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Stock Market Hates Bailout


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2008 Oct 6, 1:08am   33,114 views  327 comments

by Patrick   ➕follow (55)   💰tip   ignore  

titanic

Great, after the stock market spasm last Monday when it looked like the bailout would not pass, we get the same thing this Monday when it does pass.

So now we have a crashing market, and higher US debt. The bailout was very wrong, and remains very wrong.

Great quote from reader Herb:

The Titanic is sinking. Captain Bush ordered first class passengers aboard the few $700B lifeboats. He and his crews have their own lifeboat. We are all left to drown.

#politics

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1   MST   2008 Oct 6, 1:30am  

Hey, SNMR:

I don't think anybody answered you:

Obama worked as a Lawyer for Acorn, Acorn forced banks to give risky loans to uncreditworthy people with no money down, ie no vested interest.
Do you have any reference to any rule which forces banks to give loans to uncreditworthy people.
Fannie mai/mac were there for many years . Did something suddenly change recently ( 2000 +) that it caused a bubble ?"

http://tinyurl.com/5xghpq

Yeah something changed (1999).

Looks like the DOW is hitting a floor right now of 9800 or so. That might last, oh, a single short-covering rally cycle. Give it a couple of days, then on to $8500 as seen here on Patrick first!

What? No more shorts to cover? Uh oh.

$7500!

2   FormerAptBroker   2008 Oct 6, 2:06am  

With no more "equity" left to pull out with HELOCs almost every company in America will be making less money next year...

3   SP   2008 Oct 6, 2:50am  

FormerAptBroker Says:
With no more “equity” left to pull out with HELOCs almost every company in America will be making less money next year…

And with no more equity left to pull out of stock-market lottery, the wealth-effect is going to now hit back with a wicked counter-punch. At the current stock price, the thousands of Googlaires who jumped on board anytime since March 2006 are officially underwater... @Claire, if you're still around, this should put some downward pressure on houses in your zone.

Look for many more companies to follow EBAY in the next quarter. Startups are dying on a daily basis - my linkedIn box is overflowing with updates from good engineers who are scrambling to get out of the fire, and most of that is not even making the news. If there is a reporter around here, get off your butt and cover this story!

4   EBGuy   2008 Oct 6, 3:02am  

Here's a nice graph of MEW as a percentage of GDP.

5   Lost Cause   2008 Oct 6, 5:21am  

Wild swings in the Dow are not a good sign.

6   greginator   2008 Oct 6, 5:48am  

Maybe the continuing fall will be a good thing as we've given our government representatives good reason to believe that we (as a whole) won't do our homework and will trust liars who try to sell the impossible(e.g., we knew Clinton was lying on a personal matters but still believed we could trust him on national matters).

Hopefully the pain of this bailout is so severe that anyone who suggests another one is immediatly flogged by everyone around them.

As there is no way to truly hold up a house of cards, I look forward to it crumbling and hope we wise up enough as a nation to replace it with something better. If not, all out communism (or radical Islam), here we come!

7   Peter P   2008 Oct 6, 5:52am  

Capitalism is the only thing that can work. This mess was caused by our unwillingness to trust Capitalism. Had we allow the market to liquidate losers earlier (e.g. allow renters to continue renting), the problem would have been a lot smaller.

8   EBGuy   2008 Oct 6, 5:58am  

Every so often I come across a property that even I find shocking. Take
6920 Charing Cross Road, Berkeley which sold new for $1,400,000 on 2/23/2007. It's now offered as a short sale for $1,425,000.
This 4 br/4 ba 4,300 sqft home was refinanced on 8/7/2007 for, get this: $2,050,000. But here's the real shocker, J P Morgan Chase Bank is the bagholder on both the first and second liens. Wow, a half million dollar bank robbery in broad daylight.

9   GammaRaze   2008 Oct 6, 6:14am  

Peter Schiff (one of the few economists I respect) had this recommendation: People should stop paying their mortgage!

Think about it - why not?

For the borrowers, that would save a ton of money. Plus, they might enter into foreclosure and thereby, be eligible for some "rescue" from our congressional overlords.

As far as the lenders are concerned, they are no longer part of the free market, so why do they care? That mortgage will just become a "bad asset" and we now have a separate federal entity just to buy those bad assets using tax payer money.

There will no motivation or urgency for borrowers to pay or lenders to collect.

Taxpayers will be screwed, but hey, what else is new?

10   greginator   2008 Oct 6, 6:22am  

"Wow, a half million dollar bank robbery in broad daylight." So true.

While one should probably choose life in the 'your money or your life' decisions, and in light of these abuses, does anyone feel moral obligation to pay taxes?

11   FuzzyMath   2008 Oct 6, 7:15am  

To be honest, I'm losing motivation to stay current on anything. Bills, taxes. Who cares?

Our government abolished accountability last week.

They have completely lost my trust, and my allegiance.

12   KurtS   2008 Oct 6, 7:28am  

"But here’s the real shocker, J P Morgan Chase Bank is the bagholder on both the first and second liens. "

Wow, what a cavernous shitbox. I wonder how much this practice figured into an overall runup of local prices? Real estate reeks of scam at every conceivable level. I can only guess JPM expect to recoup their loss by the widening bailout.

13   losaltosrenter   2008 Oct 6, 8:06am  

Ultimate sign of the apocalypse:

My Realtor in Los Altos (the most Fortressy of Fortresses) has advised me to wait because he thinks the local market is a falling knife and that we're just at the beginning of an inevitable spike in inventory and reduction of prices.

'Nuff said. We are truly in uncharted waters.

14   FormerAptBroker   2008 Oct 6, 8:46am  

sriramgopalan Says:
> Peter Schiff (one of the few economists I respect)
> had this recommendation: People should stop paying
> their mortgage!

I was just talking to a friend of a friend (who came to me since my friend told him I have been working in real estate and real estate lending my entire life) who said that he is not only going to stop paying his mortgage but he is going to legally divorce his wife…

He is still in love with his wife that he married last year, but he said that a REO in the Danville condo complex just sold for $425K quite a bit less than the $795K that his wife paid in 2006 the year before they got married.

The attorney that they talked to said that once they are “divorced” his credit will not take a hit and they will probably be able to live rent free in the condo for at least a year. Once the bank takes title to the property they can live for another 6 months or so (maybe even another year if the bank is busy) if he claims that he has a lease from the owner and he is an innocent tenant (California courts are very nice to innocent tenants caught in a foreclosure).

The one bright side of this is that if we have tens of thousands of people that just stop paying their mortgage they will have a lot more cash every month to spend on consumer items helping the economy…

15   kewp   2008 Oct 6, 8:52am  

Capitalism is the only thing that can work. This mess was caused by our unwillingness to trust Capitalism. Had we allow the market to liquidate losers earlier (e.g. allow renters to continue renting), the problem would have been a lot smaller.

The current meltdown is proof positive that the philosophy of free markets are fundamentally flawed. Fraud will always win over non-fraud in the short term. Bad money drives out good.

Soon everybody is committing fraud in order to stay afloat, which only drives the top percentile to commit even bigger fraud to stay ahead. And then the circle perpetuates and accelerates until it collapses in a spectacular fashion (like now).

Socialist regulation of capitalism is the only thing that can work. Markets can only truly become free when fraud is eliminated from them.

16   justme   2008 Oct 6, 8:54am  

LosAltosRenter,

A realtor in Los Altos that recommends against buying now? I'm speechless. How do I get the name of this guy?

17   OO   2008 Oct 6, 9:06am  

EBGuy,

how can MEW be negative in certain quarters? Does that mean people are paying off previous MEW?

18   OO   2008 Oct 6, 9:12am  

This Neel Kashkari guy that Paulson appointed from the Goldman gene pool is a joke.

35 years old, ex-engineer-turned IBanker, very typical path. But the joker part is he was only a VP (not even ED, MD) at Goldman in its IT practice, and he has never lived through any recession, any major event, and now he is suddenly in charge of "financial stability" department for the world?

Does he come from a very esteemed Indian upper caste family so that he can pull some strings there to have the Indians chip in? I can hardly believe that Paulson made such an appointment, at least get someone with decent qualifications please.

19   OO   2008 Oct 6, 9:23am  

But that doesn't make sense, because the biggest bagholders of USD are Japan and China, they should have appointed a more connected Chinese or Japanese to the post.

I just think Paulson is treating these posts as his personal reward to those who have been loyal to him just like our Fuhrer Bush.

20   Richmond   2008 Oct 6, 9:25am  

They need a marionette.

21   Richmond   2008 Oct 6, 9:34am  

Wow. Nikkei's not lookin' too good.

22   justme   2008 Oct 6, 10:10am  

Richmond. Exactly. They need a marionette. Neel Kashkari is to the bailout as General Petreus is to the Iraq surge.

Come to think of it, the bailout ought to be known as the "wall street surge".

23   StuckInBA   2008 Oct 6, 10:18am  

I would be surprised if that guy has any Indian ties at all. He is probably Indian in name only.

And ruling class in India is not always upper caste. It is way more complicated than that.

And USD is not going to collapse against other currencies (except Yen). Why do you people think other currencies and other economies are going to be better than us ? Dollar collapsing against oil/gold - I get that. But dollar collapsing against Indian Rupee ? Please. I have a few INR that I can sell to you for a good price.

Indian software companies are going to have a ton of problems. With or without exchange rate risks. Cost cutting will affect out-sourcing. No country is going to be immune from this massive deflation.

I am also perplexed by Paulson's choice. But Hanky the American Hero has not done anything that's good for people - except maybe for the members of the country club he visits.

24   OO   2008 Oct 6, 10:38am  

The problem of USD is too much debt. We are the most indebted currency in the world, and the other countries (not the developing ones) are actually better set up than us to weather the storm, if their size is large enough.

But the USD debate aside, I am happy about the perfect storm hitting right in the face of Bush, fast and furious. I was worried that it would hit AFTER he is gone so that he can point his finger at someone else. Oh yeah, try to blame Clinton, that cigar smoker hasn't been in office for the last 8 years.

I am just enjoying this big pile of SH*T landing right in the face of Fuhrer Bush. Bring it on, collapse more.

25   surfer-x   2008 Oct 6, 10:47am  

Well I think everything is going to be great, especially if Jimmy Carter jr. gets elected.

This negativity, wow, amazing, I thought everyone was rich. rich rich.

Better grab an ugly chick and head for the door because the lights are getting turned on.

26   OO   2008 Oct 6, 10:53am  

An economy that can weather the storm must produce enough stuff, you know, the stuff you actually consume, not just the digital bits like porn videos (hey, some actors and actresses still need to get the "stuff" going).

We are not producing enough stuff, especially stuff desired by the world at a price they wish to pay. In 2005 a moron on Businessweek wrote a cover story about how Americans are much richer than people believe, he argued that the world desires our Wall Street financing products and we are the world's financial broker. Yeah, I can see how that part of the GDP is going down the drain.

The strong USD we are seeing right now is not because we are doing better, but precisely because we are doing worse - a much bigger debt hole to fill as CDS/CDO/MBS whatever alphabet debt and derivative instruments are getting destroyed en masse. But this is not a way for a currency to get sustainably strong. Who doesn't want to have a strong currency so the whole country can enjoy cheap imports? If the system is rewarding failure, then the entire world should just go create lots of debt and induce a debt destruction to make their currency strong, problem solved, no starvation ever.

This artificial strength is temporary, because TPTB are not printing fast enough as the progress of debt destruction. But they will catch up, don't worry. When they are desperate, they will resort to overt printing straight from the thin air, unlike the $500B piecemeal deals here and there. We will get to trillion dollar printing.

27   justme   2008 Oct 6, 11:01am  

Regarding USD and exchange rates in general:

I see why YEN is going up, because people who borrowed yen at low interest rates (a.k.a carry trade) now are paying off their yen loans and hence are buying yen to do it. They can now get cheap loans at home and do not need yen anymore.

What I do NOT get is the clamor for USD. I can understand the flight-to-safety argument to some extent, and perhaps the oil-price-is-dropping argument. But what is really going on here?

28   OO   2008 Oct 6, 11:12am  

No, it is definitely NOT flight to safety.

It is all the hedge funds, IBs that have wild bets on the derivative instruments getting a margin call AT the same time. It will pass, don't worry. If USD stays artificially strong, it will kill US economy even more. Either way USD is a dead man walking.

For Chinese, we have this phenomenon called backlight shining, which typically refers to a short lapse of normalcy for a dying person, it could be actually explain in medical science, because this is induced by the last-ditch effort of his hormones to get his organs function properly. I have witnessed this myself on a couple of old dying relatives. For a brief hour or two, they looked completely normal and even healthy, but right after that was a quick descent to death.

USD is exactly trapped in this phase. When it starts its descent again, there will be no looking back, and it is going to be a straight line down.

29   OO   2008 Oct 6, 11:36am  

No, this phenomenon is not confined to Chinese alone, but I don't know what it is called in other cultures.

30   B.A.C.A.H.   2008 Oct 6, 11:42am  

OO,

I get it, and so do some other people. It was predicted to happen this way, a deflation scare ahead of the main event.

31   OO   2008 Oct 6, 12:06pm  

Marc Faber, a Swiss pro with an amazingly consistent record over last 30 years, also predicted this brief strength of USD which could last 6-18 months.

He successfully predicted the Asian Financial Crisis, and also has also forseen the upcoming depression since 2003 or so. He was usually not quite on the mark with short term prediction (I followed him for years), but he was doing very well with timing this time, perhaps he has eventually fine-tuned his skill much better.

He predicted back in the beginning of 08 that USD would enjoy a brief strength for a duration for up to 1.5 years, and USD Treasury would be the place to be in the meantime, while commodity would have a major crash. After that, he predicted a continued descent of the USD, but a mixed bag on commodity, certain categories may never recover.

32   StuckInBA   2008 Oct 6, 12:33pm  

OO,

If USD is to be devalued - then against WHAT ? Without coming up with viable answer to that, the claim that USD will get devalued is not even a complete sentence.

Euro ? GBP ? Fat chance. Which currency then ? It has to be a major currency. Oil is also influenced by many other factors and demand destruction is real.

What I do concede is USD will not enjoy the reserve currency status it has. We already have seen countries breaking away from that and it's a trend that will continue.

The only long term alternative I see is gold. This is going to be a very slow trend, as central banks around the world may start a return to gold standard - either officially or unofficially.

Treasuries on the other hand may eventually see a sharp sell-off.

I understand currency markets even less than stock markets - so take this comment with appropriate amount of salt.

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34   justme   2008 Oct 6, 12:42pm  

OO, what margin calls in what derivative FOREX instruments are we talking about here?

Do you have a reference or some background material to link to?

35   PermaRenter   2008 Oct 6, 12:46pm  

I got this mail:

I hope Monday has been kind to you so far. I was reading through my news feeds today, and I saw some unfortunate news that Ebay is reducing work force. Being an eBay alum, I wanted to drop you a message - If any of your colleagues have been affected by this recent turn of events, pls. feel free to share my contact information with them should they approach you - Our agency is working on 225+ searches right now from Marketing to Engineering, individual contributor to the VP level and I can help them identify job leads that fit their requirements. The majority of my open searches are perfect for candidates with consumer focused web experience and range from social networking to interactive broadcast, early stage startups to established media plays. Regardless, I hope your week stays manageable, and I appreciate your time & any forwards you feel are appropriate. Kind Regards, Christian Cervero
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Christian@Xcreek.com
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36   Jimbo   2008 Oct 6, 12:48pm  

No, Obama never worked as a laywer for ACORN. The Republicans know that they can't run on their record, since Bush is now officially the most unpopular President ever, so they hope they can run on a bunch of lies about Obama. Not working this time, sorry.

What caused the mortgage meltdown? Republican refusal to regulate the markets, plain and simple. Why didn't they reign in Fannie Mae during the six years they enjoyed control of Congress and The Presidency from 2000-2006? They were simply on the take.

http://www.nytimes.com/2008/09/28/opinion/28sun1.html?_r=1&hp&oref=slogin

37   PermaRenter   2008 Oct 6, 12:51pm  

I have decided that I will vote against all incumbents and will vote independent this November.

38   Lost Cause   2008 Oct 6, 12:59pm  

I laugh at the desperate republicans who try to set the clock of blame back to 1999. And also to put the blame on acorn and Obama. It is almost as funny as calling the dems liberal elites. They are very good at one thing, and everyone can see though it -- blaming others for the very thing that is wrong with them. I even heard Palin talking about "the Big Lie." What a riot. Absolutely no oringinal thought whatsoever.

39   Lost Cause   2008 Oct 6, 1:02pm  

PS -- Wasn't Meg Whitman of E-Bay just whooping it up at the republican convention in St Paul just a few weeks ago?

40   Lost Cause   2008 Oct 6, 1:15pm  

Capitalism is the only thing that can work.

Um, maybe capitalism is the one thing that can't work.

Capitalist Equilibrium?

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