Early Retirement & Financial Independence Community

Early Retirement & Financial Independence Community (https://www.early-retirement.org/forums/)
-   FIRE and Money (https://www.early-retirement.org/forums/f28/)
-   -   Fundamental Question, What Happens If There Is No Bailout ! (https://www.early-retirement.org/forums/f28/fundamental-question-what-happens-if-there-is-no-bailout-38995.html)

al_bundy 09-26-2008 06:51 AM

Quote:

Originally Posted by OAG (Post 720670)
This thing is going out of control (if it was ever under control). I am still waiting for someone to define the problem. Everyone is pointing to actual or possible results. But our Congress (all of them) can't define the problem. I am at a loss as to how you can solve a problem you can't define with a solution that may or may not work. Looks like the usual Washington action - we will create a solution to a problem we can't define. Frankly, in this case, like the spring rebate problem, we are going to create a solution in search of a problem. Everyone is running around the BULL RING trying not to get GORED.

the problem is simple, too much bad debt and not enough insurance to cover the losses and the insurance policy is written by the same people that hold the bad debt and are screaming for cash. if the government steps in and buys up the debt it should calm things down. if we let things go on without intervention we risk a cascading failure when big banks fail and anyone who owns CDS's will start calling them in and it will lead to more failures as people can't pay them back and so on and so on.

tryan 09-26-2008 06:53 AM

Quote:

This thing is going out of control
I can't wait for the absolute auctions of all these seized assets! It'll take about a year ... then the healing will begin. Resolution Trust Corp all over again!

Where there's chaos there's opportunity!

OAG 09-26-2008 06:57 AM

Quote:

Originally Posted by al_bundy (Post 720683)
the problem is simple, too much bad debt and not enough insurance to cover the losses and the insurance policy is written by the same people that hold the bad debt and are screaming for cash. if the government steps in and buys up the debt it should calm things down. if we let things go on without intervention we risk a cascading failure when big banks fail and anyone who owns CDS's will start calling them in and it will lead to more failures as people can't pay them back and so on and so on.

Well, WAMU, went down (and came back) last night. Looks like a pretty clean action by the MARKET. It is the largest bank "failure" in history!

al_bundy 09-26-2008 07:06 AM

if there is no bailout, let's see what happens next week when people start calling in their insurance policy.

this is just the assets going to chase. now that the debt issued by wamu is worthless someone is going to have to repay it

Independent 09-26-2008 06:08 PM

Quote:

Originally Posted by . . . Yrs to Go (Post 719888)
So out of the frying pan and into the fire? You take your money out of a MM fund because you think it might fail and put it in a commercial bank that might fail? Sure you have FDIC insurance, but only up to $100K. I don't have a statistic about the composition of MM deposits, but I strongly suspect a very high percentage of total deposits are in accounts that exceed FDIC insurance limits.

Also the "friction" in moving from a predominately market based financing system back to a commercial bank lending model is huge. Right now banks aren't lending. And even if they got a good fraction of the MM withdrawals back in deposits, it would take a long while for them to turn around and lend that money back out.

Sure over the "long-term" we'd adjust but people forget how long the long-term can be . . . we came out of the Great Depression too, over the long-term.

I'm not sure if you are looking at this from the lender's perspective or the borrowers. As an individual with short term cash, I can choose between non-insured MM mutual funds or insured (up to $100,00) deposits in regulated (with reserve requirements) banks. There's a trade-off there. I don't think the gov't is trying to change the rules for the benefit of the savers, and I don't think they should.

I do think they are trying to change the rules for the benefit of the borrowers. It's easier for a firm that has been using commercial paper to get operating cash to continue that instead of switching to bank borrowing. But it certainly isn't impossible. I agree that over the "long-term" everyone adjusts, and the judgement call is how long it takes for the "long-term" to get here. I'm sure there are profitable firms that don't use commercial paper, others can easily get along without it. I don't know if that's most companies or just a few.

I'm thinking that the people who live and breath this every day are somewhat biased - believing that the whole economy is going down the tube just because their business is (I'm talking about the financial industry here). I don't know how much bias there is in their predictions.

Gone4Good 09-26-2008 09:51 PM

Quote:

Originally Posted by Independent (Post 721087)
I'm sure there are profitable firms that don't use commercial paper, others can easily get along without it. I don't know if that's most companies or just a few.

I'm thinking that the people who live and breath this every day are somewhat biased - believing that the whole economy is going down the tube just because their business is (I'm talking about the financial industry here). I don't know how much bias there is in their predictions.

I think it is safe to say that if a company has access to the commercial paper market they will use it instead of direct bank borrowings, almost without exception. It is typically much cheaper.

It's certainly possible that those closest to this issue are biased in their predictions because they live and breath these difficulties. It is also possible that those who live and breath this every day are more fearful because they know how the financial pluming of our economy works and can see the implications of a clogged drain.

socca 09-26-2008 10:15 PM

I previously thought that Obama should stay out of the bailout deliberations in Washington. I've changed my mind. If Obama really wants to exhibit true leadership, he'll state that one of the direct consequences of the bailout principles he has already defined is that not one penny of taxpayer money will ever be used to buy bad debt. He should then start working the Washington political machine to make sure this does not happen. If this means aligning himself with the rogue group of GOP representatives who share this view, so be it. I'll be deeply ashamed to be leaning left (these days, at least) if Barney Frank (who doesn't strike me as the sharpest knife in the kitchen) succeeds in pushing through a modified Paulson plan. In fact, if McCain/Palin weren't such a weak pair I'd vote Libertarian (effectively throwing away my vote) in disgust. :)

chinaco 09-27-2008 03:28 AM

We are paying for it anyway.

As banks fail... the govt pays for the bailout via FDIC. The middle class are investors... your losing value in your portfolio. Your home value is lowering because people cannot buy it.

Yes, tax payers will have to pay the difference between those MBS securities that the RTC sells and what was paid.

We are in a trap.

Congress needs to finish the deal.

Banks that sell substantial MBS to the RTC should have their senior management replaced. That should be part of the deal. Those executives should be barred from officer or director positions on any publicly traded companies for life. And they should disgorge all excessive pay from the last 6 to 8 years.

Helen 09-27-2008 07:18 AM

I keep wondering if the US can buy it's way out of this. We already have record deficits and a medicare system that is breaking. How much is too much debt for the US to take on?

Zoocat 09-27-2008 05:43 PM

Quote:

Originally Posted by Helen (Post 721255)
I keep wondering if the US can buy it's way out of this. We already have record deficits and a medicare system that is breaking. How much is too much debt for the US to take on?

Good question. I'm wondering how our international lenders are viewing the situation. They own $2.647 trillion of our publically held debt.
https://www.concordcoalition.org/learn/debt-facts

What if we had to actually PAY for everything that is currently paid for by the annual fed borrowing from international lenders, plus interest on the debt we already have? Or even half of what we currently borrow?

Do ya think taxes might go up a little? And spending go down? (And interest rates go up?)

Interest paid for this fiscal year on the national debt is $431,270,863,309.37.
https://www.treasurydirect.gov/govt/r...ir_expense.htm

Gone4Good 09-27-2008 07:39 PM

Quote:

Originally Posted by Oldbabe (Post 721530)
I'm wondering how our international lenders are viewing the situation. They own $2.647 trillion of our publically held debt.

Judging by treasury yields they absolutely love it. Treasury bonds have rallied strongly so far. As bad as things are, the US is still seen as a safe haven . . . keep your fingers crossed.

Helen 09-27-2008 11:15 PM

Quote:

Originally Posted by Oldbabe (Post 721530)

What if we had to actually PAY for everything that is currently paid for by the annual fed borrowing from international lenders, plus interest on the debt we already have? Or even half of what we currently borrow?

Interest paid for this fiscal year on the national debt is $431,270,863,309.37.
Government - Interest Expense on the Debt Outstanding

This is what I am thinking. The interest we have to pay to service the debt is already staggering. I think inflation is going to rise which will increase the amount we pay in interest.

At what point will we cross the threshold where we can no longer service the debt?

We seem to measure debt against the GNP. What happens when the debt is really high and the GNP drops to very low levels? Do we then accumulate more debt? What will it take before other countries decide to quit lending?

tryan 09-28-2008 06:28 AM

Tenative deal reached this morning ...

Quote:

The government would later try to sell the discounted loan packages at the best possible price.
Deal reached on financial markets bailout

So behind every crappy loan there's a crappy house which will be sold at an excellent price.

Save your pennys! Happy days are here again!

samclem 09-28-2008 10:16 AM

Quote:

Originally Posted by tryan (Post 721708)
Tenative deal reached this morning ...

Suddenly, I don't feel so good.

A modest proposal: What the plan >should< include is a provision whereby foreclosed houses are leased to the government and payments are made with money otherwise used for Section 8 housing. These properties are then occupied for the coming year by the needy families who qualify for these benefits. This would benefit everyone:
- Once vacant, the existing homes presently used for Section 8 housing could get a badly needed maintenance.
- These low income families would move into homes worth $150K--$300K. Their kids would go to better schools, and these neighborhoods would get some badly needed socioeconomic integration. Everyone is always talking about "diversity", here's a chance to do something to actually achieve it in our neighborhoods.
- The foreclosed homes (backed by taxpayer money) would be well maintained by these thankful recipients of government aid. Leaving a house empty invites vandalism.
- As one other side benefit, the bailout plan would then have tangible impacts on property owners (and taxpayers) throughout America. It's pretty hard to imagine what a $700 Billion govt expense will mean to me. It's a lot easier to envision the impacts when the Smith's house across the street becomes part of this new program. Maybe a provision like this would prompt people to write their legislators to express their appreciation.

cute fuzzy bunny 09-28-2008 10:23 AM

I like to think I'm open minded, but I'd just as soon not have any socioeconomic integration occurring in my neighborhood. We've got 3 foreclosed homes that have sat empty for over a year and badly need maintenance. I'm pretty sure that isnt going to be improved by moving some section 8 folks in.

samclem 09-28-2008 10:37 AM

Maybe I should have sprinkled some of those >:D>:D in there. I was trying for "facetious irony" but I think I missed the mark.

cute fuzzy bunny 09-28-2008 10:44 AM

Eh, I got that from the comment about writing their legislators to express their appreciation part ;)

frayne 09-30-2008 10:24 AM

Well, I guess we are kind of finding out.


All times are GMT -6. The time now is 02:12 AM.

Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.