Bailing out financial institutions

[B_RedDude]

Will the additional bailout money for financial institutions in the U.S. have the desired effect of getting credit flowing again?

Is it essential that all of the bad assets of these institutions be bought up by the government or others before credit will actually start flowing again?

Just interested in people's viewpoints.

 

[dongalong]

Here is some interesting reading for you

 

[lucky8]

It will help, but not as much as everyone is saying. As long as these institutions still have these bad assets on their balance sheets, the money is just going to be spent on keeping them afloat. AIG is a perfect example.

What no one seems to be talking about is the fact that most of these assets currently have little to no value, partly, because the money they were backed by doesn't exist. Since they are mostly backed by high house prices, it's going to take YEARS for them to regain value; house prices aren't just going to stop falling and then magically recover to the levels they need to be in order for these instruments to regain value anytime soon...it's going to take years.

The system was completely unsustainable. CDS's were created backed by and to short CDO's, then more CDO's were created that were backed by CDS payments...completely, utterly, unsustainable. It's going to take a while for the system to unwind, especially since the CDS market is so fucking huge.

The White House has said unemployment is expected to rise for the next 2 years, so obviously they realize that their "plan" isn't going to relieve tightened lending as well as everyone is hoping for.

Dow Jones 5800...

 

[dongalong]

Ron Paul tells some more truths:
YouTube - You're Going To Destroy A Worldwide Economy! Ron Paul

 

[lucky8]

I wonder when people will actually start listening to Ron Paul. The man's idea's about the economy are correct, but the media is too scared to acknowledge it. At least CNBC is starting to come around...

 

[sexplease]

Capitalism is fine when few have major control. There are two problems today:
1. Too many have aspired toward excessive material wealth (perhaps greed) The few at the top have always skimmed off profits from the masses, but for the past 15 years many more have jumped into the house buying game, flipped houses and sold them at profit.
Capitalism is like musical chairs: someone will always loose. But today, we have too many at or aspiring to the top of the pyramid and skimming and not enough at the base to support this scheme. ( kind of like Bernie Madoff's ponse(sp?) scheme)
2. Our monetary system is a Fractional Monetary System. That means our government borrows (bonds) currency from a private bank (the Fed Bank) who is owed this currency back WITH INTEREST. Now where do you suppose that interest comes from? That's right. The government asks for more currency to pay it back. And so... the pyramid cycle continues. The problem is: WE DON NOT have 11,000,000,000 of interest to pay the back to bank. That 11 trillion is the interest on the loan from the bank since it's back-room take-over in 1913.
ok, here's what we should do: Redistribution of wealth - have the oil companies bail out the auto industry. They've been in bed together since the first Model A rolled off Fords assembly line.
Let AIG fail. If people need health care, start at the correct end - eat right. if you're fat, cancer riddled, suffering from clogged arteries, have yellow loose teeth, bad bowels, piss yourself, shit yourself and break out in hives, it is most likely that your eating habbit sucks.
Banks: take them over, burn the paper and melt the printing dies down.
We need a human resourced based economy. One where your skills and talents are of more value than a piece of paper from a do-nothing 3rd person (banks)
Invest in education, health and renewable resources.
Maybe we should sell Alaska. Maybe One World Currency. Paper currency is nearly worthless, especially since the gold standard was removed

now go watch Zeitgeist II (addendum)
Zeitgeist - The Movie

or I.O.U.S.A.
I.O.U.S.A.: The Movie


or Money As Debt
Money As Debt

 

[B_starinvestor]

Capitalism is fine when few have major control. There are two problems today:

Capitalism is like musical chairs: someone will always loose. But today, we have too many at or aspiring to the top of the pyramid and skimming and not enough at the base to support this scheme. ( kind of like Bernie Madoff's ponse(sp?) scheme)

Madoff was an example of fraud; not failed capitalism. Huge difference.

2. Our monetary system is a Fractional Monetary System. That means our government borrows (bonds) currency from a private bank (the Fed Bank) who is owed this currency back WITH INTEREST.

This isn't accurate. The government borrows money by issuing bonds. Private investors buy most of those bonds - both U.S. and foreign investors. The fed buys sometimes, but that isn't what creates the demand.

Now where do you suppose that interest comes from? That's right. The government asks for more currency to pay it back. And so... the pyramid cycle continues. The problem is: WE DON NOT have 11,000,000,000 of interest to pay the back to bank. That 11 trillion is the interest on the loan from the bank since it's back-room take-over in 1913.

Sometimes the gov't will issue bonds to repay older bonds. Nothing wrong with this...its like refinancing a home.

ok, here's what we should do: Redistribution of wealth - have the oil companies bail out the auto industry. They've been in bed together since the first Model A rolled off Fords assembly line.

Why punish shareholders of Exxon Mobil because GM and Ford have run themselves into the ground?

Banks: take them over, burn the paper and melt the printing dies down.
We need a human resourced based economy. One where your skills and talents are of more value than a piece of paper from a do-nothing 3rd person (banks)

This is extreme socialism. Can you cite an example of a thriving socialist economy? One that is prospering in this global crisis?

 

[Bbucko]

This is extreme socialism. Can you cite an example of a thriving socialist economy? One that is prospering in this global crisis?

This crisis is a global crisis because no one is doing well.

Can you cite an economy that is currently "prospering" or "thriving"?

 

[B_starinvestor]

This crisis is a global crisis because no one is doing well.

Can you cite an economy that is currently "prospering" or "thriving"?

No. I responded to the poster above because he proposed implementing socialist policies to 'fix' the recession.

 

[B_Nick8]

Interestingly enough, Ann Coulter announced last night in the middle of her debate with Bill Maher that she was in favor of nationalizing the banks. Unfortunately, it was int the middle of a larger economic discussion and she didn't give any details but I was surprised to hear that.

 

[Jason]

Can you cite an economy that is currently "prospering" or "thriving"?

I don't think there is one at the moment, as the problems are global. But there are economies doing better or worse than others.

Within Europe the UK economy seems to be doing worse than France or Germany - which are countries of a comparable size and economic clout. Among smaller countries Iceland and Hungary are in a dire position, Portugal, Ireland and Greece are looking increasingly bad, but Norway and Switzerland seem to be doing quite well. Central and Eastern European economies seemed slower in feeling the problems, but now seem to be heading for very severe difficulties.

My perception is that while Australia (for example) is certainly feeling the problems (either officially in recession or heading for recession, I can't remember which) it is doing a lot better than the USA.

In the UK and I suppose also in the USA it seems that domestic economic decisions of the last few years have made the downturn worse than it might have been. Iceland shows the folly of speculation. Norway shows the virtue of putting money by for a rainy day.

 

[midlifebear]

Currently, Spain is hurting with unemployment at almost 25%. Argentina, however, is just plugging along trying to keep inflation in check while there is semi-permanent salary freeze on government hiring and spending. But Spain will most likely bounce back faster than expected. It has a nice capitalist society that's run by a nice Socialist Prime Minister who is well-spoken and generally liked. Some banks may fail, but the economy will definitely be supported by the government as long as necessary to get the unemployment figures down.

Germany seems to be the hardest hit of all the EU countries at the moment.

 

[sexplease]

one world bank and currency is on its way. Quietly, and on some not-too-far-off Friday, our gov't will take control of the banks. And the following Monday will be rather interesting.

 

[Jason]

Yes Spain has problems. There seems to be a feeling (and I'm claiming no expertise on this!) that Greece, Portugal or Ireland (or even all three) could crash out of the Euro and there would still be a Euro - but Spain is a bigger economy (as is Italy, also feeling the pinch).

I wasn't aware that Germany was doing worse than other EU economies - maybe it depends what measure you are using.

I don't think one world currency is on the cards. The Euro is causing economic strains at the moment in member countries. Britain is outside the Euro and has seen its currency devalue, a safety valve. But countries within the Euro don't have this option, and it is definitely hurting some. There is a logic in a nation state having its own currency. It is possible to give security by some sort of peg against another currency. For years Ireland pegged their currency to sterling, but it was merely a peg - at need they could change it.

 

[B_RedDude]

From what I've read and heard, what really needs to be done is for the bad assets of these financial institutions to be bought up, taking them off of their books.

An obstacle is uncertainty in the valuation of these assets. Can't SOMEONE figure out a reasonable way to valuate these assets so we can move forward on this?

Is Treasury just wringing its hands on this, or they reallly working on it?

 

[Jason]

Can't SOMEONE figure out a reasonable way to valuate these assets so we can move forward on this?

In a word, no.

Or at least not really, that's why they are toxic.

Think of a UK bank that has made a loan of £200,000 as a 100% mortgage for a house (in the UK £200,000 is a bit above average, and 100% available just a short time ago).

Now that prices have fallen this house is worth say £150,000. It cannot guarantee the loan, even though the owner might be paying the mortgage. The bank might require the owner to come up with £50,000 to secure the position. This would probably cause the owner to go bankrupt. The bank would get the house, but after their fees have been taken out maybe they would raise £140,000. That's a £60,000 loss.

So probably the bank just accepts the monthly mortgage payments. This is fine until the mortgage holder loses his job and cannot pay, in which case it is a forced sale. Too many forced sales just push prices down further.

In order to value the property the bank really needs to look at the worst case scenario value a year from now. And that is pretty gloomy! It seems better to cut your losses now, which means the bank should force a sale now and recover what it can.

The hope is that we get some upward movement in property prices. The number of toxic debts reduce, and even where they remain the assumption is, hang in there and in time it will get better.

I'm sure lots of guys on this board can explain it better than I can (especially at nearly 3am!), but I think the problem exists precisely because no-one can put a figure on the toxic debts.

 

[lucky8]

This isn't accurate. The government borrows money by issuing bonds. Private investors buy most of those bonds - both U.S. and foreign investors. The fed buys sometimes, but that isn't what creates the demand.

This isn't accurate either. According to my Fixed Income Securities and Markets text book, which was written by Frederic Mishkin, a member of the Board of Directors for the Federal Reserve, the Fed stimulates and stiffles demand for bonds by buying and selling them at a much greater rate than do private investors...I'm putting my money on the guy who actually works at the Fed

 

[B_starinvestor]

This isn't accurate either. According to my Fixed Income Securities and Markets text book, which was written by Frederic Mishkin, a member of the Board of Directors for the Federal Reserve, the Fed stimulates and stiffles demand for bonds by buying and selling them at a much greater rate than do private investors...I'm putting my money on the guy who actually works at the Fed

The Fed owns less than half of the US Treasury Bonds. For me to say 'sometimes' was misleading. Below is a pie chart showing ownership of US Treasury Bonds.

http://www.optimist123.com/optimist/2007/03/updated_pie_cha.html

 

[lucky8]

K, but that doesn't change the fact that the Fed controls the supply of bonds, which in turn means they also control the demand. It's an interesting topic

 

[B_starinvestor]

K, but that doesn't change the fact that the Fed controls the supply of bonds, which in turn means they also control the demand. It's an interesting topic

I'm not splitting hairs, Lucky, but the Fed doesn't control the supply of Treasury bonds.

The treasury dept issues treasury bonds - they control the supply. The Fed can go out and buy treasuries on the open market to help drive interest rates down, or it can sell treasuries which will push bond yields up. But the supply of T-bonds is a finite number of securities controlled by the treasury dept. The fed has zero control over the supply of treasuries. However, they can influence treasury prices with buying and selling.

It is an interesting topic, especially when you consider that most of our national debt is owed to ourselves - between the fed, private U.S. investors and institutional U.S. investors.

Contrary to popular belief, our 'bank' isn't China and it isn't Japan. Its ourselves.