Microsoft urges rethinking U.S. bailout

Wow...Didn't expect this from Papa

BIG!

Clearly Microsoft are the premier financial experts.

Laughable.

"For the good of the economy." Really, is that a fact?

The bailout won't work AND it is wrought with pork-barreled earmarks, such as 350 million for the renovation of the "House of Representatives Beauty Salon".


Sorry, Charlie, the market will work itself out.

phreaks said:

Clearly Microsoft are the premier financial experts.

Laughable.

"For the good of the economy." Really, is that a fact?

The bailout won't work AND it is wrought with pork-barreled earmarks, such as 350 million for the renovation of the "House of Representatives Beauty Salon".


Sorry, Charlie, the market will work itself out.

I am a U.S. Patriot but I also think we, as a whole, need a diet.
On the other hand, seeing Microsoft step in is exciting.

I'm still ticked about the Federal attacks on Microsoft during the Democratic Presidency.

phreaks said:

Clearly Microsoft are the premier financial experts.

Laughable.

"For the good of the economy." Really, is that a fact?

The bailout won't work AND it is wrought with pork-barreled earmarks, such as 350 million for the renovation of the "House of Representatives Beauty Salon".


Sorry, Charlie, the market will work itself out.

Didn't the great depression show that when banks start failing left-right and center that the market _doesn't_ sort itself out? If the banks arn't lending money to each other, then a small dip in the share price can cause a massive downwards spiral that bankrupts the entire institution.

evildictaitor said:

phreaks said:

*snip*

Didn't the great depression show that when banks start failing left-right and center that the market _doesn't_ sort itself out? If the banks arn't lending money to each other, then a small dip in the share price can cause a massive downwards spiral that bankrupts the entire institution.

This is nothing like the great depression.

There are plenty of options currently available to troubled institutions, as we just witnessed 2 days ago with the announcement that Citigroup was purchasing Wachovia.

Also, the idea that this will magically free up credit is just stupid. Get rid of mark to market and you will see the credit begin to flow a little, also outlaw the SPE's that all these "failed" banks are using to hide debt.

phreaks said:

Clearly Microsoft are the premier financial experts.

Laughable.

"For the good of the economy." Really, is that a fact?

The bailout won't work AND it is wrought with pork-barreled earmarks, such as 350 million for the renovation of the "House of Representatives Beauty Salon".


Sorry, Charlie, the market will work itself out.

Phreaks,

I agree with you that the Market will work itself out. I just worry about at what cost (jobs, b usinesses, etc.). I think what you're referring to is called "creative destruction" in the economic circles: as business fail, new ones will arise to replace the old; old industries being replaced by new ones.

I worry about the human cost of all of this. And with the influx of globalization, it is easier for those markets destroyed to pick up in another region (Dubai, anyone?)

evildictaitor said:

phreaks said:

*snip*

Didn't the great depression show that when banks start failing left-right and center that the market _doesn't_ sort itself out? If the banks arn't lending money to each other, then a small dip in the share price can cause a massive downwards spiral that bankrupts the entire institution.

In the Great Depression, banks didn't lend to one another, but for different reasons. I'm not quite sure in what aspect phreaks is talking about that this is nothing like the great depression. It is similar in that there is vast potential for failure. But in terms of reasons for getting into the financial crisis, well, he's 100% correct.

evildictaitor said:

phreaks said:

*snip*

Didn't the great depression show that when banks start failing left-right and center that the market _doesn't_ sort itself out? If the banks arn't lending money to each other, then a small dip in the share price can cause a massive downwards spiral that bankrupts the entire institution.

This is nothing like the great depression.

There are plenty of options currently available to troubled institutions, as we just witnessed 2 days ago with the announcement that Citigroup was purchasing Wachovia.

Also, the idea that this will magically free up credit is just stupid. Get rid of mark to market and you will see the credit begin to flow a little, also outlaw the SPE's that all these "failed" banks are using to hide debt.

I really do wish I had a firmer grasp of economics (so forgive my stupid misguided remarks), but the Financial Times has always been something I've glossed over.

What I don't like is the fact that tax payers have to foot the bill. This means that if The City or Wall Street err, then they can always be bailed out, by me who they charge for be overdrawn or my credit card and the 25 year noose around my neck called a Mortgage. If I fail to make payments, they re-posses my house make me bankrupt and leave me with one pair of shoes.

Oscar Wilde wrote (in the importance of being earnest), "To lose one parent, Mr Worthing, may be regarded as a misfortune; to lose both looks like carelessness."

I feel the same way about all these Financial Institutions. be it Fannie Mac, Freddie Mac, Northern Rock, HBOS or whatever. How can there be such a domino effect, without any safeguards? All the people at the top should be arrested Like the Enron case and imprisoned because there must have been a conspiracy to try and avert the crisis, and things went from bad to worse. why should my money go back to the measly bastards who made a hash of things in the first place. The government can say that company x-y-z is nationalised, but they are equally inapt at handing such huge corporations, that they end up moving it back to the private sector anyway.

It just seems "win win" for the banks, and that is what I dislike. Herb Sutter has an interesting post on this.

phreaks said:

evildictaitor said:

*snip*

This is nothing like the great depression.

There are plenty of options currently available to troubled institutions, as we just witnessed 2 days ago with the announcement that Citigroup was purchasing Wachovia.

Also, the idea that this will magically free up credit is just stupid. Get rid of mark to market and you will see the credit begin to flow a little, also outlaw the SPE's that all these "failed" banks are using to hide debt.

@phreaks: Sure, Citigroup purchased Wachovia, but Lehman's wasn't bought out by anyone. When banks go out of business with a massive 600 billion dollars in debt to creditors, all of the banks just stop lending to each other because they can't trust each other. When this happens and some concaine addicted juvanile on the stock market decides that such-and-such a bank isn't worth so much anymore, all of the investors panic, since if Lehmans can go bust, anyone can go bust, and if the stocks of such-and-such a company are plummetting and it can't lend from any other banks to support itself, it will get either bought up at massive underpricing or it will go bust. This spiral effect can happilly lead to a domino effect on the financial markets; but can also hold over into manufacturing and other industries, and when that happens we get massive unemployment, and all of those houses that people can no longer afford to pay off because they're unemployed will be repossessed and sold at current valuation - a massive amount less than the value of the mortgage.

evildictaitor said:

phreaks said:

*snip*

@phreaks: Sure, Citigroup purchased Wachovia, but Lehman's wasn't bought out by anyone. When banks go out of business with a massive 600 billion dollars in debt to creditors, all of the banks just stop lending to each other because they can't trust each other. When this happens and some concaine addicted juvanile on the stock market decides that such-and-such a bank isn't worth so much anymore, all of the investors panic, since if Lehmans can go bust, anyone can go bust, and if the stocks of such-and-such a company are plummetting and it can't lend from any other banks to support itself, it will get either bought up at massive underpricing or it will go bust. This spiral effect can happilly lead to a domino effect on the financial markets; but can also hold over into manufacturing and other industries, and when that happens we get massive unemployment, and all of those houses that people can no longer afford to pay off because they're unemployed will be repossessed and sold at current valuation - a massive amount less than the value of the mortgage.

Currently we should be happy that the financial market meltdown is just messing up Wall Street, but don't be fooled into thinking that only bankers will be the ones left picking up the pieces. The mess will hit the economy real hard when manufacturing and other big businesses find themselves unable to get credit or investment, and will go abroad or lay off staff.

I'm not sure why people keep on about the whole "markets will rectify themselves so we don't need to do anything" nonsense - the global economy will be OK in the long run, but when we all wake up from this financial nightmare you might find that all the jobs are in China, with America unable to afford to keep up technologically.

If the government can put enough liquidity into the markets to kick start it again, there's a good chance that the market will heal itself and the government can take it's money out later, even at a profit. If the government does nothing, there's a good chance that the market will tank the American economy.

With your regards to the Great Depression: It's not like the great depression YET, but the current situation is very simmilar to the crisis that sparked it off. You don't have to experience the disaster if you can see it coming and take evasive action. 

Let's not forget that Wachovia was purchased for pennies on the dollar, and it was brokered by the Federal Government (FDIC, to be exact). Wach's stock dropped 80% as well.

So, like it or not, the Federal Government is involved with this and it is not purely market driven.

One question I have with all of this...

Why did Ben Bernake (sp?) and Henry Paulson need to go to Congress? Remember, they bailed out Fannie Mae / Freddie Mac / AIG / etc. hundreds of billions of dollars without *any* congressional approval. To my knowledge, there is no limit to the amount of money those two have to bail out banks. In fact, that's one of the big tools the fed has (with the others being the ability to add oversite and adjusting the interest rates at the discount window, etc.).

So, who is to say that Ben and Henry can't do exactly what congress has said it doesn't want to?

evildictaitor said:

phreaks said:

*snip*

@phreaks: Sure, Citigroup purchased Wachovia, but Lehman's wasn't bought out by anyone. When banks go out of business with a massive 600 billion dollars in debt to creditors, all of the banks just stop lending to each other because they can't trust each other. When this happens and some concaine addicted juvanile on the stock market decides that such-and-such a bank isn't worth so much anymore, all of the investors panic, since if Lehmans can go bust, anyone can go bust, and if the stocks of such-and-such a company are plummetting and it can't lend from any other banks to support itself, it will get either bought up at massive underpricing or it will go bust. This spiral effect can happilly lead to a domino effect on the financial markets; but can also hold over into manufacturing and other industries, and when that happens we get massive unemployment, and all of those houses that people can no longer afford to pay off because they're unemployed will be repossessed and sold at current valuation - a massive amount less than the value of the mortgage.

Currently we should be happy that the financial market meltdown is just messing up Wall Street, but don't be fooled into thinking that only bankers will be the ones left picking up the pieces. The mess will hit the economy real hard when manufacturing and other big businesses find themselves unable to get credit or investment, and will go abroad or lay off staff.

I'm not sure why people keep on about the whole "markets will rectify themselves so we don't need to do anything" nonsense - the global economy will be OK in the long run, but when we all wake up from this financial nightmare you might find that all the jobs are in China, with America unable to afford to keep up technologically.

If the government can put enough liquidity into the markets to kick start it again, there's a good chance that the market will heal itself and the government can take it's money out later, even at a profit. If the government does nothing, there's a good chance that the market will tank the American economy.

With your regards to the Great Depression: It's not like the great depression YET, but the current situation is very simmilar to the crisis that sparked it off. You don't have to experience the disaster if you can see it coming and take evasive action. 

I don't know what your expertise in the matter is, but your assumptions are flawed.

The proposed 'bailout' did nothing for the issue.

First, since participation is not compulsory, we the taxpayers would only be buying the worst of the worst securities. Even getting all the investors to agree to sell the various underlying instruments would be extremely difficult and expensive.

Do you have any idea how these things work?

1 mortgage does not mean 1 security. 1 Mortgage is wrapped up into many notes typically across 6 different classes of securitization. You would need to get the holders of each class to agree to sell, so only the worst notes with the highest probability of default would be unloaded.

And then we have the issue of 'Swaps', what happens to all of the CDS's that are tied to these notes? The government buys them as well and sells them to who? These banks don't know their total exposure after everything is said and done, but the Fed does?!?

And who determines the value of the securities and derivatives? This is a very complicated matter and it doesn't make any sense for the people in Washington to start assigning value when the mathematical geniuses at Goldman's can't even assess the value of them.

Secondly, because of the mark to market rule, as the government starts buying these securities for 20,30 or 40 cents on the dollar, banks would be forced to mark down the value of the other MBS and derivative instruments they are holding, which results in a further loss for the bank, and the cycle continues.

There will be no profit on the return at least not for a very very long time.

If you want a bailout package there are a few bullet items that need to be considered.

1) Remove ALL earmarks from the bill
2) Make participation compulsory and set specific guidelines for which securities will be bought
3) Require all lenders to modify adjustable rate mortgages to sustainable levels based again on very specific criteria such as date ranges of origination and FICO scores at date of origination.
4) Repeal the mark to market rule
5) Ban financial institutions from hiding debt in SPE's

If the government is going to get involved in the inner workings of the market, then it needs to go all in.

Again, none of this is necessary. As banks become insolvent, other entities will buy them up if there is any value to be found. Everyone is seeking alpha, and these situations provide great opportunities to do so.

If you think that this is a magic bullet to solve the credit crisis, I think you may find out that you are sadly mistaken, especially given the structure of the 'bailout' as it is currently packaged.





 

Jason I said:

evildictaitor said:

*snip*

Let's not forget that Wachovia was purchased for pennies on the dollar, and it was brokered by the Federal Government (FDIC, to be exact). Wach's stock dropped 80% as well.

So, like it or not, the Federal Government is involved with this and it is not purely market driven.

It is market driven, the Fed brokered the deal, and it didn't take a bailout.

The point is that we already had the tools in place to facilitate the purchase.

phreaks said:

Jason I said:

*snip*

It is market driven, the Fed brokered the deal, and it didn't take a bailout.

The point is that we already had the tools in place to facilitate the purchase.

I am also against the bail outs. Let those who didn't think about the variable interest rates suffer the consequence. Including the rich investors who backed them. Let them all take a bath together. Why should my tax money be used to fix someone elses financial mistake. If anything it will make when I buy house even easier because the majority of america will have a forclosure on their credit report and those who did the right thing will not and will have access to credit. I can weather a year or two for recession if that is the result.

The bail out is socialism plain and simple. Capatlism is about the fair redistribution of wealth. Bailing out is the exact opposite of this. It redistributing my tax money to land owners who didn't read their loan promissory before they signed.

What happened to small government republicans? Oh only when it advantagious to your associates well hrm?

phreaks said:

Jason I said:

*snip*

It is market driven, the Fed brokered the deal, and it didn't take a bailout.

The point is that we already had the tools in place to facilitate the purchase.

Dupe oops.

foreachdev said:

phreaks said:

*snip*

I am also against the bail outs. Let those who didn't think about the variable interest rates suffer the consequence. Including the rich investors who backed them. Let them all take a bath together. Why should my tax money be used to fix someone elses financial mistake. If anything it will make when I buy house even easier because the majority of america will have a forclosure on their credit report and those who did the right thing will not and will have access to credit. I can weather a year or two for recession if that is the result.

The bail out is socialism plain and simple. Capatlism is about the fair redistribution of wealth. Bailing out is the exact opposite of this. It redistributing my tax money to land owners who didn't read their loan promissory before they signed.

What happened to small government republicans? Oh only when it advantagious to your associates well hrm?

Because otherwise your pension fund which is one of those investors may go bust, and your company which suffers from the effect of credit squeeze may decide to lay off staff, which may include you, in which case you may lose your house, in which case you may very well not "weather" the recession.