700 Billion Positive Psychology and Buy-out for Wall Street Not Enough in Face of Casino Global Financial System

The stock market opens after the 700 billion tax-payer-money Wall Street bail-out dropping a further 200 points with markets all over the world losing value also.  Furthermore, US Bank Failures expected to rise despite the Wall Street bail-out.  The (non) effects of wasting 700 billion + losing 100 billion of tax revenue are already beginnig to be seen.  Meanwhile, Congress is in recess and addresing the fundamentals of the system has remained unaddressed.  Representative David Price feels secure in his vote for Wall Street as demonstated by his having voted twice in favor of this give-away even though his rival has been outspoken against the bail-out.

Issues: 

Total votes: 177

Comments

The catalyst for the selling today, which also took the Dow below 10,000 for the first time in four years, was investors’ growing despair that the spreading credit crisis will take a heavy toll around the world.

Investors have come to the realization that the Bush administration’s $700 billion rescue plan and steps taken by other governments won’t work quickly to unfreeze the credit markets.

That sent stocks spiraling downward in the U.S., Europe and Asia, and drove investors to sink money into the relative safety of U.S. government debt. Fears about a global recession also caused oil to drop below $90 a barrel.

Wasting 700 Billion?  I'm not sure that I would want to see what might have happened if we didn't do the rescue plan.

Do you have a solution for unfreezing the credit markets in short order?

PS:  Having Congress at home right now is a good thing!

Had the House not passed the bail-out bill on Friday you might have been pointing to the 800 point loss (later to recover to 370 points below) in the Dow today and ascribed it to not having passed the bill (as you did last Monday when it fell by 700 points). 

The fact is that the Federal Reserve bailout (1,570, 000, 000, 000$ 9/21 - 9/29 + another 300 billion today) and the U.S Gov. bail-out (700$ billion) of Wall Street are drops in the bucket compared to the 1 Quadrillion derivative bubble to which the global financial system is hostage to ... 

... Ignoring that, 'in shorter order', a very slightly better attempt at unfreezing the credit markets than the current plan of buying toxic, overleveraged, and not marked to market assets from banks would have been to directly inject equity capital into the banks ...

...'very slightly better' beacause that is not mentioning homeowner relief, significant regulatory reform, and priming the real economy by spending money in creating the much needed green economy.

You are right it is not that simple!

Only now, after global stock markets incredible losses over the past week, is the  'slightly better' approach of buying equity  directly in the banks (nationalizing) and the possibility of directly injecting equity capital into the banks getting any serious consideration.  Had the legislative and executive branches of governement been tuned into any thinking outside of their own they may have come to this solution, at the latest, a week earlier!

Buying toxic mortgage assets still remains part of the plan:

  • purchasing troubled mortgage-backed securities;
  • buying mortgages, particularly from regional banks;
  • insuring mortgage-backed securities and mortgages, ensuring banks and investors don't lose money if borrowers default;
  • purchasing equity in a broad array of financial institutions; and
  • helping delinquent borrowers stay in their homes.

How long will it take them to seriously address homeowner relief, significant regulatory reform and priming the real economy?  ... more productive and socially just  bottom-up solutions to the problem.  Will they come to this realization before they get a chance to spend the 700 billion (they are currently timing the expenditure of this money until after the election so as to minimize political fall-out as constituents could, thanks to the proximity of the election, in almost real time hold their representatives accountable)?   Will the pressures that might lead to the undeniability of a requiem for the top down bail-out storyline produce their effect in time?


 

Wouldn't it be good to give Wall St a week's vacation while Congress is out?

It is not $700 billion, it is $350 billion. Congress must approve the other $350 billion, which they may not.

Fred is correct: this is not an overnight "cure." It may not work at all. But my gosh, we need to do something and this is what was politically possible. We don't live in a perfect world. 

 

It is 700 billion if by the time Congress is transmitted a written report by the President there are still enough gullible constituents who will not hold their Representatives accountable for the heist that they are enabling.

Why do we continue to get misrepresented?

 

What evidence do you have that Price's constituents don't support him on this? Lots of folks who said no to this at first changed their minds.

From the responses on this thread or your earlier one, more folks supported this than opposed it, or those who opposed it are not posting here, one of the two.

Your posts on this as well as your anti-Price screeds on Iraq are full of "he doesn't represent us!" catcalls. You really appear to mean "Price is not listening to Sammy Slade!"

Well, Sammy, 2010 is coming soon. Throw your hat in the ring or find a primary opponent for Price. Perhaps he or she will do better than Price's two opponents in 2006, one running from the left and one from the right who together got 10%.

Whether Sammy Slade likes it not, the 4th District Democrats overwhelmingly support Price, not on everything, but overall. If you don't like it, go work for B.J. Lawson.  As you continue to observe, he's in the "Sammy camp" on this one.

 

 

Is it just possible Sammy IS working for Lawson?

No

If you ever meet Sammy, as I have, I don't think you will be able to imagine that he would support or work for a Republican. 

While I am hesitant to jump into what is looking more and more personal and while I was agnostic about the bail out itself, Sammy Slade is not the only person who has stated that they no longer feel represented by anyone in our government. Far less "ideological" and involved people have said the same thing in the last few weeks.

It's the culmination of years and years of "compromises" that seem to only be compromises on the part of the 49% of people who vote Democratic.  More and more of us believe we would not compromise to the degree that our representatives have and that those representatives have compromised on one too many things that directly impacted the middle class.

I don't think "if you don't like it, then go vote (Republican)" is a solution. This bail out was really the straw that broke the camels back for a lot of Americans and David Price and every other Democratic rep needs to hear that.

 

...to believe as you wish. I am taking issue with Sammy's continued use of the $700 billion figure when that was cut in half. Yes, there is another $110 billion in tax breaks (over ten years), but these tax breaks, whether they should have been included or not, don't have anything to do with the economic rescue plan.

The only reason I mentioned voting GOP is that Sammy (who is a member of our county Democratic executive committee) keeps telling us how Lawson is correct about this. Fine. If this is that important to him, he should vote for Lawson. That's democracy. Democrats don't always have to vote for Democrats.

But don't keep saying "Price is not doing what the majority of his constituents want him to do" when there is no evidence I have seen which shows that. If it is true, we will have Rep. Lawson going to Congress in January. May the best man win.

"But don't keep saying "Price is not doing what the majority of his constituents want him to do" when there is no evidence I have seen which shows that. If it is true, we will have Rep. Lawson going to Congress in January. May the best man win."

The evidence is not in who wins or who doesn't win. If my option is someone who is kind of sort of almost close to what I think and someone who is less so, I'm going to choose the latter. That doesn't mean I feel represented. It just means I vote.

I don't know what kind of calls came into Price's office last week, but I do know - from talking to someone answering the phones - what kind of calls came into neighboring offices. I doubt Price emerged unsoaked from that barrage.

 

Many top elected officials in Orange County are so well-entrenched in their seats of power that not only do we not have a choice in November, when the only other name on the ballot is a Republican, we really don't have a much a choice in the primary either.

I think Price is a nice guy, but don't feel he represents me well in Congress. However, there isn't a qualified Democratic politician in the district who would waste their time running against such a powerful incumbent, and that does make it harder for us to bring criticism to him. I think Rep. Price knows as well as we do that he doesn't really have to listen to us.

We need multiple parties and real alternatives. The more the plutocrats with D's and R's after their names work together to bail out the rich and powerful at the expense of the electorate, the more obvious this becomes.

Credit markets run on confidence that money lent will be paid back.  When all that bad paper out there finally was exposed and bankruptcies of large financial institutions became inevitable, the credit markets froze (and still are frozen). Relief will not be immediate.

With job losses mounting, large amounts of consumer debt, consumer spending is dropping and will drop. A recession is inevitable. Stock prices are projections of profitability which will drop because consumer spending will drop. The stock market direction is often 6 months ahead of the drop or rise in the economy. However I think the bad times are coming sooner.

Without the bailout the depth of the recession or depression would likely be deeper and longer. This was only a start.

The old curmudgeon.

Sammy is not a member of our exec comm at this point, although he has been in the past and is active in the party.

Sammy, you place a lot blame. Can you give us a realistic solution so we can all agree about how misrepresented we are?  This is a great big huge mess.  No one knows how to fix it.  Heck, the Euro banks sat and scoffed at US market stupidity, did nothing to shore up their own risk, and now are getting whacked. 

This whole situation stinks and is mainly the result of lender and Wall Street greed, unfettered by significant regulation.  This bailout is sickening.  But the risk of not trying it - in the face of no other alternative - was too much in my view.   It's like the pilot telling you the plane is going to crash if you don't make an emergency landing.  You may think the pilot (Paulson/Bernanke) is wrong, incompentent, stupid etc, but if the passangers took a vote, most of them would probably side with the pilot, don't you think? 

No doubt this whole package is way too unbalanced in helping Wall Street w/o helping homeowners (eg - see Center for Responsible Lending proposal on bankruptcy reform that was not included in the package - the death knell being Obama saying it shouldn't be a part of it...).  But what was the alternative?  The Boehner plan?  The McCain plan?

It's very easy to criticize, it's much harder to actually craft possible solutions.  Frankly, I could understand voting for or against this package b/c I don't think anyone knows what will help at this point...

David, thank you for being one of the few (as late as it may be) on this blog willing to entertatin alternatives to the Wall Street Bail-out heist. Only Allen Barton and I, have been providing counter proposals and information about alternatives to the Wallstreet bail-out throughout this discussion (e.g. here, here and here). 

It has been very interesting to see the local discourse fixating on national discouse prescribed tropes to the detriment of constructive thinking: 'it is an emergency --we must act  ... it doesn't matter how or what -- as long as there is action ... trust  the experts (who have gotten us into this mess in the first place), this is no time for politics or partisanship, people proposing alternatives only want vengence, the stock market crashed after the failure of passing the bill in the house -- we can't let this happen again, the stock market crashed after the succesful enactment of this bill into law -- the global markets realized that this is not enough, etc'..

Yes it is very easy to criticize (and be blind to attempts at providing alternatives) ... and much harder to provide possible solutions.  You can do it though ... after all ... I've already done a lot of the work for you ... you can look back through the many posts that I have contributed and compile from the compiled to craft a solution.

A few more leads:

* After the Depression the governement did not invest in the failed stock market or in toxic securities.  The government did not allow for the deregulated financial system to continue.  The government invested heavily in big infrastructure projects that provided jobs and provided services for the people in need.

* Nobel Peace Prize winner Joseph Stieglitz a better bail-out

* Bruce Marks of NACA on DemocracyNow, September 29:

when you look at the mortgage-backed security industry, in every contract there is between a servicer and the investor, there is wording in there that says one of two things: you adhere to the Fannie Mae standard for default mitigation or the industry standard. Paulson has in his power today to change the industry standard for every person at risk of foreclosure. That means, if he said moratorium on foreclosure, restructuring the mortgages by reducing the interest rate, often to five percent or less to make it affordable, he could do that today, and he could do that for every homeowner out there who’s at risk of foreclosure.

* Dennis Kucinich: We had better alternatives

There are some who say that after this Wall Street bail-out catastrophie it is too late for macro solutions.  And, instead, what is needed is to bail OUT of Wall Street.

As you can see I am all for the constructive counter-proposals.  The plane may be going down but there are more pilots in the cabin then the ones who forgot to fuel the plane.  When the bail-out was originally proposed it was a skeleton of a few pages, it would have been very easy to come up with a much better plan by taking a stand and doing legislation as the legislature is supposed to do -- it is their job and not the job of incompetent pilots.  Well, I take that back: it was pretty impossible to overide corporately controled congress, the swarm of lobbyist, and a public (in some forums) who took hook, sinker and line.  This reality though does not preclude my taking a stand, speaking out, and working for a better alternative.

Alternatively, as a minimum action (the basic one as provided by our representatve democratic system), you can kick back and choose between two limited but differing alternatives as represented by our choices (a choice for some and not for many) of representation in the House of Representatives.  Unfortunately, this requires looking at their stands ... and the non-Democrat happens to be a Republican!  We are better off when we are not taken for granted, or as John McCain would say: 'Don't telegraph the pass'  --that, coming from me, is a joke.

Your last paragraph is very cryptic, to say the least. Are you endorsing Lawson?
We can't unring that bell, it has done rung!

An old irish quote: “May you have the hindsight to know where you've been, The foresight to know where you are going, And the insight to know when you have gone too far”.It has not been a surprise to a few of us that much of the allocated 350 billion, first half of the already infamous 700 billion, has disappeared.

 ..Is anyone accountable? ..ohh, almost forgot: meanwhile, today, Paulson is needing Congress to release the second $350 billion.  

Months ago trillions were spent in a futile attempt at bailing banks out from the bursting 1 quadrillion derivative bubble.  In the original Paulson plan there was an attempt to use taxpayer money to buy up these toxic trash assets from banks so as to make the banks solvent again.  Then, though trillions were wasted in other ways, fortunately they were not able to transfer some of these toxic trash assets (in exchange for more then they are worth)  over to the government. Today President Obama announced 1 trillion more for another attempt to bailout banks by buying up their toxic assets.Paul Krugman sums it up in the New York Times:

The common element to the Paulson and Geithner plans is the
insistence that the bad assets on banks' books are really worth much,
much more than anyone is currently willing to pay for them. In fact,
their true value is so high that if they were properly priced, banks
wouldn't be in trouble.

And so the plan is to use taxpayer funds
to drive the prices of bad assets up to "fair" levels. Mr. Paulson
proposed having the government buy the assets directly. Mr. Geithner
instead proposes a complicated scheme in which the government lends
money to private investors, who then use the money to buy the stuff.
The idea, says Mr. Obama's top economic adviser, is to use "the
expertise of the market" to set the value of toxic assets.But
the Geithner scheme would offer a one-way bet: if asset values go up,
the investors profit, but if they go down, the investors can walk away
from their debt. So this isn't really about letting markets work. It's
just an indirect, disguised way to subsidize purchases of bad assets.The
likely cost to taxpayers aside, there's something strange going on
here. By my count, this is the third time Obama administration
officials have floated a scheme that is essentially a rehash of the
Paulson plan, each time adding a new set of bells and whistles and
claiming that they're doing something completely different. This is
starting to look obsessive.

Don't let Representative David Price go along with this insanity!

I don't claim to be an economist but I play one on TV, but seriously I thought that the reason the banks have done nothing with the toxic assets was that if they priced them at their current value then they would have a huge problem with their balance sheets forcing some of the largest to be insolvent and probably causing another depression. Yet the toxic assets is making banks hesitant to loan which really drags down the economy. This is what happened to Japan in the 90's , savings bank problem in 80's, and USA in the 30's. Solution in 30's and 80's was to temporarily nationalize the banks and clear up balance sheets and reprivatize. Not sure how Japan got out of problem but their zombie banks lasted for 10 years until they finally cleared up the balance sheet problem and got their economy going again. The balance sheet probem seem to keep bank from lending yet they are hesitant to value toxic assets at their true worth. What a catch 22. Rolling Stone has a couple of articles by Krugman in the last 6 months that really explains the problem at a laymen's level. He seems to think that Obama is on right track but needs to do more perhaps another 800billion stimulus, and he also talked about temporarily nationalizing the banks.What are some solutions to clearing up these toxic assets?? Thx

 

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