Bailout plan NOT pwned!

[Enigma]

TSX freefall

TSX falls by 900 points; oil drops to $95 US
Last Updated: Monday, September 29, 2008 | 3:41 PM ET

The Toronto stock market hit a 900-point downdraft Monday as a financial bailout bill was voted down in the U.S. House of Representatives and the price of oil dropped below $100 US a barrel.

The S&P/TSX composite index was down 933.68, or 7.7 per cent, at 11,192.32 in the last hour of trading after Washington rejected the bill 228-205 in a vote on Monday afternoon.

In New York, the Dow Jones industrial average was down as much as 705 points or 6.3 per cent, hitting 10,438.01 before climbing back to about 10,625.

Toronto share prices were down across the board, with mining and energy stocks leading the way, perhaps partly because of fear that a U.S. financial crisis will crimp the world economy and reduce demand for oil.

The price of oil, which peaked at $147.27 US in July, fell sharply in New York trading.

Light, sweet crude for November delivery sold for as little as $95.04, down $11.85, and was barely above $96 in mid-afternoon.

Market closed with the TSX losing -840.93.

[Chardok]

This is hilarious. A pure self-fulfilling prophecy. The most powerful people in the country come out and say "IF YOU DO NOT PASSTHIS, THE WORLD WILL END ON FRIDAY" People, being stupid, of course, believe these idiots, and when it doesn't pass, THEY YANK THEIR MONEY BECAUSE THEY THINK THE WORLD IS ABOUT TO END.


Shocking, no?

[RedImperator]

This is hilarious. A pure self-fulfilling prophecy. The most powerful people in the country come out and say "IF YOU DO NOT PASSTHIS, THE WORLD WILL END ON FRIDAY" People, being stupid, of course, believe these idiots, and when it doesn't pass, THEY YANK THEIR MONEY BECAUSE THEY THINK THE WORLD IS ABOUT TO END.


Shocking, no?

I don't know if you've heard, but we're providing evidence to back up our assertions in this forum now. So, um...do you, you know, have any? Because while I completely agree that the markets are in panic because the bailout vote failed, I'm extremely skeptical that anything different would have happened even if Bush, Pelosi, et al had promised rainbows and kittens, which is fundamentally what you're arguing.

In other news, who could have predicted this?

McCain Blames Obama and Democrats, Despite Lopsided Vote

Laura Meckler reports from Washington on the presidential race.

The Wall Street bailout bill garnered 140 Democratic votes and just 65 Republican votes en route to defeat, but that didn’t stop GOP presidential nominee John McCain from blaming rival Barack Obama and his fellow Democrats for its failure.

“This bill failed because Barack Obama and the Democrats put politics ahead of country,” said a statement from Douglas Holtz-Eakin, McCain’s top economic adviser, who had represented McCain on Capitol Hill over the several days.

McCain suspended his campaign Thursday morning to return to Washington to try and get a deal done. Soon after his arrival, though, an agreement that appeared to be coming together fell apart–a situation that Democrats pinned on McCain. Over the next few days, McCain’s campaign took credit for bringing House Republicans, who were reluctant to support the bailout, to the negotiating table. Late Saturday night, the House GOP leadership signed off on a deal. But the majority of the caucus still opposed it when the vote was called Monday.

McCain blamed the Democrats.

“From the minute John McCain suspended his campaign and arrived in Washington to address this crisis, he was attacked by the Democratic leadership: Senators [Barack] Obama and [Harry] Reid, Speaker [Nancy] Pelosi and others. Their partisan attacks were an effort to gain political advantage during a national economic crisis. By doing so, they put at risk the homes, livelihoods and savings of millions of American families,” Holtz-Eakin said in his statement. He also blamed Pelosi for delivering a “strongly worded partisan speech” before the vote was called.

He went on to charge that Obama had “phoned it in,” a phrase that holds some irony given that McCain did most of his work by phone.

Over the weekend, McCain spoke with several House Republicans and in the end, four of them voted against the bailout: Reps. Marsha Blackburn, Mario Diaz-Balart and two fellow Arizonans: Reps. John Shadegg and Jeff Flake.

On Sunday, one of McCain’s top advisers, Steve Schmidt, was giving him credit for making the deal happen. “What Sen. McCain was able to do was to help bring all of the parties to the table, including the House Republicans, whose votes were needed to pass this,” he said on NBC’s “Meet the Press.”

Earlier today, McCain, too, was taking credit: “I went to Washington last week to make sure that the taxpayers of Ohio and across this great country were not left footing the bill for mistakes made in Wall Street and evil and greed in Washington,” he said in Columbus, Ohio.

Obama took a more hands-off approach to the legislative process, encouraging it along but not trying to intervene directly. Both men said Sunday that they reluctantly supported the compromise.

Shortly after the House vote Monday, Obama said it was imperative that lawmakers stay in Washington and get a bill passed. “One of the message I have for Congress: Get it done,” he said. Obama, on a campaign swing in Colorado, expressed confidence that a bill will be ultimately be passed but acknowledged that it won’t be easy. “I’m confident we’re going to get there, but it’s going to be rocky,” he said.

Obama had planned to return to Washington for a Senate vote on the measure, expected on Wednesday. But that schedule is now uncertain.

UPDATE: Obama spokesman Bill Burton released a statement on the bailout vote this afternoon. “This is a moment of national crisis, and today’s inaction in Congress as well as the angry and hyper-partisan statement released by the McCain campaign are exactly why the American people are disgusted with Washington,” he said, “Now is the time for Democrats and Republicans to join together and act in a way that prevents an economic catastrophe. Every American should be outraged that an era of greed and irresponsibility on Wall Street and Washington has led us to this point, but now that we are here, the stability of our entire economy depends on us taking immediate action to ease this crisis.”

All emphasis mine, of course.

I wonder how hard they're panicking on the Straight Talk Express. Just this morning, McSame was taking credit for the bailout, and now he's frantically trying to unload the blame for his own side's failure on the Democrats (I see they're following up on the "Mean ol' Nancy Pelosi hurted our widdle feelings!" whine, as if, even if that were true, that reflects well on the Republican Party).

[Chris OFarrell]

Heheh its funny watching all these Republicans one after the other jumping in front of cameras and screaming that its ALLL Nancy Pelosi's fault for calling Bush names, and THAT is why they voted against it!

I mean seriously, do they REALLY think anyone will buy that?!

Check that, of course they do...

[RedImperator]

Heheh its funny watching all these Republicans one after the other jumping in front of cameras and screaming that its ALLL Nancy Pelosi's fault for calling Bush names, and THAT is why they voted against it!

I mean seriously, do they REALLY think anyone will buy that?!

Check that, of course they do...

Well, what else do they have? "We told you if the bailout doesn't pass, the whole world is going to end...and apparently, congressional Republicans are in favor of the end of the world." That might win them votes among the RaptureReady crowd, but they're voting Republican anyway. Or this one: "This bailout is critically important to the American economy...and we, the Republican leadership, were too incompetent to convince our own caucus to vote for it." Or maybe, "Our caucus didn't vote for the bailout because the Wonder Chimp treated them like a rubber stamp for six years, and now even they don't believe a word he says." Or "Well, there's an election coming up, and they're terrified enough about losing their seats without voting for a bill their constituents hate."

[apocolypse]

This is hilarious. A pure self-fulfilling prophecy. The most powerful people in the country come out and say "IF YOU DO NOT PASSTHIS, THE WORLD WILL END ON FRIDAY" People, being stupid, of course, believe these idiots, and when it doesn't pass, THEY YANK THEIR MONEY BECAUSE THEY THINK THE WORLD IS ABOUT TO END.


Shocking, no?

I'm confused. Who's yanking their money out, as far as average people go? The stock market took a beating, but I haven't heard of people panic rushing the banks to pull their money out.

[Covenant]

I'm confused why anyone is pleased this failed. It's not as if they're going to be able to quickly draft a new plan, and if things get squirrelly soon, you're going to have a big issue with people not being around in order to make any Plan B happen. I understand not liking it, but it's going to be very hard to get anything done for at least a week due to the Jewish holidays that are forcing some Congressmen back home. Is there really anyone who wants the whole thing to simply proceed along it's current path, and why?

[Tribun]

Now that not only Wall Street but also the legislative has a meltdown, there is the question who it will hurt.
What do you think, McCain or Obama?

I for my part think, it will hurt McCain, since he had boasted he had "made" the deal.

[apocolypse]

I think the majority saw it exactly as described on the board, as the "worst case of socialism" where profit is privatized but risk isn't. People felt that they shouldn't have to pay for greedy fuckups in the banking industry, and they let their Congresspeople know it.

[General Zod]

Now that not only Wall Street but also the legislative has a meltdown, there is the question who it will hurt.
What do you think, McCain or Obama?

I for my part think, it will hurt McCain, since he had boasted he had "made" the deal.

McSame is the obvious answer here. For all his grandstanding for putting his campaign on hold, things only got worse. There's always the possibility he could spin it and say "Obama didn't put his campaign on hold too, so he's the one at fault!111!", but either way it doesn't look good for him.

[RedImperator]

Now that not only Wall Street but also the legislative has a meltdown, there is the question who it will hurt.
What do you think, McCain or Obama?

I for my part think, it will hurt McCain, since he had boasted he had "made" the deal.

In general, economic downturns hurt 1) incumbents, and 2) Republicans, and McCain is about one and a half--a Republican who has been tied in to the incumbent president. This was going to hurt McCain even in the best possible circumstances; his flailing and grandstanding are only going to compound the problem. The only way out is to blame Obama for the failure, and this is where months of telling ridiculous lies comes back to bite them in the ass, because their credibility with the media and the public is badly damaged at the moment they really need a ridiculous lie to work. When the Wall Street Journal calls McCain's frantic spin for what it is, you know he's in trouble.

[aerius]

I'm confused why anyone is pleased this failed. It's not as if they're going to be able to quickly draft a new plan, and if things get squirrelly soon, you're going to have a big issue with people not being around in order to make any Plan B happen. I understand not liking it, but it's going to be very hard to get anything done for at least a week due to the Jewish holidays that are forcing some Congressmen back home. Is there really anyone who wants the whole thing to simply proceed along it's current path, and why?

Because the bailout plan doesn'f fix anything, it just throws countless billions of taxpayer dollars at the problem in hopes that it'll somehow go away. It does not address the root cause of the problem; which is lack of transparency, companies cooking their books, lack of regulations & enforcement, and leverage getting way out of hand among other things. It's like a heroine junkie drinking booze and popping other pills to keep from feeling wrecked, it works in the short term but unless he quits his heroine habit it's going to get him killed in the long run.

What the proposed plan does is just throwing money at the market and hoping for a short term rally, and we likely would've had a 500 point rally if the plan went through today. It doesn't fix the underlying problems, it actually makes them worse since we're now loading up on even more debt with the bailout. When the rally runs out, we get an even bigger crash. Just like the heroine junkie.

[Ekiqa]

Who believes that Wall Street itself needs bailouts?

They got themselves in this mess, they can get themselves out.

The government should support those who NEED it, those getting kicked out of their homes, not those who make millions.

When Katrina hit, was there an immediate government response to help those hurt?

No, they were poor blacks. These are rich whites in trouble, so the government gives them billions.

[Lancer]

Who believes that Wall Street itself needs bailouts?

They got themselves in this mess, they can get themselves out.

The government should support those who NEED it, those getting kicked out of their homes, not those who make millions.

When Katrina hit, was there an immediate government response to help those hurt?

No, they were poor blacks. These are rich whites in trouble, so the government gives them billions.

Do you know how credit markets work, and why they are so important?

Right now, confidence in the credit market is shot. Banks are reluctant to lend money even to each-other right now, let alone other buisnesses. The concern is that if nothing is done to improve confidence soon, the credit lockdown will force firms in otherwise unrelated sectors of economy to shut down, sending the entire country into a depression. The Fed Reserve can't really do anything about it either. If they go out and lend money directly to struggling banks, they create massive inflation which will just as certainly cause the economy to tank, and if they continue to bail out failing banks piecemeal, confidence in the system remains in the gutter.

Even with the bailout, the economy will most likely take a major hit over the short-run. However, it buys time for regulatory agencies and the government as a whole to get their act together and take steps that will ease long-run recovery. We're taking about what may be the difference between a downturn that lasts a year or two, or a full-blown depression not unlike AV's or Duchesses' most perversely pessimistic predictions about peak-oil.

[Themightytom]

REALLY??? McCain didn't actually vote after all of that fluff, and the more current outgassing about how the Democrats "put politics first" and he didn't even vote???

This was a house vote. McCain and Obama are in the Senate.

I'm an eeeediot....

[Ender]

Federal Reserve to go ahead and hand out 630 billion anyways

Sept. 29 (Bloomberg) -- The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

The Fed's expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone.

``Today's blast of term liquidity will settle the funding markets down, and allow trust to slowly be restored between borrowers and lenders,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. On the other hand, ``the Fed's balance sheet is about to explode.''

The MSCI World Index of stocks in 23 developed markets sank 6 percent, the most since its creation in 1970. Credit markets deteriorated further as authorities tried to save more financial institutions from collapse.

European Rescue

European governments have rescued four banks in two days and the Federal Deposit Insurance Corp. said today it helped Citigroup Inc. buy the banking operations of Wachovia Corp. after its shares collapsed. The Standard & Poor's 500 Index fell 3.8 percent and the cost of borrowing dollars for three months rose to the highest since January. The rate for euros hit a record.

``If people think the authorities may give in to fears, they are wrong,'' Financial Stability Forum Chairman Mario Draghi said today in Amsterdam, where the international group of regulators and finance officials is meeting. ``There is willingness and determination on winning the battle to restore confidence and stability.''

Banks and brokers have slowed lending as they struggle to restore their capital after $586 billion in credit losses and writedowns since the mortgage crisis began a year ago. The bankruptcy of Lehman Brothers Holdings Inc. also sparked fears among banks they wouldn't be repaid by counterparties, driving up the cost of short-term loans between banks.

Funding Risk

``By committing to provide a very large quantity of term funding, the Federal Reserve actions should reassure financial market participants that financing will be available against good collateral, lessening concerns about funding and rollover risk,'' the central bank said.

The Bank of England and the ECB will each double the size of their dollar swap facilities with the Fed to as much as $80 billion and $240 billion, respectively. The Swiss National Bank and the Bank of Japan will also double their dollar swap lines, while the central banks in Australia, Norway, Sweden, Denmark and Canada tripled theirs.

All the banks extended their facilities until the end of April 2009.

The Fed is also increasing the size of its three 84-day TAF sales to $75 billion apiece, from $25 billion. That means the Fed will make a total of $225 billion available in 84-day loans. The central bank will keep the sales of 28-day credit at $75 billion.

Special Sales

In addition, the Fed will hold two special TAF sales in November totaling $150 billion so banks can have funding available for one or two weeks over year-end. The exact timing and terms will be determined later, the Fed said. The TAF program began in December, totaling $40 billion.

The bank-rescue plan being debated by Congress today would give the Fed more power over short-term interest rates by providing authority as of Oct. 1 to pay interest on reserves held at the central bank by financial institutions. That would make it easier for the Fed to pump funds into the banking system.

Paying interest on reserves puts a ``floor'' under the traded overnight rate, which would allow a central bank ``to provide liquidity during times of stress'' without affecting the rate, New York Fed economists said in a paper last month.

Whew, that was a close one guys. We almost had to follow the rule of law there for a minute. Thank goodness we were able to do an end run around congress. I mean, it's not like this "liquidity crisis" is the result of investors holding onto their cash because they saw no reason to give out their own when the government was going to give out our money. Let's hurry up and bailout the guys who caused this in the first place!

[Butterbean569]

One thing that a lot of people aren't considering is the fact that one of the main purposes of this bill is to *attempt* to reduce/halt/reverse the rate of foreclosures. That's the engine behind everything and what will hurt 'main street' the most. If foreclosures continue, home prices will fall, which will result in more people becoming 'upside down' and ditching their home. Which will result in more foreclosures, lower prices, etc etc until some equilibrium is reached.

From what I've read, that would mean 10...20...30% lower home values from where we are *now*. Hopefully not worse.....

As I'm sure all of you know, pretty much every single business needs credit to not just expand, but operate. No credit? Reduced production. Reduced production? Unemployment. Unemployment? Reduced spending. Reduced spending? More unemployment.

I think we need this as a backstop and to give us some time to attempt to fix as much as possible. Also, don't forget that the $700 billion price-tag is a bit misleading. In theory (yes I know it's a theory) much of that can be recouped over time, with potential to even profit from it in the very long run.....

The markets already lost more than a trillion in wealth today. Who knows how much more it'll lose. "$700 billion" doesn't sound too bad compared to trillions lost and 15...20...25% unemployment. I have no figures to back it up, but I'm sure we'd be losing a shit ton of tax revenue @ 15% unemployment over a few years (both from government outlays like welfare and lack of income tax/etc.).


I'm an Econ major and damn I love free markets...but this market is busted and without outside help (i.e. govt) I think we're looking at Great Depression 2.0.

Perhaps there is a plan better than the bailout, as it wouldn't fix everything. But I can't think of much else....hopefully there's someone creative enough out there to come up with something to save us but.........I aint holdin my breath.

Anyone? lol

[J]

One thing that a lot of people aren't considering is the fact that one of the main purposes of this bill is to *attempt* to reduce/halt/reverse the rate of foreclosures. That's the engine behind everything and what will hurt 'main street' the most. If foreclosures continue, home prices will fall, which will result in more people becoming 'upside down' and ditching their home. Which will result in more foreclosures, lower prices, etc etc until some equilibrium is reached.

Except the problem is housing prices will correct back to historical norms, that is, 3 to 3.5 times the average household income unless there's a way to pump a minimum of $10-20 trillion into the system. You do not want to know what happens if that bill is added to the Treasury's books. It results in an instant bonds market dislocation of epic proportions and the US may have to default on its debts. Recall that the US relies on around $2 billion of foreign investments every single day to keep its economy running. That's gone, instantly. T-bills are dumped by the trillions and the yield curve goes ballistic, taking all mortgage, credit, and lending rates along for the ride. Instant 15-20% mortgage rates; business, auto, and all other loans go well into the double digits, probably around where credit card rates currently are. Lending stops in the blink of an eye. Now you have a full blown depression and no way to get out of it for a very, very long time.

Oh, and you, your children, and your grandchildren, will be paying for the bailout via high taxes, that debt which was was so casually added onto Treasury's tab does have to be serviced. If it isn't the US loses its AAA credit rating, the debt service costs ramp skyward and down that road lies the path to default.

[Elfdart]

The more I read about this bill, the more it stinks to high heaven, as Glenn Greenwald pointed out this morning. The Democrats have been Dubya's willing stooges on this scam, including the fig leaf "protections" Pelosi, Hoyer, et al added to it. Thom Hartmann spells out why:

LINK

Perhaps the most important benefit of immediately re-instituting a STET in the USA, however, isn't that it would raise enough money to bail out the banks and billionaires (and after that crisis is covered, could pay for a national health care system), or that it would encourage investment and calm down markets. Those are all strong benefits, and absent the current Republican Administration bailout proposal would stand-alone strongly.

But the Republican Bush Administration is currently suggesting that we borrow $700 billion (or more) from China and Saudi Arabia and other countries and investors, add that to our national debt, and repay it with interest (making the actual cost over the next 20 years over $1.4 trillion). This is what Republican Herbert Hoover tried in 1931 when he first created the Reconstruction Finance Corporation (later totally reinvented by FDR) to bail out the banks in 1931. Hoover's RFC bailed out the bankers, paid off huge salaries in the banking and investment world, bought him a few months (maybe that's the real goal of the Bush/McCain Republicans now - just hold things together until after the elections), but ultimately led to the failure within two years of virtually all the banks in the United States. The bailout failed.

On the other hand, since the House Republitards have scuttled the bill because Nancy Pelosi hurt their feelings, if the Democrats were smart (this is a site devoted to science fiction, after all) they would offer up the Frank-Dodd bill on a "take-it-or-leave-it" basis, maybe with things like provisions from the Swedish bail-out plan I brought up in another thread.

[Uraniun235]

[General Zod]

Now that not only Wall Street but also the legislative has a meltdown, there is the question who it will hurt.
What do you think, McCain or Obama?

I for my part think, it will hurt McCain, since he had boasted he had "made" the deal.

McSame is the obvious answer here. For all his grandstanding for putting his campaign on hold, things only got worse. There's always the possibility he could spin it and say "Obama didn't put his campaign on hold too, so he's the one at fault!111!", but either way it doesn't look good for him.

I do believe I called it.

"From the minute John McCain suspended his campaign and arrived in Washington to address this crisis, he was attacked by the Democratic leadership: Sens. Obama and [Senate Majority Leader Harry] Reid, Speaker Pelosi and others.

"Their partisan attacks were an effort to gain political advantage during a national economic crisis. By doing so, they put at risk the homes, livelihoods and savings of millions of American families," Doug Holtz-Eakin, a senior policy adviser for McCain and his running mate, Alaska Gov. Sarah Palin, said in a statement.

"Barack Obama failed to lead, phoned it in, attacked John McCain and refused to even say if he supported the final bill. ... This bill failed because Barack Obama and the Democrats put politics ahead of country," Holtz-Eakin said.

Wee, spin!

[General Zod]

Ghetto edit: And it turns out the same text was quoted in an earlier article posted on the last page that I somehow missed; bah. Oh well.

[MKSheppard]

So I've heard something interesting, I don't know how to verify it; but here goes:

There is already a mechanism in place to accomplish *everything* that this bailout proposal is supposed to accomplish, and then some, with full oversight and safeguards *already* in place; but it's being completely ignored!

Back in the early 90's there was the Federal Deposit Insurance Corporation Improvement Act (FDICIA) that barred the FDIC from intervening with banks and financial institutions before they failed.

However, that act specifically includes an exception -- the President, Treasury Secretary and 2/3 of the Fed Board can waive FDICIA and permit the FDIC to intervene with solvent yet not quite failed banks, like they did with Wachovia, but only without waiting for the bank to fail first.

The rules are in place, the safeguards are there, the methods and procedures are already law, but Paulson and Bush aren't pulling the trigger on FDICIA.

Possible reason? Well, Paulson is the former CEO of Goldman Sachs, and multiple Fed board members are former officers of Goldman Sachs. Goldman Sachs stands to make a killing from the bailout, since they own most of the MBS's that ARE solvent and thus will sell for a good price once the deadwood is killed.

MASSIVE conflict of interest, because if the FDIC got involved, Goldman Sachs would take it in the shorts, no member of the FDIC board is affiliated in any way with the investment bank, and thus Goldman Sachs has zero influence over them, and if merely pumping 700 billion into the credit market would fix the problem, like Paulson et al are implying, then what the Fed did today should have solved it, as they pumped just under 700 billion into the commercial credit market, and it did jack and crap...

So essentially, an FDIC-run bailout would probably cause the investment banks to take a knee to the groin, with executives winding up in Club Fed. Therefore, they want a nice no-strings bailout from their buddy Paulson

Anyone? Bueller?

[Edi]

No idea on how to verify that either, but I can't find a flaw in the reasoning, assuming it is truthful.

[Dominus Atheos]

The latest poll numbers are interesting.

Only about a quarter to a third of people, in other words only the people who guzzle the Conservative kool-aid, believe lack of regulation had nothing to do with the current crisis, the government should not increase regulation, and that the Democrats were the ones who caused it. Everyone else thinks the opposite.

Source, source, and source.