getting passed (which it unvariably will tomorrow), there will still be a recession.

    a $700B bill that gets approved isn't a magic bean that will grow a stalk. its a huge bandaid that just highlights the irresponsibility of our government. Keep in mind that only $250B is available immediately (will take 4+ months to process), so this entire thing is going to take over a year to work itself out.

    some of you guys are talking about it like everything will be fixed overnight.

    i have so much to say on this subject but it is hard to keep it all collected & organized, so if i'm all over the place i apologize... hard to organize when there is so much to say. :up:
     
  22. FiN.in.RI

    FiN.in.RI Paul pierced through..

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    I'm not forgetting about mark to market, I just didn't specify it. That would be an example government intervention that helped get us in this mess. It would also be an example of why we need government intervention now, to get us out.

    De-regulation: By (Greenspan/Frank others) pushing and encouraging mortage companies to give no-doc loans and things of that nature deregulated the mortage industry. That got us where we are today, essentially. Companies putting too much leverage/risk on their balance sheet is one thing, letting the toxic stuff get to the market in the first place is another.
     
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  23. texasPHINSfan

    texasPHINSfan New Member

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    i guess we actually sort of agree, in a weird and twisted way. i think something needs to be done, i guess i'm just arguing the amount of involvement now by the government, how much $$ is involved in this bailout, and the source of the funds.

    ultimately i'm agreeing with you though. i DO hope that this legislation they pass starts a trend where the government gets less involved. obviously that isn't happening, but it needs to.
     
  24. mnfinfan

    mnfinfan Active Premium Member Luxury Box

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    and don't forget the main street purchasing it all. People in this day and age just don't save very well, they are all trying to appear better off than their neighbours, this includes housing, cars, toys etc. Then when they rack up their credit cards, they refinanced and took all their equity out and paid off those balances, only to max them out again. Then the crunch came and no equity, in fact upside down on their mortgage, credit cards int rate tripled, adn now they are in a **** hole, blaming everyone else but the person in the mirror who is responsible.

    Unfortunately we are probably going to need this 'bailout but if this 'bailout' is going to work then more people need to learn how to balance their books and start saving and not caring that their car is 2 years old and their neighbour has a brand new one. I love to spend, but it is the last thing I do after we pay ourselves, our mortgage and bills. If we cannot do it that month, then we put aside a little to supplement the next month's discretionary spending. It is not hard and it makes me appreciate everything I do pick up.
     
  25. texasPHINSfan

    texasPHINSfan New Member

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    great paragraph :up:

    i agree with that very much.... i think we need (on some level) some sort of step-in assistance, but how will anyone learn from this? companies that should fail will be prevented from failing, the people that made the mistakes will still have their jobs (for the most part), and the general public is none the wiser.

    it is a fix on paper, and on the surface.

    the rot underneath will not be attended to at all.
     
  26. Ludacris

    Ludacris Season Ticket Holder Club Member

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    The credit market is the backbone of all this. The share market is just a side show. Treasury rates are at around 0.8%. The LIBOR rate which usually is 0.25-0.5% above treasury rates are now at 4.2%.

    The masking of lending created by the Fed is only a small reason why the interbank rates are so much higher than the treasury rates. The fundamental reason is that there is very little credit going around. There is a massive credit squeeze; too much demand for loans between banks and no where near enough supply has substantially risen the cost of debt. This rise in interest will be passed on to all businesses and all consumers. If you don't think the economy will not come to a stand still if the banking sector is not recued you clearly under estimate the impact it will make. It's a risk i am not willing to experience.

    The Fed is a lender of last resort. Banks will never borrow from the Fed. That's just reality. They might as well be owned by the Fed. If you let the chips fall and let banks go bankrupt there will be less competition. The last banks standing will become price makers. Main street will suffer a greater pain.
     

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