BAILOUT DEFEATED....

[Bob98SR5]

Miron is a world renowned economist. You'll find his name in many textbooks.

Interesting thing I read today which Miron references in his opinion. In 1999, Bill Clinton signed the Gramm-Leach-Bliley bank deregulation bill which allowed investment banks to offer services like commercial banks did, as many European banks had been doing all along. This in effect, deregulated banking. Of note, BC signed this GLB deregulation bill even though the vote on the bill split along party lines (Reps were the majority). Bill Clinton of course, was a big proponent of providing more support and services to minorities and those with less financial means. So did GWB as we've seen in the video. Which is all well and good, but that opened the door to unchecked services and lending practices such as subprime loans and unverified income acceptance practices. This was one of many deregulated and unregulated services that allowed investment banks to purchase commercial banks over the last 8 years. I can tell you in CA that many small banks got swallowed up as a result of this and large banks such as Bank of America started to quietly offer subprime loans to people who could not provide ID, SSIs, etc. You know, as my local paper likes to call them "undocumented residents"

One thing that Clinton did recently is that he manned up and spoke about this and his involvement in signing this bill. Search "Bill Clinton + Gramm bill". Democrats are furious at what he's saying as of late. While the goals were noble, it was poorly executed by the greed of the banks and the greed of the people to get into homes that they couldn't afford and/or wanted to flip in a hot housing market. Bill has all my respect for going against the call to villify the Gramm bill and to tow the party line that this is all the doings of the Republicans and to focus the discussion on fixing the problem and not politicing. As I've said a few times now, there are many culpable people and institutions. I'm sure anybody here, regardless of political affiliation, can find articles to support who is to blame. Time to fix the mess. But i am really not certain what side i stand on. I'd probably take a hybrid position of letting those institutions, individuals, etc who showed gross negligence suffer while allowing those who truly were collateral damage to these practices be given a second chance. While that's probably more difficult to achieve than to write, something in my gut tells me that its inherently wrong to arbitrarily bail out those whom Paulson feels worthy of bailing out with a 700B warchest. Paulson is quite the smart man (25 yrs at Goldman Sachs), but to provide one person with such decision making with little or no oversite (or so i've read) is too much power for one individual.

[MTL_4runner]

The really scary part about this whole mess is that the politicians (on both sides of the fence) probably know less than the average person about the financial markets (don't even get me started about Palin) and what would work best for fixing the economy yet that is their #1 job right now. I'm sorry but this is a political failure of the highest magnitude and the fact that a majority of the republicans didn't come through as they had agreed to do to support their own president and the top financial architects for the country is complete lunacy and then finally to blame the reason for non-adoption on a few political jabs by the House speaker....please! This shows that politicians in the current administration are unable to rally their troops to the cause and it appears no one had the foresight to explain the mess in a marketing effort to the average public in language they could understand. This is no simple issue by any means.

The crux of the issue is the misperception that this is a bailout of people who made bad decisions. The CEO's making big bonuses for nothing is a separate issue completely. The issue has simply been a large scale case of "whack the weasel" and it's an ongoing cycle until the money supply in the market is reduced (remember all the talks about "soft" landings in the stock market, we're suffering the hangover from that now). The Y2K was the first problem for liquidity in the markets, then came tech stocks bubble and when that caved in all the money went to hard assets like real estate and commodities. What your are really seeing is the final deflation of a bubble (ie too much liquidity) that should have taken place earlier but finally came home to roost on the housing sector. Credit is real dollars leveraged many times over so the money from each successive bubble creates a larger bubble later on......and also makes for a steeper fall when that bubble finally disappears, ergo what you see today.

What this $700B pledge would do is to effectively set a bottom for the market.....essentially it is an investment by the government in the financial system itself. If they play it right they could wind up not only staving off a massive stock market selloff and a paralyzing credit freeze, but also actually making money for the taxpayers in the process. The free market system is a great ideal and sets the basis for the vast majority of the free world but the problem is that reality and ideals are not the same thing. People do have emotions, governments around the world do meddle in the market and if you just let an avoidable crash happen (as many people have indicated naively that they would), it can severely damage the economy to the point that it may take more than a decade or perhaps even a generation to recover. It's like saying a tsunami is going to hit but once the water is all dried up everything will return to normal.....it's not. True free market is an ideal, not a reality and we can't forget that when you're dealing with world markets like we are today. On it's current course I am predicting that you'll start to see a recovery sometime around late 2015 to mid 2016.

[oly884]

So, Jamie, in your views, what is your gut feeling we are going to enter? Recession, depression, complete collapse?

[hillbilly]

What Jamie says is very much accurate. A complete collapse will cause great devastation to our entire economy and how we go about daily life. Businesses and production facilities will fail, and directly impact the things we take for granted every day. Those of you fortunate enough to have grandparents around from the Great Depression Era, should sitting down and talk to them. The past several generations have *never* experienced such sacrifices, therefore we truly do not understand the extent of the devastation a complete collapse may cause.

I've talked with a very close relative with over 40 experience in the finance/brokerage markets. If some variant of the 'bailout' (what moron coined that handle anywy?!?) doesn't take place, it will only prolong the suffering that may already take a decade or more to recover from (i.e. INDP below 8,000).

Those of you currently struggling to find gas in the Southeast; image doing the same because local/regional food processing plants have had to close their doors.

I am by no means, saying or condoning any plan that salvages the lives of CEO's with parachute clauses whose power-hungry greed and lack of ethics created this mess.

[MTL_4runner]

So, Jamie, in your views, what is your gut feeling we are going to enter? Recession, depression, complete collapse?

I'd say more like a long grueling bear market (similar to the 70's) right now, but if this snowball finds alot more wet snow and a long hill it could become a much bigger problem. The government needs to dry up the credit but to do it slowly, not all at once like a crash would cause. This is why you need the "bailout" to keep the back of the train from crashing into the front as you slow down the wheels on the credit machine. The biggest thing is to stay grounded through all the mess and don't get caught up in all the fear mongering the media puts out there. This isn't armageddon, but it won't exactly be all that pretty either. Be conservative with your money (think capital preservation) and you'll come through it all just fine.

[tulsa_sr5]

Jamie, I respectfully disagree that the government can set a bottom for the market. Only the market can decide where that point is. If the governnment tries it will almost certainly do so above the real floor the market needs to find (just like the previous soft landings). Sooner or later the market is going to move as low as it needs to to fully purge this "bubble". The more we interfere the longer it takes to get back to an honest economy people can invest in without concern that they are jumping into a security at 150% of it's true value.

I do think there are things the government can do immediately to help, but I fail to see how buying overvalued debt does anything but temporarily prop up the market. While adding to inflation due to the fact that we don't have the 700 billion to spend. If this is truly an opportunity for someone to turn a profit then private investors would be all over it.

[MTL_4runner]

I don't disagree that a true bottom is not set by any move the government would make (I changed it to only effectively set a bottom.....I assumed people would infer this anyway.....it could go further but it indicates confidence at that level). I would also argue that the government should only buy the securities at market prices (have them liquidate some into the markets to find out what the real price should be for these bad debts). The issue you might run into is that banks may try and hold onto the debts thinking the feds will overpay for them. This is where I think the fed should make its stand.

[oly884]

So, Jamie, in your views, what is your gut feeling we are going to enter? Recession, depression, complete collapse?

I'd say more like a long grueling bear market (similar to the 70's) right now, but if this snowball finds alot more wet snow and a long hill it could become a much bigger problem. The government needs to dry up the credit but to do it slowly, not all at once like a crash would cause. This is why you need the "bailout" to keep the back of the train from crashing into the front as you slow down the wheels on the credit machine. The biggest thing is to stay grounded through all the mess and don't get caught up in all the fear mongering the media puts out there. This isn't armageddon, but it won't exactly be all that pretty either. Be conservative with your money (think capital preservation) and you'll come through it all just fine.

Good to know, thanks!

Yes, I have been getting a bit more food (canned foods, dried beans, rice, etc.) And while it could be overkill or 'crazy' it just means that if everything works out OK, I'll just not need to go to the store for a while!

Lucky for me, I have no money in the market, any my debt is quite small.

I am torn on a bailout. Part of me says yes for the clear reasons, the other part of me is feeling that it's time for a wake up call, for everyone.

[fustercluck]

I just want to know if I will still be able to buy guns after all of the dust settles...

[Tankota]

I just want to know if I will still be able to buy guns after all of the dust settles...

I dont think the gun manufactures will need a bailout. Fuster, single-handedly, keeps them roling in profits.