News Can the market alone fix the economy?

[mgb_phys]

I'm glad we can joke about it...but really, how CAN these companies and their laid-off employees be helped.

I wasn't joking - this is standard procedure.
The army here is getting new trucks, they are completely different to the trucks they already have and will need mechanics retraining, separate stocks of spare parts and different load pallets. But they are built in a factory here in a swing constituency.

The UK and Germany are building a hugely expensive air superiority fighter to counter East German MIGs - they are committed to buying more than they have pilots for and most will be mothballed as soon as they are delivered. The 'East' German MIGs will be scrapped to make room for them. But the workers jobs will be secure.

The US built an international space station because with the end of the cold war Boeing was looking at risk from competition in the airline business.

It's basically just paying people to dig holes and then others to fill them in - but as long as it's painted green it's not socialism.

 

[Astronuc]

As long as the US government is spending money on corporations, I'd like to see the automobile companies move away from large vehicles into more fuel efficient cars, including hybrids. Let the government finance the retooling.

I'd like to see small companies like e-solar and byogy, which are already demonstrating their technologies, get some investment. But let the investment firms do that, with the government standing by. I'd like to see the several hundred $billion that goes to imported oil go to domestic energy sources - particular solar and wind, and even nuclear.

I'd like to see forest, agricultural (food), and marine stewardship programs in which people could take a piece of land, or marine areas, and develop/maintain them as caretakers.

 

[WhoWee]

As long as the US government is spending money on corporations, I'd like to see the automobile companies move away from large vehicles into more fuel efficient cars, including hybrids. Let the government finance the retooling.

I'd like to see small companies like e-solar and byogy, which are already demonstrating their technologies, get some investment. But let the investment firms do that, with the government standing by. I'd like to see the several hundred $billion that goes to imported oil go to domestic energy sources - particular solar and wind, and even nuclear.

I'd like to see forest, agricultural (food), and marine stewardship programs in which people could take a piece of land, or marine areas, and develop/maintain them as caretakers.

All good ideas...I just don't think nuclear expansion is possible...unless we build on military bases.

Not to stray too far from the thread, but...is anyone aware that Delphi (GM/Packard electrical division in Chapter 11) sent their union retirees notice that health benefits will be terminated in March/April? Coincidentally, the stimulus package will continue health benefits at a yet to be determined rate/time.

http://finance.yahoo.com/banking-budgeting/article/106558/Next-Steps-on-Stimulus-the-Key-Issues

Is it possible some of the Big 3 retiree costs are being shifted to the stimulus plan? I guess the transparency IS there...if you look close enough.

 

[Astronuc]

All good ideas...I just don't think nuclear expansion is possible...unless we build on military bases.

A number of utilities have applications before the NRC for new units. I believe all proposed units are cited at existing sites which have room for expansion. Many sites were designed for 2, 3 or 4 units. The French utility EdF has numerous sites with 4 units.

Not to stray too far from the thread, but...is anyone aware that Delphi (GM/Packard electrical division in Chapter 11) sent their union retirees notice that health benefits will be terminated in March/April? Coincidentally, the stimulus package will continue health benefits at a yet to be determined rate/time.

http://finance.yahoo.com/banking-budgeting/article/106558/Next-Steps-on-Stimulus-the-Key-Issues

Is it possible some of the Big 3 retiree costs are being shifted to the stimulus plan? I guess the transparency IS there...if you look close enough.

Health care and retirement/pensions are among the biggest labor related costs, in addition to direct compensation. Certainly any company in Chapter 11 is going to give those up to reduce cost, and many companies have done so, which is one of the reason the PBGC was established. http://www.pbgc.gov/

What concerns me is that corporations shift the burden of employee benefits onto the government, which is really us.

Ultimately the question becomes - who's going to pay for pensions/retirements and healthcare. Or do we simply accept some people will not get access to healthcare and will have no significant source of income in retirement. Some people may not be able to retire. Alternatively, should the state and federal governments set up pauper villages, which the poor can live in a subsistence type of living.

 

[WhoWee]

A number of utilities have applications before the NRC for new units. I believe all proposed units are cited at existing sites which have room for expansion. Many sites were designed for 2, 3 or 4 units. The French utility EdF has numerous sites with 4 units.

Health care and retirement/pensions are among the biggest labor related costs, in addition to direct compensation. Certainly any company in Chapter 11 is going to give those up to reduce cost, and many companies have done so, which is one of the reason the PBGC was established. http://www.pbgc.gov/

What concerns me is that corporations shift the burden of employee benefits onto the government, which is really us.

Ultimately the question becomes - who's going to pay for pensions/retirements and healthcare. Or do we simply accept some people will not get access to healthcare and will have no significant source of income in retirement. Some people may not be able to retire. Alternatively, should the state and federal governments set up pauper villages, which the poor can live in a subsistence type of living.

I certainly hope all of the approved nuclear facilities are built. I just don't think any new installations will ever be approved...again, unless it's done on a military base.

As for pauper villages, there is quite a lot of money allocated in the stimulus package to upgrade public housing. However, as we all know, public housing projects are rarely successful for the people who live there.

I think the better alternative is to go back into the cities and recycle abandoned properties. In N.E. OH, there are hundreds of building lots available for the cost of processing the paperwork. If AFFORDABLE GREEN HOUSES are built ($50,000 to $75,000 for instance), then low income people could reclaim inner city neighborhoods and own a home...without causing another housing bubble. If land is basically free ($1,000) the speculators can't run up the price. The key is locking in the manufacturing/production cost of the homes and limiting the initial options until the original loans are paid back.

As for do-ability, I have a friend in Cleveland that sells 1,000 square foot houses with an R-50 insulation factor on the roofs and R-30 on the walls in this price range. He's also built 10,000 square foot McMansions that are so well insulated the highest utility bills they've ever had (in Cleveland, OH) are about $150 per month winter or summer. A 1,000 square foot design can be heated/cooled very efficiently with geothermal (68 degrees year round with a water tank buried at 15', a circulating pump, heat exchanger and a fan).

As for the GM people, I've spoken directly with a few of the Delphi union retirees in Warren, Ohio, that's how I found out they are losing their health care in the Chapter 11. I don't think they qualify as poor though. The ones I've spoken with average $3,400 per month in pension benefits, plus roughly $1,500 in social security and about $850 per month in company paid health care (the few I spoke with pay $178 for 2 persons).

 

[Gokul43201]

So then the Economic Stimulus Package isn't an economic stimulus package, it is just an excuse to fund the the things that Obama wanted funded?? That sounds like bait and switch to me.

Oh jeez! Isn't it just possible that there are infrastructure and energy and education projects that could also stimulate the economy?

This is getting a little silly.

If the bill includes spending meant to stimulate, you call it 'pork', and if it includes spending on projects that have been in need of investment, you call that 'bait and switch'!

 

[Gokul43201]

You have got to be kidding! We've been fighting a $trillion war, remember?

No one says it better than Jon:

http://www.thedailyshow.com/video/index.jhtml?videoId=217693&title=clusterf#@k-to-the-poor-house

 

[Skyhunter]

WhoWee,

I think the better alternative is to go back into the cities and recycle abandoned properties.

Bingo. But don't miss the forest while focusing on the trees, or the city for the buildings. Rebuilding our cities to be not only more energy efficient, but more livable would be a good long term investment that could also provide jobs now. Cities need to be livable. That means that most goods and services should be within walking distance of anywhere. Public commons, IE the streets should be made more available to people and less available to automobiles. In a properly designed city there is absolutely no excuse for dragging a 4 ton SUV with you wherever you go. Invest the infrastructure money to improve walkablity and you restore livability.

It seems the Republicans are clueless. I got this in an email from bikeleague.org

Senator DeMint (R-SC) has offered an amendment to SPECIFICALLY prohibit funding for bicycles, walking and offroad vehicles. The amendment ONLY goes after bicycle, walking, and offroad vehicle funding.

 

[WhoWee]

WhoWee,


Bingo. But don't miss the forest while focusing on the trees, or the city for the buildings. Rebuilding our cities to be not only more energy efficient, but more livable would be a good long term investment that could also provide jobs now. Cities need to be livable. That means that most goods and services should be within walking distance of anywhere. Public commons, IE the streets should be made more available to people and less available to automobiles. In a properly designed city there is absolutely no excuse for dragging a 4 ton SUV with you wherever you go. Invest the infrastructure money to improve walkablity and you restore livability.

It seems the Republicans are clueless. I got this in an email from bikeleague.org

I think you've nailed one of the biggest problems with public housing projects...they typically don't provide for a high quality of life...and I'm not talking about crime.

A city does need to be livable. Housing needs to be in close proximity to TRANSPORTATION to: shopping/groceries, medical treatment, schools, recreation and of course have access to employment centers.

The city I cited as having hundreds of inner city lots available for $1,000 each, only has 4 grocery stores in or on the border of the city limits. There are a few dozen c-stores, but the selection is limited and prices inflated. Bus routes no longer service the housing projects and don't run to the shopping centers. The older neighborhoods are primarily populated with the original home owners, most 70 years or older. There is a lot of crime, but the city does it's best to tear down abandoned houses used for a variety of illegal uses.

Most of the vacant lots are within a mile of the downtown business district. These neighborhoods were the choice real estate in the 1920's through 40's...some were burned in the riots in the 60's and abandoned in the 80's and 90's. The city took action in the late 90's and 2000 (after Clinton's crime Bill was enacted).

You are correct, until the neighborhoods are more livable, a re-population will not be achieved.

 

[WhoWee]

Here is something else to think about.

I just did a data base look up of businesses with 1 to 99 employees in the Rustbelt/Great Lakes States of Ohio, Pennsylvania, New York, Illinois, Indiana, Iowa, Michigan, Wisconsin, New Jersey and Minnesota. The result is over 3,300,000 total employers. The source was GoLeads, a paid data base service. I didn't figure out the total employment of these businesses...let's assume an average of 10 employees per business...that's approximately 33 million jobs total (some people work more than 1 part time job).

These companies could be defined primarily as low cap, closely held/owner operated and private. This is the heart of American business. Many of the Elkhart businesses will fit into this category. These companies don't run to Wall Street for funding...they go to the local bank. Their credit has been frozen for months. The ripple effect of Big 3 problems also arguably have a direct impact on many of these businesses.

After listening to the Obama speech tonight and all of the conservative counter positions, it's obvious that nobody has any direct incentives planned for this segment of business. I suppose it could be argued that a few contractors will be able to bid on stimulus projects or the factories will have a chance to supply something to companies that win projects, but that is a narrow opportunity at best.

Everyone likes to focus on big labor and big corporations during political/philosophical discussions, but this segment is also too important to fail. This is the segment of private industry that actually hires the working poor. The owners of businesses in this segment take personal risk. Many owners have their homes pledged at the bank, and can earn a good living when the economy is strong. When the economy is weak, many just tread water and maintain as much employment as they can...loyalty often has meaning in the smaller shops.

If this segment ever totally fails...we'll need soup lines. Someone needs a specific plan to address the problems of this business segment.

 

[mheslep]

Oh jeez! Isn't it just possible that there are infrastructure and energy and education projects that could also stimulate the economy?

Most of them probably not quickly enough, no.

 

[Gokul43201]

Most of them probably not quickly enough, no.

It was a theoretical question. Russ did not say anything about specific provisions in the bill, only about the overall philosophy.

Besides, how quick is quick enough? And do you seriously think there is a single Republican Congressperson that will support a big hike in the gas tax? And is not a wee bit risky to gamble primarily on a payroll tax cut? I like many of Mankiw's ideas, but recently I've found he's misrepresented some papers in his blog, which has turned me off somewhat.

 

[Art]

Here is something else to think about.

I just did a data base look up of businesses with 1 to 99 employees in the Rustbelt/Great Lakes States of Ohio, Pennsylvania, New York, Illinois, Indiana, Iowa, Michigan, Wisconsin, New Jersey and Minnesota. The result is over 3,300,000 total employers. The source was GoLeads, a paid data base service. I didn't figure out the total employment of these businesses...let's assume an average of 10 employees per business...that's approximately 33 million jobs total (some people work more than 1 part time job).

These companies could be defined primarily as low cap, closely held/owner operated and private. This is the heart of American business. Many of the Elkhart businesses will fit into this category. These companies don't run to Wall Street for funding...they go to the local bank. Their credit has been frozen for months. The ripple effect of Big 3 problems also arguably have a direct impact on many of these businesses.

After listening to the Obama speech tonight and all of the conservative counter positions, it's obvious that nobody has any direct incentives planned for this segment of business. I suppose it could be argued that a few contractors will be able to bid on stimulus projects or the factories will have a chance to supply something to companies that win projects, but that is a narrow opportunity at best.

Everyone likes to focus on big labor and big corporations during political/philosophical discussions, but this segment is also too important to fail. This is the segment of private industry that actually hires the working poor. The owners of businesses in this segment take personal risk. Many owners have their homes pledged at the bank, and can earn a good living when the economy is strong. When the economy is weak, many just tread water and maintain as much employment as they can...loyalty often has meaning in the smaller shops.

If this segment ever totally fails...we'll need soup lines. Someone needs a specific plan to address the problems of this business segment.

As you correctly point out these small companies main problem is the credit crunch but I thought there was a specific plan to help ease this? Obama said at his press conference that freeing up credit was one of his priorities on a par with the stimulus package and his treasury secretary later released the details of how the financial system was going to be fixed. What was in his speech that suggested to you he was concentrating on helping big business only??

 

[mheslep]

Besides, how quick is quick enough?

Within the next 2-6 months - as people are losing jobs now, and no longer than 18 months.

And do you seriously think there is a single Republican Congressperson that will support a big hike in the gas tax?

Don't know. Apparently 2-3 Senators are all one needs. If it was pitched as paired with the payroll tax cut as stated, and with the national security aspect of reducing foreign oil dependence, maybe. Obviously some economists go for it, and some conservative columnists.

And is not a wee bit risky to gamble primarily on a payroll tax cut?

Yes the a payroll cut has risks. My lay opinion is it is probably less risky than the current spending bill. Current bill risks (ala Summers Timely, Targeted, and Temporary requirements).
1. Works eventually, but not fast enough ('Timely'), and if it comes on slow when the economy wants to recover then
2. It brings on the standard objection to fiscal stimulus: crowding out,
3. Doesn't work, period. Perhaps: New projects simply draw employed people and capital used elsewhere, not the unemployed. ('Targeted')
4. A big, really big deficit. CBO says many of the projects will take years, and even when they're ~done Congress is notorious for not having the will to kill them. ('Temporary')
5. Moral hazard, especially for the states who'll lose interest in rainy day funds (many of them do now)

I like many of Mankiw's ideas, but recently I've found he's misrepresented some papers in his blog, which has turned me off somewhat.

His 3x tax cut multiplier conclusion from the Romer paper? Yeah saw that. Don't know.

 

[WhoWee]

As you correctly point out these small companies main problem is the credit crunch but I thought there was a specific plan to help ease this? Obama said at his press conference that freeing up credit was one of his priorities on a par with the stimulus package and his treasury secretary later released the details of how the financial system was going to be fixed. What was in his speech that suggested to you he was concentrating on helping big business only??

Small and micro businesses don't seem to be anyone's priority. TARP 1 didn't have many rules attached. The main priority seems to be the clean up of bank balance sheets...dealing with toxic assets. The Treasury Secretary didn't provide many details earlier today either.

 

[Gokul43201]

His 3x tax cut multiplier conclusion from the Romer paper? Yeah saw that. Don't know.

Yup. Guess we read some of the same blogs.

 

[mheslep]

And do you seriously think there is a single Republican Congressperson that will support a big hike in the gas tax?

Mankiw replies, or anticipates:
http://gregmankiw.blogspot.com/2009/02/case-for-being-impractical.html

 

[Astronuc]

Fix the tax system. Flat seems OK, but then what will be taxed and at what rate?

Meanwhile - Survey: Some senators admit tax errors - others don't respond
http://news.yahoo.com/s/politico/20090211/pl_politico/18512


Meanwhile - this ain't the way.

Geithner Bombs Coming-Out Party
By Daniel Politi, Wednesday, Feb. 11, 2009, at 6:51 AM ET

The much-anticipated announcement turned out to be a big letdown. The New York Times highlights that the administration's plan to rescue the nation's financial system that was unveiled by Treasury Secretary Timothy Geithner "is far bigger than anyone predicted and envisions a far greater government role in markets and banks than at any time since the 1930s." The administration said it's committed to spending as much as $2.5 trillion in the effort. But Wall Street quickly gave the plan "a resounding thumbs down," as USA Today puts it, because it was short on some very key details that made clear the plan is very much a work in progress. The Wall Street Journal points out that the markets experienced the worst sell-off since President Obama moved into the White House as stocks plunged nearly 5 percent sending the market "to its lowest level since Nov. 20."

Investors weren't alone in their unhappiness with the plan. Lawmakers were also quick to criticize Geithner for failing to provide more details on how the administration plans to deal with the ongoing mess. "What they did is over-promise and under-deliver," the head of a private investment firm tells the Washington Post. "They said there was going to be a plan, so everybody expected a plan. And there was nothing." The Los Angeles Times says that the lack of details in the announcement "reflects a double bind for the Obama administration." It's become clear that the problems in the financial system are bigger than expected and could require more money to fix, but at the same time Congress has grown even angrier at Wall Street, which makes it highly unlikely that lawmakers would approve more funding for the effort.

The administration and congress needs to stop, or at least slow down, THINK about what they are doing, and stop the knee-jerk reactions. Congress is supposed to be a deliberative body. It seems Congress have forgotten how to do that.

 

[WhoWee]

Evey time I hear the words "we don't have time to wait/think"...a train wreck follows.

 

[OmCheeto]

Today I decided that I should brush up on my economics, such that I might be able to add my 2 cents to the mix, so I got my old college text off the shelf for the first time in 23 years. It would appear that although the details have changed, the basics of economics are still the same:

The Economy Today
2nd Edition
© 1983
Bradley R. Schiller

Preface
... According to public opinion polls, relatively few Americans believe that either the president or Congress is willing or able to control the economy. Even fewer people believe that economists can control the economy. A seemingly endless string of bad forecasts together with highly vocal squabbles about how the economy really works have undermined the credibilility of the economics profession. Indeed, economic forecasters now have no more credibility than fortune tellers (see the public-opinion poll on p. 329).

Page 329
How They Rate
A survey by R.H. Bruskin Associates, New Brunswick, N.J., finds adults give high grades for accuracy in forecasts to sportswriters, sports announcers and weathermen. Who get(sic) low marks? Economists, stockbrokers and people who prepare horroscopes.

Reprinted by permission of the Wall Street Journal. © Dow Jones & Company, Inc. (1975) All Rights Reserved.

But I suppose everyone already knew that.

I jumped to the section on Macroeconomics and found the following summation interesting.

Page 102
As a practical matter, every recent administration has used a variety of policy tools. This eclectic approach to policy reflects several considerations. First of all, it is apparent that economists themselves are far from agreeing on a single diagnosis of our economic ills. Second, no single policy approach has ever been shown to be fully effective. Third, all three approaches-- the Keynesian, the Monetarist, and the Supply-Side -- offer useful insights, even if none of them is totally convincing.

Well that's all fine and dandy. So no one knows what to do. What now?

How about some old catch phrases I still remember, like "the velocity of money".
Ah ha! Page 271. Schiller and a farmer are the only people left on the planet. Perhaps this is why I always reduce economic concepts to cow analogies.

There's only one $20 bill on the planet, and Schiller has it. But he only sells economics books. The farmer sells food. So Schiller spends the $20 on food. Now the farmer has all the money and won't sell any more food. So the farmer has to buy one of Schillers books.
repeat.

If either one decides to just sit on the money, then Schiller will starve, and the farmer can't sell any produce.

So I think this might be why fuzzyfelts hubby said a few months back that people should start saving money at around 0.5%. I thought that was a bit low, but it might be the rate at which people were saving before the economic downturn. I would imagine that people hoarding money is probably the biggest immediate problem with the economy.

That might make an interesting poll topic. Have your saving and spending habits changed over the last 12 months, and how?

But I think that might be one good thing about this new stimulus package. If people aren't going to spend money, the banks aren't spending money, then who does that leave? The government.

 

[mgb_phys]

I would imagine that people hoarding money is probably the biggest immediate problem with the economy.

No the problem is other people hoarding money - it's one of those classic situations where the best thing for me is if I save and everybody else spends recklessly.
Unfortunately everybody knows this!

 

[turbo]

No the problem is other people hoarding money - it's one of those classic situations where the best thing for me is if I save and everybody else spends recklessly.
Unfortunately everybody knows this!

I believe this is known as the Nash equilibrium, in which "every man for himself" results in less-than optimal results for the majority. The equilibrium can be broken through coercion, persuasion, etc - anything to force cooperative behavior on the part of the individuals. Ain't happening, in this case, I'm afraid.

 

[WhoWee]

If you want to focus on economic principles, start with Supply and Demand.

We have ample Supply...lot's of inventory sitting around everywhere, lot's of services available and people willing to work.

On the other hand, we have ample Demand. People want to remodel their homes, buy new fuel efficient cars, eat out and take vacations.

The problem has been and is a shortage of credit to match Supply with Demand. Many consumers have exhausted their credit limits, credit cards, mortqage, cars/personal loans/payroll advances/tax advances, etc.

For consumers that have cash, they seem to be waiting...for a positive message about the economy or perhaps an indicator thqat owners of the Supply (inventory) are willing to sell at a loss.

Until credit flows...the crisis will continue...too much credit will dig the hole deeper and prolong the problem.

The long term answer isn't government subsidy progrms...makes for a nice bridge...but doesn't solve the problem. Unless the government just wants to assume ALL consumer debt and the speculative land portion of the housing bubble and let us all start over?

 

[WhoWee]

On a side note, a $500 payroll "tax cut" will put about $1.37 per day in everyone's pocket...WhoWee!

 

[WhoWee]

On a side note, a $500 payroll "tax cut" will put about $1.37 per day in everyone's pocket...WhoWee!

OPPS...my mistake

http://news.yahoo.com/s/ap/20090211/ap_on_go_co/congress_stimulus

$400/365 = $1.09 per day...$2.09 per day for my wife and I combined...again, WhoWee!

 

[Astronuc]

OPPS...my mistake

http://news.yahoo.com/s/ap/20090211/ap_on_go_co/congress_stimulus

$400/365 = $1.09 per day...$2.09 per day for my wife and I combined...again, WhoWee!

Just don't spend it all in one place.

Stimulus pared to $789 billion in race for deal
http://news.yahoo.com/s/ap/20090211/ap_on_go_co/congress_stimulus

. . . .
As if to underscore the urgency, President Barack Obama said executives at Caterpillar Corp. told him they would rescind some of the 22,000 layoffs they recently announced once the stimulus is signed into law.
. . . .
The principal components of the emerging measure included money to help victims of the recession, as much as $44 billion in aid for states, which face cuts of their own as a result of lower tax receipts, and the president's proposed tax cut for lower and middle-income wage earners.

Officials said there was agreement to accept the White House's call to provide the tax break to workers who pay Social Security taxes but do not earn enough to owe income taxes, although it was possible the amount would be scaled back somewhat. The president sought $500 for individuals and $1,000 for couples.

Working to accommodate the new, lower overall limit of the bill, negotiators effectively wiped out a Senate-passed provision for a new $15,000 tax credit to defray the cost of buying a home, these officials said. The agreement would allow taxpayers to deduct the sales tax paid on new car purchases, but not the interest on loans for the same vehicles.
. . . .

Do we really need a second bank bailout? Why aren't the banks and investment firms 'investing' in the economy? Or did these guys really screw up the last 8 years, and bet the farm and lost everything? If so, why did the government bail them out?

 

[Gokul43201]

If so, why did the government bail them out?

Because of the alternative? What would have happened to the average person/business if all the big banks failed?

 

[ThomasT]

Do we really need a second bank bailout?

Did we really need the first one?

Why aren't the banks and investment firms 'investing' in the economy?

I'm assuming you mean the 'real' economy. My guess is it's because there's a lot more money to be made in stock market, etc. speculations for a lot less work.

Or did these guys really screw up the last 8 years, and bet the farm and lost everything?

This seems to be the case. It's not clear how much the lost cash flow from the increased inability of 'average' homeowners to make their mortgage payments has to do with all of this.

If so, why did the government bail them out?

Because the government is largely run by people whose interests are closely aligned with the interests of people and firms who lost a lot via speculative investing? I don't know. Just guessing.

Because of the alternative? What would have happened to the average person/business if all the big banks failed?

What do you think would have happened?

Suppose the government had opted to allow big money concerns that made bad gambles to fail, and instead funneled money to the average person/business either directly or through newly created banks or banks that didn't 'lose the farm'?

We have a nice tax on 'average' people vis state-run gambling enterprises. Why not treat stock market and speculative investments as what they are -- gambling -- and put a tax on any and all such transactions? This would generate a nice fund for badly needed infrastructure projects, increased payments to people who lose their jobs through no fault of their own, payments for medical treatment for those who couldn't otherwise afford it, etc.

I gamble once in a while, but I keep in mind a bit of wisdom imparted to me by my grandpa -- if you can't afford to lose the money, then don't bet the money on something that you have little or no control over. I don't go to the casino expecting to be reimbursed by anyone if I lose.

 

[Astronuc]

I was musing on why the bailout was necessary.

It just seems a little bassackwards to give $billions or $trillions to the guys who just lost $trillions. It's like giving an brand new car to a guy who just crashed his car because he was driving recklessly, or giving a gambler a new stake, even when he made reckless and totally stupid bets.

Well Wall Street took their high performance car - and crashed it. And now they want another one from Uncle Sam - but they promise to be more careful.


But shhhh! - What the banks may be hiding
http://marketplace.publicradio.org/display/web/2009/02/11/pm_transparency/

KAI RYSSDAL: One of the big criticisms of the way the Bush administration handled the bank bailout was that the public didn't really know what was going on. We didn't know what the plan was. Especially as it kept changing. And we didn't know how bad the banks' balance sheets really were.

That same criticism is now being leveled at the Obama administration, even though -- or maybe because -- yesterday Treasury Secretary Geithner announced his plan to get banks to be more open. There is a certain sausage factory element that shouldn't be discounted. That maybe we don't want to know what's inside.

. . . .

BILL SINGER: Well, the ugly detail is most likely that for every dollar that the public thinks is on the books of the banks and the brokerage firms, it may be 10 cents, it may be 20 cents.

Milne-Tyte: Singer says financial institutions and the Treasury are buying time by not revealing too much. But he says they may be underestimating the public's stomach for bad news…

SINGER: Anybody that's ever been a patient wants their doctor to give it to them straight. Let me deal with the stress. Let me deal with the problem.

. . . .

So apparently, the banks could be holding a lot less, and Washington, which was supposed to keep hands off (less or no regulation) because Wall Street ostensibly knew what they were doing and were acting in the most responsible way, is now propping up Wall Street, who went on a binge of irresponsible lending, or gambling, and blew it.

No quick fix for housing market
http://marketplace.publicradio.org/display/web/2009/02/11/pm_housing/

DAN GRECH: The housing bubble came with its own lingo: There were terms for risky borrowers, like "subprime" and "Alt A."

And then there were the risky loans: neg am, interest-only, option ARMs.

Mahmoud El-Gamal is economics chair at Rice University.

Mahmoud El-Gamal: What the exotic mortgages did was to put a lot more risk on the banks' balance sheets without those banks realizing how much risk they were taking.!

Those exotic mortgages were then chopped up and sold to investors who, just like banks, had no clue about the risks.! The mortgages mature at different rates, or are pegged to different indices, or are split between multiple lenders.

No one knows what these mortgages with funny names are actually worth.!

Real estate expert Ilyce Glink.

Ilyce Glink: There's no one central database where you can click on 10,000 loans at a time, modify all of the terms, click okay, and, Voila! It's all modified.

The fact that no one can sit down and evaluate the worth of these mortgages is simply mind-boggling. That is the job or function of the people who financed those mortgages. Seems like straightforward criminal activity here - as in fraud, racketeering and corruption.


Robert Reich - Where's transparency in stability plan?
http://marketplace.publicradio.org/display/web/2009/02/11/pm_transparency_comm/


The good news - U.S. trade deficit drops to 6-year low
http://marketplace.publicradio.org/display/web/2009/02/11/pm_trade/

STEVE HENN: So the trade deficit is falling. That's good, right? Well, maybe not.

Gary Hufbauer: There is nothing like a good, strong recession to bring down the trade deficit.

Gary Hufbauer is an economist at the Peterson Institute. He says our trade deficit is declining because so many Americans are broke.

HUFBAUER: I'd say it's a very small silver lining given the pain we are all going through to get this number down.

Henn: Now, if the rest of the world were feeling flush and snapping up American exports, That would be good news but. . . .

Greg Mastel: The bad news is the rest of the world is going through a recession. Which means that our exports are finding a tough market overseas.

Greg Mastel is the author of "The Rise of the Chinese Economy." He says U.S. exports fell 6 percent in December, hurting American manufacturers.

Henn: But if you think that's bad, consider China. According to customs data released this week, Chinese exports fell more than 17 percent last month.

. . . .

The US trade deficit was $677 billion in 2008, which was down from over $700 billion in previous years. The problem with the deficit is the US spends money on imports, then turns around and borrows more money, rather than selling more goods and services.

A lot of money came back into the US through sovereign investments funds. But now it appears they've been jerked around by Wall Street who sold them bogus investments. So lots of people have lost money, and a handful of people got rich.

 

[Gokul43201]

It's like giving an brand new car to a guy who just crashed his car because he was driving recklessly...

What if he's the only person around that knows how to drive a car, and the rest of the country is fundamentally dependent on having a car being driven around?

Like it or not, there can be rare circumstances when you have but little choice than to give the guy a new car.

 

[mheslep]

I share some dismay about the bank bailout, but the implication that the taxpayer suffers mightily for it is baffling. The banks screwed up (led there by the government), and now they are paying the government (taxpayers) handsomely for the bailout. My harrumphing is saved for the pending 'stimulus' bill, and the government in general.

Compare:
TARP (financial institutions bailout): government borrows money at ~http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml" ). If any of the banks should do really well in the future and the stock price of these financial institutions soars, the government receives a windfall from the warrants. If any of these banks gets in real Trouble, the Fed/Treasury calls in one of the Bigger banks, puts a gun on the table (AKA a supervising regulator) and explains how it is in the best interest of all Bigger bank acquires Troubled bank (e.g. Merrill Lynch), BTW be sure and leave your 5% payment on the way out.

Fiscal Stimulus/Spending plan: government borrows money at 2%, shoots it out of a cannon, gets what? Patronage for the government surely. Harrumph.

 

[russ_watters]

What if he's the only person around that knows how to drive a car, and the rest of the country is fundamentally dependent on having a car being driven around?

Like it or not, there can be rare circumstances when you have but little choice than to give the guy a new car.

Agreed, but I think the analogy is a little bit of a stretch. The way I understand the initial balout is that we bought a lot of the toxic investments for a fraction of their book value, just to help the banks by getting them off the balance sheet. We also gave them loans, not just handouts. It's more like giving them a loaner Yugo to replace the Ferarri they just totaled and it is still up to them to get back to the position where they could get themselves that Ferarri again.

We also can't forget the cop (the government) who was sleeping in his cruiser while the drunk drove by him at 100 mph...

 

[WhoWee]

Maybe now everyone will begin to understand something basic and important...we can change Presidents and administrations...a few hundred people...but the problems don't go away.

The CHANGE we need is in the leadership of Congress...Frank and Dodd, Rangel, Pelosi and Reid to name a few.

If you want to make analogies of people who wreck cars and get new ones...these guys crash jumbo jets and get new ones.

On the subject of jets, why is it wrong for the largest banks in the country to have leased jets, but Speaker Pelosi's jet is necessary?

REMEMBER, there is NO PORK in the stimulus bill and (the above mentioned Congresspersons) oversight/regulation/lack of understanding of Wall Street, the banks and the Big 3 have absolutely NO participation/responsibility in the problem.

Also remember Schumer "chattering class that so much focuses on those little, tiny, yes, porky amendments. The American people really don't care,"
http://www.newsday.com/news/local/newyork/ny-nyschu116031431feb11,0,1008429.story

I think we DO care.

 

[Astronuc]

Agreed, but I think the analogy is a little bit of a stretch. The way I understand the initial balout is that we bought a lot of the toxic investments for a fraction of their book value, just to help the banks by getting them off the balance sheet. We also gave them loans, not just handouts. It's more like giving them a loaner Yugo to replace the Ferarri they just totaled and it is still up to them to get back to the position where they could get themselves that Ferarri again.

AFAIK, those toxic assets are still held by the banks, who took big losses (write downs). The US government was initially supposed to buy those assets, but instead injected capital in the banks and financial institutions by buying stock.

We also can't forget the cop (the government) who was sleeping in his cruiser while the drunk drove by him at 100 mph...

Pretty much.

 

[Gokul43201]

Fiscal Stimulus/Spending plan: government borrows money at 2%, shoots it out of a cannon, gets what? Patronage for the government surely. Harrumph.

Here's how I see it:

40% of the money (~$300B) goes towards tax cuts that generate an immediate flux (with some modest multiplier) of money into a stagflating economy. And if we're lucky, the effect on GDP may help pay for about 10% of that $300B investment via increments in tax revenues. About 20% of the money goes into funding projects that generate a high multiplier as well as produce long term improvements in efficiency (infrastructure/energy/education funding), while 20% goes into projects with the highest GDP multiplier but little or no long term benefit (unemployment/welfare funding). And a final 20% goes into T, D & H's favorite pet project, with some possible long term benefit and not likely any short term stimulating effect.

I couldn't care less about that last 20%, but on the whole, I'd much rather Congress diversify the risk by shooting out of several cannons, rather than just use the one cannon and find out too late that it's clogged.

 

[Gokul43201]

The way I understand the initial balout is that we bought a lot of the toxic investments for a fraction of their book value, just to help the banks by getting them off the balance sheet.

This was Paulson's initial plan, but it was found to be way cheaper (following the British model) to inject capital into the banks rather than buy out the toxic assets (> $3-4 Trillion), so the plan was changed.

Skip to 2:00 for the relevant part:

_NMu1mFao3w[/youtube] (thanks to Esoteric for the link)

 

[OmCheeto]

(thanks to Esoteric for the link)

Yes. Thank you Esoteric.

Why didn't someone tell me this whole thing was a "http://en.wikipedia.org/wiki/Bank_run" " problem.

Humans... Bah!

Ooops. I meant to say baaaaaaah, baaaaaaaaah.

No better than sheep sometimes.

 

[Skyhunter]

I don't know how to fix it. But I like FDR's advice. "When you get to the end of the rope, tie a knot and hold on!"

 

[OmCheeto]

I don't know how to fix it. But I like FDR's advice. "When you get to the end of the rope, tie a knot and hold on!"

No! Invest in toilet paper!

How soon we forget, upon hearing a rumour, our capacity to panic...

http://thelongestlistofthelongeststuffatthelongestdomainnameatlonglast.com/trivia74.html"​

If anyone can remember, the early 70’s everything was in short supply especially oil. When Americans heard the word shortage, they would jump out and purchase these items since they knew what it was like standing in line to get gasoline for their cars.

Well, whether you believe it or not, there was a toilet paper shortage in the United States in 1973. The entire episode started with a Johnny Carson Tonight Show monologue. On December 19, 1973, the writers for the show had heard earlier the federal government was falling behind in getting bids to supply toilet paper and that it might be possible that in a few months the United States could face a shortage of toilet tissue. They took the words of this Wisconsin congressional representative, Harold Froehlich and decided to add a joke for Carson for the evening show.

Carson did in fact use the joke in a monologue stating, "You know what's disappearing from the supermarket shelves? Toilet paper. There's an acute shortage of toilet paper in the United States."

Much to the amazement of not only the show but of toilet paper factories across America, 20 million people that watched the Carson show that evening ran out in the morning and bought as much toilet paper as they could carry. By noon on December 20, 1973, practically every store in America was out of stock. Many of the stores tried to ration this valuable paper but they could not keep up with the demand no matter what they did.

A few nights later, Johnny Carson explained there was no shortage and he apologized to his viewers. However, this did not help with the scare. As soon as people noticed the empty shelves, they wanted this paper even more.

It took a total of three long and grueling weeks to get the shelves stocked again and finally the shortage was over.

 

[Skyhunter]

No! Invest in toilet paper!

Or be ready to market bidet's.

 

[DrClapeyron]

Skip to 2:00 for the relevant part:

I am almost convinced that the relevant part came before the 2:00 mark. The gap between the rich and the poor appears to not be an issue amongst Americans. There were times in the US history when the gap between the two was an issue and had huge impacts on politics (socialists). The last thing we need to do is neglect this gap (as much as I have done myself) or neglect those like the screaming woman on the CSPAN video; people should not have to think with their stomachs.

Overlending of mortgage-backed securities in the repo market created repo rates higher than interest rates on the mortgage-backed securities. While the repo rate increased the positions of the borrowers became a losing position. But heck, when the SEC says that you don't need 12:1 debt to equity ratios and instead gives you 40:1 you call that leverage.

Sooner or later most Americans are going to figure out why 3-month treasury notes have a 0.03% yield. Maybe they know, maybe they don't care or maybe I am wrong to suspect these things. But I felt I had to bring the issue of the wealth gap to the attention of people on this forum.

 

[OmCheeto]

I am almost convinced that the relevant part came before the 2:00 mark. The gap between the rich and the poor appears to not be an issue amongst Americans. There were times in the US history when the gap between the two was an issue and had huge impacts on politics (socialists). The last thing we need to do is neglect this gap (as much as I have done myself) or neglect those like the screaming woman on the CSPAN video; people should not have to think with their stomachs.

I disagree a bit. The gap between the rich and poor can be safely ignored by everyone, as long as the middle class is happy, and the poor class is not starving. I've been accused of hating rich people before, because I point my finger at their unethical behavior. But that's a bit of a generalization. I don't hate rich people, I hate unethical people. Whether they be poor or rich, it doesn't matter. The fact that the middle and poor classes are now pissed as hell only opens the door to inquiry as to how unethical everyone really was. But who's to say what is ethical and what is not. That's a matter of opinion. All we can do is sit back, analyze the problem, and plug the holes: a. which got us into this mess, and b. which if not plugged, will sink the ship.

And as for that screaming woman in the video, tell her to put on a sweater and turn down the heat. My utility bills are less than $300 a month. I would have to keep my house at 80'F 24/7 in the dead of winter to have that kind of bill.

Oh my. I just realized I typed all that while sitting in my living room with a ski cap on my head, and a winter scarf around my neck.

Ok. So I'm a freak. Shoot me already.

How to dress fashionably during hard times, act like a human being, and not call your congressman on the tele because you are a big baby:
https://www.youtube.com/watch?v=<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/BSgryyxp-cg&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/BSgryyxp-cg&hl=en&fs=1" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344"></embed></object>

 

[Astronuc]

This was Paulson's initial plan, but it was found to be way cheaper (following the British model) to inject capital into the banks rather than buy out the toxic assets (> $3-4 Trillion), so the plan was changed.

Originally, the plan was to buy the bad assets, but apparently that turned out to be problematic. I think part of the problem is that the banks themselves may not know which mortgages are bad, or what assets are bad (i.e. the financial instruments such as Mortgage Backed Securities, . . .).


Meanwhile - How Banks Are Worsening the Foreclosure Crisis
http://news.yahoo.com/s/bw/20090213/bs_bw/0908b4120034085635

The bad mortgages that got the current financial crisis started have produced a terrifying wave of home foreclosures. Unless the foreclosure surge eases, even the most extravagant federal stimulus spending won't spur an economic recovery.

The Obama Administration is expected within the next few weeks to announce an initiative of $50 billion or more to help strapped homeowners. But with 1 million residences having fallen into foreclosure since 2006, and an additional 5.9 million expected over the next four years, the Obama plan -- whatever its details -- can't possibly do the job by itself. Lenders and investors will have to acknowledge huge losses and figure out how to keep recession-wracked borrowers making at least some monthly payments.

So far the industry hasn't shown that kind of foresight. One reason foreclosures are so rampant is that banks and their advocates in Washington have delayed, diluted, and obstructed attempts to address the problem. Industry lobbyists are still at it today, working overtime to whittle down legislation backed by President Obama that would give bankruptcy courts the authority to shrink mortgage debt. Lobbyists say they will fight to restrict the types of loans the bankruptcy proposal covers and new powers granted to judges.

The industry strategy all along has been to buy time and thwart regulation, financial-services lobbyists tell BusinessWeek . "We were like the Dutch boy with his finger in the dike," says one business advocate who, like several colleagues, insists on anonymity, fearing career damage. . . .
. . . .

Solvency of Big Banks Is Questioned
http://dealbook.blogs.nytimes.com/2009/02/13/large-banks-on-the-edge-of-insolvency/

Some of the nation’s large banks, according to economists and other finance experts, are like dead men walking, The New York Times’s Steve Lohr reports.

A sober assessment of the growing mountain of losses from bad bets, measured in today’s marketplace, would overwhelm the value of the banks’ assets, they say. The banks, in their view, are insolvent.

None of the experts’ research focuses on individual banks, and there are certainly exceptions among the 50 largest banks in the country. Nor do consumers and businesses need to fret about their deposits, which are federally insured. And even banks that might technically be insolvent can continue operating for a long time, and could recover their financial health when the economy improves.

But without a cure for the problem of bad assets, the credit crisis that is dragging down the economy will linger, as banks cannot resume the ample lending needed to restart the wheels of commerce. The answer, say the economists and experts, is a larger, more direct government role than in the Treasury Department’s plan outlined this week.

The Treasury program leans heavily on a sketchy public-private investment fund to buy up the troubled mortgage-backed securities held by the banks. Instead, the experts say, the government needs to plunge in, weed out the weakest banks, pour capital into the surviving banks and sell off the bad assets.
. . . .
“The historical record shows that you have to do it eventually,” said Adam S. Posen, a senior fellow at the Peterson Institute for International Economics. “Putting it off only brings more troubles and higher costs in the long run.”
. . . .

So much for an economy, which Bush et al declared as having strong fundamentals.

 

[mheslep]

...Sooner or later most Americans are going to figure out why 3-month treasury notes have a 0.03% yield. Maybe they know, maybe they don't care or maybe I am wrong to suspect these things. But I felt I had to bring the issue of the wealth gap to the attention of people on this forum.

Guess I missed it, what do t-bill rates have to do with the 'wealth gap'?

 

[mheslep]

https://www.youtube.com/watch?v=<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/BSgryyxp-cg&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/BSgryyxp-cg&hl=en&fs=1" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344"></embed></object>

Julie Christie. Man. Blue eyes for the ages.

 

[WhoWee]

Originally, the plan was to buy the bad assets, but apparently that turned out to be problematic. I think part of the problem is that the banks themselves may not know which mortgages are bad, or what assets are bad (i.e. the financial instruments such as Mortgage Backed Securities, . . .).


Meanwhile - How Banks Are Worsening the Foreclosure Crisis
http://news.yahoo.com/s/bw/20090213/bs_bw/0908b4120034085635


Solvency of Big Banks Is Questioned
http://dealbook.blogs.nytimes.com/2009/02/13/large-banks-on-the-edge-of-insolvency/

So much for an economy, which Bush et al declared as having strong fundamentals.

Forget about Bush and Paulson...Barney and Chris are still on the job.

This is WHY they/we(?) couldn't do without Mr. Geithner (supposedly)...he is THE FOREMOST EXPERT on this subject (apparently)...he IS absolutely familiar with the largest NY banks as he oversaw them on the way into this mess and help with the strategy of TARP 1...and reportedly overpaid $78billion already.

The strategy of placing "toxic assets" into a separate bank/entity based on the Resolution Trust template is flawed (by the way Congress helped create that mess also). Many of the S&L assets were just financed wrong (many reasons - but)...lot's of naive S&L execs were taken by Wall St...cash flows couldn't pay debt service...and many were done in by changes in depreciation rules in 1986. (By the way, some of those Wall St guys went into the Mortgage business and switched their client base from small town S&L Execs to first time home buyers)

The current "real estate bubble" was fueled by speculation...over-inflated land values and over-leverage of consumers this time. The properties aren't worth the values carried on the books. When credit is loose...the price (apparently) doesn't matter.

The answer to the crisis might be to let the banks write down ALL of their assets...take a huge loss NOW (it will mean no taxes for a long time) AND renegotiate ALL OF THE LOANS to the new value...AND provide loans to the banks to write new loans AND to (A+ credit only) large ticket leasing companies to fund business expansion (yes even a few corporate jets).

The problem needs to be dealt with now and decisively...prolonging will make it worse.

Moving forward, the banks can prevent ALL future "bubbles" by making 1 loan requirement...anyone wanting a loan must own their land free and clear...then loan only based on asset value (time and materials). This would be bad news for large production builders and land speculators...but builders like Schumaker Homes that follow this business model are still building in this economy.

 

[Astronuc]

Interestingly Dodd has his first negative rating in the Quinnipiac poll. Apparently more disapprove of his job than approve.

 

[DrClapeyron]

Guess I missed it, what do t-bill rates have to do with the 'wealth gap'?

Really? Henry Paulson was US Treasury Secretary. We would someone making millions in salary and millions in annual bonuses leave his position as CEO of Goldman Sachs to take the lowly paying job of US Treasury Secretary.

Supply and deman. Interest rates go down when supply goes up.
http://blogs.cfr.org/setser/2009/01...reasuries-with-non-chinese-investors-in-2008/

The US placed about $1.3 trillion of Treasuries with non-Chinese investors in 2008
Posted on Saturday, January 24th, 2009

By bsetser

Yes, China probably bought close to $400 billion of Treasuries too. My top secret model says China bought exactly $374.571 billion of Treasuries in 2008, a record. China certainly bought far more Treasuries in 2008 than in 2007. My model, which accounts for flows through London, suggests that China added $120.3 billion to its Treasury portfolio in 2007.

But the big surge in demand for Treasuries in 2008 didn’t come from China. Other investors increased their holdings of marketable Treasuries by $1310 billion. That is a huge increase from the (estimated) $127 billion increase in their holdings of marketable Treasuries in 2007.

Why even have interest rates if the US Treasury is going give out 0.03% interest loans or for that matter why issue bonds? The road to hyperinflation may not be far off. A majority, $800 billion (stimulus package), of the amount above was issued within the final 3 months of 2008. 40:1 requirments have failed miserably, now we have 0.03% 3-month notes.

 

[mheslep]

Really? Henry Paulson was US Treasury Secretary. We would someone making millions in salary and millions in annual bonuses leave his position as CEO of Goldman Sachs to take the lowly paying job of US Treasury Secretary.

Supply and deman. Interest rates go down when supply goes up.
http://blogs.cfr.org/setser/2009/01...reasuries-with-non-chinese-investors-in-2008/


Why even have interest rates if the US Treasury is going give out 0.03% interest loans or for that matter why issue bonds? The road to hyperinflation may not be far off. A majority, $800 billion (stimulus package), of the amount above was issued within the final 3 months of 2008. 40:1 requirments have failed miserably, now we have 0.03% 3-month notes.

Nonsense

 

[Ivan Seeking]

Tuesday, Feb 17th, on PBS - Frontline

For those struggling to make sense of the economic crisis, help is on the way. Inside the Meltdown is producer Michael Kirk's gripping account of how the country ended up in the worst financial crisis since 1929. The program airs Tuesday night on PBS and will be watchable online after that. This preview excerpt tracks the crisis back upstream to a key source -- the government's failure to heed early warnings on the housing bubble, and the havoc that ensued as a result.

http://www.pbs.org/wgbh/pages/frontline/story/2009/02/banking-at-the-brink.html