Down Fast, Too Fast – Moon of Alabama

September 29, 2008

Down Fast, Too Fast

The bailout bill is still the same Paulson three pager but with a 100+ additional pages of window dressing.

I wonder who will vote for this at all. Anyone in the house who is up for reelection is in danger if her vote is yea. Most Republicans will certainly vote nay, so the bill, if it goes through at all, will not be bipartisan, but will get hung around the Democrat’s necks.

Some people like Brad DeLong and Larry Summers think that this bill will cost the taxpayer little or nothing. I doubt that very much. Giving Paulson a free hand over hundreds of billion dollar will not be free of cost, but might well end up as a very expensive endeavor. As serious economists point out, the bill does nothing to get at the root of the problems. In January, at the latest, another big bailout will be needed.

In between the Ponzi scheme that is the hedge fund industry will come down. Hedge funds will have to report quarterly results in a few days. Those will likely be a mess as many have made losses with the Lehman bankruptcy or depend on now restricted short selling. Many of them have rules that delay investors withdrawals for three month. By December these highly leveraged entities will have to sell many, many assets to be able to return at least a part their money to their investors.

The selling spree guarantees that all markets will fall further.

Today Germany rescued the commercial real estate investment bank HypoReal, Belgium and the Netherlands rescued Fortis and Britain nationalized the bad parts of Bradford & Bingley. In the U.S. Wachovia will be rescued soon or go bankrupt.

The contagion is now spreading fast, too fast.

Posted by b on September 29, 2008 at 09:59 UTC | Permalink

Comments

How many think that for the big boys — Demand Destruction (and the resultant massive transfer of wealth they can achieve by buying when there is blood in the street, and stocks are zero) — plays any role in current bailout events?
Imagine you are for example — the Black Pope, and Bilderbergers — what are your options?

Posted by: Paul Revere | Sep 29 2008 11:34 utc | 1

The Meltdown is just in the beginning.
We will probably see an IMPLOSION of the Economical System!!!!!
There is no Financial Crisis………..!!!
What is coming is ………..A SYSTEM CRISIS

Posted by: Eric | Sep 29 2008 12:11 utc | 2

The Meltdown is just in the beginning.
We will probably see an IMPLOSION of the Economical System!!!!!
There is no Financial Crisis………..!!!
What is coming is ………..A SYSTEM CRISIS

Posted by: Eric | Sep 29 2008 12:12 utc | 3

Citigroup just acquired Wachovia.
Citigroup to Buy Wachovia Banking Operations for $1 a Share
September 29, 2008, 7:33 am

Posted by: canny | Sep 29 2008 12:28 utc | 4

Since a month, it looks like every week looks even worse than the previous one – which was already abysmally bad.
And this one begins quite “interestingly”.
If the GOP plan was to push back the meltdown until after Obama and the Dems take over, so that they can pin the crisis on them and politically sink the Democratic party for the next few decades, their plan might at least partialy fail; things are going faster than planned – or expected.

Posted by: CluelessJoe | Sep 29 2008 12:33 utc | 5

The Ponzi-Plus Plan

The big effort of Mr. Paulson and his working group has been to ram through legislation that at all costs avoids any attempt to place a reality-based value on this bad debt. He managed it by holding a gun to Congress’s collective head, telling them in plain English that a genuine “work-out” of these “toxic” investments would set in motion a fatal cascade of credit default swaps which would leave the entire banking landscape a smoldering wasteland — with the result that virtually every retirement account and pension fund would go up in a vapor, the Federal Reserve and the FDIC would melt away to twin piles of goo, scores of millions of lives would be ruined, and the USA would be left a basket case among nations, making us envy even the fate of Haiti and Zimbabwe. Talk like that might prompt a congress-person to do any fool thing.
…Beyond a week-or-so, I expect the Great Bail-out to fail rather quickly in its main mission: to stabilize the banking system and calm the markets.
…What remains beyond this is a desperate contest among the oil importers — America, Europe, China, Japan, India — for control of the world’s remaining oil resources.
…I try to remind readers that the very concept of “solutions” does not apply in this situation, since it implies that we can keep running things in America just the way we are running them now, only by means other than oil. The truth, in my view, is that we have to run things very differently now, at different scales than the ones we’re used to — but we are too invested in our behavior of the past to move forward. This is certainly unfortunate, because we have everything to gain by letting go of our old habits and obsolete wishes.
…

Posted by: vbo | Sep 29 2008 13:41 utc | 6

I stopped reading the bill at 50 pages or so last night, having come to the same conclusion. Two sections are particularly galling to me: Page 9, Unjust Enrichment, sets a cap on the buy price for assets at the original buy price. Most of these securities are worth 3-4% of that price, if anything at all. And on page 41, Paulson is required to submit a report after 350bil is spent, but if Congress takes no action for 15 days he can then spend infinite money. What is worse, is that there is nothing I see here that prevents him from submitting during a recess, or submitting a 10k page ‘report’ that is impossible to sort through in time.
This bailout is open theft, and is highly unlikely to be effective. Hyperbole aside, Eric may be right. . .

Posted by: Li | Sep 29 2008 13:57 utc | 7

Stock markets world wide seem not to appreciate the Paulson plan. Down 2++ % wherever one looks.
Maybe they understand that it doesn’t touch any of the original and/or systemic problems.
The worst part as Barry finds is that the plan now includes a clause that will companies allow to lie about the real value of there ‘assets’ by putting away ‘mark to market’ asset evaluating rules and instead use ‘mark to whatever’.
How ‘mark to fantasy’ is supposed to resurrect trust in financial companies is beyond me.

Posted by: b | Sep 29 2008 14:48 utc | 8

(vbo says): “The truth, in my view, is that we have to run things very differently now, at different scales than the ones we’re used to — but we are too invested in our behavior of the past to move forward. ”
Many people are echoing this observation — and it seems indisputabe. However, it leaves out an important player — the financial sector that got us into this. Where will they be? Will they just decamp to better investment fields? Will they be here, as vulture capitalists, profiting on our misery?
It’s doubly painful to consider that “we” will have to rebuild a way of life that “they” wrecked.
I sense an understandable, unspoken, relief at the end of our bubble way of life, but there should also be anger — revolutionary, perhaps — and a determination not to let the people who wrecked it get control of it again.

Posted by: plato’s cave | Sep 29 2008 14:55 utc | 9

From my local German rag (translated): Vatican investing in Gold

Rom – by investing more in commodities and especially gold the Vatican kept losses due to the financial crisis within means. As the British weekly “The Tablet” reports, the Vatican bought about one ton of gold.

The Tablet is catholic weekly but subscriber only so I can’t verify this, but it seems plausible.

Posted by: b | Sep 29 2008 16:04 utc | 10

Puh – that’s a lot: Fed Pumps Further $630 Billion Into Financial System (Update2)

The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.
The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed’s emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

That’s a ‘slap in the face’ tactic to get the markets into line again.
But what’s left of the $800 billion Fed balance sheet? How much more can you borrow from China? The alternative is of course the printing press …

Posted by: b | Sep 29 2008 17:10 utc | 11

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