Comment here.
UPDATE: I do wish he'd been able to sell us on the plan with an explanation of how we'd be taking advantage of the market and probably making a profit in the end. (If that's the case!)
IN THE COMMENTS: peter hoh said:
I heard that Wall Street traders will treat us like liberators.
AND: I made a new post out of Peter's great great comment, so if you want to comment on that or just get a fresh start in comments on the Bush speech, go there. Also, in the WSJ Andy Kessler makes the argument I wanted to hear Bush make, that we can make money by taking advantage of the market.
Firms will haggle, but eventually cave -- they need the cash. I am figuring Mr. Paulson could wind up buying more than $2 trillion in notional value loans and home equity and CDOs for his $700 billion.
Now, why didn't Bush say that? Well, he kind of hinted at it. But maybe he didn't want to say it for reasons embodied in Peter's great great comment.
Posts
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I am live-blogging it here!
I'm listening to Armstrong and Getty podcasts for the day, looking for yuks. Bush is too inarticulate to bear live. He's a fine fellow and all that, but apparently dropped his good speech writers years ago.
If Bush says anything of interest I'm sure it will turn up.
So...Bush summoned Obama to Washington. Good.
Whatever Bush says to do, we should probably do the opposite.
And, this is hilarious....
McCain supporter Sen. Lindsey Graham tells CNN the McCain campaign is proposing to the Presidential Debate Commission and the Obama camp that if there's no bailout deal by Friday, the first presidential debate should take the place of the VP debate, currently scheduled for next Thursday, October 2 in St. Louis.
Gee, they sure are keeping Palin under tight wraps!
The House plan is nearly done. TPM has the outline.
http://talkingpointsmemo.com/archives/219470.php
Bush:
"The market is not functioning properly."
Uh-huh. And it never has. If markets worked as advertised we wouldn't have poverty, pollution, and inequality.
Welcome to the real world, Bush. You only noticed it when the aristocracy was getting "hurt."
Is it my imagination , or is he slurring ? Bad dentalwork ? I'm watching on CNN, so maybe they are doing one of their tricks with the audio.
I'm going to hold my wallet as this continues. I'm also wearing an athletic cup because I can clearly see I'm going to be taking it in the balls.
NOOO. Just say NO. No no no no no!
Watchful waiting. No $700 Billion. Let the Market correct itself, without Taxpayer monies !!!!!!
Let everyone live without credit for awhile.
Credit is not a necessity.
Well, that was brief. And, slurred.
Hee, hee.
So what would have been the best words to use for a drinking game?
This is from the Drudge report:
EXCLUSIVE: LETTERMAN MOCKS MCCAIN CANCELLATION
Wed Sep 24 2008 17:41:58 ET
David Letterman tells audience that McCain called him today to tell him he had to rush back to DC to deal with the economy.
Then in the middle of the taping Dave got word that McCain was, in fact just down the street being interviewed by Katie Couric. Dave even cut over to the live video of the interview, and said, "Hey Senator, can I give you a ride home?"
Earlier in the show, Dave kept saying, "You don't suspend your campaign. This doesn't smell right. This isn't the way a tested hero behaves." And he joked: "I think someone's putting something in his metamucil."
"He can't run the campaign because the economy is cratering? Fine, put in your second string quarterback, Sara Palin. Where is she?"
"What are you going to do if you're elected and things get tough? Suspend being president? We've got a guy like that now!"
Developing...
I listened and didn't believe there was a true crisis....I guess you can cry "wolf" only so many times.
"Credit is not a necessity"
Right. Look how well Muslim societies fare without it.
I say we dust off and nuke the site from orbit.
Decentish speech, I thought.
Could've used more of those over the last four years...
No one here reads Drudge. Ever. Right?
Alpha, why do you exist? What purpose do your pastings and your rants serve?
Bussshhh hass been sslurring for a long time.
There's some debate that he's a dry drunk. Of course, some say he's a wet drunk.
He's gone January 20!
And so many BDS sufferers' lives will become empty and meaningless.
There is no fiancial crisis. If you don't play the Stock Market, you don't have a problem. People that have all their cash tied up on stocks and bonds.......that's their problem.
For the rest of us who don't use stocks and bonds like slot machines......no 'crisis' at all.
NO BAILOUT, NO $700 BILLION. Let people start living within their means and stop using credit and mortgages like a piggy bank.
Nothing wrong with hitting bottom, and in fact, it's essential before you can begin to rise again.
7 machos:
What purpose do your pastings and your rants serve?
Hey, thanks for your interest, pal.
I bring some light into your greay, rigid ideological lives. I'm here for ya.
I exchange ideas and bridge the ideological divide.
I keep an eye on the right wing marching orders and see if any conservatives deal with fact and logic (I'd say 10-20%).
I find an easy fight.
AlphaLiberal said...
"If markets worked as advertised we wouldn't have poverty, pollution, and inequality."
Ha ha ha ha ha ha ha ha ha ha. :D
What will you do then Alpha? after Jan. 20th.
Will you cultivate a dose of MDS to add to your PDS?
Your sister Beta should take a bat and smack you real hard upside your thick but empty skull. Hell do it to yourself - end your miserable existence. Or ask one of us to do it. There'd be a line from here to the moon to whack you.
Alpha is right. Bush is an idiot about markets.
Alpha, you are this close to figuring out Hayek and Shumpeter.
* * *
I really think McCain's "stop the campaign" idea had as much to do as McCain's love for a fight as campaign tactics. This is the biggest deal in ages and McCain can't stand the thought of following it from a campaign bus.
It is also indicative that Obama is happy to issue a pronouncement and stay on the sidelines. On the positive side, this may show that he's smart enough to know how little he knows. On the negative side, one wonders if would go to the mat for anything.
I think W. should've added:
"For the two Senators who are vying for my job. Good luck. You'll need it. This job'll kill ya."
Credit it not a necessity.
Blackberries are not a necessity.
IPods are not a necessity.
Loans are not a necessity.
Reverse Mortgages are not a necessity.
MySpace is not a necessity.
Cell Phones are not a necessity (they cause cancer)
Starbucks is not a necessity.
________________________
You need water. You need air to breathe. A good pair of nylons--which are cheap!
All this other stuff....these mindles gadgets---all bought on credit.... superfluous. Offer it up. Toss it. Pare down.
Prune the deadwood.
Slough-off.
Chet said...
NOOO. Just say NO. No no no no no!..
Let everyone live without credit for awhile.
Credit is not a necessity.
do you have a job?
your employer most likely has a line of credit that either;
- allows him to pay salaries while they invoice customers, or
- buy stuff to stock the store, where you sell goods, or
- pay salaries till the local government's next quarterly tax assessment is paid.
He pretty openly attacked Greenspan and the bankers. Why did the media or either of the candidates never say any of this? Why are the only intelligent explanations of what happened coming out of George Bush's mouth? However it still sounded like he was reading someone else's homework. And he's not really selling me on the details of the "plan".
For those of you who think this is a phony crisis, or that the country can run without the credit system working properly:
Run for Congress!
You will fit right in with the men and women of Congress who made fools of themselves in the hearings this week.
Plus, since being in Congress means that you never have to take responsibility for anything, you can like Maxine take joy in "hitting bottom."
Alpha--
If all goes according to ECOMCON, Site Y will be activated, and Bush will remain in power for the duration of the crisis.
There will be no election.
Weak sisters McCain and Obama will be at Mount Thunder for the Preakness on Sunday.
Decent speech. It laid out the problem and explained the solution and the impact the solution may have on individual citizens. A more detailed explanation should be made when Congress prepares to vote on the final bill.
The 'we don't need credit' meme doesn't work in the real world. Regular working folk will feel the impact of the credit crunch when big, well-run companies can't issue bonds to finance their growth at interest rates low enough to work. Case in point: Caterpillar today withdrew a multi-hundred million bond issue because the market wouldn't buy the bonds at an interest rate that would allow Cat to remain a profitable company. Result: No new jobs at Cat, no increase in local spending, possibility of layoffs, etc.
The credit business touches every human in America, whether directly or indirectly.
Want to ignore the problem and pretend it won't hurt? Re-read the economic history of the Carter administration. Then kiss your 401(k) or pension goodbye.
Between Alpha's lamenting False Consciousness and various comments claiming that a collapse of the world credit industry won't hurt anyone who isn't a day trader, well, there's just the full range of not-well-thought-out going on here.
I guess it really is all about the performance art.
Me, at some point during the speech I was cleaning up dog poop. In some way I feel that connected me to Bush, in that moment.
CC said...Weak sisters McCain and Obama will be at Mount Thunder for the Preakness on Sunday.
Trooper York would say:
Paul Girard: Admiral, I understand you're not much of a betting man.
Vice-Adm. Farley C. Barnswell: It depends on the game.
Paul Girard: Hmm. What is your pleasure... poker... roulette... what?
Vice-Adm. Farley C. Barnswell: No, those are house games. I don't much care for the odds.
Paul Girard: What about horse racing?
Vice-Adm. Farley C. Barnswell: On occasion... it depends on the race... sometimes the weather... and the horse does make the difference.
Paul Girard: Hmm. That's true, that's true. What about the Preakness? Have you got anything good going there?
Vice-Adm. Farley C. Barnswell: [Adm. Barnswell senses that Girard knows about the takeover plot] I only bet on sure things.
Paul Girard: Admiral, you're a very lucky sailor. That's exactly what I've got for you: a sure thing.
Vice-Adm. Farley C. Barnswell: What is the bet, Mr. Girard?
Paul Girard: The bet is that there are members of the Joint Chiefs of Staff who are involved in treason. We know who they are, we know the essence of the plan. Now from you, Admiral, I want a signed statement indicating at what moment you first heard of this operation and your complicity in this entire matter.
Vice-Adm. Farley C. Barnswell: Frankly, I wish I had more time.
Paul Girard: [sarcastically] I wish you did too, Admiral.
[tosses him a pen to write the statement]
Paul Girard: Unfortunately, you don't.
--------------------------
Back to basics: Barter and Trade, haggle, like in the old days before the evils of plastic.
Credit has ruined society, and it's destroyed the banks.
Let foreign investors pull their credit.....we've been relying too much on foreign investment anyway.
There isn't enough money in all the world to artificially pump up a system that relies on overextended mortgages, volatile and worthless stocks, tax-payer funded T-notes, and glorified Ponzi schemes.....all of which is business as usual on Wall St.
EVERYONE cut up your credit cards, and let's go back to the old Mercantile way of doing business....and that includes the U.S. Goverment: NO MORE CREDIT !!!
What I didn't hear form Bush was including increased oil drilling as part of the plan. Maybe that couldn't be done because of the politics. Anyhow, this problem cannot be solved in its entirety until American oil companies are able to reduce the amount of dollars being sent overseas.
Nicely put:
Obama: ‘It is going to be part of the president’s job to deal with more than one thing at once.’
Had to look this up. Have no idea how it relates to my statement that markets in the real world are far from perfect and their failings can be found in poverty, pollution and inequality. (Friedman would agree!)
False consciousness is the Marxist thesis that material and institutional processes in capitalist society are misleading to the proletariat, and to other classes. These processes betray the true relations of forces between those classes, and the real state of affairs regarding the development of pre-socialist society (relative to the secular development of human society in general).
Still not sure what that means. Don't care either.
I have trouble believing, to be honest, that anything on this scale is so urgent that it has to be passed this week.
I would agree that this should be passed before Congress takes their break but it's better to take a few days to make sure we get it right than to pass it by the weekend. Seven hundred billion dollars is an enormous amount of money. Even if it stays at that figure (which I'd be surprised if it doesn't soon reach into the trillions) that represents more than $2,000 per American.
I ask this again: Does anybody have a working rotary-dial phone ?
"I do wish he'd been able to sell us on the plan with an explanation of how we'd be taking advantage of the market and probably making a profit in the end. (If that's the case!)"
This is a very important point!!
The money isn't being "given" to the firms in trouble. The money is purchasing assets that have some intrinsic value. Mortgage backed securities. The value now (market value) is much much lower, because of the fear of default and lack of demand for the asset, than the intrinsic value and the government can buy these at a reduced amount.
If the assets begin to rise in price because the markets have calmed and SENSIBLE credit is able to be issued again, then the Government can offer these assets back into the market place at a possibly increased value.
ex: I buy you crappy bond that is worth about .90 on the dollar for .30 on the dollar because you are going bankrupt and this will keep you in business and keep your employees in their homes.
I sit on this asset for a while because I can tax the living bejesus out of the rest of the country and when the asset appreciates to .60 on the dollar I sell to your neighbor (Botswana or Hong Kong) who is willing to take a chance.
I just doubled my return.
The downside is that we have just slipped one more step into socialism.
Maxine has a working rotary-dial telephone that's served her quite well.
She was extremely reluctant to buy into the whole "touch-tone" revolution.
One benefit of a rotary-dial telephone, over a cell, is that there's no better way to hang-up on someone than with a rotary-dial !
It's very hard to slam down a cell-phone in quite the same way you can do with a rotary-dial !
I have not been so many economic illiterates since...last year's Thanksgiving dinner with my in-laws.
Don't universities teach economics anymore? Or are the intro courses taught by Marxists.
Honest to God Alpha, et. al., take an econ class or two so you don't sound like such utterly unschooled dolts.
For the rest of us who don't use stocks and bonds like slot machines......no 'crisis' at all.
Hyperinflation, Maxine. Your perms and mascara will cost you a month's salary in the future and that will be a very very ugly thing. :-)
/been among..
Bush:
"The market is not functioning properly."
Uh-huh. And it never has. If markets worked as advertised we wouldn't have poverty, pollution, and inequality.
Uhm, you didn't get a very good grade in economics, did you.
DBQ: I've asked this question many times to you. I'll ask again. How does an economic constriction and credit lead to inflation?
I have a B.A. in economics. I'm not really great at it. But your theory seems completely screwy to me. This is an honest question. I have no agenda.
If DBQ won't explain it, how about somebody else? (Somebody who has some sense, though, not pasters, astroturfers, or Marxists).
BQ said...The downside is that we have just slipped one more step into socialism.
but it beats all of us out of jobs because our firms can't float payroll or fix the machine tools on the plant floor or Chavez won't take a check for a tanker of heating oil.
Maxine, Ann and Chet can post about squirrel jerky recipes and how to can squash.
Ann, come on now - have you never heard of "buy low, sell high"?
This is actually one time when I thought the Pres. spoke more clearly about that point than most of the other's that have testified/ weighed in lately.
Error-free and improved question format: How does a constriction of the economy and credit and lending lead to inflation?
Expensive money is not inflationary. Right?
7m, the scenario I see is deflationary.
I'm not seeing the hyperinflation argument either, but high unemployment and high interest rates seem more plausible to me. By all means, if DBQ or someone else can explain that I'd appreciate it.
What I do know is that this idea that we can live without credit is idiotic. I mean, sure, individuals can live without credit. If I needed to cover my mortgage tomorrow I could, though I'd prefer not to because the math doesn't work (yet!). But for better or worse credit is an essential part of this economy; the Caterpillar example is a great one.
Even if in theory we could do without credit in the long term, and even if for some reason we wanted to wean off of it, you still have to handle the detox properly. This is not a caffeine headache we're talking about here, more like a heroin addiction.
I agree that it is deflationary. Not that that's good.
DBQ _ Nailed It!!!!!
"Credit" is a short-term loan usually at an interest rate that is higher than more traditional, longer-term loans and often unsecured.
Maxine is an idiot. I find it hard to believe that she is serious.
So no one is going to explain the hyper-inflation to me then? It's just going to happen. Okay. Gotcha.
FDR's New Deal is what created the Welfare State in the first place, only now we are creating a Welfare Market for rogue Financial Institutions that are best left to fail on their own.
Look, if we are trying to decrease our reliance on foreign sources of oil, it's high-time we decrease our over-reliance on foreign sources of capital too.
Just like with the Nasdaq in 2000......where you let it bottom out, so it can begin to rise.
You never saw anyone ever talk of bailing out the Nasdaq and all those Tech stocks. Gee I wonder why?
A total shakedown is probably what's best to clean out the rot. NO 700 BILLION (TRILLION) NO NO NO NO NO ......LET THE FOREIGN INVESTORS TAKE THEIR MARBLES AND GO ELSEWHERE !!!! NO BAILOUT ! NOOOOOOOO. NO NO NO !
ok, let me see, what DBQ may be saying is,
If the bad paper that has made the lending market's illiquid can't be bought up via a fiscal policy solution (aka a Congressional act), those freeing up loans, the alternative is a monetary policy solution.
The FED, which has the freedom to cut rates and lending rules can effectively try to flood the clogged loan system with new money, and free the clog that way.
hyper inflaion via monetary changes by te FED
But only a bunch of idiots would cut interest rates right now, inflation aside.
What you are really saying is that the Fed could totally do the wrong thing and completely fuck up the economy. Fine, but that's always a possibility.
Regardless of what Congress does, I would expect to see interest rates rise. Somebody tell me why that is wrong.
I heard that Wall Street traders will treat us like liberators.
Ooooh, Campbell! You're sizzling!
Free Sarah Palin: Campbell Brown goes off on McCain for hiding Palin from the press
The kind of speech a President should give in a time of crisis -- sequential timeline, and suggestion a solution.
I can't imagine that any American who listened doesn't have a bare bones grasp of what is going on.
What I was struck is how unpolitical it was. The only political note was the concession to Senator McCain, who called for a meeting tomorrow. Senator Obama will attend too, of course.
Cheers,
Victoria
Well, all those capital "NO"s sure convinced me, Maxine. That's what I'd been waiting for all this time---for someone to find their caps lock key.
Alpha -- Why are you posting that here? What does it have to do with this thread? Go away, you worthless twat.
Oh, poor AlphaLiberal, he ran out of crap to throw at us and had to reach back for reruns.
Those who don't like slurring or lisping turn off your sets. Barney Frank is on.
(I have to turn it off immediately. With all due respect to lispers out there)
No kidding, mcg. Maybe he'll tell us the one about press conferences again.
I mean, come on, flamers. At least try to be remotely topical.
Listen, I established my financial credentials from my very first post on this blog. Way back in 2006 (seems like a lifetime ago) in one of my first comments ever, I told Althouse, in no uncertain terms, that she must NEVER sell her home.
My acute reasoning for that was because if Althouse sold, she'd lose all her equity, and that, it would take years, decades to ever build up again, in a new place.
Capricorns hold on to property, they don't throw it away for short-term (stupid) gains.
GWB isn't thinking long-term either. This bailout goes completely against the Laffer Curve, it even goes against traditional Keynesian (Liberal) economic theory.
You never artificially overcorrect a Market before it's bottomed out. You're simply creating more problems. Credit has been abused by individuals and corporations, and the slate must be wiped clean. If anything give consumerers 700$ BILLION (TRILLION) in tax refunds.....now that'll stimulate the economy !
Here is a movie of President Coolidge ini 1924 talking about the US economy.
"The expenses of the government reach everybody. Taxes...force everyone to work for a certain part of his time for the government...The yearly expenses of the governments of the country are a stupendous sum of $7,500,000,000....Such a sum is difficult to comprehend....I want to cut down public expense. I want people to work less for the government and more for themselves...This is the chief meaning of freedom...One of the greatest favors that can be bestowed on the American people is economy in government."
Check out his teleprompter.
"Alpha -- Why are you posting that here? What does it have to do with this thread? Go away, you worthless twat."
As I wrote in the other thread, AlphaLiberal is the Althouse blog's left-wing RSS feed. I wonder who signed up to it?
This bailout goes completely against the Laffer Curve
The Laffer Curve is a curve about taxes and government revenue.
I'm not stoked for government intervention. However, it's not avoidable right now. You people who are against it need to stop beating your head against a wall.
The important thing right now is that intervention be no worse than nonintervention. Or better.
Capricorns hold on to property, they don't throw it away for short-term (stupid) gains.
I see. Well, next time I have a major investment decision to make I'll consult the stars. Actually, I have a call with my financial advisor this week, I think I'd better check my horoscope.
7M, been 30 years since my last macro econ course in B school, and I wasn't a finance weenieanyway:
rising interest rates contract lending at the wholesale level. lowering rates and reserve requirements exands money supply dramaticly
the monetary tools at the FEDS control are:
1. printing money (not paper but electronic funds)
2. Overnite fund rates
3. reserve requirements
4. discount window loans
none of that requires approval in the short term by Congress
Why not? Take the 700 Billion (Trillion) and give it back to the people, and let the people decide if they want to pump it (reinvest) back into the rogue Financial Institutions.
If 700 Billion (Trillion) gets tossed down a sinkhole, where is the money going to come from to back the FDIC ? How much money is in the FEMA account ?
"First do no harm". Watchful waiting. No Bailout. NOOOOOOO
FEDS = FEDeral Reserve board, not FEDeral governent
If markets worked as advertised we wouldn't have poverty, pollution, and inequality.
AlphaLiberal, that's the problem with liberals in a nutshell. You think the world "should" be kinder and gentler and that government intervention is the way to make it so. Michelle Obama: "We know how the world SHOULD look!"
That's not how markets work. Markets work a lot like natural selection does. There are casualties, but there are improvements.
Markets don't protect the weak any more than nature does. Protecting the weak -- in part because they may harbor or inspire strengths less raw, more subtle, and in the long run more valuable to a survival worth living -- is a human idea. It's a lot like protecting the rainforest -- it looks sentimental and expendable when you need oil, cattle, jobs, and profits NOW, but there are these amazing medicines . . .
Religion and law have tried different approaches to protecting the weak. Both are necessary -- to inspire compassion and to and constrain and punish the abuse of strength. It's not markets' job.
Hyperinflation, Maxine. Your perms and mascara will cost you a month's salary in the future and that will be a very very ugly thing. :-)
I'm guessing the majority of you Americans have never lived in a hyperinflation economy. Unfortunately, I have. This is what I recall.
- Arriving at a supermarket to buy milk, meat and bread at 7 AM. The stocks are limited to nonexistent. Why? Because the supermarkets know that the price will go up by day's end. So they either keep goods in the back, and pretend they are out (which is illegal, but they still do it) OR...
...you go to pick up a can of beans or soup and see price stickers one on top of each other. The highest price is the purchase one.
I took a photo of a can one time with 5 different price stickers on it.
- I was inside a lift in my condo one time, sharing a ride with my neighbours. One older man said that what he paid for his flat in 1981, was the price of the loaf of bread he was holding under his arm.
- The government would regularly "freeze" bank accounts to try to prevent a run on banks by the populace.
You couldn't pay for a packet of cigarettes, clothes, any employees you might have, or anything during the time it was frozen: sometimes lasting a year.
- The "informal" economies such as the black market thrived. Everyone suddenly set up little benches on street corners, selling shoddy or damaged goods at exorbitant prices.
All this I personally experienced with my family when my dad was a visiting professor in three South American countries in the late 80s.
Don't let America get anywhere close to this situation. Americans are way too pampered, and though I trust in the strength of the American people and system, I fear that the post-War generation do not genuinely understand what it is to stare hyperinflation in the face.
Cheers,
Victoria
"Credit is not a civil-right"---Mark Krikorian
________________
It's not a right period, and we must eliminate foreign sources of credit. This "crisis" provides the perfect opportunity.
Kill the plastic; kill the Bailout !
Back to basics. Barter & Trade. Haggle.
Where's that expensive pantsuit. I can dethread it and make a shawl.
What was Althouse even doing on Rodeo Drive? A bet she's embarrassed about that now.
Maxine, put a freaking lid on your Faces of Eve routine. It's as old as your varicose veins.
Maxine is performance art. Not sure about the point.
This for that
When we lived in caves
There were no shopping malls
And people's manners were Neanderthal
No bodegas, no delis, no corner stores
Shopping trips turned into tugs of war
When not having pull got this man mangled
He thought he'd try an easier angle
I'll give you this for that
That for this
We'll make a trade called "barter"
I'll give you this for that
That for this
We'll have it made with barter
...
Dollars and Sense
Why sure, Becky-Sue, I can give you a hand.
I can lend you the money, but you must understand,
When you borrow from the bank,
Then you gotta pay it back on time.
And when you're done payin' back every dollar that's due,
You will find you paid 'em back a little extra too.
For every dollar you borrow,
You gotta pay the bank a dollar and a dime!
Again that's interest; and it's just a fee you pay
To use the money that you borrow from me.
...
Edited...
Goddammit! Nobody wants to live in hyperinflation. What people want is to know how hyperinflation is going to occur and how it's somehow less likely if the economy is swamped with new money.
Waiting...
Tyrannosaurus Debt
There's something huge
Red, white, and blue
That's grazing in D.C.
It's gobbling up the taxes
That are paid by you and me
It doesn't seem to notice
We really can't afford
The billions that it's costing us
To pay its room and board
...
vbspurs said...
Maxine, put a freaking lid on your Faces of Eve routine. It's as old as your varicose veins.
9:32 PM
*HEART*
Seven Machos, not sure if that was meant as a rhetorical question or you want a real answer. I found this link if the latter.
Extract:
Once hyperinflation becomes a reality, politicians inevitably succumb to the lure of legislating it out of existence. During the past decade, Argentina, Bolivia, and Brazil all at one time or another addressed their hyperinflation problem with the simplest of solutions; they outlawed it. While government intervention often has a short-term salutary effect, making it irresistible to politicians, in the end all governments—including our own—have had to conclude that more fundamental solutions are needed to attack the root of the problem, not just the symptoms.
In 1986, President José Sarney of Brazil, in an attempt to do something dramatic about an inflation rate that threatened to soar to 500% or more, instituted an anti-inflation program that froze prices, controlled wages, and lopped three zeroes off the Brazilian currency. The plan succeeded in temporarily curbing inflation, but higher prices were quickly replaced by other problems. Severe shortages of daily necessities such as eggs, meat, and milk developed. Black markets quickly filled the vacuum, resulting in higher prices that didn’t show up in official inflation figures.
White-collar crime inevitably increased as well, as a never-ending spiral began, with the government implementing a maze of regulations and citizens just as quickly developing innovative strategies to evade them. One distributor of heavy machinery told us that because used equipment is not subject to wage and price controls, he routinely leases for a month or two, then turns around and sells the equipment at twice its original price. Many companies get around wage controls by giving their employees loans that are not expected to be repaid. In all three South American countries we are studying, this kind of subterfuge, necessary as a means of survival, gives a sense of legitimacy to breaking the law, threatening a nation’s moral fiber. “Inflation,” a top South American officer of the Bank of Boston told us, “is an immoral tax that leads to immoral values.”
Because hyperinflation can so easily become a way of life, the best—some might say the only—foolproof solution is to avoid it in the first place. Once underway, hyperinflation can only be thwarted by a painful reduction in government spending and by a halt to the printing of money not backed by the production of real goods and services. As the noted author Peter Drucker likes to say, “You can’t consume what you haven’t produced.”
So no taxes. No market intervention by government, and no printing of excess money when you have an outstanding national debt.
And of course, save. This is the rainy day we all knew was coming.
Cheers,
Victoria
I heard that Wall Street traders will treat us like liberators.
Comment of the Night.
It's as good as this.
All yer favorites, get 'em here.
People saying "no bailout" or "credit is not necessary" have not been paying attention. If the credit markets freeze, banks can't get money. If banks can't get money, they fail. If banks fail, all the people who have money in that bank in regular ole accounts run to the bank and demand withdrawals. The bank has no money to honor the withdrawals, and shuts its doors. Ergo: forget credit; you can't get your ACTUAL money. Now, multiply this times a million, and you have what could occur on monday if this deal fails. The FDIC supposedly insures accounts up to 100k, but a massive, nationwide run would mean a couple trillion bucks in withdrawals would have to be covered by only $50 billion in FDIC money. Say goodbye to your savings accounts and checking accounts for the short term. Sound fun? What about your company? It goes through a rough patch and needs a line of credit. Well, no dice, because "credit is not necessary." You lose your job. Happy now? The bailout is bad, but the alternative is worse. And the best plans, reducing capital gains taxes, relaxing mark-to-market policies, will never pass in a Dem congress.
Larry Kudlow: Give Paulson a Clean Bill
All yer favorites, get 'em here.
E-lec-tricity! EEEE-lectricity.
Of course, when these wonderful musical shorts were being shown, the US was living under Carter's staflation, with rationed petrol and unemployment skyhigh.
Still, great memories, MCG, thanks!
victoria said... The government would regularly "freeze" bank accounts to try to prevent a run on banks by the populace.
you forgot the part about outlawing possession of gold or foreign curencies, restrictions on money leaving the country and perodic reissuing of new currency with tight rules of exchange of old for new.
There's plenty of money out there. Morgan sold 20 percent of it's company to a Japanese bank. AIG turned down offers hoping to get a better deal from the Fed. Merrill sold itself. Lehman went bankrupt and sold its assets in 3 days. Did the world end?
IF WE DON'T GIVE THIS ROGUE TRADER HIS 700 BILLION *NOW* TO BUY CRAP INVENTORY WE'LL BE PLAYING TUG OF WAR OVER LOAVES OF BREAD.
Okay, once more, with feeling: I don't want to know about the consequences of hyperinflation. I recognize that they are dire. I want to know what is going to cause it.
One thing I do know that could cause it is pumping money into the economy without growth. However, and this is important: the very people who are arguing for the bailout are arguing that there will be hyperinflation WITHOUT the bailout.
Of course, when these wonderful musical shorts were being shown, the US was living under Carter's staflation, with rationed petrol and unemployment skyhigh.
Actually, the finance ones are from a short revival that occurred in mid-'90s.
Drill SGT, yes! Exactly.
Foreigners had to change a specific number of dollars into local currency BY LAW, before coming into the country. So if your stay was scheduled for 2 weeks, they made you buy local currency right then and there at the airport.
Also, nationals of the country were limited in taking out money when travelling, or possessing excess dollars of their own, as you said.
There used to be a ponzi scheme market tactic called the "Overnight" where you bought dollars long or short, and gambled to see if the market rewarded your purchase in the morning.
DBQ probably can speak more fully about that.
this is y i likee the bush-bot/ never-he--didion mention a frank[barney i love u- u luv me?]
never a nu-nuuu-nother 9-11
never a swipe at you fucktards who just are sooo angry[/?]
Is the consumer going a go- go?or will we be Waco-[code] a go go?
love ur site-sister!
I'm sure there's an afterschool special out there for our current situation, Blake.
Probably starring Sarah Jessica Parker or Kristy McNicol.
GM, since I'm not accustomed to agreeing with you, I may be missing sarcasm. Are you actually in favor of a bailout?
7m: unless DBQ comes back it doesn't look like anyone's going to answer your question. I'd like to see it too.
Has anybody here seen the video of THIS EXCHANGE??
Couric: "I'm just going to ask you one more time, not to belabor the point," Couric said. "Specific examples in his 26 years of pushing for more regulation."
Palin: "I'll try to find you some and I'll bring them to you," Palin responded.
It is mind numbing.
http://www.huffingtonpost.com/2008/09/24/palin-on-mccains-history_n_129078.html
Hey Alpha,
How much are you paid to be an astrotroll? How often do you get your talking points during the day? How many blogs do you have to assault per hour/day to get paid? Are your payments directly from the Obama campaign or another source? Inquiring minds want to know.
Michael, quit being a doyle. We are talking about the bailout here. Take your trolls elsewhere.
Besides, I'll bet dollars to donuts Obama can't sift through his running mate's 3-plus decade Senate record, either. Hell, they can't keep their story straight on clean coal, either.
Seriously, though, get on topic or shut the hell up already.
mcg said..."Larry Kudlow: Give Paulson a Clean Bill..."
Your source is Larry Kudlow???
Gee, what does Newt think? Or Rove? Or Graham? Or Lieberman?
Oh can we please not let yet another thread turn into The Michael Show? Don't take the bait, people, it's not worth it.
AJ Lynch said...
What will you do then Alpha? after Jan. 20th.
Hopefully kill himself.
This is a good thread about an important topic. If you are going to troll, at least troll on topic.
Stop being such twats.
mcg, John McCain says he's rushing back to Washington to save the world.
I think a comment from his V.P. nominee, relating to his policies relating to regulation is relevant to McCain's economic polices.
Do YOU not think it's important for the V.P. to know his policies??
I'll be happy to respond to Michael when he's on topic. It's not likely he can string two coherent sentences together on the topic though, unless he plagirizes them from HuffPo.
Fine. He doesn't like Kudlow. Buffett says: act or face 'economic Pearl Harbor'
seven: John McCain says he's rushing back to Washington to save the world.
I think a comment from his V.P. nominee, relating to his policies, especially regulation, is relevant to McCain's economic polices.
Do YOU not think it's important for the V.P. to know his policies??
Does anybody have a working rotary-dial phone ?
My parents do. It was amusing to see my kid try to call back to WI when we visited there without my wife for the first time.
2 comments:
I see that Bush has asked Obama to come back to Washington - thrust and parry.
Also - Re banking system meltdown: when someone is holding the gun to your head is probably NOT the time to engage in endless conjecture on whether or not it's loaded.
Can we at least, after bailing out the big guys and so saving the world from trickle-down disaster, implement policies that discourage the over-use of credit and constant refinancing of mortgages for points and vacations?
The people who *really* got us into this mess make a thousand times our salaries and graduated with economics degrees from ivy league schools.
Depending on credit for daily expenses is not good for people but it's made effortless by those who live high off the weakness of others. It's NOT moral.
And law and policies should keep in mind the desire to encourage people to build equity and plan to live in their houses, (and without worry that they won't be able to afford government "rent" and be turned out in their old age.) If half the real estate agents out there have to find other work, good!
pallidian: John McCain says he's rushing back to Washington to save the world.
I think a comment from his V.P. nominee, relating to his policies, especially regulation, is relevant to McCain's economic polices.
Do YOU not think it's important for the V.P. to know his policies??
Why continue to be such an illiterate little prick?
Analysis, please, and topical links only. This isn't about scoring points. This is important.
Do YOU not think it's important for the V.P. to know his policies??
You mean like Obama's position on the AIG bailout? You mean like Obama's position on clean coal? You mean like Obama's position on the McCain-can't-use-a-computer ad?
Palladin's right. I shouldn't even post this, but when you set 'em up so easy. That's all, though. Stay on topic or shut the fuck up.
"I'll find some and bring them to you"
Brilliant response to Couric who admitted to belaboring the point.
Very catty, but works. And in fact, she probably will go find the answer.
"I don't know" is a very honest answer. "I don't know, but will go look at get back to you".....is even better.
If you don't know something, why not say you don't know?
mcg, I am on topic, numbnut.
Spending an entire thread sucking on McCain isn't the least bit reasonable.
If you don't think the V.P.'s lack of knowledge is important to McCain being President merely illustrates your your own lack of intellect.
I remain unconvinced that any Government entity can fix this mess. I am unwilling to throw good money -- my money -- at this mess. I can be convinced it's necessary, but that certainly hasn't happened. And I don't see why a we-must-do-it-this-week mindset is needed.
A good law would be that people cannot borrow more than three (or four of five, whatever) times their annual income for the last few years. Banks would be required to verify this or face severe penalties.
Further, mortgages with arms really ended up being a dumb idea. I can't see how they help anyone in the residential real estate market. I'm open to arguments on this one but right now I'd forbid them for residential real estate.
This is such a great place when the trolls aren't here, even when they limit their postings.
fwiw, I have a working rotary phone.
Error-free and improved question format: How does a constriction of the economy and credit and lending lead to inflation?
Technically a constriction of the economy should lead to deflation. However, if the economy restricts enough, the government will start running short of money and will supplement the shortage by essentially printing money causing inflation requiring more printing of money then causing more inflation. If the recession was bad enough a President Obama or McCain would try to stimulate the economy through more government spending. Since there would be no tax revenue, the only alternative is inflation through printing money - paying people to do public works programs with printed money, etc...
Well, I have an interest-only ARM, but my net worth far exceeds my home's value. They are a great investment tool. Heck, I paid cash for my first home in 2001 and the cashed out when I could get below 4% interest only.
If we've gotta forbid these things for the sake of saving stupid people from dragging the rest of us down, so be it, but it would be great if we could exempt accredited investors or somesuch.
I just passed by a Starbucks and saw a crowd.
How are they affording the luxury of Starbucks? Guess we are not in a 'crisis'. Saw some people yapping on cell phones. Cell phones not a necessity, either.
Nothing bought on credit is a necessity.
It's amazing what we think of as necessities now. Used to be a loaf of bread, a jug of water was all you needed. And those things weren't bought on credit.
Thank you, Sloan.
I frankly am in the camp that this is not a goliath problem that will cause such a tremendous meltdown. But what do I know?
You're comparing the use of unsecured credit to buy essentials to today's credit crunch? Jeez, I think I'd almost rather deal with Michael over Maxine. Not really, but it's close.
7M said...the very people who are arguing for the bailout are arguing that there will be hyperinflation WITHOUT the bailout.
think of the 700 billion as a working capital fund.
1. some bank has an asset on the books, say a bundle of mortgages. now the face value of the mortgages is 100 million, but there is some trash in there and because the bond rating guys screwed up, nobody knows how bad the bundle is right now.
2. The actual value of that bundle could be 90 cent on the dollar or 90 million but nobody knows that now.
3. what the bank and ITS creditors know is that type of bundle is trading for 30 cents on the dollar.
4. because of new accounting rules (mark to market), the bank can't carry the asset an face value,t has to correct the value to be 30 million, the open market price
5. now the bad debt on the balance sheet when the bundle went from 100 million to 30 million means that te bank has to get its sheet inline with leanding practices and must call in outstanding loans of its own or stop lending to meet the Feds reserve requirements. In rder to baance its books it ay have to sell off the bundle at under 30 million to raise cash, when it does that it further depresses the balance sheetsof the other banks.
6. Paulson steps in buys up these bonds at some price above 30 million and well below what they ultimately wll be worth whih is 90 million. lets sa 40 million.
7. the transaction bth helps this bank and establises a better price of 40 million instead of 30 r lower for the whol marketof this class of bundle, thus helping lots ofbanks balance sheets.
8. Paulson later holds an auction after folks do some analsis on the actual risk involved, and the bundle fetches something under90 million but above40 million, lets call it 60 million.
9. that 60 million establishes a better price point for the bundles, helping the whole system and means the paulson working fund make the taxpayrs 20 million, hving bought at 40 and sold at 60.
10, now the fund has 700.2 billion in it and the money supply is smaller, not larger. but there is more credit because balance sheets look better
rinse and repeat. YMMV
I think we had an ARM at one point, but we converted when the interest rates were low. We only got the ARM 'cause it was cheaper; we could easily have afforded a 'regular' loan.
My understanding is that ARMs were helpful for people living in one place for not very long. As in, you move somewhere and are not sure you'll stay. As long as you have sufficient equity in your house, there's no reason to pay high interest rates, is there?
I have an interest-only loan myself. It works because I am paying down the jumbo loan.
Interest-only doesn't strike me as a problem. It's arms.
MCG
I'm in favor letting nature run it's course. I think alot of this was caused by inter-bank chain letter lending and like every pyramid scheme its collapsing because there's no more credit to feed the pyrmaid. This guy was writing about in Jan.
Banks fail and get bought out. Let them fail. Life goes on. This country buys everything on credit and so that's where they try to scare you. That said I could 100% wrong and I buy almost nothing on credit. 3 yrs ago I told myself I'm buying a fucking Mercedes when I turn 40 and I did. I found a 86 300E for $4000 in immaculate mint condition with 78k on it and it's one of the best investments I ever made. I love that damn car, and I will be driving that thing for another 10 yrs or more. I drive a beater Ford Escort in the winter that I bought for $700. Some people have a Plan B if shit hits the fan, but I live like it's Plan B. LOL.
Still...on TOPIC - Based on the current CRISIS...is this really who you want to be a heartbeat from being President????
"COURIC: Would you support a moratorium on foreclosures to help average Americans keep their homes?
PALIN: That's something that John McCain and I have both been discussing whether that is part of the solution or not ... you know, it's going to be a multifaceted solution that has to be found here.
COURIC: So you haven't decided whether you'll support it or not?
PALIN: I have not.
COURIC: What are the pros and cons of it, do you think?
[Translation: OK, you don't want to commit. But do you have the slightest idea what the salient considerations are?]
"PALIN: Well, some decisions that have been made poorly should not be rewarded, of course.
COURIC: By consumers, you're saying?
PALIN: Consumers and those who were predator lenders also. That's, you know, that has to be considered also. But again, it's got to be a comprehensive long-term solution found for this problem that America is facing today. As I say, we are getting into crisis mode here."
Can someone please answer my question as to why the Government didn't bailout the Nasdaq in 2000?
All those dotcom workers out of jobs......why didn't the Government step in? Why wasn't that a 'crisis' ?
The Goverment just let the Nasdaq tank. How terrible. Why?
Vspurs did you just call barny frank a fag?
The credit crisis, if it becomes bad enough will spill over into main street. Here is how it happens:
Say you get a bank run on money market accounts. This would dry up the commerical paper market, which would then dry up general corporate funding, which would cause business' needing the credit to restrict spending, which in turn would cause business serving those business' to lose business which would lead to unemployement, which would lead to less people working in restuarants, etc...
So you are a guy who works at a coffee shop, all of a sudden you find yourself out of a job because your customers cut back on spending because their customers cut back on spending etc...
A collapse in the system would be very bad for a while. We would recover of course, but what a waste. I say pass the "bail-out" and eliminate Fannie and Freddie at the same time.
I didn't know you could get an interest only without an ARM component. You mean your interest late is locked after the interest-only period expires? What's the term?
One simple way to guard against ARM abuse is to require people to qualify assuming an interest rate equal to one maximum "bump" above the opening rate.
If the interest rate jumps to 21% Macho like it did under Carter?
Does Peter Bella really believe this stuff?
How much are you paid to be an astrotroll? Nothing.
How often do you get your talking points during the day? Ha ha. It's not hard to figure this stuff out.
How many blogs do you have to assault per hour/day to get paid?
Nothing. No pay. Love my country.
You're kinda weird, Peter. Project much?
All those dotcom workers out of jobs......why didn't the Government step in? Why wasn't that a 'crisis' ? The Goverment just let the Nasdaq tank. How terrible. Why?
The Nasdaq is puny compared to the debt markets. Moreover, equity losses in inflated stocks do not cause run on banks.
Madison -- A lot of people got arms with the idea that they were going to flip their house for a lot of money. Then, the real estate market tanked. No one is going to make a lot of money on their house now. So, they stay put. And there's that arm staring them in the face.
The problem is that people were already paying as much as they could -- more than they should -- for their mortgage that was "on sale," so to speak. When the price went up, they couldn't afford it. And thus the foreclosures left and right.
I see this problem not so much at the Ivy-League economist level as at the slightly-shady brokerage guy who sold people mortgages they couldn't afford level.
As far as I know, there's no arm on the mortgage. Maybe there is. The interest-only loan was my wife's idea.
Doesn't matter. Arms are the problem. If I have one, that just makes me foolish, too.
I say pass the "bail-out" and eliminate Fannie and Freddie at the same time.
I'm certainly fine with that trade-off.
7m, you should check. I seriously have never heard of an interest-only mortgage that wasn't adjustable. It's possible, I suppose. Assuming I'm right, I don't think you're necessarily up the creek, just keep your eyes peeled for the earliest opportunity to jump to a fixed.
(The earliest sensible opportunity, that is. Interest rates aren't that bad right now.)
Well, I do think the economy is messed up and in a precarious position. It seems to be one of those self-reinforcing crises like the depression.
Well-placed government intervention can serve the public good and help us deal with other problems.
But a $700 billion blank check with no oversight or controls for a former Wall St boss turned Secretary of the Treasury is a pretty stinky deal. No other bailout, including the S&L crisis, was handled this way.
The deal Bush offered was DOA and they knew that. I thought for sure the Dems would cave on this like they did on giving in to Repubs on torture, Iraq occupation, etc. Looks like they're standing up.
We need oversight, exec pay caps, Main St/trickle up approach, a return to stabilizing and improved regulation, and to make sure the maketplace's punishments are nor short-circuited. And catch the crooks.
Seven: (sorry I was eating dinner :D )the way that I understand it is that when the dollar dives into the tank against other currencies (assuming we aren't all on the same sinking ship) as will happen if our debt instruments are considered unsound or subject to default, the price of goods relative to other currencies will rise comparative to our currency.
Quote: "Although there is a great deal of debate about the root causes of hyperinflation, it becomes visible when there is an unchecked increase in the money supply or drastic debasement of coinage, and is often associated with wars (or their aftermath), economic depressions, and political or social upheavals."
The Federal Reserve pumps money into the economy by buying debt instruments from banks and brokers to increase the money supply when they want credit to be more available....like NOW. However, with this current 700b infusion/increase into the money supply AND the possible significant devaluation of our dollar, I think we may be looking at a severe inflationary period. Leading to higher interest rates as you said earlier. The 700b isn't going directly into the money supply but it is freeing up reserved capital to be circulated. It could be a perfect storm if the Federal Reserve and others (bozo clowns in Congress) don't act responsibly.
Hopefully not hyperinflation, but pretty much inflationary in the near future. Hyper is the worst case scenario and I was trying to get the attention of people who treat his whole thing as a joke.
Victoria's example in a real world setting of extreme inflation is accurate. I had relatives in Argentina in the 80's where it took 5,000,000 pesos to buy a Coca Cola.
I'm sorry, I had to rub my eyes there for a moment. A sensible on topic comment from AlphaLIberal? Woo-hoo! I guess the Metamucil kicked in! :-)
Seriously though, thanks. I mean we can resume our McCain Palin bashing any time. This thread is actually kind of nice without it.
Michael, that leaves you as the only prick here.
Oh, yeah. Dave Lettermen really kicked McCain's ass.
Seven,
A good law would be that people cannot borrow more than three (or four of five, whatever) times their annual income for the last few years. Banks would be required to verify this or face severe penalties.
Meh. There's a matter of worth aside from income.
Further, mortgages with arms really ended up being a dumb idea. I can't see how they help anyone in the residential real estate market. I'm open to arguments on this one but right now I'd forbid them for residential real estate.
It worked great for me. I bought a house with a 3-year-fixed (11%!) followed by variable, but I replaced it after three years. (And I could've paid the variable rate, too, but the three years payments allowed me to get a much better rate.)
Trolls left and right!
And I don't see why a we-must-do-it-this-week mindset is needed.
because unsupported by any buyers, the value of the mortgage bundles keeps sliding to zero. as they go dow, every investment bank, insurance company, money market fund and investment house that has that class of bundle has to downward revise their blance sheet and make a corresponding contraction on their debit side as the value drops. call in loans, sell off assets, etc
the rot is leaking to the commercial bank side, e.g. where your local FDIC account is and where my business get its line of credit to make payroll.
when the rot gets big enough, there will be no credit and all banks will fail at the same time. the FDIC has 50 billion to cover 5 trillion in insured accounts
is that serious enough?
KTMNYNY: I listened and didn't believe there was a true crisis...."
Your 401k must be doing a lot better than mine.
Well, crap. I got my hopes up for nothing.
seven: "Interest-only doesn't strike me as a problem. It's arms."
There aren't many people interested in ARMS that aren't interest only. I'm not saying they don't exist, but not that often.
I frankly am in the camp that this is not a goliath problem that will cause such a tremendous meltdown. But what do I know?
The answer is that no one knows.
What I think is likely is that the failure to pass a package will lead to the failure of a great number of banks. So you say, so what, right? Banks should be allowed to fail. I agree, Except all of those banks are guaranteed by the FDIC (Wachovia has $400 billion alone in deposits) So the government ends up ponying up the cash to bail out the depositers of these banks anyway and also takes control of the same crappy mortgages and assets in the take-over of these banks that they are proposing to buy in the bail-out. Either way the government is on the hook. At this point, we should try and limit the damage.
If you can come up with a plan to reduce the amount of bank failures on the front end, the government (taxpayers) would save a lot of money, because it only has to handle the bad mortgages rather than entire banks.
The fact is we already committed to a bailout when the FDIC was established in 1933.
Duscany said..."Your 401k must be doing a lot better than mine."
Run that one by Jim.
He thinks 401K's, pensions, etc. aren't effected.
OK, credit where it's due, kudos to Michael on that one. I didn't know that most ARMS were interest only, though obviously 7m and I have them.
Oh, yeah. Dave Lettermen really kicked McCain's ass.
Yeah, wow! Letterman. He sure is important.
Mine wasn't. But I got it in the '90s when the market was just beginning to rebound.
Well, interest-only loans could be something that we should consider doing away with at the residential level. It's not really helping anybody. Isn't the whole point of the mortgage system that we want Americans to own their homes.
As I think about it, an interest-only loan seems like a sophisticated rental from the bank with a side bet that the next renter will be willing to pay more up front. That's about right, isn's it?
Well, Seven, if you really wanted to help people own their homes, you'd eliminate the mortgage interest credit.
That inflates the price of real estate. I mean, let's talk about all the ways the gov't makes things harder under the guise of making it easier...
mcg said..."OK, credit where it's due, kudos to Michael on that one."
And with that I'm leaving while I'm ahead.
The Treasury Secretary said the other day that the current credit crisis was caused by "irresponsible lenders and irresponsible buyers." I know all about the irresponsible lenders. But what about the buyers? I heard that more than half the people who got AltA mortgages lied on their loan applications about their income. That's a federal offense. I knew a guy who spent two years in the penitentiary for that. How come no one is prosecuting these guys? Along with the lenders these bums have helped shove the entire country down the drain.
ARMS themselves are not the problem. IN fact the average 30 year mortgages only lasts about 8 years (people move or refinance) and the average 30 year mortgage is based on a 10 year T-bill. Not much different than a 7 year rate. The only real risk is repricing.
I would be surprised if most 5-7 year ARMS are interest only. Interest only loans tend to be based on 1M or 3M libor or some other short term index.
There is nothing risky about interest only loans either. What is risky is who the loans were made too.
They're saying now, that the adjusted figure would come close to180 Trillion.
It's actually cheaper to just have the Great Depression.
If markets worked as advertised we wouldn't have poverty, pollution, and inequality.
Of course we would.
We would have pollution if the benefits tied to it (e.g., cars) were greater than the negatives of pollution. We would have inequality because people aren't identical to one another. We're not all equally smart, good looking, and wise -- and even if we were, random chance would still meddle with things and create inequalities anyway. Finally, poverty is just economic inequality -- we "inequality", above.
In any event Bush is mistaken. The market is functioning exactly how you'd expect it to function after a speculative bubble when people are left holding worthless assets. A more accurate way to put it is that we aren't going to like where the market takes us from here. :)
"As I think about it, an interest-only loan seems like a sophisticated rental from the bank with a side bet that the next renter will be willing to pay more up front. That's about right, isn't it?"
Right! Absolutely.
If the borrower has no "skin in the game" then what does he have to lose? Nothing. That's why doing away with the mandatory down payment was a really really bad idea. If you have nothing of your own in the deal other than paying a monthly "rent" and your loan goes "dixie" so what? Right? Just walk away and leave the man/bank/whoever to take care of the mess.
There should be no interest only, no down payment loans allowed. ARMs only for those who can qualify for the jumped up rate afer the ARM period resets.
Thanks, DBQ!
I don't see a problem with what Michael quotes Palin saying. Rewarding poor decisions on either end of the issue only encourages more of the same.
This isn't rocket science, it's common sense for people who realize that the function of government is not to protect you from all your mistakes.
I don't want government to act like my parent and tell me how I have to manage my money. I also believe that there certainly are predatory lenders, including those who simply don't *care* if they're writing a good loan or not because they know they can turn around and sell it and will not face the risk of the person they've "approved" not being able to pay.
It's bad when people *assume* that a mortgage company is being watched by the government so what they offer must be acceptable. We'd be far FAR better off if we saw these people (and realtors) as being ON THE OTHER SIDE. They make more money when WE over-extend ourselves. Stepping in and making the bad stuff all go away is just going to make everyone assume even MORE that we're being watched out for and don't have to watch out for ourselves. The long term result may be an even worse situation.
And lenders who make loans that people can't afford absolutely should have to eat it!
...for the thorough explanation.
Sorry, but I just read this and had to let Jim know how wrong he's been all day...after calling any number of people "liars."
Regulatory filings indicate that McCain campaign chief Rick Davis remains an officer with his lobbying firm.
Rick Davis, John McCain's campaign manager, has remained the treasurer and a corporate director of his lobbying firm this year, despite repeated statements by campaign officials that he had ended his relationship with the firm in 2006, according to corporate records.
I think that if the government acquires your loan in a bailout and "forgives" part of the debt, there should be an excise tax on any gain made in the future by the home owner. For example, if a guy takes out a $100,000 loan in 2006 to buy a $110,000 house, and his house declines to $90,000 and the government forgives $10,000 of the loan in 2009 (to keep the guy in the home). If the guy later sells the house for $110,000 5 years later, the $20,000 gain should be taxed at say 50%.
This way, the bailed out home owners would still have the incentive to increase the value of their homes, but would also not get a totally free gift from the taxpayers.
Well, interest-only loans could be something that we should consider doing away with at the residential level.
The purpose of an interest-only loan is to let people with unstable incomes get a mortgage. Salesmen, for example, or contractors -- people who make good money, but not in a consistent manner. The idea is that the monthly payment would be very low, and then the principle could be paid down then that big commission check comes through. Unfortunately, they ended up getting offered to people whose incomes were consistent and too low to ever pay down the principle.
The idea itself isn't a bad one. In practice, though...
Bunny: Most ARMS are based on the hopes of appreciation versus equity.
AlphaLiberal said...Oh, yeah. Dave Lettermen really kicked McCain's ass.
Larry "Bud" Melman's ghost is planning to haunt Obama in his dreams just to even the score.
Regulatory filings indicate that McCain campaign chief Rick Davis remains an officer with his lobbying firm.
Lobbying firm? What, even if this were true, it doesn't take away the fact that John McCain was proposing legislation in 2005 to get rid of Fannie and Freddie, while Barack Obama was collecting $100k and urging Fannie and Freddie to make more subprime loans.
It also doesn't change the fact that Obama has close associations with domestic terrorists, white-hating preachers, and got a bribe from Tony Rezko so he could buy his Chicago mansion.
7m -- The Fed wouldn't raise interest rates in a tight money market since the money supply is already over-constricted and they wouldn't want to constrict it more.
As far as inflation, I'd agree with the drll sgt that deflation is far more likely. Again, that's what usually happens in a tight money market. Hyperinflation would require a significant decrease in productivity along with a significant increase in money supply. I'll leave it as an exercise for the reader why that's unlikely.
"Bunny: Most ARMS are based on the hopes of appreciation versus equity."
Only an idiot banker lends on hope or that the rates won't change.
Hmmmm. Hope... Change...? familiar?
This is not the Michael I know.
I know you don't want to hear it from me, dude, but thanks for posting something relevant and topical.
The purpose of an interest-only loan is to let people with unstable incomes get a mortgage.
This isn't necessarily true. If you can afford to pay $1000 a month for a mortgage you could get a much bigger house if your payment was $1000 interest only. Not only do you get a larger tax deduction on your $1000 payment (all interest), but you get say a 3% appreciation on a $200k home rather than a $150k home. The appreciation difference may be as much as the principle you would be paying on an amortizing loan thus giving you more equity in your house on the interest only loan than your amortizing loan over time.
3% appreciation
What I wouldn't give for a three-percent appreciation right now.
And if that doesn't work, Sloan, the rest of us shouldn't bail you out.
The problem here is that there are so MANY that saying "too bad, so sad" isn't really an option.
Analysis, please, and topical links only. This isn't about scoring points. This is important.
It is. And I don't know about you, but I am tired of watching people swordfighting with shadows.
I need a little break. See you all around.
Cheers,
Victoria
DBQ, just wanted to say thank you for your insight. Commenters like you are worth your weight in gold during times like this.
Cheers,
Victoria
"The appreciation difference may be as much as the principle you would be paying on an amortizing loan thus giving you more equity in your house on the interest only loan than your amortizing loan over time"
Good point from the consumer's viewpoint. From the Bank's (as a former lender)standpoint you want to see the principle of the loan paid down at some point since property/collateral doesn't always appreciate or could depreciate. I know.....we forgot all about this in the last few years. Plus as a lender I want to know that the loan is decreasing against the appraised value of the collateral in case I have to foreclose or repossess. Would anyone in their right mind give an interest only car loan?
If you can afford to pay $1000 a month for a mortgage you could get a much bigger house if your payment was $1000 interest only.
Yes, but that's not why the loans were originally created.
"the rot is leaking to the commercial bank side, e.g. where your local FDIC account is and where my business get its line of credit to make payroll."
_________________________
Those banks issued faulty, irregular subprime mortgages to illegals, and they get what they deserve.
Even so, then toss some money to cushion the FDIC....but that's not what the Paulsen Plan is about. They want to pump up Brokerage Houses and Investments. Sorry----people dumb enough to play the stock market knew the risks. Let them take the consequences of risky investments.
Help the FDIC ONLY, and let everything else bottom out.
I really *do* have an issue with housing as investment.
Shelter is a basic human need and the behavior that can ensure that the need for Shelter is met, ie., owning your own home (as opposed to the bank owning your home) is actively discouraged. We get better tax breaks if we owe more and own less, for example. Sloan just described why buying way more than you need is a good "investment" choice.
Well then, your investment is going to be subject to the whims of the economy and your "Shelter" may disappear from under you.
And every single time we sell one and buy another a whole host of people line their pockets with our money. Sure, we may make some profit, but it's a little bit like taking two steps forward and one step back.
If we stayed in the same little house a whole lot of people would have to work for a living, we'd pay off our mortgages, and our neighborhood would be filled with neighbors we actually know.
And without a mortgage at the limit of what we can afford and paying mostly interest, we'd have that money to invest in some other sort of investment where if we lost it, all we'd lose is money.
I say we go back on the Gold Standard, and the Mercantile System. That was back when people used regular loans to buy houses.
Anyone with a sub-prime mortgage...YOU'RE ON YOUR OWN. NO BAILOUT !!!!
Bunny: "Only an idiot banker lends on hope or that the rates won't change."
ARMS have been around forever.
What is your point??
I know a couple who lives down the street who've refinanced their home 8 times.
They've taken out eight different mortgages and virtually used their home as a piggy-bank.
And, these are professional people, college-educated too. Let 'em drown !
(Of course, I wouldn't tell 'em that to their face !)
Watching this speech, I can't help but remember that - particularly at times like this - it's a pain in the neck that Newt can't be President. Maybe if McCain does kick during his term, Palin can nominate him as her veep.
I like the idea Megan McArdle's kicking around, of having the government take over bad mortgages (hopefully at a discounted rate so as not to reward the lender) and then renting out the houses.
If the current occupants can afford the rent, good; if not, tough cookies for them.
blogger and a bad connection are eating my posts. Grrr.
The problem with the original bill sent to the Hill is no oversight. As far as I could tell, the Treasury Secretary could offer to buy "bad" loans for whatever amount of money the Secretary decided, with no recourse. So if his buddy owned a bank, he could give him a sweetheart deal. That's horrible policy.
Do you trust the treasury Secretary appointed by President Obama to be a good guardian of your money?
revenant, I have to say that having the government becoming an even bigger landlord than it is now is only a good idea if the bureaucracy does not grow. And I don't see that happening if the Govt is taking on more tasks.
I don't like McArdle's idea. Instead, make the banks use every ounce of due diligence to rent out the places they foreclose, with right of first refusal to the foreclosed owner.
Problem solved in the same way without government red tape.
Instead, make the banks use every ounce of due diligence to rent out the places they foreclose, with right of first refusal to the foreclosed owner.
That doesn't seem reasonable. Why should the banks be forced to rent to the same deadbeats who screwed them out of their money in the first place? The deadbeat home "owners" are the root of all this trouble. There's plenty of blame to go around, but at the bottom of every bad loan is some asshole whose eyes were bigger than his paycheck.
John McCain's request to delay campaigning and this week's debate is:
An effort to help the economy 24%
A political gimmick
71%
So if his buddy owned a bank, he could give him a sweetheart deal. That's horrible policy.
Under "Congressional oversight" he has to give sweetheart deals to the buddies of every Senator on the committee.
Just require that the details be completely open to the public. Let *us* oversee things. If he gives his buddy a sweetheart deal I'm sure we can find some federal law to string him up under.
I agree, Rev, but if we are going to keep foreclosed owners in their homes, it's (strangely) much more libertarian to make the banks do it.
As an aside, this is where having ginormous banks is a problem. Smaller banks could create revenue streams with rental income.
maxine: "They've taken out eight different mortgages and virtually used their home as a piggy-bank."
But wouldn't it all depend on what they did with the money?
If they've spent that time buying Apple stock they've made a fortune.
If they bought gold they'r in very good shape.
If they bought oil futures they're extremely wealthy.
Using your home to get cash for investment purposes is as old as the hills.
If they blew it, that's another story, but it sounds like they still own the property.
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