Microsoft urges rethinking U.S. bailout | The Coffeehouse

wisemx
Live it

Wow...Didn't expect this from Papa Big Smile

THE ASSOCIATED PRESS

September 30, 2008 at 2:01 PM EDT

SEATTLE — Microsoft Corp., the world's largest software maker, urged the House of Representatives to reconsider its vote against the $700-billion financial bailout plan Monday.

Microsoft has claimed the faltering economy and the financial sector's collapse have not affected its business. Last week, Redmond, Wash.-based Microsoft confirmed its faith by announcing a new $40-million stock repurchase plan, a higher dividend and a willingness to take on debt for the first time.

On Monday, the company issued what appears to be a first sign of concern. Brad Smith, Microsoft's general counsel, asked the House to turn around and support a bailout for the good of the economy.

“Microsoft strongly urges members of the U.S. House of Representatives to reconsider and to support legislation that will re-instill confidence and stability in the financial markets,” Smith said in a statement. “This legislation is vitally important to the health and preservation of jobs in all sectors of the economy of Washington State and the nation, and we urge Congress to act swiftly.”

Microsoft shares fell $2.39, or 8.7 per cent, to close at $25.01.
http://www.theglobeandmail.com/servlet/story/RTGAM.20080930.wgtmsbailout0930/BNStory/Technology

Dovella
Go Microsoft !!!!!!!

BIG!

phreaks

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.

wisemx
Live it

In reply to phreaks

#Oct 1st, 2008 @ 5:51 AM

I am a U.S. Patriot but I also think we, as a whole, need a diet. Big Smile

On the other hand, seeing Microsoft step in is exciting.

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

evildictaitor
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In reply to phreaks

#Oct 1st, 2008 @ 5:51 AM

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.

phreaks

In reply to evildictaitor

#Oct 1st, 2008 @ 8:12 AM

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.

Jason I

In reply to phreaks

#Oct 1st, 2008 @ 5:51 AM

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?)

Jason I

In reply to evildictaitor

#Oct 1st, 2008 @ 8:12 AM

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.

phreaks

In reply to evildictaitor

#Oct 1st, 2008 @ 8:12 AM

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.

vesuvius
Das Glasperlenspiel

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 *s 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.

evildictaitor
if( !succeed( try() ) ) { while(true) try(); }

In reply to phreaks

#Oct 1st, 2008 @ 8:51 AM

@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.

Jason I

In reply to evildictaitor

#Oct 1st, 2008 @ 9:36 AM

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.

Jason I

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?

phreaks

In reply to evildictaitor

#Oct 1st, 2008 @ 9:36 AM

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.

phreaks

In reply to Jason I

#Oct 1st, 2008 @ 9:45 AM

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.

foreachdev
Twitter: @foreachdev

In reply to phreaks

#Oct 1st, 2008 @ 10:29 AM

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?

foreachdev
Twitter: @foreachdev

In reply to phreaks

#Oct 1st, 2008 @ 10:29 AM

Dupe oops.

evildictaitor
if( !succeed( try() ) ) { while(true) try(); }

In reply to foreachdev

#Oct 1st, 2008 @ 10:53 AM

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.

It's is a logical fallacy to assume that only bankers and investors will suffer from the effects of the credit crunch.

I disagree with bailing out investors in principle, but pragmatically it may be the only way to avoid a freefall economy which may leave America in a significantly weaker position globally.

"Capitalism is about the fair redistribution of wealth"...

What? Since when? Socialism is about equity for all, and capitalism is about getting paid for unit work. I don't disagree that the bailout is socalist, but capitalism isn't, nor does it aspire to be "fair".

PerfectPhase
"This is not war, this is pest control!" - Dalek to Cyberman

In reply to evildictaitor

#Oct 1st, 2008 @ 3:51 PM

I just know that the Mars Direct mission could be flown around 5-7 times for this much money, even the doomed 90-day report mission could have been flown Sad

magicalclick

I don't think it is MS's place for giving political advice.

About bailout, I don't know. The truth is, the bailout rewarded greedy bankers. The housing will continue to inflate. We would still have to buy overpriced house and have to borrow more money that we can't repay. Sure we might be in economic crisis if no bailout, but sometimes that's what they need, big slaps in the face, so we can all learn from it and prohibit such thing from happening again.

tfraser

In reply to magicalclick

#Oct 2nd, 2008 @ 1:52 AM

You don't seem to correctly understand the situation.

In the current climate houses are not overpriced, they are substantially undervalued (compared to recent years). This is one of the core reasons for the whole economic downturn.

House production increased dramatically until about 2006 due to low interest rates and large amounts of external investment. Since then however an enormous surplus of homes has been driving the prices down. This surplus has been worsened by the high rate of foreclosures and reluctance of homeowners to sell their houses at reduced market prices.

The prices of houses are going to continue falling until the surplus is reduced.

Jason I

In reply to magicalclick

#Oct 2nd, 2008 @ 1:52 AM

You're right in that Microsoft probably shouldn't be making political advice, but I think this wasn't meant as political advice, per se. It is more of a "do something about the economy, guys!" Keep in mind other companies have been doing this as well. GE, for example. Political "advice" is best left in terms of contributing to various political parties.

And, as a corporation, Microsoft is completely correct in wanting a strong economy: a strong economy means people more likely to purchase computers and software.

Jason I

In reply to tfraser

#Oct 2nd, 2008 @ 5:00 AM

I don't think the housing prices have to do with surplus, per se. Housing prices will remain at whatever people will pay for them. The problem is, no one can afford the homes. Credit is too tight (or, rather, loan requirements have become stronger.. A good thing??) My wife and I want to buy a house now, but unfortunately, we need to sell the one we have and the people who might buy this house can't get mortgages (we're in a working class suburb).

Credit is this wierd thing: If restrictions are too loose, we have what's goin' on now: people who can't make mortgage payments because of the ARMs. If they're too tight, even people with good credit (like me) can't get mortgages.

dahat

In reply to Jason I

#Oct 2nd, 2008 @ 7:28 AM

> If they're too tight, even people with good credit (like me) can't get mortgages.

I'm sorry but I think I need to call BS on that statement.

Are you trying to get a mortgage under the circumstances someone would 20 years ago or 5? How big is the down payment that you are prepared to make (% wise to the total of your desired mortgage). Is it possible that you are just asking for loan larger than the bank feels your credit and finances warrant? I'd wager that you were to aim your sights a hair lower and ask for a smaller mortgage for a lesser house you'd probably have better luck.

tfraser

In reply to Jason I

#Oct 2nd, 2008 @ 7:28 AM

Surplus and house prices are intrinsically connected.

You're right about how house prices are determined by whatever people are willing to pay, yet this is also the reason for the relationship between prices and surplus.

Consider someone who is looking to purchase a home. If there is an excess of houses then the sellers are going to have to reduce their asking prices in order to attract the buyer. Therefore, surplus places downward pressure on prices.