Tracking The Economic Fallout

Eric Dash of the NY Times describes the basis for a national credit crunch:

After the House of Representatives rejected a rescue for the financial industry Monday, fears grew that more banks, particularly small and midsize lenders, could run into trouble unless a new plan emerged quickly.

Even shares in the three banks that have survived the crisis as the largest in the industry — Bank of America, JPMorgan Chase and Citigroup — fell more than 10 percent Monday as anxiety gripped markets. Goldman Sachs and Morgan Stanley, which transformed into bank holding companies last week, fell more than 12 percent.

Regional banks were punished even more severely as investors scrambled to figure out which of them might fall next in the absence of a bailout plan. National City Corporation, Downey Financial Corporation and Sovereign Bancorp, lenders pressured by substantial exposure to soured mortgages, were especially hard-hit, falling 63 percent, 48 percent and 36 percent respectively on the heels of the government’s seizure Thursday of Washington Mutual, the largest savings and loan.

“With the credit markets drying up and bank-to-bank lending rates through the roof, the ability of these banks to weather the storm is being called into question,” said Jim Eckenrode, a banking analyst at TowerGroup, a financial services consulting firm.

For folks following at home XLF is an index of big financial firms - top holdings include JP Morgsn Chase, Citigroup, Well Fargo and B of A.

IAT is an ETF tracking the Dow Jones Regional Bank Index.  US Bancorp is 19% of the index but other large holdings include PNC, Northern Trust and BB&T.

If this link works it will show the percent changes in both the XLF and the IAT over the last five days. 

Comments

[clarice]

But the Dow was up to 10700 last I looked and the dollar was stronger than ever against the Euro.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aXeu_kATieSo&refer=worldwide>WTF?

[StrawmanCometh]

Clarice,
such language! Strongest ever? Nope (LUN). It' still a $1.40 . but your point is well taken. BB&T is up 6.26

[Charlie (Colorado)]

Clarice, there was some good economic news this morning, and a lot of people figure (as I do) that the bigger the market move, the less likely that it was completely fairly valued. If I'd had spare cash with which to trade, I'd have bought first thing this morning, with a sell order on the high side of the stock and a stop loss under it. Or maybe a straddle.

[Charlie (Colorado)]

Oh, and I'd get the hell back into cash by the close of trading.

[Charlie (Colorado)]

We clearly need to find out Pofarmer's regional bank. It's doing just fine, he says.

[Rick Ballard]

Clarice,

Is it smart to bet against the casino if it owns a printing press? The Fed has the spigot wide open and is laying new pipe with each passing minute. You'll see Main Street sentiment in the last half hour of trading - that's when the mutual funds balance money market and equity moves. I can't guess which way that frog is gonna jump.

[Charlie (Colorado)]

Katie Granju, a hard core D:

It demeans the role of Speaker for Pelosi to use her position to take every possible opportunity to aggressively bash the GOP, no matter how inappropriate the setting or context. ....

If Americans really want change in Washington, and improvement in the mean-spirited and debilitating partisan malaise that seems to have settled over our Congress, then we need to start with working to get rid of Nancy Pelosi as Speaker. Our House of Representatives - and we - deserve better.

[T.CO]

Give Fleece a Chance

[Bill in AZ]

SkepticalOptimist, who always brings a little sanity to economic discussions, has a crayon and butcher paper post (see "It's not funded by taxpayers") of what the "bailout" would have looked like had the house passed it.

[Charlie (Colorado)]

Sowell:

Fannie Mae and Freddie Mac do not deserve to be bailed out, but neither do workers, families and businesses deserve to be put through the economic wringer by a collapse of credit markets, such as occurred during the Great Depression of the 1930s. ....

If Fannie Mae and Freddie Mac were free market institutions they could not have gotten away with their risky financial practices because no one would have bought their securities without the implicit assumption that the politicians would bail them out.

[Charlie (Colorado)]

Wow. I'm so jealous of that Skeptical Optimist post.

[ben]

http://br.youtube.com/watch?v=r2RZ0sUcVcE

This is the best McCain ad yet...

[Angellight]

WHISTLEBLOWER REVEALS GOP PLAN TO STEAL NEXT ELECTION FOR MCCAIN!

"Here, in this shattering new interview, Stephen Spoonamore goes into harrowing detail about the Bush regime's election fraud, past, present and--if we don't spread the word right now--to come. Since he's the only whistle-blower out there who knows the perps themselves, and how they operate, we have to send this new piece far and wide." (Rawstory.com)

http://www.youtube.com/watch?v=1lrFkRHrRDI

[Dave]

The tinfoil hat looks good, Angellight.

[Charlie (Colorado)]

Yeah yeah. The Ohio Secretary of State is busily establishing the groundwork, Obama says "It helps that we control the elections in Ohio", so of course something will come out about the McCain election fraud.

Does increase my suspicion about election processes though: in general, any announcement of the Evil that Republican plan can be read usefully as a hint of Democrat plans.

[TOO]

link

RNC ad, was cut, sent out before package failed

The Republican National Committee's new advertisement critical of the the Wall Street "bailout" was produced and sent to television stations in key states before the package failed, officials at two stations said.

"Wall Street Squanders our money. And Washington is forced to bail them out with -- you guessed it -- our money. Can it get any worse?" asks the ad's narrator, as the words "BAILOUT WITH OUR MONEY" cross the screen. (The answer: Obama's plans would make it worse.)

The ad, however, seems to assume that it can safely attack a successful plan. And the reason may be the timing: Though it started airing this morning, the spot was released to stations yesterday morning, ad executives at stations in Michigan and Pennsylvania said.

[Pofarmer]

We clearly need to find out Pofarmer's regional bank. It's doing just fine, he says.

First National Bank and Commerce Bank in MO.

[Charlie (Colorado)]

Um, no, the story says it was critical of Obama's spending plans: "(The answer: Obama's plans would make it worse.)"

[Jane]

I've generally got Fox on in the background and I have heard the word ACORN many many times in the last few days.

Is anyone else talking about this connection?

[matt]

Clarice;

This is basically a slow motion train wreck. It will play out over the next several weeks and months as the general effects of the crisis are felt.

Last night I mentioned that the banks are turning off credit for the Big 3 auto makers. This morning, McDonald's was hit as well by their bank.

No company has all the cash they need to run and especially grow a business. They need net 30, 60 or even 90 day terms from their suppliers so that they in turn can offer credit to their customers. The alternative,COD makes business very difficult, because you're always scrambling to get paid so that you can pay your supplier when the goods are delivered.

The currency markets establish relative values. The strength of the dollar against the Euro does not reflect an inherent strength of our currency, but rather the weakness of the Euro sector versus the United States. These can stay in relative parallel even when economies are deflating or growing. The dollar at one time was the benchmark currency for the world. With the massive injection of cash by the Fed into the system, however, we are well on the way to having completely debased it, and already, the Arabs and others have discussed using a basket of currencies to reduce their risk. This will be reflected in time against conservatively managed currencies such as the Swiss Franc or Singapore Dollar. Everyone else; Europe, Japan, and the Chinese have their own issues that make their currencies relatively weaker.

The effect of the credit crunch is that now, you won't be able to get that car loan easily or a lease because the car companies cannot finance them. That means far fewer cars sold; plant layoffs, reduced work weeks, supplier closures, etc. No investment in new machinery or technology hits their supply chain and on it goes.

If McDonald's has no credit they can't pay their suppliers and will have to contract. I imagine they're have a nightmare in Oak Brook right now. How do you shrink that kind of business, which is literally everywhere? Imagine burger rationing!

These are huge companies and the job losses will be huge. When those employees can't pay their mortgages, the banking crisis will only continue to worsen. As the economy declines it becomes a descending spiral as poor financial results result in companies contracting or going out of business and more and more people lose jobs.

At the same time, tax revenues to cities, states, and the federal government will shrink drastically, and they will be hit.

Way back in the day (1910's), my grandfather took a job at the Post Office because of the stability. The pay was poor, but the check cleared every week. Now pay in the public sector is good, and the unions are strong. The last thing to go in this cycle we're in will probably be government bureaucracies. When there is no money to pay them, there will have to be layoffs. Again, more mortgages don't get paid, and overall spending is reduced.

The crash in Japan in the early 90's took 15 years to recover from, and they are still suffering some of the effects. This crisis dwarfs that one. We've survived a dot com bust, the S&L crisis, the junk bond crisis, but it seems every 10 years or so lately, some scam comes falling down around our heads.

This one is clearly owned by the political class. They allowed poor lending practices and repealked many of the SEC type safeguards to allow for the growth of the past 10 years. We have to use triage on the system immediately, and then figure out some long term, conservative fixes so that people trust the markets again.

[kim]

It's close enough to steal and whoever wins, the other side will claim fraud.
===========================

[Captain Hate]

Stephen Spoonamore

It would take a complete lunatic like Angellight to get marching orders from somebody with a name like that. Was Admiral Wrongway Peachfuzz busy elsewhere?

[Tom Maguire]

The currency markets establish relative values. The strength of the dollar against the Euro does not reflect an inherent strength of our currency, but rather the weakness of the Euro sector versus the United States.

The dollar rally is not exactly safe haven buying - call it safer haven buying. Europe is about to take their banking system through the wringer. England may lead the way but Spain (I have read) had a very hot real estate market as well.

None of that means that our problems are solved, only that they do not loom as large as previously in comparison with impending debacles elsewhere.

[Neo]

This is rich .. From the Correlation Not Equal Causation Department

Who knew ?

[MayBee]

Was Admiral Wrongway Peachfuzz busy elsewhere?

I don't know why, but that made me literally laugh out loud.

[Charlie (Colorado)]

Hmmm. The SEC says they'll issue a new interpretation of "fair value" --- read "mark to market" this week.

All the big indices are up by about half the loss. I think the market is telling us the traders believe a deal is gonna happen.

[Charlie (Colorado)]

Wrongway Peachfuzz

Oh God, a Rocky and Bullwinkle reference I had to look up. I'm so ashamed.

[PeterUK]

The">http://race42008.com/2008/09/30/latest-mccainpalin-ad-rein/">The New McCain Palin Advert - It didn't have to happen.

[Captain Hate]

Yer slippin' ChaCo!!

[PeterUK]

"WHISTLEBLOWER REVEALS GOP PLAN TO STEAL NEXT ELECTION FOR MCCAIN!"

McCain is hiring ACORN.

[clarice]

Anyone who thinks the Euro is fairly valued cannot understand why OPEC hasn't really switched to it. It's legerdemain of another sort.

[Pofarmer]

and then figure out some long term, conservative fixes so that people trust the markets again.

Dude, there is a conservative fix, it's called a correction.

It's the end result of too easy credit and one percent discount rates.

[PeterUK]

"Anyone who thinks the Euro is fairly valued cannot understand why OPEC hasn't really switched to it. It's legerdemain of another sort."

The Club Med countries are sub-prime,the convergence parameters were fudged so countries like Italy and Greece could join.

[Pofarmer]

I think the market is telling us the traders believe a deal is gonna happen.

Or that it's not neccessary, or they were wanting to take profits today, or, or, reading tealeaves is tricky business.

[Captain Hate]

Anyone who thinks the Euro is fairly valued cannot understand why OPEC hasn't really switched to it. It's legerdemain of another sort.

Clarice, you stun me with your ability to pack so much information in very few words. A model of concision.

[clarice]

Thanks, Capt. I am originally from the midwest where we regard wasting words as sinful.

[Ranger]

Dude, there is a conservative fix, it's called a correction.

It's the end result of too easy credit and one percent discount rates.

Posted by: Pofarmer | September 30, 2008 at 01:58 PM

The problem is that unless the root cause of this problem (government mandated risky lending) is addressed, there will be no real fix. Either banks have to stop lending to qualified prime borrowers because they can't find enough sub-primes to fill out the quotas, or they go back to making bad loans which then crash the system again in 10 years.

[Jane]

Someone should figure out how to capitalize on this:

Just 26% Have Confidence That Lawmakers Know What They’re Doing in Economic Crisis

[Jane]

John McCain should run this ad:

I'm gonna give you some straight talk about this financial crisis. Everyone thinks the money is needed to bail out Wall Street. Baloney. The money is needed to bail out Congress.

(Flash to Barney Frank touting FM and FM. Add a hit to Dodd and one to Obama for good measure.)

[Jane]

More - add in the piece where Dodd says "we forgot to invite the republicans" and then add Pelosi's chant about how republicans are unpatriotic.

[clarice]

Yeah,Jane--get S.C.A.M. the names and addresses of that 26% so we can sell them stuff.

[mark l.]

It is reported that credit will sieze up, without the bailout.

The first question that must be asked-
"for how long?"

Upon further review, the premise of the bailout is that lending institution will be unable to lend, without the bailout.

If I were a 'lending institution', unable to resolve the matter, I would be forced out of the business of lending. Who in their right mind believes that they will stop lending altogether?

If I wanted to borrow agianst my house for the tune of 40K, and I have 80K of equity in it, I have little doubt that I could get multiple offers in 2 hours or less.

If I don't have matching equity, then I will be denied. Is this a problem?

If an institution is bailed out of this predicament by taxpayers, wouldn't it be reasonable to assume that my institution will always be bailed out, regardless of my indiscretions?

scenario #1:no bailout. The US economy contracts, -5% in 4q 08, -3.5% in 1q 09...
sooner or later, we return to positive growth, and lending institutions figure out that they are responsible for all future loans, preventing the crisi from occurring again.

scenario#2: bailout. We still will have negative growth for two consecutive quarters, as the world economy, less capable of absorbing the ledning failure, suffers. Banks return to poor lending practices to make up for all they lost. 10 years from now, the bailout that will be needed is 4 trillion.

The fdic increasing the amount insured will prevent run on banks. I don't know how you can have a geat depression without a run on banks.

[PeterUK]

"Yeah,Jane--get S.C.A.M. the names and addresses of that 26% so we can sell them stuff."

Been selling them their Own Square Inch of Genuine Arctic Ice. As Used by Polar Bears.
Get it before it is gone!!

[DebinNC]

Rush caller today nailed it - "There's not a lack of confidence in the markets. There's a lack of confidence in the government."

[clarice]

Has anyone posted this yet? SEC exoected to change mark to market rule this week.

[clarice]

**exPected***
PUK, I hadn't noticed that in the annual report. (Good thing you ignored my nagging about cleaning out that old freezer.)

[matt]

There were a number of root causes and there will be more found, but recognizing that social engineering doesn't mix well with accounting is a first step. You can't lend money when you have a doubtful expectation of having it paid back.

The bonus/profit plans of top management have to be reconsidered. Short term thinking is killing innovation and manufacturing, one of the keys to a strong economy. managers managed for the short term and many are lying on a beach somewhere while the rest of us sweat it out.

The credit rating agencies fell down on the job. The Fed made money too freely available. There are Pulitzer's galore awaiting the reporters and writers who investigate this one. It's going to be taught in PolySci, economics, and accounting classes for the next 30 years.

[Captain Hate]

I am originally from the midwest where we regard wasting words as sinful.

It's funny you mention that; I'm originally from Maryland and raised a bit of hell in Jr High so my parents overreacted and sent me to DeMatha (I know some of you DC-ites know what that is). I found that one of the benefits of a Catholic education (I'm not a mackerel-snapper myself) is that they teach you to write correctly and the best way to keep those bothersome red marks from your papers is to express yourself with as much brevity as possible. Being able to do that makes it probable that you'll score highly in the SAT/ACT verbals so I found myself in an honors English course at the University of Maryland. Being in the late 60s, these classes were all about expressing yourself with scant concern for grammatical correctness provided each sentence was the length of Molly Bloom's soliloquy. Needless to say I was a round peg for a square hole although I insisted to my instructor that there was nothing incorrect with what I wrote. Perhaps I should've just written haikus.

[Jane]

It's going to be taught in PolySci, economics, and accounting classes for the next 30 years.

I can only imagine which version.

[Tom Maguire]

Has anyone posted this yet? SEC exoected to change mark to market rule this week.

I heard that go by on CNBC and probably ought to rustle up the link to a story citing Rep. Dan Issa's explanation that that is the path to salvation.

In his favor - banks with a statutory/regulatory capital issue will get relief iof they can up-value (or at least, not de-value) their assets. That is a quick fix.

Against him - if the problem is that no one will lend to anyone else because no one is sure what anyone else is worth, increasing the opacity of financial reporting will be counterproductive.

So - Issa's solution is great if it is regulators that are shitting firms down. It is dumb if it is a distrustful market that is pulling the plug on people.

My guess - it's dumb.

[sbw]

I'm gonna give you some straight talk about this financial crisis. Everyone thinks the money is needed to bail out Wall Street. Baloney. The money is needed to bail out Congress.

I'm gonna give you more straight talk. The money to pay for this isn't gonna come from the American Taxpayer. It's a loan from businesses and people like you and me from around the world who believe in and trust America's free market economy.

The money creates a temporary time-out to assure that all the good mortgages that got tied up in the congressional/Fannie Mae two-step, will still have value. Then we'll see the loan gets paid back, with interest, and that the taxpayer is not put on the hook.

Finally, will fix the rules so Congress can't abuse home mortgages ever again.

[matt]

by the way, has anyone noticed that Obama has been virtually invisible through this crisis? This man is a leader?

He's busy having children sing "The East is Red" while Congress recesses in the middle of a crisis. I feel like Alice through the looking glass. I would expect to fly to DC and see the midnight oil on at Treasury, SEC, Congress, Commerce, etc, but instead they all on freaking vacation....This is nuts...

[mark l.]

one other point-

derivatives and hedge funds have been killing the market for several years.

The dow has been getting slapped around for the past 8 years.
the decline in the dollar, the departure of equities to oil and gold, and hedge funds...
money that once went to equities has been drying up.

I have always been amazed that our gdp has increased by 21% since 1/00, but the market has only matched the rate of growth, from Jan 00 to its high in nov 07.

For the past 7/8 years the market has been growing at the same pace of our economy? People found ways, thru hedges and derivatives, to bypass the dow altogther, taking money out of the equity markets.

If we proceed with a bailout, and butress the safety of speculation, the long standing selling point of investing directly in equities for providing the best return on your money, 8%, is going to have to be revised down to 2-3% return, on average.

the worst thing that can be done to the markets, is to reestablish a system where direct investment in american companies is one of the worst ways to make money.

[matt]

Charlie;

all I gotta say is "Moose and Squirrel Must Die!"

[clarice]

Capt, it is true that if one managed to learn something sensible in high school, college will drum that out of your syste,

Foreign money is still pouring in to the dollar and US treasuries--a lot of curtains are being lifted if you dare to remove your hands from your eyes and peek:
[quote]The single European currency in late-day trade was at 1.4080 dollars, down sharply from 1.4432 dollars on Monday

The dollar also rose to 105.89 yen from 104.03 late Monday.

Commerzbank analyst Ulrich Leuchtmann said that at times of stress "investors tend to shove their money into the safest alternative they can find and many people still regard US Treasury bills, notes and bonds as the safest investment on earth.[/quote]
http://news.yahoo.com/s/afp/20080930/bs_afp/forexeurope_080930172513;_ylt=AoMaORoBo65lq6GJdo6DHCNg.3QA> Where the money goes

"I can't imagine why it's pouring here and not into rials or Euros or kopeks can you," she asked sardonically. "Everyone knows--ask Krugman--how much better it is everywhere else."

I 'd bank on a depression in Europe before a significant recession here--esp if Congress just GOES HOME.

[PeterUK]

"by the way, has anyone noticed that Obama has been virtually invisible through this crisis? This man is a leader?"

This is the man who "Walked away from Wall Street" to be come an enforcer a Community Organiser,he is probably still walking.

[Ann]

I'd rather be waterboarded than listen to the news, OBAMA, Nancy Pelosi, Harry Reid, Barney Frank, Chris Dodd, or Chuck Schumer.

Honestly, where are the jailers? I have a few civil war swords from the den and I'm ready when I'm called JOM.

[clarice]

Accounting groups stand with Tom on sticking with the mark to market rules. Bankers want the change. (So does Gingrich and Issa).
http://www.nasdaq.com/aspxcontent/NewsStory.aspx?cpath=20080930%5cACQDJON200809301423DOWJONESDJONLINE000558.htm&&mypage=newsheadlines&title=Accounting%20Firms%20Oppose%20Rescinding%20Mark-To-Market> Mark to mark or mark to market

[DebinNC]

Ryan Grim at Politico is being excoriated in the comments for lying about what Rush said today. Unfortunately for Grim, Rush has posted the transcript of what he actually said, which totally contradicts Grim's assertion that Rush mocked the House GOP.

[PeterUK]

"Ryan Grim at Politico is being excoriated in the comments for lying about what Rush said today. "

Yes,he and his brother were always making up fairy tales.

[bgates]

regulators that are sh?tting firms down
TM wins typo of the day.

[clarice]

Told you it was catching..

[DebinNC]

I heard the Obama Youth singing about their Dear Leader on Rush's show today. There doesn't seem to be a bottom in the well of Obama creepiness.

[Barney Frank]

TM wins typo of the day.

Wasn't sure if it was a typo or some new use of the word I just wasn't hep to yet.

BTW Peter "Wrongway" Peachfuzz was a Captain not an Admiral.

[ben]

Good poll numbers for McCain in 3 states...

PRESIDENT - NEVADA (ARG)
John McCain (R) 49%
Barack Obama (D) 47%

PRESIDENT - NORTH CAROLINA (ARG)
John McCain (R) 49%
Barack Obama (D) 46%

PRESIDENT - VIRGINIA (ARG)
John McCain (R) 49%
Barack Obama (D) 46%

[ben]

Poll numbers H/T to Hedgehog Report

[M. Simon]

Just in case some one hasn't fixed it:

Bill Clinton: Democrats caused mortgage meltdown

[mark l.]

"The US must take its responsibilities in this situation, must show statesmanship for the sake of their own companies and for the sake of the world," European Commission spokesman Johannes Laitenberger said.

"Around the world officials and commentators used the language of disaster and despair to describe the possible impact of further delay in US action on the world economy and especially the interbank lending system."

http://www.breitbart.com/article.php?id=080930121824.24k1fx4j&show_article=1

hmmm...couldn't this be interpeted as a failure to act, by pelosi, that is alienating the world view of the US?

I thought only Bush could be held responsible for alienating the modern world.

Nancy better use her 'life-line'with american msm or the Europeans might actually say bad things about democrats.

Who'd a thunk it?

[Enlightened]

Newt was very compelling on Greta last night re: mark to market. Something that Cox could and should have done months ago, even if he suspended it for 2 week blocks - at least see how the market reacts to it.

The obvious fact that no one did anything and is now just sitting there with their thumbs up their ass crying Armaggedon is really starting to tee me off.

Cox should have suspended mark to market this morning - if the market responded poorly, reinstate it next week. At this point in the narrative, and the impending demise of the US financial market - how much worse could it make it?

And why the bloody hell is McCain so damn wishy washy! He should have been in DC this morning standing next to Cox as he announced a tentative plan to suspend MtM and instead he's just reciting the frikkin GOP whiny talking points.

[M. Simon]

The problem is that unless the root cause of this problem (government mandated risky lending) is addressed, there will be no real fix. Either banks have to stop lending to qualified prime borrowers because they can't find enough sub-primes to fill out the quotas, or they go back to making bad loans which then crash the system again in 10 years.

The stick in the Community Reinvestment Act is: no expansion without subprime loans.

I don't think many banks are interested in expanding right now. So the problem is put off at least until after the election. If we get a McCain Presidency and a R house - fine. If not it won't matter.

[Tom Maguire]

TM wins typo of the day.

Ahh, geez, it's an honor just to be nominated. And I guess that means its too late to sneak in and fix it, too.

[M. Simon]

Jane | September 30, 2008 at 02:25 PM,

Sent to my Senate contact.

[ex-democrat]

mark l - how much cash are the euro weenies who demand "US action" to resolve the international crisis (and also want a say in selecting our next president) going to contribute to the bailout?

"No representation without taxation!!"

[Tom Maguire]

Newt has a column in Forbes that pitches the mark-to-market suspension. He does claim that regulations are the problem, so what do I know?

Moreover, when a company in financial distress begins fire sales of its assets to raise capital to meet regulatory requirements, the market-bottom prices it sells out for become the new standard for the valuation of all similar securities held by other companies under mark-to-market. This has begun a downward death spiral for financial companies large and small.

More foreclosures and home auctions continue to depress housing prices, further reducing the value of all mortgage-related securities. As capital values decline, firms must scramble to maintain the capital required by regulation. When they try to sell assets to raise that capital, the market values of those assets are driven down further. Under mark-to-market, the company must then mark down the value of all of its assets even more.

The credit agencies see declining capital margins, so they downgrade the company's credit ratings. That makes borrowing to meet capital requirements more difficult. Declining capital and credit ratings cause the company's stock prices to decline.

Panic sets in, and no one wants to buy mortgage-related securities, which drives their value under mark-to-market regulations down toward zero. Balance sheets under mark-to-market suddenly start to show insolvency. This downward spiral shuts down lending to these companies, so they lose all liquidity (cash on hand) needed to keep company operations going. Stockholders--realizing that they will be wiped out if the companies go into bankruptcy or get taken over by the government--start panic selling, even when they know the underlying business of the company is fine.

I don't buy the notion that firms are only selling because of these pesky regulations and investors are only worried about regulatory (as opposed to economic) capital but I assume somewhere Newt can find a bank that fits his story.

[sbw]

M. Simon, consider adding to Jane's script my September 30, 2008 at 02:54 PM:

I’m gonna give you some straight talk about this financial crisis. Everyone thinks the money is needed to bail out Wall Street. Baloney. The money is needed to bail out Congress. Congress tolerated lenient rules and stopped stricter regulation.

Here’s more straight talk. The money to pay for this doesn’t come from the American taxpayer. Such bonds are purchased by businesses and people like you and me from around the world who believe in and trust America’s free market economy.

The money creates a temporary time-out to assure that all the good mortgages that got tied up in the congressional/Fannie Mae two-step, will still have value. Then we’ll see the bonds get paid back, with interest, and that the taxpayer is not on the hook.

Finally, we'll fix the rules so Congress can’t abuse home mortgages ever again.

[ex-democrat]

the GOP should make repeal of the Community Reinvestment Act (or at least its offending provisions) a precondition to supporting the bailout.

[Sara (Pal2Pal)]

John McCain should run this ad:

I'm gonna give you some straight talk about this financial crisis. Everyone thinks the money is needed to bail out Wall Street. Baloney. The money is needed to bail out Congress.

(Flash to Barney Frank touting FM and FM. Add a hit to Dodd and one to Obama for good measure.)

You mean something like this one?

Rein

With a follow up like this one?

Strong

[clarice]

I assume he can, too, Tom.
I am coming around to the notion that we ought to be a great deal more cautious , pragmatic and careful about what we do to deal with this.I am all for small steps to test the waters like a short hiastus on mark to market..like an effort to pinpoint the areas where there are problems accompanied by efforts to unbundle the shit from the gold...and I believe that I was not when I was panicked into thinking this was a major crisis requiring immediate action. Congress' leaving and the market and foreign reaction are leading me to that shift in my point of view.

[M. Simon]

sbw,

It is already off and I do not like to bother my guy with lots of stuff - I want him to pay attention when I send him something.

I already hit him with this today:

ITER vs The Stone Axe about a real fusion program.

In any case it is the germ of the idea that is important. The McCain guys are geniuses at turning ideas into good commercials.

[clarice]

**short hiatus **

[sbw]

Re: Strong

I don't like the Obama's a hypocrite. That makes a judgment the viewer has to make for him- or herself.

Give the evidence. Make it obvious. Then say "it makes sense to vote McCain on Election Day."

[mark l.]

"how much cash are the euro weenies who demand "US action" to resolve the international crisis (and also want a say in selecting our next president) going to contribute to the bailout?"

how desperate are they?

when europe starts running editorials that declare Pelosi's leadership as worse than Bush, the deal goes thru within 48 hours.

If the European press continues to protect nancy from blame, they best lay in the bed they made.

I was skeptical, but now accept that nancy wants financial distress in the world for sake of politcal advantage come November.

within the next couple of days, as europe gets even more desperate, they might actually start reporting that the reason no bailout will come is so that Barry can win the WH.

[Barney Frank]

Apologies if this American Thinker take on M2M was posted above.

[joan]

Clarice: You said yesterday that you thought Pelosi wanted the vote to fail and that it was part of a plan (I'm paraphrasing.)

I just thought Pelosi was vile and stupid and full of anger and said that I didn't think it was a plan. I really couldn't conceive of any representative of the American people being so foul. I was wrong. Listening and reading last night and today have proven how wrong I was.

I have been reading your posts and articles for quite a few years now, and I should have known your bright intellect would be able to pierce the dark ambitions of the Democrats. I am embarrassed that I didn't understand what you were saying. I've read you enough to know better.

Thanks for your perspective on this crisis, as well as others here at jom. You all have kept me sane through the biased and unfair investigation and trial of Scooter Libby, the 2004 election, plus all of the other political pitfalls that come our way. Intelligent and witty people are so uplifting and such a blessing. You, PeterUK, Kim, Cecil, Elliott, Sara, Kim, Jane, sbw, Ben, bgates, ChaCo, PoFarmer, Verner, and, naturally Tom Maguire, there are just too many others to remember and name who have made me chuckle and let me feel like I wasn't alone in this vast left-wing conspiracy. If I've left anyone especially intelligent and witty out, I apologize. Thanks to all of you.

[ben]

"I don't like the Obama's a hypocrite. That makes a judgment the viewer has to make for him- or herself.

I love it..the time for pussy-footing is over. Being nice to Obama is only going to get the guy elected. There is a theory that voters are going to give Obama one last hard look before voting, and McCain better make sure they don't like what they see.

[Sara (Pal2Pal)]

Can we ever hope to see any kind of resolution out of Congress when you have a Democratic congressman on TV (with Cavuto) questioning the manhood of Republicans who voted against the plan yesterday?

From my observational man watching experience, if you want fighting words, question a man's manhood.

[ben]

Joan, I got a lump in my throat reading your heartfelt post. I think a lot of us feel the same way, but cannot put it so eloquently.

[clarice]

joan, thank you. You are way too generous about me. As for the others, well .....

[Sara (Pal2Pal)]

My brain is frying. For crying out loud, it is the 30th of September and right now my thermometer is reading 112 degrees outside.

[sbw]

Ben, I agree with the forcefulness required. At issue is how you call someone a sh*thead with grace and aplomb.

What is needed is to tie the right meme to your message so it isn't considered a "negative" or "attack" ad -- because I've heard the dolts on NPR do that. They called a McCain ad an attack ad without presenting the content and letting you decide.

What McCain should do is state the facts...

..then show Harry Truman on the screen with the quote. "I didn't give 'em hell. I told the truth and they thought it was hell!"

[Sara (Pal2Pal)]

Thank you Joan. I leave the witty and funny to others, all I try to do is provide the fodder (links) for new discussion topics that, unfortunately, often make sure a thread goes waaaaaaaaaaaaay off topic. It is an honor, however, to be included in your list.

[Rick Ballard]

Clarice,

The Fed/Treasurey now controls or owns more than $1 trillion worth of MBS through its adventures with the FMs and AIG. Additionally, the Fed has data in hand with which to evaluate the ARM/ALT-A market in depth for any given locality within the US.

I do not see any reason why the Fed/Treasury could not use data on hand to publicly set the value of that $1 trillion in MBS which they now control.They could do a three way valuation:

1) Replacement cost
2) Value of rental income stream
3) Market by market evaluation in the change in the appraisal value.

Each of those is understandable by people of modest experience and the valuation would provide a simple basis for an understanding that the US is purchasing distressed assets, not bailing out Paul Plutocrat.

The Fed/Treasury could also auction off a few billion of that $1 trillion and prove the hypothesis that a market exists. Offer Fed insurance on the securities to anyone who cares to purchase and you would have a dual valuation that is watertight.

Pension funds would line up for the stuff. They might as well, they own the majority of the junk as it is.

[clarice]

Well, there you go--an idea that doesn't involve just handing money off to profligates.

[M. Simon]

joan,

So I take it you are now on board with coup?

They laughed when I first brought it up. kim was the only one on board. I have gathered a few more adherents in the last few days.

[Porchlight]

Joan, you are so right. Can't tell you how many times I've thanked providence for the wise and witty minds at JOM.

[Sara (Pal2Pal)]

What is needed is to tie the right meme to your message so it isn't considered a "negative" or "attack" ad -

Republicans have got to get their heads out of the 1950s and start realizing that those antiquated social niceties only work when everyone plays by those rules. We're dealing with street people and they fight dirty dirty dirty.

The Obama campaign is out there every day calling McCain an outright liar and a dishonorable man. I've heard the words lying, liar, lies, lied more times in this campaign than I think all previous campaigns combined. As I noted above, they are now questioning the manhood of their opponents. How much lower can you go than that?

McCain is quite capable of letting her rip, but he's got all these so-called society Republicans tell him that "the people" don't like attack ads. Bull. The people love them, that's why they work.

They want McCain to show passion. Passion and anger. They want him to take control of the narrative, not in some wishy washy etiquette way, but in a bar room brawl kind of way. They want him to be the man who yells, "Let's Roll," to lead the charge, to "get 'er done."

[centralcal]

What was I saying yesterday about ACORN coming back into the bail out bill?

From ABC News:

"I think all we can hope for is this presents an opportunity for them to do more for homeowners," said Brenda Nuiz, the legislative director for the Association of Community Organizations for Reform Now, an advocacy group for low- and middle-income families.

Nuiz said that lawmakers now have the chance to include in the bill provisions that were conspicuously absent in the legislation defeated by the house on Monday -- measures to directly help homeowners.

"We're looking for real language with some real teeth," Nuiz said.

LUN

[ben]

"Ben, I agree with the forcefulness required. At issue is how you call someone a sh*thead with grace and aplomb."

Right sbw, I understand the reluctance with the word hypocrite but let's face, the MSM will call it an attack ad in any event. It's a hard call but McCain is known for straight talk.

[ex-democrat]

sbw - would "two faced opportunistic scumbag" work instead?

[Sara (Pal2Pal)]

With today’s 485 increase the Dow closed at 10,850. On September 24, just five days ago, it was 10,877. A drop of 27 pts. in 5 days. If you are a stock market watcher, are you asking, "what crisis?"