A House of Cards

[ctenidae]

Overall, I think the biggest root cause here is a near total lack of confidence within the market. No one knows what anything's worth, which means no one knows who's in trouble or safe.

Raising reserve requirements probably won't help much, since most of the banks have excess reserves in place already, which means they aren't lending anything. Raising the requirement decreases the possible liquidity in teh market, so I think it should be avoided.

Raising the FDIC limits could help forestall a run on the banks, but I don't think it would be very effective. Most people don't have $100K in a bank, anyway, so what do they care? Those are also the people most likely to panic, since Cousin Ned called and said he had to wait 2 hours in line at the bank to cash his welfare check, and that must mean there's a run going on and you better get yourself and Aunt Martha down to the bank and get your $42 out right now. Anecdotaly, I do know a lot of HNWs are scrambling to reorganize their accounts to spread money out between banks in $100K chunks. This does lead to some uncertainty for bank deposits, so raising the FDIC limit would be somewhat helpful, so should be pursued.

I think a bailout package should focus on providing emergency liquidity for non-financial companies first, perhaps as guarantees on commercial paper, but with some strict rules.

The Fed should also be enabled to shore up banks if required- last resort, only to forestall events that would collapse the whole market- counterparty, prime broker, that kind of risk. Again, with some strong restrictions (CEO pay, for example). Adding in silliness like tax cuts and such should be avoided, as they are not central to the problem at hand.

 

[tjf67]

Raising the FDIC limits could help forestall a run on the banks, but I don't think it would be very effective. Most people don't have $100K in a bank, anyway, so what do they care? Those are also the people most likely to panic, since Cousin Ned called and said he had to wait 2 hours in line at the bank to cash his welfare check, and that must mean there's a run going on and you better get yourself and Aunt Martha down to the bank and get your $42 out right now. Anecdotaly, I do know a lot of HNWs are scrambling to reorganize their accounts to spread money out between banks in $100K chunks. This does lead to some uncertainty for bank deposits, so raising the FDIC limit would be somewhat helpful, so should be pursued



Raising FDIC insurance will certainly help the banks. 250k is not going to do much. Small and medium sized business are pulling money out of the banks like crazy. If FDIC were to raise the limit to a million that would make the guy with 1 million in the bank to cover expense leave it there instead of pulling it out and goint to treasuries. I see it happening every day of the week. It takes a few weeks but that money starts to add up.

 

[tjf67]

What do you think will get that $$$$ flowing again minus a 'bail out'? I don't like the concept of a bail out and having tax payers foot the bill. I do like the things I've read about the insurance option better.

As for the debt.....I say keep income taxes just how they are, but convert capital gains into an income tax. Do that and cut spending. Of course my feelings on capital gains will slow down the $$$$ moving I asked you about it my first question.

tough situation that I have no idea what the right fix might be

I do know I've been paying a lot more attention to the market these days. I'm kicking myself as I had considered buying both Chase and Citi stocks yesterday. Could've been flipped for a tidy profit today

Dead read the proposal. If done properly we dont flip the bill. We will be investors and can actually make money off the deal when calmer head prevail.
Although this is certainly unprecedented it not the first time the government has done things that resemble

 

[tjf67]

Curious where some of you learned what you have. What are your continued go to resources to stay informed?

Read to wall street journal every day. It will be confusing for the first few months. You will start to figure out what they are talking about on complicated issues. They give you the facts and you draw your own conclusions.
Anything that is anything in the financial world comes out in the journal. It is what the media talks about all day long with there spin attached.

 

[Moe Ghoul]

Lots of good ideas and thoughts on the subject on this thread. Guess what, this is what Congress is doing, so we can appreciate the difficulty they're having crafting something sensible.

 

[ctenidae]

Raising FDIC insurance will certainly help the banks. 250k is not going to do much. Small and medium sized business are pulling money out of the banks like crazy. If FDIC were to raise the limit to a million that would make the guy with 1 million in the bank to cover expense leave it there instead of pulling it out and goint to treasuries. I see it happening every day of the week. It takes a few weeks but that money starts to add up.

Good point. Hadn't thought that far out on it.

 

[Marc]

Kind of funny, around the time of the inception of the FDIC, the cap was set in place with the excpectation for the states to come up with their own insurance to cover deposits beyond the cap. To the best of my knowledge, Massachusetts was the only one to do so with the DIF.

I'm glad that's where my money is. You know, if I had more than 100k in there. Balls. Thanks everyone for reminding me how poor I am.

 

[Moe Ghoul]

I saw Brad Sherman (D) CA on CNBC last week stating that Paulson's 3 page proposed bill gave him carte blanche to bail out foreign banks, including China, UK, and Germany. I wouldn't be surprised if China and others have a gun to our heads threatening to pull the trigger on selling off dollar assets if they don't get some relief. Just a hunch, but considering that we have to borrow ~60 billion a month from abroad, that flow of money has slowed if you look at the TIC reports.

 

[tjf67]

I saw Brad Sherman (D) CA on CNBC last week stating that Paulson's 3 page proposed bill gave him carte blanche to bail out foreign banks, including China, UK, and Germany. I wouldn't be surprised if China and others have a gun to our heads threatening to pull the trigger on selling off dollar assets if they don't get some relief. Just a hunch, but considering that we have to borrow ~60 billion a month from abroad, that flow of money has slowed if you look at the TIC reports.

Paulson and Bernacke in my opinion are doing there jobs. Brad Sherman D CA was all for loosing the lending rules that started this sheat. I believe his state should be sawed off floated out in the ocean and left to do whatever it is they do out there. Hell he probably is not paying his mortage. Its to easy to walk away.

 

[Moe Ghoul]

Paulson and Bernacke in my opinion are doing there jobs. Brad Sherman D CA was all for loosing the lending rules that started this sheat. I believe his state should be sawed off floated out in the ocean and left to do whatever it is they do out there. Hell he probably is not paying his mortage. Its to easy to walk away.

I'm only pointing out what was said in public and a possible underlying motivation for this bailout/recovery package. Not about him or CA or his mortgage, lol.

 

[ctenidae]

Paulson and Bernacke in my opinion are doing there jobs.

The good news is that Bernanke did most of his research work on the Great Depression, and so should know theplaybook. Trouble is, then, as now, the markets had reached a tipping point where the complexity was greater than the knowledge could manage (a theory I devised 4-5 years ago, and should have published somewhere, or at least written down).

Hopefully teh dictum "The more things change, the more they stay the same" holds true.

 

[campgottagopee]

Nice thread--I've learned a lot from reading this but my head hurts---Haven't looked at my 401k nor am I

 

[mondeo]

I realize that, which is why I posted the warning. No politics is one of the few rules that we actively, and sometimes even pro-actively, strictly enforce.

IMHO, as long as we can keep the discussion civil and keep partisan mudslinging out of it I'll be OK with it. I'm only speaking for myself though, I don't know how Greg and the other mods will feel about it.

I don't have much hope that this thread will last too long before the name calling and mud slinging starts, but hopefully you guys prove me wrong.

Just to say, these observations are pretty political........

But still civil and not partisan. Just nicely saying everyone else is wrong and I'm right. :razz:

Reduced executive pay + congressional oversight + upcoming regulations (if they're good) should help a little, no?

No, going back to my analogy, that's bringing the kid back from college. No learning actually happens, growth is stunted, and you're setting yourself up for more failure if you choose to deregulate again down the line.

 

[deadheadskier]

But still civil and not partisan. Just nicely saying everyone else is wrong and I'm right. :razz:




No, going back to my analogy, that's bringing the kid back from college. No learning actually happens, growth is stunted, and you're setting yourself up for more failure if you choose to deregulate again down the line.

So, you're suggesting that golden parachutes and minimal gov't over sight should remain?

 

[ctenidae]

http://money.cnn.com/2008/10/01/news/economy/senate_rescuebill2/?postversion=2008100113

The bill also adds in three key elements designed to attract House Republican votes - particularly popular tax measures that have garnered bipartisan support.

It would extend a number of renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels.

The Senate bill would also continue a host of other expiring tax breaks. Among them: the research and development credit for businesses and the credit that allows individuals to deduct state and local sales taxes on their federal returns.

In addition, the bill includes relief from the Alternative Minimum Tax, without which millions of Americans would have to pay the so-called "income tax for the wealthy."

How do these count as being part of the current problem?
Congress is so screwed up.

 

[drjeff]

http://money.cnn.com/2008/10/01/news/economy/senate_rescuebill2/?postversion=2008100113

The bill also adds in three key elements designed to attract House Republican votes - particularly popular tax measures that have garnered bipartisan support.

It would extend a number of renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels.

The Senate bill would also continue a host of other expiring tax breaks. Among them: the research and development credit for businesses and the credit that allows individuals to deduct state and local sales taxes on their federal returns.

In addition, the bill includes relief from the Alternative Minimum Tax, without which millions of Americans would have to pay the so-called "income tax for the wealthy."

How do these count as being part of the current problem?
Congress is so screwed up.

Simple, even though the dems control congress, they need the republicans on baord to pass this thing. And the 1st 2 things were part of the Bsh tax cuts that the republicans want to extend, and the Alternative minimum tax thing is basically the standard year to year patch that congress has passed for many years now to keep the level at which the AMT kicks in from falling to ridiculously low levels that would amoutn to a significant tax increase for ALOT of taxpayers.

As a result, both of these are just easy add-ons that won't see the legislatots taking too much sh$t for pork barrel stuff and hopefully get the republicans and digresing dems onboard to pass the bailout.

And yes, congress is SOOOOOOOO screwed up.

 

[highpeaksdrifter]

Raising the FDIC limits could help forestall a run on the banks, but I don't think it would be very effective. Most people don't have $100K in a bank, anyway, so what do they care? Those are also the people most likely to panic, since Cousin Ned called and said he had to wait 2 hours in line at the bank to cash his welfare check, and that must mean there's a run going on and you better get yourself and Aunt Martha down to the bank and get your $42 out right now. Anecdotaly, I do know a lot of HNWs are scrambling to reorganize their accounts to spread money out between banks in $100K chunks. This does lead to some uncertainty for bank deposits, so raising the FDIC limit would be somewhat helpful, so should be pursued

That's fine for Cousin Ned and Aunt Martha, but what do you think Cousin Brian and Aunt Carol would do if they had to stand in line for 2 hours?

 

[hammer]

As a result, both of these are just easy add-ons that won't see the legislatots taking too much sh$t for pork barrel stuff and hopefully get the republicans and digresing dems onboard to pass the bailout.

Adding this stuff makes me question the bailout even more...why can't it pass on its own merit? Is it because the bailout has no merit?

 

[ctenidae]

That's fine for Cousin Ned and Aunt Martha, but what do you think Cousin Brian and Aunt Carol would do if they had to stand in line for 2 hours?

Probably get married.

 

[wa-loaf]

Adding this stuff makes me question the bailout even more...why can't it pass on its own merit? Is it because the bailout has no merit?

Thats what happens when 535 people try to do something.