Did you really think that bailout would work so fast....

[Parklife]

So, after $700B passes in a bailout... $140B in various tax credits and cuts attached to it... $25B in loans to the auto industry... Fed take-over of Fanny & Freddie... 85B loan to AIG in addition to how much money the Fed has already dumped into the market as it's own course of events (not needing any bill passed, it increased loans to banks to $300B for short term loans with a total loan amount of $900B... all in addition to the bailout)... California becoming the first of what is sure to be many states asking the Fed for a loan (CA asked for $7B so it could pay bills this month after being locked out of the credit market for the past two weeks)

And what do we see?

A 700pt drop in the stock market... after a 700+ point drop last week. In addition, we see governments all over the world guaranteeing deposits, governments in Europe taking control or dumping money into banks... AIG revealing that the bridge loan it received so it could orderly sell assets over two years has already been drawn down by $61B (get that? they've already used $61B of the $85B loan and still haven't even started the sell off of assets)

And this will just be the tip of the iceburg.. these markets likely won't have any long-term stability for quite some time (18-24 months?)... just because the government is going to spend $700B on worthless real estate loans, doesn't mean these firms will use that money to turn around and open up the credit markets... This isn't a US economy thing, can't be blamed solely on the US government and what it has or hasn't done over the past decades... And this all doesn't really take into account the exceedingly worsening economic crisis (horrible factory numbers and unemployment was released on Friday but largely went ignored in light of the bailout passage)...

[Parklife]

So... now that the market is closed, I'll have to go back and adjust... The dow came back to lose only 370pts after touching 800pts less than two hours earlier... quite a recovery but still leaves the DOW down 30% in the past 12 months (Nasdaq is -35%, S&P -33%) and below 10,000 for the first time in 4yrs...

This is far better than many world markets (some of which closed early after suffering 15% drops in today's trading).

[Belmondo]

Economics is not my strong suit, but I've listened to, and read enough info from economists to think I understand that the bailout is about the credit markets and positive effects won't be seen for a few months. We will continue to lose some money in our various accounts tied to the market, but just ride it all out if you can survive on long term (5 or more years) investments.

That's my understanding. I'm here to talk movies and occasional politics, so if this post is wrong or contains bad info - tell me.

[HGervais]

Late last week I was talking to a friend who happens to be in the finance field about my 401K and he said the good news is, and I quote, "you're a young guy and you don't have to worry about retiring any time soon." He continued, "hopefully there will be markets worth investing in 2 or 3 years from now." He then finished his beer and went home. Interpret that as you will. Rinse, repeat.

[Parklife]

The stock market effects shouldn't been seen for months (with a return to strong consistent performance year(s) away) but the credit crunch would turn a bit quicker... the bailout was signed as a plea to the banks to open up credit, that hasn't occurred yet with key intra-bank lending not getting much relief today (only a drop in .04% in interest rates between banks for a 3-month loan and an actual increase in overnight lending) and banks still not opening up their lines of credit. With banks playing things that close to the chest (essentially, waiting it out until the $700B starts flowing), things could get much worse. $900B loans from the Federal Reserve will be able to be collateralized by the failing mortgage-backed securities market... that's $1.6 Trillion of potential back mortgage loans ending up on government books.

[Chris_Sax]

you guys should live with your rich parents like I do.

[Dan Mancini]

All I need is some tasty waves and a cool buzz and I'm fine.

[TemporalWisdom]

you guys should live with your rich parents like I do.

Dude, isn't it the best?

[reefa]

An interesting read, even if it's libertarian.

http://divisionoflabour.com/archives/005188.php

Forbes 535 v. the US Congress
Don Boudreaux rightly says that "no one is or ever can be 'ready' or 'qualified' to exercise power of the sort that is concentrated today in Washington."

Indeed.

Let's explore this point a bit by comparing the concentration of financial power in the hands of the 535 members of the United States Congress with the concentration of financial power of the 535 richest people in the United States.

According to Forbes, the 400 richest people had a combined net worth of $1.57 trillion. Let's simply assume the next 135 richest people had the same net worth, though they surely didn't, as the 400th person--$1.3 billion each. That brings our estimate of the combined net wealth of the richest 535 Americans to $1.75 trillion.

But wait, this is net worth, which is a stock, not income, which is a flow. So let's figure the annual income flow from the ownership of $1.75 trillion to be 10% of that amount. (I don't know if this number is high or low. On the one hand really rich folks probably are good at making high rates of return. On the other hand much of that $1.75 in net worth is likely to be speculative, consumptive, and/or illiquid assets like real estate, yachts, artwork, etc where the return is difficult to determine without selling the item. It turns out, you could double or triple this estimated return and still make the point I'm going to make.) Our estimate therefore is that the richest 535 Americans have about $175 billion (10% of $1.75 trillion) to spend on an annual basis.

Ok, let's compare this group with the 535 members of the US Congress. According to the latest Economic Report of the President, the annual outlays of the federal government amounted to $2.73 trillion in fiscal year 2007.

So I estimate that the 535 members of the US Congress enjoy over 15 times the financial power of the 535 richest Americans.

But do note how charitable I am being here. Unlike the 535 richest Americans, the US Congress also reserves the right to regulate the hell out of practically ever aspect of our lives. Furthermore, unlilke the 535 richest Americans, who hardly know each other and who certainly never hold meetings to coordinate their decisions, the US Congress does in fact meet regularly to decide exactly how this vast financial power is to be spent. Furthermore, I have failed to say anything about the various state legislatures in the land who annually spend an additional $1.9 trillion.

Why do we worry so much about the supposed concentration of economic power in the hands of "the rich", a group of strangers who don't coordinate their actions in any way, but care so little about the vastly greater concentration of economic power in the hands of Congress?

[Dunnyman]

unlilke the 535 richest Americans, who hardly know each other and who certainly never hold meetings to coordinate their decisions,

Please tell me that's sarcasm? You ever seen a golf course, yacht club, country club, etc? Those are the "unofficial" meeting places where the rich decide who they're going to screw over next, usually with some of their fatcat buddies right at their side as they carve up the pickings amongst themselves.
Also, you don't think the rich don't have the votes of our Congress bought and paid for?

[reefa]

So since you're presumably against laissez faire(sp?), what would the appropriate measure have been on it, out of curiosity?

[reefa]

And for the record, I know bupkis about economics, I'm trying to understand it all like everyone else is.

[Steve T Power]

And for the record, I know bupkis about economics, I'm trying to understand it all like everyone else is.

The two LARGEST mortgage brokers in your country are named Freddie Mac and Fanny Mae, and you're wondering why your economy is in the toilet?

These two companies sound like their named after a pair of hobos - the ones who accost you for change and then hit up the woolworth's pharmacy isle for listerine to get a cheap drunk.

[IChiWawa]

The two LARGEST mortgage brokers in your country are named Freddie Mac and Fanny Mae, and you're wondering why your economy is in the toilet?

These two companies sound like their named after a pair of hobos - the ones who accost you for change and then hit up the woolworth's pharmacy isle for listerine to get a cheap drunk.

From a nice article on how Freddie and Fanny got left holding a very smelly bag. Politicians say that any criticism of F & F (and the Community Reinvestment Act) is racism but that's just smoke from their brain canals. Everyone contributed to this mess by making the banks suspend good business practices and common sense as a way of forcing equality in home ownership percentages. Blacks with bad credit and others who couldn't afford the homes they were buying weren't the culprits, they were the victims of politicians seeking to buy votes.


"Quoting from a study which declared that “underwriting guidelines…may be unintentionally racially biased,” the Boston Fed then called for what amounted to undermining many of the lending criteria that banks had used for decades. It told banks they should consider junking the industry’s traditional debt-to-income ratio, which lenders used to determine whether an applicant’s income was sufficient to cover housing costs plus loan payments. It instructed banks that an applicant’s “lack of credit history should not be seen as a negative factor” in obtaining a mortgage, even though a mortgage is the biggest financial obligation most individuals will undertake in life. In cases where applicants had bad credit (as opposed to no credit), the Boston Fed told banks to “consider extenuating circumstances” that might still make the borrower creditworthy. When applicants didn’t have enough savings to make a down payment, the Boston Fed urged banks to allow loans from nonprofits or government assistance agencies to count toward a down payment, even though banks had traditionally disallowed such sources because applicants who have little of their own savings invested in a home are more likely to walk away from a loan when they have trouble paying.

Of course, the new federal standards couldn’t just apply to minorities. If they could pay back loans under these terms, then so could the majority of loan applicants. Quickly, in other words, these became the new standards in the industry. In 1999, the New York Times reported that Fannie Mae and Freddie Mac were easing credit requirements for mortgages it purchased from lenders, and as the housing market boomed, banks embraced these new standards with a vengeance. Between 2004 and 2007, Fannie Mae and Freddie Mac became the biggest purchasers of subprime mortgages from all kinds of applicants, white and minority, and most of these loans were based on the lending standards promoted by the government."

[Dan Mancini]

So since you're presumably against laissez faire(sp?), what would the appropriate measure have been on it, out of curiosity?