patrick.net

My favorite argument is the following...

1. The banks are fundamentally sound
2. They have assets that are stuck that they can't sell
3. It would be silly to let them fail just because they can't sell their assets for what they're "really" worth.
4. Therefore, we should save them by buying that asset.

Through the same logical sequence, I could argue the following...
1. I am financially sound
2. I have an asset (a house) that I can't sell for a "fair" market value (more than I bought it for)
3. It would be silly to let my go bankrupt just because I can't sell my house for more than I bought it for.
4. Therefore, the government should save me by buying my house.

Substitute house for any other asset you can imagine and the argument still works! Brilliant!

3. I would

while I am sure the bailout vs 2.0 or 2.01 etc will pass (and we know we do need a bailout, just that the distribution of reward and risk is too skewed), I am more impressed by the sheer arrogance of our overlords.

I know that they own America and we are just little guys trying to be left alone under the system, it seems like the overlords will stop at nothing to grab the last cent from the new-age American serfs.

There are already reports of organized push to the retirees telling them that if the bailout doesn't pass, they will not receive their SS checks. This will only get worse when more boomers head into retirement without sufficient funding, the government can tell them to vote for anything if the threat is "your SS check will be bounced!".

EBGuy pointed out what I think is the most underreported story of the day: The huge expansion of the Fed balance sheet.
justme,
Thanks for noticing. I was pulling my hair out yesterday wondering about this and the Treasury injections to the Fed. I guess I was about half a day ahead of the news cycle (the failure of the bailout bill was, well, THE major story yesterday). The Fed is open for business. Rollin', rollin', rollin', keep the TAF and TSLF rollin' over...
Here's an article from today's NY Times.

The Treasury Department has already created a series of “supplemental” Treasury securities to finance the Fed’s activities, and there is no limit to how many more it can issue and sell.
...But because of all the new lending programs for banks and Wall Street firms, analysts estimate that the Fed’s balance sheet now has less than $300 billion in unfettered reserves.

Usually for a PE or LBO to fund a deal, the key stakeholders (CXO levels) need to commit a sizable portion of their personal money, usually in the hundreds of thousands.

I would support a bailout plan (which is really a private injection of capital from the public), if the key stakeholders (CEOs of all the banks) also contribute $10s of Ms of their own money in equity, and they can make decent return as they claimed if the bailout works out just as they claimed.

There is nothing wrong with a bailout, just need to ask the Wall Street stakeholders if they will fund a deal like this.

EBGuy,

I am confused. Since the Treasury can issue Tbills with "no limit" to help out the Fed (still unclear where the no-limit buyers come from), why does the Treasury need the $700B?

Can't they just solve this issue by themselves through offering T-bills to "no limit"?

OO says: On what basis did DOW rally 500 pts? ...I can understand the -770 part, I am still perplexted by the +485 part.

In short, this was some sort of electronic avalanche or squeeze. Don't take my word for it, look at the charts yourself. The 5-day interactive chart on Yahoo! is sufficient to see the phenomenon.

After the bill passed, the Dow lost about 300-400 points. It stabilized there for most of the afternoon. Towards the very end of trading, there were two 200 point trough/spikes, and then a slam with only five minutes left in trading, after which the Dow ended -770. If you look at today's level, it started almost exactly where it plateaued after the bill was defeated.

My theory is that a bunch of hedgies bet big that stocks would surge yesterday, and probably margined into those positions. What else could move the entire DJIA by -200 with less than 5 minutes to trade? Perhaps a massive sell-off in mutual funds? All you can tell is, people were almost certainly trying to desperately close long positions at the very end of the day.

So there was no REAL -700 and then +500. Seriously, look at the charts! For all trading segments but a few unconnected five minute intervals, the DJIA took a -200 beating, or less than -2%.

Something seriously fucked up happened yesterday in trading. I cannot explain that much money moving around, but what happened was artificial way beyond panic and dismay at politics. No trader can manually move stocks that fast, let alone enough to shift the DJIA. The volume and speed indicate this was all a pre-triggered computer event, which means that a lot of very big players moved a lot of money by computer in a tremendously short window.

It's even possible that they triggered the trading curbs, because those limits were put in place to stop computerized trading from going wild and causing market crashes during unexpected events.

Brand,

what you said made perfect sense. I am sure the WS insiders know exactly where the trigger point these computer trading programs are set at.

why does the Treasury need the $700B?
The Fed can only loan (or swap out) against the toxic assets. The Treasury needs the $700 Billion to actually buy the underlying assets.

EBGuy,

why don't they resort to printing from the thin air? I am still very perplexed at where the $630B comes from, I never realized that we had $630B lying somewhere, they should have told me earlier then I could have slept tight.

Brand,

I believe that this week's Wall Street trading will go down in history as the most politically manipulated trading by a small group of insiders to finish their looting of America.

I hope these Wall Street insiders will not bring rage again upon their race, because there are lots of people from this ancient tribe that I respect and like very much, like Jon Stewart, Al Franken, and my family doctor, all honest and noble men.

CNN (and probably others) are turning up the heat to the max to pressure the public into supporting the bailout bill. We need to get out the following message:

No bailout without equity
is the modern day equivalent of
No taxation without representation.

Do not pass a bill to buy bad assets, if absolutely necessary
invest the public money in senior-preferred-voting-convertible-stock ONLY. It is crucial that the public as shareholder has its interest aligned with the remaining shareholders of the troubled institutions.

why don’t they resort to printing from the thin air? I am still very perplexed at where the $630B comes from, I never realized that we had $630B lying somewhere, they should have told me earlier then I could have slept tight.
I can't tell if you're being sarcastic here... printing would obviously debase the currency. The Fed gets the money from the Supplementary Financing Program at the Treasury Dept -- which gets dollars from patriotic (and scared) Americans and foreigners (central banks and the lot) who are buying Treasuries at even at extremely low interest rates.

The Treasury needs $700B for the Paulson Plan because Ben wants to run a central bank, not a graveyard (Over here boys. Bury the bodies where you see the TAF and TSLF signs.

They probably want to buy these crappy loans and use the anticipated future proceeds to fund Social Security.

EBGuy,

I am being sarcastic. I just think we are down that path, so why don't we just hurry down and be done with it. It is not like we can ever crawl out of the debt hole if we don't debase the currency.

What's the options left? Committing ourselves to be the debt slave for the rest of our and our children's life? Or, debase the currency and deal with a sharp drop in quality of life, but we are freed of debt.

The only reason why we haven't started debasing is perhaps all the elites haven't entirely cashed out of their USD positions.

Hmmm how about instead of bailing out the GBFs (greedy boomer fucks) we take the 700 very very very large and build a bunch of LHCs? (Large Hadron Colliders)?

Just a thought. Another option would be paying the Zep 200bil for reunion concert in Idaho, and another 100bil for hookers and blow.

Sound good Dennis, or is it justme?

We will probably start debasing the currency right after the election.

Hmmm how about instead of bailing out the GBFs (greedy boomer fucks) we take the 700 very very very large and build a bunch of LHCs? (Large Hadron Colliders)?

So that enough strange-lets can be created to temporally reverse the bubble bust?

Interesting video on "Real reason for bailout"

http://www.youtube.com/user/kdenninger

I think if we don't pass 700B bailout, china might have special plan for us.

This is what happens when you become Debt slaves to other countries.
They start black mailing you the moment they see you weak.

But ho...a story of an honest banker. From NRO's Mark Steyn.
Two weeks ago, I was overseas and called my assistant back in New Hampshire to find out what was up. And, after all the tedious business stuff, she mentioned that she'd gone into our general store just before closing and was surprised to find that behind the counter, working the evening shift, was our bank manager (of one of these First National Bank of Dead Skunk Junction-type banks). "Oh," explained Shelley [name ever so slightly changed to spare her blushes]. "I went crazy with the spending, and figured I could use some extra cash to dig myself out of the hole."

What happened to the good old days when failure of eadership meant resignation or removal by party.
Why on earth is Pelosi still Speaker?
Why on earth is Paulson still the treasurer?
In our rush to bad bailout, what is being kept from the public?
Even a fast discovery period in Congress is better than no discovery period.
Something really stinks.

I'm reposting this. Everyone take 30 seconds to send a message to you senator and congressman.

http://congressorg.capwiz.com/congressorg/issues/alert/?alertid=11987806

hahahaha...

http://biz.yahoo.com/cnnm/081001/100108_mortgage_plunge.html

Mortgage applications dropped 23% last week, and the article attributes this to the unavailability of credit, which makes no sense. Why would people stop applying?

Surely it couldn't be the fact that Paulson told us the world would end this week unless we crowned him King.

What happened to the good old days when failure of eadership meant resignation or removal by party.

Now, that happens only in Sushi-land. (But they used to commit Seppuku.)

Surely it couldn’t be the fact that Paulson told us the world would end this week unless we crowned him King.

If the world ends, so be it. We choose liberty over bread.

Anyone else want Judicial Review?
Right now the exective branch is banging the fear gong and demanding 700b revolving. credit from the Treasury.
Congress is playing partisan politics (and for now has accidently done the right thing)
Where is the Supreme Court to say, "Let me save you some time on that bill. It is not consittutional. Pass it and we revoke it."

I thought it was ironic in the debate last week that they had the constitution in the background while both candidates were talking about the unconstitutional things they would do.

Somehow the thought of the Constitution immediately brings up the image of Ron Paul.

"Somehow the thought of the Constitution immediately brings up the image of Ron Paul."

Also not so ironically... it was funny watching them try to jimmy into opposing positions when they agreed on virtually everything.

One quick comment to add on the Case-Shiller HPI data. If you download the spreadsheet with the historical index prices, you notice a trend in the last downturn. During the summer selling season, usually around August there is a local peak before the downward trend continues for the rest of the year. Guess what, its different this time.
Charlie Rose was a mixed bag last night. A NY Times columnist and Mort Zuckerman commented that Main Street has no clue how bad the coming downturn is going to be (two years minimum); they were amazingly frank about this, which I really haven't seen much of on TV. They were also very pro-bailout (not in its current form, thankfully), and thought Congress would get something together in the next week

The government kicked off a program Wednesday that aims to prevent foreclosures by letting an estimated 400,000 troubled homeowners "swap their mortgages for more affordable loans"

http://biz.yahoo.com/ap/081001/mortgage_aid.html

EBGuy,

I also viewed Charlie Rose with Mort Zuckerman.

Zuckerman is just one of many that are reiterating that the rescue must be in the form of preferred stock, not bad asset purchases.

Why is this not getting any traction? In fact, it seems that the whole anti-bailout crowd has fallen asleep.

Has anyone seen a web location where alternative bailout proposals are polled? We need a major site where the better alternatives are listed and the public can register there preference.

there = their

TOB say : snmr, why am i thinking that they figured out a way to dump that on the taxpayer?

No Matter what we do, They will figure out a way to dump it on tax payer.
There is no other place this shit is going to go.

No matter which direciton you throw shit it always lands on the ground esp when there is too much of it.

George Soros is advocating a plan based on purchasing equity, not assets, per the commentary article he is publishing in Financial Times today.

http://www.ft.com/cms/s/0/d68e10cc-8f45-11dd-946c-0000779fd18c.html

An excerpt from the George Soros opinion article:

----

" Tarp would invest in preference shares with warrants attached. The preference shares would carry a low coupon (say 5 per cent) so that banks would find it profitable to continue lending, but shareholders would pay a heavy price because they would be diluted by the warrants; they would be given the right, however, to subscribe on Tarp’s terms. The rights would be tradeable and the secretary of the Treasury would be instructed to set the terms so that the rights would have a positive value.

Private investors, including me, are likely to jump at the opportunity. The recapitalised banks would be allowed to increase their leverage, so they would resume lending. Limits on bank leverage could be imposed later, after the economy has recovered. If the funds were used in this way, the recapitalisation of the banking system could be achieved with less than $500bn of public funds."

----

Not everyone is agreeing with Soros that allowing a temporary increase in leverage fropm 12:1 to some higher number is a god idea, though.

George Soros is advocating a plan based on purchasing equity, not assets, per the commentary article he is publishing in Financial Times today.

I respect Soros as a trader, NOT as a political philosopher. Ron Paul has a better solution. We must let the failed enterprise be liquidated. If that is going to cause a global meltdown, the blood is on those who caused this mess in the first place!!!

Let's keep it simple and ask whatever terms Warren Buffet got in GS & GE.

dont forget the blood on your doorpost.

LOL. Ten plagues?

I thought we are in Revelation territories? Or are we still in Exodus? :)

It is all Adam's fault for not killing the snake!

I would love to o an informal poll here.
I think many followed this board because they newk prices were out of whack in the BA and they wanted to know when that might change.

Does anyone really care ny more about housing? With the sheer magnitude of this thing?