WHAT IF NO "BAIL OUT" GETS PASSED?

[bobblehead]

According to a letter I received from Mass Mutual today I have nothing to worry about....my investments are safe.

Until the entire economy tanks because capital is no longer available to build thus costing jobs, which in turn costs sales revenue which hurts reinvestment which in turn causes more lost jobs.

You guys really don't get it do you?

It'll be ok, all the construction jobs are held by illegals anyway...

you mean those $32/hour jobs americans wont' do?

[bobblehead]

I don't get in the habit of posting my private emails, but I sent this to a friend this morning. I won't preface what the conversation was, or edit this beast, but this is what happened and is happening. The only editing I did involved personal info and names.

The derivitives market dates to 1995 when congress, in order to actually sell BS affirmative action mortgages, changed regulations on how mortgage based securities were bundled and sold...thus allowing subprime mortgages to be sold/MARKETED the same as prime mortgages. They passed that deregulation BECAUSE the banks they were forcing to make shitty loans couldn't sell them to the investors. Anyone aware of what was going on could have predicted this outcome...I was ignorant at the time and only really became aware of all this about june last year. This is why you and I and everyone else is stuck with worthless paper and never saw it coming. Make no mistake, the "trading vehicles" you speak of were created due to deregulation specifically aimed at making crappy loans so we could "empower" nonworthy borrowers.

The real problem with buffet is that he had no fricking clue either until it was too late (or he didn't care). By 2005 anyone with a brain saw a problem, buffet just had the market knowledge to pin point ONE of the issues. He is not so brilliant on this. It was also far too late. If we had acted then and there we still would have a big problem...just not quite as bad. But again, congress and financial leaders were well aware of what was going on YEARS ago and did nothing...why? congress wanted minorities in homes (they couldn't afford) and financiers were making BANK in writing bad mortgages and passing them on to fannie, freddie, ect. Once many people saw the problem we stopped buying said bad paper and those that borrowed it realized that they had no incentive to pay us anymore...thus a MASSIVE credit crisis/crunch.

You're wrong about the banks not worrying cuz the housing market kept going up, they weren't worrying because they just sold off the bad loans (disguised as mortgage backed securities). their problem came when the buyers realized what they were buying and hung them with the last round of bad loans. Prior to that they didn't care about the risk. then all their assets were tied up in bad mortgages.

Finally the reason I saw the walk away coming is because I live in possibly the perfect place to see it coming. A lot of uneducated people (many first generation immigrants) making 60k plus in a growing city. Many of these same people were coming to me a year ago asking what they should do. " I bought my house for 450k thinking it would go up 100k in a year but now it has dropped 100k, what should I do??" (save the sarcasm, I know). My answer was simple. Stop paying, stay in the house til the marshall evicts you (usually 9 months or so), stash your mortgage payment in a safety deposit box and walk away from it with trashed credit. Then rent a property for 5 years (at half the monthly outlay) while you rebuild your life. Most of these people had nothing invested anyway (0 down, 5 year interest only loans) and had nothing going in. they somehow believed that they had been wronged out of a ton of money (none of which they put up) when in reality they had wronged the banks out of a ton of money (but the banks were the morons who loaned them money). Predicting the housing market crash was econ 101, predicting the walk away and problems that ensued were simply knowing how the credit/finance markets work. I did have 5 years of the finest education XXXX had to offer and a mother that ran a bank my entire childhood...and as I said, it didn't take a rocket scientist to see it coming....(mutual Friend) got qualified for a 200k mortgage....any more questions?

[bobblehead]

That is THE POINT!!! Even the lesser of these two values is a far cry from "worthless". And there is such a tiny tiny amount of bad apples that it is beyond common sense that they could ruin any significant portion of the barrels--these clusters of mortgages. Yet we are being told that so many of these mortgage securities are "bad assets" that the "bail out" is needed. How is that NOT ludicrous?

It is ludicrous.

Then what are we arguing about? Are you saying you agree, the idea of the so-called "crisis" in real estate and the miniscule percentage of defaults and foreclosures of property still having value is NOT sufficient to justify all the crap being spewed by the Washington and Wall Street elite to try and justify this "bail out"? I hope you agree, but somehow, I doubt it.

Tex...the problem RIGHT NOW is that many people are sitting on cash afraid to invest. The lending market is all but frozen. businesses across america count on short term loans to allow them to smoothly roll inventories. Bigger corps need longer term loans to allow them to expand where needed (and if they don't the guy they supply is screwed and looks elsewhere for a supplier). Lending capital is the grease that makes our economic engine turn...we are woefully short on grease right now. This IS a problem. Unemployment is creeping up, GDP is creeping down. It is not the goddamned leftist media making things up. We will see a reversion to older america soon where 8% unemployment is considered normal. Excusse me now, I gotta go see bosley to replace the hair I just pulled out reading this thread.

[Tyrone Bigguns]

There are economic based writers whose opinion I trust and tend to lean toward the right that have pretty much said that the credit market was literally minutes away from going completely off the tracks before the "RTC 2.0" proposal was made on last Thursday afternoon.

I'm worried about a great depression and where it would lead. Let's not forget that it was a major factor in creating conditions that led to WW2.

[HowardRoark]

There are economic based writers whose opinion I trust and tend to lean toward the right that have pretty much said that the credit market was literally minutes away from going completely off the tracks before the "RTC 2.0" proposal was made on last Thursday afternoon.

I'm worried about a great depression and where it would lead. Let's not forget that it was a major factor in creating conditions that led to WW2.

This is correct.

[Tyrone Bigguns]

There are economic based writers whose opinion I trust and tend to lean toward the right that have pretty much said that the credit market was literally minutes away from going completely off the tracks before the "RTC 2.0" proposal was made on last Thursday afternoon.

I'm worried about a great depression and where it would lead. Let's not forget that it was a major factor in creating conditions that led to WW2.

This is correct.

well, now i feel validated.

I'm not tex. I understand we are in a very precarious situation...i'm really not on board for giving money to companies, but it seems like a sword of damocles type situation. So, i will hold my nose.

[bobblehead]

There are economic based writers whose opinion I trust and tend to lean toward the right that have pretty much said that the credit market was literally minutes away from going completely off the tracks before the "RTC 2.0" proposal was made on last Thursday afternoon.

I'm worried about a great depression and where it would lead. Let's not forget that it was a major factor in creating conditions that led to WW2.

This is correct.

seconded...very correct

[texaspackerbacker]

That is THE POINT!!! Even the lesser of these two values is a far cry from "worthless". And there is such a tiny tiny amount of bad apples that it is beyond common sense that they could ruin any significant portion of the barrels--these clusters of mortgages. Yet we are being told that so many of these mortgage securities are "bad assets" that the "bail out" is needed. How is that NOT ludicrous?

It is ludicrous.

Then what are we arguing about? Are you saying you agree, the idea of the so-called "crisis" in real estate and the miniscule percentage of defaults and foreclosures of property still having value is NOT sufficient to justify all the crap being spewed by the Washington and Wall Street elite to try and justify this "bail out"? I hope you agree, but somehow, I doubt it.

Tex...the problem RIGHT NOW is that many people are sitting on cash afraid to invest. The lending market is all but frozen. businesses across america count on short term loans to allow them to smoothly roll inventories. Bigger corps need longer term loans to allow them to expand where needed (and if they don't the guy they supply is screwed and looks elsewhere for a supplier). Lending capital is the grease that makes our economic engine turn...we are woefully short on grease right now. This IS a problem. Unemployment is creeping up, GDP is creeping down. It is not the goddamned leftist media making things up. We will see a reversion to older america soon where 8% unemployment is considered normal. Excusse me now, I gotta go see bosley to replace the hair I just pulled out reading this thread.

Aynrand, this strikes me as another one of those "I'm OK, but I just know so many others aren't OK" situations. I'm more and more convinced that some of these big financial companies who are salivating to get a chunk of that $700 billion are sort of holding the country hostage THREATENING what you are talking about--shutting down short term credit. I really don't think that would be a natural result without some sinister force making it happen intentionally.

The question is, will they do it if their bluff is called? The other question, as I asked at the beginning of this thread, is what happens if they do? I just don't see a deliberate sabotaging of short term credit as being something the wrongdoers can sustain for long enough to do real harm.

I doubt we will find out the answer to either question, though, as a deal will probably be rammed through. As Rush said today, the Dems have the votes to make it happen by themselves if they really want it.

[bobblehead]

That is THE POINT!!! Even the lesser of these two values is a far cry from "worthless". And there is such a tiny tiny amount of bad apples that it is beyond common sense that they could ruin any significant portion of the barrels--these clusters of mortgages. Yet we are being told that so many of these mortgage securities are "bad assets" that the "bail out" is needed. How is that NOT ludicrous?

It is ludicrous.

Then what are we arguing about? Are you saying you agree, the idea of the so-called "crisis" in real estate and the miniscule percentage of defaults and foreclosures of property still having value is NOT sufficient to justify all the crap being spewed by the Washington and Wall Street elite to try and justify this "bail out"? I hope you agree, but somehow, I doubt it.

Tex...the problem RIGHT NOW is that many people are sitting on cash afraid to invest. The lending market is all but frozen. businesses across america count on short term loans to allow them to smoothly roll inventories. Bigger corps need longer term loans to allow them to expand where needed (and if they don't the guy they supply is screwed and looks elsewhere for a supplier). Lending capital is the grease that makes our economic engine turn...we are woefully short on grease right now. This IS a problem. Unemployment is creeping up, GDP is creeping down. It is not the goddamned leftist media making things up. We will see a reversion to older america soon where 8% unemployment is considered normal. Excusse me now, I gotta go see bosley to replace the hair I just pulled out reading this thread.

Aynrand, this strikes me as another one of those "I'm OK, but I just know so many others aren't OK" situations. I'm more and more convinced that some of these big financial companies who are salivating to get a chunk of that $700 billion are sort of holding the country hostage THREATENING what you are talking about--shutting down short term credit. I really don't think that would be a natural result without some sinister force making it happen intentionally.

The question is, will they do it if their bluff is called? The other question, as I asked at the beginning of this thread, is what happens if they do? I just don't see a deliberate sabotaging of short term credit as being something the wrongdoers can sustain for long enough to do real harm.

I doubt we will find out the answer to either question, though, as a deal will probably be rammed through. As Rush said today, the Dems have the votes to make it happen by themselves if they really want it.

It was me not ayn, but i agree with one thing, we gotta tread lightly here, some undeserving people will undoubtedly get some of this package.

[texaspackerbacker]

That is THE POINT!!! Even the lesser of these two values is a far cry from "worthless". And there is such a tiny tiny amount of bad apples that it is beyond common sense that they could ruin any significant portion of the barrels--these clusters of mortgages. Yet we are being told that so many of these mortgage securities are "bad assets" that the "bail out" is needed. How is that NOT ludicrous?

It is ludicrous.

Then what are we arguing about? Are you saying you agree, the idea of the so-called "crisis" in real estate and the miniscule percentage of defaults and foreclosures of property still having value is NOT sufficient to justify all the crap being spewed by the Washington and Wall Street elite to try and justify this "bail out"? I hope you agree, but somehow, I doubt it.

Tex...the problem RIGHT NOW is that many people are sitting on cash afraid to invest. The lending market is all but frozen. businesses across america count on short term loans to allow them to smoothly roll inventories. Bigger corps need longer term loans to allow them to expand where needed (and if they don't the guy they supply is screwed and looks elsewhere for a supplier). Lending capital is the grease that makes our economic engine turn...we are woefully short on grease right now. This IS a problem. Unemployment is creeping up, GDP is creeping down. It is not the goddamned leftist media making things up. We will see a reversion to older america soon where 8% unemployment is considered normal. Excusse me now, I gotta go see bosley to replace the hair I just pulled out reading this thread.

Aynrand, this strikes me as another one of those "I'm OK, but I just know so many others aren't OK" situations. I'm more and more convinced that some of these big financial companies who are salivating to get a chunk of that $700 billion are sort of holding the country hostage THREATENING what you are talking about--shutting down short term credit. I really don't think that would be a natural result without some sinister force making it happen intentionally.

The question is, will they do it if their bluff is called? The other question, as I asked at the beginning of this thread, is what happens if they do? I just don't see a deliberate sabotaging of short term credit as being something the wrongdoers can sustain for long enough to do real harm.

I doubt we will find out the answer to either question, though, as a deal will probably be rammed through. As Rush said today, the Dems have the votes to make it happen by themselves if they really want it.

It was me not ayn, but i agree with one thing, we gotta tread lightly here, some undeserving people will undoubtedly get some of this package.

Sorry about mixing you up with aynrand, Bobblehead. At least I called you somebody good--not one of the slimey leftists.

Talk about undeserving, one of the provisons the leftists were trying to include in the fine print was that 20% of the funds was to go to an organization called "ACORN"--some sort of minority housing outfit that Obama used to work with, and that has several people under indictment for corruption or something.

I believe part of the motivation for this is to create an atmosphere of economic crisis to try and help Obama--divert away from national security, defense, foreign policy, social issues, etc. where Obama is so weak.

I think the other part of the motivation for contriving a phony crisis is the fact the the Dem/libs expect Obama to win, and that he and his people will be the beneficiaries of this huge Executive Branch power grab. And if, as many expect, eventually these assets will bounce back in value, the money grabbed now will help pay for Obama's horrendous spending programs later.

And they want to get Republicans aboard so when people realize they've been had, they will blame all Washington politicians, not just Dodd, Dirty Harry, Barney Fag,etc. And a lot of Republicans are falling right into it.

[Freak Out]

I know this approach is abhorrent to some but it worked.

September 23, 2008
Stopping a Financial Crisis, the Swedish Way
By CARTER DOUGHERTY

Correction Appended

A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar?

It does to Sweden. The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent.

But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

“If I go into a bank,” said Bo Lundgren, who was Sweden’s deputy minister of finance at the time, “I’d rather get equity so that there is some upside for the taxpayer.”

Sweden spent 4 percent of its gross domestic product, or 65 billion kronor, the equivalent of $11.7 billion at the time, or $18.3 billion in today’s dollars, to rescue ailing banks. That is slightly less, proportionate to the national economy, than the $700 billion, or roughly 5 percent of gross domestic product, that the Bush administration estimates its own move will cost in the United States.

But the final cost to Sweden ended up being less than 2 percent of its G.D.P. Some officials say they believe it was closer to zero, depending on how certain rates of return are calculated.

The tumultuous events of the last few weeks have produced a lot of tight-lipped nods in Stockholm. Mr. Lundgren even made the rounds in New York in early September, explaining what the country did in the early 1990s.

A few American commentators have proposed that the United States government extract equity from banks as a price for their rescue. But it does not seem to be under serious consideration yet in the Bush administration or Congress.

The reason is not quite clear. The government has already swapped its sovereign guarantee for equity in Fannie Mae and Freddie Mac, the mortgage finance institutions, and the American International Group, the global insurance giant.

Putting taxpayers on the hook without anything in return could be a mistake, said Urban Backstrom, a senior Swedish finance ministry official at the time. “The public will not support a plan if you leave the former shareholders with anything,” he said.

The Swedish crisis had strikingly similar origins to the American one, and its neighbors, Norway and Finland, were hobbled to the point of needing a government bailout to escape the morass as well.

Financial deregulation in the 1980s fed a frenzy of real estate lending by Sweden’s banks, which did not worry enough about whether the value of their collateral might evaporate in tougher times.

Property prices imploded. The bubble deflated fast in 1991 and 1992. A vain effort to defend Sweden’s currency, the krona, caused overnight interest rates to spike at one point to 500 percent. The Swedish economy contracted for two consecutive years after a long expansion, and unemployment, at 3 percent in 1990, quadrupled in three years.

After a series of bank failures and ad hoc solutions, the moment of truth arrived in September 1992, when the government of Prime Minister Carl Bildt decided it was time to clear the decks.

Standing shoulder-to-shoulder with the opposition center-left, Mr. Bildt’s conservative government announced that the Swedish state would guarantee all bank deposits and creditors of the nation’s 114 banks. Sweden formed a new agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral.

Sweden told its banks to write down their losses promptly before coming to the state for recapitalization. Facing its own problem later in the decade, Japan made the mistake of dragging this process out, delaying a solution for years.

Then came the imperative to bleed shareholders first. Mr. Lundgren recalls a conversation with Peter Wallenberg, at the time chairman of SEB, Sweden’s largest bank. Mr. Wallenberg, the scion of the country’s most famous family and steward of large chunks of its economy, heard that there would be no sacred cows.

The Wallenbergs turned around and arranged a recapitalization on their own, obviating the need for a bailout. SEB turned a profit the following year, 1993.

“For every krona we put into the bank, we wanted the same influence,” Mr. Lundgren said. “That ensured that we did not have to go into certain banks at all.”

By the end of the crisis, the Swedish government had seized a vast portion of the banking sector, and the agency had mostly fulfilled its hard-nosed mandate to drain share capital before injecting cash. When markets stabilized, the Swedish state then reaped the benefits by taking the banks public again.

More money may yet come into official coffers. The government still owns 19.9 percent of Nordea, a Stockholm bank that was fully nationalized and is now a highly regarded giant in Scandinavia and the Baltic Sea region.

The politics of Sweden’s crisis management were similarly tough-minded, though much quieter.

Soon after the plan was announced, the Swedish government found that international confidence returned more quickly than expected, easing pressure on its currency and bringing money back into the country. The center-left opposition, while wary that the government might yet let the banks off the hook, made its points about penalizing shareholders privately.

“The only thing that held back an avalanche was the hope that the system was holding,” said Leif Pagrotzky, a senior member of the opposition at the time. “In public we stuck together 100 percent, but we fought behind the scenes.”

This article has been revised to reflect the following correction:

Correction: September 27, 2008
An article and a picture caption on Tuesday about Sweden’s response to its 1992 financial crisis misstated the position at the time of Bo Lundgren, who described Sweden’s strategy and commented on the United States’ proposals for resolving its own crisis. He was the deputy minister of finance — not the finance minister, a post held by Anne Wibble.

[bobblehead]

That is a very solid approach to the problem...no way our congress does it.

[MJZiggy]

That is a very solid approach to the problem...no way our congress does it.

Lol...I wonder what happens if everyone starts asking there congressional leaders about it.

[Joemailman]

Deregulation of the banking industry has now led to an unprecedented intervention of the government into the banking industry. Perhaps some day we'll learn that when you deregulate financial markets, the scoundrels move in. But it's not the scoundrels who pay.

[Tyrone Bigguns]

Deregulation of the banking industry has now led to an unprecedented intervention of the government into the banking industry. Perhaps some day we'll learn that when you deregulate financial markets, the scoundrels move in. But it's not the scoundrels who pay.

Which is going to lead to Socialism!

Thank you conservatives...your policies are the magic touch!