Listening to CNN on the radio today & it became clear: They pulled the $700B figure out of their ass

They had the undersecretary of the treasury on and he was unable to directly answer even the simplest questions from viewers and just talked past their questions. He was unable to say how many jobs would be lost or how many banks would fail or if 700 B was enough money.

I also heard that they don't really know because the banks have all screwed with their books and there is no way to tell without a complete investigation by the gov't - a la Enron... just like Enron, we may never know. This is what happens with deregulation people and it was compounded by a total lack of integrity in the accounting process and relaxation of gov't accounting rules.

To give these people 700 BILLION NOW and ask questions LATER is a GIANT mistake.

We need to investigate, prosecute, regulate, and help the little guy FIRST and once we know the truth we will know if it's 700 BILLION, 300 BILLION, 10 BILLION or 6 TRILLION.

Doug D.
Ft. Lauderdale, FL

I totally agree

but that doesn't mean there isn't urgency to inject money to keep credit moving
the problem with waiting is that in the near term (less than 6 months) there is the potential of losing more than 1 million jobs if credit is not available to business
the owner will be bankrupt, the business will be bankrupt, the employees will be unemployed with few alternatives available to them

one of the top reasons for small business failure is insufficient capital and cash flow. Most small business don't operate with much capital cushion they operate with cash flow a significant percentage of which is funded my short term credit. that's the credit that is dried up. Consumer credit is less but its still out there.

Once those jobs are gone, they will not come back if the credit spigot opens up.
those businesses will have gone under and taken the jobs with them

We ought to wait and do the prosecution, regulation and helping out the LITTLE guy with his home mortgage and screw the big guys until later if ever.

Give the money to those who are behind on their mortgages so that they can get current, regulate the interest rates so that people don't get priced out of their homes by adjustments in ARMs, prosecute the crooks, give the money back to those who have been repo'd under a sub prime mortgage or ARM and it will put plenty of money back into the economy WITHOUT rewarding the crooks who put us in this mess in the first place.

Doug D.

You know, I want to address all those things as well, they're important. But untangling this mess and identifying who's criminally responsible vs. who dealt in good faith and get screwed is going o take quite a long time. Meantime, businesses and state and local governments are having a really hard time getting their hands on day-to-day cash flow: the longer that goes on, the greater the likelihood of layoffs, business failures, blackouts and a breakdown in public services. I would rather avoid that because:

a) it's an unpleasant step in the direction of martial law, and
b) the economic costs are going to be staggering

I estimate (by the seat of my pants) that this bailout and the ancillary costs - more cash injections down the line and so on - are going to add up to a 10% hit on the US's GDP. That is a Bad Thing. But I think the idea of letting it fester through and having shouting matches about it is quite likely to cost us a lot more than that.

and give the money back to those who got repo-d on their sub prime and/or ARM mortgages.

That'll put plenty of money into the economy to drive up demand so you will be able to pay your bills WITHOUT rewarding the fat cats who got us into this mess in the first place.

Doug D.

Basically you're proposing a limited fiscal stimulus involving general taxpayer wealth being transferred to homeowners. This is not going to turn the credit markets liquid again.

They pay their mortgages, the money starts flowing...

I'm talking DEMAND side you are using discredited SUPPLY SIDE Republican talking points.

People with little excess income are much more likely to spend any new money they get into the economy or use it to pay down debts. The wealthy are NOT because they have a lot of money already.

Doug D.

even if they have the money. they are upside down on their home loan.

people are walking away from their homes because they are worth less than the mortgage
thats what a 20+% decline in home prices does

they could only spend it to get right on their mortgage.

We don't let people spend student loan money on ski vacations...

Doug D.

making payroll?

I'd even accept a list of successful companies that are known to have to borrow money regularly to meet payroll.

The only ones I can think of that do this are local ones that have since gone out of business. The borrowing was just a scheme by the owners to take the last bits out of a dying business before bankruptcy.

they are hoping that $700 billion is enough to stem the tide not unwind the entire problem

again, how long do you think it will take to do what you are proposing? Procecuting criminals I'm guessing minimum of 5 years to get 5% to trial.

What organization are you creating to give the money to the people who are behind on their mortgages? There isn't any except the banks that even know who is behind on the mortgage and how behind they are.

Regulate interest rate: exactly how successful has Congress been in regulating interest rates so far?

In a ideal world which doesn't exist if you could freeze time, your plan makes sense.

But right now, the economy needs triage.

I'm all for regulation and prosecuting and controlling CEO compensation. I just don't need to increase the suffering to millions more while I satisfy my anger

You need to help the LITTLE GUY and screw WALL STREET.

And Congress can do any damn thing it wants to regulate interest rates - ever hear of the interstate commerce clause?

I don't need to create any organization to do what I'm asking - we already have one - it's called the IRS and the Treasury Department. The same people you want to use to bail out Wall Street.

Doug D.

is it the millions of retirees who's pension funds are invested in stocks and bonds?
is it the tens of millions of current employees who's 401K's are invested in stocks and bonds?

Your desire for vengeance is equivalent to the GOP desire to eliminate welfare because a very small number of people were gaming the system. Do you really need to destroy 1000000 innocent people so that you have a small chance at vengeance at the 0.01% who really were evil doers? BTW, the evil doers won't be punished anyway because their lawyers will delay or blow smoke so that no one will find them guilty.

don't give me the 401k sob story...

My plan is not going to hurt ordinary people, it will help them. Most people AREN'T invested in the market because they simply can't afford it when they make 45k a year with a family of 4 and 25% of that goes for health care and another 40% goes for housing, etc...

We shouldn't be allowing companies to get away with forcing us to invest in the risky stock market for our retirements anyways. They should be required to offer REAL pensions which they could do if the wealthy in the stock market weren't skimming all the profits for themselves.

Doug D.

Stuffing the money under the mattress? where do you think interest on a bank account comes from? It's not magic, it comes from lending the money out for economic activity. Most pensions are made up of a mixture of stocks (risky, but high growth) and bonds (fairly safe, but low growth).

the version of demand-side economics you are proposing is just as daft as the blind adherence to supply side economics. In fact, it's more inflationary because it's decoupled for any kind of real assets. You're basically proposing handing money out on an unsecured basis, which is the countries like Zimbabwe have been (mis)handling their economy with catastrophic results.

The point of the bailout is not to hand free money to wall street as you keep insisting, but to EXCHANGE money at a steep discount for securities that are currently illiquid but will almost certainly become liquid given enough time. You are discounting the value of those securities to zero, which is not logical.

before the supply siders took over and wrecked the place.

And YOU are the one talking about handing out money on an unsecured basis in the absence of any facts, I'm talking about requiring EMPLOYERS to pay pensions as a condition of hiring employees.

Doug D.

It also seems to have escaped your attention that the post 1940s landscape involved a massive transfer of long-term economic wealth from Europe to the USA. Please, read up on the Bretton Woods system, and pay attention to how it pretty much collapsed in the 1960s, culminating in 1968. Pure supply side economics is a Bad Thing. But pure monetarist economics also contains the seeds of its own collapse.

As for getting employers to pay pensions, that's just dandy but the upshot is that if an employer goes bust then the pensioners lose everything. This is why we have the social security system in the first place.

pass a law requiring business to maintain pensions for their employees.

We'll see what happens next year... there are a lot of pissed off peasants with pitchforks right now... expect the pendulum to swing hard left.

The employers won't go bust... They will just have to settle for 50 foot yachts instead of 100 foot yachts. Have you ever been to West Palm Beach or Boca Raton or Fort Lauderdale?

More wealth is concentrated in this nation in a smaller group of people than any time since the age of the Robber Barons. The solution is to force a more equitable distribution:

through new labor legislation to make unions more powerful,

to break up companies "too large to fail" into a lot of smaller companies that would be forced to compete against each other rather than effectively being monopolies. This would make labor, gov't, citizens, and consumers more powerful in their dealings with them. The current situation is entirely out of whack.

to require those who offshore jobs to pay American wages and follow American labor, safety and environmental rules if they want to sell here.

to require minimum wage to tied to a fixed ratio of the highest salary paid by the company,

to tax short term capital gains prohibitively

to tax long term capital gains the same as wage income

to make dividends tax free

to have a national value added sales tax on any company that moves offshore but tries to sell here

to require health benefits to all Americans

to require guaranteed pensions to all workers

Doug D.

You are simply wrong that it was all just smooth sailing, and your grand statement of political changes you'd like to see is just an attempt to change the subject.

Read about Bretton Woods here: http://en.wikipedia.org/wiki/Bretton_Woods_system

The 50s and 60s were very far from being an era of financial stability and general prosperity.

in the stock market about 90% of them have tax advantaged investments (401K,IRA,....)
basically about 10 years ago, businesses forced employees into 401K so that the business could get out from pension liability
so its not the 1-2% who are getting hurt: they have enough resources that they'll gripe but they will survive

That may mean they have 1 share of Wachovia stock...

To say that 50% participate is to lie about the fact that most don't participate in any meaningful way because they have no money to invest and a FEW do almost all the "participating" because they control 90%+ of the nation's wealth.

Thanks for the Republican talking points...

Doug D.

I'm sorry that facts don't fit your theories

Put a number on it, instead of spluttering about 'republican talking points'. A LOT of people have some money in the market through a 401k or some other kind of savings scheme. It is the money from investments like these which helps turn the wheels of commerce and government through the purchase of commercial paper and notes, and which is being held back from the market now by fund managers who are trying to minimize further losses on those investments.

I don't want to say how much my girlfriend has in her 401k, but she's lost quite a bit of money this year. I have some money (not much) in an old fund from a job I had at a large corporation back in the early 90s that I've just left alone to accumulate, but chances are that anything it gained in the last 8 years has evaporated. Working freelance as I do now, I don't have a lot of retirement savings and am seriously considering a career change.

Now if the economy crashes, the value of the little that I do have salted away will diminish to near zero, along with my prospects for making any decent money in the intervening period. Meaning I will continue to be broke and will probably end up becoming unemployable.

will fall until prices stabilize. Not sure if they hit that by luck or on purpose.

which I know they haven't done and those books are cooked anyways..

Doug D.

another 700 billion is about right to correct the bubble.

The fact is that the economy is tightly coupled, non-linear and complex and you can't just spitball a guess like that... the only real way is to audit the books.

Doug D.

about 3-4% of the mortgage holders are 60+ days delinquent on their mortgage

being logical, I know that mortgages made in the last 5 years are on average larger than the mortgages made 15 years ago
I'd guess that newer mortgages made of the last 5 years were more likely to have creative financing: zero down, teaser APR
therefore I'd guess that the 3-4% of delinquent mortgages are on average larger than the older non-delinquent mortgages

I'm at $700 bllion just covering current non-performing mortgages while ignoring whats already in the pipeline

as I said...

I'm sorry that you don't understand how statistics can shed light on a problem without providing a finite answer

that you don't know the full extent of the problem.

Further I really doubt the numbers cited are accurate given the book keeping scandal that is going on with this problem.

Doug D.

there are banking statistics galore available to the average American for decades
I used to have to go to the library to see them, now they're available online

in a nonlinear, tightly coupled complex economy had the deregulation not happened?

There have been other intervening effects to disturb the equilibrium:

9/11
The Iraq War
Deficit Spending by the govt
Oil prices going through the roof
Jobs continuing to be offshored
the real list is endless.

How do you account for all the other variations since 1999? It's like arguing "what if" the intelligence folks had decoded the Pearl Harbor attack messages a day sooner? Where would the United States be in 1950? You can't say because the world is non-linear.

Read Gleick's book on Chaos Theory and nonlinear systems.

Doug D.
Orlando, FL

will stay flat unless there is a bubble, or a huge recession.

The bubble is gone, the depth of the recession is not known. If we assume that the recession lasts 2 or 3 years then my estimate (stolen from Krugman) is close enough for the argument I was making.

It's human nature to underestimate the costs of an undertaking at the outset. We are not that good at projecting the future. Logic dictates that you ask for more than you think you are going to need in order to have room to maneuver.

My point exactly... it may be TOO SMALL for all we know like parking a semi in front of a freight train...it looks impressive till the train arrives...

The BOOKS MUST BE OPENED FOR ALL before a dime is paid.

Doug D.

Just how long do you think it's going to take to audit the entire financial system for the last decade? You are living in a fantasy world.

It's you who is living in the fantasy world and trying to extort the money from the rest of us with fear tactics.

Doug D.

I've said repeatedly that we need to take the financial system apart and rebuild it with a lot of extra regulation. But I am realistic enough to recognize that this will take all of the next president's first term, and possibly some of the second. You seem to think we can just call a timeout while we audit the whole thing.

I'm not stupid and I know those to whom we give the money really won't be in a mood to answer our questions once they've already got our money.

The only time we have leverage is while they still want (or need) our money so the only smart way to do it is to ask first pay later (if ever).

Doug D.

If Obama is elected and has a solid congressional majority, it won't matter whether people are 'in a mood' to answer questions or not. If they don't feel like it then we can just arrest them. And you keep ignoring the fact that we are offering money in exchange for collateral, not just handing them a suitcase full of cash without question.

No rescuing will be accomplished, and we'll be right back where we started 6-10 months from now - only with a couple more billion dollar banks failing and a few hundred thousand more foreclosures.

And $700B missing, of course.

And it's illogical to assume that they're worthless because house prices will not fall to zero. They could go down for another year or two, but will eventually regain their value because of population increase. If we buy them at an appropriately discounted level, the treasury (and thus taxpayers) will eventually make out like bandits: however, that's going to mean waiting at least a decade or two.

They are inappropriately inflated far above their historical values... An average home should cost 2-3 times the median income not 7 to 10. The median income is around 45k so an average home SHOULD cost around 130-150K not 250 to 450k.

The whole reason that this crisis exists at all is that banks were allowed to decouple risk from the process and artificially inflate demand and push prices up beyond where they are supposed to be. This prices a lot of people out of owning who ought to be able to own.

Housing prices are falling and will continue to do so, but they will eventually rise again because the population grows faster than houses are built. Think about it.

You're arguing that BORROWING 700 B from the Chinese to pay down another debt somehow gets us out of debt? That's like borrowing from one credit card to pay another and the results will be similar.

Doug D.

The US economy is big enough that it can afford to refinance through the treasury (although that will require major structural and political changes over the coming years) or let it collapse, which will cost a hell of a lot more.

your logic is what got us into this mess in the first place... Nike financing: "Just Do it!"

OMG...

Doug D.

I've explained this multiple times but you won't listen. I'll do it one more time, but this is the last time.

The long-term value of Mortgage backed securities can be estimated by projecting the value of the real property upon which they are secured.

This has been overvalued and is currently undergoing a severe correction.

Eventually this correction will end and the value of property will begin to grow again. Such growth is inevitable because of demographic pressures, ie an increasing population.

When has Congress EVER done ANYTHING that saved the taxpayers money??? EVER???

All this is just smoke and mirrors to cover up even ore money going to a select few at the expense of taxpayers while being told it is in Our Interest. Thanks but no thanks.. I welcome the coming doom if it gets people to finaly get rid of all the current politicians who have screwed this country for decades. We will recover within 10 years. It will be a small price to pay IMO to shake some sence into the ublic to pay attention to their politicians and what they are doing. One day we will have true transparency in Govt.

Not propping up vulture capitalists while they feed off the carcasses dead American dreams.

This is what they're trying to do:



And they're trying to do it with major oversight.

There is no PLAN - just a wild ass guess.

The first rule of any decent plan is:

PROPERLY ASSESS THE SITUATION BEFORE YOU ACT

We don't have all the facts.

Hell we don't have ANY of the facts.

You don't know them, President Bush doesn't know them, Secretary Paulson doesn't know them, the investment banks themselves don't know them.

Until there is an investigation all you are doing is making wild ass guesses and taking random actions hoping it will fix whatever is perceived to be broken.

You can't be my doctor, my attorney, my mechanic, or my airline pilot if you want to apply that kind of troubleshooting "technique" to the "problem".

I know a lot about systems as an engineer and I know you don't just guess and hope it works out.

Doug D.

which- if you're an engineer and have reviewed the evidence of what's happening to companies in every sector of the economy (and even to state governments).

In terms of systems, short term credit between banks and between banks and companies is required for them to operate on a day to day basis. Lock it up- or make it prohibitively expensive and they can't fill orders- can't make payroll- much less expand. Their failures create feedback loops that cause cascading effects on all sorts of otherwise halthy and functioning portions of the system.

What you do- what's proposed here is, as Obama said- putting out the fire. The you have time to assess the situation and re-build and remodel the structure.

Just sitting there watching it burn- is going to cost EVERYONE (including, btw:lost tax revenues and dramtically increased unemployment claims).

As an engineer, one would hope you might wrap your mind around that.

The house isn't burning down and you can't specify the problem so how do you know if you'd even be solving it?

All this is is a hail mary pass, for all we know the cure could be worse than the disease with hyper inflation and devaluation of the dollar. Try the nonlinear effects of these on for size...

I want facts first!

Doug D.

e.g., FACTS about the credit markets- incidents and processes that are happening right before our eyes

Doing nothing to alleviate that situation is very much like burning down the house- notwithsatnding the obvious, that no one's certain (or can be certain) about the non-linear dynamics- and what all their side effects will be- though most klnowledgeable people aren't predicting things like hyper inflation with the plan- and in case you haven't noticed, througout the various bailots, the dollar has strengthened substantially against other currencies.

Considering the relative nature of currency valuations, it would be just easy to imagine a dollar devaluation by allowing the businesses in every sector of the US economy to contract or collapse.

I'm not buying it until you can give me comprehensive evidence based on ACTUAL ACCOUNTING from the failing firms.

Doug D.

My assessment of the current situation is that the credit markets are seizing up right now, and without transferring illiquid securities off balance sheets and re-establishing a baseline level of credibility in the commercial paper and bond markets, economic activity will grind to a halt, capital controls will have to be imposed, and we're going to end up like Argentina in 2001.

You want to stop the clock and audit the entire thing. I would rather do this later - in much the same as if my brakes failed while I was driving a car, I would try to slow down by shifting through the gears and steer into the bushes on one side of the road rather than risk a multi-car while I was trying to come up with an answer about what had happened to my braking system.

I quite appreciate your engineering point, but the kind of assessment and planning you are talking about is something we should be applying to rebuilding the financial system in the first term of what I hope will be an Obama presidency. You simply don't seem to understand what's going on in the credit markets while this situation continues and what the implications of allowing that to continue will be.

Clearly you must be wrong since the problem has been creeping up on us for a year and the "dire" warning is now two weeks old and the sun still keeps coming up in the morning and the end of the world is still an up coming attraction.

People loved to panic and those who want to get people to act without thinking love to cause that panic.

I'm smart enough to know that panicking is what gets you killed.

We've got plenty of time - I want Obama IN before we start handing out big checks to Wall Street banks - I certainly don't trust the BushBots running things now. They always cry wolf and lie to us.

Doug D.

The problem has been coming up for a long time, people like myself have been warning of it for a long time, and a lot of people kept saying 'yeah, they should do something about that' but not bothering to call Congress or change their financial strategy or alter their consumption patterns enough to make a difference. Some of the blame rests with the public, some of it rests with Congress, some with this administration and with the previous administration and some with the banks. Meanwhile, the problem has festered.

Now, folks who have been quietly pointing out this problem for a long time have said it would eventually result in a financial crisis and it would be a very expensive one. And that crisis has arrived. Now that it has, some (ie you) are demanding that we stop everything and untangle this mess, and saying how angry and indignant you are about the fact that it came to be.

The reason that I am stressing urgency is that unraveling the roots of financial crises and establishing accountability is an expensive and time-consuming process. But in the meantime, people still need to eat, go to work, paychecks have to be cut, supplies have to be bought and so forth or the whole economy seizes and the social costs of that of that are immense.

You want evidence; here's some evidence for you to stare at.



The graph above is (essentially) the Cost of Doing Business.



This one is basic yields, and as you can see it's strongly correlated with interest rates. However, notice that at the right (ie now) yields have gone sky high even though the interest rate has not been adjusted. In other words, there is a massive risk premium being levied on short-term debt right now (the kind of debt which keeps the economy moving, and rightly so) and that means that the Fed is losing control of monetary policy.

...all those geniuses that put it together, they had no trouble at all creating complex financial instruments and figuring out how to hedge their bets and all that.

Then when it all starts to crumble, then all of the sudden they can't figure anything out.

Except how to hide their ill-gotten assets.

Treasury official: How did we arrive at $700 Bn? "We just wanted to choose a really large number.", September 23, 2008