Wasn't the Bailout About Providing Liquidity?
- Thread starter SleepWalkerX
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frostedflakes
Diamond Member
- Mar 1, 2005
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By forcing every bank to take money we've forced the healthy banks to take money as well. Our economy is beyond f*cked. Nothing makes sense. I think this is just a little game created by our government to see how much it could get away with.
From which organization? The crooks that stole your money to give to the banks? You want them to come up with more laws? Seriously?
First
Lifer
- Jun 3, 2002
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You'll first have to explain why, since the bailout, there hasn't been run-away inflation, why the dollar has gotten significantly stronger, and why gold is now at $740, down over $100 since the bailout passed. Then maybe we can have a discussion about why credit markets are thawing and why you, well, just don't get what's going on in this big, bad complicated world.
Because we are undergoing a period of monetary deflation. The speculation that arose from housing prices are being readjusted to prices that reflect real incomes and not imaginative wealth. People are walking away from homes because they are unable to meet payments on their ARM. Without ARMs and without rising housing prices, there is no reason to pay the exorbiant rates that these homes went for so no one is willing to buy them.
Some banks are insolvent because when people walk away from loans they disappear. Money is not destroyed, but credit is. Then add in the fact that banks must now sell off their homes at lower values so its harder to recoup the costs.
Gold rose for so long because we underwent inflation. As long as prices rose for everything else (oil, random goods) so did gold. Add in uncertainty and gold does really well. Now that everyone is hoarding cash, everyone is living more frugally. Combine that with credit being destroyed and now prices for everything are down.
Its hard to say when inflation will kick in, but that is the path our government will choose. Its already trading junk bonds for treasury securities. However, inflation didn't work for Japan so there's a chance it might not work here. However, that doesn't change the fact that our government is inflating and will continue a policy of inflation. The question is which one will be more noticeable and how far will the government go?
Credit markets are going to get worse, they are not thawing. (I'm not a banking expert so I'm not sure exactly how credit is being destroyed from loans, but it is disappearing)
No argument there
Money removed from circulation and lending is a contraction in supply.
Gold rose for so long and high because it was an inflated bubble and still is. The prices rose because people were bearish on the dollar, unreasonably, and because there was rampant speculation. The same thing that happened with houses, unrestrained leverage, happened with commodities. Gold would have fallen much more if it weren't still seen as a "safe" investment.
It isn't inflation if wealth is invested into the system and continues to be invested while the population grows. This is the key part that RPBs never get.
If you aren't a credit expert than don't opine. The markets are getting marginally better. First thing you will see is the CP markets come back, with ABCP market rates going down. Following that you'll see term (AB)CP being placed (AB)CP longer than overnight.
I think you'll see some term market activity in Q1.
The rescue plan was never an instant remedy, but a long-term one meant to slowly thaw the markets.
As far as the banks using rescue funds to buy other banks, so fucking what? The intent of the rescue plans wasn't to draw a line in the sand and say "no more!", it was to further strengthen the strong, bolster the weak, and provide interim support for the faltering until they could be purchased by the former two.
brandonbull
Diamond Member
- May 3, 2005
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If the financial institutions were already "to large to fail", how is allowing mergers with a plan people were sold on to prevent a crash a good thing? I don't see the silver lining of financial institutions becoming more centralized.
I will give it to them boys on Wall St. They do find ways to stay on step ahead of most people. First, they can somehow make their style of gambling completely legal and no one cares. Second, when their giant ponzy scheme comes crashing down they talk people into giving them more money so they can get rid of their competition and are allowed to concentrate their financial control.
I will give it to them boys on Wall St. They do find ways to stay on step ahead of most people. First, they can somehow make their style of gambling completely legal and no one cares. Second, when their giant ponzy scheme comes crashing down they talk people into giving them more money so they can get rid of their competition and are allowed to concentrate their financial control.
Here's the followup to this important thread. I missed this thread the first time around. Sorry, mate. 
http://www.nytimes.com/2008/10.../29wed1.html?th&emc=th
As I said after I read the entire bailout legislation, Congress did not do its job. There are no teeth in the golden parachute restrictions, almost no restrictions on Treasury Secretary Paulson's authority, and this money is unlikely to help the economy. Here's why:
1. Administrative costs will eat up huge portions of the 700 billion. It might be as much as 40% of the total amount;
2. Bank executives will get huge performance incentives and bonuses because they got the money from Treasury, and used it to pad their P and L.
3. Treasury does not understand our economy, and assuming it does understand our economy, it isn't acting in the best interests of consumers, but in the best interests of Paulson's cronies in the banking industry.
4. The whole scheme is shot through with a faulty assumption: Top down help is better than bottom up help. I disagree.
5. By the time the next Treasury Secretary comes on board, the money will be gone. Trust me, Paulson will unload that money as quickly as he can so he will have a cushy job at one of these banks when he leaves Treasury and looks like an angel to the banking community.
6. Yes, 3 month LIBOR has gone up and credit has NOT eased much (commercial paper IS being bought by Treasury, so we'll see.). In fact, if you look at the new credit card terms and conditions that are starting to arrive in the mail, you will see that your credit card company is raising rates, effectively DAMPENING CREDIT. Credit may ease in coming months. But, again, this will be a long, slow, painful process.
7. This bailout was brought to you because so many of these large banks have BOUGHT CONGRESS. How could it be the right solution?
In short, this is yet another reason for fiscal conservatives to be displeased with the Bush administration and the idiots in this Congress.
Just say no to bailouts (unless they are structured properly, which can't be done in two weeks).
-Robert
http://www.nytimes.com/2008/10.../29wed1.html?th&emc=thAs I said after I read the entire bailout legislation, Congress did not do its job. There are no teeth in the golden parachute restrictions, almost no restrictions on Treasury Secretary Paulson's authority, and this money is unlikely to help the economy. Here's why:
1. Administrative costs will eat up huge portions of the 700 billion. It might be as much as 40% of the total amount;
2. Bank executives will get huge performance incentives and bonuses because they got the money from Treasury, and used it to pad their P and L.
3. Treasury does not understand our economy, and assuming it does understand our economy, it isn't acting in the best interests of consumers, but in the best interests of Paulson's cronies in the banking industry.
4. The whole scheme is shot through with a faulty assumption: Top down help is better than bottom up help. I disagree.
5. By the time the next Treasury Secretary comes on board, the money will be gone. Trust me, Paulson will unload that money as quickly as he can so he will have a cushy job at one of these banks when he leaves Treasury and looks like an angel to the banking community.
6. Yes, 3 month LIBOR has gone up and credit has NOT eased much (commercial paper IS being bought by Treasury, so we'll see.). In fact, if you look at the new credit card terms and conditions that are starting to arrive in the mail, you will see that your credit card company is raising rates, effectively DAMPENING CREDIT. Credit may ease in coming months. But, again, this will be a long, slow, painful process.
7. This bailout was brought to you because so many of these large banks have BOUGHT CONGRESS. How could it be the right solution?
In short, this is yet another reason for fiscal conservatives to be displeased with the Bush administration and the idiots in this Congress.
Just say no to bailouts (unless they are structured properly, which can't be done in two weeks).
-Robert
Originally posted by: chess9
Here's the followup to this important thread. I missed this thread the first time around. Sorry, mate.
As I said after I read the entire bailout legislation, Congress did not do its job. There are no teeth in the golden parachute restrictions, almost no restrictions on Treasury Secretary Paulson's authority, and this money is unlikely to help the economy. Here's why:
1. Administrative costs will eat up huge portions of the 700 billion. It might be as much as 40% of the total amount;
Administrative costs costing $280bn? Please, that's an absolutely ridiculous number. Comp for a banks that have $1TR under management cost a fraction of that annually. BAC has $1.7TR in AUM and their SGAE is under $9BN.
This is an assumption, not fact. Even if they do receive some compensation it doesn't mean that they shouldn't get it. Do you expect them to work for free?
So you understand the economy? Great, then why don't you stop being an internet monday morning quarterback and volunteer to run the whole thing for us, since you're so great at it I imagine that you have already accumulated the experience, education, and knowledge, to do so, right?
Look, the dow hit 8,000 despite the eventual effectuation of the rescue plan. What would have happened without that? DJIA 3,000? 2,000? Most assuredly we'd have another depression, perhaps an even worse one than before. How much wealth, jobs, lives, assets, would be destroyed through that process?
I guess keeping the economy alive, even if on life support, isn't important to anybody but "paulson's cronies"
That's a debate that can go on forever. Forgive debts and you create an even bigger moral hazzard than taking effective control over the banks. Consumers aren't nearly as regulated as banks.
More conjecture.
[/quote]
6. Yes, 3 month LIBOR has gone up and credit has NOT eased much (commercial paper IS being bought by Treasury, so we'll see.). In fact, if you look at the new credit card terms and conditions that are starting to arrive in the mail, you will see that your credit card company is raising rates, effectively DAMPENING CREDIT. And look at long term LIBOR: http://www.uwcu.org/Products/SaveInvest/LIBOR.aspx The suggestion there is that credit may ease in coming months. But, again, this will be a long, slow, painful process.
[/quote]
3-mo LIBOR *HAS* come down, significantly. One of the big problems with CC companies have right now is the actual availability of funding and the cost. Right now AAA 5-year card spreads are at 450+, so regardless of where LIBOR is, the spreads are what's killing cards right now. That's why many banks are utilizing ABCP conduits to fund their cards.
That being said, things *ARE* easing up inside the credit markets. It will be a slow process, we had made headway prior to July but we took all of it back and lost more. The moves the Fed and Treasury are making are already having a positive effect.
More hyperbole.
So, it's good the banks are using the bailout money to buy other banks when a principle reason for the bailout was to improve liquidity? 65 billion dollars of the money is being spent so banks can buy other banks and control a larger piece of the pie?
Yes, I'm just an amateur economist, and I'm sure I'm wrong and you are right, but you didn't respond to the NYT piece which is central to this whole discussion.
Btw, yes, 3 month LIBOR came down but it's been going back up for 4 months! Almost continuously. That number was widely touted as one reason for the bailout, yet only longer term LIBOR has come down.
Regardless of the reasons, we won't see interest rates drop on credit cards any time soon, which will be a drag on the economy. Rising interest rates to consumers is not a good sign for the efficacy of the bailout.
I trust consumers no more than I trust bankers, and I don't advocate wiping out debt. I advocate a public works program, per Stieglitz, that would give us VALUE for our money, rather than artificially padding the P and Ls of the banking industry without benefit to the overall economy. Your comments about my comments are worse hyperbole than mine! You win the hyperbole battle! Congrats, your credit cards will now carry a 30% interest rate.
-Robert
Yes, I'm just an amateur economist, and I'm sure I'm wrong and you are right, but you didn't respond to the NYT piece which is central to this whole discussion.
Btw, yes, 3 month LIBOR came down but it's been going back up for 4 months! Almost continuously. That number was widely touted as one reason for the bailout, yet only longer term LIBOR has come down.
Regardless of the reasons, we won't see interest rates drop on credit cards any time soon, which will be a drag on the economy. Rising interest rates to consumers is not a good sign for the efficacy of the bailout.
I trust consumers no more than I trust bankers, and I don't advocate wiping out debt. I advocate a public works program, per Stieglitz, that would give us VALUE for our money, rather than artificially padding the P and Ls of the banking industry without benefit to the overall economy. Your comments about my comments are worse hyperbole than mine! You win the hyperbole battle! Congrats, your credit cards will now carry a 30% interest rate.
-Robert
The situation goes hand in hand. Stronger banks should acquire less strong banks, even if the less strong ones have been bolstered. Half the component of liquidity is confidence, M&A of weaker banks builds confidence as it stops more failures.
I responded to your spin.
Short and long-term rates peaked a few weeks ago and are now coming down significantly. I'd suggest you actually look up data that's up to date rather than spreading FUD.
http://www.economagic.com/libor.htm#US
Having worked for a credit card company before, in their funding/securitization department, I can tell you that interest rates aren't dictated totally by index funding. There's also spread over index (450+bps right now for AAA bonds), default mix, servicing costs, and other admin costs. All of that has increased significantly. In the face of raising costs (funding and admin), excess spread in the portfolios has declined. Thus, the costs haven't been fully passed on.
Furthermore, WAC on the portfolios hasn't increased all that much. Your 30% hyperbole is bullshit, because the WAC isn't even close to that.
Yeah, publics works is going to prevent the problem. Please, that's something you enact on the back-end if everything you've tried to do has failed.
The rescue plan will take time. You're already saying it has failed because you haven't seen movement in rates. Yet, we have seen movement despite the rescue plan NOT EVEN BUYING A DOLLAR OF SECURITIES YET. This isn't a fucking car where you turn the key and it works.
Bank consolidation is what has to happen. Its essentially a triage. Nouriel Roubini talks about this as one of the steps to avoid a crisis. Read up on him and you will see this is not a bad thing, but a necessary thing.
It may be helpful to happen, but no one told the public the bailout money would be spent on acquisitions. The bailout was done primarily to enhance liquidity and credit markets, or that's how it was sold. If banks use the money for acquisitions rather than lending, how are the credit markets going to be improved in the near term? This was sold as an emergency measure, which is why the POS bill was put together in a couple of days.
I can understand how these acquisitions might help the individual banks' P and L, but even assuming that LIBOR improves when will credit liquidity improve? It looks very far out there....
"Textbook wisdom on escaping a liquidity trap is unlikely to work in the current situation, because we are in the unique situation of a combination of a liquidity trap and a credit crunch." That's from Roubini's web site and the whole article is here. His views makes sense to me:http://www.rgemonitor.com/fina...trap_and_credit_crunch
And this:
"A coordinated recapitalization of banks, as was decided during the week from October 13 to October 17, might not suffice, as banks have no interest in buying stocks or expanding lending under current conditions. Although banks are required to expand lending to the real sector as a condition for recapitalization by the government, it is not yet clear whether this stipulation will have any impact on the credit crunch and lead to the desired turnaround in market expectations."
Please note, however, that banks are not required to "expand lending to the real sector as a condition for recapitalization by the government" in any helpful time frame. In other words, Paulson won't hold their feet to the fire to do it now. If you read the bailout bill, you will discover that Paulson was given complete freedom to dispense an amount of money greater than the GDP of most African nations.
Heinemann's suggested remedies are more than Congress would dare do. Buy up equities? LOL! Let's just go to Las Vegas and put the GDP on Red 13!
-Robert
Ultimately it will pad the P & L. Sure, it goes to the capital account initially, but it won't sit there.
-Robert
Btw, I'm a liberal Democrat, but I've yet to find one argument for this bailout bill that was compelling. If any of you have THE STRONG ARGUMENT for this bailout bill, I'd love to hear it. So far, all I've heard are platitudes and lies, and now we see the bankers are doing what's best for their institutions and not the immediate needs of our economy. I find myself in the odd position of agreeing with the whacked out right wingers who opposed the bailout. Someone, please, bring me back to political orthodoxy on this issue.
-Robert
-Robert
I've read Roubini's stuff before but hadn't navigated to his web site. I like some of his views. Thanks for the heads up.
-Robert
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