The market closed down 770 points today, on the news that the House rejected the bail-out plan -- although it was down 300 even before the vote. I’m guessing investors fear two things: 1] that this problem dwarfs even a $700 billion slush-fund’s capacity to solve it and 2] our political leaders are too inept to act in time to stop significant damage occurring to the economy from a credit freeze.The complexity of the situation is overwhelming. No one knows how big the problem is. No one knows if this plan will fix it. No one knows what shoe will drop next – or on whom.
One thing we know for sure, however, is that the problem was known to be on its way and growing for a long time. (One observer has called it the world’s slowest moving train wreck.)
Another thing we know for sure is that members of Congress in both parties are scrambling to be the most outraged at the “corporate greed” that caused this mess. They’re working on CEO salary caps and can’t wait to hold hearings so they can wag their fingers and scold a few fat-cats for the cameras. It’ll look great on the local news back home.
But not only did Congress and the Executive branch do nothing to stop it, they were like the sweepers in a curling match, sweeping their brooms along the ice to make a nice smooth path for the stones being tossed by their Wall Street contributors.
Barry Ritholtz, who publishes a blog read by in-the-know financial-types, published an opinion piece in this week's Barron’s that lays out the path of destruction in simple, clear language in his essay "Uncle Sam the Enabler."
(Before any of your knees jerk, or fingers point to one party, you might be interested to know that Goldman Sachs, the biggest political contributor among financial institutions, has given more to Democrats than Republicans in each of the last ten national campaigns, and by increasingly large margins. See: http://www.opensecrets.org/) There is plenty of blame to go around here.
Oh, the photo. Benjamin Disraeli: “What we learn from history is that we do not learn from history.”
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The blame game has already begun as McCain blamed Obama and the Democrats for the plan failing.
"Barack Obama failed to lead, phoned it in, attacked John McCain, and refused to even say if he supported the final bill," Holtz-Eakin said. "Just before the vote, when the outcome was still in doubt, Speaker Pelosi gave a strongly worded partisan speech and poisoned the outcome. This bill failed because Barack Obama and the Democrats put politics ahead of country."
This from the guy who suspended his campaign...but didn't actually...to rush to DC a day later and injected himself into the process. He then took credit for the changes in the bill which made it better, according to him. He also claimed not to have read the original 2 1/2 page bill before he came to town.
But Obama caused it to fail by phoning it in. You have to like the chutzpah.
None of us no for sure if the plan would help or not. We will now have a major correction. We shall see who and what is left when it is over.
"Fasten your seat belts, its going to be a bumpy flight."
We are all anted up with all we have but can't pull away from the table anyway. New game, old rules but nobody knows exactly what they are.
Time to invest in table wine.
Who wants to retire anyway?
Gotcha.
this $700 billion that is thrown down at us is still 5% OF ALL ACTIVE MORTGAGES.
5% and we/taxpayors are buying at a deep discount.
We are going to make so much money on this that we will not pay taxes for five years!
Glad I went to cash.
I know it sounds familiar.
JB, where are you getting your 5% figure? Or that the bailout is at a deep discount?
The treasury admitted that they don’t even know how much is really needed. Since the mortgages have been packaged and sold to Wall Street know one knows how many bad debt is any one package.
It is possible that the Federal Government could make money like they did in Savings & Loan bailout. But nobody really knows for sure.
Barney Frank said today, “Because somebody hurt their feelings, they (republicans) decided to punish the country.”
He also said he would agree to talk nice to them if it would make them feel better.
I wonder if the few responses on this thread result from a lack of understanding, disgust, or la belle indifference.
The loss in the market's value translates into very real repercussions to each of us. No doubt our economic prospects will twist and turn before most of us have to totally rely solely on investment income, but all we have heard so far is the boom of the explosion. There will be lots of wind and debris flying soon enough.
I direct your attention to David Brooks column this morning. It says pretty much what I feel. I watch Nancy Pelosi's prevote speech with horror. What could she have possibly been thinking? It was an attempt to spike the ball before she was in the endzone.
That said, it wasn't her that scuttled this bill but the inability of the republican leadership to deliver what they promisied.
These guys will hustle back on Thursday and pass something in 24 hours that will be almost identical to what they defeated yesterday.
We're on our own guys. To paraphrase Bill Clinton, "the day of government, big or little, is over."
The 5% figure was a rough estimate of the number of mortgages that were in danger of default ( 2 million out of 40 million mortgages). This was estimate used by the adminstration to calculate the 700 billion price tag. The number could be higher or lower. Pelosi's speech was really divisive. Is that the bipartisan approach we are going to see when the Dems control the executive and legislative branches?
Woody -- I sure hope not. Her substance and timing were deplorable. She spiked the ball before she crossed goal line. I always thought that was a Tom Delay move. Apparently not.
Pelosi and crew, Boehner and his posse -- they are all just posing for the cameras. The country can go pound sand. The Detroit City Council is a more civic-minded organization.
Dont walk, RUN when you hear:
"the american people want" , "we must act quickly" , "this will benefit the tax payer..."
Here's one you'l NEVER hear: "We can finance the bailout by ending the war"
A friend who has a small business just lost his line of credit and is calling people, I am one of them, to see if he can come up with a $200K loan. He has DOD contracts and they can go months before they pay the bills. If he can't find the money, he has no idea how he keeps the doors open.
The office building that my company is in has lost 5 tenants,who have just left the keys on the floor and walked away. There is barely 60% occupancy in a building inside the beltway in recession proof DC.
Our office manager was contacted by building management to know if we are interested in buy some of the furniture just left in a suite.
It is just the tip of the iceberg.
kgwhit raises a good question. Are we going to see the same meltdown in the commercial real estate sector? Will we have to "rescue" those loans? If so this is just the tip of the iceberg. I have not heard any comments on this except for a single statement that the commercial sector is next, whatever that means.
Apparently no one actually knows. The irony is that for ten years or more the really, really smart people with exceptional math skills have been abandoning physics, medicine, and other professions that are useful to society in favor of the big money on Wall Street. There they invented algorithms and other sophisticated tools to track and manage various financial instruments whose role was to help the bookies (which is what Goldman Sachs is – a big bookie) keep close track of how people were betting, so they sold an equal number of bets the other way. That way, the bets cancel out and they live on the vig, which on Wall Street is so high it would make an honest bookie blush. Now it turns out they couldn’t even add them all up into a couple of categories, let alone balance them. The whole system was worthless.
kg, I hear you.
I am in the process of moving to Erie, PA. My oldest and dearest friend is a heating and AC contractor. He knows everybody.
He told me that he is having the best year EVER. Twenty plus years.
Moreover, he said that in Erie PA all the contractors, electrical, plumbers, general are doing better than ever.
I asked how can that be as so much is is wrong via the media.
He said, "It is just strong middle class people. They don't spend when they don't need too."
Anothny's business has grown almost 15% from last year, which to him was a record.
The media has us all in a tilly.
Is what is going on in Erie, PA the real world? Real estate values have remaind stable...up but not to stupid levels...the joke who would want to live there...well me.
Is our economy that bad? If contractors are so busy in Erie, PA are we in trouble?
Congress has embarassed us all from both parties.
But if my friend of 25 years says he is having the best financial year of his life and he has nothing to do with government other than pay taxes, well, I will sleep better tonight.
I think Henry Paulson is the right man at the right time. But is it as bad as the media would have us to believe?
Bookies on both sides of the Isle. Plenty of blame to go around. I'm not sure anybody is putting any of the blame on the people who got in over their heads.Owning a home in America is not a right.Unless you believe in affirmative action.I'm not much of an alarmists. What I do believe in is America. We will figure out a combination of scientific approaches to our energy woes. I do believe we will be out of Iraq sooner than later. I also believe that Washington politics will continue,not because of who will be president but its what middle America wants.And before any of smart asses tell me to put the pipe down I hope this blog continues til jb is in Erie in the middle of winter and he has to open up the snow desk.Every generation has its own disease our is greed.
To help banks, some suggest rewriting accounting rules.
Increasing debate over "mark-to-market" accounting rules for banks.
Accounting purists say a rule change would raise the risk that the banks would resort to fantasy accounting -- "mark-to-make-believe" -- that would overstate the value of their assets to investors. Remember Enron Corp.?
Sounds like a new Wall Street investment scam.
that's exactly right. "mark-to-market" may not be perfect but it tries to keep banks from over-stating the value of assets. the new rules being pushed will allow them to hind the truth even deeper inside the books.
Certainly if small businesses have to close their doors if they can't access their lines of credit, commercial real estate is next because their buildings will empty out. These bastards in congress better get off thier "core principles" and pass this thing.
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