$700,000,000,000.00


$700 billion is a lot of money, approximately equal to the annual output of the state of Florida, or of the six New England states. That’s more than 5% of the total output of the United States. Only 16 countries worldwide produce that much in a year. And the Secretary of the Treasury has asked for that much in a one-shot attempt to stabilize U.S. financial markets.

As an economist, this seems to me a high-risk endeavor. The money will come from loans, which have to be paid back by future taxpayers regardless of the plan's success. As a taxpayer, I'm worried the proposal pursues a questionable goal: welfare for investment bankers?

Finance is not supposed to consume a large portion of a country's resources, but it's understood to enable growth. So when the financiers ask for their pound of flesh, do we pay up, or risk the consequences? Two countervailing credibility problems form the horns of this dilemma.

First, the prospect of a big bailout introduces a moral hazard. Investors at home and abroad should not be led to believe that Uncle Sam will cover losses once the cost gets high enough. Companies that become "too big to fail" are too big of a liability to us all.

Second, the prospect of a financial crash introduces a default problem that could become widespread. If insurers and loaners lack confidence in the ability of borrowers to repay - or to be backed up by the government - interest rates will rise, hurting the U.S. as a net debtor.

The recent history of this crisis is not encouraging. Remember the Fannie & Freddie bailout? The government made a commitment of up to $200 billion. That didn't save AIG or Lehman Brothers, and didn't turn the stock market around for more than a few days. Why should $700 billion now have any positive ripples when $200 billion a few weeks ago slid like a drop into the ocean?

Likewise, the oddest thing about the crisis is how limited it has remained in scope. Some economists say that financial markets are an important indicator of where the real economy is heading. Some economists say that consumer confidence is a vital indicator. Well, stocks have been falling steadily for a year, dwarfing the daily fluctuations. Consumer confidence is nearing all-time lows. But the real economy seems to be healthy! Unemployment is near long-run averages, labor productivity is rising, real wages are rising, and GDP growth is choppy but positive.

None of this guarantees that a recession is not "right around the corner." But it does cast doubt on financial and consumer confidence measures as indicators of economic activity. Do we really need to pull out all the stops to "save" an economy that's plugging along on the strength of export-driven activity? This is no boom, but the fundamentals of the economy are, ironically enough, strong.

These twin doubts - in the efficacy of a potential bailout and in the actual extent of the crisis - make me leery of any expensive bailout package. I offer a rare commendation to legislators from both parties who greeted the $700 billion Rube Goldberg machine with skepticism. Here's hoping they can't agree on anything, at least until we know more about the extent of the crisis and the likelihood of success. Posted by Chops at September 24, 2008 5:39 PM
Comments
Comment #264220

The panicked rush to deal with this credit crisis could cause more economic problems than the Credit Crisis itself.

We need a longer-term calmer policy way of dealing with things, where people look further ahead than the next quarter. Who’s going to give us that calm, and who’s going to try and force a bailout deal before friday, on an issue they weren’t even concerned about a week ago?

Posted by: Stephen Daugherty at September 24, 2008 7:48 PM
Comment #264227

Good question Stephen, well put. Anyone? Anyone? Bueller?

Posted by: ray at September 24, 2008 9:03 PM
Comment #264238

I don’t know ray, which candidate is using fear to advance a political campaign, calling this the ‘worst economic crisis since the great depression’ and which one is actually looking to help be part of the solution, ensuring that his constituent’s concerns are addressed?

Posted by: Rhinehold at September 24, 2008 9:44 PM
Comment #264249

Rhinehold!

WHICH candidate is using fear, indeed?

Gee, I guess you missed this quote: Asked whether there’s a risk of another Great Depression if Congress doesn’t approve a $700 billion bailout package, Palin said, “Unfortunately, that is the road that America may find itself on.”

http://www.breitbart.com/article.php?id=2008-09-24_D93DEDL01&show_article=1&cat=breaking

(breitbart.com is endorsed by Rush Limbaugh, so I’m sure you would trust them)

OH, BUT I FORGET - WE’RE TALKING ABOUT THE PRESIDENTIAL CANDIDATES! So here:

[McCain], who has dropped in the polls during the Wall Street turmoil, warned of “devastating consequences for our economy” if an agreement was not reached.

http://www.msnbc.msn.com/id/26872350/

Rhinehold, dude - McCain and Palin are INDEFENSIBLE. Did the Republicans TRY to make the choice of these two? I mean, for all his flip-flops Romney would’ve been a FAR better (read: smarter) candidate. But these two? Sorry, guy, but they’re clueless.

And the saddest thing is that Republicans and conservatives are SO afraid of Obama/Biden that they would vote for a corrupt warmonger and Bush-in-a-dress and risk another war, much more economic turmoil, and even further loss of our Constitutional rights…just so’s they can have another Republican administration.

But don’t worry - I truly believe Obama will NOT be elected. Why? Because Diebold (now called ‘Premier’) is coming to your rescue…just like they did in ‘04. And even if they fail, Beloved Leader Bush will ensure that Obama never takes the oath of office (see “Executive Order 51”).

P.S. Didja find any instances of Democratic election fraud yet?

Posted by: Glenn Contrarian at September 24, 2008 10:48 PM
Comment #264253

Chops wrote: “First, the prospect of a big bailout introduces a moral hazard. Investors at home and abroad should not be led to believe that Uncle Sam will cover losses once the cost gets high enough. Companies that become “too big to fail” are too big of a liability to us all. “

BINGO! Which is why John McCain with Phil Gramm as his treasury secretary is the wrong choice for America. It was Phil Gramm’s Gramm-Leach-Bliley Act of 1999 that permitted the merger’s and acquisitions and cross breeding of banking and investment financial institutions to become the behemoths which can’t be allowed to fail.

You are right to point out the possibility that this 3/4 trillion dollars may not solve economic challenges facing the global banking networks and system. But, it is also true, that doing nothing almost assures what President Bush rightly described as a serious recession and panic in the financial industry.

Those few positive economic fundamentals you mention Chops won’t remain positive if lending remains curtailed for a protracted period of time. Did you not hear Bush’s speech? Don’t trust Bush further than you can throw him, BUT, what he said about the cascade effects resulting from crippled lending was absolutely correct. And you would be hard pressed to find more than a handful of economist hacks to disagree.

Lending is the lubricant that keeps the wheels of payrolls, production, and economic growth going. Those wheels will rapidly wear down the cogs without lending lubricant. Additionally, our foreign financiers of our deficit spending will be forced to think twice about buying American debt if America abandon’s this mortgage credit crisis and all that that portends for a dramaticly slowing economy and reduced government revenues. At the very least, the interest on our new national deficit borrowing would double in months, to around a half trillion dollars per year and increasing thereafter.

Your greatest error Chops is on exports. Apparently you have not been keeping up with the news of foreign central banks and economic news. As our economy slips into recession, so will other nations, and that will erode demand for American exports. That would be two legs of a 3 legged stool broken off. That stool would not continue standing.

Posted by: David R. Remer at September 24, 2008 10:57 PM
Comment #264264

Rhinehold-
Ask Sarah Palin. And ask McCain, for good measure, as he’s telling us that this is so much a crisis that he’s suspending his campaign. If such a drama-llama approach is not designed to exploit fears (and whatever in-the-moment amnesia there is) I don’t know what is.

So let me just say one word: April. That’s the last time McCain voted for anything. One week ago, the fundamentals were strong, and now the sky is falling, and McCain’s jumping around like Roger Rabbit on crack.

This has become the Republican M.O. on governance: Do nothing for the longest time, or perseverate in some ideological policy, and then wait until the absolute last minute to apply some policy bandaid in a rushed frenzy, one that generally turns out to be the wrong thing to do.

Posted by: Stephen Daugherty at September 24, 2008 11:25 PM
Comment #264270

The only crisis we have is tight credit. Give the money to the homeowners in trouble and the small business people hurting from the credit crunch. Give the money to those that are unemployed. But the last thing to do is to bail out those that created the problem. If the taxpayer is to be on the line for another $700 billion let them get the benefits in lieu of rewarding bad business practices by multinational corporations that will only grow again and be to big to not save. Why continue with the same wrongheaded actions that got us to where we are today?

Posted by: j2t2 at September 24, 2008 11:35 PM
Comment #264314

Here’s another point of view on the bailout:

http://michellemalkin.com/

Posted by: Oldguy at September 25, 2008 12:39 AM
Comment #264317
If such a drama-llama approach is not designed to exploit fears (and whatever in-the-moment amnesia there is) I don’t know what is.

I said as much several days ago. Both candidates are exacerbating the problem, shutting the hell up for a few days would be the best move. McCain appears to be doing that now (we’ll see), I doubt Obama will, it is what is putting him back in the lead a few points…

One week ago, the fundamentals were strong

Actually he was right then and they still are. But he has to appear as if they aren’t. It is all explained in this article:

http://www.rasmussenreports.com/public_content/political_commentary/commentary_by_debra_j_saunders/the_hyperbole_market_it_s_the_worst

This has become the Republican M.O. on governance

And is the same with the Dems, Stephen. Look at their part is the causes for these issues… The assumption that this is a Republican issue only is laughable, when between Bush and McCain they made 30 public requests for Fannie Mae and Freddie Mac to have greater regulation but attempts were blocked from getting out of committees by obstructionist Democrats, specifically 2005.

And what did Democrats do since taking over? About the same thing… No one wants the other party to claim credit for doing anything positive. And it isn’t going to get much better really.

Posted by: Rhinehold at September 25, 2008 12:51 AM
Comment #264321

RH
Right. And the Reps did not control the Whitehouse for the last 8 years and congress for most of that. I thought you all believed in personal responsibility. “Well,he did it too” is a playground argument.

If this administration really wants to do what is best for the country they would admit their fundemental governmental philosiphy is a failure, markets must be regulated, and both Bush and Cheny should resign. Bush,s pleading is as much as an admission of this. I hope the Dems insist on that before passing this latest and greatest attempt to blow open yet one more federal vault.

Posted by: bills at September 25, 2008 4:24 AM
Comment #264325
And the Reps did not control the Whitehouse for the last 8 years and congress for most of that.

They did control the Whitehouse and the past 8, the Senate for the past 6. But what I find hilarious is that when we look to the current congress and what they didn’t do for the past 2 years while this was brewing as well, we hear ‘but the obstructionist Republicans…’. As if the Democrats in 2000-2006 weren’t doing the same thing. And when I point out that they were blocking legislation that would have addressed this in 2005, you attempt to deflect?

I thought you all believed in personal responsibility. “Well,he did it too” is a playground argument.

I do, and being accurate about what happened is the way you start that. Saying ‘they suck more than we do’ is not really a way to start taking responsibility for a party’s involvement in the issues we face today, it is partisanship at its worst because it puts us all on the hook for the privledge of helping fund it.

Posted by: Rhinehold at September 25, 2008 8:18 AM
Comment #264326
If this administration really wants to do what is best for the country they would admit their fundemental governmental philosiphy is a failure, markets must be regulated, and both Bush and Cheny should resign.

This idiotic statement is a prime example of how people have no idea what ‘the other guy’ actually stands for and attempts to attack their own characture of it.

Very few people, if any, are saying that there should be absolutely no regulation. Hell, I’m a libertarian and I am not even saying that.

Bad regulation is worse than little regulation, btw. And that is in part what we are dealing with here.

Posted by: Rhinehold at September 25, 2008 8:20 AM
Comment #264331

RH
Sorry,a bit anyway. I am pretty ticked. This bail out could, if done poorly, could well cost $2,300 for every man woman and child. If the original proposal had been accepted that is exactly what it would have cost. Fortunatly its an election year so even the Reps have to keep their lacenious hearts under wraps. If done right we might even make money on it as W.Clinton pointed out today. He compared it his(our) loan to Mexico that was paid back 3 years early and earned about 600 million. One incentive that should be built in and may well be is a provision to limit CEO pay to ,say, only 2 or 3 million a year,(poor bastards, but we all must sacrifice.) If the CEO wants a raise he has to pay the loan back first.

Posted by: bills at September 25, 2008 8:41 AM
Comment #264335
The banks will therefore no doubt be looking for one bailout after another from the only pocket deeper than their own, the U.S. government’s. But if the federal government acquiesces, it too could be dragged into the voracious debt cyclone of the mortgage mess. The federal government’s triple A rating is already in jeopardy, due to its gargantuan $9 trillion debt. Before the government agrees to bail out the banks, it should insist on some adequate quid pro quo. In England, the government agreed to bail out bankrupt mortgage bank Northern Rock, but only in return for the bank’s stock. On March 31, 2008, The London Daily Telegraph reported that Federal Reserve strategists were eyeing the nationalizations that saved Norway, Sweden and Finland from a banking crisis from 1991 to 1993. In Norway, according to one Norwegian adviser, “The law was amended so that we could take 100 percent control of any bank where its equity had fallen below zero.”6 If their assets were “marked to market,” some major Wall Street banks could already be in that category.

From this article

Posted by: womanmarine at September 25, 2008 9:00 AM
Comment #264337

Good point RH, the economy is basically sound. We have faced a lot of problems over the past few years, and yet unemployment has stayed low and the GDP has remained fairly strong.

I personally am against using taxpayers money to bail out these companies. Blame is thrown in all directions, but in reality there were some bad decisions made. Banks were forced by Janet Reno to make home loans with no security and these loans were picked up by Fannie Mae and Freddy Mac. And these organizations were nothing more than a slush fund for democrats to buy votes.

The discusting thing is that some of the politicians on the committies debating the problem, are part of the problem. They are asking for more oversight, which would allow them even more control of the 700 billion.

Men like Frank and Dodd need to be removed and Feddie and Fannie need to be split up and sold on the market. The same thing that happened to Ma Bell.

The CEO’s that Pelosie wants to regulate are men that were put in the positions by Democrats. And no matter how much the Dems deny, the proof is out there.

Posted by: Oldguy at September 25, 2008 9:20 AM
Comment #264340

Chops, your admission, in the comment string of another article, that economists don’t know what is going on, is deeply telling. What does a bailout really do? That is the question we really should be asking.

What it really does is devalue the dollar. The government can’t really tax the people for this wave of money. It must be printed, for all practical purposes, out of thin air. Unfortunately this lends credence to the arguments of the haranguers of doom on the far right, who claim there is a conspiracy to force the nation’s economy into some international collective like a “North American Union”.

It also redistributes a substantial portion (somwhere around six percent, assuming it is spent in a year) of the economic capacity of the country into the lending markets, validating Democratic complaints about “welfare for the rich”.

What I’ve seen in the financial press is deep concern over a freezing of the debt markets. It appears to me that this is caused by uncertainty about the value of such assets as real estate, and even stocks. These assets have been run up by what may have been two decades of “irrational exuberance” to use Alan Greenspan’s term. That real estate was overvalued is now obvious. But, underlying other anxieties is a dawning realization that what we were taught in economics thirty years ago- that stocks in general probably ought to be valued at ten to fifteen times annual earnings (the P.E. ratio) may be true. In an age when stock prices have more often tended to be 20 to 30 times earnings this could be a crushing blow to the value of the American economy on international markets.

Keynesian economics was a crock because it assumed the American economy happened only in America. When we permit ourselves to forget the international interconnectedness of the economy in which we really live we make the same mistake.

I’ve said many times in this forum and others that money is our common, willing, fantasy. It works as long as we agree it works. It fails when a large percentage of us think it is failing. The task before the Congress and the President is huge. It is not so much to heal our markets or the dollar. It is to heal the psychological matrix we cooperate to create in which those ideas function.

Posted by: Lee Jamison at September 25, 2008 9:54 AM
Comment #264342

U.S. to lose financial superpower status

Posted by: womanmarine at September 25, 2008 10:10 AM
Comment #264344

I forgot to mention another key asset the value of which is falling ever more into question: Government debt. You see, our indebtedness is not 9 trillion. When you count the future looming burdens of Social Security and Medicare (which have been carefully husbanded off the books) Federal obligations over the next quarter century substantially exceed 50 (that’s FIFTY) TRILLION DOLLARS.

It’s entirely possible that people in the bowels of government and high finance have simply decided that the only way out of that inevitable debacle is to have a round of hyperinflation that devalues fifty trillion dollars to a manageable “real” value.

Posted by: Lee Jamison at September 25, 2008 10:17 AM
Comment #264368

Lee, revolution and anarchy will rise before balancing of debt through hyperinflation gets anywhere close to its goal.

Posted by: David R. Remer at September 25, 2008 11:39 AM
Comment #264374

David,
You and I know that, but when I was being taught economics in the middle and late seventies there were economists who seriously thought inflation, and taxation bracket-creep, were valid ways of dealing with the “problems” of both government debt and government “underfunding”.

You know what I see when I look at the people dealing with the current financial situation? A lot of people who were studying economics at the same time I was.

Posted by: Lee Jamison at September 25, 2008 11:53 AM
Comment #264382

Why can’t we just let these huge banks fail and let the local credit unions take over and keep money local? I have not seen anything that credit unions are in trouble. Am I missing something, isn’t the whole point of a free market to let those that can make it make it and let the others fail? I am wondering why each and every person should be on the hook for $2.24 Billion dollars! wouldn’t giving every person in america that can demenstrate they are a citizen 1million after taxes fix our economic problem, It sure would be a hell of a lot cheaper!

Posted by: timesend at September 25, 2008 12:10 PM
Comment #264394

The $700 is to buy assets - that have some value.

To lose $700 billion and have a “bill” of $2,300 for every person would mean that a loan was bought by the Treasury (at say 70% of face) that went to $0 - ie. the home behind the mortgage was absolutely worthless.

If that is the case who cares about this bailout…the US is essentially a defunct country. If the loan is bought at 70% of face and the home is eventually sold at 50% of its original value ( a huge decline) the taxpayer “loss” will be $200 billion. ($1 trillion original loan balances …. that is eventually is recovered at $500 billion…..for which the Treasury paid $700…..so the $200 loss would be the difference).

This doesn’t allow for the fact that the Treasury can hold for a long time. Collect the mortgage payments from those that still pay, let the market stabilize, get people back to work and have the mortgages recover.

Some very smart people - unrelated to the bailout - think the gov’t may make money on this deal. The guy at Pimco thinks so….and Warren Buffet said he’d do this deal. The govt could win.

In fact when they bailed out Chrysler they did win…so their is some historical precedence.

Think about the deal Warren Buffet just did with Goldman. The media crows about how cheap he got it. Well the Treasury’s deal with AIG is significantly BETTER. A higher interest rate AND much higher equity participation than what Buffet got. Why isn’t the media crowing about the Treasury being a shrewd buyer?

We’re not in a good situation….but this plan is a necessary step and may work out just fine and has a small chance of being a winner.

Posted by: MT Cross at September 25, 2008 1:02 PM
Comment #264412
Chops wrote: First, the prospect of a big bailout introduces a moral hazard.
It most certainly does.

It is completely contrary to long held principles.
When the going gets tough, does that mean it is time to abandon principles?
Who really thinks enough people will now suddently turn over a new leaf and refrain from more greed, corruption, and incompetence?
Most voters polled are against this bail-out, but Congress is going to ignore the voters, again.
But why not, when voters will reward the incumbent politicians with re-election anyway?
This bail-out will fail miserably for many reasons.
Since when did more massive debt become the solution for massive debt of nightmare proporation?
Especially when that money does not yet exist?
What happens when the U.S. Dollar is worthless?
Because that is where it is headed. See how far the U.S. Dollar

  • Posted by: d.a.n at September 25, 2008 1:49 PM
    Comment #264416

    MT Cross,

    If what you describe is how it will work the money with which the assets are purchased prior to being paid off is still manufactured out of whole cloth. It is invented as a promise by the taxpayer to make good on the debt. That can easily be seen as problematic. Your reassurance merely tells us the anvil hanging over our heads could largely evaporate over time.

    On the other hand, the good that can come of it is reformulation of the truly predatory nature of the loans that were really causing serious problems, particularly the one-year unlimited readjustable ARMs and interest-only instruments, which should be reformulated into honest mortgages. It’s ridiculous for people who bought houses with payments of $800 per month to be saddled with loans sucking them dry to the tune of $2000 per month and more.

    Posted by: Lee Jamison at September 25, 2008 1:59 PM
    Comment #264428

    Okay, so if the government buys this paper, which includes these mortgages, does that mean the government actually will own the houses? At the inflated prices? Not such a great deal.

    Posted by: womanmarine at September 25, 2008 2:31 PM
    Comment #264435

    MT Cross, the operative word there is ‘may’ produce a net gain for taxpayers. But, will there actually be a net gain, or will Congress simply up spending because there was a gain back from the mortgages?

    The economic fundamentals are NOT strong. They are mixed, some very anemic, some OK, and some strong, but, all the economic fundamentals face the same future, rapidly rising debt, growing interest on that debt, and growing risk for borrowers lending the U.S. money to float its ever increasing debt.

    The alternative to this growing debt, is killing Soc. Sec. and Medicare leaving 150 million Americans to suffer horrible indignities, poverty, ill-health, and premature death over the next 6 decades. While that may improve the government’s balance sheet, it raises dramatically the risk of violent revolution on MainStreet.

    Nice set of choices, eh?

    Posted by: David R. Remer at September 25, 2008 2:47 PM
    Comment #264442

    David -

    You’re right that export demand drying up is a concern. That’s a longer-term issue, though, and ultimately the government can only buy short-term fixes. So far, all the fixes they’ve bought have been VERY short-term.

    I’m not willing to pay $700 billion in taxes to delay the breakdown for a couple weeks or a couple months. And I don’t have a lot of faith that this will do any more than that.

    Lending has to slow down. There’s no way that any sane person is going to extend quite as much credit as they have in recent years. We wouldn’t want them to, anyway! At the same time, I don’t think lending is gonna “dry up”: the crisis hasn’t even touched good loans yet, and high-quality borrowers are still finding financing.

    Posted by: Chops at September 25, 2008 3:00 PM
    Comment #264476

    Perhaps I am a bit naive, but if we are going to spend almost one trillion dollars with these bailouts, why don’t we spend it on needed infrastructure, alternative energy, etc.? Something that gives us a real return on our investment. Buying bad debt seems like a poor idea to me. We are doing nothing other than rewarding excessive risk taking and greed by the financial sector. Put the money to good use. Our economy would benefit in the long run.

    Posted by: Rich at September 25, 2008 5:53 PM
    Comment #264481

    Chops, but are in foregoing the short term fix, are you really willing to promote the consequences?

    Posted by: David R. Remer at September 25, 2008 7:03 PM
    Comment #264482

    Rich, that would be great as a longer term solution to a weak economy. But, right now, we are facing a potential cascading economic recession or worse.

    Posted by: David R. Remer at September 25, 2008 7:05 PM
    Comment #264488

    Rich,

    Actually your question qualifies as excellent in one sense. In the case of the bailout we’re essentially panicked into outrages of action by the prospect of immediate disaster, much as we might be by the prospect of invasion by a foreign army.

    Unfortunately, with the energy situation the slow drip, drip, drip, of ‘only’ $700 Billion per year (Golly gee, is there some similarity in these two figures somewhere?) to fill the treasuries of foreign suppliers of our energy addiction just seems not enough to spend a few billion here and there to wean ourselves of that need. Solar energy falls free from the sky, and we won’t spend a few billion to catch it. Wind resources that would be the envy of Holland blow all across and around us and we do a little better than nothing. That’s the equivalent of the money in the bailout, falling out of the sky every year in perpetuity.

    It even gets better. Energy production at home is declining. So every new gallon of gas or fuel oil increases our balance of trade deficit.

    Posted by: Lee Jamison at September 25, 2008 7:49 PM
    Comment #264499


    How much interest are these banks going to charge us for borrowing the money off of them to bail them out?

    Here they come to save the day
    The politicians that conspired to make you pay
    Reelect them one and all
    Prove to the world that American’s brains are small

    The corporations are my God
    I shall always want more and more
    Yea though they lead me into the valley of bankruptcy
    I shall worship them for ever and ever.

    If the college educated enabler class is forced to fight for slave wage jobs, things may change but, not before.

    It is going to take a lot more bailing than this bailout to keep our economic ship afloat.

    Posted by: jlw at September 25, 2008 8:57 PM
    Comment #264521
    Your greatest error Chops is on exports. Apparently you have not been keeping up with the news of foreign central banks and economic news. As our economy slips into recession, so will other nations, and that will erode demand for American exports. That would be two legs of a 3 legged stool broken off. That stool would not continue standing.
    Here’s the issue; week dollar = strong exports. Strong dollar = less inflation. If foreign economies weaken, the dollar gets stronger. As one leg of the stool weakens, the other legs get stronger.

    By the way, the $700B bailout might not turn out to be $700B long-term, for two reasons:

    1) Companies are attempting to buy back the debt already

    2) The government could profit heavily from this investment

    Either way though, leave it to the government to figure out some way to spend an extra $700B of your money.

    Posted by: Gandhi at September 25, 2008 10:02 PM
    Comment #264522

    CCC…TVA…remember those programs and others? Wouldn’t the 700 billion serve us better as project funds for employment, much like FDR’s New Deal? And we could improve our energy position along the way…perhaps bring Social Security back from the brink, etc.

    Nah…it’s smarter to give it to the folks who were blinded by the glaring light of unconscionable profits, and who got us into this mess in the first place…

    Posted by: Marysdude at September 25, 2008 10:10 PM
    Comment #264555

    Re: “obstructionist Democrats”
    What a laugh!!
    OMG do you really belive that crap
    Revisionist history
    The repubs essentially locked out the Dems from participating in any meaningful way in the legislative process.
    How else were the minority to participate in any way that would not be a rubber stamp to the majority party??
    They were not allowed to add amendments, they were not allowed to provide input to bills it was a “take it or leave it” situation — so they left it
    Not the same in today’s congress — There are many areas where the Dems are trying to get the Repubs to buy in — and it is pissing most of us off as it appears to be caving in to the minority and those of us who watched the arrogant attitude of the Repubs for all those years want our Dem leaders to grow a couple and run over the Right Wing nut jobs in congress gumming things up!

    During that time, inspite of the Dems, the Repubs were able to pretty much pass what they wanted — there were many times that what “blocked” the legislation was not “obstructionist” democrats but a Senate that was a tad more deliberate and would not pass the legislation — and who was in control of that? Hmmmmmmm let me think.

    onto “well he did it too” bit
    All during the time that the Repubs controlled the house they moaned and groaned about the Dems “obstructionist” and how awful it was, and partisan, etc etc etc
    But what happened when the tables turned?
    They did the same damn thing, but now hold it up as somehow being a noble effort
    its repugnant

    Posted by: Russ at September 26, 2008 5:56 AM
    Comment #264564

    Here is a real life situation for you. I work at a CPA firm and my business is helping small companies (less than $50 million in sales) manage their financial operations.

    I have three businesses I’m working with that are
    absolutely choking to death that in any (and I mean ANY) BAD credit market would still be able to get an update to their Line of Credit.

    Instead in one case the line is being called and the other two there is no extension.

    These businesses are growing, have positive cash flow (for each of past three years), have positive net working capital AND NO long term debt.

    There is no bank capital available and that is going to have very serious consequences if not fixed soon. The one owner gave notice to his hourly folks that pending a line extension by mid October their hours will be cut by 50% starting 11/1.

    I wonder how many of those workers feel like
    Wall Street is being bailed out after that email went out…..

    Also…what is so wrong with following Sweden’s example?

    Stopping a Financial Crisis, the Swedish Way

    By CARTER DOUGHERTY
    Published: September 22, 2008
    A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar?
    It does to Sweden. The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent.
    But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.
    Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.
    That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.
    “If I go into a bank,” said Bo Lundgren, who was Sweden’s finance minister at the time, “I’d rather get equity so that there is some upside for the taxpayer.”
    Sweden spent 4 percent of its gross domestic product, or 65 billion kronor, the equivalent of $11.7 billion at the time, or $18.3 billion in today’s dollars, to rescue ailing banks. That is slightly less, proportionate to the national economy, than the $700 billion, or roughly 5 percent of gross domestic product, that the Bush administration estimates its own move will cost in the United States.
    But the final cost to Sweden ended up being less than 2 percent of its G.D.P. Some officials say they believe it was closer to zero, depending on how certain rates of return are calculated.
    The tumultuous events of the last few weeks have produced a lot of tight-lipped nods in Stockholm. Mr. Lundgren even made the rounds in New York in early September, explaining what the country did in the early 1990s.
    A few American commentators have proposed that the United States government extract equity from banks as a price for their rescue. But it does not seem to be under serious consideration yet in the Bush administration or Congress.
    The reason is not quite clear. The government has already swapped its sovereign guarantee for equity in Fannie Mae and Freddie Mac, the mortgage finance institutions, and the American International Group, the global insurance giant.
    Putting taxpayers on the hook without anything in return could be a mistake, said Urban Backstrom, a senior Swedish finance ministry official at the time. “The public will not support a plan if you leave the former shareholders with anything,” he said.
    The Swedish crisis had strikingly similar origins to the American one, and its neighbors, Norway and Finland, were hobbled to the point of needing a government bailout to escape the morass as well.
    Financial deregulation in the 1980s fed a frenzy of real estate lending by Sweden’s banks, which did not worry enough about whether the value of their collateral might evaporate in tougher times.
    Property prices imploded. The bubble deflated fast in 1991 and 1992. A vain effort to defend Sweden’s currency, the krona, caused overnight interest rates to spike at one point to 500 percent. The Swedish economy contracted for two consecutive years after a long expansion, and unemployment, at 3 percent in 1990, quadrupled in three years.
    After a series of bank failures and ad hoc solutions, the moment of truth arrived in September 1992, when the government of Prime Minister Carl Bildt decided it was time to clear the decks.
    Standing shoulder-to-shoulder with the opposition center-left, Mr. Bildt’s conservative government announced that the Swedish state would guarantee all bank deposits and creditors of the nation’s 114 banks. Sweden formed a new agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral.
    Sweden told its banks to write down their losses promptly before coming to the state for recapitalization. Facing its own problem later in the decade, Japan made the mistake of dragging this process out, delaying a solution for years.
    Then came the imperative to bleed shareholders first. Mr. Lundgren recalls a conversation with Peter Wallenberg, at the time chairman of SEB, Sweden’s largest bank. Mr. Wallenberg, the scion of the country’s most famous family and steward of large chunks of its economy, heard that there would be no sacred cows.
    The Wallenbergs turned around and arranged a recapitalization on their own, obviating the need for a bailout. SEB turned a profit the following year, 1993.
    “For every krona we put into the bank, we wanted the same influence,” Mr. Lundgren said. “That ensured that we did not have to go into certain banks at all.”
    By the end of the crisis, the Swedish government had seized a vast portion of the banking sector, and the agency had mostly fulfilled its hard-nosed mandate to drain share capital before injecting cash. When markets stabilized, the Swedish state then reaped the benefits by taking the banks public again.
    More money may yet come into official coffers. The government still owns 19.9 percent of Nordea, a Stockholm bank that was fully nationalized and is now a highly regarded giant in Scandinavia and the Baltic Sea region.
    The politics of Sweden’s crisis management were similarly tough-minded, though much quieter.
    Soon after the plan was announced, the Swedish government found that international confidence returned more quickly than expected, easing pressure on its currency and bringing money back into the country. The center-left opposition, while wary that the government might yet let the banks off the hook, made its points about penalizing shareholders privately.
    “The only thing that held back an avalanche was the hope that the system was holding,” said Leif Pagrotzky, a senior member of the opposition at the time. “In public we stuck together 100 percent, but we fought behind the scenes.”

    Posted by: MT Cross at September 26, 2008 8:55 AM
    Comment #264566

    MT Cross,

    I like it, for the most part. If my family is going to be on the hook for $12,000 I want to OWN something. Then, as soon as possible, it should be profitably sold back to the private sector.

    Posted by: Lee Jamison at September 26, 2008 9:29 AM
    Comment #264576

    MT Cross-
    You know, the Swedish solution isn’t that much different than Obama’s.

    Posted by: Stephen Daugherty at September 26, 2008 10:52 AM
    Comment #264591

    Lee said: “Then, as soon as possible, it should be profitably sold back to the private sector.”

    Or held by the tax payers if need be, for the principal and interest that will be paid over the life of the loan. The current estimate is that $600 billion of the $700 billion mortgages will be paid off or sold. If paid off, the taxpayer gains the interest payments. If sold, it will be sold at then fair market value, representing at worse, only a partial loss percentage of the total mortgage note value, assuming housing values do not increase in the interim.

    This continues to be lost on the public, that over the life of these mortgages, the maximum loss potential is somewhere in the range of 20 to 30%. And there is, if we can prevent the economy from collapsing by going ahead with a rescue - bailout plan, the potential for actually getting back over time, more than we out on a limb for. Plus we take a big step toward preventing economic recession.

    It is not a sure win win scenario, but, it is also not anywhere even remotely close to being a $700 billion dollar loss scenario, either. $200 billion plus interest on the borrowing is approximately the maximum downside. Seems to me to be a small price to pay for saving the economy from trillions in losses resulting from a global and national recession that could last for a couple years or worse.

    Posted by: David R. Remer at September 26, 2008 11:46 AM
    Comment #264599

    Stephen - yep. In times like these I don’t really view issues through a Dem/Repub lens. Its about solutions. And while I have voted on the right all my life (except for local elections) the McCain / Republican handling of this is borderline pathetic.

    The other question - if the Treasury can barge in like it is proposing to do, why can’t they call for a halt to FAS 157 accounting? That is the rule that is forcing the mark to market problems. The accountants are complicit in this problem yet there is silence on that front. And also…how about some penalty provisions for the ratings agencies? They were MORE THAN complicit. For every billion dollar of debt the US buys at junk - that was previously rated AAA - they should have to pony up a penalty.

    I pray these solutions help…

    Posted by: MT Cross at September 26, 2008 12:33 PM
    Comment #264625

    MT Cross,

    We’ve heard a lot about “mark to market” as an abstraction. I think I’ve got a general idea what the problems are with it, and how it distorts the appearance of loss on unsold assets, magnifying snowball-to-hell rides like this one.

    Could you give readers a more authoritative explanation of what is at work in Mark to Market accounting? (or have I missed it above?)

    Posted by: Lee Jamison at September 26, 2008 1:41 PM
    Comment #264637

  • FORECLOSURES (see chart)

  • 350K |———————————-

  • 325K |———————————-

  • 300K |———————8————

  • 275K |———————————-

  • 250K |———8-8-8-8—————

  • 225K |8-8-8—————-7-7—-7

  • 200K |———————7——-7—

  • 175K |————7-7-7—————

  • 150K |7-7-7-7————————

  • 125K |—6————————6-6-6

  • 100K |6—-6-6-6-6-6-6-6———

  • 075K |5-5-5-5-5-5-5-5-5-5-5-5

  • 050K |————————————

  • 020K |__________________________ Months of Year

  • 000K |J-F-M-A-M-J-J-A-S-O-N-D

    • Where:
    • 8=Year 2008: 2.0 million as of Aug-2008

    • 7=Year 2007: 2.0 million

    • 6=Year 2006: 1.2 million

    • 5=Year 2005: 846,000

    • _______________________________________
    • TOTAL FORECLOSURES = 6.26 Million

    David R. Remer,

    $700 Billion will not solve the problem.
    The bad debt is larger than that.
    6.26 Million foreclosures x median home price of $159K = $995.34 Billion.
    However, there are a lot more foreclosures to come.
    Foreclosures are currently at 275,000 per month, and still rising.
    Foreclosures are not going to stop by bailing out bankers and corporations.
    Foreclosures have been rising since year 2005 (see above).
    Foreclosures, even if the numbers started decreasing, there will be millions more.
    If there are 6 million more foreclosures, 12.26 Million foreclosures x median home price of $159K = $1.839 Trillion !
    And not all of the debt is in mortgages.
    Not all, but a lot of the debt is almost (or completely) worthless, because the value of properties fell and the equity disappeared.
    It’s gone, and taking on bad debt and trying to sell it will never make the tax-payers whole.
    And none of those numbers account for the INTEREST on all of that debt and the additional debt that will stack up unless it is aggressively paid-down simultaneously.
    The interest at only 4.0% on $1.839 Trillion is $6.13 Billion per month ($73.56 Billion per year).
    The interest at only 4.0% on $995.34 Billion is $3.318 Billion per month ($38.14 Billion per year).
    The interest at only 4.0% on $700 Billion is $2.333 Billion per month ($28 Billion per year).
    And the INTEREST could be a LOT more unless it is also paid down each month.
    But it won’t be paid done each month, because that money does not yet exist.
    It could be years before there’s any pay-down on that debt.
    Also, the National Debt has grown every consecutive year since year 1957.
    While some of that debt has some worth, what is it?
    30% ?
    40% ?
    50% ?
    60% ?
    70% ?
    And don’t forget, home prices are still falling.
    And a lot of abandoned homes have been vandalized and stripped of all copper, appliances, etc.
    And who is going to buy these 6+ million homes and properties when most Americans are already deep in debt, and 80% of Americans own only 17% of all wealth?
    The only way this property can be unloaded will be at massive discounts.
    That will be exacerbated by rising unemployment that can’t be stopped by this bail-out.
    And INTEREST in the $9.7 Trillion National Debt is already costing $429.98 Billion per year:

    • 2007: $429,977,998,108 ($430.0 Billion in 2007 dollars)

    • 2006: $405,872,109,316 ($420.6 Billion in 2007 dollars)

    • 2005: $352,350,252,508 ($376.9 Billion in 2007 dollars)

    • 2004: $321,566,323,971 ($355.6 Billion in 2007 dollars)

    • 2003: $318,148,529,152 ($358.5 Billion in 2007 dollars)

    • 2002: $332,536,958,599 ($383.3 Billion in 2007 dollars)

    • 2001: $359,507,635,242 ($420.9 Billion in 2007 dollars)

    • 2000: $361,997,734,302 ($435.9 Billion in 2007 dollars)

    • 1999: $353,511,471,723 ($440.0 Billion in 2007 dollars)

    • 1998: $363,823,722,920 ($462.8 Billion in 2007 dollars)

    • 1997: $355,795,834,215 ($459.6 Billion in 2007 dollars)

    • 1996: $343,955,076,695 ($454.5 Billion in 2007 dollars)

    • 1995: $332,413,555,031 ($452.3 Billion in 2007 dollars)

    • 1994: $296,277,764,246 ($414.5 Billion in 2007 dollars)

    • 1993: $292,502,219,484 ($419.7 Billion in 2007 dollars)

    • 1992: $292,361,073,071 ($432.1 Billion in 2007 dollars)

    • 1991: $286,021,921,181 ($435.4 Billion in 2007 dollars)

    • 1990: $264,852,544,616 ($420.2 Billion in 2007 dollars)

    • 1989: $240,863,231,536 ($402.8 Billion in 2007 dollars)

    • 1988: $214,145,028,848 ($375.3 Billion in 2007 dollars)

    And there are still many unfunded liabilities for Medicare and two wars in Iraq and Afghanistan.
    And $12.8 Trillion was borrowed from Social Security, leaving it pay-as-you-go, with a 77 Million baby-boomer bubble approaching.

    Either way, there’s a huge problem, but a bail-out of any size will only make it worse, because:

    • (1) no one knows how much bad debt there is.
      The list below comes to about $1.2 Trillion in losses and some estimates place it much larger, and the FDIC won’t reveal their list of 117 banks on their secret watch list (which IndyMac wasn’t even on when it failed):
      • HBOS PLC - $19.0 Billion Posted on September 19, 2008 7:45 PM

      • Merrill Lynch >$83.5 Billion Posted on September 15, 2008 8:49 AM

      • Washington Mutual $28.6 Billion Posted on September 9, 2008 10:35 AM

      • National City $14.9 Billion Posted on September 4, 2008 8:00 PM

      • CIBC $10.7 Billion Posted on August 27, 2008 11:44 AM

      • Bank of Montreal $1.2 Billion Posted on August 26, 2008 1:02 PM

      • Deutsche Bank $155.1 Billion Posted on August 25, 2008 10:02 PM

      • Goldman Sachs $84.2 Billion Posted on August 25, 2008 5:15 PM

      • JP Morgan Chase $20.1 Billion Posted on August 25, 2008 2:15 PM

      • Morgan Stanley $24 Billion Posted on August 15, 2008 1:38 PM

      • Bank of America $51.3 Billion Posted on August 14, 2008 11:16 PM

      • Wachovia $50.5 Billion Posted on August 13, 2008 3:05 PM

      • UBS $92.5 Billion Posted on August 12, 2008 11:22 AM

      • Royal Bank of Scotland $41.7 Billion Posted on August 10, 2008 5:34 PM

      • Citigroup $144.5 Billion Posted on August 7, 2008 3:43 PM

      • BNP Paribas $3.3B Posted on August 6, 2008 11:01 AM

      • Commerzbank $1.06B Posted on August 6, 2008 10:08 AM

      • Societe Generale $30.1B Posted on August 5, 2008 10:08 PM

      • HSBC Bank $27.7B Posted on August 4, 2008 1:12 PM

      • Credit Suisse $94.5 Billion Posted on August 3, 2008 12:20 PM

      • Fifth Third Bancorp $3.6 B Posted on July 22, 2008 5:01 PM

      • SunTrust $2.0B Posted on July 22, 2008 3:33 PM

      • Wells Fargo $27.4 B Posted on July 16, 2008 12:40 PM

      • US Bancorp $2.2B Posted on July 15, 2008 12:13 PM

      • Barclay’s PLC > $15.0 B Posted on June 30, 2008 6:02 PM

      • Royal Bank of Canada $1.4B Posted on May 29, 2008 6:07 PM

      • IKB $14.3 B Posted on May 27, 2008 8:13 PM

      • Mizuho MFG $5.4B Posted on May 22, 2008 2:09 PM

      • Bayern LB $9.8B Posted on May 19, 2008 7:42 AM

      • WestLB AG $4.8B Posted on May 19, 2008 7:35 AM

      • Natixis $3.4B Posted on May 19, 2008 7:31 AM

      • Credit Agricole SA $13.8B Posted on May 12, 2008 5:18 PM

      • Mitsubishi Financial Group $760 Million Posted on April 23, 2008 12:54 AM

      • Bank of NY Mellon $118 Million Posted on April 9, 2008 11:19 AM

      • Sovereign Bancorp $1.580 Billion Posted on April 8, 2008 1:29 PM

      • DZ BANK AG $2.1 Billion Posted on March 7, 2008 9:52 PM

      • HSBC $26.5 Billion Posted on March 5, 2008 5:25 PM

    • (2) Also, look at this list of 186 troubled banks.
      Look at how many banks above have negative net assets, or close to it.

    All of that is much more than $700 Billion.
    That $700 Billion will probably not be enough, and the banks and corporations will start demanding more money.
    You know how it works … they aren’t being honest about how much it would really take to bail-out most of the bad debt.
    They are trying to get the tax-payers on the hook so they can come back in 6-to-12 months and ask for more.
    Being over a barrel, and still not wanting to admit failure, Congress would give them ANOTHER $700 Billion.

    What should be done instead is to start pushing back all this bad debt to those who created it (banks and corporations).
    No bail-outs.
    If necessary, liquidate the banks and corporations assets and pay off their creditors to the extent possible.
    That’s not meant to punish them.
    That’s simply the only right thing to do.
    Do what Sweden did: www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?_r=1&em&oref=slogin

    People are being scared into supporting a bail-out.
    What people should really be scared about is how much worse things will be when banks and corporations come back asking of ANOTHER $700 Billion.
    When that happens again 6-to-12 months from now, the panic will be worse.
    What people should really be scared about is the complete crash of the U.S. Dollar.
    When the U.S. Dollar becomes worthless, more people are going to be hurting.
    More retirements and savings will instantly vanish.
    More poverty will result.
    Most Americans are against a bail-out, but not because they want to punish the greedy perpetrators.
    It’s because they think it will make things worse, because the rampant greed and irresponsibility hasn’t suddenly disappeared.
    One thing should be abundantly clear.
    The Federal Reserve and our elected officials haven’t a clue as to what they are doing.
    And if the did see this coming, they lied to everyone by trying to pretend everything was sound (if not rosy).
    Why is it lots of people (it it doesn’t take a genious) could see this coming, but were constantly ignored?
    What was David Walker (former U.S. Comptroller) ignored?
    Congress, Bush, and the Federal Reserve have no credibility left.
    Especially the Federal Reserve, which is the operator of nothing more than a giant, dishonest, usurious, inflationary, pyramid-scheme.
    But what is more amazing is that most voters will probably STILL reward THEIR incumbent politicians with 80%-to-90% re-election rates, and then continue to wonder what the hell happened, while they wallow in the blame game and the partisan warfare, unwilling to admit that most (if not all) incumbent politicians in BOTH parties are irresponsible, and that the majority of voters are possibly worse for repeatedly rewarding those same incumbent politicians with perpetual re-election.

    Yes, there’s going to be hard times ahead, no matter what, but principles still matter.
    Now is not the time to follow debt of nightmare proportions with more debt and borrowing of hellish proportions.

    At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

    Posted by: d.a.n at September 26, 2008 2:23 PM
    Comment #264656

    d.a.n.

    The foreclosures you cite are cumulative aren’t they? The FDIC’s most recent list had approximately 1 million homes currently in formal foreclosure (ie not foreclosure filings - which people can remedy).

    The losses at the banks you cite reflect those foreclosures. So while it is big and scary, lets be careful not to double count.

    Let’s say 1 million homes are vacant/foreclosed right now. At $250,000 mortgage balance that would be $250 billion. But those properties aren’t worth $0. So at the end of the day (two years from now?) it will not be a $250 billion loss, but something less.

    I’m in agreement with you on the ridiculous spending ways, etc. But I’m just trying to add some clarity and not just shout out scary numbers.

    On the mark to market. Part of the problem has stemmed from the fact that banks have to take a portion of their portfolio and mark it to current prices…..even if they are long lived assets. This is ridiculous. Lets say you have a pool of AltA loans that is currently performing - ie) no late payments or non-accruals. You would think the bank could hold that at its face amount. Well, under fair value accounting if the Alt A secondary market is trading at 80% of face - then under mark to market the bank has to take the 20% writedown. This has exacerbated the banks losses (some of which are unrealized) and has caused a temporary need for the bank to raise capital (ie its assets are down but liabilities are the same).

    It is a very tangled web on the accounting front. But it makes no sense to mark an asset to its “panic” value - which is what has been going on. The Treasury plan would alleviate this to an extent since it would set a “floor” value to those long term assets. It also gives liquidity to the banks for their already marked down assets.

    This is such a tough issue for the general public to follow….shoot its even tough for those of us who live in the finance world.

    However, if you start thinking about 1 million foreclosed homes being able to be “taken off” the panic sellers market AND you still have $450 billion of powder left…you can start to visualize somewhat hazily that the full $700 billion may not be needed. The other money can then be used to help stabilize the secondary market (ie what is causing the mark to market issue) which hopefully results in a more sane look at financial assets.

    Hey, the govt is involved with tons of money…always a scary thought. But we’re at a heretofore never experienced place.

    I’m also in favor of a graduated spend by the way, but you do need to go big at first. Do $500 now and make the Treasury prove its plan is working after 3-4 months and if it is give them the rest.

    (apologies - no time to spell check or edit).

    Posted by: MT Cross at September 26, 2008 3:18 PM
    Comment #264666

    All:
    I’ve been working with the Red Cross disater areas of La. for the past 2 and 1/2 weeks and haven’t been able to follow the news or get on line.

    Seems like I remember Bush stating something about how the economy NOT a big concern and now he seems to have done an about face.

    Would someone please briefly enlighten me as to why Bush, et al, and Congress have the idea we need a sudden bailout? Seems to me they need to take the blooming bill\s home over the weekend and read it very carefully before they even think about voting on anything else that could potentially send us backwards.

    Womanmarine:
    I was greatly informed by the links you posted. I don’t know why no one else seemed to be intersted in them.

    Dan;
    Thanks so much for the list of banks the are currently in trouble.

    Russ: It appears to me that Congress has the mentality of a sports team. Everyone wants to be the star and no one wants to be part of the team, regardless of what party is in ‘charge’!

    Posted by: Linda H. at September 26, 2008 4:11 PM
    Comment #264690

    MT Cross, the mark to market was a security measure designed to insure real asset padding to back the float of loans. Mark to Market was a valuable asset to accounting UNTIL,

    1) the passage of Gramm-Leach-Bliley Act which opened the door to the creation of ‘too large to allow to fail’ financial institutions,
    2) The lack of enforcement of existing laws and rules by the White House and its enforcement agencies and
    3) the failure of Congress to initiate NEW oversight regulations of the new financial institutions and transactions to be created by the Gramm-Leach-Bliley Act.

    Posted by: David R. Remer at September 26, 2008 6:45 PM
    Comment #264691

    Gandhi, it doesn’t matter how much you beef up two legs of a 3 legged stool, the stool still falls over with two legs.

    Posted by: David R. Remer at September 26, 2008 6:48 PM
    Comment #264695
    MT Cross wrote:d.a.n. The foreclosures you cite are cumulative aren’t they?
    Cumulative PER YEAR. Not cumulative since 2005. The graph shows foreclosures per month. These are foreclosures per year:
  • 8=Year 2008: 2.0 million as of Aug-2008
  • 7=Year 2007: 2.0 million for year 2007
  • 6=Year 2006: 1.2 million for year 2006
  • 5=Year 2005: 846,000 for year 2005
  • MT Cross wrote: The FDIC’s most recent list had approximately 1 million homes currently in formal foreclosure (ie not foreclosure filings - which people can remedy).
    Correct. And there have also already been 1.03 Million foreclosures since 1-JAN-2008.

    Those numbers are the sum of the following since 1-JAN-2008:

    • NOD61,903: Notice of Default

    • LIS=57,156: Lis Pendens (pre-foreclosure properties and properties involved in pending litigation).

    • NTS=69,693: Notice of Trustee of Sale

    • NFS=24,234: Notice of Trustee of Foreclosure

    • REO=90,893: Real Estate Owned Repossession that failed to be auctioned off, since amount owed is more than worth of property

    • TOTAL=303,879 for Aug-2008

    MT Cross wrote: The losses at the banks you cite reflect those foreclosures. So while it is big and scary, lets be careful not to double count.
    There’s no double counting. You are not including settled foreclosures since 1-JAN-2008. Total loans in foreclosure at this moment does not equate to total foreclosures since 1-JAN-2008. and the percentage of initiated foreclosures that are salvaged are very small. Bank repossessions (303,000 in Aug-2008) are up 111% since August-2007. See graph.
    MT Cross wrote: Let’s say 1 million homes are vacant/foreclosed right now. At $250,000 mortgage balance that would be $250 billion. But those properties aren’t worth $0. So at the end of the day (two years from now?) it will not be a $250 billion loss, but something less.
    MT Cross, that 1 Million estimate is way off.

    There are approximately 18.6 Million vacant homes.
    As of 31-MAR-2008, there were 129.4 Million housing units in the U.S.
    Only 110.8 million were occupied (75.1 Million by owners and 35.7 Million by renters).

    MT Cross wrote: I’m in agreement with you on the ridiculous spending ways, etc. But I’m just trying to add some clarity and not just shout out scary numbers.
    MT Cross, feel free to provide evidence that disproves my numbers or facts.
    MT Cross wrote: On the mark to market. Part of the problem has stemmed from the fact that banks have to take a portion of their portfolio and mark it to current prices…..even if they are long lived assets. This is ridiculous. Lets say you have a pool of AltA loans that is currently performing - ie) no late payments or non-accruals. You would think the bank could hold that at its face amount. Well, under fair value accounting if the Alt A secondary market is trading at 80% of face - then under mark to market the bank has to take the 20% writedown. This has exacerbated the banks losses (some of which are unrealized) and has caused a temporary need for the bank to raise capital (ie its assets are down but liabilities are the same).
    They were irresponsible. Especially for so-called financial experts and wizards.
    MT Cross wrote: It is a very tangled web on the accounting front. But it makes no sense to mark an asset to its “panic” value - which is what has been going on.
    There may be some panic mark-downs, but most of it is bad debt that’s worth less than the original loan, as evidenced by the high rate of REOs.?

    Besides, there will be some good buys perhaps for those that can afford to buy those assets.
    But those that can afford them are dwindling due to massive debt of nightmare proportions.

    MT Cross wrote: The Treasury plan would alleviate this to an extent since it would set a “floor” value to those long term assets. It also gives liquidity to the banks for their already marked down assets.
    It will make things worse. It will crash the U.S. Dollar, and then everyone holding U.S. Dollars will lose. There’s too much debt.
    MT Cross wrote: This is such a tough issue for the general public to follow….shoot its even tough for those of us who live in the finance world.
    Yes, but we have been warned many times. David Walker, former U.S. Comptroller tried for years.
    MT Cross wrote: However, if you start thinking about 1 million foreclosed homes being able to be “taken off” the panic sellers market AND you still have $450 billion of powder left…you can start to visualize somewhat hazily that the full $700 billion may not be needed. The other money can then be used to help stabilize the secondary market (ie what is causing the mark to market issue) which hopefully results in a more sane look at financial assets. Hey, the govt is involved with tons of money…always a scary thought. But we’re at a heretofore never experienced place. I’m also in favor of a graduated spend by the way, but you do need to go big at first. Do $500 now and make the Treasury prove its plan is working after 3-4 months and if it is give them the rest. (apologies - no time to spell check or edit).
    That’s like trying to put a fire out by throwing gasoline on it.

    It can only delay the inevitable another 6-to-12 months, because the debt is much larger than $700 Billion.

    Nation wide debt is $53 Trillion to $66 Trillion.

    The debt pyramid is too big.

    Linda, Your welcome. Thanks!

    Posted by: d.a.n at September 26, 2008 7:09 PM
    Comment #264749

    The fact that the democrats were EAGER to pass this particular bail out bill so they could BLAME it on Republicans should have been all we needed to know it was bad for America.

    I’m hoping that McCain listens to Newt and comes forward with a much better bill. They need to stand up to the democrats and resist their desire for a bad bill.

    Posted by: Stephen at September 27, 2008 11:12 AM
    Comment #264838

    My primary concern is that what congress is doing will not really help. It may not be able to stop what is to come. I’m concerned that we head into a depression no matter what congress does at this late hour.

    I’m not predicting it, just saying I’m concerned that congress can’t stop it.

    And I blame congress for this because no matter who told them to do what in the past….they are the ones that did it. They are the ones who right the laws and the regulations, they are the ones who allowed this to happen. Both parties. And both of our present presidential candidates.

    Yes they both point to this or that that might indicate they are not part of the problem but by their own words and deeds on record they are both also a part of the problem.

    I’m worried that Monday morning, congress will have a deal, everyone will be announcing how wonderful it is, and then we see the credit markets collapse and the global economy slides into a depression.

    All eyes will be on WallStreet at 09:30 AM Eastern Standard Time. Unless, the fed takes a look at the orders piling up and determines it’s over and refuses to allow the markets open so they can put another deal on the table.

    This could be very very ugly.

    Posted by: Stephen at September 28, 2008 8:46 AM
    Comment #264948

    The bail-out may delay a melt-down for a while (perhaps 6-to-12 months), but $700 Billion is a drop in the bucket compared to $53 Trillion to $66 Trillion of nation-wide debt (not only mortgage debt).

    There is a point where debt can be too large to EVER be repaid.
    What is that point for the U.S.?
    Here’s one way to look at it.
    With $53 Trillion to $66 Trillion of nation-wide debt ($66 Trillion if $12.8 Trillion borrowed and spent from Social Security is included, which has left Social Security pay-as-you-go, with a 77 million baby-boomer bubble approaching), that is 3.81 -to- 4.75 times the nation’s $13.9 Trillion GDP.

    That would be like you earning $45,574 per year, and owing $174K -to- $216K of debt, which doesn’t sound too bad, does it?

    However:

    • (1) That $174K -to- $216K of debt owed is for every man, women, and child (i.e. ever single person of the U.S.’s population of 305 Million people). So, for a family of 4, they would owe $696K -to- $864K . How many families do you know who make that much per year? The median household income is only about $50K per year with an average household size of 2.61 persons (about 117 million households), which means each household owes about $454K to $565K (or about $174K per person in the U.S.).

    • (2) 80% of the population now only owns 17% (or less) of all wealth in the U.S., which has been worsening since year 1976.

    • (3) The INTEREST alone on the $9.7 Trillion National Debt alone is $429 Billion per year, which is $12,257 per person per year. Consider $53 Trillion of nation-wide debt at only 4.0%. That comes to $177 Billion in INTEREST per month. The INTEREST on only the $9.7 Trillion National Debt is $36 Billion per month. Thus, a $700 Billion bail-out will most likely only delay the inevitable for about 6-to-12 months (or less).

    • (4) No one can answer the one simple question:
      • Where will the money come from to pay merely the INTEREST on $53 Trillion -to-$66 Trillion of nation-wide debt, when that money does not yet exist?

    • (5) All pyramid schemes fail eventually. Especially when new money is created as debt at a 9-to-1 ratio, creating far too much new money, debt, and inflation.

    • Congress will pass this bail-out with the hope that it will delay the inevitable, but allow them to get re-elected in 36 days on 4-NOV-2008.
    • (6) There were millions of foreclosures between JAN-2005 and AUG-2008. Foreclosures are not going to suddenly stop now. Foreclosures for AUG-2008 are up 111% from AUG-2007.

    • (7) Hundreds of banks have negative or close-to-zero net assets.

    • (8) Congress only cares about delaying the pain long enough to get elected another 2-to-6 years.

    At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

    Posted by: d.a.n at September 29, 2008 12:07 PM
    Comment #264966

    CORRECTION:

  • (3) The INTEREST alone on the $9.7 Trillion National Debt alone is $429 Billion per year, which is $12,257 $1407 per person per year.
  • Posted by: d.a.n at September 29, 2008 1:00 PM
    Comment #264981

    Stephen, McCain is for this bill.

    It is illogical to believe Democrats wanted to support this Bush bill. And in fact, even after Bush warned he would veto it if Democrats added substantial changes to it, Democrats insisted on changes that would better meet the concerns of tax payers. They found many Republicans in agreement, and that is how this bi-partisan radically amended proposal from what Bush/Paulson initially delivered, was brought to the floor of Congress for a vote.

    Your comments demonstrate a very partisan view. When the nation is in peril, most Americans dispense with partisanship for the good of the nation. How about joining with your fellow Americans in that effort?

    Rep. John Boehner (R) said a few minutes ago, America is on the brink of financial disaster, and as much as he hates the imperfections of this compromise response to an emergency, failure to act shall push us over the brink. As Rep. Steny Hoyer (D) said, this is not a cure for America’s economic ills coming. This bill however answers an emergency need to get capital and lending flowing again in our economy for a time, and in that time, Congress and a new president can, and will, work to address the longer term economic crises coming at us.

    After years of lies about Iraq, WMD, firings of federal attorneys for partisan reasons, about cutting spending, about cutting taxes raising more revenues than are lost, you and all Americans have enormous reasons not to trust your government and politicians who run it.

    But, this is not the time to throw the baby out with the bath water, just because the water is soiled. This bill does minimize tax payer risk down to about $200 billion dollars, maximum. We spend more than that in just two years in Iraq.

    If we can find the money to rescue Iraqis, surely we can find the money to rescue our senior citizens, our own savings and pension plans, our 401K’s and our children’s tuition borrowing and car loan needs. For that is precisely what this Rescue Plan provides, for awhile.

    Boehner is absolutely right in saying we are on the brink of economic disaster due to a freeze up in lending institution’s ability to lend and borrow. It has to be addressed now, or disaster will befall mainstreet Americans.

    World markets declined an average of 4%, our own markets pre vote had fallen by more than 3%, 3 major banks in Europe failed this morning, and a half dozen other U.S. banking concerns are about to, as the domino effect continues. This bill will arrest that domino effect.

    This bill also creates problems. But, none as daunting as systemic financial industry collapse. This is why this bill must pass.

    Posted by: David R. Remer at September 29, 2008 1:46 PM
    Comment #265015

    Couldn’t Pelosi just shut her yap for once?!

    Couldn’t the Repubs have just shut their ears for 5 minutes?!

    This Congress - regardless of its makeup - may go down as the worst in history and the fact that they couldn’t come together during tough times like these is frankly pathetic. And I don’t exonerate Bush by any stretch. He is so immasculated that he can’t even go directly to the people with any credibility and give a straight talk.

    The cracks in our governance process are widening….it’s like they are becoming caricatures of themselves.

    Posted by: MT Cross at September 29, 2008 3:18 PM
    Comment #265034


    This nation is on the edge of economic collapse. We have just wasted another eight years in which we did virtually nothiung about our dependence on peaked oil at the behest of the oil companies. IMO, it is now to late to prevent a serious downturn and possibly a complete collapse.

    $700,000,000,000 would buy possibly as many as 20,000,000 electric plugin cars or put solar collectors on 20,000,000 homes. That might have been enough to gives us more time to save ourselves. What the government is going to do with that money won’t.

    This is typical capitalist BS. Take advantage of the bourgeoisie and the slave wagers, scare the bourgeoisie crapless, tax the bourgeoisie to give to the banks who will then loan more money to the bourgeoisie so they can maintain their respectability. Marx may not have had the answers, but he sure had the capitalists and their bourgeoisie pegged.

    While I do not hope for an economic collapse, there are few that can argue that no people are more deserving of one than we Americans. The sad part is that we will, in all likelyhood, take the rest of the world down with us.

    Posted by: jlw at September 29, 2008 4:10 PM
    Comment #265090

    The House Republicans refusal to rubber stamp a bad bill, with bad oversight, is another good reason to elect Senator John Mccain in November. With the House and Senate run by the Democrats, we need the balance and oversight a Republican White House would provide. If all three branches of our government fall into the hands of the Democrats, they will be unopposed in passing massive taxing and spending bills, which will be many times worse than the current economic melt down.

    Posted by: Howard at September 29, 2008 6:34 PM
    Comment #265113

    The financial crisis screams for bipartisanship but all our “leaders” can manage is the blame game. All Pelosi can do is blame the Republicans yet the Democrats who control congress cannot pass a bailout bill. Obama goes on the stump blaming Republicans without a clue how to pull the Democrats together to pass a bill. McCain goes to Washington but cannot get the House Republicans to go along with the Senate and vote for the bill. I will not vote for one incumbant nor one of the current “leaders” because they truly do not care one iota for the country but are only in it for their own PARTY. Insanity!

    Posted by: Tom Besly at September 29, 2008 9:43 PM
    Comment #265121

    d.a.n, that great change you’ve been talking about for years may finally come :)
    I doubt it though. Even as things are falling apart right now people (including most of the people here) do not understand fully what is going on and the consequences of our actions.

    The one thing you say that rings true to me is that this deal is really quite inconsequential. We can try and delay the inevitable, but an economic hurricane of this magnitude just cannot be stopped by any means we possess.

    Congressmen are a few years too late to make a meaningful difference in this current crisis. All they can do now is wait to pick up the pieces when the dust settles.

    BTW d.a.n, I stick by what I said before. If America finally starts giving a third party candidate a shot at the presidency I’ll give your cause my full support. Every cloud has a silver lining right?

    Posted by: Zeek at September 30, 2008 12:34 AM
    Comment #265186
    Zeek wrote: d.a.n, that great change you’ve been talking about for years may finally come :)
    Yes, and I’m not at all happy about it, despite what some may think.

    I’ve lost a lot of savings too.
    However, it could get much worse, if the rampant borrowing, money-printing, and spending crashes the U.S. Currency.

    While I knew this was ready to happen at any time, I’m a bit surprised that a melt-down of this magnitude occurred this year. I thought the nation-wide debt could grow a bit larger (3 or 4 more trillion) for a few more years, but I guess not. Why? Because there has been some cooking of the books again, and things were actually worse than it appeared.

    The tricky part now is not making the problem worse.
    More borrowing, spending, money-printing, and debt will risk crashing the U.S. Currency, and many more people in cash positions will need a wheelbarrow of U.S. Currency to buy a loaf of bread.
    Remember Argentina? In only a few months, you couldn’t by a villa for what was the price of a newspaper.

    Zeek wrote: I doubt it though.
    Yes, you are probably right.

    Just as in year 1933, it took 3 (or more) years after the stock-market crash of Oct-1929 before enough unhappy voters finally ousted 206 members of Congress (a large portion from BOTH parties).

    Zeek wrote: Even as things are falling apart right now people (including most of the people here) do not understand fully what is going on and the consequences of our actions.
    True. Many want a quick fix, and none exists. However, what they don’t understand is that more rampant borrowing, money-printing, and spending could crash the U.S. Dollar. Just think of what that could mean, when oil is mostly traded using U.S. Dollars today? If we crash the U.S. Currency, the current pain and misery can be magnified many times over.

    Creating more money out of thin air and giving more money to banks and corporations is not the solution, since we can’t even pay the interest alone on the nation-wide debt now.
    The interest alone on the nation-wide debt of $53 Trillion to $66 Trillion (at only 4.0% interest) is $5.82 Billion to $7.24 Billion per day!
    That’s $19.08 -to- $23.74 per day for every man, woman, and child (for only the interest alone).
    For a household size of 2.61 persons, that’s $49.80 -to- $61.96 per household per day for interest alone!
    That’s $1513.88 -to- $1883.58 per household per month for interest alone!
    That’s $17,812.00 -to- $22,615.4 per household per year for interest alone!
    The point is, it is so large, it can never be paid off.
    There does exist a point-of-no-return, where the debt is finally so large, that it can NEVER be paid off.
    And that is what is happening now.
    Much of the current debt will NEVER be repaid.

    When the debt finally becomes too large to ever be dealt with, a melt-down is unavoidable.
    The consequences of the debt-pyramid was not hard to see coming.
    We’ve had positive inflation every consecutive year for the past 58 years.
    The nation-wide debt has steadily grown from 100% to almost 500% of GDP since year 1976.

    There are many things Congress could do to help (below), and could have done a long time ago, but there is NO quick fix now.
    It’s too late.
    Instead, Congress refuses to do the numerous responsible things.
    Instead, Congress is looking for a non-existent quick-fix.
    Instead, Congress wants to continue the rampant money printing and borrowing, which grows the debt pyramid from nightmarish to hellish proportions - making things much worse later; worse later is the real issue. Putting this off any longer will simply only make things worse later.

    But, if Congress really wanted to help immediately, it could do the following now, but it still won’t avoid the pain and misery of this huge debt problem:

    • (01) Fix the dishonest, usurious, inflationary, predatory monetary system (nothing more than a pyramid scheme used to extract wealth from the unwitting) now. Stop eroding the currency.

    • (02) Stop these 10 abuses now.

    • (03) Stop rampant usury and predetory loan practices (perhaps limits on some interest rates?) now.

    • (04) Make the tax system fair and less regressive now.

    • (05) Start enforcing existing laws; uphold the U.S. Constitution; stop eminent domain abuse; start putting some real crooks behind bars, now.

    • (06) Stop illegal immigration that is costing tax-payers an estimated $70 Billion to $327 Billion in annual net losses, now (One-Simple-Idea.com/BorderSecurity.htm#Burdens). That’s a lot of money! Stop despicably pitting American citizens and illegal aliens against each other for voters and profits.

    • (07) Stop the rampant pork-barrel, subsidies, waste, and welfare for the wealthy.

    • (08) Pass a BALANCED BUDGET amemdnent, since 38 states (only 34 required) have submitted 136 BALANCED BUDGET/General Call for Article V Convention applications.

    • (09) Stop starting wars based on false intelligence; bring our troops back from Iraq, since there are probably better ways to make the U.S. safer. Bring our troops home.

    And one of the most important things that should come out of all of this is:
    • Voters are culpable too.
      Enough voters must finally stop repeatedly rewarding bought-and-paid-for, corrupt politicians with 85%-to-90% re-election rates.
      Voters must understand that they helped cause this problem by repeatedly rewarding bad politicians with perpetual re-election.

    Zeek wrote: The one thing you say that rings true to me is that this deal is really quite inconsequential. We can try and delay the inevitable, but an economic hurricane of this magnitude just cannot be stopped by any means we possess.
    True.

    The real danger is making it worse, by crashing the U.S. Dollar, by more rampant money printing and growing the debt ever larger, when we can’t even pay the interest alone on the current debt.

    Zeek wrote: Congressmen are a few years too late to make a meaningful difference in this current crisis. All they can do now is wait to pick up the pieces when the dust settles.
    True.

    Congress could make those common-sense changes above, which are based on sound principles. But that’s doubtful. Instead, they are likely to make it worse, despite the majority of Americans that also don’t believe (and rightfully so) that this is the time to abandon all principles by trying to fight a massive debt problem by creating more debt, more borrowing, more money-printing, and bailing-out banks and corporations is going to make things better. Already, the U.S. is creating hundreds of billions of new money out of thin air, which is why inflation has been climbing, and the U.S. Dollar has been falling against all major international currencies.

    Unfortunately, many believe that these extraordinary debt crisis warrants an abandonment of sound principles, such as trying to solve massive debt problems with more debt, money-printing, spending, and bail-outs. Strange. The math doesn’t work. Since when did the solution to massive debt, excessive money printing, and inflation become more of the same?

    The situation is actually more dangerous than many think, because Congress is likely to make it worse by abandoning all principles and trying to fight massive debt with inflationary methods that could possibly crash the U.S. currency, making the problem severely worse for everyone holding U.S. Dollars (which would have a world-wide impact).

    Zeek wrote: BTW d.a.n, I stick by what I said before. If America finally starts giving a third party candidate a shot at the presidency I’ll give your cause my full support. Every cloud has a silver lining right?
    Well, it’s sort of a chicken and egg thing actually.

    I’m not really that interested in supporting any party.
    I’m simply for encouraging voters to vote more responsibly, and to stop rewarding bad politicians with perpetual re-election, regardless of party-affiliation.
    But when the two-party duopoly gets bad enough, it will naturally give rise to another 3rd party (almost like Perot did, had he not flaked-out).
    Regardless of parties, government won’t become more responsible and accountable until the voters do too.

    Zeek wrote: Every cloud has a silver lining right?
    Often, yes.

    Sometimes, things can’t get better until they get worse.

    If the U.S. Treasury and Federal Reserve want to help, try to stop inflation (now at 5.4%).
    Also, by pre-1983 inflation measurement methods, inflation is now really about 15.6% (http://one-simple-idea.com/DebtAndMoney.htm#Measurement).
    By pre-1998 inflation measurement methods, inflation is now really 9.6%.
    It’s not hard to believe when you consider that we’ve had positive inflation for every consecutive year for the past 58 years (since year 1956: One-Simple-Idea.com/DebtAndMoney.htm#Since1956).

    The danger today is that things could get MUCH worse if more debt, money-printing, spending, and bail-outs are attempted to deal with the already unmanageable debt problem, which would crash the U.S. currency, and make the problem many times worse - not just in the U.S., but world-wide. The U.S. has a LOT of money held by foreign nations. That’s a precarious situation. Panic abroad could cause a massive dumping of U.S. Dollars, causing hyper-inflation (like what happened in Argentina due to rampant money printing). Then people would start trying to withdrawn their cash from all banks and financial instititutions. The FDIC does not have enough money to insure all of the money in all the banks nation-wide to the insured limits.

    At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

    Posted by: d.a.n at September 30, 2008 1:42 PM
    Comment #265187
    Zeek wrote: d.a.n, that great change you’ve been talking about for years may finally come :)
    Yes, and I’m not at all happy about it, despite what some may think.

    I’ve lost a lot of savings too.
    However, it could get much worse, if the rampant borrowing, money-printing, and spending crashes the U.S. Currency.

    While I knew this was ready to happen at any time, I’m a bit surprised that a melt-down of this magnitude occurred this year. I thought the nation-wide debt could grow a bit larger (3 or 4 more trillion) for a few more years, but I guess not. Why? Because there has been some cooking of the books again, and things were actually worse than it appeared.

    The tricky part now is not making the problem worse.
    More borrowing, spending, money-printing, and debt will risk crashing the U.S. Currency, and many more people in cash positions will need a wheelbarrow of U.S. Currency to buy a loaf of bread.
    Remember Argentina? In only a few months, you couldn’t by a villa for what was the price of a newspaper.

    Zeek wrote: I doubt it though.
    Yes, you are probably right.

    Just as in year 1933, it took 3 (or more) years after the stock-market crash of Oct-1929 before enough unhappy voters finally ousted 206 members of Congress (a large portion from BOTH parties).

    Zeek wrote: Even as things are falling apart right now people (including most of the people here) do not understand fully what is going on and the consequences of our actions.
    True. Many want a quick fix, and none exists. However, what they don’t understand is that more rampant borrowing, money-printing, and spending could crash the U.S. Dollar. Just think of what that could mean, when oil is mostly traded using U.S. Dollars today? If we crash the U.S. Currency, the current pain and misery can be magnified many times over.

    Creating more money out of thin air and giving more money to banks and corporations is not the solution, since we can’t even pay the interest alone on the nation-wide debt now.
    The interest alone on the nation-wide debt of $53 Trillion to $66 Trillion (at only 4.0% interest) is $5.82 Billion to $7.24 Billion per day!
    That’s $19.08 -to- $23.74 per day for every man, woman, and child (for only the interest alone).
    For a household size of 2.61 persons, that’s $49.80 -to- $61.96 per household per day for interest alone!
    That’s $1513.88 -to- $1883.58 per household per month for interest alone!
    That’s $17,812.00 -to- $22,615.4 per household per year for interest alone!
    The point is, it is so large, it can never be paid off.
    There does exist a point-of-no-return, where the debt is finally so large, that it can NEVER be paid off.
    And that is what is happening now.
    Much of the current debt will NEVER be repaid.

    When the debt finally becomes too large to ever be dealt with, a melt-down is unavoidable.
    The consequences of the debt-pyramid was not hard to see coming.
    We’ve had positive inflation every consecutive year for the past 58 years.
    The nation-wide debt has steadily grown from 100% to almost 500% of GDP since year 1976.

    There are many things Congress could do to help (below), and could have done a long time ago, but there is NO quick fix now.
    It’s too late.
    Instead, Congress refuses to do the numerous responsible things.
    Instead, Congress is looking for a non-existent quick-fix.
    Instead, Congress wants to continue the rampant money printing and borrowing, which grows the debt pyramid from nightmarish to hellish proportions - making things much worse later; worse later is the real issue. Putting this off any longer will simply only make things worse later.

    But, if Congress really wanted to help immediately, it could do the following now, but it still won’t avoid the pain and misery of this huge debt problem:

    • (01) Fix the dishonest, usurious, inflationary, predatory monetary system (nothing more than a pyramid scheme used to extract wealth from the unwitting) now. Stop eroding the currency.

    • (02) Stop these 10 abuses now.

    • (03) Stop rampant usury and predetory loan practices (perhaps limits on some interest rates?) now.

    • (04) Make the tax system fair and less regressive now.

    • (05) Start enforcing existing laws; uphold the U.S. Constitution; stop eminent domain abuse; start putting some real crooks behind bars, now.

    • (06) Stop illegal immigration that is costing tax-payers an estimated $70 Billion to $327 Billion in annual net losses, now (One-Simple-Idea.com/BorderSecurity.htm#Burdens). That’s a lot of money! Stop despicably pitting American citizens and illegal aliens against each other for voters and profits.

    • (07) Stop the rampant pork-barrel, subsidies, waste, and welfare for the wealthy.

    • (08) Pass a BALANCED BUDGET amemdnent, since 38 states (only 34 required) have submitted 136 BALANCED BUDGET/General Call for Article V Convention applications.

    • (09) Stop starting wars based on false intelligence; bring our troops back from Iraq, since there are probably better ways to make the U.S. safer. Bring our troops home.

    And one of the most important things that should come out of all of this is:
    • Voters are culpable too.
      Enough voters must finally stop repeatedly rewarding bought-and-paid-for, corrupt politicians with 85%-to-90% re-election rates.
      Voters must understand that they helped cause this problem by repeatedly rewarding bad politicians with perpetual re-election.

    Zeek wrote: The one thing you say that rings true to me is that this deal is really quite inconsequential. We can try and delay the inevitable, but an economic hurricane of this magnitude just cannot be stopped by any means we possess.
    True.

    The real danger is making it worse, by crashing the U.S. Dollar, by more rampant money printing and growing the debt ever larger, when we can’t even pay the interest alone on the current debt.

    Zeek wrote: Congressmen are a few years too late to make a meaningful difference in this current crisis. All they can do now is wait to pick up the pieces when the dust settles.
    True.

    Congress could make those common-sense changes above, which are based on sound principles. But that’s doubtful. Instead, they are likely to make it worse, despite the majority of Americans that also don’t believe (and rightfully so) that this is the time to abandon all principles by trying to fight a massive debt problem by creating more debt, more borrowing, more money-printing, and bailing-out banks and corporations is going to make things better. Already, the U.S. is creating hundreds of billions of new money out of thin air, which is why inflation has been climbing, and the U.S. Dollar has been falling against all major international currencies.

    Unfortunately, many believe that these extraordinary debt crisis warrants an abandonment of sound principles, such as trying to solve massive debt problems with more debt, money-printing, spending, and bail-outs. Strange. The math doesn’t work. Since when did the solution to massive debt, excessive money printing, and inflation become more of the same?

    The situation is actually more dangerous than many think, because Congress is likely to make it worse by abandoning all principles and trying to fight massive debt with inflationary methods that could possibly crash the U.S. currency, making the problem severely worse for everyone holding U.S. Dollars (which would have a world-wide impact).

    Zeek wrote: BTW d.a.n, I stick by what I said before. If America finally starts giving a third party candidate a shot at the presidency I’ll give your cause my full support. Every cloud has a silver lining right?
    Well, it’s sort of a chicken and egg thing actually.

    I’m not really that interested in supporting any party.
    I’m simply for encouraging voters to vote more responsibly, and to stop rewarding bad politicians with perpetual re-election, regardless of party-affiliation.
    But when the two-party duopoly gets bad enough, it will naturally give rise to another 3rd party (almost like Perot did, had he not flaked-out).
    Regardless of parties, government won’t become more responsible and accountable until the voters do too.

    Zeek wrote: Every cloud has a silver lining right?
    Often, yes.

    Sometimes, things can’t get better until they get worse.

    If the U.S. Treasury and Federal Reserve want to help, try to stop inflation (now at 5.4%).
    Also, by pre-1983 inflation measurement methods, inflation is now really about 15.6% (One-Simple-Idea.com/DebtAndMoney.htm#Measurement).
    By pre-1998 inflation measurement methods, inflation is now really 9.6%.
    It’s not hard to believe when you consider that we’ve had positive inflation for every consecutive year for the past 58 years (since year 1956: One-Simple-Idea.com/DebtAndMoney.htm#Since1956).

    The danger today is that things could get MUCH worse if more debt, money-printing, spending, and bail-outs are attempted to deal with the already unmanageable debt problem, which would crash the U.S. currency, and make the problem many times worse - not just in the U.S., but world-wide. The U.S. has a LOT of money held by foreign nations. That’s a precarious situation. Panic abroad could cause a massive dumping of U.S. Dollars, causing hyper-inflation (like what happened in Argentina due to rampant money printing). Then people would start trying to withdrawn their cash from all banks and financial instititutions. The FDIC does not have enough money to insure all of the money in all the banks nation-wide to the insured limits.

    At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

    Posted by: d.a.n at September 30, 2008 1:43 PM
    Comment #265193

    CORRECTION: Remember Argentina? In only a few months, you couldn’t buy a villa newspaper for what was the price of a villa (i.e. house).

    Posted by: d.a.n at September 30, 2008 1:58 PM
    Comment #265571

    dan,
    Love your website. I’m undecided right now between Obama and McCain. Have never voted for a Dem for president but have voted for a number of dems at the congressional and local level. My plan this year is that I will vote a straight ticket…..I will vote against every single incumbent.

    Now a question on your math. Do you acknowledge that this $700B is not spending? I understand completely that there will be a) leakage - through fees and expenses and b) some losses. But this $700B is being used to buy direct assets. Shouldn’t this be viewed in a slightly different light as compared to other “debt”?

    Posted by: MT Cross at October 2, 2008 10:36 AM
    Comment #265611

    What are the ear markes on this bill and why?

    Posted by: Philip Ricchiazzi at October 2, 2008 4:02 PM
    Comment #265671
    MT Cross wrote: d.a.n, Love your website.
    Thanks!
    MT Cross wrote: I’m undecided right now between Obama and McCain. Have never voted for a Dem for president but have voted for a number of dems at the congressional and local level. My plan this year is that I will vote a straight ticket…..I will vote against every single incumbent.
    Me too.

    But not because they are incumbent politicians.
    Because they are irrepsonsible incumbent politicians (e.g. Sen. John Cornyn (R), Rep. Michael Burgess (R), Sen. Kay Bailey Hutchison (R), Tx Sen. Chris Harris (R), Tx. Rep. Tan Parker (R), Gov. Rick Perry (R). However, some aren’t up for re-election this year.

    MT Cross wrote: Now a question on your math. Do you acknowledge that this $700B is not spending?
    Spending?

    Well, by definition, when someone buys an item, and money is given to the previous owner in exchange for that item, it is considered spending. No?
    So, yes, I would call it spending. : )
    Now, the question is, how responsible and wise is this spending?
    How wise is it to buy up a lot of toxic debt?
    Why won’t anyone else buy the toxic debt?
    Is it because the toxic debts (and derivatives) are nearly (if not completely) worthless?
    Is it because there is no market, because most Americans are already tapped-out, and deep in debt (i.e. $53.87 Trillion to $66.67 Trillion)?
    If there is no market for these toxic debts and derivatives, and the banks and corporations currently holding those debts don’t know what they are worth, how can the tax-payers know what they are worth?
    Also, not all of the debt is bad mortgage loans.
    If there is no market now, when will there be a market?
    Will these properties retain their value for the years to come, before there finally is a market for these properties.
    After all, properties need maintenance and care.
    Houses can fall into significant disrepair in only a year.

    There are some foreclosures in my neighborhood, but the prices on them aren’t that low.
    They haven’t been discounted much, if any.
    Thus, the banks are holding on to those properties.
    Like the antique business, something is worth only as much as someone else is willing to pay for it.

    Any way, the money to buy these toxic loans has to come from somewhere.
    In this case, if the bail-out BILL 1424 passes, it will be the tax payers.
    The government will either borrow the money, and/or create it out of thin air (there are already hundreds of billions of dollars created out thin air already each year).
    When the government borrows money, it will be competing with Americans and businesses trying to find credit too, which is already scarce.
    That’s not a good situation.
    When the govermment and Federal Reserve print new money, it erodes the U.S. Dollar and increases inflation: one-simple-idea.com/DebtAndMoney.htm#Since1956
    That’s not a good situation either.
    Especially now, when it is already 5.4% (or 15.6% by the pre-1983 inflation measurement method).

    MT Cross wrote: I understand completely that there will be a) leakage - through fees and expenses and b) some losses.
    True.

    There will be more greed, fraud, waste, and pilfering.
    Treasury Secretary Henry Paulson, formerly the head of Goldman Sachs, one of the firms responsible for this mess, a direct beneficiary of this bailout, and the people managing this bail-out, will be Wall Street firms, who will likely receive billions of tax dollars in fees. Cha Ching!

    MT Cross wrote: But this $700B is being used to buy direct assets.
    The problem is that those assets are not worth nearly as much as the original debt, because the original value was severely inflated.

    Also, those assets are only worth as much as someone is willing to pay for them.
    Those assets are not liquid if there are no buyers.
    There are millions of foreclosures per year, and millions more to come.

    • Year 2008: 2.0 million between 1-JAN-2008 and Aug-2008

    • Year 2007: 2.0 million between 1-JAN-2007 and 31-DEC-2007

    • Year 2006: 1.2 million between 1-JAN-2006 and 31-DEC-2006

    • Year 2005: 846,000 between 1-JAN-2005 and 31-DEC-2005

    • __________________________________________________________
    • TOTAL FORECLOSURES = 6.26 Million JAN-2005 to AUG-2008

    Many of the wealthy have been buying foreclosures at discount prices, but they can’t be expected to buy all of the millions of foreclosures per year.
    It will take many years to sell these properties, which will continue to fall into disrepair, and fall in value.
    Also, many of these homes have been stripped and vandalized.

    Back in 2004, I recall seeing houses in some areas that were priced at 2, 3, or more times the value of near identical homes in different regions.
    Like the bubble in 1999, I said (again), this bubble can’t last much longer, and there’s going to be trillions of dollars lost.
    Well, here we are, and there will be trillions of dollars lost, and I don’t think the debt should be socialized.
    There were a lot of people that made a lot of profit from this bubble (nuch of it dishonestly) and a bail-out will punish responsible investors and tax-payers for all of it.
    That ain’t right.

    The value of the debt will be very difficult and costly to determine.
    The problem is vast (i.e. nation-wide).
    Tax payers will have no genuine advocate to look out for them.
    If they did, the tax payers wouldn’t be on the hook for this entire mess now.

    MT Cross wrote: Shouldn’t this be viewed in a slightly different light as compared to other “debt”?
    Not really. I would call this debt to buy others’ toxic debt one of the worst types of debt.

    That is, if we had debt for education, that would be a better investment.
    If we had debt for research for alternative energy, that would be a better investment.
    And we already have $10.13 Trillion National Debt.
    And we already have $12.8 Trillion borrowed and spent from Social Security, leaving it pay-as-you-go, with a 77 Million baby-boomer bubble approaching.

    Also, $700 Billion isn’t enough.
    For example, there have been 6.2 Million foreclosures since 2005.
    With a median value of $159,000 per home, that’s $986 Billion of bad debt.
    However, even if foreclosures peaked last month (AUG-2008) at 303,000 (up 111% from AUG-2007), there will likely be another 6 million foreclosures by AUG-2011.
    That could add another $986 Billion to the debt.
    There are currently 18.6 Million vacant housing units.
    At a median value of $159,000 per housing unit, that’s 2.96 Trillion.
    But how many of those units are still worth the original price?

    To make matters worse, a lot of banks have been getting bailed out, and there are many other bank failures to come.
    The list below comes to about $1.2 Trillion in losses and some estimates place it much larger, and the FDIC won’t reveal their list of 117 banks on their secret watch list (which IndyMac wasn’t even on when it failed).
    Also, look at this list of 186 troubled banks.
    That could be hundreds of billions, or trillions more of debt.
    Look at how many banks on that list of 186 banks have negative net assets, or close to it.
    All of that above is much more than $700 Billion.

    As a result, the perpetrators of these bad loans will be back for more bail-outs (every 6-to-12 months).
    The tax-payers are very unlikely to get their money back, because the toxic debt will turn out to be worth less as time goes on, and it will take many years for the entire mess to unfold.
    If there is currently no market for all of these assets (e.g. homes, land, properties), then how does the government think it will find buyers?

    The problem is that the debt is too large.

    However, on the bright side, the majority of thousands of banks across the nation did not invest in these risky investments.
    Those responsible banks, business, and tax payers should not punished for it.

    In my opinion, the best thing to do is to push all of the debt back to those that created and invested in those bad debts.
    That will spread the losses to millions of Americans and foreigners, but that’s too bad.
    There will be jobs lost.
    There will be savings lost.
    That’s unfortunate.
    But I did not invest in those risky investments, and do not want that toxic debt heaped on me or my children.
    Yes, it will be painful, but socializing the debt is morally offensive.
    There are many things the government could have done, and could do now to improve the situation, such as eliminating these 10 abuses.
    However, did any of those things make it into the bail-out BILL ?

    Instead, the 2nd bail-out BILL is worse than the 1st, with over $100 Billion of additional pork-barrel, not to mention a tax break for wooden arrows:

    • SEC. 503. EXEMPTION FROM EXCISE TAX FOR CERTAIN WOODEN ARROWS DESIGNED FOR USE BY CHILDREN.

    • (a) IN GENERAL.—Paragraph (2) of section 4161(b) is amended by redesignating subparagraph (B) as sub301 paragraph (C) and by inserting after subparagraph (A) the following new subparagraph:

    • ‘‘(B) EXEMPTION FOR CERTAIN WOODEN ARROW SHAFTS.—Subparagraph (A) shall not apply to any shaft consisting of all natural wood with no laminations or artificial means of enhancing the spine of such shaft (whether sold separately or incorporated as part of a finished or unfinished product) of a type used in the manufacture of any arrow which after its assembly—

    • ‘‘(i) measures 5/16 of an inch or less in diameter, and

    • ‘‘(ii) is not suitable for use with a bow described in paragraph (1)(A).’’.

    • (b) EFFECTIVE DATE.—The amendments made by this section shall apply to shafts first sold after the date of enactment of this Act.

    Thus, it doesn’t look like Congress has learned anything.

    At any rate, the voters have the government that they elect, and re-elect, and re-elect, and re-elect, until that finally becomes too painful.

    Posted by: d.a.n at October 3, 2008 4:11 AM
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