Bailout a Done Deal, So What Happens Now?
Now that the government has been terrified into rubber-stamping the Wall Street bailout, what happens now?
I wish the news were better, but in my opinion, here's the most likely scenario:
* Hank Paulson & Co. survey the banking industry and decide who will stay and who will go. JP Morgan, Citi, Wells Fargo, and Bank of America will stay. Goldman will probably stay. Morgan Stanley might stay. Everyone else in trouble could go. The government doesn't need to save all banks. It just needs to save some.
* Within a month or two, Paulson buys $250 billion of crap assets. He pays more than market value, but not an egregious amount more (because the public will be watching these early rounds). Over the next six months, he buys $700 billion of assets...and then he--or his successor--asks Congress for more money.
* Confidence improves modestly, but banks continue to hoard capital and credit markets stay tight. Loans stay expensive and hard to get. This keeps pressure on the economy.
* The credit crunch filters through to consumers: Credit cards, home equity loans, mortgages, car loans, etc., get more expensive, putting more pressure on consumers and forcing them to cut back further.
* The economic news continues to get worse: American consumers continue to pull back, housing continues to fall (as of July, the year over year declines were still accelerating), companies begin to cut back, which leads to layoffs--which puts more pressure on consumers.
* The global economy continues to weaken: Europe, Asia, and, eventually, emerging markets. This is already happen, and everyone else is later in the cycle than we are.
* The stock market continues to fall, as corporate earnings come under increasing pressure and hope for an early 2009 recovery fades. Analysts are still expecting huge growth in S&P 500 earnings for next year. These estimates will get cut by at least a third.
* The government enacts further measures to try to stop the fall in asset prices (stocks, houses)--including an expansion of the bailout plan--but these don't work. Governments always try to do this. They never succeed. All they do is delay the inevitable.
* A new round of white-collar prosecutions send a new posse of corporate villains to jail. Some will be guilty. Some won't. All will be hated.
* The government announces a new New Deal, finally investing in the country's infrastructure, in the hopes that this will stimulate the economy (which it will). Investments include broadband, green tech, wireless, physical infrastructure, et al.
* Eventually, asset prices will bottom: Housing down 40% in real terms, the stock market down at least 50%. With luck, this will happen by early 2010, so the recovery can begin. Warren Buffett loads the boat with stocks, but by that time, most people are too depressed (and poor) to follow him.
* Unlike Japan, we finally force our banks to write down assets as far as they need to be written down...and then recapitalize them. This is what we should have done in the current bailout, but we'll get it right next time (we hope).
* We gradually begin a long-term economic recovery, one in which consumers save a greater percentage of income, thrift and saving again become admirable qualities, we gradually begins to wean itself off international oil, and the bacchanalian decades of the 1990s and 2000s become an embarrassing memory.
* The stock market finally begins a new, long-term bull market, in which stocks once again return 10%+ per year. Unfortunately, most Americans will be so sickened by the stock losses they've sustained since 2000 that they'll miss many years of it.
See Also: In Warren Buffett We Trust
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Blodget's scenario of rolling deflation is logical, but if they lend money at negative interest rates, it may not come out that way.
NO BAIL OUT FOR WALL STREET. THIS IS INSANE. GIVE MAIN STREET THE BAILOUT & WE'LL LET SOME TRICKLE UP YOU CROOKS!
ANOTHER PHONEY SCAM! BAILOUT FOR THE PEOPLE ONLY. WALL STREET? ARE YOU KIDDING/
Americans still have a lot of wealth.
Here's some good words that Republicans say with sneer and fear:
Redistribution
Socialism
Liberal
Progressive taxation
Regulation
WARNING TO HOUSE AND SENATE DEMS
Despite Speaker Pelosi's "Play It Safe" Strategy (Impeachment off the table, Symbolic Votes, Non Binding Resolution
IGNORE YOUR CONSTITUENTS AT YOUR OWN PERIL!
NO "NO BANKER LEFT BEHIND PLAN!
It's troublesome how many Wall Stre economists think this bailout plan wont work. We're told the consequences of doing nothing could be so bad something must be passed quick.Seem
It's playing the fear card again. Between the tax cuts for the wealthiest, the fraud and War profiteering in Iraq, and now a 700 billion dollar Wall Street bailout, there's been an incredible amount of wealth transferred from the poor and middle class to the already ultra rich. I fear this is one last looting of the U.S. Treasury by the Bu$hCo crime cabal before they go riding off into the sunset and out of office. They will have successfully tied the hands of our next President, preventing him from doing many of the things he may have wanted to do. We'll be too bankrupt a nation for any real economic prosperity or expansion.
Jeff Morris-Saugerties, N.Y.- DeJaVu57
Are you an economist of great depth? Have you had international peer review on this position?
I'd like to listen but with the thousands of instant experts, I like many others are uncertain.
The Senate is about to ok $850B!!!
Chrysler might be on the block - possibly being sold to Nissan.
Auto dealerships are floundering now.
As people struggle to pay their mortgages and provide basic needs for their families, they will not be buying automobiles at the rate they did last year. Whether or not the credit supply is opened up a bit will not increase automobile sales, people need to be able to afford financing another vehicle. A bailout of the financial institutions WILL NOT solve this problem.
The people MUST have mortgage relief. Inflation must be brought under control. This will not happen with a $700B bailout - or whatever folks want to call it to make it sound good!
THIS BAILOUT BILL IS A TOTAL SHAM AND MUST BE STOPPED!
Increasing the debt by $6K per citizen or $25K PER TAXPAYER will not introduce more disposable income to the family. David Kucinich had the right plan, fix the mortgage industry so that homes are not foreclosed upon and seized by the banks. This only drives everyone else's property values down while increasing bank debt and future loan rates. It's cheaper to save a house from foreclosure and does not cause traumatic damage to the families involved.
There were also a couple of foreign countries, facing this same problem, who fixed with without a bailout or increased debt to its citizens. This was on Lou Dobbs Money Line yesterday!
Obama or McCain - Have the stones to stop this bill, BECAUSE IT STINKS ON ICE!
Auto sales down 30% Bad news? This is GREAT News, those 20th century dinosaurs need to be recycled. Recycled into green energy mass transit systems. Preventing idiots from going into debt to purchase gas guzzling road hogs will save oil that we have to import from dangerous countries, improve global warming, and improve the chances of turning to clean renewable energy.
This bill IS A SHAM! Oppose it at all costs!
It is a giant land grab by several institutions, especially Goldman Sachs! Just as NJ's governor, who is a former Goldman CEO, the Treasury head is former Goldman. Guess who is the main benefactor of this deal... you got it. Goldman! NJ's governor, Jon Corzine, and the NJ government over the past several years have directly benefitted Goldman Sachs. It's a running joke in NJ that Goldman seems to be the ONLY lending institution in the country. FORMER GOLDMAN PEOPLE TAKE CARE OF GOLDMAN... PERIOD!
Dennis Kucinich (D-Ohio) is 100% correct on this problem. If the problem is bad mortgage debt, then the problem should be solved from the BOTTOM UP! Just like how Obama wants to correct the economy and help the middle-class by starting from the BOTTOM UP! If Goldman wasn't getting any money from this deal, I might think that it has a bit of legitimacy to it. But Goldman seems to be the main beneficiary of this plan.
Floating money from the TOP DOWN WILL NOT correct this problem - THE BAD MORTGAGES WILL STILL EXIST! Fix the bad mortgages - Stop the foreclosures - Save the people's homes. If the big institutions are complaining about the bad mortgages, How can they complain if the bad mortgages are addressed? DO NOT GIVE THEM THE MONEY DIRECTLY!
THIS IS A LAND GRAB AT THE EXPENSE OF THE AMERICAN PEOPLE!
Don't forget the Winners! Not the rich, they always win no matter what, but ordinary middle class people who will benefit from the collapse.
"Liquor and Bars
Those that don’t go to church, will try and drink their misery away, as a hopeless situation leads to the solace of the bottle. Defeated husbands will hide from angry wives, in countless dive bars across America, and the globe."
Read Economic Collapse Winners and Losers
http://www
Bush lied to the first responders after 9/11 that the air they were breathing was safe at ground zero.
Bush lied about WMD's and Cheney has made Millions off the Illegal occupation of Iraq.
Paulson is to Wall Street what Cheney is to Halliburton.
The Bailout is Bullshi#. Let the system crash and the pieces fall where they will... perhaps Americans will finally stop the endless consumerism and greed that has become America.
If Bush says it has to pass than it is a lie. If spineless coward democrats are behind Bush it is no surprise.
my3bucks & zitlight73
Thanks to both of you! I have been laughed at by a local radio
talk show host when I suggested martial law would derail the
election. My local police department does not believe that the
President can declare martial law. I have a 40 page copy of
the "reconstruction" plan. I had sent a link to the information
to the head of the local Homeland Security coordinator, and told
them I believed it refered to the US, not Iraq. Mainly because it
has not been used in Iraq yet. This bailout is a cog in a bigger
senario.
A good poste with the exception of the next to last point. USA citizens will NOT have the money to save because REAL (after inflation) wages will probably continue to decrease. This means that there might not be a middle class left. Or, a very small little class if best.
Thanks for that, Henry. The High-Holy of Holies that is not even being mentioned in this financial crisis is JPM-Chase. Where did the come up with the cash to buy WaMu, and why aren't they hurting like everyone else? Same with BoA. G-S is of course the other titan in all this, and no one, anywhere, would expect TreasSecPaulson NOT to do everything within his mortal power to keep G-S (and his $432million in stock there) above water & solvent - even if it means getting on bended knee before Queen Nancy (no exaggeration according to reports), and who knows, mayb a $.7trillon kiss or two, lol!
Your 3rd paragraph asserts beyond doubt - this is a SOCIALIZED bailout, GOVERNMENT - Bush & Paulson - will determine who lives and who dies.
Getting "plantation lord" Rethuglicans to ADMIT that might even be worth a trillion taxpayer dollars!
Although Dems having the wits to make that point are.. oh, about zero. Today, Pres. Bush was... bragging! that his new, "improved" BAILOUT bill includes..
HELLO DEMOCRATS?! The _FDIC_ is THE penultimate, prototypical, quintessential, Franklin D Roosevelt NEW DEAL _DEMOCRATIC_ BIG GOVERNMENT REGULATION of all time - THE BEDROCK upon which ALL other financial regulations are built, THE BEDROCK of the ENTIRE US post-Depression economy!
It WOULD BE NICE if Harry Reid or Queen Nance could GET PRESIDENT BUSH to ADMIT that he NOW LOVES an FDR NEW DEAL govt. REGULATION program, Praise Be!
To add another prediction to your list: Christianity will be abhorred, as the rise of George W. Bush was made possible because of money from James Dobson, Pat Robertson, Jerry Falwell, Ted Haggard, James Hagee, Rod Parsley, and others of that ilk. All the problems of America--- the economy, the wars, the undermining of the Constitution and individual rights--- will be blamed on Christianity.
We will return to observing the separation of church and state, we will take the tax-exempt status away from churches, and we will put a limit on how much money religious predators can accumulate.
amen.
NO NO NO The stock market nor the economy will rebound. The days of Capitalism are over. Get your head out of the the American dream and wake up and realize it was only ever a dream. If indeed we need a revolution, in both mind set and manner then let the stock market fail and see where that leads us. Yeah yeah yeah everyone is scared but I say we are anticipating a scary scenario, which I predict, will not happen. A new mind set will settle in and a new manner of dealing with life will then transpire and then we will all wonder why the hell we never thought of this before.
I agree. I live on the Gulf Coast. In '05, I saw the small community in which I live, basically destroyed by Hurricane Rita. (I have no idea what Ground Zero looked like in NY, but it must of had some similarities). In the past month, we survived 2 more major storms. Again, seeing homes and communities in our area destroyed completely.
My point is, PEOPLE SURVIVE. Together with their families, their friends, their communitites and their Country, they survive!
I am no financial expert but, I am a fighter when it comes to my family. We can make it, each and every one of us can make it. Just like after the storms that have hit the Gulf Coast, just like after 9/11, we will SURVIVE!
Ever heard of CASH? Buying what you can afford....
Your cash may soon be worth much less than it is today.
What this 700b dollars will buy them is TIME. Time to get through this election and dump the crisis on the Next president.
Bailing out the banks didn't work after the crash in 1929. Like now, it was money taken from the taxpayer and put into the pockets of the banks. They got away with it back then, so why not now. Look at Schumer, all smiles, the Senate will pass the bill and McCain will preen and pretend he is protecting "my friends" from big bad Georgetown party-goers.
It is really pathetic to see how long it takes before people realize that the class war is over and that they lost.it - but they can be sure they will get to pay for it.
If Congress really wanted to stimulate this economy in a sure-fire way without forking over our taxdollars to the banks directly they could guarantee everyone's pension funds that would be otherwise lost to the greed and/or stupidity of the investment firms.
Sadly, you are correct.
Buckle your seatbelts, folks. Turbulence ahead.
Throwing virgins to the gods not likely to work, but I bet the Republicans (and select spineless Dems) try that next.
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