A Letter Against the Bailout Plan

Quote from Pension_Admin:

There are some sound, risk adverse financial institutions that use financial instruments as a hedge instead of a bet.

If their counter party default, then these sound, risk adverse financial institutions will be in trouble.

We don't know to what extend this credit crisis will extend to, but it is like a forest fire. If we don't take care of it fast, the tiny flame could burn down the whole forest.

Pension_Admin
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It's gonna burn down that part of the forest that was playing the credit default swap game, if you're right.

There are some that have no exposure at all to that. This bank that wrote this letter for example. Wells Fargo is another one. They are gonna be around when this is all over.

If it's as bad as you say, then we have farther down to go. It's gonna get worse. So far we're not even in an official recession and everyone is whining, begging for government bailouts.

This is what bear markets are all about. They clear out those that took imprudent risk. When they're cleared out, the bull market starts.

One way to jack all this up is to burn taxpayer money up trying to avoid the consequences. It's gonna drag it out, and probably not work anyway.

OldTrader
 
Guys, are you all so irgnorant? How is that possible?

Let me say first, I disagree as much as anyone with the rediculous pay packages on Wall Street of the past (and I myself work in the industry and most of my compensation is paid as bonus). And yes I understand many have an axe to grind with those individuals/groups that have fueled the speculation and bubbles, especially in the housing markets. But this should all come later, right now we all better understand what implication it will have for the market if nothing happens and whether that is a preferable scenario to stabilizing the markets with a fiscal package.

So, lets make sure we all understand what the intention of the package is gonna be: Its NOT to bail out anyone!!! Its not to get some bonus to departing executives!!! I understand some senators and journalist now love to point fingers to others to look good for themselves as good representatives to the public. However, the MAIN POINT of this package is to put a FLOOR under the valuations of most mortgage products, nothing more, nothing less. We should all understand that houses may still decrease in value for some more time, but prices dont go down to zero, so dont the derivatives of housing prices, to put it into simple terms.

Next, the question remains, is this a better choice than doing nothing, letting valuations plummet further and save the taxpayer some bucks initially? I argue yes, its a better choice to step in now. The point is that this guy, John Allison, got it all wrong. Main street is bleeding as much as Wall Street is, and Main Street is closely linked to the financial markets for funding and financing purposes. We are not even in a real recession and economic numbers already look horrid. Consumer spending looks terrible, and sentiment not better either. Industrial production, wages, consumer and producer prices, all point to a way harder time ahead. Lets not make the mistake to think that we are all doing fine without even having a single financial institution failure. Let me ask you this: Do you not consider GE, the airlines, major retailers Main Street??? Have you had a chance to check on their performances, the difficulty they have in even financing their short term needs? How can this guy say that all is right on Main Street? Rediculous!!! Ask some employees of car manufacturers or airlines about how they feel. No panic? Really? Hmm, I seem to be living in a different world.

The point is, the TOTAL market economy is under extreme pressure and stress at the moment, something that we all have never experienced before. There WILL be more bancruptcies on Main Street FOR SURE without any further intervention and should the money market not ease up very soon. Nobody wants to buy any commercial paper, nobody is willing to lend a single penny to anyone. How do the GEs, Wall Marts, or any operation that currently does not sit on a huge pile of cash (and you can count those on a single hand) survive the next weeks/months when nobody is gonna finance them when some of their short-term obligations come due in a few weeks/months? Maybe I paint too bleak a picture but stress the market just a very little more and we are exactly there.

I think the plan was sold very poorly by Paulson and Bernanke and Co to say the least. I think all were very ill prepared and had no plan whatsoever. That is embarressing and warrants more preparation and work. However, it does not mean that the markets will just swing back to normal even with couple more financial failures WITHOUT this package. Look at a lot of regional banks, look at Goldman, look at tons of companies in the industrial sector, they all sold off 40% or more without having a single or few of the toxic instruments on the books. This is not normal. Just because some BB&T country side bank does nothing else than managing a few checking accounts does not mean its CEO understand anything in what serious situation not just the US economy is in but the whole global economy. This time there is no strong partner that could temporarily bail out the US, everyone is in this at the same time.

I find it rediculous how a McCain now goes to Washington to speak to the president and tell everyone that a deal is dead. This guy understands nothing of what is really going on. Obama is not any better. Those guys are a shame and an embarressment to a country with such strong entrepenural spirit and many talents and gifts. Not that the administration is any better, but at least some people understand that something really needs to be done NOW, not tomorrow or next week.





Quote from OldTrader:

Here's a link to a letter from BB&T's chairman to Congress regarding their bailout plan. He doesn't like it. His bank doesn't need it.

For John Allison, the high-risk rollers on Wall Street are getting too much of the ear of Congress and having too much say in resolving the financial nightmare that they created.

That's why Allison, the chairman and chief executive of BB&T Corp., submitted a 14-point letter Tuesday to all 535 members of Congress with a simple message regarding the proposed $700 billion bailout.

"There is no panic on Main Street and in sound financial institutions," he wrote. "The problems are in high-risk financial institutions and on Wall Street."

He said that it is important that "Congress hear from the well-run financial institutions, as most of the concerns have been focused on the problem companies. It is extremely important that the bailout not damage well-run companies." Allison's opinion is seconded by local community-bank officials and community-bank trade groups.



http://media.gatewaync.com/wsj/pdfs/2008/09/allison.pdf
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Quote from IluvVol:

Guys, are you all so irgnorant? How is that possible?
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First, let me just say that just because we have a different viewpoint, does not make us "ignorant". Likewise, I would remind you that BB&T doesn't "handle a few checking accounts", it's the 14th largest commerical bank in the US. You might give a shot at amending that elitest attitude you evidently have, if possible.

Let me tell you that I have been through recessions. Have you? I have been through the 1973-1974 recession, probably the most severe recession post WWII which took the Dow to 550.

Recessions play a purpose. They get rid of the crap that was created in the last boom (or bubble as they seem to want to call it these days). So for those that think that there is no risk, the recession finally corrects that misimpression. If you live your life with no savings for instance, you find out that was a mistake. If you live your life levered up to the hilt, the chickens now come home to roost.

During the next boom, those that experienced the prior recession, if they learned their lesson, will now function more conservatively, lead a less risky existence.

You're right, we're not even in a recession yet. It's gonna come regardless of what the government does though. It's gonna get worse. And that's gonna mean that some businesses go out of business. Some individuals are gonna go broke. So what?

At the bottom, you'll think the world is ending. You're gonna lose that Wall Street job. You might lose your house. It's gonna get tough.

I went to work as a broker in 1974 at the bottom. The Dow was under 600. At the time, one broker told me they couldn't hire me because they weren't sure they would be in business tomorrow. Fortunately, I found a broker who was in good financial shape and was expanding at exactly the right time.

When people know that there is a risk of failure, they are much more cautious about participating in the next "bubble". In fact, the next bubble may have trouble even getting traction.

This country is based on capitalism, on free markets. It's not based on socialism, on bailing out people who took imprudent risks. Understand this, when you bail one person out, you distort the market, you penalize everyone else who acted prudently. You reward the idiots that brought us to this point.

In 1974 stocks were so cheap it was totally unbelievable. We had countless stocks that were well under book value, well under net liquation value in fact (a term that most people don't even know these days). People thought the world was ending. New York City was going broke. You're too young to remember probably. But the bottomline is that it sorted itself out. It will do that again...without a bailout.

Right now, you're taking your advice from those who have been gving you advice all along. I'd suggest you stop, and start thinking for yourself. Quit whining for handouts.

OldTrader
 
Mate, this is a lot worse than anything you have seen in the 70s thats for sure.

But let me comment on your reply. I used the term "ignorant" because I think you dont comprehend what this package is actually used for. Being the 14th largest bank in todays time equates pretty much to sitting somewhere in Nebraska and running couple accounts. Accounts are currently highly concentrated with the top 5-7 banks. I dont think that was so off. And having the CEO tell us that all is well on Main Street is hilarious would you not think so?

The point is, sure we can go through a complete break down in the system, let pretty much all banks fail, let the FDIC fail (and thats YOUR money in the bank) because it cant handle the amount of regional bank failures, let pretty much every 3rd big industrial fail. We can all get out steel helmets and dug into the trenches. But the questions is: Does it have to be that way. You may be a hardcore guy and if you want to relive the 70s recession sure, be our guest. But that does not mean that all others want the same if something can be done against it.

Its easy for some funny clowns in Washington to say it wont change anything anyway, or some funny guy on CNBC who never puts money to where his mouth is. Who claims that this wont work, who says the effect will be very short term. Again, the bailout plan is NOT for the broad economy, its to put a floor under the mortgage valuations so that the complete financial industry does not go down. I find it dangerous to follow the ideas of some idiots in Washington who think that the economy can function normally without any financial insitution. Nothing is further from the truth!!!

In that I argue that one is ignorant to think that doing nothing is the best choice.

Quote from OldTrader:

First, let me just say that just because we have a different viewpoint, does not make us "ignorant". Likewise, I would remind you that BB&T doesn't "handle a few checking accounts", it's the 14th largest commerical bank in the US. You might give a shot at amending that elitest attitude you evidently have, if possible.

Let me tell you that I have been through recessions. Have you? I have been through the 1973-1974 recession, probably the most severe recession post WWII which took the Dow to 550.

Recessions play a purpose. They get rid of the crap that was created in the last boom (or bubble as they seem to want to call it these days). So for those that think that there is no risk, the recession finally corrects that misimpression. If you live your life with no savings for instance, you find out that was a mistake. If you live your life levered up to the hilt, the chickens now come home to roost.

During the next boom, those that experienced the prior recession, if they learned their lesson, will now function more conservatively, lead a less risky existence.

You're right, we're not even in a recession yet. It's gonna come regardless of what the government does though. It's gonna get worse. And that's gonna mean that some businesses go out of business. Some individuals are gonna go broke. So what?

At the bottom, you'll think the world is ending. You're gonna lose that Wall Street job. You might lose your house. It's gonna get tough.

I went to work as a broker in 1974 at the bottom. The Dow was under 600. At the time, one broker told me they couldn't hire me because they weren't sure they would be in business tomorrow. Fortunately, I found a broker who was in good financial shape and was expanding at exactly the right time.

When people know that there is a risk of failure, they are much more cautious about participating in the next "bubble". In fact, the next bubble may have trouble even getting traction.

This country is based on capitalism, on free markets. It's not based on socialism, on bailing out people who took imprudent risks. Understand this, when you bail one person out, you distort the market, you penalize everyone else who acted prudently. You reward the idiots that brought us to this point.

In 1974 stocks were so cheap it was totally unbelievable. We had countless stocks that were well under book value, well under net liquation value in fact (a term that most people don't even know these days). People thought the world was ending. New York City was going broke. You're too young to remember probably. But the bottomline is that it sorted itself out. It will do that again...without a bailout.

Right now, you're taking your advice from those who have been gving you advice all along. I'd suggest you stop, and start thinking for yourself. Quit whining for handouts.

OldTrader
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Quote from IluvVol:

I find it dangerous to follow the ideas of some idiots in Washington who think that the economy can function normally without any financial insitution. Nothing is further from the truth!!!
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So let me get this straight. You want to bail out the morons who took insanely leveraged risk while penalizing companies like BB&T. We've already seen that these companies can't handle their own business. The proof is in their bankruptcies. Giving them free money is so stupid it is incredible.
 
Quote from IluvVol:

Guys, are you all so irgnorant? How is that possible?

I find it rediculous how a McCain now goes to Washington to speak to the president
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why can no one on the internet spell ridiculous....
 
you should read more carefully. Please re-read my post where I explain my points what and who gets bailed out. Why is everbody SOOOO personal suddenly? Because the horror word "Tax Payers Money" was used? Lol, thats so that you all feel good what your senator and representatives are saying now and how they seemingly protect you in exchange for your next vote. Thank you buddies.

Why would BBT get penalized? Nobody gets penalized. Not a single institution would want to sell any of their mortgage portfolio at such rediculous levels if it was not to conserve every single penny to survive right now? The government will get an investment at such favorable terms, you will see how the valuations will play out in a few years which the government can feel comfortable to hold on to. Why would you feel comfortable to support GE while you would feel happy to let GS or the like go down? Because the GE board and CEO only get a few millions less? Its funny how all point fingers suddenly, interestingly away from themselves.

Quote from sprstpd:

So let me get this straight. You want to bail out the morons who took insanely leveraged risk while penalizing companies like BB&T. We've already seen that these companies can't handle their own business. The proof is in their bankruptcies. Giving them free money is so stupid it is incredible.
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...because not everyone is a native speaker. But thanks for pointing out...always happy to learn


Quote from jasonjm:

why can no one on the internet spell ridiculous....
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As long as the government buys these crap contracts at a provable discount to what they are worth (as a provider of last resort). Unfortunately, a lot of this crap is worth $0 so that is not saying much. That is the problem here. The current proposal is making the government eat these crap contracts at a price higher than the banks can get anywhere else, just to let them stay in business when they have no right to be in business. So make them roast. Make them feel the pain. If they really want to get liquid, they shouldn't get a fair price. And if that means they go bankrupt, so be it. This is no time to give these jackasses a good deal.
 
I have to strongly disagree with your comment. None of the contracts that the government would bid for is worth ZERO. That would make no sense. No financial institution is selling out free options that cant decrease any further in value. And the government will not bid higher than fair value. The argument was whether the government should bid lower than fair and I agree to be effective fair values (if something even exists) should be applied.

Another incorrect point you made is that the banks can get prices anywhere else. No, they CANT. The market is totally frozen up, so frozen and under stress that libor rates are at levels not seen in decades. And this is bad for the system not just for some banks. And its not just bad it is life threatening to the whole economic system to say the least.



Quote from sprstpd:

As long as the government buys these crap contracts at a provable discount to what they are worth (as a provider of last resort). Unfortunately, a lot of this crap is worth $0 so that is not saying much. That is the problem here. The current proposal is making the government eat these crap contracts at a price higher than the banks can get anywhere else, just to let them stay in business when they have no right to be in business. So make them roast. Make them feel the pain. If they really want to get liquid, they shouldn't get a fair price. And if that means they go bankrupt, so be it. This is no time to give these jackasses a good deal.
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