Third Party & Independents Archives

This House Republican plan seems rather stupid, and will cost the taxpayers alot more than the current bipartisan plan. The House Republican plan would call for more deregulation and have the taxpayers insure private businesses who buy these troubled assets, so if these bad secutities can’t be resold at a profit, the taxpayers would pay the difference to these private businesses and lose money on the deal. At least with the bipartisan proposal we would get an equity stake, so if some of these assets can’t be resold at a profit, we would at least make money on the improved value of the participating companies.

This House Republican proposal is an even worse deal for the rest of us, and they are only doing it to pander to their laissez faire economic base, while making it seem to joe 6 pack that they were against the bailout, only to have it cost us more in the long run.

pops, of the 700 billion in illiquid assets at stake, only 100 billion are truly risky, with the other 600 billion being sound real estate properties which can provide a very large profit potential if bought cheap today, and sold in an improving housing valuation market 2 or 3 years down the road.

The incentive for wealthy persons wanting this action is readily observable by these statistics now available on the nature of the illiquid assets currently under discussion.

Well it’s more than 700 billion in assets we are talking about, the treasury will use that 700 on a continuous basis, so as they sell assets they can turn around and buy more allowing liquidity to move through the markets, and preventing the credit markets from completely freezing up.

My point was that we should be able to make most of the money back in the deal, and any losses could be balanced out by an increase in value of companies we take an equity stake in. The House Republican plan would casue us to insure the difference of sale of these assets by private entities should a loss occur. Since the equity stake wouldn’t be there in the House plan, we would pay more for losses in the sales of those assets. Plus, the House plan would suspend capital gains taxes for the next 2 years, along with more deregulation.

pops,

Because government is so good at managing money?

I’m inclined to think that it probably wouldn’t work very well at all… We would end up with another social program to avoid letting the market fix itself as it should.

David,

Every one of those congressmen are up for re-election in November as well. I seriously doubt that McCain is adding much ‘political’ influence, rather I suspect he is desperately trying to get them to play ball.

Actually, my cynical side is saying that this is staged so that when they come together tomorrow McCain can make sure everyone know he was able to bring the House Republicans to the table and get a bipartisan deal done. Then head off to the debate.

pops, David

First of all I am against deregulation. I think our current situation is testament to the fact that there is not currently enough. This may sound stupid, but is it possible for these private investors to buy any or all of this bad debt without government intervention? I am assuming that most of this debt is now held by fannie and freddie. Since the government now is in control of those assets wouldn’t these investors have to go through the government to purchase them? I would appreciate a little help in understanding this situation.

This whole situation seems to get shadier and shadier by the day. I still am not convinced that anything need be done other than some intense reform and pursuance of accountability. After all we are a week into this thing and our economy has not yet collapsed. Last Friday Bush and Co made it sound like we had two days to get this done or we would be in instant depression.

Rhinehold

I must be a cynic too. Because I was thinking exactly the same as yourself with regard to McCains motivation.

Are you being sarcastic or are all those house legislators indeed up for reelection this year. If so that pretty much says it all where they are concerned.

I agree. Lets let this thing play out and let the losers fall where they may. It is time to quit trying to guarantee a successful market.

Worry no more, my fellow Americans…Sarah Palin will save us. I watched her being interviewed by Katie this evening on CBS, and boy, was I impressed. That girl has a handle on EVERYTHING…I can’t wait for her to ride in to DC on her white moose and put her economic bailout on the table…and, while she’s there she can reiterate how Pakistan wants to be like us, and how Henry Kissinger would not speak to Iran or Syria without first concessions, and how being next door to Russia and Canada helped form her foreign relations credentials, and..and..and..

I know I’m going to upset janedoe, Carolina and VV with this sexist statement, but if there ever was such a thing as a ditsy blond, I saw her on TV tonight…except for the blond part, of course…

PS:

We had a ‘great depression’ once…seems like one of the reasons was an unregulated market…can we have a repeat??? Sure, and for the same reason as the first one. Maybe BHO can provide the same type of leadership as FDR, in getting us into a recovery.

McCain switches back and forth from more regulation to less regulation to no regulation to more regulation until I’m dizzy…perhaps he’s not the one to help with such a recovery???

The problem is not liquidity so much as the total failure of wall street to stick to generating real wealth. They sold each other bills of goods until they didn’t know what anything was worth anymore, and then suddenly realize that there was no possible way it could be worth as much as it was. Problem is, the regulations are so shoddy that nobody thought to figure out what the damn mortgages were actually worth so folks could get to the business of settling accounts.

That’s not something a credit infusion by itself will solve. The economy’s legal structure needs to be revised and updated.

RickIL said:

“First of all I am against deregulation”.

And then he said:

“I agree. Lets let this thing play out and let the losers fall where they may. It is time to quit trying to guarantee a successful market.”

If you are in favor of allowing the market to work, then you must be in favor of deregulation!

The market only works when it is free of regulation and allowed to work.

So which is it?

While virtually everybody agrees on the need for certain specific new regulations here, the answer is not simply massive regulation for the sake of having regulations.

Arguably, the original problem was not a lack of “regulation” per se anyway , but a problem of having the wrong regulations applied in the wrong areas. Even of OVER regulating some things—such as the government’s insistence on giving mortgages to those who wouldn’t otherwise qualify.

The simplistic call for “regulation” is like saying that because a patient needs an appendectomy you should also give him a liver and kidney transplant—after all, if one surgery is necessary, doesn’t it follow that more surgeries are even better? Um, no.

Old Guy the market works when properly regulated. Unregulated free markets lead to great depressions.

Well my hat is off to the house repubs only 7.5 years but they finally grow some cajones and have stopped the blind obeidence to this administration and it’s demands. Seems they have even come up with a “Hair of the Dog” plan for averting the financial crisis. So little so late but hey it’s election year.

I,now more than ever, firmly believe we should have congressional elections every year and confidence/no confidence votes for Prez/ VP at the 2 year mark. It is the only time we the people get any attention by either party. Look at the choices The administrations fascism uber alles plan, the cons and their hair of the dog plan and the dems/moderate repubs a little for everyone plan.

>The simplistic call for “regulation” is like saying that because a patient needs an appendectomy you should also give him a liver and kidney transplant—after all, if one surgery is necessary, doesn’t it follow that more surgeries are even better? Um, no.
Posted by: Loyal Opposition at September 25, 2008 10:21 PM

LO,

Actually, your way is more like…the patient needs an appendectomy, so lets transplant him another appendix instead. Lack of regulation got us into the mess and you want to have less of it…well…that makes a lot of sense…to Republicans…I guess…

Marysdude, can you explain how “lack of regulations got us into the mess?”

Not by citing, without demonstrating a basic understanding of it, some bill passed or not passed some time in the past, but actually EXPLAIN in your own words where a lack of regulation caused this problem?

The regulatory problem here is two-fold, as I see it. The federally-mandated extension of loans to “disadvantaged” minorities, and the wide-scale bundling of and borrowing against bad paper debts.

The first problem is one of TOO MUCH regulation, and the second is one that needs to be addressed somehow, although the how is very tricky and complicated, largely because ALL credit works on the same assumptions.

How do you legislate that people make correct decisions about where the market is headed so nobody gets hurt and everybody makes a profit instead of taking a hit? You can’t. It’s totally unrealistic. The thing to do, somehow, is to separate the fate of those who make bad decisions from innocent bystanders. But even that is very difficult to do, since almost all of us—certainly those of us with investments or even 401k retirement plans—make almost none of the actual investment decisions ourselves.

It’s enormously complicated, and simple slogans about the need for regulation or deregulation get us nowhere. Conceivably, EITHER regulation or deregulation is the answer here. It all depends on where and how it is applied.

Let’s let the IRS determine the outcome of this.

Let’s have the post office send out a bill to every person the IRS has on it’s books for the amount owed.

700 billion dollars / (IRS/TAXPAYER) = Invoice Amount$.

Let’s try that to see:
1 who gets a bill
2 who sends in the money
3 who doesn’t
4 public reaction

The cost of a junkmail program is minimal. The benefits of the information gathered would be enormous.

LO,

No watchdog allowed ever expanding paper values to be processed further and further into our banking system until the economy could no longer withstand the pressures of no value paper. If oversight had been in place, perhaps in the second or third ownership, regulators could have called a halt. Complete freedom to do as they damned well pleased, and the damned well pleased made tons of dough had SOMETHING to do with the failure.

Let’s be honest…Paulson was head of Chase…Berneke and several members of the Reserve Bank were or had headed Lehmen, Chase, Goldman, et el. Now those same folks want a free ride with a 700 billion dollar flying carpet. Regulation and supervision just might have been better than asking the fox to guard the hen house???

Dude, you’re not stepping on any toes here !! You should hear some of the things I’ve called her….and ditzy blonde..brunette.. isn’t in the same ballpark!
What a frikkin’ pair to draw to. Between the two of them and their brain power, makes me think of a couple of BB’s in a barrel.

No watchdog allowed ever expanding paper values to be processed further and further into our banking system until the economy could no longer withstand the pressures of no value paper. If oversight had been in place, perhaps in the second or third ownership, regulators could have called a halt.

Not bad. That makes a certain sense, and it’s pretty close to what John McCain was saying in 2005.

In general, however, I have very strong doubts that such a mechanism would actually have held off this particular financial crisis.

To believe otherwise is to believe that government officials have the ability to predict market turns that professionals in the field don’t. You could make the case that their vision REALLY would be less clouded than the professionals because they’re not blinded by the lure of profits. I could buy that up to a point. The opposite position would be that private actors have more to lose and more motivation to stay honest—but what weight does that have if the government is standing by to bail people out?

A major problem is that government officials tend to be blinded by other things. In the Democrats’s case, the wish to see minorities get special treatment in the form of loans, and in the Republicans’ case (at least recently), the desire to see what Bush calls “an ownership society.”

I’ll also point out that nobody has ever actually proposed a banking system where the government is actively approving every step of the process. That is really not desirable for anybody—not companies, not shareholders, not the government, and certainly not taxpayers.

I actually give Democrats some credit on this one. Whatever my disagreements with them, I don’t think they’re actually Stalinists who worship at the altar of the state and want the government to control every dollar. That’s not historically been the Democratic position, or the Republican one, and nobody with a lick of a sense believes (or wants) that to change.

If the government say’s 700 billion, those who think it wont be that much in the long run are only fooling themselves. It will cost more.

My mother died 4 years ago. She was a medicaid/ medicare recipient and the government took her house. Despite repeated efforts by two of my brothers and others to buy the house, it still sets empty, deteriorating.

My county government has a 30,000 sq,ft. factory building next door to me that has been sitting empty for over 15 years.

Private purchase of this property has been turned away by my county government. I can’t understand why.

My state has told my county it has too much property but nothing has been done to remedy this.

I, I feel yur pain, jwl.

David, a very good article.
Playing Politics? The GOP? Of course. But this is nothing new. For close to thirty years everything the GOP does has been all about politics over country, and protecting their wealthy base over country, and power over country, and gimmicks and phony appearances, over substance and reality.

Several good points Pops Mcgee. I agree that the Republican proposal stinks, and that if we’re to pay in, then we automatically need a stake in the equity.

Dude:

I know I’m going to upset janedoe, Carolina and VV with this sexist statement, but if there ever was such a thing as a ditsy blond, I saw her on TV tonight…except for the blond part, of course…

The way I see it Dude, this is not a sexist statement. Sarah Palin IS Ditsy, and stupid, and demonstrably clueless. Some women are. And so are some men. In my view however, hair color has nothing to do with it (although I am a brunette who must confess that I’ve always thought that the bottle blonde look with the dark roots is horribly tacky in the extreme, and tends to throw intelligence into serious and immediate doubt).
An intelligent woman wouldn’t have to hide from the press to avoid answering questions. Neither would an intelligent man. A woman up to the task of being our president should be up to taking on all sorts of questions and answering them logically and intelligently. And so should a man. It is not sexist to point out a womans (or a mans) glaring inadequacies when we’re talking about her (or him) taking on a position of power. Especially the immense power of the American presidency.

It may sound immodest to some, but from the little I have heard coming from the mouth of Sarah Palin, I am absolutely certain that I am in fact a more intelligent and well informed woman than she is.
But of course, that’s not really saying much! :^)

To al re: Palin
Saw excerpts from the Katie Couric thing
all I could say was
???????????????????????????
What the hell was she talking about?
The whole rambling mess about Putin’s mind then on to over American Airspace, we go from Alaska in the air to keep an eye on Russia??
There wasn’t a coherent sentance anywhere to be found
(in that bit)
There were a couple of responses that were somewhat ok
(cannot say articulate, informed, or meaningful, but at least they weren’t incoherent rambling nonsense like alot of the others)

and when the talking heads got together, we got the typical excuses from the Republican supporters
It is totally amazing to me that so-called intelligent people can be shown things like that, and with a straight face just flat out deny reality!!
Stay on Point, stay on point, stay on point, must stay on point — deny reality, stay on point.

oldguy-
Regulation does not equate to picking winners and losers, but rather determining what kinds of games are playable. The funky crap that Wall Street was doing to inflate mortgage values and hide losses doesn’t do anybody but the hedge-fund operators much good. What’s the point of holding on to that crap?

The Republican mistake has been equating anything that might cut into somebody’s profits as an interference in the market. In truth, there are some financial and banking practices, that while profitable, gain that profit through deception and through trickery with the numbers.

That folks are focusing on the two GSMs prove they don’t have any solid idea of what’s really been causing this. It was the private banks, private brokerages that got us into the mess, by basically whipping themselves in into a froth over Credit Default Swaps. You think one trillion is bad, then you’ll go “oy vey” at the thought that 62 trillion dollars of CDS’s are outstanding.

The Republicans always have a scapegoat, and its usually government and liberals. But they’re the ones who made such credit exposures and complex minefields of market overcomplexity possible. It’s excessive speculation that on one side of the equation oversold the housing market, and on the other side oversold and indebted the securities and derivatives based on those securities. The problem is not merely that banks can’t sell bad mortgages, it’s that they’re leveraged and ensnared in a web of derivatives and other debt and credit exposures.

There’s a reason here that banks which have nothing much to do with selling mortgages are getting wiped out. The problem in the housing market is only part of what’s causing the trouble overall. If it weren’t for the insanely byzantine, poorly regulated financial instruments that banks were flinging around to protect themselves from risk on this, everybody else would be able to pick up and move on.

The real problem is that the banks are having trouble figuring out how much their overall assets are worth. Because of that, they don’t know if they have enough money to lend other money out, or whether they’ve got other bills to pay. Since everything’s gotten so complicated, it’s not as simple as calling in loans or anything like that, because the deleveraging itself is set to have a negative effect on all that.

It’s no wonder that Warren Buffet calls CDS’s a financial WMD.

What’s the Republican response? I’ll be honest and say that the prospect of being secretly relieved that the Paulson plan is most likely dead. Oops. I guess I’m not secretly relieved anymore. But all kidding aside, The Republican’s new plan, which McCain may back, is little better. The names are changed to protect the guilty, but taxpayers are still being asked to foot the bill, and the Republicans are still offering tax breaks and deregulation for Wall Street as their big economic plan. Should we feign surprise at this shocking development?

oldguy

The market only works when it is free of regulation and allowed to work.

I guess I can only say that in light of our current situation bought about by lack of oversight, deregulation, and potential criminal activity all I can say is, you don’t really have a clue do you. It is quite clear that there was Vegas style gambling being done with our financial markets while those at the top turned their heads and closed their ears. Their are questions of ethics and most likely legal issues hanging in the air. In the mean time every parasitic financial lobbyist in the country is hanging out in Washington hoping to get their fortune out of this bailout. The whole thing has turned into a circus for beggars and grandstanding for McCain. What a freakin joke! And a joke at our expense none the less.

I stand my original quote. Lets begin investigations into why this happened in effort to determine what new regulations are needed. Bush will be gone soon enough. I think Paulson and Bernacke should step down. Also lets begin immediate investigation into any wrong doing from the top down and hold the bums who allowed this to transpire accountable. In the mean time the markets can play themselves out and the process will allow the losers to be filtered out which is the way it is supposed to work.

Regulation or deregulation, it doesn’t make any difference if there are house & senate dems sitting on committees and blocking for their own personal gain.

I agree with the house republican’s proposal, because it will not allow this money to get in the hands of pro BHO organizations like ACORN. Except for McCain, who is supposedly backing the Rep. house proposal, the rest of the senate is falling in lockstep with paulson’s and Bush’s proposal. I am a republican, but I disagree with this bailout.

I guess my thoughts on this bailout issue are a little bellicose…I think that feeding dollars to an alcoholic or a gambling addict is insane. It is, in more modern terms, ‘enabling’ the alcoholic to drink or the gambler to put more money in the one-armed-bandit.

This mess we find ourselves in is a direct result of the same problem, i.e., too many people in high places, both government and private have become addicted to over-reaching as a method of measuring success or bank account.

Why in the world would our citizenry want to place our future in the hands of a bunch of drunks or high-roller gamblers?

The answer is not to give Paulson 700 Billion Dollars to play with…the answer is to put the sucker into rehab, so his problem can be healed…put some oversight regulations into place to assure this doesn’t happen again, and let the chips fall where they may.

We got ourselves into this mess by not being observant and not being quite honest with ourselves or others. It is time to bite the bullet. If depression happens, let’s see if we can survive long enough to find answers similar to the FDR package, and go on with life.

As an aside: http://www.huffingtonpost.com/carl-bernstein/the-palin-pick——the-dev_b_129373.html
is a reasonable treatise on Palin.

“Regulation or deregulation, it doesn’t make any difference if there are house & senate dems sitting on committees and blocking for their own personal gain.”

I admire your ability to always blame the dems even though it was the conservative house repubs that walked out of the meeting. Never let facts get in the way Old Guy. Mindlessly follow the talk radio crowd.

“I agree with the house republican’s proposal, because it will not allow this money to get in the hands of pro BHO organizations like ACORN. Except for McCain, who is supposedly backing the Rep. house proposal, the rest of the senate is falling in lockstep with paulson’s and Bush’s proposal. I am a republican, but I disagree with this bailout.”

We all disagree with the bail out however left untreated it will continue to fester much like WAMU did last night. McCain is unable to digest the information and make an informed choice, it’s all about getting elected not what is right for the country. He was of no help in the meeting with W yesterday. He has left it up to senior members of the repub party at the meeting because he believes in seniority! go figure. It’s a sad day for all americans as the followers of the repubs will continue to swill the kool aid, much like your statements show, and vote for dumb and dumber to hold the highest offices in the land.

Rhinehold said: “Actually, my cynical side is saying that this is staged so that when they come together tomorrow McCain can make sure everyone know he was able to bring the House Republicans to the table and get a bipartisan deal done. Then head off to the debate.”

Yes. My skeptical side has the same premonition. But, I have no evidence yet that there is any conspiring taking place between McCain and House GOP dissenters to stage a White Night theatrical event for McCain (save for Spence’s glorification of McCain yesterday in an interview).

>But, I have no evidence yet that there is any conspiring taking place between McCain and House GOP dissenters to stage a White Night theatrical event for McCain (save for Spence’s glorification of McCain yesterday in an interview).
Posted by: David R. Remer at September 26, 2008 10:39 AM

David,

Since McCain did NOTHING to warrant such glorification, what other evidence do we need that something like that is in the wind? Perhaps the simplest supposition is correct this time (if it looks like a dog and barks like a dog, it is probably a dog).

j2t2, the issue at hand, however, is that there really is a credit freeze taking place that is going to seriously impact the economy in a cascade of negative ways throwing growing numbers of people out of work, increasing foreclosures and defaults on credit at all income levels, and protract the recession, potentially far longer than it needs to be.

The solution is for lenders and borrowers at the financial institutions to be able to remove from their balance sheets, these securitized assets (mortgages) which no one can assess a value on in the near or long term future.

Selling them would be preferable, but their are no buyers capable and willing to buy 700 billion dollars worth. Writing them off, makes no sense, since around 600 billion worth of those mortgages are likely to be paid and turn out fine. Writing them off would constitute a windfall for these financial institutions down the road as they get their write off tax breaks from the government and get paid the principle and interest on the majority of those mortgages over the life of their loans, (which essentially amounts to tax payers taking the hit anyway, with no return).

They could be parcelled out in increments for sale to private investors and wealth persons but, that would take a considerable amount of time, which, contrary to public perception, there is precious little left before a cascading recession commences.

I personally see no alternatives to the government buying these mortgages from the private sector. I thought the principles of agreement announced yesterday were on the right track, giving tax payer’s ownership stock in return, and preventing golden parachutes for execs of companies receiving the tax payer buyout of their diminishing value mortgages. The new regulations will take months to get right and should NOT be included in this emergency effort.

The SEC and FED bought a few weeks time by insuring money market fund accounts, and suspending short selling. But, that is all they did. The cascade of failure of financial businesses is still looming and if this bill does not go through, that fact alone becomes the trigger that sets off the cascade. Today’s stock market opens around the globe is making that abundantly clear.

These House Republicans sticking to their ideological guns and preventing this emergency procedure from going forward is a clear a case of saying the nation be damned, politics is all that counts. And our nation and people and people in dozens of other nations will be seriously damaged and harmed if these ideologues prevent our financial institutions from opening up their lending and borrowing facilities PDQ.

The image I have in my mind is one of a Christian father coming across his Muslim son nose deep in quicksand and demanding the son convert to Dad’s ideology or Dad walks away letting the son asphyxiate. The House Republican dissenters are the Dad, and the whole rest of America invested in savings, pension plans, and 401K’s as well as jobs, are the son.

It is not about rescuing the financial shareholders and execs, it is about Americans saving themselves from decades of bad decisions and neglect for profit and greed run amok. There will be a price to be paid, but, that price can be meted out over time and absorbed in an orderly and sustainable way, or it can be paid all at once in the form of a deep economic recession world wide or worse.

Marysdude, in a depression, masses of people die, and more masses suffer horribly.

You haven’t a clue what you are talking about by saying let the depression come. That, or you have no empathy or compassion at all for human suffering.

In a depression in this day and time, more than 3/4 of all homeowners will lose their homes, 100’s of thousands of small businesses would fail, and more than half of all workers would lose jobs, savings, and means to live. A depression today would be magnitudes of order more devastating than in the 1930’s.

And the reason is very simple. Today, we are all far more leveraged by debt than in the 1930’s, and the vast majority of us today have neither the physical assets, experience, or knowledge to live off the land as nomads without a home. The violence and civil unrest that would ensue would be apocalyptic, making the union riots of the last century appear to be a love spat by comparison.

Marysdude, McCain will do what McCain has always done, and he is irrelevant to what is happening here. He is losing ground in the election on all fronts, and his guerilla political tactics at a time when political sanity and consensus is direly needed, will not serve his purposes well.

McCain is now acting the role of desperate, flailing around for another way to get the spotlight on him. The problem is everytime it does, the more of the public sees him as he really is, a one trick pony war hero, who is otherwise unpredictable, erratic, flip flopping for expedience, and desperate for power he deep down knows he should never have because its demands are beyond his capabilities. He is a man in conflict with himself. He is irrelevant to the tasks before us as a people and nation in an emergency situation brought on in no small part by those who hold the same trickle down deregulation ideology as McCain.

We must move past McCain and those like him, in order to ensure our great nation status for the future, or the very least, preserve what we still have of it.

David,

My stupid solution to this fiasco, was based on frustration with the entire situation and my helplessness in it. I, more than most, know what a depression can do, and I know what can cause one…I’m looking it in the face. My parents came out of the ‘dust bowl’, and were lucky enough to be skilled enough to make it, even with those skills my father had to join the CCC for about 16 months. Many of their contemporaries lost it all and some even their lives.

But, I still would think long and hard before throwing good money after bad. Handing Paulson that kind of power seems ridiculous in the extreme. He, above all, is part of the problem. not the solution.

I cannot stress enough my disgust with McCain and his roll in all this, and truly believe his motives are reminiscent of the Cheney/Bush philosophy of ‘parched earth’ toward America and humanity, but if he can actually stop this steamroller action by our President, even for a few days, it may be the few days it requires for a proper solution to be found.

Mea Culpa, for making light of ‘depression’…

dude

The answer is not to give Paulson 700 Billion Dollars to play with…the answer is to put the sucker into rehab, so his problem can be healed…put some oversight regulations into place to assure this doesn’t happen again, and let the chips fall where they may.

I know where you are coming from. I feel your rage. The last few weeks have been an emotional roller coaster for me and each new day brings another steep climb and drop. You have hit the problem on the head with your gambling analogy. These folks were doing a very high stakes form of gambling because well nobody had officially made it illegal yet. They knew that what they were doing was wrong but because nobody told them not to it must be okay. Paulson and Bernackie knew this was going on and hell, who knows maybe they were even participating. At any rate they are the main overseers of the financial institutions. I do not think it is out of line to expect them to step down until such time as an investigation might show them to be innocent of criminal negligence. I can not imagine how they can be allowed to continue to lead in this situation.

Like you I am not convinced that this will be as catastrophic as many claim. But as I told Rhinehold a few days ago that is easy for me to say. The problem here is that we really don’t have anyone in this administration that we can trust to be up front with us. They have a past which involves little integrity or credibility. Are they telling us the truth? Are they lying to us? Are they giving us a mixture of truth and lies? Do they have an alternate agenda? Who knows!

I certainly would not want to find out that they were correct and that we did not take action. My mind has changed several times on this matter mostly due to emotion. But when I exclude the emotion and look at it logically my mind says we can not afford to be wrong in the form of willful denial in this matter.

RickIl, they are telling you the truth about the risks of doing nothing. The evidence that they are telling the truth is in the headlines beginning with the Bear Stearns bailout. This is a cascade failure of our financial institutions starting at the top, with the biggest, and it will continue down through the financial system if something is not done to intervene and shore up predictability of institution’s balance sheets and asset worth - and thereby, provide a means of determining credit worthiness, which will permit borrowing and lending to recommence as needed for the economy to move forward.

The part NOT to trust, was that 2.5 page proposal put together by the Bush Administration initially. It was an absurd grab for power and tax payer’s money without oversight, accountability, or review. Those issues have been taken up by Republicans and Democrats alike in the Congress and addressed in the counter proposals, which the Bush Administration has relented on, precisely because of the dire nature of the situation. There is no time to dig in and fight ideological battles on this.

The need for preventing a cascade failure is immediate, days or weeks at most. WaMu failed yesterday and was seized by the Government, and parts of it sold to JP Morgan to keep tax payers from having to go on the hook. Now, those financial institutions with investments in WaMu, are having to write down their worth, diminishing their ability to borrow, and so the chain and cascade effect continues.

I understand and agree with you 110% that there is a crisis in confidence between the people and the government brought on by the last 8 years of crying wolf only to find a sheep in wolf’s garb after the fact. But, as in the fable, there comes a time when what appears to be a wolf encroaching, it actually turns out to be a wolf. This is such a case.

Once again our politicians are playing political games with the futures of our youngins, grandyoungins, great grandyoungins, great great grandyoungins, and …… And once again the folks with the partisan blinders on are defending them.
While I don’t claim to have an answer to the mortgage crisis I’m not for the idea of the government spending more money that it doesn’t have.
$700,000,000,000. Just where does Bush and Congress plan to get that kind of money? Reckon they plan to barrow it from some country that hates us and add to our national debt which is already $979,791,913,000,000 and growing so fast that that it jumped about $1,000,000,000 while I was trying to write the numbers. And just what plan do they have to repay this loan?
The mortgage companies made their bed, let them sleep in it. If it causes a depression (and I see one coming) we’ll have to deal with it sooner than later. If the government bails them we’ll still have to deal with a depression. It’ll just be postponed and most likely be worse than if we deal with it now.
If $600,000,000,000 of the $700,000,000,000 are good loans like David says I really don’t see the need for a bailout. Sounds to me like these mortgage companies need to file under Chapter 13 rather than get a government handout.

RickIL,

Our quandary is directly related to how the current administration has handled things from the beginning, i.e., lying, telling half truths and playing mind control games. It has given us ZERO reason to believe anything it brings forward. Why would we want to trust Cheney/Bush now? How gullible does he think we are?

Well…I’m just gullible enough to wonder if we don’t take these steps, will it lead to even a few of the horrors as outlined by the very architects who provided the problem?

Somehow we have to separate the wheat from the chafe, and I, for one, don’t have a clue as to how to do that…my instincts tell me that Cheney/Bush has done this in order to kill the last visage of Social Security and other programs essential to the living poor…my head tells me it can’t be so, because not even Machiavelli was that unfeeling…then I think, Cheney? You see where I’m coming from?

I’m not so sure that a few mortgage companies going under will cause a depression. What’s gonna cause it is the government and consumers continually spending more than it they take in.

Marysdude
Our quandary is from 60 years of irresponsibility and corruption from both major parties. This aint just happened in the last 8 years.
Just another reason of the many why NO ONE from either major party should win in Nov.

David,

What if, instead of pouring 700 Billions into the financial institutions that are at the center of the problem, we waited until the bust hit, and poured the 700 Billions into recovery? Would that not salve the catastrophe you think will happen? And, would that not solve the problem of ‘trust’?

It would also show those pricks at the top that we are on to their games and don’t want to play any more…

The cost would be about the same, but the results would be a great deal different…perhaps a more robust and stable economy?

I am going to have to agree with Ron here, the main reason we are unable to be more flexible is because our dollar is tanking due to crushing debt. And we think adding to that debt is going to help that problem?

It is true that more people will be renting instead of buying homes soon, because the mortgage industry is going to dry up. However, if you have good credit and the means to pay a loan back, this should affect you only in that interest rates will be a little bit better.

Someone will buy these mortgage when they fall to the right price, but the current people holding them will either fall or get swallowed up by people who do have money stashed away. And they will make a profit just by holding on to them for a year or two and reselling them when the market rebounds.

Ron Brown,

Politics is politics. A different party will still be a party. This past sixty years would go forward the next sixty years. My bet is to go home with the ones what brung us to the dance. It may be better to try to change the ones we are familiar with than to chance dealing with those we don’t know. Just changing the scenery does not change the climate. A third party? There may be a reason it remains in third place…perhaps it is because it is too weak to advance any farther than third?

The solution is for lenders and borrowers at the financial institutions to be able to remove from their balance sheets, these securitized assets (mortgages) which no one can assess a value on in the near or long term future.

David,

I think we are close on agreeing here. I think that former FDIC Chairman Isaac was right in pointing out that the Fair Value Accounting rules be suspended for these assets for the time being, let them be stated with actual value, not market value since the market is not able to adequately identify that currently, and return the companies to some possibility of suriving this to eventually get that value back on the assets.

As he pointed out, had we had these rules in place during the S&L crisis, we would have had a similar depression looming because of it. Luckily, we had not places these harsh regulations on the accounting procedures yet and the banks and resulting mortgages were able to survive through it.

http://financialexecutives.blogspot.com/2008/09/fair-value-accounting-liquidity-and.html

There are at least two sides to the fair value (also called mark-to-market) argument: those that say fair value accounting has provided a dose of reality and transparency on what some in the press are referring to as ‘toxic’ debt, including certain subprime mortgages, mortgage backed securities and credit default swaps, and those who say that fair value accounting as currently constructed under FAS 157, IAS 39, and various interpretations or related guidance thereof has exacerbated the crisis. The latter school of thought cautions that potential fire sale prices which the government may pay under the reverse auction process proposed by Treasury could have a dire effect in pushing down the prices of related securities held by those companies and others, triggering a further downward spiral in capital shortages and tightening of credit. Similarly, Jerry Bowyer, (whose blog we linked to last week), noted on Larry Kudlow’s show last night, “Let’s talk about all the regulations that put the hole in the boat, not just bai[l] out the boat.”

http://online.wsj.com/article/SB122178603685354943.html?mod=special_page_campaign2008_mostpop

The Securities and Exchange Commission and bank regulators must act immediately to suspend the Fair Value Accounting rules, clamp down on abuses by short sellers, and withdraw the Basel II capital rules. These three actions will go a long way toward arresting the carnage in our financial system.

During the 1980s, our underlying economic problems were far more serious than the economic problems we’re facing this time around. The prime rate exceeded 21%. The savings bank industry was more than $100 billion insolvent (if we had valued it on a market basis), the S&L industry was in even worse shape, the economy plunged into a deep recession, and the agricultural sector was in a depression.

These economic problems led to massive credit problems in the banking and thrift industries. Some 3,000 banks and thrifts ultimately failed, and many others were merged out of existence. Continental Illinois failed, many of the regional banks tanked, hundreds of farm banks went down, and thousands of thrifts failed or were taken over.

It could have been much worse. The country’s 10-largest banks were loaded up with Third World debt that was valued in the markets at cents on the dollar. If we had marked those loans to market prices, virtually every one of them would have been insolvent. Indeed, we developed contingency plans to nationalize them.

David

RickIl, they are telling you the truth about the risks of doing nothing.

I am in agreement that the continuing downfall in the banking industry lends credence to the purported gravity of the situation. Like Ron Brown and marysdude I am leery about throwing money we don’t have after bad money. I also do not like the way this is being handled. If we are in such dire straights all intent should be directed at stabilizing the situation only. Not making sleazy predators who’s eyes are glazing over at the thought of all that money coming their way. I do not totally object to the idea of doing this thing in installments under the strictest of oversight and transparency. And I still can not imagine that allowing Paulson and Bernackie to direct this play is in any way showing responsibility. Another thing that really gets my goat is that these folks have not even offered an apology or expressed any degree of embarrassment at allowing this to get to this point.

dude

Somehow we have to separate the wheat from the chafe, and I, for one, don’t have a clue as to how to do that…my instincts tell me that Cheney/Bush has done this in order to kill the last visage of Social Security and other programs essential to the living poor…my head tells me it can’t be so, because not even Machiavelli was that unfeeling…then I think, Cheney? You see where I’m coming from?

I know exactly where you are coming from. I think that judging by the polls most of the rest of America is in the same stage of confusion and rejection as you and I. It is sad that eight years of Bush, lack of compromise and lockstep republican policy has bought us to a place where there is little if any trust in Bush and his party. Everytime they propose something the world automatically sits back and says what the hell are they up to now.

You guys are funny.
You talk about how the bailout is bad because you don’t trust the evil Bush/Cheney monster, but you are going to go ahead and vote for the honest Abe Dems who support the evil Bush/Cheney monster on this.
And, you say Bush is giving his Wall Street buddies one last big payoff, but yet you are going to vote the people who will enable him to give it to them.

All,

I think perhaps we need to do exactly what Sweden did in 1992 when they had a very similar crisis.
Bernanke and Paulson shouldn’t be in charge of anything, in fact, I think that both their asses should be fired. It seems to me that all they’re trying to do is save the big investment banks from their insane gambling debts by asking for a blank check — they couldn’t even tell us how or why their plan is supposed to work!

“I think that both their asses should be fired”

They will be in Jan of next year, VV. I hear Chris Dodd and Barney Frank will take their place.

kctim,

Yeah…that’s the quandary in a nut-shell. How to justify voting for a bunch who seem at odds with my opinions on this. I can only say that my concerns with the direction they are going here do not overshadow the good the party does as a whole most of the time.

kctim

You guys are funny.
You talk about how the bailout is bad because you don’t trust the evil Bush/Cheney monster, but you are going to go ahead and vote for the honest Abe Dems who support the evil Bush/Cheney monster on this.
And, you say Bush is giving his Wall Street buddies one last big payoff, but yet you are going to vote the people who will enable him to give it to them.

I find nothing funny about this situation. My concerns are real. My perception of questionable trust and faith in the Bush administration has been molded by none other than the man himself and the lockstep party that supported him 100% until very recently. Bush represents the republican party. He and his republican appointees have presented a scenario to the world that is by their claim catastrophic in nature. For me this should not be about politics at all. The dems are reacting to a situation that was presented to them. They virtually reached a consensus with senate republicans and Bush that would as responsibly as is possible in such short order hopefully address the situation at hand. McCain steps in and riles up the house republicans in the face of voter polls and puts a kabosh on everything in an effort at grandstanding. Please tell me in light of the latter who is playing politics with a dire situation.

Nobody wants to give any body a payoff. On the other hand nobody wants to be responsible for the collapse of this economy. Do you want to accept that responsibility?

VV

Bernanke and Paulson shouldn’t be in charge of anything, in fact, I think that both their asses should be fired. It seems to me that all they’re trying to do is save the big investment banks from their insane gambling debts by asking for a blank check — they couldn’t even tell us how or why their plan is supposed to work!

I have expressed this sentiment several times on these blogs. It is astonishing to me that they have not been asked to step down.

I hope the link I just put up won’t be totally ignored. I’d love to hear some comments on what you folks think of what Sweden did to rescue their own economy in 1992.

kctim -

On the Dems supporting Bush - y’know, though I know Bush is certainly the worst president in American history, even HE is capable of making a decision that is not wholly wrong, even if it may not be wholly right.

I supported his decision to invade Afghanistan, and I still do. I supported his decision to invade Iraq because I, like most of the rest of America, believed his (and Cheney’s) lies.

Just because Bush says a thing must be done, it doesn’t mean that thing is wrong. Like any other statement, it must be taken on its own merit.

And the Republicans who are against it? All they’re doing is playing politics, putting the presidential race ahead of the nation’s economic crisis by trying to tie Obama to Bush.

And you’re buying into it.

VV

Great Link!

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.

The problem I see in the above is in order to extract pounds of flesh from the shareholders, the people managing our situation would have to take away from themselves.

Rick:

The problem I see in the above is in order to extract pounds of flesh from the shareholders, the people managing our situation would have to take away from themselves.

We the People need to demand it. And leadership that will listen and then insist upon that kind of logical and effective solution, no matter how much these rich gamblers squawk.

RickIL
“Please tell me in light of the latter who is playing politics with a dire situation”

Both sides are Rick, and the only ones who cannot see that are the ones who place all of the blame on the other party.

Glenn
Like it or not, the Republicans against it know their bosses don’t take kindly to govt handouts of this sort. What they are doing is trying to get something that won’t affect them at the polls.

As for me, I’m not buying into anything. I can say it as I see it before I hear where a certain party or candidate decides to stand on the issue.

kctim

I can’t recall placing specific blame on anyone at this point. I have expressed disgust with a situation that was allowed to transpire under Bush leadership. I do sincerely expect that at some point heads will role. And to be honest I could not care less if they are democrat or republican or independent or whatever. If they are guilty of malfeasance then they should pay the piper. Our discussion was about understanding a more broad view of why this situation is. F&F are not the totality of this dilemma as a few people here would like us all to believe in effort to ignore facts and avoid blame.

David Remer wrote; “n the midst of all this effort, there is an election race for President, House of Representatives, and 1/3 of the Senate. And if there is anything absolutely clear about the this national financial threat to our economy, it is that our politicians in the U.S. Congress and White House failed us all, in lack of oversight, and lack of enforcement if existing rules and laws. To vote the majority of these same politicians back for another term, is to vote against our own interests. Rewarding this negligence will only bring another Iraq War by another name, another failed Katrina response to another natural disaster, and another economic threat to us all, through negligence and preoccupation with election and power.”

David, I did read your entire article and found the one paragraph in which I could partially agree…that being the current congress and administration did not do their duty in protecting the interests of all Americans.

You failed to mention all the decades of congresses and presidents from the mid-40’s to today that are also culpable. A great primer outlining all that lead up to today’s crisis can be found here;

http://www.heritage.org/Research/Economy/bg2127.cfm

Your remedy is a little late for this election as mostly incumbents are running.

VV

What is nice is that right now we have these bast—ds by the balls. I think it was j2t2 that mentioned elections every two years just to keep them honest. I like it. And I like the feeling of having the power to quell their arrogance and sway their opinion.

RickIL
The events leading to this situation continued under Bush leadership with Republicans in control of the house and senate and with Democrats in control of the house and senate.

Fannie and Freddie are not the totality of it all, but they are a part of the chain. The “bad paper” is not the totality of it all either though, and there are also people promoting that in order to ignore facts to avoid blame.

We can only hope that the Dems in control, President Bush, Obama and McCain, all look at the whole picture and do whats best for us, instead of them.
Lord knows that we the people are too busy playing politics to get anything done.

Rhinehold:

Someone will buy these mortgage when they fall to the right price, but the current people holding them will either fall or get swallowed up by people who do have money stashed away. And they will make a profit just by holding on to them for a year or two and reselling them when the market rebounds.

The problem with this, is that these mortgages are actually bundled securities. No-one except the government has the cash to buy these at this time. No one is going to believe that these securities are suddenly worth something by changing accounting rules.

The problem is, was, and has been falsely valued securities that are not transparent. The only way to fix this is get them off balance sheets, unbundle them, and reissue them with transparency in a more stable market.

It was the creation of these markets by Phil Gramm that created this mess. Yes, there are also other issues with the markets and economy. I know you want to make this about something other than a Republican mess, and it is equally at the feet of Democrats. But the specific mess you are talking about lies under Phil Gramm’s feet. The Bailout is a consequence and entails many other issues besides this fiasco.

Your mixing up some individual’s mortgage with a traded security. Not the same thing.

Jim M, it is false logic to judge Congress’ of the 40’s 50’s onward by today’s challenges. Government meets or fails to meet the challenges of its time, first and foremost.

The Congress’ governing since Gramm-Leach-Bliley Act opened the door to today’s events and failed to enact suitable regulations to prevent these “too large to fail” financial institutions from allowing greed to erode their foundation, is a matter for the Congress’ of the last 9 years.

Prior to that, the Glass Steagle (sp?) Act prevented financial institutions from becoming too large and broad in lines of business to be allowed to fail. Having removed those protections, the Congress’ and White House had the obligation and responsibility to compensate for these changes in protective way for the tax payers and the economy going forward. They failed. This president failed, these Congress failed.

RickIl, your demands to put you more at ease in how this goes forward are going to be met for the most part. What is left off the table will follow shortly afterward, with the new Congress, like Bankruptcy reform that permits the government to assist the individual in the same way it now intends to assist AIG, Bear Stearns, Freddie and Fannie. Assuming John McCain is not elected, that is.

Rhinehold, indeed, we are very close to agreement on this issue.

Where we might differ is on the word ‘suspend’ regarding of Fair Value Rules. You said: “The Securities and Exchange Commission and bank regulators must act immediately to suspend the Fair Value Accounting rules, clamp down on abuses by short sellers, and withdraw the Basel II capital rules.”

If by suspend, you mean literally suspend for a short term period to get us past this liquidity crisis, then, we agree entirely. If by suspend you mean eliminate those accounting practices permanently, then we do not agree.

The Fair Value rules did NOT cause this crisis. They now exacerbate attempts to reconcile the crisis. Had judicious oversight by Congress and the Fed, and regulations by FASB and Congress, and enforcement by the White House been implemented after passage of the Gramm-Leach-Bliley Act, to offset the inevitable M&A growth of these ‘too large to fail’ behemoths, Fair Value Accounting would remain a valuable practice.

goog

The problem with this, is that these mortgages are actually bundled securities. No-one except the government has the cash to buy these at this time.

Thank you for this information. I had inquired about this towards the top of this thread and got no reply. I was wondering why investors could not buy them up right now.

David Remer writes; “Jim M, it is false logic to judge Congress’ of the 40’s 50’s onward by today’s challenges. Government meets or fails to meet the challenges of its time, first and foremost.”

And who was doing that David? Please, stop twirling long enough to comprehend what you read. It is not false or illogical to use the lessons of history to avoid mistakes today and tomorrow. The link I provided is historical, not political.

Take a deep breath, relax, take off your political hat and just enjoy a walk down the road of where we have been…and where it has led. I would hope that is not too threatening to experience. I really don’t expect a conversion simply because you read an article. Surely your convictions are made of sturdier stuff.

RickIL,

I meant as a mass. Anyone COULD buy them, It’s just that they are so tangled it’s impossible to evaluate them. No one wants to buy a “pig in a poke.” All apologies to Lipstick Sarah.

Jim M,

I also took it to mean that you are blaming problems of this bailout on legislation of the 50’s. While that may well have some “truthiness” to it, it is a bit of a stretch.

RickIL,

BTW, part of the problem with these securities and the unregulated market in which they were sold, is there was no public exchange. You could not look up a price on an index. These were traded between large investors, banks, and hedge funds. They are complex derivative hedging securities. The problem is, that while house prices were rising, they had high rates of return, but the risk was very difficult to ascertain. It’s arbitrage, and junk bonds all over again.

In a couple of years we’ll begin untangling the fraud associated with some of these.

goog

Thanks again. I have read and heard enough the last couple of weeks to have a basic understanding of hedge funds and derivatives. I was trying to figure out if there was something preventing them from being available for immediate sale to anyone who wished to buy. I was curious why legislation would be needed to allow private investors to participate in the process. I now understand that it is the magnitude and complexity of determining worth that will take time to sort out before buyers can be found. As far as I am concerned if this bailout progresses these should be considered assets of the American people and handled as such.

What would a really good presidential candidate say that we should do to reform this system. Something like this:

“Stop appointing Treasury Secretaries, Federal Reserve board members, and other top financial policy-makers whose chief loyalties are to the major financial corporations from which they’re recruited. Restructure semi-private and private institutions like the Federal Reserve, Fannie Mae, and Freddie Mac to be owned, run, and staffed strictly for the public interest. “The Federal Reserve should operate in the interests of the US taxpayer and not the interests of the private, international bankers that it currently represents.”

That’s Green Party Candidate Cynthia McKinney. This is Abel Tomlinson, Arkansas Green Party candidate for Congress (3rd District):

“Perhaps the gravest danger is that the burden placed on the FDIC [Federal Deposit Insurance Corporation] and the commercial banks and the continuing bailouts to prevent the meltdown from hemorrhaging will be paid for by middle- and low-income US taxpayers. Meanwhile the execs responsible for the crisis will get to keep their huge bonuses, pensions, tax breaks, and other handouts”

from:

http://www.gp.org/press/pr-national.php?ID=107

ohrealy, it is a bloody shame that tonight’s debate did not include McKinney, Barr, and Nader. The American people lost much in not having their views on tonight’s stage.

Jim M asked in response to my statement

Jim M, it is false logic to judge Congress’ of the 40’s 50’s onward by today’s challenges. Government meets or fails to meet the challenges of its time, first and foremost.

And who was doing that David?

Why YOU Jim M. and here I QUOTE YOU:

“You failed to mention all the decades of congresses and presidents from the mid-40’s to today that are also culpable.”

Are your comments that difficult for you to keep track of, Jim M.?

ITA, DRRemer, we need people who think outside the same tired old system of buddy buddy relations between corporations and the government. Cythnia McKinney offered to take JMcC’s place tonight, but nobody will listen to those that are not corporate tools. She served 6 terms in the US Congress, and had a contretemps with Rummy. She knows what’s what in DC.

Veritas Vincit said: Bernanke and Paulson shouldn’t be in charge of anything, in fact, I think that both their asses should be fired. It seems to me that all they’re trying to do is save the big investment banks from their insane gambling debts by asking for a blank check — they couldn’t even tell us how or why their plan is supposed to work!

kctim said: They will be in Jan of next year, VV. I hear Chris Dodd and Barney Frank will take their place.

A little problem here guys. While Paulson can be fired by the next President, Bernanke can’t. He’s inthere for life if he wants to be. Just like Greenspan was.
But I’m sure not for letting them be in charge of the bailout.

Here’s an idea. Instead of bailing out a bunch of crooks go ahead and let them fail. Throw their sorry butts under the jail. Then forgive all the mortgages they’re holding. The government aint spending money it aint got and it will give the home owners more money to spend on other things which will stimulate the economy. Just think what an extra $700,000,000,000 will do for the economy.

I heard on the radio today that if the government was to split the $700,000,000,000 among the taxpayers it would come out to something around $141,000 per person. Now, who could use it most?

If by suspend, you mean literally suspend for a short term period to get us past this liquidity crisis, then, we agree entirely. If by suspend you mean eliminate those accounting practices permanently, then we do not agree.

Well, yes and no. I do mean suspend, I do not mean entirely. BUT, I would like to see some alteration to the accounting practices to make it a little bit more flexible in times like this. I’m not sure exactly, but provide for an alternate method of reporting when certain indicators fall below a specific point.

But I agree that we need accurate accounting to prevent fraud and keep the free market free. We need regulation not to prevent people from participating in risky behaviors but to make it clear what the factors are before the decision to engage in commerce takes place.

That’s a little of what worries me about the left when they claim that the free market is over and ‘uber-regulation’ is here to save the day, too much is as bad, if not worse, than none at all, in many cases.

Ron Brown

I heard on the radio today that if the government was to split the $700,000,000,000 among the taxpayers it would come out to something around $141,000 per person. Now, who could use it most?

Now there is a solution I could live with. :-)

Ron Brown, (And Rhinehold, you may be interested in this discussion too),

You raise an incredibly important point. Risk investing. The investment banks are no longer banks.

Traditional banks and savings and loans were in the business of borrowing your money as savings deposits and investing them frugally and prudently in sound loans to others with an all but guaranteed rate of return albeit low, for low risk.

Today’s banks, especially investment banks, are in the business of selling RISK! That’s right, RISK. They are in the business of finding the greatest risk with the greatest potential for risk reward, and that is what they sell. When your business model is built around maximum potential returns, meaning highest possible risk, failure is actually very predictable, though there can be, as we have seen, with the tech bubble and now mortgage bubble, highly profitable interims before failure occurs.

In a very real sense, investment banks are nothing more than gambling casinos, with less oversight and even greater long term risk and failure potential, because unlike casinos, investment banks can’t watch the player’s every move.

It had even reached the point that collateral was nothing more than risk. There certainly was no real property value backing what they were selling at the upper margins of return potential. There is a very fundamental flaw in this kind of business that secures loans and trades with nothing more than risk. Yes, there were properties included in the transactions, but, too many of these transactions involved loans equal to or, in excess of the actual value of the property, leaving the risk of a devaluation of the property value wide open and the investments unsecured by real collateral value. They difference between actual property value and the amount of the loan above that value was the sale of pure risk. And people bought it, and are now losing what they bought.

America’s entire economic system to varying degrees has been moving toward this Casino model of gambling while attempting to continue market it as sound investment strategy. There is nothing sound as an investment strategy in gambling. Especially with middlemen taking a cut on each transaction as guaranteed income leaving borrower and lender gambling on whether there will be any margin of return left at all down the road.

Conceptually, it is a fundamentally flawed model for investing, compared to the direct investment model in which person A lends person B money with interest on a percentage of, not the whole value of, some real tangible asset, relatively easily convertible to cash in present and future market scenarios.

Texas, as backward a state as it is, has maintained an 80% rule on real property borrowing which is very sound. Property values in my central Texas area are still going up. There is a 20% pad or real value in excess of the loan amounts backing every loan dollar, so that collateral value holds up, even if property values were to drop 20% over the life of the loan.

Wall Street needs similar sound and rational investment and lending rules.

The investment banks are not

“Jim M, I also took it to mean that you are blaming problems of this bailout on legislation of the 50’s. While that may well have some “truthiness” to it, it is a bit of a stretch.
Posted by: googlumpugus at September 26, 2008 08:20 PM

No goog, I am not placing blame, instead I linked to a good read of the history of how we got to this point and the mile markers along the way which you refuse to consider as important. A simple analogy is the person who, upon reaching retirement age, doesn’t understand that the failure to plan and make course corrections throughout the preceding 45 years might be the reason they are unprepared to retire comfortably and instead blames some recent event for their deficit.

Surely we could all agree that no one can understand the causes of WWI or WWII by examining only the preceding few years of those wars. Many failures and actions, had they been recognized early, could have forestalled or eliminated those catastrophe’s.

Are your comments that difficult for you to keep track of, Jim M.?
Posted by: David R. Remer at September 26, 2008 11:17 PM

Not at all David, my statements are consistent. See my response above to Goog. You both fail to comprehend the value of understanding history to avoid the same problems over and over again. But, since you both refuse to read the link I provided you concentrate on today’s problems with no idea how we got here. I have found that liberals generally discount the history of why American’s don’t favor their policies and yet liberals don’t learn any lessons from that either.

David Remer wrote; “Conceptually, it is a fundamentally flawed model for investing, compared to the direct investment model in which person A lends person B money with interest on a percentage of, not the whole value of, some real tangible asset, relatively easily convertible to cash in present and future market scenarios.”

I would certainly agree with this David and if you were a student of history you would understand how we got from Point A to this point. You understand part of today’s problem but have no idea how we got this screwed up.

David also wrote, “Texas, as backward a state as it is…”

David, is your jaundiced view financial, social or a combination of both and more? No doubt your disappointment is political and nothing else. The mostly liberal excesses of the East And West coast don’t play well here, do they?

Jim M, you can obfuscate the issue by critiquing the writer all you want, but, there is no getting around the Gramm-Leach-Bliley Act overturning the Glass Steagle Act to create these huge financial institutions which the American people cannot now allow to fail without destroying their jobs, their pensions, their 401k’s, etc.

And in case you hadn’t noticed, the free market solution used in the last several weeks only creates even larger institutions as Morgan-Chase buys out WaMu, and other finanicial organizations merge and acquire still others.

The free market solution compounds the problem, it does NOT solve it. Your comments continue and repeatedly ignore the simply fundamental fact of free enterprise, that the goal is always to monopolize the market. It is the wet dream of nearly every corporation. And there is no competition nor balance or checks or accountability when monopolies and oligopolies control the market.