The failed resolution

Post Reply New Topic

Something I wrote on a Wednesday morning which I posted as ming on a Singapore finance message board.

You know, I am insulted by that comment as an American.

I am against this resolution because it is a knee jerk reaction that allows those in high places in the business world to escape responsibility for their bad decisions while those who made mistakes but do not have the prestige/power to access their government to be left out in the cold. There are a lot of better ways to deal with this crisis than putting the US taxpayer more into debt than they already are and now that this resolution has failed, it is time to look at some of those other ideas. This includes government insurance rather than all out purchase (with strings such as no golden parachutes for those who got us into this mess and the bank is forced to work with the borrower to rehab the loan), change in accounting rules that went too far, and possible removing the capital gains tax.

Not all Americans spent beyond their income and did things right and this plan would have punished those people along with everyone else. Our congress did the right thing by refusing to pass this resolution as is and listened to their constituents, many who are smarter than you obviously give them credit for. I do understand what is going on and I do believe that government intervention is needed. I just do not think that this knee jerk resolution is the correct intervention.

There are technical objections to the bill as proposed, as well, that several people I know who are strongly opposed to it point to to justify their decision.

No I am not naïve. I know perfectly well what will happen when there is a worldwide depression. In fact I predicted that it would happen in two years. That was about eighteen months ago. Nothing you me, some idiot president or prime minister somewhere or even the $700 billion bailout or any kind of bailout is going to be able to stop it. Trying to stop it through a gigantic bailout is like throwing your bandages at the enemy when you run out of bullets. It is simple foolishness and yes I am vein enough to not make a fool of myself. As for being entitled I feel entitled to the taxes that I have paid nothing more nothing less. The consequences of a worldwide depression will be where most of the world cities will be like New Orleans after Hurricane Katrina and this will last for several years. No I won’t feel responsible because unlike those slick CEOs and their minions I have never lied and cheated to get anywhere.. Maybe you should write an article addressed to them instead. I’m sure if they all pitched in they could come up with $700 billion. I am one of those people who called my congress person. No it wasn’t to ensure my wellbeing. It was to ensure that there would be enough money in the treasury to lessen my suffering a little when all hell breaks loose. You won’t get any argument from me when it comes to my country being dysfunctional. It has been very painful for me to watch a wonderful country like the United States turn into the Roman empire. But I guess it is human nature and no better representative of human nature than a country like the United States where almost every persons grandfather or grandmother is from another country. The brave, the visionary, the intellectual, the inventor are all still here. Most of them have been thoroughly beaten into submission with down pillows but they are still here. You really can’t blame many of them who don’t want to own up to their obligations after a beating like that. No American Prestige was not lost but gained on Monday. It was a clear message to the flam flam artists and their authors that the show was over and they should pack up their cards and balls and cups and head out of town. In spite of all our flaws America deserves more respect than almost any other country in the world. We have had more fortunes made, more freedoms enjoyed and justice administered in our three hundred years than three thousand years of any other nations history. Self respect is earned by demanding and receiving justice. We will gain our self respect when justice is served. How fortunate that our demand for justice can still be heard where in other nations it is barely a whisper over the growling hungry stomachs.

I'm a bit baffled by the original post, or the wording of it. You do realise the banks were also living beyond their means, don't you? Lending out money they did'nt really have to lend in the first place ('confidence') and making really bad (as in stupidly awful) investments with....OTHER PEOPLE'S f*****g MONEY! So you think a whole load of OTHER PEOPLE'S MONEY should be used to BAIL them out and remove the burden of responsibility and accountability? To me bail is something issued when you are charged with a crime, that is no different here. The people are expected to bail out criminals - a group of as*holes who were allowed to get away with what is basically FRAUD. Why should the American people foot the bill for this and expect the same people who instigated this mess to be trusted with their $700b? They have a very poor record of putting other people's money to good use after all, what this bailout was effectively saying is, you made a mess but here is a big wad of public cash to sort it out any way you see fit, we won't ask any questions. Now I wonder where most of that money would end up. These people are crooks and they basically make the rules up as they go along because they have such influence, they have done it for CENTURIES. They don't care about saving ordinary people from hardship, they only care about the profits they can make from these people.

They are insulted and I am dismayed that they take umbrage at what I had to say. What truly worries me is that so many of the people who are opposed to the bill actually believe in what they are doing. Without understanding what the proposal is, they have jumped on the knee jerk reaction of opposing it. And the opposition is actually bipartisan. The Republicans do not believe that the government ought to meddle in business and the Democrats are scandalized that money is spent on financial institutions but not on their pet causes.

The bill as it was originally tabled would not have extended the U.S. government’s control of the financial institutions that were to participate in the program. All it would do is empower the Treasury to purchase mortgage backed securities from banks that are facing solvency issues because the mortgage backed market has quite literally come to a standstill. It was only later on that people started to demand that the government gain effective control of management by insisting on having the government set wages for the management of any participating institution. The mortgage backed market is so shot up now that this purchase would almost certainly earn money for the government. Not only are these mortgages secured by real estate as collateral, they are also backed by the earnings power of the borrower. So long as one holds on to them past the crisis period, a handsome profit is virtually guaranteed. Within two years, it is more than likely that the special powers extended to the Treasury will no longer be needed, it is also probable that this investment will add tens of billions to the people’s coffers. In other words, it will not cost tax payers a dime.

I will express my crazy ideas more if this thread develops. Let me just say that as Americans you are always right. I am just an insane guy who lives in Singapore where we just celebrated a Muslim holiday. That has got to make me, like, I don’t know, tainted or something.

Later.

Hey, i'm not saying there does not need to be intervention. Unfortunately as the world economy no longer relies on things that actually, exist, but on paper wealth this sector needs rescued. What is under scrutiny is the form this rescue takes. There has to be guarantees, the reason there was an outcry is because there was no safety net within the bailout, it would simply act as a blank cheque.

It will be pushed through and it won't save the world economy anyway, the problems are so deep rooted that there is no quick fix to reverse the damage already done.

OK, first off, when in the world has the US Government ever earned money on any program that it creates and runs. You honestly think that those idiots in DC can make money from this? Boy, you are dreaming.

Second, I do not have my fingers in my ears or wherever else. I do believe that government intervention is needed. I however do not believe that the US government needs to put the US Taxpayer $700 Billion in hock to achieve this goal. If liquidity is the issue, then lets get rid of the capital gains tax and tell the rich to go at it and get tax free money. If I had a choice between the rich putting their money up and getting a tax free reward and having my grand kids pay for it, I say let the rich do it. Lets use the FHA to insure the bonds (with conditions that the companies participating in the insurance cut the cords to the golden parachutes and work with those who are behind, heaven knows the taxpayers do not want those houses either). The implied government backup will get those mortgage bonds moving again. Lets suspend some of the Sarbanes-Oxley mark-to-market rules for a few years. Those bonds are worth a lot more than the banks are recording them as, making the banks books look worse than they truly are. Lets get on the SECs behind to force The Reserve to redeem their clients monies, even at a loss, rather than having them frozen. Of these, the insurance backup will cost probably $50 Billion at most and some programs will have to be cut to make up for the cut in Capital Gains Tax. That is better than certainly putting $700 Billion up.

It is not government intervention that I am against. It is this particular method, which to me is a knee jerk reaction that people are trying to force the acceptance of by spreading fear. Did my investments fall Monday, yes. But I will be in the market for at least 30 years with those monies and even during the Great Depression, the stock market went up if you got in at 1932 and stayed in until 1962. I am not going to act based on fear, I am not going to act based on fear from the media, and I expect those who represent me to not act based on fear but on information. If that makes me a naive American than so be it.

$800 billion is $13 per person on the planet.

It is a lot higher for us 300 million, $2,500 each but many are not in the work force, like 2/3's.

This is $8,000 per tax payer.

It is one percent of housing values, 350 points on the Dow, nothing compared to a world economy which is sliding into recession.

If it was just the purchase of assets that are down, that would work. We have bankruptcy for insolvent companies, that is possible.

The housing bubble burst, and they want to put it back together. That is not possible.

Overall housing values are down 30%, over 50% in some markets, and falling.

We have 100 trillion in mortgages. Home owners and Mortgage holders have lost $30 Trillion in equity.

Most mortgages are still performing. Less than 1% are being foreclosed.

The resale would lose $1 trillion.

We are being taken by a government that wants to make up the loss of the people who are foreclosing on our homes, so they can afford to foreclose on more of our homes.

The government is trying to fix the price of housing at the peak price, to make mortgages profitable.

This is the same as the government fixing the price of oil at $147, because the oil companies like making money, and feel oppressed if the price falls.

Mortgage lenders have made a lot of money for 30 years, now they do not want to face the same downturn we all face, they want our money, so they can take our homes.

One of us is going out of business, the mortgage lenders, the government, or the people.

The problem was caused by the mortgage industry, if government places the blame on the people, we are going to place it on the government.

The government owns the bulk of the mortgages through Fanny and Freddie, the rest are for sale cheap.

The answer is a national mortgage program, all mortgages reset to 5%, keeping as many people as possible in their homes.

We will still have over valued homes, so the people take most of the loss. We will still have a three year backlog of unsold homes, realtors and builders will take a loss.

All the banks and brokers holding mortgages can sell them at a loss, current value, and clear the books. If that puts some out of business, fine.

Like the glut of oil driving down prices, a slowing world economy needs less credit. That is the real problem, not housing. Less people want to borrow from the loan sharks, so now we have hungry sharks calling in favors from Congress who they have been giving lots of money. Having destroyed industry here, they now want our homes and retirement.

They sold off our companies and jobs, looted the Saving and Loans, now the Banks and Brokerages, and there is nothing left to steal but our homes and retirement.

The people have spoken, our answer is "Nuts."

I think the American taxpayer's objection to the "solution" is that it does not appear to solve the original problem. When a bank holds an asset (title to your house) and borrows against its value N times (where N is turning out to be 5x, 10x, or rumored to be as high as 60x in some cases) there's going to be trouble.

The bailout bill is designed to help these banks borrow money again. The experts say that if the banks can't borrow, they can't issue more loans to consumers. And then companies that need to borrow money to pay their employees or cover their losses can't.

I'm unconvinced. The argument seems to be that financially unstable banks, companies, or individuals will no longer be able to borrow money if the bill isn't passed. Doesn't seem like a bad thing does it?

Here's an example: I go to Home Depot and get a credit card. $7500 limit preapproved. I decide to go back again and I find out that I am actually preapproved for 5 Home Depot credit cards (same limit on each one). I can get 10% off each purchase every time I apply. They're not checking my credit they're just trying to hook me on the interest payments. This is what credit in the US is like today.

Back in 1995 I applied for $50 overdraft protection on my checking account and was rejected by the bank. They deemed I was too risky to loan $50. But now, working a job that pays less, I'm preapproved for $37,500.

I realize a rejection of the bailout means a contraction of the US economy and likely the world as well. But that's what economies do. If we used dangerous practices to grow the economy to where it is today, it's common sense that we'll experience pain while the economy contracts back to its natural position.

Personal finance is not the same as the financial economics of a country or even of a financial institution. When a bank borrows, they do it from their depositors, through capital markets, through the interbank market or from central banks. Since Americans have such low saving rates, most American banks these days are unable to rely on bank deposits alone to fund their lending and usually seek recourse to non-local sources of funds by selling their assets such as mortgages to Wall Street intermediaries who then package them and resell these mortgages in what is known as securitization. Since the beginning of 2007, mortgage backed markets have essentially shut down and that has meant that banks have had to rely on the interbank borrowing to maintain their liquidity. These mortgages that the banks hold are usually good. Unless the bank is situated in terrible housing markets like Florida or California where speculation really drove prices through the roof, so long as unemployment remains at a reasonable level and interest rates do not shoot up to 10%, these pools of mortgages are virtually guaranteed to be profitable. People will always need a place to stay.

In light of present difficulties, it is true to say that American banks overextended themselves. But it must be understood that the trouble banks are in result from events that were beyond their control. When capital markets said no to more mortgages, a major source of liquidity was closed off. After the collapse of Lehman, interbank lending seized up. No one other than the perpetrators of Lehman’s failure could have predicted that it would happen. And anyone who has been a student of capital markets would have thought that the mortgage backed market would have revived by now. By 2002 for instance, equity IPOs were in full swing after the more dramatic NASDAQ crash. This leaves American banks to rely on Americans, who save almost nothing, or to seek recourse from the Federal government and pay to the penalty to do so.

Regardless of what is done, even if nothing is done, American financial institutions will still fall back on the government. Instead of allowing banks to borrow at will and without much disclosure from the Federal government, the ‘bailout’ package would publicize the intervention and impose a fair cost to the banks that seek assistance. Anyone selling mortgages today would have to do so at a discount to face value. Not only will this penalty discount be greater than the price banks have to pay to borrow from the Federal Reserve, by cleanly transferring the assets, institutions can operate more confidently knowing that their solvency is not at the whim and fancy of whomever may be the regulator at the time.

For American taxpayers, buying these mortgages is a good deal. Instead of allowing these institutions to smooch off the system, you make them pay the price and then enjoy the upside when the mortgage backed market recovers. Given how depressed the mortgage market is right now, it highly unlikely that any buyer who can hold for the long term will actually lose money. In other words, it is not going to cost Americans a dime to save the system that their lives critically depend on.

If you are looking to apportion blame, it is the low rate of savings in the United States that is to blame. Because America depends on foreigners to fund its excessive consumption, the financial system is prone to such panicky liquidity withdrawals. If America wishes to continue living the American dream, in the immediate future, it must act quickly to restore confidence in its banking system. In the longer term, it is vital that Americans save more and consume less. This is also the most pro-environment position anyone can adopt. But first, we must fight the fire in front of us before it engulfs us all.

Well good part of the issue of the low savings rate in the USA is the low rate of interest that is paid on our savings. Most savings accounts have averages 1/2% or less and most CDs until the past 2 months have yielded about 2% except for just before the beginning of the subprime crisis. The low rates were due to the fact that banks found it more profitable to sell to Wall Street where they could keep all of the income they could get from the bonds rather than having to share with depositors (whose accounts are considered liabilities by the banks). If you cannot even earn enough on your money to cover inflation (before taxes), why bother.

Now, I agree that many Americans (myself included) have, during the past 10 - 20 years, spent beyond our means and that it must come to an end. However, many other countries (such as your own), have benefited from this overindulgence. Now that you are starting to feel the pain, you expect Americans to drop the next bomb and not only put themselves but 3 - 4 generations beyond themselves in debt so that this may continue on for a little while longer. Maybe instead of that, now is the time to bring sanity back to the American way.

Will this be painful if we do not borrow the $700 Billion to pay for these issues. Yes, it will be very painful. However, if we borrow the money now to avoid the short term pain, we will be left with a long term problem and this will come to a head eventually and if allowed to fester, the pain will be much worse than it is now. I personally do not want to put 3 - 4 generations in my family in debt to finance our stupidity. Better to take the pain now, learn our lessons and then move on. It may also teach these other countries to not rely on the USA as the consumers of their products and strengthen them too.

Without a bailout the Dow fell almost 20 points today.

Manufacturing is down, orders for durable goods, they do not need more credit.

Ford sales are off 36% for the month, they do not need more credit.

Construction is down, they do not need more credit.

Consumer spending is down, and they are 2/3 s of the economy.

Banking is several percent of the economy, consumers 66%, which market sector needs to feel confident?

Banking is not the dollar, or the market place, or food, oil, manufacturing, it is a small business that ran it's debts up way beyond their means to pay, and are being forclosed.

The housing bubble is exposing a banking bubble, and both need to pop.

Bank A holds a mortgage, and as t0 says, writes many times that in mortgage backed securities, which it sells to other banks who write derivitive debt based on their securities, sold to other banks who use it in place of capital. Congress allowed this, the SEC allowed this, the bank examiners allowed this, one house stands for 100 times it's value in paper.

It is not bank loans that are a problem, people are making their payments, it is bank borrowing, and they are not making their payments. Paper worked to get them here, but now they want dollars, and they cannot get them.

Making new loans to anyone is profitable, servicing old loans work.

They are in the same position as home owners, making payments for ten years till the house is worth as much as it was a few years ago. Banks borrowed against their own future, so did homeowners, now both must pay.

Banks and brokerages do not want to work off their debt.

The American economy is going to be stagnant for ten years, there is little to base a recovery on.

Manufacturing companies were bought by Wall Street and sent to Mexico and China,

Wall Street and Washington funded buying up the most productive grain lands, just as the drought is spreading, crop yields dropping, and agrabusiness will be seeking a bailout.

Wall Street funded buying the forests, now the demand for lumber is way down, they will want a bailout.

Washington is the bailout boys, they have spent billions recently, now looking for a bailout of their bailouts.

Oil is a good indicator, down 1/3 from the peak, they will want a bailout.

Everything is down a third, and there is not that much money on earth.

They are like a burgler who stole your new TV, which then went on sale for half off, now the burgler is demanding you make up the differance.

Values have fallen and will stay there for ten years. There is nothing to do but work, pay your debts, live within your means.

Wages are not rising, the dollar is sound, and Americans are not buying what they do not need, are driving less, and looking to dump the SUV for something that gets good mileage.

More of the economy is moving to the web, more people working from home, starting businesses, and they will pay less taxes than wage workers.

Sales taxes will less, which fund local government, income taxes will be less, as jobs are lost, and the unemployed go in business. 10% less State and Federal income tax collection leaves them with the debts they ran up, which must be paid.

Americans are taxed like Socialists and treated like slaves.

Raising taxes will not work, it will cause the loss of jobs, so less net collection, and when the choice is keep the house, feed the kids, or pay taxes, most people will find a way to pay less taxes.

Governments are larger than the tax base, the country is not going into debt and destroying the dollar to fund their pay checks, they need to get a job.

Step one is a 20% pay cut for all Federal and State workers, from top to bottom, and making them part of the Social Security system, one system for everyone. Their retirment accounts can be transfered to Social Security.

Step two is reducing the national debt to maintain the value of the dollar.

Step three is everyone working to pay down their debt, cutting costs, and saving money.

Bankers, brokers, and ex government employees can say, "Do you want fries with that?"

Zeno wrote: