Wall Street

[mkemse]

My guess about the vote gotten turned down is the "small fact" that there is an election in November and who wants to take a hard decision that half of his/her voters will hate? That sure is a great way to kill your chances in the upcoming elections.

I personally think that there really NEEDS to be a bailout and if not then I guess the whole world is in serious trouble.
my 5 eurocents from a European pov.

Yes I agree. allot of Senators & Reps. that voted NO on the Bail Out said they did so because they are all in tight Races and their Constituates said NO WAY so they voted no, if there was no election this year, the results would have been different

[Ragoczy]

My guess about the vote gotten turned down is the "small fact" that there is an election in November and who wants to take a hard decision that half of his/her voters will hate? That sure is a great way to kill your chances in the upcoming elections.

That's a good guess -- and one of the things wrong with politics today.

Politicians and voters don't seem to understand that the elected official isn't there to just do whatever the majority of his constituents wants -- if that was the case, we wouldn't need them, we'd just vote on everything. That's pure democracy and it's bad. Their role is supposed to be using their knowledge and best judgment to represent their constituency -- and sometimes that includes making a hard, unpopular choice. If more voters could accept that, instead of getting all pissy that their rep didn't vote the way "most" people wanted him to, then we'd have better representation and better government overall.

[leo9]

I may be wrong, as I'm only hearing about this from the UK, but I heard opponents of the bailout from both sides saying that they would have voted for it if it had been the bailout alone, but the proposal's authors couldn't resist the usual practice of stacking it with other measures they wanted to push through - starting with a package of tax cuts, which sounds like a great idea for a Government that's about to borrow like never before.

Unfortunately, in order to bring round the holdouts they will probably now try another business-as-usual tactic and sweeten them by adding in their favourite pork items, thus repelling a different bunch of people.

Over here we call this "rearranging the deckchairs on the Titanic".

[Ragoczy]

I may be wrong, as I'm only hearing about this from the UK, but I heard opponents of the bailout from both sides saying that they would have voted for it if it had been the bailout alone, but the proposal's authors couldn't resist the usual practice of stacking it with other measures they wanted to push through - starting with a package of tax cuts, which sounds like a great idea for a Government that's about to borrow like never before.

Unfortunately, in order to bring round the holdouts they will probably now try another business-as-usual tactic and sweeten them by adding in their favourite pork items, thus repelling a different bunch of people.

Over here we call this "rearranging the deckchairs on the Titanic".

The Senate version of the Bill, which passed the Senate today, has a lot of crap in it. The original Bill was three pages long (this is the one that gave one guy control of $700-billion with no oversight or accountability) -- the Senate Bill is about 400 pages.

In it is a provision to require insurance companies to pay for covering mental illness. Believe it or not, I think there's a connection. See the problem's root cause was people who thought it was okay to buy houses they couldn't afford, okay to lend to people who couldn't pay the money back and people who thought it was okay to create derivatives of those stupid loans that neither they nor the buyers understood. All of this is clear evidence that those individuals were nuckin' futz, so if their insurance companies had been required to provide coverage for their therapy, clearly none of this would have happened. See, the Senate knows what it's doing.

So, instead of working on tight, targeted legislation to fix a serious problem, the idiots are tacking on earmark after earmark.

Yes, this is standard practice and helps legislation get passed ... "vote for my bill and your district gets $1-million ... but is it the way things should work? Shouldn't legislation stand or fall on its own merits, not on how much other crap can be used to buy votes?

As a partisan aside: Maybe we should elect a President who hasn't been porking up on earmarks and promises to veto legislation with the fucking things in it?

Off the topic of the legislation, but regarding tax cuts. It's been historically proven that some tax cuts, specifically capital gains, increase tax revenues to the government. This is because of increased economic growth and churn that results.

[Thorne]

My guess about the vote gotten turned down is the "small fact" that there is an election in November and who wants to take a hard decision that half of his/her voters will hate? That sure is a great way to kill your chances in the upcoming elections.

I personally think that there really NEEDS to be a bailout and if not then I guess the whole world is in serious trouble.
my 5 eurocents from a European pov.

That certainly pays a part in it. And so does the fact that people really don't like the idea of turning over that much money to corporations without any kind of oversight. Look at how much money has been lost in Iraq and Afghanistan! And that's with oversight!

Yes, there does need to be a bailout, but they need to make sure that the average investor is the one who benefits, not some overpaid manager who doesn't stand to lose anything to start with, and is likely to come out smelling like a rose no matter what happens.

[MMI]

A year ago, you'd have held such overpaid managers as the epitome of America's work ethic and the heros of capitalism who fully deserved every cent they made.

What's happened?

[mkemse]

The Senate version of the Bill, which passed the Senate today, has a lot of crap in it. The original Bill was three pages long (this is the one that gave one guy control of $700-billion with no oversight or accountability) -- the Senate Bill is about 400 pages.

In it is a provision to require insurance companies to pay for covering mental illness. Believe it or not, I think there's a connection. See the problem's root cause was people who thought it was okay to buy houses they couldn't afford, okay to lend to people who couldn't pay the money back and people who thought it was okay to create derivatives of those stupid loans that neither they nor the buyers understood. All of this is clear evidence that those individuals were nuckin' futz, so if their insurance companies had been required to provide coverage for their therapy, clearly none of this would have happened. See, the Senate knows what it's doing.

So, instead of working on tight, targeted legislation to fix a serious problem, the idiots are tacking on earmark after earmark.

Yes, this is standard practice and helps legislation get passed ... "vote for my bill and your district gets $1-million ... but is it the way things should work? Shouldn't legislation stand or fall on its own merits, not on how much other crap can be used to buy votes?

As a partisan aside: Maybe we should elect a President who hasn't been porking up on earmarks and promises to veto legislation with the fucking things in it?

Off the topic of the legislation, but regarding tax cuts. It's been historically proven that some tax cuts, specifically capital gains, increase tax revenues to the government. This is because of increased economic growth and churn that results.

The Origianl Document you speak of that was 3 pages long, was simply an Outline from the Treasury Secrartary, it was not the full Bill itself, just an outline of what was needed

[MMI]

The original Bill was three pages long ... the Senate Bill is about 400 pages.

I bet the latter consists of the original 3 pages (with maybe some words and numbers changed) plus 397 pages of "get-out clauses" so that everyone involved can point to one of them to prove he/she was right the first time round, and that the new bill is both different from, and better than the original.

Whether it will be adequate remains to be seen.

It's just after midnight GMT as I write, and I haven't heard if the bill has passed yet. But I noticed as I checked NPR's website that some economist says that mor-tgages might not have been the cause of the problem, but American borrowings from abroad. Hmmm. We in Britain might agree. After all, we've nearly lost 3 banks because they lent to America and in return took an interest in American sub-prime mor-tgages!

<Note to the Ops> I know you've banned the word "s o c i a l i s t" because you hate me, but why on earth is "M o r t g a g e s" censored?

[TheDeSade]

All good observations on this situation. What it basically boils down to is a bunch of legislaters removed all the controls and regulations governing most of the financial operations in our economy all the while touting how the free market capitalistic system would rebulate itself and self correct as it went along. Well, greed and avarice reared its ugly head and now the system is trying to correct itself and the same bunch of politicians are working their asses off to save the financial tails of the same bunch of greed ridden individuals who were in charge of the financial system in the first place. Instead of letting the system self correct, they are going to step in again, patch it and be damned who they hurt as long as their old boy network keeps enjoying the same set of class distinct privileges.

My two cents worth. Let the system work. Let the bankruptcies happen, let the liquidations commence. It will hurt, it will set our economy back, but in the end, it will correct the problems and point out exactly what needs to be done to properly control the situation in the future.

[Ragoczy]

All good observations on this situation. What it basically boils down to is a bunch of legislaters removed all the controls and regulations governing most of the financial operations in our economy all the while touting how the free market capitalistic system would rebulate itself and self correct as it went along. Well, greed and avarice reared its ugly head and now the system is trying to correct itself and the same bunch of politicians are working their asses off to save the financial tails of the same bunch of greed ridden individuals who were in charge of the financial system in the first place. Instead of letting the system self correct, they are going to step in again, patch it and be damned who they hurt as long as their old boy network keeps enjoying the same set of class distinct privileges.

Let's at least set the factual basis for why controls on the m.ortgage market, Fannie-Mae/Freddie-Mac in particular, were removed and not reinstated.

Not only were lending standards allowed to be relaxed, but those GSEs were required to make risky loans to high-risk borrowers in order to increase homeownership among people who really should have been renting. That executives there took advantage of the bonus structure to under those conditions isn't surprising, though still despicable.

Not all lawmakers were in on this. The Bush administration warned about lack of oversight more than a dozen times over the last several years. During Congressional hearings, many lawmakers spoke of the need for more oversight and warned of the looming potential for disaster -- others, like Cynthia Mackinnie (sic?) said they saw no problems and touted how "innovations" like 100% financing had helped so many high-risk borrowers, praising Frank Raines who made something like $90-million during his tenure.

I'm repeating myself, but it bears repeating: If you feel strongly about this issue, feel that it never should have happened and can't be allowed to happen again, then remember that there's an election coming up. One candidate warned about this problem and wanted more regulations in 2003, 2004 and 2005. The other has received the second-highest amount in contributions from the GSEs and has Frank Raines as one of is financial advisers.

[leo9]

A year ago, you'd have held such overpaid managers as the epitome of America's work ethic and the heros of capitalism who fully deserved every cent they made.

Not I. More than a year ago, I and a lot of US liberals were calling them fraudsters who were getting obscenely rich by undermining the economy. But nobody wanted to listen to subversive anti-capitalist talk like that.

[mkemse]

All good observations on this situation. What it basically boils down to is a bunch of legislaters removed all the controls and regulations governing most of the financial operations in our economy all the while touting how the free market capitalistic system would rebulate itself and self correct as it went along. Well, greed and avarice reared its ugly head and now the system is trying to correct itself and the same bunch of politicians are working their asses off to save the financial tails of the same bunch of greed ridden individuals who were in charge of the financial system in the first place. Instead of letting the system self correct, they are going to step in again, patch it and be damned who they hurt as long as their old boy network keeps enjoying the same set of class distinct privileges.

My two cents worth. Let the system work. Let the bankruptcies happen, let the liquidations commence. It will hurt, it will set our economy back, but in the end, it will correct the problems and point out exactly what needs to be done to properly control the situation in the future.

I may be mistaken but I think John McCain led the way on having the controls lifted, pease correct me if I am wrong on this

[Ragoczy]

I may be mistaken but I think John McCain led the way on having the controls lifted, pease correct me if I am wrong on this

Which controls? For the GSEs (Fannie-Mae/Freddie-Mac) and mortgage industry, McCain was calling for more regulation and oversight and warning of what's happening now in 2004/2005. Obama was taking a shitload of money from their lobbyists.

[lucy]

... it will correct the problems and point out exactly what needs to be done to properly control the situation in the future.

Ummm, not likely. According to a couple of economic professors from the U.S. who investigated economic crises over the last 500 years there is only one thing that was always the same in these events: The politicians/leaders/rulers didn't learn nothing at all and made the same mistakes over and over again.

[Thorne]

A year ago, you'd have held such overpaid managers as the epitome of America's work ethic and the heros of capitalism who fully deserved every cent they made.

What's happened?

Sorry, but I've never considered these guys as the epitome of anything but greed. Just like sports figures, and sports managers and so many other useless leeches. It's a rare case indeed where a manager, especially one who has never worked in a factory, or in construction, or done anything but juggle numbers in a book, earns anywhere close to what they get. How many times have we seen when management drives workers to improve production, work more hours and then, when things get a little slow, they lay off the people who are actually making the money while putting themselves up for large bonuses?

No, the heroes of capitalism are the small business owners who are out in the shop every day, working alongside their employees, and making sure that those employees get a share of the credit.

[Thorne]

The politicians/leaders/rulers didn't learn nothing at all and made the same mistakes over and over again.

DUH! Is anyone surprised by this statement?

[mkemse]

DUH! Is anyone surprised by this statement?

No

[MMI]

A year ago, you'd have held such overpaid managers as the epitome of America's work ethic and the heros of capitalism who fully deserved every cent they made.

What's happened?

Forgive me, everyone, please. I was under the misapprehension that the ability to make vast fortunes if you were skillful, or lucky, or able to use your own situation to your advantage, was what the free-enterprise culture was all about.

I withdraw my previous comment.

[Ragoczy]

Forgive me, everyone, please. I was under the misapprehension that the ability to make vast fortunes if you were skillful, or lucky, or able to use your own situation to your advantage, was what the free-enterprise culture was all about.

I withdraw my previous comment.

It's about entrepreneurship and succeeding or failing on one's own merits. Middle-management and CEOs who've never built a company of their own are unfortunate by-products.

[Thorne]

It's about entrepreneurship and succeeding or failing on one's own merits. Middle-management and CEOs who've never built a company of their own are unfortunate by-products.

Exactly!

You aren't wrong, MMI. Not at all. But what you're saying doesn't apply to these kinds of people. Even the sports stars I noted in my last post can't be totally to blame, I suppose. If the teams are willing to pay those salaries, and the fans are willing to pay the prices to see the games, I suppose that's a free market.

But a career manager, with no real idea of how to build a business, comes in and makes wholesale changes, mostly for the sake of change, then gives himself elaborate bonuses and leaves just before the bottom falls out, is not someone to look up to. He's a parasite. Unfortunately, other middle-managers who want to be just like him will make his path easier. And we pay the price.

[leo9]

But a career manager, with no real idea of how to build a business, comes in and makes wholesale changes, mostly for the sake of change, then gives himself elaborate bonuses and leaves just before the bottom falls out, is not someone to look up to. He's a parasite. Unfortunately, other middle-managers who want to be just like him will make his path easier. And we pay the price.

In this country we call them "seagulls". Fly in, crap on everyone below, and fly out again.

[leo9]

Forgive me, everyone, please. I was under the misapprehension that the ability to make vast fortunes if you were skillful, or lucky, or able to use your own situation to your advantage, was what the free-enterprise culture was all about.

It was supposed to be about doing all of the above honestly and without legalised fraud. Which is what the selling of toxic securities always was, though no politician dares to say so because they legalised it.

Take away all the controls and regulations, and the vast fortunes are made by criminals. That's why "small government" never works for long (only for as long as it takes for the honest businessmen to be pushed aside), but has a powerful and well funded lobby.

[Ragoczy]

Take away all the controls and regulations, and the vast fortunes are made by criminals. That's why "small government" never works for long (only for as long as it takes for the honest businessmen to be pushed aside), but has a powerful and well funded lobby.

That isn't what I or anyone I know means by "small government". Government's proper role is to protect the individual.

By "small government", what's typically meant is keeping government programs small and ensuring people have the opportunity to be self-reliant rather than reliant on government.

[Thorne]

In this country we call them "seagulls". Fly in, crap on everyone below, and fly out again.

LOL! I like that! And they're noisy, to boot!

[chainmale]

The question of "bailing out Wall Street" isn't even entirely accurate. If any of you bought a home in the last six years you benefited from the easy terms and low rates....no one is entirely innocent. Only an anarchist would truly want the worlds financial system to collapse. At least the US is taking massive action, how many years has Japan been in recession? Its also Europe's problem as well, see Fortis.

[leo9]

The question of "bailing out Wall Street" isn't even entirely accurate. If any of you bought a home in the last six years you benefited from the easy terms and low rates....no one is entirely innocent.

But if it were only home loans that were being guaranteed, it wouldn't cost $800M (which, face it, Uncle Sam doesn't actually have at this moment, so the - unintended? - consequence is that now the Gov't is in hock to the banks too). What makes it so expensive are the loans banks made to other banks which turned out to be waste paper. In any honest financial system this would be called fraud, not supported by the Government.

Only an anarchist would truly want the worlds financial system to collapse.

I'm sure that twentyfive years ago, people in Russia were saying "Only an anarchist would want the Soviet system to collapse".

At least the US is taking massive action, how many years has Japan been in recession?

Which, since Japan hasn't actually been hurting badly as a result, proves that massive action wasn't actually necessary.

[george1948a]

In my opinion i do not think the Govt. should bail out Wall Street. Believe it or not, 700 billion does not come close to cleaning up toxic debt owned by various institutions. At best this is a stop gap measure that will end up only prolonging the inevitable.

Its my belief that the market should take the hit, all of us will take the hit with it, i have already lost a great deal of stock value and have a 401k that is sinking like a stone in the ocean. I just do not believe we can borrow our way into prosperity.

[MMI]

Chaos is inevitable now is it? Only if the situation is mishandled ... Ummm, maybe "inevitable" is right, after all!

I agree that $700 bn isn't enough to solve the problem. It isn't enough even to solve USA's problem. Who knows how much is needed?

I may have a very simplistic understanding of what's going on - in fact, I'm sure I do - but so far as I understand it, we are facing a situation where virtually every banking institution in the world has become tainted by "toxic" investments and now does not know the true value of its balance sheet. They have to fund these investments by borrowing from other banks, and, of course, no bank will lend to any other company which cannot show what its true value is. Central banks are providing funds as lenders of last resort for fear of the consequences otherwise.

The first thing to do is to face the problem. This isn't global warming. We don't have years and decades to argue about whether it's really happening or not. But a flood of major bankruptcies within the financial system would be as devastating to the economy as a flood from melted icecaps would be to coastal populations

It seems to me that the most expedient course of action would be for all governments together to take control of the banks' activities (I don't mean to take them over or to nationalise them, simply take temporary powers to force banks to do as the governments tell them). Then the banks would be made to lend to each other on an equitable basis until all liquidity problems are sorted out, and meanwhile, the value of the mortgages they hold should be realistically assessed, and the banks made to write down the values of their portfolios accordingly. Any capital readjustments necessary to meet prudential requirements should then be made, or banks failing to meet their capital adequacy requirements should be merged into each other or wound up.

Finally a repayment plan for returning the subsidies that have been forced out of us should be worked out and agreed, even if this means the State becomes a shareholder.

Once the mess has been sorted out, the governments could (if they wished) relinquish their temporary powers.

[MMI]

After the mess has been sorted out - and surely it will be - every pundit given an opportunity to air his views has said, the banking system will survive, but will be very different from what it was before - - - After the mess has been cleared up, should we lobby our politicians to pass laws to make all banking companies mutual organisiations, where they are owned by depositors rather than by stockholders, and each depositor will have one vote when it comes to governing the institution and making appointments, regardless of the size of his deposit account?

[MMI]

From a speech by the Prime Minister of Iceland on Monday

Fellow Icelanders

The Government of Iceland, the Central Bank and the Financial Supervisory Authority have over the past days and weeks worked ceaselessly to find a solution to the enormous difficulties which threaten Icelandic banks, in good cooperation with the banks. Various parties have been involved in this work, for example the pension funds and representatives of the labour market. The Government has, for its part, aimed for the sale by Icelandic banks of foreign assets and a reduced presence abroad, so that the Icelandic state, so small in comparison with the Icelandic banks, would have the capacity to support them. We should bear in mind in this connection that the huge measures introduced by the US authorities to rescue their banking system represent just under 5% of GNP. The total economic weight of the Icelandic banks, however, is many times the GNP of Iceland.

Thus a decision on wide-ranging rescue measures for the Icelandic banks is not only a matter of tax payers shouldering a heavier load temporarily, but concerns the position and future of the Icelandic nation as a whole.

...

God bless Iceland.

Today in the UK, Icesave, an internet bank owned by Landsbanki Islands hf, stopped customer withdrawals and was taken into receivership (a step short of bankruptcy). Landsbanki itself has been taken under the control of the Icelandic government, which says that depositors will be fully protected. It is unclear whether that undertaking was intended to include non-Icelandic depositors: it should, but does it? The Prime Minister was vague. But is it a sign that individual nations will be forced to adopt "beggar-my-neighbour" policies to protect local interests?

The trouble is, Landsbanki isn't the only Icelandic bank in trouble. All of them are. And the liabilities of all the Icelandic banks exceed the total wealth of that country many times. In a word, Iceland is bust.

But with goodwill, careful husbandry of the country's resources, and a huge loan from Russia, it will survive.

Does anyone still need a sign that these problems aren't as bad as they are being made out to be? Is anyone still relaxed? Iceland may only be a small country, with a total population the size of a large city, but if it can go under, so can any other small country. Luxembourg, perhaps? And if enough small countries are unable to meet their debts, so, too can big countries.

The poll is closed now, and it is surprising how much the gap between the two positions closed as events unfolded. But, overall, it still shows a preference to let the banks sink or swim on their own. I wonder how much longer people will continue to hold that view.

Meanwhile, this was an interesting thread and I am glad we had the opportunity to challenge each other's views on it.