by Damozel | But hey, they're totally on the case, working night and day to fix it. And...here's Bush himself to explain how the economy is, despite all the evidence, stable---due to, or in spite of the need for, his "unprecedented action" [of nationalizing our financial system].
Following three failed efforts to staunch the hemorrhaging of the economy, Bush & Co. are pressing for a "massive intervention" "to sweep away the unpaid loans that are choking banks and blocking the flow of money to borrowers." (WaPo1) The only catch? You and I, the taxpayers, get to pay for it. The cost? Oh...maybe $1 trillion or so. You know...just a trillion.
The plan involves using hundreds of billions of dollars in government funding to buy bad loans, leaving banks with more money and fewer problems, according to two sources familiar with what was said at the meeting. (WaPo1)]
It's apparently the only plan they could come up with to prevent the ever more drastic consequences of years and years of an unregulated duty-free market plundered by white collar pirates who looked on their company's profits as booty, drained out enormous amounts of money to line their own coffers, and apparently financed their operations with imaginary money made out of bits, bytes, chicken bones, fairy dust, dead batteries, and the cast-off shoes of trophy wives.
The urgency has only grown with each successive intervention because the first three tries have not worked. People are withdrawing money from money-market mutual funds. Banks are refusing to lend to one another. Several large financial companies need money to stay in business, including the bank Washington Mutual, which is seeking a buyer.
Regulators and the banking industry are increasingly concerned about customer withdrawals from money-market funds. Crane Data, which tracks the industry, said total deposits in money-market funds fell Wednesday by at least $79 billion, or about 2.6 percent. Financial executives have told government officials in recent conversations that the rising pace of withdrawals is the equivalent of a bank run and that if it continues, it will drain a massive and critical source of funding.
Money-market funds are particularly important because they buy short-term debt, which is used by financial companies and other corporations to finance day-to-day activities. (WaPo)
The boffins of the Treasury have therefore decided that they must temporarily guarantee money market funds by dipping into a "depression era account" to give insurance similar to that offered by the FDIC to bank depositors. (WaPo2)
To fund the insurance, the Treasury will tap the Exchange Stabilization Fund, established in 1934 in the wake of the Great Depression to help bolster financial markets as needed...Buttressing that effort, the Federal Reserve said it would lend money to financial institutions to help them buy assets from money-market mutual funds. The policy aims to avoid losses at money-market funds caused by the need to sell assets quickly to honor customer withdrawal requests. .(WaPo2)
As the article says, this move suspends "for money-market investors one of the basic rules of the marketplace -- that value may go down." (WaPo2) And they have to do it because apparently more than half the value of deposits held at US banks is "resting" in money market funds.
Further, the SEC has declared a temporary halt on short-selling of investors' stocks. (See WSJ)
At least for now, these moves have provided a transfusion of confidence into global markets. "Global stock markets soared towards what may prove historic one day gains."(WaPo2)
At FDL, Ian Walsh questions the wisdom of the SEC's ban on short-selling.
Getting rid of short selling entirely doesn't make market meltdowns less likely. It makes them more likely. Just as letting banks use depositor money to shore up investment banking subsidiaries is throwing good money, your money, after bad. Just as allowing banks to book "good will" as regulatory reserves doesn't actually change how likely they are to be insolvent.
Regulators are making decisions in the grip of stark fear and their critical faculties aren't working anymore. Desperate to stop a meltdown at all costs they are making one more likely, and by letting banks gamble with depositor money, making it more damaging if it does occur.
The Big Picture concurs as regards the SEC's move---
This is nothing short of a total panic by people who have no clue what they are doing...We Are A Nation of Morons, led by complete Idiots, making us complicit in our own self destruction---
and lists some of the consequences a move "which will have repercussions far far beyond our imaginations"---e.g., "The coming pop will create a huge air pocket, ultimately leading to us crashing much lower;" so that we should "[e]xpect a huge increase in volatility -- upwards first, then down." (The Big Picture)
Why is this happening?
- "Blatant market manipulation: this is nothing more than an attempt to force markets higher..."
- "This is a none-too-subtle attempt to influence the elections -- especially coming on top of the Fannie/Freddie bailout." (The Big Picture)
Meanwhile the bears of Wall Street remain bearish.
When it comes to tomorrow, the long-term pessimists are still, well, pessimistic. "I think the central banks are going to next wear the goat horns," said [James] Grant ["editor and author of the gloomy Grant's Interest Rate Observer"], saying that the Fed and other central banks would lose credibility as they wade deeper into managing banks and insurance companies. (Steven Mufson)
Grant admits surprise to the "ferocity and violence" with which the fall he's been predicted eventually came to pass. (Steven Mufson)
"Nobody has been bearish enough," Grant said. "I, looking back on it, was not nearly enough of a calamity hollerer. What you did not read in Grant's was that the socialization of credit risk, a long-run trend, would yield in a few weeks an outright nationalization of our financial system. That sentence we did not write. So many things have happened in so dramatic and so violent a way that one is thunderstruck." (Steven Mufson; emphasis added)
John Cole's response is different: "You Have To Be Sh*tting Me."
I do not ever want to hear another damned word about the free market. I don’t want to hear another thing about letting the market regulate itself. I don’t want to hear about the free flow of capital. I don’t want to hear about government getting out of our lives.
None of it. From superfunds to super-bailouts, I am tired of other people getting rich being irresponsible and then being told I have to pay to clean it up. (Balloon Juice)
At econoblog Angry Bear, Cactus has a question!
Say that the president and the cheerleaders, the folks who gave us this bail-out, had succeeded in privatizing Social Security back when he took office. After eight years of pretty piddly growth and a tanking stock market, a lot of people would find their retirement fund depleted, and folks dependent on that retirement fund would be in deep trouble. I wonder - would GW and the cheerleaders, the folks who brought you a "bankruptcy reform" law written by the credit card companies, support having the government prop up millions of ordinary Americans, most of them retirees, to the tune of $900 billion over a period of a few weeks?
At Sadly, No! D. Aristophanes similarly muses on where people's retirement funds would now be if Bush & McCain & Co. had had their way about privatization. He has some advice for Obama that I wish ALL the Dem Congressional candidates would take.
Luckily, Nancy Pelosi and the Dems led the Congressional charge in kiboshing that insanity back in 2005. Go ahead and make mention of that little fact on the campaign trail, Obama. You too, Biden.
For those who think I'm being too one-sided, Procrustean Libertarian pundit and free-market champion Megan McArdle demonstrates how none of this was the fault of Bush or his brand of free market economics after sneering a bit at [Democratic] readers "who know that Bush could have and should have stopped this bubble....[who have] read, like, one and a half whole articles on the subject...[are] sure that this is the fault of Republican ideology." (Megan McArdle) [Note to the McLibertarian: Most of us non-experts are just reading between the lines of what a whole lot of people who have read way more than one and half whole articles are saying through their gritted teeth and rictus grins.]
Anyway, McArdle is calling "hooey" on Obama's attacks on Republican policy...
instead of the magic fairies who actually changed the regulatory scope and expectations of being held to the remaining regulations by the government of all sorts of financial institutions, leading to wild speculation that made a small number of folk rich in the short term but f*cked the economy horribly in the long term. Obama apparently doesn't believe in the magic fairies, and says we need a return to a culture of common sense regulation. (Brad at FMM)
More on the rescue efforts currently under way: look here at Memeorandum.
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too late
im in gold lol
Posted by: rawdawg | September 19, 2008 at 11:41 AM