Federal funds rate jumps to 7 %

[Neodude]

Eventhough Paulson is considered Wallstreet scum by the average Joe his plan wasn't done out of greed and empathy for his fellow bankers (You should read his bio btw). Paulson is playing a psychological game with the markets. Consider it a nuclear arms race of the financial markets, Paulson is the US and the markets are Russia, as long as the Markets believe that Paulson has a big enough gun they won't crash (attack).

The biggest obstacle to market stability is uncertainty, with a big gun Paulson was trying to create certainty. This does not mean that tax payers would lose their $700Bn, in fact I think there was a very good chance the tax payer would make some money because a lot of Mortgage backed securities are trading at values that would signal houses losing 50-70 percent of their values, which is unlikely, and if it did happen then $700Bn is the least of our worries.

So the arguement really boils down to whether we hold ethical behavior in higher regard then financial stability. Personally, I hate market manipulation as much as anyone, but do I hate it enough to lose my job? Do you?

-Neo

Quote from gnome:

We may indeed NEED $700B from taxpayers.

But it should go for FRESH CAPITALIZATION, not "bailout of bets gone bad".

If I could choose, I'd have them take more time to be sure (1) we got the "best bang for the buck" and (2) the guilty suffered the most and are NOT bailed out from reckless and greedy bets made.

Paulson tried to RUSH this legislation through with the provision that "he be in control.. with no possible overturn of his decisions by either Congress nor a court of law"....

That smacks of the same old "Power and Money Grab" to me...


I DO NOT TRUST PAULSON!!

 

[gnome]

Quote from Landis82:

Thank You.
Excellent point.
But as usual, it's lost on the highly naive economic base of most on ET.

"We The People" don't know anything for sure. We form our opinions based upon what we absorb. And though there is at least some truth to the claims which support "bailout", there is also info which calls into question the "magnitude of crisis and the urgency of need to accept the first thing offered as a solution"... not to mention the dubious nature of that offering.

 

[CoolTrader]

Quote from cokezero:

Please educate me and totally I'm not familiar with how this works. If banks are afraid to lend to each other because they don't know what the other banks have on their books it means the money is out there right? They just don't want to lend it to other *banks* because they don't trust each other right? How would it affect the small businesses from borrowing?

If small business A deals with Bank A (with no money) and Bank A couldn't get the money from Bank B (with the money) because Bank B wouldn't trust any banks why can't the small business go directly to Bank B? It is Bank A that Bank B don't trust not the small business isn't it? If the small business is thriving and its book strong why can't it just go to Bank B who has the money and skip the failing Bank A all together? It sounds like a good market cleansing process to me (letting the risky Bank A fail and letting the prudent Bank B get a bigger market share)???

How would Bank A be able to freeze up the lending and borrowing and why do we need to bail out Bank A to "unclog" anything?

Suppose Bank A is in hard-hitting area like CA or FL. The small business in CA or FL have to go to banks in other states, which are not familiar with them and aren't sure about lending.

 

[BoyPlunger]

It doesn't matter how much you guys rant and rave that the country needs this bailout. The average guy on the street is overwhelmingly against it. In the end, congress has to do what constituents want. Nevermind that they happen to be exactly right in this situation. You wall st appologists keep saying that if we don't do this, it's going to be the end of the world, and main st. will be shooting itself in the foot. Fine, if that's what people want, that's waht they should get. I think main st realizes that even if that's true, THEY STILL WANT THAT!! Good for them. WAll st has infinitely more to gain than main st in this situation no matter how you look at it.

We keep hearing: "What would be the consequence of not acting here? It would be too catastrophic to contemplate... the consequence of doing nothing would be far worse than bailing out wall st."
But no one delves into any detail of what the unintended consequences of acting are. I'll tell you what they are. This is going to unleash inflation on a scale that not even Ben Bernanke will be able to understand or deny. I believe that this bailout will mean the end of the financial system as we know it. Monetizing trillioins of dollars of worthless crap, increasing the money stupply by leaps and bounds will be far worse than any deflation that would come about by this frozen credit system we currently have.

yes, free market capitalism is the best path to prosperity (eventually) we just have to get through this rough patch first.

 

[theboxer]

Quote from eagle:

I choose the latter.

I choose the latter too (the choice being (a) letting the guilty go free or (b) punishing the innocent along with the guilty), but it's not just about the satisfaction of "punishing" those perceived to be guilty - also consider that a major recession/depression/downturn or whatever term you want to use will hurt, but it will CREATE VALUE and opportunity in the long run. That is absolutely necessary from time to time, and it's healthy. Yes it hurts, yes it will cause damage, but the alternative is a perpetually unhealthy economy. I think Japan can be used as an example in some ways.

So we have (a) no one gets "punished", and the economy remains unhealthy - with probably a recession down the road anyway.

or (b) we "punish" everyone, but value and opportunity are created, and the chance for a healthy economy in the future.

I'm not even going into the fact that the "bailout" plan is not likely to save us from disaster anyway.

 

[Neodude]

cokezero, I'll give you a counter argument:

What if the Good bank was doing business with a bad bank, then the bad bank goes under, in a likely scenario the good bank will have huge losses and have its reserves depleted, to get its reserves up again in a short time the bank has to offer high yied CDs to customers or borrow from other SCARED BANKS that might have had losses too. The good bank thus must raise rates for its customers to make money from the spread. Now the failure of one bad bank has created tighter credit for average Joe although his credit score was good.

-Neo

Quote from cokezero:

Please educate me and totally I'm not familiar with how this works. If banks are afraid to lend to each other because they don't know what the other banks have on their books it means the money is out there right? They just don't want to lend it to other *banks* because they don't trust each other right? How would it affect the small businesses from borrowing?

If small business A deals with Bank A (with no money) and Bank A couldn't get the money from Bank B (with the money) because Bank B wouldn't trust any banks why can't the small business go directly to Bank B? It is Bank A that Bank B don't trust not the small business isn't it? If the small business is thriving and its book strong why can't it just go to Bank B who has the money and skip the failing Bank A all together? It sounds like a good market cleansing process to me (letting the risky Bank A fail and letting the prudent Bank B get a bigger market share)???

How would Bank A be able to freeze up the lending and why do we need to bail out Bank A to "unclog" anything? It's not like Bank A is the only bank in the world that the small business can work with???

 

[Neodude]

Quote from BoyPlunger:

It doesn't matter how much you guys rant and rave that the country needs this bailout. The average guy on the street is overwhelmingly against it. In the end, congress has to do what constituents want. Nevermind that they happen to be exactly right in this situation. You wall st appologists keep saying that if we don't do this, it's going to be the end of the world, and main st. will be shooting itself in the foot. Fine, if that's what people want, that's waht they should get. I think main st realizes that even if that's true, THEY STILL WANT THAT!! Good for them. WAll st has infinitely more to gain than main st in this situation no matter how you look at it.

We keep hearing: "What would be the consequence of not acting here? It would be too catastrophic to contemplate... the consequence of doing nothing would be far worse than bailing out wall st."
But no one delves into any detail of what the unintended consequences of acting are. I'll tell you what they are. This is going to unleash inflation on a scale that not even Ben Bernanke will be able to understand or deny. I believe that this bailout will mean the end of the financial system as we know it. Monetizing trillioins of dollars of worthless crap, increasing the money stupply by leaps and bounds will be far worse than any deflation that would come about by this frozen credit system we currently have.

yes, free market capitalism is the best path to prosperity (eventually) we just have to get through this rough patch first.

Long term you are right, but no body thinks they will be part of the 20% unemployed when we hit deflation like we did in 1929. I don't think main street realizes how badly that hurts and most rich people who would gain the most from a bailout will still be better off then main street if the bail out doesnt go thru.

Its always a game of trade offs.

-Neo

 

[CoolTrader]

Could someone answer my question:
Can fed give that $700b as loan to those troubled banks with illiquid assets as collateral, instead of buying those assets?

 

[ptunic]

What is interesting is almost nobody in Congress (besides Paul) is talking about the real problems.

How many bills have originated the last week that include net cuts to the military and social program budget? Farm subsidies? Zero.

Increasing taxes is not the way to go either.

Cutting social programs and the war budget - a large amount - is inevitable. It is purely a question of when and in what form. Do we do it after a Treasury default? After CPI increases past 10%? After external ownership of Treasury debt increases to 75%? After a dollar devaluation? By then, it will be too little too late.

Bernenke and Paulson are correct in one thing, that we need major changes now. But they are looking at the wrong areas.

The addiction to easy money (interest rates held to way under equilibrium) will end. That is just a question of timing too. The only question on these issues is do we try to buy ourselves another 3-12 months of illusionary stability, in return for increasing the inevitable collapse even further at that point? We're in a negative feedback loop, and the sooner we drink our foul-tasting medicine the better.

 

[Landis82]

Quote from ptunic:

What is interesting is almost nobody in Congress (besides Paul) is talking about the real problems.

How many bills have originated the last week that include net cuts to the military and social program budget? Farm subsidies? Zero.

Increasing taxes is not the way to go either.

Cutting social programs and the war budget - a large amount - is inevitable. It is purely a question of when and in what form. Do we do it after a Treasury default? After CPI increases past 10%? After external ownership of Treasury debt increases to 75%? After a dollar devaluation? By then, it will be too little too late.

Bernenke and Paulson are correct in one thing, that we need major changes now. But they are looking at the wrong areas.

The addiction to easy money (interest rates held to way under equilibrium) will end. That is just a question of timing too. The only question on these issues is do we try to buy ourselves another 3-12 months of illusionary stability, in return for increasing the inevitable collapse even further at that point? We're in a negative feedback loop, and the sooner we drink our foul-tasting medicine the better.

Ron Paul is wonderful at pointing out what is wrong, but he offers relatively few answers aside from cutting defense spending and getting out of Iraq.

As screwed up as the RTC was with all of its political cronyism, that "bail-out" still helped save roughly $250 billion for taxpayers. The Treasury's current plan to cut the "cancer" out of the banking system could actually do wonders when it comes to getting banks back to much healthier balance sheets . . . otherwise you have a hugely deflationary scenario like Japan back in the 90's.