Deal reached in US financial crisis [Update- NOT Passed]

[Phanuthier]

Originally Posted by kermitology

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Thanks Dan

Originally Posted by lchoy

Yeah, I enjoyed the video, but I don't know enough to know how slanted or bias it is. Any CPers with econ knowledge that can make the video less scary would be greatly appreciated, otherwise, maybe I should start stockpiling my own gold...

I do know that gold is known to be a hedge against a recession. But, if money is just an idea and gold really isn't even in play, it doesn't really matter because we arn't going to be going to a bank to redeem our coupons (ie. cash) for gold, right?

[arsenal]

So the recovery on the market today is what?
People just buying up cheap stock of companies which fell yesterday?

[Phanuthier]

Originally Posted by arsenal

So the recovery on the market today is what?
People just buying up cheap stock of companies which fell yesterday?

From what I read, speculation that the Feds will keep on working on the bill.

I mean, you look at a stock like BAC and JPM (stocks that I would personally like to buy) and both of them are probably some of the bigger players in this whole bailout thing; both of these guys just acquired a huge amount of debt and assets, and speculators are gambling what both of these guys are worth based on whether their acquired debts get bailed out.

Part of me wants to see this bailout not go through just so the market can be properly corrected, and the stock market can return to its original purpose - buying stocks based upon its value rather then day trading. But, we just can't afford to have credit freeze as the economy would come to a grinding halt.

As pointed out earlier somewhere here, the internet has really ruined the stock market and turned it into a day-trading or hour-trading game. I believe companies release their financial reports quarterly, ie. quarterly reports, that should probably give some sort of measure of how often a stock should be traded - quarterly. I really wish there was some way that they could limit the volume of stocks being traded per-day or per-week or even per-month so we can just put a nail into the coffin of this speculation trading frenzy.

[RougeUnderoos]

Originally Posted by arsenal

So the recovery on the market today is what?
People just buying up cheap stock of companies which fell yesterday?

It's hard to say. My guess is the experts will tell us...

A) markets rallied on the news that the bailout is dead
B) markets rallied on the news that the bailout is not dead yet

We'll see what happens tomorrow, but my guesses are...

A)markets sink because of a lack of confidence that something can get done
B)markets soar because of a lack of confidence that something can get done

It could go either way. After it happens, they'll tell us why.

[arsenal]

So how is this any different than the .com boom and bust of about 10 years ago? Is it not very similar? People speculating that a new .com will be the next hot thing, buying up IPO's, then selling them.
But not even in the sense of the housing market or the bailout. But the rest of the market as well.

I am sure this making your job very stressful. I just don't see how this is healthy for the market at all. If the feds bail out now (but not in a way that helps the fundamentals), are we not facing at an ever bigger crash in the next 2-3 years?

[Phanuthier]

Originally Posted by arsenal

So how is this any different than the .com boom and bust of about 10 years ago? Is it not very similar? People speculating that a new .com will be the next hot thing, buying up IPO's, then selling them.
But not even in the sense of the housing market or the bailout. But the rest of the market as well.

In terms of speculation, yes it seems to be. IIRC, in the dot com boom/bust, people were snatching up whatever they could without knowing exactly what the business was about. Some fund managers were buying stocks based upon its name, without knowing what the business was about. If it sounded like high-tech, then buy it cause the stocks move up and down as a industry anyways. I mean, there were stocks that were getting traded with no dividend yeild - wtf? Why would anyone buy that? Speculation that the stock would increase in value and they could sell it for something higher. Finner or Slava could probably explain this better, but a key stat that is usually overlooked is the volume of trade for up/down that gives, and to me thats one of the scary stats because high volume trade indicates people trading on speculation and what you are gambling hundread thousands of dollars on is human / market psychology.

To me, thats very unhealthy.

[metal_geek]

This is just a TEST run. The gov bails out the corperate types now, so they can exit properly before it crashes again 3 years for now and get all tangled up again.

Seriously though, this has to correct now. How is giving someone a 700 billion "loan" ie credit gonna change anything. They are gonna hand out all the credit again, and once there isn't enough money to pay back the principal + the interest it generates there's gonna be no money left again.

Look at it like this. You set up a solar panels on your house to generate electricity, you figure out you can make 1 dollar a month more then it costs you to do this... Good deal, so you buy 1000 more, now you are making 1000.00 a month more then it costs you. Now you decide this is the best thing ever, so you max every credit card you have, mortgage everything, and borrow from every source possible. You are now making 1,000,000.00 a month and think this great. It's so good, all your friends see you doing this and join in. All of a sudden, there is a GLUT of electricity, and the price drops crazy. Now you are loosing 1 million a month, and your stuff you got loans on is worthless. Problem is everyone you knew has done the same thing so now the banks have loaned out all thier money in solar panels that are worthless, you can't sell a solar panel to save your life, and all the stuff you used as colateral for your loans can't be seized and sold cause nobody has any money to buy it. The system Locks up, cause there is no money to loan someone to buy the junk you used as colateral.

So now, I'm hooped and so is everyone else, only option I have left is goto my friends in the GOV and say, You need to loan me some money or I'm gonna go out of business and everyone will suffer hardship when there is no electricity, and because all the banks money is tied up in loans to me, they will not be able to pay back the loans they took out to loan me. Woops.... You can have all the solarpanels we own for 700 billion and that will free up enough money we can pay the bank back at least SOME of the money we owe and get the system started up again! Sucks that you have to get stuck with all these solar panels, but eventually they will be worth something again, and you might even be able to sell them at a profit!!

[metal_geek]

This is a pretty telling article about what people are scared about

http://money.cnn.com/2008/09/30/news...ion=2008093016

Particularly ineteresting is this

Raising the amount that the FDIC can insure could stem a potential run on deposits by bank customers, particularly businesses, who fear losing their money. The $100,000 limit protected as much as 82% of deposits in 1991 but only covers 63% of deposits today.

so if (Total accounts * 100,000.00) = 82% of deposits in 1991

and
(Total accounts * 100,000.00) = 63% of deposits today

Where did 19% more money come from? Was it created cause people had to have more to pay the intrest on thier existing loans? Is that 19% number an indicator of the ammount of money that was generated in intrest on the total amount of debt since 1981?

[Ice]

Maybe the 19% could simply represent more uninsured money, not more deposits? You can actually have more than 100,000 coverage on one account in one bank, you just have to structure your account vesting and beneficiaries accordingly. Back in 1991 people were very concerned, having clear recollection of the S&L crisis, about making sure every dollar in the bank was insured. Until the last few weeks, I haven't heard people talking about FDIC insurance coverage so I would expect more people making a trip into the bank to close accounts and at that point being told how to get more insurance without moving the money.

I took my next door neighbor to the bank a few years back to fix his account. He takes care of his mom who is in a home and sold her house. He was travelling every month to six banks to collect the interest from 100,000 dollar CD's and deposit it in a seventh bank. We were able to move all $625,000 to one bank and its all insured.

[Bagor]

Just heard on CNN.

Apparently there will be a revote on a revised version of the bill tomorrow evening/night. One of the revisions will be the amount of govn. insurance on accounts of 100 and 250k. Hoped it will rein in enough votes for it to pass.

[Azure]

Personally, I don't agree with a bailout.

Let the market correct itself.....'without' help from the government. People are going to suffer, sure....but it needs to be 'corrected'....not just solved for the time being, and a few years down the road everyone has to deal with the same problem again.

[metallicat]

What are the odds that Canadian interest rates rise as a result of this? I have a HELOC with a variable rate, and am not looking forward to seeing that rate rise...

[Slava]

Originally Posted by oilers_fan

What are the odds that Canadian interest rates rise as a result of this? I have a HELOC with a variable rate, and am not looking forward to seeing that rate rise...

You should probably prepare for the day that rates rise (just to be safe!). In the near term though rates will likely be cut, so you should be okay for a while.

[Phanuthier]

Originally Posted by metal_geek

Where did 19% more money come from? Was it created cause people had to have more to pay the intrest on thier existing loans? Is that 19% number an indicator of the ammount of money that was generated in intrest on the total amount of debt since 1981?

Its debt

Originally Posted by Azure

Personally, I don't agree with a bailout.

Let the market correct itself.....'without' help from the government. People are going to suffer, sure....but it needs to be 'corrected'....not just solved for the time being, and a few years down the road everyone has to deal with the same problem again.

The bailout is to let money flow more freely via credit. If the bailout doesn't go through, the risk is that there's there will be a credit crunch and it'll be hard to get loan, hard to buy things on credit, and more important, hard for businesses to run day-to-day operations with limited cash flow. I'm sure most people here that do work in in some sort of accounting position - industry, bank or otherwise - understand the difference in an income statement and a balance sheet, and while you can run deficits in the long run and be ok, you cannot run into a cash flow problem. Cash flow problem = death to a company.

Somehow, we have to let credit flow back into the market at some sort of reasonable rate, or else lots of jobs will get lost - both in the USA and Canada - as businesses shut down. I don't really have an opinion on the bill, because I still have no idea where $700B even comes from and I don't think anyone should have an opinion unless they understand the full extent of this. What I do NOT want to see is anyone getting anything out of there - no way if fataing hell should this go to any CEO's severence package or anyone's salary, ie golden parachute. No way should this help out the stock market either, or have this money go back into supporting speculation - the whole gaffee that got the market into this mess. This should strictly go into credit.

[jolinar of malkshor]

Originally Posted by Phanuthier

Its debt


The bailout is to let money flow more freely via credit. If the bailout doesn't go through, the risk is that there's there will be a credit crunch and it'll be hard to get loan, hard to buy things on credit, and more important, hard for businesses to run day-to-day operations with limited cash flow. I'm sure most people here that do work in in some sort of accounting position - industry, bank or otherwise - understand the difference in an income statement and a balance sheet, and while you can run deficits in the long run and be ok, you cannot run into a cash flow problem. Cash flow problem = death to a company.

Somehow, we have to let credit flow back into the market at some sort of reasonable rate, or else lots of jobs will get lost - both in the USA and Canada - as businesses shut down. I don't really have an opinion on the bill, because I still have no idea where $700B even comes from and I don't think anyone should have an opinion unless they understand the full extent of this. What I do NOT want to see is anyone getting anything out of there - no way if fataing hell should this go to any CEO's severence package or anyone's salary, ie golden parachute. No way should this help out the stock market either, or have this money go back into supporting speculation - the whole gaffee that got the market into this mess. This should strictly go into credit.

How many times do I have to say it. They print the money plain and simple.

[Phanuthier]

Originally Posted by jolinar of malkshor

How many times do I have to say it. They print the money plain and simple.

Just until you find some proof of it or offer an explanation to me of the process. From what I read, there is a trade of assets and debt, and a good portion of this will come in inserting credit into the market. Not all $700B is going to be printed money. From what I read, there is aboutt $800B ($792.2B of last count) cash in circulation in the USA, suddenly printing $700B would basically cut the value of every single USD in half... so I'm pretty sure you are wrong.

[photon]

Originally Posted by Phanuthier

Just until you find some proof of it or offer an explanation to me of the process. From what I read, there is a trade of assets and debt, and a good portion of this will come in inserting credit into the market. Not all $700B is going to be printed money. From what I read, there is aboutt $800B ($792.2B of last count) cash in circulation in the USA, suddenly printing $700B would basically cut the value of every single USD in half... so I'm pretty sure you are wrong.

Wouldn't it just be by making more money available? I don't think the sum total of all money in the US "system" (whatever system means) is $800B, just the amount of physical dollar bills.

The US GDP is $13 trillion.

[Phanuthier]

Originally Posted by photon

Wouldn't it just be by making more money available? I don't think the sum total of all money in the US "system" (whatever system means) is $800B, just the amount of physical dollar bills.

The US GDP is $13 trillion.

It is inserting $700B isn't the system, but I just don't understand the issue and its very complex. Something to do with the value of assets and debt being leveraged, and credit being inserted and certain debt writeoffs and whatnot. I also don't understand how that changes the worth of a $ by inserting that, because there was value lost by the value of the USD falling.

One thing is for sure - they arn't going to print $700B, cash. That would break down the entire currency system in the USA. I know in circulation, there is about $800B in cash.

[RougeUnderoos]

Originally Posted by jolinar of malkshor

How many times do I have to say it. They print the money plain and simple.

Plain and simple, this can't be true.

What are they going to do, have have a freight train deliver cash to Wall Street Station?

I don't know how this kind of thing works, but I know there is more to it than just printing money and passing it around.

[jammies]

As usual, wiki is your friend: http://en.wikipedia.org/wiki/Money_creation and http://en.wikipedia.org/wiki/Fractional-reserve_banking explain the process pretty well; essentially the money is created by lending money against a reserve. You do not need to have $700 billion in "real" money, you only need to have enough "real" money to satisfy the "fractional" proportion of your loan, the rest exists only as debt on the books.

Creating money in this way is inflationary, as you are essentially conjuring money out of nothing (although to be fair the money eventually disappears once the loan is paid out - except that currently, old loans are just rolled over into new loans instead). Currently the USA "exports" a lot of this inflation to other nations who buy US dollars for various purposes, notably purchasing oil.