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The latest round of bailouts - can someone explain?
Old 11-25-2008, 08:57 AM   #1
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The latest round of bailouts - can someone explain?

U.S. moves to thaw credit for consumers - Economy in Turmoil- msnbc.com

So after all the hemming and hawing about $700 billion, I wake up to find another $600 billion in the mix like it's no big deal? I'm very confused. Where was the authorization for this, and why is giving more money to institutions going to have a different outcome than last time? Am I wrong to understand the banks simply hoarded the last bucket of money instead of lending? So now we expect CC companies to act differently? And now buying up toxic mortgages is a good thing again, after being a bad thing, after being a good thing? What the hell? This is not the way to instill confidence. At the same time, the markets seem to like it. Everyone's balance sheet keeps looking better, I guess.
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FED vs Federal Govt.
Old 11-25-2008, 09:06 AM   #2
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FED vs Federal Govt.

The latest $600B is the Federal Reserve buying assets from member banks. The Fed needs no addl authority, since it can create money by buying and selling Govt Securities. The Fed cannot invest in banks hence the $700B had to be voted by congress and managed by the Treasury rather than the Fed.

The Fed is the most powerful entity in the mix, and the fact that it couldn't contain this situation tells you how bad things are. By some reports, Citi still has 1.3$ Trillion off-balance sheet assets of potentially dubious value.....
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Old 11-25-2008, 09:08 AM   #3
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I expect alot more 0%-interest, no-cash-advance, no-balance-transfer-fee offers from my credit cards. I will take them up on it and promptly buy US treasuries with the cash.
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Old 11-25-2008, 09:09 AM   #4
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Maybe the Fed can buy dubious assets from the UAW, since they seem to like owning high risk, high default "assets"..........
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Old 11-25-2008, 09:31 AM   #5
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At the same time, the markets seem to like it. Everyone's balance sheet keeps looking better, I guess.
I have to wonder, do the markets really like it or is it just the instant spike in inflation convinced more people they were either going to lose there money to inflation or gamble on the stock market?

Or maybe it's just those banks with 700 billion to burn rolling the dice on the market now that they know the government will always give them more money if they lose what they have.
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Watch for the new UAW Bank
Old 11-25-2008, 09:37 AM   #6
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Watch for the new UAW Bank

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Maybe the Fed can buy dubious assets from the UAW, since they seem to like owning high risk, high default "assets"..........
If the UAW could get a bank charter then.......
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Old 11-25-2008, 09:45 AM   #7
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If the UAW could get a bank charter then.......
We all would have been spared this mess if Walmart got the bank charter it wanted a few years ago -- it would have added market discipline to the industry, right? Walmart knows how to manage businesses.

It's all a confidence game now.
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Old 11-25-2008, 09:52 AM   #8
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The Fed's pushing on a string unfortunately. They can't even control the Fed Funds rate which is down around zero, and should be 1%.

This is another example of 'even if you throw a horse into the pond you can't necessarily get him to drink'. After years of too much credit, consumers and businesses are prudently cutting back. But the Fed and Treasury don't want that, they want you all to go out and buy more cars or whatnot.

I don't think it'll work, a small committee can't take on the whole economy.
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The question is which pain do we want
Old 11-25-2008, 10:07 AM   #9
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The question is which pain do we want

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The Fed's pushing on a string unfortunately. They can't even control the Fed Funds rate which is down around zero, and should be 1%.

This is another example of 'even if you throw a horse into the pond you can't necessarily get him to drink'. After years of too much credit, consumers and businesses are prudently cutting back. But the Fed and Treasury don't want that, they want you all to go out and buy more cars or whatnot.

I don't think it'll work, a small committee can't take on the whole economy.
An economy with all prudent, careful people will be a smaller economy than what we have had before. Not just in the US, but everywhere.

The world average standard of living has to fall. The last time this happened, the result was WWII. Depression in Germany led to rise of Hitler.....
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Old 11-25-2008, 10:12 AM   #10
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Depression in Germany led to rise of Hitler...
Godwin's Law by the 9th post of a thread on economics-- that has to be some sort of doom & gloom record!
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Old 11-25-2008, 10:18 AM   #11
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You want Doom and Gloom. Here is what some learned Russian thinks of the entire US - He accounts for Alaska by saying it was only leased to us anyway. Did not notice where he was putting Hawaii - maybe it was not in his geography book: DRUDGE REPORT: RUSSIAN ANALYST PREDICTS DECLINE AND BREAKUP OF USA 2008
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Old 11-25-2008, 10:29 AM   #12
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You want Doom and Gloom. Here is what some learned Russian thinks of the entire US - He accounts for Alaska by saying it was only leased to us anyway. Did not notice where he was putting Hawaii - maybe it was not in his geography book: DRUDGE REPORT: RUSSIAN ANALYST PREDICTS DECLINE AND BREAKUP OF USA 2008
Hey, its easy to criticize. Maybe he needs to relearn a little Russian history to see how an economy can collapse in spectacular fashion...........like the good ole USSR.........
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Old 11-25-2008, 10:34 AM   #13
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The private sector (which includes the consumer) is de-leveraging, which is a very painful process. To ease this pain, the Fed and Treasury are leveraging up big time. It's sort of like a "Conservation of Leverage" principle, where the total leverage of the economy is held "constant" to ease the overall pain, while transferring it from the private to the public sector, not unlike the conservation of energy or momentum in a closed system. What possibly awaits us at the other end of this process a few years down the road is frightening to me.

I'm not saying it shouldn't be done. I'm just afraid we may be building a ticking time bomb which could result in serious inflation a few years out. At some point we will have to face the music and de-lever the entire economy. I guess the government believes it can do this slowly over a period of many years, and this will be preferable to having the private sector do it over a shorter time period. Time will tell.
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Old 11-25-2008, 10:35 AM   #14
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Oh, my bad, it's $800 billion, but what's $200b among friends? Paulson said this was to free up the frozen credit markets because consumers can't get loans for basics. Bull#*(%! I went and bought couches last week and took advantage of their 6 months same as cash. They approved me for 3 times the cost of the couches. What he's really saying is people who's credit isn't worth $%#@ can't get loans, and we depend on a busy loan sharking market to keep the economy going. I'm so pissed off, what a bunch of liars.

This makes Obama's plan seem puny. What's another $500b gonna do that $2 trillion didn't?
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Old 11-25-2008, 10:37 AM   #15
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The private sector (which includes the consumer) is de-leveraging, which is a very painful process. To ease this pain, the Fed and Treasury are leveraging up big time. It's sort of like a "Conservation of Leverage" principle, where the total leverage of the economy is held "constant" to ease the overall pain, while transferring it from the private to the public sector, not unlike the conservation of energy or momentum in a closed system. What possibly awaits us at the other end of this process a few years down the road is frightening to me.

I'm not saying it shouldn't be done. I'm just afraid we may be building a ticking time bomb which could result in serious inflation a few years out. At some point we will have to face the music and de-lever the entire economy. I guess the government believes it can do this slowly over a period of many years, and this will be preferable to having the private sector do it over a shorter time period. Time will tell.
Now if only I could RE market time. I'll buy a huge house in a great neighborhood for ~$1 million, then scrape by until 5 years later when the hyperinflation makes a Big Mac cost $10,000.
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Old 11-25-2008, 11:47 AM   #16
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Hey, its easy to criticize. Maybe he needs to relearn a little Russian history to see how an economy can collapse in spectacular fashion...........like the good ole USSR.........
I would think that this might make him a better analyst. Much of what he says is clearly true. USA was struggling, and then we put a nail into the coffin with the adventures in the Near East.

When has there ever been an empire that endured with only a dominant military, without the economic strength to maintain it?

And his observation that many of our large banks have failed is correct. We are subsisting on the kindness of states with interests opposed to ours.

What can China offer the world? Incredibly cheap goods, a very strong economy, 1+bln people and a large army. Russia? Natural resources of all kinds, and the ability to create a strong science and military establishment. USA? "We will consume your goods and burn your crude".

Oh, I'll take the USA in this contest!

Ha
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Old 11-25-2008, 11:59 AM   #17
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What can China offer the world? Incredibly cheap goods, a very strong economy, 1+bln people and a large army. Russia? Natural resources of all kinds, and the ability to create a strong science and military establishment. USA? "We will consume your goods and burn your crude".

Oh, I'll take the USA in this contest!

Ha
ROTFLMAO!!

I think I'll take our military over China or Russia's..........
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Old 11-25-2008, 12:21 PM   #18
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ROTFLMAO!!

I think I'll take our military over China or Russia's..........
At present, yes. Still, the current conditions do not always foretell future conditions. If they did, nothng would ever change. One would have "taken" Rome's military over the Northern tribes that eventually did them in.

Do you have an example of an economically weak empire, a large net debtor, which endured on the basis of a currently strong military?

I don't think there is one, but I might have missed it.

Ha
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Old 11-25-2008, 12:28 PM   #19
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At present, yes. Still, the current conditions do not always foretell future conditions. If they did, nothng would ever change. One would have "taken" Rome's military over the Northern tribes that eventually did them in.

Do you have an example of an economically weak empire, a large net debtor, which endured on the basis of a currently strong military?

I don't think there is one, but I might have missed it.

Ha
Mongolian empire made it a hundred years that way!

Seriously, I'm not ready to start hammering nails into the coffin lid just yet. In the long run I see a diminished U.S., but one that will be o.k. The Roman empire suffered from civil wars, looting and sacking of Rome multiple times, food shortages etc. and still at least staggered along for a couple hundred years. If you turn on the news and Washington is in flames, that may signal the beginning of the end, but it could take centuries from there. When everybody sees D.C. in flames for the third time and just shrugs, then we may be through.
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Old 11-25-2008, 12:31 PM   #20
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Having lived through President Carter's military years and having a Son who lived through President Clinton's military years, I am sure we will have the finest military on earth. I just hope there is enough financial and public support for it.
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