« Wake Up, The Credit Crisis Is No Hoax | Ripper McCord's Blog | Right Into the Microphone, Mr. President »
Fuck Them, Fuck Me, Fuck You
I'm talking about the notion that we should let the financial system collapse. Right. It looks like most bloggers here have become proponents of McKeynsian economics: Bitch first, study the problem later if ever.
If you're too dumb to understand that credit is the lifeblood of the economy; that some of the biggest players in capitalism have gone the way of the dodo in the past two weeks; that lenders are afraid to extend credit they may never get back; and that your boss, your job and the food on your table all depend on credit; then, by all means, let the banks fail. Go ahead and fire Paulson and get some newby in to ask where Treasury's washroom is. And watch Main Street burn to the ground and the economy burn its way through the earth all the way to China because you're pissed about Wall Street's malfeasance and your share of the national debt.
Yes, what has happened on Bush's watch—almost all of it—amounts to ludicrous flushing of national assets down a rat hole. It's a fair question to ask if Bush is crying wolf again. But remember "The Boy Who Cried Wolf" ends with people deciding they won't get fooled again and someone getting eaten. The difference is, this time the villagers will be the ones consumed by their skepticism.
No, Lehman Bros. would not voluntarily surrender to bankruptcy if this were a hoax. No, Democrats would not fail to use the slightest evidence of a hoax for political advantage. No, Fannie and Freddie and AIG would not be under the yoke of government control if this were a hoax. No, Russia would not have allowed tens of billions to evaporate on its stock market if this were just the American president's final hoax.
So get real. Yes, 6.1 percent unemployment, skyrocketing mortgage defaults and rising prices are bad and they're already here. But don't kid yourself that this is anything like the Worldwide Great Depression of the 1930s. And don't dismiss the fact that our economy is in no shape to sustain a massive collapse of credit.
So if you're one of those screaming about your family's tax burden increasing by $10,000 over this bailout, quit lying. It won't. The bailout adds about 6 percent to the national debt. We have progressive taxation in this country and you probably don't pay more than a few thousand dollars in income tax now. So add six percent if you want to squawk and bitch in high dudgeon, but remember that government will soak the rich who deserve the burden, not you personally.
Remember, too, that taxpayers will see some of the $700 billion recovered over the next few years, particularly if Sen. Chris Dodd's plan is adopted. I'd link to it here, but the buttons aren't working. Look for the link in a Politico story today.
Yeah, if you need to, call me out on your "facts." Bitch and moan about the programs that might not be funded or that might get cut.
And then go ask the nearest 90-year-old about the breadlines and beggars and sickness and wars that accompanied the last Worldwide Great Depression. Ask them if the government acted quickly enough or paid more heed to the skeptics.
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September 22, 2008 2:42 PM | Reply | Permalink
I think I agree with you, but if a bailout is necessary, it's pretty unprecedented at this level. Let's get even more unprecedented and fund the first 200 Billion or so with taking back Wall Street bonuses and we'll pick up the rest...
The case:
http://tpmcafe.talkingpointsmemo.com/talk/2008/09/fair-market-solution-retroacti.php
September 22, 2008 10:51 PM | Reply | Permalink
Mera Bharat Mahaan!
September 23, 2008 9:52 AM | Reply | Permalink
Umm, what is McKeynsian economics?
Other than Bitch first...
September 23, 2008 9:11 AM | Reply | Permalink
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"Fuck Them, Fuck Me, Fuck You"
alone.
September 22, 2008 3:24 PM | Reply | Permalink
Sorry Rip... Not Rec'ing this post at all. I'm holding onto all my assets now. I'll feel more comfortable investing my Rec's once I see some signs that TPM'ers comprehend that 40 million people unemployed would be slightly worse than 9 million.
Cause right now, McMoronism appears to be surging through TPM.
(Though I MAY give you two Rec's tomorrow.)
September 22, 2008 4:22 PM | Reply | Permalink
Another domino falls. Now the Rec System has succumbed to irrational fear. There could be no clearer evidence of my point.
And yeah, 6.1 percent unemployment looks bad until you compare it to the 25 percent unemployment rate in the depths of the Great Depression.
September 22, 2008 4:29 PM | Reply | Permalink
Shouldn't hoarding be illegal under the bailout of TPM's Recommended System?
September 22, 2008 4:41 PM | Reply | Permalink
Something had to replace Palinmania.
September 22, 2008 4:58 PM | Reply | Permalink
There are a half-dozen or more ways to improve liquidity in the credit markets. Only one of them involves a massive taxpayer-only funded bailout of the richest Wall St. firms. Why is that the only one being considered?
I'm sorry, this bailout plan is a great scam on the American taxpayer. There are many options that need to be considered before we even contemplate putting one more cent of taxpayer funds on the line.
September 22, 2008 6:37 PM | Reply | Permalink
Liquidity in the credit markets?
Come on. Clearly the thrust of quinn's comment demonstrates the dire state TPM "Rec" liquidity.
Despite his elitism, I am in favor of a TPM communal Rec bailout for quinn. I propose everyone immediately Rec his next post without so much as reading the first sentence. Perhaps, even delete cooks and Rec again.
For God’s sakes people, we must restore Rec liquidity now!
ps: we can waterboard him later.
September 22, 2008 11:08 PM | Reply | Permalink
I'll take the Rec's now.
Re: The waterboarding. Perhaps a Commission first.
September 23, 2008 1:20 AM | Reply | Permalink
My experience suggests that the TPM server (bless its failing heart) limits Recs to one per IP address. Cookies don't seem to be involved at all. FWIW.
September 23, 2008 4:30 AM | Reply | Permalink
If the financial system is going to collapse, then the financial system will give us favorable terms to bail them out? Yes ?
September 22, 2008 4:39 PM | Reply | Permalink
Good post. If people really knew how close we are to a global market collapse, they'd shut the fuck up.
September 22, 2008 5:01 PM | Reply | Permalink
okay, this is the second time i've seen this response from you. just curious, how close are we? 24 hours? a couple days? a week? six months?
September 22, 2008 5:43 PM | Reply | Permalink
Closer than you think
September 22, 2008 7:01 PM | Reply | Permalink
you seem to have all the answers. don't toy with me. give me a ballpark.
September 22, 2008 7:22 PM | Reply | Permalink
After Thursday's briefing by Paulson and Bernanke, the Congressional leadership believed we were days from financial collapse.
If you disagree with this assessment, which I'm guessing you do, you should provide some reasons why.
Did you have access to the Fed's data on reserves at banks?
Were you sitting at a Bloomberg terminal watching credit markets in real time?
Were you a CFO who had no trouble getting credit during the afternoon, when Paulson said commercial paper wasn't moving?
Unless you have some specific information like that, I'm going with Congress, Treasury, and the Fed in believing we're in a dire situation.
September 22, 2008 10:32 PM | Reply | Permalink
I think my problem with the whole thing is that I don't trust anyone from the Bush admin which these guys are obviously a part of, and that the Republicans are calling this the Bush-Pelosi Bailout.
So, yeah. If the Repubs aren't on board then "Fuck Them, Fuck Me, Fuck You." I will not support giving them both houses of congress and the presidency, which WILL happen if this is not a bipartisan bill with a huge amount of support on the R side.
September 23, 2008 6:09 AM | Reply | Permalink
Jconorflynn,
You leaned into this one. And I just can't let it pass. So I'm sorry.
If I worked at one of those firms I'd hide my eyes too.
Again sorry, the picture and that initial sounds too much like.... well... T. Boone..... Oh never mind I am sure you figured it out by now.
Now feel free to pound on me.
Have a good one.
September 22, 2008 6:55 PM | Reply | Permalink
I have to correct one thing in my post. Having looked at the plan presented by Rep. Brad Sherman (D-CA), I now believe his plan is superior to Sen. Dodd's bill. Thanks to Josh for the tip:
http://tpmmuckraker.talkingpointsmemo.com/2008/09/new_democratic_bailout_proposa.php
September 22, 2008 5:25 PM | Reply | Permalink
Ripper, the venom is always refreshing, but where do you stand? Do you support the bailout as written or not? I don't. I know we need to assist a segment of the economy, but I disagree with the notion of bailing out the corporations. In my opinion, it's the least efficient, least direct option.
I absolutely oppose a corporate bailout. Instead, I believe the government should use the money to help PRIMARY mortgage holders keep their residences. In return, those homeowners should agree to a complete freeze on their credit for a minimum of seven years. Think of it as partial bankruptcy. In order for this to work, all of the consumer's debt would need to be consolidated and included in the refinancing, and all of their sources of credit would need to be closed.
No new mortgages should be offered under this bailout plan.
I'll vote against anyone who gives the Bush Administration a 700 billion dollar check without oversight or a clear plan for success. This new proposal is the economic version of the invasion of Iraq. There is NO PLAN.
I also oppose the notion, promoted by some on the left, that we should adopt a laissez-faire approach to this crisis, and simply allow the guilty parties to fail. That's incredibly naive, destructively idealistic, and it smacks of Republicanism. We need to deal with this, and we need to deal with it in from a Democratic perspective.
September 22, 2008 5:46 PM | Reply | Permalink
hrebendorf, the Rep. Brad Sherman plan looks best to me. It's not so much a bailout as a partial nationalizing of damaged corporations. It also provides for judicial review and other safeguards not built into Dodd's plan.
September 22, 2008 9:11 PM | Reply | Permalink
Dude, credit is not the life blood of the economy...CASH is! That's why we are in the mess in the first place.
Look, if easy credit got us into this mess; how is more of that going to get us out?
So I can get a loan, big deal! I got a $50,000 car loan in 8 seconds. It's just DEBT! Who needs a $50,000 car. Ah! BUT I WANT ONE!
I'm a diehard Dem, but let's be honest. This comes down to personal responsibility. Just because you CAN do something like get a $50,000 loan does not mean you should.
September 22, 2008 6:36 PM | Reply | Permalink
i agree with you about the cash. if you've got any, hang on to it. if you can get hold of any, do it. deflation seems like a logical outcome of the impending doom. nobody's gonna wind up spending 20 beans on a loaf of bread. try two bits.
September 22, 2008 6:56 PM | Reply | Permalink
Wrong.
Most businesses fund themselves with debt because it is cheaper than equity, and provides tax shields because interest payments are tax deductible.
If the cost of this debt skyrockets, as it is doing, then projects will not get funded which means the economy will not grow and will probably shrink. i.e. you will lose your job.
The other way to finance business projects is through equity. But the equity markets are f---ed too, so that's getting even more expensive than it already was. Bad news.
September 22, 2008 7:04 PM | Reply | Permalink
You said the operative word...BUSINESSES. Businesses finance...Since when is it prudent for me or you for that matter to charge groceries on a credit card. We say it's for the points...but really; who are we fooling.
No, our problem is that we're hooked on Visa, Mastercard and American Express. I am for damn sure. I'm not trying to be Pollyanna about this, I fell in the trap too.
Know, what made me wake up and change? Bank of America sent a mailer out. They threatened to raise my interest rate if I did not close the card from 9 3/4% to 29%. Turns out they DROPPED my rate to 6 1/4% and raised my limit to $16,000..but that put the fear of God in me. That they could sent me a letter and my payment would jump that high that fast.
I live in the DC area, so I make good money. Having said that, it scared the hell out of me that they could screw me with no more than a letter...not even dinner a drink or a reach around.
As for the housing crisis. I've been waiting for this time so the prices will drop. I hate the fact that people are losing their homes; but I'm now looking for a bargain.
September 22, 2008 8:00 PM | Reply | Permalink
Hope you have cash or gold to buy one because getting a mortgage, even with great credit, is going to be hard to come by.
With the meltdown, banks just won't be lending. No new loans, and the economy dries up.
I've been passing this around. It is a must see. It is a bit long, but worth it:
Money as Debt
September 23, 2008 1:57 AM | Reply | Permalink
Rip,
As I am sure that I am one of the guys you "rippered" let me try to convince you of my position.
I come down HARD, against this bailout. I think that if the US govt. is gonna drop A TRILLION$s or even $500B into something, why not put it into DIRECT refinancing of the majority of those bad debts they are gonna buy. I can see no other reason that Paulson is taking on this debt than saving 4 or 5 firms from oblivion.
Unlike the RTC this is the US govt. buying DEBT, not property, DEBT just to save a few firms. Then they decide to employ those SAME outfits to help them sell off the DEBT they just bought. I could be mistaken but wouldn't WE now paying them twice for the SAME DEBT?
These businesses have already failed. Is it gonna make any difference if we give the money to them or to individuals?
If the only reason we can think of for doing this bailout is to "SAVE these businesses" then we can't. If we have to put up the money anyway why not cut out the middleman. Oh and JOBS ain't good enough, otherwise we'd have never let a manufacturing plant move overseas or close and WE have never done ANYTHING like this before. I know you're thinking Chrysler, but it wasn't just "US" buying DEBT like this proposal is.
Granted we can't let the economy fall apart but why reward the people that caused this mess in the first place when we can accomplish the same thing by dealing direct with the "little people"
If you can tell me ONE thing that will be accomplished by this Bailout that you couldn't accomplish without I MIGHT be swayed. And again jobs ain't good enough.
Just a thought. But I disagree, and usually I agree with you on just about everything I seen you post. Who'd have ever thunk it?
September 22, 2008 6:41 PM | Reply | Permalink
There is precedence for a government buying the debt of companies nearing failure, read France. While viewed from the outside as irresponsible and socialist at the time, most, though not all admittedly, returned to greater strength after a period of correction, and the previously purchased debt showed a return for the French government.
Stemming the crisis of confidence in foreign investment into the United States is of the utmost importance. Remember these banks don't even hold deposits. There sole reason for existence is as a middle man for foreign investment dollars into the US economy (you know the one depending on a trade deficit since 1976. Whether you like capitalism or not, it depends upon consumption, and if economies are not growing they are shrinking. If our economy begins to shrink at it's core vis-a-vis no foreign liquidity entering our markets, I don't care if you own your home. You are f-ed!
I agree we shouldn't reward the people who got us into this mess, but sending the money to the bottom doesn't help us in this case. We need these banks to stay open, so that almost every publicly owned corporation remains open.
September 22, 2008 6:52 PM | Reply | Permalink
Agreed. Didn't Sweeden take control of their financial system at some point, too? This kind of thing is not unprescendented, although it is unprescedented on this scale.
Name one thing besides jobs that will come out of this...well, how about staving off a depression. That enough for you?
September 22, 2008 7:07 PM | Reply | Permalink
Oh I forgot, insert FUCK where ever you want and it seems right.
September 22, 2008 7:01 PM | Reply | Permalink
FUCK usually works for me. But in answer to you a bit farther up the thread, no, I wasn't ripping anyone in particular, just the entire concept of leftist laissez faire.
Purchasing equity in the failing institutions and banks will keep them open for business so they can keep businesses open for business. And it's not 4 or 5 companies. We spent $200 billion in today's dollars back in the late 1980s to clean up the mess when more than 700 S&Ls went bankrupt. That should give you some idea of how severe THIS problem is.
September 22, 2008 9:20 PM | Reply | Permalink
So if I am a complete fuckup the government is going to rush in and not only save me from myself but keep me doing the same thing I did before cause what I was doing before was good for the country?
Now, that is fucked up.
September 22, 2008 9:55 PM | Reply | Permalink
No, they would not be allowed to just keep doing what got them in trouble in the first place. They WOULD be allowed to extend credit under tighter risk regulation.
September 22, 2008 9:58 PM | Reply | Permalink
But basically you still have the same people pushing the same ideas about how to run this economy at us. Sorry those ideas are bankrupt. We are getting our ass handed to us in many many areas of business around the world.
We need to re-think what we are doing as a country. Move away from de-regulation and the idea that the next quarter is more important than the next decade.
September 22, 2008 10:10 PM | Reply | Permalink
Paulson called for such a large sum with no strings attached with the intention of starting the conversation. The markets were close to terminal velocity, spurred on by a fear cycle that had spread to the most hands-off of investors. He was forced to act quickly to restore some superficial confidence (think of it as a tourniquet to staunch the bleeding). Calling for such a huge sum combined with the freeze on short-selling bought Congress the time to actually debate what should be done.
One has to remember that very few, if any, politicians understand the deep internals of our economy. They need the time to consult with the individual lobbies concerned. Remember lobbyists are the number one source of information for a congressman. Very few Senator and Representatives have the type of budget to staff an economics adviser, so they have friends from individual industries and academia they call upon. Will the eventual action be perfect? No of course it won't, but in defense of Paulson had he not stepped in, we could be in a much worse situation than we are now.
Bottom line: Smart investors always invest for the long haul and diversify their holdings. Ask Warren Buffett. I'm safe... Are you?
September 22, 2008 6:43 PM | Reply | Permalink
$700 billion isn't much, Rip says, and it's just 10 large per taxpayer.
But it's the opportunity cost, baby. Plenty of smarter ways to spend $700 billion and really fix some stuff, instead of maybe restoring what we had. Bail out GM? Give the money to Steve Jobs and let him hire us to build cars.
Time for things to revolve and evolve.
Fuck the global economy.
September 22, 2008 7:17 PM | Reply | Permalink
Hence, the title of my post.
September 22, 2008 10:36 PM | Reply | Permalink
O how you do make assumptions.
ROFLMAO.
A few thousand dollars - I wish.
And I don't bitch about the taxes -
September 22, 2008 7:54 PM | Reply | Permalink
That's a generalization, not an assumption. An assumption is made without first ascertaining facts.
Since 95 percent of Americans make less than $200,000 a year, it's a pretty safe bet that most folks here (non-Republican corporate types) make less than that on average.
If you don't fit the generalization, big deal.
September 22, 2008 9:30 PM | Reply | Permalink
Yeah big deal - how easily you dismiss things that don't fit your nice little theory.
September 23, 2008 12:47 PM | Reply | Permalink
You aren't a mortgage broker by any chance?
September 23, 2008 1:00 PM | Reply | Permalink
Need to stabilize the banking system to prevent a full run to liquidize. Fuck Lehman and their ilk. The point is to prevent everyone from running in and pulling their monies out for mattress stuffing.
The bigger concern is the so called provision (Section 8) to allow the Secretary of Treasury unfettered powers. Supposed McCain gets elected and Phil Gramm is appointed Secretary of Treasury.
In the spirit of Rip's post, fuck alls you but I'm tired of getting fucked. If this bill passes as such and McCain wins the four horsemen will include Phil Gramm. I'm for a proactive bailout but we have to demand oversight goddamit.
As Obama said enough....demand Congress do their job!
September 22, 2008 7:57 PM | Reply | Permalink
I couldn't agree more!
Lack of oversight (regulations) is largely responsible for this mess... ...and they're suggesting the "solution" requires even less oversight? My ass!
This is our taxpayer money they're playing with... as a Taxpayer I demand representation. I also expect a return on my investment. The only way to do this is have oversight by BOTH Congress and the Courts.
September 23, 2008 10:50 AM | Reply | Permalink
You know....if they want the cash then they should agree to the conditions.
September 22, 2008 8:37 PM | Reply | Permalink
I have no idea about finance and economics. I understand the basics, but couldn't tell you the difference between an investment bank and the bank I pay my mortgage to every month.
Lot of good info on this thread for me to learn a bit more about this, so thanks to most of you.
I've learned enough reading about this over the past few days to know I won't learn enough to have a valid opinion of this until long after the "solution" is passed. I am shamed and that hole in the dirt is looking like the perfect size for my head.
Godspeed to those who are in a place to help get us out of this mess....
September 22, 2008 9:21 PM | Reply | Permalink
I only wish more people had your humility in the face of overwhelming consensus by our elected officials. I reject the initial Treasury proposal, but the Democrats are working toward a better solution.
September 22, 2008 9:32 PM | Reply | Permalink
It was mentioned a bit above but I actually think the response has been pretty spot on considering that the whole point is to restore investor confidence in our markets and economy. Once that goes, then you have runs and liquidity becomes a potentially insurmountable issue. Then instead of investment banks going under you start to get regular deposit based banks (including major ones) going under and that's called all hell breaking loose. Also, people have to remember our economy is similar to the circulatory system for the global economy and if we get sick and have problems then that ripples throughout the world in a very rapid and extremely serious manner. There are already a ton of extremely challenging problems facing the planet, we don't want to add going broke to the list. If you think it's bad now, it could get A LOT worse very quickly. That's why it was so important to at least announce that the sheriff was on the job and a cavalry (of sorts) is on the way.
Regulations (within reason) are certainly desirable but if investors fear it's gonna strangle the market then it could have the same detrimental impact on confidence. Think of a good ref ensuring a clean fight with no low blows who keeps the action moving by quickly stepping in to break up holds and tie-ups, treating each side fairly. Now think of a bad ref who's constantly interrupting the action, deducting points willy-nilly and having the appearance of favoring one side over the other. That's the difference between good regulation and too much regulation. We've got to find the right balance for any response to work.
September 22, 2008 10:53 PM | Reply | Permalink
Not to belabour the obvious point. The fight has been less than clean up till now and the American Public has been fighting with their hands tied. Confidence is fine but raise hands that have confidence in the Business leaders that we have now. Sorry, I don't. We best be getting about having a Economic policy based on National goals and National priorities. Most other economies are doing this and we keep pissing time away because republicans and Business leaders scream about a "free-market". If a free market breeds this sort of fiasco then sorry, I will pass.
If we don't at the very least get equity stakes in these companies and oversight by the government then we are throwing good money after bad. Then the next question is what is next? The Auto Industry? Why bail out the banks and not do Auto or the Appliance Industry or Steel. Where do you stop it?
We've got to find our way back to our roots and build again a solid middle class. A place where we don't have 1% of the population owning 90% of the assets. We need to again make sure that Social Security is just that. That Health Care is available for all......Simply dumping a Trillion Dollars all over Wall Street for "confidence" is irresponsible.
September 22, 2008 11:23 PM | Reply | Permalink
Believe me, I too have a large amount of frustration with the performance of the current political and economic leadership. However, allowing our financial system to tank in order to punish and get rid of them is shooting yourself in the head to cure a headache. The reason you do whatever you can to salvage the banks and financial system is that all those other industries you mention can't function without it. If that happens people will have a lot more to worry about than whether they're investments and savings are sound, whether they have a house or even whether they have a job. Ask those who lived through the Depression. Don't be arrogant enough to think that we've come so far that it can't happen again. It can. History has shown financial catastrophes won't go extinct. As long as there are economies, there can be economic disasters. Different economies and currencies have run the world at different times and they ALL have seen their glorious run end. They all seemed infallible and indestructible at one point or another. They all fell. If we can do anything to stave this one off or soften the fall, we should.
As for it being a fair fight, it isn't. It most certainly isn't. But remember that if it is called on points or a DQ, those same folks who are getting screwed now are going to be the ones to get screwed the most! The poorest among us will suffer the most and they'll do so first and longest if the system breaks. If their well-being is really your main concern, then finding a way to fix and improve this system is the only way to do so. Starting over means a lot of people start at less than zero and that is going to hurt a lot, LOT more than anything they are feeling right now.
Salvaging and then growing this economy is the best way to strengthen the middle class and create jobs. I really like Obama's thoughts on investing in rebuilding national infrastructure (especially green technologies) which means domestic jobs that pay well. That sort of plan coupled with a functioning and well-regulated market that is attracting capital and a more progressive tax policy that isn't starving the beast is the way to really achieve the prosperity that we're all looking for. Think about our obligations across the globe and domestically. We can't afford to let the economy tank and then try to rebuild from scratch. I think you noted above that we need to start thinking on a longer term horizon, well this is it. The long term implications of a failure here really will eliminate the opportunity to successfully do many other positive things.
September 22, 2008 11:59 PM | Reply | Permalink
Where did anyone get the idea that Paulson's proposed bailout has anything to do with extending credit to the businesses that employ 95% of those of us who still have a job? That's not what's intended and not its function at all.
It's intended to bolster the LIBOR market and the interbank overnight loan market in order that the big banks can continue speculating in the markets ("proprietary trading") and can continue carrying the loans they've made to hedge funds as performing (if those loans go non-performing then, they have to be called).
Loans to ordinary businesses require a sound bank balance sheet; increased loans to businesses require increased bank capital. Paulson's proposal doesn't increase a bank's capital; it simply substitutes one asset for another. In fact it may make things worse. Why?
Well, banks carry their assets at cost and the things they'd sell to the government are worth less than they're carrying them on their balance sheets. If they sell these assets for less than cost, their capital will decrease and their ability to make loans will decrease, too.
Note: As an aside I've heard that the financial system was, last week, only days from meltdown. I've yet to hear anyone explain what the effect of this "meltdown" would have been on the customers of Pennsylvania based PNC or Chicago based Northern Trust or any of another 5-6000 banks which aren't in trouble. So, what would the effect have been? And why?
September 23, 2008 12:29 AM | Reply | Permalink
The "good" banks are not immune. They still float on the same economy as the bad banks, so when the tide recedes, they all go down.
Case in point, both Goldman and Morgan had limited exposure to mortgage backed securities, and both are regarded as well run institutions, yet both found their stock tanking last week and were hours away from credit downgrades, which would have destroyed them. This just two days after both investment banks posted better than expected profits for the previous quarter. Furthermore, both banks keep client and bank assets separate, so there really was never a threat to client assets, just like the good customers at PNC (albeit without FDIC insurance).
The reason why Goldman and Morgan were the story last week and not PNC was because PNC takes deposits that subsidize its short term capital needs, whereas Goldman and Morgan rely on overnights from other banks. The credit market shrivels, and the investment banks die--note, neither Morgan nor Goldman are investment banks anymore.
Part of dying is deleveraging, which further depresses asset values. Once the deleveraging hits a tipping point, no amount of deposit or fed credit can fill the vacuum and all banks fail--the financial implosion we're all freakin about.
I'll grant you the difference that PNC et al "good banks" are leveraged 12:1, whereas Goldman and Morgan were 22:1 and 30:1, but if we believe the Fed, Treas and Wall Street that these two investment banks manage their risk better than their dead peers, then the ratio is moot. Deleveraging 12:1 or 30:1 matters little if the asset values are in free fall.
September 23, 2008 12:19 PM | Reply | Permalink
Global economic armegeddon you say? Would anyone care for some yellow cake? Wolf! Wolf!
I am NOT a hostage!
September 23, 2008 4:05 AM | Reply | Permalink
The greedy (or stupid) homeowners who took out the loans do not deserve bailout either. Both the banks and the homeowners who either overleveraged or wanted to flip homes have made it next to impossible for honest, decent folks - who know how to live within their means and who know that you don't get something nothing - to buy their own homes.
However, people here should recognize that the government wants to bail out the banks because of their cozy relationships with them and the citizens to ensure votes (and quite possibly prevent a massive, angry mob looking for heads to roll).
In other words, the banks and the homeowners have been greedy and unprincipled and they are now getting fed my money -- in addition to wrecking the system for honest folks.
September 23, 2008 6:22 AM | Reply | Permalink
I agree with you, clearthinker.
I want them ALL to go to hell without taking me and my 401K with them.
September 23, 2008 8:58 AM | Reply | Permalink
Isn't there a difference between "bailing out" the struggling homeowners and extending the length of their mortgages while fixing their interest rate, so that they actually have a hope in hell of paying them off? Empty houses and homelessness don't help our economy either.
I don't like the bailout, but I'm not pushing against it. I *am* demanding that we include help for homeowners (again, not a bail out but a refinancing), caps on CEO salaries, and oversight.
September 23, 2008 12:47 PM | Reply | Permalink
That's exactly right and exactly the approach being taken by Congressional Democrats. "Bailout" is a much overused word.
September 23, 2008 12:58 PM | Reply | Permalink
There are plenty of people (myself included) wanting to jump into this market. They were the responsible ones, living within their means.
The prices are being kept artificially high by the bailout.
People make bad decisions all the time without government bailout: gambling, stock markets, etc. These homeowners were part and parcel with the banks at the root of our present trouble. And they help propagate the wrong attitude: take a risk and don't worry.
Moreover, these people just helped wreck my FICO score as banks will tighten mortgage loans now.
When I, and all the responsible people who didn't live beyond our means -- and who now have to suffer the bailout on top of everything -- have decent homes, then we can worry about the foolish/greedy/irresponsible folks feeling the pain. That includes both the lenders and the lendees.
September 23, 2008 1:00 PM | Reply | Permalink
It remains to be seen if a "bailout" will keep prices artificially high. I'm not sure how you came to that conclusion/assertion/opinion.
September 23, 2008 1:58 PM | Reply | Permalink
Is it a bad thing that I was a little turned on by your Headline? ;^}
September 23, 2008 7:39 AM | Reply | Permalink
LOL!
September 23, 2008 10:14 AM | Reply | Permalink
Excellent post. And it would benefit the Left to actually provide some useful input to prevent a financial catastrophe. Such a debacle would fall on the most vulnerable and those least able to contend with cupboards full of nothing. Worst-case financial scenarios may hasten a revolution... but it may be a revolution none of us want.
September 23, 2008 10:17 AM | Reply | Permalink
Here's some useful input; throw all Republicans out of office. Most are corrupt and they have become dangerous to the republic. How's that, for starters?
September 23, 2008 11:14 AM | Reply | Permalink
There are a few babies in that bathwater.
September 23, 2008 11:20 AM | Reply | Permalink
blah blah blah blah.
Quick question though:
Does anyone have a link to the names of the banks and investment firms that have had to already shutdown?
September 23, 2008 10:24 AM | Reply | Permalink
You mean pigmania?
September 23, 2008 12:20 PM | Reply | Permalink
What exactly is this financial system meltdown, everyone is talking about?
There has been VERY few retail or commercial bank failures and the FED has repeatedly assured that no great numbers of banks are about to fail.
Investment banks that have incompetently and greedily invested in trash bonds via leveraged transactions have failed, were bailed out or have changed their business model. They don't exist anymore as a business segment and the bailout will not revive them, nor should it.
FDIC is already insuring the retail banking sector and the FED is regulating the commercial banking sector. If the credit market freeze is a serious concern, than further lending via FED credit vehicles can be offered to more financial players.
If the problem is that of "crisis of confidence", then it is far from clear that anything the federal government can do will restore the confidence in the American credit market, which for years have been winding up a series of exceptionally complex and likely fraudulent global trades.
If the problem is that of "bank liquidity" than a trillion dollars would be a pittance in the global credit market, but would have significant adverse effects to our national debt, the value of the dollar and viability of domestic programs.
The bottom line is that if the system is as close to "collapse" as Paulson and Bernanke are saying, it can not be saved at this point with a trillion dollars. If, however, it is not as close as they are saying, this trillion dollars is better spent actually addressing the systemic problems in the financial system to prevent the actual collapse. Injecting a teaser amount into a system that apparently is in trouble because of engineered overly easy access to capital in the first place will not help.
September 23, 2008 12:40 PM | Reply | Permalink
Why not give every American a $2,500 real estate credit. It could only be spent on real estate, but it could also be sold for cash. If we're going to bail out the banks, why not let it pass through our pockets first?
September 23, 2008 1:51 PM | Reply | Permalink