Will the MASSIVE Gvt bailout plan work?

[Contrarian]

http://economicrot.blogspot.com/2008/09/will-massive-gvt-bailout-plan-work.html

Our Global economy is currently teetering on the edge of a cliff - caused by a complete collapse of the American Debt bubble and unwinding of the global derivatives complex.

Had American financial policymakers allowed us to take our medicine earlier, we probably could have gotten through this mess, but Alan Greenspan and the Boyz instead decided to follow a consistent policy of delaying our day of reckoning. By lowering rates/increasing liquidity at any inkling of global economic stress (see some of the examples below), they merely covered up the economic problem of the day with more easy credit/debt - which successfully delayed, but significantly increased the size of the problem...

[G-khan]

I think we will get a major crash this week.......... Just my guess but I don't think the world will buy into this.

[Jekyll7]

The markets will rally this week, as the crisis has been (temporarily) averted. So in that sense, yes...it will work.

The consequences of the devaluation of the FRN will be an entirely different matter, though.

[Saul Mine]

It depends on what the definition of "work" is.

[cigarlover]

Yup it works.. Saves the bankers now they are whole.. Saves the little guy because they look in their account and they are whole.. What they dont see is the massive inflation comingdown the pipeline..

When the sheep see the metals soaring they will be wondering why o course..

BAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA

BAAAAAAAAAAAAAAAAAAAAAAILOUTTTTTTTTTTTTTT

[Zilver]

the bailout is already forming some cracks that may hurt Banks:

http://www.housingwire.com/2008/09/1...bank-deposits/

ABA: Money Market Bailout Could Compromise Bank Deposits
By: PAUL JACKSON
September 19, 2008
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Citing “deep concerns” about the Treasury’s program to guarantee money market mutual funds, American Bankers Association president Edward Yingling said that the bailout of money markets “will undermine the role of banks during this current crisis and has the potential to have an extremely negative impact in the future.”

The U.S. Treasury moved Friday morning to insure money market funds, after a few funds “broke the buck” earlier this week; the government plans to use as much as $50 billion from the country’s Exchange Stabilization Fund to protect investors from losses, while the Federal Reserve said it would extend non-recourse loans to banks for purchasing asset-backed commercial paper. See full coverage.

In a letter to Treasury Secretary Henry Paulson and Federal Reserve Chairman Benjamin Bernanke, Yingling posed eight questions about the money market program, the most pointed of which asks “how will you address the perception by the market that money market mutual funds now have a permanent implicit government guaranty – much like Fannie Mae and Freddie Mac did?”

Yingling said in his letter that a great majority of banks never made a subprime loan and have paid billions of dollars into the FDIC fund for the past 75 years. And while the nation’s financial system is under stress, he stressed that 98 percent of banks are well-capitalized and reporting profits and continue to make loans in their local communities.

“The debt instruments in a money market fund will pay a higher interest rate, and therefore, the fund will pay a higher interest rate than a bank deposit or short-term CD,” said Yingling. “It also appears that there will be no limit on how much an individual or institution can invest in these funds. Therefore, they will be in a significantly superior market position to FDIC-insured bank deposits.”

In plain English, this means that the ability of banks to attract and keep deposits may come under pressure as a result of the move to bail out money-markets — and if there ever were a time where the last thing banks want to see is deposits walk out the front door, this would be such a time.

Some of HW’s sources suggested that depending on how the program is structured, it’s possible that the Fed’s move to prop up ailing money markets may come back to push further banks into FDIC hands via a weakening deposit environment.

“That sound you hear is the FDIC upping its troubled institutions list,” said one senior banking executive, who asked not to be named in this story.

also see:
ABA DEEPLY CONCERNED, RAISES QUESTIONS ON TREASURY MONEY MARKET PROGRAM
http://www.aba.com/Press+Room/091908...ketProgram.htm

[Aussie]

I hate to say this, but in my humble opinion this mess the US and (by extension) the entire world is now facing is likely to be insurmountable regardless of the efforts made by Mr. Paulson and Mr. Bernanke. After-all, weren't these the same guys who at the first sign of the problem in February last year, said "there is no problem." And in late July '07, when it really blew up they said it was "sub-prime only." By Christmas, they said "the losses were contained and would be minimal." This past March when Bears Stearns got taken out they said it "was not a problem because our economy is strong." As little as two months ago, with a rising dollar and a declining oil price they said "the worst is behind us now ." Then came the Fannie and Freddie debacle and they had a very quick and expensive fix for that. Now we've had everything that occurred this week and they are STILL (even right now) saying the economy is strong and there is no recession in the US when nothing could be further from the truth.

So if they never saw all this coming and took so long to admit the obvious . . . how could they POSSIBLY be capable of fixing it?

So following this simple logic, if they have now actually admitted that the US banking and world financial system is about to collapse, then you know that in all likelihood it's already too late. Whatever they say might happen, is likely to be ALREADY happening. How fast it moves is anyone's guess but I think it is actually happening now.

So let's review. Just what has all the lowering of interest rates, the bailouts, the stimulus packages, the combined $Trillions in liquidity injections to the banks by the Fed and the ECB achieved? Nothing but a lot of monetary inflation and a little time for some of these failed banks. Nothing they have tried so far has done a spit of good to actually fix the problem and I think the reason is now becoming clear . . . IT CANNOT BE FIXED. In my opinion, the stage has been irreversibly set and what's going to happen, is going to happen! It's just a matter of when, how fast and ultimately how big. My guess is that at best they may be able to hold it together till the election - but that's it! There's likely to be a very good reason why Mr. Paulson is leaving his post immediately after the election instead of in January like everyone else in the Bush Administration . . .

The following quote is from a poster at Le Metropole Cafe

"This latest massive Treasury bailout is the hail Mary of all hail Mary plays, the kitchen sink and then some has been tossed in the ring, this is the last hurrah! What happens when the next market convulsion hits In a few days or a few weeks? What "plan" from what "entity" will be paraded out as the next saving grace to the system? Do they announce a summit and bailout plan from God? There are no more rabbits from hats, there are no more mulligans, this is it! If confidence begins to fail again. Panic, and I do mean unbridled PANIC will grip the entire globe."

[killer2021]

if the plan does work we will just be in the same mess 2 years down the road.

[Hatha Sunahara]

It depends on what the definition of "work" is.

The real question is "Who will this bailout 'work' for?"

Certainly not the taxpayers. The only people it will work for are the people who caused the crisis. Our corrupt financial institutions!

I say cut them off and lat them die as they deserve. Bailing them out won't 'work' for the overwhelming majority of Americans--it will just put us deeper into slavery (debt).

Plus, if we bail them out, the system will still collapse, only later. Why prolong the agony, and increase the cost? The system has cancer. There is no cure for it. Why go through the heroics of trying to save a steaming pile?

Hatha

[graspAU]

I'm hoping it holds things together for a few more months. I've got a nice AR upper in the UPS system right now. If the collapse can hold off until Friday, atleast I wil have another rifle.

I was in line at Lowes today to refill a propane tank, in case i need to cook off the coleman camp stove for a while. Most people were buying useless crap, with not even a hint that the economy and banking system could collapse in the coming days.

[squexx]

Crash.......is there a crash coming?!? Wait a minute...........on teevee it says Brittany got a boob job!

[gypsybiker45]

Crash.......is there a crash coming?!? Wait a minute...........on teevee it says Brittany got a boob job!


Wait! FOOTBALL is on!,sports is whats important..right?:banghead:

[AMforPM]

Yingling said in his letter that a great majority of banks never made a subprime loan and have paid billions of dollars into the FDIC fund for the past 75 years. And while the nation’s financial system is under stress, he stressed that 98 percent of banks are well-capitalized and reporting profits and continue to make loans in their local communities.

“The debt instruments in a money market fund will pay a higher interest rate, and therefore, the fund will pay a higher interest rate than a bank deposit or short-term CD,” said Yingling. “It also appears that there will be no limit on how much an individual or institution can invest in these funds. Therefore, they will be in a significantly superior market position to FDIC-insured bank deposits.”

Good article. Rewarding the riskiest behavior and punishing the soundest rarely has good long term consequences.

Will it work, even fairly short term and crooked? I sure can't tell. A lot depends on what foreign capital makes of it. If they don't want US IOUs anymore then that particular jig is up. Our current system requires huge flows of foreign capital.

I'd sure rather we let our sound institutions be rewarded and set policy to favor repatriating manufacturing. We have, still, plenty of can do people who would love to build sustainable transportation sytems and energy systems which we could export and get a good trade balance going again.

What the resulting inflation from this policy will do for many years to us all is, IMO, likely to be extremely painful.

But there are too many factors for me to have a very clear picture.

[Twisted Avatar]

http://economicrot.blogspot.com/2008/09/will-massive-gvt-bailout-plan-work.html



Will the MASSIVE Gvt bailout plan work?
Our Global economy is currently teetering on the edge of a cliff - caused by a complete collapse of the American Debt bubble and unwinding of the global derivatives complex.

Had American financial policymakers allowed us to take our medicine earlier, we probably could have gotten through this mess, but Alan Greenspan and the Boyz instead decided to follow a consistent policy of delaying our day of reckoning. By lowering rates/increasing liquidity at any inkling of global economic stress (see some of the examples below), they merely covered up the economic problem of the day with more easy credit/debt - which successfully delayed, but significantly increased the size of the problem...

- US Stock Market Crash of 1987
- Japan's Economic Crash of 1990's
- LTCM Hedge Fund Collapse 1994
- Asian Currency Crisis 1997
- Russian Bond Default 1998
- NASDAQ Bubble/Bust

The latest example was the Housing Bubble

Most uninformed Americans actually think the housing bubble created all of our current economic ills, but what they don't realize is: the housing bubble was merely the delayed symptom of easy monetary policies and laxed lending standards - created in large part by Alan Greenspan and his cronies by not wanting to take the harsh economic medicine after the dot-com implosion and 9/11 crisis. Therefore, they delayed the much needed/necessary hardship by lowering/holding rates at 1% (40 year low) - providing the volatile fuel mixture used to inflate the housing bubble.

So, here we are today, sitting on the MASSIVE cumulative effect of all these corrective delays and the problems are GARGANTUAN.

Thus far, in an attempt to save our crumbling foundation of debt, Gvt financial experts (AKA: Plunge Protection Team) have tried three different mortgage work-out plans, pushed through a massive economic stimulus package and simultaneously resorted to a myriad of unprecedented Fed Reserve lending facilities. That wasn't enough, so Bear Stearns was bailed out with your taxpayer dollars, followed by Fannie Mae/Freddie Mac and most recently AIG. Each of these attempt to stop the systemic debt implosion has been more drastic than the previous and each attempt has failed.

It's now being said the proposed $700 Billion Bailout package (a new taxpayer funded Government structure used to buy up the bad debts of sinking US and International banks) will save the day.

So, will it work?

Before answering this question, ask yourself: How many times during this developing economic crisis have our appointed financial wizards told you the crisis is contained - and have they been right even once?

NOT!

Much to Greenspan's despair (because his legacy will now forever change) our inevitable day of reckoning has finally arrived! The problems we now have are far too big for any repair effort - Deleveraging of debt must happen and there is nothing, aside from delaying the inevitable, that Paulson, Bernanke, Cox, Lukken and the rest of this lying band of taxpayer pirates can do about it.

Our system is Hemorrhaging badly and the band aids will slow, but will not stop the massive bloodletting to come.

If you'd like to know more about how we got here and what our future is likely to hold - see link: US Economic Outlook 2008-11+

Lastly, we should never discount the negative implications these bailouts create for the US Dollar - as the World's Reserve: Dollar: Faltering Foundation of US Economic Strength

Regards

Randy

[Twisted Avatar]

I was in line at Lowes today to refill a propane tank, in case i need to cook off the coleman camp stove for a while. Most people were buying useless crap, with not even a hint that the economy and banking system could collapse in the coming days.

It is amazing.

The wont understand until they are at the movies with there hot date and the CC all say declined and when the go to ATM and they say out of service.


Survial of the fittest will soon be upon us.


T

[Horn]

It's a little late, and greatly unappreciated. I only see it aggravating the situation further.

The world will bail on the U.S. market, and the dollar in a fortnight.

Banana Republic, no Hollywood Republic coming soon to a theater near you.

The U.S. is BANKRUPT!!!

[graspAU]

It is amazing.

The wont understand until they are at the movies with there hot date and the CC all say declined and when the go to ATM and they say out of service.


Survial of the fittest will soon be upon us.

T

Met the girlfriends father today for the first time. Smart guy (69 years old). He understands at a macro level how close we are to a major financial problem, but I can tell he is not prepared with supplies (although he is the type of guy that still gets dropped off in the middle of the woods, alone for 30 days and calls it a vacation).

His water purification system went out and he's glad the wife is out of town because the water is out, and he would be in a world of hurt from all the complaining about no water for even a day or two.

What is coming is going to be a shocker to all. Standard of living could be gone in the blink of an eye. People will not believe it, they will be helpless. The government can't help a single city effectivley when there is a natural disaster. What's going to happen when there is no economic activity everywhere?

They don't have any guns either, so no way to protect themselves from anyone, should they need to.

[grinningdog]

No not until the public decides to forgo credit.

[budfox]

I think it will work for about 20 minutes...........

[Sparky]

It depends on what the definition of "work" is.
My thought exactly.

[Hatha Sunahara]

Don't they have us all in such big suspense?

I think it's all propaganda to buy more time to loot the nation. And then keeping it enslaved through debt for 4 generattions into the future. If they can't do it with mortgages, they'll do it with taxes. These are all euphemisms for slavery. This is the destination you reach when you allow usury--in fact, institutionalize it with fractional reserve banking and fiat currency. Our politicians seem to have succumbed to this power of usury about 100 years ago when they allowed the creation of the Federal Reserve, which created money by putting people in debt. And then we all started worshipping money. And now, all the gods of money are falling down. Or are we all gaining the ability to see through our illusions? Perhaps the result is the same. Why does money control us? I could go a few steps forward, but I brought you to the cliff, you jump off yourself. Why does money control us? Because. . . . . . ?

No, the bailouts won't work. The gods of money have already fallen, like Humpty Dumpty, and who the hell wants to put them back together?

Hatha

[DrillAndFill]

Why will it not surprise me if gold heads downward Monday? Yes, I am that bitter.

How on earth can the dollar hold on much longer?

[DHawk]

It is amazing.

The wont understand until they are at the movies with there hot date and the CC all say declined and when the go to ATM and they say out of service.


Survial of the fittest will soon be upon us.


T

Do you really think we go back in time 50 years overnight?
If the banking system locks up , what good will all your silver do for you?

[mouse]

This is one of the most abusive money laundering scheme ever created. Section 8 says “I am about to commit a huge crime. I want to be pardoned in advance”. Here is a scenario to think about: Gov’t values the toxic waste at par, assumes no defaults, and uses absurdly low, or no discount factor. Pays that to the banks. So if you originated the waste and are sitting on it marked down, you are made whole. If you were smart and sold the waste off at a huge loss, you get nothing. If you bought the waste at say 40cents on the dollar, you make a huge profit. If you are SWF and bought it at 22 cents, you sell it back to ML for 50cents and split profit with ML. ML sells it to Gov’t for 100%. NICE

And don’t forget it’s 700BN at any one time. So you buy 700BN trash, work it out, repackage it, sell it back to the banksters at 22 cents and buy 700BN MORE. Lather, rinse, repeat. Spin cycle money laundering. Just like I predicted in one of the FNM FRE threads. (Not to toot my own horny) :)

This is anti dollar positive, for sure

[GoldisMoney]

There are 2 primary things to keep in focus.

The first are Credit Default Swaps - currently estimated at about $62 Trillion dollars. Those are what are currently being set off like a pack of firecrackers. The current govt bailout plan is designed to keep that fire contained. Whether it will ultimately work or not is too soon to tell.

What is missing from the discussion is the effect of the dollar going down in value. Foreigners start to diversify their reserves. They start dumping Treasuries. Prices fall...yields rise.

As yields rise, another type of derivative begins to catch fire. This type of derivative was designed for another purpose. To transfer the risk on interest rates rising.

And the market for interest rate swaps DWARFS the Credit Default Swaps market (CDS is a paltry $62 Trillion).

I humbly suggest that it is the interest rate swaps that will ultimately prove to be the demise of the current financial system. Yes, we have to burn through the CDS market first. The money "loaned" to bail out the CDS will ignite the Rate Swap market. That ignition will completely burn the system to ashes. Within an hour (60minutes) of its ignition. Thats how fast its going to go down. 1 hour.

[Argentsum]

Do you really think we go back in time 50 years overnight?
If the banking system locks up , what good will all your silver do for you?

PM's are for protection vs inflation. A banking system lockup could cause liquidity problems for those who hold PMs. Of course, a banking system lockup would cause liquidity problems regardless of whether or not you own PMs; and regardless, I'd rather have PMs.

PM's have intrinsic value. Once the markets restart there will be a market for gold and silver.:D

[Walter Mitty]

It depends upon what happens to Treasury Sales to fund our deficit.
If the 1-2 billion dollars per day we get from Foreigners dries up the Fed will have to monetize.
Once they do that it's game over.
The dollar will crash immediately.
They can only keep things going if Foreigners do not bail on the dollar.
Just my .02.

[mick silver]

it welll buy time , for them to rob our asses , time well tell , but this is not a fix, it going down but how long well it take

[G-khan]

This is almost funny if it was not going to hurt so many people. Still looks like we may crash this week to me.. Nobody can figure out what to invest in and everyone is getting whipsawed. You only stick your hand in the fire so many times before you decide not to try that again..

Soon the only thing left to invest in will be Gold/Silver - after everyone gets into it (gold/silver) I would not be surprised to see the Gov come in and outlaw it?

F@#KING IDIOTS

[Brent]

It depends upon what happens to Treasury Sales to fund our deficit.
If the 1-2 billion dollars per day we get from Foreigners dries up the Fed will have to monetize.
Once they do that it's game over.
The dollar will crash immediately.
They can only keep things going if Foreigners do not bail on the dollar.
Just my .02.

Did you mean if foreigners continue to bail out the dollar?

Seems to me (but I am just a newb) that if the foreigners stop buying our treasury bonds we are screwed and down goes the ship.