BAILOUT [strike]STRUCK DOWN[/strike] PASSED DOW PLUMMETING!
 

The 700 billion dollar bailout just got voted down in the House and the markets are fucking plummeting. ITS A GOOD THING THEY SUICIDE PROOFED THOSE SKYSCRAPERS

POW BITCH

Where did you hear that

This is live, sucka!

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Business, financial, personal finance news - CNNMoney.com

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lookatdat rebound

I think we have different definitons of voted down

I mean they are still voting, and the bill will pass btw

SHIT SHIT SHIT FUUUUUUUUUUUCKKKKK

:siren:

There's one vote left, and they're gonna hooooooooooooooooooooooold oooooooooooooooooooooon to that vote, but there's still a 20+ spread

$700 Billion is almost too much for me to get my head around. Can someone summarize why people are for or against the whole thing? Stock Market, 401k, Mortgage, etc., all that kind of stuff, was never my strong-point.

I'm for one glad. Not glad to see the market plummet, but to see that $700 billion won't be spent to bail out irresponsible banks (and of course, stupid people).

I'm sure the agreement will be reached wherein tax payers will be responsible for some sort of bailout (sadly), but not $700 billion worth.

Bill is dead

I'm rushing for Mexico before the dollar loses all value

Additional Spam:
World Markets - CNNMoney.com

World markets are all going down.

All except Norway. =I

This fucking made my day. I've been against this bail-out, and I'm glad to see it crash and burn. The vast majority of the US opposed this, but, much like the illegal amnesty attempt, people in Washington tend to meander away from their constituency often.

Might not end well, but I seriously doubt that the bail-out would've helped at all. The government intervening in economical matters never ends well :(

Welp, I guess the near future will be the coolest time to be a communist, so let's get things started early.

YouTube Video

YouTube Video

Not to mention the principles it expresses: fuck shit up bad enough, and we'll bait you out. Doesn't matter how much you made off the deal! Consider it a gift from the US Government compliments of the tax payers.

I just don't like to see the market do so poorly, honestly. Especially internationally. Suppose it's the natural way of things, though.

Hope you're ready to trade that goat to Fedex for them to ship your mushroom out for you, Sassu~

First gas shortages all over the country and now this. Hopefully this isn't the beginning of the end for the U.S. economy...

*Laughs at investors losing 400% of their net value*

Just because it's on the front page of CNN:

http://i2.cdn.turner.com/cnn/2008/im....mon.03.ap.jpg

Holy shit, do you have any IDEA what this will do to your economy? This is not the time to be cheering because your tax dollars are safe, because it WILL come back to bite you in the ass. Yes, the banks have been acting like kids who got their hands on daddies credit card for the first time, but you should be beyond laughing at them, because you're now dealing with preventing the downfall of the ENTIRE economy, not just the financial section. It's the Great Depression all over again (you know, when your government couldn't agree how to help out of fear of some financial socialism, leading to the collapse of the entire system).

For those wanting to know, here's the final vote results:

http://clerk.house.gov/evs/2008/roll674.xml

A lot of people are claiming this is going to turn into another Great Depression, but the problems with Black Friday ended up being exacerbated because the Fed sat on their hands while there was a monetary constriction.

What we're seeing right now is a massive market correction, and the numbers will reflect the reality of the recession we've been in. Now, if the markets drop 1000 points and trading freezes, that's the time to really be worried.

Now is also the time for the Dems and Repubs to seriously think about what they can do to reassure the markets, but I'm not sure anything short of nationalizing all the insolvent banks is gonna work.

Am I the only one (besides Brady apparently) who thinks this is decidedly not the time to crown ourselves with laurels because our side of the argument won?

Seems like maybe partisan idiocy might want to be set aside and maybe, you know, you can all get something done. For a change.

Just saying.

Barney and Pelosi just ripped into the GOP, and of course the GOP blames the Democrats for not doing enough.

Regardless of a plurality of Republicans voting nay 90+ Dems voted down this bill, so everybody is to fucking blame for this you Goddamn hacks.

Deni, there is hardly anything partisan about how the votes were cast on this bill.
Its more likely the representatives fell back on what they were ideally supposed to do: represent their constituents.
I mean, even Bush, supposed Godhead of the Republican party, backed this bill and Republicans voted against it.

I didn't imagine that the results would come to this, and frankly I'm quite disappointed at the members who have voted no to this bill at the significant risk to the financial health of our nation.

But I suppose we reap what we sow.

And the markets just keep going doooown doooown doooown :(

When the man says "partisan", he's talking about the fact that we haven't rolled to the question of "what next", we've rolled to the collective sigh of relief when a problem still exists. There is nothing good about any of this, if the bailout was a bad idea then we should be asking what the solution is, not going "Man, this inaction shore is swell."

Don't think that it'll happen Deni, seeing as politicians lack the spine to make decisions that actually matter (just look at the crisis in Belgium, that started a year and a half ago), especially with an election coming up. I would have expected that everyone would get the seriousness of the situation by now, but the current situation shows that I'm still a bit too naive.

It's like you're running around on fire, Brady.

People need to calm down, for starters. A Great Depression-type situation probably won't happen; it's very hard to accomplish by this point.

In 1987, the market fell somewhere around 500 points (22%) near our last economic crisis. For us to match that (22%), we'd need to drop somewhere around 2500 points or so. We've seen worse than this, seriously. Is it still bad? Yes, it is, but don't go thinking that this is the first time since 1929 that the economy has shit itself, folks.

Hell, the market in itself is silly. DOW hit 10500 just from Dems and Republicans snipping at eachother earlier.

Adding to things, the Great Depression was ballooned by many reasons. Some of you might remember the stress caused by a little something called the Dust Bowl, alongside some issues (trade and what-not with other countries) following WW1, in addition to issues with the Gold standard.

It isn't an everyday occurrence, but don't think that we'll end up with 25% unemployment or something of the sort. Stock up on guns and cans of beans if you want though~

Well, I certainly agree with you that the conditions are different, Gech. Though I wouldn't count out the gravity of the situation or what could happen if our leaders can't, you know, lead.

Now I'm not an economics expert or anything, but it seems to me that it's the perfect time to buy up all these super-cheap stocks! Upper class, here I come!

That didn't stop some CNN talking heads from saying it is.

I laughed pretty good.

The members of congress are too busy sniping eachother to be of much use right now :V Never had much faith in Washington, meself~

And the DOW goes into another rebound, back to -600. I wanna ride dat rollercoaster

Oh the possibilities.

I've seen DOW hop up and down like a five year old on a sugar high for weeks now :(

OMG IT'S DOWN 500. DOOMED.

OMG IT'S UP 500. FUCK YEAH WE RULE.

OMG IT'S DOWN 500. DOOMED.

Just gotta shrug it off, folks :x Things are going to hiccup quite a lot in the days to come. Let the dust settle, I say.

Now, and call me crazy, I don't think it was the Dow's point level that had people all up in a ruckus.

God dammit

Why didn't we just give them all the free money they wanted

Now we're all gonna be poor

(dissed by canadians ITT)

DOW BACK TO -738

http://i60.photobucket.com/albums/h3...lercoaster.gif

To the international markets (including Canada, you dissing asses <3):

I am sorry our shitty banks fucked up your banks, guys, really I am.

The markets are now closed. dow closed at -770.59 and nasdaq at -199.

We'll see what happens Wednesday.

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Fuck you Aardark you were so fucking wrong.

HAHAHAHAHAHAHAAHAHAHAHAHAHAHAHAHAHHAA

Google Finance says DOW closed on lucky sevens -777.68

I already went through the reasons you guys don't want your banks going tits up in this thread but for those for whom two weeks ago is beyond the boundaries of active memory, let's go again.

So the banks won't be getting the bailout they were after. A load of bankers are going to lose their jobs as a result. A significant reduction in the workforce means that fewer people are going to be riding the bus to work, eating lunch, going to the gym, wanting their lawns mowed and so on. As such, the people who work on the buses, in the sandwich shops and gyms and those who mow lawns are all going to lose their jobs. These people are now going to stop buying petrol and computer games and going out to dinner so the people working in petrol stations, computer game shops and restaurants are going to lose their jobs too and so on and so on.

So now you've had a load of job losses, you'd think that'd be the end of the problem right? Nope, because those people are now not paying tax any more. In fact, they're drawing unemployment benefits so they've gone from contributing to the tax purse to being a drain on it. Some lucky ones will have savings to live off, only the banks went bust, so the fed has had to guarantee their savings, that probably won't be cheap. Oh yeah, those banks that went bust, no more tax to pay for them. In the UK, the Bank of Scotland paid £6 Billion in tax last year. Imagine what Lehman's tax bill was, that's now out of the system.

The stock market might not be full on crashing (yet) but the value of a lot of shares has been halved or worse. Any of you got a pension? Not any more you haven't. Pension funds are to a large extent based on share speculation and bank deposits, meaning the value of them has been wiped out. I don't know about the US but over here, companies aren't allowed to have negative equity on their pension schemes so in order to prop them up, they have to save money elsewhere, so say goodbye to a payrise this year. Also, if you don't have a pension scheme, don't be expecting to get one any time soon.

If you work for a Dow listed firm, your job is probably already on the line and the trickle down effect means you'll struggle to find any vacancies elsewhere.

What money the surviving banks do have they're going to hang onto for dear life. So no more lending or selling of debt. This causes stagnation in the economy as no firms can borrow money to invest in research or new premises, especially as nobody has any money to buy anything anyway. Your currency is fucked now so imports are going to cost more which means increased prices on pretty much everything in your shops and more companies going bust as a result.

You could save a fortune by pulling out of Iraq I guess but if you think oil is expensive now, just imagine what it'd cost without the US army stationed round all the drilling platforms.

Essentially, whilst $700 billion sounds like a lot, it's probably not much more than your civic purse is going to lose anyway out of this only without the bail-out it's going to take a shit lot longer for your economy to recover. Sadly, as this thread proves, the American public is for the most part fairly ignorant of the bigger picture and long term ramifications of the recent financial worries and sensationalist headlines about the spending of public money are a powerful thing in an election year. About the only chance your economy really has is if a big Chinese or Arab conglomerate starts buying up your banks. Of course that's never going to happen because, well, Team U.S.A. would rather be dead than red, or in a headscarf right?

You guys are pretty fucked. You're probably going to drag us down with you but our economy is more resiliant than yours, if only because all the big insolvency firms are based in the UK and because we're on better terms with Russia and China than you are.

Wasn't 300 million of that 700 billion going to form a severance package for one of the retiring CEO's?

Isn't that exciting.

Also, does anyone find this whole economy in turmoil! thing a bit convenient for the upcoming presidential election? :/

Fuck the House Republicans, and fuck McCain.

Additional Spam:
Your information is out of date or more likely wrong. You should educate yourself so you stay informed on what the next bill will look like. However, you probably won't follow my advice, so go back to concert hall you mincing faggot.

Where did you read that?

Shin, what did you want us to do? I mean, the alternative was to let the government bail out the banks for their stupid mistakes and let the American people pay for those mistakes?

I'm curious what you think of the alternative, had the bill passed. Not because I want to argue, but because you're more versed in this all than I am.

Both ways you look at it, it's a shit situation. I wish it didn't have to affect the rest of the world.

To all you fucks who think that banks, like all other companies, should be punished for the poor choices they made, there is a really enlightening entry for you to read in Nehmi's journal.

So before you think the rest of us are just big assholes who want to spend your hard-earned taxpayer dollars, remember there is a friend amongst you. Nehmi, a shining becon of truth, an eagle in this den of rats.

I don't remember now, which is why I placed a question mark at the end of that sentence.

I think it may have been a while ago and it was surely off of google news which draws from various sources. I may have also read it wrong it may have been a total severance package for all CEOs or something along those lines.

Go back to Concert Hall, Esch. This bill in particular has been pushed through quite quickly, with intense negotiations on both sides of the aisle. If you think something you dimly half-remember from early last week is still relevant, then you're not ready to read things written by men who are still living.

If it were me and from a purely economic perspective, I would have bailed out the banks. I wouldn't have given the money away and let them get on with it, I would have specified that the money was strictly to be used to improve liquidity. Get money flowing around the system again, allow lending but jog on all the ridiculous financial instruments people have been coming up with to shuffle debts around.

The economy needs banks with money, firstly to stop the unemployment ripple and secondly to allow other companies to borrow the money they need to expand or in some cases, just stay afloat. Share prices are fucked but that in itself is not a problem, until you cash your shares in. With money available to invest, some bright sparks are going to be able to take advantage of the situation and buy up a bunch of stock, consolidating companies and in the long run, create new companies with (Hopefully) greater efficiency and less risk exposure.

Of course, you'd have to make cutbacks elsewhere, the obvious choice being military expenditure. The less popular choice would be to stop over-subsidising your farmers and open up your borders a bit. Increased imports are bad for GDP and don't help growth in the short term but you'd benefit from better relations with trading partner countries and exports would rise as a result, especially with your currency being so cheap at the moment. Capitalise on this and you'll end up with a stronger currency and a positve net import/export ratio in the long run, strengthening your economy.

The problem is, there are no short-term fixes and people want short-term fixes. What needs to be done is some proper long-term (Read ten years) planning but with two changes of president in that period, you're just not going to get that. The World Bank is never going to let the USA completely collapse so you can actually borrow on your GDP to your heart's content so the $700billion really isn't that much money in the grand scheme of things.

The bill that just got voted down would've also paid out the 700 billion in installments, with 250 up front and a ton of oversight. Which is as opposed to the original Paulson plan which promised 700 billion with zero oversight.

'sup No Banker Left Behind.

I'm predicting a huge boost for Obama's campaign in the future. By the time the bill is up for a vote again the general public be overwhelmingly in favor of the bailout. This will give the Democrats the balls to write up a bill stripped of anything that placates the right, and Obama will have a chance to be seen as 'saving' us and leading the majority party to success. The House Republicans' whole deal here was that they had public support. Now they'll just be seen as fucking assholes who fucked up the whole stupid fuck!!

Man, this stinks. I shudder to see how the rest of the world reacts today.

Public support for the bailout was already in overwhelming favor of a bailout to begin with. (78% in favor of a bailout of some sort.)

Anyone who thought there was less of a chance of revolution in this country may not want to lose all hope yet.

Of "a bailout", yes. Of a $700 billion bailout, not so much.

That survey stated that the majority favoured some action, but different from the Bush proposal. There is no inconsistency between that and the House Republican actions.

LMAO, that avatar and sig just fucking super glue'd themselves to you, Dope.

What is this, digg?

DR. RONALD EARNEST PAUL PREDICTED THIS WOULD HAPPEN YEARS AGO

DR. RONALD EARNEST PAUL IS THEREFORE PSYCHIC AND RIGHT ABOUT EVERYTHING

WE SHOULD FORM A REVOLUTION AND TAKE DOWN AMERIKKKKKA AND THE MSM AND ELECT DR. RONALD EARNEST PAUL OUR LEADER BECAUSE HE IS THE BEST

WHY DIDN'T YOU VOTE FOR DR. RONALD EARNEST PAUL



It is people like this that make me despise the internet

Just a tip for those who do trading: Apple dropped 18% today =3 Nice time to buy some up. Ebay dropped 11% if you're looking for something that is cheaper per share.

http://www.gamingforce.org/forums/po...on-coming.html

I'm not saying I think a revolution will happen, but some people do.

So what if a bunch of voters whose idea of the bailout was largely informed by the intial no-strings-attached proposal disagree with it? Hell, I don't like it. But I think that taking time to come up with a solution everyone finds agreeable will cost us much, much more in the long run. Now isn't the time to dick around worrying about your goddamn reelection.

This bill was more agreeable than the Paulson plan.

Australia opened a few hours ago and they went down 4%.

Another lurker's been telling me that most of the global markets are down 5%.

I'm just tired of this political game politicians love to play. Why don't they just stop thinking selfishly about themselves ("I'll vote for it" then turn around in the last few hours and NOT do what they just said they were about to do), and think about the people they are supposed to represent? Or the economy that is in desperate need of cash to just fund working capital (or just function on a daily basis)? Do they know how many companies can have completely good financials but not enough liquidity to survive the next few days that they go bust? "Oh, but their PPE, inventory, receivables, etc. are fine", yeah, but in the end, it's the liquidity value - not market value or book value - that counts. As if the recent events of last week weren't enough to send red flares into the air. "Cash is king" should be the motto of this year.

The media or probably rumors or just sheer ignorance of the public (that CEOs will be raking in most of the bailout money, we're bailing out the mistakes of greedy people, $700Bn is a lot of money - please, take a look at the balance sheets of Wal Mart or ExxonMobil for a sense of big, the people will be paying for it, etc etc) is maddening. When it comes time for their 401k's to go downhill, then they'll probably change their minds because it finally hits their wallets.

The banking crisis has spiraled into something that needs help, and no one is trying to keep their pride by saying that it doesn't. Bankers have admitted their defeat, even the prestigious Goldman and MS has bowed to their mistakes. Forcing surviving banks to acquire the bad debts of other banks is just a temporary solution but it still doesn't address the real issue on hand. C and JPM are not out of the clear either. In fact, they have more issues to deal with after the gov't has forced them to save their peers.

The gov't, while it still has some power, should at least instill some confidence in the public to keep believing in our economy. And then help funnel some temporary cash into the system so this doesn't become bigger than what it already is. Banks are already afraid to finance any more projects for existing companies and are already cutting down debt lines, bridge loans, revolving credit facilities, and commercial paper. Equity is expensive to finance. Long term debt is also expensive. Lack of liquidity could result in a issuer ratings downgrade, which in turn creates financing difficulty. It's an ugly spiral that we do not want to happen because it hits more people and companies than most realize.

Okay, end rant. It's just stupid how people don't think of the long term consequences.

Eh, tomorrow scientists will discover a 14th moon around Neptune and stocks will rally by 100 points.

The whole system is as capricious as a three year-old with a sugar high.

The index is not the issue; just a reflection of public expectation. Stocks are volatile. Gold star for everyone who has come to that conclusion now.

The underlying problem will still remain for a while, and people who thought it was gone half a year ago were evidently wrong (including myself). The problem, which is, credit and liquidity.

That's a pretty solid way to lose money right there. The market doesn't magically stop it's fall just because the Dow closed for the evening. There's still a fair bit of falling to come yet, especially for companies like Apple who, as producers of luxury items will be hit hardest in the coming months. The only hope for shares like eBay and Apple going up in price any time soon is if there's a shit load more ignorant people like you playing at share trading who inflate the value through dumb-arse moves like that. Given the capitalisation of both companies it'd have to be a fucking shit load of idiots with a lot of money to burn to manage that.

The people making money yesterday and today are the hedge fund short sellers. I imagine yesterday's crash created a few billionaires here and there, assuming they could find anyone dumb enough to lend them their stock holdings. If I had money to invest, I would seriously be taking it otu of the American economy and investing in the middle east or China. Both those regions have massive cash reserves, massive resource stockpiles and good credit with the World Bank. The only thing stopping a wholesale takeover of the American financial system by foreign interests is your protectionist trading policies. To be honest, a massive injection of Arab money would seriously sort your economy out and as an added bonus, be hilariously ironic for those of us watching from abroad.

No, I think this fall is actually driven by fear - so the valuations here are not entirely rational, and there may be undervalued companies by now.

Sure, Gech won't be buying at the bottom. But you can bet your booties it's nowhere near the top. Sure, there'll be a lot of see-sawing before we get out of this mess, but any intrepid investor who bucks his fear and goes for a value play will be richly rewarded in the long term.

Let's restart the Investopedia contest, chaps. We'll see who picks the most undervalued company!

I didn't even notice that.

You need to stop pre-emptively copying me, nonetheless.

Sure, you could buy now and play the long game but in terms of risk and reward, that's retarded. Companies aren't undervalued now, the slump yesterday was a long overdue correction. With no confidence left in the market, companies share prices will start reflecting their book value, rather than carrying a value based on their future potential. Take eBay for example, they have very little in the way of physical assets, the value placed on the company is largely based on future advertising revenue streams. In a time of economic slowdown, advertisers won't be willing to pay as much and people will be buying less, therefore eBay's actual value will drop right down.

The collapse of the market was not triggered by the fear impulse of small investors. Small, private investors make up a tiny fraction of the daily trading and have a negligable effect on share prices. The reason everything crashed was that the big investors; banks, pension schemes, hedge funds and the like wanted to minimise their short term losses so sold up all their American stock and are now probably holding cash for the time being. That cash is tucked away safely in Swiss and Cayman Islands bank accounts for now until they decide that investing in stock is a good idea again, with no guarantee that that's going to happen in America.

That's why this is a global issue, not just an American one. Anerican companies invest all over the world and when they start suffering, they sell up their holdings to generate some cash. This prompts a similar sell off by other investors in whichever markets are taking a kicking as a result.

The cash is still there, it doesn't just disappear. Only rather than being in American banks, it's sat in an account abroad, earning interest at a higher rate of return than you'll get from investing in stock right now.

You could buy shares in Apple or what have you and yes, eventually they'll probably end up worth more than they are now but that could be years from now and in the mean time, you could have put the money in a bank account or governement bonds and earned 6% interest or more on the investment. In real terms, with inflation running rampant that's still not much but it's far, far more sensible than blindly buying up shares in the hope that one day they might make you some money.

Don't ever be so arrogant as to think you can beat the market, these people earn a lot of money to do what they do for a reason.

I, for one, want this crisis to stay in the market. I DO NOT want to see the ripple effects. I didn't see this kinda hubbub from you guys over the stimulus package, which was aimed at low class citizens, and as we can now recall, didn't help a motherfucking thing. But it did cost 150 billion or more.

It's okay for me and you to borrow from credit cards, in case we can't pay the bills. That's what they're there for, and they make money from it.
Now big brother needs a loan from big daddy, and big daddy is likely to prosper from it as well. At any rate, prosper in comparison to what would happen if he didn't help out.

I am outraged, a bit, though, at how the House republicans blamed Nancy Pelowsi for keeping the bill from passing because she gave a "demoralizing speech". Grow a backbone, you conservative prudes.

I have a few questions on the matter.

Has anybody figured out if we're just going to print the money we're loaning (decreasing the value of our dollar), or borrow it all from China?

And Shin, could you explain that borrowing on GDP from the World Bank for me?

It's not in China's interest to see the $US depreciate (US being their largest importer), so the coming crisis will prompt China to increase their holdings of US treasuries (dollars) even further. The budget deficit the US posesses is no doubt going to take an even larger hit in the coming months because of countries like China's foreign exchange intervention. Add to that the massive dollar/yen carry trade unwinds, and it's a recipe for disaster as far as US economic outlook goes.

Ripple effects will be inevitable, seeing as basically everything in an economy depends on banks, the only question is how severe they will be (and with no rescue plans the effects will only get worse). The problem is that these effects aren't immediately visible, it takes time to see the full impact of bankruptcies and lower liquidity on other companies who may not seem to be directly involved, but who will get hit nonetheless.

As for where the money comes from, I don't know the details of the US rescue plan, but we had a similar crisis with two banks in the Benelux over the past weekend. The governments of the Netherlands, Belgium and Luxembourg decided to inject 17,6 billion euro (which may not seem like a lot to Americans, but is a shitload of money for tiny countries). We actually reviewed the case for Belgium, which will be taking up the majority of the money.

-30% will come from the Federal government, but will not affect the budget, since the government takes a loan at the Federal Investment Company (an institution created for these purposes, that is funded by using money that were set aside as a buffer against conjectural difficulties).

-20% will come from the Flemish, Brussels and Wallon government (three of the regions that Belgium's divided in, don't ask me to explain). They will get the money with a similar construction to the Federal government.

-20% will come from municipal councils, who will not use tax payers money for this, but funds generated out of their participation in public companies, like Suez (biggest gas company in Belgium)

-The rest will be provided by institutional shareholders.

As you can see, the impact on tax payers money will be minimized, and spread over several years, to reduce the shock. This is for a specific case though, so I don't know how the US government planned to fund it, but I guess that it would be a similar construction.

That is incredibly short-sighted of you Sass, it WILL have an effect on the tax payers money, and the only way to reduce the impact is to come up with a resolution like the rescue plan as fast as possible to minimize the impact, since waiting will only cause more troubles, not just for banks but for the entire economy, and future rescue plans will only get more expensive and riskier. Yes, the banks are at fault here (although not completely, but that's a different discussion), but just saying that they got in to this mess on their own means that they have to get out of it on their own is just stupid, because it should be clear to everyone who has watched the crisis over the past year or so that they CAN'T get out on their own.

As for what would have happened if the bill had passed, this is only a guess, but the markets would have calmed down, even remaining stable for a couple of days, before they would start to sink again (You can't prevent this, since the crisis goes way deeper than just a couple of bad debts that need to be cleared). But in the meantime, not just the banks, but a lot of other companies would have gotten some leeway, and they would taken the opportunities to guard themselves against further trouble. It would have helped to show people that something was being done, and it would have served as reassurance for people involved in financial markets.

When a country's government wants to spend more money than it's getting in it basically has four options. Go to their equivalent of the federal reserve and withdraw it, print more money, borrow it from another country or borrow it from the World Bank.

Printing money is not a viable option as the resulting inflation would completely fuck your economy, far beyond what you're seeing now. Printing more money serves to devalue the money already in circulation. By printing new notes to cover the defecit, you're not really filling the hole, you're spreading it around everyone and by giving $700billion of new money to the banks, you're just making everyone else's money worth less. In it's mildest form, this leads to rising prices, in it's worst form you have the situation you have in Zimbabwe or Weimar Germany where you need a wheelbarrow full of bank notes to buy a loaf of bread.

You could borrow the money from another country but most if not all of America's main allies are in similarly dire financial straits and the amount of money you're after is about the same as the GDP of Denmark so you'll struggle to find someone to lend you that much.

The World Bank exists primarily to aid developing countries. Pretty much all the developed nations pay into it annually and the World Bank loans the money to developing countries to help fund, well, development. Whilst the primary function of the World Bank is to support developing countries, I'm fairly sure that lending money to an industrial nation is not without precedent. World Bank loans however are tightly structured and deviating from their terms incurs pretty harsh interest penalties. It would make more sense for the US to stop paying in for a bit but to do so would be to default on all sorts of international treaties which you really can't afford to be doing right now.

The final option is converting gold stock and similar at the federal reserve into cash by selling it. I'm not sure how much the US keeps in mineral reserves but I do know that trying to dump $700billion worth on the market at once will wipe out the price of whatever it is you're dumping, meaning the cost will ultimately be a lot higher than $700billion.

To say the money is coming out of taxpayers pockets is a bit of a misnomer. What's more likely is that some would come from reserves sales, some would come in international loans (Possibly by writing off some of the reparations debts that Germany still owes you for example), some would come in the form of a short term loan from the World Bank and some would be raised by borrowing from banks around the world, using future tax revenues as collateral. It's only this last slice that taxpayers are directly funding but without being privy to the inner workings of your government, I couldn't say how big a slice of the total that was.

$700billion is a lot to raise, even in theoretical money, but the inevitable repayments would, I believe, be easier to bear than the impending fucking over you're about to get by not bailing out the banks. Whilst people grumble about higher taxes, they're less psychologically damaging than mass redundancies and higher prices in the shops. You only notice higher taxes once a month when you get paid, you notice higher prices every time you buy something.

My understanding is they were going to fund the Paulsen plan by issuing some bonds (which is all moot anyway till Congress passes something else). At this point, people are fleeing stocks, and may very well snap up any new federal treasuries.

Do this enough, however, and the value of the country's debt becomes less guaranteed. Once that happens, you're going to have to offer a higher interest to compensate for the risk. If your credit rating goes down sufficiently, no one wants to hold dollars, and we're all screwed. I can't imagine what capital flight out of the United States and any dollar-denominated assets would do to the world economy.

One thing I can't understand is, why do so many people look at the $700 billion and immediately say it's an expense item? It's not - it's an asset, albeit a highly speculative one. Something that could conceivably appreciate in value once the mess is over. There's a chance of it going all the way to zero, losing taxpayers more than just the $700 billion, but what's the chance that the underlying asset of those securities - which are mortgaged houses - would actually go down to zero?

Oh yeah, issuing bonds, I always forget about that. :(

Still, like you say, someone has to buy them and that's as likely to be foreign investors as domestic ones, leading to a reduced balance of payments in the future. Eventually that will swing round to be a benefit as a cheaper dollar means more exports but in the short term, imports will cost a load more, including, crucially, oil.

True, balance of payment issues may crop up in the future. Though, that's one of the things America ought to address - its twin deficits (trade/current account deficit and fiscal deficit). Problem is, habits are hard to change. Try telling the people who elected you that you want them to lower their standard of living to levels they can afford :p

The beauty of the dollar's value being floated is that this will ultimately counterbalance in the medium-term. As oil prices become intolerably high, Americans would start using less oil. Thus, reducing the import bill, and ultimately the price of oil.

Regardless, I agree the short term effect would inevitably be a weak dollar coupled with higher inflation.

I guess now is a good time for me to be starting a 401(k) plan. Either the market goes back up and I make money, or it drops further and everyone's fucked.

I've always wondered if the banks engaged in a bit more risk than they should have since they were aware that there would always be the government to bail them out in the event of financial disaster.

Also.

BUY WAR BONDS

Well RR it's like leaving your home unlocked. Sure, the police will probably bail you out by catching the guys who did it, but it doesn't mean you get back all your stolen shit.

Isn't that what homeowner's insurance is for?

That's where the comparison breaks down yes

The implicit "too big to fail" policy was a part of it, but it's mostly the 1% interest set by the Fed. With money that cheap, lenders figured they could afford to issue sub prime mortgages to as many people as they could, and even with the few who would default they'd make so many profits that they could still pay off the interest on the money.

Didn't turn out that way.

I just wanted to leave a link for anyone who wants a detailed explanation on what actually happened with the lead up to the situation. There's a great This American Life radio show episode which really puts it all in laymen terms. It's worth a listen - it's free, and in streaming.

SENATE TO VOTE ON RESCUE PLAN WEDNESDAY.
 

I didn't see a response to this in the Bill failing thread, so here goes -

Senate to vote on financial rescue plan on Wed. - Yahoo! News

Here's an interesting trick - revive a plan in the other house, tack on something to make fearful investors and a jittery, tired public less likely to oppose it (upping FDIC limits to $250,000 from $100,000) and see if the trick holds. P.S. as I write this, the story was posted less than 20 minutes ago.

Just because nobody mentioned this yet, hardly qualifies it for a new thread. Let's try to keep discussion on one topic in one thread yeah?

Additional Spam:
Hahahahahaha, yeah right. America fucking loves oil, more than anything else. The main reason for not signing up to Kyoto and paying scientists to say that global warming is a myth is so they can keep burning the stuff and bollocks to the eastern seaboard in hurricane season. Petrol prices rise in America and everyone here starts complaining about how it now costs almost a fiver to fill up their eight litre SUV. The concept of not using oil is an entirely alien one to the US. They're spending billions of dollars a week keeping their army in Iraq just to secure oil reserves. Shit, they could have saved most of the money they need for the bailout by not even flying the troops over, let alone the cost of keeping them there for the best part of a decade. The ludicrous amount of money the US government has spent in maintaining their access to Iraqi and Kuwait oil is a big part of the reason why the US government is almost bankrupt in the first place.

No, oil prices will rise and America will keep using the same amount of oil. Rather than occasionally turning things off when they aren't using them and walking places once in a while, they'll be faced with a higher and higher proportion of their income going on oil based products, fuel, power, anything made outside the US. They won't be able to get loans because their banks aren't offering, pay rates will fall behind inflation making it even harder to maintain the standards of living most of them seem to believe is a right rather than a priviledge. People will start eating cheaper food to save money which is generally worse for you meaning the obesity epidemic will get even worse putting greater strain on hospitals. More people will turn to drink and drugs to combat the depression of having no money and theft and burglary will increase as consumer good s become harder to come by. People will give less to charity and the fear of crime will make the already overly-paranoid American people even more fearful of their neighbours. Gun crime will increase, as will the number of accidental shootings as everyone tools up to defend their remaining material possesions.

I don't think a lot of people in America realise just how important the strength of the dollar is to their standard of living. Between that and having a government with no money, America is unlikely to be a very nice place to live for the next few years and personally I don't see a quick-fix solution, I think you'll just have to ride it out and wait for international markets to do their thing. In the mean time, the best the US government can manage is to try to reduce the dependance on imports, make the country more self-sufficient but not just by imposing trade tarrifs as that keeps prices of domestic goods artificially high, making life even harder for the population. Instead they need to focus on developing alternative energy sources, improving efficiency in food production and reducing food miles and supporting those industries where America is a world leader, not that I can particularly think of any off the top of my head. The financial markets will eventually settle down, albeit much quicker if they get given the money they need to start functioning again.

Just read an article that interesting, detailing the selling of American corporations and assets to foreign investors.

The Great American Yard Sale - TIME

A month old, but I found it informing.

So, how about that bill actually passing? You know, like it did.

I don't know much about this bill other than that it gives tax breaks to companies and raises the FDIC insurance rate. I was under the impression that in a "free market" economy that good old invisible hand is supposed to in and fix everything not the government. I guess that's why a bunch of people are calling it a socialist bill? But that doesn't make sense if it LOWERS taxes for companies. (I'm probably not making any sense, probably because from what I know of this bill, it doesn't seem to make any sense.)

Wouldn't it make more sense, instead of reducing taxes on the companies, to invest in America's crumbling infrastructure?

Reducing taxes is a very free-market thing to do. Essentially by doing that the government are handing the power to kick start the market back to the corporations.

By reducing taxes, the companies have more ready cash available. The idea is they can use this cash to invest in new projects whereas before they'd have to borrow money from the banks to fund that kind of thing, something they can't do so easily now.

Increasing the insurance cover means confidence is increased that people's life savings won't be wiped out by a bank going under which stops people wanting to withdraw all their money and hold it in cash, which is what fucks banks over as they often struggle to scrape together the ready cash to service everyone's withdrawl needs.

If the government started investing in infrastructure, that would be a very socialist, even communist thing to do. This stance assumes that the government know how to fix the economy better than businessmen do, which may or may not be true but in a country built on a mantra of free trade (Except with foreign countries of course), that kind of interventionist policy is never going to be taken on board.

Tax reductions are a slow way to recover an economy and can backfire if all the companies do is use the tax breaks to pay higher dividends, which I would suggest is a distinct possiblity as the boards are going to want to keep the investors sweet to stop them selling their stock and devaluing the company.

No it isn't.

Melomane is referring to things like roads, highways, bridges, rail lines, etc., which has been a popular practice since the Romans. Not that public works would help the economy in the short term anyways.

They also put in tax breaks for companies investing in renewable energy and a provision to ensure mental health coverage in all health care plans so I mean it's not like only the Republicans were pandered to.

I guess, since I'm not feeling the effects of what's going on in the stock-market and the housing crash, I can't/won't understand why we need this. I'm not seeing an real consequences of the ups and downs of the it lately, so I have no idea what they are. (Actually, I caught a snippet of NPR a little while ago and they mentioned something about pension plans and 401Ks, but I'm not sure in what context or how they're being affected.)

People say it'll create a great depression if we don't do anything, people say it'll sort itself out if we don't do anything. I get that the bill is supposed to increase spending, it's a pretty typical expansionary fiscal policy, but weren't the checks people got in June/July also a pretty big expansionary fiscal policy? If that only worked in the extreme short-term, and obviously not so well, if spending is down again, what makes this bill any more likely to "fix" the problem?

Heh. Fuck you, who was wrong now?

The bill that passed in the Senate is a completely different draft than the one that failed in the house.

Lurks, the energy tax breaks weren't added to the bill, apparently any tax bills must originate in the house, so they stapled all this shit underneath the energy bill to sidestep their own rules.

Melomane, you won't feel the ripple effects for a few months, when business will start slowing down a whole lot more than it already has.

I've already seen the automotive business go flat, so I got out of that. Since then, hunting jobs is hard as fuck, especially when you don't have any other specific skillsets.
I'm not sure if you're still working as a waitress, but if you are, you'll probably see the effects in the amount of tips you start getting (should nothing happen with this bill).

You could also read Shin's posts (which you should've already done, but doubt you actually bothered to read the entire thread).
http://www.gamingforce.org/forums/po...tml#post648617
http://www.gamingforce.org/forums/po...tml#post649014

Also:
http://billgx.edublogs.org/files/2008/05/bill.jpg

It's you.

From what I heard (in addition to all of Shin's stuff), interbank trading* has basically froze. The banks don't want to loan any other banks money for 3 months if they don't know if the bank will still be there in 3 months. If it keeps on for too long like this, then anything that requires loaning from a bank (mortgages, loans, credit cards) will stop. That would be the first pinch.

You should read Shin's posts, and if you're still interested after you should google up some blogs about it. I don't know of any good financial blogs though, so if someone else does, plug it now.

* the financial markets of the world depends on interbank trading.

A properly capitalist government wouldn't build any roads. They'd sit back and wait until the demand for a new road was such that people were willing to pay someone to build one (And then put up a toll booth on it). Public works building is strictly for reds.

A properly capitalist government would be determined by market forces, but no government to date has ever behaved that way.

Framing individual policies in absolutist terms of capitalist - Marxist or capitalist - socialist is for the birds.

I know this, I was just saying how I wasn't technically wrong before...

Don't make me bust out some Venn diagrams homey.

Given what's happened, I find it funny that the Dow plummets when the bailout was struck down. And it also plummets after the bailout is approved.

From what little I've heard, part of the plummet was due to European and Asian markets not being confident in their respective goverments' reactions to the banking crisis. Basically pointing at the US, Germany (they bailed out a bank recently) and other countries and asking 'what are we doing?'

This was something I heard on the news while doing something else. Don't jump down my throat if I turn out to be mistaken.

http://speaker.gov/img/AIGinvoice.jpg

Apparently the AIG chaps are spending their $85 billion dollar bailout about as responsibly as a fratboy spends an inheritance from Rich Uncle Pennybags. HOW CHARMING. One can only imagine that JPMorganChase will spend its share of the bailout money on a skyscraper made out of bricks of cocaine.

Serious question: why is it that these companies that are "too big to fail" are even allowed to exist? It seems that if a company's failure would have apocalyptic consequences for the economy, they should probably broken up to avoid HAVING to bail them out over and over.

The bailout did nothing. Just like the Fed dumping $630 billion did nothing. People are still pulling their money out of money markets, credit is still frozen, and the stock market is still crashing. Unless the housing market recovers the banking crisis will continue, because without a housing recovery our banking system is still insolvent. Banks have absolutely no reason to extend credit. Everybody has a reason to horde cash or gold. No government bailout of any asset bubble has ever worked. It doesn't matter whether we're talking about railroads (a la the Long Depression), tulips, or housing.

I'm sure the collective wisdom of our elected representatives will prevail, and the next bailout will work much better.

hahaha!

Can anyone really say they're surprised?

I figure the folks at Morgan-Chase are a little bit smarter then the AiG execs. So they'll use their bailout money to boost their stock price, then all the insiders will dump. Then and only then can they buy cocaine, booze, and hookers. It's what I'd do.

Mostly because this "too big to fail" nonsense is bullshit the pundits crank out. The other reason is because nobody is enforcing trust laws, much less accounting laws, and/or any other laws that govern finance. As sick as it might sound this is probably a good thing. If our financial institutions were forced to reveal just how insolvent they were mass chaos and panic would ensue.

There's only one institution "too big to fail"; the central government.

How can you say it didn't work, when it hasn't even started yet?

I'm trying to maintain a little optimism by saying it'll do nothing. It hasn't blown up in our faces....yet. Which is entirely possible considering the circumstances.

As Rep. Peter DeFazio (D-OR) so candidly pointed out.
Regardless of whatever the Paulson Plan accomplishes, if DeFazio is right the economy will be in even deeper shit. The bad news does not even begin to end there.

Investors are going around to financial institutions worldwide and screaming "PROVE TO US YOU'RE FUCKING SOLVENT!" and then when the institution can't it fails. The government responds by "pulling a Hoover" and dumps all the liquidity/debt it can into the financial company/system as some form of a "rescue". Most governments (unlike Hoover's) are not sitting on a huge surplus in their budget. So a bailout could potentially threaten a country's credit rating (which DeFazio alluded to) and/or increases the possibility the government will have to declare bankruptcy at a later date. Kind of like what is happening to Iceland right now.

Help me out here, since I'm not well-versed in Chicken Little; there are no banks or financial institutions that are simply too big to fall. However, if we knew how poorly these institutions are doing, a worldwide panic is inevitable. Therefore, these institutions are not too big to fall?

???

Actually, the reason you even have a housing bubble is because of the moves your government made to soften the blow after the dotcom bubble burst. Sure, in the long run everything has the potential to go to shit much worse than would have happened in the first place but saying that one cannot bail out an economy after a bubble bursts is just plain wrong.

Hi there.

You don't know much about accountancy do you? "Accounting" laws are some of the most strictly enforced that there are. If a company ignores them, they'll never get an audit signed off and will never persuade anyone to invest in them. They'll also get a massive fine.

There are actually very few proscriptive "Accounting" laws as you put it. Here in the UK we have the soon to be superseded Companies Act 1985, sections of which deal with the annual reporting requirements for companies. The actual statutory requirements are very few, I could produce a set of Companies Act compliant accounts for a small company on the back of a cigarette packet, literally.

What protects investors and makes accounts of any use at all is not the laws in place, it's the accounting standards and Generally Accepted Accounting Practice. In the UK we have Financial Reporting Standards. The book is massive and very detailed and revisions are made on a constant, rolling basis. Work is presently afoot to codify the various accounting standards from around the world into the International Financial Reporting Standards (IFRS), led primarily by the leading UK accountants' institutions (If there's one thing us Brits are good at, it's accountancy).

The main barrier to amalgamating European and American standards is the US's use of fair-value accounting, rather than asset value accounting. Over here, if you buy a machine, it goes in your accounts at the price you paid for it, which is depreciated over the life of the machine. In the US, the value of the machine is not what you paid for it, rather it's based on the revenue you expect to derive from the machine over it's lifespan.

In terms of machinery, that's not a problem and despite the obvious problems with what's often a highly subjective and speculative method of valuation, fair value is a reasonable, if overly complicated wy to value things.

The problems start however when you come to prepare accounts for financial institutions. When the American banks gave away all that money in the form of sub-prime mortgages, the loans were not valued in terms of how much was loaned out, they were valued at how much the banks would eventually get back. All these financial institutions had their balance sheets propped up by theoretical future revenue streams from dodgy loans they were never going to get back, but this was entirely in line with standard US accounting practices. To the casual observer, the banks were hugely solvent and all was fine. It was only once the loans started getting written off that it became apparent just how badly propped up they were and many quickly found themselves on the borderline of insolvency.

It's not like anyone was misleading the public, the information was always there. It's just that most people haven't got a clue how to read a set of accounts properly, or in fact have any desire whatsoever to do so. Industry comemtators have been saying for years that the system was on incredibly shakey ground and would collapse at the first hint of trouble but for whatever reason, nobody listened to them.

It's all actually turned out ok for the British banking system. Northern Rock collapsing last year was enough of a shock for them to start covering themselves and stop overstrtetching their assets. The Northern Rock itself was a relatively small bank and the only real losers were middle class people who'd bought a second home to rent out, borrowing beyond their means to do so and frankly, fuck 'em, they shouldn't have borrowed more than they could afford to repay. The US banks on the other hand thought they could ride out the whole sub-prime thing but US accounting practices left their balance sheets extra-exposed to effects with brutally insufficient actual physical capital.

Short version for retards: Banks "suddenly revealing the extent of their insolvency" would have no fucking effect whatsoever because a) The majority of people haven't got the first fucking clue about financial reporting and are simply running around in a panic because the tv has told them too and b) The information is already public knowledge and has been for years with no discernable effect.

Seriously, people are banging on about sub-prime mortgages and credit crunches and shit left, right and centre but how many people actually know what the problem is, how it was caused and the reasoning behind the attempts to fix it? Fuck all, that's how many. It's all just misguided sensationalist bullshit. Yes, the American economy is in trouble, people are going to lose thier jobs and their standards of living are going to have to fall but the world isn't going to end, it's just the business cycle catching up. Economies go up and economies go down, roughly every five years in fact. Recent governments have been trying to iron out the down bits and create a state of permanent growth, mainly to keep getting re-elected, and with no consideration of long-term repercussions. The economy has overheated and is now self-correcting. John Maynard-Keynes is sitting on his cloud with a big "I told you so" smirk all over his face and the masses are getting their buttons pushed by an increasingly manipulative and sensationalist media and thinking that this is all surprising and new whereas anyone with a passing interest in finance, accoutnancy and global economics (Which granted isn't many people) has seen this (Or something similar) coming for fucking ages.

At the end of the day, there's absolutely nothing you, as the general populace can do about it. Nothing at all, except try to make yourself indispensable at work and hope that your company doesn't count any banks amongst it's customers.

I know I'm kinda nitpicking, but I'm pretty sure that is not the case. US GAAP requires you to capitalize all costs related to preparing the fixed asset for its intended use. While you are free to adjust the cost downwards (impairment of assets), US GAAP prohibits upward revaluation.

Depreciation is a different matter altogether. You're allowed to depreciate the said long-lived asset based on the revenue you expect to derive from it over its lifespan.

I disagree here. FASB Statement No. 157, effected November 2007, redefined fair value for financial instruments by mandating a mark-to-market rule. The asset must be valued at the exit price, the price you can get if you sell it on the open market.

It's all peachy when there's a market, but when you get a credit crunch like this, leveraged investors are forced to dispose of these financial instruments at low prices. The mark-to-market rule means everyone now has to revalue their asset holdings to these low prices. The writedowns eventually impact equity capital.

To comply with capital adequacy requirements, banks then have to raise capital. Some lucky banks received infusions from sovereign wealth funds, while others were forced to liquidate more of their assets. You get another round of revaluations and writedowns. The downward spiral continues until some banks face the prospect of bankruptcy - of which the mere rumor of such a possibility will trigger a massive run by nervous depositors.

______________

You know, the unfortunate thing is, the value of these financial assets are based on real estate mortgages. The underlying collateral being actual houses. Given enough time, housing prices would probably go right back up, and whoever's holding the paper at that time will make money. Too bad this is time the banks don't have.

Which is why the main gist of Paulson's proposal was for the US government to buy up some of these financial instruments from banks, sit on them for a while, and subsequently resell them once the air clears. Unlike your run of the mill bank, Uncle Sam has all the time in the world.

That was a combination of paraphrasing and a bit of assumption on my part Zerg. Fixed assets weren't the best example to use really as their treatment is quite different from long-term loan agreements but since those are hideously complicated to account for, I was using that more as a way to explain the differences between US and UK GAAP and in the process got my explanation arse over tit. Trying to explain accounting systems at the same time as actually preparing a set of accounts is, in retrospect, a silly thing to try and do!

Your explanation is far more clear (And frankly correct) than mine.

We're already in a panic tbat began with the liquidity crisis. (at the end of '07) The question is how much damage will there be, and who will be left standing. Seeing the investment banks and financial houses all bomb at once is unlikely if not impossible. Seeing as how they're already dead. Their zombie corpses are just feeding off the Federal Reserve and government to stagger onwards. Hoping to be revitalized in the future.

That doesn't mean they're "too big to fail". The perception of all these institutions failing at once that would trigger some massive runs by depositors. Which is basically what I mean't by mass chaos and panic.

The mess is a lot bigger then just the dot-com bust. If we blow another bubble we will continue to compound the mess. The business cycle is being interrupted (if not overtly manipulated by the Federal Reserve) with all the bubbles being blown.

Another bubble being blown is exactly what I'm hoping won't happen.


The SEC has suspended it's marked-to-market accounting rules. This was a part of the Paulson bailout. Essentially helping the financial institutions lie about their overall value to investors. Which is what I originally meant when I said accounting laws are not being enforced.

"There's value here! I promise!" *waves magic wand* "Just as much as when we packaged these mortgages!" *flails magic wand*

Which is why the British Banking System doesn't need a bailout does it? Oh yeah... yeah sure.


If anything it's more like Humpty Dumpty.

Around this time last year the DOW hit a nice peak at 14,100. Look at it where it currently stands today.

Humpty Dumpty sat on a wall.
Humpty Dumpty had a great fall.

Hahaha!

All the king's horses and all the king's men
Couldn't put Humpty together again.

D'oh!

I never said that. I know full well that the government is bailing out the banks but I was suggesting that our banking system has a long-term future and is simply in need of a quick cash injection to get rolling again.

The primary reason for our bank bailout, unlike the US's one, is not to stop banks going bankrupt but to stop them foreclosing on debts and repossesing people's houses. Whilst our property market has slowed to almost a standstill, houses here are still worth a shit load and if the banks really, really needed money, they'd bump up interest rates and start repossesing some houses. At the moment, with the government about as unpopular as a British government ever has been, they can't let that happen so are encouraging the Bank of England to bail out the banks. The Tories won't stop them because, as the next likely party of government they're going to have to deal with all the fallout from the current situation so they're looking to mitigate the damage. The Bank of England meanwhile, ignoring the pressure from the Government, are aware that the economy is on the brink of a recession and the importance of confidence in the housing market to keep consumer spending up and stop the economy from grinding to a halt. Obviously they don't want silly arse inflation but as house prices have stopped now and for the time being at least oil prices have slowed down (A situation helped by the kicking the dollar is taking at the moment), they can afford to stimulate a bit of growth by restoring faith in the banks . It's not an emergency measure, it's a faith restoring one and completely different from the bailout America has gone through.

I think the intent of the Paulson bill (it's not really a bailout man, not unless Treasury pays large premium for those financial assets) was to staunch the bleeding.

Mark-to-market does not work in these unusual circumstances. There IS not market to mark to - disposing of assets at what can be considered fire-sale prices is hardly a 'fair' value. If your neighbor is selling off his perfectly operational car at say, $100 due to desperation, should you write down the value of your car to $100? Yet that's what mark-to-market essentially means, and it's basically the mechanism that starts the dominoes tumbling.

In sum, I disagree with your assessment that this is an example of non-enforcement of accounting rules.

It is not all that different after the Paulson Plan works it's magic.... ideally. There's even a news story hitting the headlines today that the US treasury might grab a stake in our zombie financial institutions. Very much akin to the British bank bailout. (Thanks for the idea!)


(Let's pretend we're actually capitalists for a second.)

The dominoes started to fall when a) no buyer could be found and b) the market could not price these "assets". With mark-to-market rules being abolished the Treasury is paying a high premium for assets that the market is either too scared to price or is unwilling to pay the price that is asked. In either case they cannot be sold on the market. Their value is essentially zero.

How this works into your scenario:

If my neighbor can't sell his car for any price, then his car's value is zero. Whether he tells me his car is worth $100 or not. Seeing as how my neighbor's car value is fucked due to a lack of demand. If I try to sell what cannot be sold I'll be just as fucked.

Let's say you have a perfectly usable car that you can't sell to the market at any price. You can still ride it around, drag race it around the freeway and stuff like that. Does it mean that the car's value is zero?

I would argue that the market assigning a value of essentially zero to the car, is a failing of the market and not the car.

Value is the amount somebody will pay. Which just brings us around full circle to what I said originally.

I suppose we could just re-package all the paper derivatives as toilet paper though. I'd personally love to wipe my ass with that shit.

Only it isn't. Value is the value in use of the asset. In the case of the car you would look at alternative costs of transport, for example the cost over the expected life of the car of riding the bus instead. Likewise, on a very simplistic level, whilst banks can't sell on these debts at present, this doesn't mean they have zero value. Not every single mortgage is going to default and the value is the future revenue streams in the form of interest, plus the value of the property securing the loan in the first place which might not be as much as it was this time last year but still isn't zero.

If somebody will pay to utilize in some form said asset it has value. Otherwise, it's zero. Try looking at real estate in the inner city parts of Detroit. No buyers, no users, no demand, no value.

That's not a market failure. That's how the market works.

In the future it may have value. In the present it does not when the buyer of last resort is the government.

I said we were pretending to be capitalists and I meant it dammit.

But you're just plain wrong. IF you owned a bit of land and you couldn't find anyone to buy it and someone came along and said to you that as you couldn't find a buyer you might as well just give it to them, you wouldn't, simple as that. The only reason you would would be if holding the land was costing you something and you needed the cashflow.

Even talking on a strictly theoretical level, nothing ever has zero value because future potential value is always a consideration. Nothing is ever enacted on a straight supply and demand current value basis, that's elementary school economics. The reality is that future potential earnings on one side and the opportunity cost of selling or holding the asset on the other side always feature in these transactions. The very concept of there being no buyers so the asset has no value is ridiculous because anything that's free, by the very nature of trying to divide by zero has, mathematically infinite demand.

Your understanding of real world economics is very limited. I think you might want to try learning something beyond the grade school level before you start shooting your mouth off again.

This has nothing to do with investing and everything to do with accounting.

The mark-to-market rules were instituted so that the financial institutions would be forced to write down the value of their holdings as the fair value. Fair value is whatever you can get on the open market right now. It is entirely of a subjective nature to the present. Future value considerations are thrown out the window.

What Shin described is NOT mark-to-market. Mark-to-market operates the way you interpret fair value - as the liquidation value of a certain investment. In accounting, only financial instruments are valued in this manner, or any entity where the going concern does not apply (firm that is winding up). The concept of fair value being mark-to-market falls apart when the market freezes, like what we're seeing here. It is not FAIR for you to assign a VALUE of zero to instruments whose values are tied to assets (in this case, mortgages backed by US houses) that still have value. Unless, of course, you're telling me American houses are REALLY worth the fire-sale prices they're going for now...

Basically, I agree with the suspension of mark-to-market in this scenario. There is no market. Hence, the government is trying to step in and create one. The Paulsen plan is trying to address the reason why everyone's running around dumping the financial assets willy-nilly. How? By giving the market enough time to figure out exactly what kind of assets are backing these securities - hence the need to buy them up and hold them for a while. Consider that a bunch of mortgages have been lumped into mortgage-backed securities, and these securities were sliced, diced and merged into collateralized debt obligations. This financial engineering makes specific identification very difficult. But once these assets are identified, then hopefully the market will start to value them fairly again.

And then you can have your precious marked-to-market fair value accounting re-implemented!

And the point remains that who the fuck do you think was being mislead by company accounts anyway? How many normal savers or small investors ever looked at a set of financial statements prepared by their banks? I'll bet that 95% of the shareholders would have received the accounts, looked at the baseline profit figure, looked at the directors remuneration figure and then binned them. That's what makes auditing such a joke these days. The whole point is to protect shareholders and give them the information they need to make an informed decision whether to invest or not but the vast majority of small stakeholder, the most vulnerable ones, haven't got a fucking clue what they're looking at. I personally can deduce a fair bit from looking at a company's accounts but then I've been a professional accountant for eight years and even then, there's a lot of speculation and informed guesswork involved in any summary you do of a company based off the accounts.

To say that not following accounting guidelines is in any way to blame for this is mis-informed, naive and basically just plain wrong. The information has been there all along, in plain sight and available for anyone to view it. The problem is that nobody cared enough to do anything about it and other people were lulled into a state of happy ignorance that financial institutions were somehow exempt from usual economic forces and magically incapable of making dumb decisions.

Nothing works the way it's suppose to in a recession. Throwing out the rulebook is not going to restore trust or confidence. There can be no trust as long as the mark-to-market accounting rules are suspended. Only a reason for the creation of more mistrust. Nobody knows what the financial outfit's balance sheets are worth and there's no way to know.

I don't particularly care if we agree on any of that. Events will prove it right or wrong all in due course. Sooner rather then later. There's not much of a reason to continue this. Continuing is only bound to strain more nerves.

Start studying a real science. :forscience:

With regards to the current situation, the relevant balance sheets won't be in the public domain for a good year yet, meaning that any suspension of accounting standards, even if it did happen wouldn't have any immediate effect whatsoever. Most financial institutions are going to have either December or April year ends so you won't see any accounts covering the current period until next June at the absolute earliest.

Also, nobody is suspending any accounting standards anyway. The IASB is looking at how one accounts for financial instruments on a fair value basis when the arse falls out of the markets but any changes will be made slowly and surely and follow a lengthy consultation process. Accouting standards aren't just dropped or ignored on the spot, that simply doesn't happen.