Sunday, September 21

Après moi le déluge


nova-san said...

Don't forget the foreclosure bailout for homeowners, although I guess it's not a real bailout since the homeowners still have to apply and be approved for a "bailout" loan.

I can't stand all this economic bailouts that the government is giving these corporate giants. CEOs and executives walk away with multi-million dollar severance packages and regular joe schmoes lose their jobs.

Zee said...

So Joe Schmoe looses twice Nova-San?!?
First she or he pays taxes on the job, then Joe Schmoe gets fired because the CEO's were too greedy. Then his or her taxes bail out the CEO's. Double whammy!
Insanity has no limits!!!

lindsaylobe said...

It’s a complex issue and as to whether stocks are now suspended in thin air, with attendant future hazards and uncertainty or rather safely supported by this bailout is very unclear.

The overall bailout objective as far as I can fathom is based upon rubbery calculations of an estimate of about 3 -4trillion in impaired mortgages which are under the water to the extent of needing a $800 billion haircut.

I notice the rebound in world wide markets came simultaneously as the UK’s stock market regulator, the Irish financial regulator, and ours and yours Security Commission have all moved to ban short selling of financial stocks. How much of the rally is due to this remians unclear.

Congress is certainly being asked to move with extraordinary speed, to approve it all within a week!!

The most controversial aspect will be in the creation of yet another new entity to purchase those impaired assets from financial firms. The process will work like a reverse auction, your government buys out the toxic debt from the institution that sells its assets for the lowest bid. However this will create yet another issue, namely what will it pay for those with an unquantifiable in value? This might put taxpayers money at risk for further losses if they pay too much, or alternatively it could be hard nosed about and settle with a consideration of pennies in the dollar? If the latter course is adopted It would force those financial institutions to write down the losses which would be much more in keeping with the idea those involved in the first instance should share in its pain.
Hopefully we may also see finally sensible regulations to reduce extraordinary generous executive pay, stock options etc that might be tacked on to the Bill by a Democrat controlled Congress.

Best wishes

Zee said...

Thank you for stepping in LINDSAY
You seem to always be calm and reasonable in your presentations. I really appreciate that quality of yours.
I must admit, I am still baffled by the latest moves within the world-economy, not that I have big stakes in it - by now means. As I said to someone else today, I live from my hand into my mouth.
But why is it that those who created the "crisis of greed" get away with it so easily, and us - we just pay them to get away with it. You must have great faith to believe that this world can be sound again. For that I adore you!

Seraphine said...

people are scared. when they don't trust their banks/brokers, they take their money out. that's why the fed is involved. it's a confidence crisis.
(zee, regarding pets and men, one can't always see the placement of the tongue in written words. mine was firmly in cheek.)

susan said...

You're actually right Zee. The bailout plan Bush (for it's his even if he has no clue), Paulson and Bernanke have come up with is strictly one to cover their friends losses over bad bets in the market. They say they'll take regular people into account but they don't have to according to the document itself and likely won't. What they're doing is printing money the economy can't cover. There could be a good (or better) way of doing this but the plan they're trying to sell Congress is another example of selling panic and hysteria. They're very good at that.

lindsaylobe said...

It’s understandable that individuals feel furious, particularly given the fact that Wall Street bonuses for the top 5 investment banks was $38 billion alone for the 2007 year which exceeds the GDP of some smaller countries.

But how many are still left in their previous form from only 3 months ago? _____ Maybe one and even that will be unrecognisable soon.!

Before dealing with that I might also add that Obama has been quoted in the press over here as having said “he fully supported efforts to stabilize the financial system. He urged that the plan benefit both Main Street and Wall Street”.

Democrats have been mostly positive to the Paulson proposal, reflecting differences in the philosophical approach in the major parties,

e.g. “The consequences of inaction could be catastrophic” according to Senate majority leader Harry Reid, a democrat.

But returning to the question of how many of the top 5 unvestment banks are left in their current form, let us consider the matter of recent history.

The top Wall Street firms that have dominated our financial world has just ended abruptly. Both Goldman Sachs (which largely avoided the consequences of the sub prime fiasco) and Morgan Stanley have concluded there is no future in investment banking since the model is shattered.

Hence the Federal Reserve has approval their application to become fully fledged banks and ends an era spanning 75 years when Congress separated them from traditional deposit-taking lenders to security traders.

It caps off just a few a week that saw Lehman Brothers Holdings Inc entering into bankruptcy and a hastily convened sale of Merrill Lynch to the Bank of America.

Be in no doubt this indeed is the end of Wall Street as we knew it.

The Federal Reserve Board met at 9 p.m. yesterday and I understand their decision was unanimous.

The model is now dead in the water, as is the most outrageous salary packages and bonuses the world has ever seen.

So I think it will make interesting reading for future generations of MBA students who will read in wonderment that such foolishness could ever be perpetuated.

Best wishes

Zee said...

Hmm yes Lindsay
As I said before, there is no "rope" left for a rescue mission, no matter how much cash amount that is being pumped in. This is what I think. Let's hope that I am wrong.