2008 Financial Thread

[texaspackerbacker]

"Should not be homeowners"--how can you say such a thing? You who pretends to be a Republican/conservative. This is as bad as saying people should be FORCED against their will to have health insurance.

This is America, for God sake. Freedom of choice and the market place determine such things, NOT some government regulation dictating outcomes.

If there are people who THE MARKET determines shouldn't own homes, they will lose them through foreclosure. While the absolute number of those may be fairly large, the percentage of foreclosures to total mortgages is miniscule.

Furthermore, with interest so pleasantly low as it is, if those people you say SHOULDN'T be allowed to own homes could not buy, they would have to rent. And rent of real estate is and has consistently been more expensive than mortgage payments. Maybe you think these people should live in cardboard boxes or something.

[HowardRoark]

"Should not be homeowners"--how can you say such a thing?

Because they can't afford them. They bought beyond their means via social engineering policies that now hurt them and our economy.

They were tinkering with the Invisible Hand the last 15 years.

[Kiwon]

Smoking gun from 2004: http://www.youtube.com/watch?v=_MGT_cSi7Rs

The Democrats flatly reject Republican calls for mortgage housing reform even as their own regulator warns of an impending disaster.

8:37 minutes of video demonstrates that what's currently coming out of the mouths of Pelosi, Dodd, Reed, and Frank are outright lies.

[Kiwon]

Great article.

http://edition.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html?iref=mpstoryview

.................................................. ...................

Commentary: Bankruptcy, not bailout, is the right answer

Editor's note: Jeffrey A. Miron is senior lecturer in economics at Harvard University. A Libertarian, he was one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan.

CAMBRIDGE, Massachusetts (CNN) -- Congress has balked at the Bush administration's proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the "troubled assets" of financial institutions in an attempt to avoid economic meltdown.

This bailout was a terrible idea. Here's why.

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

The costs of the bailout, moreover, are almost certainly being understated. The administration's claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.

Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.

[Kiwon]

Dow closes up 485.....sans a bailout.

That's great to see.

[Scott Campbell]

Dow closes up 485.....sans a bailout.

That's great to see.

Today I was rewarded for not panicking. Yay!

[oregonpackfan]

The grave yard of the financial / investment firms continues to grow.

1. Bear Sterns
2. Merrill Lynch
3. Lehman Brothers
4. Washington Mutual
5. Fannie Mae
6. Freddie Mac
7. Wachovia
8. ???? who’s next

As long as Americans put their faith in Secretary Treasury Henry Paulson and follow his advice, everything will be all right.

Paulson was the former CEO of Goldman Sachs and earned tens of millions of dollars a year before being appointed to his current position by George W. Bush.

Yes, Paulson is more concerned about the Americans on Main Street than he is of his colleagues on Wall Street.

[mraynrand]

Isold all my assets and invested into a growth business.

[Kiwon]

LOL, mraynrand.

By the way, can you spare a dime?

.................................................. ....

More wisdom from yesteryear. I'm parapharasing.

Will Rodgers quipped, "American is the only county in the world where people go to the poor house in a Cadillac."

[Kiwon]

Dow's below 10,000. My stocks are running down another 12%+ right now AFTER the all important bailout.

The government has sold us out.

[LL2]

It will be a long while before the bailout deal benefits the economy and helps anyone out. Cash is king right now.

[Kiwon]

It will be a long while before the bailout deal benefits the economy and helps anyone out. Cash is king right now.

In the meantime, will the European and Asian governments and central banks hold up their ends to stabilize the markets?

What a house of cards.

[LL2]

The silver lining in all of this is that Cambell Soup's stock remains virtually unchanged and still pretty much at it's 52 week high. Does that mean people will be stocking up on soup?

http://finance.yahoo.com/q?s=CPB

[Freak Out]

The silver lining in all of this is that Cambell Soup's stock remains virtually unchanged and still pretty much at it's 52 week high. Does that mean people will be stocking up on soup?

http://finance.yahoo.com/q?s=CPB

Soup lines are getting longer. Solid buy in this market.

[LL2]

I made the mistake today of looking at our portfolio...it's down 34% for the year!