Good Layman's guide to the financial crisis

[Norfolk]

Bailout fails to pass through the House. When should I start converting my dollars into monopoly money?

Forget Monopoly money; the run on that scrip will be so big that Parker Bros. will run out on the first day. Go for something that's venerable, you can print yourself, and in some corners south of the Mason-Dixon Line, might actually be honoured again someday...soon.

Courtesy of Wikipedia: Commence scan!...

[Ski]

Don't laugh at the coming currency crisis.

The actual amount being asked for is 1.6T, not 700B. Look at the debt at the end of 07 and what it will be at the end of 08, and it's closer to 1.6T

The US is a debtor nation - it cannot pay 700B or 1.6T - it has to borrow more money from someplace else to finance this debacle.

What that means is simple - the problem remains the same. Unless the processes are reformed, which simply isn't going to happen in the next 6 weeks because of the elections.

So if the US can actually get this massive amount of money to be lent to them, there are two major problems. One is this influx of money into the system, which will weaken the dollar. The second is inflation.

Since the European, Japanese and Korean markets are getting/have been hammered today, I seriously doubt there will be many people gobbling up additional US loans...look at the T-Bill rates, that will give you a clue. I think those rates are skyrocketing because the predators are waiting for the mook...we'll give you the money...unless our markets crash first.

I am seriously pessimistic about any course of action. I don't think we're getting out of this one without major surgery and major pain.

[J Wolfsberger]

My estimate of the situation is that Speaker Pelosi deliberately killed the bill, by giving a "speech" she knew was a) a lie, and b) would infuriate Republicans. See my comments above. This situation rests squarely on the back of the Democrats. (And the Republicans deserve to be hammered for letting them do it.) Keeping politics off this forum is one thing; allowing misinformation to disseminate is another.

My guess is that Paulson, et. al., will pull the banking community together to resolve the liquidity crisis over the next few days.

[Ron Humphrey]

It helps if you actually look at the correct title(5315) when trying to follow this thing


Did however find a good link for searching and getting through the code though.
Learn something new everyday.

Link

[Cavguy]

My estimate of the situation is that Speaker Pelosi deliberately killed the bill, by giving a "speech" she knew was a) a lie, and b) would infuriate Republicans. See my comments above. This situation rests squarely on the back of the Democrats. (And the Republicans deserve to be hammered for letting them do it.) Keeping politics off this forum is one thing; allowing misinformation to disseminate is another.

My guess is that Paulson, et. al., will pull the banking community together to resolve the liquidity crisis over the next few days.

To say the Republicans killed this bill b/c of a speech Pelosi gave opens one of two options:

1) They are spineless morons, allowing momentary politics to waive them over the good of their country and the request of their president.

2) They weren't going to vote for it to begin with, and Pelosi's speech gave them an out that would be useful in an election.

I can't say that Pelosi's speech was well timed or thought out, but is anyone surprised she would attempt to lay blame on the other party - and anyone would change their vote b/c of it?!?!

[AmericanPride]

... allowing momentary politics to waive them over the good of their country and the request of their president.

You gotta remember, however, that the House representatives are up for election every two years and that Bush is on his way out; in addition, the Reps represent very small constituencies which give them less maneuvering space. I imagine the House Republicans (and Democrats also) were not eager to jump on board a huge and seemingly rushed policy that, in the event of a possible failure, could be blamed on them.

[Watcher In The Middle]

To say the Republicans killed this bill b/c of a speech Pelosi gave opens one of two options:

1) They are spineless morons, allowing momentary politics to waive them over the good of their country and the request of their president.

2) They weren't going to vote for it to begin with, and Pelosi's speech gave them an out that would be useful in an election.

I can't say that Pelosi's speech was well timed or thought out, but is anyone surprised she would attempt to lay blame on the other party - and anyone would change their vote b/c of it?!?!

Part of #1; more of #2, but #3 is that there's just not a whole lot of "likability" out there any more. By that, I mean the ability to give each other hell in public, and then sit down right afterwards and have a drink and shoot the bull with the same folks you were fighting tooth and nail 10 minutes or so earlier. That's gone.

Let me give you a practical example I specifically know about. Remember some years ago the House Republican congresscritter who got his cell phone conversations spied upon, and then made into a big deal politically by a Democratic congresscritter? Well, if that had happened back in Sam Rayburn's/LBJ's day, can guarantee you that would have gone nowhere, and it would have been squashed by Democratic leadership. They wouldn't have done it, because personal relationships to them were more vital than partisan politics. And they were right.

These days, it's anything goes, and reaching across the aisle (particularly in the House) is extremely difficult. Senate is a lot more friendly environment, so you can cut deals on these really big issues.

Another problem in the House is the predominance of female leadership. I know that sounds sexist, but you'd actually have to see the whole situation evolve from an up close standpoint to really understand. Gender truly does play a role, in that the guys can be ripping each other a new one, and 10-15 minutes later be talking smack about sports and other things. Most of the guys just do not take it personally. I can guarantee you it's not the same with female leadership - and I'm not talking about Nancy Pelosi, but some of the others are damned difficult to deal with, and on a big one like this, the difference tends to come down to working with people you like.

There's one last point that needs to be made. Unlike in the Senate, the Speaker of the House has enormous power and control. If you are the Speaker, you're the big dog - it's your responsibility, it's on your watch.. If you call it for a vote, you damned well better be sure that you've got the votes, and you don't play a quickie cheat on your fellow partners, regardless of party or ideology - particularly right before a vote. And you always better have a "Plan B" in your pocket that your partners all know about, and they have to know you will play it if need be.

I can tell you that those unwritten rules have existed for a long time going back probably 50 years, and they apparently all got ignored on this one. Not good, that's just flat out poor politics.

[Schmedlap]

I don't see where else anyone is going to put their money other than the US. Some might want to point to China, Europe, etc. Great. Those people can invest there. I'm not sending my money outside the US because I don't think the rest of the world is all that much better off. Note that our T-Bill rates are near zero because people are just looking for a place to stash - not invest - their money. The market consensus, in this current panic, seems to be leaning against investing abroad and leaning towards just handing the cash over to Uncle Sam for safe keeping. The current outflows, as I understand it, are foreign investors bringing their money home. That is understandable. When you send your money abroad and lose it hand over fist, there is pressure from your constituents to bring it home - more politics than reason. But our home grown investors aren't in a hurry to ship their dough abroad.

[Ski]

The problem with investing anywhere is that overseas is now getting hit just as hard as us in the financial sectors, but the bulk of the larger national economies (china, Indian ,etc) have been slowly down over the last year. That's why oil is getting cheaper. Also look at steel and cement prices.

People aren't investing overseas because they won't be investing at all until this levels out. It is a minor miracle a run on the banks hasn't occured yet with all the doom and gloom being spewed by politicians of both parties and the financial tv station (CNBC was a hoot yesterday - there was awesome amounts of real fear, capped off with Maria Bartriromo literally in a frenzy saying "We all know there's going to be a bailout, we all know there's going to be bailout")

The problem still remains - we have no money to float this proposal, so we're going to borrow it from somewhere else, and no one has any clue whether this is actually going to help.

[tequila]

Keeping politics off this forum is one thing; allowing misinformation to disseminate is another.

Right. Viewpoints that disagree with your own interpretation are apparently misinformation now.

WiTM - The Speaker of the House doesn't have that kind of power. This isn't a parliamentary system. There are fewer procedural barriers in the House than there are in the Senate to getting votes to the floor, that's pretty much it.

Also, I find it amazing that you think that the onset of female leadership is somehow preventing a deal getting done. The Republican House leadership is entirely male as is much of of the Republican House membership. Collegiality has been largely dead in the House since the "Republican Revolution" under Gingrich, killed by an entirely male cast, so not sure where this theory is coming from.

[Ken White]

To say the Republicans killed this bill b/c of a speech Pelosi gave opens one of two options:

1) They are spineless morons, allowing momentary politics to waive them over the good of their country and the request of their president.

2) They weren't going to vote for it to begin with, and Pelosi's speech gave them an out that would be useful in an election.

I can't say that Pelosi's speech was well timed or thought out, but is anyone surprised she would attempt to lay blame on the other party - and anyone would change their vote b/c of it?!?!

I'd also add that she probably knew that it wasn't going to pass. All politics, all foolishness.

Not that I agreed with the bill in any event...

[Ken White]

Right. Viewpoints that disagree with your own interpretation are apparently misinformation now.

I think his point was that the situation is being played by both sides for political points and that since the Democrats are in charge, they bear the bulk of the responsibility.

Since over 30 years of Democratic policies to encourage if not force lending institutions to make questionable loans in the interest of 'equal opportunity' led in large measure to the current debacle, that means that both parties are guilty -- and attempts by either to tar the other are nothing but politics.

The Speaker of the House doesn't have that kind of power. This isn't a parliamentary system. There are fewer procedural barriers in the House than there are in the Senate to getting votes to the floor, that's pretty much it.

You did note that according to most reporting, neither Party really tried to whip the vote?

Politics as usual, no more.

[Watcher In The Middle]

The Speaker of the House doesn't have that kind of power.

Respectfully disagree. The Speaker controls the agenda, and substantial influence on amendments, if even allowed. The Speaker of the House, with a majority like the current Speaker has, can basically shut the opposing party down. Doesn't mean it's going to happen, but there's far more power concentrated in the House leadership than in the Senate leadership.

As to the issue of:

onset of female leadership is somehow preventing a deal getting done

that's not what I said. It wasn't one thing that killed this particular deal - it was any number of factors, but in total, they sure torched the deal but good - and i think they should have passed it (so Ken & I disagree).

What I am saying is that the leadership on both sides has to be able to cut a deal, and most of the time that requires working with people ('votes') of different viewpoints from your own, and finding common ground without going out of your way to unnecessarily antagonize those 'votes'. And gender can turn into an obstacle when communication issues are difficult.

And that was one element in this particular issue. Look at the forty or so minutes where the vote was held open where leadership on both sides was working the floor..

[120mm]

To say the Republicans killed this bill b/c of a speech Pelosi gave opens one of two options:

1) They are spineless morons, allowing momentary politics to waive them over the good of their country and the request of their president.

2) They weren't going to vote for it to begin with, and Pelosi's speech gave them an out that would be useful in an election.

I can't say that Pelosi's speech was well timed or thought out, but is anyone surprised she would attempt to lay blame on the other party - and anyone would change their vote b/c of it?!?!

Last time I checked, the Democratic Party could've passed this bill, even if every Republican voted against it.

Henry Paulson should be fired for political incompetence. His "take it or leave it" presentation of the bail out reeks of the Hillarycare initiative.

The problem isn't that we're in trouble, financially, as much as in the way that it was presented. Fix the healthcare system, great. Fix the financial system, also great. But don't present a fait accompli and then expect the rest of the US to just go along like sheep to be sheared.

The G.W. Bush/Paulson initiative was really, really bad I/O. Give the American people choices, not an ultimatum, and I think that one would be pleasantly surprised by how they respond.

Anyone else wondering why they didn't present three COAs and a prediction of the consequences of each COA?

Frankly, I wonder if the financial wanks have become so afraid of an economic downturn that they'll pimp their wives and sell their kids (actually, our kids and grand-kids) to keep it from happening. And their fear of negative consequences scares me more than my fear of a full-blown depression.

[selil]

There are a lot of problems with the plan as presented;
1) International investors and banks transferring their bad debt to the US Treasury
2) Congressional oversight completely lacking
3) Judicial relief legislated out of the law which is an issue of Constitutional nature
4) Golden parachutes for CEOs not completely removed
5) Speed of the presentation and legislation has not served the country well ever in the past
6) There is a divergence of opinion between "experts" on if it is even needed
7) There appears to be high parasitic loss to the methods of using the money (lots of bureaucrat dollars)
8) The stock market is not the economy, the credit market is not the economy, and bailing out either does not help the economy. The stock market and credit market are indicators.

That is not to say things don't have to be done. Panic and a rush to judgement though rarely makes good decisions. The financial crisis has been brewing since the early 1970s. The tendrils of the issues are like a cancer touching nearly all aspects of the economy.

[Ron Humphrey]

There are a lot of problems with the plan as presented;
1) International investors and banks transferring their bad debt to the US Treasury
2) Congressional oversight completely lacking
3) Judicial relief legislated out of the law which is an issue of Constitutional nature
4) Golden parachutes for CEOs not completely removed
5) Speed of the presentation and legislation has not served the country well ever in the past
6) There is a divergence of opinion between "experts" on if it is even needed
7) There appears to be high parasitic loss to the methods of using the money (lots of bureaucrat dollars)
8) The stock market is not the economy, the credit market is not the economy, and bailing out either does not help the economy. The stock market and credit market are indicators.

That is not to say things don't have to be done. Panic and a rush to judgement though rarely makes good decisions. The financial crisis has been brewing since the early 1970s. The tendrils of the issues are like a cancer touching nearly all aspects of the economy.

After continuing to read through the bill was I wrong in getting the impression that some of the guidelines for what considerations much be addressed in relation to housing related institutions would end up resulting in many more basically being brought to do business the Fanny/Freddie way?

[reed11b]

There are a lot of problems with the plan as presented;
1) International investors and banks transferring their bad debt to the US Treasury
2) Congressional oversight completely lacking
3) Judicial relief legislated out of the law which is an issue of Constitutional nature
4) Golden parachutes for CEOs not completely removed
5) Speed of the presentation and legislation has not served the country well ever in the past
6) There is a divergence of opinion between "experts" on if it is even needed
7) There appears to be high parasitic loss to the methods of using the money (lots of bureaucrat dollars)
8) The stock market is not the economy, the credit market is not the economy, and bailing out either does not help the economy. The stock market and credit market are indicators.

That is not to say things don't have to be done. Panic and a rush to judgement though rarely makes good decisions. The financial crisis has been brewing since the early 1970s. The tendrils of the issues are like a cancer touching nearly all aspects of the economy.

Thank You Selil,
Best written analysis of the bailout I have read yet.
Reed

[120mm]

That is not to say things don't have to be done. Panic and a rush to judgement though rarely makes good decisions. The financial crisis has been brewing since the early 1970s. The tendrils of the issues are like a cancer touching nearly all aspects of the economy.

And that is the real problem, here. This stinks, and I mean reeks, of Hillarycare, or the invasion of Iraq in 2003.

How about we fix some fundamentals, and then let the market sort itself out?

Of course, "congressional oversight" with anything regarding money is a lot like giving my cat oversight over my fish, or pet mouse....

[tequila]

The stock market is not the economy, the credit market is not the economy, and bailing out either does not help the economy. The stock market and credit market are indicators.

With all due respect, the credit market is enormously influential in the "real" economy, and it is seizing up at the moment.

In the "real" economy, things are tanking:

Ford, Honda U.S. sales plummet as credit tightens

Oct. 1 (Bloomberg) -- Ford Motor Co. and Honda Motor Co.'s U.S. sales of cars and trucks tumbled in September as tighter credit scared off consumers.



Sales at Ford, the second-largest U.S. automaker, fell 35 percent from a year earlier, the Dearborn, Michigan-based company said in a statement today.

Honda reported a 24 percent drop.



Industrywide sales probably will fall for the 11th month in a row, the longest slide in 17 years, as the financial crisis caused lenders to toughen loan standards and consumers curbed spending. Sales already had dropped 11 percent through August, in part because of high gasoline prices.



Ford's decline ``is an indicator of the state of the industry, with the credit problem hitting all segments, all types of vehicles,'' said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan.

``People of all economic backgrounds are going to be impacted.''

The manufacturing sector capitulates (or rather, ISM's survey on manufacturing falls to the lowest point since Oct 2001)

[quote]
For months and months, the widest-followed index of manufacturing activity, produced by the Institute for Supply Management, has wavered within a narrow range, showing essentially slight growth in the sector as other industries tanked.



Then, along came September.

The ISM manufacturing report released this morning showed a stunning decline in several key components as the overall index last month dropped by more than six points to 43.5, its lowest reading since October 2001.


“This ugly report may be the clincher… to finally make the official recession call,” said Harm Bandholz, a New York-based economist with UniCredit.



New orders plunged by nearly ten points, the employment index sank by about eight points, and production overall dropped by a whopping 11 points last month, as all measures receded deeper into contraction.

[Ken White]

Roosevelt's extension of the 1929 Depression into 1941 and have weathered six recessions since then. This one isn't likely to be as bad as either the 1953 or 1973 models. This too will pass...

Would be nice if they could jail a few and get rid of those Congroids who helped bring this about but I guess that's too much to ask...