Does this give anyone else the willies? - Part II

[steve.foote]

The Fed said it will make up to $200 billion in Treasury securities available to big Wall Street investment houses and banks. The new action is designed to ensure that there is an ample supply of Treasury securities. With strains in financial markets, demand has grown for Treasury securities, considered the safest investment in the world because they are backed by the U.S. government.

Wouldn't that be more accurately stated, " ...because they are backed by the U.S. taxpayer?

 

Linkster

[leikam]

Some yahoo speculates on real estate, an investment house buys the securitized mortgage and the lender defaults when he discovers he's upside down. Now the investment house can swap out the bad paper for T-Bills, default itself on the loan and let the government keep the illiquid and probably worthless mortgage? Maybe those securitized mortgages eventually rise or maybe they deteriorate further.

 

In the meantime, that yahoo's speculation increases the national debt and my tax bill. So, I, who have been fiscally responsible, end up paying for this mess and the speculator's credit still has a big black mark on it. Who exactly benefits from this?

[steve.foote]

Michael, that's pretty much the way I see it. It kind of makes playing by the rules suck.

[dewtwo]

The Fed said it will make up to $200 billion in Treasury securities available to big Wall Street investment houses and banks. The new action is designed to ensure that there is an ample supply of Treasury securities. With strains in financial markets, demand has grown for Treasury securities, considered the safest investment in the world because they are backed by the U.S. government.

Wouldn't that be more accurately stated, " ...because they are backed by the U.S. taxpayer?

 

Linkster

 

I didn't read the link, but the government NEVER wants you to remember they are spending YOUR money! made sure they send US checks instead of reducing our tax burden. They want us to think they are giving us their money, not OURS.

[Eschelon1]

Won't this devalue the dollar even more?

 

[Ken H.]

Who exactly benefits from this?

The bankers, the security companies, the investment houses, wall street (up over 400 points today). You know, the only people who really matter.

 

Said with my tongue only partially in my cheek.

[VinnyR11]

Michael, you're exactly right. This has just become our (every taxpayers') problem directly. People made bad and/or uninformed decisions, businesses rolled the dice and lost, and many of us who wee uninvolved are going to end up bailing them out. It's a damn shame.

[Ken H.]

Won't this devalue the dollar even more?

 

One would think, but actually the US Dollar was up a bit today for the first time in weeks. Guess they've shot the silver bullet! (Yeah, not.)

 

I guess the real question is, devalued to whom? To the people who trade it, no, they like the liquidity something like today's action interjects into the market. Devalued in-so-far-as those of us who must rely on what a US dollar can buy, yes, but we don't matter.

 

At least not yet. We haven't pulled back our spending enough yet to have an impact. Credit card spending was up again in Feburary. We have to all hit our maximums and start to default in mass (only 7% of US consumers are in default on their cards so far), before the common comsumer has any 'positive' impact. Or in other words we have a lot of room to fall yet!

[Twisties]

Michael, that's pretty much the way I see it. It kind of makes playing by the rules suck.

 

+1

 

Never thought you'd see the day, eh?

[steve.foote]

Michael, that's pretty much the way I see it. It kind of makes playing by the rules suck.

 

+1

 

Never thought you'd see the day, eh?

 

Oh, yeah, it was expected. Disappointing though.

 

Here is some more fuel for the fire:

 

Dollar Declines on Speculation Fed Rescue Package Won't Succeed

 

"Rescue Package?" I thought there wasn't supposed to be a bailout? This is the part which really rubs my rubbarb the wrong way. What happened to free market forces?

[steve.foote]

Who exactly benefits from this?

The bankers, the security companies, the investment houses, wall street (up over 400 points today). You know, the only people who really matter.

 

Said with my tongue only partially in my cheek.

 

Also, the politicians who float such nonsense and the A-holes who can't manage their money in the first place.

[steve.foote]

HOLY S#$T!!! While I was reading another thread, Bloomberg changed the title of the article I referenced above dropping the word "Rescue." I can't believe what I have just seen here.

 

It now reads:

 

Dollar Falls to Record Low on Concern Fed Package Won't Succeed

 

Unbelieveable!!

 

Did anyone else read Amimal Farm?

 

 

[BeniciaRT_GT]

HOLY S#$T!!! While I was reading another thread, Bloomberg changed the title of the article I referenced above dropping the word "Rescue." I can't believe what I have just seen here.

 

It now reads:

 

Dollar Falls to Record Low on Concern Fed Package Won't Succeed

 

Unbelieveable!!

 

Did anyone else read Amimal Farm?

 

 

Having dealt with the media for a living for 3 years in a past life, that doesn't even make me bat an eye!

 

As to the bailout, socialism is a horrible evil thing, unless your rich, then it is just good for "the market" or (insert your choice here).

[velomoto]

"Rescue Package?" I thought there wasn't supposed to be a bailout? This is the part which really rubs my rubbarb the wrong way. What happened to free market forces?

The question is do you want to cut of your nose to spite your face? In other words - if allowing "free market forces" may result in a banking and economic crisis with a massive hit to the world markets (and everything tied to these markets), would we be better off allowing things to take their natural course or should we try to find a fix to avoid a potential crisis?

 

Sure, I'm all for free markets and less government intervention, but I'm also for protecting the jobs of the hard working Joe who's trying to keep afloat these days. So many times we've rejoiced at the demise of companies whose leaders were caught doing illegal or immoral activities - but the company officers had nice soft landings due to their accumulated wealth and industry contacts while hundreds ro thousands of Joe struggled with unemployment.

 

Take a quick look at two prior examples of government bailout's: Chrysler and Lockheed. The government actually turned a profit on Chrysler's stock and Lockheed turned into a valued defense contractor producing among other weapons the Trident I and II missiles - key components in our nuclear arsenal.

 

As hard as this will be for some to swallow, some things the government does actually are good.

[steve.foote]

"Rescue Package?" I thought there wasn't supposed to be a bailout? This is the part which really rubs my rubbarb the wrong way. What happened to free market forces?

The question is do you want to cut of your nose to spite your face? In other words - if allowing "free market forces" may result in a banking and economic crisis with a massive hit to the world markets (and everything tied to these markets), would we be better off allowing things to take their natural course or should we try to find a fix to avoid a potential crisis?

 

Sure, I'm all for free markets and less government intervention, but I'm also for protecting the jobs of the hard working Joe who's trying to keep afloat these days. So many times we've rejoiced at the demise of companies whose leaders were caught doing illegal or immoral activities - but the company officers had nice soft landings due to their accumulated wealth and industry contacts while hundreds ro thousands of Joe struggled with unemployment.

 

Take a quick look at two prior examples of government bailout's: Chrysler and Lockheed. The government actually turned a profit on Chrysler's stock and Lockheed turned into a valued defense contractor producing among other weapons the Trident I and II missiles - key components in our nuclear arsenal.

 

As hard as this will be for some to swallow, some things the government does actually are good.

 

If that's the case, why not bail everyone out? Wouldn't that be even more effective?

 

If we are only willing to bail out selectively, who chooses?

[Ken H.]

What happened to free market forces?

You're a funny guy Steve!

[steve.foote]

I wonder if they will come and bail my company out if I make poor decisions?

 

Fed Endorses Rescue Effort for Bear Stearns and Pledges to Supply Cash to Financial System

[steve.foote]

Here is some more from The Wall Street Journal:

 

Fed Races to Rescue Bear Stearns

 

It's statements like this which cause my hairs to stand on end:

 

The lifeline gives Bear access to cash for an initial period of 28 days. J.P. Morgan will borrow the money from the Fed and relend it to Bear. Exact terms weren't disclosed, but the amount is limited only by how much collateral Bear can provide, Fed officials said.

 

The Fed, not J.P. Morgan, is bearing the risk of the loan. It is the first time since the Great Depression that the Fed has lent in this fashion to any entity other than a bank.

 

So, as I understand it, investment firms created the hedge fund to skirt government oversight and create a high-risk, high-reward investment vehicle. And, now that these funds are sinking, they are now knocking on our doors, expecting salvation. In other words, we are sharing in the risk, but not the reward.

 

I'll say this one more time for those who don't think this is a biggie, "The Fed, not J.P. Morgan, is bearing the risk of the loan. That's a fancy way of saying YOU are assuming the risk.

[David]

It's not a matter of equity but liquidity. It is in all of our best interests to contain the "run" on Bear Stearns. As soon as it spreads from a logical run to an illogical run, the damage will be a whole lot greater than guaranteeing the loan.

[steve.foote]

It's not a matter of equity but liquidity. It is in all of our best interests to contain the "run" on Bear Stearns. As soon as it spreads from a logical run to an illogical run, the damage will be a whole lot greater than guaranteeing the loan.

 

I understand what your saying, but can this bandaid really stop the inevitable? My view is that we either embrace free markets, or we don't. Standing with a leg on either side of the fence is only going to result in much more pain later on.

 

BTW, when a loan defaults, it becomes equity on someone's balance sheet.

[David]

What inhibits free markets is:

 

1) Dishonest marketing.

 

2) Uneducated consumers.

 

When either or both of those fail, a higher power is necessary. The markets are hardly free--the existence of the Fed is a manipulative one. And a necessary one.

 

If you want to be mad at someone, be mad at the Fed under the previous watch, which refused to step into the emerging mortgage mess.

[steve.foote]

I just don't see it that way. Thousands of business failed last year, and nobody intervened, yet we made it through.

 

Sending a signal that large companies WILL be rescued should they do foolish things is a poor message to send. There's no doubt that there would be pain if Bear Stearns was allowed to collapse, but the market would recover and all of us would be the wiser because of it.

 

We simply can't keep subsidising failure.

[David]

You've lost me completely. Do you see a distinction between a small business...and a large financial institution? Do you support the FDIC, for instance?

[steve.foote]

You've lost me completely. Do you see a distinction between a small business...and a large financial institution? Do you support the FDIC, for instance?

 

I don't get what you are driving at. Obviously, there are distinctions between small and large business, mainly revenue. I'm sure you're not suggesting that there are different rules applied to each. As I asked earlier, what makes one company worthy of saving while another is allowed to fail? Who chooses and why? As a CEO, how does one know if they are "in" or "out?" And, if you find yourself "in," why would one need to balance risk if you really don't have any when the Fed will just come in and bail you out if you screw up?

 

As for the FDIC, in principal, I'm against it. If we had a system-wide failure of our banking system, the FDIC would be worth nothing. In fact, our federal reserve backed banking system is so leveraged, that barring a relative minor string of failures, it would implode.

 

I feel like we, as a society, are running around with our fingers in our ears, singing "la-la-la-la." Starting a couple of years ago, JohnR started beating his drum about the housing market. Myself included, many of us kind of poo-pooed his "dire" warnings. I've evolved from an uneducated consumer to one who is paying much more attention to what is being written, and rewritten, on the barn wall.

 

All that being said, I still would like an explaination why subsidising failure is in our long-term best interest?

[Ken H.]

Jimmy Cayne, retired in January CEO of Bears Stern collected (I won't use the word "earned") just under $900 million dollars during his 9 years there. $69.9 million in 2007.

 

Any company that can only afford to pay one man such a pittance, less than a measly trillion dollars, clearly deserves to be rescued. Anybody can see that!

[MotorinLA]

Our economic policies are just reflecting the "It isn't/wasn't my fault" attitude that is becoming more and more prevalent in our country. Now the government is reinforcing this further with a lot of "It wasn't your fault" incentives and programs.

 

And yes, the prudent spender and hard working taxpayer is picking up the tab...

 

To hell in a hand-basket I tell ya...

 

[/rant]

[steve.foote]

Here we go again. The Fed is now stepping up their bailout of investment houses. Investment Firms Tap Fed for Billions

 

Investment houses can put up a range of collateral, including investment-grade mortgage backed securities.

 

You mean like the "investment-grade mortgage backed securities" which got us into this in the first place?

 

The Fed will allow investment firms to borrow up to $200 billion in safe Treasury securities by using some of their more risky investments as collateral.

 

Suweeeeet! I've got some "risky investments," can I use these as collateral for some of them there Treasury securities?

 

By allowing this, the Fed is hoping to take pressure off financial companies and make them more inclined to lend to people and businesses.

 

[tap, tap, tap] Hello? Is this thing turned on?

[leikam]

I think where David was going is that it's not about the size of the business per se, but about the business's role in the economy. Banks and investment houses don't die isolated deaths because of their role in enabling other businesses to do business. But they are also vulernable to runs when confidence dries up. The whole subprime mess has hit institutional confidence hard just because few people really knows what they're holding much less what it's worth. Lack of liquidity increases this uncertainty and led to the run on Bear Stearns.

 

The FDIC is relevant because it is designed to be the consumer's safety net; it should provide confidence to depositors that if there's a run on the bank, we won't lose that money. On the institutional level, the Fed provides a similar function as lender of last resort -- which is why they opened the discount window to investment houses.

 

As I've learned more about this and heard more perspectives, I feel better about the Fed's recent actions. I don't like the increased national debt, but I prefer it to a collapse of the financial system. Having a central bank is better than not having one. And like David mentioned, Greenspan knew that real estate was a bubble; why was it allowed to grow so large?

[steve.foote]

Michael, you and David may be absolutely correct on this. I certainly don't have all the answers. But, I do strongly believe that free markets can't remain free if they are manipulated.

 

What I'm seeing is markets which are allowed to freely rise, but are artificially restricted from correcting. My business sense here is that this unnatural manipulation will compound, causing an even greater correction sometime in the future. One which will not be controllable.

 

Also, we seem to be in the slippery-slope syndrome. First it's bank deposits, then it's the banks themselves, then it's mortgages, then investment brokerages. Where does this stop? How much of our "free" economy are we willing, or able, to save through artificial means? How much potential future growth are we willing to sacrifice in the name of comfort today?

 

I think we are under the intoxicating spell that we are somehow clever enough to stave off the economical principal of balance. We may get away with it this time, but the clock is ticking, and market pressures continue to build. Whether we like it or not, it will eventually correct itself. The longer we wait, the more it is going to hurt.

[Ken H.]

Suweeeeet! I've got some "risky investments," can I use these as collateral for some of them there Treasury securities?

By allowing this, the Fed is hoping to take pressure off financial companies and make them more inclined to lend to people and businesses.

[tap, tap, tap] Hello? Is this thing turned on?

Yeah, lending more people more money so they can dig themselves in deeper, yeah, that's the answer.

 

Not.

 

The old definition of insanity - Doing the same thing over and over expecting a different outcome.

 

I don't know Steve, we're starting to agree an awful lot here. I'm starting to think maybe I'd better go over and pop into one of the gun threads or something!

[steve.foote]

I don't know Steve, we're starting to agree an awful lot here.

 

Ken, it may appear that we are in agreement here, but it just appears that way. Though our paths may be crossing at this one point, I'm pretty sure that you and I view this from completely different vantage points.

 

I'm not disagreeing with the others about the need for financial systems to be liquid, nor the importance that credit plays for the maintenance of a strong and healthy economy. My big bone of contention is the artificial manipulation of the markets.

 

That, and the fact that I really hate paying for the mistakes of others.

[Ken H.]

Ken, it may appear that we are in agreement here, but it just appears that way. Though our paths may be crossing at this one point, I'm pretty sure that you and I view this from completely different vantage points.

Whew! I thought maybe I was loosing my edge there for a minute.

[steve.foote]

Ken, it may appear that we are in agreement here, but it just appears that way. Though our paths may be crossing at this one point, I'm pretty sure that you and I view this from completely different vantage points.

Whew! I thought maybe I was loosing my edge there for a minute.

 

Nope, you're safe.

[David]

What makes only some manipulation artificial? What's the difference between types of manipulation?

[steve.foote]

Those are good questions, David. I'll answer them in reverse.

 

What's the difference between types of manipulation?

 

I only see two kinds of manipulation. Market forces (natural) and artificial forces (unnatural). I think it's fairly self-explanitory what the differences are. In my posting above, I have stated repeatedly that I'm in favor of the markets seeking their own level through natural market forces as opposed to artificial means (in this case actions by the Fed).

 

What makes only some manipulation artificial?

 

Actions which attempt to influence the natural state of the market are, in my opinion, artificial. I consider the outside interfernence of the Fed as one of those artificial manipulations.

 

Keep in mind that I'm not a banker, stock broker, economist or someone formally trained in the workings of the US economy. But, I do have extensive contact with it each and every day, and I have stayed at a Holiday Inn Express several times. If I've mangled some terms or technicalities, it ain't nothin to me.

[Bud]

What else would you expect from an administration who considers regulation "bad".

 

I'm on some good drugs right now and will step away from the keyboard before I start getting really cranked

[steve.foote]

What else would you expect from an administration who considers regulation "bad".

 

I'm on some good drugs right now and will step away from the keyboard before I start getting really cranked

 

That's a good decision.