Bailout bill fails

[samclem]

The loss in equity in the markets today was $400 billion more than the cost of the bailout package. We (family) are more in the red due to the "no" vote than the $2,300 x 4 people in debt burden the bill represented. Panic indeed.

That's one valid way of looking at it. But, there's nothing scientific about any of this--nobody even can say with high confidence that the $700 Billion infusion would have worked. Would it have made those houses with the inflated mortgages suddenly worth those inflated prices? No, the cash didn't fix the fundamental problem, so the problem very well could have persisted. How would we feel if we'd thrown in this money and still had an economic meltdown?

And then there's the whole "marking to market" viewpoint question. It's true that our net worth has gone down by the amounts that our portfolios lost today. But I just don't feel like I've lost money until I sell those stocks at lower prices. Not so with the tax bill: Once that is on the books, I know I'm going to pay it (or our kids will).

 

[laurence]

What it does make me wonder is if $700 billion would be enough to avert the disaster. If the market can take over a trillion off the board in a day, this seems like fighting a forest fire with a dixie cup of water.

 

[Texarkandy]

What it does make me wonder is if $700 billion would be enough to avert the disaster. If the market can take over a trillion off the board in a day, this seems like fighting a forest fire with a dixie cup of water.

I have to wonder, had Paulson & the Administration never gone to Congress to ask for a bailout, gotten everybody so worked up, & created such a public hullabaloo - would the market have taken that trillion off in one day?

Perhaps the "bailout plan" has already done more damage than good by it's mere existence as a plan.

 

[chinaco]

It is a very thin line that gets crossed when a company fails... especially regulated financial service companies.

We are not only teetering on the line of many more financial service company failures... It is likely to bleed over into other industries fairly quickly.

If something is not done (confidence not restored) we could see many companies beginning to cut payroll to try to survive a basic cashflow crunch.

The downward spiral needs to be contained quickly... this thing could spill over very quickly.

 

[ChrisC]

It is a very thin line that gets crossed when a company fails... especially regulated financial service companies.

We are not only teetering on the line of many more financial service company failures... It is likely to bleed over into other industries fairly quickly.

If something is not done (confidence not restored) we could see many companies beginning to cut payroll to try to survive a basic cashflow crunch.

The downward spiral needs to be contained quickly... this thing could spill over very quickly.

Very good observations. I'll add another one: "follow the money." Where is it going and what's now happening? Recall that the depression had a lot to do with phobia and panic spiraling out of control. People, like Joe Sixpack, are beginning to panic and move their money around -- taking their deposits and money market funds searching for the safe havens. This, in turn, might be aggravating liquidity problems in banks, and the liquidlity problems then become safety and soundness problems . . . . and then it keeps on spiraling out of control. Remind you of anything that happened before? This is happening notwithstanding federal deposit insurance.

The reports of cash outflows from WaMu and Wachovia are staggering. Almost every day, the water cooler topic at the job is where do you park your money. Had not Paulson initiated emergency actions to preserve and protect money market funds -- the outflows there would have probably been calamitious.

 

[al_bundy]

I have to wonder, had Paulson & the Administration never gone to Congress to ask for a bailout, gotten everybody so worked up, & created such a public hullabaloo - would the market have taken that trillion off in one day?

Perhaps the "bailout plan" has already done more damage than good by it's mere existence as a plan.

it would have taken a few days, the day it was announced the market was in a free fall as well. day before was a 5% loss, the day of was also looking like a 5% loss, and so on. probably not as fast since short selling was still allowed and the shorts would have held the market up buying to cover.

 

[socca]

If something is not done (confidence not restored) we could see many companies beginning to cut payroll to try to survive a basic cashflow crunch.

On the other hand, if companies find short-term borrowing painful, they may just do less of it (if they can). How nice: a solution without Big Momma.

 

[al_bundy]

Did anyone around here read the bill? Seems like some of the people who did, didn't seem to find it as it was represented. Like the CEO caps weren't really caps etc...

They put the fear of the great depression in everyone, said they had to pass this quicky, that didn't happen. In the mean time, we could have had proper hearings and analysis by at least a few experts, rather than just politicking and closed room dealing...

I'm also increasingly concerned as the #xx bank is swalled by the #x bank to make it the 3rd, 2nd, whatever largest bank...isn't that feeding into the problem?

the core was buying up the bad debt. everything else was just the cherry topping and not really important.

it was supposed to be a confidence boost to the markets more than anything else

 

[wolfbay]

Ron Paul and the Austrian school of economists predicted this crisis. I'm sure the bailout will pass but Paul claims it's just a fix for an economy addicted to easy credit& the hangover is still coming.I hope he's wrong.

 

[Culture]

The loss in equity in the markets today was $400 billion more than the cost of the bailout package. We (family) are more in the red due to the "no" vote than the $2,300 x 4 people in debt burden the bill represented. Panic indeed.

Only if you believe that this loss in market value will never come back. OTOH, I assure you that you will never see your $2300x4 again. IMHO, you are better off with the temporary loss of stock value.

 

[Hamlet]

Except that you own the exact same things as the day before. Next week the market may go up 800 points. Do you really think that creates $1+ trillion in wealth?

I wish people would stop trying to use the gyrations of the market as a reason to justify stuff (not just this bill). "The market's going down, better lower rates". "The market's going down because Obama's going to get elected".

It's silly. The market goes up and down, and it being lower benefits anyone who is buying stocks. A lower stock market is better for the country long-term, not worse.

The loss in equity in the markets today was $400 billion more than the cost of the bailout package. We (family) are more in the red due to the "no" vote than the $2,300 x 4 people in debt burden the bill represented. Panic indeed.

 

[Culture]

I am not sure I buy this idea. Until I recently quit to start my own business, I was a partner at a $60/M year firm with a 25-30% profit margin. Despite making $15-18M/year in profits, we operated on a short-term line of credit for day-to-day cash flow. Why? So that the 50 partners (and employees who also shared in the profits) could get all the profits immediately distributed to them. This company could easily have operated without the line of credit, although the owners would have some delayed gratification. I suspect most other companies fall into this same category.

I constantly fought against this, but was a lone voice crying into the wind. Everyone wanted their money, and wanted it now. I could not even get the company to maximize tax-deferred profit sharing. Everyone wanted spendable cash. This was one of the main reasons I left, in order to maximize my tax deferred savings.

 

[laurence]

I'm not selling a thing, I'm just pointing out how big this beast of an economy is, and that the 700 billion bailout seems a bit niave. If you lost your job would a day's pay handout make difference?

 

[Culture]

Ron Paul and the Austrian school of economists predicted this crisis. I'm sure the bailout will pass but Paul claims it's just a fix for an economy addicted to easy credit& the hangover is still coming.I hope he's wrong.

I predict we will have another crash, just as large, in the next 30 years. Even a stopped clock is right twice a day .

In a seriousness, I do not think this was a hard call. I think this crisis has been obviously in the making for the past 2-3 years.

 

[Purron]

Many House members who voted against the bailout today said they did so because they didn't want the American taxpayer to be on the hook for the mismanagement and failure of financial institutions. This Time article says it's too late, they already are:

"But there's a catch: taxpayers are already on the hook for the failures of financial institutions, and it's possible that the bill will actually be larger without bailout legislation than with it. That's because the regulators who mind the financial industry — the Federal Reserve, Treasury and FDIC — will keep doing what they've been doing: stepping in to prevent the chaotic failure of banks and other large financial institutions. This means continuing to put hundreds of billions of taxpayer dollars at risk, but in a way that adheres to no clear plan of action and doesn't require members of Congress to explicitly approve their actions."

I think you have an excellent point. How much do you think the Wachovia deal could end up costing us? Here's an excerpt from an article in the NY Times yesterday about this:

"Federal regulators worked around the clock this weekend to orchestrate the sale, finally reaching an agreement at 4 a.m. on Monday morning. In the end, the government agreed to provide Citigroup with a financial guarantee on Wachovia’s most risky assets. It is similar to the deal that the Federal Reserve established with JPMorgan Chase’s emergency takeover of Bear Stearns.

Citigroup will assume the first $42 billion on losses tied to Wachovia’s riskiest mortgages and will pay the Federal Insurance Deposit Corporation $12 billion in preferred stock and warrants. In exchange, the F.D.I.C. will absorb all losses above that amount.

Federal regulators said the move was necessary to stave off what could have been the second big bank failure in less than a week. On Thursday, the government seized Washington Mutual and sold the bulk of its operations to JPMorgan Chase."

 

[Culture]

I'm not selling a thing, I'm just pointing out how big this beast of an economy is, and that the 700 billion bailout seems a bit niave. If you lost your job would a day's pay handout make difference?

Except I do not make $20-30,000 day, which is probably what this will cost me.

 

[socca]

Today's New York Times Headline: Mixed Markets Reflect Hope for Bailout

This is a typical mix of fact and opinion. Fact: mixed markets. Opinion: equity investors are still hoping for a bailout. Are there any facts to support the opinion? Nope.

It may be that markets fell because future taxpayers weren't indebted to the tune of $700B so that this money could be injected into the financial system today. Maybe the markets have stabilized at a lower level reflecting this reduced expectation. Are there any facts to support this opinion? Nope. However, at least I admit it.

 

[ziggy29]

I suspect the cost of what we've been doing -- constantly sticking fingers into the dike to plug one leak after another, hoping the dam won't fail -- may greatly exceed the cost of a massive plan to rebuild the dam completely. Every time one more domino falls, it only increases the fear and the panic, and that only makes the situation more precarious -- making other dominoes fall.

Only when the panic has subsided and people and institutions no longer worry about the security of their deposits can things begin recovering. And the slow "drip, drip, drip" firefighting mode we're in now won't get us there any time soon. That's why as much as I hate the thought of throwing $700 billion at a bunch of irresponsible cretins, I fear the price tag for how we're doing it now -- direct liquidity injections, lost wealth in equities, cost to governments in terms of lost tax revenue and more unemployment benefit payouts -- may be much, much greater than $700 billion -- with little or no opportunity to recoup some of the payout through future asset sales.

 

[socca]

Just got this by e-mail: perfectly captures my opinion!

Let Risk-Taking Financial Institutions Fail
By ARI J. OFFICER AND LAWRENCE H. OFFICER Monday, Sep. 29, 2008

Do not be fooled. The $700 billion (ultimately $1 trillion or more) bailout is not predominantly for mortgages and homeowners. Instead, the bailout is for mortgage-backed securities. In fact, some versions of these instruments are imaginary derivatives. These claims overlap on the same types of mortgages. Many financial institutions wrote claims over the same mortgages, and these are the majority of claims that have "gone bad."

[MODERATOR EDIT - copyrighted material] The URL for the rest of the article is here:

Let Risk-Taking Financial Institutions Fail - TIME

 

[REWahoo]

Just got this by e-mail: perfectly captures my opinion!

Yep, the Herbert Hoover Solution. That worked out well, didn't it.

 

[Purron]

Great graphic and tables showing the breakdown by district / state / party etc.:

The No Votes - Interactive Graphic - NYTimes.com

I couldn't help but notice both Alaska and Arizona voted no in their entirety. This is a surprise since McCain "suspended his campaign" to help get this deal done.

 

[al_bundy]

going to send some emails to different congresspeople urging them to look at an alternative proposal.

my idea is to simply buy up the homes in foreclosure. it will pay off the toxic loans but there won't be any interest like originally thought. and the government can rent the homes out to whoever lives in there.

 

[ziggy29]

I couldn't help but notice both Alaska and Arizona voted no in their entirety. This is a surprise since McCain "suspended his campaign" to help get this deal done.

The "entirety" of Alaska is 18-term Congressman Don Young, who is in a precarious reelection battle. As has been demonstrated, the incumbents facing the toughest reelection battles were MUCH more likely to oppose this. I saw one report which mentioned that the most vulnerable incumbents voted 30-8 against it, with little break along party lines.

 

[HFWR]

Yep, the Herbert Hoover Solution. That worked out well, didn't it.

"Ladies and gentlemen, the President of the United States, Hoobert Heever..."

 

[ChrisC]

Yep, the Herbert Hoover Solution. That worked out well, didn't it.

Ah man, you win the ChrisC comeback award for today (with apologies to Youbet for stealing his award program).