1 Trillion dollar bailout

[ChshreCat]

interesting viewpoint. i choose to think that the idiots who took loans they shouldn't have are getting what they deserve. maybe the escalade with the 22s was a bad idea too. and the $1500 stereo system you put in it. the fact is, most of the people having their house foreclosed are idiots and need to have this slap in the face to bring them back to reality. it's time people start living within their means again.

And that's an interesting viewpoint. But what about the majority of them who are working three jobs and just wanted to have a home for their kids so they don't have to live in a crappy apartment in a bad neighborhood? The ones who just wanted a home to park their 15 year old used cars in front of while they get their 6 hours of sleep between shifts?

 

[KingBrianI]

i don't know any of those. i do know a few people who bought houses with 100% loans with adjustable rate mortages because their financial skills are lacking and are now hurting because of it.

 

[ChshreCat]

Those folks need the bailout more, IMHO. Give them help paying of their debts, they pay that money to the banks and everyone is fine. Except of course all the taxpayers who are paying for the bailout in the first place. But if my tax money is going to help this situation, that's where I'd want it to go. Take care of the families first, not providing golden parachutes to millionaires.

 

[delboy]

What's most annoying is that the bailout is going to bail out the rich. The money will go to the bankers to buy out the loans they never should have given people. So the rich will stay rich. But all the poor schmucks who can't make their payments will still get foreclosed. But, it'll be the government that forecloses on them. So you have poor families being thrown out on the street so that the top 1% (Dubya and his friends) can keep their lifestyle.

Strongly agree!

 

[EvilTOJ]

I haven't read the thread, but I was emailed the solution by some guy:

Some really long chain letter

This makes all kinds of sense and seems like it could work to me. Can anyone explain why this wouldn't work? I mean besides the fact that the government is never ever going to just give that kind of money to the proles, workable or not.

 

[Boerderij_Kabouter]

This makes all kinds of sense and seems like it could work to me. Can anyone explain why this wouldn't work? I mean besides the fact that the government is never ever going to just give that kind of money to the proles, workable or not.

That's the crazy part to me as well. When it is broken down like that it puts the amount of money they are talking about in perspective. I told my brother about it last night, and he would believe me that that's how much money 700 billion dollars is. I had to get out a calculator and show him how it worked out. Even then he was like, "who the hell is going to pay that much? The government doesn't even have that mush money out of pocket." exactly, exactly.......

We are heading to grimy place with all these bailouts to people who cause problems for themselves. [sarcasm] go ahead, live in a place where your house is likely to be destroyed every 10 years, those idiots up in Wisconsin will foot the bill just as much as everyone else! Hey need a loan you have a snowballs chance in hell of paying back? Go for it, what do you have to lose.[/sarcasm]

This whole scenario reminds me of parents who give there drugy high-school kids a $100 allowance and then are surprised that they can continue to do drugs. "where do they get the money?" idiots......

 

[JustDave]

A BETTER PLAN

A friend of mine who is a retired USAF ex fighter pilot sent this to me.He makes total sense so let's petition the loonies in Congress to seriously consider it!

I'm against the $85,000,000,000.00 bailout of AIG.

Instead, I'm in favor of giving $85,000,000,000 to America in a "We Deserve It Dividend."

To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+.

Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up.

So divide 200 million adults 18+ into $85 billon that equals $425,000.00.

My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.

$85,000,000,000 / 200,000,000 is only $425.

 

[Boerderij_Kabouter]

Arrrrrrgh! You are right, I must have missed a set of zeros in me drunken calculations last night..... tanks Davie!!!!

 

[EdWort]

[ame=http://www.youtube.com/watch?v=VgctSIL8Lhs]YouTube - Fox News Special Report on The Banking Crisis[/ame]

 

[CBBaron]

$85,000,000,000 / 200,000,000 is only $425.

Exactly, The government has already done the bailout Americans plan in the form of a tax stimulus check you received last spring/summer. And that money was a straight expense on the governments books. This time they are buying assets.

Craig

 

[BierMuncher]

And that's an interesting viewpoint. But what about the majority of them who are working three jobs and just wanted to have a home for their kids so they don't have to live in a crappy apartment in a bad neighborhood? The ones who just wanted a home to park their 15 year old used cars in front of while they get their 6 hours of sleep between shifts?

Close to the industry, I can tell you these instances are few and far between.

Most "real people" finding that their ARM mortgage increased are being counseled and worked with by their mortgage company to stay in their homes and work out a plan. Mortgage companies are not in the real estate business (by choice).

The majority of distressed real estate assets come from "investors". People who had enough equity in their first home, to buy up a second property, spend some (borrowed) money to fix it up...in the hopes of reselling within 12 months and making a profit. (Anyone remember the popularity of “Flip That House”?).

I'm not talking about dilapidated properties in need of major renovation...these are properties that are move-in ready and simply need some fresh paint. In some cases people were buying brand new spec homes and sitting on them… counting on a continued 10% annual increase in property values as a reliable investment.

What these "investors" failed to realize is that a lot of the increase in home values was due to the excess buying power created by the subprime customer. Mortgage companies had a slew of subprime customers who wanted to "keep up with the Joneses". Investors in Wall Street were eager to buy up these subprime mortgages as investment tools because they were yielding huge returns. GSE’s like Freddie and Fannie wrote new criteria to accept hybrid style loans like SISA (State Income, Stated Assets), SIVA (Stated Income, Verified Assets), No-Doc Loans and worst of all…pick-a-payment mortgage products. These products made it easier to buy homes. More buying power pushed prices up…creating the need for even more aggressive loan products… so on and so on. People were even tapping into their (artificial) home equity to fund personal businesses.

One flaw. All of these risky products were built under the premise that the excess buying power of the subprime customer would be sustained. What they failed to remember is that subprime customers are subprime for a reason. They have crappy credit. A history of not paying their bills. Little to no assets. Little to no equity.

Well…you can’t change the spots on a leopard and subprime homeowners did what they always did…or didn’t do. They failed to make mortgage payments. Payments were delinquent. Foreclosures ensued. Homes went up for sale…and the value of that “investment” was now dropping as fast as “Price Reduced” signs were going up in neighborhoods.

No…this is not about Joe six-pack who should have signed up for a fixed rate mortgage when 30-year rates were below 6%.

This is about people who saw the rising tide of real estate values as a reliable…high yield investment and banked all of there equity on a good, short term return. Now…as for the people out there who signed on a dotted line of an Option ARM (pick a payment) mortgage…they made the choice.

 

[zoebisch01]

Hmm...let's recount. Government 'bails out' companies, money shifts to...government. Said government sets up governmentally controlled, non-reviewable (neither by courts, audit, etc) financial institutions to the tune of over half the money in circulation. Does nobody else see this as absolutely absurd???

 

[BierMuncher]

Hmm...let's recount. Government 'bails out' companies, money shifts to...government. Said government sets up governmentally controlled, non-reviewable (neither by courts, audit, etc) financial institutions to the tune of over half the money in circulation. Does nobody else see this as absolutely absurd???

Not nearly as absurd as the alternative.

The great depression was driven primarily by banks refusal to extend credit.

The current state of these sinking assets sucking up capital on financial institutions balance sheet is leading to their urgent need to protect cash assets. Last week banks stopped lending to one another. The next very short step is their refusal to extend credit to the public.

Think about everybody within a 50 mile radius of you unable to borrow another dollar to go about their daily business. Now that is absurd.

 

[zoebisch01]

Rock and a friggin hard place. We are definitely on a tight rope.

 

[EdWort]

BierMuncher, will you buy me a hamburger today, If I give you a dollar on Tuesday?

I certainly hope they revoke Clinton's Community Reinvestment Act which forced banks to to give mortgages to uncredit worthy people...

It's amazing how mortgages were given out without income verification, copies of tax returns, or even a decent credit history and then resold to an even dumber investor.

 

[Aubie Stout]

China banks told to halt lending to US banks-SCMP
Wed Sep 24, 2008 9:52pm EDT

Trading will never be the same.BEIJING, Sept 25 (Reuters) - Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis, the South China Morning Post reported on Thursday.

The Hong Kong newspaper cited unidentified industry sources as saying the instruction from the China Banking Regulatory Commission (CBRC) applied to interbank lending of all currencies to U.S. banks but not to banks from other countries.

"The decree appears to be Beijing's first attempt to erect defences against the deepening U.S. financial meltdown after the mainland's major lenders reported billions of U.S. dollars in exposure to the credit crisis," the SCMP said.

A spokesman for the CBRC had no immediate comment. (Reporting by Alan Wheatley and Langi Chiang; editing by Ken Wills)

12345678910

 

[BierMuncher]

...Sept 25 (Reuters) - Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis

Step One.

Anyone still concerned about their "tax payer burden"?

If we go to step two...well...let's hope we don't go to step two.

 

[EvilTOJ]

What step is 'the public panics and does bank runs?' like they're doing with gasoline in the south?

 

[TwoHeadsBrewing]

Not nearly as absurd as the alternative.

The great depression was driven primarily by banks refusal to extend credit.

The current state of these sinking assets sucking up capital on financial institutions balance sheet is leading to their urgent need to protect cash assets. Last week banks stopped lending to one another. The next very short step is their refusal to extend credit to the public.

Think about everybody within a 50 mile radius of you unable to borrow another dollar to go about their daily business. Now that is absurd.

I contend this notion that people need to borrow money in order to sustain their life, or even a decent standard of living. Our country has become addicted to debt, and living outside of one's means. Save first, spend later...not the other way around. We've become accustomed to impulse purchases, immediate gratification, and racking up debt. We don't need financing, for cars or anything else except for a home.

About 3 years ago, I was swamped in debt. I had just finished college and had some student loans come due, I bought my first house and overextended myself financially. I also had several thousand in credit card debt. All of these factors combined almost drove me to borrowing money from friends and family. I was so broke I was putting groceries on my credit card at the end of the month because I didn't have any cash leftover after paying bills. Luckily, my brother in law bought me a book called the Total Money Makeover. The whole premise of this book is that debt is NOT NECESSARY, and besides buying your first home you should not EVER go into debt. The author, Dave Ramsey has some simple steps and rules to taking control of your finances and paying off your debt in a matter of months. And it works, I'm almost debt free aside from my home. Both of my cars are paid off, my credit card debt will be paid off in another 5 months, and my student loans will be payed off within the year.

There is a saying in that book, actually a quote from one person who followed the plan, "I'm sick and tired of being sick and tired!". This is exactly how I felt; no money at the end of the month, getting deeper into debt every month, living a lie by purchasing things I didn't really have the money for, and worst of all pissing the chances of financial safety for my family down the drain. I finally realized that debt is a "stupid tax" on people who don't have the will power to save up for the things they need. If you're struggling to make ends meet, and are willing to change the way you live to improve your life, this book has some very common sense methods to get you out of debt, start saving, and living life comfortably within your means.

Here's another really good quote from the book:
"We buy things we don't need, with money we don't have, to impress people we don't even like."

 

[CBBaron]

I contend this notion that people need to borrow money in order to sustain their life, or even a decent standard of living. Our country has become addicted to debt, and living outside of one's means. Save first, spend later...not the other way around. We've become accustomed to impulse purchases, immediate gratification, and racking up debt. We don't need financing, for cars or anything else except for a home.

All very true, however the banks "refusal to extend credit to the public" includes those home mortgages and more importantly business loans. That will seriously curtail job creation in this country which can really cause some financial problems.

I am glad to see at least Biermuncher is looking at the bigger picture here. First the proposal is not to give these large corporations money, but to buy assets from them that they are having trouble selling. If things go great the government can even make money from the bail out. More likely we will lose some money but not $700B.
Second consider the alternative of allowing those companies to continue down the path that has started. It starts looking very much like 1929.
And it does look like there is an effort in the package to prevent huge golden parachutes for the top executives in these failing companies. Well will have to see if it actually has some results.

Something on this scale is definitely needed and soon. The problem is balancing the need against the cost and preventing abuses.

Craig

 

[TwoHeadsBrewing]

I am not an economist, so please fill me in on how this business loan banking is necessary. I don't see businesses not being able to create jobs unless they already have a cash flow problem. Again, if they are "living beyond their means" they have overextended themselves. However, if they have the cash flow to take on new projects they can create jobs. Wouldn't it only be the corporations that rely on credit that will be unable to create jobs? And in that case, they just need to change their business model because they have so little liquidity they cannot even expand. I'm sure I am missing something here, but I just don't see how credit is necessary for operations. I know it's a great way to finance purchases of other companies, expand into new markets, or just expand in your existing market...but are those things necessary?

 

[delboy]

Close to the industry, I can tell you these instances are few and far between.

Most "real people" finding that their ARM mortgage increased are being counseled and worked with by their mortgage company to stay in their homes and work out a plan. Mortgage companies are not in the real estate business (by choice).

The majority of distressed real estate assets come from "investors". People who had enough equity in their first home, to buy up a second property, spend some (borrowed) money to fix it up...in the hopes of reselling within 12 months and making a profit. (Anyone remember the popularity of “Flip That House”?).

I'm not talking about dilapidated properties in need of major renovation...these are properties that are move-in ready and simply need some fresh paint. In some cases people were buying brand new spec homes and sitting on them… counting on a continued 10% annual increase in property values as a reliable investment.

What these "investors" failed to realize is that a lot of the increase in home values was due to the excess buying power created by the subprime customer. Mortgage companies had a slew of subprime customers who wanted to "keep up with the Joneses". Investors in Wall Street were eager to buy up these subprime mortgages as investment tools because they were yielding huge returns. GSE’s like Freddie and Fannie wrote new criteria to accept hybrid style loans like SISA (State Income, Stated Assets), SIVA (Stated Income, Verified Assets), No-Doc Loans and worst of all…pick-a-payment mortgage products. These products made it easier to buy homes. More buying power pushed prices up…creating the need for even more aggressive loan products… so on and so on. People were even tapping into their (artificial) home equity to fund personal businesses.

One flaw. All of these risky products were built under the premise that the excess buying power of the subprime customer would be sustained. What they failed to remember is that subprime customers are subprime for a reason. They have crappy credit. A history of not paying their bills. Little to no assets. Little to no equity.

Well…you can’t change the spots on a leopard and subprime homeowners did what they always did…or didn’t do. They failed to make mortgage payments. Payments were delinquent. Foreclosures ensued. Homes went up for sale…and the value of that “investment” was now dropping as fast as “Price Reduced” signs were going up in neighborhoods.

No…this is not about Joe six-pack who should have signed up for a fixed rate mortgage when 30-year rates were below 6%.

This is about people who saw the rising tide of real estate values as a reliable…high yield investment and banked all of there equity on a good, short term return. Now…as for the people out there who signed on a dotted line of an Option ARM (pick a payment) mortgage…they made the choice.

Good post BM!

Is it standard practice for the average person to sign on for 30 year fixed rate mortgages.

Over in the UK were short term mortgages are the norm (nobody does 30 yrs etc) a lot of hard working average joes who had to buy their house at the inflated price are caught between a rock and a hard place.

House prices are now falling fast because of the economic fallout the average joe who bought in the last few years is looking for a new deal. But the rates of the deals available are v. v. uncompetitive and whats more the healthy deposit that he saved long and hard for to put down on the house has been swallowed up by the falls and then some. He is forced into negative equatity meaning he gets seen as a bad risk and gets forced into a deal with even more punitive rates. And this in a country were they wasn't really any such thing as sub-prime lending at least not anything like what was happening over in the USA.

 

[BierMuncher]

I am not an economist, so please fill me in on how this business loan banking is necessary.

Go talk to any small to mid sized business owner and ask them how necessary working capital is in starting, maintaining and growing their business.

Positive cash flow does not equate to working capital.

 

[BierMuncher]

Good post BM!

Is it standard practice for the average person to sign on for 30 year fixed rate mortgages.

Thanks. Unfortunately the recent trend has been for the "average" citizen to sign on for as much house as they could afford, regardless of the risk associated with that arrangement (ie - rates going up and housing bubble bursting).

It's true that well intended folks who signed up for a 15-year fixed loan on a home purchased in 2006, now find themselves in a home worth substantially less than what they paid. For them the options are to stay put and ride this out, or attempt to sell (because they need to relocate for a job), understand that they will take a loss, and hope that they can mitigate this loss buy purchasing a new home at equally distressed prices.

On the upside for these folks, since they purchased a new home in 2006, it's likely that they sold an existing home at the same time, under the same inflated environment, making a lot of money and carrying a lot of equity into their current home. If they didn't cash in on that equity (by buying boats, sports cars or taking vacations) then they "should" be okay.

One thing is for certain, those well intended folks who did the right thing are going to find themselves in a much more dire situation if financial institutions are forced to hold on to these “toxic” assets, hoard their cash and cease all personal and business lending.

It’s a vicious circle: Credit dries up…buying power shrinks…fewer buyers…more inventory…more losses…credit dries up more…buying power…..well, you get the point.

Ironically, this is the opposite cycle that we experienced from 2000 to 2006: Credit freed up…buying power increased…more buyers…prices increased…credit freed up even more (subprime)…more buying power…etc…etc…

 

[zoebisch01]

The thing that makes all of this so nasty (and critically different) is the current stress on the economy from things like US auto maker trouble and skyrocketing fuel costs. It's a very sickly brew.

 

[Cookiebaggs]

Go talk to any small to mid sized business owner and ask them how necessary working capital is in starting, maintaining and growing their business.

Positive cash flow does not equate to working capital.

+1

I recently secured a pretty good chunk of business with a large retail drug store chain.

I, along with a third party, developed a snack product that will be hitting the store shelves in October.

The initial order is for 40,000 lbs of product with an expected monthly volume of 12-16,000 lbs.

Once I recieved a firm PO, I went to the bank to get capital to purchase raw materials and to cover labor expenses. I will be able to operate without a bank loan at some point but for startup purposes, It was crucial to help me get this new venture off the ground.

 

[BierMuncher]

+1

I recently secured a pretty good chunk of business with a large retail drug store chain.

I, along with a third party, developed a snack product that will be hitting the store shelves in October.

The initial order is for 40,000 lbs of product with an expected monthly volume of 12-16,000 lbs.

Once I recieved a firm PO, I went to the bank to get capital to purchase raw materials and to cover labor expenses. I will be able to operate without a bank loan at some point but for startup purposes, It was crucial to help me get this new venture off the ground.

Congratulations and good luck.

 

[AnonyBrew]

Interesting how there was no response yet to Edwort's video.

YouTube - Fox News Special Report on The Banking Crisis

 

[delboy]

Interesting how there was no response yet to Edwort's video.

Flipping heck i never realised just how biased TV channels in the states could be, reminds me very much of the the british tabloid papers and there peddling of the political beliefs of their owners!!

Ahhh just noticed that is fox, owned by murdoch, that explains all

 

[AnonyBrew]

Just because they are biased does not mean they are inaccurate or incorrect.

 

[AnonyBrew]

You think the cash in your pocket is worth less because of this?

Think about what that $1.00 bill in your pocket is right now.

That $1.00 came from your employer who:

• Uses a line of credit to buy supplies, pay overhead and make payroll.
• Relies on his suppliers who also use a line of credit to buy raw materials, pay overhead and make payroll so they can deliver goods to your business.
• Counts on customers (who maybe work for one of your suppliers) to come in on weekends and spend their payroll.
• Turns around and redistributes his earnings by spending in the local economy and paying employees who also spend in the local economy...a local economy that is driven daily by lines of credit.
• Has a vision that new innovations from young, educated talent who got through school using a line of credit might make his business more robust and adaptable for the future.

You close all of those lines of credit that drive these activities, (which trust me as someone who is in the industry…is a very real possibility right now), and your $1.00 is now worth about 20 cents.

Now…try to take that 20 cents and do something with it.

• Your favorite restaurant…closed.
• Your local pub…closed.
• The car dealership…closed. (How many people do you know pay cash for a new car?)
• The partially constructed mall…deserted.

Is this starting to sound familiar?

No…if you think that the Feds buying up distressed real estate is going to be an inconvenience, just consider the alternative when banks say:

• We’re out of the student loan business.
• We no longer offer auto loans.
• Your business line of credit is temporarily suspended.
• You will need 50% down for a new home.

The banks have already stopped lending to each other and are precariously close to pulling the trigger on all lending in order to protect their cash assets.

Do try and remember one thing. This is not a junk bond bail out. This is real property, bought at distressed prices, that will appreciate over time.

I'd like to hear BM's response to the following:

If Banks Disappear, It Doesn't Mean Lenders Will

What's clear is that a bunch of financial institutions have made mistakes and lost money. What's unclear is why anyone (other than the owners and managers) should care. People make mistakes and lose money all the time. Restaurants fail, grocery stores fail, gas stations fail. People pick the wrong stocks, they buy the wrong cars, and they marry the wrong spouses without turning to the Treasury for bailouts.

So what's special about banks? According to what I keep reading, it's that without banks, nobody can borrow, and the economy grinds to a halt.

Well, let's think about that. Banks don't lend their own money; they lend other people's (their depositors' and their stockholders'). Just because the banks disappear doesn't mean the lenders will. Borrowers will still want to borrow and lenders will still want to lend. The only question is whether they'll be able to find each other.

That's one reason I feel squeamish about the official pronouncements we've been getting. They tell us bank failures will make it hard to borrow but never that bank failures will make it hard to lend. But every borrower is paired with a lender, so it's odd to state the problem so asymmetrically. This makes me suspect that the official pronouncers have not entirely thought this thing through.

In the 1930s, a wave of bank failures did make it hard for borrowers and lenders to find each other, and the consequences were drastic. But times have changed in at least two relevant ways. First, the disaster of the 1930s was caused not just by bank failures, but by a 30% contraction of the money supply, which is something today's Fed can easily prevent. Second, as any user of match.com can tell you, the technology for finding partners has improved since then. When a firm wants to raise capital, why can't it just sell bonds over the web? Or issue new stock? Or approach one of the hedge funds that seem to be swimming in cash? Or borrow abroad?

In other words, I'm not sure these big Wall Street banks are really necessary, and I'm not sure we'd miss them much if they were gone. Maybe there's something I'm missing, but if so, I think it should be incumbent on Messrs. Bernanke, Paulson and above all Bush to explain what it is.

~Steven E. Landsburg "Not Buying It" in The Atlantic

 

[TwoHeadsBrewing]

I guess this is bad for everyone who uses debt to finance their life. I'm happy that I am employed by someone who has zero debt, and is an almost 100% owner of the company. I guess all those people who said "Debt is a tool", are realizing that debt is more like a lead weight if you didn't bet on the right horse. The businesses that depend on debt and loans to operate are really hurting right now, but businesses that operate on a cash basis are doing fine. Their cash flow >= expenses, and they can keep operating like that in perpetuity. Now, nobody is going to get rich just barely making it, but nobody is going to lose their house either. I wouldn't be surprised if most of these businesses that "need" a loan to expand, just have cash-flow problems.

 

[AnonyBrew]

I guess this is bad for everyone who uses debt to finance their life. I'm happy that I am employed by someone who has zero debt, and is an almost 100% owner of the company. I guess all those people who said "Debt is a tool", are realizing that debt is more like a lead weight if you didn't bet on the right horse. The businesses that depend on debt and loans to operate are really hurting right now, but businesses that operate on a cash basis are doing fine. Their cash flow >= expenses, and they can keep operating like that in perpetuity. Now, nobody is going to get rich just barely making it, but nobody is going to lose their house either. I wouldn't be surprised if most of these businesses that "need" a loan to expand, just have cash-flow problems.

Companies that use debt properly as a tool can be far more competitive than those that operate on cash only.

 

[BierMuncher]

I'd like to hear BM's response to the following:

If Banks Disappear, It Doesn't Mean Lenders Will

...Just because the banks disappear doesn't mean the lenders will. Borrowers will still want to borrow and lenders will still want to lend. The only question is whether they'll be able to find each other.
...

There is a big difference between a local hometown bank that will extend you $50,000 in credit to start a doughnut shop, and a major financial institution that can (or could at one time) lend $2.5 Billion to fund the construction and 5 year budget of an auto plant in Atlanta.


And as for

Restaurants fail, grocery stores fail, gas stations fail. People pick the wrong stocks, they buy the wrong cars, and they marry the wrong spouses without turning to the Treasury for bailouts.

Restaurants = Prepared food
Grocery stores = Canned goods
Gas Stations = Gas and cherry slurpies
Banks = The American dollar.

If any of these businesses elect not to "serve you", you can go many other places instead. Banks failing...? All at the same time...? There is no replacement for cash or credit.

 

[TwoHeadsBrewing]

But the current market does seem to favor SOME banks...BofA has done well, and has got a screaming deal on Merrill Lynch. JPMorgan Chase has also acquired Washington Mutual for a bargain price due to the depressed banking market. This is GOOD for those banks. Even Warren Buffet has acquired $5 billion of Goldman Sachs. Talk about "buy low, sell high", the companies with good business practices have the money to buy when the market is at it's lowest. In a few years the economy will improve and their investments will be worth much more than the current bargain basement price.

We do not need government involvement, that is what caused the situation in the first place. This problem can be fixed by letting the failing banks fail and be bought up by the successful ones. Nothing to see here...just the free market doin' its thing!

 

[BierMuncher]

...JPMorgan Chase has also acquired Washington Mutual for a bargain price due to the depressed banking market. ...

I was closer to this situation than you might think.

WAMU has the largest share (roughly $180B) of these non-performing toxic assets on their books. They are the single largest holder of pick-a-payment option ARM loans...which have not even begun to enter into their mandatory minimum pay-back period. Chase is banking heavily on the fact that these assets will be offloaded via whatever plan emerges from DC.

And as for this:

In a few years the economy will improve and their investments will be worth much more than the current bargain basement price.

Replace "their investments" with "the tax payers investments" and you have just described the core of the plan they're discussing in Washington right now.

 

[ChshreCat]

http://seattlepi.nwsource.com/dayart/20080924/Cartoon20080924.jpg

 

[TwoHeadsBrewing]

I was closer to this situation than you might think.

WAMU has the largest share (roughly $180B) of these non-performing toxic assets on their books. They are the single largest holder of pick-a-payment option ARM loans...which have not even begun to enter into their mandatory minimum pay-back period. Chase is banking heavily on the fact that these assets will be offloaded via whatever plan emerges from DC.

And as for this:

Replace "their investments" with "the tax payers investments" and you have just described the core of the plan they're discussing in Washington right now.

Well, I hope Chase can weather the storm for a while...I bank at WaMu! But if they too have made a gamble on whether I am going to give them tax money for a bailout, they should be prepared for a disappointment. Hopefully they have a plan for that taxpayer money NOT coming through, even the Republicans can't agree on the specifics. Bipartisan, bischmartisan...not even one party can agree with itself.

I read a response to this whole mess by Ron Paul...pretty good read. My favorite quote is this:

The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you’re supposed to have a voice in all this actually seems to annoy them.

Right on the front page of ronpaul.com

 

[TwoHeadsBrewing]

So, question about the WaMu situation: did they fail or get bought by JPM Chase? WSJ says their assets were seized by regulators in the fed, and they orchestrated a deal with JPM Chase. So I guess the questions is, which came first? Did they file for bankruptcy? Did they get acquired?

 

[BierMuncher]

So, question about the WaMu situation: did they fail or get bought by JPM Chase? WSJ says their assets were seized by regulators in the fed, and they orchestrated a deal with JPM Chase. So I guess the questions is, which came first? Did they file for bankruptcy? Did they get acquired?

Regulators step in when complete failure is imminent. Bank failure is much bigger than a business going bankrupt. A bankrupt business simply can't pay bills or fund employee payroll.

A bank failure means the bank cannot cover customer deposits...this means any cash you have deposited in the bank in excess of the FDIC insured limit of $100K is gone.

The Feds basically took the keys away from WaMu and handed them over to Chase and said...you're in charge now.

Here's an interesting read off of CNN Money:

NEW YORK (CNNMoney.com) -- Just when it looked like relief was on its way, credit markets seized up again Friday.

With the Treasury's $700 billion financial industry bailout proposal in jeopardy, and with Thursday night's collapse of an agreement and subsequent JPMorgan Chase takeover of Washington Mutual - the largest bank failure in the nation's history - bank lending has again stalled.

"Things have frozen over again," said Steve Van Order, chief fixed income strategist with Calvert Funds. "Banks are nervous about lending to each other, and the commercial paper market has come to a standstill."

Market gauges of lending risk showed cramped markets and flights to safety Friday.

For instance, the difference between the London interbank offered rate, or Libor, and the Overnight Index Swamps rose to an all-time high of 0.208%. The decade-old Libor-OIS spread measures cash availability among banks, with higher spreads signaling fewer available funds.

The TED spread - the difference between Libor, what banks pay to borrow money for three months, and the three month Treasury borrowing rates - rose to 0.31%, the widest margin for that measure since 1982. A wide spread is considered to show high risk of loan defaults, sending investors to safer havens. The Ted spread was at 0.111% just a month ago.

With loads of troubled assets on their balance sheets, banks are hesitant to take on more loans if the risk of default is high. Furthermore, when banks need to write down those assets, they have less cash on hand to issue loans. That stops the financial system's gears from turning, hurting customers who need a loan to finance a home, a car or tuition.

"The interbank lending markets are clogged up, because there is a freeze-up in the pipes that normally carry funding from central banks to banks to customers," Van Order explained.

How WaMu makes it worse:
The announcement that JPMorgan Chase (JPM, Fortune 500) acquired the banking assets of Washington Mutual (WM, Fortune 500) late Thursday after the beleaguered thrift was seized by federal regulators sent yet another shock to already skittish lenders.

"JPMorgan is going to have to take a writedown and ultimately raise capital," Van Order said. "The bank's lines of credit are being drawn on, and they can't hit the commercial paper market, so the acquisition puts another strain on lending."

As JPMorgan tries to finance its purchase, if there are no lenders available, they will have to turn to a backup line of credit, further seizing up the flow from bank to bank to customers.

Something needs to happen very quickly or a vast number of companies that rely on these open lines of credit to maintain business operations and make payrolls are going to come up dry.