Bailouts will lead to rough economic ride - Page 3

ARealConservative · 09-23-08, 11:01 PM

Quote:

Originally Posted by SouthernDemocrat

So lets look at history as a guide. In the 100 years prior to the establishment of the Federal Reserve we had 4, yes thats 4, Economic Depressions. We have had one since.

1837–1862 is generally considered to be the free banking era.

If we want to truly look at history as a guide, we should note that our financial calamities seem to always follow wars. WW2 being the lone exception.

winston53660 · 09-23-08, 11:47 PM

Quote:

Originally Posted by SouthernDemocrat

This is what I don't get. The debate seems to be over what conditions need to be applied to this 700 billion dollar bailout. Don't get me wrong, I think the absolute blanket authority sought by the treasury department is dangerous and probably unconstitutional.

However, why give them the whole 700 billion now? Why not say, authorize 100 billion, and then if more is needed in a month, visit the issue again then. It will probably take them a couple of years through reverse auctions to buy up all these toxic assets, so why do they need the blank check for the entire projected amount this week?

It reminds me of Silverado Savings and Loan

MC.no.spin · 09-24-08, 01:14 AM

Quote:

Originally Posted by SouthernDemocrat

This is what I don't get. The debate seems to be over what conditions need to be applied to this 700 billion dollar bailout. Don't get me wrong, I think the absolute blanket authority sought by the treasury department is dangerous and probably unconstitutional.

However, why give them the whole 700 billion now? Why not say, authorize 100 billion, and then if more is needed in a month, visit the issue again then. It will probably take them a couple of years through reverse auctions to buy up all these toxic assets, so why do they need the blank check for the entire projected amount this week?

I think Schumer made some sound points when he brought this up today.

Where I think Paulson and Bernanke are on this is that they want to send a strong message to Wall Street that the economy will be strongly backed by the govt. Only approving a 100 billion may not be enough of a confidence boost for the market to really gain in liquidity.

There is a strong possibility that the Senate Banking Committee may only approve about 150 billion or so IMO. I think Paulson will have to do some behind the scenes lobbying in some more frank tones to get them to approve the full amount. And I bet that's exactly what he will do.

I also think Buffet knows something we don't.

SuperDem · 09-24-08, 01:23 AM

Hoover did something of a bail out and then a few months after he left office there was the Great Depression. I expect whoever gets to be President this time will have a modern day equivalent of that.

Ethereal · 09-24-08, 02:44 AM

Quote:

Your only looking at half the problem.

Yet you are ascribing more importance to the other half than is warranted. If the government hadn't facilitated these high-risk lending practices in the first place it would have been completely unnecessary for financial institutions to hedge against said risk through the utilization of credit default swaps. You're trying to put the cart before the horse.

Gladiator · 09-24-08, 09:01 AM

Bailing out banks that failed to adjust asset evaluation to pre-empt the possible bursting of the housing bubble is not necesarily the key to making new loans for house mortgages and new cars.

Paulson warned at the hearings the other day, that the economy would slump because the stupid banks would not be able to make more loans.

Why not let the stupid banks go bankrupt?

Create a Federal Guarantee for smarter banks making new loans. If Fannie and Freddie are inadequate because their insurance is based on Current marek value, rather than the higher of current market value OR the value at the time the mortgage was originated, tehn re-structur mortgage insurance as an incentive for new loans.

Maybe there should be a Federal guratnee for Insurance. Insurance companies advertize low cost, but not high assets to cover multiple disasters.

..

SouthernDemocrat · 09-24-08, 09:16 AM

Quote:

Originally Posted by MC.no.spin

I think Schumer made some sound points when he brought this up today.

Where I think Paulson and Bernanke are on this is that they want to send a strong message to Wall Street that the economy will be strongly backed by the govt. Only approving a 100 billion may not be enough of a confidence boost for the market to really gain in liquidity.

There is a strong possibility that the Senate Banking Committee may only approve about 150 billion or so IMO. I think Paulson will have to do some behind the scenes lobbying in some more frank tones to get them to approve the full amount. And I bet that's exactly what he will do.

I also think Buffet knows something we don't.

Yeah, read Buffet's OP/Ed, what he knows that we don't is that the full 700 billion will approved.

SouthernDemocrat · 09-24-08, 09:19 AM

Quote:

Originally Posted by Ethereal

Yet you are ascribing more importance to the other half than is warranted. If the government hadn't facilitated these high-risk lending practices in the first place it would have been completely unnecessary for financial institutions to hedge against said risk through the utilization of credit default swaps. You're trying to put the cart before the horse.

The government has been providing incentives to provide low income loans since 1977, yet, we don't see the huge numbers of toxic loans starting until 2001, basically, right after the multi-trillion dollar Credit Default Swap market became possible.

No one could have written those loans without a massive unregulated derivatives market to cover their ass on them.

Gladiator · 09-24-08, 10:11 AM

Greenspan had interest rates low, in 2002 to 2005, which is when many properties wer pruchassed at inflated prices because house payments were artifically low due to lower than market interst rates. So Greenspan created the housing bubble, and did not compensate for the effects of the bubble bursting. Maybe the interest rates should have been low, at that time, but ther should have been more consideration given to the potential effects of the bursting of the housing bubble.

Interest rates have not really caught back up, but in 2005 Interest rates were increased, which drive the house prices down, from the bubble, and lowering interest rates again did not bring house prices back up.

So Freddie Mack and Fannie Mae were not charging sufficient premiums for the risks that existed.

The US Government may be taking all the investement money from China, for its loans, and ther is no investment capital money left over for the US to run its economy.

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Iriemon · 09-24-08, 11:10 AM

Quote:

Originally Posted by Gladiator

Greenspan had interest rates low, in 2002 to 2005, which is when many properties wer pruchassed at inflated prices because house payments were artifically low due to lower than market interst rates. So Greenspan created the housing bubble, and did not compensate for the effects of the bubble bursting. Maybe the interest rates should have been low, at that time, but ther should have been more consideration given to the potential effects of the bursting of the housing bubble.

Interest rates have not really caught back up, but in 2005 Interest rates were increased, which drive the house prices down, from the bubble, and lowering interest rates again did not bring house prices back up.

So Freddie Mack and Fannie Mae were not charging sufficient premiums for the risks that existed.

The US Government may be taking all the investement money from China, for its loans, and ther is no investment capital money left over for the US to run its economy.

..

Attributing the housing bubble solely to low interest rates is overbroad, IMO. The availability of easy credit does not dictate what investments the money borrowed is used for. It could be used for stocks, commercial real estate, commodities, or any other investment opportunity.

The housing bubble, like the stock market bubble in the late 90s, was a speculative "over-exuberance" where raising prices fed ever more speculations. Not long ago I remember people were telling me that real estate investment was a no-lose proposition.

The mechanics of cheap loans combined with the risky terms upon which it was being offered to purchase real estate (no money down, teaser low rates, no costs, etc) meant investors could buy real estate for virtually no money down, and rising profits meant they could flip it in a few months or a year for a handsome profit.

Of course, with any leveraged investment, the risk is that a decrease in price means your equity is decreased. With a 100% loan to value mortgage, any decrease in price wipes out your equity.

Tax incentives also play a part. For years conservatives have been pushing ever more lower tax rates on capital gains taxes, arguing that doing so incentives investment. They were absolutely right

In 1986, Reagan's simplified tax code made investments taxed at the same rate as earned income. Now the top tax rate for capital gains is 15%, less than half the top tax rate income is taxed at.

What is the incentive created when investment taxes are less than half of earned income taxes? If you can speculate in an investment, and be taxed at half the rate if you worked for the same income, what are you incentivized to do? Speculate on investments. Which is exactly what has happened.