Bush Bailout Speech

[Helena]

Dubya began his speech explaining that since so many Americans
can't pay their mortgage this has caused international bad paper.
And investors who bought all that bad paper are getting burned...
so you Americans [who still can't pay your mortgage] need to spend
a trillion dollars to bail out all those investors.

Yeah right... that will go over like a lead balloon.

 

[ejman]

I'm no great fan of Dubyas but I actually thought the Shrub's little talk wasn't that bad... YMMV

 

[Helena]

Deja Vu


Daddy Bush spent billions of taxpayers' money
bailing out the S & L crisis... and John McCain
was one of the Keating Five.


" The Keating Five were five United States Senators accused of corruption in 1989, igniting a major political scandal as part of the larger Savings and Loan crisis of the late 1980s and early 1990s. "


" The U.S. Savings and Loan crisis of the 1980s and 1990s was the failure of 747 savings and loan associations (S&Ls) in the United States. The ultimate cost of the crisis is estimated to have totaled around $160.1 billion, about $124.6 billion of which was directly paid for by the U.S. taxpayer. "

Keating Five - Wikipedia, the free encyclopedia

 

[playaman]

Watching Mr. Bush deliver tonight's speech was painful. His heart wasn't in it, almost as if he perceives the American people are mostly ignoring him these days. Perhaps they are. By W's standards, it wasn't a bad speech, but totally nonmemorable.

 

[ziggy29]

Hoo-boy. If this one avoids the Soap Box, it may be a miracle...

 

[Helena]

True believers do not change their beliefs when the going gets rough.


Quote from Bush speech:

" I'm a strong believer in free enterprise. So my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances. The market is not functioning properly. There's been a widespread loss of confidence. And major sectors of America's financial system are at risk of shutting down. "


President's Address to the Nation

 

[Gone4Good]

Thought it was decent, and necessary. Paulson and Bernanke didn't do a very good job the last two days of selling this in political terms. Instead they spent the week talking to everyone as if they could tell a mortgage bond from Barry Bonds from a cow. They can't. People need to be told . . . "You may not be able to get a car loan. You may not be able to get a mortgage. You may lose your job. Your 401(k) balance will likely decline more. Your credit cards might get yanked. Your standard of living might decline. If we don't do this" W, did that tonight.

 

[Gone4Good]

True believers do not change their beliefs when the going gets rough.

In a financial crisis, everyone is a socialist. (kind of like there are no atheists in a fox hole)

 

[Htown Harry]

I'm no great fan of Dubyas but I actually thought the Shrub's little talk wasn't that bad... YMMV

I had the same reaction....from the same starting point.

The "how we got here" part was probably the best part. [-]He[/-] His speech writers did a pretty good job of stringing together the basic elements of the of the crisis' cause and effect . Granted, there were some oversimplifications and some tilts in the details that I haven't heard before (too much foreign investment in mortgage securities??), but it was an explanation that a person with limited education or financial sophistication could understand.

It got weaker as it went along, however. Lots of scary words (recession, crisis, panic, etc.) were used to make a case for action, not logical arguments.

I'd give it a solid B, maybe an A- on a curve that includes only the last 8 years of presidential speeches.

Even a blind pig finds an acorn once in a while.

 

[capjak]

Good Speech, I thought.

We need both McCain and Obama to work with Congress to get this nailed down and make sure it is the right thing to do for all of us...non partisan both take the political risk/reward.

 

[Helena]

In a financial crisis, everyone is a socialist.

Privatize profits - Socialize losses

From each American according to his ability to pay taxes....
to each corporation according to its need to service debt.

As Dave Ramsey would say... cut up the credit cards
and pay cash for your car... debt is what got America
into this mess.

 

[haha]

Granted, there were some oversimplifications and some tilts in the details that I haven't heard before (too much foreign investment in mortgage securities??), but it was an explanation that a person with limited education or financial sophistication could understand.

China was loaded to the gills with Fannie/Freddie MBS. They were leaning on Paulson.

Ha

 

[Caroline]

so many Americans
can't pay their mortgage this has caused international bad paper.

ok, this is probably the dumbest idea in the world but...

If mortgages are the heart of the problem, then what would it be like to take the trillions that we're going to spend on the bailout and just pay the durned mortgages? Or pay the difference between what the house is worth and what is owed on it? Or turn all those variable rate mortgages into 30-year fixed debts? Something like that could keep the little guy / gal in their homes, AND keep the investment banks afloat, AND keep all that international paper afloat (as opposed to circling the drain as it is now).

It can certainly be argued that it's not fair or right to save those who overextended themselves, but since we supposedly smarter taxpayers are going to take it in the shorts anyway, why not doing something REALLY different and start it at the bottom instead of the top?

Wouldn't we get more social stability / economic stability for our buck that way?

 

[dex]

ok, this is probably the dumbest idea in the world but...
If mortgages are the heart of the problem, then what would it be like to take the trillions that we're going to spend on the bailout and just pay the durned mortgages?

Wouldn't we get more social stability / economic stability for our buck that way?

The issue is liquidity.

Subprime mortgage crisis - Wikipedia, the free encyclopedia
The widespread dispersion of credit risk and the unclear effect on financial institutions caused reduced lending activity and increased spreads on higher interest rates. Similarly, the ability of corporations to obtain funds through the issuance of commercial paper was affected. This aspect of the crisis is consistent with a credit crunch. The liquidity concerns drove central banks around the world to take action to provide funds to member banks to encourage lending to worthy borrowers and to restore faith in the commercial paper markets. The U.S. government also bailed-out key financial institutions, assuming significant additional financial commitments.
======
also,
- mtg backed securities are bonds - because of the current negative mortgage situation they are depressed in price.
- most people will pay their mort.- a few won't
- in the future, when the gov't sells them, they should be up in price



good site to know

Mortgage-Backed Securities (MBS)

 

[Helena]

Quote from Bush speech:

" Optimism about housing values also led to a boom in home construction. Eventually the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell. And this created a problem: Borrowers with adjustable rate mortgages who had been planning to sell or refinance their homes at a higher price were stuck with homes worth less than expected -- along with mortgage payments they could not afford. As a result, many mortgage holders began to default.

These widespread defaults had effects far beyond the housing market. See, in today's mortgage industry, home loans are often packaged together, and converted into financial products called "mortgage-backed securities." These securities were sold to investors around the world. Many investors assumed these securities were trustworthy, and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac. Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.


The decline in the housing market set off a domino effect across our economy. When home values declined, borrowers defaulted on their mortgages, and investors holding mortgage-backed securities began to incur serious losses. Before long, these securities became so unreliable that they were not being bought or sold. Investment banks such as Bear Stearns and Lehman Brothers found themselves saddled with large amounts of assets they could not sell. They ran out of the money needed to meet their immediate obligations. And they faced imminent collapse. Other banks found themselves in severe financial trouble. These banks began holding on to their money, and lending dried up, and the gears of the American financial system began grinding to a halt. "

 

[audreyh1]

In a financial crisis, everyone is a socialist. (kind of like there are no atheists in a fox hole)

Yes, I too was amazed last night to hear Larry Kudlow blithely declare that it's OK for government to step in and intervene and "bail out" in "free markets" every 50 years.

Can't believe that anyone can still declare that with a straight face to let the "free market" work. Obviously free markets can go very unstable with amazing regularity and while "creative destruction" may be some kind of ideal, the tsunami can get big enough to virtually ruin economies for 10+ years. The 1800s was full of such global financial disasters.

It's pretty obvious from the past 10 years that markets have to be meaningfully regulated to operate rationally. The paradox - for markets to truly operate "freely" there has to be transparency which requires stringent financial reporting, and some reasonable constraints/limits.

Audrey

P.S. I forgot where this link was posted, but how the current amount of leverage was ever allowed is beyond me. The Big Picture | How SEC Regulatory Exemptions Helped Lead to Collapse

 

[Helena]

The issue is liquidity.

http://en.wikipedia.org/wiki/Subprime_mortgage_crisis#Risks_of_default

Deflation

The government wants to spend its way out of it.


~

 

[Brat]

DH, who is absolutely a-political, said that Bush looked sick (or grim).

I feel like I have been mugged by guys in pins-triped suits, "Your money or your life!"

 

[Running_Man]

As is pointed out in this thread, history is replete with bad financial happenings that effect the economy for 10+ years. Yet the economy continued to grow over that time and standard of living has steadily improved. The likelihood that 3 Federal employees have developed the answer to avoid that and provide comfort for all is very low. Standing in the way of natural order is sure to cause unintended consequences.

These are the same people who saw no problem 18 months ago when it could have been addressed. As a matter of fact a few months ago Paulson was claiming the mere possibilty that the US Government would take over Fannie & Freddie would be taken over would provide confidence to solve problem.

 

[dex]

As is pointed out in this thread, history is replete with bad financial happenings that effect the economy for 10+ years. Yet the economy continued to grow over that time and standard of living has steadily improved. The likelihood that 3 Federal employees have developed the answer to avoid that and provide comfort for all is very low. Standing in the way of natural order is sure to cause unintended consequences.

These are the same people who saw no problem 18 months ago when it could have been addressed. As a matter of fact a few months ago Paulson was claiming the mere possibilty that the US Government would take over Fannie & Freddie would be taken over would provide confidence to solve problem.

all true
more ...if true - bad
China banks told to halt lending to US banks-SCMP | Markets | Markets News | Reuters
BEIJING, Sept 25 (Reuters) - Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis, the South China Morning Post reported on Thursday.
The Hong Kong newspaper cited unidentified industry sources as saying the instruction from the China Banking Regulatory Commission (CBRC) applied to interbank lending of all currencies to U.S. banks but not to banks from other countries.
"The decree appears to be Beijing's first attempt to erect defences against the deepening U.S. financial meltdown after the mainland's major lenders reported billions of U.S. dollars in exposure to the credit crisis," the SCMP said.
A spokesman for the CBRC had no immediate comment. (Reporting by Alan Wheatley and Langi Chiang; editing by Ken Wills)

-----

 

[chinaco]

I don't like the bailout, but the net result of the market turmoil and fin services industry melt-down is probably worse.

Hopefully the perps go to jail... if not that they must disgorge.


GWB pushed this along with his chicken in every pot [-]own a house even if you can't afford it[/-] policy. He deserves much criticism on that.

However IMO -- he is doing the right thing.

For the average person investing for retirement it is a catastrophe.... now days everyone's retirement is in mainly in mutual funds.

Imagine if your stock funds cut another 25% (from where they are) and it doesn't come back for 10 years because of fear and lack of confidence. Your bond funds value cut by 40% (permanently)... or be marked there for years. Some mutual fund (bond fund) charters will not allow them to hold trash... they might have to begin liquidating it because they can only hold highly rated bonds.

Most major bond mutual fund, ETF, Pensions, etc hold massive amounts of Fannie and Freddie (the companies) and huge amounts of MBS. I am fairly sure the last time I looked the VG total bond index holds almost 36% bonds in Fannie and Freddie and MBS.


So go ahead and rail on the bailout.... but you will pay one way or the other. Even if you only had a govt pension... you will be affected by lower home prices if no one will buy homes (or lend money for purchasers).

 

[al_bundy]

As is pointed out in this thread, history is replete with bad financial happenings that effect the economy for 10+ years. Yet the economy continued to grow over that time and standard of living has steadily improved. The likelihood that 3 Federal employees have developed the answer to avoid that and provide comfort for all is very low. Standing in the way of natural order is sure to cause unintended consequences.

These are the same people who saw no problem 18 months ago when it could have been addressed. As a matter of fact a few months ago Paulson was claiming the mere possibilty that the US Government would take over Fannie & Freddie would be taken over would provide confidence to solve problem.

but what would life had been like if there had been no Great Depression or no Depression of 1873 which was even worse? A deflationary event used to hit the US every 40 years with the Great Depression being the last one. in the 1970's the government inflated the economy to keep another depression from happening.

TV among other things had been invented before the Great Depression but didn't see any adoption until the 1950's. Compare that with the 1970's where we had MS, Intel and all the big Internet companies of today either started or had the ideas for them begin and the 1980's saw them start on their first growth stages and all the ideas like the PC game consoles that were made up in the 1970's saw fruition in the 1980's.

same concept as comparing European and US growth. Over the last few years US economic growth has outpaced Europe and other countries by 1% or so. Doesn't seem like much but look at the difference in the standard of living after several decades

 

[al_bundy]

DH, who is absolutely a-political, said that Bush looked sick (or grim).

I feel like I have been mugged by guys in pins-triped suits, "Your money or your life!"

sort of

NY send more tax money to DC than it gets back. We're taking it back in one lump sum now.

 

[al_bundy]

ok, this is probably the dumbest idea in the world but...

If mortgages are the heart of the problem, then what would it be like to take the trillions that we're going to spend on the bailout and just pay the durned mortgages? Or pay the difference between what the house is worth and what is owed on it? Or turn all those variable rate mortgages into 30-year fixed debts? Something like that could keep the little guy / gal in their homes, AND keep the investment banks afloat, AND keep all that international paper afloat (as opposed to circling the drain as it is now).

It can certainly be argued that it's not fair or right to save those who overextended themselves, but since we supposedly smarter taxpayers are going to take it in the shorts anyway, why not doing something REALLY different and start it at the bottom instead of the top?

Wouldn't we get more social stability / economic stability for our buck that way?

how are you going to manage all this and make sure people actually pay the mortgage? remember that most of these people refi'd themselves to riches and luxury.

much easier to press a computer key and buy up a bunch of bonds. the infrastructure is already in place for this and no new government employees have to be hired to do nothing but write checks

 

[CompoundInterestFan]

I don't like the bailout, but the net result of the market turmoil and fin services industry melt-down is probably worse.

Here's one thing I don't understand: they let Lehmann go belly-up, and that turned out alright. After they declared bankruptcy, the real value of some of their assets was determined, and Barclays swooped in and picked up a still-healthy part of their business. Isn't this how it's supposed to work? Why can't they let this happen for other companies like AIG? So far the only explanation I've heard is from Buffett, who said something along the lines of "everyone trying to deleverage at the same time"=bad. Still don't quite see how that's catastrophic.