The stock market will likely open strong today, and well it should. Yesterday, the market lost one trillion dollars in value, and bloodbaths like that have been historical buying opportunities.
These are not ordinary times however.
Yesterday, the Federal Reserve injected another $680 billion into the banking system. That news slipped by at the bottom of the screen on the Bloomberg channel last evening one time and one time only. How doubly strange that, number one, the Fed found it necessary to inject roughly the same amount of money that the Congress withheld and that , number two, news of one of the largest single one-day infusions in history, if not the largest, was apparently suppressed.
As bad as we are told the situation is, it may be worse, or maybe it isn‘t. Perhaps it's something that can even work itself out. If anyone knows exactly how serious the situation is, it's certainly not John Q. Public.
Admittedly, there are areas where a meltdown could start to take place. A bank run would be the one that the authorities probably fear the most, as it could quickly lead to civil unrest. There were indications yesterday afternoon that extra security personnel were present at some banks in the east.
Also, the government doesn't have enough thumbs to plug the holes that could develop in the multi-trillion dollar money market.
Those may be the hottest spots today but that fact is well known, and hopefully the government is prepared to deal with them before they get out of hand.
So just what is the basic underlying problem? We're told the banks are financially constipated - that they're not lending to each other or essentially to anyone else. However, I listened to a small-business-association representative two days ago and he said that their members are having no trouble getting the financing they need from community banks. And presumably that would apply to you and me as well.
So apparently the problem at this time is concentrated in the big banks who are - we're told - hoarding cash. That word "hoarding" has been mentioned numerous times this week by our Congresspersons as they have attempted to explain the situation.
If that's the case, should the taxpayers really launch such a major bailout just because banks are hoarding money?
And even more importantly, can we believe what we're being told? For example, with respect to the bill that was just defeated, the legislators couldn't say enough about how it eliminated the massive golden parachutes being given to departing CEO's.
However, if you read the language as it was released on line, the new rules would have applied only to future CEO's, and only to those future CEO's of institutions whose assets would have been purchased, so perhaps hardly to anyone.
It's well to bear in mind that our politicians have been in bed with the screwed-up institutions that are at the heart of the crisis. The legislators are the people who took campaign contributions and looked the other way. The problem, therefore, derived from an insidious partnership, and we are now asking one of the parties to this partnership to solve it. In general, such a situation represents a classic recipe for hidden motives and backroom deals.
I don't know about you, but I was glad that the bill was killed yesterday. If there is anything consistent about the political process, it's that an initial outlay of money is never the end. Inevitably it turns out to be just a foot in the door.
I hope those that had the courage to stand up against the pressures continue to do so and that the Wall Street problem will eventually be solved by Wall Street, and not Main Street.
Dave McGill, News Correspondent
Dave's column, "The Contrarian," generally published every Friday, to Gather Essentials: News will sometimes present a contrary view to various aspects of the news, or an alternate take on the conventional wisdom of the day, and will occasionally appear on another day of the week
Dave has been a senior officer of an eastern insurance company, involved in economic projections and investment strategy, president of a Midwestern mortgage banking company, and a financial consultant in Southern California, serving clients in the field of commercial real estate development.
You can find all of Dave's "The Contrarian" columns at: http://gather.com/thecontrarian...... Keep up with Dave's other postings and Gather activity by joining his Gather network - just click here: http://atadaskew.gather.com........ You'll find Dave and other News Correspondents, plus celebrity content and plenty of other News experts at News.gather.com.
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Comments: 66
With constituent feedback running 20 or 30 to 1 against the bailout package, I don't see that the "no" votes were the courageous ones. One TV analysis had only 4 or the yes votes coming from representatives in closely contested re-election contests.
That does not mean I support the bailout. I am not convinced that some legislative action is not needed but any legislation throwing this kind of money around needs to pass by more than a handful of votes.
What seems unmistakable is that leadership is sorely lacking on both sides of the aisle.
I agree with you. As best as I can tell, the only winners from the bill would be a bunch of Wall Street folks who would keep their jobs, and members of Congress from both parties who backed Fannie and Freddie's reckless lending practices and received campaign contributions in return.
The Congress still hasn't explained why they can't just suspend the regulations that are causing the problem, like the Sarbox ridiculous "mark to market" reg.
Until the government can explain what they are doing, why they believe it will fix the problem in the markets, and what reforms they intend to make to prevent a recurrence, we would be fools to support a Congressional and Wall Street bailout bill! When the government is trying to stampede us into supporting a massive spending bill, past experience tells me to be afraid ... very afraid.
I am also against the bailout; although I don't have any encouraging words for those small business people whose operations may be crippled into failure by the rumored tightening of credit markets.
I do, however, agree that sending the nation (and the taxpayers) deeper in debt just because Wall Street has lost faith in the paper it bought, seems inappropriate. Investments return value in accordance to the risk, and there is no risk if government bails them out. Contrasting this with the fact that regular folks who took on the risk of sub-prime, variable rate and adjusting rate mortgages have received no help when they fell short or fell through the process, seems like a double standard where the corporations receive more consideration than the average American; and that does not equal government that is working for all the people.
On the one hand I'd be happy to see Wall Street crumble under the mess that they made, but on the other hand I'd hate to see the nation stumble to its financial knees.
Guess we will just see what happens.
Thanks again. 10
Hey Dave, what happens to the interest rates charged when "banks are hoarding money?"
Perhaps this so-called crisis is merely a ploy to raise interest rates the banks can charge ?
Until "We the People" take an interest in our government and start sending members of Congress home when they are lining their own pockets, capitalism (and nothing else, including the economy) will work in this country.
"A vote against your incumbent Senator and Congressperson is a vote for true change!"
Only 4 more minutes before the market opens up.
So far I have not checked how my tiny 401K is faring. It was doing poorly anyway and is likely doing worse. A couple of more bumps and it will disappear entirely.
As a fiscal conservative, I feel that those that make bad decisions in the business world should be allowed to fail.
Also the mortgages held against real estate, that can’t be sold anymore by the banks to other banks, need a new method to sell them. What they need is to just post them on some market and let the private investors buy them. For later as the value of the real estate goes up the investors will indeed make money, even if they need to wait ten years or so.
The change in 2004 to extend the leverage from a 12 to 1, to a 40 to 1, ratio must be revised back to 12 to 1 ratio.
And the Mark to Market accounting rule needs to be changed back to where it was before 2007.
As well as a few other things.
All in all in my opinion this was a bad bill and I’m glad it didn’t pass
I also think that our entire regulatory system needs overhauling - and added flexibility to address the continued ingenuity of Wall Street. My firm's business is regulated by stringent SEC regulations that have been in place and well-modified for years. The regs are there to protect the investor. What we see here is the unleashing of banks and other financial institutions into other business areas where noone knows whose regulatory oversight they fall under...coupled with creative financial instruments that were basically ultimate pyramids schemes.
This bill would not have rewarded the fat cats who created and benefitted from these schemes. They already made their billions on it and they are probably safely stashed away in off-shore accounts. What this bill would have done is help the average American's meagre retirement savings retain value over the next few years, as well as stabilize our economy and supplied capital for growth.
Right now, we're facing an uncertain emotion response to the unknown in the markets coupled with a tightening of credit that will surely lead to increased unemployment and dried up credit. That means average Americans will be facing a credit crises at home - with their credit card accounts, with home equity loans, with small business loans, with college loans.
The idiots in Washington who caved to their constituents' emotional responses to this bill showed a drastic lack of leadership and a massive CYA duck. They forfeited the global economic health just so that they could retain their seats in government in November. This was the ultimate betrayal of the American people.
I have money in my bank, and I hope they lend it out to people who can and do pay it back,, that is what they are supposed to do, not give it away to other banks that may be run by some of these idiots.
There is plenty of money out there, and as you said the Fed just printed more I guess ... so much for no inflation, and I thought it was supposed to be the House that controls spending, guess I must be behind the times, now the exectutive has all the power.
As I said in other article:
Nothing good will come of being sold snake oil on the national and international level. The people have taken it on the chin once too often, and now they are, I hope, unwilling to turn the other cheek now that we have a claw into the hand that bites us ... yes, I mix my metaphors really well.
If the only way we can topple this financial tyranny of this country, the same tyranny that has sold the people out, brought in new people to work for less, sent our jobs overseas, and redefined slavery as freedom, and taken us to war for fun and profit, I say, let it fall.
The money I will lose in the financial industry will be nothing compared to what will happen to all of us if we keep being led around by the nose by these bastards!
> I also think that our entire regulatory system needs overhauling -
> and added flexibility to address the continued ingenuity of Wall Street.
will never happen if these jokers get what they want on their terms.
We have the leverage now, and we better not give it up.
They probably have a whole new set of regulations ready to go
that they already know how to circumvent just like they always
have. Real reform will take time, but be a good thing, anything
less will just lead to another one of these the next time a
Repubican gets into office.
The House is supposed to control Taxes and spending but the Fed steps in and undercuts the actions of the House. Maybe if we fired the Fed?
Personally, I don't mind jumping into the sea, I'd rather be there anyway... but that's the literal meaning... I'm not sure what actual reality of jumping into the "Deep Blue Sea" here would look like...
AAAAAHHHHHH!!!!! SHARK!!!!!!
heh... just kidding....
Peace...
I agree, the Fed injection should have received more press. While most people are clueless how the Fed works (including many at the Fed itself, or so it would seem), these injections could help some minimize panic selling --- and panic selling is a guaranteed disaster.
if you object to interference in the market (republicans), how do fix the mortgage mess? if you think the bailout did too little to fix the mortgage mess (dems), how do figure to get ANY republican votes for that bill.
Oil dropped below $100 a barrel from the failure of the bailout. Great? not from where i stand, because it means thst the market is convinced that no bailout means deep recession and a deep drop in oil demand.
Printing money may be to handle any run on the banks when people ask for their cash, it does not necessarily create more dollars I think, it puts more cash into circulation, possibly in an attempt to prepare banks for any runs from nervous customers. After all people at WAMU even when they know they were OK still removed their money.
I'd say a good bit of self examination is necessary before any solution will sit well...
Bush and Chenney should certainly be impeached and indicted on Criminal Charges... there's a lot more to it though...
How did they GET elected???
How did the Drive for this sort of Government lodge and grow...?
How did this "Dance" with the "Devil" get started and Who decided not to keep an eye on it?
It's no good to just decide between the "Dance with Devil" (the continued dance) or jumping into the Deep (sinking into the deep???) ...
How did we end up on this BEACH???
I'll take the chances, borrowing more, or putting more on our already huge "tab" is just not an option - after all who is going to bailout the American taxpayer from all this debt? A debt that keeps growing with a tax burder than keeps going lower and lower, sucking the life from the tax dollars we do pay.
Pretty soon we will just pay taxes to hand money over to those who bought up our debt ... that must be about the time we will have to start hopping the fence to Mexico to look for jobs! ;-)
See more on this with Clarke's article : http://www.gather.com/viewArticle.jsp?articleId=281474977460270
There is so far little hard evidence of systemic risk to US commercial banks at large (the large investment banks have disappeared). Only speculative loans face problems. Loans invested in real and economic-generating activities in agriculture, industry and commerce remain sound. The non-financial sector continues to have access to credit at low interest rates.
Thanks, I rely on you for some insights. I have no idea, what is going on, which I guess puts me in good company. I think we now see how dangerous it is to have someone with mental deficiency or total lack of understanding in the White House. I didnt love Clinton, but at least he was smart.
July, Clarke, is an eon ago; don't rely on those numbers. The problem was and is that these loans were bundled and sold, and no one knows which are good and which are bad, so we can't price them. I'm not sure the scenario you present is accurate. But I can't disprove it, either; it just doesn't correspond with everything I've been hearing. On what are you basing these statements?
I've never disagreed with you before but on this we are not in agreement.
"I hope those that had the courage to stand up against the pressures continue to do so and that the Wall Street problem will eventually be solved by Wall Street, and not Main Street."
I don't think so, that's the kind of Hooverish thinking that got us in this mess. I'm not worried about the 700 billion. We'll get that back and then some. What this recovery package brings and is absolutely needed is oversight and an opportunity to replace the regulations that were gutted and abandoned by the Republican majority from 1994 to 2006 with a 21st century regulatory system that will keep things stable and fair.
What worries me though is that 700B is just the tip of the iceberg and this admin has really set a bad precedent. If I'm not mistaken, here is a brief rundown of what may be the next blow ups.
1. Fannie Mae and Freddie Mac are still in the hock for 5.4 Trillion.
2. Although Residential mortgages get the headlines, the bigger problems are within the private sector debt arena -> auto loans, student loans, credit card debt, business loans etc. all of which is about 20 Trillion.
3. Commercial mortgages right now is about 2.6 Trillion.
4.
4. The bailout plan ignores life insurance companies, credit unions, local governments (nearly $3 trillion in shaky munis alone) finance companies and investment banks. This amounts to another 7 Trillion.
5. And then of course there are the banks. The FDIC's list of 117 troubled banks is a best case scenario. In actuality there are about 500 FDIC member banks and 100 S&L as financially troubled. That is another 3 Trillion.
Total amount we are exposed/vulnerable ... a mere 41 Trillion.
The government can't print that much money without trashing the economy can they?
Seriously, the public does understand, in my opinion, and I hear you loud and clear, Kathryn....There are dislocations and there will be more....And it's a shame that those being hurt are innocent victims.
If the banking system got $630 billion yesterday (the number in the article was a little high), does it really need another $700 billion tomorrow?
Remember no matter how they package it for public acceptance, the whole $700 billion is going out the door and it will just be a downpayment.
If anyone thinks this will solve the financial sector problem - or that the problem is limited to banks - I've got three words for them - CREDIT DEFAULT SWAPS (CDS).
I plan to write a brief article about this potential cancer tonight but suffice it to say that if you think you've heard big numbers this week, hold onto your hat. You ain't heard nothin' yet!
Then we have this financial crisis even though Bush & Company have been saying that our economy is fundamentally sound..then all of a sudden Bush & Company are trying to rush this bailout through because they say that we are now in a financial crisis.....hmmm...and right about election time.
Everything is falling in place for Bush to declare martial law and suspend the elections.
You say a lot has happened since July. There are several hundred economists who have questioned Paulson's claims about the situation. The media is painting a muddled picture, often confusing the problems of banks being afraid to lend to each other with the supposed lack of availability of liquidty. The banks need a good trillion dollars or so of new capital. There is ample wealth ready to find a home in the United States, in the sovereign wealth funds and in private equity funds around the world. If American banks are permitted to fail, and their operations maintained intact by the FDIC, new investors are there to take them over.
The Fed and Treasury already have the authority to supply liguidity to the economy without this new bill : to insure money market funds, to increase insurance of bank deposits, cut interest rates and so on. Congress can enact legislation for banks and lenders to rewrite people's mortgages to avoid foreclosures.
It seems Paulson sees that a collapse of the system is possible and he wants to gamble by throwing money into it. This is not a $700 billion bailout. Globally there are $600 trillion in world liabilities, plus more than $400 trillion derivatives. We should let Wall Street fend for itself - and Congress should investigate the activities of the people behind this "bust out" of our treasury. Paulson, Bush or Bernanke are not being honest. The media, like Tom Brokaw on Meet the Press, Sunday , is repeating the same scare scenario as "fact."
Wall Street's problem is different from the economy's, albeit serious and could become more so. Paulson's proposal actually asked for absolute authority (without being subject to legal responsibility for the consequences ) to bailout whom he chooses - which could include not only Wall Street but foreign banks as well. . The bailout bill had no enforcement provisions for the so-called oversight group that was going to monitor Wall Street's spending of the $700 billion. It had no penalties, fines or imprisonment for any executive who might steal any of the people's money.
He wasn't forthright to Congress in his testimony . McCain or Obama or Congress haven't been informative in their public statements on the bailout. They know Paulson failed to consider other alternatives , that he simply concentrated on seeking power to take on Wall Street's bad debts. This resembles throwing oil on a fire. If these bad debts are forgiven you can bet it will encourage even more risky speculation in oil and commodities by the same players than has been the case this year.
Yes he can Bruce. The following url liste examples where it has been declared in the past.
http://www.usconstitution.net/consttop_mlaw.html
http://www.towardfreedom.com/home/content/view/911/
http://www.govtrack.us/congress/billtext.xpd?bill=h109-5122
Bruce....federal prisons are being prepared for those who resist.
"I have heard all this stuff, technically there are laws in case of some national disaster that allow Bush to declare martial law,"
You said it right there Bruce. The laws are there. Nothing is unlikely these days and times.
The other thing is that everything any of us have ever said on the internet can be collated, searched, characterized and sorted as to likely political threat, so you better hope we never have to face a totalitarian takeover, because it will be simple.
Read about how Hitler rounded up the Jews and others. No one could figure out how they knew who everyone was and where they were. IBM had sold the Third Reich collating machines which they used in the census. With simple programming they could figure out who was related to who and what religions people were.
Then look at Rwanda where the French did the sociological experiment of arbitrarily creating minorities of Hutus and Tutsis and set them against each other.
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