It may look a lot more like this before it's all over.
Posted on 09/21/2008 7:31:49 AM PDT by Brian S. Fitzgerald
In a change from the original proposal sent to Capitol Hill, foreign-based banks with big U.S. operations could qualify for the Treasury Department’s mortgage bailout, according to the fine print of an administration statement Saturday night.
(Excerpt) Read more at news.yahoo.com ...
“Fortunately one thing the President cannot do is appropriate money by executive order.”
Some rewording could make it viable, perhaps.
How was the following executive order funded?
Executive Order 9066: Franklin D. Roosevelt delegated military authority to remove all people (used to target specifically Japanese Americans and German Americans) in a military zone. The authority delegated to General John L. DeWitt subsequently paved the way for all Japanese-Americans on the West Coast to be sent to internment camps for the duration of World War II. Thousands of German Americans and Italian Americans were also sent to internment camps under executive order.
Just curious... how long ago did you realize that the credit market was out of whack?
Leverage absolutely was out of hand in certain sectors of the economy, partiularly mortgage debt and the securitized products associated with it. However, all modern economies are leveraged and have been for some time - they cannot really function otherwiser nor should they. Banks only work if they utilize some amount of leverage - if they didn't put the deposits they hold to other use on a leveraged basis, the depositors would receive no interest and the economy would forego the benefits of that invested capital. It is true and always has been that if all the depositors ask for their money back at once the bank would fail.
For another example, any person that puts 20% down on a home is utilizing 5x leverage to buy that house. This is reasonable. What was unreasonable was 5% down (20x) or 0% (infinite). Unfortunately, in financial products as opposed to housing the collateral required to maintain a leveraged balance works on a mark to market basis. In the housing example this would mean that if you put $50,000 on a $250,000 house and made all your payments but the market price of you house dropped to $200,000 the bank would demand you put up another $10,000 in cash (or more if they changed their collateral requirements which some are doing) - this is a margin call. If you failed to come up with the margin cash they would seize the house and sell it; probably for $175,000. Now your neighbor has to come up with $15,000...and on it goes. This is what's happening to the credit markets right now. So even if you did everything right and avoided the over leveraged products and made all your payments it doesn't matter.
And that is why people like me are screaming from the rooftops to take down the clowns that created this mess, tar and feather them and run them out of town on a rail.
Do you see any negatives on the government owning a big piece of AIG? If the deal is a good one... can that deal get screwed if the wrong crowd is in charge of the WH?
This is insane. How many citizens in America — about 250 million? Why not give everyone a million bucks and call it a day. They are treading in dangerous waters here.
Humans are so stupid. We never learn.
A word description: LUNACY!
What should the average person do in this situation? Thank you for your posts. They have been insightful.
The major withdrawals were coming from institutional investors and corporate entities (when IBM lists "cash" on the balance sheet it is actually "cash and equivalents", and money markets count - they like making a little interest on their money too). What they were doing was buying 3 month treasuries which is why the yield on those short term instruments actually went negative for some time - they were willing to lose money in return for the perception of safety.
As to what the average person should do and the "stuff it in the mattress question", that is the nightmare situation. If real yields turn negative you have a "deflationary spiral" - the incentive is to stuff it in the mattress and if your refrigerator breaks you don't buy a new one because you will need less money to buy a new one next week, so maybe you just patch it up. While this frugality should be commmended on an individual basis, on a macro basis less refrigerators get made, and eventually factories shut down and people get put out of work. Economic activity spirals lower and there is no easy mechanism to stop it.
What I would do personally? Money markets are now insured by some obscure gold act interpretation that the fed made last week, so your money is safe as long as the US government is not defaulting (which, despite my pessimism, is extraordinarily unlikely to happen). If you want a non-US emergency stash, put some money in a foreign held bank account. I think HSBC is one of the largest and best capitalized banks in the world these days and they have a US deposit arm. Its still a US sub, so its not absolutely remote, but its a bit of a hedge.
Agreed. Here is my shot into the darkness.
“The link at the bottom is VERY bad for your blood pressure, but it sure moved me to address it. The powers that be want to make this happen TOMORROW! My intention is to send it to EVERY Senator, and Representative, to the Whitehouse, and to whomever else comes to mind. It is my fondest hope, that we all, Democrat or Republican, would stand up and say ENOUGH..
NO!!
This has GOT TO STOP! The banking system within this country is totally out of control, and must be made to understand that no longer will the American taxpayer haul ANYONE”S collective behinds out of the fires of their own making!! To ask us to pay for the poor financial judgment of foreign banks is beyond ridiculous!! NO! NO! NO!
Government, and apparently, large corporations, must be taught the hard lessons that most Americans, and small businesses live with everyday – you cannot write checks that you have no money to back!! No one bails out the individual citizen, no one bails out the average small business, and NO ONE SHOULD!!
IF we have to do something in order to try to lessen the impact of these CRIMINALLY self serving decisions upon the American people, then so be it, BUT it is to be understood that THIS IS IT! The end of the line, NO MORE BAILOUTS! We should be working to find the most fiscally responsible way to SURVIVE this, while PROSECUTING responsible parties, and promoting INTELLIGENT business decisions!!
“That’s a distinction without a difference to the American people. The key here is protecting the system. ...” NO! Mr. Paulson, that is just one of the many places where you are wrong! The American people do see a distinction, and your system does not need protection! Why would anyone want to protect a system that is totally and absolutely Fiscally Irresponsible?!
“We have a global financial system and we are talking very aggressively with other countries around the world and encouraging them to do similar things, and I believe a number of them will.” This is a delusional statement. Name one nation that will take any measure necessary to benefit the United States. I will wait for you to get back to me on that.
“But, remember, this is about protecting the American people and protecting the taxpayers. and the American people don’t care who owns the financial institution.”. Oh Please! This is about protecting you, and all of your self serving criminal compatriots.
NO Bailouts for foreign companies, no matter how they are connected. No more bailouts PERIOD!
Just so you know, it is my intention to vote McCain-Palin this November, and further, to do my part in voting out EVERY Incumbent! It is LONG past time for every one of you to get a REAL job, and for people with REAL JOB experience to head to our State and National Capitols.
Drain The Swamp!
http://news.yahoo.com/s/politico/20080921/pl_politico/13690 “
HOW MANY DIVISIONS DOES THE AMERICAN TAXPAYER HAVE?
I have my vote, and my voice. And I have been quite surprised to learn, during my time here on FR, that the powers that be DO listen to the folks who speak up.
Unfortunately, they will continue to try to do an end around on you, so you must remain vigilant, but such is the price we pay.
Sigh.
Tatt
A: ALL OF THEM, IF ONLY WE ACT!
The fact is, we are not dealing with short term liquidity problems. These are pieces of paper in which there is no underlying collateral. These institutions are insolvent because the assets you point to on their balance sheets have no market and are in some cases practically worthless. And there is no short term lending facility which can redeem them. This is why the Sec of Treas. has insisted on no review of his decisions because he is going to purchase securities that are worth 0$
And he's going to use our money to do it!
The election is moot now. The next pres is just presiding over the printing of endless hundreds of billions of worthless federal reserve notes.
It may look a lot more like this before it's all over.
Thank you NY Conservative. I have my savings in a money market fund with Northwestern Mutual and I know they are pretty stable themselves, but I guess one never knows in this kind of environment.
I am going to check into HSBC.
There are untold negatives. Even if it is a good deal, there has to be an exit at some point. How does the equity get monetized and at what price? My guess is there will be a lot of people trying to use political influence to get that equity out of the government's hands cheap.
Already, Hank Greenberg and some of the large equity holders are trying to put together a debt package to replace the government deal and keep the gov't from taking its 80% share - they obviously see the value of the deal now that the short term pressure is off. If this were a private deal, the treasury would say "we were the only ones willing to take on the risk and that was our price so you can go pound sand", but we will see...
Let us vote them all out! The President and Congress has promised to uphold America! These people are not taking America over by war, but they are trying to grab all of the assets and impoverish us. We have too many enemies in government!
BUMP
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