Greenguy's Board - The BIG Bailout

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- - The BIG Bailout (http://www.greenguysboard.com/board/showthread.php?t=49240)

I sold my house a year ago. I liked the place, and I miss it, but I'm pretty sure I did the right thing. Next summer I'm moving to a cheaper part of the country and if the madness continues I should be able to buy a nicer place there for a bargain.
I'm hoping the madness doesn't continue though, because I get paid in Ameribucks, and it's real good for me when they're worth more than Canuckbucks.

I too have been following this very closely and I believe that we really need to be worried about this credit freeze that is just going to get worse.

I predict that several sponsors will go under in 2009. The sponsors that are operating in the red will not be able to pay you on time, and some will close up shop without paying you the remaining earnings on your account. Some sponsors will get bought out by the big guys if they are lucky and you will keep getting paid.

I think this is the immediate problem for all of us, rather than the consumers not having credit cards to buy memberships. But make no mistake, porn sales will go down because people will be too busy looking for a job.

Honestly, I don't know enough about finance and economics to either support or oppose this bailout plan. But I've learned more about this crisis from reading this thread than I learned from all 9 of Bush's mini-addresses.

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Originally Posted by webpimp (Post 422860)

I predict that several sponsors will go under in 2009. The sponsors that are operating in the red will not be able to pay you on time, and some will close up shop without paying you the remaining earnings on your account. Some sponsors will get bought out by the big guys if they are lucky and you will keep getting paid.

That's the only point I agree with you on, but I you could have predicted that before this crisis.

I predict everything will be fine for the average American. Sure, if you purchased a home within a the last few years, you probably aren't going to want to sell it for several more years since its market value is about to drop, and your 401K's value means you won't be able to retire tomorrow, otherwise, I've seen no reason to believe that we need to start looking for soup kitchens.

Quote:

Originally Posted by Useless Warrior (Post 422869)

I tend to agree BUT...if we continue the policies of deregulation, and if the middle class continues losing wealth while wealth concentrates at the top of the economic ladder, we're fucked. 2/3 of our economy runs on consumer spending, and when their wages cannot keep up with prices, the economy grinds to a halt. Conservatives like to remind us that it is the wealthy that creates jobs...I like to remind them that it is the non-wealthy that buys the shit they sell, and if nobody is buying, there's no economy.

Quote:

Originally Posted by Useless Warrior (Post 422869)

I predict everything will be fine for the average American. Sure, if you purchased a home within a the last few years, you probably aren't going to want to sell it for several more years since its market value is about to drop, and your 401K's value means you won't be able to retire tomorrow, otherwise, I've seen no reason to believe that we need to start looking for soup kitchens.

I hope you are right about that, and deep down I hold that feeling that everything will be ok. But first we have to get through a recession and I hope it's not an ugly one.

Quote:

Originally Posted by LusciousDelight

Absolutely we live in a consumer-based economy, and I agree that if the middle-class goes down then the rest of the economy tanks with it. Globalization might help soften this fall, since there is a market for American products in other parts of the world. But it comes at a cost of losing tons of domestic jobs to cheap labor overseas.

When it works, it's a big circle jerk and everyone gets off. When it doesn't work, it's a downward death spiral.

Consider this:

- (Big money center) banks often deposit money with each other.
- Good banks won't place their money with poorly performing banks for fear of risk.
- As a result, all inter-bank deposit activity suffers (liquidity).
- The amount of money then available to loan out to businesses and consumers (or available as lines of credit) decreases because only with a liability (deposit) or capital on their books can a bank finance an asset (loan).
- less loans means less economic activity means less jobs.
- if your loans can't be funded then watch for your credit card limits and lines of credit to be reduced. In extreme cases, watch for your loans to be called (paid down or repayment) -- even if you are current in your payments!

Also consider:

- Lehman Brothers was the largest commercial paper market issuer in the country.
- If companies can't easily issue commercial paper then they can't finance short-term inventories which means they have to lay people off.
- Yes, someone will take Lehman's place but that doesn't happen over night. (Remember they were put into bankruptcy and not bought out.)

The problem with the bailout:

- It rewards bad companies for doing bad things, however, there are few options available.
- Banks not funding each other can have a big domino effect.
- During the depression 2/3 of the banks in the U.S. went bankrupt. Imagine the carnage if that were to happen today? What would happen in your town if 2/3 of the banks were gone along with everyone's savings?
- Short of the Fed being allowed to fund the good banks and, thereby increase liquidity, I am not sure what else they can do. And that last option would involve setting up some sort of state bank which I am sure would not be popular with the House Republicans. Also, who decides "good"?
- Long and the short of it is that ARMS were a small problem but left too long and they became a big one.
- A component of fraud is also likely as some are saying that ARMS were packaged and sold as AAA mortgages.
- There will be considerable inflation of prices AND devaluation of the U.S. dollar whatever route is picked to solve this mess.

I don't know if that adds anything to the conversation but I thought I would add my 2 cents.

Quote:

Originally Posted by Useless Warrior (Post 422751)

I would LOVE a detailed explanation about how this will truly effect the average American, from the financial gurus, if the bailout doesn't pass. I keep hearing threats of doom and gloom, but without any real clarification of what the doom really is.

At this very moment, I'm quite happy that I don't have any money.

EDIT: THE BILL HAS FAILED. ANARCHY!!!

I'm rolling with the Cato Institute. Let the market work itself out.

One of the commentators on CNBC keeps saying that this will hurt the man on Main St. in the short term if there is no bailout. How? Fewer toys on the shelves during Christmas? More difficult to get a new car loan? Idiots who shouldn't be getting home loans won't? 401K values decrease until the market comes back up (and it will)? Fucking fear mongers.

Screw that. I want Sodom and Gomorrah, and I want it now!

That will work but is likely to be much more harsh in the short-term.

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Originally Posted by Useless Warrior (Post 423041)

Quote:

Originally Posted by artwilliams (Post 423048)

That will work but is likely to be much more harsh in the short-term.

I don't mind. :)

Being that there is nothing even similar to a guarantee if the bailout goes through, I don't see it as a risk worth taking. Every single expert, when told something similar to, "this bailout is just as likely not do anything," completely agrees with the statement. That's scary.

I vote: chaos.

Everything eventualy works itself out, even the fall of The Roman Empire. It's just the misery we go through during the transition....sorta like waiting for the Barbarians to settle down and become Europe. Not something I would anticipate with glee.

But fuck it, bring it on...

I really wanted to add something useful here - but I think I need to shit..........

Shit in - shit out!

Yes. Essentially, the mortgage (which has been changed into a security) is swapped (with a paper contract). If the mortgage is defaulted then the holder of the swap contract would enforce it on the third party holding it.

Quote:

Originally Posted by Cleo (Post 422764)

So does this mean that if these securities that the government was bailing out do default then trillions of dollars in Credit Default Swap contracts will become due?

OK - so I only slept three hours last night and my brian cells are all dead - but this is what I do know:

1. Almost half of the scheduled rebills this month were returned with this message: "Rebill Failed Notice"

2. I've received three emails like this one in the last 7 days: "Hi my name is Ruth and I just wanted to see what ur company is all about. I am currently unemployed and all the bills are due and I'm kinda at my whits-end and need cash quick. So if you could email me back w some details about how u work I'd appreciate it greatly or you can call : 719-555-5555 Thanx for ur time!! PEACE&LOVE"

Oh - and I'm closing the tipi shop as of Friday so my once-stable income of just over $200K has dwindled to a few memberships a month. With any luck, I'll be able to continue to pay the mortgage on this over-priced $152,000.00 home - which was very modest at the time I bought it and feels like a fucking boat anchor right now.

But look on the bright side - the cost of a good blowjob is falling as more and more people are driven to their knees.

The whole swap market can be used as either a bet or a hedge (to reduce risk). Here is an example:

Bank A has one loan and one deposit to simplify things. The loan (asset) matures in 5 years. The deposit (liability) matures in 1 year. Bank A would like to better match the two so it can lock in its spread (income from loan - amount paid to depositor). It goes out to the swap market and finds another Bank (Bank B). Bank B also has one loan and one deposit to simplify things. The loan (asset) matures in 2 years. The deposit (liability) matures in 5 years. The two banks create a contract on paper to swap their deposits. This is an off balance sheet or contingent item with only the net difference ever being paid out. The customers holding the deposits never know and get their money from the Banks where they deposited their money.

As a result of the swap, Bank A has achieved the goal of matching the terms of its assets and liabilities and locked in its spread. The act of doing this, however, creates counterparty risk because the swap party (Bank B) has to follow through on his contract (with Bank A). Swaps can be used for many, many types of transactions (interest rates, foreign exchange, lengths of contracts, etc.). They are not risky unless they are done naked (also called unhedged).

The real fear here is, with trillions of dollars of contingent liabilities, there is no way of knowing what will happen if large sums of them default.

Quote:

Originally Posted by Bill (Post 422375)

People said that?

Bwah-hah-hah-hah-choke-sputter-cough.

But you're right, thats a whole nuther discussion.

---

I thought what Ben Stein said about credit default swaps being the real problem, the HUGE problem hidden behind the mortgage bailout, is relevant.

http://finance.yahoo.com/expert/article/yourlife/109609

"Here s one big part of the answer. First, the alert reader will notice that Ben Stein said many times that the amount of money at risk in the subprime meltdown was just not enough to sink an economy of this size. And I was right...to a point. The amount of subprime that defaulted was at most - after recovery in liquidation - about $250 billion. A huge sum but not enough to torpedo the US economy.

The crisis occurred (to greatly oversimplify) because the financial system allowed entities to place bets on whether or not those mortgages would ever be paid. You didn't have to own a mortgage to make the bets. These bets, called Credit Default Swaps, are complex. But in a nutshell, they allow someone to profit immensely - staggeringly - if large numbers of subprime mortgages are not paid off and go into default.

The profit can be wildly out of proportion to the real amount of defaults, because speculators can push down the price of instruments tied to the subprime mortgages far beyond what the real rates of loss have been. As I said, the profits here can be beyond imagining. (In fact, they can be so large that one might well wonder if the whole subprime fiasco was not set up just to allow speculators to profit wildly on its collapse...)

These Credit Default Swaps have been written (as insurance is written) as private contracts. There is nil government regulation of them. Who writes these policies? Banks. Investment banks. Insurance companies. They now owe the buyers of these Credit Default Swaps on junk mortgage debt trillions of dollars. It is this liability that is the bottomless pit of liability for the financial institutions of America."

There are as much as $60 trillion (with a T) at stake in the totally unregulated CDS market - and those "bets" have to be paid by somebody, and nobody realy knows how many of those bets have become due.

The point is, we are deep in uncharted territory. Our economy stopped being about productivity, and has become "virtual" - based on financial manipulations nobody really understands.

Ben Stein ends with this....

"As I said, the pit of loss is bottomless. Warren Buffett, the smartest man of all time in the world of finance, has called financial derivatives - of which Credit Default Swaps are a prime example - "weapons of financial mass destruction." And so they are. As with the hydrogen bomb, no one thought they would ever be used to end the world. But unless someone figures a way out - and maybe the new RTC is and maybe it isn't - we are in real peril. This should never have happened. Now that it did happen, should the taxpayer pay to make the billionaire speculators whole on their bets? What the heck is to be done?"

I wish someone would bail me out ;)
No one comes to my aid when I'm broke!

Quote:

Originally Posted by Megan Essog (Post 423071)

I wish someone would bail me out ;)
No one comes to my aid when I'm broke!

Someone probably would if you being broke caused millions of others to be broke :)

Something has to be done to release credit again. I have spoken to a few friends that own businesses and they are hurting more than any of us. One, a car dealer, can't seem to get anyone a loan. Another, the owner of a large office furniture manufacturer, could not get this weeks payroll and...their building loan went from 1.3% to over 3 percent. The increase of the loan is about $8k/week.

Quote:

Originally Posted by Jim (Post 423081)

OK, so let's start a tax payer run bank that has $700 Billion in loans and it gets distributed evenly to communities based on census data.

Oh yeah, the people that get to run it are the people in the local communities. Some will be fucking crooks and some won't but none of them will have enough money for Wall Street to make them crooked.

The money will go to the largest financial firms in the world. Watch them all swarm to DC looking for a handout: http://www.nytimes.com/2008/09/22/bu...er&oref=slogin

They'll be like vultures now that money has been approved.

They'll make their usual large salaries and continue to fuck up in ways that the entire $700 billion might aswell of been flushed down the shitter.