``We are literally maybe days away from a complete meltdown of our financial system,'' NYTimes

[ASH]

Re: "were literally maybe days away from a complete meltdown of our financial system"

not ej either but have noticed that questions are more reliably answered over on the Ask EJ forum. and i'd like to hear the answer, too...

Dang, metalman -- I was hoping you'd say something to the effect "yes, young ASH, you have correctly summarized what EJ has been saying" or "no, foolish young ASH, you fail reading comprehension." :confused:

[jtabeb]

Re: A Pig Without Lipstick...

Here's your chance to save the country [but maybe not the financial system]

You able to program in the coordinates of Hank's Treasury office in one of those devices you hang under the wing of that thing you fly?


Just askin'...:rolleyes:

Under the 5th amendment, I have the right not to answer that question.

But I did post this in news as a new thread:

FRED, EJ for all that is holy, leave this defense of the republic up on the front page section.

Rest of you, please do SOMETHING. The only thing I could do was write my elected representatives and my mom and everyone else I could think of. It's not much, but it is not nothing. 100,000 not nothings make SOMETHING.

So please do SOMETHING and write you elected representatives and everyone you know and have them write their representatives.

Here is what I wrote to mine:

THIS BANKING BAILOUT IS A FARCE and a CRIME!!! I want to VOICE THE STRONGEST OBJECTION I CAN POSSIBLY MAKE!! This program steals from the poor to bailout the rich.


"Debt peonage for every American man, woman, child and many future generations is being planned by the W. Bush regime without sufficient taxation of the wealth and oversight of the institutions and individuals responsible for the crisis. A huge amount of wealth is being taken out of the economy by the very richest, leaving nothing for the rest of society and impoverishing it for decades."


September 21, 2008

"A PIG WITHOUT LIPSTICK.... I've been trying to find a credible voice on fiscal matters that believes the Bush administration's bailout is a good idea, and should be approved by Congress without alteration. I can't find one.

The plan seems to suffer more as the scrutiny grows more intense, but I'd go with the accountability/oversight problem as the most glaring.

The Bush administration sought unchecked power from Congress to buy $700 billion in bad mortgage investments from financial companies in what would be an unprecedented government intrusion into the markets.

Through his plan, Treasury Secretary Henry Paulson aims to avert a credit freeze that would bring the financial system and the world's largest economy to a standstill. The bill would prevent courts from reviewing actions taken under its authority.

"He's asking for a huge amount of power," said Nouriel Roubini, an economist at New York University. "He's saying, 'Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy."

Atrios, after noting the $700 billion price tag, highlights this portion of the proposal: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

If we were dealing with a competent, capable administration, which had proven itself reliable in dealing with fiscal and budgetary policy, it would still be an extraordinary gamble to turn over hundreds of billions of dollars with no strings at all. But we're dealing with the Bush administration, which hasn't exactly earned the benefit of the doubt.

I can understand the underlying point here. Companies showed some spectacularly bad judgment and bought up some ugly mortgages. To keep those companies from imploding, Paulson wants to use our money to take those mortgages off their hands. If the administration had a plan to buy them up for a song, the approach need not be completely ridiculous, though Paulson has not yet so much as hinted about pricing, or how, exactly, his plan might actually work in practice.

But that's why some safeguards -- you know, checks and balances -- seems like it might be helpful in a case like this. As the plan is currently written, not only will oversight be discouraged, it'll be impossible, by design. Congress is supposed to hand over in upwards of a trillion dollars to Bush's economic team, and then voluntarily forfeit the right to oversee how the money is spent.

If there's a good reason to establish this kind of process, it's hiding well."

[ASH]

Re: A Pig Without Lipstick...

To the contrary, these dudes may be clamoring to get their votes in "to save the US and the world" no less. I guess how this turns out might really be the final demonstration of just how screwed up we are, or perhaps a demonstration that enough of them are not buffoons so that they abdicate their responsibilities to an individual like Paulson.

I think your average member of Congress is (a) absolutely clueless about how the financial system works, and (b) overjoyed to be offered the opportunity to turn responsibility for coming up with a plan over to Paulson. I think Congress will ask for broad assurances that (a) the power will be used wisely, (b) the taxpayer will be protected, and (c) that Paulson's plan will solve the problem. Paulson will say "yes" to all the above, Congress will take his word for it, and they will promptly sign the bill authorizing implementation of Paulson's plan. This way, if Paulson's plan works, they can take credit for acting rapidly and in a bipartisan manner to solve a national crisis. If Paulson's plan doesn't work in any of the ways cited, they will say they were misled by Paulson. Because so few of them have the foggiest idea what is going on, they lack the intellectual tools to safeguard the public interest, and appraise the plan on its merits themselves. Instead, they will abdicate their responsibility by substituting proforma questioning for actual policy-making and take the politically safe expedient of backing Paulson's plan.

... At least that's my prediction.

[jtabeb]

Re: A Pig Without Lipstick...

I think your average member of Congress is (a) absolutely clueless about how the financial system works, and (b) overjoyed to be offered the opportunity to turn responsibility for coming up with a plan over to Paulson. I think Congress will ask for broad assurances that (a) the power will be used wisely, (b) the taxpayer will be protected, and (c) that Paulson's plan will solve the problem. Paulson will say "yes" to all the above, Congress will take his word for it, and they will promptly sign the bill authorizing implementation of Paulson's plan. This way, if Paulson's plan works, they can take credit for acting rapidly and in a bipartisan manner to solve a national crisis. If Paulson's plan doesn't work in any of the ways cited, they will say they were misled by Paulson. Because so few of them have the foggiest idea what is going on, they lack the intellectual tools to safeguard the public interest, and appraise the plan on its merits themselves. Instead, they will abdicate their responsibility by substituting proforma questioning for actual policy-making and take the politically safe expedient of backing Paulson's plan.

... At least that's my prediction.

Then,

Please do SOMETHING. The only thing I could do was write my elected representatives and my mom and everyone else I could think of. It's not much, but it is not nothing. 100,000 not nothings make SOMETHING.

So please do SOMETHING and write you elected representatives and everyone you know and have them write their representatives.

Here is what I wrote to mine:

THIS BANKING BAILOUT IS A FARCE and a CRIME!!! I want to VOICE THE STRONGEST OBJECTION I CAN POSSIBLY MAKE!! This program steals from the poor to bailout the rich.


"Debt peonage for every American man, woman, child and many future generations is being planned by the W. Bush regime without sufficient taxation of the wealth and oversight of the institutions and individuals responsible for the crisis. A huge amount of wealth is being taken out of the economy by the very richest, leaving nothing for the rest of society and impoverishing it for decades."


September 21, 2008

"A PIG WITHOUT LIPSTICK.... I've been trying to find a credible voice on fiscal matters that believes the Bush administration's bailout is a good idea, and should be approved by Congress without alteration. I can't find one.

The plan seems to suffer more as the scrutiny grows more intense, but I'd go with the accountability/oversight problem as the most glaring.

The Bush administration sought unchecked power from Congress to buy $700 billion in bad mortgage investments from financial companies in what would be an unprecedented government intrusion into the markets.

Through his plan, Treasury Secretary Henry Paulson aims to avert a credit freeze that would bring the financial system and the world's largest economy to a standstill. The bill would prevent courts from reviewing actions taken under its authority.

"He's asking for a huge amount of power," said Nouriel Roubini, an economist at New York University. "He's saying, 'Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy."

Atrios, after noting the $700 billion price tag, highlights this portion of the proposal: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

If we were dealing with a competent, capable administration, which had proven itself reliable in dealing with fiscal and budgetary policy, it would still be an extraordinary gamble to turn over hundreds of billions of dollars with no strings at all. But we're dealing with the Bush administration, which hasn't exactly earned the benefit of the doubt.

I can understand the underlying point here. Companies showed some spectacularly bad judgment and bought up some ugly mortgages. To keep those companies from imploding, Paulson wants to use our money to take those mortgages off their hands. If the administration had a plan to buy them up for a song, the approach need not be completely ridiculous, though Paulson has not yet so much as hinted about pricing, or how, exactly, his plan might actually work in practice.

But that's why some safeguards -- you know, checks and balances -- seems like it might be helpful in a case like this. As the plan is currently written, not only will oversight be discouraged, it'll be impossible, by design. Congress is supposed to hand over in upwards of a trillion dollars to Bush's economic team, and then voluntarily forfeit the right to oversee how the money is spent.

If there's a good reason to establish this kind of process, it's hiding well."

[Nervous Drake]

Re: ``We are literally maybe days away from a complete meltdown of our financial system,'' NYTimes

.

[The Outback Oracle]

Re: ``We are literally maybe days away from a complete meltdown of our financial system,'' NYTimes

icm63
Buy Aussie bonds????????????????????????????????
Our currency has fallen 20% against the USD in the last few weeks!
We're overladen with debt (both external and household debt) and crunch time here is coming. The Reserve Bank is trying to push down interest rates but we have a wee problem in that our banks are due to roll over $129B over the next 12 months. That ought be interesting in the current climate. In addition we run CAD of about 60 to 70 BILLION that has to be financed! The culmulative CAD for the past 50 years is $703 BILLION and is increasing in a parabolic fashion.
Of the Mineral wealth that comes out of the ground approximately 80% of it is already owned by interests outside Australia.
We keep ourselves and our currency afloat by selling off whatever wealth we can find that we still own.
Cheesh!! Am I bitter ...you bet!

[The Outback Oracle]

Re: ``We are literally maybe days away from a complete meltdown of our financial system,'' NYTimes

My apologies to sensitive eyes!!! However we now substitute this crap for thinking through the causes of the mess these same moronic bastards have made!!!!!

[Jim Nickerson]

Re: ``We are literally maybe days away from a complete meltdown of our financial system,'' NYTimes

Here's John Hussman's letter to Congress, not that I expect whoever gets it would offer it much consideration.

It explains a lot in simple terms (that is, I understood most of it), and it does offer what are probably serious alternatives to what seems to be being thrust down the throats of our honorable elected leaders.

http://www.hussman.net/wmc/wmc080922.htm

September 22, 2008
An Open Letter to the U.S. Congress Regarding the Current Financial Crisis

John P. Hussman, Ph.D.
All rights reserved and actively enforced.
Reprint Policy
In 2006, the president of the Federal Reserve Bank of St. Louis noted “Everyone knows that a policy of bailouts will increase their number.” This week, Congress is being asked to hastily consider a monstrous bailout plan on a scale nearly equivalent to the existing balance sheet of the Federal Reserve.

As an economist and investment manager, I am concerned that the plan advocated by Treasury is essentially a plan to bail out the bondholders of financial institutions that made bad lending decisions, with little help to homeowners that are actually in financial distress. It is difficult to believe that the U.S. government is contemplating taking on the bad assets of these institutions at probable taxpayer loss and effectively immunizing the bondholders (and shareholders) of these companies.

While it is certainly in the public interest to avoid the dislocations that would result from a disorderly failure of highly interconnected financial institutions, there are better ways for public funds to accomplish this, other than by protecting corporate bondholders while homeowners remain in distress.

Consider a simplified balance sheet of a typical investment bank:

Good assets: $95

Assets gone bad: $5

TOTAL ASSETS: $100

Liabilities to customers/counterparties: $80

Debt to bondholders of company: $17

Shareholder equity: $3

TOTAL LIABILITIES AND EQUITY: $100

Now, as these bad assets get written off, shareholder equity is also reduced. What has happened in recent months is that this equity has become insufficient, so that the company technically becomes insolvent provided that the bondholders have to be paid off:

Good assets: $95

Assets gone bad (written off): $0

TOTAL ASSETS: $95

Liabilities to customers/counterparties: $80

Debt to bondholders of company: $17

Shareholder equity: ($2)

TOTAL LIABILITIES AND EQUITY: $95

These institutions are not failing because 95% of the assets have gone bad. They are failing because 5% of the assets have gone bad and they over-stretched their capital. At the heart of the problem is “gross leverage” – the ratio of total assets taken on by the company to its shareholder equity. The sequence of failures we've observed in recent months, starting with Bear Stearns, has followed almost exactly in order of their gross leverage multiples. After Bear Stearns, Fannie Mae, and Freddie Mac went into crisis, Lehman and Merrill Lynch followed. Morgan Stanley, and Hank Paulson's former employer, Goldman Sachs, remain the most leveraged companies on Wall Street, with gross leverage multiples above 20.

Look at the insolvent balance sheet again. The appropriate solution is not for the government to replace the bad assets with public money, but rather for the government to execute a receivership of the failed institution and immediately conduct a “whole bank” sale – selling the bank's assets and liabilities as a package, but ex the debt to bondholders, which preserves the ongoing business without loss to customers and counterparties, wipes out shareholder equity, and gives bondholders partial (perhaps even nearly complete) recovery with the proceeds.

The key is to recognize that for nearly all of the institutions currently at risk of failure, there exists a cushion of bondholder capital sufficient to absorb all probable losses, without any need for the public to bear the cost.

For example, consider Morgan Stanley's balance sheet as of 8/31/08. Total assets were $988.8 billion, with shareholder equity (including junior subordinated debt) of $42.1 billion, for a gross leverage ratio of 23.5. However, the company also has approximately $200 billion in long-term debt to its bondholders, primarily consisting of senior debt with an average maturity of about 6 years. Why on earth would Congress put the U.S. public behind these bondholders?

The stockholders and bondholders of the company itself should be the first to bear losses, not the public. That is the essence of what a free and fair market, and a responsible government would enforce. The investors in the companies that produced the losses should be accountable for them, and the customers and counterparties should be protected.

The case of Fannie Mae and Freddie Mac was special in that government had already provided an implicit guarantee to their bondholders, so that bailout couldn't have been done otherwise without harming the good faith and credit of the government, but it's absurd to tell Wall Street “send us your poor and your tired assets, and we will tend to them.” The gains in financial stocks we have observed in the past two days reflects money that those firms expect to be taken out of the public pocket.

With regard to assisting homeowners, purchasing the bad mortgage securities from financial institutions will do nothing to help those homeowners because it does nothing to alter the cash flows expected of them. Congress will be a far better steward of public funds by offering distressed homeowners what amounts to a refinancing, coupled with a partial surrender of future appreciation.

In practice, the homeowner would default on the existing mortgage, but the government would purchase the foreclosed property at an amount near existing foreclosure recovery rates (presently about 50% of mortgage face value). The government would then sell that home back to the owner with a zero-equity mortgage, allowing individuals to keep their homes. Importantly, there would be an additional, marketable lien placed on the property itself in the form of what might be called a “Property Appreciation Receipt” (PAR), which would be provided to the original mortgage lender. Though it would accrue no interest, it would provide a claim to the original lender on any appreciation in the value of the home up to the difference between the foreclosure proceeds and the original mortgage amount. Note that the PAR would only become relevant at the point that the government was fully repaid.

For example, consider a homeowner with a $300,000 mortgage balance on a home now worth less than the mortgage balance itself. The government would buy the foreclosed property at say, $200,000 and mortgage it to the existing homeowner. The original lender would receive $200,000, plus a Property Appreciation Receipt (PAR), giving it a claim on $100,000 of any future appreciation of the property. If the homeowner was to sell the property later for, say, $250,000, the owner of the PAR would receive $50,000, and there would be a remaining lien on future appreciation of that same property, which would be assumed by the new buyer. If the next buyer sold the home for $250,000, no funds would be due to the PAR holder, but if it was sold for $275,000, another $25,000 would be payable. At any point the home was to sell for more than $300,000, the PAR would be fully repaid and there would be no further claim.

Some provision would have to be made for the appreciation of an unsold home, but that detail could be accomplished through some form of equity extraction refinancing. To account for time value, the claim on future appreciation could be increased at a small rate of interest. Though the credit impact of a mortgage default would likely be sufficient to dissuade solvent homeowners from making inappropriate use of the program, the government could impose additional costs or eligibility requirements to avoid such risks.

In summary, the Treasury proposal to address current financial difficulties places corporate bondholders ahead of the public, rewards irresponsible risk-taking, and sets a precedent for future bailouts. Moreover, we know from a long history of economic experience across countries that a major expansion of government liabilities is invariably followed by multi-year periods of extremely high inflation, particularly when it is not matched by a similar expansion of economic production. Such inflation would initially be modest because of the current weakness in the economy, but could pose unusual challenges to the United States in the coming years.

Congress can benefit the American public by maintaining a focus on responsibly assisting homeowners in distress rather than defending the stockholders and bondholders of overleveraged financial companies. It is essential to recognize that the failure of these companies need not result in “financial meltdown” provided that the “good bank” representing the vast majority of assets and liabilities is cut away, protecting customers and counterparties, so that the losses are properly borne out of the capital base of the companies that incurred them.

Again, everyone knows that a policy of bailouts will increase their number. By choosing who bears the losses for irresponsible decisions at these companies, Congress will also choose the scope of the bailouts that follow.

Sincerely,

John P. Hussman, Ph.D.
President, Hussman Investment Trust

It would surprise me if it gets read.

[GRG55]

Re: ``We are literally maybe days away from a complete meltdown of our financial system,'' NYTimes

Here's John Hussman's letter to Congress, not that I expect whoever gets it would offer it much consideration.

It explains a lot in simple terms (that is, I understood most of it), and it does offer what are probably serious alternatives to what seems to be being thrust down the throats of our honorable elected leaders.

http://www.hussman.net/wmc/wmc080922.htm



It would surprise me if it gets read.

Hell, it doesn't sound like they read any of the legislation they are responsible for passing, so why would they read anything else?

[icm63]

Re: ``We are literally maybe days away from a complete meltdown of our financial system,'' NYTimes

For example, consider a homeowner with a $300,000 mortgage balance on a home now worth less than the mortgage balance itself. The government would buy the foreclosed property at say, $200,000 and mortgage it to the existing homeowner. The original lender would receive $200,000, plus a Property Appreciation Receipt (PAR), giving it a claim on $100,000 of any future appreciation of the property. If the homeowner was to sell the property later for, say, $250,000, the owner of the PAR would receive $50,000, and there would be a remaining lien on future appreciation of that same property, which would be assumed by the new buyer. If the next buyer sold the home for $250,000, no funds would be due to the PAR holder, but if it was sold for $275,000, another $25,000 would be payable. At any point the home was to sell for more than $300,000, the PAR would be fully repaid and there would be no further claim.

This is soley based on the BANKS WILLING TO LEND. Remember banks in Japan locked up the cash, and basically confirmed the acceleration of delfation. So the PAR value can be very large and can grow. On initial valuation of the house at $200k, may not be the bottom, if after more time the house is $175k, then latter $150k down the house price delfation spiral. PAR value is never ending.

Once again a LOSS is a LOSS no matter what you call it. Either to the bank or to the Govt or the home owner.

The only market is a free market.

Use the $700 Bn to help the FDIC and insure depositors upto $250k. There are going to be losers, you cant stop that !

[jtabeb]

Re: ``We are literally maybe days away from a complete meltdown of our financial system,'' NYTimes

Does it not scare you enough to shat your pants to think what the world would look like if we just gutted the financial system and hit the reset button?

No, not for an instant. And here is why, this contrived failure (it's a real failure mind you, but one that I believe was nurtured, planned, allowed, I'm not sure what the correct description is) was destined to do one thing.

Force People to make a choice, it's that simple.

The choice is between Freedom (literally, look at the connection between debt slavery and all other wonderful sorts of social ills) and Fear.

The people who stand to benefit from this action harnessed the two strongest forces in the world human GREED (to get people to put the noose around their neck VOLUNTARILY) and human FEAR (to get people to do what ever some powerful person says is "required" so that they feel safe).

People like safety and regularity and stability and the quickest way history has shown us to circumvent people's own conscious desires and rational will is to go back to the primordial and force them to use their medulla oblongata against themselves.

No rational persons chooses slavery of one's self. No rational person chooses Fascism (unless one is a beneficiary). Maslow's hierarchy of needs proves this. It was the first thing I learned in Survival/Resistance training in the military. The enemy (captor, torturer, banker, what have you) tries to "pull the rug out" from you, thereby disrupting your equilibrium. Then you are easier prey because you are REACTING TO INSTINCT not THINKING. Their success depends on you becoming dependent on them for every basic need that you have. And they will try to exploit this to the maximal extent possible. Eventually one of two things happens. You break, or they break.


"How can that be?", you ask. It's quite simple really. Even thought they can kill, torture, and starve you, the prision is only successful if YOU choose to accept the illusion of reality that they create around you. No one can be FORCED to accept this, yes no matter what. People have to will it upon them selves. (Don't believe me, ask John McCain, Despite what I think about him as a potential commander in chief, he did not make the choice to give up). You loose battles, even the toughest do, but it's the war that you have to win. And the winning or loosing of the war is based on one thing, Individual Choice, that's it.

Am I scared because people don't seem to react, understand, or care? No, because they have been LIED to. The people that I've been able to talk to explain the present situation, don't act scared either. They get FREAKING PISSED_OFF! Which is EXACTLY the reaction a rational person would have.

Am I scared because there are no good solutions to fix the predicament that we are in? No because there ARE MANY solutions as to how this could work out for the better. ( I'll give you as many as you like but that is a different post).

Am I scared because we don't have the technical capabilities to overcome the challenges of resource depletion? No, because the capabilities we possess at this present day are sufficient to meet this challenge. (Again, I'll give you as many as you would like , but that is a different post).

Am I scared because I will be broke and poor and won't be able to provide for my family? No, because society is not supposed to ignore the helpless and punish the weak and because I have food and water and guns and gold and silver and a brain that works remarkably well, thank god. (As do you by asking this question).

Am I scared that it will be painful, that people will be hurt, that bad things will happen, that there will be fear? No, because I see the potential of what lies at the end of this process vs. what WILL happen if nothing changes.

Am I scared when I accept that there will be pain and hurt and bad things, as a father of three and a husband and a friend who cares about the lives of many? No, because I see what their lives WOULD be LIKE IF THIS change does not to occur.

Am I scared that people won't act when the truth stares them in the face? Am I scared that people won't do the right thing?
Am I scared that people won't be able to do anything about it, or enough about it?
Am I scared about the potential for bad things to happen to me and the ones I care about?
Am I scared that the world would not be a better place because of this change?
Am I scared that I am not ready for the world to change in this way?
Am I scared that people won't choose for them selves what is best (Free or Not free. We are, we exist, that is fact. What will we be, that is the only question.)

Am I scared that I can't make this choice?

No, because I've made my choice. I choose to Live. I do not choose to FEAR!

V/R
JT

[ASH]

Re: A Pig Without Lipstick...

... Instead, they will abdicate their responsibility by substituting proforma questioning for actual policy-making and take the politically safe expedient of backing Paulson's plan.

... At least that's my prediction.

Yet, come Monday, I hear about what sure sounds like a debate on oversight. Maybe I was too harsh.

[Jay]

Re: A Pig Without Lipstick...

Yet, come Monday, I hear about what sure sounds like a debate on oversight. Maybe I was too harsh.

Buffoons yes, but stupid no. They are at least smart enough to know that Paulson wants the ability to work without their input and that of the judicial. They may give a flying crap about the judicial, but to ask them to cede any of their legislative powers hits hard in a way that they understand implicitly. After all, politicians at that level are power hungry people, no? And this would seriously curtail their power. They get that.

[Nervous Drake]

Re: ``We are literally maybe days away from a complete meltdown of our financial system,'' NYTimes

.

[sunskyfan]

Re: ``We are literally maybe days away from a complete meltdown of our financial system,'' NYTimes

I couldn't agree more. Once the house of cards fall it doesn't matter who owns the cards.