Comments on: Why the credit crunch is about more than Wall Street

A lack of credit affects businesses from tech giants to mom-and-pop stores to all manner of consumers.

[jwmpc]

Well, not to justify inaction but... Perhaps the biggest concern is the amount of control the US Government would have over the financial markets with this 'asset purchase'. More than one commentator has likened it to nationalization, and granting the Treasury Secretary broad and non reviewable powers does not reassure many on either side of the aisle. Sure, credit helps when capital is thin and diffuse, but it is inherently risky. In a free market you are also free to fail, but apparently no one wants to accept this.

That being said, I think the plan to revive the short-term credit markets will be revived by further concessions on the powers of the administrator (ie, the Treasury). Already concessions have been made on executive compensation. Why not some power of review or control administered by congress?

[Commander_Spock]

As Commander_Spock recommended - Have the Army, Navy, Air Force, Marines all aided by the Financial and Economics "SEALS" TEAMS, The FBI and the CIA. Now, that will keep things really, really cool, won't it? ;-)

Live Long And Prosper!

[Commander_Spock]

Corrections: "Have the Army, Navy, Air Force, Marines (go in 8-) ) all aided by the Financial and Economics "SEALS" TEAMS" instead of "Have the Army, Navy, Air Force, Marines all aided by the Financial and Economics "SEALS" TEAMS"

[ghostofitpast]

With all due respect, Ina, it is not all about the credit markets; and it is DEFINITELY NOT all about the interests of THE WALL STREET JOURNAL, Microsoft, Silicon Valley, or the Milken Institute. It is about the other side of the coin, which is to say that it is all about DEBT and how it has gotten about of hand. (In that context you might do well to remember what Milken was doing before he founded that Institute!) One of the ways in which debt has become unmanageable has been through unregulated instruments that basically turned debt into another commodity. The very idea that credit can be marketed is so patently absurd to Main Street that it is no wonder they are up in arms. Stop thinking in terms of the abstractions being fed to you by those who ultimately speak for shareholders; and think instead in terms of the common-sense day-to-day reasoning of the American consumer! If you can do that, you will be open to ways to move forward other than bailout. If you are open to such suggestions, you can start at:

http://therehearsalstudio.blogspot.com/2008/09/is-sky-falling-yet.html

[Commander_Spock]

As Commander_Spock recommended - Have the Army, Navy, Air Force, Marines all aided by the Financial and Economics "SEALS" TEAMS, The FBI and the CIA. Now, that will keep things really, really cool, won't it? ;-)

Live Long And Prosper!

[siberianmetal]

Banks are not running out of money. Rather, they are losing confidence in borrowers. It is a problem that cannot be fixed just by throwing a trillion dollars at it.

[Commander_Spock]

It would depend on which banks you are talking about; and, as an example...

Re: "[....Moreno emphasized the IDB?s efforts to support Latin American and Caribbean countries against the effects of the food crisis, skyrocketing fuel costs and financial turmoil. He said the IDB is managing the crisis through three main channels: demand, supply and liquidity.

On the demand side, the IDB is strengthening and expanding social welfare and anti-poverty programs. On the supply side, the Bank is moving faster to launch and carry out programs to support agriculture, such as the PRONEGOCIOS program in Honduras, as well as programs to promote biofuels and to strengthen financial regulation. More liquidity is being injected into the financial system through budgetary support programs designed to buttress social welfare initiatives.

Moreno also noted that other IDB loan priorities for Honduras have focused on ensuring sustainable growth by improving the country?s infrastructure (energy and roads), modernizing the state, managing risks posed by natural disasters, and boosting competitiveness. ..."]

http://www.iadb.org/NEWS/articledetail.cfm?artid=4773&language=En

Different strokes (to grapple with the "effects of international financial turmoil") by different folks.

Wake up America.

Commander_Spock must certainly be getting tired after all of these years, and years of sending out the warnings about the absence of "skills-set" and the requisite Information Technologies.

Take a page (an hint) from the Inter-American Development Bank; and, Live Long And Prosper!

http://www.iadb.org

[jwmpc]

Especially when those borrowers are other banks. Too many real-estate seminars and addiction to loan origination fees has created this situation. Everyone saw this coming, no one wanted to believe it. What's worse, rents in my area have skyrocketed, making the situation more dire for a working person than for an corporate entity. It's simple. The financial markets have to be regulated. They have to pay more taxes too, though I like the cute way certain legislators disguise it as insurance. And finally, the capital gains tax must be raised. Sounds counterintuitive, but it would show responsibility.

[Commander_Spock]

Agreed - "Too many real-estate seminars and addiction to loan origination fees" and not enough focus on export re-orientation (the values of goods coming into the country as against the values going out) Project Ranking plus Financial, Economic and Technical Management et cetera et cetera. Why not put "Rudolph The Red Nose Reindeer" to "guide" everyone if they do not know the ways out of the "mess" IBM et al have to do some re-design of the analytical tool. Were I GWB I would have said "The Union Would Have Been Strong); but, for what have been pointed out. Put the nation to work on them and - Walla! This is sooooo......... simple; and, it more than 30 years since it started and not with GWB. (Wink, Wink)

[Commander_Spock]

Re: "IBM et al have to do some re-designing of the analytical tools" and extend these to the agriculture and industrial sectors; and - Walla!

[trd1282]

The problem is liquidity in the market. Banks have very little cash on hand, and therefore are not able to borrow much from each other. All of this due to mortgage foreclosures.

"Regulation" (not completely a dirty word) would force these CEO's to be transparent with the status of things like, you know, active mortgage accounts. This would have been totally predictable, BUT WE WANT NO REGULATION, right?

[_d_a_n_]

"Government's main function is to do things that private sector cannot handle."

No, it isn't.

I'm sorry, but the governments only function is to make its citizens lives better. All this mess in the financial sector is the result of too much greed and too little regulation. However we are so deep in this there's probably no faster solution than the bailout to get us back to waist level.

After we bail the banks out, we really need to make sure this doesn't happen again: Either we let the banks operate however they please and also let them sink when they get in trouble, or we enforce them to operate responsibly through reasonable regulation and then we help them when they need.

[Commander_Spock]

Read Commander_Spock's post for the lasting solution.

[stuxstu]

My extended family has been having a debate about this topic for the last week. I just want to know how much more of my future does the goverment plan to destroy? The national debt is 9.5 trillion or $9,500,000,000,000.00 and grows at $2.5 billion a day. That is $31,561 per person in the US (9.5 trillion divided by 301 million). The national debt, the greed of the banking industry, the greed of investors, the greed of mortage lenders and the arrogance of Congress to "blame" somebody else for this crisis is shame.

This crap started in the 90s (Clinton Era), was driven farther by GWB and the Republicans and completely ignored for the last two years by the Democrats. They are all to blame!!

There won't be a bailout for my investments and 401k, why should I bail out and put more on the backs of my kids for Bill Gates, Warren Buffett, Congress and the banking Industry. JP Morgan, Citi and others seems to have billions to buy the greedy banks.

So please tell me what the difference is between the banking industry failing and the US government failing in 20 years?

[Commander_Spock]

You mean to say that with Canada to the North, Mexico to the South and Chinese and all the other nations bracing from all sides and you ask "So please tell me what the difference is between the banking industry failing and the US government failing in 20 years?" You have got to be kidding - right?

[Commander_Spock]

You mean to say that with Canada to the North, Mexico to the South and Chinese and all the other nations bracing from all sides and you ask "So please tell me what the difference is between the banking industry failing and the US government failing in 20 years?" You have got to be kidding - right? Keep telling ya all there are some "secret solutions" in that ERR Formula.

[regulator_eze]

"So please tell me what the difference is between the banking industry failing and the US government failing in 20 years?"

Civil war.

[Commander_Spock]

Re: "Civil war." what "Civil war." are you talking about - it more looks like "INVASION USA"... Ask Venezuela's Chavez!!!!

Re: "Russia may launch nuclear cooperation with Venezuela

4 days ago"

http://afp.google.com/article/ALeqM5iiePu64JzQSc5fGJA_zjPpJ4IGIw

Think beyond (outside) America's borders. Huh!

Live Long And Prosper.

[alt_bob]

Your are at the edge of understanding the cause -YOU and ME. We have not held our Congress accountable for not doing their jobs. Please, let us remove all in office over next six years, send a message to all that would hold the positon. I oppose termlimimts, they are ours as voters to impose, but we must pay attention and hold them accountable. Getting earmarks for your district and/or state is not the job. They have one job only, to set the budget! And none as done so since before the nineties. Let us remove them until one set does the job.

As for the crisis - there are many solutions on the Intenet by people such as Cuban that appear can ease the immediate issues and Congress needs be seeking thesepeople for solutions and select the best.

Keep in mind greed is what makes us so powerful and rick, but uncontroled by those with no moral judgement puts us in this fix. And that is the fault of several past congress'es for not keeping controls in place or making new ones as the greedy learn of the holes.

DO NOT RE-ELECT ANYONE IN CONGRESS TODAY!!!

[jbmartin6]

Ok, so prove to me that this 'crisis' has anything to do with credit availability. The article only has this as an assumption. Nice job media, parroting government crap. I think 'Main Street' understands just fine.

And yes, it is a bailout. if these 'assets' were worth anything we wouldn't have to be forced at gunpoint to buy them.

[zulu2003]

I do not agree with your simplistic assesment that whatever we are told from the Fed and Paulson is true and spending more will solve everything. I lived in a country with a wild inflation rate, and if USA doesn't see it coming and stop spending what it cannot afford we are in for quite a ride.

I do not agree to add more to the debt of my country with a plan that was initially proposed to not to be reviewed by any court. That just shows that Paulson is as greedy as anyone else in Wall St and we shouldn't allow ourselves another greedy Wall St CEO to spend our future 'trying new things'. Paulson is the last person I would trust with our blank check. His only contribution to this mess was the panic that Paulson induced with the show he put up in the last weeks. If he is trying to rewrite his legacy, we are going to remember him as the 'failed showman', 'The-Sky-is-Falling Treasury Secretary'.

Just reading this morning's headlines, he is now trying to use yesterday's fall to get his plan approved. I will continue calling my congress representatives and send not just a NO, but a HELL NO!


-Very Angry Citizen

[scdecade]

94% of all mortgages are current with their balance. Only about 3% of mortgages are in foreclosure. People are going through a lot of difficulty making payments, I am. But saddling honest people with more debt so the government can practice cronyism with $700 billion is not a solution. It's more of the same Washington crap which caused the problems to begin with. No bailout. Period.

[chash360]

Could you cite the references of these figures of 94% and 3%? It would certainly help your argument...

[Al Boone]

This is supposed to be a government of the people, by the people and for the people. The people have spoken loudly, "Don't bail out Wall Street. Bush cannot blackmail the people to get his way and neither can the congressional leaders. We know to whom they really answer. Unfortunately, they will probably get their way in the end and the people will get what they always get.

[Dr_Zinj]

Good point, jbmartin6, "if these 'assets' were worth anything we wouldn't have to be forced at gunpoint to buy them".

I'm talking with my financial advisor and basically cherry-picking the depressed stocks that look promising. I only had a 100,000k to play with anyway, so I'm definately no Warren Buffet. Subprime "junk" that is pure debt should be allowed to fail. Greed is one of the seven deadly sins and all the greedy folks can go to hell on their own accounts, not that of otherwise prudent Americans.

I don't live off of dividends or stock sales; so this doesn't immediately affect me. It IS killing the elderly who subsist off of their dividend checks and asset sales. The 'bailout' won't directly, or immediately, benefit them or return them to solvency.

Adn I've only heard from a few experts about how much of a negative impact 700 billion dollars dumped into the money supply would have on the value of current incomes and savings, as well as the unearned, unjust windfalls to be seen by the holders of the junk that gets bought up.

[gat0rjay]

Sorry. But this all stems back to 1971 when the government stopped backing dollars by any precious metal. Now they are free to print as much as they want, and the dollar has no intrinsic value. Debt rises because the Fed just prints whatever they want. On top of that, our money devalues every day because of this out of control seigniorage. If we don't stop it now we're well our our way to massive inflation. The root of this problem is far more than bad investments, or poor credit. It stems all the way to the money supply and the irresponsible ways the government has come to manage it...

[knowles2]

Their is no simple short term solution. And buying up 700 billion dollors of bad debt was to simplistic
answer to a very complex problem, may even thought up just to make the republicans look.
The thing from what I understood is they would only going to be buying up debt which the banks want to sell to the government and the banks were only going to ever sell the worst of the worst of the debt to the government. And seriously would you buy back debt which almost bankrupted you the last time you had them on your books. I would not and to tell you the truth I do not think the banks were going to.

The only real solution is to make sure any of the weak banks are force to merge with larger banks, before they run out of money. Make 100+ billion dollars of emergency loans available to small-medium large companies to keep those companies ticking over, if they are unable to borrow from banks. This is to try and prevent the job losses which are expected over the coming months.

On top of this you introduce laws which we have Britain which makes it pretty difficult to reprocess one house. Here in Britain the Bank have to make you a fair and reasonable offer of assistence, if they do not the court can decide to actually block any repocessions, for any length of time, a former friend got his block for year and in that time he was able to get back on track his finances, and well after Judge rule in his favour the bank started renegotiation on his morteage deals abd being much more friendlier. Now he is now happily repaying his mortgage.
Similar laws in the US probably would not of prevented the current crisis but may be made it a whole lot smaller than it is.

On top of this theirs need to be a global regulatory body set to monitor the entire banking system world wide range of powers to intervene if they see it as necessary. We such act eventually each back under the regulatory frame work. This will probably takes years to establish but essential if we are to prevent another credit crunch.

[chash360]

Quoted from the front page of Wall Street Journal: "Credit markets are the life-blood of the economy".

Why are not products, goods and services the life blood? Maybe I am old fashioned but I always thought jobs were the life blood? Why do these businesses have to rely on credit? Are they not operating in the black? Is it because they offshore all of their profits and take loans to make payrole to avoid paying taxes? If it is the home loans and consumer loans and credit causing this, why are they not able to pay their bills? (perhaps its because the corperations, by way of the government free trade agreements, shipped all the jobs overseas?) Is it because all the teenagers working in fast food were re-classified as manufacturing workers to cover up the loss of these jobs? Is it because if you are not growing your business at unrealistic rates (so that Wall Street can siphon off more money), that businesses need to borrow more than they can actually profit, iow: more than they can afford, to sustain that growth rate?

The only real, true value ever created is through productive work, not Wall Street speculations. Most shareholders these days are nothing but greedy, want money for doing nothing, daytraders. They have inflated the speculative value of everything so much, that it must crash. The bubble must burst so that we get back to reality and base things on real value, not speculation. Real work, real products, real services, real profits, real jobs.

Economics are based upon supply, and demand. Gambling is based upon risk and speculation. Wall Street has become a glorified Casino, rather than the commodity price regulating entity it was intended to be. Growth can not be sustained indefinately, not at the rate of their greed, yet Wall Street bases nearly all of its decisions on growth. I have yet to hear a compelling argument that convinces me that they really need a bailout, quit borrowing what you can not afford, quit trading debt like a commodity, quit avoiding payrole taxes with loans, quit bribeing/lobbying government for tax breaks for the rich and corperate, quit shipping the real value overseas (jobs), and if growth slows to a crawl, so be it, it will be growth we can actually afford. If we can not afford it, then face the truth, we can not afford it, don't hide it with another bail-out, that will end up in CEO pockets!

[chash360]

The rich need to pay more taxes! If you are rich, then you have benefited more from the existence of the country and its infrastructure, therefore you should pay more!

[mnelson54]

The problem with the analysis is the explicit assumption that Wall Street is a financial market and not the world's highest stake casino. We need to get back to basics, and, in the mean time, take our medicine for our addiction to foreign credit. BTW: the $700 billion to alleviate the credit crisis would be foreign money obtained through credit. What's wrong with this picture?

[algie123777]

I believe the existing business that plan to upgrade their assets or expand their liabilities as detailed on a balance sheet. This is applicable for business because they can afford to pay it back in relation to assets and capital, well yeah send those greed bastards to us and we'll exploit them! http://www.greedypeople.com