Major New Bailout Good Move But Won't Stop Recession

The crash continues to roll from one market to the next, and huge new bailout talks are underway. We're analyzing this morning's events live at Clusterstock -- please feel free to join us. We'll keep the discussion open until about 11:30 ET. Then we'll post the transcript here.

Meanwhile, here's the latest on the major new bailout discussions:

The NIKKEI closed down 10%, and the FTSE is down 8%. The US and UK governments are working on a massive new bailout plan that might include:

* Temporary guarantee of all bank deposits
* Guarantee of all interbank lending
* Capital injections into banks.

These are some of the critical recommendations put forth by many economists, including Nouriel Roubini and Paul Krugman. (Another is major new fiscal spending -- a new New Deal).

The first move, guaranteeing bank deposits, will calm frantic runs on banks. The second, guaranteeing interbank lending, will enable banks to risklessly lend to each other again (this has all but stopped). The third, injecting capital, will tackle the heart of the banking problem, which is that most banks are now grossly undercapitalized (the IMF estimates that western banks need $675 billion of new equity).

These are huge, positive steps that might begin to ease the credit markets. In Nouriel Roubini's opinion, however, they will help reduce the chances of a global economic catastrophe. They may also put western governments and taxpayers in serious financial trouble. They are not likely to head off a severe, prolonged recession.

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Comments

[Paul Peete - Huffpost Blogger]

For an excellent breakdown of the causes of and solutions to the crisis Nouriel Roubini waatch on C-Span this morning. His insightful explanations are worth viewing.
http://www.c-spanarchives.org/library/includes/templates/library/flash_popup.php?pID=281728-1&clipStart=&clipStop= move to the 45 minute mark.

[Sunmaker]

There are approximately 300 million households in America. Why not direct deposit $50,000.00 in each taxpayers bank account and have banks monitor money to be paid out for helping mortgage payments, buying a home and auto loans and credit cards, hospital bills etc. I would think this would help main street as well as wall street. This money could be invested as long as taxpayer has no deliquent debt. How about it fellow Americans? At least we would not be going to a spa and paying out thousands of dollars for luxury items!

[MikePort]

Whatever happened to the great minds in Wall Street? With the economy in a free fall all they could come up with is to ask Uncle Sam to bail them out. I say no!!!! The Gov't should allow market forces to get them out of the hole that they dug themselves into. Here's an idea that they can start with without having the Taxpayers foot the bill. 1- The Gov't will not put out 700 billion dollars but instead will give them a collateralized loan for 100 billion at a rate of 1.5%. (The assets given to the Gov't for this loan have to be real assets) 2- The banks will take this money and put it aside for the time being and focus on distressed mortgages. The banks will go to 20% of the bad mortgages being held by mortgagees who would be able to pay them under normal circumstances and re-do their rates to a fixed rate. After bundling these new mortgages they will 3- take the money borrowed from the Gov't and purchase 5 yr. notes and use them as collateral for these new mortgages. 4- Hedge funds which normally buy distressed issues would be more then willing to purchase these new securities along with mutual funds that are now waiting on the sidelines. 5- The result will be new money created that can now be lent out to lend worthy institutions.
So lets have the street think of solutions not bail-outs. Mike Port

[Artos]

Another thing I would do if I were in charge is to use the billions that they are now giving away to worthless parasitic corporations and instead work with organizations that actually create something, a Corporation or company that still believes in Americans enough to stay here. I would engage these kinds of firms in a plan to build a completely new city of the future, A model city which would incorporate all of the best ideas for a healthy environment. I would have it built somewhere centrally in the U.S. so that once done it could be visited by Americans from every corner of the country. This city would be used as a model upon which we could make changes to all American cities or even start from scratch. It would be a jobs program on the order of the WPPs or Conservation Corp programs of WWII. It would serve to both inspire and reemploy Americans. What Americans need is inspiration from a leader or leaders who could make us feel challenged and give us hope. We need someone to give us a goal other than constant warfare. There are other ways to motivate an economy than starting one war after another. War is just a waste of American energy and some of our best citizens talents.

[Artos]

To continue on,

I would also put an end to Wall Street. Wall St. is fiction. It is a tool for stripping ,in a quasi legal fashion,
money from the average citizen and giving it to the wealthy. Is it not enough that they use banks to get our money that they have to have yet another means to borrow from us. The difference is that if the stock market goes down as it is now, your entire investment (loan) can be lost and they legally don't owe you a thing. It's a swindle, which makes me wonder if sometimes they actually create times like this so that they can return all the ownership of the corporation into their hands. Or when they feel they've wrung the major chunk of the profit out of it they let it fold since to them it's just an instrument which they can rebuild later or somebody else buys the bones and rebuilds like as what has been happening. So nothing is really lost except the middle class investors investment.

[Artos]

One of the first things I would do if I were President is to tell all of these formerly American industries that if you laid off Americans and moved your industries overseas just so that you could increase the profit of your execs then you and your products are no longer welcome in the U.S. and if we do allow any into the country they will pay a much higher tax which can't be recouped by charging higher prices to Americans.
I would do everything in my power to make it illegal for any American Corporation or company to stash their profits in foreign banks to avoid paying their fair share of taxes. Any C.E.O. or officer of these Corporations would have to bring his or her money back into the country as well. If they are the same ones who have gotten bonuses and other forms of compensation from Organizations that they ran into the ground then they should be made to return every dime they got. Especially since they didn't earn it.

[Artos]

I think Wall St. plunge is a good thing for America. That is if we learn something from it, but I have my doubts we will. We had a Wall Street failure which led to the Depression and they said something like it could never happen again because people couldn't by on Margin anymore and that the Banks were all backed up now. So what did people do. They got around that by using credit in many cases to buy stocks and to buy everything else.
Recent events prove the Banks are still vulnerable and Investment institutions have become Banks in order to insure that they are protected. If you give people a chance they will find new and more devious ways to get around laws and regulations. When the gas shortage of 72' happened, people should have learned not to buy gas guzzling tuna boats again, but they did anyway. Americans have a short attention span. it seems to take getting hit in the head with a shovel to get our attention. So maybe we need to hit rock bottom just like a junkie before we really learn our lessons. Even now after having suspended short selling they are back to allowing it. Why. I thought that they considered it verging on illegal. So what happened. I'll tell you what happened. The market is going belly up and rather than face the music they are prepared to allow the devil loose again. So much for learning anything.

[judesedit]

Here's my idea. I emailed my representative and the house speaker to advise them to give every American citizen a million dollars, totalling approx. $320 million. That's peanuts compared to $7 billion. Even $500,000. each. The economy would be fixed overnight. They could borrow it if necessary and tax us on it. They could pay it back in no time. Businesses would boom. People would be happy, not stressed out of their brains. Mothers could stay home with their children. There would be little or no crime. People would have purchasing power. The banks would again have big accounts, mortgage companies would be paid in full in many cases, insurance companies could insure, the stock market would rejuvenate. It would benefit car manufacturers, housing market, create many new jobs, new green businesses would blossom, inventors, artists and entrepreneurs would be able to think and create, we could improve hospitals and nursing homes, pharmaceutical companies could do research again, doctors treat. We could fix our infrastructure, people could volunteer again. Universities would come alive with people learning, not trying to figure out how they are going to afford eating and paying for next semester. Vacation spots and cruises would be booked for years in advance. Sports arenas would be filled to capacity. We could give to charities and causes here and abroad. Blow the one time gift, hopefully you had fun. When immigrants become citizens they'd get a bonus of some amount. It's perfect.

[aramos]

Obviouslt mathe,atics wasn't your stron suit. $1,000,000 times 320,000,0000 = $320 Trillion dollars.

Any other brilliant idea?

[dshwa]

That's still less than the bailout.

[amcq]

Dear Judesedit you made one little miscalculation, there are more then 320 people in America. And the bailout amount from the government is more then 700 billion not 7 billion. But I like the way you think. Just give all of us a big chunk of dough.

[StephenJK]

You could do a sort of autowin lottery 300,000 people per quarter get 1 million dollars. Chosen at random from income tax rolls and once you receive your 1 million dollars you are eliminated from the list. Criteria could be Income taxes have been paid for a period of at least 10 years, you've been steadily employed for that same period, no felonies on your record, you make under 250,000 dollars per year for that same period, you will continue to pay income taxes at similar rates until you retire whether you are employed or not. This would be 300 billion dollars per year. Don't we spend that in about 3 months in Iraq? Along with the million you would get safe and sound investing strategy guidance to sustain and even grow your million into millions and it would also do wonders to eliminate Social Security in the future. It would encourage people to work, keep their jobs, permanently stimulate the economy, stay out of trouble, pay taxes and reduce crime. Problem is some people might never get the million bucks even if they meet all criteria. There are more than likely many other problems with this idea. But, I like it!

[StephenJK]

Sorry, this would be 1.2 trillion per year. Initially I had 300,000 people per year and then changed it to per quarter. forgot to revise the final cost.

[cynicalgal]

FOXES ARE GUARDING THE HEN HOUSE!
The Bill considered by Congress in 2005 to tighten regulation in mortgage business was killed.. At the time Christoper Dodd (D-CT) was head of the Senate Banking Committee. Dodd received questionable favorable mortgage rates from Countrywide and was also paid by housing lobbyists.

RICK DAVIS - (Campaign Manager for McCain. Davis was a lobbyist for Fannie Mae and Freddie Mac -- received $2 million.

What a joke. Fannie and Freddie flooded Washington with lobbyist dollars and IT WORKED!!!
Need a good laugh, see the new SARAH PALIN BARBIE DOLL:

http://www.Vaboomer.com

[Patriot4Obama]

The key to this crisis may very well be in our education. Our country, in the ever increasingly specialized world, must be innovative. This only comes from educating our citizens as much as possible but what inducement do people have to assume student loans to pay for specialized education if they cannot afford the simple stables in life like bread and electricity?

Education can be our saving grace. I would like to see our candidate propose policy that will put education costs back into the national discussion. Rather than nationalize Wall Street, we should be nationalizing individual debt that will best serve our nation. Paying off people's bad debt on homes, autos and credit cards does not stimulate the US economy as it will only give those people incentive to go out and rack up more debt. Education is something different, it takes drive, determination and commitment.

Socialize our nation's student debt and invest in our natoin's most precious asset, our students.

Kimbo
PatriotsForObama.org

[larry278]

When you call for another New Deal & a FDR to implement it, look at the situation which we have now. There are a lot of studies of the New Deal & the situation from 1929-1942. Does the situation we've had since 9/29/08 resemble the situation in 1929? FDR died in 1945. We aren't going to find a clone of FDR. We'll have to muddle through with the people who are alive now. It will be messy, hard work. We can't rely upon past solutions & dead people to recover. This is a new situation. New people, not dead people from history, will try to lead & devise new remedies. Maybe, if we are lucky, we will find the right new solutions & the right new people. Maybe some of the new people will grow into wise leaders. Don't bet on that.

[oldfart1]

One thing FDR did, was he brought in unselfish people, just the opposite of the ones Bush has brought in. Those Bush people will remain in Washington if McCain wins, because he doesn't know anyone except Sarah.

[amcq]

Do you really think either one of these guys who make it to president are going to do anything for us. I don't know how old you are, but I've lived a good long time and I've never seen any of them do anything for us. Oh yeah, they make all their promises and then they never follow through. They do just what they want.

[martinchill]

these companies DO NOT PRODUCE OR MANUFACTURE A THING.

the bailout should go to the PEOPLE who lost money, not the companies who are losing it for them.

[dontomas]

As I read of the world wide banking turmoil, it is very interesting that one of a few countries with no banking problems at all is our neighbor to the north, Canada. I am not saying Canada is not without any problems but it would seem that they should be a model for our economic system because it works. They also have a national health scheme that works and a better retirement plan. When you are not fighting global wars and having a mega defense budget it is so much easier. Canada is ranked 9th in citizens have a good sense of well being compared to 15th for the US so apparently higher taxation and less free wheeling capitalism does not seem to bother them.

[pacodog]

Not for nothing, but a friend of mine has a sister who lives in Canada. She needs to have a hysterectomy and the Canadian government won't let her get the operation because her condition is not life-threatening. Meanwhile, she is in pain every day. To say their health care system works is one thing, but does it work well?

I agree that I would much rather see our federal dollars spent on domestic policies rather than on wars that are unnecessary and unwinnable.

[oldfart1]

Canada has a trade surplus (from its oil and gas), we have a trade deficit (from our oil and gas). Bush tried to fight a war on borrowed money, and the war has gone on and on and on, and we just can't afford it - not no how, not no way.

[amcq]

I have a childhood friend who lives in Canada, I love the Canadians but their health system stinks, Not only are they taxed through the ceiling for it, they have to wait months for needed surgery, so long in fact that my friend came to the U.S and had her surgery done, and at her expense. When you start nationalizing the health care system, the quality of care goes down. And the price goes up in taxation.
Were not going to get a health care system here, thats just a promise of Obamas. Neither one of these guys are going to do anything for us. They just make empty promises to get what they want, and thats to be President. Remember when Bill Clinton ran and thats all we heard about the health care system he was going to give us. Then once elected, after a couple of months of pretense, that flew right out the window. Don't you folks remember that? We need a third party in this Country. These two parties have sold us down the river.

[citizenshoes]

lest we forget, just as is the case in the drug trade, there wouldn't be a problem if there wouldn't be
a customer.....it's easy to fall into the role of "victim" and hide behind responsibility when the "victim"
is the mob-mentality american consumer public....i trust that, as a people, we're not that ignorant....we caused this problem....the lending institutions nor the devil made us enter into these ridiculous financial
decisions....let's at least admit to some of the blame, then go about finding the best solution to fix the problem....as i read this back it sounds like a "high horse" comment...it's not meant to be....i admit to being part of the problem and hope to add something constructive to correct it....

[oldfart1]

Actually all this confusion has been caused by Paulson and Bush. The London bankers have cleared the air, and G7 will explain to Bush what he has to do this weekend.

The plan is simple, there are just too many bankers and of course too many banks.

So the gov't steps in and buys parts of the healthier banks (like JP Morgan), and lets the rest disappear (while covering deposits up to $250 K). Naturally, the few banks that are left will do well, and eventually the gov't makes a profit.

What about all the banking jobs that are lost? Well, maybe most of those guys were doing more harm than good. What about all the millions of manufacturing jobs lost in the rust belt? Where were Paulson and Bush when those jobs were disappearing?

And what about all the Texas oil jobs? Well, our Army went to Iraq to find jobs for those people, but somehow it just didn't work out.

Obama can do better. ANY Democrat can do better.

[amcq]

Obama is not going to do anything, if you think he's going to bail us out of this mess, your crazy, neither one of them can. Were just going to be taxed more.