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#40375 - 10/02/08 07:07 PM Re: Political Claptrap [Re: Daniel]
alicex4 Offline
Carpal Tunnel

Registered: 07/05/00
Posts: 3400
"Why do those who believe it will not help believe that?"
Because we damn sure didn't get into this financial mess quickly, there is no quick bailout coming, no matter how Washington frames it. As for Warren B. his rescue of GE has not stopped GE from tanking.

"Until we live in a benevolent dictatorship, we have the system we have."
Which is just what this bill will lead us toward. Govt. has no business getting involved in the free market. That's what got us here, govt advocating and then legislating "affordable housing". Read the Constitution, govt needs to promote general welfare not provide it or ensure it, or even insure it.

"Assuming the package is worth trying, what alternative method of buying distressed securities is out there?"
There's the rub, there is no alternative method. You can't erase 10 years of crap debt. You can't throw good money after bad debt. If it sounds too good to be true, the bailout plan, it probably is too good to be true.

"I know there are alternatives that have been proposed, but time is short and I don't see anything else that could be passed quickly. European leaders were aghast at the failure in the House."


Europe almost passed their own bailout bill but Belgium and Germany vetoed it. They are waiting for the US to buy the bad debt, freeing them from the burden. Now that they think there is another US bill they are waiting again.

This crisis didn't materialize overnight, it took years to get here. Why do you think anything can mitigate the effects of this problem in a short period of time? You, my friend, are buying a pig in a poke.

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#40376 - 10/02/08 07:36 PM Re: Political Claptrap [Re: mworking]
Daniel Online   content
veteran

Registered: 05/23/01
Posts: 1515
 Originally Posted By: mworking
[quote=Daniel]Added: Doesn't that work to 233K per unemployed person!


No, for several reasons.

First, and this is a point many people miss, the rescue plan won't cost $700 billion. That number assumes that the underlying assets are worthless. They are obviously not. If the economic situation improves when the government sells them, some of that money will be recouped, possibly all. So I'd say preventing 3,000,000 unnecessarily unemployed people at what might be little cost in the end is definitely worth it.

Moreover, the cost of 3,000,000 unemployed people is substantial. Those are people who may be losing their houses, which would bring down everyone else's property values. Those are people who won't be able to buy things, affecting everyone else's businesses. Those are people who may make the recession deeper and longer than it would otherwise be. And that affects all of us.

And there's the cost of the adverse effects on people who still have jobs but ones that don't pay as much because the credit crisis inhibited economic growth.

Really, if it were that simple, would so many people who know so much more about the situation than we do be supporting the plan?

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#40377 - 10/02/08 07:49 PM Re: Political Claptrap [Re: alicex4]
pedestrian Offline
Pooh-Bah

Registered: 08/05/02
Posts: 2244
Loc: a heavily fortified bunker!
 Originally Posted By: alicex4
This bill is a disgrace. It is not needed and will not help IMO. Look at all the sweetener crap that is added to try to get votes. If the bailout really was necessary this bill should just contain those items and address the bailout issue. Way to give Paulson unlimited power of the redistribution of wealth and debt. Paulson is unelected and basically answers to nobody. I can't remove him from office. Yet he is the sole decider of how these monies are spent. This scandal makes Enron look like small potatoes. The media coverage is a disgrace too, but there are no journalists left with integrity. Please, contact your elected officals and demand a no vote.


a typical libercontrarian response (not that there's anything wrong with that... sorta)

If you think that this is not necessary, I submit that you are simply uninformed. This thing is already spreading to other sectors of the economy - for example the university of vermont just had 90% of assets frozen (thanks, wachovia) in the main trust fund that they use to manage their cash flows. that's a big deal when money market funds are frozen.

the issue here is that everyone is hoarding and there is, still, a massive amount of bad assets spread throughout the system. lisa can't even renew her homeowner's insurance right now because the risk premium is so huge - insurers are refusing to write policy at any price. FDIC insurance only covers a minor part of the problem.

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#40378 - 10/02/08 08:03 PM Re: Political Claptrap [Re: alicex4]
Daniel Online   content
veteran

Registered: 05/23/01
Posts: 1515
 Originally Posted By: alicex4
"Why do those who believe it will not help believe that?"
Because we damn sure didn't get into this financial mess quickly, there is no quick bailout coming, no matter how Washington frames it. As for Warren B. his rescue of GE has not stopped GE from tanking.


But that doesn't mean that intervention won't work. Intervention worked in Sweden in the 1990s. Japan didn't intervene and had a zombie economy that is still suffering the effects today.

Again, no one says this will be a "quick bailout." They're saying it's what's needed to avoid a complete disaster. With so many knowledgeable people saying that, what, again, is the reason not to give them some credence? Do we know more than they do?

 Originally Posted By: alicex4
"Until we live in a benevolent dictatorship, we have the system we have."
Which is just what this bill will lead us toward. Govt. has no business getting involved in the free market.


That wasn't the point. The objection was to the extraneous provisions that had been added in the Senate. Saying "government shouldn't get involved in the free market" doesn't answer why those extraneous provisions should be enough to tank a plan that many regard as essential.

And this whole idea that government shouldn't get involved in the free market is claptrap. Government is always involved because it sets the rules. For instance, you don't need government to deal with fraud. Eventually, those committing fraud will get smoked out, and "the market" will punish the organizations that let it happen. But those who committed the fraud may be on some sandy beach on some island while innocent investors have their life savings wiped out, and there's nothing "the market" can do for them. So we have government intervention in the form of mandatory disclosure rules to prevent that situation from happening in the first place. Most people agree that's a good idea, as are many other government rules which "intervene" in the "free" market. This whole idea that government should stay out is ideology; it doesn't exist in practice.

Nor does that ideology tell us what the best options are for dealing with the present problem. The decision should be made on the best attempt to make a cold-hearted calculation as to the probable effects of the plan versus the probable effects of doing nothing. If it comes out that doing nothing is the better options, so be it. But claims that the government should never get involved in the free market don't tell us what the outcomes of those calculations are. Why not do the calculations first, and then reach a conclusion--or listen to those who are doing their best to do those calculations?

 Originally Posted By: alicex4
"Assuming the package is worth trying, what alternative method of buying distressed securities is out there?"
There's the rub, there is no alternative method. You can't erase 10 years of crap debt. You can't throw good money after bad debt. If it sounds too good to be true, the bailout plan, it probably is too good to be true.


Plenty of people have made lots of money buying "bad" debt when that debt is undervalued. There's a whole financial sector that deals with, and makes money on, distressed securities. The problem today is that the bad debt (the mortgaged-backed securities) probably isn't as bad as people think (or at least are willing to pay right now), yet it's still clogging up the financial system. It's not like government will be paying face value for the assets; it will pay something between market value and hold-to-maturity value.

There's no debate that it will take time for the questionable loans to unwind. The question is whether having the government take them essentially out of the system will help the credit lines from seizing up. Again, many experts think it will. What is your basis for believing differently?

 Originally Posted By: alicex4
This crisis didn't materialize overnight, it took years to get here. Why do you think anything can mitigate the effects of this problem in a short period of time? You, my friend, are buying a pig in a poke.


Again, many people who know a lot about how the system works think this rescue plan is worth trying; indeed, some of them think it would be insane not to do so. Why do you think it definitely won't work? What is the basis for your judgment on these matters?

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#40386 - 10/03/08 01:55 AM Re: Political Claptrap [Re: Daniel]
alicex4 Offline
Carpal Tunnel

Registered: 07/05/00
Posts: 3400
There is a difference in undervalued debt and bad debt.

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#40397 - 10/03/08 06:30 PM Re: Political Claptrap [Re: Smike]
MurphysLaw Offline
gumby

Registered: 03/12/02
Posts: 2308
Loc: Hudson Valley, NY
We're good to go.

Here's the key part of what got passed today, if you ask me:
(from Bloomberg.com)

The Senate bill also reiterates the U.S. Securities and Exchange Commission's authority to suspend an accounting rule that bankers and other corporate executives say exacerbates their troubles.

The so-called fair-value standard requires companies to review assets and report losses if their values decline. Lawmakers, the American Bankers Association and companies including American International Group Inc. have urged the SEC to suspend or ease the rule, saying it forces firms to report deeper losses than needed on assets such as subprime mortgages.


Maybe the morons in Washington aren't so dumb after all?
I don't know if the first bill included this part, but it is an absolute grand slam that it got passed in the second one.
This alone will dramatically alleviate the current problems, by not forcing all the financial institutions to have to sell these assets at ridiculous fire-sale prices anymore.

Alas, it came too late for:
Bear, Lehman, Merrill, AIG, WaMu, and Wachovia.
_________________________
"Flailing?" "Flail on!"

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#40400 - 10/03/08 06:56 PM Re: Political Claptrap [Re: MurphysLaw]
mworking Offline
old hand

Registered: 05/26/04
Posts: 764
I have heard over and over and over again that the problem in the market was lack of trust. What you wrote simply sound like they will be calling assets of low value or high risk, higher value and/or lower risk. Knowing the above instills me with a continued lack of confidence and reminds me of why have been so skeptical! Misrepresented risk and value is what got us into this mess, isn't it?

-----------------------------------------------------

From: http://finance.comcast.net/www/news.html?x=http://76.96.38.13/data/news/2008/10/03/1077246.xml

“Today's bailout doesn't even attack one of the biggest problems for our economy: The housing sector. Government officials from Treasury Secretary Henry Paulson on down have said the economy won't recover until housing does.”

I don’t know the credibility of this writer, but it’s a Paulson quote and this is exactly what I expect.

Further the housing market can not even begin to recover until those who can not afford their homes give them up and someone else begins to make payment on them. The empty home need to be filled too. Even then I don’t expect to see a housing boom like we just went through for a long time – perhaps not in my life time for . That boom was partly fueled by many loans that should never have been made. I’ve been watching for a few years as people I know making less than me bought homes costing more than twice as much as mine cost me. Of course the bank said my home was worth nearly what they were spending, but that didn’t make it any easier for them to make payments!

So I do not expect that housing / construction market will soon recover to nearly the level it had been recently.

Now what was that bailout supposed to do?


Edited by mworking (10/03/08 07:51 PM)

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#40402 - 10/03/08 08:54 PM Re: Political Claptrap [Re: mworking]
Daniel Online   content
veteran

Registered: 05/23/01
Posts: 1515
 Originally Posted By: mworking
“Today's bailout doesn't even attack one of the biggest problems for our economy: The housing sector. Government officials from Treasury Secretary Henry Paulson on down have said the economy won't recover until housing does.”
....

Now what was that bailout supposed to do?


That's true: the economy probably won't recover until the housing market bottoms out. But that wasn't the purpose of the rescue plan. The point of the plan was to prevent credit from drying up that would pretty much freeze the gears of the economy completely. It's the difference between going through tough times as home prices drop and level off, and people not being able to get loans to start, expand, or just run their businesses.

No one (who knows what's going on) ever claimed the rescue plan was going to solve our economic problems. The claim was that it would help prevent a total disaster. As noted above, municipalities were already delaying or canceling projects because they lacked access to reasonable credit. (I read in the NY Times yesterday that the benchmark LIBOR lending rate was at an all-time high.) That means less work, fewer jobs, and less money for those workers to buy things from other people, etc. The point of the rescue plan was to take questionable assets off the books so that lenders wouldn't be as unreasonably afraid to lend, thereby allowing the economy to operate in a more normal fashion. Unreasonably easy credit is obviously a danger because it leads to bubbles. But unreasonably expensive credit is also a danger because it shuts down otherwise profitable ventures.

The housing bubble will have to resolve itself on its own (with perhaps an effort to keep people who really could stay in their homes to be able to do so).

So that's my admittedly armchair understanding, for what it's worth.

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#40403 - 10/03/08 09:00 PM Re: Political Claptrap [Re: alicex4]
Daniel Online   content
veteran

Registered: 05/23/01
Posts: 1515
 Originally Posted By: alicex4
There is a difference in undervalued debt and bad debt.


And the vast consensus is that the mortgage-backed securities are undervalued. The numbers I've heard are that their market value is about 30 cents on the dollar, and the hold-to-maturity value is likely to be 60 to 70 cents on the dollar. But no one wants to take the risk right now, which is why the market price is low. There are lots of good loans mixed in with the bad ones, but they've gotten so complicated that it takes a large institution like the government to have the resources to bear the risk--and possibly break even on the deal (since they'll have to pay more than market value, otherwise the fiscal stability of the institutions that hold them now wouldn't be so shaky).

By the way, I don't blame the Europeans for not jumping in first. If it's not clear that the biggest player is going to take part, then it wouldn't make sense for the smaller players to make what would probably be a useless gesture. Their participation can matter only if the US comes into play big time. Now we'll have to see what happens.

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#40411 - 10/04/08 01:57 PM Re: Political Claptrap [Re: Daniel]
mworking Offline
old hand

Registered: 05/26/04
Posts: 764
 Originally Posted By: Daniel
I don't blame the Europeans for not jumping in first...Their participation can matter only if the US comes into play big time. Now we'll have to see what happens.


Good point.

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