The Economy, stupid

[southsider2k5]

Here is the pop quiz portion of our show...

 

What is the best preforming stock market out of the major world markets YTD?

[Cknolls]

Funny how you can short the SKF huh?

[NorthSideSox72]

Here is the pop quiz portion of our show...

 

What is the best preforming stock market out of the major world markets YTD?

I'll take a wild guess before I research it... is it the BMV in Mexico?

 

[southsider2k5]

I'll take a wild guess before I research it... is it the BMV in Mexico?

 

If you really want to know, I won't spoil it for those who don't. I'll white type it...

 

This quarter the US broader markets are down only 5%, which is the best preformance in the world. Places like Norway, Russia, and Brazil are all down 35% OR MORE, this quarter.

[NorthSideSox72]

If you really want to know, I won't spoil it for those who don't. I'll white type it...

 

This quarter the US broader markets are down only 5%, which is the best preformance in the world. Places like Norway, Russia, and Brazil are all down 35% OR MORE, this quarter.

Heh. Had a feeling - should have gone with the gut instead of over-thinking it.

 

 

[Balta1701]

So the bailout plan is pretty remarkable. It's 3 pages long. It essentially gives the Secretary of the Treasury carte blanche to transfer $700 billion of your tax dollars to any business he wants. And it specifically says you can't challenge any of the decisions in court. Christ.

 

For the Republicans...do you think it's a great idea for any part of the federal government to be given a $700 billion blank check?

 

For the Democrats...can you think of a better way to spend $700 billion dollars?

 

I can't imagine why anyone in their right mind would do this as currently structured. Which of course is exactly why it's going to happen as written.

The Bush administration on Saturday formally proposed to Congress what could become the largest financial bailout in United States history, requesting unfettered authority for the Treasury Department to buy up to $700 billion in mortgage-related assets.

 

The proposal, not quite three pages long, was stunning for its stark simplicity. It would raise the national debt ceiling to $11.3 trillion. And it would place no restrictions on the administration other than requiring semiannual reports to Congress, granting the Treasury secretary unprecedented power to buy and resell mortgage debt.

 

Staff members from Treasury and the House Financial Services and Senate banking committees immediately began meeting on Capitol Hill, where negotiations were likely to be complicated but quick. Democratic Congressional leaders have pledged to approve legislation by the end of this week.

 

Even as talks got underway, there were signs of how very much in flux the plan remained. The administration was suggesting it might adjust its proposal, to purchase assets from financial institutions based in the United States, to enable foreign firms with United States affiliates to make use of it as well.

 

The ambitious effort to transfer the bad debts of Wall Street, at least temporarily, into the obligations of American taxpayers, was first put forward by the administration late last week, after a series of bold interventions on behalf of ailing private firms seemed unlikely to prevent a crash of world financial markets.

 

A $700 billion expenditure on distressed mortgage-related assets would be roughly what the country has spent so far in direct costs on the Iraq war and more than the Pentagon’s total yearly budget appropriation. Divided across the population, it would amount to more than $2,000 for every man, woman and child in the United States.

It's a transfer of $2000 for each person in your family to a bunch of bankers who made bad decisions.

[jackie hayes]

So the bailout plan is pretty remarkable. It's 3 pages long. It essentially gives the Secretary of the Treasury carte blanche to transfer $700 billion of your tax dollars to any business he wants. And it specifically says you can't challenge any of the decisions in court. Christ.

 

For the Republicans...do you think it's a great idea for any part of the federal government to be given a $700 billion blank check?

 

For the Democrats...can you think of a better way to spend $700 billion dollars?

 

I can't imagine why anyone in their right mind would do this as currently structured. Which of course is exactly why it's going to happen as written.

It's a transfer of $2000 for each person in your family to a bunch of bankers who made bad decisions.

A couple things. First, he can't use the money however he sees fit, quite. He can only use it for "mortgage-related assets". And second, remember the "assets" part. The upfront cost is $700 bil, but we will get some of that back, later.

 

(Now, I've said things like this before, and got eyes rolled at me. I tend to think the difference between $350 bil and $700 bil is important, but if you don't, feel free to ignore me.)

 

I'm not saying it's a good solution, or even the best quick and dirty one. Krugman has a good take:

 

http://krugman.blogs.nytimes.com/2008/09/20/no-deal/

[Balta1701]

Now they're talking about adding more to the bailout...which has pushed the price tag to something like $1.8 trillion.

[Balta1701]

Chris Dodd's office has put out the outline of some changes he'd like to push on to the bill. I think they'd be an improvement, although I still don't like the bailout concept here.

Among the major provisions Dodd is adding:

 

* Authority for bankruptcy judges to restructure mortgages for homeowners facing foreclosure. This was considered a poison pill in a housing bill that passed Congress earlier this summer, but it has gained much more currency now that Washington wants to bail out Wall Street.

 

* A provision that would require the Treasury to take 65 percent of any profits it makes from the newly purchased assets and put it into the federal government's HOPE program, an affordable housing program.

 

* An oversight board that not only includes the chairman of the Federal Reserve and the SEC, but congressionally appointed, non-governmental officials.

 

* Limits on executive compensation. This is a major stumbling point for Paulson in his negotiations with Congress, but cracking down on Wall Street executive salaries will be a major selling point for lawmakers. Dodd and Frank have put in place what's known as a "claw back" provision aimed at revoking compensation that executives received based on fraudulent claims.

 

* An independent inspector general to investigate the Treasury asset program, appointed by the president.

[southsider2k5]

Chris Dodd's office has put out the outline of some changes he'd like to push on to the bill. I think they'd be an improvement, although I still don't like the bailout concept here.

 

Dodd is an idiot if thinks this program is going to make a profit. Its either that or a completely transparent pandering going on.

[jasonxctf]

Dodd is an idiot if thinks this program is going to make a profit. Its either that or a completely transparent pandering going on.

 

 

every bailout in US history has been profitable for the US government and tax payers... just an FYI.

[southsider2k5]

every bailout in US history has been profitable for the US government and tax payers... just an FYI.

 

The SNL bailouts cost the taxpayers $125 billion. Doesn't sound like a profit to me.

[StrangeSox]

There's a plethora of editorials out today blaming the Democrats for everything wrong with the economy.

 

http://www.bloomberg.com/apps/news?pid=new...d=aSKSoiNbnQY0#

http://townhall.com/Columnists/NealBoortz/..._meltdown_story

Edited September 22, 2008 by StrangeSox

[Rex Kickass]

So ummm oil, spiked 25 dollars today.

 

http://news.yahoo.com/s/ap/20080922/ap_on_bi_ge/oil_prices

[southsider2k5]

So ummm oil, spiked 25 dollars today.

 

http://news.yahoo.com/s/ap/20080922/ap_on_bi_ge/oil_prices

 

That's kinda misleading. What you just witnessed there was a nasty short-squeeze combined with bad news. The second month contract was only up $6. All of the people who were short through the selling had to get out today and got killed by the dollar getting sold off. If this wasn't October last trading day, that last $20ish worth of rally doesn't happen.

[Cknolls]

Good thing we cannot short finskies, huh.

 

 

 

Pakistan banned short selling a coupl;e of months ago. At first the mkt there rallied, then it plunged 28%. Our market falling 28% would take us to S&P 911.

[southsider2k5]

There's a plethora of editorials out today blaming the Democrats for everything wrong with the economy.

 

http://www.bloomberg.com/apps/news?pid=new...d=aSKSoiNbnQY0#

http://townhall.com/Columnists/NealBoortz/..._meltdown_story

 

So McCain employs lobbyist and gets a commerical made about him. Obama himself takes $125,000 directly from these companies, and doesn't see how he might be responsible for part of this mess?

 

The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''

 

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

 

Different World

 

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

 

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.

 

That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''

 

Mounds of Materials

 

Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.

 

But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.

 

Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

 

Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.

 

There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.

 

Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.

 

[StrangeSox]

That's kinda misleading. What you just witnessed there was a nasty short-squeeze combined with bad news. The second month contract was only up $6. All of the people who were short through the selling had to get out today and got killed by the dollar getting sold off. If this wasn't October last trading day, that last $20ish worth of rally doesn't happen.

 

So does this mean we're likely to see oil come back here?

[Rex Kickass]

So McCain employs lobbyist and gets a commerical made about him. Obama himself takes $125,000 directly from these companies, and doesn't see how he might be responsible for part of this mess?

 

That's a bit misleading of an article. I highly doubt that the only reason that the bill never made it to the main floor of the Senate had to do with a threat of filibuster. I'd wager instead that the bill didn't have 50 votes - let alone 60 votes.

[southsider2k5]

So does this mean we're likely to see oil come back here?

 

The November contract is trading $109. So when you start seeing the price tomorrow, that is what you will see quoted. I guess it will look like an $11 loss before it even trades.

[Rex Kickass]

If this bailout puts more pressure on the dollar, I would definitely think that we could see a new run on oil.

[Chisoxfn]

I hope this doesn't push energy back up and if it is going to, can anyone please look into the future and let me know cause I will throw some money into the energy sector.

[Cknolls]

Delinquency rates on option arms are staggering as they begin to reset.

 

Will the next bullet be the repeal of FASB 157.

 

Then the repeal of the uptick rule.

 

After that... lower......... much much lower.

 

 

The gov't. thinks it is bigger than Mr. Market.

 

As one insider I read put it: The gov't opted for cancer instead of a car crash. Indeed.

[southsider2k5]

If this bailout puts more pressure on the dollar, I would definitely think that we could see a new run on oil.

 

The dollar got crushed today, and oil rallied off of that to start. I don't know if that will start a new trend or if today was the one day adjustment to that news. That is where you can make your money if you are right

[Balta1701]

I hope this doesn't push energy back up and if it is going to, can anyone please look into the future and let me know cause I will throw some money into the energy sector.

At this point, both in the short and long term, I frankly have no idea where the oil market is going to go. The fundamentals of that market are frankly still strong...the more oil the world can produce, the more it's going to consume. But right now there are so many different factors that are going to play in to where the price goes:

 

1. The gigantic wall street bailout and what it will do to the dollar to sell another trillion dollars worth of bonds

2. The Presidential election and the radically different lines of thinking of the 2 sides

3. The world economic slow down and what that does for growth of demand

4. The increasing realization of the damage atmospheric CO2 is causing and the gradual clampdown on emissions from parts of the non-U.S. developed world (EU, Australia).

5. The approaching production peak

6. The development of higher mileage cars

 

Numbers 1 and 5 seem likely to push the prices up, Numbers 3 , 4, and 6 would actually be likely to push them down (for 4, the U.S. doesn't have a carbon trading system yet and the more other countries force their demand downwards through government action the more oil is available for the rest of the world), and no one really knows what #2 will do but the impact could well be very large if either of them rapidly get an energy policy enacted.