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2008-09-30

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Posted by Steve White 2008-09-30 15:23|| || Front Page|| [13 views ] Top

#1 You hit the keys Steve..."insurance and mark-to-market." It is NOT penicillin, but if we can convince congress to suspect mark-to-market and provide some FDIC type of mortgage insurance. we'll see some relief and breathing room. Watching Hank Paulson run in and out of the White House with a blank check that no one will sign is disgusting.

Posted by Besoeker 2008-09-30 17:16|| 2008-09-30 17:16|| Front Page Top

#2 The answer is still no.

Paulson is not the person to put values on anything. That's for the market to do. Right now the Market is staying away because they are overpriced - "illiquid" means unable to sell, and as you have pointed out even the land has value.

This could get bad, but this isn't 1929. We have safety nets that didn't exist back then.

The best answer is bankruptcy. Let the fed govt manage the closure and sale of assets, do it quickly so we can get past this crisis.

Posted by flash91 2008-09-30 17:48|| 2008-09-30 17:48|| Front Page Top

#3 Sorry I read to paulson and stopped - thinking that this was another call for bailout.

I think we reached the same endpoint.

Posted by flash91 2008-09-30 17:50|| 2008-09-30 17:50|| Front Page Top

#4 I don't know what the answer is. I am, however, extremely reluctant to give a 700 billion dollar check to anyone.

Posted by Deacon Blues">Deacon Blues 2008-09-30 19:51|| 2008-09-30 19:51|| Front Page Top

#5 My only comment for now is that your test, Dr. Steve, is misleading.

You will not see consumer credit dry up *first*. First you will see banks failing and indicators such as LIBOR (the London interbank lending rate) rise. Check the financial news for the last two days on those fronts -- it isn't good.

Posted by lotp 2008-09-30 20:55|| 2008-09-30 20:55|| Front Page Top

#6 I agree, LIBOR is more important in the world of finance. But the reason John Q. Citizen doesn't care -- yet -- is that HE can still get a loan. That's one of the reasons why the polls show the public is against this whole package. They see it as Wall Street welfare and don't yet see the connection between LIBOR and an auto loan. If the credit market locks up they will, but then it will be too late.

Posted by Steve White 2008-09-30 21:01|| 2008-09-30 21:01|| Front Page Top

#7 Yes, it will be too late. Yesterday/today the LIBOR rate averaged 6.88%. Banks cannot do a whole lot of lending at 5-6% income interest (before the cost of operations) on longterm loans if they have to borrow shortterm at two percentage points more than that.

Posted by lotp 2008-09-30 21:20|| 2008-09-30 21:20|| Front Page Top

#8 The root core problem of the current panic, as I see it, is that the mortgage-backed securities are illiquid.

That's it in a nutshell. Paulson is right -- the cure is to put a value on the MBS's so as to make them liquid again.

It is not just that mortgage backed securities are illiquid. In fact, I'd bet the Fed would accept them at par at the discount window. But I understand that bankers are afraid to discount notes at the Fed because it would be a sign of weakness.

And that is what this is really all about, fear, not securities. Fear is now as out of control as greed was two years ago. And it is as malevolent.

As lotp notes, the fear is expressed in banks unwillingness to lend to eachother, even over night. That is why LIBOR set a new all time record today. That is what really set the panic off two weeks ago, when the LIBOR market seized. Note that the LIBOR today was higher than the rate for your mortgage and just a tad lower than your car loan. For an overnight loan between banks.

And note that LIBOR applies to banks all around the world, not just US banks. The problem is not limited to the US mortgage backed securities. European banks are failing because of European mortgages. If this were strictly an American problem, the dollar would be falling against the Euro,

So the world wide problem we have here is that there has been a total loss of confidence. The bankers no longer trust eachother. Congress people don't trust their leaders, the people don't trust the government. This is a moral problem, not financial.

That is why this IS 1929, really 1932. We are going to rewrite the social contract that has been in place since the New Deal replaced the contract that had been in place since the Panic of 1837.

Notice how these last 80 years, an adult lifetime. The only people around who remember the Great Depression were children at the time. So we all are going to have to learn those lessons again and build a new social fabric of trust. Because business cannot be conducted without mutual trust. And that trust has been rent by unconstrained greed. Now unconstrained fear will take its place until an equilibrium can be restored. for our children's lifetimes.

Steve is correct that the quicker we get it over with the better. And the government does not help. But the issues of the Panic of 1837 were not fully resolved until 1865 and the issues of the Depression of 1932 were not fully resolved until 1945.

Posted by Nimble Spemble 2008-09-30 21:25|| 2008-09-30 21:25|| Front Page Top

#9 bad tags:

If this were strictly an American problem, the dollar would be falling against the Euro, but its not. quite the opposite.

Posted by Nimble Spemble 2008-09-30 21:27|| 2008-09-30 21:27|| Front Page Top

#10 Did I yet mention my theory that someone's manipulating the currency markets, and buying up dollars to aggravate the crisis?

Posted by Tranquil Mechanical Yeti 2008-09-30 22:15|| 2008-09-30 22:15|| Front Page Top

#11 Would that "someone" be named Soros, Tranquil?

Posted by Barbara Skolaut">Barbara Skolaut 2008-09-30 23:03|| http://ariellestjohndesigns.com/]">[http://ariellestjohndesigns.com/] 2008-09-30 23:03|| Front Page Top

#12 Steve

Thanks for taking the time to write your informative and well-written essay. And thanks to everyone at Rantburg U, who shares their own perspective and gives us alternative takes for us to investigate and compare to what different economists are saying.

Posted by ryuge 2008-09-30 23:07|| 2008-09-30 23:07|| Front Page Top

#13 Soros already made $4 billion betting against derivatives.

Posted by ed 2008-09-30 23:09|| 2008-09-30 23:09|| Front Page Top

#14 Steve,

Well-written and reasoned argument. I'm not sure I buy all of it but it's a cogent defense of a pretty sound position. Agree or not, it's an excellent contribution to Rantburg U.

Thanks.

Posted by Jolutch Mussolini7800 2008-09-30 23:36|| 2008-09-30 23:36|| Front Page Top

#15 It's irrational yet logical at the same time, but even the Russians claim Soros is manipulating the global market.

Posted by Danielle 2008-09-30 23:47|| 2008-09-30 23:47|| Front Page Top

23:53 3dc
23:49 3dc
23:47 Danielle
23:39 Danielle
23:36 Jolutch Mussolini7800
23:23 Jim Carroll
23:21 tipper
23:14 bigjim-ky
23:12 bigjim-ky
23:11 Dino Hupineting6136
23:09 ed
23:07 ryuge
23:03 Barbara Skolaut
23:03 ed
22:58 ed
22:46 Pappy
22:37 newc
22:33 Chuck Simmins
22:19 WTF
22:15 Tranquil Mechanical Yeti
22:11 Pappy
22:03 Pappy
22:03 Nimble Spemble
21:57 Pappy