The Credit Crunch

[Coffeehouse]

The Credit Crunch
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http://money.cnn.com/2008/09/16/news.../AIG/index.htm

I did not expect that! But again, that's the kind of Russian Roulette outcome that happens when the markets are left to themselves. Now AIG, who only a few days ago seemed unlikely to suffer a faith such as the Lehman Brothers, are toast.
It's probable now that the company will end up being taken apart after the U.S. Gov't has sorted out its financial standing. It will get a 79.9% stake int the company, effectively nationalization. That's one of the largest insurance company in the world we're talking about.

Here's a political thought:
Who's the 'maverick' that stands for 'change' in Washington (after spending a quarter of a century there), John McCain! He is one of the most pro-market Senators in Congress, heavily in favour of the market getting it on at its own crazy, headless pace. Thought it a good thing that the Bush Adm. lowered the interest rate to a ridiculous low a few years back, which has led to a flow of 'bad' loans, i.e. subprime mortgages. Has done nothing to impose legislation that would buffer the wild, irresponsible 'bad' loans to everyday people that the mortage giants have been having a fieldday with the past few years. Handing out loans to people who so definitely not should receive more loans (and at skyrocket interest rates)
And now he states that the economy's 'fundamentals are strong' when that's miles from the truth. It's shaky at best.
A vote for McCain then, dear Americans, is a vote for a guy who simply doesn't understand the crises. It's a vote for a person who sees gov't intervention as a no-no. It's a vote for a man that has actively worked against the kind of activity, the red, hot latest news: the bail-out of AIG by the Federal Reserve. And if the FR didn't do this now who knows what the monkeys in Wall Street and other financial hubs around the world would do.

The U.S. needs some serious, serious legislation introduced to teach a lesson once and for all so that the Circus in Wall Street starts wearing safety belts.

[sisterandcousinandaunt]

Actually, Coffeehouse, although the mortgage and credit crisis is clearly an emergency, it dates back, in most family budgets, to the problems with healthcare and benefits. You can work 20 years and see your pension disappear overnight when the company "reorganizes'. The companies can hire everyone as 'contractors' and give them no benefits. Ordinary working folks are 2 paychecks, (or one illness) from losing their houses.

Joe Biden talked about all this yesterday. I wish more people were seeing that than the scurrilous and completely untrue attacks they're seeing on TV.

[Coffeehouse]

I think that's a good point Sis. Couple that with many folks willingness to take up a second, even third loan based on the value of their house (or what used to be their house), and then see the real estate market plummet. What you get is predatory behaviour by the mortgage brokers and lenders, wherein they actively promote 'bad loans', at a high interest rate, but at an initial offer-you-simply-can't-refuse rate. It's not illegal, but it creates debt slavery and so we see the millions that are now standing there, on the brink of foreclosure.

There needs to be massive reform, in some cases overhauls of parts of the system, based on the the flawed logic that is being promoted by the (Republican) Gov't and federal authorities.
Simply put, you guys need universal healthcare! And really tough legislation on the mortgage business.

[sisterandcousinandaunt]

Yeah. For starters, I'd settle for the protections of the Progressive Era, as far as labor laws.

Here's one of the reports on yesterday's speech.
http://www.delcotimes.com/site/news....id=18171&rfi=6

[The Gaffer]

Greed multiplied by stupidity = train crash.

It's precisely this sort of thing that's going to kill off unfettered capitalism.

[Coffeehouse]

Joe is right (He's always right!). And if there's one thing that should be on line in the debates it should be the weakening middle class in America. I hope to see Obama and Biden swinging that against the Republicans so that it hurts. Enough playing games with people's economies and lives.
What does McCain know of foreclosure? He has 7 houses!

That said, there should be tax cuts for the middle class, and especially now that so many working families are in trouble with the subprime mortgage crisis raging. I'm generally against tax cuts, but these are extraordinary circumstances and some millions of people falling off the cliff into life-long debt and bankruptcy, that's just not feasible. That shouldn't be happening in a 1st world country such as America.

[Coffeehouse]

*Bump!*

Black Monday yesterday, okay, so all you Americans in here, what do you say?

- Should your government and Congress go good for a bail-out package amounting to more than 700 billion dollars? (Taxpayer money)

- Or should Wall Street suffer and let the dice be rolled, since after all, they created this mess?

[sisterandcousinandaunt]

Wall street didn't (and doesn't) pay for the dice. That's what I said above about pensions. A number of years ago, socially conscious investment funds were 90% FannieMae. So. People who choose to put their retirement funds in making houses available to poor people, instead of in Nestle and Oil companies, lost everything.

[Insidious Rex]

We have no choice but to do something because in the end its the common american citizen who will be hurt the most EVEN IF they made wise choices about purchasing a home and they pay their bills on time and have limited debt. They will suffer because banks will stop lending money to even reasonable candidates because they have been so burned by their over indulgent greed in this unregulated money orgy “free market” that weve had in place for too many years. They will suffer because the impact this will have on the economy will leave some without jobs at all and many more with no hope of a raise for years to come or dealing with the possibility of a sudden major downward shift in benefits (see sisters post). And the slime balls who sold these bad loan packages to the investment banks will win because they already have millions of dollars from those sales and are long gone. And the fat cats will win because despite any red faced talk about “punishing” the CEO’s by “limiting” their golden parachutes or whatever, you can bet in the end they’ll see very little in terms of consequences from their behavior. Hey its what everyone else was doing! It’s the American way! Capitalist greed even if it means ripping off stupid poor people and the middle class. That’s where the money is! And because of this fact many Americans had serious issues with the bail out plan which is why it failed yesterday when nervous representatives facing close races in November balked for fear of pissing off the lower and middle class folks who called en mass and said don’t use my tax dollars to bail out the fat cats. Understandable of course but unfortunately we have no choice now. We have to make the scum bags even richer so we can limit the damage to ourselves… Now excuse me I have to go sell all my wordly possession… *walks out wearing barrel*

[Coffeehouse]

Originally Posted by Insidious Rex

We have no choice but to do something because in the end its the common american citizen who will be hurt the most EVEN IF they made wise choices about purchasing a home and they pay their bills on time and have limited debt. They will suffer because banks will stop lending money to even reasonable candidates because they have been so burned by their over indulgent greed in this unregulated money orgy “free market” that weve had in place for too many years. They will suffer because the impact this will have on the economy will leave some without jobs at all and many more with no hope of a raise for years to come or dealing with the possibility of a sudden major downward shift in benefits (see sisters post). And the slime balls who sold these bad loan packages to the investment banks will win because they already have millions of dollars from those sales and are long gone. And the fat cats will win because despite any red faced talk about “punishing” the CEO’s by “limiting” their golden parachutes or whatever, you can bet in the end they’ll see very little in terms of consequences from their behavior. Hey its what everyone else was doing! It’s the American way! Capitalist greed even if it means ripping off stupid poor people and the middle class. That’s where the money is! And because of this fact many Americans had serious issues with the bail out plan which is why it failed yesterday when nervous representatives facing close races in November balked for fear of pissing off the lower and middle class folks who called en mass and said don’t use my tax dollars to bail out the fat cats. Understandable of course but unfortunately we have no choice now. We have to make the scum bags even richer so we can limit the damage to ourselves… Now excuse me I have to go sell all my wordly possession… *walks out wearing barrel*

Hehe, you do that An informative post IR. So simply put you would advocate a bail-out package because although the short-term consequences aren't readily apparent, it'll be the taxpayers, from the lower working class to the middle class, that will suffer in the long run?

I appreciate more inputs from Americans on this! Voice your opinion on the bail-out if you want!

[Jonathan]

I followed the House vote on the bailout package live on CNN and was chocked to see it all collapse.

IRex mentioned the main reason why the bailout package failed, namely because the November elections. Any representative in favour of the bailout could lose a lot of support, since the voters would hate to see the greedy capitalists be rescued by the taxpayers' money. Websites like VoteNoBailout.org only looks to the greed and the blame that (rightly) has been put on the people of Wall Street, but fail to see that a bailout is still a necessity to prevent a disastrous domino effect. A lot more is at stake than just the Americans' tax money.

It is not only an issue of "capitalist greed", but also one of perceived socialism. Nationalisations sit very ill with Americans and I have heard voices raised that the US by principle should not indulge in such "Soviet-like" activities. I think it is a dull and exaggerated approach. In Europe, it has happened before that not bailing out banks have further hurt the economy so we have learnt our lesson are less reluctant to nationalise banks and finance institutes at times like this.

Hopefully the bailout package will become a reality later on, but valuable time has been needlessly lost.

[Coffeehouse]

Originally Posted by Jonathan

I followed the House vote on the bailout package live on CNN and was chocked to see it all collapse.

IRex mentioned the main reason why the bailout package failed, namely because the November elections. Any representative in favour of the bailout could lose a lot of support, since the voters would hate to see the greedy capitalists be rescued by the taxpayers' money. Websites like VoteNoBailout.org only looks to the greed and the blame that (rightly) has been put on the people of Wall Street, but fail to see that a bailout is still a necessity to prevent a disastrous domino effect. A lot more is at stake than just the Americans' tax money.

It is not only an issue of "capitalist greed", but also one of perceived socialism. Nationalisations sit very ill with Americans and I have heard voices raised that the US by principle should not indulge in such "Soviet-like" activities. I think it is a dull and exaggerated approach. In Europe, it has happened before that not bailing out banks have further hurt the economy so we have learnt our lesson are less reluctant to nationalise banks and finance institutes at times like this.

Hopefully the bailout package will become a reality later on, but valuable time has been needlessly lost.

I agree with the out of place socialist fears. The Scandinavian countries f.ex. are not socialist one-party states, but social democracies, with gov't intervention in certain areas which has enabled banks f.ex. to not be able to do get away with wildfire, reckless lending to poor people.

On the other hand, is it not healthy that there is a prolonged debate on this in Congress so that everyday Americans get better insight into what exactly elected officials, Representatives and Senators, are doing with a whopping $700 billion of their taxpaid money?

[Jonathan]

Originally Posted by Coffeehouse

On the other hand, is it not healthy that there is a prolonged debate on this in Congress so that everyday Americans get better insight into what exactly elected officials, Representatives and Senators, are doing with a whopping $700 billion of their taxpaid money?

Of course it is essential that transparency is provided when the $700bn are paid out to banks and institutes, but I assume such a thing is self-evident in a democracy.
It's hard for me to see though how this deadlock would give anyone better insight on anything.

[Coffeehouse]

But hasn't the past few days really forced not only the President, but the Feds, and both houses in Congress to answer to the media and the public in a manner that is pretty much unprecedented. I have never seen Bush hold 2-3 speeches in the span of a few days.
Seems the failure of the bail-out package to pass the first time has forced the Gov't and elected officials to really get out and explain their stances. I'm not too sure that sort of transparency would have come about if the bail-out package had passed right away.

[Jonathan]

If so, there has been least one positive thing in the wake of the House's rejection

[Coffeehouse]

I think you're right, and though I am in favor of something being done, I'm also in favor of letting the US gov't and Congress debate every part of this bail-out, in all its aspects, for all to see, so that everyday people know that there is no condoning of the predatory behaviour that has been done by Wall Street and its mortgage hyenas.
That said, there should be a package in the end simply because too many economists seem to be saying that a failure to deliver one will be even more dire for working and middle class people. And, perhaps for once, Americans should heed some of the lessons learned by Europeans. I can say that from some of the news I've heard from Sweden that there is a general confidence that Swedish banks can take the heat from this crisis. It's a lesson that says that you don't need to overlegislate, but with the right legislation you can get far in avoiding said disaster in America.

[sisterandcousinandaunt]

Beg to differ, Jon.

Anything that gives the R's time to work on their crazy is all bad, imo.

Reality keeps putting Bush in a place where he has to do something right...then the frothing Right rips everyone a new one and ramps up the lie machine.

Everyday they screw around on this is a hungry day for working people.

[Jonathan]

Well Sis, I don't disagree. Time is of the essence.

[Coffeehouse]

As a Scandinavian I feel obliged to present a story, actually written as far back as April this year, reporting on the crises we suffered here in the early 1990's. Which makes you think, who does Bush, McCain and the Republicans want to bail out? Wall Street? Or Main Street?

"A senior official at one of the Scandinavian central banks told The Daily Telegraph that Fed strategists had stepped up contacts to learn how Norway, Sweden and Finland managed their traumatic crisis from 1991 to 1993, which brought the region's economy to its knees.

It is understood that Fed vice-chairman Don Kohn remains very concerned by the depth of the US crisis and is eyeing the Nordic approach for contingency options.

Scandinavia's bank rescue proved successful and is now a model for central bankers, unlike Japan's drawn-out response, where ailing banks were propped up in a half-public limbo for years.
While the responses varied in each Nordic country, there a was major effort to avoid the sort of "moral hazard" that has bedevilled efforts by the Fed and the Bank of England in trying to stabilise their banking systems.

Norway ensured that shareholders of insolvent lenders received nothing and the senior management was entirely purged. Two of the country's top four banks - Christiania Bank and Fokus - were seized by force majeure.

"We were determined not to get caught in the game we've seen with Bear Stearns where shareholders make money out of the rescue," said one Norwegian adviser.

"The law was amended so that we could take 100pc control of any bank where its equity had fallen below zero. Shareholders were left with nothing. It was very controversial," he said.

Stefan Ingves, governor of Sweden's Riksbank, said his country passed an act so it could seize banks where the capital adequacy ratio had fallen below 2pc. Efforts were also made to protect against "blackmail" by shareholders.

Mr Ingves said there were parallels with the US crisis, citing the use of off-balance sheet vehicles to speculate on property. All the Nordic banks were nursed back to health and refloated or merged.

The tough policies contrast with the Fed's bail-out of Bear Stearns, where shareholders forced JP Morgan to increase its Fed-led rescue offer from $2 to $10 a share. Christopher Wood, chief strategist at brokers CLSA, says the Fed's piecemeal approach has led to "appalling moral hazard".

"Shareholders have been able to lobby for a higher share price only because the Fed took over the credit risk on $30bn of the investment bank's dubious paper. The whole affair also amounts to a colossal subsidy for JP Morgan," he said."

http://www.telegraph.co.uk/finance/n...inance/2787249

A bit chilling to see that none of this advice has been heeded.

One thing is for sure, playing politics on this bail out is about the worst thing one could do since it's economic intelligent thinking, not ideological babble, that will solve this crisis in America. So perhaps taking the foot off the free-market wildride for a second and get tough (real tough) with Wall Street. Which means for all the critique of Nancy Pelosi for taking a partisan approach this other day the House Republicans that shout 'Socialism! Socialism!' look sadly unprofessional.

[Earniel]

Originally Posted by Coffeehouse

And, perhaps for once, Americans should heed some of the lessons learned by Europeans. I can say that from some of the news I've heard from Sweden that there is a general confidence that Swedish banks can take the heat from this crisis. It's a lesson that says that you don't need to overlegislate, but with the right legislation you can get far in avoiding said disaster in America.

True, but you also need to be lucky that your banks are not too much connected to the American banks to feel the heat of their mistakes. 'Global economy is good for us', my eye.

Two banks here, Dexia and Fortis, have needed a big investment from three governments to pull through. I'm not so happy about it. Banks, in my eyes, make more than enough money, and they should bloody pay for their own mistakes. It doesn't help matters that with Fortis one of the high-placed managers who messed up and is let go, receives (if I got the numbers right) 200 million goodbye money. It's a bleeding shame.