Whew -- lot to talk about today.
First -- more comments. Ming says, "How much faith can one have in a government that encourages recklessness and irresponsibility... There are banks that are out there that are doing fine in this "crisis", why? because they weren't reckless and minimized their risk. As long as some of the banks are able to survive, the remaining ones need to go, even it wipes out the stockholders. (Sorry stocks are a gamble, always have been, always will be)"
You know what? I agree for the most part. The government is very much guilty of encouraging reckless behaviour. The tax code gives free reign to hedge funds, entitlements are out of control, pork is out of control*1, and Congresspeople actually left Washington on Monday after killing the first bill so they could go home and campaign, instead of staying around to fix the "worst crisis since the Great Depression". The FED and SEC and FDA are all
bureaucracies that put their own agendas before the public's.
Also correct is that some banks should certainly go under if they cannot compete -- that is absolutely the risk stockholder face.
(I do NOT agree that stocks are a gamble. The market can act like a casino, especially to short timers who go "all in" or misuse options. But I don't think ANYONE would say Warren Buffet is a gambler. *grin*)
I actually think the worst offenders are WE the people ourselves (in the overall sense, not you, or me, personally, of course). As Ming put it in an email, the sheer chuztpah of the folks who took mortgages they either did not understand the terms of OR couldn't repay, OR both! And to compound their sin, they then used their homes as an ATM -- buying cars and material goods on the soaring equity -- only to see it crash and walk away, leaving $750K mortgages on homes now worth $300K. And elected officials wouldn't keep enlarging entitlement programs if we didn't have our hands out. We need to look in the mirror and realize the present is a direct reflection of our past behaviour.
That said, I am seeing more and more clearly that a bailout/rescue is needed. Yes, it would be healthy for the economy in some respects to have a severe correction; some corporations ought to be bought out by others. But the staggering loss of jobs, mass foreclosures that would blight neighborhoods, and human cost argue to me that something is needed on the federal level.
Ming -- is it "fair"**2 to those who kept their debts reasonable, and lived within their means, to see those who did not saved? Of course not! But at some point fairness goes out the window to prevent a national disaster.
We should take this time however, to really look at what led us here and how to prevent similar situations in the future. It sounds like the mark-to-market rule is being suspended temporarily. The SEC supposedly is extending the no-short-selling ban on the financial companies***3 until Oct 17. We need plenty more of these kinds of actions -- I strongly encourage people to let their congresspeople know exactly what they want NOW -- they actually seem to be listening, for the moment.
The VP debates are tomorrow at 6 PDT. Watch them and learn more about the views of whoever is to be our future vice-president!
Regards,
Trond
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* The current bailout bill passed tonight by the Senate used to be 3 pages. Now it is something like 456 pages, and 200 pages of that is pure pork, as an incentive to get votes. Among other things, THEY ARE REVOKING A $.39 TAX ON CHILDRENS' BOW AND ARROW, ARROW SHAFTS. Which Senator's kid uses arrows in bulk? This one move loses $200K in estimated revenue a year. Obama and McCain****4 both voted for the bailout.
** I don't think it "fair" that my tax dollars go to subsidize Ted Turner's peanut farm, for example.
*** And why the HELL is it limited to 700 odd "financial" companies (of which IBM and GE now qualify!!)?? If the SEC is now FINALLY acknowledging that short selling is harmful (thank you Patrick Byrne!) then the Equal Protection clause, and well as "fairness" demands all companies should be similarly protected.
**** There goes his argument that he never votes for pork. :-)
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2 comments:
Personally, I keep reading about different "bail out" or "rescue" package.
Which is why I made the comment about stocks being a gamble in an earlier comment.
I guess I've been reading about what happened in Norway/Finland and Sweden.
I guess they had a similar problem years back where the government in essence forced the banks to write down the loans (and wiping out the stock holders) and then recapitalizing the banks.
Accordingly they recovered quite quickly. The plan that is on the legislature mimics a recovery package similar to what happened in Japan (again from my readings, though I don't have a full understanding of either)
http://finance.yahoo.com/tech-ticker/article/83221/Bailout-a-Done-Deal-So-What-Happens-Now?tickers=jpm,wfc,c,bac,gs,ms,%5Egspc
Just an additional comment. This bail out has no guarantee of working. Nothing is guaranteed that the removal of all this bad debt will make the banks want to loan any more money. Heck they already screwed themselves once by giving away cheap loans. The government was nice enough to take the bad loans away, what is the belief that the banks will go back to a start lending?
I mean it was those banks that made the poor loan choices that disappeared, and those that made more conservative choices are the ones left standing.
Is there the belief that just because there is money available that the banks that are remaining to make the loans will give out the money freely? Even if the bank was in trouble, and the loans are removed, you would think those banks are smarter now and won't simply hand people money.
How does that saying go? Fool me once, shame on me, fool me twice...
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