The sky is falling

Okay, I’m freaked out. Congress is officially unable to forget about politics for a few days and get something done to stop the banks from collapsing. Whatever your view on the current crisis, hopefully it is evident to all that something needs to get done. Quite clearly the Rethuglicans are willing to let the ship sink. No surprise. Democrats, you want to lead this country, sack up and do something. To quote myself from over at PP’s place: “700 billion vs. 3.something trillion in losses in stock prices in one day and who knows how much Wachovia is going to cost with no regulatoray rules or guidelines in place. And how many more banks will go tomorrow (local papers say Phoenix — of housing bubble fame — is ready for local banks to start falling)? And how long till the credit spread starts to mean no payrolls? I’m sorry, but I think we’re fucked.”

So Dems, want to know what to do, I suggest you go over to Nouriel Roubini’s Global Economic Monitor and check out the HOME plan. While you’re at it, see what he has to say today. Not pleasant at all. At least I’m glad to know that it is in line with what I was thinking on Sun, again quoting myself from PP’s blog:

To the great detriment of my mental health, I have been reading as much as I can about the financial bailout plan in order to get some understanding of what is going on. I think I can grasp the fundamentals of the problem, what is completely unclear to me are the potential ramifications of the various proposals. I thought I was starting to get it from some of what Chris Dodd was saying earlier last week but now I am back to being utterly confused. Why do we have a complete lack of competent leadership in this country? On the other hand, at least I was able to make out that those 100 rethuglican house members are complete morons… capital gains tax! hilarious!
the draft bill is available on CNN. I’m gonna try to dive into it tonight to see what is there…

I don’t mind taking on some “toxic” assets so long as the govt (us taxpayers) retains the assets that have value. My preliminary understanding was that there were roughly 100 billion in these toxic assets that were tied to 600 billion in additional assets. If the 100 billion go, the 600 billion go with them (to whoever gets the entire company that fails). Presumably the govt can take on those assets in their entirety and sit on the viable investments until they come around. What I’m not sure about is: since the 100 billion are largely bad mortgages, can they could be reworked so that they eventually make money? Obviously all this is overly simplistic, but I’ve been writing all day and can’t bear to write any more.

This whole thing stinks to high heaven but time is running out before the current crisis starts hitting all of us. Moreover, there is opportunity here. The rethuglican leadership has already shown that they are willing to pass it up to stick to their deregulation principles. They’re fools. Democrats, get to work and get it right… before that TED spread gets out of control and all of our homes get taken hostage to this mess.


7 responses to “The sky is falling

  1. JP,
    I strongly suspect that creating such panic in people is part of the plan to extort a ton of money with no repercussions. It is blackmail and I don’t think we should fall for it. I am willing to wager that the top 5% has a lot more tied up in the markets than the rest of us 95%. And I don’t think they’ll let it collapse. But they will squeeze it hard to see if you’ll capitulate. There is nothing wrong with holding firm to the stance that we will be happy to provide the money in exchange for equity, executive control and repercussions/accountability. Ever wonder where they came up with the $700 billion figure? Fuck em. I say we squeeze back till we get something meaningful. I’m willing to risk a massive wound now, from which we can take hard lessons and recover/rebuild correctly rather than be bled slowly to death over the next 20 years.
    The whole thing doesn’t make any sense to me. The rush, the amount, the terms—it just all looks like a massive scam. Plus there’s the trust issue—I don’t trust ANY of these bastards.
    I can honestly say that I have not felt any panic—just suspicion and anger—over the past few days.

  2. I am willing to wager that the top 5% has a lot more tied up in the markets than the rest of us 95%
    I agree, but the mortgage failures affect all of us directly because they hurt our home prices severely and start damaging equity. The credit market crunch also has the potential to start hitting you and I where it hurts and this can be fixed, at least that is what I can gleam from reading what some of these experts have to say. Check out Roubini’s HOME plan. Its geared toward fixing the mortgage problem in a meaningful way. The housing market is still going to be down but at least you can find a way to keep people in their homes if they got into bad deals in good faith.

    Ever wonder where they came up with the $700 billion figure?
    My understanding is that 100 billion is needed to secure the bad mortgages. I think they should do this. They have a second chance now.

    Plus there’s the trust issue
    I don’t trust them either; however, the confidence issue in the credit markets is very dangerous. I don’t know if it would come to this but I don’t think any of us would like to see banks unable to issue money for payrolls. I have no problem seeing some of these big banks getting dissolved but it should be orderly with some rules that are passed by Congress. The case by case Fed action needs to stop. Without Congress doing something this is how it will continue to go and I think that is a BadThing.

  3. I don’t read up obsessively like you do jp but how about this- screw the bailout. call their bluff. Instead, dedicate the money to all the social good government dole programs that have been languishing. fund science. promote education. fund healthcare. support small businesses. invest in infrastructure (internet for all, urban wifi, ?) that has a chance of being a stimulus beyond the directly created jobs.

    let’s try the trickle-up theory for awhile, eh?

  4. DM, I’m all for it. Let them fail and start investing in a new economy. But the fact remains, as of right now the Fed is winging it. This is unacceptable. Congress has to step in and set clear rules and make priorities. How’d you like to have 3 giant banks in this country and not much else? I say no thanks!

  5. That’s a good point JP, about bank consolidation/monopoly. But that was trending to be so even before this crisis hit. In any case, I am not against loaning/buying into smaller banks and helping them with the toxic mortgages—but that’s far less than $700 billion right?
    I really think we should tell WallSt. to screw off and invest the money on the lines of what DM listed. A shock to the collective system right now may not be all bad. Maybe it will even wake up some of the 27%.

  6. Pingback: Survive the squeeze « JUNIORPROF

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