Our financial system is crumbling this week.

[AWvsCBsteeeerike3]

I don't think it's only people with bad credit. But, I thought you said that the larger banks were no longer lending money? That's what I said was untrue and you then said I was wrong. I'm not wrong. They are still lending money. They are still looking for good investments (always have been) even though they supposedly don't have any. What they want now is someone (namely you and me at 7K a piece and every body else on the board for the same price) to buy all their screw ups which I don't want to do. Imo, there are two options right now:

1) The government takes over and probably screws up the companies beyond what they are now becasue let's be honest, the government is a monumental screw up.

2) European banks come in and buy out what is left of these screwed up companies that have claimed bankruptcy but are still lending money as we speak (because it would cost them money not to). People that aren't going to give out stupid loans take over and they start loaning money again to good investments....because that is how they make money.

I'm all for option #2 as opposed ot #1.

You're being semantical if you thought I was saying the bolded part literally b/c there will be loans, but there won't be enough handed out to avoid a credit crisis for putting enough people in homes and small businesses to survive with a credit crunch followed by an economic crisis.

I simply don't buy it. Period. They're not going to stop giving out loans to good investors because that is how they make money. That would be like McDonals saying they aren't going to sell fries anymore. If the potato company they got the fries from went out of business, they would find another place to get their potatoes. Similarly, if all these "larger banks" go outof business, that only opens the door for other banks to step in and provide the capital. Someone will do it because it's how they make money.... regardless of what is going on around them, they're not going to stop trying to do that.

So you think all this talk about the credit crunch is fictional?

Solid companies such as Honda and Caterpillar are already paying ridiculous premiums on the bond market to raise capital from investors. http://meganmcardle.theatlantic.com/arc ... o_spre.php
http://meganmcardle.theatlantic.com/arc ... preads.php

So the credit squeeze is also affecting top companies, which are having trouble raising money for necessary improvements. And these credit costs will affect these companies' bottom lines, and the increased cost of business will be passed to consumers.

Exactly this just doesn't extend to 1st time home buyers, this extends to small business loans, student loans. This is a critical situation not based on bailing out Wall St. but is there from preventing the economy from slowing down further into recession.

I'm not sold on the bill, it could be better, but it's better than letting this cont.

Ironically with the 777 point drop, the stock market lost over 1 trillion today & how much is that bailout for?

Oh my goodness, so everytime the stock market drops now we're going to have to pump money into it to keep people from losing money?

I just don't get it. I understand there will be a credit crunch - though I'm not convinced it will lead to the next great depression like some claim. And, honestly, I don't care. And, I don't understand why I have to pay for people who made bad investments to get their money back. It's ridiculous. If we're so worried about a credit crunch and not these investors, why doesn't the gov. just act as the bank, set a precedence for who can/can't get loans and what percent your loan will be at given your credit history/background? This way, people can get money/loans, people that made bad investments aren't bailed out, and best of all, I'm not paying for the CEO of Fannie Mae to get his pool cleaned. Oh, and the gov. doesn't even have to manage anything and can't [expletive] it up. They simply give money to regional banks who screen loan applicants.

[Hungary Jack]

Can we do like the French and simply dissolve our version of the National Assembly (ie, Congress)?

[Freed Roger]

Re-read the post. I don't think the sky is falling. I mention the same Green tech boom possibility that you do. but it is naive to think that a general plunking of money in US stocks will always yield long-term rewards. Money doesn't grow on trees. A US economy passed its peak doesn't have to mean disaster. It could mean we still have it pretty good, and our economy is based on slower, but sustainable growth.

but spare me a dime when you make your billions.

Understood. I just see the stock market as a pretty good way to invest your money if you've got another 30 years before retirement. Like you said, it might not be, but I'm banking on it....and the RFID technology, but that's another story.

Anyway, sorry if my post came off strong.

aw. no harm. even with our apprehension, more than half of our 401K is in stock funds anyway- its not like you have a lot of other choices. I do feel good that we are only down about half of what the market % drop was.

[jim]

Here is how the Illinois vote shook out...

Democrats For:

Bean

Davis

Emanuel

Foster

Gutierrez

Hare

Schakowsky

Republicans For:

Kirk

LaHood

Democrats Opposed:

Costello

Jackson

Lipinski

Rush

Republicans Opposed:

Biggert

Johnson

Manzullo

Roskam

Shimkus

Not Voting:

Weller


-------------------

This needed to pass.

[UK]

No, everytime the stock market drop you will not have to pay for it. It shows how stupid our gov't is during this process, the market dropped like a rock once the bailout didn't go through costing more than the actual bailout.

I don't see how someone can say they don't care or that people who are for it think they are for the CEOs to continue to add wealth off of taxpayers.

Seriously?

Ideally, I don't want this bailout but I know to get the economy going again something like this along with another stimulus package will probably be needed.

The bailout was prob. the best they could do despite it not being close to 100% effective, it still needs stronger safeguards towards protecting taxpayers, too much discretion for Paulson, and doesn't maximize the rare chance of a profit.

[AWvsCBsteeeerike3]

No, everytime the stock market drop you will not have to pay for it. It shows how stupid our gov't is during this process, the market dropped like a rock once the bailout didn't go through costing more than the actual bailout.

And, that is individuals money. Everyone in the stock market knows there are going to be bad days/months/years. If you don't, and you're in the stock market, then I don't know what to say.....

I don't see how someone can say they don't care or that people who are for it think they are for the CEOs to continue to add wealth off of taxpayers.

It's not that I don't care. I greatly care about what happens next, but I would rather see a recession than a government bailout people who made bad investments. Please explain to me how taking 700 billion tax dollars and handing it over to the bankers who caused this mess (and gained tons of money off it) is fair. I am still failing to see that part.

Seriously?

I seriously don't want the government to socialize the stock market because they're having a pseudo meltdown. No. Let it go and correct itself, or let the world end, whatever not giving them 700 billion entails, I'm guessing the prior.

Ideally, I don't want this bailout but I know to get the economy going again something like this along with another stimulus package will probably be needed.

I agree with your first 6 words in that sentence. But, if it doesn't get the economy going again, what happens? Can you guarantee that this 700 billion will fix the problem - the problem being a volatile stock market and I'm guessing consumer confidence that will have to be at an all tie low? Mind you, half of America doesn't trust this, so while it may free up capital for banks to lend money, it doesn't even address the confidence issue. And, as far as fixing the problem, I don't buy it for a second. Mainly because this is what we heard in May as we all received a 600 dollar check from Uncle Sam. But....but.....they got it right this time, I'm sure. Like I said earlier, why, if the problem is credit, can't the government give out loans?

The bailout was prob. the best they could do despite it not being close to 100% effective, it still needs stronger safeguards towards protecting taxpayers, too much discretion for Paulson, and doesn't maximize the rare chance of a profit.

We agree here. [expletive] Paulson and let's not [expletive] the taxpayers.

[KyCardinalFan]

I just don't get it. I understand there will be a credit crunch - though I'm not convinced it will lead to the next great depression like some claim. And, honestly, I don't care. And, I don't understand why I have to pay for people who made bad investments to get their money back. It's ridiculous. If we're so worried about a credit crunch and not these investors, why doesn't the gov. just act as the bank, set a precedence for who can/can't get loans and what percent your loan will be at given your credit history/background? This way, people can get money/loans, people that made bad investments aren't bailed out, and best of all, I'm not paying for the CEO of Fannie Mae to get his pool cleaned. Oh, and the gov. doesn't even have to manage anything and can't [expletive] it up. They simply give money to regional banks who screen loan applicants.

It's not just bad mortgages that are being bailed out. As I understand it, some major banks do not have the capital to back up their loans, not just to consumers, but the overnight loans to other (smaller) banks. Banks are not lending to each other because they don't know who is liquid and who isn't. Bank regulations had allowed them to keep some debts off their books that regulators and shareeholders see. A false sense of security helped create the problem, now they are unknowns which cause banks unwilling or maybe unable to lend to each other. Once their reserves deplete they're out. So they are tightening loans to anybody to cover the bad loans that are draining their reserves, knowing that they can't get loans from other banks. Things could slowly grind to a halt, even for those with good credit.

I read a newspaper article over the weekend explaining some of the problem to me, I'll try to find and post it.

[KyCardinalFan]

Helium for the credit bubble: Regulators' absence
By Ellen Simon, AP Business Writer 09.22.2008

As the credit bubble ballooned, Washington played a vital role: Enabler.

Now the bubble has burst. The federal government is cleaning up the mess with mops made of taxpayer dollars in what may prove to be the most expensive federal bailouts and takeovers in history. As Washington writes billion-dollar checks, critics are looking back at the actions — and inaction — that set the table for the crisis, saying that for more than a decade the federal government whittled away regulations and defanged the agencies that were supposed to protect consumers.

"For the last eight years, this administration has been systematically against any form of appropriate regulation and supervision of the financial system," said Nouriel Roubini, a finance professor at New York University. "It was a race to the bottom. The ideology was laissez faire, free markets, reliance on self-regulation, which means no regulation."

Now, the ideology seems to be just the opposite of free markets healing themselves. Critics say the government was absent when Wall Street grew rich off risky bets, but have run a fire drill when those bets blew up.

"The move represents the largest lurch toward socialism that this country has ever seen, and signals the end of the vibrancy of America's once vaunted free market economy," money manager Peter Schiff wrote to clients last Wednesday following the government rescue of giant insurer American International Group.

The ultimate bill for taxpayers could run more than $1.3 trillion as the government tries to clean up the mess made by one of the worst financial crises since the Great Depression. The 14-month old turmoil began when home buyers with less than stellar credit began to default on their mortgages. Foreclosures soared. The problems spread to more creditworthy borrowers. Hedge funds, banks and other investors in mortgage-backed securities took a huge financial hit. Over the past six months, some of the biggest names on Wall Street went out of business, merged or revamped their structure.

Looking back on how the mess was made, critics say regulators' absence wasn't the sole cause of the bubble, but Washington's decisions set the stage for the crisis and exacerbated it once it began.

The most important decision may have been the Federal Reserve's move to keep interest rates near all-time lows for three years, which acted as a clearance sale for borrowers.

The Fed cut its target short-term interest rate for overnight loans to banks, the federal funds rate, from 6.5 percent in 2000 to 1 percent in 2003. Loans for cars, homes and houses were on sale, almost 85 percent off.

Cheap credit spurred the rise in housing prices. The Fed viewed that rise as fuel for the economy after the burst tech bubble and the Sept. 11 attacks.

"Fixed mortgage rates remain at historically low levels and thus should continue to fuel reasonably strong housing demand and, through equity extraction, to support consumer spending as well," former Fed Chairman Alan Greenspan told Congress in July 2002.

At the same time, international changes in bank regulation in 1988 and 2001 lowered banks' reserves.

The reserves, kept in banks' vaults and with their regional Fed banks, are their cash cushion; when borrowers don't pay back loans, banks can cover the shortfall with their reserves. That meant they had to hold on to less money when they made loans, effectively freeing more money to lend, but giving them a much thinner cushion if loans soured.

The regulations also allowed banks to keep some debts off their balance sheets — the snapshot of a company's financial condition that helps investors gauge its health. Off-balance sheet deals, which led to the downfall of Enron Corp., let companies take on debt or make loans without putting those loans on the books shareholders and regulators see.

As a result, banks' total loan portfolios looked smaller than they were, allowing them to hold even less cash as a proportion of real total loans. Banks' average cash holdings as a percentage of deposits shrank from 9.7 percent in May 1990 to 4.3 percent in May 2008, according to Ricardo Cabral, chair of the management and economics department at the University of Madeira in Portugal. Larger banks kept even smaller reserves.

Under the new rules, banks' reserve requirements were set, in part, by their scores from credit rating agencies.

"In a sense, the regulators outsourced regulation to the ratings agencies," said Mark Zandi, co-founder of Moody's Economy.com. The idea was the ratings agencies had a process, the models and the data to judge how much cash a bank should keep on hand.

"The downside: It probably gave regulators a false sense of comfort," he said.

Another problem: The ratings agencies were wrong about how creditworthy many banks were.

The ratings agencies couldn't see the off-balance sheet loans. They were also wrong about the safety of the loans they could see, because the agencies only used numbers from good times in their mathematical models of how mortgages would be paid. Those models proved useless in bad times.

The stage was set for a crisis.

As if to hasten one, the federal government crowded out state regulators.

In 2003, the federal Office of the Comptroller of the Currency, which supervises all national banks, said states could not regulate a bank's mortgage lending if the bank had no branches in the state. Wachovia Corp.'s mortgage subsidiary promptly sued Michigan's bank regulator, claiming that its mortgage unit there was no longer subject to Michigan state regulation.

All 50 state attorneys general and every state bank regulator fought to keep oversight of banks' mortgage lending. In April 2007, the Supreme Court ruled against the states, by a vote of 5 to 3. Writing for the majority, Justice Ruth Bader Ginsburg said the decision was consistent with law to prevent "diverse and duplicative superintendence of national banks' engagement in the business of banking."

Message: Leave big banks to the federal regulators.

In a dissent, Justice John Paul Stevens said the court's decision "threatens the vitality of most state laws as applied to national banks."

The states complained that the Comptroller was a pussycat of a regulator. Robert M. Morgenthau, the Manhattan district attorney, wrote in The New York Times that the Comptroller was a "timid regulator, even in the face of flagrant wrongdoing," pointing to federal inspections that found it laxly enforced money laundering law.

The agency, Morgenthau wrote, is hardly independent, since it receives no congressional funding. Instead 96 percent of its funding comes by tapping the banks it regulates, 70 percent of total funding is from large banks.

Now those banks are in the middle of the worst financial crisis since the 1930s and the era of big Wall Street investment banks has drawn to an ignominious end. Bear Stearns is gone, bought by JPMorgan Chase in a deal backed by the government. Lehman Brothers filed for bankruptcy protection, putting many of its employees on the street. Fearing a similar fate, Merrill Lynch fled to Bank of America for protection. Goldman Sachs and Morgan Stanley, asked for and got permission from the Fed to become bank holding companies so that they can take deposits, like a commercial bank, in a bid to survive.

And, most worrisome of all, the Bush administration has proposed a $700 billion plan to buy soured mortgages and other assets from banks to prod them to begin lending again. In the heady years of deregulation, they took on more debt than was good for them, and now taxpayers could end up paying the price if the government can't turn a profit on the deal.

It's too early to tell whether new lending will lead us out of the current slump or even inflate another bubble. For the sake of taxpayers, let's hope regulators won't be asleep at the wheel again.

[greenback44]

Solid companies such as Honda and Caterpillar are already paying ridiculous premiums on the bond market to raise capital from investors. http://meganmcardle.theatlantic.com/arc ... o_spre.php
http://meganmcardle.theatlantic.com/arc ... preads.php

So the credit squeeze is also affecting top companies, which are having trouble raising money for necessary improvements. And these credit costs will affect these companies' bottom lines, and the increased cost of business will be passed to consumers.

Credit spreads are abnormally wide, which is making my job a little more complicated, but the Treasury rates are also pretty low too. For example, the Treasury baseline is about two or three percentage points lower than compared to ten or twelve years ago. So in the greater scheme of things this could be half-empty, half-full situation; Honda was getting a great deal on its debt a year or two ago and now it's getting a meh deal. In that case Treasury rates would be out of line rather than the spreads over the Treasuries.

Corporate bonds always have been regarded as more transparent than securitizations, but the way the Fed pushed liquidity, this makes me wonder.

[UK]

And, that is individuals money. Everyone in the stock market knows there are going to be bad days/months/years. If you don't, and you're in the stock market, then I don't know what to say.....

It's not that I don't care. I greatly care about what happens next, but I would rather see a recession than a government bailout people who made bad investments. Please explain to me how taking 700 billion tax dollars and handing it over to the bankers who caused this mess (and gained tons of money off it) is fair. I am still failing to see that part.

I seriously don't want the government to socialize the stock market because they're having a pseudo meltdown. No. Let it go and correct itself, or let the world end, whatever not giving them 700 billion entails, I'm guessing the prior.

I agree with your first 6 words in that sentence. But, if it doesn't get the economy going again, what happens? Can you guarantee that this 700 billion will fix the problem - the problem being a volatile stock market and I'm guessing consumer confidence that will have to be at an all tie low? Mind you, half of America doesn't trust this, so while it may free up capital for banks to lend money, it doesn't even address the confidence issue. And, as far as fixing the problem, I don't buy it for a second. Mainly because this is what we heard in May as we all received a 600 dollar check from Uncle Sam. But....but.....they got it right this time, I'm sure. Like I said earlier, why, if the problem is credit, can't the government give out loans?

Don't take this the wrong way, but you really don't understand the issues.

Sure the stock market is on private funds, but losing 1.2 trillion dollars of capital in 3 1/2 hours shows how important this decision is.

You're focusing on the CEOs and people who defaulted on their loans of the bailout rather the economy as a whole. This is going to impact, you, me, and everyone reading this if we fall into recession. I don't expect most Americans to trust this b/c most of them can't even balance their checkbooks and for good reason as we've seen, they don't Congress, Bush, etc.

They need to fix the banking system b/c financial markets are largely dependent on them, the banking system is dependent on credit and the ability to distribute it (correctly distribute it). They've failed in this and this is something that obviously needs more regulation and without stricter regulations, the 700 billion is a waste b/c we'll be here again. Providing the banking industry means to give credit to where the market hopefully stabilizes (to more than the 4 people you know) will hopefully jump start the economy, prevent it from further slowing the labor market and hopefully improve these fundamental flaws of the economy (sorry Maverick).

You can't let the market correct itself, it won't happen as it will only get worse, this isn't cyclical macroeconomics. Banks would further tighten lending practices and we'll definitely be in a recession and poss. end up in a depression as financial institution cont. to fall, unemployment rises, and the housing market continues to plummet b/c jobless families can't get a loan and can't find a job.

No one can guarantee that the bailout will work, Ms. Cleo proved 10 years ago to be a fraud and since then I can't predict the future, but I can tell you that inaction will lead to further decline. Like I said, I don't like the bailout but I understand why we need it and despite wanting improvements made to it.

There were signs of this long before this crisis began, it is up to them to address those issues as well as the bailout and a second stimulus plan.

As far as the 1st stimulus plan, that was doomed to fail, it was a stupid idea b/c the fundamental flaws of the economy are still there.

Also, concerning the gov't giving out loans, where they going to get money to do that? China? The US doesn't have the capital to do that, we're already in debt b/c we allows countries like China to profit off of our currency while decreasing our GDP.