I’m at the limit of my data, here. I have no idea how much money it will, or should, take. I don’t think anyone does.

True, but there seems to be significant disagreement about whether or not a big plan will do the trick. My point was to get things started (slow the leak) so that real fixes could be designed and debated. Besides, the Fed can pump money into the market all day long if it so borrows against our future…it has been for a while, and i’ve read reports that it unleashed over $600B during the wrangling over Paulsen’s plan. All the other bailout moneys (AIG, etc) appeared out of thin air without consultation with anyone.

And $700B isn’t really a whole lot of money at this scale, which is something that doesn’t get talked about enough…that figure is a nice round one tossed out to get things started. Most estimates put the cost far higher. Which still leaves the issue of where a bankrupt nation gets hundreds of billions of dollars.

And it was an outline, not a soundbyte. But whatever, i’m pretty much to the point where i don’t care…not about our politics, not about our economics, not about our petty little culture wars.

Perhaps only Defoe or Brant would be capable of depicting this nation, worshiping at the feet of Saint Grobian. A ship of state populated by human inhabitants who are deranged, frivolous, or oblivious, passengers aboard a ship without a pilot, and seemingly ignorant of their own direction. How’s that for a soundbyte?

Sometimes, an issue is to big to get into a sound bite.

From what I understand, a smallish plan won’t do it. In order to make a market in the bad assets, there has to be a whole lot of money. Otherwise, the credit markets are still frozen.

Very true, JS, “…for now, we have to patch the damn boat.” And i think that patching should be what the deal is about, with a firm commitment to fix the boat as soon as enough water is bailed out that we can get to the leak.

My proposal: a smallish, immediate plan to restore confidence. One month for this Congress to debate, table and vote on a long-term plan. If they fail before election day, another bundle of money is injected that should last until January (and gives Paulsen the authority he originally requested for that time period); and if this Congress fails, they don’t get to play with any money as lame-ducks.

Let’s make the congress work for votes this time. For all the bad that is in this, the timing is perfect for making our politicians (i won’t say leaders, because we don’t really have any of those) show us what they do for our votes, rather than telling us what they will do.

Look, man, if banks won’t lend to each other, they CAN’T lend to anyone for the most part, OK? Banks borrow money to lend money. That’s what they do. When they’re conserving cash to meet their own borrowing obligations (and that includes obligations to depositors, who are lending their money to the bank), and other banks won’t lend to them, they can’t lend to anyone. Now, I’m not sitting here with a bunch of financial data service monitors in front of me, but I’m watching the TV news shows and have been since yesterday, and I’ve seen a parade of businesspeople, market analysts, bank analysts, etc. say that credit is just not flowing. I have heard no one say that it is. Either they’re all lying (and Bernanke, too), and no one is telling the truth, or credit really is frozen, even short-term paper which is most of what we’re talking about here, and presents most of the short-term danger.

You say it’s OK to “suffer a little” now. Do you understand the risk? We’re not talking about dominoes or billiards. We’re talking a nuclear chain reaction. Businesses fail, consumers stop spending, more businesses fail, more consumers stop spending, stocks crash, the housing market crashes, more and more securitized loans stop performing so there is less and less credit, so more businesses fail, the housing construction industry comes to a standstill, and all those jobs are lost, so they quite spending … Am I making sense, here?

Savanster, I appreciate your input, but I get the sense that, because there’s a big, gaping hole in the side of the boat, you want to talk now about how to better construct boat hulls so this kind of thing doesn’t happen again, and how we should punish the naval architects and the like, and I agree that it’s important to do that. But not NOW. Now, we need to act. There’s no time. No one knows exactly how much time there is before we reach a tipping point into a very deep recession, and I find this bloody brinksmanship maddening.

And, BTW, there’s a difference between companies that actually interface with customers and sell loans and those that buy loans. No, Fannie and Freddie and FEMA can’t replace bank infrastructure, even if they had legal authority to do so which, in most cases, they don’t.

Finally, no one is talking about “tossing a trillion dollars over the fence.” The proposal is to buy mortgage-backed assets from the banks that currently hold them. Those assets are worth something, though no one knows how much. Chances are, if the assets are held long enough, the market will recover and they can be sold for something approaching what was paid for them, though there may still be a loss (once again, there are just too many variables). By doing this, the US government will be removing debt from financial institutions’ balance sheets, allowing them to borrow (remember, you have to borrow to lend) against the value of their shareholders equity — and a shareholders’ equity that can be trusted. That should go a long way toward freeing up the credit markets, but there will still likely be much pain before the economy recovers.

What would I suggest as a better alternative for right now … right this minute? I don’t have one. I don’t think anyone does. The House Republican leadership put forward an insurance scheme that requires premiums taken from money the lenders don’t have. I personally don’t get why insuring bad loans would cost less than buying the things.

The issue is, how can the lending organizations borrow money to lend. That’s it in a nutshell as far as I can tell. I don’t see how they can do that with their current balance sheets. They have to offload the bad debt if they are to borrow, and lend, again.

Long term, I’ve been giving what we should do a lot of thought, and expect to post on that. But for now, we have to patch the damn boat.

And as far as basic human psychology goes, Savanster, here’s the most basic suggestion I can offer: base your evaluation of Buffett – or ANYONE – on at least a cursory examination of their actions in the past (which you haven’t really done, and which is so, so easy for as well-documented a life as his). He is about the challenge, the theory, and the practice of business. Look it up. Think about it.

I think the underlying point is, no one wants to “lose stuff”, and for the very rich, they don’t want to lose money. It’s simple human psychology.

And neither I nor most of those opposed to this bill/bailout are saying “do nothing”, we’re saying “if that’s all you got, do nothing”. I would like to see a plan that protects tax payers, shores up the economy, and punishes those responsible.

No golden parachutes. Cap CEO pay. Take a serious stake in the company so that if it recovers (and most will) the ones “shoring them up” can get some return on our investment. Do SOMETHING that makes sense.

Giving Paulson $700,000,000,000 and NO accountability or oversight is -insane-. Yet, that’s what he asked for and what the Shrub thought was ok. And, part of why a lot of those Republicans were against what the Dems/majority were proposing is because it put too many restrictions on the money. An entire segment of our elected officials seem to think this robbery was cool.

I’m saying, take some time. Write this up the right way. Put REGULATIONS in it, OVERSIGHT, transparency, protections for the little guy. Hell, 20% of this mess is mortgages, and it seems like not one Republican is willing to try and keep those people in their houses? keep the home values stabilized? just help the “big guys”? Belief that the ruling elite knows best is exactly what got us here. Now is time to put the shackles back on the beast, and the proposed bailout was not even close to reasonable in that regard.

And, I DO support letting it ALL go to hell if the right-wing refuses to open their eyes and see and admit that it’s THEIR deregulation and “free market” bullshit that caused this. It’s Enron all across the board, it seems.. and the Republicans are content to let that continue. Not me. I’m tired of the top 1% sucking up all the wealth through a rigged game and letting millions die in the streets. It’s time to change the way we do business in America.

How do we put an end to that? How do we restore confidence in an utterly broken system? By tossing a trillion dollars at it so it can pretend it doesn’t make bad choices?

The system used to grow long before everyone and their brother figured the Stock Market was a free money machine. That seems to be the attitude today, just pop some cash in and you’re gonna have plenty of money to retire on. That mentality is so pervasive that the War Criminal and his party tried to get our Social Security vested in there instead of being held by the Government. As we see now, the Market IS a gamble, just like going to the casino. In this case, the brokers are the house, the only ones going to make money no matter what.

I realize it’s all connected. I also realize that it will hurt everyone to straighten out this mess. But the fundamental question remains. Toss a trillion dollars at it with no plan or mandate to fix things, or suffer a little now while we sort out exactly what is wrong and fix it so we can avoid this kind of crap in the near and moderate future.

And the Federal Government can loan directly to the public through mechanisms like Freddie and Fannie, can’t they? Don’t those two have people that were supposed to be looking over loans and only taking good paper? They have a trillion in bad debt because they stopped doing that, but there are people there doing that work. .. and why can’t we contract out to banks to give the loans for us, but according to strict guidelines? Don’t give the banks the money, pay them a small fee to do the paper work for you. Apparently those bankers aren’t running their own loans, so have them run the Government’s under strict guidelines. ….. and don’t we have paperwork processors in things like FEMA? Isn’t this a Federal Emergency of sorts? Don’t people submit tons of paperwork for small loans when a flood hits? Or tornado? …. implying that the government doesn’t have personnel or mechanisms to help this, slow as it might go, I think is to obfuscate just what resources we actually have on hand. But, I must admit, I don’t know exactly how that works since I didn’t contact FEMA when I was hit with 60″ of flood water in my house, I was made whole from my insurance.. unlike most people I know, I didn’t go looking for a way to profit from my disaster, I just wanted to be made whole and stopped taking money once everything was replaced. But, as I understand it, it’s a simple matter to fill out your small business loan app and return it to FEMA for approval.

Let me ask it this way. What, short of tossing a trillion dollars over the fence, do you think can be done to fix this?

I’m greatly in favor of prosecution to the max if we can find the right statutes to do so, and I feel strongly that an Obama-led Justice Department will do more for Americans in this area than a McCain one. Ex-post facto laws are, quite rightly, illegal in this country, so we can’t prosecute immoral, unethical, but not illegal, behavior.

I’m also in favor of a complete review of federal criminal law regarding behavior in financial markets, upping both monetary and prison sentences substantially, applying many more criminal statutes to behavior in law firms, accounting firms, credit rating agencies, and the like.

I think a lot of people should spend a lot of time in stir at maximum security prisons with tattooed cellmates named “Animal.”

But that doesn’t solve the immediate problem, does it?

You steal $700 billion and they call you what?

A hero?

A messiah?

Why isn’t anyone talking about JUSTICE?

How about prosecuting the greatest purveyors of fraud, possibly in the nation’s history?

“Let’s Play “WALLSTREET BAILOUT” by Ohio Rep. Marcy Kaptur:

http://youtube.com/watch?v=S27yitK32ds

Buffet has gone on record many times about why he buys companies. He doesn’t care much for cash. He finds it boring. Running companies is his entertainment. I completely grok that. Parking cash in an interest-bearing account is called … retirement.

Okay, not that Warren Buffett gives a rat’s ass what anyone on this blog thinks, but here goes… do some of you truly not understand how wealthy this man is? So the US economy tanks. So “he loses a lot.” So he’s down to, what, only a few billion? He’s a frugal man who made his own shitload of money, grew it into an unbelievably enormous shitload over the last fifty years due to his acumen and his consistent investing strategy, is now giving most of it away (except for the $5 billion he just dropped into Goldman Sachs), and still has more money than most of us can even comprehend. And will, no matter what happens. And he’s 88, for the love of God. And he’s NOT running for office. Think about it for a nanosecond. What ulterior motive does he truly have to terrify the general public with lies about the dire state of the economy?

As far as competence goes, let’s see. Let’s completely ignore his phenomenal success at growing his own wealth, because he’s obviously a selfish, evil capitalist. Berkshire Hathaway (which he’s run since the early sixties) has had tons of capital, minimal debt, and consistently good returns for, oh, forty years now. Wait, isn’t that as long as he’s been running it? And if you or I or Joe Blow had some money in BH, don’t you think that by now we’d be justifiably confident in Buffett’s judgment?

Jesus, people. Get a grip. Panicky paranoia helps nothing. There are plenty of lying scumbags to mistrust for all the right, researchable, rational reasons. Mistrusting someone just because they’re successful… I hope none of you apply that rationale to choosing a doctor. Or an attorney. Or a broker.

*whew*

Funny that you brought up the Black-Scholes. Back in the 70’s, I had an old HP-65 programmable calculator that I had programmed with the Black-Scholes equation and did all the entries by hand every night of options that I was looking at. Let me tell you, that gave me a huge edge. Boy, have things changed in 30 years…..Now, I can do thousands of options in a matter of seconds, but then again, so can every one else.

On a personal level, I was thinking about your uncle, and somehow, it really got to me last night. I know what it’s like dealing with cancer. Please keep me updated.

Jeff

First off, not all companies “make” $2 to $3 billion per year. Profits in that range are exceedingly rare. Even revenues amount to only 673 companies in the entire US with $3 billion or more in revs, and only 899 with $2 billion or more. Most companies are much smaller, and they use accrual accounting. In accrual accounting, profits depend on booking revenue that will come (account receivable) against money you will pay (accounts payable). That’s a much more accurate measure than cash accounting. The issue, though, is that it’s often true that there are considerable accounts payable that haven’t produced cash, and a business has to borrow short term to meet its cash obligation accounts payable, some of which are payroll. If it can’t do that, it’s in deep trouble. Many, many profitable businesses have failed because of cash flow issues, and this will simply increase the number that fail.

Small business will be hit awfully, awfully hard. Big businesses will do better. They can delay accounts payable, for instance, because they have the clout to do that, further straining small businesses/vendors who are not getting paid. But even big businesses will do things that aren’t optimal. For instance, if cash on hand would normally be used to buy new capital equipment, a company will have to retain that cash to make payroll. If cash would normally be invested in medium-term instruments that provide funding for other businesses, those investments will have to be curtailed.

The whole thing is connected, Savanster. It’s not as if hurting the big boys doesn’t hurt everyone else and, in many if not most cases, hurt everyone else worse.

As for #2, how does the Federal Government lend directly to anyone? Through what mechanism? Where is the infrastructure, the loan officers, the underwriters, etc? They’re all in the banks.

2).. there is nothing stopping the Federal Government from loaning money to corporations that need it. If the big banks screwed up and can’t cover their papers, that’s their problem. They lose out on real interest from real loans that they could be making if they hadn’t been busy trying to game the system. If they never suffer for their poor decisions, when will they change how they do things? How much more do we toss at them the next time they do this to us?

I don’t know how long we can wait. But I know we don’t need to just toss $700 billion over the hedge and hope it all works out in the long run. .. The market is up 350 points on speculation today.. it’s holding and banks are probably lending again (although in tight fisted maneuvers). … spend a week drafting a plan that minimizes the risks to the tax payers, make sure we get something for our efforts.. after all, aren’t the banks asking us to make VERY high risk loans? I know when I want a loan, I have to pay out the nose.. let the banks do the same.

A cash giveaway, as was initially proposed by Paulson, is a disaster waiting to happen. He literally could have given himself a billion dollars and NO ONE could have said BOO about it. That wreaks of a scam to me. Not to mention all of the conflicts of interest.

I’m with ya.. let’s patch this puppy up. but don’t do it by flaying the crew and stapling their hides to the holes… use the sail.

Warren Buffet will do just fine without stocks. Market volatility is wonderful for those who know how to play it. Large fortunes are made on market volatility (and I should know, since I was around and working in firms doing modified Black-Scholes stock option valuations when volatility made millionaires out of nincompoops).

Credit markets are frozen. Payrolls will not be made. Capital equipment will not be bought. We’re facing a meltdown, and I, personally, don’t believe the words “Great Depression II” are at all overstating.

Savanster:

There was a time when wooden ships might have their hulls so badly damaged that they couldn’t be repaired by the on-board carpenters at sea, so a sail would be bound around the hull to reduce — but not stop — the influx of water. The crew might then be able to pump and bail until the ship could be brought into dry dock to fix it. I would agree with anyone who says that those who punched that hole in the ship should drown, but that doesn’t mean that I want to drown with them, and I might need them to man the pumps.

Two questions for you: (1) How will the credit markets unfreeze if the underlying assets cannot be valued because there is no (artificial) federal market, risk cannot be assessed, and lenders are holding onto cash to meet as-yet-undetermined cash demands from their own lenders? and (2) exactly how long can we take on water without a partial hull patch until we can get this thing into dry dock?

BTW, you mustn’t leave out the role of FASB and the credit rating services here. I would give the idiots at FASB more than a little bit of the blame, since they allowed bad assets to be parked overseas and off the balance sheets. There’s a lot of blame, and punishment, to go around.