gr8

uh 2ndstill scary time

Nouriel – Does this plan if it goes ahead) means that the bear market in financials is over?

Some kind of government action is unavoidable – glad to see you state that. I really enjoy your explanations of the government actions you think are the best in terms of reducing moral hazard. To me, it looks like there is too much socialization of losses onto the taxpayers’ backs. But some opinions out there say that the AIG deal may have actually been pretty good for taxpayers.

The real question is now that the gov’t is dumping everything into this deal what if the plan fails. If we are comparing to 1929 the gov’t had a better balance sheet and the ability to just print money was stiffiled by the gold standard. My fear is that if the collapse continues what then. I see no change in the fundamental conditions. Business is slow people are slow to pay what they owe, including the gov’t.

Dr Roubini,By purchasing the loans at a discount the banks will be capital impaired.. and its ability to create credit via the fractional reserve system to feed the economy is still not functioning..besides households has developed some kind of debt phobia, .. without increasing the money supply and debt the system crashes and we get a great depression.. no?what do you think abt the austrian’s system of free-banking? isnt this a more sustainable system than the fractional reserve banking system?mrskeptical

We are at a crossroads. We can only hope that our legislative leaders display the kind of courage you demonstrate on this site and on the airwaves. The NY Times should change your moniker from Dr. Doom to Dr. Courageous.

nobody playsnobody pays,because we can’t believe,what the govt. says.

Dr. Roubini:I think you’ve done an excellent job of aiming the relief where it’ll do the most good – at the household. The household is the linchpin around which the entire economy revolves, and reducing the expenses of the household (mortgage payment reduction) is absolutely crucial to freeing capital for re-investment in the “what’s next” economy. This is excellent. Capital for re-building is going to be more scarce in the future.Secondly, I like the part about recapitalizing the banking system. While I believe our current retail banking system suffers the same systemic problem as the Wall Street IBs, e.g. poor asset allocation decisions, it may be worth saving them if they can re-discover what they’re in business to do: allocate resources to the highest use. Housing is not productive enough to base an economy upon.You’ve also done a good job of blunting the political screaming of preferential bailout. This is a blanket bailout for the entire economy, and we’re going to need it.What I see as missing in the debate today is a discussion of why the banks, the IB, and the nation at large made such disastrous asset allocation decisions. Unless this issue is addressed, all the re-bailing and socialization isn’t going to change anything.But that task should be taken up by others, such as the President. That’s his job. He can’t do it, but that ought to be a question for the voters in this next election.But for you, Dr. Roubini, please accept our thanks.Lastly, there is a good background piece on RTC-like entities from the Financial Times (Martin Wolf) at this link:Considerations about RTC-like entities

Are we headed for deflation, inflation, or stagflation? Can anyone answer this question?

Defaultion…

NOURIEL & ALL OTHER RGE BLOGGERS….IMPORTANT.Listen up, you are officially on the clock. I have a high end contact at MSNBC that is waiting for a letter from me. I have a couple of hours!!! Noon, NY time.I explained the danger we are currently facing (having a committee/group of people working on a resolution THAT DIDN”T SEE IT COMING IN THE FIRST PLACE!)The implicit danger of these “like minds” stands to potentially make an epic move that should be scrutinized by obtuse minds that have the ability to see the eventual domino effect of their actions.I am asking him to call for an outside/independent committee of economically minded individuals to scrutinize any plan before it goes to action. A butterfly affect committee.I implore you to write any ideas you have regarding your concerns and I will gladly add constructive thought. (please give me consent to use your ideas.)Yours truly,Rich HartmannA.K.A. Miss America

Professor, you are assuming that the government has huge amount of money sitting in the treasury to be used to do the bail out? You are assuming your bail out plan doesn’t cause the collapse of dollar and the expedient fall of the American empire? Tell me, can you pull yourself out of water? Can you lift yourself up in the air? The fact of matter is no matter what the US government does, the Americans still have to pay back all the debt piled up in the last couple of decades. Anything you or the government are proposing is a re-distribution of debt, if this is not mother of bailout, what is? Yet again, you lost my respect. You are wrong.

I think you don’t understand that in a closed system, you can’t create something for nothing. The relief of debt to one person means somebody else has to pick up the debt burden which he/she does not deserve. Are you a socialist, professor? What’s difference between you and Paulson/Bernanke? You are the socialist for the lazy?

Nouriel… can I quote you?

This systemic crisis will only be resolved in one way – in the interests of capital.This was never about us, and it’s not now.In her book, “The Shock Doctrine,” Naomi Klein speaks of “disaster capitalism,” using a crisis to pass legislation that would never stand a chance during normal times.There will be no relief for the great unwashed, except for window dressing.

We are now a “no recourse” nation. No recourse when borrower wishes to default on RE. No recourse when sweeping imperial executive decisions profoundly change the nature of our capital markets…and finally erode our freedoms and ability to confidently trade among ourselves. No recourse when gov’t market-fiat-dictates destroy a portfolio participating under presumption of unmanipulated markets. Finally “no recourse” to preserving the value and stability of our means of exchange as Treasury plays fast and loose with our currency on forex and with gigantic and expensive backstops on almost all flagging corporates. They have taken our ability to act at our own direction for our own self preservation and have “corraled” every citizen in unwilling participation to weaken their liberties and ruin their financial underpinnings.

All, this is my first time writing on this blog though I have been following it for a while now. I have a question/concern.I entered into an ETF (shorting Financials), obviously the past two days (including this morning) it has tanked. Should I just get out of it and take the hit on the chin or are financials coming back down eventually? If people can’t short, how can financials go anywhere but up?Any thoughts are much appreciated…Thanks

You would already BE a planet of nothing but millionaires, if only your species had not been driven far from their own good sense.Are you ready yet to stop the Global Insanity of allowing unlimited personal fortunes? Are you ready yet to replace unlimited personal fortunes capitalism with pay-justice capitalism? Are you ready to stop allowing people to be paid for things that are not work? Only work creates wealth, you know.If you don’t believe me, try this: Take a dollar bill out of your wallet, and tell it to fix you a sandwich…Tell me again? What was the very good reason you humans ever had for allowing people to be paid for things that are not what creates wealth??Tell me: if you woke up tomorrow to find your world an equitable place of peace and plenty for all, what sane, sound argumant could be presented for a return to a wealthpower inequity factor residing in the billions, like you currently go to bed with every night?

All banking execs that participated in these last 7 years’ fleecing should be marked for party affiliation and banned from further active roles in the capital markets. Like prominent Nazis after the defeat of Germany, their toxic logic and destructive psychology must be sequestered from the larger society. Banning them from their selected profession and any future finance-related employment would be one of the most systemically cleansing actions we could take. And it would serve notice for all future participants that their behavior would have lifetime consequences for them. It may be a large step in resolving the moral hazard the federal government has been so enabling of late.

I also suggest a short list of reforms like you have mentioned in the past1)Remove the banking secrecy laws and replace them with TRANSPARANCY.2)Restore the Glass-Steagall Act and enforce REGULATIONS especially in the creation of credit.3)Return to the gold standard or require Congress to VOTE on manipulating the money supply.http://en.wikipedia.org/wiki/Bank_secrecyhttp://en.wikipedia.org/wiki/Glass-Steagall_Acthttp://en.wikipedia.org/wiki/Gold_standard

Debt phobia is the greedy bankers own fault. Usury laws were gutted and U.S. creditors have taken full advantage of that. Who wouldn’t be afraid of a line of credit with a changeable interest rate that seems to only be limited by the creditors calculations of “what the traffic will bear”?

@Miss Amierica: THE TAXPAYER, THE TAXPAYER, THE TAXPAYER! Champion the perspective of the hard-working, family-raising people of this country who trusted (unwisely) the “FIDUCIARIES” of our public trust and treasure, who now have usurped power and control of a democratic system to bail out crony collegues and “like minded” associates. I totally agree in independent oversight, however a “9/11-type commission” is not the answer. There you had hand picked commission members who rubber stamped a rushed, and superfulous patrionizing report. We need better this time. We also need ann oversight committee to have indictment powers to maintain judicial legitimacy. This debacle transends the financial markets into the realm of constitutional liberties and freedoms affecting all Americans, and all those peopel around the world who (still?) aspire to our (former?) ideals.

I understand the need for some government intervention, and I also realize that all these defaulting homeowners affect the value of my real estate, but as someone who has been financially responsible all my life–and lived under my means–I can’t help but be a little bit ticked at the prospect of people who made a habit of living beyond theirs getting something of a free ride. If you bought a Toll Brothers house when you should have been living in a THP townhouse, that should be your problem. Same with the people who took out second mortgages and maxed out their credit cards to buy furniture at Williams Sonoma.

There is a potential for corruption in any bailout. You might be right about the smallish number of people who would qualify…I don’t know about the first time buyer clause; maybe owner occupied/primary would be a better measure.If there absolutely will be a bailout and the choice is between bailing out the bankers vs. the borrowers do you truly believe that the bankers are more deserving?

I would point out all of the unintended consequences that have flowed from previous actions taken to improve things. A good example can be found in a Naked Capitalism post:http://tinyurl.com/4yqvjx“1) Congress raises conforming limits on Fannie/Freddie to help unfreeze the mortgage market. Result: agency spreads skyrocket, bringing down Bear and a host of hedge funds. Mortgage markets still remain frozen.2) Fed opens TSLF to unfreeze mortgage market. Result: Carlyle goes bankrupt as people rapidly arbitrage the difference between holding MBS in firms that can and can’t access the new credit facility. Mortgage markets remain frozen.”If TPTB couldn’t see the magnitude of what we are dealing with, what makes them qualified to offer a solution?

Turning Japanese I think Im turning Japanese I really think so.

PTMNice work.

Thank you John.A VERY IMPORTANT ANGLE!!!!

I think to a large extent the disaster parallels the increasing share of finance in the general economy. This occurred as fixed manufacturing moved overseas.Believe it or not, New York City used to be a manufacturing hub before it became dominated by the FIRE (finance, insurance, real estate) sector. Economic influence has translated into political influence. The Depression-era legislation which was the uber-regulation of this industry was overturned by a Republican-led Congress and this Congress was enabled by a pliable Clinton Administration.I believe it was Andrew Mellon, Sec. of Treasury under Hoover, whose prescription for the Depression was “liquidate, liquidate, liquidate.” Fortunately for us times have changed. For the moment the Paulsons and Rubins of the world simply want their own back and don’t expect an amputation of the body politic to get it. However, when bankers run amok they should get a dose of chastisement along with a public gift of charity.It’s time to bring back Glass-Steagall and other similar legislation, updated to take into account changes in the financial service sector. The merging/agglomeration of commercial banking, investment banking, and brokerage which occurred during the 90′s is simply not a viable way for a country to manage its capital. Unfortunately, the trend risks becoming institutionalized by the very mergers which have been designed to save investment banks/brokers like Merrill.Certain types of derivatives will have to be banned; excessive leverage outlawed; off-balance sheet transactions prohibited or subject to audit. The mass of capital controlled by any single institution must be limited and firewalls constructed to limit counterparty risk and future contagion.Obviously the banks will say that these measures are archaic, limit their flexibility, and hobble the market. That is exactly right. So the task facing responsible stewards of the nation’s capital is to attack the political power of this sector, openly, directly, and without mercy. This is a multifaceted problem in mass and elite political education and political action.The precondition for this country’s future is an ideological shift away from Reaganism, the market, and the DLC style capitulation of the Democratic Party. The system as we’ve known it for the last 30 or so years can keep itself alive on a feeding tube or we can rehabilitate ourselves as a country.

This is the part of the iceberg that is not beingdiscussed. The HOLC would deal with only part of the credit default problem. Expect the Central Banks to go to 0%.

Excellent post. You have eloquently stated what I have believed for 20 years or so.Props to my Grandpa A. for his rants to us all wherein he explained what government actions reported on the evening news really meant for regular people.

As long as humans fail to get jiggy with the fact that overpay for some has nowhere to come from but from underpay for many, and that this overpayunderpay is legal theft is egregious injustice, and that every theft comes with an angry person attached, and that the violence pollution in your world is exponentially ever-escalating because the injustice of taking people’s earnings off them is injury and humans reliably retaliate injuryyou will continue the march toward extinction you are on until you arrive where you are headed.

I have to agree with you (to a point). We have not bought any new furniture for years, our carpet needs to be replaced, we drive an almost 20 year old car and a nine year old car, we do NOT take fancy vacations, we have a very small credit card bill, and we also save a large amount of our salary each month.What I want to know is when those of us who have been responsible will be attended to, will we be given tax cuts so that we can afford to pay the tuition for our kids at state colleges? Will we finally have affordable health care?Play by the rules and get shafted, live beyond your means and get a bail out.

This requires more then reforming the bankruptcy laws, many people are in debt because of health care costs, and without addressing the cost of health care to Americans bankruptcy changes won’t help.If we were to fund affordable health care for all Americans, we would free up billions maybe trillions of consumer dollars, and many who were forced to charge their health care would be able to have money left over instead of being forced into bankruptcy.

More thoughts…And at this moment a handful of political appointees in consort with a private bank are making these decisions for the whole country. Unfortunately, these appointees have a long history with, and arise from the financial industry. Thus, a reasonable person must ask: “Do these policy makers have a conflict of interest that favors financial businesses over the taxpayer”? Past behavior suggest that such a conflict-of-interest does exist.The policy makers argue with furrowed brows and worried looks that the effects of “not doing anything” are much worse than having the taxpayer help out. But there is no explanation as to what the possible outcome(s) may be. They are asking the American public for approximately $1 Trillion dollars of support based solely on their opinion! (Not counting the cost of inflation.) Don’t we, as a country, deserver a better explanation before they reach into our pockets and to our present mountain of debt?

I notice how people who want a revolution almost NEVER actually produce a solution….they just criticize those who do.

How can consumers ever get out of debt and save if their cost of living is far exceeds their take home pay?They can’t. And we aren’t supposed to either. Check out the last “bankruptcy reform” that made it more difficult for consumers to discharge their debt. If you should happen to avoid or pay off personal debt then, as a U.S. citizen, you are still burdened with a share of the national debt paid in taxes and deliberate inflation. It’s like debtors prison without the bars and the neat part is the jailers don’t have to feed and house the prisoners. At least they haven’t for awhile now…maybe that’s what the FEMA camps are for – new debtors prisons.Check out “The Creature From Jekyll Island” on where this started and Ron Paul’s manifesto on where is might end.The funniest part is that if they push this thing too far the whole thing may backfire on them with results ranging from loss of wealth to armed revolt. But have no doubt the bankers have the upper hand.

Weekly Leading Index Fresh 5-yr LowReuters19-September-2008NEW YORK, Sept 19 (Reuters) – A weekly measure of future economic growth in the United States fell to a fresh five-year low although its annualized growth rate ticked up slightly, a sign that a U.S. business cycle upturn is not in sight, a research group said on Friday.The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 125.1 in the week to Sept. 12 from 125.9 in the previous period, revised down from 126.0.Its annualized growth rate ticked up to negative 11.5 percent from minus 11.6 percent in the previous week.Higher jobless claims and lower stock prices weighed on the index, said Lakshman Achuthan, managing director at ECRI.”With the WLI level sliding to a new five-year low, a business cycle recovery is not yet in the cards,” he said.Privacy Policy Terms of Service

Agreed. It might seem far afield from the current meltdown, but really it is related. I actually addressed this in a survey done by one of the Presidential campaigns. If we are going to add billions in debt to bail out the banks then why not buy out/off the private health insurers while we are at it? What’s a few more billion? At least taxpayers would benefit directly from single payer healthcare. Also our auto manufacturers would reap a big benefit so maybe we could kill two birds.

David M. Walker – Former U.S. Comptroller Generalhttp://en.wikipedia.org/wiki/David_M._Walker_(U.S._Comptroller_General)

Dr. Roubini is one of the few clear voices on what is ailing the US economy and something no one wants to talk about. Yes, you heard it..this is a problem with the fundamentals of the US economy i.e. a problem of over expensive and unaffordable housing valuations created by outdated fiscal policies such as the mortgage interest deduction and the policy of zero capital gains taxes on sales of owner occupied housing apart from a zillion other such real estate propping laws and policies on the fedral government’s books. Such laws and susidies that cause speculation in real estate at all levels of real estate, result in over expensive housing and ofcourse American’s incomes cannot keep pace and have not kept pace with the phenomenon…thus the need for 0 % down loans over the last several years.Taking the bad stuff off the balance-sheets of the banks will not increase the flow of credit to housing and will not change the situation of unaffordable housing even today in large parts of the country. Neither will it provide any confidence to the average American about the fundamentals of the US economy or their prospects of doing well in it.For the short run supply side economics of bailing out financial institutions will not work at all, only cause some more ups and downs in the stock market, thats it. The policies of the US government should turn towards truly alleviating the issue of unaffordable housing and give true subsidies to the tax payers from the tax payer’s funds as opposed to bailing out large corporate entities through continued free market ideologies.

How can you force a bank to sell the bad asset at a low (realistic) price if the bank doesn’t face bankrupcy? Isn’t that the problem all along?

GOT GREASE?

Prof. Roubini,I think the modern day version of your HOLC is the ARM. We can relink the ARMs to a new fiscal index and that will generate public financing at low fiscal rates.What a damp squib #2! I did get my RTC (Permalink below) …http://wallstreetexaminer.com/blogs/winter/?p=1537#comment-212148

Prt1stAskQLater wrote:Economist link for the Pile Up chart …http://www.economist.com/business/displaystory.cfm?story_id=10925616Given all the USD recycling, the US is ending up an high alpha (relatively better off) low beta economy.Countries pegging to the dollar are going to face high inflation. Those floating (like Euro zone) will face deflation. It’s a stark choice really.That means Ben can print without fear. The US is a hedge fund now with Hank at the helm. Once all the printing (including fiscal stuff like an RTC II) is done the regulatory questioning should be in earnest.1. Regulate Investment Banks (can’t loose the invaluable Investment Banking process knowledge)2. Create a ‘clinical trial’ system for financial products just like medical products. Derivatives if not seasoned properly can kill the system (just like bad drugs).Enjoy the ride!Print First Ask Questions LaterPosted on 07-Apr-08 at 2:12 am

From a safety net in the Abyss,Print First Ask Questions Later.

We have a long history of debt forgiveness.Smearing with the socialist slur is useless, futile sloganeering.Do you think it would be better if we brought the place down around our ears?I don’t.

“IS SHOT SELLING TO BLAME?”(1) In naked short selling of the stocks the losses are theoretically unbounded since the price of a stock may sky rocket. Thus, short selling has a larger downside risk.(2) In a long position however, the losses are bounded since the price of a stock cannot be lower than zero. Thus, long position has a smaller downside risk than short selling.(3) If some investor does naked short selling, he/she shorts the stocks because there is a belief that the prices will go down. However, if it was for manipulative purposes then that investor needs more resources than he/she would need for manipulating the stocks by going long. This is because of the fact stated in (1). Therefore, the likelihood of manipulating the stocks by going long is higher because one needs fewer resources to do so.(4) Thus, by allowing short selling, in net, we may possibly decrease the effect of those who manipulates markets by going long.(5) It is not up to the dudes in the administration to decide on these matters without having scientific evidence. Well, in fact, given the theory of the pricing models, we end with the case in (3) and (4).(6) US have a shameless media; A media as corrupt as it can get.

No wonder the stock market is up…so many instances reportedly bidding on or “looking to buy” so many other instances.

MA:1. Package this as “Socialize the Profits”. People think socialization of the losses is fait accompli. Give them a chance to socialize the profits, and you’ve got instant interest and political momentum.a. Require clawbacks. No bailout w/o bonus clawbacks to 2004. Divides stockholder .vs. mgmt interest, stockholders will wage instant nuclear war on mgmt if mgmt doesn’t accede to this demandb. Price assets at transfer at lower end of valuations, and give delta on disposition of asset to bank.c. Put in operating mechanism (contracted out) that can make money on the asset while under gov’t ownership.Make the bank take the risk of further meltdowns in value, pit stockholder .vs. mgmt (who wouldn’t love to see that happen?!).Above all, the theme is “socialize the profits”. Structure the deal like a workout, with the public as partner on the upside. If bank doesn’t go for it, keep walking. They’ll be back shortly.Make management scream. If they’re not screaming bloody murder, the terms aren’t right yet.

The overpowered wealth giants have the upper hand – for now.Wealthpower is only the second-greatest power. The people have always had the greatest power. The people have always risen up and brought down the rich eventually, in one bloody revolution after another. See the sorry his-story of humanity.But after every bloody revolution, the people re-erected wealthpower giants, because the people have never figured out that overpay has nowhere to come from but from underpay…and there is no way to justify forcing many people to be underpaid, in order to overpay a few. People still today are full of self-contradictions. The system believes both that if you don’t overpay the rich, the rich will stop working and if you don’t underpay the masses the masses will stop working. Clearly self-contradictory.People are full of sub-rational notions about economics. People think that it is the banker or businessman who creates jobs, for instance, when it is the people themselves who create their own jobs: jobs are created/supplied by DEMAND.The fact that our economic systems are rife with myriad legal thefts is kept from people’s radar. Humans give Nobel Prizes to economists who declare there is no free lunch, while wealthpower giants have been eating for free all along. People believe in allowing a man to keep his overfortune intact even after his death! Private inheritance is freegratis money to heirs who had nothing to do with creating the wealth they receive – the wealth was created by people who did the work but were allowed to take from the pool of wealth only part of what they sacrificed to contribute to the pool of wealth.The only revolution worth having is the lasting revolution: the peaceful revolution where the only casualty is the world’s worst idea ever, the inherently unjust and ultimately fatal idea to allow limitless personal fortunes – which are not composed of self-earned wealth but of other-earned wealth.

I agree Wolf. Nothing will stop this implosion of the US now. History is repeating itself.

Some pertinent comments on the latest “Rescue Plan”1. This is an outrage against American taxpayers. First of all … the Fed already has opened all the doors and all thw windows to accepting “toxic waste” mortgage assets. We’ve already got the Treasury Secured Lending Facility, the Primary Dealer Credit Facility, the Treasury Auction Facility, plus other mechanisms for accepting junk securities. The large banks have alreasy been offloading tons of this garbage directly on the Fed over the last twelve months. So what are we supposed to believe about a new “Rescue Plan”? What kind of mortgage assets could be dumped on the US Gov’t and the taxpayers? Well … I guess these must be the worst assets – so bad that the Fed wouldn’t even take them. So let’s call these assets the “Radioactive Slime” mortgage assets. That’s the basis of the plan ????? They’re gonna’ just dump radioactive slime mortgages directly on the bill to be paid by the US consumer. You’ve got to be joking.2. I did warn people on this blog a couple of days ago. The Dow is showing signs of big jumps in volatility now – up and down. This is not sensible trading. This is trading based on strong emotions. Terror and hope. That’s a dangerous market in which to be making investments.3. At least Paulson was candid today – and admitted that they were placing the US taxpayer on the hook for hundreds of billions of dollars. Actually, it’s probably well over a trillion dollars (or maybe two or three by the time its done). What Paulson didn’t say is that this plan is likely to take down the careers of everyone in the Fed, Treasury, SEC, and the Finance and Banking Committee. Not to mention the Republicans’ chances of getting elected again.4. The global CDS market is valued conservatively at $63 trillion, and could well be at $70 trillion right now. These are notional values, but clearly the sum of money involved is staggering. Did anyone happen to mention that this enormous CDS scam exploded up until the end of 2007, and then kept expanding ever larger in 2008?? Did even one person in Washington make any effort to regulate this incredible Ponzi scheme? Not one. Now they think they can save themselves from this disaster? Give me a break.Some time ago, London Banker made a simple but highly relevant comment on this blog. In Washington – are there any adults left in charge? Well … apparently not.PeteCA

A failed doesn’t ‘need’ FDIC coverage beyond what can’t be recovered from the liquidated assets. The only difference, as you state, is that the shareholders and management would be wiped out, forced to compete in the real world marketplace along with Joe Sixpack for real work. Sound financial institutions would continue to exist, and new banks would emerge to provide credit and financial services as needed – but the country would have a fresh start. Difficult times during the transition? Certainly. An improvement over bailing out the absolute horsepucky we have now? Absolutely!

ALL OF THIS STUFF STILL DOESN”T SOLVE THE ORIGINAL UNDERLYING PROBLEM…AN OVER-SUPPLY OF HOUSES! HOME PRICES WILL CONTINUE OT FALL AND NOW, THE US TAXPAYER WILL EAT THE LOSSES!

Isn’t it funny that they can gear up the printing press for this bailout of those who got us into this mess, but Social Security definitely cannot be saved?

And they’re still building more, which completely baffles me.

Capital flight! Yes, why should I stay around here and be responsible for all the debts that this government is racking up when I wasn’t involved in any of it? I have _never_ owned a credit card. I have ZERO debt! I will take what little hard-earned money I have left and leave this country. Others are likely doing the same.I’m tired of bailing out the rich crooks!

From Minyanville:”This is a new world, folks. Day one. The dawn of a new era and something none of us have ever seen.The system was broken and rather than let it fix itself through time and price, history has forever been artificially altered.It is, in many ways, uniquely sad.Be that as it may, we must remain lucid and play the hand we’ve been dealt. To that end, I would urge Minyans to take a good, hard look at their risk and use price to their advantage.The rising tide will lift all boats in front of a perfect storm that awaits. It may have been pushed out on the horizon but it’s there.And now it’s really mad.”

MA“…but rapid legislative action is urgent; if legislation is not passed in the next few weeks Congress goes into recess and does not return until next February…”. TIMING, TIMING, TIMING…Do any of you (some of the brightest of the brightest) honestly believe we’re at this juncture due to happenstance – one week before Congress adjourns???Furthermore, do you honestly believe Congress can adequately address this financial crisis in a week (i.e. the most severe since the Great Depression)?Call to mind your own Congressmen and Senators, and ask yourself if they have the ability to balance their own check books, let alone the capacity (i.e. credentials) to address something of this magnitude? Yeah, I didn’t think so.But with the enlightened guidance of Bernake, Paulson and their staffs, together they’ll be able to cobble a solution in a week? “Who’s zooming who?”MA’s on to it; what’s needed first is a thorough objective vetting of the “crisis”. Convening a blue ribbon commission headed by Dr. Roubini, and charging it with presenting its findings and recommendations to Congress by the end of October seems appropriate.But Congress will be out of session. The Constitution empowers the President to call Congress back into special session in the event of emergency – even if it’s a week before the general election. Their inconvenience is the least of our concerns.But what about continued market volatility? Let it swing, equity’s are still over bought, and have a lot further to fall.Guest on 2008-09-19 08:48:00 Sums up my concerns best “…”disaster capitalism”, using a crisis to pass legislation that would never stand a chance during normal times.”

Pros of the bailout:”WILL SAVE AMERICA IN THE SHORT TERM” -Will curtail the systemic collapse of one and all sectors.CONS:-1 trillion $ debt financing-Reduced Gov. spending (lower growth)-In the longer run, the debt will be paid by tax-payers money………no other way as US already has -ve NFA-Reduced US savings-Reduced credibility in the world markets-A new high for commodities, as growth will pick up(but will remain sluggish)

DISASTER IN FINANCIAL STOCKS NOT OVERDespite market euphoria, I think that it is unlikely that financial entities will walk away from this mess unscathed.Financials are going to finally remove the vail from their level 3 assets and be forced to mark them down drastically. With this much of the publics money being used in an election year, TPTB will be not be able to coddle the stockholders, just like they didn’t in the other bailouts. While banks will continue to function, Paulson’s plan will likely wipe out stock holders. The financials are flying high today, but soon they’ll be grounded.

Sh*t! I just now see your comment!Rich, sei un grande, in bocca al lupo.

It really is just that simple, isn’t it? Others are trying to conjure up fantasies, such as being able to create energy or that technology (which is ONLY a process for manipulating REAL resources) can SAVE us.It’s the rich man’s game of convincing everyone else that if they just work harder for the rich that they too will become wealthy… When will people learn?

The government should also guarantee every citizen can enjoy free education, free health care, high pay jobs, comfortable and large house, worry free retirement and live at least 100 years old.

Excellent concise summary of needed remedial actions by government and regulatory agencies. Once upon a time in America any normal citizen stood a chance of making money because of such regulations — wealth building had no relationship to political affiliation or corporate connections or identity. We need to reinstate basic protections for legal, convervative wealth building.

Gloomy-Hank’s TARP will just give them par for all their junk and since they are carried at substantially less in level 3, they will actually hav eHUG gains! Then, the tax payers will eat the loss when the stuff is auctioned off for .20 on the $1.

UNINTENDED CONSEQUENCESFrom Naked Capitalism:Last I looked when I was short a stock the broker borrowed the stock (yes, Virgina you do get a borrow) and sold it. They then had cash.That cash was not available to me – it was pledged to whoever provided the stock to remove or reduce the risk that the stock won’t be returned.That means it is generally available to the broker (who will generally lend me the stock from their inventory or margin or prime broker clients).Now there are a few hundred billion of short-sales out there. Probably more than normal – but a lot in almost all markets.And those short sales produce cash balances of a few hundred billion, most of which are available to Wall Street brokers.If you ban short-selling those balances will taken away from Wall Street brokers.That would be rather unpleasant. Last I looked the debt market was skittish and was hardly going to replace that money.So I conclude that the SEC in their “infinite wisdom” are going to stick the knife into Wall Street and bankrupt the lot of them. For political optics. So they can be seen to be doing something about short-selling.LOL

Can the institution created by the FED to take these bad mortgage securities just hold them to maturity? That way the losses would only be for non-payment of the underlying mortgages. Securities don’t always have to be traded. Just sit on them till the last mortgage is either paid or foreclosed on.The losses will still be huge, granted. And the ones who got us into this fix should be thrown in jail and have all their assets confiscated and given to this new institution to cover the losses on the security. Yeah, like that will happen.

I think such an outcome is not politically possible. Hank has been tough on stock holders so far, and it would be a political scandal if the stuff cannot be disposed of at close to the price paid to banks. The politicians have to look tough on banks, or the public will start to yelp.

why dont just ban selling the houses below costs?

Professor Roubini’s plan, as written, seems to me to leave unresolved a big problem that he acknowledges, but does not clearly indentify how to fix: How to ensure that the banks and other holders of bad debt will give up this debt, get it off their balance sheets and give it to the HOLM (government created organization). What if the banks, etc won’t take the hit and decide to hold onto it, hoping the economy problem will be resolved and they can wait it out? If they hold onto it, they will not be able to make new loans which clearly is the way out of economic recession. Can the government force them to sell the debt?Professor, if you could complete your solution to this problem, it would help me, for one, to support your plan.

Americans become capitalists if the markets are doing well and socialists if the markets are not doing well

I see it as 2 problems. The immediate debt problem. And the wrong resource allocation that engendered it. I think they need to be approached separately. There is reason for optimism. Look at today’s comments. Action! I wish I had more to offer.And you are exactly right about the demographics which have changed. This has to be considered in future resource allocation. It was one thing for the US to subsidize mortgage rates in the 1950’s when there was such a demand for starter housing. Though you could argue that that was wrong too. But it’s most certainly different today when we continue the same subsidies for McMansions, 2nd homes, vacation homes, etc.Gotta ask. Are you native to English? It always shocks me to find somebody abroad who does better with the language than I do. I love your one liners.

Ok, so if you give the banks a clean slate what is to stop them from engaging in the same reckless lednding practices that was the cause of this mess to begin with? Why should they not roll out the 0% down, exploding ARM, liar loans?

The consumer is too big to fail. I hope that the HOME proposal is adopted. But it seems that the new RTC proposal will have to be shown woefully insufficient by the market and an ever slowing economy.To that end, I’m doing what I can, in a one man protest, not to support an inequitable system which bails out large corporations and financial institutions, but not the vast legions of consumers it needs to exploit: no purchases beyond basic necessities. No entertainment, no books (I already have a library enough to last several lifetimes), no dining out, no car, no travel (except for public transportation), no television, no CDs or DVDs, no luxuries. I hope that others will join me.

The Market would be down 20% or more if the Market was not fixed to go up. No shorts, bailouts of money funds, bailouts of everyone, how can the DOW not go up 400 points every day. The fall will be sharp! The DOW can not fall below 10000, if it gets near that number a bail out is on order. No recession will be reported as this may cause a stock sell of. This is not the free market of econ 101-102.

once this rally runs out of steam at around 1350 S&P, probably international participants are going to take their marbles and play elsewhere where the rules are not changing on a daily basis…in a manner similar now international visitors minimize visiting the US due to all the hassles, checks, regulations, etc…

MORE UNINTENDED CONSEQUENCESSept. 19 (Bloomberg) — The American Bankers Association objected to the U.S. Treasury’s plan to insure money-market mutual funds, saying it may compromise the ability of banks to attract and keep deposits.Money-market mutual funds will be able to pay higher interest rates to customers than banks, without any apparent limit on the size of an individual’s investment, said Edward Yingling, chief executive officer of the Washington-based trade group.“Today’s action will undermine the role of banks during this current crisis and has the potential to have an extremely negative impact,” Yingling said in the statement. “Our bankers are, understandably, very upset.”LOL

I’M A HAPPY BEARI was very pleased to see another 400 point rally today. We have gone from 200 point per day swings to 400 point per day swings. Isn’t this what happens just before a market collapse?

NATIONALIZATION OF THE BANKING SYSTEM COMINGMy guess is that what the Paulson plan will really do is nationalize a good part of the banking system. My guess is that off balance sheet stuff will get confessed and shareholders will be wiped out ala the other bailouts as the government becomes custodian of the banks. As most of the banking system is insolvent, this will leave a few independent banks, but mostly government will take over. This is the only real solution possible. It is going to be an unexpected shock for Wall Street.

Even better: the Fed should also make credit unions available to everyone. These non-profit enterprises encourage fiscal responsibility. Every depositor is a share holder instead of merely a consumer (at least at my credit union).In addition to my one-man protest above, I recently left my bank, Chase, for a credit union. Chase demanded a reason; it took me three visits to my branch before they finally closed my account. The reason I gave was this: systemic collapse of the banking system. That was the week before Lehman collapsed.

Smarter or dumber is incorrect: equally informed, impartial rational persons of identical intelligence may value the same things differently. No trade theorems would hold in practice if this were not the case.

I don’t claim to know what the best course of action really is, but I agree that it isn’t right for these institutions to get “bailed out” unless there is a HEAVY cost that will instill enough fear to prevent this kind of delusional and predatory lending from ever happening again. At the same time, those who were using irresponsible lending to finance their own personal reckless program of house flipping should also bear a HEAVY cost. I do feel compassion for some unsophisticated home buyers who didn’t realize what they were getting into – and especially for those who had literal fraud committed against them [changed forms, rates, etc.] But, a lot of what was going on here in Florida, at least, was just pure greed and delusional thinking. The participants shouldn’t get off easy while others who resisted the scam have to pay for it!

Yes, that would mean you’re either smarter or dumber. (Not the best choice of adjectives, but succinct)

2:00 p.m.Sen. Schumer: optimistic Congress can OK rescue plan in weekWell, there goes Rich’s shot at an independent council reviewing any plan-they are gonna fast track it and load it with pork and ears!

Not necessarily. Equally informed impartial rational persons can disagree because they value the same things differently. This is a stumbling block for some, who believe differences of values says something about intelligence: it might or it might not. Our own age of bitter partisan debate is worse because of a tendency to believe that the other party is an idiot for holding differing values. Another issue, but related. The basic point is that equally informed impartial rational persons may value the same things differently.

US Government to secure mortgage market with gold reservesThe ESF was created after the Great Depression and uses the US gold reserve as collateral for financial stability.http://www.moneymarketing.co.uk/cgi-bin/item.cgi?id=173208

Rich-hope that curve ball of yours still breaks a couple feet…

The President and his minions are Wrong!Enough already please Mr. President. You are relying on folks intrinsically tied to the Companies and folks who got us into this mess. As Dr. Roubini states the problem starts and stops with the Average homeowner/taxpayer who has been misled by the few. The solution also starts and stops with the American homeowner/Taxpayer.The President’s plan he has put together with Paulson, Bernanke and Cox is fraught with short and long term failure triggers. It does nothing to address how does the American homeowner pay his mortgage, food, gas, utilities, car loans, credit cards, education loans, etc? It does nothing to address job creation and growth.Who are you in below – Are you one of the 100,000 Americans or one of 299.9 Million other Americans?What the Bush, Paulson, Cox, Bernanke plan does is the following:It ensures that the wealthiest of the wealthy continue to benefit. Who are these people? Lets start with the fortune 500 companies of which, Fannie, Freddie, Bear, JP, Lehmann, Exxon, Mobil, AMEX, WAMU, WF, Citi, MasterCard, Merrill, Goldman, etc…are all part of. Take the top 20 Earners in each of these companies. The folks that are the CEO’s, CFO’s, Presidents, etc… you come up with 10,000 people. Take this down to the Fortune 5,000 and you come up (at 5 per company) with another 22,500 more folks. Throw in Congress and Federal and State governments, large cities and there is another approx 5,000 people. This amounts to 42,500 individuals who run all or most segments of our economy. Throw in another 42,500 of indivvuals who carry out the plans of these folks. These are the traders, Administrators, the people paid handsomely to protect the first 42,500. Throw in 15,000 more folks and you have a total of 100,000. Are they all greedy, corrupt, stupid, and selfish- NO.? Most got to where they are with education, work ethic, but somewhere along the line they got greedy, corrupt, selfish, self-serving and could care less about the 299.9 million Americans and their welfare. The rest of us work hard, are just as smart, maybe not as educated as whole, but we lack the immoral ability to take advantage, steal, cheat…. That’s why we the other 299.9 million of us are the minority. So approximately .03% of Americans decide which, how and when the other 99.97% Americans get a job, get medical insurance, have the ability to be educated, have a good job, own a home and pay a mortgage, pay your credit card bills, you utilities, etc… The athletes, entertainers, and others who have wealth are not even part of this…. They exist because we enjoy the products they provide….We are the tax payers and the 100,000 know they cannot survive without us, but how many of us truly know that. We will pay once again to bail them out, ensure that business as usual returns in short order to satisfy them. But what they, the president and congress fail to realize is that this time there is no place to hide. The numbers do not lie. They are boxed in. If there is any sense of honesty, decency and credibility left in any of those 100,000 people they need to band together and start doing the right things for all 300M of us.What needs to be done:Implement a plan such as Dr. Roubini address’s above (HOLC) to deal with the Home mortgage and ownership problem.Enact legislation that immediately that eliminates all ARMS from resetting.Make permanent the new short rules that have been enacted.Enact legislation that caps interest at Credit Cards and loans at a fair long term rate – something around 5-7%.Allow companies with bad balance sheets to go under. No more bailouts.Increase the FDIC funds to cover all Banks and the 299.9M of us with money in banks should some of them go under, as some of them will. The FDIC has approx 48Billion to cover Trillions in potential loses if Banks go under. Do you want to settle for 35 cents on the dollar on your couple of thousand or even 100 thousand you have in the bank?Reform IRS and its tax rates so the 100,000 people cannot use their education to catch every loophole that exists for them personally and the companies they work for to avoid paying taxes.Give every American tax payer access to a federal credit line with safeguards and regulations to use in emergencies.Quickly figure out and enact legislation to deal with funding the Military properly, fix the Health crisis, and enact reforms and rules to ensure the top 100,000 are never allowed to take advantage of the 299.9 M again.Reduce the Deficit as quickly as possible with fair tax rates for all Americans and the businesses that choose to operate here. What is our deficit – does anyone really know? The government says 400B, some say 600B before this crisis. My estimate is approaching 1Trillion based on the recent events of the past month (the bailouts). Our long term Real Deficit is approaching 10Trillion. It was 5 Trillion a year ago or so. We cannot print money for ever without the 299.9 M of us paying for in ways we never imagined. If we don’t address this with equitable taxes for all we will never recover from this. This will go for years… and the 299.9M will all pay the price in varying degrees from bad to worse than bad.Fix Medicare- the 100,000 know of that problem, do you? They are figuring, well we got 12 yeas or so to address that before we have to deal with it. Wrong! If nothing is done NOW it will make this problem we are facing look like child’s play. Not Social security, Medicare and the looming Health crisis needs to be fixed now as part of the whole financial economic restructuring.Implement immediately a Federal energy plan that is devoid of making profit as the main driver. Implement the Pickens plan at a minimum.The details are always in numbers as Dr Roubini has exposed repeatedly the past 2 years. Why has Goldman not failed as of yet? Why did we inject 180B yesterday to cover the Money markets and increase short term liquidity? Well Mr. Paulson was the CEO of Goldman and has friends there and most likely stock in that company. Goldman and Morgan Stanley were toast without these short term fixes and would have been this weekend’s crisis had they not made these moves. They obviously did not want to work this weekend and I’m sure want to be on their yachts or at their country clubs this weekend.Failure to do none of the above will ensure a continued and worsening financial, educational and health crisis for the 299.9M Americans. Come next spring how many Americans will have the credit cards revoked, lost their homes, had their cars repossessed, lose their health coverage (there are 50 million right now without) have no jobs- do you really trust the 100,000 in charge?

Here comes the HUGE rally into the close to cheer on our brilliant elected retards….Nothing like a forced, manufaturec bull run.

is there really any gold left at Fort Knox – they have not done a full and complete review since the Eisenhower administration

Sept. 19 (Bloomberg) — The U.S. may have to borrow an extra $700 billion to $1 trillion to fund the biggest rescue of the financial system since the Great Depression, according to Barclays Capital Inc.’s Michael Pond.Federal takeovers of Fannie Mae, Freddie Mac, and American International Group Inc.; the central bank’s expansion of lending to financial firms; and a slowing economy will add $455 billion to the Treasury’s borrowing needs, the New York-based interest-rate strategist estimated. Pond said Treasury Secretary Henry Paulson’s plan to rid banks of “hundreds of billions” of troubled assets would bring the amount to $700 billion assuming the plan costs $200 billion.“We could easily add up to an additional trillion to the outstanding Treasury debt just from the initiatives announced over the past couple of weeks,” said Pond, ranked the best Treasury Inflation-Protected Securities analyst in 2008 by Institutional Investor magazine.I sure do love my gold stocks!!

The US Dollar is absolutely, positively, unequivocally TOAST.In my opinion.

If Hank Paulson were to run for president as an independent, he would beat those two puppets in a heartbeat.

better get into CEF or even better yet physical gold bullion – maybe the US will ban gold mining stocks

ok great, now we can get back in the MBS and CDO business

2:49 p.m.Amex, GE and others may seek to be on short-seller ban listF$%^, why even have a stock market anymore-it is now a big govt run casino that heavily favors the house…

What about Ford and GM, they could go to $0 without the shorts but that wouldn’t be fair now would it…how bout the arilines? Poor airlines, why not have teh govt buy their jet fuel for them so they don’t ahve to pay it…people, poor people, why doesn’t the govt just buy up all credit card debt so people can go Gamora all over again…

2:56 p.m.Oct. crude closes at $104.55/brl on Nymex, up $6.672:56 p.m.Crude futures end the week 3.3% higherOh yeah, oil doesn’t matter anymore cause the govt took away the recession

@ Rich/MAI think the best one liner – perhaps most useful to you – is that Paulson and Bernanke are doing for American’s property and contract rights what Bush did to their civil rights. They are using their executive powers to override the law, the Constitution and the courts by seizing literally trillions in wealth through an expropriation of assets by stealth.Bush can’t critise Chavez anymore. What Paulson and Bernanke have done is much, much worse – and unlike Venezuelans, the people won’t get the benefit.Scariest news today is that China, Russia, Japan, Gulf States and others may be joining together as a creditors’ committee to figure out a strategy to deal with USA. Even the mighty US military won’t be a match for that alignment of nations determined on better control and discipline of the world’s biggest debt addict.

How can people of wealth believe that their taxes won’t go through the roof? During WWII I believe income taxes on the wealthy were in excess of 80%, no? And aren’t we now in financial straits just as dire? If other countries won’t fund our debt, then won’t the government’s need for capital become so extreme that it will become (even MORE) politically expedient to “stick it to the rich”?

that’s why there was just recently passage of a new law in May that imposes a % tariff on any American (US Citizen) who wishes to escape from the US and to live somewhere else in the world…I am not kidding, I will try to find a link and post it

here it is – the exit tax on Americans trying to escape: http://www.withersworldwide.com/news-publications/324/exit-tax-u-s-expatriates-to-become-law.aspx

Just a reminder a couple years ago we were reading headlines like:December 14, 2006Lehman Brothers in $8.7 billion bonus payouthttp://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article754348.eceor2006-12-13Bonus heaven at Goldman Sachs after record yearhttp://www.iht.com/articles/2006/12/13/business/goldman.phpPOOR SOBs! Kick these rats out of the SS Congerss!!

The fame of Nouriels blog has exceeded my wildest dreams. Nice to have input from other intelligent species here as well. Would you care to explain, dear alien, what kind of society your species has developed?

it could be that those who know do not want others to know

Sweet Petal, it has also been part of the richmens’ game to get people to believe that my Son scrimped on the real resources your species needs to survive and thrive. You have been given everything you need to be happy and healthy and safe forever, but allowing 99% of people to be underpaid has put the brake hard on your progress toward achieving sustainable ways of doing everything. (You humans have no idea how many Newtons and Einsteins and Mozarts you have starved to death before they reached the age of 5! Why do you steal from yourselves this way?)Have you ever read a very short story called “Archimedes” by that adorable Mark Twain person? That is the primary example of how the wealthpower giants’ game works, and all humans should do that Googling thing you are fond to do, and read it.I don’t know quite how you darling creatures ever came to believe that my Son was not smart enough to know you would multiply – I assure you He is sane and rational – but anyway, you DO have all you need, and your population always levels off where you educate the people and your technology COULD save you – if you become willing to put the most cherished mistake humanity is making before a tribunal of your own wits.The problem with humans is that they are technological giants and ethical infants.People seem to think The Golden Rule is some kind of “feelgood advice to be nice”.It isn’t.The Golden Rule is science.The Golden Rule is stronger than ironclad, stronger than strong.The Golden Rule is the most realpolitik there is.The Golden Rule says: LOVE YOURSELF SO MUCH YOU PURSUE YOUR HAPPINESS WITH EVERY NERVE AND EVERY SECOND BY ACTIVELY SEEKING NOT TO HURT OTHERS – because the quickest way to invite harm to yourself is to harm another.Failing to correct economic injustice means harming other people – who are your environment – by taking away their means to have food and clean water and sanitation and shelter and education and healthcare and…

This is certainly the most coherent argument/solution that I have read so far.And for those that don’t understand this: HOME buys the loan book, or a specific part of that loan book, from Bank A at say 80c in the $. Yes, the bank loses 20% of the value of these assets, but in the process, they exchange bad assets for good assets. If they remain solvent after this, or could proof that they can become solvent quickly, they can issue new debt to the market. The market now knows with much greater certainly the risk attached to the debt of Bank A and prices it correctly. Through this the liquidity to Bank A is improved. Within a few years and with good profits, Bank A can forget about their losses in 2008 and continue to prosper.Since HOME has bought the bad loans from Bank A, person X now owes HOME the money instead of Bank A, if his loan was considered a bad loan by HOME and Bank A. Initially, the value of the outstanding capital of person X’s loan is still the same. But now HOME can negotiate with person X about possibly reducing the capital of the loan and/or other aspects (interest, payment term, etc) to ensure that person X is able to repay the loan. For example, they agree to write off 10% of the capital outstanding and/or reduce and fix the interest rate of the loan. Person X benefits because his loan outstanding is reduced from $1 to $0.90. HOME benefits since they paid $0.80 for every $1 of debt outstanding and, after renegotiating the loan, will receive $0.90 for it. In the process, Bank A can clear its books and continue with its normal banking practices.Clearing millions of bad loans from the books of hundreds of banks will restore confidence in the market that the debt issued by banks is “clean”. The markets can then correctly price the debt (in terms of interest, likely future default etc), something that the market is currently unable to do given the huge uncertainty about where bad loans are situated within the financial sector. If it is so good, why don’t banks do it themselves? Because they simply cannot create the perception that they have an unreasonable amount of bad loans on their books. In this climate of uncertainty and distrust such news may create false rumours or unfounded perceptions and impact on their good debt as well. The market will most likely punish them most severely if not forcing them into liquidation / foreclosure.As mentioned in the post, some banks will not be able to afford to take these write downs of their assets, be completely insolvent and will have to permanently close their doors. The RFC type entity will then enter and clean up the mess after these banks. The deposits at these banks are insured by the FDIC, so the deposits can be considered very safe. The different creditors and other investors of these banks will then also have to accept the loss associated with their trade with or investment in these banks. For example, say Bank B is declared insolvent since there is no prospect in the near future that they will be or will become solvent, even with a fresh capital injection. Assuming their loans to assets ratio (gearing) is estimated to be 2:1, then every creditor of and/or investor in these banks (not the depositors) will only receive 50c in the $ for their outstanding debt or investment. But what is important is that they now have certainty about the value of their asset, i.e. debt owed by Bank B or investment in Bank B.Some banks will be able to show that, with some additional financial support, they will be able to make a profit and become healthy before long. The RFA (type of public investment fund) could provide the necessary capital for these banks until they are able to stand on their own feet if private capital is not readily available. It is very likely that this RFA will show a healthy profit in 3-5 years time, when they sell their investment in these banks back onto the market and/or it starts paying dividends. Not all investments will necessarily be a success, but with prudence, the RFA Investment Fund could minimise the likelihood that they invest in bad banks, which should actually have been liquidated through the RFC entity.But there are also many banks that will be solvent and may not even need fresh capital. Instead, they just simply need a reasonable loan and/or access to funds to continue operating. With their mortgage assets now considered “clean” they should be able to raise the necessary funds from the market at reasonable rates – alternatively obtain it via the Fed.The only way to do this is to systematically take a bank and/or a batch of bad loans at a time. Starting with the weakest and working the way up (depending on capacity and resources). Yes, many investors will take a knock, but many if not most of them are also those that enjoyed the benefits of the spectacular increases and/or returns of their financial sector investments over the past decade or two. This may even include the Bank of China and the Saudi Reserve Bank, as well as many other investment institutions. It may also affect a few medical insurance funds and retirement funds. Some of them will have to close, but many will be able to survive. The essence is to remove the bad debt from the market and create more certainty about the debt that is being issued onto the market to ensure it is correctly priced.This post does indicate how this process could be undertaken to ensure it is socially optimal and/or ensure that there is a fair amount of equal sharing of the losses of the massive debt write off that is required. But this article does not indicate how much bad much bad debt must be removed from the system. The US mortgage market was valued at approximately $10 trillion in 2007 (total household debt = $14trillion). If this equals the value of the houses used as collateral for outstanding mortgages, then mortgage related write offs will have to be between $2 trillion and $3 trillion, based on past and expected house price deflation.But this is just the tip of the iceberg of the expected write offs, as there will certainly be have to be write offs for some debt of local governments in the US and business debt, which is a further $11 trillion, and financial sector debt estimated at $14 trillion. A rough estimate is that total debt write off that investors will have to absorb will be between $5 trillion and $6 trillion in the US. Through the integrated international financial system, there will also have to be significant write offs in other parts of the world.Up to now, the process would be quite straight forward, However, Wall Street has been able to create a massive amount of “imaginary” money through financial engineering over the last 20 to 30 years, which the estimates above exclude. Total US assets (housing, shares, intellectual property, etc) are estimated to be around $45 trillion. If this was geared only at a 12:1 debt to asset ratio, an estimated $540 trillion in debt is floating around in the financial market. Some investment banks, such as Lehman Brothers, were able to gear themselves up to 30:1. As such, others estimate that there is an estimated $650 trillion of debt floating around in the financial system somewhere. The total amount of imaginary money that needs to be destroyed in this market is thus roughly estimated to be between $60 trillion (based on an estimated $5 trillion deflation in asset values and a 12:1 gearing ratio) and $90 trillion (based on an estimate $6 trillion deflation in asset values and a 15:1 gearing ratio). There is no clarity about who will ultimately bear the losses of these write downs.

Then what is the answer? Do nothing? Then those that would be saddled with paying the debt under the prof’s plan will be in trouble themselves. What is the answer JGU?

Has the time come?My Soulful One, My Response-able Adult, My Beautiful Inquisitive Petal: The time to do justice has always been always. It has never NOT been the time for equal justice for all who live on your beautiful bluegreen sacred garden harbor. It has never – ever – been time for the human species to acquiesce to injustice – most especially to extreme economic injustice, extreme pay injustice – the most injurious injustice by far! And everyone knows this, yet you humans are not ACTING in accord with what you really BELIEVE.The time has come for the good Mr. Brightlight Braveheart Roubini to ably help you guide yourselves through a very delicate time while you strive to maximize the good and minimize the bad done to the people, but you must not fail to keep the bigger picture in the forefront of your consciousness.In the end, you can have pay justice, or you can have history on steroids kaboom. There are no other choices.E=mc2. Injustice drives violence. Wake up and smell the uranium, humanity.

Now it’s my turn to apologize: the needs case covers it, just the reason is wrong. The reason why I might not need (or want) X isn’t necessarily because of a difference in intelligence or ability; it might be that X means nothing to me or that we value X differently. We could rationally value X differently for no reason at all.

NR:Please clarify your position on your earlier statements regarding Broker-dealer models being dead.Do you still think Goldman and Morgan Stanley will need to merge with banks with big FDIC-insured deposits to survive?

And another thing: If congress doesn’t stay in session long enough to address the economic crisis of our generation, they need firing. Guess what? Your country needs you. You go home, you don’t come back.Wenees.

That is the only power we have. But to make sure there is not over spending before or after but a true just not using stuff for those 3 days.But no one will do it. We would rather just complain

Way to go, Christian Marx. I think that “walking your account” is one extremely effective, entirely appropriate, and very easy way to sock it to the banks that stole from you. Maybe it’s worth posting the names of the credit-card-issuing banks, such as Chase Manhattan and CitiBank, that were recently brought before Congress (2007) to explain their usurious rates (in the twenty-something percent range) and tricky fees. These bankers willingly took the American public for a ride, and it’s time we expressed ourselves on the topic.

thanks for yout post. I do understand now, how HOME works.

Professor, MAThis is one of the best solution-draft I can find for now. On paper it has all characteristics to become the new chosen program. However, I believe there are many issues than need to be addressed first if we want to HOPE HOME will see some success:- TIME: the time now is not in our favor given that policy makers have only days to work this out and make a decision. A time frame that is insufficient to make any real due diligence. SOLUTION: create and appoint some kind of committe that will be responsible for planning and enacting all programs it sees necessary.- COMPETENCE: I remember that you, Professor, were a proponent of the Frank-Dodd program and now you acknowledge its shortfalls. I believe the main reason of its failure, besides the fact that it was too little too late, is that terms & conditions were not fixed to solve the underlying problem. SOLUTION: the committee members should be chosen from different areas with no political or business affiliations and with great deal of integrity, long term planning and boldness (MA, you brought to mind Mr. Bloomberg).- PRICING: what of the critical details in any plan and that, by itself, would separate between a successful and a failed one. SOLUTION: the pricing should be fixed so that all parties involved would take a hit/haircut, that the price is close to its liquidation value as opposed to face value (in order to minimize any losses to taxpayers should the program fail and be needed to liquidate).- MOTIVATION: banks, lenders and even borrowers should be motivated to participate in this program (and not cheat). SOLUTION: motivation should be twofold; fear (new strict pricing and accounting rules for banks to take back their off-balance sheet and mark them and L2 and L3 securities to market. Threats to force management to give back their bonuses during bubble years,…); and greed (tax provisions for each successful workout, promise of recapitalization (with punitive terms …)- FINANCING: how to finance this HOME without much unintended consequences on the treasury market, dollar, and household balance sheet. SOLUTION: Just like financing any other HOME, we need a 10/20 year mortgage with 20% down. I recommend the government to go past its protection bullshit and allow foreign government to be part of the financing of the program, as well as requiring banks and other institution, that are part of the problem to put funds to buy these assets (at distressed prices) with a promise of being recapitalized.- 2nd Line Effect (hat tip Alessandro). A hair cut of this magnitude will mean that many investors will take a hit, which will have ripple effect on stock markets (Guest who is asking whether all problems will be solved and stocks will rally: no, even if this solution is adopted, it also mean a hair cut and huge dilutions are coming your way), credit markets, ABS, MBS, CDO, CDS and other derivatives. A hair cut in all these ultimately mean that consumers/taxpayers will see their investments/assets take a hit as a consequence and their purchasing power being in jeopardy. SOLUTION: I do not have any.If one of these items (and others) were to be missing, then it just doesn’t really matter.I also do not agree with you that every financial crisis is solved with a government intervention (In absolute and in theory yes I agree). As well, I’m not sure that HOME (or any other BIG PROGRAM) is better than small fixes (a la Miss America)

I mean:If one of these items (and others) were to be missing, then it just doesn’t really matter … how big the program, how much money we put into it, or how much effort is put into it … just find another place to live, your children will be grateful.

p.s. keep the ideas rolling… My contact is expecting a “follow up” with “solutions”.Miss America

I’m trying to talk my wife into it. Seriously.

@Free TibetI’m a Belgian, a Fleming to be precise. I also lived in France for 5 years.I started visiting this blog, early 2006.It’s true that I mostly intervene with one-liners, because my written English is far from perfect.I have learned so much and really would like to write a ‘revolutionary manifesto’, but it would be focused on my little part of Europe.I don’t pretend to have the solution for a bankrupt global financial system, but I do know that once it collapses (or in the best case, fizzles out), some people in different corners of the world will have tobe ready with a plan for a new way of living and trading together. Debt deflation or destruction should be part of it but not with the intention to ever reflate it again.Democracies should not be ruled by international banks or corporations, but by people and NOT consumer debt (men walking).I know, it seems ridiculous, unthinkable. But humanity has done more unthinkable things, no?It’s not more unthinkable than making people believe you can put bad debt in a bad bank an start all over again…

I couldn’t agree more. But it is only a dream. All is lost. The depression now begins.

It’s the dept.MA I know think I understand your vapor-flation was not what I thought you were talking about. I have been concerned with our National debt and mistaken you evaporflation as regard to that subject.Seems to me this mess is not an accident, as those in charge should have more knowledge about the future consequences and not allowed this outcome.That crazy e-mail I recieved and posted here on two occasions for feed back was probably taken as conspiracy. But with what is know happening, could it be true?This is (in Part) what I posted ealier.Subject: 6th closed door session of Congress in 176 yearsLast week’s session (Th 3/13/08) was only the 6th time in the last 176 years that Congress has closed its doors to the public.Word has begun leaking that not only did members discuss new surveillance provisions as was the publicly stated reason for the closed door session, they also discussed:the imminent collapse of the U.S. economy to occur by September 2008;the imminent collapse of US federal government finances by February 2009;the possibility of Civil War inside the USA as a result of the collapse;advance round-ups of “insurgent U.S. citizens” likely to move against the government;the detention of those rounded-up at “REX 84″ camps constructed throughout the USA (see http://en.wikipedia.org/wiki/Rex_84);the possibility of retaliation against members of Congress for the collapses;the location of “safe facilities” for members of Congress and their families to reside during expected massive civil unrest;the necessary and unavoidable merger of the United States with Canada (for its natural resources) and with Mexico (for its cheap labor pool);the issuance of a new currency – THE AMERO – for all three nations as the proposed solution to the coming economic armageddon.Members of Congress were forbidden to reveal what w as discussed.MA, Can you find out what was discussed in closed doors?hlowe

And who exactly is going to buy my student loans to give me my bailout?

Yes.

no

If the water in a fountain is captured and kept at the top when it rises, and not allowed its return trip to the pool, there is no more fountain.Money is like water.Your human ocean of money currently has peaks licking the moon, and troughs that bare the ocean floor.As you have witnessed, the ride on the peaks is just as rough as in the troughs. All of humanity is riding this rough sea.Clip the peaks and fill in the troughs.A Pacific Sea for all to sail their lives on.A many-fold increase in global human happiness.99% of people financially better off.100% of people living safer lives in a happier world.And no extinction soon.What are you waiting for?”Oh, hell. Here comes our funeral! Let us pry, for our missed understandings.”

Our va system is a glimpse of what universal healthcare is. answer: pretty dang good. My father-in-law is receiving fantastic care at the Brooklyn VA center by a friendly staff not worried about bill preparation. They spend less, too than other hospitals.Agree that healthcare is part of bankruptcy and like finance is broken.How about throwing a bone and getting us real healthcare like, yes, in France????This new RTC is just an incumbent reelection ploy by BOTH Dems and Republicans.

It is unbelievable,I was in contact with some friends and family spread all over the world for the last 2 days and I was amazed to the fact they know about the failures of Lehman and AIG and the degree of panic in the US economy.From Dubai to Shanghai to Mexico … the most astounding is the fact that these people are not finance savvy not even familiar with what happens in the economy in normal times (engineers, teachers, students …) People who until recently still always ask me what Lehman does when I said I worked for it. This shows the degree of publicity and exposure during this week. I would even argue that these weaknesses were more exposed abroad then at home (US), a distinctive characteristic of a Banana Republic.LET’S BURN SOME CDS … and other stuff

This is totally unacceptable. In the 1939 there were public hearings that led up to legislation like the Securities Act and the Exchange Act. They took their time and did it right, in public.Now the banks don’t want to do that again! They are doing this new stuff in secret, in a rush.We should demand of our congressmen PUBLIC HEARINGS.

@ Mother of God:Water always finds its natural level:”Let us Prey”!Ho hum

The ability of the overpowered wealthgiants to conceal their deeds (and identities), is always going to exceed your ability to discover and expose all their deeds and identities.Knowing the players and the plays being made must never cause people to forget that what matters most is WHY THE GAMES ARE BEING PLAYED.It is because everyone has the idea to get out of the pool of wealth all he can legally get, and no one has the justice and survival idea of going for what you put into the finite pool of wealth, no less and no more.Governments cannot save you, as they are now – they have been devoured by superwealth. Only a grassroots growth in awareness, realism, sobriety, simple good sense, maturity, and practicality in the people can drive events to safety and peace. Leadership will change when, and only when, the people change their ideas.

NATIONALIZATIONWithin a few months most of the banking system will be nationalized. Automakers won’t be far behind. Chavez is going to be very jealous that we will have nationalized our economy so efficiently!Sept. 19 (Bloomberg) — General Motors Corp., burning through cash after three years of losses, will tap the remaining $3.5 billion of a revolving credit line as the crisis on Wall Street threatens to crimp companies’ ability to borrow.http://www.bloomberg.com/apps/news?pid=20601087&sid=aPTYjsvf_Nvo&refer=home

Solutions Solicited From The Galactic Council (which, by the way, I have it on good authority, held their own meeting today to discuss the grave problem of the increasing number of Martians dying from laughter every time they look down on your tragicomedic species)1. A 1% increase per month in the global money supply, going equally, directly, freely, electronically to every living human being, children included, one account per person. The inflation effect will reduce overpays, the money effect will reduce underpays, and it does so without the cost of assessing fortunes. This method is not perfectly efficient in reducing overpay, but it is very easy and quick to reduce underpay. A 1% per month inflation will make a 1% imbalance, which will adjust, as the underpaid spend more, generating more supply. It is gentle enough to avoid any economic social shocks, and works because the inflation effect reduces overfortunes MORE than the equal share increases them, while it reduces underfortunes LESS than the equal share increases them. The weakness in this is that the overpaid can inflation-proof their fortunes to some extent, especially if the idea is implemented nationally not globally. This approach is easy and quick to set up, it immediately relieves underpay stress and pressures and violence at the bottom. It is the lowest possible, most indirect interference with the overpaid. A regular inflation is very much less inconvenient than an irregular one. The fact is, governments and banks are already increasing the money supply – only at present they are giving the money increase to the banks to suck more money off people through loans. Inflation devalues everyone’s money. It is a sneaky tax, forcing people to borrow, and in effect making them pay interest to buy back their own money.2. Making inheritance public instead of private. This will make the overpay shower gently down on humanity over three generations. It takes no self-earnings from living persons, and it reverses the perpetual concentration of wealth and political power in fewer and fewer hands. It counters effectively the natural tendency of money to concentrate unjustly, violently. Yes, making inheritance public instead of private means (almost) a 100% inheritance tax. You are preventing inequality of fortunes from growing to infinity by shovelling overfortunes into underfortunes. You know money automatically, unjustly concentrates endlessly, so any sensible species will introduce a corrective mechanism to counter that. The simplest way is having every human being have one account (which governments will be happy to open since it means money coming into the country) into which the estates of deceased persons over US$1 million are distributed equally, electronically, directly, immediately, automatically. Private heirs can share the first US$1 million, (if you choose not to completely eradicate free gratis money). Parents would have trusteeship of children’s accounts till some suitable age, say 12. (This will give parents good reason to teach economic sense before the date children take over responsibility for their own funds.) This method is low-impact, yet totally effective. It doesn’t take away overfortunes from living persons, yet it will move humanity from extreme injustice and violence to near perfect pay justice and non-violence in just three generations – the time it takes for all the overfortunes to die.The Galactic Council feels confident that this is the world’s only no-downside plan for survival, security, peace, happiness, and a future.Doable? Yes, as doable as 99 people in agreement to do so making 1 person stop misbehaving.This plan does not propose interfering with any of the thefts in human economic systems at present, except by preventing these thefts from accumulating endlessly. Again, in brief, it does this by either 1. Distributing a 1% increase of money supply per month equally to every human, or 2. Distributing deceased estates over US$1 million equally among every human, or 3. both. (Or, by any other system/method that has greater advantages in low bureaucracy, low social upheaval factor, etc, than these.)These 2 steps correct for all injustices in your economic systems, but do so indirectly. Why the indirect route/method? Because, for one thing, attempting to prohibit each legal theft would be futile. It would be futile partly because the primary, omnipresent legal theft is found in the very nature of transaction itself and occurs with or WITHOUT human agency (the two things exchanged are not of equal workvalue, so every transaction contains a fair exchange plus a big or small drop of automatic, unavoidable transfer of wealth from earner to non-earner) …and partly because there exist hundreds more legal thefts, and partly because more/new legal thefts will endlessly be hatched to game the system until the reason for doing so and the capability to do so are eliminated. Also, legal theft is not the entire picture, and this indirect method is the only efficient corrective mechanism that counters for ALL economic systems’ errors/flaws/injustices.

You ask for a most difficult answer as to “the” problem:But, IMO:1. It was the repeal of the Glass Steagull Act which permitted the Secondary Economy to prey on the Real Economy.2. The creation of the FedRes3. The creation of a faith-based economy out of Constitutional Authority (original terms)4. Moral Hazard riding a failed faith-based system.5. Lobby.Of course there are much more,Ho hum

What do you think?I am covering my a$$. You see, it starts with SEC banning short selling and ends with … cf. hlowe above.Of course it means that I have some music and other files that I want to transfer and safeguard to a collection of CDs … At least in this case, all I have to deal with is the RIAA.Huh, I am so smart, you cannot drive me to say it: Sheila and Cox are listening.

I have to tell y’all, every time president Bush and his henchmen start appearing on the news wringing their hands and saying “the sky is falling NOW and we must do something NOW,” and then trying to ram something through the feckless Congress, I get very verrrry nervous.

What is driving everything that is going on is what’s in people’s heads.The rich are not the enemy or the problem.The enemy and the problem is AN IDEA.Murder the idea to allow unlimited personal fortunes.

It always has been, just now its obvious

“associated with”remember that word when you hear/read theories labelled “conspiracies”cold hard facts spew out by zanny characters created to dismiss it as real newsthe art of lying is by telling the truth upfrontim glad people have FINALLY woke up

The UNOFFICIAL Troubled Bank List’s number three went under today.Rank Name City State Total Assets (000s) NPA/ Assets Equity/ Assets Tier 1 Leverage Ratio Tier 1 Risk-based Ratio Total Risk-based Ratio Texas Ratio Effective Equity/ Assets Effective Tier 1 Leverage Ratio NotesAmeribank, Inc. Welch WV 103,965 33.74 2.63 2.14 2.85 4.19 366.27 -5.24 -5.82http://www.fdic.gov/bank/individual/failed/banklist.htmlhttp://www.geocities.com/tubeguy@rogers.com/troubledbanks.htm

The losses are from misinvestment, generated by the Fed’s credit expansion and dreadful incentives created by federal regulators. The losses cannot be averted, they are already incurred, it’s now a matter of who will bear them. I read Prof. Roubini’s proposal as being designed to minimize additional damage by reducing the burden directly falling on households. The BBP (Bush/Bernanke/Paulson) plan is targeted at lenders, indirectly helping mainstreeters who are invested in Wall Street in their pensions, etc.That’s the gist of it, right?

Yes, thank you for properly initiating this dialog! I’d like to further offer that we should view the discussion as what are the “issues.” As Dr. Albert Bartlett says, a problem is when you’re facing physical harm/death; all else are issues…To start off with I’ll offer that the issues stem from declining resources. Next person?

It is inconceivable in only Florin and Guilder

Few West/Northern European countries I guess. Politicians there are still really afraid of their people when “Bush comes to shovel”. They also try to fool them to think they are doing it in the best interests of the public but the public is used to march and protest and block businesses when they are pissed off.Last example I was exposed to was in France where University students stopped going to school for about 3 months, blocked trains (I was once trapped for 5 hours) and shut down commerce, just because Jacques Chirac (in his last office days) tried to pass a new legislation to – relatively – loosen hiring/firing decisions to promote jobs (nothing really dramatic compared to the laws in US). So the Administration had no other choice than withdrawing the law. He also did not dare take a unilateral decision to adopt the EU constitution and was forced to organize a referendum where he was slammed with a big NO.Makes me wonder.

They are ALL listening.All of us must now be very careful.

A paradigm shift, right, Afa? We do not know our own strength.And we simply must stop consuming. We simply must. Cable TV is not a Necessity. Neither is a cell phone. Nor a home with more space than is possible to occupy. Nor the latest electronic gadget. Back to the basics: family and friends, affordable shelter, affordable food, affordable health care. The courage to do The Next Right Thing.

Congressional Leaders Stunned by Warnings“When you listened to him describe it you gulped,” said Senator Charles E. Schumer, Democrat of New York.As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,” the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”Mr. Schumer added, “History was sort of hanging over it, like this was a moment.”When Mr. Schumer described the meeting as “somber,” Mr. Dodd cut in. “Somber doesn’t begin to justify the words,” he said. “We have never heard language like this.”“What you heard last evening,” he added, “is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly.”It seems even WE were not Gloomy enough. God help us. If these politicians can make a straight decision or pondered plan when they are relaxed and with plenty of time, I do not want what they would come with under much stress and anxiety and in a few days time, oh wait, I already know, dammit.

As long as you can afford them (with your own salary/saving/investment) why not. But you are right, no more put-it-on-my-account consumption.Whatever happened to the first rules of the retail (not corporate) banking:Rule1: Do not lend to the one who needs itRule2: Do lend to the one who doesn’t need itRule3: Know who’s who

This morning, I grabbed the phone and called my Congressman and Senators to tell them (or their staff, anyway) that the federal government needed to help the homeowners, not wealthy investors, big banks, and big insurance companies. While I have since read a good deal on the need for the financial sector bailout, I agree with your idea for a new HOLC (or HOME, as you will). I disagree, however, with some of your stipulations; my main disagreement is with the stipulation that it be limited to first-time homeowners. I think it should be limited to homeowners who own one house, for whom it is a residence rather than an investment (though I don’t know how you’d differentiate that). Limiting it to first-time homeowners leaves out the elderly woman who owned one home with her husband and raised kids in it, then downsized on his death to a different home and was victimized by a predatory lender. It leaves out me and my husband; this home is my first, but his second. He moved in with me to a home I already owned several years ago, and we took out a small mortgage, which put him on the title. Ours is a 15 year fixed and we are not in trouble or in danger of foreclosure, so we would not be potential clients of a HOME, but the point is that people like us should not be left out just because one of the two of us is a second-time homeowner. I would not be surprised to learn that many second-time homeowners who were not buying for investment, flipping, or speculation became prey of the vultures at the unscrupulous lenders.

Professor,Why limit the debt relief to real property mortgages? If the crux of the problem is insolvent consumers, why not give each taxpaying citizen a transferable debt reduction certificate he or she could apply toward mortgage, credit card or auto loan debt?

So, making US taxpaying citizens (and their offspring’s offspring) as a whole pay through the nose for the greedy , corrupt, underhanded and often downright ILLEGAL actions of those who played and benefitted enormously from this Ponzi game of WMFD is a good solution , eh? The ole, “too big to fail” play huh?Well, by now merging itself irrevocably with the toxic waste dumps that litter Wall st and elsewhere, the USFed/Govt has called the bluff of the whole world. “WE, are now too big to fail, OK?!” THAT is quite a whole new prospect for the US and the globe to ponder and ponder it they will- bet on it.The biggest game of financial chicken- EVER.In short order, every piece of debt related paper issued under the “full faith and credit of the US Govt” ie dollars, bonds, treasuries etc will be re-rated to reflect the impact of these now enormous(and unending) increases in debt obligations. The 400+ basis point collapse in 30yr Treasuries on Friday gives you an inkling of what’s to come. Far from a solution, think MUCH HIGHER bond yields.The almost $100+ rise in gold over Wed and Thursday this week also indicates where faith really lies, methinks.”In many ways we are still heading into the storm, rather than moving away from it”- George Soros this week. I’m with you George.The US has now put the Republic itself on the line in its demented efforts to stem the bloodletting and offset a financial collapse. This is what it has come to.I’m positioning my wealth into investments that benefit from a US Dollar collapse. Batten down the hatches people because we are now about to get really close to the epicentre of this monster.

You have been watching too much TV, CNBC in particular.

Actually I only watch reality shows on TV

Thank goodness!

But can someone please explain to me how all these bail outs are so truly bad for the average? I mean forget the rich (they’ll get their money one way or another). So the dollar devalues, and things will get a bit more expensive, but US companies will be more competitive on the world market, and that in turn creates jobs, which in turn promotes growth and is good for the stock market. I mean I’m not saying that those who created this whole mess shouldn’t be punished, but those with money and power have always had a leg up on the rest of the world (or OJ wouldn’t have gone free). Unfortunately we don’t live in a perfect world, and unfortunately there are NO PERFECT systems. But as imperfect as our system is, the situation just doesn’t seem to be as dire as what’s being described on this board.

Where to begin:1) Why should I have to work harder or future generations of Americans have to pay off the debts incurred by the Wall Street thieves who paid themselves tens, sometimes hundreds of millions of dollars in bonuses and stock options? These “extra smart” people got the big bucks as they ran their companies and ultimately this country’s economy into the ground! And, on top of it, they got huge tax breaks (thanks to the Republicans who think only the “little people” should pay taxes) while real wages for the rest of us have declined.2) As to our legal system preventing anything toxic check out my post above about the failure to enforce the Sarbanes-Oxley reforms that were supposed to prevent this kind of mess. Oh and btw, there have been outbreaks of food poisoning (spinach, ground beef, tomatoes) in the US just this year.3) No, “we don’t have it so bad” but if we don’t wake up and demand that those responsible for crashing our financial system and taking our economy over the cliff Go To Jail, then we (and future generations of Americans) will be much the worse for it.

Just shows that the Democraps are as culpable as the other guys. Millionaire Dodd in Connecticut a short train ride from Wall St. and head of Banking, Housing etc. BUT HE JUST FOUND OUT … according to him.So he’s either DUMB AS A MULE or SHAMELESS LIAR.He never heard language like that? Wait for the wave of rage to build up internationally and domestically about this crony capitalist takeover. The political consequences of this breakdown are enormous.

My family keeps our dough in a credit union, too. We have bankers up here, but heavens! we don’t let them near the community’s funds.

Renee,Sorry, but you got it all wrong IMO, although I understand the motive behind your questions and they are licit.Value and wealth as measured by money are just like any manifestation of energy to which the following basic rule applies: Nothing is created, nothing is lost, all transforms.The accrued losses from mortgage loans and other credit losses (either forced by a mark to market or by a debt relief scheme) do not make these losses disappear simply by putting them on a special entity. Ultimately, the fiscal costs (in trillions dollars) will be added to the public debt of your government, and the net loss to its budget deficit. A government does not produce anything, so someone somewhere has to pay for this mounting deficits.Ultimately, you, your children and other foreign citizens will have to pay for it. A fiscal deficit need to be paid at some point in the future through higher taxes. It needs to be financed today with foreign investments. At some point, these mounting deficits will scare the sh!t out of foreigners (and we are just one event away from this scenario I think), they will demand higher and higher interests (translation higher treasury rates = higher everything else) and/or more devaluation of the dollar (which means higher prices of everything US imports or priced in USD). Otherwise, these mounting public deficits and debts may seek relief from foreign debtors. That would be ugly too, as it will precipitate a panic dumping of dollars and dollar-dominated assets and probably lead straight to a global conflict.As banks dump their toxic waste, they will endure huge delevering process and would need more recapitalization (reads dilution of current shareholders, probably bankruptcies, unwinding of shares and bonds …). Few banks will exit this period in one piece and in enough good shape and with adapted business model to be profitable in few years. As more wealth is destroyed, it means more layoffs, less disposable incomes and less disposable financing from the impaired and shrinking banking system…The Fed, the Treasury, the US government and US taxpayers are not Too-big-to-fail nor do they have UNLIMITED balance sheets (contrarily to what the other a..hole asserted)

@London bankerwhat is the source for this meeting?–I’ve tried to find a reference to it in the news.

In a word, Egalitarian. We are all millionaires and members of the leisure class. Reading, singing, dancing, drumming, swimming, afternoon napping, growing daffodils, drinking beer and making love are some of the popular pastimes. We have stomachs to feed up here, too, so everyone knows the society has no right to withold jobs, but as our technology keeps advancing everyone works fewer and fewer hours a week. There is no strife here, and the streets are clean and safe.We figured out long ago, you see, that market forces do not distribute money and power in proportion to work – market forces do the opposite: work drifts one way and money drifts the other.We installed a couple of corrective mechanisms to counter that, and the living has been easypeasy ever since.You hear a lot of laughter up here. The only really heated debates are usually over letting in members of your modern mainstream media. Even I call them a bunch of complicit slackers, on my less charitable days.George Seldes is here, and he is all the reporter we’ll ever need.

Statue for the tax payerThe HOLC may be a good solution; I’m not the expert to judge it. Anyway, any solution will be tax payer funded. From there, this proposal: a statue for the tax payer somewhere on Wall Street as a tribute for saving the business there from its own mess.How could it look like? The first thing coming into mind is a milking cow, to be placed in front of the bull from now extinct Merrill Lynch to remind folks of the potential risks of their mindless and uncontrolled behavior.Other ideas?Anyway, a toast to ourselves as saviors of the economy. We, the rock on which trust can be built, as proven by the zero yield on treasury notes, a true sign of the trust from investors in us, tax payers. An anonymous rock? Might be a good idea for the statue there.

I dig the new format, professor.

Speaking of Gold and Silver going ballistic: At the explosive peak of USD8,700 pto in the very near future: SOLPerhaps y’all may like to consider the following which was written some time ago and which I also think is entirely relevant:http://verbewarp.blogspot.com/2006/03/warning-to-east.htmlObviously China did NOT follow my advice; sigh, but joined the USA is their own joint and several destruction’s. What to do?Ho hum

I can’t believe I can’t join the discussion, now. Family needs are in the yellow quadrant and business needs beyond the red one.Anyway a small bit for the analysis (bit for the solution later, hopefully):* the key fact of subprime financing is that you don’t expect the borrower to pay the debt back, you expect him to be able to refinance. It’s a Ponzi scheme.* the whole of the finance debt and large part of household and corporate debt are subprime by this definition. What we are observing since July 2007 is the collapse of household and finance Ponzi schemes, that is refinance market has shut down, vicious cycle. Corporate Ponzi scheme has just started to fall apart (GM, etc).* all proposed solutions are variations of: “let’s have the government to join the Ponzi scheme”. Nothing else.* this makes US public debt becoming subprime as well. This has clearly started and it could be already too late to stop it. Public debt will not be repaid, but can still refinance, so the pubic debt Ponzi scheme will go for some more time, before collapsing.

As a matter of fact, US public debt was subprime already, but right now is the only kind of debt that is able to refinance, so all machinations are moving refinancing need on the public debt.Again all proposed “solutions” are a mad scrambling to refinance bad debt with good debt. In the long run, this makes the good debt bad.

Nothing personal:I meant that we may not need / heed [you] the United States of America albeit, in total collapse.”Don’t be so sure that we need you!”My apologies for any offense implied,

Now a few bits of my solution.* you have economy and you have finance. You can’t save both of them. So…* forget finance. Debt and credit are relic of the past. Those $100 in your rolling card balance are a relic of that great meal at your favorite restaurant. Those $100 in your bank account are a relic of the over-time you worked months ago. A huge amount of debt is set to be defaulted on and a huge amount of credit is set to disappear in a puff. There’s nothing that can be done about it.* (I owe most of this to OuterBeltway) think economy. Economy is the future, but can get razed by finance (the past). Pubic money should protect and bailout the maximum number of productive activities that gets cough into the financial tsunami. Not financial institutions or unprofitable companies (a la GM).Creditors will see trillions of dollars disappear. Yes, it your pension money and no one can do anything about it. They were fake dollars to stat with.Sound rescue plans should use money to save the economy (future production of good and services) not finance (relic of past production of goods and services).GD I was not the result of the financial collapses of the 1929/1930. It was engineered by those how fought to save finance and destroyed the econmy in the process. They are trying to do the same. Hanl Paulson & Co. are engineering GD II right here, right now.

Dear Professor,My wife, a retired first grade school teacher is a financial savant. She offerred the following solution over breakfast.Motivate Home Buyers to buy “homes in trouble” at a price equal to the mortgage owed. This will remove the toxic mortgage from the lenders portfolio and allow them to re-lend mortgage money.The new Buyer will be buying homes at an upside-down price to market, so the govt will give him up to a 100% tax credit for the entire purchase to be taken at the rate of 25% per year for each year of future ownership. This appears excessive, but the problem needs a massive and decisive solution.The near-defaulting Home owner is relieved of the debt burden. Hopefully, he may even obtain a discounted rental price from the new Buyer.The key point here is that the Homeowner in trouble wins. The New Buyer wins. The Lender wins. The Govt picks up the tab. Well, 3 out of 4 isn’t so bad…

Nationalize the Federal Reserve so that the American taxpayers own their own central bank!!!!

Alea iacta est.The troops are crossing the Rubicon.The fascists are taking over. I fear a call for a ‘strong leader’.The revolution is overdue. The people have to take the power back or live as slaves.

Touche!

Biggest revolution: nationalize FED so that american people owns the bank that print their fiat-money and lend it to the Treasury gaining an interest on it …

The Bush administration is asking Congress to let the government buy $700 billion in bad mortgages as part of the largest financial bailout since the Great Depression.Whwew do we go from here?

No wonder there. Both Democrat and Republican politicians get money from Wall Street.If they dont save Goldman and Morgan, who will?As for the systemic risk, if the system is so messed up, doesn’t it deserve a melt-down?

If all these are legislated, can Goldman survive?

I know that many rich people are unsatisfied. But I don’t know any hungry person who is satisfied. Ted Turner told Larry King once: I remember the hunger from the GD.TO BE RICH IS GLORIOUS!P1AQL.

If this happens the USA will still be a better place than Bangladesh, I’m fairly sure of it.But that’s not enough. Don’t say the rich will get theirs no matter what. America is not just about a decent standard of living, it is about principles. The Declaration of Independence was largely about the British getting theirs no matter what. We slowed them down at least with that insurrection.It’s time for another. The rich should not get what they want this time.

It sounds like our new masters have more of a heart than our current ones. Let’s give them credit for that, who are the good guys really, who has been making the things we use every day (and I don’t mean CDO’s). I find little to disagree with in the following from a spokesman who basically is reflecting the views of the Chinese government:The analyst quoted by Chaobao Financial News highlighted “that when there is market failure, the paramount purpose of government intervention should be saving the market for the benefit of the people: Relief, Recovery and then Reform,” and that “Protecting the rights of people who are suffering in the housing market and as a result of high oil prices should be treated as a priority.”The analyst added that by concentrating on saving just a few large financial companies, the Fed is creating wider financial chaos while arousing anger and suspicion by “only protecting and encouraging large companies’ wrong doing.”

Agree, it’s the right strategy for a sovereign country. The fact that instead Congress is cooking up more bank rescues in a rush, in secret, shows that we are not. Unless we take the power back, which will require some unpleasantness, but well justified.

Global debt repudiation = “evaporflation” write large. Pretty soon all debt will be subprime anyway. The sooner we excise the cancer, the sooner we can start again.

The principal cause for this financial crisis is the amount of Level 2 and particularly level 3 assets that nobody knows how to value. Certainly the financial disclosure provides no guidance and investors are really left in the position of “trust me”. When that trust goes so does everything else.The first step is that Fed should make public a valuation model and assumption that all FI should be using for valuing these “toxic assets”. Then the FI should be required to mark to market their assets using this valuation model. Those institutions that have negative capital are taken over by the government or alternatively can be sold to an investor who feels that the Fed. model is unduly conservative. Those with less than adequate capital are given a grace period to restore their capital. Simultaneously with this the government guarantees all depositors at financial institutions if they are taken over by the government,If this results in a defacto nationalization so be it.If this results in a defacto

alessandro..the whole financial system is a ponzi scheme caused by the fractional reserve banking… more and more fiducary media (mises term ie money out of debt) is need to keep the economy growing..we need a new banking system that is more sustainable..we must emancipate ourselves from the debt slavery..http://video.google.com/videoplay?docid=-9050474362583451279mrskeptical

excellent post. I think the poet/song and dance man, Bob Dylan had an apt line or two in his songs from the 80′s during the beginning of the ‘deregulation era’ on the Infidels album that pretty much coincides with your post-”the ghetto that you built for me,is the one you’re living in.”also-’he worships at an altar of a stagnant pool,and when he sees his reflection he is fulfilled.”

Happiness is in reality, humans are in unreality.There are legal thefts. (There are also the successful illegal thefts.) See examples below. It is vital to the welfare (happiness, quality of life) and to the very survival of each and every person to know that legal thefts exist. The legal thefts have a devastating effect on quality of life. They diminish quality of life enormously. Legal thefts have destroyed 99% of human natural birthright happiness. People can be enormously happier by understanding legal theft, and taking appropriate action. Legal theft threatens the very existence of the human race.What is a legal theft? What are the implications of legal theft? Why are the legal thefts so important?Legal theft is theft, theft is injury, injury produces violence. Theft is money for no work, money for others’ work, overpay, pay injustice, financial inequality, taking out from the social pool of wealth more than the person has put in by his work. Only work creates work-products, which are substantial wealth. All the money represents all the work-products. Money is a license to take substantial wealth out of the social pool of work-products. The amount of money one gets is supposed to equal the work-value of the work-products one produces, and to equal the work-value of the work-products one takes out. Humans have division of labour, job specialization, so one works mostly in production for others, so you put your work-products in the social pool for others to buy, and one is supposed to be compensated correctly so that the money one gets enables one to take out of the social pool of wealth (shops) a quantity of the work-products (goods and services) one needs and desires equal in work-input to the work one did. A person spends all day making shoes for others, and should get out the amount of money that enables the person to buy an amount of things that have a work-input content equal to the person’s work. Theft is when this doesn’t happen. And human economic systems are full of legal forms of this theft.What are the implications of the presence of legal theft in societies?One, legal theft means that the amount of money a person has is not a correct indicator of the amount of work the person has done. It means the amount of money a person has is not a measure of the amount of wealth production a person has done.Two, it means that pay injustice will ever-grow in society, and produce ever-increasing violence. Theft, legal and illegal, gradually and continuously separates work and money. Some (now 99%) have more and more work and less and less money, and others have more and more money and less and less work. Pay per unit of work endlessly declines for some and endlessly increases for some. Since money is the license to take work-products out of the social pool of wealth, and work-products include all necessities and desired things that cost, loss of money is extremely significant for people. Money is virtually everything. Money is the joker good, good for millions of things, most things, including necessities and social power. Theft of money is theft of virtually everything, including necessities for life. Ever-growing pay injustice means ever-growing anger, resentment, violence. James Madison: “The purpose of government is justice”. So in democracy it is the prime purpose of the people to achieve and maintain justice. And pay justice is the most important justice. The state built on injustice cannot stand. The state, and the globe, built on injustice is torn apart by the violence (war and crime) it causes. Every state has been built on injustice and has fallen. Violence gets to everyone. Violence is localised at any one time, but can pop up anywhere anytime. It gets to the most overpaid and the most underpaid and to everyone in between, in hundreds of ways. Pay justice is fundamental to everything, to freedom, to democracy, to peace, to survival, to safety, to enjoyment, to happiness, to order, to sanity, to meaningfulness, to fulfilment, to existence. Unless there is action to minimize pay injustice, there is ever-increasing danger, grief, worry, suffering, pain, destruction, disorder, shock, crisis, corruption, dis-information, lying, disaster, war, crime, riot, revolution, chaos, terror, horror, weaponry, injury, damage, brutality, evil, confusion, warmongering, cannon-foddering, spying, fraud, embezzlement, lynching, ‘necklacing’, people-burning, crucifixion, hijacking, massacre, murder, mugging, drug-running, strikes, demonstrations, assassination.You humans have all those things, not in small quantity, but in great quantity. You have 1% with 98% of the money and 99% with 99.9% of the work. You have torture, genocide, massacre, riot, revolution, war, crime, corruption, weaponry capable of killing every person, warmongering, cannon-foddering of millions. If democracy and freedom are 1 with pay justice (equal pay for equal work, a ratio of highest to lowest pay per unit of work of 1), you currently have freedom and democracy of 0.000000001, because you have a ratio of highest to lowest pay per unit of work of one billion. Pay injustice, legal theft, has been growing for 1000s of years, and so has violence (war, crime and weaponry). Money is power, so 1% have 98% of social power, and 99% have 2% of social power.Is the situation hopeless? There are some reasons to believe it is not. In the first place, violence gets to everyone. It ruins everyone’s quality of life. Money is only the second greatest power. Every plutocracy has fallen, and every plutocracy has been extremely arduous and dangerous. Every heap of wealth, individual and national, is weaker than the rest of the world. The costs of self-defense inevitably exhaust the greatest wealth. One person with the property of 1000 has 1000 enemies. Everyone is climbing the ladder of ‘success’ (more money) and yet the overpaid are few and ever-fewer, so more are falling than rising. You all face nuclear extinction. Therefore it is in everyone’s interests to stop it. Where there is a universal will, there is a way. To create this will, you only need to learn the reality, by reading with honesty within yourselves. Happiness is wholly within reality, so realism is always in your self-interest.Secondly, it is easy to reduce pay injustice. It requires only electronic transmission to every person of an equal share of a 1%-a-month increase in the money supply. This gently lowers overpay and lifts underpay. Inflation is not bad when the underpaid are over-compensated for it by the equal share. The equal share is paid to both overpaid and underpaid only to save the enormous bureaucratic cost of distinguishing the two. This requires only a tiny bureaucracy, a computer can do it. It disturbs the overpaid hardly at all. The overpaid maintain their relative position to each other, so there is no power disturbance. The underpaid lose their righteous drive to be climbing up to the overpaid, as the equal share lifts them up towards pay justice, towards getting out as much as they put in by their work. This eases the stress and danger of the overpaid, lifts their quality of life.Legal thefts, some examples:1. Conquering, plundering, enslaving, economic plunder. This is still legal. If Bill Gates gave his entire fortune away tomorrow, it would be back in the first world in 3 months. Interest payments exceed ‘aid’ by $200 billion a year. (Read Lords of Poverty, Confessions of an Economic Hitman.)2. Legal theft is built in to transaction itself. The work in the two things transacted cannot be exactly equal. The work in the two things has to be x and x+y. Every transaction has to be a fair-trade-no-robbery, the x’s, plus a robbery, the y. Just statistically, this will result in a bell curve of net gains and losses from extreme gain to extreme loss. Every transaction widens this curve, and of course there are trillions of transactions every day. Add in everyone trying to maximize y, shave costs and puff up
price. Add in the fact that money is power to rake money, to oppress. Further, a company is a centre of transactions, with many customers and relatively few owners, so that the y’s accumulate wealth endlessly. Everyone loves profits and the interest that arises from profits, but 100% of people make 99% (soon 100%) happiness losses from the super-extreme violence generated by the super-extreme pay injustice generated by 1000s of years of accumulated legal theft, and 99% make net financial losses from having profits and interest, through the goods they buy at prices that include the little, undetectable but real, and ever-accumulating y. It would be impossible to stop profits legal theft at the micro level, because no one knows exactly how much work is in each product, and it would take a bureaucracy larger than the world, but you can compensate at the macro level, with a minute bureaucracy, by the equal shares of a 1%-a-month money supply increase.3. Person buys land, others build cities around, person gets added value from others’ work. Henry George saw this. Landowners get the value of everyone’s work, and very unequally, according to size of holdings. The rich are simply buying up wherever growth is fastest (eg. Dubai) and reaping billions for others’ work. Pay injustice grows, violence grows, bombs grow, kaboom. You have pay/income from 100,000 times to 10,000th of average of $40 an hour, and bombs to make a triple ice-age. It is like humanity is in a burning building with an escape route still there, but, by the time humanity gets a grasp of the reality, the escape route will be gone.4. Increase in money supply going to banks to lend at interest. Lord Keynes and Sir Josiah Stamp, President of Bank of England, saw this.5. Land oligopoly. Ambrose Bierce, Adam Smith, J S Mill and R H Tawney saw this. Everyone has equal birthright share in nature’s bounty, like the other animals, but private property gives this only to landowners, and unequally according to their holdings. Private property is otherwise good, but it has this disastrous, pan-fatal pay injustice effect.6. Private inheritance. In nature, and in justice, every person loses all rights in property on death. In nature and in justice, there is automatic public inheritance. But you have private inheritance, a clear case of money for no work, that is, work-products for no work by self, for work by others.7. Scarcity profits. Eg, new technology, which has high demand, low supply, as the industry gears up production. Eg, paintings by ‘great’ artists. Eg, rare stamps. Eg, big-farming, which is 16 times less productive than small farms. Russia moved to big-farming and had to start importing grain. The Sudan and China have 30 times the agricultural efficiency (production per acre) of USA (see World book of rankings). Big-farming produces bigger profits and shrinks production. Eg, not allowing import of grain in lean times (Eg, England, early 1800s.) Eg, subsidies (at public expense) to farmers to not produce.What has freedom to pursue unlimited fortunes given humanity? Freedom for everyone, from richest to poorest, to be embroiled in super-extreme escalating violence, rising to nuclear extinction soon. Freedom for 99% to be underpaid, freedom for 90% to be paid less than 100th of average pay per unit of work, freedom for 1% to perpetually try to fight off the 99%, and the others in the 1%. Freedom for everyone to be extremely poor in enjoyment, peace, safety, leisure, relaxation, company, community, health, sanity, order, maturity, education, trust, generosity, kindness, beauty. To be extremely rich in danger, labour, war, crime, fatigue, insanity, mis and dis and un education, corruption, horror, terror. Nuclear fear fatigue will not stop nuclear extinction coming. Global extinction bombs and giga-astronomical pay injustice, increasing fast, means a boiler, relief valve stuck, pressure gauge in the red and rising. It must blow soon. Defense costs are exhausting the first world, as they exhausted every empire and plutocracy in history. You can no longer afford a war. A 60th of the bombs will create enough fires to put up enough smoke to drop the temperature 25 C, three times colder than a natural ice-age.It is no time for closed-mindedness, immaturity or delay. It is time to get real like humans never got real before. Bite the bullet of the adamantine golden rule: don’t hit people, they hit back. Pay justice or misery and extinction. Pay justice is not a hardship, is not a loss. It is social, economic and psychological riches. 100-fold happiness. Would anyone (outside a madhouse, or even in a madhouse) suggest taking 90% of wealth off 90% of people and giving it to 1%? No, not in a million years. So take to deepest heart the fact that you have pay injustice, and misery, over a million times worse. Take to heart the fact that you can be super-extremely happier.Will humans act with wise self-interest? Will you re-activate your pursuit of happiness with realism? Will you after all these years dive into the ocean of gifts that pay justice has for you? Will you jump out of your mental grooves? Imagine if you did institute equal shares of a 1%-a-month money supply increase. The well of humanity would start to fill. I think there would be rejoicing. I think you would begin to feel proud of yourselves. I think your spirits would lift. I think you would recognize with relief that at last you conquered that disease of pursuit of unhappiness.

Remarkable change of tone Dr.Roubini – from likening the state of affairs to that of Fascist Nazi Germany to now almost singing praises for the government actions – someone got a call from the Obama campaign may be?Everyone on main street knows Big business and politics in America are joined at the hip(Just check the net worths and investments of Nancy Pelosi(130 million) and John Kerry(how many billions?)). So it is “natural” that the treasury coffers are thrown open to protect the wall street(who are we kidding? that is what it is – expect some grandstanding from the Democrats before November though – do you really thing we are going to see any meaningful regulations on wall street?) So now mutual finds are insured by the government? Selling(short selling anyway) of stocks is banned? what is next? ban trade unions? And then we could all live happily in Fatherland Amerika! We don’t have to pretend Amerika is not a fascist state,especially when we have extremely talented and great economists like Prof. Roubini (painfully)trying to sell it to us.

I’m mostly Austrian as well, but I think that this bubble has less to do with fiat money and fractional reserve banking and more to do with people being forced to save by the government. I already have posts about it, and hope I’ll elaborate one day.

Alessandro, what clarity! Now the question is how does one effectively communicate this key concept to the economically ignorant? Especially since the whole scene seems to controlled by the finance mafia.

Mr. Chairman of people republic of America , just 70 billion USD? are you seriuos? Let’s go for 700,000 billion USD!

AfA you worked for Lehman? Recently or in the past? Just curious, I’d never guessed.

@guestYou are not being fair to the Professor! He knows some kind of action is a “fait accompli” and he is proposing the best deal for the public. You are right thatpresently we are as London Banker says under control of the Unitary Federal Reserve,but we can’t give up! I know the end plan is to implement the Global Iron law of wages and give workers enough to have subsistence and procreate. We can stop this! We can engage in participatory democracy. We can’t be fatalistic and surrender. We must tryour best, even if it is not enough. You are assuming all the intellectuals are at theservice of the Corporate Financiers. Come up with solutions and ideas. Yelling FascistAmerika won’t get you anywhere. I lived the 60s and I was upset that some were posing and yelling slogans and the real reformers were trying to come up with policy solutions.

That would be the mother of all “subprime put” to be exercised.And yes, I think in due time it will be exercised.

A MUST SEE, Kevin Phillips dialog with Bill Moyers.http://www.pbs.org/moyers/journal/09192008/watch2.html

INFORMATION SOURCES FOR ARTICLES ON THE US ECONOMYThis weekend I will be posting a number of special comments on this blog, and inviting many readers to contribute on topics that are relevant to critical issues.We need to realize that many Americnas are now joining this discussion and reading this blog for the first time – as they realize that our financial system is facing a serious outcome. People are truly trying to understand what is going on. We need to help them!Here are a few online locations where people can find independent financial commentaries that talk about relevant issues:COLLECTIONS OF RECENT ARTICLESwww.financialsense.comwww.dollarcollapse.comwww.321gold.comBLOGSMike Shedlock http://globaleconomicanalysis.blogspot.com/Sidetalk Blog http://acheson.wordpress.com/I have chosen these particular links because they provide a variety of independent inputs, and/or because they provide good critical thinking that differs substantially from the standard financial media. Please be aware that if you read any particular article, you may get some financial advice – authors do promote thier own products and services. BUT, you will still find some excellent analysis of economic data and trends, and some very insightful comments about finance.I have deliberately excluded the (many) financial commentaries that provide direct advice about investment philosophies – that is more of a personal decision. I have also not included some pay-for-subscription services that do provide excellent data analysis. Everything above is free, and generally all the online articles are updated very quickly.Readers here are invited to add to the list – but please if possible try to keep to the spirit of my suggestions. The goal is to allow average Americans to educate themselves about the economy, not to promote specific investment advice. I have also deliberately excluded many of the main “financial blurbs” (e.g. Bloomberg) because these sources often tend to promote the party line from Wall St, without serious critical thinking.PeteCA——————————————————————

Section 6 Maximum Authorized purchases limited to 700 billion AT ANY ONE TIME!WHAT IS THIS “AT ANY ONE TIME LANGUAGE ABOUT”?THE TREASURY HAS TO REPORT TO CONGRESS IN 3 MONTHS! THIS WOULD BE AROUND CHRISTMAS!!!ARE THEY GOING TO NEED MORE MONEY AFTER THE ELECTION?I am requesting co-counsel from our blog!U.S. Treasury Proposal to Buy Mortgage-Related Assets: TextSept. 20 (Bloomberg) — Following is the text of a legislative proposal by the U.S. Treasury to buy mortgage- related assets from financial institutions:LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY TO PURCHASE MORTGAGE-RELATED ASSETSSection 1. Short Title.This Act may be cited as ____________________.Sec. 2. Purchases of Mortgage-Related Assets.(a) Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.(b) Necessary Actions.–The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:(1) appointing such employees as may be requiredto carry out the authorities in this Act and definingtheir duties;(2) entering into contracts, including contractsfor services authorized by section 3109 of title 5,United States Code, without regard to any otherprovision of law regarding public contracts;(3) designating financial institutions asfinancial agents of the Government, and they shallperform all such reasonable duties related to this Actas financial agents of the Government as may berequired of them;(4) establishing vehicles that are authorized,subject to supervision by the Secretary, to purchasemortgage-related assets and issue obligations; and(5) issuing such regulations and other guidanceas may be necessary or appropriate to define terms orcarry out the authorities of this Act.Sec. 3. Considerations.In exercising the authorities granted in this Act, the Secretary shall take into consideration means for–(1) providing stability or preventing disruption to the financial markets or banking system; and(2) protecting the taxpayer.Sec. 4. Reports to Congress.Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.(a) Exercise of Rights.–The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.(b) Management of Mortgage-Related Assets.–The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.(c) Sale of Mortgage-Related Assets.–The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.(d) Application of Sunset to Mortgage-Related Assets.- -The authority of the Secretary to hold any mortgage- related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.Sec. 6. Maximum Amount of Authorized Purchases.The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one timeSec. 7. Funding.For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.Sec. 8. Review.Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.Sec. 9. Termination of Authority.The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.Sec. 10. Increase in Statutory Limit on the Public Debt.Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.Sec. 11. Credit Reform.The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.Sec. 12. Definitions.For purposes of this section, the following definitions shall apply:(1) Mortgage-Related Assets.–The term mortgage- related assets means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.(2) Secretary.–The term Secretary means the Secretary of the Treasury.(3) United States.–The term United States means the States, territories, and possessions of the United States and the District of Columbia.For Related News: For news on the credit crisis: NI CRUNCH BN For finance news: NI FINLast Updated: September 20, 2008 11:59 EDT

“..non-reviewable…by any court of law..” and they only have to report to Congressional Committees on section 3 issues. The termination is 2 years. In 2 years you could dump a ton of toxic debt on the taxpayer with successive emergencies (section 3(1)). The key is thecapping of the 700 billion!

Does anybody think that this 700bi will solve anything ? And what about the BW2 , it falls or not ?!

James Joyce said in capital lettersPANOPTICAL PURVIEW OF POLITICAL PROGRESS AND THE FUTURE PRESENTATION OF THE PASTMother of God believes Finnegans Wake probably contains everything in the world that ever happened and ever will.Where. Cumulonubulocirrhonimbant heaven electing, the dart of desire has gored the heart of secret waters and the poplarest wood in the entire district is being grown at present, eminently adapted for the requirements of pacnincstricken humanity and, between all the goings up and the whole of the comings down and the fog of the cloud in which we toil and the cloud of the fog under which we labour, bomb the thing’s to be domb about it so that, beyond indicating the locality, it is felt that one cannot with advantage add a very great deal to the aforegoing by what, such as it is to be, follows, just mentioning however that the old man of the sea and the old woman in the sky if they don’t say nothings about it they don’t tell us lie, the gist of the pantomime, from canibal king to the property horse, being slumply and slopely to remind us how, in this drury world of ours, Father Times and Mother Spacies boil their kettle with their crutch. Which every lad and lass in the lane knows. Hence.Mother of God grows weary, and wishes she knew:A hundred cares, a tithe of troubles andisthereonewhounderstandsme?

Nothing worse than when a politician opens his/her mouth.

Congress gives and takes away exactly what they are told to.

“Mortgage Related Assests” includes “ANY (??!!!) securities, obligations, or other instuments that are base onb or related to such mortgages”. This includes all the repackaged, leveraged securities too? It’s not just the bad RE, it’s EVERYTHING???

Thank you, Melvin Furd, but no one is listening, no one cares, no one is game for a fight with their own human limited intelligence.Love the Bob Dylan. Everything is broken, is right, but the adults on earth appear to be the infants, and prefer to keep spending their families on their money.tis very odd to mebe well, Melvin

Max Keiser:http://tw.youtube.com/watch?v=WMUN9I0VMok

“Mortgage-Related Assets.–The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.”I think this is the most disturbing part of the proposal.So this in fact includes all MBS, CDO’s and CDS?? And how this will be supposed to be a debt relief to current homeowners?I see only one way this will play out. Wall street will bundle and slice and dice existing mortgage and mortgage backed securities into new securities and instruments that have a date of issuance AFTER September 17th. The Treasury can then buy these securities with inflated prices under the pretext they are new issuances and by consequence banks will realize “profits” that are effectively the difference between the price at which the Treasury buys these new issuances and the marked-to-market underlying securities, without having to transfer some of these profits down to the underlying securities (down to mortgage assets, down to homeowners) as they will be judged as “old vintages”.LET’S ALL BURN OUR OLD CDS before it’s too late

Prediction:US will bomb Iran by the end of this adminstration, and the president will order SEC to close US stock markets for unknow number of days.

…a congressional aide told me last night that Dodd and Schumer are setting the agenda and this thing will go through…but I wouldn’t be surprised if a Byrd or other senators try to prevent it and succeed in stalling it…if one of the two main candidates took a stand on this, the election could become a referendum on this bill…for example McCain could campaign against it, knowing it will go through while boosting his populist appeal……Paulson is the lookout, Bernanke is the safecracker…in the greatest heist to date…

ah well they do now at least have enough government power and authority to deal with “unusual” situations with unexpected economical consequences.Someone said some time ago that if US where to nuke Iran that other countries would pull their finances out of US and the dollar would collapse. I do not know what the folks behind the Bush administration changes in civil rights and control over the economy have planned. So I do not know for example if they have planned all of this just so that they can nuke Iran (I doubt it in fact).But increased government power like what they have accrued since 9-11 could give them the guts to pull of stunts they would have not have thought of otherwise.

Paulson’s plan represents a major turning point for the US economy – if it goes through. And it will mark a huge turn for the worse. The “rescue plan” is only a rescue for a few of the major banks on Wall Street. The US taxpayer will be demolished by this plan, and Americans stand to lose an enormous amount of personal wealth.Right now, though, Americans should be deeply concerned about why our Congress is not debating this plan. The issue is not how much money should be in the rescue. The issue is that NO money should be passed on to the taxpayer at all. ANY economic move that would transfer trillions of dollars of new debt to the public debt represents a critical decision. It needs to be properly debated.Let me say it as clearly as possible …If our Congressmen approve this plan over the time span of a weekend – or a few days – and then go gome … the least we can do is make sure they all stay at home. Permanently. FIRE EVERY ONE OF THEM !!! Every Congressman (or Congresswoman) who votes in this way needs to be thrown out of office PRONTO. That’s it. Game over.PeteCA

as to that “We can stop this!”The problem is that those who have power are making changes for which the consequences are difficult for everyone to see at this stage. So it will not be easy to get a large amount of people to rally against the changes.

I am cross-posting this from LondonBanker’s blog here at RGEMonitor.

From John Mauldin’s newsletter:”Want to get really mad? Up until 2003, all investment banks were allowed only 12 to 1 leverage. Then in 2004, the SEC basically gave five banks (and only five banks) the ability to lever up 30 or even 40 to 1. Bet you can guess the five banks. Bear, Lehman, Merrill, Morgan and Goldman. Three down.”

Here’s another well-documented link that corroborates this assertion.SEC allows 30:1 Leverage for Wall Street Investment BanksThe normally permitted leverage ratio is 12:1. These five very large banks were given permission to exceed the normal leverage ratios by 250%.Gettin’ cranky yet?Hat tip to Ted over at LB’s blog.

The text of the proposed emergency markets legislation is now available. Just as expected, it will contain a provision to provide immunity from any review by any court or executive agency. Either get with the collaborationists or get with the insurgents. There is no other choice. The USA doesn’t exist as we once knew it.The relevant text from the legislation:

Sec. 8. Review.Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Good luck, everyone. We’re in uncharted waters now. There is no rule of law if this passes – there are no markets. We’ve all been had, and the worst is yet to come.

Just as expected, it will contain a provision to provide immunity from any review by any court or executive agency.Then, NO THANK YOU

Sorry, folks. Got to get the scale of this outrage correct; left out three zeroes:Mr. Paulson’s proposed legislation is only 3 pages long. There’s no effort to limit, proscribe, define or in any way restrain the expenditure of $700,000,000,000 dollars, and the exercise of that authority is done with no recourse, and no oversight.

I watched this, and I’ve read Kevin Phillips’ latest book. The regulars here already know all this stuff, but if you’re coming in fresh from the mainstream media, this might be a decent place to get a general overview of why we’re in this mess. It also provides some critical thinking on why it’s not a good idea to let the people that caused the problem spend yet another $700,000,000,000 to “fix” it.