Thursday, September 18, 2008
We'll Guarantee Everything, Just Don't Stop The Music
The Fed is buying agency and FHLB paper for its own account, plus extending non-recourse loans to depositories so they can buy the stuff. They say they will insure money-market funds. There is excellent coverage at Calculated Risk - see the TARP posts for a little dry humor.
For a short, succinct commentary on the situation, see UK Bubble's post:
Well, I suppose it all will get us to Monday. It's giving me a migraine. Another 20 minutes, another bailout proposal. It reminds me of a charity auction, with a really good auctioneer, in which everyone is convinced that the cause is righteous and the details don't matter. (The fallacy is that the ignored details have brought us to the point where charity is needed.)
China has announced initiatives to shore up its economy and equity market, including suspending stamp tax and government purchases of bank shares. Short summary. Some more detail.
I'm kind of worried about yen movements. India is feeling the heat; the financial meltdown should impact infotech revenues at the large software companies, and see this article on corporate advertising.
From the point of view of the real economy, what is important is sustaining the flow of credit to functioning companies. Stabilizing this mess in the short term is necessary. Letting the big financial companies eat up all the cash would be a dire mistake.
Note: On my explanatory post below, some of the comments were very good. Some were ridiculous. I also want to address the bizarre idea that CRA is the fundamental problem with US mortgages. I'll try to address the comments and the wacky CRA-as-Culprit meme when the Fed Juggling Show stops this weekend. Right now I feel both fascinated and dizzy.
But I will say that you can either swear undying fealty to the spinmeisters of one party or another, or you can have a stable economy. It's unfortunate that this is happening in a presidential election cycle, because of course politics tends to take over. But neither party can be assigned a disproportionate amount of responsibility for the total result because both have been involved deeply in mixing, baking and selling this lot of cupcakes.
Both parties must bear significant responsibility, and anyway, reforms will require addressing the causations, and in the process, the sacred cows of both parties are going to get gored.
We are going to have to put aside the demon/hero stuff if we want this to get better. Speaking of demons and heroes, I find it very interesting that Ranbaxy retained Giuliani to deal with its US-blocked imports. If I wanted to convince the FDA that my plants were up to spec that's not who I'd retain. Not that I want to mention anything about influence-trading, oh, no. Wouldn't do that.
Here comes Santa Claus,
Right down Bailout Lane;
Fannie Mae & Freddy Mac
A-pullin' on the reins!
Gummint Gravy pouring in,
All is Happy and Bright!
Dream of condos to flip flip flip
'Cause Santa Claus comes tonight!
Here comes Santa Claus,
Here comes Santa Claus,
Right down Bailout Lane...
bobn, never said Clinton wasn't for GLBA.
Not that the Republicans can escape blame, because a GOP-dominated Congress passed the legislation urged by the Clintons.
The Senate Republicans not just passed the legislation, they authored it, sponsored it, and grudgingly accepted CRA mods to get it passed.
MOM also doesn't address the 2004 SEC decision to allow the 5 IB's to lever to 40-1. I guess that was more "Clinton urging"? Trying to paint Wall St insolvency as equally the responsibility of either party is disingenuous. Try DLC and Republicans and you'll be closer to the truth.
Politicians like bubbles, they like donations from the RE and banking lobby, they like to appear rescuers.
I was referring to the CRA-caused it all meme, as in the City Journal article.
When she's president, she'll stop this madness.
World Net Daily just ran an article running this all down. Palin stood up to the old boys network in Alaska. She said "no thanks" to that bridge, and then she welded a damn pipeline from Nome to Denver, bagging moose along the way for subsistence.
Sarah Palin will get America right with God, and when America is right with God there will be no more money problems. God wants you to be wealthy, unless you're a San Francisco values Democrat. Then he wants you to burn in Hell!
Listen to MaxedOutMama. She knows the score. Palin is more than a woman. She's the little sister Jesus never had.
Don't come in here and get all huffy with your facts. MaxedOutMama don't need your stinkin' facts. She's got Jesus on her side.
Yeah, you heard right, Mr. Pinko Lefty Save The Baby Seals guy. She's got God and Rush on her side. Who do you have? Dingy Harry and Nancy Pelosi?
Ha! You heard me! Ha!
I don't even know what CRA is, but I know this: Jesus doesn't like you because you're from the Democrat Party. So, you can read all the books and laws and footnotes you want, but when you're burning in Hell, all that "knowledge" won't do you one bit of good.
In the meantime, my Praise Band and I will be enjoying the kick ass amenities of Heaven.
Who's smart now!
Again, I say: Ha!
So true. The political posturing of both Obama and McCain on this issue is obnoxious. We can search for causes and scapegoats after a solution is in place.
This is primarily a crisis of confidence and trust. When banks won't even lend to other banks that is a credit lockup that could kill business activity too doggone quickly.
As you mentioned, MOM, it is deflation they are fighting. Values of real estate and CMOs continue to decline. Billions in capital shrinking like snow in a hot sun. Gotta put a base under all this and restore confidence. And that will take a bipartisan effort.
"And that will take a bipartisan effort."
Is that the Democrat Party you're talking about?
Am I to understand the Democrat Party is to be admitted entrance to the War Room?
I don't know exactly how to put this, Jimmy J., but are you aware of what a serious breach of security that would be? I mean, they'll see everything, they'll see Dick Cheney!
MOM, I am specifically addressing the problem of Wall Street insolvency (how did we get HERE) and how it relates to consolidation and leverage (GLBA). Consolidation meant IB could use the depositor base to leverage even greater balance sheets. Clinton/Rubin/DLC pushed for megabanking. No question. Dodd & Schumer are from CT/NY and in the pocket of Wall St. No question. To claim that the rest of the Democratic party was gung-ho for GLBA before the CRA mods were added is contradicted by the Senate voting records.
Irresponsibility and consolidation/leverage are two different things. The left wing of the Dems are in love with DAP, Fannie/Freddie, foreclosure banning, raising conforming limits, etc. No question that proclivity encouraged the housing bubble and the proximate cause of the credit crunch.
I'm no partisan, I think the Democrats and their bailout tendencies are disgusting. I applaud Bunning every time he grills Paulson and Bernanke. My write in vote in the primaries was Ron Paul. The Dems fell all over Bush's "ownership society" like flies on shit. But to claim that they had equal culpability with those across the aisle for _specifically_ Wall St consolidation and leverage, and thus insolvency, is incorrect. Again, how many of the IB's are still standing that leveraged 40-1? 2 out of 5. How many Dems had input on the 2004 SEC regulation that let them?
This is small point, and I don't want to belabor it, so if you'd rather agree to disagree... I love your analysis and thank you for sharing it.
Each addresses some of the ethical issues at hand.
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