Selective favoritism in action
Stocks Surge as U.S. Acts to Shore Up Money Funds and Limits Short Selling
If the government is going to bailout the private banks without taking them over, this is the greatest departure from capitalism the country has ever seen. The government has been lauding the virtues of unfettered capitalism for about 30 years now, but when the crunch has finally come the same government is now acting to protect the big companies. The people being saved are the same ones who have bought and paid for this favor over the past 8 years.
There is selective favoritism in action here. The snake oil salesmen are being rescued and the little guy who bought their products is being allowed to die. People are defaulting on mortgages all over the country and we are going to rescue the perpetrators by taking their bad assets off their hands and leaving them everything else in their businesses. This is inequitable in the extreme, but it is characteristic of this administration. It is also a complete abandonment of their principals. Of course they never had any real principals, they only had greed.
We will be saddled with the debt from this for a generation. The Savings & Loan debacle cost the American Taxpayer 4% of GDP and resulted in numerous tax increases under GHW Bush and Bill Clinton. This rescue may cost 7% of GDP according to some experts.
Doesn’t it get your dander up to see how truly disingenuous the current Republican leaders of our country really are.?
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19. September 2008 at :
Republican leaders? The Democrats are running Congress right now. Let’s make sure the blame is spread evenly.
19. September 2008 at :
And yes, this bail out plan sucks. The libertarians might finally bolt the republican party after this. I’m all for letting Wall Street pay for their bad behavior. Ugh.
19. September 2008 at :
Also, I might point out the latest broad bail out plan was in large part spurred on by the impact on money market funds and to prevent losses to “the little guy.” Here’s the skinny from Reuters:
“The latest government efforts come after the credit crisis, which had largely been seen as a problem for Wall Street risk takers, threatened to spill over into Main Street after some super-safe money market funds buckled.”
All of this is of course contigent on whether or not the Democratic control Congress will agree to this plan.
19. September 2008 at :
Everyone in government has bought into the idea that markets need to operate without regulation. There has been no adherence to Republican ideals for the past 8 years. For most of that time, during which the Republicans had complete control of the Senate and the House, they spent money like drunken sailors. The current deficit is the result of their profligate ways.
You’re right about the Democrats Eric, they followed the same pattern. If they disagreed with what was going on they would have filibustered the spending bills. Shucks, when the Southern Democratics, now mostly Republicans wanted to put the stop to Civil Rights actions (which the Republicans at that time supported) they used the filibuster.
The Democrats are not running Congress now. Their majority in the Senate isn’t functional, and I don’t know that I would trust them with a filibuster free majority in that august body of phonies, charlatans and miscreants.
As to what the Wall Street Journal and other papers are saying about the crisis being because of housing, let them remember that for years it was possible to get a mortgage for 110 percent of equity, with no money down, and NO INCOME CHECK. That would never have been allowed in a sane financial system, and for decades the most you could get, with an income check, was 80% of the assessed valuation of the house you were buying. The banks allowed people to get money they should never have gotten and then they folded it into securities that they sold to themselves. The magnitude of the stupidity in all of this is mind boggling.
Meanwhile the banks doing the mortgage lending were supposed to be regulated and they weren’t. The reason is that too much money was being made by the lenders, the mortgage brokers, the accountants, and the lawyers for the banks. I might add that the lawyers representing the purchasers should have informed them in writing of the risks that they were taking is signing on to the sub prime mortgages.
Blame goes all around but the rescue is a bad idea because it avoids punishing the miscreants and fools, which is what is supposed to happen in a capitalist system.
19. September 2008 at :
Joel, you and I should form a political party in which people are left to rot for thier sins. The Hazardlander party has a nice ring to it.
If their is no punishment for taking on 30X leverage to amplify your earnings, and pump your bonuses to ridiculous levels, then what is to stop Wall Street from doing it again? How in the hell the government can’t see they’ve set themselves up for a repeat of this 15 years down the road is beyond me.
I want a world in which markets are free. They are free to rise and they are free to fall. The latest bailout makes a mockery of this idea.
PS - a letter to the editor in today’s NYT:
To the Editor:
Dear Mr. Bernanke and Mr. Paulson:
My student loans are too big and it is hurting the economy. Can I have a bailout, please? I need $92,000.
Thanks.
Nathan Kottke
St. Paul, Sept.
17, 2008
19. September 2008 at :
Eric, we need to have a convention. Pick a restaurant for next week.
19. September 2008 at :
Ah Joel, I’d love to, but can I take a rain check?
Mrs. Hazard and I are off to Italy on Saturday. Let’s put a date down for first part of October.
19. September 2008 at :
Wonderful, have a great time in Italy!
19. September 2008 at :
Comment issued by hedge fund manager Michael Masters this morning. Masters, as you recall, was the one who got Congress to pay attention to the effect that massive Index long bets were having on the energy futures markets (essential pension money driving up oil prices making it harder for pensioners to drive!).
The same Wall Street deregulation that has led to the current financial crisis is also the source of the recent violent volatility in the commodities futures markets. In both cases, through the iterative dismantling of the former banking and securities regulatory structure, and the dismantling of the commodities futures position limits and creation of dark markets in commodities, the end result has been chaotic moves in capital markets
and commodities markets that have caused significant stress for our economy and American Consumers.
As the crisis has intensified, U.S. Capital Markets Regulators, including the SEC, the Treasury Department, and the Federal Reserve, have acted in the past weeks to unilaterally change previous long standing rules and policies. They have taken over Fannie Mae and Freddie Mac and put it into a “conservatorship”. When AIG got into trouble with their CDS portfolio the US government loaned AIG up to 85 billion dollars from the taxpayer and for that service took an almost 80% stake in the company. This morning regulators announced a plan to create an estimated 800 billion dollar RTC II program to rid financial institutions of the toxic waste mortgage products created by Wall Street banks in the last few years. They are going to backstop large money market mutual funds so that these funds can continue to fund, among other things, brokerage houses in the overnight funds market. Finally, they have announced that they are going to the unprecedented step of banning short selling completely in financial stocks.
US regulators have now shown their true colors. They are willing to destroy their “free market” ideology when they feel it is necessary to protect the banking and brokerage community. While one can debate the merits of their plans or the perceived necessity to protect the “system”, what one cannot ignore is our current regulatory regime’s ability to trounce their proclaimed ideological principles when necessary.
Unfortunately, this administration and the current regulators have not shown a focus to act in a similar way to change the rules of the commodities futures markets that would have a significant benefit to ordinary Americans. The CFTC, the commodities markets regulator, has taken the view that more regulations are not necessary because they believe somehow that the same “financial innovation” has not affected them. That is false. Commodity index swaps and expansion of dark commodities markets have severely distorted prices for commodities around the world, and greatly amplified an upward surge in commodities prices. This activity has had significant deleterious affects on American Consumers and citizens around the world. It has led to food riots, energy dislocations, and according to the U.N., starvation.
What Congress and the American Public need to ask our Administration is the following question: Why, when it comes to protecting the financial firms that dominate the capital markets you unilaterally change longstanding rules and policies to the abandonment of your proclaimed “free market” beliefs, yet when it comes to protecting average American consumers and citizens of the world from excessive speculation in the commodities markets you fail to act at all?
19. September 2008 at :
Timeline I was just emailed. Past 5 days.
Lehman Brothers Holdings files for Chapter 11 Bankruptcy protection - the largest bankruptcy in US history
Bank of America buys Merrill Lynch International
American International Group, the worlds largest insurer, is “nationalised” by the Federal Reserve - firm is given 2yr loan facility of up to $85Bln - Interest payable on outstanding is libor + 850bp
Lloyds TSB buys Halifax Bank of Scotland
Rumours of a merger between Wachovia and Morgan Stanley
70% of the value of Goldman Sachs is wiped out
Federal Reserve lends $121 Bln in single week
$169 Bln of outflows from short term money markets
FSA and SEC ban short selling - Stocks in Financials soar. FTSE 100 surges most since that of the stock recovery after the Black Monday crash of 1987. Gold futures in NYC fell the most in the last 28 years as a consequence
Washington Mutual comes under increased pressure to find a buyer. Ratings are cut. Current 5yr CDS stands at 2159
Federal Reserve announces open market purchases of US Agency bonds (first time since April 1980)
Federal Reserve announces loans to banks to purchase commercial paper
Federal Reserve announces $500-800bn fund to buy troubled assets
19. September 2008 at :
Add this to your list of email notices Josh:
“World financial market crashes, Lucifer claims world is his, promises 10,000 years of darkness”
=P
19. September 2008 at :
Let the financial companies hang. I hate both parties. I’m forming my own party.
19. September 2008 at :
It would appear that the deposit-taking banking community is peeved at this move as well.
(Bloomberg) — The American Bankers Association objected to the U.S. Treasury’s plan to insure money-market mutual funds, saying it may compromise the ability of banks to attract and keep deposits.
Money-market mutual funds will be able to pay higher interest rates to customers than banks, without any apparent limit on the size of an individual’s investment, said Edward Yingling, chief executive officer of the Washington-based trade group.
“Today’s action will undermine the role of banks during this current crisis and has the potential to have an extremely negative impact,” Yingling said in the statement. “Our bankers are, understandably, very upset.”
Banks compete with money funds by offering accounts that are already covered by the Federal Deposit Insurance Corp. The extra margin of safety gives banks a competitive advantage with some consumers who want to avoid any chance of losses. Money- market funds hold about $3.35 trillion in assets.
19. September 2008 at :
Eric, what is implicit in the actions of the Treasury and the Fed is that they are only interested in protecting the investment banks, thus, they really don’t care about the ordinary regulated banks. Could that be because of where the Fed Chairman and the Secretary of the Treasury spent their working lives?
Oh yes, to Eric and Paul, it is my opinion, that if we advertise in the newspapers that we are forming a new political party, on the date we set we could fill Yankee Stadium three times over with the people who joined us for the first convention.
19. September 2008 at :
I love it. This is true incompetence at work because the current admin is too stupid to recognize how insuring money markets — MONEY MARKETS! — would piss off the entire banking sphere.
But while we’re speaking of fairness, maybe the bankers should also ask that any interest earned on savings accounts be taxed at the same rate as dividends, which would be much fairer to those who are poorer or more risk averse.
19. September 2008 at :
The Fed and Ben Bernanke will take your wife to dinner tonight if that would otherwise be a hardship for you.
20. September 2008 at :
“The American International Group, which the government essentially took over, jumped 43 percent” Looks like Uncle Sam may have actually made some good investments. Maybe Bernake was just shopping for deals at a moment of panic like other investors. Lehman was probably in such bad shape that it wasn’t worth the trouble. For better or worse the FED has turned itself into a massive investment bank. I guess we just have to hope their gambles with our money pay off.