Posted on 09/24/2008 6:09:38 PM PDT by Fred
By taking the colossal wreckage of the credit bubble onto its own books in a $700bn (£382bn) taxpayer sink, Washington has forestalled a run on the world banking system, and may hopefully have saved the viable core of modern capitalism.
Hank Paulson's "Super Sink" is the "game changer" we have all been waiting for in this interminable crisis. It puts a floor under the toxic debt that is bleeding the banking system to death, and ends the downward spiral of CDOs, CLOs, HELOCs, and such instruments of leveraged excess that lie at root of the credit terror.
No doubt the Fed, the Treasury, and Congress have made a string of mistakes but they are now rising to the occasion – the reflexes of a wounded but still formidable superpower. The US has shown time and again that it has the institutions and flair to pull itself out of disaster.
We will find out soon enough whether the rest of the world can respond with such dispatch as the hurricane smashes into them. As of today, the core risk is no longer in the US. It has rotated to the weaker and more brittle polities of Europe, Latin America, and Asia – especially China.
Europe has embedded paralysis in its treaty law. Maastricht prohibits a Keynesian blitz. Budget deficits above 3pc of GDP are not allowed until an EU country is already in dire straits, and even then approval requires a committee vote by 27 states. So Ireland, Italy and France must now tighten fiscal policy into the downturn.
There is no EU Treasury to back the euro, and therefore no Euro-Paulson with the powers and legitimacy to take sweeping steps in an emergency.
(Excerpt) Read more at telegraph.co.uk ...
“Washington has forestalled a run on the world banking system, and may hopefully have saved the viable core of modern capitalism.”
You can hope all you want, but I don’t see how throwing more good money at bad investments is going to save anything. More of the same, I’d say. If the $700 billion dollars does indeed save the world economy, what is to stop this all from happening again ten years from now? Regulatory agencies? Hah!
Sorry Bush. NO BAILOUT!
They called the U.S. “wounded” - that hurts.
I understand not wanting a buyout, but I don’t think we need the collapse that will occur if they don’t. And it is also true that it isn’t money that will just disappear, it is buying an actual asset that will return a good bit of the money back.
The patient is almost dead, the time to get all fired up about principles was ten years ago.
If some of us had gotten this passionate a few years back, this kind of crap wouldn’t have happened. Now it is too late.
Alms, alms kind sir; won’t you spare a coin for a poor investment banker?
Bless you. Thank you. I’ll name my yacht after you.
“The patient is almost dead, the time to get all fired up about principles was ten years ago.”
Principles, hell. I’m in this for the loot.
If we have to do this, we need the reverse auction, a stutter rule, the no bonus rule, and the 1/5 rule.
The Reverse auction to guarantee we spend the least amount possible. The “Stutter rule” would limit the amount bought at one time, so the government could stop intervening at the point liquidity is restored. (I haven’t seen an idea for a stutter step elsewhere, it just occured to me though I’m sure somebody else has thought of it.)
The no bonus rule to make sure companies that are distressed and need it don’t pay out massive bonuses with taxpayer cash. The 1/5 rule dictating that any stock options the company gives out are recovered over fiver years, to make compaany officers take a long view of their investments.
But how much will those assets be worth? The market thinks about $0, and you know what I think it is right.
Many of these loans are to minority and low income people. If they foreclose, the property will be trashed, and to foreclose risks being called “racists!”.
SO basically, the plan is to buy up all these properties, and let them rot.
NO BAILOUT!
We were just talking about this at my firm today. The Chairman said, “When America sneezes, everyone laughs...then they all come down with Pneumonia.”
There’s another shoe to drop and it’s overseas.
I’m curious about this - NO BAILOUT - attitude.
I don’t know what the answer is but I suspect if we do nothing, as many here are advocating, the market will tank big time - 1000-3000+ point decline erasing several trillion dollars of wealth, a lot of it in middle Americas retirement accounts. That could result in 10+% unemployment. Obviously the deficit would triple, etc. I almost suspect a lot of freepers are hoping for this calamity. Like I said, I don’t have an answer - but doing nothing and hope for the best doesn’t strike me as prudent.
And Jim DeMint’s attitude that Congress caused this calamity but they can not be trusted to fix it bothers me as well. If that is his attitude maybe he needs to go and everyone else with him. If not them, who is going to take steps to deal with the problem.
My response is that you can't fix this issue with more money and try to prop things up as they are.
There have to be failures - and either the Treasury can fail (meaning they lose a lot of money, costing all of us) or the people/businesses who didn't do the due diligence can fail, costing only themselves.
If $700B is added to liquidity, oil prices will rise to perhaps $135/barrel, gas will be $4/gallon or more, again, and we will have a lot of inflation - which also will tank the market.
As it is, my friend who works in restaurant consulting, says that the middle-class restaurants are being absolutely hammered as people cut back, and they are probably going to go out of business - the primary reason being the high costs of gas sucking up that extra $50-$100 per week.
The reality is that there is plenty of credit available, as evidence by all the low-interest offerings from new car dealers (Lexus - 3.9% ; Audi, 0.9%) -- if the credit markets had *truly* locked up, this would not be occurring. There just is not credit available to people with bad credit.
Time will tell. But I say you are dead wrong. Let’s meet up again a year from now! I’ll buy you a virtual libation if I am wrong. ; )
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