global financial crash yay!

vimothy

yurp
I think most economists are unhappy with Paulson's plan. Not that the Reps necesarily have any better ideas -- they're just following the 'dominant strategy' of appearing to be on thet side of Main Street while pushing the actual decision making onto Bush and the Dems.

There's obviously a variety of different ways to recapitilise banks, with purchase of illiquid assets (ABS et al) being only one of that number of possible solutions: buying common or preferred shares, buying subordinated debt, etc. In an IMF paper Roubini linked to yesterday, the authors collect data on 42 systemic banking crises and explain how those crises were resolved. Only a small percentage were resolved through government purchase of bad assets.

In addition, any buy-up of assets will leave smoking holes where banks should have capital. Remember that banks need recapitalising because the value of assets are being marked down, and assets plus capital equals liabilities, so that any losses to assets need to be replaced by capital. The Paulson plan would not necessarily recapitalise banks unless they pay more than the market value for these assets, it would merely replace illiquid assets with more liquid ones.

The Paulson plan is having the effect of spooking the markets, angering and spooking the public, and without really solving the two problems of under-capitalisation and homeowner debt. That said, something needs to be done to restore confidence....
 

IdleRich

IdleRich
"In addition, any buy-up of assets will leave smoking holes where banks should have capital. Remember that banks need recapitalising because the value of assets are being marked down, and assets plus capital equals liabilities, so that any losses to assets need to be replaced by capital. The Paulson plan would not necessarily recapitalise banks unless they pay more than the market value for these assets, it would merely replace illiquid assets with more liquid ones."
But that's something right?
Broadly though, I agree, I don't think that they really have any great ideas, it's just that they want to be seen to be doing something and it seems that the market wants to see them doing something as well.
 

mms

sometimes
But that's something right?
Broadly though, I agree, I don't think that they really have any great ideas, it's just that they want to be seen to be doing something and it seems that the market wants to see them doing something as well.

yes i think it requires more time though, paulsons has been rejected, which is good, and therefore that should count for some other more realistic reachable decision making, however the grounds for rejection seem to be about absolving blame more than actually reaching the right decision, the markets have reacted in exactly the same way too, the sheer selfishness of it is all very dissapointing.
The other thing is paulson and co might just try and plough on with what they have of course.
 
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IdleRich

IdleRich
"yes i think it requires more time though, paulsons has been rejected, which is good, and therefore that should count for some other more realistic reachable decision making, however the grounds for rejection seem to be about absolving blame more than actually reaching the right decision, the markets have reacted in exactly the same way too, the sheer selfishness of it is all very dissapointing."
But not that surprising eh? That's kind of what I was getting at before I think - the proposals appear to have been rejected for a muddled number of reasons which were probably not the "right" reasons even though it may well have been possible to build a sensible case for rejecting them.
 

vimothy

yurp
Nah, the Paulson plan will go through, IMO -- it only needs a few more votes to get passed. Pity in many ways, because I think that if they scaled down the panicked response -- don't spook the markets any further by demanding billions to 'save' them -- and took time to craft a good response that cut the taxpayer in on some of the upside (although there is potential upside if they can buy at .70 on the dollar or whatever and then sell for a profit in a few years), they could have a more measured bill with less risk and more agreement and even some private sector funding. It looks more like Paulson isn't actually that sure what he wants to do, but knows he needs a lot of money to do it. Ask for a nice round number and figure stuff out as you go along.

Not suprising that it got rejected though, pretty predictable in fact.
 

mms

sometimes
Nah, the Paulson plan will go through, IMO -- it only needs a few more votes to get passed. Pity in many ways, because I think that if they scaled down the panicked response -- don't spook the markets any further by demanding billions to 'save' them -- and took time to craft a good response that cut the taxpayer in on some of the upside (although there is potential upside if they can buy at .70 on the dollar or whatever and then sell for a profit in a few years), they could have a more measured bill with less risk and more agreement and even some private sector funding. It looks more like Paulson isn't actually that sure what he wants to do, but knows he needs a lot of money to do it. Ask for a nice round number and figure stuff out as you go along.

Not suprising that it got rejected though, pretty predictable in fact.

so you'd prefer the share option, with wall street also being more accountable?
 

IdleRich

IdleRich
"Not suprising that it got rejected though, pretty predictable in fact."
Easy to say that now. You should have done some short selling just before they announced the result - you would be quids in now.
 

vimothy

yurp
Yeah, been thinking about that actually, trade some options, fiddle while Rome burns. About time I made some money!

What I mean is that rejecting the bail-out plan is a good strategy for almost any given congressman or woman. I still think it will go through, though.
 

vimothy

yurp
so you'd prefer the share option, with wall street also being more accountable?

Maybe a mixture of equity (ultimately, capital is going to have to come from somewhere, right?), some assets and subordinated debt, with the private sector stumping up half the cash. And I'd prefer it if Paulson and Bush didn't make it sound so apocalyptic: it's becoming a self-fulfilling prophecy.
 

Freakaholic

not just an addiction
...the proposals appear to have been rejected for a muddled number of reasons which were probably not the "right" reasons even though it may well have been possible to build a sensible case for rejecting them.


http://www.motherjones.com/mojoblog/archives/2008/09/9993_the_money_behin.html


The Money Behind the Bailout Vote

According to Maplight.org, House members who voted for the bailout received 54 percent more money from banks and securities firms than members who voted against it. The nonpartisan campaign finance watchdog group has also broken down the average donation from those sectors, based on lawmakers' bailout stances and party affiliations:

All House Members//// Average Amount Received
Voting Yes................................$231,877
Voting No..................................$150,982
Democrats
Voting Yes................................$212,700
Voting No..................................$107,993
Republicans
Voting Yes................................$273,181
Voting No..................................$181,688

Republicans who opposed the bill are thought to have done so because they're rabid free market ideologues. So why hasn't the Street showered these guys with money in the past? Were they actually pro-regulation? (I doubt it). Are they simply marginal members of their party? Or is pure free market evangelism scary even to Wall Street? My bet's on the last one, but I'd be happy to be proven wrong. (Also, money might not explain everything)

The other interesting detail in these numbers is the small difference in donations to anti-bailout Republicans compared to pro-bailout Democrats (only about $30,000). It's not that Wall Street doesn't like free marketers; it's just a bit wary of anything in the extreme. Or to put it another way, it practices risk aversion at the ballot box. Just not enough of it; obviously, that GOP stock ain't so hot now.

\\\\\
http://www.motherjones.com/mojoblog/archives/2008/09/9992_swing_district_bailout.html

Did Swing District Congressmen Doom the Bailout?

Numbers maven Nate Silver looks at how electoral prospects affected votes on the bailout:

Among 38 incumbent congressmen in races rated as "toss-up" or "lean" by Swing State Project, just 8 voted for the bailout as opposed to 30 against: a batting average of .211.

By comparison, the vote among congressmen who don't have as much to worry about was essentially even: 197 for, 198 against.

...among 26 congressmen NOT running for re-election (almost all of whom are Republicans), 23 voted in favor of the bill, as opposed to 2 against and one abstaining.

There's a huge chance the bailout doesn't work; there's very little chance it makes everything better. As a result it's way, way safer for Congressmen in tight races to vote against the thing.

That said, I do believe there was genuine ideological opposition to the bailout on the left of the Democratic Party and the right of the Republican Party. A host on CNBC postulated that this was a revolt of the Republican rank-and-file who had been told, for many years, that their desire for fiscal conservativism would have to take a back seat to the GOP leadership's spending priorities. I think there's some real truth to that.



still having problms with kyboar, so am not abl to writ up a summary or opinion....
 
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IdleRich

IdleRich
"Republicans who opposed the bill are thought to have done so because they're rabid free market ideologues. So why hasn't the Street showered these guys with money in the past?"
A more cynical thing to take from that data would be to assume that the people getting the most money from Wall Street are not especially ideological, they just do what Wall Street says and when Wall Street wants a bail-out who gives a fuck if it directly contrasts with what they have preached in the past?
 

vimothy

yurp
Five year TED spread (the difference between three month LIBOR and three month T-bills, i.e. some kind of risk premium)s:

ted_sep_08.jpg
 

Freakaholic

not just an addiction

crackerjack

Well-known member
What I mean is that rejecting the bail-out plan is a good strategy for almost any given congressman or woman. I still think it will go through, though.

Quite. Every single congressman/woman is up for reelection in a month's time. Being seen as one of the guys who stood up to the fat cats and got a better deal out of Wall St won't do them any harm. And the Reps need it more than the Dems, which explains in part (ideology being the rest) why they voted that way in bigger numbers. But some version of this plan is going through regardless, right?
 

vimothy

yurp
Well, it's not that crazy, is it? If all banks are suffering because they're having to write down the value of their assets in line with panicked valuations and deleveraging fire-sales, and the valuations clearly don't have any relation to the value at maturity... Why not? It's not about making numbers up, or at least, it shoudn't be.
 
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