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Post Traumatic Bailout Disorder - A Pill Too Bitter To Swallow
I watched the countdown to the Bailout vote last Friday, as I stood in a pizza joint. When it became clear it would pass, I actually had tears in my eyes. While I saw our economic future fade into oblivion, no one in the pizza place seemed to notice what was happening.
I didn't want to be alone while this moment in history passed, so I dialed a friend's cell phone. "You will always remember where you were during this moment. It is like where you were on the morning of 9/11 or when John Kennedy was shot," I said. I meant it. I was stunned, paralyzed and frightened. Our desperate Congress didn't seem to get it.
I felt powerless and worried about the future. I recalled the Asian currency crisis and the implosion of Argentina. It made me feel sympathetic toward citizens of third world countries who sneak their cash out, under cover of darkness, because they are never quite sure when the next crisis will occur. Only now, no country is safe. This thing is spreading like Aids in Africa.
This morning, I saw a ray of hope in the most unlikely of places. Countrywide Financial, faced with a lawsuit over deceptive mortgage practices, has agreed to modify tens of thousands of loans to keep people in 11 states from losing their homes, according to Illinois Attorney General Lisa Madigan. This is the kind of step that should have been mandated at the federal level before we agreed to provide $7 billion dollars plus pork fat to buy the loans off the books of credit strapped banks.
Finally, someone is taking a practical approach to the problem! This action is a demonstration of how taking one small step can get mortgages performing again. Attorney General Madigan has demonstrated leadership while everyone else is waiting for the Government to tell us what to do. Attorney General Madigan, I don't know you, but I would like to shake your hand.
It has become painfully clear that the Bailout has not created a stunning or even modest turnaround in the markets of the United States or abroad. It will take months before the programs created by the Bailout are up and running. The Street is telling us they realize the emergency is really a "hurry up and wait" scenario. Wall Street knows just how we got into this mess and, though you may not want to believe it, also knows better than anyone about how to get out of it. There are steps that can be taken to get these loans moving again -- if Wall Street could just put its fears aside and act like the players they claim to be.
For weeks, I've been bellowing that the best way to get the economy moving again is to get these loans performing. The best way to get these loans performing is to engage in a large scale restructuring of their terms. I challenge every bank, every state attorney general, every regulator, and everyone in law enforcement to push for immediate restructuring of the loan portfolios. It can and must be done. There are no do-overs here. It is game time!
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Restructuring of mortgages will not work simply because houses have been overvalued to twice to three times the real value. People caught in this mess are better off to let the banks reposses their homes as they would lose some money in the short run but not anywhere near as much if they continue to pay and pay and pay. This is common sense and that is why the situation will get worse because people will not accept a renegotiation of terms. You are a dreamer.
I applaud your enthusiasm and intent. However, we must let these businesses fail and even some of the homeowners that are really in the red and have drastically poor credit ratings.
You are examining a symptom of an egregious Keynesian, centralized banking, private cartel banking system, lead by the Federal Reserve.
"Allow me to issue and control a nation's money and I care not who writes its laws" Amshell Rothschild.
"do nothing" would have been a true free market trumping a managed market, something we've had since 1913, coming to full fruition in 1971 with the Brenton Woods breakdown. The New Deal worked for a while, but when we went fully off the gold standard 91971) we went from a creditor/producer/savings nation to a debtor/consumer/debt nation. All plutocratic elties on the Hill are complicit, save a few. We are divided, just as they want us. Come together!
I too, had a "this is the moment I will remember". It was very sad. It is a matter of The New World Order vs. the Constitution of the United States. W. has been the hatchet man. Obama will be the salesman of the New New Deal, which will include the Amero, North American Union, and a steady erosion of our civil liberties.
Unless we end the fed and practice true free market principles and change from Keynesian the Hayek/VonMises/Friedman economics AND take away the authority of the Fed and practice sound money....in other words...our constitution....we will perish....
"do nothing" would have been a market correction. deep, painful recession but short lived market principles trumping keynesian framework.
bailout = dumping fiat currency into a defunct system that got sick by fiat currency, creating stagflation and/or hyperinflation bringing in a prolongued depression.
Why? NWO.
Obama will save us? DREAM ON KEYNESIANS.
"Our desperate Congress didn't seem to get it." They get it. They get the threats of Martial Law and they get the kickbacks. Only those that fought against it are facing threats. It will get ugly.
Pdubya,
I have been in banking throughout my life and am amazed by people like you who state things like "take away the authority of the Fed and practice sound money". What can you possilbly mean by this? Can you give a brief of "sound money"? It sounds wonderful, but if you take any look at history you will see that money is still an experiment of civilization and the problems that exist today are certainly not cured by something so arcane as going back to the "gold standard". What would a gold standard accomplish? When money was a medium of exchange, gold worked well. Now however it has many many more facets in the economy.
We'd all be indebted (no pun intended) to you if you could give a brief explanation of sound money.
continued: read in reverse order... sorry for the long post.
The rating agencies are now in everyone's sights with tarnished credibility so they have to be vigilant in ensuring that their ratings are closer to reality so little slack can be gained there. The crisis of confidence is between the liars’ poker players... they know the state of affairs but are silently bluffing the taxpayers, hoping no one will ask and too afraid to tell us what they already know. They are broke and they need our money to support a very bad addiction with a seemingly bottomless black hole of financial exposure that they cannot quantify. $700 billion sounds like a lot of money but no one knows. Like all of the other attempts to date that have failed because the problem was far greater than the solution, this again may be the case. Until the Credit default swap issues are resolved, the pain will continue. I totally agree with you but few will want to remain upside down indefinitely. Principal reduction has to included. Stay tuned.
continued
If it was a mortgage problem the focus of the solution would have logically been to halt the slide in the declining value of mortgages get them to performing status thus freeing up needed capital and on we go as you suggested but not so fast. This money will not free up credit as advertised because now more than ever they need to chase higher returns....read offshore.
They are really propping up the swap market that involves everything under the sun because with each rating down grade more capital needs to be posted and they simply have none to spare. AIG recently announced that it has already burned through in excess of $60 billion of the $ 85billion it was granted just a couple of weeks ago, taking the rating agencies by surprise. So how deep is this problem?
Continued
No one has yet to tell the truth which is subprime mortgages or poor people did not bring down the financial system. The banking and insurance system made the real money doing side deals called credit default swaps, a $60 trillion unregulated market that is the real boogie man in the closet threatening to explode our economy. Its at least 5x the size of the mortgage market and are not supported by hard assets but they are not that complicated. AIG's insolvency exposed the fragility of everyone including Goldman, its largest counterparty but they all have serious exposure to each other. JPMorgan's exposure was almost 600% of its capital. The system could absorb defaults on all of the subprime paper if they were just mortgages but those mortgages along with every other conceivable security including corporate loans were leveraged to levels that relegate Nigerian scam artists and the mafia to the neighborhood little leagues.
They know that this problem is not simply subprime mortgages but saying so puts a face on the problem that people can understand even though, its way deeper than mortgages. This is why this seemingly radical nonsensical top down approach has been sold to us.
Ms Tendy
I fell your pain... really. Unlike you I could not listen, because I was too depressed to acknowledge the biggest ripoff in history, right before our eyes. After having their way with us much like a low market call girl, the country was then held up by threats off - we will take all of you down with us. Rule no. 1: banks cannot make money unless they can continue to attract depositors. Rule no 2: Banks must lend money in order to make money. Rule no 3: Banks make money on the spread between what they pay you and what they make on their loans otherwise they out of business. Its that simple. Going off and doing side deals through more leverage is over so they need us to keep them afloat. The threats that were repeated without a single moment of thought highlighted the intellectual void that exists by those with the biggest microphones.
Yes banks have liquidity and capital problems and they all are basically insolvent or marginally solvent and yet sought to solve their problems by threatening the taxpayer by curtailing their very own survival lifelines. Give us the money to fix up our balance sheets now or we will cut you off, however never saying that they would die even faster than we will. Nevertheless they won the Mexican standoff by telling us that it was for our sakes and the American way.
There is no such that as "immediate restructuring of loan portfolios". Put some perspective and a touch of reality into your life. A portfilio is comprised of thousands of separate individual loans with a complicated range of doucmentation surrounded by complications with foreclosure and redemption rights that vary state by state. I won't even mention complications with Regs Z and B that are land mines to a goodly segment of this paper. (Legal rights for poor people ha!) Trained empolyees with ranges of authority to modify separate loans will be like all government "snafu" projects. This is not going to happen. Paulson plans to sell all of this and let the vultures of capitalism clean it up...and at a nice profit to them. It is the only way we work as an economy. We've been here before (I know) and we'll be here again.
The remaining supergiants of the banking system are all perfectly capable of sorting this mess out. They have retained all the people who have sold this garbage and they know how to treat it properly... given time and money, of course. Which is probably the only contribution the government can make.
"It has become painfully clear that the Bailout has not created a stunning or even modest turnaround in the markets of the United States or abroad."
All right, one more entry about public Strawman #1, that the bailout was supposed to generate rosy lips on the stock market pig.
Did anybody really ever think the market would recover, stabilize and go on as if nothing had happened? Really? OK. Go back to little league. That's where you seem to like to play.
If nothing else happened, CFOs all over the country had to take a very hard look at their financial positions and make a few hard decisions about how to best shield their company against a potential credit freeze. And CEOs would have had to evaluate how to satisfy market analysts. I will be called Rumpelstiltskin if the words "layoffs" and "cutting programs" were not mentioned a lot in the last few days. And analysts will want to hear those words a lot over the next few days and weeks, together with "consolidation", "focus on our core business", "efficiency improvements", "outsourcing" etc..
So even if there were no other consequences (and yes, there are plenty other consequences), the market's mood has been irreversibly altered. And that means we are looking at a new economy already. Maybe not the way we wanted to, though.
"do nothing" = true free market principles trump managed market mechanisms (corporatism, fascism that we've had since 1971, planted in 1913).
"bailout" = dumping fiat currency into a fiat monetary system that is failing, creating stagflation and/or hyperinflation, bringing on a greater depression.
Obama is the Manchurian candidate to sell us the New New Deal and the New World Order, the North American Union and the Amero. Our currency will be destroyed, making us desparate for a "savior". McCain will just be more of the same. But, Obama will not repeal FISA, Patriot Act, Military Commissions Act, Homeland Security, practice non-intervention, or take on the Fed.
Unless, we figtht for our constitution. Support HR 2755 to phase out the Federal Reserve.
Join the r3VOLution. www.campaignforliberty.com
www.votepact.org
A disaster. That $700 Billion is less than the private Federal Reserve pushed out the door in ONE day....but, it will bail out Paulson's buddies at Goldman Sachs. Americans.......your dollars are worth less and less each hour. Be sure to vote for more of the same by voting for Republicans.........GOP, the party that wrecked America.
Wait... not one dollar has actually left the building. This is all about psychology, still.
study your history and break your personal paradigm. this has been an art of war. you are divided by your partisan politics, as intended. meanwhile, the complicit come in both colors on the Hill. you have much more in common with true conservatives than you do with the socialists and fascists on the Hill.
think on it. research.
it starts in 1913, continues full force in 1971. do the work. wake up.
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