America's Financial Crisis

[yerazhishda]

Re: Bush administration: financial crisis

I can see it now:

Impersonal facial expression from Bush: "We are in unprecedented times and that calls for unprecedented measures. I am asking Congress to pass a bill that would delay the elections for an unspecified amount of time. If the bill doesn't pass, it would only mean more trouble for you, the hard-working taxpayer who pays his taxes on time every April. God bless you, every one."

F*cking idiot.

[freakyfreaky]

Re: Bush administration: financial crisis

I am not suggesting anything. But, the scenario I detailed above would ordinarily be called 'martial law' in democratic nations.

[jgk3]

Re: Bush administration: financial crisis

are you suggesting martial law?

[freakyfreaky]

Bush administration: financial crisis

Do you think the Bush Administration will use the financial meltdown as a pre-text to declare a state of emergency, suspend the elections and usurp executive power beyond his constitutionally permitted term?

I don't know but current events (i.e. Bush asking all the congressional big wigs to the White House, McCain suspending his Republican presidential campaign and the look on Bush's face tonight) are making the hairs on the back of my neck stand up and giving me goosebumps.

[Armenian]

Re: America's Financial Crisis

A $1.8 Trillion Bailout: Where the Money's Going

The U.S. Treasury Department is working through the weekend with Congress to craft a plan to spend as much as $700 billion to absorb bad mortgages and other assets from bank or other institution balance sheets to keep the financial system from collapsing. The move comes close on the heels of an $85 billion Federal Reserve rescue of American International Group and the Treasury's takeover of housing finance firms Fannie Mae and Freddie Mac . The Treasury plan, which follows a new federal guarantee for money market fund holdings, would push Washington's potential bailout tab to $1.8 trillion. Following are details of actions, proposals and amounts:

—Up to $700 billion to buy assets from struggling institutions. The plan is aimed at sopping up residential and commercial mortgages from financial institutions but gives Treasury broad latitude.

—Up to $50 billion from the Great Depression-era Exchange Stabilization Fund to guarantee principal in money market mutual funds to provide the same confidence that consumers have in federally insured bank deposits.

—The Fed committed to make unspecified discount window loans to financial institutions to finance the purchase of assets from money market funds to aid redemptions.

—At least $10 billion in Treasury direct purchases of mortgage-backed securities in September. In doubling the program on Friday, the Treasury said it may purchase even more in the months ahead.

—Up to $144 billion in additional MBS purchases by Fannie Mae and Freddie Mac.The Treasury announced they would increase purchases up to the newly expanded investment portfolio limits of $850 billion each. On July 30, the Fannie portfolio stood at $758.1 billion with Freddie's at $798.2 billion.

—$85 billion loan for AIG, which would give the Federal government a 79.9 percent stake and avoid a bankruptcy filing for the embattled insurer. AIG management will be dismissed.

—At least $87 billion in repayments to JPMorgan Chase for providing financing to underpin trades with units of bankrupt investment bank Lehman Brothers . Paulson said over the weekend he was adamant that public funds not be used to rescue the firm.

—$200 billion for Fannie Mae and Freddie Mac. The Treasury will inject up to $100 billion into each institution by purchasing preferred stock to shore up their capital as needed. The deal puts the two housing finance firms under government control.

—$300 billion for the Federal Housing Administration to refinance failing mortgage into new, reduced-principal loans with a federal guarantee, passed as part of a broad housing rescue bill.

—$4 billion in grants to local communities to help them buy and repair homes abandoned due to mortgage foreclosures.

—$29 billion in financing for JPMorgan Chase's government-brokered buyout of Bear Stearns in March. The Fed agreed to take $30 billion in questionable Bear assets as collateral, making JPMorgan liable for the first $1 billion in losses, while agreeing to shoulder any further losses.

—At least $200 billion of currently outstanding loans to banks issued through the Fed's Term Auction Facility, which was recently expanded to allow for longer loans of 84 days alongside the previous 28-day credits.

Source: http://www.cnbc.com/id/26808715

[yerazhishda]

Re: America's Financial Crisis

Doesn't this bailout seem all too familiar to the weeks preceding the Iraq War. i.e. *certainly* we have to approve the bailout without question and immediately because if we don't there will be "dire consequences"? They're creating a sense of fear in the American public and then telling the public what they "need" to quell the problem. Of course it is only to achieve their own interests - which have yet to be fully and completely understood.

[Anoush]

Re: America's Financial Crisis

Thank you enker, deeply naive individuals like Sheep boy and Sip, should watch this sobering report. I wonder why we Americans don't have the right (or the privilege) to see these types of programing on mainstream television? Instead we are forced to watch a tacky three ring circus - CNN, MSNBC and FOX...

Dear Armenian,

Unfortunately the American media is controlled by a few and they put out what they want you to see.

However, if Americans want to listen the real and truthful news they should seek it elsewhere; btw, British and European news media. Then they'll really know the actual facts and what's really going on in the world.

[Anoush]

Re: America's Financial Crisis

Well, I just saw on Channel 60 that they're now talking about 700 Billion dollars deficit and they say that they have found a solution to ask from every household to pay up to $10,000. That is, the taxpayers have to come up with that money. How nice and how interesting for the lower and middle class people who happen to have budgetted and very limited income.

OPEN LETTER TO CONGRESS ON THE $700 BILLION PAULSON BAILOUT PLAN

Dear Congress

Treasury Secretary Paulson is asking you to rush through a $700 billion package because "we're literally maybe days away from a complete meltdown of our financial system".

Paulson states that it must be done quickly and that it is better than the alternatives. Fed Chairman Bernanke agrees.

The firsy question Congress should ask is how would Paulson or Bernanke know?

It was only a month ago Paulson was reiterating to anyone who would listen how sound our banking system is. The fact of the matter is that neither Paulson nor Bernanke saw this coming, yet now Congress is supposed to trust they now "know" the solution.

Problem Defined

Before one can work out a solution, the first step is to identify the problem. The problem is not a lack of liquidity, it is not a lack of trust, it is not lack of consumer confidence, it is not subprime lending, and in fact the problem is not housing at all.

The problem is consumers and corporations are deep in debt with no way to service that debt.

Attempts to bail out banks and brokers at taxpayer expense will do nothing but add to consumer debt, weaken the US dollar, and literally waste $700+ billion dollars that can and should go to more productive uses.

What Caused the Problem?

* The Fed
* Congress
* Fractional Reserve Lending
* The Treasury

The root cause of this problem is the Fed micromanaging interest rates, the Treasury cheerleading every step of the way, and Congressional sponsored spending that went wild. The critical issue that ties everything together is fractional reserve lending allows banks to borrow money (credit really) into existence with insane amounts of leverage.

To top it all off, Greenspan slashed rates to 1% fueling the biggest global housing bubble the world has ever seen. Congress needs to figure out a way to eliminate the Fed.

Fed Uncertainty Principle

I kindly ask of you to please read the Fed Uncertainty Principle written April 03, 2008 before any hint of this meltdown occurred. Here is Corollary Number Two.

Uncertainty Principle Corollary Number Two:

The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Why The Paulson Solution Fails

The Paulson solution fails because it does not help consumers or businesses service debt, it does not create any jobs, it increases the national debt, and it encourages more reckless lending by banks. Attempting to bail out banks on the back of cash strapped consumers is simply doomed to fail.

If printing money was the solution to all problems, Zimbabwe would be the most prosperous country in the world.

The Barney Frank Non-Solution

"We're going to be buying up a lot of mortgage paper" said House Financial Services Committee Chairman Barney Frank.

Sadly, that will not do a single thing in and of itself to stop foreclosures. All that will do is bail out banks and brokers at taxpayer expense.

Barney Frank also stated "We should be more willing to write down the mortgages. We'll become the lender. The government will wind up in a controlling position so that we can reduce the number of foreclosures."

Congress needs to ask "How much extra will Barney Frank's proposal cost taxpayers?"

Where does the madness end?

As stated earlier the problem is not housing in the first place, and besides taxpayers who pay their mortgages on time should not be subsidizing those who don't!

Banks Need To Recapitalize

Paulson wants to recapitalize banks so they can keep lending. Ironically, one of the problems is lending. The US has been on a credit binge to such an extent that I have to ask what more do we need? More Pizza Huts? More Home Depots? More Houses? More Nail Salons? More Car Dealers? What?

What is the urgent need to lend still more?

We are in this mess because of too much reckless lending. We do not need more lending, we need more saving!

Paulson's idea that more lending is needed is ass backwards. Paulson's proposal cheapens the dollar, and discourage the one thing that is desperately needed: saving.

Alternatives Discussed

In the mad rush to push through this package, Paulson states it is beter than the alternatives. That is an interesting statement because no alternative have even been presented to Congress, let alone discussed.

Shouldn't there be a discussion of alternatives before doing a mad dash to sign a $700 billion package?

Paulson is attempting to hoodwink Congress to pass his plan without any discussion of alternatives. I believe the Paulson proposal is the worst of all solutions in that it bails out banks at the expense of the taxpayer and the taxpayer gets virtually nothing out of the deal: no jobs, no tax relief, no health care.

Paulson claims that taxpayer will benefit by the bailout indirectly because once the government owns the debt, servicers will be more willing to negotiate terms. Once again, it will be taxpayers on the hook for any negotiation granted. Paulson conveniently ignores this cost as does Barney Frank.

Taxpayer Gets Nothing From Current Bailout Proposals

The taxpayer gets nothing for this bailout $700 billion. Actually the taxpayer gets a negative benefit because the Paulson and Frank proposals will cheapen the US dollar, increase the deficit, and ultimately cause prices of imported goods to rise for everyone, while saving a relative few.

The solution is to address the recapitalization of banks in a fair way that does not jeopardize the taxpayer but instead puts the onus of responsibility on banks making reckless lending.

Recapitalizing Banks

Banks are undercapitalized. They need funding badly. Here is what I propose.

* Reduce the capital gains tax by 50% for any investor willing to cash out stocks and invest in 5 year bank CDs.
* Eliminate the difference between long term and short term capital gains.
* Eliminate taxable interest on savings accounts, CDs, and US treasuries.

The above would promote saving rather over speculation and provide a big boost in government revenues as well. Stock prices will not be affected over the long haul by these measures.

Jobs, Jobs, Jobs

I am a libertarian. I do not believe in makeshift government proposals. However, I would rather get something than nothing for $700 Billion. Paulson's proposal scores a big fat zero in term of providing any jobs or any real economic stimulus.

It is no secret that infrastructure in the US is decaying and needs to be fixed. A collapsing bridge in Minnesota is one key example. And what out our aging energy grid? Instead of giving $700 Billion to banks that deserve to go under, I would rather give half that for jobs programs.

To create as many jobs as possible at the least cost Congress needs to scrap the Davis-Bacon Act. It would be better to create 3 construction jobs at $12 an hour than 1 job at $36 an hour. The idea here is to get as most bang for the buck and create as many jobs as possible for the money spent.

Waste In Iraq

We need to admit the mistakes in Iraq. The public never supported this war and the public was correct. The war in Iraq easily cost $1 trillion dollars if you count future medical bills. That is $1 trillion dollars that could have been spent right here in the US.

I propose we decalre the war won and get out, totally and completely. Offer returning veterans first crack at any infrastructure rebuilding jobs. It is the least we can do to those who are likely going to be emotionally if not physically scarred for the rest of their lives fighting a war that never should have been fought.

Congressional Spending

Congress needs to admit its own role in this mess. Congress passed hundresds of programs to make housing more affordable. They all failed including the biggest failure of all : Fannie Mae and Freddie Mac.

It should not be the role of Congress to promote housing vs. renting. The very act of doing so creates an artificial demand for housing. Ownership society madness culminated with many financially unqualified to buy a house buying house anyway because Congress and the White House promoted the idea.

Congress is also directly responsible for deficit spending and that weakened the US dollar. Indeed there was virtually a panic out of dollars for this reason. Adding another $700 Billion to the deficit as Paulson is asking you to do is adding insult upon injury. Don't do it.

Instead balance the budget. It can be done.

Who am I to suggest what Congress should do? I am nobody. However, this nobody and a bunch of fellow nobody bloggers and bunch of nobody fund managers who I respect all saw this all coming 3-4 years ago. Paulson did not, Bernanke did not, and almost everyone in Congress did not.

So the choice Congress needs to make is who to believe. Congress can believe Bernanke and Paulson who have been totally wrong about everything for years, or Congress can listen to people who not only understand what is happening but predicted it.

Desire To Believe

You desperately want to believe that Paulson and Bernanke are telling the truth. You have for years put your faith and trust in them. It is a very difficult thing to do to admit you are wrong.

However, it is critical that you look at the simple facts for what they are.

The fact is Paulson is grasping at straw in a tornado. So is Bernanke. Problems cannot be cured by printing money, and problems cannot be on the backs of already overburdened consumers.

No problem is fixed by madly and blindly rushing into solutins where no alternatives are discussed. You now have alternatives.

I will also offer one more alternative but it is not from me. I kindly ask Congress to consider An Open Letter to the U.S. Congress Regarding the Current Financial Crisis by John P. Hussman, Ph.D., an economist and investment manager whose opinion I trust.

Hussman too has an opinion as to how to address this issue without impacitng the taxpayer. For the record, I have no idea what he might think of my proposal.

However, between the Hussman proposal and mine, I am sure there is fertile ground for further discussion and for doing something other than what I believe to be the worst possible alternative, the proposal submitted by Treasury Secretary Paulson.

No problem is too big that a solution has to be rushed into without considering the alternatives. I ask that you consider these alternative proposals either over an extended session or by letting the next Congress tackle the issue.

Heaven help us if recess is more important than taking the time to seriously consider all reasonable alternatives.

Sincerely

Mish
GlobalEconomicAnalysis.blogspot.com

[Armenian]

Re: America's Financial Crisis

Here is an interesting documentary they showed on dutch tv a few days ago.

"the more the world loans us money to consume the deeper the problems gonna get. We are just gonna keep on borrowing and keep on spending. We are like a heroin addict. You know, the solution isn't to keep supplying of some more heroin, the solution is to cut us off, let us go through the withdrawal..."

Thank you enker, deeply naive individuals like Sheep boy and Sip, should watch this sobering report. I wonder why we Americans don't have the right (or the privilege) to see these types of programing on mainstream television? Instead we are forced to watch a tacky three ring circus - CNN, MSNBC and FOX...

[Lernakan]

Re: America's Financial Crisis

Here is an interesting documentary they showed on dutch tv a few days ago. Only the first minute or so you will hear dutch after that it's mostly in english.
"Sponsors for Uncle Sam" Link:

http://player.omroep.nl/?aflID=7933615

first you'll see an advertisement after that the documentary will start and you can watch it big screen.