Long-time Seattle Bubble commenter Eleua points out a particularly disturbing portion of the version of the bailout that the Senate is set to vote on tonight:
SEC. 112. COORDINATION WITH FOREIGN AUTHORITIES AND CENTRAL BANKS.
The Secretary shall coordinate, as appropriate, with foreign financial authorities and central banks to work toward the establishment of similar programs by such authorities and central banks. To the extent that such foreign financial authorities or banks hold troubled assets as a result of extending financing to financial institutions that have failed or defaulted on such financing, such troubled assets qualify for purchase under section 101.
In other words, it’s not enough that we throw hundreds of billions of dollars we don’t have at buying our own banks’ bad debt—if this version of the bailout passes, we’ll be pouring our children’s children’s children’s tax dollars into bad debt held all around the world.
Read more in depth analysis and details about this delightful new addition at Clearcut Bainbridge or at Market Ticker.
Then, call or fax our Senators to let them know how you feel about bailing out bad foreign debt.
Maria Cantwell:
Phone: (202) 224-3441
Fax: (202) 228-0514
Email FormPatty Murray:
Phone: (202) 224-2621
Fax: (202) 224-0238
Email Form
Update: And it passes the Senate 74 to 25. Cantwell voted NO, while Murray voted YES, despite a grandstanding statement from her just one week ago (spotted by astute reader perfectfire) about working on reforms and not writing blank checks.
Jump to the bottom to add your comment. ↓
103 responses so far ↓
1
Buceri
// Oct 1, 2008 at 1:15 pm
We have sold this country years ago; over 60% of our economy is ‘buying” crap that ends up on that very piece of Americana, “the garage sale”. No industry + No natural resources to sell = Banana Republic. It’s a matter of time.
Once we stop buying, the country is screwed.
Who has been financing our spending? Foreign governments. If they sell the US peso, we are really, really screwed.
2
mukoh
// Oct 1, 2008 at 1:37 pm
Who cares which country the bank belongs to? It operates under the rules of USA when it lends here.
The financial system long time ago stopped being contained within one nation. Just like our banks have big investments in China, India, Russia and the likes.
3
david losh
// Oct 1, 2008 at 1:45 pm
Once again, I’m floored that anyone would put this into print, on a blog, or anywhere.
Absolutely correct, it’s a global issue. The United Staes is one thing, but the European, and Asian Markets have even more sever problems with over priced assets.
One country is going to have to prop up another.
4
Scotsman
// Oct 1, 2008 at 2:05 pm
Yes, you are right, comrades Mukoh and David. The U.S. taxpayer must get off his fat ass, put down his beer, and help the other idiots of the world with our common problems! Nobama for ever! Sing to our great leader!
http://www.youtube.com/watch?v=TW9b0xr06qA
5
vboring
// Oct 1, 2008 at 2:14 pm
is it time to get mad yet?
6
mukoh
// Oct 1, 2008 at 2:15 pm
David,
This blog is amuzing to read for the tin hat foiler posts always judging financial matters that are outside of the rhealm of understanding by 95% of other peope unless they are involved in the system.
And always, always going into how “taxpayers” are going to pay for it. When taxpayers wouldn’t have taxes to pay if the system was not working.
7
Bits_of_Real_Panther
// Oct 1, 2008 at 2:29 pm
Carried to its logical extreme this bill should make the US government reimburse everyone who owns any investment that declined in value because of foreclosures, absolving all from their bad investment decisions. Pathetic.
8
shane
// Oct 1, 2008 at 2:33 pm
This blog is amuzing to read for the tin hat foiler posts always judging financial matters that turned out to be pretty much correct.
9
old timer
// Oct 1, 2008 at 2:48 pm
For me, the real amusement comes from those who believe that this $700 billion is going to fix anything. At best, it will buy a few weeks of the system limping along.
Then it will be really amusing to see the NEXT stunt that they want to pull.
10
shane
// Oct 1, 2008 at 2:52 pm
Yes old timer, that will be amusing. We are going down hard either way. Just not sure I want to pay $700 Billion for a little amusement.
11
mukoh
// Oct 1, 2008 at 2:57 pm
Time will tell. Seems very amusing at least. Especially like the angry voices out there.
12
The Tim
// Oct 1, 2008 at 3:04 pm
mukoh @ 6:
That’s funny. From what I can tell, the ones having a hard time understanding the current financial situation are the ones in charge, deeply involved in the financial system, that blindly got us into this mess. Would you care to explain why exactly we should look to these same people to get us out?
Here’s a nice simple summary of why I am against this and other similar bailouts that have been proposed: Bailouts Don’t Address the Real Problem
13
98115renter
// Oct 1, 2008 at 3:05 pm
We are just trying to maintain one shred of credibility among world markets that our money is still good. Cmon folks this aint 1950 anymore. It is a global system with foreign investors. You have no idea how much of our economy is supported by foreign investment.
I think that this post in particular is inciting xenophobia as a means to get people to reject the bailout. How American.
Can we please go back to talking about the local housing market?
14
patient
// Oct 1, 2008 at 3:12 pm
Here’s a question. Put forward a bill for voting by the representatives for the american people, it gets voted down. Then push the same bill a couple of days later after having pressured the nay sayers with the full might of rank and media propaganda. Say that the bill now passes. It’s that the kind of democracy we want? Seems like mob tactics to me and not something that belongs in any democracy and especially not the greatest and proudest of them all. Pretty "chocolatey" role model for the countries and people we would like to convert.
15
patient
// Oct 1, 2008 at 3:15 pm
Huh, I have no idea where “chocolatey” came from? [deleted] perhaps it got caught in the filter.
16
The Tim
// Oct 1, 2008 at 3:17 pm
patient,
Please note that per the comment policy, swearing is subject to deletion or editing.
17
patient
// Oct 1, 2008 at 3:18 pm
My apologies, seems like I’m not up to date with what is a swear word. Sorry for that.
18
patient
// Oct 1, 2008 at 3:20 pm
So, this sentence:
Pretty “chocolatey” role model for the countries and people we would like to convert.
should read:
Pretty poor role model for the countries and people we would like to convert.
19
Scotsman
// Oct 1, 2008 at 3:23 pm
It’s about a bailout? Hmmm, the current bill has somehow added funds for wool research, mental health treatment, etc. Anyone who thinks we won’t be paying for this is incredibly naive. Here’s a “trick” question- who pays corporate taxes, insurance premiums, and special levies?
I’m always amused by the responses of those who clearly have no understanding of economics beyond what they read in the paper, and no understanding of what makes our country unique. There’s a reason the U.S., in a little over 200 years, with less than 4% of the world’s population now controls a third of the globe’s wealth. And unlike China and Russia, we’ve done it without militarily expanding our borders or by being gifted with a disproportionate amount of raw resources. Maybe it has something to do with a political system that puts the rights and abilities of the individual above those of the state. Those who want it the other way around should check out the stagnant economies of Europe, or the inescapable repression of much of Africa.
20
mukoh
// Oct 1, 2008 at 3:23 pm
Tim, a great and informative article. I like it and believe it shows a few good points.
However if we spend the next two years taking a hard line approach to who, how, and why got us here, then we will most likely have to close most of the banks out there, indite major corporate officers for things that most do not realize have occurred behind the scenes and in reality shut down the financial system for a long long time.
This is however being done carefully and without enormous public scrutiny by bank shut downs, and fire sales to other banks.
As far as why do I look to these people as someone who will get us out of it?
I really do not think that they are the only ones that got us into it, nor will they be the only ones that get us out of it. They are part of a solution and have been since treasury and fed have been in power.
Data available to them is very substantial to make decisions and policy, compared to what most people see. In turn I think they will let the system bleed enough to wash out the cause of these problems for the future term.
21
98115renter
// Oct 1, 2008 at 3:26 pm
Scotsman, sometimes a stagnant economy (aka slow, responsible growth) is preferable to a boom and bust economy.
22
Markor
// Oct 1, 2008 at 3:57 pm
We didn’t recently annex by force the world’s second largest pot of oil? Calling it liberation is like calling a bailout a rescue. The US has long used force for profit.
23
Markor
// Oct 1, 2008 at 3:58 pm
mukoh, I’m curious why you disagree with a long list of economists who say this bailout will do more harm than good to Americans.
24
patient
// Oct 1, 2008 at 4:03 pm
That guy at Market Ticker is really good at making his point. Is he a full time politician? If not, he should be. If foreign countries are threatening us the politicians made a mistake to not fully disclose it and trust the american people to support proper response.
25
mikal
// Oct 1, 2008 at 4:03 pm
Scotsman, you are incredibly naive to think we don’t flex militarily. We have propped up dictators all over the globe for over 100 years mostly for business. According to your logic we don’t need a military. This country was the richest area in the world before the revolution. You can thank the English charter given to those that came here for that. The bailout is going to happen. This isn’t the first time the banks have been bailed out or the last. Have you thanked Phil Graham for his deregulation of the banks which put us into this mess. Or the regulators that did nothing for the last eight years because they were told to by the administration. Remember, I know lots about Russia, they fly over our airspace and then go where they go. Or another favorite. The earth is only 6000 years old.
26
mukoh
// Oct 1, 2008 at 4:09 pm
I disagree with their motives for saying it, not what they are saying exactly.
The same economists and analysts that were in the tier of long callers of growth to real estate. If those economists would actually provide a solution that stabilizes a global failure of paper money then I would listen. So far there is only nay sayers with excuses like “tax the workers” “tax our children” “tax the future” and blah blah blibidy blah, and OH MY GOD OUR DEBT will rise.
This will not fix the whole of the problem which will take years to work out, it will however provide stability.
27
WestSideBilly
// Oct 1, 2008 at 4:19 pm
patient @ 14:
No, you put a crappy bill forward and it fails. Then, you add a bunch of feel-good add-ons that have absolutely nothing to do with a bailout, but that no politician who desires to be re-elected could ever vote down, and try again. The Senate version is the same structure as the House, except it adds about $150B in tax breaks (notably an extension to the AMT patch @ $65B), some small revenue increases (~ $25B), and then you force the Senate to vote on the bill before they can read it through.
BTW, assuming the $700B was correct, this bill is now closer to $850B. And the new FDIC insurance limit is not funded by the banks, but by us - so the next bank run(s) will be on tax payers, not the FDIC.
Repudemoligarchy at its finest.
28
Curtis
// Oct 1, 2008 at 4:20 pm
which nation is the inventor of the mortgage system? Which nation has screwed the entire system - first? US lenders caused a huge global crack so now telling “we are paying debts of others” is not a fair statement. This system was introduced to world by US and we shouldn’t be the one failing first. Screw the system - loan unlimited credit to all around world banks and now complain about it?? ..
Majority of buyers - not the sellers, nobody forced sellers- caused that problem and that is why we are at that point. No bank/ money lender pushed, forced or even simply asked buyer to loan for these outrageous prices.. a 350k house in Kirkland bought in 01 is being sold now for 998k…and unfortunately there is still a buyer even today for that house.
so let’s suck it up and pay the bailout.. many enjoyed the great profits of houses many years - now time to pay the debt.. yeah life is not fair for renters but hey did we really have a good choice to buy in past??
29
patient
// Oct 1, 2008 at 4:24 pm
I hear you WSB, add bribery to pulling rank and medial propaganda and you have a more complete picture.
30
Eleua
// Oct 1, 2008 at 4:28 pm
Curtis,
Didn’t the foreign banks do their due dilligence on US mortgage debt? If so, why are we bailiing them? If not, why are we bailing them? These instruments came with risk and a premium return, but the Chinese want it both ways.
This bailout does absolutely nothing to help Main Street USA - nothing! If you have a deep seated vendetta against the USA, then I understand your comments. If not, then I wonder what is motivating you to have IRS agents shaking down people in the middle-class to pay for Chinese bankers that made bad bets.
BTW, this bill also has us buying mortgages written on Chinese properties by Chinese banks. The Taxpayer of the US is becoming the toxic waste dump for the world.
Glad you can justify this.
31
cm
// Oct 1, 2008 at 4:28 pm
Before asking why foreign investors are being “bailed out,” ask who buys the debt that fuels the economy and…wait for it…the Federal deficit. We can’t afford to lose that source of funding without facing a bigger crisis. That is what the Treasury and Fed are trying to stave off.
32
mukoh
// Oct 1, 2008 at 4:28 pm
Curtis, stop getting all emotional and wound up. Geez.
33
Eleua
// Oct 1, 2008 at 4:30 pm
@mukoh,
Please explain how this provides stability. Use specifics. Please outline the problem so we can see how it is addressed.
34
Birdie Num Nums
// Oct 1, 2008 at 4:30 pm
Scotsman @ 19: Where did you learn American history? Over the past 200 years the American borders WERE expanded militarily and by theft (from the indigenous people, Mexico, Britain, and Spain, as well as from the Hawaii people; and Alaska has an interesting story that goes beyond merely “buying” the state from Russia). And this expanding country also, by essentially stealing the land (in violation of many international treaties), or taking it forcibly by the military, reaped the resources attached to that land (metals, timber, water, fish and wildlife, and so on). Much of those raw resources were depleted by the end of the last century (ask Aberdeen/Hoquiam what happened to their timber and fishing industries). So, your post’s premise is completely faulty.
35
mikal
// Oct 1, 2008 at 4:32 pm
Cm, you are right. Most other countries are also bailing out their banks in some form. So we won’t be bailing out every foreign bank. It is going to happen. You know I can’t think of even one Supreme Court decision off hand. I will have to get back to you on that.
36
Scotsman
// Oct 1, 2008 at 4:33 pm
You guys either can’t read, or you can’t past the programming put into your brains via democrat talking points.
Markor- we haven’t annexed anything. Get a grip. You make this so easy it’s boring.
Mikal- don’t let the facts influence your thinking. They’ll ruin a good rant.
We got into this mess because the government, led primarily by democrats, decided to expand home ownership for the less credit-worthy by first facilitating a secondary mortgage market through Fannie and Freddie, then forcing banks to make substandard loans to less qualified borrowers. When the credit flow began to get out of control, Bush and others tried to reign it in, but were stopped by democrat congressmen, most of whom were political benefactors of the lending agencies. In short, the government started and then enabled the housing bubble. And now you think those same people are best able to regain control of the mess they made? In private industry, we fire such incompetents. I only pray the American people decide to do the same this coming election.
37
mukoh
// Oct 1, 2008 at 4:38 pm
Eleua,
What you are not alluding to in your Chinese statement is that mortgage written by Chinese bank, bought by a US bank sold to another bank and now in arrears, which will have US owning that property, in China.
And then building a factory on it, within a country that has no EPA, Labor laws, LNI, and polluting the crap out of their rivers, to build us a better golf club, for a hefty profit to US corporation which will repay that loan.
38
mukoh
// Oct 1, 2008 at 4:42 pm
Scotsman,
Secondary market was not blossoming because of FNMA, it was blossoming as instruments could be underwritten and sold for a 1%-1.5% fee + service fee to other entities. This was normal capitalistic greed.
Nobody forced the banks to lend to the biggest sub prime segment in years but the banks themselves competing for who was going to have more loans to profit on, and return money to their shareholders. Origination of loans is 30% of every banks business.
39
david losh
// Oct 1, 2008 at 4:49 pm
Again #28 is great timing. Credit has been around since the time of Christ, read the Bible, it’s the basis for many of the world.s laws. Sorry, it’s just a fact.
Mortgages or better the notes, or promises to pay, are secured by a deed held in trust between the two parts, the lender, and the purchaser. The purchaser is not a borrower. The lender lends on the security of the asset. The purchaser never gets the money, they get the use of the asset. When they pay the money the deed reverts to them, if they don’t pay the lender gets the asset.
OK, so what, my house is an ATM, I have the money. What’s the lender going to do? They can not jail me for debt. That’s what makes America great. You can talk about free speach, or guns, or freedom of religion, all people created equal, but there is no debtor’s prison.
This great country was founded by criminals. It was a penal colony. We have the rights most criminals around the world envy. The law is on our side. It’s our debt, let the stinking lender come and collect from me. Let the bank come to take my home.
These are the things no one says out loud. Yes we are covering foriegn debt because they were led down a prim rose path. Other countries have different laws than we have. We, the people, have rights. Those foriegn investors have the same mess we do, with the people, and laws of thier countries.
In my opinion other people in other countries are going to be upset when they begin losing thier homes without the protection of the law.
40
mikal
// Oct 1, 2008 at 5:14 pm
Scotsman, The republicans controlled the two main branches of government when this took off. You have to be drinking alot to think that the democrats could push anything then. If Bush wanted it he got it until two years ago. So did the boom start then? How can you twist the logic into that. Bush said nothing about it until two years ago. Your main man Obama also talked about it THREE years ago. I thought the democrats were for more regulation, not less. Remember, Mcancients chief of staff was a lobbyist for years for Fannie and Freddie and I bet he wasn’t lobbying for more regulation. Don’t let the facts get in the way of your opinion.
41
mikal
// Oct 1, 2008 at 5:16 pm
David, This country was never a penal colony. Your thinking of Australia.
42
Silver9
// Oct 1, 2008 at 5:32 pm
Wow this thing keeps going round and round.
Now people are arguing that a Democratic congress forced banks to create these bad loans and CDO’s and CDS’s and Bush Republicans were the ones trying to save the day? I even saw one blog poster blame President Carter for starting this mess, 28 years ago!
People are so anchored on blaming the other party, this just gets worse and worse. If nothing else we seem to have proved that if you say something over and over again, it becomes “true”. How sad is that.
43
Scotsman
// Oct 1, 2008 at 5:37 pm
Mikal- you’re flat out wrong. The democrats killed reforms by not letting the votes come to the floor. The history is there for all to read. If your statements held, the Dems would have passed this current economic bill in the house last week. They didn’t need a single Rep. vote to do it, as they are clearly in the majority. So much for the overly simplistic “majority rules, majority is responsible” theory of yours.
44
Markor
// Oct 1, 2008 at 5:41 pm
There were many economists who called this housing bubble & its ramifications years ago. I don’t know which ones of those are now saying this bailout will do more harm than good. They do present a solution, which is let the free market including its competitive forces work as intended. They disagree that cities will be burning–just a sharp recession to trim the fat and then growth can continue from there. Even to the layman this bailout is the epitome of throwing good money after bad.
I had money to lend. I gave it to JPMorganChaseWaMu. They’ll owe me 5%, so if they don’t lend it out at a higher rate soon, they lose. Presumably then, they will loan it out. That’s the free market loosening lending. It just takes time. No sense in taxpayers giving away free money.
45
Jay
// Oct 1, 2008 at 5:43 pm
I find it rather funny that all this bailout-kills-America hysteria will ultimately help to diminish Republican power in American politics. Republicans will lose the presidential election, and they will lose seats in Congress as well. Of course, they can actually come up with a solution and come back strong, but seeing their reaction and the fact that they are the ones that created this mess, I doubt it.
Hey, Scotsman, get your facts straight. The Gramm-Leach-Bliley Act that repealed the Glass-Steagall Act was introduced by Senator Gramm and Congressmen Leach and Bliley. ALL OF WHOM WERE REPUBLICANS.
Read the following except from 1987 report prepared by the Congressional Research Service:
Prophetic enough? Ultimately, Gramm-Leach-Bliley passed with bipartisan support, but it was Republicans that came up with it and pushed for it, upon lobbying from banking industry, in all of their business-friendly glory. Fannie and Freddie? They have been around for decades. Why did we have real estate bubble only in the last few years? Did I mention that Gramm-Leach-Bliley passed in Nov, 1999? And here we are, about 10 years later, witnessing predictions of 20 years prior being fulfilled. Yet so many that support Republicans who started it all (not that Democrats didn’t go along with it), vehemently oppose government interventions because ultimately, it hurts their feelings. And to that question of why a responsible taxpayer should pay for mistakes of the Wall Street? Because we all contributed to the problem by not paying attention (except maybe creator and some readers of the blog..).
46
BeerdedOne
// Oct 1, 2008 at 5:48 pm
Unfortunately, any discussion of ‘our’ versus ‘their’ banks is largely academic. While I’m strongly against this bill, and especially the provisions to buy assets from banks not based in the US and to give the Treasury Secretary the discretion to determine the fair value of these assets, ALL of the largest banking institutions are global entities, who will leave the US high and dry once we can’t afford borrow any longer.
47
mukoh
// Oct 1, 2008 at 5:52 pm
Markor,
The financial system right now is at a stand still, AT&T can’t even borrow money for longer then 1 day. This is not going to be a sharp recession it will be an all out depression with all of its 10-20 year consequences.
The government has abilities via certain adjustments and control to stabilize it and resume credit. We are already in recession as of a few months ago.
Bring you an example of someone very wealthy who is a real estate holder worth considerable amount who came to a bank he is a shareholder of, and sits on the comitte of. Not a huge loan, regular investment LTV of 50% on a property he has held for 12 years with 80 units. Has immense assets and cash. The bank told him they have no liquidity to refi his loan from another bank.
48
mikal
// Oct 1, 2008 at 6:03 pm
This will pass tomorrow. Jay, your absolutely correct in that both parties played a part. Scotsman, you are a far right wing nut. I consider myself a moderate who doesn’t vote party lines. Obama in a landslide. Nice Palin pick.
49
Seeker
// Oct 1, 2008 at 6:23 pm
Eleua @30
US bailing for any foreign investor is surely for US’ future benefit and keeping acquired assets due to debts in foreign soils. I think you are puling the subject way off with saying IRS chasing mid class to save foreigners. Same tax money is being used for a war no one knows the reason, did u ever complain about it? it is your tax money there.. If you don’t know the solution of fixing today’s mess and still being against the measures to be taken with tax money, you may be a big part of the problem. Because your “no” vote is delaying the possible solution and causing us lose more money every other day. Yeah we “wish” our tax money would be spent for better things - but that didnt happen.We already failed.. I dont want to wait for another 15 years just to regain my years of investment only because not to use the tax money.
50
mikal
// Oct 1, 2008 at 6:28 pm
They don’t care. They think the economy will lose trillions, but they will still have their jobs to buy when the market corrects. There is little to no connect among many here. Not all though.
51
Jillayne
// Oct 1, 2008 at 6:30 pm
Cantwell voted NO, Murray voted YES.
The bill passed the senate by a wide margin. 74-25.
52
John
// Oct 1, 2008 at 6:52 pm
It is not just a fringe group of people who don’t like this bailout. Most people don’t like this at all as far as the CNN poll goes and CNN poll results usually lean to the left. Comments on NY Times site tell the story as well. That’s why congressmen are getting angry phone calls left and right, literally.
I am surprised Cantwell voted no, probably because the bill doesn’t have enough handouts to her liking.
53
TJ_98370
// Oct 1, 2008 at 7:02 pm
Apparently, the House votes again on a slightly modified bill on Friday?
54
TJ_98370
// Oct 1, 2008 at 7:09 pm
Okay, I’ll demonstrate my ignorance here. Is the House going to vote on the same bill? I also thought the Senate could only vote on a bill after it passes the House.
55
david losh
// Oct 1, 2008 at 7:11 pm
You could go to an over crowded prison in England, or France for that matter or go to the New World. The Puritans were rabble rousers against the Church of England, undesirable. They could stay in England or go to the Americas.
Our country was formed by people who opposed the English rule. They were out laws. They lived outside of the laws of England.
Anyway we have no debtors prison, because as I understand it, you could also work off a debt by coming to the Americas.
Anyway, we have rights. We have land and property rights. They are rights to the use and enjoyment of property. Those rights are protected by the Constitution.
You can talk about The Gramm-Leach-Bliley Act until the cows come home.
If the debtors of this country just don’t pay there isn’t a lot anybody can do about it.
You should have seen the writing on the wall when they tied the FICO to your insurance rate. Where were you while they were changing the bankruptcy laws? How did we ever get 30% interest on credit card debt?
If we don’t pay, all those little securities propped up by the greatest consuming nation on earth are worthless.
BTW what if we stop buying?
56
TJ_98370
// Oct 1, 2008 at 7:45 pm
The CNN talking heads are now saying that all the defeat of the original bill in the House accomplished was add $100 billion cost (by the Senate) to the legislation that will eventually be passed (by the House).
.
Depressing, if true.
.
57
jonness
// Oct 1, 2008 at 7:49 pm
Ha ha. The bill supposedly failed the last time because it was too much money to stick on the taxpayers. So this time, we tack on over a hundred billion in BS extras, and it’s bound to pass with flying colors.
So now it is the $800+ billion bailout, and the politicians suddenly love it. :) :)
I think the moral of the story is, the more chance these crooks have to manipulate it, the more worthless pork they can pack inside of it. After they pass it, they’ll declare themselves American patriots and brag about all the good they’ve done for us.
Prediction: By the end of this nightmare, the American taxpayer will be on the hook for $3 trillion. That’s a $20k loan to every employed person in the country. :)
58
BubbleBuyer
// Oct 1, 2008 at 8:21 pm
Not surprising. The big question is how the losses will be allocated between US tax payers, US banks and foreign investors. After all, the US is a debtor nation dependent on money borrowed from China, Japan and Germany among other countries. If these countries stop buying US securities, the US will no longer be able to live beyond its means as it has for years. The outcome and allocation of losses will say a lot about the future of this country - not that I am betting on a bright future.
59
jon
// Oct 1, 2008 at 9:02 pm
“Anyway we have no debtors prison, because as I understand it, you could also work off a debt by coming to the Americas.”
Actually, many people paid the fare to the Americas by being held captive on board the ship when it got here until they could negotiate with someone who would pay their fare in exchange for something like seven years of labor. If their spouse made it more than half way before dieing, then they had to work the extra years to pay that fare as well. As I recall, if they couldn’t find someone to hire them, they went to prison where they usually didn’t last very long. Debtor’s prisons in this country were mostly closed in 1830s.
60
b
// Oct 1, 2008 at 9:07 pm
When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security. — Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government.
61
Markor
// Oct 1, 2008 at 9:18 pm
Microsoft has never borrowed money, so why should AT&T? I don’t have a problem with gov’t unsticking banks though, as long as the taxpayer makes a nice profit, and to help ensure that profit the executives should not be allowed huge pay packages. But we know this bailout is just a giveaway of taxpayer money and there will be giant loopholes on executive pay. Hence the bailout will do more harm than good in the long run.
62
John
// Oct 1, 2008 at 9:24 pm
$100 billion added to the bill so there is pork for everyone. Bribery at its finest. I wonder what our state got in return. If the bailout is going to pass anyway, we may as well get something for it.
63
b
// Oct 1, 2008 at 9:27 pm
mukoh -
any of these companies can get money they need. the problem is that they can’t get CHEAP money like they used to, they have to actually pay for it these days. Buffet, along with plenty of other equity firms and our own government (with AIG) have shown that you can get credit if you want to pay the proper risk premium for it. instead they would rather whine to mother government to give them credit for free, rather than admit their "chocolatey" business models are based on 4% CP and can’t handle 8%. if you did not realign your business model during the heyday of lowest credit costs ever for possible higher credit costs in the future, you should go bankrupt and nobody should cry for you. sounds familiar, doesn’t it? perhaps its something similar to WaMu giving Jamba Juice workers $800k opt/arms in California.
64
Markor
// Oct 1, 2008 at 9:36 pm
TJ_98370, with few exceptions a bill can originate in either house. For a bill to become law it has to be the same in both houses. The Senate modified the House’s bill and passed it. For the bill to become law the House must pass the bill unchanged.
65
Markor
// Oct 1, 2008 at 9:39 pm
b, good example with the Jamba Juice worker. I still cannot escape the “TILA stands for the Truth in Lending Act” ads on the radio, so I’m quite sure there is no shortage of credit to some group of common borrowers. Ads for cheap mortgage payments are still common on the web too.
66
Senate Bails the Sinking Ship | Redfin Seattle Sweet Digs
// Oct 1, 2008 at 10:05 pm
[...] Seattle Bubble points out : … it’s not enough that we throw hundreds of billions of dollars we don’t have at buying our own banks’ bad debt—if this version of the bailout passes, we’ll be pouring our children’s children’s children’s tax dollars into bad debt held all around the world. [...]
67
mukoh
// Oct 1, 2008 at 10:12 pm
Markor,
Microsoft does not have nor has ever had a giant infrastructure investment that AT&T has to carry, that is why AT&T borrows. Talk about redoing telephone network to a fiber network at $10k a linear foot.
Wether the company needs money to expand or keep moving, if it cannot get it, and goes and lays off 10k workers, which one would you rather accept, lend it $2b to make an upgrade to infrastructure or lay off the workers?
As far as the banks getting unstuck, there is no blank check with this from what I have seen. It is blown out of proportion. If the government buys a bad loan and services it until the person sells the house or refinances the government gets the interest which is credited back.
Executive pay? That argument is so outrageous as to how an executive gets paid is up to the shareholders of the company not its creditors.
I do however agree that WaMu guy getting $7m for a few weeks on the job should be a cancelled check.
68
Crashcadia
// Oct 1, 2008 at 10:32 pm
Make sure you send a “thank you” to Maria Cantwell. She voted against the bailout package.
On the other hand, let Patty Murray know what you think of her “Yes” vote.
69
fancypants
// Oct 1, 2008 at 10:35 pm
As I said (with many misspellings) a few blog posts back, we are in a psychological game at this point. And I think we missed the window of opportunity. The sheeple have been alerted, and now the whole world herd is nervous. Game’s over.
The bailout bill will work in the short term as the remaining few bulls will want to get into the market at the “lows” (Don’t miss a good bargain!) But the vast majority of sheeple are spooked. Spooked around the world. Bernanke wanted a shock bailout bill passed so the sheeple wouldn’t wake up (including the news sheeple). Too late. Missed the window of opportunity.
The only question is how far deep down the rabbit hole will we all go.
Bernanke is one of probably 5 guys in the world who is considered a true expert on the Great Depression. Anyone here, the millions of Americans who are suddenly economic experts, the “economic experts” who have all been wrong the last two decades…. none of them have a clue. We are GAMBLING. We are ROLLING DICE. The entire world economy is based on faith, and… look at the papers around the world.
My business is fine. I have a two year nut to keep it running through busts and booms. But the few employees I have aren’t vital. So I’ll fire them. Save as much money as possible. Everything is tightening everywhere. People don’t want to sign contracts, don’t want to get in too deep until they know what’s going to happen next…. and the money keeps drying up. No one wants any risk. I don’t want any risk. Tighten the belt… tighten the belt… I don’t need a massage, I don’t need fancy clothes, I don’t need hotel stays, self help books, eating out, new books… all of that is someone’s job lost.
This bill is festooned with giveaways. No kidding. Business as usual. Politicians looking to protect their job before protecting the nation.
And you want to know why we’ve had it so good the last 50 years? Because the American Dollar has been considered the premiere currency of the world. Everyone puts their money in American dollars for safety. From Argentina? Brazil? Even France? Everyone “knows” America knows finance. And our banks drive the world economy. Except we’ve been destroying our financial system. And the whole world is invested in it. So if we destroy their faith in our system (might already be too late), then they’ll abandon it. And because everyone else hitched their system to ours… theirs will go down with us.
Across the world, everyone will pull their money out. No risk for years. And then another currency (Swedish? German?) will prove to the world that they REALLY have their act together and THAT country will be the new economic powerhouse of the world. THAT stock market will be where everyone invests because it is “the best system in the world”.
Who knows, maybe American bankers will pull a rabbit out of their hat. But American staying the powerhouse with this much mismanagement? This much debt? This kind of gaming the system?
We’ll see.
70
what goes up must come down
// Oct 1, 2008 at 10:39 pm
Scotsman, you are off your rocker — Bush did not reign in anything — typical from a right winger — Bush has been in office 8 years of that 8 years Congress was CONTROLLED BY REPUKES. Man you must have went off your medication.
You should take a trip to Alaska so you can see Russia it is almost like being there I have heard.
71
Markor
// Oct 1, 2008 at 10:59 pm
I’ve seen nothing that guarantees the taxpayer a profit. It’s only a possibility, when it could have been made a certainty. Then we know from experience the taxpayer will likely get the shaft, big time. The taxpayers should not only get every dollar back, they should also get 10+% effective interest annually, like Buffett is getting from GE. If a bank getting bailed out is still in business 50 years from now, there’s no reason they can’t still be paying the gov’t back something to make the taxpayers whole plus a nice profit.
The taxpayers should become shareholders as part of this deal. Instead they’ll get warrants, almost certainly worthless. What’s outrageous is that some fat cat who brought a bank down is going to make umpteen $millions paid for by taxpayers. With taxpayers footing all the losses, I expect to see the highest pay packages ever, just like I expect to see Bush get the highest speaking fees ever when he leaves office. Paulson will probably get a couple hundred $million out of this too somehow.
72
jon
// Oct 1, 2008 at 11:10 pm
what goes up must come down - take a look at these quotes. The inaction was bi-partisan.
http://online.wsj.com/article/SB122290574391296381.html?mod=article-outset-box
73
b
// Oct 1, 2008 at 11:35 pm
There is no way the taxpayer makes a dime on any of this, and we aren’t supposed to. They will be paying over-market prices to backdoor capitalize these banks, thats the entire point of the bailout. If they paid real market prices it wouldn’t solve anything, since the banks can already GET real market prices. There are people lined up around the block to buy this paper for prices they think will turn a profit eventually, but the banks can’t sell it for those prices without being insolvent. Congress has decided that these assets are being undervalued somehow and that Paulson in his omnipotence knows the correct pricing. If they were undervalued at all there would be plenty of buyers, believe it or not there is still a lot of cash sitting around looking for opportunity.
74
EconE
// Oct 1, 2008 at 11:36 pm
Drop in the bucket.
We’ll be “printing” a couple hundred billion on a monthly basis as the option-ARMs reset IMO.
75
Matthew
// Oct 2, 2008 at 12:00 am
The bill didn’t pass as easily as some expected. I saw some estimates that were expecting over 85-90 YES votes in the Senate. That could be a reason why the equity futures are tanking right now (Dow futures down over 100 pts).
76
Joel
// Oct 2, 2008 at 12:01 am
Guys! We can’t understand this stuff because we’re not politicians. We just gotta trust Hank and W. They’ve never lied or been wrong before!
77
mark
// Oct 2, 2008 at 1:28 am
Scotsman, Even by internet standards that stuff you posted is way out there. You’re in a class by yourself.
78
TJ_98370
// Oct 2, 2008 at 3:37 am
TJ_98370, with few exceptions a bill can originate in either house. For a bill to become law it has to be the same in both houses. The Senate modified the House’s bill and passed it. For the bill to become law the House must pass the bill unchanged.
Thanks Markor. It’s been a long time since I’ve been in Civics class.
79
LUC
// Oct 2, 2008 at 4:41 am
From Bloomberg: Libor Rises a Fourth Day as Banks Hoard Cash After Bill Passed
http://www.bloomberg.com/apps/news?pid=20601087&sid=aBxs213UjqjA&refer=home
80
LUC
// Oct 2, 2008 at 4:48 am
From Bloomberg: Fed May Lose $6 Billion on Bear’s Assets, Bank of America Says
http://www.bloomberg.com/apps/news?pid=20601087&sid=akRlc4ks5mDc&refer=home
81
david losh
// Oct 2, 2008 at 7:31 am
Debt, securities are interest on debt.
Security used to be the assets that backed the debt.
The debt defaults the lender takes the assets and sells them.
It all went wrong when the consumer started paying high prices for junk.
The value of the assets is nowhere near the prices that were paid, but we bought, sold, and traded those assets on credit. It’s done globally.
The United States is the largest consumer nation. We created tons of debt so we are the first to go. Europe, or Asia have over priced assets also. How are they going to service the debt if the United States consumers don’t service thier debt?
That’s where the house of cards is.
At some point the lenders, or creators of these securities, are going to need to negotiate the debt to get it paid down or paid off.
It is without merit to give these lenders hard dollars, tax dollars, to bridge the gap between value and price.
These are worthless securities until the debt is paid, of further sercured.
Home values would have to rise in order to be a security again. That’s not going to happen, so it’s better for the consumer to pay down the debt.
The way I see it the problem is only growing. Commercial loans on business or business assets are the next to go.
I know the people here don’t like it, but those consumers who have created the debt are the basis of your 401Ks, pensions, and IRAs.
What is the value of stocks today without interest income?
82
brettro
// Oct 2, 2008 at 9:26 am
maria rocked it. i was proud of her last night. It sounded like some of us actually got through to her.
83
98115renter
// Oct 2, 2008 at 9:38 am
For all those against the bailout and claiming a deep recession will be good for us, I hope you are all ready to give up your government services that you take for granted, such as public transportation, parks, libaries, ferry service, clean energy credits, etc. These will start to evaporate as the government revenue begins to tank.
84
patient
// Oct 2, 2008 at 10:17 am
99115renter, I think all expects some hardship from this mess but some thinks that it’s better to let the cause of it destroy itself and rebuild on a sound fundation instead off chasing symptoms while letting the cause remain.
85
98115renter
// Oct 2, 2008 at 10:25 am
patient, I think few people are actually considering the hardships this will cuase us all. $2300 seems like a drop in the bucket compared to how much we stand to lose in many other areas. I am willing to pay my couple thou to maintain my (admittedly frugal) standard of living. I never thought a blank check should be handed out, but it seems like a relatively small price to pay.
86
patient
// Oct 2, 2008 at 10:37 am
“it seems like a relatively small price to pay”
$700b a small price? I guess to an extent we all get a bit blaze to these enormous sums after a while but trust me it’s not small. Perhaps if we could be sure that it would fix the problems it would be something to consider but noone is saying that it will, noone.
87
shane
// Oct 2, 2008 at 10:38 am
Honest question renter. Why do you think this bailout will solve our problems and prevent a recession? I continue to see you state this is better than a recession but you never have mentioned how this will solve our problems. Or is this just faith-based economics on your part?
You are in for a serious surprise expecting this to solve our problems. This country has been living in a mass delusion too long and all this is doing is continuing it for a bit longer.
88
98115renter
// Oct 2, 2008 at 11:17 am
shane, I don’t actually think this will prevent a recession, I just think it will dampen it. I don’t pretend that it will solve our problems either, but it will signal to the world markets that our goverment is slightly less incompetent than it is currently percieved, and therefore stem the loss of confidence in our institutions from total to partial.
Case in point: the Germans are in awe not only that our lack of regulation on the way up has caused such a global financial nightmare, but also that our government has failed to do anything meaningful about it on the way down.
If this really was just about bad debt and it ended there, fine. But it’s not. It’s about the global system getting all messed up and foreign markets losing all trust in the US financial markets and the US government’s ability to regulate them. Meanwhile, we watch and scream “take that you overpaid CEO!” Oh right, they already have the money.
89
mark
// Oct 2, 2008 at 11:27 am
98115renter @83, So why do you think services will be cut back if revenue starts to tank? This is America. The government will just go borrow more money. Thats what our goverment does. That is the cornerstone of our fiscal policy, debt. That is exactly what GW did when he came into office, slashed taxes and increased deficit spending on a massive scale.
I was talking to a friend at work a few weeks ago about this impending crisis. He was confident that our leadership in Washington are smart people and were capable of fixing this mess. Now we see what the solution is, borrow money to bail out the banks. Borrowing $700 billion to bail out our nations financial institutions is considered smart.
I remember when my daughter was around 5 years old and wanted her mother to buy her something. My wife said I don’t have any more money. My daughter replied, “just go to the bank and get more”. Life is that simple in this country, “just go to the bank and get more”.
90
The Tim
// Oct 2, 2008 at 11:30 am
And I think that bailouts like this one will lengthen a recession / depression.
I’m in awe of that, too. How about instead of flushing $700B down the toilet trying to prevent the symptoms, we actually begin to address the underlying causes of the mess.
That would be “meaningful” action. The $700B is not.
91
shane
// Oct 2, 2008 at 12:18 pm
Nice article there. From the article:
“To put it more simply: the people and principles that blithely led us into this mess are absolutely the wrong people and principles to lead us out of it.”
Which is similar to the famous Einstein quote:
“We can’t solve problems by using the same kind of thinking we used when we created them.”
And that is exactly what we are doing. This bailout will fail, just like the the government has failed over the last year to fix this. Your thinking is making the problem worse renter. We need to stop digging eventually and work to fix the problems.
92
98115renter
// Oct 2, 2008 at 1:05 pm
shane and The Tim, I agree that this will not cure the disease, but taking a pill to soften the symptoms is still a reasonable approach IMHO. It will buy time to do the real fixing while stemming cascading failures. Of course there is always the risk that nothing wil change after the bailout, in which case the pill was not being backed up by a real treatment.
The linked article was good at pointing out where our failures lie, but not how to fix them.
I understand where you guys are coming from, but it seems as if you are advocating for a self-correcting market, which is exactly the premise of the republicans deregulation scheme which is half the reason we are here today.