Money market problems

[Gwizz]

To get back to this important topic.

I did some research on the Glass-Steagall Act.  This was the checks and balances for the banking and investment industries.  It kept the banks from getting into the investment business and possibly losing their customer's money.

The Act was abolished and Clinton signed the document.  The Democrats took control of all key positions in these industries.  This is one time when no republicans were involved at a high level. The rich democrats proceeded to milk the system until it broke.  We now have a problem that could spiral the whole country into dire straights.  Probably even the whole world.

There is not enough gold in Fort Knotts to even cover the requested bailout.  All the country can do is to print more money and hope other countries will support us.  There is a lot of doubt that they will.  Others can see how corrupt we have gotten.  Would you support this kind of corruption with more loans to the US? The value of the dollar is now going down and the cost of goods are going up.  I believe you will continue to be squeezed until, like the Germany of old, not even a wheel barrow of paper money will buy a loaf of bread.  Our people are blind and don't see it coming.

Try to buy reasonable priced gold or silver.  Some one has beaten you to this economic hedge. 

Furthermore, I don't like bailouts and A few days ago I thought that a bailout was the only solution. At this point I don't think that even a bail out will help us now;  Because the bailout that is now being discussed will reward the crooks that looted these industries.  These corrupt Politicians are making the news by saying how awful that the loan industry could end up in this manner, when these crooks are the ones that caused it to happen.  I keep looking to see who these crooked democrats are going to blame for what they have done. 

[djf01]

To get back to this important topic.

Suggestions Clinton & Democrats are to blame for the current problems are just pain ridiculous.  And even if thy were, I seem to recall there being 4 years where the Republicans controlled both houses and the Presidency, and have had ample opportunity to fix anything so "obviously" wrong.

Furthermore, I don't like bailouts and A few days ago I thought that a bailout was the only solution. At this point I don't think that even a bail out will help us now; 

On this, we fully agree, though perhaps for different reasons.

I think the great problem all along has been the inadequacy of the Fed's response.  They are still looking at from a micro-economic perspective, and providing "bailout" equity finance, usually when it's too late.

And the bailout proposal is just to give Puolsen and Bernanki the biggest slush fund in history with which to cherry pick "distressed" assets.  Given these people's mis-understanding and mis-handling of the crisis so far, I think people are right to be skeptical about the prospects for success of this remedial action. 

But having said that, the bailout is necessary, and if anything it's too small..

There are other areas of policy that the US government ought to look at:

Firstly, personal tax law changes to try and stem the tide of mortgage defaults.

I think there should be some sort of taxpayer provided fund distressed borrowers could tap to assist meet their mortgage repayments.  It should be needs based (ie based on income vs repayment obligations), and intended to allow stressed borrowers to stay in their homes.  (That's the carrot)

Secondly, capital gains tax changes denying home owners who make a loss on their home from writing it off against anything else.  If the into negative equity and decide to throw their key's back at the bank, that should be treated as a windfall capital gain and liable to tax.  ie.  Joe Dow buys a house for $300k with a $250k mortgage.  His house price falls to $200k.  He can't really afford the repayments anymore, so he walks away.  His personal position has gone from -$50k to $0k, so probably should be slugged with a tax bill for that $50k he's just "made" by shifting his problem to Wall st. (The stick).

Both of these measures are intended to help keep/force distressed borrowers in their homes.  This will stop the flood of defaults, help shore up the value of the collateral of much of the existing sub-prime debt, and thus the value of the debt itself.

The first one - subsidised home lending - in principle appalls me.  But addressing the problem here is much cheaper for the US tax payer (paying 2-4% of the face value of the loan) and more effective than what the Fed want to do (buy back a worthless loan  for 50% of it's face value).

The other thing these measure would do is restore a lot of the value of many of the assets the Fed have been required to purchase (the Fmacs), so the probability is they would end up *making* the US taxpayer far more money than will cost.

And finally - one for when this crisis is over - in the years, or perhaps decades to come:

Like most 1st world countries, the US relies primarily on monetary policy (Fed setting the base interest rate) to control the US economy.  It's proven to be the most effective method of economic management. But ...

Every tightening cycle over the past 30 years has ended in some sort of financial crisis in the US, like the S&L crisis of the late 80s/early 90s.  Most of these were cleaned up by the Fed & the US taxpayer.  The problem is this time the Fed haven't had their eye on the ball and have allowed this crisis (which they triggered) to steadily grow in magnitude.

Part of the problem in the US is the high proportion of fixed rate mortgages.  Less than 25% of home loans are variable rate.  It's over 70% in Australia, and ovr 50% in much of the rest of the world.  When interest rates go up, new borrowers and those facing refinancing cop a disproportionate burden of interest rate rises.  Most people are completely uneffected, while the unfortunate few see their home repayments double, or are foreclosed upon.

The net result is monetary policy is not as effective in the US as it should be.  Rather than a small amount of pain being spread around the whole economy, it relies it places a huge amount of pain on a very few, often catastrophically.

So, my final policy proposal is:

Tax deducatability for home mortgages should only be available for variable market rate mortages, and this tax concession should be denied if the borrower takes on any sort of hedging or insurance against interest rate rise risk.  Most borrowers will move to variable rate loans.  And future interest rate rises will effect more people but less severely, so hopefully be more effective and not trigger the sort of catastrophic cascading failures the US is becomming famous for.

Obviously politicians - especially lefty ones - would love to hand out this sort hand out this sort of largess.  But the main reason to do it is it's a much cheaper (for th taxpayer) way of shoring up the financial system.  Paying 2-3% of the value of a loan for a few years allows that loan to stay on the financier's books for a

Because the bailout that is now being discussed will reward the crooks that looted these industries.  These corrupt Politicians are making the news by saying how awful that the loan industry could end up in this manner, when these crooks are the ones that caused it to happen.  I keep looking to see who these crooked democrats are going to blame for what they have done. 

[Gwizz]

djf quote:

Suggestions Clinton & Democrats are to blame for the current problems are just pain ridiculous.  And even if thy were, I seem to recall there being 4 years where the Republicans controlled both houses and the Presidency, and have had ample opportunity to fix anything so "obviously" wrong.

SORRY, YOU ARE WRONG, DJF.  You need to improve your research.

http://hotair.com/

The deregulation of the investing bank started with pressure from Carter and again to a greater extent with Clinton when the deregulation was completed and thus removed banking regulations and inspections.

Greenspan and McCain both warned against this.  McCain introduced a bill to put back the regulation.  The bill failed.

GREENSPAN SAID FANNIE MAE AND FREDDY MAX WOULD CAUSE A DISASTROUS ECONOMIC PROBLEM which came true as predicted.

THE SOCIALISM AGENDA OF THE DEMOCRATS PROMOTED LOANS TO PEOPLE WHO COULD NOT AFFORD THEM.

ACORN WAS PAID WITH TAX DOLLARS TO CONVINCE POOR PEOPLE TO TAKE OUT THESE LOANS.  THEN TO GET BANKS TO BUY THESE RISKY LOANS, FANNY MAE AND FREDDY MAX SAID THE GOVERNMENT GUARANTIED THESE LOANS. THIS WAS NOT TRUE.  AS DEFAULTS PILED UP, BANKS STARTED TO FAIL.  THE LIBERAL CROOKS RUNNING FANNY MAE AND FREDDY MAX TOOK THEIR MILLIONS IN FEES FROM JUGGLING THESE LOANS AND RAN.  THE INVESTIGATION IS ONGOING BUT INDICATES FRAUD, AND THEY INCLUDE LEHMAN BROTHERS IN THIS FRAUD CHARGE.  THIS IS A DEMOCRATIC DEBACLE OR WORSE.

THIS SOCIALISM AGENDA IS USED BY THE LIBERAL ELITE TO STEAL TAX DOLLARS 

DJF QUOTE:

the bailout is necessary, and if anything it's too small.

.

THE BAILOUT PROPOSED BY BUSHES ADVISERS, REWARDS THE CROOKS.  BUSH NEEDS TO THROW OUT THESE ADVISERS AND PROSECUTE THE GUILTY LIBERALS. 

ON ANOTHER TOPIC:

OFF SHORE DRILLING WILL NO LONGER BE OPPOSED BY DEMOCRATS.  THEY SAY THEY WILL LET THE REGULATION EXPIRE NEXT WEEK.

Since most people want us to drill off shore, this political change is not unexpected.

[djf01]

djf quote:

SORRY, YOU ARE WRONG, DJF.

So the Republicans didn't have control of both houses and the Presidency at the same time?

  You need to improve your research.

http://hotair.com/

Maybe.  But do you really expect anyone to take a site called "hot air" seriously?

And BTW, I think your CAPS LOCK key is broken!

[Gwizz]

Republican or Democratic hot air.  I guess I didn't say which did I. :-\

If I said Liberal you would read it.  If I said Conservative you wouldn't read it.  Correct?    ::)

I do read many blogs.  Most color what they say and many make false claims. :-\

But occasionally some do a fairly good job of discerning the facts.    ;D

PS:  Sorry my cap. key stuck.   ;)

[djf01]

If I said Liberal you would read it.  If I said Conservative you wouldn't read it.  Correct?    ::)

If it said *either*, I wouldn't read it!

Actually, I must confess I did take a look at Hot Air and had a bit of a chuckle.  But their "About" page (http://hotair.com/about/) makes it perfectly clear they don't expect people to treat them as a source of credible information.  Just look at their logo:

Great big mouth wide open, tiny little brain and (most significantly) eyes firmly shut ! 

I'm sorry GWIZZ, but the current financial crisis a Democrat conspiracy is about as believable as the one about 9/11 being the work of MOSAD.

[Gwizz]

A little spoof works both ways.   ;D ;D ;D ;D ;D ;D ;D ;D

But the Democratic corruption is true.

One of the liberals took off with 90 million.  Completely legal fees provided by the liberal de-regulation.

Now we may even bail him out because his golden egg broke.  >:(

[Gwizz]

Congressman Reed blamed McCain for his objections to all the pork in this bailout.  (He didn't use the word pork, but it was apparent)   When a person gets mad his talk gets more abrupt and words come with little thought for real meaning.

The democrats have the votes to pass this bailout over the heads of the republicans. Why are they not doing this if it is so important to do quickly.  Are the Democrats reacting to the public outrage against this bailout.  Do they need some Republicans to blame when all the pork is made public.  The congress only has a 9% public rating of support.  Is this their concern.

Reed said when McCain came to town the agreement plan fell apart.  I believe the plan was put together by the elite to benefit the elite.  The plan even funds the corrupt Acorn.  Some of Obama's staff are or were Acorn members who benefited greatly from this banking debacle.  Someone stated that McCain was quiet and only spoke for two minutes at the end of the meeting.  It must have been powerful talk for the Democrats to get so mad. 

Reed stated that McCain should not be allowed to participate in the design of the bailout. 

Interesting he later stated it was Obama's plan that was put on the table.  Obama was the last to arrive.

Just a few days before both Reed and Obama stated they did not know how to fix the banking problem. 

[djf01]

You'd better hope that your lot get their act together GWIZZ, and sort out this mess, because the way they are going about it, they are helping along the collapse process, rather than doing anything meaningful to stop it.

I think the US has between 6 and 12 months to turn the ship around, and you they don't, you will see a depression that will make 1930 look like you dropped a dime down a storm drain.

Rather than act to restore confidence and/or underwrite in the US financial institutions.  So far the Fed has acted to hasten their demise to ensure depositors are protected.  But in the process they have continued to undermine the rest of the financial sector, which is ensuring anyone in the slightest bit of trouble can't re-capitalise.

Until a floor is out under the losses, the credit multiplier will continue to unwind, till eventually a domino too big for the Fed buy out will fall, and the whole system in the US, (and a lot of the western world too) will completely collapse.  Then it'll be the Mexicans complaining about all those illegal Americans streaming across the border desperate to get a job cleaning toilets for 3 tacos a week.

[Hawk]

There's nothing anyone can do to stop it. All the feds are doing now is just postponing it. The US economy will collapse. It's just a matter of time.

The clock is ticking.

[Gwizz]

I started planning for some bad times acoming, just in case worst comes to worst.

Bush seems to be taking a back seat in this problem.  I think he is taking orders and he is being extra careful so he doesn't end up like the Kennedy's.

So far it is the Republican plan that is also supported by a number of democrats and McCain that seems to be the hammer in the gears for the President and the Obama camp. 

I hope everything works out as well. 

I don't want hawk to be right.  :-\ 

[djf01]

I started planning for some bad times acoming, just in case worst comes to worst.

Practicing your Spanish ;-)?

[djf01]

So far it is the Republican plan that is also supported by a number of democrats and McCain that seems to be the hammer in the gears for the President and the Obama camp. 

Did you edit out a request for more info on attending that meeting?

Anyway, here's an article from some local tabloid rag you guys get: http://online.wsj.com/article/SB122247077035980785.html?mod=googlenews_wsj#articleTabs%3Darticle

As far as I can tell (I can't find the place I read this last night, somewhere in the Aussie mainstream press), the proposed $700bil bailout proposal has basically come straight from the Fed, and endorsed by Bush.

It can be summarised as:

- Give Poulsen $700bil to buy distressed mortgage assets as he sees fit.

Obama's plan:

- Give Poulsen the 700bil

- Install a bi-partisan congressional oversight committee to try to reduce inappropriate use of the funds (good idea, but probably counter productive the way Washington politics works :-))

- $400k salary cap on "rescued" companies (probably a bad idea - gives execs a motive to continue to pretend their company is OK rather than seek needed help - but if that's the political price of getting the package up - so be it)

- And additional package to support distressed home owners (big tick from me, and will greatly boost the value of the US gvt's new "investments", and cut the overall cost to taxpayers in the long run)

Republican's Plan:

- "Only" give Poulsen 350bil of public money.

- Source the remaining 350bil somehow from some sort of private sector funded insurance scheme.  (Absolutely nutty IMHO.  At it's core, the problem is the credit/capital basis underpinning the financial system is contracting/deflating.    Taking 350bil out to put 350bil back in - to probably dud investments - does nothing to the stop deflation, just helps it along slightly.  It's the same flawed logic that the Fed have been applying to date that has caused this to develop into a major crisis)

I'm not completely sure of McCain's position.

Both Republicans and Democrats are in an invidious position.  The Reps fear a disproportionate public backlash if a massive chunk of public money is sent to prop up the Wall St elite - some of which - not all, but some - is well earned.  The Dems have the burden of incumbency.  They have the numbers, but don't want to be seen to be accused of handing out pork, being "big spending democrats", when they were forced into that position by policies of the right.  (They'd  much rather be handing out taxpayer funds to *their* constituents :-)).

I don't really know which I despise more.  The Dems for not passing the Bush proposal, or the Republicans for grandstanding, pretending to try and scuttle it.  I can understand why both have behaved the way they have, and I'm sure both would have done the same if they were in each other's shoes.  I can't say I approve though.

Same with McCain.  I think there must be something to the accusation that he was behind the Republicans pulling out of supporting the package.  Especially it is true the house Reps made the deal without McCain's involvement.  That would have made McCain look completely irrelevant, and Obama look like he's already got one hand on the White House tiller.  It's smart, almost inevitable politics, but a terrible public policy outcome.

[djf01]

Believe it or not, I've been trying to avoid making partisan comments on this issue.

BUt I think I have made a big one, some what unintentionally ...

I'm not completely sure of McCain's position.

I Just read an article in LA Times http://www.latimes.com/news/nationworld/washingtondc/la-na-mccain27-2008sep27,0,7166605.story

suggesting that McCain has been obscure on the issue, and suggesting deliberately so.

I made the statement because I *really* don't know, and really would like to know - and just presumed it was my lack of reading/interest in he subject that I didn't.

Can point me to a concise summary of McCain's stated position?  (Again, not meaning to be facetious)

[Gwizz]

Did you edit out a request for more info on attending that meeting?

No, I knew they didn't have enough chairs and I hate standing.  ;)

Anyway, here's an article from some local tabloid rag you guys get: http://online.wsj.com/article/SB122247077035980785.html?mod=googlenews_wsj#articleTabs%3Darticle

The Wall Street Journal is considered a Conservative paper. But since Rupert Murdoch bought controlling interest of the stock, almost all of the old editors and news people have left.  The paper does not report anything if it is negative to Murdock.  :-\

As far as I can tell (I can't find the place I read this last night, somewhere in the Aussie mainstream press), the proposed $700bil bailout proposal has basically come straight from the Fed, and endorsed by Bush.

 

It came from Poulsen  He concerned Bush who at first seemed to support it. But, now Bush is open to other plans.  By the way, the 700 billion was only the starting point.  It has been estimated that the cost of that first plan would have run well over 1.2 Trillion.

It can be summarised as:

- Give Poulsen $700bil to buy distressed mortgage assets as he sees fit.

  True

Obama's plan:

- Give Poulsen the 700bil

- Install a bi-partisan congressional oversight committee to try to reduce inappropriate use of the funds (good idea, but probably counter productive the way Washington politics works :-))

- $400k salary cap on "rescued" companies (probably a bad idea - gives execs a motive to continue to pretend their company is OK rather than seek needed help - but if that's the political price of getting the package up - so be it)

- And additional package to support distressed home owners (big tick from me, and will greatly boost the value of the US gvt's new "investments", and cut the overall cost to taxpayers in the long run)

When the first meeting adjourned, contrary to what the Wall Street Journal stated, it was the Democrats that made statements to the press, not only one Republican.  These democrats were very angry at McCain. 

I listened to their recorded comments:  One said from the moment that McCain arrived he howled and destroyed their efforts for consensus and should be banded from the further proceedings by the President.

The next Democrat stated that when McCain arrived he sat quietly until the end of the meeting when he made about a 2 minute statement. 

Which one do we believe?

Republican's Plan:

- "Only" give Poulsen 350bil of public money.

- Source the remaining 350bil somehow from some sort of private sector funded insurance scheme.  (Absolutely nutty IMHO.  At it's core, the problem is the credit/capital basis underpinning the financial system is contracting/deflating.    Taking 350bil out to put 350bil back in - to probably dud investments - does nothing to the stop deflation, just helps it along slightly.  It's the same flawed logic that the Fed have been applying to date that has caused this to develop into a major crisis)

From what the Democrats said after the meeting, the Republican stated their concerns and no plan was presented.

I'm not completely sure of McCain's position.

  No one does.  McCain tends to keep his mouth closed until he is sure of what he wants to say. 

Both Republicans and Democrats are in an invidious position.  The Reps fear a disproportionate public backlash if a massive chunk of public money is sent to prop up the Wall St elite - some of which - not all, but some - is well earned.  The Dems have the burden of incumbency.  They have the numbers, but don't want to be seen to be accused of handing out pork, being "big spending democrats", when they were forced into that position by policies of the right.  (They'd  much rather be handing out taxpayer funds to *their* constituents :-)).

I used to think the Democrats would say anything to get elected.  But their plan was full of pork that rewarded those responsible for this banking debacle.  The Democrats could not fine a patsy to blame. The Only Republican bankers involved did not involve their banks in the active corruption.  I don't think the Democrats were victims of the right.  They are smarter than that and in this debacle maybe too smart for their own good.  It is true they give away a lot of taxpayer dollars every chance they get.   

I don't really know which I despise more.  The Dems for not passing the Bush proposal, or the Republicans for grandstanding, pretending to try and scuttle it.  I can understand why both have behaved the way they have, and I'm sure both would have done the same if they were in each other's shoes.  I can't say I approve though.

I don't think we will learn what was in their hearts.  Probably some have fear as they continually try to white wash themselves.

Same with McCain.  I think there must be something to the accusation that he was behind the Republicans pulling out of supporting the package.  Especially it is true the house Reps made the deal without McCain's involvement.  That would have made McCain look completely irrelevant, and Obama look like he's already got one hand on the White House tiller.  It's smart, almost inevitable politics, but a terrible public policy outcome.

Maybe time will tell what was in their minds.  I doubt either of us would be pleased if we knew.

[djf01]

The Wall Street Journal is considered a Conservative paper. But since Rupert Murdoch bought controlling interest of the stock, almost all of the old editors and news people have left.  The paper does not report anything if it is negative to Murdoch.  :-\

That's right.  I forgot uncle Rupert had bought that.  I liked reading WSJ when I was last in the states, before the takeover.

 

It came from Poulsen  He concerned Bush who at first seemed to support it. But, now Bush is open to other plans. 

So why are you calling it a Democrat plan?

When the first meeting ... he (McCain) howled and destroyed their efforts for consensus and should be banded from the further proceedings by the President ... he sat quietly until the end of the meeting when he made about a 2 minute statement.

Which one do we believe?

 

From the sounds of things, both!  However he did it, I think it's fair to say McCain scuttled the deal.  All the reports seem to suggest that the house Dems and Reps had stitched up a deal that day.  With some provisos, they were prepared to support the *Republican* (actually it's probably fairer to call it the Poulsen package), and the suggested amendments were those negotiated with the House Republicans.  The Dems were expecting the meeting to more or less rubber stamp a bi-partisan approach to addressing the financial crisis they'd negotiated.  But at the meeting, the reps have fallen in behind McCain's non-position, and suddenly it's the Democrat's plan.

[Gwizz]

Henry Paulson looks and talks like a democrat.

He was the CEO of Goldman Sachs.

His partners there would greatly benefit from the 700 billion deal.

He is green and a close friend of the US elite and has close ties to the Chinese elite, while his own worth is only about 700 million dollars.  The power he will gain in unacceptable.

Quoting Wikipedia:

The proposed bill would give him unprecedented powers over the economic and financial life of the U.S.. Section 8 of Paulson