Economy in meltdown?

[The Gardener]

1. Who values what the mortgages & assets are worth? If the mortgages are in default, they are obviously not worth mkt value. Nothing should be bought at mkt value.

That right there is where the rubber hits the road. This is the crux issue of this whole plan.

How any purchased securities are priced will tell us, in my opinion, whether or not this plan is a fair one or a complete ripoff. And what ticks me off is that they've only given us vague generalizations about "reverse auctions", etc when asked how they are going to go about the pricing.

I think there is upside potential... only 6% of American mortgage holders are in foreclosure... well I pause before using the word "only" in front of 6%... but the problem is that the non-performing loans have created a "lemon market" where they have made even the value of performing loans almost worthless. If these CDOs can be busted up and retranched honestly and transparently, a good portion of this toxic portfolio can be sold at a profit, hopefully. This is NOT to say that I think the entire operation will make a profit, i.e. we'll get 700B back in sales, because there are many tranches that are truly worthless, but they should be able to make a good dent into the initial 700B price tag. But this all relies on the initial pricing. Back in the 1980s when Reagan bailed out all of the S&Ls, the resolution trust company mechanism did make a paper profit... but the RTC was dealing with more straightforward assets and not a bunch of opaque, securitized stew.

I also agree with Iamnaked's point... there should definitely be an equity interest associated with any swap.

I think this plan will stabilize the debt markets... but unfortunately the down side of this plan is that it doesn't address the 2000 lb elephant in the room. Namely, the comprehensive bankruptcy of the United States. The extent that this bailout will compromise the integrity of our markets seriously damages future prospects for growth, and makes the US's defacto bankruptcy an even heavier burden on our economy.

 

[Aplunk1]

What shocks me is that the $700 billion price tag is NOT based off any data. It was simply "thrown out" there.

 

[Lucky_UK]

They are printing money for fun, will this not lower the value of the dollar?

 

[The Gardener]

They're not printing money. They will sell treasury notes to finance this... so in effect we are borrowing the money from China, Japan, the Arabs, etc.

And, you need to keep in mind that this $700B in new "money" is, in theory, replacing $700B in money that was vaporized in lost asset value.... so not necessarily any inflationary effect there... BUT the effect on the value of the dollar WILL depend on how successful the treasury note auction is. If buyers of american treasury notes require a higher yield before they are willing to buy them, this WOULD cheapen the dollar.

 

[badasshairday III]

Yay! Lets keep going into debt to other countries! hip hip hooray! What the f*** is wrong with us? Not only do Americans go into massive debt by spending credit that they cannot afford to pay back (and pay interest on forever), but our government does the same! Way to set an example.

Ok so some of you guys are good with politics and economics. I have a question. I remember back in 2000 around election time they were talking about how we had a surplus of (1 billion or 10 billion or 100 billion or 1 trillion dollars?). I don't remember the exact number, I was just a freshman in high school back then. Do you guys remember the amount? For some reason I think it was a 1 trillion dollar surplus in cash. How the f*** did we waste it all? Bush's tax cuts could not waste a trillion freakin dollars. I guess the wars in Iraq and Afghanistan has had us hemmorhaging 10 billion large a month so that would add up. Stupid Bush.

I just don't get where that 1 trillion dollar surplus was from? Isn't it true that back in the Reagan years, he declared for the first time that America was 1 trillion dollars in debt? Am I missing something?

 

[The Gardener]

Well, badass, you're certainly not going to get an argument from me against that point.

 

[Bryan]

Yay! Lets keep going into debt to other countries! hip hip hooray! What the f*ck is wrong with us? Not only do Americans go into massive debt by spending credit that they cannot afford to pay back (and pay interest on forever), but our government does the same! Way to set an example.

I just don't get where that 1 trillion dollar surplus was from? Isn't it true that back in the Reagan years, he declared for the first time that America was 1 trillion dollars in debt? Am I missing something?

We all owe a lot of gratitude to Ronald Reagan, who taught us during the 1980's that we don't actually have to PAY all our taxes, all we have to do is go into debt to other countries and let them make up the difference. Reagan ingeniously tripled the national debt during the eight years of his administration, for which we should all give him a big, hearty slap on the back (if he were still alive), and a big "THANK YOU!" for what he did. Of course, that damned no-good Democrat Bill Clinton almost ruined it all by actually BALANCING THE BUDGET during his administration, but by the grace of God, George W. Bush has got us back on the winning track with (once again) massive budget deficits. To hell with all those silly people who are saying that the chickens are now coming home to roost. What the hell do THEY know?? :roll:

 

[badasshairday III]

So is a budget deficit different from national debt? During the last part of the Clinton presidency where we out of debt? Where does that 1 trillion dollar surplus figure come from? You guys do remember what I am talking about, right?

 

[The Gardener]

The "national debt" is the accumulated debt over the years. The "deficit" or "surplus" is a ONE YEAR budget differential.

We've been in debt continuously, but each year we either run a deficit, which adds to the debt, or a surplus, which reduces the debt.

 

[badasshairday III]

Ok. So that 1 trillion bucks we had was pretty much just wasted instead of used to pay down the national debt. I remember hearing about how we pay 8-12billion dollars a year in interest alone. Those numbers are seriously just mind boggling. This is just blowing my mind, trying to wrap my head around how in debt and bankrupt the United States has become. :crazy:

 

[Bryan]

Ok. So that 1 trillion bucks we had was pretty much just wasted instead of used to pay down the national debt.

Whatever the budget surpluses happened to be during Clinton's administration, they were indeed used to help lower the national debt. But a single such surplus couldn't possibly "pay down" the entire thing, which is obviously the result of an accumulation of deficit spending over many decades.

But I question the accuracy of your "1 trillion dollar" claim, which seems completely unreasonable to me. Considering that the entire American GDP is currently around 13 trillion dollars or so today, how could the federal budget surplus (we're not even talking about the size of the full federal budget, just the surplus) from 8+ years ago amount to such a high percentage of a somewhat lower GDP from those previous years?? Maybe Gardener or somebody else can fill us in on what the actual size of the surplus was from the Clinton years.

I remember hearing about how we pay 8-12billion dollars a year in interest alone. Those numbers are seriously just mind boggling. This is just blowing my mind, trying to wrap my head around how in debt and bankrupt the United States has become. :crazy:

Hey, don't blame those of us have been talking about the steep escalation in the national debt since the Reagan years. Why was nobody listening to us?

 

[badasshairday III]

A quick search on google led me to this amazing article. I miss Bill the Pimp Clinton:

http://archives.cnn.com/2000/ALLPOLITIC ... n.surplus/

WASHINGTON (CNN) -- President Clinton announced Wednesday that the federal budget surplus for fiscal year 2000 amounted to at least $230 billion, making it the largest in U.S. history and topping last year's record surplus of $122.7 billion.

The article is from Sept 27, 2000. The end of the glory years.

"Eight years ago, our future was at risk," Clinton said Wednesday morning. "Economic growth was low, unemployment was high, interest rates were high, the federal debt had quadrupled in the previous 12 years. When Vice President Gore and I took office, the budget deficit was $290 billion, and it was projected this year the budget deficit would be $455 billion."
Clinton
President Clinton announces that the federal budget surplus for fiscal year 2000 is the largest in U.S. history

Instead, the president explained, the $5.7 trillion national debt has been reduced by $360 billion in the last three years -- $223 billion this year alone.

This represents, Clinton said, "the largest one-year debt reduction in the history of the United States."

Maybe this is where I got the 1 trillion dollar figure?

In June, the administration predicted the surplus would be $211 billion, and would increase by as much as $1 trillion over the next 10 years.

^^^^ haha it probably would have came true if we didn't have num nuts as president over the last 8 years.

Bushie should of took Clinton's advice:

"The key to fiscal discipline is maintaining these results year after year. We need to put our priorities in order," Clinton said.

And just wow:

"This is part of our fiscal discipline to reduce the debt with the federal surplus," said one White House official who asked not to be identified. Reducing the debt, the official said, has "real effects for real Americans." It means lower interest rates for mortgages, car loans and college loans, and leads to an increase in investment and more jobs."

It is the third year in a row the federal government has taken in more than it spent, and has paid down the debt. The last time the U.S. government had a third consecutive year of national debt reduction was 1949, said the official.

The federal budget surplus for fiscal year 1999 was $122.7 billion, and $69.2 billion for fiscal year 1998. Those back-to-back surpluses, the first since 1957, allowed the Treasury to pay down $138 billion in national debt.

 

[powersam]

On a semi related topic, that palin woman might be half decent minus her head. she looks to have quite the tight body.

 

[Doug Douglas]

Everyone here see Palin's interview with Katie Couric tonight? Anyone at all still convinced she has any right whatsoever to be occupying the oval office? http://www.huffingtonpost.com/2008/09/2 ... 29318.html
That interview reminds me of the rich kids in high school whose parents paid for them to have tutors in all their classes, and they'd still flunk their f*****g math test. Jesus, the thought of this woman taking over the presidency after McCain keels over after the first economic crisis that comes along is chilling....

 

[The Gardener]

She won't, don't worry.

Gardeners prediction - The Republicans are going to get absolutely blown out in this election.

When you have public survey data showing, for the first time in decades, that they think the Democrats are better at handling economic issues than Republicans, the GOP is history. What else to they have to stand on? Foreign affairs?

Remember the midterm congressional elections... according to the polls the dems were only supposed to pick up a bunch of seats in the house, with a 50/50 shot at maybe taking control of the House. What happened?.. the Dems destroyed the GOP, taking control of the House AND Senate in a blowout.

Same surprise will happen in November, but even worse I predict. Americans associate the GOP with Wall Street, and as Americans slowly wake up to how close we are to the SHTF, there will be a LOT of anger. Write this prediction down in the calendar... Democratic BLOWOUT in November. Book it.

 

[Doug Douglas]

I'd love to be this confident, but as someone who went into the 2004 election thinking there was no way the American public wouldn't vote out a war-monger who'd gotten us entrenched in a very unpopular war, and watched that administration win--again--it's hard for me to be glib about this. Yes, the Repubs were dominant in congress at the time, and yes, Bush had Cheney and McCain has dopey-McFuckstick as his running mate. Nonetheless, at this point in time I think, if nothing else, we ought to have learned never to underestimate the stupidity of the average American. They see McCain failing to understand the economic crisis; they see Palin unable to find Russia on a map--and they see themselves.

 

[Starseed]

On a semi related topic, that palin woman might be half decent minus her head. she looks to have quite the tight body.

Minus her mouth, especially. But yes, I'd definitely like to f*ck her senseless. I know her type. She's a screamer and moaner; they always make a lot of noise in bed. Love it.

 

[powersam]

On a semi related topic, that palin woman might be half decent minus her head. she looks to have quite the tight body.

Minus her mouth, especially. But yes, I'd definitely like to f*ck her senseless. I know her type. She's a screamer and moaner; they always make a lot of noise in bed. Love it.

However it has recently come to light that she is immune to witchcraft, which means I have little hope of getting her in bed.

 

[Lucky_UK]

You could always hack her email box :woot:

 

[iamnaked]

Had an interesting take on the bank bailout today from my friend who works in a hedge fund. Basically he thinks that the US government will make a killing on whatever 'toxic waste' it buys, provided it holds onto it for the long term.

According to him, the assets being discussed are largely performing well. The reason that they are at such lows is a lack of confidence in the market, and the fact that the financial services industry is geared towards making a quick buck, and subprime housing does not fit this bill because it is too long term an investment. Paradoxically, according to him, the pension funds would be a great match up for this 'trash' debt, but if any one of them tried it, their stakeholders would probably form lynch mobs.

I put it to him that nationalisation would be a much better option, seeing as you could take a stake of the entire bank's operations, but he made the very reasonable counterclaim that not only would it be just as expensive (if not more), but that the majority of the staff (i.e the main value of the company) would probably be poached or leave if such a nationalisation was to take place (especially given the political will to cap salaries in such a case).