All, I just saw Paul’s response in defense of optimism, and I’m shocked; this is an indication that some people have gone overboard in their responses.
In the future, it will be better if we post our responses to the questions, thus ‘casting our votes’, rather than responding to other people’s responses, which can create chains of ‘rants’. Paul can then ‘count the votes’ and use them for future articles.
I think I will ask the same question as was stated below…Namely, where does anyone propose that the Fed, the Treasury, or indeed, any arm of Government get the money required to execute a bailout? do we go cap-in-hand to China? Maybe we beg Saudi Arabia for the money? If Ben fires-up the printing press to fabricate $5,000,000,000,000 it will be noticed with or without M3 publications. Inflation would rival Weimar Germany in 1923.
I just don’t understand the “panic” over this.
Yes, things are bad in the financial markets. Ok, that is a totally gross understatement.
It is just that nothing happening now is a surprise. “we” were told early in the year what the horrid condition of the mortgage market is. Even our mealy mouthed, cheer leading, economy pumping leaders told us to prepare for the results of huge piles of bad paper.
But at each stage that the banks and governments have to deal with it, we suddenly “see” it and all dash off a Chinese fire drill. (Oh my god, can I still say that?)
hint: it aint finished yet. Stop panicking. Just breath.
Let them fail. Let them all fail. The free marketeers have cheered on deregulation and have claimed that private industry is far more efficient than government – until private industry is no longer efficient??? Free marketeers stay true to their religion until “their” money is at risk and then they become welfare cases. The truth is the market is not always efficent because human beings are involved. Humans as we all no are not rational and act mostly on emotion, i.e. greed. Regulation not deregulation is the best but not perfect road. Private industry, i.e. mortgage meltdown, savings and loan, Enron, Worldcom and dotcoms have proven that they don’t deserve the keys to the car. Regulate them until they behave!
Thanks to everyone for the feedback on today’s column as well as many of my others. However, I just have to step in and defend myself. My optimism is borne from nothing more than a desire to look at things objectively and with a level-headed view. I have no vested interest in seeing the market go higher anymore than any American with a 401k plan does. My investments are primarily in a 401(k) and the only individual stock I own in that account is that of my employer Time Warner. I own an apartment that is my residence, not an investment. I am not looking to sell any time soon. So I am not trying to bring the housing market back to life for personal gain either. I simply call things as I see them. Nothing more, nothing less. That’s what I am paid to do. I appreciate all the feedback and love to see other people’s viewpoints. But please don’t accuse me of writing what I do for financial gain. If I wanted to truly profit from the markets, I would not have chosen a career as a journalist. Anyway, please keep reading and commenting. Take care.
PRL
Also, I have to agree with AG from Mass. who posted earlier regarding the author’s continued positive bias about our disatorous economic and financial situation. Must be very high paid and wealthy.
They have always had access to the Fed window like commercial banks and they have always been able to borrow directly from the US Treasury so in effect they have already been bailed out. The only unknown is how much will it cost taxpayers.
You guys are so out of touch with reality it’s hilarious. You go on and on about how much we need to let these companies burn for their mistakes and let the economy take it’s course so all will be better eventually. The single mother who can only afford two meals a day for her child would like to have a few words with you about letting the economy slump. Letting these companies fall doesn’t just make big executives get their come-upance.
Dear Dan in Charlotte,
of course, stupid me.
however, if i actually lived in mid america and let politicians manipulate me, i would vote repub. unfortch, i live in NYC and am an advocate of anarchy!!!
use the system to abuse it…
Might as well bail them out and run up the deficit, it will be Mexico’s problem once they annex the United States into the United States of Mexico
Dear Middle America Michael,
Don’t you know that the Reublicans gave you that $600 to vote for them in November?
Now shut up and vote for them!
Sincerely,
NO!!!!! They give the lower and middle class a “courtesy” 600 bucks so we can go buy an LCD TV at W*lm*rt (or buy gas instead), so we shut up and continue on with our modern bourgeois activities. But then they bail out these huge enterprises with billions of dollars and say it’s for our benefit.
These bailouts are not for us. They’re designed to fool the common american and keep the distr. of wealth and power in the same hands.
Complacency is a major disease in the US, especially amongst those who make 70,000 or less as a single person, or 150,000 or less married. Marcuse is depressing.
Seems to me that the formula to fleece America goes something like this:
1) Congress and President take actions to privatize government services.
2) De-regulate said services to increase private company profits.
3) Pay huge bonuses to executives of newly privatized de-regulated companies in the hay-days.
4) When something goes wrong have the government (U.S. taxpayer) bail the private company out.
5) Start at step #1 again.
This is a great formula as long as your not the responsible tax payer holding the bag.
Those who do not learn from the past are destined to repeat it.
What would it take for Paul R. La Monica to decide that it is, indeed Armageddon? My guess is, nothing short of a Jupiter-sized asteroid hitting Earth.
Nah, even then he’d spew some Pollyanna BS to reassure us the government’s gonna make everything just swell.
A government bailout is absolutely the wrong thing to do for a company. Companies need to run themselves more effectivey and efficiently. The government does not gain one cent when these companies are making millions – so why should the government share in their pain? America is a land of capitalism not socialism.
Why not, they’ve bailed out everything else. Wonder when they’ll bail me out of my mortgage. How can any company, or even the economy, learn a lesson when it gets a new Nintendo WII for getting straight F’s?
No the government should no bail them out…I think the financial instituions who originated them should have to pay for their recklessness -nuff said.
I’m sick and tired of my tax dollars (time & sweat) bailing out unregulated industries that pay their executives handsomely for ineptness, greed and downright theft. Let them fail. Go back to the gold standard. Stop this smoke and mirrors economic system and install an administration whoose people have the decency to play at a different country club than the bankers, oil people and drug and insurance companies. It isn’t the competition for resources that is burying our economy but lack of morality and honesty by our conglomerates and elitist (read contemtable) poilitical leaders.
Actually, wouldn’t it be China that would be doing the “bailing” if any bailout were to occur? We would after all have to beg China for the money as we are broke.
$5 Trillion dollars. Just think about that number for a minute. Tis is not just a few million or billion dollars we’re talking about here. The United States has an estimated Gross Domestic Product of $13.1 trillion, and that’s for the ENTIRE economy. Our national debt is about $9.5 Trillion, for our ENTIRE nation. Imagine how much YOUR taxes are going to go up by if we all have to pay for a share of the $5 trillon mistake on Wall Street.
Then again, I wonder what my share of our $14 Trillion dollar national debt I would be after this…
Let me just try to understand this. Products and services are being traded for debt. The debt is slashed. Who is ultimately responsible? How long can we add to the debt pool? Even if they are bailed out, the products and services were produced and delivered. Those do not evaporate; a debt is still due. Who pays for this? Where is personal responsibility? Forgiveness may work in the church, but it should be reclassified in finance and credit.
No they shouldn’t bail them out. We sure the hell weren’t receiving checks from them when they were making money. Why the hell should we be giving them money when they are losing it?
Let the economy take its course. If that means going in to a recession or depression than so be it. I’m sick of the government trying to bandaid everything and make it look all better when the problems are still there.
What I don’t understand is why banks and wall street arent working on their own to avoid this.
Yes.. the person who makes $2500 a month in income and purchased a $350 – $400K house surely can not afford a “normal” mortgage for that house at non teaser or interest only payments..
But question this. I’m an ALT-A arm that because of this credit crunch have now been locked out of refinancing my home OUT of an ARM that has adjusted beyond my means. I started at a 6.95% interest rate on a $390K mortgage and have spent the past 2 years meeting my obligations. (I got only an ARM because i was self employed, stated and had NO current credit history.. as I swore off credit cards). Two years later with now established credit AND meetin gALL my obligations, can not refi because self employed at 100% LTV (I lost any equity I had in my home. .I put money down!!) they jsut wouldn’t refi me! So here I am now trying to short sell to avoid foreclosure when I would clearly be able to afford a home. So.. why isn’t this group of numbnuts saying.. hmm. .. here’s a person that, if we just fixed her interest rate (which is what I started asking for 8 months ago BEFORE my rate adjustment.. as I saw what was coming for me) can continue to pay us back and stay in their home and NOT default..
But they refused!! Now.. with the threat of Fannie and Freddie going down adn mortgages harder to get for first time buyers.. I worry about not even being able to sell it to avoid foreclosure!!
The banks are really stupid.. !! Really dumb! They gave a $350K mortgage to people who make $2500 a month!!! Now they are crying!! Yes.. I took out an ARM.. but I could afford a normal interest rate and totally expected to be able to refi to a fixed .. and now I’m trapped!!
It’s not a simple problem, but suffice to say this has been a long time coming. It is time to do away w Freddy and Fanny, and let the private sector take over. The extent to which these companies are over-leveraged is hard to beleive. Having status as quasi govt agencies, while offering stock at the same time, just doesn’t work. It’s a disaster just waiting to happen…and here we are.
Paul,
Do you have a massive long portfolio? It seems all of your articles are biased towards the positive side of things. Now don’t get me wrong. I’m not negative but you have to agree besides “investor panic” we do have some problems to work out. Can’t we have an article based on some cold hard facts?
‘No’, not in the ‘give them all the money they want’ sense of the word bailout. ‘Yes’, in the ‘take them over and provide adult supervision’ sense of the word. This could take many forms, such as a ‘takedown’, like Bear Stearns. Or, it could be a ‘rollup’, in which FNM and FRE are gobbled up by the FHA into one giant agency that IS backed and regulated by the Federal government. Or, a number of other possibilities. The bonds will still exist, but the shareholders will probably get zero. Three things need to be in this deal: stop buying ‘used’ mortgage bonds (these have very high default rates and are probably worthless), minimize the buying and selling of ‘new’ mortgage bonds only for fixed-rate mortgages with verifiable incomes, substantial down payments (maybe with 20% down), and realistic, independent appraisals, and keep the conforming loan limit at $417k to limit over-bidding for properties and default rates.
On the lighter side, I was in Lost Wages last week (aka Las Vegas), and they have a new way of renegotiating mortgages with stingy lenders; they call it “buy and bail”. It goes like this: the lender of your current home is overcharging you and raising your rates. So, you go out to a different lender, find and buy a different, much cheaper property (maybe across the street or even next door), move all of your stuff over to it, and THEN call the old lender to negotiate a short sale of the old property. People are saving hundreds of thousands of dollars there and getting out from under impossible mortgages, mostly HARMs. All of the realtors there know how to do these perfectly legal deals. Commercial real estate has operated this way for many years. Only in Vegas. It will be interesting to see how quickly it spreads to AZ, CA, FL, MI, OH, etc.
The analysts that you quote just don’t seem to understand that the credit crisis is not going to be resolved anytime soon. In fact it is only going to get worse as the Fed and Congress continue to try to bail out every bank and investment firm that took on too much risk. They should not be bailed out, nor should the reckless homebuyers who bought more home thant they could afford. The day of reckoning is upon us and there is nothing the Fed can do other than make matters worse which they have been doing for a vry long time. In fact, all of our current credit problems are a direct result of of Fed policies over the past 25 years of bailing out every entity on the verge of collapse (from LTCM to the S&L crisis to the Mexican peso crisis, to the Asian flu crisis) and doing so by creating unsustainable bubbles in the stock market and housing. Those now claiming to have a fix for the problem are the very ones who created the problem and their fix is the same as it always has been : keep bailing out any entity on the verge of failure. The problem is this is now too big to bail out. It’s not just the banks, the investment firms, and the homebuyers that need a bailout. The auto manufacturers and the airlines also need a bailout. And Congress will try to shore up FNM and FRE, but the housing bubble has a long way to go to deflate and Congress is going to have to do a lot more bailing. The net affect will be much higher inflation and a much weaker US$ as the Federal budget deficits mushroom to well over $1Trillion annually. The sooner everyone realizes that these problems need to be resolved by allowing the bubbles to deflate rather than trying to keep them inflated, the sooner we can get back to a sound footing. We also need some responsible people at the Fed and in Congress, but I don’t think that is possible. Both are fast losing what little credibility they had.
Before everyone decides that they have the right answer, please refer to a well-crafted essay at
http://mises.org/story/3053
“Too Important to Fail?”
Freddie and Fannie may be important all right, but they might also be very likely to hurt the U.S. repeatedly in the same way in the future.
To keep them around at what cost?
If every few decades they are as perniciously involved as they are in the current debacle, do we really want to keep them around?
It sounds contradictory, and it may well be, that we allow something to fail that is “too important to fail”. To spite our face we cut off our nose? But if we knew that the infection in our nose was going to cause gangrene in our brain, what choice would we have?
In reading the referred-to essay, I kept thinking “why keep some things going that are — in their present form — virtually guaranteed to cause the same problems at some point again in the future?”
The shareholders will likely lose their shirts. That much seems clear.
The bondholders will be bailed out by the Feds.
[Peter Sorrentino:] “The structure of the housing market is built on having a secondary market for mortgages.” Suggesting that no alternatives exist.
Yeah, true enough, but then why did we get to this point seems the more germane question; why did we design the system this way?
“And we knew that many critics of the firms thought they would be better off being nationalized.” Hey, news to all of us readers — they are effectively ‘nationalized’ already.
I hear the same words being repeated — this is ‘panic”, this is ‘impatience’ and ‘myopia’. As if there were no substantive problems underneath that are stepwise manifesting themselves as we move forward in time through this imploding Credit Bubble.
“There is reason to believe that, over time, this will get the credit markets to work in a more orderly fashion.”
I hope so and trust so. What really worries me is what EXACTLY constitutes “over time”?