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#39822 - 09/17/08 02:38 AM So is this the buttom of the rabbit hole?
Smike Offline
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Registered: 05/01/01
Posts: 3143
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The Feds thinking saving Bear Sterns was going to reverse the tide in the world financial markets.

Now a mere 4 months later the Feds are embarking on the largest intervention by the Feds of a private company (AIG) in the history of the US.

Is this the bottom?

I'm pretty sure this is as close to world economic chaos as this country has seen since the Great Depression.

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#39838 - 09/17/08 01:55 PM Re: So is this the buttom of the rabbit hole? [Re: Smike]
Daniel Offline
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Registered: 05/23/01
Posts: 1515
The bottom may happen when government buys the bad debt. Greg Ip of The Economist said on last night's PBS Newshour:

Well, I think fundamentally, as we heard David McCormick from the Treasury Department say, you need housing prices to basically hit bottom. When that happens, the loans will stop going bad. The banks will stop, you know, running up big losses. They'll be willing to lend again, and the crisis will slowly come to an end.

The thing that I worry about is that we're into this adverse feedback loop where the declining housing prices are causing loans to go bad. Banks are cutting back lending. That hurts the economy. And home prices keep going down further.

The lesson from other big crises, both in the United States and overseas, is that when you get into these adverse feedback loops eventually the government with taxpayer money has to step in, buy those bad assets, and take them out of the system. That's what we saw, for example, with the savings and loan crisis.


And Joe Nocera of the New York Times said:

Well, I mean, I agree with Greg. It's hard to see how else it will happen. I mean, you need a change in psychology.

And for a change in psychology to take place, there has to be enough confidence among Main Street to start buying homes again. And there has to be enough confidence on Wall Street that these bad loans and these bad assets can somehow be dealt with.

So in the S&L crisis, they put them in the resolution trust, and they started to sell them off as the market came back. You know, so far nobody has been willing to do anything like that, but something like that really kind of needs to happen.


According to today's New York Times, some in Congress are considering just such a step.

Taxpayers shouldn't be put on the hook for this debacle, but if the consequences of inaction would be far worse, what other choices do we have?

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#39840 - 09/17/08 02:27 PM Re: So is this the buttom of the rabbit hole? [Re: Daniel]
oenophore Online   confused
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Registered: 09/24/01
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Some may say that the most benign procedure is for governments to stand aloof while things sort out, disastrous as that may be, all the while biting a bullet good and hard, so to speak.
_________________________

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#39843 - 09/17/08 03:27 PM Re: So is this the buttom of the rabbit hole? [Re: oenophore]
Daniel Offline
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Registered: 05/23/01
Posts: 1515
 Originally Posted By: oenophore
Some may say that the most benign procedure is for governments to stand aloof while things sort out, disastrous as that may be.


Not that I'm an expert in such things, but the fear is that allowing companies like AIG that are "too big to fail" to actually fail would have a cascade effect that would create a global credit crunch, produce a downward economic spiral, and cost us far more than the cost of taking on the bad debt.

If that's the case, I don't know what we'd gain by not intervening. It seems to me that there's not much choice but to pick up the tab and try to put rules in place so it doesn't happen again.

The whole situation is astounding in that the two most basic rules of investment were broken at almost every level: don't buy what you don't understand, and if it sounds too good to be true it probably is. These fundamental precepts were violated from the people who bought the mortgages, to the people who sold them, to the people who securitized them, to the people who rated the securities, to the institutions that bought the securities.

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#39844 - 09/17/08 04:07 PM Re: So is this the buttom of the rabbit hole? [Re: oenophore]
Smike Offline
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Registered: 05/01/01
Posts: 3143
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 Originally Posted By: oenophore
Some may say that the most benign procedure is for governments to stand aloof while things sort out, disastrous as that may be, all the while biting a bullet good and hard, so to speak.


Most have no idea how big AIG is and involved it is in the world economies. It would behoove everyone to learn more about them. As Daniel stated not intervening would most likely have caused a big cascade effect leading to world recession and I have heard this from several prominent speakers that the possibility of a deep recession was (is) very likely.

As screwed up and bad the choices may have been that is all water under the bridge and right now action by the Fed’s is a 100% must do.
All I can say I look at were we were just 12 months ago to now…. Wow. These are historic times for the world economic systems.


Edited by Smike (09/17/08 04:09 PM)

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#39845 - 09/17/08 04:14 PM Re: So is this the buttom of the rabbit hole? [Re: Smike]
Smike Offline
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Registered: 05/01/01
Posts: 3143
Loc: in your backyard
After just hearing the comments from House Speaker Nancy Pelosi regarding this she needs to step down ASAP. She is poised to do this country and everyone in it a great disservice.

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#39850 - 09/17/08 04:34 PM Re: So is this the buttom of the rabbit hole? [Re: Smike]
Daniel Offline
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Registered: 05/23/01
Posts: 1515
If I found the Pelosi commets you referred to, I agree that they're not a high point for her, but I'm not going to judge a person by her worst moments. Moreover, she did not say she would block a bailout but requested hearings regarding the administration's actions, the (probably weak) possibility of fraud, and asked why foreign governments should not help out if they also bear the risk of being adversely affected by inaction.

Some of the Bush critique was excessive--it seems to me that the regulatory scheme (or lack thereof) is partially but not entirely to blame--but hardly unexpected going into an election. Not that it should be an excuse.

According to the NYT article I referenced above, House Finacnial Services Committee chairman Barney Frank seems to be on top of the situation. And unless I missed something, I didn't hear Pelosi say she'd block a rescue if that's what was needed to prevent a financial collapse.

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#39853 - 09/17/08 04:55 PM Re: So is this the buttom of the rabbit hole? [Re: Daniel]
Smike Offline
Carpal Tunnel

Registered: 05/01/01
Posts: 3143
Loc: in your backyard
I stand by my comments.

She is taking one of the most serious financial situations this counrty has faced since possibly the depression and is trying to turn it into a bunch of poltical punch lines for the Democrates.

If this coutry ever needed real leaders to rise above party lines and bring the two sides together….. this would be it.

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#39854 - 09/17/08 05:00 PM Re: So is this the buttom of the rabbit hole? [Re: Smike]
Daniel Offline
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Registered: 05/23/01
Posts: 1515
Yes, I agree that she shouldn't politicize the problem. But in the end, I very much doubt that she would take action that will endanger the nation.

I agree that it's wrong for her to use the crisis as a political punching bag. But I don't think it's reason enough for her to step down. (Franky, I don't know how anyone manages to do that job.)

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#39855 - 09/17/08 05:29 PM Re: So is this the buttom of the rabbit hole? [Re: Daniel]
learningtolead Offline
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Registered: 04/16/02
Posts: 981
Loc: a wanna be kerhonkson-er
 Originally Posted By: Daniel
Yes, I agree that she shouldn't politicize the problem.


How can you politize a problem that is already deeply and fundamentally political in nature?

I personally think it's crucial that we turn this into a series of political punch lines that get through to americans how incredibly deeply flawed the last 8 years of economic policy have been. We may or may not need to bail out these companies now (you can pontificate on the subject as you individually choose but it all really depends on which economist you choose to listen to) but we clearly need to make changes for the future to stop incenting these huge companies with tax breaks and sweetheart deals.

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