Recent Items

Why The Bailout Bill Will Not Solve the Credit Crunch (And What Could)

Posted on by

This message comes from a savvy reader/investor/economist, and is refreshingly succinct:

At this stage, I think the bailout complicates matters enormously, because the immediate problem is
1) Preventing further runs on banks and money market funds by extending deposit insurance & mmmf insurance

2) Reviving the interbank market by placing the Fed as counterparty and paying interest on loans

3) Keep working capital loans rolling over until solvency can be assessed and workout recaps can be facilitated.

That’s much more important at this stage.

The biggest problem with this bailout package it that it addresses the wrong problem with unspecified consequences.

It has be sold as protecting the people from the financial meltdown.

If it is posed as first the need to protect transaction deposits, and second to protect lending for current business operations and thus employment, then there are clear solutions that do not require a great deal of congressional for action.

The first problem is resolved by removing the deposits insurance cap and support for money market funds — now done.

The second is to restore interbank lending by introducing now the interest on gross reserves (Bernanke has already requested this) and unifying the discount and Funds rate to have the Fed become guarantor of the market.

To restore short term lending to business, restore real bills lending at the discount window, increase the insurance fund to allow FDIC to agressively resolve troubled insolvent banks, rather than fixing troubled assets

This should prevent the meltdown that Paulson is worried about.

Then the problem of the overall capitalisation of the system can be approached later, hopefully with a Swedish style rescue.

However, Doing Something is clearly taking precedence over Doing Something That Might Actually Work.

Print Friendly
Twitter0DiggReddit1StumbleUpon0Facebook0LinkedIn0Google+0bufferEmail

46 comments

  1. mxq

    Great ideas.

    But housing still needs to be addressed. Its the one thing that perpetually threatens to “bring this sucker down.”

    The hopenow plan was the plea for institutions to voluntarily work these mortgages out.

    But no matter how well capitalized these banks are, they’re not going to work out any of this bad paper. And that’s because they don’t have the time, $, or, more collectively, the motive to do this.

    The only entity, that has a motive to keep so many people in their homes, is the gov’t.

    So the private version of this would be (gov’t implemented legislation) for mandatory loss mitigation department (based on a ratio of $ of RMBS to total EV), staffed by actual, ex-mortgage brokers.

    We make it mandatory for companies to work mortgages out. Either that or revert to gov’t purchase of mortgages so as the gov’t can achieve this end.

  2. Jesse

    Yves, your site is an oasis of sane and serious financial thinking and we all thank you for it.

    I would also like to see the reinstatement of something like Glass-Steagall to prevent the banks from turning this cycle over again, which we all know they will given the opportunity. They have motive and these measures help them recover the means.

  3. Anonymous

    Yves, Yes!

    The only measure worth taking is to protect depositors by increasing FDIC insurance limits. Thank you for your logical and cool-headed analysis.

    Everything else in the “Paulson Plan” is expensive snake oil (at best) and transfer of wealth by order of the government.

  4. nanute

    What is this I am hearing about suspending the mark to market rule? I don’t see how this resolves the problem.
    If the fed becomes guarantor of the market, what is the effect on the taxpayer in the event of a failure?

  5. Cash Mundy

    Obama is twisting arms to pass this turkey. I’m just about ready to vote for some 3rd-party candidate and come what may. If he was as smart as he looks, he’d just stay out of it as much as possible.

    http://www.politico.com/blogs/bensmith/0908/Obama_calls_House_members.html

    Obama calls House members

    Barack Obama began calling individual rank-and-file members Tuesday, the campaign confirmed, in a sign that he is stepping up his advocacy on behalf of the endangered $700 billion financial package, Carrie Budoff Brown reports.

    The campaign would not disclose names or the number of calls, but said he was coordinating his calls with the congressional leadership.

    “He is urging members to take another look at it,” spokeswoman Linda Douglass said.

    For more than a week, Obama has kept his involvement to frequent phone calls with Treasury Secretary Henry Paulson and congressional leaders, while John McCain involved himself directly in House talks.

    But as the House rejected the bill Monday with the help of Democrats, including a majority of the Congressional Black Caucus, the pressure was rising for Obama to make more direct appeals to his party.

  6. Brian

    Maybe I misunderstood what was being proposed … but would not the Fed paying interest on reserves actually discourage inter-bank lending? That is, instead of banks lending to each other, they could forgo the risk and lend to the Fed (essentially).

    Brian

  7. Anonymous

    I hate the fact that people are suggesting ‘work-outs’ for ‘distressed’ home-debtors.

    I have a message for those folks who borrowed more than they could afford, and it is the same one i would give to the people that lent indescriminatly to people beyond their capacity to pay. The message is “Tough Shit”. They took a gamble and they lost. Deal with it. None of these people should be rewarded for their reckless greed.

  8. doc holiday

    "ntroducing now the interest on gross reserves (Bernanke has already requested this) "

    Not sure I get that, but that pointed me here:

    In any measure of reserve adequacy, gross reserves need to be carefully measured in line with the internationally accepted definition. To reflect available liquidity, it is reasonable in the indicators to augment gross reserves with contingent lines of credit that are truly usable, and to subtract from them obligations of the monetary authorities that can materialize immediately, such as derivatives subject to margin calls.

    Corporate nonpayment arises either from corporate insolvency or illiquidity, and the degree of leverage is an important variable influencing the risk of both. Companies that are highly leveraged are more vulnerable to declining values of their assets (i.e., balance sheet effects), as their debt to collateral ratios are higher; and an increase in the domestic currency cost of servicing of debt relative to the value of collateral can trigger financing problems, which in turn can further reduce the value of collateral if widespread. Leveraged companies are also more vulnerable to cutoffs in financing as cash outflows (for debt service) are larger. The same applies to corporations with a high share of short-term debt. Profits and cash flow of such companies are also more sensitive to changes in interest rates (Bernanke and Gertler, “Inside the Black Box: the Credit Channel of Monetary Policy Transmission,” Journal of Economic Perspectives, 1995).

    Debt- and Reserve-Related Indicators of External Vulnerability
    http://www.imf.org/external/np/pdr/debtres/index.htm

    >> Probably off topic, if so many bows, sorry, sorry! I feel like matt today, so I'm shutting off the computer now…

  9. Mara

    Thanks for the data Yves! I’ve cut ‘n’ pasted lord knows how many succinct arguments from here to my undeservedly elected officials regarding the ripoff, er, bailout.

    On another note, though I wouldn’t excuse fraud, if someone buys a house, the mortgage underwriter is the one who should be saying yeah or nay based on formulas. I could ask for all kinds of crazy money but you’re not obliged to grant it to me unless I can prove I’m a reasonable risk. Somewhere along the line a bunch of mortgage execs said let’s toss the rules, look how much we’re making!

    On a different note, can we now officially dispatch Mr.Hubris 2008 (M/D) since he can’t keep his snarkiness to himself?

  10. mxq

    anon @ 3:38: “The message is “Tough Shit”. They took a gamble and they lost. Deal with it. None of these people should be rewarded for their reckless greed.”

    Yes. That was 2005.

    Unfortunately, that type of thinking doesn’t really apply anymore, simply because that type of thinking helped get us to where we are today (2008).

    But in 2011, i have a feeling you’ll hit your stride. So, when you do, please let us know what you think of.

  11. Anonymous

    From another board: http://community.nytimes.com/art…t.html? permid=2

    September 29, 2008 7:52 am

    It seems truly astounding that the extent of the exposure to the “boomless pit” component of this deal, the so-called credit default swaps, has not been quantified. These are essentially futures contracts with margin calls. The exposure to them has already taken down major investment houses. The extent of these default insurance contracts is often mentioned in the media as being in the 50 trillion [with a "t"] range. If there is a significant amount of this exposure, then is there any reason that the U.S. Government could not become indebted for this amount or be forced to itself default on these mammoth commitments. I have seen nothing in the media to indicate that these instruments are not in the deal. I know it seems incredible, but what if Congress is unwittingly about to vote yes on something that could creat a USG default situation?
    — Joe G., Santa Cruz, CA

  12. Anonymous

    One Democratic Congressman who got it right:

    Rep. Shuler Statement on Wall Street Bailout Plan
    Washington, D.C. –

    Representative Heath Shuler released the following statement today on his vote against the
    proposed bailout legislation, H.R. 3997. H.R. 3997 failed to pass the House of Representatives by a vote of 205
    to 228.
    “This bill would have taken bad paper assets that weren’t good enough for Wall Street and forced them on the
    American taxpayer,” said Representative Shuler.
    The legislation would have guaranteed up to $700 billion in taxpayer funds to purchase and manage troubled
    assets. “The American taxpayers should not be, cannot be, and will not be responsible for the bad business
    decisions made on Wall Street,” said Representative Shuler. “Worse yet, there was no assurance that even this
    $700 billion bailout package would have solved the problem.”
    Representative Shuler also expressed concern regarding the lack of oversight and accountability for the financial
    markets. “This bailout would have sent the message to those on Wall Street that they do not need to be concerned
    with the consequences of their actions because the taxpayers would clean up any mess they created.”
    The House is expected to reconvene later this week to consider additional legislation regarding the current
    financial situation. “Today, Congress did its job,” said Representative Shuler. “The world’s greatest deliberative
    body has a solemn obligation to consider the long term implications of its actions, and in this case, a majority
    decided that this bailout was not the answer. I look forward to staying in session and working with my colleagues
    until we find the best solution.”

  13. Casio del la Plata

    Messaging Service Unavailable

    The House of Representatives is currently experiencing an extraordinarily high amount of email traffic. The Write Your Representative function is therefore intermittently available. While we realize communicating to your Members of Congress is critical, we suggest attempting to do so at a later time, when demand is not so high. System engineers are working to resolve this issue and we appreciate your patience.

  14. Krakpotkin

    Rumors flew today of another supposed remedy (juicing the stock markets): removing mark-to-market accounting rules.

    Instead — as an addition to the basket of remedies suggested in Yves' post — I propose that the feds institute a Price Control regime for the wounded classes/vintages of MBS currently held by institutions.

    The initial controlled price for any given segment would likely be Bernanke's "Hold to Maturity" price — ie, something guesstimated using:

    (a) trailing 3-month actual performance (how much interest is actually being paid and how much principal is actually being lost), and

    (b) best guesses as to housing sector performance across the coming year or so.

    Each quarter the controlled prices would then be adjusted based on same.

    Ie, no market-value input at all. Because the market for MBS is broken.

    We've been pursuing "the process of price discovery" for 15 months on these things and in the process have burnt down the city.

    The proposal would likely juice the balance sheets of the wounded instituitons at first (assuming and insofar as the "hold to maturity" price is above current marks).

    And if, across time, the MBS don't perform decently, the controlled prices would trend back down toward current (non) market values. Fine. The pain would be disbursed across time and a stabilized operating environment.

    "Stablized"? I mean: the playing field (for these MBS vintages) would be level. The marks and balance sheets would be transparent & public. Thus short campaigns based on rumor would have a hard time getting off the ground. The wounded bonds would live out their lives in peace.

    And if it turns out the MBS perform better than today's (non) market values imply (as seems most likely), so much the better.

    The benefits are:

    – no Treasury investment. Just a lot of spreadsheeting and regulation.

    – Slight initial juicing of bank etc balance sheets.

    – Thereafter transparent, level-playing field environment for these wounded MBS. Stability.

    – No covert "rescue" of FASB etc accounting violators who currently are holding MBS on books at marks above levels the rules require.

    (That is, the Paulson Plan — assuming the "hold to maturity" price is above today's (non) mkt values — would be exchanging cash for non-compliant marks (and the wounded bonds attached). This is a dirty little secret side to the plan that I never see discussed.

    – And, needless to say (I hope), this limited, focused price control regime would be preferable (transparent, level field) to simply REMOVING the accounting rules and allowing individual managers to mark by model or whatever.

    But the very phrase — "price controls" seems to set people twitching.

    The ideological blinders of the people inhabiting the finance world is astounding. It seems everybody was raised on Age of Reagan television.

    They must read: The Crisis of the Old Order, by Arthur Schlesinger. And anything at all by John K. Galbraith.

  15. bronze butt

    http://www.dailykos.com/story/2008/9/30/141113/931/593/615703

    U.S. Rep. Peter DeFazio (OR-04), an outspoken critic of the Bush/Paulson bailout, along with Rep. Kaptur (OH-09), Rep. Scott (VA-03), Rep. Cummings (MD-07), Rep. Doggett (TX-25), Rep. Holt (NJ-12), Rep. Edwards (MD-04) and Rep. Hirono (HI-02), will introduce legislation today to address the failures in the financial markets. DeFazio believes that the Paulson/Bush proposal is based on a flawed premise: if the American taxpayers spend $700 billion to buy Wall Street’s toxic assets – a plan pundits are calling “trash for cash” – it will create liquidity in our financial markets and will somehow trickle-down to Main Street.
    DeFazio’s plan is not in any way based on the Paulson/Bush plan. Instead of throwing taxpayer dollars at the program and crossing our fingers that the plan work, the measure will direct the Administration to take five simple steps, suggested by noted economist and former head of the FDIC, William Isaac, to re-regulate the markets and move America towards a healthy financial future.
    The legislation will be available at the press conference.

    Who: Rep. DeFazio, Rep. Kaptur (OH-09), Rep. Scott (VA-03), Rep. Cummings (MD-07), Rep. Doggett (TX-25), Rep. Holt (NJ-12), Rep. Edwards (MD-04) and Rep. Hirono (HI-02)
    What: Press Conference to introduce legislation to fix financial markets
    Where: House Radio and TV Gallery
    When: 3 pm TODAY

  16. Anonymous

    for a full discussion on the Paulson et al market manipulation facility, or the PPT please read this. Its an easy and crucial read for this situation.

    markhttp://www.informationclearinghouse.info/article17251.htm

  17. Anonymous

    “This Congress must step up to its constitutional responsibilities to craft that right deal, not an insider trade,” says Rep. Marcy Kaptur (D) of Ohio, who opposes $700 billion in government purchases of “troubled assets” on the books of US and foreign financial institutions.

    The financial crisis in the 1980s was resolved “in a much more disciplined and rigorous way than taxpayers printing money for Wall Street,” she adds, referring to actions by the FDIC to resolve thousands of problem situations with no cash changing hands.

    Meanwhile, Republicans face a tougher task of bringing on board conservatives convinced that the Paulson plan is a step toward socialism. “I’m resolute in my opposition,” said Rep. Darrell Issa (R) of California. “Today we are ending the Reagan era if we vote for this, and we can’t come back and fix it next year.”

    “Unless the market drops substantially, the Republicans aren’t going to get scared enough to do the right thing. At this point, they’re listening to talk radio and not listening to the president,” said Rep. James Moran (D) of Virginia, after the vote.

  18. Anonymous

    Joe G,

    I think that under the amended HP plan, Treasury has no exposure to default swaps as payer — that is, Treasury does not take on the obligation to honor these contracts. THere is exposure to counterparty risk — the risk that issuers of default swaps that insure the MBS that Treasury proposes to purchase will not be able to honor their contracts — and in that sense, Treasury is assuming this risk in order to relieve the banks of it.

    The magnitude of that risk is dependent on what happens in the housing market, and that in turn depends a lot on what happens in the real economy, which depends in part on how well the emerging financial crises are managed. It’s a tangled web.

    But there are some (perhaps many) who think that there is a lot of counterparty risk yet to emerge, as hundreds of thousands of Alt-A mortgages that have been repackaged into MBS begin to reset or recast in the next 3 years.

    The “Mark to maturity” pricing that HP wants to use seems to me likely to result in significant losses to Treasury.

    SRC

  19. Anonymous

    a lot of the mystification surrounding this bailout is intentional, I believe. Keeping their eyes on the stock market in fear for their ‘savings’, and unprepared for the idea that stock market ‘investing’ is always ‘speculative’ and never guaranteed, this administration has had reason to keep the Dow Jones up and continues to try to keep all eyes on the stock market for near term propaganda purposes.

  20. Anonymous

    It took me a while to find this; here’s a prediction of the $ of mortgages that are scheduled to reset for the first time, by month, for the next several years.

    http://bp3.blogger.com/_pMscxxELHEg/RxzD0s_7EYI/AAAAAAAABB4/ljDSXZhMG3o/s1600-h/IMFresets.jpg

    My eyeball integration (~24 x ~ 30) suggests that the total in the next few years is about $700 Billion.

    So there’s additional pain coming to currently performing MBS, in addition to what may further happen to the currently non-performing part of the MBS market.

    SRC

  21. Krakpotkin www.newcombat.net

    Dear Commenter at 5:15 and Joe G,

    Do note however that the bill that was voted down included a catch-all clause that gave Tsy authority to buy ANY distressed security it deemed wise.

    Well beyond the MBS universe.

    Thus we might have seen, even sooner than later, Tsy taking assignment of CDS paper and obligations. Who knows.

    I hope they yank that clause from the revised draft it seems we’re going to see.

  22. Anonymous

    Krapotkin,

    You are right in principle, but I can’t imagine that Treasury would venture into the CDS swamp. That’s what put AIG under, and the intervention there that actually took place was not to honor AIG’s CDS contracts, but to facilitate a disposal of the company’s assets.

    SRC

  23. Anonymous

    further to the question of Treasury backstopping CDS, the Republicans have suggested issuing new insurance policies to protect at-risk MBS, and Treasury doesn’t like that idea. I can’t imagine they would want to become counterparty to the existing “policies.”

    But I agree that it would be comforting to have that explicitly forbidden.

    SRC

  24. Richard Kline

    Sooo now we are supposed to pass the Industry Preferred Proposal because the Dow lost 300 points over two days? ls this a put up job, or what?

    For those of us who oppose this wretched bill, Tuesday was a good day in Congress. Far from moving quickly in the Senate to ram through a putatively ‘strongly supported’ proposal, the public remarks from Reid were amazingly weak. “We stand ready,” in essence, no time frame or anything. Even more significantly, the relevant committee chair, Dodd, didn’t say anything of substance publicly. I’ll bet. This proposal is wildly unpopular with constituents. Does anyone think that Senators will want to put their careers on the chopping block with a vote on record if it isn’t a certainty that this thing _will_ pass once returned to the House? In effect, the Senate collectively took a long step back; they’re still saluting the same flag (the one over Manhattan with the dollar sign on it, and stock ticker stripes), but are in no hurry to hurl their individual posteriors into this particular breach.

    For the purposes of opposing the Industry Preferred Proposal, it is very important to have _an alternative_ pasted up in the House. Members are terribly opposed to pressure when painted as obstructionist. If another alternative is available, they can paint themselves as constructivists (*heh*) whether or not that is the case. This is why the proposal mentioned in comments in this thread, framed up around Isaacs concepts, which aren’t bad, is important. Given another wagon to ride, the band around the failed leadership in Congress will dwindle in a hurry. We need Kaptur in Frank’s chair, and Frank in the Capitol janitor’s chair—as an apprentice on probabtion.

    BTW Dealbook had a nice short piece on Wall Street donations correlated to the House vote on Paulson’s Proposal [sorry lost the link en route to the comment box]. It shows, natch, that those who voted Aye received much, much higher campaign donations from the financial industry, notably the Democrats. Now, no one who knows American governance is surprised a jot at that, but the one third of the American public who were lead to the pig trough of the Paulson Proposal and found it good needs to look at who really bought that vote—not the public.

  25. Richard Kline

    Something else regarding probable reactions in Congress to the House vote on the Pigout Proposal is this: In a bad election cycle for Republicans, I don’t doubt that more than one just saved their job with their Nay vote given intense public opposition to this scheme. This has to be especially galling to the Democrats who have already been counting their increased majority, but whose ‘dealership’ in Congress got their party squarely on the wrong side of this issue. In an election they can’t (and won’t) lose, Frank and Pelosi have nonetheless done their rank and file real damage for no gain. How well do you think, folks, _that_ will play in the aisles if the Pigout Proposal is rammed back for a re-vote? Every day we put between us and Monday’s vote, support for that plan will weaken. I won’t breath easy until Saturday, but Tuesday was a bad day for the Hogs; they didn’t move the ball at all.

  26. Anonymous

    So what if the market keeps going up more, will the panic continue back to 11,000, or do we just panic at 10,000?

  27. Chris

    These are the last couple of paras of a Times of London story about Ireland poaching sterling deposits

    “Treasury insiders and other well-placed official sources played down any immediate prospect of a “grand plan” to bail out British banks.

    Any decision was likely to wait to see whether the US Congress approves a revamped bailout plan for the financial industry, which larger British banks are expected to be able to access.”

    This is the url
    http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4856987.ece

    “If this is legal, then I’m a banana,” one disappointed senior British banker said, arguing that the Irish guarantee amounted to unfair state aid.

  28. Anonymous

    Lets take money from working Americans to protect against “loosing” “wealth” that never existed in the first place. Only on paper did your house increase 20% year over year for 8 years.

    This sounds like a really great deal for America and the future, doesn’t it? Oh, and since you idiots didn’t understand it correctly during the last vote it is now a “rescue” or “investment” not a “bailout”. There, now you should want to vote for it. Cheers.

  29. River

    ”House Republican conservatives are likely to keep pressing for a mandatory insurance program they initially proposed for mortgage-backed securities. They may also try to force the Securities and Exchange Commission to suspend mark-to-market accounting and require bank regulators to assess the real value of the troubled assets…”

    The market has set the price and it is zero, nada, nothing! The government doesn’t like the market price, so they will have a bunch of bureaucrats set a price on assets that the maket has already established as zero?

    So now we are copying Pakistan…No stock price can drop below the price established on Aug 20, 2008. If that is the case then there is no market, there is only a central planning committee, comprised of bureaucrats, setting prices. Next we will have a five year plan?

    Is it any wonder that no private money is flowing into banks when the government allows them to mark assets to fantasy?

    I don’t care what form a bail out bill takes it will not fix the systemic problems that are continually being compounded by the government.

    This is not going to end well.

  30. SlimCarlos

    I suggest a getaway to some leafy backwoods retreat (not Bretton Woods!) for the Best and Brightest, in particualr, those 400 opposing academic economists, you know those who have never held down a real job, to consider this problem at length with the hopes of fashioning a solution which is both functional and esthetically pleasing.

    Meanwhile, in the real world:

    CHICAGO, Sept 26 (Reuters) – The credit crunch is sucking liquidity out of global trade and the shipping business, leaving cargoes stranded on docks and threatening to bring down shipyards and ship owners alike, the top executive of Excel Maritime Carriers Ltd said on Friday.

    “The banks have ceased lending and a lack of liquidity affects trade,” Stamatis Molaris told Reuters in a telephone interview.

    “The demand for goods is there; there is just not enough liquidity to move those goods around.”
    “If the credit crunch lasts beyond the short term, then shipyards — especially the newer ones — are going to fall like a house of cards,” he added.

    Etc.

    http://www.guardian.co.uk/business/feedarticle/7830602

  31. Milind

    I was watching Larry Cudlow tonight and he brought up a good point. He said and I paraphrase “According to Case Shiller Report the home prices are down 15 percent and how come the securities are trading 50 to 60 cents on a dollars.” This made lot of sense to me but I soon realized that this point was brought by Cudlow and he is almost always supposed to be wrong. Assuming there is indeed a very strong corelation between the housing MBS/securities and housing prices. Given that, what if the security prices are correct… then the house prices need to drop further to meet the current mark of 50 – 60 cents in some markets. This probably makes more sense because between the two (house prices and securities) securities are more liquid than the home price (even thought the securities are more ill-liquid compared to say treasuries or corporate bond). If this hypothesis is correct then there is LOT OF PAIN AHEAD and we are certainly putting $700 Bil down a big black hole.

  32. mxq

    “Matt Dubuque…Sorry Yves, I just can’t help myself…You are truly lost.”

    Matt…you’re like one of those bratty kids, with a golden ticket, in the story of charlie and the chocolate factory.

    That said, i am loathe to associate myself with midgets, but its hard to not admit, the majority of readers on this board along with myself are like the army of orange midgets, singing about how you have been so foolishly selfish and that you are, now, probably a thing of the past.

  33. jeff65

    milind:

    It’s worse than you suspect. The absence of a succinct and clear explanation of the securities to the man in the street is intentional. The MBS are structured in such a way that some of them carry a much higher risk of total loss than others. Guess which ones the taxpayer will be buying under this plan.

    Merrill Lynch recently sold some for 5 cents on the dollar. House prices at 5 cents on the dollar? Doesn’t that set the alarm bells off that some information is missing? It makes it clear that the notion of a hold to maturity strategy yielding profits on these securities is just a big fat lie.

    Maybe we could get an insider or former insider to write an article explaining exactly what the taxpayer will be getting for his money under this plan? I don’t understand the picture all that well myself.

  34. Krakpotkin www.newcombat.net

    I’m shocked to have found bits in the rumor mills that the coming revision of m-t-m rules by SEC and FASB may include …

    Price controls! See my comment above proposing such. (Oy, I’ve been proposing them for a year.)

    The printed rumor says “bank regulators” will be the one to specify ranges, based on “performance.”

    Well. We shall see what the morrow brings.

    In any case, what with Ireland and the sad fact that before Christmas there’ll be only four banks or so in the USA, all that stuff they stuffed into your heads since the Reagantime about Free Markets …?

    Yesterdays news, Dinosaur.

    I can’t recommend enough The Crisis of the Old Order. Everything the Fed has been trying since last fall (re keeping institutions wet) was tried in the early 30s. Until the banks sucked them dry.

    Who WOULDN’T take that swap (wounded MBS, say, for Treasuries)? Even the healthiest among them?

  35. Anonymous

    Amazing. The first ever global depression will go down in history horribly misunderstood. What a pathetic bunch of ignorant fools we have become. Consumer junkie credit card morons. Say that reminds me.

    Don’t believe one optimistic word from any public figure about the economy or humanity in general. They are all part of the problem. Its like a game of Monopoly. In America, the richest 1% now hold ALMOST 1/2 OF ALL UNITED STATES WEALTH. Unlike ‘lesser’ estimates, this includes all stocks, bonds, cash, offshore accounts, and material assets held by America’s richest 1%. Even that filthy pig Oprah acknowledged that it was at about 50% in 2006. Naturally, she put her own ‘humanitarian’ spin on it. Calling attention to her own ‘good will’. WHAT A DISGUSTING HYPOCRITE SLOB. THE RICHEST ONE PERCENT HAVE LITERALLY MADE WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. Don’t fall for any of their ‘humanitarian’ CRAP. ITS A SHAM. THESE PEOPLE ARE CAUSING THE SAME PROBLEMS THEY PRETEND TO CARE ABOUT. Ask any professor of economics. Money does not grow on trees. The government can’t just print up more on a whim. At any given time, there is a relative limit to the wealth within ANY economy of ANY size. So when too much wealth accumulates at the top, the middle class slip further into debt and the lower class further into poverty. A similar rule applies worldwide. The world’s richest 1% now own over 40% of ALL WORLD WEALTH. This is EVEN AFTER you account for all of this ‘good will’ ‘humanitarian’ BS from celebrities and executives. ITS A SHAM. As they get richer and richer, less wealth is left circulating beneath them. This is the single greatest underlying cause for the current US recession. The middle class can no longer afford to sustain their share of the economy. Their wealth has been gradually transfered to the richest 1%. One way or another, we suffer because of their incredible greed. We are talking about TRILLIONS of dollars which have been transfered FROM US TO THEM. All over a period of about 27 years. Thats Reaganomics for you. The wealth does not ‘trickle down’ as we were told it would. It just accumulates at the top. Shrinking the middle class and expanding the lower class. Causing a domino effect of socio-economic problems. But the rich will never stop. They just keep getting richer. Leaving even less of the pie for the other 99% of us to share. At the same time, they throw back a few tax deductible crumbs and call themselves ‘humanitarians’. Cashing in on the PR and getting even richer the following year. IT CAN’T WORK THIS WAY. Their bogus efforts to make the world a better place can not possibly succeed. Any ‘humanitarian’ progress made in one area will be lost in another. EVERY SINGLE TIME. IT ABSOLUTELY CAN NOT WORK THIS WAY. This is going to end just like a game of Monopoly. The current US recession will drag on for years and lead into the worst US depression of all time. The richest 1% will live like royalty while the rest of us fight over jobs, food, and gasoline. So don’t fall for any of this PR CRAP from Hollywood, Pro Sports, and Wall Street PIGS. ITS A SHAM. Remember: They are filthy rich EVEN AFTER their tax deductible contributions. Greedy pigs. Now, we are headed for the worst economic and cultural crisis of all time. Crime, poverty, and suicide will skyrocket. SEND A “THANK YOU” NOTE TO YOUR FAVORITE MILLIONAIRE. ITS THEIR FAULT. I’m not discounting other factors like China, sub-prime, or gas prices. But all of those factors combined still pale in comparison to that HUGE transfer of wealth to the rich. Anyway, those other factors are all related and further aggrivated because of GREED. If it weren’t for the OBSCENE distribution of wealth within our country, there never would have been such a market for sub-prime to begin with. IF IT WEREN’T FOR THE OBSCENE, UNREASONABLE, AND UNJUST DISTRIBUTION OF UNITED STATES WEALTH, THERE NEVER WOULD HAVE BEEN SUCH A MARKET FOR SUB-PRIME AND THERE NEVER WOULD HAVE BEEN A COLLAPSE IN THE HOUSING MARKET. Sub-prime did not cause the problem. It only accelerated the outcome. Which by the way, was another trick whipped up by greedy bankers and executives. IT MAKES THEM RICHER. The credit industry has been ENDORSED by people like Oprah Winfrey, Ellen DeGenerous, Dr Phil, and many other celebrities. IT MAKES THEM RICHER. In fact, they specifically endorsed Countrywide by name. The same Countrywide widely responsible for predatory adjustable rate sub-prime lending and the accelerated collapse of the housing market. ENDORSED BY OPRAH WINFREY, ELLEN DEGENEROUS, AND DR PHIL. Now, there are commercial ties between nearly every industry and every public figure. IT MAKES THEM RICHER. It also drives up the cost for nearly every product and service on the market. So don’t fall for their ‘good will’ BS. ITS A LIE. If you fall for it, then you’re a fool. If you see any real difference between the moral character of a celebrity, politician, attorney, or executive, then you’re a fool. No offense fellow citizens. But we have been mislead by nearly every public figure. We still are. Even now, they claim to be ‘hurting’ right along with the rest of us. As if gas prices actually effect the lifestyle of a millionaire. ITS A LIE. IN 2007, THE RICHEST 1% INCREASED THEIR AVERAGE BOTTOM LINE WEALTH AGAIN. On average, they are now worth over $4,000,000 each. Thats an all time high. As a group, they are now worth well over $17,000,000,000,000. THATS WELL OVER SEVENTEEN TRILLION DOLLARS. Another all time high. Which by the way, is much more than the entire middle and lower classes combined. Also more than enough to pay off our national debt, fund the Iraq war for twenty years, repair our infrastructure, and bail out the US housing market. Still think that our biggest problem is China? Think again. Its the 1% club. That means every big name celebrity, athlete, executive, entrepreneur, developer, banker, and lottery winner. Along with many attorneys, doctors, politicians, and bankers. If they are rich, then they are part of the problem. Their incredible wealth was not ‘created’, ‘generated’, grown in their back yard, or printed up on their command. It was transfered FROM US TO THEM. Directly and indirectly. Its become near impossible to spend a dollar without making some greedy pig even richer. Don’t be fooled by the occasional loss of a millionaire’s fortune. Overall, they just keep getting richer. They absolutely will not stop. Still, they have the nerve to pretend as if they care about ordinary people. ITS A LIE. NOTHING BUT CALCULATED PR CRAP. WAKE UP PEOPLE. THEIR GOAL IS TO WIN THE GAME. The 1% club will always say or do whatever it takes to get as rich as possible. Without the slightest regard for anything or anyone but themselves. Reaganomics. Their idea. Loans from China. Their idea. NAFTA. Their idea. Outsourcing. Their idea. Sub-prime. Their idea. High energy prices. Their idea. Oil ‘futures’. Their idea. Obscene health care charges. Their idea. The commercial lobbyist. Their idea. The multi-million dollar lawsuit. Their idea. The multi-million dollar endorsement deal. Their idea. $200 cell phone bills. Their idea. $200 basketball shoes. Their idea. $30 late fees. Their idea. $30 NSF fees. Their idea. $20 DVDs. Their idea. Subliminal advertising. Their idea. Brainwash plots on TV. Their idea. Vioxx, and Celebrex. Their idea. Excessive medical testing. Their idea. The MASSIVE campaign to turn every American into a brainwashed, credit card, pharmaceutical, medical testing, love-sick, celebrity junkie. Their idea. All of the above drive up the cost of living, shrink the middle class, concentrate the world’s wealth and resources, create a dominoe effect of socio-economic problems, and wreak havok on society. All of which have been CREATED AND ENDORSED by celebrities, athletes, executives, entrepreneurs, attorneys, and politicians. IT MAKES THEM RICHER. So don’t fall for any of their ‘good will’ ‘humanitarian’ BS. ITS A SHAM. NOTHING BUT TAX DEDUCTIBLE PR CRAP. In many cases, the ‘charitable’ contribution is almost entirely offset. Not to mention the opportunity to plug their name, image, product, and ‘good will’ all at once. IT MAKES THEM RICHER. These filthy pigs even have the nerve to throw a fit and spin up a misleading defense with regard to ‘federal tax revenue’. ITS A SHAM. THEY SCREWED UP THE EQUATION TO BEGIN WITH. If the middle and lower classes had a greater share of the pie, they could easily cover a greater share of the federal tax revenue. They are held down in many ways because of greed. Wages remain stagnant for millions because the executives, celebrities, athletes, attorneys, and entrepreneurs, are paid millions. They over-sell, over-charge, under-pay, outsource, cut jobs, and benefits to increase their bottom line. As their profits rise, so do the stock values. Which are owned primarily by the richest 5%. As more United States wealth rises to the top, the middle and lower classes inevitably suffer. This reduces the potential tax reveue drawn from those brackets. At the same time, it wreaks havok on middle and lower class communities and increases the need for financial aid. Not to mention the spike in crime because of it. There is a dominoe effect to consider. IT CAN’T WORK THIS WAY. But our leaders refuse to acknowledge this. Instead they come up with one trick after another to milk the system and screw the majority. These decisions are heavily influensed by the 1% club. Every year, billions of federal tax dollars are diverted behind the scenes back to the rich and their respective industries. Loans from China have been necessary to compensate in part, for the red ink and multi-trillion dollar transfer of wealth to the rich. At the same time, the feds have been pushing more financial burden onto the states who push them lower onto the cities. Again, the hardship is felt more by the majority and less by the 1% club. The rich prefer to live in exclusive areas or upper class communities. They get the best of everything. Reliable city services, new schools, freshly paved roads, upscale parks, ect. The middle and lower class communities get little or nothing without a local tax increase. Which, they usually can’t afford. So the red ink flows followed by service cuts and lay-offs. All because of the OBSCENE distribution of bottom line wealth in this country. Anyway, when you account for all federal, state, and local taxes, the middle class actually pay about the same rate as the rich. The devil is in the details. So when people forgive the rich for their incredible greed and then praise them for paying a greater share of the FEDERAL income taxes, its like nails on a chalk board. I can not accept any theory that our economy would suffer in any way with a more reasonable distribution of wealth. Afterall, it was more reasonable 30 years ago. Before Reaganomics came along. Before GREED became such an epidemic. Before we had an army of over-paid executives, bankers, celebrities, athletes, attorneys, doctors, investors, entrepreneurs, developers, and sold-out politicians to kiss their asses. As a nation, we were in much better shape. Strong middle class, free and clear assets, lower crime rate, more widespread prosperity, stable job market, lower deficit, ect. Our economy as a whole was much more stable and prosperous for the majority. WITHOUT LOANS FROM CHINA. Now, we have a more obscene distribution of bottom line wealth than ever before. We have a sold-out government, crumbling infrastructure, energy crisis, home forclosure epidemic, credit crunch, weak US dollar, 13 figure national deficit, and 12 figure annual shortfall. The cost of living is higher than ever before. Most people can’t even afford basic health care. ALL BECAUSE OF GREED. I really don’t blame the 2nd -5th percentiles in general. No economy could ever function without some reasonable scale of personal wealth and income. But it can’t be allowed to run wild like a mad dog. ALBERT EINSTEIN TRIED TO MAKE PEOPLE UNDERSTAND. UNBRIDLED CAPITALISM ABSOLUTELY CAN NOT WORK. TOP HEAVY ECONOMIES ALWAYS COLLAPSE. Bottom line: The richest 1% will soon tank the largest economy in the world. It will be like nothing we’ve ever seen before. The American dream will be shattered. and thats just the beginning. Greed will eventually tank every major economy in the world. Causing millions to suffer and die. Oprah, Angelina, Brad, Bono, and Bill are not part of the solution. They are part of the problem. THERE IS NO SUCH THING AS A MULTI-MILLIONAIRE HUMANITARIAN. EXTREME WEALTH MAKES WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. WITHOUT WORLD PROSPERITY, THERE WILL NEVER BE WORLD PEACE OR ANYTHING EVEN CLOSE. GREED KILLS. IT WILL BE OUR DOWNFALL. Of course, the rich will throw a fit and call me a madman.. Of course, they will jump to small minded conclusions about ‘jealousy’, ‘envy’, or ‘socialism’. Of course, their ignorant fans will do the same. You have to expect that. But I speak the truth. If you don’t believe me, then copy this entry and run it by any professor of economics or socio-economics. Then tell a friend. Call the local radio station. Re-post this entry or put it in your own words. Be one of the first to predict the worst economic and cultural crisis of all time and explain its cause. WE ARE IN BIG TROUBLE.

    So what can we do about it? Well, not much. Unfortunately, we are stuck on a runaway train. The problem has gone unchecked for too many years. The US/global depression is comming thanks to the 1% club. It would take a massive effort by the vast majority to prevent it. Along with a voluntary sacrifice by the rich. THATS NOT GOING TO HAPPEN. But if you believe in miracles, then spend your money as wisely as possible. Especially in middle and lower class communities. Check the Fortune 500 list and limit your support of high profit/low labor industries (Hollywood, pro sports, energy, credit, pharmaceutical, cable, satelite, internet advertising, cell phone, high fashion, jewelry, ect.). Cancel all but one credit card for emergencies only. If you need a cell phone, then do your homework and find the best deal on a local pre-pay. If you want home internet access, then use the least expensive provider, and share accounts whenever possible. If you need to search, then use the less popular search engines. They usually produce the same results anyway. Don’t click on any internet ad. If you need the product or service, then look up the phone number or address and contact that business directly. Don’t pay to see any blockbuster movie. Instead, wait a few months and rent the DVD from a local store or buy it USED. If you want to see a big name game or event, then watch it in a local bar, club, or at home on network TV. Don’t buy any high end official merchendise and don’t support the high end sponsors. If its endorsed by a big name celebrity, then don’t buy it. If you can afford a new car, then make an exception for GM, Ford, and Dodge. If they don’t increase their market share soon, then a lot more people are going to get screwed out of their pensions and/or benefits. Of course, you must know by now to avoid those big trucks and SUVs unless you truly need one for its intended purpose. Don’t be ashamed to buy a foreign car if you prefer it. Afterall, those with the most fuel efficient vehicles consume a lot less foreign oil. Which accounts for a pretty big chunk of our trade deficit. Anyway, the global economy is worth supporting to some extent. Its the obscene profit margins, trade deficits, and BS from OPEC that get us into trouble. Otherwise, the global economy would be a good thing for everyone. Just keep in mind that the big 3 are struggling and they do produce a few smaller reliable cars. Don’t frequent any high end department store or any business in a newly developed upper class community. By doing so, you make developers richer and draw support away from industrial areas and away from the middle class communities. Instead, support the local retailer and the less popular shopping centers. Especially in lower or middle class communities. If you can afford to buy a home, then do so. But go smaller and less expensive. Don’t get yourself in too deep and don’t buy into the newly developed condos or gated communities. Instead, find a modest home in a building or neighborhood at least 20 years old. If you live in one of the poorer states, then try to support its economy first and foremost. Be on the lookout for commercial brainwash plots on TV. They are written into nearly every scene of nearly every show. Most cater to network sponsors and parent companies. Especially commercial health care. Big business is fine on occasion depending on the profit margins and profit sharing. Do your homework. If you want to support any legitimate charity, then do so directly. Never support any celebrity foundation. They spend most of their funding on PR campaigns, travel, and high end accomodations for themselves. Instead, go to Charitywatch.org and look up a top rated charity to support your favorite cause. In general, support the little guy as much as possible and the big guy as little as possible. Do your part to reverse the transfer of wealth away from the rich and back to the middle and lower classes. Unfortunately, there is no perfect answer. Jobs will be lost either way. Innocent children will starve and die either way. But we need to support the largest group of workers with the most reasonable profit margins. We also need to support LEGITIMATE charities (Check that list at Charitywatch.org). This is our only chance to limit the severity and/or duration of the comming US/global depression. In the meantime, don’t listen to Bernanke, Paulson, Bartiromo, Orman, Dobbs, Kramer, OReiley, or any other public figure with regard to the economy. They are all plenty smart but I swear to you that they will lie right through their rotten teeth. IT MAKES THEM RICHER. These people work for big business. The ‘experts’ they cite also work for big business. They are all motivated by their desire to accumulate more wealth. THEY WILL LIE RIGHT THROUGH THEIR ROTTEN TEETH. So don’t fall for their tricks. Instead, look at the big picture. The economic problems we face have been mounting for well over 20 years. All of them caused or aggrivated by a constant transfer of wealth from poorer to richer. Soon, it will cause the first ever GLOBAL DEPRESION. Its not brain surgery. Its simple math. Like I said, you are welcome to run this by any professor of economics or socio-economics. If thats not good enough, then look up what Einstein had to say about greed, extreme wealth, and its horrible concequences. I speak the truth. GREED KILLS. IT WILL BE OUR DOWNFALL.

    Its already underway. A massive campaign to divert our attention. Trump, Buffet, OReiley, Dobbs, Pickens, Norris, and several other well known filthy rich public figures have been running their mouths about the economy. Finally admitting a hint of severity after almost 2 years of denial. They even have the nerve to acknowledge the possibility of a US/global depression. Still, they refuse to acknowledge the single greatest underlying cause. Remember: Our national debt was way up BEFORE sub-prime. Consumer debt was way up BEFORE sub-prime. The cost of living was up BEFORE sub-prime. Wall Street profits were obscene BEFORE sub-prime. The middle class were loosing free and clear assets BEFORE sub-prime. Our infrastructure was in bad shape BEFORE sub-prime. Loans from China were taken out BEFORE sub-prime. The dollar was loosing value BEFORE sub-prime. So don’t let these cowardly filthy rich public figures divert your attention or limit your range of thought. THE CURRENT ECONOMIC CRISIS WAS NOT CAUSED BY A SINGLE POLICY OR PROCEDURE. IT WAS CAUSED PRIMARILY BY A MASSIVE TRANSFER OF WEALTH FROM POOR TO RICH. OTHERWISE, THERE WOULD NOT HAVE BEEN SUCH A MARKET FOR SUB-PRIME AND THERE WOULD NOT HAVE BEEN A GLOBAL CREDIT CRUNCH. MONEY DOES NOT GROW ON TREES AND IT DOES NOT FLOAT AWAY. IT ONLY TRANSFERS FROM ONE PARTY TO ANOTHER. ALBERT EINSTEIN TRIED TO MAKE PEOPLE UNDERSTAND. GREED KILLS. IT WILL BE OUR DOWNFALL.

    A word for those who respond with the usual ‘I know more than you. Look how smart, knowledgable, and articulate I am’ crap. Let me say this in advance. I don’t claim to be an expert in this field. But I did go on record with these predictions long before any public figure uttered the word ‘recession’. If you search long enough, you will find my early postings from ’05′ and ’06′. Including the first draft of this rant. Since then, I’ve gone on record against people like Greenspan, Bernanke, and Paulson. So far, my predictions have been accurate. Like I said. This is not brain surgery. For the mostpart, its simple math. When you concentrate the world’s wealth, you also concentrate its capital and shrink the middle class along with the potential market for every major industry. Homes go unsold. Bills go unpaid. Banks fail. More products go unsold. Jobs are lost. More banks fail. and so on. and so on. It happened 80 years ago. It will happen again. This time on a global scale. Throughout the cycle, the rich will tighten their grip. Concentrating the world’s wealth and resources even further and ensuring the collapse of every major economy worldwide. Think it can’t happen? Think again. GREED KILLS. IT WILL BE OUR DOWNFALL.

    Another thing. I don’t want credit for any of this. Otherwise, I would have given my full name a long time ago. As far as I’m concerned, you can put this rant in your own words and take credit for all of it. I don’t care. Just spread the word. Otherwise, the greatest injustice of all time will go down in history unchecked.

    By the way. The bailout won’t work. IT WON’T WORK. The plan fails to address the fundamental problem. The middle class don’t need more credit. They need a reasonable share of the economic pie. They also need a lower cost of living and a chance to catch their breath. Most of all, they need to wake up and see the truth. GREED KILLS. IT WILL BE OUR DOWNFALL.

    October 1, 2008 5:31 PM

  36. halbhh

    The way out isn’t so hard. A month or two back it occured to me the key to recovery from a collapse of part of the economy based on a bubble, along with the downward momentum/spiral this pushes on the non-bubble economy part, can all be addressed effectively actually.

    Instead of a WPA, or other such 1930s type fixes, you use a market equivalent.

    Intead of gov sponsored jobs, you create powerful tax incentives for new private sector jobs.

    For instance, during 2009 a company could get monthly tax rebates porportional to the amount their payroll is greater than their Oct 1, 2008 payroll, perhaps of 50% or more.

    i.e., if April 2009 non-executive payroll is $1M more than Oct1,08 payroll, the company could get a (calculated monthly) tax rebate of $1M/12 * 0.50 for that month (a full 1/2 of all the new increased jobs and raises vs 10/1/08), etc.

    Such a program for 2 years would be a very powerful market incentive for new private sector jobs.

    Then….gradually, you get a progressively stronger and stronger recovery…in a year or two or three.

Comments are closed.