Prof. Mankiw has an interesting idea. He suggests the government put up matching funds for any investment into or buy out of a financial firm. The private sector sorts out the good firms from the bad, sets the sale price, and exercises control. The government goes along for the ride. Instead of Buffett investing $5 Billion in Goldman, he puts up 50% and the government puts up the other half. - Kevin D. White
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"Trillions in stock market value — gone. Trillions in retirement savings — gone. A huge chunk of the money you paid for your house, the money you're saving for college, the money your boss needs to make payroll — gone, gone, gone." - imabonehead
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"If you're looking to track down your missing money — figure out who has it now, maybe ask to have it back — you might be disappointed to learn that is was never really money in the first place.
Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a "fallacy." He says the price of a stock has never been the same thing as money — it's simply the "best guess" of what the stock is worth." - imabonehead
I read that this morning and couldn't help thinking Silvio is talking out of school. The idea is so boneheaded I find it hard to believe this is being seriously considered. - Kevin D. White
Could not agree more. The short selling ban was moronic and the SEC certainly knew it at the time. They gave in to political pressure. - Kevin D. White
The spread on target and the real rate has been so wide for so long that nobody expected the latest cut to be anything other than symbolic. The cut wasn't the message - it was the coordination of the cut with other nations that was the message. It was a Central Bank Kumbaya. - Kevin D. White
"The Dutch Minister of Finance Wouter Bos said in an interview that the Icelandic state will be taken to court if it does not honor its obligations towards the roughly 120,000 Dutch accounts holder in Landsbanki Bank’s online savings bank Icesave." :: That would be interesting to watch. - Kevin D. White
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Nice chart that clearly explains why the latest rate cut was a complete waste of time. Those two lines should converge, not diverge. - Kevin D. White
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Interesting article. Not to put too fine a point on it but I was referencing the announced target federal funds rate and the Japanese equivalent. It is possible though highly unusual for discrete transactions to have a negative rate based on market conditions. - Kevin D. White
“What we have learned from this whole exercise over the last few years is that it is not wise for a small country to try to take a leading role in international banking,” :: It only took defaults of every Icelandic bank, total destruction of the currency, and a total debt load larger than GDP. Iceland is effectively bankrupt. - Kevin D. White
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"...John McCain wants to give $100 billion of taxpayers' money to America's worst-behaving mortgage financiers." :: Pretty harsh criticism of McCain's new plan. - Kevin D. White
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Interesting short article from Bloomberg. The authors assert that the pattern of subprime failure is roughly the same as the S&L crisis of the 1990's. The authors cite Nevada as an outlier but do not offer a clear explanation. - Kevin D. White
"The Treasury Department this week plans to start outsourcing the management of up to $700 billion in troubled securities, using special contracting authorities that enable it to retain private portfolio managers, custodians and other financial services consultants without following standard acquisition procedures." - Mathew A. Koeneker
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No comes the question of whether or not the same folks that helped get us here will get hired back. :( - Mathew A. Koeneker
Well they do know a lot about the problem. - Kevin D. White
"NEW YORK (CNNMoney.com) -- The Federal Reserve, working in coordination with other central banks worldwide, enacted an emergency interest rate cut on Wednesday.
The Fed lowered its fed funds rate by half of a percentage point to 1.5%. The central bank's statement said the move was necessary because of the worsening crisis in global financial markets." - Mathew A. Koeneker
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"The Treasury, the Fed, and Warren Buffet have been the only buyers in this meltdown and have been largely focused on financial companies. Meanwhile the rest of the market has gone down 30% year to date and very few, if any, stocks have been spared." - imabonehead
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"We need to see more Warren Buffets stepping up. And my bet is they will eventually. And they will be corporations buying back their own stock, large private equity and buyout firms doing going private transactions with all equity cap structures, and possibly foreign companies seeking bargain acquisitions in the US.
What's interesting, as Howard pointed out repeatedly on twitter yesterday, is that corporations have not yet stepped up to stock buybacks." - imabonehead
"Microsoft announced last month that they plan to buy back $40bn in stock over the next five years. They have $25bn in cash and short term investments and are currently earning about $20bn per year in operating cash flow. Microsoft's stock is trading at about 11x operating cash flow. It's market cap is $227bn and institutions own 60% of it, meaning there is about $130bn of $MSFT stock in the hands of institutions." - imabonehead
"What about Google? $GOOG is down almost 50% year to date and the company is valued at $115bn. Institutions own roughly 60% of its stock, roughly $70bn of it. Google is earning about $7bn of operating cash per year and has $13bn of cash and short term investments on hand. So it would take Google longer to buy back all the stock institutions own, more like eight to ten years." - imabonehead
Would the kind of protectionism seemingly being suggested really work? - Mr. Gunn
Looks like GM got a bit of sugar in the bailout bill :: "Buyers of plug-in electric cars would receive tax credits ranging from $2,500 to $7,500." :: No money for Toyota or Honda, just GM. - Kevin D. White
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"Stuck in a $14,300 debt hole, reader Trixare4kids was able to dig herself out using tips she learned about on Consumerist.com. Let's learn how she attacked her personal finances and learned to live frugally, and did it all in 20 months." - imabonehead
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"LONDON (MarketWatch) -- Fears that ongoing financial turmoil could wreck the world's banking system and worsen a global slump fueled speculation Tuesday that major central banks will deliver a rare round of coordinated interest-rate cuts if conditions don't improve.
"If we see further turmoil in financial markets and we see no sign of improvement in money markets, then I think coordinated action is a distinct possibility," said Nick Stamenkovic, chief fixed-income economist at RIA Capital Markets in Edinburgh.
Bank of Japan Governor Masaaki Shirakawa downplayed the prospect of coordinated rate cuts, however, saying individual central banks should set monetary policy according to local conditions, news reports said.
But economists argued that the Bank of Japan was seen as unlikely to join in a global easing because official interest rates for the No. 2 global economy are already extremely low. Bank of Japan policy makers, as expected, voted Tuesday to leave the central bank's key lending rate at 0.5%." - Mathew A. Koeneker
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"The Federal Reserve announced Tuesday a radical plan to buy massive amounts of short-term debts in a dramatic effort to break through a credit clog that is imperiling the economy." - imabonehead
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"The Federal Reserve, invoking Depression-era power under "unusual and exigent circumstances," will buy "commercial paper," a short-term financing mechanism that many companies rely on to finance their day-to-day operations, such as purchasing supplies or making payrolls." - imabonehead
"Commercial paper is a way of borrowing money for short periods, typically ranging from overnight to less than a week." - imabonehead
“I am a bit surprised at the broad and persistent opposition is to the US bailout plan. I honestly thought opposition would falter after a few days of 5%+ drops and nasty unemployment reports. I really misjudged the levels of animosity and distrust.”
To be fair, I oppose the bailout as well. I was also wrong about the timing of the recession. My opposition however is more technical. I think a plan will help but there were better options. - Kevin D. White
I gave up playing devils advocate and decided to be clear that I was not for the bailout as passed. I am afraid that we are in for a long and bumpy ride. - Mathew A. Koeneker
Why do you think it's animosity and distrust? I just don't want massive inflation to dilute my savings, and I think this plan isn't the best way to spend that money. - Chris White
Chris, you can't be that unaware of the feelings of the general populace. Most people aren't talking about inflation or their savings. Most people feel like they are getting royally screwed and favor a scorched earth policy. I'm not saying they are completely wrong just that I'm surprised by how vociferous they are being. This isn't 2001 when a bunch of smart alec kids went under but barely touched most people. This is banks and houses. The connection should be much easier for most people to see. - Kevin D. White
Either they don't see it yet which is possible, or they don't care. - Kevin D. White
People like to hate, and they find it easiest to hate that which they don't understand. Clearly there is some blame all around, but maybe 0.1% of the population really understands the issues, how modeling is used and misused to predict risk, what a CDO is, etc. I agree with Kevin re:bailout. Something needed but not this. - Mr. Gunn
"THE LATEST: Employers slashed 159,000 jobs in September, the most in more than five years and the ninth month in a row of nationwide job losses. So far this year, the economy has lost a staggering 760,000 jobs." - imabonehead
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"WHAT IT MEANS: With jobs harder to come by and the growth in workers' wages slowing, consumers are expected to hunker down further, spelling even more problems for the troubled economy." - imabonehead
"THE OUTLOOK: More pain ahead — even with Congress' unprecedented $700 billion financial bailout. The unemployment rate — now at 6.1 percent — probably will climb higher and employers are expected to keep cutting jobs in the months ahead. The economy may have stalled already — or actually slid into reverse — in the just-ended third quarter." - imabonehead
"Asian stock markets plunged Monday as investors took scant comfort from Washington's passage of a $700 billion bank bailout and focused instead on deepening financial turmoil in Europe that threatens to slow global growth." - imabonehead
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"Traders were spooked by Germany's announcement Sunday of a new bailout package totaling 50 billion euros ($69 billion) for Hypo Real Estate, the country's second-biggest commercial property lender, part of a scramble by European governments to save failing banks." - imabonehead
"Jobs are vanishing at the fastest pace in more than five years with pink slips likely to keep stacking higher in the months ahead, an urgent signal the country may be careening toward a deep and painful recession just as Americans prepare to elect a new president.
Whether that's Democrat Barack Obama or Republican John McCain, one of them will be dealing with the weakest employment climate in years." - imabonehead
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"Washington, the labor market has a problem," said Joel Naroff, president of Naroff Economic Advisors. "Firms are hunkering down and running as lean as possible. ... We are likely to see more months of job losses before conditions turn around." Even with Congress' unprecedented $700 billion financial bailout, the faltering economy and the jobs market probably will get worse. Many believe the economy will jolt into reverse later this year — if it hasn't already_ and will stay sickly well into next year." - imabonehead
“It appears the voices for less government and free markets have been effectively silenced by the Paulson+ Plan. How long before government relinquishes control again?”
"Less than two weeks after Uncle Sam gave American International Group (AIG) an $85 billion loan - staving off financial collapse - execs from one of its insurance subsidiaries, AIG American General, gathered for a conference at the uber-swank St. Regis Monarch Beach Resort, billed as “California’s only Mobil Travel Guide Five-Star Resort,” where ocean-view rooms start at $565 a night and “world class luxury” is the rule." - imabonehead
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"Washington's financial bailout plan is now law. So the credit spigot will start flowing again, banks will resume lending, and an economic recovery can begin, right?
Wrong. Experts say the most important thing that needs to happen before the $700 billion bailout even has a chance of working: Home prices must stop falling. That would send a signal to banks that the worst has passed and it's safe to start doling out money again." - imabonehead
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"The problem is the lending freeze has made getting a mortgage loan tough for everyone except those with sterling credit. That means it will take several months or longer to pare down the glut of houses built when times were good — and those that have come on the market because of soaring foreclosures — before home prices start appreciating." - imabonehead
"Housing is a critical component to the U.S. economy and by extension the availability of credit. Roughly one in eight U.S. jobs depends on housing directly or indirectly — from construction workers to bank loan officers to big brokers on Wall Street. A turnaround in housing prices would boost confidence in the wider economy and, experts hope, goad banks into lending again." - imabonehead
"Housing traditionally does lead the economy through a recovery. I think it's going to be critical for a sustained recovery in this cycle, too," said Gary Thayer, senior economist at Wachovia Securities." - imabonehead
