How to Bail Out Main Street....

[audreyh1]

Fortunately it looks like that stubborn streak is finally over!

Audrey

[Gone4Good]

Quote:

Originally Posted by audreyh1 Finally - some credit relief directed to Main Street! I want to say that after the move by the Fed yesterday to start providing some short term relief to companies by getting involved in the commercial paper market, and the globally coordinated interest rate cuts today, I feel that the Main Street issues are finally being addressed more directly, and I'm glad to see Europe finally step up to the plate and recognize their own messes and be willing to coordinate.

Much to the chagrin of Socca and Independence it seems as if we've side stepped a Great Depression.

With governments around the world throwing everything (including the kitchen sink) at the problem, the worst is likely avoided. We will all live to fight another day.

[audreyh1]

OK! Today's move by the Fed (as uncapitalistic as it seems to be) was probably the last major step needed to protect Main Street, so I'm breathing a lot easier.

Ironically, the US finally "had to do it" because Europe did it. Pretty good cover for US Policymakers.

Short term LIBOR rates cut in half - that's terrific. Flight to treasuries is starting to reverse. Maybe we'll see our commercial paper markets start to function again.

Hey - it took less than 20% of the bail-out package!

Audrey

[FinanceDude]

Quote:

Originally Posted by audreyh1 OK! Today's move by the Fed (as uncapitalistic as it seems to be) was probably the last major step needed to protect Main Street, so I'm breathing a lot easier. Ironically, the US finally "had to do it" because Europe did it. Pretty good cover for US Policymakers. Short term LIBOR rates cut in half - that's terrific. Flight to treasuries is starting to reverse. Maybe we'll see our commercial paper markets start to function again. Hey - it took less than 20% of the bail-out package! Audrey

probably the best use of taxpayer money in many years. I am NOT a bailout guy, but this appears to have some merit. The US is a nation of credit, and if the credit markets are frozen, that is a big problem......

[audreyh1]

Quote:

Originally Posted by audreyh1 Hey - it took less than 20% of the bail-out package! Audrey

Whoops! Looks like Paulson made the banks take $250B, not $125B as I had read last night.

Make that less than 40% of the bail-out package. Not quite so cheap.

Audrey

[audreyh1]

Quote:

Originally Posted by FinanceDude probably the best use of taxpayer money in many years. I am NOT a bailout guy, but this appears to have some merit. The US is a nation of credit, and if the credit markets are frozen, that is a big problem......

Absolutely! What is the point of leaving the credit markets frozen and destroying our economy?

Audrey

[FinanceDude]

Quote:

Originally Posted by audreyh1 Absolutely! What is the point of leaving the credit markets frozen and destroying our economy?Audrey

Hey, now the bank lobbyists have a LOT less power. Even though the Govt gets non-voting stock, I think they will have a LOT of influence on the operations going forward.

I am somewhat worried about the socialistic way in which we are moving, with the federal government owning the credit markets, hopefully there's a timeline and an exit strategy........

[Independent]

Quote:

Originally Posted by . . . Yrs to Go Much to the chagrin of Socca and Independence it seems as if we've side stepped a Great Depression. With governments around the world throwing everything (including the kitchen sink) at the problem, the worst is likely avoided. We will all live to fight another day.

If I'm the "Independence" you're referencing, I'm quite sure I wasn't predicting a depression, nor was I hoping for one. And I'm also sure I said I'd rather have a recession than promote the idea that the gov't can bail out everyone all the time.

For example, it seemed to me that people who invest in money market mutual funds instead of FDIC insured bank accounts should recognize that they don't have a gov't guarantee. The same goes for the companies that were funding on-going operations with CP instead of equity or long term loans. Both of them were taking risks. Are they going to modify their future behavior based on the past couple weeks? or will we be building the same house of cards all over again?

[audreyh1]

Independent, I think the disagreement is on degree.

The Fed/Treasury didn't do this to avoid a recession. They did it to avoid a depression. I know plenty of folks don't believe we were ever at risk of a depression. If a certain outcome is avoided people can argue endlessly about whether or not it would have occurred.

We're going to have a recession anyway. Now that credit is starting to thaw, maybe we can avoid a really, really bad recession. But it won't be a light recession either. Too much damage has already been done. Too much deleveraging and falling housing prices and contraction of credit has occurred. Yes, it is good that a lot of this has happened, but the pendulum has swung the other way and now the question is how far?

We will all be swallowing a lot of bad medicine these next couple of years - the "innocents" along with the "guilty". Unfortunately we are all in this boat together, and if it capsizes we all risk drowning. Maybe in the future we can police things much better so that those with the power to capsize the boat are forced to limit their risk taking.

Audrey

[audreyh1]

Quote:

Originally Posted by Independent For example, it seemed to me that people who invest in money market mutual funds instead of FDIC insured bank accounts should recognize that they don't have a gov't guarantee. The same goes for the companies that were funding on-going operations with CP instead of equity or long term loans. Both of them were taking risks. Are they going to modify their future behavior based on the past couple weeks? or will we be building the same house of cards all over again?

Why are bank deposits any more sacred than money market mutual funds? Why should one have a federally backed insurance program (paid for by depositors), but not the other? The commercial paper markets are critical to the smooth functioning of US corporations, so why shouldn't they have some protection? I would state that this is more like the Fed realizing and correcting an oversight of many decades. There were no shenanigans in the commercial paper (at least not on the scale of investment banks and mortgage backed securities), just regular credit-worthy companies going about their business. Why should money market funds be penalized instead of the banks?

FDIC was put in place when the US realized that without it, they could never have a stable financial system. I think they have just now realized the same is true for the commercial paper market.

Audrey

[Freeatlast47]

Quote:

Originally Posted by al_bundy www.prosper.com

Has anyone tried this? Looks like the rate of return is much better than my local bank of course it is not FDIC insured.

[REWahoo]

Quote:

Originally Posted by Freeatlast47 Has anyone tried this? Looks like the rate of return is much better than my local bank of course it is not FDIC insured.

See these threads:

http://www.early-retirement.org/foru...com-25470.html
Individual-to-Individual Loans as Investment?

[Gone4Good]

Quote:

Originally Posted by audreyh1 The Fed/Treasury didn't do this to avoid a recession. They did it to avoid a depression.

Exactly right.

[Independent]

Audrey, this makes sense to me:

Quote:

Originally Posted by audreyh1 Independent, I think the disagreement is on degree. The Fed/Treasury didn't do this to avoid a recession. They did it to avoid a depression. I know plenty of folks don't believe we were ever at risk of a depression. If a certain outcome is avoided people can argue endlessly about whether or not it would have occurred. We're going to have a recession anyway. Now that credit is starting to thaw, maybe we can avoid a really, really bad recession. But it won't be a light recession either. Too much damage has already been done. Too much deleveraging and falling housing prices and contraction of credit has occurred. Yes, it is good that a lot of this has happened, but the pendulum has swung the other way and now the question is how far? We will all be swallowing a lot of bad medicine these next couple of years - the "innocents" along with the "guilty". Unfortunately we are all in this boat together, and if it capsizes we all risk drowning. Maybe in the future we can police things much better so that those with the power to capsize the boat are forced to limit their risk taking. Audrey

I understand that Berneke/Paulson are trying to walk a fine line between too little intervention leading to a depression and too much intervention leading to a continuation of the moral risk that got us into this. I don't know exactly where that line is. B&P know a lot more than I do, but I'm concerned they will veer too far to one side.

I see this an instance of the "expert" problem with public policy. For example, only civil engineers know enough details about our physical infrastructure to evaluate the risks of not investing money to improve it. But, I wouldn't give them a blank check and say "do whatever you want". I'm afraid they'll do too much. They have too much vested interest in physical infrastructure and too little understanding of other public goals.

In this case, only specialists in the credit market really understand the details, but I'm still worried that if we give them a blank check they will spend too much money to maintaining their system and leave us too little to spend elsewhere. I'm particularly worried because they haven't shown themselves to be very concerned about the public good in recent years.

I'm old enough to remember the S&L meltdown and the LTCM fiasco. I agree with the "Maybe in the future we can police things much better..." sentence. It's just that I give the "Maybe" a very low probability. I think the boat is at risk of capsizing because some people built the upper decks higher and higher just to give themselves a better view. So if we work real hard to keep it upright today, who is going to tear down the upper decks so this doesn't happen again?

[audreyh1]

I am more positive about the "Maybe in the future we can police things much better..." because I think the US did this in the 1930s, and we managed to significantly reduce the excessive financial volatility that had characterized decades and centuries prior through the 1930s. That was a very successful 75 year run. IMO 73-74, 1987, the S&L meltdown and the LCTM fiasco were small storms compared to what we face this year.

Ironically, several of the key regulations that were put into place in the 1930s to avoid financial instability and held as sacred cows during most of the decades following were taken off the books during the past decade. Some of them just last year. And what do we get? A global financial blowup. It didn't take long at all.

So, I think we've done it before, and I think we can do it again. And maybe we have to relearn these lessons every 3rd generation - who knows!

Audrey

[Independent]

I hope you're right. I guess we can only wait and see.